Kuveyt Turk Katilim Bankasi: Annual Report 2021

Transcription

1. INTEREST-FREE , SUSTAINABLE DRIVING FORCE FOR TURKEY KUVEYT TÜRK ANNUAL REPORT 2021 HEAD OFFICE Büyükdere Cad. No: 129/1 Esentepe 34394 Şişli/İstanbul Phone: (0212) 354 11 11 (pbx) www.kuveytturk.com.tr Call Center: 444 0 123 Annual Report 2021
2. Contents SECTION I : INTRODUCTION 12 Message from the Chairman 14 Message from the CEO 16 Agenda of the Ordinary General Assembly 16 Amendments to the Articles of Association 17 Kuveyt Türk in Brief 20 About Kuveyt Türk 22 Shareholding and Capital Structure 24 The Story of 32 Successful Years 28 Summary of Financial Indicators 30Awards 32 Macroeconomic and Sector Outlook 34 Kuveyt Türk’s Position in the Industry SECTION II: ASSESSMENT OF ACTIVITIES IN 2021 36 Retail Banking 44 SME Banking 50 Corporate and Commercial Banking 54 Treasury and International Banking 58Loans 60Strategy 64 Digital Transformation and Innovation 66 Information Technologies (IT) SECTION III: SUSTAINABILITY 72 Sustainability Approach 73 Social Responsibility 76 Environmental Responsibility 78 Human Resources Practices 84 Kuveyt Türk Academy SECTION IV: MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES 86 Board of Directors 89 Senior Management 93 Organizational Chart 94 Summary Report of the Board of Directors Submitted to the General Assembly 95 Executives within Internal Systems 96 Senior Management Committees 99 Related Party Transactions 100 Outsourced Services SECTION V: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES 102 Annual Report Compliance Opinion 103 Annual Report Statement of Responsibility 104 Review of the Audit Committee on Internal Systems 107 Advisory Board’s Assessment on the Bank’s Compliance with Interest-Free Banking Principles and Standards 108 Assessment on Financial Status, Profitability and Solvency 108 Ratings of Kuveyt Türk by International Rating Agencies 109 Information on Risk Management Policies 111 Five-Year Summary Financial Information 113 Independent Auditor’s Report, Unconsolidated Financial Statements, and Footnotes to the Financial Statements for the Accounting Period January 1- December 31, 2021 241 Independent Auditor’s Report, Consolidated Financial Statements and Footnotes to the Financial Statements for the Accounting Period January 1- December 31, 2021 Contact Information and Branch Directory Contact Information and Branch Directory HEAD OFFICE Büyükdere Cad. No: 129/1 Esentepe 34394 Şişli/İstanbul Tel : (0212) 354 11 11 (pbx) Fax : (0212) 354 12 12 KUVEYT TÜRK BANKING HUB Cumhuriyet Mah. Özgürlük Cad. No:11/A Çayırova/Kocaeli Phone: (0262) 723 55 55 Fax : (0262) 723 56 56 Website E-Mail Trade Registry No Mersis No Call Center : www.kuveytturk.com.tr : musterimemnuniyeti@kuveytturk.com.tr : 250489 : 0600002681400074 : 444 0 123 / 0850 251 0 123 LOCAL BRANCH DIRECTORY Kuveyt Türk’s branch network is composed of 442 branches in total, 441 in Turkey and one in Bahrain. Detailed information about the local branches can be found by clicking on the following link to the Bank’s website. https://www.kuveytturk.com.tr/en/branches-and-atms OVERSEAS SERVICE POINTS BAHRAIN BRANCH Dilmun Tower (A), 121 Government Avenue P.O. Box 1363 Manama/BAHRAIN Phone: +973 17 20 11 11 Fax : +973 17 22 33 25 KT BANK AG-FRANKFURT BRANCH Schillerstraße 19-25-60313 Frankfurt am Main/GERMANY Phone: +49 69 920 39 16-0 Fax: +49 69-9203916-99 KT BANK AG-BERLIN BRANCH Leipziger Straße 26-10117 Berlin/GERMANY Phone: +49 30 209 15 76-0 Fax : +49 30 209 15 76-99 KT BANK AG-MANNHEIM BRANCH U1, 9-68161 Mannheim/GERMANY Phone: +49 62 172 73 85-0 Fax : +49 62 172 73 85-45 KT BANK AG-COLOGNE BRANCH Venloer Straße 160 – 50823 Cologne/GERMANY Phone: +49 221 1792595-0 Fax : +49 221 1792595-29 KT BANK AG-MUNCHEN BRANCH Altheimer Eck 3 80331 München/ GERMANY Phone: +49 89 212694116 Fax : +49 89 212694129 Proudly produced by FİNAR. www.finarkurumsal.com
3. AT KUVEYT T ÜRK, TURKEY’S LEADING PARTICIPATION FINANCE INSTITUTION, WE DEVELOP PRODUCTS AND SERVICES BASED ON THE PRINCIPLES OF PARTICIPATION FINANCE. KUVEYT TÜRK HAS DELIVERED INTEREST-FREE FINANCIAL SERVICES TO CUSTOMERS ACROSS TURKEY FOR THE PAST 32 YEARS. WITH OUR ROBUST CAPITAL BASE AND LIQUIDITY STRUCTURE, WE PROVIDE SUPPORT TO TURKEY’S ECONOMY EVEN DURING THE HARDEST OF TIMES. DURING THE PANDEMIC, WE INCREASED THE AMOUNT OF FUNDS WE EXTENDED AND SUPPORTED THE REAL ECONOMY. OUR HIGH-QUALITY ASSETS, CONTINUOUS IMPROVEMENT-FOCUSED SERVICE MODEL, ONGOING TECH INVESTMENTS, ACCELERATING DIGITAL TRANSFORMATION, AND OUR EFFORTS TO ENTER OVERSEAS MARKETS SOLIDIFY KUVEYT TÜRK’S POSITION AS THE LEADER OF THE PARTICIPATION FINANCE INDUSTRY.
4. WORLD ’S FIRST SUSTAINABLE SUBORDINATED SUKUK ISSUANCE In 2010, Kuveyt Türk issued the first sukuk in Turkey and Europe, introducing Turkey to interest-free capital markets. In 2021, we issued a Global Sustainable Tier 2 Subordinated Sukuk, a pioneering transaction both in Turkey and worldwide. The funds raised through certificates will be allocated to green and social initiatives during the term of the sukuk. SUKUK AMOUNT ISSUED 350 USD million
7. 2 R &D CENTERS, TECH EXPORTS TO 20 COUNTRIES As the only financial institution with two R&D centers in Turkey, Kuveyt Türk has focused on technology and innovation for over 10 years. We have developed numerous products to date, including BOA Banking Platform, XTM, Senin Bankan, CebimPOS, Online Finance System, PowerFactor, and API Platform. We export the technologies developed by our subsidiary Architecht to 20 countries worldwide. REVENUES FROM R&D SALES TL 62 million
8. KUVEYT T ÜRK SUPPORTS SOLAR POWER INVESTMENTS Kuveyt Türk champions participation finance and moving toward a sustainable future with the support it lends to SPP projects. We have financed 7% of all solar power plants installed in Turkey. We will stand by all businesses eager to invest in solar power. NUMBER OF SPPS WE FINANCED 174
11. INNOVATIVE PRODUCTS AND ADVANTAGES REACHING NEW HEIGHTS Kuveyt T ürk delivers innovative products and services by focusing on customer satisfaction. With the deal we signed with Turkish Airlines and Mastercard, we became the first participation finance institution to join a Miles&Smiles partnership. In addition to Miles&Smiles credit cards for retail and corporate customers, we launched mileaccumulating debit cards – a pioneering step forward in our industry. CHANCE TO EARN 10% MORE MILES WITH DEBIT CARDS
12. “BEST EMPLOYER OF EUROPE” An expert, well-trained, devoted, young, and dynamic workforce has always propelled Kuveyt Türk forward on its journey to sustainable success. On behalf of them, and on behalf of Turkey, we were presented with a significant title this year. The Great Place to Work Institute, the world’s business culture and employee experience measurement expert, granted us the “Best Employer of Europe” award. We are first Turkish company to receive this distinguished honor. NUMBER OF EMPLOYEES 6,000+
14. Kuveyt T ürk Annual Report 2021 Message from the Chairman OPTIMISTIC YET CAUTIOUS ABOUT NEXT YEAR’S OUTLOOK, OECD EXPECTS THE GLOBAL ECONOMY TO EXPAND BY 5.6% IN 2021 AND 4.5% IN 2022. Esteemed Shareholders, 2020 was the year when we faced the most severe impact of the pandemic and the global economy seriously contracted. 2021, however, was marked by mass vaccination efforts with economic activity tilting towards normalization after the end of lockdowns. Although pandemicrelated risks remained severe due to new coronavirus variants that emerged, this year saw ongoing quantitative easing policies that supported economic activity globally. These policies included interest rate cuts, asset purchases, and credit incentive packages. Economic authorities also were forced to make hard decisions this year. QUANTITATIVE EASING OF FED AND ECB DRAWING TO A CLOSE The US central bank (the Fed) and European Central Bank (ECB) shrunk their asset purchase programs incrementally during the year. While reining in their quantitative easing policies, both the Fed and the ECB maintained their cautious stance toward interest rate hikes. According to the Fed, inflation pressure is mounting in the US and is expected to rise until the second half of 2022. As a result, the Fed projects that full employment levels can be reached in 2022. The European Central Bank, on the other hand, said it would continue asset purchases under the Pandemic Emergency Asset Program (PEPP) worth EUR 1.85 trillion at least until March 2022. As pandemic-induced risks remain uncertain amid new variants, it is essential to closely 12 monitor the moves of economic authorities whose maneuvering space is narrowing. According to the Interim Economic Outlook Report dated December 2021 by the Organization for Economic Cooperation and Development (OECD), the global economic recovery of 2021 is projected to continue into the coming year. However, the rebound will manifest as different economic realities among businesses and individuals while remaining quite uneven among countries and sectors. Government monetary and financial support policies are likely to be extended in the face of the ongoing extraordinary economic environment. Meanwhile, national healthcare conditions, employment problems, and a severe demandsupply imbalance will hurt national economies, OECD argues. With cautiously optimistic projections, OECD expects the global economy to grow by 5.6% in 2021 and 4.5% in 2022. The IMF, in its Annual Report 2021, stated that a second Great Depression was averted thanks to USD 16 trillion in fiscal support globally to respond to the impacts of the pandemic. During the pandemic period, the IMF’s total lending commitments amounted to more than USD 285 billion. In addition to this lending, IMF also allocated special drawing rights (SDR) worth USD 650 billion this year to improve global liquidity and support the world’s economic recovery. With the new variants of Covid-19 and supply problems taken into account, IMF revised its 2021 growth estimates down to 5.9% and 4.4% for 2021 and 2022, respectively. The IMF also underlined the dynamics of inequality between developed and developing countries. In 2022, production levels in advanced economies are expected to surpass pre-pandemic projections, while the developing world is forecast to record a contraction in production. For the coming year, uncertainty persists surrounding the course of inflation driven by the supply-demand imbalance and high commodity prices; supply chain disruptions; and how the pandemic will unfold. Regardless, the IMF expects these issues to dissipate to a certain degree in 2022. TURKEY REGISTED POSITIVE ECONOMIC GROWTH DESPITE PANDEMIC CONDITIONS The Central Bank of Turkey (CBRT) underscored the rebound in global economic activity backed by the easing of pandemic-related restrictions, the growing speed of vaccination campaigns, and ongoing supportive economic policies in its reports. CBRT also cited a strong uptick in Turkey’s economic activity thanks to resurgent foreign demand and a reviving domestic services sector. In 2021, Turkey’s economy recorded positive growth driven by solid real sector dynamics coupled with the support of its robust banking sector. This year, the banking industry played an active role in combatting the negative impacts of the pandemic, as was the case in 2020. Turkey’s banking sector is poised to continue contributing to the real economy as financial activity enters a period of balancing and normalization.
15. Section I : Introduction With lockdowns and other measures being gradually eased, economic activity gained speed in 2021. During this time, Kuveyt Türk delivered significant support to the real sector and stood by its retail and corporate clients with its innovative and pioneering products and services. THE FIRST SUSTAINABLE SUKUK ISSUANCE IN TURKEY AND WORLDWIDE In 2010, Kuveyt Türk issued the first sukuk of Turkey and Europe, introducing Turkey to interest-free capital markets. Continuing to innovate in sukuk issues, Kuveyt Türk performed the first Global Sustainable Tier 2 Subordinated Sukuk Issuance in Turkey and worldwide. Kuveyt Türk’s sustainable sukuk issue, with a 10-year maturity of USD 350 million and an early redemption option at the end of the fifth year, was oversubscribed by more than USD 4.3 billion. The over 150 investor organizations originated across a wide geography, including Europe, United Kingdom, USA, Asia, and the Persian Gulf. This pioneering transaction is the first sustainable Tier 2 sukuk issuance in Turkey and globally, and the best pricing of a sukuk issued from Turkey since 2017. The groundbreaking issue also enabled Kuveyt Türk to record its highest demand for a transaction and ranked second in demand in issuances among financial institutions in Turkey in 2021. The transaction is fully ESGstructured (Environmental, Social, and Governance) – its key differentiating factor vis-à-vis other sukuk issuances by Kuveyt Türk and the market. As a result, the funds raised through certificates will be allocated to green and social initiatives during the term of the sukuk. A long-time pioneer of participation finance in Turkey, Kuveyt Türk plans to further expand its contributions to sustainable growth in the economy in the coming year. Kuveyt Türk’s highly competent, well-trained, young, and dynamic employees were the driving force of Kuveyt Türk’s success in 2021, as in previous years. I would like to extend my gratitude to you, TOTAL SHAREHOLDERS’ EQUITY TL 10.5 billion our esteemed colleagues, for your valuable contributions to our many achievements, and to our stakeholders for your unwavering support. Kind regards, HAMAD ABDULMOHSEN AL MARZOUQ Chairman of the Board of Directors In 2021, Kuveyt Türk boosted its total shareholders’ equity by 31% to TL 10.5 billion. 13
16. Kuveyt T ürk Annual Report 2021 Message from the CEO IN 2021, KUVEYT TÜRK PLACED FIRST IN THE “5000+ EMPLOYEES” CATEGORY AND RECEIVED THE “BEST EMPLOYER OF TURKEY” TITLE FOR THE FOURTH TIME IN A ROW. IN YET ANOTHER FIRST, THE BANK WAS PRESENTED WITH THE “BEST EMPLOYER OF EUROPE” AWARD. Esteemed Shareholders, 2021 saw vaccination campaigns gain speed to tackle the pandemic and lockdowns finally come to an end. As a result, global economic activity revived and the recovery outperformed expectations. Since its founding, Kuveyt Türk has drawn its strength from the solid shareholding structure of its principal shareholders – Kuwait Finance House (KFH) and the Turkish Directorate General of Foundations. In 2021, Kuveyt Türk came to the fore with its outstanding contributions and model practices in the participation finance sector. Kuveyt Türk leveraged its robust capital structure and dynamic corporate governance approach to move forward and add value for its stakeholders. During the year, Kuveyt Türk focused on customer expectations and demands and introduced numerous innovations in parallel with its digitalization approach. While offering innovative solutions to address customers’ financial needs, Kuveyt Türk was a reference point and a pioneer for the industry with the strategic partnerships it formed. SUSTAINABLE AND PROFITABLE GROWTH TREND CONTINUED AMID THE PANDEMIC For over 30 years, Kuveyt Türk has provided products and services developed in line with the principles of participation finance. In 2021, the Bank boosted its profitability and maintained consistent growth. Kuveyt Türk increased its net profit by 78.7% year-on-year to TL 2 billion 502 million. Funds collected rose by 73.6% compared to the previous year, climbing to TL 212 billion 105 million, 14 while funds extended went up by 56% to TL 123 billion 367 million. Recording TL 10 billion 457 million in shareholders’ equity and TL 254 billion 68 million in assets, Kuveyt Türk consolidated its 10th place position in the overall banking industry and its top ranking among participation finance institutions in terms of asset size. By focusing on customer satisfaction and experience, the Bank delivered innovative products and services in 2021. Kuveyt Türk addresses customers’ financial needs in a prompt and reliable fashion, via strategic use of digital channels and an advanced technology infrastructure. An expert, well-trained, devoted, young and dynamic workforce was once again the driving force behind Kuveyt Türk’s success. MILES&SMILES COLLABORATION WITH TURKISH AIRLINES In 2021, Kuveyt Türk added new products and services to its portfolio by focusing on customer satisfaction. Introducing a new service to the participation finance industry, the Bank signed a deal with Turkey’s flag carrier Turkish Airlines and Mastercard to become the first participation finance institution to join the Miles&Smiles partnership. This partnership is highly significant in that it shows the level of acceptance that Kuveyt Türk and the participation finance sector at large has reached today. As an innovative practice in the sector, Kuveyt Türk issued debit cards that accumulate miles and offered the opportunity to earn 10% more miles to its debit card customers. In yet another sector first, Kuveyt Türk introduced its Miles&Smiles Business credit card for commercial clients. Miles&Smiles Business credit cards can be used by privately-owned companies and commercial firms for the first time. The Miles&Smiles Business credit card offers the chance to earn higher multiples of miles, taking into account day-to-day needs and corporate spending of commercial clients. BECOMING A KUVEYT TÜRK CUSTOMER IS NOW EASIER WITH REMOTE ACCOUNT OPENING On May 1, 2021, Kuveyt Türk enabled remote account opening via video chat. Now, customers do not have to affix a wet signature or visit a physical branch to open a Kuveyt Türk account. This innovative service has the potential to fully transform the dynamics in the industry. With the new service, Kuveyt Türk aims to deliver one of the best customer experiences in remote account opening and provide an uninterrupted, easy, fast and smooth experience to clients. CURRENCY-PROTECTED AND CONVERSION SUPPORTED TL PARTICIPATION ACCOUNTS During the year, Kuveyt Türk started to offer two new participation account products, developed in line with interest-free finance principles, to retail customers. The new offerings were introduced pursuant to the Communiqué on Supporting Conversion to Turkish Lira Deposit and Participation Accounts published in the Official Gazette on December 21, 2021 and the Implementation Principles of the Turkish Ministry of Treasury and Finance on Currency Protected TL Time Deposits and Participation Accounts. With its Currency Protected TL Participation Account, Kuveyt Türk offers customers who use their savings as Turkish Lira deposits or convert their foreign currency deposits to TL the opportunity
17. Section I : Introduction to protect their savings and deposits against exchange rate fluctuations in accordance with interest-free finance principles, with 3-, 6- and 12-month maturity options. As of December 20, 2021, Kuveyt Türk customers who have deposits in USD, GBP or EUR can convert their savings to Turkish Lira with 3-, 6- and 12-month maturity options and use them in the Conversion Supported TL Participation Account in line with the principles of interest-free finance. 24/7 FINANCE SUPPORT WITH ONSITE FINANCING SERVICE Kuveyt Türk launched the Onsite Financing service, a new practice in the participation finance industry, to address customers’ needs for financing easily and rapidly. This unique offering enables Kuveyt Türk customers to cover their seasonal and high-value expenditures, such as wedding, travel, or home renovations, with financing provided in a greater number of installments in line with the principles of participation finance. Under this system, customers can take out finance promptly for their purchases at contracted merchants via physical or online channels. Kuveyt Türk customers can use the Onsite Financing service based on murabaha (buy in cash, sell on credit), 24/7. BEST EMPLOYER OF EUROPE: KUVEYT TÜRK Kuveyt Türk is widely recognized as a standout with its innovative human resources practices for employees. In 2021, Kuveyt Türk topped the list of companies in the “5,000+ Employees” category and was named the “Best Employer of Turkey” for the fourth time in a row by the Great Place to Work Institute. In addition, Kuveyt Türk won the “Best Employer of Europe” award in 2021. Kuveyt Türk is the first and only Turkish company to be named as the Best Employer of Europe. Architecht, a fully-owned Kuveyt Türk technology subsidiary, ranked among the best employers in the category of “50-250 Employees” for the second time this year. DIGITAL ASSISTANT SELİM GARNERED AN AWARD The Bank’s digital assistant Selim serves customers at www.kuveytturk.com.tr, on the Internet Branch and Kuveyt Türk Mobile. Selim responds to customers’ queries instantly, makes financial calculations, and refers customers to relevant menus for their respective transactions on the Bank’s digital channels. In 2021, Selim was deemed worthy of the “Best Digital Customer Experience in Financial Services” award at the International Customer Experience Awards. TOTAL ASSETS TL 254.1 billion Kuveyt Türk strives to maintain its leadership position in Turkey’s participation finance sector. The Bank is moving forward thanks to its solid capital and liquidity structure, high asset quality, dynamic corporate governance approach, customer service model based on continuous improvement, ongoing technology investments, intensive digital transformation efforts, robust subsidiary network, and expansion into international markets. UFUK UYAN Member of the Board of Directors and CEO Kuveyt Türk Participation Bank As of year-end 2021, Kuveyt Türk’s total assets amounted to TL 254.1 billion. 15
18. Kuveyt T ürk Annual Report 2021 Agenda of the Ordinary General Assembly The Board of Directors decided that the Ordinary Annual General Assembly of Kuwait Turk Participation Bank Inc. shall be held on 23 March 2022, at 15:00 o’clock, at Company Head Office, located in Istanbul at Büyükdere Street No: 129/1 34394 Esentepe Şişli, to discuss the following agenda. AGENDA OF THE ANNUAL ORDINARY GENERAL ASSEMBLY 1. 2. 3. 4. 5. 6. 7. 8. Opening and constitution of the Presidential Board. To grant authority to the Presidency to sign the minutes of the General Assembly and the list of participants. Discussion and approval of the Annual Report for the fiscal year 2021. Discussion and approval of Financial Statements for the fiscal year 2021. Decision on the Board of Directors offer about the profit distribution of the fiscal year 2021. Discussion of independent audit report written by independent auditor for the fiscal year 2021. Acquitting of the Board of Directors related with their efforts in 2021. Discussion and approval of paying salary, attendance fee, bonus, and dividend to the Chairman and other Board Members for their Board Membership and/or other committee memberships. 9. Appointment of the Independent Auditors and determination of the contract period, 10.Providing information by the Board of Directors on external audit in accordance with Banking Law no: 5411 and the related regulations. 11. Discussion and approving of reflecting participation accounts’ portion of provision expenses, which set aside according to 19/2 article of Communiqué of “Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans of BRSA, to expense accounts. Turkish Commercial Code’s related provisions reserved. 12.Authorization of the Board of Directors to compensate the loss if necessary in accordance with the Article 6, paragraph 10 of the Regulation on Procedures and Principles Regarding Deposits, Participation Funds, Escrow and Receivables of Deposits and Participation Funds issued by the BRSA, 13. To grant authority to the Board Members to execute the deals written in the Turkish Commercial Code 395 and 396 Articles. 14. Wishes and proposals. Amendments to the Articles of Association No amendment has been introduced to the Articles of Association in 2021. 16
19. Section I : Introduction Kuveyt Türk in Brief DRIVEN BY THE POWER OF ITS PRINCIPAL SHAREHOLDER, KUWAIT FINANCE HOUSE’S (KFH) WIDE NETWORK OF CORRESPONDENT BANKS, KUVEYT TÜRK SERVES AS A BRIDGE FOR TURKISH INVESTORS WHO DESIRE TO ACCESS GLOBAL MARKETS, THE GULF REGION IN PARTICULAR. Pursuant to the authorization of the Central Bank of Turkey dated February 28, 1989, the Bank started operations as a Private Finance House on March 31, 1989, under the trade name Kuveyt Türk Finance Institution of Foundations Joint Stock Company. 1999 saw its business operations come under the scope of Banking Law No. 4389 along with other private financial institutions. In 2006, the Bank assumed its current name: Kuveyt Türk Katılım Bankası A.Ş. (Kuveyt Türk). SOLID CAPITAL STRUCTURE 62.24% of the Bank’s shares are owned by Kuwait Finance House, 18.72% by the Turkish General Directorate of Foundations, 9% by the Wafra International Investment Company, 9% by Islamic Development Bank, and the remaining 1.04% by other real and legal persons. With a strong capital structure and an efficient international service network, Kuwait Finance House (KFH) is Kuveyt Türk’s largest shareholder and the pillar supporting the Bank’s consistent growth performance. FINANCIAL ROOTS DRIVING INVESTMENTS... Kuveyt Türk stands out with its strong financial roots coupled with a robust shareholding structure. As of the end of 2021, the Bank holds TL 4.6 billion paid-in capital. Kuveyt Türk’s unconsolidated assets reached TL 254.1 billion and total shareholders’ equity reached TL 10.5 billion in 2021. THE BANK SERVING AS A BRIDGE BETWEEN TURKEY AND GLOBAL FINANCIAL MARKETS... Driven by the power of its principal shareholder, Kuwait Finance House’s wide network of correspondent banks, Kuveyt Türk serves as a bridge for Turkish investors who desire to access global markets, the Gulf Region in particular. Operating since 2002, the Bank’s Bahrain Branch contributes to Kuveyt Türk’s liquidity management effectively through a strong capacity for access to Gulf funds with a cost advantage. The Bank’s presence in the region allows Kuveyt Türk to manage existing correspondent relations and build relations with new correspondent banks for treasury and foreign trade transactions. KT Bank AG, which commenced operations in 2015 as a whollyowned Kuveyt Türk subsidiary, contributes to the Turkish economy through providing correspondent services in foreign trade activities in Europe - Germany, in particular - and opening accounts for the purposes of Euro transfers. The first participation bank in Germany, KT Bank AG will continue its activities with five branches, including the Munich branch opened in February 2020. KUVEYT TÜRK AND TURKISH AIRLINES JOIN FORCES FOR MILES&SMILES With the deal signed with Turkish Airlines and Mastercard, Kuveyt Türk became the first participation finance institution to join a Miles&Smiles partnership. In addition to Miles&Smiles credit cards offered to retail and corporate clients, Kuveyt Türk also issued a debit card -- a first in the industry -- that accumulates more miles. Kuveyt Türk also introduced Miles&Smiles Kuveyt Türk Business credit cards, which will be made available for commercial clients. Miles&Smiles Kuveyt Türk Business credit cards can be used by privately-owned companies and commercial firms for the first time. “A new experience, a new you” is the motto Kuveyt Türk has adopted while offering Miles&Smiles cards, which turn every trip into meaningful experiences leaving a mark in people’s lives. DIGITAL TRANSFORMATION ORIENTED HUMAN RESOURCES... Offering continuous improvement opportunities for its human resources, Kuveyt Türk provides an exceptional customer experience to customers with 6,133 staff at 442 branch locations as of year-end 2021. Investing intensively in its staff, almost all of whom are university graduates, Kuveyt Türk outshines the competition with its well-qualified and experienced human capital. 17
20. Kuveyt T ürk Annual Report 2021 Kuveyt Türk in Brief IN 2021, KUVEYT TÜRK INTRODUCED ANOTHER FIRST IN THE AREA OF SUKUKS: THE ISSUANCE OF THE WORLD’S AND TURKEY’S FIRST “GLOBAL SUSTAINABLE TIER 2 SUBORDINATED SUKUK” FIRST SUSTAINABLE SUBORDINATED SUKUK ISSUANCE IN TURKEY AND THE WORLD Kuveyt Türk had issued the first Sukuk of Turkey and Continental Europe, thus introducing Turkey with interestfree capital markets. Blazing a new trail in sukuks in 2021, Kuveyt Türk this time conducted the first “Global Sustainable Tier 2 Subordinated Sukuk Issuance” in Turkey and worldwide. Kuveyt Türk’s sustainable Sukuk issuance, with a 10-year maturity of $350 million and an early redemption option at the end of the 5th year, received more than $4.3 billion in demand by more than 150 investor organizations in a wide geographical scope including Continental Europe, United Kingdom, USA, Asia, and Gulf. Funds raised through the sustainable Sukuk are allocated to finance green and social projects, renewable energy projects in particular. A MAIDEN SERVICE FROM KUVEYT TÜRK: ONSITE FINANCING Standing out with innovative products and services, Kuveyt Türk developed the “Onsite Financing” service to address customers’ needs for finance easily and quickly in 2021. Customers may apply for financing online by scanning the QR code through the Kuveyt Türk Mobile app for the purchases they want to make at contracted workplaces and e-commerce sites. Customers whose applications are approved instantly may make their purchases in 36 installments. Onsite Financing service is available 24 hours a day, 7 days a week. 18 THE FIRST PARTICIPATION FINANCE INSTITUTION FROM TURKEY ADMITTED BY FCI In 2021, Kuveyt Türk became the first participation finance institution from Turkey to be accepted as a member of FCI, the umbrella organization of financial institutions providing guarantee and collection services for export receivables against goods. Thanks to the new product, which is presented under the name International Supply Chain Finance, Kuveyt Türk will not only provide financing services to customers exporting against goods but will also guarantee their receivables and offer collection services. FINANCING SUPPORT FOR SPP PROJECTS TO PROMOTE GREEN ENERGY Kuveyt Türk supports investments in solar power plants in finance to promote renewable energies. As of the end of 2021, 523 MW out of an installed solar power plant capacity of 7,385 MW in Turkey is provided by 174 projects financed by Kuveyt Türk. PIONEER IN GOLD BANKING Kuveyt Türk commenced gold banking services in 2007 and started organizing Gold Days to collect gold in 2011. As of the end of 2021, Kuveyt Türk has delivered 21.5 tons of customer gold kept “under the mattress” to the Turkish economy. In addition to holding 13% of all precious metal accounts sector-wide and 54% of such accounts among participation banks, Kuveyt Türk has maintained its lead in this field in 2021. Kuveyt Türk has maintained its lead among banking institutions in Borsa Istanbul (BIST) Precious Metals and Stones Market with its high gold trading volume since 2011. Kuveyt Türk has also maintained its position as the first Turkish bank to join the London Bullion Market Association (LBMA) as an associate and the SGEI (Shanghai Gold Exchange International) as a member in 2021. Kuveyt Türk conducts operations as one of the 74 international members of the Shanghai Gold Exchange (SGEI). FINTECH ECOSYSTEM AND FINTECH PARTNERSHIPS As part of its successful digital transformation journey, Kuveyt Türk focuses on open banking and fintech partnerships. The Bank has datasharing activities with app developers thanks to over 90 APIs provided on the API Market Platform. In an attempt to enhance the collaboration within the fintech ecosystem, the Bank takes an active role in Fintech integrations and partners with fintechs for innovative ideas. While the Lonca Entrepreneurship Center founded in 2017 strongly supports the Turkish entrepreneurship ecosystem, the innovation center Innhouse opened in 2020 aims to generate innovative ideas and projects to shape the finance sector of the future.
21. Section I : Introduction AS PART OF ITS PAPER-FREE BRANCH BANKING PROJECT, KUVEYT TÜRK REDUCES THE USE OF PAPER IN FINANCIAL PROCESSES AND PLANTS TREES. SIGNIFICANT INVESTMENTS BY TECHNO-VENTURE CIF Techno-Venture CIF, which operates under the umbrella of a Kuveyt Türk subsidiary, KT Portföy, invested in the ventures of Visiomex, Oo-Kuma, BulutKlinik, Pollective, and Otovınn. Kuveyt Türk will continue its growth through the ecosystem of subsidiaries in the coming periods. NEOVA SIGORTA SHARES ARE NOW WHOLLY-OWNED BY KUVEYT TÜRK Focusing on sustainable growth, Kuveyt Türk became the new owner of Neova Sigorta, Turkey’s first tekâfül (interest-free insurance) company where it previously held 7% of the shares, taking over the remaining 93% of the stake. A significant player in the insurance sector, Neova Sigorta continues its growth as the whollyowned subsidiary of Kuveyt Türk. TURKEY’S FIRST FINANCIAL INSTITUTION ENTERING THE “EUROPE’S BEST EMPLOYERS 2021” LIST Kuveyt Türk was included in the “Europe’s Best Employers 2021” list for the second time. The list is maintained by Great Place to Work Institute, one of the world’s most prestigious rankings in the field of human resources. Turkey’s first financial institution to be included in the list, Kuveyt Türk has become the first Islamic finance bank ever to be on the top of this list in Europe. Kuveyt Türk also won two awards at Turkey’s Best Employers 2021, organized by Great Place to Work Institute Turkey. The Bank has won awards for the fourth time in a row. NEW CAREER MODEL REMOVING TITLES: DEVELOPMENT KITCHEN Introducing unique human resources practices, Kuveyt Türk has launched Development Kitchen in 2021, a new career model which abolishes titles to help employees write their career “recipes” on their own, gain experiences in different fields, and prepare for the skills of the future. Kuveyt Türk also introduced the Dual Career Structure practices as part of the Development Kitchen. Thanks to these practices, employees will be able to differentiate their career paths by utilizing the Development Basket that contributes to their professional and personal development through certification and learning programs. BANKING SCHOOL TURNS INTO KUVEYT TÜRK ACADEMY Kuveyt Türk Banking School was a novel initiative launched by Kuveyt Türk in 2017 in the participation finance sector. With a fresh look and updated training content, the School was renamed “Kuveyt Türk Academy” and re-opened in June 2021. The academy employs a hybrid model involving one-on-one and online training activities. REFERENCE BOOKS FOR FUTURE GENERATIONS Acting with the motto “Growing through values that bind us together,” Kuveyt Türk has endeavors to promote our cultural heritage. It supports this vision via books, documentaries, and albums that it releases. In an attempt to leave reference materials for future generations, Kuveyt Türk helped publish numerous works including “Disappearing Vocations,” “Lost Fountains,” “Evliya Çelebi’s Hajj Pilgrimage,” “The Speech of Birds,” “Anatolian Industrial Revolution,” “Amir Âteş in 60 Years as an Artist,” “Great Mecidiye Mosque and Ortaköy,” “The Mark of Hagia Sophia - Military Judge Mustafa İzzet,” and -- last but not least -- “In Pursuit of Arts and the Artist” released in 2021. All these precious works are available for users in the form of e-books on the website “We Grow With Our Values” of Kuveyt Türk. KUVEYT TÜRK’S PAPER SAVINGS TURNING INTO TREES As part of its Paper-Free Branch Banking Project, Kuveyt Türk reduces the use of paper in financial processes and plants trees. “Paper savings turning into trees” is the approach Kuveyt Türk adopts in its activities as it re-introduces 7-8 years old trees rather than seedlings to nature. The Bank also runs care services for these trees. 19
22. Kuveyt T ürk Annual Report 2021 Kuveyt Türk in Brief KUVEYT TÜRK FOSTERS PROGRESS IN THE BANKING INDUSTRY WITH ITS HIGHLY COMPETENT AND WELL-QUALIFIED WORKFORCE. About Kuveyt Türk OUR MISSION To be a bank that adheres to interest-free finance principles; abides by moral values; focuses on customer-oriented banking while adding value for all stakeholders, and embraces corporate social responsibility. The Kuveyt Türk family conducts all its financial activities within the framework of participation banking principles. 20 OUR QUALITY POLICY OUR SERVICE PRINCIPLES In line with the principles of participation banking and total quality management, we aim to be an institution that: Kuveyt Türk pursues the following ethical principles to deliver services underpinned by its values: Improves the service quality and customer satisfaction, Leads the banking sector, Creates value under the leadership of senior management, and Taps into the ongoing efforts of employees throughout the organization. Reliability Responsiveness Sincerity Solution orientedness
23. Section I : Introduction OUR VISION To be the most reliable participation bank providing sustainable and profitable growth by leading the way in developing interest-free financial services. Kuveyt Türk fosters progress in the banking industry with its highly competent and wellqualified workforce. OUR ETHICAL PRINCIPLES OUR VALUES Kuveyt Türk pursues the following ethical principles to deliver services underpinned by its values: Our values adopted and implemented by our employees who are also responsible for their implementation by others: Integrity Impartiality Transparency Confidentiality Ethical approach Robust banking Fairness Trust Team spirit Professionalism 21
24. Kuveyt T ürk Annual Report 2021 Kuveyt Türk in Brief KUVEYT TÜRK’S PRINCIPAL SHAREHOLDER KUWAIT FINANCE HOUSE IS THE ASSURANCE BEHIND KUVEYT TÜRK’S STEADY GROWTH. Shareholding and Capital Structure Other Real and Legal Shareholders* 1.04% Wafra International Investment Company 9.00% Islamic Development Bank 9.00% Kuwait Finance House 62.24% Republic of Turkey Directorate General of Foundations 18.72% * The Chairman and Members of the Board of Directors, Audit Committee Members, Chief Executive Officer, and Vice Presidents hold a 0.10% share in the Bank’s capital. 22
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26. Kuveyt T ürk Annual Report 2021 Kuveyt Türk in Brief WITH ITS NEW LOOK AND UPDATED TRAINING CONTENT, KUVEYT TÜRK BANKING SCHOOL WAS RENAMED AS KUVEYT TÜRK ACADEMY IN 2021. The Story of 32 Successful Years 1989 Kuveyt Türk was established with the title Kuveyt Türk Evkaf Finans Kurumu A.Ş. on March 31, 1989 under the authorization of the Central Bank of the Republic of Turkey, dated February 28, 1989. 1990 Kuveyt Türk was awarded the Gold Prize for its contributions to the readyto-wear industry. Kuveyt Türk’s founding capital doubled. 1991 As a result of international banking services provided, the Bank ensured a foreign currency inflow of USD 39 million from exports and invisible items. 1992 State Economic Enterprises were granted their first loan from the Gulf region thanks to Kuveyt Türk. Total funding extended by Gulf nations amounted to USD 50 million. 1993 Kuveyt Türk’s Head Office and branches were linked online to each other. 1994 The Head Office moved to its new service building. The first public housing development project - Huzur - was completed, with the residential units delivered to their owners. 24 1995 In recognition of its support to exports, the Bank was awarded the Gold Prize by the Association of Istanbul ReadyMade Garment Exporters. 1996 Körfez Gayrimenkul A.Ş. was established as a subsidiary of Kuveyt Türk. 1997 Kuveyt Türk’s total branch network expanded to 16 locations. 1998 Kuveyt Türk launched its first credit card. 1999 The Bank started to conduct its business operations subject to Banking Law No. 4389. 2000 The Bank started providing retail banking services. Kuveyt Türk became the first interestfree financial institution in Europe to receive ISO 9001-2001 Quality Certification. 2001 The Bank introduced the Palmiye Card, the first commercial card with installment payments. 2002 Kuveyt Türk became the first private financial institution to be a direct member of Visa. 2003 To offer interest-free banking services nationwide, Kuveyt Türk reached an agreement with the Turkish Postal System (PTT), which had a network of nearly 1,000 branch locations across the country. 2004 Kuveyt Türk opened its first overseas office in Mannheim, Germany. 2005 The Bank received an achievement award from Istanbul International Finance Forum for its contributions to the interest-free banking sector. 2006 The Bank was renamed as Kuveyt Türk Katılım Bankası A.Ş. (Kuveyt Türk), which is still in use. The international rating agency Fitch Ratings upgraded Kuveyt Türk’s individual rating from “D/E” to “D” and its long-term national rating from “AA (-)” to “AA (tur).” The four-year, USD 50 million Murabaha syndication secured by Kuveyt Türk for GAP Güneydoğu Tekstil became the longest-term loan secured from Gulf countries at that time.
27. Section I : Introduction 2007 Kuveyt Türk became the first participation bank to launch foreign currency forward trading with a fixed exchange rate. In 2011, Kuveyt Türk became the first Turkish bank, and the world’s first participation bank, that was accepted to the London Bullion Market Association (LBMA) as an “associate.” As the first and only participation bank on the Istanbul Gold Exchange, Kuveyt Türk started selling gold in grams and thereby took the first step in the field of Gold Banking. 2012 Kuwait Finance House’s subsidiary, Liquidity Management House, became one of the three financial institutions to support the Undersecretariat of Treasury in its five-year Sukuk issuance worth USD 1.5 billion - the first of its kind in Turkey. Kuveyt Türk participated in the referenced transaction as co-leader. 2008 The two-year, USD 200 million Murabaha syndication secured by Kuveyt Türk from banks in the Gulf Region and Europe was not only oversubscribed by USD 265 million but also significantly bolstered the Bank’s reputation in international markets. During the year, Kuveyt Türk unveiled a range of innovative products, including Gold Swap, Gold for Gold, and Gold Check. 2009 Between 2008-2016, Kuveyt Türk provided services at the Dubai International Finance Center (DIFC) as a bank subsidiary with a capital of USD 12 million. The representative office in Germany was converted into a Financial Services Branch. 2010 Issuing the first Sukuk security under the co-leadership of LMH (Liquidity Management House) and Citibank, the Bank introduced Turkey to this financial instrument used widely across the Gulf Region and Malaysia. The three-year, USD 100 million issuances were 1.5 times oversubscribed as a result of ample interest from the world’s major financial centers. 2011 In 2011, Kuveyt Türk completed its second Sukuk issuance backed by lease certificates, securing USD 350 million foreign resources for the Turkish economy. Kuveyt Türk was the only bank to receive praise in the 2012 special report of the World Gold Council (WGC) for the diversity of its gold products and services. 2013 In line with its social responsibility mission, Kuveyt Türk launched a fundraising campaign to benefit the Hope Foundation for Children with Cancer (KAÇUV) and to fight against cancer, a growing problem in the country. Kuveyt Türk’s issuance of Sukuks, worth TL 150 million, with a maturity of 364 days, was oversubscribed by more than two-fold. With the collaboration of Kuveyt Turk Katılım Bankası A.Ş. and Albaraka Türk Katılım Bankası A.Ş., Katılım Emeklilik ve Hayat A.Ş. was established. 2014 Kuveyt Türk completed the XTM project, which offers video chat and self-service transactions at the same time, the first of its kind in the world. This innovative service was offered to customers at 22 locations across Istanbul. The latest version of Kuveyt Türk’s Mobile Branch features new functionality and offerings as well as an enhanced user experience. Kuveyt Türk became the first bank in Turkey to appoint a Board Member in charge of Ethics. 2015 Kuveyt Türk obtained the required license from BaFin, the German Federal Financial Supervisory Authority, to offer banking services in Germany. KT Bank AG commenced its operations as the first bank in Germany that is engaged in interestfree banking activities. Kuveyt Türk commenced its Private Banking operations – a first in the participation banking industry in Turkey. Kuveyt Türk launched “Senin Bankan,” the branch-free and fee-free digital banking platform. Senin Bankan represents the next-gen banking approach – merging participation banking principles with innovations and opportunities provided by the internet. 2016 Having issued a subordinated Sukuk loan worth USD 350 million in February 2016, domestic sukuks as public offering worth USD 300 million in May, and international sukuks worth USD 500 million in November, the Bank firmly held on to its position as Turkey’s largest Sukuk issuer. The Turkish Capital Markets Association (TSPB) presented an award to Kuveyt Türk for its operations in the banking industry. The Bank was designated “Turkey’s Best Islamic Financial Institution” by Global Finance, and “Issuer of the Year” by Islamic Finance News. 25
28. Kuveyt T ürk Annual Report 2021 Kuveyt Türk in Brief KUVEYT TÜRK LAUNCHED “ONSITE FINANCING” SERVICE AS A MAIDEN PRACTICE IN THE PARTICIPATION FINANCE SECTOR IN 2021. The Story of 32 Successful Years 2017 Kuveyt Türk launched its new generation retail credit card “Sağlam Kart.” The partnership of Kuveyt Türk and Vakıf Participation launched the “Techno-Venture Capital Investment Fund.” Kuveyt Türk inaugurated the Lonca Entrepreneurship Center to offer start-up companies opportunities and support including training, mentoring, consultancy, and financial investment. Kuveyt Türk achieved significant success by exporting software totaling TL 120 million in a lump. Kuveyt Türk’s banking software BOA was used in more than 60 banks in 20 countries including Nigeria, Malaysia, Indonesia, and Egypt. KT Bank AG, the first and only interestfree bank in Germany and the Euro Zone, inaugurated its Cologne branch after the Frankfurt, Berlin, and Mannheim branches. The only bank in Turkey to boast two R&D centers, Kuveyt Türk inaugurated its second R&D Center in Konya, after the first center in Şekerpınar, Kocaeli. 2018 The Best Workplaces in Turkey 2018 survey by the Great Place to Work Institute named Kuveyt Türk as the “Best Finance Employer” and one of the “Best Workplaces in Turkey.” At the World’s Best Banks Awards organized by Global Finance Magazine, which is available in 189 countries, Kuveyt Türk was named “Turkey’s Best Islamic Finance Institution.” Additionally, Kuveyt Türk’s wholly-owned subsidiary KT Bank AG received the award for “Europe’s Best Islamic Finance Institution.” 26 2019 Kuveyt Türk became the first Turkish institution listed on the Shanghai Gold Exchange. Renewing its mobile branch, Kuveyt Türk increased users’ sign-in security through Face ID and Touch ID features. With its new mobile app TradePlus, the Bank started to offer 24/5 transaction capability for investment instruments such as investment funds, equities, FX, gold, and silver. Launched to train middle school students (explorers) on coding and robotics, the 1010 Explorer Project expanded its outreach. Kuveyt Türk was selected as the “Best Employer of Turkey” by Great Place to Work Institute for the second time in a row. Trailing yet another blaze in Turkey, Kuveyt Türk utilized artificial intelligence to categorize complaints and standardize complaint handling flows as part of Complaint Handling Management. The Bank’s robotic process automation project was completed, and the first robot commenced activities. 2020 Launching “Digital Explorer” products made of an account, card and application for children, Kuveyt Türk invited children to adopt responsible consumption and parents to guarantee their children’s future. Kuveyt Türk became the new owner of Neova Sigorta, Turkey’s first tekâfül (interest-free insurance) company where it previously held 7% of the shares, taking over the remaining 93% of the stake. Neova Sigorta continues growing as a wholly-owned subsidiary of Kuveyt Türk. Kuveyt Türk introduced the service, “My Collections Secured” to protect everyone, regardless of whether they are the Bank’s customers, against possible risks related to car and household trading transactions. Kuveyt Türk incepted Innhouse, an innovation center that comes to the fore with its distinctive, original, and functional architectural design.
29. Section I : Introduction Kuveyt Türk was included in the “Europe’s Best Employers 2020” list by Great Place to Work Institute, one of the world’s prestigious rankings in the field of human resources. Turkey’s first financial institution to be included in the list, Kuveyt Türk has also become the first Islamic finance bank ever to be on this list in Europe. Kuveyt Türk also won two awards at Turkey’s Best Employers 2020, organized by Great Place to Work Institute Turkey. The Bank won this award three consecutive times. Kuveyt Türk Finance Group donated TL 20 million to the National Solidarity Campaign launched to support those in need in the face of the Covid-19 pandemic. Kuveyt Türk published two new works in 2020. In celebration of composer Hâfız Âmir Ateş’s 60 years as an artist, the book dwelled on the artist’s life and artworks. The Mark of Hagia Sohpia -- Military Judge Mustafa İzzet introduced readers to the life and artworks of Kazasker Mustafa İzzet Efendi, an expert scribe of the 19th century who inscribed on the famous signs of Hagia Sophia. Techno-Venture CIF, which operates under the umbrella of a Kuveyt Türk subsidiary, KT Portföy, invested in the ventures of Visiomex, Oo-Kuma, BulutKlinik, Pollective, and Otovınn. Kuveyt Türk incepted ‘Kuveyt Türk Ideathon’, the idea contest for university students. 2021 With the deal signed with Turkish Airlines and Mastercard, Kuveyt Türk became the first participation finance institution to join a Miles&Smiles partnership. Kuveyt Türk introduced yet another first in the area of sukuks and issued a “Global Sustainable Tier 2 Subordinated Sukuk.” The Bank also launched the “Onsite Financing” service, a maiden practice in participation finance sector. Kuveyt Türk became the first participation bank from Turkey to be admitted to Factors Chain International (FCI), an umbrella organization for financial institutions providing guarantee and collection services for export receivables against goods. On May 1, 2021, Kuveyt Türk started remote account openings via video chats. This made account openings in regions without a branch possible, while the Bank began to reach wider groups of people. Customers are now able to access Kuveyt Türk’s services provided on digital channels anytime and anywhere they wish. Kuveyt Türk was included in the “Europe’s Best Employers 2021” list for the second time. The list is maintained by Great Place to Work Institute, one of the world’s most prestigious rankings in the field of human resources. Turkey’s first financial institution to be included in the list, Kuveyt Türk has become the first Islamic finance bank ever to be on the top of this list in Europe. Kuveyt Türk also won two awards at Turkey’s Best Employers 2021, organized by Great Place to Work Institute Turkey. The Bank has won awards for the fourth time in a row. Kuveyt Türk commenced “Development Kitchen,” a reference model in the finance industry that abolishes titles and prepares employees for future skills. With its new look and updated training content, Kuveyt Türk Banking School was renamed Kuveyt Türk Academy. Kuveyt Türk published “In Pursuit of Arts and the Artist” so as to leave reference materials for future generations and contribute to the literature. 27
30. Kuveyt T ürk Annual Report 2021 Summary of Financial Indicators KUVEYT TÜRK INCREASED PROFIT SHARING INCOME FOR THE PERIOD TO TL 13,035 MILLION IN THE SUCCESSFUL YEAR OF 2021. Summary of Financial Indicators (TL thousand)* 2020 2021 9,327,690 13,035,305 Profit Sharing Expense (-) 3,118,614 5,404,863 Net Fee and Commission Income 350,721 577,758 Other Revenues 1,219,495 3,092,270 Other Expenses 5,926,609 7,753,104 Tax Provision (-) 452,402 1,045,639 1,400,281 2,501,727 152,290,315 254,068,260 7,995,097 10,456,853 21.26 23.05 Profit Sharing Income Net Profit for the Period Total Assets Total Shareholders’ Equity Capital Adequacy Ratio (%) * Unconsolidated figures. 28
31. Section I : Introduction PROFIT SHARING INCOME (TL MILLION) Increase 40% TOTAL SHAREHOLDERS’ EQUITY (TL MILLION) Increase 31% 13,035 NET PROFIT FOR THE PERIOD (TL MILLION) Increase 79% 10,457 Increase 67% 2,502 254,068 7,995 9,328 152,290 1,400 2020 TOTAL ASSETS (TL MILLION) 2021 2020 2021 2020 2021 2020 2021 29
32. Kuveyt T ürk Annual Report 2021 Awards SHINING OUT WITH INNOVATIVE PRODUCTS AND SERVICES, KUVEYT TÜRK WON THREE AWARDS AT THE IDC FIN-TECH TECHNOLOGIES OF TURKEY AWARDS ORGANIZED UNDER IDC FINANCE SUMMIT 2021. We effectively deliver outstanding financial products and services to savers and investors. Meanwhile, we “grow through values that bind us together,” carrying out corporate social responsibility projects for the protection, development, and promotion of Turkey’s local and national values, and supporting the social responsibility projects organized by non-governmental organizations. In 2021, we were deemed worthy of numerous prestigious awards in Turkey and Europe thanks to the invaluable members of the Kuveyt Türk family. Each and every award presented to us is an embodiment of what we have achieved together and how much we deserve praise for it. Without a doubt, it has been over 6 thousand employees and all stakeholders, bound with shared ideals and ambitions, who carried us where we are today. I wholeheartedly believe that our services for our customers and social responsibility efforts for our society will bring along many more awards in 2022 and thank, from the bottom of my heart, everybody who made an effort for us to be recognized with these awards. Kind regards, UFUK UYAN Member of the Board of Directors and CEO 30 AWARDS IN 2021 Kuveyt Türk Chosen Turkey’s Best Employer for the Fourth Time in a Row Standing out with unique human resources practices, Kuveyt Türk garnered awards at Best Employers of Turkey 2021 organized by Great Place to Work Institute. Coming first in the “5000+ Employees” category, Kuveyt Türk has been named the “Best Employer of Turkey” for the fourth time in a row. In addition, Architecht, a fully-owned Kuveyt Türk technology subsidiary, ranked among the best employers in the category of “100250 Employees” for the second year. Kuveyt Türk also won the finance sector special award, recognized as the best in finance. Kuveyt Türk Tops the List as Europe’s Best Employer! “People First, Employees First” is the principle behind the business processes of Kuveyt Türk which garnered a significant award for Turkey in 2021. The Great Place to Work Institute, recognized as one of the world’s business culture and employee experience measurement authorities, granted Kuveyt Türk the Best Employer of Europe award. This made Kuveyt Türk the first and only Turkish company to be chosen as the Best Employer of Europe.
33. Section I : Introduction Kuveyt Türk and KT Bank AG -- the Best Financial Institution in Turkey and Europe, respectively. Turkey’s leading participation finance institution Kuveyt Türk and its subsidiary KT Bank AG in Germany were granted awards at the World’s Best Bank Awards organized by New York-based Global Finance Magazine with a readership in 189 countries. Kuveyt Türk garnered “Turkey’s Best Islamic Financial Institution” title, while its wholly-owned subsidiary KT Bank AG was named the “Best Islamic Financial Institution of Europe.” Three Awards at IDC Turkey Financial Technologies Awards 2021 Shining out with innovative products and services, Kuveyt Türk won three awards at the IDC Turkey Financial Technologies Awards organized under IDC Finance Summit 2021. Kuveyt Türk’s XTM concept, which serves in sign language for the hearing impaired, was granted the gold award, while its Digital Explorer, designed to equip children with financial literacy and a savings awareness, was presented a silver award. Kuveyt Türk’s whollyowned subsidiary Architecht, in the meantime, won a gold award with its Airplatform solution. Digital Assistant Selim presented the Silver Award Kuveyt Türk was granted the silver award with its Digital Assistant Selim project at the International Customer Experience Awards. Digital assistant Selim, co-developed with Sestek, was granted the “Best Digital Customer Experience in Finance” award. Best Human Resources Strategy Award to Kuveyt Türk Included in the big brands category at the globally prestigious HR Excellence, Kuveyt Türk was granted an award for its human resources strategy. MT Program Is the Runner Up in the Banking Industry In the contest with the best talent programs as contenders at Top Talent, Kuveyt Türk ranked among the top ten in all industries and came second in the banking industry with its MT program where it raises future leaders. The Gold Prize from Brandon Hall to Kuveyt Türk Academy Working with the motto, “in the flow and agile,” Kuveyt Türk Academy now has yet another award-winning program. In 2020, the Academy had garnered 10 different awards at Brandon Hall Awards, one of the most prestigious awards in the world. In 2021, D3 Academy, which was developed for the internal audit board, was granted the gold prize in the “Best Talent and Skills Development Program” category. Silver Award from TEGEP to Kuveyt Türk Academy Kuveyt Türk’s banking transactions simulation was deemed worthy of the silver award in the “Best Digital Solution in Education” category at TEGEP Learning and Development Awards 2021. Special Award to Kuveyt Türk at Social Media Awards! Kuveyt Türk won the silver award in the participation banks category at the 2021 edition of Social Media Awards Turkey, the broadest contest organized in this field in Turkey. Turkey’s Most Ethical Company for the 7th Time Kuveyt Türk cares about ethical values and always puts ethics on top of the agenda with its ethical code practice. Hence, it was listed by the Ethical Values Center Association (EDMER) among the Most Ethical Companies in Turkey for the seventh time. 31
34. Kuveyt T ürk Annual Report 2021 Macroeconomic and Sector Outlook THE GLOBAL ECONOMY, THAT CONTRACT BY 3.3% IN 2020, IS PROJECTED TO GROW 5.5% IN 2021 2020 was a year when the virus had its impact felt the hardest while many countries delivered a negative growth performance. Central banks of developed and developing economies introduced quantitative easing methods, including interest rate cuts, asset purchases, and credit incentive packages to curb the impact of the pandemic on economic activity. Starting from Q1 2021, vaccination programs gained pace, bringing an end to strict social isolation measures and lockdowns, thus giving a re-boost to global economic activity, and resulting in an economic recovery above expectations in all countries. Economies that faced tough times in 2020 are projected, with the base effect, to reach high positive growth figures at the end of 2021. 32 GLOBAL GROWTH PROJECTIONS The World Bank revised its growth prospects downward due to supply bottlenecks and new variants of the coronavirus, with 5.5% for 2021 and 4.1% for 2022. Similarly, the International Monetary Fund (IMF) expects the global economy to decelerate in 2022 to 4.4%, after a rebound to 5.4% in 2021. IMF refers to inflationary pressures as a factor that complicates the outlook in the US and Eurozone. Reports also underline the risk of dissipating economic revival and a resulting inflationary tide in a scenario where the European Central Bank (ECB) opts for interest rate hikes and the US Central Bank Fed, which has already come to the end of QE policies and reduced asset purchases, fully ends asset purchases. HIGH INFLATION A GLOBAL THREAT Production that stalled amid lockdowns, supply-demand imbalances, rising energy and commodity prices, and high inflation looming over developed and developing economies alike, push central banks to roll the sleeves for monetary tightening policies. While Fed signals the end of the road by reducing asset purchases, ECB points to March 2022 to end asset purchases. IMF expects, for many economies, inflation rates to peak by the end of 2021 and get back to normal in mid-2022. GLOBAL TRADE Despite temporary lockdowns, trade volume is projected to go up by 10.8% globally in 2021, according to the World Trade Organization (WTO). A 4.7% growth is anticipated for 2022. Future supply bottlenecks will have a limited impact on global trade, WTO argues, referring to the impact of new variants on the course of the pandemic as the greatest risk factor facing global trade.
35. Section I : Introduction THE OUTLOOK OF TURKISH ECONOMY IN 2022 In a post-pandemic period where macroeconomic balances have changed, Turkey’s economy has seen inflationary pressures due to its internal dynamics. On the other hand, the economy delivers a significant growth performance in 2021, with 22% recorded in the second quarter and 7.4% in the third quarter. A positive outlook is visible for the current deficit, thanks to growing foreign demand and support extended to exporters. As 2022 is on the horizon, the impact of recent volatility in foreign exchange on macroeconomic and financial stability is monitored closely. Foreign demand is expected to be the defining factor for growth in 2022, during which a stronger improvement in the current account balance driven by high export figures is expected as well. BANKING INDUSTRY In a period where global economic balances take a new shape, the banking industry is getting back to normal, albeit with the marks of the pandemic, in late 2021. The financial performance to be delivered by the industry in 2022 will be in parallel with macroeconomic dynamics. Export and manufacturing industries, manufacturing of import replacement products, in particular, are envisaged to be on the fore as revealed by the current macroeconomic outlook in 2022. The banking industry will continue to extend the support required for commercial clients and meet the financing needs of individual consumers and the real economy. When other dynamics impacting the banking industry alongside macroeconomic conditions are taken into account, the most important items on the 2022 agenda for the industry will be tech investments, customer experience and human resources’ skills. Lean, quick, and solution- oriented experiences that banks will provide to clients will be much more important considering that FinTechs, which already operate in rather specific fields, as well as digital banks, will make an entrance to the industry. Focused on a specific field with highly agile structures, these small initiatives push banks, which have cumbersome corporate structures, to act more innovatively and flexibly. This occasionally results in partnerships or acquisitions. Banks must make necessary tech investments and have the human resources capable of using such technologies most effectively if they want to adapt themselves to this innovative, flexible and agile environment. Digital transformation has turned the page in this industry and showed a new direction to the banks that have boasted broad product ranges and high customer numbers to date. This alone signals a more dynamic banking sector for 2022. 33
36. Kuveyt T ürk Annual Report 2021 Kuveyt Türk’s Position in the Industry KUVEYT TÜRK AIMS TO BE THE BANK OFFERING THE BEST CUSTOMER EXPERIENCE BY PROVIDING AN UNINTERRUPTED, SIMPLE, QUICK, AND SMOOTH EXPERIENCE TO CUSTOMERS. Kuveyt Türk maintained its 10th place in the banking sector and strengthened its lead in the participation banking sector in terms of asset size. While ranking among the top ten banks in the overall banking industry, Kuveyt Türk also navigates highly competitive market conditions driven by digital start-ups with an impact on the industry and preserves its sustainable, profitable growth performance. The Bank has set strategic objectives for 2025 under three headings -customer, digital, and financial health -- taking the competitive environment into account. Kuveyt Türk has placed customers at the center of all its operations. In a new period when banks are able to open accounts remotely via video chats, Kuveyt Türk aims to offer the best customer experience in Turkey by providing an uninterrupted, simple, quick, and smooth experience. The Bank also strives to get to know more customers closely through broadening its customer base and deepening their interaction with the Bank. Adopting a digital focus, monitoring technology trends and improving operational efficiency, broadening digital product range and boosting digital skills, and pioneering the industry in next-gen banking through API integrations have been set as subset of strategies. The plan is to continue investments in unique digital experiences for customers, while it is a priority to further improve tech solutions such as biometric security systems, chatbots, and voice technologies. Data-driven business models of the future are developed at Kuveyt Türk, which makes the most effective use of data in all decision-making mechanisms. Kuveyt Türk focuses on sustainable, profitable growth in pursuit of its strategy to maintain its financial achievements. Adopting a prudent approach in terms of asset quality and liquidity, the Bank strives to set itself apart from the competition in this area. It also channels resources to address the urgent needs of the real economy, thus delivering an added-value banking performance and profitable balance sheet management, and preparing for the future in the best manner. MARKET SHARES Banking Industry Participation Banking December 2020 December 2021 December 2020 December 2021 Total Assets 2.49% 2.76% 34.84% 35.42% Funds Extended 2.03% 2.33% 30.92% 31.43% Funds Raised 3.37% 3,83% 37.16% 37.54% 34
37. 35
38. Kuveyt T ürk Annual Report 2021 Retail Banking KUVEYT TÜRK DELIVERS ITS PREMIUM QUALITY PARTICIPATION BANKING SERVICES TO CUSTOMERS IN ALL PARTS OF TURKEY THROUGH ITS BRANCH NETWORK WITH HIGH GEOGRAPHICAL COVERAGE. NUMBER OF RETAIL CUSTOMERS 5.7 million Kuveyt Türk raised the number of retail customers to 5.7 million in 2021. 36 Expense-free banking is the approach Kuveyt Türk adopts while delivering innovative products and services to retail customers in line with its ethical values. The Bank delivers its premium quality participation banking services to customers in all parts of Turkey through its branch network with high geographical coverage and remote account opening. During the reporting period, Kuveyt Türk earned 526,362 new customers, and raised the number of retail customers by 10% to 5.7 million as of the end of 2021. RETAIL MARKETING “A New Experience, A New You” with Kuveyt Türk Miles&Smiles In 2021, Kuveyt Türk signed a deal with Turkish Airlines (THY) and Mastercard for the cards of THY’s frequent flyer program Miles&Smiles. The Bank became the first participation finance institution to join a Miles&Smiles partnership. As part of this deal, Kuveyt Türk cards are delivered to customers, while the Bank’s customers are able to earn miles on their spending and buy free Turkish Airlines flight tickets with these miles.
39. Section II : Assessment of Activities in 2021 “Card Payment Systems Transformation” is a project carried out to replace the Bank’s currently outsourced card payment systems infrastructure with a new structure the software of which is developed internally (i.e. by in-house resources). Covering all processes end to end, i.e. from card applications to legal proceedings, this new structure is now up and running on the BOA banking platform. Card applications can now be filed on Kuveyt Türk Mobile, which improves the experience and makes it easier for customers to reach the Bank’s services in a rapidly digitizing world. Prompt response is delivered on the outcome of these applications. By taking customers’ needs into account, a Post-Transaction Installment infrastructure was developed to enable customers to split their spending into installments without late interest and fee on Kuveyt Türk Mobile. To improve operational processes, integrations with new suppliers with respect to printing and statement deliveries were made. Sağlam Kart website was revamped with a modern and user-friendly design to deliver a better customer experience. Customers are now able to reach the campaigns and new benefits of Sağlam Card, which always stands by them, easily via the website. In 2021, enhancements on Sağlam Debit Card, Kuveyt Türk’s debit card, continued, while customers who apply for a card were enabled to reach card details and start shopping instantly. Customers joining Kuveyt Türk’s clientele via video chat features are now free of the hassle to wait for a courier, because they are able to view their automatically-generated card details to start shopping. Developing services in the field of individual financial needs, Kuveyt Türk continues to introduce innovations focused on customer experience in the İhtiyaç Card product that is available for almost a decade. Onsite Financing, a newly deployed product, also helps customers take out Finance for Individual Needs at the moment of spending. Easy Addressing, FAST and QR cash transfer began at Kuveyt Türk in 2021 Easy Addressing Service is a system that matches customers’ account numbers with their mobile phone number, Turkish ID number, Tax ID number, passport number or e-mail address, allowing them to use it instead of an IBAN and thus making transfer of funds easier. Easy addressing and updating services are now provided at the Internet branch, Kuveyt Türk Mobile, XTM and all physical branches of the Bank. Instant and Continuous Transfer of Funds (FAST) is a system that allows quick and easy transfer of funds among different bank accounts 24/7. Completing the integration with FAST in 2021, Kuveyt Türk now allows customers to transfer funds of up to TL 2,000 instantly, and 24/7. After integration with the funds transfer system via QR code in 2021, customers can create QR codes to make payments and receive fund transfers, and easily transfer funds quickly and via QR codes generated. Highlight Campaigns Sağlam Card With their Sağlam Card credit cards, Kuveyt Türk customers continued to benefit from free-of-charge 5 installments for their education and healthcare spendings as they needed, without having to pay a credit card fee. In addition, post-transaction installment campaigns were launched that allowed customers to split their spending into installments after the transaction without a fee. Changes were introduced to the Gold Point, and campaigns titled “Gold Opportunities” were organized monthly offering customers the chance to earn Gold Points of up to TL 100 in different sectors. Miles&Smiles Miles&Smiles cardholders are provided with an exceptional experience thanks to installment and extra mile earning campaigns. Customers can pay their transactions in the amount of TL 1,000 to TL 30,000 in up to five interest-free installments twice a month on Kuveyt Türk Mobile. Campaigns for fuel oil and restaurants also enabled customers to earn extra 2,000 miles. Sağlam Nakit Sağlam Nakit (Debit Card) card details can now be viewed on Kuveyt Türk Mobile and they can be used quickly, especially for e-commerce spending. Customers acquired via video chats were offered TL 20 discount on their first spending. The campaign will run until June 30, 2022. These customers were also provided the chance to draw and deposit cash for free at joint ATMs. 37
40. Kuveyt T ürk Annual Report 2021 Retail Banking KUVEYT TÜRK EXTENDED GRATITUDE TO TEACHERS FOR THEIR INVALUABLE EFFORTS WITH SPECIAL, AFFORDABLE FINANCE, CARD AND RENTAL SAFE DEPOSITS OFFERED BETWEEN NOVEMBER 22-26. Pensioners In August 2021, a new campaign package was introduced for those clients who are pensioners. The promotional amount was raised to TL 1,000 and pensioners were provided the chance to perform transactions at joint ATMs for free. A Pensioner Assistance Line was established, allowing them to directly connect with customer representatives. Dear Teachers Kuveyt Türk extended its gratitude to teachers for their valuable efforts with special affordable finance, card, and rental safe deposits offered between November 22-26. 38 Young Customers Young people aged below 25 who become Kuveyt Türk clients via video chat features were offered special benefits to enhance the financial inclusion of students who are going back to school, this time physically after the pandemic. Gradual Work at All Business Units During the Pandemic Customers were redirected to digital channels or Call Centers rather than physical branches to seek assistance with their needs during the pandemic. For customers visiting physical branches, transactions were performed contact-free, and in an eco-friendly manner, thanks to mobile approvals and the Bank’s paper-free banking system. To reduce in-branch density, Kuveyt Türk Mobile started to accept card applications. Allocated Sağlam Debit Cards with contactless card features, customers are now able to complete their payment without any contact at the point of purchase. Sağlam Debit Cards’ limits were increased in line with customers’ needs. Consumer Finance, card, and insurance contracts can now be approved on Kuveyt Türk Mobile, which results in significant time savings and reduces the risk of infection by lowering the points of contact. ATM cash transaction limits were raised by segment to simplify customers’ access to cash in nonbranch channels.
41. Section II : Assessment of Activities in 2021 As part of Pensioner Banking, a dedicated Call Center line was established to help reduce the need for visiting physical branches for customers aged above 65. Promotional payments can now be made without a preliminary condition, and new standing order processes were introduced. Alternating working models were put in place to mitigate the adverse impact of the pandemic on employees. In this period, guides and digital tools were prepared for the staff working from home who made sure to provide uninterrupted services to customers. 2022 Targets Kuveyt Türk Retail Banking plans to develop instruments that make it easier for customers to save and evaluate their savings via alternative products. The bank intends to diversify and expand TL-denominated investment instruments, in particular, to broaden its retail client base and TL market share through its wider and flexible product range. After the Card Payment Systems Transformation project is finalized, sector developments and customers’ requirements will be monitored to deliver services in a more flexible, digital, and easier fashion. Therefore, the goal is to further diversify digital transactions and improve customers’ digital experiences. The Bank will pioneer technologies to be deployed for new payment systems, increase the number of partnerships with payment institutions, and improve customers’ payment experiences. Efforts to offer a unique, end-to-end digital experience for housing and vehicle purchases are ongoing. Card Payment Systems Transformation, a project aimed at replacing time and energy-consuming financing processes with digitally-conducted processes, is a first in its field in Turkey. Kuveyt Türk will also develop capabilities to support foreign nationals residing in or visiting Turkey with quick service processes. The goal is to introduce these customers to the human- and technology-oriented banking system in Turkey through targeted branches with foreign language-speaking staff and digital processes. Efforts linked with data and artificial intelligence will gain further speed to offer personalized services on all channels. The Bank will tap into the deliverables of these efforts and provide solutions that improve the customer experience both at the physical branch and on digital channels. DIGITAL BANKING Instead of a conventional branchbased banking approach, Kuveyt Türk Digital Banking Group operates on a low-cost, technology-based, efficient, and customer-oriented marketing approach. Digital Banking also develops new marketing alternatives by using digital tools. Digital Banking delivers services to all retail and commercial clients in line with its vision of transforming ways of doing business and forming business partnerships, optimizing experience across channels, harmonizing the Bank’s digital and physical channels, adapting to the new era, and expanding financial inclusion. NUMBER OF CUSTOMERS USING DIGITAL CHANNELS 2.2 million Thus, the digital experience is monitored through data-driven methods, while efforts are undertaken to help offer a better experience with digital products and digital channels. The Digital Banking Group consists of three departments: • Digital Marketing Department • Branchless Banking Department, and • Digital Channel Management Department Active customers using digital banking channels reached 2.2 million, representing a 37% hike. To improve the financial inclusion of the youth and women in Turkey, the Bank will set product, service, and communication strategies and broaden the share of these target groups in its client base. 39
42. Kuveyt T ürk Annual Report 2021 Retail Banking ACTIVE CUSTOMERS USING KUVEYT TÜRK MOBILE IN 2021 REACHED 2 MILLION, REPRESENTING A 38% RISE COMPARED TO THE PREVIOUS YEAR. Digital Marketing Department Kuveyt Türk is always one click away from customers via its website, Internet branch, as well as Kuveyt Türk Mobile available on AppStore, Google Play Store, and Huawei App Gallery. In 2021, the Bank continued to transform its services and business processes in line with next-gen technologies and digital trends. Thanks to the activities conducted in the reporting period, Kuveyt Türk Mobile adoption was expanded, with the number of active users of the app rising by 38% to 2 million in 2021. Meanwhile, the number of active users of all digital banking channels rose by 37% to 2.2 million compared to the previous year. Approximately 88% of the Bank’s active customers used digital channels throughout the year. 40 Top picks from those projects Kuveyt Türk conducted to improve its digital channels through an innovative vision are provided below: Limit Increase via Video Chats: The limits for fund transfers, and sales&purchase of a foreign currency or precious metals can now be updated in video chats with customer representatives on Kuveyt Türk Mobile, without having to visit a branch. Getting Passwords with NFC: Customers can use the NFC feature on their mobile phones to log in digital channels with their new chip ID cards, change their one-time passwords and get new passwords if they forget the one they use. This allows customers without a debit or credit card to carry out password procedures with their new ID cards. Digital Applications: Many product and service applications were moved to digital banking channels in 2021. Digital application processes were established for credit cards offering the benefits of Miles&Smiles as part of the deal with Turkish Airlines. Motor Insurance Application, SME Preliminary Application on Website, OTS Application, School Installments System (OTS), as well as CEBİMPOS Application on Kuveyt Türk Mobile can now be submitted via digital banking channels.
43. Section II : Assessment of Activities in 2021 KUVEYT TÜRK’S DIGITAL ASSISTANT SELIM BEGAN TO RENDER SERVICES ON WHATSAPP IN 2021 TO MAKE CUSTOMERS’ ACCESS TO THE BANK EASIER. In addition, preliminary applications for Letters of Guarantee, Leasing, Agricultural Finance, Tohum (Seed) Card, and POS products can be submitted via the Bank’s corporate website. Selim (Digital Assistant) WhatsApp Integration: Kuveyt Türk’s digital assistant Selim was launched also on WhatsApp to guarantee easier customer access in 2021. Mobile Approval with Orders: For fund transfers requiring approval calls by the branch due to the amount of ordered transactions, mobile approvals, in place of phone calls, are sent to the company representative. The start of digital approvals for transactions has increased security and reduced operational workload. Uploading Documents on Digital Channels: Retail and corporate customers are now able to upload on Kuveyt Türk Mobile and Internet Branch their license, sales receipt, title deed, invoice, and proforma documents required for service processes such as Fund Allocation Projects, Vehicle, and Real Estate Finance, and Finance for Individual Needs. Likewise, necessary documents are also made available for customers via digital channels without the need for a physical branch visit or mail/message delivery. CebimPOS NFC Payment: NFC support was introduced for the CebimPOS product, which freed customers from the burden to manually enter their card details, and enabled them to quickly and easily make payments via their phones’ NFC feature. Instant SWIFT Monitoring (SWIFT GPI System); The Bank joined the SWIFT GPI system that enables speed, traceability, and cost transparency for international foreign currency transfers. This system helps track the entire process of foreign currency transfer in real-time, from the moment the amount is withdrawn from the sender’s account to the moment of deposit at the receiver’s account. Opening Investment Accounts for Corporate Clients: Corporate clients are able to open investment accounts on Kuveyt Türk Mobile. Internet Branch Logins with Mobile Notification: Internet Branch logins are now possible by approving the mobile notification rather than SMS texts. 41
44. Kuveyt T ürk Annual Report 2021 Retail Banking A PROJECT WAS INITIATED TO AUTOMATICALLY ANTICIPATE THE CASH AMOUNT KUVEYT TÜRK CUSTOMERS MAY WANT TO DRAW DEPENDING ON THEIR CASH WITHDRAWAL HABITS. The video call service for disabled customers on the Kuveyt Türk Website This feature helps disabled customers to report lost/stolen cards via the website by initiating video calls. Digital Channel Management Kuveyt Türk continued to enhance its ATM network with new functions in 2021, focusing on its goal of bringing excellence to the customer experience at all points of contact: • QR Code was moved to the home screen of Kuveyt Türk ATMs, enabling customers to draw cash contact-free. 42 • Under Kuveyt Türk’s TR QR Code Project, customers of other banks are also able to draw cash by using the QR Code on Kuveyt Türk ATMs. • A project was initiated to automatically anticipate the cash amount that Kuveyt Türk customers may want to draw depending on their cash withdrawal habits. • The FAST fund transfer at Kuveyt Türk ATMs project was completed. As a result, fund transfers below TL 2,000 are carried out with this infrastructure. • Deployed in 55 provinces and 245 terminals, the voice menu allows the visually-impaired clients of Kuveyt Türk to receive services at the Bank’s ATMs more easily. • Cardless EFT transaction limits at Kuveyt Türk ATMs were raised to TL 7,400 and limits for cardless transfers with sender’s name to TL 4,000. Limits for cardless cash deposits at Lobby ATMs were raised to TL 74,000. • A new tablet XTM device was developed. Featuring a single and touch-enabled screen, the device helps customers connect to a video call with one click and carry out all banking transactions -- except cash transactions -- with the customer representative. • Kuveyt XTM device login options for Kuveyt Türk customers were increased. Thanks to this, customers are now able to receive video call services on XTMs without having
45. Section II : Assessment of Activities in 2021 ON MAY 1, 2021, KUVEYT TÜRK STARTED REMOTE ACCOUNT OPENINGS VIA VIDEO CHAT FEATURES. to log in on the device with a card. After typing their customer number on the XTM home screen, customers receive a mobile approval or use the PIN sent via SMS to use the XTM device safely. • Kuveyt Türk customers are now able to get a debit card at XTM without the physical assistance of a branch employee. Branchless Banking On May 1, 2021, Kuveyt Türk started remote account openings via video chats. This has made account openings in areas outside the Bank’s branch network possible and enabled the Bank to broaden its outreach. Customers are now able to access Kuveyt Türk’s services provided on digital channels anytime and anywhere they wish. In 2022, unlimited companies, farmers, and Turkish nationals residing overseas will be offered remote account opening services. Kuveyt Türk has attained some 40 thousand customers thanks to the capability to open accounts remotely. The share of customers acquired via this channel within overall customer acquisition expands each passing day. Digital Portfolio Management is a project under which customers who adopt digital experiences will be provided with portfolio management services on digital channels. This way, they will have video and voice chats with portfolio representatives regardless of their location, receive banking products and services, and benefit from consulting processes. Campaigns were organized for customers joining the Bank’s customer base through the remote account opening service to enjoy discounts at purchases with their debit cards or use joint ATMs for free. These campaigns are ongoing. 43
46. Kuveyt T ürk Annual Report 2021 SME Banking HIGHER EFFICIENCY WAS ATTAINED BY ROLLING OUT DIGITALLY-DRIVEN ENHANCEMENTS IN PRICINGS AND CUSTOMER MANAGEMENT IN SME BANKING. aims to continue projects regarding digitalization and sales strategies in 2021, developing systems to respond to customer needs pro-actively. SME BANKING DEPOSITS TL 49.5 billion Total deposit size of Kuveyt Türk SME Banking rose to TL 49.5 billion. 44 In 2021, efforts were channeled to Mobile 360, an application that will make suggestions on sales and marketing activities for portfolio representatives and simplify transactions with its design. Designed to help implement sales and marketing activities on site, right at the customer’s location without depending on the branch, the app will be launched in January 2022. Kuveyt Türk implemented an ambitious strategy based on innovative processes and economic sustainability, along with digitalization in its SME Banking business line in 2021. To ensure a seamless customer journey, processes were revised and customer segmentation was enhanced to better reflect the size, volume, financial structure, and the latest industry conditions. As a result, a structure was attained capable of providing personalized services. Efficiency was increased through digital enhancements in pricing and customer management. The Bank In 2021, Kuveyt Türk SME Banking rendered services at 436 branches, with a competent workforce of 972 people, 454 in the enterprise segment and 518 in the micro segment. The business line concluded the 2021 reporting year with 409,167 customers, while the funds it raised amounted to TL 49.5 billion and the funds it extended to TL 633.3 billion. The accounting period of 2021 carried the Bank’s solid position in the sector forward. Kuveyt Türk SME Banking ✓ 409,167 total number of customers ✓ TL 49.5 billion raised funds ✓ TL 33.3 billion cash funds extended ✓ TL 5.1 billion non-cash credit volume ✓ TL 1.3 million other revenues ✓ TL 8.8 billion FX credit risk ✓ SME Banking attained a leasing risk volume of TL 4 billion, while generating further value for the Bank via the following:
47. Section II : Assessment of Activities in 2021 • It rendered the project pricing system operational in an authorized manner through the efficiencybased pricing algorithm for customers. • Currently running based on customer efficiency, the customer value segment integrated pricing system helped automatically price a total of 52,937 projects in 2021. • Communications focused on data to boost deposits and sales opportunities through analyses on legal entity clients, which brought an additional TL 750 million in deposits to the Bank. • It performed in-depth analyses in profit-loss participations, project finance, and large-volume projects, while proactively being involved in processes through customer communications and supporting the field teams in sales activities. • As part of fund extension via participation, three projects were implemented in the gold, forestry products, and veterinary sectors via the means of “mudarabah” (laborcapital participation) in 2021. Two of these projects were completed within the year, and the other is projected to conclude in 2022. The total project amount is TL 8,888,697 and TL 604,430 was attained in profits thanks to these participation projects. • Customer acquisition processes were supported through deals with cooperatives, chambers, unions, and dealers. PRODUCT DEVELOPMENT ACTIVITIES Bundle Management Through the Bundle Management project, developed throughout 2017 and implemented in October 2017, customers were offered customized banking service products in bundles also in 2021. Aimed at customers who frequently use various banking channels, compact products matching their requirements are drawn together for cash sales. Since October 2017, 35,785 of such bundles have been sold, corresponding to a sales volume of TL 73 million. In addition, efforts have been completed to enable customers to track their bundles on the Kuveyt Türk Mobile and purchase new bundles. Online Letter Issuance System Thanks to the system deployed in the last quarter of 2017, Kuveyt Türk SME Banking Department allows customers to receive letters of guarantee via the Internet Branch, avoiding extra workload on the physical branches. In 2021, 26,100 letters of guarantee were issued online, extending TL 2.1 billion in non-cash loans. The goal for 2022 is to add new types of letters in the portfolio of applications that can be sent to the Internet Branch. E-Guarantee Letter, EKAP Integration This development involves the preparation of letters of guarantee in electronic format for use in tender processes. The model provided a secure Internet protocol between the Banks drawing up Letters of Guarantee and the Electronic Public Procurement Platform (EKAP) while allowing the submittal of letters of guarantee and bids in the electronic environment. LG Applications via Kuveyt Türk Mobile The project is aimed at adding application screens for domestic letters of guarantee and letters of reference within the Corporate Internet Branch to the Kuveyt Türk Mobile screens. Planned by SME Banking for roll out in 2022, the system will enable customers to receive letters of guarantee via Kuveyt Türk Mobile -- without having to place any operational burden on branches. Letters of Guarantee Channel-Based Pricing This is a project to apply different pricing for customers’ applications filed at the Internet Branch and physical branches. Despite the high operational costs of the procedures conducted at the branch, the same pricing had been charged to customers on both channels. A channel-based pricing project was initiated in the last quarter of 2021 to encourage customers for digital channels and reduce the workload of branch operations teams. As part of the project, customers are provided with a 20% discount on the applications they submit on digital channels. Pricing As Per LG Addressee and Letter Type This involves the development of LG pricing factors by taking the addressee (to public or private entities) and letter type into account. There are two types of addressees in LGs: public and private entities. As for the type of letters, the plan is to apply different pricing for letters with low indemnity and risk ratios. The goal is to accelerate the growth in the Bank’s focal areas through this system which includes a variety of data for accurate pricing. 45
48. Kuveyt T ürk Annual Report 2021 SME Banking WITH INFLATION-INDEXED LOAN CONTRACTS, THE GOAL IS TO DELIVER MORE EFFECTIVE SOLUTIONS TO RESPOND TO MARKET REQUESTS AND ADDRESS PROBLEMS SUCH AS OBTAINING INVOICES. Website - Application Screen “I want to be a customer” The system was developed to amplify the impact of Kuveyt Türk commercials and simplify and accelerate the acquisition of legal entity customers. With this system, potential legal entity customers are redirected to the application screen of the product promoted in the commercial when they click on it. This also turns the Bank’s commercials into a mechanism to help take swift action for potential clients. The Bank contacts legal entity customers meeting certain criteria, and gives appointments for them to become customers. 46 İhalehaberi.net Robot Assignments The robot will conduct intelligence queries for companies winning the tender on İhalehaber.net. Companies with positive intelligence results will be notified to the branches in line with the hinterland. This project is aimed at improving the number and volume of LGs of the branches. The ongoing project is planned to be completed in the first quarter of 2022. Inflation-Indexed Loan Contracts Planned to be launched in the first quarter of 2022, this new product will serve as a more effective solution to market requests such as the solution of problems with obtaining invoices. This new fund extension product will be priced based on Annual Consumer Price Index (CPI), while diversifying Kuveyt Türk’s product range, helping the Bank address certain needs of the market more effectively, and promote the principle of fair financial management. The Association of Turkish Participation Banks (TKBB) closely monitors this product development project which will help Kuveyt Türk cement its lead in the industry in 2022.
