Kuveyt Turk Katilim Bankasi: Annual Report 2017 (2024)

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1. 2017 ANNUAL REPORT KUVEYT T ÜRK 2017 ANNUAL REPORT Head Office Büyükdere Cad. No: 129/1 Esentepe 34394 Şişli/İstanbul Tel: +90 212 354 11 11 (pbx) www.kuveytturk.com.tr Call Center: 444 0 123
2. CONTENTS SECTION 1 : INTRODUCTION 04 Summary of Financial Indicators 06 Agenda of the Ordinary General Assembly 07 Shareholding and Capital Structure 08 Amendments to the Articles of Association 10 Kuveyt Türk in Brief 14 The Story of 28 Successful Years 18 About Kuveyt Türk 20 Message from the Chairman 22 Message from the CEO SECTION 2: OPERATIONS IN 2017 26 Commercial and Corporate Banking Group 28 Loans 30 Retail Banking 38 SME Banking 42 Strategy 52 Treasury and International Banking 57 Financial Affairs 64 Risk, Control and Compliance Group 72 Banking Service Group 86 Corporate Social Responsibility and Sustainability 90 Awards SECTION 3: MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES 94 Board of Directors 97 Senior Management 101 Organizational Chart 102 Summary Report of the Board of Directors Submitted to the General Assembly 103 Executives within Internal Systems 104 Senior Management Committees 106 Related Party Transactions 107 Outsourced Services SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES 110 Annual Report Compliance Opinion 111 Review of the Audit Committee on Internal Systems 114 Assessment on Financial Status, Profitability and Solvency 114 Ratings of Kuveyt Türk by International Rating Agencies 115 Information on Risk Management Policies 116 Five-Year Summary Financial Information 117 Independent Auditor’s Report, Unconsolidated Financial Statements and Notes 241 Independent Auditor’s Report, Consolidated Financial Statements and Notes 368 Contact Information and Branch Directory
3. Kuveyt T ürk maintains its pioneering role in developing participation banking instruments. We are boosting productivity through operational centralization, digitalization, automated processes and decision support systems. We continue to offer a distinctive customer experience on digital channels by developing technology-oriented, innovative products and services.
4. Approaching our 30th year as a bank achieving steady growth and we sustain our leading position in the sector thanks to our above-industry performance .
5. SECTION I : INTRODUCTION 04 Summary of Financial Indicators 06 Agenda of the Ordinary General Assembly 07 Shareholding and Capital Structure 08 Amendments to the Articles of Association 10 Kuveyt Türk in Brief 14 The Story of 28 Successful Years 18 About Kuveyt Türk 20 Message from the Chairman 22 Message from the CEO
6. 4 SECTION I : INTRODUCTION SUMMARY OF FINANCIAL INDICATORS HIGH PERFORMANCE SUCCESFUL RESULTS... Drawing from its robust financial structure, Kuveyt Türk achieved successful financial and operational results in 2017. Summary of Financial Indicators (thousand TL)* 2015 2016 2017 Profit Sharing Income 2,564,838 3,110,435 3,850,986 Profit Sharing Expense 1,096,026 1,440,566 1,716,773 133,942 152,970 241,002 Other Revenues 368,203 469,153 477,101 Other Expenses 1,417,481 1,628,780 2,003,383 -108,795 -121,246 -176.942 444,681 541,966 673,991 42,052,507 48,476,955 57,123,095 3,402,490 3,912,064 4,591,151 14.23 18.16 17.66 Net Fee and Commission Income Tax Charge Net Profit for the Period Total Assets Total Shareholders’ Equity Capital Adequacy Ratio (%) *BRSA unconsolidated figures
7. KUVEYT T ÜRK 2017 ANNUAL REPORT 5 Profit Sharing Income (TL Million) Total Assets (TL Million) INCREASE INCREASE 23.81% 17.84% 20152,565 201542,053 20163,110 201648,477 2017 3,851 2017 57,123 Net Fee and Commission Income (TL Million) Total Shareholders’ Equity (TL Million) INCREASE INCREASE 57.55% 17.36% 2015134 20153,402 2016153 20163,912 2017 241 Net Profit for the Period (TL Million) 2017 4,591 Capital Adequacy Ratio (%) INCREASE 24.36% 2015445 201514.23 2016542 201618.16 2017 674 2017 17.66
8. 6 SECTION I : INTRODUCTION AGENDA OF THE ORDINARY GENERAL ASSEMBLY KUVEYT TÜRK KATILIM BANKASI A.Ş. BOARD OF DIRECTORS MEETING Place of Meeting : Headquarters Date of Meeting : 24.01.2018 Meeting Number : 1700 Board Members : Hamad Abdulmohsen AL MARZOUQ Adnan ERTEM Khaled N. AL FOUZAN Mohamad AL MIDANI Mazin S.A.S AL NAHEDH Nadir ALPASLAN Fawaz KH E ALSALEH Ahmad S. AL KHARJI Uf*ck UYAN AGENDA OF THE MEETING 1. Decision on the date and agenda of Annual Ordinary General Assembly. RESOLUTION NR:1 The Board of Directors has unanimously resolved to hold the Annual Ordinary General Assembly of Kuwait Turkish Participation Bank Inc. at Company headquarters on 29 March 2018 at 15:00 o’clock to discuss the following agenda and gave authority to the General Management to fulfill the required preparation. AGENDA OF THE ANNUAL ORDINARY GENERAL ASSEMBLY RELATED WITH 2017 1. Opening and constitution of the Presidential Board. 2. To grant authority to the Presidency to sign the minutes of the General Assembly and the list of participants. 3. Discussion and approval of the Annual Report for fiscal year 2017. 4. Discussion and approval of the Financial Statements for fiscal year 2017. 5. Discussion of independent audit report written by independent auditor for fiscal year 2017. 6. Releasing of the Board of Directors related to their efforts in 2016. 7. Decision on the Board of Directors offer about the profit distribution of fiscal year 2017. 8. Discussion and approval of the amendments of the Articles of Association related to Article 7 as attached. 9. Discussion and approval of paying salary, attendance fee, bonus and dividend to the Chairman and other Board Members for their Board Membership and/or other committee memberships. 10. With the current Board of Directors coming to the end of its term, determining the number of Directors for the incoming Board, electing the Directors, and setting their terms of duty. 11. Appointment of the Independent Auditors and determination of the contact period. 12. Providing information by the Board of Directors on external audit in accordance with Banking Law no: 5411 and the related regulations. 13. Providing information on bonus payments to personnel in accordance with the Banking Regulation and Supervision Agency’s decision on profit distribution. 14. Discussion and approving of reflecting participation accounts’ portion of provision expenses, which set aside according to 14/2 article of Communiqué of Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans of BRSA, to expense accounts. Turkish Commercial Code’s related provisions reserved. 15. To grant authority to the Board members to execute the deals written in the Turkish Commercial Code 395 and 396 Articles. 16. Wishes and proposals. The contents of this decision have been read and understood by the following Board members in their own language agreed on. Hamad Abdulmohsen AL MARZOUQ Nadir ALPARSLAN Adnan ERTEM Fawaz KH E ALSALEH Khaled N. AL FOUZAN Ahmad S. AL KHARJI Mohamad AL MIDANI Uf*ck UYAN Mazin S.A.S AL NAHEDH
9. KUVEYT T ÜRK 2017 ANNUAL REPORT 7 SHAREHOLDING AND CAPITAL STRUCTURE SOLID AND STRONG SHAREHOLDING STRUCTURE Kuveyt Türk’s largest shareholder, Kuwait Finance House (KFH) with its robust financial infrastructure and top-notch banking services, is a prestigious financial institution. Other real and legal shareholders* 1.04% Islamic Development Bank 9.00% Kuwait Finance House 62.24% Kuwait Public Institution for Social Security 9.00% Republic of Turkey General Directorate of Foundations 18.72% *The Chairman and the Members of the Board of Directors, Audit Committee Members, Chief Executive Officer and the Vice Presidents have a 0.11% share in the Bank’s capital.
10. 8 SECTION I : INTRODUCTION AMENDMENTS TO THE ARTICLES OF ASSOCIATION In 2017, Article 7 and Article 37 of the Articles of Association concerning the Capital and Meetings of the Board of Directors were amended. OLD TEXT NEW TEXT CAPITAL AND SHARES CAPITAL AND SHARES ARTICLE 7 - The capital of the Bank is TL 2,790,000,000.(Two Billion Seven Hundred And Ninety Million Turkish Lira) which is divided into TL 2,790,000,000.- (Two Billion Seven Hundred And Ninety Million) shares each with a nominal value of TL 1. The shares are issued in the name of the shareholders. ARTICLE 7 - The capital of the Bank is TL 3,100,000,000 (Three billion and one hundred million Turkish Lira) which is divided into TL 3,100,000,000 (Three billion and one hundred million) shares each with a nominal value of TL 1.- The shares are issued in the name of the shareholders. Out of TL 2,790,000,000.- (Two Billion Seven Hundred And Ninety Million Turkish Lira) capital; Out of TL 3,100,000,000 (Three billion and one hundred million Turkish Lira) capital; a) TL 2,530,000,000.- (Two Billion Five Hundred And Thirty Million Turkish Lira) is paid fully. a) TL 2,790,000,000 (Two billion seven hundred and ninety million Turkish Lira) is fully paid. b) The TL 259,523,504.- ( Two Hundred and Fifty Nine Million Five Hundred and Twenty Three Thousand Five Hundred Four Turkish Lira) of the increased amount of TL 260,000,000.- (increasing capital) (Two Hundred Sixty Million Turkish Liras) is provided in full from the retained earnings of 2015 (fully from internal resources). Against this capital increase shareholders will be given bonus shares in proportion to their shares. b) The TL 121,801,311.- (One hundred twenty one million eight hundred one thousand three hundred and eleven Turkish Lira) of the increased amount of TL 310,000,000 (Three hundred and ten million Turkish Lira) is provided in full from the profit of 2016 (fully from internal resources). Against this capital increase shareholders will be given bonus shares in proportion to their shares. The added capital of TL 476,496.- (Four Hundred Seventy Six Thousand And Four Hundred Ninety Six Turkish Liras) is provided from the profit of Bank earned within the scope of the Law no 5746 and transferred to the other reserves (fully from the internal resources) in 2015. Against this capital increase shareholders will be given bonus shares in proportion to their shares. The added capital of TL 659,551.- (Six hundred fifty nine thousand five hundred and fifty five Turkish Lira) is provided from the profit of Bank earned within the scope of the Law no 5746 and transferred to the other reserves (fully from the internal sources) in 2016. Against this capital increase shareholders will be given bonus shares in proportion to their shares. The added capital of TL 187,539,138.- (One hundred eighty seven million five hundred thirty nine thousand hundred and thirty eight Turkish Lira) is provided from the profit of Bank earned within the scope of the Law no 5520 Article 5/1-e and has been kept in the other reserves (special fund).
11. KUVEYT T ÜRK 2017 ANNUAL REPORT 9 OLD TEXT NEW TEXT MEETINGS OF THE BOARD OF DIRECTORS ARTICLE 37 - The Board of Directors shall meet as the affairs of Bank may require and/or upon the invitation of the Chairman or the General Manager. Each Director may ask the Chairman in writing to convene a Board meeting. Nevertheless, the Board is required to hold at one time in every quarter and at least six meetings in a fiscal year. Board meetings shall be held both bodily or electronically in a manner that all or any part of the Directors could attend the meeting in electronically in accordance with Article 1527 of the Turkish Commercial Code. Board meetings shall be held at Bank headquarters. However, the Board may convene at another place and/or country upon the approval of the majority of Directors. MEETINGS OF THE BOARD OF DIRECTORS ARTICLE 37 - The Board of Directors shall meet as the affairs of Bank may require and/or upon the invitation of the Chairman or the General Manager. Each Director may ask the Chairman in writing to convene a Board meeting. Nevertheless, the Board is required to hold at one time in every quarter and at least six meetings in a fiscal year. Board meetings shall be held both bodily or electronically in a manner that all or any part of the Directors could attend the meeting in electronically in accordance with Article 1527 of Turkish Commercial Code. Board meetings shall be held at Bank headquarters. However, the Board may convene at another place and/ or country upon the approval of the majority of Directors. The Directors could attend the meeting in electronically in accordance with Article 1527 of the Turkish Commercial Code. The Bank could set the Electronic Meeting System in order for the beneficiaries to participate the meeting and vote by electronically or buy service from the systems established for this purpose in accordance with the articles of Communique on the Boards Hold In Electronically in Trading Companies Other Than the General Meetings in Joint Stock Companies. The Bank ensures that the beneficiaries could exercise their rights mentioned in the related legislation pursuant to the Communique by means of the system established in accordance with this article or support system. Board meetings could completely be held electronically or some part of the Directors could attend the meeting that some Directors attend bodily pursuant to Article 1527 of the Turkish Commercial Code. Unless a discussion is demanded by another Director, resolutions may be adopted by obtaining bodily or electronically approvals of the Directors (with the procedure of circulation by hand) for any proposal made by a Director.
12. 10 SECTION I : INTRODUCTION KUVEYT TÜRK IN BRIEF THE PIONEERING POWERHOUSE OF PARTICIPATION BANKING... Having concluded 28 years brimming with achievements, Kuveyt Türk remains the pioneering powerhouse of participation banking in Turkey with its dynamic corporate governance approach, innovative products and involvement in international markets. TL 14 billion A major contributor for deepening and developing the Sukuk market in Turkey, Kuveyt Türk has issued sukuks worth over TL 14 billion to date. The Bank started its activity as a Private Finance House on 31 March 1989 through the permit of Central Bank of Turkey dated 28 February 1989 and under the trade name of Kuveyt Türk Finance Institution of Foundations Joint Stock Company, then started to provide service in 1999, in accordance with the Banking Law numbered 4389, together with other private financial institutions, in 2006, it has been renamed as Kuveyt Türk Katılım Bankası A.Ş. (Kuveyt Türk) that it uses today. Having celebrated its 28th year in Turkey in 2017, Kuveyt Türk remains the pioneer in Turkey’s participation banking industry with its dynamic corporate governance approach, innovative products, and involvement in international markets. In Turkey and around the world, by means of its own branch network and correspondent banks, Kuveyt Türk delivers fast, top-quality services to savers and investors, by employing a wide range of state-of-the-art technologies. As well its banking transactions, the Bank plays a major role in the local economy through investments across a range of industries, from textiles to manufacturing and real estate. Since its establishment, Kuveyt Türk has been committed to meticulous interest-free banking services, extensive research in investment areas, delivery of cutting-edge, consistent, top-quality and swift services to savers and businessmen, and continuous employee training to achieve higher productivity.
13. KUVEYT T ÜRK 2017 ANNUAL REPORT 11 ROBUST CAPITAL STRUCTURE Some 62.24% of the Bank’s shares are owned by Kuwait Finance House, 18.72% by the Turkish General Directorate of Foundations, 9% by the Kuwait Public Institution for Social Security, 9% by Islamic Development Bank, and the remaining 1.04% by other real and legal entities. With a strong capital structure and an efficient international service network, Kuwait Finance House (KFH) is Kuveyt Türk’s largest shareholder and the pillar supporting the Bank’s consistent growth performance. TRUST-INSPIRING FINANCIAL POWER Standing out with its powerful capital structure and dynamic corporate governance philosophy, Kuveyt Türk had TL 3.1 billion in paid-in capital as of end-2017. The Bank’s total unconsolidated assets amounted to TL 57 billion at year’s end with shareholders’ equity of TL 4.6 billion. WELL-EDUCATED, TALENTED AND DEDICATED WORKFORCE The pioneer of participation banks in Turkey, Kuveyt Türk operates via 399 branch locations across Turkey, with 5,749 personnel. Embracing the latest business techniques, corporate processes and service approaches, almost all of Kuveyt Türk’s competent, young and dynamic staff are university graduates. PIONEER IN GOLD BANKING Kuveyt Türk started gold banking in 2007 and began to organize Gold Days in 2011. To date Kuveyt Türk has collected 13.1 tons of “gold under the pillow” and integrated it into the economy. Ranking third among all banks in the gold banking sector with 12% market share, Kuveyt Türk is the leader among the participation banks with 63% market share as of 2017 year-end. Continuing to be the leader among the banks with the highest gold trading volume in the Borsa İstanbul (BIST) Precious Metals and Stones Market, Kuveyt Türk became the first participation bank to earn the title Market Maker in the BIST Precious Metals and Stones Market in 2017.
14. 12 SECTION SECTION I : INTRODUCTION I: INTRODUCTION KUVEYT TÜRK IN BRIEF EXCELLENT TECHNOLOGICAL INFRASTRUCTURE Working to ensure that the full range of physical branch services are also available in an end-to-end digital environment, Kuveyt Türk aims to offer its customers the widest possible array of banking transactions on mobile platforms, enabling them to swiftly conduct a range of transactions, from transferring funds to paying bills or from precious metal and foreign exchange transactions to stock trading, wherever they are, without having to pay any fees. In addition to pioneering services such as Senin Bankan, the first interest-free digital banking platform in the industry, XTM branches combining the functions of a call center, conventional branch and ATM, and QR-code withdrawals via the Mobile Branch; Kuveyt Türk introduced a new function to transfer money to mobile phones via the Mobile Branch, facilitating life considerably for its customers. Thanks to this innovative approach in alternative distribution channels, the total number of digital customers including those on Senin Bankan reached 750,000. Kuveyt Türk customers can now conduct 80% of their banking transactions via alternative distribution channels. THE BANK THAT INTRODUCED SUKUK TO TURKEY Since it took an unprecedented step in Turkey by entering the sukuk market in 2010, Kuveyt Türk maintained its leading position for deepening and developing the sukuk market, with the total worth of sukuk issued thus far in Turkey and abroad in various denominations including US dollar, Malaysian ringgit and Turkish lira amounting to more than TL 14 billion. Of this total, sukuk worth TL 7 billion is currently being traded on various markets. Over the course of 2017, Kuveyt Türk issued sukuks with a total worth TL 2.33 billion, achieving a 35% year-on-year increase, while in September 2017, it broke a new record for the highest value single-issue sukuk export in TL denomination with a sukuk issue worth TL 400 million on a 106-day maturity. Furthermore in 2017, with Turkey’s largest operational fleet leasing brand built on 100% local capital DRD Fleet Leasing as the Beneficiary and Obligator, Kuveyt Türk made the initial public offering of sukuks worth TL 50 million with a 728-day maturity through its wholly-owned subsidiary KT Sukuk Varlık Kiralama A.Ş. while also acting as the intermediary for Turkish Grain Board (TMO) to issue sukuks worth TL 100 million with a 88-day maturity, where physical agricultural commodities were used as underlying assets to finance trade for the first time in Turkey. TOTAL SHAREHOLDERS EQUITY TL 4.6 BILLION Kuveyt Türk’s shareholders equity reached TL 4.6 Billion as of end-2017. TL 3.1 BILLION IN PAID-IN CAPITAL Kuveyt Türk has TL 3.1 billion in paid-in capital as of end-2017.
15. KUVEYT T ÜRK 2017 ANNUAL REPORT 13 STANDING BY THE REAL ECONOMY Kuveyt Türk ranks among the strongest players in the Turkish finance sector in terms of capital adequacy. In line with its interest-free banking approach, the Bank supports investors, whether real or legal persons, by means of direct financing or joint investments, thereby standing by real economy players and contributing to the national economy under all economic conditions. With its investments and subsidiaries in the textile, metal, food and real estate industries, Kuveyt Türk transforms the savings of its customers, who are its profit partners, into robust and lucrative investments. In recognition of its achievements, Kuveyt Türk was presented with awards from public agencies and vocational associations such as the Undersecretariat of Treasury and Foreign Trade, İstanbul Chamber of Commerce and the Association of İstanbul Ready-Made Garment Exporters. FINANCIAL BRIDGE BETWEEN TURKEY AND THE WORLD Powered by the vast correspondent network and interest-free banking experience of Kuwait Finance House, Kuveyt Türk constitutes a financial bridge among Turkish investors keen on opening up to the Gulf Region and the rest of the world. Contributing to the development of trade between Turkey and the Gulf Region via its Bahrain branch, Kuveyt Türk entered the European market with its wholly-owned subsidiary KT Bank AG, which commenced operations in Germany in 2015. KT Bank AG is the first participation bank established in Germany. Following the recent inauguration of the Cologne branch, KT Bank AG now operates at four branches. The Bank expends relentless efforts to design international projects to create new opportunities for investors. NET PROFIT FOR THE PERIOD TL 674 MILLION NET FEE COMMISSION INCOME TL 241 MILLION Kuveyt Türk’s net profit for the period increased to TL 674 million by end-2017. Kuveyt Türk’s net fee commission Income increased to TL 241 million by end-2017.
16. 14 SECTION I : INTRODUCTION THE STORY OF 28 SUCCESSFUL YEARS Providing a multitude of financial products and services, and contributing to the economy, Kuveyt Türk has maintained a pioneering position in the industry for 28 years. 1989 1991 Kuveyt Türk was established with the title, Kuveyt Türk Evkaf Finans Kurumu A.Ş. on March 31, 1989 under the authorization, dated February 28, 1989, of the Central Bank of the Republic of Turkey. As a result of international banking services provided during the year, the Bank ensured a foreign currency inflow of USD 39 million from exports and other items. 1990 1992 Kuveyt Türk was deemed worthy of the Gold Medallion for its contributions to the ready-to-wear industry. Kuveyt Türk’s founding capital doubled. State Economic Enterprises were granted their first loan from the Gulf Region thanks to Kuveyt Türk. Total funding extended by Gulf nations amounted to USD 50 million. 1993 Kuveyt Türk’s Head Office and branches became linked online to each other. 1994 The Head Office moved to its new building. 1998 Kuveyt Türk launched its first credit card. The first public housing development project— Huzur—was completed, with the residential units delivered to their owners. 1995 In recognition of its support to exports, the Bank garnered the Gold Prize from the Association of İstanbul Ready-Made Garment Exporters. 1996 Körfez Gayrimenkul A.Ş. was established as a subsidiary of Kuveyt Türk. 1999 The Bank started to deliver its operations, subjected to the Banking Law No. 4389. 2000 The Bank started providing individual banking services. The Bank became the first interest-free financial institution in Europe to receive ISO 9001-2001 Quality Certification. 1997 Kuveyt Türk’s total branch network expanded to 16 locations. 2001 The Bank introduced the Palmiye Card, the first commercial card with instalment payments.
17. KUVEYT T ÜRK 2017 ANNUAL REPORT 15 2010 2004 Kuveyt Türk opened its first representative office in Mannheim, Germany. 2002 Kuveyt Türk became the first private financial institution to be a direct member of Visa. 2003 In order to offer interest-free banking services nationwide, Kuveyt Türk reached an agreement with the Turkish Postal System (PTT), which has nearly 1,000 branches. 2005 The Bank received an achievement award from İstanbul International Finance Forum for its contributions to the interest-free banking sector. 2006 Assumed the name of Kuveyt Türk Katılım Bankası A.Ş (Kuveyt Türk) which is still in use. The international rating agency Fitch Ratings upgraded Kuveyt Türk’s individual rating from D/E to D and its long term national rating from AA (-) to AA (tur). The four-year, USD 50 million murabaha syndication secured by Kuveyt Türk for GAP Güneydoğu Tekstil became the longest term loan secured from Gulf countries up to that time. Kuveyt Türk became the first participation bank to launch foreign currency forward trading with a fixed exchange rate. Issuing the first sukuk security under the coleadership of LH (Liquidity Management House) and Citibank, the Bank introduced Turkey to this financial instrument used widely across the Gulf Region and Malaysia. The three-year, USD 100 million issuance was 1.5 times oversubscribed as a result of ample interest from the world’s major financial centers. As the first and only participation bank on the Istanbul Gold Exchange, Kuveyt Türk started selling gold in grams and thereby took the first step in the field of Gold Banking. International rating agency Fitch Ratings raised Kuveyt Türk’s long term local currency credit rating from BBB- to BBB in December 2010, while also raising its outlook to positive. 2007 2008 The two-year, USD 200 million murabaha syndication secured by Kuveyt Türk from banks in the Gulf Region and Europe was not only oversubscribed by USD 265 million, but also significantly bolstered the Bank’s reputation in international markets. Kuveyt Türk unveiled many innovative products including Gold Swap, Gold for Gold, and Gold Check. 2009 Between 2008-2016, it provided services at Dubai International Finance Center (DIFC) as a bank subsidiary with capital of USD 12 million. The representative office in Germany was transformed into the Financial Services Branch. 2011 In 2011, Kuveyt Türk completed its second sukuk issuance backed by sukuks, securing a USD 350 million foreign resource for the Turkish economy. Improving its service network in terms of quality and speed, Kuveyt Türk increased its total number of domestic and overseas branches to 180. In 2011, Kuveyt Türk became the first and only Turkish bank, and the world’s first participation bank, that was accepted to the London Bullion Market Association (LBMA) as an “Associate.”
18. 16 2012 Kuwait Finance House ’s subsidiary, Liquidity Management House, became one of the three companies to support the Undersecretariat of Treasury in its five-year sukuk issuance worth USD 1.5 billion–the first of its kind in Turkey. Kuveyt Türk participated in the referenced transaction as co-leader. Following its Gold Plus Gold Fund, Kuveyt Türk also issued silver funds under the name Silver Plus. The Silver Plus Investment Fund commenced trading on the Istanbul Stock Exchange. 2014 Kuveyt Türk completed the XTM project, which offers video chat and self-service transactions at the same time, the first of its kind in the world. This innovative service was offered to customers at 22 locations across Istanbul. The latest version of Kuveyt Türk’s Mobile Branch features new functionality and offerings as well as an enhanced user experience. Kuveyt Türk became the first bank in Turkey to appoint a Board Member in charge of Ethics. Kuveyt Türk was the only bank to receive praise in the 2012 special report of the World Gold Council (WGC) for the diversity of its gold products and services. Kuveyt Türk’s international sukuk issue worth USD 500 million was oversubscribed 6.5 times. 2013 2015 In line with its social responsibility mission, Kuveyt Türk launched a fundraising campaign to benefit the Hope Foundation for Children with Cancer (KAÇUV) and to fight against cancer, a growing problem in the country. The Islamic International Rating Agency (IIRA), which rates Islamic/ Interest-free Banks, upgraded Kuveyt Türk’s short-term national rating from A+ to AA- and its long-term national rating from A-1 to A-1+. Kuveyt Türk’s issuance of sukuks, worth TL 150 million, with a maturity of 364 days, was oversubscribed by more than two-fold. With the collaboration of Kuveyt Turk Katılım Bankası A.Ş. and Albaraka Türk Katılım Bankası A.Ş., Katılım Emeklilik ve Hayat A.Ş. is established. Kuveyt Türk obtained the required license from BaFin, the German Federal Financial Supervisory Authority, to offer banking services in Germany. KT Bank AG commenced its operations as the first bank in Germany that is engaged in interest-free banking activities. Kuveyt Türk commenced its Private Banking operations, a first in the participation banking industry in Turkey. Kuveyt Türk established KT Portföy, the portfolio management subsidiary that is designed to offer interest-free financial solutions. Kuveyt Türk launched the branchand expense-free digital banking platform—Senin Bankan— which stands out with its new generation banking approach that blends participation banking with online innovations and capabilities. 2016 During the 2015 tax year, Kuveyt Türk declared taxes worth TL 159,650 thousand, ranking first among participation banks, 19th among all Turkish taxpayers, and 10th among all banks. Kuveyt Türk executed its first subordinated sukuk loan issue in February. The issuance was worth USD 350 million and has become the largest issue of its kind in Turkey. Having issued a subordinated sukuk loan worth USD 350 million in February 2016, domestic sukuks as public offering worth USD 300 million in May, and international sukuks worth USD 500 million in November, the Bank firmly held on to its position as Turkey’s largest sukuk issuer. The Turkish Capital Markets Association (TSPB) presented an award to Kuveyt Türk for its operations in the banking industry in 2016. The Bank was designated “Turkey’s Best Islamic Financial Institution” by Global Finance, and “Issuer of the Year” by Islamic Finance News.
19. 2017 Kuveyt T ürk launched its new generation retail credit card Sağlam Kart (Sağlam Card). Kuveyt Türk held the Hackathon Digital Banking Software Project Competition with a view to support the development of the FinTech ecosystem and to provide young entrepreneurs with an environment to apply and realize their ideas. Kuveyt Türk made the initial public offering of sukuks worth TL 50 million with a 728-day maturity through its whollyowned subsidiary KT Sukuk Varlık Kiralama A.Ş. with DRD Fleet Leasing, Turkey’s largest operational fleet leasing brand built on 100% local capital, as the Beneficiary and Obligor. Kuveyt Türk inaugurated the Lonca Entrepreneurship Center to offer start-up companies opportunities and support including training, mentoring, consultancy and financial investment. Kuveyt Türk broke a new record in the participation banking industry with the highest value single-issue sukuk (sukuk) export in TL denomination. KT Bank AG, the first and only interest-free bank in Germany and in the Euro Zone, inaugurated its Cologne branch after the Frankfurt, Berlin and Mannheim branches. A trailblazer in the industry with its innovative applications, Kuveyt Türk launched the most comprehensive API marketplace platform in Turkey’s banking industry. The only bank in Turkey to boast two R&D centers, Kuveyt Türk inaugurated its second R&D Center in Konya.
20. 18 SECTION I : INTRODUCTION ABOUT KUVEYT TÜRK CUSTOMER-ORIENTED PRODUCTS AND SERVICES... As it marks new breakthroughs in the banking industry thanks to its robust banking experience, sound management with a clear leadership vision, and its highly competent and qualified workforce, the Kuveyt Türk family conducts all its financial activities within the framework of participation banking. MISSION To be a bank that adheres to its interest-free principles; abides by moral values; focuses on customer-oriented banking while adding value for stakeholders; and embraces corporate social responsibility. VISION To be the most reliable participation bank providing sustainable and profitable growth by leading the way in developing interest-free financial services.
21. KUVEYT T ÜRK 2017 ANNUAL REPORT OUR QUALITY POLICY In line with the principles of participation banking and total quality management, we aim to become an institution that: - - - - Improves the degree and quality of customer satisfaction, Leads the banking sector, Creates value under the leadership of senior management, With the ongoing efforts of employees throughout the organization. OUR VALUES All employees are responsible for embracing and putting into practice the following values: • • • • • • Sound Banking Fairness Trust Team Spirit Professionalism Innovation ETHICAL PRINCIPLES In line with the corporate values, Kuveyt Türk abides by these general principles in all operations: • • • • • Integrity Impartiality Transparency Confidentiality Ethical Approach OUR SERVICE PRINCIPLES Kuveyt Türk pursues the following service principles to maintain uninterrupted maximum service quality: • • • • • Generating prompt solutions for problems Bringing a business partnership approach to clients Being innovative Focusing on the customer Demonstrating our hospitality 19
22. 20 SECTION I : INTRODUCTION MESSAGE FROM THE CHAIRMAN VISIONARY AND STABLE MANAGEMENT Kuveyt Türk moves forward confidently into the future bolstered by Turkey’s sustainable growth. An industry standout with its robust capital structure and dynamic corporate management vision, Kuveyt Türk continued to expand in 2017 while boosting profitability. Esteemed Shareholders, 2017 was a year of volatility on the world stage. The UK’ Decision to leave the EU, interest rate hikes by the US Federal Reserve, conflicts in the Middle East, missile tests by the North Korean leader, government crises in Europe and the dispute over Jerusalem escalated tensions worldwide. Despite these challenges, the world economy made significant progress in overcoming the adverse impact of the global economic crisis a decade on, finally recovering to a great extent. According to OECD figures, the global economy expanded 3.6% in 2017. Having now fully rebounded from the crisis, the United States posted 2.2% growth, as the Euro zone expanded 2.4% and Japan grew 1.5%. While the world’s most developed countries enjoyed this favorable outlook, emerging economies, after maintaining high growth rates over the course of the crisis period, could not sustain their momentum. India and China expanded around 6%, while Brazil could only achieve 0.7% growth in 2017 after a two-year recession. Turkey’s robust expansion Turkey’s economy achieved remarkable growth in 2017. After expanding 5.3% in the first quarter, and 5.4% in the second, Turkey outperformed expectations particularly in the third quarter by growing 11.1%. Government incentives that were implemented played a major part in achieving these impressive growth figures. Facilitating SME and exporter access to finance, lifting the upper limit of collateral provided by the Credit Guarantee Fund (KGF) for Treasury-backed loans from TL 20 billion to TL 250 billion, and creating a Portfolio Guarantee System (PGS) that accelerates loan closing processes all helped revive the country’s economy in 2017. Optimistic outlook for 2018 With signs that the US-led recovery from the financial crisis will extend to Europe, United Kingdom and even Japan, the world economy is widely expected to grow between 3.3% and 3.7% in 2018. As for the Turkish economy, fallout from global events could have a major impact in the coming year. Rising oil prices and potential rate hikes by the Fed are among those factors that could hamper Turkey’s economic growth in 2018.
23. KUVEYT T ÜRK 2017 ANNUAL REPORT TL 674 Million Standing out with its sustainable financial performance, Kuveyt Türk increased its net profit by 24.4% year-on-year to TL 674 million. 21 Outperforming the industry The Turkish banking industry recorded a successful year thanks to the country’s rapidly expanding economy. As of end-2017, banking sector assets grew 19.3% while credits expanded 21% over the prior year. However, participation banks outperformed the industry average in 2017. By the year end, participation banks boosted profits by 43.1%, grew total assets by 20.5% and increased total funds allocated by 25.7%. With these strong results, participation banks advanced confidently toward their goal of capturing a 15% share industry-wide by 2023, the 100th year of the Turkish Republic. Over this period, Kuveyt Türk retained its clear leadership position in the sector. An industry standout with its robust capital structure and dynamic corporate management vision, Kuveyt Türk continued to expand in 2017 while boosting profitability. Customer-oriented technology Over the years, we have introduced many innovations to the market such as Senin Bankan, the interestfree digital banking platform, and XTM Branch, which combines the functions of a call center, conventional branch and ATM. Kuveyt Türk continues to boost its technology investments as Turkey’s only bank with two R&D centers. Our goal is to offer the widest possible array of banking transactions on mobile platforms with a customeroriented approach. Kuveyt Türk enables customers to swiftly conduct a broad range of transactions – from transferring funds and paying bills to precious metal, foreign exchange and stock trading transactions – wherever they are, without paying any fees. Our highly competent, well educated, young and dynamic staff at Kuveyt Türk is the biggest contributor to our success. I would like to extend my gratitude to you, our esteemed colleagues, for your contributions to our achievements, and to our shareholders for your unfaltering support. With regards, Hamad Abdulmohsen AL MARZOUQ Chairman
24. 22 SECTION I : INTRODUCTION MESSAGE FROM THE CEO CONSISTENT FINANCIAL AND OPERATIONAL RESULTS... Kuveyt Türk continued to add value to the Turkish economy with pioneering products such as sukuk and gold banking. Esteemed Shareholders, As the pioneer in Turkey’s participation banking sector with its dynamic corporate governance approach, innovative products and international market reach, Kuveyt Türk concluded another successful year outperforming its growth targets. 2017 data clearly demonstrates Kuveyt Türk’s leadership position. Posting growth of over 26% in funds allocated, more than 17% in assets, and above 24% in net period profit thanks to focus on increasing productivity, Kuveyt Türk reported TL 57 billion in total assets and TL 674 million in net profit in 2017. Total funds allocated rose to TL 38 billion while total funds collected went up to TL 40 billion. The Bank’s non-performing loan ratio was 1.85%, well below the sector average. The Bank’s return on equity increased to 15.85% in 2017. Serving customers at 399 branches across the country with over 5,750 employees, Kuveyt Türk established another 14 branches in 2017, achieving 85% geographic coverage in Turkey. Innovative products and services As part of its drive to introduce additional innovative products and services to the industry, Kuveyt Türk launched its new generation credit card – Sağlam Kart – for customers in 2017. After taking a groundbreaking step in Turkey by entering the sukuk (lease certificate) market in 2010, Kuveyt Türk maintained its leadership position by deepening and developing the sukuk market. As a result, the Bank bolstered its success in this area with new records. New records In 2017, Kuveyt Türk issued sukuk worth TL 2.33 billion, up 35% yearon-year. In September, the Bank executed a sukuk issue worth TL 400 million and featuring a 106day maturity. With this transaction, Kuveyt Türk posted a new record in Turkey for the highest value singleissue sukuk denominated in TL. During the year, with DRD Fleet Leasing, Turkey’s largest operational fleet leasing brand built on 100% local capital as the Beneficiary and Obligor, Kuveyt Türk executed the initial public offering of sukuk worth TL 50 million with a 728-day maturity through its wholly-owned subsidiary KT Sukuk Varlık Kiralama A.Ş. In addition, acting as the intermediary for the Turkish Grain Board (TMO), KT Sukuk Varlık Kiralama issued sukuk worth TL 100 million with an 88-day maturity. In this transaction, physical agricultural commodities were used as underlying assets to finance trade for the first time in Turkey. Boasting multiple industry awards demonstrating its significant support to the real economy, Kuveyt Türk inaugurated the Lonca Entrepreneurship Center. The Center offers start-up enterprises a range of resources and support to expand, including training, mentoring, consultancy and financial investment. Kuveyt Türk also supported development of Turkey’s fintech ecosystem. The Bank provided young entrepreneurs with an environment to test and realize their ideas through the Hackathon Digital Banking Software Project Competition. Placing great importance on the development as well as productivity of its workforce, Kuveyt Türk continues to invest in education technology. In 2017, the Bank broke new ground in the interest-free banking sector by establishing the Kuveyt Türk Banking School. Achievements recognized by awards Since its founding, Kuveyt Türk has been committed to providing the best solutions to its customers and innovative services to support
25. KUVEYT T ÜRK 2017 ANNUAL REPORT A financial bridge Kuveyt Türk constitutes a financial bridge among Turkish investors keen on opening up to the Gulf Region and the rest of the world. the development of participation banking. As in previous years, the Bank’s various efforts, research and value creating activities were recognized with awards in 2017. In a survey by the prominent business and finance magazine Global Finance, our new credit card Sağlam Kart was named “Best New Generation Credit Card.” Meanwhile, Kuveyt Türk’s 100% owned subsidiary KT Bank AG received the award for “Best Up-andComing Financial Institution.” One designation that clearly demonstrates Kuveyt Türk’s commitment to sustainable success is the “Best R&D Center” title. Kuveyt Türk R&D Center was deemed worthy of the “Best R&D Center” award in the “Finance” category at the Sixth Private Sector R&D Centers Summit. This prestigious competition is organized by the Science and 23 Technology Department at the Ministry of Science, Industry and Technology. Pioneering technological transformation Kuveyt Türk differentiates from the competition with its emphasis on technology, pioneering transformation in the participation banking industry and digitalization initiatives. The Bank continues to bolster its information and technology systems infrastructure and expand its electronic banking services. KT Bank AG, Kuveyt Türk’s subsidiary in Germany, commenced operations in 2015 and currently serves customers at four branch locations. KT Bank is powered by Kuwait Finance House’s extensive correspondent network and deeprooted experience in interest-free banking to facilitate Turkish investors’ access to world markets. The Bank’s operations in the Gulf region are managed through its Bahrain branch. Kuveyt Türk develops solutions for the ever-changing financial needs of society as well as innovative products and services that perfect the customer experience. With trailblazing products in Turkish banking – such as Golden Days, Gold-to-Gold Participation Account, Quarter Gold Coin Account, and Gold-Dispensing ATMs – Kuveyt Türk helped transfer nearly 13.1 tons of gold from under-the-mattress savings into the national economy. Steadfastly upholding participation banking principles, quality service provision and sound banking values since its inception, Kuveyt Türk plans to continue extending the scope of its services in 2018. The Bank will expand its physical branch network further in the coming year while diversifying its digital banking services. I would like to extend my gratitude to all our stakeholders, especially staff members, for their immense contribution in helping us achieve our objectives, as we all look ahead to the future with hope. Uf*ck UYAN Member of Board of the Directors and CEO
26. 24 SECTION II : OPERATIONS IN 2017 As the share of participation banking steadily rises, Kuveyt Türk capitalizes on this growth trend through new products and innovative ideas and takes confident, robust strides into the future.
27. KUVEYT T ÜRK 2017 ANNUAL REPORT 25 SECTION II OPERATIONS IN 2017 26 Commercial and Corporate Banking Group 28 Loans 30 Retail Banking 38 SME Banking 42 Strategy 52 Treasury and International Banking 57 Financial Affairs 64 Risk, Control and Compliance Group 72 Banking Service Group 86 Corporate Social Responsibility and Sustainability 90 Awards
28. 26 SECTION II : OPERATIONS IN 2017 COMMERCIAL AND CORPORATE BANKING GROUP INNOVATIVE PRODUCT AND SERVICE APPROACH... Kuveyt Türk Commercial and Corporate Banking Group operates 92 branches including three corporate branches with 213 portfolios and 194 highly-qualified staff. TL 17.7 Billion The Commercial and Corporate Banking Group concluded 2017 with 4,000 active clients with total collected funds increasing to TL 4 billion and extended funds rising to TL 17.7 billion. Operating with a view to be a business and solutions partner to its clients through its customeroriented portfolio management model, Kuveyt Türk has reinforced its lead among participation banks in the Commercial and Corporate Banking segment. Operating at 92 branches including three corporate branches with 213 portfolios and 194 highly-qualified staff, Kuveyt Türk Commercial and Corporate Banking Group concluded 2017 with 4,000 active clients with total collected funds rising to TL 4 billion and extended funds increasing to TL 17.7 billion. Figures for 2017 are testament to the Bank’s leading position in the segment: • 4 ,109 active clients with three products • 29,754 total clients • TL 4 billion collected funds • TL 17.7 billion cash funds extended • TL 7.7 billion non-cash credit volume • TL 170 million other revenues • TL 4.1 billion FX credit risk • TL 1.1 billion leasing As well as increased efficiency achieved in extending funds thanks to the Automatic Pricing module, the auto-commission system generated significant added value for banking service revenues in 2017. Maintaining its pioneering role in the banking industry thanks to its new products, as well as new processes developed through cutting-edge technology and innovative ideas, the Leasing with Profit Share and Direct Debiting System (DDS) with Profit Share products helped Kuveyt Türk stand out from its competition. It also saw a rise in sub-dealership or dealership agreements with companies from the Commercial and Corporate segment. Kuveyt Türk aims to boost its activities for its new supplier finance product in 2018. In the strategically important field of exports, the Bank continues to extend pre-shipment export loans from its own funds as well as the Eximbank funds. In 2018, the Commercial and Corporate Banking Group will continue to enhance the customer experience with innovative products and services, and remain indispensable to its clients. Commercial and Corporate Banking Group’s primary goals for 2018 are as follows:
29. KUVEYT T ÜRK 2017 ANNUAL REPORT • R educing the share of foreignexchange-pegged loan (DEK) in favor of TL and FX, focusing on asset quality and profitability by improving credit quality; developing strategies towards raising more TL corporate deposits, • Providing depth to customer relations through effective portfolio reporting and CRM tools and boosting market penetration through product diversification across the customer base, • Boosting Leasing with Profit Share and DDS with Profit Share products in particular through sub-dealership or dealership agreements with companies from the Commercial and Corporate Banking Segment, • Gaining new clients and improving customer satisfaction through the continued offer of high-quality services. Project and Structured Finance Department Established in February 2017, the Project and Structured Finance Department accomplished significant achievements particularly in the field of renewable energy. 27 The Department manages a portfolio with a total worth of USD 671 million. Of this, USD 340 million was extended in 2017 as new disbursem*nts for 137 different projects, all of which involve unlicensed solar power plants. Kuveyt Türk is currently the largest financier in this field, having funded 15% of all unlicensed solar energy power plants currently in operation. The Bank also provided USD 250 million in financing for HEPP RES projects. The Bank plans to continue financing renewable energy in the upcoming period and to act as the intermediary for issuing sukuk on behalf of corporate clients. Focusing also on infrastructure projects, Kuveyt Türk aims to take part in projects of strategic importance for Turkey in this field in the coming period. Meanwhile, regarding Ongoing Construction Projects, guarantorship agreements were signed for 600 different projects in 2017 and TL 471 million was extended for housing and workplace financing for projects that involved campaign deals within this framework. Having funded 15% of Turkey’s unlicensed solar energy power plants currently in operation, Kuveyt Türk emerged as the largest financier in the field.
30. 28 SECTION II : OPERATIONS IN 2017 LOANS ADDING VALUE TO BUSINESS PROCESSES... Concluding another year of success, the Loans Group evaluated requests for over 31,000 individual loans and over 118,000 corporate loans. Thanks to the Automatic Decision Support System, 74.4% of individual loan applications in 2017 were processed automatically, with 7.8% of the remainder evaluated by the branches, and 17.8% by the Individual Loan Department. The Loans Group is responsible for submitting loan requests received from the branches, with accompanying financial evaluations, analyses and reports to the Bank’s relevant committees. Concluding another year of success, the Loans Group evaluated requests for over 31,000 individual loans and over 118,000 corporate loans. In order to adapt to macroeconomic and market conditions and to keep credit risk at the minimum level; credit strategies, credit policies, credit application principles and decision support rules have been reviewed periodically, and when needed, necessary modifications were executed. Below are some of the initiatives implemented in 2017 to improve service quality: Automatic Decision Support System: In 2014, the Bank started operating a new business model, the Automatic Decision Support System. In this context firstly, customer scorecards and business rules were integrated in the Individual Loan allocation processes, allowing the system to deliver automatic approvals and rejections in a swift and accurate fashion. Through the system under further development, 74.4% of individual loan applications in 2017 were processed automatically, with 7.8% of the remainder evaluated by the branches, and 17.8% by the Individual Loan Department. Regarding credit card applications, automatically evaluated requests in 2017 reached 82%. The Bank is planning to further boost these figures in the period ahead. SME Decision Support System: In order to process SME and microfinance funding requests more swiftly, limit/deposit authorization rules of the system were revised and it was brought online in selected pilot branches. A further project is underway in collaboration with the Analytical Banking Department to upgrade the system currently running based on expert opinions, to a model. Modeling will help ensure that allocation proposals are more objective, and that each branch regardless of its classification can authorize loans up to certain limits for customers with high ratings. E-Signature Initiative: Loan decisions are filed under the name of the relevant committee, assigned a decision number, and are physically archived after the decision with wetink signatures obtained from all staff at the relevant loans department. In line with increasing digitalization in the banking industry, an e-Signature initiative was launched involving several potential advantages such as receiving signatures only from relevant committee’s members, tracking decisions without recourse to the number and storing decisions digitally instead of physically; and the project was brought online as a pilot scheme as of 19 December 2017 at the Head Office Commercial Loans Subcommittee.
31. KUVEYT T ÜRK 2017 ANNUAL REPORT 29 The Corporate Credits and Commercial Credits Departments continued to improve the operational quality in 2017. Corporate Credits and Commercial Credits Departments The Corporate Credits and Commercial Credits Departments continued to improve the operational quality in 2017. In 2017, 17.8% of the consumer loan applications and 18% of the credit card applications were evaluated and the rest of the applications were evaluated automatically, and also in the Branches. Due to changes in the segmentation structure, a significant number of clients were transferred from SME segment to the commercial segment. Therefore, the Commercial Credits Department previously operating under a single unit was split into two, namely, Commercial Credits Department 1 and Commercial Credits Department 2. As previously planned, credit card limit enhancement applications and staff loan applications were integrated into the Automatic Decision Support System. SME and Consumer Loans Group Department Following an organizational restructuring move, the Consumer Loans Department was brought under the SME Loans Group Department and was renamed the SME and Consumer Loans Group Department. Credit allocation requests of up to TL 15 million are now evaluated by the Regional SME Loan Departments. Proposals breaching Regional SME Loan Departments’ limit or deposit authorization rules and requests concerning project finance are submitted to the relevant committees by the Credit Coordination and Business Development team established in 2017 under the SME and Consumer Loans Group Department. Financial Analysis and Intelligence Department Financial Analysis and Intelligence Department prepares financial analyses and intelligence reports for companies applying for loans of or over TL 35 million concerning their activities, characteristics, capacity, liquidity, financial status, and profitability based on intelligence and other market information. Over the course of 2017, 715 financial analysis reports were completed, 4,600 new financial data reports issued by the branches were checked and 600 scrutiny requests were met. The Bank also issued special reports regarding the World Bank loan issued to participation banks through the intermediation of TSKB. Following the completion of the BOA financial analysis transformation process, a 21% year-on-year increase was achieved in the number of reports compiled in 2017. The new system also boasts an infrastructure offering advantages for compliance with the IFRS 9 process which allows for dynamic and instant reporting. The responsibility of the Financial Analysis and Intelligence Department is to prepare loan evaluation reports for companies that demand loans. These reports form the basis for the final decision taken by the loan committees. Kuveyt Türk regularly conducts in-house training programs for its employees that work in the Credit Department, in order to better their financial analysis skills. The Department’s Goals for 2018: • Activating the decision support systems, • Increasing automatic allocation rates in Consumer Loans Decision Support System, • Compiling “revenue estimate model” studies for SME and individual clients, • Extending E-signature application to all credit allocation units, • Reducing the workload of the Head Office and Regional offices through continued BOA system enhancement, • Conducting all evaluations for credit limit enhancement requests from individual clients in 2018 through the automatic system.
32. 30 SECTION II : OPERATIONS IN 2017 RETAIL BANKING SERVICES TAILORED TO NEEDS AND EXPECTATIONS Kuveyt Türk holds 12% of all precious metal accounts across the wider banking sector and 63% of accounts in participation banks. In 2017, the precious metal account balance increased 25% compared to the previous year. Putting customer needs and expectations first as its guiding principle in operations, Kuveyt Türk offers a wide range of products and services to its customers in Retail Banking. As the first bank to introduce participation banking products and services to the retail segment, Kuveyt Türk acquired 413 thousand new participation fund customers and expanded its total retail customer base by 16% to 3.4 million. The Gold-to-Gold Participation Account was first developed in Turkey by Kuveyt Türk and started to feature a monthly term option in 2017. The overall volume of the gold collected through this innovative service has climbed to 17.8 tons. In retail banking, the Bank raised TL 5.1 billion in new funds, boosting its total fund volume by 25% over the prior year. The Bank’s total fund volume market share among all participation banks stood at 37%. Another Gold Banking offering from Kuveyt Türk is the physical gold collection campaign “Golden Days,” which has succeeded in integrating 1.8 tons of gold to the economy in 2017. Kuveyt Türk inaugurated 14 new branches in 2017, bringing its total branch network up to 399 locations. The Bank delivers services via branches and ATMs positioned in prominent commercial and industrial hubs, an online branch designed with the latest in advanced technology, and a 624-strong retail sales staff. With the “Quarter Gold Coin” account, it is possible to buy and sell physical and virtual “quarter gold coins”, to give buy and sell orders, and to accumulate gold regularly. In addition, customers can withdraw gold from all Kuveyt Türk branches or they can buy gold on the Internet and Mobile Branch. Putting customer needs and expectations first as its guiding principle in operations, Kuveyt Türk offers a wide range of products and services to its customers in Retail Banking. Credit and Debit Cards In 2017, the Bank recorded a 41% rise in the number of cards issued and it reached 453 thousand. There was a 35% increase in card generated turnover over the prior year. Accounts The Bank posted a 25% increase in its precious metal accounts over the prior year. In terms of precious metal accounts, Kuveyt Türk has a 12% market share in the overall banking industry and a 63% share among participation banks. During the year, the Bank stated a means for customers to make credit card applications. In 2017, the Bank also began to receive assistant services to all consumer customers that were given to Platinum Card holders. Consumer customers can dial the assistant service whenever the need arises.
33. KUVEYT T ÜRK 2017 ANNUAL REPORT Enabling customers access to their debit account at ATMs and while shopping, and earning them Gold Points for their purchases, Altın Kart (Gold Card) reached the 2 million mark in 2017. The Needs Card product, another Kuveyt Türk offering that sets an example for other banks in the industry, continued to attract great interest in 2017. The Needs Card is on offer for the first time in Turkey as an alternative to general purpose loans credit. The innovative product allows customers to divide their shortterm expenditures—for marriage, home renovation, education, travel, healthcare and similar—into 46 installments while enjoying a twomonth grace period. Thanks to the rapid expansion in the credit card and debit card lines, Kuveyt Türk joined the top 10 banks with direct access to Interbank Card Center (BKM) committees in 2017. Financing Retail Banking accounts for 14% of total loans, with a loan portfolio amounting to TL 5.2 billion. In 2017, Kuveyt Turk extended approximately TL 2.5 billion in new funds. Some 80% of this amount is composed of real estate financing. Kuveyt Türk also boosted its market share in total consumer loans by 21% compared to the previous year to reach the top position in the real estate financing segment in the participation banking sector. With vehicle finance liabilities reaching TL 397 million, Kuveyt Türk grew 31% compared to the previous year and became the fastest growing bank in the field in 2017. Offering customers a range of personal finance tools meeting all their needs from education to travel or Hajj/Umrah travel and wedding expenses, Kuveyt Türk also began to finance fees required by organizing companies and the Directorate of Religious Affairs in 2017 to ensure its customers enjoy peace of mind as they visit the holy lands. 31 Insurance and Pension Since February 2011, Kuveyt Türk has offered its customers Private Pension System (PPS) insurance plans, which include interest-free options such as sukuk, equities, participation accounts, gold and silver accounts. In 2017, the Bank sold 48,000 PPS plans, bringing the total to 137,000. At year end, the PPS fund portfolio totaled TL 578 million and commission income amounted to TL 3 million. Neova Sigorta (Neova Insurance) abides by the principles of tekâfül (interest-free insurance), in all its operations and contracts. It is the only insurance company to provide such a service in Turkey. Kuveyt Türk has cooperated with Neova Sigorta since 2010, and bolstered this relationship further in 2017. Focusing on meeting all the financerelated needs and expectations of its customer base in accordance with interest-free banking principles, Kuveyt Türk collaborates with Neova Sigorta and Katılım Emeklilik. This collaboration allows the Bank to provide its customers with a rich collateral structure and alternative product packages to meet their insurance needs. The total insurance premium that Neova Sigorta generated in 2017 via Kuveyt Türk amounted to TL 215 million. With its innovative vision in interest-free insurance, modern and technological investments, and customer-oriented service approach, Kuveyt Türk day by day expands the range of products and services it offers through Katılım Emeklilik. “SME Private Life Insurance” and “Credit Personal Accident Insurance” were offered to customers in 2017. The insurance premium generated by Katılım Emeklilik through Kuveyt Türk in 2017 was TL 36 million. Furthermore, in order to gain a different perspective and understanding of the customer needs and expectations, executives from the Head Office joined frontline staff at the counter and marketing departments for a day at branches across Turkey with “A Day in the Field” Increase in Total Consumer Loans Kuveyt Türk also boosted its market share in total consumer loans by 21% compared to the previous year to reach the top position in the real estate financing segment in the participation banking sector. project in 2017. Following the twopart visit dedicated respectively to Istanbul and other Anatolian branches, feedback was gathered from the participants and action was taken in accordance with the action points identified in the feedback in order to improve customer experience. Alternative Distribution Channels Marketing In 2015, the Bank created the ADC Marketing Department under the Retail Banking Department. The ADC (Alternative Distribution Channels) Marketing Department basically aims to decrease the operational expenses of the branches and to apply new marketing trends. The Department features teams that operate Senin Bankan, the first interest-free digital banking product in Turkey and globally; XTM, the world’s first project that blends video chat with self-service transactions; in addition to various projects to gear up mobile and online marketing efforts. The main goals of the Department, which is designed to market the projects developed in house at Kuveyt Türk, are cutting operational costs and reshaping Alternative Distribution Channels to boost their profitability. XTM: Launched in 2013 with the inauguration of the first XTM point, this project aims to reduce the expenses of the branches and to take participation banking services into every facet of the Bank’s operations.
34. 32 SECTION II : OPERATIONS IN 2017 RETAIL BANKING Thanks to the rapid expansion in the credit card and debit card lines, Kuveyt Türk joined the top 10 banks with direct access to Interbank Card Center (BKM) committees in 2017. During the year, the Kuveyt Türk’s Mobile Branch active user base expanded by nearly 65% and reached 700,000 people while the number of digitized active customers rose by nearly 42% compared to 2017. The XTM project continued to grow in 2017, via the opening of new branch locations and the expansion of transaction sets. Currently, the Bank operates 31 XTMs, 22 of which have branch status. In 2017, around 13,159 new customers were acquired via these XTMs. The value of the funds collected by XTM branches increased by 125% compared to the end of 2016 while the amount of funds extended increased by 118%. Senin Bankan: In early 2015, Kuveyt Türk launched Senin Bankan, Turkey’s first Digital Participation Banking platform. Unlike the regular banking transactions across Kuveyt Türk, Senin Bankan enables customers to access numerous banking services without having to visit a branch location. Senin Bankan has included many more products in its offering, while making crucial contributions to the digital banking segment. In 2016, Senin Bankan garnered two awards at a competition organized by International Data Corporation, in the categories of “Financial Inclusion” and “Digital Channels.” The number of Senin Bankan clients reached almost 100,000 in 2017. Aside from opening accounts and accessing credit card, İhtiyaç Kart (Needs Card), housing finance and vehicle finance products, Senin Bankan clients can now withdraw money from all bank ATMs free of charge. EFT and wire transfers are also conducted free of charge on Senin Bankan platform. Mobile – Internet Branch: In 2015, Kuveyt Türk launched its iOS and Android Mobile Branch apps, developed with in-house resources, and worked to boost the number of customers who use the mobile branch with efforts in 2017. During the year, Kuveyt Türk’s Mobile Branch active user base expanded by nearly 65% and reached 700,000 people while the number of digitized active customers rose by nearly 42% compared to 2017. Currently, 45% of the Bank’s active customers use the digital channels. With the increase of Mobile and Internet Branch use, Kuveyt Türk boosted its foreign currency and precious metals revenue via these channels by nearly 14%. Kuveyt Türk Web Site: With the launch of the new web site in 2017, all users can now enjoy a more user-centered experience. The new features introduced to the web site make it simpler and faster for users to find out about the Gold Days, and to locate branches and ATMs as well as providing further guidance for card applications and opening accounts. The new structure provides customers with more effective services, including swift access for loan and profit share calculations from the home page. A MoneyGram form has been embedded into the web site to help accelerate transactions at branches. During the year, 3.7 million unique users visited the web site monthly on average. Private Banking and Wealth Management: The Private Banking and Wealth Management Group was established to meet the investment and financial needs of domestic and foreign clients in the high net worth individuals
35. KUVEYT T ÜRK 2017 ANNUAL REPORT segment via privileged and prioritized services, at the best prices and with the widest product range. The Group provides products and services to private customers and NGOs with assets worth TL 1.25 million at minimum and fund allocation worth TL 750 thousand. As the first participation bank to position high net worth individuals in the Private Banking segment, Kuveyt Türk serves customers from 64 countries on six continents and manages customer assets worth more than TL 10 billion. The Bank had a total of 7,000 Private Banking clients, 30% of whom were foreign, at year-end 2017. In 2017, Kuveyt Türk Private Banking Group expanded its customer base as it started to extend its services to non-bank financial institutions including insurance companies, portfolio management companies, pension funds, and investment funds. During the year, the Private Banking and Wealth Management Group actively marketed 15 sukuk issues to qualified investors. In addition to the already available TL sukuk fund, USD sukuk fund and mixed equity funds featuring shares, KT Portföy launched a new participation fund for Private Banking clients featuring short term sukuks offering daily returns, and these products were marketed actively. The Private Banking and Wealth Management Group executes agreements with top-notch construction development projects and participates in both domestic and overseas real estate fairs to become the bank of choice for high net worth individuals from the Gulf Region who want to invest in Turkey. Furthermore, Gulf Region investors who want to capitalize on opportunities in the Turkish real estate market are offered financing with up to 50% LTV and five-year terms. Work is also underway to establish a Real Estate Investment Fund managed by KT Portföy. 33 Launched at the end of 2015, the Private Banking Credit Card offers cardholders a range of privileges including special discounts in overseas spending, free fast-track services at selected domestic airports, complimentary car wash and dry cleaning services, as well as free lounge services, discounted transfer services, and fee-free access to ATMs at nearly 500 airports across the world. The Group meets the financial needs of its Private Banking clients via the İstanbul Private Banking Branch where they receive privileged services; these customers are also served by Private Banking Corners at 12 other branch locations. At these corners, clients explain their current needs and obtain investment advice in a secure manner. For customers who want to receive services overseas or who seek to invest in interest-free products, the Bank provides service points in Bahrain, Kuwait and Germany. During 2017, in response to demand from Gulf Region clients, Private Banking started to deliver exclusive advisory services on issues such as law, taxes, zakat, inheritance, real estate, arts and education overseas as well as tailor-made services for portfolio management, investment consultancy and legal advice regarding Turkish citizenship applications. In addition, special economic bulletins and market reports for finance and real estate in Turkish and English are issued for Private Banking customers to keep them up-to-date on domestic and overseas markets. In 2017, a new model was created in order to deliver Private Banking services to individual clients served thus far under corporate segments, optimizing benefits of Private Banking features for these clients. A 24/7 call center service was set up for customers during the year. Personnel fluent in English or Arabic started to deliver privileged services to Private Banking clients speaking those languages. TL 10 billion As the first participation bank to position high net worth individuals in the Private Banking segment, Kuveyt Türk serves customers from 64 countries on six continents and manages customer assets worth more than TL 10 billion. The Private Banking website (www.kuveytturkozel.com.tr) was upgraded and now provides services in Turkish, English and Arabic. As such, domestic customers can instantly open accounts while the Bank can acquire new customers more effectively. At the world-renowned Horizon Interactive Awards, where Fortune 500 companies and international agencies compete with global web sites that are ranked according to product presentation and design, the Bank received the “Best of Category” prize in Banking and Finance for its Private Banking web site. Also in 2017, Kuveyt Türk Private Banking web site received the “Standard of Excellence” award in the Bank category at the 21st Web Awards organized by the Web Marketing Association. The Private Banking and Wealth Management Group plans to expand its customer base, portfolio size and branch network with private banking representatives in 2018, under the brand Kuveyt Türk Private Banking. In 2018, there are plans to build a finance portal in addition to the new features introduced on the Private Banking web site. Core Banking Product Development Core Banking Product Development/Fund Collection Dowry Account: This participation account is designed to support marrying young people, whereby
36. 34 SECTION II : OPERATIONS IN 2017 RETAIL BANKING The Internet Branch had its layout, color and themes aligned with the new design of the Kuveyt Türk Web Site, and was relaunched to serve its customers with its new look. Kuveyt Türk offers its customers lucrative and alternative investment tools through Turkish lira and US dollar denominated mutual funds via its whollyowned subsidiary KT Portföy. families can make savings on behalf of their children or persons younger than 24 can save money for their dowry. When customers put away savings in the Dowry Account for at least three years, they can enjoy a government contribution as well. The account allows savers to deposit sums in monthly or three-monthly periods. Core Banking Product Development/ Fund Allocation Home Account: This participation account encourages customers seeking to buy their first home to save money regularly, while benefiting from a government contribution and high rates of profit sharing. Customers who want to become homeowners can receive the government contribution when they save money in this account for at least three years. The account allows individuals to deposit sums in monthly or three-monthly periods. Machinery and Equipment with Industrial Registry Certificate: This product provides BSMV tax exemption to Kuveyt Türk clients, such as industrial enterprises that hold an Industrial Registry Certificate, in their purchases of new machinery and equipment. Gold Jewelry Participation Account: Under the integration between Istanbul Gold Refinery (IAR) and Kuveyt Türk, gold items brought in to the Bank’s branches by customers are analyzed by IAR experts. After an assessment to determine the gold carat and weight, the customer is given a signed form which lists the gold’s purity level, weight in grams, its pure gold content and the amount in grams to be deposited in the account. The customer can then go to the counter to deposit the stated amount of pure gold to his/her account. As such, the gold is deposited in an account with a high profit sharing rate. Leasing with Profit Share: Pursuant to Kuveyt Türk’s agreement with leasing providers, this financial leasing product allows the Bank to receive all or some of the profit from the provider, and not from the customer. Core Banking Product Development/ Foreign Trade and Treasury Mutual Funds: Kuveyt Türk, via its subsidiary KT Portföy, delivers its customers mutual funds denominated in Turkish lira or US dollars as a lucrative, alternative investment instrument. Sukuk Transactions: In addition to issuing sukuks denominated in Turkish lira or US dollars, the Bank intermediates in the secondary trading of other sukuks approved by both KT Portfolio and the Audit Committee. Forward for Loan Installments: This product allows customers who took out funds in DEK or foreign currency to turn their upcoming repayments from the foreign currency into Turkish lira via forward contracts.
37. KUVEYT T ÜRK 2017 ANNUAL REPORT Export Futures Pre-Financing: This product helps exporter clients who lack the financial means to receive financing to manufacture a product that they will export. Alternative Distribution Channels (ADC) Product Development: ADC Product Development aims to integrate the latest technological developments into banking, while offering more product and service delivery channels for customers via digital payment systems, in addition to conventional channels. To this end, the Department designs channels best suited for the special needs of customers, to help them meet their needs via alternative channels without having to visit a physical branch. Kuveyt Türk Website: Attracting a monthly average of 2,176,821 users, the Kuveyt Türk website ranks 361st among the most visited web sites in Turkey. Benefiting from extensive user experience surveys, the website was relaunched in 2017 for all its users with a new design. The updated website with its responsive interface delivers an optimized user-friendly experience on smart phones, tablets and desktop computers. The contemporary interface and site architecture also make it more convenient and intuitive. Its interactive calculation tools help work out profit shares, loan repayments or card repayment installments. Thanks to the enhanced search features, accessing the required information became much quicker. The website was streamlined by emphasizing visual rather than textual features. Furthermore, the customers can access the website with their choice of language in Turkish, English and Arabic. Hence, Kuveyt Türk became one of the few banks in Turkey to serve its Arabicspeaking clients in their native language on its website. As the first bank in Turkey to receive MoneyGram application forms online, the web site works to swiftly deliver all kinds of information and services to its clients. 35 Internet Banking: Constantly developing its features with a view to deliver improved services, Kuveyt Türk Internet Branch focused on projects to enhance user experience in 2017. A number of new features were introduced to facilitate clients’ lives particularly in the menu options under Saved Transactions and Orders tabs. The Internet Branch had its layout, color and themes aligned with the new design of the Kuveyt Türk Website, and was relaunched to serve its customers with its new look. Mobile Banking: Committed to serving its customers via all digital platforms, Kuveyt Türk continued to expand its active customer base on the Mobile Branch, which features software developed exclusively in-house. Functionality enrichment work is ongoing for the transfer of numerous transaction sets to the Mobile Branch in order to deliver a user experience equivalent to that of the Internet Branch. The efforts in 2017 helped realize major projects such as cash transfers to GSM numbers and cash withdrawals with QR codes via the Mobile Branch. With the QR Code withdrawals, customers can withdraw cash without having to carry an ATM card, simply by scanning the QR code generated on any Kuveyt Türk ATM with their mobile phone’s camera. As a result of functional improvements, the Mobile Branch can now process donations and payments into the Directorate of Religious Affairs as well. Furthermore, the Online Finance facility for corporate clients, previously available only on the iOS platform was released on Android platforms. One of the most significant enhancements on the Mobile Branch in 2017 was the launch of Mobile Branch in Arabic. Thus, Kuveyt Türk became the first bank in Turkey to offer its customers on the Mobile Branch Arabic language support as well as English. Arabicsupported Mobile Branch enabled Arabic-speaking customers to access services in their native language. Senin Bankan: Senin Bankan is a digital banking platform where Kuveyt Türk customers can apply for various products without visiting a branch. Senin Bankan helps customers open an account over the Internet, and apply for credit card, vehicle finance, mortgage and needs financing. In 2017, projects regarding Senin Bankan were geared predominantly towards boosting operational productivity. There were several improvements complementing Branchless Banking principles, including ensuring better customer experience in courier operations and cutting costs. One of the most significant initiatives to make a positive contribution to customer experience and boost operational productivity was the introduction of Anonymous Debit Card model in the card operations. Payment Systems and Product Development In order to offer an unrivaled payments systems experience to both retail and commercial customers, Kuveyt Türk completed a series of payment system related projects in 2017. Credit Cards and Debit Cards: In 2017, the Bank took measures to enhance its credit and debit card processes, while also launching a series of brand new products. Kuveyt Türk’s software was completely integrated with TROY, a payment systems service provider developed by the Interbank Card Center (BKM). With this upgrade, Kuveyt Türk POS devices now accept TROY-compatible cards. In addition, Kuveyt Türk started marketing cards with the TROY logo. Kuveyt Türk’s retail credit card had a brand refresh, and acquired a new look as “Sağlam Kart” (Sağlam Card). Redesigned in accordance with sound banking principles, the retail segment credit card Sağlam Kart splits healthcare and education expenses of TL 100 or above into five interest-free installments. Sağlam Kart cardholders rewarded with Gold Points for their purchases also receive bonus Gold Points worth TL 50 if they regularly spend TL 200 or above in each statement period for 12 months and meet their payments on time. With these features, Sağlam Kart is an innovative product since it is not only fee-free but also repays the card fee to its customers in Gold Points. Customers can also benefit from the cash advance service for credit cards in Saudi Arabia.
38. 36 SECTION II : OPERATIONS IN 2017 RETAIL BANKING In 2017, a campaign system was built for Kuveyt Türk debit cards, providing an infrastructure to assign several flexible campaigns to customers. The development of the new Kuveyt Türk debit card bearing the logo of TROY, Interbank Card Center (BKM)’s local payment system, is complete. Throwing its full support behind the local payment system with the launch, Kuveyt Türk holds the leading position in the field of TROY debit cards. Debit Cards: The development process of the new Kuveyt Türk debit card bearing the logo for TROY, Interbank Card Center (BKM)’s local payment system, is complete. Throwing its full support behind the local payment system with the launch, Kuveyt Türk holds the leading position in the field of TROY debit cards. Through a separate project carried out this year, Kuveyt Türk customers using debit cards with a TROY logo began to conduct secure payment (Güvenli Ödeme GO) transactions in e-commerce. Running on a similar infrastructure to 3D Secure payment authentication, GO secure payment system is a BKM product. In 2017, a campaign system was established for Kuveyt Türk debit cards, providing an infrastructure to assign several flexible campaigns to customers. Thanks to this infrastructure, Senin Bankan cardholders are now able to withdraw cash free-of-charge from Ortak Nokta (Joint Spot) ATMs. Furthermore, they enjoy bonus gold points and special discounts in their purchases through the campaigns assigned to their card. SME Card: In 2017, the lifespan of the SME Card was extended to five years to help better finance commercial banking clients’ purchases of goods and services. Therefore, the medium to long-term finance requirements of SME clients were addressed and the number and turnover of corporate cards increased. Sağlam Bayi Kart: Palmiye Kart was improved and rebranded as Sağlam Bayi Kart (Sağlam Vendor Card). The dealers purchasing goods/products/ services from distributing companies can make their payments swiftly and easily with Sağlam Bayi Kart. A closed circuit payment system is also built thanks to the Kuveyt Türk POS terminals provided to distributing companies. Sağlam Bayi Kart is offered to the Bank’s customers freeof-charge. Kuveyt Türk Participation Bank created a custom retail and corporate credit card infrastructure for KT Bank AG, its participation bank subsidiary in Germany. Operating as an overseas participation bank, KT Bank AG can offer its customers credit cards based on murabaha structure. The retail credit card application system also functions as a decision support system by scoring and evaluating the applicant’s terms. The project thus made a further positive contribution by facilitating KT Bank AG employees’ activities such as allocation and marketing. In order to promote more diversity in the innovative and digital product range of payment systems before 2017 came to an end, the “Card-to-Card Cash Transfer” project was launched, enabling customers to send money from Kuveyt Türk credit and debit cards to other banks’ debit cards. This scheme makes transfers between cards issued by the Bank and other financial institutions within set daily and monthly limits simple and easy. mPOS: Paying heed to customer needs and keeping up with the latest technological developments, Kuveyt Türk launched mPOS - a mobile
39. KUVEYT T ÜRK 2017 ANNUAL REPORT POS product unprecedented in the participation banking industry. Enabling smart phones to receive payments from credit and debit cards, the project marks the first application of the technology in this field in Turkey. Collection is made by entering the card information for the payment into the mPOS menu in Kuveyt Türk Mobile Branch. Payment transactions are securely authenticated with 3D Secure infrastructure. The transaction is complete once the OTP code sent via SMS to the mobile phone is entered into the corresponding field on the mPOS menu alongside the card information. Targeting particularly small businesses and SME customers, the Kuveyt Türk mPOS service is free. The service is activated simply by submitting an application at Kuveyt Türk branches. Virtual POS: Another new feature was brought online for Kuveyt Türk’s POS business as it continued to grow in 2017 both in numbers and turnover. Businesses operating on Kuveyt Türk virtual POS can now offer to split the payment into installments for a fee. The scheme helped both to increase the number and volume of transactions on e-commerce web sites while responding to customer requests to split credit card payments for e-commerce purchases into installments. XTM: 2017 was a year of infrastructure enhancements to provide XTM with a more userfriendly and efficient structure. Usability studies were conducted on the call management screen to help Call Center representatives make better use of the call duration. At the same time, new concepts were drawn up for branches on XTM infrastructure and these began to be piloted at certain locations in 2017. Some XTM branches had multiple XTM devices installed. Other XTM branches had more than one marketing staff assigned to the branch manager, to ensure XTM branches maintained the pace of marketing activities as in regular branches. There were also XTM devices installed in existing branches to divert some of the workload of 37 counter staff to the XTM device. Some XTM branches had counters installed, so that the marketing representatives could provide customers with counter services when required. ATM: In 2017, the development work carried out across the İşlematik (ATM) network was innovative, reflected the Bank’s social responsibility approach and relieved the operational workload at the counter. Additionally, other improvements were made within the framework of legal obligations as required by the BKM (Interbank Card Center) and BRSA. Developed as part of the social responsibility projects, the Voice Menu Enhancement work was completed as of December 2017. Through this scheme, as soon as visually impaired customers plug their headphones into the special audio jack on Kuveyt Türk ATMs, the screen goes dark preventing bystanders from viewing the information, allowing the customer to complete the transaction through voice command with the aid of embossed keys on ATM keypads. The project ensures that not only Kuveyt Türk customers but also other banks’ customers benefit from the Voice Menu Enhancements. Customers who notify their own bank or Kuveyt Türk of their disability will not pay charges for transactions made via Kuveyt Türk ATMs and other banks’ joint ATMs. One of the ATM improvements concerning payments is the inclusion of motor vehicles tax (MTV) and traffic fines. Regardless of whether they are Kuveyt Türk customers or not, anyone can pay MTV and traffic penalties via Kuveyt Türk ATMs. The payments can be made either in cash with the cardless transaction option on the menu, or by transfers from the account by inserting a Kuveyt Türk card. When a card is inserted, there is an option to choose between debit or credit card accounts. The aim is to thus reduce operational costs by shifting some of the workload from the counter to ATMs during the MTV payment periods. 2017 was a year of infrastructure enhancements to provide XTM with a more userfriendly and efficient structure. Another development regarding payments is the inclusion of Religious Payments (Hajj Pre-registration and Health Staff Examination fee) which can be paid with or without cards via ATMs. The main purpose is to shift the entire workload of the Hajj Preregistration fee payments from the counter to ATMs. In 2017, making necessary adjustments in accordance with the legal requirements passed down by BKM and BRSA constituted some of the largest and most significant ATM developments. Joint ATM Cash Deposits is a project BKM assigned to all banks in 2017. This project allowed people who are not Kuveyt Türk customers to deposit cash into accounts held at other banks from Kuveyt Türk ATMs. Following the developments in credit card transactions, anyone inserting a credit card issued by another bank into a Kuveyt Türk ATM will now be able to access their own bank’s menu options for Credit Card Balance Enquiry, Credit Card Limit and Credit Card Payment. Furthermore, Kuveyt Türk continues to offer services to other banks’ credit card holders for Physical Gold Purchases and Password management at Kuveyt Türk ATMs. Towards the end of 2017, under BRSA’s Accessibility Framework, a Cross Transactions project was developed. The project aims to expand the opportunities under development for disabled citizens to benefit all customers. The Cross Transactions Project aims to allow debit cards to conduct credit card transactions and credit cards to conduct debit card transactions. This feature will apply to cards issued by the Bank as well as other issuers’ cards.
40. 38 SECTION II : OPERATIONS IN 2017 SME BANKING HIGH QUALITY SERVICE, HIGHER SATISFACTION In 2017, Kuveyt Türk SME Banking expanded its deposits to TL 9.2 billion and boosted its total fund volume by 27% over the prior year. Among the funds Kuveyt Türk SME Banking Group extended in 2017, business financing accounted for approximately 65%, real estate finance 15%, vehicle finance 9%, KGF 3.46% and leasing finance 3%. In 2017, the innovative transformation process started in SME Banking, resulting in a structure that analyzes customers more effectively, knows them better, delivers higher service quality and customer satisfaction. Thanks to this revamped structure, customers are segmented and categorized to render the Bank’s internal organization more effective. During the transformation process, which lasted about a year, the Bank segmented customers according to their productivity, size, volume and history; established portfolio management systems; diversified pricing schemes; and introduced an automatic pricing system. TL 9.2 billion in deposits In 2017, Kuveyt Türk SME Banking expanded its deposits to TL 9.2 billion and boosted its total fund volume by 27% over the prior year. Of this total figure, TL 5.1 billion is in current accounts with TL 4.1 billion in participation accounts. SME Banking Group concluded the year with a 2.48% share of cash finance transactions across the whole industry, while its share within the participation banking segment was 39.07%. SME Banking’s total loan volume rose to TL 15.4 billion, accounting for 35.7% of total loans in the Bank. Of this total loan volume, TL 12.5 billion is Cash Loans while TL 2.9 billion is Non-cash Loans. 45 thousand new customers Kuveyt Turk SME Banking’s funds extended in 2017 are as follows: approximately 65% for financing businesses, 15% for real estate financing, 9% for vehicle financing, 3.46% for KGF and 3% for leasing financing. The number of customers of SME Banking went up from 485 thousand at end-2016 to 529 thousand at end-2017 with the transfer of retail customers. Online Finance System Online Finance System was launched as a product to help customers access funding more swiftly and on more favorable terms without having to go to a branch. Developed to facilitate customers’ finance transactions, the Online Finance System is accommodating for certain customer requirements, providing up to two months of payment-free period and a flexible repayment plan. In 2017, 1,300 clients accessed a total of TL 242 million in business funding without even visiting a branch, saving themselves time and money. Since customers managed their transactions swiftly via mobile branch and internet banking, branches and portfolio representatives enjoyed operational efficiency.
41. KUVEYT T ÜRK 2017 ANNUAL REPORT Online Letter Issuance System Brought online in the last quarter of 2017, the system allows customers to apply for and receive letters of guarantee via the Internet Branch, avoiding added workload on the branches. Within three months, 300 letters provided non-cash facilities with a total worth of TL 15 million. Bundle Management Through the Bundle Management project, developed over 2017 and implemented in October 2017, customers are offered customized service products in bundles. Aimed at customers who frequently use various banking channels, compact products matching their requirements are drawn together for cash sales. Within three months, 350 bundle sales raised TL 270,000 in revenues. Leasing with Profit Share Launched in fourth quarter 2016, the Leasing with Profit Share product makes Kuveyt Türk the first and only bank to offer the service among participation banks. In the leasing with profit share offering, all or some of the financing cost is charged from the seller; the customer who takes out the loan can enjoy installment payments via an invoice that excludes the profit share and commission fee. Under this new system in its inaugural year, agreements were signed with more than 60 providers, raising TL 7.5 million in profit shares through them, and contributing over TL 20 million into overall leasing transaction volume. Supply Chain Finance Through the Supply Chain Finance facility, suppliers meet their cash requirements arising from their receivables by their preferred terms, avoiding liquidity issues. Meanwhile, corporate and large scale companies receiving goods from the suppliers gain flexibility in their cash flows and are able to provide uninterrupted supply with effective procurement strategies. The first Islamic supply chain finance product was launched in a real environment by November 2017; and 39 within the first month, an agreement was reached with one supplier and one buyer, and was logged into the system. The first transaction was worth TL 2,321,095. Sağlam KOBİ Kart (Sağlam SME Card) With the Sağlam KOBİ Kart (Sağlam SME Card), Kuveyt Türk allocated funds with up to 12 installments from existing credit limits, becoming the only participation bank to integrate a business finance loan with a card product. Designed without the drawbacks of business cards and easy to obtain, Sağlam KOBİ Kart allows customers to access funds 24 hours/day, including weekends. Compared to regular business cards, Sağlam Kobi Kart’s key differentiating features are that no additional credit limit is needed and branches can immediately print a card using existing credit limits. To date, 52,440 thousand transactions were performed with Sağlam SME Card, yielding TL 249.6 million in turnover. SME Card reached a cash risk of TL 106.5 million. SME Banking views the card as a strategic product with high potential for the coming year. Sağlam Dealer Credit Card Kuveyt Türk’s Sağlam Dealer Credit Card is a commercial credit card that gives a systematic structure to the commercial payments and collections among distributors and dealers, allowing for the purchases of goods with payment installments. Offered as an alternative product for companies not suitable for Direct Lending (DBS), the card offers a practical payment system, freeing businesses from the complexities of check, bond or cash payments. As a result of work carried out in 2017: • The card had a payment-free period option enabled. • Although the enhancements were only completed toward the end of 2017, agreements were soon signed with 16 parent companies. • A clause was added to strike agreements by assignments into sub-dealer portfolios. Tohum Card... With the Tohum Kart (Seed Card), which offers deferred payment opportunity in agricultural expenditures according to the harvest period, easy methods are offered to farmers to make payments without difficulty. • High-risk companies are identified through risk ratings. • The first transaction worth TL 38,756.16 was executed. Agricultural Banking Kuveyt Türk’s Agricultural Banking products provide support to customers registered in the Farmer Registry System and who demonstrate financial need in the agriculture and livestock sector. Plant production support, milk and livestock support, tractor support, cropland financing and agricultural machinery leasing are some of the Agricultural Banking products on offer. Repayment installments are scheduled according to the farmers’ harvest times. In addition, the Bank helps farmers applying to TKDK (Agricultural and Rural Development Support Agency)’s grant support program and TARSİM (Agriculture Insurance)’s agriculture insurance coverage. In 2017, the Bank’s agricultural financing risk reached TL 90 million. Total fund allocations via the Tohum Kart (Seed Card), which gives farmers the chance to make payments at harvest time and repay their loans without hardship, amounted to TL 12 million in 2017. Further work is underway to develop alternative new products and to reach more farmers. DBS–DTS (Direct Lending – Collection System) DBS is a payment system where primary companies who grant franchise licenses or work with dealers and distributors can guarantee their collections while dealers enjoy various payment
42. 40 SECTION II : OPERATIONS IN 2017 SME BANKING Kuveyt Türk supports customers registered under the Farmer Registry System who require financial support for agriculture and livestock industry through its Agricultural Banking products. In 2017, the total volume of the DBS system increased an impressive 100%, inching close to TL 400 million. solutions. In 2017, the Bank made the following improvements to DBS: • Branch allocation rates were set for Direct Lending with profit share campaigns, and the profit share facility began to be processed on the campaign assignment screens. • Each company can now be assigned multiple profit share campaigns. • It was made possible to pay for the limit allocation fee in installments. • The revenues from limit allocation commissions were distributed among branches. • The development work to enable DBS bill entries and reporting via the Internet Branch was concluded. Thanks to these improvements completed during the year, the total volume of the DBS system increased 100% to TL 400 million. In 2017, the number of DBS main firms rose 160% to 216, while the number of dealers reached 2,801, by 350% increase. DBS recorded 40,349 invoice submissions over the system, which helped save 55,500 hours of work. School Installments System (OTS) and University Fee Collections Kuveyt Türk extends eligible parents or guardians a non-cash finance facility for the payment of tuition fees for private schools, universities and training centers and offers a comprehensive service involving collections and transfers into the accounts of the education institution. In 2017, the number of active schools on installment contracts reached 100 with a 56% increase. The number of parents/guardians involved in the scheme grew 18% to 3,100. Moreover, School Installments System involved funds totaling TL 37 million, indicating a 25% year-onyear increase. In 2017, under the university fee collection scheme, the number universities contracted rose from two to four. The total number of parents/ guardians involved in the schemes at these universities reached 3,760, a 41% increase. The total volume of the scheme reached TL 51 million with a 45% increase. Fixed Tariff POS This solution allows contracted merchants to collect on the next day, in return for a fixed monthly fee, the payments for one-off sales made with credit card up to a certain tariff limit, without paying a commission fee. The target user for this scheme is Micro and SME segment clients who prefer to pay a specified monthly tariff. POS with a certain tariff limit reached 3,024 in 2017. Profit-sharing POS This business systems infrastructure is designed mainly for customers in the SME segment, which have a smaller credit limit and dealer network than firms participating in the DBS system. A POS agreement is reached with the main company to help dealers divide their transactions into installment payments. The dealer executes payment in installments while the main company collects the payment in advance instead of receiving a commission.
43. KUVEYT T ÜRK 2017 ANNUAL REPORT Some 2,434 POS terminals were configured as profit share POS, and the 325 active profit share POS terminals executed installment transactions worth a total of TL 61 million. Virtual POS upgrades Under the Virtual POS UX upgrade, the Bank made improvements and corrections to menu interfaces, number of installments, user data, card data, and address data, end-ofday order follow-up and manual POS transactions. Under the Virtual POS integration contract signed with the Revenue Administration, 3,117 Virtual POS were installed at 1,039 tax offices. Virtual POS was upgraded to offer installment options for a fee, enabling further potential agreements with fintech companies in particular, and boosting the number of e-commerce customers reached. mPOS Kuveyt Türk customers with a POS terminal can also use the Virtual POS software via the mobile branch. With the fast, convenient and free application that transforms every smart phone into a POS, the transaction begins as soon as the contactless card comes close to the mobile device and the card information appears on the POS screen securely blocked. Running on a 3D Secure infrastructure, mPos is aimed at businesses relying mainly on cash transactions but not obliged 41 to keep POS terminals integrated with cash registers such as plumbers, street vendors, restaurants, gym operators, financial advisers, taxi drivers, and barbers. Foreign Trade Marketing Kuveyt Türk constantly works to diversify products geared towards financing foreign trade to make them more accessible and better tailored to customers’ needs. Kuveyt Türk diversifies its foreign trade finance products each day, boosting its support to export-oriented SMEs and helping Turkey increase its foreign currency revenues. In order to facilitate Turkey’s foreign trade companies’ access to potential exporters/importers in overseas markets, there is a joint initiative underway with the Association of Financial Corporations based on the Trade Map for submission to foreign trade clients in collaboration with Islamic Development Bank (IDB). Furthermore, regarding finance facilities offered to foreign trade companies, with KGF acting as the intermediary, TL 362.5 million was extended for exporters; and TL 422.7 million was extended to importers. As part of foreign trade innovations, a Foreign Trade Coordination Group was established with the Financial Institutions Unit. The synergy generated by the scheme is expected to boost the volume of international transactions and generate alternative products. Marketing and Product Development Activities In 2017, the Bank allocated USD 470 million to help exporter customers meet their financial needs, in the form of products such as Export Guarantee Loan, Eximbank–SÖİK Loan and LongTerm Export Finance. Aiming to provide more support to exporters within its efforts to develop new export financing products and on commercial receivables insurance, in line with participation banking principles, the Bank held meetings with the Central Bank of Turkey regarding rediscounts. The Bank also met with BRSA and the Association of Financial Corporations regarding cash against documents export transactions to this same end. Work in this area is ongoing. Kuveyt Türk plans to implement the projects in 2018. A Foreign Trade Working Group has been established within the Association of Turkish Participation Banks under the leadership of Kuveyt Türk. The working group will meet periodically to contribute to the participation banking industry by helping banks share their experience in foreign trade, assess existing practices and work on new products. Thanks to ongoing efforts in 2017: • Exporter customer numbers expanded 9%, from 6,792 to 8,120; • Importer customer numbers increased 3%, from 6,557 to 6,762; • Branch locations performing foreign trade transactions rose 7%, from 356 to 380; • Foreign trade commissions jumped 20%, from TL 35 million to TL 42 million.
44. 42 SECTION II : OPERATIONS IN 2017 STRATEGY FOCUSING ON THE RIGHT GOALS... All human resources policies and processes are drawn and developed based on the “Employees First” principle and in a way that will bring about experiences to be “So glad” about. By the end of 2017, a total of 1,662 courses on 514 different chapters were held and the average education duration per employee has exceeded 8.3 days. 29 PROJECTS In 2017, a road map for strategic projects was drawn and monitored via the Portfolio Management Tool. Twenty-nine of the 48 projects included in the road map are already completed. The Strategy Planning and Corporate Performance Management Department, Strategic Program Management Office, Branch Performance Management Department, Training and Quality Group Management, Human Resources and Corporate Communications Department operate under the Strategy Group. The aim of the business plans of the units functioning under the Strategy Sector is to disseminate the strategy by making sure that all employees focus on the right targets in order to plan the strategic priorities of the Bank, support the strategic management processes through department-based reports, and achieve the strategic goals of the corporation. The main goals of the business plans of the departments operating under the Strategy Group, are planning Bank’s strategic priorities, identifying and managing the necessary steps to achieve these plans, through efficient human resource management shaping the Bank’s organizational structure and quality management system in line with the strategic plan and priorities, and managing the relationship between internal and external factors in parallel with the Bank’s strategic goals. Strategy Planning and Corporate Performance Management Department The main responsibilities of the Strategy Planning and Corporate Performance Management Department are: pursuant to the mission and vision of the Bank, to identify the Bank’s medium-term, and long term strategies in line with the Board of Directors and the Senior Management’s points of view, and conducting goal setting studies with the business units in a coordinated manner, and executing these goals. Updating the defined strategies in line with the changing conditions, thus creating an ideal environment for the Bank to reach its maximum potential is among the priorities. As part of this task, Strategy Planning and Corporate Performance Management Department develops performance criteria related to strategy’s assigned position, administers improvement of the services and gathers, analyzes and interprets the information and the data related to the performance. Performance targets of these departments are designated by taking into consideration the strategic roadmap, projects and priorities, and performance metrics. Key Performance Indicators (KPI) are used as management tools to ensure that the Bank operates in line with the strategic priorities.
45. KUVEYT T ÜRK 2017 ANNUAL REPORT Also among the functions of the Department is to examine the external factors that can affect the services, to conduct capacity research within the Bank, to analyze both the effectiveness of the services and the satisfaction level, and to conduct general research. Some other tasks of the Department are, to make sure that the Bank’s annual budget, including the budget forecast for the upcoming years, are prepared by taking the strategic plans and the annual performance program into account, and to monitor and evaluate if the Bank operates in line with the strategic priorities. The Bank also aims to research and analyze new business lines that is going to serve the Bank’s strategic goals, to evaluate investment opportunities, and to carry on with economic research activities in 2018. Strategic Projects Management Department The main responsibilities of the Strategic Projects and Program Management Department include: management of strategic projects that involve the entire Bank, management of projects related to a specific sector or group in line with strategic goals and the establishment of the project management framework. To this end, the Bank formulated and started monitoring a strategic projects roadmap via the Project Portfolio Management Tool during the year. Twenty-nine of the 48 projects in this roadmap were completed. Progress was made on the remaining projects as planned, with significant contributions made toward fulfilling the organization’s strategy. Some of the projects completed include: Enterprise Banking: Kuveyt Türk inaugurated the Lonca Entrepreneurship Center to offer technology-minded entrepreneurs opportunities to realize their ideas and to develop them through training and mentoring, and in the first round of applications, 10 projects selected from among almost 600 applications received support. Furthermore, Turkey’s first Enterprise Capital Mutual 43 Fund to invest in technology-oriented start-ups was established under KT Portföy A.Ş. with a view to partner with entrepreneurs and to provide them with capital support. The fund will start investing in 2018. Supply Chain Finance: Marking a new chapter for Kuveyt Türk and other participation banks, both the buyers and sellers involved in continuous replenishment supply chain purchases were offered financial solutions through an online system. Banking for Foreigners: A strategy study was drawn to improve products and services aimed at a rapidly growing community of foreign customers across all channels, and work was initiated in accordance with the strategy. A Day in the Field: The project deploying Head Office executives to frontline positions at branches including the counter and marketing desks for a full day to help identify areas for development from a branch perspective produced over 600 strands of feedback and Work is underway to turn these into action. Accessible Banking: In 2017, 70 branches completed the physical improvements required under the Accessible Banking project, technological upgrades were made to ensure customers receive unhindered access to banking services, all physical environments at branches were made compliant with accessible banking requirements and training provided to staff helped spread the correct attitudes across the Bank regarding disabilities. Organization and Quality Development Directorate The Organization and Quality Development Directorate operating under the Strategy Group is responsible for: • C onducting customer surveys, • Conducting projects in order to improve the service quality and resolving customer complaints, • Conducting improvement projects in order to increase customer satisfaction, 70 BRANCHES With 70 branches completing the physical improvements required under the Accessible Banking project in 2017, technological upgrades were made to ensure customers receive unhindered access to banking services. • C orrecting, preventing and ameliorating any current or future problems arising from the Bank’s products and services via the DÖF (Corrective, Preventive and Remedial Actions), • Conducting and controlling projects related to ethical banking, • Evaluating suggestions sent by customers and employees over the Solid Idea Platform, • Regularly reviewing the Bank’s organizational structure, • Building an effective organizational structure that meets the market and customer expectations in light of technological advances and establishing the optimal allocation of duties/responsibilities, • Conducting job grading studies, ensuring that posts are correctly positioned on the scale, • Managing the authorization and workflow systems, designing workflows appropriate for the organizational structure and granting authorization in line with the job descriptions, • Conducting permanent staff studies, ensuring operations are carried out by an optimized level of staffing, • Running the Quality Document Management System, ensuring the documentation is up-to-date and complete, • Performing the work needed for ISO 10002 and EN 15838 quality certifications, and establishing an effective Quality Management System.
46. 44 SECTION II : OPERATIONS IN 2017 STRATEGY Kuveyt Türk carried out the first Customer Experience Survey in the banking sector in 2017. The survey was conducted in four phases over the year, involving Benchmark Analysis for all the branches and other channels of the Bank. Studies and surveys conducted in 2017 showed that Kuveyt Türk attained its targets in key areas such as service quality and customer satisfaction. The 68% staff participation rate in the Internal Customer Satisfaction Survey, which included questions on business, communication and general satisfaction, has confirmed employees’ trust in the survey. Studies and surveys conducted in 2017 showed that Kuveyt Türk attained its targets in key areas such as service quality and customer satisfaction. The 68% staff participation rate in the Internal Customer Satisfaction Survey, which included questions on business, communication and general satisfaction, has confirmed employees’ trust in the survey. According to the results of the Internal Customer Satisfaction Survey, the general average was 3.54 out of a possible 5 in 2017. Kuveyt Türk carried out the first Customer Experience Survey in the banking sector in 2017. The survey was conducted in four phases over the year, involving Benchmark Analysis for all the branches and other channels of the Bank. Customer experience measurements involve a research method that analyzes the impressions and emotions of a selected group of real and potential customers about services they received for selected transactions across the entire range of channels. The survey measures customers’ perception about the institution, their emotions about the service they received, and their overall satisfaction. • • • • • • During the year, the Organization and Quality Development Directorate conducted the following activities: • In 2017, at the ETİKA Competition where EDMER ranks companies according to compliance with ethics-related criteria, Kuveyt Türk received the Ethics Award for the third year in a row, confirming its commitment to Ethical Banking principles. Preparations were made to ensure that newly recruited personnel can receive a one-day in-class training on Ethical Banking. In future studies, research elements related to customer experience will be employed to boost customer satisfaction of products and services. Ethics Ambassadors selected from each unit and branch, who contribute to upholding and popularizing ethical principles and values, received extensive information on this topic and participated in a workshop. The Ethics Committee continued to hold meetings in 2017 and made important decisions in the area of Ethical Banking. Actions were taken to establish permanent solutions on the employee entries to the Ethical Reporting System. Improvements were made in the BOA Core Banking System to process internal customer satisfaction requests, enabling staff to pass on compliments, complaints and suggestions about their co-workers to their relevant line manager via the internal customer screens. Regarding transaction-focused external customer satisfaction surveys, 20,650 customers responded to surveys on 30 different transactions. The average score of 4 points assigned both for participation rates and survey ratings signify a major achievement.
47. KUVEYT T ÜRK 2017 ANNUAL REPORT • In transaction-based surveys among internal customers, 7,232 customers from 33 directorates participated in 61 workflows over the BOA. The resulting achievement score was 4.41. • Customer satisfaction continued to be measured via NPS surveys to ensure the continuous development of the Bank’s service quality. • Some 2,976 new Solid Ideas were entered into the Solid Idea Platform over the course of 2017. The Platform offers a more userfriendly experience following the enhancement work undertaken. • Efforts were made to correct, prevent and remedy existing and potential issues in the Bank’s products and services through the DÖF (Corrective, Preventive and Remedial Actions) System. • Some 750 workflows were reviewed and revised under the Workflow Authorization Strategic Project. Staff in charge of approximately 7,000 screens on the Core Banking System were reviewed and updates were made where required. Additional roles assigned to the users were checked and inactive roles were removed from the system, clearing data. Authorizations for almost 100 externally-sourced software were reviewed. Following the implementation of enhancements to the infrastructure, the project was completed in September 2017. • Enhancement work was undertaken to check and calculate permanent staff measurements over the system. During the year, some departments had their permanent staff calculations made over the system infrastructure. • In order to determine the workload of operational staff at branches and to correctly assign staff numbers, the branch operational workload reporting infrastructure was updated to reflect the new business model. Correspondingly, permanent staff calculations for the sales staff were reviewed in light of the new branch business model; the segment guidelines and the results were shared with the Human Resources Department to 45 ensure branches operate on an optimal level of staffing. • Since the banking trends for 2018 stipulate digitalization and the efficient deployment of workforce, resources were allocated to the IT Department to progress stalled IT enhancement requests from departments that would benefit from digitalization and staff reductions. The team was established with a remit to focus on projects that will contribute both to the transfer of transactions by internal and external customers on to digital platforms and the allocation of workforce where it is needed at the levels it is required. • The duties and responsibilities of all departments were reviewed and 408 job definitions were revised. Thirty-three jobs were transferred to another unit by evaluating requests for transfer of jobs across departments. Some 804 new documents were created on the Quality Document Management System in 2017, and 884 documents were revised. Further systemic developments are underway. • Internal audits were carried out within the scope of the certificates held by the Bank in accordance with the ISO 10002 Customer Complaints Management System and EN 15838 Call Center Management System standards, and action plans were drawn in areas of development. External audits were successfully completed ensuring renewal of certificates. Customer Satisfaction In 2017, the Customer Satisfaction Center received 103,947 requests in total. A dedicated team was formed under the Call Center Directorate to ensure quick and efficient resolution of requests involving queries, transactions and suggestions. For customer complaints, the average span was less than two business days. The fact that the number of customer complaints in 2017 remained at a level comparable to the previous year despite increasing number of branches and customers is viewed as an encouraging sign. 750 WORKFLOWS A total of 750 workflows were reviewed and revised under the Workflow Authorization Strategic Project. In 2017, the Customer Satisfaction Center resolved requests within 2.27 days on average. Corporate Communications Department Operating under the Strategy Group, the Corporate Communications Department works to implement brand communication practices among internal and external customers in regard to the Bank’s strategic goals and priorities, promote new products and services, which constitutes the main strategic objective. The Corporate Communications Department is guided by an awareness of its corporate social responsibilities. Written into the Bank’s mission statement, this acute awareness of social responsibility constitutes the foundation of communication activities. All of the communications campaigns under consideration are evaluated and executed in light of ethical banking principles. Contributing to the banking sector, Kuveyt Türk made significant social responsibility projects within the social values and protects cultural properties. Corporate social responsibility—one of our top priorities—is of strategic importance for the brand’s corporate communications efforts. In 2017, the Bank continued executing social responsibility projects that add value to the society. Several valuable projects were implemented in the areas of people, environment, education, culture and arts, and restoration. Social responsibility was designated as the most critically important corporate communications theme for Kuveyt Türk, a brand built on the culture of foundations.
48. 46 SECTION II : OPERATIONS IN 2017 STRATEGY The Corporate Communications Department is guided by an awareness of its corporate social responsibilities. Written into the Bank’s mission statement, this acute awareness of social responsibility constitutes the foundation of communication activities. As the pioneer and leader in gold banking, Kuveyt Türk conducted digital and outdoor advertising campaigns throughout the year to boost participation in the Gold Days held at branches. 2017 saw several corporate social responsibility projects conducted, adding value to the society. Most recently, the “Helping Hand to Rakhine” project run in collaboration with the Turkish Red Crescent aimed to help alleviate the suffering of victims of the conflict and persecution in Myanmar to a certain extent. The cooperation with the children’s cancer charity KAÇUV for the “Support the Hope” project continued in its fifth year. Development and sustainability in this area will continue at a rapid pace. Advertising campaigns were another focus area for the Corporate Communications Directorate in 2017. The Bank released the commercials for its recently launched credit card brand Sağlam Kart across national TVs and other digital channels in February. With its “Go for solid finances, safeguard your pocket” tagline, the language of the campaign corresponded with Kuveyt Türk’s overarching “Sound Banking” approach. SUPPORTING KAÇUV The cooperation with the children’s cancer charity KAÇUV for the “Support the Hope” project continued in its fifth year. As the pioneer and leader in gold banking, Kuveyt Türk conducted digital and outdoor advertising campaigns throughout the year to boost participation in the Gold Days held at branches. The gold banking commercials which were originally broadcast in 2016 were re-run on national TV channels in third quarter on 2017. During the month of Ramadan, a special commercial with the tagline “When Ramadan arrives, it touches everywhere” ran on national TV channels. Attaching huge importance to innovation and technology, Kuveyt Türk promoted the products developed in this field through six digital commercials. Human Resources Department Seeing its human resources as its most valuable asset, Kuveyt Türk continued to invest in the HR area uninterruptedly in 2017. Our Human Resources Department pays special attention to shape its processes in line with the standards of the current HR standards, and aims to make sure that the new employees that become part of the Kuveyt Türk Family embrace the Kuveyt Türk’s banking principles and have a good work ethic that is in line with our values. As a key component of efforts to strengthen the overall brand strategy, Kuveyt Türk launched its new employer brand “So glad” in 2017. This brand emanates from the idea that only satisfied staff can achieve satisfaction in customer experiences, and was created by analyzing the values that make Kuveyt Türk an ideal employer for employees and candidates, as well as staff feedback. Thus, visual and content integrity were also extended to internal communications, and the internal communication activities were based on a strategic plan. All human resources policies and processes are drawn and developed based on the “employees first” principle and in a way that will bring about experiences to be “So glad” about.
49. KUVEYT T ÜRK 2017 ANNUAL REPORT Recruitment Process: Kuveyt Türk’s Recruitment Team that stands out with its experience and competence uses the most reliable HR techniques and manages the recruiting processes effectively. The recruitment process starts with online interviews which started in 2014 and it continues with English proficiency tests. The candidates who finalize this processes are evaluated by the Assessment Center. There, the recruitment process is conducted with inventories, competence-based interviews, general ability tests, group interviews, case studies, personality tests; also, the evaluation about Kuveyt Türk’s core competence is carried out. The Assessment Center evaluates candidates’ presentation skills and uses group work, role playing, case studies, personality inventory and other techniques to observe their level of compliance with the core competencies demanded by Kuveyt Türk. In 2017, the most important action used by the Career and Recruitment Team to enhance the measurements in the recruitment process was the Talent Q Personality Inventory. This tool, introduced in 2015, has had a highly positive impact on boosting the quality of the recruitment process. The most striking aspect of this inventory is that it has been customized in line with the competencies of the Bank. A key recruiter for highly qualified young graduates, the Bank launched a new training program, Kaşif (Explorer) in 2017 to run alongside Campus at the Bank scheme which has been ongoing since 2008 in line with these targets. Successful graduates of the program are then eligible to move on to the Kuveyt Türk Management Trainee scheme. For those pursuing these goals in the field of Information Technologies, parallel new schemes were initiated, namely, Techno Campus for students and Techno MT for graduates. 47 Kuveyt Türk continued to recruit highly qualified young candidates. During the year, the Bank launched the Adaptation Project so that candidates get to know the Bank and complete the orientation process with maximum efficiency. One key component of the effort is matching and encouraging collaboration between newly recruited employees and well-experienced staff who can provide guidance to the new hires. Social Activities: 2017 served as a year when the teams and clubs (Sports Club, Travel Club, Photography Club, Social Club, Hobby Club) within Kuveyt Türk were very active. As well as staff activities such as excursions to various cities and sports competitions, clubs are continuing to flourish through initiatives such as Unplugged Computer Sciences Workshop for employees’ children. As part of club activities, the Bank organized a series of meetings, exhibitions, concerts, excursions and other events open to participation by all employees. As of year-end 2017, 350 personnel are active members of these clubs. The competition “Paintings by Small Hands,” first held in 2016, was held for the second time. Highlighting the achievements of Kuveyt Türk employees’ children, this event has once again underscored the importance given by the Bank to family values. Performance Development: Kuveyt Türk supports its managers and employees in their continuous development process through performance evaluations conducted transparently based on competencies and measurable targets as well as regular feedback. The Portfolio Management System allows branch employees to receive their monthly and annual performance scorecards in a more convenient fashion. The Bank began to assess the performance of the overall organization and the Head Office Departments in line with the balanced scorecard model, which is “STARS” Performance Stars Awards are handed out to employees for their achievements with the objective of obtaining a sustainable performance chart. part of the corporate performance management project, and also to track and report the scorecard developments and trends at quarterly intervals. With the introduction of the 120-point rating scale for sales scorecards of branch sales staff in 2017, it became possible to make goal and outcome measurements fairer and to subsequently improve differentiation in the performance bonus system. Performance Stars Awards are handed out to employees for their achievements with the objective of obtaining a sustainable performance chart. Developed as a 360-degree performance measurement tool that will guide human resources practices, the ‘’Biz Bize’’ survey system allows the Bank to evaluate employees’ competencies in a multidimensional manner. The methodology includes an assessment of subordinate, superior and peer relations and constitutes a new channel through which personnel can communicate their ideas. These surveys are sent to the Bank’s employees on a regular basis with the slogan “One Minute for Development.” Data analysis is conducted based on the responses received with action plans developed accordingly. Compensation: Kuveyt Türk’s compensation management system is designed to motivate employees to perform beyond their assigned objectives, to identify employees performing at different levels, and
50. 48 SECTION II : OPERATIONS IN 2017 STRATEGY Training and Development programs are conducted in light of key principles underpinning Kuveyt Türk’s vision and competitive strategy, namely ensuring Service Quality, Human Resource Quality and Competitive Edge through Utilizing Technology. Reviewing business processes across the board with a focus on development, identifying areas of improvement, and implementing new business practices that will carry Kuveyt Türk forward, the Employees First Council continues its activities with its innovative perspective. SEPETİM Marking an unprecedented move in the industry, the flexible fringe benefits scheme Sepetim (My Basket) was launched in 2017. to remunerate employees based on performance. As part of this effort, Kuveyt Türk’s compensation structure is based on the concept of the “Total Compensation Package” consisting of salary, performance bonus, foreign language allowance, transportation assistance, and other supplementary payments. In order to remain competitive in the market for talent, Kuveyt Türk also offers various benefits to employees. These including private health insurance, which also covers the employee’s spouse and children, a private pension system with company contribution, clothing assistance and family support package. Some of the other initiatives under Human Resources that prompt the “So Glad” response are as follows: • L aunched in 2015, the “Working from Home” model helps female staff strengthen relationships with their children and boosts women’s employment by offering flexible work hours. Viewing motherhood as sacred, the Bank gives an offday to mothers on the day their children start the first year of primary school. • To ensure the comfort of employees, Kuveyt Türk introduced the summer clothing scheme in the branches in 2014. The Bank continues to implement this practice, which is seen as an innovation in the banking sector. • Marking an unprecedented move in the industry, the flexible fringe benefits scheme Sepetim (My Basket) was launched in 2017. • Kuveyt Türk believes that it must provide a pleasant, peaceful working environment for personnel to enhance service quality. Accordingly, disabled and pregnant employees are granted a leave of absence during times of inclement weather. • In order to share the feeling of national unity and enjoy pleasant memories, the Bank started holding Soldier Farewell Ceremonies in 2016, where employees about to embark on their military service are given a warm send-off by all their colleagues. • Executives and managers spent a day working at various positions, from the counter to sales, at branches in Istanbul and other Anatolian cities as part of the “A Day in the Field” or “A Day in Anatolia” schemes in order to better understand the issues staff face in an informal, nonhierarchical setting. • Reviewing business processes across the board with a focus on development, identifying areas of improvement, and implementing new business practices that will carry Kuveyt Türk forward, the Employees First Council continues its activities with its innovative perspective. • Acting on the principle of “Happiness grows when shared,” two new initiatives were launched to capture and share the moments that prompt us to say “So glad,” one through the new global phenomenon of mobile applications, and one in print format as the time-honored custodian of memories.
51. KUVEYT T ÜRK 2017 ANNUAL REPORT • The launch of the “İyi ki” (So glad) mobile application aims to enable the staff to share all their achievements, events, or in a nutshell their social and business lives; to nurture a culture of appreciation through additional features, to boost internal interaction and to turn staff into brand ambassadors of the employer brand. • Embracing the adage “The palest ink is stronger than the sharpest memory,” a new magazine called Mozaik (Mosaic) was also launched to revisit and reminisce about our most cherished memories many years later and to make a pleasant mark on this celestial sphere. • These workplace initiatives were reciprocated by employees and just like in 2016, the Bank emerged as the top performer among KFH Group companies in 2017 with an 82% engagement rate in the Employee Engagement Survey ran by KF Hay Group. In 2018, the Bank aims to sustain this score which is 14% above the world average and 9% above highly productive companies. The goals of the Human Resources Department for 2018 are as follows: • 2018 is set to be a year marked by enhanced internal and external communication of the employer brand and the initiatives that prompt a “So glad” response. • Kuveyt Türk Human Resources completed fiscal year 2017 with activities based on the slogan “So glad.” In 2018, the Department plans to focus on the “My Basket” 49 • • • • fringe benefits scheme, a first in the banking sector. 2017 was the first year of the “My Basket” initiative. The My Basket scheme will be expanded every year with new products that better address the changing needs of employees. Since digitalization is set to be the glaring item on the agenda in the near future, Human Resources also aims to digitalize. In 2018, work towards HR analytics will be continued through the development of systemic processes, utilizing big data. Trusting employee productivity to be enhanced through appreciation and rewards, Kuveyt Türk will concentrate on short-term reward schemes in 2018. The Department will also develop projects to become a center of attraction in the sector. Internally, the Bank will continue to invest in its most important asset, namely the workforce, guided by its “Employees First” slogan. Externally, the Bank plans to continue building a “More Beautiful Kuveyt Türk” viewed by candidates as the “School of Sound Banking” where everyone would be pleased to work. 2018 is set to see increased initiatives that prompt a “So glad” response. Having received the Talent Board Candidate Experience Award in 2017, Kuveyt Türk aims to expand talent management initiatives for its current employees while providing the best experience for candidates. MOZAİK Embracing the adage “The palest ink is stronger than the sharpest memory,” a new magazine called Mozaik (Mosaic) was also launched to revisit and reminisce about our most cherished memories many years later and to make a pleasant mark on this celestial sphere. • K uveyt Türk is committed to remaining a center of attraction within the banking sector with its “Swift Career” opportunities and “Competitive Salary Package.” Training and Development Our Training and Development programs are being carried out under our main principles of Quality of Service, Quality of Human Resources and Technology Utilization. Therefore, in order to implement the competitive strategy of boosting human resource quality, learning and development activities began to be carried out under the brand name of Kuveyt Türk Banking School. The training sessions at the Banking School not only upskill employees to translate internal information into products, but also enable external information to be internalized.
