Türkiye İş Bankası A.Ş.
Notes to the Unconsolidated Financial Statements
for the Year Ended 31 December 2015
101
Financial Information and Risk Management
V. Interest Income and Expenses
Interest income and expenses are recognized on an accrual basis using the effective interest method (the rate that equals the future cash flows of a financial asset or liability to its
present net book value) in conformity with TAS 39 “Financial Instruments: Recognition and Measurement”.
In accordance with the related legislation, realized and unrealized interest accruals of the non-performing loans are reversed and interest income related to these loans are recorded
as an interest income only when they are collected.
VI. Fees and Commission Income and Expenses
Fees and commission income and expenses are recorded either on accrual basis or by using the effective interest rate method. Income earned in return for services rendered
contractually or due to operations like sale or purchase of assets on behalf of a third party real person or corporate body are recognized in income accounts in the period of collection.
VII. Financial Assets
Financial assets are comprised of cash, contractual rights to obtain cash or another financial asset from or to exchange financial instruments with the counterparty, or the capital
instrument transactions of the counterparty. According to the Bank management’s purpose of holding, the financial assets are classified into four groups as “Financial Assets at Fair
Value through Profit And Loss”, “Financial Assets Available for Sale”, “Held to Maturity Investments” and “Loans and Receivables”.
1. Cash and Banks
Cash consists of cash in vault, foreign currency cash, money in transit, cheques purchased and precious metals. Foreign currency cash and banks are shown in the balance sheet by
their amounts converted into TL at the foreign exchange rate on the balance sheet date.
2. Marketable Securities
a. Financial Assets at Fair Value through Profit And Loss
a.1.
Financial Assets Held for Trading
Financial assets held for trading are those acquired for the purpose of generating profit from short termmarket fluctuations in prices or similar elements, or securities which are part
of a portfolio set up to realize short term profit regardless of the purpose of acquisition.
Financial assets held for trading is presented in the balance sheet with their fair values and are subject to valuation at fair values after the initial recognition. In cases where values
that form the basis for the fair value do not exist in active market conditions, it is accepted that the fair value is not reliably determined and “amortized cost”, calculated by the internal
rate of return method, is taken into account as the fair value.
Any gains or losses resulting from such valuation are recorded in the profit and loss accounts. As per the explanations of the Uniform Code of Accounts (UCA), any positive difference
between the historical cost and amortized cost of financial assets are recognized under the “Interest Income” account, and in case the fair value of the asset is over the amortized
cost, the positive difference is recognized in the “Gains on Securities Trading” account. If the fair value is less than the amortized cost, the negative difference is recognized under
the “Losses on Securities Trading” account. Any profit or loss resulting from the disposal of those assets before their maturity date is recognized within the framework of the same
principles.
a.2.
Financial Assets at Fair Value through Profit and Loss
Financial assets at fair value through profit and loss represent the financial assets at fair value through profit and loss at the initial recognition and those are not obtained for trading
purposes. Recognition of fair value differences of those assets are similar to the financial asset held for trading.
b. Explanations on Financial Assets Available for Sale and Held to Maturity Investments
b.1.
Explanations on Financial Assets Available for Sale
Financial assets available for sale represent non-derivative financial assets other than bank loans and receivables, held to maturity investments and financial assets at fair value
through profit and loss. Initial recognition and subsequent valuation of financial assets available for sale are performed based on the fair value including transaction costs. The amount
arising from the difference between cost and amortized value is recognized through income statement by using the internal rate of return. If a price does not occur in an active market,
fair value cannot be reliably determined and “Amortized Value” is determined as the fair value using the internal rate of return. Unrealized gains and losses arising from changes in
fair value of the financial assets available for sale are not recognized in the income statement, they are recognized in the “Marketable Securities Revaluation Fund” until the disposal,
sale, redemption or incurring loss of those assets. Fair value differences recognized under equity arising from the application of fair value are reflected to the income statement when
these assets are sold or when the valuation difference is collected.
b.2.
Explanations on Held to Maturity Investments
Held to maturity investments are the investments, for which there is an intention of holding until maturity and the relevant conditions for fulfillment of such intention, including the
funding ability, and for which there are fixed or determinable payments with fixed maturity; and which are recognized at fair value at initial recognition. Held to maturity investments
with the initial recognition at fair value including transaction costs are subject to valuation with their discounted cost value by using the internal rate of return method less provision
for any impairment, if any. Interest income from held to maturity investments are recognized in the income statement as an interest income.
There are no financial assets that are classified by the Bank as held to maturity investments; however, they cannot be classified under this classification for two years for not
satisfying the requirements of the related classification.
3. Loans and Receivables
Loans and receivables represent unquoted financial assets in an active market that provide money, goods or services to the debtor with fixed or determinable payments.
Loans and receivables are initially recognized with their fair values including settlement costs and carried at their amortized costs calculated using the internal rate of return at the
subsequent recognition.
Retail and corporate loans that are followed under cash loans are recognized at original maturities, based on their contents, under the accounts defined by the Uniform Code of
Accounts (UCA) and the Explanatory Manual.
Foreign currency indexed consumer and corporate loans are followed at TL accounts after converting into TL by using the opening exchange rates. At the subsequent periods,
increases and decreases in the loan capital are recognized under the foreign currency income and expense accounts in the income statement depending on foreign currency rates
being higher or lower than opening date rates. Repayments are calculated using the exchange rates at the repayment dates and exchange differences are recognized under the
foreign currency income and expense accounts in the income statement.