49. Section II : Assessment of Activities in 2021 Precious Metal Support Loan Product Development Gold Support Loan is Kuveyt Türk’s only product in precious metal finance. The project involves efforts to develop this product and will be completed in the first quarter of 2022. This way, the product will be much more aligned with participation banking, and the efficiency of operational processes will be improved. Transfer of Seller Payments to Bank Accounts This project involves efforts to transfer the finance extended by Kuveyt Türk to sellers’ accounts. Planned for completion in the second quarter of 2022, the project is aimed at developing a proactive approach via branches and digital channels, improving the volume of deposits, re-activating inactive customers, and acquiring new customers. LEASING AND SUBSIDIZED TRANSACTIONS Kuveyt Türk expanded leasing receivables by 138% year on year, reaching a risk volume of TL 11.9 billion. In line with the policies to broaden the customer base, investments in all fields have been supported and 4,476 lease contracts were signed with customers. These deals helped inject TL 5,8 billion in funds into the market. Launched in the fourth quarter of 2016, the Leasing with Profit Share product makes Kuveyt Türk the first and only bank to offer the service among participation banks. The leasing with profit share offering involves charging the vendor for all or some of the financing cost while the customer receiving the loan enjoys installment payments based on the invoice sum that excludes the profit share and commission fee. Almost 200 deals were struck with vendors, contributing more than TL 295 million to the leasing volume. The Bank carried the Leasing with Profit Share strategy forward, and enhanced its cooperation with sellers, with or without a profit share, in light of its mission of “Sales from the Center.” TL 4.3 billion were extended in funds as part of transactions involving investment incentive certificates, while the risk volume grew by 179% year on year to TL 10.1 billion. Partnering with public institutions, the Bank supported customers by offering collaterals and cost advantages, and thus stood by the production industry. In line with its digitization objectives, Kuveyt Türk continued to undertake enhancements in the field of leasing and subsidized transactions and improve processes to support customers in this period, as well. Kuveyt Türk strives to provide a better customer experience in leasing and subsidized transactions while maintaining growth and extending support to entrepreneurs in 2022. INDUSTRY-TARGETED ACTIVITIES Tradespeople Banking and Professional Practitioners Kuveyt Türk is at the disposal of customers who are tradespeople or practitioners of certain professions (pharmacists, physicians, lawyers, dentists, etc.) with tailor-made solutions such as Esnaf Kart, CebimPos, advantageous product packages, and finance alternatives. The Bank’s primary goal is to analyze the needs and requests of tradespeople accurately, expand the product range, and quickly reach out to customers via digital channels. The Senin Bankan digital banking platform, currently serving retail customers, is scheduled to launch for tradespeople and farmers in 2022 so that they are able open accounts without having to visit a branch and benefit from Kuveyt Türk’s banking services easily and swiftly. Agricultural Banking Kuveyt Türk extends support to farmers conducting agricultural and stockbreeding activities. Plant production, dairy farming and livestock, tractor, cropland financing, agricultural supplier financing, and agricultural machinery financing are some of the Agricultural Banking products on offer. Repayment terms are scheduled according to the farmers’ harvest times with installment plans. The Bank also acts as an intermediary for TARSİM. Farmers can perform their Electronic Product Note (ELÜS) transactions via Kuveyt Türk, and access finance by having their ELÜS assets accepted as collateral. LEASE CONTRACTS 4,476 Kuveyt Türk signed 4,476 lease contracts in 2021. 47
50. Kuveyt T ürk Annual Report 2021 SME Banking END-OF-PERIOD RISK BALANCE FOR THE TOHUM KART PRODUCT AMOUNTED TO TL 47.6 MILLION; TOTAL NUMBER OF FARMING CUSTOMERS TO 62,500; AND NUMBER OF AGRICULTURAL MEMBER MERCHANTS TO 529. In 2021, the Bank’s agricultural sector risk stood at TL 1.5 billion. End-ofperiod risk balance for the Tohum Kart (Seed Card) product, which offers re-payment terms at the time of harvest, reached TL 47.6 million; the total number of farmer customers reached 62,500, the number of agricultural member merchants 529 and ELÜS transaction volume reached TL 1 billion. By 2022, the Bank intends to develop a structure where farmers and their suppliers can easily contact the Bank and receive services via digital channels. In 2021, efforts towards this goal began. 48 Tourism Banking Taking the seasonal requirements of the Turkish tourism sector into account, Kuveyt Türk started offering market players financing with flexible (seasonal) payment options. In the meantime, Kuveyt Türk’s “Tourism Card” provides up to 6 months as a payment-free period. Efforts are ongoing to develop solutions for all stakeholders within the tourism ecosystem by taking the needs of tourism agencies, tradespeople, suppliers and hotels into account. Kuveyt Türk is aware of the added value tourism activities create for the real sector, and thus it is determined to maintain the support extended to tourism in the coming period, as well. PAYMENT SYSTEMS ACTIVITIES POS Marketing The POS Marketing Unit is the product owner of innovative payment methods including Physical POS and Virtual POS. The unit is in charge of the following products: • Fixed and Mobile POS • Cash register POS • Android POS • Free POS • Collection System • CebimPOS Activities were performed for the integration of new POS models launched in 2021. Integration with Hugin N910, Paygo SP630 ECR models were completed.
51. Section II : Assessment of Activities in 2021 The number of POS devices supporting contactless payments has been increased to offer solutions that address changing payment habits. Fintech activities are ongoing for QR payments, while integration efforts were initiated for TR QR Code. CebimPOS customers can enjoy installments on Kuveyt Türk cards, and postpone sales on Kuveyt Türk Seed Cards, while selling in installments to the credit cards of banks operating in Turkey thanks to payment institution integrations. While Tohum Kart provides flexible maturities to farmers, the network of contracted merchants with high customer transaction volumes has been expanded. Product features were also improved thanks to the maturity options offered. Marketing activities are conducted with contracted merchants to offer installments on Kuveyt Türk POS devices with Sağlam Card, a Kuveyt Türk brand. The number of contracted merchants has increased in the world of physical POS devices, e-commerce sites, and payment institutions in particular. MERCHANT BRAND MANAGEMENT Kuveyt Türk established a Merchant Brand Management Service under Payment Systems Marketing in the second half of 2021. The Bank focuses on acquiring enterprises at a corporate level, SMEs in particular, as its portfolio is primarily made up of SMEs. Its portfolio management efforts are carried out at the Head Office to expand the installment network of Sağlam Card, which is its proprietary card brand. Under the Decision Support System, legal entity credit cards are issued without the examination of financial information from Kuveyt Türk branches. Business development works are underway to issue legal entity credit cards via digital channels, as well. Joint campaigns were organized with commercial cards for the Bank to respond to the needs of merchants holistically. Accordingly: • Kuveyt Türk Miles&Smiles Business card offered 5% additional miles on purchases at Kuveyt Türk merchants. • Card fee discounts were offered to customers spending TL 5,000 every month with Kuveyt Türk enterprise credit cards. Virtual POS Upgrades Under the Virtual POS UX upgrade, Kuveyt Türk continued to make improvements and corrections to menu interfaces, the number of installments, user data, card and address information, end-of-day order follow-up and manual POS transactions throughout 2021. Innovative payment methods are now supported as part of the deals with fintechs, payment institutions in particular. CebimPOS Kuveyt Türk customers with a POS terminal can use the Virtual POS software via Kuveyt Türk Mobile as of 2019. A fast, practical, and free-ofcharge application that transforms every smartphone into a POS is now offered to customers. Running on a 3D Security infrastructure, CebimPOS is aimed at businesses that rely mainly on cash transactions but are not required to keep POS terminals integrated with cash registers such as plumbers, street vendors, restaurants, gym operators, financial advisors, taxi drivers, and barbers. Kuveyt Türk continued e-invoice upgrades on CebimPOS in 2021. NFC features and digital application services were launched for customers, as well. The Bank’s special campaigns for, and partnerships with, the merchants are also handled by the Merchant Brand Management Service. LEGAL ENTITY CARD MARKETING Kuveyt Türk is the first bank to provide a Miles&Smiles Business card to privately-owned personal companies and legal entity customers as part of its partnership with Miles&Smiles. The Bank continued to diversify the product range offered to legal entities in 2021. The unit is the owner of the following legal entity card products: • Miles&Smiles Business • Business Plus • KOBİ Kart (SME Card) • Tohum Kart (Seed Card) • Turizm Kart (Tourism Card) • Sağlam Bayi Kart (Sağlam Dealer Card) • Esnaf Kart (Tradesmen Card) • Legal Entity Debit Card A project is being carried out for Kuveyt Türk legal entity customers to submit card applications on Kuveyt Türk Mobile without having to visit a branch. The final stage has been reached in the studies to enable the receipt of applications via the Kuveyt Türk website for legal entities which are not Kuveyt Türk customers. Integration activities started to allow QR payments as part of the TR QR code project. The goal is to enable payments to be made via Kuveyt Türk mobile, by scanning the QR code with the Bank’s legal entity accounts and cards. In addition, customers whose card applications are approved will be able to start shopping by tapping into QR Code Scanning and Virtual Credit Card features, without having to wait for their physical cards to be delivered as part of the ongoing project. All Kuveyt Türk legal entity credit cards support the contactless payment feature. A free of charge feature, significantly contributed to the increased turnover of the Bank as contactless payments have seen growth during the Covid-19 pandemic. In order to respond to customers’ needs and expectations, campaigns were organized in 2021 including interest-free post-transaction installments, additional installments, postponed payments, and TL discounts. 49
52. Kuveyt T ürk Annual Report 2021 Corporate and Commercial Banking IN 2021, KUVEYT TÜRK ENHANCED ITS SUPPORT TO EXPORTERS VIA PRE-SHIPMENT EXPORT LOANS EXTENDED FROM EXIMBANK’S FUNDS AND ITS INTERNAL FUNDS. DDS TRANSACTION VOLUME TL 4.1 billion At the end of 2021, the DDS transaction volume reached TL 4.1 billion. 50 Corporate and Commercial Banking Group strives to address corporate and commercial clients’ needs with participation banking products, in addition to innovative financial solutions designed with a focus on the customer, such as financial leasing, project finance, cash management, and foreign trade products. Kuveyt Türk’s broad branch network, experienced workforce, and customer-oriented business models are coupled with a robust system infrastructure analyzing developing trends and customer needs and deploying new strategies to offer end-to-end digital solutions and products to the right target group. All these set the Bank apart from the competition. NEW CUSTOMER ACQUISITION FOCUS FOR SUSTAINABLE GROWTH Kuveyt Türk Corporate and Commercial Banking Group focused on new customer acquisition in its efforts and strategies to increase the Bank’s market share in the segment, asset quality, and deposits. Three commercial branches were opened in 2021, which contributed to the pace of efforts toward acquiring new customers and deepening the relationship with existing customers. The Bank continued Corporate and Commercial Banking activities with its alternating working schedule at branches in 2021, as the impact of the pandemic was still being felt. Thanks to its competent and experienced employees, the Bank did not compromise on its service quality and customer experience vision, while ensuring uninterrupted service delivery. Efforts to digitize service and process cycles gained pace as part of the digital transformation journey across the Bank. Effective customer communication efforts were undertaken via video calls, while a Mobile Application option was introduced for the School Installment System. Mobile 360, a mobile application that enables branch sales staff to take sales and marketing actions outside the branch, has reached its final stage before completion. In 2021, Kuveyt Türk improved its support to exporters via pre-shipment export loans extended from Eximbank funds and its internal funds in the field of exports, a strategic focus for the Bank. Development activities continued to deliver products supportive of exports, such as PostLoading Finance and Advance Finance.
53. Section II : Assessment of Activities in 2021 Works focused on added value in 2021 helped the Bank to have USD 10.5 billion in incoming export proceeds, while the volume of imports rose to USD 6.5 billion. Kuveyt Türk shines out in the sector not only with its products continuously and innovatively improved in line with customers’ needs such as Leasing, Leasing with Profit Share, DDS, DDS with Profit Share, and Supplier Finance but also with the new main dealer and dealer deals made for firms in commercial segments. DDS Cash Management integration with Turkish Airlines was also completed during the year. In 2021, DDS transaction volume reached TL 4.1 billion and TFS volume TL 2 billion. PRODUCTS/SERVICES DEVELOPED AND BUSINESS PROCESSES REVISED IN PARALLEL WITH DIGITALIZATION Processes of Eximbank Short-Term Receivables Insurance, delivered to address exporters’ need for collateral, were moved to the digital environment to improve customer experience, in addition to PostLoading and Advance Finance Products, developed to support exports in 2021. Screens to monitor documents and maturities were digitized for all products to enable foreign trade customers to follow up on their existing products. For overseas transfers, the Bank enabled customers to initiate transactions digitally without contacting a branch and monitor the status of that transaction via the GPI system. Kuveyt Türk signed an MoU with Eximbank to start acting as an intermediary in long-term PreShipment Export Loan (SÖİK) transactions provided to exporters. To protect against FX risks linked with currency fluctuations, the opportunity to forward all installments at the moment of credit allocation was given to exporters who were allowed to borrow in foreign currency, customers with a risk above USD 15 million, or firms planning to do a leasing transaction or holding an investment incentive certificate. System enhancements were made in DDS, DDS with Profit Share, OTS, and Supplier Finance, resulting in higher customer satisfaction rates and transaction volumes in 2021. 51
54. Kuveyt T ürk Annual Report 2021 Corporate and Commercial Banking USD 41 MILLION WERE EXTENDED TO CUSTOMERS AS PART OF THE EXPORT FINANCING CAMPAIGN. HIGHLIGHT CAMPAIGNS New Customer Campaign with Commercial Loan was organized to acquire new customers in 2021. New customer acquisition was also planned with the sub-dealer campaign organized as per DDS. During the year, an Export Finance Campaign was organized for Advance and Post-Loading Finance products, which are delivered as an alternative means for finance for all types of payment with which exporters can collect payments in advance before or after loading the goods without waiting for the maturity date. As part of the campaign, a total of USD 41 million was extended to customers. USD 35 million of this amount was granted in Advance Finance and USD 6 million in PostLoading Finance. 52 ONGOING ACTIVITIES AND GOALS FOR 2022 Kuveyt Türk Corporate and Commercial Banking has taken important decisions in several areas from the re-structuring of branches to customer planning, in parallel with the overall strategies of the Bank for 2022 and beyond. In this respect, the Department commenced projects focused solely on commercial customers to measure customer value propositions under the New Commercial Branch model. The works are ongoing to move the processes to Kuveyt Türk Mobile and Internet Branches to allow customers to digitally initiate flows, approve and complete existing flows for products including letters of credit, external guarantees, and collection products. The technical process is also underway to provide an automatic confirmation or offer shipment insurance by the system for letters of credit advised to the Bank. Studies are conducted to issue letters to meet customers’ requirements for collateral at relevant banks as part of the Participation Finance Investment Loan program as part of which Eximbank will extend funds in line with Islamic principles. Studies began for the integration of Central Bank Rediscount Credit transactions with credit allocation and extension screens. Discussions with the Central Bank are ongoing to update implementation principles so that rediscount credits the Central Bank offers to exporters are also provided to Kuveyt Türk customers by Islamic principles. Infrastructure works are also being conducted in parallel with these discussions.
55. Section II : Assessment of Activities in 2021 SYSTEM ENHANCEMENTS TO IMPROVE CUSTOMER EXPERIENCE AND TRANSACTION VOLUMES IN DDS, TFS AND OTS ARE ONGOING. TFS VOLUME TL Kuveyt Türk is the only participation bank to be a member of FCI, an umbrella organization for global supply chain financing established to contribute to the growth of global trade volume. Accordingly, the Bank is working on a financing alternative whereby guarantee, receivables and collection management, and financing services are offered collectively, by taking over customers’ overseas term receivables arising from the sale of goods and services. The plan is to deploy this innovative product in 2022. System enhancements to improve customer experience and transaction volume for DDS, TFS and OTS are ongoing, with plans for deployment in 2022. In addition, process improvements for SGK Pre-ordered Payments, Collective Salary Payments, and E-invoice discount deals continue. 2 billion The volume of TFS rose to TL 2 billion at the end of 2021. 53
56. Kuveyt T ürk Annual Report 2021 Treasury and International Banking OFF-BALANCE SHEET ITEMS WERE DIVERSIFIED AND CROSS CURRENCY SWAP (CCS) WAS USED TO ENSURE EFFECTIVE LIQUIDITY MANAGEMENT. SUKUKS ISSUED BY INVESTMENT BANKING 55 TREASURY Investment Banking issued 55 sukuks in the domestic market. Assets and Liabilities Management Department The main function of the Assets and Liabilities Department is to manage risks linked to liquidity and maturity mismatch on the balance sheet of the Bank arising from its banking activities. To this end, the Department broadens its market depth and product diversity, and contribute to a sustainable growth in line with the principles of participation banking. Assets and Liabilities Management Department contributed to the increase of the Bank’s profitability thanks to strong liquidity and effective liquidity management despite high interest and FX volatility that hit the 54 markets throughout 2021, during which extraordinary developments were witnessed in macroeconomic conditions and financial markets. The Department also aligned the Bank with all the changes the Central Bank introduced for required reserves and regulations passed by regulatory authorities. Off-balance sheet items were diversified and Cross Currency Swap was used to ensure effective liquidity management. In order to hedge the risk of TL returns, in particular, long term CCS transactions were carried out to effectively manage the Bank’s strong liquidity. Similarly, the technical infrastructure required to perform Profit Rate Swap (PRS) transactions was developed in 2021. Set to work
57. Section II : Assessment of Activities in 2021 THE TREASURY MARKETING DEPARTMENT CLOSELY MONITORED THE PERFORMANCES OF KUVEYT TÜRK’S TREASURY PRODUCTS, INCLUDING LEASE CERTIFICATES (SUKUK), EQUITIES, INVESTMENT FUNDS, FORWARD TRANSACTIONS, PRECIOUS METALS, AND FOREIGN CURRENCY TRANSACTIONS. in full conformity with participation banking principles, this product is expected to create a positive impact on the funding costs and resource diversity in the Bank’s diversified product portfolio, while providing protection against market shocks and return risks. In 2021, necessary enhancements were introduced to benefit from the chance that the Central Bank provides via a new regulation allowing the use of FX-denominated sukuks in committed transactions. This will enable the Bank to cash its FX sukuk portfolio as and when necessary. In 2022, Assets-Liabilities Management Department will start the Dynamic Assets-Liabilities Management Project, whereby it will develop liquidity and balance sheet management models, and obtain practical and viable project outcomes for each item that makes up its liquidity and balance sheet. Certain processes will be automated to render faster and easier flows as part of the digital transformation journey in the period to come. Significant contributions are targeted to liquidity management through systemic enhancements put in place to utilize the cash assets held at branch vaults effectively with a focus on customer and branch management satisfaction. TREASURY MARKETING DEPARTMENT Positioned as a hub of a governance network of the Head Office units, Regional Directorates, Branches, and end customers, the Treasury Marketing Department conducted its operations with three services under its roof, namely Treasury Sales and Coordination, Treasury CRM and Marketing, and Treasury Business Development, in 2021. The Treasury Marketing Department closely monitored the performance of the Bank’s treasury products, including lease certificates (Sukuk), equities, investment funds, forward transactions, precious metals (gold, silver, platinum), and foreign currency transactions. It worked in close coordination with other marketing and sales departments to position these products competitively in the market, while carrying out campaigns driven by analytical data to meet customers’ expectations and product targets. High response ratios and revenues were the fruits of efforts geared toward new treasury customer acquisition, retention of existing clients, and regaining lost customers through these campaigns. The Treasury Value and Behavior Segmentation Dashboard report reveal a 21% year-on-year increase in the number of customers performing treasury transactions as of December 2021. The number of customers actively performing treasury transactions grew by 25% year on year. The department also attained a 50% response rate in the campaigns for potential customer groups conducted in collaboration with other marketing departments throughout the year. CAPITAL MARKET PRODUCTS The following products were launched in light of customers’ investment preferences and the approach for sustainability in economy: - KSR (Sustainability participation fund) - KUT (Precious metals participation fund) - KLU (money markets participation fund). 55
58. Kuveyt T ürk Annual Report 2021 Treasury and International Banking IN ADDITION TO MOBILE TRADEPLUS, AND TO ADDRESS THE DEMANDS OF DIFFERENT CUSTOMER SEGMENTS, WEB TRADEPLUS WENT LIVE ON WWW.TRADEPLUS.COM.TR. The Department saw the fruits of efforts initiated in the past years to standardize equities across participation banks. Once the relevant standard was established and published by the Advisory Board of TKBB, Borsa Istanbul started to calculate and publish five participation indexes. This raised the number of participation banking compatible equities offered to customers. The Bank raised the volume of equity transactions by 42%, revenues by 25%, and the number of active customers by 48%. The Department continued to manage marketing, sales and pricing activities for lease certificate (sukuk) transactions in interaction with other divisions under Treasury and International Banking. Relevant processes, sales, and reporting screens were digitized. In 2021, a 15% rise was attained in the volume of lease certificate transactions. BETTER CUSTOMER EXPERIENCE WITH TRADEPLUS Treasury Marketing Department introduced enhancements to the mobile TradePlus channel, launched in the past years for customers, to provide a much better customer experience. Numerous new features introduced to mobile TradePlus include: - Equity real-time data monitoring - Equity analysis data - Economy news and updates - Monitoring market data for different investment products - Weekly economic bulletins - Economy calendar - Opening mutual fund accounts on the app - Graphs on equities, FX/precious metal, and mutual funds. In addition to Mobile TradePlus, and to address the demands of different customer segments, Web TradePlus went live on www.tradeplus.com.tr. The goal is to provide a better experience with this product that allows customers to monitor the markets instantly while they are at the computer. In addition to the investments made in digital channels, the Department upgraded branch pricing infrastructures and provided Treasury technologies for use by branches. This helped address manual branch transaction demands on-site, effectively and promptly. 56 FIRM SUPPORT FOR SECURE, FLEXIBLE, AND SUSTAINABLE PRICING INFRASTRUCTURE The Department is the governance hub of Treasury 4.0, a project launched under the Treasury Group Directorate last year. In 2021, the project was finalized and went live, effectively equipping the institution with a more secure, flexible, and sustainable pricing infrastructure. Positioned as the governance hub, the Department handled 418 Information Technologies requests of differing sizes in an attempt to improve stakeholders’ digital experience in 2021. In particular, it prioritized growing digitalization needs amid the pandemic and significantly increased the level of digitalization for the products it manages. Digitalization in Sukuk rose by 71%, while 77% of Sukuk transactions were performed on digital channels. In addition, digitalization in equities rose to 100%. This guaranteed swift and uninterrupted service delivery for internal and external customers. Always pursuing customer-centric business objectives, the Department developed working models for close collaboration with sales departments to dynamically and effectively handle product, channel, and margin/pricing management in the light of customer and field feedback, and to deploy periodic updates promptly.
59. Section II : Assessment of Activities in 2021 AN AMBITIOUS START IN MARKETING 5.0 AFTER MARKETING 4.0 The Department furthered its datadriven marketing activities and commenced AI-enabled forecasting studies in 2021, thus carrying its performance to higher levels as an outcome of the transformation process managed in the marketing matrix in previous years. AI-enabled studies such as customer conversion rate optimization and detection of abnormal cash movements are some of the projects undertaken during the year. In 2022, the Treasury Marketing Department will continue honing its data analytics and digital marketing skills to further focus on personalized customer experience in an environment of growing competition and customer mobility. In doing so, it will support the increasing number of customers through competitive prices 24/5, AI-enabled analytical CRM activities, distinctive service quality, and improved customer experience on all digital channels. The aim is to expand the share of customers trading treasury products in the volume of sector treasury transactions. This will also contribute to efforts aimed at further improving customer satisfaction. FOREIGN EXCHANGE AND PRECIOUS METALS DEPARTMENT The Foreign Exchange and Precious Metals Department is responsible for pricing treasury and financial market products including those spot trading on international foreign exchange and gold markets, and providing foreign currency and precious metals pricing services to the Bank’s clients via all channels. The main strategy of the Department is to manage growing transaction volumes in financial market products in an end-to-end, uninterrupted, risk-free, and safe manner, and to ensure sustainable flows in system infrastructures. The Department delivered a successful management performance like in the past years, being in charge of the Institution’s FX and precious metal FX infrastructures as well as hedging mechanisms. It conducts precious metal trading transactions in domestic and overseas markets, contributing to the Bank’s trailblazing status and profitability. The Bank ranks among the leading institutions of Borsa Istanbul Precious Metals and Diamond Markets in terms of transaction volume, which contributes to the market depth and effective operation of the market. The Department also pioneers the market through algorithmic trading activities. The Department developed Algorithmic Position and Risk Management systems thanks to which the Bank’s FX position is managed most effectively and profitably. In addition, the systems offer FX and gold pricing at the same margin 24/5 and thus boost customer satisfaction and customer experience. Conditions for remote work were made more favorable in physical and technical terms to facilitate adaptation to the pandemic. In 2022, the Department will automatize certain processes as part of digital transformation practices, while furthering efforts to achieve more flexible, prompt, and effective pricing and hedging mechanisms. FINANCIAL INSTITUTIONS Kuveyt Türk Financial Institutions Department works to boost efficiency in the Bank’s current correspondent banks network, attain diversification in products and services, improve existing relations, and help Bank acquire a truly international status. Accordingly, the Department did the following in 2021: • Business management and development activities with over 1,000 financial institutions in 169 countries, • Representing the Bank in more than 150 meetings, including meetings with international organizations such as FCI (Factors Chain International) and SIBOS, • 24/7, uninterrupted implementation of TL transactions with the Bank’s principal shareholder Kuwait Finance House (KFH) via Ripple Platform. The Investment Banking Unit works to raise funds with effective maturities and ratios from domestic and overseas markets for the Bank’s balance sheet in line with Kuveyt Türk’s liquidity requirements. Accordingly, Investment Banking did the following in 2021: • Issued the world’s first Sustainable Subordinated Sukuk worth USD 350 million with a term of five years. The transaction attracted the demand of over 150 investors covering a big part of the world, including the Gulf, Asia, Europe and America. While the demand was 12.3 times higher than the amount issued, this transaction was a strong testimony of Kuveyt Türk’s robust credibility before international and domestic financial institutions. The issuance also reached the highest levels of demand and was the lowestpriced transaction since 2017 in the Turkish market. Equipped with an ESG (Environmental, Social and Corporate Governance) structure, it also spurred a great interest from the green funds based in Europe and the UK. • A bilateral structure was developed with a Japanese bank for the first time, resulting in funds worth USD 50 million for the Bank. • 55 sukuks were issued and transaction volume reached TL 17 billion in the domestic market. Activities will be carried out to facilitate the Bank’s operations in new markets, in addition to product development and diversification efforts. Expanding the share of robotic processes and digital platforms in daily operations, and raising/ extending sustainability-driven funds will also be among the main focus areas of the Kuveyt Türk Financial Institutions Department. 57
60. Kuveyt T ürk Annual Report 2021 Loans KUVEYT TÜRK LOANS GROUP HANDLES LOAN ALLOCATION PROCESSES WITH 1 REGIONAL LOANS GROUP DIRECTORATE AND 10 LOAN DEPARTMENTS. NUMBER OF RETAIL CUSTOMERS TAKING OUT LOANS 117 thousand The Loans Group finalized over 193 thousand loan offers for 117 thousand retail customers in 2021. 58 Maintaining a sustainable asset quality, coupled with systems providing unique user experiences to the Bank’s internal stakeholders and customers, is the vision of the Loans Group. The Group’s organizational structure, business model, and strategic efforts conducted in terms of its future projects are aimed at delivering maximum contributions to Kuveyt Türk’s objectives. In this context, the Loans Group stands out with its team of experts who blend experience and business knowledge with a digital mindset -- a must in our era. This is how the outputs generated by the team contribute to the Bank’s strategic roadmap and add to its competitive edge. Kuveyt Türk Loans Group handles loan allocation processes with 1 Regional Loans Group Directorate and 10 Loan Departments. Four Loan Departments operate under the Regional Loans Group Directorate, while the other six departments directly report to the Assistant General Manager in charge of Loans. In addition, regional teams at 15 locations operate under the Regional Loans Directorates.
61. Section II : Assessment of Activities in 2021 CUSTOMER AND RISK ORIENTED LOAN PROCESSES Kuveyt Türk Loans Group evaluated and finalized over 193 thousand loan offers for 117 thousand retail customers and over 120 thousand loan offers for 90 thousand corporate customers with its competent staff in 2021. The Financial Analysis Service concluded 950 financial analysis reports in 2021. Aimed at introducing further detail to the reports and increasing their quality, customer visits were organized online due to the pandemic. The Financial Analysis and Business Development Department drew up sector-based financial analysis reports for 14 business lines with a high level of importance in the Bank’s loan portfolio. In order to adapt to global digital transformation trends, macroeconomic outlook, and market conditions as well as to ensure sound management of the loan portfolio during the pandemic, the Loans Group reviewed loan strategies, loan policies, loan application rules, and the loan decision support systems periodically, and made necessary modifications as and when required in the 2021 accounting period. While the enhancements and arrangements made reinforced the Bank’s innovative vision, the efficiency and quality of loan processes were boosted, and customer portfolio management processes were made more convenient to the extent allowed by laws during the pandemic. Attaching importance to asset quality and boasting integrated systems generating quick results, Kuveyt Türk Loans Group helped the Bank remain below the sector average in NLP ratios and contributed to higher customer satisfaction rates in loan allocation processes in 2021. A Project Finance Monitoring Desk was set up to monitor the correlation between the feasibility reports for projects evaluated and financed by the Project and Structured Finance Department and their realization rates in a more effective manner. In 2021, a transition was made from wet signatures to e-signatures in Loan Policies and Implementation Principles, which contributed to the Bank’s sustainability goals. HIGHLIGHT PROJECTS OF 2021 Many projects continued under the auspices and ownership of the Loans Group, while improvements were made in existing products and services in 2021: Next-Gen Smart Credit Evaluation System (CredereArt) Financial Analysis and Allocation is a module within BOA, the IT infrastructure of Kuveyt Türk. This module was re-developed in a manner to reflect the Bank’s future potential truly. This transformation is aimed at equipping the Bank’s systems with a credit assessment tool capable of hyper-automation via analytical models featuring augmented intelligence. The tool will significantly reduce the time spent on credit analyses, reporting, and decision-making processes, and result in time savings. In addition, the suggestion system -- which is driven by the synergy of artificial intelligence and practical information -- will help determine clients’ credibility, balance sheet and off-balance sheet analyses, and optimum operating conditions on credit. This will make it easier for the Bank to manage asset quality via sound and sustainable means. Next-Gen Agricultural Banking Loans Project Integration with TARDES was made to support credit allocation processes under the project intended to expand Kuveyt Türk’s market share in the agricultural industry. Efforts are ongoing to add an Agricultural Loan Model to credit decision support systems in furtherance of this structure to help the Bank offer quick and easy allocation opportunities to the industry. International Supply Chain Finance Project A significant portion of this project was completed in 2021 and will be rolled out in 2022. A structure is being developed where collection, payment guarantee, and finance processes are carried out via FCI member institutions. Factoring activities will be conducted in conformity with Islamic principles, enabling the Bank to offer operational and financial convenience to exporters, and the main goal is to contribute to the current account balance of Turkey. Finance Via Participation Musharakah, a fund extension method in participation banking, will be implemented under this project, whereby a financing model is being established to address Kuveyt Türk’s clients’ needs with a 360-degree perspective. As pilot practices were run in 2021, the project will be launched within 2022. Sustainability Project Environmental, Social, and Governance Implementation Principles were established and incorporated in the Bank’s Loan Policy as part of this Sustainability Project initiated in 2021. Data studies were conducted for the areas of responsibility of the Loans Group during the issuance of Green Sukuk in September 2021. The Department laid out the roadmap for the actions that Kuveyt Türk must take to shape its sustainability strategy, by attending workshops and seminars in the last quarter of the year. Vehicle and Housing Finance via Digital Channels Kuveyt Türk is among the stakeholders of this project initiated in June 2020. In June 2021, as part of Phase 1, Kuveyt Türk Mobile was enabled to receive applications for this loan. Efforts are ongoing to migrate, endto-end, all processes to the mobile sphere in the furtherance of the project. The goal is to run this system for the allocation of vehicle finance in 2022 and housing finance in 2023. Analytic Retail Expenditure Estimation Model Works began in the second half of 2021 for this project which is an extension to the Analytic Retail Revenue Estimation Model launched for active use in 2019. The plan is to roll out the model in 2022 and to see improved efficiency and quality in retail credit allocation processes. 59
62. Kuveyt T ürk Annual Report 2021 Strategy STRATEGY PLANNING AND CORPORATE PERFORMANCE MANAGEMENT DEPARTMENT SETS KUVEYT TÜRK’S MEDIUM AND LONG-TERM STRATEGIES AND POLICIES. Cementing its position among the top ten by asset size in Turkey, Kuveyt Türk finalized efforts on the strategic plan for 2025 with the leadership of the Strategy Planning and Corporate Performance Management Department. STRATEGY PLANNING AND CORPORATE PERFORMANCE MANAGEMENT The department identifies Kuveyt Türk’s medium-term and long-term strategies and policies in line with the mission and vision of the Bank, macroeconomic outlook, current banking trends, and the competitive environment; and conducts goalsetting studies with the business units in a coordinated manner, and executes these goals. The Strategy Planning and Corporate Performance Management Department develops performance criteria in areas falling under its remit, administers improvement of the services, and compiles, analyzes, and interprets the information and 60 the data related to the performance. The performance targets of the divisions are determined according to the strategic roadmap, projects developed, and priorities. Performance metrics and Key Performance Indicators (KPIs) are used as a management tool to help the Bank act in parallel with its strategic priorities. Also among the functions of the Department is to examine the external factors that can affect products and services, to conduct capacity research within the Bank, to analyze both the effectiveness of the products and services and the profitability level, and to conduct general research. Some other tasks of the Department include making sure that the Bank’s annual budget is prepared by taking the strategic plans and the annual
63. Section II : Assessment of Activities in 2021 performance program into account, and monitoring and evaluating if the Bank operates in line with the strategic priorities. In addition to all of the above, ensuring that necessary updates are made to segment criteria as the owner of the segmentation structure; keeping product and service tree and channel structures up to date and functioning; developing new projects and keeping current projects up-to-date as the lead for efforts involving customer, product and channel efficacy; making location and efficiency analysis for branches also fall under the remit of the Strategy Planning and Corporate Performance Management Department. Cementing its position among the top ten by asset size in Turkey, Kuveyt Türk finalized efforts on the strategic plan for 2025 with the leadership of the Strategy Planning and Corporate Performance Management Department. In light of this strategy, the Bank strives to place the customer at the core of everything it does, to provide an uninterrupted, easy, quick, and seamless experience to customers, and to become a financial institution offering the best customer experience. Making the most effective use of data in all decision-making mechanisms, the Bank develops data-driven business models of the future, while maintaining its cautious approach toward asset quality and liquidity and thus differentiating itself positively in the industry. Meanwhile, taking steps to boost fund extension volumes, and expanding the support to commercial clients with a particular focus on foreign trade clientele, make up a significant part of the Bank’s strategy. Diversifying the types of finance, and gaining an influence over agriculture, tourism, and energy -- which inject dynamism to Turkey’s economy -- are also among the Bank’s plans. To strengthen the Participation Finance Group approach, Kuveyt Türk subsidiaries follow an aligned policy with the Bank and remain highlight brands in different fields of the financial sector. This will be a new period during which physical branches will be re-positioned as dynamic marketing and consulting points that respond to customers’ qualified and added-value requirements by offering a seamless experience in this digital era. Taking today’s dynamics into account, the Bank aims to attain optimum productivity at physical locations. STRATEGIC PROGRAM MANAGEMENT OFFICE The main duties of Kuveyt Türk’s Strategic Program Management Office are to manage the projects in line with the corporate strategy, take necessary steps to initiate the projects so as to reach strategic objectives; and monitor all strategic actions from a single point. In 2021, 32 out of 70 projects within the strategic roadmap were completed. Remaining 38 projects are ongoing as planned and contribute to the achievement of strategic goals. Some strategic projects ongoing or completed as of the end of 2021 are provided below: Digital Portfolio Management Project: The institution develops its product range with a focus on customers’ needs and behaviors, and implements marketing strategies accordingly. Meanwhile, customeroriented and effectively managed human resources aligned with digital processes, as well as digitalized business models come to the fore. “Digital Portfolio Management” is a project conducted with the vision of providing portfolio management services, normally provided to customers at branches, through a better experience and customized, personalized service design, via digital channels, remotely or centrally, while creating a synergy with the branch. Mobile Branch Video Chat Program: The program is aimed at equipping Kuveyt Türk Mobile with video chat features to improve customer experience, move in-branch transactions to the digital environment with a more secure business model, and reducing operational costs of branches. The program helped deploy services including video chat and account opening on Kuveyt Türk Mobile, transactions backed by video calls on the website for the disabled customers, authentication, and transaction limit updates. Efforts towards experience excellence are ongoing. Paperless Branch Banking: Mobile approval and on-tablet digital signature efforts were undertaken to eliminate the use of paper and digitize the processes at the branches. The mobile approval function was introduced to customers in 2020, and on-tablet digital signatures were made available in 2021. Voice Technologies: Meeting customers’ financial needs on IVR while providing them the convenience of a conversation was the aim of this project in addition to increasing operational efficiency. The Voice IVR channel was launched with additional features during the year. Chatbot: Selim, the digital assistant of the Bank, was launched in 2020 on digital channels. In 2021, Selim commenced services on WhatsApp, in addition to Kuveyt Türk Mobile and Internet Branch, so as to respond to frequently asked questions. Digital assistants that boost customer experience are also intended to cut operational workloads. Kuveyt Türk’s Digital Assistant Selim won an award in the category of “Best Digital Customer Experience - Financial Services” at International UX Awards. 61
64. Kuveyt T ürk Annual Report 2021 Strategy AS A NEW FINANCING METHOD AND PRODUCT, “FUND EXTENSION VIA PARTICIPATION” IS DESIGNED TO PROVIDE AN ALTERNATIVE TO MURABAHA, NAMELY NEW ISLAMIC FINANCE PRODUCTS OF MUSHARAKAH AND MUDARABAH FOR ENTERPRISES IN NEED OF CAPITAL. Digital Analytical Experience Project: This project is aimed at measuring and tracking customer experience on digital channels, analyzing customer behavior, and improving services provided. This enables the Bank to analyze customers’ digital footprint through analytical models, and manage customer communications in a more effective manner. 62 Next-Gen Fund Extension Project: Fund extensions are being redesigned with a focus on efficiency and experience. With an efficiencydriven design, manual steps of the credit process were automated, transaction times reduced and processes standardized. The highly automated fund extension process was moved to the new infrastructure, allowing clients to initiate and end their credit processes by themselves. Fund Extension via Participation: As a new financing method and product, “Fund Extension via Participation” is designed to provide an alternative to murabaha, namely new Islamic finance products of Musharakah and Mudarabah for enterprises in need of capital. This product is intended to generate value for customers in a concept of consulting banking, and helping the customer reach finance in the most proper manner. The project is planned for completion in 2022.
65. Section II : Assessment of Activities in 2021 KUVEYT TÜRK ROLLED OUT “AGILE MANAGEMENT” GRADUALLY AS A METHODOLOGY IN BUSINESS AND PROJECT MANAGEMENT TO FOCUS ON ITS BUSINESS OBJECTIVES MORE EFFECTIVELY AND DERIVE THE MOST VALUABLE OUTPUTS AT EARLY STAGES. Miles&Smiles: Miles&Smiles credit cards have been added to Kuveyt Türk’s portfolio with this project. Following the launch in October, Miles&Smiles credit cards were made available for use by Kuveyt Türk customers. Agile Transformation: Kuveyt Türk rolled out “Agile Management” gradually as a methodology in business and project management to focus on its business objectives more effectively and derive the most valuable inputs at early stages. Five pilot agile teams were formed in the first stage of the Agile Transformation journey. Spotify Scrum Model was incorporated in processes whereby 5 pilot teams worked with fully agile methods for 9 months. This way, awareness for Agile culture was raised, resulting in gains to serve as a guiding light for Bank-wide adoption. As part of the methodology, efforts were started for the Tribe model, and a tribe of 6 teams was established. Studies are ongoing for new tribes. Data-Driven Banking: With a vision to make the most of data, Kuveyt Türk’s near future, medium-term and long-term data strategy was set and activities to be conducted to reach this strategy were identified. The project started with the measurement of Kuveyt Türk’s data maturity as per international criteria. Kuveyt Türk’s future data status design, data governance framework, strategy, roadmap, and the list of projects/ initiatives were developed and necessary works started according to the findings. Value-Driven Performance Management: The project is aimed at transforming the performance culture that is aligned with Kuveyt Türk’s values and the requirements of the new era. The current performance system is backed by career, development, teamworkbased rewarding, and recognition processes. Works are ongoing to re-design the system with a focus on targets, competencies, and feedback to boost employee loyalty. Branch Business Model: The goal is to revamp the operating models of branches with a focus on today’s trends and needs so that a branch business model is designed and deployed for the best-in-class branch experience for customers. FCI - International Supply Chain Finance (ISCF): In 2021, the Bank became a member of FCI, a global organization of financial institutions that enables its members to serve as a guarantor to one another in their clients’ foreign trade transactions. Development activities for the new product of International Supply Chain Finance were completed, which will allow customers with export operations to access finance and collection services in exports involving cash against goods without additional collateral only with their invoices. 63
66. Kuveyt T ürk Annual Report 2021 Digital Transformation and Innovation KUVEYT TÜRK ENHANCED SERVICE CAPACITY VIA THE USE OF DIGITAL METHODS, TECHNOLOGIES, AND TECHNOLOGICAL CHANNELS, THUS IMPROVING THE EXPERIENCE OFFERED TO CUSTOMERS. NUMBER OF FINTECH PARTNERSHIPS 20 Digital Transformation and Innovation Department partnered with 20 FinTechs in 2021. OUR STRATEGIES ARE READY TO PREDICT FUTURE BANKING TRENDS Digitalization has been set as a top priority for Kuveyt Türk’s 2025 strategy. The Bank intensified efforts toward its digital transformation journey with an innovative understanding and a global vision. Rolling out numerous projects, it has enhanced service capacity via the use of digital methods, technologies, 64 and technological channels, thus improving the experience offered to customers. A digital maturity model was developed for Kuveyt Türk to annually measure and evaluate the existing maturity in this area. The model focuses on a few themes including digital strategy, digital channels and sales, digital customer experience, analytics, organization and culture, and business models.
67. Section II : Assessment of Activities in 2021 By considering its current maturity level and the digital strategic goals for 2025, Kuveyt Türk has updated its “Digital Roadmap,” while drawing up other roadmaps -- such as “Open Banking Roadmap” and “Analytical Roadmap” -- with the same perspective. Kuveyt Türk strives to give the industry a new direction through its innovative mindset and therefore it accelerated innovation activities supported by internal and external innovative models. The Bank also included innovationrelated future strategies in its Digital Roadmap to foster sustainable value generation capabilities and maintain its successful progress. WE INVOLVE ALL STAKEHOLDERS IN OUR DIGITAL TRANSFORMATION JOURNEY Kuveyt Türk has open banking and Fintech partnership processes in place as a pioneering bank in Turkey through the initiatives developed in this context. The APIs offered on the Bank’s API Market platform enable integration with interface developers via APIs. The Digital Transformation and Innovation Department run FinTech integration processes of Kuveyt Türk. To improve services provided to customers, offer different solutions, and contribute to the ecosystem, the Department held meetings with 60 firms and partnered with 20 FinTechs in 2021. Sağlam Fikir (Robust Idea) was established as a platform to collect employees’ ideas at Kuveyt Türk. There are two processes: thematic calls to meet the demands of departments or project teams, and the improvement ideas process that is announced in different periods. 336 ideas were submitted for the improvement ideas; 423 ideas were submitted for various thematic calls. 32 of these ideas were considered viable and included in the plan. Idea owners were rewarded. “Digital Talks” series launched in 2020 continued in 2021. Online events on different themes, such as “New Generation Colleagues: Robots,” “What To Transfer from the Past of Banking to the Future,” “What Kind of a Customer Experience in Digital Age” were accessible to all internal and external stakeholders. In addition, Digital Bulletins are released to give updates on global and local developments related to digital transformation, innovation, and the FinTech ecosystem. In December, the Bank established “Fikr’inn” as a platform to generate innovative ideas and deliver a better customer experience in light of customers’ feedback on the Bank’s products and services. Open to everyone, this platform is designed to collect ideas that the youth, students, retail and commercial customers alike believe can trigger major changes in the finance industry, and help put the ideas that are viable into practice. The platform will be made accessible for all stakeholders within the Bank’s ecosystem in 2022. The Innovation Team activities, initiated in 2019 to promote internal entrepreneurship, continue on digital channels because of the pandemic. To foster the innovation culture, studies will be conducted on the themes identified by innovation teams, who include people from different departments, while new solutions will be sought for the issues that Kuveyt Türk tackles. Innovation teams aim to turn those products that reach maturity via innovative approaches such as customer-centric thinking and lean entrepreneurship into products. Some 350 applications were submitted for the first edition of the Ideathon contest organized in May 2021 with the theme of “the Banking of the Future.” Kuveyt Türk delivered Design Thinking training to 11 finalists selected by the jury sub-committee in the contest. In the next phase, finalists had the chance to develop and deepen ideas together with their mentors who are Kuveyt Türk employees. As part of the contest, a talk titled “What To Transfer from the Past of Banking to the Future” was organized. A project was initiated at Kuveyt Türk to implement the winning idea in real life. OUR GOALS FOR 2022 Activities kicked off to create a new Kuveyt Türk API Market Platform in a manner to strengthen the technological infrastructure and to guarantee better service delivery in late 2021. The Bank will continue to develop new APIs for open banking, and partner with FinTech firms that have innovative business models in 2022. Focused on turning employee suggestions into a value thanks to the Robust Idea platform, the Bank has extended this approach to a wider group of stakeholders with “Fikr’inn.” Thematic calls will be made to collect the ideas of startups and the youth -- students, in particular. Ideathons, in which university students take part and their ideas are turned into projects, will continue in 2022. 65
68. Kuveyt T ürk Annual Report 2021 Information Technologies (IT) SUBSIDIZED PROJECTS SUPPORTED BY THE EUROPEAN UNION AND TÜBİTAK AND INTERNALLY-FUNDED R&D PROJECTS CREATE ADDED VALUE FOR KUVEYT TÜRK AND TURKEY ALIKE. NUMBER OF R&D PROJECTS 27 Kuveyt Türk worked on 27 R&D Projects, 26 with internal resources and one subsidized in 2021. 66 Looking at the evolution of finance and banking industries, it is clear that both have been early adopters of technology developments and even developed technology to boost efficiency and provide a better service to the customers. Banking is the fastest industry to transform existing capabilities via next-gen technologies including digitalization, mobile services, robots, open platforms, artificial intelligence, and cloud services. Kuveyt Türk Information Technologies pursues the vision of “serving as an agile IT organization that is capable of quick adaptation to change, developing high-tech solutions, leading the sector, and providing trust. The Department continues services to develop adjustable, robust, sustainable, and secure high-tech solutions with an employee-oriented approach. Information Technologies develops software programs necessary to address the Bank’s business requirements in line with quality standards, while providing the systemic infrastructure and services for such software to run seamlessly. This is how it ensures uninterrupted and effective business processes. Kuveyt Türk is Turkey’s only bank with two R&D centers and boasts ten years of R&D experience in the banking and finance industry. Kuveyt Türk R&D Center makes significant contributions to university-industry cooperation. In this regard, specialist employees deliver classes and seminars as part of the curriculum
69. Section II : Assessment of Activities in 2021 developed at Sakarya University, Kocaeli University, Yalova University, Gebze Technical University, İstanbul Technical University (ARI Teknokent), and Konya Karatay University. Subsidized projects supported by the European Union and TÜBİTAK, as well as internally-funded R&D projects, create added value for Kuveyt Türk and Turkey alike. Accordingly, the Bank worked on 27 R&D Projects, 26 with internal resources and one subsidized. 12 scientific papers were published as a result of these efforts. Moreover, 67 Kuveyt Türk employees were granted graduate training support. Lonca Entrepreneurship Center, a point where the Bank interacts with technology and entrepreneurs, was transformed into a truly digital entrepreneurship center in 2021. All processes were designed according to the new normal. 11 initiatives selected for the 6th term, which kicked off in January 2021 and continued for six months, underwent training and mentoring sessions of over 40 days, and network and communication support to grow their business, as well as an office environment for their work, was provided. An additional TL 395,000 of the grant was provided in cash to support these startups in preparing their products. As for the 7th term pre-incubation program, which started in November 2021, 19 startups were selected and started to receive special training and mentoring sessions. In addition to its special program, Lonca extends support to entrepreneurs as a TÜBİTAK BiGG Implementer together with İTÜ ARI Technocity. As part of BiGG, which provides the opportunity of TL 200 thousand in grants, various ventures were delivered training and mentoring support, while 13 entrepreneurs were entitled to the grant of TL 200 thousand. The Bank plans to move Lonca to its campus in Mecidiyeköy in 2022. INNOVATIVE PROJECTS SHAPED IN LIGHT OF CUSTOMER NEEDS AND EXPECTATIONS In 2021, Kuveyt Türk Information Technologies gained speed in developing projects with a focus on independent platforms. Numerous projects were designed with the capability of service delivery on mobile channels. Once the “Account Opening via Video Calls” was approved by laws and regulations, the process involving the Bank’s clients opening accounts via mobile channels regardless of location was integrated with the core banking platform. This enabled people to open accounts with the Bank via video calls without having to visit a branch. “Digital Consumer Finance” was rolled out to allow payments at contracted e-commerce websites and dealers for the e-commerce finance product. A new structure was developed to run domestic market fund extensions in new, more automated screens, and allow customers to receive extensions on digital channels end to end without having to visit a branch. “Payment Systems Infrastructure Project,” which will position Kuveyt Türk as a leader in the industry, was completed. Efforts are ongoing to migrate credit cards and open merchant terminals (POS) from old payment systems to the new system. Finalization is expected to be in the first quarter of 2022. In addition, Miles&Smiles enabled credit cards and debit cards are now produced as part of the deal between Turkish Airlines and the Bank. All services linked with the card are offered on digital channels. In 2021, numerous implementation and development works were completed to reduce customers’ reliance on physical channels at Kuveyt Türk. A single digital password for all channels has been an option made available for customers to ensure convenience with transactions. Furthermore, “Voice IVR” has been launched whereby they can give audio instructions for the transactions of their choice when they contact the Call Center. Contracts and documents requiring a wet signature from customers are now prepared digitally and approved with a mobile approval on Kuveyt Türk Mobile. Necessary developments were made to enable QR code transactions with other banks’ mobile apps at Kuveyt Türk ATMs. Limits can now be increased through video calls without customers having to go to branches. Customers are also able to receive their digital channel passwords with their Turkish ID cards via using the NFC feature of their smartphones. Integration with the FAST system allows cash transfers to all banks 24/7, with no regard to working hours. For an easier process in transactions, customers are provided the option of “KOLAS” (Easy Addressing: a next-gen cash transfer method matching customers’ GSM number, Turkish ID no or e-mail details with the account number to use them in place of IBAN). Kuveyt Türk customers can now monitor their SWIFT transactions on digital channels. KT Bank AG, on the other hand, increased the number of transactions that can be performed digitally. Retail customers will be able to open gold accounts and perform gold transactions on digital channels, rather than visiting a branch or contacting the Call Center. In the reporting period, new features have been introduced to banking services. “A Funds Basket Account” was developed that blends the participation account with investment funds in a single basket, helps diversify customers’ investments, and generate more advantageous returns. 25% of the investments are utilized in participation accounts with advantageous profit sharing ratios, and 75% is utilized in an investment fund created especially for this account. A “Sukuk Basket Account” was developed that combines the Participation Account and Lease Certificate to safely generate return on rentals. The customer’s investment will be distributed proportionately, 67
70. Kuveyt T ürk Annual Report 2021 Information Technologies (IT) A “SUKUK BASKET ACCOUNT” WAS DEVELOPED THAT COMBINES THE PARTICIPATION ACCOUNT AND LEASE CERTIFICATE TO SAFELY GENERATE RETURN ON RENTALS. between one Kuveyt Türk sukuk and participation account. A supply chain finance structure was established upon integration with FCI (Factors Chain International, umbrella organization for factoring firms). Kuveyt Türk is now able to work with these firms according to certain rules, and aims to boost the exports volume of the Bank and Turkey with the payment guarantee provided by a correspondent factoring firm. Boasting quite robust financing tools, Kuveyt Türk introduced new capabilities and features to these instruments. “Financing e-commerce” is a system where customers can instantly take out an instalment consumer loan to cover their purchases on e-commerce websites provided that certain rules are followed. Another product in this area is a financing product involving the implementation of a commercial transaction via a partnership to be established between Kuveyt Türk and customer, and sharing of the profit generated between the parties in the ratios determined. “InflationIndexed Loan” is a product based on the principle of increasing the “karz/ loan” in line with inflation rates, and conducting revaluation on a monthly basis to update the profits generated over instalments. 68 Projects and various system integrations aimed at internal customers include smart assistant, Mobile 360, value-driven performance management, and development kitchen to help employees access data faster, and digitize decision-making, monitoring and manual processes. “Mobile 360” has enabled employees to access the details of customers in their portfolio faster, and from mobile channels. Digital transformation of human resources processes has ensured faster response to employee requests. Procurement processes were transformed into an e-bidding system to ensure procurements are finalized with the best offer, transparently and swiftly. Studies were done to send official letters with postal delivery via Registered Electronic Mails (KEP). The Bank started to reply some official letters automatically. “Speech Analysis Project” transcribed all calls at the Call Center into a text. These texts were analyzed to improve the quality of future calls and customer satisfaction.
71. Section II : Assessment of Activities in 2021 Integration of sukuk selling/buying and sukuk-backed transactions performed on the sukuk markets of Borsa Istanbul with the core banking system was completed. The automatic transfer of transactions has reduced operational burden and minimized the risk of operational errors. “E-Mortgage integration” has brought an end to receiving mortgage via attorneys, eliminating the cost of intermediary parties and resulting in financial gains. This has also reduced operational burden, moving the mortgage process to the bank and saving time, and the use of most advanced technologies accelerated mortgage processes and improved service quality. Customer satisfaction has risen significantly, as well. Data and all processes related with Bahrain syndication projects, conducted manually via multiple Excel files, are now monitored via the core banking system. The new structure of overall controls divided the overall control items into two: 34 being special and 30 bullet points. Remaining overall bullet points were separated by source (screen). The screens where all items are running were simplified. This helped solve part of the problems caused by the allocated work time of the screens retrieved from external applications. Special items, on the other hand, were developed in the form of mutual procedures for mutual headings that are retrieved only on relevant screens, bringing about convenience in terms of performance and management. INFRASTRUCTURE INVESTMENTS FOCUSED ON SECURITY, AUTOMATATION AND EFFICIENCY Investments in Information Technologies continued in 2021 taking technology developments and changing conditions triggered by the pandemic into account. The Communication infrastructure was strengthened by fiber optic infrastructure via service procurement from different operators to guarantee a robust backup for the Bank’s branches and data centers. Application virtualization and management (Kubernetes) platforms were established and innovations rolled out at the Bank to respond to new business requirements. The strategy for cloud systems was established; potential products and services were evaluated. Processes were established to install and operate cloud-ready infrastructures. Manual works were automated and systems were monitored 24/7, paving the way for improvement in services. Automation was used to add servers for channels exposed to workload at busy times; screens were managed to take off and ease the burden on the systems. Automations deployed include server installations; getting, monitoring and managing backups; as well as critical tasks such as recovery. Efforts were undertaken to install smart systems. The Department also worked on reinforcing 24/7 monitoring features by installing infrastructures and preparing interfaces to help closely monitor the performance status of apps, take proactive action prior to problems, and run controls. Continuous database and server performance improvement efforts helped boost the capacity and robustness of the infrastructure to operate consistently at normal times and when under burden. Open source NOSQL Database systems were installed and utilized. Security was another priority item on the agenda for Kuveyt Türk Information Technologies in 2021. In addition to deploying critical updates for the Bank, the Department carried out configuration works for all monitoring apps so that high priority infrastructure systems are monitored effectively. Rising cyber security attacks and sector developments were taken into account in increasing the line capacity. Meanwhile, in order to check the Bank’s maturity level for current types of attacks, tests were run and improvements were made in light of test findings. This helped raise the level of maturity against DDOS attacks. Full disk encryptions on all clients, including laptops, were made to boost data security of the disks inside laptops or desktops sent to the support firm, guaranteeing protection in the case of theft or losses. Improvement and consolidation activities were carried out for all policies defined in the WAF system deployed so as to guarantee the security of incoming web requests received by the Bank from external sources. In addition, country-based authorizations were rolled out to restrict access. Radius, which is an authentication system for around 30,000 SIM cards used in POS and Offline POS devices, was moved to a corporate infrastructure, helping the Bank attain hardware backups. At the Cyber Incident Management Center, a robotic warning system was installed capable of making calls 24/7 without human intervention for critical cyber incidents. The first cyber incident can be flexibly and promptly addressed with the Mobile App. As a leader in the industry, we have done purple and red team exercises with our human resources for the first time. The purple team exercise is a testing exercise in which all tactics and techniques of an APT hacker group are used against internal systems to check the institution’s level of preparedness against this attack. The red team exercise is aimed at checking penetration in the systems, carried out unannounced with a hacker’s perspective. Maturity levels were raised for sensitive data scanning, review of logs and code analyses to prevent data leakage in source codes, servers and end user devices. 69
72. Kuveyt T ürk Annual Report 2021 Information Technologies (IT) FOREIGN LANGUAGE NOTIFICATIONS TO FOREIGN CUSTOMERS, PROVISION OF CUSTOMER NUMBERS, AND COMPLIANCE WITH NOTIFICATION CENTER FILTER INFRASTRUCTURE WERE MADE MANDATORY. The infrastructure of Kuveyt Türk’s core banking system was continuously improved. Infrastructures were developed to enable use of various technologies. Examinations were carried out and reports drawn up to improve system performance. Enhancements were introduced to the infrastructure of tasks, messages, reports, and statements. The logging system was taken outside the core banking system to reduce the load on the application layer. To respond to the requests of BRSA, the BOA log infrastructure was changed to eliminate findings related to trace logs. Transformation of this tool began. Open banking infrastructure architectural topology was identified. The Kafka queue mechanism was deployed and an architecture to run in the Kubernetes environment was designed and rolled out. APIGo, developed by Architecht in the form of SaaS, was integrated with Kuveyt Türk’s API Platform. API calls from FinTechs will first reach APIGo, rather than directly reaching Kuveyt Türk API Banking platform. This will hand Firewall/Security controls over to APIGo as part of first-level communication with FinTechs. Corporate Infrastructure meta model was updated, while processes were studied for the server, department, and business architecture. Catalog data was updated as stipulated in the communique of BRSA. 70 Numerous features were added to the components that make up the core banking system. Foreign language notifications to foreign customers, provision of customer numbers, and compliance with notification center filtering infrastructure were made mandatory. This will ensure the compliance of notifications with the laws and improve customer satisfaction. Request management process of Pusula was re-examined in meetings with stakeholders to handle software development requests from business units more effectively, run a more traceable request process, and accelerate IT software development processes. The core banking system was integrated with a solution capable of reading customers’ ID and passport information to serve as a basis for new regulations that will enable remote account opening and information updating tasks, and to minimize fraud risks. This solution will enable the chips on ID cards and passports to be scanned via NFCenabled tablets at the branches, to confirm authentication of document and to transfer the information on it to the system. Müşteri360 and Portföy360 modules currently in use were migrated from WPF technology to REACT technology and made accessible everywhere.
73. Section II : Assessment of Activities in 2021 PRACTICES DURING THE PANDEMIC TO GUARANTEE SERVICE CONTINUITY The impact of the pandemic was still felt heavily in 2021, especially in the first half of the year. In that period, Kuveyt Türk Information Technologies staff sometimes worked 100% home and sometimes adopted the hybrid working model, working in alternating schedules to continue their services. This helped protect the health of employees while guaranteeing business continuity with no compromise on service quality. No change was made to project realization rates, and daily progress was measured in remote meetings to maintain shared spirit and synergy towards these goals. Various management apps were installed on the devices of users to meet the preliminary requirements of remote work. The use of Skype and Teams was on the rise, while current systems served without respite thanks to the optimizations and improvements introduced in this period. Laptop computers and special end-user products were allocated upon installation to many employees scheduled to work from home during the pandemic. With customer acquisition taking place remotely, rising bandwidth requirements were also addressed and necessary infrastructure adjustments made. Again during the pandemic, loadleveling infrastructures were renewed and reinforced continuously to help tackle the load on Internet-enabled applications. The number of transactions customers can perform without having to visit a branch was increased with new applications developed in this period. An API was introduced to the Social Security Institution for the payment of retirement benefits. This enabled pensioners to move their pensions via the e-government application. At ATMs, the QR code-enabled transactions have been moved to the main screen to help customers withdraw cash without having to touch the keys. QR code cash deposit and approval screens were simplified. Potential customers were enabled to become customers and open accounts via video chats without having to visit a branch. Meanwhile, the necessity to visit a branch to increase limits has also been eliminated. During the year, customers were offered the chance to postpone the due installments they were not able to pay and perform these transactions on digital channels. Customers are now able to approve requested documents via mobile channels and view and approve those documents requiring a signature on the mobile app. As per the decision passed by BRSA during the pandemic, the time for transfer to NPL status was extended from 90 days to 180 days (number of delay days). Therefore, the Bank’s main overdue receivables transfer transactions were revised for compliance with legal procedures. OUR GOALS FOR 2022 “Ongoing Framework Renovation on Android Mobile App” is at the forefront of Kuveyt Türk Information Technologies’ plans for infrastructure investments in 2022. Aimed at modernizing existing infrastructure and improving DevOps and CI/ CD processes, the project will help revamp the mobile branch user experience and introduce a new experience to users. Development of the staff and installation of systems in respect of the robust systems ready for open banking infrastructures continues. These systems will feature up-to-date and robust infrastructures where the Banking systems will have uninterrupted service delivery in parallel with growth. Existing apps and infrastructures will be modernized, as well. A corporate data warehouse will be established in line with current trends. This will help develop data-driven projects and serve the Bank’s goals more effectively. There are plans to finalize the project for “Digital Housing and Vehicle Finance” in 2022. Under this project, customers will be able to monitor offer, allocation, and project steps on Kuveyt Türk Mobile, approve their contracts on the mobile app, and upload required documentation on the system. Another ongoing project is “CredereArt” which is designed to reduce the time spent in reporting significantly and help users prepare “Financial Analysis/Credit Allocation” reports with minimum effort and in full detail. Artificial intelligence models will be established to determine customers’ credibility with maximum accuracy, while the Bank will acquire all essential tools to maintain and improve its asset quality. A system will be developed to monitor and report the serial numbers of cash deposited at or withdrawn from Kuveyt Türk branches. This system will ensure that serial numbers of all the bills counted with Huter and Lidix bill counters installed within the branches will be read, logged, and stored in the system. Stored data will be utilized to develop control and approval mechanisms to take measures against fraud and forging incidents that may be involved in transactions performed at the Branches. There will be a transition from SMS-TAN, the current two-factor authentication system also for KT Bank AG, to biometric authentication solutions. The plan with this transition is to gain competitive advantage on digital markets. 71
74. Kuveyt T ürk Annual Report 2021 Sustainability Approach A SUSTAINABILITY COMMITTEE WAS ESTABLISHED AS PART OF THE EFFORTS RELATED TO THE SUSTAINABILITY PROJECT LAUNCHED AT KUVEYT TÜRK. Kuveyt Türk shapes its activities with a focus on guaranteeing future generations’ right to a quality life; respecting our Planet, all the living things in it, and humans; and preventing waste. In this respect, the Bank conducts environmental, social, and governance efforts, and strives to contribute to sustainability. In addition to its operations, the Bank also creates value for the environment and society through initiatives that enhance employees’, customers’, and other stakeholders’ environmental awareness and saving mindset. The Bank has therefore set its eyes on becoming a pioneer in the development of sustainable banking and raising awareness in society. Indeed, working with its stakeholders, Kuveyt Türk develops practices, products, and services that have a minimum adverse impact on the environment. Adopting a responsible banking approach, prioritizing sustainability in decisionmaking processes, and contributing to sustainability with all the stakeholders of the Kuveyt Türk family are among the objectives. The core values Kuveyt Türk has embraced, technology infrastructure, and human resources are among defining factors in the success of the Bank’s sustainability journey. 72 SUSTAINABILITY COMMITTEE Sustainable Finance Working Group Climate Change Working Group Championing sustainability in participation banking is the vision pursued at Kuveyt Türk. Accordingly, a Sustainability Policy was established to support Turkey’s development, contribute to sustainable growth, and determine the principles for efforts and actions to be implemented in this area. The Sustainability Policy was published upon approval at the Board Meeting held on August 4. OUR SUSTAINABILITY ORGANIZATION Sustainability Committee: A Sustainability Committee was formed as part of the efforts linked with the Sustainability Project initiated at Kuveyt Türk. The Committee works to help the Bank pass decisions on the steps planned in environmental, social and governance matters; adopt a responsible banking approach; and take sustainability into account in the Bank’s decision making processes. Employee and Communication Working Group Ecosystem Management Working Group Working Groups: There are four working groups under the roof of the Sustainability Committee. The Committee will evaluate the suggestions submitted by working groups and make sure decisions are passed in relevant areas. Below is the organization of the Sustainability Committee and its working groups: Sustainable Sukuk Issuance Kuveyt Türk issued the world’s first subordinated sustainable sukuk worth USD 350 million in 2021. The sukuk issue reached a value of USD 4.4 billion in total, while it collected 12.4 times more demand than the amount of issue. Garnering the highest demand ever received by a financial institution from Turkey, the transaction is also the most conveniently-priced issue since 2017 with an annual cost of 6.125%.
75. Section III : Sustainability Social Responsibility KUVEYT TÜRK PROMOTES OUR TRADITIONS AND PROTECTS CULTURAL HERITAGE WITH ITS APPROACH BASED ON “GROWING THROUGH VALUES THAT BIND US TOGETHER.” EXPANDING SUPPORT TO HUMANITARIAN AID CAMPAIGNS, THE BANK TAKES RESPONSIBILITY FOR THE RENOVATION OF HISTORICAL ARTIFACTS; PROMOTES TRADITIONAL ARTS FOR THE RECOGNITION THEY DESERVE; AND PASSES REFERENCE MATERIALS IN LITERATURE, DOCUMENTARY, AND MUSIC TO FUTURE GENERATIONS. KUVEYT TÜRK’S APPROACH TO CORPORATE SOCIAL RESPONSIBILITY While contributing to the progress of the participation finance industry with innovative products and services, Kuveyt Türk also delivers major social responsibility projects by adopting the approach of “growing together with the values that bind us together,” and acting based on social values and protecting cultural heritage. The Bank also extends support to nongovernmental organizations that develop projects in these areas. Aware of its responsibility for society, Kuveyt Türk cares about properly passing the knowledge, experience, wisdom, and essential values of our ancient civilization to future generations. Kuveyt Türk operates with the belief that it can survive as long as it creates value for society, gives back what it earns on this land, and turns it into benefits. Turkish Red Crescent Society, Turkey Diyanet Foundation (The Religious Foundation of Turkey), and the Hope Foundation for Children with Cancer (KAÇUV) are among the non-governmental organizations supported to date. In addition, the Bank provides sponsorship and takes part in the national consciousness and commemoration camps of the Scouting and Guiding Federation of Turkey with its employees. Art Workshops are organized in collaboration with the Istanbul Branch of TDV KAGEM (The Women, Family and Youth Center of Türkiye Diyanet Vakfı). Regular courses are delivered to those who want to advance their career in the arts. 73
76. Kuveyt T ürk Annual Report 2021 Social Responsibility KUVEYT TÜRK RELEASED “IN PURSUIT OF ARTS AND THE ARTIST” AS A BOOK AIMED AT SERVING AS A REFERENCE MATERIAL FOR FUTURE GENERATIONS. Meanwhile, Kuveyt Türk introduced the 1010 Explorer Coding and Robotic Training project in 2019 to prepare a platform for middle school students to develop themselves socially and psychologically, and contribute to their endeavors to become individuals that design and produce. Kuveyt Türk delivers training courses and equipment for schools to help younger generations prepare for the future by learning, designing technology, and producing projects. The plan is, once the pandemic comes to an end, to re-start coding and robotic courses that were suspended due to the pandemic. CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES Highlight CSR activities of Kuveyt Türk in 2021 include a diverse range of areas from arts and culture to social solidarity campaigns. Some of these activities are provided below: “In Pursuit of Arts and the Artist” added to the literature Kuveyt Türk released “In Pursuit of Arts and the Artist” as a book aimed at serving as reference material for future generations. Shedding a light on the prowess and know-now of artists who are the present-day practitioners of our ancient traditions, the book looks into 30 arts and crafts in detail and covers their respective artists and their art pieces. 74 The book is edited by researcherwriter İbrahim Ethem Gören, and comes as a compilation of articles and over 240 interviews Ethem Gören did with artists and artisans for publication on the culture&arts portal of the Kuveyt Türk Private Banking service. Looking through the pages of the book, art lovers will closely witness the artistic perspective, lives, skills, know-how, and art pieces of masters who are the presentday representatives of our ancient traditions. Art lovers can also observe the Ahi culture and Futuwwa-based moral behavior that artists embraced in their hearts and how they conveyed the principle of their virtues to their students with their actions and disposition. “Two Masters from the Past to the Present” is one of the chapters of “In Pursuit of Arts and the Artist,” a 408-page, voluminous book. The chapter covers the exemplary arts, aesthetics, and production of Ms. Fatma Rikkat Kunt, a master with great contributions to the art of illumination, and Prof. Dr. Ali Alparslan, the graceful gentlemen of calligraphy. The chapter titled “Two Masters from Today to the Future” illuminates the artistic worlds of Dr. Hüseyin Gündüz, schooled and self-trained calligrapher and trainer of trainers, and Ahmet Çoktan, who represent our art of katı’, ebru (water marbling) and illumination. Support for the Book “The Balkan Civilization from the Danube to Tundzha” Kuveyt Türk also extended support to the book “The Balkan Civilization from the Danube to Tundzha” prepared by the International Culture and Language Research Association. Covering current information and readings into the civilization, this guidebook serves as reference material for tourist guides working in the Balkans, and it can be delivered to the libraries and schools providing education in the Turkish language in the Balkans. Kuveyt Türk provided TL 141,000 to the International Culture and Language Research Association for the compilation of content and publication of the book as a sponsor. Support for the Translation of Fıqh Encyclopedia Kuveyt Türk continued its support for cultural works in 2021. The Encyclopedia of Islamic Jurisprudence (Mausu’ah Al Fiqhiyah Al Kuwaitiyah) is the most comprehensive reference book for research in the field of Islamic law, interest-free finance economy, and fiqh consisting of 45 volumes. The Bank donated TL 500,000 to the Islamic Law Practice and Research Center of Fatih Sultan Mehmet Foundation University for its translation from Arabic to Turkish.
77. Section III : Sustainability Contribution to the Works of Yedi İklim Library Kuveyt Türk donated TL 1,000,000 to Üsküdar Municipality for the decoration and furnishing and needs of the library which is being renovated by the Üsküdar Municipality for further use by the Yedi İklim Association in cultural and social services. Hygiene Package Support to KAÇUV To raise awareness on the growing prevalence of cancer and offer a glimmer of hope to children undergoing cancer treatment, Kuveyt Türk has consistently supported the “Support for Hope” project conducted by the Hope Foundation for Children with Cancer (KAÇUV) since 2013. Kuveyt Türk opened the Second Family Home in Pendik on January 22, 2020, where it offers free-ofcharge lodging to children and their families who need to come to Istanbul for cancer treatment. Opened with the support of the Bank, the Second Family Home of KAÇUV provides a convenient place for children undergoing treatment and their families. In addition to free-of-charge accommodation for children and their families, KAÇUV meets their needs for psycho-social services, food, hygiene, kitchen, and --partially-clothing. Kuveyt continued to support KAÇUV during the pandemic. In 2021, it provided support to “Hope Boxes” to help meet the hygienic needs of children fighting cancer and their families. Support for National Awareness and Commemoration Camps Since 2017, Kuveyt Türk has sponsored the national awareness camps organized by the Guiding and Scouting Federation of Turkey in Çanakkale Martyrs’ Memorial and Kars Sarıkamış Martyrs’ Memorial. A group of employees regularly attend national awareness camps. In 2021, Kuveyt Türk was the official sponsor of the National Awareness and Commemoration Camp for the Allahuekber Mountain Martyrs organized by the Federation from December 23 to 26, 2021. Experienced scouting leaders from across Turkey take part in these camps. One of the authentic practices in these events is when -- in an environment where the felt temperature sees minus 30 Celcius degrees -- scouts lie back on the snow, close their eyes and contemplate on “martyrdom.” TDV KAGEM - Kuveyt Türk Art Workshops Since 2018, around 200 participants take courses on traditional and modern arts every year at TDV KAGEM - Kuveyt Türk Art Workshops launched by the Bank in collaboration with the Women, Family and Youth Center (KAGEM) under Turkey’s Religious Foundation (Diyanet Vakfı). TDV KAGEM - Kuveyt Türk Art Workshops act with the awareness that art is a bridge that conveys culture between generations. In addition to this, the healing and rehabilitating power of art is the belief behind art workshops aimed at children and youth under state protection. Kuveyt Türk rolled out a meaningful project in collaboration with TDV KAGEM in 2021. Art pieces by the participants of TDV KAGEM - Kuveyt Türk Art Workshops were exhibited to art lovers at Dolmabahçe Art Gallery from November 18 to 30. Traditional arts such as calligraphy, illumination, miniature, tile, water marbling, as well as watermark and charcoal paintings were among the art pieces exhibited. Kuveyt Türk Stands by Those Affected by Floods and Wildfires Fires and natural disasters hit our country in 2021. Kuveyt Türk stood by its nation with its support during those hard times and acted to heal the wounds caused by the floods that happened in Rize, Artvin, and Düzce. Support packages were prepared for retail customers based in the provinces hit by floods. The Bank decided to postpone, if and when requested, the retail credit card debts and retail finance installments of customers for three months, without any additional charge or profit share. Likewise, support packages were prepared for customers based in the regions suffering wildfires, and the Bank postponed, if and when requested, the retail credit card debts and retail finance installments of customers for three months, without any additional charge or profit share. Our Focus Areas and Objectives Kuveyt Türk aims to promote social values, expand financial inclusion and protect cultural heritage through social responsibility projects in 2022. The Bank’s areas of focus, approaches, and objectives for social responsibility in 2022 are provided below: • Publishing prestigious works to celebrate our ancient traditions and cultural heritage, and contribute to the promotion of this heritage with publications, • Continuing social responsibility projects in alignment with the UN sustainable development goals and keeping sustainability at the forefront in these projects, • Proceeding with current environmental sustainability projects and developing new projects, • Standing by artists through exhibitions and art events, • Sponsoring documentary projects and releasing works that will help preserve cultural values, • Standing by the nation with financial support in all incidents that may take place during the year. 75
78. Kuveyt T ürk Annual Report 2021 Environmental Responsibility KUVEYT TÜRK RECYCLES PLASTICS, PAPER, AND OTHER RECYCLABLE WASTE ARISING FROM ITS ACTIVITIES, AND SENDS HAZARDOUS AND NON-RECYCLABLE WASTE TO DISPOSAL. OUR ENVIRONMENTAL SUSTAINABILITY APPROACH Kuveyt Türk monitors local and global developments on sustainability to contribute to it through actions to be taken in this area. In the periods to come, the Bank will set targets to minimize greenhouse emissions arising from its operations and boost support to transition to a low carbon economy, one of the key elements of sustainable development. The Bank develops environmental risk processes and places its sustainability perspective at the heart of everything it does. This way, it takes necessary actions to minimize the negative impacts of its investments. In this regard, Kuveyt Türk recycles plastics, paper, and other recyclable waste arising from its operations, and sends those hazardous and non-recyclable waste to disposal. The goal is to develop processes and systems to reduce the generation of waste and attain continuous development in this area. To save electricity, water, and paper used as part of banking products and services, the Bank has efforts in place to establish a technological infrastructure, while plans are underway to restructure the physical elements making up the service network with the zero waste and green design principles. Priority themes within Kuveyt Türk’s environmental sustainability perspective include focusing on changing customer needs and expectations, offering products and services to address social or environmental issues, and continuously improving its products and services in line with technological developments. 76 Kuveyt Türk considers Planet Earth, where we lead our lives, as a guarantee for the future. It is with this understanding that the Bank strives to embed its sustainability approach into all its fields of operation. In an attempt to create an environmentally and ecologically sensitive corporate culture, the Bank takes steps to raise environmental awareness for employees, customers, shareholders, business partners, and all other stakeholders who are in interaction with its operations. This is how Kuveyt Türk ensures its environmental policies are adopted and implemented while working to achieve a lasting impact and thus broaden this mission via consistent and regular courses, announcements, and volunteering environment missionaries.