52. 50 SECTION II : OPERATIONS IN 2017 STRATEGY Regarding Information Technologies, 307 employees received an average of 8.8 days of training for professional and personal development. In order to implement the competitive strategy of boosting human resource quality, learning and development activities began to be conducted under the brand name of Kuveyt Türk Banking School. 8.3 DAYS As part of the Banking School project, Kuveyt Türk organized 1,662 classroombased training courses covering 514 topics, and the average training per person was 8.3 days. The ultimate goal is to make sure that the knowledge and skills the employees are required to gain are utilized and employed; and that training is seen not as a once-ina-lifetime activity but a long-term process to deploy the corporate changes and transformations. By analyzing the development requirements of employees from entry level to every other stage in their career with the Banking School, training road maps or “learning journeys” were drawn to ensure that the tasks set out in the job description are performed in the best and most successful way. Job descriptions, task analyses, manageremployee focus group initiatives as well as market and industry surveys were utilized to chart the learning journeys. The Learning and Development Journey at the Banking School comprises the following modules: • Basic Banking for all new recruits, • Sales and Credits for introducing products and services to customers, • Operations and Risk for organizational efficiency and service quality, • Personal Development for all employees’ competence development, • Management and Leadership for developing an organizational culture. Kuveyt Türk pays particular importance to the personal and professional development of its staff in order to sustain the productivity of its human resources. By the end of 2017, a total of 1,662 courses on 514 different chapters were held and the average education duration per employee has exceeded 8.3 days. Some 517 newly recruited staff attended Core Banking Training Journey, which includes programs on core banking, banking legislation, interest-free banking principles, customer focus, Ethical Banking, products and services, sales and relationship management, performance development system, as well as the Bank’s culture and structure. Kuveyt Türk initiated programs to attract high-potential candidates to the Bank in the second half of the year. Twenty-seven days of in-class training and 30 days of on-the-job training were held during the sixmonth training process. Some 470 further employees were given courses in Credit Training for sales staff to improve their technical knowledge of sales, credit, risk, banking, finance through financial analysis, fiscal analysis procedures and balance sheet-based credit packages. Operational improvement training programs were held to improve the professional knowledge, skills and competencies of operation managers, specialists and tellers with a total of 425 employees receiving five days of training on average. Furthermore, of the branch business model, a new Customer Relations Management (CRM) program
53. KUVEYT T ÜRK 2017 ANNUAL REPORT involving sales skills and drawn by internal trainers was launched, and 120 people received the two-day training. New certificate programs in line with our renewed career certificate policies were also introduced. Twohundred employees were given PPS education out of which 332 were awarded with certificates. A total of 185 employees were given SPL courses with a total of 496 earning their SPL Certificates. As for Foreign Language training, 242 employees joined the TOEFL education program while conversation clubs were organized to take the speaking ability of 145 participants to the next level. In 2017, the second edition of English Debate Competition and finals for the conversation clubs were held. A total of 385 employees hold a TOEFL certificate as of December 2017. Regarding Information Technologies, 307 employees received an average of 8.8 days of training for professional and personal development. The Bank implemented the Branch Director’s Handbook which was prepared in 2016 to guide branch directors by setting the standards in branch management and cultivating a shared management perspective and organizational culture. Accordingly, 145 branch managers received the 3-day “Branch Manager Road Map” training, followed by tracking and monitoring by the regional director, accompanied by a consultant. 51 In 2017, 78 Head Office executives and branch manager candidates were included in the Assessment and Development Center scheme. Forty-two employees joined the fourmodule 25-day Career Development Program aimed at branch director candidates. Sixty-six people working as executives at the Head Office received a 6-day training to enhance their managerial skills. Training sessions will continue in 2018. One hundred sixty-four persons from the operation staff were invited to the Sales Assessment and Development Center; 108 of them were transferred to the sales team. The development work to incorporate the mentorship project supporting the exchange of business experiences into BOA was 90% complete and it was actively utilized for employees in the branch directors pool in the fourth quarter. The Bank initiated a mentorship project to help employees share their experiences in the workplace. Newly recruited staff that completed their 180-day adaptation process were assigned mentors and interviewed complete with various on-the-job training topics. Personnel in the Branch Director Candidate Pool were assigned branch directors as mentors and given on-the-job learning experience. Kuveyt Türk believes in effective utilization of our human resources, and in line with this principle assigns its expert staff to instructional 385 EMPLOYEES HOLD A TOEFL CERTIFICATE A total of 385 employees hold a TOEFL certificate as of December 2017. accreditation. In 2017, the internal/ external educational programs ratio was 70%. Our instructors’ evaluations are carefully considered and given feedback. The infrastructure for the Digital Learning Management System LMS was renewed at the beginning of 2017. The system was initially available to only orientation groups in March, but began to provide digital content to all users as of September 2017. The system has approximately 500 active components of content. These are namely interactive, scormcompliant training material, green box training videos featuring trainers, animated training videos, records of case studies, audio recordings and PDF files on professional and personal development. Out of these, the employees were assigned 92,529 person x training and the number of training components they signed up for was 76,343 person x training. Hence, online training participation was 82%.
54. 52 SECTION II : OPERATIONS IN 2017 TREASURY AND INTERNATIONAL BANKING POSITIVE CONTRIBUTION TO GROWTH AND PROFITABILITY In September 2017, Kuveyt Türk set a new record in the participation banking industry with a sukuk issuance worth TL 400 million and a 106-day maturity. The Bank issued a total of TL 2.3 billion in 2017, concluding the year with a sukuk issuance balance of TL 1.1 billion. The Corporate and International Banking Group, made up of Corporate Marketing, International Banking, the Treasury Group, Investment Banking, Performance and Product Management as well as Overseas Branches and Subsidiaries, strives to sharpen the Bank’s domestic competitive edge, by offering customers a wider array of high quality products and services. The Group is progressing toward regional structuring in line with Kuveyt Türk’s strategic targets. In 2017, the Group contributed to the Bank’s growth and profitability. Treasury Group In charge of the management of the Bank’s liquidity and market risks, the Treasury Department continued to manage risks and pursue a profitability oriented approach in 2017. Despite high volatility in global markets and increasing competition in the domestic arena, Kuveyt Türk increased its foreign currency trading profitability in 2017. MARKET MAKER In 2017, Kuveyt Türk is the first participation bank to be a market-maker in the BİST Precious Metals and Stones Market (KMTP). In 2017, Kuveyt Türk is the first participation bank to be a marketmaker in the BİST Precious Metals and Stones Market (KMTP). Kuveyt Türk not only achieved success in gold transactions, but also ranked first in silver trading and gold trading volume. Kuveyt Türk remains the leader of foreign trade in standard gold and silver bullion. In 2017, the Bank accounted for almost onefourth of Turkey’s gold export and import volume. Kuveyt Türk is also responsible for nearly half of Turkey’s total silver import. The sale of Kuveyt Türk-designed bullion gold at international standards, which started in 2015 as a first for a Turkish bank, continued in both domestic and overseas markets in 2017. Assets and Liabilities Management Department: This Department primarily aims to manage risks arising from mismatch between liquidity and maturity in the balance sheet of the Bank due to various banking activities. Hence, transactions in treasury and capital markets are conducted by means of products compatible with the corporate principles. In 2017, the Department was divided into four sub-units: Money Market Desk, Capital Markets Desk, Sukuk and Syndication Desk and Treasury Marketing Desk. Money Markets Desk: Access to markets among domestic and overseas banks helps the Bank manage its liquidity effectively. For this purpose, the Bank carries out liquidity management transactions on the interbank markets by means
55. KUVEYT T ÜRK 2017 ANNUAL REPORT Domestic/Foreign Domestic Domestic Domestic Domestic Domestic Domestic Domestic Domestic Domestic Domestic Domestic Domestic Domestic Domestic Domestic Total 53 Export Amount Export Date Amortization Date TL 80,000,000.00 TL 250,000,000.00 TL 150,000,000.00 TL 35,000,000.00 TL 150,000,000.00 TL 40,000,000.00 TL 280,000,000.00 TL 170,000,000.00 TL 100,000,000.00 TL 80,000,000.00 TL 400,000,000.00 TL 180,000,000.00 TL 120,000,000.00 TL 250,000,000.00 TL 45,000,000.00 TL 2,330,000,000.00 11.01.2017 14.02.2017 07.03.2017 29.03.2017 12.04.2017 18.04.2017 25.05.2017 15.06.2017 10.08.2017 14.09.2017 18.09.2017 06.10.2017 08.11.2017 16.11.2017 19.12.2017 12.04.2017 25.05.2017 15.06.2017 29.03.2019 06.10.2017 06.10.2017 16.11.2017 19.09.2017 08.11.2017 13.09.2018 03.01.2018 17.01.2018 06.02.2018 16.03.2018 16.03.2018 of products compatible with Kuveyt Türk principles, while managing fixed liabilities and legal liquidity limits in accordance with the stipulations of regulatory and supervisory agencies. Kuveyt Türk helps business units meet their growing funding needs by obtaining low-cost perennial finance facilities thanks to its solid capital structure and access to financial institutions in the Gulf Region. Branch cash balances were considerably reduced through the measures implemented to utilize the cash assets held at branch vaults effectively, and further efforts were made to sustain the practice. Kuveyt Türk started up banking activities in Germany to expand its overseas operations and create cost advantages, to share and transfer key knowledge, skills and experiences on developing products for subsidiaries and managing, utilizing and obtaining liquidity. Capital Markets Desk: In 2017, Kuveyt Türk increased the share of the securities portfolio in its total assets from 7.50% to 8.50%. As one of the most active banks in both the primary and secondary sukuk markets, the Bank stepped up its communications with domestic and international market players during the year. Constant provision of bidirectional pricing in BIST and OTC markets helped to boost liquidity in the sukuk market, as well as supplying a new entry in the Bank’s trading profits for the product. The Desk also actively managed the Bank’s sukuk portfolio composition in order to maximize the risk/return ratios in line with the growth forecast for market rates in 2017. Sukuk and Syndication Desk: Kuveyt Türk acted as an intermediary and consultant for various transactions financed from the Gulf Region to date, and emerged as the bank of choice for the most reputable and prominent financial institutions in the region. The Sukuk and Syndication Unit continued to steadily expand its line of business through its longstanding and sound collaborations with international finance markets, and its experience and solid knowhow of various sectors, business lines, transactions and products. In 2017, Kuveyt Türk continued its efforts for gaining maturity and price advantages through diversifying its funding sources, thereby boosting its competitive edge and enabling the provision of finance facilities at a lower cost and longer term for its clients. The Bank issued a total of TL 2.3 billion in 2017, concluding the year with a sukuk issuance balance of TL 1.1 billion. Annual Accounting Rate of Return 10.45 10.75 11.00 Not Stable 11.50 11.56 12.00 12.00 12.10 12.45 12.00 12.10 12.10 12.30 12.20 ISIN Code TRDKTVK41710 TRDKTVK51719 TRDKTVK61718 TRDKTVK31919 TRDKTVKE1716 TRDKTVKE1724 TRDKTVKK1718 TRDKTVK91715 TRDKTVKK1726 TRDKTVK91814 TRDKTVK11812 TRDKTVK11820 TRDKTVK21811 TRDKTVK31810 TRDKTVK31828 GOLD AND SILVER Kuveyt Türk not only achieved success in gold transactions, but also ranked first in silver trading and gold trading volume. Kuveyt Türk set a new record in Turkey’s participation banking industry for the highest value single-issue sukuk export in TL denomination with a sukuk issue worth TL 400 million on a 106-day maturity in September 2017. Successfully expanding both the range and volume of local and international financial products in the field of sukuk and syndication transactions with its pioneering and innovative approach, Kuveyt Türk maintained its position as the industry leader in 2017 as in the previous year despite a highly competitive climate. Foreign Currency and Precious Metals Unit: The Unit is in charge of managing the Bank’s foreign currency risk and marketing treasury products; and providing foreign currency and precious metals pricing services to clients and branches.
56. 54 SECTION II : OPERATIONS IN 2017 TREASURY AND INTERNATIONAL BANKING Kuveyt Türk continued to be the leader among banks with the highest gold trading volume in the Borsa İstanbul (BIST) Precious Metals and Stones market. The Foreign Currency and Precious Metals Department determines the prices for treasury and financial market products in international markets, such as foreign exchange spot and gold. The main strategy of the Foreign Exchange and Precious Metals Department is to increase transaction volume and profitability in financial market products. Transaction limits, transaction volumes and profitability of the products are regularly monitored by the Department. The Department holds training sessions for branch staff in coordination with regional directorates and works to raise awareness about treasury transactions and products. Furthermore, it runs efforts to expand the client base and increase transaction volume and revenue through visits to potential treasury customers selected on branch advice. The Department also actively manages portfolios of Treasury’s private banking clients, thus contributing to Kuveyt Türk’s standing among the leading banks in this field. As a result of the work initiated in 2016, an electronic trading desk was established to meet the technological requirements of developing and evolving financial markets. Hence, the Department took another pioneering step in the industry by commencing spot trading in foreign exchange and precious metals markets. The Department also created the infrastructure to conduct foreign exchange and precious metals transactions on alternative distribution channels on a 24/5 basis. The scheme accommodates customers who need to perform transactions out of office hours, and marks another unprecedented step in the industry. Treasury Marketing Department: The Treasury Marketing Department closely monitors the performances of shares, foreign currencies, precious metals, investment funds, sukuks that have Kuveyt Türk Treasury products and organizes special pricing for customers in different segments in coordination with the sectoral marketing departments, prepares collaborated works and campaigns with the sectoral marketing departments from other segments to increase sales volume and income. The Department continues to digitize product trainings. It takes a leading role in IT projects to make sure Treasury products are managed in a more risk-free and efficient manner in the BOA Core Banking System. Branch/regional sales and coordination representatives were given mobile access to the Treasury Customer Value and Behavior Segmentation Report summary to provide them with numerical information on customer transactions, an awareness of transaction behaviors of Treasury customers, and a means to identify instant marketing actions in line with customer preferences. The data from the Treasury’s Value and Behavior Segmentation Report also began to be fed into the database for custom audience creation. Thus, it has now become possible to generate special bundles aimed at Treasury customers, alongside customized product and service packages.
57. KUVEYT T ÜRK 2017 ANNUAL REPORT The Department also completed the Treasury Automatic Pricing System (OFS) Project based on output from the Value and Behavior Segmentation, and Segment Marketing Department. The OFS project will come online in January 2018. The Department delivered a presentation at the World Islamic Banking Conference on the importance of participation-based individual and wholesale gold products and services in participation banking. At the conference, Andrew Naylor of the World Gold Council emphasized that no other conventional or participation bank offered a range of gold products and services as diverse as Kuveyt Türk. Sukuk issuances, sukuk trading and mutual fund trading were performed for the investment accounts opened at the Bank. As of the end of 2017, revenues generated from mutual fund management fees approached almost TL 580,000. In 2018, the Bank aims to increase the revenues obtained from investment accounts in line with the progress in capital market products. In 2018, the Treasury Marketing Department plans to help expand the Bank’s customer base and market share and increase customer satisfaction in an increasingly competitive environment. This will be accomplished with new products focusing on the needs of customers, alternative distribution channels, a customized, 24/5 accessible, competitive Automatic Pricing System, a more analytical approach and diversified service quality, increasing the market share and the number of customers and enhancing customer satisfaction. The Financial Institutions Department: The Department has two units. The Country and Bank Limits Management Service and Correspondent Relations Service. The reorganization followed an increase in the Department’s responsibilities and headcount. 55 Correspondent Relations Service: Its primary aim is to establish, monitor, manage and improve the product and business relations of Kuveyt Türk with domestic and foreign banks as well as international financial institutions. In order to boost the efficiency of the Bank’s existing correspondent network, the Correspondent Relations Service focuses on diversification of products and services, reciprocity, and continuity in relationships. Conducting and managing these issues with the correspondent banks is crucial for the Bank to gain a truly international profile. In addition to ensuring the efficiency of the correspondent network, the expansion of this network of relationships is another of the main tasks of the service. Efforts to this end are based on macro level foreign trade policies, regions and countries targeted in the short and medium term in foreign trade, and the Bank’s strategies and policies. The Correspondent Relations Service uses its deeply-rooted and close relationships to engage in direct sales and marketing to correspondent banks, thereby contributing to the profitability of the branches and the Treasury Department. In order to maintain relationships with banks and financial institutions the Bank collaborates with most closely, to develop business with new correspondent banks, and to meet new correspondents selected in line with the credit and compliance policies, the Financial Institutions Service made visits to several countries in Europe, the Middle East, Asia and Northern Africa in 2017. These visits not only increased the Bank’s brand recognition and reputation but also boosted interest in foreign trade, treasury products and borrowing instruments, which had a positive effect on volumes and profits. 24 HOURS, 5 DAYS Kuveyt Türk also created the infrastructure to conduct foreign exchange and precious metals transactions on alternative distribution channels on a 24/5 basis. The Financial Institutions Department attended the SIBOS Banking Event held in Canada in 2017, representing Kuveyt Türk for an eighth year running alongside its parent company Kuwait Finance House. Over 40 banks and financial institutions convened. The Bank held business development talks with both existing and potential correspondent banks. Kuveyt Türk had the chance to expand its network of relationships and receive first hand, up-to-date information on the latest global trends in banking. The Correspondent Relations Service is also charged with first phase responsibilities in managing the Bank’s Nostro/Vostro accounts and fulfilling the international compliance controls. The accurate and efficient management of Nostro/Vostro accounts positively contributes to both profitability and customer satisfaction. In addition, the Correspondent Relations Service plays a primary role in the Bank’s efforts to fight against money laundering and terrorism financing. Kuveyt Türk is extremely conscientious in complying with international compliance processes and procedures, whose importance has grown significantly in recent years. The Correspondent Relations Service manages the processes related to contracts signed by the Treasury Group units and domestic/international financial institutions. It focuses on the efficient and productive management of these processes, analyzing these
58. 56 SECTION II : OPERATIONS IN 2017 TREASURY AND INTERNATIONAL BANKING Kuveyt Turk has acted as an intermediary and consultant for many different transactions financed from the Gulf Region to date. Country and Bank limits are managed by the Country and Bank Limits Management Service operating under the Financial Institutions Department. agreements in terms of both participation banking principles and international legal responsibilities. The aim is to ensure that all the necessary controls are fully in place. Country and Bank Limits Management Service: Country and Bank limits are managed by the Country and Bank Limits Management Service operating under the Financial Institutions Department. The management of country and bank limits has become a more systematic and comprehensive process due to the importance recently placed on this issue by both Basel III and BRSA. BRSA issued three best practice guidelines on Counterparty Credit Risk, Country Risk Management and Concentration Risk Management, suggesting that banks should harmonize their internal processes with these guidelines. Kuveyt Türk’s portfolio of over 85 countries and almost 400 financial counterparties further adds to the importance of this process. The Bank constantly exchanges data with the international information organizations of which it is a member, with the aim of pursuing the ever-changing agenda and portfolio. The Country and Bank Limits Management Service monitors developments in the international markets on a daily basis, issues regular country reports and reviews bank limits annually. Having completed its organizational structuring, the service has started acting in conjunction with the Risk Management Department and Corporate Loans on common issues. Requests from the Treasury Department and branches pass through a preliminary evaluation by the service and are then sent to Corporate Loans for allocation. The allocation, monitoring and review processes for the country limits are coordinated with the Risk Management Department. The Country and Bank Limits Management Service has completed IT infrastructure development project feasibility studies in the core banking and reporting areas. Projects related to country and bank limit screens and reports will continue in 2018, quickly and intensively. The service established an internal bank valuation system to develop a counterparty credit analysis and valuation infrastructure. In addition, work has started on a Stress Test application that will be used for consolidation with subsidiaries and analysis of the existing portfolio. The compliance process with the relevant BRSA communiqués is ongoing with new practices introduced by Basel integrated in both the process and IT phases.
59. KUVEYT T ÜRK 2017 ANNUAL REPORT 57 FINANCIAL AFFAIRS ANALYTIC MANAGEMENT AND ACCURATE INFORMATION Budget and executive reporting processes play a vital role as Kuveyt Türk expands its financial network and underpins its growth with profitability. The primary objective of the Financial Affairs Group is to perform these functions with an outstanding service quality through its solid technological infrastructure and expert staff. All analytical management and information work necessary for the follow up and control of profitability and risk/resource efficiency on the basis of client, product and service and profit centers, as well as their budget-based planning and processing are among the primary duties of the Financial Affairs Group. Operating just like a command and control center, the Financial Affairs Group’s functions are: • Establishing effective budgeting and reporting system with the correct data for credible management, • Producing timely reports of correct data, that will be made public and submitted to government agencies, establishing and developing the infrastructure of the Bank’s accounting record system, and making sure it is operating well, • Performing all of the Bank’s financial and tax-related obligations, • Reporting within Banking Law, tax laws, TFRS standards, local and international financial legislation and applications, • Prompt reporting of the detected problems for instant intervention and correction, The Financial Affairs Group includes the Accounting, Financial Control, Budget and Management Reporting, and External Reporting Departments. It fundamentally aims at performing these functions with an outstanding service quality, along with its solid technological infrastructure and expert staff. Accounting and Tax Department The Accounting and Tax Department consists of the Accounting, Bills and Payments, Treasury Transactions and Bank Reconciliations, Business Development and THP Compliance, Tax Management and Consultancy, Provisions, Subsidiaries and Accounting Standards services. The Accounting and Tax Department has seven important functions in the reporting, financial statement preparation, and audit processes of the Bank. These are organizing, registering, classifying, summarizing, analyzing, interpreting and reporting. The General Accounting Department ensures that these seven functions are carried out in an effective and efficient manner, in accordance with the Bank’s strategic goals, and current day requirements and dynamics. The Department performs the following activities: • Registering, classifying, summarizing, reporting, analyzing and interpreting the Bank’s monetary transactions, • Tax and consultancy,
60. 58 SECTION II : OPERATIONS IN 2017 FINANCIAL AFFAIRS The Accounting Department enhanced its service quality by developing appropriate and inovative solutions, drawing on its know-how and experience and working as a solutions center throughout 2017. Any financial transaction and event that can be expressed monetarily is considered within the realm of accounting. The users of financial information get data from the produced information. AUTOMATION Most of the manual transactions are automatized within 2017 through systemic infrastructure works. • R egistering the Bank’s all cost and fixed asset bills and documents, and performing the necessary payments • Cost and budget distribution, • Accounting support and TDHP compliance, • Accounting, auditing and reporting for treasury transactions, domestic and international correspondent bank reconciliation, subsidiaries and overseas branches, and asset leasing companies, • Pioneering in the implementation of new products and services through a swift and solutioncentered perspective, • Functioning of the Bank’s accounting system, • Issuing financial statements and statutory reports in an accurate manner, and in compliance with the Banking Law, Turkish accounting standards, BRSA regulations, tax laws and other legislation, • Accurately registering transactions, • Fulfillment and payment of the Bank’s taxes and similar obligations, • Recording expenses and fixed assets of the corporation, • Accurate distribution of expenses in the scope of cost management, • Follow-up of limited expenses, • Payment and control of the Bank’s expenses and costs. The Accounting Department has provided support to export finance, Eximbank loans, sukuks, CBRT open market operations, second hand market transactions, precious metals, Turkish Republic gold coins, gold grams and other new gold products and services, credit cards, murabaha and metal transactions, and issuance of sukuks by the Bank’s Retail and Corporate Banking, Treasury and Product Development Units, and has thus helped to speed up transactions and contributed to the profitability of Kuveyt Türk. Any (financial) transaction and event that can be expressed monetarily is considered within the realm of accounting The users of financial information get data from the produced information. Some of the crucial functions of the Accounting Directorate within the organization of the Bank are: • F ollowing the Banking Law, TAS, BRSA regulations, tax laws and other related legislation regarding accounting applications and accounts charts, and making necessary adjustments, • Transferring the basic financial transactions into the accounting system within the financial year, making systemic improvements, performing financial statement work, • Ensuring correct distribution of costs to the units and branches as a part of budget cost management, administering the monitoring and control of the limited spending item, • Making systemic changes following accounts chart amendments, ensuring accounts chart compatibility, following accounting policies and policy changes, as well as ensuring compatibility with them,
61. KUVEYT T ÜRK 2017 ANNUAL REPORT • C onducting asset leasing companies’ transactions, preparing financial statements, following legal and tax-related transactions, • Providing support during public offering, bank foundation, branch opening and subsidiary transactions, monitoring foundation costs, • Actualizing systemic and taxrelated parameter compatibility of financial and legal changes, • Implementing electronic financial reporting systems including e-invoice, e-book, registered electronic post, e-archive, and providing their continuance, • Providing support to product development units in areas of technique, tax, accounting and finance for newly released products and services, • Consulting in tax, financial legislation, accounting applications that come from the units and branches, producing rapid and permanent solutions, making refinements, • Supporting the Customer Satisfaction Unit in systemic developments in order for it to effectively and quickly meet the demands coming from foreign clients, • Monitoring the R&D Department’s spending and costs as a separate department, conducting reporting work for the Tax Office and the Ministry of Industry in order to utilize the R&D tax incentives, • Monitoring treasury forward, swap, precious metal futures, spot transactions, making truthful assessments according to the TAS and tax laws, • Assessing the Bank’s foreign currency and precious metal status calculation, making status transfers and controls, • Ensuring the conduct and finalization of the interim period and year-end inventory work in line with the Banking Law, TAS, and tax laws, • Conducting the confirmation, writing and closing confirmation transactions of the Bank’s books that should be kept according to the TCC and tax laws, 59 • Submitting reports that are relevant to its area of activity to the administration of finance, the CBT, the SDIF, courts, experts, CPAs, performing the required work for investigations and audits, • Preparing the financial balance sheet and the income statement, • Conducting and reporting deferred tax work within the scope of corporate income tax and TAS, • Performing work for internal and external supervision, systemic supervision, tax and financial supervision, communicating with the tax office. Throughout 2017, the service quality was improved with a sense of resolution center by developing appropriate and new solutions in light of knowledge and experience. In this regard, most of the manual transactions were automatized within 2017 through systemic infrastructure works. Centralization was achieved in the lease payments and some of the tax transactions made at the branches. As for the Bank’s expenses, systemic developments were made for the control of limit and ex-post; reports were prepared by making progress in the prevention of spending that exceeds the limit. Budget items and accrued items are compared; software development studies were conducted to allow for analysis and reporting. The tax incentives of the transactions, products and services of the Bank are studied, and maximum utilization is achieved in tax advantages, while significant and rapid progress was made in financial statement preparation. It will continue to produce accurate and fast information for the Bank within the framework of the information system feature, and basic concepts of accounting, and governance and its rules, to improve efficiency by ideally following technological developments, domestic and international legislation, to elevate the domestic CONTROL Budget items and accrued items are compared; software development studies were conducted to allow for analysis and reporting. and foreign customer satisfaction to higher levels, to support innovative product development processes, and work devotedly. Financial Control Department The Financial Control Department executes its functions through Financial Control and Risk Analysis, Participation Fund Management and Data Analysis, Treasury Control and Expense Management. Each unit significantly contributes to the corporate development of Kuveyt Türk by regularly improving their own processes and control points with their expert and dynamic staff. The functions of the Financial Control Department are as follows: Functions of the Financial Control and Risk Analysis Unit • Establishing and developing a sound accounting infrastructure, and performing effective financial and accounting controls for the punctual preparation of the Bank’s internal and external reporting with accurate and credible data, • Ensuring the instant detection and correction of mistakes through daily, weekly and monthly periodic controls in order for the accurate registration of all transactions to audit trails within the framework of uniform accounts chart, relevant legislations and notices, • Determining the appropriate classification of financial assets within the scope of IFRS 9; for that purpose, making sure that the relevant units apply and monitor the contractual cash flow test (SPPI),
62. 60 SECTION II : OPERATIONS IN 2017 FINANCIAL AFFAIRS Financial Control Department executes its functions through Financial Control and Risk Analysis, Participation Fund Management and Data Analysis, Treasury Control and Expense Management. Financial Control Department makes significant contributions to the corporate development of Kuveyt Türk by constantly improving its own processes and control points with its expert and dynamic staff. • Monitoring and controlling the compliance of all financial activities to the Bank’s business model, • Measuring the financial assets’ expected credit loss (ECL), calculating and reporting the impact of changes through the application of staging and override functions with scenarios/models, • Supporting management’s decision making processes by providing analyses about the Bank and the industry, • Controlling and analyzing the Bank’s income and expenses on a daily basis, • Ensuring the applicability of early warning systems by analyzing current control reports concerning financial controls, • Creating new control points, developing existing products and overseeing the necessary accounting and system infrastructure work for the introduction of new products. Participation Funds Management and Data Analysis Unit • Supporting Senior Management in the decision-making process by conducting various analyzes and simulations for the management of the Bank’s profit distribution policy, • Controlling and analyzing the participation funds, their revenues and expenses, and all the factors that affect profit distribution on a daily basis; ensuring that dividends are calculated and recorded accurately in customer accounts, • Managing the participation funds, shareholders’ equity and similar funds that the Bank collects; ensuring the balanced and fair use of these funds, • Implementing the unit value and profit sharing structure according to the regulations and rules published by BRSA, and performing systematic upgrades, • Providing accounting and system infrastructure support for the Bank’s system change, product development, and new product creation, • Conducting research and analysis on interest-free banking, participation accounts management, and the profit distribution system. Treasury Control (Middle Office) Unit • Ensuring the effective monitoring of the Bank’s foreign exchange and precious metals position, and the accurate recording of exchange, derivative and precious metals profits, • Providing operational control and approval of swap, murabaha, foreign exchange, precious metals and sukuk transactions, conducting profitability analyses, • Controlling whether the Treasury’s transactions are within the set limits (including dealer and platforms), • Controlling the CBRT Open Market Operations and making profitability analyses, • Checking whether the Treasury conducts the counter transactions for the referenced foreign exchange and precious metals transactions, • Monitoring and controlling CBRT exchange rates, swap points and depot rates,
63. KUVEYT T ÜRK 2017 ANNUAL REPORT • Issuing daily liquidity reports and submitting these to the senior management, • Performing controls and reconciliation for the expenses that arise as a result of Treasury operations, • Following and controlling cash flows of correspondent banks, • Checking the accuracy of margin calls in counter banks, • Checking the exchange rates of all foreign exchange and precious metals transactions performed at the Bank, • Preparing reports and analyses for the Treasury Department, • Preparing the reports sent to our parent company, Kuwait Finance House. Functions of the Expense Management Unit • Conducting controls and analyses for the accurate and appropriate budgeting of expenses necessary for the Bank’s activities, for their provision with convenient costs that do not exceed the budget, and for their efficient use, • Sharing the risky situations or those that require improvement detected during cost optimization work with the management and the relevant process owners, making requests for taking measures and actions, • Regarding the expenses within the scope of expense management, ensuring the expense analyses through daily, weekly and monthly controls for the detection of extraordinary ones, notifying the management and the relevant process owners of these information, making sure the necessary measures are taken, • Effectively taking charge in setting up the budget regarding expenses as part of expense management, and approving the budget draft, • Providing the development and coordination of the Contract Management System, • Approving or rejecting expenses, goods and services, purchases, lease payments and related contract requests that are above a certain amount or that will exceed the budget, depending on their compatibility. 61 Aside from this, it performs the functions of conducting necessary work for the monthly financial reports, conducting interim period and year-end transactions, informing the auditors during internal and external auditing works, and preparing the requested information and documentation. The Financial Control Directorate aims to contribute more to Kuveyt Türk’s attainment of its strategical targets in 2018. The Bank intends to raise savings awareness and ensure the efficient use of resources, increase the efficiency of controls by making use of information technologies, and issuing the Bank’s profit and loss statements on a daily basis. Budget and Management Reporting Department: In terms of the monitoring and decision-making functions of senior management, budget and executive reporting has been vital for Kuveyt Türk, which increases the number of branches every day, improves by the organization, expands by the financial network built abroad, and most importantly supports its growth with profitability according to strategic goals. These processes are conducted by two subunits. It also aims to issue the Bank’s profit and loss statements reliably on a daily basis. Budget Planning and Monitoring Unit: Preparing the budget in line with the strategic goals, monitoring the compliance of branch, sector, product and department performances with the budget are among the basic functions of the Budget Planning and Monitoring Unit. In addition to these basic functions, controlling Kuveyt Türk’s transactions within the framework of basic policies and strategies, and making the Bank’s financial and executive integrity sustainable are among the responsibilities of the Department. FINANCIAL ANALYSIS The subsidiaries of Kuveyt Türk are followed up on a comparative basis and their financials are analyzed. The annual objectives that comply with the strategic targets identified by the Bank’s senior management, and the management plans that comply with these targets are clearly explained to the relevant branch and units. Also, the financial development of the units is supervised through daily reports, and in the event that there is a deviation from the targets, the causes are detected, and corrective suggestions are developed. Following performance measurements and assessments in terms of realization rates of targets, reports required by the Bank’s senior management are prepared. Likewise, the changes and causes of expense items within expense management on the basis of department and account are analyzed; current accounts of the branches are controlled in terms of the fund and profitability management, while deviations are reported. Upon the completion of the new budget system infrastructure studies, Budget Planning and Budget Monitoring functions will be performed over the BOA system. Financial benchmark requests are met in the consortium with the budget comparative report sets made to KFH, the Bank’s main partner. The subsidiaries of Kuveyt Türk are followed up on a comparative basis and their financials are analyzed. Management Reporting Unit: In order to have the senior management monitor the Bank’s performance in a safer, faster and in technology-based manner, Management Reporting Unit was formed during the restructuring of the Budget and Management Reporting Department.
64. 62 SECTION II : OPERATIONS IN 2017 FINANCIAL AFFAIRS In 2017, the External Reporting Department of Kuveyt Türk fully and rapidly responded to the reporting needs of institutions, organizations and individuals with which it cooperates in Turkey and abroad. Report requests were met in a timely and accurate manner. The External Reporting Department compiled the reports requested by Kuwait Finance House for consolidation work swiftly and in detail. SYSTEMATIC AND SWIFT The Kuveyt Türk External Reporting Department aims at systematically and rapidly meeting the new report needs, as well as the existing reports, in the upcoming period. The Unit reports to the senior management and to the relevant units, branches and departments of the Bank periodically or when needed, and provides analyses and interpretations regarding the reports. The Unit administers a reporting database in itself. A team with the necessary technical equipment and know-how for reporting prepares periodic reports for the External Reporting Department via the ACL system, and offers services towards the reporting needs of relevant departments. obligations, as well as preparing the reports submitted for the review of Kuwait Finance House, the main partner of the Bank to fulfill the functions of Investor Relations. The Unit has started working on a new reporting set in the MIS Reporting. Uniformity was established in the existing reports; a glossary is prepared for use in the Bank. The technological infrastructure was improved and new reports required by management were drafted. In 2017, the External Reporting Department of Kuveyt Türk has completely and rapidly met the report needs of corporations, institutions, and individuals that it cooperates with at home and abroad. Additionally, the report requests of official institutions, including the BRSA and the CBRT, were impeccably met in a timely fashion. The reports requested by the Bank’s main partner abroad, Kuwait Finance House, with regards to the consolidation works, were quickly prepared in detail. Ad hoc information is obtained with new periodic report enquiries. In addition, the CBRT inspectors, BRSA auditors and independent auditors who conducted audits in the Bank were provided with all kinds of information and documents that they needed. The audit reports for IFRS were prepared semi-annually and BRSA reports quarterly; these were then submitted to the relevant institutions and disclosed for the general public. The procedures concerning the organization of the Bank’s Ordinary General Assembly, capital increase and amendments to the Articles of Association were duly and successfully completed. External Reporting Department The External Reporting Department is in charge of the reports that are made public or submitted to government agencies as per legal The Kuveyt Türk External Reporting Department aims at systematically and rapidly meeting the new report needs, as well as the existing reports, in the upcoming period. The Unit presents the executive financial reports required by senior management to the interested parties through the Management Information System (MIS). New pages for all users were designed and added to the platform in the MIS within the year. The screen efficiency was enhanced through additional development work aimed at making the reporting processes and screens more user-friendly.
65. KUVEYT T ÜRK 2017 ANNUAL REPORT The External Reporting Department consists of three units that fulfill the functions of Internal Reporting, External Reporting, and Investor Relations. Domestic Reporting Unit: The unit conducts its activities in the two main categories of Financial Reporting and Independent Audit. As a part of financial reporting activities, periodical or on-demand reports are prepared and presented to regulatory bodies. Routine reports are submitted on a daily, weekly, fortnightly, monthly, semiannual and annual basis to the relevant government agencies. In addition, the necessary legislative and regulatory requirements are monitored and tables on the required ratios and limits are prepared. The branch inaugurations and address changes are duly communicated to the regulatory bodies; meanwhile, the Unit keeps track of the transfer of outdated participation funds, deposits and receivables to the Savings Deposit Insurance Fund (SDIF) and the calculation of the savings deposit insurance premium rate. As a part of independent audit activities, the Bank prepares and submits to independent auditors the consolidated and non-consolidated independent audit reports including financial statements and various commentaries and endnotes, which must be published every three months. The reports are presented to the regulatory institutions and the general public after the auditor provides an opinion. The Unit ensures that the financial reports, financial statements within the independent audit, as well as relevant explanations and endnotes are in compliance with Turkish accounting standards and applicable legislation. The Unit performs the controls and analyses necessary to present the Company’s financial information and related explanations 63 and footnotes in a transparent, reliable, truthful, exact and accurate manner in full, understandable and comparable fashion in accordance with the needs and the nature of the business. The Unit also aims to increase the quality level of the reports every year by following the latest technological developments. Foreign Reporting Department: The Unit’s activities can be summarized in three main categories. Interim and annual financial statements and audit reports are prepared in accordance with International Financial Reporting Standards (IFRS), presented to independent auditors, and published on the Bank’s website. In addition, the IFRS financial statements are prepared and presented to the concerned customers every month. The monthly consolidated financial package demanded by the Bank’s parent company Kuwait Finance House (KFH), the monthly analysis of the financial statements, as well as monthly, interim and annual projection studies are issued complete with explanatory and complementary endnotes and reports. Banking System Application Program (BSAP) and Islamic Banking System (IBS-M) reports are issued quarterly as requested as part of KFH-Central Bank of Kuwait (CBK) reporting. Furthermore, the Bank sends to KFH, its main shareholder, the Liquidity Coverage Ratio (LCR), which represents the liquidity adequacy ratio of the Bank, and the Net Stable Funding Ratio (NSFR) on a daily basis. The Basel III report submitted to KFH features monthly capital adequacy ratios calculated on the basis of the Basel III rules on credit, market and operational risks as well as the Bank’s own shareholders’ equity. The stress test data are calculated and risk package studies are performed as part of KFH risk management. Operating in line with the Corporate Governance Principles, the Investor Relations Unit functions as a bridge between shareholders and senior management. Investor Relations Unit: The Investor Relations Unit carries on operations about the use of share ownership rights, and establishes communication between the senior management of the Bank and the shareholders. The Investor Relations Unit plays a significant role primarily in the right to demand information and right to investigate, as well as facilitation of the protection and the use of share ownership rights. The Unit ensures that shareholder records are kept whole, safe and up-to-date. It operates within the information policy of the Bank, and supervises and monitors any matters regarding transparency. It responds to the written Bank information requests of the local and foreign shareholders, excluding the nondisclosed information that is a confidential and/or trade confidential. Additionally, it updates the Investor Relations page on the Bank’s website in line with the Corporate Governance Principles, and keeps the shareholders informed. Ensuring that the General Assembly meetings comply with the current legislation, Articles of Association, and other inter-Bank regulation; the voting results are recorded, and the final reports are sent to the shareholders are among the duties of the Investor Relations Unit.
66. 64 SECTION II : OPERATIONS IN 2017 RISK, CONTROL AND COMPLIANCE GROUP A DISCIPLINED AND SYSTEMATIC AUDIT STRUCTURE As in previous years, the non-performing loan ratio of Kuveyt Türk was below the industry average in 2017. The Internal Audit Department performed its activities in 2017 in line with the requirements of its business plan and stakeholder expectations. The Internal Audit and Inspection Department The mission of the Internal Audit and Inspection Department is to preserve and enhance the Bank’s corporate value through risk-oriented and objective assurances, suggestions and predictions. The vision of the Department is to help the Bank achieve its strategic targets and to be viewed as an exemplary internal audit unit in the industry due to its outstanding professional and ethical practices. The Internal Audit and Inspection Department, whose compliance with international internal audit standards has been confirmed by independent bodies, reports to the Audit Committee and submits periodic reports to the Board of Directors via the Audit Committee. The Department operates without any restrictions, within the scope of its annual business plan prepared on the basis of a risk-focused audit planning that includes the Bank’s all business processes, units, branches and subsidiaries as well as information systems. The Department has performed its 2017 operations pursuant to the necessities of the business plan and the shareholders’ expectations; conducted special examinations and legal or administrative investigations in required situations and fields. Additionally, as part of the management declaration audits, it performed a comprehensive assessment on the effectiveness, adequacy and compliance of information systems general controls and business processes controls in our Bank. The said assessments form a concrete basis for the management declaration that should be presented to the Independent Auditing Institution by the Board of Directors. The Department monitored report actions throughout the year via follow-up programs and reported follow-up results to the proper authorities when required. Similarly, operational activity reports were successfully submitted at least every three months to the Audit Committee, Internal Systems Committee, and the Board of Directors. These reports have also been submitted to the BRSA. Internal Control Department The Internal Control Department performs the internal control function of the Bank. The Department was found to design, implement, manage, analyze, and monitor the internal control system and its activities, and independently report their results to the management in order to ensure the execution of the Bank’s activities within the framework of domestic and foreign legislation.
67. KUVEYT T ÜRK 2017 ANNUAL REPORT The Internal Control Department activities are structured in three different segments in line with the Bank’s strategic targets and policies, and according to both domestic and foreign legislation, and international standards: • Branches and Regions Internal Control Unit, • Head Office and Subsidiaries Internal Control Unit, and • Information Office Systems and Independent Auditing Coordination Service This structuring aims at businessbased specialization, and improvement of effectiveness, adequacy, and efficiency of control systems and its operations through constant controls. As part of 2017 control plan and program, the various business segments, units, branches, subsidiaries, processes, products and services of the Bank were monitored and examined by demonstrating a proactive and dynamic attitude with materiality criterion and a riskoriented approach, and results of this work were reported. Branches and Regions Internal Control Unit: The control programs of branches in 2017 were executed in two periods and by selecting a different and risky area for each period. Work in this context was conducted via the Internal Control personnel (Internal Auditors) who are linked to the Department, and whose locations are regions. In order to raise awareness for risk and control, and to keep the losses due to operational risks at a minimum during branch internal control, the branch personnel were consistently informed on internal control system and operational risks. Head Office and Subsidiaries Internal Control Unit: As part of Head Office audits, controls were carried out in different units by teams specialized in different banking functions, in line with a risk-focused control plan. 65 The Internal Control Department actively participated in the Process Modelling and Analysis projects. This work included reviewing the processes with work units, identifying risks in these processes, designing risk controls, and installation. This contributed to the establishment and development of an atmosphere of internal control and internal control systems within the Bank in general. Additionally, transactions and activities that are generally considered important and risky by the Bank were remotely and periodically monitored and examined through computer-aided auditing programs and techniques (such as ACL). These activities aimed at constantly keeping transactions made throughout the Bank under control. Every work in this regard was performed by six different control services set up within the Department. Information Systems and Independent Auditing Coordination Service: Transactions and operations in the segment of information systems that are set up within the Department and compatible with the goals of other control services were examined and assessed in terms of various business processes and products, new product and services, internal and external audit findings, internal control system and activities. These activities aimed to set up, develop an internal control system and standards throughout the Bank, as well as to spread a culture of risk and control. The systems that are used by the Internal Control Department were prepared by this service, while the internal control personnel had all kinds of instant technical support. Furthermore, the 2017 independent external auditing operations were coordinated, the findings and related actions found in the relevant auditing reports were tracked, and assistance was provided in order to resolve the matters specified in the findings. Reports on this were submitted to the BRSA and the Board of Directors. Risk Management Department Determining, measuring, and managing the sustained risks in compliance with the legal legislation and regulations constitute the basic duties of the Risk Management Department. The Risk Management Directorate has maintained its work in 2017 on the risks that are faced by the Bank. Credit Risk Management and Modelling: The credit risk management activities, credit policy preparation, as well as the monitoring of its application in the Bank for an effective risk management are conducted in coordination with the relevant units of the Bank. The credit risk policy is implemented with the Board of Directors’ decision, and a strong risk management systems infrastructure is installed for the risk management activities. The internal credit risk limits determined with the Board of Directors’ decision are measured, and presented to the Audit Committee through periodic reports. If necessary, the actualization of country, concentration, maturity, sector, default rate, legal status, security, geography, currency type risks within the scope of internal risk limits are analyzed. Results are submitted to the senior management. The infrastructure work for monitoring internal risk limits instantly and automatically was completed, enabling more effective management of risk exposure. Initiated in 2012, the BASEL II internal rating preparations for increasing the efficiency of capital adequacy calculations, loan allocation and monitoring processes have progressed stage by stage. Internal rating models for Corporate/ Commercial and SME customers were developed, an internal rating model developed for the credit cards portfolio was launched, and the calculated scores started to be used as an input in the limit allocation processes. In the strategic
68. 66 SECTION II : OPERATIONS IN 2017 RISK, CONTROL AND COMPLIANCE GROUP Determining, measuring, and managing the sustained risks in compliance with legal and regulatory requirements constitute the core duties of the Risk Management Department. In 2017, the Risk Management Department maintained effective efforts to mitigate risks faced by the Bank. project initiated to develop new Basel-compatible models in line with the changing segment structure, the appropriate rating models for segment-based portfolios were developed. Eight cyclic default probability models were developed for corporate portfolios and four cyclic default probability models for individual portfolios. In 2018, the focus will be on monitoring the performance of existing rating models, revising the models where necessary, and developing new rating models for new customers. In the calculations of the capital adequacy ratio, the studies on calibration and modeling processes required for using the outputs of the internal rating in the profit-loss calculations to implement credit risk calculations under internal rating were completed in 2017. An IFRS-9 impact study was conducted in the last quarter of 2015. Work toward Financial Control, Accounting, Risk Monitoring Units, as well as the IFRS–9 oriented work are conducted in coordination with each other. In 2017, further modeling studies were conducted focusing on the three main components of expected credit loss calculation (PD, LGD and EAD). In 2018, modeling studies will be continued with an emphasis on LGD and EAD modeling. In accordance with IFRS 9, work is underway to establish models for identifying and managing risk within the framework of early warning systems in order to take early action on customers with a significant deterioration of their credit risk, which triggers transitions to the next stage. The Early Warning System which is set to be established in coordination with the Risk Monitoring Unit is due for completion in 2018. In order to assess and enhance the extent of compliance with the Best Practice Guidelines issued by BRSA, coordinated efforts were undertaken with relevant business units. By conducting meetings with the business units, actions required to enhance the extent of compliance were identified and a road map was drawn. Efforts toward better alignment with the Guideline on the Management of Concentration Risk, Guideline for the Credit Management of Banks, Guideline for Counterparty Credit Risk Management, and Guideline for Country Risk Management will continue in 2018. Data Management and Reporting: Under the Basel III rules, the amount subject to credit risk according to the standard method is calculated on a monthly basis and reported to BRSA in solo and consolidated format. The Risk Management Department is also in charge of calculating the Bank’s monthly capital adequacy ratio and reporting it to BRSA. The risk report set that contains detailed information for the calculation of the amount subject to credit risk, which is required by BRSA, is being prepared on a quarterly basis. Also, quarterly tables are prepared for the calculation of the
69. KUVEYT T ÜRK 2017 ANNUAL REPORT amount subject to credit risk and of the capital adequacy ratio as part of the Independent Audit Report. The Integrated Risk Management Project is ongoing. Upon the completion of the project, the Bank will issue BRSA Risk Management reports automatically. Market Risk: The market risk is handled periodically at the Audit Committee and the Internal Systems Committee of Kuveyt Türk, and monthly reports are sent to the BRSA. The sum calculations that form a basis to market risk are monitored in compliance with the Basel III standard method. On a consolidated and unconsolidated basis, the Internal Capital Adequacy Evaluation Report was prepared for assessing the capital adequacy of the Bank in normal and stressful periods, and as per the Regulation on Internal Systems of the Banks and Internal Capital Adequacy Evaluation Process and submitted to the BRSA in March 2016. Periodic stress testing and scenario analysis are conducted and presented at the Audit Committee and Internal Systems Committee meetings. Also, the stress testing on market, counterparty credit risks and the Bank’s total liquidity risk are monthly and concurrently conducted. The sukuk and other investment portfolios are regularly monitored, and reported to the Audit Committee, and every month to our main partner Kuwait Finance House. Analyses are made on capital assessment, asset assessment, market risk, power and sustainability of incomes, obligation and liquidity, business strategy, efficiency of internal control systems, organizational structure and strength, and management under the CAMELBCOM approach developed in compliance with the risk appetite of the Bank, Turkish and world economy, early warning system study for fiscal, monetary and financial system, and the Central Bank of Kuwait’s needs, and quarterly reported to our main partner Kuwait Finance House. 67 In 2017, efforts were made to comply with the policies and procedures of the Bank’s parent company Kuwait Finance House regarding market risk, liquidity risk and asset and liability management. The work is expected to be completed by 2018. Operational Risk: As part of operational risk studies, work has been carried out in coordination with the Internal Control Department in order to determine and eliminate risks related to operational processes by taking part in the ongoing process update and improvement efforts across the Bank in 2016. In 2017, Risk Control Self-Assessment studies were conducted with business units in coordination with the Risk Management Department and Internal Audit Department. These studies are expected to continue in the coming years. In 2017, work was undertaken to comply with operational risk policies and procedures of the Bank’s main partner Kuwait Finance House, and the Bank’s maturity level was improved. The Bank’s operational risk loss data is stored systematically and in compliance with Basel III standards. Operational risk concentrations have been actively monitored and reported to the Audit Committee, through a terminology appropriate to Basel III. In addition, studies have been conducted for compliance with the operational risk best practice guidelines issued by BRSA. An active role was played in the efforts required by the Support Units Regulation, and the Risk Management Program related to Support Units was revised and presented to the Board of Directors. IT Risk: Conducting the assessment work of the risks for Information Technology activities, the Risk Management Department undertakes important roles in risk monitoring and risk activity followup. BUSINESS CONTINUITY A business continuity test was successfully performed for the Emergency Center (ODM) in October 2017. Keeping the business continuity plans up-to-date is among the responsibilities of the Risk Management Department. Works regarding the identification of critical processes and critical IT systems, and assurance of redundancy of these systems was conducted in 2017. The business continuity methodology was harmonized with the methodology applied by the Bank’s parent company Kuwait Finance House. Further work will be undertaken in 2018 to improve the Bank’s maturity level in business continuity. A business continuity test was successfully performed for the Emergency Center (ODM) in October 2017. Compliance Department Compliance Department is a department in the internal systems area that identifies, assesses, monitors, reports and offers consultancy in the legal risk in Kuveyt Türk and its subsidiaries. Operating in affiliation with the Internal Systems Committee, and reporting on its operations to the Committee, the Compliance Department has two main functions. Compliance Control Function • Checking the compliance of all existing and planned activities, new products, the services and transactions of the Bank to the regulations, internal policies and rules, and banking trends • Executing compliance control function under compliance program and annual compliance control plan,
70. 68 SECTION II : OPERATIONS IN 2017 RISK, CONTROL AND COMPLIANCE GROUP Infrastructure changes for the combined reports were completed. The newly created user-friendly system started being used for both risk follow-up and marketing purposes, and was brought online in the second half of 2017. As well as ensuring stability for asset quality, the Law and Risk Follow-up Group made significant contributions to the digitization drive of the Bank in 2017. SOLID ASSET QUALITY At 1.85%, Kuveyt Türk’s non-performing loan ratio is below the industry average. • M onitoring and controlling compliance of the subsidiaries and foreign branches to the relevant regulations, and their periodic reporting to the Department. AML/CFT Function • Ensuring that the Bank’s activities comply with the anti-money laundering and combating the proceeds of crime regulation, • Keeping the high level quality of the Bank’s customer portfolio by implementing effective risk management, monitoring and control activities, • Detecting suspicious transactions and notifying the public authorities, • Consulting Head Office departments and branches on subjects related to AML/CFT regulations, • Reviewing and consulting on designing products to be offered to customers to ensure compliance with AML/CFT regulations, • Increasing consciousness and awareness of the staff on AML/CFT regulations. This success was achieved thanks to: • Active monitoring of clients through early warning signals, • Taking proactive approaches towards customers in administrative monitoring, • Displaying proactive approaches by correctly interpreting the macroeconomic indicators, • Making the branches and personnel more conscious about risk monitoring through trainings and visits. As well as ensuring stability for asset quality, the Law and Risk Follow-up Group made significant contributions to the digitalization process of the Bank in 2017. Law and Risk Follow-up Group The non-performing loan ratio of Kuveyt Türk was below the sector average in 2017, as it was in previous years. Initiated to make the administrative monitoring processes more efficient and productive, and to take the right action for the right customer at the right time for overdue receivables, the first phase of the Collection Decision Support System Project was brought online in April 2017. The system ensured increased efficiency for time and resource utilization by tracking clients under administrative monitoring based on “baskets” for the number of overdue days and their locations on BOA, and thus reducing manual activities. In 2017, the non-performing loan ratio of Deposit and Participation Banking were respectively 2.95% and 3.22%; Kuveyt Türk’s overall nonperforming loan ratio was 1.85%, a figure below the sector average. The Collection Scoring Project which constituted the second phase was launched as a strategic project at the beginning of 2017, and was brought online in August 2017, after almost six months of work. The system assigns
71. KUVEYT T ÜRK 2017 ANNUAL REPORT a score for SME customers on the first day they go into arrears based on the model, and the decision tree runs based on this score and the credit risk. Through the decision tree, actions such as SMS reminders or payment promises are automatically assigned to the Risk Tracking and Risk Monitoring Units along with branch portfolio managers for each customer in arrears between one to 90+ days past due date. Through the Collection Modeling Project, the aim is to deal with the non-performing loans from the first day they are overdue, monitor them proactively, increase productivity and reduce non-performing loan ratios. The Bad Debt Recovery Service, established under the Law and Risk Follow-up Group in 2016, continued to operate more effectively. The amount of bad debts recovered rose from TL 13.7 million in 2016 to TL 20.1 million as of December 31, 2017. Monitoring work for the collection of write-off risks is directly conducted the Debt Recovery Service regardless of customer segment. As part of this effort, several visits were made to customers, branches and lawyers. A project was initiated in cooperation with the Analytical Banking and IT teams to develop a “Write-off Collection Scorecard” to bolster collection efforts. The project, which will involve screen development work 69 on BOA for write-off protocols, is due for completion in first quarter 2018. Consequently, bad debt will be ordered based on the probability of recovery from the most to least likely, boosting the overall rate of recovery. The Law and Risk Follow-up Group is one of the key actors in the IFRS 9 project sponsored by KFH. The project will involve drawing Group and Local (Turkey) collateral policies, making sure loan classifications and collateral calculations are made accordingly. Under the project, staff participated in several training sessions and relevant meetings held in Turkey and Kuwait. Joint efforts were made to compile data, policies and documents with the Risk Management Department and Financial Control Directorate. In particular, the Law and Risk Followup Group conducted work on compiling data for the classification of loan receivables and for LGD and EAD calculations as well as ensuring data quality. With the completion of the project, significant indicators of the asset quality such as Close Monitoring, Non-performing Loans and Provision Rates will be calculated and reported in compliance with the new BRSA Provisions Regulation, in alignment with the parent company, and in accordance with international standards. The infrastructure changes for the combined reports were completed, and the newly created user-friendly system started being used for both risk follow-up and marketing purposes. It was brought online in the second half of 2017, and employed for Branch Marketing, Regional, Credits, Risk Follow-up and Marketing Directorates. A decision was taken to develop a model in 2018 under the rule-based and expert opinion assisted Early Warning System, which will involve a statistical model based on company finances and macroeconomic data, deliver forward-looking forecasts, be applicable for loan disbursem*nt and release of collateral processes, and detect signs of financial stress objectively even before the company goes into arrears. The model is due to go live in the second half of the year. Furthermore, the data generated by this system will be used as the “EWIEarly Warning Indicators” to identify the customer group in accordance with IFRS 9.
72. 70 SECTION II : OPERATIONS IN 2017 RISK, CONTROL AND COMPLIANCE GROUP In order to uphold and protect customer rights even in the absence of a customer complaint, Kuveyt Türk took an unprecedented step worldwide and established the Customer Rights and Regulatory Compliance Department under the Law and Risk Follow-up Group. Under the coordination of the Law and Risk Follow-up Department, lawyers acting as the Bank’s solution partners began to utilize the Lawyer Tracking System-ATS, which is fully integrated with the Bank’s system and UYAP, in 2017. In case the customer checks submitted as collateral meet the specified criteria, the system can process these directly as acceptance. But in cases when the system does not automatically accept checks, these are forwarded by branches for user approval. The process is completed when the Credit Risk Monitoring staff assesses the relevant check and approve or reject it. In order to increase system acceptance while reducing user acceptance, a statistical model has been developed based on the checks received by the user for assessment. The model is due to be implemented in the first half of 2018. Thus, it will improve collateral quality while offering a significant edge regarding staff costs. The Credit Risk Monitoring and Risk Follow-up Departments are also involved in the Internal Rating Project conducted by the Risk Management Department, and make serious contributions to the project in areas such as data supply, data dictionary creation, testing, decision making and strategy formulation. A minimum training program on Risk Monitoring and Risk Tracking processes and applications was drawn for all Regional Directorates in 2018. Training modules on Risk Monitoring and Risk Tracking will have more prominence in the credit training pack of the Training and Development Department. Under the supervision of the Law and Risk Follow-up Department, the Lawyer Tracking System (ATS), which is fully integrated with the Bank system and National Judiciary Informatics System (UYAP), was launched for the utilization of contracted lawyers acting as the Bank’s solution partners. Through ATS, lawyers are assigned files via the Bank system; they can access the file content over the system, request advances and expenses, and perform follow-up transactions swiftly. ATS also allows for the current status of customers under legal monitoring to be tracked and the performances of lawyers to be monitored. Visits to contracted active law firms continued in 2017, and talks were held during these visits to increase the collection rate through legal follow-up efforts. Sales of fixed assets held under the Asset Valuation Service generated TL 18.5 million in profits as of December 31, 2017. The rate of sale prices to appraised value was 102%, while the rate of fixed assets to total assets was 0.13% and fixed assets to credits was 0.19%. Converting fixed assets into current assets (cash) as quickly as possible is among the key objectives of the Asset Valuation Service. The service achieved this goal once again in 2017.
73. KUVEYT T ÜRK 2017 ANNUAL REPORT The Collateral Monitoring Department enabled the online submission of mortgage release letters to the Land Registry Directorates, making a significant contribution to the Bank’s digitization drive. The application aiming to boost transaction security, employee productivity and particularly customer satisfaction, while significantly reducing costs was implemented in 2017. Over the course of 2017, the Department reviewed 165,000 collateral records, made 24,000 updates and processed 56,000 release transactions. Significant progress was made to surpass industry standards in terms of service time and quality, with the average processing time reduced to 15 minutes. Systematic improvements were made to enhance transaction security in collateral processes. The Real Estate Appraisal Service under the Collateral Monitoring Department commissioned 32,500 reports from appraisal companies with CMB and BRSA licenses in 2017 and ensured their control. The average duration for the compilation of expertise reports was 1.85 days for residential real estate and two days for all other types of real estate. In a groundbreaking innovation for the global banking sector, the Customer Rights and Regulatory Compliance Department became operational under the Bank’s Law and Risk Follow-up Group in order to monitor and protect customers’ rights even before customers file a complaint. The world’s first “Consumer Rights and Legislation Department.” was established. This department will take all kinds of action to protect Bank customers’ rights in line with Article 76 of Banking Law no. 5411 and relevant legislation as well as Consumer Protection Law no. 6502 and relevant legislation, and to ensure that the Bank’s practices comply with these laws. 71 Non-performing Loan Ratio (%) 20132.25 20142.22 20151.62 20162.45 2017 1.85 Provision Ratio (%) 201388 201485 201572 201678 2017 Pursuant to the said legislation, the Department keeps a close watch on the legislative developments that concern banks and communicates these to the relevant units and individuals within the Bank. It identifies the necessary actions to prevent any non-compliant transactions within the Bank, and works in coordination with the other units in order to put these actions into practice. All the contracts and forms signed between the Bank and its customers in 2017 were gathered under a single umbrella, and made easily accessible to the branches. Through the addition of QR codes to the contracts and forms, the contract signing process has been shortened, saving time and increasing customer satisfaction. 93 Furthermore, in order to provide legally binding documentation to the expanding base of foreign customers and to present documents in their language, most of the contracts, forms and instructions were translated into English and Arabic. The Customer Rights and Regulatory Compliance Department, which has assumed the sponsorship of the project carried out under the “Law on the Protection of Personal Data”, intends thereby to make the Bank’s processes and practices compatible with the said law.
74. 72 SECTION II : OPERATIONS IN 2017 BANKING SERVICE GROUP MANAGING BUSINESS PROCESSES EFFICIENTLY In order to efficiently manage the operational business processes of the Bank, the Operations Center undertakes investments to enhance corporate capacity and workforce competence. Kuveyt Türk manages a total of 660 ATMs comprising 557 branch ATMs, 103 out-ofbranch ATMs as well as 36 XTM devices. Kuveyt Türk Operations Center has been restructured to carry out the operational transactions of the central, corporate, retail and international banking groups in a coordinated fashion. Expending efforts for bringing operations to the highest quality standards and minimizing operational costs, the Center includes the Credit Operations, Banking Operations, Foreign Trade and Treasury Operations, Insurance, Payment Systems and Call Center Departments. The management of business processes for enhancing work efficiency at Kuveyt Türk, and the execution of the necessary technological update activities are also among the responsibilities of the Center. INCREASE IN POS DEVICES In 2017, the number of POS devices increased 28.86%, while the number of transactions went up 31.57% and transaction volume rose 27.99%. In order to efficiently manage the operational business processes of the Bank, which grows continuously in terms of branch number and transaction volume, the Operations Center undertakes investments to enhance its corporate capacity and workforce competence. Payment Systems Department ADC Operations, Card Operations, Expense Disputes and Security operate under this Department. ADC Operations: It conducts POS, ATM/XTM, utility bill, and tax collection operations. POS Operations: In 2017, customer satisfaction was achieved through service levels (SLA) of 97.30% in POS installation and of 97.45% in troubleshooting. In 2017, the number of POS devices increased 28.86%, while the number of transactions went up 31.57% and transaction volume rose 27.99%. The key improvements regarding POS operations in 2017 were as follows: • C all notification automation was launched with cash register POS manufacturer Ingenico. • The availability of POS and cash register software for contactless purchases on the field was expanded. • A POS Branch Transfer screen was generated and launched for branches on BOA, increasing productivity. • By developing a POS Authorization Screen, branches were provided with a screen where they could assign “mail order” and “foreign card” authorization, increasing productivity. • The customer screens of Virtual POS (FreePOS and Collection System) Collection System were further developed to respond to user needs. • The Virtual POS product was integrated into the Ministry of Finance official web site to enable payments to be made with Kuveyt Türk cards.
75. KUVEYT T ÜRK 2017 ANNUAL REPORT • Specification and integration work was conducted for 3,114 POS terminals at 1,039 tax offices. • In order to enhance the security level of transactions going through the virtual POS product, all virtual POS businesses were required to operate on 3D secure and relevant work to this end was completed. ATM/XTM Operations: It manages a total of 660 ATMs of 557 branch ATMs and 103 out-of-branch ATMs as well as 36 XTM devices. In 2017, there was an increase of 15% in the number of ATMs, and a 20% rise in the number of financial transactions. In 2017, Recycle ATM started to render services in 52% of the entire field. The ATM service delivery rate is 97%. ATMS are monitored 16/7 under Payment Systems. Under the branch ATM project, 131 ATMs were installed and some of the counter workload was shifted to the ATM channel. ATM proview (malfunction monitoring application) was enhanced with the addition of the Incident Manager (malfunction process automation). The first phase work and the accounting and reconciliation automations of off-site ATMs were competed. Bill and Tax Collections: The Department manages 13 product operations including Utility Bill Collection, Tax Collection, SGK, HGS, Donation, Ministry of Religion Payments, Customs Collections, TL Top-up, PTT Banking, Health Payments, Retirement Pension and title collection. In 2017, a total transaction amount of 19,601,113 was achieved in all products. In 2017, our ADC rate in utility bill collections rose up by 74.12%. The projects undertaken in 2017 under the ADC operations were as follows: • The workloads of central branches were alleviated through the automation of wire and EFT transfers, • Tax payments were built in the virtual POS and ATM channels. 73 • A s part of SGK premium payment centralization efforts, it became possible to place automatic SGK and BAĞ-KUR payment orders. Card Bartering Operations: The Card Bartering Operations Unit manages operational transactions for debit and credit cards, as well as parameter definitions in the management of scart systems. It manages daily settlement and accounting transactions for BKM-VISA and MasterCard companies, and provides reports for government agencies concerning card payment systems. In 2017, the credit card numbers rose by 36%. • The following projects were conducted under the Card Bartering Operations in 2017: • KOBİ card- Sağlam Bayi card products were printed, authorized, and underwent accounting tests, making them ready for release. • Authorization, settlement and accounting tests for domestic card-to-card transfers were conducted and the project was implemented. • Staff participated in tests for Not-on-us Deposits and Credit Card Payment Transactions (Cross Transactions) projects. Accounting service codes and slips were defined ahead of the transition to PROD applications. • The functionality of the Branch web screens used by branches and the Call Center for credit card transactions were enhanced and improvements were made to perform the “Early Repayment of Installment” and “Credit Card Overcharge Refund” transactions, fulfilling customer requests. • The system was developed to generate debit card printing data automatically. • Improvements were made to make sure cards with various chip brands can be printed at the branch. • The quality of the data submitted to the BKM data warehouse was improved. Support was provided for the debit card project of KT Bank AG. Product and Customer Security: Actions are taken to prevent fraud in the card, merchant member, ATM and digital banking channels. The rate of forgery in 2017 was 3.19 in the sector, versus only 1.69 at Kuveyt Türk. The key initiatives undertaken in 2017 were as follows: • The BOA Debit Fraud Project was completed in line with the project to move the Debit Card Provision System to BOA. • In addition to the channels currently monitored for potential fraud (Payment systems and Digital Banking), other fraud cases that could target SWIFT, MoneyGram, Phone Banking and Fake Application channels began to be monitored. • On the Debit Banking Security Monitoring side, a project was completed to call customers for transaction confirmation via the Interactive Voice Response System (IVR). Credit Operations Department The Credit Operations Department conducts individual, SME and corporate finance projects, financial leasing operations, and incentive transactions in line with Kuveyt Türk’s work principles and legal legislation. In 2017: • A Credit Operations Information Service was established and activated to respond to branch enquiries and information requests about fund allocations. • Efforts were made with IT to fulfill the systemic requirements under the Fund Allocation Centralization Project. • Work commenced for a new fund allocation project which will systematize the entry and tracking of data for fund allocation processes as they get digitized. • As part of the SÖİK reached with Eximbank, a protocol was signed to operate in euro and TL and the work on infrastructure began. • An active role was played in the Bank’s strategy of expanding leasing operations.
76. 74 SECTION II : OPERATIONS IN 2017 BANKING SERVICE GROUP Kuveyt Türk Call Center was designated the Best Service Provider Call Center, as in previous years, in terms of service quality. • A s part of Leasing System Improvements, lessee modifications were logged into the system. The Association of Financial Institutions (FKB) payments were automated, and leasing HS codes (GTIP) were fed into the system to submit information on relevant VAT rates. • Process and system studies have been made for KGF transactions. • A large number of branch and customer visits were made, and information was provided on the Bank’s principles and practices. The Credit Operations Group achieved its 2017 targets, and accomplished the following results over the year: • The Credit Operations Advice and Enquiry service contributed to the delivery of correct and swift transactions by meeting the information requests from the branches. • Thanks to successful initiatives regarding the Ministry of Economy’s profit sharebased transactions and urban transformation schemes, many customers became eligible for government support, and thus customer satisfaction and loyalty were enhanced. • A 50% increase was recorded in financial leasing. Banking Operations Department Insurance Transactions Unit: It provides the following services in insurance policies associated with loans extended by Kuveyt Türk, or insurance policies outside the scope of Bank loans: • P olicy Issuance, • A ddendum Operations (ChangeCancelation) • Pursuance of Claims. In 2017, the Unit performed 85,011 warranty and external insurance policy entries and approvals, 211,397 insurance policy renewals, 31,800 change, cancelations, 16,971 claim transactions and warranty inquiry/ control transactions. In its insurance operations and contracts, the Bank cooperates with the only insurance company, Neova, in this field in Turkey that carefully complies with interest-free insurance principles known as tekâfül. The Bank’s collaboration with Neova Insurance, dating back to 2010, was further enhanced in 2017. Kuveyt Türk focuses on meeting all the needs and expectations of its customers in the field of finance in accordance with interest-free banking principles. In collaboration with Neova Insurance and Katılım Emeklilik, Kuveyt Türk provides customers a rich warranty structure and alternative product packages for their insurance needs. In 2017, insurance premiums generated by Neova Insurance via Kuveyt Türk reached approximately TL 125 million. With its innovative approach to interest-free insurance, modern and technological investments, and customer-focused service approach, Kuveyt Türk continues to expand its range of products and services offered through Katılım Emeklilik. The insurance premiums generated by Katılım Emeklilik through Kuveyt Türk reached TL 35 million in 2017. Furthermore, the size of Private Pension Fund Katılım Emeklilik built through Kuveyt Türk rose to TL 550 million. In 2017, the insurance premium generated by Neova Insurance reached approximately TL 125 million in the non-life branch, and approximately TL 35 million in the life branch. As such, there was a 44% increase in premiums in the non-life branch and a 94% increase in the life insurance branch. In 2017, as a result of Kuveyt Türk’s analysis of customers’ insurance needs: • T he SME Private Life product issued by Katılım Emeklilik was launched for sale. • Education Guarantee Insurance, Critical Illness, and Personal Accident products continue to be marketed. • Unemployment Insurance was included under the coverage of the existing Credit Life Insurance product. • The scope of Shopkeeper Package Policy (Esnafım) issued by Neova Insurance was expanded and its sales continued under Solid Workplace Insurance (Sağlam İşyeri) brand. • As part of promotion activities for Kuveyt Türk’s agricultural insurance range (TARSİM), there was a renewed focus on staff training to better serve the insurance customer portfolio of the agriculture and livestock industry.
77. KUVEYT T ÜRK 2017 ANNUAL REPORT • R egarding the CRM Portfolio 360 Project, the goals of the system upgrade initiative, which was launched to establish target / performance cross sales pools for insurance products, were achieved. • Information meetings were held among branch marketing personnel as regards the insurance products which have a large premium generation potential. • As a result of the licensing studies conducted to increase the technical competence of the branch personnel, the number of Bank personnel with SEGEM certificate was brought up to 2,076. • Screens were upgraded to ensure services for all the insurance products are delivered in a simpler and faster manner. The goals of Insurance Transactions Unit for 2018 are as follows: • N ew products are planned to allow the Call Center to market new insurance products to loan customers. Efforts are underway at Katılım Emeklilik to issue personal health and travel health insurance products, with the launch due in first quarter 2018. • As a result of Kuveyt Türk’s efforts to analyze customers’ insurance needs, work is underway to add an energy systems policy to Neova Insurance products for insuring power plants, and this new product is due to be issued in 2018. • As a result of Kuveyt Türk’s efforts to analyze customers’ insurance needs, work is underway to issue a new life insurance product aimed at commercial customers, and this new product is due to be launched in 2018. • Marketing efforts are ongoing for Unemployment Insurance with Loan, and Life Insurance for Needs Card and for other credit card products. • Upgrades will continue to integrate products and services to digital channels, and to ensure that customers can access insurance products and services at any time. 75 • U nder the CRM Portfolio 360 Project, there are plans for system upgrade work to establish target/ performance cross sales pools for Life and PPS insurance products. • The technical competence of all branch personnel will be enhanced; our programs for SEGEM certificates will continue. Branch Coordination Service: Performing various functions including system developments, process enhancements and establishment of business standards at branches aimed at boosting operational productivity in line with the corporate strategy, the Branch Coordination Service plays an active role in administering counter and other operations at branches, ensuring assignment of optimum staff levels based on branch workload analysis, planning training programs aimed at developing the knowledge and capabilities of operational staff, and providing temporary support staff to branches. Installed in order to reduce the workload at branches, the lobby ATMs that were so far installed at 103 branches helped to reduce the counter workload from 39% to 20% in 2016 and to 15% in 2017. As part of the project, 62% of the workload was shifted from the counter to the ATMs. As a continuation of the project, the range of transactions that can be conducted at ATMs located inside and in front of branches were expanded. The development work will continue in 2018. By ensuring more efficient use of ATMs in 2017 in line with ATM routing objectives, the ratio of ATM transactions in total counter and ATM transactions rose from 75% to 82%. Under the New Branch Business Model Project drawn in line with the vision of the Bank, in addition to Istanbul Anatolian 2nd Region, Istanbul Anatolian 1st Region was also included in the pilot scheme. The new Branch Business Model is expected to be rolled out to all branches in 2018. With a customer-oriented operations approach, the implementation of the new Retail/Counter concept at pilot branches has begun. Under digitization efforts, in order to reduce documentation workload and archiving costs at the branch, plans were drawn to receive and store application documents and forms over digital channels. Banknote counters with remote access, update and counterfeit money identification technologies began to be dispatched to branches. Daily, monthly and yearly reconciliations made at branches were systematized to reduce the operational workload and prevent non-agreement. A procedure was organized to help branch operations staff transition to the Sales Department, and 77 operations staff that were successful in the assessments for 2017 were transferred to sales positions. In 2017, 213,045 units were sold in line with ADC sales targets assigned to the operational staff. With a support team of 55 people to fulfill the temporary staffing needs of the branches, more than 6,300 branch staff requests were met in 2017, ensuring continuity of services at the branches. As of year’s end, 128 branches are operating with one operations manager and one counter staff. Through this arrangement, newly established branches which did not achieve sufficient transaction volumes are able to operate at the most expedient staff costs. OPC Business Development Service: The OPC Business Development Service works to ensure that the processes of Operations Center units are more efficient, accelerated, digitized, and that OPC service standards are specified in line with corporate strategies, as well as carrying out activities to enhance internal and external customer satisfaction.
78. 76 SECTION II : OPERATIONS IN 2017 BANKING SERVICE GROUP Kuveyt Türk received the “Best R&D Center” award in the “Banking and Finance” category at the sixth edition of the R&D and Design Centers Summit organized by the Ministry of Science, Industry and Technology in 2017. Reviewing the OPC processes to conduct the necessary workefficiency analyses, determining and prioritizing the improvements and upgrades, devising projects to increase efficiency, and implementing them are among its main priorities. Furthermore, it conducts analysis and reporting on developing trends and information technology solutions. Data processing, generating projections with an analytical infrastructure, and establishing a systemic reporting infrastructure are the key areas for ongoing work. Data Quality Service: The Data Quality Service was established in line with strategic objectives to ensure that customer data is up-to-date, accurate and complete. Personal Accounts: In 2017, entry rates for eight data fields (home, car, number of children, address, GSM, e-mail, education level, occupation) of real active customers who had account activity over the last year rose from 73% to 78.05%. The number of customers increased from 1.5 million to 1.7 million. The weighted ratio of completion is determined via e-mail. Corporate Accounts: Data verification work was conducted for the type of business, date of establishment and authorized areas through infrastructure studies. Completion rate reports were sent to the branch portfolios every week and branches twice a month for follow-up work. Data Cleansing: Some 800,000 e-mail data, 400,000 customer accounts, 52,000 entries for occupation information and accounts for under 18s were included in data cleansing. Accounts held by 6,905 associations and foundations were examined and data correction work achieved 25% improvement. Data Verification: New data verification rules were introduced for education, occupation and customer age. Verification for vehicle and home data is supplied from the credit bureau KKB. Verification from the Mersis system was introduced for corporate accounts. Document checks were introduced for documents required at account openings. The rate of false documents in new accounts was reduced to around 1%. Cash Operations Unit: The Cash Operations Unit meets the group needs of Kuveyt Türk branches. It serves 144 branches in Istanbul and 224 branches outside Istanbul. In addition to meeting the cash transfer and receival requests of the branches, it also makes transfers of KT gold grams, Turkish Republic gold coins and gold and silver bullion. Furthermore, foreign currency to be transferred abroad by the Treasury Department is prepared and delivered to the designated shipping company. • A s a result of the Treasury Department’s foreign exchange transactions with foreign banks and companies in 2017, a Group was prepared for the export of USD 1.5 billion, EUR 567 million euros, SAR 1.19 billion, and JPY 232 • • • • • million in banknotes. A Group was prepared for the export of USD 1.5 billion, EUR 567 million, SAR 1.19 billion, and JPY 232 million in banknotes. In 2017, the Group transaction volume between the Anatolian and Istanbul branches, and the main vault amounted to TL 13.5 billion, USD 3.8 billion and EUR 1.3 billion. In 2017, the Anatolian branches’ TL Group transactions are met from CBRT counters, contributing to the cash balance target project of Assets and Liabilities Department. TL 6.2 billion was invested by the Anatolian and Istanbul branches to CBRT and put to the use of the Treasury Department on the same day. The main vault located in Istanbul executed the counting of 94 million banknotes in group transactions for Istanbul branches. In 2017, the gold sent to and received from the branches in group amounted to 9.7 tons. Banking Operations Department Call Center Directorate: Two main units operate in the Head Office: Call Center Operations and XTM Center. Call Center Operations Service: Kocaeli Kuveyt Türk Call Center operates in four different locations as Kocaeli Banking & Life Base, Ankara Balgat DRC and Call Academy, Konya Call Academy and Izmir Call Academy. It also serves its customers in Arabic and English, besides Turkish. Among the operations carried out in the Head Office 24/7 are telephone
79. KUVEYT T ÜRK 2017 ANNUAL REPORT banking, support services, credit card and insurance policy renewal and sales services, customer satisfaction line, Senin Bankan, private banking and answering branch calls are included. In addition to these services in 2017, Kuveyt Türk began to provide support for translation services in Arabic and English for responding to customers’ e-mail enquiries and when branches required it for communicating with foreign customers. Incoming Calls: Some 33.2% of the incoming calls to the Call Center were answered by customer representatives and 2,706,238 customers were served in 2017. Some 64.3% of the incoming calls were resolved in the self-service channels and 4,845,065 customers were served on the IVR channel. The number of banking transactions performed over the Call Center increased 9.4% over the prior year to reach 94,801. The annual value of banking transactions came in at TL 338 million. As part of sales activities, TL 5,146,913 in revenue was obtained from Neova Insurance policy renewal and sales. Customers who failed to reach the Kuveyt Türk Call Center were automatically called back by the Call Center. The IVR self-service channel continued to expand in 2017. A total of 4,845,065 customers were served via the IVR channel. As a result of the IVR self-service channel, there was a 7% increase in workforce management and call response performance, as well as a productivity increase of an average of 148 person/days. Some 64.3% of all calls to the Call Center were answered via IVR. Some 78.7% of the calls received from the Call Center were answered within the first 20 seconds, and this duration was 24 seconds for all calls in general. According to the results of research conducted by ADS Consulting Group the call centers of the four leading banks in Turkey, Kuveyt Türk Call Center was designated the Best Service Provider Call Center as in the previous years, in terms of service quality. A score of 89 points was received in the Customer 77 Experience survey conducted by ADS Consulting Group.in order to measure and evaluate the quality of service. Guarantee transactions, as well as correspondent bank services for vostro accounts. Kuveyt Türk Call Center holds the EN 15838- 2009 Customer Communication Center Management System Certificate, which is a management system in compliance with the Customer Communication Centers Management Standard. The number of operations of the Treasury Operations Unit consisting of Transfers, Collections, Letters of Credit and External Guarantee Units increased 18% in 2017 in comparison with the previous year. XTM Central Operations Unit: Via 36 XTM digital branches placed in different locations, the XTM Center provides video chat services in Turkish, Arabic and English to customers as regards all banking transactions. • In 2017, the number of incoming video calls to the XTM center increased by 3.5% to reach 121,202. Some 62.53% of the incoming calls were answered within the first 10 seconds. • The XTM Center’s number of annual transactions increased 11.9% in 2017 and reached 304,687, while transaction volume increased 30.1%. New customer accounts were opened through the XTM Center in 2017, increased by 24% over the prior year. • In 2017, besides operational transactions, XTM Center’s sales activities and credit card sales up 62% and bill instructions increased 20%. Treasury and Foreign Trade Operations Among the responsibilities of the Unit are banking transactions related to import, export and external guarantee transactions, controlling and supervising incoming and outgoing foreign currency transfers of Bank customers, EFT and SWIFT systems, and performing foreign exchange, precious metals and Central Bank transactions. Comprising Transfers, Collections, Letters of Credit and External Guarantee Units, the Foreign Trade Operations Unit is responsible for banking services involving cash-inadvance exports, foreign exchange transfers, cash against documents, letter of guarantee and External With the completion of the centralization studies, digitalization studies were the focus. Digitization efforts will continue at a growing pace. As part of Foreign Trade consultancy services, launching direct contact with customers helped ease the branch workload. Treasury Operations Unit: The Unit has three sub-divisions, namely, Foreign Exchange and Money Market Transaction Operations, TL and Securities Transaction Operations, and Precious Metal Transaction Operations. At the same time, the Unit includes the EFT Center and thus conducts control, reconciliation and development activities for the EFT, RPS (PÖS: Retail Payment Service) and EST (EMKT: Electronic Securities Transfer) systems. The number of operations at the Treasury Operations Unit in 2017 increased 30.3 % year-on-year. In 2017, sukuk issues, acceptance of sukuk as collateral, opening/closing qualified accounts, late liquidity window and daily limit (GLP/GİL) transactions with the CBRT and second hand sukuk issues started to be conducted by the Treasury Operations Unit. In 2018, trading, acceptance and reconciliation transactions for electronic product certificate (ELÜS), acceptance of mutual funds as collateral, Central Registry Agency (MKK) foreclosures, gold EFT system, upgrades to the CBRT faster payments system and the messaging structure of CBRT Participant Interface System (KAS), upgrades to EFT/RPT system and other banks’ murabaha transactions will be conducted by the Treasury Operations Unit.
80. 78 SECTION II : OPERATIONS IN 2017 BANKING SERVICE GROUP In collaboration with Neova Insurance and Katılım Emeklilik, Kuveyt Türk provides customers a rich warranty structure and alternative product packages for their insurance needs. Analytical Banking Department • The projects developed by the Analytical Banking Department in 2017 were as follows: • Call Center traffic estimation: By making estimates on future calls to the Call Center and calculating staff numbers to be deployed on a parttime basis, the staff surplus was reduced. • Call Center – Agent Segmentation: There were some findings on how to determine agents’ areas of strength and weakness, and providing the relevant staff training accordingly. • Senin Bankan Fraud: A scheme was developed to detect fraudulent applications submitted via the Internet Branch Senin Bankan and the number of applications requiring manual checks was reduced. • Insurance Upsell Cross Sell: Customers were recommended suitable insurance products. • Check Intelligence System: Calculations were made on the reliability of checks entered into the system and 85% of manual tasks were automated. • Value Segmentation Revisions: Several revisions were made in the value segments. • Customer Specific Rate Assignment: By assigning specific interest rates to customers, demands for custom rates from customers or branch staff were prevented. • Collection Management Project/ Two Phase: Estimates were made on whether the customer would eventually make overdue payments on loans before the customer entered the legal process. As data-driven systems gain increasing prominence, various units within the Bank consulted the expertise of the Analytical Banking Department in order to harness data for prospective decisions and upcoming projects. Several business units received advice on analytics and machine learning in the following areas: • Collection management • Cash balance management • KKB G5 score • Consultancy on statistical analysis for Process Development Department • POS analytics & reporting work • EFT Conversion Project • OCR technologies, automated data entry As part of the R&D work, in order to process and interpret an ever expanding pool of data growing as a result of technological developments in a more practical and cost-effective way, infrastructure work was carried out to adopt the kind of open-source big data tools and architecture that technology giants also steadily invest in, relevant problem domains were identified, bids from potential suppliers were received and assessed for the installation of the said infrastructure. The software and hardware were purchased, installed and went fully operational in 2017. Process Improvement Department: The Process Improvement Department operates with the Process Improvement and Product Support Services Units. Process Improvement Unit: The Bank is carrying out work for development and keeping up to date of its processes in a customer focused, efficient, making the most of the technology, participative, measurable manner, in line with law and banking principles, subject to the principles of having defined standards and having the necessary analyses and investigations made. In order to ensure this, four different types of process works are being carried out. These are: • Designing process for new products and services, • Making re-designs related to existing processes, • Working to improve and develop the existing processes and • Finally, modeling the existing processes of bank applications. The Process Development Service specified the definitions and rules for fund allocation processes in the domestic market funds project in 2017, and designed the task algorithms of definitions and rules to ensure the workflow is managed by the system. The rules and scopes for the Domestic Market Fund Allocation Project were specified to allow for end-to-end management by the customer. As part of the branch business model development, pilot studies were monitored for the new SME model, issues were discussed and resolved. Projects were initiated to reduce
81. KUVEYT T ÜRK 2017 ANNUAL REPORT branch workloads and to minimize risks (e.g. Audit Project, ADC Projects). Work was also ongoing for the RetailCounter model. The Process Project with the Customer Satisfaction Team was completed. The results of the project will be monitored in 2018. Other efforts carried out in 2017 are as follows: • Branch audit processes • Enhancement work on Senin Bankan and XTM processes • Credit Guarantee Fund (KGF) • Online real estate release • Official correspondence • Acceptance of sukuk as collateral • Acceptance of receivables as collateral • Supply Chain Finance • GoldEFT • mPOS • Face recognition • Card stock management • Electronic letter of guarantee • Dealer transactions • Acceptance of bills as collateral Product Support Unit: With its highly competent and well-experienced team, the unit provides information and support to employees about all screens, products and services. In addition, the Unit also informs the relevant Head Office units about any process- and screen-related problems, and assists them in finding solutions. As such, the Unit makes efforts so that users can find permanent solutions and thus avoid running into the same problems. In 2017, the Product Support Unit made 35,860 phone calls to help users, and responded to 13,454 help desk requests. Administrative Services The Administrative Services Group comprises the Administrative Services and Procurement Department (Procurement, Administrative Affairs and Communication Units), Construction and Project Department and the Security Department. 79 Administrative Services and Procurement Department: Composed of the ProcurementLease-Logistics, Administrative Affairs and Communication-ArchiveLogistic units, the Department formulates and implements the Bank’s procurement and service processes. As for procurement, the supply of goods and services needed by the Bank are obtained in a timely, low-cost manner and at the highest quality, market analysis considering the needs. The purchased goods are stored and then distributed to the requested locations via the demand management system with the help of the Logistics Center. As part of Procurement Lease and Logistics Service’s activities, contracts are awarded in line with the projects drawn to ensure that the properties purchased or leased to provide a new service point in line with the Bank’s strategy are ready for service. Procurement Management (Solicitation – Order – Supply – Invoicing) was transferred to the Bank’s end-to-end ERP structure. Further upgrades and enhancements are being made to the system in accordance with requirements. Agreements of all departments were obtained and registered by scanning into the Bank ERP infrastructure to track the Bank’s agreements, and a comprehensive database was formed. The units were granted access to their contracts through the application within their authorization limits. In order to optimize operational costs, supply processes were expanded through central agreements with different suppliers, and suppliers of maintenance and repair services were integrated to enhance the quality and bring down operating costs. In 2017, locations for 10 new branches that were rented, three individual XTM branches and 22 ATMs, the tenders were completed, and these were put into service. In addition, the locations of 11 branches were changed, and comprehensive renovations were carried out in six branches. Supply planning, inventory and shipment management for about 600 different products are managed with the efficiency principle in the Logistics and Archive Center on an area of 2,500 m2 and having an area of 4,500 m2 in Tuzla. During purchase activities, usage of practices supporting energy and environment efficiency was a priority. The Department serves to provide Bank’s mailing-cargocarrier documents receptionregistry-distribution processes, all commission-committee secretariat, official correspondences and notifications, private secretary services, fixed and mobile line operator services of Communication and Archive Service activities. Some 22,917 individual subscriptions for our Bank’s fixed and mobile phones, electricity, water and data lines are managed for uninterrupted service. Management of 7,500 documents daily is ensured centrally by transportation means including cargo, carrier and mailing without affecting the customer satisfaction in shipping costs, and cost efficiency is provided. The Bank’s operational processes, including commission and committee decree and report consolidations/ deliveries, circulars of signatory, branch opening and trade registry applications, translation and notary processes, international deliveries, are performed by our Communication and Archive Unit. The Department provides the transportation, catering, hospitality, accommodation support service functions required for the Bank to sustain its services as part of the Administrative Affairs Unit’s activities.
82. 80 SECTION II : OPERATIONS IN 2017 BANKING SERVICE GROUP Installed in order to reduce the workload at branches, the lobby ATMs that were so far installed at 103 branches helped to reduce the counter workload from 39% to 20% in 2016 and to 15% in 2017. Services like restaurants, cafes, supermarket, sports center, hairdresser, dry cleaning and tailoring are provided to meet the employees’ demands on site in the Banking & Life Base. More than 40 different activities were organized for the orientation and motivation of the employees. All plane tickets, accommodation travel and tourism services of the entire staff are centralized to provide cost efficiency and around 10,000 trips were organized. At the same time, a guest house with 30 rooms and 60 beds, and a conference hall for 600 people with 11 training rooms were introduced in the Banking & Life Base in order to save costs in training on-site and accommodation expenses. In our Banking & Life Base Guest House, accommodation service was provided for our employees arriving for training for 11,000 nights within the year. Also, 4,000 nights of stay were provided for our employees who travel for training, business and meetings in Turkey. Security Department: Security services are provided with private security officials having the required technical and tactical knowledge and high business discipline and keeping up with developing technology in order to maintain the security of service point in duty zones and Bank service points within the legal coverage by considering customer satisfaction. Construction and Real Estate Department: The Construction and Real Estate Department continued its work to create and develop new service points in line with Kuveyt Türk’s vision inaugurated 10 new branches, three new retail XTM branches and 22 ATM points. Over the course of 2017, Şanlıurfa, Adıyaman, Çağlayan, Gaziantep, Eyüp Sultan, Beşevler Sanayi, Üsküdar, Çınar, Ağrı, Çorum, Laleli, Hadımköy, Demetevler, Kütahya, Afyon Karahisar, Bakırköy, Başakşehir branches and Gaziantep Regional Directorate were renovated. Pursuant to the accessible infrastructure program regulations covering of all public and private companies and agencies as issued by the Ministry of Family and Social Security, the Bank completed the infrastructure work to make all the branches offer better quality and suitable services to handicapped customers. All branches that were newly opened or renewed to feature this handicapped-accessible infrastructure. Furthermore, 14 branches had accessible ATMs installed. Kuveyt Türk renewed the Off-Site ATM cabin design and used this design at 22 new Off-Site ATM locations in 2017 with all architectural, electrical and mechanical infrastructure completed. To boost the skills and enhance the competence of staff as part of the Banking School project, the training areas at the Banking Base were renovated to fit the school concept better and were brought into service. In addition to executing new branch opening and renewal projects in 2017, the Department of Construction Projects continued efforts to enable the sales marketing and business model development policies of Kuveyt Türk to be applicable in the field. Information Technologies (IT) Kuveyt Türk Information Technologies operates in close alignment with the Bank’s strategies and goals. The Department’s mission is to provide efficient, usable, high quality and performance focused IT solutions; conduct research and development activities; and develop innovative, unique products with and advanced technology infrastructure. With renovations carried out in a total of 63 branch locations, the Bank installed second ATM devices at branch fronts. The Bank replaced existing ATMs with new versions. As part of the Kuveyt Türk branch business model efforts, the Bank revised the configuration of placing operations employees in 18 branches to be in compliance with MIY position. As part of the retail sales project, a new layout was drawn and pilot study was initiated. In line with the Bank’s strategies, 245 projects and 969 modification tasks were completed over the Core Banking Platform and digital channels and brought live in 2017. A total of 34,587 incidents and 76,434 requests raised by end-users were resolved, with call reduction efforts achieving a 30% year-on-year reduction. Some 90.97% of incoming requests were resolved within
83. KUVEYT T ÜRK 2017 ANNUAL REPORT 81 four hours and 91% of calls were concluded at the Service Desk. Owing to this successful performance, the call resolution satisfaction in 2017 reached 91%. Ministry of Science, Industry and Technology in 2017. As the recipient of the award for a fourth consecutive year, Kuveyt Türk boasts a hard-tobeat record in the field. In addition, a more proactive approach was implemented to resolve audit findings for systems. The result was that 25% of audit findings were resolved before the audit was completed and 76% of findings were resolved before the deadline. Under the quality control activities, control points were increased. Kuveyt Türk R&D Center makes significant contributions to university-industry cooperation. In this context, the Bank’s expert executives give lectures for undergraduate and graduate courses at Istanbul Technical University, Sakarya University and Işık University. Minimum security requirements for IT infrastructure systems were specified and a compliance screening process was launched to assess compliance with these requirements. Cryptographic policies in application were updated and cryptographic measures were reviewed for enhancement opportunities. Prioritizing digital channels in terms of quality improvement projects, two Bugathon competitions were organized in April and October, and their results were forwarded to development teams. Within the scope of this project, award categories were designated in the fields the Bank seeks to improve and encourage, and the Application and Service Quality Awards which enhance processes and outputs as well as boosting employee motivation were granted for the fifth time. Necessary action was taken to ensure that the key business tasks are monitored on a 7/24 basis in order to avoid business process disruption in case a task error occurs on a BOA application related to critical business processes, and as a result of discussions between IT System Monitoring service and other IT departments, the monitoring coverage for critical business systems was increased to 94%. As the only bank in Turkey with two R&D centers, Kuveyt Türk received the “Best R&D Center” award in the “Banking and Finance” category at the sixth edition of R&D and Design Centers Summit organized by the The “Undergraduate Final Assignment Projects” scheme for senior students at computer engineering departments of Kocaeli and Sakarya University allows students to gain on-site work experience before embarking on their career in the industry. Kuveyt Türk employees have shown a keen interest in the graduate program with business experience offered in cooperation with Sakarya University, and conveyed the projects they were involved in to the academic world. Partnerships with universities and R&D projects supported by the European Union and TÜBİTAK create added value for the Bank as well as Turkey. In this context, new policies and procedures to boost the number and quality of scientific publications were implemented. In 2017, 21 Kuveyt Türk employees were granted graduate training support, 4 patents and 12 publications were incentivized. In 2017, the Lonca Entrepreneurship Center was launched offering a special program to support the startup and the fintech ecosystem, and a wide range of facilities including mentorship and venue support. In order to enhance the knowledge and awareness of the employees, five MeetUps hosting key figures from the world of fintech and entrepreneurship were organized to offer insight about the industries and trends, drawing keen participation from the Bank’s relevant departments. The outstanding projects undertaken by Information Technologies include: Installation of IFRS-9 Reporting System: Compliance work was undertaken for the IFRS 9/TFRS-9 reporting standard with a mandatory roll-out on January 1, 2018 as part of a joint project under the KFH Group. The software to be used for reporting was selected and the data preparation process for developing models on the classification, measurement and derecognition of financial assets and liabilities was initiated. Internal Rating Models Development Project: As part of the project aiming to develop models for estimating the default rates of customers for credit allocation and monitoring systems, data sets needed to generate behavioral models for corporate and retail customers were created. With the completion of the behavioral model for corporate customers, integration work into the BOA Core Banking Platform began. In the second phase of the project which involves generating application models, the data set preparation work for corporate customers is also underway. New DRC Installation Project: The project aimed at restoring business continuity in the fastest possible way in case of natural disasters such as earthquakes, floods and manmade disasters such as fire and terrorism rendering the banking systems unusable began in October. Substantial progress was made in infrastructure modernization and physical installation work was carried out in the new DRC system room allocated to Kuveyt Türk at the end of December. The existing DRC functions are expected to be delivered via the new DRC system by the end of March 2018. In times of increased workload on the live system, it is aimed to shift certain functions over the DRC system servers marking a switch to replication technologies on the application level. In 2018, there will be further work towards system/ application installations, and boosting current server capacities to access the DRC, which will be prioritized based on how critical the level of products/services are.
84. 82 SECTION II : OPERATIONS IN 2017 BANKING SERVICE GROUP Kuveyt Türk’s official website www.kuveytturk. com.tr was completely revamped in terms of both infrastructure and design in order to respond to the new trends and meet customer needs. New Fund Allocation Project: The analysis and design work is ongoing to develop the corporate customer fund allocation system for domestic market products with an omnichannel approach on a web-based BOA One infrastructure. Expected to deliver significant speed and efficiency for fund allocation processes, the application is set to be launched in the fourth quarter of 2018. OLA (Operational Level Agreement) Project: The project will determine the estimated time of completion for each type of transaction at the operation center services, and make a commitment to the branches. Estimated completion time of the process will be calculated dynamically by the system with reference to the past transaction times and the number of queued transactions in the pool, and in cases where the target time will be exceeded, common pool assignment rules will be generated and intensive day management will be applied. Therefore, transaction durations will be standardized and performance will be measured. Work on this effort is continuing on schedule. COBIT 5 Project: Certain processes of COBIT 5 deemed beneficial for increasing process maturity levels, standardizing processes, aligning IT and business units, managing IT processes according to prevailing best practices, and minimizing IT risks are implemented. Testomat Project: An application was submitted to the ITEA framework program of the European Union for the project which aims to enhance the test automation processes under IT. The project was earmarked for support by referees assigned by TÜBİTAK after receiving the twostage approval from the European Union. The Next Level of Test Automation (TESTOMAT) Project will support the software teams as they strike the right balance by increasing the speed of development without compromising on quality. When this goal is reached, the most advanced technology in test automation will be developed and improved for software teams as they move towards a more agile development process through the project. The project will ultimately result in a Test Automation Development Improvement Model that will specify key areas of improvement in test automation by focusing on measurable improvement steps. OPM Call Center BOA Conversion: The former structure where customer representatives managed calls through an external desktop application called CCMS (Call Center Management System) was removed and replaced with the “BOAgent” module developed exclusively on the BOA infrastructure offering improved functionality and efficiency compared to the previous application. Through the BOAgent Panel and Customer 360 integration, customer information can now be accessed in full detail via BOA. From password operations, to branch transfer screens, credit card information, and account activity, all screens were examined in detail, and redesigned in line with needs and requests. By enhancing the user experience on the screen, the number of clicks was reduced to a minimum, and the call duration was utilized much more efficiently. Regarding customer security, the information required by the system is now accessed in the fastest manner simply by system referrals. Account to Mobile Money Transfer (iOS, Android, Web): Account to Mobile Transfer (Hesaptan Cebe) is a new money transfer method to facilitate sending money from accounts to GSM numbers via an iOS and Android Mobile Branch application. In this transfer method, the recipient need not be a Bank customer. However, the money can only be withdrawn from Kuveyt Türk ATMs. Corporate Web Site Relaunch: Kuveyt Türk’s official website www. kuveytturk.com.tr was completely revamped in terms of both infrastructure and design in order to respond to the new trends and meet customer needs. The content was enriched and categories were reorganized. In addition, an intelligent search engine was integrated and access to information was facilitated. Furthermore, the web site began to support Arabic, enabling Arabicspeaking customers to easily access site data and to obtain information about services. BOA Conversion for Corporate Performance Management (KPY) Project: KPY is the system employed for preparing and publishing the
85. KUVEYT T ÜRK 2017 ANNUAL REPORT directorate scorecards. Under the project, the corporate performance management system was developed on BOA. Administrative screens required preparing corporate scorecards; scoring specification, strategy specification, item and scenario specification screens, an authorization screen to process scorecard authorization, and a data entry screen that allows for manually inputting the outcome and target entries were brought online. The scorecard management screen incorporated functionality to prepare scorecards, calculate and publish scores, and the corporate scorecard screen was designed to allow scorecard owners to view their own scorecards as well as other scorecards they have authorization for within the organizational hierarchy. Campaign Bundles Management System: The system was developed to generate bundles where certain products are brought together for a limited period at a set number and sold on as a new product, as well as campaigns which provide benefits, discounts and gifts with or without customer prompt. By specifying the selected customers or target groups as a prerequisite, customers will be able to gain economic advantages by purchasing products in bundles through the new infrastructure which will be able to provide repetitive advantages periodically after the collection of the bundle price. KT Bank AG Application Development: Development requests from KT Bank AG in Germany, a wholly owned subsidiary of Kuveyt Türk, for the BOA Core Banking and Technology Platform were fulfilled. Several banking projects requested and prioritized by KT Bank including Mobile Branch (iOS and Android), Credit Card (JetzzCard), Internet Branch Inbox Application, Vostro developments, infrastructure development were completed and delivered. Mufi Project: Mufi, a mobile payment application aimed at everyone regardless of whether they are 83 customers of the Bank or not, was developed on the Android platform and made available for project stakeholders on a pilot scheme. Its iOS version is still in software development phase. The work started with a bill module due to its high transaction volume and its prevalence on digital channels. Other collection modules will be added as soon as required permissions are obtained in the following phases. Decision Support System Development Project: Allocations were assigned to customers through the Financial Analysis and Allocation Module and approval process was structured for three authorization levels, namely, branch, region and head office. In branch authorized transactions, the process is completed upon the approval of the branch manager, enabling faster decision-making compared with the other two types of authorization. However, the sums that can be assigned for limits through branch authority are more limited than those under regional directorate and head office authority. Furthermore, the branch type also affects the limit to be assigned in branch authorized allocations regardless of the customer’s financial status. Therefore, there is a need to determine automatic maximum limits for customers based on rules to be laid down for branch authorized transactions. Credit Committees E-Signature Project: Formerly, the decisions taken by the committees evaluating credit allocations had to be printed out within a month from the date of the meeting, receive wet signatures from the committee members and be physically stored in archives. As a result of this project, committee decisions are now approved by the committee members separately as part of their workflow in a dynamic hierarchy. At the approval stage, the user logs in using his / her own e-signature device and password to sign the committee decision letter (PDF) electronically. Thus, the challenges and costs of the physical signing process were eliminated. Under the project, amendments were also made to the infrastructure, allowing the number of committees to be reduced from 87 to 19 by grouping the relevant committees together. 24/5 Treasury Transactions: Prior to the project, foreign exchange and precious metals trading on the current system could only be executed between 08:30-17:30. Since margins would already open in pre-market trading, the transactions could only be carried out on the open margin. In order to be able to trade out-of-hours over closed margins and take positions automatically via the system, the StreamBase application was integrated with the system. Allowing customers to trade in foreign exchange and precious metals on a 24-hour basis will boost both customer satisfaction and trading profits of Treasury transactions. Foreign Customer Identity Sharing System Interaction/Account Creation with Blue Card: To ensure integrity of foreign customers’ data, all information concerning people with an 11-digit foreign identification number must now be obtained from the ID Sharing System and the Blue Card holders who relinquished Turkish citizenship can open accounts on an ID card issued by Council of Europe members and passport with their information also to be retrieved from the Identity Sharing System. Regarding Syrian/Iraqi customers, it is not allowed to block more than one account belonging to the customer. API Banking Platform: The Kuveyt Türk API Market Platform (developer. kuveytturk.com.tr) was launched as part of the project. Thus, banking services are opened up through APIs and external developers are able to develop applications using these APIs. This allows for co-production opportunities involving employees, developers, start-ups, business partners and even other banks. The project, which ensures compliance with the European Union’s Payment Systems Directive 2 regulation (PSD2) requiring banks to open up their
86. 84 SECTION II : OPERATIONS IN 2017 BANKING SERVICE GROUP Through the interaction of Kuveyt Türk ATMs and the Mobile Branch, customers are offered the facility to option of making cardless withdrawals within card transaction limits. services via APIs, was launched on the external network on November 20, 2017 with 25 APIs. Among the APIs available on Turkey’s first and most comprehensive banking API portal are those involving account activity and money transfers. The project won the first prize in the “Digital Channels” category and the second prize in the “Financial Inclusion” category at the IDC Technology Awards 2017. BOA One: The R&D work on Kuveyt Türk’s new generation interface technology BOA One produced results. The first prototype was produced at the beginning of 2017. The first example created with state-of-the-art technology serves as a model to the sector with various device integrations, multi-language support, the ability to operate on different processing systems, devices and platforms. Further investments were made in the project during this period. As of April, the system was completed with secure login screens, home page, menu, theme, integration of various devices, integrated workflow, Divit (document management system) and contract screens, logging mechanisms, dynamic screen and report generation mechanism, and screens for cash deposit, cash withdrawal, cash transaction itemization and various dynamically developed safety deposit screens. Through a rapid conversion and development process, the integration work of BOA One with the new design BOA Store, Kuveyt Türk’s mobile application, was completed and dynamic screens and reports became viewable via BOA One through a new feature. Similarly, conversion and development initiatives were launched across different fields and services which saw General Audit, SDLC Processes, Bank Valuation projects developed and employed as pilot schemes. Facial Recognition Project: Biometric recognition systems constitute a key and rapidly growing area in the world of technology today. Based on the premise of physical or behavioral uniqueness of the individual, they can be employed as a method of comparison and verification for various applications. Face recognition technology, which forms one of these biometric identification systems, is increasingly deployed by banks as a verification method especially for online banking transactions. In order to introduce this feature for its mobile systems, Kuveyt Türk held meetings with various companies and initiated the contractual process for the preferred product. In the coming months, the product will be integrated into the Bank’s mobile systems, providing both an edge in the industry and a reduction in suspicious transactions. QR-code cash withdrawals at ATMs: Through the interaction of Kuveyt Türk ATMs and Mobile Branch, customers are offered the facility to make cardless withdrawals within card transaction limits. Audible ATM Menu for the Visually Impaired: The project aims to convert ATM menus into audible instructions for the visually impaired. The audible menus are activated when a headset is plugged into the jack on the ATM. Once the headset is plugged in, the ATM screen displays a visual illustrating the transaction involves Audible Menus, thereby informing other customers waiting in line. Audible menus provide transactions for withdrawals, deposits, credit card payments, cash advance withdrawals, balance enquiries, credit card enquiries. Furthermore, necessary work was undertaken to ensure other banks’ customers can access the same services at Kuveyt Türk ATMs. With this effort, the transaction set of ATM Ortak Nokta was expanded. Collection Modeling Individual Behavior Score: A modeling study was carried out with the consultant company on the collection modeling infrastructure completed last year in order to optimize the utilization of human resources and to maximize collection rates. The model ensures the provision of the data set to be used and integrates the decision trees resulting from the model into the BOA and the collection modeling screens. As a result of the integration, the agents are automatically notified about what action to take for which customers based on the directions of the decision trees. Furthermore, customers to be sent SMS notifications are also automatically determined by the outcome of the decision trees. Lawyer Tracking System: The Lawyer Tracking System facilitates the Bank’s communication with the contracted lawyers and enables tracking of cases for customers under legal monitoring. The project, which aims to offer a common access point for information about ongoing litigation
87. KUVEYT T ÜRK 2017 ANNUAL REPORT processes and to transfer procedures conducted manually thus far by phone and e-mail traffic to a webbased platform, was developed on the Web Corporate infrastructure. 24/7 Card-to-Card Transfers: Development work was carried out to integrate into the card-to-card money transfer system provided by the Interbank Card Center. Through this system, customers with a Kuveyt Türk credit card or debit card can transfer money to any bank card via the Mobile/Internet Branch at any time of the day. The service also eliminates disadvantages of EFT system’s working time restrictions while offering customers flexibility with their money transfers. Foreign Trade Document Tracking System: Document is defined as the whole set of documents required by the importer to clear goods from customs. Kuveyt Türk customers importing goods can retrieve documents delivered to the Bank for the clearance of the imported goods from the branch they have their account with. These documents are delivered to the Foreign Trade Operations Unit by foreign courier companies. Screen entries of the received documents are made and the customer is notified by e-mail, and the Correspondence Unit dispatches the documents physically to the customer’s branch. Foreign Trade Document Tracking System was established to detect potential issues, spot possible delays, and avoid risks such as the loss of documents over the course of this process. Türk Telekom Fiber Optic Communication Project - Phase 6: The sixth phase of the fiber optic communication facility protocol, which was launched with Türk Telekom almost seven years ago to establish uninterrupted and high quality communications between the branches and the data center, is nearing completion. Some 403 of the 416 locations connected to the data center had the fiber optic communication infrastructure installed and 96.8% of the locations were provided with uninterrupted, high quality and high speed access. 85 SQL Online Backup Project: All of the database servers were connected to the Online Backup System, and the backup data compression ratio was increased from 3.5 times to 10 times through the project. The backup speed was increased by using multiple channels for each database. The recovery procedures which were previously conducted through a long, two-stage process were upgraded to run directly on Microsoft SQL in one go. As a result of these improvements, up to 95% savings were achieved on time and capacity. with each other, and to produce software and services swiftly. Conducted in-house at Kuveyt Türk, the objectives of the project involved providing faster delivery of product functions, establishing a stable system, ensuring that the systems are traceable and reportable, producing faster solutions against potential errors in automated processes and to improve the operational performance. Under the revised structure, the operational processes became more traceable, controllable, loggable and reportable. Windows 10 Transition: A total of 1,290 computers and 920 personal scanners allocated to users at the Head Office, Banking Base (KTBU) and branches, which were deemed inadequate to deliver high performance required for existing banking applications and were at the end of their electronic life were replaced with more technologically advanced and better performing devices. A total of 6,475 user computers were upgraded to Windows 10 operating system with their Office applications upgraded to Microsoft Office 2016 Pro Plus to enable Kuveyt Türk’s banking applications to operate on a more stable, reliable and high performance operating system. Internet Branch Test Automation via Selenium: The test automation solution for the Internet Branch was updated and developed via the open source coded test automation solution Selenium. By deploying Selenium’s flexible, reliable and rich features particularly for regression testing, the scope of the Internet Branch test automation is expanded and automated tests are conducted weekly in test environments with their results duly reported. Through this process, feedback about the development quality is received at an earlier stage and productivity in the software development life cycle is increased. DNS Firewall Positioning Project: The project ensured that all noninstitutional domain name resolution (DNS) requests from Kuveyt Türk’s IT infrastructure are filtered through a special DNS security system to prevent access to harmful domain names. Thanks to this project, the entire IT infrastructure obtained security protection at the top network layer. Network Isolation Project: A Network Isolation Project was conducted to create safe working environments for employees and applications to work in accordance with defined and designated rules. All network communication is managed and monitored via firewall devices. Application Release Automation Project: The IT Automation Project aimed to facilitate the collaboration of Kuveyt Türk IT operations units Database Performance Improvements and Updates: The process for blocking monitoring was redesigned and circulated. To provide performance improvement, the scripts generating a load on the system were monitored and the software teams were supported when necessary. The scope of planned archives was broadened. There are plans to divide the BOA database into smaller databases. All index maintenance functions were redesigned and rolled out across all the real environments. In order to keep the system up-to-date, SQL SP3 CU2 was promoted on real media servers. There were plans for SQL 2016 upgrade, and SRVAPPLOG server had the SQL 2016 upgrade installed. In accordance with the PMC, appropriate sample applications were made available in the system via Raas reports. Associated products of SQL in use, such as SSIS, SSRS SSAS were upgraded to the latest version.
