RNS Number:4689I
Turk Ekonomi Bankasi A.S.
07 March 2003
Turk Ekonomi Bankasi Anonim Sirketi
Consolidated Financial Statements
Together With
Report of Independent Auditors
December 31, 2002
TABLE OF CONTENTS Page
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Report of Independent Auditors 1
Consolidated Balance Sheet 2
Consolidated Income Statement 3
Consolidated Statement of Changes in Equity 4
Consolidated Cash Flow Statement 5
Notes to the Consolidated Financial Statements 6- 49
Unconsolidated Financial Statements of the Bank Appendix
To the Board of Directors of
Turk Ekonomi Bankasy Anonim Sirketi
We have audited the accompanying consolidated balance sheet of Turk Ekonomi
Bankasy Anonim Sirketi (the Bank - a Turkish corporation) and its subsidiaries
as of December 31, 2002 and the related consolidated income, changes in equity
and cash flow statements for the year then ended, all expressed in the
equivalent purchasing power of Turkish lira as of December 31, 2002. These
consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing.
Those Standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The consolidated financial statements of Turk Ekonomi Bankasy Anonim Sirketi for
the year ended December 31, 2001 were audited by other auditors who have ceased
operations and whose report dated June 12, 2002 expressed an unqualified opinion
on those statements.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Turk Ekonomi Bankasy Anonim Sirketi
and its subsidiaries as of December 31, 2002 and the results of their operations
and their cash flows for the year then ended in accordance with International
Financial Reporting Standards.
March 5, 2003
Istanbul, Turkey
ASSETS
Notes 2002 2001
Cash and balances with the Central Bank 4 430,766 192,993
Deposits with banks and other financial institutions 4 1,039,578 534,692
Other money market placements 4 414,125 805,833
Reserve deposits at the Central Bank 5 133,072 132,482
Trading securities 6 53,650 9,012
Investment securities 6 57,245 202,935
Originated loans and advances 7 1,326,555 1,224,355
Factoring receivables 8 66,966 53,516
Minimum lease payments receivable 9 85,780 61,840
Derivative financial instruments 19 4,058 666
Investments in unconsolidated subsidiaries 10 337 820
Investments in associates 11 446 501
Premises and equipment 12 42,349 40,905
Intangible assets 13 3,742 3,303
Other assets 14 29,307 25,183
Total assets 3,687,976 3,289,036
LIABILITIES AND EQUITY
Deposits from other banks 15 105,668 89,055
Customers' deposits 15 2,714,223 2,121,862
Other money market deposits 15 22,828 265,676
Funds borrowed
- Subordinated loan 16 24,919 -
- Other funds borrowed 16 394,661 417,788
Factoring payables 8 27,983 14,204
Derivative financial instruments 19 4,568 543
Other liabilities and provisions 17 108,519 117,255
Income taxes payable 18 13,396 15,860
Deferred tax liability 18 2,082 3,913
Total liabilities 3,418,847 3,046,156
Minority interest 11,897 10,347
Equity
Share capital issued 20 55,125 55,125
Adjustment to share capital 20 181,945 405,554
Currency translation differences 6,312 5,162
Legal reserves and accumulated profits (deficit) 21 13,850 (233,308)
Total equity 257,232 232,533
Total liabilities and equity 3,687,976 3,289,036
The accompanying policies and explanatory notes on pages 6 through 49 form an
integral part of the consolidated financial statements.
Notes 2002 2001
Interest income
Interest on originated loans and advances 206,298 255,343
Interest on securities 58,543 81,051
Interest on deposits with banks and other financial institutions 62,624 229,004
Interest on other money market placements 85,354 13,014
Interest on financial leases 22,871 48,310
Other interest income 18,010 44,173
Total interest income 453,700 670,895
Interest expense
Interest on deposits (179,439) (333,228)
Interest on other money market deposits (28,723) (585)
Interest on funds borrowed (50,176) (148,286)
Other interest expense (1,408) (291)
Total interest expense (259,746) (482,390)
Net interest income 193,954 188,505
Provision for possible loan, lease and factoring receivables losses 7,8,9 (15,205) (10,172)
Net interest income (expense) after provision for possible loan and
lease (factoring) receivables losses 178,749 178,333
Foreign exchange gain (loss) (14,378) (38,863)
Net interest income after foreign exchange gain (loss) and provision
for possible loan, lease and factoring receivables losses 164,371 139,470
Other operating income
Fees and commissions income 24,713 35,509
Income from banking services 20,645 22,441
Trading income (loss) 21,711 23,991
Other income 25 17,503 24,730
Total other operating income 84,572 106,671
Other operating expense
Fees and commissions expense (17,277) (15,671)
Salaries and employee benefits 24 (60,098) (63,312)
Depreciation and amortization 12,13 (13,632) (13,615)
Taxes other than on income (13,050) (17,153)
Other expenses 25 (49,400) (61,186)
Total other operating expense (153,457) (170,937)
Profit (loss) from operating activities before income tax, monetary
gain (loss) and minority interest 95,486 75,204
Income tax 18 (28,328) (18,177)
Monetary gain (loss) (42,667) (114,884)
Net profit (loss) from ordinary activities 24,491 (57,857)
Minority interest (942) 6,798
Net profit (loss) 23,549 (51,059)
Earnings per share
Basic 214 (463)
The accompanying policies and explanatory notes on pages 6 through 49 form an
integral part of the consolidated financial statements.
Legal reserves
and accumulated
Share Adjustment Currency profits
translation (deficit)
Notes capital to share differences Total
capital
At January 1, 2001 55,125 405,554 (407) (183,502) 276,770
Effect of change in consolidation - - - 153 153
structure
Transfer to general banking reserves - - - 1,100 1,100
Currency translation differences - - 5,569 - 5,569
Net loss for the year - - - (51,059) (51,059)
At December 31, 2001 55,125 405,554 5,162 (233,308) 232,533
Accumulated losses netted off 20 - (223,609) - 223,609 -
Currency translation differences - - 1,150 - 1,150
Net profit for the year - - - 23,549 23,549
At December 31, 2002 55,125 181,945 6,312 13,850 257,232
The accompanying policies and explanatory notes on pages 6 through 49 form an
integral part of the consolidated financial statements.
2002 2001
Cash flows from operating activities
Interest received 470,780 797,535
Interest paid (275,761) (595,640)
Fees and commissions received 24,713 35,509
Income from banking services 20,645 22,441
Trading income (loss) 21,711 23,991
Recoveries of loans previously written off 1,004 2,008
Fees and commissions paid (17,277) (15,671)
Cash payments to employees and other parties (60,098) (63,312)
Cash received from other operating activities 17,503 35,522
Cash paid for other operating activities (62,450) (78,339)
Income taxes paid (40,185) (32,631)
Cash flows from operating activities before changes in operating assets and 100,585 131,413
liabilities
Changes in operating assets and liabilities
Net (increase) decrease trading securities (44,638) (6,890)
Net (increase) decrease in reserve deposits at the Central Bank 754 (27,207)
Net (increase) in originated loans and advances (119,205) (71,013)
Net (increase) decrease in factoring receivables (15,133) 56,752
Net (increase) decrease in minimum lease payments receivable (23,940) 36,232
Net (increase) decrease in other assets (4,124) 5,918
Net increase (decrease) in deposits from other banks 16,410 (23,025)
Net increase in customers' deposits 600,093 580,000
Net increase (decrease) in other money market deposits (242,876) 163,732
Net increase in factoring payables 13,779 11,185
Net increase (decrease) in other liabilities (8,736) 15,118
Net cash from operating activities 272,969 872,215
Cash flows from investing activities
Purchases of available for sale securities (17,520) (87,177)
Proceeds from sale and redemption of available for sale securities 153,515 6,690
Purchases of held to maturity securities (39,725) (29,439)
Proceeds from redemption of held to maturity securities 49,413 100,122
Disposal of subsidiaries and associates net of cash disposed (483) -
Purchases of premises and equipment (15,265) (12,074)
Proceeds from the sale of premises and equipment 1,623 799
Purchase of intangible assets (1,854) -
Net cash provided by (used in) investing activities 129,204 (21,079)
Cash flows from financing activities
Proceeds from funds borrowed 351,418 179,489
Repayments of funds borrowed (390,961) (1,022,019)
Net cash provided by (used in) financing activities (39,543) (842,530)
Effect of net foreign exchanges difference and monetary gain (loss) on cash (43,664) (5,522)
and cash equivalents
Net increase in cash and cash equivalents 319,466 3,084
Cash and cash equivalents at beginning of year 1,533,518 1,530,434
Cash and cash equivalents at end of year 1,852,984 1,533,518
The accompanying policies and explanatory notes on pages 6 through 49 form an
integral part of the consolidated financial statements.
1. CORPORATE INFORMATION
General
Turk Ekonomi Bankasy A.S. (a Turkish joint stock company - TEB, the Bank) was
incorporated in Turkey. Certain shares of the Bank, representing 20% of the
total, are listed on the Ystanbul Stock Exchange. The registered office address
of TEB is located at Meclis-i Mebusan Caddesi, No: 35, Fyndykly-Ystanbul/Turkey.
The Bank was originally incorporated in 1927 and in 1982 was acquired by the
Colakoglu Group and renamed as Turk Ekonomi Bankasy A.S.
The consolidated financial statements of the Bank were authorized for issue by
the management on March 5, 2003. The General Assembly and certain regulatory
bodies have the power to amend the statutory financial statements after issue.
The parent and the ultimate parent of the Bank is TEB Mali Yatyrymlar A.S..
Nature of Activities of the Bank / Group
For the purposes of the consolidated financial statements, the Bank and its
consolidated subsidiaries are referred to as "the Group".
The operations of the Group consist of banking, leasing, factoring, insurance,
brokerage and portfolio management in capital markets, which are conducted
mainly with local customers.
The Bank provides banking services through 74 (2001-54) branches and 1,673
employees (2001 - 1,263) (excluding the subsidiaries) as of December 31, 2002 in
Turkey.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards (IFRS), which
comprise standards and interpretations approved by the IASB, and International
Accounting Standards and Standing Interpretations Committee interpretations
approved by the IASC that remain in effect. The consolidated financial
statements have been prepared on an historical cost convention except for the
measurement at fair value of derivative financial instruments, trading
securities and available-for-sale financial assets.
The Bank and its subsidiaries which are incorporated in Turkey, maintain their
books of account and prepare their statutory financial statements ("Statutory
Financial Statements") in accordance with the regulations on accounting and
reporting framework and accounting standards which are determined by the
provisions of Banking Law and accounting standards promulgated by the other
relevant laws and regulations. The foreign subsidiaries maintain their books of
account and prepare their statutory financial statements in their local
currencies and in accordance with the regulations of the countries in which they
operate. The consolidated financial statements have been prepared from
statutory financial statements of the Bank and its subsidiaries and presented in
accordance with IFRS in Turkish Lira (TL) with adjustments and certain
reclassifications for the purpose of fair presentation in accordance with IFRS.
Such adjustments mainly comprise effects of restatement for the changes in the
general purchasing power of Turkish lira, deferred taxation, and employee
termination benefits. The effects of the differences between IFRS and the
generally accepted accounting principles in the United States or countries other
than Turkey, in which the IFRS financial statements may be used, have not been
quantified herein.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassifications on 2001 Financials
The Group has made certain reclassifications in the consolidated financial
statements as of December 31, 2001 to be consistent with the current year
presentation.