79. Section III : Sustainability ZERO WASTE ACTIVITIES In 2021, internal and external units of equipment were placed at Kuveyt Türk’s Head Office and Banking Hub buildings as part of zero waste activities. With the support of employees, waste is separated at source, which helps the Bank deliver it to waste disposal firms and reclaim it after recycling. The harm arising from waste will be minimized by following the zerowaste process. Practices were rolled out to encourage employees to cut the use of disposable products to prevent waste generation at Head Office and Banking Hub buildings. OUR FOCUS AREAS AND OBJECTIVES • Financing projects that contribute to the environment, developing projects to encourage the adoption of renewable energy, and minimizing the environmental impacts of the projects funded are among the objectives. • The Bank’s products and services will be re-examined from a sustainability perspective, with plans to make them more eco-friendly and develop new sustainable products and services. Promotional campaigns will be created to encourage customers to use such products and services, involving customers in the contributions to sustainability. • A plan is to lay out an Environmental Policy under the Sustainability Policy. • Once screens for the Expense Management Follow-Up Mechanism, the software development efforts of which are ongoing, are deployed, the expenditures of branches and head office buildings will be monitored. This will help save on energy, water, fuel, and other consumption items, contributing to sustainability. • The carbon and water footprint of the institution will be calculated and new targets in this area will be set. A roadmap will be prepared to reach these targets, and relevant units will be involved to take necessary actions. • Courses will be delivered and events will be organized at the Bank to improve employees’ sustainability literacy and contribute to their environmental awareness. • Another plan is to organize tree and seedling plantation events which employees will join. • Procurement processes will be revised and necessary actions will be taken to ensure that excessive consumption is prevented. • Projects and ideas aimed at savings in all areas, both at the Bank’s Head Office and branches, will be evaluated and those that are deemed fit will be implemented. • New projects, systems, and practices are planned for implementation to prevent the generation of waste at the Head Office, Banking Hub buildings, and all branches. • Efforts will be undertaken to disseminate the zero waste process launched at Head Office and Banking Hub locations across the branches. • As part of the zero-waste process, online courses will be assigned to all employees in parallel to expanding zero waste awareness and fostering a recycling culture. • Communication activities to raise customers’ awareness and responsiveness to environmental issues are among the plans. • Other plans include internal and external communications on all activities to be implemented in the field of sustainability, as well as notifications to customers, employees, and all stakeholders. 77
80. Kuveyt T ürk Annual Report 2021 Human Resources Practices KUVEYT TÜRK’S POSITION AS A PIONEER IN THE INDUSTRY OVER 30 YEARS IS LARGELY THANKS TO A DISTINCTIVE CULTURE WITH ROOTS IN THE CORPORATE TRADITION. HUMAN RESOURCES MANAGEMENT APPROACH Since day one, Kuveyt Türk has believed that customer satisfaction is a natural outcome of employee satisfaction. It is with this understanding that the Bank shapes its human resources policy. A happy and peaceful working environment where employees feel valued is among the priorities of Kuveyt Türk. Kuveyt Türk’s position as a pioneer in the industry for over 30 years is largely thanks to a distinctive culture with roots in the corporate tradition. Backed by the strength of the corporate culture, which has been built on its core values, the Bank always keeps the desire to reach excellence alive and takes firm steps on its journey towards sustainable, profitable growth. To ensure such a working environment, Kuveyt Türk never compromises on some principles: • Participatory management and transparency are essential at Kuveyt Türk. • Under all circumstances, fairness is sought and established between the institution and employee rights. • Outstanding efforts, honesty, and high-quality work are recognized and rewarded by the institution. • Employees are encouraged to maintain their work-life balance. • The Bank does not make promises it cannot keep and delivers on the promises it makes. • Complaints and suggestions are evaluated with impartiality. • Developing, motivating, inspiring, and encouraging employees are among the core duties of the Bank. • Kuveyt Türk is committed to the values of robust banking, fairness, professionalism, team spirit, innovation, and trust on the path to reaching its goals hand in hand with employees. A peaceful working environment is a result of embracing shared values at all levels, from the senior management onwards. This is what enables the Bank’s employee engagement score to be way above the sector average. This way, the Bank was chosen the best employer of Turkey for four consecutive years and had its name etched among Europe’s leading banks in this area. Such a conducive working environment has a reflection on customers as well, which helps the Bank attain financial strength resulting in a place among the top five in service culture and top ten in asset size. 78 Kuveyt Türk has boasted a distinctive culture built on collaboration, team spirit, transparent communication between management-employee, and ethical values to date. The Bank will further improve its network of current relationships, communication, and systems to elevate its human resources and banking practices on this culture. Operating with the motto, “Employees first, people first,” the Bank takes steps to make employees and candidates feel “so glad to be at Kuveyt Türk.” In this context: • It designs career paths for different talents. • It develops performance and career processes with a focus on development and as a preparatory period for the current situation and future. • It involves employees’ families in these practices. RECRUITMENT Kuveyt Türk HR Partnership Department conducted hiring processes for four programs, namely MT, TechTalent, Explorer, and Audit (D3) as part of its talent programs this year. New graduates from Turkey’s top universities are placed in MT, TechTalent, and Audit positions, while the senior students from Turkey’s leading universities were included in the Kaşif (Explorer) program.
81. Section III : Sustainability IT Engineers, who are fresh graduates from their schools, were recruited under the Bank’s plans to expand IT teams so that the Bank’s capacity to deliver personalized services to customers in line with the digital transformation strategy is improved. New graduates were hired for Commercial Banking Assistant Specialist positions in the commercial branches to contribute to Kuveyt Türk’s commercial banking strategy and train the commercial portfolio managers of the future. Communication processes of all these programs were run on toptalent.co -- a career platform --, the Bank’s careers pages on Instagram and LinkedIn. University students and new graduates came together online and career opportunities of the Bank were explained. Aiming to raise the banking professionals of the future, Kuveyt Türk will keep hiring junior and senior students for Head Office units and branches. COMPENSATION Through its dedicated Compensation Management System, Kuveyt Türk aims to motivate employees to outperform their assigned objectives, identify employees performing at various levels, and remunerate them based on their performance. Accordingly, compensation at Kuveyt Türk is structured as a “Total Compensation Package” consisting of: • A salary, • Performance bonus, • Foreign language allowance • Transportation and meal assistance, and • Other supplementary payments. To remain competitive in the market for talent, Kuveyt Türk also offers various benefits to employees. These include: • Private health insurance, which also covers the employee’s spouse and children, • A private pension system with company contribution, • Clothing assistance, • And a family support package. A first of its kind, this unique practice addresses employees’ changing needs in the most thorough manner, while allowing them to choose benefits they wish and raising the satisfaction of employees based on the philosophy of “Employees First.” EMPLOYEE ENGAGEMENT AND SATISFACTION As Kuveyt Türk launched its next-gen career architecture “Development Kitchen” in 2021, it deployed the screens of the project, set to go live in 2022, for use by employees. As part of this project, employees will be supported with training and certification programs which will help them work more efficiently and prepare for the business world of the future. “Ferah,” Kuveyt Türk’s next-gen working model, was announced. Accordingly, flexible working models were arranged as per job families both for Head Office units and for branch employees, as a novel practice in the overall banking industry. Upholding its principle of “Employees first,” the Bank took a giant step in 2017 and introduced Sepetim (MyBasket), a flexible employee benefits scheme unprecedented in the industry. 79
82. Kuveyt T ürk Annual Report 2021 Human Resources Practices MOTHERS WERE SUPPORTED WITH OFF-DAYS ON THE FIRST OF SCHOOL AND THE FINAL DAY OF SEMESTERS SO THEY SPEND TIME WITH THEIR CHILDREN ON SPECIAL OCCASIONS. Regarding the Sales Premium model, adjustments were made to enable branch staff to receive bonus payments twice a year, namely at the end of 6-month periods, to contribute to the Bank’s rewarding processes. A first of its kind, the flexible benefits scheme “Sepetim” has turned five and remained a center of attraction also in 2021. With over 80% participation and satisfaction, the scheme has continued to allow employees to personalize benefits available to them as they designed. Mothers were supported with offdays on the first day of school, and the final day of semesters so that they spend time with their children 80 on special occasions. In addition, the practice involving one additional off-day for every five days taken off of work during Ramadan continued. Awards were presented to employees celebrating their 10th, 20th, and 30th years at Kuveyt Türk. “Robust Friends” meetups were organized for former employees with 10 years at Kuveyt Türk or those pensioners still at the Bank with 20 years of seniority and their managers. Emanating from the belief that customer satisfaction is only achievable through employee satisfaction and generated by analyzing values and employee opinions on what makes Kuveyt Türk an Ideal Employer for employees and candidates, the “So Glad” employer brand launched in 2017 was recognized with the Great Place to Work Award in 2018, 2019, 2020, and 2021. For the past four years, Kuveyt Türk has ranked among the best 30 employers of Europe, in addition to the “Best Employer of Turkey and Finance” award in the research conducted by GPTW. In 2021, the Bank has become the first Turkish institution to top this list. All human resources policies and processes will be drawn and developed based on the “employees first” principle and in a way that will bring about experiences to be “So glad” about. Accordingly, the Bank will increase investments to provide a working environment worthy of its title as the best place to work.
83. Section III : Sustainability INTERNAL COMMUNICATION ACTIVITIES Kuveyt Türk aims to develop internal communications independent from location and people, and platforms with instant updates. For this purpose, it designs the experience of sharing and exchange both in business processes and in social life in the most effective manner. So Glad Mobile App: Shortening distances, the social media app enabled every Kuveyt Türk branch and department employee to share their happiness and values. While boosting interaction among employees, the app also reduced e-mail traffic thanks to notifications. Mosaic Magazine: The first social life magazine of Kuveyt Türk called Mozaik (Mosaic) offered an authentic and holistic reflection of us through employee articles, company news, as well as a hobby, social and industrial features and helped bring employees closer to each other even after its first issue. The sixth issue in 2021 took a look into the personal stories of employees and featured interviews on the projects important for the Bank. Boa Portal: Consisting of special tabs for the job families within branches, this portal within the BOA banking platform enables employees to monitor the business processes, announcements, and campaigns of the Head Office functions without losing their way in e-mail traffic. 360-degree information from the services to subsidiaries is another feature of the portal on the “My Page” section. They can reach this page anywhere thanks to Boa Store mobile app. Employee Satisfaction Line: Employees can forward their suggestions and express satisfaction related to the Bank’s practices, processes, or other co-workers. This screen is in active use for the feedback culture within the Bank to be improved further. HR Chatbot: The first HR Chatbot project was launched for more effective and mobile internal communication processes. Scheduled for deployment as an HR pilot in 2022, the app will be aligned with other business units of the Bank over time. Employees First Council: The “Employees First Council” composed of employees from different functions and positions, has organized meetings once every 45 days since 2014. Throughout 2021, the Council continued to perform activities with 30 members including those from the branches in Anatolia. Striving to serve as a platform where the employees and Senior Management can have their voices heard, the Council still implements projects involving practices to be “So Glad” about. OCCUPATIONAL HEALTH AND SAFETY Comprehensive and modern occupational health and safety practices were deployed at Kuveyt Türk upon the introduction of Law no. 6331 on Occupational Health and Safety and relevant regulations in 2012. Policies are developed to establish and broaden an occupational health and safety culture; determine relevant principles, rules and commitments; and train employees on this subject matter at the Banking and Life Base. Boa Store: A product fully developed by Kuveyt Türk engineers, the BOA Banking app has a Boa Store mobile feature where employees can see HR services and their most frequently used screens (off day logging, payroll views, etc.) on their mobiles. In addition, steps are taken to ensure that employees comply with the Occupational Health and Safety Law in effect and other applicable regulations, and adjustments are made out in the field as per this law and regulations. In 2021, Kuveyt Türk did the following activities required to be performed once a year under the law: • Periodic controls on all machinery and units of equipment (elevators, escalators, compressed containers, generators, lifting equipment, automatic doors, etc.). • Environment measurements (determining the respirable dust concentration, measuring personal noise exposure, workplace noise measurements, lighting measurement, etc.). • Periodic controls were conducted on electricity and firefighting systems; Explosion Protection Document was issued for environments exposed to explosion risk. Works cited above are monitored regularly to evaluate the findings. Relevant units work in coordination to ensure all shortcomings, if detected, are addressed and eliminated. COVID-19 resulted in radical changes in the ways we work alongside its impact on social life. The changing world of work brings with it new occupational health and safety risks. Kuveyt Türk makes more effective use of remote training modules on occupational health and safety in at-home and at-site environments to help employees adapt to changing working conditions. Conducting an effective risk analysis and assessment to detect unsafe situations, behaviors that may result in occupational accidents (or illnesses), and potential accidents, and involving employees in this process is important to proactively spot and eliminate risks, or mitigate them to acceptable levels. Efforts to this end are ongoing. “Health first” was the motto of the Bank since the outbreak of the pandemic. Therefore, alternating schedules were introduced at branches and the Head Office, and employee health was prioritized through material assistance. 81
84. Kuveyt T ürk Annual Report 2021 Human Resources Practices “1001 BOOTS, 1001 COATS” WAS KICKED OFF IN Q4 OF 2021 TO DELIVER BOOTS AND COATS TO PRIMARY SCHOOL STUDENTS IN NEED OF MATERIAL SUPPORT. SOCIAL AWARENESS AND AID CAMPAIGNS Kuveyt Türk works towards a greener future. Raising the shared awareness for a sustainable world is a goal for the Bank which has two practices in place with the theme of “sufficiency.” Employee awareness is raised with simple saving and recycling tips shared on internal communication platforms. Trees are planted on behalf of the winning teams at challenges organized, while nature cleaning activities are carried out with the motto, “Environment First.” “Bring Your Mug/Thermos” is one of the headers used in the cafeterias and free coffee is the reward to encourage employees to bring their own mugs to reduce the generation of nonrecyclable waste. Kuveyt Türk is aware of how important it is to involve employees in these processes as a socially responsible institution. Assistance campaigns are organized with the support of volunteering employees. Accordingly, “1001 Boots, 1001 Coats” was one of the campaigns kicked off in Q4 of 2021 with the participation of all employees. Boots and coats were delivered to primary school students in need of material support. 82 OUR FOCUS AREAS AND OBJECTIVES Special processes are planned in 2022 to position Kuveyt Türk’s employer brand “So Glad” in and outside the organization. Training and career processes, business processes, and recruitment processes will be the areas where the Bank will revise its steps to attract and retain human resources aligned with Kuveyt Türk’s future objectives. Designs fit for the new period will be prepared. Employee experience is another important subject. All steps a Kuveyt Türk employee takes, from the candidate experience to the first day at work, as well as promotions and assignments, will be re-designed by the new period. To boost the effectiveness of internal communications, the internal assistant project will first be used for HR, to be followed by all internal business processes for a communication model based on chatbots. Launched as an agile project in 2020, Value-Driven Performance is ongoing and will help set the “Tone of Kuveyt” in performance. A performance system built on feedback, development, and trust is aimed for roll out in 2022. Digitalization will remain the top agenda item in the near future, and Human Resources will also set its eyes on digitalization. In 2022, systemic processes will be improved for HR analytics to enable the department to tap into its data treasure. Projects will be developed to become a center of attraction in the sector. Internally, the Bank will continue to invest in its most important asset, namely the workforce, guided by its “Employees First” slogan. Externally, the Bank plans to continue building a “More Beautiful Kuveyt Türk” viewed by candidates as the “School of Sound Banking” where everyone would be pleased to work. 2022 is set to see increased initiatives that prompt a “So glad” response.
85. Section III : Sustainability 83
86. Kuveyt T ürk Annual Report 2021 Kuveyt Türk Academy 4,199 EMPLOYEES TOOK SOME 170,196 HOURS IN 1,388 IN-CLASS COURSES COVERING 528 THEMES IN 2021. As part of its academic efforts, Kuveyt Türk believes that employee motivation is built on the alignment between employee competencies and the competencies required by the position. The ultimate goal of such training and development programs is to equip employees with the competencies required by their relevant positions, contribute to their personal and intellectual development, and prepare them for the future. Kuveyt Türk Academy designed “learning journeys,” which are educational roadmaps that help employees perform the task in the best/most successful manner by considering every phase in their career ladder and analyzing their learning and development requirements. Job descriptions, task analyses, manager-employee focus group initiatives as well as other market and industry surveys were utilized to chart the learning journeys. Training and development activities are run under the brand “Kuveyt Türk Academy,” with a corporate academy perspective. Running courses on participation banking competencies and strategies, the Academy has adopted the mission of providing Kuveyt Türk employees working in this field with an added-value learning experience. Accordingly, the focus is “Digital Transformation,” “Innovative Customer Experience,” “Operational Superiority,” and “Learning and Developing Organization,” which are also the Bank’s strategies. Kuveyt Türk Academy capitalizes on modern technologies to strengthen its infrastructure day by day and provides employees with development opportunities both for their current position and different functions in line with their potential and preferences through learning journeys that ensure the Bank’s sustainable organizational development. In 2021, the digital infrastructure was enriched with Academy TV and Sağlam Kalem (Robust Pen) blog where corporate videos are posted. In addition, a Kuveyt Türk Training Portal was created to deliver the content of Digital Training Platform (LMS), Academy TV, and Sağlam Kalem via a single platform. As part of all these activities, multi-dimensional training methods are employed to keep up with current trends. 84 Within this scope, 1,388 face-to-face courses on 528 topics were delivered in 170,196 hours to 4,199 employees in 2021. Besides, 110,439 hours of digital training featuring over 500 original contents was provided to 6,368 employees. 407 newly recruited staff underwent the Core Banking and Orientation Program in 2021. The program included modules on core banking, banking legislation, interest-free banking principles, customer focus, ethical banking, products and services, sales and relationship management, performance development system, as well as other materials on the Bank’s culture and structure. Under the Development Kitchen, 24 development programs were designed to act as a milestone in employees’ careers and prepare them for the future of work. 23 of these programs were implemented. 1,923 employees took part in these development programs. The Career Development Program, organized for branch managers in training, was completed by 44 prospective branch managers. The program is ongoing for 49 prospective branch managers.
87. Section III : Sustainability Emphasizing the utilization of inhouse resources, Kuveyt Türk selects competent, knowledgeable, and experienced candidates in their respective fields to undergo internal trainer accreditation training to support and develop internal trainers. In 2021, the rate of internal training was 60%. Under the Internal Trainer Accreditation Program, 93 people were accredited and received their certificates. Designed to attract high potential candidates to Kuveyt Türk, Management Trainee (MT) and Audit Training programs were implemented. Training content delivered was designed to address the separate needs of respective groups. The long-lasting learning and development journey was differentiated with in-class training courses, on-the-job internships at branches and Head Office departments, and outdoor events. 33 people participated in these programs. By taking the growing number of foreign customers into account, 81 employees were included in the foreign language (English) training program. Being “in the flow and agile” was the motto Kuveyt Türk adopted in its activities. Thanks to the successful efforts carried out, it won 13 awards at national and international platforms in 2020. The Academy followed the same trend in 2021 and won three more awards. 85
88. Kuveyt T ürk Annual Report 2021 Board of Directors HAMAD ABDULMOHSEN AL MARZOUQ Chairman of the Board of Directors Hamad Abdulmohsen Al Marzouq graduated from the University of Southern California in 1985 and obtained an MBA from the Claremont Graduate University. He took senior manager positions at Kuwait Investment Corporation until 1990, followed by the Central Bank of Kuwait between 1990 and 1998, and Ahli United Bank in Bahrain between 1998 and 2014. He was appointed the Chairman of the Board of Directors at Kuveyt Türk in 2014. Mr. Al Marzouq is also a Member of the Corporate Governance Committee, Executive Committee, and Credit Committee. 86 NADİR ALPASLAN Vice Chairman of the Board Mr. Alpaslan graduated from Istanbul University, Faculty of Political Sciences, Public Administration Department in 1987. He began his professional career at Prime Ministry, Family Research Institution in 1999 and worked as the Ministry Advisor and Head of Administrative Financial Affairs at the Ministry of Tourism for four years. Mr. Alpaslan continued his professional career as the Deputy Undersecretary and Ministry Advisor at the Ministry of Culture and Tourism between 2003 and 2007 and served as the Deputy Secretary-General at the Presidency between 2007 and 2018. He was appointed the Deputy Minister of Culture and Tourism in July 2018. Mr. Alpaslan has been a Member of the Board of Directors of Kuveyt Türk since April 15, 2011, and he is a Member of the Bank’s Risk Committee, Audit Committee, and Credit Committee. AHMAD S. A. A. AL KHARJI Board Member Ahmad S. A. A. Al Kharji graduated from the Finance and Banking Department of Kuwait University in 1994 and obtained an MBA degree from San Diego University in 1998. He became a Vice President for Structured Finance at Kuwait Finance House. Between 2003 and 2006, Mr. Al Kharji served as Senior Investment Division Manager and then as Senior Vice President at LMH between 2008 and 2013. He has served as a Member of the Board of Directors of Kuveyt Türk since March 2014. Mr. Al Kharji is also a Member of the Credit Committee, Executive Committee , and Corporate Social Responsibility Committee, in addition to his capacity as the chair of the Remuneration and Nomination Committee.
89. Section IV : Management and Corporate Governance Practices MOHAMED HEDI MEJAI Board Member A French citizen born in Zarzis in 1969, Mr. Mejai attained various educational degrees including Private Equity & Venture Capital for Executives from Harvard Business School. He graduated from IDB Management Development Program from London Business School, holds a Master of Business Administration from a management school in France named EDHEC. Mr. Mejai holds a Master of Science degree in International Economic and Legal Studies from London University. From August 2005 to May 2010 he served as Executive Director Investments and Business Development, International Investment Bank (IIB) in Manama, Kingdom of Bahrain. In the same month of 2010, he was entrusted to lead the company as Chief Executive Officer and Board Member for Oryx Capital Ltd, based in Dubai. From August 2011 until now, he still serves as Director of Investment Department at IDB Group (IsDBG). He serves as a Member of the Board of Directors of Kuveyt Türk since March 2021. He is also a Member of the Audit Committee and Corporate Governance Committee. SALAH A. E. AL MUDHAF Board Member Salah A. E. Al Mudhaf graduated from Kuwait University’s Department of Business Administration in 1981. He began his career at the Kuwait Social Security Institution as a manager in charge of the staff. Mr. Al Mudhaf is still serving the same institution as the Deputy General Manager. He was a Member of the Board at Wafra Real Estate and Wafra International Investment Co. in 1993-2014 and 2002-2013, respectively. Since 2013, he has been serving the same company as the Chairman of the Board of Directors. Al Mudhaf was appointed a Member of the Board at Kuveyt Türk Katılım Bankası A.Ş. in April 2019. He is also a Member of the Risk Committee. SHADI AHMED YACOUB ZAHRAN Board Member Mr. Zahran received his Master of Business Administration (MBA) Degree in Finance from the University of Manchester in the United Kingdom in 2014. He received his Bachelor’s Degree in Accounting from the University of Jordan in 1992. Mr. Zahran is a member of the Board of Trustees of the Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI) and a Board Member of the General Council for Islamic Banks and Financial Institutions (CIBAFI). Mr. Zahran holds several specialized professional certificates including Certified Public Accountant (CPA) from the state of Illinois in the U.S. since 1996, an Auditing License from the Council of the Auditing Profession in Jordon since 1996, Certified Bank Auditor (CBA) from Bank Administration Institute (BAI) since 1999, and Certified Islamic Professional Accountant (CIPA) from the Accounting and Auditing Organization for Islamic Financial Institutions since 2006. Mr. Zahran previously held several executive positions at Ahli United Bank Group including General Manager Finance in Kuwait from 2009 until 2014 and Head of Group Financial Controlling at Ahli United Bank in Bahrain from 2005 until 2009. Mr. Zahran previously held the position of Head of Financial Systems Management & Operations Department at Al Rajhi Bank in the Kingdom of Saudi Arabia from 2000 until 2005. In addition, Mr. Zahran previously worked as an External Auditor at the international external audit firm Ernst & Young. Mr. Zahran is currently the Group Chief Financial Officer at Kuwait Finance House since 2014. In addition, Mr. Zahran is the Vice Chairman of KFH Capital Investment Company and Board Member at Kuwait Finance House Bahrain. Mr. Zahran was appointed a Member of the Board at Kuveyt Türk Katılım Bankası A.Ş. in July 2020. He is also the Chairman of the Audit Committee, and a Member of the Credit Committee and Corporate Social Responsibility Committee. 87
90. Kuveyt T ürk Annual Report 2021 Board of Directors BURHAN ERSOY Board Member Burhan Ersoy graduated from 19 Mayıs University in Samsun. He started his business life in Merzifon Agricultural Equipment Institution in 1976. In 1984, he worked at Ankara Education Center Directorate, and in 1986, he worked as the Branch Manager of the Ministry of National Education Personnel General Directorate, Central Appointment Department. Between 1988 and 1991, he served as the State Ministry Consultant. From 1991 to 1996, he worked as the Branch Manager of the Prime Ministry General Directorate of Personnel and Principles and as the Deputy Head of the Press and Public Relations Department of the Prime Ministry. As of 1997, Mr. Ersoy took office as a Consultant at various public institutions, the Grand National Assembly of Turkey (GNAT), and the State Ministry. Later on, he served as the Head of Department at the Prime Ministry General Directorate of Legislation Development and Publication. In 2003, he was appointed as the Deputy General Manager of the General Directorate of Foundations. Having served as a Board Member at various organizations, Mr. Ersoy is a member of the Board of Trustees at Fatih Sultan Mehmet Foundation University, and a Board Member at Vakıf Gayrimenkul Yatırım Ortaklığı A.Ş. (REIC). Since February 1, 2020, Ersoy is the Director-General of Foundations and Chairman of the Foundations Council. Mr. Ersoy was appointed a Board Member at Kuveyt Türk Katılım Bankası A.Ş. in July 2020 and he is currently a Member of the Corporate Governance Committee and Member in charge of Ethical Banking. 88 GEHAD MOHAMED ELBENDARY ANANY Board Member Gehad Mohamed Elbendary Anany received his Finance & Risk Management Diploma from the University of Wales in the U.K. in 2014. He received his Bachelors of Commerce Degree in Accounting from Tanta University in Egypt in 1996. Mr. Anany has completed specialized training programs in Enterprise Leadership from Insead University, Network Leadership Program from IMD University, and Advanced Risk Management from Wharton University. Mr. Anany holds numerous specialized professional certificates including the International Certificate in Banking Risk and Regulation (ICBRR) from the Global Association of Risk Professionals (GARP) in 2009. Mr. Anany previously held several executive positions at Kuwait Finance House including General Manager for Risk Management from 2016 until 2018, Assistant General Manager for Portfolio & Enterprise Risk Management from 2013 until 2016, Head of Enterprise Risk Management Unit from 2012 until 2013. Mr. Anany is currently the Group Chief Risk Officer at Kuwait Finance House and has over 20 years of experience in Risk Management, Auditing, and Internal Control Systems in Financial Institutions. Appointed a Board Member at Kuveyt Türk Katılım Bankası A.Ş. in July 2020, Mr. Anany is also the Chairman of the Risk Committee and a Member of the Remuneration and Nomination Committee. UFUK UYAN Member of the Board of Directors and CEO Mr. Uyan graduated from the Economics Department of Boğaziçi University in 1981. He received an MA degree from the Business Administration Department of the same university in 1983. He began his professional career as a Research Assistant at the Economics Department of Boğaziçi University in 1979 and worked as a Researcher Economist at the Special Researches Department at Türkiye Sınai Kalkınma Bank in 1982. Mr. Uyan became the Vice Project Manager at Albaraka Türk in 1985 and continued his career as the Project and Investments Manager at Kuveyt Türk in 1989. Mr. Uyan was promoted to Executive Vice President in 1993 and then appointed Head Assistant to the Chief Executive Officer. Mr. Uyan has been the Chief Executive Officer since 1999 and continues his duty as a Member of the Board of Directors and CEO at Kuveyt Türk. Mr. Uyan is also a Member of the Executive Committee, Credit Committee, Remuneration and Nomination Committee, and the Corporate Social Responsibility Committee.
91. Section IV : Management and Corporate Governance Practices Senior Management UFUK UYAN Member of the Board of Directors and CEO His resume is presented in the Board of Directors section on page 88. AHMET KARACA Executive Vice President Financial Affairs Mr. Karaca graduated from Ankara University, Faculty of Political Sciences, Public Administration Department in 1990. He started to work as the Sworn Deputy Auditor of Banks at the Undersecretariat of Treasury in 1992 and he was assigned as the Sworn Auditor of Banks in 1995. He continued his duty with the same title at the Banking Regulation and Supervision Agency (BRSA) from 2000, and he served as the Vice President of Sworn Auditors Committee of Banks between 2002 and 2003 at the BRSA. After approximately one year of service, he was assigned as the Sworn Head Auditor of Banks in 2004. Between 2004 and 2006, he received an MA degree in economics from the State University of New York at Albany, USA, and wrote an MA thesis on International Banking and Capital Markets. Mr. Karaca joined Kuveyt Türk Katılım Bankası A.Ş. as the Chief Financial Officer in July 2006 and he still serves under this title. AHMET SÜLEYMAN KARAKAYA Executive Vice President Corporate and Commercial Banking Karakaya graduated from the Business Administration and Finance Department at Istanbul University, Faculty of Economics, and began his banking career as an Inspector at Garanti Bank, where he went on to work at the Audit Committee, Risk Management Department, Loans Department, and Regional Directorates between 1981 and 2003. Mr. Karakaya has been working as the Executive Vice President of Corporate and Commercial Banking at Kuveyt Türk since 2003. 89
92. Kuveyt T ürk Annual Report 2021 Senior Management BİLAL SAYIN Executive Vice President Loans Mr. Sayın graduated from the Public Administration Department of Middle East Technical University in 1990. He joined the Kuveyt Türk family in 1995 and he has been serving as the Chief Credit Officer at Kuveyt Türk since 2003. 90 HÜSEYİN CEVDET YILMAZ Executive Vice President Chief Risk Officer Mr. Yılmaz graduated from the Business Administration Department of Boğaziçi University in 1989. He began his banking career as the Assistant Internal Auditor in Esbank Internal Audit and Inspection Department. After having served as Internal Auditor and Branch Manager in the same institution, he began to work as the Head of Internal Audit and Inspection Department at Kuveyt Türk in September 2000. He was assigned as the Audit and Risk Group President in 2003. Mr. Yılmaz has been serving as Chief Risk Officer since 2012. İRFAN YILMAZ Executive Vice President Banking Services Group Graduating from the Management Engineering Department of Istanbul Technical University, Mr. Yılmaz began his banking career at the Financial Affairs Department in Kuveyt Türk in 1990, was assigned to Internal Audit and Inspection Department in 1996, and served as the Head of Internal Audit and Inspection Department between 1998 and 2000. Mr. Yılmaz was appointed the Retail Banking Manager in 2000 and after five years at the Department, he took office as the Executive Vice President of Retail Banking and Enterprise Banking in 2005. He has been serving as the Executive Vice President of Banking Services since October 2012.
93. Section IV : Management and Corporate Governance Practices DR. R. AHMET ALBAYRAK Executive Vice President Treasury and International Banking Mr. Albayrak graduated from the Industrial Engineering Department of Istanbul Technical University. He received an MA degree in Organizational Leadership and Management at the University of North Carolina at Pembroke, the USA in 1993 and was awarded a Ph.D. degree in Technology Management at Istanbul Technical University, Department of Business Administration in the Social Sciences Institute in 2007. Having joined the participation banking sector in 1988, Mr. Albayrak has been serving as the Executive Vice President at Kuveyt Türk since 2005. He managed the Banking Services Group until October 2012 and he was assigned as the Executive Vice President of Treasury and International Banking as of the same date. NURETTİN KOLAÇ Executive Vice President Law and Risk Follow-up Mr. Kolaç graduated from the Faculty of Law at Marmara University. He served as an attorney and legal counselor in the banking, financial leasing, and insurance industries for 16 years. He worked as the Vice Head of Department and Head of Department (Legal) in the Banking Regulation and Supervision Agency for six years starting from 2004. He joined Kuveyt Türk in April 2010 as the Executive Vice President of Law and Risk Follow-up. Mr. Kolaç also served as a Board Member at KT Portföy Yönetim A.Ş and Neova Sigorta A.Ş in 2015-2018, and March 2018-October 2020, respectively. Upon a Board decision dated October 21, 2020, Mr. Kolaç was appointed the Chairman of the Board at Neova Sigorta A.Ş. He is a chairman and member of several working committees in professional associations for the banking industry. With 33 years of experience in law and banking, Mr. Kolaç has been serving as the Executive Vice President of Corporate, Commercial, SME, and Retail Risk Follow-up, Credit Risk Monitoring, Collateral Monitoring, Customer Rights, and Legislation, and Law and Risk Follow-up. ASLAN DEMİR Executive Vice President Strategy Mr. Demir graduated from Marmara University, International Relations Department. He completed his Master’s degree at Sheffield University in the UK with a thesis on “Critical Elements of Strategy Implementation in Banking Sector.” In 2020, he obtained his second MA degree at Marmara University’s Business Administration Program offered by the Social Sciences Institute, writing a thesis titled “Behaviors of Participation Banking Deposit Customers.” He began his banking career at Kuveyt Türk Treasury Department in 1995, served at the Treasury Department for six years, and continued his career at the Project Management and Quality Department between 2001 and 2004. He was appointed the Project Management and Quality Manager in 2005 and he went on to serve as the Information Technologies Group Manager with the new organizational structuring in 2007. He has been serving as the Executive Vice President of Strategy, Human Resources, Digital Transformation, Corporate Communication, and Corporate Performance Management since October 2012 while continuing to perform his duties at Architecht Bilişim Sistemleri ve Pazarlama Ticaret A.Ş. as a Board Member. 91
94. Kuveyt T ürk Annual Report 2021 Senior Management MEHMET ORAL Executive Vice President Retail Banking Mr. Oral graduated from the Business Administration Department of Uludağ University. He began his career in the Kuveyt Türk family at the Head Office Branch in 1992. He worked as the manager in the İMES, Bursa, and Merter branches between 2000 and 2005. He was assigned as the Regional Manager at the Istanbul European Side Regional Directorate in 2005 after the transition to the Regional Directorate structure. After having served as the Regional Manager for four years, he continued his career as the HR, Training, and Quality Group Manager in 2009. He has been serving as the Executive Vice President of Retail Banking since October 2012. 92 ABDURRAHMAN DELİPOYRAZ Executive Vice President SME Banking Mr. Delipoyraz graduated from the Industrial Engineering Department of Istanbul Technical University. He began his career in the Kuveyt Türk family at the Project and Investment Department and he worked at the Corporate and Commercial Banking Sales Department and Financial Analysis and Intelligence Department until 2000. Mr. Delipoyraz worked as the Branch Manager at Beşyüzevler and Bakırköy Branches between 2000 and 2004. He was assigned as the Regional Manager in December 2004 and he worked at Istanbul Europe 1 and Istanbul Anatolia Regional Directorates. He has been serving as the Executive Vice President of SME Banking since January 2015.
95. Retail Banking Executive Committee Corporate Governance Committee SME Banking Loans Remuneration & Nomination Committee Corporate Treasury and and International Commercial Banking Banking Secretariat of Board of Directors Credit Committee Law and Risk Follow-up Strategy CEO Corporate Social Responsibility Committee Financial Affairs Information Security Department Secretariat of Advisory Board Advisory Board Banking Services Group BOARD OF DIRECTORS Risk, Control and Compliance Group Risk Committee Audit Committee Internal Audit Group Section IV: Management and Corporate Governance Practices Organizational Chart 93
96. Kuveyt T ürk Annual Report 2021 Summary Report of the Board of Directors Submitted to the General Assembly Esteemed Shareholders, 2020 was a year when we faced the hardest impact of the pandemic and the global economy seriously narrowed. 2021, however, was marked by vaccination efforts and an economic activity tilting towards normalization after the end of lockdowns. With lockdowns and other measures being eased gradually, economic activity gained speed in 2021, during which Kuveyt Türk continued its support for the real sector and stood by its retail and corporate clients with its innovative and pioneering products and services. Drawing strength from the solid shareholding structure of its principal shareholders, namely Kuwait Finance House (KFH) and Directorate General of Foundations, Kuveyt Türk came to the fore with outstanding contributions in the participation finance sector. It also cemented its position as the tenth biggest bank in the overall Turkish banking industry with reference practices in 2021. Kuveyt Türk in 2021 Kuveyt Türk boasts 33 years of experience in products and services developed in line with the principles of participation finance. In 2021, the Bank further increased its profitability and maintained consistent growth, while raising its net profit by 78.71% year on year, which corresponds to TL 2.5 billion. Kuveyt Türk’s total funds raised reached TL 212.1 billion, representing a 73.61% YoY hike and funds extended rose to TL 123.4 billion with an increase of 56%. Raising shareholders’ equity to TL 10,5 billion by %31 and asset size to TL 254 billion by %66.83, Kuveyt Türk cemented its ranking of 10th in the banking sector and maintained its lead among other participation finance institutions in terms of asset size. Kuveyt Türk and Turkish Airlines join forces with Miles&Smiles In 2021, Kuveyt Türk added new products and services to its portfolio by focusing on customer satisfaction. Introducing a maiden service to the participation finance industry, the Bank signed a deal with Turkey’s flag carrier Turkish Airlines and Mastercard and became the first participation finance institution to join the Miles&Smiles partnership. Blazing a Trail, Kuveyt Türk Issued Global Sustainable Subordinated Sukuk In 2010, Kuveyt Türk issued the first Sukuk of Turkey and Continental Europe, thus introducing Turkey with interestfree capital markets. Blazing a new trail in sukuks, Kuveyt Türk this time conducted the first “Global Sustainable Tier 2 Subordinated Sukuk Issuance” in Turkey and worldwide. As 2021 was overshadowed by the impact of the pandemic, Kuveyt Türk shaped its operations by considering the health of customers and employees as its number one priority. Tapping into its robust capital structure and dynamic corporate governance approach, the Bank continued to take strides without respite to generate value for stakeholders. Expectations from 2022 Celebrating its 33rd anniversary in 2021, Kuveyt Türk targets a 32% rise in the funds extended for 2022. Kuveyt Türk will continue to focus on products and services for customers. In addition, efforts will be undertaken to ensure a reporting period in which sectoral diversity is increased on the financing side, especially in the agriculture, tourism, and energy sectors in 2022. The leading player of the Turkish participation finance sector, Kuveyt Türk remains committed to contributing further to the sustainable growth of the country’s economy. As a result of various innovations and novelties it rolled out to the sector and customers, Kuveyt Türk has been recognized for its success with many awards. Kuveyt Türk strives to maintain its leadership position in Turkey’s participation finance sector. The Bank is moving forward thanks to its solid capital and liquidity structure, high asset quality, dynamic corporate governance approach, customer service model based on continuous improvement, ongoing technology investments, intensive digital transformation efforts, robust subsidiary network, and expansions to international markets. We would like to thank our expert, well-educated, young, and dynamic employees who contributed to our success, all our stakeholders, and you, our esteemed shareholders, who have never withdrawn their support from us. Board of Directors 94
97. Section IV : Management and Corporate Governance Practices Executives within Internal Systems Name-Surname Position Education H. Cevdet Yılmaz Chief Risk Officer Bachelor's Degree Head of Internal Audit Group Bachelor's Degree Head of Internal Control Master's Degree Head of Risk Management Bachelor's Degree Head of Compliance Master's Degree Bahattin Akça Fadıl Uluşık Vefa Okan Arık Hayrettin Çapoğlu HÜSEYİN CEVDET YILMAZ Chief Risk Officer Mr. Yılmaz graduated from the Business Administration Department of Boğaziçi University in 1989. He began his banking career as the Assistant Internal Auditor in Esbank’s Internal Audit and Inspection Department. After having served as Internal Auditor and Branch Manager in the same institution, he began to work as the Head of Internal Audit and Inspection Department at Kuveyt Türk in September 2000. He was assigned as the Audit and Risk Group President in 2003. Mr. Yılmaz has been serving as Chief Risk Officer since 2012. BAHATTİN AKÇA Head of Internal Audit Group Mr. Akça graduated from (English) Business Administration Department at Istanbul University in 1996. He began his career as Assistant Auditor at Kuveyt Türk in 1996 at the Internal Audit Group. Akça served as the Head of Internal Control between 2003 and 2007. Since September 2007, he has been the Head of the Internal Audit Group. FADIL ULUŞIK Head of Internal Control Mr. Uluışık graduated from Istanbul University, Faculty of Economics. He received an MA degree from the Money-Banking Department at the Social Sciences Institute of Istanbul University in 1999. Mr. Uluışık began his career at Kuveyt Türk in 1996 and he has been serving as the Head of Internal Control since December 2007. VEFA OKAN ARIK Head of Risk Management Mr. Arık graduated from Gazi University, Faculty of Economics and Administrative Sciences. Mr. Arık began his career in 1997 and joined Kuveyt Türk in 2002. Since February 2013, he has been the Head of Risk Management. HAYRETTIN ÇAPOĞLU Head of Compliance Mr. Çapoğlu graduated from Boğaziçi University, Faculty of Economics and Administrative Sciences, Department of Political Science and International Relations in 1997. He completed his MA studies in International Relations at the Social Sciences Institute of Marmara University in 2002. Mr. Çapoğlu began his career in 1997 and joined Kuveyt Türk in 2002. Since February 2013, he has been serving as the Head of Compliance. 95
98. Kuveyt T ürk Annual Report 2021 Senior Management Committees AUDIT COMMITTEE Name-Surname Shadi Ahmed Yacoub ZAHRAN Nadir ALPASLAN Mohamad Hedi MEJAI Duty Assignment Date Chairman, Member of the Board of Directors 04.11.2020 Member, Vice Chairman of the Board of Directors 24.12.2019 Member, Member of the Board of Directors 04.05.2021 Duties and Responsibilities • Receiving regular reports on the fulfillment of the duties from Internal Audit units and Independent audit organizations, • In the event of matters or discrepancies in breach of legislation and internal regulations which may adversely affect the continuity and safe execution of the Bank’s activities, reporting these to the Board of Directors, • Reporting its opinions along with the results of its activities, to the Board of Directors on the practices required or measures to be taken by the Bank, and on other matters deemed significant in terms of sustaining the Bank’s activities securely, within regular periods no longer than six months. RISK COMMITTEE Name-Surname Gehad Mohamed Elbendary ANANY Salah A. E. AL MUDAF Nadir ALPASLAN Duty Assignment Date Chairman, Member of the Board of Directors 04.11.2020 Member, Member of the Board of Directors 24.12.2019 Member, Vice Chairman of the Board of Directors 04.05.2021 Duties and Responsibilities • Performing the tasks assigned as an internal control officer about risk management, internal control, and compliance under the provisions of the Regulation on Internal Systems and Internal Capital Adequacy Assessment Process of Banks, • Establishing internal systems for risk management, internal control, and compliance; ensuring their effective, sufficient, and appropriate functioning, • Reviewing the strategies, policies, regulations, and guidelines on the activities of internal systems units in its remit before submittal for the Board’s approval; ensuring their effective implementation and maintenance, • Coordinating the internal systems units in its remit, • Notifying the Board to make sure necessary measures are taken to timely address and eliminate the errors or shortcomings in the practices of the internal systems units in its remit, as spotted by the Banking Regulation and Supervision Agency or independent auditors; evaluating such errors or shortcomings to coordinate internal control activities in the areas where identical or similar errors and shortcomings may arise, • Updating itself regarding the risk exposure of the Bank and the means of measuring and managing such risks, • And making sure adequate capital is maintained vis-a-vis the risks exposed through designing, establishing, and guaranteeing the implementation of ICAAP. CREDIT COMMITTEE Name-Surname Duty Assignment Date Credit Committee Chairman 24.09.2014 Ahmad S. A. A. AL KHARJI Credit Committee Member 09.09.2020 Ufuk UYAN Credit Committee Member 16.06.2009 Nadir ALPASLAN Credit Committee Member 09.09.2020 Shadi Ahmed Yacoub ZAHRAN Credit Committee Member 09.09.2020 Hamad Abdulmohsen AL MARZOUQ Duties and Responsibilities It serves as a senior management committee in charge of discussing and finalizing credit requests of up to 10% of the Bank’s equities. 96
99. Section IV : Management and Corporate Governance Practices ADVISORY COMMITTEE Name-Surname Duty Assignment Date Chairman of Advisory Committee 27.01.2020 Deputy Chairman of Advisory Committee 27.01.2020 Halil GÜNENÇ Member of Advisory Committee 27.01.2020 Prof. Dr. Mubarak ALHARBI Member of Advisory Committee 27.01.2020 Assoc. Dr. Abdullah DURMUŞ Member of Advisory Committee 27.01.2020 Mehmet ODABAŞI Member of Advisory Committee 27.01.2020 Prof. Dr. M. Abdurrezzak TABATABAI Assoc. Dr. Enver Şuayb ABDUSSELAM Duties and Responsibilities • Responding to, and/or providing alternative solutions for, the questions forwarded to the Committee as per the methods and processes determined by the Bank (Board and/or CEO) about the principles of interest-free banking, • Following up the decisions and standards introduced by the Advisory Committee, and global developments in the field of interest-free banking, • Working in collaboration and coordination with internal audit units to audit the compliance of the Bank’s operations with the principles of interest-free banking, • Providing opinions and suggestions on the draft contractual texts for processes involving new products, • Organizing educational and informative seminars for the staff to guarantee Bank-wide adoption and expansion of the interest-free banking culture, • Representing the Bank in conferences, symposiums, and other events about the Committee’s areas of activity upon the Bank’s written assignment, • Discussing the matters requested by the Audit Committee for examination; passing decisions on such matters; and informing the Head Office accordingly, • Passing decisions specific to the Bank regarding the principles and standards of interest-free banking and their implementation; presenting the periodic reports covering the decisions it passed to the Advisory Committee, • Reviewing internal guidelines in terms of compliance with the principles and standards of interest-free banking, • Reviewing, examining, and approving the Bank’s standard contracts and appendices on products and services in terms of the principles and standards of interest-free banking, • Providing an opinion on the principles and standards of interest-free banking to the Bank and its subsidiaries subject to consolidation regarding real or corporate service providers in the field of law, audit, and other relevant topics, • Providing information on the activities of the Advisory Committee within the period so that they are covered in the Bank’s annual report; providing evaluations on the compliance of Kuveyt Türk’s operations with the principles and standards of interest-free banking. CORPORATE GOVERNANCE COMMITTEE Name-Surname Duty Assignment Date Chairman, Member of the Board of Directors 24/09/2014 Burhan ERSOY Member, Member of the Board of Directors 04/05/2021 Mohamed Hedi MEJAI Member, Member of the Board of Directors 04/05/2021 Hamad Abdulmohsen AL MARZOUQ Duties and Responsibilities The Corporate Governance Committee monitors the Bank’s compliance with corporate governance principles, undertakes improvement efforts in this area, and presents recommendations to the Board in line with the relevant legislation and the Bank’s ethical rules. 97
100. Kuveyt T ürk Annual Report 2021 Senior Management Committees EXECUTIVE COMMITTEE Name-Surname Duty Assignment Date Chairman 24/09/2014 Ahmad S. A. A. AL KHARJI Member 09/09/2020 Ufuk UYAN Member 27/04/2006 Hamad Abdulmohsen AL MARZOUQ Duties and Responsibilities The Executive Committee is in charge of, and tasked with, the following: a) It performs all tasks assigned to it by the Board of Directors. b) It is authorized to decide on the execution of amicable agreements, debt write-off, and release (before or after NPL status) with customers, guarantors, pledgers, and/or other third parties in the capacity of a debtor for amounts over 1% of the Bank’s equities, and provided such amounts do not exceed 10% of the Bank’s equities (no matter what type of a transaction it is). c) It is in charge of making decisions on real estate, participation, procurement of inventory, participation in projects, partnerships, and investments the amount and value of which reach up to 10% of the Bank’s equities. d) It conducts preliminary evaluation and presents it to the approval of the Board on all planned real estate purchases, participation, partnerships, and investments of over 10% of the Bank’s equities. e) It is authorized to make decisions on any maintenance, repair, renovation works, as well as material, commodity, equipment, and service procurements the amount and value of which is up to 10% of the Bank’s equities; to decide on annual expenditures not exceeding 10% of the Bank’s equities within the budget approved by the Board, and to approve internal regulations in this regard. REMUNERATION AND NOMINATION COMMITTEE Name-Surname Duty Assignment Date Chairman, Member of the Board of Directors 09/09/2020 Gehad Mohamed Al BENDARY Member, Member of the Board of Directors 09/09/2020 Ufuk UYAN Member, Member of the Board of Directors 19/11/2014 Ahmad S. A. A. AL KHARJI Duties and Responsibilities The Remuneration and Nomination Committee works to review the competitive edge of the Bank’s remuneration structure annually and monitor developments and best practices on remuneration. The Committee provides the Board of Directors with guidance on remuneration. CORPORATE SOCIAL RESPONSIBILITY COMMITTEE Name-Surname Duty Assignment Date Chairman, Member of the Board of Directors 09/09/2020 Shadi Ahmed Yacoub ZAHRAN Member, Member of the Board of Directors 09/09/2020 Ufuk UYAN Member, Member of the Board of Directors 18/09/2013 Ahmad S. A. A. AL KHARJI Duties and Responsibilities • The Committee is authorized to specify, and take decisions on, the social responsibility projects the Bank will carry out and manage. • The Committee is authorized to make onerous and/or voluntary in-kind and in-cash donations, provided the limits set forth by the Banking Law and similar/relevant legislation are not exceeded, and to donate, within the same limits, immovable properties to persons, entities, and/or organizations as it deems necessary onerously and/or voluntarily on behalf of the Bank. • The Committee is also authorized to assign the aforementioned decision-making and executive powers to the departments of the head office and branches or to use these powers via these departments and branches. 98
101. Section IV : Management and Corporate Governance Practices ASSETS AND LIABILITIES COMMITTEE Name-Surname Duty Assignment Date Chairman, Member of the Board of Directors, CEO 10/05/1999 Member, Chief Risk Officer 16/12/2003 Member, Executive Vice President, Commercial Banking 14/01/2003 Member, Executive Vice President, Loans 20/08/2003 Member, Executive Vice President, Banking Services Group 27/10/2005 Member, Executive Vice President - Treasury and International Banking 05/05/2005 Ahmet KARACA Member, Executive Vice President, Financial Affairs 12/07/2006 Nurettin KOLAÇ Member, Executive Vice President, Law and Risk Follow-up 20/04/2010 Member, Executive Vice President, Strategy 08/10/2012 Member, Executive Vice President, Retail Banking 01/10/2012 Member, Executive Vice President, SME Banking 09/01/2015 Member, Group Manager, Treasury 01/10/2020 Ufuk UYAN Hüseyin Cevdet YILMAZ Ahmet Süleyman KARAKAYA Bilal SAYIN İrfan YILMAZ Dr. Ruşen Ahmet ALBAYRAK Aslan DEMİR Mehmet ORAL Abdurrahman DELİPOYRAZ Kamil KİBAR Duties and Responsibilities This is the senior management committee responsible for the Bank’s assets-liabilities and financial management. Meets weekly on a regular basis. PARTICIPATIO1N IN COMMITTEE MEETINGS The Board of Directors convenes when necessary in line with the Articles of Association and takes decisions based on requirements. The Board of Directors convened six times in 2021. The Audit Committee oversees the effectiveness, adequacy, and functioning of the Bank’s internal systems as per applicable laws, and takes necessary actions accordingly. The Audit Committee convened nine times in 2021, two of them were together with the Advisory Committee members. The Risk Committee held six meetings in 2021. The Credit Committee held six meetings in 2021. The Assets and Liabilities Committee held fifty-two meetings in 2021. The Advisory Board held twenty-four meetings in 2021. All the committee meetings were held online due to the Covid-19 pandemic. Unless they had excuses, committee members were present during the meetings. Related Party Transactions Detailed information about the transactions of the risk group in which the bank is involved is given on pages 234 and 360 of the annual report. 99
102. Kuveyt T ürk Annual Report 2021 Outsourced Services Supplier Contract Description 32BIT BİLGİSAYAR HİZMETLERİ LTD. ŞTİ. Leasing, maintenance, and support services for IBM Robotic Process Automation (RPA) 32BIT BİLGİSAYAR HİZMETLERİ LTD. ŞTİ. Provision of software connection service with the Reuters dealing system ADEO BİLİŞİM DANIŞMANLIK HİZMETLERİ SANAYİ VE TİC. A.Ş. ARAS KURYE SERVİSİ A.Ş. Cyber Incidents Response Service Contract Seninbankan Distribution and Transportation Service Contract ARCHİTECHT BİLİŞİM SİSTEMLERİ VE PAZARLAMA TİC. A.Ş. Service contract for the APIGO product ARCHİTECHT BİLİŞİM SİSTEMLERİ VE PAZARLAMA TİC. A.Ş. Usage license for Power Factor ARCHİTECHT BİLİŞİM SİSTEMLERİ VE PAZARLAMA TİC. A.Ş. Provision of digital security services to enhance the Bank's infrastructure, and block the phishing and malware attacks coming through the internet and mobile banking channels ARKSIGNER YAZILIM VE DONANIM SAN. TİC. A.Ş. BARİKAT İNTERNET GÜVENLİĞİ BİLİŞİM TİCARET A.Ş BİLEŞİM FİNANSAL TEKNOLOJİLER VE ÖDEME SİS. A.Ş. BİLİŞİM BİLGİSAYAR HİZMETLERİ A.Ş. BİLİŞİM BİLGİSAYAR HİZMETLERİ LTD. ŞTİ. BİLİŞİM YAZILIM SİSTEMLERİ SANAYİ VE TİCARET A.Ş BRINKS GÜVENLİK HİZMETLERİ A.Ş. BS BİZİM SERVİS PERSONEL DANIŞMANLIK HİZMETLERİ A.Ş E-SIGNATURE Integration System 2021 BRSA Penetration Test Contract Card customization and enveloping works; statement printing and enveloping services Provision of credit card and merchant software infrastructure support services Service contract on software infrastructure support for ATM and Debit card management system IT Payroll Accrual Implementation Update and Maintenance Contract Precious Metals and Bills Storage Outsourced Staff Employment Contract CALL CENTER RESOURCES DAN. A.Ş. XTM Video Infrastructure Contract CALL CENTER RESOURCES DAN. A.Ş. Genesys Call Center System Maintenance Contract CHRONOS İNSAN KAY. DANŞ. LTD. ŞTİ. COLLECTÜRK ALACAK YÖN VE DAN. A.Ş. DESMER GÜVENLİK HİZMETLERİ TİCARET A.Ş. Payroll Creation Service Contract Provision of call services by company employees to Bank's debtors (card) Cash transportation services (including for ATMs and XTMs) EKOL GRUP KORUMA GÜVENLİK EĞİT.HİZM. A.Ş. Outsourcing backup security officers in place of those on leave/off duty with a medical report ETCBASE YAZILIM VE BİLİŞİM TEKNOLOJİLERİ A.Ş. NPL system user and development fees purchase contract FİNEKSUS BİLİŞİM ÇÖZÜMLERİ TİCARET A.Ş. Supply and maintenance support for a supplementary software product for improvements related to SWIFT FİNEKSUS BİLİŞİM ÇÖZÜMLERİ TİCARET A.Ş. Supply and maintenance service for SWIFT software for the Disaster Recovery Center 100
103. Section IV : Management and Corporate Governance Practices Supplier Contract Description FİNEKSUS BİLİŞİM ÇÖZÜMLERİ TİCARET A.Ş. Supply and maintenance of SWIFT supplementary software FİNEKSUS BİLİŞİM ÇÖZÜMLERİ TİCARET A.Ş. Provision of SWIFT Alliance software maintenance and support services FİNEKSUS BİLİŞİM ÇÖZÜMLERİ TİCARET A.Ş. Supply, maintenance, and update services for AML software FİNEKSUS BİLİŞİM ÇÖZÜMLERİ TİCARET A.Ş. Provision of Paygate Inspector Annual Maintenance services HANGİSİ İNTERNET VE BİLGİ HİZM. A.Ş. Services include re-directing credit applications filed at the websites to the bank as per the contract signed with HangiKredi HUGİN YAZILIM TEKNOLOJİLERİ A.Ş. Monthly support services for cash register POS INGENICO ÖDEME SİSTEM ÇÖZÜMLERİ A.Ş. Monthly support services for cash register POS İSTANBUL ALTIN RAFİNERİSİ A.Ş. IAR gold day and gold orders KEY YAZILIM ÇÖZÜMLERİ A.Ş. Provision of mortgage software KEY YAZILIM ÇÖZÜMLERİ A.Ş. Provision of expert assessment software KURYENET MOTORLU KURYECİLİK VE DAĞITIM HİZMETLERİ A.Ş. LOOMİS GÜVENLİK HİZMETLERİ A.Ş. METIS BİLGİSAYAR SİST. SAN. VE TİC. A.Ş. MİKROSARAY MİKROBİLGİSAYAR PAZ.VE TİC. A.Ş. MTM HOLOGRAFİ GÜVENLİKLİ BASIM VE BİLİŞİM TEK. SAN. A.Ş. NADİR METAL RAFİNERİ SAN.VE TİC. A.Ş. NEXT4BİZ BİLGİ TEKNOLOJİLERİ A.Ş. PİL EĞİTİM BİLİŞİM MİMARLIK TİC. LTD. ŞTİ. PRODAFT SİBER GÜVENLIK TEKNOLOJILERI A.Ş. PROVISION BİLGİ İŞLEM SAN. VE TİC. A.Ş. PTT PARA LOJİSTİK VE ÖZEL GÜVENLİK HİZMETLERİ A.Ş. R2 SERVİS ELEKTRİK ELEKTRONİK VE BİLGİ TEKNOLOJİLERİ SANAYİ TİCARET A.Ş. REISSWOLF DOKÜMAN YÖNETİMİ HİZMETLERİ A.Ş. SECURE FUTURE BİLGİ TEKNOLOJİLERİ VE HİZ. TİC.A.Ş. Debit card and credit card transportation and delivery Provision of local and international transportation and crating (storage) services for precious metals and banknotes worth a maximum of USD 100 million Purchase of Call Center Outsourced Services Monthly support services for cash register POS Check printing services Provision of conversion services for Gold Customer Satisfaction Program purchase and maintenance services Purchase of Bliss software for the Mobile HR project, maintenance, and support for the software Malicious Software Detection on Digital Channels POS and card transformation project contract Cash and Precious Metal Transportation Monthly support services for cash register POS Purchase of Archive Document Storage Service BRSA Penetration Test Contract SESTEK SES VE İLETİŞİM BİLGİSAYAR TEKNOLOJİLERİ SANAYİ TİCARET A.Ş. Licensing, Supply, Maintenance and Support Services for Voice IVR, Voice Signature, Chatbot and Voice Analysis Software SMARTPRO BİLİŞİM HİZMETLERİ VE DANIŞMANLIK SANAYİ VE TİCARET LTD. ŞTİ. Service Contract for Outsourced Personnel TELEKURYE DAĞITIM VE KURYE HİZMETLERİ A.Ş. TEM KURYECİLİK KIRTASİYE BİLGİSAYAR GIDA VE TAŞIMACILIK SANAYİ TİCARET LTD. ŞTİ. TESTINIUM TEKNOLOJİ YAZILIM A.Ş. TOKEN FİNANSAL TEKNOLOJİLER A.Ş TURKCELL SATIŞ VE DİJİTAL İŞ SERVİSLERİ A.Ş. Tele-Courier Service Contract Courier Service Contract Software test automation services and technical consulting contract Monthly support services for cash register POS Paperless Branch Banking Project 101
104. Kuveyt T ürk Annual Report 2021 Annual Report Compliance Opinion INDEPENDENT AUDITOR’S REPORT ON THE ANNUAL REPORT OF THE BOARD OF DIRECTORS To the General Assembly of Kuveyt Türk Katılım Bankası A.Ş. 1) OPINION We have audited the annual report of Kuveyt Türk Katılım Bankası A.Ş. (the ‘’Bank’’) and its subsidiaries (collectively referred as the “Group’’) for the period of 1 January 2021 – 31 December 2021. In our opinion, the consolidated and unconsolidated financial information provided in the annual report of the Board of Directors and the discussions made by the Board of Directors on the situation of the Group are presented fairly and consistent, in all material respects, with the audited full set consolidated and unconsolidated financial statements and the information we obtained during the audit. 2) BASIS FOR OPINION We conducted our audit in accordance with ‘’Regulation on independent audit of the Banks’’ published in the Official Gazette no.29314 dated 2 April 2015 published by BRSA (BRSA Independent Audit Regulation) and Independent Auditing Standards (InAS) which are part of the Turkish Auditing Standards as issued by the Public Oversight Accounting and Auditing Standards Authority of Turkey (POA). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Annual Report section of our report. We are independent of the Group in accordance with the Code of Ethics for Independent Auditors (Code of Ethics) as issued by the POA, and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 3) OUR AUDITOR’S OPINION ON THE FULL SET CONSOLIDATED AND UNCONSOLIDATED FINANCIAL STATEMENTS We have expressed an unqualified opinion in our auditor’s reports dated 21 February 2022 and 9 February 2022 on the full set consolidated and unconsolidated financial statements of the Group and the Bank, respectively, for the period of 1 January 2021 – 31 December 2021. 4) THE RESPONSIBILITY OF THE BOARD OF DIRECTORS ON THE ANNUAL REPORT In accordance with Articles 514 and 516 of the Turkish Commercial Code 6102 (‘’TCC’’) and communique on ‘Principles and procedures set out by the regulations on preparation and issuance of annual reports of Banks’, the management of the Group is responsible for the following items: a) Preparation of the annual report within the first three months following the balance sheet date and submission of the annual report to the general assembly. b) Preparation and fair presentation of the annual report; reflecting the operations of the Group for the year, along with is financial position in a correct, complete, straightforward, true and honest manner. In this report, the financial position is assessed according to the consolidated and unconsolidated financial statements. The development of the Group and the potential risks to be encountered are also noted in the report. The evaluation of the board of directors is also included in this report. c) The annual report also includes the matters below: - Subsequent events occurred after the end of the fiscal year which have significance, - The research and development activities of the Group, - Financial benefits such as salaries and bonuses paid to the board members and to those charged governance, allowances, travel, accommodation, and representation expenses, financial aids and aids in kind, insurances and similar deposits. - Other matters prescribed in the communique on ‘Principles and procedures set out by the regulations on preparation and issuance of annual reports of Banks’ published in official gazette no.26333 dated November 1,2006. When preparing the annual report, the board of directors takes into account the secondary legislative arrangements published by the Ministry of Trade and related institutions. 5) AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE ANNUAL REPORT Our aim is to express an opinion, based on the independent audit we have performed on the annual report in accordance with provisions of the Turkish Commercial Code and the Communique on ‘Principles and procedures set out by the regulations on preparation and issuance of the annual reports of Banks’ published in official gazette no.26333 dated November 1, 2006 , ‘’Regulation on Accounting Applications for Banks Safeguarding of Documents’’ published in the Official Gazette no.26333 dated 1 November 2006 and other regulations on accounting records of Banks published by Banking Regulation and Supervision Agency (“BRSA”), circulars, interpretations published by BRSA and ‘’BRSA Accounting and Financial Reporting Legislation’’ which includes the provisions of Turkish Financial Reporting Standards (“TFRS”) for the matters which are not regulated by these regulations, on whether the consolidated and unconsolidated financial information provided in this annual report and the discussions of the Board of Directors are presented fairly and consistent with the Group’s audited consolidated and unconsolidated financial statements and to prepare a report including our opinion. The independent audit we have performed is conducted in accordance with InAS and BRSA Independent Audit Regulation. These standards require compliance with ethical provisions and the independent audit to be planned and performed to obtain reasonable assurance on whether the consolidated and unconsolidated financial information provided in the annual report and the discussions of the Board of Directors are free from material misstatement and consistent with the consolidated and unconsolidated financial statements. The name of the engagement partner who supervised and concluded this audit is Emre Çelik. Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi A member firm of Ernst & Young Global Limited Emre Çelik, SMMM Partner 1 March 2022 Istanbul, Türkiye 102
105. Section V : Financial Information and Risk Management Practices Annual Report Statement of Responsibility STATEMENT OF RESPONSIBILITY PREPARED IN ACCORDANCE WITH ARTICLE 9 OF THE COMMUNIQUÉ ON PRINCIPLES OF FINANCIAL REPORTING IN CAPITAL MARKETS (II-14.1) ISSUED BY THE CAPITAL MARKETS BOARD OF TURKEY In respect of the Annual Report prepared by the Capital Market Board regulations for the period 01.01.2021 - 31.12.2021, we declare that; they have been examined by us; within the framework of the information we have in our field of duty and responsibilities in our company, they do not contain any material deficiencies that may result in an untrue statement or be misleading as of the date of disclosure; according to our information we have within the framework of our duties and responsibilities in our company, the financial statements prepared as per the Communiqué fairly reflect the Bank’s assets, liabilities, financial position, and profit and loss and the development and performance of the business and the financial position of the business, together with significant risks and uncertainties. Kind regards, SHADI AHMED YACOUB ZAHRAN NADIR ALPASLAN MOHAMED HEDI MEJAI Chairman of the Audit Committee Audit Committee Member Audit Committee Member UFUK UYAN AHMET KARACA MEHMED TAHIR KAPLAN CEO CFO Budget and Reporting Group Manager 103
106. Kuveyt T ürk Annual Report 2021 Review of the Audit Committee on Internal Systems The Audit Committee was established by the Board of Directors in line with the Banking Law No. 5411 and the Regulation on Banks’ Internal Systems and Internal Capital Adequacy Assessment Process. The responsibilities of the Board of Directors within the scope of internal systems are carried out by the Audit Committee and the Risk Committee. The Risk Committee for the Internal Control Department, the Risk Management Department and the Compliance Department, and the Audit Committee for the Internal Audit Group assumed the responsibility of internal systems. Within the organizational structure of the Bank, the units in the scope of internal systems are positioned under the Board of Directors through these committees. The Audit Committee convened 9 times in 2021, two of them were together with the Advisory Committee members. INTERNAL AUDIT GROUP The Internal Audit Group has carried out its activities in 2021 in line with the requirements of its business plan and expectations of stakeholders. Chief Internal Auditor (Head of the Internal Audit Group) and three vice presidents serve as the management staff of the Internal Audit Group. In 2021, risk assessments were made for all of the audit entities such as domestic and foreign branches, Head Office departments, subsidiaries and the Bank’s information systems. Following the results of that risk assessment, a risk-based audit plan was formed and became valid following the approval of the Board of Directors. Besides the ordinary audit activities determined in the annual audit plan, special examinations and legal or administrative investigations were performed by the Internal Audit Group in the required matters and cases. Furthermore, in the scope of the Management Declaration Audit, a comprehensive assessment of general information system controls and business controls with regard to their efficiency, adequacy and compliance has been conducted. This assessment has provided a sound basis for the Management Declaration, which should be submitted to the Independent Audit Institution by the Board of Directors in line with the legal regulations. Within the scope of the Communiqué on Compliance with the Principles and Standards of Interest-Free Banking, a risk assessment has been made regarding that the Bank’s activities are carried out in accordance with the principles and standards of interest-free banking and the decisions of the Advisory Committee together with the effectiveness and adequacy of the compliance function. Risk-focused audit activities were carried out based on the assessment results, and the results were presented to the Audit Committee and the Board of Directors. In addition, the Audit Committee and the Advisory Committee met twice in 2021 to discuss the reports on interest-free banking compliance and audit activities together with actions taken against the findings in these reports and the aforementioned audit results were presented to the members of the committee at these meetings. In the audits and other engagements performed throughout the year, deficiencies and errors (if any) were revealed and opinions and recommendations were put forth for preventing recurrence of those issues and effective and efficient utilization of the Bank’s resources. Actions determined in the internal audit reports, which were agreed upon with auditees in line with recommendations, have been followed up in accordance with the Internal Audit Group’s follow up policies and the results have been presented to the related authorities in required circumstances. Moreover, a summary of internal audit reports, general evaluations and other information about the activities of the Internal Audit Group have been quarterly submitted to the Audit Committee and Board of Directors. These reports have also been sent to the BRSA. According to the International Standards for the Professional Practice of Internal Auditing, the internal audit activity is expected to implement a Quality Assurance and Improvement Program (QAIP). One of the requirements of this program is to confirm, through external assessments that should be conducted at least once every five years, that the internal audit activity is conducted in accordance with the Standards and that the internal auditors act in accordance with the Code of Ethics. In that framework, it had been documented, by an independent audit institution, that the activities of the Internal Audit Group are being carried out in accordance with the Standards in 2018. INTERNAL CONTROL DEPARTMENT The Internal Control Department is in charge of the internal control function within the Bank. Internal Control System has been established adequately and effectively to cover the activities of domestic and foreign branches, headquarters units and subsidiaries to reduce, manage, monitor and control of the risks exposed by the Bank. Bank’s internal control system and internal control activities are designed and carried out adequately and effectively by the Internal Control Department together with the Bank’s Management. In accordance with the Bank’s strategic targets, policies, internal and external regulations, Internal Control Department organized its activities into three different groups: “Branches and Central Internal Control”, “Head Office and Information Systems Internal Control”, “Participation Banking Compliance’’. This structure based on specialization regarding business 104
107. Section V : Financial Information and Risk Management Practices lines, increased the efficiency, proficiency and compliance of operations and control systems through continuous controls. Within the scope of 2021 Control Program, the Bank’s various business lines, units, branches, processes, new products, services were analyzed, monitored and the results were reported to the Senior Management with a proactive and dynamic approach adapting the materiality criteria and risk-focused approach. Besides, the Internal Control Department actively participated in the Bank’s Strategic Projects and also Process Modeling and Analysis studies. As part of these efforts, the Internal Control Department analyzed processes together with relevant business units, identified any potential risks to the processes, provided consultancy in designing and establishing controls to counter and reduce these risks contributing to the development of the internal control environment and internal control systems across the Bank. In addition, Internal Control Department, within the context of Participation Banking Compliance function, conducted effective and adequate activities regarding the compliance about Interest Free Banking Principles and Standards and Advisory Committee Resolutions. RISK MANAGEMENT DEPARTMENT Risk Management Department effectively undertook the tasks of ensuring that the risks faced by the Bank are identified, measured, monitored and managed in 2021. Credit Risk Management and Modelling Department continues its activities in the realm of establishing and improving a strong infrastructure for risk management systems to execute risk management activities within the context of Credit Policy and Credit Risk Policy effectively. The internal credit risk limits determined with the Board of Directors’ decisions are measured and presented to the Risk Committee in 2021. Endeavor continues to update the default probability estimation models, which are required to calculate the Capital Adequacy Ratio with the Internal Rating-Based Approach. PD scores of our internal models will be taken into consideration in risk management, marketing activities, credit allocation decision, credit risk monitoring, credit risk follow-up processes. They will play an essential role in all of these activities. Work on compliance with the IFRS-9 Financial Instruments Standard, which entered into force in 2018, was carried out throughout the bank by the Credit Risk Management and Modeling Department in coordination with the main shareholder KFH. After the expected credit loss calculations were automated through the Strategic Solution in 2020, the updates made in the models were implemented in the system. In 2021, the performance of the existing rating models was monitored and revisions were made in the models where necessary. Loss Given Default models based on internal default and recovery data continued to be used, studies were carried out on the development areas of the model according to the results of model validation, and it has been analyzed whether the macroeconomic factors have an impact on the overall recovery process. The model outcomes of Credit Conversion models ensured to be up to date through reviewing. Besides, impact analyzes have been carried out with the participation of Credit, Risk Follow Up and Marketing units regarding the risks that the global pandemic that emerged at the beginning of 2020 may pose in our bank’s credit portfolio, and according to the results of the study, key risk indicator limits of some economic sectors were updated. In addition, management intervention was applied in the expected credit loss model in order to reflect the upside risks that may be caused by factors such as unemployment, exchange rate risk, etc. on the macroeconomic outlook and credit risk, with the effect of the pandemic and current conditions, and thus, a cautious calculation of loan provisions for future credit losses was ensured. On the other hand, some simulations have been carried out for loss allowances on credit portfolios through assessing the level of severities of different economic sectors under various stress scenarios. Following the completion model development for the measurement and management of credit risk within the framework of early warning systems to take timely actions regarding the customers who have a significant increase in the credit risk which will be the trigger of the stage transitions in the scope of IFRS-9, the implementation of Early Warning System have been monitored and for the sake of the enhancement of the system, recommendations have been given to the responsible departments by conducting risk analysis. The level of compliance with the guidelines issued by the BRSA was determined and endeavor continues to increase the level of compliance in coordination with the relevant business units. The Validation Service continued its validation activities for both IFRS 9 model and the models for the three key components of expected credit loss calculation (PD, LGD and EaD) in terms of IRB and IFRS 9 legislation in 2021. Initial validation of the corporate and individual LGD models for IFRS 9 has been carried out. Work has begun on the development of validation automation for the regular monitoring of LGD models for TFRS 9, and it is aimed to carry out periodic validations regularly in 2022. Periodic validation of the IFRS 9 model has been carried out and infrastructure developments have been started for its automation. Periodic validation studies were carried out by using the validation automation developed for the regular monitoring of PD models for the IRB approach, by monthly monitoring over quantitative tests and by preparing a periodic validation report every 6 months. Work on the development of validation automation for the regular monitoring of PD models for IFRS 9 has been completed, and it is aimed to perform periodic validations regularly in 2022. Initial validation studies of the core deposit model were carried out and infrastructure preparations for the periodical validation studies to be carried out in 2022 were started. In order to standardize validation activities, a validation guide has been prepared and a process validation guide has been created. These documents have been shared with the relevant stakeholders that will be affected. In 2022, it is aimed to continue the periodical validation activities and to increase the level of automation. Market risk is periodically reviewed in the Risk Committee and reported to BRSA monthly. Market risk-weighted assets are calculated under the Basel III standard method. 105