88. 86 SECTION II : OPERATIONS IN 2017 CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY GROWING WITH OUR VALUES While contributing to the banking sector’s development, Kuveyt Türk has also carried significant social responsibility projects in line with the Bank’s social values. Kuveyt Türk aims to provide benefit for the community with the support of its employees in all its social responsibility projects that they supported. The goal is to keep our cultural heritage alive and leave an environment in which values are passed along to future generations. While the Kuveyt Türk contributes to the development of the banking sector, it also takes ownership of cultural assets based the values of its communities to execute important social responsibility projects. The main purpose of Kuveyt Türk’s social responsibility projects is providing benefits for the society. Kuveyt Türk aims to provide benefit for the community with the support of its employees in all its social responsibility projects that they supported. The goal is to keep our cultural heritage alive and leave an environment in which values are alive to future generations. Some of the projects undertaken include: Ortaköy Büyük Mecidiye Mosque Restoration The Ortaköy Büyük Mecidiye Mosque were built toward the end of the Ottoman Period or in other words around the middle of the 19th century, was restored with the support of Kuveyt Türk over a three-year period and opened for worship in 2014. It has a special place in historic buildings that compose the identity of İstanbul. The restoration efforts carried out with a duty of “preserving the landmarks of the city and safeguarding the traces of history” were maintained meticulously and carefully in keeping with this aim, and the mosque was restored in a manner that stayed true to its historic fabric. The restoration work not only renovated the existing structure, but also revealed the traces of the history and culture of Büyük Mecidiye Mosque and the congregations it hosted since its construction. Restoration of the Tomb of the Famous Composer Itri Considered one of the founding fathers of classical Turkish music, the great composer Itri’s (Buhurizade Mustafa Efendi) tomb at Edirnekapı Cemetery was restored by Kuveyt Türk in 2006 and reopened for visits. Restoration of the Saliha Sultan Water Dispenser and Fountain, Bursa Kozahan Fountain Other historical works that Kuveyt Türk undertook restoration efforts for, to give historical assets that were in danger of disappearing back to the community, involve Istanbul Azapkapı Saliha Sultan Sebil (charity fountain) and Bursa Kozahan Shadirvan. The Saliha Sultan Fountain, one of the best examples of an 18th century combination water dispenser and fountain, was built in 1732–33 by Hassa Mimarbaşı Kayserili Mustafa Ağa during the Tulip Era. The fountain was restored in 2006 through cooperation between Kuveyt Türk
89. KUVEYT T ÜRK 2017 ANNUAL REPORT Katılım Bankası and the Directorate General of Foundations to the condition where water now flows again in the fountain. The Bursa Kozahan Fountain was restored in 2008 under the control of the Directorate General of Foundations by Kuveyt Türk Katılım Bankası. The mosque and fountain were restored according to the original structure. The Koza Han located in the wide space between the Ulucami and the Orhan Mosque and built on the orders of Bayezid the Second in 1492. The architect of the inn is Abdul Ula bin Pulad Shah. International Islam Economy and Finance Application and Research Center Kuveyt Türk supported the construction of the Istanbul Sabahattin Zaim University (IZU) International Islam Economy and Finance Application and Research Center building with a donation of TL 6 million to contribute to the expansion of work done in the field of interest-free banking. Support for Humanitarian Aid Campaigns Kuveyt Türk supports the projects of nongovernmental organizations and humanitarian aid both as a company and with the contributions of its staff. 87 A campaign to help Somalia and Africa, Through its donations, Kuveyt Türk supported the “Africa is Not Alone” campaign, the July 15 Solidarity Campaign, victims of the Pakistan Flood Disaster, Van Earthquake and Soma mine accident, and the Muslims who were subjected to forced migration from the Rakhine region. Furthermore, through the “Support the Hope” project marking its fifth year, Kuveyt Türk contributed a total of TL 1,629,000 to KAÇUV’s Family Home. Africa is not Alone: With its support for “Africa is Not Alone” campaign to combat drought and famine in Somalia and the rest of Africa, Kuveyt Türk provided help for those in need by collecting donations of employees and customers. Van Earthquake: Kuveyt Türk provided support through donations to victims in the Van Earthquake that occurred on October 23, 2011 leaving behind 604 dead and 4,152 casualties as well as extensive property damage. As part of the support the Bank provided, all commissions on vehicle and home financing were removed for customers registered in the Van area between certain dates in 2013. Soma Disaster: Kuveyt Türk supported the families of victims with donations during the Soma Mining Accident in 2014, which caused many citizens to lose their lives. TL 1 million in donations from Kuveyt Türk were given to the victims in need through AFAD. Kuveyt Türk, which also started an aid campaign among its staff, sent the collected donations to Soma. July 15 Solidarity Campaign: As a supporter of compassion, unity and solidarity, Kuveyt Türk donated TL 1 million to the July 15 Solidarity Campaign started by the Prime Ministry. Pakistan Flood Disaster: The Bank organized a donation campaign in response to the flood disaster Pakistan faced in 2010. Through donations and the cooperation of the Turkish Red Crescent, the “Kuveyt Türk Brotherhood Village” was established, providing shelter for nearly 100 families affected by the disaster. The essential requirements of the victims were fulfilled for a year, and aid involving food, clothing, school supplies were delivered by Kuveyt Türk to those in need.  
90. 88 SECTION II : OPERATIONS IN 2017 CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY Guided by the precept that “People are our utmost social responsibility,” Kuveyt Türk continues to come to the aid of those in need as an institution embracing its social responsibilities. A HELPING HAND FOR ARAKAN TL 7 Million The aid check that will be used to provide shelter, food, clean water and medicine for Rakhine refugees was delivered by Kuveyt Türk CEO Uf*ck Uyan to the Turkish Red Crescent President Dr. Kerem Kınık on September 22, 2017. Kuveyt Türk continued its support for Rakhine Muslims through a humanitarian aid campaign among its employees and customers. The donations of Kuveyt Türk employees and customers totaled of TL 7 million. Through the generous contributions of Kuveyt Türk employees and customers the donations collected reached TL 7 million. 100 thousand people A total of 24 thousand temporary housing units will be built, providing shelter for almost 100 thousand people. Through the donations collected, 24 thousand temporary housing units will be constructed by the Turkish Red Crescent for those persecuted and displaced from their homes, thereby providing 100 thousand people with shelter. In addition to houses, essential living spaces such as schools, mosques, and hospitals will also be built. Thus far, the number of Rakhine Muslims who fled the persecution in Myanmar and took refuge in Bangladesh exceeds 1 million. Of those, 240 thousand were children and 52 thousand were pregnant women.
91. KUVEYT T ÜRK 2017 ANNUAL REPORT 89 Acting with the mission to embrace social responsibility since its founding, Kuveyt Türk supports projects that contribute to people and society. HOPE FOR CHILDREN WITH CANCER “Support the Hope” Kuveyt Türk has supported the project “Support the Hope” project since 2013. TL 1,629,649 Under the project, donations raised since the beginning of the campaign has reached TL 1,629,649. More than 300 families More than 300 families have benefited from the Family Home providing social and psychological support. Kuveyt Türk has provided support since 2013 to the “Support the Hope” project carried out by KAÇUV to raise awareness for cancer, the most devastating and widespread disease of our era, and to provide hope for children receiving cancer treatment. Under the project, which continues throughout April 23rd National Sovereignty and Children’s Day, Kuveyt Türk makes donations equivalent to the number of transactions made by all personal bank cards. The donations go to support the “Family Home” built for child cancer patients. Under the project, the campaign launched in 2017 raised TL 413 thousand, bringing the total donations collected since the beginning of the campaign to TL 1,629,649. The annual expenses of the Family Home, which provides accommodation and social living resources for child cancer patients and their families in need during treatment, are covered with the donations collected under the Support the Hope project every year. More than 300 families have benefited from the Family Home providing social and psychological support. The second Family Home under construction to bring hope for more children and their families is expected to be inaugurated in 2018, in an area close to Pendik Training and Research Hospital in Istanbul.
92. 90 SECTION II : OPERATIONS IN 2017 AWARDS SUSTAINABLE ACHIEVEMENT RECOGNIZED BY AWARDS Sağlam Kart was named “Best New Generation Credit Card” in the “World’s Best Islamic Financial Institutions” survey by Global Finance magazine. Kuveyt Türk has provided innovative services to customers since its founding. Over the years, the Bank has received numerous awards in recognition of its efforts to consistently deliver the best solutions, work to develop participation banking, steps to improve these services and commitment to conducting world class value-added research. Kuveyt Türk was awarded by the Talent Board Foundation in the Candidate Experience Competition (CandE), which measures the interview experiences of candidates for recruitment across the world. The Bank was presented with an award in the “Best Islamic Capital Market Transaction of the Year” category at the Bonds & Loans Turkey Awards. Kuveyt Türk received an award in the “Participation Banking” category for the third year running at the A.L.F.A. Awards for “Best Marketers Who Manage Customer Experience.”
93. KUVEYT T ÜRK 2017 ANNUAL REPORT 91 Kuveyt Türk’s 2016 Ramadan commercial film won the first prize in the category “Performance,” one of the most important awards of YouTube, as the highestperforming commercial film in Europe and the Middle East region on YouTube. At the fifth edition of the Turkey Ethics Awards held by the Centre of Ethical Values (EDMER), Kuveyt Türk was recognized for its acute sensitivity regarding ethics with its third award. At International Data Corporation Turkey’s (IDC) Finance Technology Awards 2017, Kuveyt Türk won the first prize for its API Market Platform in the “Digital Channels” category, and second prize in the “Expanding Financial Base” category. In the “World’s Best Islamic Financial Institutions” survey by Global Finance magazine, Sağlam Kart was named “Best New Generation Credit Card” while Kuveyt Türk’s 100% owned subsidiary KT Bank AG received the award for “Best Up-And-Coming Financial Institution.” As the only bank in Turkey with two R&D Centers, Kuveyt Türk received the “Best R&D Center” award in the “Banking and Finance” category at the Sixth Private Sector R&D and Design Centers Summit organized by the Science and Technology Directorate of the Ministry of Science, Industry and Technology.
94. 92 SECTION III : MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES We continue to move forward with our achievements and appropriate management strategies while pioneering innovations in the industry for more than a quarter century.
95. KUVEYT T ÜRK 2017 ANNUAL REPORT 93 SECTION III MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES 94 Board of Directors 97 Senior Management 101 Organizational Chart 102 Summary Report of the Board of Directors Submitted to the General Assembly 103 Executives within Internal Systems 104 Senior Management Committees 106 Related Party Transactıons 107 Outsourced Services
96. 94 SECTION III : MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES BOARD OF DIRECTORS Hamad Abdulmohsen Al Marzouq Chairman of the Board of Directors Mr. Al Marzouq holds a Master’s degree from Claremont University and a Bachelor’s degree from the University of Southern California in the U.S. awarded in 1985. He has taken senior positions at Kuwait Investment Corporation till 1990, Central Bank of Kuwait between 1990-1998 and Ahli United Bank Bahrain between 1998-2014. Mr. Al Marzouq has been appointed as the Chairman of Board of Directors of Kuveyt Türk in 2014. Mr. Al Marzouq is also a Member of Corporate Governance Committee, Executive Committee and Credit Committee. Dr. Adnan Ertem Vice Chairman of the Board of Directors Mr. Ertem graduated from Istanbul University, Faculty of Political Sciences in 1987. He received a Post-Graduate degree in the area of Political Sciences at the Social Sciences Institution of the same university in 1990 and PhD with his thesis on Social Structure and Social Change in 1998. Mr. Ertem began his professional career as the Deputy Inspector at General Directorate of Foundations in 1988 and he was assigned to Istanbul Regional Directorate of Foundations in 2002 after having served at different positions in this institution. Mr. Ertem worked as the Deputy Secretary at the Prime Ministry between 2007 and 2010, and he was assigned to General Directorate of Foundations in 2010. Mr. Ertem was assigned as Member of Board of Directors of Kuveyt Türk in 2002. He also serves as the Member of Bank’s Internal Systems Committee, Audit Committee and Corporate Social Responsibility Committee. Khaled N. Al Fouzan Member of the Board of Directors Mr. Al Fouzan graduated from Kuwait University, Department of Business Administration in 1978. Mr. Al Fouzan began his professional career at Kuwait Commercial Bank, later working as Director of Participations at the Kuwait Social Security Institution. Appointed as Manager of the Banking Department in 1984, after 2004 he continued his as the Executive Vice President of Finance & Management. Mr. Al Fouzan served as a Member of the Board of Directors at Kuwait Industry Bank; London Ahli united Bank and Al Manar Leasing. Mr. Al Fouzan has been serving as a Member of the Board of Directors of our Kuveyt Türk since August 2006 and is a Member of the Internal Systems Committee.
97. KUVEYT T ÜRK 2017 ANNUAL REPORT Mazin Saad Al-Nahedh Member of the Board of Directors Mr. Al-Nahedh received his Bachelor’s degree in Finance from California State University. He started his professional career in 1993 at the Corporate Banking Department of the Central Bank of Kuwait as Bank Relations Director. In 2001, he was appointed as the Managing Director of the Bank’s Treasury Unit. During his professional career, he assumed numerous leadership roles at the National Bank of Kuwait (NBK) including his role as a member of the Management Executive Committee from November 2010 to 2014. He also held the positions of Group General Manager, Retail Banking Group from 2011 to 2014 and Group General Manager, Corporate Banking Group from 2008 to 2011. He was also a member of the Board of Directors of the Central Bank of Kuwait from November 2010 to 2014. He possesses vast banking experience, spanning more than 20 years and since October 2014, he has been Managing Director of Kuwait Finance House. Mr. Al-Nahedh is also on Kuveyt Türk’s Executive Committee, Loan Committee, Remuneration and Nomination Committee and the Corporate Social Responsibility Committee. 95 Fawaz Al Saleh Member of the Board of Directors Mr. Al Saleh is a graduate of Macalester College, Department of Business Administration-Economics in the United States. He joined Kuveyt Türk Katılım Bankası A.Ş. as a member of the Fund Management Department in 1996. Mr. Al Saleh was appointed as Executive Vice President in 1999 and later as Executive Assistant to the CEO, serving in this position until 2006. Serving as a Member of Board of Directors of Kuveyt Türk since 2006, Mr. Fawaz Al Saleh also serves as the Vice Chairman of the Board of Directors, the CEO of Turkapital Holding B.S.C.C and the Board of Directors Vice Chairman and General Manager of Turkapital Holding B.S.C.C. He is a member of the Bank’s Internal Systems Committee, Remuneration and Nomination Committee and the Corporate Social Responsibility Committee. Ahmad S. Al-Kharji Member of the Board of Directors Mr. Al-Kharji graduated from the Finance and Banking Department of Kuwait University in 1994 and obtained an MBA degree from San Diego University in 1998. Between 2003-2006, Mr. Al-Kharji served as Senior Investment Division Manager and Senior Vice President at LMH between 2008-2013. He has served as a Member of Board of Directors of Kuveyt Türk since March 2014. Mr. Al-Kharji, who has been a member of the Kuveyt Türk Board of Directors since March 2014, is also a member of the Audit Committee and the Remuneration and Nomination Committee.
98. 96 SECTION III : MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES BOARD OF DIRECTORS Mohamad Al Midani Member of the Board of Directors Mr. Midani graduated in 1988 from the Lebanese American University’s in Business Administration. In 1994, he obtained a postgraduate degree in Accountancy from Concordia University Accounting in Montreal. His career includes various posts in the field of auditing. This included employment for Canada Economic Development Agency in Montreal and Ernst & Young in Jeddah. He also worked as Finance Director in a private sector company in Saudi Arabia. He then worked for the Islamic Development Bank (IDB) since 2001. In IDB, he held the post of Lead Internal Auditor and since year 2010 he was the Head of Equity Investment Division. Having more than 20 years of experience in audit, accounting, financial analysis and management consulting, Mr. Midani is a Member of Board of Directors of Kuveyt Türk since 31 March 2015. Mr. Midani is also member of the Bank’s Audit Committee and the Internal Systems and Corporate Governance Committee. Nadir Alpaslan Member of the Board of Directors Mr. Alpaslan graduated from Istanbul University, Faculty of Political Sciences, Public Administration Department in 1987. He began his professional career at Prime Ministry, Family Research Institution in 1999 and worked as the Ministry Consultant and Administrative Financial Affairs President at the Ministry of Tourism for four years. Mr. Alpaslan continued his professional career as the Deputy Secretary and Ministry Consultant at the Ministry of Culture and Tourism between 2003 and 2007, and became the Deputy Secretary General at the Presidency in 2007. Mr. Alpaslan has been a Member of Board of Directors of Kuveyt Türk since 15.04.2011 and he is member of the Bank’s Corporate Governance Committee. Mr. Alpaslan is also responsible for Ethical Banking. Uf*ck Uyan Member of the Board of Directors and Chief Executive Officer Mr. Uyan graduated from the Economics Department of Boğaziçi University in 1981. He received Postgraduate degree from the Business Management Department of the same university in 1983. He began his professional career as the Research Assistant at the Economics Department of Boğaziçi University in 1979 and worked as the Researcher Economist at the Specific Researches Department at Türkiye Sınai Kalkınma Bank in 1982. Mr. Uyan became the Vice Project Manager at Albaraka Türk in 1985 and continued his career as the Project and Investments Manager at Kuveyt Türk in 1989. Mr. Uyan was promoted as the Executive Vice President in 1993 and then assigned as the Chief Executive Officer Head Assistant. Mr. Uyan was assigned as the Chief Executive Officer in 1999 and he continues his duty as Member of Board of Directors and Chief Executive Officer at Kuveyt Türk. Mr. Uyan is also on the Executive Committee, Loan Committee, Remuneration and Nomination Committee and the Corporate Social Responsibility Committee.
99. KUVEYT T ÜRK 2017 ANNUAL REPORT 97 SENIOR MANAGEMENT Uf*ck Uyan Member of Board of Directors and Chief Executive Officer His resume is presented in the Board of Directors section. Ahmet Karaca Executive Vice President – Chief Financial Officer Mr. Karaca graduated from Ankara University, Faculty of Political Sciences, Public Administration Department in 1990. He started his duty as the Sworn Deputy Auditor of Banks at Undersecretariat of Treasury in 1992 and he was assigned as the Sworn Auditor of Banks in 1995. He continued his duty with the same title at the Banking Regulation and Supervision Agency from 2000, and he was assigned as the Vice President of Sworn Auditors Committee of banks between 2002 and 2003 at the Banking regulation and Supervision Agency. After approximately one year of service, he was assigned as the Sworn Head Auditor of Banks in 2004. Between 2004 and 2006, he received a Post graduate degree in Economics from the USA, State University of New York at Albany and Mr. Karaca has a post graduate thesis work on International Banking and Capital Markets. Mr. Karaca joined Kuveyt Türk as the Chief Financial Officer in July 2006 and he still serves under this title. A. Süleyman Karakaya Executive Vice President - Corporate and Commercial Banking Mr. Karakaya graduated from the Business Administration and Finance Department at the Istanbul University, Faculty of Economics. Mr. Karakaya began his banking career as an Inspector at Garanti Bank and he worked at the Audit Committee, Risk Management department Loans Department and Regional Directorates of the same bank between 1981 and 2003. Mr. Karakaya has been working as the Executive Vice President of Corporate and Commercial Banking at Kuveyt Türk since 2003.
100. 98 SECTION III : MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES SENIOR MANAGEMENT Bilal Sayın Executive Vice President - Chief Credit Officer Mr. Sayın graduated from the Public Administration Department of Middle East Technical University in 1990. He joined the Kuveyt Türk family in 1995 and he has been serving as the Chief Credit Officer at Kuveyt Türk since 2003. Hüseyin Cevdet Yılmaz Executive Vice President – Chief Risk Officer Mr. Yılmaz graduated from the Business Administration Department of Boğaziçi University in 1989. He began his banking career as the Assistant Internal Auditor in Esbank Internal Audit and Inspection Department. After having served as Internal Auditor and Branch Manager in the same institution, he began his duty as the Head of Internal Audit and Inspection Department in Kuveyt Türk in September 2000. He was assigned as the Audit and Risk Group President in 2003. Mr. Yılmaz has been serving as the Chief Risk Officer since 2012. İrfan Yılmaz Executive Vice President – Banking Services Mr. Yılmaz graduated from the Management Engineering Department of Istanbul Technical University in 1989. He began his banking career at the Financial Affairs Department in Kuveyt Türk in 1990 and he was assigned to Internal Audit and Inspection Department in 1996 and he served as the Head of Internal Audit and Inspection Department between 1998 and 2000. Mr. Yılmaz was assigned as the Individual Banking Manager in 2000 and after having worked at the Individual Banking Department for five years, he was assigned as the Executive Vice President of Individual Banking and Enterprise Banking in 2005. He has been serving as the Executive Vice President of Banking Services since October 2012.
101. KUVEYT T ÜRK 2017 ANNUAL REPORT Dr. Ruşen Ahmet Albayrak Executive Vice President - Treasury and International Banking Mr. Albayrak graduated from the Industrial Engineering Department of Istanbul Technical University. He received Post graduate degree in Organizational Leadership and Management at the University of North Carolina at Pembroke (USA) in 1993 and PhD degree on Technology Management at Istanbul Technical University, from the Department of the Business Administration in the Social Sciences Institute in 2007. Having joined the participation banking sector 30 years ago, Mr. Albayrak has been serving as the Executive Vice President at Kuveyt Türk since 2005. He managed the Banking Service Group till October 2012 and he was assigned as the Executive Vice President of Treasury and International Banking as of the same date. 99 Nurettin Kolaç Executive Vice President - Law and Risk Follow-up Mr. Kolaç graduated from Faculty of Law at Marmara University. He served as an attorney and legal counselor in banking, leasing and insurance industries for 16 years. He worked as the Vice Head of Department and Head of Department (Legal) in Banking Regulation and Supervision Agency for six years starting from 2004. He joined Kuveyt Türk in April 2010 as the Executive Vice President of Law and Risk Follow-up. Nurettin Kolaç is also a member of the Board of Directors at KT Portföy Yönetim A.Ş. as well as the chairman and member of several working committees in professional associations for the banking industry. With 29 years of experience in law and banking Mr. Kolaç has been serving as the Executive Vice President of Corporate, Commercial, SME and Retail Risk Follow-up, Credit Risk Monitoring, Collateral Monitoring, Customer Rights and Legislation, and Law and Risk Followup. Aslan Demir Executive Vice President - Strategy Mr. Demir graduated from Marmara University, International Affairs Department. He completed his Master’s degree at Sheffield University with thesis on topic of Critical Elements of Strategy Implementation in Banking Sector. He began his banking career in Kuveyt Türk Treasury Department in 1995, served at the Treasury Department for six years and continued his career at Project Management and Quality Department between 2001 and 2004. He was assigned as the Project Management and Quality Manager in 2005 and he continued his career as the Information Technologies Group Manager upon the new set-up in 2007. He has been serving as the Executive Vice President of Strategy since October 2012. Since October 2012, Mr. Demir has been serving as the Executive Vice President of Strategy, Human Resources, Digital Transformation, Corporate Communication and Corporate Performance Management while continuing to perform his duties at Katılım Emeklilik ve Hayat A.Ş. and Architecht Bilişim Sistemleri ve Pazarlama Ticaret A.Ş. as a Board Member.
102. 100 SECTION III : MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES SENIOR MANAGEMENT Mehmet Oral Executive Vice President – Retail Banking Mr. Oral graduated from the Business Administration Department of Uludağ University. He began his career in the Kuveyt Türk family at the Head Office Branch in 1992. He worked as the manager in the İMES, Bursa and Merter branches between 2000 and 2005. He was assigned as the Regional Manager at the Istanbul European Side Regional Directorate in 2005 after the transition to Regional Directorate structure. After having served as the Regional Manager for four years, he continued his career as the HR, Training and Quality Group Manager in 2009. He has been serving as the Executive Vice President of Retail Banking since October 2012. Abdurrahman Delipoyraz Executive Vice President - SME Banking Mr. Delipoyraz graduated from the Industrial Engineering Department of Istanbul Technical University. He began his career in the Kuveyt Türk family at the Project and Investment Department and he worked at the Corporate and Commercial Banking Sales Department and Financial Analysis and Information Department till 2000. Mr. Delipoyraz worked as the Branch Manager at Beşyüzevler and Bakırköy Branches between 2000 and 2004. He was assigned as the Regional Manager in December 2004 and he worked at Istanbul Europe 1 and Istanbul Anatolia Regional Directorates. He has been serving as the Executive Vice President of SME Banking since January 2015.
103. KUVEYT T ÜRK 2017 ANNUAL REPORT 101 ORGANIZATIONAL CHART Board of Directors Audit Committee Executive Committee Credit Committee Corporate Governance Committee Remuneration & Nomination Committee Corporate Social Responsibility Committee Advisory Board Internal Systems Committee Advisory Board Auditors Board Secretary Retail Banking SME Banking Commercial and Corporate Banking Treasury and International Banking CEO Credits Law and Risk Follow-up Risk, Control and Compliance Group Internal Audit Strategy Banking Service Group (COO) CFO
104. 102 SECTION III : MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES SUMMARY REPORT OF THE BOARD OF DIRECTORS SUBMITTED TO THE GENERAL ASSEMBLY Esteemed Shareholders, 2017 was another year of volatility in the world. Despite several political crises, the world economy nevertheless made major strides towards recovery in the tenth year of the global financial crisis, overcoming the consequences of the crisis to a considerable extent. Turkey’s economy has demonstrated a remarkable growth performance in 2017. After achieving 5.3% growth in the first quarter, and 5.4% in the second quarter, Turkey outperformed expectations particularly in the third quarter with 11.1% growth. The incentives employed by the government played a major part in achieving such fast-paced growth. It was a successful year for the banking industry thanks to the impetus provided by the rapid growth in Turkish economy. As of the end of 2017, banking sector assets increased by 19.3% and liabilities by 21%. Meanwhile, growth among participation banks was above the industry average. By the end of 2017, participation banks increased their profits by 43.1%, boosting their total assets by 20.5% and total funds allocated by 25.7%, proceeding confidently to attain their goal of a 15% share in the industry by 2023, the 100th year of the republic. Kuveyt Türk in 2017 As the pioneer in Turkey’s participation banking industry with its dynamic approach to corporate governance, innovative products and involvement in international markets, Kuveyt Türk concluded another successful year, outperforming its growth targets. Achieving over 26% growth in funds allocated, over 17% in assets, over 24% in net period profits thanks to a renewed focus on increasing productivity in 2017, Kuveyt Türk boosted its total assets to TL 57 billion, and net profits to TL 674 million. Over the past year, total funds allocated rose to TL 38 billion, and total funds collected reached TL 40 billion. The Bank’s nonperforming loan ratio remained well below the industry average at 1.85%, while the Bank’s return on equity climbed to 15.85%. Constantly introducing innovative products and services to the industry, Kuveyt Türk accomplished the following key achievements in this context in 2017: - Launched the new generation credit card Sağlam Kart, - Broke the record for the highest value single-issue lease certificate in TL denomination in Turkey, - Acted as the intermediary for issuing of lease certificates worth TL 50 million with a 728-day maturity, - Also acted as the intermediary for Turkish Grain Board (TMO) to issue lease certificates worth TL 100 million with a 88-day maturity, with physical agricultural commodities used as underlying assets to finance trade for the first time in Turkey, - Inaugurated the Lonca Entrepreneurship Center which will provide a range of opportunities and assistance including training, mentoring, consultancy and financial backing, - Supported the development of the FinTech ecosystem and offered young entrepreneurs an environment to implement their ideas by organizing the Hackathon Digital Banking Software Project Competition, - Realized another groundbreaking initiative in the interest-free banking sector by launching the Kuveyt Türk Banking School. Alongside all these innovations, Kuveyt Türk’s achievements were crowned with new awards in 2017 as in previous years. In the “World’s Best Islamic Financial Institutions” survey by Global Finance magazine, our new credit card Sağlam Kart was named “Best New Generation Credit Card” while Kuveyt Türk’s wholly-owned subsidiary KT Bank AG received the award for “Best Up-AndComing Financial Institution.” Kuveyt Türk received the “Best R&D Center” award in the “Banking and Finance” category at the Sixth Private Sector R&D and Design Centers Summit organized by the Science and Technology Directorate of the Ministry of Science. Kuveyt Türk develops solutions for the society’s changing financial needs along with innovative products and services perfecting customer experience. With trailblazing products in the Turkish banking industry including Golden Days, Gold-to-Gold Participation Account, Quarter Gold Coin Account, and Gold-Dispensing ATMs, Kuveyt Türk helped inject almost 13.1 tons of gold from under-themattress savings into the national economy. Customer oriented technology Having introduced innovations such as the interest-free digital banking platform Senin Bankan or XTM Branch combining the functions of a call center, conventional branch and ATM, Kuveyt Türk continues to boost its investments in technology as Turkey’s only bank with two R&D centers. Our goal is to offer the widest possible array of banking transactions on mobile platforms with a customer-oriented approach, enabling Kuveyt Türk customers to swiftly conduct a range of transactions from transferring funds to paying bills or from precious metal and foreign exchange transactions to trading in shares wherever they are, without paying any fees. Serving customers at 399 branches with over 5,750 employees across Turkey, Kuveyt Türk established another 14 branches in 2017, achieving 85% geographical coverage. The outlook for 2018 The prevailing view among economists is that the world economy will grow at a rate between 3.3% and 3.7% in 2018. As for the Turkish economy, the spillover effects of global events could have a significant impact in 2018. Steadfastly championing the participation banking principles, service quality and solid banking values since its inception, Kuveyt Türk will continue to extend the scope of its services in 2018. The Bank will expand its physical branch network further in 2018 while diversifying digital banking services. We would like to extend our gratitude to our competent, highly educated, young and dynamic staff as the biggest contributors to the achievement of our success, and to our stakeholders for their unwavering support. Board of Directors
105. KUVEYT T ÜRK 2017 ANNUAL REPORT 103 EXECUTIVES WITHIN INTERNAL SYSTEMS Name and Surname Duty Educational Status H. Cevdet Yilmaz Chief Risk Officer Bachelor's Bahattin Akça Head of Internal Audit and Inspection Bachelor's Fadıl Uluşık Head of Internal Control Post Graduate Vefa Okan Arik Head of Risk Management Bachelor's Hayrettin Çapoğlu Head of Compliance Post Graduate Hüseyin Cevdet Yılmaz Chief Risk Officer Mr. Yılmaz graduated from the Business Administration Department of Boğaziçi University in 1989. He began his banking career as the Assistant Internal Auditor in Esbank Internal Audit and Inspection Department. After having served as Internal Auditor and Branch Manager in the same institution, he began his duty as the Head of Internal Audit and Inspection Department in Kuveyt Türk in September 2000. He was assigned as the Audit and Risk Group President in 2003. Mr. Yılmaz has been serving as Chief Risk Officer since 2012. Bahattin Akça Head of Internal Audit and Inspection Mr. Akça graduated from (English) Business Administration Department at Istanbul University. He began his career at Kuveyt Türk in 1996. Since September 2007, he has been the Head of Internal Audit and Inspection. Fadıl Uluşık Head of Internal Control Mr. Uluışık graduated from Istanbul University, Faculty of Political Sciences in 1996. He received his post graduate degree on Money-Banking Department at the Social Sciences Institution of Istanbul University in 1999. Mr. Uluışık began his career in Kuveyt Türk in 1996 and he has been serving as the Head of Internal Control since December 2007. Vefa Okan Arık Head of Risk Management Mr. Arık graduated from Gazi University, Faculty of Economic and Administrative Sciences. Mr. Arık began his career in 1997 and joined Kuveyt Türk in 2002. Since February 2013, he has been the Head of Risk Management. Hayrettin Çapoğlu Head of Compliance Mr. Çapoğlu graduated from Boğaziçi University, Faculty of Economics and Administrative Sciences, Department of Political Science and International Relations in 1997. He received his post graduate degree on International Relations at the Social Sciences Institution of Marmara University in 2002. Mr. Çapoğlu began his career in 1997 and joined Kuveyt Türk in 2002. Since February 2013, he has been the Head of Compliance.
106. 104 SECTION III : MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES SENIOR MANAGEMENT COMMITTEES Audit Committee Name and Surname Duty Date of Assignment Adnan Ertem Chairman, Board Member 19.10.2010 Ahmad S. Al Kharji Member, Board Member 24.09.2014 Mohamad Al Midani Member, Board Member 15.05.2015 Duties and Responsibilities Receiving regular reports on the fulfillment of the duties from the units established within the scope of internal control, internal audit and risk management systems as well as independent auditors, in the event of matters or discrepancies arising against legislation and internal regulations which may adversely affect the continuity and safe execution of the Bank’s activities, reporting these to the Board of Directors, along with the outcomes of its activities, reporting its opinions to the Board of Directors on the practices required or measures to be taken by the Bank, and on other matters deemed significant in terms of sustaining the Bank’s activities securely, within periods no longer than six months. Internal Systems Committee Name and Surname Duty Date of Assignment Adnan Ertem Chairman, Board Member 29.03.2007 Khaled Nasser Abdulaziz Al Fouzan Member, Board Member 29.03.2007 Fawaz KHE Alsaleh Member, Board Member 26.03.2014 Mohamad Al Midani Member, Board Member 15.05.2015 Duties and Responsibilities • Defining the strategies, policies and implementation methods for the operations of units under the internal systems in writing, and ensuring the effective implementation and execution thereof, • Ensuring the coordination between the units under internal systems, • Notifying the Board of Directors to take the necessary measures about errors or in competencies in practices concerning internal systems as detected by the Banking Regulation and Supervision Agency (BRSA) or independent auditors, • Evaluating errors or in competencies detected and ensuring that control and internal audit activities are directed at areas where same or similar errors or in competencies may occur.
107. KUVEYT T ÜRK 2017 ANNUAL REPORT 105 Assets and Liabilities Committee Name and Surname Duty Uf*ck UYAN President, Member of Board of Directors, Chief Executive Officer H. Cevdet YILMAZ Member, Chief Risk Officer A. Süleyman KARAKAYA Member, Executive Vice President, Corporate and Commercial Banking R. Ahmet ALBAYRAK Member, Executive Vice President, Treasury and International Banking Ahmet KARACA Member, Executive Vice President, Chief Financial Officer Bilal SAYIN Member, Executive Vice President, Loans Mehmet ORAL Member, Executive Vice President, Retail Banking İrfan YILMAZ Member, Executive Vice President, Banking Services Nurettin KOLAÇ Member, Executive Vice President, Law and Risk Follow-up Aslan DEMİR Member, Executive Vice President, Strategy Abdurrahman DELİPOYRAZ Member, Executive Vice President, SME Banking Ahmet Tarık TÜZÜN Member, Group Manager, Treasury Duties and Responsibilities • This is the senior management committee responsible from Bank’s assets-liabilities and financial management. Gathers weekly on regular basis. Participation in Committee Meetings The Board of Directors gathers when necessary in line with the Articles of Association and takes decisions based on demands. Board of Directors gathered for six times in 2017. The Audit Committee has been tracking Bank’s audit and risk operations within legal regulations, especially the Banking Law, and takes actions on these. The Audit Committee gathered for six times in 2017. The Internal Systems Committee meetings, which are held in order to manage the risks more efficiently and where managers of units within internal systems also attend, were held for six times in 2017. The Loan Committee has undertaken the duty of examining and approving the loans up to 10% of equities and gathered for six times in 2017. The Assets and Liabilities Committee, responsible from the financial management of the ban and supervising the assets-liabilities balance of the bank, gathered for 51 times in 2017. Unless they have excuses, committee members were present during the meetings.
108. 106 SECTION III : MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES RELATED PARTY TRANSACTIONS Information about the risk group transactions where the bank is involved are given on pages 235 and 362 of the annual report.
109. KUVEYT T ÜRK 2017 ANNUAL REPORT 107 OUTSOURCED SERVICES Brink’s Güvenlik Hizmetleri A.Ş. Providing transportation and storage services for local and international precious metals and bank notes worth of maximum USD 100 millions Kuryenet Motorlu Kuryecilik ve Dağıtım Hizmetleri A.Ş. Providing debit card and credit card deliveries Bileşim Alternatif Dağıtım Kanalları ve Ekstre Ödeme Sistemleri A.Ş. Printing and enveloping services with card customization and enveloping works Chronos Istihdam Hiz. Yön. ve Yazılım Dan. Tic. Ltd. Şti. Providing pay roll services Banksoft Bilişim Bilgisayar Hiz. Ltd. Şti. Providing ATM and credit card software infrastructure support services Banksoft Bilişim Bilgisayar Hiz. Ltd. Şti. Providing credit card and business software infrastructure support services Istanbul Altın Rafinerisi A.Ş. Preparation of certified gram gold and ATM golds Collection Platform Yaz. Dan. A.Ş. Providing call service for Bank's debtors by bank employees Komtaş Bilgi Yön. ve Dan. Tic. A.Ş. Supply and maintenance service for financial control reporting (ACL) software 32 Bit Bilgisayar Hizm. Ltd. Şti. Providing software connection service with Reuters dealing system Fineksus Bilişim Çözümleri Tic. A.Ş. Supply and maintenance support for supplementary software product for improvements related to swift Fineksus Bilişim Çözümleri Tic. A.Ş. Supply and maintenance service for Swift software for the Disaster Recovery Center Fineksus Bilişim Çözümleri Tic. A.Ş. Supply and maintenance of swift supplementary software Fineksus Bilişim Çözümleri Tic. A.Ş. Providing Swift Alliance software maintenance and support services Fineksus Bilişim Çözümleri Tic. A.Ş. Supply, maintenance and update services for AML software Bicentrix Yazılım Dan. Ltd. Şti. Providing budget application support service Karash Yazılım Geliştirme ve Danışmanlık İthalat İhracat Ltd. Şti. Outsourced IT staff hiring Loomis Güvenlik Hizmetleri A.Ş. Provision of cash/precious metal transportation services (including ATM and XTM) with a maximum value of USD 100 million Bilişim Sanayi ve Ticaret Ltd. Şti. Providing execution and operation services for pay roll system Saytem Sağlık Hizmetleri Otomasyon Gıda Tem. Nak. San. Tic. Ltd. Şti. Outsourcing administrative services staff Desmer Güvenlik Hizmetleri Tic. A.Ş. Providing cash transportation service and money transportation service for ATMs and XTMs Call Center Resources Danışmanlık Ltd. Şti. Providing Interactive Intelligence Customer Interaction Center software license, maintenance and support services Desmer Güvenlik Hizmetleri Tic. A.Ş. Cash transportation service and money transportation service for ATMs and XTMs G4S Güvenlik Hizmetleri A.Ş Cash transportation service and money transportation service for ATMs and XTMs Aktif Ileti Kurye Hizmetleri A.Ş. Distribution of debit card and credit cards to customers, having agreements signed by customers and delivery of related documents to the Bank Kartega Yazılım ve Danışmanlık Ticaret Ltd. Şti. Providing Outsourcing IT staff Bilge Adam Bilgisayar ve Eğitim Hizmetleri Sanayi ve Ticaret A.Ş. Providing Outsourcing IT staff Nadir Metal Rafineri San. ve Tic. A.Ş. Providing Bullion Gold Conversion Service (conversion of large bullion gold to kilos bullion gold) Architecht Bilişim Sist. ve Paz. A.Ş. Software development, source rental and providing advisory services Pil Eğitim Bilişim Mim. Tic. Ltd. Şti. Employee Commitment and Communication Platform Implemantation, Supply, Maintanence and Support Services Banksoft Bilişim Bilgisayar Hiz. Ltd. Şti. Central RLL developments, Beko payment device banking application and RLL developments and provision of device integration services Telekurye Dağıtım ve Kurye Hizmetleri A.Ş. Delivery of courier services for Senin Bankan channel Medyasoft Danışmanlık ve Eğitim A.Ş. Face recognition system project Maya Sosyal Hizmetler Dan.İnş.Tur.İth.İhr.San.Tic.Ltd.Şti. Outsourcing administrative staff
110. 108 SECTION IV : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES Our efforts to introduce the advantages and investment tools of participation banking to more people are ongoing.
111. KUVEYT T ÜRK 2017 ANNUAL REPORT 109 SECTION IV: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES 110 Annual Report Compliance Opinion 111 Review of the Audit Committee on Internal Systems 114 Assessment on Financial Status, Profitability and Solvency 114 Ratings of Kuveyt Türk by International Rating Agencies 115 Information on Risk Management Policies 116 Five-Year Summary Financial Information 117 Independent Auditor’s Report, Unconsolidated Financial Statements and Notes 241 Independent Auditor’s Report, Consolidated Financial Statements and Notes 368 Contact Information and Branch Directory
112. 110 SECTION IV : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES ANNUAL REPORT COMPLIANCE OPINION INDEPENDENT AUDITOR’S REPORT ON THE MANAGEMENT’S ANNUAL REPORT To the General Assembly of Kuveyt Türk Katılım Bankası A.Ş. 1) Opinion We have audited the annual report of Kuveyt Türk Katılım Bankası A.Ş. (“the Bank”) and its consolidated subsidiaries (“the Group”) for the period between 1 January31 December 2017. In our opinion, the consolidated and unconsolidated financial information provided in the Management’s annual report and the Management’s discussions on the Bank’s financial performance based on the information provided in the audited consolidated and unconsolidated financial statements, are fairly presented in all material respects, and are consistent with the full set audited consolidated and unconsolidated financial statements and the information obtained from our audit. 2) Basis for Opinion We conducted our audit in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and the Standards on Independent Auditing (“SIA”) which is a part of Turkish Auditing Standards published by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our responsibility is disclosed under Responsibilities of the Independent Auditor on the Independent Audit of the Annual Report in detail. We declare that we are independent from the Bank in accordance with the Code of Ethics for Independent Auditors (“Code of Ethics”) issued by Public Oversight Accounting and Auditing Standards Authority (“POA”) and ethical provisions stated in the regulation of audit. We have fulfilled other responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 3) Auditor’s Opinion for the Full Set Consolidated and Unconsolidated Financial Statements We have presented unqualified opinion for the Bank’s full set consolidated and unconsolidated financial statements for the period between 1 January- 31 December 2017 in our Auditor’s Reports dated 13 February 2018 and 8 March 2018. 4) Management’s Responsibility for the Annual Report The Bank Management is responsible for the following in accordance with Article 514 and 516 of the Turkish Commercial Code No. 6102 (“TCC”) and the regulation on “Preparing and Publishing the Annual Report by Banks” published in the Official Gazette dated 1 November 2006 and No. 26333 (“the Communiqué”): a) Preparing the annual report within the three months following the reporting date and presenting it to the General Assembly, b) Preparing the annual report with the all respects of the Bank’s flow of operations for that year and the Bank’s financial performance accurately, completely, directly and fairly. In this report, the consolidated financial position is assessed in accordance with the financial statements. The Bank’s development and risks that the Bank may probably face are also pointed out in this report. The Board of Director’s evaluation on those matters are also stated in this report. c) The annual report also includes the matters stated below: - The significant events occurred in the Bank’s activities subsequent to the financial year ends, - The Bank’s research and development activities, - The compensation paid to key management personnel and members of Board of Directors including financial benefits such as salaries, bonuses and premiums, allowances, travelling, accommodation and representation expenses, in cash and kind facilities, insurances and other similar guarantees. The Board of Directors also considers the secondary regulations prepared by the Banking Regulation and Supervision Agency and the Ministry of Customs and Trade and related institutions while preparing the annual report. 5) Responsibilities of the Independent Auditor on the Independent Audit of the Annual Report Our aim is to express an opinion and prepare a report about whether the Board of Directors’ discussions based on the information in the audited consolidated and unconsolidated financial statements and consolidated financial information in the annual report within the scope of the provisions of the TCC and the Communiqué are fairly presented and consistent with the information obtained from our audit. We conducted our audit in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and the SIA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Management’s discussions on the Bank’s financial performance based on the information provided in the audited consolidated and unconsolidated financial statements, are fairly presented in all material respects, and are consistent with the full set audited consolidated and unconsolidated financial statements and the information obtained from our audit The engagement partner on the audit resulting in this independent auditor’s report is Yaman Polat. DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş. Member of DELOITTE TOUCHE TOHMATSU LIMITED Yaman Polat, SMMM Partner İstanbul, 12 March 2018
113. KUVEYT T ÜRK 2017 ANNUAL REPORT 111 REVIEW OF THE AUDIT COMMITTEE ON INTERNAL SYSTEMS KUWAIT TURKISH PARTICIPATION BANK INC. AUDIT COMMITTEE MEETING RESOLUTION Place of Meeting : Headquarters Date of Meeting : 23/01/2018 Meeting Number : 277 Committee Members: Adnan ERTEM Ahmad S. AL KHARJI Mohamad AL MIDANI AGENDA OF MEETING 1. About the evaluation on internal systems. RESOLUTION NR: 1 Due to the requirements on Regulation on the Principles and Procedures Concerning the Preparation of the Annual Report by Banks, Audit Committee’s evaluation about 2017 activities of the units within the scope of Internal Systems is prepared and it has been resolved to be published in the 2017 Annual Report. The contents of this decision has been read and understood by the following Committee members in their own language and agreed on. Adnan ERTEM Audit Committee Chairman Ahmad S. AL-KHARJI Audit Committee Member Mohamad AL MIDANI Audit Committee Member
114. 112 SECTION IV : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES REVIEW OF AUDIT COMMITTEE ON INTERNAL SYSTEMS Internal Audit, Internal Control, Risk Management and Compliance units constitute the internal systems of the Bank. In the Bank’s organizational structure, these units are established to report to the Board. The Board delegated its duties and responsibilities regarding internal systems to the Internal Systems Committee which consists of 4 members of the Board, as responsible for internal systems. The concerned units carry out their activities under the supervision and coordination of the Internal Systems Committee. The Internal Audit Group has carried out its activities in 2017 in line with the requirements of its business plan and expectations of stakeholders. These activities has involved special examinations, legal/administrative investigations and consultancy in the required circ*mstances and fields. In the scope of Management Declaration Audit, a comprehensive assessment of general information system controls and business controls with regard to their efficiency, adequacy and compliance has been conducted. These assessments has provided a sound basis for the Management Declaration, which should be submitted to Independent Supervision Agency by Board of Directors in line with the legal regulations. Actions related to the internal audit reports prepared throughout the year have been followed up in line with the Internal Audit Group’s follow up policies and the results have been presented to the related internal audit customers in required circ*mstances. Moreover, a brief summary of internal audit reports, general evaluations and other information about the activities of Internal Audit Group have been quarterly submitted to the Audit Committee, Internal Systems Committee and Board of Directors. These reports have also been sent to BRSA. The Internal Control Department is in charge of the internal control function within the Bank. Internal Control System has been established adequately and effectively to cover all of the activities and all domestic and foreign branches, headquarters units and subsidiaries compatible within the scope of bank’s activities and organizational structure and according to changing conditions in order to reduce, manage, monitor and provide controlling the risks faced by the bank. Bank’s internal control system and internal control activities are designed and carried out adequately and effectively by the Internal Control Department and the relevant Senior Managers. In line with the Bank’s strategic targets and policies and in accordance with the internal/external regulations and international standards, Internal Control Department organized its activities into three different groups: “Branches and Regions Internal Control Unit”, “Head Office And Subsidiaries Internal Control Service”, “Information Systems and Independent Audit Coordination Service”. Designed to support specialization on the basis of business lines, this realignment increased the efficiency, proficiency and compliance of operations and control systems through continuous controls. Within the scope of 2017 Control Program, the Bank’s various business lines, units, branches, processes, new products, services and analyses documents were continuously analyzed, monitored and the results were reported to the senior management with a proactive and dynamic approach as well as adapting the materiality criteria and risk-focused approach. Besides, the Internal Control Department actively participated to Process Modeling and Analysis Projects. As part of these efforts, the Internal Control Department analyzed processes together with the relevant business units, identified any potential risks to the processes, designed and established controls to counter these risks, contributed to the reducing risks and the creation, development of the internal control environment and systems across the Bank. Risk Management Department effectively undertook the tasks of identifying, measuring, monitoring and managing the risks faced by the Bank in 2017. Credit Risk Management and Modelling Directorate continues its activities in realm of establishing and improving a strong infrastructure for risk management systems in order to execute risk management activities within the context of Credit Policy and Credit Risk Policy effectively. The internal credit risk limits determined with the Board of Directors’ decision are measured, and presented to the Auditing Committee through periodical reports. Endeavour continues to develop internal rating models in order to use our bank’s own estimated risk parameters for the purpose of calculating regulatory capital. PD scores of our internal models will be taken into consideration in risk management, marketing activities, credit allocation decision, credit risk monitoring, credit risk follow-up, capital management and corporate governance. They will play an essential role in all of these activities. IFRS-9 Financial Standards will come into effect as of 1 January 2018. The IFRS–9 oriented works throughout the Bank in order to meet the requirements of the Standard were managed by Credit Risk Management and Modelling Directorate in coordination with the our main shareholder KFH. Bank needs PD, LGD and EaD models to calculate expected loss according to the IFRS-9 and these models have been developed. The BRSA issued several Guidelines. The level of compliance with these guidelines were determined and endeavor continues to increase the level of compliance in coordination with the relevant business units. Market risk is periodically reviewed by the Bank’s Audit Committee and Internal Systems Committee and reported to BRSA monthly. Market risk weighted assets are calculated in accordance with the Basel III standard method. Bank’s Internal Capital Adequacy Assessment Report for 2016 was prepared on consolidated and unconsolidated basis in order to assess the capital adequacy of the Bank in normal and stress periods and was submitted to BRSA. Periodic stress tests and scenario analysis were performed and presented in the Audit Committee and Internal Systems Committee
115. KUVEYT T ÜRK 2017 ANNUAL REPORT 113 meetings. In addition, market risk, counterparty credit risk and liquidity risk stress tests were implemented simultaneously and on monthly basis. Monthly report which includes the Bank’s asset liability management, market and liquidity risks, investments and other topics has been shared with senior management and our main shareholder KFH. Sukuk and other investment portfolio have been monitored regularly, reported to the Audit Committee and our main shareholder KFH. In addition, the works of the risk appetite of the Bank, early warning system consisting of economic indicators related to the fiscal, monetary and financial system in Turkey and the world overall, moreover the economic and financial analysis developed in accordance with Kuwait Central Bank requirements and conducted within the framework of CAMELBCOM approach were reported to our main shareholder KFH on quarterly basis. Within the framework of operational risk activities, the Bank’s operational risk loss data is stored in a systematic way and in accordance with Basel III standards. Operational risk concentrations were monitored actively by adopting a terminology appropriate to Basel III and reported to Audit Committee. In Risk Control Self-Assessment studies, workshops are arranged as a tool to assess risks in the Bank’s activities and processes against potential operational risk vulnerabilities and operational risk team attended these workshops. Additionally, studies were conducted to comply with the operational risk best practice guidelines published by the BRSA and the internal regulations of operational risk were revised and republished accordingly. Moreover, Risk Management Department actively involved in the activities required by the Regulation on Support Services, Risk Management Program for Support Services was revised and submitted to the Board of Directors. In the framework of Basel III regulations, credit risk weighted assets are calculated according to the standard method and reported to the BRSA monthly on unconsolidated and consolidated basis. Capital adequacy ratio is also calculated and reported to the BRSA by the Risk Management Department. The Risk Report Set, which must be reported to BRSA and which contains detailed information on all the transactions subject to Credit Risk Weighted Assets calculation, is prepared quarterly. There is also an ongoing Integrated Risk Management project, at the completion of which the BRSA reports associated with Risk Management are expected to be prepared automatically. Disaster Recovery Center Test was completed successfully in October within the scope of Business Continuity. In order to determine criticality levels of the Bank’s processes, business impact analysis studies have been performed. Internal fraud assessment with respect to the Bank’s activities was completed. As a result of the analysis, the areas that can be controlled, their risks, possible effects, measures taken so far and can be taken against those risks and residual risks have been determined. Compliance Department conducts activities in order to ensure that compliance risk is effectively managed and kept under control, the risks are prevented before realization and Bank’s operations are continuously carried out accordingly and in compliance with the relevant legislation and regulations. Changes in regulations concerning Bank’s activities are continuously analyzed and updating Bank operations in accordance with these changes is monitored and reported. Compliance works of the foreign branches and consolidated subsidiaries are monitored. All activities, products and transactions that are currently provided or in development are monitored for compliance with Banking Law and other relevant regulations, Bank policies, rules and Banking practices. Efforts to ensure compliance of Bank’s activities with the anti-money laundering and combating the finance of terrorism regulations are carried out, Bank policies and procedures are established, risk management, monitoring and control activities are performed with a risk-based approach and identification, follow-up and reporting of suspicious activities to the official authority are performed. Training programs for increasing awareness and knowledge of the employees regarding relevant regulations are organized. Kuveyt Türk Participation Bank has been selected as the number one by Financial Crimes Investigation Board among banks of its scale as well as among all banks in Turkey regarding anti-money laundering and countering terrorism financing activities. Adnan ERTEM Audit Committee Chairman Ahmad S. AL-KHARJI Audit Committee Member Mohamad AL MIDANI Audit Committee Member
116. 114 SECTION IV : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES ASSESSMENT ON FINANCIAL STATUS, PROFITABILITY AND SOLVENCY Kuveyt Türk Participation Bank’s total assets increased 17.8% and reached TL 57 billion and equities rose 17.4% and reached TL 4.6 billion. Concordantly, Bank’s capital adequacy ratio reached above the legal requirement at 17.66%. The Bank continues to increase its profit by using its resources efficiently and productively. Information on financial situation, profitability and solvency can be seen in the financial statements and independent audit report. RATINGS OF KUVEYT TÜRK BY INTERNATIONAL RATING AGENCIES Rating notes and content given by the rating agencies authorized in line with the Regulation on Principles for the Authorization and Transactions of Rating Agencies are given below. Fitch Ratings Foreign Currency Local Long Term BBB- Long Term AAA (tur) Short Term F3 General Outlook Stable General Outlook Stable Individual bb- Support 2 Local Currency Country Risk Long Term BBB- Foreign Currency Long Term BB+ Short Term F3 Local Currency Long Term BBB- General Outlook Stable General Outlook Stable
117. KUVEYT T ÜRK 2017 ANNUAL REPORT 115 INFORMATION ON RISK MANAGEMENT POLICIES Loan Risk Management Policy And Procedures It is essential that Bank’s Senior Management should manage and monitor loan risk policies by considering legal regulations. Within the scope of loan risk policy; • • • • • • • • • Strategy, Loan risk management process, Limit allotment principles, Internal risk limits, Concentration risk management, Country and transfer risk management, Loan risk reports, New products and services and Risk monitoring, control and improvement. transactions are executed. Within this scope, periodic reports are prepared for the research of new techniques and practices for measuring, monitoring and control of undertaken loan risks in loan transactions and risks defined within the legal and Bank’s internal risk limits, tracking non-performing receivables, analyzing the reasons for delay and taking necessary measures. Board of Directors determined the risk appetite of the Bank via risk type based internal risk limits based on the Bank’s risk taking capacity. Various analysis and reports are generated for the Bank’s portfolio within internal risk limits. Risk management transactions regarding the monitoring and management of loan risk based on country, concentration, maturity, industry, default rate, legal status, assurances, geography, currency type are performed and Audit Committee is informed with the regular reports prepared for the Bank portfolio within the internal risk limits. Market Risk Management Policies and Procedures Kuveyt Türk executes its risk management transactions under the responsibility of the Board of Directors in compliance with the legal regulations. For this reason, market risk management transactions are regulated within legal regulations. Implementing the Risk Management Strategy, Policy and Practice Methods approved by the Board of Directors, providing timely and safe reporting on important risks faced by the Bank and evaluating the risk reports, taking predicted and necessary measures and participating the process of defining risk limits are the responsibilities of the Senior Management. Risk policies and implementation methods defined for the market risk that the Bank is exposed to be approved by the Board of Directors and reviewed regularly. Market risk is managed by defining, measuring, limiting, reporting of possible risks to be faced by the Bank due to existing market conditions in line with international standards and reserving capital accordingly as well as decreasing risks with protective processes. In line with the Risk Strategy document it is made sure the Bank has sufficient capital and liquidity to continue its operations under all circ*mstances and that these are maintained at a reasonable level. Defining written limits for the digitized risks resulting from the Bank’s transactions that are subject to market risk, monitoring risks undertaken by the Bank and risk limits, tracking limit excesses are performed with Treasury Liquidity and Market Risk Policy and Liquidity Risk Policy. It is substantial that the processes are executed within defined limits and Bank’s risk tolerance is considered while defining the limits. Acceptable risk level of treasury transactions is defined as the customer limits, dealing limits, allowed transactions, counter party limits and country risk limits. Establishment of necessary tracking and control procedures in order to ensure regulatory compliance and prevent unacceptable situations are determined with the principles of this policy. It is essential that the limits are defined as risk based. Besides nominal amounts based on monetary magnitude, these limits can be also the proportional limits based risk measurement results such as the percentage of the amount subject to average risk, percentage of risk weighted assets or concentration based limits including sectoral or debtor based limitations.
118. 116 SECTION IV : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES INFORMATION ON RISK MANAGEMENT POLICIES Risk limits are established within the limits put on related matters approved by the Bank in all risk categories within the regulations and principle of significance. Also, implementation principles on actions to be taken if early warning limits are defined and these limits are exceeded are defined by the Board of Directors. Kuveyt Türk’s market risk management and guiding limits and informative reports system used for this purpose are based on the principles below; • Ensuring that risk management transactions work efficiently and securely, • Ensuring that the Bank undertakes risks in line with its risk taking capability and capacity and • Risk taking limits are managed in line with the risky markets and risk taking capacities of the Bank’s related departments. Operational Risk Management Policy And Procedures Processes of defining, evaluating, monitoring, controlling and decreasing the operational risks faced by the Bank are executed under the supervision of the Board of Directors and Internal Systems Committee. Policies and implementation methods defined within operational risk management, is provided for employees on the job training and effective internal control mechanisms ensure that business units have the risk management point of view and the integration of the operational risk management culture in all units and transactions. Within this scope, each unit and employee should understand their transactions and position within the operational risk management and be aware of their authorities and responsibilities. Risk, Control Self-Evaluation Policy was established in order to make I) self-assessment of the of the bank regarding operational risks II) evaluation of the potential threats arising from operational processes and activities, and assessment of the weaknesses of the Bank against these threats III) analysis of the potential negative impacts of such threats and weaknesses on the Bank. Works are performed on all kinds of operational risk types that the Bank is subject to and quality of corrective actions for such risks and risk decreasing transactions are evaluated in order to allow the determination of problems before the occurrence of substantial losses for the Bank. In this regard, operational risk events above the defined threshold value and detailed information of such events are recorded; at the same time Risk Control Matrix works are performed to define the potential operational risks. FIVE-YEAR SUMMARY FINANCIAL INFORMATION (TL Thousand) 2013 2014 2015 2016 1,439,926 2,018,781 2,564,838 3,110,435 3,850,986 609,655 877,547 1,096,026 1,440,566 1,716,773 114,931 133,895 133,942 152,970 241,002 Other Revenues 310,001 294,571 368,203 469,153 477,101 Other Expenses 885,993 1,106,961 1,417,481 1,628,780 2,003,383 Tax Charge -68,867 -92,289 -108,795 -121,246 -174,942 Net Profit for the Period 300,343 370,450 444,681 541,966 673,991 25,893,542 34,008,175 42,052,507 48,476,955 57,123,095 2,302,049 3,022,870 3,402,490 3,912,064 4,591,151 14.24% 15.09% 14.23% 18.16% 17.66% Profit Sharing Income Profit Sharing Expenses Net Fee and Commission Expenses Total Assets Total Equities Capital Adequacy Ratio (%)
119. KUVEYT T ÜRK 2017 ANNUAL REPORT KUVEYT TÜRK KATILIM BANKASI A.Ş. INDEPENDENT AUDITOR’S REPORT, UNCONSOLIDATED FINANCIAL STATEMENTS AND NOTES FOR THE YEAR ENDED 31 DECEMBER 2017 Translated into English from the Original Turkish Report 117
120. 118 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES (CONVENIENCE TRANSLATION OF INDEPENDENT AUDITOR’S REPORT ORIGINALLY ISSUED IN TURKISH) INDEPENDENT AUDITOR’S REPORT To the Board of Directors of Kuveyt Türk Katılım Bankası A.Ş. A) Report on the Audit of the Financial Statements 1) Opinion We have audited the financial statements of Kuveyt Türk Katılım Bankası A.Ş. (“the Bank”), which comprise the balance sheet as at 31 December 2017, and the statement of income, statement of income and expense items accounted under shareholders’ equity, statement of changes in shareholders’ equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2017, and its financial performance and its cash flows for the year then ended in accordance with “the Banking Regulation and Supervision Agency (“BRSA”) Accounting and Reporting Regulations” including the regulation on “The Procedures and Principles Regarding Banks’ Accounting Practices and Maintaining Documents” published in the Official Gazette dated 1 November 2006 with No. 26333, and other regulations on accounting records of banks published by the Banking Regulation and Supervision Board and circulars and pronouncements published by the BRSA and Turkish Accounting Standards for the matters not legislated by the aforementioned regulations. 2) Basis for Opinion We conducted our audit in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and Standards on Independent Auditing (“SIA”) which is a part of Turkish Auditing Standards published by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the Code of Ethics for Independent Auditors (“Code of Ethics”) published by the POA, together with the ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 3) Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
121. KUVEYT T ÜRK 2017 ANNUAL REPORT 119 Key Audit Matter Providing Sufficient Provision for Loans and Receivables and Possible Impairment from Financial Leasing Receivables How the matter was addressed in the audit The procedures applied to control the Bank’s classification of loans and receivables and the adequacy of provisions in accordance with BRSA legislation are presented below: As explained in Note 1. of Section Five, the Bank’s receivables from loans and receivables and lease receivables (net) (loans) as of 31 December 2017 amounted to TL 37,970,541 Thousand. The Bank has TL 714,130 Thousand of the loans followed in the follow-up accounts and related provision amounting to TL 666,947 Thousand. We tested and assessed the design and implementation and operational effectiveness of the controls we consider important for the processes related to the determination of impairment on loans and receivables. However, in order to determine whether the loans and receivables were impaired, we evaluated the policies of the Bank and conducted a loan file review on the samples we selected for the purpose of determining the impairment, and reviewed the repayment ability of the loan customers. The Bank, accounts for the classification and measurement of its loans based on the “Regulation on Procedures and Principles for the Determination of Loans We have tested the classification of loans and receivables and Reserves for Banks”. by conducting tests on a set of samples based on professional experience and audit methodology. The overdue status of the Bank’s loans and receivables is evaluated in accordance with the evaluation of the Bank’s We tested the regulatory compliance of the recalculation of specific provisions for loans and receivables on a management and regulatory rules. There is a potential risk of the management evaluation can not be carried out sample basis. We also checked that the guarantees used correctly or that there is a mistake in classification due to in the calculation were included in the calculation with their fair values and multiplied by the correct guarantee misapplication of the regulatory rules. coefficients determined in the legislation. There is a potential risk of impairment losses/ provisions We have tested the regulatory copmliance of items provided may be miscalculated due to mistake in classification or misapplication of the regulatory rules. subject to general loan loss provisioning and the provision Accordingly, the loans are considered as the key audit ratios applied to them. matter. We have checked the compliance with the audited financial statements of the notes and disclosures related to loans and receivables. 4) Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the BRSA Accounting and Reporting Regulations, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Bank’s financial reporting process.
122. 120 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES 5) Auditor’s Responsibilities for the Audit of the Financial Statements Responsibilities of independent auditors in an independent audit are as follows: Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and SIA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and SIA, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. (The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.) • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circ*mstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
123. KUVEYT T ÜRK 2017 ANNUAL REPORT 121 B) Report on Other Legal and Regulatory Requirements In accordance with paragraph four of the Article 402 of the Turkish Commercial Code No. 6102 (“TCC”), nothing has come to our attention that may cause us to believe that the Bank’s set of accounts for the period 1 January-31 December 2017 does not comply with TCC and the provisions of the Bank’s articles of association in relation to financial reporting. In accordance with paragraph four of the Article 402 of TCC, the Board of Directors provided us all the required information and documentation with respect to our audit. The engagement partner on the audit resulting in this independent auditor’s report is Yaman Polat. Additional Paragraph for English Translation The effect of the differences between the accounting principles summarized in Section 3 and the accounting principles generally accepted in countries in which the accompanying financial statements are to be distributed and International Financial Reporting Standards (“IFRS”) have not been quantified and reflected in the accompanying financial statements. The accounting principles used in the preparation of the accompanying financial statements differ materially from IFRS. Accordingly, the accompanying financial statements are not intended to present the Bank’s financial position and results of its operations in accordance with accounting principles generally accepted in such countries of users of the financial statements and IFRS. DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş. Member of DELOITTE TOUCHE TOHMATSU LIMITED Yaman Polat Partner İstanbul, 13 February 2018
124. 122 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES THE UNCONSOLIDATED FINANCIAL REPORT OF KUVEYT TÜRK KATILIM BANKASI A.Ş. AS OF 31 DECEMBER 2017 Address of the head office : Büyükdere Cad. No: 129/1 34394 Esentepe / İSTANBUL Phone number and Facsimile number : 0212 354 11 11 - 0212 354 12 12 Web page : www.kuveytturk.com.tr E-mail address : kuveytturk@kuveytturk.com.tr The unconsolidated financial report designed in line with the Banking Regulation and Supervision Agency’s official communication on “Financial Statements to be Publicly Announced and the Related Policies and Disclosures” consists of the sections listed below: • • • • • • • • General information about the participation bank Unconsolidated financial statements of the participation bank Explanations on accounting policies Information on financial structure of the bank Footnotes and explanations on unconsolidated financial statements Other explanations Independent auditors’ report Annual report The accompanying unconsolidated financial statements and notes have been prepared based on the accounting books of the Bank in accordance with the Regulation on Accounting Applications for Banks and the Safeguarding of Documents, Turkish Accounting Standards, Turkish Financial Reporting Standards and, unless otherwise indicated, have been prepared in thousands of Turkish Lira. Related appendices and interpretations on these are independently audited and presented hereby. Hamad Abdulmohsen AL-MARZOUQ Chairman of the Board of Directors Mohamad AL-MIDANI Member of the Audit Committee Adnan ERTEM Vice Chairman of BOD And Head of the Audit Committee Uf*ck UYAN General Manager Ahmet KARACA Chief Financial Officer Ahmad S A A AL KHARJI Member of the Audit Committee İsmail Hakkı YEŞİLYURT External Reporting Manager Contact information of the personnel in charge of the addressing of questions about this financial report: Name-Surname Position Telephone Facsimile : İsmail Hakkı YEŞİLYURT : External Reporting Manager : 0212 354 12 84 : 0212 354 11 03
125. KUVEYT T ÜRK 2017 ANNUAL REPORT I. II. III. IV. V. VI. 123 Section One General information History of the Bank including its incorporation date, initial legal status and amendments to legal status Shareholding structure, shareholders jointly or individually having direct or indirect, control over the management and supervisions of the bank and the disclosures on any related changes in the current year, if any and information about the Group that the Bank belongs to Explanations on the Titles of Chairman and Members of the Board of Directors, Members of the Audit Committee, General Managers and Assistant General Managers and Their Shareholdings in the Bank Information on qualified shareholders Explanations of the Bank’s services and field of operations Current or likely actual legal barriers to immediate transfer of equity or repayment of debts between Parent Bank and its subsidiaries 124 124 124 125 125 125 Section Two The unconsolidated financial statements I. II. III. IV. V. VI. VII. Balance sheet (Statement of financial position) Statement of off-balance sheet contingencies and commitments Statement of income statement (Statement of Income/ Loss) Statement of profit and loss accounted for under equity (statement of other comprehensive income and loss) Statement of changes in shareholders’ equity Statement of cash flows Statement of profit distribution Section Three Accounting principles I. Explanations on basis of presentation II. Explanations on strategy of using financial instruments and foreign currency transactions III. Investments in associates and subsidiaries IV. Explanations on forward transactions and option contracts and derivative instruments V. Explanations on profit share income and expense VI. Explanations on fees and commission income and expenses VII. Explanations on financial assets VIII. Explanations on impairment of financial assets IX. Explanations on offsetting of financial assets and liabilities X. Explanations on sale and repurchase agreements and lending of securities XI. Explanations on assets held for sale and discontinued operations and related liabilities XII. Explanations on goodwill and other intangible assets XIII. Explanations on tangible assets XIV. Explanations on leasing transactions XV. Explanations on provisions and contingent liabilities XVI. Explanations on liabilities relating to employee benefits XVII. Explanations on taxation XVIII.Explanations on additional disclosures on borrowings XIX. Explanations on share certificates issued XX. Explanations on acceptances and availed drafts XXI. Explanations on government grants XXII. Explanations on segment reporting XXIII.Explanations on other matters 128 130 131 132 133 135 136 137 139 139 139 140 140 140 142 142 143 143 143 144 144 145 145 145 147 147 147 147 147 147 Section Four Information on financial structure I. II. III. IV. V. VI. VII. VIII. IX. X. Explanations on shareholders’ equity Explanations on credit risk Explanations on currency risk Explanations on position risk of equity securities in banking book Explanations on liquidity risk Explanations on leverage ratio Explanations on fair values of financial assets and liabilities Explanations on the activities carried out on behalf and account of other persons Explanations on risk management Explanations on business segments Section Five Explanations and notes on the unconsolidated financial statements I. Explanations and notes related to assets II. Explanations and notes related to liabilities III. Explanations and notes related to off-balance sheet contingencies and commitments IV. Explanations and notes related to the statement of income V. Statement of changes in shareholders’ equity VI. Explanations and notes related to cash flow statement VII. Explanations and notes related to the risk group of the Bank VIII. Domestic, foreign and off-shore branches or equity investments, and foreign representative offices IX. Significant Events and Matters Arising Subsequent to Balance Sheet Date I. Section Six Other Explanations and Disclosures Other matters which must be explained in terms of explicitly, interpretability and understandability of the balance sheet 148 155 168 171 172 179 180 180 180 195 197 215 225 228 234 234 235 237 237 238 Section Seven Independent Auditor’s Report I. II. Explanations on the auditors’ report Notes and disclosures prepared by independent auditors 238 238 Section Eight Annual Report I. Explanations on annual report 238
126. 124 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) SECTION ONE GENERAL INFORMATION I. History of the Bank including its incorporation date, initial legal status and amendments to legal status Kuveyt Türk Katılım Bankası A.Ş. (“The Bank”) was incorporated with the approval of the Central Bank of the Republic of Turkey (CBRT) on 28 February 1989 and commenced its operations on 31 March 1989, with the name of Kuveyt Türk Evkaf Finans Kurumu A.Ş. To comply with the Banking Act 5411, the title of the Bank has been changed to Kuveyt Türk Katılım Bankası A.Ş. with a change in the Articles of Association which was approved in the annual general meeting dated 26 April 2006. Main field of operation is, in addition to the Bank’s equity, to collect funds from domestic and foreign customers through “Current Accounts” and “Profit/ Loss Sharing Accounts” and allocate such funds to the economy, to perform all kinds of financing activities in accordance with the regulations, to encourage the investments of all individuals and legal entities operating in agricultural, industrial, trading and service industries, participating into the operations of these entities or individuals and to form joint business partnerships and to perform all these activities in a non-interest environment. II. Shareholding structure, shareholders jointly or individually having direct or indirect, control over the management and supervision of the Bank and the disclosures on any related changes in the current period, if any and information about the Group that the Bank belongs to As of 31 December 2017, 62.24% of the Bank’s shares are owned by Kuwait Finance House located in Kuwait, 18.72% by Vakıflar Genel Müdürlüğü Mazbut Vakıfları, 9.00% by The Public Institution For Social Security in Kuwait and 9.00% by Islamic Development Bank whereas the remaining 1.04% of the shares are owned by other real persons and legal entities. III. Explanations on the Titles of Chairman and Members of the Board of Directors, Members of the Audit Committee, General Managers and Assistant General Managers and Their Shareholdings in the Bank Name Hamad Abdulmohsen AL MARZOUQ Title Date of the assignment Date of Audit Committee assignment Educational degree Ownership Percentage Master - Head of the BOD 25/06/2014 Vice Chairman of the BOD and Head of the Audit Committee 10/10/2002 Doctorate - Nadir ALPASLAN Member of BOD 15/04/2011 Bachelor - Khaled Nasser Abdulaziz AL FOUZAN Member of BOD 02/08/2006 Bachelor - Fawaz KH E AL SALEH Member of BOD 20/10/2006 Bachelor 0.0105% Dr. Adnan ERTEM Mazin S.A.S AL NAHEDH 19/10/2010 Member of BOD 29/09/2015 Bachelor - Mohamad Al-MIDANI Member of BOD and Audit Committee 05/05/2015 15/05/2015 Master - Ahmed S. AL KHARJI Member of BOD and Audit Committee 26/03/2014 24/09/2014 Master - Uf*ck UYAN Member of BOD and General Manager 10/05/1999 Master 0.0556% Assistant General Manager and Chief Financial Officer 0.0002% Ahmet KARACA 12/07/2006 Master Assistant General Manager, Corporate and Commercial Banking 14/01/2003 Bachelor - Bilal SAYIN Assistant General Manager, Lending 20/08/2003 Bachelor 0.0035% İrfan YILMAZ Assistant General Manager, Banking Services 27/10/2005 Bachelor 0.0156% Assistant General Manager, Treasury and International Banking 05/05/2005 Doctorate 0.0091% Assistant General Manager, Legal and Risk Follow Up 20/04/2010 Bachelor 0.0007% Assistant General Manager, Strategy 08/10/2012 Bachelor 0.0047% Assistant General Manager, Retail Banking 01/10/2012 Bachelor 0.0029% Assistant General Manager, SME Banking 09/01/2015 Bachelor 0.0028% Ahmet Süleyman KARAKAYA Dr. Ruşen Ahmet ALBAYRAK Nurettin KOLAÇ Aslan DEMIR Mehmet ORAL Abdurrahman DELIPOYRAZ Chairman and members of the Board of Directors, members of auditing committee, general manager and assistant general managers own 0.11% of the Bank’s share capital (31 December 2016 – 0.11%).
127. KUVEYT T ÜRK 2017 ANNUAL REPORT 125 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) IV. Information on qualified shareholders Name / Commercial Name Kuwait Finance House Vakıflar Genel Müdürlüğü Mazbut Vakıfları Total Share amount (Nominal) 1,929,479 580,297 Shareholding percentage %62.24 %18.72 Paid shares (Nominal) 1,929,479 580,297 Unpaid shares - 2,509,776 %80.96 2,509,776 - As of 31 December 2017, the shares of parent shareholder of Bank, Kuwait Finance House (“KFH”) are 51.95% publicly traded; 24.08% of KFH belongs to Kuwait Investment Authority and 10.48% belongs to Public Authority for Minors Affairs. V. Explanations of the Bank’s services and field of operations The Bank’s field of operations includes corporate banking, international banking services, and retail banking and credit card services. The Bank’s core business is operating in accordance with the principles of interest-free banking as a participation bank by collecting funds through current and profit/loss sharing accounts, and lending such funds to its customers. As of 31 December 2017, the Bank is operating through 399 branches (31 December 2016 – 386) with 5,749 employees (31 December 2016 – 5,588). Summary of some of the Bank’s operations described in the Articles of Association are as follows: • • • • • • • • To collect funds through Current Accounts and Profit/Loss Sharing Accounts and special fund pools in line with the regulations, To allocate funds to the economy and provide all kinds of cash, non-cash loans within the principles of noninterest banking, To offer financial and operational leasing, To handle all kinds of deposits and payments, including travelers’ checks, credit cards and other payment instruments, provide member business services (POS), consulting, advisory, and safe deposit box services, To purchase financial instruments on money and capital markets in cash or installments, sell and mediate the sale and trade on the stock exchange in accordance with legislation and principles of non-interest banking, To purchase, acquire and construct any kind of real estate and if necessary lease or transfer ownership to other persons, To act as a representative, deputy or agent for corporations and enterprises (including insurance companies), To provide socially responsible aid for the benefit of the Bank in line with the legislations. The Bank’s activities are not limited to the list above. If another transaction is decided to be beneficial to the Bank, the transaction must be recommended by the Board of Directors, approved by the General Assembly and authorized by relevant legal authorities after whom it also needs to be approved by the Ministry of Customs and Trade since it constitutes an amendment of the Article of Association. Decisions that have been approved through all these channels will be included to the Article of Association. VI. Current or likely actual legal barriers to immediate transfer of equity or repayment of debts between Parent Bank and its subsidiaries None.
128. 126 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.)
129. KUVEYT T ÜRK 2017 ANNUAL REPORT 127 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) SECTION TWO THE UNCONSOLIDATED FINANCIAL STATEMENTS I. Balance Sheet (Statement of Financial Position) II. Statement of Off-Balance Sheet Commitments III. Income Statement (Statement of Income / Loss) IV. Statement of Profit and Loss Accounted for Under Equity (Statement of Other Comprehensive Income and Loss) V. Statement of Changes in Shareholders’ Equity VI. Cash Flows Statement VII. Statement of Profit Distribution
130. 128 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ UNCONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) I. BALANCE SHEET – ASSETS (STATEMENT OF FINANCIAL POSITION) I. II. 2.1 2.1.1 2.1.2 2.1.3 2.1.4 2.2 2.2.1 2.2.2 2.2.3 2.2.4 III. IV. V. 5.1 5.2 5.3 VI. 6.1 6.1.1 6.1.2 6.1.3 6.2 6.3 VII. VIII. 8.1 8.2 8.2.1 8.2.2 IX. 9.1 9.2 X. 10.1 10.2 10.2.1 10.2.2 XI. 11.1 11.2 11.3 11.4 XII. 12.1 12.2 12.3 XIII. XIV. 14.1 14.2 XV. XVI. 16.1 16.2 XVII. 17.1 17.2 XVIII CASH AND BALANCES WITH THE CENTRAL BANK FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS (Net) Held for trading financial assets Public sector debt securities Equity securities Derivative financial assets held for trading Other marketable securities Financial assets at fair value through profit and loss Public sector debt securities Equity securities Loans Other marketable securities BANKS MONEY MARKET PLACEMENTS FINANCIAL ASSETS AVAILABLE FOR SALE (Net) Equity securities Public sector debt securities Other marketable securities LOANS AND RECEIVABLES Loans and receivables Loans to risk group of the Bank Public sector debt securities Other Non-performing loans Specific provisions (-) HELD TO MATURITY INVESTMENTS (Net) INVESTMENTS IN ASSOCIATES (Net) Accounted for under equity method Unconsolidated associates Financial associates Non-financial associates INVESTMENTS IN SUBSIDIARIES (Net) Unconsolidated financial subsidiaries Unconsolidated non-financial subsidiaries ENTITIES UNDER COMMON CONTROL (JOINT VENT.) (Net) Accounted for under equity method Unconsolidated Financial subsidiaries Non-financial subsidiaries FINANCE LEASE RECEIVABLES Finance lease receivables Operating lease receivables Other Unearned income (-) DERIVATIVE FINANCIAL ASSETS FOR HEDGING PURPOSES Fair value hedge Cash flow hedge Hedge of net investment risks in foreign operations TANGIBLE ASSETS (Net) INTANGIBLE ASSETS (Net) Goodwill Other INVESTMENT PROPERTIES (Net) TAX ASSET Current tax asset Deferred tax asset ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) Held for sale Discontinued operations OTHER ASSETS TOTAL ASSETS Note (I-1) (I-2) (I-3) (I-4) (I-5) (I-6) (I-7) (I-8) (I-9) (I-10) (I-11) (I-12) (I-13) (I-15) (I-17) Audited Current period (31.12.2017) TL FC Total 625,022 8,307,834 8,932,856 176,941 176,941 7,600 14,168 155,173 7,404 2,088,123 10,325 2,048,171 29,627 29,860,983 29,813,800 84,022 29,729,778 714,130 666,947 377,647 353,967 23,680 20,000 20,000 1,285,866 1,473,207 187,341 409,559 118,959 118,959 25,419 138,710 138,710 117,006 117,006 183,231 Audited Prior period (31.12.2016) TL FC Total 695,627 7,607,425 8,303,052 66,466 243,407 40,311 66,466 243,407 40,311 28,719 36,319 10,760 12,531 26,699 22,217 25,216 180,389 7,334 3,568,616 3,576,020 14,384 2,339,942 4,428,065 1,832,753 38,172 48,497 10,325 2,055,277 4,103,448 1,821,991 246,493 276,120 437 6,180,316 36,041,299 23,266,913 6,180,316 35,994,116 23,104,574 67,951 151,973 73,485 6,112,365 35,842,143 23,031,089 714,130 748,062 666,947 585,723 377,647 349,513 353,967 325,833 23,680 23,680 20,000 20,000 20,000 20,000 643,376 1,929,242 1,104,588 771,045 2,244,252 1,241,824 127,669 315,010 137,236 184 409,743 439,544 53 119,012 95,108 53 119,012 95,108 25,419 138,710 118,112 138,710 118,112 581,438 117,006 117,006 764,669 47,975 47,975 254,825 125,663 165,974 125,663 165,974 36,148 46,908 87,833 110,050 1,682 9,016 4,683,697 4,698,081 1,760,173 3,592,926 43,160 53,485 1,500,041 3,322,032 216,972 217,409 5,145,528 28,412,441 5,145,528 28,250,102 62,891 136,376 5,082,637 28,113,726 748,062 585,723 349,513 325,833 23,680 20,000 20,000 439,955 1,544,543 503,366 1,745,190 63,411 200,647 89 439,633 95,108 95,108 118,112 118,112 434,772 47,975 47,975 689,597 35,434,870 21,688,225 57,123,095 28,279,653 20,197,302 48,476,955 The accompanying notes are an integral part of these financial statements.
131. KUVEYT T ÜRK 2017 ANNUAL REPORT 129 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ UNCONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) I. BALANCE SHEET – LIABILITIES AND EQUITY (STATEMENT OF FINANCIAL POSITION) I. 1.1 1.2 II. III. IV. V. VI. VII. VIII. 8.1 8.2 8.3 8.4 IX. 9.1 9.2 9.3 X. 10.1 10.2 10.3 10.4 10.5 XI. 11.1 11.2 XII. 12.1 12.2 XIII. XIV. 14.1 14.2 14.2.1 14.2.2 14.2.3 14.2.4 14.2.5 14.2.6 14.2.7 14.2.8 14.2.9 14.2.10 14.3 14.3.1 14.3.2 14.3.3 14.3.4 14.4 14.4.1 14.4.2 14.5 FUND COLLECTED Funds from risk group of the Bank Other DERIVATIVE FINANCIAL LIABILITIES HELD FOR TRADING FUNDS BORROWED MONEY MARKET BALANCES MARKETABLE SECURITIES ISSUED (Net) SUNDRY CREDITORS OTHER LIABILITIES FINANCE LEASE PAYABLES Finance lease payables Operating lease payables Other Deferred finance lease expenses (-) DERIVATIVE FINANCIAL LIABILITIES FOR HEDGING PURPOSES Fair value hedge Cash flow hedge Hedge of net investment in foreign operations PROVISIONS General loan loss provisions Restructuring provisions Reserve for employee benefits Insurance technical reserves (net) Other provisions TAX LIABILITY Current tax liability Deferred tax liability PAYABLES RELATED TO ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) Held for sale Discontinued operations SUBORDINATED LOANS SHAREHOLDERS' EQUITY Paid-in capital Capital reserves Share premium Share cancellation profits Marketable securities revaluation reserve Tangible assets revaluation reserve Intangible assets revaluation reserve Investment property revaluation reserve Bonus shares obtained from associates, subsidiaries and jointly controlled entities Hedging funds (effective portion) Value increase on assets held for resale Other capital reserves Profit reserves Legal reserves Status reserves Extraordinary reserves Other profit reserves Profit or loss Prior period income/(losses) Current period income/(losses) Minority shares TOTAL LIABILITIES AND EQUITY Note (2-1) (2-2) (2-3) (2-4) (II-4) (2-5) (2-6) (2-7) (2-8) (2-9) (2-10) (2-11) (2-12) Audited Current period (31.12.2017) TL FC Total 19,955,412 19,901,988 39,857,400 393,595 118,292 511,887 19,561,817 19,783,696 39,345,513 Audited Prior period (31.12.2016) TL FC Total 17,943,622 13,958,141 31,901,763 97,013 188,483 285,496 17,846,609 13,769,658 31,616,267 21,446 1,258,301 750,524 171,509 318,674 - 59,251 7,773,208 26,610 16,177 - 80,697 9,031,509 750,524 198,119 334,851 - 40,580 647,994 1,219,873 133,001 375,840 - 79,147 7,388,827 24,963 23,611 226 265 39 119,727 8,036,821 1,219,873 157,964 399,451 226 265 39 642,554 312,384 184,864 145,306 56,271 56,271 - 70,795 70,795 148,886 93,084 185 55,617 - 70,795 70,795 791,440 405,468 185,049 200,923 56,271 56,271 - 455,533 238,276 129,064 88,193 27,851 27,851 - 137,829 137,829 126,207 80,549 45,658 - 137,829 137,829 581,740 318,825 129,064 133,851 27,851 27,851 - 4,578,542 3,097,322 (31,788) 22,933 (23,192) - 1,360,338 12,609 12,609 12,609 - 1,360,338 4,591,151 3,097,322 (19,179) 22,933 (10,583) - 3,942,411 2,787,322 1,781 22,933 (182) - 1,981,646 (30,347) (30,347) (30,347) - 1,981,646 3,912,064 2,787,322 (28,566) 22,933 (30,529) - (4,582) (26,947) 839,017 150,389 688,628 673,991 673,991 - - (4,582) (26,947) 839,017 150,389 688,628 673,991 673,991 - (7,217) (13,753) 611,342 122,861 351,949 136,532 541,966 541,966 - - (7,217) (13,753) 611,342 122,861 351,949 136,532 541,966 541,966 - 27,753,233 29,369,862 57,123,095 24,786,705 23,690,250 48,476,955 The accompanying notes are an integral part of these financial statements.
132. 130 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ STATEMENT OF UNCONSOLIDATED OFF-BALANCE SHEET COMMITMENTS AND CONTINGENCIES AS OF 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) II. STATEMENT OF OFF-BALANCE SHEET COMMITMENTS AND CONTINGENCIES Note A. OFF BALANCE SHEET CONTINGENCIES AND COMMITMENTS (I+II+III) I. GUARANTEES 1.1 Letters of guarantees 1.1.1 Guarantees subject to state tender law 1.1.2 Guarantees given for foreign trade operations 1.1.3 Other letters of guarantee 1.2 Bank loans 1.2.1 Import letter of acceptances 1.2.2 Other bank acceptances 1.3 Letter of credits 1.3.1 Documentary letter of credits 1.3.2 Other letter of credits 1.4 Pre-financing given as guarantee 1.5 Endorsem*nts 1.5.1 Endorsem*nts to the Central Bank of Republic of Turkey 1.5.2 Other endorsem*nts 1.6 Other guarantees 1.7 Other collaterals II. COMMITMENTS 2.1 Irrevocable commitments 2.1.1 Forward asset purchase commitments 2.1.2 Share capital commitment to associates and subsidiaries 2.1.3 Loan granting commitments 2.1.4 Securities underwriting commitments 2.1.5 Commitments for reserve deposit requirements 2.1.6 Payment commitment for checks 2.1.7 Tax and fund liabilities from export commitments 2.1.8 Commitments for credit card expenditure limits 2.1.9 Commitments for promotions related with credit cards and banking activities 2.1.10 Receivables from short sale commitments 2.1.11 Payables for short sale commitments 2.1.12 Other irrevocable commitments 2.2 Revocable commitments 2.2.1 Revocable loan granting commitments 2.2.2 Other revocable commitments III. DERIVATIVE FINANCIAL INSTRUMENTS 3.1 Derivative financial instruments for hedging purposes 3.1.1 Fair value hedge 3.1.2 Cash flow hedge 3.1.3 Hedge of net investment in foreign operations 3.2 Held for trading transactions 3.2.1 Forward foreign currency buy/sell transactions 3.2.1.1 Forward foreign currency transactions-buy 3.2.1.2 Forward foreign currency transactions-sell 3.2.2 Other forward buy/sell transactions 3.3 Other B. CUSTODY AND PLEDGED ITEMS (IV+V+VI) IV. ITEMS HELD IN CUSTODY 4.1 Assets under management 4.2 Investment securities held in custody 4.3 Checks received for collection 4.4 Commercial notes received for collection 4.5 Other assets received for collection 4.6 Assets received for public offering 4.7 Other items under custody 4.8 Custodians V. PLEDGED ITEMS 5.1 Marketable securities 5.2 Guarantee notes 5.3 Commodity 5.4 Warranty 5.5 Properties 5.6 Other pledged items 5.7 Pledged items-depository VI. ACCEPTED INDEPENDET GUARANTEES AND WARRANTIES TOTAL OFF BALANCE SHEET ACCOUNTS (A+B) (3-1) (3-1) (3-2) Audited Current period (31.12.2017) TL FC Total Audited Prior period (31.12.2016) TL FC Total 54,025,598 6,501,080 6,342,565 214,018 424,035 5,704,512 2,549 2,549 1,143 78 1,065 154,823 45,832,293 3,306,919 217,951 368,519 1,345,239 99 1,357,354 19,041,939 4,567,075 3,223,573 186,480 3,037,093 53,409 53,409 930,957 358,591 572,366 27,919 331,217 948,078 948,078 948,078 - 73,067,537 11,068,155 9,566,138 214,018 610,515 8,741,605 55,958 55,958 932,100 358,669 573,431 27,919 486,040 46,780,371 4,254,997 1,166,029 368,519 1,345,239 99 1,357,354 45,504,238 5,177,182 5,026,495 163,646 451,059 4,411,790 2,071 2,071 188 78 110 148,428 34,594,651 2,569,656 316,785 151,838 1,178,750 99 904,427 19,739,186 4,711,605 3,088,349 220,807 2,867,542 49,973 49,973 1,019,598 302,149 717,449 25,642 528,043 711,955 711,955 710,168 - 65,243,424 9,888,787 8,114,844 163,646 671,866 7,279,332 52,044 52,044 1,019,786 302,227 717,559 25,642 676,471 35,306,606 3,281,611 1,026,953 151,838 1,178,750 99 904,427 17,757 42,525,374 42,525,374 1,692,225 1,692,225 737,140 388,590 348,550 955,085 264,937,891 9,232,412 965,091 6,397,936 1,869,385 255,693,840 195,245 101,701 5,045,489 101,298,823 149,052,582 11,639 13,526,786 1,565,503 1,565,503 11,961,283 1,699,381 831,098 868,283 10,261,902 106,948,648 3,224,354 73,865 624,523 190,069 2,335,897 103,679,813 73,046 1,527,824 470,272 1,970,258 99,638,413 44,481 17,757 42,525,374 42,525,374 15,219,011 1,565,503 1,565,503 13,653,508 2,436,521 1,219,688 1,216,833 11,216,987 371,886,539 12,456,766 1,038,956 7,022,459 2,059,454 2,335,897 359,373,653 268,291 1,629,525 5,515,761 103,269,081 248,690,995 56,120 17,757 32,024,995 32,024,995 5,732,405 5,732,405 1,499,492 712,215 787,277 4,232,913 205,775,245 7,081,056 20,794 738,025 5,292,095 1,030,142 198,682,550 222,995 101,921 3,962,735 84,503,198 109,891,701 11,639 1,787 14,315,626 1,391,124 1,391,124 12,924,502 1,909,112 995,591 913,521 11,015,390 106,164,950 2,528,760 58,268 539,190 144,880 1,786,422 103,595,106 63,991 1,421,085 640,558 1,815,288 99,654,184 41,084 19,544 32,024,995 32,024,995 20,048,031 1,391,124 1,391,124 18,656,907 3,408,604 1,707,806 1,700,798 15,248,303 311,940,195 9,609,816 20,794 796,293 5,831,285 1,175,022 1,786,422 302,277,656 286,986 1,523,006 4,603,293 86,318,486 209,545,885 52,723 318,963,489 125,990,587 444,954,076 251,279,483 125,904,136 377,183,619 The accompanying notes are an integral part of these financial statements.
133. KUVEYT T ÜRK 2017 ANNUAL REPORT 131 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ UNCONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) III. INCOME STATEMENT (STATEMENT OF INCOME / LOSS) I. 1.1 1.2 1.3 1.4 1.5 1.5.1 1.5.2 1.5.3 1.5.4 1.6 1.7 II. 2.1 2.2 2.3 2.4 2.5 III. IV. 4.1 4.1.1 4.1.2 4.2 4.2.1 4.2.2 V. VI. 6.1 6.2 6.3 VII. VIII. IX. X. XI. XII. XIII. XIV. XV. XVI. 16.1 16.2 XVII. XVIII. 18.1 18.2 18.3 XIX. 19.1 19.2 19.3 XX. XXI. 21.1 21.2 XXII. XXIII. 23.1 23.2 PROFIT SHARE INCOME Profit share on loans Profit share on reserve deposits Profit share on banks Profit share on money market placements Profit share on marketable securities portfolio Held-for-trading financial assets Financial assets at fair value through profit and loss Available-for-sale financial assets Investments held-to-maturity Finance lease income Other profit share income PROFIT SHARE EXPENSE Expense on profit sharing accounts Profit share expense on funds borrowed Profit share expense on money market borrowings Expense on securities issued Other profit share expense NET PROFIT SHARE INCOME (I - II) NET FEES AND COMMISSIONS INCOME/EXPENSE Fees and commissions received Non-cash loans Other Fees and commissions paid Non-cash loans Other DIVIDEND INCOME NET TRADING INCOME Capital market transaction gains / (losses) Gains/ (losses) from derivative financial instruments Foreign exchange gains / (losses) OTHER OPERATING INCOME NET OPERATING INCOME (III+IV+V+VI+VII) PROVISION FOR LOAN LOSSES AND OTHER RECEIVABLES (-) OTHER OPERATING EXPENSES (-) NET OPERATING INCOME/(LOSS) (VIII-IX-X) AMOUNT IN EXCESS RECORDED AS GAIN AFTER MERGER GAIN / (LOSS) ON EQUITY METHOD GAIN / (LOSS) ON NET MONETARY POSITION PROFIT/(LOSS) FROM CONTINUED OPERATIONS BEFORE TAXES (XI+…+XIV) TAX CHARGE FOR CONTINUED OPERATIONS (±) Current income tax charge Deferred tax charge / benefit NET PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) INCOME ON DISCONTINUED OPERATIONS Income on assets held for sale Income on sale of associates, subsidiaries and jointly controlled entities (joint vent.) Income on other discontinued operations LOSS FROM DISCONTINUED OPERATIONS (-) Loss from assets held for sale Loss on sale of associates, subsidiaries and jointly controlled entities (joint vent.) Loss from other discontinued operations PROFIT / (LOSS) ON DISCONTINUED OPERATIONS BEFORE TAXES (XVIII-XIX) TAX CHARGE FOR DISCONTINUED OPERATIONS (±) Current income tax charge Deferred tax charge / benefit NET PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XX±XXI) NET PROFIT/LOSS (XVII+XXII) Group’s income/loss Minority interest income/loss (-) Note (4-1) (4-2) (4-4) (4-2) (4-6) (4-6) (4-3) (4-5) (4-6) (4-7) (4-8) (4-9) (4-10) (4-10) (4-12) Current Period Audited 01.01.2017 – 31.12.2017 3,850,986 3,328,659 50,595 30,204 280,500 8,771 271,729 140,419 20,609 1,716,773 1,170,984 516,479 29,270 40 2,134,213 241,002 394,918 106,498 288,420 153,916 17 153,899 246,884 6,960 (398,234) 638,158 230,217 2,852,316 783,703 1,219,680 848,933 848,933 (174,942) (197,638) 22,696 673,991 673,991 673,991 - The accompanying notes are an integral part of these financial statements. Prior Period Audited 01.01.2016 – 31.12.2016 3,110,435 2,740,109 25,600 14,552 197,440 5,045 192,395 110,258 22,476 1,440,566 915,407 443,628 74,154 7,377 1,669,869 152,970 311,783 87,833 223,950 158,813 314 158,499 509 275,772 7,871 155,429 112,472 192,872 2,291,992 511,661 1,117,119 663,212 663,212 (121,246) (124,960) 3,714 541,966 541,966 541,966 -
134. Additions to marketable securities revaluation differences from available for sale financial assets Tangible assets revaluation differences Intangible assets revaluation differences Currency translation differences for foreign currency transactions Profit /loss from derivative financial instruments for cash flow hedge purposes (effective portion of fair value differences) Profit/loss from derivative financial instruments for hedge of net investment in foreign operations (effective portion of fair value differences) The effect of corrections of errors and changes in accounting policies Other profit loss items accounted under equity as per Turkish accounting standards Deferred tax on valuation differences Total net profit/loss accounted under equity (I+II+…+IX) Profit/loss Change in fair value of marketable securities (transfer to profit/loss) Reclassification of derivatives accounted for cash flow hedge purposes to income statement Reclassification of hedge of net investments in foreign operations to income statement Other The accompanying notes are an integral part of these financial statements. XII. Total profit/loss accounted for the period (X±XI) VII. VIII. IX. X. XI. XI.1 XI.2 XI.3 XI.4 VI. I. II. III. IV. V. 683,378 (16,493) (2,098) 9,387 673,991 (1,518) 675,509 3,294 512,973 1,454 7,248 (28,993) 541,966 (498) 542,464 7,209 Audited Audited Current Period Prior Period 01.01.2017 – 31.12.2017 01.01.2016 –31.12.2016 24,684 (44,904) - IV. STATEMENT OF PROFIT AND LOSS ACCOUNTED FOR UNDER EQUITY (STATEMENT OF OTHER COMPREHENSIVE INCOME AND LOSS) (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) STATEMENTS OF UNCONSOLIDATED PROFIT AND LOSS ACCOUNTED FOR UNDER EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ 132 SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES
135. (II–k) (II–k) Note - 260,000 260,000 2,787,322 2,787,322 - - 2,527,322 2,527,322 22,933 22,933 - 22,933 22,933 - - - Share certificate Share cancellation Premium profits 22,574 22,574 122,861 122,861 - 100,287 100,287 Legal reserves - - - 110,396 110,396 351,949 351,949 - 241,553 241,553 Statutory Extraordinary reserves reserve (476) (476) 1,163 48,788 48,788 122,779 122,779 - 73,304 73,304 Other reserve 541,966 541,966 541,966 - - (259,524) (259,524) (185,157) (3,399) (181,758) - - 444,681 444,681 Currentperiod Prior period net income / net income / (loss) (loss) (30,529) (30,529) (35,923) - 5,394 5,394 Marketable securities revaluation reserve - - - Tangible and intangibleassets revaluation fund - - - Bonus shares from investments (7,217) (7,217) 5,767 5,767 - (12,984) (12,984) (35,923) 5,767 5,767 1,163 541,966 (3,399) (3,399) - 3,912,064 - 3,912,064 - - 3,402,490 - 3,402,490 - - - Asset held for Total sale and disc. excluding Hedging op. valuation minority Minority reserves fund interest interest 1,163 541,966 (3,399) (3,399) 3,912,064 3,912,064 (35,923) 5,767 5,767 - 3,402,490 3,402,490 Total equity The accompanying notes are an integral part of these financial statements. (*) In the Ordinary General Assembly Meeting dated 4 April 2016, the Bank decided on reserving primary reserves amount to TL 22,234; other reserves amount to TL 48,788 funded via retained profit from sales of real estates, to not pay cash dividends to shareholders; dividend to management amount to TL 3,399; funding capital increase from internal sources via remaining net income amount to TL 259,524 and in return distributing additional capitalized shares proportioned to shareholder’s stake in share capital; secondary reserves amount to TL 340 and remaining amount to 110,396 to extraordinary legal reserves. In accordance with article 3 of the law on support for research and development activities numbered 5746, 476 TL received for the development activities carried out has not been distributed but it has been decided to be taken to the other reserves and then used for capital increase from internal sources. (**) Amounting to TL 1,163 represents actuarial loss on reverse for employee benefits,net off its tax effect. X. XI. XII. XIII. XIV. 14.1 14.2 XV. XVI. XVII. XVIII. XIX. XX. 20.1 20.2 20.3 IV. V. VI. 6.1 6.2 VII. VIII. IX. I. II. 2.1 2.2 III. Audited Prior Period – (01.01.2016-31.12.2016) Balances at beginning of the period Correction made as per TAS 8 Effect of corrections Effect of changes in accounting policies Adjusted balances at beginning of the period (I+II) Changes during the period Increase/decrease related to merger Marketable securities revaluation differences Hedging funds (effective portion) Cash-flow hedge Hedge of net investment in foreign operations Tangible assets revaluation differences Intangible assets revaluation differences Bonus shares obtained from associates, subsidiaries and jointly controlled operations Foreign exchange differences Changes related to the disposal of assets Changes related to the reclassification of assets The effect of change in associate’s equity Capital increase Cash Internal sources Share issue premium Share cancellation profits Inflation adjustment to paid-in capital Other(**) Net income/(loss) for the period Profit distribution Dividends distributed Transfers to reserves Other Balances at end of the period (III+IV+V+......+XVIII+XIX+XX) Dönem sonu bakiyesi (I+II+III+…+XVI+XVII+XVIII) Effect of inflation accounting on paid-in capital and Paid-in othercapital capital reserves V. STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) STATEMENT OF UNCONSOLIDATED CHANGES IN SHAREHOLDERS’ EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ KUVEYT TÜRK 2017 ANNUAL REPORT 133
136. (2–11) Note - - - - - 310,000 310,000 - - - 2,787,322 3,097,322 - Paid-in capital 22,933 - - - - - 22,933 Share Premium - - - - - - - Share certificate cancellation profits 150,389 27,528 27,528 - - - - - 122,861 Legal reserves - - - - - - - 688,628 336,679 336,679 - - - - - 351,949 Statutory Extraordinary reserves reserve (26,947) (51,667) (51,667) (13,194) 51,667 51,667 - - (136,532) - - 122,779 Other reserve 673,991 673,991 - - - - - - - (258,333) (258,333) (420,165) (4,291) (415,874) - - 136,532 - - 541,966 (10,583) - - - 19,946 - - (30,529) - - - - - - - - - - - - - - Marketable Current period Prior period securities Tangible and Bonus net income / net income / revaluation intangible assets shares from (loss) (loss) reserve revaluation fund investments (4,582) - - - 2,635 2,635 - (7,217) Hedging reserves - - - - - - - Asset held for sale and disc. op. valuation fund 4,591,151 (13,194) 673,991 (4,291) (4,291) - - - 19,946 2,635 2,635 - 3,912,064 Total excluding minority interest - - - - - Minority interest 4,591,151 (13,194) 673,991 (4,291) (4,291) - - - 19,946 2,635 2,635 - 3,912,064 Total equity (*) The accompanying notes are an integral part of these financial statements. In the Ordinary General Assembly Meeting dated 28 March 2017, the Bank decided on reserving primary reserves amount to TL 27,098; TL 51,007 obtained from the sale of real estate shall be used for the capital increase to be made from the domestic sources after the transfer of the sales profit of the real estate to the other reserves, cash dividend; dividend to management amount to TL 4,291; funding capital increase from internal sources via remaining net income amount to TL 121,801 and in return distributing additional capitalized shares proportioned to shareholder’s stake in share capital; secondary reserves amount to TL 430 and remaining amount to TL 336,679 to extraordinary legal reserves, in accordance with article 3 of the law, support for research and development activities no. 5746 has been transferred to other reserves by distributing 660 TL support for development activities and then transferred to other reserves obtained from real estate sales in the previous periods, to be used for capital increase from internal sources. (**) Amounting to TL 13,194 represents actuarial loss on reverse for employee benefits,net off its tax effect. Balances at end of the period (III+IV+V+......+XVIII+XIX+XX) Audited Current Period – (01.01.2017-31.12.2017) I. Balances at beginning of the period Changes during the period II. Increase/decrease related to merger III. Marketable securities revaluation differences IV. Hedging funds (effective portion) 4.1 Cash-flow hedge 4.2 Hedge of net investment in foreign operations V. Tangible assets revaluation differences VI. Intangible assets revaluation differences VII. Bonus shares obtained from associates, subsidiaries and jointly controlled operations VIII. Foreign exchange differences IX. Changes related to the disposal of assets X. Changes related to the reclassification of assets XI. The effect of change in associate’s equity XII. Capital increase 12.1 Cash 12.2 Internal sources XIII. Share issue premium XIV. Share cancellation profits XV. Inflation adjustment to paid-in capital XVI. Other XVII. Net income/(loss) for the period XVIII. Profit distribution (*) 18.1 Dividends distributed 18.2 Transfers to reserves 18.3 Other Effect of inflation accounting on paid-in capital and other capital reserves (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) STATEMENT OF UNCONSOLIDATED CHANGES IN SHAREHOLDERS’ EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ 134 SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES
137. KUVEYT T ÜRK 2017 ANNUAL REPORT 135 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ CASH FLOWS STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) VI. STATEMENT OF CASH FLOWS Note Audited Current period 01.01.2017 –31.12.2017 Audited Prior period 01.01.2016 –31.12.2016 1,458,718 3,816,222 (1,663,981) 396,315 379,884 62,306 (947,562) (222,002) (362,464) 487,633 3,002,920 (1,389,395) 509 312,372 (170,062) 21,564 (822,902) (178,171) (289,202) A. CASH FLOWS FROM BANKING OPERATIONS 1.1 1.1.1 1.1.2 1.1.3 1.1.4 1.1.5 1.1.6 1.1.7 1.1.8 1.1.9 Operating profit before changes in operating assets and liabilities Profit share income received Profit share expense paid Dividend received Fees and commissions received Other income Collections from previously written off loans Payments to personnel and service suppliers Taxes paid Others 1.2 Changes in operating assets and liabilities (2,094,816) 1,697,854 1.2.1 1.2.2 1.2.3 1.2.4 1.2.5 1.2.6 1.2.7 1.2.8 1.2.9 1.2.10 Net (increase) decrease held for trading financial assets Net (increase) decrease in financial assets at fair value through profit or loss Net (increase) decrease in due from banks and other financial institutions Net (increase) decrease in loans Net (increase) decrease in other assets Net increase (decrease) in bank deposits Net increase (decrease) in other deposits Net increase (decrease) in funds borrowed Net increase (decrease) in due payables Net increase (decrease) in other liabilities (160,784) (1,025,350) (8,557,986) (199,960) (301,866) 8,204,587 994,812 (1,048,269) (11,918) (940,462) (3,300,792) (309,296) 183,402 3,583,708 485.958 2,007,254 I. Net cash provided from / (used in) banking operations (636,098) 2,185,487 B. CASH FLOWS FROM INVESTING ACTIVITIES II. Net cash provided from / (used in) investing activities (861,961) (1,413,772) 2.1 (123,536) (54,701) 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Cash paid for purchase jointly controlled operations, associates and subsidiaries Cash obtained from sale of jointly controlled operations, associates and subsidiaries Fixed assets purchases Fixed assets sales Cash paid for purchase of financial assets available for sale Cash obtained from sale of financial assets available for sale Cash paid for purchase of investment securities Cash obtained from sale of investment securities Other 202,431 (65,333) 1,998 (2,279,516) 1,450,956 (48,961) (47,465) 10,531 (2,449,424) 1,166,905 (39,618) C. CASH FLOWS FROM FINANCING ACTIVITIES III. Net cash provided from / (used in) financing activities (4,331) (3,399) 3.1 3.2 3.3 3.4 3.5 3.6 Cash obtained from funds borrowed and securities issued Cash used for repayment of funds borrowed and securities issued Capital increase Dividends paid Payments for finance leases Other (4,291) (40) - (3,399) - IV. Effect of change in foreign exchange rate on cash and cash equivalents (15,217) 140,046 V. Net increase (decrease) in cash and cash equivalents(I + II + III + IV) (1,517,607) 908,362 VI. Cash and cash equivalents at the beginning of the period (V-a) 5,595,655 4,687,293 VII. Cash and cash equivalents at the end of the period (V-a) 4,078,048 5,595,655 2.2 (V-d) The accompanying notes are an integral part of these financial statements.