Such reclassifications relate to certain classifications in asset, liability and
income statement accounts and presentation of cash flow statement using direct
method and are made primarily to be consistent with the financial statement
reporting format prescribed by the Banking Regulation and Supervision Agency
(BRSA) effective December 31,2002, which is also in line with the international
banking practices.
Changes in Accounting Policies
The Group adopted IAS 39- Financial Instruments: Recognition and Measurement in
2001. The financial effects of adopting IAS 39 were reported in previous years'
consolidated financial statements.
Measurement and Reporting Currency and Translation Methodology
Measurement and Reporting Currency and Translation Methodology for the Bank and
Its Subsidiaries Which Operate in Turkey:
Measurement currency of the Bank and its subsidiaries, which operate in Turkey,
is Turkish Lira (TL). The restatement for the changes in the general purchasing
power of TL as of December 31, 2002 is based on IAS 29 ("Financial Reporting in
Hyperinflationary Economies"). IAS 29 requires that financial statements
prepared in the currency of a hyperinflationary economy be stated in terms of
the measuring unit current at the balance sheet date and the corresponding
figures for previous periods be restated in the same terms. One characteristic
that necessitates the application of IAS 29 is a cumulative three year inflation
rate approaching or exceeding 100%. As of December 31, 2002, the three year
cumulative rate has been 227 % (2001- 308 %) based on the Turkish countrywide
wholesale price index published by the State Institute of Statistics. Such
index and conversion factors as of the end of the three year period ended
December 31, 2002 are given below:
Dates Index Conversion Factors
December 31, 2000 2,626.0 2.467
December 31, 2001 4,951.7 1.308
December 31, 2002 6,478.8 1.000
The main guidelines for the above mentioned restatement are as follows :
- the financial statements of prior year, including monetary assets
and liabilities reported therein, which were previously reported in terms of the
measuring unit current at the end of that year are restated in their entirety to
the measuring unit current at December 31, 2002.
- monetary assets and liabilities reported in the consolidated balance
sheet as of December 31, 2002 are not restated because they are already
expressed in terms of the monetary unit current at that balance sheet date.
- the inflation adjusted share capital was derived by indexing cash
contributions, dividends reinvested, transfers from statutory retained earnings
and income from sale of investments and property transferred to share capital
from the date they were contributed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- non-monetary assets and liabilities which are not carried at amounts
current at the balance sheet date and other components of equity (except for the
statutory revaluation adjustment which is eliminated) are restated by applying
the relevant conversion factors.
- the effect of general inflation on the net monetary position is
included in the income statement as monetary gain(loss).
- all items in the income statement are restated by applying
appropriate average conversion factors with the exception of depreciation,
amortization, gain or loss on disposal of non-monetary assets (which have been
calculated based on the restated gross book values and accumulated depreciation/
amortization).
Restatement of balance sheet and income statement items through the use of a
general price index and relevant conversion factors does not necessarily mean
that the Group could realize or settle the same values of assets and liabilities
as indicated in the consolidated balance sheets. Similarly, it does not
necessarily mean that the Group could return or settle the same values of equity
to its shareholders.
Measurement and Reporting Currencies of Foreign Subsidiaries:
As of December 31, 2002 and 2001, foreign subsidiaries (Economy Bank and Petek
International) have adopted EURO as their measurement and reporting currency.
The foreign subsidiaries are regarded as foreign entities since they are
financially, economically and organizationally autonomous.
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the
Bank and its subsidiaries drawn up to 31 December each year.
Subsidiaries are consolidated from the date on which control is transferred to
the Group and cease to be consolidated from the date on which control is
transferred out of the Group.
The consolidated financial statements of the Group include the Bank and its
subsidiaries, which it controls. This control is normally evidenced when the
Group owns, either directly or indirectly, more than 50% of the voting rights of
a company's share capital and is able to govern the financial and operating
policies of an enterprise so as to benefit from its activities. The equity and
net income attributable to minority shareholders' interests are shown separately
in the balance sheet and income statement, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intercompany balances and transactions, including intercompany profits and
unrealized profits and losses are eliminated. Consolidated financial statements
are prepared using uniform accounting policies for like transactions and other
events in similar circumstances.
The subsidiaries included in consolidation and their shareholding percentages at
December 31, 2002 and 2001 are as follows :
Place of Effective Shareholding
Incorporation and Voting Rights %
2002 2001
The Economy Bank N.V.(Economy Bank) Netherlands 100.0 100.0
Petek International Holdings B.V.(Petek International) Netherlands 100.0 100.0
TEB Yatyrym Menkul Degerler A.S.(TEB Yatyrym) Turkey/Istanbul 91.8 91.8
TEB Portfoy Yonetimi A.S.(TEB Portfoy) Turkey/Istanbul 88.6 88.6
TEB Finansal Kiralama A.S.(TEB Leasing) Turkey/Istanbul 72.5 72.5
TEB Factoring A.S.(TEB Factoring) Turkey/Istanbul 70.8 70.8
TEB Sigorta A.S.(TEB Sigorta) (*) Turkey/Istanbul 50.0 50.0
(*) The management of the Company is controlled by the Bank representatives.
The principal activities of the consolidated subsidiaries are as follows:
Economy Bank -- Commercial bank, which deals mainly with trade and commodity
finance.
Petek International -- Private holding company.
TEB Yatyrym -- Rendering brokerage and investment banking services to customers
in line with the rules of the Capital Market Board of Turkey.
TE Portfoy -- Private company managing portfolios which are made up of the
capital market instruments according to the rules of the related regulation and
the Capital Market Law by making portfolio management agreements with the
clients.
TEB Leasing -- Leasing of industrial machinery, office equipment, various
equipment and transport vehicles.
TEB Factoring -- Providing both domestic and export factoring services to
industrial and commercial enterprises in Turkey.
TEB Sigorta -- Rendering all types of property and casualty insurance services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment in Associates
The Group's investments in associates are accounted for under the equity method
of accounting. These are entities in which the Group has significant influence
and which are neither subsidiaries nor joint ventures of the Group. The
investments in associates are carried in the balance sheet at cost, less any
impairment in value. The income statement reflects the Group's share of the
results of operations of the associates.
Foreign Currency Translation
Transactions in foreign currencies are recorded at the rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies are translated at the rate of exchange ruling at the balance sheet
date. All differences are taken to the income statement.
Foreign currency translation rates used by the Group as of respective year-ends
are as follows:
Dates TL (full) / USD
December 31, 2000 671,765
December 31, 2001 1,446,638
December 31, 2002 1,639,745
The assets and liabilities of foreign subsidiaries are translated at the rate of
exchange ruling at the balance sheet date. The income statements of foreign
subsidiaries are also translated at year-end exchange rates, which is considered
as a proxy to restate such income statement amounts at year-end purchasing power
of TL. Differences resulting from the deviation between the inflation rate and
the appreciation of foreign currencies against the Turkish Lira related to
equity accounts of consolidated subsidiaries were taken to shareholders' equity
as a translation gain (loss).
Premises and Equipment
Premises and equipment is stated at cost less accumulated depreciation and any
impairment in value. Land is not depreciated.
The initial cost of premises and equipment comprises its purchase price,
including import duties and non-refundable purchase taxes and any directly
attributable costs of bringing the assets to its working condition and location
for its intended use. Expenditures incurred after the fixed assets have been
put into operation, such as repairs and maintenance, are normally charged to
income in the period in the costs are incurred. Expenditures incurred that have
resulted in an increase in the future economic benefits expected from the use of
premises are capitalized as an additional cost of premises and equipment.
Depreciation is calculated on a straight-line basis over the estimated useful
life of the asset as follows:
Buildings and land improvements 50 years
Machinery and equipment 5 years
Office equipment 5 years
Furniture, fixtures and vehicles 5 years
Leasehold improvements Lease period, not less than 5 years
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The carrying values of premises and equipment are reviewed for impairment when
events or changes in circumstances indicate the carrying value may not be
recoverable. If any such indication exists and where the carrying values exceed
the estimated recoverable amount, the assets are written down to their
recoverable amount. Impairment losses are recognized in the income statement.
The useful life and depreciation method are reviewed periodically to ensure that
the method and period of depreciation are consistent with the expected pattern
of economic benefits from items of premises and equipment.
Intangible Assets
Intangible assets acquired separately from a business are capitalized at cost.
Intangible assets, excluding development costs, created within the business are
not capitalized and expenditure is charged against profits in the year in which
it is incurred. Intangible assets are amortized on a straight-line basis over
the best estimate of their useful lives.
The carrying values of intangible assets are reviewed for impairment when events
or changes in circumstances indicate that the carrying value may not be
recoverable.
Investments
All investments are initially recognized at cost, being the fair value of the
consideration given and including acquisition charges associated with the
investment. The Group maintains three separate securities portfolio, as follows:
Trading securities
Trading securities are securities, which were either acquired for generating a
profit from short-term fluctuations in price or dealer's margin, or are
securities included in a portfolio in which a pattern of short-term profit
taking exists. After initial recognition, trading securities are remeasured at
fair value based on quoted bid prices. All related realized and unrealized gains
or losses are recognized in trading income / (loss), net.
Held- to- maturity securities
Investment securities with fixed or determinable payments and fixed maturity
where management has both the intent and the ability to hold to maturity are
classified as held-to-maturity. Management determines the appropriate
classification of its investments at the time of the purchase.
Held-to-maturity investments include debt securities primarily government bonds
and treasury bills initially recognized at cost, which is the fair value of
consideration given for them and are carried at amortized cost using the
effective yield method, less any impairment in value. Amortized cost is
calculated by taking into account any discount or premium on acquisition, over
the period to maturity. For investments carried at amortized cost, gains and
losses are recognized in income when the investments are derecognized or
impaired, as well as through the amortization process.
Interest earned whilst holding held-to-maturity securities is reported as
interest income.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Available- for- sale securities
All other investments are classified as available-for-sale. Available-for-sale
securities are subsequently carried at fair value. Gains or losses on
remeasurement to fair value are recognized in income. Gold and share
certificates and investment funds participation certificates are initially
recorded at cost which is the fair value of the consideration given for them,
including transaction costs and subsequently stated at fair value based on the
quoted market prices at the balance sheet date. Any changes in the carrying
value of gold, share certificates and investment fund participation certificates
during the year are charged or credited to the statement of income.
Available-for-sale securities also include debt securities primarily government
bonds and treasury bills. Debt securities classified as 'available-for-sale' are
stated at fair values, with resulting gain/(loss) and recognized in the
statement of income. Fair value is determined by reference to their quoted
market prices at the balance sheet date.
Foreign currency denominated debt securities are valued at their closing prices
and translated at the foreign currency year-end rate of exchange on the balance
sheet date.
Interest earned on available-for-sale investments is reported as interest
income. Dividends received are included in dividend income.
For investments that are actively traded in organized financial markets, fair
value is determined by reference to Stock Exchange quoted market bid prices at
the close of business on the balance sheet date. For investments where there is
no quoted market price, fair value is determined by reference to the current
market value of another instrument which is substantially the same or is
calculated based on the expected cash flows of the underlying net asset base of
the investment. Equity securities for which fair values cannot be measured
reliably are recognized at cost less impairment.