108. Kuveyt T ürk Annual Report 2021 Review of the Audit Committee on Internal Systems Bank’s Internal Capital Adequacy Assessment Report with 2020 year-end data was prepared on a consolidated and unconsolidated basis to assess the capital adequacy of the Bank in normal and stress periods and was submitted to BRSA. Periodic stress tests and scenario analyses were performed and presented in the Risk Committee meetings. Besides, market risk, counterparty credit risk and liquidity risk stress tests were implemented simultaneously and on a monthly basis. A monthly report which includes the Bank’s asset-liability management, market and liquidity risks, investments and other topics has been shared with senior management and our main shareholder KFH. Sukuk and other investment portfolios have been monitored regularly, reported to the Risk Committee and our main shareholder KFH. Besides, the works of the risk appetite of the Bank, early warning system consisting of economic indicators related to the fiscal, monetary and financial system in Turkey and the world overall, moreover the economic and financial analysis developed under Kuwait Central Bank requirements and conducted within the framework of CAMELBCOM approach were reported to our main shareholder KFH on quarterly basis. Within the framework of operational risk activities, the Bank’s operational risk loss data is stored in a systematic way and accordance with Basel III standards. Operational risk concentrations were monitored actively by adopting a terminology appropriate to Basel III and reported to the Risk Committee. In Risk Control Self-Assessment studies, workshops are arranged as a tool to assess risks in the Bank’s activities and processes against potential operational risk vulnerabilities and operational risk teams attended these workshops. Additionally, studies were conducted to comply with the operational risk best practice guidelines published by the BRSA. Moreover, the Risk Management Department actively involved in the activities required by the Regulation on Support Services, Risk Management Program for Support Services was revised and submitted to the Board of Directors. In the framework of Basel III regulations, credit risk-weighted assets are calculated according to the standard method and reported to the BRSA monthly on an unconsolidated and consolidated basis. Capital adequacy ratio is also calculated and reported to the BRSA by the Risk Management Department. The Risk Report Set, which contains detailed information on all the transactions subject to Credit Risk-Weighted Assets calculation, is prepared monthly. Disaster Recovery Center Test was completed successfully in November within the scope of Business Continuity. To determine criticality levels of the Bank’s processes, business impact analysis studies have been performed. The Bank’s incident response and business continuity plans are updated and department-specific plans are formed. COMPLIANCE DEPARTMENT Compliance Department conducts activities in order to ensure that compliance risk is effectively managed and kept under control, the risks are prevented before realization and Bank’s operations are continuously carried out accordingly and in compliance with the relevant legislation and regulations. Updating Bank operations in accordance with the regulatory changes concerning the Bank activities is monitored and reported. Compliance status to regulations that consolidated subsidiaries and foreign branches are subject to is monitored. Activities, products and transactions that are currently provided or in development are monitored for compliance with Banking Law, the anti-money laundering and combating the finance of terrorism (AML/CFT) regulations and other relevant regulations, Bank policies, rules and Banking practices. Efforts to ensure compliance of Bank’s activities with AML/CFT regulations are carried out, Bank policies and procedures are established, risk management, monitoring and control activities are conducted with a risk-based approach and identification, follow-up and reporting of suspicious activities to the relevant official authority are performed. Bank employees are provided with consultancy on AML/CFT related subjects and training programs are organized regarding relevant regulations in order to increase the awareness and knowledge of employees. Compliance of the subsidiaries and foreign branches with AML/CFT regulations is observed. 106 SHADI AHMED YACOUB ZAHRAN Audit Committee Chairman NADIR ALPASLAN Audit Committee Member MOHAMED HEDI MEJAI Audit Committee Member
109. Section V : Financial Information and Risk Management Practices Advisory Committee’s Assessment on the Bank’s Compliance with Interest-Free Banking Principles and Standards Praise be to Allah and prayers and salat and salaam be on the Prophet, his family, and his followers. ESTEEMED SHAREHOLDERS, The Advisory Committee reviewed the products, contracts, and practices of Kuveyt Türk Participation Bank as raised in the Advisory Committee meetings during the period that ended on December 31, 2021. Similarly, the Advisory Committee undertook activities to present opinions about fatwas and decisions to ensure Kuveyt Türk Participation Bank’s compliance with the principles of participation banking. As stated by the Advisory Committee, the Management of the Bank is responsible for checking and auditing the compliance of contracts and practices with the principles of participation banking. Taking the reports, information, disclosures, questions, and other matters presented to the Advisory Committee throughout the year into account, Kuveyt Türk was found to act generally in compliance with the principles of participation banking, decisions/standards of the Advisory Board, and the decisions of the Advisory Committee. Revenues generated in a manner to contradict participation banking principles were held in the punitive account. The Advisory Committee thanks the Senior Management, relevant units, and employees for their support and compliance with the Advisory Committee’s decisions, and wish that Allah increase your good deeds and grant you success in your works. May Allah’s mercy and blessings be upon you. 107
110. Kuveyt T ürk Annual Report 2021 Assessment on Financial Status, Profitability and Solvency Kuveyt Türk Participation Bank’s total assets increased by 67% reaching TL 254.1 billion as of year-end 2021, while the shareholders’ equity rose 31% and reached TL 10.5 billion. Concordantly, the Bank’s capital adequacy ratio was above the legal requirement at 23.05%. The Bank continues to increase its profit by using its resources efficiently and productively. Information on financial situation, profitability and solvency can be seen in the financial statements and independent audit report. Ratings of Kuveyt Türk by International Rating Agencies Ratings assigned by the rating agencies authorized in line with the Regulation on Principles for the Authorization and Activities of Rating Agencies and content thereof are given below. Fitch Ratings-September 2021 Ratings Long-term Foreign Currency B+ Short-term Foreign Currency B Long-term Local Currency BB- Short-term Local Currency B Support Rating 4 Viability Rating B+ Outlook Long-term National Credit Rating 108 Stable AA (tur)
111. Section V : Financial Information and Risk Management Practices Information on Risk Management Policies CREDIT RISK MANAGEMENT POLICY AND PROCEDURES Bank’s Senior Management must manage and monitor loan risk policies by considering legal regulations. Within the scope of loan risk policy; • Strategy, • Loan risk management process, • Limit allotment principles, • Internal risk limits, • Concentration risk management, • Country and transfer risk management, • Loan risk reports, • New products and services and • Risk monitoring, control, and improvement activities are conducted. Within this scope, periodic reports are prepared for the research of new techniques and practices for measuring, monitoring, and control of undertaken loan risks in loan transactions and risks defined within the legal and Bank’s internal risk limits, tracking non-performing receivables, analyzing the reasons for the delay and taking necessary measures. The Board of Directors determines the risk appetite of the Bank via risk type based internal risk limits based on the Bank’s risk-taking capacity. Various analyses and reports are generated for the Bank’s portfolio within internal risk limits. Risk management transactions regarding the monitoring and management of loan risk based on country, concentration, maturity, industry, default rate, legal status, collateral, geography, currency type are performed and Risk Committee is informed with the regular reports prepared for the Bank portfolio within the internal risk limits. MARKET RISK MANAGEMENT POLICY AND PROCEDURES Kuveyt Türk executes its risk management transactions under the responsibility of the Board of Directors in compliance with the legal regulations. For this reason, market risk management transactions are regulated within legal regulations. Implementing the Risk Management Strategy, Policy and Implementing Procedures approved by the Board of Directors, providing timely and reliable reporting on important risks faced by the Bank and evaluating the risk reports, taking predicted and necessary measures, and participating in the process of defining risk limits are the responsibilities of the Senior Management. Risk policies and implementing procedures defined for the market risk that the Bank is exposed to are approved by the Board of Directors and reviewed regularly. Market risk is managed by defining, measuring, limiting, reporting possible risks to be faced by the Bank due to existing market conditions in line with international standards and reserving capital accordingly as well as decreasing risks with hedging transactions. In line with the Risk Strategy document, it is made sure the Bank has sufficient capital and liquidity to continue its operations under all circumstances and that these are maintained at a reasonable level. Defining written limits for the digitized risks resulting from the Bank’s transactions that are subject to market risk, monitoring risks undertaken by the Bank and risk limits, tracking limit excesses are performed with Market Risk Policy, Asset & Liability, and Profit Sharing Risk Policy, and Liquidity Risk Policy. It is substantial that the processes are executed within defined limits and Bank’s risk tolerance is considered while defining the limits. 109
112. Kuveyt T ürk Annual Report 2021 Information on Risk Management Policies The acceptable risk level of treasury transactions is defined as the customer limits, dealing limits, allowed transactions, counterparty limits, and country risk limits. The establishment of necessary tracking and control procedures to ensure regulatory compliance and prevent unacceptable situations is determined by the principles of this policy. The limits must be defined as risk-based. Besides nominal amounts based on monetary magnitude, these limits can be also proportional limits based on risk measurement results such as the percentage of the average value at risk, percentage of risk-weighted assets, or concentration-based limits including sectoral or debtor based limitations. Risk limits are established within the limits put on related matters approved by the Bank in all risk categories within the regulations and materiality criterion. Also, the code of practice on actions to be taken if early warning limits are determined and these limits are exceeded is defined by the Board of Directors. Kuveyt Türk’s market risk management and guiding limits and informative reports system used for this purpose are based on the principles below; Ensuring that risk management transactions work efficiently and reliably, Ensuring that the Bank undertakes risks in line with its risk-taking capability and capacity and risk-taking limits are managed in line with the risky markets and risk-taking capacities of the Bank’s related departments. OPERATIONAL RISK MANAGEMENT POLICY AND PROCEDURES Processes of defining, evaluating, monitoring, controlling, and mitigating the operational risks faced by the Bank are executed under the supervision of the Board of Directors and Risk Committee. Policies and implementing procedures defined within operational risk management and on-the-job training provided for employees and effective internal control mechanisms ensure that business units have the risk management point of view and the integration of the operational risk management culture into all units and activities. Within this scope, each unit and employee should well understand their transactions and position within the operational risk management and be aware of their authority and responsibilities. Risk, Control Self-Assessment Policy was established to make I) self-assessment of the Bank regarding operational risks II) evaluation of the potential threats arising from operational processes and activities, and assessment of the weaknesses of the Bank against these threats III) analysis of the potential adverse impacts of such threats and weaknesses on the Bank. Works are performed on all kinds of operational risk types that the Bank is exposed to and the quality of corrective actions for such risks and risk-mitigating transactions are evaluated to allow the determination of problems before the occurrence of substantial losses for the Bank. In this regard, operational risk incidents above the defined threshold value, and detailed information of such incidents are recorded; at the same time, Risk, Control Self-Assessment works are performed to define the potential operational risks. 110
113. Section V : Financial Information and Risk Management Practices Five-Year Summary Financial Information (TL thousand) 2017 2018 2019 2020 2021 3,850,986 5,997,843 7,471,511 9,327,690 13,035,305 Profit Sharing Expense (-) 1,716,773 2,850,053 3,975,600 3,118,614 5,404,863 Net Fee and Commission Income 241,002 349,546 468,907 350,721 577,758 Other Revenues 477,101 1,111,204 2,060,416 1,219,495 3,092,270 Other Expenses 2,003,383 3,482,483 4,609,967 5,926,609 7,753,104 Tax Provision (-) 174,942 256,245 305,429 452,402 1,045,639 Net Profit for the Period 673,991 869,812 1,109,838 1,400,281 2,501,727 57,123,095 74,232,325 104,439,345 152,290,315 254,068,260 4,591,151 5,438,553 6,821,290 7,995,097 10,456,853 17.66 17.68 19.32 21.26 23.05 Profit Sharing Income Total Assets Total Shareholders’ Equity Capital Adequacy Ratio (%) 111
115. KUVEYT T ÜRK KATILIM BANKASI ANONIM ŞIRKETI Independent auditor’s report, unconsolidated financial statements and notes for the year ended December 31, 2021 (Convenience translation of unconsolidated financial statements and independent auditor’s report originally issued in Turkish)
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121. Section V : Financial Information and Risk Management Practices Section One General information I. II. III. IV. V. VI. History of the Bank including its incorporation date, initial legal status and amendments to legal status Shareholding structure, shareholders jointly or individually having direct or indirect control over the management and supervision of the Bank and the disclosures on any related changes in the current period, if any, and information about the Group that the Bank belongs to Explanations regarding the chairman and the members of board of directors, audit committee members, general manager and assistant general managers and their shares in the bank Information on qualified shareholders Explanations of the Bank’s services and field of operations Current or likely actual legal barriers to immediate transfer of equity or repayment of debts between Parent Bank and its subsidiaries 121 121 121 122 122 122 Section Two The unconsolidated financial statements I. II. III. IV. V. VI. VII. Unconsolidated Balance sheet (Statement of financial position) Unconsolidated Statement of off-balance sheet items Unconsolidated Income Statement Unconsolidated Statement of income/expense items accounted under shareholder’s equity Unconsolidated Statement of changes in shareholders’ equity Unconsolidated Statement of cash flows Unconsolidated Profit distribution table 123 125 126 127 128 129 130 Section Three Accounting principles I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. XIV. XV. XVI. XVII. XVIII. XIX. XX. XXI. XXII. Explanations on basis of presentation Explanations on strategy of using financial instruments and foreign currency transactions Information on subsidiaries and associates Explanations on forward transactions and option contracts and derivative instruments Explanations on profit share income and expense Explanations on fees and commission income and expenses Explanations on financial assets Explanations on offsetting of financial assets and liabilities Explanations on sale and repurchase agreements and lending of securities Explanations on assets held for sale and discontinued operations and related liabilities Explanations on goodwill and other intangible assets Explanations on tangible assets Explanations on leasing transactions Explanations on provisions and contingent liabilities Explanations on liabilities relating to employee benefits Explanations on taxation Explanations on additional disclosures on borrowings Explanations on share certificates issued Explanations on acceptances and availed drafts Explanations on government grants Explanations on segment reporting Explanations on other matters Section Four Information related to financial position and risk management of the Bank I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. XIV. Explanations on equity items Explanations and Disclosures related to credit risk Explanations on currency risk Explanations related to stock position risk Liquidity risk management and liquidity coverage ratio Explanations on leverage ratio Explanations on fair values of financial assets and liabilities Explanations on the activities carried out on behalf and account of other persons Explanations on hedge accounting practices Explanations on risk management Securitization positions Explanations on the activities carried out on behalf and account of other persons, fiduciary-based transactions Qualitative explanations on market risk Explanations on business segments 131 135 135 135 136 136 136 138 138 139 139 139 140 141 141 142 143 143 143 143 143 143 144 149 163 166 167 174 175 175 175 176 191 191 191 196 Section Five Explanations and notes on the unconsolidated financial statements I. II. III. IV. V. VI. VII. VIII. IX. Explanations and notes related to assets Explanations and notes related to liabilities Explanations and notes related to off-balance sheet contingencies and commitments Explanations and notes related to the statement of income Explanations and Disclosures Related to Statement of Changes in Shareholders' Equity Explanations and notes related to cash flow statement Explanations and notes related to the risk group of the Bank Domestic, foreign and off-shore branches or equity investments and foreign representative offices Significant events and matters arising subsequent to balance sheet date 198 215 223 227 233 233 235 236 237 Section Six Other Explanations I. Other matters which must be explained in terms of explicitness, interpretability and understandability of the balance sheet Section Seven Independent Auditor’s Report I. II. Explanations on the auditor’s report Notes and disclosures prepared by the independent auditor 238 238 238 119
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123. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION ONE GENERAL INFORMATION 1. History of the Bank including its incorporation date, initial legal status and amendments to legal status Kuveyt Türk Katılım Bankası A.Ş. (“The Bank”) was incorporated with the approval of the Central Bank of the Republic of Turkey (CBRT) on 28 February 1989 and commenced its operations on 31 March 1989, with the name of Kuveyt Türk Evkaf Finans Kurumu A.Ş. To comply with the Banking Act 5411, the title of the Bank has been changed to Kuveyt Türk Katılım Bankası A.Ş. with a change in the Articles of Association which was approved in the annual general meeting dated 26 April 2006. Main field of operation is, in addition to the Bank’s equity, to collect funds from domestic and foreign customers through “Current Accounts” and “Profit/ Loss Sharing Accounts” and allocate such funds to the economy, to perform all kinds of financing activities in accordance with the regulations, to encourage the investments of all individuals and legal entities operating in agricultural, industrial, trading and service industries, participating into the operations of these entities or individuals and to form joint business partnerships and to perform all these activities in a non-interest environment. 2. Shareholding structure, shareholders jointly or individually having direct or indirect control over the management and supervision of the Bank and the disclosures on any related changes in the current period, if any, and information about the Group that the Bank belongs to As of 31 December 2021, 62.24% of the Bank’s shares are owned by Kuwait Finance House located in Kuwait, 18.72% by Vakıflar Genel Müdürlüğü Mazbut Vakıfları, 9.00% by Wafra International Investment Company in Kuwait and 9.00% by Islamic Development Bank whereas the remaining 1.04% of the shares are owned by other real persons and legal entities. 3. Explanations regarding the chairman and the members of board of directors, audit committee members, general manager and assistant general managers and their shares in the bank Hamad Abdulmohsen AL MARZOUQ Shadi Ahmed Yacoub ZAHRAN Nadir ALPASLAN Salah A E AL MUDHAF Burhan ERSOY Mohamed Hedi MEJAI Ahmad S A A AL KHARJİ Gehad Mohamed Elbendary ANANY Ufuk UYAN Ahmet KARACA Ahmet Süleyman KARAKAYA Bilal SAYIN İrfan YILMAZ Dr. Ruşen Ahmet ALBAYRAK Nurettin KOLAÇ Aslan DEMİR Mehmet ORAL Abdurrahman DELİPOYRAZ Hüseyin Cevdet YILMAZ Date of Audit Committee Assignments Audit Educational Committee Degree End Date Ownership Percentage Master - Title Date of Assignment Head of the BOD 25/06/2014 Member of BOD and chairman of the audit committee Vice President of BOD and member of Audit Committee Member of BOD Member of BOD Member of BOD and Audit Committee Member of BOD 25/09/2020 04/11/2020 Master - 15/04/2011 24/12/2019 Bachelor - 07/10/2019 18/06/2020 25/03/2021 26/03/2014 04/05/2021 24/09/2014 09/09/2020 Bachelor Bachelor Master Master - Member of BOD 25/09/2020 09/09/2020 04/11/2020 Bachelor - Member of BOD and General Manager Assistant General Manager, Financial Control. Assistant General Manager, Corporate and Commercial Banking Assistant General Manager, Lending Assistant General Manager, Banking Services Assistant General Manager, Treasury and International Banking. Assistant General Manager, Legal and Risk Follow Up Assistant General Manager, Strategy Assistant General Manager, Retail Banking Assistant General Manager, SME Banking Head of Risk, Control and Compliance Group 10/05/1999 12/07/2006 Master Master 0.057% 0.001% Name 14/01/2003 Bachelor - 20/08/2003 27/10/2005 Bachelor Bachelor 0.004% 0.017% 05/05/2005 Doctorate 0.008% 20/04/2010 Bachelor 0.001% 08/10/2012 01/10/2012 09/01/2015 16/12/2003 Bachelor Bachelor Bachelor Bachelor 0.006% 0.005% 0.005% 0.001% Chairman and members of the Board of Directors, members of auditing committee, general manager and assistant general managers own 0.10% of the Bank’s share capital (31 December 2020 – 0.12%). 121 1
124. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4. Information on qualified shareholders Share amount (Nominal) Shareholding percentage Paid shares (Nominal) Unpaid shares Kuwait Finance House Vakıflar Genel Müdürlüğü Mazbut Vakıfları 2,863,098 861,086 %62.24 %18.72 2,863,098 861,086 - Total 3,724,184 %80.96 3,724,184 - Name / Commercial Name As of 31 December 2021, the shares of parent shareholder of Bank, Kuwait Finance House (“KFH”) are 51.95% publicly traded; 24.08% of KFH belongs to Kuwait Investment Authority and 10.48% belongs to Public Authority for Minors Affairs. 5. Explanations of the Bank’s services and field of operations The Bank’s field of operations includes corporate banking, international banking services, and retail banking and credit card services. The Bank’s core business is operating in accordance with the principles of interest-free banking as a participation bank by collecting funds through current and profit/loss sharing accounts and lending such funds to its customers. As of 31 December 2021, the Bank is operating through 442 domestic branches (31 December 2020 – 435) with 6,133 employees (31 December 2020 – 6,000). Summary of some of the Bank’s operations described in the Articles of Association are as follows: • • • • • • • • To collect funds through “Current Accounts” and “Profit/Loss Sharing Accounts” and special fund pools in line with the regulations; To allocate funds to the economy and provide all kinds of cash, non-cash loans within the principles of noninterest banking; To offer financial and operational leasing; To handle all kinds of deposits and payments, including travelers’ checks, credit cards and other payment instruments, provide member business services (POS), consulting, advisory, and safe deposit box services; To purchase financial instruments on money and capital markets in cash or installments, sell and mediate the sale and trade on the stock exchange in accordance with legislation and principles of non-interest banking; To purchase, acquire and construct any kind of real estate and if necessary lease or transfer ownership to other persons; To act as a representative, deputy or agent for corporations and enterprises (including insurance companies); To provide socially responsible aid for the benefit of the community in the light of the legislations. The Bank’s activities are not limited to the list above. If another transaction is decided to be beneficial to the Bank, the transaction must be recommended by the Board of Directors, approved by the General Assembly and authorized by relevant legal authorities after whom it also needs to be approved by the Ministry of Trade since it constitutes an amendment of the Article of Association. Decisions that have been approved through all these channels will be included to the Article of Association. 6. Current or likely actual legal barriers to immediate transfer of equity or repayment of debts between Bank and its subsidiaries None. 122 1
125. Section V : Financial Information and Risk Management Practices SECTION TWO UNCONSOLIDATED FINANCIAL STATEMENTS I. Unconsolidated Balance Sheet (Statement of Financial Position) II. Unconsolidated Statement of Off-Balance Sheet Items III. Unconsolidated Statement of Income Statement (Profit and Loss Statement) IV. Unconsolidated Statement of Profit or Loss and Other Comprehensive Income V. Unconsolidated Statement of Changes in Shareholders’ Equity VI. Unconsolidated Statement of Cash Flows VII. Unconsolidated Statement of Profit Distribution Table 123
126. KUVEYT T ÜRK Kuveyt Türk Annual Report 2021KATILIM BANKASI ANONİM ŞİRKETİ UNCONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM (Amounts expressed in thousands of Turkish Lira (TL) unlessŞİRKETİ otherwise stated.) UNCONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2021 3. STATEMENT OF PROFIT OR LOSS (INCOME STATEMENT) (Amounts expressed in thousands of Turkish Lira (TL) unless otherwise stated.) 1. I. 1.1. 1.1.1. 1.1.2. 1.1.3. 1.1.4. 1.2. 1.2.1. 1.2.2. 1.2.3. 1.3. 1.3.1. 1.3.2. 1.3.3. 1.4. 1.4.1. 1.4.2. II. 2.1. 2.2. 2.3. 2.3.1. 2.3.2. 2.4. III. 3.1. 3.2. IV. 4.1. 4.1.1. 4.1.2. 4.2. 4.2.1. 4.2.2. 4.3. 4.3.1. 4.3.2. V. VI. 6.1. 6.2. VII. VIII. IX. X. Audited Current Period 01.01.202131.12.2021 BALANCE SHEET – ASSETS (STATEMENT OF FINANCIAL POSITION) Notes INCOME AND EXPENSE TABLE Audited PROFIT SHARE INCOME I. (5.4.1.) Current Period Profit Share on Loans 1.1. 31.12.2021 Profit Share on Reserve Deposits 1.2. ASSETS Note TL FC Total Profit Share on Banks 1.3. Profit Share on Money Market Placements 1.4. FINANCIAL ASSETS (Net) 23,975,789 101,993,815 125,969,604 Profit Share on Marketable Securities Portfolio 1.5. Cash Equivalents 5,403,971 74,571,274 79,975,245 Fair Value Through Profit or Loss 1.5.1.and Cash Cash and Balances with Central Bank (5.1.1.) 5,384,058 60,071,258 65,455,316 Fair Value Through Other Comprehensive Income 1.5.2. Banks (5.1.3.) 20,571 14,502,373 14,522,944 Measured at Amortised Cost 1.5.3. Money Finance Lease Income 1.6. Markets Expected Credit 658 2,357 3,015 OtherLoss Profit (-) Share Income 1.7. Financial Assets at SHARE Fair Value Through PROFIT EXPENSE (-) Profit or II. Loss 1,233,834 10,951,814 12,185,648 Expense on Profit Sharing Accounts 2.1. (5.4.4.) Government DebtShare Securities 395,925 10,639,682 11,035,607 Profit Expense on Funds Borrowed 2.2. (5.4.2.) Equity Profit Share Expense on Money Market Borrowings 2.3. Instruments Other Assets 837,909 312,132 1,150,041 Expense on Securities Issued 2.4. Financial Financial Assets at Fair Value Through Other Profit Share Expense on Lease 2.5. (5.1.4.) Other Profit Share Expense Comprehensive Income 16,287,493 15,877,864 32,165,357 2.6. NET PROFIT SHARE INCOME (I - II) Government Debt Securities 16,083,932 15,622,265 31,706,197 III. NET FEES AND COMMISSIONS INCOME/EXPENSE IV. Instruments Equity 7,602 75,285 82,887 Fees Assets And Commissions Received 4.1. Financial Other 195,959 180,314 376,273 Non-Cash Loans 4.1.1. Derivative Financial Assets 1,050,491 592,863 1,643,354 Other 4.1.2. (5.4.13.) Derivative Financial Assets at Fair Value Through Profit (5.1.2.) Fees And Commissions Paid (-) or4.2. Loss 1,050,491 592,863 1,643,354 Non-Cash Loans 4.2.1. Derivative Financial Assets at Fair Value Through Other (5.1.11.) OtherIncome 4.2.2. (5.4.13.) Comprehensive DIVIDEND V. (5.4.3.) FINANCIAL ASSETSINCOME MEASURED WITH (5.1.5.) NET TRADING INCOME / LOSS VI. (5.4.5.) AMORTISED COSTS (Net) 57,550,517 62,034,113 119,584,630 Capital Market Transaction Gains/Losses 6.1. Loans 59,228,283 52,212,308 111,440,591 Gains/Losses From Derivative Financial Instruments 6.2. Leasing Receivables (5.1.10.) 3,238,260 8,687,675 11,925,935 Foreign Exchange Gains/Losses 6.3. Financial Other Assets Measured At Amortized Cost (5.1.6.) 4,798,614 4,798,614 OTHER OPERATING INCOME VII. (5.4.6.) Government Debt Securities 4,798,614 4,798,614 GROSS OPERATING PROFIT (III+IV+V+VI+VII+ VIII) VIII. Other Financial Assets EXPECTED LOSS PROVISIONS (-) IX. (5.4.7.) Expected Credit Loss (-) 4,916,026 3,664,484 8,580,510 OTHER PROVISIONS (-) X. (5.4.7.) PROPERTY AND EQUIPMENT HELD FOR SALE PERSONNEL EXPENSES (-) XI. (5.4.8.) PURPOSE OTHER AND RELATED TO DISCONTINUED (5.1.16.) OPERATING EXPENSES (-) XII. (5.4.8.) OPERATIONS(NET) 240,891 240,891 NET OPERATING INCOME/(LOSS) (IX-X-XI) XIII. Held For Sale 240,891 240,891 EXCESS AMOUNT RECORDED AS INCOME AFTER MERGER XIV. Related to Discontinued Operations INCOME / (LOSS) FROM INVESTMENTS IN SUBSIDIARIES CONSOLIDATED BASED ONXV. INVESTMENTS INMETHOD ASSOCIATES, SUBSIDIARIES EQUITY INCOME / (LOSS) ON NET MONETARY POSITION AND VENTURES 1,481,015 1,481,015 XVI.JOINT PROFIT/(LOSS) BEFORE TAXES (XII+...+XV) Investments in Associates FROM (Net) CONTINUED OPERATIONS (5.1.7.) XVII. (5.4.9.) TAX PROVISION FOR CONTINUED XVIII. Valued (5.4.10) Associates Based on Equity Method OPERATIONS (±) Current Tax Provision 18.1. Unconsolidated Associates Deferred Tax Income(Net) Effect (+) 18.2. Investment in Subsidiaries (5.1.8.) 1,461,015 1,461,015 Deferred Tax Expense Effect (-) 18.3. Unconsolidated Financial Subsidiaries 1,437,335 1,437,335 CURRENT PERIOD PROFIT/(LOSS) (XV±XVI) XIX. (5.4.11.) Unconsolidated Non-Financial Subsidiaries FROM CONTINUED OPERATIONS 23,680 23,680 INCOME FROM DISCONTINUED OPERATIONS XX. Investment in Joint Ventures (Net) (5.1.9.) 20,000 20,000 Income on Non-Current Assets Held For Sale 20.1. Joint Ventures Valued Based on Equity Method 20,000 20,000 Income on Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) 20.2. Unconsolidated Joint Ventures Income on Other Discontinued Operations 20.3. TANGIBLE ASSETS (Net) (5.1.12.) 1,221,027 1,571 1,222,598 EXPENSES FROM DISCONTINUED OPERATIONS (-) XXI. INTANGIBLE ASSETS (Net) (5.1.13.) 248,173 14 248,187 Expenses From Non-Current Assets Held For Sale 21.1. Goodwill Expenses From Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) 21.2. Other 248,173 14 248,187 Expenses From Other Discontinued Operations 21.3. INVESTMENT PROPERTIES (Net) (5.1.14.) PROFIT / (LOSS) BEFORE TAX FROM DISCONTINUED OPERATIONS (XVIII-XIX) XXII. CURRENTTAX TAX ASSETS PROVISION FOR DISCONTINUED OPERATIONS (±) XXIII. DEFERRED TAX ASSETS (5.1.15.) 1,713,575 1,713,575 Current Tax Provision 23.1. OTHER ASSETS (5.1.17.) 1,321,031 2,286,729 3,607,760 Deferred Tax Expense Effect (+) 23.2. Deferred Tax Income Effect (-) 23.3. TOTAL 87,752,018 (XX±XXI) 166,316,242 254,068,260 CURRENT PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS XXIV. ASSETS XXV. 25.1. 25.2. (5.4.12.) NET PROFIT/LOSS (XVII+XXII) Group’s Income/Loss Minority Interest Income/Loss (-) Earnings Per Share Income/Loss Audited 13,035,305 9,327,690 Prior Period 8,554,643 6,174,377 31.12.2020 230,553 37,473 TL FC Total 99,840 122,188 17,678,002 41,874,104 59,552,106 3,482,477 2,602,952 1,170,297 29,286,305 30,456,602 270,993 313,832 1,144,427 23,503,483 2,118,146 24,647,910 3,084,384 26,317 5,783,150 5,809,467 127,100 170,974 602,626 342,754 447 328 775 65,166 47,946 5,404,863 3,118,614 996,392 6,843,055 1,923,295 7,839,447 3,355,475 315,651 6,735,347 7,050,998 1,461,601 781,567 535,134 354,479 680,741 788,449 - 107,708 52,653 59,273 15,382,767 5,412,306 20,795,073 15,299,606 5,190,032 6,209,076 20,489,638 7,630,442 577,758 40,405 350,721 8,056 48,461 1,118,513 181,869 784,516 75,105 256,974 141,317 332,438 136,800 128,546 460,984 977,196 647,716 540,755 332,438 433,795 128,546 460,984 19 29 540,736 433,766 6,042 68 2,160,959 571,361 50,885,111 28,668,356 79,553,467 58,589 45,028 52,228,515 21,814,537 74,043,052 1,958,535 2,360,266 2,650,730 (2,213,019) 5,010,996 143,835 - 5,931,297 2,739,352 5,931,297 925,269 648,066 - 5,931,297 5,931,297 11,300,470 - 7,779,292 4,566,363 3,703,670 1,728,208 3,237,473 5,431,878 162,026 309,703 1,505,724 1,202,037 1,518,991 1,177,396 519,087 - 1,852,683 519,087 3,547,366 519,087 519,087 1,481,015 1,481,015 - 1,852,683 3,547,366 (1,045,639) - (452,402) 2,000,422 781,806 20,366 134,484 1,461,015 1,461,015 975,149 463,888 1,437,335 1,437,335 2,501,727 23,680 - 1,400,281 23,680 20,000 20,000 20,000 20,000 - - 1,173 1,161,631 1,162,804 190,532 190,532 - 190,532 190,532 24,987 24,987 748,336 748,336 790,979 8,267,002 9,057,981 73,479,680 78,810,635 152,290,315 2,501,727 1,400,281 2,501,727 1,400,281 - The accompanying notes are an integral part of these financial statements. 124 6 Audited Prior Period 01.01.202031.12.2020
127. KUVEYT T ÜRK KATILIM BANKASI ANONİM Section ŞİRKETİ V: Financial Information and Risk Management Practices UNCONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira (TL) unless ŞİRKETİ otherwise stated.) KUVEYT TÜRK KATILIM BANKASI ANONİM UNCONSOLIDATED BALANCE SHEET AS(INCOME OF 31 DECEMBER 2021 3. STATEMENT OF PROFIT OR LOSS STATEMENT) (Amounts expressed in thousands of Turkish Lira (TL) unless otherwise stated.) 1. I. II. III. IV. V. VI. 6.1. 6.2. VII. VIII. 8.1. 8.2. 8.3. 8.4. IX. X. XI. BALANCE SHEET – LIABILITIES AND EQUITY (STATEMENT OF INCOME AND EXPENSE TABLE PROFIT SHARE INCOME I. Profit Share on Loans 1.1. Profit Share on Reserve Deposits 1.2. Profit Share on Banks 1.3. Profit Share on Money Market Placements LIABILITIES Note TL 1.4. Profit Share on Marketable Securities Portfolio 1.5. FUNDS (5.2.1.) 57,295,682 Fair Value Through Profit or Loss 1.5.1. COLLECTED FUNDS (5.2.3.) 4,795,462 Fair Value Through Other Comprehensive Income 1.5.2. BORROWED MONEY MARKETS 6,495,137 Measured at Amortised Cost 1.5.3. Finance Lease Income SECURITIES ISSUED (Net) 1.6. Other Profit Share Income FINANCIAL LIABILITIES AT FAIR VALUE 1.7. PROFIT SHARE II. THROUGH PROFIT OREXPENSE LOSS (-) Expense on Profit Sharing Accounts 2.1. DERIVATIVE FINANCIAL LIABILITIES 192,898 Profit Share Expense on Funds Borrowed 2.2. Derivative Financial Liabilities at Fair Value Through (5.2.2.) Profit Share Expense on Money Market Borrowings 2.3. or Loss Profit 192,898 Expense on Liabilities Securities Issued 2.4. Derivative Financial at Fair Value Through (5.2.6.) Profit Share Expense 2.5. Comprehensive Other Incomeon Lease Other Profit Share Expense 2.6. LEASE PAYABLES (5.2.5.) 342,556 NET PROFIT SHARE INCOME (I - II) III. PROVISIONS (5.2.7.) 1,443,840 NET FEES AND COMMISSIONS INCOME/EXPENSE IV. Restructuring Provision Fees And Commissions Received 4.1. Reserves For Employee Benefits 570,937 Non-Cash Loans 4.1.1. Insurance For Technical Provision (Net) Other 4.1.2. Other 872,903 Fees And Commissions Paid (-) 4.2. Provisions CURRENT TAX LIABILITIES (5.2.8.1.) 1,158,997 Non-Cash Loans 4.2.1. DEFERRED TAX LIABILITIES Other 4.2.2. LIABILITIES FOR PROPERTY AND DIVIDEND INCOME V. EQUIPMENT FOR SALE/ LOSS AND RELATED (5.2.9.) NET HELD TRADING INCOME VI. TO OPERATIONS (Net) Capital Market Transaction Gains/Losses 6.1.DISCONTINUED Gains/Losses From Derivative Financial Instruments Held 6.2. For Sale Foreign Exchange Gains/Losses Related to Discontinued Operations 6.3. OTHER OPERATING INCOME VII. SUBORDINATED DEBT INSTRUMENTS (5.2.10.) GROSS OPERATING PROFIT (III+IV+V+VI+VII+ VIII) VIII. Loans IX. DebtEXPECTED Other InstrumentsLOSS PROVISIONS (-) OTHER PROVISIONS (-) X. OTHER LIABILITIES (5.2.4.) 1,843,584 PERSONNEL EXPENSES (-) XI. SHAREHOLDERS` EQUITY (5.2.11.) 10,531,507 OTHER OPERATING EXPENSES (-) XII. Capital Paid-in 4,595,131 NET OPERATING INCOME/(LOSS) (IX-X-XI) XIII. Reserves Capital 25,124 EXCESS AMOUNT RECORDED AS INCOME AFTER MERGER XIV. Share Premiums 23,250 Notes (5.4.1.) Audited Current Period 31.12.2021 FC Total 154,809,707 3,526,512 65,015 65,015 9,819 998,535 1,367 997,168 - 11.1. 11.2. XII. 8,100,496 12.1. 12.2. 8,100,496 XIII. 2,533,167 XIV. (74,654) 14.1. 14.2. 14.2.1. INCOME / (LOSS) FROM INVESTMENTS IN SUBSIDIARIES CONSOLIDATED BASED ON XV. Cancellation 14.2.2. Share 1,874 EQUITY Profits METHOD 14.2.3. Other Reserves INCOME / (LOSS) ON NET MONETARY POSITION XVI. Capital Other Comprehensive Income orOPERATIONS Loss PROFIT/(LOSS) FROM CONTINUED BEFORE TAXES (XII+...+XV) XVII.Accumulated 14.3. That Will Not Reclassified Through ProfitOPERATIONS or Loss (52,112) TAXBe PROVISION FOR CONTINUED (±) XVIII. Current TaxComprehensive Provision Other Income or Loss 18.1. Accumulated 14.4. Deferred Tax Income Effect (+) That Reclassified Through Profit or Loss 49,331 (74,654) 18.2.Will Be Deferred Tax Expense Effect (-) 18.3. Reserves 14.5. Profit 3,359,858 CURRENT PERIOD PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) XIX. Reserves 14.5.1. Legal 355,870 INCOME FROM DISCONTINUED OPERATIONS XX. 14.5.2. Statutory Reserves Income on Non-Current Assets Held For Sale 20.1. 14.5.3. Extraordinary Reserves 2,936,850 Income on Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) 20.2. Profit Reserves 14.5.4. Other 67,138 Income on Other Discontinued Operations 20.3. or Loss 14.6. Profit 2,554,175 EXPENSES FROM DISCONTINUED OPERATIONS (-) XXI.Years' Profits or Losses 14.6.1. Prior 52,448 Expenses From Non-Current Assets Held For Sale 21.1. Period Net Profit or Loss 14.6.2. Current 2,501,727 Expenses From Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) 21.2. 14.7. Minority Shares (5.2.12.) Expenses From Other Discontinued Operations 21.3. PROFIT / (LOSS) BEFORE TAX FROM DISCONTINUED OPERATIONS (XVIII-XIX) XXII. TOTAL AND 84,099,663 169,968,597 TAX PROVISION FOREQUITY DISCONTINUED OPERATIONS (±) XXIII. LIABILITIES Current Tax Provision 23.1. Deferred Tax Expense Effect (+) 23.2. Deferred Tax Income Effect (-) 23.3. CURRENT PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XX±XXI) XXIV. NET PROFIT/LOSS (XVII+XXII) XXV. Group’s Income/Loss 25.1. Minority Interest Income/Loss (-) 25.2. Earnings Per Share Income/Loss Audited Audited Current Period Prior Period 01.01.2021- POSITION) 01.01.2020FINANCIAL 31.12.2021 31.12.2020 212,105,389 8,321,974 6,495,137 - (5.4.4.) 257,913 (5.4.2.) 257,913 352,375 2,442,375 572,304 (5.4.13.) 1,870,071 1,158,997 (5.4.13.) (5.4.3.) (5.4.5.) (5.4.6.) 8,100,496 (5.4.7.) 8,100,496 (5.4.7.) 4,376,751 (5.4.8.) 10,456,853 (5.4.8.) 4,595,131 25,124 23,250 1,874 (5.4.9.) (52,112) (5.4.10) (25,323) 3,359,858 (5.4.11.) 355,870 2,936,850 67,138 2,554,175 52,448 2,501,727 254,068,260 (5.4.12.) 13,035,305 9,327,690 Audited 8,554,643 6,174,377 Prior Period 230,553 37,473 31.12.2020 99,840 122,188 TL FC Total 3,482,477 2,602,952 33,499,285 88,673,699 122,172,984 270,993 313,832 2,868,946 8,719,946 2,118,146 11,588,892 3,084,384 185,225 185,225 127,100 170,974 602,626 342,754 65,166 47,946 5,404,863 - 3,118,614 3,355,475 286,320 1,923,295 1,390,486 1,676,806 1,461,601 781,567 535,134 286,320 354,479 1,390,486 1,676,806 59,273 -52,653 - 3,910 340,115 344,025 7,630,442 400,358 6,209,076 1,170,443 1,570,801 577,758 350,721 1,118,513 784,516 418,183 659 418,842 141,317 136,800 977,196 647,716 752,260 1,151,959 540,755 399,699 433,795 348,052 19 348,052 29 540,736 433,766 6,042 68 2,160,959 571,361 -58,589 45,028 - (2,213,019) 1,958,535 - 2,739,352 143,835 925,269 648,066 4,590,265 4,590,265 11,300,470 - 7,779,292 4,566,363 4,590,265 3,237,473 4,590,265 162,026 528,460 309,703 1,289,708 1,818,168 1,505,724 90,443 1,202,037 7,904,654 7,995,097 1,518,991 4,595,131 - 1,177,396 4,595,131 3,547,366 25,124 - 1,852,683 25,124 23,250 23,250 1,874 3,547,366 (51,258) (1,045,639) 2,000,422 (87,218)20,366 90,443 975,149 1,970,146 2,501,727 284,943 1,617,135 68,068 1,452,729 52,448 1,400,281 48,996,914 103,293,401 2,501,727 2,501,727 - 1,874 - 1,852,683 (51,258) (452,402) 781,806 3,225 134,484 463,888 1,970,146 1,400,281 284,943 - 1,617,135 68,068 1,452,729 52,448 1,400,281 152,290,315 1,400,281 1,400,281 - The accompanying notes are an integral part of these financial statements. 6 125
128. KUVEYT T ÜRK Kuveyt Türk Annual Report 2021KATILIM BANKASI ANONİM ŞİRKETİ UNCONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2021 KUVEYT TÜRK KATILIM BANKASI ŞİRKETİ (Amounts expressed in thousands of TurkishANONİM Lira (TL) unless otherwise stated.) UNCONSOLIDATED STATEMENT OF OFF-BALANCE SHEET ITEMS STATEMENT OF PROFIT OR LOSS (INCOME STATEMENT) AS OF3.31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira (TL) unless otherwise stated.) 2. STATEMENT OF OFF-BALANCE SHEET ITEMS INCOME AND EXPENSE TABLE PROFIT SHARE INCOME I. Profit Share on Loans 1.1. Note TL Profit Share on Reserve Deposits 1.2. Profit Share on Banks A. COMMITMENTS AND CONTINGENCIES (I+II+III) 70,491,068 1.3. I. GUARANTEES AND on WARRANTIES (5.3.1.) 8,925,813 Profit Share Money Market Placements 1.4. 1.1. Letters 8,069,532 Profit Share on Marketable Securities Portfolio 1.5. of Guarantee 1.1.1. Guarantees Subject to Through State Tender 267,372 Fair Value Profit Law or Loss 1.5.1. 1.1.2. Guarantees Given For Foreign Trade Operations 445,301 Fair Value Through Other Comprehensive Income 1.5.2. 1.1.3. Other Letters of Guarantee 7,356,859 Measured at Amortised Cost 1.5.3. 1.2. Bank Loans 1,044 Lease Income 1.6. LetterFinance 1.2.1. Import of Acceptances 1,044 Other Profit Share Income 1.7. 1.2.2. Other Bank Acceptances PROFIT SHARE EXPENSE (-) 1.3. Letters of Credit 13,942 II. Expense Sharing Accounts 1.3.1. Documentary LettersonofProfit Credit 2.1. 1.3.2. Other of Credit 13,942 Share Expense on Funds Borrowed 2.2. LettersProfit 1.4. Guaranteed Refinancing Profit Share Expense on Money Market Borrowings 2.3. 1.5. Endorsements Expense on Securities Issued 2.4. 1.5.1. Endorsements to the Central Bank of Turkey Profit Share Expense on Lease 2.5. 1.5.2. Other Endorsements Other Profit Share Expense 2.6. 1.6. Other Guarantees 841,295 NET PROFIT SHARE INCOME (I II) III. 1.7. Other Warrantees NET FEES AND COMMISSIONS INCOME/EXPENSE IV. II. COMMITMENTS (5.3.1.) 58,403,340 Fees And Commissions Received 2.1. Irrevocable Commitments 9,395,400 4.1. Non-Cash Loans 2.1.1. Forward Purchase and Sales Commitments 1,340,797 4.1.1. Asset 2.1.2. Share Commitment to Associates and Subsidiaries 4.1.2.CapitalOther 2.1.3. Loan 1,007,332 FeesCommitments And Commissions Paid (-) 4.2. Granting 2.1.4. Securities Underwriting Commitments Non-Cash Loans 4.2.1. 2.1.5. Commitments For Reserve Deposits Requirements Other 4.2.2. Commitments 2.1.6. Payment For Checks 1,750,116 DIVIDEND INCOME V. and Fund Liabilities From Export Commitments 2.1.7. Tax NET INCOME / LOSS VI. 2.1.8. Commitments ForTRADING Credit Card Expenditure Limits 5,278,441 Capital Market Transaction Gains/Losses 6.1. 2.1.9. Commitments For Credit Cards and Banking Services Gains/Losses From Derivative Financial Instruments Promotions 957 6.2. 2.1.10. Receivables From Short SaleGains/Losses Commitments Foreign Exchange 6.3. 2.1.11. Payables For Short Sale Commitments OTHER OPERATING INCOME VII. 2.1.12. Other Commitments 17,757 GROSS OPERATING PROFIT (III+IV+V+VI+VII+ VIII) VIII.Irrevocable 2.2. Revocable Commitments 49,007,940 EXPECTED LOSS PROVISIONS (-) IX. 2.2.1. Revocable Loan Granting Commitments 49,007,940 OTHER PROVISIONS (-) X. Revocable 2.2.2. Other Commitments PERSONNEL EXPENSES (-) XI. III. DERIVATIVE FINANCIAL INSTRUMENTS (5.3.2.) 3,161,915 OTHER OPERATING EXPENSES (-) XII. 3.1 Derivative Financial Instruments Held For Risk NET OPERATING INCOME/(LOSS) (IX-X-XI) XIII. Management EXCESS AMOUNT RECORDED AS INCOME AFTER MERGER 3.1.1 Fair Value Hedges XIV. 3.1.2 3.1.3 3.2 3.2.1 3.2.1.1 3.2.1.2 3.2.2 3.3 B. IV. 4.1. 4.2. 4.3. 4.4. 4.5. 4.6. 4.7. 4.8. V. 5.1. 5.2. 5.3. 5.4. 5.5. 5.6. 5.7. VI. FC Audited Notes Current Period (5.4.1.) 31.12.2021 Total 83,837,236 8,467,832 3,777,053 19,827 49,329 3,707,897 112,639 112,639 4,507,178 1,979,005 2,528,173 70,962 4,958,958 4,958,958 4,958,958 - 154,328,304 17,393,645 11,846,585 287,199 494,630 11,064,756 113,683 113,683 4,521,120 1,979,005 (5.4.4.) 2,542,115 (5.4.2.) 912,257 63,362,298 14,354,358 6,299,755 (5.4.13.)1,007,332 (5.4.13.) 1,750,116 (5.4.3.) (5.4.5.) 5,278,441 70,410,446 957 (5.4.6.) 17,757 49,007,940 (5.4.7.) 49,007,940 (5.4.7.) (5.4.8.) 73,572,361 (5.4.8.) Cash Flow Hedges INCOME / (LOSS) FROM INVESTMENTS IN SUBSIDIARIES CONSOLIDATED BASED ON XV. of NetEQUITY Hedge Investment in Foreign Operations METHOD INCOME / (LOSS) ON NET MONETARY POSITION Held Transactions 3,161,915 70,410,446 73,572,361 XVI.For Trading Forward Currency Buy/Sell Transactions OPERATIONS BEFORE TAXES 2,116,860 3,507,510 5,624,370 PROFIT/(LOSS) FROM CONTINUED (XII+...+XV) XVII. Foreign (5.4.9.) Forward Currency BuyFOR Transactions 1,426,726 1,522,070 2,948,796 TAX PROVISION CONTINUED OPERATIONS (±) XVIII. Foreign (5.4.10) Forward Foreign Currency Sell Transactions 690,134 1,985,440 2,675,574 Current Tax Provision 18.1. Other Forward Buy/Sell Transactions 1,045,055 66,902,936 67,947,991 Deferred Tax Income Effect (+) 18.2. Other Deferred Tax Expense Effect (-) 18.3. CUSTODY AND PLEDGES SECURITIES (IV+V+VI) 667,226,247 348,895,558 1,016,121,805 CURRENT PERIOD PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) XIX. (5.4.11.) ITEMS HELD IN CUSTODY 20,834,179 34,556,759 55,390,938 INCOME FROM XX. Customers’ Securities Held DISCONTINUED OPERATIONS Income on Held Non-Current Assets Held For Sale Investment Securities in Custody 5,719,656 4,866,680 10,586,336 20.1. Incomefor onCollection Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) 2,766,870 Checks 13,271,444 16,038,314 20.2. Received Commercial Notes Received for Collection 1,843,079 545,230 2,388,309 Income on Other Discontinued Operations 20.3. Other Received for Collection FROM DISCONTINUED OPERATIONS (-) XXI.AssetsEXPENSES Assets Received for Public Offering Assets Held For Sale Expenses From Non-Current 21.1. Other Items Under Custody Expenses From Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) 21.2. Custodians 26,377,979 26,377,979 Expenses From Other Discontinued Operations 21.3. PLEDGED ITEMS 646,380,429 314,183,181 960,563,610 PROFIT / (LOSS) BEFORE TAX FROM DISCONTINUED OPERATIONS (XVIII-XIX) XXII. Marketable Securities 401,159 401,159 TAX PROVISION FOR DISCONTINUED OPERATIONS (±) XXIII. Guarantee Notes 101,097 5,361,650 5,462,747 Current Tax Provision Commodity 22,137,974 669,993 22,807,967 23.1. Warranty Deferred Tax Expense Effect (+) 23.2. Properties 165,337,287 6,452,977 171,790,264 Deferred Tax Income Effect (-) 23.3. Other Pledged Items PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS 458,402,912 (XX±XXI) 301,698,561 760,101,473 CURRENT XXIV. Pledged Items-Depository NET PROFIT/LOSS (XVII+XXII) XXV. (5.4.12.) ACCEPTED GUARANTEES AND WARRANTEES 11,639 155,618 167,257 Group’s Income/Loss 25.1. Minority Interest SHEET Income/Loss (-) 25.2. OFF TOTAL BALANCE ACCOUNTS (A+B) 737,717,315 432,732,794 1,170,450,109 Earnings Per Share Income/Loss Audited Current Period 01.01.202131.12.2021 25,181,485 71,647,060 1,083,945 3,547,3662,130,485 785,976 (1,045,639) 843,754 297,969 2,000,4221,286,731 24,097,540 69,516,575 20,366 975,149 478,587,067 203,218,899 2,501,727 13,171,821 20,387,564 3,145,487 7,054,819 8,485,888 1,082,506 1,540,446 - 312,851 11,937,388 465,403,607 182,743,974 149,465 101,128 2,996,008 14,297,126 - 913,904 147,051,571 3,715,371 303,804,317 175,118,691 2,501,727 11,639 87,361 2,501,727 281,560,982 - 565,239,533 5 The accompanying notes are an integral part of these financial statements. 6 Audited Prior Period 13,035,305 9,327,690 31.12.2020 6,174,377 TL 8,554,643 FC Total 230,553 37,473 86,652,46699,840 78,342,083 164,994,549 122,188 7,470,036 4,393,458 11,863,494 6,997,497 9,590,794 3,482,4772,593,297 2,602,952 210,252 252,152 270,993 41,900 313,832 408,225 60,079 468,304 3,084,384 2,118,146 6,379,020 2,491,318 8,870,338 127,100 170,974 5,503 35,493 40,996 602,626 35,493 342,754 5,503 40,996 65,166 47,946 14,424 1,685,022 5,404,8631,670,598 3,118,614 756,822 1,923,295 756,822 3,355,475 14,424 928,200 1,461,601 913,776 781,567 535,134 354,479 - 52,653 59,273 452,612 94,070 546,682 7,630,442 - 6,209,076 577,758 350,721 54,000,945 2,301,565 56,302,510 6,228,351 8,529,916 1,118,5132,301,565 784,516 776,146 2,301,565 3,077,711 141,317 136,800 977,196 647,716 555,059 555,059 540,755 433,795 19 29 540,736 433,766 1,372,786 1,372,786 68 - 6,042 2,160,959 571,361 3,503,366 3,503,366 58,589 45,028 3,237 - (2,213,019) 3,237 1,958,535 143,835 2,739,352 925,269 648,066 17,757 - 7,779,292 17,757 11,300,470 47,772,594 47,772,594 4,566,363 3,237,473 47,772,594 47,772,594 162,026 309,703 1,505,724 25,181,485 71,647,060 1,202,037 96,828,545 1,518,991 1,177,396 3,547,366 - 1,852,683 - - The accompanying notes are an integral part of these financial statements. 126 Audited Prior Period 01.01.202031.12.2020 - - 96,828,545 3,214,430 1,852,683 1,629,730 (452,402) 1,584,700 781,806 93,614,115 134,484 463,888 681,805,966 1,400,281 33,559,385 - 10,200,306 9,568,394 1,853,297 - - 11,937,388 648,147,581 149,465 3,097,136 15,211,030 - 150,766,942 478,923,008 1,400,281 99,000 1,400,281 846,800,515 -
129. KUVEYT T ÜRK KATILIM BANKASI ANONİM Section ŞİRKETİ V: Financial Information and Risk Management Practices UNCONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM (Amounts expressed in thousands of Turkish Lira (TL) unlessŞİRKETİ otherwise stated.) UNCONSOLIDATED STATEMENT OF PROFIT OR FOR THE YEAR ENDED 31 3. STATEMENT OF PROFIT OR LOSS (INCOMELOSS STATEMENT) DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira (TL) unless otherwise stated.) 3. I. 1.1. 1.2. 1.3. 1.4. 1.5. 1.5.1. 1.5.2. 1.5.3. 1.6. 1.7. II. 2.1. 2.2. 2.3. 2.4. 2.5. 2.6. III. IV. 4.1. 4.1.1. 4.1.2. 4.2. 4.2.1. 4.2.2. V. VI. 6.1. 6.2. 6.3. VII. VIII. IX. X. XI. XII. XIII. XIV. XV. XVI. XVII. XVIII. 18.1. 18.2. 18.3. XIX. XX. 20.1. 20.2. 20.3. XXI. 21.1. 21.2. 21.3. XXII. XXIII. 23.1. 23.2. 23.3. XXIV. XXV. 25.1. 25.2. Audited Current Period 01.01.202131.12.2021 STATEMENT OF PROFIT OR LOSS (INCOME STATEMENT) INCOME AND EXPENSE TABLE PROFIT SHARE INCOME I. Profit Share on Loans 1.1. Profit Share on Reserve Deposits 1.2. Profit Share on Banks 1.3.INCOME AND EXPENSE TABLE Share on Money Market Placements 1.4.PROFITProfit SHARE INCOME Profit 1.5.Profit Share on Share Loans on Marketable Securities Portfolio FaironValue Through Profit or Loss 1.5.1. Profit Share Reserve Deposits FaironValue Through Other Comprehensive Income 1.5.2. Profit Share Banks Measured at Amortised Cost 1.5.3. Profit Share on Money Market Placements Finance Lease Income 1.6.Profit Share on Marketable Securities Portfolio ProfitProfit ShareorIncome 1.7.Fair ValueOther Through Loss EXPENSE (-)Income II. Fair ValuePROFIT ThroughSHARE Other Comprehensive on Profit Sharing Accounts 2.1.MeasuredExpense at Amortised Cost ProfitIncome Share Expense on Funds Borrowed 2.2.Finance Lease Profit Share Expense on Money Market Borrowings 2.3.Other Profit Share Income Securities(-) Issued 2.4.PROFITExpense SHAREon EXPENSE Profit Share Expense on Lease 2.5.Expense on Profit Sharing Accounts Other Profit on Share Expense 2.6.Profit Share Expense Funds Borrowed NET PROFIT SHAREMarket INCOME (I - II) III.Profit Share Expense on Money Borrowings NET FEES AND COMMISSIONS INCOME/EXPENSE IV.Expense on Securities Issued Fees And Commissions 4.1.Profit Share Expense on Lease Received Non-Cash Loans 4.1.1. Other Profit Share Expense Other SHARE INCOME (I - II) 4.1.2. NET PROFIT Fees AndCOMMISSIONS Commissions PaidINCOME/EXPENSE (-) 4.2.NET FEES AND Loans 4.2.1. Fees AndNon-Cash Commissions Received 4.2.2. Non-CashOther Loans V. Other DIVIDEND INCOME NET TRADING / LOSS VI.Fees And Commissions PaidINCOME (-) 6.1.Non-CashCapital Loans Market Transaction Gains/Losses 6.2.Other Gains/Losses From Derivative Financial Instruments Foreign Exchange Gains/Losses 6.3.DIVIDEND INCOME OTHERINCOME OPERATING INCOME VII. NET TRADING / LOSS GROSS OPERATING PROFIT (III+IV+V+VI+VII+ VIII) VIII. Capital Market Transaction Gains/Losses EXPECTED LOSS Financial PROVISIONS (-) IX.Gains/Losses From Derivative Instruments OTHER Gains/Losses PROVISIONS (-) X. Foreign Exchange EXPENSES (-) XI.OTHER PERSONNEL OPERATING INCOME OTHER OPERATING (-) XII. GROSS OPERATING PROFIT EXPENSES (III+IV+V+VI+VII+ VIII) NET LOSS OPERATING INCOME/(LOSS) (IX-X-XI) XIII. EXPECTED PROVISIONS (-) EXCESS AMOUNT RECORDED AS INCOME AFTER MERGER XIV. OTHER PROVISIONS (-) Audited Prior Period 01.01.202031.12.2020 Notes Audited Audited (5.4.1.)Current Period 13,035,305 Prior Period 9,327,690 8,554,643 6,174,377 01.01.202101.01.202031.12.2021230,553 31.12.2020 37,473 99,840 122,188 Notes - 9,327,690 (5.4.1.) 13,035,305 3,482,477 6,174,377 2,602,952 8,554,643 230,553270,993 37,473313,832 3,084,384 2,118,146 99,840 122,188 -127,100 -170,974 3,482,477602,626 2,602,952342,754 270,993 65,166 313,832 47,946 5,404,863 2,118,146 3,118,614 3,084,384 (5.4.4.) 3,355,475 1,923,295 127,100 170,974 (5.4.2.) 1,461,601 602,626 342,754781,567 65,166535,134 47,946354,479 - 3,118,614 5,404,863 (5.4.4.) 3,355,475 52,653 1,923,295 59,273 (5.4.2.) 1,461,601 781,567 7,630,442 6,209,076 535,134 354,479 -577,758 -350,721 1,118,513 52,653 59,273784,516 -141,317 -136,800 (5.4.13.) 7,630,442977,196 6,209,076647,716 577,758540,755 350,721433,795 19 29 1,118,513 784,516 (5.4.13.) 141,317540,736 136,800433,766 68 (5.4.13.) (5.4.3.) 977,196 6,042 647,716 (5.4.5.) 2,160,959 540,755 433,795571,361 19 58,589 29 45,028 1,958,535 (2,213,019) (5.4.13.) 540,736 433,766 2,739,352 (5.4.3.) 6,042143,835 68 (5.4.5.) (5.4.6.) 2,160,959925,269 571,361648,066 11,300,470 7,779,292 58,589 45,028 (5.4.7.) 4,566,363 (2,213,019) 3,237,473 1,958,535 (5.4.7.) 143,835162,026 2,739,352309,703 1,505,724 1,202,037 (5.4.6.) (5.4.8.) 925,269 648,066 (5.4.8.) 1,518,991 7,779,292 1,177,396 11,300,470 3,547,366 3,237,473 1,852,683 (5.4.7.) 4,566,363 (5.4.7.) 162,026 309,703 INCOME / (LOSS) FROM INVESTMENTS IN SUBSIDIARIES CONSOLIDATED BASED ON PERSONNEL EXPENSES (-) XV. EQUITY METHOD OTHER OPERATING EXPENSES (-) INCOME / (LOSS) ON NET MONETARY POSITION XVI. NET OPERATING INCOME/(LOSS) (IX-X-XI) OPERATIONS BEFORE TAXES (XII+...+XV) PROFIT/(LOSS) FROM CONTINUED XVII. EXCESS AMOUNT RECORDED AS INCOME AFTER MERGER TAX PROVISION FOR CONTINUED OPERATIONS (±) XVIII. INCOMECurrent / (LOSS) INVESTMENTS IN SUBSIDIARIES CONSOLIDATED BASED ON TaxFROM Provision 18.1. EQUITY METHOD Deferred Tax Income Effect (+) 18.2. INCOME / (LOSS) ON NET MONETARY POSITION Deferred FROM Tax Expense Effect (-) OPERATIONS BEFORE TAXES (XII+...+XV) 18.3. PROFIT/(LOSS) CONTINUED CURRENT PERIOD PROFIT/(LOSS) FROM (±) CONTINUED OPERATIONS (XV±XVI) XIX. TAX PROVISION FOR CONTINUED OPERATIONS INCOME FROM DISCONTINUED OPERATIONS XX. Current Tax Provision Income on Non-Current 20.1. Deferred Tax Income Effect (+) Assets Held For Sale Income on Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) 20.2. Deferred Tax Expense Effect (-) Income on Other Discontinued Operations 20.3. CURRENT PERIOD PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) FROM DISCONTINUED OPERATIONS (-) XXI. INCOMEEXPENSES FROM DISCONTINUED OPERATIONS Expenses From Non-Current Assets 21.1. Income on Non-Current Assets Held For Sale Held For Sale From Sale of Associates,And Subsidiaries And Jointly Controlled 21.2. Income onExpenses Sale of Associates, Subsidiaries Jointly Controlled Entities (Joint Entities Vent.) (Joint Vent.) From Other Operations Discontinued Operations 21.3. Income onExpenses Other Discontinued PROFIT / (LOSS) BEFORE TAX FROM DISCONTINUED OPERATIONS (XVIII-XIX) XXII. EXPENSES FROM DISCONTINUED OPERATIONS (-) FOR DISCONTINUED OPERATIONS (±) XXIII. ExpensesTAX FromPROVISION Non-Current Assets Held For Sale TaxofProvision 23.1. ExpensesCurrent From Sale Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) TaxDiscontinued Expense Effect (+) 23.2. ExpensesDeferred From Other Operations Deferred Tax Income EffectFROM (-) 23.3. PROFIT / (LOSS) BEFORE TAX DISCONTINUED OPERATIONS (XVIII-XIX) CURRENTFOR PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XX±XXI) XXIV. TAX PROVISION DISCONTINUED OPERATIONS (±) NET PROFIT/LOSS (XVII+XXII) XXV. Current Tax Provision Group’s Income/Loss 25.1. Deferred Tax Expense Effect (+) Minority Interest (-) 25.2. Deferred Tax Income EffectIncome/Loss (-) Earnings Per Share Income/Loss CURRENT PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XX±XXI) NET PROFIT/LOSS (XVII+XXII) Group’s Income/Loss Minority Interest Income/Loss (-) Earnings Per Share Income/Loss (5.4.8.) (5.4.8.) (5.4.9.) (5.4.10) (5.4.9.) (5.4.10)(5.4.11.) (5.4.11.) (5.4.12.) (5.4.12.) 1,505,724 1,518,991 3,547,366 3,547,366 (1,045,639) 2,000,422 - 20,366 3,547,366975,149 2,501,727 (1,045,639) 2,000,422 20,366 975,149 2,501,727 2,501,727 2,501,727 2,501,727 2,501,727 - 1,202,037 1,177,396 1,852,683 1,852,683 (452,402) -781,806 -134,484 1,852,683463,888 1,400,281 (452,402) 781,806 134,484 463,888 1,400,281 1,400,281 1,400,281 1,400,281 1,400,281 - The accompanying notes are an integral part of these financial statements. 6 The accompanying notes are an integral part of these financial statements. 127
130. KUVEYT T ÜRK Kuveyt Türk Annual Report 2021KATILIM BANKASI ANONİM ŞİRKETİ UNCONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ (Amounts expressed in thousands of Turkish Lira (TL) unless otherwise stated.) UNCONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER 3. STATEMENT OF PROFIT OR LOSS (INCOME STATEMENT) COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira (TL) unless otherwise stated.) 4. I. II. 2.1 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.2 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 2.2.6 III. STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME AND EXPENSE TABLE PROFIT SHARE INCOME I. Profit Share on Loans 1.1. Profit Share on Reserve Deposits 1.2. Profit Share on Banks 1.3. Profit Share on Money Market Placements 1.4. Profit Share on Marketable Securities Portfolio 1.5. Fair Value(LOSS) Through Profit or Loss 1.5.1. CURRENT PROFIT Fair Value Through Other Comprehensive Income 1.5.2. OTHER COMPREHENSIVE INCOME Measured at Amortised Cost 1.5.3. Finance Lease IncomeNot Reclassified Through Profit Or Loss Other Income 1.6. Comprehensive Profit Share Income Increase/Decrease 1.7. AndOther Property Equipment Revaluation PROFIT SHARE EXPENSE (-) II. Intangible Assets Revaluation Increase/Decrease Expense on Profit Sharing Accounts 2.1. Defined Pension Plan Remeasurement Gain/Loss Profit Share Expense on Funds Borrowed 2.2. Benefit Profit Share Expense on Money Market Borrowings 2.3. Comprehensive Other Income Items Not Reclassified Through Profit Or Loss on Securities Issued 2.4. RelatedExpense Taxes to Other Comprehensive Income Items Not Reclassified Through Profit or Loss Profit Share Expense on Lease 2.5. Other Reclassified Through Profit Or Loss Other ProfitIncome Share Expense 2.6. Comprehensive NET Translation PROFIT SHARE INCOME (I - II) III. Currency Foreign Difference NET FEES AND COMMISSIONS INCOME/EXPENSE IV. Valuation And/Or Reclassification Income/Expense of the Financial Assets At Fair Value Through Fees And Income Commissions Received 4.1. Comprehensive Other Non-Cash Loans 4.1.1. Cash Flow Hedge Income/Loss Other 4.1.2. Foreign Net Investment Hedge Income/Loss Fees And Commissions Paid (-) 4.2. Other Comprehensive Non-CashIncome Loans Items Reclassified Through Profit or Losses 4.2.1. 4.2.2.RelatedOther Taxes Other Comprehensive Income Items Reclassified Through Profit Or Loss DIVIDEND INCOME V. TOTAL COMPREHENSIVE INCOME (LOSS) (I+II) NET TRADING INCOME / LOSS VI. Capital Market Transaction Gains/Losses 6.1. Gains/Losses From Derivative Financial Instruments 6.2. Foreign Exchange Gains/Losses 6.3. OTHER OPERATING INCOME VII. GROSS OPERATING PROFIT (III+IV+V+VI+VII+ VIII) VIII. EXPECTED LOSS PROVISIONS (-) IX. OTHER PROVISIONS (-) X. PERSONNEL EXPENSES (-) XI. OTHER OPERATING EXPENSES (-) XII. NET OPERATING INCOME/(LOSS) (IX-X-XI) XIII. EXCESS AMOUNT RECORDED AS INCOME AFTER MERGER XIV. XV. XVI. XVII. XVIII. 18.1. 18.2. 18.3. XIX. XX. 20.1. 20.2. 20.3. XXI. 21.1. 21.2. 21.3. XXII. XXIII. 23.1. 23.2. 23.3. XXIV. XXV. 25.1. 25.2. INCOME / (LOSS) FROM INVESTMENTS IN SUBSIDIARIES CONSOLIDATED BASED ON EQUITY METHOD INCOME / (LOSS) ON NET MONETARY POSITION PROFIT/(LOSS) FROM CONTINUED OPERATIONS BEFORE TAXES (XII+...+XV) TAX PROVISION FOR CONTINUED OPERATIONS (±) Current Tax Provision Deferred Tax Income Effect (+) Deferred Tax Expense Effect (-) CURRENT PERIOD PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) INCOME FROM DISCONTINUED OPERATIONS Income on Non-Current Assets Held For Sale Income on Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) Income on Other Discontinued Operations EXPENSES FROM DISCONTINUED OPERATIONS (-) Expenses From Non-Current Assets Held For Sale Expenses From Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) Expenses From Other Discontinued Operations PROFIT / (LOSS) BEFORE TAX FROM DISCONTINUED OPERATIONS (XVIII-XIX) TAX PROVISION FOR DISCONTINUED OPERATIONS (±) Current Tax Provision Deferred Tax Expense Effect (+) Deferred Tax Income Effect (-) CURRENT PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XX±XXI) NET PROFIT/LOSS (XVII+XXII) Group’s Income/Loss Minority Interest Income/Loss (-) Earnings Per Share Income/Loss Audited Current Period INCOME 01.01.202131.12.2021 Notes Audited (5.4.1.) Current Period 31.12.2021 2,501,727 (29,402) (854) - (5.4.4.) (1,068) (5.4.2.) 214 (28,548) (38,790) (5.4.13.) - (5.4.13.) 10,242 (5.4.3.) 2,472,325 (5.4.5.) (5.4.6.) (5.4.7.) (5.4.7.) (5.4.8.) (5.4.8.) (5.4.9.) (5.4.10) (5.4.11.) (5.4.12.) The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. 7 128 6 Audited 13,035,305 Prior Period 8,554,643 230,553 31.12.2020 99,840 3,482,477 270,993 1,400,281 3,084,384 (217,757) 127,100 (32,176) 602,626 65,166 5,404,863 3,355,475 (40,220) 1,461,601 535,134 52,6538,044 (185,581) 7,630,442 577,758 1,118,513 (249,886) 141,317 11,514 977,196 540,755 19 540,736 52,791 6,042 1,182,524 2,160,959 58,589 1,958,535 143,835 925,269 11,300,470 4,566,363 162,026 1,505,724 1,518,991 3,547,366 3,547,366 (1,045,639) 2,000,422 20,366 975,149 2,501,727 2,501,727 2,501,727 - Audited Prior Period 01.01.202031.12.2020 9,327,690 6,174,377 37,473 122,188 2,602,952 313,832 2,118,146 170,974 342,754 47,946 3,118,614 1,923,295 781,567 354,479 59,273 6,209,076 350,721 784,516 136,800 647,716 433,795 29 433,766 68 571,361 45,028 (2,213,019) 2,739,352 648,066 7,779,292 3,237,473 309,703 1,202,037 1,177,396 1,852,683 1,852,683 (452,402) 781,806 134,484 463,888 1,400,281 1,400,281 1,400,281 -
131. 1 ,461,601 535,134 52,653 7,630,442 577,758 1,118,513 141,317 (5.4.13.) 977,196 540,755 19 (5.4.13.) 540,736 (5.4.3.) 6,042 (5.4.5.) Accumulated Other Income or Loss2,160,959 That Will Be Reclassified to Profit or 58,589 Loss1,958,535 143,835 4 5 6 (5.4.6.) 925,269 Profit Reserves 11,300,470 (5.4.7.) 4,566,363 (5.4.7.) 162,026 (5.4.8.) 1,505,724 214,695 (8,981) 1,469,025 (5.4.8.) 1,518,991 (16,092) -3,547,366 (16,092) - - (5.4.2.) 781,567 354,479 59,273 6,209,076 350,721 784,516 136,800 647,716 433,795 29 433,766 68 571,361 45,028 (2,213,019) Net 2,739,352 Prior Period Profit/Loss Profit or 648,066 for the (Loss)7,779,292 Period 3,237,473 309,703 1,202,037 35,540 1,109,838 1,177,396 16,092 1,852,683 16,092 - Balances at end of the period (III+IV+…...+X+XI) Prior Period Ending Balance Corrections and Accounting Policy Changes Made According to TAS 8 Effect Of Corrections Effect Of Changes In Accounting Policies Adjusted Beginning Balance (I+II) Total Comprehensive Income (Loss) Capital Increase by Cash Capital Increase by Internal Reserves Paid in Capital Inflation Adjustment Difference Convertible Bonds to Share Subordinated Debt Instruments Increase / Decrease by Other Changes Profit Distribution Dividends Paid Transfers To Legal Reserves Other Current Period (01/01/2021 – 31/12/2021) Balances at end of the period (III+IV+…...+X+XI) Effect Of Changes In Accounting Policies Adjusted Beginning Balance (I+II) Total Comprehensive Income (Loss) Capital Increase by Cash Capital Increase by Internal Reserves Paid in Capital Inflation Adjustment Difference Convertible Bonds to Share Subordinated Debt Instruments Increase / Decrease by Other Changes Profit Distribution Dividends Paid Transfers To Legal Reserves Other (5.2.11.) XVI. XVII. XVIII. 18.1. 18.2. 18.3. XIX. XX. 20.1. (5.2.11.) 20.2. 20.3. XXI. 21.1. 21.2. 21.3. XXII. XXIII. 23.1. 23.2. 23.3. XXIV. XXV. 25.1. 25.2. XV. 4,595,131 23,250 1,874 - - (52,112) - Income on Non-Current Assets Held For Sale 4,595,131 23,250 1,874 (51,258) Income on Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) Income on Other Discontinued Operations EXPENSES FROM DISCONTINUED OPERATIONS (-) Expenses From Non-Current Assets Held For Sale 4,595,131 23,250 1,874 (51,258) Expenses From Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) Expenses From Other Discontinued Operations PROFIT / (LOSS) BEFORE TAX FROM OPERATIONS (XVIII-XIX) - DISCONTINUED 1,874 OPERATIONS (51,258) TAX4,595,131 PROVISION 23,250 FOR DISCONTINUED (±) (854) Current Tax Provision Deferred Tax-Expense Effect (+) Deferred Tax Income Effect (-) CURRENT PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS - (XX±XXI) NET PROFIT/LOSS (XVII+XXII) Group’s Income/Loss Minority Interest Income/Loss (-) Earnings Per -Share Income/Loss - INCOME / (LOSS)23,250 FROM INVESTMENTS IN SUBSIDIARIES CONSOLIDATED BASED ON 3,995,766 1,239 (19,082) EQUITY METHOD (32,176) INCOME / (LOSS) ON NET MONETARY POSITION 600,000 - BEFORE- TAXES (XII+...+XV) PROFIT/(LOSS) FROM- CONTINUED -OPERATIONS TAX PROVISION FOR CONTINUED OPERATIONS (±) Current Tax Provision - (+) 635 Deferred (635) Tax Income Effect Deferred Tax-Expense Effect (-) CURRENT PERIOD PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) INCOME FROM DISCONTINUED OPERATIONS 3,225 3,225 - (25,323) 3,225 (28,548) -(5.4.12.) - - - 198,603 (195,378) - (5.4.9.) - (5.4.10) -(5.4.11.) - 1,970,146 - 3,359,858 1,970,146 - - 1,970,146 - - - - -2,501,727 (1,437) 1,391,149 2,501,727 (9,132) 1,400,281 - - - (8,981) 1,469,025 - 8,981 - -3,547,366 (600,000) (1,045,639) -2,000,422 (1,437) 20,366 1,102,558 - 975,149 -2,501,727 1,102,558 - - 52,448 52,448 2,501,727 -1,400,281 -1,400,281 52,448 52,448 1,400,281 2,501,727 1,400,281 (1,400,281) 1,400,281 (1,400,281) 1,400,281 (1,400,281) - 51,632 1,109,838 -1,400,281 816 1,852,683 (452,402) 781,806 134,484 (1,109,838) 463,888 (7,280) (1,102,558) 1,400,281 - 10,456,853 7,995,097 2,472,325 (1,437) (9,132) (9,132) - 7,995,097 7,995,097 129 6 The accompanying notes are an integral part of these financial statements. - - - - - 1.Accumulated Revaluation Increase / Decrease of Fixed Assets 2.Accumulated Remeasurement Gain / Loss of Defined Benefit Pension Plan 3.Other (Shares of Investments Valued by Equity Method in Other Comprehensive Income Not Classified Through Profit or Loss and Other Accumulated Amounts of Other Comprehensive Income Items Not Reclassified Through Other Profit or Loss) 4.Foreign Currency Translition Differences 5.Accumulated Revaluation and/or Remeasurement Gain/Loss of the Financial Asset at Fair Value Through Other Comprehensive Income 6.Other (Cash Flow Hedge Gain/Loss, Shares of Investments Valued by Equity Method in Other Comprehensive Income Classified Through Profit or Loss and Other Accumulated Amounts of Other Comprehensive Income Items Reclassified Through Other Profit or Loss) 2.1 2.2 III. IV. V. VI. VII. VIII. IX. X. XI. 11.1 11.2 11.3 II. I. 2.2 III. IV. V. VI. VII. VIII. IX. X. XI. 11.1 11.2 11.3 6,821,290 1,182,524 (1,437) (7,280) (7,280) - Minority Shares 6,821,290 Total Shareholders'Equity Less Minority Shares KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ UNCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 Profit Share Expense on Funds Borrowed 2.2. Profit Share Expense on Money Market Borrowings 2.3. Expense on Securities Issued 2.4. Profit Share Expense on Lease 2.5. Other Profit Share Expense 2.6. NET PROFIT SHARE INCOME (I - II) III. NET FEES AND COMMISSIONS INCOME/EXPENSE IV. Fees And Commissions Received 4.1. Non-Cash Loans 4.1.1. Other 4.1.2. (Amounts expressed in thousands of Turkish Lira (TL) unless otherwise stated.) Fees And Commissions Paid (-) 4.2. Non-Cash Loans 4.2.1. Other 4.2.2. 5. STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY DIVIDEND INCOME V. NET TRADING INCOME / LOSS VI. Accumulated Other Income or Loss Capital Market Transaction Gains/Losses That Will Not Be Reclassified to Profit 6.1. or Loss Gains/Losses From Derivative Financial Instruments 6.2. Foreign Exchange Gains/Losses 6.3. Share Other 1 2 3 OTHER OPERATING VII. Paid-in Share INCOME cancellation Capital Capital Premiums Reserves VIII) OPERATING PROFITprofits (III+IV+V+VI+VII+ VIII.Note GROSS EXPECTED LOSS PROVISIONS (-) IX. Prior Period OTHER PROVISIONS (-) X. (01/01/2020 – 31/12/2020) PERSONNEL EXPENSES (-) XI. I. Prior Period Ending Balance 3,995,766 23,250 (19,082) OTHER OPERATING EXPENSES 1,239 (-) Corrections and Accounting Policy Changes Made XII. II. NET OPERATING INCOME/(LOSS) (IX-X-XI) According to TAS 8 XIII. 2.1 Effect Of Corrections - MERGER EXCESS AMOUNT RECORDED AS INCOME AFTER XIV. 10,456,853 7,995,097 2,472,325 (1,437) (9,132) (9,132) - 7,995,097 7,995,097 6,821,290 1,182,524 (1,437) (7,280) (7,280) - 6,821,290 Total Shareholders' Equity Section V: Financial Information and Risk Management Practices
132. KUVEYT T ÜRK Kuveyt Türk Annual Report 2021KATILIM BANKASI ANONİM ŞİRKETİ UNCONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2021 KUVEYT TÜRK KATILIM BANKASI ŞİRKETİ (Amounts expressed in thousands of TurkishANONİM Lira (TL) unless otherwise stated.) UNCONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 3. STATEMENT OF PROFIT OR LOSS (INCOME STATEMENT) DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 6. A. 1.1 1.1.1 1.1.2 1.1.3 1.1.4 1.1.5 1.1.6 1.1.7 1.1.8 1.1.9 1.2 1.2.1 1.2.2 1.2.3 1.2.4 1.2.5 1.2.6 1.2.7 1.2.8 1.2.9 1.2.10 I. B. II. 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Audited Current Period 01.01.202131.12.2021 STATEMENT OF CASH FLOWS INCOME AND EXPENSE TABLE PROFIT SHARE INCOME I. Profit Share on Loans 1.1. Profit Share on Reserve Deposits 1.2. Profit Share on Banks 1.3. Profit Share on Money Market Placements 1.4. Profit Share on Marketable Securities Portfolio 1.5. Fair Value Through Profit orOPERATIONS Loss 1.5.1. CASH FLOWS FROM BANKING Fair Value Through Other Comprehensive Income 1.5.2. at Amortised Cost 1.5.3. Operating Measured Profit Before Changes in Assets And Liabilities From Banking Operations Finance Lease Income 1.6. Profit Share Income 1.7. Profit ShareOther Income Received II. Profit SharePROFIT ExpenseSHARE Paid EXPENSE (-) Expense on Profit Sharing Accounts 2.1. Dividends Received Profit Share Expense on Funds Borrowed 2.2. Fees And Commissions Received Profit Share Expense on Money Market Borrowings 2.3. Other Income on Securities Issued 2.4. Collections Expense From Previously Written Off Loans Share Expense on Lease 2.5. Payments toProfit Personnel And Service Suppliers Other Profit Share Expense 2.6. Taxes Paid NET PROFIT SHARE INCOME (I - II) III. Others NET FEES AND COMMISSIONS INCOME/EXPENSE IV. AndAnd Commissions Received 4.1. Changes inFees Assets Liabilities From Banking Operations Non-Cash Loans 4.1.1. Other 4.1.2. Net (Increase) Decrease Held For Trading Financial Assets FeesDecrease And Commissions Paid (-) at Fair Value Through Profit or Loss 4.2. Net (Increase) in Financial Assets Non-Cash Loans 4.2.1. Net (Increase) Decrease in Due From Banks And Other Financial Institutions Other 4.2.2. Net (Increase) Decrease in Loans DIVIDEND V. Net (Increase) DecreaseINCOME in Other Assets NET TRADING INCOME / LOSS VI. Net Increase (Decrease) in Bank Deposits Capital Market Gains/Losses 6.1. Net Increase (Decrease) inTransaction Other Deposits From Derivative Financial Instruments 6.2. Net IncreaseGains/Losses (Decrease) in Funds Borrowed Exchange Gains/Losses 6.3. Net IncreaseForeign (Decrease) in Due Payables OPERATING INCOME VII. Net IncreaseOTHER (Decrease) in Other Liabilities GROSS OPERATING PROFIT (III+IV+V+VI+VII+ VIII) VIII. EXPECTED LOSS PROVISIONS IX. Net Cash Provided From / (Used in) Banking(-)Operations OTHER PROVISIONS (-) X. PERSONNEL EXPENSES (-) XI. CASH FLOWS FROM INVESTING ACTIVITIES OTHER OPERATING EXPENSES (-) XII. NET OPERATING INCOME/(LOSS) (IX-X-XI) XIII. Net Cash Provided From / (Used in) Investing Activities EXCESS AMOUNT RECORDED AS INCOME AFTER MERGER XIV. Notes (5.4.1.) Audited Current Period Note 10,259,659 (5,345,578) (5.4.4.) 6,042 (5.4.2.) 1,118,513 2,206,423 759,758 (1,350,866) (989,447) (1,860,459) (1,562,445) (5.4.13.)152,885 (17,798,934) (21,219,300) (5.4.13.) 5,641,096 (5.4.3.) 189,507 (5.4.5.) 26,134,423 (8,029,521) (5.4.6.) 13,367,399 (5.4.7.) 3,241,600 (5.4.7.) (5.4.8.) (5.4.8.) (6,358,268) INCOME / (LOSS) FROM INVESTMENTS IN SUBSIDIARIES CONSOLIDATED BASED ON Cash Paid For Purchase Jointly Controlled Operations, Associates And Subsidiaries XV. EQUITY METHOD Cash Obtained From Sale of Jointly Controlled Operations, Associates And Subsidiaries VI. VII. Cash And Cash Equivalents at The End of The Period III. 3.1 3.2 3.3 3.4 3.5 3.6 IV. V. 01.01.202131.12.2021 4,804,045 INCOME / (LOSS) ON NET MONETARY POSITION XVI. Fixed Assets Purchases PROFIT/(LOSS) FROM CONTINUED OPERATIONS BEFORE TAXES (XII+...+XV) XVII. Fixed Assets Sales TAX PROVISION FOR CONTINUED OPERATIONS (±) XVIII. Cash Paid For Purchase of Financial Assets at Fair Value Through Other Comprehensive Income Current Tax Provision 18.1. Cash Obtained From Sale of Financial Assets at Fair Value Through Other Comprehensive Income Deferred Tax Income Effect (+) 18.2. Cash Paid For Purchase of Investment Securities Deferred Tax Expense Effect (-) 18.3. Cash Obtained From Sale of Investment Securities CURRENT PERIOD PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) XIX. Other INCOME FROM DISCONTINUED OPERATIONS XX. Income on Non-Current Assets Held For Sale 20.1. CASH FLOWS FROM FINANCING ACTIVITIES Income on Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) 20.2. Income on Other Discontinued Operations 20.3. Net Cash Provided From / (Used in) Financing Activities EXPENSES FROM DISCONTINUED OPERATIONS (-) XXI. Expenses From Non-Current Assets Held For Sale 21.1. Cash Obtained From Funds Borrowed And Securities Issued Expenses From Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) 21.2. Cash Used For Repayment of Funds Borrowed And Securities Issued Expenses From Other Discontinued Operations 21.3. Capital Increase PROFIT / (LOSS) BEFORE TAX FROM DISCONTINUED OPERATIONS (XVIII-XIX) XXII. Dividends Paid TAX PROVISION FOR DISCONTINUED OPERATIONS (±) XXIII. Payments For Finance Leases (*) Current Tax Provision 23.1. Other Deferred Tax Expense Effect (+) 23.2. Deferred Tax Income Effect (-) 23.3. Effect of Change in Foreign Exchange Rate on Cash And Cash Equivalents (5.5.4) CURRENT PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XX±XXI) XXIV. NET PROFIT/LOSS (XVII+XXII) XXV. Net Increase (Decrease) in Cash And Cash Equivalents Group’s Income/Loss 25.1. Minority Interest Income/Loss (-) 25.2. Cash And Cash Equivalents at The Beginning of The Period (5.5.1) C. Earnings Per Share Income/Loss (5.5.1) (295,422) (5.4.9.) 532,754 (5.4.10) (14,528,109) 4,910,435 (548,922) 3,639,868 (5.4.11.) (68,872) 452,169 513,954 (9,132) (52,653) 27,336,234 (5.4.12.) 24,671,735 11,971,283 36,643,018 (*) Within the scope of TFRS 16- Leases Standard, comprise the payments related to leases that included in the financial statements The accompanying notes are an integral part of these financial statements The accompanying notes are an integral part of these financial statements. 9 130 6 Audited Prior Period 01.01.202031.12.2020 13,035,305 Audited 9,327,690 8,554,643 Prior Period 6,174,377 230,553 37,473 01.01.202099,840 122,188 31.12.2020 3,482,477 2,602,952 270,993 313,832 3,084,384 2,118,146 127,1004,315,336 170,974 602,626 342,754 65,1668,328,926 47,946 5,404,863 (2,987,106) 3,118,614 3,355,475 68 1,923,295 1,461,601 839,827 781,567 535,1341,404,047 354,479 - 351,422 52,653 59,273 (1,317,534) -(865,421) 7,630,442 (1,438,893) 6,209,076 577,758 350,721 1,118,513 784,516 (7,116,167) 141,317 136,800 977,196 647,716 (3,240,768) 540,755 433,795 (11,487,983) 19 29 (20,068,746) 540,736 433,766 (8,803,862) 6,042 169,751 68 2,160,959 571,361 28,933,181 58,589 45,028 1,958,5354,952,671 (2,213,019) 143,835 - 2,739,352 925,2692,429,589 648,066 11,300,470 7,779,292 4,566,363 (2,800,831) 3,237,473 162,026 309,703 1,505,724 1,202,037 1,518,991 1,177,396 3,547,366 (9,852,467) 1,852,683 (745,860) -(127,693) 3,547,366 194,500 1,852,683 (1,045,639) (13,090,115) (452,402) 2,000,4226,067,423 781,806 20,366 134,484 (1,947,247) 975,149 463,888 2,501,727 1,400,281 (203,475) - 322,094 388,646 (7,280) (59,272) 5,409,401 2,501,727 (6,921,803) 1,400,281 2,501,727 1,400,281 18,893,086 11,971,283
133. KUVEYT T ÜRK KATILIM BANKASI ANONİM Section ŞİRKETİ V: Financial Information and Risk Management Practices UNCONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM (Amounts expressed in thousands of Turkish Lira (TL) unless ŞİRKETİ otherwise stated.) UNCONSOLIDATED PROFIT DISTRIBUTION TABLE FOR THE YEAR ENDED 31 3. STATEMENT OF PROFIT OR LOSS (INCOME STATEMENT) DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira (TL) unless otherwise stated.) 7. I. 1.1 1.2 1.2.1 1.2.2 1.2.3 A. 1.3 1.4 1.5 B. 1.6 1.6.1 1.6.2 1.6.3 1.6.4 1.6.5 1.7 1.8 1.9 1.9.1 1.9.2 1.9.3 1.9.4 1.9.5 1.10 1.11 1.12 1.13 II. 2.1 2.2 2.2.1 2.2.2 2.2.3 2.2.4 PROFIT DISTRIBUTION TABLE INCOME AND EXPENSE TABLE PROFIT SHARE INCOME I. Profit Share on Loans 1.1. Profit Share on Reserve Deposits 1.2. Profit Share on Banks 1.3. Profit Share on Money Market Placements 1.4. CURRENT PROFIT Profit Share on OF Marketable SecuritiesPERIOD Portfolio 1.5.DISTRIBUTION Fair Value Through Profit or Loss 1.5.1. Fair Value Through Other Comprehensive Income 1.5.2. CURRENT PERIOD PROFIT Measured at Amortised Cost 1.5.3. TAXES ANDLease DUES PAYABLE (-) Finance Income 1.6. Tax (Income Tax) Other Profit Share Income 1.7.Corporate Tax Withholding SHARE EXPENSE (-) II. IncomePROFIT Expense on Profit Accounts and DuesSharing Payable 2.1.Other Taxes Profit ShareFOR Expense on Funds Borrowed 2.2.NET PROFIT THE PERIOD (1.1-1.2) Share Expense on Money Market Borrowings 2.3.PRIOR Profit YEAR’S LOSSES (-) Expense on Securities Issued 2.4. FIRST Profit LEGAL RESERVES (-) Share Expense on Lease 2.5. RESERVES (-) Profit Share Expense 2.6.OTHEROther NET INCOME PERIOD [(A-(1.3+1.4+1.5)] NET PROFIT SHARE (I -PROFIT II) III.DISTRIBUTABLE toAND Shareholders (-) INCOME/EXPENSE NET FEES COMMISSIONS IV.First Dividend Fees And Commissions Received of Ordinary Shares 4.1.To Owners Non-Cash Loans 4.1.1. To Owners of Preferred Stocks Otherof Preferred Stocks (Preemptive Rights) 4.1.2. To Owners Fees And Commissions Paid (-) 4.2.To Profit Sharing Bonds Non-Cash Loans 4.2.1. To Owners of the profit and loss Sharing Certificates Other 4.2.2. DIVIDEND TO PERSONNEL (-) DIVIDEND INCOME V. TO BOARD OF DIRECTORS (-) NET TRADING INCOME / LOSS VI.DIVIDEND DIVIDEND TO SHAREHOLDERS (-) Capital Market Transaction Gains/Losses 6.1.SECOND of Ordinary Shares Financial Instruments Gains/Losses From Derivative 6.2.To Owners Foreign Gains/Losses ofExchange Preferred Stocks 6.3.To Owners OTHER OPERATING INCOME VII. To Owners of Preferred Stocks (Preemptive Rights) GROSS OPERATING VIII. To Profit Sharing Bonds PROFIT (III+IV+V+VI+VII+ VIII) EXPECTED LOSS PROVISIONS IX.To Owners of the profit/loss Sharing(-)Certificates OTHER PROVISIONS (-) X. STATUTORY RESERVES (-) PERSONNEL EXPENSES (-) XI. EXTRAORDINARY RESERVES OTHER OPERATING EXPENSES (-) XII. OTHERNET RESERVES OPERATING INCOME/(LOSS) (IX-X-XI) XIII. SPECIAL FUNDS EXCESS AMOUNT RECORDED AS INCOME AFTER MERGER XIV. Audited Current Period 01.01.202131.12.2021 Audited Prior Period 01.01.202031.12.2020 13,035,305 9,327,690 3,482,477 270,993 3,084,384 127,100 602,626 65,166 5,404,863 3,355,475 1,461,601 535,134 52,653 7,630,442 577,758 1,118,513 141,317 977,196 540,755 19 540,736 6,042 2,160,959 58,589 1,958,535 143,835 925,269 11,300,470 4,566,363 162,026 1,505,724 1,518,991 3,547,366 - 2,602,952 313,832 2,118,146 1,852,683 170,974 452,402 342,754 781,806 47,946 3,118,614 (329,404) 1,923,295 781,567 1,400,281 354,479 70,014 59,273 - 1,330,267 6,209,076 350,721 784,516 136,800 647,716 433,795 - 29 433,766 68 9,132 571,361 45,028 (2,213,019) 2,739,352 648,066 7,779,292 3,237,473 309,703 1,319,715 1,202,037 507 1,177,396 1,852,683 - - Notes (5.4.1.) Current Period 8,554,643 Prior Period 6,174,377 01.01.2021 – 01.01.2020230,553 37,473 99,840 31.12.2020 122,188 31.12.2021 (*) (*) INCOME / (LOSS) FROM INVESTMENTS IN SUBSIDIARIES CONSOLIDATED BASED ON DISTRIBUTION FROM RESERVES XV. 3,547,366 1,045,639 2,000,422 (5.4.4.)(954,783) (5.4.2.)2,501,727 2,501,727 (5.4.13.) (5.4.13.) (5.4.3.) (5.4.5.) (5.4.6.) (5.4.7.) (5.4.7.) (5.4.8.) (5.4.8.) (5.4.9.) (5.4.10) (5.4.11.) - - EQUITY METHOD DISTRIBUTED RESERVES - INCOME / (LOSS) ON NET MONETARY POSITION XVI. DIVIDENDS TO SHAREHOLDERS (-) - PROFIT/(LOSS) FROM CONTINUED OPERATIONS BEFORE TAXES (XII+...+XV) XVII. 3,547,366 1,852,683 The Owners of Ordinary Shares TAX PROVISION FOR CONTINUED OPERATIONS (±) XVIII. (1,045,639) (452,402) The Owners Preferred Currentof Tax Provision Stocks 18.1. 2,000,422 781,806 The Owners ofTax Preferred Stocks Deferred Income Effect (+) (Preemptive Rights) 18.2. 20,366 134,484 The Profit Sharing BondsEffect (-) Deferred Tax Expense 18.3. 975,149 463,888 CURRENT PERIOD PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) 2,501,727 1,400,281 The Owners of the profit/loss Sharing Certificates 2.2.5 XIX. INCOME FROM DISCONTINUED OPERATIONS XX. 2.3 Share toIncome Personnel (-) on Non-Current Assets Held For Sale 20.1. 2.4 Share to Board of Directors (-) Income on Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) 20.2. III. EARNINGS PER SHARE - Income on Other Discontinued Operations 20.3. 3.1 TO OWNERS OFFROM STOCKS - EXPENSES DISCONTINUED OPERATIONS (-) XXI. Expenses From Non-Current(%) Assets Held For Sale 3.2 TO OWNERS OF STOCKS - 21.1. Expenses From Sale of Associates,STOCKS Subsidiaries And Jointly Controlled Entities (Joint Vent.) 21.2. 3.3 TO OWNERS OF PREFERRED - Expenses From Other Discontinued Operations (%) 21.3. 3.4 TO OWNERS OF PREFERRED STOCKS - PROFIT / (LOSS) BEFORE TAX FROM DISCONTINUED OPERATIONS (XVIII-XIX) XXII. IV. DIVIDEND PER SHARE - TAX PROVISION FOR DISCONTINUED OPERATIONS (±) XXIII. 4.1 TO OWNERS OF STOCKS - Current Tax Provision 23.1. 4.2 TO OWNERS OF STOCKS (%) - Deferred Tax Expense Effect (+) 23.2. 4.3 TO OWNERS OFIncome PREFERRED - Deferred Tax Effect (-) STOCKS 23.3. 4.4 TO OWNERS OFPERIOD PREFERRED STOCKS - CURRENT PROFIT/LOSS FROM(%) DISCONTINUED OPERATIONS (XX±XXI) XXIV. NET PROFIT/LOSS (XVII+XXII) XXV. (5.4.12.) 2,501,727 1,400,281 Group’s Income/Loss 25.1.distribution 2,501,727 1,400,281 (*) The profit of the Bank is decided at the General Assembly meeting which is not yet held as of the date of the preparation of these financial statements. Minority Interest Income/Loss (-) 25.2. - is classified under (**) Deferred tax benefit is presented under other tax and legal liabilities. Deferred tax benefit can not be included in the dist ributable profit, thus it Earnings Per Share Income/Loss extraordinary reserves. The accompanying notes are an integral part of these financial statements. 6 The accompanying notes are an integral part of these financial statements. 131
134. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION THREE EXPLANATIONS ON ACCOUNTING POLICIES IN THE RELATED PERIOD 1. Explanations on Basis of Presentation 1.1. The preparation of the financial statements and related notes and explanations in accordance with the Turkish Accounting Standards and Regulation on Accounting Applications for Banks and Safeguarding of Documents The Bank prepares its financial statements in accordance with the “Regulation on The Procedures And Principles For Accounting Practices And Retention of Documents By Banks” published in the Official Gazette dated 1 November 2006 with numbered 26333, and other regulations on accounting records of banks published by the Banking Regulation and Supervision Agency (“BRSA”) as well as the circulars and pronouncements published by the BRSA. For matters not regulated by the aforementioned legislations, the Bank prepares its financial statements in accordance with the BRSA Accounting and Financial Reporting Legislation, which comprises the terms of the Turkish Financial Reporting Standards issued by the Public Oversight Accounting and Auditing Standards Authority. Additional paragraph for convenience translation The differences between the standards set out by BRSA Accounting and Financial Reporting Legislation and the accounting principles generally accepted in countries in which the accompanying financial statements are to be distributed and International Financial Reporting Standards (IFRS) have not been quantified in the accompanying financial statements. Accordingly, the accompanying financial statements are not intended to present the financial position, results of operations and changes in financial position and cash flows in accordance with the accounting principles generally accepted in such countries and IFRS. 1.2. Accounting policies and valuation principles applied in the preparation of unconsolidated financial statements The financial statements have been prepared on the historical cost basis except for the financial instruments at fair value through profit or loss, and the financial assets and liabilities at fair value through other comprehensive income that are measured at fair values. The preparation of unconsolidated financial statements in conformity with BRSA Accounting and Financial Reporting Legislation requires the Bank management to make assumptions and estimates with respect to the assets and liabilities on the balance sheet and contingent issues outstanding as of the balance sheet date. These assumptions and estimates mainly consist of calculations of the fair values of financial instruments and the impairment on assets. The assumptions and estimates are reviewed regularly and, when necessary, appropriate corrections are made and the effects of such corrections are reflected on the income statement. COVID-19 pandemic, which emerged in China, has spread to various countries in the world, causing potentially fatal respiratory infections, negatively effects both regional and global economic conditions, as well as it causes disruptions in operations, especially countries that are exposed to the epidemic. As a result of the spread of COVID-19 around the world, several measures are still being taken in our country as well as in the world in order to prevent the spread of the virus and measures are still being taken. In addition to the measures, economic measures are also taken to minimize the economic impact of the virus outbreak on individuals and businesses in our country and worldwide. Since it is aimed to update the most recent financial information in the year end financial statements prepared as of December 31, 2021, considering the magnitude of the economic changes due to COVID-19, the Bank made certain estimates in the calculation of expected credit losses and disclosed them in third section footnote numbered 1.5 “Explanations on Expected Credit Loss”. In the upcoming periods, the Bank will update its revelant assumptions are necessary and revise the realizations of past estimates. 1.3. Changes in accounting estimates, errors and classifications If changes in accounting estimates are related to only one period, they are applied in the current period in which the change is made, and if they are related to future periods, they are applied both prospectively and in the future periods. Significant accounting errors are applied retrospectively and prior period financial statements are restated. There were no significant changes in the accounting estimates of the Bank in the current year. Comparative information is rearranged when deemed necessary in order to comply with the presentation of the current period financial statements. The Bank has rearranged the prior period's statement of changes in shareholders' equity in order to comply with the presentation of the current period financial statements. In the announcement published by the Public Oversight Accounting and Auditing Standards Authority on January 20, 2022, it is stated that TAS 29 Financial Reporting in Hyperinflationary Economies does not apply to the TFRS financial statements as of December 31, 2021, since the cumulative change in the general purchasing power of the last three years according to Consumer Price Index (CPI) is 74.41%. In this respect, [consolidated] financial statements as of December 31, 2021 are not adjusted for inflation in accordance with TAS 29. 11 132
135. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.4. Preparation of the financial statements as regards to the current purchasing power of money Until 31 December 2004, the financial statements of the Bank were subject to inflation adjustments in accordance with Turkish Accounting Standard No: 29 “Financial Reporting in Hyperinflationary Economies” (“TAS 29”). As per the BRSA decision numbered 1623 and dated 21 April 2005 and the BRSA circular dated 28 April 2005 it was stated that the indicators for the application of inflation accounting were no longer applicable. Consequently, as of 1 January 2005, the inflation accounting has not been applied. 1.5. Disclosures Regarding TFRS 9 Financial Instruments TFRS 9 “Financial Instruments”, which is effective as at 1 January 2018 is published by the Public Oversight Accounting and Auditing Standards Authority (“POA”) in the Official Gazette numbered 29953 dated 19 January 2017. As of 1 January 2018, the application of TFRS 9 replaced “TAS 39: Financial Instruments: Recognition and Measurement.” Standard. TFRS 9 also includes new principles for general hedge accounting which aims to harmonize hedge accounting with risk management applications. In the admission of the accounting policies, TFRS 9 presents the option of postponing the adoption of TFRS 9 hedge accounting and continuing to apply the hedge accounting provisions of TAS 39. All recognized financial assets that are within the scope of TFRS 9 are required to be initially measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and profit share on the principal amount outstanding, are generally measured at Fair Value Through Other Comprehensive Income (“FVTOCI”). All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under TFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment in other comprehensive income, with only dividend income generally recognized in profit or loss. Dividends obtained from such investments are accounted in the financial statements as profit or loss unless they are evidently a part of the recoverable cost of investment. As a result of the combination of contractual cash flow characteristics and business models, the differences in the classification of financial assets are reflected in the financial statements compared to the current classification in TAS 39. During the first recognition of a financial asset into the financial statements, business model determined by the Parent Bank management and the nature of contractual cash flows of the financial asset are taken into consideration. Classification And Measurement of Financial Instruments According to TFRS 9 requirements, classification and measurement of financial assets will depend on the business model within which financial assets are managed and their contractual cash flow characteristics whether the cash flows represent “solely payments of principal and profit share” (SPPI). Upon initial recognition each financial asset shall be classified as either fair value through profit or loss (“FVTPL”) amortized cost or fair value through other comprehensive income (“FVTOCI”). As for the classification and measurement of financial liabilities, the application of the existing terms of TAS 39 remain largely unchanged under TFRS 9. Explanations on Expected Credit Loss As of 1 January 2018, the Bank will recognize provisions for impairment in accordance with the TFRS 9 requirements according to the “Regulation on the Procedures and Principles for Classification of Loans by Banks and Provisions to be set aside” published in the Official Gazette dated 22 June 2016 numbered 29750. The expected credit loss estimates are required to be unbiased, probability-weighted and should include supportable information about past events, current conditions, and forecasts of future economic conditions. Modeling studies were carried out on the principal components of the Expected Loan Loss calculation and the default probability (PD) models were developed on various loan portfolios. Credit portfolios are determined according to customer segments that form the basis of banking activities. The cyclical default probabilities generated by these models developed for use in the Internal Rating Based Approach (IDD) are translated into the Instantaneous Default Probabilities and these instantaneous default probabilities are used when calculating the Expected Loan Loss on TFRS 9 Calculation on Default (LGD) calculation reflects the legal deduction rates and the Bank’s past collection performance on unsecured loans. Default 12 133
136. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Amount (EAD) corresponds to the balance used in cash at the reporting date for cash loans, non-cash loans and balance after application of the loan to commitment risks. Macroeconomic scenarios affect PD values. The expected credit loss amount is calculated by weighting 3 different scenarios as Base, Good and Bad scenarios. The probability of default of the debtors and the loss rates in default vary with each scenario. As of December 31, 2021, the Bank reflected the data obtained with the best estimation method to the estimates and judgements used in the calculation of expected credit losses, with the best estimation method, for the possible effects of the COVID-19 outbreak. In the light of the aforementioned data, the Bank revised its macroeconomic expectations in the calculation of expected credit loss, and the calculation made taking into account the change in PD with the update in the EDF model was reflected in the financial statements. Due to their nature, model updates are reflected in financial statements with a delay due to the macroeconomics effects of events that cause changes and occur at different times. For this reason, the bank establishes additional provisions for the sector or customers that are considered to have a high impact, by making sector-based valuatios when deemed necessary to eliminate the timing difference. The Bank maintains this approach as of December 2021. When deemed necessary, the Bank will review these assumptions according to the course of the pandemic in the future. Within the scope of Article 4 and 5 of the Regulation On Procedures And Principles For Classification Of Loans And Provisions in accordance with the BRSA Decisions numbered 8948 dated 17 March 2020 and numbered 8970 dated 27 March 2020, due to the disruptions in economic and commercial activities resulting from the Covid-19 outbreak, the 90 days default periods for loans to be classified as non-performing loans shall be applied as 180 days; the 30 days periods for loans to be classified as stage 2 shall be applied as 90 days according to assembly’s resolution dated on 17 March 2020. As of September 30, 2021, it has been decided to end the implementation. With the announcement made on September 16, 2021, it was decided to end the flexibility as of the end of September 30, 2021; however, as of 1 October 2021, the same application as previously stated will be continued by the banks for the 1st stage loans with a delay period of more than 31 days and not exceeding 90 days. As of 1 October 2021, in addition to the 1st stage loans, it has been decided to continue with the same practice for the 2nd stage loans with a delay period exceeding 91 days and not exceeding 180 days. The forecast of expected credit losses is unbiased, probabilistic-weighted and includes supportable information about past events, current conditions and predictions of future economic conditions. The Bank applies a ‘three-stage’ impairment model depending on the gradual increase in credit risk observed since initial recognition Stage 1: Includes financial assets not having significant increase in their credit risk from initial recognition till the following reporting date or financial assets having low credit risk at the reporting date. It is recognized 12-month expected credit losses for such financial assets. Stage 2: Includes financial assets having significant increase in their credit risk subsequent to the initial recognition, but not having objective evidence about impairment. It is recognized lifetime expected credit losses for such financial assets. In this context, The basic considerations that are taken into account in determining the significant increase in the credit risk of a financial asset and its transfer to Phase 2 are, but are not limited to, the following. • Delayed by more than 30 days as of the reporting date • Restructuring • Close Monitoring • Evaluation of distortion in Rating Note The definition of the deterioration in the rating is the comparison of the credit rating at the opening date and the rating date at the reporting date by using the Bank's internal rating-based credit rating models. If the rating calculated for the loan at the reporting date exceeds the specified threshold values, the rating is deemed as deterioration. 134 13
137. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Stage 3: Includes financial assets having objective evidence about impairment at the reporting date. It is recognized lifetime expected credit losses for such financial assets. The Bank periodically evaluates the provisions of loans and other receivables in accordance with TFRS 9 retrospectively on the basis of their results and, if deemed necessary, revises the basketing rules and the parameters used in the calculation of the related provision balances. However, based on the BRSA's decisions dated March 17, 2020 and numbered 8948 with dated March 27, 2020 and numbered 8970; due to the impediments in the economic and commercial activities which have been occurred as a result of the COVID-19 pandemic, according to the articles 4 and 5 of the Regulation on the Procedures and Principles Regarding the Classification of Loans and Provisions the foreseen 90-day delay period for the non-performing loans classification was made possible to apply as 180 days; until September 30, 2021, the application of the foreseen 30-day period for the classification for Stage 2 as 90 days has been enabled. With the announcement made on September 16, 2021, it was decided to end the flexibility as of the end of September 30, 2021; however, as of 01.10.2021, the same application as previously stated will be continued by the banks for the 1st stage loans with a delay period of more than 31 days and not exceeding 90 days. As of 01.10.2021, in addition to the 1st stage loans, it has been decided to continue with the same practice for the 2nd stage loans with a delay period exceeding 91 days and not exceeding 180 days. 1.6 Revenue from TFRS 15 Customer Contracts TFRS 15 Revenue from Customer Contracts provides a single, comprehensive model and guidance on the recognition of revenue and is recorded in accordance with TFRS 15 and is recorded in accordance with income with TFRS 15 Revenue from Customer Contracts 1.7 Explanations on TFRS 16 Leases Standard The leasing transactions are shown by the tenants as liabilities in assets and leasing transactions as assets (use right). TFRS 16 Standard eliminates the dual accounting model for leasing of financial leasing transactions and the presentation of operating leases directly on the balance sheet. The bank within the scope of TFRS 16, reflects the existence of a lease obligation and a right of use to the financial statements at the date of initial application. The Bank measures the leasing liability on the present value of the remaining lease payments, discounted at their present value using the alternative borrowing cost ratio at the date of initial application of the Bank. In addition, the Bank measures the existence of the right to use of such right at an amount equal to the lease obligation, which is reflected in the statement of financial position immediately after the first application date, adjusted for the amount of all prepaid or accrued lease payments. As of 31 December 2021, the Bank has usage assets amounting to TL 551,438 classified under tangible fixed assets and TL 522,188 lease obligations in the balance sheet. In year end that ended as of the same date, a financial expense of TL 52,653 and depreciation expense of TL 113,822 occurred. On 5 June 2020, Public Oversight Accounting and Auditing Standards Authority (“POA”) has changed to TFRS 16 “Leases” standard by publishing Privileges Granted in Lease Payments -"Amendments to TFRS 16 Leases" concerning Covid-19. With this change, tenants are exempted from whether there has been a change in the rental priviliges in lease payments due to Covid-19. This change did not have a significant impact on the financial status or performance of the Bank 14 135
138. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2. Explanations on Strategy of Using Financial Instruments and Foreign Currency Transactions The Bank follows an asset-liability management strategy that mitigates risk and increases earnings by balancing the funds borrowed and the investments in various financial assets. The main objective of asset-liability management is to limit the Bank’s exposure to liquidity risk, currency risk and credit risk while increasing profitability and strengthening the Bank’s equity. The assets-liabilities committee (ALCO) manages the assets and liabilities within the trading limits on the level of exposure placed by the Executive Risk Committee. Gains and losses arising from foreign currency transactions have been recorded in the period in which the transaction took place. Foreign currency denominated monetary assets and liabilities are valued with the period end exchange rates published by the Central Bank of Turkey converting them into Turkish Lira and valuation differences of foreign currencies have been recognized in the income statement under the net foreign exchange income/expense account. The foreign currency exchange differences resulting from the translation of debt securities issued and monetary financial instruments into Turkish Lira are included in the income statement. There are no foreign currency differences capitalized by the Bank. 3. Investments in Associates and Subsidiaries Turkish currency denominated associates and subsidiaries are measured at cost value in accordance with the “Consolidated and Separate Financial Statements” (“TAS 27”) and then deducted by provisions for impairment losses, if any, reflected to the accompanying unconsolidated financial statements. 4. Explanations on Forward Transactions and Option Contracts And Derivative Instruments The Bank enters into forward agreements to decrease its currency risk and to manage its foreign currency liquidity. The bank’s derivative instruments are classified as ‘hedging derivative financial asset’ and ‘derivative financial assets/liabilities at fair value profit/loss’. The Bank classifies its derivative instruments as “Derivative Financial Instruments Held for Hedging Purposes” and “Derivative Financial Instruments Held for Trading” in accordance with TAS 39. Even though some derivative transactions economically hedge risk, since all necessary conditions for hedge accounting are not met, they are accounted for as “held for trading” within the framework of TAS 39 and are reflected in the “Derivative Financial Assets/liabilities at fair value profit/loss” account in the balance sheet. The Bank has no derivative financial assets/liabilities for hedging purposes as of balance sheet date. The payables and receivables arising from derivative transactions are recorded in off-balance sheet accounts at their notional amounts. Fair values of foreign currency forward transactions and swaps are calculated by using the discounted cash flow model. Differences resulting from the changes in the fair values of derivatives held for trading are accounted under ‘Trading Income/Loss’ line in the income statement. Embedded derivatives are separated from the host contract if the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss. Embedded derivatives are accounted as derivative instruments in-line with TAS 39. If the embedded derivatives are closely related with the host contract, embedded derivatives are accounted for in-line with the relevant standard applicable for the host contract. The Bank's cash flow hedging process has ended as of December 2021. Benchmark Rate Reform - Stage 2, which introduces amendments to TFRS 9, TAS 39, TFRS 7, TFRS 4 and TFRS 16, effective from January 2021, was published in December 2020 and early application of the changes is permitted. With the amendments made, certain exceptions are provided in the basis used in determining the contractual cash flows and in the hedge accounting provisions. The changes came into effect from 1 January 2021. Loans given from items indexed to benchmark interest rates in the Bank's financial statements and securities assets; Securities issued, derivative transactions and loans obtained through repo constitute liabilities. These changes do not have a significant impact on the Bank's financial position or performance. As of 31 December 2021, the Bank has no hedging transactions based on the benchmark interest rate. 15 136
139. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 5. Explanations on Profit Share Income and Expense Profit share income is recognized in the income statement on an accrual basis by using the method of internal rate of return and is accounted under profit share income account in the financial statements. While applying the internal rate of return method, the Bank amortizes the fees included in the account of the effective profit rate over the expected life of the financial instrument. If the financial asset is impaired and classified as a non-performing loan, profit accruals and rediscount calculations for these customers are continued within the scope of TFRS 9 Financial Instruments Standard. The Bank calculates expense accrual in accordance with the unit value calculation method on profit/loss sharing accounts and reflects these amounts in “Funds Collected” account on the balance sheet. 6. Explanations on fees and commission income and expenses Other than fees and commission income and expenses received from certain banking transactions that are recorded as income or expense in the period they are collected, fees and commission income and expenses are recognized in the income statement depending on the duration of the transaction. Except for fees and commissions that are integral part of the effective interest rates of financial instruments measured at amortized costs, the fees and commissions are accounted for in accordance with TFRS 15 Revenue from Contracts with Customers. Except for certain fees related with certain banking transactions and recognized when the related service is given, fees and commissions received or paid, and other fees and commissions paid to financial institutions are accounted under accrual basis of accounting throughout the service period. In accordance with the provisions of TAS, commission and fees collected in advance for loans granted are deferred and reflected to the income statement by using the internal rate of return method. Unearned portion of the commission and fees relating to the future periods are recorded to the “Unearned Revenues” account under “Other Liabilities” on the balance sheet. 7. Explanations on financial assets The Bank classifies and accounts for its financial assets as ‘Fair Value Through Profit/Loss’, ‘Fair Value Through Other Comprehensive Income,’ or ‘Amortized Cost.’ Such financial assets are recognized and derecognized as per the terms of “Recognition and Derecognition in Financial Statements” under the section three of the “TFRS 9 Financial Instruments” regarding the classification and measurements of financial instruments, published in the Official Gazette numbered 29953 and dated 19 January 2017 by Public Oversight, Accounting and Auditing Standards Authority (“POA”). When financial assets are included in the financial statements for the first time, they are measured at fair value. Transaction costs are initially added to fair value or deducted from fair value at the initial measurement of financial assets other than the "Fair Value at Fair Value Through Profit or Loss". The Bank recognizes a financial asset in the financial statements only when it becomes a party to the contractual terms of a financial instrument. During the initial recognition of a financial asset, the business model determined by Bank management and the nature of contractual cash flows of the financial asset are taken into consideration. When the business model determined by the Bank management is changed, all affected financial assets are reclassified and this reclassification is applied prospectively. In such cases, no adjustments is made to gains, losses or profit shares that were previously recorded in the financial statements. 7.1 Financial assets at fair value through profit or loss Financial assets at fair value through profit/loss are financial assets that are managed within a business model other than the business model whose objective is achieved by holding contractual cashflows for collection and the business model whose objective is achieved by collecting and selling contractual cash flows. Also, in case that the contractual terms of financial assets do not give rise on specified dates to cash flows that are solely payments of principal and profit share on the principal amount, such assets are those that are, obtained with the aim of providing profit from the short-term price or other factor fluctuations in the market or are part of a portfolio aiming to obtain short-term profit, regardless of the reason of acquisition. 16 137
140. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 7.2 Financial assets at fair value through other comprehensive income A financial asset is classified as at fair value through other comprehensive income when the asset is managed within a business model whose objective is achieved by collecting contractual cash flows and selling the financial asset, as well as when the contractual terms of the financial asset give rise on specified dates to cash flows are solely payments of principal and profit share on the principal amount. Financial assets at fair value through other comprehensive income are recognized by adding transaction cost to acquisition costs that reflect the fair value of the financial asset. After the recognition, financial assets at fair value through other comprehensive income are remeasured at fair value. Profit share income calculated with effective profit share method regarding the financial assets at fair value through other comprehensive income and dividend income from equity securities are recorded to income statement. “Unrealized gains and losses,” which is the difference between the amortized cost and the fair value of financial assets at fair value through other comprehensive income, are not reflected in the income statement of the period until the acquisition of the asset, sale of the asset, the disposal of the asset, or the impairment of the asset. “Unrealized gains and losses” are accounted under the “Accumulated other comprehensive income or expense to be reclassified through profit or loss” under shareholders’ equity. Equity securities, which are classified as financial assets at fair value through other comprehensive income, are carried at fair value, in the case that the securities have a quoted market price in an active market and/or the fair values of the securities can be reliably measured. In contrary case, the securities are carried at cost, less provision for impairment. During initial recognition an entity can make an irrevocable election regarding the presentation of the subsequent changes in the fair value of the investment in an equity instrument, that is not held for trading purposes, in the other comprehensive income. In the case that the entity elects to present the changes as described, dividends arising from the investment is accounted in the financial statements as profit or loss. 7.3 Financial assets measured at amortized cost In the case that a financial asset is held within a business model whose objective is achieved both by collecting contractual cash flows and that the contractual terms of the financial asset give rise to cash flows on specified dates that are solely payments of principal and profit share on the principal amount, the financial asset is classified as financial asset measured at amortized cost. Financial Assets Measured at Amortized Cost; are financial assets, other than loans and receivables, which are held for the purpose of custody until maturity, with conditions necessary for such assets to be held until contractual maturity met, including funding ability; and which have fixed or determinable payments and fixed maturities. Financial assets measured at amortized cost are initially recognized at cost and subsequently measured at amortized cost using the internal rate of return method. Profit share income related to Financial Assets measured at amortized cost is reflected in the income statement. 7.4 Derivative financial assets The major derivative instruments utilized by the Bank are foreign currency swaps, cross currency swaps and currency forwards. Payables and receivables arising from the derivative instruments are recorded in the off-balance sheet accounts at their contractual values. Derivative transactions are valued at their fair values subsequent to their acquisition. In accordance with the classification of derivative financial instruments, the fair value amounts are classified as "Derivative Financial Assets Designated at Fair Value Through Profit or Loss." The fair value differences of derivative financial instruments are recognized in the income statement under trading profit/loss line in profit/loss from derivative financial transactions. The fair value of derivative instruments is calculated by taking into account the market value of the derivatives or by using the discounted cash flow model. 17 138
141. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 7.5 Loans Loans are financial assets that have fixed or determinable payments terms and are not quoted in an active market. Loans are initially recognized at acquisition cost plus transaction costs presenting their fair value and thereafter measured at amortized cost using the "Effective Profit Share Rate (internal rate of return) Method". 8. Explanations on offsetting of financial assets and liabilities Financial assets and liabilities are offset and the net amount is reported in the balance sheet when the Bank has a legally enforceable right to offset the recognized amounts and there is an intention to collect/pay the related financial assets and liabilities on a net basis, or to realize the asset and settle the liability simultaneously. 9. Explanations on sale and repurchase agreements and lending of securities Central Bank of the Republic of Turkey (“CBRT”) made some changes on orders for open market transactions (“OMT”) and prepared an additional frame contract for participation banks in order to present rent certificates to open market operations of CBRT in accordance with the principles of participation banks. According to this agreement; a new type of transaction was formed which enables participation banks to resell or repurchase rent certificates on their portfolio to CBRT when they are in need of funding or in attempt to evaluate the excess liquidity In this context, OMT were carried out with the CBRT for the first time on 14 June 2013, by subjecting the Treasury Lease Certificates, which were include in assets, to the repurchase transactions. From this date, the Bank performs sale transactions of treasury lease certificates that are recognized in the assets of the balance sheet in return for conditional repurchasing by tendering to purchase auctions held by CBRT with various maturities; and thusly raises funds. As of 31 December 2021, the Bank have a sales transaction worth 6,495,137 TL with the promise of repurchase. (31 December 2020 –TL – 185,225). 18 139
142. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10. Explanations on assets held for sale and discontinued operations and related liabilities As mandated by the Banking Act 5411 Article 57 “banks cannot participate in commercial real-estate and commodity trade with the exception of real-estate and commodity based agreements within the scope of Capital Markets Act No. 2499, and precious metal trade as seen appropriate by the board, and cannot participate in partnerships with firms whose main business activity is commercial real-estate, with the exception of real-estate investment partnerships and companies that finance mortgaged residential estates. The rules and procedures regarding the sales of real-estate and commodities that were acquired due to receivables and debtors’ obligations to the bank are determined by the board.” Assets that meet the criteria for classification as assets held for sale are measured at the lower of the carrying amount of assets and fair value less any costs to be incurred for disposal. Assets held for sale are not amortized and presented in the financial statements separately. In order to classify an asset as held for sale, the sale should be highly probable and the asset (or disposal group) should be available for immediate sale in its present condition. Highly saleable condition requires a plan by the management regarding the sale of the asset (or the disposal group) together with an active program for the determination of buyers as well as for the completion of the plan. Also the asset (or the disposal group) should be actively in the market at a price consistent with its fair value. In addition, the sale is expected to be recognized as a completed sale within one year after the classification date and the necessary transactions and procedures to complete the plan should demonstrate the fact that there is remote possibility of making any significant changes in the plan or cancellation of the plan. Various events and conditions may extend the completion period of the disposal over one year. If such delay arises from any events and conditions beyond the control of the entity and there is sufficient evidence that the entity has an ongoing disposal plan for these assets, such assets (or disposal group) can remain to be classified as assets (or disposal group) held for sale. Extension of the period necessary to complete the sale, does not avoid the classification of the related asset (or disposal group) to be classified as asset held for sale. A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale. Discontinued operations are presented separately in the income statement. The Bank has no discontinued operations. 11. Explanations on goodwill and other intangible assets Intangible assets are stated at cost adjusted for inflation until 31 December 2004, less provision for impairment, if any, and accumulated amortization and amortized with straight-line method. The other intangible assets of the Bank comprise mainly computer software. The useful lives of such assets acquired prior to 2004 have been determined as 5 years and for the year 2004 and forthcoming years, as 3 years. The amortization period of the licenses is determined on the basis of the duration of the license agreements. 12. Explanations on tangible assets Fixed assets are stated at cost adjusted for inflation until 31 December 2004, less accumulated depreciation and provision for impairment, if any. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The annual rates used for amortization are as follows: Property Movables, leased assets 2% 6.67% - 20% Depreciation is calculated on a pro-rata basis for the assets that have been placed in use for less than one year as of the balance sheet date. Leasehold improvements are depreciated over the term of the lease agreements by straight-line method. If the recoverable amount (the higher of value in use and fair value) of a tangible asset is less than its carrying value, impairment loss is provided and the carrying value is written down to its recoverable amount. Gains or losses resulting from disposals of the fixed assets are recorded in the income statement as the difference between the net proceeds and net book value of the asset. Expenses for repair costs are capitalized if the expenditure increases economic life of the asset; other repair costs are expensed as incurred. 140 19
143. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) The capital expenditures made in order to increase the capacity of the tangible asset or to increase its future benefits are capitalized on the cost of the tangible asset. The capital expenditures include the cost components which are used either to increase the useful life or the capacity of the asset or the quality of the product, or to decrease the costs. Property held for long-term rental yields and/or capital appreciation is classified as investment property. Investment properties are stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful lives of the properties. 13. Explanations on leasing transactions For contracts concluded prior to 1 January 2019, the Bank assesses whether the contract has a lease qualification or include a lease transaction. (a) The right to obtain almost all of the economic benefits from the use of the leased asset and, (b) Whether the leased asset which has the right to manage its use is evaluated As of 1 January 2019, that is the first application date of TFRS 16, the bank started to apply TFRS 16- Leases standard. At the commencement date of the lease, the Bank recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. Lease payments are discounted by using the Bank’s alternative borrowing dividend. The Bank has recognized the right to lease assets equal to the lease obligation by restating the previously paid or accrued lease payments. The right of the use asset The Bank reflects the existence of a right of use and a lease obligation to the financial statements at the date the lease is commenced. The right to use asset is recognized first by cost method and includes the following: (a) The first measurement amount of the lease obligation, (b) The amount obtained by deducting all rental incentives received from all lease payments made at or before the date of the rental. When the Bank applying cost method, the existence of the right of use: (a) Accumulated depreciation and accumulated impairment losses are deducted and (b) Measures the restatement of the lease obligation over the adjusted cost. The Bank applies depreciation provisions in TAS 16 Property, Plant and Equipment standard while depreciating in the right of use. The Bank determines whether the right of use has been impaired and recognizes any identified impairment losses in accordance with TAS 36 – Impairment of Assets. Lease obligation At the effective date of the lease, the Bank measures the leasing liability at the present value of the lease payments not paid at that time. Lease payments are discounted using the Bank’s alternative borrowing profit-share rate. The dividend rate on the lease liability for each period of the lease term is the amount found by applying a fixed periodic dividend rate to the remaining balance of the lease liability. Periodic profit-share rate is the Bank’s borrowing dividend rate. After the beginning of a contract, the Bank remeasures its lease liability to reflect changes in lease payments. The Bank reflects the restatement amount of the lease obligation to the financial statements as revised in the presence of the right of use. The Bank measures the lease obligation by discounting the revised lease payments on a revised discount rate when any of the following conditions occur: 20 141
144. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) A change in the rental period. The Bank determines revised rent payments based on revised lease term. The Bank determines the revised discount rate for the remaining portion of the lease term as the alternative borrowing interest rate at the date of Bank’s revaluation. 14. Explanations on provisions and contingent liabilities Provisions and contingent liabilities are accounted for in accordance with “Turkish Accounting Standard for Provisions, Contingent Liabilities and Contingent Assets” (TAS 37). Provisions are recognized when the Bank has a present obligation, legal or constructive, as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate can be made of the amount of the obligation. As per the “Matching Principle,” a provision is provided for the liabilities arising as a result of past events in the period they arise, if it is probable that the liability will be settled and a reliable estimate for the liability amount can be made. When a reliable estimate of the amount of the obligation cannot be made or it is not probable that an outflow of resources will be required to settle the obligation, the obligation is considered as a “Contingent” liability and is disclosed in the related notes to the financial statements. 15. Explanations on liabilities relating to employee benefits 15.1 Defined benefit plans In accordance with existing social legislation, the Bank is required to make severance pay to each employee who has completed over one year of service with the Bank and who retires or quits the employment to receive old age or disability benefits, to fulfill the compulsory military service, because of the marriage (for females) or because of the other compulsive reasons as defined in the laws and whose employment is terminated due to reasons other than resignation or misconduct. Liabilities amount which is related to “Turkish Accounting Standard on Employee Benefits” (“TAS 19”) is reflected accompanying financial statements and these liabilities are calculated by an independent actuary firm. Bank is accounted all actuarial profit and loss under Statement of other Comprehensive Income. The Bank’s employees are not members of any pension fund, foundations, union or other similar entities. 15.2 Defined contribution plans The Bank pays defined contribution plans to publicly administered Social Security Funds for its employees as mandated by the Social Security Association. The Bank has no further payment obligations other than this contribution share. The contributions are recognized as employee benefit expense when they are due. 15.3 Short term benefits to employees In accordance with “TAS 19”, vacation pay liabilities are defined as “Short Term Benefits to Employees” and accrued as earned. Bank management calculates bonus accrual if it foresees that the budgeted year-end figures approved by the Board of Directors are attainable. 21 142
145. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 16. Explanations on Taxation Current Tax As per the terms of the provisional article 11 added to the Law No. 5520 by the Article 13 of the Law No. 7316, it was established that the rate of 20%, as disclosed in the first paragraph of the Article 32 of the Corporate Tax Law No. 5520, shall be applied as 25% over the corporation income for the tax period of the years 2021, 23% for the taxation period of 2022. (and for entities that are appointed with special accounting period, for the accounting periods beginning within the relevant year). In this context, corporate tax will be collected at the rate of 25% for the 2021 period and 23% for the year 2022 for corporate taxpayers. In addition, in the said periods, temporary tax will be paid by the corporate taxpayers at the rate of 25% for 2021 and 23% for 2022, according to the principles specified in the Income Tax Law, to be deducted from the corporate tax of the aforementioned tax periods. This rate is applied on taxable income which is calculated by adjusting the income before tax for certain disallowable expenses, tax exempt income and other allowances. No further tax is applicable unless the profit is distributed. In accordance with the tax legislation, the temporary tax rate for 2021 will be paid at the rate of 25% for the year 2021 and 23% for the year 2022 over the tax bases formed quarterly, and the temporary taxes paid within the year are deducted from the corporate tax calculated over the annual corporate tax return of that year. Withholding taxes is not applied to dividends distributed to companies resident in Turkey or companies who earn income in Turkey through their resident representatives in Turkey. With the Council of Minister’s decision numbered 2009/14593 and 2009/14594 which are published in official gazette numbered 27130 and dated 3 February 2009, some deduction rates in 15th and 30th articles of the corporate tax law numbered 5520 were re-determined. In accordance with this, dividends distributed to companies other than companies resident in Turkey or companies who earn income in Turkey through their resident representatives in Turkey are subject to 10% withholding taxes. Double tax treaty agreements are also taken into consideration during the application of withholding taxes on dividends distributed to real persons and to foreign-based taxpayers. Addition of profit to share capital is not considered as dividend distributed therefore no withholding taxes is applied. With the aforementioned amendment to the law, entities calculate advance tax using a rate of 22% over the quarterly financial income, for the years 2018-2019-2020 and advance tax returns are filed by the fourteenth day of the second month following the related period and taxes are paid by the seventeenth day. Advance taxes are paid within the year belong to that year, and the paid advance taxes are offset from the corporate tax liability calculated over the corporate tax returns in the subsequent year. Any remaining amount of paid advance taxes after the offset can be paid back in cash or it can be deducted from financial loans to the government. For the purpose of issuance of certificate of leasing immovables to resource institutions, with the sale of asset leasing companies, the scope of Financial Leasing, Factoring and Financing Companies Law No.6361, dated 21 November 2012 in order to lease it back and in case of taking back at the end of the contract, with the sale of financial leasing companies and asset leasing by asset leasing companies, for profit from the sale of the immovable property inherited from the institution applies this rate as 100% and for the immovable is not compulsory to be in assets at least for a period of two years. But the mentioned immovable’s; except in case of failure to fulfill the obligations arising from the source institution, the lesser or leasing agreement, immovable in question by the asset leasing company, in case of selling a third person or institutions, these immovable’s with the carrying value before its transfer to resource institution or asset leasing in lesser or asset leasing company, in mentioned institutions taking into consideration the total amount of depreciation is taxable for corporation engaged in the sale. Corporate tax returns are filed by the thirtieth day of the fourth month following the balance sheet date and taxes is paid in one installment by the end of that month. Corporate tax losses can be carried forward for a maximum period of five years following the year in which the losses were incurred. However, losses cannot be carried back to offset profits from previous periods. The tax authorities can inspect tax returns and the related accounting records for a retrospective maximum period of five years. In Turkey, there is no procedure for a final and definite agreement on tax assessments. With the “Law Amending the Tax Procedure Law and the Corporate Tax Law”, which was accepted on the agenda of the Turkish Grand National Assembly on January 20, 2022, the application of inflation accounting was postponed starting from the balance sheet dated on December 31, 2023. 22 143
146. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Deferred Tax For taxable temporary differences arising between the tax bases of assets and liabilities and their carrying amounts, as per the provisions of “Turkish Accounting Standard on Income Taxes” (“TAS 12”), the Bank calculates deferred tax liability over all taxable temporary differences and deferred tax asset over taxable temporary differences, apart from the provisions for Expected Credit Losses for 12-Months (Stage 1) and for Lifetime Credit Losses (Stage 2) with significant increase in the credit risk after initial recognition, to the extent that is probable that taxable profit will be available in subsequent periods. Deferred tax asset and liabilities are shown in the accompanying financial statements on a net basis. The tax effect regarding the items directly accounted in equity are also reflected in equity. Updated tax rates in the upcoming periods will be taken into account in the calculation of deferred tax assets and liabilities. 17. Explanations on additional disclosures on borrowings Borrowings other than funds collected are measured at amortized cost using the internal rate of return method after the initial recognition. The Bank does not apply hedging techniques on related borrowings. The Bank has not issued convertible bonds. 18. Explanations on share certificates issued There is no significant amount of transaction costs on Bank about share certificates. 19. Explanations on acceptances and availed drafts Acceptances and availed drafts are realized simultaneously with the payment dates of the customers and they are presented as commitments in off-balance sheet accounts. 20. Explanations on government grants There are no government grants received by the Bank. 21. Explanations on segment reporting The Bank conducts its activities in three separate segments: Retail Banking, Corporate and Commercial Banking, Treasury and International Banking. Each department serves with its own products and the results of the activities are monitored on the basis of these departments. Segment reporting is disclosed in Section Four, Note 14. 22. Explanations on other matters The Bank has no disclosures on other matters. 23 144
147. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION FOUR INFORMATION RELATED TO FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK 1. Explanations on Equity Items Total capital and Capital adequacy ratio have been calculated in accordance with the “Regulation on Equity of Banks” and “Regulation on Measurement and Assessment of Capital Adequacy of Banks”. As of 31 December 2021 Bank’s total capital has been calculated as TL 19,096,524 (31 December 2020: TL 12,713,746), capital adequacy ratio is 23.05% (31 December 2020: 21.26%). Fluctuations are experienced in the financial markets mainly as a result of the COVID-19 outbreak, in the press statement made by the BRSA on March 23, 2020. Therefore, in accordance with the BRSA's Decision No. 9795 dated 16 September 2021; In the calculation of the amount subject to credit risk in accordance with the Regulation on Measurement and Evaluation of Capital Adequacy; To be able to use the simple arithmetic average of the Central Bank foreign exchange buying rates of the last 252 business days before the calculation date, when calculating the amounts valued in accordance with the Turkish Accounting Standards and the relevant special provision amounts for monetary assets and non-monetary assets other than items in foreign currency measured in terms of historical cost, to continue the application until a Board Decision is taken to the contrary, In addition, in accordance with the BRSA's decision dated April 16, 2020 and numbered 8999; Within the scope of the Regulation on Measurement and Assessment of Capital Adequacy of Banks, it is enabled to apply 0% risk weight in the calculation of the amount subject to credit risk to the receivables of banks from the Central Government of the Republic of Turkey and arranged in FX. The Bank used these opportunities in its Capital Adequacy calculations as of December 31, 2021. 24 145
148. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.1. Components of Total Capital COMMON EQUITY TIER I CAPITAL Paid-In Capital To Be Entitled For Compensation After All Creditors Share Premium Reserves Other Comprehensive Income According to TAS Profit Current Period Profit Prior Period Profit Bonus Shares From Associates, Affiliates And Joint-Ventures Not Accounted In Current Period's Profit Common Equity Tier I Capital Before Deductions Deductions From Common Equity Tier I Capital Valuation Adjustments Calculated As Per The Article 9. (I) Of The Regulation On Bank Capital Current And Prior Periods' Losses Not Covered By Reserves, And Losses Accounted Under Equity According To TAS (-) Leasehold Improvements On Operational Leases (-) Goodwill Netted With Deferred Tax Liabilities Other Intangible Assets Netted With Deferred Tax Liabilities Except Mortgage Servicing Rights Net Deferred Tax Asset/Liability (-) Differences Arise When Assets And Liabilities Not Held At Fair Value, Are Subjected To Cash Flow Hedge Accounting Total Credit Losses That Exceed Total Expected Loss Calculated According To The Regulation On Calculation Of Credit Risk By Internal Ratings Based Approach Securitization Gains Unrealized Gains And Losses From Changes In Bank’s Liabilities’ Fair Values Due To Changes In Creditworthiness Net Amount Of Defined Benefit Plans Direct And Indirect Investments Of The Bank On Its Own Tier I Capital (-) Shares Obtained Against Article 56, Paragraph 4 Of The Banking Law (-) Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or Less Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital (-) Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or More Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital (-) Mortgage Servicing Rights Exceeding The 10% Threshold Of Tier I Capital (-) Net Deferred Tax Assets Arising From Temporary Differences Exceeding The10% Threshold Of Tier I Capital (-) Amount Exceeding The 15% Threshold Of Tier I Capital As Per The Article 2, Clause 2 Of The Regulation On Measurement And Assessment Of Capital Adequacy Of Banks (-) The Portion Of Net Long Position Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or More Of The Issued Share Capital Not Deducted From Tier I Capital (-) Mortgage Servicing Rights Not Deducted (-) Excess Amount Arising From Deferred Tax Assets From Temporary Differences (-) Other Items To Be Defined By The BRSA (-) Deductions From Tier I Capital In Cases Where There Are No Adequate Additional Tier I Or Tier II Capitals (-) Total Deductions From Common Equity Tier I Capital Total Common Equity Tier I Capital 25 146 Current Period Amount Prior Period Amount 4,600,000 23,250 3,359,858 251,492 2,554,175 2,501,727 52,448 10,788,775 - 4,600,000 23,250 1,970,146 98,217 1,452,729 1,400,281 52,448 8,144,342 - 16,538 73,968 233,519 - 77,641 77,771 177,808 - - - - - 52,112 4,869 - 51,258 4,869 - - - - - - - 381,006 10,407,769 389,347 7,754,995
149. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) ADDITIONAL TIER I CAPITAL BEFORE DEDUCTIONS Capital corresponding to privileged shares not included in the core capital and the related issuance premiums Borrowing instruments deemed appropriate by the Authority and related issuance premiums Borrowing instruments deemed appropriate by the Authority and the related issuance premiums (those covered by Provisional Article 4) Additional Capital Before Discounts - - 3,317,165 1,851,633 - - 3,317,165 1,851,633 Deductions From Additional Tier I Capital - - Direct And Indirect Investments Of The Bank On Its Own Additional Tier I Capital (-) Investments In Equity Instruments Issued By Banks Or Financial Institutions Invested In Bank’s Additional Tier I Capital And Having Conditions Stated In The Article 7 Of The Regulation Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or Less Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital (-) The Total Of Net Long Position Of The Direct Or Indirect Investments In Additional Tier I Capital Of Unconsolidated Banks And Financial Institutions Where The Bank Owns More Than 10% Of The Issued Share Capital (-) Other Items To Be Defined By The BRSA (-) - - - - - - - - - - Items To Be Deducted From Tier I Capital During The Transition Period Goodwill And Other Intangible Assets And Related Deferred Taxes Not Deducted From Tier I Capital As Per The Temporary Article 2, Clause 1 Of The Regulation On Measurement And Assessment Of Capital Adequacy Of Banks (-) Net Deferred Tax Asset/Liability Not Deducted From Tier I Capital As Per The Temporary Article 2, Clause 1 Of The Regulation On Measurement And Assessment Of Capital Adequacy Of Banks (-) Deduction From Additional Tier I Capital When There Is Not Enough Tier II Capital (-) - - - - - - Total Deductions From Additional Tier I Capital - - 3,317,165 1,851,633 13,724,934 9,606,628 Debt Instruments And The Related Issuance Premiums Defined By The BRSA Debt Instruments And The Related Issuance Premiums Defined By The BRSA (Covered By Temporary Article 4) Provisions (Amounts Explained In The First Paragraph Of The Article 8 Of The Regulation On Bank Capital) 4,644,031 2,592,281 - - 845,934 613,486 Total Deductions From Tier II Capital 5,489,965 3,205,767 Total Additional Tier I Capital Total Tier I Capital (Tier I Capital= Common Equity Tier I Capital + Additional Tier I Capital) TIER II CAPITAL Deductions From Tier II Capital - - Direct And Indirect Investments Of The Bank On Its Own Tier II Capital (-) Investments In Equity Instruments Issued By Banks And Financial Institutions Invested In Bank’s Tier II Capital And Having Conditions Stated In The Article 8 Of The Regulation Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or Less Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital (-) The Total Of Net Long Position Of The Direct Or Indirect Investments In Additional Tier I Capital And Tier II Capital Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or More Of The Issued Share Capital Exceeding The 10% Threshold Of Tier I Capital (-) Other Items To Be Defined By The BRSA (-) - - - - - - - - - - Total Deductions From Tier II Capital - - 5,489,965 3,205,767 19,214,899 12,812,395 Total Tier II Capital Total Equity (Total Tier I And Tier II Capital) 26 147
150. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Total Tier I Capital and Tier II Capital (Total Equity) Loans Granted Against The Articles 50 And 51 Of The Banking Law (-) Net Book Values Of Movables And Immovables Exceeding The Limit Defined In The Article 57, Clause 1 Of The Banking Law And The Assets Acquired Against Overdue Receivables And Held For Sale But Retained More Than Five Years (-) Other Items To Be Defined By The BRSA (-) Items To Be Deducted From The Sum Of Tier I And Tier II Capital (Capital) During The Transition Period The Portion Of Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or Less Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital Not Deducted From Tier I Capital, Additional Tier I Capital Or Tier II Capital As Per The Temporary Article 2, Clause 1 Of The Regulation (-) The Portion Of Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns More Than 10% Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital Not Deducted From Additional Tier I Capital Or Tier II Capital As Per The Temporary Article 2, Clause 1 Of The Regulation (-) The Portion Of Net Long Position Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or More Of The Issued Share Capital, Of The Net Deferred Tax Assets Arising From Temporary Differences And Of The Mortgage Servicing Rights Not Deducted From Tier I Capital As Per The Temporary Article 2, Clause 2, Paragraph (1) And (2) And Temporary Article 2, Clause 1 Of The Regulation (-) CAPITAL Total Capital (Total Of Tier I Capital And Tier II Capital) Total Risk Weighted Assets CAPITAL ADEQUACY RATIOS CET1 Capital Ratio (%) Tier I Capital Ratio (%) Capital Adequacy Ratio (%) BUFFERS Bank-Specific Total CET1 Capital Ratio Capital Conservation Buffer Ratio (%) Systemic Significant Bank Buffer Ratio (%) Additional CET1 Capital Over Total Risk Weighted Assets Ratio Calculated According To The Article 4 Of Capital Conservation And Counter-Cyclical Capital Buffers Regulation Amounts Lower Than Excesses As Per Deduction Rules Remaining Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or Less Of The Issued Share Capital Remaining Total Of Net Long Positions Of The Investments In Tier I Capital Of Unconsolidated Banks And Financial Institutions Where The Bank Owns More Than 10% Or Less Of The Issued Share Capital Remaining Mortgage Servicing Rights Net Deferred Tax Assets Arising From Temporary Differences Limits For Provisions Used In Tier II Capital Calculation General Loan Provisions For Exposures In Standard Approach (Before Limit Of One Hundred And Twenty Five Per Ten Thousand) General Loan Provisions For Exposures In Standard Approach Limited By 1.25% Of Risk Weighted Assets Total Loan Provision That Exceeds Total Expected Loss Calculated According To Communiqué On Calculation Of Credit Risk By Internal Ratings Based Approach Total Loan Provision That Exceeds Total Expected Loss Calculated According To Communiqué On Calculation Of Credit Risk By Internal Ratings Based Approach, Limited By 0.6% Risk Weighted Assets Debt Instruments Covered By Temporary Article 4 (Effective Between 1.1.2018-1.1.2022) Upper Limit For Additional Tier I Capital Items Subject To Temporary Article 4 Amount Of Additional Tier I Capital Items Subject To Temporary Article 4 That Exceeds Upper Limit Upper Limit For Additional Tier II Capital Items Subject To Temporary Article 4 Amount Of Additional Tier II Capital Items Subject To Temporary Article 4 That Exceeds Upper Limit Debt instruments subjected t o Article 4 (to be implemented between January 1 , 2018 and January 1, 2022) Upper limit for Additional Tier I Capital subjected to temprorary Article 4 Amounts Excess the Limits of Additional Tier I Capital subjected to temprorary Article 4 Upper limit for Additional Tier II Capital subjected to temprorary Article 4 Amounts Excess the Limits of Additional Tier II Capital subjected to temprorary Article 4 27 148 - - 11,607 106,768 5,828 92,821 - - - - - - 19,096,524 82,840,995 12,713,746 59,802,485 12.56 16.57 23.05 12.97 16.06 21.26 2.50 2.50 2.50 2.50 - - 8.06 8.47 - - - - 6,298,549 845,934 4,652,363 613,486 - - - - - -
151. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Information on debt instruments to be included in equity calculation: Issuer KT One Company Limited Instrument Code (CUSIP, ISIN vb.) XS2028862998 BRSA regulation on Shareholders ' Equity Legislation to which the Instrument is subject Consideration In Equity Calculation Subject to consideration application reduced by 10% from 1/1/2015 Validity on a consolidated or unconsolidated basis or both consolidated and unconsolidated basis Instruments Type Amount taken into account in equity calculation (as of last reporting date-TL million) Nominal value of the Instrument (TL million)) The account in which the Instrument is followed accounting Export date of the Instrument Maturity structure of the Instrument (demand/term)) Not Being Subject Current on both consolidated and unconsolidated basis Subordinated Sukuk (Additional Tier I Capital) Not Being Subject Current on both consolidated and unconsolidated basis Subordinated Sukuk (Additional Tier I Capital) KT21 T2 Company Limited XS2384355520 BRSA regulation on Shareholders ' Equity Not Being Subject Current on both consolidated and unconsolidated basis Subordinated Sukuk (Tier II Capital) 2,654 663 4,644 2,654 3470003 16/07/2019 Demand 5 Years (Due Date : 16/07/2024) Yes 663 3470003 28/09/2020 Demand 5 Yıl (Due Date : 28/09/2025) Yes 4,644 3470003 16/09/2021 10 Years and 3 Month Term 5 Yıl Üç Ay (Due Date:16/12/2026) Yes 16/07/2024 – Complete 28/09/2025 – Complete 16/12/2026 -Complete 16/07/2024 28/09/2025 16/12/2026 Fixed Divident payments 9.13% None Mandatory Fixed Divident payments 9.95% None Mandatory Fixed Divident payments 6.13% None Mandatory Initial maturity of the Instrument Whether the issuer has the right to refund subject to BRSA approval Date of repayment option, contingent repayment options and amount to be paid back Subsequent repayment option dates Dividend payments Fixed or variable dividend payments Dividend ratio and index value for dividend ratio Whether there are any restrictions that stop paying dividends The ability to be completely optional, partially optional or mandatory Whether there is an element to encourage repayment, such as a dividend rate hike Non-accumulative or cumulative property Ability to convert to stock KT AT One Company Limited XS2227803819 BRSA regulation on Shareholders ' Equity Trigger events/events that would cause conversion if converted to stock Fully or partially convert property if it can be converted to stock If it can be converted to stock, the conversion rate Forced or optional conversion property, if it can be converted to stock Types of convertible Instruments, if convertible to stock Issuer of the debt instrument to be converted, if it can be converted to stock Value reduction feature Trigger events/events to cause reduction if value reduction is enabled If it has a value reduction feature, it has a total or partial value reduction feature If the value reduction property is continuous or transient If the value can be temporarily reduced, the value increment mechanism In the case of liquidation, which is in the order in respect of the right of receivables (the instrument which is located just above this instrument of borrowing)) Whether or not the provisions of Articles 7 and 8 of the regulation on the shareholders ' equity of the banks are not met Which of the conditions contained in Articles 7 and 8 of the regulation on the shareholders ' equity of the banks are not met None None None Noncumulative Noncumulative Noncumulative Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction Tier - 1 Tier - 1 Tier - 2 None None None None None None 149 28
152. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.2 Approaches applied to assess the adequacy of internal capital requirement in terms of current and future activities Internal evaluation process is established for continuously evaluating and maintaining the types, componenets and distribution of the adequate level of capital in order to provide for various risks exposed to or to be exposed to. The final purpose of the evaluation process of the internal capital requirement, is to define and evaluate all the risks included or not in the calculations of the legal capital requirements, within the frame of the activities of the bank, and to provide the availability od adequate capital in order to cover these risks and the application of the risk management techniques. The results obtained in this evaluation process by taking into consideration, the Banks’ growth strategy, assets-liabilities structure, funding sources, liquidıty position, foreign currency position, the effect of the price and market fluctuations on the capital, which are among the variables of the economy, aim to provide the continuity of the mentioned capital adequacy level at the determined level in compliance with the Banks’ risk profile and risk appetite. Within this scope, capital structure is reviewed as based on the frame of the activities and risks exposed to, and the internal capital requirement, probable to occur within the direction of targets and strategies of the Bank is evaluated. This evaluation includes interest rate risk, concentration risk, liquidation risk, reputation risk, residual risk, country risk and strategic risk arising of the banking books as well as market, credit and operational risks. Capital requirement internal evaluation is evaluated to be a developing process and the development areas for the future period are determined and plans are prepared. 2. Explanations and Disclosures related to Credit Risk Credit risk means the risks and damages to arise as a result of partial or complete non-fulfillment of the obligations timely by non-compliance of the counter party with the requirements of the agreement concluded with the Bank. With regards to the credit risk, the debtor or the group of deptors is subjected to risk limitation. The upper limit of the rate of the credits granted to the companies in one sector to the total credits is determined annually by the Board of Directors and is updated as required. The credit risk which the Bank is subjected to outside of Turkey is followed up by the Board of Directors within the frame of the determined limits on the basis of countries and regions. Within this scope, the total risk which the Bank had taken in the foreign country or region, the total of the credit risk taken by the banks residing abroad and/or their branches in Turkey, the total risks of the credits generated to the people residing abroad or with foreign nationally, the risk total taken over the corporate customers and/or banks to which the partners residing in Turkey but of which the principal shareholder or shareholders reside in another country, had given guarantee and in required cases, the risk total taken by the Bank in Turkey should be followed up. The risks and limits arising of the treasury transactions and customer based commercial transactions are followed up daily. Moreover, the control of the limits allocated as based on the degrees of the correspondent banks and the maximum risk that the Bank can take within its equities are also performed daily. The risk limits relevant to the transactions performed daiy are determined and the risk intensity relevant to off the balance sheet transactions are being followed up. As provided for in the Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for the Loans, the credit worthiness of the debtors of the loans and the other receivables are followed up at regular intervals, in case of early determination of a probable repayment problem, the credit limits redefined and additional guarantees are taken and this way the prevention of the bank’s loss is aimed. The account statement documents for the loan generations are taken as defined in the legislation. The guarantees are taken within the frame of the relevant legislation, by consideration of the quality of the credit and the financial structure of the company and as based on the allocation decision taken by the credit committee Futures and option contracts and other similar contract positions are not held. The indemnified non-cash loans are subject to the same risk weight as the unpaid credits, in accordance with the “Regulation on the Procedures and Principles for the Determination of the Qualifications of Credits and Other Receivables in Banks and the Proviions to be Forded”. Renewed and restructured loans are monitored in accordance with the methods set out in the relevant legislation. Foreign trade financing and inter-banks loan transactions are performed by a wide network of correspondents and the countr risks, limits, correspondent risks and limits are regularly evaluated within this scope. There is no important credit risk concentration when evaluated together with the financial activities of the other financial institutes. 29 150
153. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) The Bank’s top 100 and 200 cash loan customers represents 30% and 37% of the total cash loan portfolio, respectively. The Bank’s top 100 and 200 non-cash loan customers represent 31% and 41% of the total non-cash loan portfolio, respectively. The Bank’s top 100 and 200 cash and non-cash loan customers represent 27% and 34% of the total cash and non-cash loan portfolio, respectively. Risk Classifications Conditional and unconditional receivables from central governments or Central Banks Conditional and unconditional receivables from regional or local governments Conditional and unconditional receivables from administrative bodies and non-commercial undertakings Conditional and unconditional receivables from multilateral development banks Conditional and unconditional receivables from international organizations Conditional and unconditional receivables from banks and brokerage houses Conditional and unconditional receivables from corporates Conditional and unconditional receivables from retail portfolios Conditional and unconditional receivables secured by mortgages Collateralized receivables with mortgages Past due receivables Receivables defined under high risk category by BRSA Securities collateralized by mortgages Securitization positions Short-term receivables from banks, brokerage houses and corporate Investments similar to collective investment funds Stock Investments Other receivables Total Current Period Risk Amount (*) 75,012,246 - Average Risk Amount (**) 62,171,800 - 125,831 19,141,034 35,578,022 18,577,669 25,204,771 148,379 311,771 105,266 1,481,015 10,815,161 186,501,165 110,906 15,246,148 32,129,837 14,271,554 23,111,605 178,753 163,311 258,611 1,481,015 8,062,261 157,185,801 (*) Includes total risk amounts before the effect of credit risk mitigation but after credit conversions. (**) Average risk amounts are the arithmetical average of the amounts in monthly reports prepared starting from the date of publication of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Bank. 30 151
154. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Risk Classifications Conditional and unconditional receivables from central governments or Central Banks Conditional and unconditional receivables from regional or local governments Conditional and unconditional receivables from administrative bodies and non-commercial undertakings Conditional and unconditional receivables from multilateral development banks Conditional and unconditional receivables from international organizations Conditional and unconditional receivables from banks and brokerage houses Conditional and unconditional receivables from corporates Conditional and unconditional receivables from retail portfolios Conditional and unconditional receivables secured by mortgages Collateralized receivables with mortgages Past due receivables Receivables defined under high risk category by BRSA Securities collateralized by mortgages Securitization positions Short-term receivables from banks, brokerage houses and corporate Investments similar to collective investment funds Equity Investments Other receivables Total Prior Period Risk Amount (*) 51,697,994 - Average Risk Amount (**) 45,555,439 - 96,788 9,500,616 26,970,043 13,658,018 21,852,188 240,945 123,676 75,196 1,481,015 5,679,945 81,643 9,441,837 21,836,486 12,511,481 18,635,524 258,605 130,089 98,535 1,230,416 5,982,234 131,376,424 115,762,289 (*) Includes total risk amounts before the effect of credit risk mitigation but after credit conversions. (**) Average risk amounts are the arithmetical average of the amounts in monthly reports prepared starting from the date of publication of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Bank. 31 152
155. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.1. Profile of significant exposures in major regions Current Period (*) Domestic European Union Countries OECD Countries (**) Off-Shore Regions USA, Canada Other Countries Investment and associates, subsidiaries and joint ventures Undistributed Assets / Liabilities (***) Toplam Conditional and unconditional receivables from central governments ot Central Banks 75,012,246 - Conditional and unconditional receivables from multilateral development banks 125,831 Conditional and unconditional receivables from banks and brokerage houses 9,141,373 696,259 3,120,012 1,973 5,500,448 680,969 Conditional and unconditional receivables from corporates 35,357,223 59,230 19,716 61,673 88 80,092 Conditional and unconditional receivables from retail portfolios 18,519,722 10,488 3,241 2,905 1,164 40,149 Conditional and unconditional receivables secured by mortgages 25,006,530 39,988 11,612 89,582 1,142 55,917 Past due receivables 148,257 40 17 65 Receivables defined under high risk category by BRSA 308,548 590 85 127 2,421 - - - - - - - 75,012,246 125,831 19,141,034 35,578,022 18,577,669 25,204,771 148,379 Investments similar to collective investment funds 105,266 - Stock Investments - - - 1,481,015 - 1,481,015 311,771 105,266 1,481,015 10,815,161 10,815,161 10,815,161 186,501,165 Other Receivables - Total 117,593,880 423,234 1,976,650 50,507 3,099,297 1,071,896 1,481,015 Other Receivables - Total 163,599,165 806,595 3,154,683 156,133 5,502,969 985,444 (*) Includes total risk amounts before the effect of credit risk mitigation but after credit conversions. (**) Includes OECD countries other than EU countries, USA and Canada. (***) Includes assets and liability items that cannot be allocated on a consistent basis. (****) Stands for the risk categories listed in “Regulations on Measurement and Assessment of Capital Adequacy Ratios of Banks.” Prior Period (*) Domestic European Union Countries OECD Countries (**) Off-Shore Regions USA, Canada Other Countries Investment and associates, subsidiaries and joint ventures Undistributed Assets / Liabilities (***) Toplam Conditional and unconditional receivables from central governments ot Central Banks 51,697,994 - Conditional and unconditional receivables from multilateral development banks 96,788 Conditional and unconditional receivables from banks and brokerage houses 3,316,184 360,718 1,908,656 5,930 3,089,839 819,289 Conditional and unconditional receivables from corporates 26,830,010 15,167 51,038 10,468 2,504 60,856 Conditional and unconditional receivables from retail portfolios 13,612,650 7,640 5,118 181 667 31,762 Conditional and unconditional receivables secured by mortgages 21,697,804 39,700 11,835 33,605 6,287 62,957 Past due receivables 240,366 9 3 323 244 Receivables defined under high risk category by BRSA 123,676 - - Stock Investments - - - - - - - - - - 1,481,015 - - - - - - - - - - - 5,679,945 5,679,945 51,697,994 96,788 9,500,616 26,970,043 13,658,018 21,852,188 240,945 123,676 75,196 1,481,015 5,679,945 131,376,424 Investments similar to collective investment funds 75,196 - (*) Includes total risk amounts before the effect of credit risk mitigation but after credit conversions. (**) Includes OECD countries other than EU countries, USA and Canada. (***) Includes assets and liability items that cannot be allocated on a consistent basis. (****) Stands for the risk categories listed in Regulations on Measurement and Assessment of Capital Adequacy Ratios of Banks. 32 153
