Türkiye İş Bankası A.Ş.
Notes to the Unconsolidated Financial Statements
for the Year Ended 31 December 2015
100 İşbank
Annual Report 2015
SECTION THREE: EXPLANATIONS ON ACCOUNTING POLICIES
I. Basis of Presentation
The unconsolidated financial statements, related notes and explanations in this report are prepared in accordance with the “Banking Regulation and Supervision Agency (“BRSA”) Accounting
and Reporting Legislation” which includes the “Regulation on Accounting Applications for Banks and Safeguarding of Documents” published in the Official Gazette No.26333 dated 1 November
2006, and other regulations on accounting records of Banks published by Banking Regulation and Supervision Board and circulars and interpretations published by BRSA and requirements of
Turkish Accounting Standards for the matters not regulated by the aforementioned legislations
As indicated in Note XIII of Section III, the accounting politicies are consistent with the financial statements in prior period, except the changes in the current period on accounting policies from
historical cost method to revaluation/fair value method for the real estates which are held for own use.
Accounting policies applied and valuation methods used in the preparation of the financial statements are expressed in detail below.
Additional paragraph for convenience translation to English
The differences between accounting principles, as described in the preceding paragraphs, and the accounting principles generally accepted in countries, in which the accompanying
financial statements are to be distributed, and International Financial Reporting Standards (“IFRS”), may have significant influence on the accompanying financial statements. Accordingly,
the accompanying financial statements are not intended to present the financial position and results of operations in accordance with the accounting principles generally accepted in such
countries and IFRS.
II. Strategy for Use of Financial Instruments and Foreign Currency Transactions
1. The Bank’s Strategy on Financial Instruments
The Bank’s main activities comprise private, retail, commercial and corporate banking, money market and securities market operations, as well as activities related to international banking
services.
In conformity with the general liability structure of the banking system, the Bank’s liabilities are mainly composed of short-term deposits and other medium and long-term liabilities. The
liquidity risk that may arise from this liability structure can be easily controlled through deposit continuity, as well as widespread network of the correspondent banks, market maker status (The
Bank is one of the market maker banks) and by the use of liquidity facilities of the Central Bank of Republic of Turkey (“CBRT”). As a result, the liquidity of the Bank and the banking system can
be easily monitored. On the other hand, foreign currency liquidity requirements are met by the money market operations and currency swaps.
Most of the funds collected bear fixed-interest, and by monitoring the sectoral developments and the yields of alternative investment instruments, fixed and floating rate placements are made.
Safety principle has always been the top priority in placements and the placements are focused on high yielding and low risk assets by considering their maturity structure. Accordingly, a pricing
policy aiming at high return is implemented in the long-term placements and attention is paid to the maximum use of non-interest income generation opportunities. The Bank determines
its lending strategy by taking into consideration the international and national economic data and expectations, market conditions, current and potential credit customers’ expectations and
tendencies, and risks such as; interest rate, liquidity, currency and credit risks. Furthermore, in conformity with this strategy, the Bank acts within the legal limits in terms of asset-liability
management.
The primary objectives related to balance sheet components are set by the long-term plans shaped along with budgeting; and the Bank takes the required positions against the short-term
currency, interest rates and price fluctuations in accordance with these plans and the course of the market conditions.
Foreign currency, interest rate and price fluctuations in the markets are monitored instantaneously. While taking positions, in addition to the legal limits, the Bank’s own transaction and control
limits are also effectively monitored in order to avoid limit overrides.
The Bank’s asset-liability management is executed by the Asset-Liability Management Committee, within the risk limits determined by the Board of Directors, in order to keep the liquidity risk,
interest rate risk, currency risk and credit risk within certain limits depending on the equity adequacy and to maximize profitability.
2. Foreign Currency Transactions
In the statutory records of the Bank, transactions recognized in foreign currencies (currencies except for Turkish Lira) are converted into Turkish Lira by using the prevailing exchange rates at
the transaction dates. Foreign currency monetary assets and liabilities on the balance sheet are converted into Turkish Lira by using the prevailing exchange rates at the balance sheet date.
Non-monetary items in foreign currencies carried at fair value are converted into Turkish Lira by the rates at the date of which the fair value is determined.
Exchange rate differences arising from the conversions of monetary foreign currency items and the collections of and payments in foreign currency transactions are reflected to the income
statement. In accordance with “TAS 21-Effects of Changes In Foreign Exchange Rates”, net investments in non-domestic companies are considered as non-monetary items, measured on
the basis of historical cost and converted into Turkish Currency at the currency rates at the transaction date, and also in accordance with “TAS 29-Financial Reporting In Hyperinflationary
Economics”, the inflation adjusted value is calculated by using the inflation indices prevailing between the date of transaction and final date that the inflation adjustment is applied, 31
December 2004, and it is accounted by allocating provision amounts for any permanent impairment losses.
The financial statements of the foreign branches of the Bank are prepared in the currency of the primary economic environment in which the entity operates (functional currency). The
financial statements of foreign branches are expressed in TL which is the functional currency of the Bank and the presentation currency of the financial statements. Assets and liabilities of the
foreign branches of the Bank are converted into TL by using the prevailing exchange rates at the balance sheet date. Income and expenses are converted by at exchange rates at the dates of
the transactions. The exchange rate differences arising from the conversion are recorded in the “Other Profit Reserves” account under the shareholders’ equity.
III. Associates and Subsidiaries
Investments in associates and subsidiaries are recognized within the scope of “TAS 27-Separate Financial Statements” and “TAS 28-Investments in Associates and Joint Ventures”. Investments
in subsidiaries, whose shares are traded in an active market (stock market), are shown in the financial statements with their fair values by taking into account their prices recorded in the related
market (stock market). Investments in subsidiaries and associates, whose shares are not traded in an active market (stock market), are followed at their cost of acquisition and these assets are
shown in the financial statements with their cost values after the deduction of, if any, impairment losses.
IV. Forward and Option Contracts and Derivatives Instruments
Derivative transactions of the Bank consist of foreign currency and interest rate swaps, forwards, foreign currency options and interest rate options. The Bank has no derivative instruments
decomposed from the main contract.
Derivative transactions are carried at their fair values at the contract dates and the receivables and payables arising from these transactions are followed under off-balance sheet accounts.
Derivative transactions are measured at their fair values in the reporting periods following their recording and the valuation differences are shown under the accounts, “Derivative Financial
Assets Held for Trading” and “Derivative Financial Liabilities Held for Trading”, depending on the difference being positive or negative. Although some derivative transactions are qualified
as economical hedging items, they do not meet all the definition requirements of hedge accounting items. Therefore, under the Turkish Accounting Standard No: 39 “Financial Instruments:
Recognition and Measurement” (TAS 39), these derivative instruments are recognized as held for trading. The valuation differences arising from the valuation of derivative transactions are
associated with the income statement.
On off-balance sheet items table, options which generated assets for the Bank are presented under “call options” line and which generated liabilities are presented under “put options” line.