All regular way purchases and sales of financial assets are recognized on the
settlement date. Regular way purchases or sales are purchases or sales of
financial assets that require delivery of assets within the time frame generally
established by regulation or convention in the market place.
Repurchase and Resale Transactions
The Group enters into short-term sales of securities under agreements to
repurchase such securities. Such securities, which have been sold subject to a
repurchase agreement, continue to be recognized in the balance sheet and are
measured in accordance with the accounting policy of the security portfolio
which they are part of. The counterparty liability for amounts received under
these agreements is included in other money market deposits. The difference
between sale and repurchase price is treated as interest expense and accrued
over the life of the repurchase agreements.
Assets purchased with a corresponding commitment to resell at a specified future
date (reverse repurchase agreements) are not recognized in the balance sheet, as
the Group does not obtain control over the assets. Amounts paid under these
agreements are included in other money market placements. The difference between
purchase and resale price is treated as interest income and accrued over the
life of the reverse repurchase agreement.
Offsetting
Financial assets and liabilities are offset and the net amount reported in the
balance sheet when there is a legally enforceable right to set off the
recognized amounts and there is an intention to settle on a net basis or realize
the asset and settle the liability simultaneously.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recognition and Derecognition of Financial Instruments
The Group recognizes a financial asset or financial liability in its balance
sheet when and only when it becomes a party to the contractual provisions of the
instrument. The Group derecognizes a financial asset or a portion of financial
asset when and only when it loses control of the contractual rights that
comprise the financial asset or a portion financial asset. The Group
derecognizes a financial liability when and only when a liability is
extinguished that is when the obligation specified in the contract is
discharged, cancelled and expired.
Cash and Cash Equivalents
For the purposes of the consolidated cash flow statement, cash and cash
equivalents comprise cash and balances with central banks, deposits with banks
and other financial institutions and other money market placements with an
original maturity of three months or less.
Originated Loans and Advances to Customers
Loans originated by the Group by providing money directly to the borrower or to
a sub-participation agent at draw down are categorized as loans originated by
the Group and are carried at amortized cost. Third party expenses, such as legal
fees, incurred in securing a loan are treated as part of the cost of the
transaction.
All loans and advances are recognized when cash is advanced to borrowers.
Provisions for Possible Loan, Lease and Factoring Receivable Losses
Based upon its evaluation of credits granted, management estimates the total
credit risk provision that it believes is adequate to cover uncollectable
amounts in the Group's loan and receivable portfolio and losses under guarantees
and commitments. If there is objective evidence that the Group will not be able
to collect all amounts due (principal and interest) according to original
contractual terms of the loan; such loans are considered impaired and classified
as "loans in arrears".
The amount of the loss is measured as the difference between the loan's carrying
amount and the present value of expected future cash flows discounted at the
loan's original effective interest rate or as the difference between the
carrying value of the loan and the fair value of collateral, if the loan is
collateralized and foreclosure is probable.
Impairment and uncollectibility are measured and recognized individually for
loans and receivables that are individually significant, and on a portfolio
basis for a group of similar loans and receivables that are not individually
identified as impaired. On the portfolio basis, management estimates that a 1.5%
lump sum allowance over net investments in direct financing leases to third
parties (excluding related parties) is adequate to cover future, potential or
unforeseen uncollectible amounts in rentals receivable and in the net investment
in direct financing leases.
The Group ceases to accrue interest on those loans that are classified as "loans
in arrears" and for which the recoverable amount is determined primarily in
reference to fair value of collateral. The reserve is also reviewed for
compliance with the Tax Procedural Law and Government Decrees and Communiques
issued by the BRSA with respect to classification of loans and minimum reserve
requirements.
The carrying amount of the asset is reduced to its estimated recoverable amount
through use of an allowance for impairment account. A write off is made when
all or part of a loan is deemed uncollectible or in the case of debt
forgiveness. Write offs are charged against previously established allowances
and reduce the principle amount of a loan and reduce the principal amount of a
loan. Recoveries of loans written off in earlier periods are included in income.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
If the amount of the impairment subsequently decreases due to an event occurring
after the write-down, the release of the provision is credited to the provision
for loan losses expense. Unwinding of the discount is treated as income and
remaining provision is then reassessed.
Deposits and Funds Borrowed
Deposits and funds borrowed are initially recognized at cost. After initial
recognition, all interest liabilities are subsequently measured at amortized
cost using effective yield method, less amounts repaid. Amortized cost is
calculated by taking into account any discount or premium on settlement. Gain or
loss is recognized in the income statement when the liability is derecognized or
impaired as well as through the amortization process.
Employee Termination Benefits
In accordance with existing social legislation, the Group is required to make
lump-sum termination indemnities to each employee who has completed one year of
service with the Company and whose employment is terminated due to retirement or
for reasons other than resignation or misconduct. Such amounts are recognized in
the accompanying financial statements as earned. The total reserve represents
the estimated amount of liability required in accordance with IAS 19 (Revised
1998) - Employee Benefits.
In the financial statements the Group has reflected a liability calculated using
the Projected Unit Credit Method and based upon estimated limit increase rates
and factors derived using the Company and its Turkish subsidiaries' experience
of personnel terminating their services and being eligible to receive such
benefits and discounted by using the average current market yield at the balance
sheet date on government bonds.
Provisions
Provisions are recognized when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation. If the
effect of the time value of money is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and, where appropriate,
the risks specific to the liability. Where discounting is used, the increase in
the provision due to the passage of time is recognized as an interest expense.
Leases
The Group as Lessee
Finance leases
Finance leases, which transfer to the Group substantially all the risks and
benefits incidental to ownership of the leased item, are capitalized at the
inception of the lease at the fair value of the leased property or, if lower, at
the present value of the minimum lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly against income. Capitalized leased assets
are depreciated over the estimated useful life of the asset.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Operating leases
Leases where the lessor retains substantially all the risks and benefits of
ownership of the asset are classified as operating leases. These include rent
agreements of branch premises, which are cancelable subject to a period of
notice. Related payments are recognized as an expense in the income statement on
a straight-line basis over the lease term.
The Group as Lessor
Finance leases
The Group presents leased assets as a receivable equal to the net investment in
the lease. Finance income is based on a pattern reflecting a constant periodic
rate of return on the net investment outstanding. Initial direct costs are
recognized immediately as expenses.
Factoring Receivables and Factoring Payables
Factoring receivables are recognized at original factored receivable amount,
which represents the fair value of consideration given, and subsequently
remeasured at amortized cost less reserve for possible losses. Factoring
payables are recognized at original factored amount less advances extended
against factoring receivables, interest and factoring commissions charged, and
then carried at amortized cost.
Income and Expense Recognition
Interest income and expense are recognized in the income statement for all
interest bearing instruments on an accrual basis using the effective yield
method based on the actual purchase price. Interest income also includes coupons
earned on fixed income securities and accrued discount and premium on treasury
bills and other discounted instruments.
Commission income, fee for various banking services and dividends are recorded
as income when collected.
Insurance premium income represents premiums on policies written during the
period, net of cancellations. Unearned premiums, set aside to provide for the
period of risk extending beyond the date of the balance sheet, are determined
from premiums written during the period, less reinsurance, on the basis that,
premiums are written on the middle day of each month (the twenty-fourth basis).
Income Tax
Tax expense / (income) is the aggregate amount included in the determination of
net profit or loss for the period in respect of current and deferred tax.
Deferred income tax is provided, using the liability method, on all temporary
differences at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary
differences, except for the taxable temporary differences associated with
investments in subsidiaries and associates, where the timing of the reversal of
the temporary difference can be controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred income tax assets are recognized for all deductible temporary
differences. The carrying amount of deferred income tax assets is reviewed at
each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the
deferred income tax asset to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that
are expected to apply to the period when the asset is realized or the liability
is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date.
Derivative Financial Instruments
The Group enters into transactions with derivative instruments including
forwards, swaps and options in the foreign exchange and capital markets. These
derivative transactions are considered as effective economic hedges under the
Group's risk management policies; however since they do not qualify for hedge
accounting under the specific provisions of IAS 39, they are treated as
derivatives held for trading. Derivative financial instruments are initially
recognized in the balance sheet at cost and subsequently are remeasured at their
fair value.
Fair values are calculated by using forward exchange rates at the balance sheet
date. In the absence of reliable forward rate estimations in a volatile market,
current market rate is considered to be the best estimate of the present value
of the forward exchange rates.
For derivatives that do not qualify for special hedge accounting, any gains or
losses arising from changes in fair value are taken directly to net profit or
loss for the period.
Fiduciary Assets
Assets held by the Group in a fiduciary, agency or custodian capacity for its
customers are not included in the balance sheet, since such items are not
treated as assets of the Group.
Use of Estimates
The preparation of the financial statements in conformity with IFRS requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the balance sheet. Actual results may vary from the current
estimates. These estimates are reviewed periodically, and, as adjustments become
necessary, they are reported in earnings in the periods in which they become
known.
3. SEGMENT INFORMATION
Segment information is prepared on the following bases:
Business segments
The Group conducts the majority of its business activities in the following
areas:
Year ended December 31, 2002:
Brokerage,
Insurance and
Banking Leasing Factoring Other Eliminations Group
Net interest income 166,060 22,649 2,146 3,099 - 193,954
Provision for possible
loan, lease and factoring
receivable losses (14,562) (631) (12) - - (15,205)
Foreign exchange gain/ 2,004 (9,065) 662 1,822 (9,801) (14,378)
loss
Other operating income 64,547 2,030 1,752 27,161 (10,918) 84,572
Other operating expense (127,519) (4,157) (3,723) (20,876) 2,818 (153,457)
Profit loss from
operating activities 90,530 10,826 825 11,206 (17,901) 95,486
Income/loss from - - - - - -
associates
Unallocated items - - - - - -
Income tax (24,259) (1,385) (163) (2,521) - (28,328)
Monetary gain/loss (40,232) (3,721) (1,813) (6,196) 9,295 (42,667)
Minority interest - - - - (942) (942)
Extraordinary items - - - - - -
Net profit/loss 26,039 5,720 (1,151) 2,489 (9,548) 23,549
Other segment information
Segment assets 3,572,331 133,848 72,417 49,648 (140,714) 3,687,530
Investment in associates 446 - - - - 446
Unallocated assets - - - - - -
Total assets 3,572,777 133,848 72,417 49,648 (140,714) 3,687,976
Segment liabilities 3,245,172 111,535 63,977 22,032 (23,869) 3,418,847
Unallocated liabilities - - - - - -
Total liabilities 3,245,172 111,535 63,977 22,032 (23,869) 3,418,847
Capital expenditures
Tangible fixed assets 14,800 35 35 395 - 15,265
Intangible fixed assets 1,593 8 137 116 - 1,854
Investment properties - - - - - -
Depreciation 10,191 203 229 1,585 - 12,208
Amortization 1,132 45 50 197 - 1,424
Impairment losses - - - - - -
Other non-cash expenses
Provision for - - - - - -
restructuring
3. SEGMENT INFORMATION (continued)
Year ended December 31, 2001:
Brokerage,
Insurance and
Banking Leasing Factoring Other Eliminations Group
Net interest income 114,824 40,458 21,187 11,400 636 188,505
Provision for possible loan,
lease and factoring
receivable losses (9,214) (244) (714) - - (10,172)
Foreign exchange gain/loss 34,668 (36,565) (18,710) 348 (18,604) (38,863)
Other operating income 97,913 1,627 3,381 43,238 (39,488) 106,671
Other operating expense (137,761) (5,427) (6,178) (38,745) 17,174 (170,937)
Profit loss from operating 100,430 (151) (1,034) 16,241 (40,282) 75,204
activities
Income/loss from associates - - - - - -
Unallocated items - - - - - -
Income tax (14,808) (1,196) 1,690 (3,863) - (18,177)
Monetary gain/loss (91,951) (13,279) (7,530) (15,906) 13,782 (114,884)
Minority interest - - - - 6,798 6,798
Extraordinary items - - - - - -
Net profit/loss (6,329) (14,626) (6,874) (3,528) (19,702) (51,059)
Other segment information
Segment assets 3,201,343 88,494 70,203 51,565 (123,070) 3,288,535
Investment in associates 501 - - - - 501
Unallocated assets - - - - - -
Total assets 3,201,844 88,494 70,203 51,565 (123,070) 3,289,036
Segment liabilities 2,908,675 71,900 60,612 26,331 (21,362) 3,046,156
Unallocated liabilities - - - - -
Total liabilities 2,908,675 71,900 60,612 26,331 (21,362) 3,046,156
Transactions between the business segments are on normal commercial terms and
conditions. Those transactions are eliminated in consolidation.
