Şekerbank türk anonim Şirketi

Şekerbank

Türk Anonim Şirketi

Unconsolidated Interim Financial Statements

For the Nine-month Period Ended 30 September 2016

With Auditor’s Review Report Thereon

(Convenience Translation of Unconsolidated

Financial Statements and Related Disclosures and Footnotes

Originally Issued in Turkish)

8 November 2016

This report consists of 2 pages Auditors’ Review

Report and 90 pages of financial statements and

related disclosures and footnotes.

With Independent Auditors’ Review Report Thereon

With Independent Auditors’ Report Thereon Akis Bağımsız

Denetim ve Serbest

Muhasebeci Mali Müşavirlik

Convenience Translation of the Independent Auditors’ Review Report Originally Prepared and Issued in Turkish to English (See Note I in Section Three)

To the Board of Directors of Şekerbank T.A.Ş.;

Introduction

We have reviewed the unconsolidated balance sheet of Şekerbank T.A.Ş. (“the

Bank”) at 30 September 2016 and the related unconsolidated statement of income,

unconsolidated statement of income and expense items under shareholders’ equity,

unconsolidated statement of changes in shareholders’ equity, unconsolidated

statement of cash flows and a summary of significant accounting policies and other

explanatory notes to the unconsolidated financial statements for the nine-month-

period then ended. The Bank Management is responsible for the preparation and

fair presentation of interim financial statements in accordance with the

“Regulation on Accounting Applications for Banks and Safeguarding of Documents”

published in the Official Gazette no.26333 dated 1 November 2006, and other

regulations on accounting records of Banks published by Banking Regulation and

Supervision Agency and circulars and interpretations published by Banking

Regulation and Supervision Authority, (together referred as “BRSA Accounting and

Reporting Legislation”) and Turkish Accounting Standard 34 “Interim Financial

Reporting” for those matters not regulated by BRSA Accounting and Reporting

Legislation. Our responsibility is to express a conclusion on these interim financial

information based on our review.

Scope of Review

We conducted our review in accordance with the Standard on Review

Engagements (SRE) 2410, “Limited 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 performed in accordance with the 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.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying unconsolidated financial information does not give a true view of the financial position of the Bank at 30 September 2016 and of the results of its operations and its cash flows for the nine-month period then ended in all aspects in accordance with the BRSA Accounting and Reporting Legislation.

Report on other regulatory requirements arising from legislation

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

financial information provided in the accompanying interim activity report in Section

VII, is not consistent with the unconsolidated financial statements and disclosures in all

material respects.

Akis Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi A member firm of KPMG International Cooperative Orhan Akova Partner, SMMM 8 November 2016 İstanbul, Turkey

Additional paragraph for convenience translation to English:

The accounting principles summarized in Note I Section Three, differ from the accounting principles generally accepted in countries in which the accompanying unconsolidated financial statements are to be distributed and International Financial Reporting Standards (“IFRS”). Accordingly, the accompanying financial statements are not intended to present the financial position and results of operations in accordance with accounting principles generally accepted in such countries of users of the unconsolidated financial statements and IFRS.

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

FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2016

The unconsolidated financial report designed by the Banking Regulation and Supervision Agency in line with

Communiqué on Financial Statements to be Publicly Announced and the Related Policies and Disclosures

consists of the sections listed below:

GENERAL INFORMATION ABOUT THE BANK

UNCONSOLIDATED FINANCIAL STATEMENTS OF THE BANK

EXPLANATIONS ON THE CORRESPONDING ACCOUNTING POLICIES APPLIED IN

THE RELATED PERIOD

INFORMATION RELATED TO FINANCIAL POSITION AND RISK MANAGEMENT OF

THE BANK

EXPLANATORY DISCLOSURES AND FOOTNOTES ON UNCONSOLIDATED FINANCIAL

STATEMENTS

LIMITED REVIEW REPORT

INTERIM ACTIVITY REPORT

The unconsolidated financial statements and the explanatory footnotes and disclosures, unless otherwise

indicated, are prepared in thousands of Turkish Lira, in accordance with the Communiqué on Banks‟

Accounting Practice and Maintaining Documents, Turkish Accounting Standards, Turkish Financial Reporting

Standards, related communiqués and the Banks‟ records, have been independently audited and presented as

attached.

The 30 September 2016 financial tables are audited and they do not include any false explanation in material

subjects and absences that may result in misleading statements and fairly reflect the Bank‟s financial position,

the risks faced and uncertainty

Dr. Hasan Basri GÖKTAN Servet TAZE Murat ISHMUKHAMEDOV

Chairman of The Board of

Directors

General Manager

Member of the Audit Committee

Victor ROMANYUK

Selim Güray ÇELİK Orhan ULUYOL

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. Bank‟s Incorporation Date, Beginning Statue, Changes in the Existing Statue 1

II. Explanations Regarding Bank‟s Shareholding Structure, Shareholders Holding Directly or Indirectly, Collectively or Individually, the Managing and

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

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

Their Shares in the Bank 2

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

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

VI. 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

Unconsolidated Financial Statements

I. Balance Sheet (Statement of Financial Position) 5

II. Statement of Off Balance Sheet Contingencies and Commitments 7

III. Statement of Income 8

IV. Statement of Profit and Loss Accounted for Under Equity 9

V. Statement of Changes in Shareholders‟ Equity 10

VI. 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 Foreign Currency Transactions 12

IV. Explanations on Associates and Subsidiaries 12

V. Explanations on Forward and Option Contracts and Derivative Instruments 13

VI. Explanations on Interest Income and Expenses 13

VII. Explanations on Fees and Commission Income and Expenses 13

VIII. Explanations on Financial Assets 13

IX. Explanations on Impairment on Financial Assets 16

X. Explanations on Offsetting of Financial Assets and Liabilities 17

XI. Explanations on Sales and Repurchase Agreements and Lending of Securities 17

XII. Explanations on Assets Held For Sale and Discontinued Operations 17

XIII. Explanations on Goodwill and Other Intangible Assets 17

XIV. Explanations on Tangible Fixed Assets 17

XV. Explanations on Leasing Transactions 18

XVI. Explanations on Provisions and Contingent Liabilities 18

XVII. Explanations on Liabilities Regarding Employee Benefits 18

XVIII. Explanations on Taxation 20

XIX. Additional Explanations on Borrowings 21

XX. Explanations on Share Certificates 21

XXI. Explanations on Acceptances 21

XXII. Explanations on Government Incentives 21

XXIII. Explanations on Segment Reporting 22

XXIV. Explanations on Other Matters 22

SECTION FOUR

Information Related to Financial Position and Risk Management of the Bank

I. Explanations Related to Equity 23

II. Explanations Related to Currency Risk 31

III. Explanations Related to Interest Rate Risk 33

IV. Explanations Related to Equity Securities Position Risk 37

V. Explanations Related to Liquidity Risk Management and Liquidity Coverage Ratio 37

VI. Explanations Related to Leverage Ratio 45

VII. Explanations Related to Risk Management 45

VIII. Explanations Related to Transactions Made on Behalf of Others and Transactions Based On Trust 46

SECTION FIVE

Explanations and Disclosures on Unconsolidated Financial Statements

I. Explanations Related to the Assets 47

II. Explanations Related to the Liabilities 63

III. Explanations Related to the Off-Balance Sheet Contingencies and Commitments 75

IV. Explanations Related to the Income Statement 80

V. Explanations on the Risk Group of the Bank 85

VI. Explanations and notes related to subsequent events 87

SECTION SIX

Auditor‟s Review Report

I. Explanations on the Auditor‟s Review Report 87

II. Other Footnotes and Explanations Prepared by the Auditors 87

SECTION SEVEN

Information on Interim Activity Report

I. Board of Directors Chairman‟s Assesments on Interim Report 88

II. General Manager‟s Assesments on Interim Report 89

III. Şekerbank by Numbers 90

IV. Financial Standing, Profitability, and Solvency 90

ŞEKERBANK T.A.Ş.

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE THE INTERIM PERIOD FROM 1 JANUARY TO 30 SEPTEMBER 2016 (Amounts expressed in thousands of Turkish Lira (TRL) unless otherwise stated.)

1

SECTION ONE

GENERAL INFORMATION

I. Bank’s Incorporation Date, Beginning Statue, Changes in the Existing Statue

Şekerbank T.A.Ş. („the Bank‟) was founded in 1953 as a Turkish bank with 14 partners in Eskişehir and

started its operations under Pancar Kooperatifleri Bankası A.Ş. in Eskişehir and changed the name to

Şekerbank T.A.Ş. by moving headquarters to Ankara in 1956. 15 % of the Bank shares were offered to

public in 1997 and currently 34.19 % of the Bank shares are publicly traded. The Bank‟s one of the main

shareholders, Şekerbank T.A.Ş. Personeli Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı, gives

its members additional social rights and retirement guarantees in the social security system. The Bank has

affiliates and subsidiaries in the finance and tourism sectors.

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

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

other banking services.

II. Explanations Regarding Bank’s Shareholding Structure, Shareholders Holding Directly or

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

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

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 35.4395 410,389

-

- Samruk-Kazyna, the National

Wel-fare Fund of Kazakhstan 224,353 19.3742 224,353 - Şekerbank T.A.Ş. 109,212 9.4311 109,212 -

BTA Securities JSC 17,083 1.4752 17,083 - Public offerings 395,954 34.1928 395,954 - Others 1,009 0.0872 1,009 -

Total 1,158,000 100.0000 1,158,000 -

ŞEKERBANK T.A.Ş.



2

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

Committee, General Manager and Executive Vice Presidents and Their Shares in the Bank

Title Name and Surname Responsibility Areas

Chairman of the Board of Directors Dr.Hasan Basri Göktan

Chairman & Executive Board Member, Credit Committee,

Corporate Governance Committee, Remuneration

Committee

General Manager Servet Taze Board Member, General Manager, Credit Committee

Members of the Board of Directors Victor Romanyuk (*) Vice-Chairman, Remuneration Committee, Audit Committee

Emin Erdem Executive Board Member, Credit Committee

Erdal Batmaz Executive Board Member

Nariman Zharkinbayev Executive Board Member, Credit Committee

Halil Can Yeşilada Corporate Governance Committee, Internal Systems

Üzeyir Baysal Independent Director, Remuneration Committee

Khosrow Kashani Zamani Corporate Governance Committee

Murat Ishmukhamedov (*) Corporate Governance Committee, Audit Committee

Halit Haydar Yıldız -

Zhanibek Saurbek -

Executive Vice Presidents Ali Güray Demir Credit Legal and Administrative Follow -up

Fatin Rüştü Karakaş Audit

Nihat Büyükbozkoyun Operations

Selim Güray Çelik

Financial Control, Budgeting and Strategic Planning,

Corporate Governance Committee

Gökhan Ertürk Retail Banking Marketing

Umut Ülbegi Corporate and Commercial Banking Marketing

Salih Zeki Önder Financial Institutions

Ahmet İlerigelen Credit Management

Aybala Şimşek Strategy and Corporate Communication

Murat Sabaz Small Enterprises and Agricultural Banking Marketing

Aytay Tolga Şenefe Treasury

(*) According to Communiqué On Corporate Governance Principles of Capital Markets Board, No: II-17.1, Audit Committee members of the banks are accepted as independent members of the Board of Directors. Murat Ishmukhamedov and Victor Romanyuk are Audit

Committee Members of the Bank.

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

amounting to TRL 577 Thousand, Khosrow Kashani Zamani who is the Board of Directors Member has total

shares of 0.013 % in nominal, amounting to TRL 148 Thousand which they obtained from public offering.

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

Name/ Commercial Name

Amounts of Share

TRL Thousand Share (%)

Paid in Capital

TRL Thousand

Unpaid

Capital

Şekerbank T.A.Ş.

Personeli Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı 410,389 35.4395 410,389 - Samruk-Kazyna, the National Well-fare Fund of

Kazakhstan 224,353 19.3742 224,353 -

ŞEKERBANK T.A.Ş.



3

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

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

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

banking services. As of 30 September 2016, the Bank has 273 domestic branches (31 December 2015 – 301

domestic branches).

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

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 Mortgage Finansman A.Ş.

and Zahlungsdienste GmbH der Şekerbank T.A.Ş. are included in the scope of consolidation by line-by-line

method.

Seltur Turistik İşletmeler Yatırım A.Ş. is not consolidated in the financial statements and is recorded at cost

since the Bank has no control and it is not a financial subsidiary.

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

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

Liabilities

There is no transfer of the shareholders‟ equity between the Bank and its subsidiaries. Dividend distribution from

shareholders‟ equity is done according to related regulations. There is no existing or potential, actual or legal

obstacle to the payback of liabilities between the Bank and its subsidiaries.

SECTION TWO

UNCONSOLIDATED FINANCIAL STATEMENTS

I. Balance Sheet (Statement of Financial Position)

II. Statement of Off Balance Sheet Contingencies and Commitments

III. Statement of Income

IV. Statement of Profit and Loss Accounted for Under Equity

V. Statement of Changes in Shareholders‟ Equity

VI.

Statement of Cash Flows

ŞEKERBANK T.A.Ş.



12

SECTION THREE

ACCOUNTING PRINCIPLES

I. Basis of Presentation

The Bank prepares financial statements and notes according to 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) and 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”).

Additional paragraph for convenience translation to English

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

Article 37 of the Banking Law No. 5411, accounting principles generally accepted in countries in which the

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

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

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

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

principles generally accepted in such countries and IFRS.

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

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

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

of deposits. Investment instruments are selected among liquid instruments. A level of liquidity which allows for

covering obligations is kept.

The Bank controls risk by managing currency positions in harmony with market movements on the strength of

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

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

Bank tries to close by carrying out counter-transactions.

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

and interest rates, and appropriate investment decisions are made. Budget contains limits on maturity basis and

distributions of assets items are defined.

The Bank‟s off-balance sheet term transactions are managed by including such transactions in the Bank‟s total

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

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

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

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

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

III. Explanations on Foreign Currency Transactions

The foreign currency monetary assets and liabilities followed under balance sheet are converted into Turkish Lira

at exchange rate at the balance sheet date. The non-monetary accounts carried at fair value are converted from the

exchange rates at the time the fair value was determined. Exchange rate differences arising from monetary items

conversion is stated under the income statement.

IV. Explanations on Associates and Subsidiaries

Associates and subsidiaries are recorded at the cost of acquisition and provision is provided for any impairment in

value.

ŞEKERBANK T.A.Ş.



13

V. Explanations on Forward and Option Contracts and Derivative Instruments The Bank‟s derivative instruments consist of foreign currency swaps, interest swaps, option and forward foreign

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

comparing the Bank‟s period end foreign exchange rates and current market foreign exchange rates to the balance

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

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

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

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

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

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

instruments, although made for economical hedging purposes, are accounted as trading transactions since they are

not qualified to be a hedging instrument as per “Financial Instruments: Recognition and Measurement” (“TAS

39”). Realized gains or losses on these derivative instruments are reflected in the statement of income.

VI. 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).

According to the related legislation, interest accruals and discounts on loans and other receivables which become

doubtful are cancelled and such amounts are recorded as interest income when they are collected.

VII. Explanations on Fees and Commission Income and Expenses

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

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

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

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

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

realized by the associates and subsidiaries.

VIII. Explanations on Financial Assets

Financial instruments comprise financial assets, financial liabilities and derivative instruments. Financial

instruments form a significant part of the Bank‟s operations. Financial instruments affect liquidity, market, and

credit risks on the Bank‟s balance sheet in all respects. The Bank trades these instruments on behalf of its

customers and on its own behalf.

Financial instruments expose, affect credit and interest risks and diminish the liquidity in the financial statements.

All regular way purchases and sales of financial assets are recognized on the settlement date i.e. the date that the

asset is delivered to or by the Bank. Settlement date accounting requires (a) accounting of the asset when

acquired by the institution and (b) disposing of the asset out of the balance sheet on the date settled by the

institution; and accounting of gain or loss upon disposal. In case of application of settlement date accounting, for

the financial assets at fair value through profit and loss, available for sale financial assets and securities held for

trading, the Bank accounts for the changes that occur in the fair value of the asset in the period between trade

transaction date and settlement date.

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

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

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

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

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

of available for sale assets are accounted for in the shareholders‟ equity.

The financial instruments are mentioned below with regard to their accounts classified in the financial statements

and their valuations according to these classifications.

ŞEKERBANK T.A.Ş.



14

VIII. Explanations on Financial Assets (cont’d)

Cash, Banks and Other Financial Institutions

Cash and cash equivalents comprise cash on hand, demand deposits, and highly liquid short-term investments

with maturity of 3 months or less following the purchase date, not bearing risk of significant value change, and

these investments that are readily convertible to a known amount of cash. The book values of these assets

approximate their fair values.

Financial Assets at Fair Value Through Profit and Loss Trading securities are securities which were either acquired to generate a profit from short-term fluctuations in

price or dealer‟s margin, or they are the securities included in a portfolio with a pattern of short-term profit

taking.

Trading securities are initially recognized at cost. Transaction costs of the related securities are included in the

initial cost. The positive difference between the cost and fair value of such securities is accounted for as interest

and income accrual, and the negative difference is accounted for as “Impairment Provision on Marketable

Securities”.

As well as customer deposits, the Bank is funding its growing long term and fixed interest rate TRL loan

portfolio through long term floating interest rate foreign currency resources provided from international markets.

The Bank transforms the foreign currency liquidity which is created by funds provided from international markets

to TRL liquidity through long term swap contracts, as a result of this situation the Bank can both provide TRL

funds for the long term fixed rate loans and provide protection against interest rate risk.

The Bank reflects swaps, used for funding long term and fixed interest rate TRL loan portfolio, with fair value in

the financial statements. The Bank has initially classified these long term and fixed interest rate TRL loan

portfolio funded through swaps as “financial assets at fair value through profit and loss” and follows them at fair

value in the financial statements.

TRL 8,235 Thousand of the housing, commercial instalment, consumer, vehicle and finance lendings‟ principal

amounts are classified as under the account of financial asset at fair value through profit and loss (31 December

2015 - TRL 11,657 Thousand).

Held to Maturity Investments, Financial Assets Available for Sale and Loans Investments held to maturity include securities with fixed or determinable payments and fixed maturity where

there is an intention of holding till maturity and the relevant conditions for fulfilment of such intention, including

the funding ability and excluding loans and receivables.

Available for sale financial assets include all securities other than loans and receivables, securities held to

maturity and securities held for trading.

The securities are initially recognized at cost including the transaction costs.

After the initial recognition, available-for-sale securities are measured at fair value and the unrealized gain/loss

originating from the difference between the amortized cost and the fair value is recorded in “Marketable

Securities Value Increase Fund” under the equity. Fair values of debt securities that are traded in an active market

are determined based on quoted prices or current market prices. In the absence of prices formed in an active

market, fair values of these securities are determined using the Official Gazette prices or other valuation methods

stated in TAS. In case there is no market price in an active market, the other methods explained in TAS 39 are

used for determination of the fair value.

The real coupon rates for government bonds indexed to consumer price index are fixed throughout maturities. As

per the statements made by the Turkish Treasury on the dates of issuance, such securities are valued taking into

account the difference between the reference index at the issue date and the reference index at the balance sheet

date to reflect the effects of inflation.

ŞEKERBANK T.A.Ş.



15


Held to Maturity Investments, Financial Assets Available for Sale and Loans (cont‟d)

Loans and receivables are financial assets raised by the Bank providing money to debtors, other than assets held

for trading purposes or for the purpose of selling in the short-term.

After initial recognition held to maturity investments are measured at amortized cost by using effective interest

rate less impairment losses, if any.

The interests received from held-to-maturity investments are recorded as interest income.

There are no financial assets that have been previously classified as held-to-maturity investments but cannot be

currently classified as held-to-maturity for two years due to “tainting” rules.

The Bank classifies its securities as referred to above at the acquisition date of related assets.

Shares unquoted on the stock exchange amounting to TRL 9,639 Thousand are classified under “Other

Marketable Securities” of Financial Assets Available for Sale in the current period (31 December 2015 - TRL

7,236 Thousand).

Loans and Provisions for Impairment

Loans and receivables are initially recognized at cost according to their original balances, after the initial

recognition, they are accounted at amortized cost by using effective interest rate as stated in the TAS 39.

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

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

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

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

gain/loss.

Provision is set for the doubtful loans and the amount is charged in the current period income statement. The

provisioning amount for non-performing loans are determined by the Bank‟s management for compensating the

probable losses of the doubtful loan portfolio, by evaluating the quality of loan portfolio, risk factors and

considering the economy conditions, other facts and related regulations.

