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TÜRKİYE İŞ BANKASI A.Ş.
Notes to the Consolidated Financial Statements for the Year Ended
31 December 2014
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İŞBANK
ANNUAL REPORT 2014
SECTIONTHREE: EXPLANATIONS ONACCOUNTING POLICIES
I. Basis of Presentation
1. Basis of Presentation
The consolidated financial statements, related notes and explanations in this report are prepared in accordance with the Turkish Financial Reporting Standards (Turkish Financial
Reporting Standards-TFRS, Turkish Accounting Standards-TAS, TFRS and TAS interpretations) and “Regulation on Accounting Applications for Banks and Safeguarding of Documents and
other communiqués and interpretations of Banking Regulation and Supervision Agency (“BRSA”) on accounting and financial reporting.
Accounting policies applied and valuation methods used in the preparation of the consolidated financial statements are expressed in detail below.
2. 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
consolidated financial statements are to be distributed, and International Financial Reporting Standards (“IFRS”), may have significant influence on the accompanying consolidated
financial statements. Accordingly, the accompanying consolidated 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 on Foreign Currency Transactions
1. The Group’s Strategy on Financial Instruments
The Group’s main financial activities comprise a wide range of activities such as banking, insurance and reinsurance services, brokerage services, investment consulting, real estate
portfolio and asset management, financial lease, factoring services, portfolio and asset management. The liabilities on the Group’s balance sheet are mainly composed of relatively
short-term deposits, parallel to general liability structure of the banking system, which is its main field of other activity. As for the non-deposit liabilities, funds are collected through
medium and short-term instruments. 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 Parent Bank is one of the market maker banks) and by the use of liquidity facilities of the Central Bank of Turkey (CBT). The liquidity of the
Group 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 developments in the sector fixed and floating rate placements are made according to the yields of alternative
investment instruments.
By taking into account the global and national economic outlook, market conditions, current and potential credit customers’ expectations and tendencies, and risks such as; interest rate,
liquidity and currency risks, the Group’s placements are focused on high yielding and low risk assets and safety principle has always been the top priority. Generally a pricing policy aiming
at high return is implemented in the long-term placements of the Group, and attention is paid to the maximum use of non-interest income generation opportunities. In management of
Financial Statements, this strategy is parallel to and acts within legal limits.
Main growth targets for different asset classes are set by the long-term plans shaped along with budgeting; and the Parent 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 Parent Bank’s own transaction
and control limits are also effectively monitored in order to avoid limit overrides.
The Parent 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
The financial statements of the Parent Bank’s branches and financial institutions that have been established abroad are prepared in functional currency prevailing in the economic
environment that they operate in; and when they are consolidated, they are presented in TL, which are the functional currency of the Parent Bank and also the currency used in
presentation of the financial statements.
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.
While the Parent Bank and Türkiye Sınai Kalkınma Bankası A.Ş., one of the consolidated subsidiaries, use their own foreign currency exchange rates for their foreign currency transactions,
other institutions residing domestically use the CBT rates for their foreign currency transactions.
Assets and liabilities of the foreign branches of the Parent Bank and financial institutions that have been established abroad 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. Incomes and expenses of foreign financial institutions are converted
into TL at average foreign currency rates as long as there is not a significant fluctuation in currency rates during the period. The exchange rate differences arising from the conversion are
recorded in the “Other Profit Reserves” account under the shareholders’ equity.
III. Information on the Consolidated Companies
1. Basis of Consolidation:
The consolidated financial statements have been prepared in accordance with the procedures listed in the “Communiqué Related to Regulation on the Preparation of the Consolidated
Financial Statements of Banks” published in the Official Gazette numbered 26340 dated 8 November 2006.
a. Basis of consolidation of subsidiaries:
A subsidiary is an entity that is controlled by the Parent.
Control is the power of the Parent Bank to appoint or remove from office the decision-taking majority of members of board of directors through direct or indirect possession of the
majority of a legal person’s capital irrespective of the requirement of owning minimum fifty-one per cent of its capital; or by having control over the majority of the voting right as a
consequence of holding privileged shares or of agreements with other shareholders although not owning the majority of capital.
As per the “Communiqué Related to the Preparation of Consolidated Financial Statements of Banks” published in the Official Gazette numbered 26340 dated 8 November 2006, as at
the current period, the Parent Bank has no subsidiaries, qualified as credit institutions or financial institutions, excluded from consolidation. Detailed information about the consolidated
subsidiaries is given in Section Five, Note I.h.3.
Under full consolidation method, the assets, liabilities, income and expenses and off-balance sheet items of subsidiaries are combined with the equivalent items of the Parent Bank on a
line-by-line basis. The book value of the Parent Bank's investment in each of the subsidiaries and the Group’s portion of equity of each subsidiary are eliminated. All significant transactions
and balances between the Parent Bank and its consolidated subsidiaries are eliminated reciprocally. Non-controlling interests in the net income and in the equity of consolidated
subsidiaries are calculated separately from the Group’s net income and the Group’s shareholders' equity. Non-controlling interests are presented separately in the balance sheet and in the
income statement.
Accounting policies used by the subsidiaries, that are included in the consolidated financial statements, are not different than the Parent Bank’s.