Şekerbank türk anonim Şirketi and its financial subsidiaries

Şekerbank

Türk Anonim Şirketi and

Its Financial Subsidiaries

Consolidated Financial Statements

As of and for the Six-Month Period Ended 30 June 2019

With Auditors’ Report Thereon

(Convenience Translation of Consolidated

Financial Statements and Related Disclosures and Footnotes

Originally Issued in Turkish)

LIMITED REVIEW REPORT

FOR THE INTERIM FINANCIAL INFORMATION

To the General Assembly of Şekerbank T.A.Ş.

Introduction

We have reviewed the accompanying consolidated balance sheet of Şekerbank T.A.Ş. (“the Bank”) and

its consolidated financial affiliates (together will be referred as “the Group”) as at 30 June 2019, and the

consolidated statement of income, consolidated statement of income and expense items under

shareholders’ equity, consolidated statement of changes in shareholders’ equity and consolidated

statement of cash flows for the six-month period then ended, and a summary of significant accounting

policies and other explanatory notes. The Bank management is responsible for the preparation and fair

presentation of the accompanying interim financial information in accordance with “the Banking

Regulation and Supervision Agency (“BRSA”) Accounting and Reporting Regulations” including the

regulation on “The Procedures and Principles Regarding Banks’ Accounting Practices and Maintaining

Documents” published in the Official Gazette dated 1 November 2006 with No. 26333, and other

regulations on accounting records of banks published by the Banking Regulation and Supervision Board

and circulars and pronouncements published by the BRSA and Turkish Accounting Standard 34

“Interim Financial Reporting” principles for the matters not legislated by the aforementioned

regulations. Our responsibility is to express a conclusion on this interim financial information based on

our review.

Scope of Review

We conducted our review in accordance with the Independent Auditing Standard on Review Engagements

2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A

review of interim financial information consists of making inquiries, primarily of persons responsible for

financial reporting process, and applying analytical and other review procedures. A review of interim

financial information is substantially less in scope than an independent audit conducted in accordance

with Independent Auditing Standards and the objective of which is to express an opinion on the financial

statements. Consequently, a review of the interim financial information does not provide assurance that

the audit firm will be aware of all significant matters which would have been identified in an audit.

Accordingly, we do not express an audit opinion.

Basis for Qualified Conclusion

As of the balance sheet date, loans granted by the Group which are overdue amounting to TRL 554,420

thousands of principal and TRL 71,958 thousands of income accrual, have not been classified under

"Non-performing Loans" in accordance with the Regulation on Procedures and Principles for the

Classification of Loans and the Provisions to be Provided for these Loans ("Regulation"). If the Group

had classified this portfolio as “Non-performing Loans”, non-performing loans would have been TRL

626,378 thousands higher and expected credit loss would have been TRL 234,636 thousands higher. On

the other hand, the accompanying consolidated financial statements include a general reserve of total

TRL 114,504 thousands of the Parent Bank for the possible effects of the negative circumstances which

may arise in economy. As of the balance sheet date, if the loans overdue had been classified as non-

performing loans with expected credit loss provisions provided and general reserve had not been

booked, current period net loss would have been TRL 93,703 thousands higher, considering the tax

effect.

Qualified Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying

consolidated interim financial information does not present fairly, in all material respects, the financial

position of Şekerbank T.A.Ş. and its consolidated financial affiliates as at 30 June 2019, and of the

results of its operations and its cash flows for the six-month period then ended in accordance with the

BRSA Accounting and Reporting Regulations.

Report on Other Legal and Regulatory Requirements

Based on our review, nothing has come to our attention that causes us to believe that the interim

financial information provided in the Management’s interim report included in section seven of the

accompanying consolidated financial statements, is not presented fairly, in all material respects, and is

not consistent with the reviewed interim financial statements and the explanatory notes.

Additional paragraph for English translation:

The effect of the differences between the accounting principles summarized in Section 3 and the

accounting principles generally accepted in countries in which the accompanying financial statements are

to be distributed and International Financial Reporting Standards (IFRS) have not been quantified and

reflected in the accompanying financial statements. The accounting principles used in the preparation of

the accompanying financial statements differ materially from IFRS. Accordingly, the accompanying

financial statements are not intended to present the Bank’s financial position and results of its operations

in accordance with accounting principles generally accepted in such countries of users of the financial

statements and IFRS.

DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK AŞ

Member of DELOITTE TOUCHE TOHMATSU LIMITED

Müjde ASLAN

Partner

İstanbul, 9 August 2019

THE CONSOLIDATED FINANCIAL REPORT OF ŞEKERBANK T.A.Ş.

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2019

The consolidated financial report the six-month period designed by the Banking Regulation and Supervision

Agency in line with Communiqué on Financial Statements to be Publicly Announced and the Related Policies and

Disclosures consists of the sections listed below:

GENERAL INFORMATION ABOUT THE PARENT BANK

CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE PARENT BANK

EXPLANATIONS ON THE CORRESPONDING ACCOUNTING POLICIES APPLIED

INFORMATION ON FINANCIAL POSITION AND RISK MANAGEMENT OF THE GROUP

WHICH IS UNDER CONSOLIDATION

EXPLANATORY DISCLOSURES AND FOOTNOTES ON CONSOLIDATED FINANCIAL

STATEMENTS

LIMITED REVIEW REPORT

INTERIM ACTIVITY REPORT

Subsidiaries whose financial statements have been consolidated in the consolidated financial report are as follows:

Subsidiaries

Şekerbank (Kıbrıs) Ltd.

Şekerbank International Banking Unit Ltd.

Şeker Faktoring A.Ş.

Şeker Yatırım Menkul Değerler A.Ş.

Şeker Finansal Kiralama A.Ş.

Şeker Finansman A.Ş.

Zahlungsdienste GmbH der Şekerbank T.A.Ş.

The consolidated financial statements for the six-month period and the explanatory footnotes and disclosures,

unless otherwise indicated, are prepared in Thousands of Turkish Lira, in accordance with the Communiqué on

Banks’ Accounting Practice and Maintaining Documents, Turkish Accounting Standards, Turkish Financial

Reporting Standards, related communiqués and the Banks’ records, have been independently reviewed and

presented as attached.

The consolidated 30 June 2019 financial statements are reviewed and they do not include any false explanation in

material subjects and absences that may result in misleading statements and fairly reflect the Bank’s financial

position, the risks faced and uncertainty.

Dr. Hasan Basri GÖKTAN

Erdal ERDEM Üzeyir BAYSAL

Chairman of The Board of

Directors

General Manager

Head of the Audit

Committee

Aidar RYSKULOV Çetin AYDIN Selim Güray ÇELİK Orhan ULUYOL

Member of the Audit

Committee

Member of the Audit

Committee

Executive Vice President

Group Head

Information related to responsible personnel for the questions about financial statements:

Name-Surname / Title : Oya SARI / Investor Relations and Structured Finance Manager

Telephone No : (212) 319 71 58

Fax No : (212) 319 71 62

Address : Emniyet Evleri Mah. Eski Büyükdere Cad. No:1/1A

34415 Kağıthane / İstanbul

Telephone : (212) 319 70 00

Fax : (212) 319 73 79

Web Site : www.sekerbank.com.tr

E-mail Address : [email protected]

http://www.sekerbank.com.tr/

mailto:[email protected]

INDEX

Page Number

SECTION ONE

General Information

I. Parent Bank’s Incorporation Date, Beginning Status, History of the Bank Containing the Changes in the Mentioned Status 1

II. Explanations Regarding Parent Bank’s Shareholding Structure, Shareholders Holding Directly or Indirectly, Collectively or Individually, the

Managing and Controlling Power and Changes in Current Year, if any and Explanations on the Controlling Group of the Bank 1

III. Explanations Regarding the Chairman and the Members of Board of Directors, Audit Committee, General Manager and Executive Vice Presidents

and Their Shares and Their Rights of Responsibility in the Parent Bank 2

IV. Information about the person and institutions that have qualified shares in the Parent Bank 2

V. Summary on the Parent Bank’s Functions and Areas of Activity 3

VI. Differences Between The Communique On Preparation Of Consolidated Financial Statements Of Banks And Turkish Accounting Standards And

Short Explanatıon About The Institutions Subject To Line-By-Line Method Or Proportional Consolidation And Institutions Which Are Deducted

From Equity Or Not Included In These Three Methods 3

VII. The Existing Or Potential, Actual Or Legal Obstacles On The Transfer Of Shareholders’ Equity Between The Parent Bank And its Subsidiaries Or

The Reimbursement Of Liabilities 3

SECTION TWO

Consolidated Financial Statements

I. Consolidated Balance Sheet (Consolidated Statement of Financial Position) 5

II. Consolidated Statement of Off Balance Sheet Contingencies and Commitments 7

III. Consolidated Statement of Income 8

IV. Consolidated Statement of Profit Or Loss And Other Comprehensive Income 9

V. Consolidated Statement of Changes in Shareholders’ Equity 10

VI. Consolidated Statement of Cash Flows 11

SECTION THREE Accounting Principles

I. Basis of Presentation 12

II. Explanations on Usage Strategy of Financial Assets and Foreign Currency Transactions 12

III. Explanations on Associates and Consolidated Subsidiaries 13

IV. Explanations on Forward and Option Contracts and Derivative Instruments 14

V. Explanations on Interest Income and Expenses 15

VI. Explanations on Fees and Commission Income and Expenses 15

VII. Explanations on Financial Assets 16

VIII. Explanations on Impairment of Financial Assets 18

IX. Explanations on Offsetting of Financial Assets and Liabilities 19

X. Explanations on Sales and Repurchase Agreements and Lending of Securities 19

XI. Explanations on Assets Held For Sale and Discontinued Operations 20

XII. Explanations on Goodwill and Other Intangible Assets 20

XIII. Explanations on Tangible Fixed Assets 21

XIV. Explanations on Leasing Transactions 21

XV. Explanations on Provisions and Contingent Liabilities 22

XVI. Explanations on Liabilities Regarding Employee Benefits 22

XVII. Explanations on Taxation 24

XVIII. Additional Explanations on Borrowings 25

XIX. Explanations on Share Certificates 26

XX. Explanations on Independent Guarantees and Acceptances 26

XXI. Explanations on Government Incentives 26

XXII. Explanations on Segment Reporting 27

XXIII. Explanations on Other Matters 28

SECTION FOUR Information Related to Consolidated Financial Position and Risk Management of the Bank

I. Explanations Related to Consolidated Shareholders’ Equity 29

II. Explanations Related to Consolidated Currency Risk 40

III. Explanations Related to the Consolidated Interest Rate Risk 42

IV. Explanations Related to Equity Securities Position Risk of Equity Securities in Banking Book 45

V. Explanations Related to Consolidated Liquidity Risk Management and Consolidated Liquidity Coverage Ratio 46

VI. Explanations Related to Consolidated Leverage Ratio 53

VII. Explanations Related to Consolidated Risk Management 55

VIII. Explanations Related to Transactions Made on Behalf of Others and Transactions Based On Trust 56

SECTION FIVE Explanations and Disclosures on Consolidated Financial Statements

I. Explanations Related to the Consolidated Assets 70

II. Explanations Related to the Consolidated Liabilities 86

III. Explanations Related to the Consolidated Off-Balance Sheet Contingencies and Commitments 97

IV. Explanations Related to the Consolidated Statement of Income 101

V. Explanations on the Risk Group of the Parent Bank 106

VI. Explanations and Notes Related to Subsequent Events 108

SECTION SIX Auditors’ Review Report

I. Explanations on the Auditors’ Review Report 108

II. Other Footnotes and Explanations Prepared by the Independent Auditors 108

SECTION SEVEN Information on Interim Activity Report

I. Interim Period Reports Included the Board of Directors Chairman and General Manager’s

Assessments of the Bank for the Interim Activities 109

ŞEKERBANK T.A.Ş. AND ITS FINANCIAL SUBSIDIARIES

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE INTERIM PERIOD FROM 1 JANUARY TO 30 JUNE 2019 (Amounts expressed in thousands of Turkish Lira (TRL) unless otherwise stated.)

1

SECTION ONE

GENERAL INFORMATION

I. Parent Bank’s Incorporation Date, Beginning Status, History of the Bank Containing the Changes in

the Mentioned Status

Şekerbank T.A.Ş. (“the Parent Bank”) founded as a Turkish bank by 14 partners started its operations in

1953 as Pancar Kooperatifleri Bankası A.Ş. in Eskişehir, and in 1956 the Bank changed its name to

Şekerbank T.A.Ş and moved its headquarters to Ankara in 1956. 15 % of the Parent Bank shares were

offered to public in 1997 and currently 34.19 % of the Parent Bank shares are publicly traded. The Parent

Bank’s one of the main shareholders, Şekerbank T.A.Ş. Personeli Munzam Sosyal Güvenlik ve

Yardımlaşma Sandığı Vakfı, provide its members with additional social rights and retirement assurances

within the social security system. The Parent Bank has affiliates and subsidiaries in the finance, real estate

and tourism sectors.

Business line of the Parent Bank covers extending all kinds of cash and non-cash loans in Turkish Lira and

foreign currency and carrying out capital market transactions, accepting deposits in TRL and FC and

providing other banking services.

II. Explanations Regarding The Parent Bank’s Shareholding Structure, Shareholders Holding

Directly or Indirectly, Collectively or Individually, the Managing and Controlling Power

and Changes in Current Year, if any and Explanations on the Controlling Group of the

Parent Bank

Name of Shareholders Amounts

of Share

Share

(%)

Paid in

Capital

Unpaid

Capital

Şekerbank T.A.Ş. Personeli

Munzam Sosyal Güvenlik ve

Yardımlaşma Sandığı Vakfı 410,389 35.44 410,389

-

- Samruk-Kazyna, the National

Welfare Fund of Kazakhstan 224,353 19.37 224,353 - Şekerbank T.A.Ş. 109,212 9.43 109,212 -

Others 18,092 1.57 18,092 -

Public Offerings 395,954 34.19 395,954 -

Total 1,158,000 100.00 1,158,000 -




2

SECTION ONE (cont’d)

GENERAL INFORMATION (cont’d)

III. Explanations Regarding the Chairman and the Members of Board of Directors, Audit

Committee, General Manager and Executive Vice Presidents and Their Shares and Their

Rights of Responsibility in the Bank

Title Name and Surname Responsibility Areas

Chairman of the Board of Directors Dr.Hasan Basri Göktan

Chairman & Executive Board Member, Credit Committee,

Corporate Governance Committee, Remuneration

Committee

General Manager Erdal Erdem

Board Member, General Manager, Credit Committee,

Observer in the Remuneration Committee

Members of the Board of Directors Beibit Karymsakov Vice-Chairman, Remuneration Committee

Emin Erdem Executive Board Member, Credit Committee

Erdal Batmaz Executive Board Member

Nariman Zharkinbayev

Executive Board Member, Credit Committee, Corporate

Governance Committee

Üzeyir Baysal (*) Corporate Governance Committee, Audit Committee

Halit Haydar Yıldız Renumeration Committee

Aidar Ryskulov (*) Audit Committee

Almat Zhamiyev Corporate Governance Committee Çetin Aydın (*) Audit Committee

Mehmet Ayhan Altıntaş

Independent Member, Internal Systems, Corporate

Governance Committee

Executive Vice Presidents Hüseyin Üst Credit Monitoring & Follow-Up

Nihat Büyükbozkoyun Operations

Selim Güray Çelik

Financial Control, Reporting, Budget and Performance

Management, Corporate Governance Committee

Gökhan Ertürk Agricultural & Individual Banking Marketing

Umut Ülbegi Corporate and Commercial Banking Marketing

Salih Zeki Önder Financial Institutions

Ahmet Hakan Eken Credit Management

Aybala Şimşek Strategy and Human Resources

Aytay Tolga Şenefe Treasury

(*) According to Communiqué On Corporate Governance Principles of Capital Markets Board, No: II-17.1, Audit Committee members of the

banks are accepted as independent members of the Board of Directors.

The Chairman of the Board of Directors Dr. Hasan Basri Göktan has total shares of 0.05 % in nominal,

amounting to TRL 577 Thousand; which is obtained from public offering.

IV. Information About the Persons and Institutions That Have Qualified Shares in the Parent

Bank:

Name/ Commercial Name

Amounts of

Share in

TRL Thousand Share (%)

Paid in Capital

In TRL

Thousand

Unpaid

Capital

Şekerbank T.A.Ş.

Personeli Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı 410,389 35.44 410,389 -

Samruk-Kazyna, the National Well-fare Fund of Kazakhstan 224,353 19.37 224,353 -




3

SECTION ONE (cont’d)

GENERAL INFORMATION (cont’d)

V. Summary on the Parent Bank’s Functions and Areas of Activity

Business line of the Parent Bank covers extending all kinds of cash and non-cash loans in Turkish Lira and

foreign currency and carrying out capital market transactions, accepting deposits in TRL and FC and providing

other banking services. As of 30 June 2019, the Parent Bank has 273 domestic branches (31 December 2018 -

273 domestic branches).

VI. Differences Between The Communiqué On Preparation Of Consolidated Financial

Statements Of Banks And Turkish Accounting Standards And Short Explanation About

The Institutions Subject To Line-By-Line Method Or Proportional Consolidation And

Institutions Which Are Deducted From Equity Or Not Included In These Three Methods

According to the Communique On Preparation Of Consolidated Financial Statements Of Banks, the Bank’s

subsidiaries Şekerbank (Kıbrıs) Ltd., Şeker Finansal Kiralama A.Ş., Şekerbank International Banking Unit Ltd.,

Şeker Yatırım Menkul Değerler A.Ş., Şeker Faktoring A.Ş., Şeker Finansman A.Ş. and Zahlungsdienste GmbH

der Şekerbank T.A.Ş. are included in the scope of consolidation by line-by-line method and Şeker Proje

Geliştirme ve Gayrimenkul Yatırım A.Ş. is not subject to consolidation as it is not a financial subsidiary.

Seltur Turistik İşletmeler Yatırım A.Ş. is not consolidated in the financial statements since the Parent Bank has

no control and it is not a financial subsidiary.

According to Turkish Accounting Standards, all financial and non-financial subsidiaries are consolidated.

VII. The Existing Or Potential, Actual Or Legal Obstacles On The Transfer Of Shareholders'

Equity Between The Parent Bank And its Subsidiaries Or The Reimbursement Of

Liabilities

There is no immediate transfer of the shareholders’ equity between the Parent Bank and its subsidiaries. Dividend

distribution from shareholders’ equity is done according to related regulations. There is no existing or potential,

actual or legal obstacle to the repayment of liabilities between the Parent Bank and its subsidiaries.

4

SECTION TWO

CONSOLIDATED FINANCIAL STATEMENTS

I. Consolidated Balance Sheet (Consolidated Statement of Financial Position)

II. Consolidated Statement of Off Balance Sheet Contingencies and Commitments

III. Consolidated Statement of Income

IV. Consolidated Statement of Profıt Or Loss And Other Comprehensive Income

V. Consolidated Statement of Changes in Shareholders’ Equity

VI. Consolidated Statement of Cash Flows

The accompanying explanations and notes form an integral part of these financial statements.

5

ŞEKERBANK T.A.Ş. CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)

TRL THOUSAND

Reviewed Audited

CURRENT PERIOD PRIOR PERIOD

ASSETS Note 30.06.2019 31.12.2018

Ref. TRL FC Total TRL FC Total

I. FINANCIAL ASSETS (Net) 1,633,329 3,272,348 4,905,677 2,029,685 3,106,942 5,136,627

1.1 Cash and Cash Equivalents 666,001 3,189,344 3,855,345 1,002,175 2,866,083 3,868,258

1.1.1 Cash and Balances with Central Bank (1) 631,133 2,727,150 3,358,283 930,193 2,689,044 3,619,237

1.1.2 Banks (3) 31,200 456,410 487,610 34,699 171,320 206,019

1.1.3 Money Market Placements 5,400 5,792 11,192 53,365 5,827 59,192

1.1.4 Expected Losses (-) (1,732) (8) (1,740) (16,082) (108) (16,190)

1.2 Financial Assets at Fair Value Through Profit and Loss (2) 275,696 9,570 285,266 297,944 9,524 307,468

1.2.1 Public Sector Debt Securities 19,634 9,570 29,204 16,048 9,524 25,572

1.2.2 Equity Securities - - - - - -

1.2.3 Other Financial Assets 256,062 - 256,062 281,896 - 281,896

1.3 Financial Assets at Fair Value Through Comprehensive Income (4) 580,438 21,934 602,372 562,381 15,301 577,682

1.3.1 Public Sector Debt Securities 572,861 - 572,861 554,804 - 554,804

1.3.2 Equity Securities 7,577 21,934 29,511 7,577 15,301 22,878

1.3.3 Other Financial Assets - - - - - -

1.4 Derivative Financial Assets (2),(11) 111,194 51,500 162,694 167,185 216,034 383,219

1.4.1

Derivative Financial Assets Measured at Fair Value Through Profit

and Loss 111,194 51,500 162,694 167,185 216,034 383,219

1.4.2

Derivative Financial Assets Measured at Fair Value Through

Comprehensive Income - - - - - -

II. FINANCIAL ASSETS AT AMORTISED COST (NET) 16,680,159 7,832,436 24,512,595 17,075,998 8,087,659 25,163,657

2.1 Loans (5) 15,803,357 6,463,432 22,266,789 15,601,077 6,807,102 22,408,179

2.2 Leasing Receivables (10) 191,641 317,859 509,500 194,366 313,846 508,212

2.3 Factoring Receivables 460,835 - 460,835 443,913 - 443,913

2.4 Financial Assets at Amortised Cost (6) 1,974,148 1,061,825 3,035,973 2,452,249 976,473 3,428,722

2.4.1 Public Sector Debt Securities 1,969,708 318,397 2,288,105 2,447,744 293,076 2,740,820

2.4.2 Other Financial Assets 4,440 743,428 747,868 4,505 683,397 687,902

2.5 Expected Losses (-) (1,749,822) (10,680) (1,760,502) (1,615,607) (9,762) (1,625,369)

III. ASSETS HELD FOR SALE AND DISCONTINUED

OPERATIONS (Net) (16) 510,042 - 510,042 320,984 - 320,984

3.1 Held for sale 510,042 - 510,042 320,984 - 320,984

3.2 Discontinued operations - - - - - -

IV. OWNERSHIP INVESTMENTS (Net)

614,789 - 614,789 612,829 - 612,829

4.1 Associates (Net) (7) 4,236 - 4,236 4,236 - 4,236

4.1.1 Associates Consolidated Under Equity Accounting - - - - - -

4.1.2 Unconsolidated Associates 4,236 - 4,236 4,236 - 4,236

4.2 Subsidiaries (Net) (8) 610,553 - 610,553 608,593 - 608,593

4.2.1 Unconsolidated Financial Investments in Subsidiaries - - - - - -

4.2.2 Unconsolidated Non-Financial Investments in Subsidiaries 610,553 - 610,553 608,593 - 608,593

4.3 Joint Ventures (Net) (9) - - - - - -

4.3.1 Joint-Ventures Consolidated Under Equity Accounting - - - - - -

4.3.2 Unconsolidated Joint-Ventures - - - - - -

V. TANGIBLE ASSETS (Net) (12) 884,627 3,857 888,484 708,376 3,456 711,832

VI. INTANGIBLE ASSETS (Net) (13) 111,445 - 111,445 94,111 - 94,111

6.1 Goodwill - - - - - -

6.2 Other 111,445 - 111,445 94,111 - 94,111

VII. INVESTMENT PROPERTY (Net) (14) 65,337 - 65,337 61,125 - 61,125

VIII. CURRENT TAX ASSET 18,344 - 18,344 5,369 - 5,369

IX. DEFERRED TAX ASSET (15) 240,008 - 240,008 173,996 - 173,996

X. OTHER ASSETS (Net) (17) 416,169 323,646 739,815 492,004 192,250 684,254

TOTAL ASSETS 21,174,249 11,432,287 32,606,536 21,574,477 11,390,307 32,964,784


6

ŞEKERBANK T.A.Ş. CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)

TRL THOUSAND

Reviewed Audited


LIABILITIES Note 30.06.2019 31.12.2018


I. DEPOSITS (1) 12,519,028 11,432,627 23,951,655 12,835,889 10,104,968 22,940,857

II. FUNDS BORROWED (3) 503,938 2,068,196 2,572,134 473,392 3,126,688 3,600,080

III. MONEY MARKET BALANCES (4) 551,156 - 551,156 192,096 - 192,096

IV. MARKETABLE SECURITIES ISSUED (Net) (5) 911,115 - 911,115 1,243,684 - 1,243,684

4.1 Bills 515,662 - 515,662 516,302 - 516,302

4.2 Asset backed securities 380,319 - 380,319 701,850 - 701,850

4.3 Bonds 15,134 - 15,134 25,532 - 25,532

V. FUNDS - - - - - -

5.1 Borrower funds - - - - - -

5.2 Other - - - - - -

VI.

FINANCIAL LIABILITIES MEASURED AT FAIR VALUE

THROUGH PROFIT AND LOSS - - - - - -

VII. DERIVATIVE FINANCIAL LIABILITIES (2),(8) 26,711 89,618 116,329 30,261 91,824 122,085

7.1

Derivative Financial Liabilities Measured at Fair Value Through

Profit and Loss 26,711 89,618 116,329 30,261 91,824 122,085

7.2

Derivative Financial Liabilities Measured at Fair Value Through

Comprehensive Income - - - - - -

VIII. FACTORING PAYABLES 2,202 - 2,202 554 - 554

IX. LEASE PAYABLES (Net) (7) 204,336 13,861 218,197 12,363 12,744 25,107

X. PROVISIONS (9) 562,976 1,141 564,117 486,646 4,236 490,882

10.1 Restructuring provisions - - - - - -

10.2 Reserve for employee benefits 101,809 565 102,374 87,508 533 88,041

10.3 Insurance technical provisions (Net) - - - - - -

10.4 Other provisions 461,167 576 461,743 399,138 3,703 402,841

XI. CURRENT TAX LIABILITY (10) 63,092 41 63,133 63,038 45 63,083

XII. DEFERRED TAX LIABILITY (10) 67 - 67 1,532 - 1,532

XIII.

PAYABLES RELATED TO ASSETS HELD FOR SALE AND

DISCONTINUED OPERATIONS (Net) (11)

- - - - - -

13.1 Held for sale - - - - - -

13.2 Discontinued operations - - - - - -

XIV. SUBORDINATED DEBTS (12) 452,399 491,548 943,947 452,571 451,050 903,621

14.1 Loans - - - - - -

14.2 Other Debt Instruments 452,399 491,548 943,947 452,571 451,050 903,621

XV. OTHER LIABILITIES (6) 288,936 243,891 532,827 505,778 422,595 928,373

XVI. SHAREHOLDERS' EQUITY (13) 2,142,524 37,133 2,179,657 2,423,436 29,394 2,452,830

16.1 Paid-in capital 1,158,000 - 1,158,000 1,158,000 - 1,158,000

16.2 Capital Reserves (164,115) - (164,115) (164,083) - (164,083)

16.2.1 Share Premium 1,835 - 1,835 1,835 - 1,835

16.2.2 Share Cancellation Profits - - - - - -

16.2.3 Other Capital Reserves (165,950) - (165,950) (165,918) - (165,918)

16.3

Other Comprehensive Income/Expense Items not to be Recycled to

Profit or Loss 68,840 - 68,840 68,744 - 68,744

16.4

Other Comprehensive Income/Expense Items to be Recycled to

Profit or Loss (8,906) 31,800 22,894 (9,167) 24,511 15,344

16.5 Profit Reserves 1,368,445 5,336 1,373,781 1,758,536 4,146 1,762,682

16.5.1 Legal Reserves 301,280 5,410 306,690 296,784 4,220 301,004

16.5.2 Status Reserves - - - - - -

16.5.3 Extraordinary Reserves 980,762 - 980,762 1,375,349 - 1,375,349

16.5.4 Other Profit Reserves 86,403 (74) 86,329 86,403 (74) 86,329

16.6 Profit or Loss (315,393) (1,666) (317,059) (427,440) (766) (428,206)

16.6.1 Prior Years’ Income/ (Loss) (36,996) (2,309) (39,305) (515,982) (1,622) (517,604)

16.6.2 Current Year Income/ (Loss) (278,397) 643 (277,754) 88,542 856 89,398

16.7 Minority Shares 35,653 1,663 37,316 38,846 1,503 40,349

TOTAL LIABILITIES 18,228,480 14,378,056 32,606,536 18,721,240 14,243,544 32,964,784


7

ŞEKERBANK T.A.Ş. CONSOLIDATED OFF-BALANCE SHEET CONTINGENCIES AND COMMITMENTS

TRL THOUSAND

Reviewed Audited


Note 30.06.2019 31.12.2018


A. OFF BALANCE SHEET CONTINGENCIES AND COMMITMENTS (I+II+III) 11,546,363 13,808,097 25,354,460 11,200,444 10,906,698 22,107,142

I. GUARANTEES AND SURETIES (1) 3,202,574 2,270,178 5,472,752 3,399,645 2,519,339 5,918,984

1.1. Letters of guarantee

3,195,313 883,801 4,079,114 3,392,210 993,034 4,385,244

1.1.1. Guarantees subject to State Tender Law

167,412 3,438 170,850 148,504 3,772 152,276

1.1.2. Guarantees given for foreign trade operations

- - - - - -

1.1.3. Other letters of guarantee

3,027,901 880,363 3,908,264 3,243,706 989,262 4,232,968

1.2. Bank loans

- 131,798 131,798 - 132,949 132,949

1.2.1. Import letter of acceptance

- 131,798 131,798 - 132,949 132,949

1.2.2. Other bank acceptances

- - - - - -

1.3. Letters of credit

1,216 204,561 205,777 1,976 260,858 262,834

1.3.1. Documentary letters of credit

1,216 204,561 205,777 1,976 260,858 262,834

1.3.2. Other letters of credit

- - - - - -

1.4. Prefinancing given as guarantee

- - - - - -

1.5. Endorsements

- 404,322 404,322 - 174,680 174,680

1.5.1. Endorsements to the Central Bank of Turkey

- 404,322 404,322 - 174,680 174,680

1.5.2. Other endorsements

- - - - - -

1.6. Purchase guarantees for securities issued

- - - - - -

1.7. Factoring guarantees

- - - - - -

1.8. Other guarantees

6,045 645,696 651,741 5,459 957,818 963,277

1.9. Other sureties

- - - - - -

II. COMMITMENTS (1) 3,861,621 1,798,776 5,660,397 2,587,245 86,990 2,674,235

2.1. Irrevocable commitments

3,357,320 1,797,528 5,154,848 2,050,562 84,759 2,135,321

2.1.1. Forward asset purchase commitments

1,190,473 1,784,669 2,975,142 22,231 73,933 96,164

2.1.2. Forward deposit purchase and sales commitments

- - - - - -

2.1.3. Share capital commitment to associates and subsidiaries

- - - - - -

2.1.4. Loan granting commitments

1,039,490 12,859 1,052,349 976,300 10,826 987,126

2.1.5. Securities underwriting commitments

- - - - - -

2.1.6. Commitments for reserve deposit requirements

- - - - - -

2.1.7. Payment commitment for checks

411,091 - 411,091 341,685 - 341,685

2.1.8. Tax and fund liabilities from export commitments

10,776 - 10,776 10,032 - 10,032

2.1.9. Commitments for credit card expenditure limits

513,128 - 513,128 473,944 - 473,944

2.1.10. Commitments for promotions related with credit cards and banking activities

525 - 525 501 - 501

2.1.11. Receivables from short sale commitments on securities

- - - - - -

2.1.12. Payables for short sale commitments on securities

- - - - - -

2.1.13. Other irrevocable commitments

191,837 - 191,837 225,869 - 225,869

2.2. Revocable commitments (4) 504,301 1,248 505,549 536,683 2,231 538,914

2.2.1. Revocable loan granting commitments

504,071 - 504,071 535,704 - 535,704

2.2.2. Other revocable commitments

230 1,248 1,478 979 2,231 3,210

III. DERIVATIVE FINANCIAL INSTRUMENTS (2) 4,482,168 9,739,143 14,221,311 5,213,554 8,300,369 13,513,923

3.1 Derivative financial instruments for hedging purposes

930,000 - 930,000 936,000 - 936,000

3.1.1 Fair value hedge

930,000 - 930,000 936,000 - 936,000

3.1.2 Cash flow hedge

- - - - - -

3.1.3 Hedge of net investment in foreign operations

- - - - - -

3.2 Held for trading transactions

3,552,168 9,739,143 13,291,311 4,277,554 8,300,369 12,577,923

3.2.1 Forward foreign currency buy/sell transactions

212,180 601,942 814,122 447,560 672,968 1,120,528

3.2.1.1 Forward foreign currency transactions-buy

132,168 267,939 400,107 231,148 332,755 563,903

3.2.1.2 Forward foreign currency transactions-sell

80,012 334,003 414,015 216,412 340,213 556,625

3.2.2 Swap transactions related to f.c. and interest rates

3,115,999 7,861,073 10,977,072 3,371,929 6,908,365 10,280,294

3.2.2.1 Foreign currency swap-buy

1,637 4,936,523 4,938,160 693,999 3,847,410 4,541,409

3.2.2.2 Foreign currency swap-sell

3,094,362 1,628,202 4,722,564 2,327,930 1,865,237 4,193,167

3.2.2.3 Interest rate swaps-buy

10,000 648,174 658,174 175,000 597,859 772,859

3.2.2.4 Interest rate swaps-sell

10,000 648,174 658,174 175,000 597,859 772,859

3.2.3 Foreign currency, interest rate and securities options

223,989 1,125,517 1,349,506 458,065 610,742 1,068,807

3.2.3.1 Foreign currency options-buy

77,860 590,312 668,172 234,015 289,080 523,095

3.2.3.2 Foreign currency options-sell

146,129 535,205 681,334 224,050 321,662 545,712

3.2.3.3 Interest rate options-buy

- - - - - -

3.2.3.4 Interest rate options-sell

- - - - - -

3.2.3.5 Securities options-buy

- - - - - -

3.2.3.6 Securities options-sell

- - - - - -

3.2.4 Foreign currency futures

- - - - - -

3.2.4.1 Foreign currency futures-buy

- - - - - -

3.2.4.2 Foreign currency futures-sell

- - - - - -

3.2.5 Interest rate futures

- - - - - -

3.2.5.1 Interest rate futures-buy

- - - - - -

3.2.5.2 Interest rate futures-sell

- - - - - -

3.2.6 Other

- 150,611 150,611 - 108,294 108,294

B. CUSTODY AND PLEDGED ITEMS (IV+V+VI) 451,507,309 242,915,061 694,422,370 436,117,794 224,698,837 660,816,631

IV. ITEMS HELD IN CUSTODY

4,666,813 1,844,232 6,511,045 4,261,936 1,578,609 5,840,545

4.1. Customer fund and portfolio balances

- - - - - -

4.2. Investment securities held in custody

533,595 430,217 963,812 513,304 436,509 949,813

4.3. Checks received for collection

1,989,890 144,320 2,134,210 1,807,316 135,081 1,942,397

4.4. Commercial notes received for collection

86,031 420,739 506,770 64,174 158,429 222,603

4.5. Other assets received for collection

2,580 668,144 670,724 2,124 682,216 684,340

4.6. Assets received for public offering

- - - - - -

4.7. Other items under custody

2,054,716 180,812 2,235,528 1,875,017 166,374 2,041,391

4.8. Custodians

1 - 1 1 - 1

V. PLEDGED ITEMS

442,440,740 239,725,766 682,166,506 427,323,477 221,791,699 649,115,176

5.1. Marketable securities

22,000 64 22,064 22,000 59 22,059

5.2. Guarantee notes

104,644,825 41,321,970 145,966,795 100,340,591 38,821,464 139,162,055

5.3. Commodity

- - - - - -

5.4. Warranty

- - - - - -

5.5. Properties

30,083,723 14,163,633 44,247,356 29,033,655 12,149,563 41,183,218

5.6. Other pledged items

306,452,190 184,156,356 490,608,546 296,771,411 170,744,419 467,515,830

5.7. Pledged items-depository

1,238,002 83,743 1,321,745 1,155,820 76,194 1,232,014

VI. ACCEPTED INDEPENDENT GUARANTEES AND WARRANTIES

4,399,756 1,345,063 5,744,819 4,532,381 1,328,529 5,860,910

TOTAL OFF BALANCE SHEET ACCOUNTS (A+B)