Geographical segments:
The Group conducts majority of its business activities with local customers and
therefore, geographical segments are insignificant.
4. CASH AND CASH EQUIVALENTS
2002 2001
Cash on hand 87,952 188,671
Balances with the Central Bank 342,814 4,322
Cash and balances with the Central Bank 430,766 192,993
Deposits with banks and other financial institutions 1,039,578 534,692
Funds lent under reverse repurchase agreements 7,051 131,388
Interbank placements 407,074 674,445
Other money market placements 414,125 805,833
Cash and cash equivalents in the balance sheet 1,884,469 1,533,518
Less: Time deposits with original maturities of more than three months (31,485) -
Cash and cash equivalents in the cash flow statement 1,852,984 1,533,518
As of December 31, 2002 and 2001, interest range of deposits and placements are
as follows:
2002 2001
Amount Effective interest rate Amount Effective interest rate
Turkish Foreign Turkish Foreign Turkish Foreign Turkish Foreign
Lira currency Lira currency Lira currency Lira currency
Balances with the Central 14,800 328,014 - 0.5% 2,520 1,802 - 0.86%
Bank
Deposits with banks and
other financial
institutions 42,884 996,694 42% - 71.5% 0.45% - 5% 514,868 19,824 55% - 60% 1% - 9%
Funds lent under reverse
repurchase agreements 7,051 - 42% - - 131,388 - 1.9% - 3.45%
Interbank placements 228,244 178,830 44%- 45.25% 1% -1.5% 138,271 536,174 59% - 62% 2.75% - 4%
Total 292,979 1,503,538 655,659 689,188
5. RESERVE DEPOSITS AT THE CENTRAL BANK
2002 2001
- Turkish lira 10,162 9,803
- Foreign currency 122,910 122,679
Total 133,072 132,482
According to the regulations of the Central Bank of Turkish Republic (the
Central Bank), banks are obliged to reserve a certain portion of their deposits
other than interbank deposits. Such reserves are deposited with the Central
Bank.
As of December 31, 2002, reserve deposit rates applicable for Turkish lira
deposits were 6% (2001- 4%) and 11% (2001- 11%) for foreign currency deposits.
Effective from August 2001 and 2002, the Central Bank has started to give
interest for the Turkish lira and foreign currency reserves deposited,
respectively. As of December 31, 2002, the interest rates applied for Turkish
lira and foreign currency reserve deposits are 25% and 0.55 % (December 31, 2001
- 40% and 0%), respectively.
6. INVESTMENTS IN SECURITIES
Trading Securities:
2002 2001
Amount Amount
Trading securities at fair value
Debt instruments
Turkish government bonds 21,793 4,797
Turkish treasury bills 22,210 4,215
Foreign currency government bonds 1,475 -
Eurobonds issued by the Turkish government 7,900 -
53,378 9,012
Others
Precious metals 272 -
272 -
Total trading securities 53,650 9,012
6. INVESTMENTS IN SECURITIES (continued)
Investment Securities :
2002 2001
Effective Effective
Interest rate Interest rate
Amount Amount
Available for sale securities at fair value
Debt instruments
Turkish government bonds - - 145,282 62% - 68%
Turkish treasury bills 298 43.8% - -
Eurobonds issued by the Turkish government 17,213 3.5% 8,036 8.1% -12.3%
17,511 153,318
Others
Precious metals - - 196 -
Total available for sale securities at fair value 17,511 153,514
Available for sale securities at cost
Equity instruments -unlisted 9 - 9 -
Total available for sale securities 17,520 153,523
2002 2001
Effective Effective
Amount Interest rate Amount Interest rate
Held to maturity securities at amortized cost
Debt instruments
Turkish government bonds 265 43.8% 49,412 62% - 64%
Eurobonds issued by the Turkish government 1,308 8.1% - 12.3% - -
Turkish treasury bills 36,553 44.6% - 56.1% - -
Foreign currency government bonds 1,599 - - -
Total held to maturity securities 39,725 49,412
Total investment securities 57,245 202,935
6. INVESTMENTS IN SECURITIES (continued)
Carrying value of debt instruments given as collateral under repurchase
agreements are:
2002 2001
Trading securities 25,579 -
Available for sale - 141,246
As of December 31, 2002, the carrying value and the nominal amounts (in
historical terms) of government securities kept in the Central Bank and in
Istanbul Menkul Kyymetler Borsasy Takas ve Saklama Bankasy Anonim Sirketi
(Ystanbul Stock Exchange Clearing and Custody Incorporation) for legal
requirements and as a guarantee for stock exchange and money market operations
are TL 38,417 and TL 35,270 (2001 - TL 49,412 and TL 34,500), respectively.
7. ORIGINATED LOANS AND ADVANCES
2002
Effective
interest rate
Amount
Foreign Foreign
currency currency
Turkish Foreign indexed Turkish Foreign indexed
Lira currency Lira currency
Corporate loans 258,139 961,381 74,747 25% - 90% 2.75% - 16% 3.5% - 8%
Consumer loans 12,319 346 5,937 0.36% - 84% 3.5% - 4.7% 9% - 10.8%
Credit cards 13,677 1,180 - 93% 93% -
Total loans 284,135 962,907 80,684
Loans in arrears 20,212 - -
Less: Reserve for possible loan (21,343) (40) -
losses
283,004 962,867 80,684
2001
Effective
interest rate
Amount
Foreign Foreign
currency
Turkish Foreign Currency Turkish Foreign indexed
Lira currency indexed Lira currency
Corporate loans 212,940 949,311 5,137 8.5% - 140% 1.7% - 26% 6% - 11%
Consumer loans 31,383 - - 12% - 120% - -
Credit cards 13,893 870 - 96% - 102% 96% - 102% -
Total loans 258,216 950,181 5,137
Loans in arrears 22,641 - -
Less: Reserve for possible loan (11,820) - -
losses
269,037 950,181 5,137
7. ORIGINATED LOANS AND ADVANCES (continued)
Movements in the reserve for possible loan losses:
2002 2001
Reserve at beginning of year 11,820 9,575
Provision for possible loan losses 15,540 11,222
Recoveries (978) (2,008)
Provision net of recoveries 26,382 18,789
Loans written off during the year (6) (432)
Monetary gain (4,993) (6,537)
Reserve at end of year 21,383 11,820
As of December 31, 2002, loans and advances on which interest is not being
accrued, or where interest is suspended, amounted to TL 20,212 (2001- TL
22,641). There is no uncollected interest accrued on impaired loans.
8. FACTORING RECEIVABLES AND PAYABLES
2002
Amount Effective interest rate
Turkish Foreign Turkish Foreign
Lira currency Lira currency
Open accounts 14,380 24,793 53% - 58% 5% - 6%
Checks receivable 28,218 - 53% - 58% 5% - 6%
Notes receivable 908 - 53% - 58% 5% - 6%
Doubtful factoring receivables 572 - - -
Total factoring receivables 44,078 24,793
Less: Reserve for possible losses (637) - - -
Less: Deferred income (1,268) - - -
Net factoring receivables 42,173 24,793
Factoring payables 13,104 14,879
Funds in use, net 29,069 9,914
8. FACTORING RECEIVABLES AND PAYABLES (continued)
2001
Amount Effective interest rate
Turkish Foreign Turkish Foreign
Lira currency Lira currency
Open accounts 21,270 23,562 59% - 62% 7% - 8%
Checks receivable 8,429 - 59% - 62% -
Notes receivable 551 - 59% - 62% -
Doubtful factoring receivables 812 - - -
Total factoring receivables 31,062 23,562
Less: Reserve for possible losses (812) -
Less: Deferred income (296) -
Net factoring receivables 29,954 23,562
Factoring payables - 14,204
Funds in use, net 29,954 9,358
Movements in the reserve for possible losses:
2002 2001
Reserve at beginning of year 812 493
Provision for possible losses 12 714
Recoveries - -
Provision net of recoveries 824 1,207
Factoring receivables written off during the year - -
Monetary gain (187) (395)
Reserve at end of year 637 812
9. MINIMUM LEASE PAYMENTS RECEIVABLES
Gross investment in finance leases, receivable:
2002 2001
Not later than 1 year 64,450 45,684
Later than 1 year and not later than 5 years 32,342 28,066
Later than 5 years 1,451 -
Minimum lease payments receivables, gross 98,243 73,750
Less: Unearned interest income (11,151) (10,870)
Net investment in finance leases 87,092 62,880
Less: Reserve for impairment (1,312) (1,040)
Minimum lease payments receivables, net 85,780 61,840
Net investment in finance leases may be analyzed as follows:
2002 2001
Not later than 1 year 56,431 38,343
Later than 1 year and not later than 5 years 29,290 24,537
Later than 5 years 1,371 -
87,092 62,880
As of December 31, 2002 and 2001, TL97,410 and TL65,705 of gross lease
receivables are denominated in foreign currency (mainly US$ and Euro) and TL,
respectively and the effective interest rates are 13.92% to 14.84% (2001-17.52%
to 16.14%) for foreign currency and 69% to 92% for TL (2001 - 59.09%).
Movements in the reserve for impairment:
2002 2001
Reserve at beginning of year 1,040 1,503
Provision for impairment 657 244
Recoveries (26) -
Provision net of recoveries 1,671 1,747
Minimum lease payments receivables written off during the year (48) -
Monetary gain (311) (707)
Reserve at end of year 1,312 1,040
10. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
Investment in unconsolidated subsidiaries
The breakdown of unconsolidated subsidiaries is comprised of the following:
Participation Percentage Participation Amount
2002 2001 2002 2001
TEB Kyymetli Madenler A.S. 66.1 66.1 337 337
Factors International Holding S.A. - 99.9 - 483
337 820
According to the General Meeting of Factors International Holding S.A. held on
December 28, 2001, it was decided to liquidate Factors International Holding
S.A. in 2002. Accordingly, in 2002, Factors International Holding S.A was
liquidated.
These investments were not consolidated on grounds of immateriality.