138. 136 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ STATEMENT OF PROFIT DISTRIBUTION FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) VII. STATEMENT OF PROFIT DISTRIBUTION Current Period 01.01.2017-31.12.2017 Prior Period 01.01.2016-31.12.2016 1.1. Current period profit 1.2. Taxes and legal duties payable (-) 1.2.1. Corporate tax (income tax) 1.2.2. Withholding tax 1.2.3 Other taxes and duties (**) 848,933 174,942 197,638 (22,696) 663,212 121,246 124,960 (3,714) A. Net profit for the period (1.1-1.2) (Not V-I-17-c) 673,991 541,966 - 27,098 - 673,991 514,868 1.6. First dividend to shareholders (-) 1.6.1. To owners of ordinary shares 1.6.2. To owners of privileged shares 1.6.3. To owners of redeemed shares 1.6.4. To profit sharing bonds 1.6.5. To holders of profit and loss sharing certificates 1.7. Dividends to personnel(-) 1.8. Dividends to board of directors (-) 1.9. Second dividend to shareholders (-) 1.9.1. To owners of ordinary shares 1.9.2. To owners of privileged shares 1.9.3. To owners of redeemed shares 1.9.4. To profit sharing bonds 1.9.5. To holders of profit and loss sharing certificates 1.10. Second legal reserves (-) 1.11. Status reserves (-) 1.12. Extra ordinary reserves(***) 1.13. Other reserves 1.14. Special funds - 4,291 430 336,679 51,667 - II. Distribution of reserves - - 2.1. Appropriated reserves 2.2. Second legal reserves (-) 2.3. Dividends to shareholders (-) 2.3.1. To owners of ordinary shares 2.3.2. To owners of privileged shares 2.3.3. To owners of redeemed shares 2.3.4. To profit sharing bonds 2.3.5. To holders of profit and loss sharing certificates 2.4. Dividends to personnel (-) 2.5. Dividends to board of directors (-) - - - - - 0.199 19.926 - - - I. Distribution of current year profit 1.3. Accumulated losses (-) 1.4. First legal reserves (-) 1.5. Other statutory reserves (-) B. Net profit available for distribution [(A-(1.3+1.4+1.5)] (***) III. Earnings per share 3.1. To owners of ordinary shares 3.2 To owners of ordinary shares (%) 3.3. To owners of privileged shares 3.4. To owners of privileged shares (%) IV. Dividend per share 4.1. To owners of ordinary shares 4.2. To owners of ordinary shares (%) 4.3. To owners of privileged shares 4.4. To owners of privileged shares (%) (*) The profit distribution of the Bank is decided at the General Assembly meeting which is not yet held as of the date of the preparation of these financial statements. (**) Deferred tax benefit is presented under other tax and legal liabilities. Deferred tax benefit can not be included in the distributable profit, thus it is classified under extraordinary reserves. (***) TL 258,333 from retained earnings and TL 51,667 from other reserves are transferred to paid-in capital. The accompanying notes are an integral part of these financial statements.
139. KUVEYT T ÜRK 2017 ANNUAL REPORT 137 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) SECTION THREE ACCOUNTING PRINCIPLES I. Explanations on basis of presentation a. The preparation of the financial statements and related notes and explanations in accordance with the Turkish Accounting Standards and Regulation on Accounting Applications for Banks and Safeguarding of Documents: The Bank prepares its financial statements in accordance with “the Banking Regulation and Supervision Agency (“BRSA”) Accounting and Reporting Regulation” which includes the regulation on “The Procedures and Principles Regarding Banks’ Accounting Practices and Maintaining Documents” published in the Official Gazette dated 1 November 2006 with No. 26333, and other regulations on accounting records of banks published by the Banking Regulation and Supervision Board and circulars and pronouncements published by the BRSA and Turkish Accounting Standards published by the Public Oversight Accounting and Auditing Standards Authority for the matters not regulated by the aforementioned legislations. b. Classifications None. c. Accounting policies and valuation principles applied in the preparation of unconsolidated financial statements: The financial statements have been prepared in TL, under the historical cost convention except for the financial assets and liabilities held for trading carried at fair value. The preparation of unconsolidated financial statements in conformity with TAS requires the Bank management to make assumptions and estimates with respect to assets and liabilities on the balance sheet and contingent issues outstanding as of the balance sheet date. These assumptions and estimates are mainly related with the determination of the fair values of the financial instruments and determination of the impairments on assets and these assumptions are being reviewed regularly and, when necessary, appropriate corrections are made and the effects of these corrections are reflected to the income statement. d. Preparation of the financial statements in the current purchasing power of money: Until 31 December 2004, the financial statements of the Bank were subject to inflation adjustments in accordance with Turkish Accounting Standard No: 29 “Financial Reporting in Hyperinflationary Economies” (“TAS 29”). BRSA explained with its decision numbered 1623 and dated 21 April 2005 and its circular dated 28 April 2005 that the conditions for applying inflation accounting was no longer applicable and accordingly inflation accounting has not been applied beginning from 1 January 2005. e. Disclosures of TFRS 9 Financial Instruments: TFRS 9 “Financial Instruments”, which is effective as at 1 January 2018 is published by the Public Oversight Accounting and Auditing Standards Authority (“POA”) in the Official Gazette numbered 29953 dated 19 January 2017. TFRS 9 will replace TAS 39 Financial Instruments: recognition and measurement, related to the classification and measurement of financial instruments. All recognized financial assets that are within the scope of TFRS 9 are required to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and profit share on the principal amount outstanding, are generally measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under TFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment in other comprehensive income, with only dividend income generally recognized in profit or loss.
140. 138 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The Bank will apply the classification, measurement and impairment requirements retrospectively by adjusting the opening balance sheet and opening equity at 1 January 2018, with no restatement of comparative periods. The combined application of the contractual cash flow characteristics and business models as at 1 January 2018 is expected to result in no major difference in the classification of financial assets when compared to the classification under TAS 39. Classification and measurement of financial assets: According to TFRS 9 requirements, classification and measurement of financial assets will depend on the business model within which financial assets are managed and their contractual cash flow characteristics whether the cash flows represent “solely payments of principal and profit share. Upon initial recognition each financial asset will be classified as either fair value through profit or loss amortized cost or fair value through other comprehensive income. As the requirements under TFRS 9 are different than the assessments under the existing rules and the classification and measurement of financial liabilities remain largely unchanged under TAS 39. Impairment of financial assets: As of 1 January 2018, the Bank will recognize provisions for impairment in accordance with the TFRS 9 requirements according to the “Regulation on the Procedures and Principles for Classification of Loans by Banks and Provisions to be set aside” published in the Official Gazette dated 22 June 2016 numbered 29750. In this framework, as of 31 December 2017, method of provisions for impairment as set out in accordance with the related legislation of BRSA as mentioned in the Section 3 Part VII-c of Explanation on Accounting Policies will be changed by applying the expected credit loss model under TFRS 9. The expected credit loss estimates are required to be unbiased, probability-weighted and should include supportable information about past events, current conditions, and forecasts of future economic conditions. These financial assets will be divided into three categories depending on the gradual increase in credit risk observed since their initial recognition: Stage 1: Includes financial assets not having significant increase in their credit risk from initial recognition till the following reporting date or financial assets having low credit risk at the reporting date. It is recognized 12-month expected credit losses for such financial assets. Stage 2: Includes financial assets having significant increase in their credit risk subsequent to the initial recognition, but not having objective evidence about impairment. It is recognized life time expected credit losses for such financial assets. Stage 3: Includes financial assets having objective evidence about impairment at the reporting date.It is recognized life time expected credit losses for such financial assets. As of the transition date, it is still ongoing the revisions on the accounting policies, relevant processes and internal controls. Accordingly, there might be changes in the anticipated impact of TFRS 9 on the financial statements until announcement of the first time adoption financial statements including the opening balance sheet as of 1 January 2018. Besides, the Bank will calculate deferred tax on the expected credit losses calculated on stage 1 and 2 loans and the impact regarding calculated deferred tax asset will be accounted for under equity during transition.
141. KUVEYT T ÜRK 2017 ANNUAL REPORT 139 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) II. Explanations on strategy of using financial instruments and foreign currency transactions The Bank follows an asset-liability management strategy that mitigates risk and increases earnings by balancing the funds borrowed and the investments in various financial assets. The main objective of asset-liability management is to limit the Bank’s exposure to liquidity risk, currency risk and credit risk while increasing profitability and strengthening the Bank’s equity. The assets-liabilities committee (ALCO) manages the assets and liabilities within the trading limits on the level of exposure placed by the Executive Risk Committee. Gains and losses arising from foreign currency transactions have been recorded in the period in which the transaction took place. Foreign currency denominated monetary assets and liabilities are valued with the period end exchange rates published by the Central Bank of Turkey converting them into Turkish Lira and valuation differences of foreign currencies have been recognized in the income statement under the net foreign exchange income/expense account. The Bank’s portion of risk regarding loans originating from participation accounts followed in receivables to be written off, doubtful commission, fees and other receivables, uncollectible loans and other receivables, along with foreign currency loans and receivables originating from the Bank’s equity and private current accounts are converted to Turkish Lira with the rates prevailing at the date of the transfer of such receivables to non-performing loan portfolio. The participation accounts’ portion of the risk of the foreign currency loans and FC pegged loans, originating from participation accounts, is evaluated with the current foreign currency rates and the differences are recorded foreign currency gains/losses account in the income statement. The foreign currency exchange differences resulting from the translation of debt securities issued and monetary financial instruments into Turkish Lira are included in the income statement. There are no foreign currency differences capitalized by the Bank. III. Investments in associates and subsidiaries Turkish currency denominated associates and subsidiaries are measured at cost value in accordance with the “Consolidated and Separate Financial Statements” (“TAS 27”) and then deducted by provisions for impairment losses, if any, reflected to the accompanying unconsolidated financial statements. IV. Explanations on forward transactions and option contracts and derivative instruments The Bank enters into forward agreements to decrease its currency risk and to manage its foreign currency liquidity. The Bank classifies its derivative instruments as “Derivative Financial Instruments Held for Hedging Purposes” and “Derivative Financial Instruments Held for Trading” in accordance with TAS 39. Even though some derivative transactions economically hedge risk, since all necessary conditions for hedge accounting are not met, they are accounted for as “held for trading” within the framework of TAS 39, and are reflected in the “Derivative Financial Assets/Liabilities Held for Trading” account in the balance sheet. The Bank has no derivative financial assets/liabilities for hedging purposes as of balance sheet date. The payables and receivables arising from derivative transactions are recorded in off-balance sheet accounts at their notional amounts. Fair values of foreign currency forward transactions and swaps are calculated by using the discounted cash flow model. Differences resulting from the changes in the fair values of derivatives held for trading are accounted under ‘Trading Income/Loss’ line in the income statement. Embedded derivatives are separated from the host contract if the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss. Embedded derivatives are accounted as derivative instruments in-line with TAS 39. If the embedded derivatives are closely related with the host contract, embedded derivatives are accounted for in-line with the relevant standard applicable for the host contract.
142. 140 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The Bank enters into interest rate and cross currency swap transactions in order to hedge the change in fair values of fixed-rate financial instruments. While applying fair value hedge accounting, the changes in fair values of hedging instrument and hedged item are recognised in income statement. If the hedging is effective, the changes in fair value of the hedged item is presented in statement of financial position together with the fixed-rate loan, and in case of fixed-rate financial assets available for sale, such changes are reclassified from shareholders’ equity to income statement. The Bank enters into profit share rate and cross currency swap transactions in order to hedge the changes in cash flows of the floating-rate financial instruments While applying cash flow hedge accounting, the effective portion of the changes in the fair value of the hedging instrument is accounted for under hedging reserves in shareholders’ equity, and the ineffective portion is recognised in income statement. The changes recognised in shareholders’ equity is removed and included in income statement in the same period when the hedged cash flows effect the income or loss. The Bank performs effectiveness test at the beginning of the hedge accounting period and at each reporting period. The effectiveness tests are carried out using the “Dollar off-set model” and the hedge accounting is applied as long as the test results are between the range of 80%-125% of effectiveness. The hedge accounting is discontinued when the hedging instrument expires, is exercised, sold or no longer effective. When discontinuing fair value hedge accounting, the cumulative fair value changes in carrying value of the hedged item arising from the hedged risk are amortised to income statement over the life of the hedged item from that date of the hedge accounting is discontinued. While discontinuing cash flow hedge accounting, the cumulative gains/losses recognised in shareholders’ equity and presented under hedging reserves are continued to be kept in this account. When the cash flows of hedged item are recognised in income statement, the gain/losses accounted for under shareholders’ equity, are recognised in income statement. V. Explanations on profit share income and expense Profit share income is recognized in the income statement on an accrual basis by using the method of internal rate of return and is accounted under profit share income account in the financial statements. In accordance with the related regulation, the profit share accruals of non-performing loans are cancelled and are not recorded until the profit share income is realized. The Bank calculates expense accrual in accordance with the unit value calculation method on profit/loss sharing accounts and reflects these amounts in “Funds Collected” on the balance sheet. VI. Explanations on fees and commission income and expenses Except for the fees and commission income and expenses obtained for some banking services which are recorded as income when collected, fees and commission income/expenses are reflected in the income statement over the period of the related transaction. In accordance with the provisions of Turkish Accounting Standards, commission and fees collected in advance for loans granted are deferred and reflected to the income statement by using the internal rate of return method. Unearned portion of the commission and fees relating to the future periods are recorded to the “Unearned Revenues” account under “Other Liabilities” on the balance sheet. VII. Explanations on financial assets The Bank classifies and accounts for its financial assets as ‘Fair value through profit/loss’, ‘Available for sale’, ‘Loans and receivables’ or ‘Held to maturity’. Sale and purchase transactions of the financial assets mentioned above are recognized at the settlement dates. The appropriate classification of financial assets of the Bank is determined at the time of purchase by the Bank management, taking into consideration the purpose of the investment.
143. KUVEYT T ÜRK 2017 ANNUAL REPORT 141 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) a. Financial assets at fair value through profit or loss: This category has two sub categories which are “Trading financial assets” and “Financial assets designated at fair value through profit/loss at initial recognition”. Trading financial assets are financial assets which are either acquired for generating a profit from short-term fluctuations in prices or dealers’ margin, or are financial assets included in a portfolio and derivative instruments in which a pattern of short-term profit making exists. Trading financial assets are initially recognized at transaction prices, which are assumed to be the fair value, and subsequently measured at fair value. All gains and losses arising from these valuations are reflected in the income statement. Other than trading financial assets, the Bank has no financial assets at fair value through profit or loss. b. Financial assets available for sale: Financial assets available for sale are initially recognized at cost; which reflects their fair values; including the transaction costs. Financial assets classified as available for sale financial assets which do not have a quoted market price in an active market and whose fair values cannot be reliably measured are carried at cost, less impairment, if any. Financial assets available-for-sale gains and losses are valued using internal rate of return and recorded in the income statement as profit share income. Financial assets available-for-sale profit share rediscounts recognized in the profit/share account, current value differences recognized in the “securities value increase fund” under the shareholders’ equity. When these securities are disposed of, the related fair value differences accumulated in the shareholders’ equity are transferred to the income statement. c. Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not listed in an active market and are not classified as held for trading, financial assets at the fair value through profit or loss or as available for sale. Loans and receivables are initially recognized at cost, which is assumed to reflect their fair value and subsequently recognized at the amortized cost calculated using the internal rate of return method. The expenses incurred for the loans and receivables received as collateral are not considered as transaction costs and are recognized in the expense accounts. d. Held to maturity financial assets: Held to maturity financial assets are financial assets with fixed maturities and fixed or determinable payments where management has the intent and ability to hold the financial assets to maturity that are not classified under ‘Loans and receivables’. Held to maturity financial assets are initially recognized at cost which is assumed to reflect their fair value, and subsequently carried at ‘Amortized Cost’ using the ‘Internal Rate of Return’. Profit share income from held to maturity financial assets is reflected in the income statement. The Bank does not have any held to maturity financial assets as of the balance sheet date.
144. 142 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) VIII. Explanations on impairment of financial assets At each balance sheet date an assessment is made as to whether there is objective evidence that a financial asset or group of financial assets is impaired. If such evidence exists, impairment is provided for financial asset categories as explained below. a. Loans and receivables: If there is objective evidence that the loans might not be collected, the Bank reclassifies such loans to III. IV. and V. groups and provides impairment reserve in accordance with the Communiqué of “Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans” published on 1 November 2006 in the Official Gazette No: 26333. For the loans with poor financial position and/or payment capability, the Bank can provide a specific impairment reserve in excess of the amounts calculated using the minimum required rates for the related group. Collections related to the provisions provided in the current period for such loans are deducted from ‘Provisions for Loan Losses and Other Receivables’ account in the income statement. Subsequent recoveries of amounts previously written off or provisions made in prior periods are included in “Other Operating Income” in the income statement. b. Financial assets held to maturity: If there is objective evidence indicating that the value of financial assets held to maturity is impaired, the amount of the loss is measured as the difference between the present values of future estimated cash flows discounted using the original profit share and the carrying value; provision is made for impairment and the provision is associated with expense accounts. c. Financial assets available for sale: If there is objective evidence indicating that the fair value of an available for sale financial asset, for which decreases in the fair value has been accounted under the equity, has been impaired then the total loss which was accounted directly in the equity is transferred from equity to the income statement. Impairment losses recognized in the income statement related to the investments in equity instruments classified as available for sale financial assets cannot be reversed through the income statement. If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on equity instruments cannot be reversed. IX. Explanations on offsetting of financial assets and liabilities Financial assets and liabilities are offset and the net amount is reported in the balance sheet when the Bank has a legally enforceable right to offset the recognized amounts and there is an intention to collect/pay the related financial assets and liabilities on a net basis, or to realize the asset and settle the liability simultaneously.
145. KUVEYT T ÜRK 2017 ANNUAL REPORT 143 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) X. Explanations on sale and repurchase agreements and lending of securities Central Bank of the Republic of Turkey (“CBRT”) made some changes on orders for open market transactions (“OMT”) and prepared an additional frame contract for participation banks in order to present rent certificates to open market operations of CBRT in accordance with the principles of participation banks. According to this agreement; a new type of transaction was formed which enables participation banks to resell or repurchase rent certificates on their portfolio to CBRT when they are in need of funding or in attempt to evaluate the excess liquidity. In this content, initial OMT transaction was performed with CBRT on 14 June 2013 by selling rent certificates that are recognized in the assets of the Bank in return for conditional repurchasing. Beginning from this date, the Bank performs purchase tenders which are held by CBRT of which maturities are weekly; in return for Treasury rent certificates that are reported as assets in balance sheet in order to raise funds. As of 31 December 2017, the Bank has repurchasing agreements amounting to TL 750,524 (31 December 2016 – TL 1,219,873). XI. Explanations on assets held for sale and discontinued operations and related liabilities As mandated by the Banking Act 5411 Article 57 “Banks cannot participate in commercial real-estate and commodity trade with the exception of real-estate and commodity based agreements within the scope of Capital Markets Act No. 2499, and precious metal trade as seen appropriate by the board, and cannot participate in partnerships with firms whose main business activity is commercial real-estate, with the exception of real-estate investment partnerships and companies that finance mortgaged residential estates. The rules and procedures regarding the sales of realestate and commodities that were acquired due to receivables and debtors’ obligations to the bank are determined by the board.” Assets that meet the criteria for classification as assets held for sale are measured at the lower of the carrying amount of assets and fair value less any costs to be incurred for disposal. Assets held for sale are not amortized and presented in the financial statements separately. In order to classify an asset as held for sale, the sale should be highly probable and the asset (or disposal group) should be available for immediate sale in its present condition. Highly saleable condition requires a plan by the management regarding the sale of the asset (or the disposal group) together with an active program for the determination of buyers as well as for the completion of the plan. Also the asset (or the disposal group) should be actively in the market at a price consistent with its fair value. In addition, the sale is expected to be recognized as a completed sale within one year after the classification date and the necessary transactions and procedures to complete the plan should demonstrate the fact that there is remote possibility of making any significant changes in the plan or cancellation of the plan. Various events and conditions may extend the completion period of the disposal over one year. If such delay arises from any events and conditions beyond the control of the entity and there is sufficient evidence that the entity has an ongoing disposal plan for these assets, such assets (or disposal group) can remain to be classified as assets (or disposal group) held for sale. Extension of the period necessary to complete the sale, does not avoid the classification of the related asset (or disposal group) to be classified as asset held for sale. A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale. Discontinued operations are presented separately in the income statement. The Bank has no discontinued operations. XII. Explanations on goodwill and other intangible assets Intangible assets are stated at cost adjusted for inflation until 31 December 2004, less provision for impairment, if any, and accumulated amortization and amortized with straight-line method. The other intangible assets of the Bank comprise mainly computer software. The useful lives of such assets acquired prior to 2004 have been determined as 5 years and for the year 2004 and forthcoming years, as 3 years. There is no goodwill related to associates and subsidiaries.
146. 144 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) XIII. Explanations on tangible assets Fixed assets are stated at cost adjusted for inflation until 31 December 2004, less accumulated depreciation and provision for impairment, if any. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The annual rates used for amortization are as follows: Property Movables, Leased assets 2% 6.67% - 20% Depreciation is calculated on a pro-rata basis for the assets that have been placed in use for less than one year as of the balance sheet date. Leasehold improvements are depreciated over the term of the lease agreements by straightline method. If the recoverable amount (the higher of value in use and fair value) of a tangible asset is less than its carrying value, impairment loss is provided and the carrying value is written down to its recoverable amount. Gains or losses resulting from disposals of the fixed assets are recorded in the income statement as the difference between the net proceeds and net book value of the asset. Expenses for repairs are capitalized if the expenditure increases economic life of the asset; other repair costs are expensed. The capital expenditures made in order to increase the capacity of the tangible asset or to increase its future benefits are capitalized on the cost of the tangible asset. The capital expenditures include the cost components which are used either to increase the useful life or the capacity of the asset or the quality of the product or to decrease the costs. Property held for long-term rental yields and/or capital appreciation is classified as investment property. Investment properties are stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful lives of the properties. XIV. Explanations on leasing transactions Bank as a lessee Assets acquired under finance lease contracts are recorded both as an asset and a liability at the beginning date of the lease. The basis for the determination of these amounts is the lower of fair value of the leased asset or the present value of the lease payments. The direct costs incurred during a finance lease transaction are capitalized as additions to the cost of the leased asset. Lease payments include the financing costs incurred due to the leasing transaction and the principal amount of the leased asset for the current period. Depreciation is calculated on a straight-line basis over the estimated useful life of the leased assets and if a diminution in recoverable value of the leased asset is identified, a provision for impairment is recognized. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term. Bank as a lessor The Bank, as a participation bank, acts as a lessor in finance leasing transactions. The Bank presents finance leased assets as a receivable equal to the net investment in the lease. Finance income is based on a pattern reflecting a constant periodic rate of return on the net investment outstanding.
147. KUVEYT T ÜRK 2017 ANNUAL REPORT 145 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) XV. Explanations on provisions and contingent liabilities Provisions and contingent liabilities are accounted for in accordance with “Turkish Accounting Standard for Provisions, Contingent Liabilities and Contingent Assets” (TAS 37). Provisions are recognized when the Bank has a present obligation, legal or constructive, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The Bank recognizes provisions for obligations which arose from prior periods in current financial year, only if, the possibility of realization is high and a reliable estimation can be made. A provision is provided if liabilities have been originated as a result of past events in the period they arise, if it is probable that the liability will be settled and a reliable estimate for the liability amount can be made. When a reliable estimate of the amount of the obligation cannot be made or it is not probable that an outflow of resources will be required to settle the obligation, the obligation is considered as a “Contingent” liability and is disclosed in the related notes to the financial statements. . XVI. Explanations on liabilities relating to employee benefits a. Defined benefit plans: In accordance with existing social legislation, the Bank is required to make severance pay to each employee who has completed over one year of service with the Bank and who retires or quits the employment to receive old age or disability benefits, to fulfill the compulsory military service, because of the marriage (for females) or because of the other compulsive reasons as defined in the laws and whose employment is terminated due to reasons other than resignation or misconduct. Liabilities amount which is related to “Turkish Accounting Standard on Employee Benefits” (“TAS 19”) is reflected accompanying financial statements and these liabilities are calculated by an independent actuary firm. Bank is accounted all actuarial profit and loss under Statement of other Comprehensive Income. The Bank’s employees are not members of any pension fund, foundations, union or other similar entities. b. Defined contribution plans: The Bank pays defined contribution plans to publicly administered Social Security Funds for its employees as mandated by the Social Security Association. The Bank has no further payment obligations other than this contribution share. The contributions are recognized as employee benefit expense when they are due. c. Short term benefits to employees: In accordance with “TAS 19”, vacation pay liabilities are defined as “Short Term Benefits to Employees” and accrued as earned. Bank management calculates bonus accrual if it foresees that the budgeted year-end figures approved by the Board of Directors are attainable. XVII. Explanations on taxation Current tax The corporate tax rate in Turkey is 20%. This rate is applied on taxable income which is calculated by adjusting the income before tax for certain disallowable expenses, tax exempt income and other allowances. No further tax is applicable unless the profit is distributed. According to the tax code, each quarter advance tax amount is calculated using a rate of 20% over tax base and paid, then the paid advance taxes are deducted from the corporate tax liability that is calculated for the year.
148. 146 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Withholding taxes is not applied to dividends distributed to companies resident in Turkey or companies who earn income in Turkey through their resident representatives in Turkey. With the Council of Minister’s decision numbered 2009/14593 and 2009/14594 which are published in official gazette numbered 27130 and dated 3 February 2009, some deduction rates in 15th and 30th articles of the corporate tax law numbered 5520 were re-determined. In accordance with this, dividends distributed to companies other than companies resident in Turkey or companies who earn income in Turkey through their resident representatives in Turkey are subject to 15% withholding taxes. Double tax treaty agreements are also taken into consideration during the application of withholding taxes on dividends distributed to real persons and to foreign based taxpayers. Addition of profit to share capital is not considered as dividend distributed therefore no withholding taxes is applied. Each quarter advance tax amount is calculated using a rate of 20% over tax base and Corporate tax returns are filed by the fourteenth day of the second month following the balance sheet date and taxes is paid by the seventeenth day of the second until evening. Paid advance taxes are paid during the year are belong to the current year, then the paid advance taxes are deducted from the corporate tax liability that is calculated for the year. If the balance of paid advance taxes remains after deduction of paid advance taxes, it can be paid back in cash or it can be deducted from financial loans to the government. For the purpose of issuance of certificate of leasing immovables to resource institutions, with the sale of asset leasing companies, the scope of Financial Leasing, Factoring and Financing Companies Law No.6361, dated 21 November 2012 in order to lease it back and in case of taking back at the end ofthe contract, with the sale of financial leasing companies and asset leasing by asset leasing companies, for gains from the sale of the immovable property inherited from the institution applies this rate as 100% and for the immovable is not compulsory to be in assets at least for a period of two years. But the mentioned immovable’s; except in case of failure to fulfill the obligations arising from the source institution, the lesser or leasing agreement, immovable in question by the asset leasing company, in case of selling a third person or institutions, these immovable’s with the carrying value before its transfer to resource institution or asset leasing in lesser or asset leasing company, in mentioned institutions taking into consideration the total amount of depreciation is taxable for corporation engaged in the sale. Corporate tax returns are filed by the twenty fifth day of the fourth month following the balance sheet date and taxes is paid in one installment by the end of that month. Corporate tax losses can be carried forward for a maximum period of five years following the year in which the losses were incurred. However, losses cannot be carried back to offset profits from previous periods. The tax authorities can inspect tax returns and the related accounting records for a retrospective maximum period of five years. In Turkey, there is no procedure for a final and definite agreement on tax assessments. Deferred tax The Bank calculates and accounts for deferred income taxes for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in these financial statements in accordance with “Turkish Accounting Standard for Income Taxes” (“TAS 12”). Deferred tax asset is calculated on all temporary differences other than general provisions to the extent that is probable that taxable profit will be available and deferred tax liability is calculated for all temporary differences. Deferred tax asset and liabilities are shown in the accompanying financial statements on a net basis. The tax rate used in the calculation of deferred tax assets and liabilities is 22% over the temporary timing differences expected to reverse in 2018, 2019 and 2020, and 20% over the temporary timing differences expected to reverse after 2021 (2016: 20%).
149. KUVEYT T ÜRK 2017 ANNUAL REPORT 147 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) XVIII. Explanations on additional disclosures on borrowings Borrowings other than funds collected are measured at amortized cost using the internal rate of return method after the initial recognition. The Bank does not apply hedging techniques on related borrowings. There are no debt securities issued by the Bank. The Bank has not issued convertible bonds. XIX. Explanations on share certificates issued There is no significant amount of transaction costs on Bank about share certificates. XX. Explanations on acceptances and availed drafts Acceptances and availed drafts are realized simultaneously with the payment dates of the customers and they are presented as commitments in off-balance sheet accounts. XXI. Explanations on government grants There are no government grants received by the Bank. XXII. Explanations on segment reporting The Bank operates in three main segments; Retail and Business Banking, Commercial Banking, Corporate and International Banking. Each segment operates with unique products, and the operational results are followed based on these segments. Segment reporting is disclosed in Section Four, Note X. XXIII. Explanations on other matters There are no other matters to be disclosed by the Bank.
150. 148 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) SECTION FOUR INFORMATION ON FINANCIAL STRUCTURE I. Explanations on shareholders’ equity Shareholders’ equity amount and capital adequacy standard ratio are calculated within the framework of “Regulation Regarding Equities of Banks” and “Regulation Regarding Measurement and Evaluation of Banks’ Capital Adequacy”. As of December 31, 2017, the shareholders’ equity of the Bank is TL 5,853,623 (31 December 2016: TL 5,682,970) and the capital adequacy standard ratio is 17.66% (31 December 2016: 18,16%). a. Components of shareholders’ equity: Current Period Amount Amount as per the regulation before 1/1/2014 (*) COMMON EQUITY TIER I CAPITAL Paid-in Capital to be Entitled for Compensation after All Creditors Share Premium 3,100,000 22,933 Reserves 839,017 Other Comprehensive Income according to TAS 12,609 Profit 673,991 Current Period Profit 673,991 Prior Period Profit - Bonus Shares from Associates, Affiliates and Joint-Ventures not Accounted in Current Period’s Profit Common Equity Tier I Capital Before Deductions 4,648,550 Deductions From Common Equity Tier I Capital Valuation adjustments calculated as per the article 9. (i) of the Regulation on Bank Capital - Current and Prior Periods’ Losses not Covered by Reserves, and Losses Accounted under Equity according to TAS (-) 54,721 Leasehold Improvements on Operational Leases (-) 47,518 Goodwill Netted with Deferred Tax Liabilities Other Intangible Assets Netted with Deferred Tax Liabilities Except Mortgage Servicing Rights 95,210 119,013 Net Deferred Tax Asset/Liability (-) - - Differences arise when assets and liabilities not held at fair value, are subjected to cash flow hedge accounting - Total credit losses thatexceed total expected loss calculated according to the Regulation on Calculation of Credit Risk by Internal Ratings Based Approach - Securitization gains - Unrealized gains and losses from changes in bank’s liabilities’ fair values due to changes in creditworthiness - Net amount of defined benefit plans - Direct and Indirect Investments of the Bank on its own Tier I Capital (-) 2,678 Shares Obtained against Article 56, Paragraph 4 of the Banking Law (-) - 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 (-) - Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or more 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 Total Common Equity Tier I Capital 200,127 4,448,423
151. KUVEYT T ÜRK 2017 ANNUAL REPORT 149 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) ADDITIONAL TIER I CAPITAL Preferred Stock not Included in Common Equity Tier I Capital and the Related Share Premiums Debt Instruments and the Related Issuance Premiums Defined by the BRSA Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Covered by Temporary Article 4) Additional Tier I Capital before Deductions Deductions from Additional Tier I Capital Direct and Indirect Investments of the Bank on its own Additional Tier I Capital (-) Investments in Equity Instruments Issued by Banks or Financial Institutions Invested in Bank’s Additional Tier I Capital and Having Conditions Stated in the Article 7 of the Regulation 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 (-) Items to be Deducted from Tier I Capital during the Transition Period 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 (-) 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 (-) Deduction from Additional Tier I Capital when there is not enough Tier II Capital (-) Total Deductions from Additional Tier I Capital Total Additional Tier I Capital Total Tier I Capital (Tier I Capital= Common Equity Tier I Capital + Additional Tier I Capital) TIER II CAPITAL Debt Instruments and the Related Issuance Premiums Defined by the BRSA Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Covered by Temporary Article 4) Provisions (Amounts explained in the first paragraph of the article 8 of the Regulation on Bank Capital) Total Deductions from Tier II Capital Deductions from Tier II Capital Direct and Indirect Investments of the Bank on its own Tier II Capital (-) Investments in Equity Instruments Issued by Banks and Financial Institutions Invested in Bank’s Tier II Capital and Having Conditions Stated in the Article 8 of the Regulation 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 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 (-) Other items to be defined by the BRSA (-) Total Deductions from Tier II Capital Total Tier II Capital Total Equity (Total Tier I and Tier II Capital) - - - - 23,802 - 23,802 4,424,619 - 1,322,272 277,848 1,600,120 - - 1,600,120 6,024,740
152. 150 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Total Tier I Capital and Tier II Capital ( Total Equity) 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 (-) Other items to be Defined by the BRSA (-) Items to be Deducted from the Sum of Tier I and Tier II Capital (Capital) During the Transition Period 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 Tier I 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 Tier I 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 (-) 171,117 - - - CAPITAL Total Capital ( Total of Tier I Capital and Tier II Capital ) Total Risk Weighted Assets 5,853,623 33,138,332 CAPITAL ADEQUACY RATIOS 13.42 13.35 17.66 CET1 Capital Ratio (%) Tier I Capital Ratio (%) Capital Adequacy Ratio (%) BUFFERS Bank-specific total CET1 Capital Ratio Capital Conservation Buffer Ratio (%) Bank-specific Counter-Cyclical Capital Buffer Ratio (%) Additional CET1 Capital Over Total Risk Weighted Assets Ratio Calculated According to the Article 4 of Capital Conservation and Counter-Cyclical Capital Buffers Regulation 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 Issued Share Capital Remaining Mortgage Servicing Rights Net Deferred Tax Assets arising from Temporary Differences Limits for Provisions Used in Tier II Capital Calculation General Loan Provisions for Exposures in Standard Approach (before limit of one hundred and twenty five per ten thousand) General Loan Provisions for Exposures in Standard Approach Limited by 1.25% ofRisk Weighted Assets Total Loan Provision that Exceeds Total Expected Loss Calculated According to Communiqué on Calculation of Credit Risk by Internal Ratings Based Approach Total Loan Provision that Exceeds Total Expected Loss Calculated According to Communiqué on Calculation of Credit Risk by Internal Ratings Based Approach, Limited by 0.6% Risk Weighted Assets 1.25 1.25 7.35 - 277,848 277,848 - Debt Instruments Covered by Temporary Article 4 (effective between 1.1.2018-1.1.2022) Upper Limit for Additional Tier I Capital Items subject to Temporary Article 4 Amount of Additional Tier I Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit Upper Limit for Additional Tier II Capital Items subject to Temporary Article 4 Amount of Additional Tier II Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit -
153. KUVEYT T ÜRK 2017 ANNUAL REPORT 151 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) b. Reconciliation of capital items to balance sheet Current Period Paid-in Capital Capital Reserves Other Comprehensive Income According to TAS Securities Value Increase Fund Carrying value 3,097,322 (19,179) (42,112) (10,583) Amount of correction 2,678 - - - Value of the capital report Explanation of differences 3,100,000 Adjustment related to its own draw backed share of the Bank (19,179) Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) (42,112) Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) (10,583) Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) - Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) Revaluation Surplus on Tangible Assets - - Revaluation Surplus on Intangible Assets - - - Revaluation Surplus on Investment Property - - - (4,582) - (4,582) - - - Hedging Reserves (Effective Portion) Revaluation Surplus on Assets Held for Sale and Assets of Discontinued Operations Other Capital Reserves Bonus Shares of Associates, Affiliates and JointVentures Share Premium Profit Reserves Profit or Loss Prior Periods Profit/Loss Current Period Net Profit/Loss (26,947) - Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) and inflation adjustments included in Paid-in (26,947) Capital according to Regulation’s Temporary Article 1 - - - 22,933 - 22,933 839,017 - 839,017 Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) 673,991 - 673,991 - - - 673,991 - Items not included in the calculation as per Regulation’s Article 9-1-f 673,991 Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) - Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) 149,931 200,127 Deductions from Tier 1 Capital as per the Regulation Common Equity Tier I Capital 4,441,220 4,448,423 Current Period Carrying value Minority Shareholders Deductions from Common Equity Tier I Capital (-) Subordinated Debts Deductions from Tier I Capital (-) Tier I Capital Subordinated Debts General Provisions Deductions from Tier II Capital (-) Tier II Capital Deductions from Total Capital (-) Total - - Amount of correction Value of the capital report Explanation of differences - Deductions from Tier 1 Capital as per the Regulation 4,424,619 1,322,272 277,848 General Loan Provision added to Tier II Capital as per the Regulation’s Article 8 - Deductions from Tier II Capital as per the Regulation 1,600,120 171,117 5,853,623 Deductions from Capital as per the Regulation
154. 152 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Prior Period COMMON EQUITY TIER I CAPITAL Paid-in Capital to be Entitled for Compensation after All Creditors Share Premium Reserves Other Comprehensive Income according to TAS Profit Current Period Profit Prior Period Profit Bonus Shares from Associates, Affiliates and Joint-Ventures not Accounted in Current Period’s Profit Common Equity Tier I Capital Before Deductions Deductions From Common Equity Tier I Capital Valuation adjustments calculated as per the article 9. (i) of the Regulation on Bank Capital Current and Prior Periods’ Losses not Covered by Reserves, and Losses Accounted under Equity according to TAS (-) Leasehold Improvements on Operational Leases (-) Goodwill Netted with Deferred Tax Liabilities Other Intangible Assets Netted with Deferred Tax Liabilities Except Mortgage Servicing Rights Net Deferred Tax Asset/Liability (-) Differences arise when assets and liabilities not held at fair value, are subjected to cash flow hedge accounting Total credit losses thatexceed total expected loss calculated according to the Regulation on Calculation of Credit Risk by Internal Ratings Based Approach Securitization gains Unrealized gains and losses from changes in bank’s liabilities’ fair values due to changes in creditworthiness Net amount of defined benefit plans Direct and Indirect Investments of the Bank on its own Tier I Capital (-) Shares Obtained against Article 56, Paragraph 4 of the Banking Law (-) 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 (-) Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or more 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 Total Common Equity Tier I Capital Amount Amount as per the regulation before 1/1/2014 (*) 2,790,000 22,933 611,342 541,966 541,966 3,966,241 51,499 47,732 57,065 2,678 - - - 158,974 3,807,267 95,108 -
155. KUVEYT T ÜRK 2017 ANNUAL REPORT 153 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) ADDITIONAL TIER I CAPITAL Preferred Stock not Included in Common Equity Tier I Capital and the Related Share Premiums Debt Instruments and the Related Issuance Premiums Defined by the BRSA Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Covered by Temporary Article 4) Additional Tier I Capital before Deductions Deductions from Additional Tier I Capital Direct and Indirect Investments of the Bank on its own Additional Tier I Capital (-) Investments in Equity Instruments Issued by Banks or Financial Institutions Invested in Bank’s Additional Tier I Capital and Having Conditions Stated in the Article 7 of the Regulation 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 (-) Items to be Deducted from Tier I Capital during the Transition Period 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 (-) 38,043 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 (-) Deduction from Additional Tier I Capital when there is not enough Tier II Capital (-) Total Deductions from Additional Tier I Capital 38,043 Total Additional Tier I Capital Total Tier I Capital (Tier I Capital= Common Equity Tier I Capital + Additional Tier I Capital) 3,769,224 TIER II CAPITAL Debt Instruments and the Related Issuance Premiums Defined by the BRSA 1,794,270 Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Covered by Temporary Article 4) Provisions (Amounts explained in the first paragraph of the article 8 of the Regulation on Bank Capital) 220,123 Total Deductions from Tier II Capital 2,014,393 Deductions from Tier II Capital Direct and Indirect Investments of the Bank on its own Tier II Capital (-) Investments in Equity Instruments Issued by Banks and Financial Institutions Invested in Bank’s Tier II Capital and Having Conditions Stated in the Article 8 of the Regulation 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 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 (-) Other items to be defined by the BRSA (-) Total Deductions from Tier II Capital Total Tier II Capital 2,014,393 Total Equity (Total Tier I and Tier II Capital) 5,783,617 95,108 -
156. 154 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Total Tier I Capital and Tier II Capital ( Total Equity) 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 (-) Other items to be Defined by the BRSA (-) Items to be Deducted from the Sum of Tier I and Tier II Capital (Capital) During the Transition Period 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 Tier I 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 Tier I 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 (-) CAPITAL Total Capital ( Total of Tier I Capital and Tier II Capital ) Total Risk Weighted Assets CAPITAL ADEQUACY RATIOS CET1 Capital Ratio (%) Tier I Capital Ratio (%) Capital Adequacy Ratio (%) BUFFERS Bank-specific total CET1 Capital Ratio Capital Conservation Buffer Ratio (%) Bank-specific Counter-Cyclical Capital Buffer Ratio (%) Additional CET1 Capital Over Total Risk Weighted Assets Ratio Calculated According to the Article 4 of Capital Conservation and Counter-Cyclical Capital Buffers Regulation 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 Issued Share Capital Remaining Mortgage Servicing Rights Net Deferred Tax Assets arising from Temporary Differences Limits for Provisions Used in Tier II Capital Calculation General Loan Provisions for Exposures in Standard Approach (before limit of one hundred and twenty five per ten thousand) General Loan Provisions for Exposures in Standard Approach Limited by 1.25% ofRisk Weighted Assets Total Loan Provision that Exceeds Total Expected Loss Calculated According to Communiqué on Calculation of Credit Risk by Internal Ratings Based Approach Total Loan Provision that Exceeds Total Expected Loss Calculated According to Communiqué on Calculation of Credit Risk by Internal Ratings Based Approach, Limited by 0.6% Risk Weighted Assets Debt Instruments Covered by Temporary Article 4 (effective between 1.1.2018-1.1.2022) Upper Limit for Additional Tier I Capital Items subject to Temporary Article 4 Amount of Additional Tier I Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit Upper Limit for Additional Tier II Capital Items subject to Temporary Article 4 Amount of Additional Tier II Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit - 5,208 95,439 - - 5,682,970 31,286,436 12.17 12.05 18.16 0.63 0.63 6.05 - 220,123 220,123 -
157. KUVEYT T ÜRK 2017 ANNUAL REPORT 155 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) c. Approaches for assessment of adequacy of internal capital requirements for current and future activities Internal evaluation process is established for continuously evaluating and maintaining the types, components and distribution of the adequate level of capital in order to provide for various risks exposed to or to be exposed to. The final purpose of the evaluation process of the internal capital requirement, is to define and evaluate all the risks included or not in the calculations of the legal capital requirements, within the frame of the activities of the bank, and to provide the availability of adequate capital in order to cover for these risks and the application of the risk management techniques. The results obtained in this evaluation process by taking into consideration, the Bank’s growth strategy, assets-liabilities structure, funding sources, liquidity position, foreign currency position, the effects of the price and market fluctuations on the capital, which are among the variables of the economy, aim to provide the continuity of the mentioned capital adequacy level at the determined level in compliance with the Bank’s risk profile and risk appetite. Within this scope, capital structure is reviewed as based on the frame of the activities and risks exposed to, and the internal capital requirement, probable to occur within the direction of targets and strategies of the Bank is evaluated. This evaluation includes interest rate risk, concentration risk, liquidation risk, reputation risk, residual risk, country risk and strategic risk arising of the banking books as well as market, credit and operational risks. II. Explanations on Credit Risk Credit risk means the risks and damages to arise as a result of partial or complete non-fulfillment of the obligations timely by non-compliance of the counter party with the requirements of the agreement concluded with the Bank. With regards to the credit risk, the debtor or the group of debtors is subjected to risk limitation. The upper limit of the rate of the credits granted to the companies in one sector to the total credits is determined annually by the Board of Directors and is updated as required. The credit risk which the Bank is subjected to outside of Turkey is followed up by the Board of Directors within the frame of the determined limits on the basis of countries and regions. Within this scope, the total risk which the Bank had taken in the foreign country or region, the total of the credit risk taken by the banks residing abroad and/or their branches in Turkey, the total risks of the credits generated to the people residing abroad or with foreign nationality, the risk total taken over the corporate customers and/or banks to which the partners residing in Turkey but of which the principal shareholder or shareholders reside in another country, had given guarantee and in required cases, the risk total taken by the Bank in Turkey should be followed up. The risks and limits arising of the treasury transactions and customer based commercial transactions are followed up daily. Moreover, the control of the limits allocated as based on the degrees of the correspondent banks and the maximum risk that the Bank can take within its equities are also performed daily. The risk limits relevant to the transactions performed daily are determined and the risk intensity relevant to off the balance sheet transactions are being followed up. As provided for in the Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans, the credit worthiness of the debtors of the loans and the other receivables are followed up at regular intervals, in case of early determination of a probable repayment problem, the credit limits are redefined and additional guarantees are taken and this way the prevention of the bank’s loss is aimed. The account statement documents for the loan generations are taken as defined in the legislation. The guarantees are taken within the frame of the relevant legislation, by consideration of the quality of the credit and the financial structure of the company and as based on the allocation decision taken by the credit committee. The loans which do not meet the delay term required for classification as Third Group loans defined in the Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans, are qualified as “past due” loans; all the loans and receivables classified in the third, fourth and fifth groups indicated in the same Regulation are accepted to be “impaired loans”. Futures and option contracts and other similar contract positions are not held.
158. 156 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The indemnified non-cash loans are subject to the same risk weight as the unpaid credits, in accordance with the “Regulation on the Procedures and Principles for the Determination of the Qualifications of Credits and Other Receivables in Banks and the Provisions to be Forded”. Renewed and restructured loans are monitored in accordance with the methods set out in the relevant legislation. Foreign trade financing and inter-banks loan transactions are performed by a wide network of correspondents and the country risks, limits, correspondent risks and limits are regularly evaluated within this scope. There is no important credit risk concentration when evaluated together with the financial activities of the other financial institutes. The Bank’s top 100 and 200 cash loan customers represent 19% and 26% of the total cash loan portfolio, respectively. The Bank’s top 100 and 200 non-cash loan customers represent 42% and 50% of the total non-cash loan portfolio, respectively. The Bank’s top 100 and 200 cash and non-cash loan customers represent 20% and 26% of the total cash and noncash loan portfolio, respectively. The general provision for credit risk amounts to TL 405,468 (31 December 2016: TL 318,825). Exposure Categories (Current Period) Conditional and unconditional exposures to central governments or central banks Conditional and unconditional exposures to regional governments or local authorities Conditional and unconditional exposures to administrative bodies and noncommercial undertakings Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporates Conditional and unconditional retail exposures Conditional and unconditional exposures secured by real estate property Past due items Items in regulatory high-risk categories Exposures in the form of bonds secured by mortgages Securitization positions Short term exposures to banks, brokerage houses and corporates Exposures in the form of collective investment undertakings Equity share investments Other items Total Period end Risk Amount (*) 11,723,152 - Average Risk Amount (**) 10,297,058 - 6,144,711 10,176,818 7,876,889 14,381,976 18,211 7,299 157,276 3,862,084 54,348,416 6,311,543 9,738,936 6,909,911 13,373,927 64,317 21,853 104,576 3,612,594 50,434,715 Includes total risk amount before the effect of credit risk mitigation but after credit conversions. Average risk amounts are the arithmetical average of the amounts in monthly reports prepared starting from the date of publication of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks. (*) (**)
159. KUVEYT T ÜRK 2017 ANNUAL REPORT 157 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Exposure Categories (Prior Period) Conditional and unconditional exposures to central governments or central banks Conditional and unconditional exposures to regional governments or local authorities Conditional and unconditional exposures to administrative bodies and noncommercial undertakings Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporates Conditional and unconditional retail exposures Conditional and unconditional exposures secured by real estate property Past due items Items in regulatory high-risk categories Exposures in the form of bonds secured by mortgages Securitization positions Short term exposures to banks, brokerage houses and corporates Exposures in the form of collective investment undertakings Stock Investments Other items Total Period end Risk Amount (*) 10,172,133 - Average Risk Amount (**) 8,705,754 - 7,362,536 8,915,444 5,800,248 12,056,561 105,359 56,985 83,760 4,142,032 48,695,058 5,113,925 11,206,327 4,177,551 12,512,656 66,656 69,562 50,501 3,852,013 45,754,945 Includes total risk amount before the effect of credit risk mitigation but after credit conversions. Average risk amounts are the arithmetical average of the amounts in monthly reports according to the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks. (*) (**)
160. 158 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) b. Profile of significant exposures in major regions: Current Period (*) Domestic Conditional and unconditional exposures to central governments or central banks Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporates 11,723,152 3,803,495 Conditional and unconditional retail exposures Conditional and unconditional exposures secured by real estate property 10,123,609 7,848,907 14,287,876 Past due items Items in regulatory high-risk categories Exposures in the form of collective investment undertakings Other Total 18,208 7,299 138,925 - 47,951,471 European Union (EU) Countries - 614,032 2,954 2,420 12,431 - - - - 631,837 OECD Countries(**) - 673,241 840 344 976 - - - - 675,401 Off-Shore Banking Regions - 275,384 - 120 831 - - 3,824 - 280,159 USA, Canada - 330,188 - 92 1,162 1 - - - 331,443 Other Countries - 448,371 49,415 25,006 78,700 2 - 14,527 - 616,021 Associates, Subsidiaries and Joint –Ventures - - - - - - - - 377,647 377,647 Unallocated Assets/Liabilities(***) Total - - - - - - - - 3,484,437 3,484,437 11,723,152 6,144,711 10,176,818 7,876,889 14,381,976 18,211 7,299 157,276 3,862,084 54,348,416 Past due items Items in regulatory high-risk categories Exposures in the form of collective investment undertakings Other Total 105,284 56,985 69,613 - 41,170,517 Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. Includes OECD countries other than EU countries, USA and Canada. (***) Includes assets and liability items that can not be allocated on a consistent basis. (*) (**) Prior Period (*) Domestic Conditional and unconditional exposures to central governments or central banks Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporates Conditional and unconditional retail exposures Conditional and unconditional exposures secured by real estate property 10,172,133 4,304,305 8,782,624 5,789,632 11,889,941 European Union (EU) Countries - 1,209,259 1,895 532 19,473 - - - - 1,231,159 OECD Countries(**) - 433,750 1,174 16 5,143 - - - - 440,083 Off-Shore Banking Regions - 94,014 21,209 1,691 75,343 - - 361 - 192,618 USA, Canada - 395,943 174 21 1,628 - - - - 397,766 Other Countries - 925,265 108,368 8,356 65,033 75 - 13,786 - 1,120,883 Associates, Subsidiaries and Joint –Ventures - - - - - - - - 349,513 349,513 Unallocated Assets/Liabilities(***) Total - - - - - - - - 3,792,519 3,792,519 10,172,133 7,362,536 8,915,444 5,800,248 12,056,561 105,359 56,985 83,760 4,142,032 48,695,058 Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. Includes OECD countries other than EU countries, USA and Canada. (***) Includes assets and liability items that can not be allocated on a consistent basis. (*) (**)
161. (*) - - - - - - - Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction - Transportation and Telecom. - - - Educational Services Health and Social Services Others - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from regional or local governments - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from administrative units and non-commercial enterprises Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. 11,723,152 - Professional Services Total - Real Estate and Rental Services 11,723,152 - Accommodation and Dining Financial Institutions - Wholesale and Retail Trade 11,723,152 - Farming and Stockbreeding Services - Agriculture Conditional and unconditional receivables from central governments or central banks c. Risk profile by sectors or counterparties - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from multilateral development banks - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from international organizations 6,144,711 - - - - - 6,144,711 - - - 6,144,711 - - - - - - - - - Conditional and unconditional receivables from banks and brokerage houses 10,176,818 5,215,961 196,350 20,784 311 95,046 1,032 687,406 65,364 1,136,399 2,202,692 1,369,793 354,018 752,979 254,543 1,361,540 24 10,457 16,351 26,832 Conditional and unconditional receivables from Corporates 7,876,889 4,592,137 216,892 22,293 150 32,815 1,331 214,529 54,671 863,704 1,406,385 893,329 65,887 682,853 169,297 918,037 2,877 32,412 31,712 67,001 Conditional and unconditional retail receivables (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 14,381,976 10,242,402 221,971 30,285 624 62,258 1,283 182,450 93,219 1,318,295 1,910,385 879,668 53,158 1,036,530 166,850 1,256,538 484 47,808 44,691 92,983 Conditional and unconditional receivables secured by Mortgages 18,211 3,433 302 16 - 1 - 626 189 4,253 5,387 5,128 1 3,444 629 4,074 - 123 66 189 Past due receivables 7,299 966 28 52 - 79 - 89 5 1,463 1,716 556 - 3,807 125 3,932 - 129 - 129 Receivables defined in high risk category by BRSA - - - - - - - - - - - - - - - - - - - - Securities collateralized by mortgages NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ - - - - - - - - - - - - - - - - - - - - Securitization positions - - - - - - - - - - - - - - - - - - - - Short-term receivables from banks, brokerage houses and corporates 157,276 - - - - - 157,276 - - - 157,276 - - - - - - - - - Investments similar to collective investment funds 3,862,084 3,862,084 - - - - - - - - - - - - - - - - - - Other receivables TL 33,021,764 21,036,060 518,490 69,654 1,072 121,798 3,440,497 612,783 145,646 2,531,426 7,441,366 2,375,625 282,186 1,404,541 345,072 2,031,799 3,347 73,367 60,200 136,914 FC 21,326,652 2,880,923 117,053 3,776 13 68,401 14,588,288 472,317 67,802 792,688 16,110,338 772,849 190,878 1,075,072 246,372 1,512,322 38 17,562 32,620 50,220 Total(*) 54,348,416 23,916,984 635,543 73,430 1,085 190,199 18,028,785 1,085,100 213,448 3,324,114 23,551,704 3,148,474 473,064 2,479,613 591,444 3,544,121 3,385 90,929 92,820 187,134 KUVEYT TÜRK 2017 ANNUAL REPORT 159
162. (*) - - - - - - - - Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction - Transportation and Telecom. - - - Educational Services Health and Social Services Others - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from regional or local governments - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from administrative units and non-commercial enterprises Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. 10,172,133 - Professional Services Total - Real Estate and Rental Services 10,172,133 - Accommodation and Dining Financial Institutions - Wholesale and Retail Trade 10,172,133 - Prior Period Services Conditional and unconditional receivables from central governments or central banks - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from multilateral development bank - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from international organizations 7,362,536 - - - - - 7,362,536 - - - 7,362,536 - - - - - - - - - Conditional and unconditional receivables from banks and brokerage houses 8,915,444 591,374 168,279 45,431 32 289,348 24,139 698,823 51,603 1,161,617 2,439,272 2,079,689 1,373,319 1,881,530 476,706 3,731,555 24 11,039 62,493 73,556 Conditional and unconditional receivables from Corporates 5,800,248 1,376,422 233,691 19,951 442 46,623 4,446 286,889 52,379 1,334,400 1,978,821 979,590 83,596 1,020,827 269,497 1,373,920 591 38,621 52,283 91,495 Conditional and unconditional retail receivables (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 12,056,561 3,992,470 239,023 128,116 258 273,481 24,213 319,276 217,081 2,127,021 3,328,469 2,442,200 110,483 1,720,147 334,786 2,165,416 10,922 66,207 50,874 128,003 Conditional and unconditional receivables secured by Mortgages 105,359 22,856 3,046 32 - 1,996 - 5,006 2,899 23,811 36,790 20,356 440 21,386 2,472 24,298 42 592 425 1,059 Past due receivables 56,985 1,231 2,309 32 - - - 803 2,302 20,293 25,739 15,440 693 6,802 1,582 9,077 2,831 2,366 301 5,498 Receivables defined in high risk category by BRSA - - - - - - - - - - - - - - - - - - - - Securities collateralized by mortgages NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ - - - - - - - - - - - - - - - - - - - - Securitization positions - - - - - - - - - - - - - - - - - - - - Short-term receivables from banks, brokerage houses and corporates 83,760 - - - - - 83,760 - - - 83,760 - - - - - - - - - Investments similar to collective investment funds 4,142,032 4,142,032 - - - - - - - - - - - - - - - - - - Other receivables TL 20,355,816 7,129,280 444,908 129,871 649 135,218 3,540,545 479,165 170,604 2,489,646 7,390,606 3,198,215 179,008 1,779,487 487,378 2,445,873 13,160 78,080 100,602 191,842 FC 28,339,241 2,997,105 201,440 63,691 83 476,230 14,130,682 831,632 155,660 2,177,496 18,036,914 2,339,060 1,389,523 2,871,205 597,665 4,858,393 1,250 40,745 65,774 107,769 Total(*) 48,695,058 10,126,385 646,348 193,562 732 611,448 17,671,227 1,310,797 326,264 4,667,142 25,427,520 5,537,275 1,568,531 4,650,692 1,085,043 7,304,266 14,410 118,825 166,376 299,611 160 SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES
163. KUVEYT T ÜRK 2017 ANNUAL REPORT 161 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) b. Analysis of maturity-bearing exposures according to remaining maturities: Exposure Categories (*)– Current Period Conditional and unconditional exposures to central governments or central banks Conditional and unconditional exposures to regional governments or local authorities Conditional and unconditional exposures to administrative bodies and non-commercial undertakings Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporates Conditional and unconditional retail exposures Conditional and unconditional exposures secured by real estate property Past due exposures Items in regulatory high-risk categories Items in regulatory high-risk categories Securitization positions Short term exposures to banks, brokerage houses and corporates Exposures in the form of collective investment undertakings Other items Total (*) Term to Maturity 1 month 1–3 months 3–6 mounts 6–12 months Over 1 year 733,495 - - - 3,976,618 - - - - - - - - - - - - - - - - - - - - 278,390 468,873 472,012 154,059 1,195,356 2,715,591 1,539,990 207,537 204,543 365,881 381,882 910,098 690,451 5,945,187 4,879,665 2,344,188 125 139,328 2,418 441,883 40 957,315 460 10,499,262 4,256 - - - - - - - - - - 157,276 7,769,055 1,022,699 1,661,698 Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. 2,712,383 26,500,344
164. 162 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Term to Maturity 1 month 1–3 months 3–6 mounts 6–12 months Exposure Categories (-) Prior Period Conditional and unconditional exposures to central governments or central banks 1,181,398 Conditional and unconditional exposures to regional governments or local authorities Conditional and unconditional exposures to administrative bodies and non-commercial undertakings Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and brokerage houses 117,994 Conditional and unconditional exposures to corporates 1,703,371 Conditional and unconditional retail exposures 566,460 Conditional and unconditional exposures secured by real estate property 330,512 Past due items Items in regulatory high-risk categories 26,038 Items in regulatory high-risk categories Securitization positions Short term exposures to banks, brokerage houses and corporates Exposures in the form of collective investment undertakings 4,073 Other items Total 3,929,846 (*) (*) Over 1 year - - - 2,843,165 - - - - - - - - - - - - - - - - 749,327 478,971 151,718 1,166,445 245,383 194,535 449,780 444,758 793,041 934,129 5,697,019 3,499,088 131,511 295,867 1,042,870 10,255,801 2,830 4,630 6,552 16,935 - - - - - - - - 6,282 1,329,868 19,101 1,693,107 6,027 2,934,337 48,277 23,526,730 Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. e. Exposure Categories In compliance with the 7th article of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks, determination of the risk weights in calculation of the risk weighted sums is performed based on the credit ratings provided by the rating companies. The ratings of an international credit rating institution are used for Banks and Corporate Receivables and being limited to the receivables in which the counter party resides abroad The banks and institutions residing in the country are evaluated without rating.
165. KUVEYT T ÜRK 2017 ANNUAL REPORT 163 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) “Credit Quality Levels” corresponding to the ratings of the credit rating institution are given in the following table. Credit Quality Grade 1 2 3 4 5 6 Unrated Fitch Risk Rating AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C D Unrated Exposures to Central Governments or Central Banks Exposure Categories Exposures from Banks and Brokerage Houses Exposures with Exposures with Remaining Remaining Maturities Less Maturities More Than 3 Months Than 3 Months Exposures to Corporates %0 %20 %20 %20 %20 %20 %50 %50 %50 %20 %50 %100 %100 %50 %100 %100 %100 %50 %100 %150 %150 %150 %150 %150 100% 20% (*) 50% (*) 100% (*) This is used under the condition of not being less than the implemented one in the centralized management of the Bank’s located country.
166. 164 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) f. Credit risk using the standard approach: Credit risk exposed and credit risk mitigation effects: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Risk Classes Receivables from central governments and Central Banks Receivables from regional and local government Receivables from administrative bodies and non-commercial entities Receivables from multilateral development banks Receivables from international organizations Receivables from banks and brokerage houses Receivables from corporate Retail receivables Receivables secured by residential property Receivables secured by commercial property Non-performing receivables Receivables in high-risk categories Mortgage-backed securities Short term receivables to banks, brokerage houses and corporates Investments similar to collective investment funds Other receivables Equity share investments Total Receivable before CCF and Receivable post-CCF and CRM CRM On-balance Off-balance On-balance Off-balance sheet amount sheet amount sheet amount sheet amount RWA and RWA density RWA RWA density 10,989,657 - 10,989,657 - 1,028,746 9 - - - - - - - - - - - - - - - - - - - - - - - - 5,811,984 7,242,439 5,962,561 1,048,111 5,969,775 5,825,652 5,811,984 7,242,439 5,962,561 213,883 2,929,027 1,908,081 3,073,078 9,986,925 5,792,965 51 98 74 6,150,505 669,805 6,150,505 285,231 2,229,734 35 7,383,780 18,211 7,299 - 1,175,277 - 7,383,780 18,211 7,299 - 560,827 - 5,007,288 15,721 10,949 - 63 86 150 - - - - - - - 157,276 3,862,084 47,585,796 14,688,620 157,276 3,862,084 47,585,796 5,897,049 54,648 1,665,132 28,865,186 35 43 644
167. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Risk Classes / Risk Weights Receivables from central governments and Central Banks Receivables from regional and local government Receivables from administrative bodies and non-commercial entities Receivables from multilateral development banks Receivables from international organizations Receivables from banks and brokerage houses Receivables from corporate Retail receivables Receivables secured by residential property Receivables secured by commercial property Non-performing receivables Receivables in high-risk categories Mortgage-backed securities Short term receivables to banks, brokerage houses and corporates Investments similar to collective investment funds Equity share investments Other receivables Total Exposures by asset classes and risk weights: 0% 8,936,126 48,312 122,048 88,378 41,708 49,693 2 58,851 1,953,718 11,298,836 10% - 20% 1,252,195 78,117 79,514 54,506 66,690 28,313 304,042 1,863,377 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 50% 2,049,570 3,805,442 5,668,548 4,977 42,253 11,570,790 75% 7,702,750 7,702,750 NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ 100% 3,961 919,918 9,971,301 2,159,676 13,232 27,859 1,604,324 14,700,271 150% 7,299 7,299 200% Others - 6,339,522 - 6,339,522 Total risk amount (postCCF and CRM) 10,989,657 6,025,867 10,171,466 7,870,642 6,435,736 7,944,607 18,211 7,299 157,276 3,862,084 53,482,845 KUVEYT TÜRK 2017 ANNUAL REPORT 165
168. 166 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) f. Risk amounts according to risk weights: Current Period 0% 10% 20% 35% 50% 75% 100% 150% 200% Deductions from Equity Exposures before Credit Risk Mitigation 10,997,007 - 1,584,550 6,435,736 11,655,173 7,870,642 14,932,438 7,299 - 171,117 Exposures after Credit Risk Mitigation 11,298,836 - 1,863,377 6,339,522 11,570,790 7,702,750 14,700,271 7,299 - 171,117 0% 10% 20% 35% 50% 75% 100% 150% 200% Deductions from Equity Exposures before Credit Risk Mitigation 4,576,074 - 1,880,300 5,415,558 16,732,966 5,798,200 12,818,520 57,222 - 100,647 Exposures after Credit Risk Mitigation 4,755,796 - 2,082,563 5,377,873 16,653,668 5,684,604 12,667,114 57,222 - 100,647 Risk Weights Prior Period Risk Weights g. Information by major sectors and type of counterparties Impaired Loans; are the credits that either overdue more than 90 days as of the reporting date or are treated as impaired due to their creditworthiness. For such credits, “specific provisions” are allocated as per the Provisioning Regulation. Past Due Loans; are the credits that overdue up to 90 days but not impaired. For such credits, “general provisions” are allocated as per the Provisioning Regulation. Current Period Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accommodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services. Professional Services Educational Services Health and Social Services Others Total (*) Credits Impaired Credits Past due Credits 11,913 8,155 2,121 861 4,889 7,293 4,903 1 117,724 371,499 38,749 77,201 59,645 260,600 19,330 33,698 200,518 232,952 341,976 309,913 216,419 210,527 11,799 10,753 18,759 17,756 65,432 530 11,281 41,999 714,130 The general provision amount is presented for past due loans. 35,486 12,207 552 40,388 237,930 1,160,449 Provisions Value Adjustments (*) 48 21 27 5,795 1,279 3,871 645 5,518 6,795 4,483 671 559 259 54 769 4,162 22,318 Provisions 11,293 1,997 4,393 4,903 102,452 37,324 45,799 19,329 189,524 329,029 206,034 11,546 17,368 17,756 65,276 402 10,647 34,649 666,947
169. KUVEYT T ÜRK 2017 ANNUAL REPORT 167 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Prior Period Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accommodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services. Professional Services Educational Services Health and Social Services Others Total (*) Credits Impaired Credits Past due Credits 12,911 7,418 2,096 2,880 5,496 3,700 5,319 838 151,649 356,287 40,872 101,654 107,475 245,392 3,302 9,241 207,297 329,181 304,037 556,834 225,312 361,914 11,949 49,255 43,191 7,244 1,106 15,235 72,168 748,062 Provisions Value Adjustments (*) 149 59 74 16 7,237 1,958 5,067 212 6,821 11,171 7,209 1,015 73,849 43 33,227 6,629 31,917 294,429 1,544,149 Provisions 6,356 1,371 2,538 2,447 118,278 36,822 79,288 2,168 171,501 241,443 181,142 6,748 1,505 1 643 133 665 5,685 31,063 37,382 5,248 1,042 9,881 48,145 585,723 The general provision amount is presented for past due loans. h. Movements in value adjustments and provisions Current Period Specific Provisions General Provisions (*) Opening Balance 585,723 318,825 Provision for Period 629,878 101,046 Provision Reversals(*) (87,301) (14,403) Other Adjustments(**) (461,353) - Closing Balance 666,947 405,468 Provision for Period 461,561 - Provision Reversals (57,039) (15,293) Other Adjustments(**) (136,859) - Closing Balance 585,723 318,825 Include its gain loss and reversal at provisions. Prior Period Specific Provisions General Provisions (**) Opening Balance 318,060 334,118 Represents written-off loans.
170. 168 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) ı. Risk involved in counter-cyclical capital buffer calculation Country Turkey Bahrain Saudi Arabia Marshall Islands Albania Kuwait Uzbekistan Burundi United Arab Emirates Germany Other RWAs of Banking Book for Private Sector Lending 22,921,263 49,193 28,069 9,596 8,075 6,812 4,059 3,849 3,241 1,969 17,783 RWAs of Trading Book - Total 22,921,263 49,193 28,069 9,596 8,075 6,812 4,059 3,849 3,241 1,969 17,783 i. Information of Cash and Noncash Loans according to Bank Risk Rating System The bank calculates the probability of delinquency and internal rating notes for the portfolio of Corporate/Commercial/ SME loans based on statistical methods in Turkish Commercial Code. Ratings are shown the table below as of 31 December 2017. High Quality Medium Quality Average Below Average Unrated Cash Loans 54% 28% 9% 5% 4% Non-Cash Loans 69% 20% 6% 2% 3% Total 57% 26% 9% 4% 4% III. Explanations on currency risk Foreign currency risk represents the Bank’s exposure to loss due to the changes in foreign currency exchange rates. All foreign currency assets, liabilities and foreign currency forward transactions are considered in calculation of capital to be employed for foreign currency risk according to Standard Method. The Bank monitors daily the designated limits set by the Board of Directors and additionally observes the possible value changes in foreign currency positions. The limits are determined and followed both for the net foreign currency position and for the cross exchange rate risk within the position. As a tool of foreign currency risk management, foreign currency forward transactions are used when necessary to mitigate the risk. As of 31 December 2017, the Bank carries a net foreign currency long position of TL 140,408 (31 December 2016 – TL 40,832 long position) comprising of TL 25,686 balance sheet long position (31 December 2016 - TL 4,193,214 long position) and TL 114,722 off balance sheet short position (31 December 2016 – TL 4,152,382 short position).
171. KUVEYT T ÜRK 2017 ANNUAL REPORT 169 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The announced current foreign exchange buying rates of the Bank as of the date of the financial statement and for the five working days that are backed from that date are as follows (full TL): USD EURO GBP CHF 100 JPY 25/12/2017 3.8091 4.5213 5.0956 3.8524 0.0336 26/12/2017 3.8051 4.5136 5.0849 3.8435 0.0336 27/12/2017 3.8205 4.5410 5.1208 3.8618 0.0337 28/12/2017 3.7987 4.5353 5.1067 3.8747 0.0337 29/12/2017 3.7779 4.5264 5.1019 3.8706 0.0336 Balance sheet evaluation rate 3.7779 4.5264 5.1019 3.8706 0.0336 The simple arithmetic averages of the major current foreign exchange buying rates of the Bank for the thirty days preceding the balance sheet date are as follows (full TL): USD EUR GBP CHF 100 JPY Monthly average FC purchase rate 3.8419 4.5501 5.1550 3.8911 0.0340
172. 170 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Currency risk of the Bank: EURO USD Other FC Total Current period Assets Cash (cash in vault, effectives, money in transit, cheques purchased) and balances with the Central Bank of the Republic of Turkey (****) Banks Financial assets at fair value through profit and loss Money market placements Available-for-sale financial assets (**) Loans and finance lease receivables (*) Subsidiaries, associates and joint ventures (**) Held-to-maturity investments Derivative financial assets for hedging purposes Tangible assets Intangible assets Other assets 786,431 2,636,644 4,218,083 293,694 547,563 4,939,786 482,842 53,935 2,340,656 9,789,249 184 53 33,318 2,581,617 449,130 56,688 149 8,307,834 3,568,616 53,935 2,340,656 14,064,020 293,694 184 53 581,030 Total assets 8,482,415 17,640,023 3,087,584 29,210,022 22,145 4,212,541 156,185 8,157 37,250 67,107 12,517,621 8,115,897 17,910 61,702 216,582 2,865,992 861,464 543 23,240 305,834 19,596,154 9,133,546 26,610 122,192 4,436,278 20,780,237 3,967,821 29,184,336 Net balance sheet position Net off-balance sheet position Financial derivative assets Financial derivative liabilities Non-cash loans (***) 4,046,137 (3,986,204) 519,504 4,505,708 1,546,017 (3,140,214) 3,230,809 5,406,552 2,175,743 2,616,933 (880,237) 870,117 1,368,737 498,620 404,125 25,686 114,722 7,294,793 7,180,071 4,567,075 Prior period Total assets Total liabilities Net balance sheet position Net off-balance sheet position Financial derivative assets Financial derivative liabilities Non-cash loans (***) 9,418,360 3,067,518 6,350,842 (6,447,687) 311,483 6,759,170 1,653,385 15,652,270 17,264,577 (1,612,307) 1,761,924 3,966,378 2,204,454 2,698,112 2,582,132 3,127,453 (545,321) 533,381 1,158,845 625,464 360,108 27,652,762 23,459,548 4,193,214 (4,152,382) 5,436,706 9,589,088 4,711,605 Liabilities Current account and funds collected from Banks via participation accounts Current and profit sharing accounts FC (****) Money market borrowings Funds provided from other financial institutions Marketable securities issued Miscellaneous payables Derivative financial liabilities for hedging purposes Other liabilities (*****) Total liabilities Includes foreign currency indexed loans amounting to TL 7,240,328 (31 December 2016 – TL 7,272,665 ) followed as TL on the balance sheet. TL 714 (31 December 2016 – TL 714) of available for sale securities amounting to TL 2,088,123 and TL 293,646 (31 December 2016 – TL 270,560) of investment in associates amounting to TL 377,647 includes foreign currency denominated foreign associates and subsidiaries. (***) Does not have any effect to the net off-balance sheet position. (****) Precious metals are included in “Other FC” column. (*****) General provision for FC indexed loans amount of TL 33,718 included in Other Liabilites. General loan provisions for the Bank’s share and provisions for financial assets at fair value through profit and loss amount of TL 76,209 and TL 380 respectively are not included in currency risk of the Bank. (*) (**)
173. KUVEYT T ÜRK 2017 ANNUAL REPORT 171 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Foreign currency amounts that are not included in the currency risk table due to the legislation related to calculation of foreign currency net position to equity standard ratio, are explained by their gradation in the financial statements below; • • • • • Derivative financial assets held for trading TL 12,531 (31 December 2016 – TL 87,833) Prepaid expenses : TL 408 (31 December 2016 – TL 646) Derivative financial liabilities held for trading : TL 59,251 (31 December 2016 – TL 79,147) Marketable securities of FC revaluation reverse: TL 12,609 (31 December 2016 – TL 30,347) Derivative financial liabilities held for hedging : TL 70,795 (31 December 2016- TL 137,829) Receivables/Payables related to derivative financial instruments include foreign currency purchase/sale transactions that are amounting to; • • Forward foreign currency purchase transactions TL 492,048 (31 December 2016 - TL 306,728) Forward foreign currency sale transactions: TL 456,030 (31 December 2016 - TL 403,440) Currency risk sensitivity: The bank is mainly exposed to foreign currency risk in EURO, USD and GOLD. The following table shows the bank’s sensitivity to 10% change both USD, EURO and GOLD exchange rate. % changes on foreign currency USD EURO GOLD %10 %10 %10 Effects on profit/loss Current period Prior period 9,060 14,962 5,993 (9,685) (11,072) (11,023) Effects on equity Current period Prior period 10,320 11,927 5,993 (9,685) (11,072) (11,023) IV. Explanations on position risk of equity securities in banking book a. Relation of risks with gains accounted under equity and analyzing according to their aims including strategic reasons and the accounting policies applied and general information about valuation techniques with assumptions in this application, the elements that manipulate valuation and important changes: The Bank’s non-quoted securities are accounted for fair value. When the fair value cannot be reliably measured, the cost method is used.
174. 172 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) b. Carrying value of share investments, for fair value and quoted securities, comparison with market value if market value is significantly different from fair value: 1 2 3 4 1 2 3 4 Current Period Equity Securities (shares) Securities Available-for-Sale (*) Quoted Securities Investments in Associates Quoted Securities Investment in Subsidiaries Quoted Securities Other Quoted Securities Carrying Value 48,497 377,647 50,173 20,000 - Comparison Fair Value - Market Value - Prior Period Equity Securities (shares) Securities Available-for-Sale (*) Quoted Securities Investment in Subsidiaries Quoted Securities Investments in Associates Quoted Securities Other Quoted Securities Carrying Value 53,485 349,513 50,173 20,000 - Comparison Fair Value - Market Value - c. Realized gains/losses, revaluation surpluses and unrealized gains/losses on equity securities and results included in core and supplementary capitals: None. V. Explanations on liquidity risk management and liquidity coverage ratio: The liquidity risk of the Bank is the risk of being unable to fulfill its payment obligations on time due to not having enough cash sources or cash inflows to finance its cash outflows fully and on time due to cash flow instabilities. It has been evaluated in two main categories: Funding Liquidity Risk : It is a kind of risk which does not meet the any unexpected loss and non defaulting debts and liabilities. Market Liquidity Risk : It is a kind of risk which consists of the position that cannot be sold without affecting market price due to insufficient market depth or market conditions’ deterioration or that cannot be completed with the position of market price for any reasons. 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 applications and responsibilities related to the liquidity risk has been determied according to the Treasury Liquidity and Market Management Policies and Practices approved by Board of Directors. The Bank’s liquidity and funding policy is to own sufficient liquidity reserve and funding opportunities to meet its liabilities even in cases of stress, resulting from the market conditions or other conditions specific to the Bank. The Bank, with its strong capital structure and its main shareholder is Kuwait Finance House’s support, spread the base of current and participation accounts and be stable, diversified sources of foreign borrowing has a high risk capacity. In addition, the Liquidity Coverage Ratio of the Bank which meets its cash outflows with the high-quality liquid assets is evaluated as high. There are also ready-to-use limits for the CBRT and financial institutions.
175. KUVEYT T ÜRK 2017 ANNUAL REPORT 173 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Senior management in the ALCO meetings are analyzed indicators of the liquidity situation and liquidity risk are weekly discussed. In addition, the Board of Directors are informed through the Audit Committee. For the management of liquidity risk, the Risk Management Department follows the funding and liquidity risks, market conditions, in the participating accounts, the distribution of different currencies, maturity, cost and expected future cash flow requirements (particularly with regard to large deposits). Reports on the liquidity gap analysis prepared weekly by Budget and Management Reporting and monitored by the Asset and Liability Committee. These units also estimate the possible liquidity needs of the Bank in case of urgent situations and generate action plans based on these estimates. Risk Management Department follows the limits on liquidity risk determined by the Board of Directors. Risk Management Department, in addition to these, is implementing monthly liquidity stress tests to measure the effects of negative scenarios on liquidity position of the Bank. The Treasury Group Managemant manages the liquidity risk and funding risk in order to prevent insufficiencies of funding relating to any time or any source and makes reports related with the liquidity position to Asset and Liability Committee regularly. External Reporting Directorate tracks the liquidity coverage ratio and the results are reported to the BRSA. b. Information on the centralization degree of liquidity management and funding strategy and the functioning between the Bank and the Bank’s subsidiaries: The Bank’s liquidity management is performed by the Asset and Liability Management. Depending on the Bank’s consolidated subsidiaries are subject to liquidity risk is managed in-house, but the necessary communication and coordination within the Assistant General Manager in charge of Treasury and International Banking are provided. c. Information on the Bank’s funding strategy including the policies on funding types and variety of maturities: Bank spread to the base of current and participation accounts and that a stable, long-term diversification and aims to be the source of the funds used. Ratio of liquid assets to total assets ratio and risk indicators related to liquidity, credit and the ratio of funds, issues such as the concentration in collected funds are being closely monitored. ç. Information on liquidity management on the basis of currencies constituting a minimum of five percent of the Bank’s total liabilities: Almost all total liabilities of the Bank consists of the Turkish Lira, Amarican Dollar, Euro, Malaysian Ringgit, or Gold. TL liquidity of the Bank is managed through the open market transactions implemented by the Central Bank of the Turkish Republic and interbank operations. Liabilites in the form of TL are used in order to fund assets in the form of TL, assets in the form of TL are generated thruogh foreign exchange based funds with swap operations if necessary. Foreign currency funds are provided with the foreign sourced credits in the form of foreign currency and sukukfinancial certificates issued. Liquidity in the form of foreign currency is kept at the interbank operations and accounts of the corresponding bonds within the limits. Liabilities in the form of Gold are kept at the required reserve accounts of the Central Bank of the Turkish substantialy. d. Information on liquidity risk mitigation techniques: Liquidity risk is mitigated by using techniques such as maintaining high quality liquid asset buffer to cover possible fund outflows, diversification of funding sources so far as possible and inclusion to the base, hom*ogenizing the maturity distribution of repayments as far as possible, obtaining limits from funding institutions to use when necessary and ensuring that a determined portion of funding sources are comprised of deposits. In addition,core deposit analysis is performed and concentration on collected funds are closely monitored. e. Information on the use of stress tests: In order to analyze the source of the possible liquidity insufficiencies and whether comformably move exists on existing off-balance sheet and balance sheet positions relavent with liquidity risk expectation, 3 types liquidity stress tests are applied by Risk Management Directorate. These includes stress test scenarios are special to the Bank, related with the overall market or scenarios take in consideration both of the situations. Stress tests telated with liquidity risk are repeated at monthly periods. Results are tracked with key risk indicators and monitored by Senior Management.
176. 174 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) f. General information on urgent and unexpected liquidity situation plans: Necessary strategy and procedures for the management of possible liquidity crisis are determined with the Liquidity Contingency Plan, which is approved and reviewed every year by the Executive Risk Committee. The actions to be taken favor the benefits of depositors, creditors of the Bank and shareholders. Indicators of Liquidity Contingency Plan were determined, in case of unexpected progress at the liquidity situation occur or at situations trigger of other indicators, plan is put into use. After Liquidity Contingency Plan is put into use, Liquidity Contingency Management Commitee is responsible from the determination of actions to be taken. Analysis of financial liabilities by remaining contractual maturities: The following table is prepared before the Bank’s liabilities are undiscounted and based on the earliest date to the payment. Adjustment column shows the items that give rise to probable cash exit according to contractual terms at later period. The items that is mentioned is included the maturity analysis however it is not included the balance sheet value of financial liabilities at the balance sheet. Up to 1 month 1-3 month 3-12 mount 35,186,932 3,460,101 1,193,540 710,591 840,930 3,121,387 1-5 years Above 5 years Total Balance Adjustments Sheet Value 16,827 - 39,857,400 - 39,857,400 5,522,439 1,687,880 11,883,227 (1,491,380) 10,391,847 31 December 2017 Collective Fundings Other Fundings Funds provided under repurchase agreements Total 751,048 - - - - 751,048 (524) 750,524 36,648,571 4,301,031 4,314,927 5,539,266 1,687,880 52,491,675 (1,491,904) 50,999,771 31 December 2016 Collective Fundings Other Fundings Funds provided under repurchase agreements 27,773,102 3,115,215 1,001,456 11,990 - 31,901,763 - 31,901,763 632,736 1,065,036 2,389,249 6,179,530 1,669,596 11,936,147 (1,917,680) 10,018,467 1,258,349 - - - - 1,258,349 (38,476) 1,219,873 Borrowings from Leasings Total - - 229 - - 229 (3) 226 29,664,187 4,180,251 3,390,934 6,191,520 1,669,596 45,096,488 (1,956,159) 43,140,329
177. KUVEYT T ÜRK 2017 ANNUAL REPORT 175 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Maturity analysis for guarantees and contingencies: 31 December 2017 Letters of Guarantee Bills of Exchange and Bank Acceptances Letters of Credit Other guarantees Pre-financings given as guarantee Total 31 December 2016 Letters of Guarantee Bills of Exchange and Bank Acceptances Letters of Credit Other guarantees Pre-financings given as guarantee Total Demand Up to 1 month 1-3 month 3-12 month 1-5 years Above 5 years Unallocated 4,906,261 208,190 537,290 2,103,104 1,748,757 62,536 - 9,566,138 279,735 305,907 13,380 112,881 593 19,098 263,010 2,971 21,497 264,459 162,176 1,983 12,015 14,393 - - 55,958 932,100 486,040 27,919 5,519,822 335,044 822,369 2,551,236 1,777,148 62,536 27,919 - 11,068,155 3,913,667 166,539 572,861 1,876,238 1,471,708 113,831 - 8,114,844 148 369,976 151,402 5,407 76,908 263 15,320 247,672 2,284 28,850 268,172 302,238 2,319 57,058 220,284 - - 52,044 1,019,786 676,471 25,642 4,460,835 249,117 838,137 2,475,498 1,751,369 113,831 - 25,642 9,888,787 Total Contractual maturity analysis of derivative instruments: 31 December 2017 Derivatives financial assets held for trading Foreign exchange derivatives: Entry Exit Hedging purposes financial assets Foreign exchange derivatives Entry Exit Total Cash Inflow Total Cash Outflow Up to 1 month 1-3 months 3-12 months 1-5 years 5 years and over Total 4,828,993 4,859,152 1,140,288 1,142,688 815,983 866,404 - - 6,785,264 6,868,244 4,828,993 4,859,152 1,140,288 1,142,688 815,983 866,404 746,440 819,063 746,440 819,063 - 746,440 819,063 7,531,704 7,687,307
178. 176 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 31 December 2016 Derivatives financial assets held for trading Foreign exchange derivatives: Entry Exit Hedging purposes financial assets Foreign exchange derivatives Entry Exit Total Cash Inflow Total Cash Outflow Up to 1 month 1-3 months 3-12 months 1-5 years 5 years and over Total 7,742,474 7,751,615 1,354,727 1,351,680 232,490 223,921 - - 9,329,691 9,327,216 7,742,474 7,751,615 1,354,727 1,351,680 232,490 223,921 628,152 762,972 628,152 762,972 - 628,152 762,972 9,957,843 10,090,188 Liquidity Coverage Ratio Current Period High-Quality Liquid Assets 1 Total high-quality liquid assets (HQLA) Cash Outflows Retail deposits and deposits from small usiness 2 customers, of which: 3 Stable deposits 4 Less stable deposits 5 Unsecured wholesale funding, of which: 6 Operational deposits 7 Non-operational deposits 8 Unsecured funding 9 Secured wholesale funding 10 Other cash outflows of which Outflows related to derivative exposures and 11 other collateral requirements Outflows related to restructured financial 12 instruments Payment commitments and other off-balance sheet 13 commitments granted for debts to financial markets Other revocable off-balance sheet commitments 14 and contractual obligations Other irrevocable or conditionally revocable off15 balance sheet obligations 16 Total Cash Outflows Cash Inflows 17 Secured receivables 18 Unsecured receivables 19 Other cash inflows 20 Total Cash Inflows 21 22 23 (*) Total HQLA Total Net Cash Outflows Liquidity Coverage Ratio (%) Total Unweighted Value (Average) (*) TL+FC FC Total Weighted Value (Average) (*) TL+FC FC 9,241,665 8,060,513 9,199,442 8,018,290 27,782,868 8,853,762 18,929,106 8,201,705 7,479,666 722,039 12,778,991 12,778,991 4,077,294 3,999,733 77,561 21,400,263 10,829,912 2,335,598 442,688 1,892,910 4,123,296 3,401,257 722,039 8,183,772 1,277,899 1,277,899 2,008,329 1,930,768 77,561 6,425,919 6,814,394 6,185,757 6,814,394 6,185,757 320,000 - 320,000 - - - - - - - - - 14,265,869 4,644,155 1,049,378 14,642,666 240,162 9,712,147 6,637,367 6,993,193 13,630,560 4,169,519 5,664,245 9,833,764 5,037,108 3,778,429 6,993,193 5,664,245 12,030,301 9,442,674 Total Adjusted Value 9,199,442 8,018,290 3,660,667 2,428,037 251.31 330.24 The average of last three months’ liquidity coverage ratio calculated by quarterly and weekly simple averages.
179. KUVEYT T ÜRK 2017 ANNUAL REPORT 177 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The table below presents highest, lowest and average liquidity coverage ratios as of 31 December 2017: TL+FC FC Highest 648.12 980.02 Date 10.03.2017 10.03.2017 Lowest 137.26 283.29 Date 29.09.2017 12.05.2017 Average 268.61 429.45 The liquidity coverage rate is calculated by the ratio of the high quality liquid assets that the bank has to the net cash outflows in the one month maturity window. Important balance sheet items that determine the rate; Required reserves held by CBRT, securities not subject to repo / receivables, institutional qualified participation accounts, funds originated from abroad and receivables from banks. These items have higher share of liquid assets and net cash outflows, higher than other items due to their high rate of consideration and their variability over time. Prior Period High-Quality Liquid Assets 1 Total high-quality liquid assets (HQLA) Cash Outflows Retail deposits and deposits from small usiness 2 customers, of which: 3 Stable deposits 4 Less stable deposits 5 Unsecured wholesale funding, of which: 6 Operational deposits 7 Non-operational deposits 8 Unsecured funding 9 Secured wholesale funding 10 Other cash outflows of which Outflows related to derivative exposures and 11 other collateral requirements Outflows related to restructured financial 12 instruments Payment commitments and other off-balance sheet 13 commitments granted for debts to financial markets Other revocable off-balance sheet commitments 14 and contractual obligations Other irrevocable or conditionally revocable off15 balance sheet obligations 16 Total Cash Outflows Cash Inflows 17 Secured receivables 18 Unsecured receivables 19 Other cash inflows 20 Total Cash Inflows 21 22 23 (*) Total Unweighted Value (Average) (*) TL+FC FC Total Weighted Value (Average) (*) TL+FC FC 7,248,378 6,328,808 6,144,352 5,224,782 23,479,779 16,612,915 6,866,864 6,214,737 2,319,448 2,213,026 1,682,263 9,318,830 6,692,505 2,626,325 2,217,841 1,241,513 912,697 63,631 5,309,816 2,511,422 1,517,332 830,646 686,686 3,845,879 579,862 1,583,754 1,682,263 424,294 597,257 334,625 262,632 934,698 310,379 560,688 63,631 274,342 10,561 - 10,561 - - - - - 5,299,255 2,511,422 413,733 274,342 - - - - - - 5,787,505 1,806,297 4,589,956 44,971 4,634,927 4,468,844 3,350,234 7,819,078 Total HQLA Total Net Cash Outflows Liquidity Coverage Ratio (%) 662,942 595,905 44,971 3,350,234 707,913 3,946,139 Total Adjusted Value 6,144,352 5,224,782 5,079,592 451,574 120.96 1,157.02 The average of last three months’ liquidity coverage ratio calculated by quarterly and weekly simple averages. The table below presents highest, lowest and average liquidity coverage ratios as of 31 December 2016: TL+FC FC Highest 294.78 1,498.10 Date 08.01.2016 05.08.2016 Lowest 110.53 393.39 Date 30.12.2016 25.03.2016 Average 166.66 1,132.26
180. 178 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Presentation of assets and liabilities according to their remaining maturities: Demand Up to 1 month Cash (cash in vault, effectives, cash in transit, Cheques purchased) and balances with the Central Bank of the Republic of Turkey 2,479,323 6,453,533 - - - - - 8,932,856 Banks 3,576,020 - - - - - - 3,576,020 Financial assets at fair value through profit and loss - 118,374 71,971 20,723 25,675 6,664 - 243,407 Money market placements - - - - - - - - Available-for-sale financial assets - 827,887 814,956 465,712 1,464,003 677,363 178,144 4,428,065 Loans (*) - 6,065,576 4,680,422 12,260,449 12,782,869 2,134,042 47,183 37,970,541 Current period 1-3 Months 3-12 months 1-5 years Over 5 years Unallocated (**) Total Assets Held-to-maturity investments Other assets (**) Total assets - - - - - - - - 28,625 702,108 166,573 - 138,710 - 936,190 1,972,206 6,083,968 14,167,478 5,733,922 12,746,884 14,411,257 2,818,069 1,161,517 57,123,095 301,751 8,472 - - - - - 310,223 15,741,285 19,135,424 3,460,101 1,193,540 16,827 - - 39,547,177 Liabilities Current account and funds collected from banks via participation accounts Current and profit sharing accounts Funds provided from other financial institutions - 701,294 769,971 2,806,542 4,753,702 1,360,338 - 10,391,847 Money market borrowings - 750,524 - - - - - 750,524 Marketable securities issued - - - - - - - - 136,939 61,180 - - - - - 198,119 - 378,457 73,047 20,315 70,795 - 5,382,591 5,925,205 16,179,975 21,035,351 4,303,119 4,020,397 4,841,324 1,360,338 5,382,591 57,123,095 (6,867,873) 1,430,803 8,726,487 9,569,933 1,457,731 (4,221,074) (6,867,873) - Miscellaneous payables Other liabilities (**) Total liabilities Net liquidity gap Prior period 7,740,961 12,431,459 4,464,326 9,752,037 11,088,461 1,876,067 1,123,644 48,476,955 Total liabilities Total assets 12,085,087 18,135,868 4,194,878 3,094,192 5,205,361 1,267,765 4,493,804 48,476,955 Net liquidity gap (4,344,126) (5,704,409) 269,448 6,657,845 5,883,100 608,302 (3,370,160) - This line also includes receivables from leasing transactions. Certain assets in the balance sheet that are necessary for the banking operations but cannot be readily convertible into cash in the near future, such as tangible assets, investments in associates and subsidiaries, joint ventures, stationary supplies and prepaid expenses are included under unallocated assets. The unallocated other liabilities column consists of equity and provisions balances. (*) (**)
181. KUVEYT T ÜRK 2017 ANNUAL REPORT 179 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) VI. Explanations on leverage ratio Leverage ratio table: The leverage ratio table prepared in accordance with the communiqué “Regulation on Measurement and Assessment of Leverage Ratios of Banks” published in the Official Gazette no. 28812 dated 5 November 2013 is presented below: On-balance sheet assets On-balance sheet items (excluding derivative financial instruments 1 and credit derivatives but including collateral) 2 (Assets deducted in determining Tier I capital) 3 Total on-balance sheet risks (sum of lines 1 and 2) Derivative financial instruments and credit derivatives Replacement cost associated with all derivative instruments and 4 credit derivatives Add-on amounts for PFE associated with all derivative instruments 5 and credit derivatives Total risks of derivative financial instruments and credit derivatives 6 (sum of lines 4 to 5) Securities or commodity financing transactions (SCFT) 7 Risks from SCFT assets (excluding on-balance sheet) 8 Risks from brokerage activities related exposures Total risks related with securities or commodity financing transactions 9 (sum of lines 7 to 8) Other off-balance sheet transactions 10 Gross notional amounts of off-balance sheet transactions 11 (Adjustments for conversion to credit equivalent amounts) 12 Total risks of off-balance sheet items (sum of lines 10 and 11) Capital and total risks 13 Tier I capital 14 Total risks (sum of lines 3, 6, 9 and 12) Leverage ratio 15 Leverage ratio (*) Current Period (*) Prior Period (*) 57,410,113 (209,697) 57,200,416 47,311,644 (174,164) 47,137,480 55,367 90,391 118,417 115,612 173,784 206,003 647,446 - 247,175 - 647,446 247,175 55,573,556 (34,573,311) 21,000,245 41,996,650 (24,926,904) 17,069,746 4,423,318 79,021,891 3,738,167 64,660,404 5.60 5.78 Amounts in the table are three-month average amounts. In standalone, the Bank’s balance sheet date in the last days of the past three months, calculated on the basis of the arithmetic average of the nominal value in the leverage ratio was 5.60% (31 December 2016 – 5.78%) were realized. The main reason for the changes compared to the previous period compared to other off-balance sheet items is higher than the increase in risk item. According to this, while balance sheet items increased by 21%, the core capital was increased by 18% due to increase in profit, off balance sheet items showed a 23% increase. Accordingly, the leverage ratio of the current period compared to the previous year shows an increase of 18 basis points.
182. 180 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) VII. Explanations on fair values of financial assets and liabilities The table summarizes the book value and fair value of the financial assets and liabilities that were not accounted by the values in Bank’s financial statements. Book value is the sum of the acquisition value and accumulated profit share accruals. Current Period Financial Assets Banks Financial assets available for sale Loans and lease receivables Financial Liabilities Current account and funds collected from banks via participation accounts. Other current and profit sharing accounts Money market balances Funds provided from other financial institutions Miscellaneous payables Payables from leasing transactions Book Value Current period Prior period Current period Fair Value Prior period 3,576,020 4,428,065 37,923,358 4,698,081 3,592,926 29,794,645 3,576,020 4,428,065 35,369,270 4,698,081 3,592,926 29,519,251 310,223 39,547,177 750,524 612,089 31,289,674 1,219,873 310,223 39,547,177 750,524 612,089 31,289,674 1,219,873 10,391,847 198,119 - 10,018,467 157,964 226 11,994,898 198,119 - 10,564,148 157,964 214 The estimated fair value of the loans is calculated by discounting future cash flows by using current market rates of profit share. The fair value of financial assets and liabilities carried at amortized cost other than loans, available for sales financial assets and funds provided from other financial institutions approximates to their book values since they are short term in nature and their effective profit share rates are similar with current effective profit rates. VIII. Explanations on the activities carried out on behalf and account of other persons The Bank does not perform purchases, sales and custody services in the name of others. The Bank has no fiduciary based transactions. IX. Explanations on risk management Risk Management System refers to the Board of Directors, the Audit Committee, the Risk Management Committee, Asset-Liability Committee (“ALCO”) and the Risk Management Department (“RMD”) which has been composed in order to manage systemic risks that the Bank is exposed. The Board of Directors is the owner of the Bank’s Risk Management System and ensures the establishment of an effective, sufficient and appropriate risk management system as well as the continuity of the system. The main objective of the Bank’s Risk Management System is to identify, measure, monitor and control the risks that the Bank is exposed to, by determining the policies, limits and procedures to control, to monitor, and if necessary to change the risk-return structure of the Bank’s future cash flows and the level and the quality of related activities.
183. KUVEYT T ÜRK 2017 ANNUAL REPORT 181 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) a. Explanations on risk management and risk weighted amounts: 1. Risk weighted amounts: Risk Weighted Amounts Current Period Prior Period 31.12.2017 31.12.2016 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Credit risk (excluding counterparty credit risk) (CCR) (*) Of which standardised approach (SA) Of which internal rating-based (IRB) approach Counterparty credit risk Of which standardised approach for counterpary credit risk (SA-CCR) Of which internal model method (IMM) Equity position in banking book under basic risk weighting or internal rating-based Equity investments in funds – look-through approach Equity investments in funds – mandate-based approach Equity investments in funds – 1250% risk weighting Approach Settlement risk Securitisation exposures in banking book Of which IRB ratings-based approach (RBA) Of which IRB supervisory formula approach (SFA) Of which SA/simplified supervisory formula approach (SSFA) Market risk Of which standardised approach (SA) Of which internal model approaches (IMM) Operational risk Of which basic indicator approach Of which standardised approach Of which advanced measurement approach Amounts below the thresholds for deduction from capital (subject to 250% risk weight) Floor adjustment Total (1+4+7+8+9+10+11+12+16+19+23+24) Minimum Capital Requirements Current Period 31.12.2017 28,810,537 28,865,186 80,519 27,602,997 27,642,002 94,652 2,304,843 2,309,215 6,442 80,519 - 94,652 - 6,442 - - - - 54,648 39,005 4,372 - - - - - - 669,886 669,886 3,522,742 3,522,742 - 648,947 648,947 2,900,835 2,900,835 - 53,591 53,591 281,819 281,819 - 33,138,332 31,286,436 2,651,067
184. Current Period Assets Cash (Cash on Hand, Money in Transit, Purchased Cheques) and Balances With Central Bank of Turkey Financial Assets Held for Trading Financial Assets at Fair Value Through Profit or Loss Banks Receivables from money markets Available for sale financial assets (net) Loans and receivables Factoring receivables Held to maturity investments (net) Investments in associates (net) Investments in subsidiaries (net) Investments in joint ventures (net) Leasing receivables Derivative financial assets held for hedges Tangible assets (net) Intangible assets (net) Investment properties (net) Tax assets Non-current assets and disposal groups classified as held for sale (net) Other Assets Total Assets 8,932,856 243,407 3,576,020 4,428,065 36,041,299 377,647 20,000 1,929,242 409,743 119,012 25,419 138,710 117,006 764,669 57,123,095 8,932,856 3,576,020 4,428,065 36,041,299 377,647 20,000 1,929,242 409,743 119,012 25,419 138,710 117,006 764,669 56,879,688 26,699 26,699 - 216,708 216,708 - Carrying values of items in accordance with Turkish Accounting Standards Carrying values in Subject to Not subject to capital financial statements Subject to counterparty Securitization Subject to risk or subject to prepared as per TAS credit risk credit risk positions market risk deduction from capital 2. Differences and matching between asset and liabilities’ carrying values in financial statements and risk amounts in capital adequacy calculation (TUTARLAR AKSI BELIRTILMEDIKÇE BIN TÜRK LIRASI (TL) OLARAK IFADE EDILMIŞTIR.) 31 ARALIK 2017 TARİHİNDE SONA EREN HESAP DÖNEMİNE AİT KONSOLİDE OLMAYAN FİNANSAL TABLOLARA İLİŞKİN AÇIKLAMA VE DİPNOTLAR KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ 182 SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES
185. Current Period Liabilities Deposits Derivative Financial Liabilities Held for Trading Loans borrowed Debt to money markets Debt securities issued Funds Various debts Other liabilities Factoring debts Debts from leasing transactions Derivative financial liabilities held for hedges Provisions Tax Liability Liabilities included in disposal groups classified as held for sale (net) Subortinated Debts Equity Total Liabilities - 39,857,400 80,697 9,031,509 750,524 198,119 334,851 70,795 791,440 56,271 1,360,338 4,591,151 57,123,095 750,524 750,524 - - - - 80,697 9,031,509 198,119 334,851 70,795 791,440 56,271 1,360,338 4,591,151 56,372,571 39,857,400 Carrying values of items in accordance with Turkish Accounting Standards Carrying values in Subject to Not subject to capital financial statements Subject to counterparty Securitization Subject to risk or subject to prepared as per TAS credit risk credit risk positions market risk deduction from capital (TUTARLAR AKSI BELIRTILMEDIKÇE BIN TÜRK LIRASI (TL) OLARAK IFADE EDILMIŞTIR.) 31 ARALIK 2017 TARİHİNDE SONA EREN HESAP DÖNEMİNE AİT KONSOLİDE OLMAYAN FİNANSAL TABLOLARA İLİŞKİN AÇIKLAMA VE DİPNOTLAR KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ KUVEYT TÜRK 2017 ANNUAL REPORT 183
186. 184 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 3. Main sources of differences between regulatory exposure amounts and carrying values in financial statements: 1- Carrying Value of Assets in Accordance with TAS (as per template 1B) 2- Carrying Value of Liabilities in Accordance with TAS (as per template 1B) 3- Total net amount 4- Off-balance sheet amounts 5- Differences in valuations 6 Differences due to different netting rules (other than those already included in row 2) 7- Differences due to consideration of provisions 8- Differences due to prudential filters 9-Risk Amounts Total Items subject to credit risk framework Items subject to securitisation framework Items subject to counterparty credit risk framework Items subject to market risk framework 57,123,095 56,879,688 - 26,699 216,708 57,123,095 73,067,537 - 56,879,688 5,897,049 - - 750,524 777,223 132,075 - 216,708 15,219,011 - - - - - - 130,190,632 62,776,737 - 909,298 15,435,719 b. General qualitative information on credit risk: 1. How the business model translates into the components of the bank’s credit risk profile: The business model of the Bank basically consists of two main business fields: collecting funds by means of current accounts and profit/loss participation accounts subject to the interest-free banking rules, and using those funds and equity funds to make funds available to customers. Because of these main business fields, the bank’s assets have a credit-weighted structure. Reflecting this business model, its total assets are cash credit-weighted and financial leasing receivable-weighted. The bank lends funds to finance the real sector in general and increases its volume of credits by taking into account its risk-return balance to achieve sustainable growth. The risk profile of the Bank indicates the types of risks to which it is exposed or expects to be exposed, and its risk level by type of risk. The largest type of risk to which the Bank is exposed or expects to be exposed within its current and target business model is the credit risk. Since the risk of concentration is one of the most important components of the credit risk, concentration limits were set by sector for the concentration risk. Internal limits are set for cash, noncash and total credits for each of 20 different sectors. Limits were set for monitoring Defaulted Credit Exposures in mentioned sectors and for taking corrective measures. With regard to concentration of the credit risk, internal limits were set for the top 10, 20, 30, 40, 50 and 100 debtor/credit risk groups. Furthermore, country limits were set to avoid concentration in countries selected as part of the sovereign risk process. 2. Criteria and approach used for defining credit risk policy and for setting credit risk limits: The main purpose of the credit risk policy are to measure the counterparty risk undertaken as part of a credit transaction, to monitor the risk against the legal limits and the Bank’s internal limits, to research new techniques and applications for measuring and controlling the risk, to monitor overdue receivables, to analyze the reason of overdue, and to take measures to prevent such reasons from repeating. The term ‘credit risk’ refers to the potential loss the bank might be exposed to because of credit borrowers’ partial or full default of the credit agreements they signed with the bank. This term also includes the loss of market value because of the breakdown of the counterparty’s financial position. This term includes on-balance sheet and off-balance sheet transactions too. Risk limits are set by openly relating it with the Bank’s volume on consolidated and non-consolidated basis within the financial system as part of its risk appetite structure. In this context the appetite for risk approved by the Board of Directors are divided between and allocated to other levels considered necessary by type of risk. The uses of the limits are closely monitored, and overdrafts are reported to the executive management for ensuring the necessary measures to be taken.
187. KUVEYT T ÜRK 2017 ANNUAL REPORT 185 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 3. Structure and organization of the credit risk management and control function: Risk Control and Compliance Group works under the Audit Committee and the Internal System Committee reporting to the Board of Directors. Risk Control and Compliance Group Manager and Risk Management Department Manager working under the former are in charge of and responsible for the strategies and policies approved by the Board of Directors and for performing the other tasks assigned by the Internal System Committee. Credit Risk Management and Modeling Unit is one of the units comprising the Risk Management Department performs the risk measurement and management tasks concerning the credit risk. 4. Relations between the credit risk management, risk control, compliance and internal audit functions: The units comprising the internal systems report to the Board of Directors as required by the organizational chart of the bank. Board of Directors has transferred its tasks and responsibilities for the internal systems to the Internal Systems Committee formed by four members of the Board of Directors and appointed to be Internal System Executives. The units in question are supervised and coordinated by the Internal Systems Committee. The internal control function of the Bank is performed by the Internal Control Department. Internal Control System has been founded in such a manner to be capable and efficient to mitigate, manage, monitor and control the exposure risks of the Bank in accordance with the Bank’s organizational structure and business fields as well as changing circ*mstances, and covers all domestic and international branches, head office, consolidated subsidiaries and all business activities of the Bank. The internal control system and internal control activities of the Bank are designed by the Internal Control Department in cooperation with the relevant management executives and are performed at a sufficient and efficient extent. Compliance Department is in charge of managing the bank’s compliance risk and taking it under control in an efficient way, forecasting and preventing the risk in question, and ensuring the bank’s activities to comply with the applicable laws and regulations. Risk Management Department performs the tasks of determining, measuring and managing the exposure risks of the bank. An efficient risk management system infrastructure has been established for credit risk management tasks, credit policy, and risk management activities falling within the credit risk policy. The internal credit risk limits set by the Board of Directors are measured and reported at regular intervals to the Audit Committee. Audit Department is in charge of assuring the Board of Directors and the executive management that the Bank’s business activities are performed in accordance with the Banking Law, other applicable laws and regulations and the internal strategies, policies, principles and targets of the bank, and that the internal control and risk management systems are efficient and sufficient. 5. Scope and main content of the reporting on credit risk exposure and on the credit risk management function to the executive management and to the Board of Directors: Risk Management Report for the Executive Management, which is the basic report presented to the Board of Directors and the executive management, is prepared before each meeting of the Audit Committee. The report in question contains the basic subjects described below. Quality of the assets are analyzed in accordance with the classification specified in the Regulation on Procedures and Principles for Determination of Qualifications of Loans and Other Receivables by Banks and Provisions to be set aside and the assets are compared with those of the previous fiscal period to monitor the sustainability of the asset quality. The report describes the credit risk limits and the figures realized in the relevant fiscal period. Credits lent in 20 different economic sectors are monitored by cash, non-cash and total credits. Credit shares and development trends of the economic sectors are monitored. The risk limits set in accordance with the Bank’s appetite for risk and the figures realized are explained. Observed key risk indicators include the ratio of credit risk-weighted items over the total assets, the ratio of the total gross amount of defaulted credits over the total financing (cash credits) portfolio and their distribution by sector, distribution of guarantees by guarantee group, the ratio of the top 10/20/30/40/50/100 risks over the total financing (cash and non-cash credits) portfolio, and the ratio of write-off. Distribution of cash credits by maturity term is monitored. Detailed information is given about the top 10 customers against whom internal or legal proceedings were filed, their limits, risks, guarantees and provisions, description of their sectors and their state are described. The trend of restructured credits is monitored. Also, loans to risk group of the Bank are reported.
188. 186 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Sovereign ratings, limits and used limits are monitored and compared with the previous fiscal year. The Bank creates credit portfolios in accordance with its internal segment structure. These segments are divided into sub-segments. Risks realized for cash, non-cash and total credits are monitored by each of these portfolios. Real estate price indexes are analyzed to monitor whether the values of the real estates received as guarantees for the funds lent have increased or decreased. These real estates are also monitored by subcategory in accordance with the classification of regions published by the Turkish Central Bank. They are also compared with the House Price Index of Turkey published by the Turkish Central Bank. Credit quality of assets: 1 2 3 4 (*) Loans Debt securities Off-balance sheet exposures(*) Total Gross carrying value as per TAS Defaulted Non-defaulted 714,130 37,923,358 4,467,856 22,343,477 714,130 64,734,691 Allowances/amortisation and impairments Net values 666,947 39,791 256,505 963,243 37,970,541 4,428,065 22,086,971 64,485,577 Accruals of derivative transactions are presented as net amounts under impairments. Changes in stock of defaulted loans and debt securities: 1 2 3 4 5 6 Defaulted loans and debt securities at end of the previous reporting period Loans and debt securities that have defaulted since the last reporting period Receivables back to non-defaulted status Amounts written off Other changes Defaulted loans and debt securities at end of the reporting period (1+2-3-4±5) Current Period 748,062 519,905 461,353 (92,484) 714,130 6. Qualitative disclosures related to the credit quality of assets a. Scope and definitions of “overdue” and “provision allocated” receivables for accounting purposes and the differences of definitions between “overdue” and “provision allocated” , if any Overdue receivables and provision allocated receivables are determined according to the Communique on Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves. b. The part of the overdue receivables (past 90 days) for which provision is not allocated and reasons for this application None. c. Definitions of the methods used when determining the provision amount It includes the loans or other receivables classifed in the third, fourth and fifth groups and minimum required statutory reserve ratios indicated in paragraph 8 of the Communique on Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves and minimum statutory collateral consideration ratios required indicated in paragraph 9 of the same legislation. d. Definitions of restructured receivables According to the Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves, restructuring for the performing and non-performing loans means new contractural conditions only for the loan obligators encountered or likely to be encountered in repayment as a result of financial difficulties, excluding loan obligators with no repayment difficulties.
