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TÜRKİYE İŞ BANKASI A.Ş.
Notes to the Consolidated Financial Statements for the Year Ended
31 December 2014
187
İŞBANK
ANNUAL REPORT 2014
FINANCIAL INFORMATION AND
RISK MANAGEMENT
17. Information on Value Adjustments and Change in Credit Provisions
Beginning Balance Provisions Reversal of Provisions
Other Value Adjustments
(1)
Ending Balance
Specific Provisions
1,929,981
977,444
(890,750)
(11,970)
2,004,705
General Provisions
2,100,602 398,986
(11,669)
(8,149)
2,479,770
(1)
Stating foreign exchange gains and losses.
III. Explanations on Consolidated Market Risk:
1. Explanations on Consolidated Market Risk:
The market risk carried by the Group is measured by two separate methods known respectively as the Standard Method and the Value at Risk (VAR) Method 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 consolidated market
risk measurements are carried out on a quarterly basis, using the Standard Method. The results are accounted in the legal reporting and evaluated with the top management.
The VAR Method is another alternative for the Standard Method in measuring and monitoring market risk carried by the Parent Bank. 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 Parent 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 method 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 Parent Bank’s portfolio are determined and the results are reported to the Top Executive
Management. Financial participations also make VAR calculations within the frame determined by the Parent Bank, and the results are reported to the Parent Bank’s top management.
The limits set for the market risk management within the framework of the Parent 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 of 31 December 2014.
1.a. Information on the market risk:
Amount
(I) Capital Requirement against General Market Risk – Standard Method
64,190
(II) Capital Requirement against Specific Risk – Standard Method
118,422
Capital Requirement for Specific Risk Related to Securitization Positions-Standard Method
(III) Capital Requirement against Currency Risk – Standard Method
439,237
(IV) Capital Requirement against Commodity Risk – Standard Method
39,306
(V) Capital Requirement against Exchange Risk – Standard Method
(VI) Capital Requirement against Market Risk of Options – Standard Method
7,363
(VII) Capital Requirement against Counterparty Credit Risk-Standard Method
63,490
(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)
732,008
(X) Value at Market Risk (12.5 x VIII) or (12.5 x IX)
9,150,100
1.b. Table of the average market risk related to the market risk calculated quarterly during the period:
Current Period
Prior Period
(1)
Average
Highest
(2)
Lowest
(2)
Average
Highest
(2)
Lowest
(2)
Interest Rate Risk
77,490
83,508
76,256
67,836
84,836
70,014
Share Certificate Risk
81,263
99,104
70,765
82,921
66,840
79,167
Currency Risk
325,962
439,237
192,937
176,745
244,266
130,770
Commodity Risk
27,013
39,306
22,933
27,783
53,139
24,797
Settlement Risk
445
310
879
678
361
Options Risk
4,441
7,363
2,961
4,593
492
8,777
Counterparty Credit Risk
71,062
63,490
108,691
56,583
87,866
44,351
Total Value at Risk
7,345,950
9,150,100
5,935,663
5,216,750
6,726,463
4,477,963
(1)
The balances are calculated as three-month period.
(2)
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.