The Bank Management applies provision policy for the “non-performing loans” in accordance with the

requirements of the Turkish banking regulation adopted by the BRSA.

The provisions are reflected in the income statement under “Provision and Impairment Expenses - Specific

Provision Expense”. The collections made regarding these loans are first deducted from the principal amount of

the loan and the remaining collections are deducted from interest receivables.

The collections related to loans for which provision is made in the current period are reversed from the

“Provision for Loans and Other Receivables” account in the income statement. The collections related to loans

written off or provisioned in prior years are recorded to “Collections Related to the Prior Period Expenses” under

“Other Operating Income” account and related interest income is credited to the “Interest Received from Non-

performing Loans” account.

ŞEKERBANK T.A.Ş.



16


Loans and Provisions for Impairment (cont’d)

Within the framework of the regulation and principles referred to in explanations above, in addition to specific

loan loss provisions; the Bank records general loan loss provisions for loans and other receivables. Subsequent to

the change in the regulation on “Change in the Methods and Principles for the Determination of Loans and Other

Receivables to be Reserved for and Allocation of Reserves” published in the Official Gazette No. 26779 dated 6

February 2008; for the watch list loans the provision rate has been changed to 2 % for cash loans and 0.4 % for

non-cash loans. The Bank, as a consequence of the regulation published in the Official Gazette No. 27119 dated

23 January 2009 amending the “Regulation of Methods and Principles for the Determination of Loans and Other

Receivables to be Reserved for and Allocation of Reserves”, payment obligation arising from the Law No. 3167,

“Arrangements of the Payments Made Through Cheque and Protection of the Cheque Holders” and other related

regulations, applies one fourth of the related provision group rate for each leaf of the cheques given to loan

customers whose loans are in third, fourth or fifth groups, and for those cheques which were delivered at least

five years before the reporting period.

As a consequence of the regulation published in the Official Gazette No. 28789 dated 8 October 2013 amending

the “Change in the Methods and Principles for the Determination of Loans and Other Receivables to be Reserved

for and Allocation of Reserves” general loan provision ratio for export cash and non-cash loans followed under

standard loans is 0 % and general loan provision ratio for SME cash loans is 0.5 % and for non-cash SME loans

the ratio is 0.1 %.

IX. Explanations on Impairment of Financial Assets

At each balance sheet date, the Bank evaluates the carrying amounts of a financial asset or a group of financial

assets to determine whether there is an objective indication that those assets have suffered an impairment loss. If

any such indication exists, the Bank determines the related impairment.

A financial asset or a financial asset group incurs impairment loss only if there is an objective indicator related to

the occurrence (or non-occurrence) of one or more than one event (“loss event”) after the recognition of that

asset; and such loss event (or events) causes, an impairment as a result of the effect on the reliable estimate of the

expected future cash flows of the related financial asset and asset group. Irrespective of high probability, the

expected losses caused by the future events are not recorded.

X. Explanations on Offsetting of Financial Assets and Liabilities

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

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

simultaneously.

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

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

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

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

classified under securities held for trading, available for sale and held to maturity 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.

These transactions are short-term and consist of domestic public sector debt securities.

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

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

As of 30 September 2016, the Bank has no reverse repo transactions (31 December 2015 - None).

As of 30 September 2016, the Bank does not have marketable securities lending transactions (31 December 2015

- None).

ŞEKERBANK T.A.Ş.



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XII. 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 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 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 September 2016, the Bank has TRL 78,600 Thousand assets held for sale (31 December 2015 - TRL

123,300 Thousand).

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

operations are included in the statement of income separately.

The Bank does not have any discontinued operations.

XIII. 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. As being different from determination of

other intangible assets‟ amortization periods, these items are determined to have 5 years of amortization.

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

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

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

The Bank has no written off intangible fixed assets, which are fully amortized, in the current period (31

December 2015- None).

XIV. Explanations on Tangible Fixed Assets

Cost of the Bank‟s immovables has been adjusted for inflation until 31 December 2004. As of 31 December

2006, the Bank changed its accounting policy and adopted revaluation method on annual basis under scope of

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

fixed assets. Tangible Fixed Assets‟ appraisal valuation was conducted by an independent valuation company as

at 31 December 2015 reflected in the financial statements, accordingly. The difference between expertise value

and cost of immovables as of 30 September 2016 is TRL 186,569 Thousand gross (after net off deferred tax, net

amount is TRL 149,255 Thousand) (31 December 2015 gross: TRL 298,218 Thousand, net-off deferred tax

amount TRL 238,574 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

Motor vehicles 20

Furniture, fixtures and office equipment and others 2 – 20

Leasehold improvements During the lease agreement

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

difference between the net proceeds and net book value.

ŞEKERBANK T.A.Ş.



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XIV. Explanations on Tangible Fixed Assets (cont’d)

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

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

assets.

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

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

expectations differ from previous estimates, the changes accounted for as a change in an accounting estimate in

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

The Bank has no written off other fixed assets in the current period (31 December 2015 - TRL 1,751 Thousand).

XV. Explanations on Leasing Transactions

Tangible fixed assets acquired by financial leases are accounted for in accordance with TAS 17 “Leases”. In

accordance with this standard, the leasing transactions, which consist of foreign currency liabilities, are translated

to Turkish Lira with the exchange rates prevailing at the transaction dates and they are recorded as an asset or a

liability. The foreign currency liabilities are translated to Turkish Lira with the Bank‟s period end exchange rates.

The increases/decreases resulting from the differences in the foreign exchange rates are recorded as

expense/income in the relevant period. The financing cost resulting from leasing is distributed through the lease

period to form a fixed interest rate.

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

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

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

Operating lease payments are recognized as expenses in the income statement on a straight line basis over the

lease term.

The Bank does not have any leasing transactions as lessor.

XVI. Explanations on Provisions and Contingent Liabilities

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

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

amount of the obligation. Provisions are determined by using the Bank‟s best expectation of expenses in fulfilling

the obligation, and discounted to present value if material.

XVII. Explanations on Liabilities Regarding Employee Benefits

Defined Benefit Plans

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

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

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

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

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

accordance with TAS No: 19 “Turkish Accounting Standard on Employee Benefits”.

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

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

actuaries annually using the projected unit credit method.

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

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

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

According to revised TAS 19 published as at 1 January 2013, actuarial gain/losses are recorded under equity. As

of 30 September 2016 , the carrying value of employee benefit provisions is TRL 66,040 Thousand that consists

of employee termination benefit provisions amounting to TRL 61,554 Thousand and employee vacation pay

provisions amounting to TRL 4,486 Thousand (31 December 2015 - employee termination benefit provisions

was TRL 53,380 Thousand and employee vacation benefit provisions was TRL 3,959 Thousand).

ŞEKERBANK T.A.Ş.



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

Defined Contribution Plans

Şekerbank T.A.Ş. Pension Fund, of which most of the Bank‟s employees are members, is established in

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

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

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

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

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

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

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

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

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

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

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

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

and Certain Laws and Decree Laws”, which was published in the Official Gazette dated 8 May 2008 and

numbered 26870, came into effect. The new law decrees that the contributors of the Bank pension funds, the ones

who receive salaries or income from these funds and their rightful beneficiaries will be transferred to the Social

Security Institution and will be subject to this Law within 3 years after the release date of the related article,

without any need for further operation. The three-year transfer period can be prolonged for maximum 2 years by

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

dated 14 March 2011, which was published in the Official Gazette dated 9 April 2011 and numbered 27900. In

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

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

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

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

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

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

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

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

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

numbered 29335.

The above mentioned law also includes the following:

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

Security Institution, Ministry of Finance, Turkish Treasury, State Planning Organization, Banking

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

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

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

considering their income and expenses in terms of the lines of insurance within the context of the related

Law, and technical interest rate of 9.8% will be used in the actuarial calculation of the value in cash,

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

these funds and their rightful beneficiaries to the Social Security Institution, these persons‟ uncovered

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

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

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

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

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

the meeting of the afore-mentioned court on 31 March 2011.

ŞEKERBANK T.A.Ş.



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

Defined Contribution Plans (cont’d)

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 7,941 Thousand actuarial deficit in the actuary

report dated January 2016 which was prepared using a technical interest rate of 9.80 % in accordance with the

basis set out in the Council of Ministers decision no: 2006/11345 on 30 November 2006 (31 December 2015 -

TRL 7,941 Thousand deficit).

As of 30 September 2016, TRL 7,941 Thousand provision is recorded in the financial statements of the Bank (31

December 2015 - TRL 7,941 Thousand).

XVIII. Explanations on Taxation

Corporate tax

According to the Article 32 of the Corporate Tax Law No. 5520, accepted in the meeting of the Turkish Grand

National Assembly of Turkey on 13 June 2006 and announced in the Official Gazette dated 21 June 2006, the

corporate tax rate has been decreased from 30 % to 20 %, effective from 1 January 2006 as per the Article 37 of

the Corporate Tax Law.

The tax legislation requires advance tax payment of 20 % 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 (31

December 2015 - 20 %).

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 instalment until the end of the related month.

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

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

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

accounting records for a retrospective maximum period of five years.

Deferred Tax Liability / Asset

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

or deductible amounts in determining taxable profit of future periods.

As of 30 September 2016 and 31 December 2015, in accordance with TAS 12 “Turkish Accounting Standard on

Income Taxes” and the changes in the circular of the BRSA numbered BDDK.DZM.2/13/1-a-3 dated 8

December 2004, the Bank calculated deferred tax asset on all deductible temporary differences except for general

loan reserves, if sufficient taxable profit in future periods to recover such amounts is probable; as well as deferred

tax liability on all taxable temporary differences. Deferred tax assets and liabilities are shown in the

accompanying financial statements on a net basis.

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

under the deferred tax liability in the balance sheet. The deferred tax benefit of TRL 8,974 Thousand is stated

under the tax provision line in the income statement (30 September 2015 – TRL 13,109 Thousand deferred tax

benefit). The deferred tax liability of TRL 43,191 Thousand (31 December 2015 – TRL 42,522 Thousand

deferred tax liability) resulting from differences related to items that are debited or charged directly to equity is

netted with the related equity accounts.

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.

ŞEKERBANK T.A.Ş.



21

XIX. Additional Explanations on Borrowings

The borrowing costs related to purchase, production, or construction of qualifying assets that require significant

time to be prepared for use and sale are included in the cost of assets until the relevant assets become ready to be

used or to be sold. Financial investment income obtained by temporary placement of undisbursed investment loan

in financial investments is offset against borrowing costs qualified for capitalization.

All other borrowing costs are recorded to the income statement in the period they are incurred.

The Bank‟s issued bills amount is TRL 66,814 Thousand as of 30 September 2016 (31 December 2015- TRL

425,588 Thousand).

The Bank issued Asset Covered Bond amounting to TRL 1,500,000 Thousand and details are shown in the table

below. The investors are International Finance Corporation (IFC), Nederlandse Financierings-Maatschappij

Voor Ontwikkelingslanden N.V. (FMO), UniCredit Bank AG, European Investment Bank (EIB), European Bank

for Reconstruction and Development (EBRD), KfW Bankengruppe and qualified institutional investors. The

transactions were conducted in line with the related Capital Market Board regulation and the Bank‟s SME loans

were used as collateral. Outstanding Asset Covered Bond amount is TRL 684,589 Thousand as of 30 September

2016 (31 December 2015 – TRL 764,218 Thousand).

Issue Date Series Investors Amount Outstanding Amount (*) Currency Maturity

27 February 2014 2014-1 Qualified Institutional

Investors 361,846 361,846 TRL 13.03.2017

18 December 2015 2015-1 EIB 319,400 319,400 TRL 12.03.2019

(*) Outstanding amounts do not include accruals.

The Bank has not issued convertible bonds.

XX. Explanations on Share Certificates

There are no share certificates issued by the Bank.

XXI. Explanations on Acceptances

Acceptances are realized simultaneously with the payment dates of the customers and they are presented as

probable commitments in off-balance sheet accounts.

XXII. Explanations on Government Incentives

There are no government incentives utilized by the Bank.

ŞEKERBANK T.A.Ş.



22

XXIII. Explanations on Segment Reporting

The Bank primarily deals with and engages in corporate, retail and SME banking in line with its strategy.

Current Period

Corporate SME

Retail

Other

Total

Net Interest Income 146,687 365,960 140,099 159,212 811,958

Net Fees and Commission Income and Other Operating Income 68,315 214,031 33,255 90,705 406,306

Dividend Income - - - 5,001 5,001

Trading Profit/(Loss) - - - (96,722) (96,722)

Impairment provision for loans and other

receivables (58,308) (281,984) (31,729) (23,638) (395,659)

Other Operating Expenses - - - (662,524) (662,524)

Profit/(Loss) before taxes 156,694 298,007 141,625 (527,966) 68,360

Taxation - - - - (14,425)

Net Profit for the Period - - - - 53,935

Prior Period

Corporate SME

Retail

Other

Total

Net Interest Income 196,286 272,899 126,848 163,200 759,233

Net Fees and Commission Income and Other

Operating Income 103,370 153,546 36,038 94,989 387,943

Dividend Income - - - 7,350 7,350

Trading Profit/(Loss) - - - (163,665) (163,665)

Impairment provision for loans and other receivables (48,383) (191,131) (41,151) (36,168) (316,833)

Other Operating Expenses - - - (613,965) (613,965)

Profit/(Loss) before taxes 251,273 235,314 121,735 (548,259) 60,063

Taxation - - - - 10,153

Net Profit for the Period - - - - 70,216

Current Period Commercial SME Retail

Treasury

/Investment Undistributed Total

Assets 6,025,881 8,745,560 1,497,452 4,703,044 1,874,116 22,846,053

Liabilities 4,592,178 2,059,063 8,191,425 4,585,121 3,418,266 22,846,053

Prior Period Commercial SME Retail

Treasury

/Investment Undistributed Total

Assets 9,214,596 5,832,582 1,690,387 5,953,574 1,724,827 24,415,966

Liabilities 4,827,402 1,212,826 8,827,405 6,060,690 3,487,643 24,415,966

XXIV. Explanations on Other Matters

None.

ŞEKERBANK T.A.Ş.



23

SECTION FOUR

INFORMATION RELATED TO FINANCIAL POSITION AND RISK

MANAGEMENT

I. Explanations Related to 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 effective since 1 January 2014. The Bank‟s unconsolidated capital adequacy

ratio in accordance with the related communiqués is 12.92 % (31 December 2015 – 13.66 %).

In the computation of capital adequacy standard ratio, data prepared in accordance with statutory accounting

requirements are used. Additionally, the market risk exposure as well as the operational risk exposure are

calculated in accordance with the communiqué on the Communiqué on “Measurement and Assessment of Capital

Adequacy of Banks” and are taken into consideration in the capital adequacy standard ratio calculation.

The values deducted from the capital base in the shareholders‟ equity computation are excluded while calculating

risk-weighted assets, non-cash loans and contingent liabilities. 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. While simple approach is taken into

account for banking book items, the Bank uses comprehensive approach for trading book items in the credit

mitigation process.

While calculating the basis of non-cash loans subject to credit risk, the net receivable amount from the counter

parties net of provision amount set in accordance with the “Communiqué on Methods and Principles for the

Determination of Loans and Other Receivables to be Reserved for and Allocation of Reserves” is multiplied by

the loan conversion rates presented in the Article 5 and related clauses of the Communiqué on “Measurement and

Assessment of Capital Adequacy of Banks”, and calculated by applying the risk weights presented in the Capital

Adequacy Analysis Form.

In the calculation of counterparty credit risk, the current exposure method is used according to the Communiqué

on “Measurement and Assessment of Capital Adequacy of Banks” the Article 21 and Appendix 2.

ŞEKERBANK T.A.Ş.



24

SECTION FOUR (cont’d)

INFORMATION RELATED TO FINANCIAL POSITION AND RISK MANAGEMENT (cont’d)

I. Explanations Related to 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 1,278 - Reserves 1,197,572 - Gains recognized in equity as per TAS 210,475 - Profit 91,256 - Current Period Profit 53,935 - Prior Period Profit 37,321 - Shares acquired free of charge from subsidiaries, affiliates and jointly controlled partnerships and cannot be

recognised within profit for the period 0 - Common Equity Tier 1 Capital Before Deductions 2,658,581 -

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 37,070 - Improvement costs for operating leasing 33,820 - Goodwill (net of related tax liability) 57,036 - 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) 437 - Differences are not recognized at the fair value of assets and liabilities subject to hedge of cash flow risk - - Communiqué Related to Principles of the amount credit risk calculated with the Internal Ratings Based Approach, total expected loss amount exceeds the total provison - - Gains arising from securitization transactions - - Unrealized gains and losses due to changes in own credit risk on fair valued liabilities - - Defined-benefit pension fund net assets - - Direct and indirect investments of the Bank in its own Common Equity 175,996 - Shares obtained contrary to the 4th clause of the 56th Article of the Law - - Portion of the total of net long positions of investments made in equity items of banks and financial

institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank - - Portion of the total of net long positions of investments made in equity items of banks and financial

institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share

capital exceeding 10% of Common Equity of the Bank - - Portion of mortgage servicing rights exceeding 10% of the Common Equity - - Portion of deferred tax assets based on temporary differences exceeding 10% of the Common Equity - - Amount exceeding 15% of the common equity as per the 2nd clause of the Provisional Article 2 of the

Regulation on the Equity of Banks - - Excess amount arising from the net long positions of investments in common equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued

common share capital - - Excess amount arising from mortgage servicing rights - - Excess amount arising from deferred tax assets based on temporary differences - - Other items to be defined by the BRSA - - Deductions to be made from common equity due to insufficient Additional Tier I Capital or Tier II Capital - - Total Deductions From Common Equity Tier 1 Capital 304,359 - Total Common Equity Tier 1 Capital 2,354,222 -

ADDITIONAL TIER I CAPITAL Preferred Stock not Included in Common Equity and the Related Share Premiums - - Debt instruments and premiums approved by BRSA - - Debt instruments and premiums approved by BRSA(Temporary Article 4) - - Additional Tier I Capital before Deductions - -

ŞEKERBANK T.A.Ş.



25

Deductions from Additional Tier I Capital Direct and indirect investments of the Bank in its own Additional Tier I Capital - - Investments of Bank to Banks that invest in Bank's additional equity and components of equity issued by

financial institutions with compatible with Article 7. - - Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial

Institutions where the Bank Owns 10% or less of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital - - The Total of Net Long Position of the Direct or Indirect Investments in Additional Tier I Capital of

Unconsolidated Banks and Financial Institutions where the Bank Owns more than 10% of the Issued Share

Capital - - Other items to be defined by the BRSA - -

Transition from the Core Capital to Continue to deduce Components Goodwill and other intangible assets and related deferred tax liabilities which will not deducted from

Common Eguity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the

Regulation on Banks‟ Own Funds (-) 38,024 - 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 (-) 292 - Deductions to be made from common equity in the case that adequate Additional Tier I Capital or Tier II

Capital 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) 2,315,906 -

TIER II CAPITAL Debt instruments and share issue premiums deemed suitable by the BRSA - - Debt instruments and share issue premiums deemed suitable by BRSA (Temporary Article 4) 1,126 - Debt instruments and share issue premiums deemed suitable by the BRSA 149,648 - Tier II Capital Before Deductions 150,774 -

Deductions From Tier II Capital Direct and indirect investments of the Bank on its own Tier II Capital (-) - - Investments of Bank to Banks that invest on Bank's Tier 2 and components of equity issued by financial

institutions with the conditions - - Portion of the total of net long positions of investments made in equity items of banks and financial

institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank (-) - - Portion of the total of net long positions of investments made in Additional Tier I Capital item of banks and

financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued

common share capital exceeding 10% of Common Equity of the Bank - - Other items to be defined by the BRSA (-) - - Total Deductions from Tier II Capital - - Total Tier II Capital 150,774 - Total Capital (The sum of Tier I Capital and Tier II Capital) - - Deductions from Total Capital - - Deductions from Capital Loans granted contrary to the 50th and 51th Article of the Law - - Net Book Values of Movables and Immovables Exceeding the Limit Defined in the Article 57, Clause 1 of the

Banking Law and the Assets Acquired against Overdue Receivables and Held for Sale but Retained more than Five Years 8,017 - Other items to be defined by the BRSA (-) 11,381 -

In transition from Total Core Capital and Supplementary Capital (the capital) to Continue to

Download Components - - The Sum of net long positions of investments (the portion which exceeds the 10% of Banks Common Equity)

in the capital of banking, financial and insurance entities that are outside the scope of regulatory

consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the

purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks‟ Own Funds - - The Sum of net long positions of investments in the Additional Tier 1 capital and Tier 2 capital of banking,

financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common

Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the

Provisional Article 2 of the Regulation on Banks‟ Own Funds - - The Sum of net long positions of investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of

the issued common share capital of the entity, mortgage servicing rights, deferred tax assets arising from

temporary differences which will not deducted from Common Eguity Tier 1 capital for the purposes of the

first sub-paragraph of the Provisional Article 2 of the Regulation on Banks‟ Own Funds - -

ŞEKERBANK T.A.Ş.