463,053,672 256,723,158 719,776,830 447,318,238 235,605,535 682,923,773


8

ŞEKERBANK T.A.Ş. CONSOLIDATED STATEMENT OF INCOME

TRL THOUSAND

Reviewed Reviewed Reviewed Reviewed

INCOME STATEMENT Dipnot CURRENT

PERIOD

CURRENT

PERIOD

PRIOR

PERIOD

PRIOR

PERIOD

01.01.2019 -

30.06.2019

01.04.2019 -

30.06.2019

01.01.2018 -

30.06.2018

01.04.2018 -

30.06.2018

I. INTEREST INCOME (1) 2,201,120 1,121,273 1,883,719 977,916

1.1 Interest on Loans 1,923,678 979,041 1,599,138 834,212

1.2 Interest Received From Reserve Deposits 29,480 15,345 18,950 10,120

1.3 Interest Received From Banks 21,162 11,448 11,696 5,107

1.4 Interest Received From Money Market Placements 2,780 930 43,502 25,820

1.5 Interest Received From Marketable Securities Portfolio 176,205 90,671 177,154 86,052

1.5.1 Financial Assets at Fair Value Through Profit and Loss 4,061 2,192 2,522 1,121

1.5.2 Financial Assets at Fair Value Through Comperehensive Income 45,157 20,976 10,905 3,895

1.5.3 Financial Assets at Amortised Cost

126,987 67,503 163,727 81,036

1.6 Financial Leasing Income

27,109 13,938 24,284 11,857

1.7 Other Interest Income 20,706 9,900 8,995 4,748

II. INTEREST EXPENSE (-) (2) 1,722,789 856,503 1,129,315 580,099

2.1 Interest on Deposits 1,282,606 645,810 796,356 407,809

2.2 Interest on Funds Borrowed 105,422 51,551 87,953 47,893

2.3 Interest on Money Market Transactions 84,918 27,828 77,115 34,828

2.4 Interest on Securities Issued 159,996 77,836 141,110 77,169

2.5 Leasing Interest Expense 21,462 10,758 1,633 676

2.6 Other Interest Expense 68,385 42,720 25,148 11,724

III. NET INTEREST/INCOME (I - II) 478,331 264,770 754,404 397,817

IV. NET FEES AND COMMISSIONS INCOME 191,502 93,069 177,480 84,299

4.1 Fees and Commissions Received 248,267 120,600 223,624 110,163

4.1.1 Non-cash Loans 39,212 19,583 37,286 18,520

4.1.2 Other 209,055 101,017 186,338 91,643

4.2 Fees and Commissions Paid

56,765 27,531 46,144 25,864

4.2.1 Non-cash Loans

1,020 514 524 275

4.2.2 Other

55,745 27,017 45,620 25,589

V. DIVIDEND INCOME (3) 3,693 3,672 1,230 1,230

VI. NET TRADING INCOME/LOSSES (NET) (4) (45,730) (61,396) (81,735) (31,721)

6.1 Trading gains/ (losses) on securities 15,008 47,930 3,218 89

6.2 Gains/(loses) on derivative financial transactions (7,054) (165,434) 449,358 404,565

6.3 Foreign exchange gains/ (losses) (53,684) 56,108 (534,311) (436,375)

VII. OTHER OPERATING INCOME (5) 62,543 32,134 41,379 22,446

VIII. TOTAL OPERATING PROFIT (III+IV+V+VI+VII) 690,339 332,249 892,758 474,071

IX. EXPECTED LOSSES PROVISIONS (-) (6) 402,852 219,536 163,247 75,420

X. OTHER PROVISIONS (-) (6) 54,738 52,385 123,201 76,379

XI. PERSONNEL EXPENSES (-) 272,184 138,231 221,033 117,264

XII. OTHER OPERATING EXPENSES (-) (7) 309,436 163,768 305,345 149,240

XIII. NET OPERATING INCOME/(LOSS) (VIII-IX-X-XI-XII) (348,871) (241,671) 79,932 55,768

XIV. AMOUNT IN EXCESS RECORDED AS GAIN AFTER MERGER - - - -

XV. GAIN / (LOSS) ON EQUITY METHOD - - - -

XVI. GAIN / (LOSS) ON NET MONETARY POSITION - - - -

XVII.

PROFIT/(LOSS) FROM CONTINUED OPERATIONS BEFORE

TAXES (XIII+...+XVI) (8) (348,871) (241,671) 79,932 55,768

XVIII. TAX PROVISION FOR CONTINUED OPERATIONS (±) (9) 68,435 50,543 (9,223) (13,984)

18.1 Current tax charge (164) 12,096 (19,490) (18,472)

18.2 Deferred tax charge (+) (5,011) 36,732 (77,634) (50,670)

18.3 Deferred tax credit (-) 73,610 1,715 87,901 55,158

XIX.

NET PROFIT/(LOSS) FROM CONTINUED

OPERATIONS(XVII±XVIII) (10) (280,436) (191,128) 70,709 41,784

XX. INCOME ON DISCONTINUED OPERATIONS - - - -

20.1 Income on assets held for sale - - - -

20.2

Income on sale of associates, subsidiaries and jointly controlled entities

(Joint vent.) - - - -

20.3 Income on other discontinued operations - - - -

XXI. LOSS FROM DISCONTINUED OPERATIONS (-) - - - -

21.1 Loss from assets held for sale - - - -

21.2

Loss on sale of associates, subsidiaries and jointly controlled entities (Joint

vent.) - - - -

21.3 Loss from other discontinued operations - - - -

XXII.

PROFIT / (LOSS) ON DISCONTINUED OPERATIONS BEFORE

TAXES (XX-XXI) (8) - - - -

XXIII. TAX PROVISION FOR DISCONTINUED OPERATIONS (±) (9) - - - -

23.1 Current tax charge - - - -

23.2 Deferred tax charge (+) - - - -

23.3 Deferred tax credit (-) - - - -

XXIV.

NET PROFIT/LOSS FROM DISCONTINUED OPERATIONS

(XXII±XXIII) (10) - - - -

XXV. NET PROFIT/LOSS (XIX+XXIV) (11) (280,436) (191,128) 70,709 41,784

25.1 Group’s profit/loss

(277,754) (184,209) 65,195 36,264

25.2 Non-controlling interest (2,682) (6,919) 5,514 5,520

Earnings per share (0.24217) (0.16505) 0.06106 0.03608


9

ŞEKERBANK T.A.Ş. CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPEREHENSIVE INCOME

TRL THOUSAND

Reviewed Reviewed


01.01.2019 -30.06.2019 01.01.2018-30.06.2018

I. PROFIT/LOSS FOR THE PERIOD (280,436) 70,709

II. OTHER COMREHENSIVE INCOME 7,681 (5,380)

2.1 Other Income/Expense Items not to be Recycled to Profit or Loss 96 -

2.1.1 Revaluation Surplus on Tangible Assets - -

2.1.2 Revaluation Surplus on Intangible Assets - -

2.1.3 Defined Benefit Plans' Actuarial Gains/Losses - -

2.1.4 Other Income/Expense Items not to be Recycled to Profit or Loss 120 -

2.1.5 Deferred Taxes on Other Comprehensive Income not to be Recycled to Profit or Loss (24) -

2.2 Other Income/Expense Items to be Recycled to Profit or Loss 7,585 (5,380)

2.2.1 Translation Differences 3,242 5,323

2.2.2 Income/Expenses from Valuation and/or Reclassification of Financial Assets Measured at

FVOCI 5,441 (13,435)

2.2.3 Gains/losses from Cash Flow Hedges - -

2.2.4 Gains/Losses on Hedges of Net Investments in Foreign Operations - -

2.2.5 Other Income/Expense Items to be Recycled to Profit or Loss - -

2.2.6 Deferred Taxes on Other Comprehensive Income to be Recycled to Profit or Loss (1,098) 2,732

III. TOTAL COMPREHENSIVE INCOME (I+II) (272,755) 65,329


10

ŞEKERBANK T.A.Ş. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

TRL THOUSAND

Other Comprehensive Income/Expense

Items not to be Recycled to Profit or

Loss

Other Comprehensive Income/Expense Items

to be Recycled to Profit or Loss

CHANGES IN SHAREHOLDERS’ EQUITY Note

Paid-in

Capital

Share

Premium

Share

Certificate

Cancellation

Profits

Other

Capital

Reserves

Accumulated

Revaluation

Increase/

Decrease of

Fixed Asset

Accumulated

Remeasurement

Gain/Loss of

Defined Benefit

Pension Plan

Other

Foreign

Currency

Translation

Differences

Accumulated

Revaluation and/or

Remeasurement

Gain/Loss of the

Financial Assets at

Fair Value Through

Other Comprehensive

Income

Profit

Reserves

Prior

Period

Profit/

(Loss)

Current

Period

Profit/

(Loss)

Total

Equity

Before

Minority

Shares

Non-

controlling

Interest

Total

Equity Ref. Other

Reviewed

PRIOR PERIOD

01.01.2018 - 30.06.2018

I. Balances at Beginning of Period 1,158,000 1,834 - (165,654) 62,153 (13,199) - 10,219 (54,199) - 1,403,852 346,670 - 2,749,676 40,870 2,790,546

II. Correction Made as Per TAS 8 - - - - - - - - 60,152 - - (504,313) - (444,161) (5,006) (449,167)

2.1 Effect of Corrections - - - - - - - - - - - - - - - -

2.2 Effect of Changes in Accounting Policies - - - - - - - - 60,152 - - (504,313) - (444,161) (5,006) (449,167)

III. Adjusted Balances at the Beginning of the Period (I+II) (13) 1,158,000 1,834 - (165,654) 62,153 (13,199) - 10,219 5,953 - 1,403,852 (157,643) - 2,305,515 35,864 2,341,379

IV. Total Comprehensive Income - - - - - - - - - - - - 69,366 69,366 1,343 70,709

V. Capital Inrease in Cash - - - - - - - - - - - - - - - -

VI. Capital Inrease in Internal Sources - - - - - - - - - - - - - - - -

VII. Inflation Adjustment to Paid-in Capital - - - - - - - - - - - - - - - -

VIII. Convertible Bonds - - - - - - - - - - - - - - - -

IX. Subordinated Debt Instruments - - - - - - - - - - - - - - - -

X. Increase/ Decrease due to Other Changes - - - 39 - - - 5,323 (10,703) - (130) - - (5,471) (831) (6,302)

XI. Profit Distribution - - - - - - - - - - 358,713 (359,713) - (1,000) - (1,000)

11.1 Dividends Paid - - - - - - - - - - - (1,000) - (1,000) - (1,000)

11.2 Transfers to Reserves - - - - - - - - - - 358,713 (358,713) - - - -

11.3 Other - - - - - - - - - - - - - - - -

Balances at end of the period (III+IV…+X+XI) 1,158,000 1,834 - (165,615) 62,153 (13,199) - 15,542 (4,750) - 1,762,435 (517,356) 69,366 2,368,410 36,376 2,404,786

Reviewed

CURRENT PERIOD

01.01.2019 - 30.06.2019

I. Balances at Beginning of Period 1,158,000 1,835 - (165,918) 78,122 (9,378) - 20,464 (5,120) - 1,762,682 (428,206) - 2,412,481 40,349 2,452,830

II. Correction Made as Per TAS 8 - - - - - - - - - - - - - - - -

2.1 Effect of Corrections - - - - - - - - - - - - - - - -

2.2 Effect of Changes in Accounting Policies - - - - - - - - - - - - - - - -

III. Adjusted Balances at the Beginning of the Period (I+II) (13) 1,158,000 1,835 - (165,918) 78,122 (9,378) - 20,464 (5,120) - 1,762,682 (428,206) - 2,412,481 40,349 2,452,830

IV. Total Comprehensive Income - - - - - - - - - - - - (277,754) (277,754) (2,682) (280,436)

V. Capital Inrease in Cash - - - - - - - - - - - - - - - -

VI. Capital Inrease in Internal Sources - - - - - - - - - - - - - - - -

VII. Inflation Adjustment to Paid-in Capital - - - - - - - - - - - - - - - -

VIII. Convertible Bonds - - - - - - - - - - - - - - - -

IX. Subordinated Debt Instruments - - - - - - - - - - - - - - - -

X. Increase/ Decrease due to Other Changes - - - (32) 96 - - 3,207 4,343 - - - - 7,614 (351) 7,263

XI. Profit Distribution - - - - - - - - - - (388,901) 388,901 - - - -

11.1 Dividends Paid - - - - - - - - - - - - - - - -

11.2 Transfers to Reserves - - - - - - - - - - (388,901) 388,901 - - - -

11.3 Other - - - - - - - - - - - - - - - -

Balances at end of the period (III+IV…+X+XI) 1,158,000 1,835 - (165,950) 78,218 (9,378) - 23,671 (777) - 1,373,781 (39,305) (277,754) 2,142,341 37,316 2,179,657

11

ŞEKERBANK T.A.Ş. CONSOLIDATED STATEMENT OF CASH FLOWS

TRL THOUSAND

Reviewed Reviewed

Note CURRENT PERIOD PRIOR PERIOD

Ref. 01.01.2019 - 30.06.2019 01.01.2018 - 30.06.2018

A. CASH FLOWS FROM BANKING OPERATIONS

1.1 Operating Profit Before Changes in Operating Assets and Liabilities (621,388) (565,687)

1.1.1 Interest Received 2,307,157 1,415,064

1.1.2 Interest Paid (1,745,169) (1,112,092)

1.1.3 Dividend Received 1,289 1,230

1.1.4 Fees and Commissions Received 248,267 223,624

1.1.5 Other Income 266,050 383,393

1.1.6 Collections From Previously Written Off Loans 166,664 265,884

1.1.7 Cash Payments to Personnel and Service Suppliers (275,848) (253,503)

1.1.8 Taxes Paid (17,902) (15,759)

1.1.9 Others (1,571,896) (1,473,528)

1.2 Changes in Operating Assets and Liabilities (178,981) (937,624)

1.2.1 Net (Increase) Decrease in Financial Assets at Fair Value Through Profit or Loss 30,262 (35,167)

1.2.2 Net (Increase) Decrease in Due From Banks 6,675 (772)

1.2.3 Net (Increase) Decrease in Loans (44,394) (1,527,633)

1.2.4 Net (Increase) Decrease in Other Assets (386,939) (571,127)

1.2.5 Net Increase (Decrease) in Bank Deposits 217,898 (1,096,305)

1.2.6 Net Increase (Decrease) in Other Deposits 1,169,645 1,337,088

1.2.7 Net Increase (Decrease) in Financial Liabilities at Fair Value Through Profit or Loss - -

1.2.8 Net Increase (Decrease) in Funds Borrowed (794,048) 809,795

1.2.9 Net Increase (Decrease) in Matured Payables - -

1.2.10 Net Increase (Decrease) in Other Liabilities (378,080) 146,497

I. Net Cash Provided From Banking Operations (800,369) (1,503,311)

B. CASH FLOWS FROM INVESTING ACTIVITIES

II. Net Cash Flow Provided From Investing Activities 605,570 (8,227)

2.1 Cash Paid for Purchase of Entities Under Common Control, Associates and Subsidiaries - -

2.2 Cash Obtained From Sale of Entities Under Common Control, Associates and Subsidiaries - -

2.3 Purchases of Tangible Assets (11,825) (14,156)

2.4 Sales of Tangible Assets 33,183 70,107

2.5 Purchase of Financial Assets at Fair Value Through Comprehensive Income (23,288) (744,780)

2.6 Sale of Financial Assets at Fair Value Through Comprehensive Income 33,668 811,810

2.7 Purchase of Financial Assets at Amortised Cost - (192,326)

2.8 Sale of Financial Assets at Amortised Cost 607,379 74,618

2.9 Others (33,547) (13,500)

C. CASH FLOWS FROM FINANCING ACTIVITIES

III. Net Cash Provided from Financing Activities (75,769) 121,127

3.1 Cash Obtained from Funds Borrowed and Securities Issued 835,939 769,380

3.2 Cash Used for Repayment of Funds Borrowed and Securities Issued (872,059) (642,534)

3.3 Equity Instruments Issued - -

3.4 Dividends Paid - (1,000)

3.5 Payments for Leases (39,649) (4,719)

3.6 Others - -

IV. Effect of Change in Foreign Exchange Rate on Cash and Cash Equivalents 71,099 119,380

V. Net Increase in Cash and Cash Equivalents (199,469) (1,271,031)

VI. Cash and Cash Equivalents at Beginning of the Period 2,044,583 3,889,468

VII. Cash and Cash Equivalents at End of the Period 1,845,114 2,618,437




12

SECTION THREE

ACCOUNTING PRINCIPLES

I. Basis of Presentation

The Parent Bank prepares financial statements and notes in accordance with the Turkish Accounting Standards

(TAS) and the Turkish Financial Reporting Standards (TFRS) and the related statements and guidances

announced by the Public Oversight, Accounting and Auditing Standards Authority (“POA”) and the

Communiqué on Banks’ Accounting Practice and Maintaining Documents, other regulations, communiqués and

circulars in respect of accounting and financial reporting and pronouncements issued by the Banking Regulation

and Supervision Agency (BRSA).

In accordance with the “Communique amending the Communique on the Financial Statements and Related

Disclosures and Footnotes to be Announced to Public by Banks” published in the Official Gazette dated 1

February 2019 with No. 30673, the accompanying previous period financial statements were made compatible

with the new financial statement formats.

Under the TFRS 16 Leases standard, published in the Official Gazette dated 16 April 2018 and numbered 30393,

operating leases are accounted in similar manner with the financial leasing transactions starting from 1 January

2019. According to this standard; leasing transactions are included in the balance sheet as Right-of-use Assets

and leasing liabilities. In accordance with the transition requiremnets of TFRS 16, prior period financial

statements and footnotes have not been restated. Implementation and impacts related to the transition of TFRS

16 are explained in Note XXIII of Section Three.

Accounting policies and valuation principles applied in the preparation of financial statements are disclosed in

the footnotes below.

Additional paragraph for convenience translation to English

The effects of differences between accounting principles and standards set out by regulations in conformity with

Article 37 and Article 38 of the Banking Act No. 5411, accounting principles generally accepted in countries in

which the accompanying consolidated financial statements are to be distributed and the International Financial

Reporting Standards (“IFRS”) have not been quantified in the accompanying consolidated financial statements.

Accordingly, the accompanying consolidated financial statements are not intended to present the financial

position, results of operations and changes in financial position and cash flows in accordance with the accounting

principles generally accepted in such countries and IFRS.

II. Explanations on Usage Strategy of Financial Assets and Foreign Currency Transactions

The Parent Bank aims to keep up its activities in every line of banking.

The Parent Bank shapes its strategies for financial instruments depending on the source of funds, which mainly

consists of deposits. Investment instruments are usually choosen from liquid instruments. A level of liquidity

which allows covering obligations of the Group is secured.

The Group controls risk by managing positions in harmony with market movements on the strength of short-term

strategies instead of carrying long-term currency positions in big amounts, in order to avoid risks which might

arise from floating currency (exchange rate) regime. A currency risk arising from customer transactions, the

Group tries to close by carrying out counter-transactions. Within the budget, limits are set in terms of maturity

and distribution of assets is determined.

Yield (return) and risk analyses are made in regard of maturity structure of balance sheet items, re-pricing

periods and interest rates, and appropriate investment decisions are made.

The Group off-balance sheet derivative transactions are managed by including such transactions in the total

currency and interest positions. Derivative transactions to be made by customers are carried out within loan and

risk limits established on customer basis. Currency swaps, in particular, being a larger part of the off-balance

sheet transactions, are carried out to manage the currency cash flow without causing currency and interest risks.

The Parent Bank aims to get longer-term funds (resources) in order to be able to hedge itself against risks arising

from short-term character of deposits, while trying to increase the share of floating interest rate items in its

assets.




13

SECTION THREE (cont’d)

ACCOUNTING PRINCIPLES (cont’d)

II. Explanations on Usage Strategy of Financial Assets and Foreign Currency Transactions

(cont’d)

Gains or loss arising from foreign currency transactions are reflected to the statement of income as they are

realized during the year. Foreign currency assets and liabilities at each period-end are translated into Turkish lira

at the period-end foreign exchange buying rates announced by the Parent Bank and the resulting foreign

exchange gains or losses are recorded in the statement of income as foreign exchange gain or loss. As of 30 June

2019 the Parent Bank converts its foreign currency transactions with the Parent Bank’s exchange rates and

subsidiaries of the Parent Bank converts their foreign currency transactions with the Central Bank’s exchange

rates.

There are no capitalized foreign exchange differences.

The information regarding the principles of foreign currency risk management is stated in the Section Four, Note

III. Foreign exchange gains and losses arising from conversion monetary financial assets are reflected to

“Foreign Exchange Gains / Losses” in the statement of income.

The foreign currency net investment in consolidated foreign subsidiaries are translated into Turkish Lira using

the Parent Bank’s exchange rate prevailing at the balance sheet date for their assets and liabilities and annual

average exchange rate for their statement of income items. The currency conversion derived from the

consolidated subsidiaries’ currency translation differences amounting to TRL 3,207 Thousand gain (31

December 2018 - TRL 10,245 Thousand gain) has been recorded in “Other Comprehensive Income/Expense

Items to be Reclassified to Profit or Loss” under shareholders’ equity.

III. Information on Consolidated Subsidiaries

The accompanying consolidated financial statements are prepared in accordance with “Communiqué on

Preparation of Consolidated Financial Statements of Banks” published in the Official Gazette dated 8 November

2006 numbered 26340. The Parent Bank and the subsidiaries included in the consolidation are referred to as “the

Group” in this report.

The financial statements of the subsidiaries, which were prepared in accordance with the prevailing principles

and rules regarding financial accounting and reporting standards in their respective country of incorporation and

the Turkish Commercial Code, Financial Leasing, Factoring and Financing Companies Law, communiqués of

the Capital Market Board and the BRSA, are duly adjusted in order to present their financial statements in

accordance with the accounting policies of the Parent Bank.

Explanations on Consolidation Method and Scope

The commercial names of the entities included in consolidation and the locations of the head offices of these

institutions are:

Commercial Name Head Office Consolidation Method

Şekerbank (Kıbrıs) Ltd. Nicosia/TRNC full consolidation

Şeker Finansal Kiralama A.Ş. Istanbul/Turkey full consolidation

Şekerbank International Banking Unit Ltd. Nicosia / TRNC full consolidation

Şeker Yatırım Menkul Değerler A.Ş. Istanbul/Turkey full consolidation

Şeker Faktoring A.Ş. Istanbul/Turkey full consolidation

Şeker Finansman A.Ş. Istanbul/Turkey full consolidation

Zahlungsdienste GmbH der Şekerbank T.A.Ş. Cologne/Germany full consolidation

When there are differences between the accounting policies of the subsidiaries and the Parent Bank, the financial

statements are adjusted in accordance with the principle of materiality. The financial statements of the

subsidiaries are prepared as of 30 June 2019.

The transactions and balances between the consolidated financial subsidiaries and the Parent Bank are bilaterally

eliminated.




14



IV. Explanations on Forward and Option Contracts and Derivative Instruments

The Group’s derivative instruments mainly consist of foreign currency swaps, interest swaps, option and forward

foreign currency buy/sell transactions. Fair values of foreign currency forward and swap transactions are

determined by comparing the period end foreign exchange rates and current market foreign exchange rates at the

balance sheet date. The resulting gain or loss is reflected in the statement of income. In calculation of fair values

of the interest swap contracts, interest amounts to be paid or received upon the fixed interest rate in the contract

and interest amounts to be received or paid upon the floating interest rates in the contracts have been recalculated

and discounted in accordance to valid interest rates in the current market and the differences have been reflected

to the current term statement of income. Discounted values calculated using the interest rates between the

transaction date and repricing date and are used in determination of the fair values of interest rate swaps.

While some derivative transactions provide economic hedging, these transactions are subject to hedge

accounting. The purpose of hedge accounting; is to present the effect of the risk management activities using

appropriate financial instruments to manage certain risks that may affect profit or loss in the financial statements.

The Parent Bank performs the fair value hedge of a portfolio of financial assets or financial liabilities in

accordance with TFRS 9. Within this scope, the Parent Bank has preferred to apply TFRS 9 standard for hedge

accounting.

The Parent Bank enters into interest rate swap transactions in order to hedge the changes in fair values of fixed-

rate financial instruments. While applying fair value hedge accounting, the changes in fair values of hedging

instrument and hedged item are recognised in statement of income. The change in the fair value of the hedged

item of the fixed rate financial asset is shown in the financial statements together with the related asset as long as

the hedge is effective. If the hedged item is a fixed rate financial asset at fair value through profit or loss, then

any loss or gain on hedged risk is recognized in the income statement.

Hedge accounting applies to hedging only when all the following criteria are met:

The hedging relationship only includes suitable hedging instruments and hedged items.

At the beginning of the hedging relationship, there is a formal identification and certification of the risk

management objective and strategy that leads to the hedging relationship. This certification includes the

assessment of the Parent Bank on the hedging instrument, the hedged item and the structure of the

hedged risk, and whether the hedging relationship will provide an effective protection against the

hedged risk (including analysis of inefficiency resources in the hedging process and how the hedging

rate is determined).

The hedging relationship meets all of the following provisions for the effectiveness of the hedging.

There is an economic relationship between the hedged item and the hedging tool.

The credit risk effect is not dominated by changes in value arising from this economic relationship, and

the hedging rate in the hedging relationship is equal to the amount of the item that the entity actually

hedges and the amount calculated according to the amount of hedging that the entity actually uses to

hedge this item. However, the hedging shall not reflect an imbalance between the hedged item and the

hedging instrument’s weights, which is not consistent with the objectives of hedge accounting and will

result in hedging ineffectiveness.




15



IV. Explanations on Forward and Option Contracts and Derivative Instruments (cont’d)

The effect of fair value hedge accounting is shown in the table below:

Type of Hedging

İnstrument

Hedged Item(asset and

liability) Hedged Risks

Fair Value

Difference of

Hedged Item

Net Fair Value of the Hedging

Instrument

Net

Gain/(Loss)

Recognised in

the Statement

of Income

Asset Liability

Interest Rate

Swaps

Fixed interest commercial

loans with installment

Fixed interest

rate risk (853) 1,770 - 407

Constant Maturity

Swap

Fixed interest government

bonds

Fixed interest

rate risk 17,273 3,442 (15,608) 2,601

The Parent Bank terminates hedge accounting forward only if the hedging relationship (or part of it) no longer

meets the required criteria (after considering rebalancing). This also applies if the hedging item is expired or

sold, terminated or used.

V. Explanations on Interest Income and Expenses

The interest income and expenses are accounted by accrual basis of accounting using the effective interest rate

(the ratio that equalizes the future cash flow of financial assets and liabilities to the current net book value).

Starting from 1 January 2018, the Group has started accruing interest income on non-performing loans. The

necessary provisions are reserved in the “Expected Loss Provisions” account in the income statement for the

calculated amount.

VI. Explanations on Fees and Commission Income and Expenses

Fees for various banking services are recorded as income when collected and prepaid commission income on

cash loans using the effective interest rate method and recorded as income in the related period.

Fees and commissions for funds borrowed paid to other financial institutions, as part of the transaction costs, are

recorded as prepaid expenses and using the effective interest rate expensed within the related periods.

The dividend income is reflected in the financial statements on a cash basis when the profit distribution is

realized by the associates and subsidiaries.




16



VII. Explanations on Financial Assets

In the framework of “TFRS 9 Financial Instruments”, which was effective as of 1 January 2018, the Group

classifies its financial assets as “Financial assets at fair value through profit or loss”, “Financial assets at fair

value through other comprehensive income” or “Financial assets at amortised cost”. This classification is made

during initial recognition based on the contractual cash flow characteristics with the business model of the

financial assets determined by management.

Financial assets are recognized or derecognized according to the provision ‘Taking into Financial Statements and

Excluding the Financial Statements’ of section three of TFRS 9.

Financial instruments have the feature of detecting, affecting and diminishing liquidity, credit and interest risks

in the financial statements. All regular way purchases and sales of financial assets are recognized on the

settlement date i.e. the date that the asset is delivered to or by the Group. Settlement date accounting requires (a)

accounting of the asset when acquired by the Group and (b) disposing of the asset out of the balance sheet on the

date settled by the Group; and accounting of gain or loss upon disposal. In case of application of settlement date

accounting, for the financial assets at fair value through profit and loss and financial assets at fair value through

other comprehensive income the Group accounts for the changes that occur in the fair value of the asset in the

period between trade transaction date and settlement date.

Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the

time frame generally established by regulation or convention in the market place. Changes in fair value of assets

to be received during the period between the trade date and the settlement date are accounted in the same way as

the acquired assets. Fair value differences are not accounted for financial assets presented at amortized cost; gain

or loss of financial assets at fair value through profit and loss is reflected in the statement of income; gain or loss

of financial assets at fair value through other comprehensive income is accounted for in the other comprehensive

income.

The following are details of the financial instruments that are classified in the financial statements.

Financial Assets at Fair Value Through Profit and Loss Financial assets at fair value through profit and loss are financial assets other than the ones that are managed

with business model that aims to hold assets to collect contractual cash flows or to collect cash flows that are

solely payments of principal and interest on the principal outstanding amount; and that are either acquired for

generating a profit from short-term fluctuations in prices or are financial assets included in a portfolio aiming to

short-term profit taking.

The fair value of financial assets at fair value thourgh profit and loss, which are traded in active markets, is

determined according to the price of the stock exchange and in the case that the stock market price is not

available, according to the price in the Official Gazette. Where there is no quoted price in an active market, the

fair value is determined by using other methods specified in TFRS 13.

Financial assets at the fair value through profit or loss are initially recognized at fair value. The positive

difference between the cost and fair value of such securities is accounted as interest and income accrual, and the

negative difference between the cost and fair value is accounted as loss accrual in the profit and loss.




17



VII. Explanations on Financial Assets (cont’d)

Financial Assets at Fair Value Through Other Comprehensive Income The financial assets, which are acquired with the aim to collect the contractual cash flows and to sell the

financial asset in future, are classified as financial assets at fair value through other comprehensive income.

The Bank’s management may retain both the contractual cash flows as well as the portfolio for sale, in order to

meet daily liquidity needs, maintain a certain level of interest income and align the maturity of financial assets

with the valuation of the financial liabilities for funding purposes.

Financial assets at fair value through other comprehensive income are initially recognized at fair value including

transaction costs.

The results of the subsequent changes in the fair value of financial assets at fair value through other

comprehensive income, namely unrealized gain or loss are recorded in “Other Comprehensive Income/Expense

Items to be Reclassified to Profit or Loss”. Accumulated fair value gain or loss, reflected in equity, is recorded to

the income statement when the said financial assets are disposed.