189. KUVEYT T ÜRK 2017 ANNUAL REPORT 187 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) e. Breakdown of exposures by geographical areas, industry and ageing: Current Period Domestic European Union (EU) Countries OECD Countries Off-Shore Banking Countries USA, Canada Other Countries Total Loans Under Follow-Up 708,338 323 123 237 5,109 714,130 Specific Provisions 661,159 323 123 236 5,106 666,947 Write-Offs 448,635 3 2 12,713 461,353 Follow-Up Loans Under Specific Provisions Agriculture 11,913 Farming and Stockbreeding 2,121 Forestry 4,889 Fishery 4,903 Manufacturing 117,724 Mining and Quarrying 38,749 Production 59,645 Electricity, Gas and Water 19,330 Construction 200,518 Services 341,976 Wholesale and Retail Trade 216,419 Accomodation and Dining 11,799 Transportation and Telecommunication 18,759 Financial Institutions 17,756 Real Estate and Rental Services 65,432 Professional Services Educational Services 530 Health and Social Services 11,281 Other 41,999 TOTAL 714,130 Write-Offs 11,293 1,997 4,393 4,903 102,452 37,324 45,799 19,329 189,524 329,029 206,034 11,546 17,368 17,756 65,276 402 10,647 34,649 666,947 2,246 638 1,514 94 117,122 42,648 73,269 1,205 83,671 172,464 117,362 3,714 40,727 3,626 737 6,298 85,850 461,353 3-5 Years 12,961 2,106 167 15,234 5 Years and Over 18,362 720 80 19,162 Current period Corporate and Commercial Loans Retail Loans Credit cards Other Total Up to 3 Months 165,976 8,020 3,180 177,176 3-12 Months 161,962 8,398 1,240 171,600 1-3 Years 321,230 8,489 1,239 330,958
190. 188 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) f. Credit risk mitigation techniques 1 2 3 4 Loans Debt securities Total Overdue Exposures unsecured: carrying amount as per TAS 29,017,874 4,428,065 33,445,939 43,824 Exposures secured by collateral 8,952,667 8,952,667 3,359 Collateralized amount of exposures secured by collateral 580,655 580,655 17 Exposures secured by financial guarantees - Collateralized amount of exposures secured by financial guarantees - Exposures secured by credit derivatives - Collateralized amount of exposures secured by credit derivatives - g. Explanations on Counterparty Credit Risk (CCR): a) Risk management objectives and polices for CCR: Determination of the creditworthiness of financial counterparties has been made in addition to the Credit Policy of the Bank in accordance with the regulations published by BRSA and the international practices in order to limit the exposure to be suffered by the Bank in case of financial counterparty default. This annex describes allocation of limit to financial counterparties and continuous monitoring activities. In this respect, the creditworthiness assessments of the financial and non-financial entities for CCRs especially including sovereign assessments and limits are finally decided by the committees specified under the Policy. b) The method used to allocate the operatioal limits defined in terms of internal capital for CCR and central counterparty risks: Internal model method is not used for calculating the capital requirements for counterparty credit risk and central counterparty risks. c) Policies relating to guarantees and other risk mitigation and assessments concerning counterparty credit risk, including central counterparty risk: All of the Bank’s counterparty credit risk and central counterparty limits are non-committed limits and they include cash and non-cash limits. In case of any transactions involving non-cash risk exposure, the reassurance of the organizations such as International Development Banks is used. If required, cash collateral is sought in order to minimize the exposure. In case of transactions involving cash risk exposure, the risk exposure is mitigated by obtaining shares and bills (sukuk) as security. d) Rules with respect to wrong-way risk: Internal model is not used for CCR; and as such, no calculation is made with respect to the wrong-way risk. e) The impact in terms of the amount of collateral that the bank is required to provide in case of a credit rating downgrade: Currently, the Bank does not borrow by providing security for the cash exposure transactions where it is debtor. Therefore, the Bank is not subject to such impacts in case of a possible rating downgrade and the Bank’s contracts do not contain such terms and conditions.
191. KUVEYT T ÜRK 2017 ANNUAL REPORT 189 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) f) Counterparty credit risk (CCR) approach analysis 1 2 3 4 5 6 Replacement cost Standardised Approach CCR (for derivatives) 26,677 Internal Model Method (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions) Simple Approach for credit risk mitigation (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions) Comprehensive Approach for credit risk mitigation (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions) Value-at-Risk (VaR) for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions Total Potential future exposure 105,400 EEPE Alpha (Effective used for Expected computing Positive regulatory Exposure EAD 1.4 EAD postCRM RWA 132,077 61,987 - - - - - - - - - - - - - - - - - - - 61,987 g) Capital requirement for credit valuation adjustment (CVA) Total portfolios subject to the Advanced CVA capital obligation 1 (i) VaR component (including the 3×multiplier) 2 (ii) Stressed VaR component (including the 3×multiplier) 3 All portfolios subject to the Standardised CVA capital obligation 4 Total subject to the CVA capital obligation EAD post-CRM RWA 132,077 132,077 18,532 18,532
192. 10 % - 0% 733,495 733,495 46,167 46,167 - 20% - 62,624 62,317 307 - 50% - 6,247 6,247 - 75% - 100% - 16,604 10,360 5,352 892 - * Total credit risk: The amount related to capital adequacy calculation after counterparty credit risk measurement techniques are applied. ** Other assets: The template includes amounts that are not included in counterparty credit risk reported in CCR8. *** 35% Risk Weight is classified in Others. 15 16 17 17 18 4 5 6 7 8 9 10 11 12 13 14 1 2 3 Risk Classes / Risk Weights * Receivables from central governments and Central Banks Receivables from regional and local government Receivables from administrative bodies and noncommercial entities Receivables from multilateral development banks Receivables from international organizations Receivables from banks and brokerage houses Receivables from corporate Retail receivables Receivables secured by residential property Receivables secured by commercial property Non-performing receivables Receivables in high-risk categories Mortgage-backed securities Short term receivables to banks, brokerage houses and corporates Investments similar to collective investment funds Equity share investments Other receivables Other assets** Total h) CCR exposures by risk class and risk weights (TUTARLAR AKSI BELIRTILMEDIKÇE BIN TÜRK LIRASI (TL) OLARAK IFADE EDILMIŞTIR.) 31 ARALIK 2017 TARİHİNDE SONA EREN HESAP DÖNEMİNE AİT KONSOLİDE OLMAYAN FİNANSAL TABLOLARA İLİŞKİN AÇIKLAMA VE DİPNOTLAR KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ - - 150% - - - 200% - 435 435 - 61,987 50,752 5,352 4,685 152 1,046 - Total Others *** credit risk* - 190 SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES
193. KUVEYT T ÜRK 2017 ANNUAL REPORT 191 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) d. Explanations on securitization positions None. e. Qualitative explanations on market risk 1. Bank’s processes and strategies: Procedures for the identification, measurement, monitoring and control of the market risk of the bank, as well as processes for risk protection and strategies/processes for monitoring of the continuity of the hedging effectiveness, as well as the strategic objectives for the bank’s trading activities: Risk management activities are consisting of the measurement, monitoring, control and reporting of the risks, arising from risks incurred on the consolided and solo basis and transactions carried out with the risk group that the Bank is involved in. These activities are carried out by the Bank’s Risk Management Department. The definition of the market risk is made by legislation within the scope of the Pillar 1 risks. The components of the market risk that do not fall within the scope of Pillar 1 risks are assessed internally. This process is carried out by the Risk Management Department with the consultation to other relevant departments. Measurement of the market risk is carried out by the Risk Management Department. Market risk is measured by the standard method as specified in the third part of the Regulation on the Measurement and Evaluation of Banks’ Capital Adequacy. The Risk Management Department adopts international standardized methods and advanced statistical methods, which are included in the legislation, in the measurement of risks falling within the scope of the Pillar 2. Developed models as well as the stress tests and scenario analysis are used in the measurement and monitoring of the market risk. The primary purpose of market risk is for the bank’s risk exposure to be within the limits specified by the legislation and to be in accordance with the Bank’s risk appetite. In this context, market risk is periodically measured, monitored and reported. Risk limits related to market risk are established in accordance with the Bank’s Risk Appetite Policy. Aforementioned risk limits are determined by the Board of Directors and reviewed at least once a year. Limit usages are closely monitored. Risk mitigation techniques have been applied in line with the size and complexity of the undertaking market risk and the controls are implemented in order to ensure their effectiveness. Treasury Group Department monitors foreign currency positions and cash flows on behalf of the Bank. Moreover, new products and projects are examined in terms of market risk management and appropriate internal controls are implemented in case of necessity. The Bank’s strategic objectives for trading activities are given below. • • • Ensure that the bank’s lease certificate portfolio is managed at the optimum level within the risk-return balance limits Implement transaction by taking into account the future prospects of market developments/movements and the framework of trading opportunities in the current market prices, Invest in Sukuk (lease certificates) as an alternative investment tool to manage the liquidity profitably 2. The organization and structure of the market risk management function: Definition of the market risk management structure established for the implementation of the bank’s strategies and processes and the communication mechanism and relationship between the different parties involved in market risk management, as described in part 1. The market risk service, operates under the Deputy Head responsible from the Market Risk, Operational Risk and Capital Planning within Risk Management Department. This service directly reports to the Board of Directors through the Internal Systems Committee. The results of risk measurement and risk monitoring are shared with other related units. The activities coordinated within the Internal Capital Adequacy Assessment Process are carried out together with other relevant departments of the Bank.
194. 192 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 3. Structure and scope of risk reporting and/or measurement systems Within the scope of risk management system, the Bank established a reporting system which ensures effective analysis and evaluation for market risks. The risk measurement and risk monitoring results is reported to the Internal Systems Committee on a timely manner. There is a risk measurement system which covers the scope and complexity of significant market risk components including transactions and operations exposed to market risk. This system is being audited regularly. The details of the market risk calculated as of 31 December 2017 in accordance with the principles in the third part of the “The Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks” published in the Official Gazette numbered 29511 and dated 23 October 2015 are as follows: 4. Market risk under standardised approach: Risk Weighted Amounts Current Period Prior Period 669,886 648,947 370,446 398,423 298,613 191,474 827 59,050 669,886 648,947 Outright products 1 Profit share risk (general and specific) 2 Equity risk (general and specific) 3 Foreign exchange risk 4 Commodity risk Options 5 Simplified approach 6 Delta-plus method 7 Scenario approach 8 Securitisation 9.Total f. Explanation on Operational Risk “Basic Indicator Method” is used in operational risk calculation of the Bank. The sum that is the basis for the operational risk is calculated by the use of the gross revenues of the Bank for the last 3 years, 2016, 2015 and 2014 in compliance with “Third Section “Calculation of the Operational Risk” of The Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks published in the Official Gazette numbered 29111 and dated 6 September 2014. The annual gross revenue is calculated by addition of the net fees and commission revenues, dividend income obtained other than subsidiaries and affiliates, the trading gain/loss(net) and other operating income to the net profit share income and by deduction of the gain/loss from the sale of the assets accounted other than the trading book, extraordinary income, the operational expenses for the support services taken from the main shareholder of the bank, subsidiary of the bank or subsidiary of the shareholder of the bank performing the calculation or the institutions which are subject to the relevant Regulation or the equivalent arrangements and the operational expenses for the support service taken from a bank and the amounts compensated from insurance. TL 281,819 corresponding to the 8% of TL 3,522,743 used in the calculation of the operational risk within the scope of “Capital adequacy standard rate” indicated in the disclosure I of this section, represents the operational risk which might be exposed to. TL 281,819 also defines the minimum capital sum which is required in order to eliminate the mentioned risk. Current Period Gross Income 31/12/2014 Amount 31/12/2015 Amount 1,515,171 1,916,011 31/12/2016 Total/ No. of Years Amount of Positive Gross 2,205,206 1,878,796 Rate (%) Total 15 281,819 Value at Operational Risk (Total*12.5) Prior Period Gross Income Value at Operational Risk (Total*12.5) 3,522,742 31/12/2013 Amount 31/12/2014 Amount 1,210,155 1,515,171 31/12/2015 Total/ No. of Years Amount of Positive Gross 1,916,011 1,547,112 Rate (%) Total 15 232,067 2,900,835
195. KUVEYT T ÜRK 2017 ANNUAL REPORT 193 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) g. Profit-share rate risk related to banking book: 1. Economic value differences arising from fluctuations in profit share rates in accordance with the regulation on measurement and evaluation of profit share rates derived from banking accounts with standard shock method Current Period: 1 2 3 4 5 6 Applied Shock (+/- x basis points)* (+) 500bp (-) 400bp (+) 200bp (-) 200bp (+) 200bp (-) 200bp Currency TL TL USD USD EURO EURO Total (For negative shocks ) Total (For positive shocks) Gains/Losses (531,871) 496,216 271,534 (303,292) (23,052) 28,817 221,740 (283,389) Gains/Shareholder’s equityLosses/shareholder’s equity % (9.09) %8.48 %4.64 % (5.18) % (0.39) %0.49 %3.79 % (4.84) Gains/Losses (390,520) 371,356 304,557 (352,670) 43,591 (45,914) (27,228) (42,372) Gains/Shareholder’s equityLosses/shareholder’s equity (6.87)% 6.53% 5.36% (6.21)% 0.77% (0.81)% (0.48)% (0.75)% Prior Period: 1 2 3 4 5 6 Currency TL TL USD USD EURO EURO Total (For negative shocks ) Total (For positive shocks) Applied Shock (+/- x basis points) (+) 500bp (-) 400bp (+) 200bp (-) 200bp (+) 200bp (-) 200bp h. Risk management objectives and policies: In accordance with Bank’s strategies, risk policies and vision, the analysis that Risk Management Service presents to Internal Systems Committee and Audit Committee are credit risks, market risks, liquidity risks, operational risks and IT risk evaluations. Besides, in accordance to market trends, economic conduct and Bank’s strategic growth, capital adequacy stress test and scenario analyses, evaluation of economic development in the World and Turkey are presented to Internal Systems Committee and Board of Directors by Risk Management Service. These analysis contribute to Bank Top Management’s resolution process about risk appetite and awareness of risks, capital adequacy, strategy revisions and future estimation. In addition, Risk Management Service verifies its own coordination to be ready proactively in business availability of Kuveyt Türk and situations connected with it. Risk Management Service continues risk monitoring and analyzing operations in accordance to Board of Director’s Kuveyt Türk’s mission, vision and growth strategy to prevent the potential risks. In this context credit and market risks, liquidity risk, operational risks and all limits, internal personal scoring and corporate rating modeling with IT risks issues, IT risk evaluation, operational lost data base, key risk indicators, operational risk insurances, market risk calculations, following up of treasury transactions and asset-liability risks are being monitorized.
196. 194 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Hierarchy of valuation techniques which establishes basis for fair value calculation of financial assets and liabilities: Level 1: Quoted prices in active markets for identical assets and liabilities. Level 2: Financial instruments valued by applying methods that are based on observable market prices, directly or indirectly, on data that have significant effect on the fair value reflected in the inputs Level 3: Financial instruments valued by applying methods that are not based on observable market prices, directly or indirectly, on data that have significant effect on the fair value reflected in the inputs. Fair value hierarchy of the financial assets and liabilities of the Bank carried at fair value according to the foregoing principles as of 31 December 2017 and 31 December 2016 are given in the table below: Current Period Financial assets Financial assets held for trading Forward transactions Swap transactions Government debt securities Other marketable securities Available-for-sale financial assets Equity securities Government debt securities Other marketable securities Financial liabilities Financial liabilities held for trading Forward transactions Swap transactions Prior Period Financial assets Financial assets held for trading Forward transactions Swap transactions Government debt securities Other marketable securities Available-for-sale financial assets Equity securities Government debt securities Other marketable securities Financial liabilities Financial liabilities held for trading Forward transactions Swap transactions Level 1 Level 2 Level 3 Total 216,708 36,319 180,389 26,699 16,467 10,232 - - 243,407 16,467 10,232 36,319 180,389 4,428,065 48,497 4,103,448 276,120 - - 4,428,065 48,497 4,103,448 276,120 - 80,697 14,948 65,749 - 80,697 14,948 65,749 Level 1 Level 2 Level 3 Total 55,924 46,908 9,016 110,050 22,304 87,746 - - 165,974 22,304 87,746 46,908 9,016 3,592,926 53,485 3,322,032 217,409 - - 3,592,926 53,485 3,322,032 217,409 - 119,727 16,753 102,974 - 119,727 16,753 102,974 There are no transfers have taken place between Level 1 and Level 2 in the current year.
197. KUVEYT T ÜRK 2017 ANNUAL REPORT 195 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) X. Explanations on business segments The Bank operates in Retail and Enterprise Banking, Commercial Banking, Corporate and International Banking sectors. Commercial Banking: to meet the financial needs of the customers’, unique cash flow and financial solutions are provided to customers through loans, non-cash loans, foreign trade financing services and similar customized products. Domestic and foreign business opportunities are supported by using different corporate banking instruments to serve the sustainability of the production of entities. Retail and Enterprise Banking; there are main activities: fund collection, commercial installment loan, enterprise loan, non-cash loans, consumer financing and credit cards. The Bank serves in the range of products of profit share accounts creation, banking services, Trade Finance, Checks, POS services, Credit Cards, ATM services, Online Banking and Mobile Banking in these fields. In International Banking, the relationships with foreign correspondent banks and investment institutes are executed directly or via branches abroad, representative offices and agencies. The firms, which exceed certain limits, are classified as “corporate” customers and directed to the Corporate Banking. The products are the same with the Commercial Banking. The aim of international banking is to enable foreign trade financing and develop mutual long term financing agreements with foreign banks. Besides supplying syndicated loans and issue the Sukuk for the Bank, investment banking also supplies syndicated loans in corporate basis for the firms and groups in Turkey. The Treasury in addition to monitoring foreign currency position and liquidity of the Bank, also conducts spot and forward transactions in TL or foreign currencies, performs derivative transactions (Forward, Swap) with banks and customers, trades share certificates in BIST and international markets and conducts Murabaha and gold trade transactions with foreign banks. Specific balance sheet and income statement items according to segments: Retail and enterprise banking 3,276,503 1,643,791 1,207,795 2,840,507 2,840,507 2,840,507 Commercial banking 1,209,587 518,512 (271,476) 419,599 419,599 419,599 Corporate and international banking 223,978 561,744 (936,319) (1,274,085) (1,274,085) (1,274,085) Unallocated 1,137,088 (1,137,088) (1,137,088) 174,942 (1,312,030) Bank’s total operation 4,710,068 3,861,135 848,933 848,933 174,942 673,991 17,955,408 19,944,035 17,251,446 - 55,150,889 - - - 397,647 1,574,559 397,647 1,574,559 Total assets 17,955,408 19,944,035 17,251,446 1,972,206 57,123,095 Segment liabilities Undistributed liabilities Shareholders’ equity 30,626,355 - 9,229,646 - 11,295,262 - 1,380,681 4,591,151 51,151,263 1,380,681 4,591,151 Total liabilities 30,626,355 9,229,646 11,295,262 5,971,832 57,123,095 Current Period 1 January – 31 December 2017 Operating income Operating expenses Transfers between segments Net operating income(loss) Income from associates Income (loss) before tax Provision for taxation Net income for the period Current Period 31 December 2017 Segment assets Associates, subsidiaries and joint Ventures Undistributed assets
198. 196 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Retail and enterprise banking 1,635,946 1,338,458 897,849 1,195,337 1,195,337 1,195,337 Commercial banking 2,103,864 299,168 (909,841) 894,855 894,855 894,855 Corporate and international banking 151,561 539,483 11,992 (375,930) (375,930) (375,930) Unallocated 1,051,050 (1,051,050) (1,051,050) 121,246 (1,172,296) Bank’s total Operation 3,891,371 3,228,159 663,212 663,212 121,246 541,966 10,479,838 19,277,375 16,959,804 - 46,717,017 - - - 369,513 1,390,425 369,513 1,390,425 Total assets 10,479,838 19,277,375 16,959,804 1,759,938 48,476,955 Prior Period 31 December 2016 Segment liabilities Undistributed liabilities Shareholders’ equity 24,678,208 - 7,221,605 - 11,498,072 - 1,167,006 3,912,064 43,397,885 1,167,006 3,912,064 Total liabilities 24,678,208 7,221,605 11,498,072 5,079,070 48,476,955 Prior Period 1 January 2016 31 December 2016 Operating income Operating expenses Transfers between segments Net operating income(loss) Income from associates Income (loss) before tax Provision for taxation Net income for the period Prior Period 31 December 2016 Segment assets Associates, subsidiaries and joint Ventures Undistributed assets
199. KUVEYT T ÜRK 2017 ANNUAL REPORT 197 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) SECTION FIVE EXPLANATIONS AND NOTES ON THE UNCONSOLIDATED FINANCIAL STATEMENTS I. Explanations and notes related to assets a. Cash and balances with the Central Bank of Republic of Turkey: 1. Cash and balances with the Central Bank of Republic of Turkey: Cash/foreign currency The Central Bank of Republic of Turkey Other (*) Current Period TL FC 366,164 933,900 255,738 6,468,109 3,120 905,825 TL 429,341 266,286 - FC 1,113,568 5,671,920 821,937 Total 625,022 695,627 7,607,425 8,307,834 Prior Period (*) As of 31 December 2017, precious metal account amounting to TL 693,239 (31 December 2016- TL 802,280) and money in transit are presented in this line amounting to TL 215,706 (31 December 2016 – TL 19,657). 2. Balances with the Central Bank of Turkey: Unrestricted demand deposit Unrestricted time deposit Restricted time deposit Current Period TL FC 254,185 38 1,552 6,468,072 TL 259,936 6,350 FC 20 5,671,900 Total 255,738 266,286 5,671,920 6,468,109 Prior Period In accordance with the “Communiqué Regarding the Reserve Requirements no. 2013/15, the Bank is required to maintain reserves in CBRT for TL and foreign currency liabilities. The reserve requirements can be maintained as TL, USD, EUR and standard gold. CBRT started paying interest on reserve balances held in USD starting from May 2015 and held ın TL starting from November 2014. The reserve rates for TL liabilities vary between 4% and 10.5% for TL deposits and other liabilities according to their maturities as of 31 December 2017 (31 December 2016: 4% and 10.5% for all TL liabilities). The reserve rates for foreign currency liabilities vary between 4% and 24% for deposit and other foreign currency liabilities according to their maturities as of 31 December 2017 (31 December 2016: 4% and 24% for all foreign currency liabilities). b. Information on financial assets at fair value through profit and loss: 1. As of 31 December 2017, there are no financial assets at fair value through profit and loss subject to repurchase transactions, given as a collateral or blocked (31 December 2016 – None). 2. Positive Differences Related to Derivative Financial Assets Held-for-Trading: Derivative financial assets held-for-trading Forward transactions Swap transactions Futures transactions Options Other Total Current Period TL FC 11,141 5,326 3,027 7,205 14,168 12,531 Prior Period TL 20,373 1,844 - FC 1,931 85,902 - 22,217 87,833
200. 198 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) c. Information on Banks: Current Period TL FC 7,404 3,568,616 7,245 2,413,931 159 1,154,685 - Banks Domestic Foreign Branches and head office abroad Total 7,404 3,568,616 Prior Period TL FC 14,384 4,683,697 14,356 3,555,895 28 1,127,802 14,384 4,683,697 3. Information on foreign bank accounts: EU Countries USA and Canada OECD Countries (*) Off-shore Banking Regions Other Current period Unrestricted Amount Restricted Amount 651,025 455,757 13,107 945 34,010 - Total (*) 1,154,844 - Prior period Unrestricted Amount Restricted Amount 689,699 393,755 7,893 562 35,921 1,127,830 - OECD countries other than European Union countries, USA and Canada. d. Information on financial assets available-for-sale: Debt Securities Quoted on stock exchange Not quoted on stock exchange Share certificates Quoted on stock exchange Not quoted on stock exchange Impairment provision (-) Total Current Period 4,293,722 4,293,722 174,134 124,923 49,211 (39,791) 4,428,065 Prior Period 3,540,070 3,540,070 101,212 47,013 54,199 (48,356) 3,592,926
201. KUVEYT T ÜRK 2017 ANNUAL REPORT 199 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The details of the Rent Certificates which are in Bank’s Portfolio “Financial Assets Available for-Sale” are presented below as of 31 December 2017 a) The Bank purchased the rent certificates (“sukuk”) as details given table below from private entitites that are stated under “Other Securities” in given financial statements. REFERENCE TRDKTVK31810 TRDKTVK31828 TRDKTVK11812 TRDKTVK11820 TRDKTVK21811 XS1505149325 US71567RAD89 XS1082151868 XS0922143382 XS1057852912 XS1241110300 XS1696457289 CURRENCY TL TL TL TL TL USD USD USD USD USD USD USD COUPON FREQUENCY 3 3 3 3 3 6 6 6 6 6 6 3 ISSUER KT KİRA SERTİFİKALARI V.K.Ş. KT KİRA SERTİFİKALARI V.K.Ş. KT KİRA SERTİFİKALARI V.K.Ş. KT KİRA SERTİFİKALARI V.K.Ş. KT KİRA SERTİFİKALARI V.K.Ş. KT KİRA SERTİFİKALARI V.K.Ş. REPUBLIC OF INDONESIA ALBARAKA TURK TÜRKİYE FİNANS K.B.A.Ş. TÜRKİYE FİNANS K.B.A.Ş. DIB IILM PURCHASE MATURITY DATE DATE 22/11/2017 16/03/2018 19/12/2017 16/03/2018 19/09/2017 03/01/2018 06/10/2007 17/01/2018 22/11/2017 06/02/2018 21/12/2017 02/11/2021 12/10/2017 28/05/2025 30/06/2014 30/06/2019 02/05/2013 02/05/2018 24/04/2014 24/04/2019 03/06/2015 03/06/2020 10/10/2017 23/01/2018 COST VALUE 2,580 6,570 20,101 51 324 7,780 3,950 16,623 126,255 27,654 7,563 56,669 RATE (%) 16.16 11.64 13.92 13.64 11.92 5.14 4.32 6.26 3.96 3.96 0.58 1.88 b) In addition; the Bank included rent certificates which are presented below and these amounts are classified under “Government debt securities” at the accompanying financial statements. REFERENCE TRD140721T18 TRD140218T18 TRD220921T16 TRD260918T17 TRD211118T18 TRD130219T18 TRD190619T18 TRD100822T10 TRD121022T14 XS0831353361 XS1586385178 XS1141043296 XS0975124180 XS1303467077 CURRENCY TL TL TL TL TL TL TL TL TL USD USD USD USD USD COUPON FREQUENCY 6 6 6 6 6 6 6 6 6 6 6 6 6 6 PURCHASE MATURITY ISSUER DATE DATE T.C. HAZİNE 20/07/2016 14/07/2021 T.C. HAZİNE 17/02/2016 14/02/2018 T.C. HAZİNE 28/09/2016 22/09/2021 T.C. HAZİNE 28/09/2016 26/09/2018 T.C. HAZİNE 23/11/2016 21/11/2018 T.C. HAZİNE 15/02/2017 13/02/2019 T.C. HAZİNE 21/06/2017 19/06/2019 T.C. HAZİNE 16/08/2017 10/08/2022 T.C. HAZİNE 18/10/2017 12/10/2022 REPUBLIC OF TURKEY 26/09/2012 26/03/2018 REPUBLIC OF TURKEY 06/04/2017 06/04/2023 REPUBLIC OF TURKEY 25/11/2014 25/11/2024 REPUBLIC OF TURKEY 26/04/2016 10/10/2018 REPUBLIC OF TURKEY 08/06/2016 08/06/2021 COST VALUE 3,176 21,435 176,340 17,317 980 22,391 172,675 24,540 97,180 61,633 9,651 31,610 41,174 42,342 RATE (%) 9.40 10.64 2.24 8.80 2.80 11.04 10.72 10.76 2.80 2.80 5.00 4.48 4.56 4.26 e. Information on loans: 1. All types of loans and advances given to shareholders and employees of the Bank: Direct loans granted to shareholders Corporate shareholders Real person shareholders Indirect loans granted to shareholders Loans granted to employees Total Current period Cash Non-Cash 1,030 786 786 1,030 150,924 917 18,134 3 170,088 1,706 Prior period Cash Non-Cash 998 16,818 16,656 998 162 135,364 20,290 14,333 319 150,695 37,427
202. 200 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2. Information on first and second category loans and other receivables including restructured or rescheduled loans: Current Period Cash Loans Loans Financing commodity against document Exports Loan Imports Loans Enterprise Loans Consumer Loans Credit Cards Precious Metal Loans Loans Given to Financial Sector Loans Extended Abroad Other Other Receivables Total Prior Period Cash Loans Loans Financing commodity against document Exports Loan Imports Loans Enterprise Loans Consumer Loans Credit Cards Precious Metal Loans Loans Given to Financial Sector Loans Extended Abroad Other Other Receivables Total Performing Loans and Other Receivables Loans and Other Receivables under Follow-Up Loans Loans and Other and Other Receivables Loans and Receivables with Receivables Loans and Receivables with (Total) Revised Contract Terms (Total) Revised Contract Terms Extension of Extension of Repayment Plan Other Repayment Plan Other 34,826,622 632,516 1,159,692 653,608 43,351 1,687,948 22,064,028 6,542,769 555,456 55,033 1,226,735 204,313 2,446,989 7,045 34,833,667 16 610,366 17,986 4,148 632,516 - 603 168 836,171 212,748 7,250 1 60,611 42,140 757 1,160,449 550,430 46,444 56,734 653,608 - Performing Loans and Other Receivables Loans and Other Receivables under Follow-Up Loans Loans and Other and Other Receivables Loans and Receivables with Receivables Loans and Receivables with (Total) Revised Contract Terms (Total) Revised Contract Terms Extension of Extension of Repayment Plan Other Repayment Plan Other 26,688,037 547,437 1,541,100 1,006,339 19,007 1,250,992 16,736,961 5,307,765 319,971 104,024 609,604 249,977 2,089,736 17,916 26,705,953 540,986 6,451 547,437 - 337 10,420 1,246,959 176,927 8,637 1,736 67,766 28,318 3,049 1,544,149 909,349 31,340 1,736 63,914 1,006,339 -
203. KUVEYT T ÜRK 2017 ANNUAL REPORT 201 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) In accordance with the Communiqué “Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for These Loans’’ published in Official Gazette dated 1 November 2006 and numbered 26333, information related to the restructuring (after publish date of the aforementioned Communiqué) of the standard loans and loans and other receivables under close monitoring with respect to the payment schedules and terms is as follows (average maturities are taken into the account): Current Period 1 or 2 times 3, 4 or 5 times Over 5 times Total Number of Extensions for Repayment Plan Performing Loans and Loans and Other Receivables Other Receivables under Follow-Up 632,516 653,608 632,516 653,608 Extension Periods for Repayment Plan Changes 0 - 6 months 6 - 12 months 1 - 2 years 2 - 5 years 5 years and over Total Performing Loans and Other Receivables 8,819 16,032 211,754 322,770 73,141 632,516 Prior Period 1 or 2 times 3, 4 or 5 times Over 5 times Total Number of Extensions for Repayment Plan Performing Loans and Loans and Other Receivables Other Receivables under Follow-Up 547,437 1,006,339 547,437 1,006,339 Extension Periods for Repayment Plan Changes 0 - 6 months 6 - 12 months 1 - 2 years 2 - 5 years 5 years and over Total Performing Loans and Other Receivables 4,633 15,611 153,136 238,648 135,409 547,437 Loans and Other Receivables under Follow-Up 20,056 53,819 227,286 284,832 67,615 653,608 Loans and Other Receivables under Follow-Up 31,479 107,110 313,943 497,695 56,112 1,006,339
204. 202 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 3. Breakdown of loans and other receivables according to their maturities: Current Period Cash Loans Short-term loans and other receivables Loans Other receivables Medium and long-term loans and other receivables (*) Loans Other receivables Total Prior Period Cash Loans Short-term loans and other receivables Loans Other receivables Medium and long-term loans and other receivables (*) Loans Other receivables Total (*) Performing Loans and Other Receivables Loans and Loans Receivables and other with Revised receivables Contract Terms 8,805,147 15,623 8,798,102 15,623 7,045 - Loans and other receivables under Follow-Up Loans and Loans Receivables and other with Revised receivables Contract Terms 36,151 10,748 35,394 10,748 757 - 25,396,004 25,396,004 - 616,893 616,893 - 470,690 470,690 - 642,860 642,860 - 34,201,151 632,516 506,841 653,608 Performing Loans and Other Receivables Loans and Receivables Loans with Revised and other receivables Contract Terms 6,665,341 7,459 6,647,425 7,459 17,916 - Loans and other receivables under Follow-Up Loans and Loans Receivables with Revised and other receivables Contract Terms 66,125 40,937 63,076 40,937 3,049 - 19,493,175 19,493,175 - 539,978 539,978 - 471,685 471,685 - 965,402 965,402 - 26,158,516 547,437 537,810 1,006,339 Loans with have original maturities longer than a year are classified as “Medium and Long Term Loans”.
205. KUVEYT T ÜRK 2017 ANNUAL REPORT 203 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 4. Information on consumer loans, retail credit cards, loans given to personnel and personnel credit cards: Current Period Consumer Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Retail Credit Cards-TL With Installment Without Installment Retail Credit Cards-FC With Installment Without Installment Personnel Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Personnel Credit Cards-TL With Installment Without Installment Personnel Credit Cards-FC With based Without Installment Overdraft Account-TL (Real Person) Overdraft Account-FC (Real Person) Total Short term 57,159 13,722 15,072 21,920 6,445 259,700 50,251 209,449 1,467 258 1,207 2 10,151 3,124 7,027 328,477 Medium and long term 6,583,441 5,883,855 379,081 182,143 138,362 1,604 1,604 101,624 34,441 47 44,893 22,243 119 119 10,222 1,097 4,665 4,460 51 51 6,697,061 Total 6,640,600 5,897,577 394,153 204,063 144,807 1,604 1,604 101,624 34,441 47 44,893 22,243 259,819 50,370 209,449 11,689 1,097 4,923 5,667 2 10,202 3,175 7,027 7,025,538
206. 204 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Prior Period Consumer Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Retail Credit Cards-TL With Installment Without Installment Retail Credit Cards-FC With Installment Without Installment Personnel Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Personnel Credit Cards-TL With Installment Without Installment Personnel Credit Cards-FC With based Without Installment Overdraft Account-TL (Real Person) Overdraft Account-FC (Real Person) Total Short term 36,077 8,603 8,669 16,578 2,227 179,305 31,809 147,496 1,064 302 760 2 7,614 2,256 5,358 224,060 Medium and long term 5,327,039 4,832,622 286,162 156,424 51,831 4,754 4,754 106,595 49,422 184 13,065 43,924 79 79 9,163 1,396 4,632 3,135 22 22 5,447,652 Total 5,363,116 4,841,225 294,831 173,002 54,058 4,754 4,754 106,595 49,422 184 13,065 43,924 179,384 31,888 147,496 10,227 1,396 4,934 3,895 2 7,636 2,278 5,358 5,671,712
207. KUVEYT T ÜRK 2017 ANNUAL REPORT 205 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 5. Information on commercial installment loans and corporate credit cards: Current Period Commercial Installment Loans-TL Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Indexed Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Business Loans Vehicle Loans Consumer Loans Other Corporate Credit Cards-TL With Installment Without Installment Corporate Credit Cards-FC With Installment Without Installment Overdraft Account-TL (Legal Entity) Overdraft Account-FC (Legal Entity) Total Short term 203,320 7,379 134,318 61,623 27,462 14,998 9,581 2,883 292,685 106,201 186,484 523,467 Medium and long term 4,618,220 1,237,846 1,517,461 1,862,838 75 1,644,797 339,825 374,138 923,133 7,701 158,204 149,908 8,296 6,421,221 Total 4,821,540 1,245,225 1,651,779 1,924,461 75 1,672,259 354,823 383,719 926,016 7,701 158,204 149,908 8,296 292,685 106,201 186,484 6,944,688
208. 206 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Prior Period Commercial Installment Loans-TL Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Indexed Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Business Loans Vehicle Loans Consumer Loans Other Corporate Credit Cards-TL With Installment Without Installment Corporate Credit Cards-FC With Installment Without Installment Overdraft Account-TL (Legal Entity) Overdraft Account-FC (Legal Entity) Total Short term 131,542 8,363 53,877 69,302 19,738 518 13,966 5,254 141,588 20,605 120,983 292,868 Medium and long term 3,350,939 805,525 899,076 1,646,104 234 1,600,468 361,055 401,823 836,926 664 157,074 144,340 12,734 5,108,481 Total 3,482,481 813,888 952,953 1,715,406 234 1,620,206 361,573 415,789 842,180 664 157,074 144,340 12,734 141,588 20,605 120,983 5,401,349 6. Allocation of loans by customers: Public Private Total Current period 17,136 35,976,980 Prior period 12,780 28,237,322 35,994,116 28,250,102 Current period 35,729,192 264,924 Prior period 27,932,359 317,743 35,994,116 28,250,102 Current period 19 - Prior period 14 - 19 14 7. Breakdown of domestic and foreign loans: Domestic loans Foreign loans Total 8. Loans granted to subsidiaries and associates: Loans granted directly to subsidiaries and associates Loans granted indirectly to subsidiaries and associates (*) Total (*) The loan amounts stated above, that are granted to the subsidiaries and associates of the Bank are presented in line of “Banks” in the accompanying financial statements
209. KUVEYT T ÜRK 2017 ANNUAL REPORT 207 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 9. Specific provisions for loans: Current period Prior period Specific provisions Loans and receivables with limited collectability Loans and receivables with doubtful collectability Uncollectible loans and receivables 145,827 97,155 423,965 71,172 211,227 303,324 Total 666,947 585,723 10. Information on non-performing loans (net): (i). Information on non-performing loans and other receivables restructured or rescheduled: Group III Loans and receivables with limited collectability Current period (Gross amounts before specific provision) Restructured loans and other receivables Rescheduled loans and other receivables Prior period 31.12.2016 (Gross amounts before specific provision) Restructured loans and other receivables Rescheduled loans and other receivables Group IV Group V Loans and receivables with Uncollectible loans doubtful collectability and receivables - - - - - - (ii). Information on the movement of total non-performing loans: Group III Loans and receivables with limited collectability 128,436 305,164 Group IV Group V Loans and receivables with Uncollectible loans doubtful collectability and receivables 278,874 340,752 117,193 97,548 Current Period Ending balance of prior period 31.12.2016 Additions in the current period (+) Transfers from other categories of nonperforming loans(+) 267,078 Transfers to other categories of nonperforming loans (-) 267,178 531,646 Collections in the current period (-) 7,833 14,265 Write offs (-) Corporate and commercial loans Retail loans Credit Cards Other Ending balance of the current period 158,589 117,234 Specific provisions (-) 145,827 97,155 Net balance at the balance sheet 12,762 20,079 (iii). Information on non-performing loans granted as foreign currency: None (31 December 2016 – None). 531,746 70,386 461,353 406,236 38,252 16,865 438,307 423,965 14,342
210. 208 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) (iv). Gross and net amounts of non-performing loans with respect to user groups: Current period (Net) Loans granted to real persons and legal entities (Gross) Specific provision (-) Loans to real persons and legal entities (Net) Banks (Gross) Specific provision (-) Banks (Net) Other loans and receivables (Gross) Specific provision (-) Other loans and receivables (Net) Prior period (Net) Loans to real persons and legal entities (Gross) Specific provision (-) Loans to real persons and legal entities (Net) Banks (Gross) Specific provision (-) Banks (Net) Other loans and receivables (Gross) Specific provision (-) Other loans and receivables (Net) Group III Loans and receivables with limited collectability 12,762 Group IV Group V Loans and receivables with Uncollectible loans doubtful collectability and receivables 20,079 14,342 158,589 145,827 12,762 57,264 128,436 71,172 57,264 - 117,234 97,155 20,079 67,647 278,874 211,227 67,647 - 438,307 423,965 14,342 37,428 340,752 303,324 37,428 - The Bank holds collaterals like mortgage pledge, customer cheques and other collaterals against these financial assets. (v). Aging analysis of past due but not impaired financial assets per classes of financial instruments is as follows: Current period Loans and receivables Corporate loans Retail loans Credit cards Total Less than 30 days 31-60 days 61-90 days More than 91 days Total 683,541 38,107 4,764 726,412 137,828 132,728 1,736 272,292 119,108 41,889 749 161,746 - 940,477 212,748 7,250 1,160,449 Prior Period Loans and receivables Corporate loans Retail loans Credit cards Total Less than 30 days 31-60 days 61-90 days More than 91 days Total 904,414 33,502 4,416 942,332 276,634 90,083 2,743 369,460 177,537 53,342 1,478 232,357 - 1,358,585 176,927 8,637 1,544,149
211. KUVEYT T ÜRK 2017 ANNUAL REPORT 209 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 11. Main guidelines for liquidation process of uncollectible loans and other receivables: Loans and other receivables, which were deemed uncollectible according to the “Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans” published in the Official Gazette No. 26333 dated 1 November 2006 and for which a full impairment provision has been made, are written-off per the decision of the Bank top management. Within 2017, non-performing loans amounting to TL 461,353 have been written-off (31 December 2016 – TL 136,859). 12. Information on the write-off policy: The Bank ‘s write-off policy is to write-off the loan receivables that have been already transferred to legal follow-up and fully provided for and for which there is no possibility of collection through legal process and for which there is no collateral. Such loans are written off as per the decision of top management. f. Information on held-to-maturity investments (Net): None (31 December 2016 – None). g. Information on associates (Net): 1. The 1.69% ownership of Kredi Garanti Fonu A.Ş. of TL 4,719 (31 December 2016 – TL 4,719), 8.36% ownership of Islamic International Rating Agency of TL 714 (31 December 2016 – TL 714), and 6.99% ownership of Neova Sigorta A.Ş. of TL 5,201 (31 December 2016 – TL 5,201), TL 390 amount of swift shares (31 December 2016 – TL 390) and 0.0035% ownership of share of TL 15 (31 December 2016 – TL 15) that is traded in Borsa İstanbul A.Ş. and VISA Inc.share of TL 7,149 (31 December 2016 – TL 6,660) are classified as financial assets available for sale since the Bank’s ownership in these institutions is less than 10% and the Parent Bank does not have a significant influence on these institutions. 2. Information about investments in unconsolidated associates: None (31 December 2016 – None). 3. Information related to consolidated associates: None (31 December 2016 – None). h. Information on subsidiaries (Net): 1. Although the Bank has control power over the management and capital of its non-financial subsidiaries, these subsidiaries do not confirm to the definition of financial subsidiary in accordance with “Regulation related to the Preparation of Consolidated Financial Statements by Banks” published in the Official Gazette No. 26340 dated 8 November 2006; hence these subsidiaries which are “Körfez Tatil Beldesi Turistik Tesisler ve Devremülk İşletmeciliği San. ve Tic. A.Ş. has not been consolidated. The Bank has reflected its subsidiaries at restated cost less any provision for impairment in its financial statements until 31 December 2004.
212. 210 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2. Information on subsidiaries: Title Körfez Tatil Beldesi Turistik Tesisler ve Devremülk İşletmeciliği San.ve Tic. A.Ş. (**) Istanbul/Turkey Körfez Gayrimenkul Yatırım Ortaklığı A.Ş. KT Sukuk Varlık Kiralama A.Ş. (**) KT Kira Sertifikaları Varlık Kiralama A.Ş. KT Bank AG (*) KT Portföy Yönetimi A.Ş (****). Architecht Bilişim Sistemleri ve Pazarlama Tic A.Ş (**) KT Sukuk Company Limited (***) Address (City/Country) Bank’s share percentage, if different-voting Percentage (%) Bank’s risk group share Percentage (%) 99.99% 75.00% 100% 100% 97.61% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 99.99% İstanbul/Turkey İstanbul/Turkey İstanbul/Turkey Frankfurt/ Germany İstanbul/Turkey İstanbul/Turkey George Town/ Cayman Islands Information on subsidiaries in the order presented in the above table: Total assets 33,050 148,947 151,716 5,703,311 866,438 6,877 8,054 1,360,339 Equity 32,862 147,961 215 107 407,373 6,348 7,028 1 Total fixed assets 7,445 63 55,987 163 340 - Profit share income - Income from marketable securities - Current period profit/loss 3,669 45,384 61 13 (33,923) (1.221) 4,356 - Prior period profit /loss 6,946 30,935 11 5 (41,161) (1,587) 1,674 - Fair value - (*) As of 31 December 2017, financial figures for this entity in the table above are based on the financial information prepared in accordance with the local regulations of the country in which this entity operates. (**) These figures are shown per Turkish Trade Law financial statements as at 31 December 2017. (***) KT Sukuk Company Limited is established in Cayman on July 31, 2015, for the need of a second subordinated loan for the Bank. According to relevant article of IFRS 10, it is described as a subsidiary. Movement for subsidiaries Balance at the beginning of the year Movements during the year Purchases (*) Transfers from subsidiaries Bonus shares Dividends from current year income Sales (*) Revaluation increase (Impairment)/reversal of impairment Capital commitment payments Balance at the end of the year Capital commitments Share percentage at the end of the year (%) Current period 31.12.2017 349,513 123,536 (95,402) 377,647 - Prior period 31.12.2016 299,312 50,201 349,513 - (*) It consists of TL 118,536 to the subsidiary of KT Bank AG and TL 5,000 to the subsidiary of KT Portföy capital payments. (31 December 2016 - TL 49,451 to the subsidiary of KT Bank AG and TL 750 to the subsidiary of Architecht Bilişim Sistemleri ve Pazarlama Tic A.Ş. capital payments) (*) Kuwait Turkish Participation Bank Dubai Ltd. has liquidated its subsidiary named on 21 May 2017. The final result of the liquidation was USD 50,000,000 with a capital amount of USD 7,388,069.
213. KUVEYT T ÜRK 2017 ANNUAL REPORT 211 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Sectoral information on consolidated subsidiaries and the related carrying amounts: Banks Insurance Companies Factoring Companies Leasing Companies Finance Companies Other Financial Subsidiaries Current period 293,694 60,273 Prior period 270,560 55,273 Current Period 50,173 50,173 Prior Period 50,173 50,173 Subsidiaries that are quoted on the stock exchange: Quoted on Domestic Stock Exchanges Quoted on International Stock Exchanges Total 3. Information on capital adequacies of major subsidiaries: The shareholder’s equity of KT Bank AG, the subsidiary of the Bank in Germany, calculated at 31 December 2017 is EUR 59,628,649 and the capital adequacy ratio is 41.49%.  i. Information on joint ventures (business partnerships) (Net): Bank’s share percentage (*) (**) %50 Katılım Emeklilik ve Hayat A.Ş. Total assets 1,135,119 Equity 40,000 Total fixed assets 4,251 Current period profit/loss 7,883 Prior period profit /loss 4,846 (*) As of 31 December 2017, financial figures for this entity in the table above are based on the financial information prepared in accordance with the local regulations. (**) In accordance with decision of the Bank’s Board of Directors on 25 April 2013, Kuveyt Türk Katılım Bankası A.Ş. and Albaraka Türk Katılım Bankası A.Ş. decided to establish a Pension Company in line with main shares. Bank decided to establish that pension company with the equal share amounts with Albaraka Türk Katılım Bankası A.Ş, and that pension company is registered with the trade name ”Katılım Emeklilik ve Hayat Anonim Şirketi”, 895027 registry numbered dated 17 December 2013 by İstanbul Ticaret Sicil Müdürlüğü. j. Information on finance lease receivables (Net): 1. Presentation of remaining maturities of net finance leases: Less than 1 year 1 to 4 years More than 4 years Total Current period Gross Net 1,499,971 1,223,929 565,336 532,824 178,945 172,489 2,244,252 1,929,242 Prior period Gross 1,119,851 493,529 131,810 1,745,190 Net 958,746 461,817 123,980 1,544,543 2. Net investments in finance leases: Gross receivable from finance leases Unearned finance lease income (-) Cancelled amounts (-) Net receivable from finance leases Current period 2,244,252 (315,010) 1,929,242 Prior period 1,745,190 (200,647) 1,544,543
214. 212 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 3. Information on finance lease contracts: The Bank determines the installments of the financial lease agreements in accordance with related legislations. Payment terms and amounts may be modified with additional agreements upon customers’ requests. On the agreements, the Bank gives the customer the option to buy the related property. According to the Financial Lease Law, if a customer does not fulfill its obligations, the Bank sends a notice to the customer and the Bank takes legal action against the customer if necessary. Non performing finance lease receivables amounting to TL 5,040 are included in the non-performing loans in the balance sheet (31 December 2016– TL 13,086). Impairment provision amounting to TL 4,420 (31 December 2016– TL 12,126) for financial lease receivables are included under the specific provision account under loans in the balance sheet. k. Information on derivative financial assets for hedging purposes: None (31 December 2016 – None). l. Explanations on Tangible Assets (Net) At End of Prior Period: 31 December 2016 Cost Accumulated Depreciation (-) Net Book Value At End of Current Period: 31 December 2017 Net book value at beginning of period Additions Disposals (-) Transfers to assets held for sale (-) Transfer from assets held for sale Impairment/Reversal of Impairment Losses (**) Depreciation Expense (-) Cost at period end Accumulated depreciation end of period (-) Closing net book value At End of Prior Period: 31 December 2015 Cost Accumulated Depreciation (-) Net Book Value At End of Current Period: 31 December 2016 Net book value at beginning of period Additions Disposals (-) Transfers to assets held for sale (-) Transfer from assets held for sale Impairment/Reversal of Impairment Losses (**) Depreciation Expense (-) Cost at period end Accumulated depreciation end of period (-) Closing net book value Buildings Leased Tangible Assets Vehicles Other Tangible Assets (*) Total 163,600 19,558 144,042 83,490 21,394 62,096 819 733 86 440,723 207,314 233,409 688,632 248,999 439,633 144,042 15,204 1,348 6,466 177,456 26,024 151,432 62,096 251 770 83,741 22,164 61,577 86 999 133 1,818 866 952 233,409 48,879 650 (38,853) 47,003 450,099 254,317 195,782 439,633 65,333 1,998 (38,853) 54,372 713,114 303,371 409,743 168,961 12,059 156,902 134,132 20,655 113,477 798 724 74 398,814 165,218 233,596 702,705 198,656 504,049 156,902 2,110 7,471 7,499 163,600 19,558 144,042 113,477 365 51,007 739 83,490 21,394 62,096 74 50 29 9 819 733 86 233,596 44,940 3,031 42,096 440,723 207,314 233,409 504,049 47,465 10,531 51,007 50,343 688,632 248,999 439,633
215. KUVEYT T ÜRK 2017 ANNUAL REPORT 213 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) m. Explanations on Intangible Assets: 1. Cost and accumulated amortization balances at beginning and end of period: Cost Accumulated Amortization Total (net) Current Period 230,968 (111,956) 119,012 Prior Period 181,989 (86,881) 95,108 Current Period 95,108 50,889 1,928 25,057 119,012 Prior Period 77,966 48,032 8,414 22,476 95,108 2. Movements of intangible assets Opening balance Additions Disposals (-), net Depreciation amount (-) Closing net book value Intangible assets include computer software and program licenses which are taken for banking systems. n. Investment property: Opening balance Additions Disposals (-), net Depreciation amount (-) Closing net book value (*) Current Period 25,577 158 25,419 Prior Period - The fair value of the investment property is TL 30,900. o. Information on deferred tax asset: In accordance with the related regulations deferred tax asset calculated as of 31 December 2017 is TL 157,245 (31 December 2016 – TL 130,520) and deferred tax liability is TL 18,535 (31 December 2016 – TL 12,408). Reserve for employee benefits Retirement pay liability Deferred income Rediscounts for derivative instruments held for trading Impairment provision for subsidiaries, fixed assets and assets held for sale Other Deferred tax asset Difference between carrying value and tax base of tangible assets Valuation difference on available for sale financial asset Valuation difference on precious metal Other Deferred tax liability Deferred tax asset, (net) Current period 20,197 16,788 46,597 26,181 36,436 11,046 157,245 (10,044) (3,556) (652) (4,283) (18,535) 138,710 Prior period 14,755 11,058 29,683 27,731 36,425 10,868 130,520 (7,753) (220) (3,131) (1,304) (12,408) 118,112
216. 214 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Table for deferred tax asset movement: As of January 1 Deferred tax income Deferred tax accounted under shareholders’ equity Deferred tax asset Current period 118,112 22,696 (2,098) 138,710 Prior period 107,150 3,714 7,248 118,112 p. Assets held for sale and assets of discontinued operations The Bank has accounted for the fixed assets obtained from the receivables with the net book value and the lesser of its fair value. Opening balance Additions Transfer from tangible assets Disposals (-), net Transfer to tangible assets Depreciation amount (-) Impairment losses provision (-) Closing net book value Current Period 47,975 30,957 38,853 779 117,006 Prior Period 32,640 15,335 47,975 r. Information on other assets: As of balance sheet date, the Bank’s other assets amount to TL 764,669 (31 Aralık 2016 – TL 689,597). Other assets balance does not exceed 10% of the total assets on the balance sheet excluding off balance sheet commitments.
217. KUVEYT T ÜRK 2017 ANNUAL REPORT 215 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) II. Explanations and notes related to liabilities a. Information on funds collected: 1. Information on maturity structure of funds collected: Current Period I. Real persons current accounts-TL II. Real persons profit sharing accounts TL III. Other current accounts-TL Public sector Commercial sector Other institutions Commercial and other institutions Banks and participation banks Demand Up to 1 Month Up to 3 Months Up to 6 months Up to 9 months 4,089,584 - - - - - 3,920,064 6,325,033 449,754 2,896,840 - - - - Up to 1 year 1 year and over Accumulated profit sharing accounts Total - - - 4,089,584 245,635 194,490 - 11,134,976 - - - 2,896,840 70,537 - - - - - - - 70,537 2,779,505 - - - - - - - 2,779,505 42,423 42,423 - - - - - - - - - - - - - - - - 4,375 - - - - - - - 4,375 Central Bank of Republic of Turkey - - - - - - - - - Domestic banks - - - - - - - - - Foreign banks Participation banks Others IV. Profit sharing accounts-TL 3,875 - - - - - - - 3,875 500 - - - - - - - 500 - - - - - - - - - - 421,907 960,907 131,032 - 193,737 126,429 - 1,834,012 Public sector - 108 34,391 - - 29 - - 34,528 Commercial sector - 394,722 852,072 122,025 - 187,200 124,735 - 1,680,754 Other institutions - 27,062 74,334 9,007 - 6,505 1,694 - 118,602 Commercial and other institutions - 15 96 - - 3 - - 114 Banks and participation banks - - 14 - - - - - 14 4,884,717 - - - - - - - 4,884,717 7,899,554 V. Real persons current accounts-FC - 2,399,627 4,032,310 850,291 - 414,946 202,380 - VII. Other current accounts-FC VI. Real persons profit sharing accounts-FC 2,693,621 - - - - - - - 2,693,621 Commercial residents in Turkey 2,444,250 - - - - - - - 2,444,250 Commercial residents in Abroad 158,115 - - - - - - - 158,115 Banks and participation banks 91,256 - - - - - - - 91,256 Central Bank of Republic of Turkey - - - - - - - - - Domestic banks - - - - - - - - 91,256 91,256 - - - - - - - Participation banks Foreign banks - - - - - - - - - Others - - - - - - - - 1,503,862 VIII. Profit sharing accounts- FC - 329,872 927,386 76,275 - 158,850 11,479 - Public sector - 5 47 - - - - - 52 Commercial sector - 274,980 853,938 56,189 - 157,843 11,393 - 1,354,343 Other institutions - 24,687 25,848 48 - 423 - - 51,006 Commercial and other institutions - 30,195 39,112 20,038 - 584 - - 89,929 Banks and participation banks IX. Precious metal funds - 5 8,441 - - - 86 - 8,532 1,478,274 270,605 1,038,183 87,510 - 45,658 4 - 2,920,234 - X. Profit sharing accounts special funds – TL - - - - - - - - Residents in Turkey - - - - - - - - - Residents Abroad - - - - - - - - - XI. Profit sharing accounts special funds - FC - - - - - - - - - Residents in Turkey - - - - - - - - - Residents Abroad Total - - - - - - - - - 16,043,036 7,342,075 13,283,819 1,594,862 - 1,058,826 534,782 - 39,857,400 There are no 7 day notification and accumulative deposit accounts of the Bank.
218. 216 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Prior Period I. Real persons current accounts-TL II. Real persons profit sharing accounts-TL III. Other current accounts-TL Public sector Commercial sector Other institutions Commercial and other institutions Banks and participation banks Central Bank of Republic of Turkey Domestic banks Foreign banks Participation banks Others IV. Profit sharing accounts-TL Demand Up to 1 month Up to 3 Months Up to 6 months Up to 9 months Up to 1 year 1 year and over Accumulated profit sharing accounts Total 3,573,258 - - - - - - - 3,573,258 - 3,455,975 6,185,646 481,322 - 227,354 160,993 - 10,511,290 2,373,397 - - - - - - - 2,373,397 57,536 - - - - - - - 57,536 2,283,566 - - - - - - - 2,283,566 27,325 27,325 - - - - - - - - - - - - - - - - 4,970 - - - - - - - 4,970 - - - - - - - - - 741 - - - - - - - 741 3,427 - - - - - - - 3,427 802 - - - - - - - 802 - - - - - - - - - - 349,795 821,429 44,001 - 132,379 135,889 - 1,483,493 Public sector - 301 33,481 - - 40 - - 33,822 Commercial sector - 321,734 738,766 32,343 - 126,604 134,965 - 1,354,412 93,792 Other institutions - 27,021 48,987 11,658 - 5,725 401 - Commercial and other institutions - 739 182 - - 10 - - 931 Banks and participation banks - - 13 - - - 523 - 536 3,090,964 V. Real persons current accounts-FC 3,090,964 - - - - - - - - 1,625,988 2,820,800 651,610 - 454,239 164,990 - 5,717,627 VII. Other current accounts-FC 1,642,234 - - - - - - - 1,642,234 Commercial residents in Turkey 1,341,943 VI. Real persons profit sharing accounts-FC 1,341,943 - - - - - - - Commercial residents in Abroad 129,723 - - - - - - - 129,723 Banks and participation banks 170,568 - - - - - - - 170,568 Central Bank of Republic of Turkey Domestic banks Foreign banks Participation banks Others VIII. Profit sharing accounts- FC - - - - - - - - - 7,665 - - - - - - - 7,665 160,585 - - - - - - - 160,585 2,318 - - - - - - - 2,318 - 378,656 629,124 93,215 - 28,981 37,319 - - - 1,167,295 Public sector - - 80 - - - - - 80 Commercial sector - 286,537 540,032 80,034 - 22,641 26,130 - 955,374 Other institutions - 59,622 37,781 28 - 741 0 - 98,172 Commercial and other institutions - 28,971 47,051 13,153 - 5,599 11,103 - 105,877 - 3,526 4,180 - - - 86 - 7,792 1,299,314 - 930,175 73,925 - 36,607 - - 2,340,021 Banks and participation banks IX. Precious metal funds X. Profit sharing accounts special funds - TL - - - - - - 2,184 - 2,184 Residents in Turkey - - - - - - 2,184 - 2,184 Residents Abroad - - - - - - - - - XI. Profit sharing accounts special funds - FC - - - - - - - - - Residents in Turkey - - - - - - - - - Residents Abroad Total - - - - - - - - - 11,979,167 5,810,414 11,387,174 1,344,073 - 879,560 501,375 - 31,901,763
219. KUVEYT T ÜRK 2017 ANNUAL REPORT 217 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2. Information’s on current and profit share accounts that are in the scope of Saving Deposit/Saving Deposit Insurance Fund: i. Current and Participation Accounts Attributable to Real Entities/Persons under the Guarantee of Saving Deposit Insurance Fund Exceeding the Limit of the Deposit Insurance Fund: Under the guarantee of saving deposit insurance Current period Prior period Real persons current and profit sharing accounts that are not subject to commercial activities TL accounts FC accounts Foreign branches’ deposits under foreign authorities’ insurance Off-shore banking regions’ under foreign authorities’ insurance Exceeding the limit of saving Deposit Current period Prior period 9,730,510 5,804,410 8,985,542 4,058,175 5,440,996 9,535,405 5,052,687 6,504,045 - - - - - - - - Funds collected by Participation Banks (except for foreign branches) through current and profit share accounts which are opened by real persons and denominated in Turkish Lira or foreign currency with a limit of maximum of TL 100 (including both capital and profit shares) for each person is under the guarantee of Saving Deposit Insurance Fund in accordance with the Banking Law No. 5411. ii. If the headquarters of the Bank is abroad and the deposit account in its Turkish branch is in the scope of the insurance policy in the country of the headquarter of the Bank is founded, it should be explained: The headquarters of the Bank is in Turkey. iii. Current and Profit Share Accounts of the real persons who are not in the scope of Saving Deposits Insurance Fund: The Bank has no current or profit sharing accounts which are not under the guarantee of the Saving Deposit Insurance Fund except for the current and profit sharing accounts of shareholders, member of Board of Directors, CEO, the Vice Presidents and their first degree relatives. Foreign branches’ profit sharing accounts and other accounts Profit sharing accounts and other accounts of controlling shareholders and profit sharing accounts of their mother, father, spouse, children in care Profit sharing account and other accounts of President and Members of Board of Directors, CEO and Vice Presidents and profit sharing accounts of their mother, father, spouse and children in care Profit sharing account and other accounts in scope of the property holdings derived from crime defined in article 282 of Turkish Criminal Law No:5237 dated 26 September 2004 Profit sharing accounts in participation banks which are established in Turkey in order to engage in off-shore banking activities Current period - Prior period - - - 4,573 3,046 - - - 355
220. 218 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) b. Information on derivative financial liabilities held for trading: Derivative financial liabilities held for trading: Forward transactions Swap transactions Futures transactions Options Other Total Current period TL FC 10,269 4,679 11,177 54,572 21,446 59,251 TL 15,459 25,121 40,580 Prior period Current period TL FC TL FC 4,835,605 2,937,603 7,773,208 588,987 59,007 647,994 4,456,579 2,932,248 7,388,827 Current period TL FC 1,223,292 3,054,515 35,009 4,718,693 1,258,301 7,773,208 TL 637,766 10,228 647,994 FC 1,294 77,853 79,147 c. Information on funds borrowed: 1. Information on banks and other financial institutions: Loans from The Central Bank of the Republic of Turkey From Domestic Banks and Institutions From Foreign Banks, Institutions and Funds Total 1,199,428 58,873 1,258,301 Prior period 2. Information on maturity structure of borrowings: Short-term Medium and Long-Term Total Prior period FC 3,057,394 4,331,433 7,388,827
221. KUVEYT T ÜRK 2017 ANNUAL REPORT 219 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Details of significant transactions that are accounted under Funds Borrowed are stated in table below. Current Period: Type KT Issue KT Issue KT Issue KT Issue KT Issue KT Issue KT Issue KT Issue KT Issue Wakala Wakala Prior Period: Type KT Issue KT Issue KT Issue KT Issue KT Issue KT Issue KT Issue KT Issue Wakala Wakala Wakala Wakala Wakala Customer Opening Date Maturity KT KİRA SERTİFİKALARI V.K.Ş 06/10/2017 17/01/2018 KT KİRA SERTİFİKALARI V.K.Ş 08/11/2017 06/02/2018 KT KİRA SERTİFİKALARI V.K.Ş 16/11/2017 16/03/2018 KT KİRA SERTİFİKALARI V.K.Ş 19/09/2017 03/01/2018 KT KİRA SERTİFİKALARI V.K.Ş 01/11/2016 02/11/2021 KT KİRA SERTİFİKALARI V.K.Ş 15/07/2015 15/07/2020 KT KİRA SERTİFİKALARI V.K.Ş 15/05/2015 15/05/2020 KT KİRA SERTİFİKALARI V.K.Ş 31/03/2015 31/03/2020 KT KİRA SERTİFİKALARI V.K.Ş 26/06/2014 26/06/2019 PUBLIC INSTITUTE FOR SOCIAL SECURITIES KW 07/11/2017 14/11/2018 KFH - KUWAIT 02/06/2017 08/06/2018 Currency TL TL TL TL USD MYR MYR MYR USD Rate (Yearly) %11.93 %11.93 %12.13 %11.84 %5.08 %5.64 %5.64 %5.72 %5.08 Principal 180,000,000 120,000,000 250,000,000 400,000,000 500,000,000 300,000,000 200,000,000 300,000,000 500,000,000 Profit Share 6,146,136 3,580,272 10,109,600 13,939,720 128,893,846 85,894,027 57,262,685 87,095,343 128,767,923 USD USD %2.30 %2.25 103,925,361 120,000,000 2,469,959 2,782,500 Customer Opening Date KT KİRA SERTİFİKALARI V.K.Ş 11/10/2016 KT KİRA SERTİFİKALARI V.K.Ş 08/11/2016 KT KİRA SERTİFİKALARI V.K.Ş 30/11/2016 KT KİRA SERTİFİKALARI V.K.Ş 01/11/2016 KT KİRA SERTİFİKALARI V.K.Ş 26/06/2014 KT KİRA SERTİFİKALARI V.K.Ş 15/07/2015 KT KİRA SERTİFİKALARI V.K.Ş 15/05/2015 KT KİRA SERTİFİKALARI V.K.Ş 31/03/2015 PUBLIC INSTITUTE FOR SOCIAL SECURITIES KW 27/10/2016 KFH - KUWAIT 04/11/2016 PUBLIC INSTITUTE FOR SOCIAL SECURITIES KW 27/05/2016 KFH - KUWAIT 21/06/2016 KFH - KUWAIT 31/10/2016 Maturity 11/01/2017 14/02/2017 07/03/2017 02/11/2021 26/06/2019 15/07/2020 15/05/2020 31/03/2020 Currency TL TL TL USD USD MYR MYR MYR Rate (Yearly) %9.96 %10.06 %10.25 %5.14 %5.08 %5.64 %5.64 %5.72 Principal 180,000,000 200,000,000 160,000,000 500,000,000 500,000,000 300,000,000 200,000,000 300,000,000 Profit Share 4,582,350 5,477,260 4,422,144 130,325,993 128,767,923 85,894,027 57,262,685 87,095,343 27/01/2017 06/02/2017 USD USD %2.20 %2.20 100,000,000 100,000,000 562,222 574,444 02/06/2017 27/06/2017 07/11/2017 USD USD USD %1.90 %2.05 %2.15 120,000,000 100,000,000 101,666,667 2,349,667 2,112,639 2,258,694 3. Explanations related to the concentrations of the Bank’s major liabilities: All of the borrowings consist of foreign currency loans and majorly they are formed by the transactions with the offshore financial institutions. There is no risk concentration of the Bank’s current and profit sharing accounts. d. Information on other liabilities and miscellaneous payables: As of 31 December 2017, other liabilities amounting TL 334,851 (31 Aralık 2016 – TL 399,451), sundry creditors amounting to TL 198,119 (31 Aralık 2016 – TL 157,964), both of them do not exceed 10% of the balance sheet total. e. Information on finance lease payables (net): The Bank bought some of the information technology equipment through financial lease and the liabilities originated from the agreements are paid in monthly installments to the leasing firms. These agreements do not raise any further liabilities other than already committed payments by the Bank.
222. 220 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) i. Information on the changes in agreements and new obligations originating from these changes: None (31 December 2016 – None). ii. Information on Financial Lease Obligations Less than 1 year Between 1-4 years More than 4 years Total Current period Gross Net - Prior period Gross 265 265 Net 226 226 iii. Information on Operational Leases: The leasing transactions, in which all risks and benefits of the leased asset are held by the lessor, are classified as operational leases. Such transactions consist of rent contracts of branches which may be cancelled by declaration. There are no significant commitments regarding the changes at the operational lease agreements. The payments related with operational leases are recognized as expense in the income statement during the period of the agreement in equal installments. f. Information on hedging derivative financial liabilities: Fair value hedge Cash flow hedge Hedge of net investment in foreign operations Total Current period TL FC 70,795 70,795 Prior period TL - FC 137,829 137,829
223. KUVEYT T ÜRK 2017 ANNUAL REPORT 221 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) g. Information on provisions: 1. Information on general provisions: General Provisions I.For Loans and Receivables in Group I (Total) Profit Sharing Accounts’ Share The Bank’s Share Other I.Additional Provision for Loans and Receivables with Extended Maturities Profit Sharing Accounts’ Share The Bank’s Share Other II.Loans and Receivables in Group II (Total) Profit Sharing Accounts’ Share The Bank’s Share Other II.Additional Provision for Loans and Receivables with Extended Maturities Profit Sharing Accounts’ Share The Bank’s Share Other Provisions for Non Cash Loans Other Current period 405,468 329,659 116,638 213,021 22,318 10,982 11,336 25,422 28,069 Prior Period 318,825 238,477 85,063 153,414 31,063 13,639 17,424 21,629 27,656 According to the provisional article 6 added on 8 October 2013 to “Regulation on Procedures and Principles for Determination of Qualifications of Loans and Other Receivables by Banks and Provisions to be set aside” that is published in Official Gazette numbered 26333 on 1 November 2006; it has been stated that the banks can apply the rates disclosed in paragraph 1, article a of the related regulation for general provisions as minimum five over thousand percent (0.5%) for commercial cash loans in Group I; minimum one over thousand percent (0.1%) for commercial noncash loans in Group I; zero percent (0 %) for the small and medium-sized enterprise cash and non-cash loans in Group I. 2. Information on provisions related with foreign currency evaluation difference of foreign currency indexed loans: As of 31 December 2017, effect of decrease in exchange rates on foreign currency indexed loans amounting to TL 19,143 (31 Aralık 2016 – TL 651) and TL 376 (31 Aralık 2016 – TL 5,953) is offset against loans and receivables.
224. 222 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 3. Information on other provisions: Provisions for non- liquidated non cash loans (*) Provisions for cheque books (*) Provisions from equity/profit sharing accounts Provisions for Promotion Activities for Credit Cards Other (**) Total Current Period 95,685 2,276 30,422 1,242 71,298 200,923 Prior Period 74,736 4,633 14,668 818 38,996 133,851 (*) Effective from 1 March 2011, according to temporary article 2 of “Regulation on Procedures and Principles for Determination of Qualifications of Loans and Other Receivables by Banks and Provisions to be Set Aside”, the Bank recognizes provisions for nonliquidated non-cash loans and check books of customers who have any other non-performing exposures within the Bank. (**) Other item includes TL 6,915 litigation provision in current period ( 31 December 2016 – TL 4,050). In addition to this, TL 14,450 includes provision amount is related to aaudit related penalty from Ministry of Customs and Trade (31 December 2016 – TL 14,450 ) and TL 40,560 includes the repayment amount foreseen for delay in penalties (31 December 2016 – TL 18,850). 4. Information on provisions for employee benefits: Provisions for employee benefits consist of reserve for employee termination benefits amounting to, TL 83,942 (31 Aralık 2016 – TL 55,291), vacation pay liability amounting to TL 522 (31 Aralık 2016 – TL 792), performance premium amounting TL 69,794 (31 Aralık 2016 – TL 55,927), retirement bonuses on payment of TL 23,500 (31 December 2016 – TL 10,340) and committee fee amounting to 7,291 TL (31 December 2016 – TL 6,714). Under the Turkish Labor Law, the Bank is required to pay termination benefits to each employee who has completed at least one year of service and whose employment is terminated without due cause, is called up for military service, dies or retires or earns the right to retire. The amount payable consists of one month’s salary limited to a maximum of TL 4,732 (31 Aralık 2016 – TL 4,297) for each year of service. The liability is not funded, as there is no funding requirement. The reserve has been calculated by estimating the present value of the future probable obligation of the Bank arising from the retirement of its employees. TAS 19 requires actuarial valuation methods to be developed to estimate the enterprise’s obligation for such benefits. Accordingly, the following actuarial assumptions were used in the calculation of the total liability: Discount Rate (%) Inflation rate (%) Interest rate (%) Current period 11.60 8.90 9.90 Prior period 11.46 7.78 8.78 Movements in the reserve for employment termination benefits during period are as follows: Balance at the beginning of the period Provisions provided during the period Paid during the period Actuarial gain/loss Balances at the end of the period Current period 55,291 17,395 (5,237) 16,493 83,942 Prior period 48,208 16,416 (7,880) 1.453 55,291
225. KUVEYT T ÜRK 2017 ANNUAL REPORT 223 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) h. Explanations on tax liability: 1. Explanations on current tax liability: i. Information on tax provisions: As of 31 December 2017, the Bank has current tax liability after deducting temporary taxes paid during the period from the provision for corporate income tax amounting to TL 56,271. Provision for corporate income tax (*) Prepaid taxes Total (**) Current period 199,529 (143,258) 56,271 Prior period 124,960 (97,109) 27,851 (*) Related amount represents the amount before the adjustment of the prior period tax provision amouning to TL 1,891 (31 December 2016 – TL 122). (**) It is presented in the current tax liability line, under liabilities. ii. Information on taxes payable (*): Taxation of marketable securities Taxation of immovable property Banking Insurance Transaction Tax (BITT) Value Added Tax Payable Income tax deducted from wages Other Total Current period 19,651 1,185 18,431 1,349 8,192 1,128 49,936 Prior period 14,130 1,111 17,170 1,324 7,331 1,065 42,131 Current period 4,862 5,234 348 801 11,245 Prior period 4,287 4,622 307 698 9,914 iii. Information on premiums (*): Social Security Premiums-Employee Social Security Premiums-Employer Unemployment insurance-Employee Unemployment insurance-Employer Total (*) Included in sundry creditors line item on the balance sheet. iv. Information on deferred tax liability: None (31 December 2016 - None). h. Information on liabilities of assets held for sale and discontinued operations: None (31 December 2016 – None).
226. 224 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) j. Information on subordinated loans: From Domestic Banks From Other Domestic Institutions From Foreign Banks From Other Foreign Institutions Total Current period TL FC 1,360,338 1,360,338 Prior period TL - FC 1,981,646 1,981,646 Kuveyt Turk Participation Bank provided funds (credit) for Kuveyt Finance House amounting to US $ 200 million in 10-year maturity capital (“secondary subordinated loan” as defined in the previous legislation) on September 29, 2011. The amount of the profit share will be calculated by applying the profit ratio over the loan amount expressed as the commodity purchase price and will be paid in equal installments. Classification of this subordinated loan as tier-II capital upon the receipt of the cash amounting to USD 200 million by the Bank for the purpose of supplementary capital calculation was confirmed by the BRSA by their notification dated 30 September 2011. In order to comply with the amendments made in the Regulation on Equities of the Banks published by BRSA became effective on 31 March 2016, the related loan agreement was amended as of 29 March 2016 and it was deemed appropriate for the loan to be considered as tier-II capital in accordance with BRSA notification dated 25 April 2016. As of 30 March 2017, the Bank has closed its contribution capital loan by using the early payment option. The Bank has acquired 350 million US dollars contribution capital loan, with having the requirements defined by BRSA Regulation on the Capital Adequacy, from Special Purpose Vehicle (SPV) KT Sukuk Company Limited that resides in Cayman Island that acquired the amount via issuence of Sukuk on 17 February 2016. Annual rate of return for the loan that is included in contibutional capital calculation in accordance with the BRSA Letter of Conformity dated 2 September 2015 and No 20008792101.01[93]E.12819 is 7.90%, has a maturity of 10 years with a repayment option for the bank after 5 year from the opening date. Returns will be calculated with the implementation of annual rate of return to the loan amount defined as trasfer price of the assets, and installements will be made on 17 July and 17 February each year. k. Information on shareholders’ equity: 1. Presentation of paid-in capital: Common shares Preferrence shares Repurchased shares amount (*) Total Current period 3,100,000 (2,678) 3,097,322 Prior period 2,790,000 (2,678) 2,787,322 (*) It represents the Bank’s acquisition of its own shares as a result of the other shareholders not using their right of preference according to the commitment made in the capital increase in the Bank 2. Amount of paid-in capital, disclosure on whether the bank applies the registered share capital system, and, if so, the ceiling amount of the registered share capital: Registered capital system is not applied in the bank.
227. KUVEYT T ÜRK 2017 ANNUAL REPORT 225 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 3. Information on the share capital increases during the period and their sources; other information on increased capital shares in the current period: Retained Earnings Date for Increase Increased Amount Internal Sources for Increased 28 March 2017 310,000 310,000 4. Information on share capital increases from capital reserves during the current period: None. (31 December 2016 – None) 5. Possible effect of estimations made for the Bank’s revenues, profitability and liquidity on equity considering prior period indicators and uncertainties: Based on the evaluation made considering the Bank’s prior and current period indicators related to net profit share and commission income, it is observed that the Bank continues its operations profitably. 6. Summary of privileges given to shares representing the capital: None. 7. Information on marketable securities value increase fund: Current period TL From Associates, Subsidiaries and Entities Under Common Control (Joint Vent.) Valuation Difference (*) Foreign Exchange Difference Total (23,192) (23,192) FC 12,609 12,609 Prior period TL (182) (182) FC (30,347) (30,347) (*) Valuation difference is calculated taking the tax effect of the rent certifications in the account, which are classified as “Government Debt Securities” and “Other Marketable Securities” under available for sale in the balance sheet. l. Information on minority shares: None (31 December 2016 – None). III. Explanations and notes related to off-balance sheet commitments a. Explanations on off-balance sheet accounts: 1. Type and amount of irrevocable commitments: Commitment for credit card limits, as of 31 December 2017 is TL 1,357,354 TL (31 December 2016 – TL 904,427); payment commitments for cheque books are TL 1,345,239 (31 December 2016 – TL 1,178,750) 2. Type and amount of probable losses and obligations arising from off-balance sheet items: i. Non-cash loans including guarantees, bank acceptances, collaterals and others that are accepted as financial commitments and other letter of credits: As of 31 December 2017, the Bank has guarantees and suretyships constituting TL 9,566,138 (31 December 2016 – TL 8,114,844) letters of guarantee; TL 55,958 (31 December 2016 - TL 52,044) acceptances and TL 932,100 (31 December 2016 – TL 1,019,786) letters of credit. In addition, the Bank has also Other Guarantees and Securities amounting to TL 513,959 (31 December 2016 – TL 702,113)
228. 226 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) ii. Revocable, irrevocable guarantees and other similar commitments and contingencies: There are no other than those explained in 2.i). 3. (i). Total amount of non-cash loans: Current period 11,068,155 11,068,155 Non-cash loans given against cash loans With original maturity of 1 year or less With original maturity of more than 1 year Other non-cash loans Total Prior period 9,888,787 9,888,787 (ii). Sectorial risk concentration of non-cash loans Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and quarrying Production Electricity, Gas, Water Construction Services Wholesale and Retail Trade Hotel, Food and Beverage Services Transportation and Telecom. Financial Institutions Real Estate and Renting Services “Self-Employment” Type Services Educational Services Health and Social Services Other Total TL 48,091 Current period (%) TL 0.74 5,538 (%) 0.12 TL 39,728 Prior period (%) TL 0.76 10,773 (%) 0.23 20,246 27,808 37 1,121,211 202,241 463,059 455,911 2,550,357 1,783,281 745,878 0.31 0.43 0.00 17.24 3.11 7.12 7.01 39.23 27.42 11.47 4,013 1,525 799,207 274,708 496,475 28,024 1,146,399 1,767,303 546,190 0.09 0.03 17.49 6.01 10.87 0.61 25.10 38.69 11.96 17,721 21,925 82 753,859 213,839 335,303 204,717 2,277,316 1,426,827 599,580 0.34 0.42 0.00 14.56 4.13 6.48 3.95 43.99 27.56 11.58 7,487 3,286 927,124 294,194 357,625 275,305 1,171,081 1,656,399 449,934 0.16 0.07 19.67 6.24 7.59 5.84 24.86 35.16 9.55 79,406 1.22 36,509 0.80 70,677 1.37 31,106 0.66 470,117 6,074 7.23 0.09 774,580 297,965 16.96 6.52 389,561 23,491 7.52 0.45 700,476 398,649 14.87 8.46 81,800 1.26 3,419 0.07 18,035 0.35 1,874 0.04 92 33,252 366,662 998,140 6,501,080 0.00 0.51 5.64 15.35 100.00 3,006 105,634 848,628 4,567,075 0.07 2.31 18.58 100.00 70 41,418 283,995 679,452 5,177,182 0.00 0.80 5.49 13.13 100.00 1,994 72,366 946,228 4,711,605 0.04 1.54 20.08 100.00 (iii). Non-cash loans classified under Group I and II: Group I Current Period Non-Cash Loans Letters of Guarantee Bills of Exchange and Bank Acceptances Letters of Credit Endorsem*nts Underwriting Commitments Factoring Related Guarantees Other Guarantees and Sureties TL 6,445,915 6,287,400 2,549 1,143 154,823 FC 4,543,043 3,204,215 53,409 926,283 359,136 Group II TL 55,165 55,165 - FC 24,032 19,358 4,674 -
229. KUVEYT T ÜRK 2017 ANNUAL REPORT 227 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Group I Prior Period Non-Cash Loans Letters of Guarantee Bills of Exchange and Bank Acceptances Letters of Credit Endorsem*nts Underwriting Commitments Factoring Related Guarantees Other Guarantees and Sureties TL 5,122,017 4,971,330 2,071 188 148,428 Group II FC 4,687,573 3,068,991 49,973 1,014,924 553,685 TL 55,165 55,165 - FC 24,032 19,358 4,674 - b. Financial derivative instruments Derivative transactions according to aims Current Period Prior Period Trading derivatives Foreign Currency Related Derivative Transactions (I): Currency Forwards-Purchases, sales Currency Swaps-Purchases, sales Currency Futures Currency Options-Purchases, sales Interest Rate Related Derivative Transactions (II): Interest rates forwards-Purchase, sales Interest rates swaps-Purchases, sales Interest rates options-Purchases, sales Interest rates futures-Purchases, sales Other Trading Derivatives (III) A.Total Trading Derivatives (I+II+III) Hedging Derivatives Fair value hedges Cash flow hedges Foreign currency investment hedges B. Total Hedging Derivatives Total Derivatives Transactions (A+B) 13,645,542 2,436,521 11,209,021 - 18,635,729 3,408,604 15,227,125 - 7,966 13,653,508 21,178 18,656,907 1,565,503 1,565,503 15,219,011 1,391,124 1,391,124 20,048,031 The Bank enters into short term swap transactions based on its market expectations and cash flow. These transactions are generally short term and consist of foreign currency to foreign currency and foreign currency to Turkish Lira agreements. As of 31 December 2017, the Bank has commitments to buy TL 728,960, USD 1,361,922,000, EUR 81,070,000, GBP 29,404,000 and MYR 800,000,000 in return of selling commitments of TL 963,256, USD 514,739,000, EUR 964,634,000 and GBP 19,364,000 (As of 31 December 2016, the Bank has commitments to buy TL 4,827,866, USD 1,053,129,000, EUR 79,150,000, GBP 976,000 and 800,000,000 MYR in return of selling commitments of TL 904,538, USD 570,101,074, EUR 1,796,912,000 and GBP 700,000) c. Credit derivatives and risk exposures on credit derivatives: None. d. Contingent liabilities and assets: In accordance with decision of the Bank’s Board of Directors numbered 1117 and dated 21 June 2011, recoverable foreign currency loan granting commitments to real and legal persons and who do not have the unconditional right to utilize these commitment has been translated into Turkish Lira and no longer followed as foreign currency commitments.
230. 228 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) e. Explanations on custodian and intermediary services None. f. Summary Information on the Bank’s Rating by the International Rating Institutions Fitch Rating’s November 2017 Long Term Issuer Default Rating Short Term Issuer Default Rating Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating Support Rating Notes BBBF3 BBBF3 2 IV. Explanations and disclosures related to the income statement a. Information on profit share income: 1. Information on profit share received from loans: Profit share on loans Short term loans Medium and long term loans Profit share on non-performing loans Premiums received from resource utilization support fund Current period TL FC 3,117,811 210,848 806,921 18,862 2,303,217 191,986 7,673 - Prior period TL 2,560,187 657,871 1,896,616 5,700 FC 179,922 13,138 166,784 - - - - Current period TL FC 30,204 30,204 TL 3,760 3,760 - 2. Information on profit share received from banks: The Central Bank of the Republic of Turkey Domestic Banks Foreign Banks Branches and head office abroad Total Prior period FC 10,792 10,792 3. Information on profit share income from securities portfolio: The Bank received TL 280,500 of profit share income from rent certificates (sukuk) that are disclosed in detail in available for sale financial assets information. (1 January-31 December 2016: TL 197,440) 4. Information on profit share income received from associates and subsidiaries: Profit share income received from associates and subsidiaries Current period - Prior period 3,172
231. KUVEYT T ÜRK 2017 ANNUAL REPORT 229 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) b. Information on profit share expenses: i. Information on profit share expense given to funds borrowed: Banks The Central Bank of the Republic of Turkey Domestic banks Foreign banks Branches and head office abroad Other Institutions Total Current period TL 95,058 2,127 4,394 88,537 95,058 FC 421,421 8,896 38,565 373,960 421,421 Prior period TL 79,807 9,362 9,867 60,578 79,807 FC 363,821 6,971 71,080 285,770 363,821 ii. Profit share expense given to associates and subsidiaries: Profit share expenses given to associates and subsidiaries Current Period 359,164 Prior Period 199,750 iii. Profit share expense paid to securities issued: None (1 January-31 December 2016: None). c. Information on dividend income: Trai Held for Trading Financial Assets Fair Value Through Profit or Loss FV Available for Sale Financial Assets Other (*) Total (*) Current period Prior period - 509 509 This amount related to non-cash capital increase of Kredi Garanti Fonu A.Ş. which is presented in Available for sale financial assets.
232. 230 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) d. Distribution of profit share on funds based on maturity of funds: Current period Account Name TL Collected funds from banks through current and profit share accounts Non-trading profit sharing Account of individuals Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Total FC Banks Non-trading profit sharing account of individuals Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Precious metal accounts Total Grand Total Profit Sharing Accounts Up to 1 month Up to 3 month Up to 6 month Up to 9 month Up to 1 year Above 1 year Accumulated profit sharing accounts Total - - - - - - - - 282,508 79 505,963 2,610 37,931 631 - 18,391 - 15,657 - - 860,450 3,320 29,244 73,372 11,770 - 1,133 871 - 116,390 2,094 313,925 5,976 587,921 778 51,110 - 249 19,773 121 16,649 - 9,218 989,378 730 144 - - - - - 874 40,294 - 69,375 - 16,005 - - 7,964 - 3,996 - - 137,634 - 4,758 21,396 1,378 - 151 123 - 27,806 1,669 660 1,784 9,450 454 749 - 23 406 97 - - 4,027 11,265 48,111 102,149 18,586 - 8,544 4,216 - 181,606 362,036 690,070 69,696 - 28,317 20,865 - 1,170,984
233. KUVEYT T ÜRK 2017 ANNUAL REPORT 231 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Prior Period Account Name TL Collected funds from banks through current and profit share accounts Non-trading profit sharing of individuals account Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Total FC Banks Non-trading profit sharing account of individuals Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Precious metal accounts Total Grand Total Profit Sharing Accounts Up to 1 month Up to 3 month Up to 6 month Up to 9 month Up to 1 year Above 1 year Accumulated profit sharing accounts Total - 2,967 - - - - - 2,967 228,615 80 416,199 2,249 38,548 434 - 16,636 0 13,890 0 - 713,888 2,763 19,168 53,160 3,997 - 965 1,391 - 78,681 2,096 249,959 426 22,239 3,676 478,251 1,795 41,478 690 43,669 9,412 - 154 17,755 17 6,776 34 15,315 230 2,677 - 6,650 804,949 2,468 82,582 2,567 1 9,739 1,555 - 275 444 - 1 14,580 1,832 1,412 265 - 128 832 - 4,469 - 5,657 395 - 306 - - 6,358 27,064 60,082 11,627 - 7,502 4,183 - 110,458 277,023 538,333 55,296 - 25,257 19,498 - 915,407 e. Information on trading income/loss (Net): Trading income/loss (net) Income Gain on capital market transactions Gain on derivative financial instruments Foreign exchange gains Losses (-) Losses on capital market transactions Losses on derivative financial instruments Foreign exchange losses Current period 246,884 25,959,407 9,812 1,789,088 24,160,507 25,712,523 2,852 2,187,322 23,522,349 Prior period 275,772 12,302,853 9,074 456,035 11,837,744 12,027,081 1,203 300,606 11,725,272
234. 232 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) f. Information on other operating income: The details of other operating income are presented below. There are no unusual items in the other operating income which materially affect the income of the Bank. Reversal of prior period provisions Income from sale of assets Income from the real estate sales’ gains by rent certificates Lease income Other Income Total (*) Current period 95,525 126,955 2,564 5,173 230,217 Prior period 79,001 53,907 51,007 2,478 6,479 192,872 Includes income from the liquidation of subsidiary that is Kuwait Turkish Participation Bank Dubai Ltd. amounting to TL 107,029. g. Provisions for loan losses and other receivables of the Bank: Specific provisions for loans and other receivables III. group loans and receivables IV. group loans and receivables V. group loans and receivables Doubtful commissions, fees and other receivables General provision expenses Provision expenses for possible losses Impairment provision of marketable securities Financial Assets at fair value through profit and loss Investment securities available for sale Impairment provision of associates, subsidiaries, joint ventures and held to maturity investments Associates Subsidiaries Joint ventures Held to maturity investments Other (*) Total Current period 629,878 153,498 132,447 343,933 1,828 101,046 385 385 - Prior period 461,561 79,691 217,987 163,883 1,254 3,081 3,081 - 50,566 783,703 45,765 511,661 (*) Other item includes TL 2,865 is lawsuit provision (31 December 2016: TL 4,450) and TL 18,850 is provision amount foreseen for delay in penalties. According to the provision regulation, it consists both the provision is allocated 5% of profit which will be distributed to participation accounts and other provision expenses.
235. KUVEYT T ÜRK 2017 ANNUAL REPORT 233 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) h. Information on other operating expenses: Personnel expenses Provision for retirement pay liability Depreciation expenses of fixed assets Impairment expenses of tangible assets Depreciation expenses of intangible assets Depreciation expenses of assets held for sale Other operating expenses Rent expenses Maintenance expenses Advertisem*nt expenses Communication expenses Heating, electricity and water expenses Cleaning expenses Vehicle expenses Stationery expenses Other expenses Losses on sales of assets Deposit insurance fund expenses Other Total Current period 662,783 12,158 54,372 25,057 295,222 110,815 33,072 27,275 35,008 13,498 4,894 5,678 5,754 59,228 109 82,592 87,388 1,219,680 Prior period 582,645 8,536 49,329 51,007 22,476 1,014 255,799 96,626 24,294 22,492 30,043 12,390 5,185 4,541 4,236 55,992 366 66,069 79,878 1,117,119 i. Information on profit/loss from continued and discontinued operations before taxes: Income before tax amounts to TL 848,933 increased by 28% as compared to the prior period (1 January - 31 December 2016 – TL 663,212). Income before tax includes TL 2,134,213 (1 January - 31 December 2016 – TL 1,669,869) net profit share income and TL 241,002 (1 January - 31 December 2016 – TL 152,970) net fees and commission income. Other operating expense amount is TL 1,219,680 (1 January - 31 December – TL 1,117,119). j. Information on tax provision for continued and discontinued operations: At current period, deferred tax income of the Bank is TL 22,696 (31 December 2016 – TL 3,714 -income) deferred tax income) and current tax provision expense is TL 197,638 (31 December 2016 – TL 124,960). k. Information on net income/loss from continued and discontinued operations: There is no income or loss for discontinued operation in net operating income after tax. l. Information on net income/loss: i. 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 a complete understanding of the Bank’s performance for the period: As of 31 December 2017, net profit share income is TL 2,134,213 (1 January-31 December 2016 – 1,669,869 TL), net fees and commission income is TL 241,002 (1 January-31 December 2016 – TL 152,970). ii. Effect of changes in accounting estimates on income statement for the current and, if any for subsequent periods: None (1 January-31 December 2016– None). iii. Profit/Loss attributable to minority interest: None (1 January-31 December 2016 – None).
236. 234 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) m. Details of sub accounts comprising at least 20% of other items in income statement, exceeding 10% of total income statement: As of 31 December 2017, other fees and commissions received is TL 288,420 (1 January-31 December 2016 – TL 223,950), TL 69,834 of this amount is related with credit card fees and commissions (1 January-31 December 2016 – TL 45,655) and TL 56,034 of this amount is related with POS machine commissions (1 January-31 December 2016 – TL 46,026). As of 31 December 2017, other fees and commissions given is TL 153,899 (1 January-31 December 2016 – TL 158,499), TL 65,391 (1 January-31 December 2016 – TL 54,634) of this amount is related with POS clearing commissions and installation expenses, TL 11,805 (1 January-31 December 2016 – TL 7,831) of this amount is related with fees and commissions paid for credit cards. V. Statement of Changes in Shareholders’ Equity a) There are no disclosed dividend amounts subsequent to the balance sheet date, prior to the presentation of the financial statements. Decision on the dividend distribution will be made in the General Assembly. However, the General Assembly has not been held as of the date when the accompanying financial statements are finalized. b) In the current year, the Bank made dividend payments amounting to TL 4,291 to members of Board of Directors. In the General Assembly meeting held in 18 March 2017 it has been decided that TL 27,528 would be transferred to legal reserves, TL 336,679 would be transferred to extraordinary reserve, TL 51,667 would be transferred to other reserves and TL 310,000 would be transferred to paid up capital. VI. Explanations and notes related to cash flow statement a. Information on cash and cash equivalents: 1. Components of cash and cash equivalents and accounting policy applied in their determination: “Cash” is defined as cash in vault and foreign currency cash, cash in transit, checks purchased, unrestricted amount in the Central Bank and demand deposits in Banks. “Cash equivalents” is defined as money market placements, investments in securities and time deposits in banks with original maturity less than three months. (i). Cash and cash equivalents at the beginning of the period: Cash Cash in TL/foreign currency, others Demand deposits at banks Cash equivalents Interbank money markets Time deposits at banks Marketable securities Total cash and cash equivalents Current period 5,595,655 740,629 4,855,026 5,595,655 Prior period 4,687,293 1,713,467 2,973,826 4,687,293
237. KUVEYT T ÜRK 2017 ANNUAL REPORT 235 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) (ii). Cash and cash equivalents at the end of the period: Current period 4,078,048 606,825 3,471,223 4,078,048 Cash Cash in TL/foreign currency, others Demand deposits at banks (up to 3 months) Cash equivalents Interbank money markets Time deposits at banks Marketable securities Total cash and cash equivalents Prior period 5,595,655 740,629 4,855,026 5,595,655 b. Cash and cash equivalent items which are restricted for the usage of the Bank by legal or other limitations: None. c. Explanations on other items in the cash flow statement: “Other items” amounting to TL (362,464) (1 January-31 December 2016: TL (289,202)) in “Operating profit before changes in operating assets and liabilities” consists of fees and commissions paid and other operating expenses except for collection from non-performing loans and personnel expenses. “Net increase/decrease in other liabilities” amounting to TL (1,048,269) (1 January-31 December 2016: TL 2,007,254) in “Changes in operating assets and liabilities” consists of changes in sundry creditors, other liabilities and taxes and other duties payables. “Net increase/decrease in other assets” amounting to TL (199,960) (1 January-31 December 2016: TL (309,296)) in “Changes in operating assets and liabilities” consist of changes in prepaid rent expense and other asset. d. Effects of the change in foreign currency rates on cash and cash equivalents: Effect of the changes in foreign currency rates on cash and cash equivalents has been calculated approximately TL (15,217) as of 31 December 2017 (31 December 2016 – TL 140,046). The effects of the change in foreign currency rates on cash and cash equivalents is calculated according to multiplying fx difference between balance sheet date and cash entered date and related cash amount. VII. Explanations and notes related to risk group of the Bank: a. Information on the volume of transactions relating to the Bank’s risk group, outstanding loans and funds collected and income and expenses for the period: 1. Current period: Risk group of the Bank (*) Loans and other receivables Balance at beginning of period Balance at end of period Profit share and commission income (*) Investment in associates, subsidiaries and joint ventures (business partnerships Direct and indirect) Shareholders of the Bank Cash Non-Cash Cash Non-Cash Other real or legal persons included in the risk group Cash Non-Cash 14 19 883 1,253 998 1,030 16,818 786 135,364 150,924 20,290 917 - 5 83 1 9,719 1 Defined in the Subsection 2, Article 49 of the Banking Law No. 5411.
238. 236 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2. Prior period: Risk group of the Bank (*) Loans and other receivables Balance at beginning of period Balance at end of period Profit share and commission income (*) Investment in associates, subsidiaries and joint ventures (business partnerships Direct and indirect) Shareholders of the Bank Cash Non-Cash Cash Non-Cash 101,156 14 3,172 132 883 4 1,014 998 102 13,543 16,818 3 Other real or legal persons included in the risk group Cash Non-Cash 126,600 135,364 7,632 600 20,290 1 Defined in the Subsection 2, Article 49 of the Banking Law No. 5411. 3. (i). Information on current and profit sharing accounts of the Bank’s risk group: Risk group of the Bank (*) Current and profit sharing accounts Balance at the beginning of period Balance at the end of period Profit share expense (*) Investment in associates, subsidiaries and joint ventures (business partnerships Direct and indirect) Shareholders of the Bank Current Prior Current Prior period period period period 113,140 33,887 2,541 290,113 113,140 2,618 58,441 60,187 4,317 57,602 58,441 3,213 Other real or legal persons included in the risk group Current Prior period period 113,915 417,813 13,068 137,160 113,915 3,186 Defined in the Subsection 2, Article 49 of the Banking Law No. 5411 (ii) Forward and option agreements and other similar agreements with the risk group of the Bank: None. 4. Information on loans received from the Bank’s risk group: Risk group of the Bank Investment in associates, subsidiaries and joint ventures (business partnerships Direct and indirect) Shareholders of the Bank Current Prior Current Prior period period period period Other real or legal persons included in the risk group Current Prior period period Loans Received Balance at beginning of period 6,031,523 3,651,891 2,954,769 2,607,122 - 166,742 Balance at end of period Profit share expense 7,063,526 356,623 6,031,523 197,132 2,175,759 48,678 2,954,769 74,722 - 2,965 b. Information on remunerations provided to top management: As of 31 December 2017, the Bank has paid TL 25,916 to top management (31 December 2016 – TL 21,160).
239. KUVEYT T ÜRK 2017 ANNUAL REPORT 237 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) VIII. Domestic, foreign and off-shore branches or equity investments, and foreign representative offices 1. Domestic and foreign branches and representative offices: Domestic branches (*) Number of Branches 398 Number of Employees 3,973 Country Foreign representative offices Foreign bank Off-shore branches Foreign branches 4 1 78 4 Germany Bahrain (**) Total Assets (TL) Legal Capital (USD) 749,707 69,787,608 2,941,084 (*) The personnel working at Headquarters, Operation Center and Region quarters are not included in the domestic branches personnel number. (*) Bahrain Branch is controlled by the Central Bank of Bahrain and the total of Assets is 2,941,084 Turkish lira as of 31-12-2017. 2. Opening or closing of domestic and foreign branches and representative offices and significant changes in organizational structure In 2017, 14 new domestic branches (2016-27 branches) were opened. IX. Significant Events and Matters Arising Subsequent to Balance Sheet Date The Board of Directors of the Bank has decided to propose a capital increase from the internal sources amounting to TL 400,000 for the the approval of the ordinary general assembly on the meeting dated 24 January 2018. The Bank has exported sukuk via its subsidiary KT Kira Sertifikaları Varlık Kiralama A.Ş. with four months maturity, TL 80,000 nominal, 12.6% borrowing rate and three months maturity 12,55% borrowing rate, in January 2018. “Law on the Amendment of Certain Tax Laws and Some Other Laws” numbered 7061 was published in the Official Gazette dated 5 December 2017 and numbered 30261. With Article 91 of this law, with the provisional article 10 added to the Corporate Tax Law, the rate of 20% corporate tax will be applied as 22% for the corporate earnings for the taxation periods of 2018, 2019 and 2020 (the accounting periods for the institutions that are designated for the special accounting period). This rate will be applied for the first time in the first temporary tax period of 2018.
240. 238 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) SECTION SIX OTHER EXPLANATIONS AND DISCLOSURES I. Other matters which must be explained in terms of explicitly, interpretability and understandability of the balance sheet: None. SECTION SEVEN INDEPENDENT AUDITORS’ REPORT I- Explanations on the auditors’ report: The unconsolidated financial statements of the Bank have been audited by DRT Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (a member of Deloitte Touche Tohmatsu Limited) and the independent auditors’ report dated 13 February 2017 is presented before the accompanying financial statements. II- Notes and disclosures prepared by independent auditors: None SECTION EIGHT ANNUAL REPORT I- Explainations on annual report a. About Kuveyt Türk Kuveyt Türk Katılım Bankası A.Ş. (“The Bank”) was incorporated with the approval of the Central Bank of the Republic of Turkey (CBRT) on 28 February 1989 and commenced its operations on 31 March 1989, with the name of Kuveyt Türk Evkaf Finans Kurumu A.Ş. To comply with the Banking Act 5411, the title of the Bank has been changed to Kuveyt Türk Katılım Bankası A.Ş. with a change in the Articles of Association which was approved in the annual general meeting dated 26 April 2006. Main field of operation is, in addition to the Bank’s equity, to collect funds from domestic and foreign customers through “Current Accounts” and “Profit/ Loss Sharing Accounts” and allocate such funds to the economy, to perform all kinds of financing activities in accordance with the regulations, to encourage the investments of all individuals and legal entities operating in agricultural, industrial, trading and service industries, participating into the operations of these entities or individuals and to form joint business partnerships and to perform all these activities in a non-interest environment. 62.24% of the Bank’s shares are owned by Kuwait Finance House located in Kuwait, 18.72% by Vakıflar Genel Müdürlüğü Mazbut Vakıfları, 9.00% by The Public Institution For Social Security in Kuwait and 9.00% by Islamic Development Bank whereas the remaining 1.04% of the shares are owned by other real persons and legal entities.
241. KUVEYT T ÜRK 2017 ANNUAL REPORT 239 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) b. Financial Information Summary UNCONSOLIDATED BALANCE SHEET (SELECTED ITEMS) CASH BALANCES AND CENTRAL BANK BANKS LOANS FINANCE LEASE RECEIVABLES TANGIBLE ASSETS (Net) OTHER ASSETS TOTAL ASSETS FUND COLLECTED FUNDS BORROWED SECURITIES ISSUED FINANCE LEASE PAYABLES SUBORDINATED LOANS OTHER LIABILITIES SHAREHOLDERS EQUITY TOTAL LIABILITIES 31 December 2017 8,932,856 3,576,020 36,041,299 1,929,242 409,743 6,233,935 57,123,095 39,857,400 9,031,509 1,360,338 2,282,697 4,591,151 57,123,095 31 December 2016 8,303,052 4,698,081 28,412,441 1,544,543 439,633 5,079,205 48,476,955 31,901,763 8,036,821 226 1,981,646 2,644,435 3,912,064 48,476,955 UNCONSOLIDATED STATEMENT OF PROFIT AND LOSS PROFIT SHARE INCOME PROFIT SHARE EXPENSE NET PROFIT SHARE INCOME/EXPENSE NET FEES AND COMMISSION INCOME/EXPENSE DIVIDEND INCOME NET TRADING INCOME OTHER OPERATING INCOME PROVISION FOR LOAN LOSSES AND OTHER RECEIVABLES (-) OTHER OPERATING EXPENSES (-) PROFIT / (LOSS) BEFORE TAX TAX CHARGE CURRENT PERIOD INCOME/(LOSSES) 31 December 2017 3,850,986 1,716,773 2,134,213 241,002 246,884 230,217 783,703 1,219,680 848,933 (174,942) 673,991 31 December 2016 3,110,435 1,440,566 1,669,869 152,970 509 275,772 192,872 511,661 1,117,119 663,212 (121,246) 541,966 Total Loans/Total Assets* Total Loans/Fund Collected* Average Equity Profit Average Assets Profit Capital Adequacy Ratio 31 December 2017 %66.47 %95.27 %15.85 %1.28 %17.66 31 December 2016 %61.80 %93.90 %14.82 %1.20 %18.16 * Finance Lease Receivables is included in total loans.
242. 240 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) c. Financial Position, Performance and Assessment of the Prospects for the Future As of 31 December 2017, unconsolidated financial statements asset size is TL 57 million 123 thousand, amount of the utilization of funds is TL 37 million 971 thousand and funds collected amount is TL 39 million 857 thousand. Due to the effect of the profit in 2017 TL 674 thousand, the ratio of shareholder equity increased 17.36% by reaching TL 4 million 591 thousand. As of December 31, 2017, unconsolidated capital adequacy ration has been reached 17.66 %. The expectations for growth and profitability will continue in the development line. d. Announcement regarding important developments during the period The bank, KT Kira Sertifikaları Varlık Kiralama A.Ş.through seven separate process with a total nominal value of 1,110,000 thousand, different term minimum and maximum 11.84% and 14.22% cost has issued sukuk. The number of branches of the Bank in the new year was 386, and as of report date the number of branches of the Bank is 399. The number of employee was 5,588 in the new year, as of report date it reached 5,749. The Bank increased its capital in its subsidiary KT Bank AG by EUR 30,000,000 from EUR 60,000,000 to EUR 90,000,000 in accordance with the resolution of the Board of Directors dated January 25, 2017 and numbered 1672. The Bank liquidated Kuwait Turkish Participation Bank (Dubai) Limited, which was established on November 15, 2009 in the United Arab Emirates and has 100% ownership, on 22/05/2017. The liquidation result has been transferred to bank accounts with USD 50,000,000 capital and USD 7,388,069 profit. e. Assessments about regarding expectations on the subsequent interim period After the period, opening new branch facilities is in process now.It is planned that branch number will reach 429 until the year end.
243. KUVEYT T ÜRK 2017 ANNUAL REPORT KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ AND ITS FINANCIAL SUBSIDIARIES INDEPENDENT AUDITOR’S REPORT, CONSOLIDATED FINANCIAL STATEMENTS AND NOTES FOR THE YEAR ENDED 31 DECEMBER 2017 Translated into English from the Original Turkish Report 241
244. 242 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES (CONVENIENCE TRANSLATION OF INDEPENDENT AUDITOR’S REPORT ORIGINALLY ISSUED IN TURKISH) INDEPENDENT AUDITOR’S REPORT To the General Assembly of Kuveyt Türk Katılım Bankası A.Ş. A) Report on the Audit of the Consolidated Financial Statements 1) Opinion We have audited the consolidated financial statements of Kuveyt Türk Katılım Bankası A.Ş. (“the Bank”) and its consolidated subsidiaries (“the Group”), which comprise the consolidated balance sheet as at 31 December 2017, and the consolidated statement of income, consolidated statement of income and expense items accounted under shareholders’ equity, consolidated statement of changes in shareholders’ equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with “the Banking Regulation and Supervision Agency (“BRSA”) Accounting and Reporting Regulations” including the regulation on “The Procedures and Principles Regarding Banks’ Accounting Practices and Maintaining Documents” published in the Official Gazette dated 1 November 2006 with No. 26333, and other regulations on accounting records of banks published by the Banking Regulation and Supervision Board and circulars and pronouncements published by the BRSA and Turkish Accounting Standards for the matters not legislated by the aforementioned regulations. 2) Basis for Opinion We conducted our audit in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and Standards on Independent Auditing (“SIA”) which is a part of Turkish Auditing Standards published by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics for Independent Auditors (“Code of Ethics”) published by the POA, together with the ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 3) Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
245. KUVEYT T ÜRK 2017 ANNUAL REPORT Key Audit Matter Providing Sufficient Provision for Loans and Receivables and Possible Losses from Financial Leasing Receivables As explained in Note 5 of Section Five, the Group’s receivables from loans and receivables and lease receivables (net) (loans) as of 31 December 2017 amounted to TL 38,686,230 Thousand. The Group has TL 715,060 Thousand of the loans followed in the follow-up accounts and related provision amounting to TL 667,768 Thousand. 243 How the matter was addressed in the audit The procedures applied to control the Group’s classification of loans and receivables and the adequacy of provisions in accordance with BRSA legislation are presented below: We tested and assessed the design and implementation and operational effectiveness of the controls we consider important for the processes related to the determination of impairment on loans and receivables. However, in order to determine whether the loans and receivables were impaired, we evaluated the policies of the Group and conducted a loan file review on the The Group accounts for the classification and samples we selected for the purpose of determining the measurement of its loans based on the “Regulation on Procedures and Principles for the Determination of Loans impairment, and reviewed the repayment ability of the loan customers. and Reserves for Banks”. The overdue status of the Group’s loans and receivables is evaluated in accordance with the evaluation of the Group’s management and regulatory rules. There is a potential risk of the management evaluation can not be carried out correctly or that there is a mistake in classification due to misapplication of the regulatory rules. There is a potential risk of impairment losses/ provisions provided may be miscalculated due to mistake in classification or misapplication of the regulatory rules. Accordingly, the loans are considered as the key audit matter. We have tested the classification of loans and receivables by conducting tests on a set of samples based on professional experience and audit methodology. We tested the regulatory compliance of the recalculation of specific provisions for loans and receivables on a sample basis. We also checked that the guarantees used in the calculation were included in the calculation with their fair values and multiplied by the correct guarantee coefficients determined in the legislation. We have tested the regulatory compliance of items subject to general loan loss provisioning and the provision ratios applied to them. We have checked the compliance with the audited consolidated financial statements of the notes and disclosures related to loans and receivables. 4) Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the BRSA Accounting and Reporting Regulations, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process.