26

TOTAL CAPITAL Total Capital (The sum of Tier I Capital and Tier II Capital) 2,447,282 - Total risk weighted amounts 18,935,445 -

CAPITAL ADEQUACY RATIOS Core Capital Adequacy Ratio (%) 12.43 - Tier 1 Capital Adequacy Ratio (%) 12.23 - Capital Adequacy Ratio (%) 12.92 -

BUFFERS Bank specific total Common Equity Tier 1 Capital requirement (%) 0.007 - Capital conservation buffer requirement (%) 0.006 - Bank specific counter-cyclical buffer requirement (%) 0.001 - The ratio of Additional Common Equity Tier 1 capital which will be calculated by the first paragraph of the Article 4 of Regulation on Capital Conservation and Countercyclical Capital buffers to Risk Weighted Assets

(%) - Amounts below the Excess Limits as per the Deduction Principles

Portion of the total of net long positions of investments in equity items of unconsolidated banks and financial

institutions where the bank owns 10% or less of the issued share capital exceeding the 10% threshold of above Tier I capital - - Portion of the total of investments in equity items of unconsolidated banks and financial institutions where the bank owns 10% or less of the issued share capital exceeding the 10% threshold of above Tier I capital - - Remaining Mortgage Servicing Rights - - Amount arising from deferred tax assets based on temporary differences - -

Limits related to provisions considered in Tier II calculation General provisions for standard based receivables (before tenthousandtwentyfive limitation) - - Up to 1.25% of total risk-weighted amount of general reserves for receivables where the standard approach used 149,648 - Excess amount of total provision amount to credit risk Amount of the Internal Ratings Based Approach in

accordance with the Communiqué on the Calculation - - Excess amount of total provision amount to % 0,6 of risk weighted receivables of credit risk Amount of the

Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - - Debt instruments subjected to Article 4

(to be implemented between January 1, 2018 and January 1, 2022) Upper limit for Additional Tier I Capital subjected to temprorary Article 4 - - Amounts Excess the Limits of Additional Tier I Capital subjected to temprorary Article 4 - - Upper limit for Additional Tier II Capital subjected to temprorary Article 4 - - Amounts Excess the Limits of Additional Tier II Capital subjected to temprorary Article 4 - - (*) Amounts in this column represent the amounts of items that are subject to transition provisions in accordance with the provisional Articles

of “Regulations regarding to changes on Regulation on Equity of Banks” and taken into consideration at the end of transition process.

ŞEKERBANK T.A.Ş.



27

Prior Period

COMMON EQUITY TIER I CAPITAL

Paid-in Capital to be Entitled for Compensation after All Creditors 1,158,000

Share Premium 1,278

Share Cancellation Profits -

Legal Reserves 1,090,958

Other Comprehensive Income according to TAS 240,331

Profit 106,614

Net Current Period Profit 102,649

Prior Period Profit 3,965

Provisions for Possible Losses -

Bonus Shares from Associates, Subsidiaries and Joint-Ventures not Accounted in Current Period‟s

Profit -

Common Equity Tier I Capital Before Deductions 2,597,181

Deductions From Common Equity Tier I Capital

Current and Prior Periods' Losses not Covered by Reserves, and Losses Accounted under Equity

according to TAS (-) 70,239

Leasehold Improvements on Operational Leases (-) 34,287

Goodwill and Intangible Assets and Related Deferred Tax Liabilities (-) 39,036

Net Deferred tax assets / liabilities (-) -

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

Investments in own common equity (-) -

Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and

FinancialInstitutions where the Bank does not own 10% or less of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital (-) -

Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial

Institutions where the Bank owns 10% or less of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital (-) -

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

Net Deferred Tax Assets arising from Temporary Differences Exceeding the10% Threshold of Tier I

Capital (-) -

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

The Portion of Net Long Position of the Investments in Equity Items of Unconsolidated Banks and

Financial Institutions where the Bank Owns 10% or more of the Issued Share Capital not deducted from Tier I Capital (-) -

Mortgage Servicing Rights not deducted (-) -

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

Other items to be Defined by the BRSA (-) -

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

Total Deductions from Common Equity Tier I Capital 143,562

Total Common Equity Tier I Capital 2,453,619

ADDITIONAL TIER I CAPITAL

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

Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Issued or Obtained after 1.1.2014) -

Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Issued or Obtained before

1.1.2014) -

Additional Tier I Capital before Deductions -

Deductions from Additional Tier I Capital

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

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 (-) -


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

Total Deductions from Additional Tier I Capital -

Total Additional Tier I Capital -

Deductions from Tier I Capital

Goodwill and Other Intangible Assets and Related Deferred Taxes not deducted from Tier I Capital as

per the Temporary Article 2, Clause 1 of the Regulation on Measurement and Assessment of Capital

Adequacy Ratios of Banks (-) 58,554

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

ŞEKERBANK T.A.Ş.



28

Total Tier I Capital 2,395,065

TIER II CAPITAL

Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Issued or Obtained after

1.1.2014) -

Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Issued or Obtained before

1.1.2014) 356,475

Pledged Assets of the Shareholders to be used for the Bank's Capital Increases -

General Provisions 177,980

Tier II Capital before Deductions 534,455

Deductions from Tier II Capital

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

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 Core Capital and Tier II Capital of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or more

of the Issued Share Capital Exceeding the 10% Threshold of Tier I Capital (-) -


Total Deductions from Tier II Capital -

Total Tier II Capital 534,455

CAPITAL

Loans Granted against the Articles 50 and 51 of the Banking 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 (-) 8,006

Loans to Banks, Financial Institutions (domestic/foreign) or Qualified Shareholders in the form of

Subordinated Debts or Debt Instruments Purchased from Such Parties and Qualified as Subordinated

Debts (-) 23,088

Deductions as per the Article 20, Clause 2 of the Regulation on Measurement and Assessment of

Capital Adequacy Ratios of Banks (-) -

Other items to be Defined by the BRSA (-) 7,800

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

Exceeding the 10% Threshold of above Tier I Capital not deducted from Tier I Capital, Additional

Core Capital or Tier II Capital as per the Temporary Article 2, Clause 1 of the Regulation (-) -

The Portion of Total of Net Long Positions of the Investments in Equity Items of Unconsolidated

Banks and Financial Institutions where the Bank Owns more than 10% of the Issued Share Capital

Exceeding the 10% Threshold of above Tier I Capital not deducted from Additional Core Capital or Tier II Capital as per the Temporary Article 2, Clause 1 of the Regulation (-) -

The Portion of Net Long Position of the Investments in Equity Items of Unconsolidated Banks and

Financial Institutions where the Bank Owns 10% or more of the Issued Share Capital, of the Net

Deferred Tax Assets arising from Temporary Differences and of the Mortgage Servicing Rights not deducted from Tier I Capital as per the temporary Article 2, Clause 2, Paragraph (1) and (2) and

Temporary Article 2, Clause 1 of the Regulation (-) -

EQUITY 2,890,626

Amounts lower than Excesses as per Deduction Rules

Remaining Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks

and Financial Institutions where the Bank Owns 10% or less of the Issued Share Capital -

Remaining Total of Net Long Positions of the Investments in Tier I Capital of Unconsolidated Banks

and Financial Institutions where the Bank Owns more than 10% or less of the Tier I Capital -

Remaining Mortgage Servicing Rights -

Net Deferred Tax Assets arising from Temporary Differences -

Components of items of shareholders’ equity subject to temporary applications

Amount Included in Equity

Calculation Total Amount

Debt Instruments and the Related Issuance Premiums Defined by

the BRSA (Issued before 1.1.2014) 1,126 12,836

ŞEKERBANK T.A.Ş.



29




Details on Subordinated Liabilities:

Current Period

Issuer KFW (KREDİTANSTALT FÜR WİEDERAUFBAU)

Unique identifier

(eg CUSIP, ISIN or Bloomberg identifier for private placement) -

Governing law(s) of the instrument

Regulation on Equity of Banks (Published in the Official Gazette

Nr. 26333 dated 1 November 2006) Regulatory treatment

Subject to 10% deduction as of 1/1/2015 Yes

Eligible on Unconsolidated/ consolidated / both unconsolidated and

consolidated Valid on Consolidated and Unconsolidated Basis

Instrument type Subordinated Loan

Amount recognised in regulatory capital (Currency in million TRL, as

of most recent reporting date) 1.13

Par value of instrument (Million TRL) 12.83

Accounting classification 347

Original date of issuance 30.06.2008

Demand or time Time

Original maturity date 25.06.2018

Issuer call subject to prior supervisory approval Yes

Optional call date, contingent call dates and redemption amount 4,000

Subsequent call dates, if applicable 23.06.2015

Coupons / dividends

Fixed or floating dividend/coupon Fixed

Coupon rate and any related index 2% p.a.

Existence of a dividend stopper -

Fully discretionary, partially

discretionary or mandatory Mandatory

Existence of step up or other incentive to redeem -

Noncumulative or cumulative 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) -

If write-down, full or partial -

If write-down, permanent or temporary -

If temporary write-down, description of write-up mechanism -

Position in subordination hierarchy in liquidation (specify instrument

type immediately senior to instrument) Before core capital, after all creditors

Whether conditions which stands in article of 7 and 8 of Banks‟

shareholder equity law are possessed or not Yes

According to article 7 and 8 of Banks' shareholders equity law that are not possessed 8-2-(a), (ç), ( e), (ğ)

ŞEKERBANK T.A.Ş.



30




The Bank, within the framework of its capital adequacy assessment process, determines limits for risks (credit risk,

market risk and operational risk) covered under the Capital Adequacy calculations as well as for risks (concentration

risk, interest rate risk in the banking book, liquidity risk, etc.) which are not covered under these calculations. Thus,

the Bank determines its “Risk Limits” and with the help of these limits and by means of applying stress tests and

scenario analyses, it evaluates the adequacy of its capital level against a background of its current and also projected

activities.

The Bank determines “Key Risk Indicators” as “early warning signals” within the context of the “Risk Limits”. Both

the “Risk Limits” and “Key Risk Indicators” are determined by taking into consideration the Bank‟s annual budget

and strategy; its risk appetite; the volume, qualifications and complexity of its products/services; its experience and

prior performance as well as the market conditions. The “Risk Limits” and “Key Risk Indicators” are determined

through risk based amounts and nominal amounts. In this scope, regulatory limits and applications, Basel Committee

applications, international best practices, concentrations and tolerance levels as well as criteria based on the Bank‟s

capital levels are used. In any case, the “Risk Limits” and “Key Risk Indicators” cannot violate the Banking Law

and related regulations.

The “Risk Limits” and “Key Risk Indicators” are reviewed and revised at least annually by the senior management

with respect to market conditions and changes in the Bank‟s strategies. The review process aims to determine

whether the current “Risk Limits” and “Key Risk Indicators” are meaningful and sufficient enough compared to the

Bank‟s risk appetite. The revised “Risk Limits” and “Key Risk Indicators” all take effect upon the approval of the

Board of Directors.

ŞEKERBANK T.A.Ş.



31



II. Explanations Related to Currency Risk

Currency risk is the possibility of loss that the Bank may face, in its total on- and off-balance sheet accounts and

positions in foreign currencies, arising from changes in exchange rates.

The Bank‟s policies and procedures related to currency risk are in line with the “Regulation on Internal Systems and

Internal Capital Adequacy Asessment Process” and the “Regulation on Measurement and Evaluation of the Capital

Adequacy of Banks” and approved by the Bank‟s Board of Directors.

The Board of Directors has approved limits (position limits, stop-loss limits) compliant with the regulatory “Foreign

Exchange Net General Position / Equity Standard Ratio” and based on the Bank‟s capital. These limits are

monitored on a daily basis and reviewed and revised at least once a year, with respect to market conditions and

changes in the Bank‟s strategies.

Within the context of Capital Adequacy, the Bank‟s currency risk exposure is calculated through the use of the

“Standard Method” in line with the legislation. In these calculations, the Bank‟s foreign currency assets and foreign

currency liabilities together with the forward transactions and gold position are all taken into consideration.

Within the Bank, currency risk exposure is measured, monitored and reported on a daily basis. In this context,

“Value-at-Risk (VaR) Methods” are applied as internal model.

Among these methods, the “Variance Covariance Method” also known as the “Parametric Method” is used in

reporting, while the “Historical Simulation” and the “Monte Carlo Simulation” methods, on the other hand, are used

for comparison, in times when volatility increases a great extent. VaR measurements are based on an observation

period covering the last 250 workdays and a 99 % confidence level. In “Economic Capital” measurements based on

VaR, a 10-day holding period is applied.

Additionally, stress tests and scenario analyses are applied in order to measure and monitor the impact of adverse

movements in the markets, while the effectiveness of the Bank‟s internal model is tested by using back tests on a

daily basis.

As of 30 September 2016, the Bank's balance sheet short position is TRL 1,464,072 Thousand (31 December 2015 –

TRL 2,487,802 Thousand short) and the long off balance sheet position amounts to TRL 1,273,076 Thousand (31

December 2015 - TRL 2,475,373 Thousand long), resulting in total net short position of TRL 190,996 Thousand (31

December 2015 - TRL 12,429 Thousand total net short).

The announced current foreign exchange buying rates of the Bank at 30 September 2016 and the previous five

working days in full TRL are as follows:

23.09.2016 26.09.2016 27.09.2016 28.09.2016 29.09.2016 30.09.2016

USD 2.9474 2.9846 2.9709 2.9764 2.9959 3.0004

CHF 3.0303 3.0734 3.0591 3.0562 3.0785 3.0839

GBP 3.8258 3.8536 3.8462 3.8654 3.8909 3.8817

100 JPY 2.9146 2.9606 2.9489 2.9493 2.9451 2.9617

EURO 3.3044 3.3546 3.3401 3.3362 3.3608 3.3548

The simple arithmetic averages of the major current foreign exchange buying rates of the Bank for the thirty days

before 30 September 2016 are as follows:

Monthly Average

Foreign Exchange Rate

USD 2.9602

CHF 3.0319

GBP 3.8924

100 JPY 2.8960

EURO 3.3211

ŞEKERBANK T.A.Ş.



32



II. Explanations Related to Currency Risk (cont’d)

Information on the foreign currency risk of the Bank: Foreign Currencies

EUR USD Other Total

Current Period

Assets

Cash (Cash in Vault, Foreign Currency Cash, Money in Transit,

Cheques Purchased) and Balances with the Central Bank of Turkey 311,055 315,221 335,232 961,508

Due From Other Banks and Financial Institutions 33,707 77,544 19,550 130,801

Financial Assets at Fair Value Through Profit and Loss 1,558 5,811 - 7,369

Money Market Placements - - - -

Financial Assets Available-For-Sale - 58,087 - 58,087

Loans 1,110,658 2,461,697 1,183 3,573,538

Subsidiaries, Associates and Entities Under Common Control 7,668 - 7,668

Held-To-Maturity Investments - 418 - 418

Tangible Assets - - - -

Intangible Assets - - - -

Other Assets 169,532 62,594 5,551 237,677

Total Assets 1,626,510 2,989,040 361,516 4,977,066

Liabilities

Bank Deposits 1,500 26,933 268 28,701

Foreign Currency Deposits 2,245,364 1,598,712 199,155 4,043,231

Money Market Borrowings - - - -

Funds Provided From Other Financial Institutions 744,670 1,419,324 - 2,163,994

Securities Issued - - - -

Sundry Creditors 61,594 7,191 122,317 191,102

Other Liabilities 4,190 9,841 79 14,110

Total Liabilities 3,057,318 3,062,001 321,819 6,441,138

Net Balance Sheet Position (1,430,808) (72,961) 39,697 (1,464,072)

Net Off-Balance Sheet Position 1,426,804 (111,953) (41,775) 1,273,076

Financial Derivative Assets 2,301,425 2,092,392 196,430 4,590,247

Financial Derivative Liabilities 874,621 2,204,345 238,205 3,317,171

Non-Cash Loans 486,899 1,115,916 149 1,602,964

Prior Period

Total Assets 1,548,704 4,069,139 480,264 6,098,107

Total Liabilities 3,543,224 4,721,990 320,695 8,585,909

Net Balance Sheet Position (1,994,520) (652,851) 159,569 (2,487,802)

Net Off-Balance Sheet Position 1,993,177 638,084 (155,888) 2,475,373

Financial Derivative Assets 2,818,608 2,470,221 183,753 5,472,582

Financial Derivative Liabilities 825,431 1,832,137 339,641 2,997,209

Non-Cash Loans 580,764 1,408,108 278 1,989,150 About Currency Risk Table as of 30 September 2016;

The principal amount of currency indexed loans amounting TRL 796,017 Thousand and accruals amounting TRL 144,856 Thousand are shown under loans.

According to the regulation about Foreign Currency Net General Position / Equity Standard Ratio Calculation, Foreign Currency amounts that are not shown in the present currency risk table

are as follows:

Derivative Financial Assets Held-for-Trading: TRL 32,772 Thousand

Unearned income from instalment sale of assets: TRL 1,671 Thousand.

Prepaid expenses: TRL 26,844 Thousand

Derivative Financial Liabilities Held-for-Trading: TRL 23,861 Thousand

Marketable securities value increase fund: TRL 638 Thousand

Financial Derivative Asset amount includes TRL 80,056 Thousand forward asset purchase commitment and TRL 317,825 Thousand option contracts.

Financial Derivative Liabilities amount includes TRL 42,570 Thousand forward asset selling commitment and TRL 521,797 Thousand option contracts.

About Currency Risk Table as of 31 December 2015;

The principal amount of currency indexed loans amounting TRL 849,568 Thousand and accruals amounting TRL 142,735 Thousand are shown under loans.

According to the regulation about Foreign Currency Net General Position / Equity Standard Ratio Calculation, Foreign Currency amounts that are not shown in the present currency risk table

are as follows:

Derivative Financial Assets Held-for-Trading: TRL 45,285 Thousand

Unearned income from instalment sale of assets: TRL 1,984 Thousand.

Prepaid expenses: TRL 32,250 Thousand

Derivative Financial Liabilities Held-for-Trading: TRL 35,662 Thousand

Financial Derivative Asset amount includes TRL 53,908 Thousand forward asset purchase commitment and TRL 37,756 Thousand option contracts.

Financial Derivative Liabilities amount includes TRL 29,988 Thousand forward asset selling commitment and TRL 37,533 Thousand option contracts.

ŞEKERBANK T.A.Ş.



33



III. Explanations Related to Interest Rate Risk

Interest rate risk is the possibility of loss that the Bank may face, in relation to its structural position arising from

adverse movements in interest rates.

The Bank‟s policies and procedures related to interest rate risk are in line with the “Regulation on Internal Systems

of Banks” and the “Regulation on Measurement and Evaluation of the Capital Adequacy of Banks” and approved by

the Bank‟s Board of Directors.

Within the context of Capital Adequacy, the Bank‟s interest rate risk exposure is calculated through the use of the

“Standard Method” in line with the legislation.

The Bank takes interest rate risk positions in both the trading book and banking book. The interest rate risk arising

from the trading book is evaluated within the scope of market risk, and thus, measured, monitored, and managed in

line with market risk policies and procedures.

Within the Bank, interest rate risk exposure is measured, monitored and reported on a daily basis. In this context,

“Value-at-Risk (VaR) Methods” are applied as internal model.

Among these methods, the “Variance Covariance Method” also known as the “Parametric Method” is used in

reporting, while the “Historical Simulation” and the “Monte Carlo Simulation” methods, on the other hand, are used

for comparison, in times when volatility increases a great extent.

VaR measurements are based on an observation period covering the last 250 workdays and a 99 % confidence level.

In “Economic Capital” measurements based on VaR, a 10-day holding period is applied.

Additionally, stress tests and scenario analyses are applied in order to measure and monitor the impact of adverse

movements in the markets, while the effectiveness of the Bank‟s internal model is tested by using back tests on a

daily basis.