The fair value of financial assets at fair value through other comprehensive income, which are traded in active

markets is determined according to the price of the stock exchange and in the case that the stock market price is

not available, according to the price in the Official Gazette. Where there is no quoted price in an active market,

the fair value is determined by using other methods specified in TFRS 13. The financial assets at Fair Value

Through Other Comprehensive Income, that are unquoted on the stock exchange, amount to TRL 29,511

Thousand (31 December 2018 - TRL 22,878 Thousand) and are classified under “Equity securities” in the

current period.

Financial Assets at Amortised Cost

A financial asset is classified as a financial asset measured at amortized cost, if the financial asset is held within

the scope of a business model for the collection of contractual cash flows and the contractual terms of the

financial asset result in cash flows that include payments arising only from principal and interest on the principal

amounts on specific dates.

After the initial recognition, provision for impairment to be deducted, if any, financial assets at amortized cost

are measured at discounted value using effective interest method (internal rate of return).

Interest earned from financial assets measured at amortized cost is recorded as interest income.

The Group classifies financial assets in accordance with the classifications explained above during the

acquisition of the mentioned assets.

In the securities portfolio of the Parent Bank, consumer prices (CPI) indexed bonds are available. These

securities are valued and accounted using the effective interest rate method based on the real coupon rates of the

CPI - indexed government bonds and the reference inflation index at the issue date and the estimated inflation

rate. As stated in the Treasury and Finance Ministry's CPI Indexed Bonds Investor Guide, the reference indices

used in the calculation of the actual coupon and redemption amounts of these securities are calculated by

interpolation with the CPI of two months prior and the CPI of three months prior. The Parent Bank has started to

determine the estimated inflation rate accordingly. The inflation rate estimated by the Central Bank and the

Parent Bank will be updated when necessary. Accounting of coupon and redemption payments are made by

considering the real inflation indices.As of balance sheet date, the estimated inflation rate of consumer prices

(CPI) indexed bonds had a positive effect on the period loss amounting to TRL 36,979 Thousand.




18



VII. Explanations on Financial Assets (cont’d)

Loans

Loans, other than those with intention to be sold, are the financial assets , the contractual terms of which result in

cash flows that include payments arising only from principal and interest on the principal amounts on specific

dates.

The Group initially recognises loans at the cost of the acquisition and accounts for at the amortized cost using the

effective interest method in subsequent periods besides Group reflects swaps, used for funding of long term

fixed interest rate TRL loan portfolio, with fair value in the financial statements. The Group has initially

classified the long term fixed interest rate TRL loan portfolio funded through swaps as “Loans at Fair Value

Through Profit and Loss” and follows it at fair value in the financial statements.

As of 30 June 2019, the fair value of these loans is TRL 214,467 Thousand and is shown under Financial Assets

at Fair Value Through Profit and Loss Other Financial Assets line in the balance sheet (31 December 2018 -

TRL 221,879 Thousand) .

Foreign currency-indexed individual and commercial loans are shown under Turkish Currency (“TRL”) accounts

after having been converted into Turkish Lira at exchange rate at transaction date. Repayments are calculated at

exchange rate at date of payment and exchange rate differences encountered are reflected in profit and loss

accounts. Net foreign exchange gains of the foreign currency indexed loans are presented under foreign

exchange gain/loss.

VIII. Explanations on Impairment of Financial Assets

Expected Loss Provision

Starting from 1 January 2018, the Group recognizes the impairment in accordance with the TFRS 9 “Regulation

on the Procedures and Principles for Classification of Loans by Banks and Provisions to be set aside” published

in the Official Gazette No. 29750 dated 22 June 2016.

Within this framework, evaluation of the expected loss provisions is applied for the financial lease recievables,

contractual assets, credit commitments and financial guarantee contracts that are not measured at fair value

through profit or loss, financial assets measured at amortized cost and fair value through other comprehensive

income.

The expected loss provisions measured and recorded at the initial recognition of the financial asset and updated

according to the rate of the impairment on the credit risk in accordance with measurement performed at each

reporting date to reflect changes in credit risk.

The basic principle of the expected credit loss model is to reflect the deterioration or improvement in credit risk

to the general pattern. The expected loss measurement is aimed to identify the degree of credit deterioration at

the first issuance of the loan and to reflect the changes in the expected credit loss during the lifetime of the

related loan.

Financial assets are classified into the following three categories based on the degree of the credit risks observed

at the initial recognition of financial assets:

12 Months Expected Loss Provision (First Stage):

For the financial assets at initial recognition or that do not have a significant increase in credit risk since initial

recognition, the expected credit loan loss provision is calculated for 12 months.




19



VIII. Explanations on Impairment of Financial Assets (cont’d)

Significant Increase in Credit Risk (Second Stage):

In the event of a significant increase in credit risk since initial recognition, the financial asset is transferred to

Stage 2. Expected credit loss provision is determined by the expected credit loss for the life-time of the related

financial asset.

The main reasons for the significant increase in the credit risk and its transfer to the second stage are as follows:

Number of overdue loan dates exceeding 30 days.

The presence of loans under restructuring due to financial difficulties.

Suggesting to ‘Liquidate Risk’ to the customers by the Bank's early warning system.

Default (Third Stage):

The Parent Bank takes into account the following criteria for the classification of a financial asset as a default;

Overdue by more than 90 days

The Group’s observation that the debtor cannot fulfill his / her debts related to the loan although it is not

more than 90 days.

Life expectancy for these assets is recorded as credit loss.

The Parent Bank measures the expected loss provisions for a financial asset to reflect the following:

A weighted and unbiased amount of loss based on probabilities of default determined taking into

account possible outcomes,

Time value of money,

Reasonable and supportable information on estimates of past events, current conditions, and future

economic conditions without undue cost or effort as of the reporting date.

IX. IX. Explanations on Offsetting of Financial Assets and Liabilities

Financial assets and liabilities are offset when the Group has a legally enforceable right to set off, and the

intention of collecting or paying the net amount of related assets and liabilities or the right to offset the assets

and liabilities simultaneously.

X. Explanations on Sales and Repurchase Agreements and Lending of Securities

The sales and purchase of government securities under repurchase agreements made with the customers are being

recorded in the balance sheet accounts in accordance with the Uniform Chart of Accounts. Accordingly in the

financial statements, the government bonds and treasury bills sold to customers under repurchase agreements are

classified under Financial Assets at Fair Value Through Profit and Loss, Financial Assets at Fair Value Through

Other Comprehensive Income and Financial assets at amortised cost depending on the portfolio they are

originally included in and are valued according to the valuation principles of the related portfolios. Funds

obtained from repurchase agreements are classified as a separate sub-account under money market borrowings

account in the liabilities.

The income and expenses from these transactions are reflected in the “Interest Income on Marketable Securities”

and “Interest Expense on Money Market Borrowings” accounts in the statement of income.

As of 30 June 2019, the Group has no reverse repo transactions (31 December 2018 – None).

As of 30 June 2019 , the Group does not have marketable securities lending transactions (31 December 2018 -

None).




20



XI. Explanations on Assets Held for Sale and Discontinued Operations

Assets held for sale are those assets or group of assets, which will be disposed under a plan prepared by the

management regarding the sale of those asset or the group of assets that have high probability of sale together

with an active program for determination of buyers and plan completion date. Those assets (or else the group of

assets) are marketed in conformity with its fair value. On the other hand, the mentioned sale is expected to be

recorded at the completed sale within one year after the classification date; and the necessary transactions and

procedures to complete the plan should demonstrate the fact that the possibility of making significant changes or

cancelling the plan is low.

As of 30 June 2019, the Group has TRL 510,042 Thousand assets held for sale (31 December 2018 - TRL

320,984 Thousand).

A discontinued operation is a division of a Group that is either disposed or held for sale. Results of discontinued

operations are included in the statement of income separately.

The Group does not have any discontinued operations.

XII. Explanations on Goodwill and Other Intangible Assets

There is no goodwill regarding the investments in associates and subsidiaries.

Intangible assets are accounted for at restated cost until 31 December 2004 in accordance with inflation

accounting and are amortized with straight-line method. After 31 December 2004 the cost of assets subject to

amortization is restated as the acquisition cost and any other costs incurred in order to make the intangible asset

ready for use less reserve for impairment, if any, are amortized on a straight-line method. The cost of assets

subject to amortization is restated after deducting the exchange differences, capitalized financial expenses and

revaluation increases, if any, from the cost of the assets.

Those items classified as intangible assets mainly consist of software. These items are determined to have 5

years of amortization. Software is mainly outsourced and the related expenses are not capitalized.

There are no anticipated changes in the accounting estimates about the amortization rate and method and residual

values that would have a significant impact in the current and future periods.

The Group has no written-off intangible fixed assets, in the current period (31 December 2018 - None).




21



XIII. Explanations on Tangible Fixed Assets

The cost of the Parent Bank’s immovables has been adjusted for inflation until 31 December 2004. As of 31

December 2006, the Parent Bank changed its accounting policy and adopted revaluation method on annual basis

under scope of Standard on Tangible Fixed Assets (TAS 16) with respect to valuation of immovables included in

its tangible fixed assets. Tangible Fixed Assets’ appraisal valuation was conducted by an independent valuation

company as of 31 December 2018 and reflected in the financial statements, accordingly. The valuation

difference of immovables under equity as of 30 June 2019 is TRL 98,195 Thousand gross (after net off deferred

tax, net amount is TRL 82,569 Thousand) (31 December 2018 - TRL 98,195 Thousand gross, net-off deferred

tax amount TRL 82,569 Thousand).

Other tangible fixed assets were accounted at their restated costs in line with inflation accounting until 31

December 2004; afterwards the acquisition cost and any other cost incurred to prepare the fixed asset for usage

are reflected less reserve for impairment, if any, and depreciated on a straight-line method. Depreciation of assets

held less than one year as of the balance sheet date is accounted for proportionately. There is no change in

amortization method in current period and the annual rates used, which approximate rates based on the estimated

economic useful lives of the related assets, are as follows:

%

Buildings 2

Transportation vehicles 20

Furniture, fixtures and office equipment and others 2 – 33

Leasehold improvements During Leasehold

Gain or loss resulting from disposals of the tangible fixed assets is reflected to the statement of income as the

difference between the net proceeds and net book value.

Maintenance costs of tangible fixed assets are capitalized if they extend the economic useful life of related

assets. Other maintenance costs are expensed. There are no pledges, mortgages or other restrictions on the

tangible fixed assets.

There is no purchase commitments related to the tangible fixed assets.

The Group reviews the residual value and the useful life of buildings at each financial year-end and, if

expectations differ from previous estimates, the adjustments are accounted as a change in an accounting estimate

in accordance with TAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

The Group has no written-off tangible fixed assets in the current period (31 December 2018 - None).

XIV. Explanations on Leasing Transactions

Fixed assets acquired through financial leasing are recorded as assets in the assets of the Group and liabilities

from leasing transactions in liabilities. In accordance with this standard, the leasing transactions, which consist

of foreign currency liabilities, are translated to Turkish Lira with the exchange rates prevailing at the transaction

dates and they are recorded as an asset or a liability. The foreign currency liabilities are translated to Turkish

Lira with the Parent Bank’s period end exchange rates. Subsidiaries’ foreign currency liabilities are translated to

Turkish Lira wih the Central Bank of the Republic of Turkey’s exchange rates. The increases/decreases

resulting from the differences in the foreign exchange rates are recorded as expense/income in the relevant

period. The financing cost resulting from leasing is distributed through the lease period to form a fixed interest

rate.

In addition to the interest expense, the Group records depreciation expense for the depreciable leased assets in

each period. The depreciation rate is determined in accordance with TAS 16 “Accounting Standard for Tangible

Fixed Assets” and the depreciation rate of these assets is 20 %.




22



XIV. Explanations on Leasing Transactions (cont’d)

With the “TFRS 16 Leases” standard which became effective as of 1 January 2019, the difference between the

operating lease and financial lease was removed and the lease transactions were started to be recognised under

“Tangible Fixed Assets” as an asset (tenure) and under “Liabilities from Leasing” as a liability. Impact and

application of TFRS 16 concerning the transition were explained in Section three, footnote XXIII.

The gross lease receivables including interest and principal amounts regarding the Group’s financial leasing

activities conducted by Şeker Finansal Kiralama A.Ş. as “Lessor” are stated under the receivables from the

financial leasing activities. The difference between the total of rent payments and the cost of the related fixed

assets are reflected to the “unearned income” account. The interest income is calculated and recorded to create a

constant rate of return over the lessor’s net investment on the leased item

XV. Explanations on Provisions and Contingent Liabilities

Provisions are recognized when there is a present obligation, it is probable that an outflow of resources

embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the

amount of the obligation. Provisions are determined by using the Group’s best expectation of expenses in

fulfilling the obligation, and discounted to present value if material.

XVI. Explanations on Liabilities Regarding Employee Benefits

Defined Benefit Plans

In accordance with existing social legislation in Turkey, the Group is required to make lump-sum termination

indemnities over a 30 day salary for each employee who has completed over one year of service, whose

employment is terminated due to retirement or for reasons other than resignation or misconduct. The Group is

also required to make a payment for the period of notice calculated over each service year of the employee

whose employment is terminated for reasons other than resignation or misconduct. Total benefit is calculated in

accordance with TAS 19 “Turkish Accounting Standard on Employee Benefits”.

Such benefit plans are unfunded since there is no funding requirement in Turkey. The cost of providing benefits

to the employees for the services rendered by them under the defined benefit plan is determined by independent

actuaries annually using the projected unit credit method.

In calculating the related liability to be recorded in the financial statements for these defined benefit plans, the

Group uses independent actuaries and also makes assumptions and estimation relating to the discount rate to be

used, turnover of employees, future change in salaries/limits, etc. These estimations are reviewed annually.

According to TAS 19 published, actuarial gain/losses are recorded under equity. As of 30 June 2019, the

carrying value of employee benefit provisions is TRL 102,374 Thousand that consists of employee termination

benefit provisions amounting to TRL 90,007 Thousand and employee vacation pay provisions amounting to TRL

12,367 Thousand (31 December 2018 - total employee benefit provision was TRL 88,041 Thousand, employee

termination benefit provisions was TRL 79,953 Thousand and employee vacation pay provisions was TRL 8,088

Thousand).




23



XVI. Explanations on Liabilities Regarding Employee Benefits (cont’d)

Defined Contribution Plans

Şekerbank T.A.Ş. Pension Fund, of which most of the Parent Bank’s employees are members, is established in

accordance with the provisional Article 20 of the Social Security Act No: 506. As per the provisional article No:

23 of the Banking Law No: 5411, the Bank pension funds, which were established within the framework of

Social Security Institution Law, should be transferred to the Social Security Institution within 3 years after the

issuance of the related law. Methods and principles related to the transfer have been determined as per the

Cabinet decision no: 2006/11345 made on 30 November 2006. However, the related article of the act has been

cancelled upon the President’s application filed on 2 November 2005 by the Supreme Court’s order no:

E.2005/39, K.2007/33 issued on 22 March 2007, which was published in the Official Gazette No: 26479 on 31

March 2007 and the execution of the decision was ceased as of the issuance date of the order.

After the justified decree related to cancelling the provisional article 23 of the Banking Law was announced by

the Constitutional Court in the Official Gazette dated 15 December 2007 and numbered 26731, the Turkish

Grand National Assembly started to work on establishing new legal regulations, and after it was approved at the

General Assembly of the TGNA, the Law numbered 5754 “Emendating Social Security and General Health

Insurance Act and Certain Laws and Decree Laws”, which was published in the Official Gazette dated 8 May

2008 and numbered 26870, came into effect. The new law decrees that the contributors of the Banks’ pension

funds, the ones who receive salaries or income from these funds and their rightful beneficiaries will be

transferred to the Social Security Institution and will be subject to this Law within 3 years after the release date

of the related article, without any need for further operation. The three year transfer period can be prolonged for

maximum 2 years by the Cabinet decision. However, related transfer period has been prolonged for 2 years by

the Cabinet decision dated 14 March 2011, which was published in the Official Gazette dated 9 April 2011 and

numbered 27900.

In addition, by the Law “Emendating Social Security and General Health Insurance Act”, which was published

in the Official Gazette dated 8 March 2012 and numbered 28227, this period of 2 years has been raised to 4 years

after that related transfer period has been prolonged for one more year by the Cabinet decision dated 08 April

2013, which was published in the Official Gazette dated 3 May 2013 and numbered 28636 also this period has

revalidated one more year by the Cabinet decision dated 24 February 2014, which was published in the Official

Gazette dated 30 April 2014 and numbered 28987. The Council of Ministers has been lastly authorized to

determine the transfer date in accordance with the last amendment in the first paragraph of the 20th provisional

article of Law No.5510 implemented by the Law No. 6645 on Amendment of the “Occupational Health and

Safety Law and Other Laws and Decree Laws” published in the Official Gazette dated 23 April 2015 and

numbered 29335. This authority was transferred to the President with the delegated legislation No.703 which

was published in the repetitive Official Gazette No. 30473 dated 9 July 2018.

The above mentioned law also includes the following:

Through a commission constituted by the attendance of one representative separately from the Social

Security Institution, the Presidency Ministry of Treasury and Finance, State Planning Organization,

Banking Regulation and Supervision Agency, Savings Deposit Insurance Fund, one from each pension

fund, and one representative from the organization employing pension fund contributors, related to the

transferred persons, the cash value of the liabilities of the pension fund as of the transfer date will be

calculated by considering their income and expenses in terms of the lines of insurance within the

context of the related Law, and technical interest rate of 9.80% will be used in the actuarial calculation

of the value in cash,

And that after the transfer of the pension fund contributors, the ones who receive salaries or income

from these funds and their rightful beneficiaries to the Social Security Institution, these persons’

uncovered social rights and payments, despite being included in the trust indenture that they are subject

to, will be continued to be covered by the pension funds and the employers of pension fund

contributors.




24



XVI. Explanations on Liabilities Regarding Employee Benefits (cont’d)

On the other hand, the application made on 19 June 2008 by the Republican People’s Party to the Constitutional

Court for the annulment and motion for stay of some articles, including the first paragraph of the provisional

article 20 of the Law, which covers provisions on transfers, was rejected in accordance with the decision taken at

the meeting of the afore-mentioned court on 30 March 2011.

The technical financial statements of the Pension Fund are reviewed by an actuary registered audit company in

accordance with the Article 21 of the Insurance Law numbered 5684 and the requirements of the “Actuary

Regulations”. There was TRL 159,499 Thousand actuarial deficit in the actuary report which was prepared using

a technical interest rate rate of 9.80 % in accordance with the basis set out in the Council of Ministers decision

no: 26377 on 15 December 2006 (31 December 2018 - TRL 159,499 Thousand actuarial deficit).

As of 30 June 2019, TRL 159,499 Thousand provision is recorded in the financial statements (31 December

2018 - TRL 159,499 Thousand).

XVII. Explanations on Taxation

Corporate tax

According to the Article 37 of the Corporate Tax Law, starting from 1 January 2006 earnings of companies will

be taxed by %20. In accordance with the regulation numbered 7061, “Amendments to Certain Tax Laws and

Other Certain Other Laws”, the tax rate has been set as 22 % for 2018, 2019 and 2020. The Council of Ministers

is authorized to reduce this rate up to 20% anytime.

The tax legislation requires advance tax payment to be calculated and paid based on earnings generated for each

quarter. The amounts thus calculated and paid are offset against the final tax liability for the year .

Annual tax returns are required to be filed between the first and twenty fifth day of the fourth month following

the balance sheet date and paid in one installment until the end of the related month.

Tax provision related with items that are credited or charged directly to equity are charged or credited to equity.

According to the Corporate Tax Law, tax losses can be carried forward for a maximum period of five years

following the year in which the losses are incurred. Tax authorities can inspect tax returns and the related

accounting records for a retrospective maximum period of five years.

Deferred Tax Liability / Asset

The Group calculates and reflects deferred tax asset or liability on timing differences which will result in taxable

or deductible amounts in determining taxable profit of future periods.

In accordance with TAS 12 “Turkish Accounting Standard on Income Taxes” and the changes in the circular of

the BRSA numbered BDDK.DZM.2/13/1-a-3 dated 8 December 2004, the Group calculated deferred tax asset

on all deductible temporary differences, if sufficient taxable profit in future periods to recover such amounts is

probable; as well as deferred tax liability on all taxable temporary differences. Deferred tax assets and liabilities

calculated for the subsidiaries subject to consolidation are shown netted in their financial statements. In

accordance with TAS 12, deferred tax assets and liabilities arising from the different subsidiaries subject to

consolidation are presented separately in the financial statements on a consolidated basis, without netting.

The net deferred tax asset is reflected under the deferred tax asset and the net deferred tax liability is reflected

under the deferred tax liability in the balance sheet. The deferred tax benefit of TRL 73,610 Thousand (30 June

2018 – TRL 87,901 Thousand) is stated under the tax provision line in the income statement, the deferred tax

expense of TRL 5,011 Thousand is presented in the deferred tax expense effect line in the income statement (30

June 2018 - TRL 77,634 Thousand).

Furthermore, as per the above circular of the BRSA, deferred tax benefit balance resulting from netting of

deferred tax assets and liabilities should not be used in dividend distribution and capital increase.

Effective from 1 January 2018, deferred tax assets have started to be calculated over the expected losses that are

temporary differences according to TFRS 9.




25



XVIII. Additional Explanations on Borrowings

In the case of assets that require significant time to be ready for use and sale, borrowing costs that are directly

attributable are included in the cost of the asset until the asset is ready for use or sale. Financial investment

income obtained by temporary placement of undisbursed investment loan in financial investments is offset

against borrowing costs qualified for capitalization.

All borrowing costs are recorded to the statement of income in the period they are incurred.

As of 30 June 2019 outstanding issued bonds amount of the Group is TRL 515,662 Thousand (31 December

2018 – TRL 516,302 Thousand).

Issuer Issuance Date Issuance Amount Maturity

Şekerbank T.A.Ş. 18.04.2019 48,500 77 days



Şeker Finansal Kiralama A.Ş. 05.09.2018 4,591 350 days





Şeker Faktoring A.Ş. 07.09.2018 1,000 364 days





Şeker Yatırım Menkul Değerler A.Ş. 23.05.2019 4,443 69 days


As of 30 June 2019 outstanding issued marketable securities amount of the Group is TRL 15,134 Thousand and

details are shown the in table below (31 December 2018 – TRL 25,532 Thousand).







26



XVIII. Additional Explanations on Borrowings (cont’d)

The Parent Bank issued Asset Covered Bond amounting to TRL 1,500,000 Thousand and details are shown in

the table below. Among the institutions and organizations investing up to this time are International Finance

Corporation (IFC), Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO), UniCredit

Bank AG, European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD),

KfW Bankengruppe and qualified institutional investors. The transactions were conducted in line with the related

Capital Market Board regulation and the Parent Bank’s SME loans were used as collateral.

Issue Date Series Investors Amount

Remaining Principal

Amount Currency Maturity

25 November 2016 2016-1 IFC 180,000 180,000 TRL 13.09.2021

19 December 2017 2017-1 FMO 192,000 192,000 TRL 22.12.2020

As of 30 June 2019 the Group has the Asset Covered Bonds amounting to TRL 380,319 Thousand (31 December

2018 - TRL 701,850 Thousand).

The Group has not issued convertible bonds.

XIX. Explanations on Share Certificates

None.

XX. Explanations on Independent Guarantees and Acceptances

Acceptances are realized simultaneously with the payment dates of the customers and they are presented as

probable commitments in off-balance sheet accounts.

XXI. Explanations on Government Incentives

The Parent Bank’s subsidiary Şeker Finansal Kiralama A.Ş. has TRL 64,831 Thousand of unused investment

incentives as of 30 June 2019 (31 December 2018 – TRL 53,265 Thousand).




27



XXII. Explanations on Segment Reporting

The Group primarily deals with and engages in corporate, retail and SME finance in line with its strategy.

Current Period

Corporate SME

Retail

Other

Total

Net Interest Income 181,719 289,516 212,640 (205,544) 478,331

Net Fees and Commission Income and Other

Operating Income 73,490 146,100 15,369 19,086 254,045

Dividend Income 69 - - 3,624 3,693

Trading Profit/(Loss) 14,112 - (118) (59,724) (45,730)

Expected Loss Provisions (146,733) (256,119) - - (402,852)

Other Provision Expenses - - - (54,738) (54,738)

Personnel Expenses (12,692) - (1,537) (257,955) (272,184)

Other Operating Expenses (12,259) (27) (1,214) (295,936) (309,436)

Profit/(Loss) before taxes 97,706 179,470 225,140 (851,187) (348,871)

Tax Provision - - - - 68,435

Net Profit for the Period - - - - (280,436)

Current Period Commercial SME Retail

Treasury

/Investment Undistributed Total

Assets 7,445,797 12,952,825 1,305,922 8,206,465 2,695,527 32,606,536

Liabilities 4,560,996 1,835,221 17,555,438 5,094,681 3,560,200 32,606,536

Prior Period

Corporate SME

Retail

Other

Total

Net Interest Income 117,359 266,000 130,356 240,689 754,404

Net Fees and Commission Income and Other

Operating Income 66,029 115,967 21,163 15,700 218,859

Personnel Expenses - - - 1,230 1,230

Dividend Income 21,689 - (198) (103,226) (81,735)

Trading Profit/(Loss) (52,083) (111,164) - - (163,247)

Expected Loss Provisions - - - (123,201) (123,201)

Other Provision Expenses - - - (221,033) (221,033)

Other Operating Expenses (10,285) (2,395) (1,193) (291,472) (305,345)

Profit/(Loss) before taxes 142,709 268,408 150,128 (481,313) 79,932

Tax Provision - - - - (9,223)

Net Profit for the Period - - - - 70,709

Prior Period Commercial SME Retail

Treasury

/Investment Undistributed Total

Assets 8,452,154 12,183,332 1,321,375 8,343,423 2,664,500 32,964,784

Liabilities 4,206,451 2,139,806 16,594,600 6,061,566 3,962,361 32,964,784




28



XXIII. Explanations on Other Matters

Explanations on IFRS 16 Leases Standard

With the “TFRS 16 Leases” standard which became effective as of 1 January 2019, the difference between the

operating lease and financial lease was removed and the lease transactions were started by lessees to be

recognised as “Right-of-use Assets” and “Liabilities from Leasing”. Impact and application of TFRS 16

concerning the transition were explained in Section three, footnote XXIX.

The Group has accounted for its leasing payments as of 1 January 2019 for the operational leases in the transition

to the first application with the present value discounted with the alternative borrowing interest rate on the

Bank's first application date as “Assets with Right to Use” and Liabilities from “Leasing Operations” as

liabilities.

The lease agreements for short-term lease agreements with 1 year and less than 1 year and the ATMs determined

by the Parent Bank as low value are considered within the scope of the exemption granted by the standard and

the payments related to these agreements are continued to be accounted for under “Other Operating Expenses” in

the period that they occur. In this context, TRL 3,815 Thousand payment was made in the related period.

The details of the accounted Right-of-use of the Assets are recognized as follows by basis of the asset:

1 January 2019 30 June 2019

Right-of-use of the Assets 188,553 171,081

Right-of-use of the Vehicles 12,089 14,932

Total 200,642 186,013

Depreciation expenses related to the asset usage right recognized are as follows:

30 June 2019

Right-of-use of the Real Estates 25,834

Right-of-use of the Vehicles 3,242

Total 29,076

The classification and adjustment effects of the first application of TFRS 16 Leases on 1 January 2019 are given

in the following tables.

31 December 2018

TFRS 16

Classification Effect

TFRS 16

Transition Effect 1 January 2019

Tangible Fixed Assets (Net) 711,832 1,114 199,528 912,474

Other Assets (Net) 684,254 (1,114) - 683,140

Liabilities from Leasing (Net) 25,107 - 198,547 223,654

(*) In accordance with TFRS 16, the Bank recognised prepaid rent payments amounting to TRL 1,114 Thousands under tangible assets as

right-of-use which were previously classified under other assets.




29

SECTION FOUR

INFORMATION RELATED TO CONSOLIDATED FINANCIAL POSITION AND RISK

MANAGEMENT

I. Explanations Related to the Shareholders’ Equity

The method used for risk measurement in determining capital adequacy standard ratio; capital adequacy standard

ratio is calculated in accordance with the Communiqué on “Measurement and Assessment of Capital Adequacy

of Banks”, which was published on 23 October 2015 in the Official Gazette numbered 29511 and effective since

31 March 2016 and Communiqué on “Banks’ Equity” which was published on 5 September 2013 and in the

Official Gazette numbered 28756. The Group’s consolidated capital adequacy ratio in accordance with the

related communiqués is 12.51 % (31 December 2018 – 14.33 %).

In the computation of capital adequacy standard ratio, data prepared in accordance with statutory accounting

requirements are used. Additionally, the market risk exposure as well as the operational risk exposure are

calculated in accordance with the communiqué on the Communiqué on “Measurement and Assessment of

Capital Adequacy of Banks” and is taken into consideration in the capital adequacy standard ratio calculation.

The values deducted from the capital base in the shareholders’ equity computation are excluded while

calculating risk-weighted assets. Assets subject to depreciation and impairment among risk-weighted assets are

included in the calculations over their net book values after deducting the relative depreciations and provisions.

In the calculation process of credit risk, risk types are classified based on “Measurement and Assessment of

Capital Adequacy of Banks-Appendix 1” and financial collaterals taken into account according to the credit risk

mitigation techniques communiqué and classified in the related risk weight. According to the credit risk

mitigation techniques communiqué while simple approach is taken into account for banking book items, the

Group uses comprehensive approach for trading book items in the credit mitigation process

While calculating the basis of non-cash loans subject to credit risk, the net receivable amount from the counter

parties net of provision amount set in accordance with the “Communiqué on Methods and Principles for the

Determination of Loans and Other Receivables to be Reserved for and Allocation of Reserves” is multiplied by

the loan conversion rates presented in the Article 5 and related clauses of the Communiqué on “Measurement

and Assessment of Capital Adequacy of Banks”, and calculated by applying the risk weights presented in the

Capital Adequacy Analysis Form.

In the calculation of counterparty credit risk, the current exposure method is used according to the Communiqué

on “Measurement and Assessment of Capital Adequacy of Banks” the Article 21 and Appendix 2.