11. INVESTMENTS IN ASSOCIATES
The following comprise investments in associates:
2002 2001
Group's Group's
Principle Country of Carrying Ownership Share (*) Carrying Ownership Share (*)
Entity Activities Business Value Interest of Income Value Interest of Income
Varlyk Yatyrym Turkey 446 34.0% 19 501 34.0% 124
Ortaklygy A.S.
446 19 501 124
(*) Group's share of income represents statutory share of net income at related
year-ends.
12. PREMISES AND EQUIPMENT
Furniture,
Office
Equipment and
Leasehold
Land and Leased Motor Improvements
Buildings Assets Vehicles Total
At January 1, 2002, net of accumulated
depreciation
8,367 13,673 2,129 16,736 40,905
Additions - 5,489 1,409 8,367 15,265
Disposals - - (109) (1,514) (1,623)
Depreciation charge for the year (225) (5,271) (918) (5,794) (12,208)
Exchange adjustment - - 1 9 10
At December 31, 2002, net of
accumulated depreciation 8,142 13,891 2,512 17,804 42,349
At December 31, 2001
Cost 10,973 27,512 4,666 42,675 85,826
Accumulated depreciation (2,606) (13,839) (2,537) (25,939) (44,921)
Accumulated impairment - - - - -
Net carrying amount 8,367 13,673 2,129 16,736 40,905
At December 31, 2002
Cost 10,973 32,949 5,479 47,266 96,667
Accumulated depreciation (2,831) (19,058) (2,967) (29,462) (54,318)
Accumulated impairment - - - - -
Net carrying amount 8,142 13,891 2,512 17,804 42,349
13. INTANGIBLES
Software
Licenses and
Other
At January 1, 2002, net of accumulated amortization 3,303
Additions 1,854
Disposals (1)
Amortization charge for the year (1,424)
Exchange adjustment 10
At December 31, 2002, net of accumulated amortization 3,742
At December 31, 2001
Cost 7,534
Accumulated amortization (4,231)
Net carrying amount 3,303
At December 31, 2002
Cost 9,398
Accumulated amortization (5,656)
Net carrying amount 3,742
14. OTHER ASSETS
2002 2001
Insurance premium receivables 15,984 14,081
Transitory accounts and prepaid expenses 2,044 2,797
Value added taxes receivable 1,104 -
Prepaid taxes 492 3,280
Others 9,683 5,025
29,307 25,183
15. DEPOSITS
Deposits from other banks
2002 2001
Amount Effective interest rate Amount Effective interest rate
Turkish Foreign Turkish Foreign Turkish Foreign Turkish Foreign
Lira currency Lira currency Lira currency Lira currency
Demand 747 19,183 0% - 5% - 1,297 4,317 0% - 5% -
Time 32,785 52,953 41% - 49% 2.5% - 3.75% 20,322 63,119 54% - 62% 3.5% - 6%
Total 33,532 72,136 21,619 67,436
Customers' deposits
2002 2001
Amount Effective interest rate Amount Effective interest rate
Turkish Foreign Turkish Foreign Turkish Foreign Turkish Foreign
Lira currency Lira currency Lira currency Lira currency
Saving
Demand 17,258 2,725 0% - 5% - 6,561 4,678 0% - 5% -
Time 151,983 65,260 28% - 65% 0.75% - 5% 103,482 98,726 33% - 75% 1% - 8.5%
169,241 67,985 110,043 103,404
Commercial and
other
Demand 86,957 460,164 0% - 5% - 58,068 338,767 0% - 5% -
Time 108,733 1,821,143 28% - 65% 0.75% - 5% 106,401 1,405,179 33% - 75% 1% - 8.5%
195,690 2,281,307 164,469 1,743,946
Total 364,931 2,349,292 274,512 1,847,350
Other money market deposits
2002 2001
Amount Effective interest rate Amount Effective interest rate
Turkish Foreign Turkish Foreign Turkish Foreign Turkish Foreign
Lira currency Lira currency Lira currency Lira currency
Obligations
under repurchase
agreements:
-Due to 9,812 - 28.21% - 41% - 134,306 131,370 51.28% - 64.1% 1.5% -
customers 3.45%
-Due to banks 13,016 - 44% - 44.1% - - - 59% -
22,828 - 134,306 131,370
Interbank - - - - - - - -
deposits
Other money
market deposits - - - - - - - -
Total 22,828 - 134,306 131,370
16. FUNDS BORROWED
2002 2001
Amount Effective interest rate Amount Effective interest rate
Turkish Foreign Turkish Foreign Turkish Foreign Foreign
Lira currency currency Lira currency currency
Lira Turkish Lira
Short-term
Fixed interest 37,169 19,422 36% -71% 4% -7.42% 53,508 31,643 8.45% - 65% 1.75% - 13.00%
Floating - 269,296 - 1% -6.22% - 246,809 - 1.75% - 13.00%
interest
Medium/long
term
Fixed interest - 682 - - 71 782 100% 2.44% - 13.02%
Floating - 93,011 - 2% -8% - 84,975 - 2.44% - 13.02%
interest
Finance lease
obligations - - - - - - - -
Debt - - - - - - - -
securities
Total 37,169 382,411 53,579 364,209
Repayments of medium-long-term borrowing are as follows:
2002 2001
Fixed rate Floating rate Fixed rate Floating rate
2002 - - - 6,435
2003 - 9,379 213 10,770
2004 682 24,430 640 27,821
2005 - 15,131 - 17,467
2006 - 12,916 - 14,910
2007 - 11,478 - 7,572
Thereafter - 19,677 - -
682 93,011 853 84,975
The Bank has signed an agreement with the International Finance Corporation
(IFC) on July 17, 2002, to receive a US$85 million financing facility. The
facility consists of three separate loans. The first loan is a US$15 million,
7-year term, subordinated convertible loan, bearing an interest rate of Libor +
4.5% and matching BRSA's Tier II Capital definitions as well as contributing to
the Bank's capital adequacy ratio in a positive manner. The second loan is a
US$20 million medium-term loan facility to be lent as working capital,
investment or export pre-finance needs to TEB' clients with 3-month to 5-year
maturity from IFC's own account. The third part of the loan allows for the
syndication of up to US$50 million from private commercial banks when markets
recover.
17. OTHER LIABILITIES AND PROVISIONS
Other liabilities and provisions
2002 2001
Payment orders 27,641 38,911
Transitory accounts 14,893 21,766
Insurance technical reserves 11,961 10,619
Taxes other than on income 11,212 7,242
Trade payables 5,318 -
Employee termination benefits 4,318 3,805
Others 33,176 34,912
108,519 117,255
Employee Termination Benefits
In accordance with existing social legislation, the Bank and its subsidiaries
incorporated in Turkey are required to make lump-sum payments to employees whose
employment is terminated due to retirement or for reasons other than resignation
or misconduct. In Turkey, such payments are calculated on the basis of 30 days'
pay (limited to a maximum of TL 1.260 and TL 0.978 at December 31, 2002 and
December 31, 2001 respectively) per year of employment at the rate of pay
applicable at the date of retirement or termination. In the financial
statements as of December 31, 2002 and 2001, the Group reflected a liability
calculated using the Projected Unit Credit Method and based upon factors derived
using their experience of personnel terminating their services and being
eligible to receive retirement pay and discounted by using the current market
yield at the balance sheet date on government bonds.
17. OTHER LIABILITIES AND PROVISIONS (continued)
IAS 19 (revised) requires actuarial valuation methods to be developed to
estimate the enterprise's obligation under defined benefit plans. Accordingly,
the principal actuarial assumptions used in the calculation of the total
liability at the balance sheet dates are as follows:
2002 2001
Discount rate 43% 70%
Expected rates of limit increases 35% 60%
Actuarial gains and losses are recognized in the income statement in the period
they occur.
The movement in provision for retirement pay liability is as follows:
At January 1, 2001 3,976
Paid during the year (611)
Increase during the year 2,422
Monetary gain (1,982)
At December 31, 2001 3,805
At January 1, 2002 3,805
Paid during the year (479)
Increase during the year 1,909
Monetary gain (917)
At December 31, 2002 4,318
Insurance Technical Reserves
2002 2001
Unearned premiums reserve 13,278 11,231
Unearned premiums reserve reinsurer' share (5,203) (4,099)
8,075 7,132
Deferred commission income 2,006 1,839
Claim provision 5,918 3,458
Claim provision, reinsurer's share (4,038) (1,810)
1,880 1,648
Total 11,961 10,619
18. INCOME TAXES
General Information
The Group is subject to taxation in accordance with the tax procedures and the
legislation effective in the countries in which the Group companies operate.
In Turkey the effective corporate tax rate including the fund levied is 33%.
Items exempted from corporation tax (except dividends collected) are subject to
income tax at the effective rate of 11% or 19.8%. In case of dividend
distributions in the form of cash, depending on public or privately owned status
of the entity, 5% or 15% income tax (plus 10% additional fund) is calculated
over that portion of the distributed amount which is subject to 33% corporation
tax and paid to tax authorities on behalf of shareholders.
In Turkey, tax regulations do not provide a procedure for final agreement of tax
assessments. Tax returns are filed within the fourth month after the end of the
year to which they relate to and tax authorities may examine the accounting
records and revise assessments within five years.
In Turkey, the tax legislation does not permit a parent company and its
subsidiaries to file a consolidated tax return. Therefore, provision for taxes,
as reflected in the consolidated financial statements, has been calculated on a
separate-entity basis.
In accordance with the advance tax payment regulation in Turkey, entities are
required to file temporary tax returns quarterly and pay 25% of their quarterly
earnings which is offset from the final tax liability computed on the current
year's operating results. Accordingly, the taxation charge computed is not equal
to the final tax liability appearing on the balance sheet.
2002 2001
Consolidated income statement
Current income tax
Current income tax charge 29,156 31,095
Deferred income tax
Relating to origination and reversal of temporary differences (828) (12,918)
Income tax expense reported in consolidated income statement 28,328 18,177
A reconciliation of income tax expense applicable to profit from operating
activities before income tax at the statutory income tax rate to income tax
expense at the group's effective income tax rate for the years ended December 31
was as follows :
2002 2001
Net profit/loss from ordinary activities before income tax 51,877 (32,882)
At Turkish statutory income tax rate of 33% 17,120 (10,851)
Effect of different income tax rates in other countries 243 313
Income not subject to tax (36,234) (21,177)
Expenditure not allowable for income tax purposes 33,228 57,479
Utilization of previously unrecognized tax losses (4,536) -
Effect of restatement and other 18,507 (7,587)
Income tax 28,328 18,177
18. INCOME TAXES (continued)
Deferred income tax
Deferred income tax at December 31, relates to the following:
Consolidated
Balance Sheet
2002 2001
Deferred income tax liabilities
Restatement of premises and equipment and intangible assets
(including leased assets) 5,892 6,254
Deferred gains and losses on foreign exchange contracts 1,339 220
Deferred acquisition costs related to insurance contracts 1,212 1,116
Others 592 1,337
Gross deferred income tax liabilities 9,035 8,927
Deferred income tax assets
Loan loss provisions 2,010 1,593
Unearned premium reserve and claim provisions 1,886 1,945
Deferred gains and losses on foreign exchange contracts 1,507 179
Post-employment benefits 1,424 1,256
Others 126 41
Gross deferred income tax assets 6,953 5,014
Net deferred income tax liability 2,082 3,913
Net deferred income tax asset - -
Movement of net deferred tax liability/asset can be presented as follows:
2002 2001
Balance at January 1 3,913 23,560
Deferred income tax recognized in income statement (828) (12,918)
Monetary gain/loss (1,003) (6,729)
Balance at December 31 2,082 3,913
Deferred income tax liabilities have not been established for the withholding
and other taxes that would be payable on the unremitted earnings of certain
subsidiaries incorporated in Turkey, as it is not certain whether such amounts
will be permanently reinvested or received in cash. Such unremitted earnings
totaled TL7,530 at December 31, 2002 (2001 - TL 1,400) at nominal values. If
such amounts are collected in cash in the form of dividends, they will be
subject to withholding tax at the effective rates of 5.5% to 16.5% depending on
whether the subsidiary is publicly quoted or not.