It is the priority of the Asset Liability Management to provide protection against adverse movements in market

interest rates. In this context, gap analyses, duration and economic value analyses as well as sensitivity analyses are

evaluated on a weekly basis by Bank‟s Asset Liability Committee. Simulations on net interest income are performed

according to macroeconomic indicator estimations in the Bank‟s budget targets, while the potential negative impact

of adverse movements in market interest rates on the financial position and cash flows is minimized through target

revisions. The Bank management monitors the market interest rates on a daily basis, and is able to change the

interest rates applied by the Bank whenever it is necessary.

ŞEKERBANK T.A.Ş.



34



III. Explanations Related to 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 - - - -

Due From Other Banks and Financial Institutions 0.03 0.43 - 9.17

Financial Assets at Fair Value Through Profit and Loss 1.82 4.47 - 6.23

Money Market Placements - - - 8.78

Financial Assets Available-for-Sale - 4.36 - 4.85

Loans 4.74 6.25 3.31 15.62

Held-to-Maturity Investments - 8.08 - 5.99

Liabilities

Bank Deposits 1.15 1.05 - 11.22

Other Deposits 1.59 1.9 0.99 11.38

Money Market Borrowings - - - 8.92

Sundry Creditors 0.01 0.4 - -

Securities Issued - - - 11.73

Funds Provided From Other Financial Institutions 1.51 3.05 - 8.49

Average interest rates applied to monetary financial instruments

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 0.04 0.23 - 11.55

Financial Assets at Fair Value Through Profit and Loss 2.33 5.00 - 6.07

Money Market Placements - - - 9.35

Financial Assets Available-for-Sale - - - 4.49

Loans 4.96 5.96 5.28 14.71

Held-to-Maturity Investments - 8.08 - 5.06

Liabilities

Bank Deposits 1.45 0.85 - 11.55

Other Deposits 1.89 1.89 - 10.63

Money Market Borrowings - - - 9.53

Sundry Creditors 0.01 0.13 -

Securities Issued - - - 11.16

Funds Provided From Other Financial Institutions 1.54 2.75 - 7.14

ŞEKERBANK T.A.Ş.



35




Information related to the interest rate sensitivity of assets, liabilities and off-balance sheet items (based on

repricing dates)

(*) The Bank classified Loans and Receivables amounting to TRL 8,235 Thousand, under financial assets at fair value through profit and loss. Non

performing loans classified as “Financial assets at fair value through profit and loss”amount to TRL 1,266 Thousand and Specific provision amounts

to TRL 647 Thousand.

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 - - - - - 2,056,979 2,056,979

Due From Other Banks and Financial

Institutions 90,639 - - - - 40,436 131,075

Financial Assets at Fair Value Through Profit and Loss 21,160 8,466 57,608 12,926 4,885 2,236 107,281

Money Market Placements - - - - - - -

Financial Assets Available-for-Sale 228,373 350,239 508,780 253,084 61,952 9,639 1,412,067

Loans (*) 6,520,540 1,156,658 2,768,301 4,920,434 331,927 - 15,697,860

Held-to-Maturity Investments 566,665 148,166 344,539 - 418 - 1,059,788

Other Assets 280,928 3,767 - 125 - 2,096,183 2,381,003

Total Assets 7,708,305 1,667,296 3,679,228 5,186,569 399,182 4,205,473 22,846,053

Liabilities

Bank Deposits 593,508 2,024 - - - 45,219 640,751

Other Deposits 7,932,343 3,482,619 1,202,532 29,958 - 1,554,463 14,201,915

Money Market Borrowings 1,432,909 - - - - - 1,432,909

Sundry Creditors - - - - - 288,693 288,693

Securities Issued - 430,528 - 320,875 - - 751,403

Funds Provided From Other Financial

Institutions 130,451 1,175,250 802,544 91,988 37,005 40,799 2,278,037

Other Liabilities 289,448 37,726 95,346 14,352 - 2,815,473 3,252,345

Total Liabilities 10,378,659 5,128,147 2,100,422 457,173 37,005 4,744,647 22,846,053

Balance Sheet Long Position - - 1,578,806 4,729,396 362,177 - 6,670,379

Balance Sheet Short Position (2,670,354) (3,460,851) - - - (539,174) (6,670,379)

Off-Balance Sheet Long Position - - - - - - -

Off-Balance Sheet Short Position - - - - - - -

Total Position (2,670,354) (3,460,851) 1,578,806 4,729,396 362,177 (539,174) -

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Information related to the interest rate sensitivity of assets, liabilities and off-balance sheet items (based on

repricing dates) (cont’d):

(*) The Bank classified Loans and Receivables amounting to TRL 11,657 Thousand, under financial assets at fair value through profit and loss. Non performing loans classified as “Financial assets at fair value through profit and loss”amount to TRL 2,209 Thousand and Specific provision amounts

to TRL 1,274 Thousand.

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 154,954 - - - - 2,626,222 2,781,176

Due From Other Banks and Financial

Institutions 42,518 - - - - 44,088 86,606

Financial Assets at Fair Value Through

Profit and Loss 36,212 14,743 36,489 55,989 4,722 79 148,234

Money Market Placements - - - - - - -

Financial Assets Available-for-Sale 207,355 473,501 479,880 361,105 194,691 7,236 1,723,768

Loans (*) 6,559,294 1,363,679 2,628,601 5,349,790 370,527 - 16,271,891

Held-to-Maturity Investments 206,332 264,961 796,597 - 413 - 1,268,303

Other Assets 249,194 4,399 - 2,294 - 1,880,101 2,135,988

Total Assets 7,455,859 2,121,283 3,941,567 5,769,178 570,353 4,557,726 24,415,966

Liabilities

Bank Deposits 950,374 61,992 5,431 - - 440,889 1,458,686

Other Deposits 7,570,252 2,959,097 1,179,930 16,128 - 1,683,540 13,408,947

Money Market Borrowings 2,006,320 6,379 - - - - 2,012,699

Sundry Creditors - - - - - 325,729 325,729

Securities Issued - 698,744 170,293 320,769 - - 1,189,806


Institutions 216,986 476,192 1,939,853 85,375 179 - 2,718,585

Other Liabilities 234,912 61,000 26,570 80,560 - 2,898,472 3,301,514

Total Liabilities 10,978,844 4,263,404 3,322,077 502,832 179 5,348,630 24,415,966

Balance Sheet Long Position - - 619,490 5,266,346 570,174 - 6,456,010

Balance Sheet Short Position (3,522,985) (2,142,121) - - - (790,904) (6,456,010)

Off-Balance Sheet Long Position - - - - - - -

Off-Balance Sheet Short Position - - - - - - -

Total Position (3,522,985) (2,142,121) 619,490 5,266,346 570,174 (790,904) -

ŞEKERBANK T.A.Ş.



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IV. Explanations Related to Equity Securities Position Risk

Associates and subsidiaries are recorded at the cost of acquisition in the financial statements.

Stock Investment

Comparison

Balance Sheet Value Fair Value Market Value

Stock Investment Group A - - -

Stock Exchange Securities - - -

Stock Investment Group B 25,888 26,273 28,742

Stock Exchange Securities 25,888 26,273 28,742

Stock Investment Group C - - -

Stock Exchange Securities - - -

1) Types and amounts of positions traded at the exchange and sufficiently diversified private capital portfolios

and other exposures: None

2) Cumulative realized gains or losses arising from the sale or liquidation during the period: None

3) Total unrealized gains or losses, revaluation increases of total supplementary and core capital: None

4) The breakdown of equity investments on the basis of the amount of capital requirement

Equity Investments

Balance Sheet Value Total RWA Minimum Capital

Requirement

Stock Exchange Securities 25,888 25,888 2,071

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

Liquidity risk is the possibility of a loss that the Bank may face, when there is not sufficient cash or cash inflow to

meet the cash outflow in full and also in time.

Liquidity risk may also occur when the market penetration is not adequate, when open positions cannot be closed in

time, at suitable prices and at sufficient amounts, due to some barriers and some break-ups in the markets.

a) Information on risk capacity of the Bank, responsibilities and structure of liquidity risk management, the

Bank’s internal liquidity risk reporting, communication between the Board of Directors and business lines

on liquidity risk strategy, policy and application:

The major policy of the Bank is to maintain an asset structure that it will be sufficient to fulfill all its obligations

through the use of liquid sources in time and in a sound manner.

The objective of the liquidity risk management is to maintain the Bank‟s financial stability by means of maintaining

the Bank‟s liquidity risk exposure at measurable and tolerable levels. Thus, it is also the objective to protect the

Bank‟s shareholders from any potential loss that might arise from adverse movements in the Bank‟s liquidity

position.

The Bank‟s policies and procedures related to the liquidity risk are approved by the Bank‟s Board of Directors.

The major factors mentioned below are addressed in those policies and procedures:

ŞEKERBANK T.A.Ş.



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V. Explanations Related to Liquidity Risk Management and Liquidity Coverage Ratio (cont’d)

The Oversight of the Board of Directors:

- The Board of Directors approves policies and procedures related to the liquidity risk, all in line with the Bank‟s

annual budget and the growth strategies for medium and long term.

- The Board of Directors determines the capital structure to cover the Bank‟s liquidity risk profile, all in line with

the Bank‟s annual budget and the growth strategies for medium and long term.

- The Board of Directors segregates the duties, authorities and responsibilities related to measuring, monitoring,

controlling, auditing and management of the liquidity risk, through internal regulations on related committies

and units.

The Oversight of the Senior Management:

- The Bank‟s senior management implements systems and standards related to measuring, monitoring, controling,

auditing and management of the liquidity risk, with respect to its duties, authorities, and responsibility areas.

- The Bank‟s senior management takes measures to ensure the development of technical konwledge and

competencies of human resources as well as information systems infrastructure so that the measuring,

monitoring, controling and auditing of the liquidity risk, are all executed in a sound manner.

- The Bank‟s senior management analyses potential liquidity risk which may arise from the new banking products

and services which the Bank plans to implement.

The Board of Directors and senior management segregate the responsibilities within the scope of the liquidity risk

management among the Asset Liability Committee, Treasury and Risk Management Units.

Accordingly, the Board of Directors set the Asset Liability Committee (ALCO) as the senior management

committee responsible for management of the Bank‟s balance sheet, usage of funds, and financial management.

ALCO sets the strategies for management of the balance sheet, funding, source planning and liquidity as well as

conducting stress tests and scenario analyses. Treasury implements these strategies in order to manage liquidity.

The Board of Directors has accepted “Risk Limits” as part of the Bank‟s policies and procedures related to the

liquidity risk. The compliance with these limits are monitored on a regular basis; all of which are reviewed and

revised (if deemed necessary) at least once a year, with respect to the market conditions and changes in the Bank‟s

strategies.

The compliance with the “Risk Limits” is a mandatory agenda item in the regular monthly meetings of the Board of

Directors.

The liquidity risk profile is analysed, monitored, and assessed by the Risk Management Unit. The said Unit presents

its findings through those assessments as well as the compliance with the “Risk Limits” to ALCO on a weekly basis

and to the Board of Directors on a monthly basis.

b) Information on the centralization degree of liquidity management and funding strategy and the

functioning between the Bank and the Bank’s subsidiaries:

The management of liquidity has a decentralised structure. In this context, each subsidiary executes its liquidity

management function by its own units/departments/services responsible for carrying out the function of the

financial management. Besides, the Bank provides funding to its subsidiaries in line with the regulatory limits while

also taking the market conditions into consideration.

ŞEKERBANK T.A.Ş.



39




c) Information on the Bank’s funding strategy including the policies on funding types and variety of

maturities:

Liquidity is accepted as the ability of a bank to fund increases in its assets and meet its obligations as they come due,

without incurring unacceptable losses.

In management of the Bank‟s liquidity, the following factors are taken into consideration:

- Current and foreseen asset quality for the coming period,

- Current and foreseen funding requirements for the coming period,

- Creation of assets that are easily liquidated in the markets,

- Creation of assets that have regular cash flows,

- Diversification of funding sources, prevention of concentration.

Deposits are the foundation of the Bank‟s liquidity. It is deemed essential to maintain a stable and cost-effective

deposit base.

The Bank acknowledges that the deposit structure in Turkish banking industry is generally short-term; that the time

deposits are rolled over frequently, and that their real maturities are much more longer than the contractual

maturities. It is thus a fundamental that roll-over rates of time deposits are monitored on a continuous basis.

The stickiness of the deposits are analysed in 2 separate ways:

- With regards to the time deposits: the objective is to determine the roll-over rates of those deposits.

- With regards to the sight deposits: the objective is to determine the overall volatiliy in those deposits in order to

further determine both the “core” and “volatile” sections as part of those deposits.

Both the time and sight deposits are also analysed based on currency types as well as such sub-classes as savings

deposits and commercial deposits.

As an indicator of the Bank‟s liquidity, the concentration in the Bank‟s deposit structure as well as the breakdowns

by retail/commercial deposits and by Turkish Lira/foreign currency deposits are all monitored.

As an indicator of the market liquidity, the spread between O/N repo rates and the average of those deposit rates of

the first 10 savings banks (classified by their asset size) is monitored.

d) Information on liquidity management on the basis of currencies constituting a minimum of five percent of

the Bank’s total liabilities:

In order to measure and monitor the impact of the liquidity risk, the Bank uses cash flow gap analyses indicating

both current and future transactions. In these analyses, it is evaluated for how long the mismatches in the maturities

of assets, liabilities and interest bearing off balance sheet items take, with respect to the maturity buckets.

In cash flow gap analyses:

- Aggregate, Turkish Lira and foreign currency items are tabulated seperately.

- Calculation for currency items that exceed 5 % of the Bank‟s total assets (USD, EUR, etc. items) are done

seperately.

- Currency items that do not exceed 5 % of the Bank‟s total assets are aggregated with the EUR items.

ŞEKERBANK T.A.Ş.



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e) Information on liquidity risk mitigation techniques:

The Bank, while monitoring its liquity position, thoroughly oversees its compliance with the regulatory liquidity

coverage ratios. The Bank‟s Board of Directors approved these regulatory limits as “Risk Limits” to be complied

with and additionally set “Key Risk Indicators”.

In addition to legal liquidity coverage ratios related with the liquidity risk, the Board of Directors has approved

“Risk Limits” associated with the net worth and set the limits for allowed possible liquidity mistmatch as percentage

to the net worth for the certain maturity buckets. The compliance with these limits are monitored on a regular basis;

all of which are reviewed and revised (if deemed necessary) at least once a year, with respect to the market

conditions and changes in the Bank‟s strategies.

The Bank‟s liqudity risk is also assessed through the following “Risk Limits”:

Liquidity Risk

Cash Loans with maturities longer than 1 year (as per cash flows) / Capital

Time Deposits higher than 1 million TRL / Total time deposits

In addition to these, the Bank applies liquidity risk mitigation techniques, among which are opting for loans with a

regular cash flow structure on the loan side; opting for a “granular” deposit base on the deposit side; and

diversifying the sources of funding by regularly executing the Bank‟s TRL bond issues and obtaining long-term

finance resources from the financial institutions (Covered Bonds, syndications, and other).

f) Information on the use of stress tests:

In terms of liquidity stress testing, the Bank opts for a “reverse stress testing” procedure, in order to measure the

risks arising from both the Bank‟s liquidity and the market liquidity. The use of such “reverse stress testing”

enables the Bank to determine the adverse conditions under which it might breach the liquidity coverage ratios.

Initially, it is simulated at which levels the liquidity coverage ratios will approximately be for the next 3-year

horizon. Then, the liquidity gaps pertaining to those ratios are compared to the liquidity gaps under which the Bank

might breach the said ratios and ALCO decides on the actions to be taken for the existing liquidity gaps based on

the results of such simulations.

g) General information on urgent and unexpected liquidity situation plans:

The Bank‟s O/N repo limits in Central Bank and 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 the total of demand

deposits, it is a principle that the Bank maintains an unutilised limit equal to the outstanding amount of its demand

deposits. Within this scope, the ALCO sets the alternative liquidity strategies with regards to the current market

environment.

Liquidity Coverage Ratio:

Liquidity coverage ratio is calculated by comparing the “high quality liquid assets” of the Bank to the net cash

outflow in the coming one month period, in line with the “Regulation on the Calculation of Banks‟ Liquidity

Coverage Ratios” issued by the Banking Regulation and Supervision Agency of Turkey.

Hence, these ratios are effected by the levels of a bank‟s liquid assets which can be liquidified easily and the cash in-

flows as well as the cash out-flows arising from a bank‟s assets, liabilities and also off balance sheet items.

The Bank‟s “high quality liquid assets” comprise of cash and the balance sheet items held within the Central Bank

as well as securities issued by the Turkish Treasury, which are not subject to repurchase agreements or not pledged

as collateral.

ŞEKERBANK T.A.Ş.



41




Liquidity Coverage Ratio (cont’d):

The major funding source for the Bank is the deposits. In addition to the deposits, the other significant sources of

funding include funds received through REPO transactions, issued securities, long-term recources obatined from the

financial institutions (Covered Bonds, syndications, and other).

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) 2,794,810 1,384,618

CASH OUTFLOW

2 Retail deposits and deposits from small business customers, of which: 11,117,850 3,699,040 934,956 369,904

3 Stable deposits 3,536,580 - 176,829 -

4 Less stable deposits 7,581,270 3,699,040 758,127 369,904

5 Unsecured wholesale funding, of which: 4,008,330 962,730 2,261,931 560,364

6 Operational deposits 297,316 121,028 74,329 30,257

7 Non-operational deposits 3,174,100 629,585 1,650,688 317,990

8 Unsecured funding 536,914 212,117 536,914 212,117

9 Secured wholesale funding - 571

10 Other cash outflows of which: 1,620,862 285,593 1,620,862 285,593

11

Outflows related to derivative exposures and

other collateral requirements 1,543,877 240,077 1,543,877 240,077

12

Outflows related to restructured financial

instruments 31,469 - 31,469 -

13

Payment commitments and other off-balance

sheet commitments granted for debts to

financial markets 45,516 45,516 45,516 45,516

14 Other revocable off-balance sheet commitments and contractual obligations 106,700 106,040 5,335 5,302

15

Other irrevocable or conditionally revocable

off-balance sheet obligations 3,800,126 417,265 462,872 61,881

16 TOTAL CASH OUTFLOWS 5,285,956 1,283,615

CASH INFLOWS

17 Secured receivables - - - -

18 Unsecured receivables 35,730,371 4,208,115 776,529 99,805

19 Other cash inflows 1,535,410 1,308,009 1,535,410 1,308,009

20 TOTAL CASH INFLOWS 37,265,781 5,516,124 2,311,939 1,407,814

Total Adjusted Value

21 TOTAL HQLA 2,794,810 1,384,618

22 TOTAL NET CASH OUTFLOWS 2,974,044 320,768

23 LIQUIDITY COVERAGE RATIO (%) 93.97 431.66

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

ŞEKERBANK T.A.Ş.



42




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) 2,829,271 1,748,312

CASH OUTFLOW

2

Retail deposits and deposits from small

business customers, of which: 10,892,080 4,298,250 838,859 352,701

3 Stable deposits 5,006,980 1,542,480 250,349 77,124

4 Less stable deposits 5,885,100 2,755,770 588,510 275,577

5 Unsecured wholesale funding, of which: 4,520,317 1,758,427 3,039,295 1,329,968

6 Operational deposits 284,808 152,316 71,202 38,079

7 Non-operational deposits 3,536,444 1,213,645 2,269,028 899,423

8 Unsecured funding 699,065 392,466 699,065 392,466

9 Secured wholesale funding - -

10 Other cash outflows of which: 3,185,536 976,243 3,185,536 976,243

11

Outflows related to derivative exposures and

other collateral requirements 3,134,968 930,232 3,134,968 930,232

12 Outflows related to restructured financial instruments 4,557 - 4,557 -

13

Payment commitments and other off-balance

sheet commitments granted for debts to financial markets 46,011 46,011 46,011 46,011

14

Other revocable off-balance sheet

commitments and contractual obligations 88,560 88,480 4,428 4,424

15

Other irrevocable or conditionally revocable

off-balance sheet obligations 4,120,831 557,288 569,577 91,986

16 TOTAL CASH OUTFLOWS 7,637,695 2,755,322

CASH INFLOWS

17 Secured receivables 5,758 - 2,879 -

18 Unsecured receivables 1,183,176 149,321 681,574 111,527

19 Other cash inflows 3,081,877 2,917,289 3,081,877 2,917,289

20 TOTAL CASH INFLOWS 4,270,811 3,066,610 3,766,330 3,028,816

Total Adjusted Value

21 TOTAL HQLA 2,829,271 1,748,312

22 TOTAL NET CASH OUTFLOWS 3,871,365 688,831

23 LIQUIDITY COVERAGE RATIO (%) 73.08 253.81

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

ŞEKERBANK T.A.Ş.