30

SECTION FOUR (cont’d)


MANAGEMENT (cont’d)

I. Explanations Related to Consolidated Shareholders’ Equity (cont’d)

Current Period

Amounts related to

treatment before

1/1/2014(*)

COMMON EQUITY TIER 1 CAPITAL

Paid-in capital following all debts in terms of claim in liquidation of the Bank 1,158,000 -

Share issue premiums 1,835 -

Reserves 1,401,983 -

Gains recognized in equity as per TAS 81,579 -

Profit - -

Current Period Profit - -

Prior Period Profit - -

Shares acquired free of charge from subsidiaries, affiliates and jointly controlled partnerships and cannot be

recognised within profit for the period - -

Minorities’ Share 30,482 -

Common Equity Tier 1 Capital Before Deductions 2,673,879 -

Deductions from Common Equity Tier 1 Capital

Common Equity as per the 1st clause of Provisional Article 9 of the Regulation on the Equity of Banks - -

Portion of the current and prior periods’ losses which cannot be covered through reserves and losses reflected

in equity in accordance with TAS 10,155 -

Improvement costs for operating leasing 66,367 -

Goodwill (net of related deferred tax liability) 111,445 -

Other intangibles other than mortgage-servicing rights (net of related deferred tax liability) - -

Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of

related deferred tax liability) 52,147 -

Differences are not recognized at the fair value of assets and liabilities subject to hedge of cash flow risk - -

Communiqué Related to Principles of the amount credit risk calculated with the Internal Ratings Based

Approach, total expected loss amount exceeds the total provison - -

Gains arising from securitization transactions - -

Unrealized gains and losses due to changes in own credit risk on fair valued liabilities - -

Defined-benefit pension fund net assets - -

Direct and indirect investments of the Bank in its own Common Equity 175,996 -

Shares obtained contrary to the 4th clause of the 56th Article of the Law - -

Portion of the total of net long positions of investments made in equity items of banks and financial

institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share

capital exceeding 10% of Common Equity of the Bank - -


institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common

share capital exceeding 10% of Common Equity of the Bank - -

Portion of mortgage servicing rights exceeding 10% of the Common Equity - -

Portion of deferred tax assets based on temporary differences exceeding 10% of the Common Equity - -

Amount exceeding 15% of the common equity as per the 2nd clause of the Provisional Article 2 of the

Regulation on the Equity of Banks - -

Excess amount arising from the net long positions of investments in common equity items of banks and

financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued

common share capital 85,343 -

Excess amount arising from mortgage servicing rights - -

Excess amount arising from deferred tax assets based on temporary differences - -

Other items to be defined by the BRSA - -

Deductions to be made from common equity due to insufficient Additional Tier I Capital or Tier II Capital - -

Total Deductions From Common Equity Tier 1 Capital 416,110 -

Total Common Equity Tier 1 Capital 2,257,769 -

ADDITIONAL TIER I CAPITAL -

Preferred Stock not Included in Common Equity and the Related Share Premiums - -

Debt instruments and premiums approved by BRSA - -




31

Debt instruments and premiums approved by BRSA(Temporary Article 4) - -

Third parties’ share in the Additional Tier I capital - -

Third parties’ share in the Additional Tier I capital (Temporary Article 3) - -

Additional Tier I Capital before Deductions - -

Deductions from Additional Tier I Capital - -

Direct and indirect investments of the Bank in its own Additional Tier I Capital - -

Investments of Bank to Banks that invest in Bank's additional equity and components of equity issued by

financial institutions with compatible with Article 7. - -

Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial

Institutions where the Bank Owns 10% or less of the Issued Share Capital Exceeding the 10% Threshold of

above Tier I Capital - -

The Total of Net Long Position of the Direct or Indirect Investments in Additional Tier I Capital of

Unconsolidated Banks and Financial Institutions where the Bank Owns more than 10% of the Issued Share

Capital - -


Transition from the Core Capital to Continue to deduce Components - -

Goodwill and other intangible assets and related deferred tax liabilities which will not deducted from

Common Eguity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the

Regulation on Banks’ Own Funds (-) - -

Net deferred tax asset/liability which is not deducted from Common Eguity Tier 1 capital for the purposes of

the sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) - -

Deductions to be made from Tier I Capital in the case that adequate Additional Tier II Capital or is not

available (-) - -

Total Deductions From Additional Tier I Capital - -

Total Additional Tier I Capital - -

Total Tier I Capital (Tier I Capital=Common Equity+Additional Tier I Capital) 2,257,769 -

TIER II CAPITAL

Debt instruments and share issue premiums deemed suitable by the BRSA 939,184 -

Debt instruments and share issue premiums deemed suitable by BRSA (Temporary Article 4) - -

Third parties’ share in the Tier II Capital - -

Third parties’ share in the Tier II Capital (Temporary Article 3) - -

Provisions (Article 8 of the Regulation on the Equity of Banks) 18,746 -

Tier II Capital Before Deductions 957,930 -

Deductions From Tier II Capital

Direct and indirect investments of the Bank on its own Tier II Capital (-) - -

Investments of Bank to Banks that invest on Bank's Tier 2 and components of equity issued by financial

institutions with the conditions - -



capital exceeding 10% of Common Equity of the Bank (-) - -

Portion of the total of net long positions of investments made in Additional Tier I Capital item of banks and


common share capital exceeding 10% of Common Equity of the Bank - -

Other items to be defined by the BRSA (-) - -

Total Deductions from Tier II Capital - -

Total Tier II Capital 957,930 -

Total Capital (The sum of Tier I Capital and Tier II Capital) 3,215,699 -

The Sum of Tier I Capital and Tier II Capital (Total Capital) - -

Deductions from Capital Loans granted contrary to the 50th and 51th Article of the Law - -

Net Book Values of Movables and Immovables Exceeding the Limit Defined in the Article 57, Clause 1 of

the Banking Law and the Assets Acquired against Overdue Receivables and Held for Sale but Retained more

than Five Years - -

Other items to be defined by the BRSA 6,309 -

In transition from Total Core Capital and Supplementary Capital (the capital) to Continue to

Deduction Components

The Sum of net long positions of investments (the portion which exceeds the 10% of Banks Common Equity)

in the capital of banking, financial and insurance entities that are outside the scope of regulatory

consolidation, where the bank does not own more than 10% of the issued common share capital of the entity

which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the

purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - -




32

The Sum of net long positions of investments in the Additional Tier 1 capital and Tier 2 capital of banking,

financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not

own more than 10% of the issued common share capital of the entity which will not deducted from Common

Equity Tier 1 cap7ital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of

the Provisional Article 2 of the Regulation on Banks’ Own Funds - -

The Sum of net long positions of investments in the common stock of banking, financial and insurance

entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of

the issued common share capital of the entity, mortgage servicing rights, deferred tax assets arising from

temporary differences which will not deducted from Common Eguity Tier 1 capital for the purposes of the

first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - -

TOTAL CAPITAL


Total risk weighted amounts 25,647,012 -

CAPITAL ADEQUACY RATIOS

Core Capital Adequacy Ratio (%) 8.80 -

Tier 1 Capital Adequacy Ratio (%) 8.80 -

Capital Adequacy Ratio (%) 12.51

BUFFERS

Total additional Common Equity Tier 1 Capital requirement ratio (a+b+c) 2.55 -

a) Bank specific total common equity tier 1 capital ratio 2.50 -

b) Capital conservation buffer requirement 0.05 -

c) Systemically important bank buffer ratio (**) 0.00 -

The ratio of Additional Common Equity Tier 1 capital which will be calculated by the first paragraph of the

Article 4 of Regulation on Capital Conservation and Countercyclical Capital buffers to Risk Weighted Assets 2.80 -

Amounts below the Excess Limits as per the Deduction Principles

Portion of the total of net long positions of investments in equity items of unconsolidated banks and financial

institutions where the bank owns 10% or less of the issued share capital exceeding the 10% threshold of

above Tier I capital - -

Portion of the total of investments in equity items of unconsolidated banks and financial institutions where

the bank owns 10% or less of the issued share capital exceeding the 10% threshold of above Tier I capital - -

Amount arising from deferred tax assets based on temporary differences - -

Limits related to provisions considered in Tier II calculation - -

Limits related to provisions considered in Tier II calculation

General provisions for standard based receivables (before limit of one hundred and twenty five

per ten Thousand) 18,746 -

Up to 1.25% of total risk-weighted amount of general reserves for receivables where the standard approach

used - -

Excess amount of total provision amount to credit risk Amount of the Internal Ratings Based Approach in

accordance with the Communiqué on the Calculation - -

Excess amount of total provision amount to 0,6% of risk weighted receivables of credit risk Amount of the

Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - -

Debt instruments subjected to Article 4

(to be implemented between 1 January 2018 and 1 January 2022)

Upper limit for Additional Tier I Capital subjected to temprorary Article 4 - -

Amounts Excess the Limits of Additional Tier I Capital subjected to temprorary Article 4 - -

Upper limit for Additional Tier II Capital subjected to temprorary Article 4 - -

Amounts Excess the Limits of Additional Tier II Capital subjected to temprorary Article 4 - -

(*) Amounts in this column represent the amounts of items that are subject to transition provisions in accordance with the provisional

Articles of “Regulations regarding to changes on Regulation on Equity of Banks” effectuated on 1/1/2014 and taken into consideration at

the end of transition process.

(**) According to the paragraph 4 of the Article 4 of the Regulation on Systemically Important Banks only Systematically Important Bank,

which are not obligated to prepare consolidated financial statements, shall calculate this ratio and the rest banks shall report it as zero.




33





Prior Period

Amounts related to

treatment before

1/1/2014 (*)

COMMON EQUITY TIER 1 CAPITAL

Paid-in capital following all debts in terms of claim in liquidation of the Bank 1,158,000 -

Share issue premiums 1,835 -

Reserves 1,705,427 -

Gains recognized in equity as per TAS 69,591 -

Profit 89,398 -

Current Period Profit 89,398 -

Prior Period Profit - -

Shares acquired free of charge from subsidiaries, affiliates and jointly controlled partnerships and cannot be

recognised within profit for the period - -

Minorities’ Share 29,315 -

Common Equity Tier 1 Capital Before Deductions 3,053,566 -

Deductions from Common Equity Tier 1 Capital

Common Equity as per the 1st clause of Provisional Article 9 of the Regulation on the Equity of Banks - -

Portion of the current and prior periods’ losses which cannot be covered through reserves and losses reflected

in equity in accordance with TAS (14,498) -

Improvement costs for operating leasing 70,935 -

Goodwill (net of related tax liability) 94,111 -

Other intangibles other than mortgage-servicing rights (net of related tax liability) - -

Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of

related tax liability) 69,529 -

Differences are not recognized at the fair value of assets and liabilities subject to hedge of cash flow risk - -

Communiqué Related to Principles of the amount credit risk calculated with the Internal Ratings Based

Approach, total expected loss amount exceeds the total provison - -

Gains arising from securitization transactions - -

Unrealized gains and losses due to changes in own credit risk on fair valued liabilities - -

Defined-benefit pension fund net assets - -

Direct and indirect investments of the Bank in its own Common Equity 175,996 -

Shares obtained contrary to the 4th clause of the 56th Article of the Law - -



capital exceeding 10% of Common Equity of the Bank - -


institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common

share capital exceeding 10% of Common Equity of the Bank - -

Portion of mortgage servicing rights exceeding 10% of the Common Equity - -

Portion of deferred tax assets based on temporary differences exceeding 10% of the Common Equity - -

Amount exceeding 15% of the common equity as per the 2nd clause of the Provisional Article 2 of the

Regulation on the Equity of Banks - -

Excess amount arising from the net long positions of investments in common equity items of banks and


common share capital 66,028 -

Excess amount arising from mortgage servicing rights - -

Excess amount arising from deferred tax assets based on temporary differences - -


Deductions to be made from common equity due to insufficient Additional Tier I Capital or Tier II Capital - -

Total Deductions From Common Equity Tier 1 Capital 396,073 -

Total Common Equity Tier 1 Capital 2,657,493 -

ADDITIONAL TIER I CAPITAL

Preferred Stock not Included in Common Equity and the Related Share Premiums - -

Debt instruments and premiums approved by BRSA

-

-

Debt instruments and premiums approved by BRSA(Temporary Article 4) - -

Third parties’ share in the Additional Tier I capital - -




34

Third parties’ share in the Additional Tier I capital (Temporary Article 3) - -

Additional Tier I Capital before Deductions - -

Deductions from Additional Tier I Capital

Direct and indirect investments of the Bank in its own Additional Tier I Capital - -

Investments of Bank to Banks that invest in Bank's additional equity and components of equity issued by

financial institutions with compatible with Article 7. - -

Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial

Institutions where the Bank Owns 10% or less of the Issued Share Capital Exceeding the 10% Threshold of

above Tier I Capital - -

The Total of Net Long Position of the Direct or Indirect Investments in Additional Tier I Capital of

Unconsolidated Banks and Financial Institutions where the Bank Owns more than 10% of the Issued Share

Capital - -


Transition from the Core Capital to Continue to deduce Components

Goodwill and other intangible assets and related deferred tax liabilities which will not deducted from

Common Eguity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the

Regulation on Banks’ Own Funds (-) - -

Net deferred tax asset/liability which is not deducted from Common Eguity Tier 1 capital for the purposes of

the sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) - -

Deductions to be made from Tier I Capital in the case that adequate Additional Tier II Capital or is not

available (-) - -

Total Deductions From Additional Tier I Capital - -

Total Additional Tier I Capital - -

Total Tier I Capital (Tier I Capital=Common Equity+Additional Tier I Capital) 2,657,493 -

TIER II CAPITAL

Debt instruments and share issue premiums deemed suitable by the BRSA 898,885 -

Debt instruments and share issue premiums deemed suitable by BRSA (Temporary Article 4) - -

Third parties’ share in the Tier II Capital - -

Third parties’ share in the Tier II Capital (Temporary Article 3) - -

Provisions (Article 8 of the Regulation on the Equity of Banks) - -

Tier II Capital Before Deductions 898,885 -

Deductions From Tier II Capital

Direct and indirect investments of the Bank on its own Tier II Capital (-) - -

Investments of Bank to Banks that invest on Bank's Tier 2 and components of equity issued by financial

institutions with the conditions - -



capital exceeding 10% of Common Equity of the Bank (-) - -

Portion of the total of net long positions of investments made in Additional Tier I Capital item of banks and


common share capital exceeding 10% of Common Equity of the Bank - -

Other items to be defined by the BRSA (-) - -

Total Deductions from Tier II Capital - -

Total Tier II Capital 898,885 -


The Sum of Tier I Capital and Tier II Capital (Total Capital) - -

Deductions from Capital Loans granted contrary to the 50th and 51th Article of the Law - -

Net Book Values of Movables and Immovables Exceeding the Limit Defined in the Article 57, Clause 1 of

the Banking Law and the Assets Acquired against Overdue Receivables and Held for Sale but Retained more

than Five Years - -

Other items to be defined by the BRSA 5,780 -

In transition from Total Core Capital and Supplementary Capital (the capital) to Continue to

Deduction Components

The Sum of net long positions of investments (the portion which exceeds the 10% of Banks Common Equity)

in the capital of banking, financial and insurance entities that are outside the scope of regulatory

consolidation, where the bank does not own more than 10% of the issued common share capital of the entity

which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the

purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - -

The Sum of net long positions of investments in the Additional Tier 1 capital and Tier 2 capital of banking,

financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not

own more than 10% of the issued common share capital of the entity which will not deducted from Common

Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the

Provisional Article 2 of the Regulation on Banks’ Own Funds - -




35

The Sum of net long positions of investments in the common stock of banking, financial and insurance

entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of

the issued common share capital of the entity, mortgage servicing rights, deferred tax assets arising from

temporary differences which will not deducted from Common Eguity Tier 1 capital for the purposes of the

first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - -

TOTAL CAPITAL


Total risk weighted amounts 24,785,039 -


Core Capital Adequacy Ratio (%) 10.72 -

Tier 1 Capital Adequacy Ratio (%) 10.72 -

Capital Adequacy Ratio (%) 14.33

BUFFERS

Total additional Common Equity Tier 1 Capital requirement ratio (a+b+c) 1.933 -

a) Bank specific total common equity tier 1 capital ratio 1.875 -

b) Capital conservation buffer requirement 0.058 -

c) Systemically important bank buffer ratio (**) 0.000 -

The ratio of Additional Common Equity Tier 1 capital which will be calculated by the first paragraph of the

Article 4 of Regulation on Capital Conservation and Countercyclical Capital buffers to Risk Weighted Assets 4.72 -

Amounts below the Excess Limits as per the Deduction Principles

Portion of the total of net long positions of investments in equity items of unconsolidated banks and financial

institutions where the bank owns 10% or less of the issued share capital exceeding the 10% threshold of

above Tier I capital - -

Portion of the total of investments in equity items of unconsolidated banks and financial institutions where

the bank owns 10% or less of the issued share capital exceeding the 10% threshold of above Tier I capital - -

Amount arising from deferred tax assets based on temporary differences - -

Limits related to provisions considered in Tier II calculation - -

Limits related to provisions considered in Tier II calculation

General provisions for standard based receivables (before limit of one hundred and twenty five

per ten Thousand) - -

Up to 1.25% of total risk-weighted amount of general reserves for receivables where the standard approach

used - -

Excess amount of total provision amount to credit risk Amount of the Internal Ratings Based Approach in

accordance with the Communiqué on the Calculation - -

Excess amount of total provision amount to 0,6% of risk weighted receivables of credit risk Amount of the

Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - -

Debt instruments subjected to Article 4

(to be implemented between 1 January 2018 and 1 January 2022)

Upper limit for Additional Tier I Capital subjected to temprorary Article 4 - -

Amounts Excess the Limits of Additional Tier I Capital subjected to temprorary Article 4 - -

Upper limit for Additional Tier II Capital subjected to temprorary Article 4 - -

Amounts Excess the Limits of Additional Tier II Capital subjected to temprorary Article 4 - -

(*) Amounts in this column represent the amounts of items that are subject to transition provisions in accordance with the provisional

Articles of “Regulations regarding to changes on Regulation on Equity of Banks” effectuated on 1/1/2014 and taken into consideration at

the end of transition process.

(**) According to the paragraph 4 of the Article 4 of the Regulation on Systemically Important Banks only Systematically Important Bank, which

are not obligated to prepare consolidated financial statements, shall calculate this ratio and the rest banks shall report it as zero.




36





Information on borrowing instruments to be included in the equity calculation:

Current Period

Issuer ŞEKERBANK T.A.Ş ŞEKERBANK T.A.Ş ŞEKERBANK T.A.Ş

Unique identifier

(eg CUSIP, ISIN or

Bloomberg identifier

for private placement) TRSSKBK52818 XS1626188491 TRSSKBKA2716

Governing law(s) of the

instrument

Subject to Turkish Regulations. It is

issued within the scope of the Debt

Instruments Disclosure of the Capital

Markets Board and the Regulation on

Equities of Banks of the BRSA.

Subject to Turkish Regulations. It

is issued within the scope of the

Debt Instruments Disclosure of the

Capital Markets Board and the

Regulation on Equities of Banks of

the BRSA.

Subject to Turkish Regulations. It is

issued within the scope of the Debt

Instruments Disclosure of the Capital

Markets Board and the Regulation on

Equities of Banks of the BRSA.

Regulatory treatment

Subject to 10%

deduction as of

1/1/2015 No No No

Eligible on

Unconsolidated/

consolidated / both

unconsolidated and

consolidated

Valid on Consolidated and

Unconsolidated Basis





Instrument type Subordinated Liabilities (Securities)

Subordinated Liabilities

(Securities)

Subordinated Liabilities (Securities)

Amount recognised in

regulatory capital

(Currency in million

TRL, as of most recent

reporting date) 150 489.2 300

Par value of instrument

(Million TRL) 150 489.2 300

Accounting

classification 346 347 346

Original date of

issuance 24.05.2018 12.06.2017 22.12.2017

Demand or time Time Time Time

Original maturity date 11.05.2028 12.06.2027 10.12.2027

Issuer call subject to

prior supervisory

approval Yes Yes Yes

Optional call date,

contingent call dates

and redemption amount

17 May 2023, TRL 150 Million (10

year maturity with early redemption

option in the 5th year, subject to

BRSA approval)

13 June 2022, USD 85 Million (10

year maturity with early

redemption option in the 5th year,

subject to BRSA approval)

16 December 2022, TRL 300 Million (10

year maturity with early redemption

option in the 5th year, subject to BRSA

approval)

Subsequent call dates,

if applicable - - -

Coupons / dividends

Fixed or floating

dividend/coupon

Variable interest (The Borrowing

instrument will make coupon

payments from the beginning of the

maturity to the date of redemption

(including the redemption date) once a

month (variable days).) Fixed

Variable interest (The Borrowing

instrument will make coupon payments

from the beginning of the maturity to the

date of redemption (including the

redemption date) once a month (variable

days).)

Coupon rate and any

related index

5 Years Term Indicator + 475 bps on

government securities 9.75% p.a.

5 Years Term Indicator + 475 bps on

government securities

Existence of a dividend

stopper - - -




37

Fully discretionary,

partially

discretionary or

mandatory Mandatory Mandatory Mandatory

Existence of step up or

other incentive to

redeem - - -

Noncumulative or

cumulative Noncumulative Noncumulative Noncumulative

Convertible or non-convertible

If convertible,

conversion trigger (s) - - -

If convertible, fully or

partially - - -

If convertible,

conversion rate - - -

If convertible,

mandatory or optional

conversion - - -

If convertible, specify

instrument type

convertible into - - -

If convertible, specify

issuer of instrument it

converts int - - -

Write-down feature

If write-down, write-

down trigger(s)

According to the Article 8 (2) (ğ) of

the Regulation on Equities of Banks,

the bonds have a write-off option. If,

in accordance with the related

regulation, there is a possibility of

abolishing the bank's operating permit

or transferring it to the SDIF in the

framework of the Article 71 of the

Banking Law due to the losses it

incurs, The Bank can write down

these bonds from the related financial

records with the decision of the

BRSA, in the event of the bankruptcy

Due to the losses incurred, in the

framework of Article 71 of the

Banking Law that: (1) the removal

and liquidation of the Bank's

operating permit or (2) the rights

of all its shareholders (except to

dividends), and the management

and supervision of the Bank, are to

be transferred to the SDIF on the

condition that losses are deducted

from the capital of existing

shareholders , the bonds can be

written-down.

According to the Article 8 (2) (ğ) of the

Regulation on Equities of Banks, the

bonds have a write-off option. If, in

accordance with the related regulation,

there is a possibility of abolishing the

bank's operating permit or transferring it

to the SDIF in the framework of the

Article 71 of the Banking Law due to the

losses it incurs, The Bank can write down

these bonds from the related financial

records with the decision of the BRSA, in

the event of the bankruptcy

If write-down, full or

partial Partially or fully Partially or fully Partially or fully

If write-down,

permanent or temporary Continuously Continuously Continuously

If temporary write-

down, description of

write-up mechanism - - -

Position in

subordination hierarchy

in liquidation (specify

instrument type

immediately senior to

instrument)

In priority of debt to be included in

the calculation of additional capital

and comes after deposits and all other

receivables

Before the capital, after all the

other creditors In priority of debt to

be included in the calculation of

additional capital and comes after

deposits and all other receivables

In priority of debt to be included in the

calculation of additional capital and

comes after deposits and all other

receivables

Whether conditions

which stands in article

of 7 and 8 of Banks’

shareholder equity law

are possessed or not

The instrument is in compliance with

article number 8.

The instrument is in compliance

with article number 8.

The instrument is in compliance with

article number 8.

According to article 7

and 8 of Banks’

shareholders equity law

that are not possessed

The instrument is not in compliant

with article numbered 7.

The instrument is not in compliant

with article numbered 7.

The instrument is not in compliant with

article numbered 7.




38


I INFORMATION RELATED TO CONSOLIDATED FINANCIAL POSITION AND RISK



Information on borrowing instruments to be included in the equity calculation (cont’d):

The Group, within the framework of its capital adequacy assessment process, determines limits for risks (credit

risk, market risk and operational risk) covered under the Capital Adequacy calculations as well as for risks

(concentration risk, interest rate risk in the banking book, liquidity risk, etc.) which are not covered under these

calculations. Thus, the Parent Bank determines its “Risk Limits” and with the help of these limits and by means

of applying stress tests and scenario analyses, it evaluates the adequacy of its capital level against a background

of its current and also projected activities.

The Group determines “Key Risk Indicators” as “early warning signals” within the context of the “Risk Limits”.

Both the “Risk Limits” and “Key Risk Indicators” are determined by taking into consideration the annual budget

and strategy; its risk appetite; the volume, qualifications and complexity of its products/services; its experience

and prior performance as well as the market conditions. The “Risk Limits” and “Key Risk Indicators” are

determined through risk based amounts and nominal amounts. In this scope, regulatory limits and applications,

Basel Committee applications, international best practices, concentrations and tolerance levels as well as criteria

based on the Group’s capital levels are used. In any case, the “Risk Limits” and “Key Risk Indicators” cannot

violate the Banking Law and related regulations.

The “Risk Limits” and “Key Risk Indicators” are reviewed and revised at least annually by the senior

management with respect to market conditions and changes in the Group’s strategies. The review process aims to

determine whether the current “Risk Limits” and “Key Risk Indicators” are meaningful and sufficient enough

compared to the risk appetite. The revised “Risk Limits” and “Key Risk Indicators” become effective upon the

approval of the Boards of Directors.

Reconciliation of capital items to balance sheet

The difference between Total Capital and Equity in the balance sheet mainly arises from expected credit loss

provisions arising from loans classified under stage 1 and stage 2 and subordinated loans. In the calculation of

Total Capital, up to 1.25% of the expected credit loss provision from stage 1 and stage 2 over the credit risk

amount and subordinated loans are taken into consideration as Tier II Capital. On the other hand, in the

calculation of the Total Capital, improvement costs for operating leases followed under tangible assets in the

balance sheet, intangible assets and related deferred tax liabilities, other items defined by the regulator are taken

into consideration as amounts deducted from Total Capital.




39





Information on borrowing instruments to be included in the equity calculation (cont’d):

T-1 T-2 T-3 T-4

TOTAL CAPITAL

Common Equity Tier 1 Capital 2,257,770 2,160,065 2,062,360 1,964,655

Transition Process Not Applied Common Equity Tier 1 Capital (*) 1,964,655 1,964,655 1,964,655 1,964,655

Tier I Capital 2,257,770 2,160,065 2,062,360 1,964,655

Transition Process Not Applied Tier I Capital (**) 1,964,655 1,964,655 1,964,655 1,964,655

Total Capital 3,209,390 3,198,596 3,187,803 3,177,009

Transition Process Not Applied Total Capital (***) 3,177,009 3,177,009 3,177,009 3,177,009

TOTAL RISK WEIGHTED AMOUNTS

Total risk weighted amounts 25,647,012 25,647,012 25,647,012 25,647,012


Common Equity Tier 1 Capital Adequacy Ratio (%) 8.80 8.42 8.04 7.66

Transition Process Not Applied Common Equity Tier 1 Capital

Adequacy Ratio (%) (****) 7.67 7.670 7.67 7.67

Tier 1 Capital Adequacy Ratio (%) 8.80 8.42 8.04 7.66

Transition Process Not Applied Tier 1 Capital Adequacy Ratio (%)

(****) 7.67 7.67 7.67 7.67

Capital Adequacy Ratio (%) 12.51 12.47 12.43 12.39

Transition Process Not Applied Capital Adequacy Ratio (%) (****) 12.39 12.39 12.39 12.39

LEVERAGE RATIO

Leverage ratio total risk amount 42,896,167 42,896,167 42,896,167 42,896,167

Leverage ratio 5.42 5.04 4.81 4.58

Transition Process Not Applied Leverage ratio (%) (*****) 4.58 4.58 4.58 4.58

(*) Amount of Common Equity Tier 1 Capital in case of non-application of Provisional Article 5 of the Regulation on Equities of Banks.

(**)Amount of Tier I Capital in case of non-application of Provisional Article 5 of the Regulation on Equities of Banks.

(***)Amount of Total Capital in case of non-application of Provisional Article 5 of the Regulation on Equities of Banks.

(****)Amount of capital adequacy ratios calculated with equity componentsin case of non-application of Provisional Article 5 of the

Regulation on Equities of Banks.

(*****)Amount of leverage ratio calculated with equity components in case of non-application of Provisional Article 5 of the Regulation on

Equities of Banks.




40




II. Explanations Related to Consolidated Currency Risk

Currency risk is the probability of loss that the Group may face, in its total on- and off-balance sheet accounts

and positions in foreign currencies, arising from changes in exchange rates.

The Parent Bank’s policies and procedures related to currency risk are in line with the “Regulation on Internal

Systems and Internal Capital Adequacy Asessment Process” and the “Regulation on Measurement and

Evaluation of the Capital Adequacy of Banks” and approved by the Parent Bank’s Board of Directors.

The Boards of Directors has approved limits (position limits, stop-loss limits) compliant with the regulatory

“Foreign Exchange Net General Position / Equity Standard Ratio” and based on the Group’s capital. These limits

are monitored on a daily basis and reviewed and revised at least once a year, with respect to market conditions

and changes in the Group’s strategies.

Within the context of Capital Adequacy, the Group’s currency risk within the market risk exposure is calculated

through the use of the “Standard Method” in line with the legislation. In these calculations, the Group’s foreign

currency assets and foreign currency liabilities together with the forward transactions and gold position are all

taken into consideration.

Within the Group, currency risk exposure is measured, monitored and reported on a daily basis. In this context,

“Value-at-Risk (VaR) Methods” are applied as internal model. Among these methods, the “Parametric Method”

that is also called as ‘’Variance Covariance Method’’ is used among the VaR Methods; while the “Historical

Simulation” and the “Monte Carlo Simulation” methods, on the other hand, are used for comparison, in times

when volatility increases to a great extent. VaR measurements are based on an observation period covering the

last 252 workdays and a 99 % confidence level. In “Economic Capital” measurements based on VaR, a 10-day

holding period is applied.

Additionally, stress tests and scenario analyses are applied in order to measure and monitor the impact of adverse

movements in the markets, while the effectiveness of the Parent Bank’s internal model is tested by using

retroperspective tests on a daily basis.

As of 30 June 2019, the Group’s balance sheet short position is TRL 1,738,867 Thousand (31 December 2018 –

TRL 1,649,176 Thousand short) and long position on the off balance sheet amounting to TRL 1,956,704

Thousand (31 December 2018 - TRL 1,861,972 Thousand long), resulting in total net long position of TRL

217,796 Thousand (31 December 2018 - TRL 212,796 Thousand total net long).

The announced current foreign exchange buying rates of the Parent Bank at 30 June 2019 and the previous five

working days in full TRL are as follows:

21.06.2019 24.06.2019 25.06.2019 26.06.2019 27.06.2019 28.06.2019

USD 5.7915 5.7444 5.7904 5.7630 5.7665 5.7551

CHF 5.8806 5.8717 5.9227 5.8883 5.8796 5.8894

GBP 7.3286 7.3077 7.3745 7.2939 7.3114 7.2855

100 JPY 5.3765 5.3377 5.3960 5.3439 5.3297 5.3317

EURO 6.5470 6.5409 6.5935 6.5476 6.5571 6.5507

The simple arithmetic averages of the major current foreign exchange buying rates of the Parent Bank for the

thirty days before 30 June 2019 are as follows:

Monthly Average

Foreign Exchange Rate

USD 5.8177

CHF 5.8578

GBP 7.3530

100 JPY 5.3650

EURO 6.5583




41




II. Explanations Related to Consolidated Currency Risk (cont’d)

Information on the foreign currency risk of the Group:

EUR USD Other FC Total

Current Period

Assets

Cash (Cash in Vault, Foreign Currency Cash, Money in Transit,

Cheques Purchased) and Balances with the Central Bank of Turkey 853,115 1,328,337 545,698 2,727,150

Banks 288,087 111,034 57,289 456,410

Financial Assets at Fair Value Through Profit and Loss 1,871 7,699 - 9,570

Money Market Placements 2,878 - 2,914 5,792

Financial Assets at Fair Value Through Other Comprehensive Income - 21,934 - 21,934

Loans (*) 5,318,599 2,565,153 67,077 7,950,829

Subsidiaries, Associates and Entities Under Common Control - - - -

Financial Assets at Amortised Cost - 1,061,453 372 1,061,825

Derivative Financial Assets For Hedging Purposes - - - -

Tangible Assets 217 3,640 - 3,857

Intangible Assets - - - -

Other Assets 54,371 231,421 12,528 298,320

Total Assets 6,519,138 5,330,671 685,878 12,535,687

Liabilities

Bank Deposits 1,101 340,447 228 341,776

Foreign Currency Deposits 5,026,534 5,464,876 599,441 11,090,851

Money Market Borrowings - - - -

Funds Provided From Other Financial Institutions 347,370 1,744,075 - 2,091,445

Securities Issued (**) - 491,548 - 491,548

Sundry Creditors 85,401 1,971 136,670 224,042

Other Liabilities 22,827 11,671 394 34,892

Total Liabilities 5,483,233 8,054,588 736,733 14,274,554

Net Balance Sheet Position 1,035,905 (2,723,917) (50,855) (1,738,867)

Net Off-Balance Sheet Position (1,053,756) 2,939,945 70,514 1,956,703

Financial Derivative Assets 1,315,364 5,039,028 385,865 6,740,257

Financial Derivative Liabilities 2,369,120 2,099,083 315,351 4,783,554

Non-Cash Loans 1,286,358 972,147 11,673 2,270,178

Prior Period

Total Assets 5,715,911 6,210,696 567,948 12,494,555

Total Liabilities 5,141,463 8,357,149 645,119 14,143,731

Net Balance Sheet Position 574,448 (2,146,453) (77,171) (1,649,176)

Net Off-Balance Sheet Position (573,274) 2,344,141 91,105 1,861,972

Financial Derivative Assets 1,297,444 3,612,606 207,991 5,118,041

Financial Derivative Liabilities 1,870,718 1,268,465 116,886 3,256,069

Non-Cash Loans 1,236,975 1,281,615 750 2,519,340

About Currency Risk Table as of 30 June 2019;

The principal amount of currency indexed loans amounting TRL 598,374 Thousand and accruals amounting TRL 571,164 Thousand are shown under loans.

The principal amount of currency indexed funds borrowed amounting to TRL 22,927 Thousand and accruals amounting TRL 322 Thousand are shown in the Funds Provided From Other

Financial Institutions line.

According to the regulation about Foreign Currency Net General Position / Equity Standard Ratio Calculation, Foreign Currency amounts that are not shown in the present currency risk

table are as follows: Derivative Financial Assets Held-for-Trading: TRL 51,500 Thousand

Prepaid expenses: TRL 18,774 Thousand .Derivative Financial Liabilities Held-for-Trading: TRL 89,618 Thousand

Unearned income from installment sale of assets: TRL 4,136Thousand, Receivables from foreign currency in equity: TRL 31,800 Thousand

Financial Derivative Asset amount includes TRL 315,019 Thousand forward asset purchase commitment and TRL 572,604 Thousand option contracts.

Financial Derivative Liabilities amount includes TRL 1,469,650 Thousand forward asset selling commitment and TRL 552,913 Thousand option contracts.

(**) Securities Issued includes also the issuances of subordinated debts amounting to TRL 491,548 Thousand which are shown under subordinated loans line in the balance sheet

About Currency Risk Table as of 31 December 2018;

The principal amount of currency indexed loans amounting TRL 758,949 Thousand and accruals amounting TRL 549,655 Thousand are shown under loans.

The principal amount of currency indexed funds borrowed amounting to TRL 21,098 Thousand and accruals amounting TRL 307 Thousand are shown in the Funds Provided From Other

Financial Institutions line. According to the regulation about Foreign Currency Net General Position / Equity Standard Ratio Calculation, Foreign Currency amounts that are not shown in

the present currency risk table are as follows: Derivative Financial Assets Held-for-Trading: TRL 383,219 Thousand

Marketable securities value increase fund: TRL 4,047 Thousand Prepaid expenses: TRL 19,287 Thousand .Derivative Financial Liabilities Held-for-Trading: TRL 91,824 Thousand

Unearned income from installment sale of assets: TRL 3,965 Thousand, Receivables from foreign currency in equity: TRL 24,511 Thousand

Financial Derivative Asset amount includes TRL 34,411 Thousand forward asset purchase commitment and TRL 305,606 Thousand option contracts.

Financial Derivative Liabilities amount includes TRL 39,522 Thousand forward asset selling commitment and TRL 305,136 Thousand option contracts.

Securities Issued includes also the issuances of subordinated debts amounting to TRL 451,050 Thousand which are shown under subordinated loans line in the balance sheet




42




III. Explanations Related to Consolidated Interest Rate Risk

Interest rate risk is the possibility of loss that the Group may face, in relation to its structural position arising

from adverse movements in interest rates.

The Parent Bank’s policies and procedures related to interest rate risk are in line with the “Regulation on Internal

Systems and Internal Capital Adequacy Asessment Process” and the “Regulation on Measurement and

Evaluation of the Capital Adequacy of Banks” and approved by the Board of Directors.