19. DERIVATIVES
In the ordinary course of business, the Group enters into various types of
transactions that involve derivative financial instruments. A derivative
financial instrument is a financial contract between two parties where payments
are dependent upon movements in price in one or more underlying financial
instruments, reference rates or indices. Derivative financial instruments
include forwards, swaps, futures and options.
The table below shows the favorable (assets) and unfavorable (liabilities) fair
values of derivative financial instruments together with the notional amounts
analyzed by the term to maturity. The notional amount is the amount of a
derivative's underlying asset, reference rate or index and is the basis upon
which changes in the value of derivatives are measured. The notional amounts
indicate the volume of transactions outstanding at year-end and are neither
indicative of the market risk nor credit risk.
The fair value of derivative financial instruments is calculated by using
forward exchange rates at the balance sheet date. In the absence of reliable
forward rate estimations in a volatile market, current market rate is considered
to be the best estimate of the present value of the forward exchange rates.
2002
Notional More
amount in than 5
Fair Fair value Turkish Up to 1 1 to 3 3 to 6 6 to 12 1 to 5 years
value liabilities Lira months months months months years
assets equivalent
Derivatives held
for trading
Forward purchase 3,320 - 127,959 89,817 17,810 16,233 4,099 - -
contract
Forward sale - 2,414 131,052 92,844 17,516 16,593 4,099 - -
contract
Currency swap 738 - 151,844 128,895 - 22,949 - - -
purchase
Currency swap sale - 2,154 153,188 130,705 - 22,483 - - -
4,058 4,568 564,043 442,261 35,326 78,258 8,198 - -
2001
Notional
amount in
Fair Fair value Turkish Lira Up to 1 1 to 3 3 to 6 6 to 12 1 to 5 More
value liabilities equivalent months months months months years than 5
assets years
Derivatives held
for trading
Forward purchase 653 - 114,481 78,642 11,113 4,707 20,019 - -
contract
Forward sale - 535 114,469 78,938 10,874 4,675 19,982 - -
contract
Currency swap 13 - 14,467 14,467 - - - - -
purchase
Currency swap sale - 8 14,641 14,641 - - - - -
666 543 258,058 186,688 21,987 9,382 40,001 - -
The Bank has certain structured transactions with foreign financial
institutions, which the Bank has a right to set off the recognized amounts and
intends to settle on a net basis. As of December 31, 2001, such transactions
which are due for settlement in 2002, are reflected net in the balance sheet as
the net of financial liabilities and financial assets in the form of foreign
currency share certificates with call and put options and Eurobonds with swap
commitments of TL38,573.
20. SHARE CAPITAL
2002 2001
Number of common shares, TL 500 (in full TL), par value
Authorized 110,250 million; Issued and outstanding 110,250 110,250
110,250 million in 2002 and 2001 million million
Share of TL500 nominal value each trade in the Istanbul Stock Exchange in the
form of units of two shares with a combined nominal value of TL1,000 each.
As of December 31, 2002 and 2001, the Bank's historical subscribed and issued
share capital was TL 55,125 (historical terms).
There is no increase in share capital of the Bank during 2002 and 2001.
As of December 31, 2002 and 2001, the composition of shareholders and their
respective % of ownership can be summarized as follows:
2002 2001
Amount % Amount %
TEB Mali Yatyrymlar A.S. 38,631 70.08 38,631 70.08
Publicly Traded 11,025 20.00 11,025 20.00
Colakoglu Metalurji A.S. 4,740 8.60 4,740 8.60
Other shareholders 729 1.32 729 1.32
55,125 100.00 55,125 100.00
Restatement effect 181,945 405,554
237,070 100.00 460,679 100.00
As allowed by the BRSA, the Bank has set off prior year losses against legal
reserves and restatement effect of share capital.
21. LEGAL RESERVES AND ACCUMULATED PROFITS (DEFICIT)
Legal Reserves
The legal reserves consist of first and second legal reserves in accordance with
the Turkish Commercial Code. The first legal reserve is appropriated out of the
statutory profits at the rate of 5%, until the total reserve reaches a maximum
of 20% of the entity's share capital. The second legal reserve is appropriated
at the rate of 10% of all distributions in excess of 5% of the entity's share
capital. The first and second legal reserves are not available for distribution
unless they exceed 50% of the share capital, but may be used to absorb losses in
the event that the general reserve is exhausted. As of December 31, 2002, the
Group's legal reserves, which were included within the legal reserves and
accumulated deficit balance amount to TL 7,294 (2001 - TL 7,068) at nominal
values.
The statutory general reserve and statutory current year profit are available
for distribution, subject to the reserve requirements referred to above.
21. LEGAL RESERVES AND ACCUMULATED PROFITS (DEFICIT) (continued)
Dividends
There are no dividends declared and authorized in 2001. The profit appropriation
for 2002 will be resolved in the annual general meeting of the shareholders to
be held in March 2003.
22. EARNINGS PER SHARE
Basic earnings per share (EPS) are calculated by dividing the net profit for the
year attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the year.
In Turkey, companies can increase their share capital by making a pro rata
distribution of shares ("Bonus Shares") to existing shareholders without
consideration for amounts resolved to be transferred to share capital from
retained earnings and revaluation surplus. For the purpose of the EPS
calculation such Bonus Share issues are regarded as stock dividends. Dividend
payments, which are immediately reinvested in the shares of the Bank, are
regarded similarly. Accordingly the weighted average number of shares used in
EPS calculation is derived by giving retroactive effect to the issue of such
shares, which are shown in the table below, without consideration through
December 31, 2002.
Number of Shares (in millions) Issued Attributable to
Transfers Transfers
from from Reinvestment
Retained Revaluation of Dividend
Earnings Surplus Payments Total
1995 and before 32 247 2,969 3,248
1996 - 330 1,270 1,600
1997 1,022 596 4,382 6,000
1998 529 682 7,277 8,488
1999 600 2,062 16,338 19,000
2000 - - 26,068 26,068
2001 - - - -
2002 - - - -
2,183 3,917 58,304 64,404
There is no dilution of shares as of December 31, 2002 and 2001.
The following reflects the income (in full TL) and share data (in billions) used
in the basic earnings per share computations:
2002 2001
Net profit / (loss) attributable to ordinary shareholders for basic earnings per 214 (463)
share
2002 2001
Weighted average number of ordinary shares (in billions) for basic earnings per 110.25 110.25
share
There have been no other transactions involving ordinary shares or potential
ordinary shares since the reporting date and before the completion of these
financial statements.
23. RELATED PARTY DISCLOSURES
Parties are considered to be related if one party has the ability to control the
other party or exercise significant influence over the other party in making the
financial and operating decisions. The Group is controlled by TEB Mali
Yatyrymlar A.S. which owns 70.08% (2001 - 70.08%) of ordinary shares, and
included in Colakoglu Group of companies. For the purpose of these consolidated
financial statements, unconsolidated subsidiaries, associates, shareholders and
Colakoglu Group companies are referred to as related parties. Related parties
also include individuals that are principal owners, management and members of
the Group's Board of Directors and their families.
In the course of conducting its banking business, the Group conducted various
business transactions with related parties on commercial terms and at rates
which approximate market rates.
The following transactions have been entered into with related parties:
Fund lent
Minimum under
lease securities
Placements Non-cash payments Premium resale
Related party with bank Cash loans receivable receivable agreements Funds
loans borrowed
Shareholders 2002 - 103,147 6,730 - 2,496 - -
2001 - 21,505 505 10 4,068 - -
Others 2002 17,461 10,154 4,373 34 2,382 - 44,146
2001 19,296 107,876 6,432 216 3,826 131,155 35,131
Notional amount
of derivative Other Other
Deposits transactions Interest Interest operating Operating
Related Party taken income expense income expense
Shareholders 2002 187,132 43,311 2 (2,450) 925 (813)
2001 63,938 23,168 15,299 (9,570) 48 (73)
Others 2002 759,241 24,485 739 (13,645) 687 (1,019)
2001 326,718 15,676 21,975 (44,605) 2,682 (405)
Cash loans granted to related parties include TL102,553 (2001 - TL123,899) of
cash collateralized loans.
24. SALARIES AND EMPLOYEE BENEFITS
2002 2001
Staff costs
Wages and salaries 46,106 49,410
Bonuses 1,505 793
Other fringe benefits 5,480 5,785
Provision for employee termination benefits 1,909 2,422
Cost of defined contribution plan (employers' share of social security
premiums)
5,098 4,902
Total 60,098 63,312
The average number of employees during the year is:
2002 2001
The Bank 1,570 1,301
Subsidiaries 318 324
Total 1,888 1,625
25. OTHER INCOME/OTHER EXPENSES
Other income
2002 2001
Fund management fees 4,522 5,537
Insurance technical income 5,518 7,131
Others 7,463 12,062
Total 17,503 24,730
Other expenses
2002 2001
Rent expense 11,506 13,258
SDIF premium 8,898 11,121
Advertisement expenses 3,798 3,749
Various administrative expenses 25,198 33,058
Total 49,400 61,186
26. COMMITMENTS AND CONTINGENCIES
In the normal course of business activities, the Bank and its subsidiaries
undertake various commitments and incur certain contingent liabilities that are
not presented in the financial statements including:
2002 2001
Letters of guarantees
- issued by the Bank 553,430 577,640
- obtained by consolidated subsidiaries from other banks 27,203 24,150
Letters of credit 321,987 28,222
Acceptance credits 40,361 219,377
Total non-cash loans 942,981 849,389
Other commitments 122,968 269,605
Credit card limit commitments 67,335 63,971
1,133,284 1,182,965
Trust Assets
The nominal values of the assets held by the Group in fiduciary, agency or
custodian capacities amounted to TL1,539,865 (2001 - TL 1,185,674) and EURO 40.2
million (2001 - EURO 1,468 million) at December 31, 2002 and 2001, respectively.
Letters of Guarantee Given to Istanbul Stock Exchange (ISE) and Istanbul Gold
Market (IGM)
As of December 31, 2002 and 2001, in line with the requirements of IGM letters
of guarantee amounting to US$1,610,000 had been obtained from local banks and
were provided to IGM for transactions conducted in that market.
As of December 31, 2001 and 2002, according to the general requirements of the
ISE, letters of guarantee amounting to TL1,902 (in historical terms) and US$17
million had been obtained from various local banks and were provided to the ISE
for bond market transactions. Also, as of December 31, 2002 and 2001, according
to the general requirements, letters of guarantee amounting to TL2,346 and TL
572 (2001 - TL 252) (in historical terms) were given to the Capital Market
Board, respectively.