43




The FC liquidity coverage ratio calculated from the average value for the third quarter of 2016 is 431.66, TRL + FC

liquidity coverage ratio is 93.97 and the same rates in the third quarter of 2015 are 287.5 and 80.66 respectively.

In accordance with the “Regulation on calculation of Bank‟s liquidity coverage ratio”, the weeks in which the

highest and the lowest liquidity coverage ratio is calculated over the last three months are presented below.

Date Maximum Date Minimum

TRL+FC 29.07.2016 106.22 01.07.2016 78.97

FC 15.07.2016 510.67 02.07.2016 273.87

Date Maximum Date Minimum

TRL+FC 25.12.2015 89.25 23.10.2015 63.42

FC 20.11.2015 283.72 23.10.2015 178.32

ŞEKERBANK T.A.Ş.



44




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 1,173,544 883,435 - - - - - 2,056,979

Due From Other Banks and Financial Institutions 40,436 90,639 - - - - - 131,075

Financial Assets at Fair Value

Through Profit and Loss 2,236 20,505 8,226 57,812 13,377 5,125 - 107,281

Money Market Placements - - - - - - - -

Financial Assets Available-for-Sale 9,639 - 5,772 213,318 628,123 555,215 - 1,412,067

Loans (**) (***) 79,901 1,557,569 4,624,930 1,972,563 5,879,795 1,583,102 - 15,697,860

Held-to-Maturity Investments - - - 202,418 812,437 44,933 - 1,059,788

Other Assets 314,740 280,928 3,767 - 125 - 1,781,443 2,381,003

Total Assets 1,620,496 2,833,076 4,642,695 2,446,111 7,333,857 2,188,375 1,781,443 22,846,053

Liabilities

Bank Deposits 45,219 593,508 2,024 - - - - 640,751

Other Deposits 1,554,463 7,932,311 3,482,481 1,201,586 31,068 6 - 14,201,915


Institutions 84,540 42,339 265,404 703,218 946,352 236,184 - 2,278,037

Money Market Borrowings - 1,432,909 - - - - - 1,432,909

Securities Issued - - 66,814 363,714 320,875 - - 751,403

Sundry Creditors 288,693 - - - - - - 288,693

Other Liabilities 139,210 310,583 165,601 116,400 62,666 13,008 2,444,877 3,252,345

Total Liabilities 2,112,125 10,311,650 3,982,324 2,384,918 1,360,961 249,198 2,444,877 22,846,053

Liquidity Gap (491,629) (7,478,574) 660,371 61,193 5,972,896 1,939,177 (663,434) -

Net Off-Balance Sheet Position - 3,611 (698) (42,575) 34 - - (39,628)

Derivative Financial Assets - 3,561,794 429,074 1,430,584 257,897 - - 5,679,349

Derivative Financial Liabilities - 3,558,183 429,772 1,473,159 257,863 - - 5,718,977

Non-Cash Loans 1,628,131 124,307 444,423 1,482,042 881,845 89,421 - 4,650,169

Prior Period

Total Assets 1,234,404 3,270,406 5,247,444 2,332,864 8,172,631 2,580,848 1,577,369 24,415,966

Total Liabilities 2,574,977 10,993,972 3,689,513 2,207,082 1,652,071 771,409 2,526,942 24,415,966

Liquidity Gap (1,340,573) (7,723,566) 1,557,931 125,782 6,520,560 1,809,439 (949,573) -

Net Off-Balance Sheet Position - 2,003 (16,665) 13,699 (18,619) - - (19,582)

Derivative Financial Assets - 3,271,164 1,981,548 215,555 639,236 - - 6,107,503

Derivative Financial Liabilities - 3,269,161 1,998,213 201,856 657,855 - - 6,127,085

Non-Cash Loans 2,015,024 152,034 442,093 2,096,686 975,760 81,184 - 5,762,781

(*) 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 asset qualified accounts and equity

accounts are classified under undistributed.

(**) Overdraft Loans are presented in 1-3 months period.

(***) The Bank has classified Loans and Receivables amounted to TRL 8,235 Thousand, under financial assets at fair value through profit and loss in the

current period. Non performing loans classified as “Financial assets at fair value through profit and loss”amount to TRL 1,266 Thousand (31 December 2015 – TRL 2,209 Thousand) and Specific provision amount to TRL 647 Thousand (31 December 2015 – TRL 1,274 Thousand).

ŞEKERBANK T.A.Ş.



45



VI. Explanations Related to Leverage Ratio

The Bank‟s unconsolidated leverage ratio calculated according to “Regulation on Measurement and Assessment of

Leverage Ratios of Banks” is 7.89 % (31 December 2015 – 7.37 %). Change in the leverage ratio is mainly due to

the increase in the amount of on balance sheet items. Regulation has set the minimum leverage ratio as 3 %.

On-balance sheet assets Current Period (*) Prior Period (*)

1

On-balance sheet items (excluding derivative financial instruments

and credit derivatives but including collateral) 22,325,354 23,748,170

2 (Assets deducted in determining Tier 1 capital) (339,912) (182,907)

3 Total on-balance sheet risks (sum of lines 1 and 2) 21,985,442 23,565,263

Derivative financial instruments and credit derivatives

4

Replacement cost associated with all derivative instruments and

credit derivatives 95,366 127,637

5 Add-on amounts for PFE associated with all derivative instruments and credit derivatives 86,112 99,474

6

Total risks of derivative financial instruments and credit derivatives

(sum of lines 4 to 5) 181,478 227,111

Securities or commodity financing transactions (SCFT)

7 Risks from SCFT assets - -

8 Risks from brokerage activities related exposures 22,093 51,466

9

Total risks related with securities or commodity financing

transactions (sum of lines 7 to 8) 22,093 51,466

Other off-balance sheet transactions

10 Gross notional amounts of off-balance sheet transactions 7,728,447 7,992,341

11 (Adjustments for conversion to credit equivalent amounts) (786,485) (241,618)

12 Total risks of off-balance sheet items (sum of lines 10 and 11) 6,941,962 7,750,723

Capital and total risks

13 Tier 1 capital 2,296,926 2,329,783

14 Total risks (sum of lines 3, 6, 9 and 12) 29,130,975 31,594,563

Leverage ratio

15 Leverage ratio 7.89 7.37

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

VII. Explanations Related to Risk Management

Notes and explanations in this section have been prepared in accordance with the Communiqué on „„Disclosures

about Risk Management to Be Announced to Public by Banks‟‟ that have been published in the Official Gazette no.

29511 on 23 October 2015 and became effective as of 31 March 2016. Due to usage of standard approach for the

calculation of capital adequacy by the Bank, tables which have to be prepared within the scope of Internal rating

based approach, have not been presented as of 30 September 2016.

ŞEKERBANK T.A.Ş.



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VII. Explanations Related to Risk Management (cont’d)

a) Explanations on Risk Management and Risk Weighted Amount

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) 16,503,478 18,844,793 1,320,278

2 Standardised approach (SA) 16,503,478 18,844,793 1,320,278

3 Internal rating-based (IRB) approach - - -

4 Counterparty credit risk 162,409 1,238 12,993

5

Standardised approach for counterparty credit

risk (SA-CCR) 162,409 1,238 12,993

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 260,675 390,638 20,854

17 Standardised approach (SA) 260,675 390,638 20,854

18 Internal model approaches (IMM) - - -

19 Operational Risk 2,008,883 1,926,698 160,711

20 Basic Indicator Approach 2,008,883 1,926,698 160,711

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) 18,935,445 21,163,367 1,514,836

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

On Trust

The Bank performs buying and selling transactions on behalf of customers, but does not provide custody,

administration and consultancy services. There are no transactions made with other financial institutions within trust transaction contract and direct financial services provided within this scope.

ŞEKERBANK T.A.Ş.



47

SECTION FIVE

EXPLANATIONS AND DISCLOSURES ON

UNCONSOLIDATED FINANCIAL STATEMENTS

I. Explanations Related to the Assets

1.a) Information on Cash and Balances with the Central Bank of Turkey:

Current Period Prior Period

TRL FC TRL FC

Cash in TRL/Foreign Currency 132,572 80,762 117,429 56,272

Balances with the Central Bank of Turkey 962,899 880,742 430,210 2,177,261

Other - 4 - 4

Total 1,095,471 961,508 547,639 2,233,537

b) Information related to the account of the Central Bank of Turkey:


TRL FC TRL FC

Unrestricted demand deposit 962,899 880,742 430,210 2,022,307

Unrestricted time deposit - - - 29,181

Restricted time deposit - - - 125,773

Total 962,899 880,742 430,210 2,177,261

The reserve deposits include TRL 875,599 Thousand of FC unrestricted demand deposit (31 December 2015 – TRL 1,814,028 Thousand) and TRL 954,903 Thousand of the TRL unrestricted demand deposit (31 December 2015 – TRL 430,149 Thousand). TRL unrestricted demand deposit

includes the reserve deposit amount that is held in the Central Bank of the Turkish Republic on average.

Starting from 09.09.2016, reserve deposit ratios for TRL deposits are regulated as follows: - Unrestricted, TRL deposit call accounts and special current accounts are 10.5%,

- Deposits up to one month (including one month) are 10.5%,

- Deposits up to three month (including three month) are 10.5%, - Deposits up to six month (including six month) are 7.5%

- Deposits up to one year are 5.5%,

- Deposits/participation accounts with 1-year and longer maturity and cumulative deposits/participation accounts are 4%, - Other TRL liabilities up to one year (including one year) are 10.5%,

- Other liabilities up to 3-year maturity (including 3-year) are 7%

- Other liabilities longer than 3-year maturity are 4%.

• Starting from 24.05.2013, reserve deposit ratios for the FC deposits and precious metal deposits are regulated as follows: - Unrestricted FC deposit call accounts, special current accounts and precious metal deposit accounts and deposits up to one month, up to three

month, up to six month, up to one year FC deposits, FC participate accounts and precious metal deposits are 13%,

- FC Deposits, precious metal deposit and FC participate accounts and FC accumulated accounts and FC participate accounts longer than one year (including one year) are 9%.

Starting from 09.10.2015, reserve deposit ratios for FC other liabilities are regulated as follows: - Other liabilities up to one year (including one year) are 25 %,

- Other liabilities up to two year (including two year) are 20 %,

- Other liabilities up to three year (including three year) are 15%, - Other liabilities up to five year (including five year) are 7 %,

- Other liabilities longer than five year are 5%.

Starting from 09.10.2015, reserve deposit ratios for FC other liabilities that will occur after 28.08.2015 are regulated as follows:

- Other liabilities up to one year (including one year) are 20 %,

- Other liabilities up to two year (including two year) are 14 %, - Other liabilities up to three year (including three year) are 8%,

- Other liabilities up to five year (including five year) are 7 %,

- Other liabilities longer than five year are 6 %.

ŞEKERBANK T.A.Ş.



48

SECTION FIVE (cont’d)

EXPLANATIONS AND DISCLOSURES ON FINANCIAL STATEMENTS (cont’d)

I. Explanations Related to the Assets (cont’d)

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 2015 - None).

ii. Financial assets at fair value through profit and loss subject to repurchase agreements:

None (31 December 2015 - None).

Net book value of unrestricted financial assets at fair value through profit and loss is TRL 12,280 Thousand

(31 December 2015 – TRL 9,970 Thousand).

iii. Positive differences related to derivative financial assets held-for-trading:

Derivatives Held for Trading


TRL FC TRL FC

Forward Transactions - 1,964 - 1,119

Swap Transactions 62,075 21,326 92,910 43,847

Futures Transactions - - - -

Options 154 9,482 69 319

Other - - - -

Total 62,229 32,772 92,979 45,285

iv. Loans at fair value through profit and loss


Opening Balance 11,657 22,229

Additions (+) - -

Change in Interest Rates (*) 215 (988)

Change in Credit Risk (**) 516 965

Impairment Provision (627) (1,097)

Collections (-) (3,526) (9,452)

Net Balance 8,235 11,657

(*) 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 September 2016, TRL 8,235 Thousand (31 December 2015 – TRL 11,657 Thousand) of loans which are

classified as Financial Assets at Fair Value Through Profit and Loss have amortised cost of TRL 7,954 Thousand

(31 December 2015 - TRL 11,852 Thousand).

ŞEKERBANK T.A.Ş.



49




3. Information on banks:


TRL FC TRL FC

Banks 274 130,801 17,243 69,363

Domestic 273 90,975 17,225 25,471

Foreign 1 39,826 18 43,892

Branches and head office abroad - - - -

Total 274 130,801 17,243 69,363

4. Information on financial assets available-for-sale:

a.1) Information on financial assets available-for-sale given as collateral or blocked:


TRL FC TRL FC

Share certificates - - - -

Bonds, Treasury bills and similar investment

securities 380,959 - 68,384 -

Other - - - -

Total 380,959 - 68,384 -

a.2) Financial assets available-for-sale subject to repurchase agreements:


TRL FC TRL FC

Government bonds 474,022 - 1,119,230 -

Treasury bills - - - -

Other public sector debt securities - - - -

Bank bonds and bank guaranteed bonds - - - -

Asset backed securities - - - -

Other - - - -

Total 474,022 - 1,119,230 -

Net book value of unrestricted financial assets available-for-sale is TRL 557,086 Thousand (31 December 2015 -

TRL 536,154 Thousand).

b) Information on financial assets available for sale portfolio:


Debt securities 1,418,694 1,748,258

Quoted on a stock exchange 1,418,694 1,748,258

Not quoted on a stock exchange - -

Share certificates 11,621 9,218

Quoted on a stock exchange - -

Not quoted on a stock exchange 11,621 9,218

Impairment provision(-) (18,248) (33,708)

Total 1,412,067 1,723,768

ŞEKERBANK T.A.Ş.



50




5. Information on loans:

a) Information on all types of loans and advances given to shareholders and employees of the Bank:


Cash Loans Non-Cash Loans Cash Loans Non-Cash Loans

Direct loans granted to shareholders - - - -

Corporate shareholders - - - -

Real person shareholders - - - -

Indirect loans granted to shareholders 398,439 49,065 398,308 47,233

Loans granted to employees 20,147 - 23,028 -

Total 418,586 49,065 421,336 47,233

b) Information on the first and second group loans and other receivables including restructured or rescheduled

loans:

Cash loans (*)

Standard loans and

other receivables

Loans and other receivable

under close monitoring

Loans and other

receivables (Total)

Amendments on

Conditions of Contract

Loans and other

receivables (Total)

Amendments on


Amendments

related to the

extension of the

payment plan

Other

Amendments

related to the

Extension of the

payment plan

Other

Non-specialized loans 11,386,376 362,122 - 1,959,453 794,825 -

Corporation loans - - - - - -

Export loans 1,484,276 2,242 - 342,142 88,246 -

Import loans - - - - - -

Loans given to

financial sector 15,744 - - 699 312 -

Consumer loans 1,158,168 10,787 - 121,615 10,135 -

Credit cards 257,963 - - 17,147 - -

Other 8,470,225 349,093 - 1,477,850 696,132 -

Specialized loans 2,194,183 93,783 - 157,848 33,488 -

Other receivables - - - - - -

Total 13,580,559 455,905 - 2,117,301 828,313 -

(*) The Bank has classified Loans and Receivables amount to TRL 8,235 Thousand, under financial assets at fair value through profit and loss in the current period.

ŞEKERBANK T.A.Ş.



51




5. Information on loans (cont’d) :


Number of Amendments

Related to the Extension of

the Payment Plan

Standard loans and

other receivables

Loans and other

receivable


Standard loans and

other receivables

Loans and other

receivable


Extended for 1 or 2 times 403,582 828,313 384,449 658,641

Extended for 3,4 or 5 times 1 - 683 -

Extended for more than 5

times 52,322 - 5,037 -


The Time extended via the

Amendment on Payment

Plan

Standard loans and

other receivables

Loans and other

receivable


Standard loans and

other receivables

Loans and other

receivable


0-6 Months 21,873 48,887 30,636 38,242

6 Months- 12 Months 449 63,941 67,408 18,244

1-2 Years 3,254 131,633 15,978 113,240

2-5 Years 74,006 464,629 276,147 479,482

5 Years and More 356,323 119,223 - 9,433

c) Loans and other receivables according to their maturity structure:

Standard Loans and Other Receivables

Loans and Other Receivables Under Follow-Up

Loans and Other

Receivables (*)

Amendments on


Loans and Other

Receivables (*)

Amendments on

Conditions of

Contract

Short-term loans and other receivables 6,474,734 77,100 282,568 35,342

Non-specialized loans 5,628,824 58,940 255,886 21,957

Specialized loans 845,910 18,160 26,682 13,385

Other receivables - - - -

Medium and Long-term loans 6,649,920 378,805 1,006,420 792,971

Non-specialized loans 5,395,430 303,182 908,742 772,868

Specialized loans 1,254,490 75,623 97,678 20,103

Other receivables - - - -

Total 13,124,654 455,905 1,288,988 828,313

(*) The Bank has classified Loans and Receivables amount to TRL 8,235 Thousand, under financial assets at fair value through profit and loss in the current period.

ŞEKERBANK T.A.Ş.



52




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 15,118 1,201,001 1,216,119

Housing Loans 1,267 269,555 270,822

Car Loans 397 32,526 32,923

General Purpose Loans 13,454 898,920 912,374

Other - - -

Consumer Loans –Indexed to FC - 1,234 1,234

Housing Loans - 1,234 1,234

Car Loans - - -

General Purpose Loans - - -

Other - - -

Consumer Loans-FC - - -

Housing Loans - - -

Car Loans - - -


Other - - -

Individual Credit Cards-TRL 177,780 2 177,782

With Instalments 50,167 2 50,169

Without Instalments 127,613 - 127,613

Individual Credit Cards-FC 351 - 351

With Instalments 3 - 3

Without Instalments 348 - 348

Personnel Loans-TRL 570 9,283 9,853

Housing Loans - - -

Car Loans - 60 60

General Purpose Loans 570 9,223 9,793

Other - - -

Personnel Loans- Indexed to FC - - -

Housing Loans - - -

Car Loans - - -


Other - - -

Personnel Loans-FC - - -

Housing Loans - - -

Car Loans - - -


Other - - -

Personnel Credit Cards-TRL 6,840 - 6,840

With Instalments 2,159 - 2,159


Personnel Credit Cards-FC 19 - 19

With Instalments - - -


Overdraft Accounts-TRL(Real Person) (*) 39,621 - 39,621

Overdraft Accounts-FC (Real Person) - - -

Total 240,299 1,211,520 1,451,819

(*) As of 30 September 2016 , overdraft accounts for real persons include TRL 3,435 Thousand personnel overdraft account.

ŞEKERBANK T.A.Ş.



53





e) Information on commercial loans with instalments and corporate credit cards:

Short Term Medium and Long Term

Total

Commercial loans with instalment facility-TRL 207,569 2,908,324 3,115,893

Business Loans 3,284 23,362 26,646

Car Loans 2,611 106,309 108,920

General Purpose Loans 201,674 2,747,535 2,949,209

Other - 31,118 31,118

Commercial loans with instalment facility - Indexed to FC 20,770 629,607 650,377

Business Loans - 4,551 4,551

Car Loans - 30,574 30,574

General Purpose Loans 20,770 594,482 615,252

Other - - -

Commercial loans with instalment facility –FC 676 435,808 436,484

Business Loans - - -

Car Loans - - -

General Purpose Loans 676 435,808 436,484

Other - - -

Corporate Credit Cards-TRL 85,166 - 85,166

With Instalments 20,582 - 20,582


Corporate Credit Cards-FC 14 - 14

With Instalments - - -


Overdraft Accounts-TRL (Legal Entity) 171,267 - 171,267

Overdraft Accounts-FC (Legal Entity) - - -

Total 485,462 3,973,739 4,459,201

f) Loans according to borrowers:


Public 62,959 71,520

Private 15,634,901 16,200,371

Total 15,697,860 16,271,891

g) Domestic and foreign loans:


Domestic loans 15,677,782 16,261,185

Foreign loans 20,078 10,706

Total 15,697,860 16,271,891

h) Loans granted to subsidiaries and associates:


Direct loans granted to subsidiaries and associates 24,718 26,266

Indirect loans granted to subsidiaries and associates - -

Total 24,718 26,266

ŞEKERBANK T.A.Ş.