246. 244 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES 5) Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Responsibilities of independent auditors in an independent audit are as follows: Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and SIA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with the regulation on “Independent Auditing of Banks” published in the Official Gazette dated 2 April 2015 with No. 29314 and SIA, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. (The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.) • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circ*mstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. • We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
247. KUVEYT T ÜRK 2017 ANNUAL REPORT 245 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. B) Report on Other Legal and Regulatory Requirements In accordance with paragraph four of the Article 402 of the Turkish Commercial Code No. 6102 (“TCC”), nothing has come to our attention that may cause us to believe that the Bank’s set of accounts for the period 1 January-31 December 2017 does not comply with TCC and the provisions of the Bank’s articles of association in relation to financial reporting. In accordance with paragraph four of the Article 402 of TCC, the Board of Directors provided us all the required information and documentation with respect to our audit. The engagement partner on the audit resulting in this independent auditor’s report is Yaman Polat. Additional Paragraph for English Translation The effect of the differences between the accounting principles summarized in Section 3 and the accounting principles generally accepted in countries in which the accompanying consolidated financial statements are to be distributed and International Financial Reporting Standards (“IFRS”) have not been quantified and reflected in the accompanying consolidated financial statements. The accounting principles used in the preparation of the accompanying consolidated financial statements differ materially from IFRS. Accordingly, the accompanying consolidated financial statements are not intended to present the Group’s consolidated financial position and results of its operations in accordance with accounting principles generally accepted in such countries of users of the consolidated financial statements and IFRS. DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş. Member of DELOITTE TOUCHE TOHMATSU LIMITED Yaman Polat Partner İstanbul, 8 March 2018
248. 246 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES THE CONSOLIDATED FINANCIAL REPORT OF KUVEYT TÜRK KATILIM BANKASI A.Ş. AS OF DECEMBER 31, 2017 Address of the head office Phone number Facsimile number Web page E-mail address : Büyükdere Cad. No:129/1 34394 Esentepe / İSTANBUL : 0212 354 11 11 : 0212 354 12 12 : www.kuveytturk.com.tr : kuveytturk@kuveytturk.com.tr The consolidated financial report designed in line with the Banking Regulation and Supervision Agency’s official communication on “Financial Statements to be Publicly Announced and the Related Policies and Disclosures” consists of the sections listed below: • • • • • • • • General information about the parent bank Consolidated financial statements of the parent bank Explanations on accounting policies Information on financial structure of the group which is under consolidation Footnotes and explanations on consolidated financial statements Other explanations Independent auditors’ report Annual report The subsidiaries, associates and jointly controlled entities, financial statements of which are consolidated within the framework of the reporting package are as follows: 1. 2. 3. 4. 5. 6. Subsidiaries KT Sukuk Varlık Kiralama A.Ş. KT Kira Sertifikaları Varlık Kiralama A.Ş Körfez Gayrimenkul Yatırım Ortaklığı A.Ş. KT Bank AG KT Portföy Yönetimi A.Ş. KT Sukuk Company Limited Associates - Entities Under Joint Control Katılım Emeklilik ve Hayat A.Ş. - The accompanying consolidated financial statements and notes have been prepared based on the accounting books of the Bank in accordance with the Regulation on Accounting Applications for Banks and the Safeguarding of Documents, Turkish Accounting Standards, Turkish Financial Reporting Standards and, unless otherwise indicated, have been prepared in thousands of Turkish Lira. Related appendices and interpretations on these are independently audited and presented hereby. Hamad Abdulmohsen ALMARZOUQ Chairman of the Board of Directors Mohamad AL-MIDANI Member of the Audit Committee Adnan ERTEM Vice Chairman of BOD And Head of the Audit Committee Uf*ck UYAN General Manager Ahmet KARACA Chief Financial Officer Ahmad S A A AL KHARJI Member of the Audit Committee İsmail Hakkı YEŞİLYURT External Reporting Manager Contact information of the personnel in charge of the addressing of questions about this financial report: Name-Surname: İsmail Hakkı YEŞİLYURT / External Reporting Manager Telephone: 0212 354 12 84 Facsimile: 0212 354 11 03
249. KUVEYT T ÜRK 2017 ANNUAL REPORT 247 Index Section One General information I. History of the Parent Bank including its incorporation date, initial legal status and amendments to legal status II. Shareholding Structure, Shareholders jointly or individually Having Direct or Indirect, Control over the Management and Supervision of the Bank And the Disclosures on Any Related Changes in the Current Period, if any and information about the Group that the Bank belongs to III. Explanations on the Titles of Chairman and Members of the Board of Directors, Members of the Audit Committee, General Managers and Assistant General Managers and Assistant General Managers and Their Shareholding in the Bank IV. Information on qualified shareholders V. Summary information of the Bank’s services and field of operations VI. Summary information of the Parent Bank’s services and field of operations VII. Current or likely actual legal barriers to immediate transfer of equity or repayment of debts between Parent Bank and its subsidiaries Section Two Consolidated Financial Statements I. Consolidated balance sheet (Statement of financial position) II. Consolidated statement of off-balance sheet commitments and contingencies III. Consolidated income statement (Statement of Income/ Loss) IV. Consolidated statement of profit and loss accounted under equity (Statement of Other Comprehensive Income and Loss) V. Consolidated statement of changes in shareholders’ equity VI. Consolidated statement of cash flows statement VII. Consolidated Statement of Profit Distribution Section Three Accounting principles I. Explanations on basis of presentation II. Explanations on strategy of using financial instruments and foreign currency transactions III. Information about the Parent Bank and its Consolidated Subsidiaries IV. Explanations on forward transactions and option contracts and derivative instruments V. Explanations on profit share income and expense VI. Explanations on fees and commission income and expenses VII. Explanations on financial assets VIII. Explanations on impairment of financial assets IX. Explanations on offsetting of financial assets and liabilities X. Explanations on sale and repurchase agreements and lending of securities XI. Explanations on assets held for sale and discontinued operations and related liabilities XII. Explanations on goodwill and other intangible assets XIII. Explanations on tangible assets XIV. Explanations on leasing transactions XV. Explanations on provisions and contingent liabilities XVI. Explanations on liabilities relating to employee benefits XVII. Explanations on taxation XVIII.Explanations on additional disclosures on borrowings XIX. Explanations on share certificates issued XX. Explanations on acceptances and availed drafts XXI. Explanations on government grants XXII. Explanations on segment reporting XXIII.Explanations on other matters I. II. III. IV. V. VI. VII. VIII. IX. X. Section Four Information on Financial Structure Explanations on consolidated shareholders’ equity Explanations on consolidated credit risk Explanations on consolidated currency risk Explanations on position risk of equity securities in banking book Explanations on consolidated liquidity risk Explanations on consolidated leverage ratio Explanations on consolidated fair values of financial assets and liabilities Explanations on the activities carried out on behalf and account of other persons Explanations on consolidated risk management Ecplanations on consolidated business segments Section Five Explanations and notes on the unconsolidated financial statement I. Explanations and notes related to assets II. Explanations and notes related to liabilities III. Explanations and notes related to off-balance sheet commitments IV. Explanations and disclosures related to income statement V. Statement of changes in shareholders’ equity VI. Explanations and notes related to cash flow statement VII. Explanations and notes related to the risk group of the Bank VIII. Domestic, foreign and off-shore branches or equity investments, and foreign representative offices IX. Significant events and matters arising subsequent to balance sheet date I. I. II. I- Section Six Diğer Other Explanations and Disclosures Other matters which must be explained in terms of explicitly, interpretability and understandability of the balance sheet Section Seven Independent Auditor’s Report Explanations on the independent auditors’ report Notes and disclosures prepared by the independent auditors Explanations on consolidated annual report Section Eight Annual Report 248 248 248 249 249 249 249 252 254 255 256 257 259 260 261 263 263 264 265 265 265 266 267 267 267 268 268 269 269 270 270 271 271 271 271 272 272 272 282 293 296 297 304 305 305 305 320 323 342 352 355 361 362 363 364 365 365 365 365 366
250. 248 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) SECTION ONE GENERAL INFORMATION I. History of the Parent Bank including its incorporation date, initial legal status and amendments to legal status Kuveyt Türk Katılım Bankası A.Ş. (“The Bank” or “The Parent Bank”) was incorporated with the approval of the Central Bank of the Republic of Turkey (CBRT) on February 28, 1989 and commenced its operations on 31 March 1989, with the name of Kuveyt Türk Evkaf Finans Kurumu A.Ş. to comply with the Banking Act 5411, the title of the Bank has been changed to Kuveyt Türk Katılım Bankası A.Ş. with a change in the Articles of Association which was approved in the annual general meeting dated 26 April 2006. Main field of operation is, in addition to the Bank’s equity, to collect funds from domestic and foreign customers through “Current Accounts” and “Profit/ Loss Sharing Accounts” and allocate such funds to the economy, to perform all kinds of financing activities in accordance with the regulations, to encourage the investments of all individuals and legal entities operating in agricultural, industrial, trading and service industries, participating into the operations of these entities or individuals and to form joint business partnerships and to perform all these activities in a non-interest environment. The Bank’s subsidiary, KT Bank AG which is 100% owned by the Bank was established in April, 2015. Main field of its operations are providing interest free corporate banking services, acting as investment intermediary, providing consulting services, performing asset management activities, performing investment activities and collecting funds through current and profit/loss sharing accounts in compliance with the regulation. The Parent Bank and consolidated financial subsidiaries are named as “Group” together. II. Shareholding Structure, Shareholders Jointly or Individually Having Direct or Indirect, Control over the Management and Supervision of the Bank and the Disclosures on Any Related Changes in the Current Period, if any and information about the Group that the Bank belongs to As of 31 December 2017 , 62.24% of the Parent Bank’s shares are owned by Kuwait Finance House located in Kuwait, 18.72% by Vakıflar Genel Müdürlüğü Mazbut Vakıfları, 9.00% by The Public Institution For Social Security in Kuwait and 9.00% by Islamic Development Bank whereas the remaining 1.04% of the shares are owned by other real persons and legal entities. III. Explanations on the Titles of Chairman and Members of the Board of Directors, Members of the Audit Committee, General Managers and Assistant General Managers and Their Shareholdings in the Bank Name Hamad Abdulmohsen AL MARZOUQ Dr. Adnan ERTEM Nadir ALPASLAN Khaled Nasser Abdulaziz AL FOUZAN Fawaz KH E AL SALEH Mazin S.A.S AL NAHEDH Mohamad Al-MİDANİ Ahmed S. AL KHARJİ Uf*ck UYAN Ahmet KARACA Ahmet Süleyman KARAKAYA Bilal SAYIN İrfan YILMAZ Dr. Ruşen Ahmet ALBAYRAK Nurettin KOLAÇ Aslan DEMİR Mehmet ORAL Abdurrahman DELİPOYRAZ Title Head of the BOD Vice Chairman of the BOD and Head of the Audit Committee Member ofBOD Member ofBOD Member ofBOD Member ofBOD Member ofBOD and Audit Committee Member ofBOD and Audit Committee Member ofBOD and General Manager Assistant General Manager and Chief Financial Officer Assistant General Manager, Corporate and Commercial Banking Assistant General Manager, Lending Assistant General Manager, Banking Services Assistant General Manager, Treasury and International Banking Assistant General Manager, Legal and Risk Follow Up Assistant General Manager, Strategy Assistant General Manager, Retail Banking Assistant General Manager, SME Banking Date of the assignment 25/06/2014 Date of assignment to the audit committee Educational degree Master Ownership Percentage - 10/10/2002 15/04/2011 02/08/2006 20/10/2006 29/09/2015 05/05/2015 26/03/2014 10/05/1999 19/10/2010 Doctorate Bachelor Bachelor Bachelor Bachelor Master Master Master %0.0105 %0.0566 12/07/2006 Master %0.0002 14/01/2003 20/08/2003 27/10/2005 Bachelor Bachelor Bachelor %0.0035 %0.0156 05/05/2005 Doctorate %0.0091 20/04/2010 08/10/2012 01/10/2012 09/01/2015 Bachelor Bachelor Bachelor Bachelor %0.0007 %0.0047 %0.0029 %0.0028 15/05/2015 24/09/2014 Chairman and members of the Board of Directors, members of auditing committee, general manager and assistant general managers own 0.11% of the Bank’s share capital (31 December 2016 – 0.11%).
251. KUVEYT T ÜRK 2017 ANNUAL REPORT 249 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) IV. Information on qualified shareholders: Name / Commercial Name Kuwait Finance House Vakıflar Genel Müdürlüğü Mazbut Vakıfları Total Share amount (Nominal) 1,929,479 580,297 2,509,776 Shareholding percentage %62.24 %18.72 %80.96 Paid shares (Nominal) 1,929,479 580,297 2,509,776 Unpaid shares - As of 31 December 2017, the shares of parent shareholder of the Parent Bank, Kuwait Finance House (“KFH”) are 51.95% publicly traded; 24.08% of KFH belongs to Kuwait Investment Authority and 10.48% belongs to Public Authority for Minors Affairs. V. Summary information of the Bank’s services and field of operations The Parent Bank’s field of operations includes corporate banking, international banking services, retail banking and credit card services. The Parent Bank’s core business is operating in accordance with the principles of interest-free banking as a participation bank by collecting funds through current and profit/loss sharing accounts, and lending such funds to its customers. As of 31 December 2017, the Group is operating through 403 domestic branches (31 December 2016 – 391) with 5,846 employees (31 December 2016 – 5,691). Summary of some of the Parent Bank’s operations described in the Articles of Association are as follows; • • • • • • • • To collect funds through Current Accounts and Profit/Loss Sharing Accounts and special fund pools in line with the regulations, To allocate funds to the economy and provide all kinds of cash, non-cash loans within the principles of noninterest banking, To offer financial and operational leasing, To handle all kinds of deposits and payments, including travelers’ checks, credit cards and other payment instruments, provide member business services (POS), consulting, advisory, and safe deposit box services, To purchase financial instruments on money and capital markets in cash or installments, sell and mediate the sale and trade on the stock exchange in accordance with legislation and principles of non-interest banking, To purchase, acquire and construct any kind of real estate and if necessary lease or transfer ownership to other persons, To act as a representative, deputy or agent for corporations and enterprises (including insurance companies), To provide socially responsible aid for the benefit of the Bank in line with the legislations. The Parent Bank’s activities are not limited to the list above. If another transaction is decided to be beneficial to the Parent Bank, the transaction must be recommended by the Board of Directors, approved by the General Assembly and authorized by relevant legal authorities after whom it also needs to be approved by the Ministry of Customs and Trade since it constitutes an amendment of the Article of Association. Decisions that have been approved through all these channels will be included to the Article of Association. VI. Current or likely actual legal barriers to immediate transfer of equity or repayment of debts between Parent Bank and its subsidiaries: None.
252. 250 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.)
253. KUVEYT T ÜRK 2017 ANNUAL REPORT 251 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) SECTION TWO THE CONSOLIDATED FINANCIAL STATEMENTS I. Consolidated Balance Sheet (Statement of Financial Position) II. Consolidated Statement of Off-Balance Sheet Commitments III. Consolidated Income Statement (Statement of Income / Loss) IV. Consolidated Statement of Profit and Loss Accounted for Under Equity (Statement of Other Comprehensive Income and Loss) V. Consolidated Statement of Changes in Shareholders’ Equity VI. Consolidated Statement of Cash Flows VII. Consolidated Statement of Profit Distribution
254. 252 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) I. CONSOLIDATED BALANCE SHEET–ASSETS (STATEMENT OF FINANCIAL POSITION) I. II. 2.1 2.1.1 2.1.2 2.1.3 2.1.4 2.2 2.2.1 2.2.2 2.2.3 2.2.4 III. IV. V. 5.1 5.2 5.3 VI. 6.1 6.1.1 6.1.2 6.1.3 6.2 6.3 VII. VIII. 8.1 8.2 8.2.1 8.2.2 IX. 9.1 9.2 X. 10.1 10.2 10.2.1 10.2.2 XI. 11.1 11.2 11.3 11.4 XII. 12.1 12.2 12.3 XIII. XIV. 14.1 14.2 XV. XVI. 16.1 16.2 XVII. 17.1 17.2 XVIII. CASH AND BALANCES WITH THE CENTRAL BANK FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS (Net) Held for trading financial assets Public sector debt securities Equity securities Derivative financial assets held for trading Other marketable securities Financial assets at fair value through profit and loss Public sector debt securities Equity securities Loans Other marketable securities BANKS MONEY MARKET PLACEMENTS FINANCIAL ASSETS AVAILABLE FOR SALE (Net) Equity securities Public sector debt securities Other marketable securities LOANS AND RECEIVABLES Loans and receivables Loans to risk group of the Bank Public sector debt securities Other Non-performing loans Specific provisions (-) HELD TO MATURITY INVESTMENTS (Net) INVESTMENTS IN ASSOCIATES (Net) Accounted for under equity method Unconsolidated associates Financial associates Non-financial associates INVESTMENTS IN SUBSIDIARIES (Net) Unconsolidated financial subsidiaries Unconsolidated non-financial subsidiaries ENTITIES UNDER COMMON CONTROL (JOINT VENT.) (Net) Accounted for under equity method Unconsolidated Financial subsidiaries Non-financial subsidiaries FINANCE LEASE RECEIVABLES Finance lease receivables Operating lease receivables Other Unearned income (-) DERIVATIVE FINANCIAL ASSETS FOR HEDGING PURPOSES Fair value hedge Cash flow hedge Hedge of net investment risks in foreign operations TANGIBLE ASSETS (Net) INTANGIBLE ASSETS (Net) Goodwill Other INVESTMENT PROPERTIES (Net) TAX ASSET Current tax asset Deferred tax asset ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) Held for sale Discontinued operations OTHER ASSETS TOTAL ASSETS Note (1-1) (1-2) (1-3) (I-4) (1-5) (1-6) (I-7) (1-8) (1-9) (I-10) (1-11) (1-12) (1-13) (1-15) (1-16) (1-17) Audited Current Period 31.12.2017 TL FC 625,022 8,399,697 Total 9,024,719 Audited Prior Period 31.12.2016 TL FC 695,627 7,630,187 Total 8,325,814 21,768 21,768 7,600 14,168 8,619 2,064,954 10,325 2,048,171 6,458 29,860,983 29,813,800 84,022 29,729,778 714,130 666,947 23,680 23,680 66,466 66,466 28,719 12,531 25,216 3,563,455 2,358,776 38,172 2,055,277 265,327 6,744,517 6,744,408 67,951 6,676,457 930 821 - 88,234 88,234 36,319 26,699 25,216 3,572,074 4,423,730 48,497 4,103,448 271,785 36,605,500 36,558,208 151,973 36,406,235 715,060 667,768 23,680 23,680 36,056 36,056 10,760 22,217 3,079 26,887 1,835,182 10,325 1,821,991 2,866 23,266,913 23,104,574 73,485 23,031,089 748,062 585,723 23,680 23,680 125,663 125,663 36,148 87,833 1,682 4,753,493 1,917,545 43,160 1,500,041 374,344 5,367,770 5,368,014 62,891 5,305,123 552 796 - 161,719 161,719 46,908 110,050 4,761 4,780,380 3,752,727 53,485 3,322,032 377,210 28,634,683 28,472,588 136,376 28,336,212 748,614 586,519 23,680 23,680 19,405 19,405 1,437,354 1,624,695 187,341 643,376 771,045 127,669 19,405 19,405 2,080,730 2,395,740 315,010 15,301 15,301 1,104,588 1,241,824 137,236 439,955 503,366 63,411 15,301 15,301 1,544,543 1,745,190 200,647 409,644 119,146 119,146 25,419 138,710 138,710 6,405 49,819 49,819 - 416,049 168,965 168,965 25,419 138,710 138,710 439,614 95,328 95,328 118,111 118,111 5,558 45,138 45,138 - 445,172 140,466 140,466 118,111 118,111 117,006 117,006 278,349 582,132 117,006 117,006 860,481 47,975 47,975 336,264 399,200 47,975 47,975 735,464 35,150,059 22,414,643 57,564,702 28,041,526 20,684,509 48,726,035 The accompanying notes are an integral part of these consolidated financial statements.
255. KUVEYT T ÜRK 2017 ANNUAL REPORT 253 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1. CONSOLIDATED BALANCE SHEET – LIABILITIES AND EQUITY (STATEMENT OF FINANCIAL POSITION) I. 1.1 1.2 II. III. IV. V. VI. VII. VIII. 8.1 8.2 8.3 8.4 IX. 9.1 9.2 9.3 X. 10.1 10.2 10.3 10.4 10.5 XI. 11.1 11.2 XII. 12.1 12.2 XIII. XIV. 14.1 14.2 14.2.1 14.2.2 14.2.3 14.2.4 14.2.5 14.2.6 14.2.7 14.2.8 14.2.9 14.2.10 14.3 14.3.1 14.3.2 14.3.3 14.3.4 14.4 14.4.1 14.4.2 14.5 FUND COLLECTED Funds from risk group of the Bank Other DERIVATIVE FINANCIAL LIABILITIES HELD FOR TRADING FUNDS BORROWED MONEY MARKET BALANCES MARKETABLE SECURITIES ISSUED (Net) SUNDRY CREDITORS OTHER LIABILITIES FINANCE LEASE PAYABLES Finance lease payables Operating lease payables Other Deferred finance lease expenses (-) DERIVATIVE FINANCIAL LIABILITIES FOR HEDGING PURPOSES Fair value hedge Cash flow hedge Hedge of net investment in foreign operations PROVISIONS General loan loss provisions Restructuring provisions Reserve for employee benefits Insurance technical reserves (net) Other provisions TAX LIABILITY Current tax liability Deferred tax liability PAYABLES RELATED TO ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) Held for sale Discontinued operations SUBORDINATED LOANS SHAREHOLDERS' EQUITY Paid-in capital Capital reserves Share premium Share cancellation profits Marketable securities revaluation reserve Tangible assets revaluation reserve Intangible assets revaluation reserve Investment property revaluation reserve Bonus shares obtained from associates, subsidiaries and jointly controlled entities Hedging funds (effective portion) Value increase on assets held for sale Other capital reserves Profit reserves Legal reserves Status reserves Extraordinary reserves Other profit reserves Profit or loss Prior period income/(losses) Current period income/(losses) Minority shares TOTAL LIABILITIES AND EQUITY Note (2-1) (2-2) (2-3) (2-4) (2-5) (2-5) (2-6) (2-7) (2-8) (2-9) (2-11) (2-12) (2-13) Audited Current Period 31.12.2017 TL FC Total 19,951,556 20,303,407 40,254,963 389,739 118,271 508,010 19,561,817 20,185,136 39,746,953 21,446 59,251 80,697 110,116 3,277,011 3,387,127 750,524 750,524 1,104,618 4,547,223 5,651,841 170,672 29,333 200,005 329,741 16,177 345,918 - TL 17,920,145 73,536 17,846,609 40,580 59,080 1,219,873 580,571 133,655 416,174 - Audited Prior Period 31.12.2016 FC 14,092,833 117,619 13,975,214 79,147 3,215,662 4,174,842 35,495 23,611 226 265 39 Total 32,012,978 191,155 31,821,823 119,727 3,274,742 1,219,873 4,755,413 169,150 439,785 226 265 39 642,750 312,384 185,060 145,306 56,259 56,259 - 70,795 70,795 152,670 95,570 334 56,766 - 70,795 70,795 795,420 407,954 185,394 202,072 56,259 56,259 - 455,692 238,276 129,223 88,193 27,842 27,842 - 137,829 137,829 127,312 80,549 15 46,748 - 137,829 137,829 583,004 318,825 129,238 134,941 27,842 27,842 - 4,706,108 3,097,322 (86,697) 24,208 (23,192) - 1,360,338 (95,293) 12,609 12,609 - 1,360,338 4,610,815 3,097,322 (74,088) 24,208 (10,583) - 4,091,183 2,787,322 (65,314) 24,208 (4,933) - 1,981,646 (87,363) (30,347) (30,347) - 1,981,646 4,003,820 2,787,322 (95,661) 24,208 (35,280) - (60,766) (26,947) 927,236 151,688 688,628 86,920 745,193 86,367 658,826 23,054 (107,902) (77,931) (29,971) - (60,766) (26,947) 927,236 151,688 688,628 86,920 637,291 8,436 628,855 23,054 (70,836) (13,753) 741,764 122,861 351,949 266,954 607,418 1,365 606,053 19,993 (57,016) (22,304) (34,712) - (70,836) (13,753) 741,764 122,861 351,949 266,954 550,402 (20,939) 571,341 19,993 27,843,790 29,720,912 57,564,702 24,944,795 23,781,240 48,726,035 The accompanying notes are an integral part of these consolidated financial statements.
256. 254 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ STATEMENT OF CONSOLIDATED OFF-BALANCE SHEET COMMITMENTS AND CONTINGENCIES AS OF 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2. CONSOLIDATED STATEMENT OF OFF-BALANCE SHEET COMMITMENTS AND CONTINGENCIES A. I. 1.1. 1.1.1. 1.1.2. 1.1.3. 1.2. 1.2.1. 1.2.2. 1.3. 1.3.1. 1.3.2. 1.4. 1.5. 1.5.1. 1.5.2. 1.6. 1.7. II. 2.1. 2.1.1. 2.1.2. 2.1.3. 2.1.4. 2.1.5. 2.1.6. 2.1.7. 2.1.8. 2.1.9. 2.1.10. 2.1.11. 2.1.12. 2.2. 2.2.1. 2.2.2. III. 3.1. 3.1.1. 3.1.2. 3.1.3. 3.2. 3.2.1 3.2.1.1 3.2.1.2 3.2.2. 3.3. B. IV. 4.1. 4.2. 4.3. 4.4. 4.5. 4.6. 4.7. 4.8. V. 5.1. 5.2. 5.3. 5.4. 5.5. 5.6. 5.7. VI. OFF BALANCE SHEET CONTINGENCIES AND COMMITMENTS (I+II+III) GUARANTEES Letters of guarantees Guarantees subject to state tender law Guarantees given for foreign trade operations Other letters of guarantee Bank loans Import letter of acceptances Other bank acceptances Letter of credits Documentary letter of credits Other letter of credits Pre-financing given as guarantee Endorsem*nts Endorsem*nts to the Central Bank of Republic of Turkey Other endorsem*nts Other guarantees Other collaterals COMMITMENTS Irrevocable commitments Forward asset purchase commitments Share capital commitment to associates and subsidiaries Loan granting commitments Securities underwriting commitments Commitments for reserve deposit requirements Payment commitment for checks Tax and fund liabilities from export commitments Commitments for credit card expenditure limits Commitments for promotions related with credit cards and banking activities Receivables from short sale commitments Payables for short sale commitments Other irrevocable commitments Revocable commitments Revocable loan granting commitments Other revocable commitments DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments for hedging purposes Fair value hedge Cash flow hedge Hedge of net investment in foreign operations Held for trading transactions Forward foreign currency buy/sell transactions Forward foreign currency transactions-buy Forward foreign currency transactions-sell Other forward buy/sell transactions Other CUSTODY AND PLEDGED ITEMS (IV+V+VI) ITEMS HELD IN CUSTODY Assets under management Investment securities held in custody Checks received for collection Commercial notes received for collection Other assets received for collection Assets received for public offering Other items under custody Custodians PLEDGED ITEMS Marketable securities Guarantee notes Commodity Warranty Properties Other pledged items Pledged items-depository ACCEPTED INDEPENDET GUARANTEES AND WARRANTIES TOTAL OFF BALANCE SHEET ACCOUNTS (A+B) Note (3-1) (3-1) Audited Current Period 31.12.2017 TL FC Total TL Audited Prior Period 31.12.2016 FC Total 54,025,598 6,501,080 6,342,565 214,018 424,035 5,704,512 2,549 2,549 1,143 78 1,065 - 19,151,373 4,570,973 3,227,614 187,285 3,040,329 53,409 53,409 930,957 358,591 572,366 27,919 - 73,176,971 11,072,053 9,570,179 214,018 611,320 8,744,841 55,958 55,958 932,100 358,669 573,431 27,919 - 45,504,238 5,177,182 5,026,495 163,646 451,059 4,411,790 2,071 2,071 188 78 110 - 19,739,616 4,712,035 3,089,530 220,807 2,868,723 49,973 49,973 1,019,598 302,149 717,449 25,642 - 65,243,854 9,889,217 8,116,025 163,646 671,866 7,280,513 52,044 52,044 1,019,786 302,227 717,559 25,642 - 154,823 45,832,293 3,306,919 217,951 331,074 948,032 948,032 948,032 485,897 46,780,325 4,254,951 1,165,983 148,428 34,594,651 2,569,656 316,785 527,292 711,955 711,955 710,168 675,720 35,306,606 3,281,611 1,026,953 368,519 1,345,239 99 1,357,354 - 368,519 1,345,239 99 1,357,354 151,838 1,178,750 99 904,427 - 151,838 1,178,750 99 904,427 17,757 42,525,374 42,525,374 1,692,225 13,632,368 17,757 42,525,374 42,525,374 15,324,593 17,757 32,024,995 32,024,995 5,732,405 1,787 14,315,626 19,544 32,024,995 32,024,995 20,048,031 1,692,225 737,140 388,590 348,550 955,085 264,937,891 9,232,412 965,091 6,397,936 1,869,385 255,693,840 195,245 101,701 5,045,489 101,298,823 149,052,582 - 1,565,503 1,565,503 12,066,865 1,804,963 976,977 827,986 10,261,902 106,948,648 3,224,354 73,865 624,523 190,069 2,335,897 103,679,813 73,046 1,527,824 470,272 1,970,258 99,638,413 - 1,565,503 1,565,503 13,759,090 5,732,405 2,542,103 1,499,492 1,365,567 712,215 1,176,536 787,277 11,216,987 4,232,913 371,886,539 205,775,245 12,456,766 7,081,056 20,794 1,038,956 738,025 7,022,459 5,292,095 2,059,454 1,030,142 2,335,897 359,373,653 198,682,550 268,291 222,995 1,629,525 101,921 5,515,761 3,962,735 103,269,081 84,503,198 248,690,995 109,891,701 - 1,391,124 1,391,124 12,924,502 1,909,112 995,591 913,521 11,015,390 106,164,950 2,528,760 58,268 539,190 144,880 1,786,422 103,595,106 63,991 1,421,085 640,558 1,815,288 99,654,184 - 1,391,124 1,391,124 18,656,907 3,408,604 1,707,806 1,700,798 15,248,303 311,940,195 9,609,816 20,794 796,293 5,831,285 1,175,022 1,786,422 302,277,656 286,986 1,523,006 4,603,293 86,318,486 209,545,885 - 11,639 44,481 56,120 11,639 41,084 52,723 318,963,489 126,100,021 445,063,510 251,279,483 125,904,566 377,184,049 The accompanying notes are an integral part of these consolidated financial statements.
257. KUVEYT T ÜRK 2017 ANNUAL REPORT 255 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ CONSOLIDATED INCOME STATEMENT AS OF 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 3. CONSOLIDATED INCOME STATEMENT (STATEMENT OF INCOME / LOSS) I. 1.1 1.2 1.3 1.4 1.5 1.5.1 1.5.2 1.5.3 1.5.4 1.6 1.7 II. 2.1 2.2 2.3 2.4 2.5 III. IV. 4.1 4.1.1 4.1.2 4.2 4.2.1 4.2.2 V. VI. 6.1 6.2 6.3 VII. VIII. IX. X. XI. XII. XIII. XIV. XV. XVI. 16.1 16.2 XVII. XVIII. 18.1 18.2 18.3 XIX. 19.1 19.2 19.3 XX. XXI. 21.1 21.2 XXII. XXIII. 23.1 23.2 PROFIT SHARE INCOME Profit share on loans Profit share on reserve deposits Profit share on banks Profit share on money market placements Profit share on marketable securities portfolio Held-for-trading financial assets Financial assets at fair value through profit and loss Available-for-sale financial assets Investments held-to-maturity Finance lease income Other profit share income PROFIT SHARE EXPENSE Expense on profit sharing accounts Profit share expense on funds borrowed Profit share expense on money market borrowings Expense on securities issued Other profit share expense NET PROFIT SHARE INCOME (I - II) NET FEES AND COMMISSIONS INCOME/EXPENSE Fees and commissions received Non-cash loans Other Fees and commissions paid Non-cash loans Other DIVIDEND INCOME NET TRADING INCOME Capital market transaction gains / (losses) Gains/ (losses) from derivative financial instruments Foreign exchange gains / (losses) OTHER OPERATING INCOME NET OPERATING INCOME (III+IV+V+VI+VII) PROVISION FOR LOAN LOSSES AND OTHER RECEIVABLES (-) OTHER OPERATING EXPENSES (-) NET OPERATING INCOME/(LOSS) (VIII-IX-X) AMOUNT IN EXCESS RECORDED AS GAIN AFTER MERGER GAIN / (LOSS) ON EQUITY METHOD GAIN / (LOSS) ON NET MONETARY POSITION PROFIT/(LOSS) FROM CONTINUED OPERATIONS BEFORE TAXES (XI+…+XIV) TAX CHARGE FOR CONTINUED OPERATIONS (±) Current income tax charge Deferred tax charge / benefit NET PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) INCOME ON DISCONTINUED OPERATIONS Income on assets held for sale Income on sale of associates, subsidiaries and jointly controlled entities (joint vent.) Income on other discontinued operations LOSS FROM DISCONTINUED OPERATIONS (-) Loss from assets held for sale Loss on sale of associates, subsidiaries and jointly controlled entities (joint vent.) Loss from other discontinued operations PROFIT / (LOSS) ON DISCONTINUED OPERATIONS BEFORE TAXES (XVIII-XIX) TAX CHARGE FOR DISCONTINUED OPERATIONS (±) Current income tax charge Deferred tax charge / benefit NET PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XX±XXI) NET PROFIT/LOSS (XVII+XXII) Group’s income/loss Minority interest income/loss (-) Earnings per share income/loss (full TL) Note (4-1) (4-2) (4-12) (4-12) (4-3) (4-4) (4-5) (4-6) (4-7) (4-8) (4-9) (4-11) Current Period Audited 01.01.2017 – 31.12.2017 Prior Period Audited 01.01.2016-31.12.2016 3,867,338 3,343,174 50,595 31,929 280,612 8,771 271,841 140,419 20,609 1,717,000 1,171,225 196,853 29,270 319,652 2,150,338 250,785 406,055 117,348 288,707 155,270 17 155,253 288,332 6,960 (398,234) 679,606 186,489 2,875,944 786,177 1,280,913 808,854 4,104 - 3,141,112 2,751,353 25,600 24,225 769 205,883 5,045 200,838 110,258 23,024 1,443,898 918,888 195,311 74,154 255,545 1,697,214 154,660 316,072 91,003 225,069 161,412 3,231 158,181 509 330,734 7,871 155,429 167,434 177,574 2,360,691 514,113 1,137,444 709,134 2,423 - 812,958 (183,251) (197,654) 14,403 629,707 - 711,557 (132,481) (124,964) (7,517) 579,076 - - - - - 629,707 628,855 852 579,076 571,341 7,735 - - The accompanying notes are an integral part of these consolidated financial statements.
258. TOTAL PROFIT /LOSS ACCOUNTED FOR THE PERIOD (X±XI) XII. The accompanying notes are an integral part of these consolidated financial statements. (1,518) 631,225 Change in fair value of marketable securities (transfer to profit/loss) Reclassification of derivatives accounted for cash flow hedge purposes to income statement Reclassification of hedge of net investments in foreign operations to income statement Other XI.1 XI.2 XI.3 XI.4 626,233 (54,962) 1,454 18,478 (20,938) 579,076 (41,449) (16,493) 6,196 (3,474) 629,707 558,138 (498) 579,574 7,209 3,295 ADDITIONS TO MARKETABLE SECURITIES REVALUATION DIFFERENCES FROM AVAILABLE FOR SALE FINANCIAL ASSETS TANGIBLE ASSETS REVALUATION DIFFERENCES INTANGIBLE ASSETS REVALUATION DIFFERENCES CURRENCY TRANSLATION DIFFERENCES FOR FOREIGN CURRENCY TRANSACTIONS PROFIT/LOSS FROM DERIVATIVE FINANCIAL INSTRUMENTS FOR CASH FLOW HEDGE PURPOSES (EFFECTIVE PORTION OF FAIR VALUE DIFFERENCES) VI. PROFIT/LOSS FROM DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS (EFFECTIVE PORTION OF FAIR VALUE DIFFERENCES) VII. THE EFFECT OF CORRECTIONS OF ERRORS AND CHANGES IN ACCOUNTING POLICIES VIII. OTHER PROFIT LOSS ITEMS ACCOUNTED UNDER EQUITY AS PER TURKISH ACCOUNTING STANDARDS IX. DEFERRED TAX ON VALUATION DIFFERENCES X. TOTAL NET PROFIT/LOSS ACCOUNTED UNDER EQUITY (I+II+…+IX) XI. PROFIT/LOSS I. II. III. IV. V. Audited Current Audited Prior Period 01.01.2017- Period 01.01.201631.12.2017 31.12.2016 30,871 (50,843) 14,106 57,726 4. CONSOLIDATED STATEMENT OF PROFIT AND LOSS ACCOUNTED FOR UNDER EQUITY (STATEMENT OF OTHER COMPREHENSIVE INCOME AND LOSS) (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) STATEMENT OF CONSOLIDATED CHANGES IN SHAREHOLDERS’ EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ 256 SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES
259. - - - - 260 ,000 260,000 - 2,787,322 Balances at end of the period (III+IV+V+......+XVIII+XIX+XX) - - 2,527,322 - (2–11) - 2,527,322 - Balances at beginning of the period Correction made as per TAS 8 Effect of corrections Effect of changes in accounting policies Adjusted balances at beginning of the period (I+II) Changes during the period Increase/decrease related to merger Marketable securities revaluation differences Hedging funds (effective portion) Cash-flow hedge Hedge of net investment in foreign operations Tangible assets revaluation differences Intangible assets revaluation differences Bonus shares obtained from associates, subsidiaries and jointly controlled operations Foreign exchange differences Changes related to the disposal of assets Changes related to the reclassification of assets The effect of change in associate’s equity Capital increase Cash Internal sources Share issue premium Share cancellation profits Inflation adjustment to paid-in capital Other(*) Net income/(loss) for the period Profit distribution(**) Dividends distributed Transfers to reserves Other Note 24,208 - - - - 24,208 - 24,208 - Share Premium - - - - - - - Share certificate cancellation profits 122,861 22,574 22,574 - - - - 100,287 - 100,287 - Legal reserves - - - - - - - Statutory reserves 351,949 110,396 110,396 - - - - 241,553 - 241,553 - Extraordinary reserve 253,201 (476) (476) 1,163 48,788 48,788 - 13,756 - 43,970 - 43,970 - 146,000 - 146,000 - Other reserve 571,341 571,341 - - - - - - Current period net income / (loss) (20,939) (259,524) (259,524) (185,157) (3,399) (181,758) - - - - 423,742 - 423,742 - Prior period net income / (loss) (35,280) - - - (40,674) - 5,394 - 5,394 - Marketable securities revaluation reserve - - - - - - - Tangible and intangible assets revaluation fund - - - - - - - Bonus shares from investments (70,836) - - (43,970) - (38,203) 5,767 (32,633) - (32,633) - Hedging reserves - - - - - - - Asset held for sale and disc.op. valuation fund 3,983,827 1,163 571,341 (3,399) (3,399) - 13,756 - - (40,674) 5,767 5,767 3,435,873 - 3,435,873 - Total excluding minority interest 19,993 7,735 - - - - 12,258 - 12,258 - Minority interest 4,003,820 1,163 579,076 (3,399) (3,399) - 13,756 - - (40,674) 5,767 5,767 3,448,131 - 3,448,131 - Total equity (*) The accompanying notes are an integral part of these consolidated financial statements. In the Ordinary General Assembly Meeting dated 4 April 2016, the Bank decided on reserving primary reserves amount to TL 22,234; other reserves amount to TL 48,788 funded via retained profit from sales of real estates, cash dividend; dividend to management amount to TL 3,399; funding capital increase from internal sources via remaining net income amount to TL 259,524 and in return distributing additional capitalized shares proportioned to shareholder’s stake in share capital; secondary reserves amount to TL 340 and remaining amount to TL 110,396 to extraordinary legal reserves, other reserve amount to TL 476 which obtained from research and development activities according to Law No. 5746 under Articles3, funding capital increase from internal sources. (**) Amounting to TL 1,163 represents actuarial loss and tax effect of retirement payments XIII. XIV. 14.1 14.2 XV. XVI. XVII. XVIII. XIX. XX. 20.1 20.2 20.3 X. XI. XII. VII. VIII. IX. VI. 6.1 6.2 IV. V. I. II. 2.1 2.2 III. Audited Prior Period – (01.01.2016-31.12.2016) Paid-in capital Effect of inflation accounting on paid-in capital 5. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) STATEMENT OF CONSOLIDATED CHANGES IN SHAREHOLDERS’ EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ KUVEYT TÜRK 2017 ANNUAL REPORT 257
260. I . Balances at end of the period (III+IV+V+......+XVIII+XIX+XX) Balances at beginning of the period Correction made as per TAS 8 Balances at beginning of the period Marketable securities revaluation differences Hedging funds (effective portion) Cash-flow hedge Hedge of net investment in foreign operations Tangible assets revaluation differences Intangible assets revaluation differences Bonus shares obtained from associates, subsidiaries and jointly controlled operations Foreign exchange differences Changes related to the disposal of assets Changes related to the reclassification of assets The effect of change in associate’s equity Capital increase Cash Internal sources Share issue premium Share cancellation profits Inflation adjustment to paid-in capital Other(*) Net income/(loss) for the period Profit distribution(**) Dividends distributed Transfers to reserves Other (2–11) Note - - - - - - 3,097,322 - 310,000 310,000 - - - - - - - - - - - - - 2,787,322 - 24,208 - - - - - - - - - 24,208 - Share Premium - - - - - - - - - - - Share certificate cancellation profits 151,688 27,528 27,528 - 1,299 - - - - - - - - 122,861 - Legal reserves - - - - - - - - - - - Statutory reserves 688,628 336,679 336,679 - - - - - - - - - 351,949 - Extraordinary reserve 59,973 (13,194) 51,667 51,667 - (51,667) (51,667) - - (90,767) 14,106 (136,532) - 33,159 33,159 - 253,201 - Other reserve 628,855 628,855 - - - - - - - - - - Current period net income / (loss) 8,436 (420,165) (4,291) (415,874) - (258,333) (258,333) - - - - 136,532 - - - 550,402 - Prior period net income / (loss) (10,583) - - - - - - - - 24,697 - (35,280) - Marketable securities revaluation reserve - - - - - - - - - - - Tangible and intangible assets revaluation fund - - - - - - - - - - - Bonus shares from investments (60,766) - - - 40,593 - - - (33,159) (30,523) 2,636 (70,836) - Hedging reserves - - - - - - - - - - - Asset held for sale and disc.op. valuation fund 4,587,761 (13,194) 628,855 (4,291) (4,291) - 1,299 - - (50,174) 14,106 - - - 24,697 2,636 2,636 3,983,827 - Total excluding minority interest 23,054 2,209 852 - - - - - - - - - 19,993 - Minority interest 4,610,815 (10,985) 629,707 (4,291) (4,291) - 1,299 - - (50,174) 14,106 - - - 24,697 2,636 2,636 4,003,820 - Total equity (*) The accompanying notes are an integral part of these consolidated financial statements. In the Ordinary General Assembly Meeting dated 28 March 2017, the Bank decided on reserving primary reserves amount to TL 27,098; other reserves amount to TL 51,007 funded via retained profit from sales of real estates, cash dividend; dividend to management amount to TL 4,291; funding capital increase from internal sources via remaining net income amount to TL 121,801 and in return distributing additional capitalized shares proportioned to shareholder’s stake in share capital; secondary reserves amount to TL 430 and remaining amount to TL 336,679 to extraordinary legal reserves, other reserve amount to TL 660 which obtained from research and development activities according to Law No. 5746 under Articles3, 136,532 TL funding capital increase from internal sources. (**) Amounting to TL (13,194) represents actuarial loss and tax effect of retirement payments. XVI. XVII. XVIII. 18.1 18.2 18.3 XII. 12.1 12.2 XII. XIV. XV. XI. X. VIII. IX. VII. VI. V. IV. 4.1 4.2 II. III. Current Period – (01.01.201731.12.2017) Audited Paid-in capital Effect of inflation accounting on paid-in capital (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) STATEMENT OF CONSOLIDATED CHANGES IN SHAREHOLDERS’ EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ 258 SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES
261. KUVEYT T ÜRK 2017 ANNUAL REPORT 259 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 6. CONSOLIDATED CASH FLOWS STATEMENT Note Audited Current period 01.01.2017-31.12.2017 Audited Prior Period 01.01.2016-31.12.2016 1,394,462 819,666 4,304,305 (1,664,208) 407,452 398,357 53,054 (991,075) (222,108) (891,315) 3,033,597 (1,392,727) 509 316,661 302,609 21,564 (871,972) (167,363) (423,212) A. CASH FLOWS FROM BANKING OPERATIONS 1.1 Operating profit before changes in operating assets and liabilities 1.1.1 1.1.2 1.1.3 1.1.4 1.1.5 1.1.6 1.1.7 1.1.8 1.1.9 Profit share income received Profit share expense paid Dividend received Fees and commissions received Other income Collections from previously written off loans Payments to personnel and service suppliers Taxes paid Others 1.2 Changes in operating assets and liabilities (3,446,052) (588,799) 1.2.1 1.2.2 1.2.3 1.2.4 1.2.5 1.2.6 1.2.7 1.2.8 1.2.9 1.2.10 Net (increase) decrease held for trading financial assets Net (increase) decrease in financial assets at fair value through profit or loss Net (increase) decrease in due from banks and other financial institutions Net (increase) decrease in loans Net (increase) decrease in other assets Net increase (decrease) in bank deposits Net increase (decrease) in other deposits Net increase (decrease) in funds borrowed Net increase (decrease) in due payables Net increase (decrease) in other liabilities (9,866) (916,309) (9,534,520) (279,341) 8,189,069 (508,799) (386,286) (7,663) (1,742,742) (3,385,011) (302,200) 112,015 3,763,676 365,827 607,299 I. Net cash provided from / (used in) banking operations (2,051,590) 230,867 B. CASH FLOWS FROM INVESTING ACTIVITIES II. Net cash provided from / (used in) investing activities (649,580) (1,511,284) 2.1 2.2 - (750) 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Cash paid for purchase jointly controlled operations, associates and subsidiaries Cash obtained from sale of jointly controlled operations, associates and subsidiaries Fixed assets purchases Fixed assets sales Cash paid for purchase of financial assets available for sale Cash obtained from sale of financial assets available for sale Cash paid for purchase of investment securities Cash obtained from sale of investment securities Other 132,619 (83,840) 1,998 (2,139,911) 1,498,651 (59,097) (46,878) 10,507 (2,587,958) 1,166,806 (53,011) C. CASH FLOWS FROM FINANCING ACTIVITIES III. Net cash provided from / (used in) financing activities 1,291,567 1,261,693 3.1 3.2 3.3 3.4 3.5 3.6 Cash obtained from funds borrowed and securities issued Cash used for repayment of funds borrowed and securities issued Capital increase Dividends paid Payments for finance leases Other 3,085,860 (1,790,002) (4,291) - 2,079,050 (813,958) (3,399) - IV. Effect of change in foreign exchange rate on cash and cash equivalents (16,107) 140,046 V. Net increase (decrease) in cash and cash equivalents (I + II + III + IV) (1,425,710) 121,322 VI. Cash and cash equivalents at the beginning of the period (V-a) 4,898,436 4,777,114 VII. Cash and cash equivalents at the end of the period (V-a) 3,472,726 4,898,436 (6-3) (6-3) (6-3) (6-3) (V-d) Due to the liquidation of the subsidiary of the Group in Dubai , TL 202,431 amount cash inflow to the Group. TL 69,812 of that cash inflow is indicated on Cash and cash equivalents at the beginning of the period . (*) The accompanying notes are an integral part of these consolidated financial statements.
262. 260 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENT OF PROFIT DISTRIBUTION FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 7. THE PARENT BANK’S STATEMENT OF PROFIT DISTRIBUTION Current period 01.01.2017-31.12.2017 (*) Prior period 01.01.2016-31.12.2016 1.1. Current period profit 1.2. Taxes and legal duties payable (-) 1.2.1. Corporate tax (income tax) 1.2.2. Withholding tax 1.2.3 Other taxes and duties (**) 848,933 174,942 197,638 (22,696) 663,212 121,246 124,960 (3,714) A. Net profit for the period (1.1-1.2) (Not V-I-17-c) 673,991 541,966 - 27,098 - 673,991 514,868 1.6. First dividend to shareholders (-) 1.6.1. To owners of ordinary shares 1.6.2. To owners of privileged shares 1.6.3. To owners of redeemed shares 1.6.4. To profit sharing bonds 1.6.5. To holders of profit and loss sharing certificates 1.7. Dividends to personnel(-) 1.8. Dividends to board of directors (-) 1.9. Second dividend to shareholders (-) 1.9.1. To owners of ordinary shares 1.9.2. To owners of privileged shares 1.9.3. To owners of redeemed shares 1.9.4. To profit sharing bonds 1.9.5. To holders of profit and loss sharing certificates 1.10. Second legal reserves (-) 1.11. Status reserves (-) 1.12. Extra ordinary reserves (***) 1.13. Other reserves 1.14. Special funds - 4,291 430 336,679 51,667 - II. Distribution of reserves - - 2.1. Appropriated reserves 2.2. Second legal reserves (-) 2.3. Dividends to shareholders (-) 2.3.1. To owners of ordinary shares 2.3.2. To owners of privileged shares 2.3.3. To owners of redeemed shares 2.3.4. To profit sharing bonds 2.3.5. To holders of profit and loss sharing certificates 2.4. Dividends to personnel (-) 2.5. Dividends to board of directors (-) - - - - - 0.199 19.926 - - - I. Distribution of current year profit 1.3. Accumulated losses (-) 1.4. First legal reserves (-) 1.5. Other statutory reserves (-) B.Net profit available for distribution [(A-(1.3+1.4+1.5)] III. Earnings per share 3.1. To owners of ordinary shares 3.2 To owners of ordinary shares (%) 3.3. To owners of privileged shares 3.4. To owners of privileged shares (%) IV. Dividend per share 4.1. To owners of ordinary shares 4.2. To owners of ordinary shares (%) 4.3. To owners of privileged shares 4.4. To owners of privileged shares (%) The profit distribution of the Bank is decided by the General Assembly which is not held as of date of these financial statements. Deferred income tax is presented under other tax and legal liabilities. Deferred tax income can not be added into profit distribution, thus it is classified under extraordinary reserves. (***) TL 258,333 from retained earnings and TL 51,667 from other reserves are transferred to paid-in capital within capital increase scope. (*) (**) The accompanying notes are an integral part of these consolidated financial statements.
263. KUVEYT T ÜRK 2017 ANNUAL REPORT 261 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) SECTION THREE ACCOUNTING PRINCIPLES 1. Explanations on basis of presentation a. The preparation of the consolidated financial statements and related notes and explanations in accordance with the Turkish Accounting Standards and Regulation on Accounting Applications for Banks and Safeguarding of Documents: The Bank prepares its consolidated financial statements in accordance with “the Banking Regulation and Supervision Agency (“BRSA”) Accounting and Reporting Regulation” which includes the regulation on “The Procedures and Principles Regarding Banks’ Accounting Practices and Maintaining Documents” published in the Official Gazette dated 1 November 2006 with No. 26333, and other regulations on accounting records of banks published by the Banking Regulation and Supervision Board and circulars and pronouncements published by the BRSA and Turkish Accounting Standards published by the Public Oversight Accounting and Auditing Standards Authority for the matters not regulated by the aforementioned legislations. b. Classifications None. c. Accounting policies and valuation principles applied in the preparation of consolidated financial statements: The consolidated financial statements have been prepared in TL, under the historical cost convention except for the financial assets and liabilities held for trading carried at fair value. The preparation of consolidated financial statements in conformity with TAS requires the Bank management to make assumptions and estimates with respect to assets and liabilities on the balance sheet and contingent issues outstanding as of the balance sheet date. These assumptions and estimates are mainly related with the determination of the fair values of the financial instruments and determination of the impairments on assets and these assumptions are being reviewed regularly and, when necessary, appropriate corrections are made and the effects of these corrections are reflected to the income statement. d. Preparation of the consolidated financial statements in the current purchasing power of money: Until 31 December 2004, the financial statements of the Group were subject to inflation adjustments in accordance with Turkish Accounting Standard No: 29 “Financial Reporting in Hyperinflationary Economies” (“TAS 29”). BRSA explained with its decision numbered 1623 and dated 21 April 2005 and its circular dated 28 April 2005 that the conditions for applying inflation accounting was no longer applicable and accordingly inflation accounting has not been applied beginning from 1 January 2005. e. Disclosures of TFRS 9 Financial Instruments: TFRS 9 “Financial Instruments”, which is effective as at 1 January 2018 is published by the Public Oversight Accounting and Auditing Standards Authority (“POA”) in the Official Gazette numbered 29953 dated 19 January 2017. TFRS 9 will replace TAS 39 Financial Instruments: recognition and measurement, related to the classification and measurement of financial instruments.
264. 262 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) All recognized financial assets that are within the scope of TFRS 9 are required to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and profit share on the principal amount outstanding, are generally measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under TFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment in other comprehensive income, with only dividend income generally recognized in profit or loss. The Bank will apply the classification, measurement and impairment requirements retrospectively by adjusting the opening balance sheet and opening equity at 1 January 2018, with no restatement of comparative periods. The combined application of the contractual cash flow characteristics and business models as at 1 January 2018 is expected to result in no major difference in the classification of financial assets when compared to the classification under TAS 39. Classification and measurement of financial assets: According to TFRS 9 requirements, classification and measurement of financial assets will depend on the business model within which financial assets are managed and their contractual cash flow characteristics whether the cash flows represent “solely payments of principal and profit share (SPPI). Upon initial recognition each financial asset will be classified as either fair value through profit or loss (“FVTPL”), amortized cost or fair value through other comprehensive income (“FVOCI”). As the requirements under TFRS 9 are different than the assessments under the existing TAS 39 rules, the classification and measurement of financial liabilities remain largely unchanged under TAS 39. Impairment of financial assets: As of 1 January 2018, the Bank will recognize provisions for impairment in accordance with the TFRS 9 requirements according to the “Regulation on the Procedures and Principles for Classification of Loans by Banks and Provisions to be set aside” published in the Official Gazette dated 22 June 2016 numbered 29750. In this framework, as of 31 December 2017, method of provisions for impairment as set out in accordance with the related legislation of BRSA as mentioned in the Section 3 Part VII-c of Explanation on Accounting Policies will be changed by applying the expected credit loss model under TFRS 9. The expected credit loss estimates are required to be unbiased, probability-weighted and should include supportable information about past events, current conditions, and forecasts of future economic conditions. These financial assets will be divided into three categories depending on the gradual increase in credit risk observed since their initial recognition: Stage 1: Includes financial assets not having significant increase in their credit risk from initial recognition till the following reporting date or financial assets having low credit risk at the reporting date. It is recognized 12-month expected credit losses for such financial assets. Stage 2: Includes financial assets having significant increase in their credit risk subsequent to the initial recognition, but not having objective evidence about impairment. It is recognized life time expected credit losses for such financial assets. Stage 3: Includes financial assets having objective evidence about impairment at the reporting date.It is recognized life time expected credit losses for such financial assets. As of the transition date, the revisions on the accounting policies, relevant processes and internal controls are ongoing. Accordingly, there might be changes in the anticipated impact of TFRS 9 on the financial statements until announcement of the first time adoption financial statements including the opening balance sheet as of 1 January 2018. Besides, the Bank will calculate deferred tax on the expected credit losses calculated on stage 1 and 2 loans and the impact regarding calculated deferred tax asset will be accounted for under equity during transition.
265. KUVEYT T ÜRK 2017 ANNUAL REPORT 263 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2. Explanations on strategy of using financial instruments and foreign currency transactions The Group follows an asset-liability management strategy that mitigates risk and increases earnings by balancing the funds borrowed and the investments in various financial assets. The main objective of asset-liability management is to limit the Bank’s exposure to liquidity risk, currency risk and credit risk while increasing profitability and strengthening the Bank’s equity. The assets-liabilities committee (ALCO) manages the assets and liabilities within the trading limits on the level of exposure placed by the Executive Risk Committee. Gains and losses arising from foreign currency transactions have been recorded in the period in which the transaction took place. Foreign currency denominated monetary assets and liabilities are valued with the period end exchange rates published by the Central Bank of Turkey converting them into Turkish Lira. Valuation differences of foreign currencies have been recognized in the income statement under the ‘Net foreign exchange income/expense’ account. The foreign currency net investment in consolidated foreign subsidiaries is translated into Turkish Lira using the exchange rate prevailing at the balance sheet date for their assets and liabilities and average exchange rate for their income statement items. The currency translation gain arising from the consolidated subsidiaries’ foreign currency differences has been recorded in “Other Profit Reserves” under shareholders’ equity. The Group’s portion of risk regarding loans originating from participation accounts followed in receivables to be written off, doubtful commission, fees and other receivables, uncollectible loans and other receivables, along with foreign currency (FC) loans and receivables originating from the Bank’s equity and private current accounts are converted to Turkish Lira with the rates prevailing at the date of the transfer of such receivables to non-performing loan portfolio. The participation accounts’ portion of the risk of the foreign currency loans and FC pegged loans, originating from participation accounts, is evaluated with the current foreign currency rates and the differences are recorded foreign currency gains/losses account in the income statement. The foreign currency exchange differences resulting from the translation of debt securities issued and monetary financial instruments into Turkish Lira are included in the income statement. There are no foreign currency differences capitalized by the Group. 3. Information about the Parent Bank and its Consolidated Subsidiaries The consolidated financial statements have been prepared in accordance with the “Consolidated Financial Statements” (“IFRS 10”). The subsidiaries included in consolidation and their places of incorporation, nature of activities and shareholding percentages are as follows: Description KT Bank AG KT Portföy Yönetimi A.Ş. KT Kira Sertifikaları Varlık Kiralama A.Ş. KT Sukuk Varlık Kiralama A.Ş. Körfez Gayrimenkul Yatırım Ortaklığı A.Ş. Katılım Emeklilik ve Hayat A.Ş. KT Sukuk Company Limited Address (City/ Country) Frankfurt/ Germany Istanbul/Turkey Principal Activity 31 December 2017 31 December 2016 Consolidation Method Banking Financial Institution %100.00 %100.00 %100.00 %100.00 Full consolidation Full consolidation Istanbul/Turkey Financial Institution %100.00 %100.00 Full consolidation Istanbul/Turkey Financial Institution %100.00 %100.00 Full consolidation Istanbul/Turkey Financial Institution %75.00 %75.00 Istanbul/Turkey George Town/ Cayman Islands Financial Institution %50.00 Financial Institution %100.00 Full consolidation Accounted for under %50.00 equity method %100.00 Full consolidation The Parent Bank and its consolidated subsidiaries of the Parent Bank, as a whole, are named as “Group”.
266. 264 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Consolidation principles of subsidiaries: Subsidiaries are the entities controlled directly or indirectly by the Parent Bank. Subsidiaries are consolidated using the full consolidation method. Financial statements of related subsidiaries are consolidated from the date when the control is transferred to the Parent Bank. Control is obtained as the Bank has more than half of the voting rights directly or indirectly through subsidiaries or do not have the majority of the voting rights but has privileged shares or has half of the voting rights with respect to agreements made with other shareholders or has authority to manage financial and operating policies of the company through a regulation or an agreement or has power to control the majority of votes at the board of directors or at executive body containing these rights or has power to appoint or dispose the majority of the members of the board of directors. In the full consolidation method, 100% assets, liabilities, income, expense and off-balance sheet items of subsidiaries are combined with the Parent Bank’s assets, liabilities, and income, expense and off-balance sheet items. The carrying amount of the Group’s investment in each subsidiary and the Group’s portion of the cost value of the capital of each subsidiary are eliminated. Intragroup balances and intragroup transactions and resulting unrealized profits and losses are eliminated. Minority interests in the net income of consolidated subsidiaries are identified and adjusted against the income of the Group in order to arrive at the net income attributable to the Group and presented separately in the Group’s income. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 4. Explanations on forward transactions and option contracts and derivative instruments The Group enters into forward agreements to mitigate its currency risk and to manage its foreign currency liquidity. The Bank classifies its derivative instruments as “Derivative Financial Instruments Held for Hedging Purposes” and “Derivative Financial Instruments Held for Trading” in accordance with “TAS 39”. Even though some derivative transactions economically hedge risk, since all necessary conditions for hedge accounting are not met, they are accounted for as “held for trading” within the framework of “TAS 39”, and are reflected in the “Derivative Financial Assets/Liabilities Held for Trading” account in the balance sheet. The payables and receivables arising from derivative transactions are recorded in off-balance sheet accounts at their notional amounts. Fair values of foreign currency forward transactions and swaps are calculated by using the discounted cash flow model. Differences resulting from the changes in the fair values of derivatives held for trading are accounted under ‘Trading Income/Loss’ line in the income statement. Embedded derivatives are separated from the host contract if the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss. Embedded derivatives are accounted as derivative instruments in-line with “TAS 39”. If the embedded derivatives are closely related with the host contract, embedded derivatives are accounted for in-line with the relevant standard applicable for the host contract. The Group enters into profit share and cross currency swap transactions in order to hedge the change in fair value of fixed-rate financial instruments. While applying fair value hedge accounting, the changes in fair values of hedging instrument and hedged item are recognised in income statement. If the hedging is effective, the changes in fair value of the hedged item is presented in statement of financial position together with the fixed-rate loan, and in case of fixed-rate financial assets available for sale, such changes are reclassified from shareholders’ equity to income statement.
267. KUVEYT T ÜRK 2017 ANNUAL REPORT 265 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The Group performs effectiveness test at the beginning of the hedge accounting period and at each reporting period. The effectiveness tests are carried out using the “Dollar off-set model” and the hedge accounting is applied as long as the test results are between the range of 80%-125% of effectiveness. The hedge accounting is discontinued when the hedging instrument expires, is exercised, sold or no longer effective. When discontinuing fair value hedge accounting, the cumulative fair value changes in carrying value of the hedged item arising from the hedged risk are amortised to income statement over the life of the hedged item from that date of the hedge accounting is discontinued. While discontinuing cash flow hedge accounting, the cumulative gains/losses recognised in shareholders’ equity and presented under hedging reserves are continued to be kept in this account. When the cash flows of hedged item are recognised in income statement, the gain/losses accounted for under shareholders’ equity, are recognised in income statement. 5. Explanations on profit share income and expense Profit share income is recognized in the income statement on an accrual basis by using the method of internal rate of return and is accounted under profit share income account in the financial statements. In accordance with the related regulation, the profit share accruals of non-performing loans are cancelled and are not recorded until the profit share income is realized. The Group calculates expense accrual in accordance with the unit value calculation method on profit/loss sharing accounts and reflects these amounts in “Funds Collected” on the balance sheet. 6. Explanation on fees and commission income and expenses Except for the fees and commission income and expenses obtained for some banking services which are recorded as income when collected, fees and commission income/expenses are reflected in the income statement over the period of the related transaction. In accordance with the provisions of TAS, commission and fees collected in advance for loans granted are deferred and reflected to the income statement by using the internal rate of return method. Unearned portion of the commission and fees relating to the future periods are recorded to the “Unearned Revenues” account under “Other Liabilities” on the balance sheet. 7. Explanations on financial assets The Group classifies and accounts for its financial assets as “Fair value through profit/loss”, “Available for sale”, and Loans and receivables” or “Held to maturity. Sale and purchase transactions of the financial assets mentioned above are recognized at the ‘Settlement dates’. The appropriate classification of financial assets of the Bank is determined at the time of purchase by the Bank management, taking into consideration the purpose of the investment. 7.1. Financial assets at fair value through profit or loss: This category has two sub categories: “Trading financial assets” and “Financial assets designated at fair value through profit/loss at initial recognition”. Trading financial assets are financial assets which are either acquired for generating a profit from short-term fluctuations in prices or dealers’ margin, or are financial assets included in a portfolio and derivative instruments in which a pattern of short-term profit making exists. Trading financial assets are initially recognized at transaction prices, which are assumed to be the fair value, and subsequently measured at fair value. All gains and losses arising from these valuations are reflected in the income statement. Other than trading financial assets, the Group has no financial assets at fair value through profit or loss.
268. 266 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 7.2. Financial assets available for sale: Financial assets available for sale are initially recognized at cost; which reflects their fair values; including the transaction costs. Financial assets classified as available for sale financial assets which do not have a quoted market price in an active market and whose fair values cannot be reliably measured are carried at cost, less impairment, if any. Financial assets available-for-sale gains and losses are valued using internal rate of return and recorded in the income statement as profit share income. Financial assets available-for-sale profit share rediscounts recognized in the profit/ share account, current value differences recognized in the “securities value increase fund” under the shareholders’ equity. In case of sales, the realized gain/losses in the shareholders’ equity are recognized directly in the income statement. 7.3. Loans and Receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not listed in an active market and are not classified as held for trading, financial assets at the fair value through profit or loss or as available for sale. Loans and receivables are initially recognized at cost, which is assumed to reflect their fair value and subsequently recognized at the amortized cost calculated using the internal rate of return method. The expenses incurred for the loans and receivables received as collateral are not considered as transaction costs and are recognized in the expense accounts. 7.4. Held to maturity financial assets: Held to maturity financial assets are financial assets with fixed maturities and fixed or determinable payments where management has the intent and ability to hold the financial assets to maturity that are not classified under ‘Loans and receivables’. Held to maturity financial assets are initially recognized at cost which is assumed to reflect their fair value, and subsequently carried at ‘Amortized Cost’ using the ‘Internal Rate of Return’. Profit share income from held to maturity financial assets is reflected in the income statement. The Group does not have any held to maturity financial assets as of the balance sheet date. 8. Explanations on impairment of financial assets At each balance sheet date an assessment is made as to whether there is objective evidence that a financial asset or group of financial assets is impaired. If such evidence exists, impairment is provided for financial asset categories as explained below. 8.1. Loans and Receivables: If there is objective evidence that the loans might not be collected, the Bank reclassifies such loans to III. IV. and V. groups and provides impairment reserve in accordance with the Communiqué of “Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans” published on 1 November 2006 in the Official Gazette No: 26333. For the loans with poor financial position and/or payment capability, the Parent Bank can provide a specific impairment reserve in excess of the amounts calculated using the minimum required rates for the related group. Collections related to the provisions provided in the current period for such loans are deducted from “Provisions for Loan losses and Other Receivables” account in the income statement. Subsequent recoveries of amounts previously written off or provisions made in prior periods are included in “Other Operating Income” in the income statement.
269. KUVEYT T ÜRK 2017 ANNUAL REPORT 267 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 8.2. Financial assets held to maturity: If there is objective evidence indicating that the value of financial assets held to maturity is impaired, the amount of the loss is measured as the difference between the present values of future estimated cash flows discounted using the original profit share and the carrying value; provision is made for impairment and the provision is associated with expense accounts. 8.3. Financial assets available for sale: If there is objective evidence indicating that the fair value of an available for sale financial asset, for which decreases in the fair value has been accounted under the equity, has been impaired then the total loss which was accounted directly in the equity is transferred from equity to the income statement. Impairment losses recognized in the income statement related to the investments in equity instruments classified as available for sale financial assets cannot be reversed through the income statement. If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on equity instruments cannot be reversed. 9. Explanations on offsetting of financial assets and liabilities Financial assets and liabilities are offset and the net amount is reported in the balance sheet when the Group has a legally enforceable right to offset the recognized amounts and there is an intention to collect/pay the related financial assets and liabilities on a net basis, or to realize the asset and settle the liability simultaneously. 10. Explanations on sale and repurchase agreements and lending of securities Central Bank of the Republic of Turkey (“CBRT”) made some changes on orders for open market transactions (“OMT”) and prepared an additional frame contract for participation banks in order to present rent certificates to open market operations of CBRT in accordance with the principles of participation banks. According to this agreement; a new type of transaction was formed which enables participation banks to resell or repurchase rent certificates on their portfolio to CBRT when they are in need of funding or in attempt to evaluate the excess liquidity. In this content, initial OMT transaction was performed with CBRT on 14 June 2013 by selling rent certificates that are recognized in the assets of the Bank in return for conditional repurchasing. Beginning from this date, the Bank performs purchase tenders which are held by CBRT of which maturities are weekly; in return for Treasury rent certificates that are reported as assets in balance sheet in order to raise funds. As of 31 December 2017, the Group has repurchaseng agreements amounting to TL 750,524 (31 December 2016 - TL 1,219,873). 11. Explanations on assets held for sale and discontinued operations and related liabilities As mandated by the Banking Act 5411 Article 57 “Banks cannot participate in commercial real-estate and commodity trade with the exception of real-estate and commodity based agreements within the scope of Capital Markets Act No. 2499, and precious metal trade as seen appropriate by the board, and cannot participate in partnerships with firms whose main business activity is commercial real-estate, with the exception of real-estate investment partnerships and companies that finance mortgaged residential estates. The rules and procedures regarding the sales of real-estate and commodities that were acquired due to receivables and debtors’ obligations to the bank are determined by the board.”
270. 268 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Assets that meet the criteria for classification as assets held for sale are measured at the lower of the carrying amount of assets and fair value less any costs to be incurred for disposal. Assets held for sale are not amortized and presented in the financial statements separately. In order to classify an asset as held for sale, the sale should be highly probable and the asset (or disposal group) should be available for immediate sale in its present condition. Highly saleable condition requires a plan by the management regarding the sale of the asset (or the disposal group) together with an active program for the determination of buyers as well as for the completion of the plan. Also the asset (or the disposal group) should be actively in the market at a price consistent with its fair value. In addition, the sale is expected to be recognized as a completed sale within one year after the classification date and the necessary transactions and procedures to complete the plan should demonstrate the fact that there is remote possibility of making any significant changes in the plan or cancellation of the plan. Various events and conditions may extend the completion period of the disposal over one year. If such delay arises from any events and conditions beyond the control of the entity and there is sufficient evidence that the entity has an ongoing disposal plan for these assets, such assets (or disposal group) can remain to be classified as assets (or disposal group) held for sale. Extension of the period necessary to complete the sale, does not avoid the classification of the related asset (or disposal group) to be classified as asset held for sale. A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale. Discontinued operations are presented separately in the income statement. The Parent Bank has no discontinued operations. 12. Explanations on goodwill and other intangible assets Intangible assets are stated at cost adjusted for inflation until 31 December 2004, less provision for impairment, if any, and accumulated amortization and amortized with straight-line method. The other intangible assets of the Group comprise mainly computer software. The useful lives of such assets acquired prior to 2004 have been determined as 5 years and for the year 2004 and forthcoming years, as 3 years. There is no goodwill related to associates and subsidiaries. 13. Explanations on tangible assets Fixed assets are stated at cost adjusted for inflation until 31 December 2004, less accumulated depreciation and provision for impairment, if any. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The annual rates used for amortization are as follows: Property Movables, Leased assets 2% %6.67 - %20 Depreciation is calculated on a pro-rata basis for the assets that have been placed in use for less than one year as of the balance sheet date. Leasehold improvements are depreciated over the term of the lease agreements by straightline method. If the recoverable amount (the higher of value in use and fair value) of a tangible asset is less than its carrying value, impairment loss is provided and the carrying value is written down to its recoverable amount. Gains or losses resulting from disposals of the fixed assets are recorded in the income statement as the difference between the net proceeds and net book value of the asset. Expenses for repairs are capitalized if the expenditure increases economic life of the asset; other repair costs are expensed.
271. KUVEYT T ÜRK 2017 ANNUAL REPORT 269 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The capital expenditures made in order to increase the capacity of the tangible asset or to increase its future benefits are capitalized on the cost of the tangible asset. The capital expenditures include the cost components which are used either to increase the useful life or the capacity of the asset or the quality of the product or to decrease the costs. Property held for long-term rental yields and/or capital appreciation is classified as investment property. Investment properties are stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful lives of the properties. 14. Explanations on Leasing Transactions Bank as a lessee Assets acquired under finance lease contracts are recorded both as an asset and a liability at the beginning date of the lease. The basis for the determination of these amounts is the lower of fair value of the leased asset or the present value of the lease payments. The direct costs incurred during a finance lease transaction are capitalized as additions to the cost of the leased asset. Lease payments include the financing costs incurred due to the leasing transaction and the principal amount of the leased asset for the current period. Depreciation is calculated on a straight-line basis over the estimated useful life of the leased assets and if a diminution in recoverable value of the leased asset is identified, a provision for impairment is recognized. The Group records rent payments made in the context of operating leases in equal amounts during the lease term. Bank as a lessor The Parent Bank, as a participation bank, acts as a lessor in finance leasing transactions. The Group presents finance leased assets as a receivable equal to the net investment in the lease. Finance income is based on a pattern reflecting a constant periodic rate of return on the net investment outstanding. 15. Explanations on provisions and contingent liabilities Provisions and contingent liabilities are accounted for in accordance with “Turkish Accounting Standard for Provisions, Contingent Liabilities and Contingent Assets” (“TAS 37”). Provisions are recognized when the Group has a present obligation, legal or constructive, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The Bank recognizes provisions for obligations which arose from prior periods in current financial year, only if, the possibility of realization is high and a reliable estimation can be made. Provisions are recognized for obligations which arose from prior periods in current financial year, only if, the possibility of realization is high and a reliable estimation can be made. A provision is provided if liabilities have been originated as a result of past events in the period they arise, if it is probable that the liability will be settled and a reliable estimate for the liability amount can be made. When a reliable estimate of the amount of the obligation cannot be made or it is not probable that an outflow of resources will be required to settle the obligation, the obligation is considered as a “Contingent” liability and is disclosed in the related notes to the financial statements.
272. 270 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 16. Explanations on liabilities relating to employee benefits 16.1. Defined benefit plans: In accordance with existing social legislation, the Group is required to make severance pay to each employee who has completed over one year of service with the Group and who retires or quits the employment to receive old age or disability benefits, to fulfil the compulsory military service, because of the marriage (for females) or because of the other compulsive reasons as defined in the laws and whose employment is terminated due to reasons other than resignation or misconduct. The retirement pay provision recognized in the accompanying financial statements, is calculated based on “Turkish Accounting Standard on Employee Benefits (“TAS 19”), and these liabilities are calculated by an independent actuary firm. Group is accounted all actuarial profit and loss under Statement of other Comprehensive Income. The Group’s employees are not members of any pension fund, foundations, union or other similar entities. 16.2. Defined contribution plans: The Parent Bank pays defined contribution plans to publicly administered Social Security Funds for its employees as mandated by the Social Security Association. The Bank has no further payment obligations other than this contribution share. The contributions are recognized as employee benefit expense when they are due. 16.3. Short term benefits to employees: “In accordance with “TAS 19”, vacation pay liabilities are defined as “Short Term Benefits to Employees” and accrued as earned. Group management calculates bonus accrual if it foresees that the budgeted year-end figures approved by the Board of Directors are attainable. 17. Explanations on taxation Current tax The corporate tax rate in Turkey is 20%. This rate is applied on taxable income which is calculated by adjusting the income before tax for certain disallowable expenses, tax exempt income and other allowances. No further tax is applicable unless the profit is distributed. According to the tax code, each quarter advance tax amount is calculated using a rate of 20% over tax base and paid, then the paid advance taxes are deducted from the corporate tax liability that is calculated for the year. Withholding taxes is not applied to dividends distributed to companies resident in Turkey or companies who earn income in Turkey through their resident representatives in Turkey. With the Council of Minister’s decision numbered 2009/14593 and 2009/14594 which are published in official gazette numbered 27130 and dated 3 February 2009, some deduction rates in 15th and 30th articles of the corporate tax law numbered 5520 were re-determined. In accordance with this, dividends distributed to companies other than companies resident in Turkey or companies who earn income in Turkey through their resident representatives in Turkey are subject to 15% withholding taxes. Double tax treaty agreements are also taken into consideration during the application of withholding taxes on dividends distributed to real persons and to foreign based taxpayers. Addition of profit to share capital is not considered as dividend distributed therefore no withholding taxes is applied. Each quarter advance tax amount is calculated using a rate of 20% over tax base and Corporate tax returns are filed by the fourteenth day of the second month following the balance sheet date and taxes is paid by the seventeenth day of the second until evening. Paid advance taxes are paid during the year are belong to the current year, then the paid advance taxes are deducted from the corporate tax liability that is calculated for the year. If the balance of paid advance taxes remains after deduction of paid advance taxes, it can be paid back in cash or it can be deducted from financial loans to the government
273. KUVEYT T ÜRK 2017 ANNUAL REPORT 271 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) For the purpose of issuance of certificate of leasing immovables to resource institutions, with the sale of asset leasing companies, the scope of Financial Leasing, Factoring and Financing Companies Law No.6361, dated 21 November 2012 in order to lease it back and in case of taking back at the end ofthe contract, with the sale of financial leasing companies and asset leasing by asset leasing companies, for gains from the sale of the immovable property inherited from the institution applies this rate as 100% and for the immovable is not compulsory to be in assets at least for a period of two years. But the mentioned immovable’s; except in case of failure to fulfill the obligations arising from the source institution, the lesser or leasing agreement, immovable in question by the asset leasing company, in case of selling a third person or institutions, these immovable’s with the carrying value before its transfer to resource institution or asset leasing in lesser or asset leasing company, in mentioned institutions taking into consideration the total amount of depreciation is taxable for corporation engaged in the sale. Corporate tax returns are filed by the twenty fifth day of the fourth month following the balance sheet date and taxes is paid in one instalment by the end of that month. Corporate tax losses can be carried forward for a maximum period of five years following the year in which the losses were incurred. However, losses cannot be carried back to offset profits from previous periods. The tax authorities can inspect tax returns and the related accounting records for a retrospective maximum period of five years. In Turkey, there is no procedure for a final and definite agreement on tax assessments. As of 31 December 2017, the tax rates applied in foreign countries where the Group operates is as follow: Country Germany Tax Rate %15 Deferred tax The Group calculates and accounts for deferred income taxes for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in these financial statements in accordance with “Turkish Accounting Standard for Income Taxes” (“TAS 12”). Deferred tax asset is calculated on all temporary differences other than general provisions to the extent that is probable that taxable profit will be available and deferred tax liability is calculated for all temporary differences. Deferred tax asset and liabilities are shown in the accompanying financial statements on a net basis. The tax rate used in the calculation of deferred tax assets and liabilities is 22% over the temporary timing differences expected to reverse in 2018, 2019 and 2020, and 20% over the temporary timing differences expected to reverse after 2021 (2016: 20%). 18. Explanations on additional disclosures on borrowings Borrowings other than funds collected are measured at amortized cost using the internal rate of return method after the initial recognition. The Group does not apply hedging techniques on related borrowings. The Group has not issued convertible bonds. 19. Explanations on share certificates issued There is no significant amount of transaction costs on Bank about share certificates. 20. Explanations on bill guarantees and acceptances Bill guarantees and acceptances are realized simultaneously with the payment dates of the customers and they are presented as commitments in off-balance sheet accounts. 21. Explanations on government grants There are no government grants received by the Group.
274. 272 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 22. Explanations on segment reporting The Group operates in three main segments; Retail and Enterprise Banking; Commercial Banking; Corporate and International Banking, Banking. Each segment operates with unique products, and the operational results are followed based on these segments. Segment reporting is disclosed in Section Four, Note X. 23. Explanations on other matters There are no other matters to be disclosed by the Group. SECTION FOUR INFORMATION ON THE BANK’S FINANCIAL STRUCTURE AND RISK MANAGEMENT 1. Explanations on shareholders’ equity Shareholders’ equity amount and capital adequacy standard ratio are calculated within the framework of “Regulation Regarding Equities of Banks” and “Regulation Regarding Measurement and Evaluation of Banks’ Capital Adequacy”. As of 31 December 2017, the shareholders’ equity of the Group is TL 5,825,898 (31 December 2016: TL 5,729,368) and the capital adequacy standard ratio is 17.32% (31 December 2016: 18.19%).
275. KUVEYT T ÜRK 2017 ANNUAL REPORT 273 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) a.Components of consolidated shareholders’ equity: Current Period Amount Amount as per the regulation before 1/1/2014 (*) COMMON EQUITY TIER I CAPITAL Paid-in Capital to be Entitled for Compensation after All Creditors Share Premium 3,100,000 24,208 Reserves 927,236 Other Comprehensive Income according to TAS Profit 12,609 637,291 Current Period Profit 628,855 Prior Period Profit 8,436 Bonus Shares from Associates, Affiliates and Joint-Ventures not Accounted in Current Period’s Profit Minority Interests 23,054 Common Equity Tier I Capital Before Deductions 4,724,398 Deductions From Common Equity Tier I Capital Valuation adjustments calculated as per the article 9. (i) of the Regulation on Bank Capital Current and Prior Periods’ Losses not Covered by Reserves, and Losses Accounted under Equity according to TAS (-) Leasehold Improvements on Operational Leases (-) 110,905 47,518 Goodwill Netted with Deferred Tax Liabilities Other Intangible Assets Netted with Deferred Tax Liabilities Except Mortgage Servicing Rights 135,173 168,966 Net Deferred Tax Asset/Liability (-) - - Differences arise when assets and liabilities not held at fair value, are subjected to cash flow hedge accounting - Total credit losses thatexceed total expected loss calculated according to the Regulation on Calculation of Credit Risk by Internal Ratings Based Approach - Securitization gains - Unrealized gains and losses from changes in bank’s liabilities’ fair values due to changes in creditworthiness - Net amount of defined benefit plans - Direct and Indirect Investments of the Bank on its own Tier I Capital (-) 2,678 Shares Obtained against Article 56, Paragraph 4 of the Banking Law (-) - 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 (-) - Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or more 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 Total Common Equity Tier I Capital 296,274 4,428,124
276. 274 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) ADDITIONAL TIER I CAPITAL Preferred Stock not Included in Common Equity Tier I Capital and the Related Share Premiums Debt Instruments and the Related Issuance Premiums Defined by the BRSA Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Covered by Temporary Article 4) Additional Tier I Capital before Deductions Deductions from Additional Tier I Capital Direct and Indirect Investments of the Bank on its own Additional Tier I Capital (-) Investments in Equity Instruments Issued by Banks or Financial Institutions Invested in Bank’s Additional Tier I Capital and Having Conditions Stated in the Article 7 of the Regulation 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 (-) Items to be Deducted from Tier I Capital during the Transition Period 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 (-) 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 (-) Deduction from Additional Tier I Capital when there is not enough Tier II Capital (-) Total Deductions from Additional Tier I Capital Total Additional Tier I Capital Total Tier I Capital (Tier I Capital= Common Equity Tier I Capital + Additional Tier I Capital) TIER II CAPITAL Debt Instruments and the Related Issuance Premiums Defined by the BRSA Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Covered by Temporary Article 4) Provisions (Amounts explained in the first paragraph of the article 8 of the Regulation on Bank Capital) Total Deductions from Tier II Capital Deductions from Tier II Capital Direct and Indirect Investments of the Bank on its own Tier II Capital (-) Investments in Equity Instruments Issued by Banks and Financial Institutions Invested in Bank’s Tier II Capital and Having Conditions Stated in the Article 8 of the Regulation 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 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 (-) Other items to be defined by the BRSA (-) Total Deductions from Tier II Capital Total Tier II Capital Total Equity (Total Tier I and Tier II Capital) - - - 33,792 - 33,792 4,394,331 - 1,322,272 280,412 1,602,684 - - 1,602,684 5,997,015
277. KUVEYT T ÜRK 2017 ANNUAL REPORT KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ 275 NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Total Tier I Capital and Tier II Capital ( Total Equity) 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 (-) Other items to be Defined by the BRSA (-) 171,117 Items to be Deducted from the Sum of Tier I and Tier II Capital (Capital) During the Transition Period 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 Tier I 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 Tier I 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 (-) CAPITAL Total Capital ( Total of Tier I Capital and Tier II Capital ) 5,825,898 Total Risk Weighted Assets 33,628,878 CAPITAL ADEQUACY RATIOS CET1 Capital Ratio (%) 13.17 Tier I Capital Ratio (%) 13.07 Capital Adequacy Ratio (%) 17.32 BUFFERS Bank-specific total CET1 Capital Ratio 1.25 Capital Conservation Buffer Ratio (%) 1.25 Bank-specific Counter-Cyclical Capital Buffer Ratio (%) Additional CET1 Capital Over Total Risk Weighted Assets Ratio Calculated According to the Article 4 of Capital Conservation and Counter-Cyclical Capital Buffers Regulation 7.07 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 Issued Share Capital Remaining Mortgage Servicing Rights Net Deferred Tax Assets arising from Temporary Differences Limits for Provisions Used in Tier II Capital Calculation General Loan Provisions for Exposures in Standard Approach (before limit of one hundred and twenty five per ten thousand) 280,412 General Loan Provisions for Exposures in Standard Approach Limited by 1.25% ofRisk Weighted Assets 280,412 Total Loan Provision that Exceeds Total Expected Loss Calculated According to Communiqué on Calculation of Credit Risk by Internal Ratings Based Approach Total Loan Provision that Exceeds Total Expected Loss Calculated According to Communiqué on Calculation of Credit Risk by Internal Ratings Based Approach, Limited by 0.6% Risk Weighted Assets Debt Instruments Covered by Temporary Article 4 (effective between 1.1.2018-1.1.2022) Upper Limit for Additional Tier I Capital Items subject to Temporary Article 4 Amount of Additional Tier I Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit Upper Limit for Additional Tier II Capital Items subject to Temporary Article 4 Amount of Additional Tier II Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit -
278. 276 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Reconciliation of consolidated capital items to balance sheet : Current Period Carrying value Amount of correction Value of the capital report Explanation of differences 3,097,322 2,678 3,100,000 Adjustment related to its own draw backed share of the Bank Capital Reserves (74,088) - (74,088) Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) Other Comprehensive Income According to TAS (98,296) - (98,296) Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) Securities Value Increase Fund (10,583) - (10,583) Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) - - - Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) Paid-in Capital Revaluation Surplus on Tangible Assets Revaluation Surplus on Intangible Assets - - - Revaluation Surplus on Investment Property - - - (60,766) - (60,766) - - - Hedging Reserves (Effective Portion) Revaluation Surplus on Assets Held for Sale and Assets of Discontinued Operations Other Capital Reserves Bonus Shares of Associates, Affiliates and Joint-Ventures (26,947) - (26,947) Items not included in the calculation as per Regulation’s Article 9-1-f Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) and inflation adjustments included in Paid-in Capital according to Regulation’s Temporary Article 1 - - - Share Premium 24,208 - 24,208 Profit Reserves 927,236 - 927,236 Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) Profit or Loss 637,291 - 637,291 Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) 8,436 - 8,436 628,855 - 628,855 Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) 23,054 - 23,054 Adjustement effect according to Regulation on Equities of the Banks of the 4th paragraph of Article 10 (*) 246,077 296,274 Deductions from Tier 1 Capital as per the Regulation 4,364,738 4,428,124 Prior Periods Profit/Loss Current Period Net Profit/Loss Minority Shareholders Deductions from Common Equity Tier I Capital (-) Common Equity Tier I Capital Current Period Subordinated Debts Deductions from Tier I Capital (-) Carrying value Amount of correction Value of the capital report - Tier I Capital 4,394,331 Subordinated Debts 1,322,272 General Provisions Deductions from Tier II Capital (-) Tier II Capital Deductions from Total Capital (-) Total Explanation of differences - 280,412 General Loan Provision added to Tier II Capital as per the Regulation’s Article 8 - Deductions from Tier II Capital as per the Regulation 1,602,684 171,117 5,825,898 Deductions from Capital as per the Regulation
279. KUVEYT T ÜRK 2017 ANNUAL REPORT 277 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Prior Period COMMON EQUITY TIER I CAPITAL Paid-in Capital to be Entitled for Compensation after All Creditors Share Premium Reserves Other Comprehensive Income according to TAS Profit Current Period Profit Prior Period Profit Bonus Shares from Associates, Affiliates and Joint-Ventures not Accounted in Current Period’s Profit Minority Shares Common Equity Tier I Capital Before Deductions Deductions From Common Equity Tier I Capital Valuation adjustments calculated as per the article 9. (i) of the Regulation on Bank Capital Current and Prior Periods’ Losses not Covered by Reserves, and Losses Accounted under Equity according to TAS (-) Leasehold Improvements on Operational Leases (-) Goodwill Netted with Deferred Tax Liabilities Other Intangible Assets Netted with Deferred Tax Liabilities Except Mortgage Servicing Rights Net Deferred Tax Asset/Liability (-) Differences arise when assets and liabilities not held at fair value, are subjected to cash flow hedge accounting Total credit losses thatexceed total expected loss calculated according to the Regulation on Calculation of Credit Risk by Internal Ratings Based Approach Securitization gains Unrealized gains and losses from changes in bank’s liabilities’ fair values due to changes in creditworthiness Net amount of defined benefit plans Direct and Indirect Investments of the Bank on its own Tier I Capital (-) Shares Obtained against Article 56, Paragraph 4 of the Banking Law (-) 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 (-) Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or more 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 Total Common Equity Tier I Capital Amount Amount as per the regulation before 1/1/2014 (*) 2,790,000 24,208 741,764 550,402 571,341 (20,939) 19,993 4,126,367 119,869 47,732 84,280 2,678 - - - 254,559 3,871,808 140,466 -
280. 278 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) ADDITIONAL TIER I CAPITAL Preferred Stock not Included in Common Equity Tier I Capital and the Related Share Premiums Debt Instruments and the Related Issuance Premiums Defined by the BRSA Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Covered by Temporary Article 4) Additional Tier I Capital before Deductions Deductions from Additional Tier I Capital Direct and Indirect Investments of the Bank on its own Additional Tier I Capital (-) Investments in Equity Instruments Issued by Banks or Financial Institutions Invested in Bank’s Additional Tier I Capital and Having Conditions Stated in the Article 7 of the Regulation 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 (-) Items to be Deducted from Tier I Capital during the Transition Period 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 (-) 56,186 140,466 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 (-) Deduction from Additional Tier I Capital when there is not enough Tier II Capital (-) Total Deductions from Additional Tier I Capital 56,186 Total Additional Tier I Capital Total Tier I Capital (Tier I Capital= Common Equity Tier I Capital + Additional Tier I Capital) 3,815,622 Debt Instruments and the Related Issuance Premiums Defined by the BRSA Debt Instruments and the Related Issuance Premiums Defined by the BRSA (Covered by Temporary Article 4) 1,794,270 Provisions (Amounts explained in the first paragraph of the article 8 of the Regulation on Bank Capital) Total Deductions from Tier II Capital 220,123 Deductions from Tier II Capital 2,014,393 Direct and Indirect Investments of the Bank on its own Tier II Capital (-) Investments in Equity Instruments Issued by Banks and Financial Institutions Invested in Bank’s Tier II Capital and Having Conditions Stated in the Article 8 of the Regulation 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 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 (-) Other items to be defined by the BRSA (-) Total Deductions from Tier II Capital Total Tier II Capital Debt Instruments and the Related Issuance Premiums Defined by the BRSA 2,014,393 Total Equity (Total Tier I and Tier II Capital) 5,830,015
281. KUVEYT T ÜRK 2017 ANNUAL REPORT 279 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Total Tier I Capital and Tier II Capital ( Total Equity) 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 (-) Other items to be Defined by the BRSA (-) 5,208 95,439 Items to be Deducted from the Sum of Tier I and Tier II Capital (Capital) During the Transition Period 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 Tier I 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 Tier I 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 (-) - CAPITAL Total Capital ( Total of Tier I Capital and Tier II Capital ) 5,729,368 Total Risk Weighted Assets 31,499,103 CAPITAL ADEQUACY RATIOS CET1 Capital Ratio (%) 12.29 Tier I Capital Ratio (%) 12.11 Capital Adequacy Ratio (%) 18.19 BUFFERS Bank-specific total CET1 Capital Ratio 0.63 Capital Conservation Buffer Ratio (%) 0.63 Bank-specific Counter-Cyclical Capital Buffer Ratio (%) Additional CET1 Capital Over Total Risk Weighted Assets Ratio Calculated According to the Article 4 of Capital Conservation and Counter-Cyclical Capital Buffers Regulation 7.79 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 Issued Share Capital - Remaining Mortgage Servicing Rights - Net Deferred Tax Assets arising from Temporary Differences - Limits for Provisions Used in Tier II Capital Calculation General Loan Provisions for Exposures in Standard Approach (before limit of one hundred and twenty five per ten thousand) 220,123 General Loan Provisions for Exposures in Standard Approach Limited by 1.25% ofRisk Weighted Assets 220,123 Total Loan Provision that Exceeds Total Expected Loss Calculated According to Communiqué on Calculation of Credit Risk by Internal Ratings Based Approach - Total Loan Provision that Exceeds Total Expected Loss Calculated According to Communiqué on Calculation of Credit Risk by Internal Ratings Based Approach, Limited by 0.6% Risk Weighted Assets - Debt Instruments Covered by Temporary Article 4 (effective between 1.1.2018-1.1.2022) Upper Limit for Additional Tier I Capital Items subject to Temporary Article 4 - Amount of Additional Tier I Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit - Upper Limit for Additional Tier II Capital Items subject to Temporary Article 4 - Amount of Additional Tier II Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit -
282. 280 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.2. Approaches for assessment of adequacy of internal capital requirements for current and future activities Internal evaluation process is established for continuously evaluating and maintaining the types, components and distribution of the adequate level of capital in order to provide for various risks exposed to or to be exposed to. The final purpose of the evaluation process of the internal capital requirement, is to define and evaluate all the risks included or not in the calculations of the legal capital requirements, within the frame of the activities of the bank, and to provide the availability of adequate capital in order to cover for these risks and the application of the risk management techniques. The results obtained in this evaluation process by taking into consideration, the Bank’s growth strategy, assets-liabilities structure, funding sources, liquidity position, foreign currency position, the effects of the price and market fluctuations on the capital, which are among the variables of the economy, aim to provide the continuity of the mentioned capital adequacy level at the determined level in compliance with the Bank’s risk profile and risk appetite. Within this scope, capital structure is reviewed as based on the frame of the activities and risks exposed to, and the internal capital requirement, probable to occur within the direction of targets and strategies of the Bank is evaluated. This evaluation includes interest rate risk, concentration risk, liquidation risk, reputation risk, residual risk, country risk and strategic risk arising of the banking books as well as market, credit and operational risks. 2. Explanations on Consolidated Credit Risk Credit risk means the risks and damages to arise as a result of partial or complete non-fulfillment of the obligations timely by non-compliance of the counter party with the requirements of the agreement concluded with the Group. With regards to the credit risk, the debtor or the group of debtors is subjected to risk limitation. The upper limit of the rate of the credits granted to the companies in one sector to the total credits is determined annually by the Board of Directors and is updated as required. The credit risk which the Group is subjected to outside of Turkey is followed up by the Board of Directors within the frame of the determined limits on the basis of countries and regions. Within this scope, the total risk which the Group had taken in the foreign country or region, the total of the credit risk taken by the banks residing abroad and/or their branches in Turkey, the total risks of the credits generated to the people residing abroad or with foreign nationality, the risk total taken over the corporate customers and/or banks to which the partners residing in Turkey but of which the principal shareholder or shareholders reside in another country, had given guarantee and in required cases, the risk total taken by the Group in Turkey should be followed up. The risks and limits arising of the treasury transactions and customer based commercial transactions are followed up daily. Moreover, the control of the limits allocated as based on the degrees of the correspondent banks and the maximum risk that the Bank can take within its equities are also performed daily. The risk limits relevant to the transactions performed daily are determined and the risk intensity relevant to off the balance sheet transactions are being followed up. As provided for in the Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans, the credit worthiness of the debtors of the loans and the other receivables are followed up at regular intervals, in case of early determination of a probable repayment problem, the credit limits are redefined and additional guarantees are taken and this way the prevention of the bank’s loss is aimed. The account statement documents for the loan generations are taken as defined in the legislation. The guarantees are taken within the frame of the relevant legislation, by consideration of the quality of the credit and the financial structure of the company and as based on the allocation decision taken by the credit committee. The loans which do not meet the delay term required for classification as Third Group loans defined in the Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans, are qualified as “past due” loans; all the loans and receivables classified in the third, fourth and fifth groups indicated in the same Regulation are accepted to be “impaired loans”. The positions in the form of futures, options agreements and similar agreements are not held.
283. KUVEYT T ÜRK 2017 ANNUAL REPORT 281 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Indemnified non-cash loans are subject to the same risk weight with the overdue loans in compliance with the Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans. The re-scheduled and re-structured loans are followed up in compliance with the methods determined in the relevant legislation. Foreign trade financing and inter-banks loan transactions are performed by a wide network of correspondents and the country risks, limits, correspondent risks and limits are regularly evaluated within this scope. There is no important credit risk concentration when evaluated together with the financial activities of the other financial institutes. The Bank’s top 100 and 200 cash loan customers represent 19% and 26% of the total cash loan portfolio, respectively. The ,Bank’s top 100 and 200 non-cash loan customers represent 42% and 50% of the total non-cash loan portfolio, respectively. The Bank’s top 100 and 200 cash and non-cash loan customers represent 20% and 26% of the total cash and noncash loan portfolio, respectively. The general provision for credit risk amounts to TL 407,954 (31 December 2016 - 318,825 TL). Exposure Categories (Current Period) Conditional and unconditional exposures to central governments or central banks Conditional and unconditional exposures to regional governments or local authorities Conditional and unconditional exposures to administrative bodies and noncommercial undertakings Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporates Conditional and unconditional retail exposures Conditional and unconditional exposures secured by real estate property Past due items Items in regulatory high-risk categories Exposures in the form of bonds secured by mortgages Securitization positions Short term exposures to banks, brokerage houses and corporates Exposures in the form of collective investment undertakings Equity share investments Other items Total Period end Risk Amount (*) Average Risk Amount (**) 11,834,234 10,304,922 - - 6,104,252 10,892,833 7,876,889 14,381,976 18,320 7,299 163,734 3,666,991 54,946,528 6,356,336 10,166,377 6,909,911 13,373,928 64,302 21,978 103,723 3,489,748 50,791,223 Includes total risk amount before the effect of credit risk mitigation but after credit conversions. Average risk amounts are the arithmetical average of the amounts in monthly reports prepared starting from the date of publication of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks. (*) (**)
284. 282 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Exposure Categories (Prior Period) Conditional and unconditional exposures to central governments or central banks Conditional and unconditional exposures to regional governments or local authorities Conditional and unconditional exposures to administrative bodies and noncommercial undertakings Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporates Conditional and unconditional retail exposures Conditional and unconditional exposures secured by real estate property Past due items Items in regulatory high-risk categories Exposures in the form of bonds secured by mortgages Securitization positions Short term exposures to banks, brokerage houses and corporates Exposures in the form of collective investment undertakings Stock Certificate Investments Other items Total Period end Risk Amount (*) Average Risk Amount (**) 10,172,133 8,710,127 - - 7,604,636 9,137,686 5,800,248 12,056,561 105,115 56,985 83,760 3,931,025 48,948,149 5,315,064 11,421,828 4,177,551 12,512,656 67,137 69,349 50,501 3,683,194 46,007,407 Includes total risk amount before the effect of credit risk mitigation but after credit conversions. Average risk amounts are the arithmetical average of the amounts in monthly reports according to the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Bank (*) (**)
285. KUVEYT T ÜRK 2017 ANNUAL REPORT 283 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2.1. Profile of significant exposures in major regions: Current Period (*) Domestic Conditional and unconditional exposures to central governments or central banks Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporates 11,834,234 3,881,462 Conditional and unconditional retail exposures Conditional and unconditional exposures secured by real estate property 10,123,609 7,848,907 Past due items Items in regulatory high-risk categories Exposures in the form of collective investment undertakings Other Total 14,287,876 18,208 7,299 145,383 - 48,146,978 European Union (EU) Countries - 627,212 718,969 2,420 12,431 109 - - - 1,361,141 OECD Countries(**) - 541,635 840 344 976 - - - - 543,795 Off-Shore Banking Regions - 275,384 - 120 831 - - 3,824 - 280,159 USA, Canada - 330,188 - 92 1,162 1 - - 331,443 Other Countries - 448,371 49,415 25,006 78,700 2 - 14,527 - 616,021 Associates, Subsidiaries and Joint –Ventures - - - - - - - - 377,647 377,647 Unallocated Assets/Liabilities(***) Total (*) - - - - - - - - 3,289,344 3,289,344 11,834,234 6,104,252 10,892,833 7,876,889 14,381,976 18,320 7,299 163,734 3,666,991 54,946,528 Exposures in the form of collective investment undertakings Other Total 69,613 - 41,634,615 Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. Includes OECD countries other than EU countries, USA and Canada. Includes assets and liability items that can not be allocated on a consistent basis (**) (***) Conditional and unconditional exposures to central governments or central banks Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporates Conditional and unconditional retail exposures Conditional and unconditional exposures secured by real estate property Past due items Items in regulatory high-risk categories 10,172,133 4,546,405 9,004,866 5,789,632 11,889,941 105,040 56,985 Countries - 1,209,259 1,895 532 19,473 - - - - 1,231,159 OECD Countries(**) - 433,750 1,174 16 5,143 - - - - 440,083 Off-Shore Banking Regions - 94,014 21,209 1,691 75,343 - - 361 - 192,618 USA, Canada - 395,943 174 21 1,628 - - - - 397,766 Other Countries - 925,265 108,368 8,356 65,033 75 - 13,786 - 1,120,883 - - - - - - - - 349,513 349,513 - - - - - - - - 7,604,636 9,137,686 5,800,248 12,056,561 105,115 56,985 83,760 3,931,025 48,498,149 Prior Period (*) Domestic European Union (EU) Associates, Subsidiaries and Joint –Ventures Unallocated Assets/Liabilities(***) 3,581,512 Total (*) 3,581,512 10,172,133 Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. Includes OECD countries other than EU countries, USA and Canada. Includes assets and liability items that can not be allocated on a consistent basis. (**) (***)
286. - - 11 ,834,234 - Transportation and Telecom. - Health and Social Services Others - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from administrative units and noncommercial enterprises - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from multilateral development banks Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. 11,834,234 - Educational Services Total - Professional Services (*) - - Real Estate and Rental Services 11,834,234 - Accommodation and Dining Financial Institutions - Wholesale and Retail Trade Services - - Electricity, Gas and Water Construction - - - - - - Manufacturing - Mining and Quarrying - Fishery - - - Conditional and unconditional receivables from regional or local governments Production - - Farming and Stockbreeding Forestry - Current Period(*) Agriculture Conditional and unconditional receivables from central governments or central banks 2.2. Risk profile by sectors or counterparties - - - 6,104,252 - - - - - - - 6,104,252 - - - 6,104,252 - - - - - - - - - Conditional and unconditional receivables from banks and brokerage houses - - - - - - - - - - - - - - - Conditional and unconditional receivables from international organizations 10,892,833 5,931,976 196,350 20,784 311 95,046 1,032 687,406 65,364 1,136,399 2,202,692 1,369,793 354,018 752,979 254,543 1,361,540 24 10,457 16,351 26,832 Conditional and unconditional receivables from Corporates 7,876,889 4,592,137 216,892 22,293 150 32,815 1,331 214,529 54,671 863,704 1,406,385 893,329 65,887 682,853 169,297 918,037 2,877 32,412 31,712 67,001 Conditional and unconditional retail receivables 14,381,976 10,242,402 221,971 30,285 624 62,258 1,283 182,450 93,219 1,318,295 1,910,385 879,668 53,158 1,036,530 166,850 1,256,538 484 47,808 44,691 92,983 Conditional and unconditional receivables secured by Mortgages (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 18,320 3542 302 16 - 1 - 626 189 4,253 5,387 5,128 1 3,444 629 4,074 - 123 66 189 Past due receivables 7,299 966 28 52 - 79 - 89 5 1,463 1,716 556 - 3,807 125 3,932 - 129 - 129 Receivables defined in high risk category by BRSA - - - - - - - - - - - - - - - - - - - - Securities collateralized by mortgages NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ - - - - - - - - - - - - - - - - - - - - Securitization positions - - - - - - - - - - - - - - - - - - - - Short-term receivables from banks, brokerage houses and corporates 163,734 - - - - - 163,734 - - - 163,734 - - - - - - - - - Investments similar to collective investment funds 3,666,991 3,666,991 - - - - - - - - - - - - - - - - - - Other receivables TL 33,604,797 21,556,656 518,490 69,654 1,072 121,798 3,502,934 612,783 145,646 2,531,426 7,503,803 2,375,625 282,186 1,404,541 345,072 2,031,799 3,347 73,367 60,200 136,914 FC 21,341,731 2,881,358 117,053 3,776 13 68,401 14,602,932 472,317 67,802 792,688 16,124,982 772,849 190,878 1,075,072 246,372 1,512,322 38 17,562 32,620 50,220 Total 54,946,528 24,438,014 635,543 73,430 1,085 190,199 18,105,866 1,085,100 213,448 3,324,114 23,628,785 3,148,474 473,064 2,479,613 591,444 3,544,121 3,385 90,929 92,820 187,134 284 SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES
287. - - 10 ,172,133 - 10,172,133 - - Health and Social Services Others (*) - Educational Services - - - - - - - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from administrative units and noncommercial enterprises - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from multilateral development bank Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. 10,172,133 - Professional Services Total - Real Estate and Rental Services Financial Institutions - - Transportation and Telecom. - - Accommodation and Dining - - - Wholesale and Retail Trade Services - - Electricity, Gas and Water Construction - - - - - - Manufacturing - Mining and Quarrying - Fishery - - - Conditional and unconditional receivables from regional or local governments Production - - Farming and Stockbreeding Forestry - Prior Period(*) Agriculture Conditional and unconditional receivables from central governments or central banks - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from international organizations 7,604,636 - - - - - 7,604,636 - - - 7,604,636 - - - - - - - - - Conditional and unconditional receivables from banks and brokerage houses 9,137,686 813,615 168,279 5,800,248 1,376,422 233,691 19,951 442 32 45,431 46,623 4,446 286,889 52,379 1,334,400 1,978,821 979,590 83,596 1,020,827 269,497 1,373,920 591 38,621 52,283 91,495 Conditional and unconditional retail receivables 289,348 24,139 698,823 51,603 1,161,617 2,439,272 2,079,688 1,373,319 1,881,530 476,706 3,731,555 24 11,039 62,493 73,556 Conditional and unconditional receivables from Corporates 12,056,561 3,992,473 239,023 128,116 258 273,481 24,213 319,276 217,081 2,127,021 3,328,469 2,442,200 110,483 1,720,147 334,786 2,165,416 10,922 66,207 50,874 128,003 Conditional and unconditional receivables secured by Mortgages (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 105,115 22,632 3,046 32 - 1,996 - 5,006 2,899 23,811 36,790 20,356 440 21,366 2,472 24,278 42 592 425 1,059 Past due receivables 56,985 1,231 2,309 32 - - - 803 2,302 20,293 25,739 15,440 693 6,802 1,582 9,077 2,831 2,366 301 5,498 Receivables defined in high risk category by BRSA - - - - - - - - - - - - - - - - - - - - Securities collateralized by mortgages NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ - - - - - - - - - - - - - - - - - - - - Securitization positions - - - - - - - - - - - - - - - - - - - - Short-term receivables from banks, brokerage houses and corporates 83,760 0 - - - - 83,760 - - - 83,760 - - - - - - - - - Investments similar to collective investment funds 3,931,025 3,931,025 - - - - - - - - - - - - - - - - - - Other receivables TL 20,608,908 7,140,293 444,908 129,871 649 135,218 3,782,645 479,165 170,604 2,489,646 7,632,706 3,198,214 179,008 1,779,467 487,378 2,445,853 13,160 78,080 100,602 191,842 FC 28,339,241 2,997,105 201,440 63,691 83 476,230 14,130,682 831,632 155,660 2,177,496 18,036,914 2,339,060 1,389,523 2,871,205 597,665 4,858,393 1,250 40,745 65,774 107,769 Total 48,948,149 10,137,398 646,348 193,562 732 611,448 17,913,327 1,310,797 326,264 4,667,142 25,669,620 5,537,274 1,568,531 4,650,672 1,085,043 7,304,246 14,410 118,825 166,376 299,611 KUVEYT TÜRK 2017 ANNUAL REPORT 285
288. 286 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2.3. Analysis of maturity-bearing exposures according to remaining maturities: Exposure Categories (*)– Current Period Conditional and unconditional exposures to central governments or central banks Conditional and unconditional exposures to regional governments or local authorities Conditional and unconditional exposures to administrative bodies and non-commercial undertakings Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporates Conditional and unconditional retail exposures Conditional and unconditional exposures secured by real estate property Past due exposures Items in regulatory high-risk categories Items in regulatory high-risk categories Securitization positions Short term exposures to banks, brokerage houses and corporates Exposures in the form of collective investment undertakings Other items Total (*) 1 Month Term to Maturity 1–3 3–6 Months Months 6–12 Months Over 1 Year 733,495 - - - 3,976,618 - - - - - - - - - - - - - - - - - - - - 406,051 462,087 449,180 154,059 1,188,461 2,715,591 1,539,990 207,722 204,543 366,131 381,882 910,098 690,451 6,660,767 4,879,665 2,344,188 125 139,328 2,418 441,883 40 957,315 460 10,499,262 4,256 - - - - - - - - - - 163,734 7,903,174 1,016,098 1,639,116 2,712,383 27,209,029 Includes risk amounts before the effect of credit risk mitigation but after the credit conversions.
289. KUVEYT T ÜRK 2017 ANNUAL REPORT 287 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Exposure Categories (*) Prior Period Conditional and unconditional exposures to central governments or central banks Conditional and unconditional exposures to regional governments or local authorities Conditional and unconditional exposures to administrative bodies and non-commercial undertakings Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporates Conditional and unconditional retail exposures Conditional and unconditional exposures secured by real estate property Past due exposures Items in regulatory high-risk categories Items in regulatory high-risk categories Securitization positions Short term exposures to banks, brokerage houses and corporates Exposures in the form of collective investment undertakings Other items Total (*) 1 Month Term to Maturity 1–3 3–6 Months Months 6–12 Months Over 1 Year 1,181,398 - - - 2,843,165 - - - - - - - - - - - - - - - - - - - - 360,094 749,327 478,971 151,718 1,166,445 1,925,614 566,460 245,383 194,535 449,780 444,758 793,041 934,129 5,697,019 3,499,088 330,512 26,038 - 131,511 2,830 - 295,867 4,630 - 1,042,870 6,552 - 10,255,801 - - - - - 4,073 4,394,189 6,282 1,329,868 19,101 1,693,107 6,027 2,934,337 48,277 23,526,730 16,935 - Includes risk amounts before the effect of credit risk mitigation but after the credit conversions 2.4. Exposure Categories In compliance with the 7th article of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks, determination of the risk weights is performed based on the credit ratings provided by the rating companies. The ratings of the credit rating institution are used for Banks and Corporate Receivables class, being limited to the receivables, in which the counter party resides abroad. The banks and institutions residing in the country are evaluated without rating.
290. 288 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) “Credit Quality Levels” corresponding to the ratings of the credit rating institution are presented in the following table. Credit Quality Grade 1 2 3 4 5 6 Unrated Fitch Risk Rating AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C D Unrated Exposures to Central Governments or Central Banks Exposure Categories Exposures from Banks and Brokerage Houses Exposures with Exposures with Remaining Maturities Remaining Maturities Less Than 3 Months More Than 3 Months Exposures to Corporates %0 %20 %20 %20 %20 %20 %50 %50 %50 %20 %50 %100 %100 %50 %100 %100 %100 %50 %100 %150 %150 %150 %150 %150 %100 %20 (*) %50 (*) %100 (*) This is used under the condition of not being less than the implemented one in the centralized management of the Bank’s located country.
291. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Risk Classes Receivables from central governments and Central Banks Receivables from regional and local government Receivables from administrative bodies and non-commercial entities Receivables from multilateral development banks Receivables from international organizations Receivables from banks and brokerage houses Receivables from corporate Retail receivables Receivables secured by residential property Receivables secured by commercial property Non-performing receivables Receivables in high-risk categories Mortgage-backed securities Short term receivables to banks , brokerage houses and corporates Investments similar to collective investment funds Other receivables Equity share investments Total 2.5.1. Credit risk exposed and credit risk mitigation effects: 2.5. Credit risk using the standard approach: (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Receivable before CCF Receivable post-CCF and and CRM CRM On-balance Off-balance On-balance Off-balance sheet sheet sheet sheet amount amount amount amount 11,100,739 11,100,739 5,770,632 1,048,111 5,770,632 213,883 7,958,019 5,969,775 7,958,019 2,929,027 5,962,561 5,825,652 5,962,561 1,908,081 6,150,505 669,805 6,150,505 285,231 7,383,780 1,175,277 7,383,780 560,827 18,320 18,320 7,299 7,299 163,734 163,734 3,666,990 3,666,990 48,182,579 14,688,620 48,182,579 5,897,049 NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ RWA 1,042,054 3,009,380 10,702,505 5,792,965 2,229,734 5,007,288 15,775 10,949 56,256 1,462,642 29,329,548 RWA density 9 50 98 74 35 63 86 150 34 40 639 RWA and RWA density KUVEYT TÜRK 2017 ANNUAL REPORT 289
292. 14 15 16 17 18 3 4 5 6 7 8 9 10 11 12 13 1 2 Risk Classes / Risk Weights * Receivables from central governments and Central Banks Receivables from regional and local government Receivables from administrative bodies and non-commercial entities Receivables from multilateral development banks Receivables from international organizations Receivables from banks and brokerage houses Receivables from corporate Retail receivables Receivables secured by residential property Receivables secured by commercial property Non-performing receivables Receivables in high-risk categories Mortgage-backed securities Short term receivables to banks, brokerage houses and corporates Investments similar to collective investment funds Equity share investments Other receivables Total 2.5.2. Credit risk exposed and credit risk mitigation effects: 62,124 1,961,113 11,356,423 10,764 122,048 88,378 41,708 49,693 2 - 0% 9,020,593 - - - 10% - (TUTARLAR AKSI BELIRTILMEDIKÇE BIN TÜRK LIRASI (TL) OLARAK IFADE EDILMIŞTIR.) 28,978 304,042 1,868,146 1,256,299 78,117 79,514 54,506 66,690 - 20% - 44,344 11,712,825 3,918,663 5,668,548 5,086 - 5%0 2,076,184 - 31 ARALIK 2017 TARİHİ İTİBARIYLA KONSOLİDE FİNANSAL TABLOLARA İLİŞKİN AÇIKLAMA VE DİPNOTLAR 75% 798,789 10,686,881 2,159,676 13,232 - 100% 3,962 - 28,288 1,401,835 7,702,750 15,092,663 7,702,750 - KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ 7,299 7,299 - 150% - - - 200% - 6,339,522 6,339,522 - Others * - 163,734 3,666,990 54,079,628 5,984,515 10,887,046 7,870,642 6,435,736 7,944,607 18,320 7,299 - Total risk amount (post-CCF and CRM) 11,100,739 - 290 SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES
293. KUVEYT T ÜRK 2017 ANNUAL REPORT 291 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2.6. Risk amounts according to risk weights: Current Period Risk Weights 0% 10% 20% 35% 50% 75% 100% 150% 200% Deductions from Equity Exposures before Credit Risk Mitigation 11,054,594 - 1,589,319 6,435,736 11,797,208 7,870,642 15,324,830 7,299 - 171,117 Exposures after Credit Risk Mitigation 11,356,423 - 1,868,146 6,339,522 11,712,825 7,702,750 15,092,663 7,299 - 171,117 0% 10% 20% 35% 50% 75% 100% 150% 200% Deductions from Equity Exposures before Credit Risk Mitigation 4,598,836 - 1,880,300 5,415,558 16,892,523 5,798,200 12,889,292 57,217 - 100,647 Exposures after Credit Risk Mitigation 4,778,558 - 2,082,563 5,377,873 16,813,225 5,684,604 12,737,886 57,217 - 100,647 Prior Period Risk Weights 2.7. Information by major sectors and type of counterparties Impaired Loans; are the credits that either overdue more than 90 days as of the reporting date or are treated as impaired due to their creditworthiness. For such credits, “specific provisions” are allocated as per the Provisioning Regulation. Past Due Loans; are the credits that overdue up to 90 days but not impaired. For such credits, “general provisions” are allocated as per the Provisioning Regulation. Current Period Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accommodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services. Professional Services Educational Services Health and Social Services Others Total (*) Credits Impaired Credits 11,913 2,121 4,889 4,903 117,724 38,749 59,645 19,330 200,518 341,976 216,419 11,799 18,759 17,756 65,432 530 11,281 42,929 715,060 The general provision amount is presented for past due loans. Past due Credits 8,155 861 7,293 1 371,499 77,201 260,600 33,698 232,952 309,913 210,527 10,753 35,486 12,207 552 40,388 237,930 1,160,449 Provisions Value Adjustments (*) 48 21 27 5,795 1,279 3,871 645 5,518 6,795 4,483 671 559 259 54 769 4,162 22,318 Impaired Credits 11,293 1,997 4,393 4,903 102,452 37,324 45,799 19,329 189,524 329,029 206,034 11,546 17,368 17,756 65,276 402 10,647 35,470 667,768
294. 292 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Prior Period Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accommodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services. Professional Services Educational Services Health and Social Services Others Total (*) Credits Impaired Credits 12,911 2,096 5,496 5,319 151,649 40,872 107,475 3,302 207,297 304,037 225,312 11,949 43,191 7,244 1,106 15,235 72,720 748,614 Past due Credits 7,418 2,880 3,700 838 356,287 101,654 245,392 9,241 329,181 556,834 361,914 49,255 73,849 43 33,227 6,629 31,917 294,429 1,544,149 Provisions Value Adjustments(*) 149 59 74 16 7,237 1,958 5,067 212 6,821 11,171 7,209 1,015 1,505 1 643 133 665 5,685 31,063 Impaired Credits 6,356 1,371 2,538 2,447 118,278 36,822 79,288 2,168 171,501 241,443 181,142 6,748 37,382 5,248 1,042 9,881 48,941 586,519 The general provision amount is presented for past due loans. 2.8. Movements in value adjustments and provisions Current Period Specific Provisions General Provisions Opening Balance 586,519 318,825 Provision for Period 632,352 101,046 Provision Reversals(**) (89,750) (14,403) Other Adjustments(*) (461,353) - Closing Balance 667,768 407,954 Prior Period Specific Provisions General Provisions Opening Balance 330,407 334,118 Provision for Period 464,013 - Provision Reversals (57,039) (15,293) Other Adjustments(*) (150,862) - Closing Balance 586,519 318,825 (*) Represents written-off loans. Related amount includes provision reversals and forein exchange differences. (**)
295. KUVEYT T ÜRK 2017 ANNUAL REPORT 293 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2.9. Risk involved in counter-cyclical capital buffer calculation Country Turkey Bahrain Saudi Arabia Marshall Islands Albania Kuwait Uzbekistan Burundi United Arab Emirates Germany Other RWAs of Banking Book for Private Sector Lending 22,921,263 49,193 28,069 9,596 8,075 6,812 4,059 1,969 3,241 719,917 17,783 RWAs of Trading Book - Total 22,921,263 49,193 28,069 9,596 8,075 6,812 4,059 1,969 3,241 719,917 17,783 2.10. Information of Cash and Noncash Loans according to Bank Risk Rating System The bank calculates the probability of delinquency and internal rating notes for the portfolio of Corporate/Commercial/ SME loans based on statistical methods in Turkish Commercial Code. Ratings are shown the table below as of 31 December 2017. High Quality Medium Quality Average Below Average Unrated Cash Loans %54 %28 %9 %5 %4 Non-Cash Loans %69 %20 %6 %2 %3 Total %57 %26 %9 %4 %4 3. Explanations on consolidated currency risk Foreign currency risk represents the Group’s exposure to loss due to the changes in foreign currency exchange rates. All foreign currency assets, liabilities and foreign currency forward transactions are considered in calculation of capital to be employed for foreign currency risk according to Standard Method. The Bank monitors daily the designated limits set by the Board of Directors and additionally observes the possible value changes in foreign currency positions. The limits are determined and followed both for the net foreign currency position and for the cross exchange rate risk within the position. As a tool of foreign currency risk management, foreign currency forward transactions are used when necessary to mitigate the risk. As of 31 December 2017, the Group carries a net foreign currency short position of TL 542 (31 December 2016 – TL 4,261,855 long position) comprising of TL 154,675 off-balance sheet long position (31 December 2016 - TL 4,152,382 short position) and TL 154,133 off balance sheet long position (31 December 2016 – TL 109,473 long position).
296. 294 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The announced current foreign exchange buying rates of the Group as of 31 December 2017 and the previous five working days are as follows (full TL): USD EURO GBP CHF 100 JPY 25/12/2017 3.8091 4.5213 5.0956 3.8524 0.0336 26/12/2017 3.8051 4.5136 5.0849 3.8435 0.0336 27/12/2017 3.8205 4.5410 5.1208 3.8618 0.0337 28/12/2017 3.7987 4.5353 5.1067 3.8747 0.0337 29/12/2017 3.7779 4.5264 5.1019 3.8706 0.0336 Balance sheet evaluation rate 3.7779 4.5264 5.1019 3.8706 0.0336 The simple arithmetic averages of the major current foreign exchange buying rates of the Bank for the thirty days preceding the balance sheet date are as follows (full TL): USD EUR GBP CHF 100 JPY Monthly average FC purchase rate 3.8419 4.5501 5.1550 3.8911 0.0340
297. KUVEYT T ÜRK 2017 ANNUAL REPORT 295 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Currency risk of the Group: EURO 878,294 2,631,483 USD 4,939,786 482,842 Other FC 2,581,617 449,130 Total 8,399,697 3,563,455 - 53,935 - - 53,935 - 26,614 4,782,284 6,221 49,766 548,257 2,332,876 9,789,249 184 53 33,318 56,688 149 2,359,490 14,628,221 6,405 49,819 581,724 8,922,919 17,632,243 3,087,584 29,642,746 22,145 4,613,960 156,185 10,880 67,355 12,517,373 4,389,215 3,777,708 17,910 216,582 2,865,992 91,949 769,515 543 306,082 19,997,325 4,637,349 4,547,223 29,333 41,034 61,702 23,240 125,976 4,844,204 20,831,263 3,967,821 29,643,288 Net balance sheet position Net off-balance sheet position Financial derivative assets Financial derivative liabilities Non-cash loans (***) 4,078,715 (3,986,204) 665,383 4,505,708 1,549,915 (3,199,020) 3,230,809 5,406,552 2,175,697 2,616,933 (880,237) 764,145 1,222,468 458,323 404,125 (542) 154,675 7,294,403 7,139,728 4,570,973 Prior period Total assets Total liabilities Net balance sheet position Net off-balance sheet position Financial derivative assets Financial derivative liabilities Non-cash loans (***) 9,755,657 3,205,582 6,550,075 (6,447,687) 311,483 6,759,170 1,653,815 15,530,851 17,274,519 (1,743,668) 1,761,924 3,966,378 2,204,454 2,698,112 2,582,901 3,127,453 (544,552) 533,381 1,158,845 625,464 360,108 27,869,409 23,607,554 4,261,855 (4,152,382) 5,436,706 9,589,088 4,712,035 Current period Assets Cash (cash in vault, effectives, money in transit, cheques purchased) and balances with the Central Bank of the Republic of Turkey (****) Banks Financial assets at fair value through profit and loss Money market placements Available-for-sale financial assets (**) Loans and finance lease receivables (*) Subsidiaries, associates and joint ventures (**) Held-to-maturity investments Derivative financial assets for hedging purposes Tangible assets Total assets Liabilities Current account and funds collected from Banks via participation accounts Current and profit sharing accounts FC (****) Money market borrowings Funds provided from other financial institutions Marketable securities issued Miscellaneous payables Derivative financial liabilities for hedging purposes Other liabilities (*****) Total liabilities Includes foreign currency indexed loans amounting to TL 7,240,328 (31 December 2016 – TL 7,272,665) followed as TL on the balance sheet. Includes TL 714 (31 December 2016 – TL 714) of foreign currency denominated available for sale financial assets, which are followed in Turkish Lira as TL 2,048,243 on the balance sheet. (***) Does not have any effect to the net off-balance sheet position. (****) Precious metals are included in “Other FC” column. (*****) General provision for FC indexed loans amount of TL 33,718 included in Other Liabilites. General loan provisions for the Bank’s share and provisions for financial assets at fair value through profit and loss amount of TL . 76,209 and TL 380 respectively are not included in currency risk of the Bank. (*) (**)
298. 296 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Foreign currency amounts that are not included in the currency risk table due to the legislation related to calculation of foreign currency net position to equity standard ratio, are explained by their gradation in the financial statements below; • • • • • Derivative financial assets held for trading TL 12,531 (31 December 2016 – 87,833 TL) Prepaid expenses : TL 408 (31 December 2016 – 646 TL) Derivative financial liabilities held for trading: TL 59,251 (31 December 2016 – 79,147 TL) Marketable securities of FC revaluation reverse: TL12,609 (31 December 2016 – 30,347 TL) Derivative financial liabilities held for hedging : TL 70,795 (31 December 2016 - 137,829 TL) Receivables/Payables related to derivative financial instruments include foreign currency purchase/sale transactions that are amounting to; • • Forward foreign currency purchase transactions :TL 492,002 (31 December 2016 – TL 306,728) Forward foreign currency sale transactions: TL 456,030 (31 December 2016 – TL 403,440) Currency risk sensitivity: The Group is mainly exposed to foreign currency risk in EURO, USD and GOLD. The following table shows the bank’s sensitivity to 10% change both USD, EURO and GOLD exchange rate. % changes on foreign currency USD EUR GOLD %10 %10 %10 Effects on profit/loss Current period Prior period 3,179 1,826 9,251 10,239 (11,072) (11,023) Effects on equity Current period Prior period 4,439 (1,209) 9,251 10,239 (11,072) (11,023) 4. Explanations on position risk of equity securities in banking accounts 4.1. Relation of risks with gains accounted under equity and analyzing according to their aims including strategic reasons and the accounting policies applied and general information about valuation techniques with assumptions in this application, the elements that manipulate valuation and important changes: The Group’s non-quoted securities are accounted for fair value. When the fair value cannot be reliably measured, the cost method is used.
299. KUVEYT T ÜRK 2017 ANNUAL REPORT 297 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 4.2. Carrying value of share investments, for fair value and quoted securities, comparison with market value if market value is significantly different from fair value: 1 2 3 4 1 2 3 4 Current Period Equity Securities (shares) Securities Available-for-Sale (*) Quoted Securities Investment in Subsidiaries Quoted Securities Investments in Associates Quoted Securities Other Quoted Securities Carrying Value 48,497 23,680 19,405 - Comparison Fair Value - Market Value - Prior Period Equity Securities (shares) Securities Available-for-Sale (*) Quoted Securities Investment in Subsidiaries Quoted Securities Investments in Associates Quoted Securities Other Quoted Securities Carrying Value 53,485 23,680 15,301 - Comparison Fair Value - Market Value - 4.3. Realized gains/losses, revaluation surpluses and unrealized gains/losses on equity securities and results included in core and supplementary capitals: None noted. 5. Explanations on consolidated liquidity risk The liquidity risk of the Group is the risk of being unable to fulfill its payment obligations on time due to not having enough cash sources or cash inflows to finance its cash outflows fully and on time due to cash flow instabilities. It has been evaluated in two main categories: Funding Liquidity Risk : It is a kind of risk which does not meet the any unexpected loss and non defaulting debts and liabilities. Market Liquidity Risk : It is a kind of risk which consists of the position that cannot be sold without affecting market price due to insufficient market depth or market conditions’ deterioration or that cannot be completed with the position of market price for any reasons. 5.1. Information on risk capacity of the Group, 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 applications and responsibilities related to the liquidity risk has been determied according to the Treasury Liquidity and Market Management Policies and Practices approved by Board of Directors. The Bank’s liquidity and funding policy is to own sufficient liquidity reserve and funding opportunities to meet its liabilities even in cases of stress, resulting from the market conditions or other conditions specific to the Bank.
300. 298 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The Group, with its strong capital structure and its main shareholder is Kuwait Finance House’s support, spread the base of current and participation accounts and be stable, diversified sources of foreign borrowing has a high risk capacity. In addition, the Liquidity Coverage Ratio of the Group which meets its cash outflows with the high-quality liquid assets is evaluated as high. There are also ready-to-use limits for the CBRT and financial institutions. Senior management in the ALCO meetings are analyzed indicators of the liquidity situation and liquidity risk are weekly discussed. In addition, the Board of Directors are informed through the Audit Committee. For the management of liquidity risk, the Risk Management Department follows the funding and liquidity risks, market conditions, in the participating accounts, the distribution of different currencies, maturity, cost and expected future cash flow requirements (particularly with regard to large deposits). Reports on the liquidity gap analysis prepared weekly by Budget and Management Reporting and monitored by the Asset and Liability Committee. These units also estimate the possible liquidity needs of the Bank in case of urgent situations and generate action plans based on these estimates. Risk Management Department follows the limits on liquidity risk determined by the Board of Directors. Risk Management Department, in addition to these, is implementing monthly liquidity stress tests to measure the effects of negative scenarios on liquidity position of the Bank. The Treasury Group Managemant manages the liquidity risk and funding risk in order to prevent insufficiencies of funding relating to any time or any source and makes reports related with the liquidity position to Asset and Liability Committee regularly. External Reporting Directorate tracks the liquidity coverage ratio and the results are reported to the BRSA. 5.2. Information on the centralization degree of liquidity management and funding strategy and the functioning between the Bank and the Bank’s subsidiaries: The Group’s liquidity management is performed by the Asset and Liability Management. Depending on the Group’s consolidated subsidiaries are subject to liquidity risk is managed in-house, but the necessary communication and coordination within the Assistant General Manager in charge of Treasury and International Banking are provided. 5.3. Information on the Group’s funding strategy including the policies on funding types and variety of maturities: Group spread to the base of current and participation accounts and that a stable, long-term diversification and aims to be the source of the funds used. Ratio of liquid assets to total assets ratio and risk indicators related to liquidity, credit and the ratio of funds, issues such as the concentration in collected funds are being closely monitored. 5.4. Information on liquidity management on the basis of currencies constituting a minimum of five percent of the Bank’s total liabilities: Almost all total liabilities of the Group consists of the Turkish Lira, American Dollar, Euro, Malaysian Ringgit, or Gold. TL liquidity of the Bank is managed through the open market transactions implemented by the Central Bank of the Turkish Republic and interbank operations. Liabilites in the form of TL are used in order to fund assets in the form of TL, assets in the form of TL are generated thruogh foreign exchange based funds with swap operations if necessary. Foreign currency funds are provided with the foreign sourced credits in the form of foreign currency and sukukfinancial certificates issued. Liquidity in the form of foreign currency is kept at the interbank operations and accounts of the corresponding bonds within the limits. Liabilities in the form of Gold are kept at the required reserve accounts of the Central Bank of the Turkish substantialy. 5.5. Information on liquidity risk mitigation techniques: Liquidity risk is mitigated by using techniques such as maintaining high quality liquid asset buffer to cover possible fund outflows, diversification of funding sources so far as possible and inclusion to the base, hom*ogenizing the maturity distribution of repayments as far as possible, obtaining limits from funding institutions to use when necessary and ensuring that a determined portion of funding sources are comprised of deposits. In addition,core deposit analysis is performed and concentration on collected funds are closely monitored.
301. KUVEYT T ÜRK 2017 ANNUAL REPORT 299 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 5.6. Information on the use of stress tests: In order to analyze the source of the possible liquidity insufficiencies and whether comformably move exists for offbalance sheet and balance sheet positions relavent with liquidity risk expectation, 3 types liquidity stress tests are applied by Risk Management Directorate. These includes stress test scenarios are special to the Bank, related with the overall market or scenarios take in consideration both of the situations. Stress tests telated with liquidity risk are repeated at monthly periods. Results are tracked with key risk indicators and monitored by Senior Management. 5.7. General information on urgent and unexpected liquidity situation plans: Necessary strategy and procedures for the management of possible liquidity crisis are determined with the Liquidity Contingency Plan, which is approved and reviewed every year by the Executive Risk Committee. The actions to be taken favor the benefits of depositors, creditors of the Bank and shareholders. Indicators of Liquidity Contingency Plan were determined, in case of unexpected progress at the liquidity situation occur or at situations trigger of other indicators, plan is put into use. After Liquidity Contingency Plan is put into use, Liquidity Contingency Management Commitee is responsible from the determination of actions to be taken. Analysis of financial liabilities by remaining contractual maturities: The following table is prepared before the Bank’s liabilities are undiscounted and based on the earliest date to the payment. Adjustment column shows the items that give rise to probable cash exit according to contractual terms at later period. The items that is mentioned is included the maturity analysis however it is not included the balance sheet value of financial liabilities at the balance sheet. Up to 1 month 1-3 month 3-12 mount 1-5 years 35,435,820 3,503,609 1,226,759 88,775 102,193 350,347 2,751,889 2,327,619 Above 5 years Total Balance Adjustments Sheet Value 31 December 2017 Collective Fundings Other Fundings Funds provided under repurchase agreements Issued Securities Borrowings from Leasings Total - 40,254,963 - 5,532,048 - 40,254,963 (784,583) 4,747,465 751,048 - - - - 751,048 (524) 750,524 608,398 490,583 369,498 3,194,820 1,687,880 6,351,179 (699,338) 5,651,841 - - - - - - - - 36,897,459 4,344,539 4,348,146 5,611,214 1,687,880 52,889,238 (1,484,445) 51,404,793 27,826,381 3,134,948 1,036,181 15,468 - 32,012,978 - 32,012,978 441,003 589,379 2,115,235 3,744,760 - 6,890,377 (1,633,989) 5,256,388 31 December 2016 Collective Fundings Other Fundings Funds provided under repurchase agreements Issued Securities Borrowings from Leasings Total 1,258,349 - - - - 1,258,349 (38,476) 1,219,873 191,733 475,657 274,014 2,434,770 1,669,596 5,045,770 (290,357) 4,755,413 - - 229 - - 229 (3) 226 29,717,466 4,199,984 3,425,659 6,194,998 1,669,596 45,207,703 (1,962,825) 43,244,878
302. 300 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Maturity analysis for guarantees and contingencies: Demand Up to 1 month 1-3 month 3-12 month 1-5 years Above 5 years 4,910,302 208,190 537,290 2,103,104 1,748,757 - 13,380 19,098 21,497 1,983 Letters of Credit 279,735 112,881 263,010 264,459 12,015 Other guarantees 305,764 593 2,971 162,176 14,393 27,919 - - - - 5,523,720 335,044 822,369 2,551,236 1,777,148 62,536 3,914,848 166,539 572,861 1,876,238 1,471,708 148 5,407 15,320 28,850 2,319 369,976 76,908 247,672 268,172 57,058 Other guarantees 150,651 263 2,284 302,238 220,284 Pre-financings given as guarantee 25,642 - - - - 4,461,265 249,117 838,137 2,475,498 1,751,369 113,831 Up to 1 month 1-3 months 3-12 months 1-5 years Entry 4,828,992 1,140,288 961,865 - - 6,931,145 Exit 4,859,152 1,142,688 826,105 - - 6,827,945 Unallocated Total 62,536 - 9,570,179 - - 55,958 - - 932,100 - - 485,897 - - 27,919 - 11,072,053 113,831 - 8,116,025 - - 52,044 - - 1,019,786 - - 675,720 - - 25,642 - 9,889,217 31 December 2017 Letters of Guarantee Bills of Exchange and Bank Acceptances Pre-financings given as guarantee Total 31 December 2016 Letters of Guarantee Bills of Exchange and Bank Acceptances Letters of Credit Total Contractual maturity analysis of derivative instruments: 31 December 2017 5 years and over Total Derivatives financial assets held for trading Foreign exchange derivatives: Hedging purposes financial assets Foreign exchange derivatives Entry - - - 746,440 - 746,440 Exit - - - 819,063 - 819,063 Total Cash Inflow 4,828,992 1,140,288 961,865 746,440 - 7,677,585 Total Cash Outflow 4,859,152 1,142,688 826,105 819,063 - 7,647,008 Up to 1 month 1-3 months 3-12 months 1-5 years 5 years and over Total 31 December 2016 Derivatives financial assets held for trading Foreign exchange derivatives: Entry 7,742,474 1,354,727 232,490 - - 9,329,691 Exit 7,751,615 1,351,680 223,921 - - 9,327,216 Hedging purposes financial assets Foreign exchange derivatives Entry - - - 628,152 - 628,152 Exit - - - 762,972 - 762,972 7,742,474 1,354,727 232,490 628,152 - 9,957,843 7,751,615 1,351,680 223,921 762,972 - 10,090,188 Total Cash Inflow Total Cash Outflow
303. KUVEYT T ÜRK 2017 ANNUAL REPORT 301 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Liquidity Coverage Ratio-The Parent Bank Total Weighted Value (Average) Total Unweighted Value (*) (Average) (*) TL+FC FC TL+FC FC Current Period High-Quality Liquid Assets 1 Total high-quality liquid assets (HQLA) Cash Outflows 2 Retail deposits and deposits from small usiness customers, of which: 3 Stable deposits 4 Less stable deposits 5 Unsecured wholesale funding, of which: 6 Operational deposits 7 Non-operational deposits 8 Unsecured funding 9 Secured wholesale funding 10 Other cash outflows of which 11 Outflows related to derivative exposures and other collateral requirements 12 Outflows related to restructured financial instruments 13 Payment commitments and other offbalance sheet commitments granted for debts to financial markets 14 Other revocable off-balance sheet commitments and contractual obligations 15 Other irrevocable or conditionally revocable off-balance sheet obligations 16 Total Cash Outflows Cash Inflows 17 Secured receivables 18 Unsecured receivables 19 Other cash inflows 20 Total Cash Inflows 21 22 23 9,241,665 8,060,513 9,199,442 8,018,290 27,782,868 8,853,762 18,929,106 8,201,705 7,479,666 722,039 12,778,991 12,778,991 4,077,294 3,999,733 77,561 21,400,263 10,829,912 2,335,598 442,688 1,892,910 4,123,296 3,401,257 722,039 8,183,772 1,277,899 1,277,899 2,008,329 1,930,768 77,561 6,425,919 6,814,394 6,185,757 6,814,394 6,185,757 320,000 - 320,000 - - - - - - - - - 14,265,869 4,644,155 1,049,378 14,642,666 240,162 9,712,147 6,637,367 6,993,193 13,630,560 4,169,519 5,664,245 9,833,764 Total HQLA Total Net Cash Outflows Liquidity Coverage Ratio (%) 5,037,108 3,778,429 6,993,193 5,664,245 12,030,301 9,442,674 Total Adjusted Value 9,199,442 8,018,290 3,660,667 2,428,037 251.31 330.24 (*) The average of last three months’ liquidity coverage ratio calculated by weekly simple averages. The table below presents highest, lowest and average liquidity coverage ratios as of 31 December 2017: TL+FC FC Highest 648.12 980.02 Date 10.03.2017 10.03.2017 Lowest 137.26 283.29 Date 29.09.2017 12.05.2017 Average 268.61 429.45
304. 302 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Total Unweighted Value (Average) (*) TL+FC FC Pirior Year High-Quality Liquid Assets 1 Total high-quality liquid assets (HQLA) Cash Outflows 2 Retail deposits and deposits from small usiness customers, of which: 3 Stable deposits 4 Less stable deposits 5 Unsecured wholesale funding, of which: 6 Operational deposits 7 Non-operational deposits 8 Unsecured funding 9 Secured wholesale funding 10 Other cash outflows of which 11 Outflows related to derivative exposures and other collateral requirements 12 Outflows related to restructured financial instruments 13 Payment commitments and other offbalance sheet commitments granted for debts to financial markets 14 Other revocable off-balance sheet commitments and contractual obligations 15 Other irrevocable or conditionally revocable off-balance sheet obligations 16 Total Cash Outflows Cash Inflows 17 Secured receivables 18 Unsecured receivables 19 Other cash inflows 20 Total Cash Inflows 21 22 23 Total Weighted Value (Average) (*) TL+FC FC 7,248,378 6,328,808 6,144,352 5,224,782 23,479,779 16,612,915 6,866,864 6,214,737 2,319,448 2,213,026 1,682,263 5,309,816 9,318,830 6,692,505 2,626,325 2,217,841 1,241,513 912,697 63,631 2,511,422 1,517,332 830,646 686,686 3,845,879 579,862 1,583,754 1,682,263 424,294 597,257 334,625 262,632 934,698 310,379 560,688 63,631 274,342 10,561 - 10,561 - - - - - 5,299,255 2,511,422 413,733 274,342 - - - - - - 5,787,505 1,806,297 4,589,956 44,971 4,634,927 4,468,844 3,350,234 7,819,078 Total HQLA Total Net Cash Outflows Liquidity Coverage Ratio (%) 662,942 595,905 44,971 3,350,234 707,913 3,946,139 Total Adjusted Value 6,144,352 5,224,782 5,079,592 451,574 120.96 1,157.02 (*) The average of last three months’ liquidity coverage ratio calculated by weekly simple averages. The table below presents highest, lowest and average liquidity coverage ratios as of 31 December 2016: TL+FC FC Highest 294.78 1,498.10 Date 08.01.2016 05.08.2016 Lowest 110.53 393.39 Date 30.12.2016 25.03.2016 Average 166,66 1,132.26 The liquidity coverage rate is calculated by the ratio of the high quality liquid assets that the bank has to the net cash outflows in the one month maturity window. Important balance sheet items that determine the are: required reserves held by CBRT, securities not subject to repo / receivables, institutional qualified participation accounts, funds originated from abroad and receivables from banks. These items have higher share of liquid assets and net cash outflows, higher than other items due to their high rate of consideration and their variability over time.
305. KUVEYT T ÜRK 2017 ANNUAL REPORT 303 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Presentation of assets and liabilities according to their remaining maturities: Demand Up to 1 month Cash (cash in vault, effectives, cash in transit, Cheques purchased) and balances with the Central Bank of the Republic of Turkey 2,571,186 6,453,533 - - - - - 9,024,719 Banks 3,571,314 - 760 - - - - 3,572,074 Financial assets at fair value through profit and loss - 13,371 21,801 20,723 25,675 6,664 - 88,234 Money market placements - - - - - - - - Available-for-sale financial assets - 827,887 814,956 434,763 1,490,617 677,363 178,144 4,423,730 Loans (*) - 6,065,576 4,823,703 12,341,013 13,025,786 2,382,969 Held-to-maturity investments - - - - - - - - 28,625 702,108 166,573 - 138,710 - 733,699 1,769,715 6,171,125 14,062,475 5,827,793 12,796,499 14,680,788 3,066,996 Current Period 1-3 Months 3-12 months 1-5 years Over 5 years Unallocated (**) Total Assets Other assets (**) Total Assets 47,183 38,686,230 959,026 57,564,702 Liabilities Current account and funds collected from banks via participation accounts Current and profit sharing accounts 301,999 8,472 - - - - - 310,471 15,989,925 19,135,424 3,503,609 1,226,759 88,775 - - 39,944,492 4,747,465 Funds provided from other financial institutions - 102,444 407,620 2,713,373 163,690 1,360,338 - Money market borrowings - 750,524 - - - - - 750,524 Marketable securities issued - 598,850 369,810 93,169 4,590,012 - - 5,651,841 Miscellaneous payables 138,424 61,180 401 - - - - 200,005 - 378,457 73,047 20,315 70,795 - 5,417,290 5,959,904 Total liabilities 16,430,348 21,035,351 4,354,487 4,053,616 4,913,272 1,360,338 Net liquidity gap (10,259,223) (6,972,876) 1,473,306 8,742,883 9,767,516 1,706,658 Other liabilities (**) 5,417,290 57,564,702 (4,458,264) - Prior period 7,835,927 12,431,459 4,508,293 9,775,829 11,170,634 2,114,018 889,875 48,726,035 Total liabilities Total assets 12,148,944 17,951,603 3,822,475 3,717,904 5,190,194 1,267,765 4,627,150 48,726,035 Net liquidity gap (4,313,017) (5,520,144) 685,818 6,057,925 5,980,440 846,253 (3,737,275) - This line also includes receivables from leasing transactions. Certain assets in the balance sheet that are necessary for the banking operations but cannot be readily convertible into cash in the near future, such as tangible assets, investments in associates and subsidiaries, joint ventures, stationary supplies and prepaid expenses are included under unallocated assets. The unallocated other liabilities column consists of equity and provisions balances. (*) (**) .
306. 304 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 6. Explanations on leverage ratio Leverage ratio table: The leverage ratio table prepared in accordance with the communiqué “Regulation on Measurement and Assessment of Leverage Ratios of Banks” published in the Official Gazette no. 28812 dated 5 November 2013 is presented below: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 (*) On-balance sheet assets On-balance sheet items (excluding derivative financial instruments and credit derivatives but including collateral) (Assets deducted in determining Tier I capital) Total on-balance sheet risks (sum of lines 1 and 2) Derivative financial instruments and credit derivatives Replacement cost associated with all derivative instruments and credit derivatives Add-on amounts for PFE associated with all derivative instruments and credit derivatives Total risks of derivative financial instruments and credit derivatives (sum of lines 4 to 5) Securities or commodity financing transactions (SCFT) Risks from SCFT assets (excluding on-balance sheet) Risks from brokerage activities related exposures Total risks related with securities or commodity financing transactions (sum of lines 7 to 8) Other off-balance sheet transactions Gross notional amounts of off-balance sheet transactions (Adjustments for conversion to credit equivalent amounts) Total risks of off-balance sheet items (sum of lines 10 and 11) Capital and total risks Tier I capital Total risks (sum of lines 3, 6, 9 and 12) Leverage ratio Leverage ratio Current Period (*) Prior Period (*) 57,880,037 (278,887) 57,601,150 47,713,307 (218,855) 47,494,452 55,367 90,391 118,417 115,612 173,784 206,003 647,446 - 247,175 - 647,446 247,175 57,807,376 (36,583,749) 21,223,627 41,997,030 (24,926,904) 17,070,126 4,424,981 79,646,007 3,810,218 65,017,756 5.55 5.86 Amounts in the table are three-month average amounts. The leverage ratio calculated on the basis of the arithmetic average of the nominal value at the month-ends for the prior three-moth period as of the consolidated balance sheet date of the Bank, was realized as 5.55% (31 December 2016 – 5.86%). The main reason for the changes compared to the previous period is that the increase in off-balance sheet items is higher than the increase in other items. According to this, while balance sheet items not increased, the core capital was increased by 16% due to increase in profit, off balance sheet items showed a 24% increase. Accordingly, the leverage ratio of the current period compared to the previous year shows an increase of 31 basis points.
307. KUVEYT T ÜRK 2017 ANNUAL REPORT 305 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 7. Explanations on consolidated fair values of financial assets and liabilities The table summarizes the book value and fair value of the financial assets and liabilities that were not accounted by the values in Bank’s financial statements. Book value is the sum of the acquisition value and accumulated profit share accruals. Current Period Financial Assets Banks Financial assets available for sale Loans and lease receivables Financial Liabilities Current account and funds collected from banks via participation accounts. Other current and profit sharing accounts Money market balances Funds provided from other financial institutions Miscellaneous payables Payables from leasing transactions Book Value Current period Prior period Fair Value Current period Prior period 3,572,074 4,423,730 38,638,938 4,780,380 3,752,727 30,017,131 3,572,074 4,423,730 35,933,362 4,780,380 3,752,727 29,741,737 310,471 39,944,492 750,524 4,747,465 5,651,841 200,005 540,702 31,472,276 1,219,873 5,256,614 4,755,413 169,150 310,471 39,944,492 750,524 5,565,826 4,794,549 200,005 540,702 31,472,276 1,219,873 5,565,826 4,794,549 169,150 The estimated fair value of the loans is calculated by discounting future cash flows by using current market rates of profit share. The fair value of financial assets and liabilities carried at amortized cost other than loans, available for sales financial assets and funds provided from other financial institutions approximates to their book values since they are short term in nature and their effective profit share rates are similar with current effective profit rates. 8. Explanations on the activities carried out on behalf and account of other persons The Parent bank does not perform purchases, sales and custody services in the name of others. The Bank has no fiduciary based transactions. 9. Explanations on consolidated risk management Risk Management System refers to the Board of Directors, the Audit Committee, the Risk Management Committee, Asset-Liability Committee (“ALCO”) and the Risk Management Department (“RMD”) which has been composed in order to manage systemic risks that the Group is exposed. The Board of Directors is the owner of the Group’s Risk Management System and ensures the establishment of an effective, sufficient and appropriate risk management system as well as the continuity of the system. The main objective of the Bank’s Risk Management System is to identify, measure, monitor and control the risks that the Group is exposed to, by determining the policies, limits and procedures to control, to monitor, and if necessary to change the risk-return structure of the Group’s future cash flows and the level & the quality of related activities.
308. 306 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 9.1. Explanations on risk management and risk weighted amounts: 9.1.1. Overview of risk weighted amounts: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Credit risk (excluding counterparty credit risk) (CCR) (*) Of which standardised approach (SA) Of which internal rating-based (IRB) approach Counterparty credit risk Of which standardised approach for counterpary credit risk (SA-CCR) Of which internal model method (IMM) Equity position in banking book under basic risk weighting or internal rating-based Equity investments in funds – look-through approach Equity investments in funds – mandate-based approach Equity investments in funds – 1250% risk weighting Approach Settlement risk Securitisation exposures in banking book Of which IRB ratings-based approach (RBA) Of which IRB supervisory formula approach (SFA) Of which SA/simplified supervisory formula approach (SSFA) Market risk Of which standardised approach (SA) Of which internal model approaches (IMM) Operational risk Of which basic indicator approach Of which standardised approach Of which advanced measurement approach Amounts below the thresholds for deduction from capital (subject to 250% risk weight) Floor adjustment Total (1+4+7+8+9+10+11+12+16+19+23+24) Risk Weighted Amounts Current Period Prior Period 31/12/2017 31/12/2016 29,273,292 27,753,547 29,329,548 27,792,552 81,509 94,652 Minimum Capital Requirements Current Period 31/12/2017 2,341,863 2,346,364 6,521 81,509 - 94,652 - 6,521 - 56,256 - 39,005 - 4,500 - - - - 664,964 664,964 3,552,857 3,552,857 - 734,695 734,695 2,877,204 2,877,204 - 53,197 53,197 284,229 284,229 - 33,628,878 31,499,103 2,690,310
309. Cash (Cash on Hand, Money in Transit, Purchased Cheques) and Balances With Central Bank of Turkey Financial Assets Held for Trading Financial Assets at Fair Value Through Profit or Loss Banks Receivables from money markets Available for sale financial assets (net) Loans and receivables Factoring receivables Held to maturity investments (net) Investments in associates (net) Investments in subsidiaries (net) Investments in joint ventures (net) Leasing receivables Derivative financial assets held for hedges Tangible assets (net) Intangible assets (net) Investment properties (net) Tax assets Non-current assets and disposal groups classified as held for sale (net) Other Assets Total Assets Assets 9,024,719 3,572,074 4,423,730 36,605,500 23,680 19,405 2,080,730 416,049 168,965 25,419 138,710 117,006 860,481 57,476,468 117,006 860,481 57,564,702 26,699 26,699 - - 61,535 61,535 - - - Carrying values of items in accordance with Turkish Accounting Standards Subject to Not subject to capital Subject to counterparty Securitization Subject to requirements or subject credit risk credit risk positions market risk to deduction from capital 9,024,719 88,234 3,572,074 4,423,730 36,605,500 23,680 19,405 2,080,730 416,049 168,965 25,419 138,710 Carrying values in financial statements prepared as per TAS 9.1.2. Differences and matching between asset and liabilities’ carrying values in financial statements and risk amounts in capital adequacy calculation: (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ KUVEYT TÜRK 2017 ANNUAL REPORT 307
310. Derivative Financial Liabilities Held for Trading Loans Money market borrowings Securities issued Funds Misscellaneous Payables Other liabilities Liabilities Factoring debts Debts from leasing transactions Derivative financial liabilities held for hedges Provisions Tax Liability Liabilities included in disposal groups classified as held for sale (net) Subortinated Debts Equity Total Liabilities Liabilities Deposits 1,360,338 4,610,815 57,564,702 Carrying values in financial statements prepared as per TAS 40,254,963 80,697 3,387,127 750,524 5,651,841 200,005 345,918 70,795 795,420 56,259 - 750,524 - - 1,360,338 4,610,815 56,814,178 Carrying values of items in accordance with Turkish Accounting Standards Subject to Not subject to capital Subject to counterparty Securitization Subject to requirements or subject credit risk credit risk positions market risk to deduction from capital 40,254,963 80,697 3,387,127 750,524 5,651,841 200,005 345,918 70,795 795,420 56,259 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ 308 SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES
311. KUVEYT T ÜRK 2017 ANNUAL REPORT 309 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 9.1.3. Main sources of differences between regulatory exposure amounts and carrying values in financial statements: Items subject Items subject to Items subject to Items subject to credit risk securitisation counterparty credit to market risk Total framework framework risk framework framework 1- Carrying Value of Assets in Accordance with TAS (as per template 1B) 2- Carrying Value of Liabilities in Accordance with TAS (as per template 1B) 3- Total net amount 4- Off-balance sheet amounts 5- Differences in valuations 6 Differences due to different netting rules (other than those already included in row 2) 7- Differences due to consideration of provisions 8- Differences due to prudential filters 9-Risk Amounts 57,564,702 57,476,468 - 26,699 61,535 57,564,702 73,176,971 - 57,476,468 5,897,049 - - 750,524 777,223 133,405 - 61,535 15,324,593 - - - - - - - - - - - 130,741,673 63,373,517 - 910,628 15,386,128 9.2. General qualitative information on credit risk: 9.2.1. How the business model translates into the components of the bank’s credit risk profile: The business model of the Group basically consists of two main business fields: collecting funds by means of current accounts and profit/loss participation accounts subject to the interest-free banking rules, and using those funds and equity funds to make funds available to customers. Because of these main business fields, the group’s assets have a credit-weighted structure. Reflecting this business model, its total assets are cash credit-weighted and financial leasing receivable-weighted. The Group lends funds to finance the real sector in general and increases its volume of credits by taking into account its risk-return balance to achieve sustainable growth. The risk profile of the Group indicates the types of risks to which it is exposed or expects to be exposed, and its risk level by type of risk. The largest type of risk to which the Bank is exposed or expects to be exposed within its current and target business model is the credit risk. Since the risk of concentration is one of the most important components of the credit risk, concentration limits were set by sector for the concentration risk. Internal limits are set for cash, non-cash and total credits for each of 20 different sectors. Limits were set for monitoring Defaulted Credit Exposures in mentioned sectors and for taking corrective measures. With regard to concentration of the credit risk, internal limits were set for the top 10, 20, 30, 40, 50 and 100 debtor/credit risk groups. Furthermore, country limits were set to avoid concentration in countries selected as part of the sovereign risk process. 9.2.2. Criteria and approach used for defining credit risk policy and for setting credit risk limits: The main purpose of the credit risk policy are to measure the counterparty risk undertaken as part of a credit transaction, to monitor the risk against the legal limits and the Bank’s internal limits, to research new techniques and applications for measuring and controlling the risk, to monitor overdue receivables, to analyze the reason of overdue, and to take measures to prevent such reasons from repeating. The term ‘credit risk’ refers to the potential loss the Group might be exposed to because of credit borrowers’ partial or full default of the credit agreements they signed with the bank. This term also includes the loss of market value because of the breakdown of the counterparty’s financial position. This term includes on-balance sheet and off-balance sheet transactions too.
312. 310 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Risk limits are set by openly relating it with the Bank’s volume on consolidated and non-consolidated basis within the financial system as part of its risk appetite structure. In this context the appetite for risk approved by the Board of Directors are divided between and allocated to other levels considered necessary by type of risk. The uses of the limits are closely monitored, and overdrafts are reported to the executive management for ensuring the necessary measures to be taken. 9.3. Structure and organization of the credit risk management and control function: Risk Control and Compliance Group works under the Audit Committee and the Internal System Committee reporting to the Board of Directors. Risk Control and Compliance Group Manager and Risk Management Department Manager working under the former are in charge of and responsible for the strategies and policies approved by the Board of Directors and for performing the other tasks assigned by the Internal System Committee. Credit Risk Management and Modeling Unit is one of the units comprising the Risk Management Department performs the risk measurement and management tasks concerning the credit risk. 9.4. Relations between the credit risk management, risk control, compliance and internal audit functions: The units comprising the internal systems report to the Board of Directors as required by the organizational chart of the group. Board of Directors has transferred its tasks and responsibilities for the internal systems to the Internal Systems Committee formed by four members of the Board of Directors and appointed to be Internal System Executives. The units in question are supervised and coordinated by the Internal Systems Committee. The internal control function of the Group is performed by the Internal Control Department. Internal Control System has been founded in such a manner to be capable and efficient to mitigate, manage, monitor and control the exposure risks of the Group in accordance with the Group’s organizational structure and business fields as well as changing circ*mstances, and covers all domestic and international branches, head office, consolidated subsidiaries and all business activities of the Group. The internal control system and internal control activities of the Group are designed by the Internal Control Department in cooperation with the relevant management executives and are performed at a sufficient and efficient extent. Compliance Department is in charge of managing the Group’s compliance risk and taking it under control in an efficient way, forecasting and preventing the risk in question, and ensuring the group’s activities to comply with the applicable laws and regulations. Risk Management Department performs the tasks of determining, measuring and managing the exposure risks of the Group. An efficient risk management system infrastructure has been established for credit risk management tasks, credit policy, and risk management activities falling within the credit risk policy. The internal credit risk limits set by the Board of Directors are measured and reported at regular intervals to the Audit Committee. Audit Department is in charge of assuring the Board of Directors and the executive management that the Group’s business activities are performed in accordance with the Banking Law, other applicable laws and regulations and the internal strategies, policies, principles and targets of the group, and that the internal control and risk management systems are efficient and sufficient. 9.5. Scope and main content of the reporting on credit risk exposure and on the credit risk management function to the executive management and to the Board of Directors Risk Management Report for the Executive Management, which is the basic report presented to the Board of Directors and the executive management, is prepared before each meeting of the Audit Committee. The report in question contains the basic subjects described below: Quality of the assets are analyzed in accordance with the classification specified in the Regulation on Procedures and Principles for Determination of Qualifications of Loans and Other Receivables by Banks and Provisions to be set aside and the assets are compared with those of the previous fiscal period to monitor the sustainability of the asset quality. The report describes the credit risk limits and the figures realized in the relevant fiscal period. Credits lent in 20 different economic sectors are monitored by cash, non-cash and total credits. Credit shares and development trends of the economic sectors are monitored. The risk limits set in accordance with the Group’s appetite for risk and the figures realized are explained. Observed key risk indicators include the ratio of credit risk-weighted items over the
313. KUVEYT T ÜRK 2017 ANNUAL REPORT 311 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) total assets, the ratio of the total gross amount of defaulted credits over the total financing (cash credits) portfolio and their distribution by sector, distribution of guarantees by guarantee group, the ratio of the top 10/20/30/40/50/100 risks over the total financing (cash and non-cash credits) portfolio, and the ratio of write-off. Distribution of cash credits by maturity term is monitored. Detailed information is given about the top 10 customers against whom internal or legal proceedings were filed, their limits, risks, guarantees and provisions, description of their sectors and their state are described. The trend of restructured credits is monitored. Also, loans are reported to risk group of the Main Partner . Sovereign ratings, limits and used limits are monitored and compared with the previous fiscal year. The Parent bank creates credit portfolios in accordance with its internal segment structure. These segments are divided into sub-segments. Risks realized for cash, non-cash and total credits are monitored by each of these portfolios. Real estate price indexes are analyzed to monitor whether the values of the real estates received as guarantees for the funds lent have increased or decreased. These real estates are also monitored by subcategory in accordance with the classification of regions published by the Turkish Central Bank. They are also compared with the House Price Index of Turkey published by the Turkish Central Bank. Credit quality of assets: Gross carrying value as per TAS included in the financial statements prepared as per legal consolidation 1 2 3 4 (*) Loans Debt securities Off-balance sheet exposures(*) Total Defaulted 715,060 715,060 Non-defaulted 38,638,938 4,463,521 22,343,477 65,445,936 Allowances/amortisation and impairments 667,768 39,791 256,505 964,064 Net values 38,686,230 4,423,730 22,086,971 65,196,931 Accruals of derivative transactions are presented as net amounts under impairments. Changes in stock of defaulted loans and debt securities: 1 2 3 4 5 6 Defaulted loans and debt securities at end of the previous reporting period Loans and debt securities that have defaulted since the last reporting period Receivables back to non-defaulted status Amounts written off Other changes Defaulted loans and debt securities at end of the reporting period (1+2-3-4±5) Current Period 748,614 520,283 461,353 (92,484) 715,060 9.6. Qualitative disclosures related to the credit quality of assets: 9.6.1. Scope and definitions of “overdue” and “provision allocated” receivables for accounting purposes and the differences of definitions between “overdue” and “provision allocated” , if any Overdue receivables and provision allocated receivables are determined according to the Communique on Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves. 9.6.2. The part of the overdue receivables (past 90 days) for which provision is not allocated and reasons for this application None noted.
314. 312 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 9.6.3. Definitions of the methods used when determining the provision amount It includes the loans or other receivables classifed in the third, fourth and fifth groups and minimum required statutory reserve ratios indicated in paragraph 8 of the Communique on Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves and minimum statutory collateral consideration ratios required indicated in paragraph 9 of the same legislation. 9.6.4. Definitions of restructured receivables According to the Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves, restructuring for the performing and non-performing loans means new contractural conditions only for the loan obligators encountered or likely to be encountered in repayment as a result of financial difficulties, excluding loan obligators with no repayment difficulties. 9.6.5. Breakdown of exposures by geographical areas, industry and ageing: Current Period Domestic European Union (EU) Countries OECD Countries Off-Shore Banking Countries USA, Canada Other Countries Total Loans Under Follow-Up 708,725 875 123 237 5,100 715,060 Specific Provisions 660,835 1,284 123 236 5,290 667,768 Write-Offs 448,635 3 2 12,713 461,353 Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accomodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services Professional Services Educational Services Health and Social Services Other TOTAL Loans Under Follow-Up 11,913 2,121 4,889 4,903 117,724 38,749 59,645 19,330 200,518 342,363 216,806 11,799 18,759 17,756 65,432 530 11,281 42,542 715,060 Specific Provisions 11,293 1,997 4,393 4,903 102,452 37,324 45,799 19,329 189,524 328,705 205,710 11,546 17,368 17,756 65,276 402 10,647 35,794 667,768 Write-Offs 2,246 638 1,514 94 117,122 42,648 73,269 1,205 83,671 172,464 117,362 3,714 40,727 0 3,626 737 6,298 85,850 461,353
315. KUVEYT T ÜRK 2017 ANNUAL REPORT 313 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Current period Corporate and Commercial Loans Retail Loans Credit cards Other Total Up to 3 Months 3-12 Months 165,976 161,962 8,020 8,398 3,180 1,240 177,176 171,600 1-3 Years 323,043 8,489 1,239 332,771 3-5 Years 5 Years and Over 12,961 17,479 2,106 720 167 80 15,234 18,279 9.7. Credit risk mitigation techniques: Exposures unsecured: carrying amount as per TAS 1 Loans 29,733,563 2 Debt securities 4,423,730 3 Total 34,157,293 4 Overdue 43,933 Exposures secured by collateral 8,952,667 8,952,667 3,359 Collateralized amount of exposures secured by collateral 580,655 580,655 17 Exposures secured by financial guarantees - Collateralized amount of exposures secured by financial guarantees - Exposures secured by credit derivatives - Collateralized amount of exposures secured by credit derivatives - 9.8. Explanations on Counterparty Credit Risk (CCR): 9.8.1. Risk management objectives and polices for CCR: Determination of the creditworthiness of financial counterparties has been made in addition to the Credit Policy of the Group in accordance with the regulations published by BRSA and the international practices in order to limit the exposure to be suffered by the Group in case of financial counterparty default. This annex describes allocation of limit to financial counterparties and continuous monitoring activities. In this respect, the creditworthiness assessments of the financial and non-financial entities for CCRs especially including sovereign assessments and limits are finally decided by the committees specified under the Policy. 9.8.2. The method used to allocate the operatioal limits defined in terms of internal capital for CCR and central counterparty risks: Internal model method is not used for calculating the capital requirements for counterparty credit risk and central counterparty risks. 9.8.3. Policies relating to guarantees and other risk mitigation and assessments concerning counterparty credit risk, including central counterparty risk: All of the Group’s counterparty credit risk and central counterparty limits are non-committed limits and they include cash and non-cash limits. In case of any transactions involving non-cash risk exposure, the reassurance of the organizations such as International Development Banks is used. If required, cash collateral is sought in order to minimize the exposure. In case of transactions involving cash risk exposure, the risk exposure is mitigated by obtaining shares and bills (sukuk) as security. 9.8.4. Rules with respect to wrong-way risk: Internal model is not used for CCR; and as such, no calculation is made with respect to the wrong-way risk. 9.8.5. The impact in terms of the amount of collateral that the bank is required to provide in case of a credit rating downgrade: Currently, the Group does not borrow by providing security for the cash exposure transactions where it is debtor. Therefore, the Group is not subject to such impacts in case of a possible rating downgrade and the Group’s contracts do not contain such terms and conditions.
316. 314 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 9.8.6. Counterparty credit risk (CCR) approach analysis: Standardised Approach CCR (for derivatives) 2 Internal Model Method (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions) 3 Simple Approach for credit risk mitigation (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions) 4 Comprehensive Approach for credit risk mitigation (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions) 5 Value-at-Risk (VaR) for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions 6 Total EEPE (Effective Expected Alpha used Positive for computing Exposure) regulatory EAD Replacement Cost Potential future exposure 26,710 108,838 - - - - EAD post-CRM RWA 1.4 135,548 62,870 - - - - - - - - - - - - - - - - - - - - 62,870 1 9.8.7. Capital requirement for credit valuation adjustment (CVA) Total portfolios subject to the Advanced CVA capital obligation 1 (i) VaR component (including the 3×multiplier) 2 (ii) Stressed VaR component (including the 3×multiplier) 3 All portfolios subject to the Standardised CVA capital obligation 4 Total subject to the CVA capital obligation EAD post-CRM RWA 135,548 135,548 18,641 18,641
317. %0 733,495 733,495 %10 - %20 46,167 46,167 %50 63,210 308 63,518 * Total credit risk: The amount related to capital adequacy calculation after counterparty credit risk measurement techniques are applied. ** Other assets: The template includes amounts that are not included in counterparty credit risk reported in CCR8. *** 35% Risk Weight is classified in Other 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 17 18 Risk Classes / Risk Weights * Receivables from central governments and Central Banks Receivables from regional and local government Receivables from administrative bodies and non-commercial entities Receivables from multilateral development banks Receivables from international organizations Receivables from banks and brokerage houses Receivables from corporate Retail receivables Receivables secured by residential property Receivables secured by commercial property Non-performing receivables Receivables in high-risk categories Mortgage-backed securities Short term receivables to banks, brokerage houses and corporates Investments similar to collective investment funds Equity share investments Other receivables Other assets** Total 9.8.8. CCR exposures by risk class and risk weights (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) %75 6,247 6,247 NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ %100 10,360 5,788 893 17,041 %150 - %200 - Others *** 433 433 Total credit risk* 51,198 5,788 4,685 152 1,047 62,870 KUVEYT TÜRK 2017 ANNUAL REPORT 315
318. 316 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 9.9. Explanations on securitization positions None. 9.10. Qualitative explanations on market risk: 9.10.1. 1.Bank’s processes and strategies: Procedures for the identification, measurement, monitoring and control of the market risk of the Group, as well as processes for risk protection and strategies/processes for monitoring of the continuity of the hedging effectiveness, as well as the strategic objectives for the Group’s trading activities: Risk management activities are consisting of the measurement, monitoring, control and reporting of the risks, arising from risks incurred on the consolided and solo basis and transactions carried out with the risk group that the Group is involved in. These activities are carried out by the Group’s Risk Management Department. The definition of the market risk is made by legislation within the scope of the Pillar 1 risks. The components of the market risk that do not fall within the scope of Pillar 1 risks are assessed internally. This process is carried out by the Risk Management Department with the consultation to other relevant departments. Measurement of the market risk is carried out by the Risk Management Department. Market risk is measured by the standard method as specified in the third part of the Regulation on the Measurement and Evaluation of Banks’ Capital Adequacy. The Risk Management Department adopts international standardized methods and advanced statistical methods, which are included in the legislation, in the measurement of risks falling within the scope of the Pillar 2. Developed models as well as the stress tests and scenario analysis are used in the measurement and monitoring of the market risk. The primary purpose of market risk is for the Group’s risk exposure to be within the limits specified by the legislation and to be in accordance with the Group’s risk appetite. In this context, market risk is periodically measured, monitored and reported. Risk limits related to market risk are established in accordance with the Group’s Risk Appetite Policy. Aforementioned risk limits are determined by the Board of Directors and reviewed at least once a year. Limit usages are closely monitored. . Risk mitigation techniques have been applied in line with the size and complexity of the undertaking market risk and the controls are implemented in order to ensure their effectiveness. Treasury Group Department monitors foreign currency positions and cash flows on behalf of the Group. Moreover, new products and projects are examined in terms of market risk management and appropriate internal controls are implemented in case of necessity. The Parent Bank’s strategic objectives for trading activities are given below. • • • Ensure that the bank’s lease certificate portfolio is managed at the optimum level within the risk-return balance limits Implement transaction by taking into account the future prospects of market developments/movements and the framework of trading opportunities in the current market prices, Invest in Sukuk (lease certificates) as an alternative investment tool to manage the liquidity profitably.
319. KUVEYT T ÜRK 2017 ANNUAL REPORT 317 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 9.10.2. The organization and structure of the market risk management function: Definition of the market risk management structure established for the implementation of the Group’s strategies and processes and the communication mechanism and relationship between the different parties involved in market risk management, as described in part 1. The market risk service, operates under the Deputy Head responsible from the Market Risk, Operational Risk and Capital Planning within Risk Management Department. This service directly reports to the Board of Directors through the Internal Systems Committee. The results of risk measurement and risk monitoring are shared with other related units. The activities coordinated within the Internal Capital Adequacy Assessment Process are carried out together with other relevant departments of the Bank. 9.10.3. Structure and scope of risk reporting and/or measurement systems Within the scope of risk management system, the Group established a reporting system which ensures effective analysis and evaluation for market risks. The risk measurement and risk monitoring results is reported to the Internal Systems Committee on a timely manner. There is a risk measurement system which covers the scope and complexity of significant market risk components including transactions and operations exposed to market risk.This system is regularly monitored. The details of the market risk calculated as of 31 December 2017 in accordance with the principles in the third part of the “The Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks” published in the Official Gazette numbered 29511 and dated 23 October 2015 are as follows: 9.10.4. Market risk under standardised approach: 1 2 3 4 5 6 7 8 9 Outright products Profit share risk (general and specific) Equity risk (general and specific) Foreign exchange risk Commodity risk Options Simplified approach Delta-plus method Scenario approach Securitisation Total Risk Weighted Amounts Current Period Current Period 664,964 734,695 370,459 398,423 293,678 277,222 827 59,050 664,964 734,695 9.11. Explanation on Operational Risk “Basic Indicator Method” is used in operational risk calculation of the Bank. The amount that is the basis for the operational risk is calculated by the use of the gross revenues of the Bank for the last 3 years, 2016, 2015 and 2014 in compliance with “Calculation of the Operational Risk” which is the Third Section of The Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks published in the Official Gazette numbered 29111 and dated 6 September 2014. The annual gross revenue is calculated by addition of the net fees and commission revenues, dividend income obtained other than subsidiaries and affiliates, the trading gain/loss(net) and other operating income to the net profit share income and by deduction of the gain/loss from the sale of the assets accounted other than the trading book, extraordinary income, the operational expenses for the support services taken from the main shareholder of the bank, subsidiary of the bank or subsidiary of the shareholder of the bank performing the calculation or the institutions which are subject to the relevant Regulation or the equivalent arrangements and the operational expenses for the support service taken from a bank and the amounts compensated from insurance. TL 284,229 corresponding to the 8% of TL 3,552,857 used in the calculation of the operational risk within the scope of “Capital adequacy standard rate” indicated in the disclosure I of this section, represents the operational risk which might be exposed to. TL 284,229 also defines the minimum capital sum which is required in order to eliminate the mentioned risk.
320. 318 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Current Period Gross Income Value at Operational Risk (Total*12.5) Prior Period Gross Income Value at Operational Risk (Total*12.5) 31/12/2014 Amount 1,493,752 31/12/2015 Amount 1,916,914 31/12/2016 Total/ No. of Years Amount of Positive Gross 2,273,905 1,894,857 Rate (%) 15 Total 284,229 31/12/2015 Total/ No. of Years Amount of Positive Gross 1,916,914 1,534,509 Rate (%) 15 Total 230,176 3,552,857 31/12/2013 Amount 1,192,861 31/12/2014 Amount 1,493,752 2,877,204 9.12. Profit-share rate risk related to banking accounts: 9.12.1. Economic value differences arising from fluctuations in profit share rates in accordance with the regulation on measurement and evaluation of profit share rates derived from banking accounts with standard shock method Current Period: 1 2 3 4 5 6 Currency(*) TRY TRY USD USD EURO EURO Total (For negative shocks ) Total (For positive shocks) Applied Shock (+/- x basis points)* (+) 500bp (-) 400bp (+) 200bp (-) 200bp (+) 200bp (-) 200bp Gains/Losses (531,871) 496,216 271,534 (303,292) (23,052) 28,817 221,740 (283,389) Gains/Shareholder’s equityLosses/shareholder’s equity % (9.09) %8.48 %4.64 % (5.18) % (0.39) %0.49 %3.79 % (4.84) Gains/Losses (390,520) 371,356 304,557 (352,670) 43,591 (45,914) (27,228) (42,372) Gains/Shareholder’s equityLosses/shareholder’s equity % (6.87) %6.53 %5.36 % (6.21) %0.77 % (0.81) % (0.49) % (0.74) *Parent Bank Prior Period: 1 2 3 4 5 6 Currency(*) TRY TRY USD USD EURO EURO Total (For negative shocks ) Total (For positive shocks) *Parent Bank Applied Shock (+/- x basis points) (+) 500bp (-) 400bp (+) 200bp (-) 200bp (+) 200bp (-) 200bp
321. KUVEYT T ÜRK 2017 ANNUAL REPORT 319 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 9.13. Risk management objectives and policies: In accordance with Group’s strategies, risk policies and vision, the analysis that Risk Management Service presents to Internal Systems Committee and Audit Committee are credit risks, market risks, liquidity risks, operational risks and IT risk evaluations. Besides, in accordance to market trends, economic conduct and Bank’s strategic growth, capital adequacy stress test and scenario analyses, evaluation of economic development in the World and Turkey are presented to Internal Systems Committee and Board of Directors by Risk Management Service. These analysis contribute to Group Top Management’s resolution process about risk appetite and awareness of risks, capital adequacy, strategy revisions and future estimation. In addition, Risk Management Service verifies its own coordination to be ready proactively in business availability of Group and situations connected with it. Risk Management Service continues risk monitoring and analyzing operations in accordance to Board of Director’s Group’s mission, vision and growth strategy to prevent the potential risks. In this context credit and market risks, liquidity risk, operational risks and all limits, internal personal scoring and corporate rating modeling with IT risks issues, IT risk evaluation, operational lost data base, key risk indicators, operational risk insurances, market risk calculations, following up of treasury transactions and asset-liability risks are being monitorized. Hierarchy of valuation techniques which establishes basis for fair value calculation of financial assets and liabilities: Level 1: Quoted prices in active markets for identical assets and liabilities. Level 2: Financial instruments valued by applying methods that are based on observable market prices, directly or indirectly, on data that have significant effect on the fair value reflected in the inputs Level 3: Financial instruments valued by applying methods that are not based on observable market prices, directly or indirectly, on data that have significant effect on the fair value reflected in the inputs.
322. 320 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Fair value hierarchy of the financial assets and liabilities of the Bank carried at fair value according to the foregoing principles as of 31 December 2017 and 31 December 2016 are given in the table below: Current Period Financial assets Financial assets held for trading Forward transactions Swap transactions Government debt securities Other marketable securities Available-for-sale financial assets Equity securities Government debt securities Other marketable securities Level 1 Level 2 Level 3 Total 61,535 36,319 25,216 26,699 16,467 10,232 - - 88,234 16,467 10,232 36,319 25,216 4,423,730 48,497 4,103,448 271,785 - - 4,423,730 48,497 4,103,448 271,785 - 80,697 14,948 65,749 70,795 - 80,697 14,948 65,749 70,795 Level 1 Level 2 Level 3 Total 51,669 46,908 4,761 110,050 22,304 87,746 - - 161,719 22,304 87,746 46,908 4,761 3,752,727 53,485 3,322,032 377,210 - - 3,752,727 53,485 3,322,032 377,210 - 119,727 16,753 102,974 137,829 - 119,727 16,753 102,974 137,829 Financial liabilities Financial liabilities held for trading Forward transactions Swap transactions Financial liabilities held for cash flow hedges Prior Period Financial assets Financial assets held for trading Forward transactions Swap transactions Government debt securities Other marketable securities Available-for-sale financial assets Equity securities Government debt securities Other marketable securities Financial liabilities Financial liabilities held for trading Forward transactions Swap transactions Financial liabilities held for cash flow hedges There are no transfers between Level 1 and Level 2 in the current year. 10. Explanations on consolidated business segments The Parent Bank operates in Retail and SME Banking, Commercial Banking, Corporate and International Banking. In Commercial Banking: to meet the financial needs of the customers, unique cash flow and financial solutions are provided to customers through loans, non-cash loans, foreign trade financing services and similar customized products. Domestic and foreign business opportunities are supported by using different corporate banking instruments to serve the sustainability of the production of entities.
323. KUVEYT T ÜRK 2017 ANNUAL REPORT 321 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The main activities of Retail and Enterprise Banking; there are main activities: fund collection, commercial installment loan, enterprise loan, non-cash loans, consumer financing and credit cards. The Bank serves in the range of products of profit share accounts creation, banking services, Trade Finance, Checks, POS services, Credit Cards, ATM services, Online Banking and Mobile Banking in these fields. In International Banking, in the scope of the aim of improvement of the foreign trade financing and long-term mutual financing agreements with foreign banks, the relationships with foreign correspondent banks and investment institutes are executed directly or via branches abroad, representative offices and agencies. The firms, which exceed certain limits, are classified as“corporate” customers and directed to the Corporate Banking. The products offered to these customers are similar to the products of Commercial Banking. The aim of international banking is to enable foreign trade financing and develop mutual long term financing agreements with foreign banks. Besides supplying syndicated loans and issue the Sukuk for the Bank, investment banking also supplies syndicated loans in corporate basis for the firms and groups in Turkey. The Treasury in addition to monitoring foreign currency position and liquidity of the Bank, also conducts spot and forward transactions in TL or foreign currencies, performs derivative transactions (Forward, Swap) with banks and customers, trades of gold within the context of membership of Istanbul Gold Exchange, trades share certificates in BIST and international markets and conducts Murabaha transactions with foreign banks. Specific balance sheet and income statement items according to segments: Retail and enterprise banking 3,276,503 1,576,719 1,207,795 2,907,579 2,907,579 2,907,579 Commercial banking 1,209,587 519,866 (271,476) 418,245 418,245 418,245 Corporate and international banking 262,124 561,971 (936,319) (1,236,166) (1,236,166) (1,236,166) Unallocated 1,280,804 (1,280,804) 4,104 (1,276,700) 183,251 (1,459,951) Total operations of the Group 4,748,214 3,939,360 808,854 4,104 812,958 183,251 629,707 17,955,408 20,095,632 17,743,947 - 55,794,987 - - - 43,085 1,726,630 43,085 1,726,630 Total assets 17,955,408 20,095,632 17,743,947 1,769,715 57,564,702 Segment liabilities Undistributed liabilities Shareholders’ equity 30,626,355 - 9,627,238 - 11,302,692 - 1,397,602 4,610,815 51,556,285 1,397,602 4,610,815 Total liabilities 30,626,355 9,627,238 11,302,692 6,008,417 57,564,702 Current Period 1 January – 31 December 2017 Operating income Operating expenses Transfers between segments Net operating income(loss) Income from associates Income (loss) before tax Provision for taxation Net income for the period Current Period 31 December 2017 Segment assets Associates, subsidiaries and joint Ventures Undistributed assets
324. 322 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Retail and enterprise banking 1,635,946 1,272,947 897,849 1,260,848 1,260,848 1,260,848 Commercial banking 2,152,956 304,290 (909,841) 938,825 938,825 938,825 Corporate and international banking 177,099 542,552 11,992 (353,461) (353,461) (353,461) Unallocated 1,137,627 (1,137,627) 2,423 (1,135,204) 131,932 (1,267,136) Total operations of the Group 3,966,550 3,257,416 709,134 2,423 711,557 132,481 579,076 10,479,838 19,277,131 17,442,897 - 47,199,866 - - - 38,981 1,487,188 38,981 1,487,188 Total assets 10,479,838 19,277,131 17,442,897 1,526,169 48,726,035 Pirior Period 31 December 2016 Segment liabilities Undistributed liabilities Shareholders’ equity 24,678,208 - 7,332,820 - 11,491,407 - 1,219,780 4,003,820 43,502,435 1,219,780 4,003,820 Total liabilities 24,678,208 7,332,820 11,491,407 5,223,600 48,726,035 Pirior Period 1 Janury 2016 - 31 December 2016 Operating income Operating expenses Transfers between segments Net operating income(loss) Income from associates Income (loss) before tax Provision for taxation Net income for the period Pirior Period 31 December 2016 Segment assets Associates, subsidiaries and joint Ventures Undistributed assets
325. KUVEYT T ÜRK 2017 ANNUAL REPORT 323 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) SECTION FIVE EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS 1. Explanations and notes related to assets 1.1. a. Cash and balances with the Central Bank of Republic of Turkey: 1.1.1. 1. Cash and balances with the Central Bank of Republic of Turkey: Cash/foreign currency The Central Bank of Republic of Turkey Other (*) Current Period TL FC 366,164 1,025,763 255,738 6,468,109 3,120 905,825 TL 429,341 266,286 - FC 1,136,330 5,671,920 821,937 Total 625,022 695,627 7,630,187 8,399,697 Prior Period (*) As of 31 December 2017, precious metal account amounting to TL 693,239 (31 December 2016- TL 802,280) and money in transit are presented in this line amounting to TL 215,706 (31 December 2016 – TL 19,657). 1.1.2. Balances with the Central Bank of Turkey: Unrestricted demand deposit Unrestricted time deposit Restricted time deposit Current Period TL FC 254,185 38 1,553 6,468,071 TL 259,936 6,350 FC 20 5,671,900 Total 255,738 266,286 5,671,920 6,468,109 Prior Period In accordance with the “Communiqué Regarding the Reserve Requirements no. 2013/15, the Bank is required to maintain reserves in CBRT for TL and foreign currency liabilities. The reserve requirements can be maintained as TL, USD, EUR and standard gold. CBRT started paying interest on reserve balances held in USD starting from May 2015 and held ın TL starting from November 2014. The reserve rates for TL liabilities vary between 4% and 10.5% for TL deposits and other liabilities according to their maturities as of 31 December 2017 (31 December 2016: 4% and 10.5% for all TL liabilities). The reserve rates for foreign currency liabilities vary between 4% and 24% for deposit and other foreign currency liabilities according to their maturities as of 31 December 2017 (31 December 2016: 4% and 24% for all foreign currency liabilities). 1.2. b. Information on financial assets at fair value through profit and loss: 1.2.1. As of 31 December 2017, there are no financial assets at fair value through profit and loss subject to repurchase transactions, given as a collateral or blocked (31 December 2016 – None).
326. 324 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.2.2. Positive Differences Related to Derivative Financial Assets Held-for-Trading: Derivative financial assets held-for-trading Current Period TL FC 11,141 5,326 3,027 7,205 - Prior Period TL 20,373 1,844 - FC 1,931 85,902 - 12,531 22,217 87,833 Banks Domestic Foreign Branches and head office abroad Current Period TL FC 8,619 3,563,455 8,505 2,413,931 114 1,149,524 - TL 26,887 26,859 28 - FC 4,753,493 3,555,895 1,197,598 - Total 8,619 3,563,455 26,887 4,753,493 Current period Unrestricted Restricted Amount Amount 645,819 455,757 13,107 945 34,010 - Unrestricted Amount 689,699 393,755 7,893 562 105,717 Prior period Restricted Amount - 1,197,626 - Forward transactions Swap transactions Futures transactions Options Other Total 14,168 1.3. Information on Banks: Prior Period Information on foreign bank accounts: EU Countries USA and Canada OECD Countries (*) Off-shore Banking Regions Other Total (*) 1,149,638 - OECD countries other than European Union countries, USA and Canada. 1.4. Information on financial assets available-for-sale: Debt Securities Quoted on stock exchange Not quoted on stock exchange Share certificates Quoted on stock exchange Not quoted on stock exchange Impairment provision (-) Total Current Period 4,289,387 4,289,387 174,134 124,923 49,211 (39,791) 4,423,730 Prior Period 3,699,871 3,699,871 101,212 47,013 54,199 (48,356) 3,752,727
327. KUVEYT T ÜRK 2017 ANNUAL REPORT 325 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The details of the Rent Certificates included in Bank’s Portfolio of “Financial Assets Available for-Sale” as of 31 December 2017 are presented below. The Bank purchased the rent certificates (“sukuk”),the details of which are given in the table below from private entitites. These aforementioned rent certificates are stated under “Other Securities” in the hereby financial statements. REFERENCE US71567RAD89 XS1082151868 XS0922143382 CURRENCY COUPON FREQUENCY USD USD 6 6 USD 6 USD USD USD 6 6 3 XS1057852912 XS1241110300 XS1696457289 ISSUER REPUBLIC OF INDONESIA ALBARAKA TURK TÜRKİYE FİNANS K.B.A.Ş. TÜRKİYE FİNANS K.B.A.Ş. DIB IILM PURCHASE DATE MATURITY DATE COST VALUE RATE (%) 12/10/2017 30/06/2014 28/05/2025 30/06/2019 3,950 16,623 4.32 6.26 02/05/2013 02/05/2018 126,255 3.96 24/04/2014 03/06/2015 10/10/2017 24/04/2019 03/06/2020 23/01/2018 27,654 7,563 56,669 3.96 0.58 1.88 Additionely, the Bank included rent certificates detailes of which are presented below and these amounts are classified under “Government debt securities” at the accompanying financial statements. REFERENCE TRD140721T18 TRD140218T18 TRD220921T16 TRD260918T17 TRD211118T18 TRD130219T18 TRD190619T18 TRD100822T10 TRD121022T14 XS0831353361 CURRENCY TRY TRY TRY TRY TRY TRY TRY TRY TRY COUPON FREQUENCY 6 6 6 6 6 6 6 6 6 USD 6 USD 6 USD 6 USD 6 USD 6 XS1586385178 XS1141043296 XS0975124180 XS1303467077 ISSUER T.C. HAZİNE T.C. HAZİNE T.C. HAZİNE T.C. HAZİNE T.C. HAZİNE T.C. HAZİNE T.C. HAZİNE T.C. HAZİNE T.C. HAZİNE REPUBLIC OF TURKEY REPUBLIC OF TURKEY REPUBLIC OF TURKEY REPUBLIC OF TURKEY REPUBLIC OF TURKEY PURCHASE DATE 20/07/2016 17/02/2016 28/09/2016 28/09/2016 23/11/2016 15/02/2017 21/06/2017 16/08/2017 18/10/2017 MATURITY DATE 14/07/2021 14/02/2018 22/09/2021 26/09/2018 21/11/2018 13/02/2019 19/06/2019 10/08/2022 12/10/2022 COST VALUE 3,176 21,435 176,340 17,317 980 22,391 172,675 24,540 97,180 RATE (%) 9.40 10.64 2.24 8.80 2.80 11.04 10.72 10.76 2.80 26/09/2012 26/03/2018 61,633 2.80 06/04/2017 06/04/2023 9,651 5.00 25/11/2014 25/11/2024 31,610 4.48 26/04/2016 10/10/2018 41,174 4.56 08/06/2016 08/06/2021 42,342 4.26 1.5. Information on loans and receivables: 1.5.1. All types of loans and advances given to shareholders and employees of the Bank: Direct loans granted to shareholders Corporate shareholders Real person shareholders Indirect loans granted to shareholders Loans granted to employees Total Current period Cash Non-Cash 1,030 786 786 1,030 150,924 917 18,134 3 170,088 1,706 Prior period Cash Non-Cash 998 16,818 16,656 998 162 135,364 20,290 14,333 319 150,695 37,427
328. 326 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.5.2. Information on first and second category loans and other receivables including restructured or rescheduled loans: Current Period Cash Loans Loans Financing commodity against document Exports Loan Imports Loans Enterprise Loans Consumer Loans Credit Cards Precious Metal Loans Loans Given to Financial Sector Loans Extended Abroad Other Other Receivables Total Prior Period Cash Loans Loans Financing commodity against document Exports Loan Imports Loans Enterprise Loans Consumer Loans Credit Cards Precious Metal Loans Loans Given to Financial Sector Loans Extended Abroad Other Other Receivables Total Performing Loans and Other Receivables Loans and Other Receivables Loans and Receivables with (Total) Revised Contract Terms Extension of Repayment Plan Other 35,390,714 632,516 - Loans and Other Receivables under Close Monitoring Loans and Other Receivables Loans and Receivables with (Total) Revised Contract Terms Extension of Repayment Plan Other 1,159,692 653,608 - 43,351 1,687,948 22,529,634 6,636,210 555,456 55,033 16 610,366 17,986 - - 603 168 836,171 212,748 7,250 - 550,430 46,444 - - 1,226,735 209,358 2,446,989 7,045 35,397,759 4,148 632,516 - 1 60,611 42,140 757 1,160,449 56,734 653,608 - Performing Loans and Other Receivables Loans and Other Receivables Loans and Receivables with (Total) Revised Contract Terms Extension of Repayment Plan Other 26,910,523 547,437 - Loans and Other Receivables under Close Monitoring Loans and Other Receivables Loans and Receivables with (Total) Revised Contract Terms Extension of Repayment Plan Other 1,541,100 1,006,339 - 19,007 1,250,992 16,903,795 5,363,417 319,971 104,024 540,986 6,451 - - 337 10,420 1,246,959 176,927 8,637 1736 909,349 31,340 1,736 - 609,604 249,977 2,089,736 17,916 26,928,439 547,437 - 67,766 28,318 3,049 1,544,149 63,914 1,006,339 -
329. KUVEYT T ÜRK 2017 ANNUAL REPORT 327 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The information regarding the changes in the payment terms and plans of the loans and other receivables with standard qualifications, under close monitoring and the contractual terms of which have changed in relation to the extension of the first payment plan, is presented below, in accordance with the Communiqué “Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for These Loans’’ published in Official Gazette dated 1 November 2006 and numbered 2633. Current Period 1 or 2 times 3, 4 or 5 times Over 5 times Total Number of Extensions for Repayment Plan Performing Loans and Loans and Other Receivables Other Receivables under Close Monitoring 632,516 653,608 632,516 653,608 0 - 6 months 6 - 12 months 1 - 2 years 2 - 5 years 5 years and over Total Extension Periods for Repayment Plan Changes Performing Loans and Loans and Other Receivables Other Receivables under Close Monitoring 8,819 20,056 16,032 53,819 211,754 227,286 322,770 284,832 73,141 67,615 632,516 653,608 Prior Period 1 or 2 times 3, 4 or 5 times Over 5 times Total Number of Extensions for Repayment Plan Performing Loans and Loans and Other Receivables Other Receivables under Close Monitoring 547,437 1,006,339 547,437 1,006,339 0 - 6 months 6 - 12 months 1 - 2 years 2 - 5 years 5 years and over Total Extension Periods for Repayment Plan Changes Loans and Other Performing Loans and Receivables under Close Other Receivables Monitoring 4,633 31,479 15,611 107,110 153,136 313,943 238,648 497,695 135,409 56,112 547,437 1,006,339
330. 328 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.5.3. Breakdown of loans and other receivables according to their maturities: Current Period Cash Loans Short-term loans and other receivables Loans Other receivables Medium and long-term loans and other receivables (*) Loans Other receivables Total Prior Period Cash Loans Short-term loans and other receivables Loans Other receivables Medium and long-term loans and other receivables (*) Loans Other receivables Total (*) Performing Loans and Other Receivables Loans and other Loans and Receivables with receivables Revised Contract Terms Loans and other receivables under Close Monitoring Loans and other Cash Loans receivables 8,833,779 8,826,734 7,045 15,623 15,623 - 36,151 35,394 757 10,748 10,748 - 25,931,464 25,931,464 - 616,893 616,893 - 470,690 470,690 - 642,860 642,860 - 34,765,243 632,516 506,841 653,608 Performing Loans and Other Receivables Loans and other Loans and Receivables with receivables Revised Contract Terms Loans and other receivables under Close Monitoring Loans and other Cash Loans receivables 6,725,075 6,707,159 17,916 7,459 7,459 - 66,125 63,076 3,049 40,937 40,937 - 19,655,927 19,655,927 - 539,978 539,978 - 471,685 471,685 - 965,402 965,402 - 26,381,002 547,437 537,810 1,006,339 Loans with the original maturities upon first utilization longer than a year are classified as “Medium and Long Term Loans”.
331. KUVEYT T ÜRK 2017 ANNUAL REPORT 329 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.5.4. Information on consumer loans, retail credit cards, loans given to personnel and personnel credit cards: Current Period Consumer Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Retail Credit Cards-TL With Installment Without Installment Retail Credit Cards-FC With Installment Without Installment Personnel Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Personnel Credit Cards-TL With Installment Without Installment Personnel Credit Cards-FC With based Without- Installment Short term 57,159 13,722 15,072 21,920 6,445 259,700 50,251 209,449 1,467 258 1,207 2 10,151 3,124 7,027 - Medium and long term 6,583,441 5,883,855 379,081 182,143 138,362 1,604 1,604 195,065 116,388 8,148 44,893 25,636 119 119 10,222 1,097 4,665 4,460 51 51 - Total 6,640,600 5,897,577 394,153 204,063 144,807 1,604 1,604 195,065 116,388 8,148 44,893 25,636 259,819 50,370 209,449 11,689 1,097 4,923 5,667 2 10,202 3,175 7,027 - Overdraft Account-TL (Real Person) - - - Overdraft Account-FC (Real Person) - - - 328,477 6,790,502 7,118,979 Total
332. 330 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Prior Period Consumer Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Retail Credit Cards-TL With Installment Without Installment Retail Credit Cards-FC With Installment Without Installment Personnel Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Personnel Credit Cards-TL With Installment Without Installment Personnel Credit Cards-FC With based Without-Installment Short term 36,077 8,603 8,669 16,578 2,227 16 16 179,305 31,809 147,496 1,064 302 760 2 7,614 2,256 5,358 - Medium and long term 5,327,039 4,832,622 286,162 156,424 51,831 4,754 4,754 162,231 96,990 5,298 13,065 46,878 79 79 9,163 1,396 4,632 3,135 22 22 - Total 5,363,116 4,841,225 294,831 173,002 54,058 4,754 4,754 162,247 96,990 5,314 13,065 46,878 179,384 31,888 147,496 10,227 1,396 4,934 3,895 2 7,636 2,278 5,358 - Overdraft Account-TL (Real Person) - - - Overdraft Account-FC (Real Person) - - - 224,076 5,503,288 5,727,364 Total
333. KUVEYT T ÜRK 2017 ANNUAL REPORT 331 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.5.5. Information on commercial installment loans and corporate credit cards: Current Period Commercial Installment Loans-TL Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Indexed Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Business Loans Vehicle Loans Consumer Loans Other Corporate Credit Cards-TL With Installment Without Installment Corporate Credit Cards-FC With Installment Without Installment Short term 203,320 7,379 134,318 61,623 27,462 14,998 9,581 2,883 28,632 28,632 292,685 106,201 186,484 - Medium and long term 4,618,220 1,237,846 1,517,461 1,862,838 75 1,644,797 339,825 374,138 923,133 7,701 595,549 397,096 37,664 160,789 - Total 4,821,540 1,245,225 1,651,779 1,924,461 75 1,672,259 354,823 383,719 926,016 7,701 624,181 425,728 37,664 160,789 292,685 106,201 186,484 - Overdraft Account-TL (Legal Entity) - - - Overdraft Account-FC (Legal Entity) - - - 552,099 6,858,566 7,410,665 Short term 131,542 8,363 53,877 69,302 19,738 518 13,966 5,254 44,004 44,004 141,588 20,605 120,983 - Medium and long term 3,350,939 805,525 899,076 1,646,104 234 1,600,468 361,055 401,823 836,926 664 279,574 144,340 13,693 41,386 80,155 - Total 3,482,481 813,888 952,953 1,715,406 234 1,620,206 361,573 415,789 842,180 664 323,578 144,340 13,693 85,390 80,155 141,588 20,605 120,983 - Overdraft Account-TL (Legal Entity) - - - Overdraft Account-FC (Legal Entity) - - - 336,872 5,230,981 5,567,853 Total Prior Period Commercial Installment Loans-TL Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Indexed Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Business Loans Vehicle Loans Consumer Loans Other Corporate Credit Cards-TL With Installment Without Installment Corporate Credit Cards-FC With Installment Without Installment Total
334. 332 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.5.6. Allocation of loans by customers: Public Private Total Current period 17,136 36,541,072 Prior period 12,780 28,459,808 36,558,208 28,472,588 Current period 36,288,239 269,969 Prior period 28,154,845 317,743 36,558,208 28,472,588 Current period 19 - Prior period 14 - 19 14 1.5.7. Breakdown of domestic and foreign loans: Domestic loans Foreign loans Total 1.5.8. Loans granted to subsidiaries and associates:: Loans granted directly to subsidiaries and associates (*) Loans granted indirectly to subsidiaries and associates Total (*) The loan amounts stated above, that are granted to the subsidiaries and associates of the Bank are presented in line of “Banks” in the accompanying financial statements 1.5.9. Specific provisions for loans: Current period Prior period Specific provisions Loans and receivables with limited collectability Loans and receivables with doubtful collectability Uncollectible loans and receivables 145,827 97,155 424,786 71,172 211,227 304,120 Total 667,768 586,519
335. KUVEYT T ÜRK 2017 ANNUAL REPORT 333 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.5.10. Information on non-performing loans (net): 1.5.10.1. Information on non-performing loans and other receivables restructured or rescheduled: Group III Loans and receivables with limited collectability Current period (Gross amounts before specific provision) Restructured loans and other receivables Rescheduled loans and other receivables Prior period (Gross amounts before specific provision) Restructured loans and other receivables Rescheduled loans and other receivables Group IV Group V Loans and receivables with doubtful Uncollectible loans collectability and receivables - - - - - - 1.5.10.2. Information on the movement of total non-performing loans: Current Period Balance at the end of the prior period 31.12.2016 Additions in the current period (+) Transfers from other categories of non-performing loans(+) Transfers to other categories of non-performing loans (-) Collections in the current period (-) Write offs (-) Corporate and commercial loans Retail loans Credit Cards Other Balance at the end of the current period Specific provisions (-) Net balance at the balance sheet Group III Loans and receivables with limited collectability 128,436 305,164 267,178 7,833 158,589 145,827 12,762 Group IV Group V Loans and receivables with doubtful Uncollectible loans collectability and receivables 278,874 341,304 117,193 97,926 267,078 531,646 14,265 117,234 97,155 20,079 531,746 70,386 461,353 406,236 38,252 16,865 439,237 424,786 14,451 1.5.10.3. Information on non-performing loans granted as foreign currency: Group III Loans and receivables with limited collectability Current Period Period End Balance (Specific Provision) Prior Period Period End Balance (Specific Provision) Group IV Group V Loans and receivables with doubtful Uncollectible loans collectability and receivables - - 930 (821) - - 552 (796)
336. 334 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.5.10.4. Gross and net amounts of non-performing loans with respect to user group Group III: Loans and receivables with limited collectability 12,762 158,589 145,827 12,762 57,264 128,436 71,172 57,264 - Current period (Net) Loans granted to real persons and legal entities (Gross) Specific provision (-) Loans to real persons and legal entities (Net) Banks (Gross) Specific provision (-) Banks (Net) Other loans and receivables (Gross) Specific provision (-) Other loans and receivables (Net) Prior period (Net) Loans to real persons and legal entities (Gross) Specific provision (-) Loans to real persons and legal entities (Net) Banks (Gross) Specific provision (-) Banks (Net) Other loans and receivables (Gross) Specific provision (-) Other loans and receivables (Net) Group IV: Group V: Loans and receivables with doubtful Uncollectible loans collectability and receivables 20,079 14,451 117,234 439,237 97,155 424,786 20,079 14,451 67,647 37,184 278,874 341,304 211,227 304,120 67,647 37,184 - The Parent Bank holds collaterals like mortgage pledge, customer cheques and other collaterals against these financial assets 1.5.10.5. Aging analysis of past due but not impaired financial assets per classes of financial instruments is as follows: Current period Loans and receivables Corporate loans Retail loans Credit cards Total Less than 30 days 31-60 days 61-90 days More than 91 days Total 683,540 38,107 4,764 726,411 137,828 132,728 1,736 272,292 119,108 41,889 749 161,746 - 940,476 212,724 7,249 1,160,449 Prior Period Loans and receivables Corporate loans Retail loans Credit cards Total Less than 30 days 31-60 days 61-90 days More than 91 days Total 904,414 33,502 4,416 942,332 276,634 90,083 2,743 369,460 177,537 53,342 1,478 232,357 - 1,358,585 176,927 8,637 1,544,149
337. KUVEYT T ÜRK 2017 ANNUAL REPORT 335 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.5.11. Main guidelines for liquidation process of uncollectible loans and other receivables: Loans and other receivables, which were deemed uncollectible according to the “Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans” published in the Official Gazette No. 26333 dated 1 November 2006 and for which a full impairment provision has been made, are written-off per the decision of the Bank top management. Within 2017, non-performing loans amounting to TL 461,353 have been written-off (31 December 2016 – TL 150,682). 1.5.12. Information on the write-off policy: The Group‘s write-off policy is to write-off the loan receivables that have been already transferred to legal follow-up and fully provided for and for which there is no possibility of collection through legal process and for which there is no collateral. Such loans are written off as per the decision of top management. 1.6. Information on held-to-maturity investments (Net): None. (31 December 2016 – None). 1.7. Information on investment in associates (Net): 1.7.1. The 1.69% ownership of Kredi Garanti Fonu A.Ş. of TL 4,719 (31 December 2016 – TL 4,719), 8.36% ownership of Islamic International Rating Agency of TL 714 (31 December 2016 – TL 714), and 6.99% ownership of Neova Sigorta A.Ş. of TL 5,201 (31 December 2016 – TL 5,201), TL 390 amount of swift shares (31 December 2016 – TL 390) and 0.0035% ownership of share of TL 15 (31 December 2016 – TL 15) that is traded in Borsa İstanbul A.Ş. and VISA Inc.share of TL 7,149 (31 December 2016 – TL 6,660 ) are classified as financial assets available for sale since the Bank’s ownership in these institutions is less than 10% and the Parent Bank does not have a significant influence on these institutions. 1.7.2. Information about investments in unconsolidated associates: None (31 December 2016 – None). 1.7.3. Information related to consolidated associates: None (31 December 2016 – None). 1.8. Information on investment in associates (Net): 1.8.1. Although the Bank has control power over the management and capital of its non-financial subsidiaries, these subsidiaries do not confirm to the definition of financial subsidiary in accordance with “Regulation related to the Preparation of Consolidated Financial Statements by Banks” published in the Official Gazette No. 26340 dated 8 November 2006; hence these subsidiaries which are “Körfez Tatil Beldesi Turistik Tesisler ve Devremülk İşletmeciliği San. ve Tic. A.Ş. ve Architecht Bilişim Sistemleri ve Pazarlama Tic A.Ş ” have not been consolidated. The Bank has reflected its subsidiaries at restated cost less any provision for impairment in its financial statements until 31 December 2004.
338. 336 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.8.2. Information on subsidiaries: Title Körfez Tatil Beldesi Turistik Tesisler ve Devremülk İşletmeciliği San.ve Tic. A.Ş. (*) Körfez Gayrimenkul Yatırım Ortaklığı A.Ş. KT Sukuk Varlık Kiralama A.Ş. (*) KT Kira Sertifikaları Varlık Kiralama A.Ş. KT Bank AG KT Portföy Yönetimi A.Ş. Architecht Bilişim Sistemleri ve Pazarlama Tic A.Ş (*) KT Sukuk Company Limited (**) Bank’s share Address percentage, if different(City/Country) voting Percentage (%) İstanbul/Turkey İstanbul/Turkey İstanbul/Turkey İstanbul/Turkey Frankfurt/ Germany İstanbul/Turkey İstanbul/Tutkey George Town/ Cayman Islands Bank’s risk group share Percentage (%) %99.99 %75.00 %100 %100 %99.99 %97.61 %100 %100 %100 %100 %100 %100 %100 %100 %100 %100 Information on subsidiaries respective to the order presented in the above, is given below: Total assets 33,050 148,947 151,716 5,703,311 866,438 6,877 8,054 1,360,339 33,050 Equity 32,862 147,961 215 107 407,373 6,348 7,028 1 32,862 Total fixed assets 7,445 63 55,987 163 340 7,445 Profit share income - Income from marketable securities - Current period profit/loss 3,669 45,384 61 13 (33,923) (1,221) 4,356 3,669 Prior period profit /loss 6,946 30,935 11 5 (41,161) (1,587) 1,674 6,946 Fair value - These figures are shown per Turkish Trade Law financial statements as at 31 December 2017. KT Sukuk Company Limited is established in Cayman on 31 July 2015, for the need of a second subordinated loan for the Bank. According to relevant article of IFRS 10, it is described as a subsidiary. (*) (**)
339. KUVEYT T ÜRK 2017 ANNUAL REPORT 337 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Movement for subsidiaries Current period 23,680 - Prior period 22,930 750 - 23,680 - 23,680 - Bank’s share Address percentage, if different(City/Country) voting Percentage (%) Istanbul/Turkey %100.00 Istanbul/Turkey %100.00 Istanbul/Turkey %75.00 Frankfurt/ Germany %100.00 Istanbul/Turkey %100.00 GeorgeTown/ Cayman Island %100.00 Bank’s risk group share Percentage (%) %100.00 %100.00 %97.61 Balance at the beginning of the year Movements during the year Purchases Transfers from subsidiaries Bonus shares Dividends from current year income Sales Revaluation increase (Impairment)/reversal of impairment Capital commitment payments Balance at the end of the year Capital commitments Period-end share of capital (%) 1.8.3. Information on capital adequacies of major subsidiaries: Title KT Sukuk Varlık Kiralama A.Ş. KT Kira Sertifikaları Varlık Kiralama A.Ş Körfez Gayrimenkul Yatırım Ortaklığı A.Ş. KT Bank AG KT Portföy Yönetimi A.Ş. KT Sukuk Company Limited (*) %100.00 %100.00 %100.00 (*) The special purpose entity, Kuveyt Turk Sukuk is not a subsidiary of the Parent Bank. Since the Bank has 100% control power on the subsidiary it is included in the scope of consolidation. Sectoral information on consolidated subsidiaries and the related carrying amounts: Banks Insurance Companies Factoring Companies Leasing Companies Finance Companies Other Financial Subsidiaries Current period 293,694 60,273 Prior period 270,560 55,273 Subsidiaries that are quoted on the stock exchange: None.(31 December 2016- None). 1.8.4. Information on capital adequacies of major subsidiaries Calculated equity amount of domiciled subsidiary of the Bank in Germany , KT Bank AG, is EUR 59,628,649 and capital adequacy ratio is %41.49.
340. 338 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.8.5. Accounting methods and reasons of unconsilidation for the unconsolidated subsidiaries: Subsidiares which are not subject to consolidation due to they are not subsidairies are accounted at cost if any values after impairement. Information on joint ventures (business partnerships) (Net): Bank’s share percentage Total assets Equity Total fixed assets Current period profit/loss Prior period profit /loss %50 1,135,119 40,000 4,251 7,883 4,846 Katılım Emeklilik ve Hayat A.Ş. (*) (**) (*) As of 31 December 2017, financial figures for this entity in the table above are based on the financial information prepared in accordance with the local regulations. (**) In accordance with decision of the Bank’s Board of Directors on 25 April 2013, Kuveyt Türk Katılım Bankası A.Ş. and Albaraka Türk Katılım Bankası A.Ş. decided to establish a Pension Company. Bank decided to establish that pension company with the equal share amounts with Albaraka Türk Katılım Bankası A.Ş, and that pension company is registered with the trade name ”Katılım Emeklilik ve Hayat Anonim Şirketi”, 895027 registry numbered dated 17 December 2013 by İstanbul Ticaret Sicil Müdürlüğü. 1.10. Information on finance lease receivables (Net): 1.10.1. Presentation of remaining maturities of net finance leases: Less than 1 year 1 to 4 years More than 4 years Total Current period Gross Net 1,601,249 1,325,209 615,546 583,034 178,945 172,487 2,395,740 2,080,730 Prior period Gross 1,119,851 493,529 131,810 1,745,190 Net 958,746 461,817 123,980 1,544,543 1.10.2. Net investments in finance leases: Gross receivable from finance leases Unearned finance lease income (-) Cancelled amounts (-) Net receivable from finance leases Current period 2,395,740 (315,010) - Prior period 1,745,190 (200,647) - 2,080,730 1,544,543 1.10.3. General Information on finance lease contracts: The Bank determines the installments of the financial lease agreements in accordance with related legislations. Payment terms and amounts may be modified with additional agreements upon customers’ requests. On the agreements, the Bank gives the customer the option to buy the related property. According to the Financial Lease Law, if a customer does not fulfill its obligations, the Bank sends a notice to the customer and the Bank takes legal action against the customer within 60 days if necessary. Non performing finance lease receivables amounting to TL 5,040 are included in the non-performing loans in the balance sheet (31 December 2016– TL 13,086). Impairment provision amounting to TL 4,420 (31 December 2016– TL 12,126) for financial lease receivables are included under the specific provision account under loans in the balance sheet. 1.11. Information on derivative financial assets for hedging purposes: None (31 December 2016 – None).
341. KUVEYT T ÜRK 2017 ANNUAL REPORT 339 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.12. Explanations on Tangible Assets (Net) Buildings Leased Tangible Assets Vehicles Other Tangible Assets Total At End of Prior Period: 31 December 2016 Cost Accumulated Depreciation (-) Net Book Value At End of Current Period: 31 December 2017 Net book value at beginning of period Additions Disposals (-) Transfers to assets held for sale (-) Transfer from assets held for sale Impairment/Reversal of Impairment Losses Depreciation Expense (-) Cost at period end Accumulated depreciation end of period (-) 163,628 19,559 144,069 80,032 18,354 61,678 1,173 944 229 462,431 223,235 239,196 707,264 262,092 445,172 144,069 15,204 1,348 6,466 177,484 26,025 61,678 251 770 80,283 19,124 229 999 133 2,172 1,077 239,196 41,809 650 (38,853) 48,417 473,988 271,652 445,172 58,263 1,998 (38,853) 55,786 733,927 317,878 Closing net book value 151,459 61,159 1,095 202,336 416,049 168,989 12,060 156,929 79,667 17,615 62,052 1,123 907 216 421,114 178,669 242,445 670,893 209,251 461,642 156,929 2,110 7,471 7,499 163,628 19,559 62,052 365 739 80,032 18,354 216 50 37 1,173 944 242,445 44,353 3,036 44,566 462,431 223,235 461,642 46,878 10,507 52,841 707,264 262,092 144,069 61,678 229 239,196 445,172 At End of Prior Period: 31 December 2015 Cost Accumulated Depreciation (-) Net Book Value At End of Current Period: 31 December 2016 Net book value at beginning of period Additions Disposals (-) Transfers to assets held for sale (-) Transfer from assets held for sale Impairment/Reversal of Impairment Losses Depreciation Expense (-) Cost at period end Accumulated depreciation end of period (-) Closing net book value 1.13. Explanations on Intangible Assets: 1.13.1. Gross carrying value and accumulated amortization balances at beginning and at the end of the period: Cost Accumulated Amortization Total (net) Current Period 290,608 (121,643) Prior Period 237,034 (96,568) 168,965 140,466
342. 340 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 1.13.2. Movements of intangible assets Opening balance Additions Disposals (-), net Depreciation amount (-) Closing net book value Current Period 158,757 42,893 1,928 30,757 Prior Period 119,340 56,425 8,414 26,885 168,965 140,466 Intangible assets include computer software and program licenses purchased for banking systems. 1.14. Investment property: Opening balance Additions Disposals (-), net Depreciation amount (-) Closing net book value (*) Current Year 25,577 158 25,419 Pirior Year - Fair value of the investment properties is TL 30.900. 1.15. Information on deferred tax asset: In accordance with the related regulations deferred tax asset calculated as of 31 December 2017 is TL 157,245 (31 December 2016 – TL 130,520) and deferred tax liability is TL 18,535 (31 December 2016 – TL 12,409). Current period 20,197 16,788 46,597 26,181 36,436 11,046 Prior period 14,755 11,092 29,683 27,731 36,425 10,834 Deferred tax asset 157,245 130,520 Difference between carrying value and tax base of tangible assets Valuation difference on available for sale financial asset Valuation difference on precious metal Other (10,044) (3,556) (652) (4,283) (7,754) (220) (3,131) (1,304) Deferred tax liabilities (18,535) (12,409) Deferred tax asset, (net) 138,710 118,111 Reserve for employee benefits Retirement pay liability Deferred income Rediscounts for derivative instruments held for trading Impairment provision for subsidiaries, fixed assets and assets held for sale Precious metals valuation difference Other
343. KUVEYT T ÜRK 2017 ANNUAL REPORT 341 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Table for deferred tax asset movement: As of January 1 Deferred tax (expense) /income Deferred tax accounted under shareholders’ equity Deferred tax asset Current period 118,111 14,403 6,196 Prior period 107,150 (7,517) 18,478 138,710 118,111 1.16. Explanation regarding the assets held for sale Tangible assets which are obtained through receivables of the Parent Bank and which the Parent Bank plans to sell within one year and that have been announced in the web site are valued with the lower of the cost less accumulated net book value and fair value as is required by the Communique of “Principles and Procedures on Bank’s Disposal of Precious Metals and Asset Held For Sale” published on 1 November 2006 in the Official Gazette No. 26333 in the consolidated financial statements. Opening balance Additions Transfer from tangible assets Disposals (-), net Transfer to tangible assets Depreciation amount (-) Impairment losses provision (-) Closing net book value Current Period 47,975 30,957 38,853 779 - Prior Period 32,640 15,335 - 117,006 47,975 1.17. Information on other assets: As of balance sheet date, the Group’s other assets amount to TL 860,481 (31 December 2016 – TL 735,464 ) Other assets balance does not exceed 2% of the total assets on the balance sheet excluding off balance sheet commitments.
344. 342 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2. Explanations and notes related to liabilities 2.1. Information on funds collected: 2.1.1. Information on maturity structure of funds collected: Current Period I. Real persons current accounts-TL II. Real persons profit sharing accounts TL III. Other current accounts-TL Public sector Commercial sector Other institutions Commercial and other institutions Banks and participation banks Demand Up to 1 Month Up to 3 Months Up to 6 months Up to 9 months 4,089,584 - - - - - 3,920,064 6,325,033 449,754 2,892,984 - - - Up to 1 year 1 year and over Accumulated profit sharing accounts Total - - - 4,089,584 245,635 194,490 - 11,134,976 - - - 2,892,984 - 70,537 - - - - - - - 70,537 2,775,649 - - - - - - - 2,775,649 42,423 42,423 - - - - - - - - - - - - - - - - 4,375 - - - - - - - 4,375 Central Bank of Republic of Turkey - - - - - - - - - Domestic banks - - - - - - - - - Foreign banks Participation banks Others IV. Profit sharing accounts-TL 3,875 - - - - - - - 3,875 500 - - - - - - - 500 - - - - - - - - - - 421,907 960,907 131,032 - 193,737 126,429 - 1,834,012 Public sector - 108 34,391 - - 29 - - 34,528 Commercial sector - 394,722 852,072 122,025 - 187,200 124,735 - 1,680,754 Other institutions - 27,062 74,334 9,007 - 6,505 1,694 - 118,602 Commercial and other institutions - 15 96 - - 3 - - 114 Banks and participation banks - - 14 - - - - - 14 5,006,983 - - - - - - - 5,006,983 V. Real persons current accounts-FC - 2,406,130 4,048,379 857,533 426,661 229,940 - 7,968,643 VII. Other current accounts-FC VI. Real persons profit sharing accounts-FC 2,824,367 - - - - - - - 2,824,367 Commercial residents in Turkey 2,444,177 - - - - - - - 2,444,177 Commercial residents in Abroad 288,612 - - - - - - - 288,612 91,578 - - - - - - - 91,578 Central Bank of Republic of Turkey - - - - - - - - - Domestic banks - - - - - - - - 91,578 Banks and participation banks 91,578 - - - - - - - Participation banks Foreign banks - - - - - - - - - Others - - - - - - - - 1,583,383 VIII. Profit sharing accounts- FC - 336,381 941,748 83,056 - 166,331 55,867 - Public sector - 5 47 - - - - - 52 Commercial sector - 281,489 868,374 62,970 - 165,324 55,781 - 1,433,938 Other institutions - 24,687 25,848 48 - 423 - - 51,006 Commercial and other institutions - 30,195 39,112 20,038 - 584 - - 89,929 Banks and participation banks IX. Precious metal funds - 5 8,367 - - - 86 - 8,458 1,478,006 270,606 1,038,247 87,510 - 45,658 4 - 2,920,031 - X. Profit sharing accounts special funds – TL - - - - - - - - Residents in Turkey - - - - - - - - - Residents Abroad - - - - - - - - - XI. Profit sharing accounts special funds - FC - - - - - - - - - Residents in Turkey - - - - - - - - - Residents Abroad - - - - - - - - - 16,291,924 7,355,088 13,314,314 1,608,885 1,078,022 606,730 - 40,254,963 Total There are no 7 day notification and cumulative participation accounts of the Bank.
345. KUVEYT T ÜRK 2017 ANNUAL REPORT 343 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Prior Period I. Real persons current accounts-TL II. Real persons profit sharing accounts-TL III. Other current accounts-TL Public sector Commercial sector Other institutions Commercial and other institutions Banks and participation banks Central Bank of Republic of Turkey Domestic banks Foreign banks Participation banks Others IV. Profit sharing accounts-TL Demand Up to 1 month Up to 3 Months Up to 6 months Up to 9 months Up to 1 year 1 year and over Accumulated profit sharing accounts Total 3,573,258 - - - - - - - 3,573,258 - 3,455,975 6,185,646 481,322 - 227,354 160,993 - 10,511,290 2,350,257 - - - - - - - 2,350,257 57,536 - - - - - - - 57,536 2,260,763 - - - - - - - 2,260,763 27,325 27,325 - - - - - - - - - - - - - - - - 4,633 - - - - - - - 4,633 - - - - - - - - - 741 - - - - - - - 741 3,090 - - - - - - - 3,090 802 - - - - - - - 802 - - - - - - - - - - 349,795 821,092 44,001 - 132,379 135,889 - 1,483,156 Public sector - 301 33,481 - - 40 - - 33,822 Commercial sector - 321,734 738,429 32,343 - 126,604 135,150 - 1,354,260 Other institutions - 27,021 48,987 11,658 - 5,725 401 - 93,792 Commercial and other institutions - 739 182 - - 10 - - 931 Banks and participation banks - - 13 - - - 338 - 351 - 3,090,964 V. Real persons current accounts-FC VI. Real persons profit sharing accounts-FC 3,090,964 - - 1,625,988 2,820,800 651,610 - 454,239 164,990 - 5,717,627 VII. Other current accounts-FC 1,718,839 - - - - - - - 1,718,839 Commercial residents in Turkey 1,341,943 - - - - - - - 1,341,943 Commercial residents in Abroad 277,192 - - - - - - - 277,192 Banks and participation banks 99,704 - - - - - - - 99,704 Central Bank of Republic of Turkey Domestic banks Foreign banks Participation banks Others VIII. Profit sharing accounts- FC - - - - - - - - - 7,665 - - - - - - - 7,665 89,721 - - - - - - - 89,721 2,318 - - - - - - - 2,318 - - - - - - - - - - 378,656 649,008 93,215 - 63,706 40,797 - 1,225,382 Public sector - - 80 - - - - - 80 Commercial sector - 286,537 559,916 80,034 - 57,366 29,608 - 1,013,461 Other institutions - 59,622 37,781 28 - 741 - - 98,172 Commercial and other institutions - 28,971 47,051 13,153 - 5,599 11,103 - 105,877 - 3,526 4,180 - - - 86 - 7,792 1,299,314 - 930,175 73,925 - 36,607 - - 2,340,021 Banks and participation banks IX. Precious metal funds X. Profit sharing accounts special funds - TL - - - - - - 2,184 - 2,184 Residents in Turkey - - - - - - 2,184 - 2,184 Residents Abroad - - - - - - - - - XI. Profit sharing accounts special funds - FC - - - - - - - - - Residents in Turkey - - - - - - - - - Residents Abroad - - - - - - - - - 12,032,632 5,810,414 11,406,721 1,344,073 - 914,285 504,853 - 32,012,978 Total
346. 344 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2.1.2. Information’s on current and profit share accounts that are in the scope of Saving Deposit/Saving Deposit Insurance Fund: 2.1.2.1. Current and Participation Accounts Attributable to Real Entities/Persons under the Guarantee of Saving Deposit Insurance Fund Exceeding the Limit of the Deposit Insurance Fund: Under the guarantee of saving deposit insurance Current period Prior period Real persons current and profit sharing accounts that are not subject to commercial activities TL accounts FC accounts Foreign branches’ deposits under foreign authorities’ insurance Off-shore banking regions’ under foreign authorities’ insurance Exceeding the limit of saving Deposit Current period Prior period 9,730,510 5,804,410 8,985,542 4,058,175 5,440,996 9,535,405 5,052,687 6,504,045 - - - - - - - - Funds collected by Participation Banks (except for foreign branches) through current and profit share accounts which are opened by real persons and denominated in Turkish Lira or foreign currency with a limit of maximum of TL 100 (including both capital and profit shares) for each person is under the guarantee of Saving Deposit Insurance Fund in accordance with the Banking Law No. 5411 published in the Official Gazette dated 1 November 2015 with No 26333. 2.1.2.2. If the headquarters of the Bank is abroad and the deposit account in its Turkish branch is in the scope of the insurance policy in the country of the headquarter of the Bank is founded, it should be explained: The headquarters of the Parent Bank is in Turkey. 2.1.2.3. Current and Profit Share Accounts of the real persons who are not in the scope of Saving Deposits Insurance Fund: The Parent Bank has no current or profit sharing accounts which are not under the guarantee of the Saving Deposit Insurance Fund except for the current and profit sharing accounts of shareholders, member of Board of Directors, CEO, the Vice Presidents and their first degree relatives. Foreign branches’ profit sharing accounts and other accounts Profit sharing accounts and other accounts of controlling shareholders and profit sharing accounts of their mother, father, spouse, children in care Profit sharing account and other accounts of President and Members of Board of Directors, CEO and Vice Presidents and profit sharing accounts of their mother, father, spouse and children in care Profit sharing account and other accounts in scope of the property holdings derived from crime defined in article 282 of Turkish Criminal Law No:5237 dated 26 September 2004 Profit sharing accounts in participation banks which are established in Turkey in order to engage in off-shore banking activities Current period - Prior period - - - 4,573 3,046 - - - 355
347. KUVEYT T ÜRK 2017 ANNUAL REPORT 345 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2.2. Information on derivative financial liabilities held for trading: Derivative financial liabilities held for trading: Forward transactions Swap transactions Futures transactions Options Other Current period TL 10,269 11,177 - FC 4,679 54,572 - Total 21,446 59,251 Prior period TL 15,459 25,121 40,580 FC 1,294 77,853 79,147 2.3. Information on funds borrowed: 2.3.1. Information on banks and other financial institutions: Current period TL FC Prior period TL FC Loans from The Central Bank of the Republic of Turkey From Domestic Banks and Institutions From Foreign Banks, Institutions and Funds 51,243 58,873 280,602 2,996,409 73 59,007 281,737 2,933,925 Total 110,116 3,277,011 59,080 3,215,662 2.3.2. Information on maturity structure of borrowings: Short-term Medium and Long-Term Current period TL FC 110,116 3,113,321 163,690 Prior period TL FC 48,852 3,059,071 10,228 156,591 Total 110,116 59,080 3,277,011 Details of significant transactions that are accounted under Funds Borrowed are stated in table below. 3,215,662
348. 346 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Current Period: Type Wakala Wakala Customer PUBLIC INSTITUTE FOR SOCIAL SECURITIES KW KFH - KUWAIT Opening Date Rate Maturity Currency (Yearly) 07/11/2017 14/11/2018 02/06/2017 08/06/2018 USD USD Principal Cost %2.30 103,925,361 %2.25 120,000,000 2,469,959 2,782,500 Prior Period: Type Wakala Wakala Wakala Wakala Wakala Customer PUBLIC INSTITUTE FOR SOCIAL SECURITIES KW KFH - KUWAIT PUBLIC INSTITUTE FOR SOCIAL SECURITIES KW KFH - KUWAIT KFH - KUWAIT Opening Date Rate Maturity Currency (Yearly) Principal Cost 27/10/2016 04/11/2016 27/01/2017 06/02/2017 USD USD %2.20 100,000,000 %2.20 100,000,000 562,222 574,444 27/05/2016 21/06/2016 31/10/2016 02/06/2017 27/06/2017 07/11/2017 USD USD USD %1.90 120,000,000 %2.05 100,000,000 %2.15 101,666,667 2,349,667 2,112,639 2,258,694 2.3.3. Explanations related to the concentrations of the Parent Bank’s major liabilities: All of the borrowings consist of foreign currency loans and majorly they are formed by the transactions with the offshore financial institutions. There is no risk concentration of the Bank’s current and profit sharing accounts. 2.4. Information on issued securities: The sukuks issued by the Group are below. The yield rates for issued securities are 13% for Turkish Lira and 5% for USD on average and for 6% Malasian Ringgit . The maturity range of issued securities in TRY is January 2018 – March 2019 and securities (sukuk) in USD is June 2019-November 2021 and securities (sukuk) in Malasian Ringgit is March 2020-July 2020. Current Period Nominal Distributed Yields Book Value Prior Period Nominal Distributed Yields Book Value TL Short Term Mid-Long Term Maturity Maturity 1,031,433 45,000 40,051 1,059,378 45,240 FC Short Term Mid-Long Term Maturity Maturity 4,524,360 601,376 4,547,223 TL Short Term Mid-Long Term Maturity Maturity 561,657 10,000 15,203 570,343 10,228 FC Short Term Mid-Long Term Maturity Maturity 4,147,352 818,891 4,174,842
349. KUVEYT T ÜRK 2017 ANNUAL REPORT 347 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2.5. Information on other liabilities and miscellaneous payables: As of 31 December 2017, other liabilities amounting TL 345,918 (31 December 2016 – TL 439,785), sundry creditors amounting to TL 200,005 (31 December 2016 – TL 169,150), both of them do not exceed 10% of the balance sheet total. 2.6. Information on finance lease payables (net): The Bank bought some of the information technology equipment through financial lease and the liabilities originated from the agreements are paid in monthly installments to the leasing firms. These agreements do not raise any further liabilities other than already committed payments by the Group. 2.6.1. Information on the changes in agreements and new obligations originating from these changes: None (31 December 2016 – None). 2.6.2. Information on Financial Lease Obligations: Less than 1 year Between 1-4 years More than 4 years Total Current period Gross Net - Prior period Gross 265 265 Net 226 226 2.6.3. Information on Operational Leases: The leasing transactions, in which all risks and benefits of the leased asset are held by the lessor, are classified as operational leases. Such transactions consist of rent contracts of branches which may be cancelled by declaration. There are no significant commitments regarding the changes at the operational lease agreements. The payments related with operational leases are recognized as expense in the income statement during the period of the agreement in equal installments. 2.6.4. Information on sale and leaseback transactions: None. 2.7. Information on hedging derivative financial liabilities: Fair value hedge Cash flow hedge Hedge of net investment in foreign operations Total Current period TL FC 70,795 70,795 Prior period TL - FC 137,829 137,829
350. 348 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2.8. Information on provisions: 2.8.1. Information on general provisions General Provisions I.For Loans and Receivables in Group I (Total) Profit Sharing Accounts’ Share The Bank’s Share Other I.Additional Provision for Loans and Receivables with Extended Maturities Profit Sharing Accounts’ Share The Bank’s Share Other II.Loans and Receivables in Group II (Total) Profit Sharing Accounts’ Share The Bank’s Share Other II.Additional Provision for Loans and Receivables with Extended Maturities Profit Sharing Accounts’ Share The Bank’s Share Other Provisions for Non Cash Loans Other Current period 407,954 332,145 116,559 215,586 22,318 10,983 11,335 25,422 28,069 Prior Period 318,825 238,477 85,063 153,414 31,063 13,639 17,424 21,629 27,656 2.8.2. Information on provisions related with foreign currency evaluation difference of foreign currency indexed loans: As of 31 December 2017, effect of decrease in exchange rates on foreign currency indexed loans amounting to TL 19,143 (31 December 2016 – TL 651) and TL 376 (31 December 2016 – TL 5,953) is offset against loans and leasing receivables. 2.8.3. Information on other provisions: Provisions for non- liquidated non cash loans (*) Provisions for cheque books (*) Provisions from equity/profit sharing accounts Provisions for promotion activities for credit cards Other (**) Total Current Period 95,685 2,276 30,422 1,242 72,447 202,072 Prior Period 74,736 4,633 14,668 818 40,086 134,941 (*) According to temporary article 2 of “Regulation on Procedures and Principles for Determination of Qualifications of Loans and Other Receivables by Banks and Provisions to be Set Aside”, the Bank recognizes provisions for non- liquidated non-cash loans and check books of customers who have any other non-performing exposures within the Bank. (**) Other item includes TL 6,915 litigation provision in current period ( 31 December 2016 – TL 4,050). In addition to this, TL 14,450 includes provision amount which is related to a penalty from Ministry of Customs and Trade (31 December 2016 – TL 14,450 ) and TL 40,560 includes the repayment amount foreseen for delay in penalties (31 December 2016 – TL 18,850).