Within the context of Capital Adequacy, the Group’s interest rate risk within the market risk exposure is

calculated through the use of the “Standard Method” in line with the legislation.

The Group takes interest rate risk positions in both the trading book and banking book. The interest rate risk

arising from the trading book is evaluated within the scope of market risk, and thus, measured, monitored, and

managed in line with market risk policies and procedures.

Within the Parent Bank, interest rate risk exposure is measured, monitored and reported on a daily basis. In this

context, “Value-at-Risk (VaR) Methods” are applied as internal model.

Among these methods, the “Parametric Method” that is also called as ‘’Variance Covariance Method’’ is used

among the VaR Methods; while the “Historical Simulation” and the “Monte Carlo Simulation” methods, on the

other hand, are used for comparison, in times when volatility increases to a great extent.

VaR measurements are based on an observation period covering the last 252 workdays and a 99 % confidence

level. In “Economic Capital” measurements based on VaR, a 10-day holding period is applied.

Additionally, stress tests and scenario analyses are applied in order to measure and monitor the impact of adverse

movements in the markets, while the effectiveness of the Parent Bank’s internal model is tested by using back

tests on a daily basis.

The interest rate risk arising from the Group’s banking accounts is measured, monitored and managed within the

scope of assets and liabilities risk. In this context, gap analyses, duration and economic value analyses as well as

sensitivity analyses are evaluated on a weekly basis by the Parent Bank’s Asset Liability Committee.

Simulations on net interest income are performed according to macroeconomic indicator estimations in the

Parent Bank’s budget targets, while the potential negative impact of adverse movements in market interest rates

on the financial position and cash flows is minimized through target revisions. The Group management monitors

the market interest rates on a daily basis, and is able to change the interest rates applied by the Group whenever

it is necessary by ALCO decisions.




43




III. Explanations Related to Consolidated Interest Rate Risk (cont’d)

Average interest rates applied to monetary financial instruments

EUR USD JPY TRL

Current Period (*)

Assets

Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased)

and Balances with the Central Bank of Turkey - - - -

Banks 0.01 2.36 0.52 24.99

Financial Assets at Fair Value Through Profit and Loss 2.78 5.42 - 8.64

Money Market Placements - - - 27.23

Financial Assets at Fair Value Through Other Comprehensive Income - - - 16.49

Loans 6.85 9.36 2.88 21.67

Financial Assets at Amortised Cost - 5.05 - 5.21

Liabilities

Bank Deposits 1.02 2.60 - 24.62

Other Deposits 1.80 3.55 0.88 20.76

Money Market Borrowings - - - 24.34

Sundry Creditors 0.36 2.35 - -

Securities Issued - 6.82 - 9.66

Funds Provided From Other Financial Institutions 1.75 4.06 - 11.25

(*) Interest rates belong to the Parent Bank.

(*) Interest rates belong to the Parent Bank.

EUR USD JPY TRL

Prior Period (*)

Assets

Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques

Purchased) and Balances with the Central Bank of Turkey - - - -

Due From Other Banks and Financial Institutions 0.01 2.19 0.50 13.50

Financial Assets at Fair Value Through Profit and Loss 2.12 5.33 - 10.97

Money Market Placements - - - 15.25

Financial Assets Available-for-Sale - 4.40 - 11.62

Loans 6.07 8.65 3.53 19.24

Held-to-Maturity Investments - 5.06 - 3.96

Liabilities

Bank Deposits 1.35 3.88 - 18.00

Other Deposits 1.98 4.18 0.80 17.94

Money Market Borrowings - 2.00 - 16.78

Sundry Creditors 0.33 1.98 - -

Securities Issued - 6.82 - 13.03

Funds Provided From Other Financial Institutions 1.30 3.64 - 9.49




44





Information related to the interest rate sensitivity of assets, liabilities and off-balance sheet items (based

on repricing dates)

(*) The subordinated debt instruments in balance sheet also includes the TRL 943,947 Thousand bonds issued as subordinated loans.

(**) TRL 214,467 Thousand of loans is shown under Financial Assets at Fair Value through Profit and Loss in the financial statements.

Current Period Up to 1

Month 1-3 Months 3-12 Months 1-5 Years

5 Years and

Over

Non-Interest

Bearing Total

Assets

Cash (Cash in Vault, Foreign Currency

Cash, Money in Transit, Cheques

Purchased) and Balances with the Central

Bank of Turkey 63,887 - - - - 3,294,396 3,358,283

Banks 339,001 - - 488 - 148,121 487,610

Financial Assets at Fair Value Through

Profit and Loss (**) 22,503 11,145 14,269 3,087 14,771 5,024 70,799

Money Market Placements 11,192 - - - - - 11,192


Other Comprehensive Income - 3,415 66,972 502,474 21,934 7,577 602,372

Loans(**) 6,591,694 2,639,552 5,372,308 6,604,446 678,026 1,570,190 23,456,216

Financial Assets at Amortised Cost 162,036 342,065 1,351,518 816,257 364,097 - 3,035,973

Other Assets 482,018 33,445 25,910 117,744 7,935 917,039 1,584,091

Total Assets 7,672,331 3,029,622 6,830,977 8,044,496 1,086,763 5,942,347 32,606,536

Liabilities

Bank Deposits 179,276 94,000 7,076 118 - 145,135 425,605

Other Deposits 15,112,742 4,104,278 1,583,792 52,473 - 2,672,765 23,526,050

Money Market Borrowings 551,156 - - - - - 551,156

Sundry Creditors 14,349 23,202 - 2,305 - 342,357 382,213

Securities Issued (*) 692,632 376,882 785,548 - - - 1,855,062

Funds Provided From Other Financial

Institutions 255,090 534,283 966,282 189,914 414,942 211,623 2,572,134

Other Liabilities 151,472 - 48,284 241,636 95,704 2,757,220 3,294,316

Total Liabilities 16,956,717 5,132,645 3,390,982 486,446 510,646 6,129,100 32,606,536

Balance Sheet Long Position - - 3,439,995 7,558,050 576,117 - 11,574,162

Balance Sheet Short Position (9,284,386) (2,103,023) - - - (186,753) (11,574,162)

Off-Balance Sheet Long Position 1,098,174 35,000 - - - - 1,133,174

Off-Balance Sheet Short Position - (20,000) - (465,000) (648,174) - (1,133,174)

Total Position (8,186,212) (2,088,023) 3,439,995 7,093,050 (72,057) (186,753) -




45





Information related to the interest rate sensitivity of assets, liabilities and off-balance sheet items (based

on repricing dates) (cont’d)

(*) The subordinated debt instruments in balance sheet also includes the TRL 903,621 Thousand bonds issued as subordinated loans.

(**) TRL 221,879 Thousand of loans is shown under Financial Assets at Fair Value through Profit and Loss in the financial statements.

IV. Explanations Related to Consolidated Position Risk of Equity Securities in Banking

Book

Consolidated Position Risk of Equity Securities in Banking Book: None

Prior Period Up to 1

Month 1-3 Months 3-12 Months 1-5 Years

5 Years and

Over

Non-Interest

Bearing Total

Assets

Cash (Cash in Vault, Foreign Currency

Cash, Money in Transit, Cheques

Purchased) and Balances with the Central

Bank of Turkey 362,591 - - - - 3,256,646 3,619,237

Due From Other Banks and Financial

Institutions 96,086 120 - 7,163 - 102,650 206,019


Profit and Loss (**) 8,720 14,134 45,849 4,305 9,716 2,865 85,589

Money Market Placements 59,192 - - - - - 59,192

Financial Assets Available-for-Sale - 51 62,638 484,897 22,679 7,417 577,682

Loans (**) 8,117,661 2,787,656 3,664,133 7,146,503 600,578 1,265,652 23,582,183

Held-to-Maturity Investments 378 862,475 1,470,553 614,070 481,246 - 3,428,722

Other Assets 583,236 23,675 75,869 106,364 4,106 612,910 1,406,160

Total Assets 9,227,864 3,688,111 5,319,042 8,363,302 1,118,325 5,248,140 32,964,784

Liabilities

Bank Deposits 291,011 60,429 14,606 10,183 - 189,527 565,756

Other Deposits 12,480,853 4,552,006 2,612,359 78,245 - 2,651,638 22,375,101

Money Market Borrowings 192,096 - - - - - 192,096

Sundry Creditors 144,603 44,888 - 3,138 - 359,183 551,812

Securities Issued (*) 653,529 812,299 681,477 - - - 2,147,305


Institutions 476,886 1,053,366 830,539 639,584 379,276 220,429 3,600,080

Other Liabilities 332,016 - 90,725 129,134 2,041 2,978,718 3,532,634

Total Liabilities 14,570,994 6,522,988 4,229,706 860,284 381,317 6,399,495 32,964,784

Balance Sheet Long Position - - 1,089,336 7,503,018 737,008 - 9,329,362

Balance Sheet Short Position (5,343,130) (2,834,877) - - - (1,151,355) (9,329,362)

Off-Balance Sheet Long Position 50,000 100,000 50,000 468,000 597,859 - 1,265,859

Off-Balance Sheet Short Position (50,000) (100,000) (50,000) (468,000) (597,859) - (1,265,859)

Total Position (5,343,130) (2,834,877) 1,089,336 7,503,018 737,008 (1,151,355) -




46




V. Explanations Related to Consolidated Liquidity Risk Management and Consolidated

Liquidity Coverage Ratio

Liquidity risk refers the incapability of the Group to have cash or cash inflow at a level that will cover the cash

outflow fully and in a timely fashion, due to the instability in cash flow.

The Group may be exposed to liquidity risk due to the below factors:

Funding related liquidity risk due to the Group’s inability to meet the anticipated and unforeseen

existing and potential cash flow and collateral requirements properly, without affecting its daily

operations or financial structure,

The liquidity risk arising from the the lack of required depth in the markets or excessive volatility

owing to the inability of the Group’s to balance or close any position over market prices.

a) Information on risk capacity of the Group, responsibilities and structure of liquidity risk management,

the Group’s internal liquidity risk reporting, communication between the Board of Directors and

business lines on liquidity risk strategy, policy and application:

The main policy of the Group is to maintain an asset structure that it will be sufficient to fulfill all its obligations

through the use of liquid sources in time and in a sound manner.

The objective of the liquidity risk management is to maintain the Group’s financial stability by means of

maintaining the Group’s liquidity risk exposure at measurable and tolerable levels. Thus, it is also the objective

to protect the shareholders from any potential loss that might arise from adverse movements in the Group’s

liquidity position.

The Group’s policies and procedures related to the liquidity risk are approved by the Group’s Board of

Directors.

The major factors mentioned below are addressed in those policies and procedures:

The Oversight of the Board of Directors:

- The Board of Directors approves policies and procedures related to the liquidity risk, all in line with the

Parent Bank’s annual budget and the growth strategies for medium and long term.

- The Board of Directors plans the capital structure to cover the Parent Bank’s liquidity risk profile, all in line

with the Parent Bank’s annual budget and the growth strategies for medium and long term.

- The Board of Directors segregates the duties, authorities and responsibilities related to measuring,

monitoring, controlling, auditing and management of the liquidity risk, through internal regulations on related

committies and units.

The Oversight of the Senior Management:

- The Parent Bank’s senior management implements systems and standards related to measuring, monitoring,

controling, auditing and management of the liquidity risk, with respect to its duties, authorities, and

responsibility areas.

- The Parent Bank’s senior management takes measures to ensure the development of technical konwledge and

competencies of human resources as well as information systems infrastructure so that the measuring,

monitoring, controling and auditing of the liquidity risk, are all executed in a sound manner.

- The Parent Bank’s senior management analyses potential liquidity risk which may arise from the new

banking products and services which the Bank plans to implement.




47





Liquidity Coverage Ratio (cont’d)

The Parent Bank’s Board of Directors and senior management segregate the responsibilities within the scope of

the liquidity risk management among the Asset Liability Committee, Treasury Department and Risk

Management Unit.

Accordingly, the Parent Bank’s Board of Directors set the Asset Liability Committee (ALCO) as the senior

management committee responsible for management of the Group’s balance sheet, usage of funds, and financial

management. ALCO sets the strategies for management of the balance sheet, funding, source planning and

liquidity as well as conducting stress tests and scenario analyses. The Treasury Unit implement these strategies

in order to manage liquidity.

The Boards of Directors have approved “Risk Limits” and “Key Risk Indicators” as part of the policies and

procedures related to the liquidity risk. The compliance with these limits are monitored on a regular basis; all of

which are reviewed and revised (if deemed necessary) at least once a year, with respect to the market conditions

and changes in the strategies.

The compliance with the “Risk Limits” is a mandatory agenda item in the regular monthly meetings of the

Boards of Directors.

The liquidity risk profile is analysed, monitored, and assessed by the Risk Management Unit of the Parent Bank.

The said Unit presents its findings through those assessments as well as the compliance with the “Risk Limits” to

ALCO on a weekly basis and to the Board of Directors of the Parent Bank on a monthly basis.

b) Information on the centralization degree of liquidity management and funding strategy and the

functioning between the Parent Bank and the Parent Bank’s subsidiaries:

The management of liquidity has a decentralised structure. In this context, each subsidiary executes its liquidity

management function by its own units/departments/services responsible for carrying out the function of the

financial management. Besides, the Parent Bank provides funding to its subsidiaries in line with the regulatory

limits while also considering the market conditions.

The Parent Bank’s liquidity management is carried out in line with budgeted growth strategies and taking into

account the legal requirements, as well as current market conditions and expectations regarding economic and

financial conjuncture.

In liquidity management, liquidity planning is realized by predicting the effects of global conditions both on the

country and on the sector.

In liquidity management policy, the stable core deposit base is determined as the Parent Bank’s main funding

resources. In order to increase the diversity of funding resources, domestic and foreign capital markets are

utilized for medium and long-term funding sources. To prevent the concentration risk of liquidity obligations, the

concentration limits for deposit and non-deposit indebtment is closely monitored. Liquidity ratios (LCR, NSFR)

are followed and liquidity projections are performed within the scope of Basel III.

c) Information on the Parent Bank’s funding strategy including the policies on funding types and variety

of maturities:

Liquidity refers to the capability of the Group to fund its asset growth and obligations without being subject to

unacceptable loss in a timely fashion.

The factors assessed in the Group’s liquidity management are the predicted asset quality projection for the

current and the future period, funding requirement projection for the current and future period, creating easily

liquidated assets, creating assets which have regular cash flow, diversification of fund resources and preventing

concentration.




48






Deposits are the foundation of the Group’s liquidity. Maintaining a deposit structure with low cost that shows

stable growth is essential. To that end, an interest rate policy compatible with annual budget is applied for

liquidity management.

In order to meet the liquidity requirements that may arise due to market fluctations, special attention is paid to

ensure availability of sufficient liquidity based on the continious projections made for Turkish Lira and Foreign

Currency cash flows. Based on cash flow projections, price is differentiated for different maturity buckets, and

measures to meet liqudity requirements are taken accordingly. Moreover, potential alternative sources of liqudity

are determined to be used in case of emergency.

In order to ensure effectiveness and sustainability of liquidity management, funding sources for the subsidiaries

that are subject toconsalidation and the diversification possibilities are evaluated taking into consideration

markets, instruments and funds providers. The liquidity position of the subsidiaries that are subject to

consolidation is continuously monitored by the Parent Bank.

d) Information on liquidity management on the basis of currencies constituting a minimum of five percent

of the Parent Bank’s total liabilities:

In order to measure and monitor the impact of the liquidity risk, the Parent Bank uses cash flow gap analyses

indicating both current and future transactions. The Parent Bank, uses Board of Director’s approved maturity

projections for off-balance sheet items as base in these analyses. Within these projections, the behavioral

analyses are used for debtor current accounts, overdraft accounts, demand deposit accounts and time deposit

accounts.

In the cashflow gap analyses:

- Aggregate, Turkish Lira and foreign currency items are tabulated seperately;

- Calculation for currency items that exceed 5 % of the Parent Bank’s total assets (USD, EUR, etc. items) are

done seperately;

- Currency items that do not exceed 5 % of the Parent Bank’s total assets are aggregated with the EUR items.

e) Information on liquidity risk mitigation techniques:

Within the liquidity reduction techniques, concentrating on a regular cash flow structure in its assets,

establishing a broadly-based structure in its liabilities, regularly issuing bank securities as an altenative funding

source, diversifying the sources of funding by concentrating long-term finance resources from the financial

institutions such as covered bonds, syndications and others and maintaining the liquidity buffer takes place.

f) Information on the use of stress tests:

With the liquidity stress tests, both the amount and cost of the liquidity requirement are assessed. In this way,

within the context of ICAAP , the levels to be occurred as a result of probable fluctuations in the Liquity

Coverage Ratio and the probable maturity liquidity ratios cash flows, collateral liabilities and funding facilities

approximately for the next 3-year horizon are assessed.




49






g) General information on urgent and unexpected liquidity situation plans:

The Group’s O/N repo limits in the Central Bank of the Turkish Republic and Borsa Istanbul Stock Exchange as

well as unutilised limits are also regularly monitored. As a precaution for a worst-case scenario such as the

withdrawal of all demand deposits, it is essential to keep limits unused equal to the amount of current demand

deposits. Within this scope, the Parent Bank’s ALCO set the alternative liquidity strategies with regards to the

current market environment.

“Liquidity Management Urgent Action Plan” was set, which defines the level of coverage, implementation

guidelines, possible scenarios, emergency action plan, available funding sources, and the obstacles to be

addressed.

Consolidated Liquidity Coverage Ratio:

The liquidity ratio which is calculated pursuant to BRSA's "Regulation on Calculation of Banks' Liquidity

Coverage Ratio" in order to make ensure that the Group has high-quality liquidity asset stock sufficient to cover

the net cash outflows in order to identify the Bank's minimum liquidity level.

These ratios are effected by the levels of a Group’s liquid assets which can be liquidified easily and the cash in-

flows as well as the cash out-flows arising from a Group’s assets, liabilities and also off balance sheet items.

In the second quarter of 2019, the average total liquidity coverage ratio decreased compared to previous quarter’s

average. The average total liquidity coverage ratio, which was 163.4 in the previous quarter and increased to

126.4 with the increase in the net cash outflow level despite the increase in high quality liquid assets. The ratio

of FX liquidity coverage on average has increased to 289.4 in comparison to the previous quarter. Both of the

ratios are still above the minimum level predicted by the legislation.

The Group’s “high quality liquid assets” comprise of cash and the balance sheet items held within the Central

Bank of the Turkish Republic as well as borrowing instruments issued by the Turkish Treasury, which are not

subject to repurchase agreements or not pledged as collateral. The high quality liquid assets are represented by

cash (4.19%), balances with the central banks (74.79%) and first quality liquid borrowing instruments (21.01%).

Items that represent the cash outflows used in the calculation of liquidity coverage ratio include mainly the

deposit base, secured and unsecured borrowings, the securities issued and off balance sheet transactions. Main

items of the cash inflows iclude secured and unsecured receivables and other cash inflows. Other cash inflows

and outflows derive from derivative transactions and the cash flows of the derivative financial instruments are

included in the calculation.

While the effect of derivative transactions on the net cash outflow is limited, the fluctuations in the volume of

foreign currency derivatives can effect FC liquidity coverage ratio.




50






Consolidated Liquidity Coverage Ratio (cont’d):

The major funding source for the Group is the deposit bases. In addition to the deposits, the another main sources

of funding include funds received through REPO transactions, issued securities, long-term recources obatined

from the financial institutions (Covered Bonds, syndications, and other).

Current Period Total Unweighted Value

(Average) (*)

Total Weighted Value

(Average) (*)

TRL+FC FC TRL+FC FC

HIGH QUALITY LIQUID ASSETS

1 Total high-quality liquid assets (HQLA) 6,672,349 3,174,690

CASH OUTFLOW

2

Retail deposits and deposits from small

business customers, of which: 18,821,820 8,804,100 1,635,582 880,410

3 Stable deposits 4,932,000 - 246,600 -

4 Less stable deposits 13,889,820 8,804,100 1,388,982 880,410

5 Unsecured wholesale funding, of which: 6,997,180 3,757,742 4,669,030 2,217,611

6 Operational deposits 866,936 736,220 216,734 184,055

7 Non-operational deposits 4,533,733 2,331,596 2,855,785 1,343,630

8 Unsecured funding 1,596,511 689,926 1,596,511 689,926

9 Secured wholesale funding 24,674 -

10 Other cash outflows of which: 2,178,412 453,668 2,178,412 453,668

11

Outflows related to derivative exposures and

other collateral requirements 2,023,826 299,082 2,023,826 299,082

12

Outflows related to restructured financial

instruments - - - -

13

Payment commitments and other off-balance

sheet commitments granted for debts to

financial markets 154,586 154,586 154,586 154,586

14

Other revocable off-balance sheet

commitments and contractual obligations 117,800 120,280 5,890 6,014

15

Other irrevocable or conditionally revocable

off-balance sheet obligations 4,069,852 634,412 755,012 94,114

16 TOTAL CASH OUTFLOWS 9,268,600 3,651,817

17 Secured receivables - - - -

18 Unsecured receivables 2,897,995 958,591 1,956,743 806,847

19 Other cash inflows 2,034,547 1,748,122 2,034,547 1,748,122

20 TOTAL CASH INFLOWS 4,932,542 2,706,713 3,991,290 2,554,969

Total Adjusted

Value

21 TOTAL HQLA

6,672,349 3,174,690

22 TOTAL NET CASH OUTFLOWS

5,277,310 1,096,848

23 LIQUIDITY COVERAGE RATIO (%)

126.43 289.44

(*) The average of last three months’ liquidity coverage ratio calculated based on monthly simple averages.




51






Consolidated Liquidity Coverage Ratio (cont’d):

Prior Period Total Unweighted Value

(Average) (*)

Total Weighted Value

(Average) (*)

TRL+FC FC TRL+FC FC

HIGH QUALITY LIQUID ASSETS

1 Total high-quality liquid assets (HQLA) 5,734,703 2,327,557

CASH OUTFLOW

2

Retail deposits and deposits from small

business customers, of which: 17,732,290 6,893,820 1,521,103 689,382

3 Stable deposits 5,042,520 - 252,126 -

4 Less stable deposits 12,689,770 6,893,820 1,268,977 689,382

5 Unsecured wholesale funding, of which: 6,438,294 3,557,557 3,988,098 1,988,633

6 Operational deposits 808,592 612,308 202,148 153,077

7 Non-operational deposits 4,202,747 2,406,010 2,358,995 1,296,317

8 Unsecured funding 1,426,955 539,239 1,426,955 539,239

9 Secured wholesale funding - -

10 Other cash outflows of which: 1,137,811 496,268 1,137,811 496,268

11

Outflows related to derivative exposures and

other collateral requirements 1,039,235 397,692 1,039,235 397,692

12 Outflows related to restructured financial instruments - - - -

13

Payment commitments and other off-balance sheet commitments granted

for debts to financial markets 98,576 98,576 98,576 98,576

14

Other revocable off-balance sheet

commitments and contractual obligations 140,120 142,540 7,006 7,127

15

Other irrevocable or conditionally revocable

off-balance sheet obligations 4,154,370 638,136 733,751 94,131

16 TOTAL CASH OUTFLOWS 7,387,769 3,275,541

17 Secured receivables - - - 9,993

18 Unsecured receivables 117,415,690 38,688,001 3,007,364 1,673,286

19 Other cash inflows 1,107,055 697,459 1,197,582 697,459

20 TOTAL CASH INFLOWS 118,522,745 39,385,460 4,204,946 2,380,738

Total Adjusted

Value

21 TOTAL HQLA

5,734,703 2,327,557

22 TOTAL NET CASH OUTFLOWS

3,182,823 894,803

23 LIQUIDITY COVERAGE RATIO (%)

180.18 260.12

(*) The average of last three months’ liquidity coverage ratio calculated based on monthly simple averages.

The information on the highest and the lowest weekly liquidity coverage ratio during the last three months of

2018 and second three months of 2019 is presented below.

Current Period

TRL+FC FC

April 136.77 315.04

May 124.18 240.15

June 119.07 277.56

Prior Period

TRL+FC FC

October 191.52 215.98

November 154.95 229.94

December 181.25 243.57




52






Presentation of assets and liabilities according to their remaining maturities:

Demand

Up to 1

Month 1-3 Months

3-12

Months 1-5 Years 5 Years

and Over

Undistributed

(*)

Total

Current Period

Assets

Cash (Cash in Vault, Foreign

Currency Cash, Money in Transit,

Cheques Purchased) and Balances

with the Central Bank of Turkey 1,820,020 1,538,263 - - - - - 3,358,283

Banks 148,121 339,001 - - 488 - - 487,610

Financial Assets at Fair Value

Through Profit and Loss - 22,503 11,145 13,942 3,414 14,771 5,024 70,799

Money Market Placements - 11,192 - - - - - 11,192

Financial Assets at Fair Value

Through Other Comprehensive

Income 7,417 - 3,415 4,823 564,623 22,094 - 602,372

Loans (**)(****) 316,479 1,774,658 4,196,780 3,224,213 10,180,980 2,288,611 1,474,495 23,456,216

Financial Assets at Amortised Cost - 161,645 - 569,557 1,615,512 689,259 - 3,035,973

Other Assets 223,139 463,213 33,445 25,910 117,744 7,935 712,705 1,584,091

Total Assets 2,515,176 4,310,475 4,244,785 3,838,445 12,482,761 3,022,670 2,192,224 32,606,536

Liabilities

Bank Deposits 145,135 179,276 94,000 7,076 118 - - 425,605

Other Deposits 2,672,765 15,112,466 4,101,935 1,578,875 60,008 1 - 23,526,050


Institutions 789 227,147 335,734 565,325 392,914 1,050,225 - 2,572,134

Money Market Borrowings - 551,156 - - - - - 551,156

Securities Issued (***) - 240,234 189,170 101,392 380,319 943,947 - 1,855,062

Sundry Creditors 339,319 13,995 23,531 2,617 1,461 - 1,290 382,213

Other Liabilities 350,712 150,783 216,741 66,594 228,523 101,306 2,179,657 3,294,316

Total Liabilities 3,508,720 16,475,057 4,961,111 2,321,879 1,063,343 2,095,479 2,180,947 32,606,536

Liquidity Gap (993,544) (12,164,582) (716,326) 1,516,566 11,419,418 927,191 11,277 -

Net Off-Balance Sheet Position - (5,727) (15,822) (14,204) (90,350) - - (126,103)

Derivative Financial Assets - 6,420,838 375,466 385,202 705,495 648,174 - 8,535,175

Derivative Financial Liabilities - 6,426,565 391,288 399,406 795,845 648,174 - 8,661,278

Non-Cash Loans 1,919,801 249,280 428,893 2,325,797 451,523 97,446 12 5,472,752

Prior Period

Total Assets 2,752,242 4,120,483 4,941,674 2,931,775 12,569,415 3,443,927 2,205,268 32,964,784

Total Liabilities 3,627,831 14,000,573 5,928,681 3,779,231 1,278,667 1,896,971 2,452,830 32,964,784

Liquidity Gap (875,589) (9,880,090) (987,007) (847,456) 11,290,748 1,546,956 (247,562) -

Net Off-Balance Sheet Position - 95,732 (5,459) 10,214 (88,428) - - 12,059

Derivative Financial Assets - 4,455,567 587,339 489,237 681,071 597,859 - 6,811,073

Derivative Financial Liabilities - 4,359,835 592,798 479,023 769,499 597,859 - 6,799,014

Non-Cash Loans 2,082,767 238,777 560,449 2,200,668 737,914 98,410 - 5,918,985

(*) Those assets such as tangible assets, investments in subsidiaries and associates, office supply inventory, prepaid expenses and non-performing loans,

which are necessary for continuation of banking activities, unavailable for conversion into cash in a short term and other assets account and equity

accounts are classified under “Undistributed”.

(**) Overdraft Loans are presented in 1-3 months period.

(***) The subordinated loans in balance sheet also includes the TRL 943,947 Thousand bonds issued as subordinated loans.

(****) TRL 214,467 Thousand of loans is shown under Financial Assets at Fair Value through Profit and Loss in the financial statements.




53




VI. Explanations Related to Consolidated Leverage Ratio

a. Information on subjects that causes difference in leverage ratio between current and

prior periods

The Group’s consolidated leverage ratio calculated according to “Regulation on Measurement and Assessment

of Leverage Ratios of Banks” is 5.42 % (31 December 2018 – 6.27 %). Change in the leverage ratio is mainly

due to the increase of the on balance sheet assets. The minimum leverage ratio set by the above mentioned

regulation is 3 %.

b. Comparison table of total assets and total risk amounts in the financial statements

prepared in accordance with TAS :

Current Period (**) Prior Period (**)

Total assets in the consolidated financial statements prepared in accordance with

TAS (*) 33,028,923 33,186,347

Differences between the total assets in the consolidated financial statements

prepared in accordance with TAS and the total assets in the consolidated financial

statements prepared in accordance with Communique on Preparation of

Consolidated Financial Statements of the Banks 64,139 56,661

Differences between the balances of derivative financial instruments and the

credit derivatives in the consolidated financial statements prepared in accordance

with the Communique on Preparation of Consolidated Financial Statements of the

Banks and their risk exposures (132,771) (262,411)

Differences between the balances of securities financing transactions in the

consolidated financial statements prepared in accordance with the Communique

on Preparation of Consolidated Financial Statements of the Banks and their risk

exposures 42,565 4,380

Differences between off- balance sheet itmes in the consolidated financial

statements prepared in accordance with the Communique on Preparation of

Consolidated Financial Statements of the Banks and their risk exposures 2,855,045 2,881,188

Other differences in the consolidated financial statements prepared in accordance

with the Communique on Preparation of Consolidated Financial Statements of the

Banks and their risk exposures -

Total Risk 42,896,167 42,062,407

(*) The consolidated financial statements as of 31 December 2018 in current period and 31 December 2017 in prior period prepared in

accordance with the sixth paragraph of the Article 5 of the Communique on Preparation of Consolidated Financial Statements of the Banks.

(**) The arithmetic average of the last 3 months in the related periods.




