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TÜRKİYE İŞ BANKASI A.Ş.
Notes to the Unconsolidated Financial Statements for the Year Ended
31 December 2014
FINANCIAL INFORMATION AND
RISK MANAGEMENT
115
İŞBANK
ANNUAL REPORT 2014
17. Information on Value Adjustments and Change in Credit Provisions:
Beginning Balance
Provisions
Reversal of Provisions Other Value Adjustment Ending Balance
Specific Provisions
1,800,145
914,617
(852,971)
1,861,791
General Provisions
1,972,588
356,384
(76)
2,328,896
III. Explanations on Market Risk:
1. Information on Market Risk:
The market risk carried by the Bank is measured by two separate methods known respectively as the Standard Method and the Value at Risk Model in accordance with the local
regulations adopted from internationally accepted practices. In this context, currency risk emerges as the most important component of the market risk.
The market risk measurements are carried out by applying the Standard Method at the end of each month and the results are included in the statutory reports as well as being
reported to the Bank’s top management.
The Value at Risk Model (VAR) is another alternative for the Standard Method used for measuring and monitoring market risk. This model is used to measure the market risk on a daily
basis in terms of interest rate risk, currency risk and equity share risk and is a part of the Bank’s daily internal reporting.
Further retrospective testing (back-testing) is carried out on a daily basis to determine the reliability of the daily risk calculation by the VAR model, which is used to estimate the
maximum possible loss for the following day.
Scenario analyses which support the VAR model used to measure the losses that may occur in the ordinary market conditions are practiced, and the possible impacts of scenarios that
are developed based on the future predictions and the past crises, on the value of the Bank’s portfolio are determined and the results are reported to the Bank’s top management.
The limits set for the market risk management within the framework of the Bank’s asset liability management risk policy, are monitored by the Risk Committee and reviewed in
accordance with the market conditions.
The following table shows details of the market risk calculations carried out within the context of “Standard Method for Market Risk Measurement” and in compliance with “Regulation
on Measurement and Evaluation of Capital Adequacy of Banks” as at 31 December 2014.
1.a Information on the market risk:
Amount
(I) Capital Requirement against General Market Risk – Standard Method
27,599
(II) Capital Requirement against Specific Risk – Standard Method
3,440
Capital Requirement Specific Risk Related to Securitization Positions-Standard Method
(III) Capital Requirement against Currency Risk – Standard Method
383,695
(IV) Capital Requirement against Commodity Risk – Standard Method
25,597
(V) Capital Requirement against Exchange Risk – Standard Method
(VI) Capital Requirement against Market Risk of Options – Standard Method
969
(VII) Capital Requirement against Counterparty Credit Risk-Standard Method
55,064
(VIII) Capital Requirement against Market Risks of Banks Applying Risk Measurement Models
(IX) Total Capital Requirement against Market Risk (I+II+III+IV+V+VI+VII)
496,364
(X) Value at Market Risk (12.5 x VIII) or (12.5 x IX)
6,204,550
1.b Table of the average market risk related to the market risk calculated quarterly during the period:
Current Period
Prior Period
Average
Highest
(1)
Lowest
(1)
Average
Highest
(1)
Lowest
(1)
Interest Rate Risk
36,392
35,323
48,179
38,951
35,383
52,533
Share Certificate Risk
5,514
6,274
5,848
6,645
5,616
5,646
Currency Risk
313,934
392,592
289,407
202,401
285,802
112,206
Commodity Risk
24,721
25,567
1,329
22,407
44,956
24,750
Settlement Risk
445
1,921
603
422
361
Options Risk
1,942
1,092
952
2,282
762
4,707
Counterparty Credit Risk
63,835
50,832
48,576
46,010
53,272
39,126
Total Value at Risk
5,584,788 6,396,000 4,952,650
3,991,238 5,327,663
2,991,613
(1)
Market risk elements are presented for the monthly periods where total value at risk is minimum and maximum.
2. Information on counterparty credit risk
A counterparty credit risk, which is accounts for trading derivatives and repo transactions tracked on both sides, such as the credit risk the liability arising from transactions, is
determined by the methodology which is used according to the Appendix-2 of the "Regulation on Measurement and Evaluation of Capital Adequacy of Banks" which is published on
the Official Gazette no. 28337 dated 28 June 2012 and became effective starting from 1 July 2007. Counterparty credit risk valuation method based on the calculation of the fair value
of the derivative transactions is implemented. The calculation of the amount of risk on derivative transactions, the potential amount of credit risk is positively correlated with the
sum of the costs of renewal. The calculation of the amount of the potential credit risk of the contract amount is multiplied by the rates given in the regulation. Derivative instruments
valuation based on replacement costs and the fair value of the related contracts are obtained.
The Bank is exposed to counterparty credit risk is managed within the framework of general principles and guarantees the credit limit allocation. Exposure to credit risk of derivative
transactions with banks due to the majority of reciprocal agreements signed with related parties are subject to the daily exchange of collateral, counterparty credit risk exposure
is reduced in this way. On the other hand, the calculation of capital adequacy under the legislation of counterparty credit risk, the risk-reducing effect of such agreements is not
considered.
Within the scope of trading accounts with credit derivatives acquired or disposed of by the Bank does not have any protection.