Other
The Group manages nine open-ended investment funds which were established under
the regulations of the Turkish Capital Board. In accordance with the funds'
charters, the Group purchases and sells marketable securities on behalf of
funds, markets their participation certificates and provides other services in
return for a management fee and undertakes management responsibility for their
operations.
As of December 31, 2002 and 2001, the total value of the investment funds
managed by the Group amounted to TL327,529 and TL194,436 respectively.
27. FINANCIAL RISK MANAGEMENT
General
The Risk Management Group is headed by a dedicated member of the Board who is
assigned as Risk Supervisor. The group reports to the Board of Directors and
manages Market Risk, Credit Risk and Operational Risk.
Board of Directors sets limits and risks taken for all money, capital and
commodity markets and counterparties .
Credit Risk
Credit risk represents the risk generating from the counter party's not
fulfilling its responsibilities stated in the agreement either partially or
totally.
Credit Risk Department is established, the internal rating system for corporate
credits is being used by the Credit Control Department and a scoring system for
retail banking was put in-effect in 2001. The rating of the firms, credit limit
and guarantee acceptance processes are taken into consideration all together in
accordance with conservative lending policies applied by the Loan Lending and
Risk Follow up Group. Accordingly the follow up of credit risk is established.
Sectoral counterparty credit limits are set on individual borrowers and groups.
Money Market placement lines and risks of the Group companies are monitored
centrally by an in-house Line Limit System.
The risks and limits generated from treasury and client based commercial
transactions are followed up daily. Additionally, the control of the limits of
the correspondent banks is determined by their ratings and the control of the
accepted risk level in relation to the Bank's equity are performed daily. Risk
limits are determined for the transactions taking place daily and the risk
concentration of the off-balance sheet transactions are followed up by the
system.
The credibility of the debtors of the Bank is assessed periodically in
accordance with the "Communique on Methods and Principles for the Determination
of Loans and Other Receivables to be Reserved for and Allocation of Reserves."
Majority of the accepted statements presenting the financial position of the
borrowers are audited statements.
Transaction limits for the forward and other similar agreement positions held
by the Bank is determined by the Board of Directors and transactions take place
within these limits.
Foreign country and institution risks of the Bank are generally determined for
foreign countries and institutions, which are considered at the investment
level, in other words, which are stated as carrying minimum level of default
risk by the international rating companies. Accordingly, the likely risks that
may occur are minor risks when the financial structure of the Bank is
considered.
27. FINANCIAL RISK MANAGEMENT (continued)
Sectoral break down of cash and non-cash loans is as follows:
2002 2001
Cash Non-cash Cash Non-cash
Financial institutions and discounted bills 208,221 85,026 187,499 87,934
Metals 184,191 90,187 85,380 68,143
Textiles 152,815 103,716 78,453 88,338
Chemicals and chemical products 123,582 71,710 108,783 54,475
Food, beverage, tobacco 102,275 102,349 86,289 91,320
Wholesale and retailing 101,465 82,645 65,119 53,690
Transportation 64,409 30,860 60,788 37,422
Ready-to-wear textiles 63,379 37,606 95,986 23,373
Wood products 61,204 24,412 85,503 24,828
Machinery 32,118 35,658 19,572 42,578
Construction 25,662 28,228 22,456 14,496
Tourism, transportation, warehousing 24,402 24,456 15,147 31,144
Mining, other than metals 18,659 9,651 7,184 6,919
Electricity and optic devices 16,604 15,095 115,058 13,488
Fuel products 12,524 7,096 32,395 1,206
Fiber and plastic 10,290 29,196 15,297 49,719
Leather and leather products 3,370 1,993 2,516 1,236
Others 72,051 39,898 65,025 12,541
Corporate loans 1,277,221 819,782 1,148,450 702,850
Consumer loans 31,176 10,358 32,413 11,957
Letters of guarantee secured by counter guarantees - 48,550 - 51,458
Confirmed and collateralized letters of credit - 37,088 - 58,974
Interest accruals 19,329 - 32,671 -
Loans in arrears 20,212 - 22,641 -
Provision for possible loan losses (21,383) - (11,820) -
1,326,555 915,778 1,224,355 825,239
Liquidity Risk
Liquidity risk occurs when there is insufficient amount of cash inflows to
fulfill the cash outflows completely on time.
Liquidity risk may occur when market penetration is not enough, when the open
positions cannot be closed at a suitable price and sufficient amount due to
barriers and conditions at the markets. The Bank's policy is to establish a
liquid asset structure that provides comfort in meeting all kinds of liabilities
by liquid assets. The Board of Directors of the Bank continuously determines the
liquidity ratios and related standards, and controls them, in order to keep this
structure.
When the funding and liquidity sources are considered, the Bank covers majority
of its liquidity need by deposits, and in addition to this source, it makes use
of prefinancing and syndication products to generate additional sources. The
Bank is a net lender in interbank money markets.
27. FINANCIAL RISK MANAGEMENT (continued)
The table below analyses assets and liabilities of the Group into relevant
maturity groupings based on the remaining period at balance sheet date to
contractual maturity date.
Up to 1 1 to 3 3 to 6 6 to 12 1 to 5 Over 5 Total
Undistributed month months months months years years
As at December 31, 2002
Assets
Cash and balances with - 430,766 - - - - - 430,766
the Central Bank
Deposits with banks and - 1,014,347 13,493 9,035 2,703 - - 1,039,578
other financial
institutions
Other money market - 414,125 - - - - - 414,125
placements
Reserve deposits at the - 133,072 - - - - - 133,072
Central Bank
Trading securities - 368 16,281 10,760 6,719 18,588 934 53,650
Investment securities - 572 17,213 1,600 1,307 36,553 - 57,245
Originated loans and - 406,846 256,497 305,136 156,907 201,169 - 1,326,555
advances
Factoring receivables - - 66,966 - - - - 66,966
Minimum lease payments - 4,685 13,728 12,978 22,919 31,470 - 85,780
receivable
Derivative financial - 1,532 704 1,822 - - - 4,058
instruments
Investments in 337 - - - - - - 337
unconsolidated
subsidiaries
Investments in 446 - - - - - - 446
associates
Premises and equipment 42,349 - - - - - - 42,349
Intangible assets 3,742 - - - - - - 3,742
Other assets 13,323 3,276 2,814 6,221 3,673 - - 29,307
Total assets 60,197 2,409,589 387,696 347,552 194,228 287,780 934 3,687,976
Liabilities:
Deposits from other - 102,036 2,632 1,000 - - - 105,668
banks
Customers' deposits - 2,249,893 163,022 53,367 82,626 165,315 - 2,714,223
Other money market - 22,828 - - - - - 22,828
deposits
Funds borrowed - 33,289 32,427 80,793 188,757 64,637 19,677 419,580
Factoring payables - - 27,983 - - - - 27,983
Derivative financial - 2,690 563 1,082 233 - - 4,568
instruments
Other liabilities and 77,501 8,472 4,645 5,908 11,961 - 32 108,519
provisions
Income taxes payable 13,396 - - - - - - 13,396
Deferred tax liability 2,082 - - - - - - 2,082
Total liabilities 92,979 2,419,208 231,272 142,150 283,577 229,952 19,709 3,418,847
Net liquidity gap (32,782) (9,619) 156,424 205,402 (89,349) 57,828 (18,775) 269,129
As at December 31,2001
Total assets 266,487 1,966,346 286,436 266,484 362,919 140,364 - 3,289,036
Total liabilities 151,775 1,910,705 294,132 208,940 315,494 165,110 - 3,046,156
Net liquidity gap 114,712 55,641 (7,696) 57,544 47,425 (24,746) - 242,880
27. FINANCIAL RISK MANAGEMENT (continued)
Market Risk
The interest rate and exchange rate risks of the financial positions taken by
the Bank related to balance sheet and off-balance sheet accounts are measured
and while calculating the capital adequacy, the amount subject to Value-at-Risk
(VAR) is taken into consideration. Scenario analysis and stress tests are used
additionally in market risk computations.
In order to measure the market risk of the Bank, the Board of Directors has
established risk management strategies in accordance with the proposals of the
Senior Management Risk Committee and these strategies are required to be
followed up periodically. The Board of Directors evaluates the basic risks faced
and determines limitations accordingly. The limits are revised periodically.
Additionally the Board of Directors requires the risk management group and
senior management to take necessary precautions to consider, evaluate, and
control the variety of risks the Bank faces.
Currency Risk
Foreign currency risk indicates the possibilities of the potential losses that
banks are subject to due to the exchange rate movements in the market. While
calculating the share capital requirement, all foreign currency assets,
liabilities and forward transactions of the Bank are taken into account. Net
short and long position of Turkish Lira equivalent of each foreign currency is
calculated. The value, which will be a base for calculating the share capital
requirement, is computed by taking the higher absolute value of the position by
adding to absolute net gold position. Share capital requirement is computed over
of this amount. The Board of Directors sets limits for the positions, which are
followed up daily. Additionally, possible value changes in the existing or
possible foreign currency positions are observed together with the follow-up of
the foreign currency risk in accordance with the provisions of the "Communique
on Internal Control and Risk Management Systems of Banks".
The Board of Directors of the Bank determines the short position limits that the
Bank can hold in accordance with the present legal limitations. The Treasury
Department of the Bank is responsible for the management of Turkish Lira or
foreign currency price, liquidity and affordability risks that could occur in
the domestic and international markets. The Risk Control Department continuously
controls risk and risk related transactions occurring in the money markets and
prepares weekly reports for the Bank's Asset-Liability Committee. The related
principles and limitations of the counterparties are determined by the Loan
Committee. The limits concerning the maturity structure of the foreign currency
transactions and interest rates are monitored by the Asset-Liability Committee.
27. FINANCIAL RISK MANAGEMENT (continued)
The concentrations of assets, liabilities and off balance sheet items:
Japanese
Turkish US Dollars Euro Yen Others Total
Lira
As at December 31, 2002
Assets
Cash and balances with the 20,933 409,822 11 - - 430,766
Central Bank (or central banks
Deposits with banks and other 42,884 787,297 146,701 1,834 60,862 1,039,578
financial institutions
Other money market placements 235,295 178,830 - - - 414,125
Reserve deposits at the Central 10,162 122,910 - - - 133,072
Bank (or central banks)
Trading securities 43,779 2,687 6,912 - 272 53,650
Investment securities 37,125 1,599 - 17,213 1,308 57,245
Originated loans and advances 283,004 793,657 226,656 - 23,238 1,326,555
Factoring receivables 42,173 6,238 9,835 - 8,720 66,966
Minimum lease payments 4,822 31,918 43,129 - 5,911 85,780
receivable
Derivative financial 3,743 - 315 - - 4,058
instruments
Investments in unconsolidated 337 - - - - 337
subsidiaries
Investments in associates 446 - - - - 446
Premises and equipment 41,940 - 409 - - 42,349
Intangible assets 3,614 - 128 - - 3,742
Other assets 26,389 2,064 748 5 101 29,307
Total assets 796,646 2,337,022 434,844 19,052 100,412 3,687,976
Liabilities
Deposits from other banks 33,532 39,758 7,979 3 24,396 105,668
Customers' deposits 364,931 2,028,520 267,990 804 51,978 2,714,223
Other money market deposits 22,828 - - - - 22,828
Funds borrowed 37,169 354,487 14,001 - 13,923 419,580
Factoring payables 13,104 3,688 5,478 - 5,713 27,983
Derivative financial 4,568 - - - - 4,568
instruments
Other liabilities and 61,702 5,433 39,443 - 1,941 108,519
provisions
Income taxes payable 11,711 - 1,685 - - 13,396
Deferred tax liability 2,082 - - - - 2,082
Total liabilities 551,627 2,431,886 336,576 807 97,951 3,418,847
Net on-balance sheet position 245,019 (94,864) 98,268 18,245 2,461 269,129
Off-balance sheet position
Net notional amount of (40,527) 169,107 (103,839) (18,082) (11,096) (4,437)
derivatives
Non- cash loans - - - - - -
At December 31, 2001
Total assets 758,565 2,100,439 355,230 382 74,420 3,289,036
Total liabilities 549,162 2,127,306 292,837 363 76,488 3,046,156
Net on balance sheet position 209,403 (26,867) 62,393 19 (2,068) 242,880
Off-balance sheet position (2,104) 10,805 (8,990) 72 55 (162)
27. FINANCIAL RISK MANAGEMENT (continued)
Interest Rate Risk
Interest rate risk measures the probability of loss related to the changes in
interest rates depending on the Bank's position. This is managed by the Treasury
Department. The Board of Directors determines the interest rate risk limits. The
Risk Control Department calculates, controls and reports the interest rate risk.