54




VI. Explanations Related to Consolidated Leverage Ratio (cont’d)

c. Disclosure of Leverage Ratio template

On-balance sheet assets Current Period (*) Prior Period (*)

1

On-balance sheet items (excluding derivative financial instruments

and credit derivatives but including collateral) 33,511,597 33,435,723

2 (Assets deducted in determining Tier 1 capital) (418,943) (410,250)

3 Total on-balance sheet risks (sum of lines 1 and 2) 33,092,654 33,025,473

Derivative financial instruments and credit derivatives

4

Replacement cost associated with all derivative instruments and

credit derivatives 213,779 502,592

5

Add-on amounts for PFE associated with all derivative instruments

and credit derivatives 88,827 90,884

6

Total risks of derivative financial instruments and credit derivatives

(sum of lines 4 to 5) 302,606 593,476

Securities or commodity financing transactions (SCFT)

7 Risks from SCFT assets - -

8 Risks from brokerage activities related exposures 42,565 4,380

9

Total risks related with securities or commodity financing

transactions (sum of lines 7 to 8) 42,565 4,380

Other off-balance sheet transactions

10 Gross notional amounts of off-balance sheet transactions 9,898,279 8,923,422

11 (Adjustments for conversion to credit equivalent amounts) (439,937) (484,344)

12 Total risks of off-balance sheet items (sum of lines 10 and 11) 9,458,342 8,439,078

Capital and total risks

13 Tier 1 capital 2,322,451 2,636,681

14 Total risks (sum of lines 3, 6, 9 and 12) 42,896,167 42,062,407

Leverage ratio

15 Leverage ratio 5.42 6.27

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




55




VII. Explanations Related to Consolidated Risk Management

Notes and explanations in this section have been prepared in accordance with the Communiqué on ‘‘Disclosures

about Risk Management to Be Announced to Public by Banks’’ that have been published in the Official Gazette

no. 29511 on 23 October 2015.

a. Risk Management Approach and Risk Weighted Amounts

a.1. Overview of Risk Weighted Amount

a b c

Risk Weighted Amount

Minimum

capital

requirement

Current Period Prior Period Current Period

1 Credit risk (excluding counterparty credit risk) (CCR) 22,198,655 21,508,128 1,775,892

2 Standardised approach (SA) 22,198,655 21,508,128 1,775,892

3 Internal rating-based (IRB) approach -

4 Counterparty credit risk 159,671 272,701 12,774

5

Standardised approach for counterparty credit

risk (SA-CCR) 159,671 272,701 12,774

6 Internal model method (IMM) - - -

7

Basic risk weight approach to internal models equity position in the banking

account - - - 8 Investments made in collective investment companies – look-through approach - - -

9 Investments made in collective investment companies – mandate-based approach - - -

10

Investments made in collective investment companies – 1250% weighted risk

approach - - -

11 Settlement risk - - -

12 Securitization positions in banking accounts - - -

13 IRB ratings-based approach (RBA) - - -

14 IRB Supervisory Formula Approach (SFA) - - -

15 SA/simplified supervisory formula approach (SSFA) - - -

16 Market risk 423,075 458,012 33,846

17 Standardised approach (SA) 423,075 458,012 33,846

18 Internal model approaches (IMM) -

19 Operational Risk 2,865,611 2,546,198 229,249

20 Basic Indicator Approach 2,865,611 2,546,198 229,249

21 Standart Approach - - -

22 Advanced measurement approach - - -

23

The amount of the discount threshold under the equity

(subject to a 250% risk weight) - - -

24 Floor adjustment - - -

25 Total (1+4+7+8+9+10+11+12+16+19+23+24) 25,647,012 24,785,039 2,051,761




56


INFORMATION RELATED TO FINANCIAL POSITION AND RISK MANAGEMENT

(cont’d)

VIII. Explanations Related to Consolidated Risk Management (cont’d)

b) Explanations on Credit Risk

b.1) Credit quality of assets

Current Period

Gross carrying value in financial statements

prepared in accordance witlı Tıırkish Accounting

Standards (TAS) Alliances/amortisation

and impairments Net values

Defaulted Non-defaıılted

1 Loans 1,622,932 21,833,284 1,751,672 21,704,544

2 Debt securities - 10,622,941 18,198 10,604,743

3 Off-balance sheet exposures 157,408 8,305,697 81,760 8,381,345

4 Total 1,780,340 40,761,922 1,851,630 40,690,632

Prior Period

Gross carrying value in financial statements

prepared in accordance witlı Tıırkish Accounting

Standards (TAS)

Alliances/amortisation

and impairments Net values

Defaulted Non-defaıılted

1 Loans 1,345,677 22,250,503 986,482 22,609,698

2 Debt securities - 10,609,374 - 10,609,374

3 Off-balance sheet exposures 135,706 8,840,894 46,275 8,930,325

4 Total 1,481,383 41,700,771 1,032,757 42,149,397

b.2) Changes in stock of default loans and debt securities

Current Period Prior Period

1

Defaulted loans and debt securities at end of the previous reporting

period 1,345,677 1,164,608

2 Loans and debt securities that have defaulted since the last reporting period 646,910 1,023,866

3 Receivables back to non-defaulted status - -

4 Amounts written off (202,991) (102,505)

5 Other changes (166,664) (740,292)

6 Defaulted loans and debt securities at end of the reporting period 1,622,932 1,345,677




57



(cont’d)


b) Explanations on Credit Risk (cont’d)

b.3) Credit risk mitigation techniques

Current

Period

Exposures unsecured

(according to TAS)

Exposures

secured by

collateral

Amount of

Collateral

Exposures

secured by

financial

guarantees

Amount of

Financial

guarantees

Exposures

secured by

credit

derivatives

Amounts

secured by

credit

derivatives

1 Loans 12,620,967 9,212,317 6,764,483 - - - -

2 Debt

securities 10,622,941 - - - - - -

3 Total 23,243,908 9,212,317 6,764,483 - - - -

4 Of which defaulted 1,780,340 - - - - - -

Prior

Period

Exposures unsecured

(according to TAS)

Exposures

secured by

collateral

Amount of

Collateral

Exposures

secured by

financial

guarantees

Amount of

Financial

guarantees

Exposures

secured by

credit

derivatives

Amounts

secured by

credit

derivatives

1 Loans 13,328,364 8,922,139 7,367,379 - - - -

2 Debt

securities 10,609,374 - - - - - -

3 Total 23,937,738 8,922,139 7,367,379 - - - -

4 Of which defaulted 1,090,262 255,415 531,644 - - - -




58



(cont’d)



b.4) Credit risk exposure and credit risk mitigation techniques

Current Period Exposures before CCF and

credit risk mitigation

Exposures post-CCF and


Risk

weighted amounts

and Risk weighted

amounts density

Risk classes

On-balance

sheet anıoıınt

Off-balance

Slıeet amount

On-balance

Sheet amount

Off-balance

Sheet amount

Risk

weighted

amounts

Risk weighted

amounts

density

1

Exposures to sovereigns and

their central banks 6,178,832 6,043 6,178,832 6,043 190,258 3.08%

2

Exposures to regional and local

governments 59,711 88 59,711 44 31,004 51.92%

3

Exposures to administrative

bodies and non-commercial

entities 95,093 14,769 95,093 7,150 96,636 101.62%

4

Exposures to multilateral

development banks - - - - - -

5

Exposures to intemational

organizations - - - - - -

6

Exposures to banks and

brokerage houses 1,542,074 1,238,176 1,542,074 998,059 1,173,831 76.12%

7 Exposures to corporates 9,025,551 3,883,337 9,025,551 1,755,754 9,457,048 104.78%

8 Retail exposures 6,347,086 2,600,903 6,347,086 915,461 4,258,401 67.09%

9

Exposures secured by

residential property 1,780,411 250,053 1,780,411 132,147 701,477 39.40%

10


commercial property 4,225,150 387,562 4,225,150 209,738 2,259,649 53.48%

11 Past-due items 490,095 - 490,095 - 365,700 74.62%

12

Exposures in high-risk

categories 62,328 - 62,328 - 93,492 150.00%

13

Exposures in tlıe form of bonds

secured by mortgages - - - - - -

14

Short term exposures to banks,

brokerage houses and corporates - - - - - -

15

Exposures in tlıe form of

collective investment

undertakings - - - - - -

16 Other exposures 3,187,613 528 3,187,252 108 2,721,060 85.37%

17 Equity share investments - - - - - -

18 Total 32,993,944 8,381,459 32,993,583 4,024,504 21,348,556 64.71%




59



(cont’d)



b.4) Credit risk exposure and credit risk mitigation techniques (cont’d)

Prior Period Exposures before CCF and


Exposures post-CCF and


Risk

weighted amounts

and Risk weighted

amounts density

Risk classes

On-balance

sheet anıoıınt

Off-balance

Slıeet amount

On-balance

Sheet amount

Off-balance

Sheet amount

Risk

weighted

amounts

Risk weighted

amounts

density

1

Exposures to sovereigns and

their central banks 6,642,781 5,954 6,642,781 5,954 330,010 4.97%

2

Exposures to regional and local

governments 61,155 40 61,155 20 31,888 52.14%

3

Exposures to administrative

bodies and non-commercial

entities 109,092 14,605 109,092 7,108 113,157 103.73%

4

Exposures to multilateral

development banks - - - - - -

5

Exposures to intemational

organizations - - - - - -

6

Exposures to banks and

brokerage houses 1,314,916 1,721,600 1,314,916 1,502,182 1,265,272 96.22%

7 Exposures to corporates 9,818,855 4,270,698 9,818,855 1,872,326 9,763,917 99.44%

8 Retail exposures 6,143,092 2,285,131 6,143,092 783,378 3,713,691 60.45%

9


residential property 1,667,764 245,981 1,667,764 131,571 659,174 39.52%

10


commercial property 4,057,250 385,812 4,057,250 244,500 2,193,514 54.06%

11 Past-due items 325,387 - 325,387 - 236,432 72.66%

12

Exposures in high-risk

categories 66,941 - 66,941 - 100,378 149.95%

13

Exposures in tlıe form of bonds

secured by mortgages - - - - - -

14

Short term exposures to banks,

brokerage houses and corporates - - - - - -

15

Exposures in tlıe form of

collective investment

undertakings - - - - - -

16 Other exposures 3,012,057 504 3,011,711 102 2,368,484 78.64%

17 Equity share investments - - - - - -

18 Total 33,219,290 8,930,325 33,218,944 4,547,141 20,775,917 62.54%




60


INFORMATION RELATED TO FINANCIAL POSITION AND RISK MANAGEMENT (cont’d)



b.5) Exposures by asset classes and risk weights

Current Period 0% 10% 20% 35%

50%

secured by

property

mortgage 75%

100% 150% 200% Other

Total risk

amount

Regulatory portfolio

1 Exposures to sovereigns and their central banks 5,815,050 - - - 359,134 - 10,691 - - - 6,184,875

2 Exposures to regional and local government - - - - 57,499 - 2,256 - - - 59,755

3

Exposures to administrative bodies and non-commercial

entities 5,607 - - - - - 96,636 - - - 102,243

4 Exposures to multilateral development banks - - - - - - - - - - -

5 Exposures to international organizations - - - - - - - - - - -

6 Exposures to banks and brokerage houses 115,378 - 160,822 - 2,244,533 - 19,400 - - - 2,540,133

7 Exposures to corporates 1,053,541 - 163,070 - 279,744 1,559 9,283,391 - - - 10,781,305

8 Retail exposures 1,554,652 - 6,036 - 77,510 5,623,641 708 - - - 7,262,547

9 Exposures secured by residential property - - - 1,862,421 1,016 - 49,121 - - - 1,912,558

10 Exposures secured by commercial property - - - - 4,350,479 - 84,409 - - - 4,434,888

11 Past-due items - - - - 248,877 34 241,080 104 - - 490,095

12 Exposures in high-risk categories - - - - - - - 62,328 - - 62,328

13 Exposures in the form of bonds secured by mortgages - - - - - - - - - - -

14

Short term exposures to banks, brokerage houses and

corporates - - - - - - - - - - -

15

Exposures in the form of collective investment

undertakings - - - - - - - - - - -

16 Equity share investments - - - - - - - - - - -

17 Other exposures 312,355 - 112 - 307,711 - 2,567,182 - - - 3,187,360

18 Total 8,856,583 - 330,040 1,862,421 7,926,503 5,625,234 12,354,874 62,432 - - 37,018,087




61





b.5) Exposures by asset classes and risk weights (cont’d)

Prior Period 0% 10% 20% 35%

50%

secured by

property

mortgage 75%

100% 150% 200% Other

Total risk

amount

Regulatory portfolio

1 Exposures to sovereigns and their central banks 6,002,543 - - - 632,365 - 13,827 - - - 6,648,735

2 Exposures to regional and local government - - - - 58,570 - 2,605 - - - 61,175

3

Exposures to administrative bodies and non-commercial

entities 3,044 - - - - - 113,156 - - - 116,200

4 Exposures to multilateral development banks - - - - - - - - - - -

5 Exposures to international organizations - - - - - - - - - - -

6 Exposures to banks and brokerage houses 232,116 - 130,991 - 2,429,836 - 24,155 - - - 2,817,098

7 Exposures to corporates 1,666,776 - 157,065 - 268,857 1,627 9,596,856 - - - 11,691,181

8 Retail exposures 1,932,088 - 1,746 - 125,073 4,867,036 527 - - - 6,926,470

9 Exposures secured by residential property - - - 1,753,018 1,399 - 44,918 - - - 1,799,335

10 Exposures secured by commercial property - - - - 4,216,471 - 85,279 - - - 4,301,750

11 Past-due items - - - - 177,947 - 147,404 36 - - 325,387

12 Exposures in high-risk categories - - - - - 45 - 66,896 - - 66,941

13 Exposures in the form of bonds secured by mortgages - - - - - - - - - - -

14

Short term exposures to banks, brokerage houses and

corporates - - - - - - - - - - -

15


undertakings - - - - - - - - - - -

16 Equity share investments - - - - - - - - - - -

17 Other exposures 523,721 - 107 - 239,047 - 2,248,938 - - - 3,011,813

18 Total 10,360,288 - 289,909 1,753,018 8,149,565 4,868,708 12,277,665 66,932 - - 37,766,085




62



(cont’d)


c) Explanations on Counterparty Credit Risk

c.1) Analysis of counterparty credit risk exposure by approach

Current Period

Replacement

cost

Potential

future

exposure EEPE

Alpha used for

computing

regulatory

exposure at

default

Exposure

at default

after CRM RWA

1

Standardised Approach -

Counterparty credit risk (for

derivatives) 327,421 212,249 - 1.4 237,519 136,912

2

Internal Model Method (for

repo transactions, securities

or commodity lending or

borrowing transactions, long

settlement transactions and

securities financing

transactions) - - - - - -

3

Simple Approach for credit

risk mitigation (for repo

transactions, securities or

commodity lending or





4

Comprehensive Approach

for credit risk mitigation (for







5

Value-at-Risk (VaR) for repo






transactions - - - - 451 34

6 Total 327,421 212,249 - - 237,970 136,946




63



(cont’d)


c) Explanations on Counterparty Credit Risk (cont’d)

c.1) Analysis of counterparty credit risk exposure by approach (cont’d)

Prior Period

Replacement

cost

Potential

future

exposure EEPE

Alpha used for

computing

regulatory

exposure at

default

Exposure

at default

after CRM RWA

1 Standardised Approach -

Counterparty credit risk (for

derivatives) 771,456 170,726 - 1.4 453,430 251,090

2

Internal Model Method (for







3

Simple Approach for credit

risk mitigation (for repo







4

Comprehensive Approach

for credit risk mitigation (for







5

Value-at-Risk (VaR) for repo






transactions - - - - 319 99

6 Total 771,456 170,726 - - 453,749 251,189




64



(cont’d)



c.2) Capital requirement for credit valuation adjustment:


EAD post-

credit risk

mitigation

Risk weighted

amounts

EAD post-

credit risk

mitigation

Risk weighted

amounts

Total portfolios subject to the Advanced credit

valuation adjustment capital obligation

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

2

(ii) Stressed VaR component (including the

3×multiplier) - - - -

3

All portfolios subject to the Standardised credit

valuation adjustment capital obligation 920,960 73,677 886,497 70,920

4 Total subject to the credit valuation adjustment

capital obligation 920,960 73,677 886,497 70,920




65





c.3) Counterparty credit risk exposures by risk class and risk weights

Current Period 0% 10% 20% 50% 75% 100%

150% Other

Total credit

exposure

Risk weight/ Regulatory portfolio

Exposures to sovereignsand their central banks 283 - - 6,043 - - - - 3,022

Exposures to regional and local governments - - - - - - - - -

Exposures to administrative bodies

and non-commercial entities - - - - - - - - -

Exposures to multilateral development banks - - - - - - - - -

Exposures to international organizations - - - - - - - - -

Exposures to banks and brokerage houses - - 6,936 182,966 - - - - 92,870

Exposures to corporates - - - 40 - 39,028 - - 39,048

Retail exposures - - - - 2,674 - - - 2,006

Exposures secured by residential property - - - - - - - - -

Exposures secured by commercial property - - - - - - - - -

Past-due items - - - - - - - - -

Exposures in high-risk categories - - - - - - - - -

Exposures in the form of bonds secured by

mortgages - - - - - - - - -

Short term exposures to banks, brokerage houses

and corporates - - - - - - - - -


undertakings - - - - - - - - -

Equity share investments - - - - - - - - -

Other exposures - - - - - - - - -

Other assets - - - - - - - - -

Total 283 - 6,936 189,049 2,674 39,028 - - 136,946

(*)Total credit exposure: the amount relevant for the capital requirements calculation, having applied CRM techniques.

(**)Other assets: the amount excludes exposures to “Central counterparty” which is reported in Counterparty credit risk.




66





c.3) Counterparty credit risk exposures by risk class and risk weights(cont’d)

Prior Period 0% 10% 20% 50% 75% 100%

150% Other

Total credit

exposure

Risk weight/ Regulatory portfolio

Exposures to sovereignsand their central banks - - - 5,954 - - - - 2,977

Exposures to regional and local governments - - - - - - - - -

Exposures to administrative bodies

and non-commercial entities - - - - - 1 - - 1

Exposures to multilateral development banks - - - - - - - - -

Exposures to international organizations - - - - - - - - -

Exposures to banks and brokerage houses - - 5,199 389,089 - - - - 195,584

Exposures to corporates - - - - - 49,954 - - 49,954

Retail exposures - - - - 3,564 - - - 2,673

Exposures secured by residential property - - - - - - - - -

Exposures secured by commercial property - - - - - - - - -

Past-due items - - - - - - - - -

Exposures in high-risk categories - - - - - - - - -

Exposures in the form of bonds secured by

mortgages - - - - - - - - -

Short term exposures to banks, brokerage houses

and corporates - - - - - - - - -


undertakings - - - - - - - - -

Equity share investments - - - - - - - - -

Other exposures - - - - - - - - -

Other assets - - - - - - - - -

Total - - 5,199 395,043 3,564 49,955 - - 251,189

(*)Total credit exposure: the amount relevant for the capital requirements calculation, having applied CRM techniques.

(**)Other assets: the amount excludes exposures to “Central counterparty” which is reported in Counterparty credit risk.




67



(cont’d)



c.4) Collaterals for counterparty credit risk

Current Period Collateral for derivative transactions

Collateral for other

transactions

Fair value of collateral

received Fair value of collateral given Collateral

received

Collateral

given

Segregated Unsegregated Segregated Unsegregated

Cash-domestic currency - - - 37 - 40,647

Cash-foreign currency 129,142 - 313,131 - - -

Domestic sovereign bonds/bills - - 55,077 - - 1,306,585

Other sovereign bonds/bills - - - - - 311,130

Government agency bonds/bills - - - - - -

Corporate bonds/bills - - - - - -

Equity securities - - - - - -

Other collateral - - - - - 140,585

Total 217,522 - 546,650 37 - 1,798,948

Prior Period Collateral for derivative transactions

Collateral for other

transactions

Fair value of collateral

received Fair value of collateral given Collateral

received

Collateral

given

Segregated Unsegregated Segregated Unsegregated

Cash-domestic currency - - - 52 - 69,477

Cash-foreign currency 248,839 - 151,287 - - -

Domestic sovereign bonds/bills - - - - - 834,542

Other sovereign bonds/bills - - - - - 252,757

Government agency bonds/bills - - - - - -

Corporate bonds/bills - - - - - -

Equity securities - - - - - -

Other collateral - - - - - 140,501

Total 248,839 - 151,287 52 - 1,297,277




68



(cont’d)



c.5 ) Credit derivatives: None.

c.6) Exposures to central counterparties


a b a b

Exposure at

default (post

CRM) RWA

Exposure at default

(post CRM) RWA

1 Exposure to Qualified Central Counterparties

(total)

2

Exposures for trade risks at QCCPs (excluding

initial margin and default fund contributions); of

which - - - -

3 (i) OTC Derivatives - - - -

4 (ii) Other Financial Derivatives - - - -

5

(iii) Repo transactions, marketable securities or

EMTIA lending or borrowing transactions,

security transactions with credit 451 34 319 99

6

(iv) Netting sets where cross-product netting has

been approved - - - -

7 Segregated initial margin - - - -

8 Non-segregated initial margin - - - -

9 Pre-funded default fund contributions - - - -

10 Unfunded default fund contributions - - - -

11 Exposures to non- Qualified Central

Counterparties (total) - -

12

Exposures for trades at non-QCCPs (excluding

initial margin and default fund contributions); of

which - - - -

13 (i) OTC Derivatives - - - -

14 (ii) Exchange-traded Derivatives - - - -

15 (iii) Securities financing transactions - - - -

16

(iv) Netting sets where cross-product netting has

been approved - - - -

17 Segregated initial margin - - - -

18 Non-segregated initial margin - - - -

19 Pre-funded default fund contributions - - - -

20 Unfunded default fund contributions - - - -




69



(cont’d)


d) Explanations on Securitization The Bank has no securitization transactions.

e) Explanations on Market Risk

e.1) Market risk under standardised approach

Risk weighted amounts


Outright products 29,271 33,069

1 Interest rate risk (general and specific) 9,968 13,590

2 Equity risk (general and specific) - -

3 Foreign exchange risk 19,303 19,479

4 Commodity risk - -

Options 4,575 3,572

5 Simplified approach - -

6 Delta-plus method 4,575 3,572

7 Scenario approach - -

8 Securitisation - -

9 Total 33,846 36,641

VIII. Explanations Related to Transactions Made on Behalf of Others and Transactions Based

On Trust

The Parent Bank performs securities buying and selling transactions, brokerage and custody services on behalf

of customers. There are no transactions made with other financial institutions under the trust transaction contract and direct

financial services provided within this scope.




70

SECTION FIVE

EXPLANATIONS AND DISCLOSURES ON THE

FINANCIAL STATEMENTS

I. Explanations Related to the Consolidated Assets

1. Information related to cash equivalents and the account of the Central Bank of the Republic of

Turkey (the “CBRT”) :

a) Information on Cash and Balances with the Central Bank of Turkey:


TRL FC TRL FC

Cash in TRL/Foreign Currency 109,784 205,046 133,420 392,847

Balances with the Central Bank of Turkey 521,349 2,522,097 796,773 2,296,190

Other - 7 - 7

Total 631,133 2,727,150 930,193 2,689,044

b) Information related to the account of the Central Bank of Turkey:


TRL FC TRL FC

Unrestricted demand deposit 521,349 2,505,117 796,773 1,978,035

Unrestricted time deposit - - - 2

Restricted time deposit - 16,980 - 318,153

Total 521,349 2,522,097 796,773 2,296,190

The reserve deposits include TRL 1,487,176 Thousand of FC unrestricted demand deposit (31 December 2018 – TRL 1,034,773 Thousand)

and TRL 521,149 Thousand (31 December 2018 – TRL 793,416 Thousand) of the TRL unrestricted demand deposit. TRL unrestricted

demand deposit includes the reserve deposit amount that is held in the Central Bank of the Turkish Republic on average.

CBRT amounts include the funds of Şekerbank (Kıbrıs) Ltd. held with the Central Bank of Turkish Republic of Northern Cyprus. The

Central Bank of Turkish Republic of Northern Cyprus amount is TRL 44,478 Thousand and it includes TRL 19,340 Thousand reserve

deposit amount (31 December 2018 – TRL 41,932 Thousand Central Bank amount and it includes TRL 17,047 Thousand reserve deposit

amount).

In accordance with the principles of the Communiqué numbered 2013/15 of The Central Bank of Turkey on "Required Reserves” the

required reserve ratios to be held in the Central Bank of Turkey vary according to the currency denomination and term of the liabilities

subject to the reserve requirements. Thus, the reserve requirement rate range between 1% - 7% (31 December 2018 – -1.5% - 8%) is

applied for TRL deposits, participation funds and other liabilities and 5% - 21% (31 December 2018 – 4% – 20%) for FX deposits,

participation funds and other liabilities.

The Central Bank of the Turkish Republic of Northern Cyprus, with the decision of the Board of Directors numbered 2018/1005, Legal

Reserves Ratiosubjected to separation According to the Deposit Maturity Group,TRL and FC deposits and other liabilities are applied in

the range of 4% - 7%.

2. Information on financial assets at fair value through profit and loss (net):

i. Information on financial assets at fair value through profit and loss given as collateral or blocked:

None (31 December 2018 – None).

ii. Financial assets at fair value through profit and loss subject to repurchase agreements:

Net book value of unrestricted financial assets at fair value through profit and loss is TRL 70,799

Thousand (31 December 2018 – TRL 85,589 Thousand).

iii. Positive differences related to derivative financial assets held-for-trading:

Derivative financial assets held for trading are classified in the financial statements as Fair Value of

Derivative financial assets through profit and loss.

Derivatives Held for Trading


TRL FC TRL FC

Forward Transactions - 40,135 - 53,261

Swap Transactions 105,917 5,055 160,213 152,620

Futures Transactions - - - -

Options 65 6,310 106 10,153

Other - - - -

Total 105,982 51,500 160,319 216,034




71

SECTION FIVE (cont’d)

EXPLANATIONS AND DISCLOSURES ON FINANCIAL STATEMENTS (cont’d)

I. Explanations Related to the Consolidated Assets (cont’d)

iv. Loans at fair value through profit and loss:


Opening Balance 221,879 266,683

Additions (+) 7,827 16,239

Change in Interest Rates (*) 120 (15,056)

Change in Credit Risk (**) 1,546 (3,369)

Impairment Provision (987) (152)

Collections (-) (15,918) (42,466)

Net Balance 214,467 221,879

(*) Change in interest rates shows the effect of TRLIBOR (basic interest rate) difference on loans at fair value through profit and loss

between two periods.

(**) Change in credit risk shows the effect of the difference of basic interest rates and similar loans interest rates on loans at fair value

through profit and loss.

As of 30 June 2019, the value of the loans amounting to TRL 214,467 Thousand (31 December 2018 – TRL

221,879 Thousand) and classified as Financial assets at Fair Value Throught Profit and Loss discounted using

the effective interest rate method is TRL 241,691 Thousand (31 December 2018 – TRL 235,302 Thousand).

3. Information on banks:

Information on banks account:


TRL FC TRL FC

Banks 31,200 456,410 34,699 171,320

Domestic 31,198 252,764 34,676 64,767

Foreign 2 203,646 23 106,553

Branches and head office abroad - - - -

Total 31,200 456,410 34,699 171,320

4. Information on Financial Assets at Fair Value Through Other Comprehensive Income:

a.1. Information on financial assets at fair value through other comprehensive income given as collateral or

blocked:


TRL FC TRL FC

Share certificates - - - -

Bonds, Treasury bills and similar investment

securities 182,925 - 171,631 -

Other - - - -

Total 182,925 - 171,631 -

a.2. Financial assets at fair value through other comprehensive income subject to repurchase agreements:


TRL FC TRL FC

Government bonds 195,360 - - -

Treasury bills - - - -

Other public sector debt securities - - - -

Bank bonds and bank guaranteed bonds - - - -

Asset backed securities - - - -

Other - - - -

Total 195,360 - - -




72




4. Information on Financial Assets at Fair Value Through Other Comprehensive Income(cont’d):

Net book value of unrestricted financial assets at fair value through other comprehensive income is TRL 224,087

Thousand (31 December 2018 - TRL 406,051 Thousand).

b. Information on financial assets at fair value through other comprehensive income portfolio:


Debt securities 578,577 563,641

Quoted on a stock exchange 578,417 563,481

Not quoted on a stock exchange 160 160

Share certificates 31,333 24,700

Quoted on a stock exchange - -

Not quoted on a stock exchange 31,333 24,700

Impairment provision(-) (7,538) (10,659)

Total 602,372 577,682

5. Information on loans:

a. Information on all types of loans and advances given to shareholders and employees of the Group:


Cash Loans Non-Cash Loans Cash Loans Non-Cash Loans

Direct loans granted to shareholders 509 - 447 11

Corporate shareholders - - - -

Individual shareholders 509 - 447 11

Indirect loans granted to shareholders 420,972 19,048 898,986 18,697

Loans granted to employees 22,556 - 21,760 46

Total 444,037 19,048 921,193 18,754




73




5. Information on loans(cont’d):

b. Information on standart loans and restructured loans under close monitoring: (*)

Cash loans Standard loans

Loans

under close monitoring

Out of the scope of Restructuring

Restructured

Amendment of Contract

Conditions

Refinanced

Non-specialized loans 16,363,975 1,469,953 487,152 1,168,463

Corporation loans 95,041 - 13,333 1,510

Export loans 4,742,527 96,653 - 31,844

Import loans 9,450 690 - 918

Loans given to

financial sector 94,973 142 - -

Consumer loans 832,274 46,109 8,098 9,459

Credit cards 248,286 10,015 - -

Other 10,341,424 1,316,344 465,721 1,124,732

Specialized loans 2,008,391 217,857 - 108,463

Other receivables 1,075 7,955 - -

Total 18,373,441 1,695,765 487,152 1,276,926

(*) TRL 200,694 Thousand of loans is shown under Financial Assets at Fair Value through Profit and Loss in the financial statements.


Standard loans

Loans

under close

monitoring

Standard loans

Loans

under close monitoring

12 Months Expected Loss 131,119 - 112,960 -

Significant Increase in Credit Risk - 510,948 - 529,518

c. Loans and other receivables according to their maturity structure:

Standard Loans

Loans

Under Close Monitoring

Out of the Scope of

Restructuring Restructured

Short-term loans and other receivables 6,558,287 291,054 182,417

Medium and Long-term loans 11,815,154 1,404,711 1,581,661

Total 18,373,441 1,695,765 1,764,078

(*) TRL 200,694 Thousand of loans is shown under Financial Assets at Fair Value through Profit and Loss in the financial statements.




74




5. Information on loans (cont’d):

d. Information on consumer loans, individual credit cards, personnel loans and credit cards given to

personnel:

Short Term

Medium and

Long Term

Total

Consumer Loans-TRL 13,352 737,467 750,819

Mortgage Loans - 227,427 227,427

Vehicle Loans 262 8,226 8,488

General Purpose Loans 13,087 477,795 490,882

Other 3 24,019 24,022

Consumer Loans –Indexed to FC - 241 241

Mortgage Loans - 241 241

Vehicle Loans - - -

General Purpose Loans - - -

Other - - -

Consumer Loans-FC - 32,317 32,317


Vehicle Loans - 1,077 1,077

General Purpose Loans - 5,065 5,065

Other - - -

Individual Credit Cards-TRL 151,435 - 151,435

With Installments 40,142 - 40,142

Without Installments 111,293 - 111,293

Individual Credit Cards-FC 110 - 110

With Installments - - -

Without Installments 110 - 110

Personnel Loans-TRL 662 9,044 9,706

Mortgage Loans - 43 43

Vehicle Loans - - -

General Purpose Loans 661 7,196 7,857

Other 1 1,805 1,806

Personnel Loans- Indexed to FC - - -

Mortgage Loans - - -

Vehicle Loans - - -

General Purpose Loans - - -

Other - - -

Personnel Loans-FC - 1,461 1,461


Vehicle Loans - - -

General Purpose Loans - 375 375

Other - - -

Personnel Credit Cards-TRL 7,374 - 7,374



Personnel Credit Cards-FC 9 - 9



Overdraft Accounts-TRL(Real Person) (*) 98,062 3,334 101,396

Overdraft Accounts-FC (Real Person) - - -

Total 271,004 783,864 1,054,868

(*) As of 30 June 2019, overdraft accounts for real persons include TRL 4,515 Thousand personnel overdraft account.




75





e. Information on commercial loans with installments and corporate credit cards:

Short Term

Medium and

Long Term

Total

Commercial loans with installment facility-TRL 370,950 4,695,679 5,066,629

Business Loans - 9,578 9,578

Vehicle Loans 3,558 43,843 47,401

General Purpose Loans 349,673 4,642,258 4,991,931

Other 17,719 - 17,719

Commercial loans with installment facility - Indexed to FC - 975,316 975,316

Business Loans - 1,670 1,670

Vehicle Loans - 13,698 13,698

General Purpose Loans - 959,948 959,948

Other - - -

Commercial loans with installment facility –FC 90,548 766,791 857,339

Business Loans - - -

Vehicle Loans - 682 682

General Purpose Loans 48,195 766,109 814,304

Other 42,353 - 42,353

Corporate Credit Cards-TRL 99,372 - 99,372



Corporate Credit Cards-FC 1 - 1



Overdraft Accounts-TRL (Legal Entity) 137,345 - 137,345

Overdraft Accounts-FC (Legal Entity) - - -

Total 698,216 6,437,786 7,136,002

f. Loans according to borrowers:


Public 51,297 56,303

Private 21,781,987 22,183,841

Total 21,833,284 22,240,144

(*) TRL 200,694 Thousand of loans is shown under Financial Assets at Fair Value through Profit and Loss in the financial statements (31

December 2018 – TRL 211,520 Thousand).

g. Domestic and foreign loans:


Domestic loans 21,779,641 22,186,916

Foreign loans 53,643 53,228

Total 21,833,284 22,240,144

(*) TRL 200,694 Thousand of loans is shown under Financial Assets at Fair Value through Profit and Loss in the financial statements(31

December 2018 – TRL 211,520 Thousand).

h. Loans granted to subsidiaries and associates: None (31 December 2018 - None).




76





i. Impaired Loans (Stage 3) provisions provided against loans:


Loans with limited collectability 47,660 40,689

Loans with doubtful collectability 206,154 125,649

Uncollectible loans 855,791 820,144

Total 1,109,605 986,482

j. Information on non-performing loans (Net):

j.1. Information on non-performing loans and restructured loans:

III. Group: IV. Group: V. Group

Loans with limited

collectability

Loans with doubtful

collectability

Uncollectable loans

Current Period

Gross amounts before Provisions(*) 109,725 416,324 1,096,883

Loans which are restructured 6,507 33,467 20,788

Prior Period

Gross amounts before Provisions(*) 99,764 230,961 1,014,952

Loans which are restructured 6,189 27,250 22,699

j.2. The movement of non-performing loans:

III. Group IV. Group V. Group

Loans with

limited

collectability

Loans with doubtful

collectability

Uncollectable loans

Prior period end balance 99,764 230,961 1,014,952

Additions (+) 296,442 273,864 76,604

Transfers from other categories of non-performing loans (+) - 212,519 216,669

Transfers to other categories of non-performing loans (-) 212,519 216,669 -

Collections (-) 31,227 55,456 79,981

Write-off (-) - - -

Sold (-) 42,735 28,895 131,361

Corporate and commercial loans 42,735 28,812 115,353

Retail loans - 39 11,129

Credit cards - 44 4,879

Current period end balance (*) 109,725 416,324 1,096,883

Provision (-) (*) 47,660 206,154 855,791

Net Balances on Balance Sheet 62,065 210,170 241,092

(*) TRL 13,773 Thousand (31 December 2018- TRL 10,359 Thousand ) net non-performing loans have been classified under “Financial

Assets at Fair Value through Profit and Loss”have been made.




77





j.3. Informations on non-performing loans and other receivables in foreign currency: In the current

period the Group has TRL 10,046 Thousand non-performing foreign currency loans and specific

provision for these loans amounting to TRL 10,046 Thousand (31 December 2018- TRL 9,219

Thousand non-performing foreign currency loans and TRL 9,219 Thousand specific provision).

j.4. Information regarding gross and net amounts of non-performing loans with respect to user groups:

III. Group IV. Group V. Group

Loans with limited

collectability

Loans with doubtful

collectability

Uncollectable loans

Current Period (Net) (*)

Loans to Real Persons and Legal Entities (Gross) 109,725 416,324 1,096,883

Provision (-) 47,660 206,154 855,791

Loans to Real Persons and Legal Entities (Net) 62,065 210,170 241,092

Banks (Gross) - - -

Provision (-) - - -

Banks (Net) - - -

Other Loans (Gross) - - -

Provision (-) - - -

Other Loans (Net) - - -

Prior Period (Net) (*)

Loans to Real Persons and Legal Entities (Gross) 99,764 230,961 1,014,952

Provision (-) 40,689 125,649 820,144

Loans to Real Persons and Legal Entities (Net) 59,075 105,312 194,808

Banks (Gross) - - -

Provision (-) - - -

Banks (Net) - - -

Other Loans (Gross) - - -

Provision (-) - - -

Other Loans (Net) - - -

j.5. Information on interest accruals for non-performing loans, rediscounts and valuation differences

and their provisions regarding the banks that allocate expected loan loss provisions according to

TFRS 9:

III. Grup IV. Grup V. Grup

Loans with limited

collectability

Loans with doubtful

collectability

Uncollectable loans

Current Period (Net)

Interest accruals, rediscounts and valuation differences 5,599 42,306 20,922

Provisions (-) 5,599 42,306 20,922

Prior Period (Net)

Interest accruals, rediscounts and valuation differences 6,812 15,415 2,449

Provisions (-) 6,812 15,415 2,449

k. Main principles of uncollectable loans and receivables:

The Parent Bank's management has adopted a provision policy for non-performing loans in accordance

with the Regulation on the Procedures and Principles Regarding Classification of Loans and Provisions to

be Reserved by BRSA (“Regulation”).