54





i) Specific provisions provided against loans:

Specific Provisions (*) Current Period Prior Period

Loans and receivables with limited collectability 27,058 21,865

Loans and receivables with doubtful collectability 106,385 99,784

Uncollectible loans and receivables 341,182 424,311

Total 474,625 545,960

(*) Specific provision amounting to TRL 647 Thousand for loans classified as “Financial assets at fair value through profit and loss” at the current period (31 December 2015- TRL 1,274 Thousand).

j) Information on non-performing loans (Net):

j.1) Information on loans and other receivables included in non-performing loans which are restructured or

rescheduled:

III. Group: IV. Group: V. Group

Loans and receivables

with limited

collectability


with doubtful

collectability

Uncollectable loans

and receivables

Current period

(Gross amounts before the specific reserves) - 9,337 53,628

Loans and other receivables which are restructured - - -

Rescheduled loans and other receivables - 9,337 53,628

Prior period

(Gross amounts before the specific reserves) - 4,218 60,320

Loans and other receivables which are restructured - - -

Rescheduled loans and other receivables - 4,218 60,320

ŞEKERBANK T.A.Ş.



55





j.2) The movement of non-performing loans:

III. Group IV. Group V. Group

Loans and

receivables with

limited

collectability


with doubtful

collectability

Uncollectable

loans and receivables

Prior period end balance 165,581 274,067 571,986

Additions (+) 536,040 18,687 11,642

Transfers from other categories of non-performing loans (+) - 477,763 377,408

Transfers to other categories of non-performing loans (-) (477,763) (377,408) -

Collections (-) (23,611) (90,626) (49,641)

Write-offs (-) - (1,505) (366,962)

Corporate and commercial loans - (507) (312,937)

Retail loans - (10) (42,112)

Credit cards - (988) (11,913)

Current period end balance (*) 200,247 300,978 544,433

Specific provision (-) (*) 27,058 106,385 341,182

Net Balances on Balance Sheet 173,189 194,593 203,251

(*) Non performing loans amounting to TRL 1,266 Thousand (31 December 2015 – TRL 2,209 Thousand) and specific provision amounting to TRL 647 Thousand (31 December 2015 – TRL 1,274 Thousand) are classified as “Financial assets at fair value through profit and loss” in the

current period.

j.3) Informations on non-performing loans and other receivables in foreign currency: None (31 December

2015 – None).

ŞEKERBANK T.A.Ş.



56





j.4) Information regarding gross and net amounts of non-performing loans with respect to user groups:

III. Group IV. Group V. Group

Loans and

receivables with

limited collectability

Loans and

receivables with

doubtful

collectability

Uncollectable

loans and

receivables

Current Period (Net) (*)

Loans to Real Persons and Legal Entities (Gross) 200,247 300,978 544,433

Specific provision (-) (27,058) (106,385) (341,182)

Loans to Real Persons and Legal Entities (Net) 173,189 194,593 203,251

Banks (Gross) - - -

Specific provision (-) - - -

Banks (Net) - - -

Other Loans and Receivables (Gross) - - -


Other Loans and Receivables (Net) - - -

Prior Period (Net) (*)

Loans to Real Persons and Legal Entities (Gross) 165,581 274,067 571,986

Specific provision (-) ( 21,865) ( 99,784) ( 424,311)

Loans to Real Persons and Legal Entities (Net) 143,716 174,283 147,675

Banks (Gross) - - -


Banks (Net) - - -

Other Loans and Receivables (Gross) - - -


Other Loans and Receivables (Net) - - -

(*) Non-performing loans amounting to TRL 1,266 Thousand (31 December2015 – TRL 2,209 Thousand) and specific provision amounting to

TRL 647 Thousand (31 December2015 – TRL 1,274 Thousand) are classified as “Financial assets at fair value through profit and loss”.

k) Main principles of uncollectable loans and receivables:

The Bank Management applies provision policy for the “non-performing loans” in accordance with the

requirements of the Turkish banking regulation adopted by the BRSA.

l) Explanations on write-off policy:

On 29 September 2016, the Bank sold uncollectable non-performing loans amounting to TRL 139,587

Thousand for total cash amount of TRL 7,150 Thousand to Final Varlık Yönetim A.Ş. and Mega Varlık

Yönetim A.Ş. (31 December 2015 – On 30 March 2015 the Bank sold uncollectable non-performing

commercial and consumer loans including credit cards amounting to TRL 209,057 Thousand for total cash

amount of TRL 15,100 Thousand, in particular, for TRL 2,200 Thousand to Güven Varlık Yönetim A.Ş., for

TRL 7,200 Thousand to Destek Varlık Yönetim A.Ş. and for TRL 5,700 Thousand to Final Varlık Yönetim

A.Ş.. On 20 May 2015, the Bank sold TRL 2,814 Thousand of the non-performing commercial loans to RCT

Varlık Yönetim A.Ş. for TRL 675 Thousand in cash. On 16 December 2015 the Bank sold uncollectable non-

performing consumer loans including credit cards amounting to TRL 29,944 Thousand for TRL 3,600

Thousand in cash to Destek Varlık Yönetim A.Ş.)

ŞEKERBANK T.A.Ş.



57




6. Information on held-to-maturity investments:

a.1) Information on held-to-maturity investments given as collateral or blocked:


Treasury Bill - -

Bond and Similar Securities 239,334 236,337

Other - -

Total 239,334 236,337

a.2) Held-to-maturity investments subject to repurchase agreements are TRL 635,394 Thousand (31 December

2015 – 802,357 Thousand).

b) Information on public sector debt investments held-to-maturity:


Government Bonds 1,059,788 1,268,303

Treasury Bills - -

Other Public Sector Debt Securities - -

Total 1,059,788 1,268,303

Net book value of unrestricted held-to-maturity investments is TRL 185,060 Thousand (31 December 2015 – TRL

229,609 Thousand).

c) Information on held-to-maturity investments:


Debt Securities 927,037 1,119,996

Quoted on a stock exchange 927,037 1,119,996

Not quoted on a stock exchange - -

Impairment Provision (-) (688) (1,191)

Accruals 133,439 149,498

Total 1,059,788 1,268,303

d) Movement of held-to-maturity investments:


Beginning Balance 1,118,805 1,222,792

Foreign currency differences on monetary assets 11 81

Purchases during year - -

Disposals through sales and redemptions (192,971) (104,523)

Provision reversal / Impairment provision (-) 504 455

Closing Balance 926,349 1,118,805

Accruals 133,439 149,498

Total 1,059,788 1,268,303

ŞEKERBANK T.A.Ş.



58




7. Information on associates (Net):

a) Information on associates:

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 2015 is stated below.

b) Information on associates with the order as presented in the table above:

Total Asset Shareholders‟

Equity Tangible Assets

Interest Income

Income from

Marketable Securities

Portfolio

Current

Period

Profit/Loss

Prior Period Profit/Loss

Fair Value

50,898 28,910 39,844 100 - (1,466) (54,240) 123,544

c) Movement of associates:


Balance at the beginning of the period 4,140 4,140

Movement during the period - -

Purchases - -

Bonus shares obtained - -

Share in the current year income - -

Sales - -

Revaluation increase - -

Provision of Impairment (-) - -

Balance at the end of the period 4,140 4,140

Capital Commitment - -

Share percentage at the end of the period (%) 100 100

d) Measurement of associates


Measured with cost 4,140 4,140

Measured with fair value - -

Measured with equity method - -

e) Sectoral information and the related carrying amounts on Associates:

Seltur Turistik İşletmeler A.Ş. is operating in tourism sector.

f) Associates quoted to stock exchange: None.

g) Information on associates which are sold in the current period: None.

h) Information on associates purchased in the current period: None.

ŞEKERBANK T.A.Ş.



59




8. Information on subsidiaries (Net):

a) Information related to equity components of 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

Mortgage

Finansman

A.Ş.

Zahlungsdienste

GmbH Der

Şekerbank T.A.Ş.

Core Capital

Paid in Capital 24,104 60,624 14,424 31,195 21,041 26,000 802

Share Premiums - 1,243 - - - - -

Marketable Securities Value

Increase Fund - - - (48) - - -

Legal Reserves 1,274 2,169 3,515 1,547 1,999 614 -

Extraordinary Reserves 1 4,757 - 7,115 9,913 (2,383) -

Tangible assets revaluation

differences - - - - 6,971 - -

Other capital reserves - - - (33) 22 33 -

Other Income Reserves - - 917 - - - (80)

Profit/Loss (2,576) (12,662) (658) 2,700 (5,921) 2,690 (161)

Prior Years‟ Profits and Losses (3,670) (13,650) (931) - (1,041) - (165)

Net Profit for the Period 1,094 988 273 2,700 (4,880) 2,690 4

Total Core Capital 22,803 56,131 18,198 42,476 34,025 26,954 561

Supplementary Capital - - - - - - -

CAPITAL 22,803 56,131 18,198 42,476 34,025 26,954 561

NET AVAILABLE EQUITY 22,803 56,131 18,198 42,476 34,025 26,954 561

(*)Financial information is as of 30 June 2016.

b) Information on the subsidiaries:

Description (*) Address (City/

Country)

Bank‟s Share Percentage-If Different Voting Percentage

(%)

Bank‟s Risk Group Share Percentage

(%)

Şekerbank Kıbrıs Ltd. Nicosia/TRNC 96.11 96.11

Şeker Finansal Kiralama A.Ş. Istanbul/ Turkey 54.13 61.13

Şekerbank International Banking Unit Ltd. Nicosia/TRNC 95.80 95.80

Şeker Yatırım Menkul Değerler A.Ş. Istanbul/ Turkey 99.04 100.00

Şeker Faktoring A.Ş. Istanbul/ Turkey 99.99 99.99

Şeker Finansman A.Ş. Istanbul/ Turkey 62.31 62.31

Zahlungsdienste GmbH Der Şekerbank T.A.Ş. Cologne/Germany 100.00 100.00

(*) Latest financial information of the related subsidiaries as of 30 June 2016 is stated below.

ŞEKERBANK T.A.Ş.



60




8. Information on subsidiaries (Net) (cont’d):

c) Information on the 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

(*)

208,505 22,803 4,924 10,898 138 1,094 (3,670) 15,219

436,035 56,131 29,279 15,881 496 988 (13,650) 48,538

18,943 18,198 1,952 570 - 273 (931) 11,953

117,305 42,476 22,503 4,811 989 2,700 - 34,162

334,350 34,025 18,866 26,294 - (4,880) (1,041) 42,664

601,968 26,954 491 37,322 - 2,690 - 32,406

1,360 561 - 36 - 4 (165) 907

(*) Fair values of the related subsidiaries are stated as of 31 December 2015.

d) Movement of subsidiaries:


Balance at the beginning of the period 115,052 111,052

Movement during the period 30,000 4,000

Purchases 25,000 -

Bonus shares obtained 5,000 4,000

Share in the current year income - -

Sales - -

Revaluation increase - -

Provision reversal / Provision of Impairment (-) - -

Balance at the end of the period 145,052 115,052

Capital Commitment - -

Share percentage at the end of the period (%) 100 100

e) Measurement of Subsidiaries


Measured with cost 145,052 115,052

Measured with fair value - -

Measured with equity method - -

f) Sectoral information and the related carrying amounts on Subsidiaries

Subsidiaries Current Period Prior Period

Banks 15,283 15,283

Insurance Companies - -

Factoring Companies 51,908 21,908

Leasing Companies 25,888 25,888

Finance Companies 18,963 18,963

Other Financial Subsidiaries 33,010 33,010

ŞEKERBANK T.A.Ş.



61




8. Information on subsidiaries (Net) (cont’d):

g) Subsidiaries Quoted to Stock Exchange


Quoted to Domestic Stock Exchange 25,888 25,888

Quoted to Foreign Stock Exchange - -

h) Information on Subsidiaries which are Sold in the Current Period:

None.

i) Information on Subsidiaries Purchased in the Current Period:

None.

9. Information on entities under common control: None (31 December 2015 – None).

10. Information on finance lease receivables (Net): None (31 December 2015 – None).

11. Information on derivative financial assets for hedging purposes: None (31 December 2015 – None).

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 2015 –

TRL 2,050 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 5 years.

a) Disclosures for book value, description and remaining depreciation time for a specific intangible fixed asset

that is material to the financial statements: None.

b) Disclosure for intangible fixed assets acquired through government grants and accounted for at fair value at

initial recognition: None.

c) The method of subsequent measurement for intangible fixed assets that are acquired through government

incentives and recorded at fair value at the initial recognition: None.

d) The book value of intangible fixed assets that are pledged or restricted for use: None.

ŞEKERBANK T.A.Ş.



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13. Information on intangible assets (cont’d):

e) Amount of purchase commitments for intangible fixed assets: None.

f) Information on revalued intangible assets according to their types: None.

g) Amount of total research and development expenses recorded in income statement within the period if

any: None.

h) Information on goodwill: None.

i) Movements on goodwill in the current period: None.

14. Information on investment property: None (31 December 2015 – None).

15. Explanations on deferred tax asset:

a) As of 30 September 2016, deferred tax asset computed on the temporary differences is reflected in the

financial statements by netting off with deferred tax liability and is presented in Section V. Note II.10.

b) Temporary differences over which deferred tax asset is not computed and recorded in the balance sheet in

prior periods: None.

c) Allowance for deferred tax and deferred tax assets from reversal of allowance: None.

d) Movement of deferred tax: mentioned in Section V. Note II.10-b1.

16. Information on assets held for sale and discontinued operations: As of 30 September 2016 the Bank has

TRL 78,600 Thousand assets held for sale (31 December 2015 - TRL 123,300 Thousand).

17. Information on other assets:

a) Breakdown of other assets:


Receivables from Instalment Sales of Assets 3,892 6,693

Collaterals Given 263,937 245,483

Advances Given 86,884 62,939

Receivables from Banking Services 2,597 3,868

Clearing Account 85,793 63,349

Receivables from Credit Card Payments 36,514 29,618

Prepaid Expenses 59,059 47,320

Other Receivables 18,052 17,143

Total 556,728 476,413

b) Other assets which exceed 10 % of the balance sheet total (excluding off balance sheet commitments) and

breakdown of these which constitute at least 20 % of grand total:

None.

ŞEKERBANK T.A.Ş.



63



II. Explanations Related to the Liabilities

1. Information on maturity structure of deposits

a) 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 457,926 - 242,066 5,786,268 239,503 129,102 235,347 1,204 7,091,416

Foreign currency deposits 473,736 - 142,726 2,043,153 240,497 185,345 830,827 82 3,916,366

Residents in Turkey 429,939 - 134,147 1,722,589 144,018 90,896 164,898 79 2,686,566

Residents abroad 43,797 - 8,579 320,564 96,479 94,449 665,929 3 1,229,800

Public sector deposits 72,745 - 1 3,386 1,366 1,480 110 - 79,088

Commercial deposits 405,662 - 221,209 1,621,498 60,742 9,361 92,034 8 2,410,514

Other institutions

deposits 38,330 - 5,458 435,639 46,091 51,660 488 - 577,666

Precious metals deposits 106,064 - - - 13,091 7,710 - - 126,865

Interbank deposits 45,219 - 505,994 87,514 2,024 - - - 640,751

Central Bank of

Turkey - - - - - - - - -

Domestic Banks 629 - 504,307 28,999 2,024 - - 535,959

Foreign Banks 1,070 - 1,687 58,515 - - - - 61,272

Special finance

houses 43,520 - - - - - - - 43,520

Other - - - - - - - - -

Total 1,599,682 - 1,117,454 9,977,458 603,314 384,658 1,158,806 1,294 14,842,666

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 352,370 - 196,771 5,032,834 135,896 87,917 180,340 879 5,987,007

Foreign currency deposits 663,206 - 225,725 2,711,190 261,084 202,122 853,907 31 4,917,265

Residents in Turkey 640,302 - 211,820 2,500,179 216,087 118,446 306,071 31 3,992,936

Residents abroad 22,904 - 13,905 211,011 44,997 83,676 547,836 - 924,329

Public sector deposits 63,365 - 1 5,437 231 1,271 512 - 70,817

Commercial deposits 458,869 - 282,342 970,986 8,943 16,416 15,682 57 1,753,295

Other institutions deposits 32,253 - 7,865 492,306 1,245 13,416 552 - 547,637

Precious metals deposits 113,477 - - - 13,189 6,260 - - 132,926

Interbank deposits 440,889 - 699,074 276,025 37,267 5,431 - - 1,458,686

Central Bank of

Turkey - - - - - - - - -

Domestic Banks 1,401 - 698,582 107,571 - - - - 807,554

Foreign Banks 1,171 - 492 168,454 37,267 5,431 - - 212,815

Special finance

houses 438,317 - - - - - - - 438,317

Other - - - - - - - - -

Total 2,124,429 - 1,411,778 9,488,778 457,855 332,833 1,050,993 967 14,867,633

ŞEKERBANK T.A.Ş.



64



II. Explanations Related to the Liabilities (cont’d)

1. Information on maturity structure of deposits (cont’d)

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

Current Period Prior Period Current Period Prior Period

Saving deposits 3,775,757 3,500,216 3,364,883 2,487,174

Foreign currency saving deposits 1,399,099 1,544,495 1,890,156 2,643,113

Other deposits in the form of saving deposits - - - -

Branches‟ deposits under foreign

authorities' insurance - - - -

Off-shore banking regions‟ deposits under foreign authorities' insurance - - - -

Total 5,174,856 5,044,711 5,255,039 5,130,287

(*) According to the BRSA’s circular no 1584 dated 23 February 2005, accruals are included in the saving deposit amounts.

c) Information on the saving deposits of the bank with head office abroad, if the saving deposits

in the branches of the bank located in Turkey are under the guarantee of saving deposit

insurance in that country abroad:

Headquarter of the Bank is in Turkey and the Bank is under the coverage of saving deposit insurance.

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 25,943 12,117

Deposits and other accounts obtained through illegal acts

defined in the 282nd Article of the 5237 numbered Turkish

Criminal Code dated 26 September 2004. - -

Saving deposits in banks established in Turkey exclusively for off shore banking activities - -

ŞEKERBANK T.A.Ş.



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2. Information on derivative financial liabilities:

a) Negative differences table related to derivative financial liabilities held-for-trading:

Liabilities due to held for trading derivatives


TRL FC TRL FC

Forward Transactions - 1,460 - 917

Swap Transactions 97,819 12,788 103,856 34,411

Futures Transactions - - - -

Options 1,092 9,613 82 334

Other - - - -

Total 98,911 23,861 103,938 35,662

3. a) Information on banks and other financial institutions:


TRL FC TRL FC

Loans from Central Bank of Turkey - - - -

From Domestic Banks and Institutions 44,448 88,841 55,138 97,851

From Foreign Banks, Institutions and Funds 69,574 1,946,515 65,938 2,001,306

Total 114,022 2,035,356 121,076 2,099,157

b) Maturity analysis of borrowings:


TRL FC TRL FC

Short-term 43,766 142,619 54,014 395,688

Medium and long-term 70,256 1,892,737 67,062 1,703,469

Total 114,022 2,035,356 121,076 2,099,157

c) Additional explanation related to the concentrations of the Bank’s major liabilities:

The Bank‟s liabilities do not have any concentration in any sector.

4. Information on funds provided from repurchase agreement transactions:


TRL FC TRL FC

From domestic transactions 1,092,831 - 1,868,656 -

Financial institutions and organizations 1,085,208 - 1,805,840 -

Other institutions and organizations 1,470 - 55,467 -

Real persons 6,153 - 7,349 -

From foreign transactions - - - -

Financial institutions and organizations - - - -

Other institutions and organizations - - - -

Real persons - - - -

Total 1,092,831 - 1,868,656 -

ŞEKERBANK T.A.Ş.



66




5. Marketable securities issued: The Bank issued Asset Covered Bond amounting to TRL 1,500,000 Thousand and details are shown in the table

below. The investors are International Finance Corporation (IFC), Nederlandse Financierings-Maatschappij Voor

Ontwikkelingslanden N.V. (FMO), UniCredit Bank AG, European Investment Bank (EIB), European Bank for

Reconstruction and Development (EBRD), KfW Bankengruppe and qualified institutional investors. The

transactions were conducted in line with the related Capital Market Board regulation and the Bank‟s SME loans

were used as colleteral. Outstanding Asset Covered Bond amount is TRL 684,589 Thousand as of 30 September

2016 (31 December 2015 – TRL 764,218 Thousand).

Issue Group Series Investors Amount

Outstanding

Amount (*) Currency Maturity

27 February 2014 2014-1 Qualified Institutional

Investors 361,846 361,846 TRL 13.03.2017

18 December 2015 2015-1 EIB 319,400 319,400 TRL 12.03.2019

(*) Outstanding amounts do not include accruals.