All types of sensitivity analysis are calculated by the risk management group
and reported to the Asset-Liability Committee. The Asset-Liability Committee
monitors the interest rate risk and takes these into consideration in defining
the repricing strategies.
The table below summarizes the Group's exposure to interest rate risk on the
basis of the remaining period at the balance sheet date to the repricing date.
Non
Up to 1 1 to 3 3 to 6 6 to 12 1 to 5 Over 5 interest
month months months months years years bearing Total
As at December 31, 2002
Assets:
Cash and balances with the 342,814 - - - - - 87,952 430,766
Central Bank
Deposits with banks and 948,322 13,493 9,035 2,703 - - 66,025 1,039,578
other financial
institutions
Other money market 414,125 - - - - - - 414,125
placements
Reserve deposits at the 133,072 - - - - - - 133,072
Central Bank
Trading securities 2,694 32,002 11,148 6,822 666 46 272 53,650
Investment securities 265 53,766 1,600 1,307 - - 307 57,245
Originated loans and 406,846 256,497 305,136 156,907 201,169 - - 1,326,555
advances
Factoring receivables - 66,966 - - - - - 66,966
Minimum lease payments 4,685 13,728 12,978 22,919 31,470 - - 85,780
receivable
Derivative financial 1,532 704 1,822 - - - - 4,058
instruments
Investments in - - - - - - 337 337
unconsolidated subsidiaries
Investments in associates - - - - - - 446 446
Premises and equipment - - - - - - 42,349 42,349
Intangible assets - - - - - - 3,742 3,742
Other assets 3,276 2,814 6,221 3,673 - - 13,323 29,307
Total assets 2,257,631 439,970 347,940 194,331 233,305 46 214,753 3,687,976
Liabilities:
Deposits from other banks 102,036 2,632 1,000 - - - - 105,668
Customers' deposits 2,249,893 163,022 53,367 82,626 165,315 - - 2,714,223
Other money market deposits 22,828 - - - - - - 22,828
Funds borrowed 33,289 198,619 75,374 101,744 10,554 - - 419,580
Factoring payables - 27,983 - - - - - 27,983
Derivative financial 2,690 563 1,082 233 - - - 4,568
instruments
Other liabilities and - - 5,908 11,961 - 32 90,618 108,519
provisions
Income taxes payable - - - - - - 13,396 13,396
Deferred tax liability - - - - - - 2,082 2,082
Total liabilities 2,410,736 392,819 136,731 196,564 175,869 32 106,096 3,418,847
On balance sheet interest (153,105) 47,151 211,209 (2,233) 57,436 14 108,657 269,129
sensitivity gap
Off balance sheet interest - - - - - - - -
sensitivity gap
Total interest sensitivity (153,105) 47,151 211,209 (2,233) 57,436 14 108,657 269,129
gap
27. FINANCIAL RISK MANAGEMENT (continued)
Operational Risk
Operational risk is defined as the risk of direct or indirect loss resulting
from inadequate or failed internal process, people and systems or from external
events.
Operational risk which is inherent in all business activities is associated with
human error, system failure and inadequate controls and procedures. Operational
risk includes errors and omissions in business activities, internal and external
fraud and natural disasters.
The Bank's first objective is to achieve all qualitative standards of Basel
Committee, by implying policy and procedures, ensuring the strict observance of
internal code of conduct and also developing strong internal control culture.
Compliance with legal rules, information security, fraud prevention, contingency
planning and disaster recovery, and also incident management are the main
subjects of the operational risk mitigation controls.
Capital Adequacy
To monitor the adequacy of its capital, the Group uses ratios established by
BRSA. These ratios measure capital adequacy (minimum 8% as required by BRSA) by
comparing the Group's eligible capital with its balance sheet assets,
off-balance sheet commitments and market and other risk positions at weighted
amounts to reflect their relative risk. As of December 31, 2002, the Bank's
capital adequacy ratio on an unconsolidated basis is 15.40% (2001- 13.26%).
28. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Values
Set out below is a comparison by category of carrying amounts and fair values of
the Group's financial instruments that are carried in the financial statements
at other than fair values.
Carrying amount Fair value
2002 2001 2002 2001
Financial assets
Originated loans and advances to customers 1,326,555 1,224,355 1,326,487 1,194,505
Investments held to maturity 39,725 49,412 39,136 49,071
Minimum lease payments receivables 85,780 61,840 86,000 59,411
1,452,060 1,335,607 1,451,623 1,302,987
Financial liabilities
Deposits from other banks 105,668 89,055 105,658 89,055
Customer deposits 2,714,223 2,121,862 2,713,694 2,121,937
Funds borrowed 419,580 417,788 422,614 408,537
3,239,471 2,628,705 3,241,966 2,619,529
Fair values of remaining financial assets and liabilities carried at cost,
including deposit with banks and other financial instruments, balances with the
Central Bank, reserve deposits, other money market placements, deposits,
factoring receivables and payables, funds borrowed under securities repurchase
agreements and promissory notes are considered to approximate their respective
carrying values due to their short-term nature.
To the extent relevant and reliable information is available from financial
markets in Turkey, the fair value of financial instruments is based on such
market data. The fair values of other financial instruments are determined by
using estimation techniques that include reference to the current market value
of another instrument with similar characteristics or by discounting the
expected future cash flows at prevailing interest rates.
The interest used to determine the fair values of financial instruments, applied
on the balance sheet date to reflect active market price quotations are as
follows:
Originated loans and advances:
Interest Rates Applied (%)
December 31, December 31, 2001
Currency 2002
Turkish lira 37.59 67.00
US$ 5.71 7.31
EURO 5.38 6.63
Lease contract receivables:
Interest Rates Applied (%)
December 31, December 31, 2001
Currency 2002
Turkish lira 70.71 70.00
US$ 11.26 15.00
EURO 13.31 17.00
CHF 9.97 -
28. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Deposits:
Interest Rates Applied (%)
December 31, December 31, 2001
Currency 2002
Turkish lira 43.87 58.00
US$ 2.51 2.75
EURO 2.60 4.00
Funds borrowed:
Interest Rates Applied (%)
December 31, December 31, 2001
Currency 2002
Turkish lira 45.23 59.00
US$ 3.25 4.75
EURO 5.67 5.80
29. SUBSEQUENT AND OTHER EVENTS
i) The Bank is in the process of establishing a branch in Bahrain in an
offshore bank status based on the permission of the Under secretariat of
Treasury to the Prime Ministry of Turkish Republic and the branch
is planned to start operations in March 2003.
ii) As of January 1, 2003 retirement pay liability ceiling was increased to
TL 1.324.
iii) In 2002, 24 branches have been acquired from banks, which are under the
control of the Saving Deposits Insurance Fund.
30. UNCONSOLIDATED FINANCIAL STATEMENTS OF THE BANK
The Bank's own unconsolidated balance sheets and income statements prepared in
accordance with IFRS as of and for the years ended December 31, 2002 and 2001
are included in the Appendix for information purposes only. In the
unconsolidated financial statements, the Bank opted to account for investments
in subsidiaries at restated cost in accordance with IAS 27. These financial
statements have been included within the consolidated financial statements as of
the respective dates.
ASSETS
2002 2001
Cash and balances with the Central Bank 430,654 173,379
Deposits with banks and other financial institutions 331,085 251,553
Other money market placements 407,074 674,444
Reserve deposits at the Central Bank 133,072 132,482
Trading securities 31,298 9,012
Investment securities 54,039 196,773
Originated loans and advances 807,734 603,163
Derivative financial instruments 4,394 666
Investments in subsidiaries and associates 106,816 94,712
Premises and equipment 37,234 34,125
Intangible assets 2,964 2,324
Deferred tax assets 43 -
Other assets 7,145 4,087
Total assets 2,353,552 2,176,720
LIABILITIES AND EQUITY
Deposits from other banks 60,147 23,762
Customers' deposits 1,637,596 1,375,348
Other money market deposits 22,828 134,306
Funds borrowed
- Subordinated loan 24,919 -
- Other funds borrowed 270,478 305,604
Derivative financial instruments 4,568 730
Other liabilities and provisions 71,684 92,770
Income taxes payable 10,473 9,003
Deferred tax liability - 2,262
Total liabilities 2,102,693 1,943,785
Equity
Share capital issued 55,125 55,125
Adjustment to share capital 181,945 405,554
Legal reserves and accumulated profits (deficit) 13,789 (227,744)
Total equity 250,859 232,935
Total liabilities and equity 2,353,552 2,176,720
INCOME STATEMENT
2002 2001
Interest income
Interest on originated loans and advances 160,105 194,967
Interest on securities 57,030 71,131
Interest on deposits with banks and other financial institutions 17,427 73,255
Interest on other money market placements 85,848 126,351
Other interest income 4,675 1,348
Total interest income 325,085 467,052
Interest expense
Interest on deposits (111,058) (262,818)
Interest on other money market deposits (28,770) (585)
Interest on funds borrowed (28,493) (99,954)
Other interest expense (1,359) (2,332)
Total interest expense (169,680) (365,689)
Net interest income 155,405 101,363
Provision for possible loan losses (14,521) (9,214)
Net interest income (expense) after provision for possible loan losses 140,884 92,149
Foreign exchange gain (loss) 1,127 35,221
Net interest income after foreign exchange gain (loss) and provision for
possible loan losses
142,011 127,370
Other operating income
Fees and commissions income 9,846 12,715
Income from banking services 19,193 25,766
Trading income (loss) 18,776 20,282
Other income 9,325 30,988
Total other operating income 57,140 89,751
Other operating expense
Fees and commissions expense (15,150) (11,715)
Salaries and employee benefits (46,109) (46,782)
Depreciation and amortization (10,967) (10,688)
Taxes other than on income (12,418) (15,884)
Other expenses (36,459) (46,881)
Total other operating expense (121,103) (131,950)
Profit (loss) from operating activities before income tax and monetary gain 78,048 85,171
(loss)
Income tax (19,891) (9,473)
Monetary gain (loss) (40,232) (91,950)
Net profit (loss) 17,925 (16,252)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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