78





l. Explanations on write-off policy:

The Parent Bank sold uncollectable non-performing loans amounting to TRL 202,991 Thousand to

Gelecek Varlık Yönetim A.Ş. (31 December 2018 - The Parent Bank sold uncollectable non-

performing loans amounting to TRL 92,492 Thousand for total cash amount of TRL 2,150 Thousand to

Birleşim Varlık Yönetim A.Ş. As of 28 November 2018, Şeker Faktoring A.Ş sold its receivables

amounting to TRL 10,013 Thousand through its revenue share agreement for total cash amount of

TRL 64 Thousand to Sümer Varlık Yönetim A.Ş. On 26 September 2018, Şeker Faktoring A.Ş.

liquidated TRL 52 Thousand from its non-performing receivables in accordance with the decision of

the Board of Directors).

6. Information on Financial Assets at Amortised Cost:

a.1. Information on investments at amortised cost given as collateral or blocked:


Treasury Bill - -

Bond and Similar Securities 1,469,801 957,904

Other - -

Total 1,469,801 957,904

a.2. Financial assets at amortised cost subject to repurchase agreements are TRL 119,231 Thousand (31

December 2018 - TRL 131,270 Thousand).

b. Information on public sector debt investments at amortised cost:


Government Bonds 1,969,708 2,447,744

Treasury Bills 318,397 293,076

Other Public Sector Debt Securities - -

Total 2,288,105 2,740,820

Net book value of unrestricted financial assets at amortised cost is TRL 1,446,941 Thousand (31 December

2018 - TRL 2,339,548 Thousand).




79




6. Information on Financial Assets at Amortised Cost (cont’d):

c. Information on financial assets at amortised costs:


Debt Securities 3,046,567 3,435,585

Quoted on a stock exchange 2,299,213 2,749,702

Not quoted on a stock exchange 747,354 685,883

Impairment Provision (-) (10,594) (6,863)

Total 3,035,973 3,428,722

d. Movement of financial assets at amortised costs:


Beginning Balance 3,428,722 1,355,739

TFRS 9 Impact - 1,136,612

Foreign Exchange Differences in Monetary Assets 87,678 215,449

Purchases during the year 4,236 367,015

Disposals through Sales and Amortisation (372,726) (3,686)

Provision reversal / Impairment provision (-) (3,731) (3,552)

Revaluation Effect (108,206) 361,145

Total 3,035,973 3,428,722

7. Information on unconsolidated associates (Net):

a) Information on associates:

Seltur Turistik İşletmeler Yatırım A.Ş. is not consolidated since the Bank does not have control power

and it is not a financial entity.

Description Address (City/ Country)

Bank’s Share

Percentage-If Different

Voting Percentage (%)

Bank’s Risk Group Share

Percentage (%)

Seltur Turistik İşletmeler Yatırım A.Ş.(*) Muğla/Turkey 11.32 11.43

(*) Unaudited financial information of the associate as of 31 December 2018 is stated below.

Total

Asset

Shareholders’

Equity Tangible Assets

Interest

Income

Income from

Marketable Securities

Portfolio

Current

Period

Profit/Loss

Prior Period

Profit/Loss Fair Value

43,903 35,154 36,791 214 - 2,657 (39,341) 296,942

b) Information on consolidated associates: None.

c) Information on associates: There is no consolidated associate.

d) Measurement of associates: Measured with cost amounts.

e) Sectoral information and the related carrying amounts on consolidated associates: None.

f) Associates quoted to stock exchange: None.

g) Information on associates which are sold in the current period: None.

h) Information on associates purchased in the current period: None.




80




8. Information on subsidiaries (Net):

a. Information related to consolidated equity components of subsidiaries (*):

The Parent Bank does not have any capital requirements arising from subsidiaries that are included in

the consolidated capital adequacy standard ratio. The capital information of the significant subsidiaries

is presented in the following table.

Şekerbank

Kıbrıs

Ltd.

Şeker

Finansal

Kiralama

A.Ş.

Şekerbank

International

Banking

Unit Ltd.

Şeker

Yatırım

Menkul

Değerler A.Ş.

Şeker

Faktoring

A.Ş.

Şeker

Finansman

A.Ş.

Zahlungsdienste

GmbH Der

Şekerbank T.A.Ş.

CORE CAPITAL

Paid in Capital 28,554 66,808 28,776 31,195 81,041 26,000 1,638

Share Premiums - 1,208 - - - - -

Other Comprehensive

Income/Expense Items not to be

Reclassified to Profit or Loss - - 5,374 (369) - - (348)

Legal Reserves 1,910 7,822 6,036 2,308 2,059 614 -

Extraordinary Reserves 1 10,021 - 4,991 4,913 (17,208) -

Other Comprehensive

Income/Expense Items to be

Reclassified to Profit or Loss - 12,730 - (205) 7,891 (41) -

Other capital reserves - (4,344) - - 12,901 - -

Other Income Reserves - - - - - - -

Profit/Loss (2,953) (29,592) (596) (5,943) (50,443) (7,253) (226)

Prior Years’ Profits and

Losses (2,427) (29,699) (1,266) (1,719) (31,701) - (227)

Current Year’s Profit ans

Losses (526) 107 670 (4,224) (18,742) (7,253) 1

Total Core Capital 27,512 64,653 39,590 31,977 58,362 2,112 1,064

TIER II CAPITAL - - - - - - -

CAPITAL 27,512 64,653 39,590 31,977 58,362 2,112 1,064

NET AVAILABLE EQUITY 27,512 64,653 39,590 31,977 58,362 2,112 1,064

(*)Financial information is audited as of 30 June 2019.

b. Information on the unconsolidated subsidiaries:

Description Address (City/

Country)

The Parent Bank’s

Share Percentage-If

Different Voting

Percentage (%)

The Parent

Bank’s Risk

Group Share

Percentage (%)

Sekar Oto Filo Yönetim Hizmetleri ve Ticaret A.Ş. Istanbul/Turkey - 99

Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş Istanbul/Turkey 100 100

(*)The unaudited financial information of the related subsidiaries as of 30 June2019 is presented below.

Total

Assets

Shareholders’

Equity

Tangible

Assets

Interest

Income

Income from

Marketable

Securities

Portfolio

Current Period

Profit/Loss

Prior Period

Profit/Loss

Fair

Value

Amount

of Equity

Needed

99,424 10,106 51,524 8 - (584) 1,038 74,871 -

592,080 591,391 508,974 229 - 2,059 (14,159) - -

Şeker Proje Geliştirme ve Gayrimenkul Yatırım A.Ş. has not been included for the consolidataion as it is not a

financial subsidiary and it is accounted with the cost method.




81




8. Information on subsidiaries (Net) (cont’d):

c. Information on the consolidated subsidiaries:

Description Address (City/

Country)

Bank’s Share Percentage-If

Different Voting Percentage

(%)

Bank’s Risk Group

Share Percentage

(%)

Şekerbank Kıbrıs Ltd. Nicosia/TRNC 97.93 97.93

Şeker Finansal Kiralama A.Ş. Istanbul/ Turkey 54.13 65.70

Şekerbank International Banking Unit Ltd. Nicosia/TRNC 95.79 95.79

Şeker Yatırım Menkul Değerler A.Ş. Istanbul/ Turkey 99.04 100.00

Şeker Faktoring A.Ş. Istanbul/ Turkey 99.99 100.00

Şeker Finansman A.Ş. Istanbul/ Turkey 62.31 62.31

Zahlungsdienste GmbH Der Şekerbank T.A.Ş. Cologne/Germany 100.00 100.00

“Zahlungsdienste GMBH Der Şekerbank T.A.Ş.” (Zahlungsdienste)’s payment services activities as a

financial services branch in order to comply with the Payment Services Supervision Act (ZAG) have been

stopped and liquidation procedures are in progress.

d. Information on the consolidated subsidiaries with the order as presented in the table above:

Total Assets Shareholders’

Equity

Tangible

Assets

Interest

Income

Income from

Marketable Securities

Portfolio

Current Period

Profit/Loss

Prior Period

Profit/Loss

Fair Value

(*)

323,450 27,512 5,454 17,320 791 (526) (2,427) 13,555

545,973 64,653 43,086 27,570 - 107 (29,699) 53,054

45,795 39,590 3,640 1,536 - 670 (1,266) 19,554

187,255 31,977 20,761 14,617 1,164 (4,224) (1,719) 37,708

527,195 58,362 81,413 45,182 - (18,742) (31,701) 81,436

926,740 2,112 1,116 34,099 - (7,253) - 32,245

1,856 1,064 - - - 1 (227) -

(*)Fair values of the related subsidiaries are stated as of 31 December 2018.




82




8. Information on subsidiaries (Net) (cont’d):

e. Movement of consolidated subsidiaries:


Balance at the beginning of the period 188,824 172,831

Movement during the period 1,261 15,993

Purchases 1,261 16,474

Bonus shares obtained - -

Share in the current year income - -

Sales - -

Revaluation increase - -

Provision reversal / Provision of Impairment (-) - (481)

Balance at the end of the period 190,085 188,824

Capital Commitment - -

Share percentage at the end of the period (%) 100 100

f. Measurement of consolidated subsidiaries:


Measured with cost 190,085 188,824

Measured with fair value - -

Measured with equity method - -

g. Sectoral information and the related carrying amounts on consolidated subsidiaries:

Subsidiaries Current Period Prior Period

Banks 20,077 20,077

Insurance Companies - -

Factoring Companies 81,427 81,427

Leasing Companies 38,585 37,324

Finance Companies 16,658 16,658

Other Financial Subsidiaries 33,338 33,338

h. Subsidiaries Quoted to Stock Exchange:


Quoted to Domestic Stock Exchange 38,585 37,324

Quoted to Foreign Stock Exchange - -

i. Information on Subsidiaries which are sold in the Current Period: None.

j. Information on Subsidiaries Purchased in the Current Period: None.




83




9. Information on entities under common control: None (31 December 2018 – None).

10. Information on finance lease receivables (Net):


Gross Leasing Investment 555,360 559,326

Unearned Financial Profit from Leasing (-) (109,518) (112,473)

Cancelled Leasing Amounts (-) - -

Net Leasing Investment 445,842 446,853

(*) Includes TRL 63,658 Thousand non-performing loans shown under Leasing Receivables on balance sheet (31 December2018 – 61,359).

11. Information on derivative financial assets for hedging purposes:

Derivative financial assets for hedging purposes are classified in the financial statement Derivative

Financial Assets at Fair Value Through Profit and Loss.

Derıvative Financial Assets For Hedging Purposes Current Period Prior Period

TRL FC TRL FC

Fair Value Hedge 5,212 - 6,866 -

Cashflow Hedge - - - -

Hedge of net investment risks in foreign operations - - - -

Total 5,212 - 6,866 -

12. Information on tangible assets:

a. If impairment amount on individual asset recorded or reversed in the current period is material for the

overall financial statements:

a.1. Events and conditions for recording or reversing impairment: None.

a.2. Amount of recorded or reversed impairment in the financial statements: None. (31 December 2018

- TRL 18,612 Thousand)

b. The impairment provision set or cancelled in the current period according to the asset groups not

individually significant but materially effecting the overall financial statements, and the reason and

conditions for this: None.

c. Pledges, mortgages and other restrictions on the tangible fixed assets, expenses arising from the

construction for tangible fixed assets, commitments given for the purchases of tangible fixed assets:

None.

13. Information on intangible assets:

The useful lives of the intangible fixed assets, which are amortized with straight-line amortization

method, are averagely 5 years.

a. Disclosures for book value, description and remaining depreciation time for a specific intangible fixed

asset that is material to the financial statements: None.

b. Disclosure for intangible fixed assets acquired through government grants and accounted for at fair value

at initial recognition: None.

c. The method of subsequent measurement for intangible fixed assets that are acquired through government

incentives and recorded at fair value at the initial recognition: None.

d. The book value of intangible fixed assets that are pledged or restricted for use: None.

e. Amount of purchase commitments for intangible fixed assets: None.




84



I. Explanations Related to the Assets (cont’d)

13. Information on intangible assets (cont’d):

f. Amount of total research and development expenses recorded in statement of income within the period if

any: None.

g. Information on goodwill: None.

h. Movements on goodwill in the current period: None.

i. Information on revalued intangible assets according to their types: None.

14. Information on investment property:

As of 30 June 2019, the Group has TRL 65,337 Thousand of investment property. (31 December 2018- TRL

61,125 Thousand)

Investment Properties Current Period Prior Period

Cost

Opening Balance, 1 January 2019 61,125 -

Additions 4,212 12,292

Write off - -

Transfer - 23,075

Disposals (-) - -

Revaluation value increase/(decrease) - 25,758

Impairment Provision/Reversal - -

Closing Balance, 30 June 2019 65,337 61,125

15. Explanations on deferred tax asset:

a. As of 30 June 2019, deferred tax asset computed on the financial losses is TRL 239,941 Thousand.

Carried forward tax losses over which deferred tax asset computed is TRL 36,277 Thousand (31

December 2018 - Deferred tax asset computed on the financial losses is TRL 172,464 Thousand., carried

forward tax losses over which deferred tax asset computed is TRL 33,614 Thousand).


Tangible Assets Base Differences (15,956) (15,261)

Provisions (*) 248,120 237,215

Valuation of Financial Assets (41,656) (94,296)

Investment Incentive 8,755 6,784

Tax Deductions and Exceptions 4,401 4,408

Financial Losses 36,277 33,614

Net Deferred Tax Assets/(Liabilities) 239,941 172,464

(*) Provisions include employee benefit liabilities, credit card bonuses provisions, legal case provisions, employee termination benefit

provisions, retirement fund provision, SDIF premium provision, expected credit loss provisions and other provisions.




85




15. Explanations on deferred tax asset (cont’d):

b. Temporary differences over which deferred tax asset is not computed and recorded in the balance sheet in

prior periods: None (31 December 2018 – None).

c. Allowance for deferred tax and deferred tax assets from reversal of allowance: None (31 December 2018

– None).

d. Movement of deferred tax asset/(liability):

Deferred tax assets and liabilities for the current and previous periods are as follows:


Deferred Tax (Net), Beginning of the Period 172,464 84,801

Current Period (Expense)/Income 68,599 (683)

Deferred Tax Classified under Equity (1,122) (1,987)

TFRS 9 Impact - 90,333

Deferred Tax Asset (Liability), End of the Period 239,941 172,464

Şeker Finansal Kiralama A.Ş. recognized deferred tax asset amounting to TRL 8,755 Thousand (31 December

2018 - TRL 6,784 Thousand) as of 30 June 2019 financial statements assuming that it will take advantage of the

unused investment incentive in the subsequent periods.

16. Information on assets held for sale and discontinued operations:


Cost

Opening Balance, 1 January 2019 320,984 266,025

Additions 218,105 157,719

Write off - -

Transfer - -

Disposals (-) (29,047) (100,420)

Revaluation value increase/(decrease) - (2,599)

Impairment Provision/Reversal - 259

Closing Balance, 30 June 2019 510,042 320,984

17. Information on other assets:

Other assets do not exceed 10 % of the total balance sheet (excluding off balance sheet commitments).




86



II. Explanations Related to the Consolidated Liabilities

1. Information on Maturity Structure Of Deposits

a) Information on maturity structure of deposits:

Current Period

Demand

7 Day Call

Accounts

Up to 1

Month

1-3

Month

3-6

Month

6 Month - 1

Year

1 Year

and Over

Accumulated

Deposits

Total

Saving deposits 365,846 - 749,023 7,302,838 232,333 74,419 514,357 7,082 9,245,898

Foreign currency

deposits 1,341,279 - 624,928 5,888,540 927,522 398,709 1,526,704 495 10,708,177

Residents in Turkey 1,224,017 - 563,858 5,222,443 787,463 186,872 318,061 466 8,303,180

Residents abroad 117,262 - 61,070 666,097 140,059 211,837 1,208,643 29 2,404,997

Public sector deposits 58,054 - 477 14,080 25,858 1,013 1,073 - 100,555

Commercial deposits 550,758 - 614,927 1,212,969 25,258 1,862 6,728 14 2,412,516

Other institutions

deposits 40,605 - 21,504 520,310 91,379 1,903 529 - 676,230

Precious metals deposit 316,223 - - - 46,215 3,697 16,539 - 382,674

Interbank deposits 145,135 - 134,754 42,543 86,526 9,456 7,191 - 425,605

Central Bank of

Turkey - - - - - - - - -

Domestic Banks 811 - 134,095 2,075 86,526 9,456 7,073 - 240,036

Foreign Banks 5,968 - 659 40,468 - - 118 - 47,213

Participation Banks 138,356 - - - - - - - 138,356

Other - - - - - - - - -

Total 2,817,900 - 2,145,613 14,981,280 1,435,091 491,059 2,073,121 7,591 23,951,655

Prior Period

Demand

7 Day Call

Accounts

Up to 1

Month

1-3

Month

3-6

Month

6 Month - 1

Year

1 Year

and Over

Accumulated

Deposits

Total

Saving deposits 356,638 - 1,073,162 4,123,806 3,459,931 401,567 490,684 5,394 9,911,182

Foreign currency

deposits 1,155,303 - 388,206 4,521,926 1,415,426 505,156 1,433,973 391 9,420,381

Residents in Turkey 1,063,701 - 347,251 4,021,564 1,095,800 244,807 284,183 364 7,057,670

Residents abroad 91,602 - 40,955 500,362 319,626 260,349 1,149,790 27 2,362,711

Public sector deposits 79,143 - 1,796 9,481 21,080 941 992 - 113,433

Commercial deposits 771,126 - 443,895 917,236 127,087 11,915 7,013 11 2,278,283

Other institutions

deposits 43,153 - 24,169 227,185 53,035 3,371 515 - 351,428

Precious metals deposit 246,275 - - - 37,725 3,031 13,363 - 300,394

Interbank deposits 189,527 - 255,602 95,838 - 8,348 16,441 - 565,756

Central Bank of

Turkey - - - - - - - - -

Domestic Banks 4,273 - 149,590 (3,545) - 8,348 6,258 - 164,924

Foreign Banks (1,191) - 106,012 99,383 - - 10,183 - 214,387

Participation Banks 186,445 - - - - - - - 186,445

Other - - - - - - - - -

Total 2,841,165 - 2,186,830 9,895,472 5,114,284 934,329 1,962,981 5,796 22,940,857




87



II. Explanations Related to the Consolidated Liabilities (cont’d)

1. Information on Maturity Structure Of Deposits

b) Information on saving deposits under the guarantee of saving deposit insurance and exceeding the

limit of saving deposit insurance:

Saving Deposits

Under the guarantee

of insurance (*)

Exceeding the limit

of insurance

Under the guarantee

of insurance (*)

Exceeding the limit

of insurance

Current Period Prior Period Current Period Prior Period

Saving deposits 4,735,151 5,111,823 4,526,425 1,752,827

Foreign currency saving deposits 2,515,837 1,975,908 5,804,174 739,974

Other deposits in the form of saving deposits - - - -

Branches’ deposits under foreign

authorities' insurance - - - -

Off-shore banking regions’ deposits under

foreign authorities' insurance - - - -

Total 7,250,988 7,087,731 10,330,599 2,492,801

(*) According to the BRSA’s circular no 1584 dated 23 February 2005, accruals are included in the saving deposit amounts.

c) Information on the saving deposits of the Parent Bank with head office abroad, if the saving

deposits in the branches of the bank located in Turkey are under the guarantee of saving deposit

insurance in that country abroad:

Headquarter of the Parent Bank is in Turkey and the Parent Bank is under the coverage of saving deposit

insurance.

d) Saving deposits not guaranteed by insurance:

Deposit of real persons not under the guarantee of saving deposit insurance:


Deposits and other accounts in branches abroad - -

Deposits and other accounts of ultimate shareholders and

their Mother, Father, Spouse, Dependent Children - -

Deposits and other accounts of chairman and members of

the Board of Directors and their Mother, Father, Spouse,

Dependent Children 10,993 9,347

Deposits and other accounts obtained through illegal acts

defined in the 282nd Article of the 5237 numbered Turkish

Criminal Code dated 26 September 2004. - -

Saving deposits in banks established in Turkey

exclusively for off shore banking activities - -




88




2. Information on derivative financial liabilities:

Negative differences table related to derivative financial liabilities held-for-trading:

Derivative financial liabilities held-for-trading are classified in the financial statement as Derivative

Financial liabilities at Fair Value Through Profit and Loss.

Liabilities due to held for trading derivatives Current Period Prior Period

TRL FC TRL FC

Forward Transactions 27 56,074 - 59,314

Swap Transactions 10,984 25,727 13,509 19,186

Futures Transactions - - - -

Options 92 7,816 160 11,441

Other - 1 - 1,883

Total 11,103 89,618 13,669 91,824

3. Information on banks and other financial institutions:

a. Information on banks and other financial institutions:


TRL FC TRL FC

Loans from Central Bank of Turkey - - - -

From Domestic Banks and Institutions 482,028 280,831 444,168 316,788

From Foreign Banks, Institutions and Funds 21,910 1,787,365 29,224 2,809,900

Total 503,938 2,068,196 473,392 3,126,688

b. Maturity analysis of borrowings:


TRL FC TRL FC

Short-term 480,083 234,273 443,047 281,131

Medium and long-term 23,855 1,833,923 30,345 2,845,557

Total 503,938 2,068,196 473,392 3,126,688

Due to the loan used from the Overseas Private Investment Corporation “OPIC”, Şeker Finansman A.Ş.’ shares,

one of the subsidiaries of the Parent Bank, have been pledged to the OPIC according to the “share pledge and

share lien” agreement between the OPIC and the Company which is valid for current debt relationship and

recorded to share ledger.

c. Additional explanation related to the concentrations of the Group’s major liabilities:

Within the scope of normal banking activities, the Group’s funding sources are deposits, funds

borrowed, marketable securities issued and money market balances. The Group’s deposit structure

shows a balanced distribution in TRL and FC terms. The funds borrowed mainly consist of foreign

currency denominated syndicated loans, in TRL denominated funds provided from repurchase

agreement transactions and marketable securities denominated in TRL and foreign currency.




89




4. Information on Money market borrowings:


TRL FC TRL FC

Interbank money market takings - - 3,000 - Istanbul Stock Exchange money market takings 150,288 - - - Borsa Istanbul Debts to Money Markets 52,115 - 64,500 - Funds Provided Through Repo Transactions 348,753 - 124,596 - Total 551,156 - 192,096 -

5. Marketable Securities Issued:

As of 30 June 2019 outstanding issued bonds amount of the Group is TRL 515,662 Thousand (31 December

2018 - TRL 516,302 Thousand).

















As of 30 June 2019 outstanding issued marketable securities amount of the Group is TRL 15,134 Thousand and

details are shown the table below (31 December 2018 - TRL 25,532 Thousand).







90




5. Marketable Securities Issued (cont’d):

The Parent Bank issued Asset Covered Bond amounting to TRL 1,500,000 Thousand and details are shown in

the table below. Among the institutions and organizations investing up to this time are International Finance

Corporation (IFC), Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO), UniCredit

Bank AG, European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD),

KfW Bankengruppe and qualified institutional investors. The transactions were conducted in line with the related

Capital Market Board regulation and the Parent Bank’s SME loans were used as collateral.

Issue Date Series Investors Amount

Remaining Principal

Amount Currency Maturity

25 November 2016 2016-1 IFC 180,000 180,000 TRL 13.09.2021

19 December 2017 2017-1 FMO 192,000 192,000 TRL 22.12.2020

As of 30 June 2019 the Group has the Asset Covered Bonds amounting to TRL 380,319 Thousand (31



TRL FC TRL FC

Bills 515,662 - 516,302 -

Asset Backed Securities 380,319 - 701,850 -

Bonds 15,134 - 25,532 -

Total 911,115 - 1,243,684 -

6. Other liabilities which exceed 10 % of the balance sheet total (excluding off-balance

sheet commitments) and the breakdown of these which constitute at least 20 % of grand

total :

Other liabilities do not exceed 10 % of the balance sheet total.

7. Explanations on lease obligations (Net):


Gross Net Gross Net

Less than 1 Year 16,215 13,756 15,521 12,741

1-4 Years 329,731 203,723 13,605 12,366

More than 4 Years 2,057 718 - -

Total 348,003 218,197 29,126 25,107

8. Information on derivative financial liabilities for hedging purposes:

Derıvative Financial Assets For Hedging

Purposes


TRL FC TRL FC

Fair Value Hedge 15,608 - 16,592 -

Cashflow Hedge - - - -

Hedge of net investment risks in foreign

operations - - - -

Total 15,608 - 16,592 -




91




9. Information on provisions:

a) Foreign exchange losses on the foreign currency indexed loans and finance lease receivables: None.

b) The specific provisions provided for unindemnified non-cash loans or expected loss provisions of non-cash

loans amount to TRL 81,760 Thousand (31 December 2018 - TRL 67,045 Thousand).

c) Information on employee termination benefits and unused vacation accrual:

The Group has calculated reserve for employee termination benefits by using actuarial valuations as set out in

the TAS 19 and reflected this in the financial statements.

Main actuarial assumptions used for calculation of employment termination benefit are as follows:

- Discount rate for the current period is 16%, inflation rate is 11.30%.

- TRL 5,434.42 (full TRL) of maximum wage amount which was in effect was taken as maximum

amount for the calculation.

- It was assumed that maximum wage would be increased in inflation rate for every consecutive year.

- CSO 1980 table was used for mortality averages of females and males.

As of 30 June 2019, the Group has recorded in the financial statements TRL 90,007 Thousand reserve for

employee termination benefits (31 December 2018 - TRL 79,953 Thousand).

As of 30 June 2019, the Group allocated a reserve of TRL 12,367 Thousand for the unused vacations, which is

classified under reserve for employee benefits provisions in the financial statements (31 December 2018 - TRL

8,088 Thousand).

c.1) Movement of employee termination benefits:


As of 1 January 79,953 75,411

Cost Service 9,494 10,931

Interest Cost 6,233 8,483

Actuarial Loss/(Gain) - (4,747)

Indemnity Paid During the Term (5,673) (10,125)

Total 90,007 79,953

d) Information on other provisions:

d.1) Provisions for possible losses: None.

d.2) The breakdown of the of provisions:


Unindemnified Non-Cash Loans 81,760 67,045

Credit Card Liquid Point Promotion Provisions 451 432

Retirement Fund Provisions 159,499 159,499

SDIF Premium Provision 3,861 6,984

Other Provisions 216,172 168,881

Total 461,743 402,841




92




9. Information on provisions (cont’d):

e) Liabilities on pension rights:

e.1) Liabilities for pension funds established in accordance with “Social Security Institution”:

Şekerbank T.A.Ş. Pension Fund, of which most of the Parent Bank’s employees are members, is established in

accordance with the provisional Article 20 of the Social Security Act No: 506. As per the provisional article No:

23 of the Banking Law No: 5411, the Bank pension funds, which were established within the framework of

Social Security Institution Law, should be transferred to the Social Security Institution within 3 years after the

issuance of the related law. Methods and principles related to the transfer have been determined as per the

Cabinet decision no: 2006/11345 made on 30 November 2006. However, the related article of the act has been

cancelled upon the President’s application filed on 2 November 2005 by the Supreme Court’s order no:

E.2005/39, K.2007/33 issued on 22 March 2007, which was published in the Official Gazette No: 26479 on 31

March 2007 and the execution of the decision was ceased as of the issuance date of the order.

Following the issuance of the justified order in relation to the annulment of the provisional Article 23 of the

Banking Law by the Constitutional Court in the Official Gazette No: 26731 on 15 December 2007, TBMM

started to work on establishing new legal regulations, the Law No: 5754 “Amendments to the Social Security

and General Health Insurance Act Including Certain Laws and Decrees”, which was published in the Official

Gazette No: 26870 on 8 May 2008 has become effective following the approval of the General Assembly of the

TBMM. The new law decrees that the contributors of the bank pension funds, the ones who receive salaries or

income from these funds and their rightful beneficiaries will be transferred to the Social Security Institution and

will be subject to this Law within 3 years after the release date of the related article, without any need for further

operation, and that the three-year transfer period can be prolonged for maximum 2 years by the Cabinet decision.

However, related transfer period has been prolonged for 2 years by the Cabinet decision dated 14 March 2011,

which was published in the Official Gazette dated 9 April 2011 and numbered 27900.

In addition, by the Law numbered 6283 “Emendating Social Security and General Health Insurance Act”, which

was published in the Official Gazette dated 8 March 2012 and numbered 28227, this period of 2 years has been

raised to 4 years. Further the transfer period has been prolonged for one more year by the Cabinet decision dated

08 April 2013, which was published in the Official Gazette, dated 3 May 2013 and numbered 28636. The

prolongation for another one year has been taken by the Cabinet on 24 February 2014, and has been published in

the Official Gazette dated 30 April 2014 and numbered 28987. The Council of Ministers has been lastly

authorized to determine the transfer date in accordance with the last amendment in the first paragraph of the 20th

provisional article of Law No.5510 implemented by the Law No. 6645 on Amendment of the “Occupational

Health and Safety Law and Other Laws and Decree Laws” published in the Official Gazette dated 23 April 2015

and numbered 29335. transferred to the President with the delegated legislation No.703 which was published in

the repetitive Official Gazette No. 30473 dated 9 July 2018.

The above mentioned law also includes the following:

Through a commission constituted by the attendance of one representative separately from the Social

Security Institution, the Presidency Ministry of Treasury and Finance, State Planning Organization,

Banking Regulation and Supervision Agency, Savings Deposit Insurance Fund, one from each pension

fund, and one representative from the organization employing pension fund contributors, related to the

transferred persons, the cash value of the liabilities of the pension fund as of the transfer date will be

calculated by considering their income and expenses in terms of the lines of insurance within the

context of the related Law, and technical interest rate of 9.80% will be used in the actuarial calculation

of the value in cash

And that after the transfer of the pension fund contributors, the ones who receive salaries or income

from these funds and their rightful beneficiaries to the Social Security Institution, these persons’

uncovered social rights and payments, despite being included in the trust indenture that they are subject

to, will be continued to be covered by the pension funds and the employers of pension fund

contributors.




93




9. Information on provisions (cont’d):

e) Liabilities on pension rights (cont’d):

e.1) Liabilities for pension funds established in accordance with “Social Security Institution” (cont’d):

On the other hand, the application made on 19 June 2008 by the Republican People’s Party to the Constitutional

Court for the annulment and motion for stay of some articles, including the first paragraph of the provisional

article 20 of the Law, which covers provisions on transfers, was rejected in accordance with the decision taken at

the meeting of the afore-mentioned court on 30 March 2011.

The technical financial statements of the Pension Fund are reviewed by an actuary registered audit company in

accordance with the Article 21 of the Insurance Law numbered 5684 and the requirements of the “Actuary

Regulations” issued based on the Article 38. There was TRL 159,499 Thousand actuarial deficit (31 December

2018 - TRL 159,499 Thousand actuarial deficit) in the actuary report which was prepared using a technical

interest rate of 9.80 % in accordance with the basis set out in the Council of Ministers published on 15 December

2006 and no 26377. As of 30 June 2019, TRL 159,499 Thousand provision (31 December 2018 - TRL 159,499

Thousand).

The actuarial audit described above, which has been carried out in accordance with the related law, measures the

present value of the liability as of 31 December 2018, in other words, the estimated payment amount to be made

to the Social Security Institution by the Parent Bank is measured by the actuary audit. In actuarial calculations,

CSO 1980 mortality table, 9.80% technical interest rate and 34.50% premium rate were taken into account.

Present values of bonuses and salaries payments taking into account the health expenditures in the scope of

Social Security Institution are shown in the following table in as of 31 December 2018.

31.12.2018

Reserve of Probable Retirement Pensions (153,436)

Reserve of Probable Widow and Orphant (133,359)

Reserve of Liability Items (1,028,626)

Reserve for Salary Portions to be Given to Social

Insurance Institution for those who leave the Pension

Fund (254,790)

Health and Funeral Expenses Reserve (152,739)

Assets (*) 315,700

Cash Value of the Premiums of the Active Members 1,123,687

Reserve of Common Members’ Salary Proportion

Receivables from other social insurance institutions. 124,064

Actual and Technical Surplus / (Deficit) Amount (159,499)

(*) The Pension Fund records the assets by their fair value and these fair values were considered for the actuarial work.

Assets of the Pension Fund consist of following items:

31.12.2018

Banks and Other Financial Investments 238,816

Associates 125,757

Immovable 4,103

Other (52,976)

Total 315,700

e.2. Liabilities resulting from all kinds of pension funds, foundations etc., which provide post-retirement

benefits for the employees: See footnote, f.1 II/9 of Section Five.