TRL FC TRL FC

Bills 66,814 - 425,588 -

Asset Backed Securities 684,589 - 764,218 -

Bonds - - - -

Total 751,403 - 1,189,806 -

6. Other liabilities which exceed 10 % of the balance sheet total (excluding off-balance sheet

commitments) and the breakdown of these which constitute at least 20 % of grand total:

Other liabilities do not exceed 10 % of the balance sheet total.

7. Explanations on financial lease obligations (Net):


TRL FC TRL FC

Lease Payables 9,245 119 13,563 483

Deferred Lease Expenses (1,367) (3) (2,431) (19)

Total 7,878 116 11,132 464

8. Information on derivative financial liabilities for hedging purposes:

The Bank does not hold derivative financial liabilities for hedging purposes.

ŞEKERBANK T.A.Ş.



67




9. Information on provisions:

a) Information on general provisions:


General Provisions 149,648 177,980

Provisions for first group loans and receivables 87,623 110,265

Additional provisions for the loans with extended payment plan - 13,911

Provisions for second group loans and receivables 42,307 47,746

Additional provisions for the loans with extended payment plan - 32,918

Provisions for non-cash loans 14,291 16,651

Other 5,427 3,318

b) Foreign exchange losses on the foreign currency indexed loans and finance lease receivables: Foreign

exchange losses on the foreign currency indexed loans is TRL 29 Thousand (31 December 2015 - TRL 1,790

Thousand).

c) The specific provisions provided for unindemnified non-cash loans amount to TRL 48,399 Thousand (31


d) Information on employee termination benefits and unused vacation accrual:

The Bank has calculated reserve for employee termination benefits by using actuarial valuations as set out in

the TAS 19 and reflected this in the financial statements.

Main actuarial assumptions used for calculation of employment termination benefit are as follows:

- Discount rate for the current period is 10.70%, inflation rate is 5.00% (31 December 2015 - discount rate

10.70%, inflation rate is 5.00%).

- TRL 3,828.37 (full TRL) of maximum wage amount which was in effect as of 31 December 2015 was

taken as maximum amount for the calculation regarding the current period.

- It was assumed that maximum wage would be increased in inflation rate for every year.

- CSO 1980 table was used for mortality averages of females and males.

As of 30 September 2016, the Bank has recorded in the financial statements TRL 61,554 Thousand reserve for

employee termination benefits (31 December 2015 – TRL 53,380 Thousand).

As of 30 September 2016, the Bank provided a reserve of TRL 4,486 Thousand (31 December 2015 – TRL 3,959

Thousand) for the unused vacations. This balance is classified under reserve for employee benefits provisions in the

financial statements.

d.1) Movement of employee termination benefits:


As of 1 January 53,380 57,994

Service Cost 21,928 7,709

Interest Cost 4,161 4,601

Actuarial Loss/(Gain) (*) - (5,208)

Indemnity Paid During the Term (17,915) (11,716)

Total 61,554 53,380

(*) Actuarial loss/gain shown under other capital reserves after netting of deferred tax.

ŞEKERBANK T.A.Ş.



68




9. Information on provisions (cont’d):

e) Information on other provisions:

e.1) Provisions for possible losses: Unconsolidated financial statements include a general reserve amounting to

TRL 10,000 Thousand in the current period.

e.2) The breakdown of the sub-accounts if other provisions exceed 10 % of the grand total of provisions:


Unindemnified Non-Cash Loans 48,399 42,109

Credit Card Liquid Point Promotion Provisions 835 986

Retirement Fund Provision 7,941 7,941

Legal Case Provisions 18,570 16,359

Bonus Provision 7,860 10,087

SDIF Premium Provision 9,727 2,703

BRSA Pay Provision 2,747 -

Other Provisions 58,829 59,739

Total 154,908 139,924

ŞEKERBANK T.A.Ş.



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9. Information on provisions (cont’d): f) Liabilities on pension rights:

f.1) Liabilities for pension funds established in accordance with “Social Security Institution”:

Şekerbank T.A.Ş. Pension Fund, of which each Bank employee is a member, is established in accordance with the

provisional Article 20 of the Social Security Act No: 506. As per the provisional article No: 23 of the Banking Law

No: 5411, the Bank pension funds, which were established within the framework of Social Security Institution Law,

should be transferred to the Social Security Institution within 3 years after the issuance of the related law. Methods

and principles related to the transfer have been determined as per the Cabinet decision no: 2006/11345 made on 30

November 2006. However, the related article of the act has been cancelled upon the President‟s application filed on

2 November 2005 by the Supreme Court‟s order no: E.2005/39, K.2007/33 issued on 22 March 2007, which was

published in the Official Gazette No: 26479 on 31 March 2007 and the execution of the decision was ceased as of

the issuance date of the order.

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 “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.

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

Social Security Institution, Ministry of Finance, Turkish Treasury, State Planning Organization,

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

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

related to the transferred persons, the cash value of the liabilities of the pension fund as of the

transfer date will be calculated by considering their income and expenses in terms of the lines of

insurance within the context of the related Law, and technical interest rate of 9.8% will be used in

the actuarial calculation of the value in cash,

ŞEKERBANK T.A.Ş.



70





f) Liabilities on pension rights (cont‟d):

f.1) Liabilities for pension funds established in accordance with “Social Security Institution” (cont‟d):

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.

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 7,941 Thousand actuarial deficit in the actuary report

dated January 2016 which was prepared using a technical interest rate of 9.80 % in accordance with the basis set out

in the Council of Ministers decision no: 2006/11345 on 30 November 2006 (31 December 2015- TRL 7,941

Thousand actuarial deficit).

As of 30 September 2016, TRL 7,941 Thousand provision is recorded in the financial statements of the Bank (31


The actuary audit, explained above and which is in compliance with the principles of the related law, calculates the

present value of the liability as of 30 September 2016, in other words, the estimated amount to be paid to SGK

(Social Insurance Institution). CSO 1980 mortality table, 9.80 % of technical interest rate, 34.50 % of premium rate

was considered in the actuarial calculation. In the table below, cash value amount of the health expenses within the

framework of Social Security Institution are shown.

Present values of bonuses and salaries payment including health expenses reserve are shown following table in

accordance with SGK as of 31 December 2015.

31.12.2015

Reserve of Probable Retirement Pensions (151,470)

Reserve of Probable Widow and Orphant (83,566)

Reserve of Liability Items (673,365)

Reserve for Salary Portions to be Given to Social Insurance Institution for those who leave the Pension

Fund (115,585)

Health and Funeral Expenses Reserve (98,310)

Assets (*) 368,491

Cash Value of the Premiums of the Active Members 672,455

Reserve of Common Members‟ Salary Proportion

Receivables from other social insurance institutions. 73,409

Actual and Technical Surplus / (Deficit) Amount (7,941)

(*) The Pension Fund records the assets by their fair value and these fair values were considered for the actuarial work.

ŞEKERBANK T.A.Ş.



71





Assets of the Pension Fund consist of following items:

31.12.2015

Banks and Other Financial Investments 215,620

Associates 51,500

Immovable 89,288

Other 12,083

Total 368,491

f.2) Liabilities resulting from all kinds of pension funds, foundations etc. which provide post-retirement

benefits for the employees:

See footnote, f.1 II/9 of Section Five.

10. Explanations on taxes payable:

a) Information on current tax liability:

a.1) Corporate taxes:

The Bank has TRL 23,399 Thousand corporate tax provision and is netted off with prepaid tax amounting

TRL 31,826 Thousand as of 30 September 2016 (31 December 2015 - The bank had no corporate tax

provision and prepaid tax was TRL 8,560 Thousand).

a.2) Information on taxes payable:


Corporate Tax (8,427) (8,560)

Taxation on Securities 14,129 14,086

Capital Gains Tax on Property 501 544

Banking Insurance Transaction Tax (BITT) 16,019 19,797

Value Added Tax Payable 691 624

Other 6,077 7,334

Total 28,990 33,825

a.3) Information on premiums:


Social Security Premiums-Employee 178 181

Social Security Premiums-Employer 347 362

Bank Social Aid Pension Fund Premiums-Employee - -

Bank Social Aid Pension Fund Premiums-

Employer - -

Pension Fund Membership Fees and Provisions-Employee - -

Pension Fund Membership Fees and Provisions-

Employer - -

Unemployment insurance-Employee - -

Unemployment insurance-Employer - -

Other - -

Total 525 543

ŞEKERBANK T.A.Ş.



72

SECTION FIVE (cont’d



10. Explanations on taxes payable (cont’d):

b) Explanations on deferred tax liabilities, if any:

b.1) Breakdown of deferred tax:


Deferred Tax Assets/(Liabilities)

Tangible Assets Base Differences (51,748) (60,606)

Provisions (*) 34,363 29,845

Valuation of Financial Assets 18,114 17,299

Financial Losses - 5,886

Net Deferred Tax Assets/(Liabilities) 729 (7,576)

(*) Provisions include employee benefit liabilities, credit card bonuses provisions, legal case provisions and other provisions.

b.2) Current and prior year deferred tax movements are shown in the table below.


Deferred Tax Asset/(Liability), Period Beginning (7,576) (29,623)

Current Period (Expense) / Income 8,974 17,403

Deferred Tax Classified under Equity (669) 4,644

Deferred Tax Asset/(Liability), Period Ending 729 (7,576)

11. Information on liabilities regarding assets held for sale and discontinued operations: None.

12. Explanations on the number of subordinated loans the Bank used maturity, interest rate, institution

that the loan was borrowed from, and conversion option, if any:


TRL FC TRL FC

Domestic Banks - - - -

Other Domestic Institutions - - - -

Banks Abroad - 44,098 - 271,559

Other Institutions Abroad - 84,540 - 226,662

Total - 128,638 - 498,221

13. Information on Shareholders’ Equity:

a) Presentation of Paid-in capital:


Common stock (*) 1,158,000 1,158,000

Preferred stock - -

(*) Nominal Capital

ŞEKERBANK T.A.Ş.



73




13. Information on Shareholders’ Equity (cont’d):

b) Paid-in capital amount, explanation as to whether the registered share capital system is applicable at Bank and

if so amount of registered share capital ceiling:

Registered share capital system is applied in the Bank: Maximum registered capital amount is TRL 1,250,000

Thousand.

Capital System Paid-in Capital Maximum

Registered Capital 1,158,000 1,250,000

c) Information on share capital increases and their sources; other information on increased capital shares in

current period: None.

d) Information on share capital increases from capital reserves: None.

e) Capital commitments in the last fiscal year and at the end of the following interim period, the general purpose

of these commitments and projected resources required to meet these commitments: None.

f) Indicators of the Bank‟s income, profitability and liquidity for the previous periods and possible effects of

these future assumptions on the Bank‟s equity due to the uncertainty of these indicators:

Retained and current year income, profitability and liquidity of the Bank are closely monitored, reported by

the Financial Control, Budget and Strategic Planning Department to the Board of Directors, Asset and

Liability Committee. This department prognoses the effects of interest, currency and maturity fluctuations

that change these indicators with static and dynamic scenario analysis. Net asset value, which is defined as

the difference of fair values of assets and liabilities, is measured. Prognoses are made for Bank‟s future

interest income via simulations of net interest income and scenario analysis.

g) Information on preferred shares:

The Bank has no preferred shares.

h) Information on marketable securities value increase fund:


TRL FC TRL FC

From Subsidiaries, Associations and Entities Under

Common Control - - - -

Marketable Securities Available for Sale (37,070) (638) (70,239) -

Valuation Difference - - - -

Foreign Exchange Difference - - - -

Total (37,070) (638) (70,239) -

ŞEKERBANK T.A.Ş.



74




14. Information on legal reserves:


First legal reserves 82,882 77,750

Second legal reserves 15,106 15,106

Other legal reserves appropriated in accordance with

special legislation 175,996 -

Total 273,984 92,856

15. Information on extraordinary reserves:


Reserves appropriated by the General Assembly 890,402 997,434

Retained earnings - -

Accumulated losses - -

Foreign currency share capital exchange difference - -

Total 890,402 997,434

16. Other Information on Shareholders’ Equity:

As of 29 April 2016 the Bank acquired 109,211,666.248 shares at TRL 175,000 Thousand through the

auction. After the notification to our Bank through the letter of Istanbul 14th Enforcement Office dated 25

July 2016, in accordance with the provisions of the Turkish Commercial Code and the Turkish

Accounting Standards; TRL 175,996 Thousand, being “the charges-and-taxes-included cost value” of the

repurchased shares is deducted from the Bank‟s “Other Capital Reserves” equity account as of 31 July

2016.

17. Information on other capital reserves:

Actuarial gain/loss is shown under other capital reserves.

ŞEKERBANK T.A.Ş.



75


III. Explanations Related to the 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 227,646 139,182

Loan Granting Commitments 824,903 747,973

Payment Commitments for Cheques 623,942 640,840

Commitments for Credit Card Expenditure limits 559,783 597,580

Commitments for Promotions related with Credit Cards and Banking Transactions 1,095 1,278

Subsidiaries and Associates Capital Commitments - -

Tax and Fund Obligations for Export Commitments 5,720 5,826

Total 2,243,089 2,132,679

b) Possible losses and commitments related to off-balance sheet items including items listed below:

The Bank, within the context of banking activities, undertakes certain commitments, consisting of loan

commitments, letters of guarantee, acceptance credits and letters of credit.

b.1) Non-cash loans including guarantees, acceptances, financial guarantee and other letters of credits:


Guarantees 97,321 102,830

Bank Loans 238,850 398,828

Letters of Credit 349,255 488,906

Total 685,426 990,564

b.2) Guarantees, surety ships, and similar transactions:


Definite Letter of Guarantees 2,930,160 3,334,465

Temporary Letter of Guarantees 390,617 561,358

Surety ships and Similar Transactions - -

Other Letter of Guarantees 643,966 876,394

Total 3,964,743 4,772,217

c.1) Total amount of non-cash loans:


Letters of Guarantees issued for cash loans 421,873 490,296

With maturity of 1 year or less than 1 year 161,532 183,830

With maturity of more than 1 year 260,341 306,466

Other non-cash loans 4,228,296 5,272,485

Total 4,650,169 5,762,781

ŞEKERBANK T.A.Ş.



76



III. Explanations Related to the Off-Balance Sheet Contingencies and 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 5,403 0.18 9,173 0.57 17,507 0.47 10,569 0.53

Farming and raising livestock 3,331 0.11 9,173 0.57 13,492 0.36 10,569 0.53

Forestry 2,008 0.07 - - 3,787 0.10 - -

Fishery 64 0.00 - - 228 0.01 - -

Manufacturing 281,918 9.26 641,014 39.99 531,602 14.09 858,027 43.14

Mining 18,492 0.61 68,245 4.26 21,779 0.58 96,390 4.85

Production 249,504 8.19 559,577 34.91 492,023 13.04 746,912 37.55

Electric, gas and water 13,922 0.46 13,192 0.82 17,800 0.47 14,725 0.74

Construction 1,402,528 46.03 422,570 26.36 1,500,966 39.78 433,543 21.80

Services 1,353,991 44.42 530,207 33.08 1,717,333 45.50 687,011 34.53

Wholesale and retail trade 516,077 16.94 177,470 11.07 660,745 17.51 265,044 13.32

Hotel, food and beverage

services 11,324 0.35 14,209 0.88 20,384 0.53 17,330 0.87

Transportation and

telecommunication 71,963 2.36 19,681 1.23 85,514 2.27 34,353 1.73

Financial institutions 294,520 9.67 66,508 4.15 348,130 9.23 67,916 3.41

Real estate and renting services 386,591 12.69 148,220 9.25 520,078 13.78 189,923 9.55

Self-employment services - - - - - - - -

Education services 413 0.01 - - 1,647 0.04 - -

Health and social services 73,103 2.4 104,119 6.5 80,835 2.14 112,445 5.65

Other 3,365 0.11 - - 6,223 0.16 - -

Total 3,047,205 100 1,602,964 100 3,773,631 100.00 1,989,150 100.00

c.3) Information on I st and II nd Group non-cash loans:

Non-cash loans I st Group II nd Group

TRL FC TRL FC

Letters of guarantee 2,793,612 800,582 237,058 133,491

Bank acceptances 10,204 227,954 - 692

Letters of credit 664 335,293 - 13,298

Endorsements - - - -

Underwriting commitments - - - -

Guaranteed prefinancing credits - - - -

Other commitments and surety ships 5,667 69,364 - 22,290

The Bank provided reserve amounting to TRL 48,399 Thousand (31 December 2015 – TRL 42,109 Thousand) for

unindemnified non-cash loans amounting to TRL 124,096 Thousand (31 December 2015 - TRL 106,696 Thousand).

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2. Information related to derivative financial instruments:


Types of trading transactions

Foreign currency related derivative transactions (I): 10,959,738 11,766,499

Forward transactions 835,883 601,088

Swap transactions 8,447,194 11,018,727

Futures transactions - -

Option transactions 1,676,661 146,684

Interest related derivative transactions (II) : - -

Forward rate transactions - -

Interest rate swap transactions - -

Interest option transactions - -

Futures interest transactions - -

Other trading derivative transactions (III) 1,013,026 1,089,835

A. Total trading derivative transactions (I+II+III) 11,972,764 12,856,334

Types of hedging transactions

Fair value hedges - -

Cash flow hedges - -

Net investment hedges - -

B.Total hedging related derivatives - -

Total Derivative Transactions (A+B) 11,972,764 12,856,334

Related to agreements of forward transactions and options; the information based on the type of forward and options

transactions are disclosed separately, specified with related amounts, type of agreement, purpose of transaction,

nature of risk, strategy of risk management, hedging relationship, possible effects on the Bank‟s financial position,

timing of cash flows, reasons of unrealized transactions which previously projected to be realized, income and

expenses that could not be linked to statement of income in the current period because of the agreements:

The Bank‟s derivative instruments consist of foreign currency swaps, option and forward foreign currency buy/sell

transactions. The Bank revalues foreign currency forward and swap transactions using the Bank‟s end of reporting

foreign exchange rates. The resulting gain or loss is reflected in the income statement. In calculation of fair values of

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

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

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

current term‟s statement of income. Some of the derivative instruments, although made for economical hedging

purposes, are accounted as trading transactions since they are not qualified to be a hedging instrument as per Turkish

Accounting Standard on “Financial Instruments: Recognition and Measurement” (“TAS 39”).

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2. Information related to derivative financial instruments (cont’d):

As of 30 September 2016, breakdown of the Bank‟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

Future Buy

Future Sell

Current Period

TRL 184,314 245,171 753,529 2,167,663 248,719 588,320 - -

USD 145,300 114,855 1,602,049 1,558,604 564,584 260,600 - -

EURO 84,443 54,036 2,164,144 801,798 - - - -

OTHER 3,882 3,946 192,548 219,821 14,438 - - -

Total 417,939 418,008 4,712,270 4,747,886 827,741 848,920 - -

Prior Period

TRL 149,177 150,605 814,950 3,284,312 44,639 26,756 - -

USD 141,437 139,507 2,260,447 1,639,043 27,221 45,034 - -

EURO 9,749 9,749 2,785,532 801,747 872 2,162 - -

OTHER 2,766 3,081 180,987 336,561 - - - -

Total 303,129 302,942 6,041,916 6,061,663 72,732 73,952 - -

As of 30 September 2016, the Bank has no cash flow hedges (31 December 2015 – None).

As of 30 September 2016, the Bank has no hedge of net investment in foreign operations (31 December 2015 –

None).

3. Explanations on contingent liabilities and assets:

a.1) The Bank's share in contingent liabilities arising from entities under common control together with

other venturer: None.

a.2) Share of entity under common control in its own contingent liabilities: None.

a.3) The Bank‟s contingent liabilities resulting from liabilities of other venturers in entity under common

control: None.

b) Accounting and presentation of contingent assets and liabilities in the financial statements:

b.1) Contingent assets are accounted for, if probability of realization is almost certain. If probability of

realization is high, then it is explained in the footnotes. As of 30 September 2016, there are no

contingent assets that need to be explained.

b.2) A provision is made for contingent liabilities, if realization is probable and the amount can reliably be

determined. If realization is remote or the amount cannot be determined reliably, then it is explained in

the footnotes.

As of 30 September 2016, there are 1,044 continuing legal cases against the Bank based on information received

from the Law Department of the Bank. The total amount of these cases is TRL 55,274 Thousand. Provision amount

for these cases is TRL 18,570 Thousand. (According to the information obtained from the Law Department of the

Bank, as of 31 December 2015, numbers of continuing legal cases against the Bank were 1,160. Total amount of

those cases was TRL 52,159 Thousand. TRL 16,359 Thousand of provision was allocated for those cases).