351. KUVEYT T ÜRK 2017 ANNUAL REPORT 349 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2.8.4. Information on provisions for employee benefits: : Provisions for employee benefits consist of reserve for employee termination benefits amounting to, TL 84,286 (31 December 2016 – TL 55,464), vacation pay liability amounting to TL 522 (31 December 2016 – TL 792), performance premium amounting TL 69,670 (31 December 2016 – TL 55,928), retirement bonuses on payment of TL 7,291 (31 December 2016 – TL 6,714) and committee fee and other provision amounting to 125 TL (31 December 2016– None). Under the Turkish Labor Law, the Bank is required to pay termination benefits to each employee who has completed at least one year of service and whose employment is terminated without due cause, is called up for military service, dies or retires or earns the right to retire. The amount payable consists of one month’s salary limited to a maximum of TL 4,732 (31 December 2016 – TL 4,297) for each year of service. The liability is not funded, as there is no funding requirement. The reserve has been calculated by estimating the present value of the future probable obligation of the Group arising from the retirement of its employees. TAS 19 requires actuarial valuation methods to be developed to estimate the enterprise’s obligation for such benefits. Accordingly, the following actuarial assumptions were used in the calculation of the total liability: Discount Rate (%) Inflation rate (%) Interest rate (%) Current period 11.60 8.90 9.90 Prior period 11.46 7.78 8.78 Movements in the reserve for employment termination benefits during period are as follows: Balance at the beginning of the period Provisions provided during the period Paid during the period Actuarial loss Balances at the end of the period Current period 55,464 17,566 (5,237) 16,493 84,286 Prior period 48,639 16,159 (7,880) (1,454) 55,464 2.9. Explanations on tax liability: 2.9.1. Explanations on current tax liability: 2.9.1.1.Information on tax provisions: As of 31 December 2017, the Bank has current tax liability after deducting temporary taxes paid during the period from the provision for corporate income tax amounting to TL 56,259. Provision for corporate income tax (*) Prepaid taxes Total (*) (*) It is presented in the current tax liability line, under liabilities Current period 199,510 (143,251) Prior period 124,960 (97,118) 56,259 27,842
352. 350 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2.9.1.2. Information on taxes payable (*): Taxation of marketable securities Taxation of immovable property Banking Insurance Transaction Tax (BITT) Value added tax payable Income tax deducted from wages Other Current period 19,651 1,185 18,431 1,349 8,192 1,129 Prior period 14,130 1,111 17,170 1,324 7,331 1,065 49,937 42,131 Current period 4,862 5,234 348 801 Prior period 4,287 4,622 307 698 11,245 9,914 Total (*) Included in sundry creditors line item on the balance sheet. 2.9.1.3. Information on premiums (*): Social Security Premiums-Employee Social Security Premiums-Employer Unemployment insurance-Employee Unemployment insurance-Employer Total (*) Included in sundry creditors line item on the balance sheet. 2.9.1.4. Information on deferred tax liability: None (31 December 2016 - None). 2.10. Information on payables related to assets held for sale: None (31 December 2016 – None). 2.11. Information on subordinated loans: From Domestic Banks From Other Domestic Institutions From Foreign Banks From Other Foreign Institutions Total Current period TL FC 1,360,338 - 1,360,338 Prior period TL - FC 1,981,646 - - 1,981,646 The Bank obtained a subordinated loan with 10-years maturity, amounting to USD 200 million, from Kuwait Finance House on 29 September 2011. Profit share amount will be calculated through the application of profit rate over the loan amount expressed as the commodity purchase price and will be paid in equal profit share installments. Classification of this subordinated loan as tier-II capital upon the receipt of the cash amounting to USD 200 million by the Bank for the purpose of supplementary capital calculation was confirmed by the BRSA by their notification dated 30 September 2011. In order to comply with the amendments made in the Regulation on Equities of the Banks published by BRSA became effective on 31 March 2016, the related loan agreement was amended as of 29 March 2016 and it was deemed appropriate for the loan to be considered as tier-II capital in accordance with BRSA notification dated 25 April 2016. The Bank closed its contribution capital loan as of 30 March 2017 using the early payment option.
353. KUVEYT T ÜRK 2017 ANNUAL REPORT 351 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) The Bank has acquired 350 million US dollars contribution capital loan, with having the requirements defined by BRSA Regulation on the Capital Adequacy, from Special Purpose Vehicle (SPV) KT Sukuk Company Limited that resides in Cayman Island that acquired the amount via issuence of Sukuk on 17 February 2016. Annual rate of return for the loan that is included in contibutional capital calculation in accordance with the BRSA Letter of Conformity dated 2 September 2015 and No 20008792101.01[93]E.12819 is 7.90%, has a maturity of 10 years with a repayment option for the bank after 5 year from the opening date. Returns will be calculated with the implementation of annual rate of return to the loan amount defined as trasfer price of the assets, and installements will be made on 17 July and 17 February each year. 2.12. Information on shareholders’ equity: 2.12.1. Presentation of paid-in capital: Common shares Preferrence shares Repurchased shares amount (*) Total Current period 3,100,000 (2,678) Prior period 2,790,000 (2,678) 3,097,322 2,787,322 (*) It represents the Bank’s acquisition of its own shares as a result of the other shareholders not using their right of preference according to the commitment made in the capital increase in the Bank 2.12.2. 2. Amount of paid-in capital, disclosure on whether the bank applies the registered share capital system, and, if so, the ceiling amount of the registered share capital: Registered capital system is not applied in the bank. 2.12.3. 3. Information on the share capital increases during the period and their sources; other information on increased capital shares in the current period: Date for Increase 28 March 2017 Increased Amount 310,000 Internal Sources 310,000 Retained Earnings for Increased - 2.12.4. 4. Information on share capital increases from capital reserves during the current period: None. (31 December 2016 – None) 2.12.5. Possible effect of estimations made for the Group’s revenues, profitability and liquidity on equity considering prior period indicators and uncertainties: Based on the evaluation made considering the Group’s prior and current period indicators related to net profit share and commission income, it is observed that the Bank continues its operations profitably. 2.12.6. Summary of privileges given to shares representing the capital: None
354. 352 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 2.12.7. Information on marketable securities value increase fund: Current period TL FC From Associates, Subsidiaries and Entities Under Common Control (Joint Vent.) Valuation Difference (*) Foreign Exchange Difference Total (23,192) (23,192) 12,609 12,609 Prior period TL FC (4,933) (4,933) (30,347) (30,347) (*) Valuation difference is calculated taking the tax effect of the rent certifications in the account, which are classified as “Government Debt Securities” and “Other Marketable Securities” under available for sale in the balance sheet. 2.13. Information on minority shares: TL 23,054 (31 December 2016- TL 19,993) 3. Explanations and notes related to off-balance sheet commitments 3.1. Explanations on off-balance sheet accounts: 3.1.1. Type and amount of irrevocable commitments: Commitment for credit card limits, as of 31 December 2017 is TL 1,357,354 (31 December 2016 – TL 904,427 ); payment commitments for cheque books are TL 1,345,239 (31 December 2016 – TL 1,178,750) 3.1.2. Type and amount of probable losses and obligations arising from off-balance sheet items: 3.1.2.1. Non-cash loans including guarantees, bank acceptances, collaterals and others that are accepted as financial commitments and other letter of credits: As of 31 December 2017, the Group has guarantees and suretyships constituting TL 9,570,179 (31 December 2016 – TL 8,116,025) letters of guarantee; TL 55,958 (31 December 2016 - TL 52,044) acceptances and TL 932,100 (31 December 2016– TL 1,019,786) letters of credit. In addition, the Bank has also other guarantees and securities amounting to TL 513,816 (31 December 2016 – TL 701,362) 3.1.2.2.Revocable, irrevocable guarantees and other similar commitments and contingencies: There are no other than those explained in 2.i). 3.1.3. 3.Total amount of non-cash loans: Non-cash loans given against cash loans With original maturity of 1 year or less With original maturity of more than 1 year Other non-cash loans Total Current period 11,072,053 Prior period 9,889,217 11,072,053 9,889,217
355. KUVEYT T ÜRK 2017 ANNUAL REPORT 353 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 3.1.4. Sectorial risk concentration of non-cash loans : Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and quarrying Production Electricity, Gas, Water Construction Services Wholesale and Retail Trade Hotel, Food and Beverage Services Transportation and Telecom. Financial Institutions Real Estate and Renting Services Professional Type Services Educational Services Health and Social Services Other Total TL 48,091 20,246 27,808 37 1,121,211 202,241 463,059 455,911 2,550,357 1,783,281 745,878 Current period (%) TL 0.74 5,538 0.31 4,013 0.43 1,525 0.00 17.25 799,207 3.11 274,708 7.12 496,475 7.01 28,024 39.23 1,146,399 27.43 1,767,303 11.47 546,190 (%) TL 0.12 39,728 0.09 17,721 0.03 21,925 82 17.48 753,859 6.01 213,839 10.86 335,303 0.61 204,717 25.08 2,277,316 38.66 1,426,827 11.95 599,580 Prior period (%) TL 0.76 10,773 0.34 7,487 0.42 3,286 0.00 14.56 927,124 4.13 294,194 6.48 357,625 3.95 275,305 43.99 1,171,081 27.56 1,656,399 11.58 449,934 (%) 0.23 0.16 0.07 19.68 6.24 7.59 5.84 24.85 35.15 9.55 79,406 470,117 6,074 1.22 7.23 0.09 36,509 774,580 297,965 0.80 16.95 6.52 70,677 389,561 23,491 1.37 7.52 0.45 31,106 700,476 398,649 0.66 14.87 8.46 81,800 92 33,252 366,662 998,140 1.26 0.00 0.51 5.64 15.35 3,419 3,006 105,634 852,526 0.07 0.07 2.31 18.65 18,035 70 41,418 283,995 679,452 0.35 0.00 0.80 5.49 13.12 1,874 1,994 72,366 946,658 0.04 0.04 1.54 20.09 100.00 4,570,973 100.00 5,177,182 100.00 4,712,035 100.00 6,501,080 3.1.5. Non-cash loans classified under Group I and II: Group I Current Period Non-Cash Loans Letters of Guarantee Bills of Exchange and Bank Acceptances Letters of Credit Endorsem*nts Underwriting Commitments Factoring Related Guarantees Other Guarantees and Sureties TL 6,445,915 6,287,400 2,549 1,143 154,823 Prior Period Non-Cash Loans Letters of Guarantee Bills of Exchange and Bank Acceptances Letters of Credit Endorsem*nts Underwriting Commitments Factoring Related Guarantees Other Guarantees and Sureties TL 5,122,017 4,971,330 2,071 188 148,428 FC 4,546,941 3,208,256 53,409 926,283 358,993 Group II TL 55,165 55,165 - Group I FC 4,688,003 3,070,172 49,973 1,014,924 552,934 FC 24,032 19,358 4,674 Group II TL 55,165 55,165 - FC 24,032 19,358 4,674 -
356. 354 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 3.2. Financial derivative instruments: Derivative transactions according to aims Current Period Current Period Trading derivatives Foreign Currency Related Derivative Transactions (I): Currency Forwards-Purchases, sales Currency Swaps-Purchases, sales Currency Futures Currency Options-Purchases, sales Interest Rate Related Derivative Transactions (II): Interest rates forwards-Purchase, sales Interest rates swaps-Purchases, sales Interest rates options-Purchases, sales Interest rates futures-Purchases, sales Other Trading Derivatives (III) A.Total Trading Derivatives (I+II+III) Hedging Derivatives Fair value hedges Cash flow hedges Foreign currency investment hedges B. Total Hedging Derivatives Total Derivatives Transactions (A+B) 13,645,542 2,542,103 11,209,021 - 18,635,729 3,408,604 15,227,125 - 7,966 13,759,090 21,178 18,656,907 1,565,503 1,565,503 1,391,124 1,391,124 15,324,593 20,048,031 The Bank enters into short term swap transactions based on its market expectations and cash flow. These transactions are generally short term and consist of foreign currency to foreign currency and foreign currency to Turkish Lira agreements. As of 31 December 2017, the Bank has commitments to buy TL 728,960, USD 1,361,922,000 , EUR 81,070,000, GBP 29,404,000 and MYR 800,000,000 in return of selling commitments of TL 963,256, USD 514,739,000, EUR 964,634,000 and GBP 19,364,000 (As of 31 December 2016, the Bank has commitments to buy TL 4,827,866, USD 1,053,129,000, EUR 79,150,000, GBP 976,000 and 800,000,000 MYR in return of selling commitments of TL 904,538, USD 570,101,074, EUR 1,796,912,000 and GBP 700,000) 3.3. Credit derivatives and risk exposures on credit derivatives: None 3.4. Contingent liabilities and assets In accordance with the decision of the Bank’s Board of Directors numbered 1117 and dated 21 June 2011, recoverable foreign currency loan granting commitments to real and legal persons and who do not have the unconditional right to utilize these commitment has been translated into Turkish Lira and no longer followed as foreign currency commitments.
357. KUVEYT T ÜRK 2017 ANNUAL REPORT 355 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 3.5. Explanations on custodian and intermediary services The Group does not operate in money placements on behalf of real or legal persons, charitable foundations, retirement insurance funds and other institution. 3.6. Summary Information on the Bank’s Rating by the International Rating Institutions Fitch Rating’s November 2017 Long Term Issuer Default Rating Short Term Issuer Default Rating Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating Support Rating Notes BBBF3 BBBF3 2 4. Explanations and disclosures related to the income statement 4.1. Information on profit share income: 4.1.1. Information on profit share received from loans: Profit share on loans Short term loans Medium and long term loans Profit share on non-performing loans Premiums received from resource utilization support fund 4.1.2. Information on profit share received from banks: The Central Bank of the Republic of Turkey Domestic Banks Foreign Banks Branches and head office abroad Current period TL FC 3,117,811 225,363 806,921 33,377 2,303,217 191,986 7,673 - Prior period TL 2,560,187 657,871 1,896,616 5,700 FC 191,166 24,382 166,784 - - - - Current period TL FC 31,929 - TL 3,760 - FC 20,465 - 3,760 20,465 - Total - 31,929 Prior period 4.1.3. Information on profit share income from securities portfolio: The Bank received TL 280,612 of profit share income from rent certificates (sukuk) that are disclosed in detail which is given the details in available for sale financial assets information. (31 December 2016: TL 205,883)
358. 356 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 4.1.4. Information on profit share income received from associates and subsidiaries: Profit share income received from associates and subsidiaries Current period 5 Prior period 4 4.2. Information on profit share expenses: 4.2.1. Information on profit share expense given to funds borrowed: Banks The Central Bank of the Republic of Turkey Domestic banks Foreign banks Branches and head office abroad Other Institutions Current period TL FC 6,521 47,542 2,127 8,896 4,394 38,646 88,537 54,253 TL 19,229 9,362 9,867 60,577 FC 78,043 6,971 71,072 37,462 Total 95,058 79,806 115,505 101,795 Prior period 4.2.2. Profit share expense given to associates and subsidiaries: Profit share expenses given to associates and subsidiaries 4.2.3. Profit share expense paid to securities issued: TL 319,652 (31 December 2016: 255,545). Current Period 1,738 Prior Period 1,130
359. KUVEYT T ÜRK 2017 ANNUAL REPORT 357 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 4.2.4. Distribution of profit share on funds based on maturity of funds: Current period Account Name TL Collected funds from banks through current and profit share accounts Non-trading profit sharing account of individuals Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Total FC Banks Non-trading profit sharing account of individuals Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Precious metal accounts Total Grand Total Profit Sharing Accounts Accumulated profit Above 1 sharing year accounts Up to 1 month Up to 3 month Up to 6 month Up to 9 month Up to 1 year - - - - - - - - 282,508 505,963 37,931 - 18,391 15,657 - 860,450 79 2,610 631 - - - - 3,320 29,244 72,596 11,770 - 1,133 871 - 115,614 2,094 5,976 778 - 249 121 - 9,218 313,925 587,145 51,110 - 19,773 16,649 - 988,602 730 144 - - - - - 874 40,294 69,375 16,005 - 7,964 3,996 - 137,634 - - - - - - - - 4,758 21,395 2,396 - 151 123 - 28,823 1,669 1,784 454 - 23 97 - 4,027 660 9,450 749 - 406 - - 11,265 48,111 102,148 19,604 - 8,544 4,216 - 182,623 362,036 689,293 70,714 - 28,317 20,865 - 1,171,225 Total
360. 358 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) Prior Period Account Name TL Collected funds from banks through current and profit share accounts Non-trading profit sharing account of individuals Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Total FC Banks Non-trading profit sharing account of individuals Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Precious metal accounts Total Grand Total Profit Sharing Accounts Accumulated profit Above 1 sharing year accounts Up to 1 month Up to 3 month Up to 6 month Up to 9 month Up to 1 year - 2,967 - - - - - 2,967 228,615 416,199 38,548 - 16,636 13,890 - 713,888 80 2,249 434 - - - - 2,763 19,168 51,686 3,997 - 965 1,391 - 77,207 2,096 3,676 690 - 154 34 - 6,650 249,959 476,777 43,669 - 17,755 15,315 - 803,475 426 1,795 - - 17 230 - 2,468 22,239 41,478 9,412 - 6,776 2,677 - 82,582 - 1 - - - - - 1 2,567 13,907 2,342 - 275 444 - 19,535 1,832 1,412 265 - 128 832 - 4,469 - 5,657 395 - 306 - - 6,358 27,064 64,250 12,414 - 7,502 4,183 - 115,413 277,023 541,027 56,083 - 25,257 19,498 - 918,888 Total 4.3 Information on dividend income: Held for Trading Financial Assets Fair Value Through Profit or Loss FV Available for Sale Financial Assets Other (*) Total (*) Current period - Prior period 509 - 509 This amount related to non-cash capital increase of Kredi Garanti Fonu A.Ş. which is presented in available for sale financial assets.
361. KUVEYT T ÜRK 2017 ANNUAL REPORT 359 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 4.4. Information on trading income/loss (Net): Trading income/loss (net) Income Gain on capital market transactions Gain on derivative financial instruments Foreign exchange gains Losses (-) Losses on capital market transactions Losses on derivative financial instruments Foreign exchange losses Current period 288,332 26,000,855 9,812 1,789,088 24,201,955 (25,712,523) (2,852) (2,187,322) (23,522,349) Prior period 330,734 12,357,815 9,074 456,035 11,892,706 (12,027,081) (1,203) (300,606) (11,725,272) 4.5. Information on other operating income: The details of other operating income are presented below. There are no unusual items in the other operating income which materially affect the income of the Bank. Reversal of prior period provisions Income from sale of assets (*) Lease income Other Income Total Current period 95,525 65,903 2,564 22,497 Prior period 79,001 53,907 2,478 42,188 186,489 177,574 It includes TL 45,977 income from the liquidation of the subsidiary, Kuwait Turkish Participation Bank Dubai Ltd. (*) 4.6. Provisions for the impairement of loans and other receivables of the Bank: Specific provisions for loans and other receivables III. group loans and receivables IV. group loans and receivables V. group loans and receivables Doubtful commissions, fees and other receivables General provision expenses Provision expenses for possible losses Impairment provision of marketable securities Financial Assets at fair value through profit and loss Investment securities available for sale Impairment provision of associates, subsidiaries, joint ventures and held to maturity investments Associates Subsidiaries Joint ventures Held to maturity investments Other (*) Total Current period 632,352 153,498 132,447 346,407 1,828 101,046 385 385 - Prior period 464,013 79,691 217,987 166,335 1,254 3,081 3,081 - 50,566 45,765 786,177 514,113 Other item includes TL 2,865 is lawsuit provision (31 December 2016: TL 4,450), and TL 22,010 is provision amount foreseen for delay in penalties. According to the provision regulation, it consists both the provision is allocated 5% of profit which will be distributed to participation accounts and %5 impairment amount booked for non-depreciable assets which are classified for held for sale assets. (*)
362. 360 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 4.7. Information on other operating expenses: Personnel expenses Provision for retirement pay liability Depreciation expenses of tangible assets Depreciation expenses of intangible assets Depreciation expenses of assets held for sale Other operating expenses Rent expenses Maintenance expenses Advertisem*nt expenses Communication expenses Heating, electricity and water expenses Cleaning expenses Vehicle expenses Stationery expenses Other expenses Losses on sales of assets Deposit insurance fund expenses Other Total Current period 697,256 12,328 55,786 30,757 307,869 115,263 37,989 28,657 35,971 13,937 4,894 6,176 5,754 59,237 109 82,592 94,207 1,280,913 Prior period 619,204 8,279 51,827 26,885 1,014 268,310 101,308 30,022 23,890 30,746 12,390 5,185 4,541 4,236 55,992 366 66,068 95,491 1,137,444 4.8. Information on profit/loss from continued and discontinued operations before taxes: Income before tax amounts to TL 812,958 increased by %14.25 as compared to the prior period (31 December 2016 – TL 711,557). Income before tax includes TL 2,150,338 (31 December 2016 – TL 1,697,214) net profit share income and TL 250,785 (31 December 2016 – TL 154,660) net fees and commission income. Other operating expense amount is TL 1,280,913 (31 December 2016 – TL 1,137,444). 4.9. Information on tax provision for continued and discontinued operations: In current period, deferred tax income of the Group is TL 14,403 (31 December 2016 – TL 7,517 -expense) deferred tax income and current tax provision expense is TL 197,654 (31 December 2016 – TL 124,964). 4.10. Information on net income/loss from continued and discontinued operations There is no income or loss for discontinued operation in net operating income after tax. 4.11. Information on net income/loss: 4.11.1. 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 a complete understanding of the Group’s performance for the period: As of 31 December 2017, net profit share income is TL 2,150,338 (31 December 2016 – 1,697,214 TL), net fees and commission income is TL 250,785 (31 December 2016 – TL 154,660). Effect of changes in accounting estimates on income statement for the current and, if any for subsequent periods: None (31 December 2016– None).
363. KUVEYT T ÜRK 2017 ANNUAL REPORT 361 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 4.12. Details of sub accounts comprising at least 20% of other items in income statement, exceeding 10% of total income statement: As of 31 December 2017, other fees and commissions received is TL 288,707 (31 December 2016 – TL 225,069), TL 69,834 of this amount is related with credit card fees and commissions (31 December 2016 – TL 45,026) and TL 56,034 of this amount is related with POS clearing commissions (31 December 2016– TL 46,026). As of 31 December 2017, other fees and commissions given is TL 155,253 (31 December 2016 – TL 158,181), TL 65,391 (31 December 2016 – TL 54,634) of this amount is related with POS clearing commissions and installation expenses, TL 11,805 (31 December 2016 – TL 7,831) of this amount is related with fees and commissions paid for credit cards. 5. Statement of Changes in Shareholders’ Equity 5.1. There are no disclosed dividend amounts subsequent to the balance sheet date, prior to the presentation of the financial statements. Decision on the dividend distribution will be made in the General Assembly. However, the General Assembly has not been held as of the date when the accompanying financial statements are finalized. 5.2. In the current year, the Bank made dividend payments amounting to TL 4,291 to members of Board of Directors at 28 March 2017. In the General Assembly it has been decided that TL 27,528 would be transferred to legal reserves, TL 336,679 would be transferred to extraordinary reserve, TL 51,667 would be transferred to other reserves and TL 310,000 would be transferred to paid up capital. 6. Explanations and notes related to cash flow statement 6.1. Information regarding the balances of cash and cash equivalents at the beginning of the period: 6.1.1. Components of cash and cash equivalents and accounting policy applied in their determination: “Cash” is defined as cash in vault and foreign currency cash, cash in transit, checks purchased, unrestricted amount in the Central Bank and demand deposits in Banks. “Cash equivalents” is defined as money market placements, investments in securities and time deposits in banks with original maturity less than three months. 6.1.1.1. Cash and cash equivalents at the beginning of the period: Cash Cash in TL/foreign currency, others Deposits at banks (up to 3 months) Cash equivalents Interbank money markets Time deposits at banks Marketable securities Total cash and cash equivalents Current period 4,898,436 763,391 4,135,045 - Prior period 4,777,114 1,757,266 3,019,848 - 4,898,436 4,777,114
364. 362 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 6.1.1.2. Cash and cash equivalents at the end of the period: Cash Cash in TL/foreign currency, others Deposits at banks (up to 3 months) Cash equivalents Interbank money markets Time deposits at banks Marketable securities Total cash and cash equivalents Current period 3,472,726 698,688 2,774,038 - Prior period 4,898,436 763,391 4,135,045 - 3,472,726 4,898,436 6.2. Cash and cash equivalent items which are restricted for the usage of the Bank by legal or other limitations: None. 6.3. Effects of the changes in foreign currency rates on cash and cash equivalents: “Other items” amounting to TL (891,315) (1 January-31 December 2016: TL (423,212) in “Operating profit before changes in operating assets and liabilities” consists of fees and commissions paid and other operating expenses except for collection from non-performing loans and personnel expenses. “Net increase/decrease in other liabilities” amounting to TL (388,286) (1 January-31 December 2016: TL 607,299) in “Changes in operating assets and liabilities” consists of changes in sundry creditors, other liabilities and taxes and other duties payables. “Net increase/decrease in other assets” amounting to TL (279,341) (1 January-31 December 2016: TL (302,200) )in “Changes in operating assets and liabilities” consist of changes in tax assets and other asset. 6.4. Effects of the change in foreign currency rates on cash and cash equivalents: Effect of the changes in foreign currency rates on cash and cash equivalents has been calculated approximately TL (16,107) as of 31 December 2017 (31 December 2016 – TL 140,046 )The effects of the change in foreign currency rates on cash and cash equivalents is calculated according to multiplying fx difference between balance sheet date and cash entered date and related cash amount.
365. KUVEYT T ÜRK 2017 ANNUAL REPORT 363 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 7. Explanations and notes related to risk group of the Parent Bank: 7.1. Information on the volume of transactions relating to the Bank’s risk group, outstanding loans and funds collected and income and expenses for the period: 7.1.1. Current period: Risk group of the Bank (*) Loans and other receivables Balance at beginning of period Balance at end of period Profit share and commission income (*) Investment in associates, subsidiaries and joint ventures (business Direct and indirect partnerships) shareholders of the Bank Cash Non-Cash Cash Non-Cash Other real or legal persons included in the risk group Cash Non-Cash 14 19 132 447 998 1,030 16,818 786 135,364 150,924 20,290 917 - 5 83 1 9,719 1 Defined in the Subsection 2, Article 49 of the Banking Law No. 5411 Prior period: Risk group of the Bank (*) Loans and other receivables Balance at beginning of period Balance at end of period Profit share and commission income (*) Investment in associates, subsidiaries and joint Direct and indirect ventures (business partnerships) shareholders of the Bank Cash Non-Cash Cash Non-Cash Other real or legal persons included in the risk group Cash Non-Cash 10 14 132 132 1,014 998 13,543 16,818 126,600 135,364 600 20,290 - 4 102 3 7,632 1 Defined in the Subsection 2, Article 49 of the Banking Law No. 5411. 7.1.2. Information on current and profit sharing accounts of the Bank’s risk group: Risk group of the Bank (*) Current and profit sharing accounts Balance at the beginning of period Balance at the end of period Profit share expense (*) Investment in associates, subsidiaries and joint ventures (business Direct and indirect partnerships) shareholders of the bank Current Current Period Prior period period Prior period 18,799 30,010 1,738 12,674 18,799 1,130 58,441 60,187 4,317 57,602 58,441 3,213 Other real or legal persons included in the risk group Current period Prior period 113,915 417,813 13,068 Defined in the Subsection 2, Article 49 of the Banking Law No. 5411 7.1.3. Forward and option agreements and other similar agreements with the risk group of the Bank: None. (31 December 2016: None) 137,160 113,915 3,186
366. 364 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 7.1.4. Information on loans received from the Bank’s risk group: Risk group of the Bank Investment in associates, subsidiaries and joint ventures (business Direct and indirect partnerships) shareholders of the bank Current Current period Prior period period Prior period Loans Received Balance at beginning of period Balance at end of period Profit share expense (*) - - 2,954,769 2,175,759 48,678 Other real or legal persons included in the risk group Current period Prior period 2,607,122 2,954,769 74,722 - 166,742 2,965 Defined in the Subsection 2, Article 49 of the Banking Law No. 5411. 7.2. Information on compensation of key management personnel As of 1 January - 31 December 2017, the Group has paid TL 29,814 to top management (1 January - 31 December 2016 – TL 27,255 -parent bank). 8. Domestic, foreign and off-shore branches or equity investments, and foreign representative offices 8.1. Domestic and foreign branches and representative offices: Number of Branches Number of Employees Domestic branches (*) 398 3,973 Country Foreign representative offices Foreign bank 4 1 78 4 Germany Bahrain (**) Total Assets (TL) Legal Capital (USD) 749,707 69,787,608 2,941,084 Off-shore branches (*) The personnel working at Headquarters, Operation Center and Region quarters are not included in the domestic branches personnel number 8.2. Opening or closing of domestic and foreign branches and representative offices and significant changes in organizational structure In 2017, 14 new branches (2016-27 branches) were opened.
367. KUVEYT T ÜRK 2017 ANNUAL REPORT 365 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) 9. Significant Events and Matters Arising Subsequent to Balance Sheet Date The Board of Directors of the Bank has decided to propose a capital increase from the internal sources amounting to TL 400,000 for the the approval of the ordinary general assembly on the meeting dated 24 January 2018. The Bank’s subsidiary KT Kira Sertifikaları Varlık Kiralama A.Ş. has issued a sukuk with four month maturity, TL 200,000 nominal and 12.60 % borrowing rate and with three month maturity, TL 350,000 nominal and 12.55 % borrowing rate during January 2018. “Law on the Amendment of Certain Tax Laws and Some Other Laws” numbered 7061 was published in the Official Gazette dated 5 December 2017 and numbered 30261. With Article 91 of this law, with the provisional article 10 added to the Corporate Tax Law, the rate of 20% corporate tax will be applied as 22% for the corporate earnings for the taxation periods of 2018, 2019 and 2020 (the accounting periods for the institutions that are designated for the special accounting period). This rate will be applied for the first time in the first temporary tax period of 2018. SECTION SIX OTHER EXPLANATIONS AND DISCLOSURES 1. Other matters which must be explained in terms of explicitly, interpretability and understandability of the balance sheet: None. SECTION SEVEN INDEPENDENT AUDITORS’ REPORT 1. Explanations on the auditors’ report: The unconsolidated financial statements and notes and disclosures of the Bank have been audited by DRT Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (a member of Deloitte Touche Tohmatsu Limited) and the independent auditors’ report dated 8 March 2018 is presented before the accompanying financial statements. 2. Notes and disclosures prepared by independent auditors: None
368. 366 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) SECTION EIGHT CONSOLIDATED ANNUAL REPORT 1. Explainations on annual report 1.1. About Kuveyt Türk Kuveyt Türk Katılım Bankası A.Ş. (“The Bank”) was incorporated with the approval of the Central Bank of the Republic of Turkey (CBRT) on 28 February 1989 and commenced its operations on 31 March 1989, with the name of Kuveyt Türk Evkaf Finans Kurumu A.Ş. To comply with the Banking Act 5411, the title of the Bank has been changed to Kuveyt Türk Katılım Bankası A.Ş. with a change in the Articles of Association which was approved in the annual general meeting dated 26 April 2006. Main field of operation is, in addition to the Bank’s equity, to collect funds from domestic and foreign customers through “Current Accounts” and “Profit/ Loss Sharing Accounts” and allocate such funds to the economy, to perform all kinds of financing activities in accordance with the regulations, to encourage the investments of all individuals and legal entities operating in agricultural, industrial, trading and service industries, participating into the operations of these entities or individuals and to form joint business partnerships and to perform all these activities in a non-interest environment. 62.24% of the Bank’s shares are owned by Kuwait Finance House located in Kuwait, 18.72% by Vakıflar Genel Müdürlüğü Mazbut Vakıfları, 9.00% by The Public Institution For Social Security in Kuwait and 9.00% by Islamic Development Bank whereas the remaining 1.04% of the shares are owned by other real persons and legal entities. 1.2. Financial Informations Summary CONSOLIDATED BALANCE SHEET CASH BALANCES AND CENTRAL BANK BANKS LOANS FINANCE LEASE RECEIVABLES TANGIBLE ASSETS (Net) OTHER ASSETS TOTAL ASSETS FUND COLLECTED FUNDS BORROWED BOND ISSUED (NET) FINANCE LEASE PAYABLES SUBORDINATED LOANS OTHER LIABILITIES SHAREHOLDERS EQUITY TOTAL LIABILITIES 31 December 2017 9,024,719 3,572,074 36,605,500 2,080,730 416,049 5,865,630 57,564,702 40,254,963 3,387,127 5,651,841 1,360,338 2,299,618 4,610,815 57,564,702 31 December 2016 8,325,814 4,780,380 28,634,683 1,544,543 445,172 4,995,443 48,726,035 32,012,978 3,274,742 4,755,413 226 1,981,646 2,697,210 4,003,820 48,726,035
369. KUVEYT T ÜRK 2017 ANNUAL REPORT 367 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2017 (AMOUNTS EXPRESSED IN THOUSANDS OF TURKISH LIRA (TL) UNLESS OTHERWISE STATED.) CONSOLIDATED STATEMENT OF PROFIT AND LOSS PROFIT SHARE INCOME PROFIT SHARE EXPENSE NET PROFIT SHARE INCOME/EXPENSE NET FEES AND COMMISSION INCOME/EXPENSE DIVIDEND INCOME NET TRADING INCOME OTHER OPERATING INCOME PROVISION FOR LOAN LOSSES AND OTHER RECEIVABLES (-) OTHER OPERATING EXPENSES (-) PROFİT/LOSS FROM SUBSUDİARİES ACCOUNTED UNDER EQUİTY METHOD PROFIT / (LOSS) BEFORE TAX TAX CHARGE CURRENT PERIOD INCOME/(LOSSES) 31 December 2017 3,867,338 1,717,000 2,150,338 250,785 288,332 186,489 786,177 1,280,913 4,104 812,958 (183,251) 629,707 31 December 2016 3,141,112 1,443,898 1,697,214 154,660 509 330,734 177,574 514,113 1,137,444 2,423 711,557 (132,481) 579,076 Total Loans/Total Assets* Total Loans/Fund Collected* Average Equity Profit Average Assets Profit Capital Adequacy Ratio 31 December 2017 %67.20 %96.10 %14.62 %1.18 17.32% 31 December 2016 %61.94 %94.27 %15.54 %1.28 %17.06 * Finance lease receivables is included in total loans. b. Financial Position, Performance and Assessment of the Prospects for the Future As of 31 December 2017, consolidated financial statements asset size is TL 57 million 565 thousand, amount of the utilization of funds (including leasing receivables) is TL 38 million 686 thousand and amount of the collected funds is TL 40 million 255 thousand. Due to the effect of the profit TL 630 thousand, the ratio of shareholder equity increased 15.16 % by reaching TL 4 million 611 thousand. As of 31 December 2017, consolidated capital adequacy ratio has reached 17.32 %. The expectations for growth and profitability will continue in the development line. c. Announcement regarding important developments during the period The bank, KT Kira Sertifikaları Varlık Kiralama A.Ş.through seven separate process with a total nominal value of 1,110,000 thousand, different term minimum and maximum 11.84%, 14.22% cost has issued sukuk. The number of branches of the Group in the beginning of the year was 386, and as of report date the number of branches of the Group is 399. The number of employee was 5,588 in the new year, as of report date it reached 5,749. The Parent Bank increased its capital in its subsidiary KT Bank AG by EUR 30,000,000 from EUR 60,000,000 to EUR 90,000,000 in accordance with the resolution of the Board of Directors dated 25 January 2017 and numbered 1672. On 22 May 2017, the Parent Bank liquidated Kuwait Turkish Participation Bank (Dubai) Limited, a subsidiary established in the United Arab Emirates on 15 November 2009 and 100% owned by the Bank. The liquidation result has been transferred to bank accounts with USD 50,000,000 capital and USD 7,388,069 profit. d. Assessments about regarding expectations on the subsequent interim period After the period, Parent Bank continues to open new branch offices. It is planned that number of branches will reach 429 until the end of the year 2018.
370. 368 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES CONTACT INFORMATION AND BRANCH DIRECTORY REGIONAL OFFICES NAME ADDRESS TELEPHONE FAX Main Headquarter Büyükdere Cad. No: 129/1 34394 Esentepe-Şişli/İSTANBUL +90 0212 354 11 11 354 12 12 Banking and Life Center Cumhuriyet Mah. Özgürlük Cad. No: 11/A Çayırova/KOCAELİ +90 0262 723 55 55 723 56 56 Ankara Anatolia Region Directorate Ceyhun Atıf Kansu Cad. 1271. Sk. Eski 6. Sk No: 17 Bayraktar Center C Blok Balgat/ANKARA +90 0312 473 10 02 473 10 22 Bursa Region Directorate Anadolu Mah. Ankara Cad. No: 119/A-B Yıldırım/BURSA +90 0224 364 49 91 364 22 76 Dersaadet Region Directorate Mercan Mah. Uzun Çarşı Cad. No: 44/1 Fatih/İSTANBUL +90 0212 514 15 08 514 15 28 Diyarbakır Region Directorate Peyas Mah. Urfa Bulvarı No: 160/B Kayapınar/DİYARBAKIR +90 0412 290 46 46 290 46 47 +90 0342 231 32 12 231 32 99 İncirlipınar Mh. Gazi Muhtar Paşa Bulv. 3 No’lu Gaziantep Region Directorate Cadde Bayel İş Merkezi B Blok K. 1 N: 103 Şehitkamil/GAZİANTEP İstanbul Anatolia - 1 Region Directorate İçerenköy Mah. Üsküdar İçerenköy Yolu Cad. No: 10 D: 15 Ataşehir/İSTANBUL +90 0216 526 28 08 526 28 84 İstanbul Anatolia - 2 Region Directorate Cumhuriyet Mah. Özgürlük Cad. No: 11/A Çayırova/KOCAELİ +90 0262 723 55 55 723 56 56 İstanbul Europe 1 Region Directorate Büyükdere Cad. Bengün Han No:107 K: 6 D: 6 Gayrettepe-Şişli/İSTANBUL +90 0212 211 11 31 211 11 73 İstanbul Europe 3 Region Directorate İkitelli O.S.B. Mahallesi Atatürk Bulvarı No: 58/20 Başakşehir/İSTANBUL +90 0212 549 07 27 549 05 70 İzmir Region Directorate Anadolu Caddesi No: 41 Megapol Tower K: 12 Bayraklı/İZMİR +90 0232 425 75 71 425 45 79 Kocaeli Region Directorate Karabaş Mah. Hafız Selim Efendi Sk. No: 14 İzmit/KOCAELİ +90 0262 321 92 81 321 02 71 Konya Region Directorate Ferit Paşa Mah. Kule Cad. Kule Plaza İş Merkezi K: 10 No: 11-12 Selçuklu/KONYA +90 0332 235 83 93 235 83 22-23 Trabzon Region Directorate Sanayi Mah. Altın Sk. No: 3 K: 3 TRABZON +90 0462 325 53 51 325 95 32 OVERSEAS CONTACT POINTS NAME ADDRESS COUNTRY TELEPHONE FAX KT Bank AG-Frankfurt Branch Schillerstraße 19-25-60313 GERMANY Frankfurt am Main/GERMANY +49 69 920 39 16-0 +49 69-9203916-99 KT Bank AG-Berlin Branch Leipziger Straße 26-10117 Berlin/ GERMANY GERMANY +49 30 209 15 76-0 +49 30 209 15 76-99 KT Bank AG-Mannheim Branch U1, 9-68161 Mannheim/GERMANY GERMANY KT Bank AG-Köln Branch Venloer Straße 160 – 50823 Köln/ GERMANY GERMANY Bahreyn Branch Dilmun Tower (A), 121 Government Avenue P.O.Box 1363 Manama/KINGDOM OF BAHRAIN KINGDOM OF BAHRAIN +49 62 172 73 85-0 +49 62 172 73 85-45 +49 221 1792595-0 +49 221 1792595-29 +973 17 20 11 11 +973 17 22 33 25
371. KUVEYT T ÜRK 2017 ANNUAL REPORT NO NAME 1 Adana/Adana Branch 2 369 ADDRESS TELEPHONE FAX Ali Münif Cad. No:5 +90 322 352 2216 +90 322 352 6680 Adana/Çukurova Branch Turgut Özal Bulvarı No:163/A İlsu Civan Apartmanı Altı +90 322 232 4822 +90 322 235 6650 3 Adana/Yüreğir Branch Dadaloğlu Mah. Kozan Yolu Üzeri No:376 +90 322 303 0093 +90 322 303 0092 4 Adana/Barajyolu Branch Sümer Mah. Şehit Yüzbaşı Bülent Angın Bulvarı No:95/C +90 322 223 0484 +90 322 223 0483 5 Adana/Barkal Branch Yeşiloba Mah. 46003 Sokak Adana İş Merkezi No:1-07 +90 322 429 0419 +90 322 429 0411 6 Adıyaman/Adıyaman Branch Kapcami Mah. Harıkçı Cad. No:4/A +90 416 213 0505 +90 (416) 213-09 09 7 AFYON/Afyonkarahisar Branch Millet Cad. No:70 +90 272 213 5375 +90 272 213 5399 8 AFYON/Ambaryolu Branch Dumlupınar Mah. Kadınana Cad. No:39A +90 272 214 1804 +90 272 214 3417 9 Ağrı/Ağrı Branch Yavuz Mah. Kağızman Cad. No:19 +90 472 215 0525 +90 (472) 215-05 56 10 Aksaray/Aksaray Branch Bankalar Cad. Ekecik İşhanı No:25 +90 382 213 1500 +90 382 212 6435 11 Aksaray/Somuncu Baba Branch Ereğlikapı Mah. 7. Bulvar No:74/B +90 382 222 0422 +90 382 222 0424 12 Amasya/Amasya Branch Gümüşlü Mah. Atatürk Cad. No:13/A +90 358 212 1151 +90 358 212 1157 13 Ankara/Ankara Branch Şehit Teğmen Kalmaz Cad. No:17/A +90 312 310 3515 +90 312 311 6660 14 Ankara/Ankara-Ostim Branch Ostim Mah. 100. Yıl Bulvarı No:51 +90 312 385 9400 +90 312 385 9401 15 Ankara/Balgat Branch Ziyabey Cad. No:53 +90 312 287 5774 +90 312 287 5857 16 Ankara/Ankara Keçiören Branch Kızlarpınarı Cad. No:55/B +90 312 361 9990 +90 312 361 9998 17 Ankara/Ankara Kızılay Branch Fidanlık Mah. Mithatpaşa Cad. No:31/A 18 Ankara/Demetevler Ankara Branch Demetevler 405 Cad. 4/A 19 Ankara/Sincan-Ankara Branch 20 21 +90 312 431 0173 +90 312 431 0185 +90 312 336 7797 +90 312 335 9947 Atatürk Mah. Meltem Sokak No:41 +90 312 269 9996 +90 312 271 9861 Ankara/Yıldız-Ankara Branch Turan Güneş Bulvarı No:58/B +90 312 440 4986 +90 312 440 9061 Ankara/Pursaklar Ankara Branch Belediye Cad. No:3/A +90 312 527 3325 +90 312 527 4142 22 Ankara/Demirtepe Branch Kızılay Mah. Gazi Mustafa Kemal Bulvarı No:12B +90 312 230 2125 +90 312 230 7733 23 Ankara/Cebeci Branch Cemal Gürsel Cad. No:81/13-14 +90 312 320 4222 +903123204262 24 Ankara/Etlik Branch Emrah Mah. Yunus Emre Cad. 8/A Etlik +90 312 326 7788 +90 312 326 7764 25 Ankara/Ümitköy Branch Prf. Dr. Ahmet Taner Kışlalı Mah. 2715 Sokak No:2/14 Çayyolu +90 312 241 8441 +90 312 241 8464 26 Ankara/Çankaya Branch Aziziye Mah. Hoşdere Cad. No:165 +90 312 438 1441 +90 312 438 1366 27 Ankara/Başkent Kurumsal Şube Ehlibeyt Mah. Tekstilciler Cad. Bayraktar Center C Blok Kat:5 No:17C/10 Balgat +90 312 287 5304 +90 312 287 5567 28 Ankara/Etimesgut Branch Kazım Karabekir Mah. 2052. Sokak No: 8 +90 312 243 3525 +90 312 243 3531 29 Ankara/İvedik Branch İvedik O.S.B. 1368. Cad. Eminel İş Merkezi No:18/9 +90 312 395 5312 +90 312 395 5487 30 Ankara/Çukurambar Branch Kızılırmak Mah. Muhsin Yazıcıoğlu Cad. No:15/A +90 312 210 1565 +90 312 210 1566 31 Ankara/Siteler Branch Demirhendek Cad. No:65/A Siteler +90 312 350 4703 +90 312 350 4713 32 Ankara/Şaşmaz Branch Bahçekapı Mah. 2488. Cad. No:16/A +90 312 278 0148 +90 312 278 0119 33 Ankara/Mamak Branch Harman Mah. Çarşı İçi Cad. No:37/A +90 312 368 6000 +90 312 368 5008 34 Ankara/Esertepe Branch Esertepe Mah. 301 Cadde No:10 B +90 312 379 0299 +90 312 379 0252 35 Ankara/Timko Branch Macun Mah. 177. Cad. No:19 B-8 Blok +90 312 387 0920 +90 312 397 0594 36 Ankara/Polatlı Branch Cumhuriyet Mah. Eti Cad. No:36/A +90 312 622 0042 +90 312 622 0088 Ankara/Kazım Karabekir Branch Anafartalar Mah. Kazım Karabekir Cad. No:72/12 +90 312 311 9169 +90 312 310 2964 37
372. 370 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES CONTACT INFORMATION AND BRANCH DIRECTORY NO NAME ADDRESS TELEPHONE FAX 38 Ankara/Gölbaşı Branch Şafak Mah. 914 Sokak No:1/5 +90 312 485 1033 +90 312 485 1044 39 Ankara/Sincan Organize Sanayi Branch ASO 1. OSB Asora Ticaret Merkezi BC Blok Z 27 +90 312 267 3250 +90 312 267 0574 40 Ankara/Atisan Branch Ostim Mah. Bağdat Cad. No:374 +90 312 385 1159 +90 312 385 5169 41 Antalya/Antalya Branch Tahıl Pazarı Mah. Adnan Menderes Bulvarı No:19/C -19/D +90 242 241 0695 +90 242 241 0700 42 Antalya/Güllük-Antalya Branch Güllük Cad. Saraçoğlu İşmerkezi No:78 +90 242 247 4371 +90 242 247 9471 43 Antalya/Alanya Branch Saray Mah. Atatürk Cad. No:88 +90 242 511 0999 +90 242 512 0966 44 Antalya/Aspendos Bulvarı Branch Mehmetçik Mah. Aspendos Bulvarı No:69/E +90 242 311 0558 +90 242 311 0560 45 Antalya/Konyaaltı Branch Arapsuyu Mah. Atatürk Bulvarı No:115/B +90 242 229 7829 +90 242 230 3569 46 Antalya/Kepez Branch Teomanpaşa Mah. Yeşilırmak Cad. No:36/A +90 242 339 3101 +90 242 339 3117 47 Antalya/Manavgat Branch Eski Hisar Mah. Demokrasi Bulvarı No:73/1 +90 242 746 4776 +90 242 746 4774 48 Antalya/Lara Branch Şirinyalı Mah. İsmet Gökşen Cad. No:40/D +90 242 316 2052 +90 242 316 2072 49 Antalya/Akdeniz Sanayi Branch Ünsal Mah. 5036 Sokak Akdeniz Sanayi Sitesi No:22/4 +90 242 221 2841 +90 242 221 2840 50 Antalya/Serik Branch Merkez Mah. Atatürk Cad. No:170/A +90 242 722 2092 +90 242 722 2097 51 Antalya/Çallı Branch Güvenlik Mah. Gazi Bulvarı Ziya Sarı İş Merkezi No:66/A +90 242 334 9225 +90 242 346 6899 52 Aydın/Aydın Branch Ramazanpaşa Mah. Doğu Gazi Bulvarı No:1 +90 256 214 3424 +90 256 214 3445 53 Aydın/Nazilli Branch Altıntaş Mah. Kıbrıs Cad. No:72 +90 256 312 1152 +90 256 312 1132 54 Aydın/Söke Branch Konak Mah. İstasyon Cad. No: 89/11 +90 256 512 2295 +90 256 518 3893 55 Balıkesir/Balıkesir Branch Eski Kuyumcular Mah. Atalar Cad. No:18 +90 266 241 7070 +90 266 241 2454 56 Balıkesir/Edremit Branch Yılmaz Akpınar Bulvarı No:6 +90 266 373 5686 +90 266 374 1461 57 Balıkesir/Bandırma Branch Günaydın Mah. Kaşif Acar Cad. No:29 +90 266 712 0952 +90 266 712 0939 58 Balıkesir/Karesi Branch Ege Mah. Tarlabaşı Cad. No:6-50K/50J +90 266 239 4660 +90 266 243 7561 +90 378 227 8022 +90 378 227 8006 +90 488 215 1199 +90 (488) 215-11 44 +90 228 212 9668 +90 228 212 6803 59 Bartın/Bartın Branch Kırtepe Mah. Cumhuriyet Cad. No:29/A 60 Batman/Batman Branch Atatürk Bulvarı Diyarbakır Cad. No:56/ABC 61 Bilecik/Bilecik Branch Gazipaşa Mah. Tevfikbey Cad. No:28/A 62 Bingöl/Bingöl Branch İnönü Mah. Genç Cad. No:62 +90 426 216 0363 +90 426 216 0366 63 Bitlis/Tatvan Branch Cumhuriyet Cad. No:33 +90 434 828 0454 +90 434 828 0455 64 Bolu/Bolu Branch Büyük Cami Mah. İzzet Baysal Cad. Belediye Meydanı 116 +90 374 217 0477 +90 374 217 0167 65 Burdur/Burdur Branch Özgür Mah. Gazi Cad. No:57/A +90 248 232 1411 +90 248 234 1518 66 Bursa/Bursa Branch Anadolu Mah. Ankara Cad. No:119/A-B +90 224 360 6044 +90 224 360 7722 67 Bursa/Bursa Osmangazi Branch Fevzi Çakmak Cad. Koruyucu İşhanı No:6667-68-69 +90 224 223 2350 +90 224 223 6272 68 Bursa/Beşevler Sanayi Branch Üçevler Mah. Ersan Sok. No:16B Kale Plaza +90 224 443 5111 +90 224 443 5262 69 Bursa/Demirtaş-Bursa Branch Panayır Mah. Yeni Yalova Yolu No:455/G +90 224 211 1185 +90 224 211 0148 70 Bursa/İnegöl Branch Nuri Doğrul Cad. No:20 +90 224 711 1077 +90 224 711 1074 71 Bursa/Fatih Sultan Mehmet Bulvarı Fethiye Mah. Fatih Sultan Mehmet Bulvarı Branch Bulvar İş Merkezi No:199/23 +90 224 242 0260 +90 224 243 0209 72 Bursa/Cumhuriyet Caddesi Branch Alacamescit Mah. Cumhuriyet Cad. No:67 +90 224 225 5925 +90 224 225 5921 73 Bursa/Gemlik Branch Orhangazi Cad. No:1 +90 224 514 8404 +90 224 514 8480 74 Bursa/Yeşilyayla Branch Teyyareci Mehmet Ali Cad. No:301 +90 224 364 1027 +90 224 364 1095 75 Bursa/Kestel Branch Kestel OSB Bursa Cad. No:75/B-4 16450 +90 224 372 9611 +90 224 372 6079
373. KUVEYT T ÜRK 2017 ANNUAL REPORT 371 NO NAME ADDRESS TELEPHONE FAX 76 Bursa/Dikkaldırım Branch Hüdavendigar Mah. Dikkaldırım Cad. No:91 +90 224 238 3096 +90 224 239 3667 Bursa/Nilüfer Branch Karaman Mah. İzmiryolu Cad. 90 Dükkan: Z11, Z12, 1-O6, 1-07, 1-08 77 +90 224 247 4044 +90 224 247 4011 78 Bursa/Mustafakemalpaşa Branch Hamzabey Mah. Garaj Sokak No:7 +90 224 613 4707 +90 224 613 4717 79 Bursa/Özlüce Branch Altınşehir Mah. Ahmet Taner Kışlalı Cad. No: 34C/B +90 224 413 1301 +90 224 413 1305 80 Bursa/Gürsu Branch Zafer Mah. Şehit Yüzbaşı Cengiz Topel Cad. No:26/A +90 224 371 2766 +90 224 371 8169 81 Bursa/Kanalboyu Branch Çirişhane Mah. 2. Kanal Cad. No:48 +90 224 250 8326 +90 (224) 256-21 99 82 Bursa/Emek Branch Turgut Özal Cad. No:59B +90 224 241 3785 +90 224 242 9117 83 Bursa/Vişne Caddesi Branch Duaçınarı Mah. Kırkpınar Cad. No:23 +90 224 361 2694 +90 224 364 2938 84 Bursa/Orhangazi Branch Camiikebir Mah. Cumhuriyet Meydanı No:22/A +90 224 572 3014 +90 224 573 7749 85 Çanakkale/Çanakkale Branch İsmetpaşa Mah. İnönü Cad. No:153 +90 286 217 8781 +90 286 217 7446 86 Çankırı/Çankırı Branch Cumhuriyet Mah. Atatürk Bulvarı No:15/A +90 376 213 8343 +90 (376) 213-78 79 87 Çorum/Çorum Branch İnönü Cad. Çepni Mah. No:55-B +90 364 201 0371 +90 3642010380 88 Denizli/Denizli Branch İkinci Ticariyol Cad. No:10 +90 258 264 9290 +90 258 264 9491 89 Denizli/Denizli Sanayi Branch Akçeşme Mah. Menderes Bulvarı No:89 Gümüşler +90 258 371 3279 +90 258 371 8407 90 Denizli/Çınar Branch 15 Mayıs Mah.Atatürk Cad.No:9/A +90 258 251 0520 +90 (258) 251-05 21 91 Diyarbakır/Diyarbakır Branch Gazi Cad. No:27/D +90 412 223 5348 +90 412 223 5100 92 Diyarbakır/Kayapınar Branch Urfa Yolu 1.Km. Honda Plaza Karşısı Elmas Apartmanı Altı +90 412 251 0252 +90 412 251 0228 93 Diyarbakır/Ofis Branch Kooperatifler Mah. Kurt İsmail Paşa 3. Sokak No:25 +90 412 223 2263 +90 412 223 2246 94 Diyarbakır/Diclekent Branch Peyas Mah. Diclekent Bulvarı No:99/B +90 412 257 1979 +90 412 257 3616 95 Diyarbakır/Diyarbakır Karacadağ Branch Bağcılar Mah. Urfa Bul. Elvankent Sitesi No:211/C +90 412 502 6269 +90 412 502 8116 96 Düzce/Düzce Cedidiye Branch İstanbul Cd. No:9 +90 380 512 1776 +90 380 514 9926 97 Düzce/Düzce Meydan Branch Camikebir Mah. Şen Sokak No:1B ve 1C +90 380 514 5834 +90 380 514 5857 98 Edirne/Edirne Branch Çavuşbey Mah. Talatpaşa Cad. No:196/8 +90 284 214 6837 +90 (284) 213-76 64 99 Elazığ/Elazığ Branch Hürriyet Cad. No:14 +90 424 238 8081 +90 424 238 8088 100 Elazığ/Fırat Branch Cumhuriyet Mah. Malatya Cad. No:58/10 +90 424 502 0595 +90 424 502 0594 101 Erzincan/Erzincan Branch Atatürk Mahallesi Fevzipaşa Cad. No:31/Z6 Merkez +90 446 212 0909 +90 446 212 3366 102 Erzurum/Erzurum Branch İstasyon Mah. Orhan Şerifsoy Cad. Onur İş Merkezi No :29/A Erzurum +90 442 235 7626 +90 442 235 7632103 103 Erzurum/Yakutiye Branch Muratpaşa Mah. Saraybosna Cad. No:20/B 104 Eskişehir/Eskişehir Branch 105 +90 (442) 235-84 12 +90 (442) 235-84 08 İsmet İnönü Cad. No:4/1 +90 222 220 2350 +90 222 220 2033 Eskişehir/Eskişehir Sanayi Branch SS. Eskişehir Mobilya ve Ağaç İşleri ( EMKO) Küçük Sanayi Sitesi Yapı Kooperatifi A1 Blok No:2/B +90 222 228 0244 +90 222 228 0240 106 Eskişehir/Yunus Emre Eskişehir Branch Kurtuluş Mah. Ziya Paşa Cad. No:2/A +90 222 221 6874 +90 222 220 5968 107 Gaziantep/Gaziantep Branch İncilipınar Mah.Prof.Muammer Aksoy No:28 C/0 +90 342 215 3272 +90 342 215 2966 108 Gaziantep/Gaziantep-Karagöz Branch Karagöz Cad. No:4/A +90 342 232 9979 +90 342 232 9978
374. 372 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES CONTACT INFORMATION AND BRANCH DIRECTORY NO NAME ADDRESS TELEPHONE FAX 109 Gaziantep/Gatem Branch Gatem Toptancılar Sitesi Mavi Ada 3. Blok No:2 +90 342 238 0135 +90 342 238 0470 110 Gaziantep/Nizip Branch Mimar Sinan Mah. Mustafa Kökmen Bulvarı No:13/E +90 342 512 0525 +90 342 518 2804 111 Gaziantep/Karataş Branch Karataş Mah. 428 Cad. No:1/F +90 342 371 0011 +90 342 371 0156 112 Gaziantep/Gaziantep Organize Sanayi Branch 2. Organize Sanayi Bölgesi Celal Doğan Bulvarı No:71 +90 342 337 8957 +90 342 337 9187 113 Gaziantep/Şehitkamil Branch Gazi Muhtar Paşa Bulvarı No:44/D +90 342 323 2510 +90 342 323 4418 114 Giresun/Giresun Branch Sultanselim Mah. Osmanağa Cad. No:1 +90 454 202 0052 +90 454 202 0060 115 Gümüşhane/Gümüşhane Branch Karaer Mah. Atatürk Cad. No:16/D +90 (456) 213-58 13 +90 456 213 4893 116 Hatay/Antakya Branch Yavuz Selim Cad. Çuhadaroğlu İş Merkezi No:1 +90 326 225 2801 +90 326 225 2804 117 Hatay/İskenderun Branch Savaş Mah. Maraşal Çakmak Cad. Akıncı İşhanı No:57-58-59-60 +90 326 613 0757 +903266130867 118 Hatay/Dörtyol Branch Numune Evler Mah. Çaylı Cad. No: 59/A +90 (326) 713-35 96 +90 (326) 713-35 70 119 Hatay/Antakya Sanayi Branch Güzelburç Mah. E5 Karayolu Cad. No:12/A +90 326 221 4277 +90 326 221 4282 120 Hatay/Kırıkhan Branch Barbaros Mah. General Şükrü Kanadlı Cad. No:267/A +90 326 344 9166 +90 326 344 9171 121 Isparta/Isparta Branch Yayla Mah. 118. Cad. No:25-27/B +90 246 232 4627 +90 246 232 4678 122 Isparta/Gülkent Branch Sanayi Mah. 102. Cad. No:52 +90 246 201 2051 +90 246 201 2055 123 İstanbul/Merkez Şube Büyükdere Cad. No:129/1A +90 212 354 2828 +90 212 354 2815 124 İstanbul/Sirkeci Branch Sururi Mah. Vasıfçınar Cad. No :48 +90 212 513 3690 +90 212 513 6220 125 İstanbul/Kadıköy Branch Söğütlüçeşme Cad. Başçavuş Sokak. No:57/2 +90 216 349 7761 +90 216 349 7765 126 İstanbul/Fatih Branch Fevzipaşa Cad. No:42 +90 212 631 3250 +90 212 631 3254 127 İstanbul/Bakırköy Branch Cevizlik Mah. İstanbul Cad. No:13, 34142 +90 212 543 9260 +90 212 543 9264 128 İstanbul/Pendik Branch Doğu Mah. Lokman Hekim Cad. No:14/1 +90 216 390 8545 +90 216 390 8549 129 İstanbul/Merter Branch Fatih Cad. No:22 +90 212 637 0087 +90 (212) 637-87 23 İstanbul/Osmanbey Branch Meşrutiyet Mah. Halaskargazi Cad. No:100/B +90 212 296 9310 +90 212 296 9315 130 131 İstanbul/İmes Branch İmes Sanayi Sitesi 202 S B.Blok No:2 +90 216 466 4870 +90 216 466 4874 132 İstanbul/Beşyüzevler Branch Eski Edirne Asfaltı No:186 +90 212 535 9992 +90 212 535 8558 133 İstanbul/Üsküdar Branch Mimar Sinan Mahallesi Atlas Çıkmazı No5/A +90 216 495 4874 +90 (216) 495-48 87 134 İstanbul/Topçular Branch Ramikışla Cad. Gündoğar İş Merkezi-1 No:84 +90 212 674 6075 +90 212 674 6094 135 İstanbul/Maltepe Branch Cevizli Mah. Bağdat Cad. No: 444-446/B +90 216 370 1900 +90 216 370 2463 136 İstanbul/İkitelli Branch İkitelli Organize Sanayi Bölgesi Atatürk Bulvarı Altay İş Merkezi No:58/C +90 212 671 1333 +90 212 671 1331 137 İstanbul/Laleli Branch Mimar Kemalettin Mah. Koca Ragıp Paşa Cad. No:22 +90 212 527 4900 +90 (212) 527-48 61 138 İstanbul/Güneşli Branch Evren Mah. Gülbahar Cad. No:110-112A +90 212 489 2151 +90 212 489 2150 139 İstanbul/Terazidere Branch Esenler Cad. No:123 +90 212 640 0818 +90 212 640 0771 140 İstanbul/Zeytinburnu Branch Gökalp Mah. Muammer Aksoy Cad. No:21/B +90 212 546 7060 +90 212 546 7707 141 İstanbul/Beyazıt Branch Yeniçeriler Cad. No:7 +90 212 518 6078 +90 212 518 6051 142 İstanbul/Mecidiyeköy Branch Büyükdere Cad. No:77 +90 212 266 7699 +90 212 266 7704 143 İstanbul/Taksim Branch Tarlabaşı Cad. No:22 +90 212 361 4148 +90 212 361 6864
375. KUVEYT T ÜRK 2017 ANNUAL REPORT 373 NO NAME ADDRESS TELEPHONE FAX 144 İstanbul/Gültepe Branch 145 İstanbul/Bayrampaşa Branch Talatpaşa Cad. No:70 Ortabayır +90 212 278 7343 +90 212 284 7388 Abdi İpekçi Cad. Parkhan Apartmanı No:8 +90 212 576 4507 +90 212 576 4604 146 İstanbul/Beykent Branch Pınartepe Mah. Yavuz Sultan Selim Bulvarı Vista 1 Residence +90 212 873 5159 +90 212 873 5851 147 İstanbul/Bağcılar Branch Çınar Mah. İstanbul Cad. No:31 +90 212 634 3194 +90 212 634 7493 148 İstanbul/Ümraniye Branch Atatürk Mah. Alemdağ Cad. 134/A +90 216 443 0843 +90 216 443 0841 149 İstanbul/Karaköy Branch Necatibey Cad. No:34 +90 212 292 0242 +90 212 292 0252 150 İstanbul/Erenköy Branch Şemsettin Günaltay Cad. No:244/A +90 216 359 4109 +90 216 359 4108 151 İstanbul/Altunizade Branch Mahir İz Cad. No:8/A +90 216 474 0255 +90 216 474 0264 152 İstanbul/Cennet Mahallesi Branch Cennet Mah. Barbaros Cad. Cennet Konakları Sitesi No:65/A-1 +90 212 541 7189 +90 212 426 1138 153 İstanbul/Bahçelievler Branch Adnan Kahveci Bulvarı Ömür Sitesi B1 Blok No:30 +90 212 539 0292 +90 212 539 0383 154 İstanbul/Beşiktaş Branch Sinanpaşa Mah. Köprü Sokak No: 12 +90 212 260 6619 +90 212 261 2136 155 İstanbul/Fındıkzade Branch Molla Gürani Mah. Turgut Özal Millet Cad. No:90/F +90 212 523 8873 +90 212 523 8398 156 İstanbul/Çağlayan Branch Hürriyet Mah.Vatan Cad.Avrasya İş Merkezi No:4A +90 212 233 4310 +90 212 233 3015 157 İstanbul/Kurtköy Branch Ankara Cad. No:203/B Efe İş Merkezi Şeyhli +90 216 595 4015 +90 216 595 3908 158 İstanbul/İstoç Branch İstoç Ticaret Merkezi 17. Ada No:162,164,166,168 +90 212 659 5661 +90 (212) 659-48 58 159 İstanbul/Şirinevler Branch Şirinevler Mah. Meriç Sokak No:25 +90 212 451 5146 +90 212 639 1221 160 İstanbul/Avcılar Branch Reşitpaşa Cad. Yazgan Apartmanı A Blok No:39/1 +90 212 590 9897 +90 212 509 8612 161 İstanbul/Ihlamurkuyu-Ümraniye Branch Cemil Meriç Mah. Alemdağ Cad. No:283/ A/A +90 216 611 0211 +90 216 611 0441 162 İstanbul/Tuzla Sanayi Branch Deri Organize Sanayi Karşısı Birmes Sanayi Sitesi D1 Blok No:5 +90 216 394 8700 +90 216 394 8709 163 İstanbul/Esenler Branch Atışalanı Cad. No:52/A +90 212 508 1787 +90 212 508 7734 164 İstanbul/Megacenter-Bayrampaşa Branch Kocatepe Mah. Mega Center Sitesi Yağ İskelesi Cad. C51 Blok No:25C +90 212 640 0060 +90 212 640 6300 165 İstanbul/Sultanbeyli Branch Mehmet Akif Mah. Fatih Bulvarı No:167 +90 216 496 4679 +90 216 496 6934 166 İstanbul/Hadımköy Branch Akçaburgaz Mah.Hadımköy Yolu Cad. No:202B +90 212 886 2898 +90 212 886 2899 167 İstanbul/İmsan İkitelli Branch İkitelli Cad. İmsan Sanayi Sitesi E Blok No:23-24 +90 212 698 0458 +90 212 698 0438 168 İstanbul/Topkapı Branch Maltepe Mah. Davutpaşa Cad. Emintaş Davutpaşa Sitesi No:101/294 +90 212 481 3997 +90 212 481 2950 169 İstanbul/İçerenköy Branch Kayışdağı Cad. No:29 +90 216 574 9960 +90 216 574 9945 170 İstanbul/Yenibosna Branch Yıldırım Beyazıt Cad. No:106 +90 212 552 5811 +90 (212) 552-62 48 171 İstanbul/Başakşehir Branch Başakşehir Ertuğrulgazi Cad. 5.Etap 2.Kısım Uğur İş Merkezi No:23 +90 212 488 4131 +90 212 488 4130 172 İstanbul/Sultançiftliği Branch İsmetpaşa Mah. Eski Edirne Asfaltı No:637/A Sultançiftliği +90 212 475 1881 +90 212 475 5451 173 İstanbul/Kaynarca Branch Fevzi Çakmak Mah. Cemal Gürsel Cad. No: 135/1 +90 216 397 4141 +90 216 396 0400 174 İstanbul/Hasanpaşa Branch Kurbağalıdere Cad. No:43/A +90 216 345 4575 +90 216 345 6929 İstanbul/Güngören Branch Güven Mah. İnönü Cad. Aydınlar Apartmanı No:23/1 +90 212 505 9695 +90 212 505 5159 175
376. 374 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES CONTACT INFORMATION AND BRANCH DIRECTORY NO NAME ADDRESS TELEPHONE FAX 176 İstanbul/Şişli Branch Halaskargazi Cad. Akasya Apartmanı No:202/1 Osmanbey +90 212 224 9959 +90 212 224 9950 177 İstanbul/Bahçeşehir Branch Bahçeşehir 2. Kısım Mah. Şehit Polis Gaffar Okkan Cad. A17 Blok No:6 +90 212 669 5900 +90 212 669 5977 178 İstanbul/Sancaktepe Branch Meclis Mah. Hükümet Cad. No:2H +90 216 648 2038 +90 216 648 2044 179 İstanbul/Gaziosmanpaşa Branch Merkez Mah. Salihpaşa Cad. No:54 +90 212 615 5135 +90 212 615 5202 180 İstanbul/Kapalıçarşı Branch Mahmutpaşa Cad. No:2/4 Eminönü +90 212 514 8727 +90 212 514 8722 181 İstanbul/Esentepe Kurumsal Şube Büyükdere Cad. TEV Kocabaş İşhanı No:111 K:5 +90 212 217 3255 +90 212 217 3522 182 İstanbul/Esenyurt Branch Doğan Araslı Bulvarı Tabela Durağı No:85/2 +90 212 699 3355 +90 212 699 3350 183 İstanbul/Altıntepe Branch Altıntepe Mah. Bağdat Cad. No:77/B +90 216 372 0440 +90 216 372 0366 184 İstanbul/Eminönü Branch Ankara Cad. Hobyar Mah. No:51 +90 212 514 8717 +90 212 514 8734 185 İstanbul/Pendik E-5 Branch Çınardere Mah. E-5 Yanyolu No:71/A-B-CD-E +90 216 379 0200 +90 216 379 0201 186 İstanbul/Kavacık Branch Kavacık Mah. Özbek Sok. No:16 +90 216 331 1040 +90 216 331 1038 187 İstanbul/Kıztaşı Branch Sofular Mah. Macar Kardeşler Cad. No:43 Kıztaşı +90 212 523 2303 +90 212 523 2353 188 İstanbul/Tavukçuyolu Branch Yukarı Dudullu Mah. Tavukçuyolu Cad. No:252 +90 216 527 0467 +90 216 499 6625 189 İstanbul/Büyükçekmece Branch Atatürk Cad. No:33 +90 212 883 9130 +90 212 883 9126 190 İstanbul/Seyitnizam Branch Seyitnizam Mah. Yunus Emre Cad. Merkez Park Yel Evleri A2 Blok No:45-46 +90 212 546 1120 +90 212 546 1118 191 İstanbul/Tahtakale Branch Tahtakale Cad. Menekşe Han No:21 +90 212 513 1636 +90 (212) 513-16 56 192 İstanbul/Bulgurlu Branch Bulgurlu Mah. Bulgurlu Cad. No:105 +90 216 650 8049 +90 216 650 8059 193 İstanbul/Florya Branch Şenlikköy Cad. No:70/1 A Blok +90 212 573 5323 +90 212 573 5399 194 İstanbul/Fikirtepe Branch Dumlupınar Mah. Mandıra Cad. No:184 +90 216 551 0700 +90 216 551 0705 195 İstanbul/Eyüp Sultan Branch İstanbul Eyüp Merkez Mah.Fahri Korutürk Cad. No:40A +90 212 616 1567 +90 212 418 8265 196 İstanbul/Mahmutbey Yolu Branch Hürriyet Mah. Mahmutbey Cad. No:33 +90 212 657 3818 +90 212 657 3722 197 İstanbul/Kağıthane Branch Merkez Mah. Mezbaha Sokak No:7 +90 212 295 1343 +90 212 295 1330 198 İstanbul/Kocamustafapaşa Branch Kuvva-i Milliye Cad. No:4/A +90 (212) 587-43 69 +90 212 589 0972 199 İstanbul/Laleli-Ordu Caddesi Branch Balabanağa Mah. Ordu Cad. No:24/E +90 212 638 7994 +90 212 638 7949 200 İstanbul/Soğanlık Branch Atatürk Cad. No:120 +90 216 451 1107 +90 216 451 1076 201 İstanbul/Cevizli Branch Üsküdar Cad. No: 204/B Cevizli +90 216 399 5414 +90 216 399 5477 202 İstanbul/Kuyumcukent Branch Yenibosna Mah. 29 Ekim Cad. Kuyumcukent Sitesi Atölye Bloğu Zemin Kat 5. Sok. No:22 (251) +90 212 603 2256 +90 212 603 2257 203 İstanbul/Yıldıztepe Branch Yenigün Mah. Bağcılar Cad. No:169 +90 212 462 0454 +90 212 462 0452 204 İstanbul/Bankalar Caddesi Branch Okçumusa Cad. No:31/A Karaköy +90 212 243 5913 +90 212 243 5919 205 İstanbul/Fatih-Çarşamba Branch Atikali Mah. Manyasızade Cad. No:13 +90 212 621 5112 +90 212 621 6653 206 İstanbul/Samandıra Branch Eyüp Sultan Mah. Osmangazi Cad. No:108/A +90 216 311 2941 +90 (216) 561-19 01 207 İstanbul/Sanayi Mahallesi Branch Sanayi Mah. Sultan Selim Cad. No:12/A +90 212 283 8606 +90 212 279 8834 208 İstanbul/Sarıyer Branch Şehit Mithat Yılmaz Cad. Sarıyer Merkez Mah. No:9/A/1 ve 9/A/2 +90 212 271 8288 +90 212 271 7245 209 İstanbul/Sefaköy Branch Kartaltepe Mah. Halkalı Cad. No:78 Sefaköy +90 212 426 8716 +90 212 599 9438
377. KUVEYT T ÜRK 2017 ANNUAL REPORT 375 NO NAME ADDRESS TELEPHONE FAX 210 İstanbul/Beylikdüzü E-5 Branch Yakuplu Mah. Hürriyet Bulvarı No:1/Z +90 212 876 7613 +90 212 876 7681 211 İstanbul/Küçükköy Branch Cengiz Topel Cad. No:171/D +90 212 609 0901 +90 212 609 0941 212 İstanbul/Çekmeköy Branch Mehmet Akif Mah. Şahinbey Cad. No:6567/C +90 216 642 6424 +90 216 642 6418 213 İstanbul/Çiftlik / Bağcılar Branch Yavuz Selim Mah. 8/1A Sokak No:1/1 +90 212 656 8036 +90 212 656 8017 214 İstanbul/İstanbul Anadolu Kurumsal Branch İçerenköy Mah. Çayır Cad. No:3 D5 Özce Center +90 216 575 1766 +90 216 575 1698 215 İstanbul/Perpa Branch Perpa Ticaret Merkezi A Blok Kat: 5 No:290/A Okmeydanı +90 212 222 8021 +90 212 222 8164 216 İstanbul/Firuzköy Branch Mustafa Kemalpaşa Mah. Firuzköy Bulvarı No:131/A +90 212 428 2863 +90 212 428 2008 217 İstanbul/Taşdelen Branch Sultançiftliği Mah. Turgut Özal Bulvarı No:89-93 D +90 216 290 6070 +90 216 290 6075 218 İstanbul/Maslak Branch Nurol Plaza No:257/D 21 Nolu Mağaza +90 212 286 5535 +90 212 286 5547 219 İstanbul/Güneşli Çarşı Branch Koçman Cad. No:10/E 120 +90 212 550 4099 +90 212 550 4082 220 İstanbul/Tümsan Sanayi Branch İkitelli OSB Mah. Tümsan 2.Kısım B Blok No:12 +90 212 485 0513 +90 212 485 0582 221 İstanbul/Tuzla İçmeler Branch İçmeler Mah. Aydınlı Yolu Cad. No:10/52 +90 216 494 1454 +90 216 494 1406 222 İstanbul/Maltepe Çarşı Branch Altay Çeşme Mah. Atatürk Cad. No:41/D +90 216 459 7229 +90 216 459 7404 223 İstanbul/Yeşilpınar Branch Kazım Karabekir Mah. İmamhatip Lisesi Bulvarı No:76/A +90 212 479 1518 +90 212 479 1528 224 İstanbul/İkitelli Sanayi Branch İkitelli O.S.B. Süleyman Demirel Bulvarı HESKOP-İŞ Modern Sanayi Sitesi I Blok No:20 +90 212 777 6307 +90 212 777 6303 225 İstanbul/Metrokent Branch Yeşil Vadi Cad. Metrokent Konutları D1-D14 +90 212 777 6300 +90 212 777 6320 226 İstanbul/Merter Çarşı Branch Mehmet Nesih Özmen Mah. Nar Sokak No:14/A Merter +90 212 641 9211 +90 212 641 9228 227 İstanbul/Kartal Branch Kordonboyu Mah. Ankara Cad. No:66 +90 216 488 0513 +90 216 488 0517 228 İstanbul/Kozyatağı Branch Sahrayı Cedit Mah. Atatürk Cad. No:63/D/4 +90 216 386 7366 +90 216 386 7346 229 İstanbul/Mercan Branch Mercan Mah. Uzunçarşı Cad. No:44 +90 212 514 3304 +90 (212) 514-33 01 230 İstanbul/Esenyurt - Cumhuriyet Caddesi Branch Cumhuriyet Mah. Nazım Hikmet Bulvarı No:86/5 +90 212 852 0572 +90 212 852 0535 231 İstanbul/Küçükbakkalköy Branch Küçükbakkalköy Mah. Fevzi Paşa Cad. No:55/B +90 216 577 7057 +90 216 577 7085 232 İstanbul/Kıraç Branch Akçaburgaz Mah. Hadımköy Yolu Cad. No:38/9 +90 212 886 6585 +90 212 886 6546 233 İstanbul/Sultanbeyli Tem Branch Abdurrahmangazi Mah. Bosna Bulvarı No:5/B +90 216 398 5008 +90 216 398 4001 234 İstanbul/Atışalanı Branch Kemer Mah. Atışalanı Cad. No:220/A +90 212 429 3022 +90 212 429 3011 235 İstanbul/Ümraniye Çarşı Branch Atatürk Mah. Sütçü İmam Caddesi No:35/A Ümraniye +90 216 523 1143 +90 216 523 1145 236 İstanbul/Çeliktepe Branch Emniyet Evler Mah. Seyir Cad. No: 16-A +90 212 270 3188 +90 212 270 3120 237 İstanbul/Güngören Sanayi Branch Sanayi Mah. Kazım Karabekir Cad. No:23/1 +90 212 677 8809 +90 212 677 8819 238 İstanbul/Giyimkent Branch Oruç Reis Mah. Giyimkent Sitesi Vadi Cad. No:154 +90 212 438 3428 +90 212 438 3422 239 İstanbul/Kazasker Branch Kozyatağı Mah. Şemsettin Günaltay Cad. No:112/A +90 216 463 7515 +90 216 463 7513 240 İstanbul/Telsiz Branch Telsiz Mah. 85. Sokak No:87/A +90 212 558 6001 +90 212 558 6048 241 İstanbul/Camlıkahve Branch Maraşal Çakmak Mah. Bağcılar Cad. Yeşim Apartmanı No:120/B +90 212 557 4688 +90 (212) 507-69 15
378. 376 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES CONTACT INFORMATION AND BRANCH DIRECTORY NO NAME ADDRESS TELEPHONE FAX 242 İstanbul/Kayışdağı Branch Kayışdağı Mah. Akyazılı Cad. No:39/B +90 216 415 9947 +90 (216) 313-82 73 243 İstanbul/Hamidiye Branch Hamidiye Mah. Girne Cad. No:2/1 +90 212 294 8267 +90 (212) 294-52 75 244 İstanbul/Cihangir Branch Cihangir Mah. Ormanlı Cad. No:48 +90 212 695 71 28 +90 212 695 12 04 245 İstanbul/Esenyalı Branch Esenyalı Mah. Necmettin Erbakan Cad. No:100/1 +90 216 493 6318 +90 216 493 4240 246 İstanbul/Atakent Branch Atakent Mah. Alemdağ Cad.No: 294/D +90 216 632 7870 +90 216 632 7870 247 İstanbul/Arnavutköy Branch Merkez Mah. Fatih Cad. No:21/A +90 212 597 4668 +90 212 597 7993 248 İstanbul/Yüzyıl Branch Yüzyıl Mah. 35. Sokak No:1/A +90 212 430 4662 +90 212 432 9541 249 İstanbul/Silivri Branch Piri Mehmet Paşa Mah. Hacı Pervane Cad. No:49/A +90 212 729 0549 +90 212 729 0543 250 İstanbul/Kasımpaşa Branch Camiikebir Mah. Bahriye Cad. No:37 +90 212 238 7327 +90 212 235 3773 251 İstanbul/Bosna Bulvarı Branch Güzeltepe Mah. Bosna Bulvarı (Natoyolu) No:145/C +90 216 557 0901 +90 216 557 0904 252 İstanbul/Üçyüzlü Branch Menderes Mah. Çinçindere Cad. No:157/A +90 212 569 7030 +90 212 569 7090 253 İstanbul/Uluyol Caddesi Branch Muratpaşa Mah. Uluyol Cad. No:19 B-13 +90 212 544 9551 +90 212 493 4882 254 İstanbul/İstanbul Özel Bankacılık Branch Büyükdere Cad. No:129/1 +90 212 354 1111 +90 212 354 1212 255 İstanbul/Zeytinburnu Çarşı Branch Yenidoğan Mah. 58. Bulvar Cad. No:105 +90 212 546 8720 +90 212 546 8727 256 İstanbul/Siyavuşpaşa Branch Siyavuşpaşa Mah. Siyavuşpaşa Cad. No:13/A +90 212 442 4385 +90 (212) 442-68 21 257 İstanbul/Ahmet Yesevi Branch Zafer Mah. Ahmet Yesevi Cad. No:67/A +90 212 551 8930 +90 212 551 8930 258 İstanbul/Dağyolu Branch Fevzi Çakmak Mah. Osmangazi Cad. No:161/A +90 212 436 9463 +90 212 436 9463 259 İstanbul/Ferhatpaşa Branch Ferhatpaşa Mah. Yeditepe Cad. No:115/C +90 216 471 1577 +90 216 471 1599 260 İstanbul/Alibeyköy Branch Alibeyköy Mah. Namık Kemal Cad. No:26 +90 212 625 3961 +90 212 625 3951 261 İstanbul/Feriköy Branch Duatepe Mah. Ergenekon Cad. No:59/A +90 212 234 1780 +90 212 234 1785 262 İstanbul/İkitelli Metro Branch İkitelli O.S.B. Mah. Bağcılar Güngören Sanayi Sitesi Metro AVM A Blok No:17 +90 212 549 7233 +90 212 549 7255 263 İstanbul/Yıldıztabya Branch Yıldıztabya Mah. Yıldıztabya Cad. No:78/C +90 212 615 8987 +90 (212) 614-88 50 264 İstanbul/Talatpaşa Branch İstiklal Mah. Talatpaşa Cad. No:68/B +90 216 328 7659 +90 (216) 412-73 64 265 İstanbul/Fatih Akdeniz Branch Akşemsettin Mah. Akdeniz Cad. No:101A +90 212 631 6888 +90 212 631 5781 266 İstanbul/Kayaşehir Branch Kayabaşı Mah. 75. Yıl Cad. Merkez Kayaşehir AVM A Blok No:122 +90 212 687 2681 +90 (212) 687-45 25 267 İstanbul/Ispartakule Branch Tahtakale Mah. Açelya Sokak Bizimevler 4 Çarşısı No:1-0/15 +90 212 803 1325 +90 (212) 803-26 57 268 İstanbul/Yeşiltepe Branch Veliefendi Mah. Ahmet Yesevi Sokak Merkez No:8-10/A +90 212 665 8969 +90 (212) 679-73 97 269 İstanbul/Ünalan Branch Ünalan Mah. Ayazma Cad. No:58/A +90 216 472 8926 +90 216 472 8926 270 İstanbul/Bosna Çukurçeşme Branch Hürriyet Mah. Eski Edirne Asfaltı Cad. No:70/C +90 212 564 3286 +90 (212) 545-43 26 271 İstanbul/Karagümrük Branch Karagümrük Mah. Prof. Naci Şensoy Cad. (Lokumcular Cad.) No:39/A +90 212 534 2430 +90 212 621 2379 272 İstanbul/Yenişehir Branch Yenişehir Mah. Osmanlı Bulvarı No:5/A +90 216 683 9337 +90 216 684 0923 273 İstanbul/Acıbadem Branch Acıbadem Mah. Acıbadem Cad. No:160/A +90 216 545 5897 +90 216 428 5099 274 İstanbul/Esenyurt Çarşı Branch Bağlarçeşme Mah. Doğan Araslı Bulvarı No:149/14 +90 212 620 6240 +90 212 596 0536 275 İstanbul/Basın Ekspres Branch Yenibosna Merkez Mah. Değirmenbahçe Cad. No:174/K +90 212 803 2384 +90 212 803 2397
379. KUVEYT T ÜRK 2017 ANNUAL REPORT 377 NO NAME ADDRESS TELEPHONE FAX 276 İstanbul/Tuzla OSB Branch Aydınlı Mah. Birlik OSB 1 Nolu Cad. No:1/2 +90 216 593 4393 +90 216 593 4394 277 İstanbul/50. Yıl Branch 50. Yıl Mah. B Cad. No:10/B +90 212 594 5951 +90 212 668 0732 278 İstanbul/İçerenköy Çarşı Branch İçerenköy Mah. Prof. Dr. Necmettin Erbakan Cad. No:28/A +90 216 577 1830 +90 216 576 6932 279 İstanbul/Dudullu Branch Aşağı Dudullu Mah. Alemdağ Cad. No:449/457F +90 216 612 3207 +90 216 610 0783 280 İstanbul/Şerifali Branch Altınşehir Mah. Tavukçuyolu Cad. No:165/A +90 216 527 2378 +90 216 527 7108 281 İstanbul/Beştelsiz Branch Beştelsiz Mah. 5. Yol Sokak No:3/A +90 212 582 4630 +90 212 664 2558 282 İstanbul/Okmeydanı Branch Piyalepaşa Mah. Fatih Sultan Cad. No:6A +90 212 238 1255 +90 212 238 2572 283 İstanbul/Örnek Mahallesi Branch Örnek Mah. Şehit Cahar Dudayev Cad. No:111/1 +90 216 472 6022 +90 216 315 8079 284 İstanbul/Yakuplu Branch Marmara Mah. Hürriyet Bulv. No:50/9 Yakuplu +90 212 801 8048 +90 212 801 8057 285 İstanbul/Kocasinan Branch Kocasinan Merkez Mah. Mahmutbey Cad. No:172/A +90 212 652 9132 +90 212 552 8153 286 İstanbul/DES Branch DES Sanayi Sitesi 1. Cadde blokları 5-B No:1 +90 216 415 5113 +90 216 313 0256 287 İstanbul/Zümrütevler Branch Zümrütevler Mah. Tülin Cad. Aktepe Apt. No:60/A +90 (216) 589-96 20 +90 (216) 427-49 78 288 İstanbul/Göktürk Branch Göktürk Merkez Mah. İstanbul Cad. No:14E +90 (212) 322-51 94 +90 (212) 322-83 46 289 İstanbul/Çemenzar Branch Göztepe Mah. Fahrettin Kerim Gökay Cad. No:228/B +90 (216) 566-82 37 +90 (216) 567-43 56 290 İstanbul/Şehremini Branch Şehremini Mah. Başvekil Cad.No:21/A +90 (212) 586-03 60 +90 (212) 632-11 64 291 İzmir/İzmir Branch Fevzi Paşa Bulvarı No:61/A +90 232 445 2692 +90 232 445 2696 292 İzmir/Gıda Çarşısı - İzmir Branch 1202 Sokak No:81 Gıda Çarşısı Yenişehir +90 232 449 9909 +90 232 469 1107 293 İzmir/İzmir Karşıyaka Branch Girne Bulvarı No:172/A +90 232 364 7074 +90 (232) 364-71 21 294 İzmir/Gaziemir Branch Dokuz Eylül Mah. Akçay Cad. No:167 +90 232 252 2462 +90 232 252 1459 295 İzmir/Pınarbaşı Branch Kemalpaşa Cad. No:41/1 +90 232 478 4900 +90 232 478 5850 296 İzmir/Çiğli Branch Maltepe Cad. No:2/E +90 232 376 3730 +90 232 376 1380 297 İzmir/Buca Branch İnönü Mah. Uğur Mumcu Cad. No:92-92-A +90 232 487 4767 +90 232 487 8907 298 İzmir/Çamdibi Branch Fatih Cad. No:102.D:A +90 232 461 9808 +90 232 461 9840 299 İzmir/Kemalpaşa Branch Atatürk Mah. İnönü Cad. 41/1 Sokak No:2/10 +90 232 878 1454 +90 (232) 878-14 58 300 İzmir/Torbalı Branch Tepeköy Mah. 4571 Sokak No:20/A +90 232 856 1420 +90 232 856 9823 301 İzmir/Bozyaka Branch Eski İzmir Cad. No:188 +90 232 256 9855 +90 232 255 2951 302 İzmir/Işıkkent Branch 6121 Sokak No:40 Aykusan +90 232 436 1711 +90 232 436 3441 303 İzmir/Karabağlar Branch Yeşillik Cad. No:417/1 +90 232 254 0603 +90 232 254 0619 304 İzmir/Ödemiş Branch Akıncılar Mah. Gazi Cad. No:36/1 +90 232 508 5505 +90 232 508 5501 305 İzmir/Bornova Branch Kazımdirik Mah. Mustafa Kemal Cad. No:63/1A +90 232 339 6074 +90 232 339 2654 306 İzmir/Kemeraltı Branch Ahmetağa Mah. 863. Sok. No:48/1B +90 232 484 5605 +90 232 484 6974 307 KAHRAMANMARAŞ/ Kahramanmaraş Branch Trabzon Cad. No:56/B +90 344 225 1700 +90 344 225 2045 308 KAHRAMANMARAŞ/Azerbaycan Bulvarı Branch Şazibey Mah. Azerbaycan Bulvarı No:114/A +90 344 235 4085 +90 344 235 4082 309 KAHRAMANMARAŞ/Elbistan Branch Güneşli Mah. Hamza Akbaş Cad. No:6/A Elbistan +90 344 413 2395 +90 344 413 2768 310 Karabük/Karabük Branch PTT Cad. No:7 +90 370 412 7374 +90 (370) 412-43 21
380. 378 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES CONTACT INFORMATION AND BRANCH DIRECTORY NO NAME ADDRESS TELEPHONE FAX 311 Karaman/Karaman Branch Mansurdede Mah. Atatürk Bulvarı No:42/A-B +90 338 214 3124 +90 338 214 3122 312 Kars/Kars Branch Yusufpaşa Mah. Kazım Paşa Cad. No:65 313 Kastamonu/Kastamonu Branch Hepkebirler Mah. Cumhuriyet Cad. No:46/C +90 474 223 1121 +90 474 212 0659 +90 366 212 1929 +90 366 212 1961 314 Kayseri/Kayseri Branch Cumhuriyet Mah. Vatan Cad. No:25 +90 352 222 1287 +90 352 222 5549 315 Kayseri/Yeni Sanayi-Kayseri Branch Şeker Mah. 6176 Sokak No:1 Kocasinan +90 352 331 5757 +90 (352) 331-99 88 316 Kayseri/Sivas Bulvarı Branch Mimar Sinan Mah. Sivas Bulvarı Kaynak Apartmanı No:197/A +90 352 234 3512 +90 352 234 3562 317 Kayseri/Düvenönü Branch Gevhernesibe Mah. Atatürk Bulvarı No:34/A +90 352 222 8172 +90 352 222 5106 318 Kayseri/Kayseri Organize Sanayi Branch Kayseri O.S.B. 11. Cad. No:9/B +90 352 290 8522 +90 352 290 9829 319 Kayseri/Sahabiye Branch Serçeönü Mah. Ahmet Paşa Cad. No:20/A +90 352 231 0131 +90 352 231 0121 +90 318 220 0010 +90 318 220 0011 +90 386 212 2313 +90 386 212 2214 320 Kırıkkale/Kırıkkale Branch Zafer Cad. No:38/1 321 Kırşehir/Kırşehir Branch Medrese Mah. Atatürk Cad. No:11 322 Kocaeli/Gebze Branch Atatürk Cad. No:15 +90 262 643 2970 +90 262 643 2969 323 Kocaeli/İzmit Branch Karabaş Mah. Cumhuriyet Cad. No:192/A +90 262 325 5533 +90 (262) 324-26 17 324 Kocaeli/Gebze Çarşı Branch Hacı Halil Mah. Zübeyde Hanım Cad. İkizhan No:31/A +90 262 644 4044 +90 262 644 3132 325 Kocaeli/Bekirpaşa Branch 28 Haziran Mah. Turan Güneş Cad. No:295 +90 262 324 1121 +90 262 324 7030 326 Kocaeli/Çayırova Branch Fatih Cad. No:57 +90 (262) 743-26 86 +90 262 743 6484 327 Kocaeli/Gölcük Branch Amiral Sağlam Cad. No:5 +90 262 412 4880 +90 262 413 3911 328 Kocaeli/Derince Branch Çenedağ Mah. Yüksel Sokak No:4-A +90 262 239 2818 +90 262 239 2820 329 Kocaeli/Darıca Branch Kazım Karabekir Mah. İstasyon Cad. No: 46/1 +90 262 655 2085 +90 262 655 2078 330 Kocaeli/Şekerpınar Branch Cumhuriyet Mah. Özgürlük Cad. No: 11/B Şekerpınar +90 262 658 2088 +90 262 658 2018 331 Kocaeli/Körfez Branch Kuzey Mah. Cahit Zarifoğlu Cad. No:53/C +90 262 526 5693 +90 262 527 9047 332 Kocaeli/İzmit E-5 Branch Karabaş Mah. Ankara Karayolu Cad. No:65/A +90 262 331 7381 +90 262 331 8373 333 Kocaeli/İbrahimağa Caddesi Branch Güzeller Mah. İbrahim Ağa Cad. No:42/A +90 262 643 2275 +90 262 642 7645 334 Kocaeli/GOSB Branch Gebze Organize Sanayi Bölgesi 1600. Sokak No:1601/1 +90 262 751 4175 +90 262 751 4174 335 Kocaeli/Senin Bankan Branch Cumhuriyet Mah. Özgürlük Cad. No:11/A +90 262 723 5555 +90 262 723 5656 336 Konya/Konya Branch Musalla Bağları Mah. Ankara Cad. No:119 +90 332 238 1010 +90 332 237 6734 337 Konya/Aziziye Branch Mevlana Cad. No:44/B +90 332 350 2000 +90 332 350 7576 338 Konya/Zafer Sanayi Konya Branch Horozluhan Mah. Selçuklu Cad. No:35-37 +90 332 249 8000 +90 332 249 2010 339 Konya/Alaaddin Branch Mevlana Cad. No:3 +90 332 350 7494 +90 332 350 7438 340 Konya/Büsan Branch Büsan Sanayi Sitesi Fevzi Çakmak Mah. KOSGEB Cad. No:22 +90 332 345 0884 +90 332 345 0886 341 Konya/Konya Organize Sanayi Branch Konya Organize Sanayi Bölgesi Büyük Kayacık Mah. Kırım Cad. No:22 +90 332 239 2169 +90 332 239 2166 342 Konya/İhsaniye Branch İhsaniye Mah. Abdülezelpaşa Cad. No:10-A +90 332 351 6265 +90 332 351 4887 343 Konya/Konya Yeni Toptancılar Branch Fevzi Çakmak Mah. Karakayış Cad. No:287 +90 332 342 5612 +90 332 342 5683 344 Konya/Larende Branch Şükran Mah. Furgan Dede Cad. No:85A/1 +90 332 353 1123 +90 332 353 1120
381. KUVEYT T ÜRK 2017 ANNUAL REPORT 379 NO NAME ADDRESS TELEPHONE FAX 345 Konya/Karatay Sanayi Branch Fatih Mah. Köprü Sokak No:29-30/A 346 Konya/Bosna Hersek Branch Bosna Hersek Mah. Osmanlı Cad. Atlantis Sitesi No:10/K +90 332 234 3361 +90 332 235 1147 +90 332 502 0260 +90 332 502 0260 347 Konya/Meram Yeniyol Branch Armağan Mah.Yeni Meram Cad. Karagül Apt. No:52/A +90 332 323 6420 +90 (332) 323-07 90 348 Kütahya/Kütahya Branch Balıklı Mah. Pekmezpazarı Cad. No:20 +90 274 223 4484 +90 274 223 6063 349 Malatya/Malatya Branch Saray Mah. Atatürk Cad. No:26/A +90 422 323 0448 +90 422 323 0398 350 Malatya/Beydağı Branch Şifa Mah. Topal Hafız Sokak No:64/A +90 422 325 2414 +90 422 325 2411 351 Manisa/Manisa Branch Mustafa Kemal Paşa Cad. No:30/A +90 236 231 5477 +90 236 231 3730 352 Manisa/Akhisar Branch Paşa Mah. Mustafa Abut Cad. 19.Sokak +90 236 415 0105 +90 236 415 0108 353 Manisa/Yunusemre Branch AyniAli Mah. 8 Eylül Cad. No:77/B +90 236 232 9396 +90 236 232 9668 354 Manisa/Turgutlu Branch Cumhuriyet Mah. Atatürk Bulvarı No:234/A +90 236 313 9955 +90 236 313 9952 355 Mardin/Mardin Branch 13 Mart Mah. Vali Ozan Cad. No:52/C Bingül İş Merkezi +90 482 212 1092 +90 482 212 1127 356 Mardin/Kızıltepe Branch Cumhuriyet Mah. Hastane Cad. No:45/B Kılınç Apartman Altı +90 482 313 1263 +90 482 313 1220 357 Mersin/Mersin Branch Kuvayi Milliye Cad. No:8 +90 324 238 7650 +90 324 238 7654 358 Mersin/Mersin Serbest Bölge Branch Karaduvar Mah. Serbest Bölge 3. Cad. No:7 +90 324 238 8400 +90 324 238 8405 359 Mersin/Mezitli Branch Menderes Mah. GMK Bulvarı Murat Bey Apartmanı No:741-B +90 324 357 4992 +90 324 357 5387 360 Mersin/Pozcu Branch Gazi Mah. GMK Bulvarı Çınar A Apartmanı No:359/1 +90 324 328 1993 +90 324 328 0846 361 Mersin/Tarsus Branch Kızılmurat Mah. Adana Bulvarı No:3/B +90 324 622 2182 +90 324 622 2181 362 Mersin/Mersin Hal Branch Hal Mah. Turgut Özal Bulvarı No:24/4 +90 324 234 9654 +90 324 235 3992 363 Muğla/Bodrum Branch Yokuşbaşı Mah. Kıbrıs Şehitleri Cad. No: 14 +90 252 313 5403 +90 252 313 5392 364 Muğla/Fethiye Branch Cumhuriyet Mah. Belediye Cad. Özyer İşhanı No:8/B +90 252 612 5302 +90 252 612 5327 365 Nevşehir/Nevşehir Branch Kapucubaşı Mah. Atatürk Cad. No:64/A +90 384 212 5712 +90 384 212 5707 366 Niğde/Niğde Branch Cumhuriyet Meydanı Ahipaşa Mah. Murat Zeren Cad. Grant Niğde Hotel Altı No:2 +90 388 233 8310 +90 388 233 8340 367 Ordu/Ordu Branch Şarkiye Mah. Sırrıpaşa Cad. No:89 +90 452 222 0952 +90 452 222 0950 368 Ordu/Ünye Branch Liseler Mah. Hükümet Cad. No:90/C +90 452 333 6644 +90 452 333 6646 369 Osmaniye/Osmaniye Branch Alibeyli Mah. Cevdet Sunay Cad. No:35 +90 328 814 1101 +90 328 814 1194
382. 380 SECTION 4 : FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES CONTACT INFORMATION AND BRANCH DIRECTORY NO NAME ADDRESS TELEPHONE FAX 370 Rize/Rize Branch Merkez Tevfik İleri Cad. No:16/B +90 464 217 0900 +90 464 217 0908 371 Sakarya/Adapazarı Branch Atatürk Bulvarı No:35 Semerciler Mah. +90 264 282 1014 +90 264 282 0966 372 Sakarya/Erenler Branch Erenler Mah. Sakarya Cad. No:316/2 +90 264 241 2941 +90 264 241 2911 373 Sakarya/Sakarya Bosna Caddesi Branch Semerciler Mah. Saraybosna Cad. No:23/A +90 264 777 1646 +90 264 777 1645 374 Sakarya/Akyazı Branch İnönü Mah. Ada Cad. No:273/B +90 (264) 418-40 30 +90 (264) 418-32 57 375 Samsun/Samsun Branch Kale Mah. Kazımpaşa Cad. No:16/4-5-7-8 +90 362 431 3661 +90 362 431 3638 376 Samsun/Samsun Sanayi Branch Yeni Mahalle 30. Sokak No:11 +90 362 228 0638 +90 362 228 0773 377 Samsun/Atakum Branch Mimar Sinan Mah. Atatürk Bulvarı No:299 +90 362 437 0127 +90 362 437 0150 378 Samsun/Samsun Çiftlik Branch Çiftlik Mah. İstiklal Cad. No:116 +90 362 233 9543 +90 362 233 8556 379 Siirt/Siirt Branch Bahçelievler Hz.Fakirullah Cad. No:27/D-E +90 484 223 9404 +90 484 223 9413 380 Sivas/Sivas Branch Eskikale Mah. Bankalar Cad. No:8 +90 346 225 7960 +90 346 225 7964 381 Sivas/Kızılırmak Branch Pulur Mah. Atatürk Cad. No:100/E +90 346 222 3573 +90 346 222 3720 382 Şanlıurfa/Şanlıurfa Branch Atatürk Mah. 11 Nisan Bulvar Cad. No: 4/1 +90 414 216 2022 +90 414 216 5400 383 Şanlıurfa/Cumhuriyet Caddesi Şanlıurfa Branch Şair Nabi Mah. Cumhuriyet Cad. No:90/B +90 414 313 4833 +90 414 313 8733 384 Şanlıurfa/Karaköprü Branch Akbayır Mah. Yeşiloğlu Bulvarı Laçinler Apartman Altı No:11 +90 414 347 8577 +90 414 347 9194 385 Tekirdağ/Çorlu Branch Kazimiye Mah.Alipaşa Cad.No:2/C +90 282 654 0020 +90 282 654 0033 386 Tekirdağ/Tekirdağ Branch Aydoğdu Mah. Muratlı Cad. No:7 +90 282 260 6034 +90 282 260 6044 387 Tekirdağ/Çerkezköy Branch Gazi Mustafa Kemal Paşa Mah. Nar Sokak No:6/A +90 282 726 3832 +90 282 726 3892 388 Tokat/Tokat Branch Gaziosmanpaşa Bulvarı No:179 +90 356 212 6828 +90 356 212 6761 389 Trabzon/Trabzon Branch Kemerkaya Mah. Kahraman Maraş Cad. No:17 +90 462 326 0030 +90 462 326 2494 390 Trabzon/Of Branch Atatürk Bulvarı No:55/A +90 462 771 2343 +90 462 771 2370 391 Trabzon/Değirmendere Branch Sanayi Mah. Devlet Karayolu Cad. No:89/5 +90 462 325 3808 +90 462 325 3815 392 Trabzon/Akçaabat Branch Dürbinar Mah. İnönü Cad. No:103/A +90 462 228 8616 +90 462 228 9316 393 Uşak/Uşak Branch Kurtuluş Mah. Barbaros Cad. NO:9/A +90 276 227 7749 +90 (276) 227-60 49 394 Van/Van Branch Cumhuriyet Cad. No:116 +90 432 215 1895 +90 432 215 3597 395 Yalova/Yalova Branch Rüstempaşa Mah. Huzur Sk. No:10 D:1 (A) +90 226 813 3234 +90 226 813 3235 396 Yozgat/Yozgat Branch Aşağı Nohutlu Mah. Sakarya Cad. No:6/A +90 354 217 3650 +90 354 217 1138 397 Zonguldak/Zonguldak Branch Gazipaşa Cad. No:35/A +90 372 222 0909 +90 372 222 0902
383. CONTENTS SECTION 1 : INTRODUCTION 04 Summary of Financial Indicators 06 Agenda of the Ordinary General Assembly 07 Shareholding and Capital Structure 08 Amendments to the Articles of Association 10 Kuveyt Türk in Brief 14 The Story of 28 Successful Years 18 About Kuveyt Türk 20 Message from the Chairman 22 Message from the CEO SECTION 2: OPERATIONS IN 2017 26 Commercial and Corporate Banking Group 28 Loans 30 Retail Banking 38 SME Banking 42 Strategy 52 Treasury and International Banking 57 Financial Affairs 64 Risk, Control and Compliance Group 72 Banking Service Group 86 Corporate Social Responsibility and Sustainability 90 Awards SECTION 3: MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES 94 Board of Directors 97 Senior Management 101 Organizational Chart 102 Summary Report of the Board of Directors Submitted to the General Assembly 103 Executives within Internal Systems 104 Senior Management Committees 106 Related Party Transactions 107 Outsourced Services SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES 110 Annual Report Compliance Opinion 111 Review of the Audit Committee on Internal Systems 114 Assessment on Financial Status, Profitability and Solvency 114 Ratings of Kuveyt Türk by International Rating Agencies 115 Information on Risk Management Policies 116 Five-Year Summary Financial Information 117 Independent Auditor’s Report, Unconsolidated Financial Statements and Notes 241 Independent Auditor’s Report, Consolidated Financial Statements and Notes 368 Contact Information and Branch Directory
384. 2017 ANNUAL REPORT KUVEYT T ÜRK 2017 ANNUAL REPORT Head Office Büyükdere Cad. No: 129/1 Esentepe 34394 Şişli/İstanbul Tel: +90 212 354 11 11 (pbx) www.kuveytturk.com.tr Call Center: 444 0 123