94




10. Explanations on taxes payable (cont’d):

a. Information on current tax liability:

a.1. Information on tax provision: Group does not have corporate tax to be paid as of 30 June 2019 (31

December 2018 - TRL 505 Thousand corporate tax to be paid).

a.2 Information on taxes payable:


Corporate Tax - 505

Taxation on Securities 28,338 17,247

Capital Gains Tax on Property 704 610

Banking Insurance Transaction Tax (BITT) 22,978 30,925

Foreign Exchange Tax 539 -

Value Added Tax Payable 974 1,408

Other 8,165 11,167

Total 61,698 61,862

a.3 Information on premiums:


Social Security Premiums-Employee 509 430

Social Security Premiums-Employer 829 705

Bank Social Aid Pension Fund Premiums-

Employee - 3

Bank Social Aid Pension Fund Premiums-

Employer - 4

Pension Fund Membership Fees and

Provisions-Employee - 16

Pension Fund Membership Fees and

Provisions-Employer - 23

Unemployment insurance-Employee 19 4

Unemployment insurance-Employer 39 26

Other 39 10

Total 1,435 1,221

b. Explanations on deferred tax liabilities, if any:

As of 30 June 2019, the Group has TRL 67 Thousand deferred tax liability (31 December 2018 - TRL

1,532 Thousand deferred tax liability) as mentioned in the Section V. Note I.15

11. Information on liabilities regarding assets held for sale and discontinued operations: None.




95




12. Explanations on the maturity, interest rate and the number of subordinated debt

instruments the Parent Bank had, institution that is the creditor of the debt instrument,

and conversion option, if any:

Information on subordinated borrowing instruments is included in the footnote 4.1. Information on

borrowing instruments to be included in the equity calculation.


TRL FC TRL FC

Borrowing Instruments Included in Additional Tier I Capital

Calculation - - - -

Subordinated Loans - - - -

Subordinated Debt Instruments - - - -

Borrowing Instruments Included in Tier II Calculation 452,399 491,548 452,571 451,050

Subordinated Loans - - - -

Subordinated Debt Instruments 452,399 491,548 452,571 451,050

Total 452,399 491,548 452,571 451,050

13. Information on Shareholders’ Equity:

a) Presentation of Paid-in capital:


Common stock (*) 1,158,000 1,158,000

Preferred stock - -

(*) Nominal Capital

b) Paid-in capital amount, explanation as to whether the registered share capital system is applicable at the

Parent Bank and if so amount of registered share capital ceiling:

Share capital system is applied in the Bank.

c) Information on share capital increases and their sources; other information on increased capital shares in

current period: None.

d) Information on share capital increases from capital reserves: None.

e) Capital commitments in the last fiscal year and at the end of the following period, the general purpose of

these commitments and projected resources required to meet these commitments: None.

f) Indicators of the Parent Bank’s income, profitability and liquidity for the previous periods and possible

effects of these future assumptions on the Parent Bank’s equity due to the uncertainty of these indicators:

Retained and current year income, profitability and liquidity of the Parent Bank are closely monitored,

reported by the Financial Control, Reporting, Budget and Performance Management Department to the Board

of Directors and Asset and Liability Committee of the Parent Bank. This department prognoses the effects of

interest, currency and maturity fluctuations with static and dynamic scenario analysis. Net asset value, which

is defined as the difference of fair values of assets and liabilities, is measured. Prognoses are made for the

Parent Bank’s future interest income via simulations of net interest income and scenario analysis.

g) Information on preferred shares: None.




96




13. Information on Shareholders’ Equity (cont’d) :

h) Information on marketable securities value increase fund:


TRL FC TRL FC

From Subsidiaries, Associations and Entities Under

Common Control - - - -

Valuation Difference (11,179) 8,129 (9,167) 4,047

Foreign Exchange Difference - - - -

Total (11,179) 8,129 (9,167) 4,047

14. Information on legal reserves:


Legal reserves 119,460 115,016

Other legal reserves appropriated in accordance with

special legislation 187,230 185,988

Total 306,690 301,004

15. Information on extraordinary reserves:


Reserves appropriated by the General Assembly 976,225 1,370,812

Retained earnings 4,537 4,537

Accumulated losses - -

Foreign currency share capital exchange difference - -

Total 980,762 1,375,349

16. Other Information on Shareholders’ Equity:

Şeker Finansal Kiralama A.Ş., did not make a purchase of shares via Şeker Yatırım Menkul Değerler A.Ş.

in the current period and 4,297 shares in total were bought back.

17. Information on Minority Shares :

As of 30 June 2019 TRL 37,316 Thousand minority shares shown in the accompanying financial

statements (31 December 2018 - TRL 40,349 Thousand).




97



III. Explanations Related to the Consolidated Off-Balance Sheet Contingencies and

Commitments

1. Information on off-balance sheet liabilities:

a. Nature and amount of irrevocable loan commitments:


Forward Asset Purchase Commitments 2,975,142 96,164

Loan Granting Commitments 1,052,349 987,126

Payment Commitments for Cheques 411,091 341,685

Commitments for Credit Card Expenditure limits 513,128 473,944

Commitments for Promotions related with Credit Cards and Banking Transactions 525 501

Subsidiaries and Associates Capital Commitments - -

Tax and Fund Obligations for Export Commitments 10,776 10,032

Other Commitments 191,837 225,869

Total 5,154,848 2,135,321

b. Possible losses and commitments related to off-balance sheet items including items listed below:

The Group, within the context of banking activities, undertakes certain commitments, consisting of loan

commitments, letters of guarantee, acceptance credits and letters of credit.

b.1. Non-cash loans including guarantees, acceptances, financial guarantee and other letters of credits:

b.2. Guarantees, surety ships, and similar transactions:


Definite Letter of Guarantees 2,652,127 2,666,086

Temporary Letter of Guarantees 264,727 190,548

Surety ships and Similar Transactions - -

Other Letter of Guarantees 1,162,260 1,528,610

Total 4,079,114 4,385,244

c. Information on non-cash loans:

c.1. Total amount of non-cash loans:


Letters of Guarantees issued for cash loans 819,609 1,199,047

With maturity of 1 year or less than 1 year 472,616 746,485

With maturity of more than 1 year 346,993 452,562

Other non-cash loans 4,653,143 4,719,937

Total 5,472,752 5,918,984


Guarantees 651,741 963,277

Bank Loans 131,798 132,949

Letters of Credit 205,777 262,834

Endorsements 404,322 174,680

Total 1,393,638 1,533,740




98




Commitments (cont’d)

1. Information on off-balance sheet liabilities (cont’d):

c.2. Information on sectoral risk breakdown of non-cash loans:


TRL (%) FC (%) TRL (%) FC (%)

Agricultural 6,063 0.19 26,412 1.16 5,702 0.17 25,320 1.01

Farming and raising livestock 5,350 0.17 26,412 1.16 5,067 0.15 25,320 1.01

Forestry 624 0.02 - - 547 0.02 - -

Fishery 89 - - - 88 - - -

Manufacturing 277,821 8.67 1,135,176 50.00 283,063 8.33 1,240,193 49.23

Mining 27,700 0.86 121,295 5.34 30,920 0.91 106,051 4.21

Production 232,476 7.26 910,554 40.11 237,947 7.00 995,880 39.53

Electric, gas and water 17,645 0.55 103,327 4.55 14,196 0.42 138,262 5.49

Construction 1,038,004 32.41 472,924 20.83 1,028,496 30.25 551,680 21.90

Services 1,875,235 58.55 633,352 27.90 2,077,372 61.10 699,400 27.75

Wholesale and retail trade 552,281 17.24 129,815 5.72 506,845 14.91 152,502 6.05

Hotel, food and beverage

services 13,184 0.41 5,762 0.25 12,653 0.37 11,627 0.46

Transportation and

telecommunication 66,510 2.08 317,979 14.01 80,718 2.37 291,043 11.55

Financial institutions 967,680 30.22 60,629 2.67 1,197,165 35.21 125,730 4.99

Real estate and renting services 218,503 6.82 113,766 5.01 227,052 6.68 108,151 4.29

Self-employment services 30 - - - 30 - - -

Education services 2,807 0.09 - - 2,679 0.08 - -

Health and social services 54,240 1.69 5,401 0.24 50,230 1.48 10,347 0.41

Other 5,451 0.18 2,314 0.11 5,012 0.15 2,746 0.11

Total 3,202,574 100.00 2,270,178 100.00 3,399,645 100.00 2,519,339 100.00

c.3. Information on I st and II nd Group non-cash loans:

Non-cash loans I. Group II. Group

TRL FC TRL FC

Letters of guarantee 2,898,539 709,272 191,319 153,541

Bank acceptances - 131,798 - -

Letters of credit 1,216 203,355 - 866

Endorsements - 404,322 - -

Underwriting commitments - - - -

Guaranteed prefinancing credits - - - -

Other commitments and surety ships 4,364 645,696 1,681 -




99





2. Information related to derivative financial instruments:


Types of trading transactions

Foreign currency related derivative transactions (I) 11,824,352 10,923,911

Forward transactions 814,122 1,120,528

Swap transactions 9,660,724 8,734,576

Futures transactions - -

Option transactions 1,349,506 1,068,807

Interest related derivative transactions (II) 1,316,348 1,545,718

Forward rate transactions - -

Interest rate swap transactions 1,316,348 1,545,718

Interest option transactions - -

Futures interest transactions - -

Other trading derivative transactions (III) 150,611 108,294

A. Total trading derivative transactions (I+II+III) 13,291,311 12,577,923

Types of hedging transactions - -

Fair value hedges 930,000 936,000

Cash flow hedges - -

Net investment hedges - -

B.Total hedging related derivatives 930,000 936,000

Total Derivative Transactions (A+B) 14,221,311 13,513,923

Related to agreements of forward transactions and options; the information based on the type of forward and

options transactions are disclosed separately, specified with related amounts, type of agreement, purpose of

transaction, nature of risk, strategy of risk management, hedging relationship, possible effects on the Bank’s

financial position, timing of cash flows, reasons of unrealized transactions which previously projected to be

realized, income and expenses that could not be linked to statement of income in the current period because of

the agreements:

The Group’s derivative instruments mainly consist of foreign currency swaps, interest swaps, option and forward

buy/sell transactions. Fair values of foreign currency forward and swap transactions are determined by

comparing the Parent Bank’s period end foreign exchange rates and current market foreign exchange rates to the

balance sheet date. The resulting gain or loss is reflected in the income statement. In calculation of fair values of

the interest swap contracts, interest amounts to be paid or received upon the fixed interest rate in the contract and

interest amounts to be received or paid upon the floating interest rates in the contracts have been recalculated and

discounted in accordance to valid interest rates in the current market and the differences have been reflected to

the current term income statement. Discounted values calculated using the interest rates between the transaction

date and repricing date are used in determination of the fair values of interest rate swaps. While some derivative

transactions provide economic hedging, these transactions are subject to hedge accounting. The purpose of hedge

accounting; is to present the effect of the risk management activities using appropriate financial instruments to

manage certain risks that may affect profit or loss in the financial statements. For the purpose of hedging the fair

value of a portfolio of financial assets or financial liabilities, the Group may apply the provisions of TFRS 9 or

TAS 39. In this context, the Group has chosen to apply TFRS 9 for hedge accounting.




100





2. Information related to derivative financial instruments (cont’d):

As of 30 June 2019, breakdown of the Group’s foreign currency forward and swap transactions based on

currencies are disclosed below in their TRL equivalents:

Forward

Buy

Forward Sell

Swap Buy

Swap Sell Option

Buy

Option Sell

Futures

Buy

Futures

Sell

Current Period

TRL 132,168 80,012 486,637 3,569,362 77,860 146,129 - -

USD 23,968 161,680 4,613,080 314,840 356,435 182,498 - -

EURO 243,971 172,323 648,174 1,950,118 153,795 304,189 - -

OTHER - 150 313,442 161,880 80,082 48,518 - -

Total 400,107 414,165 6,061,333 5,996,200 668,172 681,334 - -

Prior Period

TRL 220,477 208,108 1,361,999 2,970,930 234,015 224,050 - -

USD 178,439 145,008 3,117,322 824,528 264,011 299,591 - -

EURO 157,275 202,726 1,101,494 1,632,941 25,069 22,071 - -

OTHER 7,712 783 201,453 113,921 - - - -

Total 563,903 556,625 5,782,268 5,542,320 523,095 545,712 - -

As of 30 June 2019, the Group has fair value hedge with nominal amount of TRL 930,000 Thousand (31


As of 30 June 2019, the Group has no cash flow hedges.

As of 30 June 2019, the Group has no hedge of net investment in foreign operations.

3. Credit derivatives and risk exposures on credit derivatives: None.

4. Explanations on contingent liabilities and assets:

As of 30 June 2019, there are 851 continuing legal cases against the Group based on information received from

the Law Departments of the Group. The total amount of these cases is TRL 77,571 Thousand. Provision amount

for these cases is TRL 27,986 Thousand (31 December 2018 - 616 continuing legal cases against the Group

based on information received from the Law Departments of the Group. The total amount of these cases is TRL

76,228 Thousand. Provision amount for these cases is TRL 21,987 Thousand).

The Group has no contingent assets.

Explanations on revocable commitments: In the current period, the Group’s revocable commitments amount to

TRL 505,549 Thousand (31 December 2018 - TRL 538,914Thousand).

5. Custodian and intermediary services:

The Group provides buying and selling securities transacions, custody, brokerage and management on behalf of

customers.




101



IV. Explanations Related to the Consolidated Statement of Income

1. Information on interest income:

a. Information on interest income on loans:


TRL FC TRL FC

Interest on Loans (*) 1,658,274 265,404 1,384,392 214,746

Short Term Loans 972,547 27,434 653,813 16,678

Medium and Long Term Loans 624,408 237,955 704,050 198,060

Interest on Non-Performing Loans 61,319 15 26,529 8

Premiums received from Resource Utilization Support Fund - - - -

(*) Includes fees and commissions obtained from cash loans.

b. Information on interest received from banks:


TRL FC TRL FC

The Central Bank of Turkey 80 140 132 140

Domestic Banks 11,875 2,743 6,597 4,223

Foreign Banks 123 6,201 - 604

Branches and Head Office Abroad - - - -

Total 12,078 9,084 6,729 4,967

c. Interest income from marketable securities portfolio:


TRL FC TRL FC

Financial Assets At Fair Value Through Profit And Loss 3,655 406 2,207 315

Financial Assets At Fair Value Through Other Comprehensive

Income 45,157 - 10,905 -

Financial Assets at Amortised Cost 100,655 26,332 141,925 21,802

Total 149,467 26,738 155,037 22,117

d. Information on interest income received from associates and subsidiaries: None. (30 June 2018 -

None)




102



IV. Explanations Related to the Consolidated Statement of Income (cont’d)

2. Information on interest expense:

a. Information on interest expense on funds borrowed:


TRL FC TRL FC

Banks (*) 53,648 51,774 33,968 53,985

The Central Bank of Turkey - - - -

Domestic Banks 50,644 8,843 29,644 5,144

Foreign Banks 3,004 42,931 4,324 48,841

Branches and Head Office Abroad - - - -

Other Financial Institutions - - - -

Total 53,648 51,774 33,968 53,985

(*) Includes fees and commission expenses of cash loans.

b. Information on interest expense to associates and subsidiaries:


Interest Expense to Associates and Subsidiaries 233 105

c. Information on interest expense to marketable securities issued:


TRL FC TRL FC

Interest expense on securities issued 135,733 24,263 122,030 19,080

d. Distribution of interest expense on deposits based on maturity of deposits:

Current Period

Demand

Deposits

Time Deposits

Up to 1

Month

Up to 3

Months

Up to 6

Months

Up to 1

Year

More than

1 Year

Accumulated

Deposits

Total

TRL

Bank deposits 226 15,177 2,860 - - - - 18,263

Saving deposits 97 95,785 634,238 109,381 29,777 51,116 442 920,836

Public sector deposits - 79 1,259 1,645 80 88 - 3,151

Commercial deposits 21 34,457 120,235 4,513 666 619 1 160,512

Other deposits 2 2,256 43,508 1,423 216 36 - 47,441

7 days call accounts - - - - - - - -

Precious metal stock - - - - - - - -

Total 346 147,754 802,100 116,962 30,739 51,859 443 1,150,203

Foreign Currency -

Foreign currency

deposits 619 10,787 81,791 10,351 6,433 19,882 - 129,863

Bank deposits 2,079 43 57 - - - - 2,179

7 days call accounts - - - - - - - -

Precious metal stock 361 - - - - - - 361

Total 3,059 10,830 81,848 10,351 6,433 19,882 - 132,403

Grand Total 3,405 158,584 883,948 127,313 37,172 71,741 443 1,282,606




103




3. Information on dividend income :


Financial assets at fair value through profit and loss - -

Financial assets at fair value through other comprehensive income 2,426 -

Other 1,267 1,230

Total 3,693 1,230

4. Information on net trading income :


Income 10,419,960 9,919,968

Profit on capital market operations 17,574 4,980

Profit on derivative financial instruments 1,451,429 1,660,939

Foreign exchange gains 8,950,957 8,254,049

Losses (-) 10,465,690 10,001,703

Losses on capital market operations 2,566 1,762

Losses on derivative financial instruments 1,458,483 1,211,581

Foreign exchange losses 9,004,641 8,788,360

5. Information on other operating income :

The information about the factors significantly affecting income of the Group and also information including the

explanation of the aspect of increasing levels:

As of 30 June 2019, TRL 62,543 Thousand (30 June 2018 - TRL 41,379 Thousand) stated under other operating

income in the statement of income includes TRL 44,232 Thousand (30 June 2018 - TRL 21,106 Thousand) prior

years’ provisions reversal income and TRL 18,311 Thousand (30 June 2018 - TRL 20,273 Thousand) other

operating income.

As of 30 June 2019, prior years expense and provision reversal income include TRL 18,008 Thousand (30 June

2018 - TRL 10,518 Thousand) reversal of credit loss provisions due to collection of cash loans, TRL 268

Thousand (30 June 2018 - TRL 2,545 Thousand) reversals of non-cash provisions, TRL 343 Thousand of

securities impairment provision reversal and TRL 25,613 Thousand (30 June 2018 - TRL 8,043 Thousand)

reversal of legal case provision and other provisions.




104




6. Provision expenses of banks for loans and other receivables:


Expected Credit Losses Provisions 402,852 163,247

12-Month ECL (Stage 1) 24,902 3,112

Significant Increase in Credit Risk (Stage 2) 2,723 82,995

Impaired Credits (Stage 3) 375,227 77,140

Impairment Losses on Securities 60 396

Financial Assets Measured at Fair Value through Profit or Loss 60 166

Financial Assets Measured at Fair Value through Other Comprehensive Income - 230

Impairment Losses on Associates, Subsidiaries and Joint-ventures - -

Associates - -

Subsidiaries - -

Joint-ventures (business partnership) - -

Other (*) 54,678 122,805

Total 457,590 286,448

(*) Other provisions also include provisions for non-cash loans.

7. Information on other operating expenses:


Reserve for employee termination benefits 10,054 8,218

Bank social aid provision fund deficit provision - -

Impairment losses on fixed assets - -

Depreciation expenses of fixed assets 46,823 14,958

Impairment losses on intangible assets - -

Goodwill impairment losses - -

Depreciation expenses of intangible assets 19,797 18,189

Impairment for investments accounted for under equity method - -

Impairment losses on assets held for resale - -

Depreciation expenses of assets held for resale - -

Impairment losses on assets held for sale - -

Other operating expenses 147,779 186,774

Lease Expenses Related to TFRS 16 Exemptions 3,815 37,844

Maintenance expenses 17,311 10,419

Advertisement expenses 1,967 5,026

Other expenses (**) 124,686 133,485

Loss on sales of assets 18 481

Other (*) 84,965 76,725

Total 309,436 305,345

(*) “Other” includes TRL 18,526 Thousand premiums paid to the Saving Deposit Insurance Fund, TRL 6,818 Thousand legal case

provision (30 June 2018 - TRL 17,695 Thousand premiums paid to the Saving Deposit Insurance Fund, TRL 2,915 Thousand legal

case provision).

(**) Other expenses include TRL 9,513 Thousand communication expenses, TRL 19,503 Thousand computer usage expenses, TRL

6,017 Thousand promotion applications related with credit cards and banking services (30 June 2018 - TRL 10,566 Thousand

communication expenses, TRL 22,472 Thousand computer usage expenses, TRL 5,154 Thousand promotion applications related

with credit cards and banking services).




105




8. Information on profit/ loss from continued and discontinued operations before taxes:

As of 30 June 2019, the Bank has TRL 348,871 Thousand loss before tax (30 June 2018 - TRL 79,932

Thousand profit before tax), TRL 690,339 Thousand (30 June 2018 - TRL 892,758 Thousand) of total

operatıng profıt, TRL 191,502 Thousand (30 June 2018 - TRL 177,480 Thousand) of net fees and

commissions income, TRL 402,852 Thousand of expected losses provision (30 June 2018 - TRL 163,247

Thousand), TRL 54,738 Thousand of other provisions (30 June 2018 - TRL 123,201 Thousand), TRL

62,543 Thousand (30 June 2018 - TRL 41,379 Thousand) of other operating income and TRL 309,436

Bin TL Thousand (30 June 2018 - TRL 305,345 Thousand) of other operating expense.

9. Information on tax provision for continued and discontinued operations:

As of 30 June 2019, the Group has TRL 164 Thousand current tax charge (30 June 2018 – TRL 19,490

Thousand current tax charge)and deferred tax benefit on temporary differences is TRL 73,610 Thousand

(30 June 2018 – TRL 87,901 Thousand deferred tax benefit), deferred tax charge is TRL 5,011

Thousand(30 June 2018 – TRL 77,634 Thousand deferred tax charge).

10. Information on net profit/ loss from continued and discontinued operations:

The net loss of the Group for the period ended 30 June 2019 is TRL 280,436 Thousand.

11. The explanations on net profit/loss for the period :

a) The nature and amount of certain income and expense items from ordinary operations is disclosed if the

disclosure for nature, amount and repetition rate of such items is required for the complete understanding of

the Group's performance for the period : None.

b) Effect of changes in accounting estimates on statement of income for the current and, if any, for subsequent

periods : None.

c) Profit or loss attributable to minority shares: Loss attributable to minority shares is TRL 2,682 Thousand (30

June 2018 – TRL 5,514 Thousand profit).

d) If the other items in the statement of income exceed 10 % of the statement of income total, accounts

amounting to at least 20 % of these items are shown below :

Other Fees and commissions received Current Period Prior Period

Banking Services Income 195,064 167,759

Other 13,991 18,579

Total 209,055 186,338

Other Fees and commissions given Current Period Prior Period

Fees and commissions given to Banks 14,351 11,264

Fees and commissions given for Credit Cards 28,260 15,180

Other 13,134 19,176

Total 55,745 45,620

e) Nature and amount of changes in accounting estimates, which have a material effect on current period or

expected to have a material effect on subsequent periods : None.




106



V. Explanations on the Risk Group of the Parent Bank

1. Volume of related party transactions, income and expense amounts involved and outstanding loan

and deposit balances:

a. Current Period:

Related Parties

Associates, Subsidiaries and Joint-

Ventures

Direct and Indirect

Shareholders of the Bank

Other Components in Risk

Group

Cash Non-Cash Cash Non-Cash Cash Non-Cash

Loans

Balance at beginning of period - - 898,986 18,697 - -

Balance at end of period - - 420,972 19,048 - -

Interest and commission income - - 13,101 101 - -

b. Prior Period:

Related Parties Subsidiaries and Associates

Direct and Indirect


Other Entities Included

in the Risk Group

Cash Non-Cash Cash Non-Cash Cash Non-Cash

Loans

Balance at beginning of period - 11,754 575,004 16,912 - -

Balance at end of period - - 898,986 18,697 - -

Interest and commission income -

38 46,103 86 - -

c.1. Information on related party deposits balances:

Related parties

Associates, Subsidiaries and Joint-

Ventures

Direct and Indirect


Other Components in Risk

Group

Deposits

Current

Period

Prior

Period

Current

Period

Prior

Period

Current

Period

Prior

Period

Balance at beginning of period 2,546 3,020 374,329 92,515 - -

Balance at end of period 1,536 2,546 259,002 374,329 - -

Interest on deposits 233 105 10,897 6,755 - -

c.2. Information on forward and option agreements and other similar agreements made with related parties:

None.




107



V. Explanations on the Risk Group of the Parent Bank (cont’d)

2. Disclosures for related parties:

a) The relations of the Parent Bank with the entities controlled by the Parent Bank and its related parties,

regardless of whether there are any transactions or not :

The Parent Bank conducts various banking transactions with related parties at commercial terms and at rates

which approximate market rates. Any transaction among the Group subsidiaries and/or related parties are

executed on arm-lengths conditions.

b) Besides the structure of the transactions amount and ratio to the total volume of transactions, amount of

major items and ratio to all items, pricing policies and other factors :

Amount Shares %

Cash loans 420,972 1.94

Non-cash loans 19,048 0.35

Deposits 260,538 1.09

These transactions are priced in accordance with the general pricing policies of the Parent Bank and are in line

with market rates .

c) In cases separate disclosure is not necessary, in order to present the total impact on the financial statements,

total of similar items : Explained in b.

d) Transactions accounted under the equity method : None.

e) Disclosures related to purchase and sale of real estate and other assets, services given/received, agency

contracts, leasing contracts, transferring information as a result of research and development, license

contracts, financing (including supports in the form of loans, capital in cash and capital in kind), guarantees,

and management contracts :

The Parent Bank enters into lease agreements with Şeker Finansal Kiralama A.Ş. As of 30 June 2019 there is

no leasing obligations related to those agreements (31 December 2018 - None). Additionally, the Parent Bank

provides agency services for Şeker Yatırım Menkul Değerler A.Ş., Şeker Faktoring A.Ş. and Şeker

Finansman A.Ş. through its branches.

Within the limits of the Banking Law, the Group renders cash and non-cash loans to its related parties and the

ratio of these loans to the Group’s total cash and non-cash loan portfolio is 1. 62%. Details of these loans are

explained in the Section V, Note V-1a.

As of 30 June 2019 the Group has no purchases and sale of real estate and other assets, transfer of

information as a result of research and development, and management contracts with the related parties.

f) Benefits provided to the top management of the Group during current period amount to TRL 17,130

Thousand (30 June 2018 - TRL 18,885 Thousand).




108



VI. Explanations and notes related to subsequent events:

The Parent Bank’s application for issuance of structured debt instruments to be issued to qualified investors by

not offering to the public, at once or multiple times in different types and maturities, up to TRL 500.000.000

Thousand was approved at the Capital Markets Board’s meeting dated 11 July 2019 and numbered 40/904.

On 3 July 2019 The International Credit Rating Agency Fitch Ratings, confirmed Şekerbank TAŞ's Short-Term

Local and Foreign Currency Rating as “B” and Support Note as “5”, revised its Long-Term Local and Foreign

Currency Rating as “B-”, its Financial Capacity Rating to “b-”and its Long Term National Credit Rating to “BB

+ (tur)”and confirmed its Outlook as “negative”. Fitch Rating updated its Subordinated Debt Instrument Rating

as “CCC +”.

SECTION SIX

AUDITORS’ REVIEW REPORT

I. Explanations on the Auditors’ Review Report :

The consolidated financial statements for six-month period ended 30 June 2019 were reviewed by DRT

Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik AŞ (Member of Deloitte Touche Tohmatsu) and

Auditors’ Review Report dated 9 August 2019 is presented in the introduction of this report.

II. Other Footnotes and Explanations Prepared by Independent Auditors :

None.




109

SECTION SEVEN

INFORMATION ON INTERIM ACTIVITY REPORT


Assessments of the Bank for the Interim Activities

1. Board of Directors Chairman’s Assesments on Interim Report

Esteemed Shareholders,

The weak growth in developing countries’ economies starting from the second half of 2018 continued in the

second quarter of 2019. Negotiations in the making between the US and China, the two greatest economies of

the world, ongoing problems in the economies of Eurozone, and Brexit that remains still far from following a

foreseeable plan all create pressure on global growth.

The recent global economic outlook report released by the International Monetary Fund (IMF) revised the

global growth anticipations as 3.2% and 3.5% for 2019 and 2020 respectively, which reaffirms the overall

weakening in growth. It is now more probable for the central banks of developed countries to take steps

towards an expansionary monetary policy for the first time after the global crisis, triggered by weakened global

economic activity and more evident downside risks regarding inflation. Although this supports the demand and

risk appetite for the financial assets of developing countries and stimulates their capital markets, the core

reason behind the slowdown in global growth is countries’ eroding growth performance, causing concerns

around the global economy to linger.

The shrinkage of the Turkish economy slowed down in the first quarter of 2019, as we anticipated, and stood

for 2.6%. Positive developments were observed thanks to the steps taken under the leadership of public

authorities within the framework of the economic balancing process. Despite there are risks that still face

global economy, precursor data show that incremental recovery is ongoing, with the impact of rapidly taken

steps and thanks to the strong support of export of goods and travel revenues, in particular.

Having always stood by the real sector when under the relative effect of a fragile growth environment in

economic activity, the banking sector will continue to extend unwavering support to it, backed by the

reassuring steps taken in the field of long-term and sustainable financing for the production capacity of our

country.

The support our Bank extends to those who produce in good and bad times is the common denominator of its

determined efforts of over 65 years to further contribute to Turkey’s sustainable and inclusive growth.

Propelled by our tradition of responsible banking, we extend funding to artisans, small producers, farmer

families and women entrepreneurs in rural areas. Being well aware that this support has the power to transform

not only our customers’ lives but also entire society, we will continue to support the Turkish economy while

increasing our efficiency and developing pioneering practices in our sector through the “Transformation

Program” we are undergoing now.

Respectfully yours,

Dr. Hasan Basri Göktan

Chairman of the Board of Directors, Executive Board Member




110

SECTION SEVEN (cont’d)

INFORMATION ON INTERIM ACTIVITY REPORT (cont’d)


Assessments of the Bank for the Interim Activities (cont’d)

2. General Manager’s Assesments on Interim Report

Esteemed Stakeholders,

In the first six months of 2019, we have continued to support our economy and provide funding to production,

with a total credit volume of TL 27.2 billion - TL 21.7 billion in cash - and an asset size of TL 32.6 billion,

according to our Bank’s consolidated financial results dated 30 June 2019. In parallel with our mission of

supporting production dating back to the day we were established, and being powered by our long-standing

branch network with a strong presence in Anatolia, the loans we extended to our SMEs and farmers stood for

60% of our total loans -- a two-fold rate of the sector’s average.

On the other hand, we have further reinforced our well-established and community-based deposit structure,

hence reaching TL 24 billion in the size of deposits in the first half of 2019 which corresponded to a 11% YoY

increase for our Bank, the unchanging destination of savings for the past 66 years.

We are now undergoing a “Transformation Program” to strengthen our competitive edge, unlock our potential,

and renew our entire infrastructure. Thus, we proceed with a route to growth that is more efficient, community-

based and fit for our Bank’s strategy, while preserving our mission of “Community Banking”.

Within this scope, we will carry on our responsible banking activities embedded in our establishment, by

outreaching owners of small savings and extending compelling finance opportunities to those people who have

been producing and working with us for the past few generations. This is also how we will support our country’s

journey of development.

Respectfully yours,

Erdal Erdem

General Manager




111

SECTION SEVEN (cont’d)

INFORMATION ON INTERIM ACTIVITY REPORT (cont’d)


Assessments of the Bank for the Interim Activities (cont’d)

3. Şekerbank by Numbers

The subsidiaries financial statements, which are consolidated within the framework of the reporting package, are

as follows.

Subsidiaries

(TRL Thousand)

Country

(Foundation/Operating)

Total Assets Equity Net Income

Income

Before Tax

TaxProvision

Şekerbank (Kıbrıs) Ltd. TRNC 323,450 27,512 (526) (573) 47

Şeker Finansal Kiralama A.Ş. Turkey 545,973 64,653 107 (2,388) 2,495

Şekerbank International

Banking Unit Ltd. TRNC 45,795 39,590 670 681 (11)

Şeker Yatırım Menkul

Değerler A.Ş. Turkey 187,255 31,977 (4,224) (5,778) 1,554

Şeker Faktoring A.Ş. Turkey 527,195 58,362 (18,742) (19,870) 1,128

Şeker Finansman A.Ş. Turkey 926,740 2,112 (7,253) (9,621) 2,368

Zahlungsdienste GmbH

der Şekerbank T.A.Ş. Germany 1,856 1,064 1 4 (3)

4. Consolidated Financial Highlights and Ratios

Financial Highlights (TRL Thousand) 30.06.2019 31.12.2018

Assets 32,606,536 32,964,784

Loans (Net) 21,704,544 21,114,071

Securities 3,709,144 4,091,993

Equity 2,179,657 2,452,830

Deposits 23,951,655 22,940,857

Net Profit ( Loss) (280,436) 88,747

Financial Ratios 30.06.2019 31.12.2018

Capital Adequacy Ratio 12.51 14.33

Securities / Assets 11.38 12.41

Loans (Net) / Assets 66.57 65.05

Deposits / Assets 73.46 69.59

5. Significant Developments within the Period

Total assets of the Group reached TRL 32,606,536 Thousand, net loans reached TRL 21,704,544 Thousand and

total net worth reached TRL 2,179,657 Thousand as of 30 June 2019.

Loans compose 66.57 % of the total assets as of 30 June 2019. Consolidated securities portfolio has realized as

TRL 3,709,144 Thousands as of the reporting period. The share of deposits of the Group has reached 73.46% of

the total liabilities. The Group posted TRL 478,331 Thousand as consolidated net interest income and TRL

191,502 Thousand as consolidated net fee and commission income.