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3. Explanations on contingent liabilities and assets (cont’d):

c) Explanations on revocable commitments: As of 30 September 2016, the Bank‟s revocable commitments

amount to TRL 994,537 Thousand (31 December 2015 - TRL 264,199 Thousand).

4. Custodian and intermediary services:

Information related with custodian and intermediary services is given in the financial structure section under the

name of the “Explanations related to transactions made on behalf of others and fiduciary transaction based on trust”

in XI item.

5. The information on the Bank’s rating by the international rating institutions:

The results of the ratings performed are shown below:

Fitch Ratings: February 2016

JCR: September 2016

Foreign Currency Foreign Currency

Long Term BB- International Long Term BBB-

Short Term B International Short Term A-3

Outlook Stable Local Currency

Local Currency International Long Term BBB-

Long Term BB- International Short Term A-3

Short Term B Outlook Negative Outlook Stable Long Term National AA- (Trk)

National A +(tur) Short Term National A-1+ (Trk)

Outlook

Viability

Negative Support Rating 2

Support Rating bb- Individual Rating AB

Foreign Currency 5

Moody’s: September 2016 Capital Intelligence: December 2015

Foreign Currency Foreign Currency

Long Term B1 Long Term BB

Short Term NP Short Term B

Local Currency Financial Strength Rate BB

Long Term B1 Support Rating 4

Short Term NP Outlook Negative

National Long Term Baa2.tr

National Short Term TR-3

Outlook Negative

Financial Strength Rate D

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IV. Explanations Related to the Income Statement

1. a) Information on interest income on loans:


TRL FC TRL FC

Interest on Loans (*) 1,548,973 114,681 1,385,570 99,466

Short Term Loans 792,631 25,801 688,270 30,175

Medium and Long Term Loans 740,180 88,880 683,189 69,291

Interest on Non-Performing Loans 16,162 - 14,111 -

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 - 340 - -

Domestic Banks 287 34 289 31

Foreign Banks - 1,425 98 1,363

Branches and Head Office Abroad - - - -

Total 287 1,799 387 1,394

c) Interest income from marketable securities portfolio:


TRL FC TRL FC

Trading securities 152 304 93 243

Financial assets at fair value through profit and loss - - - -

Available-for-sale securities 107,375 536 75,571 -

Held-to-maturity securities 88,782 38 79,056 24

Total 196,309 878 154,720 267

d) Information on interest income received from associates and subsidiaries:


Interest Income Received from Associates and Subsidiaries 3,825 4,828

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IV. Explanations Related to the Income Statement (cont’d)

2. a) Information on interest expense on funds borrowed:


TRL FC TRL FC

Banks (*) 10,767 57,073 2,986 49,777

The Central Bank of Turkey - - - -

Domestic Banks 2,583 1,967 2,986 1,684

Foreign Banks 8,184 55,106 - 48,093

Branches and Head Office Abroad - - - -

Other Financial Institutions - - - -

Total 10,767 57,073 2,986 49,777

(*) Includes fees and commission expenses of cash loans.

b) Information on interest expense to associates and subsidiaries:


Interest Expense to Associates and Subsidiaries 3,396 2,754

c) Information on interest expense to marketable securities issued:


TRL FC TRL FC

Interest expense on securities issued 84,755 - 63,921 -

d) Distribution of interest expense on deposits based on maturity of deposits:

Account Name 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 - 29,314 11,552 - - - - 40,866

Saving deposits 77 12,050 459,601 15,077 8,276 14,728 43 509,852

Public sector deposits - 51 364 61 95 38 - 609

Commercial deposits 10 10,791 100,796 1,961 1,996 3,206 1 118,761

Other deposits - 596 48,773 832 1,976 34 - 52,211

7 days call accounts - - - - - - - -

Precious metal deposits - - - - - - - -

Total 87 52,802 621,086 17,931 12,343 18,006 44 722,299

Foreign Currency

Foreign currency

deposits 113 734 31,641 2,807 2,500 12,996 - 50,791

Bank deposits 112 - 405 - - - - 517

7 days call accounts - - - - - - - -

Precious metal deposits 194 - - - - - - 194

Total 419 734 32,046 2,807 2,500 12,996 - 51,502

Grand Total 506 53,536 653,132 20,738 14,843 31,002 44 773,801

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3. Information on dividend income:


Trading Securities - -

Financial assets at fair value through profit and loss - -

Available-for-sale securities - -

Other 5,001 7,350

Total 5,001 7,350

4. Information on net trading income:


Income 5,832,458 9,347,750

Profit on capital market operations 28,698 5,871

Profit on derivative financial instruments 730,076 1,063,425

Foreign exchange gains 5,073,684 8,278,454

Losses (-) 5,929,180 9,511,415

Losses on capital market operations 422 575

Losses on derivative financial instruments 852,879 961,627

Foreign exchange losses 5,075,879 8,549,213

5. Information on other operating income:

The information on the factors affecting the Bank‟s income including new developments, and the explanation

on nature and amount of income earned from such items:

As of 30 September 2016, TRL 196,281 Thousand stated under other operating income in the statement of

income includes TRL 145,216 Thousand prior years‟ expense and provisions reversal income and TRL

51,065 Thousand other operating income.

As of 30 September 2016, prior years expense and provision reversal income includes TRL 53,187 Thousand

collection and reversal of specific provisions of cash loans, TRL 14,882 Thousand reversal of non-cash

provisions, TRL 2,624 Thousand of securities impairment provision reversal and TRL 74,523 Thousand

reversals of legal case provision and other provisions.

As of 30 September 2015, TRL 181,762 Thousand stated under other operating income in the income

statement includes TRL 109,669 Thousand prior years‟ expense and provisions reversal income and TRL

72,093 Thousand other operating income.

As of 30 September 2015, prior years expense and provision reversal income includes TRL 65,881 Thousand

collection and reversal of specific provisions of cash loans, TRL 21,959 Thousand reversal of non-cash

provisions, TRL 544 Thousand of securities impairment provision reversal and TRL 21,285 Thousand

reversal of legal case provision and other provisions.

Visa Europe Ltd, the payment systems company to which the Bank was also a member, has been transferred

to Visa Inc. operating in the same field, and TRL 14,225 Thousand that accrue for the Bank from this

transaction, has been credited with the Bank's accounts. Within the scope of the said sales, the Bank has also

acquired 1,574 units of C type shares of Visa Inc. which were recorded in the value of TRL 4,559 Thousand.

ŞEKERBANK T.A.Ş.



83




6. Provision expenses of banks for loans and other receivables:


Specific provisions for loans and other receivables 350,849 251,765

III. Group Loans and Receivables 72,430 55,425

IV. Group Loans and Receivables 98,145 80,672

V. Group Loans and Receivables 180,274 115,668

General loan loss provision expenses - 16,871

Provision expenses for possible losses - -

Marketable securities impairment losses 3,244 333

Financial assets at fair value through profit and loss 142 116

Investment securities available for sale 3,102 217

Impairment provision expense 1,096 303

Associates - -

Subsidiaries - -

Entities under common control - -

Investments held to maturity 1,096 303

Other (*) 40,470 47,561

Total 395,659 316,833

(*) Other provisions include TRL 21,172 Thousand unindemnified non-cash loans provision (30 September 2015 – TRL 12,041

Thousand unindemnified non-cash loan).

7. Information on other operating expenses:


Personnel expenses 265,797 271,554

Reserve for employee termination benefits 8,174 8,181

Bank social aid provision fund deficit provision - -

Impairment losses on fixed assets - -

Depreciation expenses of fixed assets 19,525 17,652

Impairment losses on intangible assets - -

Goodwill impairment losses - -

Depreciation expenses of intangible assets 22,899 15,813

Impairment for investments accounted for under equity method - -

Impairment losses on assets held for resale 396 51

Depreciation expenses of assets held for resale 8,727 9,656

Impairment losses on assets held for sale - -

Other operating expenses 238,277 213,602

Services Rent expenses 54,186 41,442

Maintenance expenses 13,305 10,211

Advertisement expenses 6,824 9,330

Other expenses (**) 163,962 152,619

Loss on sales of assets 243 84

Other (*) 98,486 77,372

Total 662,524 613,965

(*) “Other” includes TRL 32,458 Thousand premiums paid to the Saving Deposit Insurance Fund, TRL 3,574 Thousand legal case

provision and TRL 7,500 Thousand premium provision (30 September 2015 – TRL 18,500 Thousand to the Saving Deposit Insurance

Fund premium provision and TRL 1,640 Thousand legal case provision). (**) Other expenses include TRL 18,194 Thousand communication expenses, TRL 24,211 Thousand computer usage expenses, TRL

4,492 Thousand promotion applications related with credit cards and banking services (30 September 2015 - TRL 19,130 Thousand

communication expenses, TRL 13,054 Thousand computer usage expenses, TRL 4,245 Thousand promotion applications related with credit cards and banking services).

ŞEKERBANK T.A.Ş.



84




8. Information on profit/ (loss) from continued and discontinued operations before taxes:

Profit before tax of the Bank has increased by 13.81 % for the period ended 30 September 2016 as compared

to the related prior period. In comparison with the related prior period, the Bank‟s operating income increased

by 13.69 %, net fees and commissions‟ income increased by 1.86 %, provision expenses increased by 24.88

%, other operating income increased by 7.99 % and other operating expenses increased by 7.91 %.

9. Information on tax provision for continued and discontinued operations:

a) As of 30 September 2016, current tax charge is TRL 23,399 Thousand (30 September 2015 – TRL 2,956

Thousand current tax charge) and deferred tax benefit is TRL 8,974 Thousand (30 September 2015– TRL

13,109 Thousand deferred tax benefit).

b) Deferred tax benefit on temporary differences is TRL 8,974 Thousand (30 September 2015 – TRL 13,109

Thousand deferred tax benefit).

10. Information on net profit/ (loss) from continued and discontinued operations:

The net profit of the Bank decreased for the period ended 30 September 2016 by 23.19 % as compared to the

related prior period profit.

11. The explanations on net profit/ (loss) for the period:

a) The nature and amount of certain income and expense items from ordinary operations is disclosed if the

disclosure for nature, amount and repetition rate of such items is required for the complete understanding of

the Bank's performance for the period: None.

b) Effect of changes in accounting estimates on income statement for the current and, if any, for subsequent

periods: None.

c) If the other items in the income statement exceed 10 % of the income statement total, accounts amounting

to at least 20 % of these items are shown below:

Other Fees and commissions received Current Period Prior Period

Banking Services Income 211,021 198,642

Other Fees and commissions given Current Period Prior Period

Fees and commissions given to Banks 8,788 8,797

Fees and commissions given for Credit Cards 22,514 16,729

Other 17,400 14,941

Total 48,702 40,467

d) Nature and amount of changes in accounting estimates, which have a material effect on current period or

expected to have a material effect on subsequent periods: None.

ŞEKERBANK T.A.Ş.



85



V. Explanations on the Risk Group of the Bank

1. Volume of related party transactions, income and expense amounts involved and outstanding loan and

deposit balances:

a) Current Period:

Related Parties Subsidiaries and Associates

Direct and Indirect

Shareholders of the Bank

Other Entities Included

in the Risk Group

Cash Non-Cash Cash Non-Cash Cash Non-Cash

Loans and other receivables

Balance at beginning of period 26,266 21,219 398,308 47,233 - -

Balance at end of period 24,718 17,669 398,439 49,065 - -

Interest and commission income 3,825 143 19,629 437 - -

b) Prior Period:


Direct and Indirect Shareholders of the Bank

Other Entities Included in the Risk Group

Cash Non-Cash Cash Non-Cash Cash Non-Cash

Loans and other receivables



Interest and commission income 4,828 105 19,034 262 - -

c.1) Information on related party deposits balances:

Related parties Subsidiaries and Associates

Direct and Indirect



in the Risk Group

Deposits

Current

Period

Prior

Period

Current

Period

Prior

Period

Current

Period

Prior

Period



Interest on deposits 3,396 2,754 7,591 4,837 - -

c.2) Information on forward and option agreements and other similar agreements made with related parties:


Direct and Indirect



in the Risk Group

Current

Period

Prior

Period

Current

Period

Prior

Period

Current

Period

Prior

Period

Transactions Held for Trading

Beginning Balance 394,816 369,385 - - - -

Ending Balance 395,747 394,816 - - - -

Total Profit/Loss (*) (59,607) (82,938) - - - -

(*)The Bank and its subsidiaries do not conduct derivative transactions “for-profit”, derivative transactions for hedging is carried out in the

framework of subsidiaries’ risk management policy. The risks arising from derivative transactions conducted with subsidiaries are covered by the derivative transactions with third parties.

ŞEKERBANK T.A.Ş.



86



V. Explanations on the Risk Group of the Bank (cont’d)

2. Disclosures for related parties:

a) The relations of the Bank with the entities controlled by the Bank and its related parties, regardless of

whether there are any transactions or not:

In the normal course of its banking activities, the Bank conducted various business transactions with related

parties at commercial terms and at rates which approximate market rates.

b) Nature of the transactions amount and ratio to the total volume of transactions, amount of major items and

ratio to all items, pricing policies and other factors:

Amount Shares (%)

Cash loans 423,157 2.60

Non-cash loans 66,734 1.44

Deposits 254,857 1.72

Forward transactions and option agreements 395,747 3.31

These transactions are priced in accordance with the general pricing policies of the Bank and are in line with

market rates.

c) In cases separate disclosure is not necessary, in order to present the total impact on the financial statements,

total of similar items: Explained in b).

d) Transactions accounted under the equity method: None.

e) Disclosures related to purchase and sale of real estate and other assets, services given/received, agency

contracts, leasing contracts, transferring information as a result of research and development, license

contracts, financing (including supports in the form of loans, capital in cash and capital in kind), guarantees,

and management contracts:

The Bank enters into lease agreements with Şeker Finansal Kiralama A.Ş. As of 30 September 2016 the total

leasing obligations related to those agreements amounted to TRL 136 Thousand (31 December 2015 - TRL

484 Thousand). Additionally, the Bank provides agency services for Şeker Yatırım Menkul Değerler A.Ş.

through its branches.

With-in the limits of the Banking Law, the Bank renders cash and non-cash loans to its related parties and the

ratio of these loans to the Bank‟s total cash and non-cash loan portfolio is 2.34 % as of end of the reporting

period. Details of these loans are explained in the Section V, Note VII 1a.

As of 30 September 2016 the Bank 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 top management personnel during current period amount to TRL 11,047 Thousand (30

September 2015 - TRL 16,606 Thousand).

ŞEKERBANK T.A.Ş.



87



VI. Explanations and notes related to subsequent events:

None.

SECTION SIX

AUDITORS’ REVIEW REPORT

I. Explanations on the Auditors’ Review Report:

The unconsolidated financial statements for the nine-month period ended 30 September 2016 were audited by Akis

Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik AŞ (the Turkish member firm of KPMG International

Cooperative, a Swiss entity) and Auditors‟ Review Report dated 8 November 2016 is presented in the introduction

of this report.

II. Other Footnotes and Explanations Prepared by Independent Auditors:

None.

ŞEKERBANK T.A.Ş.



88

SECTION SEVEN (cont’d)

INFORMATION ON INTERIM ACTIVITY REPORT

I. Board of Directors Chairman’s Assesments on Interim Report

Esteemed Shareholders,

The global economy, especially in developed countries, has been experiencing a growth problem for a long time and

this stagnancy in world commerce cannot be overcome. Despite all political risks and global fluctuations, Turkey,

having 4 percent growth, has succeeded in becoming the fourth fastest growing G-20 country in 2015. Although in

the Medium Term Program the 2016 the growth goal was revised as 3.2% and the 2017 goal was revised as 4.4%,

these rates indicate a strong performance compared to developing countries and the world growth.

Despite all international prejudices, the whole world has seen again how strong the Turkish economy is with all the

main economic indicators going back to normal after our government and our people united to eliminate the heinous

coup attempt of July 15.

The necessary measures taken promptly by the Government and the rulers of the finance sector, like the Central

Bank and the Banking Regulation and Supervision Agency, as well as the unity of the business society and citizens

along with the government enabled Turkey to get back into normal stance in a short span of time. The Turkish

economy has attained great gains in the last 15 years. The financial stability, the relatively low rates of indebtedness,

strong financial system and growth potential have made Turkey‟s economy strong. In this context Turkey continues,

despite the recession in the global economy, to be one of the safest ports for international investors with its strong

history of growth and potential.

The government has recently introduced a broad reform program aimed atsavings increase, finance growth,

maintenance of the budget balance, and increase of the technology part in the industrial production, increase of

export and local and foreign direct investments through improving the investment environment. The “Turkey

Wealth Fund” that will provide long term affordable financing for large infrastructure investments, the “Automatic

Individual Retirement System” comprising the second leg of public social security, the new tax and R&D

regulations have been gone into effect. Also, applications like the incentive system focused on medium and high

technologies will forge the path for the Turkish economy and accelerate production.

As for Şekerbank, following our responsible banking approach for 63 years since its foundation, we have been

always considering ourselves as a whole with our customers and our country, we have always strived to show our

devotion under any circumstances and continue our activities today with this same sense of responsibility. In the

upcoming period we will continue to support production, commerce, investments and export financing with the

same decisiveness to reach the sustainable growth speed that will reveal the potential of Turkey.

Sincerely,

Dr. Hasan Basri Göktan

Chairman of the Board of Directors

http://tureng.com/en/turkish-english/get%20back%20into%20circulation

http://tureng.com/en/turkish-english/industrial%20production

ŞEKERBANK T.A.Ş.



89


INFORMATION ON INTERIM ACTIVITY REPORT (cont’d)

II. General Manager’s Assesments on Interim Report Esteemed Stakeholders,

According to the unconsolidated financial statements as of 30 September 2016 the assets reached TL 23 billion and

the profit was TL 54 million as of nine months of this year. In 2016 we continued supportting the real sector by

extending loans, which constitute 71 percent of the assets, the rate much higher than the sector average. As of 30

September 2016, 90 percent of our total loan portfolio amounted at TL 16.3 billion is consisted of commercial loans

or in other words loans for agriculture, craftsmen, small enterprises, SMEs and corporate loans.

Our widespread and deep rooted deposit base grew even stronger this year, while equity reaches TL 2.5 billion

according to the unconsolidated financial statements as of 30 September 2016. While according to the

unconsolidated financial statements the ratio of deposits to the total liabilities was 53 percent for the Turkish

banking sector, the same ratio as per the financial statements of Şekerbank as of 30 September 2016 was 65 percent.

70 percent of TL 15 billion deposit base were attributed to individual savings. We will continue being the reliable

address for wide range savings through our branch network located in 71 provinces and nearly 100 off-center

districts that has been in the same location for half a century.

In the last period we became more focused on supportting the production in line with our Community Banking

mission, which we are realizing during the 63 years. On the occasion of our 63-year anniversary, during the last

month Şekerbank provided TL 100 million finance for craftsmen and small businesses at a very appropriate cost of

only TL 63, no commission and interest rate decreased 1.17.

As a Company, which during the 63 years has been providing a wide range of society members from rural to urban

areas with finance for production and investment based growth, we will continue increasing our support for the

country to reach its potential growth, taking on our share of the responsibility.

Sincerely,

Servet Taze

General Manager

ŞEKERBANK T.A.Ş.



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INFORMATION ON INTERIM ACTIVITY REPORT (cont’d)

III. Şekerbank by Numbers

Financial Highlights (TL thousand) 30.09.2016 30.09.2015

Assets 22,846,053 23,776,650

Loans (Net) 16,268,893 16,520,771

Securities 2,484,135 2,696,073

Equity 2,444,877 2,425,816

Deposits 14,842,666 14,908,844

Profit Before Taxation 68,360 60,063

Net Profit 53,935 70,216

Financial Ratios 30.09.2016 30.09.2015

Securities / Assets 10.87 11.34

Loans (Net) / Assets 71.21 69.48

Deposits / Assets 64.97 62.70

IV. Financial Standing, Profitability, and Solvency

Şekerbank earned TRL 53,935 Thousand net profit during the nine months of 2016. Total assets reached TRL

22,846,053 Thousand. As of 30 September 2016 loans were 71.21% of the total assets.

Securities portfolio is TRL 2,484,135 Thousand. The share of deposits of the Bank has reached 64.97% of the

liabilities and net worth. As of 30 September 2016 the Bank‟s equity is TRL 2,444,877 Thousand.

The Bank posted TRL 811,958 Thousand as net interest income and TRL 210,025 Thousand as net fee and

commission income.