156. 154 (*) 2.2. - - - Forestry Fishery Manufacturing - Production - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from regional or local governments - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from administrative bodies and noncommercial enterprises - 125,831 - - - - - 125,831 - - - 125,831 - - - - - - - - Conditional and unconditional receivables from multilateral development banks - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from international organizations - 19,141,034 - - - - - 19,141,034 - - - 19,141,034 - - - - - - - - Conditional and unconditional receivables from banks and brokerage houses - 35,578,022 2,155,545 786,730 59,327 14,605 954,653 1,572 1,497,214 73,555 6,112,113 9,499,769 8,431,186 4,031,144 8,544,368 2,367,192 14,942,704 4,044 59,601 485,173 Conditional and unconditional receivables from Corporates 548,818 18,577,669 4,347,363 552,653 50,169 176 279,514 6,163 1,022,960 151,560 4,193,997 6,257,192 2,002,176 374,038 4,257,947 945,298 5,577,283 1,113 115,524 277,018 Conditional and unconditional retail receivables 393,655 (*) Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. (**) Stands for the risk categories listed in Regulations on Measurement and Assessment of Capital Adequacy Ratios of Banks. 75,012,246 - Total - Others - - - 75,012,246 - - - Services Health and Social Services Educational Services Professional Rental Services Real Estate and Institutions Financial and Telecom. Transportation and Dining Accommodation Retail Trade Wholesale and 75,012,246 - Construction Services - and Water Electricity, Gas - Quarrying Mining and - Stockbreeding Farming and Agriculture Current Period Conditional and unconditional receivables from central governments or central banks - Risk profile by sectors or counterparties (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 33 25,204,771 8,599,956 604,284 103,802 65 456,951 54,520 732,934 252,944 4,380,325 6,585,825 3,588,137 373,795 4,535,381 941,727 5,850,903 1,573 104,369 474,008 Conditional and unconditional receivables secured by Mortgages 579,950 148,379 14,050 663 1,676 - 2,407 - 5,310 5,063 30,592 45,711 52,893 156 33,103 862 34,121 - 1,065 539 Past due receivables 1,604 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 311,771 311,771 - - - - - - - - - - - - - - - - - Receivables defined in high-risk category by BRSA - - - - - - - - - - - - - - - - - - - - Securities collateralized by mortgages - - - - - - - - - - - - - - - - - - - - Securitization positions - - - - - - - - - - - - - - - - - - - - Short-term receivables from banks, brokerage houses and corporates - 105,266 - - - - - 105,266 - - - 105,266 - - - - - - - - Investments similar to collective investment funds - 1,481,015 - - - - - 1,481,015 - - - 1,481,015 - - - - - - - - Stock Investmenst - 10,815,161 10,815,161 - - - - - - - - - - - - - - - - - Other receivables - 81,586,647 15,794,982 1,513,592 163,104 246 1,004,410 31,280,971 1,648,568 300,753 9,567,785 45,479,429 7,179,835 509,555 9,254,802 2,277,535 12,041,892 6,730 227,450 856,329 TL 1,090,509 104,914,518 10,448,864 430,738 51,870 14,600 689,115 64,646,676 1,609,850 182,369 5,149,242 72,774,460 6,894,557 4,269,578 8,115,997 1,977,544 14,363,119 - 53,109 380,409 FC 433,518 186,501,165 26,243,846 1,944,330 214,974 14,846 1,693,525 95,927,647 3,258,418 483,122 14,717,027 118,253,889 14,074,392 4,779,133 17,370,799 4,255,079 26,405,011 6,730 280,559 1,236,738 Total(*) 1,524,027 Kuveyt Türk Annual Report 2021
157. - - - Forestry Fishery Manufacturing - Production - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from regional or local governments - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from administrative bodies and noncommercial enterprises - 96 ,788 - - - - - 96,788 - - - 96,788 - - - - - - - - Conditional and unconditional receivables from multilateral development banks - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from international organizations - 9,500,616 - - - - - 9,500,616 - - - 9,500,616 - - - - - - - - Conditional and unconditional receivables from banks and brokerage houses - 26,970,043 1,611,560 735,857 42,025 11 707,598 35,327 1,323,557 51,168 4,505,966 7,401,509 6,537,670 2,878,328 5,877,264 2,206,974 10,962,566 1,348 33,267 422,123 Conditional and unconditional receivables from Corporates 456,738 13,658,018 3,861,532 426,080 49,127 3,494 182,845 3,348 617,845 102,827 3,088,213 4,473,779 1,384,964 286,470 2,767,732 634,065 3,688,267 2,157 64,605 182,714 Conditional and unconditional retail receivables 249,476 (*) Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. (**) Stands for the risk categories listed in Regulations on Measurement and Assessment of Capital Adequacy Ratios of Banks. 51,697,994 - Total - Others - - - 51,697,994 - - - Services Health and Social Services Educational Services Professional Rental Services Real Estate and Institutions Financial and Telecom. Transportation and Dining Accommodation Retail Trade Wholesale and 51,697,994 - Construction Services - and Water Electricity, Gas - Quarrying Mining and - Stockbreeding Farming and Agriculture Prior Period Conditional and unconditional receivables from central governments or central banks - (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 34 21,852,188 8,322,570 512,365 118,851 86 389,677 42,780 443,599 243,384 3,813,872 5,564,614 3,074,401 302,534 3,374,290 714,788 4,391,612 603 87,145 411,243 Conditional and unconditional receivables secured by Mortgages 498,991 240,945 9,527 5,953 7,139 18 3,861 66 11,311 12,542 51,969 92,859 100,690 1,785 23,973 4,412 30,170 - 4,877 2,822 Past due receivables 7,699 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 123,676 123,676 - - - - - - - - - - - - - - - - - Receivables defined in high risk category by BRSA - - - - - - - - - - - - - - - - - - - - Securities collateralized by mortgages - - - - - - - - - - - - - - - - - - - - Securitization positions - - - - - - - - - - - - - - - - - - - - Short-term receivables from banks, brokerage houses and corporates - 75,196 - - - - - 75,196 - - - 75,196 - - - - - - - - Investments similar to collective investment funds - 1,481,015 - - - - - 1,481,015 - - - 1,481,015 - - - - - - - - Stock Investmenst - 5,679,945 5,679,945 - - - - - - - - - - - - - - - - - Other receivables - 67,068,747 14,878,011 1,401,524 159,002 240 815,435 21,279,410 1,388,657 265,686 8,957,768 34,267,722 6,173,383 530,874 8,097,605 2,169,516 10,797,995 4,097 163,829 783,710 TL 951,636 64,307,677 4,730,799 278,731 58,140 3,369 468,546 41,653,720 1,007,655 144,235 2,502,252 46,116,648 4,924,342 2,938,243 3,945,654 1,390,723 8,274,620 11 26,065 235,192 FC 261,268 131,376,424 19,608,810 1,680,255 217,142 3,609 1,283,981 62,933,130 2,396,312 409,921 11,460,020 80,384,370 11,097,725 3,469,117 12,043,259 3,560,239 19,072,615 4,108 189,894 1,018,902 Total(*) 1,212,904 Section V: Financial Information and Risk Management Practices 155
158. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.3. Analysis of Maturity-Bearing Exposures According to Remaining Maturities Risk Categories (*) – Current Period 1 month Conditional and unconditional receivables from central governments or Central Banks Conditional and unconditional receivables from regional or local governments Conditional and unconditional receivables from administrative bodies and non-commercial undertakings Conditional and unconditional receivables from multilateral development banks Conditional and unconditional receivables from international organizations Conditional and unconditional receivables from banks and brokerage houses Conditional and unconditional receivables from corporates Conditional and unconditional receivables from retail portfolios Conditional and unconditional receivables secured by mortgages Past due receivables Receivables defined under high risk category by BRSA Securities collateralized by mortgages Securitization positions Short-term receivables from banks, brokerage houses and corporate Investments similar to collective investment funds Stock Investments Other Receivables Total Time to Maturity 1–3 3–6 6–12 months months months Over 1 year 14,089,708 - - 315,286 19,656,442 - - - - - - - - - - - - - - 125,831 - - - - - 2,641,979 3,611,616 2,474,528 1,527,158 217,482 - 425,500 2,993,443 2,243,669 1,533,238 - 5,262,542 7,519,946 2,087,371 1,930,398 - 151,918 4,413,148 3,095,794 3,778,266 2,042 - 700,299 16,989,706 8,388,977 16,435,710 92,247 - 1,099 24,563,570 3,067 7,198,917 103 491 16,800,360 11,756,945 100,506 1,481,015 63,970,733 (*) Risk amounts are stated before credit risk mitigation and after credit conversion ratio. Risk categories in the Regulation on Measurement and Evaluation of Banks' Capital Adequacy have been considered. Risk Categories (*) – Prior Period 1 month Conditional and unconditional receivables from central governments or Central Banks 4,938,678 Conditional and unconditional receivables from regional or local governments Conditional and unconditional receivables from administrative bodies and non-commercial undertakings Conditional and unconditional receivables from multilateral development banks Conditional and unconditional receivables from international organizations Conditional and unconditional receivables from banks and brokerage houses 3,524,819 Conditional and unconditional receivables from corporates 2,476,749 Conditional and unconditional receivables from retail portfolios 1,611,033 Conditional and unconditional receivables secured by mortgages 1,202,800 Past due receivables Receivables defined under high risk category by BRSA 123,676 Securities collateralized by mortgages Securitization positions Short-term receivables from banks, brokerage houses and corporate Investments similar to collective investment funds 20,921 Stock Investments Other Receivables Total 13,898,676 Time to Maturity 1–3 3–6 6–12 months months months Over 1 year - - 778,383 19,029,670 - - - - - - - - - - - 96,788 - - - 569,881 1,195,651 987,609 767,140 15,645 3,535,926 11,721 5,333,584 2,245,923 1,693,683 7,180 9,292,091 124,557 487,549 3,947,355 13,984,082 1,934,120 6,717,234 2,476,893 15,711,672 31,450 - 1,481,015 9,261,308 57,539,460 (*) Risk amounts are stated before credit risk mitigation and after credit conversion ratio. Risk categories in the Regulation on Measurement and Evaluation of Banks' Capital Adequacy have been considered. 35 156
159. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.4 Exposure Categories In compliance with the 7th Article of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks, determination of the risk weights in calculation of the risk weighted sums is performed based on the credit ratings provided by the rating companies. The ratings of an international credit rating agency are used for the Banks and Corporate Receivables asset class, which is limited to the receivables that are resident abroad. Receivables from banks are analyzed in two separate receivable classes according to their original maturity. If the original maturity is 3 months or less, they are assigned to “Short Term Receivables from Banks and Intermediary Institutions”, if it is more than 3 months it is assgined to “Receivables from Banks and Intermediary Institutions”. The banks and institutions established within the country are evaluated as unrated. The ratings given by the international credit rating agency are used to determine the risk weighted asset class. The ratings of the credit rating agency are being used for Banks and Corporate Receivables asset class limited to the counterparties which are resident abroad. Exposure Categories Credit Quality Grade 1 2 3 4 5 6 Unrated Fitch Rating Risk AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C D Unrated Exposures to Central Governments or Central Banks Exposures from Banks and Brokerage Houses Exposure Categories Receivables With Original Maturity Less Than 3 Months Receivables with Original Maturity greater than 3 Months Exposures to Corporates %0 %20 %20 %20 %20 %20 %50 %50 %50 %20 %50 %100 %100 %50 %100 %100 %100 %50 %100 %150 %150 %150 %150 %150 %100 %20 (*) %50 (*) %100 (*) This is used under the condition of not being less than the implemented one in the centralized management of the Bank’s located country. 36 157
160. 158 Credit risk using the standard approach 17 Stock investments 18 Total 15 Investments similar to collective investment funds 16 Other receivables 13 Mortgage-backed securities 14 Short term receivables to banks , brokerage houses and corporates 11 Non-performing receivables 12 Receivables in high-risk categories 9 Receivables secured by residential property 10 Receivables secured by commercial property 7 Receivables from corporate 8 Retail receivables 5 Receivables from international organizations 6 Receivables from banks and brokerage houses 3 Receivables from administrative bodies and non-commercial entities 4 Receivables from multilateral development banks 1 Receivables from central governments and Central Banks 2 Receivables from regional and local government Risk Classes 2.5.1. Credit risk exposed and credit risk mitigation effects 2.5 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 37 21,602,737 171,467,394 - 1,481,015 - 105,266 - 10,815,161 - - 311,771 - - 2,370,794 12,999,048 148,379 776,693 8,595,982 10,657,780 7,059,657 15,687,305 2,799,611 17,407,024 31,937,856 - - 125,831 - - - - - On-balance Off-balance sheet sheet amount amount 69,790,958 - On-balance Off-balance sheet sheet amount amount 73,976,293 - 171,467,394 1,481,015 10,815,161 105,266 - - 311,771 124,413 12,861,012 10,611,657 15,542,848 28,105,103 17,407,024 - 125,831 - - 8,193,056 - - - - - - - 1,144,236 383,704 2,857,928 3,407,363 399,825 - - - - Credit conversion rate and credit Credit conversion rate and credit risk risk amount receivable before amount of receivable after reduction reduction KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 66,885,604 1,481,015 2,013,962 19,479 - - 457,986 57,066 9,308,342 3,801,491 13,246,226 30,632,951 5,867,086 - - - - Risk weighted amount - 100 19 19 0 0 147 46 66 35 72 97 33 0 0 0 0 0 Risk weighted amount density Risk weighted amount and risk weighted amount concentration Kuveyt Türk Annual Report 2021
161. 490 ,782 423,918 7 Receivables from corporate 8 Retail receivables * 35% Risk Weight is classified in Others. 84,255,163 8,777,512 18 Total 17 Other receivables - - - - - 82,130 16 Stock investments - - 14 Short term receivables to banks, brokerage houses and corporates 15 Investments similar to collective investment funds - - 13 Mortgage-backed securities - - 4,870 12,761 12 Receivables in high-risk categories - 174,229 10 Receivables secured by commercial property 11 Non-performing receivables - 82,853 9 Receivables secured by residential property - - - 103,984 - 125,831 - - - - - 10% - 73,976,293 0% 5 Receivables from international organizations 6 Receivables from banks and brokerage houses 2 Receivables from regional and local government Receivables from administrative bodies and non-commercial 3 entities 4 Receivables from multilateral development banks 1 Receivables from central governments and Central Banks Risk Classifications/Risk Weights (*) (Current Period) 2.5.2. Exposures by asset classes and risk weights (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 38 12,393,814 29,609 - 4,189 - - 1,820 383 182,733 119,246 459,819 485,918 11,110,097 - - - - - 20% - - - - - - - - - - - - - - - - - - 25% KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 14,757,552 - - 612 - - - 108,559 8,752,980 - - - 5,895,401 - - - - - 50% 17,451,109 - - - - - - - - - 17,451,109 - - - - - - - 75% 39,704,469 2,008,040 1,481,015 18,335 - - - 2,710 4,895,306 - 65,930 30,535,766 697,367 - - - - - 100% 305,081 - - - - - 305,081 - - - - - - - - - - - 150% - - - - - - - - - - - - - - - - - - 200% 10,793,262 - - - - - - - - 10,793,262 - - - - - - - - Other% 179,660,450 10,815,161 1,481,015 105,266 - - 311,771 124,413 14,005,248 10,995,361 18,400,776 31,512,466 17,806,849 - 125,831 - - 73,976,293 Total risk amount (post-CCF and CRM) Section V: Financial Information and Risk Management Practices 159
162. 160 - - 82 ,410 861 19 - 10 Receivables secured by commercial property 11 Non-performing receivables 12 Receivables in high-risk categories 13 Mortgage-backed securities 14 Short term receivables to banks, brokerage houses and corporates 39 - 57,575 9 Receivables secured by residential property * 35% Risk Weight is classified in Others. 18 Toplam 17 Other receivables 15 Investments similar to collective investment funds 16 Stock investments - 281,308 8 Retail receivables 61,561,756 - - - 3,757,998 - 22,731 - - - - - 87,206 318,136 7 Receivables from corporate - - - - - - 10% 5 Receivables from international organizations 6 Receivables from banks and brokerage houses 96,788 3 Receivables from administrative bodies and non-commercial entities 4 Receivables from multilateral development banks - 56,856,724 0% 2 Receivables from regional and local government 1 Receivables from central governments and Central Banks Risk Classifications/Risk Weights (*) (Prior Period) (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 8,555,777 1,591 - 36,610 - - - 412 110,029 73,308 256,042 340,426 7,737,359 - - - - - 20% KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 7,577,895 - - 9,444 - - - 172,046 6,944,903 - - - 451,502 - - - - - 50% 11,760,685 - - - - - - - - - 11,760,685 - - - - - - - 75% 30,929,301 1,920,356 1,481,015 6,411 - - - 5,209 4,074,145 - - 22,835,736 606,429 - - - - - 100% 123,657 - - - - - 123,657 - - - - - - - - - - - 150% - - - - - - - - - - - - - - - - - - 200% 9,708,965 - - - - - - - - 9,708,965 - - - - - - - - 130,218,036 5,679,945 1,481,015 75,196 - - 123,676 178,528 11,211,487 9,839,848 12,298,035 23,494,298 8,882,496 - 96,788 - - 56,856,724 Total risk amount Other% (post-CCF and CRM) Kuveyt Türk Annual Report 2021
163. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.6. 2.7. Risk amounts according to risk weights Current Period Risk Weights 0% Exposures before Credit Risk Mitigation 78,880,415 - 11,143,895 Exposures after Credit Risk Mitigation 84,255,163 - 12,393,814 Prior Period Risk Weights 0% 10% 20% 10% 20% 25% Other Risk Classes 50% 75% 100% 150% - 11,041,484 15,104,577 18,471,756 44,706,552 311,771 - - 499,381 - 10,793,262 14,757,552 17,451,109 39,704,469 305,081 - - 499,381 25% 35% 50% 75% 100% 150% 200% Deductions from Equity 35% Other Risk Classes 200% Deductions from Equity Exposures before Credit Risk Mitigation 55,206,009 - 7,775,560 - 10,098,454 8,104,735 13,640,225 35,269,377 123,676 - - 487,996 Exposures after Credit Risk Mitigation 61,561,756 - 8,555,777 - 9,708,966 7,577,895 11,760,685 30,929,301 123,657 - - 487,996 Information by major sectors and type of counterparties Impaired Loans; are the credits that either overdue more than 90 days as of the reporting date or are treated as impaired due to their creditworthiness according to TFRS 9 Financial Instruments. For such credits, “specific provisions” are allocated as TFRS 9 suggests. Past Due Loans; are the credits that overdue up to 90 days but not impaired. For such credits, “general provisions” are allocated within the scope of TFRS 9. Current Period (**) Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accommodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services. Professional Services Educational Services Health and Social Services Others Total Loans Impaired Loans Significant Increase in Credit Risk (Stage II) 245,611 231,260 13,065 1,286 2,283,368 631,093 1,477,679 174,596 1,462,317 2,998,876 1,590,185 224,524 315,460 3,114 623,296 9 76,365 165,923 828,645 7,818,817 Provisions Default (Stage III) 33,900 14,129 19,771 561,557 155,218 396,355 9,984 1,185,613 1,150,166 699,548 147,909 95,547 5,529 48,889 113,883 38,861 144,173 3,075,409 Expected Credit Loss Provisions (*) 177,971 156,508 21,041 422 1,668,312 507,855 1,116,278 44,179 1,779,955 2,405,208 1,254,743 285,404 192,239 5,974 432,204 1 164,186 70,457 259,630 6,291,076 (*) Provisions for expected credit loss include Stage II and Stage III provisions. (**) Financial lease receivables are not included. 40 161
164. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Prior Period (**) Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accommodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services. Professional Services Educational Services Health and Social Services Others Total Loans Impaired Loans Significant Increase in Credit Risk (Stage II) 254,002 233,481 19,499 1,022 2,121,591 490,170 1,505,834 125,587 1,354,700 2,614,477 1,541,124 178,301 249,028 999 457,523 5,207 64,574 117,721 720,294 7,065,064 Provisions Default (Stage III) 50,399 28,780 18,341 3,278 446,459 62,382 349,118 34,959 1,274,309 1,018,028 646,277 105,965 95,954 3,939 38,410 183 67,631 59,669 145,396 2,934,591 Expected Credit Loss Provisions (*) 95,534 75,984 15,872 3,678 898,816 181,608 665,939 51,269 1,551,053 1,521,543 899,749 160,093 131,185 4,012 165,592 799 77,756 82,357 194,364 4,261,310 (*) Provisions for expected credit loss include Stage II and Stage III provisions. (**) Leasing receivables are not included. 2.8. Movements in value adjustments and provisions Current Period (*****) Stage 3 Provisions (*) Stage 1&2 Provisions (**) Prior Period Stage 3 Provisions (*) Stage 1&2 Provisions (**) (*) (**) (***) (****) (*****) Opening Balance (After TFRS 9) Provisions for period Provision Reversals (***) Other Adjustments (****) (397,786) - 2,787,895 5,792,615 Opening Balance (After TFRS 9) Provisions for period Provision Reversals (***) Other Adjustments (****) Closing Balance 2,517,875 2,914,003 1,532,370 1,479,019 1,279,628 3,286,735 1,700,336 1,537,137 Represents Stage III expected loss provision. Represents Stage I and Stage II expected loss provision. Includes provision reversals and exchange rate differences. Represents loans written off from assets. It does not include provisions for non-cash loans. 41 162 (611,822) (408,123) (354,022) (102,153) (360,809) - Closing Balance 2,517,875 2,914,003
165. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.9. Risk involved in counter-cyclical capital buffer calculation Current Period Country Turkey England Albania Iraq Marshall Islands Italy Saudi Arabia Germany Russia Malta Other RWAs of Banking Book for Private Sector Lending RWAs of Trading Book Total 57,442,930 24,936 51,878 23,554 107,017 21,535 7,107 14,786 4,992 34,672 42,048 - 57,442,930 24,936 51,878 23,554 107,017 21,535 7,107 14,786 4,992 34,672 42,048 RWAs of Trading Book Total - 42,914,258 56,079 43,248 20,621 20,368 13,187 11,373 5,976 4,772 2,979 18,021 Prior Period Country Turkey England Albania Iraq Marshall Islands Italy Saudi Arabia Germany Qatar Hungary Other RWAs of Banking Book for Private Sector Lending 42,914,258 56,079 43,248 20,621 20,368 13,187 11,373 5,976 4,772 2,979 18,021 2.10. Information of Cash and Noncash Loans according to Bank Risk Rating System The Bank calculates the probability of delinquency and internal rating notes for the portfolio of Corporate/Commercial/SME loans based on statistical methods in Turkish Commercial Code. Ratings are shown the table below as of 31 December 2021. High Quality Medium Quality Average Below Average Cash Loans 48.04% 35.78% 12.17% 4.01% Non-Cash Loans 66.87% 23.61% 7.19% 2.33% Total 50.36% 34.28% 11.55% 3.81% 42 163
166. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 3. Explanations on currency risk Foreign currency risk represents the Bank’s exposure to loss due to the changes in foreign currency exchange rates. All foreign currency assets, liabilities and foreign currency forward transactions are considered in calculation of capital to be employed for foreign currency risk according to standard method. The “standard method” and the “value at risk method” used in legal reporting are used to measure the exchange rate risk of the bank. Measurements made under the standard method are carried out on a monthly basis and measurements made under the risk-exposed Value Method are carried out on a daily basis. The Bank monitors daily the designated limits set by the Board of Directors and additionally observes the possible value changes in foreign currency positions. The limits are determined and followed both for the net foreign currency position and for the cross exchange rate risk within the position. As a tool of foreign currency risk management, foreign currency forward transactions are used when necessary to mitigate the risk. As of 31 December 2021, the Bank carries a net foreign currency TL 1,811,076 (31 December 2020 – 22,209,211 TL short position) comprising of TL 424,526 balance sheet long position (31 December 2020 - TL 21,901,119 long position) and TL 1,386,550 off balance sheet short position (31 December 2020 – TL 308,092 short position). The announced current foreign exchange buying rates of the Bank as of 31 December 2021 and the previous five working days are as follows (full TL): USD EUR GBP CHF JPY 24/12/2021 27/12/2021 28/12/2021 29/12/2021 30/12/2021 Balance Sheet Valuation Rate 11.59337 13.14634 15.55061 12.64138 0.10140 11.33396 12.82523 15.19147 12.32887 0.09891 11.78151 13.34247 15.83407 12.84602 0.10257 12.26809 13.85752 16.47226 13.35944 0.10672 12.95715 14.66517 17.46344 14.13843 0.11254 13.26866 15.02175 17.91170 14.52923 0.11527 The simple arithmetic averages of the major current foreign exchange buying rates of the Bank for the thirty days preceding the balance sheet date are as follows (full TL): Monthly average FC purchase rate USD EUR GBP CHF JPY 13.62454 15.40218 18.12620 14.79793 0.11968 43 164
167. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Currency risk of the Bank Current Period EUR Assets Cash (cash in vault, effectives, money in transit, cheques purchased) and balances with the Central Bank of the Republic of Turkey Banks (****) Financial assets at fair value through profit and loss Money market placements Financial assets at fair value through other comprehensive income Loans and finance lease receivables (*) Subsidiaries, associates and joint ventures (**) Financial assets at amortized cost Derivative financial assets for hedging purposes Tangible assets Intangible assets Other assets 22,758,220 2,016,784 586,916 9,782,100 34,563,359 4,797,993 1,571 14 6,561 74,513,518 17,440,402 9,813,215 10,364,898 27,396 7,043 37,652,954 60,071,066 14,500,208 10,951,814 15,877,864 59,245,190 610,120 4,797,993 1,571 14 2,285,426 168,341,266 51,963 24,470,868 549,849 935,363 340,952 26,348,995 179,574 79,024,705 11,077,159 1,220,786 1,127,033 92,629,257 532,507 50,550,090 25,053 66,440 51,174,090 764,044 154,045,663 11,627,008 2,181,202 1,534,425 170,152,342 29,825,799 (30,985,951) 528,075 31,514,026 3,257,093 (18,115,739) 17,881,028 23,015,573 5,134,545 4,935,753 (13,521,136) 13,529,449 14,353,317 823,868 274,987 (1,811,076) 424,526 37,896,965 37,472,439 8,467,833 33,003,388 13,501,256 19,502,132 (19,867,567) 972,259 20,839,826 1,837,972 31,604,258 51,731,458 (20,127,200) 20,187,707 25,033,494 4,845,787 2,349,832 16,220,333 37,804,476 (21,584,143) 21,580,979 21,919,119 338,140 205,654 80,827,979 103,037,190 (22,209,211) 21,901,119 47,924,872 26,023,753 4,393,458 Liabilities Current account and funds collected from Banks via participation accounts Current and profit sharing accounts FC (****) Money market borrowings Funds provided from other financial institutions Marketable securities issued Miscellaneous payables Derivative financial liabilities for hedging purposes Other liabilities (*****) Toplam Liabilities Prior Period Total assets Total liabilities Net balance sheet position Net off-balance sheet position Financial derivative assets Financial derivative liabilities Non-cash loans (***) Total 19,872,444 2,670,209 6,095,764 24,654,435 610,120 2,271,822 56,174,794 Total Assets Net balance sheet position Net off-balance sheet position Financial derivative assets Financial derivative liabilities Non-cash loans (***) USD Other FC (****) Includes foreign currency indexed loans amounting to TL 2,009,070 (31 December 2020 – TL 1,740,355) followed as TL on the balance sheet and expected credit loss amounting to TL 3,664,484 (**) TL 610,120 (31 December 2020 - TL 610,120) of subsidiaries amounting to TL 1,461,015 in the balance sheet includes foreign currency subsidiaries (***) Does not have any effect to the net off-balance sheet position. (****) Precious metals are included in “Other FC” column. Includes the expected loss provisions amounting to TL 192 in the balance sheet. (*****) Other liabilities at fair value through TL 4,764 in the calculation of profit / loss of securities are not included in the foreign currency risk of impairment provisions. It also includes a provision for foreign currency indexed loans amounting to TL 178,870 (******) Includes provisions for expected losses amounting to TL 2,165 in the balance sheet (*) 44 165
168. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Foreign currency amounts that are not included in the currency risk table due to the legislation related to calculation of foreign currency net position to equity standard ratio, are explained by their gradation in the financial statements below; • • • • • Derivative financial assets held for trading TL 592,863 (31 December 2020 – TL 332,438) Prepaid expenses: TL 1,303 (31 December 2020 – 693 TL) Derivative financial liabilities held for trading: TL 65,015 (31 December 2020 – TL 286,320) Marketable securities of FC revaluation reverse: 65,917 (31 December 2020- TL (94,206)) Derivative financial liabilities held for hedging: None (31 December 2020 - TL - None) Receivables/Payables related to derivative financial instruments include foreign currency purchase/sale transactions that are amounting to; • • • • Forward foreign currency purchase transactions TL 1,864,837 (31 December 2020 – TL 1,222,954) Forward foreign currency sale transactions: TL 3,094,121 (31 December 2020 – TL 1,178,611) Precious metal purchase transactions: TL 13,177,082 (31 December 2020 – TL 20,984,650) Precious metal sale transactions: TL 52,347 (31 December 2020 – TL 30,525) Currency risk sensitivity The bank is mainly exposed to foreign currency risk in EURO, USD and GOLD. The following table shows the bank’s sensitivity to 10% change in both USD, EURO and GOLD exchange rate. % Increase in the exchange rate Usd Eur Gold 166 10% 10% 10% Effects on profit/loss Curent Period Prior Period (23,471) 6,051 (116,015) (36,544) 16,064 11,870 Effects on equity Curent Period 47,244 (112,076) 16,064 Prior Period (2,962) (36,575) 11,870
169. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4. Explanations related to stock position risk 4.1 Relation of risks with gains accounted under equity and analyzing according to their aims including strategic reasons and the accounting policies applied and general information about valuation techniques with assumptions in this application, the elements that manipulate valuation and important changes The Bank’s non-quoted securities are accounted for fair value. When the fair value cannot be reliably measured, the cost method is used. 4.2. Carrying value of share investments, for fair value and quoted securities, comparison with market value if market value is significantly different from fair value Curent Period Comparison Equity Securities investments Securities at Fair Value Through Other Comprehensive Income Quoted Securities Investments in Associates Quoted Securities Investment in Subsidiaries Quoted Securities Other Quoted Securities Carrying Value Fair Value Market Value 82,887 1,461,015 53,418 20,000 - 519,420 519,420 - 519,420 519,420 - Prior Period Comparison Equity Securities investments Securities at Fair Value Through Other Comprehensive Income Quoted Securities Investments in Associates Quoted Securities Investment in Subsidiaries Quoted Securities Other Quoted Securities 4.3 Carrying Value Fair Value Market Value 48,461 1,461,015 53,418 20,000 - 382,800 382,800 - 382,800 382,800 - Realized gains/losses, revaluation surplus, unrealized gains/losses on equity securities and results included in core and supplementary capitals None. 46 167
170. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 5. Liquidity risk management and liquidity coverage ratio The liquidity risk of the Bank is the risk of being unable to fulfill its payment obligations on time due to not having enough cash sources or cash inflows to finance its cash outflows fully and on time due to cash flow instabilities. It has been evaluated in two main categories: Funding Liquidity Risk: It is a kind of risk which does not meet the any unexpected loss and non defaulting debts and liabilities. Market Liquidity Risk: It is a kind of risk which consists of the position that cannot be sold without affecting market price due to insufficient market depth or market conditions’ deterioration or that cannot be completed with the position of market price for any reasons. Liquidity risk is managed by the Asset - Liability Committee (ALC) and related business units within the framework of the Liquidity Risk Policy and risk appetite approved by the Board of Directors. In liquidity risk management, the measures to be taken and the practices to be carried out are determined by taking into account normal economic conditions and stress conditions. The Bank defines liquidity risk, measures risks with liquidity risk measurement methods in accordance with international standards, monitors them and periodically presents them to the interested parties. Liquidity risk stress tests are performed during monthly periods. An emergency funding plan (liquidity contingency plan) has been created to regulate the procedures and principles for the bank to maintain and maintain adequate liquidity levels under stress conditions. The bank's liquidity risk ratios are well above the legal limits. The bank maintains its liquidity buffer at high levels, taking into account periods when liquidity risk may increase. Due to this approach, it is evaluated that the negative effects of the COVID-19 pandemic on the global level do not have a significant impact on the bank's liquidity needs. 5.1 Information on risk capacity of the Bank, Responsibilities and structure of liquidity risk management, the Bank’s internal liquidity risk reporting, communication between the Board of Directors and business lines on liquidity risk strategy, policy and application The applications and responsibilities related to the liquidity risk has been determied according to the Treasury Liquidity and Market Management Policies and Practices approved by Board of Directors. The Bank’s liquidity and funding policy is to own sufficient liquidity reserve and funding opportunities to meet its liabilities even in cases of stress, resulting from the market conditions or other conditions specific to the Bank. The Bank has a strong capital structure and is supported by its main shareholder is Kuwait Finance House; also its current and paticipation accounts are spread to the base and are stable, and its sources of foreign borrowing are diversified. Hence, by the virtue of the aforementioned facts, the Bank has a high risk capacity. In addition, the Liquidity Coverage Ratio of the Bank which insures its cash outflows with the high-quality liquid assets is deemed high. The Bank also has limits available for use at Central Bank of Turkey and other financial institutions. Indicators regarding the liquidity position are analyzed and liquidity risk is evaluated at the ALCO meetings attended by the senior management. Furthermore, the Board of Directors are informed through the Audit Committee. For the management of liquidity risk, the Risk Management Department follows the funding and liquidity risks, market conditions, in the participating accounts, the distribution of different currencies, maturity, cost and expected future cash flow requirements (particularly with regard to large deposits). Reports on the liquidity gap analysis prepared weekly by Budget and Management Reporting and monitored by the Asset and Liability Committee. These units also estimate the possible liquidity needs of the Bank in case of urgent situations and generate action plans based on these estimates. Risk Management Department follows the limits on liquidity risk determined by the Board of Directors. Risk Management Department, in addition to these, is implementing monthly liquidity stress tests to measure the effects of negative scenarios on liquidity position of the Bank. The Treasury Group Managemant manages the liquidity risk and funding risk in order to prevent insufficiencies of funding relating to any time or any source and makes reports related with the liquidity position to Asset and Liability Committee regularly. Official and International Reporting Directorate tracks the liquidity coverage ratio and the results are reported to the BRSA. 47 168
171. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 5.2. Information on the centralization degree of liquidity management and funding strategy and the functioning between the Bank and the Bank’s subsidiaries The Bank's liquidity management is performed by the Asset and Liability Management. Depending on the Bank's consolidated subsidiaries are subject to liquidity risk is managed in-house, but the necessary communication and coordination within the Assistant General Manager in charge of Treasury and International Banking are provided. 5.3 Information on the Bank’s funding strategy including the policies on funding types and variety of maturities Bank spread to the base of current and partipication accounts and that a stable, long-term diversification and aims to be the source of the funds used. Ratio of liquid assets to total assets ratio and risk indicators related to liquidity, credit and the ratio of funds, issues such as the concentration in collected funds are being closely monitored. 5.4 Information on liquidity management on the basis of currencies constituting a minimum of five percent of the Bank’s total liabilities Almost all liabilities of the Bank are denominated in Turkish Lira, American Dollar, Euro or Gold. The TL denominated liquidity of the Bank is managed through the open market transactions implemented by the Central Bank of the Turkish Republic and interbank operations. Liabilites denominated in TL are used in order to fund assets that are denominated in TL, assets denominated in TL are generated through foreign exchange based funds with swap operations if necessary. Foreign currency funds are provided with the foreign sourced credits denominated in foreign currency and sukuk-financial certificates issued. Liquidity denominated in foreign currency is kept at the interbank operations and accounts of the corresponding bonds within the limits. Liabilities denominated in Gold are kept at the required reserve accounts of the Central Bank of the Turkish substantialy. 5.5. Information on liquidity risk mitigation techniques Liquidity risk is mitigated by using techniques such as maintaining high quality liquid asset buffer to cover possible fund outflows, diversification of funding sources so far as possible and inclusion to the base, homogenizing the maturity distribution of repayments as far as possible, obtaining limits from funding institutions to use when necessary and ensuring that a determined portion of funding sources are comprised of deposits. In addition, core deposit analysis is performed and concentration on collected funds are closely monitored. 5.6. Information on the use of stress tests In order to analyze the source of the possible liquidity insufficiencies and whether comformably move exists on existing off-balance sheet and balance sheet positions relavant with liquidity risk expectation, 3 types liquidity stress tests are applied by Risk Management Directorate. These includes stress test scenarios are special to the Bank, related with the overall market or scenarios take in consideration both of the situations. Stress tests telated with liquidity risk are repeated at monthly periods. Results are tracked with key risk indicators and monitored by Senior Management. 5.7. General information about the contingency funding plan Necessary strategy and procedures for the management of possible liquidity crisis are determined with the Contingency Funding Plan, which is approved and reviewed every year by the Executive Risk Committee. The actions to be taken favor the benefits of depositors, creditors of the Bank and shareholders. Indicators of Contingency Funding Plan were determined, in case of unexpected progress at the liquidity situation occur or at situations trigger of other indicators, plan is put into use. After Liquidity Contingency Plan is put into use, Liquidity Contingency Management Commitee is responsible from the determination of actions to be taken. 48 169
172. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 5.8 Analysis of financial liabilities by remaining contractual maturities The following table is prepared before the Bank’s liabilities are undiscounted and based on the earliest date to the payment. Adjustment column shows the items that give rise to probable cash exit according to contractual terms at later period. The items that are mentioned are included the maturity analysis however they are not included in the balance sheet value of financial liabilities at the balance sheet. Up to 1 months 1-3 months 3-12 months 1-5 years Above 5 years Balance Sheet Value Total Adjustments 31 December 2021 Funds Collected Other Fundings Funds provided under repurchase agreements Finance Lease Payable Total 192,783,651 12,117,184 3,003,972 2,804,992 (3,456,137) 212,105,389 16,422,470 6,505,472 522,188 (10,335) (169,813) 6,495,137 352,375 202,308,556 14,948,845 8,124,334 8,189,933 5,439,987 239,011,656 (3,636,285) 235,375,371 Funds Collected Other Fundings Funds provided under repurchase agreements Finance Lease Payable 111,912,004 2,946,289 6,453,702 1,536,929 3,685,250 108,401 13,627 122,172,984 6,603,951 4,548,423 2,694,681 18,330,273 (2,151,116) 122,172,984 16,179,157 185,613 14,454 25,221 185,613 527,579 (388) (183,554) 185,225 344,025 Total 115,058,360 8,015,852 10,396,901 4,953,644 2,791,692 141,216,449 (2,335,058) 138,881,391 6,505,472 15,461 6,927,390 273,478 3,686 212,105,389 1,096,848 7,617,647 5,355,148 19,878,607 26,669 100,096 298,808 81,153 31 December 2020 107,700 296,820 83,384 Maturity analysis for guarantees and contingencies Demand Up to 1 months 1-3 months 3-12 months 1-5 years Above 5 years Unallocated 5,951,487 150,932 753,786 3,141,516 1,741,609 107,255 - 11,846,585 11,063 1,312,914 868,813 8,144,277 28,513 43,712 30,395 483,662 1,094,602 1,409,737 220,205 4,908 32,646 5,890 663,107 1,897,008 4,614,294 1,967,704 107,255 - 113,683 4,521,120 912,257 17,393,645 4,639,851 132,884 594,287 2,651,575 1,509,732 62,465 - 9,590,794 2,088 468,566 464,044 5,574,549 15,514 21,830 1,564 246,461 476,051 427,027 66,917 1,820 1,984 65,962 8,336 396,679 1,094,152 3,146,128 1,584,985 4,536 67,001 - 40,996 1,685,022 546,682 11,863,494 Total 31 December 2021 Letters of Guarantee Bills of Exchange and Bank Acceptances Letters of Credit Other guarantees Pre-financings given as guarantee Total 31 December 2020 Letters of Guarantee Bills of Exchange and Bank Acceptances Letters of Credit Other guarantees Pre-financings given as guarantee Total 170 49
173. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Contractual maturity analysis of derivative instruments 31 December 2021 Derivatives financial assets held for trading Foreign exchange derivatives: Entry Exit Hedging purposes financial assets Foreign exchange derivatives Entry Exit Total Cash Inflow Total Cash Outflow Up to 1 month 1-3 months 3-12 months 5 years 1-5 years and over 21,499,095 21,133,881 12,291,878 12,051,355 2,172,566 2,028,973 1,507,265 887,348 - 37,470,804 36,101,557 21,499,095 21,133,881 12,291,878 12,051,355 2,172,566 2,028,973 1,507,265 887,348 - 37,470,804 36,101,557 19,446,342 20,158,833 26,305,326 27,385,356 845,511 790,854 990,716 905,607 - 47,587,895 49,240,650 19,446,342 20,158,833 26,305,326 27,385,356 845,511 790,854 990,716 905,607 - 47,587,895 49,240,650 Total 31 December 2020 Derivatives financial assets held for trading Foreign exchange derivatives: Entry Exit Hedging purposes financial assets Foreign exchange derivatives Entry Exit Total Cash Inflow Total Cash Outflow 50 171
174. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 5.9 Liquidity coverage ratio Current Period Total Unweighted Total Weighted Value Value (Average) (*) (Average) (*) HIGH-QUALITY LIQUID ASSETS 1 Total high-quality liquid assets (HQLA) CASH OUTFLOWS 2 3 4 5 6 7 8 9 10 11 12 13 14 Retail deposits and deposits from small business customers, of which: Stable deposits Less stable deposits Unsecured wholesale funding, of which: Operational deposits Non-operational deposits Unsecured funding Secured wholesale funding Other cash outflows of which: Outflows related to derivative exposures and other collateral requirements Outflows related to restructured financial Instruments Payment commitments and other off-balance sheet commitments granted for debts to financial markets Other revocable off-balance sheet commitments and contractual obligations Other irrevocable or conditionally revocable off-balance sheet obligations TOTAL CASH OUTFLOWS 15 16 CASH INFLOWS 17 Secured receivables 18 Unsecured receivables 19 Other cash inflows 20 TOTAL CASH INFLOWS TL+FC FC TL+FC 64,135,407 51,618,219 62,047,076 49,527,121 71,354,474 16,313,868 55,040,606 35,009,977 31,329,312 3,680,665 15,890,007 15,890,007 25,635,623 23,556,794 2,078,829 33,541,312 29,408,292 6,612,449 857,744 5,754,705 17,253,337 13,592,650 3,660,687 33,356,957 1,647,562 1,647,562 12,176,783 10,111,219 2,065,564 29,330,487 30,030,487 3,510,825 27,916,225 1,492,067 29,889,681 3,467,276 27,838,420 1,492,067 - - - - - - - - 21,478,301 6,659,025 2,009,766 59,232,509 372,243 43,527,075 23,198,611 30,908,665 54,107,276 17,994,662 27,198,914 45,193,576 21 TOTAL HQLA 22 TOTAL NET CASH OUTFLOWS 23 LIQUIDITY COVERAGE RATIO (%) (*) FC 19,160,744 16,105,357 30,798,615 26,938,870 49,959,359 43,044,227 Upper Limit Applied Value 62,047,076 49,527,121 14,808,127 10,881,769 419.01 455.14 The average of last three months’ liquidity coverage ratio calculated by monthly simple averages. The table below presents highest, lowest and average liquidity coverage ratios for the last 3 months of 2021: Highest Date Lowest Date Average TL+FC 480.94 01/10/2021 366.24 29/10/2021 423.97 FC 524.29 01/10/2021 404.10 29/10/2021 460.19 The liquidity coverage rate is calculated by the proportion of high quality liquid assets held by the bank to its one month maturity cash outflows. Important balance sheet items that determine the rate; Compulsory provisions held by the CBRT, repo / non-repurchase securities, institutional qualified participation accounts, funds from abroad and receivables from banks. These items have more impact on the liquidity coverage ratio than the liquidity assets and net cash outflows, because they have a high share of the current cointegration, high concentration and variability over time. 51 172
175. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Liquidity risk management and liquidity coverage ratio (continued) Prior Period Total Unweighted Total Weighted Value Value (Average) (*) (Average) (*) HIGH-QUALITY LIQUID ASSETS 1 Total high-quality liquid assets (HQLA) CASH OUTFLOWS TL+FC FC TL+FC 39,068,360 25,321,310 38,080,376 24,333,326 2 3 4 5 6 7 8 9 10 55,222,204 12,199,949 43,022,255 20,699,800 19,114,478 1,585,322 27,072,381 16,269,202 16,269,202 14,334,947 13,722,941 612,006 16,668,483 4,912,223 609,997 4,302,226 9,768,113 8,182,791 1,585,322 27,072,381 1,626,920 1,626,920 6,436,532 5,824,526 612,006 16,668,483 26,666,918 405,463 16,668,483 - 26,666,918 405,463 16,668,483 - - - - - - - - - 17,419,235 4,734,432 - 1,535,367 43,288,084 240,049 24,971,984 15,040,027 26,969,855 42,009,882 10,757,116 26,340,204 37,097,320 11 12 13 14 Retail deposits and deposits from small business customers, of which: Stable deposits Less stable deposits Unsecured wholesale funding, of which: Operational deposits Non-operational deposits Unsecured funding Secured wholesale funding Other cash outflows of which: Outflows related to derivative exposures and other collateral requirements Outflows related to restructured financial Instruments Payment commitments and other off-balance sheet commitments granted for debts to financial markets Other revocable off-balance sheet commitments and contractual obligations Other irrevocable or conditionally revocable off-balance sheet obligations TOTAL CASH OUTFLOWS 15 16 CASH INFLOWS 17 Secured receivables 18 Unsecured receivables 19 Other cash inflows 20 TOTAL CASH INFLOWS 21 TOTAL HQLA 22 TOTAL NET CASH OUTFLOWS 23 LIQUIDITY COVERAGE RATIO (%) (*) FC 12,808,180 10,212,021 26,969,855 26,340,204 39,778,035 36,552,225 Upper Limit Applied Value 38,080,376 24,333,326 10,822,021 6,242,996 351.88 389.77 The average of the calculated liquidity coverage ratio for the last three months based on the monthly simple arithmetic average The table below presents highest, lowest and average liquidity coverage ratios for the last three months of 2020: Prior Period: TL+FC FC Highest Date 391.92 476.29 25/12/2020 25/12/2020 Lowest 313.44 341.18 Date 13/11/2020 13/11/2020 Average 352.00 388.57 The liquidity coverage ratio is calculated by the ratio of the high-quality liquid assets of the bank to the net cash outflows within the one-month maturity window. Important balance sheet items which are influential over the aforementioned ratio may be specified as required reserves held in the presence of TC Central Bank, securities not subject to repo/assurance, institutional qualified participation accounts, funds of foreign origins and receivables from banks. These items have a higher influence over the liquidity coverage ratio as their amounts have a higher share of liquid assets and net cash outflows, their consideration rate is higher and they may show variability over time. 52 173
176. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Presentation of assets and liabilities according to their remaining maturities Demand Up to 1 month 1-5 Years Over 5 years 29,249,563 14,520,153 36,205,529 - - - - - - 65,455,092 14,520,153 Financial assets at fair value through profit and loss - 678,966 Money market placements Financial assets at fair value through other comprehensive income Loans (**) Financial assets valued at amortized cost Other assets (***) Total Assets - - 336,212 18,557 10,902,031 - 249,882 12,185,648 - - - - - - 2,416,534 46,186,250 6,856,755 11,195,990 1,167,673 56,104,913 3,580,549 16,563,509 4,310,237 4,215 24,794,722 3,629,193 41,926,057 45,573,807 17,927,254 46,505,579 488,377 1,713,575 77,536,816 4,099,982 4,099,982 171,606 (5,504,480) (621) 4,855,383 (228,230) 32,165,357 114,786,637 4,797,993 10,157,380 254,068,260 Liabilities Current account and funds collected from banks via participation accounts Current and profit sharing accounts Funds provided from other financial institutions Money market borrowings Marketable securities issued Miscellaneous payables Other Liabilities (****) Total Liabilities 816,522 127,296,711 2,458,969 130,572,202 23 64,670,395 2,866,229 6,495,137 244,814 1,834,659 76,111,257 12,117,184 2,732,511 1,239,043 16,088,738 6,927,390 635,865 135,380 7,698,635 273,478 5,531,502 198,459 6,003,439 3,686 4,656,363 29,415 4,689,464 12,904,525 12,904,525 816,545 211,288,844 16,422,470 6,495,137 2,703,783 16,341,481 254,068,260 Net Liquidity Gap (84,385,952) (20,006,344) 8,695,477 37,875,172 71,533,377 (589,482) (13,122,248) - Total Assets 20,317,947 30,352,896 17,735,453 27,551,629 50,763,635 4,014,370 1,554,385 152,290,315 Total Liabilities 72,873,988 44,706,098 11,756,907 10,006,764 3,338,778 41,882 9,565,898 152,290,315 (52,556,041) (14,353,202) 5,978,546 17,544,865 47,424,857 3,972,488 (8,011,513) - Current Period Assets Cash (cash in vault, effectives, cash in transit, Cheques purchased) and balances with the CBRT Banks (*) 1-3 Months 3-12 months Unallocated (***) Total Prior Period Net Liquidity Gap (*) (**) (***) (****) Expected losses are netted off with provision. Includes receivables from leasing transactions and presented with netting off with the expected credit loss. Certain assets in the balance sheet that are necessary for the banking operations but cannot be readily convertible into cash in the near future, such as tangible assets, investments in associates and subsidiaries, stationary supplies and prepaid expenses are included under unallocated assets. The unallocated other liabilities consist of equity and provisions balances. 53 174
177. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 6. Explanations on leverage ratio Disclosure of leverage ratio template The leverage ratio table prepared in accordance with the communiqué “Regulation on Measurement and Assessment of Leverage Ratios of Banks” published in the Official Gazette no. 28812 dated 5 November 2013 is presented below: 1 2 On-balance sheet assets (*) On-balance sheet items (excluding derivative financial instruments and credit derivatives but including collateral) (Assets deducted in determining Tier I Capital) 3 Total on-balance sheet risks (sum of lines 1 and 2) 4 Replacement cost associated with all derivative instruments and credit derivatives 5 Add-on amounts for PFE associated with all derivative instruments and credit derivatives 6 Total risks of derivative financial instruments and credit derivatives (sum of lines 4 to 5) 7 Risks from SCFT assets (excluding on-balance sheet) 8 Risks from brokerage activities related exposures 9 Total risks related with securities or commodity financing transactions (sum of lines 7 to 8) Current Period Prior Period 231,176,465 154,598,576 (412,452) (394,341) 230,764,013 154,204,235 1,374,232 629,764 Derivative financial instruments and credit derivatives 624,826 482,894 1,999,058 1,112,658 2,231,136 2,119,201 Securities or commodity financing transactions (SCFT) - - 2,231,136 2,119,201 Other off-balance sheet transactions 10 Gross notional amounts of off-balance sheet transactions 11 (Adjustments for conversion to credit equivalent amounts) 12 Total risks of off-balance sheet items (sum of lines 10 and 11) 80,442,507 69,534,780 (44,108,586) (42,998,895) 36,333,921 26,535,885 Capital and total risks 13 Tier I Capital 14 Total risks (sum of lines 3, 6, 9 and 12) 12,759,904 9,608,320 271,328,128 183,971,979 Leverage ratio 15 Leverage ratio 4.70 5.22 (*) Amounts in the table are three-month average amounts. The leverage ratio calculated on the basis of the arithmetic average of the the amounts realized at the end of each month for the past three-month period as of the Bank's solo balance sheet date was %4.70 % (31 December 2020 – 5.22 %). The main reason for the changes from the previous period is that the increase in the items related to the finance transactions secured by securitisation instruments and goods is higher compared to the increase in other items. Therefore, the core capital increased by 33% due to the profit for the period, balance-sheet risks increased by 50%, and off balance sheet items increased by 37%. Accordingly, the leverage ratio of the current period compared to the previous year shows a decrease of 52 basis points. 54 175
178. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 7. Explanations on fair values of financial assets and liabilities The table summarizes the book value and fair value of the financial assets and liabilities that were not accounted by the values in Bank’s financial statements. Book value is the sum of the acquisition value and accumulated profit share accruals. Book Value Fair Value Current Period Prior Period Current Period Prior Period Financial assets Banks Financial Assets at Fair Value Through Other Comprehensive Income Financial Assets Aalued at Amortised Cost Loans and Lease Receivables Financial liabilities Current account and funds collected from banks via participation accounts. Other current and profit sharing accounts Money market borrowings Funds provided from other financial institutions 14,522,944 5,809,467 14,522,944 5,809,467 32,165,357 20,795,073 32,165,357 20,795,073 4,798,614 5,931,297 4,796,006 5,944,038 120,291,117 76,119,457 119,146,879 74,722,351 816,545 367,936 816,545 367,936 211,288,844 6,488,859 121,805,048 185,000 211,288,844 6,495,137 121,805,048 185,225 16,422,470 16,179,157 16,150,582 17,177,284 Issued securities - - - - Other Liabilities 4,376,751 1,818,168 4,376,751 1,818,168 352,375 344,025 352,375 344,025 Leasing payables The estimated fair value of the loans is calculated by discounting future cash flows by using current market rates of profit share. The fair value of financial assets and liabilities carried at amortized cost other than loans, available for sales financial assets and funds provided from other financial institutions approximates to their book values since they are short term in nature and their effective profit share rates are similar with current effective profit rates. 8. Explanations on the activities carried out on behalf and account of other persons The Bank does not perform purchases, sales and custody services in the name of others. The Bank has no fiduciary based transactions. 9. Explanations on hedge accounting practices None (31 December 2020 – None). 55 176
179. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10. Explanations On Risk Management Risk Management System refers to the Board of Directors, the Audit Committee, Risk Committee, Asset-Liability Committee and the Risk Management Department (“RMD”) which has been composed in order to manage systemic risks that the Bank is exposed. The Board of Directors is the owner of the Bank's Risk Management System and ensures the establishment of an effective, sufficient and appropriate risk management system as well as the continuity of the system. The main objective of the Bank's Risk Management System is to identify, measure, monitor and control the risks that the Bank is exposed to, by determining the policies, limits and procedures to control, to monitor, and if necessary to change the risk-return structure of the Bank's future cash flows and the level & the quality of related activities. 10.1. Explanations on Risk Management and Risk Weighted Amounts 10.1.1. GBA – Bank’s Risk Management Approach What kind of an interaction does the Bank’s risk profile has with the management board’s risk appetize and how does the business model determine the Bank’s risk profile and how it interacts with it (i.e. Key risks regarding the business model and each one of these risks’ effect on the explanations); Kuveyt Turk’s business model fundamentally consisted of two main operating areas. These main areas are current accounts in accordance with the non-interest banking rules, collecting funds through profit/loss participation accounts and providing the usage of funds to its cilents through these funds and equity. The business model of the Bank occurs an exposure of some significant risks. These significant risks are evaluated and identified by the Bank’s Internal Capital Competence Evaluation Process. Bank’s risk strategy for all significant risks is formed in writing. Banks are required to form a structure which is composed of the policies and processes regarding determining the risk appetite and following it’s units’ compliance because of the regulation regarding the Banks Internal Systems and Internal Capital Competence Evaluation Process, numbered 29057 and published by the Official Gazette on 11 July 2014. In order to comply with this regulation Risk Appetite Policy is published by the Risk Management Leadership and approved by the Board of Directors. In accordance with the Bank’s Risk Appetite Policy, risk levels and risk limits of each kind of risks which appeared important are collectively determined to achieve the Bank’s goals and to actualize the Bank’s strategies by taking the risk capacity of the Bank into consideration. Bank’s risk strategy and risk limits are determined by the Board of Directors. The units which perform the risk measurement and management are carrying out their businesses independently from execution units. Fundamentally, control and management activities devoted to credit, market, liquidity, operational and other significant risk types are occurred. Due to the business model, Risk Management Leadership strategically contribute to the Bank to identify, follow, measure and manage all risks which the Bank may expose. Credit Risk Management and Modelling unit which is one of the units which constitutes the Risk Management Leadership, carries out the risk measurement and management works regarding the credit risks. Market Risk, Operational Risk, Risk and Capital Planning Department which is another unit which carries out its businesses under the Risk Management Leadership, coordinates the Bank’s capital planning works and manage risks regarding the market, operations, liquidity and other important risk types. 56 177
180. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Bank has a credit predominant active structure due to its main business model. Reflecting the Bank’s business model, total actives, predominantly consisted of dues regarding receivables from leasing and cash loans. The Bank predominantly aims to grow sustainably by funding the real sector’s financing and increasing the credit amount by taking the risk-return balance into the consideration. Within the frame of its business model, the main risk type which the Bank exposed/predicts to be exposed damage is credit risk. The significant risks within the scope of Bank’s credit risks are as follows; • • • Credit Risk states the possibility of loan loss which the Bank may expose due to the the partial or total nonpayment of its credit client on time in accordance with the contract made between the credit client and the Bank. Counterparty credit risk refers to the defaut risk of the counterparty of the transaction before the last payment in the cash flow of this transaction of which brings on obligation to both sides. Concentration risk covers risks arising from concentration between different types of risk or on an individual risk basis which may result in large losses that could threaten the bank's ability to maintain its core operations or its financial structure or which could cause significant changes in the bank's risk profile. The bank is exposed to market risk due to its treasury transactions and other financial operatings. However, correspondingly with the risk appetite, the bank takes care to ensure that its market risk-generating assets have high credit rating and liquidity, and it does not carry a speculative foreign exchange position in order to hedge foreign exchange risk. The bank is exposed to operational risk due to its operatings, processes carried out, human resources, systems and external resources. Operational risks in the bank are managed under the supervision of the Board of Directors within the framework of identifying, evaluating, monitoring and reducing/controlling the risks. The current risk management is considered to be in line with the size of the bank, taking into account the level and importance of the risk. Explanations on risk reporting processes provided to the board of directors and senior management, in particular the scope and main content of the reporting, Timely and comprehensive reporting of risks exposed within the scope of Risk management activities and risks arising from transactions carried out with the risk group of the Bank is carried out by the head of Risk Management. The Bank produces regular reports from the risk measurement models it uses and analyzes the reports. Risk measurement and risk monitoring results are reported to the Board of directors or to the Internal Systems Committee and senior management regularly and on time by the Risk Management Presidency. The reports prepared include the level and development of significant risks and their effects on capital needs, the compliance of assumptions used in risk measurement and evaluation systems, the adequacy of the level of capital that the bank should hold for all important risks, its compliance with legal and internal capital targets and ratios, the need for future capital and changes to be made in, business continuity plans, etc. includes information. The bank organizes a report on risk measurement, capital and liquidity planning and risk management capabilities under the scope of ICAAP at least once a year and in any case as of the end of the year. 178 57
181. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.1.2. Overview of risk weighted amounts Risk Weighted Amounts Current Period 31/12/2021 Credit risk (excluding counterparty credit risk) (CCR) Standardised approach (SA) Internal rating-based (IRB) approach Counterparty credit risk Standardised approach for counterpary credit risk Internal model method (IMM) Basic risk weight approach to internal model’s equity position in the banking 7 account 1 2 3 4 5 6 8 Investments made in collective investment companies – look-through approach 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Investments made in collective investment companies – mandate-based approach Investments made in collective investment companies – 1250% risk weighting Approach Settlement risk Securitization exposures in banking book IRB ratings-based approach IRB supervisory formula approach SA/simplified supervisory formula approach (SSFA) Market risk Standardised approach Internal model approaches Operational risk Basic indicator approach Standardised approach Advanced measurement approach Amounts below the thresholds for deduction from capital (subject to 250% risk weight) Floor adjustment 24 25 Total (1+4+7+8+9+10+11+12+16+19+23+24) Minimum Capital Requirements Prior Period 31/12/2020 Current Period 31/12/2021 66,866,125 66,885,604 789,083 789,083 - 48,815,085 48,833,540 245,378 245,378 - 5,349,290 5,350,848 63,127 63,127 - - - - 19,479 18,455 1,558 - - - 4,998,996 4,998,996 10,167,312 10,167,312 3,250,536 3,250,536 7,473,031 7,473,031 399,920 399,920 813,385 813,385 82,840,995 59,802,485 6,627,280 58 179
182. 180 Funds Collected Borrowings Debt to money markets Securities Issued (Net) Financial Liabilities at Fair Value Through Profit or Loss Derivative Financial Liabilities Lease Payables Provisions Current Tax Liabilities Deferred Tac Liabilities Subordinated Debt Instruments Other Liabilities Equity Total Liabilities Liabilities Cash and Balances with Central Bank of Turkey Banks Receivables From Money Markets Financial Assets at Fair Value Through Profit and Loss Financial Assets at Fair Value Through OCI Financial Assets Measured at Amortised Cost Derivative Financial Assets Expected Loss Provisions (-) Loans Lease Receivables Factoring Receivables Property And Equipment Held For Sale Purpose And Related To Discontinued Operations (Net) Subsidiaries Jointly Controlled Entities (Joint Ventures) (Net) Tangible Assets (Net) Intangible Assets (Net) Investment Properties (Net) Current Tax Asset Deferred Tax Asset Other Assets Total Assets Assets Current Period 59 212,105,389 8,321,974 6,495,137 257,913 352,375 2,442,375 1,158,997 8,100,496 4,376,751 10,456,853 254,068,260 254,068,260 254,068,260 212,105,389 8,321,974 6,495,137 257,913 352,375 2,442,375 1,158,997 8,100,496 4,376,751 10,456,853 254,068,260 65,455,316 14,522,944 12,185,648 32,165,357 4,798,614 1,643,354 8,583,527 111,440,591 11,925,936 240,891 1,461,015 20,000 1,222,598 248,187 1,713,575 3,607,761 Carrying values in legal consolidation prepared as per TAS 65,455,316 14,522,944 12,185,648 32,165,357 4,798,614 1,643,354 8,583,525 111,440,591 11,925,935 240,891 1,461,015 20,000 1,222,598 248,187 1,713,575 3,607,760 Carrying values in financial statements prepared as per TAS - 246,254,822 65,455,316 14,522,944 32,165,357 4,798,614 2,787,895 111,660,523 11,925,936 240,891 1,461,015 20,000 1,222,598 248,187 1,713,575 3,607,761 Credit Risk 6,495,137 6,495,137 1,643,354 1,643,354 - Counterparty Credit Risk Securization Positions - - - Carrying values of items in accordance with Turkish Accounting Standards 10.1.3. Differences and matching between asset and liabilities’ carrying values in financial statements and in capital adequacy calculation: (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 - 12,185,648 12,185,648 - Market Risk 212,105,389 8,321,974 257,913 352,375 2,442,375 1,158,997 8,100,496 4,376,751 10,456,853 247,573,123 (5,488,145) 5,795,632 73,968 233,519 - No subject to capital requirements or subject to deducation from capital Kuveyt Türk Annual Report 2021
183. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.1.4 Main sources of differences between regulatory exposure amounts and carrying values in financial statements Items Total 1- Carrying Value of Assets in Accordance with TAS (as in template 1B) 2- Carrying Value of Liabilities in Accordance with TAS (as in template 1B) 3- Total net amount 4- Off-balance sheet amounts 5- Differences in valuations 6 Differences due to different netting rules (other than those already included in row 2) 7- Differences due to consideration of provisions 8- Differences due to prudential filters 9-Risk Amounts Items subject to Items Items subject subject to counterparty subject to to credit risk securitisation credit risk market risk framework framework framework framework 254,068,260 246,254,823 - 1,643,354 12,185,648 - - - 6,495,137 - 254,068,260 154,328,304 - 246,254,823 8,193,056 - - 8,138,491 1,621,200 - 12,185,648 73,572,361 - - - - - - 408,396,564 (74,787,429) 179,660,450 - 9,759,691 85,758,009 10.2. General qualitative information on credit risk 10.2.1. How the business model translates into the components of the bank’s credit risk profile The business model of the Bank basically consists of two main business fields: collecting funds by means of current accounts and profit/loss participation accounts subject to the interest-free banking rules, and using those funds and equity funds to make funds available to customers. Because of these main business fields, the bank’s assets have a credit-weighted structure. Reflecting this business model, its total assets are cash credit-weighted and financial leasing receivable-weighted. The bank lends funds to finance the real sector in general and increases its volume of credits by taking into account its risk-return balance to achieve sustainable growth. The risk profile of the Bank indicates the types of risks to which it is exposed or expects to be exposed, and its risk level by type of risk. The largest type of risk to which the Bank is exposed or expects to be exposed within its current and target business model is the credit risk. Since the risk of concentration is one of the most important components of the credit risk, concentration limits were set by sector for the concentration risk. Internal limits are set for cash, noncash and total credits for each of 20 different sectors. Limits were set for monitoring Defaulted Credit Exposures in mentioned sectors and for taking corrective measures. With regard to concentration of the credit risk, internal limits were set for the top 10, 20, 30, 40, 50 and 100 debtor/credit risk groups. Furthermore, country limits were set to avoid concentration in countries selected as part of the sovereign risk process. 10.2.2. Criteria and approach used for defining credit risk policy and for setting credit risk limits The main purpose of the credit risk policy are to measure the counterparty risk undertaken as part of a credit transaction, to monitor the risk against the legal limits and the Bank’s internal limits, to research new techniques and applications for measuring and controlling the risk, to monitor overdue receivables, to analyze the reason of overdue, and to take measures to prevent such reasons from repeating. The term ‘credit risk’ refers to the potential loss the bank might be exposed to because of credit borrowers’ partial or full default of the credit agreements they signed with the bank. This term also includes the loss of market value because of the breakdown of the counterparty’s financial position. This term includes both on-balance sheet and off-balance sheet transactions. Risk limits are set by openly relating it with the Bank’s volume on consolidated and non-consolidated basis within the financial system as part of its risk appetite structure. In this context the appetite for risk approved by the Board of Directors are divided between and allocated to other levels considered necessary by type of risk. The uses of the limits are closely monitored, and overdrafts are reported to the executive management for ensuring the necessary measures to be taken. 60 181
184. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.3. Structure and organization of the credit risk management and control function Risk Control and Compliance Group works under the Risk Committee reporting to the Board of Directors. Risk Control and Compliance Group Manager and Risk Management Department Manager working under the former are in charge of and responsible for the strategies and policies approved by the Board of Directors and for performing the other tasks assigned by the Risk Committee. Credit Risk Management and Modeling Unit is one of the units comprising the Risk Management Department performs the risk measurement and management tasks concerning the credit risk. 10.4. Relations between the credit risk management, risk control, compliance and internal audit functions The units within the scope of internal systems have been established within the organizational structure of the Bank depending on the Board of Directors. The Board of Directors has transferred its duties and responsibilities related to risk management, internal control and compliance to the Risk Committee consisting of three members of the board of directors. The Risk Management Department, the Internal Control Department and the Compliance Department carry out their activities under the supervision and coordination of the Risk Committee. The Board of Directors carries out its duties and responsibilities related to internal audit through the Audit Committee, which consists of three members of the Board of Directors. The Chairman of the Board of Inspectors performs internal audit activities under the supervision and coordination of the Audit Committee. The internal control function of the Bank is performed by the Internal Control Department. Internal Control System has been founded in such a manner to be capable and efficient to mitigate, manage, monitor and control the exposure risks of the Bank in accordance with the Bank’s organizational structure and business fields as well as changing circumstances, and covers all domestic and international branches, head office, consolidated subsidiaries and all business activities of the Bank. The internal control system and internal control activities of the Bank are designed by the Internal Control Department in cooperation with the relevant management executives and are performed at a sufficient and efficient extent. Compliance Department is in charge of managing the bank’s compliance risk and taking it under control in an efficient way, forecasting and preventing the risk in question, and ensuring the bank’s activities to comply with the applicable laws and regulations. Risk Management Department performs the tasks of determining, measuring and managing the exposure risks of the bank. An efficient risk management system infrastructure has been established for credit risk management tasks, credit policy, and risk management activities falling within the credit risk policy. The internal credit risk limits set by the Board of Directors are measured and reported at regular intervals to the Risk Committee. Audit Department is in charge of assuring the Board of Directors and the executive management that the Bank’s business activities are performed in accordance with the Banking Law, other applicable laws and regulations and the internal strategies, policies, principles and targets of the bank, and that the internal control and risk management systems are efficient and sufficient. 10.5. Scope and main content of the reporting on credit risk exposure and on the credit risk management function to the executive management and to the Board of Directors Risk Management Report for the Executive Management, which is the basic report presented to the Board of Directors and the executive management, is prepared quarterly. The report in question contains the basic subjects described below. Quality of the assets are analyzed in accordance with the classification specified in the Regulation on Procedures and Principles for Determination of Qualifications of Loans and Other Receivables by Banks and Provisions to be set aside and the assets are compared with those of the previous fiscal period to monitor the sustainability of the asset quality. The report describes the credit risk limits and the figures realized in the relevant fiscal period. Credits lent in 20 different economic sectors are monitored by cash, non-cash and total credits. Credit shares and development trends of the economic sectors are monitored. The risk limits set in accordance with the Bank’s appetite for risk and the figures realized are explained. Observed key risk indicators include the ratio of credit risk-weighted items over the total assets, the ratio of the total gross amount of defaulted credits over the total financing (cash credits) portfolio and their distribution by sector, distribution of guarantees by guarantee group, the ratio of the top 10/20/30/40/50/100 risks over the total financing (cash and non-cash credits) portfolio, and the ratio of write-off. 61 182
185. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Distribution of cash credits by maturity term is monitored. Detailed information is given about the top 10 customers against whom internal or legal proceedings were filed, their limits, risks, guarantees and provisions, description of their sectors and their state are described. The trend of restructured credits is monitored. Also, loans to risk group of the Bank are reported. Sovereign ratings, limits and used limits are monitored and compared with the previous fiscal year. The Bank creates credit portfolios in accordance with its internal segment structure. These segments are divided into sub-segments. Risks realized for cash, non-cash and total credits are monitored by each of these portfolios. Real estate price indexes are analyzed to monitor whether the values of the real estates received as guarantees for the funds lent have increased or decreased. These real estates are also monitored by subcategory in accordance with the classification of regions published by the Turkish Central Bank. They are also compared with the House Price Index of Turkey published by the Turkish Central Bank. Credit quality of assets Current Period 1 2 3 4 Loans Debt securities Off-balance sheet exposures (*) Total Gross amount valued as per TAS and presented in the financial statements prepared according to legal consolidation Defaulted Non-Defaulted 3,075,409 120,511,050 37,255,610 Provisions / depreciation and impairment Net amount 2,787,895 291,639 120,798,564 36,963,971 527,586 30,379,913 522,426 30,385,073 3,602,995 188,146,573 3,601,960 188,147,608 (*) Accruals of derivative transactions are presented as net amounts under impairments. Prior Period 1 2 3 4 Loans Debt securities Off-balance sheet exposures (*) Total Gross amount valued as per TAS and presented in the financial statements prepared according to legal consolidation Defaulted Non-Defaulted 2,934,591 76,201,259 26,921,122 Provisions / depreciation and impairment Net amount 2,517,875 210,952 76,617,975 26,710,170 451,931 19,502,927 439,754 19,515,104 3,386,522 122,625,308 3,168,581 122,843,249 (*) Accruals of derivative transactions are presented as net amounts under impairments. Changes in Stock of Defaulted Loans and Debt Securities 1 2 3 4 5 6 Defaulted loans and debt securities at end of the previous reporting period Loans and debt securities that have been defaulted since the last reporting period Receivables back to non-defaulted status Amounts written off Other changes Defaulted loans and debt securities at end of the reporting period (1+2-3-4±5) Current Period 2,934,591 1,298,362 397,786 (759,758) 3,075,409 Prior Period 2,043,674 1,603,148 360,809 (351,422) 2,934,591 183 62
186. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.6. Qualitative disclosures related to the credit quality of assets 10.6.1 Scope and definitions of “overdue” and “provision allocated” receivables for accounting purposes and the differences of definitions between “overdue” and “provision allocated”, if any Overdue receivables: Overdue receivables and provision allocated receivables are determined according to the Communique on Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves. Provision for receivables: All financial instruments other than those covered by TFRS 9 and whose fair value is reflected in the profit / loss. 10.6.2. The part of the overdue receivables (past 90 days) for which provision is not allocated and reasons for this application All loans that have completed the delay process determined in accordance with the legal regulations within the relevant month in the Bank are automatically taken into follow-up accounts and are subject to special provision. In very exceptional cases and due to a court decision, the delay process is stopped, and the Bank's loan amount in this context is insignificant as of December 31, 2021. 10.6.3. Definitions of the methods used when determining the provision amount TFRS 9 requires a 12-month expected credit loss provision for all financial assets in Stage 1 and the expected credit loss for all other financial assets. 12-month expected credit loss represents the portion of the expected credit loss from probable default events within 12 months after the reporting date. Lifetime losses are losses from all possible default events during the expected life of the financial instrument after the reporting date. Lifetime refers to the maturity of the financial instrument. In non-maturity financial instruments, the bank calculates the behavioral maturity and uses this to calculate the expected loan loss. The ECLs are calculated at each instrument level by taking into account the projected cash flows, the PoP (Probability of Probation), the DoL (Default on Loss), the CCR (Credit Conversion Rate) and the discount rate. In small, very unimportant and unrated portfolios, the ECL can be estimated on a collective basis. 10.6.4. Definition of restructured receivables The financial terms in existing financial difficulties may be amended to facilitate payment of the debt, and the original loan terms that were previously signed can be changed according to the borrower's new financing power and structure when the loan cannot be repaid or a potential non-repayment is encountered. In order for a loan to be considered as restructured, the debtor must be in financial difficulty and the debtor must be provided with the concession requirements for changing the loan conditions. 63 184
187. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.6.5. Breakdown of exposures by geographical areas, industry and ageing Distribution of cash receivables by sectors is as follows: Sector Current Period – Cash Loan Amount Prior Period – Cash Loan Amount 14,874,360 6,840,496 419,228 1,133,378 10,301,048 4,161,290 1,915,895 6,210,038 11,638,588 5,110,897 9,088,310 7,440,687 1,645,501 4,152,816 481,438 1,300,213 776,903 10,747,052 21,038,103 592,941 3,497,344 123,366,526 13,909,479 4,640,643 341,268 789,411 3,565,746 2,298,695 1,658,117 3,929,433 7,182,415 4,227,056 4,714,626 4,210,197 663,178 2,754,410 1,288,244 975,627 494,186 5,637,005 13,548,557 416,342 1,809,413 79,054,048 Current Period – Cash Loan Amount 8,885,628 1,992,872 5,796,850 7,766,209 20,384,485 3,334,466 66,450,397 8,755,619 123,366,526 Prior Period – Cash Loan Amount 5,664,298 1,580,628 5,077,225 4,585,283 13,976,577 2,581,377 44,902,262 686,398 79,054,048 Current Period – Cash Loan Amount 56,323,893 32,607,859 18,958,672 14,413,860 1,062,242 123,366,526 Prior Period – Cash Loan Amount 29,154,405 24,016,037 12,965,628 11,567,101 1,350,877 79,054,048 Individual Other Services Education Real Estate and Brokerage Financial Services Food, Beverage, Tobacco Government Production Construction (Commitment) Construction (Build-and-sell) Public Services (Electricity, Water & Gas) Mining & Chemistry Machinery Equipment Automative Oil, Gas and Oil Products Health Agriculture Textile Wholesale & Retail Tourism Transportation & Warehouse Total The distribution of cash receivables by geographical regions is as follows: Region Akdeniz Region Dogu Anadolu Region Ege Region Güneydogu Anadolu Region Iç Anadolu Region Karadeniz Region Marmara Region Foreign Total The maturity distribution of cash receivables is as follows: Maturity Distribution Up to 1 year 1-3 years 3-5 years 5 years and more Defaulted Total 64 185
188. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.6.6. Provisions based on geographical and sectoral concentration and written off amounts Non-Performing Loans 33,900 14,129 19,771 561,557 155,218 396,355 9,984 1,185,613 1,150,166 699,548 147,909 95,547 5,529 48,889 113,883 38,861 144,173 3,075,409 Current Period - Sector Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accomodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services Professional Services Educational Services Health and Social Services Other TOTAL Prior Period - Sector Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accomodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services Professional Services Educational Services Health and Social Services Other TOTAL Non-Performing Loans 50,399 28,780 18,341 3,278 446,459 62,382 349,118 34,959 1,274,309 1,018,028 646,277 105,965 95,954 3,939 38,410 183 67,631 59,669 145,396 2,934,591 Specific Provisions 30,204 12,827 17,377 490,917 140,135 341,057 9,725 1,107,079 1,034,267 621,122 137,120 85,323 5,503 44,636 106,375 34,188 125,428 2,787,895 Write-Offs (*) 16,621 13,796 2 2,823 95,011 15,618 77,918 1,475 112,898 153,591 108,525 2,094 33,408 902 1,148 7,514 19,665 397,786 Specific Provisions 38,958 23,340 12,340 3,278 390,889 53,334 306,499 31,056 1,135,664 853,605 552,266 88,081 77,281 3,865 32,504 146 52,426 47,036 98,759 2,517,875 Write-Offs (*) 18,921 2,283 16,638 45,388 6,621 38,320 447 86,652 186,508 66,467 919 114,419 1,084 416 3,203 23,340 360,809 (*) Refers to the loans worth TL 110,353 that were deleted in 2020, one hundered percent provisioned from non-performing loans and sold to an asset management company. 65 186
189. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Non-performing Loans 1,667,765 137,832 824,963 175,919 165,289 69,691 33,950 3,075,409 Current Period - Geopraphic Region Marmara Region Güneydogu Anadolu Region Iç Anadolu Region Akdeniz Region Ege Region Dogu Anadolu Region Karadeniz Region Total Non-performing Loans 125,209 38,755 189,331 227,320 755,803 34,373 1,563,800 2,934,591 Prior Period - Geopraphic Region Marmara Region Güneydogu Anadolu Region Iç Anadolu Region Akdeniz Region Ege Region Dogu Anadolu Region Karadeniz Region Total Provisions Write-Offs 1,478,442 132,291 768,159 162,414 154,071 61,411 31,107 2,787,895 278,636 15,193 38,553 22,065 23,998 15,132 4,209 397,786 Provisions Write-Offs (*) 111,948 35,916 162,867 187,949 683,200 28,682 1,307,313 2,517,875 125,413 3,520 14,773 15,544 23,859 3,481 174,219 360,809 (*) Includes loans deleted from assets in 2020 and the amount of TL 110,353 that has been reserved for 100% of non-performing loans and sold to an asset management company 10.6.7. Aging analysis for non-performing loans Current period Corporate and Commercial Loans Retail Loans Credit cards Other Total Up to 3 Months 3-12 Months 258,270 261,972 5,054 7,683 10,422 6,016 273,746 275,671 1-3 Years 2,135,269 16,870 5,515 2,157,654 3-5 Years 229,408 42,272 1,671 273,351 5 Years and Over 89,846 4,852 289 94,987 Prior Period Up to 3 Months 3-12 Months 713,826 554,630 4,959 12,756 2,534 6,615 721,319 574,001 1-3 Years 1,426,747 41,077 7,820 1,475,644 3-5 Years 115,934 7,062 855 123,851 5 Years and Over 38,185 1,322 269 39,776 Corporate and Commercial Loans Retail Loans Credit cards Other Total 10.6.8. Breakdown of Restructured receivables according to their provisions Restruction Status Performing Non-Performing Total Current Period - Risk 3,215,853 617,163 3,833,016 Prior Period - Risk 2,624,343 264,327 2,888,670 66 187
190. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.7. Credit Risk Mitigation 10.7.1 Qualitative information on Credit Risk Mitigation Techniques Within the framework of the credit transactions carried out by the bank, all the collateral documents received in the presence of the branch personnel are checked by the branch operations staff and forwarded to the collateral follow-up Directorate through the main banking application. The systematic entries of the guarantees are completed by the personnel of the guarantee follow-up directorate where signature compliance, authorization checks and validity examinations are performed. 10.7.2 Credit risk mitigation techniques Current Period 1 2 3 4 Loans Debt securities Total Overdue Prior Period 1 2 3 4 Loans Debt securities Total Overdue Exposures unsecured: carrying amount as per TAS Collateralized amount of Exposures Exposures exposures secured by secured by secured by financial collateral collateral guarantees 78,360,551 35,189,340 36,963,971 115,324,522 35,189,340 74,887 168,958 Exposures unsecured: carrying amount as per TAS 3,119,489 3,119,489 13,189 7,248,673 7,248,673 43,669 Collateralized Collateralized amount of amount of exposures Exposures exposures secured by secured by secured by financial credit credit guarantees derivatives derivatives 5,915,415 5,915,415 27,132 - - Collateralized amount of Exposures Exposures exposures secured by secured by secured by financial collateral collateral guarantees Collateralized amount of exposures secured by financial guarantees Exposures secured by credit derivatives Collateralized amount of exposures secured by credit derivatives 7,697,885 7,697,885 202,384 5,885,160 5,885,160 62,408 - - 48,988,853 19,931,237 26,710,170 75,699,023 19,931,237 106,245 108,086 10.8. Explanations on Counterparty Credit Risk (CCR) 10.8.1. Risk management objectives and polices for CCR 1,520,524 1,520,524 1,296 Determination of the creditworthiness of financial counterparties has been made in addition to the Credit Policy of the Bank in accordance with the regulations published by BRSA and the international practices in order to limit the exposure to be suffered by the Bank in case of financial counterparty default. This annex describes allocation of limit to financial counterparties and continuous monitoring activities. In this respect, the creditworthiness assessments of the financial and non-financial entities for CCRs especially including sovereign assessments and limits are finally decided by the committees specified under the Policy. 10.8.2. The method used to allocate the operatioal limits defined in terms of internal capital for CCR and central counterparty risks Internal model method is not used for calculating the capital requirements for counterparty credit risk and central counterparty risks. 10.8.3. Policies relating to guarantees and other risk mitigation and assessments concerning counterparty credit risk, including central counterparty risk All of the Bank’s counterparty credit risk and central counterparty limits are non-committed limits and they include cash, non-cash and guarantee limits. In case of any transactions involving non-cash risk exposure, the reassurance of the organizations such as International Development Banks is used. If required, cash collateral is sought in order to minimize the exposure. In case of transactions involving cash risk exposure, the risk exposure is mitigated by obtaining shares and bills (sukuk) as security. 67 188
191. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.8.4. Rules with respect to wrong-way risk Internal model is not used for CCR; and as such, no calculation is made with respect to the wrong-way risk. 10.8.5. The impact in terms of the amount of collateral that the bank is required to provide in case of a credit rating downgrade In case of a decrease in the credit rating, there is no additional collateral amount that our bank has to provide. 10.8.6. Counterparty credit risk (CCR) approach analysis Current Period Replacement Cost 1 Standardised Approach CCR (for derivatives) (*) Internal Model Method (for repo transactions, securities or commodity lending or borrowing 2 transactions, long settlement transactions and securities financing transactions) Simple Approach for credit risk mitigation (for repo transactions, securities or commodity lending or 3 borrowing transactions, long settlement transactions and securities financing transactions) Comprehensive Approach for credit risk mitigation (for repo transactions, securities or commodity 4 lending or borrowing transactions, long settlement transactions and securities financing transactions) Value-at-Risk (VaR) for repo transactions, securities or commodity lending or borrowing 5 transactions, long settlement transactions and securities financing transactions 6 Total Prior Period 1 Standardised Approach CCR (for derivatives) (*) Internal Model Method (for repo transactions, securities or commodity lending or borrowing 2 transactions, long settlement transactions and securities financing transactions) Simple Approach for credit risk mitigation (for repo transactions, securities or commodity lending or 3 borrowing transactions, long settlement transactions and securities financing transactions) Comprehensive Approach for credit risk mitigation (for repo transactions, securities or commodity lending or 4 borrowing transactions, long settlement transactions and securities financing transactions) Value-at-Risk (VaR) for repo transactions, securities or commodity lending or borrowing transactions, long 5 settlement transactions and securities financing transactions 6 Total 1,136,314 Potential future exposure EEPE 484,886 Alpha used for computing regulatory EAD 1.4 Risk amount after Risk credit weighted risk amounts mitigation 1,621,200 770,407 770,407 Replacement Potential future Cost exposure 391,995 582,299 EEPE Risk amount after Alpha credit Risk used for risk weighted computing regulatory mitigation amounts EAD 1.4 974,294 212,440 212,440 68 189
192. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.8.7. Capital requirement for credit valuation adjustment (CVA) Current Period Total portfolios subject to the Advanced CVA capital obligation 1 (i) VaR component (including the 3×multiplier) (ii) Stressed VaR component (including the 2 3×multiplier) All portfolios subject to the Standardised CVA 3 capital obligation 4 Total subject to the CVA capital obligation 190 Prior Period Risk amount (after using credit risk Risk weighted amounts mitigation techniques) 69 Risk amount (after using credit risk mitigation techniques) Risk weighted amounts - - - - - - - - 1,621,200 1,621,200 18,676 18,676 974,294 974,294 32,939 32,939
193. - Receivables from multilateral development banks Receivables from international organizations Receivables from banks and brokerage houses Receivables from corporate Retail receivables 4 5 6 7 8 17 Other receivables * ** 5,221,288 - - - - - 10% - - - - - - - - - - Prior Period - Risk Classes / Risk Weights * - 3 Receivables from administrative bodies and non-commercial entities 4 Receivables from multilateral development banks 5 Receivables from international organizations 6 Receivables from banks and brokerage houses 7 Receivables from corporate 8 Retail receivables 9 Other receivables 10% - - - - - - - - - - - - - - - - - 579,192 - - - 579,192 20% - 560,270 70 Total credit risk: The amount related to capital adequacy calculation after counterparty credit risk measurement techniques are applied. 35% Risk Weight is classified in Others. 456,708 - 2 Receivables from regional and local government 456,708 0% - - - - - 560,270 20% Total credit risk: The amount related to capital adequacy calculation after counterparty credit risk measurement techniques are applied. 35% Risk Weight is classified in Others. 1 Receivables from central governments and Central Banks 18 Total * ** 18 Total - Receivables from administrative bodies and non-commercial entities 3 - Receivables from regional and local government 5,221,288 Receivables from central governments and Central Banks 2 0% 1 Risk Classes / Risk Weights * 10.8.8. CCR exposures by risk class and risk weights (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) - - - - - - - - - - 39,435 - - - 38,928 50% 777,899 3,984 - - 773,915 50% KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 - - - - - - - - - - - - - - 17,793 - 17,793 75% 32,436 - 32,436 75% - - - - - - - - - - - - 62,612 - - 59,147 100% 243,060 10,259 - 232,801 100% 150% 150% - - - - - - - - - - - - - - - - - - - - 200% 200% - - - - - - - - - - - - - - - - - - - - Others ** Others ** 2,648 - - - - - - - - - 5,760 5,760 - - - - - - - - - - - - - - - - - - 212,440 - 13,345 59,147 135,302 Total credit risk* 770,407 14,267 24,327 232,801 499,012 Total credit risk* Section V: Financial Information and Risk Management Practices 191
194. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 11. Securitization Positions None. 12. Explanations on the activities carried out on behalf and account of other persons, fiduciary-based transactions The Bank does not perform purchases, sales and custody services in the name of others. The Bank has no fiduciarybased transaction agreements. 13. Qualitative explanations on market risk 13.1. Bank's processes and strategies Procedures for the identification, measurement, monitoring and control of the market risk of the bank, as well as processes for risk protection and strategies/processes for monitoring of the continuity of the hedging effectiveness, as well as the strategic objectives for the bank's trading activities. Risk management activities are consisting of the measurement, monitoring, control and reporting of the risks, arising from risks incurred on the consolided and solo basis and transactions carried out with the risk group that the Bank is involved in. These activities are carried out by the Bank's Risk Management Department. The definition of the market risk is made by legislation within the scope of the Pillar 1 risks. The components of the market risk that do not fall within the scope of Pillar 1 risks are assessed internally. This process is carried out by the Risk Management Department with the consultation to other relevant departments. Measurement of the market risk is carried out by the Risk Management Department. Market risk is measured by the standard method as specified in the third part of the Regulation on the Measurement and Evaluation of Banks' Capital Adequacy. The Risk Management Department adopts international standardized methods and advanced statistical methods, which are included in the legislation, in the measurement of risks falling within the scope of the Pillar 2. Developed models as well as the stress tests and scenario analysis are used in the measurement and monitoring of the market risk. The primary purpose of market risk is for the bank's risk exposure to be within the limits specified by the legislation and to be in accordance with the Bank's risk appetite. In this context, market risk is periodically measured, monitored and reported. Risk limits related to market risk are established in accordance with The Parent Bank's Risk Appetite Policy. Aforementioned risk limits are determined by the Board of Directors and reviewed at least once a year. Limit usages are closely monitored. Risk mitigation techniques have been applied in line with the size and complexity of the undertaking market risk and the controls are implemented in order to ensure their effectiveness. Treasury Group Department monitors foreign currency positions and cash flows on behalf of the Bank. Moreover, new products and projects are examined in terms of market risk management and appropriate internal controls are implemented in case of necessity. The Bank's strategic objectives for trading activities are given below. • • • 192 Ensure that the bank's lease certificate portfolio is managed at the optimum level within the risk-return balance limits Implement transaction by taking into account the future prospects of market developments/movements and the framework of trading opportunities in the current market prices Invest in Sukuk (lease certificates) as an alternative investment tool to manage the liquidity profitably 71
195. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 13.2. The organization and structure of the market risk management function Definition of the market risk management structure established for the implementation of the bank's strategies and processes and the communication mechanism and relationship between the different parties involved in market risk management, as described in paragraph 1 of 12.1. The market risk service operates under the Deputy Head responsible from the Market Risk, Operational Risk and Capital Planning within Risk Management Department. This service directly reports to the Board of Directors through the Risk Systems Committee. The results of risk measurement and risk monitoring are shared with other related units. The activities coordinated within the Internal Capital Adequacy Assessment Process are carried out together with other relevant departments of the Bank. 13.3. Structure and scope of risk reporting and/or measurement systems Within the scope of risk management system, the Bank established a reporting system which ensures effective analysis and evaluation for market risks. The risk measurement and risk monitoring results is reported to the Risk Committee on a timely manner. There is a risk measurement system which covers the scope and complexity of significant market risk components including transactions and operations exposed to market risk. This system is being audited regularly. The details of the market risk calculated as of 31 December 2021 and 31 December 2020 in accordance with the principles in the third part of the "The Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks" published in the Official Gazette numbered 29511 and dated 23 October 2015 are as follows: 13.4. Market risk under standardised approach 1 2 3 4 5 6 7 8 9 Outright products Profit share risk (general and specific) Equity risk (general and specific) Foreign exchange risk Commodity risk Options Simplified approach Delta-plus method Scenario approach Securitisation Total 72 Risk Weighted Amounts Current Period Risk Weighted Amounts Prior Period 4,998,996 3,250,536 3,066,259 36,702 351,879 1,544,156 4,998,996 1,921,915 141,109 1,187,512 3,250,536 193
196. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 13.5. Explanations on Operational Risk "Basic Indicator Method" is used in operational risk calculation of the Bank. The sum that is the basis for the operational risk is calculated by the use of the gross revenues of the Bank for the last 3 years, 2020, 2019 and 2018 in compliance with "Third Section "Calculation of the Operational Risk" of The Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks published in the Official Gazette numbered 29111 and dated 6 September 2014. The annual gross revenue is calculated by addition of the net fees and commission revenues, dividend income obtained other than subsidiaries and affiliates, the trading gain/loss(net) and other operating income to the net profit share income and by deduction of the gain/loss from the sale of the assets accounted other than the trading book, extraordinary income, the operational expenses for the support services taken from the main shareholder of the bank, subsidiary of the bank or subsidiary of the shareholder of the bank performing the calculation or the institutions which are subject to the relevant Regulation or the equivalent arrangements and the operational expenses for the support service taken from a bank and the amounts compensated from insurance. TL 14,138,871 corresponding to the 8% of TL 1,131,110 used in the calculation of the operational risk within the scope of "Capital adequacy standard rate" indicated in the disclosure I of this section, represents the operational risk which might be exposed to. TL 1,131,110 also defines the minimum capital sum which is required in order to eliminate the mentioned risk. Current Period Gross Income Value at Operational Risk (Total*12.5) Prior Period Gross Income Value at Operational Risk (Total*12.5) 31/12/2018 Amount 3,992,162 31/12/2019 Amount 5,225,501 31/12/2020 Amount 7,050,036 Total/ No. of Years of Positive Gross 5,422,566 Rate (%) 15 31/12/2017 Amount 2,739,187 31/12/2018 Amount 3,992,162 31/12/2019 Amount 5,225,501 Total/ No. of Years of Positive Gross 3,985,617 Rate (%) 15 73 194 Total 813,385 10,167,312 Total 597,843 7,473,031
197. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 13.6. Profit-share rate risk related to banking book 13.6.1. Economic value differences arising from fluctuations in profit share rates in accordance with the regulation on measurement and evaluation of profit share rates derived from banking accounts with standard shock method Current Period: Currency 1 2 3 4 5 6 TL TL USD USD EURO EURO Total (For Negative Shocks) Total (For Positive Shocks) Applied Shock (+/- x basis points) (+) 500bp (-) 400bp (+) 200bp (-) 200bp (+) 200bp (-) 200bp Gains/ Losses (521,604) 486,326 748,776 (792,981) 162,645 (158,010) (464,665) 389,817 Gains/Shareholder’s equity Losses/shareholder’s equity (2.73%) 2.55% 3.92% (4.15%) 0.85% (0.83%) (2.43%) 2.04% Prior Period: Currency 1 2 3 4 5 6 TL TL USD USD EURO EURO Total (For Negative Shocks) Total (For Positive Shocks) Applied Shock (+/- x basis points) (+) 500bp (-) 400bp (+) 200bp (-) 200bp (+) 200bp (-) 200bp Gains/ Losses (1,930,380) 1,815,712 471,594 (514,239) 371,746 (385,722) 915,751 (1,087,040) Gains/Shareholder’s equity Losses/shareholder’s equity (15.27%) 14.36% 3.73% (4.07%) 2.94% (3.05%) 7.24% (8.60%) 13.7. Risk management objectives and policies In accordance with Bank’s strategies, risk policies and vision, the analysis that Risk Management Service presents to Risk Committee are credit risks, market risks, liquidity risks, operational risks and IT risk evaluations. Besides, in accordance with market trends, economic conduct and Bank’s strategic growth, capital adequacy stress test and scenario analyses, evaluation of economic development in the World and Turkey is presented to Risk Committee and Board of Directors by Risk Management Service. These analyses contribute to Bank Top Management’s resolution process about risk appetite and awareness of risks, capital adequacy, strategy revisions and future estimation. In addition, Risk Management Service verifies its own coordination to be ready proactively in business availability of Kuveyt Türk and situations connected with it. Risk Management Service continues risk monitoring and analyzing operations in accordance with Board of Director’s Kuveyt Türk’s mission, vision and growth strategy to prevent the potential risks. In this context credit and market risks, liquidity risk, operational risks and all limits, internal personal scoring and corporate rating modeling with IT risks issues, IT risk evaluation, operational lost data base, key risk indicators, operational risk insurances, market risk calculations, following up of treasury transactions and asset-liability risks are being monitorized. 74 195
198. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Hierarchy of valuation techniques which establishes basis for fair value calculation of financial assets and liabilities Level 1: Quoted prices in active markets for identical assets and liabilities. Level 2: Financial instruments valued by applying methods that are based on observable market prices, directly or indirectly, on data that has significant effect on the fair value reflected in the inputs Level 3: Financial instruments valued by applying methods that are not based on observable market prices, directly or indirectly, on data that has significant effect on the fair value reflected in the inputs. Fair value hierarchy of the financial assets and liabilities of the Bank carried at fair value according to the foregoing principles as of 31 December 2021 and 31 December 2020 are given in the table below: Current Period Level 1 Level 2 Financial assets Financial assets at fair value through profit or loss Forward transactions Swap transactions Government debt securities Other marketable securities 12,185,648 11,035,607 - 1,643,354 358,296 1,285,058 1,150,041 - 13,829,002 358,296 1,285,058 11,035,607 1,150,041 Financial assets at fair value through other comprehensive income Equity securities Government debt securities Other marketable securities 32,165,357 82,887 31,706,197 - 376,273 - 32,165,357 82,887 31,706,197 376,273 - 257,913 132,843 125,070 - - 257,913 132,843 125,070 - Level 3 Total Financial liabilities Financial liabilities at fair value through profit or loss Forward transactions Swap transactions Financial liabilities for hedging purposes Total Prior Period Level 1 Financial assets Financial assets at fair value through profit or loss Forward transactions Swap transactions Government debt securities Other marketable securities 7,839,447 7,050,998 - 460,984 52,326 408,658 788,449 - 8,300,431 52,326 408,658 7,050,998 788,449 20,795,073 48,461 20,489,638 - 256,974 - 20,795,073 48,461 20,489,638 256,974 - 1,676,806 26,008 1,650,798 - - 1,676,806 26,008 1,650,798 - Financial assets at fair value through other comprehensive income Equity securities Government debt securities Other marketable securities Financial liabilities Financial liabilities at fair value through profit or loss Forward transactions Swap transactions Financial liabilities for hedging purposes No transfers have taken place between Level 1 and Level 2 in the current year. 196 75 Level 2 Level 3
199. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 14. Explanations on business segments The Bank operates in Corporate and Commercial Banking, Retail Banking, Treasury and International Banking sectors. Corporate and Commercial Banking: Special cash flow and financial solutions are provided to customers through loans, non-cash loans, foreign trade financing services and similar customized products to meet the financial needs of the customers. Domestic and foreign business opportunities are supported by using different corporate banking instruments to serve the sustainability of the production of entities. Retail Banking includes fund collection, installment commercial loans, business loans, non cash loans, consumer financing and credit cards. The Bank serves in the range of products areas of profit share accounts creation, banking services, trade finance, checks, POS services, credit cards, ATM services, online banking and mobile banking in these fields. In Treasury and International Banking, the relationships with foreign correspondent banks and investment institutes are executed directly or via branches abroad, representative offices and agencies. The firms, which are exceed size limits, are classified “corporate” customers and directed to the Corporate Banking. The products are the same with the Commercial Banking. The aim of international banking is to enable foreign trade financing and develop mutual long-term financing agreements with foreign banks. Besides supplying syndicated loans and issue the Sukuk for the Bank, investment banking also supplies syndicated loans in corporate basis for the firms and groups in Turkey. The Treasury in addition to monitoring foreign currency position and liquidity of the Bank, also conducts spot and forward transactions in TL or foreign currencies, performs derivative transactions (forward, swap) with banks and customers, trades of gold within the context of membership of Istanbul Gold Exchange, trades share certificates in BIST and international markets and conducts murabaha transactions with foreign banks. 76 197
200. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Selected balance sheet and income statement items according to segments Retail Banking Corporate and Commercial banking Treasury and international banking Unallocated Bank’s total operation 7,439,309 7,168,940 3,536,129 3,806,498 3,806,498 3,806,498 7,973,873 2,356,186 (3,394,812) 2,222,875 2,222,875 2,222,875 1,670,880 1,416,232 (141,317) 113,331 113,331 113,331 2,595,338 (2,595,338) (2,595,338) 1,045,639 (3,640,977) 17,084,062 13,536,696 3,547,366 3,547,366 1,045,639 2,501,727 Current Period 31 December 2021 Segment assets Associates, subsidiaries and joint ventures Undistributed assets 37,357,906 - 77,548,111 - 130,889,108 - 1,481,015 6,792,120 245,795,125 1,481,015 6,792,120 Total assets 37,357,906 77,548,111 130,889,108 8,273,135 254,068,260 Segment liabilities Undistributed liabilities Shareholders’ equity 175,293,567 - 36,811,822 - 23,527,895 - 7,978,123 10,456,853 235,633,284 7,978,123 10,456,853 Total liabilities 175,293,567 36,811,822 23,527,895 18,434,976 254,068,260 Retail Banking Corporate Commercial banking Treasury and international banking Unallocated Bank’s total Operation 3,100,309 4,495,606 2,372,885 977,588 977,588 977,588 7,591,132 902,367 (479,349) 6,209,416 6,209,416 6,209,416 330,557 1,712,295 (1,893,536) (3,275,274) (3,275,274) (3,275,274) 2,059,047 (2,059,047) (2,059,047) 452,402 (2,511,449) 11,021,998 9,169,315 1,852,683 1,852,683 452,402 1,400,281 Prior Period 31 December 2020 Segment assets Associates, subsidiaries and joint ventures Undistributed assets 29,924,797 - 43,516,111 - 66,183,752 - 1,481,015 11,184,640 139,624,660 1,481,015 11,184,640 Total assets 29,924,797 43,516,111 66,183,752 12,665,655 152,290,315 Prior Period 31 December 2020 Segment liabilities Undistributed liabilities Shareholders’ equity 100,529,104 - 21,636,217 - 18,392,876 - 3,737,021 7,995,097 140,558,197 3,737,021 7,995,097 Total liabilities 100,529,104 21,636,217 18,392,876 11,732,118 152,290,315 Current Period 1 January 2021-31 December 2021 Operating income Operating expenses (-) Transfers between segments Net operating income(loss) Income from associates Income (loss) before tax Provision for taxation (-) Net income for the period Prior Period 1 January 2020 – 31 December 2020 Operating income Operating expenses (-) Transfers between segments Net operating income(loss) Income from associates Income (loss) before tax Provision for taxation (-) Net income for the period 198 77
201. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION FIVE EXPLANATIONS AND NOTES ON THE UNCONSOLIDATED FINANCIAL STATEMENTS 1. Explanations and notes related to assets 1.1. Information regarding the cash assets and the Central Bank of Republic of Turkey 1.1.1 Cash and balances with the Central Bank of Republic of Turkey Cash/foreign currency The Central Bank of Republic of Turkey Other (*) Total TL 734,131 4,620,318 29,609 5,384,058 Current period FC 5,330,133 47,690,909 7,050,216 60,071,258 TL 630,548 512,354 1,525 1,144,427 Prior period FC 2,548,184 19,967,199 988,100 23,503,483 (*) As of 31 December 2021, precious metal account amounting to TL 7,050,216 (31 December 2020 - TL 988,021) and money in transit amounting to TL 29,609 (31 December 2020 – 1,604 TL) are presented in this line. 1.1.2 Balances with the Central Bank of Turkey Unrestricted demand deposit Restricted time deposit Unrestricted time deposit Total Current Period TL FC 4,540,821 11,485,379 79,497 36,205,530 4,620,318 47,690,909 Prior Period TL FC 499,584 1,493,876 12,770 18,473,323 512,354 19,967,199 According to the CBRT's Communiqué on Required Reserves No. 2005/1, banks operating in Turkey; Required reserve ratios for Turkish lira and foreign currency liabilities are determined between 3% and 26% by differentiating according to the maturity of liabilities, and these rates are applied by banks as of the date of the report. 1.2 Information on financial assets at fair value through profit and loss As of 31 December 2021, there are no financial assets at fair value through profit and loss subject to repurchase transactions, given as a collateral or blocked (31 December 2020 – None). Positive differences related to marketable derivative financial assets: Current period TL FC 356,312 1,984 694,179 590,879 1,050,491 592,863 Forward transactions Swap transactions Futures transactions Options Other Total 78 Prior period TL FC 49,633 2,693 78,913 329,745 128,546 332,438 199
202. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.3 Information on Banks 1.3.1. Information on Banks Current Period Banks Domestic Foreign (*) Headquarters and branches abroad Other Financial Institutions Total Prior Period TL 20,571 20,571 - FC 14,502,373 2,723,650 11,778,723 - TL 26,317 26,317 - FC 5,783,150 113,789 5,669,361 - 20,571 14,502,373 26,317 5,783,150 (*) As a result of the changes in the Uniform Chart of Accounts implemented by the BRSA as of January 1, 2021, the foreign currency collaterals given for the derivative transactions made by the Bank with foreign banks, which were monitored in the other assets account in the bank balance sheet in the previous periods, started to be monitored in the banks account as of the current period. As of 31 December 2021, the relevant amount is 308,849 TL. 1.3.2 Information on foreign banks account Unrestricted Amount Current Period 3,139,792 7,919,998 81,785 2,810 634,338 11,778,723 EU Countries USA and Canada OECD Countries (*) Off-shore Banking Regions Other Total Prior Period 1,176,720 3,842,631 34,493 1,535 613,982 5,669,361 Restricted Amount Current Period - Prior Period - (*) EU countries, OECD countries other than the US and Canada 1.4 Information on financial assets at fair value through other comprehensive income Current period 32,344,629 32,344,629 129,187 105,003 24,184 308,459 32,165,357 Debt Securities Quoted on stock exchange Not quoted on stock exchange Share certificates/Investment Funds Quoted on stock exchange Not quoted on stock exchange Impairment provision (-) Total Prior Period 20,925,430 20,925,430 90,202 75,105 15,097 220,559 20,795,073 1.4.1 Information on financial assets given as collateral or blocked at fair value reflected in other comprehensive income As of the balance sheet date, there are financial assets given TL 11,410,139 (31 December 2020: TL 8,480,912) as collateral whose fair value difference is reflected to other comprehensive income. 1.4.2 Information on financial assets whose fair value difference subject to repo transaction is reflected to other comprehensive income As of the balance sheet date, there are financial assets subject to sale transactions with the promise of repurchase, of which TL 6,495,137 (31 December 2020 – 179,750) is reflected to other comprehensive income. 200 79
203. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5 Explanations on financial assets measured at amortized cost 1.5.1 All types of loans and advances given to shareholders and employees of the Bank: Current period Cash Non-Cash 6,955 21,246 21,228 6,955 18 64,316 2,297 40,564 1,320 111,835 24,863 Direct loans granted to shareholders Corporate shareholders Real person shareholders Indirect loans granted to shareholders Loans granted to employees Total Cash 4,695 4,695 54,992 27,605 87,292 Prior period Non-Cash 6,709 6,677 32 6,632 541 13,882 1.5.2 Information on Standart Loans, Loans Underclose monitoring and restructured Loans Under Close monitoring Current Period - Cash Loans Loans Export Loans Import Loans Corporation Loans Consumer Loans Credit Cards Loans given to financial sector Other Other Receivables Total Prior Period - Cash Loans Loans Export Loans Import Loans Corporation Loans Consumer Loans Credit Cards Loans given to financial sector Other Other Receivables Total Standard Loans 100,546,026 10,658,321 4,064,392 49,306,746 12,780,928 2,352,871 10,112,109 11,270,659 339 100,546,365 Standard Loans 64,035,102 4,967,766 1,971,303 33,645,963 12,498,622 1,226,520 3,423,936 6,300,992 8,295 64,043,397 80 Loans Under Close Monitoring Restructured Loans Not Subject to Revised Refinance Restructuring Contract Terms 4,601,981 3,215,853 167,651 238,568 3,336,152 3,176,331 351,932 17,082 212,270 21,267 295,408 1,173 983 4,602,964 3,215,853 - Loans Under Close Monitoring Restructured Loans Not Subject to Revised Restructuring Contract Refinance Terms 4,323,146 2,615,066 230,900 87,512 3,445,593 2,533,424 292,608 62,118 130,063 19,524 136,470 117,575 9,277 4,440,721 2,624,343 - 201
204. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Information on standart loans and loans under close monitoring and restructured loans under close monitoring regarding provision: Standard Loans 12 Month Expected Credit Losses (*) Significant Increase in Credit Risk Total Current Period 2,289,434 2,289,434 Loans Under Close Monitoring Current Period 3,503,181 3,503,181 Loans Under Close Monitoring Prior Period Prior Period 1,170,568 - 1,743,435 1,170,568 1,743,435 Standard Loans (*) Includes expected credit loss of other financial assets measured at amortized cost amounting TL 621 (31 December 2020: 1,094 TL). 1.5.3 Distribution of cash loans and other receivables according to their maturities Loans Under Close Monitoring Current Period Short Term Loans Medium- and Long-Term Loans Total Standard Loans Not Subject to Restructuring Restructured 35,258,443 65,287,922 100,546,365 1,132,184 3,470,780 4,602,964 92,192 3,123,661 3,215,853 Loans Under Close Monitoring Standard Loans Not Subject to Restructuring Restructured Short Term Loans 16,746,131 1,028,416 59,885 Medium- and Long-Term Loans 47,297,266 3,412,305 2,564,458 Total 64,043,397 4,440,721 2,624,343 Prior Period 202 81
205. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.4 Information on consumer loans, retail credit cards, loans given to personnel and personnel credit cards Current Period Consumer Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Retail Credit Cards-TL With Installment Without Installment Retail Credit Cards-FC With Installment Without Installment Personnel Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Personnel Credit Cards-TL With Installment Without Installment Personnel Credit Cards-FC Installment based Without-installment Overdraft Account-TL (Real Person) Overdraft Account-FC (Real Person) Total Short term 132,770 32,641 42,993 32,401 24,735 936,138 247,995 688,143 2,100 49 724 1,327 24,701 10,286 14,415 1,095,709 Medium and long term 12,927,445 10,534,935 1,845,143 235,966 311,401 48,656 48,265 391 70 70 38,971 3,730 18,725 16,516 21 21 13,015,163 Total 13,060,215 10,567,576 1,888,136 268,367 336,136 48,656 48,265 391 936,208 248,065 688,143 41,071 3,779 19,449 17,843 24,722 10,307 14,415 14,110,872 82 203
206. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Prior Period Consumer Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Retail Credit Cards-TL With Installment Without Installment Retail Credit Cards-FC With Installment Without Installment Personnel Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Personnel Credit Cards-TL With Installment Without Installment Personnel Credit Cards-FC Installment based Without-installment Overdraft Account-TL (Real Person) Overdraft Account-FC (Real Person) Total Short term 74,023 17,783 31,924 21,382 2,934 545,977 120,545 425,432 1,985 466 1,519 13,761 5,696 8,065 635,746 204 83 Medium and long term 12,698,649 10,717,815 1,574,270 215,488 191,076 53,428 26,470 26,958 70 70 25,263 2,401 15,844 7,018 21 21 12,777,431 Total 12,772,672 10,735,598 1,606,194 236,870 194,010 53,428 26,470 26,958 546,047 120,615 425,432 27,248 2,401 16,310 8,537 13,782 5,717 8,065 13,413,177
207. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.5 Information on commercial installment loans and corporate credit cards Current Period Commercial Installment Loans-TL Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Indexed Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Business Loans Vehicle Loans Consumer Loans Other Corporate Credit Cards-TL With Installment Without Installment Corporate Credit Cards-FC With Installment Without Installment Overdraft Account-TL (Legal Entity) Overdraft Account-FC (Legal Entity) Total Short term 994,450 32,149 788,312 173,989 8,187 8,187 3,602 3,602 1,625,478 681,084 944,394 2,631,717 Medium and long term 11,754,294 1,793,796 6,813,277 3,147,221 515,770 17,567 1,028 497,175 1,115,576 267,948 847,628 13,385,640 Prior Period Commercial Installment Loans-TL Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Indexed Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Business Loans Vehicle Loans Consumer Loans Other Corporate Credit Cards-TL With Installment Without Installment Corporate Credit Cards-FC With Installment Without Installment Overdraft Account-TL (Legal Entity) Overdraft Account-FC (Legal Entity) Total Short term 497,383 6,008 405,890 85,485 11,254 11,254 2,194 2,194 816,278 307,667 508,611 1,327,109 Medium and long term 9,234,322 1,995,773 4,705,779 2,532,770 505,184 57,668 11,001 436,515 208,817 95,916 112,901 9,948,323 84 Total 12,748,744 1,825,945 7,601,589 3,321,210 523,957 25,754 1,028 497,175 1,119,178 267,948 851,230 1,625,478 681,084 944,394 16,017,357 Total 9,731,705 2,001,781 5,111,669 2,618,255 516,438 68,922 11,001 436,515 211,011 95,916 115,095 816,278 307,667 508,611 11,275,432 - - 205
208. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.6 Allocation of loans by customers Public Private Total 1.5.7 1.5.8 1.5.9 Current period Prior period 833,335 107,531,847 108,365,182 396,326 70,712,135 71,108,461 Breakdown of domestic and foreign loans Current period Prior period Domestic loans Foreign loans 106,647,336 1,717,846 70,338,950 769,511 Total 108,365,182 71,108,461 Current period Prior period Loans granted directly to subsidiaries and associates Loans granted indirectly to subsidiaries and associates 482,838 - 185,615 - Total 482,838 185,615 Loans granted to subsidiaries and associates Specific provisions for loans or default (Third Stage) provisions Current period 1.5.10 Prior period Loans and receivables with limited collectability Loans and receivables with doubtful collectability Uncollectible loans and receivables 145,257 99,884 2,542,754 467,474 5,172 2,045,229 Total 2,787,895 2,517,875 Information on non-performing loans (Net) 1.5.10.1 Information on Loans and Other Receivables Included in Loans under Follow-Up Account, Which are Restructured or Rescheduled III. Group Loans and Receivables with Limited Collectibility Current Period Gross Amount Before Specific Provisions Restructured Loans and Receivables Prior Period Gross Amount Before Specific Provisions Restructured Loans and Receivables 206 85 IV. Group V. Group Loans and Receivables with Doubtful Uncollectible Loans Collectibility and Receivables - 216 216 616,947 616,947 - 1,577 1,577 262,750 262,750
209. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.10.2 Information on the movement of total non-performing loans Group III Group IV Loans and receivables with Loans and limited receivables with collectability doubtful collectability 514,908 11,192 225,629 174,719 2 534,984 534,984 538,167 17,749 19,649 187,806 163,079 145,257 99,884 42,549 63,195 Current Period Ending balance of prior period 31.12.2020 Additions in the current period (+) Transfers from other categories of non-performing loans (+) Transfers to other categories of non-performing loans (-) Collections in the current period (-) Write offs (-)(**) Sold Porfolio (-) Corporate and commercial loans Retail loans Credit Cards Other Ending balance of the current period Specific provisions (-) Net balances on balance sheet Group III Loans and receivables with limited collectability 250,407 506,595 197,197 44,897 514,908 467,474 47,434 Prior Period Ending balance of prior period 31.12.2019 Additions in the current period (+) Transfers from other categories of non-performing loans (+) Transfers to other categories of non-performing loans (-) Collections in the current period (-) Write offs (-) Sold Porfolio (-)(*) Corporate and commercial loans Retail loans Credit Cards Other Ending balance of the current period Specific provisions (-) Net balance at the balance sheet Group IV Loans and receivables with doubtful collectability 318,133 10,412 197,258 471,975 42,636 11,192 5,172 6,020 Group V Uncollectible loans and receivables 2,408,491 949,711 538,167 2 774,057 397,786 2,724,524 2,542,754 181,770 Group V Uncollectible loans and receivables 1,475,134 1,086,141 471,969 55 263,889 250,456 110,353 110,353 2,408,491 2,045,229 363,262 (*) The Bank sold its risk amounting to TL 110,353, which was provided 100% provision from its non-performing loans, to the asset management company for TL 28,800. (**) With the decision of the top management of the Bank, it has been decided to include the project/loan of the customers in the cancellation accounts. The effect of these transactions on the NPL ratio is 31 basis points. 86 207
210. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.10.3 Information on non-performing loans granted as foreign currency Current Period Ending balance of the current period Provision amount (-) Net balance at the balance sheet Prior Period Ending balance of the current period Provision amount (-) Net balance at the balance sheet Group III Group IV Group V 4,079 2,701 1,378 75,537 42,827 32,710 481,745 444,417 37,328 496,897 452,358 44,539 1 1 312,782 253,025 59,757 1.5.10.4 Gross and net amounts of non-performing loans with respect to user groups Group III Loans and receivables with limited collectability Group IV Loans and receivables with doubtful collectability Group V Uncollectible loans and receivables Current period (Net) Loans granted to real persons and legal entities (Gross) Specific provision (-) Loans to real persons and legal entities (Net) Banks (Gross) Specific provision (-) Banks (Net) Other loans and receivables (Gross) Specific provision (-) Other loans and receivables (Net) 42,549 187,806 145,257 42,549 - 63,195 163,079 99,884 63,195 - 181,770 2,724,524 2,542,754 181,770 - Prior period (Net) Loans to real persons and legal entities (Gross) Specific provision (-) Loans to real persons and legal entities (Net) Banks (Gross) Specific provision (-) Banks (Net) Other loans and receivables (Gross) Specific provision (-) Other loans and receivables (Net) 47,434 514,908 467,474 47,434 - 6,020 11,192 5,172 6,020 - 363,262 2,408,491 2,045,229 363,262 - The Bank has collaterals such as cash, mortgages, pledges, and checks of customer issued for non-performing loans. 208 87
211. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.10.5. Aging analysis of past due but not impaired financial assets per classes of financial instruments is as follows I. Current Period Less than 30 days 31-60 days More than 61 days Total 6,547,648 240,182 201,862 6,989,692 283,769 85,012 13,673 382,454 384,863 43,806 18,002 446,671 7,216,280 369,000 233,537 7,818,817 31-60 days More than 61 days Total 123,369 36,192 7,255 166,816 703,172 58,781 13,699 775,652 6,560,764 354,713 149,587 7,065,064 Loans and receivables Corporate loans Retail loans Credit cards Total Prior Period Less than 30 days Loans and receivables Corporate loans Retail loans Credit cards Total 5,734,223 259,740 128,633 6,122,596 1.5.10.6 Information on profit share accruals, rediscounts and valuation differences computed for non-performing loans and their provision Current Period (Net) Profit share accruals, rediscount and valuation differences Provision (-) III. Group Loans with Limited Collectibility 5,926 42,160 36,234 IV. Group Loans with Doubtful Collectibility 5,709 15,327 9,618 Prior Period (Net) Profit share accruals, rediscount and valuation differences Provision (-) III. Grup Loans with Limited Collectibility 371 4,485 4,114 IV. Grup Loans with Doubtful Collectibility 460 865 405 V. Group Uncollectible Loans 19,648 377,087 357,439 V. Grup Uncollectible Loans 51,485 319,370 267,885 1.5.10.7. Main guidelines for liquidation process of uncollectible loans and other receivables Loans and other receivables, which were deemed uncollectible according to the “Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans” published in the Official Gazette No. 26333 dated 1 November 2006 and for which a full impairment provision has been made, are written off as per the decision of the Bank top management. Within 2020, non-performing loans amounting to TL 397,786 have been written-off (31 December 2020 – TL 250,456). 1.5.11 Information on the write-off policy The Bank‘s write off policy is to write-off the loan receivables that have been already transferred to legal follow-up and fully provided for and for which there is no possibility of collection through legal process and for which there is no collateral. Such loans are written off as per the decision of top management. 88 209
212. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.6 Information on other financial assets measured at amortised cost 1.6.1 Information on other financial assets measured at amortized cost Current Period 4,798,614 4,798,614 621 4,797,993 Debt Securities Quoted on a Stock Exchange Not Quoted Expected Loss Provision (-) Total Prior Period 5,931,297 5,931,297 1,094 5,930,203 1.6.2 Movements of other financial assets measured at amortized cost during the year Current Period 5,931,297 1,958,263 548,922 3,639,868 621 4,797,993 Opening Balance Foreign Exchange Gain/Loss Purchases During the Year Disposals Through Sales and Redemptions Expected Loss Provision (-) Total 1.7 Prior Period 2,630,914 1,353,136 1,947,247 1,094 5,930,203 Information on investment in associates (Net) 1.7.1 The 1.49% ownership of the shares of Kredi Garanti Fonu A.Ş. amounting to TL 7,659 (31 December 2020 – TL 7,659), 1.15% ownership of the shares of Islamic International Rating Agency amounting to TL 277 (31 December 2020 – TL 33), and, Swift shares amounting to TL 3,567 (31 December 2020 – TL 390) and 0.0035% ownership of the shares traded in Borsa İstanbul A.Ş amounting to TL 15 (31 December 2020 – TL 15) and %2.86 ownership of the shares of JCR Avrasya Derecelendirme A.Ş amounting to TL 2,755 (31 December 2020 – 2,755 ), VISA INC. shares amounting to TL 12,555 (December 31, 2020 – TL 7,008) are classified as financial assets at fair value through other comprehensive income since the Bank’s ownership in these entities is less than 10% and the Parent Bank does not have a significant influence on these entities. 1.7.2 Information about investments in unconsolidated associates: None (31 December 2020 – None). 1.7.3 Information related to consolidated associates: None (31 December 2020 – None). 1.8 Information on subsidiaries (Net) 1.8.1 Although the Bank has control power over the management and capital of its non-financial subsidiaries, Körfez Tatil Beldesi Turistik Tesisler ve Devremülk İşletmeciliği San. Ve Tic. A.Ş and Architecht Bilişim Sistemleri ve Pazarlama Tic A.Ş does not confirm to the definition of financial subsidiary in accordance with “Regulation related to the Preparation of Consolidated Financial Statements by Banks” published in the Official Gazette No. 26340 dated 8 November 2006; hence this subsidiary has not been consolidated. 89 210
213. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.8.2 Information on subsidiaries Title 1 2 3 4 5 6 8 9 Address (City/Country) Körfez Tatil Beldesi Turistik Tesisler ve Devremülk İşletmeciliği San.ve Tic. A.Ş. Körfez Gayrimenkul Yatırım Ortaklığı A.Ş. KT Sukuk Varlık Kiralama A.Ş. KT Kira Sertifikaları Varlık Kiralama A.Ş. KT Bank AG (*) Architecht Bilişim Sistemleri ve Pazarlama Tic A.Ş KT Portföy Yönetimi A.Ş. Neova Katılım Sigorta A.Ş. Bank’s share percentage, if different-voting percentage (%) Bank’s risk group share percentage (%) İstanbul/Türkiye 99.99 99.99 İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye Frankfurt/Almanya İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye 75.00 100.00 100.00 100.00 100.00 100.00 100.00 78.15 100.00 100.00 100.00 100.00 100.00 100.00 (*) As of 31 December 2021, financial figures for this entity in the table above are based on the financial information prepared in accordance wit the local regulations of the country in which this entity operates. 1.8.2 Information on subsidiaries Information on subsidiaries in the order presented in the above table 1 2(*) 3 4 5 6 8 9 (*) Total Assets 59,726 171,336 684 4,591,921 12,972,775 103,497 39,503 4,300,166 Equity 52,565 127,668 673 359 1,638,867 89,998 31,386 816,508 Total Fixed assets 5,955 53,524 174,201 12,347 4,957 30,980 Profit Share Income 167 - Income from marketable securities 4,164 - Current period Prior period profit/loss profit /loss 8,642 13,859 7,629 4,229 24 11 49 17 16,990 7 37,153 32,887 10,285 10,169 234,369 166,389 Fair Value - Körfez Gayrimenkul Yatırım Ortaklığı A.Ş the amounts in the table for the are taken from the financial statements of September 30, 2021. Movement regarding the subsidiaries Current Period 1,461,015 1,461,015 - Balance at the beginning of the year Movements during the year Purchases (*) Transfers from subsidiaries (net) Bonus shares Dividends from current year income Sales Revaluation increase Impairment Capital commitment payments Balance at the end of the year Capital commitments Share percentage at the end of the year (%) (*) Prior Period 544,853 916,162 916,162 1,461,015 - The capital of KT Bank AG, which is a subsidiary of the Bank, from 115,000,000 EUR (full amount) was increased by 25,000,000 EUR (full amount) to 140,000,000 EUR (full amount) on 22 January 2020. The Bank has obtained the necessary legal permissions as of 5 May 2020, Neova Katılım Sigorta A.Ş. completed the share transfer transactions and concluded the purchase. Neova Katılım Sigorta A.Ş., which has purchased 78,864,212 shares by paying 745,860 TL with the purchase transaction, and 7% before sales increased its partnership share to 100% by owning all the shares. 90 211
214. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Sectoral information on consolidated subsidiaries and the related carrying amounts Banks Insurance Companies Factoring Companies Leasing Companies Finance Companies Other Financial Subsidiaries Total Current Period 610,120 751,796 75,419 1,437,335 Prior Period 610,120 751,796 75,419 1,437,335 Current Period 53,418 53,418 Prior Period 53,418 53,418 Subsidiaries that are quoted on the stock exchange Quoted in Domestic Stock Exchange Quoted in Foreign Stock Exchange Total 1.8.3 Information on capital adequacies of major subsidiaries The shareholder's equity of KT Bank AG, the bank's subsidiary in Germany, calculated as of December 31, 2021 is EUR 110,197,621 and the capital adequacy ratio is %21.6. 1.9 Information on joint ventures (business partnerships) (Net) Katılım Emeklilik ve Hayat A.Ş. (*) (*) Bank’s share percentage Total assets 50% 6,127,196 Information on finance lease receivables (Net) 1.10.1 Presentation of remaining maturities of net finance leases Less than 1 year 1 to 4 years More than 4 years Total Gross 4,988,502 7,038,160 1,125,719 13,152,381 Prior period profit /loss 173,160 33,805 55,894 41,860 Current Period Net 4,126,747 6,705,970 1,093,218 11,925,935 Gross 2,249,517 2,829,259 622,145 5,700,921 Prior Period Net 1,783,178 2,631,776 596,042 5,010,996 Net investments in finance leases Current Period 13,152,380 1,226,445 11,925,935 Gross receivable from finance leases Unearned finance lease income (-) Unearned finance lease income (-) Net receivable from finance leases 212 Current period profit/loss In accordance with decision of the Bank’s Board of Directors on 25 April 2013, Kuveyt Türk Katılım Bankası A.Ş. and Albaraka Türk Katılım Bankası A.Ş. decided to establish the Pension Company in line with main shares. Bank decided to establish that pension company with the equal share amounts with Albaraka Türk Katılım Bankası A.Ş, and that pension company is registered with the trade name “Katılım Emeklilik ve Hayat Anonim Şirketi”, 895027 registry numbered dated 17 December 2013 by İstanbul Ticaret Sicil Müdürlüğü. 1.10 1.10.2 Equity Total fixed assets 91 Prior Period 5,700,921 689,925 5,010,996
215. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.10.3 Information on finance lease contracts The Bank determines the settlements of the financial lease agreements in accordance with related legislations. Payment terms and amounts may be rearranged with additional agreements upon customers’ requests. On the agreements, the Bank gives the customer the option to buy the related property. According to the Financial Lease Law, if a customer does not fulfill its obligations until 60 days, the Bank sends a notice to the customer and the Bank takes legal action against the customer if necessary. Non-performing finance lease receivables amounting to TL 45,706 are included in the non-performing loans in the balance sheet (31 December 2020 – TL 52,668). 1.11 Information on derivative financial assets for hedging purposes None (31 December 2020- None) 1.12 Explanations on Tangible Assets Current Period Cost Opening balance, 1 January 2021 Additions Disposals Transfers Impairment / cancellation Ending balance, 31 December 2021 Accumulated Depreciation (-) Opening balance, 1 January 2021 Amortisation cost Disposals Transfers Ending balance, 31 December 2021 Cost at the end of period Accumulated depreciation at the end of period (-) Closing net book value Prior Period Cost Opening balance, 1 January 2020 Additions Disposals Transfers Impairment / cancellation Ending balance, 31 December 2020 Accumulated Depreciation (-) Opening balance, 1 January 2020 Amortisation cost Disposals Transfers Ending balance, 31 December 2020 Cost at the end of period Accumulated depreciation at the end of period (-) Closing net book value Buildings Leased Tangible Assets Vehicles Other Tangible Assets Total 483,384 6,931 (6) 4,756 495,065 639,458 139,841 (82,490) (4,756) 692,053 103,732 55,446 (915) 158,263 553,547 106,314 (149,839) (17) 510,005 1,780,121 308,532 (233,250) (17) 1,855,386 37,825 7,947 (5) 2 45,769 255,801 129,469 (70,917) (2) 314,351 27,796 28,777 (704) 55,869 295,894 69,432 (148,511) (16) 216,799 617,316 235,625 (220,137) (16) 632,788 495,065 45,769 449,296 692,053 314,351 377,702 158,263 55,869 102,394 510,005 216,799 293,206 1,855,386 632,788 1,222,598 Buildings Leased Tangible Assets Vehicles Other Tangible Assets Total 481,027 2,520 (159) (4) 483,384 503,283 155,320 (49,532) (3) 30,390 639,458 55,883 48,042 (193) 103,732 440,394 118,716 (5,570) 7 553,547 1,480,587 324,598 (55,454) 30,390 1,780,121 30,003 7,981 (159) 37,825 159,945 123,820 (27,961) (3) 255,801 10,894 17,156 (254) 27,796 244,793 55,773 (4,674) 3 295,895 445,635 204,730 (33,048) 617,317 483,384 37,825 445,559 639,458 255,801 383,657 103,732 27,796 75,936 553,547 295,895 257,652 1,780,121 617,317 1,162,804 213 92
216. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.13. Explanations on Intangible Assets 1.13.1. Gross carrying value and accumulated amortization balances at the beginning and at the end of the period Current Period 398,654 (150,467) 248,187 Cost Accumulated Amortization Total (net) 1.13.2. Prior Period 297,964 (107,432) 190,532 Movements of intangible assets between the beginning and the end of the period Current Period 190,532 157,980 44,988 55,337 248,187 Opening balance Additions Disposals (-), net Depreciation amount (-) Closing net book value Prior Period 133,980 110,882 18,380 35,950 190,532 Intangible assets include computer software and program licenses which are purchased for banking systems. 1.14. Explanations on investment property Current Period 24,987 24,987 - Opening balance Additions Disposals (-), Net Depreciation amount (-) Closing net book value 1.15 Prior Period 25,146 159 24,987 Information on deferred tax asset As of 31 December 2021, deferred tax is offset as TL 1,713,575 in the balance sheet. In accordance with the related regulations deferred tax asset calculated is TL 2,086,505 (31 December 2020 – TL 835,083) and deferred tax liability is TL 372,930 (31 December 2020 – TL 86,747 TL). Employee Benefits Liability Retirement Pay Liability Deferred Income Impairment Provision for Subsidiaries, Fixed Assets and Assets Held for Sale Rediscounts for Derivative Instruments Held for Trading TFRS 9 Provisions Precious Metals Valuation Difference Securities Valuation Difference Other Deferred tax asset Derivative Transactions Valuation Differences Tangible assets valuation differences Financial assets valuation differences Precious metal valuation difference Other Deferred Tax Liability Net Deferred Tax Asset 93 214 Current period 76,744 44,555 99,898 79 2,375 781,020 1,034,507 26,545 20,782 2,086,505 (298,868) (16,535) (54,452) (1,877) (1,198) (372,930) Prior period 47,419 36,349 70,882 1,281 243,384 427,891 812 7,065 835,083 (12,724) (46,763) (23,908) (3,352) (86,747) 1,713,575 748,336
217. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Table of deferred tax asset movement As of January, 1 Deferred Tax (Expense) / Income Deffered Tas Accounted Under Other Comprehensive Income Deferred tax asset Current period 748,336 954,783 10,456 Prior period 358,097 329,404 60,835 1,713,575 748,336 Current Period Prior Period 1.16. Assets held for sale and assets of discontinued operations Opening Balance Additions Transfer from Tangible Assets Disposals (-), Net Transfer to Tangible Assets Depreciation Amount (-) Impairment Losses Provision (-) Closing net book value 1.17 519,087 61,085 339,281 240,891 473,326 172,426 126,665 519,087 Information on other assets As of balance sheet date, the Bank’s other assets amount to TL 3,607,760 (31 December 2020 – TL 9,057,981). Other assets balance does not exceed 10% of the total assets on the balance sheet excluding off balance sheet commitments. 94 215
218. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION FIVE 2. Explanations and notes related to liabilities 2.1 Information on funds collected 2.1.1 Information on maturity structure of funds collected Current period I. Real persons current accounts-TL II. Real persons profit sharing accounts TL III. Other current accounts-TL Public sector Commercial sector Other institutions Commercial and other institutions Banks and participation banks Central Bank of Republic of Turkey Domestic banks Foreign banks Participation banks Others IV. Profit sharing accounts-TL Public sector Commercial sector Other institutions Commercial and other institutions Banks and participation banks V. Real persons current accounts-FC VI. Real persons profit sharing accounts-FC VII. Other current accounts-FC Commercial residents in Turkey Commercial residents in Abroad Banks and participation banks Central Bank of Republic of Turkey Domestic banks Foreign banks Participation banks Others VIII. Profit sharing accounts- FC Public sector Commercial sector Other institutions Commercial and other institutions Banks and participation banks IX. Precious metal funds X. Profit sharing accounts special funds - TL Residents in Turkey Residents Abroad XI. Profit sharing accounts special funds - FC Residents in Turkey Residents Abroad Total Demand Up to 1 Month 20,546,940 8,136,092 266,234 7,737,101 80,279 52,478 52,114 364 44,673,374 18,373,687 16,884,411 1,182,519 306,757 304,614 2,143 10,745,047 755,578 213 635,337 119,807 221 14,006,544 1,398,089 54 1,295,745 46,632 55,658 36,383,140 7,765,461 128,113,233 34,670,719 Up to 3 Months Up to 9 months 1 year and over Accumulated profit sharing accounts Total - 784,511 130,431 129,951 452 28 2,781,541 73,564 73,564 15,572 - 19,753 7 7 12,095 - 20,546,940 25,920,498 8,136,092 266,234 7,737,101 80,279 52,478 52,114 364 2,692,152 26,925 2,304,456 360,381 367 23 44,673,374 38,343,629 18,373,687 16,884,411 1,182,519 306,757 304,614 2,143 4,247,724 54 3,724,963 183,931 338,776 49,171,293 - - 4,387,360 3,785,619 31,855 212,105,389 762,988 41,733 746 15,144 25,843 1,718,669 100,178 99,152 1,006 20 667,511 - - 37,825,524 3,291,079 95 Up to 1 year 731,611 - 621,325 - 24,979 - 581,235 - 14,993 118 2,540,789 73,866 73,526 340 419,769 - 12,876,588 1,143,078 987 942,782 199,286 23 17,283,991 2,602,027 2,182,976 135,953 283,098 3,919,840 - There are no 7 days notification accounts of the Bank. 216 Up to 6 months
219. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Prior period I. Real persons current accounts-TL Demand Up to 1 month Up to 3 Months Up to 6 months Up to 9 months Up to 1 year Accumulated profit sharing accounts 1 year and over Total 9,214,591 - - - - - - - 9,214,591 - 6,461,888 8,497,859 508,942 - 729,392 956,849 22,604 17,177,534 5,050,036 - - - - - - - 5,050,036 194,879 - - - - - - - 194,879 4,803,662 - - - - - - - 4,803,662 39,576 - - - - - - - 39,576 - - - - - - - - - 11,919 - - - - - - - 11,919 Central Bank of Republic of Turkey - - - - - - - - - Domestic banks - - - - - - - - - 11,616 - - - - - - - 11,616 303 - - - - - - - 303 - - - - - - - - - IV. Profit sharing accounts-TL - 602,957 989,697 42,390 - 312,745 109,333 2 2,057,124 Public sector - 322 602 645 - 11,465 - - 13,034 Commercial sector - 530,069 841,232 33,935 - 287,086 108,842 2 1,801,166 Other institutions - 72,504 147,843 7,810 - 14,186 491 - 242,834 Commercial and other institutions - 62 - - - 8 - - 70 Banks and participation banks - - 20 - - - - - 20 20,647,968 - - - - - - - 20,647,968 II. Real persons profit sharing accounts-TL III. Other current accounts-TL Public sector Commercial sector Other institutions Commercial and other institutions Banks and participation banks Foreign banks Participation banks Others V. Real persons current accounts-FC VI. Real persons profit sharing accounts-FC - 6,978,028 8,755,512 1,054,169 - 1,357,875 1,495,235 4,205 19,645,024 VII. Other current accounts-FC 9,273,571 - - - - - - - 9,273,571 Commercial residents in Turkey 8,823,743 - - - - - - - 8,823,743 Commercial residents in Abroad 292,016 - - - - - - - 292,016 Banks and participation banks 157,812 - - - - - - - 157,812 Central Bank of Republic of Turkey - - - - - - - - - Domestic banks - - - - - - - - - 153,153 - - - - - - - 153,153 4,659 - - - - - - - 4,659 - - - - - - - - - VIII. Profit sharing accounts- FC - 745,772 1,636,672 35,901 - 31,455 58,728 - 2,508,528 Public sector - 3 - - - - - - 3 Commercial sector - 670,072 1,404,349 34,838 - 30,766 58,728 - 2,198,753 Other institutions - 32,466 72,144 1,051 - 191 - - 105,852 Commercial and other institutions - 43,231 160,179 12 - 498 - - 203,920 Banks and participation banks - - - - - - - - - 28,025,054 5,342,933 2,559,094 379,540 - 281,184 10,713 90 36,598,608 X. Profit sharing accounts special funds - TL - - - - - - - - - Residents in Turkey - - - - - - - - - Residents Abroad - - - - - - - - - XI. Profit sharing accounts special funds - FC - - - - - - - - - Residents in Turkey - - - - - - - - - Residents Abroad - - - - - - - - - 20,131,578 22,438,834 2,020,942 - 2,712,651 2,630,858 Foreign banks Participation banks Others IX. Precious metal funds Total 72,211,220 26,901 122,172,984 There are no 7 day notification accounts of the Bank. 96 217
220. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.1.2 Information’s on current and profit share accounts that are in the scope of Saving Deposit/Saving Deposit Insurance Fund 2.1.2.1 Current and Participation Accounts Attributable to Real Entities/Persons under the Guarantee of Saving Deposit Insurance Fund Exceeding the Limit of the Deposit Insurance Fund Under the guarantee of saving deposit insurance Current period Real persons current and profit-sharing accounts that are not subject to commercial activities TL accounts FC accounts Foreign branches’ deposits under foreign authorities’ insurance Off-shore banking regions’ under foreign authorities’ insurance Exceeding the limit of saving Deposit Prior period Current period Prior period 24,964,865 39,675,693 15,907,330 33,522,314 21,500,880 86,313,956 10,483,445 40,073,387 - - - - - - - - Funds collected by Participation Banks (except for foreign branches) through current and profit share accounts which are opened by real persons and denominated in Turkish Lira or foreign currency with a limit of maximum of TL 150,000 (including both capital and profit shares) for each person is under the guarantee of Saving Deposit Insurance Fund in accordance with the Banking Law No. 5411 which issued in official gazette no. 25893 on 1 November 2005. 2.1.2.2 If the headquarters of the Bank is abroad and the deposit account in its Turkish branch is in the scope of the insurance policy in the country of the headquarter of the Bank is founded, it should be explained: The headquarters of the Bank is in Turkey. 2.1.2.3 Current and Profit Share Accounts of the real persons who are not in the scope of Saving Deposits Insurance Fund: The Bank has no current or profit sharing accounts which are not under the guarantee of the Saving Deposit Insurance Fund except for the current and profit sharing accounts of shareholders, member of Board of Directors, CEO, the Vice Presidents and their first degree relatives. Foreign branches’ profit sharing accounts and other accounts Profit sharing accounts and other accounts of controlling shareholders and profit sharing accounts of their mother, father, spouse, children in care Profit sharing account and other accounts of President and Members of Board of Directors, CEO and Vice Presidents and profit sharing accounts of their mother, father, spouse and children in care Profit sharing account and other accounts in scope of the property holdings derived from crime defined in article 282 of Turkish Criminal Law No:5237 dated 26 September 2004 Profit sharing accounts in participation banks which are established in Turkey in order to engage in off-shore banking activities solely 97 218 Current Period Prior Period - - - - 12,955 11,651 - - - -
221. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.2 Information on derivative financial liabilities held for trading Derivative financial liabilities held for trading Forward transactions Swap transactions Futures transactions Options Other Total 2.3 Information on funds borrowed 2.3.1 Information on banks and other financial institutions Loans from The Central Bank of the Republic of Turkey From Domestic Banks and Institutions From Foreign Banks, Institutions and Funds Total 2.3.2 TL 23,081 1,367,405 1,390,486 Prior Period FC 2,927 283,393 286,320 Current Period TL FC 4,785,462 132,958 10,000 3,393,554 4,795,462 3,526,512 TL 2,823,017 45,929 2,868,946 Prior Period FC 3,773,050 4,946,896 8,719,946 Current Period FC 1,493,156 2,033,356 3,526,512 TL 2,868,946 2,868,946 Prior Period FC 7,605,732 1,114,214 8,719,946 Information on maturity structure of borrowings TL 4,741,450 54,012 4,795,462 Short-term Medium and Long-Term Total 2.3.3 Current Period FC 2,718 62,297 65,015 TL 130,125 62,773 192,898 Explanations related to the concentrations of the Bank’s major liabilities All of the borrowings consist of foreign currency loans and there is no risk concentration of the Bank’s current and profit sharing accounts. 2.4 Information on other liabilities and miscellaneous payables As of 31 December 2021, other liabilities amount to TL 1,672,968 (31 December 2020 – TL 1,034,437), sundry creditors amount to TL 2,703,783 (31 December 2020 - TL 783,731), both of them do not exceed 10% of the balance sheet total. 2.5 Information on finance lease payables (Net) Less than 1 year 1 to 4 years More than 4 years Total Current Period Gross Net 16,612 15,818 53,739 44,592 451,837 291,965 522,188 352,375 Prior Period Gross Net 147,042 134,673 253,354 163,081 127,183 46,271 527,579 344,025 The Bank used FTP (Fund Transfer Pricing) rates as an alternative borrowing rate of profit at 1 January 2019. Relevant ratios are revised and revised in 2-week periods after 1 January 2019. The change in Participation Bank payments uses an unmodified discount rate unless the variable profit share rate is related. If the change in the lease payments results from variable profit share rates (LIBOR, EURIBOR), the lessee will use a revised discount rate reflecting changes in the profit share rate. 98 219
222. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.5.1. Information on the changes in agreements and new obligations originating from these changes None (31 December 2020 – None) 2.5.1.1 Information on Financial Lease Obligations None (31 December 2020 – None) 2.5.1.2 Information on Operational Leases The leasing transactions, in which all risks and benefits of the leased asset are held by the lessor, are classified as operational leases. Such transactions consist of rent contracts of branches which may be cancelled by declaration. There are no significant commitments regarding the changes at the operational lease agreements. The payments related with operational leases are recognized as expense in the income statement during the period of the agreement in equal installments. 2.6 Information on hedging derivative financial liabilities None (31 December 2020 – None) 2.7 Information on provisions 2.7.1 Information on provisions related with foreign currency evaluation difference of foreign currency indexed loans: As of 31 December 2021, effect of decrease in exchange rates on foreign currency indexed loans amounting to TL 50 (31 December 2020 – TL 3) and TL 7 for leasing receivables (31 December 2020 – TL 87) is offset against loans and receivables account. 2.7.2 Information on other provisions Non-Cash loans that are not converted into cash Special Provisions for non-cash loans General Provisions for non-cash loans Provision for Profits will be Allocated to Partipation Accounts Other (*) Total (*) 220 Current Period Prior Period 522,425 486,379 678,145 957 182,165 1,870,071 440,411 165,538 447,552 3,237 95,221 1,151,959 The other part of the main period amounting to TL 101,360 (December 31, 2020 - TL 35,525) is TL 9,365 (31 December 2020 - TL 100) for the expense of TL 63,404 (31 December 2020 - TL 56,211) is the amount for impairment loss. Provision for collected delay penalties 8,006 (December 31, 2020 – TL 3,385) which may be refunded is the amount related to other provision. 99
223. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.7.3 Information on provisions for employee benefits: Provisions for employee benefits consist of reserve for employee termination benefits amounting to TL 221,639 (31 December 2020 – TL 181,746), vacation pay liability amounting to TL 1,196 (31 December 2020 – TL 764), performance premium amounting to TL 201,534 (31 December 2020 – TL 135,803), retirement bonuses on payment of TL 130,241 (31 December 2020 – TL 86,659), committee fee amounting to TL17,256 (31 December 2020 – 13,627 TL ) and other fees amounting to TL 438 (31 December 2020 – TL 243). Under the Turkish Labor Law, the Bank is required to pay termination benefits to each employee who has completed at least one year of service and whose employment is terminated without due cause, is called up for military service, dies or retires or earns the right to retire. The amount payable consists of one month’s salary limited to a maximum of TL 8,284.51 (full TL amount) (31 December 2020 – TL 6,730,15 (full TL amount)) for each year of service. The liability is not funded, as there is no funding requirement. The reserve has been calculated by estimating the present value of the future probable obligation of the Bank arising from the retirement of its employees. TAS 19 requires actuarial valuation methods to be developed to estimate the enterprise’s obligation for such benefits. Accordingly, the following actuarial assumptions were used in the calculation of the total liability. Current Period 19.10 15.80 Discount rate (%) Interest rate (%) Prior Period 12.10 8.00 Movements in the reserve for employment termination benefits during period are as follows Current Period 181,746 49,512 (10,687)) 1,068 221,639 Balance at the beginning of the period Provisions recognized during the period Paid during the period Actuarial loss Balances at the end of the period 2.8 Explanations on tax liability 2.8.1 Explanations on current tax liability 2.8.1.1 Information on tax provisions: TL 1,158,997 (31 December 2020 TL 348,052) 100 Prior Period 115,461 30,769 (4,704) 40,220 181,746 221
224. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.8.1.2 Information on taxes payable Taxation of marketable securities Taxation of immovable property Banking Insurance Transaction Tax (BITT) Foreign Exchange Transaction Tax Value Added Tax Payable Income tax deducted from wages Other Total 2.8.1.3 Current Period 30,189 2,347 54,819 103,722 9,482 17,938 2,078 220,575 Prior Period 26,382 969 30,458 23,676 2,792 15,010 1,679 100,966 Current Period 10,527 11,333 751 1,628 24,239 Prior Period 8,626 9,270 617 1,484 19,997 Information on premiums (*) Social Insurance Premiums-Employee Social Insurance Premiums-Employer Unemployment insurance-Employee Unemployment insurance-Employer Total (*) Included in sundry creditors line item on the balance sheet. 2.8.1.4. Information on deferred tax liability None (31 December 2020 - None). 2.9. Information on payables related to assets held for sale: None (31 December 2020 – None). 2.10 Information on subordinated loans: Current Period From Domestic Banks From Other Domestic Institutions From Foreign Banks From Other Foreign Institutions Total 2.11 Information on shareholders’ equity 2.11.1 Presentation of paid-in capital Prior Period TL - FC 8,100,496 TL - FC 4,590,265 - 8,100,496 - 4,590,265 Current Period 4,600,000 (4,869) 4,595,131 Common shares Preferrence shares Repurchased shares amount (*) Total Prior Period 4,600,000 (4,869) 4,595,131 (*) It represents the Bank’s acquisition of its own shares as a result of the Bank’s shareholders not using their right of preference according to the commitment made in the capital increase in the Bank. 222 101
225. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.11.2 Amount of Paid-in Capital, Disclosure on whether the Bank Applies the Registered Share Capital System, and, if so, the Ceiling Amount of the Registered Share Capital Registered capital system is not applied in the Bank. 2.11.3 Information on the share capital increases during the period and their sources; other information on increased capital shares in the current period None (31 December 2020 – None). 2.11.4 Information on share capital increases from capital reserves during the current period 2.11.5 Possible effect of estimations made for the Bank’s revenues, profitability and liquidity on equity considering prior period indicators and uncertainties Based on the evaluation made considering the Bank’s prior and current period indicators related to net profit share and commission income, it is observed that the Bank continues its operations profitably. 2.11.6 Summary of privileges given to shares representing the capital: None. (31 December 2020 - None) 2.11.7 Information on marketable securities value increase fund: Current Period TL FC From Associates, Subsidiaries and Entities Under Common Control (Joint Vent.) Valuation Difference (*) Foreign Exchange Difference Total 57,132 57,132 (65,917) (65,917) Prior Period TL FC (81,130) (81,130) 94,206 94,206 (*) Valuation difference is calculated taking the tax effect of the rent certifications in the account, which are classified as “Government Debt Securities” and “Other Marketable Securities” under financial assets at fair value through other comprehensive income in the balance sheet. 2.12 Information on minority shares None (31 December 2020 – None). 102 223
226. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 3. Explanations and notes related to off-balance sheet contingencies and commitments 3.1. Explanations on off-balance sheet accounts: 3.1.1 Types and amounts of irrevocable commitments: Commitment for credit card limits, as of 31 December 2021 amounts to TL 5,278,441 (31 December 2020 – TL 3,503,366); payment commitments for cheque books amounts to TL 1,750,116 (31 December 2020 – TL 1,372,786). 3.1.2 Types and amounts of probable losses and obligations arising from off-balance sheet items including below items 3.1.2.1 Non-cash loans including guarantees, bank acceptances, collaterals and others that are accepted as financial commitments and other letter of credits As of 31 December 2021, the Bank has guarantees and surety ships constituting of TL 11,846,585 (31 December 2020 – TL 9,590,794) of letters of guarantee; TL 113,683 (31 December 2020 – TL 40,996) of acceptances and TL 4,521,120 (31 December 2020 – TL 1,685,022) of letters of credit. Also, banks has other acceptances amounting to TL 912,257 (31 December 2020 – TL 546,682). 3.1.2.2 Revocable, irrevocable guarantees and other similar commitments and contingencies: There are no other than those explained in 2.i 3.1.3 Total amount of non-cash loans Current period 74,766 74,766 17,318,879 17,393,645 Non-cash loans given against cash loans With original maturity of 1 year or less With original maturity of more than 1 year Other non-cash loans Total 224 103 Prior period 33,229 33,229 11,830,265 11,863,494
227. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 3.1.4. Sectorial risk concentration of non-cash loans Current Period Agriculture Farming and stockbreeding Forestry Fishery Manufacturing Mining and quarrying Production Electricity, Gas, Water Construction Services Wholesale and Retail Trade Hotel, Food and Beverage Services Transportation and Telecom. Financial Institutions Real Estate and Renting Services Self-Employment Type Services Educational Services Health and Social Services Other Total TP 133,738 37,343 95,089 1,306 1,832,447 493,168 1,093,192 246,087 3,568,096 2,813,633 1,710,046 93,430 481,137 18,929 71,475 232 25,953 412,431 % 1.50 0.42 1.07 0.01 20.53 5.53 12.25 2.76 39.98 31.52 19.16 1.05 5.39 0.21 0.80 0.00 0.29 4.62 YP 70,364 53,692 16,672 3,094,034 638,387 2,333,739 121,908 1,089,374 3,116,270 2,014,153 31,128 503,573 344,148 8,078 1,327 213,863 % 0.83 0.63 0.20 36.54 7.54 27.56 1.44 12.86 36.80 23.79 0.37 5.95 4.06 0.10 0.02 2.53 577,899 6.47 1,097,790 12.96 8,925,813 100.00 8,467,832 100.00 Prior Period TP % YP % Agriculture Farming and stockbreeding Forestry Fishery Manufacturing Mining and quarrying Production Electricity, Gas, Water Construction Services Wholesale and Retail Trade Hotel, Food and Beverage Services Transportation and Telecom. Financial Institutions Real Estate and Renting Services Self-Employment Type Services Educational Services Health and Social Services Other 75,932 38,954 36,978 1,426,416 338,206 774,486 313,724 3,036,920 2,346,149 1,314,073 103,682 475,975 18,502 52,713 272 19,695 361,237 1.02 0.52 0.50 19.10 4.53 10.37 4.20 40.65 31.41 17.59 1.39 6.37 0.25 0.71 0.00 0.26 4.84 29,596 21,670 7,926 1,467,734 421,851 1,006,187 39,696 603,648 1,466,554 729,169 22,615 363,945 226,343 27,995 1,237 95,250 0.67 0.49 0.18 33.41 9.60 22.90 0.90 13.74 33.38 16.60 0.51 8.28 5.15 0.64 0.03 2.17 584,619 7.83 825,926 18.80 Total 7,470,036 100.00 4,393,458 100.00 104 225
228. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 3.1.5. Non-cash loans classified under Group I and II Current Period Non-Cash Loans Letters of Guarantee (*) Bills of Exchange and Bank Acceptances Letters of Credit Endorsements Underwriting Commitments Factoring Related Guarantees Other Guarantees and Securities (*) Prior Period Non-Cash Loans(*) Letters of Guarantee (*) Bills of Exchange and Bank Acceptances Letters of Credit Endorsements Underwriting Commitments Factoring Related Guarantees Other Guarantees and Securities (*) Group I TL FC 8,417,741 7,936,747 7,578,148 3,372,872 1,044 112,639 10,875 4,380,274 827,674 70,962 Group II TL FC 268,864 294,603 252,197 167,699 3,067 126,904 13,600 - Group I TL FC 6,903,342 4,178,033 6,475,176 2,400,361 4,503 34,535 14,424 1,649,067 409,239 94,070 Group II TL FC 312,420 67,125 268,049 44,636 1,000 958 21,531 43,371 - (*) As of 31 December 2021, there are 3. stage Letters of Guarantee amounting to TL 475,669 (December 31, 2020 – TL 402,572) and Other Guarantees and Bails amounting to TL 21 (31 December 2020 - TL 2). 3.2. Financial derivative instruments Trading Derivatives Cari dönem Önceki dönem Foreign currency related derivative Foreign Currency Related Derivative Transactions (I): Currency Forwards-Purchases, sales Currency Swaps-Purchases, sales Currency Futures Currency Options-Purchases, sales Interest rate related derivative transactions (II): Interest rates forwards-Purchase, sales Interest rates swaps-Purchases, sales Interest rates options-Purchases, sales Interest rates futures-Purchases, sales Other trading derivatives (III) A. Total trading derivatives (I+II+III) 73,484,299 84,554,297 Hedging Derivatives Fair value hedges Cash flow hedges Foreign currency investment hedges B. Total Hedging Derivatives 5,624,370 67,859,929 88,062 73,572,361 - Total Derivatives Transactions (A+B) 73,572,361 3,214,430 81,339,867 12,274,248 96,828,545 96,828,545 The Bank enters into short-term swap transactions based on its market expectations and cash flow. These transactions are generally short-term and consist of foreign currency to foreign currency and foreign currency to Turkish Lira agreements. As of 31 December 2021, in the contracts the bank has entered in TL, US Dollars, Euros, British Pounds, Saudi Arabian Riyal, Russian Ruble, Silver and Gold currencies, the Bank has commitments to buy TL 1,439,007 USD 1,624,839,000, EUR 26,980,000, GBP 43,797,000, CHF 7,285,000 in return of selling commitments of TL 1,723,248, USD 264,511,000, EUR 2,051,366,000, GBP 63,000. (As of 31 December 2020 in the contracts the bank has entered in TL, US Dollars, Euros, British Pounds and Malaysian Ringite currencies, the Bank has commitments to buy TL 786,085, USD 3,290,100,000, EUR 97,419,000, GBP 44,126,000, SAR 56,279,000 and RUB 54,078,000 in return of selling commitments of TL 24,395,510, USD 546,131,000, EUR 2,268,673,000, GBP 12,029,000 and RUB 38,805,000). 226 105
229. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 3.3. Credit derivatives and risk exposures on credit derivatives None. 3.4. Contingent liabilities and assets In accordance with decision of the Bank’s Board of Directors numbered 1117 and dated 21 June 2011, recoverable foreign currency loan granting commitments to real and legal persons and who do not have the unconditional right to utilize these commitment has been translated into Turkish Lira and no longer followed as foreign currency commitments. 3.5. Explanations on custodian and intermediary services None. 3.6. Summary Information on the Bank’s Rating by the International Rating Institutions Fitch Rating’s October 2020 Notes B+ Long-Term Issuer Default Rating Short-Term Issuer Default Rating B Local Currency Long-Term Issuer Default Rating BB- Local Currency Short-Term Issuer Default Rating B Financial Capacity Ratio b+ Support Rating 4 106 227
230. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4. Explanations and notes related to the statement of income 4.1 Information on profit share income 4.1.1 Information on profit share received from loans Profit share on loans Short term loans Medium and long-term loans Profit share on non-performing loans Premiums received from resource utilization support fund Total TL 7,095,760 2,244,092 4,539,776 311,892 7,095,760 Current period FC 1,458,883 219,724 1,170,754 68,405 1,458,883 TL 5,250,272 1,117,394 4,085,874 47,004 5,250,272 TL 230,553 4,225 5,578 240,356 Current period FC 90,037 90,037 TL 37,473 970 60,698 99,141 Prior period FC 924,105 90,711 831,630 1,764 924,105 4.1.2 Information on profit share received from banks The Central Bank of the Republic of Turkey Domestic Banks Foreign Banks Branches and head office abroad Total 4.1.3 Prior period FC 60,178 342 60,520 Information on profit share income from securities portfolio Financial Assets at Fair Value Through Profit or Loss Financial Assets at Fair Value Reflected in Comprehensive Income Financial Assets Valued Over Amortized Cost Total Other Current Period TP YP 70,091 200,902 2,574,070 2,644,161 510,314 127,100 838,316 Prior Period TP YP 85,748 228,084 1,768,791 1,854,539 349,355 170,974 748,413 4.1.4 Information on profit share income received from associates and subsidiaries Current Period Prior Period 46,423 39,083 Profit share income received from associates and subsidiaries 4.2 Information on profit share expenses TL 27,807 23,751 4,056 732,927 760,734 Banks The Central Bank of the Republic of Turkey Domestic banks Foreign banks Branches and head office abroad Other Institutions Total Current period FC 146,993 3,464 143,529 553,874 700,867 TL 23,948 22,052 1,896 158,058 182,006 Pirior period FC 31,978 4,506 27,472 567,583 599,561 4.2.1 Profit share expense given to associates and subsidiaries Current period 329,684 Profit share expenses given to associates and subsidiaries 4.2.2 Profit share expense paid to securities issued None (1 January – 31 December 2020: None). 228 107 Pirior period 586,767
231. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4.3 Information on dividend income Current Period 6,042 6,042 Financial Assets at Fair Value through Profit or Loss Financial Assets at Fair Value Through Other Comprehensive Income Other Total 4.4 Prior Period 68 68 Distribution of profit share on funds based on maturity of funds Current period Account name Turkish Lira Collected funds from banks through current and profit share accounts Real person’s non-trading profit sharing account Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Total Foreign curency Banks Real person’s non-trading profit sharing account Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Precious metal accounts Total Grand Total Profit Sharing Accounts Up to 1 month - - Up to 3 months Up to 6 Up to 9 months months Up to 1 year Above 1 year Accumulated profit sharing accounts Total 2 - - - - - 2 1,226,974 1,402,886 36 120 67,492 99 - 76,345 94 98,608 - 2,438 - 2,874,743 349 85,602 122,789 2,230 - 2,081 1,430 - 214,132 16,142 24,530 2,528 - 517 67 - 43,784 1,328,754 1,550,327 72,349 - 79,037 100,105 2,438 3,133,010 - - - - - - - - 64,389 - 82,590 - 8,458 - - 14,783 - 18,359 - 87 - 188,666 - 5,899 11,199 387 - 209 52 - 17,746 451 8,379 1,905 4,156 6 629 - 7 520 - - 2,369 13,684 79,118 99,850 9,480 - 15,519 18,411 87 222,465 1,407,872 1,650,177 81,829 - 94,556 118,516 2,525 3,355,475 108 229
232. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Prior period Account name Turkish Lira Collected funds from banks through current and profit share accounts Real person’s non-trading profit sharing account Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Total Foreign curency Banks Real person’s non-trading profit sharing account Public sector profit sharing account. Commercial sector profit sharing account Other institutions profit sharing account Precious metal accounts Profit Sharing Accounts Up to 1 month Up to 3 months - 1 - - - - - 1 552,292 25 816,804 27 51,283 54 - 61,964 39 93,576 - 1,358 - 1,577,277 145 47,506 96,576 4,310 - 1,795 1,324 - 151,511 5,484 12,324 967 - 440 115 - 19,330 605,307 925,732 56,614 - 64,238 95,015 1,358 1,748,264 15 559 27 - - - - 601 42,018 - 64,866 - 9,074 - - 10,000 - 14,125 - 25 - 140,108 - 3,869 11,087 384 - 410 53 - 15,803 387 8,614 1,395 6,313 111 845 - 63 791 - - 1,956 16,563 54,903 84,220 10,441 - 11,264 14,178 25 175,031 660,210 1,009,952 67,055 - 75,502 109,193 1,383 1,923,295 Total Grand Total 4.5 Up to 6 Up to 9 months months Up to 1 year Accumulated profit Above 1 sharing year accounts Total Information on trading income/loss (Net) Current period 2,160,959 138,884,440 89,894 9,057,028 129,737,518 (136,723,481) (31,305) (7,098,493) (129,593,683) Net Income Gain on capital market transactions Gain on derivative financial instruments Foreign exchange profit Losses (-) Losses on capital market transactions Losses on derivative financial instruments Foreign exchange losses 4.6 Pirior period 571,361 61,702,657 74,885 5,903,317 55,724,455 (61,131,296) (29,857) (8,116,336) (52,985,103) Information on other operating income The details of other operating income are presented below. There are no unusual items in the other operating income which materially affect the income of the Bank. Current Period 644,051 40,443 209,867 5,656 25,252 925,269 Reversal of prior period provisions Income from sale of assets Revenues from real estates sold under the lease certificate. Income from the real estate sales’ gains by rent certificates Other Income Total 230 109 Prior Period 540,455 20,979 69,847 8,052 8,733 648,066
233. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4.7 Provisions for loan losses and other receivables of the Bank Expected Credit Loss 12 month expected credit loss (Stage 1) Significant increase in credit risk (Stage 2) Non-performing loans (Stage 3) Marketable Securities Impairment Expense Financial Assets at Fair Value through Profit or Loss Financial Assets at Fair Value Through Other Comprehensive Income Impairment losses from Associates, Subsidiaries and Jointly Controlled Entities Investments in Associates Subsidiaries Joint Ventures Other (**) Total Current Period (*) 4,566,363 1,245,871 2,040,864 1,279,628 15,264 15,264 146,762 4,728,389 Prior Period (*) 3,237,473 729,722 807,415 1,700,336 22,488 22,488 287,215 3,547,176 (*) Includes the provisions in the “Other Provision Expenses” line in the Income Statement. (**) Includes free provisions that can be allocated from profit to be distributed to participation accounts according to provisions regulation. 110 231
234. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4.8 Information on other operating expenses Current Period Provision for retirement pay liability (*) 38,825 Impairment expenses of tangible assets Depreciation expenses of tangible assets 235,625 Impairment expenses of intangible assets Depreciation expenses of intangible assets 55,337 Depreciation expenses of assets held for sale Other operating expenses 501,250 Maintenance expenses 110,318 Communication expenses 75,843 Advertisement expenses 66,159 Heating, electricity and water expenses 30,645 Stationery expense 13,609 Vehicle expenses 12,478 Cleaning expenses 8,856 Leasing Expenses Related to TFRS 16 Exceptions 734 Other expenses 182,608 Losses on sales of assets 4,967 Deposit insurance fund expenses 429,377 Other 253,610 Total 1,518,991 (*) Includes the provisions in the” Personnel Expenses “line in the Income Statement of prior period. Prior Period 26,065 204,730 35,950 422,233 91,495 61,646 43,968 25,327 9,931 8,265 7,471 2,921 171,209 344 320,386 193,753 1,203,461 According to the decision of POA dated March 26, 2021, the fee information for the reporting period for services received from the independent auditor or audit organization is given in the following table. These fees also include the audit fees of the Bank's subsidiaries. The fee information given in the table is excluding VAT. Current Period Independent audit fee for the reporting period (*) Fees for tax consulting services The cost of other assurance services The cost of other services outside the independent audit Total Prior Period Independent audit fee for the reporting period (*) Fees for tax consulting services The cost of other assurance services The cost of other services outside the independent audit Total Independent audit Independent audit services services provided by other provided by the group Independent Audit auditor companies 6,846 225 1,274 8,120 225 Independent audit Independent audit services services provided by other provided by the group Independent Audit auditor companies 3,834 343 944 4,878 343 (*) The Bank's foreign currency exchange purchase valuation rates were used for foreign currency independent audit fees at the end of the period 31 December 2021 / 31 December 2020. 111 232
235. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4.9 Information on profit/loss from continued and discontinued operations before taxes Income before tax amounting to TL 3,547,366 increased by 91,40% as compared to the prior period (1 January - 31 December 2020 – TL 1,852,683). Income before tax includes TL 7,630,442 (1 January - 31 December 2020 – TL 6,209,076) net profit share income and TL 577,758 (1 January - 31 December 2020 – TL 350,721) net fees and commission income. Other operating expense amount is TL 1,518,991 (1 January - 31 December 2020 – TL 1,203,461). 4.10 Information on tax provision for continued and discontinued operations Current period tax provision for the period amounting to TL 2,000,422 (1 January-31 December 2020 - TL 781,806), deferred tax income of TL 20,366 (1 January-31 December 2020 - TL 134,484) and TL 975,149 (1 January-31 December 2020 - TL 463,888) deferred tax income is recognized. 4.11 Information on net income/loss from continued and discontinued operations There is no income or loss for discontinued operation in net operating income after tax. 4.12 Information on net income/loss 4.12.1 The nature and amount of certain income and expense items from ordinary operations is disclosed if the disclosure for nature, amount and repetition rate of such items is required for a complete understanding of the Bank's performance for the period: As of 31 December 2021, net profit share income is TL 7,630,442 (1 January-31 December 2020 – TL TL 6,209,076), net fees and commission income is TL 577,758 (1 January-31 December 2020 – TL 350,721). 4.12.2 Effect of changes in accounting estimates on income statement for the current and, if any for subsequent periods: None (1 January – 31 December 2020 – None). 4.12.3 Profit/Loss attributable to minority interest: None (1 January - 31 December 2020 – None). 4.13 Details of sub accounts comprising at least 20% of other items in income statement, exceeding 10% of total income statement As of 31 December 2021, other fees and commissions received is TL 977,196 (1 January - 31 December 2020 – TL 674,716), TL 312,322 of this amount is related with credit card fees and commissions (1 January - 31 December 2020 – TL 147,028) and TL 198,049 of this amount is related with POS machine commissions (1 January – 31 December 2020 -118,516 TL). As of 31 December 2021, other fees and commissions given is TL 540,736 (1 January - 31 December 2020 – TL 433,766), TL 242,537 (1 January - 31 December 2020 – TL 111,537) of this amount is related with POS clearing commissions and installation expenses, TL 76,380 (1 January - 31 December 2020 – TL 38,445) of this amount is related with fees and commissions paid for credit cards. 112 233
236. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 5. Explanations and Disclosures Related to Statement of Changes in Shareholders' Equity 5.1 There are no disclosed dividend amounts subsequent to the balance sheet date, prior to the presentation of the financial statements. Decision on the dividend distribution will be made in the General Assembly. However, the General Assembly has not been held as of the date when the accompanying financial statements are finalized. 5.2 In the current year, the Bank made dividend payments amounting to TL 9,132 to members of Board of Directors. In the General Assembly meeting held in 25 March 2021 it has been decided that TL 70,927 would be transferred to legal reserves, TL 1,319,715 would be transferred to extraordinary reserve, TL 507 would be transferred to other reserves. 6. Explanations and Disclosures Related to Statement of Cash Flows 6.1. Information on cash and cash equivalents 6.1.1. Components of cash and cash equivalents and accounting policy applied in their determination: “Cash” is defined as cash in vault and foreign currency cash, cash in transit, checks purchased, unrestricted amount in the Central Bank and demand deposits in Banks. “Cash equivalents” is defined as money market placements, investments in securities and time deposits in banks with original maturity less than three months. 6.1.1.1 6.1.1.2. Cash and cash equivalents at the beginning of the period: Current Period Prior Period Cash Cash in TL/foreign currency, others Demand deposits at banks (Up to 3 months) Cash Equivalents Interbank money markets Time deposits at banks Marketable securities 11,971,283 6,161,816 5,809,467 - 18,893,086 2,128,075 16,765,011 - Total cash and cash equivalent 11,971,283 18,893,086 Current Period Prior Period Cash Cash in TL/foreign currency, others Demand deposits at banks (Up to 3 months) Cash Equivalents Interbank money markets Time deposits at banks Marketable securities 36,643,018 22,120,074 14,522,944 - 11,971,283 6,161,816 5,809,467 - Total cash and cash equivalent 36,643,018 11,971,283 Cash and cash equivalents at the end of the period: 113 234
237. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 6.2. Cash and cash equivalent items which are restricted for the usage of the Bank by legal or other limitations None (31 December 2020 – None). 6.3. Explanations on other items in the cash flow statement “Other items” amounting to TL (1,860,549) (1 January-31 December 2020: TL (1,438,893)) in “Operating profit before changes in operating assets and liabilities” consists of fees and commissions paid and other operating expenses except for collection from non-performing loans and personnel expenses. “Net increase/decrease in other liabilities” amounting to TL 13,367,399 (1 January-31 December 2020: TL 2,429,589) in “Changes in operating assets and liabilities” consists of changes in sundry creditors, other liabilities and taxes and other duties payables. “Net increase/decrease in other assets” amounting to TL 5,641,096 (1 January-31 December 2020: TL (8,803,862)) in “Changes in operating assets and liabilities” consist of changes in prepaid rent expense and other asset. 6.4. Effects of the change in foreign currency rates on cash and cash equivalents Effect of the changes in foreign currency rates on cash and cash equivalents has been calculated approximately TL 27,336,234 as of 31 December 2021 (31 December 2020 – TL (5,409,401)). The effects of the change in foreign currency rates on cash and cash equivalents is calculated according to multiplying fx difference between balance sheet date and cash entered date and related cash amount. 114 235
238. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 7. Explanations and notes related to risk group of the Bank: 7.1 The volume of transactions related to the risk group of the Bank, the loans and funds collected which have not been completed at the end of the period and the income and expenses related to the period Current period: Risk group of the Bank (*) Loans and other receivables Balance at beginning of period Balance at end of period Profit share and commission income (*) Risk group of the Bank (*) Loans and other receivables Balance at beginning of period Balance at end of period Profit share and commission income 7.2 4,695 6,955 526 6,709 21,246 145 54,992 64,316 4,362 6,632 2,297 - Investment in associates, subsidiaries and joint ventures (business partnerships) Cash Non-Cash 178,601 185,615 275 18,527 21,015 195 Direct and indirect shareholders of the Bank Cash Non-Cash 1,868 4,695 258 7,206 6,709 85 Other real or legal persons included in the risk group Cash Non-Cash 780,512 54,992 5,263 723 6,632 - Information on current and profit sharing accounts of the Bank’s risk group Current and profit sharing accounts Balance at beginning of period Balance at end of period Profit share expense (*) Investment in associates, subsidiaries and joint ventures (business partnerships) Current Current Period period 63,485 137,443 1,401 181,714 63,485 6,642 Direct and indirect shareholders of the Bank Current Current period Period 58,677 104,748 980 151,321 58,677 852 Other real or legal persons included in the risk group Current Current period period 203,570 348,052 266 390,698 203,570 271 Defined in the Subsection 2, Article 49 of the Banking Law No. 5411. Forward and option agreements and other similar agreements with the risk group of the Bank Risk group of the Bank (*) Transactions at Fair Value through Profit or Loss Balance at beginning of period Balance at end of period Total Profit / Loss Hedging Transactions Balance at beginning of period Balance at end of period Total Profit / Loss (*) 236 21,015 40,601 234 Other real or legal persons included in the risk group Cash Non-Cash Defined in the Subsection 2, Article 49 of the Banking Law No. 5411. Risk group of the Bank (*) 7.3 185,615 482,838 428 Direct and indirect shareholders of the Bank Cash Non-Cash Defined in the Subsection 2, Article 49 of the Banking Law No. 5411. Prior period: (*) Investment in associates, subsidiaries and joint ventures (business partnerships Cash Non-Cash Investment in associates, subsidiaries and joint ventures (business partnerships) Current Prior period period 240,454 758,268 201,157 - 75,460 240,454 (333) - Defined in the Subsection 2, Article 49 of the Banking Law No. 5411. 115 Direct and indirect shareholders of the Bank Current Prior period period 716,065 1,992,498 (2,476) - 607,498 716,065 (13,619) - Other real or legal persons included in the risk group Current Prior period period - -
239. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 7.4 Information on loans received from the Bank’s risk group Risk group of the Bank (*) Borrowings Balance at beginning of period Balance at end of period Profit share expense (*) 7.5 Investment in associates, subsidiaries and joint ventures (business partnerships) Direct and indirect shareholders of the Bank Other real or legal persons included in the risk group Current period Prior period Current period Prior period Current period Prior period 11,474,110 13,143,066 328,283 8,324,759 11,474,110 580,125 1,481,347 270,055 4,641 68,696 1,481,347 41 - - Defined in the Subsection 2, Article 49 of the Banking Law No. 5411. Information on remunerations provided to top management Subordinated additional capital (Tier-I) sukuks amounting to USD 200,000,000 (full amount) executed by the Bank on 16/07/2019 and USD 50,000,000 (full amount) executed by the Bank on 28/09/2020 are provided by Kuwait Finance House. Kuwait Finance House owns USD 35,000,000 (full amount) of the subordinated additional capital (Tier-II) sukuk amounting to USD 350,000,000 (full amount) executed by the Bank on 16/09/2021. 7.6 Information on remunerations provided to top management: As of 1 January - 31 December 2021, the Bank has paid TL 79,675 to top management (1 January - 31 December 2020 TL 64,393). 8. Domestic, foreign and off-shore branches or equity investments and foreign representative offices 8.1. Domestic and foreign branches and representative offices Domestic branches (*) Number of Branches 442 Number of Employees 4,098 Country Foreign representative offices Foreign bank Off-shore branches Foreign branches (*) (**) 8.2. 1 1 - 117 3 - Germany Bahrain - Total Assets (Thousands, TL) 12,973 13,807 - Legal Capacity (USD) 45,982,036 - The personnel working at Headquarters, Operation Center and Region quarters are not included in the domestic branches personnel number. Bahrain Branch is controlled by the Central Bank of Bahrain and the total of Assets is 13,807,219 Turkish lira as of 31 December 2021. Opening or closing of domestic and foreign branches and representative offices and significant changes in organizational structure In 2021, 7 new domestic branches (2020 - 4 branches) were opened. The Bank does not have any domestic or foreign branches that were closed in 2021. (2020- None). 116 237
240. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 9. Significant events and matters arising subsequent to balance sheet date Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 05, 2022 with a nominal value of TL 100,000 and a maturity of 77 days with a cost of 17.51%. Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 5, 2022 with a nominal value of TL 300,000 and a maturity of 77 days with a cost of 17.26%. Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 12, 2022 with a nominal value of TL 600,000 and a maturity of 84 days with a cost of 17.75%. Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 13, 2022 with a nominal value of TL 200,000 and a maturity of 95 days with a cost of 13.81%. Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 14, 2022 with a nominal value of TL 150,000 and a maturity of 84 days with a cost of 17.75%. Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 26, 2022 with a nominal value of TL 425,000 and a maturity of 84 days with a cost of 17.75%. Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 27, 2022 with a nominal value of TL 300,000 and a maturity of 89 days with a cost of 18.25%. Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on February 2, 2022 with a nominal value of TL 60,000 and a maturity of 85 days with a cost of 17.26%. Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on February 3, 2022 with a nominal value of TL 250,000 and a maturity of 85 days with a cost of 13,81%. Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on February 4, 2022 with a nominal value of TL 300,000 and a maturity of 82 days with a cost of 17.75%. 238 117
241. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION SIX OTHER EXPLANATIONS 1. Other matters which must be explained in terms of explicitness, interpretability and understandability of the balance sheet: None. SECTION SEVEN INDEPENDENT AUDITORS’ REPORT 1. Explanations audit report The unconsolidated financial statements have been audited by Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (A Member Firm of Ernst & Young Global Limited) and the independent auditors’ report dated 9 February 2022 is presented preceding the financial statements. 2. Notes and disclosures prepared by the independent auditor: None. 239 118
243. KUVEYT T ÜRK KATILIM BANKASI ANONIM ŞIRKETI Independent auditor’s report, consolidated financial statements and notes for the year ended December 31, 2021 (Convenience translation of consolidated financial statements and independent auditor’s report originally issued in Turkish)
245. Section V : Financial Information and Risk Management Practices 243
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249. Section V : Financial Information and Risk Management Practices Index Section One General information I. II. III. IV. V. VI. History of the Parent Bank including its incorporation date, initial legal status and amendments to legal status Parent Bank structure, shareholders jointly or individually having direct or indirect control over the management and supervision of the Bank and the disclosures on any related changes in the current period, if any, and information about the Group that the Bank belongs to Explanations regarding the chairman and the members of board of directors, audit committee members, general manager and assistant general managers and their shares in the Parent bank Information on qualified parent bank Explanations of the Parent Bank’s services and field of operations Current or likely actual legal barriers to immediate transfer of equity or repayment of debts between Parent Bank and its subsidiaries 249 249 249 250 250 250 Section Two Consolidated financial statements I. II. III. IV. V. VI. VII. Consolidated balance sheet (Statement of financial position) Consolidated statement of off-balance sheet items Consolidated profit or loss statement Consolidated statement of profit or loss and other comprehensive income Consolidated statement of changes in shareholders’ equity Consolidated statement of cash flows Profit distribution of parent bank 251 253 254 255 256 257 258 Section Three Accounting principles I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. XIV. XV. XVI. XVII. XVIII. XIX. XX. XXI. XXII. XXIII. XXIV. Explanations on basis of presentation Explanations on strategy of using financial instruments and foreign currency transactions Information on subsidiaries and associates Explanations on forward transactions and option contracts and derivative instruments Explanations on profit share income and expense Explanations on fees and commission income and expenses Explanations on financial assets Explanations on offsetting of financial assets and liabilities Explanations on sale and repurchase agreements and lending of securities Explanations on assets held for sale and discontinued operations and related liabilities Explanations on goodwill and other intangible assets Explanations on tangible assets Explanations on leasing transactions Explanations on insurance technical income and expenses Explanations on insurance technical provisions Explanations on provisions and contingent liabilities Explanations on liabilities relating to employee benefits Explanations on taxation Explanations on additional disclosures on borrowings Explanations on share certificates issued Explanations on acceptances and availed drafts Explanations on government grants Explanations on segment reporting Explanations on other matters 259 263 264 265 265 265 266 267 267 268 268 268 269 270 270 270 271 271 272 272 272 272 272 272 Section Four Information related to financial position and risk management of the Group I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. XIV. Explanations on consolidated equity items Explanations and Disclosures related to consolidated credit risk Explanations on consolidated currency risk Explanations related to stock position risk Liquidity risk management and liquidity coverage ratio Explanations on leverage ratio Explanations on fair values of financial assets and liabilities Explanations on the activities carried out on behalf and account of other persons Explanations on hedge accounting practices Explanations on consolidated risk management Securitization positions Explanations on the activities carried out on behalf and account of other persons, fiduciary-based transactions Qualitative explanations on market risk Explanations on consolidated business segments 273 278 292 294 295 303 304 304 304 304 320 320 320 325 Section Five Explanations and notes on the consolidated financial statements I. II. III. IV. V. VI. VII. VIII. IX. Explanations and notes related to consolidated assets Explanations and notes related to consolidated liabilities Explanations and notes related to off-balance sheet contingencies and commitments Explanations and notes related to the statement of income Explanations and Disclosures Related to Statement of Changes in Shareholders' Equity Explanations and notes related to cash flow statement Explanations and notes related to the risk group of the Bank Domestic, foreign and off-shore branches or equity investments and foreign representative offices Significant events and matters arising subsequent to balance sheet date 327 344 345 354 360 360 362 363 364 Section Six Other Explanations I. Other matters which must be explained in terms of explicitness, interpretability and understandability of the balance sheet 366 Section Seven Independent Auditor’s Report I. II. Explanations on the limited Auditor’s report Notes and disclosures prepared by the independent auditor 366 366 247
250. Kuveyt T ürk Annual Report 2021 248
251. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION ONE GENERAL INFORMATION 1. History of the Parent Bank including its incorporation date, initial legal status and amendments to legal status Kuveyt Türk Katılım Bankası A.Ş. (“The Bank”) was incorporated with the approval of the Central Bank of the Republic of Turkey (CBRT) on 28 February 1989 and commenced its operations on 31 March 1989, with the name of Kuveyt Türk Evkaf Finans Kurumu A.Ş. To comply with the Banking Act 5411, the title of the Bank has been changed to Kuveyt Türk Katılım Bankası A.Ş. with a change in the Articles of Association which was approved in the annual general meeting dated 26 April 2006. Main field of operation is, in addition to the Bank’s equity, to collect funds from domestic and foreign customers through “Current Accounts” and “Profit/ Loss Sharing Accounts” and allocate such funds to the economy, to perform all kinds of financing activities in accordance with the regulations, to encourage the investments of all individuals and legal entities operating in agricultural, industrial, trading and service industries, participating into the operations of these entities or individuals and to form joint business partnerships and to perform all these activities in a non-interest environment.The parent bank and consolidated financial partnerships are together called “The Group”. 2. Parent Bank structure, shareholders jointly or individually having direct or indirect control over the management and supervision of the Bank and the disclosures on any related changes in the current period, if any, and information about the Group that the Bank belongs to As of 31 December 2021, 62.24% of the Parent Bank’s shares are owned by Kuwait Finance House located in Kuwait, 18.72% by Vakıflar Genel Müdürlüğü Mazbut Vakıfları, 9.00% by Wafra International Investment Company in Kuwait and 9.00% by Islamic Development Bank whereas the remaining 1.04% of the shares are owned by other real persons and legal entities. 3. Explanations regarding the chairman and the members of board of directors, audit committee members, general manager and assistant general managers and their shares in the parent bank Name Title Hamad Abdulmohsen AL MARZOUQ Salah A E AL MUDHAF Burhan ERSOY Mohamed Hedi MEJAI Head of the BOD Member of BOD and chairman of the audit committee Vice President of BOD and member of Audit Committee Member of BOD Member of BOD Member of BOD and Audit Committee Ahmad S A A AL KHARJİ Gehad Mohamed Elbendary ANANY Ufuk UYAN Shadi Ahmed Yacoub ZAHRAN Nadir ALPASLAN Ahmet KARACA Ahmet Süleyman KARAKAYA Bilal SAYIN İrfan YILMAZ Dr. Ruşen Ahmet ALBAYRAK Nurettin KOLAÇ Aslan DEMİR Mehmet ORAL Abdurrahman DELİPOYRAZ Hüseyin Cevdet YILMAZ Date of Audit Audit Educational Date of the Committee Committee Degree Assignment Assignments End Date 25/06/2014 Master Ownership Percentage - 25/09/2020 04/11/2020 Master - 15/04/2011 24/12/2019 Bachelor - 07/10/2019 18/06/2020 25/03/2021 04/05/2021 Bachelor Bachelor Master - Member of BOD 26/03/2014 24/09/2014 09/09/2020 Master Member of BOD Member of BOD and General Manager Assistant General Manager, Financial Control. Assistant General Manager, Corporate and Commercial Banking Assistant General Manager, Lending Assistant General Manager, Banking Services Assistant General Manager, Treasury and International Banking. Assistant General Manager, Legal and Risk Follow Up Assistant General Manager, Strategy Assistant General Manager, Retail Banking Assistant General Manager, SME Banking Head of Risk, Control and Compliance Group 25/09/2020 10/05/1999 09/09/2020 04/11/2020 Bachelor Master %0.057 12/07/2006 Master %0.001 14/01/2003 Bachelor - 20/08/2003 Bachelor %0.004 27/10/2005 Bachelor %0.017 05/05/2005 Doctorate %0.008 20/04/2010 Bachelor %0.001 08/10/2012 Bachelor %0.006 01/10/2012 Bachelor %0.005 09/01/2015 Bachelor %0.005 16/12/2003 Bachelor %0.001 Chairman and members of the Board of Directors, members of auditing committee, general manager and assistant general managers own 0.10% of the Parent Bank’s share capital (31 December 2020 – 0.12%). 1 249
252. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4. Information on qualified parent bank Share amount (Nominal) Shareholding percentage Paid shares (Nominal) Unpaid shares Kuwait Finance House Vakıflar Genel Müdürlüğü Mazbut Vakıfları 2,863,098 861,086 %62.24 %18.72 2,863,098 861,086 - Total 3,724,184 %80.96 3,724,184 - Name / Commercial Name As of 31 December 2021, the shares of parent shareholder of Bank, Kuwait Finance House (“KFH”) are 51.95% publicly traded; 24.08% of KFH belongs to Kuwait Investment Authority and 10.48% belongs to Public Authority for Minors Affairs. 5. Explanations of the Parent Bank’s services and field of operations The Parent Bank’s field of operations includes corporate banking, international banking services, and retail banking and credit card services. The Parent Bank’s core business is operating in accordance with the principles of interest-free banking as a participation parent bank by collecting funds through current and profit/loss sharing accounts and lending such funds to its customers. As of 31 December 2021, the Group is operating through 448 domestic branches (31 December 2020 – 440) with 6,760 employees (31 December 2020 – 6,552). Summary of some of the Bank’s operations described in the Articles of Association are as follows: • • • • • • • • To collect funds through “Current Accounts” and “Profit/Loss Sharing Accounts” and special fund pools in line with the regulations; To allocate funds to the economy and provide all kinds of cash, non-cash loans within the principles of noninterest banking; To offer financial and operational leasing; To handle all kinds of deposits and payments, including travelers’ checks, credit cards and other payment instruments, provide member business services (POS), consulting, advisory, and safe deposit box services; To purchase financial instruments on money and capital markets in cash or installments, sell and mediate the sale and trade on the stock exchange in accordance with legislation and principles of non-interest banking; To purchase, acquire and construct any kind of real estate and if necessary, lease or transfer ownership to other persons; To act as a representative, deputy or agent for corporations and enterprises (including insurance companies); To provide socially responsible aid for the benefit of the community in the light of the legislations. The Parent Bank’s activities are not limited to the list above. If another transaction is decided to be beneficial to the Bank, the transaction must be recommended by the Board of Directors, approved by the General Assembly and authorized by relevant legal authorities after whom it also needs to be approved by the Ministry of Trade since it constitutes an amendment of the Article of Association. Decisions that have been approved through all these channels will be included to the Article of Association. Disclosures on the differences between the Communiqué on the Preparation of Consolidated Financial Statements of Banks and the consolidation transactions made in accordance with the Turkish Accounting Standards and the entities subject to full or proportionate consolidation, deducted from equity or not included in these three methods: According to the Communiqué on the Preparation of the Consolidated Financial Statements of Banks, only While financial partnerships are included in the scope of consolidation, all financial and non-financial partnerships should be included in the scope of consolidation in accordance with Turkish Accounting Standards and Turkish Financial Reporting Standards. 6. Current or likely actual legal barriers to immediate transfer of equity or repayment of debts between Parent Bank and its subsidiaries None. 250 2
253. Section V : Financial Information and Risk Management Practices SECTION TWO CONSOLIDATED FINANCIAL STATEMENTS I. Consolidated Balance Sheet (Statement of Financial Position) II. Consolidated Statement of Off-Balance Sheet Items III. Consolidated Statement of Profit or Loss IV. Consolidated Statement of Profit or Loss and Other Comprehensive Income V. Consolidated Statement of Changes in Shareholders’ Equity VI. Consolidated Statement of Cash Flows VII. Profit Distribution Table of the Parent Bank 251
254. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ KUVEYT TÜRK KATILIM BANKASI ŞİRKETİ CONSOLIDATED BALANCE SHEET AS OFANONİM 31 DECEMBER 2021 CONSOLIDATED DISTRIBUTION TABLE (Amounts expressed in thousandsPROFIT of Turkish Lira (TL) unless otherwise stated.)OF PARENT BANK FOR THE YEAR ENDED 31 DECEMBER 2021 1. (Amounts expressed in thousands of Turkish Lira ( TL)(STATEMENT unless otherwiseOF stated.) CONSOLIDATED BALANCE SHEET – ASSETS FINANCIAL POSITION) 7. PROFIT DISTRIBUTION TABLE OF PARENT BANK ASSETS I. 1.1. 1.1.1. 1.1.2. 1.1.3. 1.1.4. 1.2. 1.2.1. 1.2.2. 1.2.3. 1.3. 1.3.1. 1.3.2. 1.3.3. 1.4. 1.4.1. 1.4.2. II. 2.1. 2.2. 2.3. 2.3.1. 2.3.2. 2.4. III. 3.1. 3.2. IV. 4.1. 4.1.1. 4.1.2. 4.2. 4.2.1. 4.2.2. 4.3. 4.3.1. 4.3.2. V. VI. 6.1. 6.2. VII. VIII. IX. X. Note TL Audited Current Period 31.12.2021 Current Period FC Total TL 01.01.202101.01.2020 31.12.2021 18,713,223 (*) 42,715,415 31.12.2020 61,428,638(*) FINANCIAL ASSETS (Net) Cash and Cash Equivalents I. and Balances Distribution of Current (5.1.1.) Cash with Central Bank Period Profit (5.1.3.) Banks 1.1. Current Period Profit Money Markets 1.2. Taxes and Dues Payable (-) Expected Credit Loss (-) 1.2.1. Corporate Tax (Income Tax) Financial Assets at Fair Value Through Profit or 1.2.2. Income Tax Withholding Loss 1.2.3. OtherSecurities Taxes and Dues Payable (**) Government Debt Equity Instruments A. Net Profit for the Period (1.1-1.2) Other Financial Assets Financial Assets Fair Value Other 1.3. Prioratyear’s LossesThrough (-) (5.1.4.) Comprehensive 1.4. FirstIncome Legal Reserves (-) Government Debt Securities 1.5. Other Reserves (-) Equity Instruments Other Assets B. Financial Distributable Net Period Profit [(A-(1.3+1.4+1.5)] (5.1.2.) Derivative Financial Assets 1.6. First Dividend Shareholders (-) Profit Derivative Financial Assets atto Fair Value Through (5.1.2.) To Owners of Ordinary Shares or1.6.1. Loss Derivative Financial Assets Fair Value Through Other 1.6.2. To Owners ofatPreferred Stocks (5.1.11.) Comprehensive 1.6.3. ToIncome Owners of Preferred Stocks (Preemptive Rights) FINANCIAL ASSETS MEASURED 1.6.4. To Profit Sharing BondsWITH (5.1.5.) AMORTISED 1.6.5. ToCOSTS Owners(Net) of the profit and loss Sharing Certificates Loans 1.7. Dividend to Personnel (-) (5.1.10.) Leasing 1.8. Receivables Dividend to Board of Directors (-) Other Assets Measured At Amortized(-)Cost (5.1.6.) 1.9. Financial Second Dividend to Shareholders Government Debt Securities 1.9.1. To Owners of Ordinary Shares Other Financial Assets 1.9.2. To Owners of Preferred Stocks Expected Credit Loss (-) 1.9.3. To Owners of Preferred Stocks (Preemptive Rights) PROPERTY AND EQUIPMENT HELD FOR SALE 1.9.4. To Profit SharingTO Bonds (5.1.16.) PURPOSE AND RELATED DISCONTINUED 1.9.5. To Owners of the profit/loss Sharing Certificates OPERATIONS(NET) 1.10.For SaleSecond Legal Reserves (-) Held 1.11. to Discontinued Statutory Reserves (-) Related Operations 1.12. Extraordinary Reserves SUBSIDIARIES INVESTMENTS IN ASSOCIATES, 1.13.JOINTOther Reserves AND VENTURES (5.1.7.) Investments in Associates 1.14. Special Funds(Net) Associates Valued Based on Equity Method II. Distribution Unconsolidated Associates from Reserves (5.1.8.) Investment in Subsidiaries (Net) 2.1. Distributed Reserves Unconsolidated Financial Subsidiaries 2.2. Second Legal Reserves (-) Unconsolidated Non-Financial Subsidiaries 2.3. to Shareholders (-) (5.1.9.) Investment inDividends Joint Ventures (Net) 2.3.1. Owners of on Ordinary Shares Joint VenturesThe Valued Based Equity Method 2.3.2. The Owners of Preferred Stocks Unconsolidated Joint Ventures 2.3.3. The Owners of Preferred Stocks (Preemptive Rights) (5.1.12.) TANGIBLE ASSETS (Net) 2.3.4. TheASSETS Profit Sharing (5.1.13.) INTANGIBLE (Net) Bonds 2.3.5. The Owners of the profit/loss Sharing Certificates Goodwill Other 2.4. Share to Personnel (-) (5.1.14.) INVESTMENT PROPERTIES (Net) 2.5. Share to Board of Directors (-) CURRENT TAX ASSETS III. Earnings per Share (5.1.15.) DEFERRED TAX ASSETS (5.1.17.) OTHER ASSETS 24,046,232 6,177,294 5,384,058 793,894 658 105,440,047 76,898,338 61,590,221 15,310,474 2,357 129,486,279 83,075,632 66,974,279 16,104,368 3,015 868,992 395,925 473,067 12,071,109 10,639,682 1,431,427 12,940,101 11,035,607 1,904,494 16,194,017 16,083,932 8,789 101,296 805,929 15,877,745 15,622,265 75,285 180,195 592,855 32,071,762 31,706,197 84,074 281,491 1,398,784 805,929 592,855 1,398,784 128,546 - - - - 57,911,732 59,228,283 3,238,260 361,215 286,240 74,975 4,916,026 71,143,704 60,573,031 8,687,675 5,574,334 5,094,594 479,740 3,691,336 129,055,436 119,801,314 11,925,935 5,935,549 5,380,834 554,715 8,607,362 51,153,513 52,228,594 2,360,266 268,323 268,323 3,703,670 240,891 240,891 - - 240,891 240,891 - 519,087 519,087 - 112,938 23,680 23,680 89,258 89,258 1,017,685 253,255 253,255 63,598 1,767,547 2,640,123 66,857 108,929 108,929 115,397 2,365,259 112,938 23,680 23,680 89,258 89,258 1,084,542 362,184 362,184 63,598 1,882,944 5,005,382 84,991 23,680 23,680 61,311 61,311 909,226 195,884 195,884 77,457 761,880 1,710,414 3.2. To Owners of Stocks (%) TOTAL ASSETS 88,054,001 179,240,193 267,294,194 74,125,675 3.1. To Owners of Stocks 3.3. 3.4. To Owners of Preferred Stocks To Owners of Preferred Stocks (%) IV. Dividend per Share 4.1. 4.2. 4.3. 4.4. To Owners of Stocks To Owners of Stocks (%) To Owners of Preferred Stocks To Owners of Preferred Stocks (%) Audited Prior Period 31.12.2020 Prior Period FC Total 2,258,436 30,222,312 1,144,427 23,966,543 1,114,456 3,547,366 6,256,097 1,045,639 447 328 2,000,422 - 6,820,410 942,789 (954,783) 6,735,347 315,651 32,480,748 25,110,970 7,370,553 1,852,683 452,402 775 781,806 - 85,063 7,763,199 (329,404) 7,050,998 1,400,281 712,201 15,383,452 - 5,339,633 15,299,606 - 5,190,032 8,741 40,405 75,105 109,196 2,501,727 128,546 333,060 20,723,085 70,014 20,489,638 49,146 184,301 1,330,267 461,606 2,501,727 627,138 - - 333,060 - 32,863,417 - 25,726,231 - 2,650,730 - 6,231,487 - 6,049,489 - 181,998 1,745,031 - - - 14,856 77,261 77,261 73,642 8,326,847 - 84,071,438 - - - 84,016,930 77,954,825 5,010,996 9,132 6,499,810 6,317,812 181,998 5,448,701 519,087 519,087 - 1,319,715 507 84,991 - 461,606 23,680 23,680 61,311 61,311 924,082 273,145 273,145 77,457 835,522 10,037,261 - 158,197,113 - - - - - - (*) The profit distribution of the Bank is decided at the General Assembly meeting which is not yet held as of the date of the preparation of these financial statements. (**) Deferred tax benefit is presented under other tax and legal liabilities. Deferred tax benefit can not be included in the dist ributable profit, thus it is classified under extraordinary reserves. The accompanying notes are an integral part of these financial statements 252 3 10
255. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ 2021 CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER CONSOLIDATED PROFIT TABLE OF PARENT BANK FOR THE YEAR (Amounts expressed in thousands of TurkishDISTRIBUTION Lira (TL) unless otherwise stated.) ENDED 31 DECEMBER 2021 1. (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) CONSOLIDATED BALANCE SHEET – LIABILITIES AND EQUITY (STATEMENT OF FINANCIAL POSITION) 7. PROFIT DISTRIBUTION TABLE OF PARENT BANK LIABILITIES I. II. III. IV. V. VI. 6.1. 6.2. VII. VIII. 8.1. 8.2. 8.3. 8.4. IX. X. XI. 11.1. 11.2. XII. 12.1. 12.2. XIII. XIV. 14.1. 14.2. 14.2.1. 14.2.2. 14.2.3. 14.3. 14.4. 14.5. 14.5.1. 14.5.2. 14.5.3. 14.5.4. 14.6. 14.6.1. 14.6.2. 14.7. Note FUNDS COLLECTED (5.2.1.) I. Distribution of Current Period Profit FUNDS BORROWED (5.2.3.) MONEY MARKETS 1.1. Current Period Profit SECURITIES ISSUED (Net) 1.2. Taxes and Dues Payable (-) FINANCIAL LIABILITIES AT FAIR 1.2.1. Corporate Tax (Income Tax)VALUE THROUGH PROFIT LOSS 1.2.2. Income TaxOR Withholding DERIVATIVE FINANCIAL LIABILITIES 1.2.3. Other Taxes and Dues Payable (**) Derivative Financial Liabilities at Fair Value Through (5.2.2.) A. or Loss Net Profit for the Period (1.1-1.2) Profit Derivative Financial Liabilities at Fair Value Through 1.3. Prior year’s Losses (-) (5.2.7.) Other Comprehensive Income 1.4. First Legal Reserves (-) LEASE PAYABLES (5.2.6.) 1.5. Other Reserves (-) PROVISIONS (5.2.8.) Restructuring Provision Net Period Profit [(A-(1.3+1.4+1.5)] B. Distributable Reserves For Employee Benefits 1.6. First Dividend to Shareholders (-) Insurance For Technical Provision (Net) 1.6.1.Provisions To Owners of Ordinary Shares Other 1.6.2. To Owners of Preferred Stocks CURRENT TAX LIABILITIES (5.2.9.1.) 1.6.3. ToTAX Owners of Preferred Stocks (Preemptive Rights) DEFERRED LIABILITIES 1.6.4. To Profit Sharing BondsAND LIABILITIES FOR PROPERTY 1.6.5. To Owners of theSALE profit AND and loss Sharing Certificates EQUIPMENT HELD FOR RELATED (5.2.10.) 1.7.DISCONTINUED Dividend toOPERATIONS Personnel (-) (Net) TO 1.8. For Sale Dividend to Board of Directors (-) Held 1.9. Second Dividend to Shareholders (-) Related to Discontinued Operations 1.9.1. To Owners of Ordinary Shares SUBORDINATED DEBT INSTRUMENTS (5.2.11.) 1.9.2. To Owners of Preferred Stocks Loans 1.9.3.Debt Instruments To Owners of Preferred Stocks (Preemptive Rights) Other OTHER (5.2.5.) 1.9.4. LIABILITIES To Profit Sharing Bonds SHAREHOLDERS` EQUITY (5.2.12.) 1.9.5. To Owners of the profit/loss Sharing Certificates Paid-in 1.10. Capital Second Legal Reserves (-) Capital 1.11. Reserves Statutory Reserves (-) Share 1.12. Premiums Extraordinary Reserves Share Profits 1.13. Cancellation Other Reserves Other Reserves 1.14. CapitalSpecial Funds Other Accumulated Comprehensive Income or Loss II. Will Not Distribution fromThrough Reserves That Be Reclassified Profit or Loss Other Accumulated Comprehensive Income or Loss 2.1. Distributed Reserves That Will Be Reclassified Through Profit or Loss 2.2. Second Legal Reserves (-) Profit Reserves 2.3. Dividends to Shareholders (-) Legal Reserves 2.3.1. The Owners of Ordinary Shares Statutory Reserves 2.3.2. The Owners of Preferred Stocks Extraordinary Reserves 2.3.3. The Owners of Preferred Stocks (Preemptive Rights) Other Profit Reserves 2.3.4. The Profit Sharing Bonds Profit or Loss 2.3.5.Years' The Owners of the profit/loss Sharing Certificates Prior Profits or Losses 2.4. Share Personnel (-) Current Period NettoProfit or Loss 2.5. Share to Board of Directors (-) Minority Shares (5.2.13.) III. Earnings per Share TOTAL LIABILITIES AND EQUITY 3.1. To Owners of Stocks 3.2. To Owners of Stocks (%) 3.3. To Owners of Preferred Stocks 3.4. To Owners of Preferred Stocks (%) IV. Dividend per Share 4.1. 4.2. 4.3. 4.4. To Owners of Stocks To Owners of Stocks (%) To Owners of Preferred Stocks To Owners of Preferred Stocks (%) TL Audited Current Period Current Period 31.12.2021 FC Total 01.01.2021TL 31.12.2021 (*) 57,263,935 204,154 6,495,137 3,632,174 164,693,947 3,419,828 - 192,898 64,866 192,898 64,866 Audited Prior Period Prior Period 31.12.2020 FC01.01.2020 Total 31.12.2020 (*) 221,957,882 33,478,939 3,623,982 175,272 6,495,137 3,547,366 185,225 3,632,174 1,821,975 1,045,639 2,000,422 -257,764 1,390,486 (954,783) 93,215,622 5,029,049 3,337,298 286,320 126,694,561 5,204,321 185,225 1,852,683 5,159,273 452,402 781,806 - 1,676,806 (329,404) 2,501,727 1,390,486 286,320 1,400,281 1,676,806 257,764 354,334 4,186,805 595,764 2,714,630 876,411 1,282,020 - 55,119 1,020,526 2,651 1,017,875 - 409,453 5,207,331 598,415 2,714,630 1,894,286 1,282,020 - 2,232,154 11,666,294 4,595,131 26,399 24,525 1,874 - 8,100,496 8,100,496 2,606,960 (177,453) - 8,100,496 8,100,496 4,839,114 11,488,841 4,595,131 26,399 24,525 1,874 - 345,320 3,316,160 2,501,727 436,440 2,118,814760,906388,013-------1,624,4898,064,4614,595,13126,39924,5251,874-- (52,112) - (52,112) (51,258) - (51,258) 205,480 3,411,612 389,701 2,936,850 85,061 3,266,312 (89,180) 3,355,492 36,019 23,115 1,996,805 310,296 1,617,135 69,374 1,444,265 (295,348)1,739,61330,004- 86,143 (119,790) (126,315) 6,525 - 109,258 1,996,805 310,296 1,617,135 69,374 1,324,475 (421,663) 1,746,138 30,004 267,294,194 50,790,340 107,406,773 - 158,197,113 - 280,134 3,411,612 389,701 2,936,850 85,061 3,369,111 30,610 3,338,501 36,019 (74,654) (102,799) (119,790) 16,991 - 87,509,905 179,784,289 - - 4,590,265 4,590,265 569,393 (33,647) - 70,014 349,294 3,722,802 1,330,267 437,454 2,118,814 1,166,534 389,870 - - 9,132 - 4,590,265 - 4,590,265 2,193,882 8,030,814 4,595,131 26,399 24,525 1,319,715 1,874 507 - - 3,974 406,642 1,014 405,628 1,857 - - - - - - - (*) The profit distribution of the Bank is decided at the General Assembly meeting which is not yet held as of the date of the preparation of these financial statements. (**) Deferred tax benefit is presented under other tax and legal liabilities. Deferred tax benefit can not be included in the dist ributable profit, thus it is classified under extraordinary reserves. The accompanying notes are an integral part of these financial statements 10 253
256. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENT OF OFF-BALANCE SHEET ITEMS AS OF 31 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ DECEMBER 2021 CONSOLIDATED PROFIT DISTRIBUTION TABLE OF PARENT BANK FOR THE YEAR (Amounts expressed in thousands of Turkish Lira (TL) unless otherwise stated.) ENDED 31 DECEMBER 2021 2. (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) CONSOLIDATED STATEMENT OF OFF-BALANCE SHEET ITEMS 7. PROFIT DISTRIBUTION TABLE OF PARENT BANK Note A. I. 1.1. 1.1.1. 1.1.2. 1.1.3. 1.2. 1.2.1. 1.2.2. 1.3. 1.3.1. 1.3.2. 1.4. 1.5. 1.5.1. 1.5.2. 1.6. 1.7. II. 2.1. 2.1.1. 2.1.2. 2.1.3. 2.1.4. 2.1.5. 2.1.6. 2.1.7. 2.1.8. 2.1.9. 2.1.10. 2.1.11. 2.1.12. 2.2. 2.2.1. 2.2.2. III. 3.1 3.1.1 3.1.2 3.1.3 3.2 3.2.1 3.2.1.1 3.2.1.2 3.2.2 3.3 B. IV. 4.1. 4.2. 4.3. 4.4. 4.5. 4.6. 4.7. 4.8. V. 5.1. 5.2. 5.3. 5.4. 5.5. 5.6. 5.7. VI. COMMITMENTS AND CONTINGENCIES (I+II+III) GUARANTEES AND WARRANTIES (5.3.1.) I. Distribution of Current Period Profit Letters of Guarantee Guarantees Subject to State Tender Law 1.1. Current Period Trade ProfitOperations Guarantees Given For Foreign 1.2. Letters of Taxes and Dues Payable (-) Other Guarantee 1.2.1. Bank Loans Corporate Tax (Income Tax) Import Acceptances 1.2.2.Letter of Income Tax Withholding Other Bank Acceptances 1.2.3. Other Taxes and Dues Payable (**) Letters of Credit Documentary Letters of Credit A. Net Profit for the Period (1.1-1.2) Other Letters of Credit Guaranteed Refinancing 1.3. Prior year’s Losses (-) Endorsements 1.4. First Legal Reserves (-) Endorsements to the Central Bank of Turkey 1.5. Endorsements Other Reserves (-) Other Other Guarantees B. Distributable Net Period Profit [(A-(1.3+1.4+1.5)] Other Warrantees COMMITMENTS (5.3.1.) 1.6. First Dividend to Shareholders (-) Irrevocable Commitments 1.6.1. AssetTo Owners Ordinary Shares Forward Purchase andofSales Commitments 1.6.2. To Owners of Share Capital Commitment to Preferred Associates Stocks and Subsidiaries Loan GrantingTo Commitments 1.6.3. Owners of Preferred Stocks (Preemptive Rights) Securities Underwriting Commitments 1.6.4. To Profit Sharing Bonds Commitments For Reserve Deposits Requirements 1.6.5. Commitments To Owners the profit and loss Sharing Certificates Payment Forof Checks 1.7.and Fund Dividend to Personnel (-) Tax Liabilities From Export Commitments 1.8. Dividend Board of Directors Commitments For Credit to Card Expenditure Limits(-) Commitments For Credit Cards and Services 1.9. Second Dividend toBanking Shareholders (-) Promotions 1.9.1. To Owners of Ordinary Shares Receivables From Short Sale Commitments 1.9.2. To Owners of Preferred Stocks Payables For Short Sale Commitments 1.9.3. To Owners of Preferred Stocks (Preemptive Rights) Other Irrevocable Commitments 1.9.4. Commitments To Profit Sharing Bonds Revocable Revocable 1.9.5. Loan ToGranting OwnersCommitments of the profit/loss Sharing Certificates Other Commitments 1.10.Revocable Second Legal Reserves (-) DERIVATIVE FINANCIAL INSTRUMENTS 1.11. Statutory Reserves (-) Derivative Financial Instruments Held For Risk 1.12. Extraordinary Reserves Management 1.13. Other Reserves Fair Value Hedges Cash Flow Hedges 1.14. Special Funds Hedge of Net Investment in Foreign Operations Held Transactions II. For Trading Distribution from Reserves Forward Foreign Currency Buy/Sell Transactions 2.1. Foreign Distributed Reserves Forward Currency Buy Transactions Forward Currency SellReserves Transactions 2.2. Foreign Second Legal (-) Other Buy/Sell Transactions 2.3. ForwardDividends to Shareholders (-) Other 2.3.1. ThePLEDGES Owners ofSECURITIES Ordinary Shares CUSTODY AND (IV+V+VI) 2.3.2. HELDThe of Preferred Stocks ITEMS IN Owners CUSTODY 2.3.3. The Owners Customers’ Securities Held of Preferred Stocks (Preemptive Rights) Investment HeldSharing in Custody 2.3.4. Securities The Profit Bonds Checks Received for Collection 2.3.5. The Owners of the profit/loss Sharing Certificates Commercial Notes Received for Collection 2.4. Share to Personnel (-) Other Assets Received for Collection 2.5. Received Share to Board of Directors (-) Assets for Public Offering Other Items Under Custody III. Earnings per Share Custodians PLEDGED ITEMS 3.1. To Owners of Stocks Marketable Securities 3.2. To Owners of Stocks (%) Guarantee Notes Commodity 3.3. To Owners of Preferred Stocks Warranty 3.4. To Owners of Preferred Stocks (%) Properties Other Items IV. PledgedDividend per Share Pledged Items-Depository ACCEPTED GUARANTEES AND WARRANTEES 4.1. To Owners of Stocks TOTAL OFF BALANCE SHEET ACCOUNTS (A+B) 4.2. 4.3. 4.4. To Owners of Stocks (%) To Owners of Preferred Stocks To Owners of Preferred Stocks (%) TL FC 70,094,888 8,913,959 8,057,678 267,372 445,301 7,345,005 1,044 1,044 13,942 13,942 841,295 58,403,315 9,395,375 1,340,772 1,007,332 1,750,116 5,278,441 83,169,750 8,471,915 3,781,136 19,827 49,329 3,711,980 112,639 112,639 4,507,178 1,979,005 2,528,173 70,962 4,865,677 4,865,677 4,807,250 58,427 957 17,757 49,007,940 49,007,940 2,777,614 Audited Current Period 31.12.2021 Audited Prior Period 31.12.2020 Current PriorTotal Period TLPeriod FC 01.01.202101.01.2020 31.12.2021 (*) 77,863,36431.12.2020 (*) 153,264,638 86,647,683 164,511,047 Total 17,385,874 11,838,814 287,199 494,630 11,056,985 113,683 113,683 4,521,120 1,979,005 2,542,115 912,257 63,268,992 14,261,052 6,148,022 1,007,332 1,750,116 5,336,868 7,465,311 6,992,772 210,252 3,547,366 408,225 1,045,639 6,374,295 2,000,422 5,503 5,503 (954,783) 14,424 2,501,727 14,424 - - 452,612 2,501,727 54,000,887 6,228,293 776,088 - 555,059 - 1,372,786 - 3,503,366 - 69,832,158 957 17,757 49,007,940 49,007,940 72,609,772 3,237 17,757 47,772,594 47,772,594 25,181,485 2,777,614 1,732,559 1,426,726 305,833 1,045,055 667,226,247 20,834,179 5,719,656 13,271,444 1,843,079 646,380,429 401,159 101,097 22,137,974 165,337,287 458,402,912 11,639 69,832,158 2,929,682 944,285 1,985,397 66,902,476 348,895,558 34,556,759 4,866,680 2,766,870 545,230 26,377,979 314,183,181 5,361,650 669,993 6,452,977 301,698,561 155,618 72,609,772 4,662,241 2,371,011 2,291,230 67,947,531 1,016,121,805 55,390,938 10,586,336 16,038,314 2,388,309 26,377,979 960,563,610 401,159 5,462,747 22,807,967 171,790,264 760,101,473 167,257 25,181,485 1,083,945 785,976 297,969 24,097,540 478,587,067 13,171,821 3,145,487 8,485,888 1,540,446 465,403,607 149,465 101,128 14,297,126 147,051,571 303,804,317 11,639 737,321,135 432,065,308 1,169,386,443 565,234,750 4,396,022 2,595,861 41,900 60,079 2,493,882 35,493 35,493 1,670,598 756,822 913,776 94,070 2,299,498 2,299,498 2,299,498 - 71,167,844 - - - - 71,167,844 1,651,269 604,362 - 1,046,907 - 69,516,575 - 203,218,899 - 20,387,564 - 7,054,819 1,082,506 312,851 11,937,388 182,743,974 - 2,996,008 913,904 3,715,371 175,118,691 87,361 - 281,082,263 - 11,861,333 9,588,633 252,152 1,852,683 468,304 452,402 8,868,177 781,806 40,996 40,996(329,404)1,685,022 756,822 1,400,281 928,200 -70,014-546,682 1,330,26756,300,385 8,527,7913,075,586555,059-1,372,786-9,132 3,503,366 - 3,237-17,75747,772,59447,772,594-96,349,329 1,319,715507- 96,349,329 2,735,214 1,390,3381,344,87693,614,115681,805,96633,559,385-10,200,3069,568,3941,853,297 --11,937,388 648,147,581 149,4653,097,13615,211,030-150,766,942 478,923,008 99,000- - 846,317,013 (*) The profit distribution of the Bank is decided at the General Assembly meeting which is not yet held as of the date of the preparation of these financial statements. (**) Deferred tax benefit is presented under other tax and legal liabilities. Deferred tax benefit can not be included in the dist ributable profit, thus it is classified under extraordinary reserves. 5 The accompanying notes are an integral part of these financial statements 254 10
257. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE PERIOD ENDED 31 CONSOLIDATED PROFIT DISTRIBUTION TABLE OF PARENT BANK FOR THE YEAR DECEMBER 2021 ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira (TL) unless otherwise stated.) 3. (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) CONSOLIDATED STATEMENT OF PROFIT OR LOSS 7. I. 1.1. 1.2. 1.3. 1.4. 1.5. 1.5.1. 1.5.2. 1.5.3. 1.6. 1.7. II. 2.1. 2.2. 2.3. 2.4. 2.5. 2.6. III. IV. 4.1. 4.1.1. 4.1.2. 4.2. 4.2.1. 4.2.2. V. VI. 6.1. 6.2. 6.3. VII. VIII. IX. X. XI. XII. XIII. XIV. PROFIT DISTRIBUTION TABLE OF PARENT BANK INCOME AND EXPENSE TABLE INCOMEof Current Period Profit I. PROFIT SHARE Distribution Note (5.4.1.) Audited Current CurrentPeriod Period 01.01.202101.01.202131.12.2021 31.12.2021 (*) 13,452,120 Audited Prior Period Prior Period 01.01.202001.01.2020 31.12.2020 31.12.2020 (*) 9,646,347 Profit Share on Loans 8,723,679 6,283,767 Profit ShareCurrent on Reserve Deposits 1.1. Period Profit 3,547,366 1,852,683 230,553 37,473 Profit ShareTaxes on Banks 222,398 229,931 1.2. and Dues Payable (-) 1,045,639 452,402 Profit ShareCorporate on Money Market Placements 1.2.1. Tax (Income Tax) 2,000,422 781,806 Profit ShareIncome on Marketable Securities Portfolio 3,604,226 2,702,365 1.2.2. Tax Withholding Fair Value Through Profit orand Loss 265,071 342,538 1.2.3. Other Taxes Dues Payable (**) (954,783) (329,404) Fair Value Through Other Comprehensive Income 3,083,751 2,121,615 A.Measured atNet ProfitCost for the Period (1.1-1.2) 2,501,727 1,400,281 Amortised 255,404 238,212 Finance Lease Income 602,626 342,754 1.3. Prior year’s Losses (-) Other Profit Share Income 68,638 50,057 1.4. First Legal Reserves (-) 70,014 PROFIT SHARE EXPENSE (-) 5,384,372 3,111,225 1.5. Reserves (-) Expense on Other Profit Sharing Accounts (5.4.4.) 3,376,303 1,934,858 Profit Share Expense on Funds Borrowed (5.4.2.) 533,675 396,952 B.Profit ShareDistributable Net Period Profit [(A-(1.3+1.4+1.5)] 2,501,727 1,330,267 Expense on Money Market Borrowings 535,629 354,479 Expense on First Securities Issued to Shareholders (-) 884,948 365,387 1.6. Dividend Profit ShareTo Expense on Lease 53,817 59,549 1.6.1. Owners of Ordinary Shares Other Profit Share Expense 1.6.2. To Owners of Preferred Stocks NET PROFIT SHARE INCOME (I - II) 8,067,748 6,535,122 1.6.3. To Owners of Preferred Stocks (Preemptive Rights) NET FEES AND COMMISSIONS INCOME/EXPENSE 508,093 261,839 1.6.4. To Profit Sharing Bonds Fees And Commissions Received 1,256,790 862,342 1.6.5. To Owners of the profit and loss Sharing Certificates Non-Cash Loans 141,317 136,800 1.7. Dividend to Personnel (-) Other (5.4.13.) 1,115,473 725,542 1.8. Dividend to Board of Directors (-) 9,132 Fees And Commissions Paid (-) 748,697 600,503 1.9. Second Dividend to Shareholders (-) Non-Cash Loans 19 11,835 1.9.1. To Owners of Ordinary Shares Other (5.4.13.) 748,678 588,668 1.9.2. Owners of Preferred Stocks DIVIDENDTo INCOME (5.4.3.) 6,042 68 1.9.3. To Owners of /Preferred Stocks (Preemptive Rights) NET TRADING INCOME LOSS (5.4.5.) 3,056,725 847,844 1.9.4. To Transaction Profit Sharing Bonds Capital Market Gains/Losses 56,636 45,028 1.9.5. ToFrom Owners of the profit/loss Sharing Certificates Gains/Losses Derivative Financial Instruments 1,306,798 (2,210,668) 1.10. Second Legal Reserves (-) Foreign Exchange Gains/Losses 1,693,291 3,013,484 1.11. Statutory Reserves OTHER OPERATING INCOME(-) (5.4.6.) 2,460,399 1,819,357 1.12. Extraordinary Reserves 1,319,715 GROSS OPERATING PROFIT (III+IV+V+VI+VII+ VIII) 14,099,007 9,464,230 EXPECTED LOSS PROVISIONS (-) 1.13. Other Reserves (5.4.7.) 4,573,043 3,240,522 507 OTHER PROVISIONS (-) 1.14. Special Funds (5.4.7.) 173,622 325,218 PERSONNEL EXPENSES (-) (5.4.8.) 1,698,855 1,342,912 II.OTHER OPERATING Distribution from Reserves EXPENSES (-) (5.4.8.) 3,028,664 2,312,022 NET OPERATING INCOME/(LOSS) (IX-X-XI) 4,624,823 2,243,556 2.1. Distributed Reserves EXCESS AMOUNT RECORDED AS INCOME AFTER MERGER 2.2. Second Legal Reserves (-) INCOME / (LOSS) FROM INVESTMENTS IN SUBSIDIARIES CONSOLIDATED BASED ON XV. 2.3. Dividends to Shareholders (-) 27,947 20,930 EQUITY METHOD 2.3.1. Owners of Ordinary Shares INCOME /The (LOSS) ON NET MONETARY POSITION XVI. -The Owners of Preferred OPERATIONS Stocks PROFIT/(LOSS) FROM CONTINUED BEFORE TAXES (XII+...+XV) XVII. 2.3.2. (5.4.9.) 4,652,770 2,264,486 TAX PROVISION FOR CONTINUED (±) The Owners of Preferred OPERATIONS Stocks (Preemptive Rights) XVIII. 2.3.3. (5.4.10) (1,279,103) (551,618) Current TaxThe Provision 2.3.4. Profit Sharing Bonds 18.1. 2,139,603 826,371 Deferred Tax Income Effectof (+)the profit/loss Sharing Certificates 18.2. 155,118 187,277 2.3.5. The Owners Deferred Tax Expense Effect (-) (-) 18.3. 1,015,618 462,030 2.4. Share to Personnel CURRENTShare PERIOD PROFIT/(LOSS) FROM XIX. (5.4.11.) 3,373,667 1,712,868 2.5. to Board of Directors (-) CONTINUED OPERATIONS (XV±XVI) INCOME FROM DISCONTINUED OPERATIONS XX. III.Income on Non-Current Earnings per Share Assets Held For Sale 20.1. Income on Sale of Associates, Subsidiaries And Jointly Controlled Entities (Joint Vent.) 20.2. 3.1. To Owners of Stocks Income on Other Discontinued Operations 20.3. 3.2. To Owners of Stocks (%) EXPENSES FROM DISCONTINUED OPERATIONS (-) XXI. 3.3. To Owners of Preferred Expenses From Non-Current Assets Held Stocks For Sale 21.1. -3.4. To Owners of Preferred StocksAnd (%) Expenses From Sale of Associates, Subsidiaries Jointly Controlled Entities (Joint Vent.) 21.2. -Expenses From Other Discontinued Operations 21.3. IV. Dividend per Share PROFIT / (LOSS) BEFORE TAX FROM DISCONTINUED OPERATIONS (XVIII-XIX) XXII. TAX PROVISION FOR DISCONTINUED OPERATIONS (±) XXIII. 4.1. -To Owners of Stocks Current Tax Provision 23.1. -4.2. To Owners of Stocks (%) Deferred Tax Expense Effect (+) 23.2. 4.3. To Owners of Preferred Stocks Deferred Tax Income Effect (-) 23.3. 4.4. To Owners of Preferred Stocks (%) CURRENT PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XX±XXI) XXIV. PROFIT/LOSS (XVII+XXII) XXV. (*) NET (5.4.12.) 3,373,667 1,712,868 The profit distribution of the Bank is decided at the General Assembly meeting which is not yet held as of the date of the preparation of these financial statements. Income/Loss 25.1. (**)Group’s 3,355,492 1,746,138 Deferred tax benefit is presented under other tax and legal liabilities. Deferred tax benefit can not be included in the dist ributable profit, thus it is classified under extraordinary Minority Interest Income/Loss (-) 25.2. 18,175 (33,270) reserves. Earnings Per Share Income/Loss - The accompanying notes are an integral part of these financial statements 10 6 255
258. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ KUVEYT TÜRK KATILIMOF BANKASI CONSOLIDATED STATEMENT PROFITANONİM OR LOSS ŞİRKETİ AND OTHER COMPREHENSIVE CONSOLIDATED PROFIT DISTRIBUTION TABLE INCOME FOR THE PERIOD ENDED 31 DECEMBER 2021 OF PARENT BANK FOR THE YEAR (Amounts expressed31 in DECEMBER thousands of Turkish Lira (TL) unless otherwise stated.) ENDED 2021 4. (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 7. PROFIT DISTRIBUTION TABLE OF PARENT BANK Audited Audited Current Period Prior Period Current Period Prior Period 31.12.2021 01.01.2021- 31.12.2020 01.01.2020 I. II. 31.12.2021 (*) CURRENT PROFIT (LOSS) I. Distribution of INCOME Current Period Profit OTHER COMPREHENSIVE 2.1.1 1.1. Comprehensive Current Period Other IncomeProfit Not Reclassified Through Profit Or Loss 1.2. And Equipment Taxes andRevaluation Dues Payable (-) Property Increase/Decrease 2.1.2 Intangible Assets Revaluation Increase/Decrease 2.1 2,000,422 (1,068) (954,783) Other Comprehensive Income Items Not Reclassified Through Profit Or Loss Taxes Related to Other Comprehensive Income Items Not Reclassified Through Profit or Loss - Net Profit for the Period (1.1-1.2) 1.3. Comprehensive Prior year’s Losses (-) 2.2 Other Income Reclassified Through Profit Or Loss 1.4. First Legal Reserves (-) 2.2.1 Foreign Currency Translation Difference 1.5. Other Reserves (-) 2.2.4 Foreign Net Investment Hedge Income/Loss 2.2.5 Other Comprehensive Income Items Reclassified 1.6.2. To Owners of Preferred Stocks Through Profit or Losses First Dividend to Shareholders (-) To Owners of Ordinary Shares 1.6.3.Related To Owners of Preferred Stocks Taxes Other Comprehensive Income Items(Preemptive Reclassified Rights) Through Profit Or Loss TOTAL COMPREHENSIVE INCOME (LOSS) (I+II) Distribution from Reserves 2.1. 2.2. 2.3. 2.3.1. 2.3.2. 2.3.3. 2.3.4. 2.3.5. 2.4. 2.5. Distributed Reserves Second Legal Reserves (-) Dividends to Shareholders (-) The Owners of Ordinary Shares The Owners of Preferred Stocks The Owners of Preferred Stocks (Preemptive Rights) The Profit Sharing Bonds The Owners of the profit/loss Sharing Certificates Share to Personnel (-) Share to Board of Directors (-) III. Earnings per Share 3.1. 3.2. 3.3. 3.4. To Owners of Stocks To Owners of Stocks (%) To Owners of Preferred Stocks To Owners of Preferred Stocks (%) IV. Dividend per Share 4.1. 4.2. 4.3. 4.4. To Owners of Stocks To Owners of Stocks (%) To Owners of Preferred Stocks To Owners of Preferred Stocks (%) (34,489) - 2,501,727 - III. II. - (646,097) 2.2.6 To Profit Sharing Bonds To Owners of the profit and loss Sharing Certificates Dividend to Personnel (-) Dividend to Board of Directors (-) Second Dividend to Shareholders (-) To Owners of Ordinary Shares To Owners of Preferred Stocks To Owners of Preferred Stocks (Preemptive Rights) To Profit Sharing Bonds To Owners of the profit/loss Sharing Certificates Second Legal Reserves (-) Statutory Reserves (-) Extraordinary Reserves Other Reserves Special Funds 2,501,727 637,347 2.2.3 1.6.4. 1.6.5. 1.7. 1.8. 1.9. 1.9.1. 1.9.2. 1.9.3. 1.9.4. 1.9.5. 1.10. 1.11. 1.12. 1.13. 1.14. 214 96,222 Valuation And/Or Reclassification Income/Expense of the Financial Assets At Fair Value Through Other Income Net Period Profit [(A-(1.3+1.4+1.5)] B. Comprehensive Distributable Cash Flow Hedge Income/Loss 1.6. 1.6.1. (160,781) - 2.1.5 2.2.2 95,368 - 1,045,639 2.1.4 A. 1,712,868 (854) 3,547,366 1.2.1. Corporate Tax (Income Tax) 1.2.2. Income Tax Withholding 2.1.3 Defined Pension Planand Remeasurement Gain/Loss 1.2.3. Benefit Other Taxes Dues Payable (**) 31.12.2020 (*) 3,373,667 139,461 3,469,035 - - - (32,176) (40,220) 8,044 (128,605) 260,831 (249,886) 11,514 (263,591) 112,527 1,552,087 1,852,683 452,402 781,806 (329,404) 1,400,281 70,014 1,330,267 9,132 1,319,715 507 - - - - - - - - - - - (*) The profit distribution of the Bank is decided at the General Assembly meeting which is not yet held as of the date of the preparation of these financial statements. (**) Deferred tax benefit is presented under other tax and legal liabilities. Deferred tax benefit can not be included in the dist ributable profit, thus it is classified under extraordinary reserves. The accompanying notes are 7 an integral part of these financial statements 256 10
259. 5 . Prior year’s Losses (-) First Legal Reserves (-) Other Reserves (-) 1.3. 1.4. 1.5. - 2,501,727 70,014 - 1,400,281 (*) - - 635 - 24,525 - Dividend per Share To Owners of Stocks To Owners of Stocks (%) To Owners of Preferred Stocks To Owners of Preferred Stocks (%) Earnings per Share 4,595,131 - 1,874 - Distributed Reserves Second Legal Reserves (-) Dividends to Shareholders (-) The Owners of Ordinary Shares (5.2.12.) 24,525 1,874 The Owners4,595,131 of Preferred Stocks The Owners of Preferred Stocks (Preemptive Rights) The Profit Sharing Bonds The Owners4,595,131 of the profit/loss Sharing Certificates 24,525 1,874 Share to Personnel (-) Share to Board of- Directors (-) - (635) - Distribution from Reserves - - - - (51,258) (854) - (51,258) (51,258) (19,082) (32,176 ) - - - - (19,082) - 2 3 - - - - - 486,343 637,347 - 486,343 486,343 - (1,305 ) (24,248 ) - - (1,305 ) (1,305 ) - - - - - (375,780) (516,877) - (375,780) (375,780) - - - - 1,996,805 1,152 1,413,655 1,413,655 - 1,996,805 1,996,805 (631) 1,103,377 1,102,558 819 - - - - - (421,663) 332,483 (1,413,655) 1,746,138 (421,663 ) (421,663) - - - (734,514 ) 156,750 156,750 - - 9,132 Prior Period Profit or Profit Reserves (Loss) (89,157 1,472,776 - ) 21,283 244,442 16,092 21,283 228,350 1,494,0591,319,715 155,285 507 816 - (600,000) 1,746,138 3,355,492 (1,746,138) (1,746,138) 1,746,138 1,746,138 156,304 156,304 1,273,941 1,746,138 (6,534 ) (1,267,407 ) (7,280 ) (1,102,558 ) (157,569 ) - 1,117,637 Net Prfit/Loss for the Period 8,000,810 3,450,860 1,152 - 8,000,810 8,000,810 405,937 405,937 7,164,412 1,585,357 (741,679 ) (7,280) (7,280) - 6,758,475 Total Shareholders'Equity Less Minority Shares 30,004 6,020 (5) - 30,004 30,004 28,461 1,539 4 - 28,461 Minority Shares Balances at end of the period (III+IV+…...+X+XI) 4.1. To Owners of Stocks (5.2.12.) 4,595,131 24,525 1,874 (52,112) 1,123,690 (25,553 ) (892,657) 3,411,612 (89,180) 3,355,492 11,452,822 36,019 4.2. To Owners of Stocks (%) 4.3. of the group To manages Ownerstheofrisk Preferred Stocks - procedures and principles” published by the Ministry Neova Katılım Sigorta A.Ş., a subsidiary fund formed due to the contributions of the participants separately in accordance with Article 6 of the “regulation on participation insurance and working of Treasury and Finance. Accordingly, amount the risk fund, which (%) is due to participant contributions amounting to 12,153 TL for the current period, has been classified- under other liabilities in balance- sheet. (31 December 2020: TL 34,809). 4.4.the profit/(expense) To Owners ofofPreferred Stocks Effect Of Changes In Accounting Policies Adjusted Beginning Balance (I+II) III. Total Comprehensive Income (Loss) Capital Increase by Cash 3.1. Capital Increase by Internal Reserves Paid in Capital Inflation Adjustment Difference 3.2. Convertible Bonds to Share Subordinated Debt Instruments 3.3. Increase / Decrease by Other Changes (**) 3.4. Profit Distribution Dividends Paid Transfers To Legal Reserves IV. Other Balance at end of the period (III+IV+…...+X+XI) 2.3.1. 2.3.2. 2.3.3. Current Period (01/01/2021 – 31/12/2021) 2.3.4. 2.3.5. Prior Period Ending Balance Corrections and Accounting Policy Changes Made 2.4. According to TAS 8 2.5. Effect Of Corrections Paid in Capital Inflation Adjustment Difference Convertible Bonds to Share II. Subordinated Debt Instruments Increase / Decrease by Other Changes 2.1. Profit Distribution Dividends Paid 2.2. Transfers To Legal Reserves 2.3. Other 1 Accumulated Other Income or Loss That Will Not Be Reclassified to Profit or Loss EQUITY Accumulated Other Income or Loss - or That Will Be Reclassified to Profit -Loss 4 5 6 225,512 214,695 (185,436) - (16,092 ) (16,092 ) - 225,512 198,603 (185,436) (199,908 ) 260,831 (190,344) - - 10 257 8 The accompanying notes are an integral part of these financial statements The accompanying notes are an integral part of these financial statements. 1. Accumulated Revaluation Increase / Decrease of Fixed Assets (*)of Defined The profit distribution of the Bank is decided at the General Assembly meeting which is not yet held as of the date of the preparation of these financial statements. 2.Accumulated Remeasurement Gain / Loss Benefit Pension Plan tax benefit is presentedIncome under Not other tax and Through legal liabilities. tax benefit can notAmounts be included in the dist ributableIncome profit, Items thus itNot is classified under extraordinary 3.Other (Shares of Investments Valued by (**) EquityDeferred Method in Other Comprehensive Classified Profit or Deferred Loss and Other Accumulated of Other Comprehensive Reclassified Through Other Profit or Loss) 4.Foreign Currency Translition Differences reserves. 5.Accumulated Revaluation and/or Remeasurement Gain/Loss of the Financial Asset at Fair Value Through Other Comprehensive Income 6.Other (Cash Flow Hedge Gain/Loss, Shares of Investments Valued by Equity Method in Other Comprehensive Income Classified Through Profit or Loss and Other Accumulated Amounts of Other Comprehensive Income Items Reclassified Through Other Profit or Loss) 2.1 2.2 III. IV. V. VI. VII. VIII. IX. X. XI. 11.1 11.2 11.3 II. I. VII. VIII. IX. X. XI. 11.1 11.2 11.3 1.6.2. To Owners of Preferred Stocks 1.6.3. To Owners of Preferred Stocks (Preemptive Rights) CONSOLIDATED STATEMENTS OF CHANGES 1.6.4. To Profit Sharing BondsIN SHAREHOLDERS’ 1.6.5. To Owners of the profit and loss Sharing Certificates 1.7. Dividend to Personnel (-) 1.8. Dividend to Board of Directors (-) 1.9. Second Dividend to Shareholders (-) Share Other Paid-in cancellation Capital 1.9.1. To Owners of Ordinary Shares Note Capital Share Premiums profits Reserves 1.9.2. To Owners of Preferred Stocks Prior Period 1.9.3. To Owners of Preferred Stocks (Preemptive Rights) (01/01/2020 – 31/12/2020) 1.9.4. To Profit Sharing Bonds I. Prior Period Ending Balance 3,995,766 1,239 1.9.5. To Owners of the profit/loss24,525 Sharing Certificates Corrections and Accounting Policy Changes Made II. 1.10. Second Legal Reserves (-) According to TAS 8 2.1 Effect Of Corrections 1.11. Statutory Reserves (-) 2.2 Effect Of Changes In Accounting Policies 1.12. Extraordinary Reserves III. Adjusted Beginning Balance (I+II) 3,995,766 24,525 1,239 IV. Total Comprehensive Income (Loss) 1.13. Other Reserves V. Capital Increase by Cash 1.14. Special Funds600,000 VI. Capital Increase by Internal Reserves - 1.6.1. To Owners of Ordinary Shares (Amounts expressed in thousands of Turkish Lira (TL) unless otherwise stated.) B. DistributableANONİM Net Period Profit [(A-(1.3+1.4+1.5)] 2,501,727 1,330,267 KUVEYT TÜRK KATILIM BANKASI ŞİRKETİ 1.6. FirstOF Dividend to Shareholders - ENDED 31 DECEMBER CONSOLIDATED STATEMENT CHANGES IN(-) SHAREHOLDERS’ EQUITY FOR THE PERIOD 2021 Net Profit for the Period (1.1-1.2) A. 11,488,841 8,030,814 3,456,880 1,147 - 8,030,814 8,030,814 405,937 405,937 7,192,873 1,586,896 (741,675 ) (7,280) (7,280) - 6,786,936 Total Shareholders' Equity Section V: Financial Information and Risk Management Practices
260. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENT CASH FLOW FORŞİRKETİ THE PERIOD ENDED 31 KUVEYT TÜRK KATILIMOF BANKASI ANONİM DECEMBER 2021 CONSOLIDATED PROFIT DISTRIBUTION TABLE OF PARENT BANK FOR THE YEAR (Amounts expressed31 in DECEMBER thousands of Turkish Lira ( TL) unless otherwise stated.) ENDED 2021 6. (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) CONSOLIDATED STATEMENT OF CASH FLOWS 7. PROFIT DISTRIBUTION TABLE OF PARENT BANK Note A. 01.01.202131.12.2021 (*) CASH FLOWS FROM BANKING OPERATIONS 1.1 Before Changes in Assets And Liabilities I.Operating Profit Distribution of Current Period Profit From Banking Operations 1.1.1 1.1.2 1.1.3 1.1.4 1.1.5 1.1.6 1.1.7 1.1.8 1.1.9 1.1. Period Profit Profit Share Current Income Received Profit Share Taxes Expenseand PaidDues Payable (-) 1.2. Dividends Received 1.2.1. Corporate Tax (Income Tax) Fees And Commissions Received 1.2.2. Income Tax Withholding Other Income 1.2.3. Other Taxes and Dues Payable (**) 1.2 1.2.1 1.2.2 1.2.3 1.2.4 1.2.5 1.2.6 1.2.7 1.2.8 1.2.9 1.2.10 I. B. II. 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 C. III. 3.1 3.2 3.3 3.4 3.5 3.6 IV. 4,774,531 Collections From Previously Written Off Loans A. Profit forService the Period (1.1-1.2) Payments to Net Personnel And Suppliers Taxes Paid 1.3. Prior year’s Losses (-) Others 1.4. First Legal Reserves (-) 1.5. Other Reserves (-) Changes in Assets And Liabilities From Banking Operations B. Distributable Net Period Profit [(A-(1.3+1.4+1.5)] Net (Increase) Decrease in Financial Assets at Fair Value Through Profit or Loss Net (Increase) Decrease in DuetoFrom Banks And Other 1.6. First Dividend Shareholders (-) Financial Institutions Net (Increase) Loans 1.6.1. ToDecrease Ownersinof Ordinary Shares Net (Increase) Other Assets Stocks 1.6.2. ToDecrease Ownersinof Preferred Net IncreaseTo (Decrease) Bank DepositsStocks (Preemptive Rights) 1.6.3. Ownersinof Preferred Net IncreaseTo (Decrease) in Other Deposits 1.6.4. Profit Sharing Bonds Net IncreaseTo (Decrease) Financial Liabilities Measured at Financial Assets at Fair Value Through 1.6.5. Ownersinof the profit and loss Sharing Certificates Profit or Loss 1.7. Dividend to Personnel (-) Net Increase (Decrease) in Funds Borrowed 1.8. Dividend to Board of Directors (-) Net Increase (Decrease) in Due Payables 1.9. Second Dividend to Shareholders (-) Net Increase (Decrease) in Other Liabilities 1.9.1. To Owners of Ordinary Shares 1.9.2. To Owners Preferred StocksOperations Net Cash Provided Fromof / (Used in) Banking 1.9.3. To Owners of Preferred Stocks (Preemptive Rights) 1.9.4. To Profit Bonds CASH FLOWS FROMSharing INVESTING ACTIVITIES 1.9.5. To Owners of the profit/loss Sharing Certificates 1.10. SecondFrom Legal/ (Used Reserves (-) Net Cash Provided in) Investing Activities 1.11. Statutory Reserves (-) Cash Paid For Purchase Jointly Controlled Operations, Associates And Subsidiaries 1.12. Extraordinary Reserves Cash Obtained FromReserves Sale of Jointly Controlled Operations, Associates And Subsidiaries 1.13. Other Fixed AssetsSpecial Purchases 1.14. Funds Fixed Assets Sales II.Cash Paid For Distribution from Reserves Purchase of Financial Assets at Fair Value Through Other Comprehensive Income Cash Obtained From Sale of Financial Assets at Fair Value Through Other Comprehensive Income 2.1. Distributed Reserves Cash Paid For Purchase of Investment Securities 2.2. Second Legal Reserves (-) Cash Obtained From Sale of Investment Securities 2.3. Dividends to Shareholders (-) Other 2.3.1. The Owners of Ordinary Shares 2.3.2. The FROM Owners of PreferredACTIVITIES Stocks CASH FLOWS FINANCING 2.3.3. The Owners of Preferred Stocks (Preemptive Rights) 2.3.4. The Profit Sharing Bonds Net Cash Provided From / (Used in) Financing Activities 2.3.5. The Owners of the profit/loss Sharing Certificates 2.4. Share Personnel (-) And Securities Issued Cash Obtained FromtoFunds Borrowed 2.5. Share to Board of Directors Cash Used For Repayment of Funds Borrowed(-) And Securities Issued Capital Increase III. Earnings per Share Dividends Paid Payments For Leases(*) 3.1. ToFinance Owners of Stocks Other 3.2. To Owners of Stocks (%) 3.3. To Owners of Preferred Stocks Effect of Change in Foreign Exchange Rate on Cash And Cash Equivalents 3.4. To Owners of Preferred Stocks (%) V. Net Increase (Decrease) in Cash And Cash Equivalents IV. Dividend per Share VI. Cash And Cash Equivalents at The Beginning of The Period 4.1. To Owners of Stocks 4.2. To Owners of Stocks (%) Cash And Cash Equivalents at The EndStocks of The Period 4.3. To Owners of Preferred 4.4. To Owners of Preferred Stocks (%) VII. Audited Audited Current Period Prior Period 01.01.2021 -31.12.2021 Current Period 01.01.2020-31.12.2020 Prior Period 4,484,711 3,547,366 10,679,121 (5,325,219) 1,045,639 6,042 2,000,422 1,261,652 3,127,762 (954,783) 855,886 2,501,727 (1,543,997) (1,100,673) (3,186,043) 976,943 - 1,852,683 8,626,213 (2,935,050) 452,402 68 781,806 917,653 2,406,840 (329,404) 374,444 1,400,281 (1,461,738) (1,111,610) (2,332,109) 70,014 (7,696,569) - 2,501,727 (154,156) (17,841,459) (23,476,636) 5,119,157 876,177 28,643,748 (149) (6,008,932) -13,819,193 5,751,474 (6,801,211) --(399,571) 521,626 (14,388,598) 4,792,530 (979,285) 3,774,636 (122,549) (1,055,887) 19,085,000 (20,602,188) 513,954 (52,653) - 1,330,267 (2,943,023) (10,056,468) (21,719,400) (9,559,006) 645,501 30,424,765 3,037,543 9,132 2,473,519 (3,211,858) (8,613,022) 1,319,715 -507 (120,504) 194,500 (12,758,073) 6,067,423 (1,933,750) (62,618) 966,756 6,267,842 (5,600,576) 388,646 (7,280) (81,876) - - (5.6.4) (5.6.1) (5.6.1) 01.01.2020 31.12.2020 (*) 27,297,784 - - - 5,637,262 25,192,160 (5,220,862) 13,995,430 39,187,590 - 19,216,292 13,995,430 - - - (*) Within the scope of TFRS 16- Leases Standard, comprise the payments related to leases that included in the financial statements (*) The profit distribution of the Bank is decided at the General Assembly meeting which is not yet held as of the date of the preparation of these financial statements. (**) Deferred tax benefit is presented under other tax and legal liabilities. Deferred tax benefit can not be included in the dist ributable profit, thus it is classified under extraordinary reserves. The accompanying notes are an integral part of these financial statements 9 The accompanying notes are an integral part of these financial statements 258 10
261. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ CONSOLIDATED PROFIT DISTRIBUTION TABLE OF PARENT BANK FOR THE YEAR CONSOLIDATED PROFIT DISTRIBUTION TABLE OF PARENT BANK FOR THE YEAR ENDED 31 DECEMBER 2021 (Amounts in thousands 2021 of Turkish Lira ( TL) unless otherwise stated.) ENDEDexpressed 31 DECEMBER 7. 7. (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) PROFIT DISTRIBUTION TABLE OF PARENT BANK PROFIT DISTRIBUTION TABLE OF PARENT BANK I. Distribution of Current Period Profit Current Period 01.01.2021Current Period 31.12.2021 (*) 01.01.202131.12.2021 (*) I. 1.1. 1.2. 1.1. 1.2.1. 1.2. 1.2.2. 1.2.1. 1.2.3. 1.2.2. 1.2.3. A. Distribution Current Period Profit Current PeriodofProfit Taxes and Dues Payable (-) Current Period Profit Corporate Tax (Income Tax) Taxes and Dues Payable (-) Income Tax Withholding Corporate Tax (Income Tax) Other Taxes and Dues Payable (**) Income Tax Withholding Other Taxesfor and Payable (**) Net Profit theDues Period (1.1-1.2) 3,547,366 1,045,639 3,547,366 2,000,422 1,045,639 2,000,422 (954,783) (954,783) 2,501,727 1,852,683 452,402 1,852,683 781,806 452,402 781,806 (329,404) (329,404) 1,400,281 A. 1.3. 1.4. 1.3. 1.5. 1.4. 1.5. B. Net the Period (1.1-1.2) PriorProfit year’sfor Losses (-) First Legal Reserves (-) Prior year’s Losses (-) Other Reserves (-) First Legal Reserves (-) Other ReservesNet (-) Period Profit [(A-(1.3+1.4+1.5)] Distributable 2,501,7272,501,727- 1,400,28170,014 70,014 1,330,267- B. 1.6. 1.6.1. 1.6. 1.6.2. 1.6.1. 1.6.3. 1.6.2. 1.6.4. 1.6.3. 1.6.5. 1.6.4. 1.7. 1.6.5. 1.8. 1.7. 1.9. 1.8. 1.9.1. 1.9. 1.9.2. 1.9.1. 1.9.3. 1.9.2. 1.9.4. 1.9.3. 1.9.5. 1.9.4. 1.10. 1.9.5. 1.11. 1.10. 1.12. 1.11. 1.13. 1.12. 1.14. 1.13. 1.14. II. Distributable Period Profit First Dividend Net to Shareholders (-)[(A-(1.3+1.4+1.5)] To Owners of Ordinary Shares First Dividend to Shareholders (-) To Owners of Preferred Stocks To Owners of Ordinary Shares To Owners of Preferred Stocks (Preemptive Rights) To Owners of Preferred Stocks To Profit Sharing Bonds To Owners of Preferred Stocks (Preemptive Rights) To Owners of the profit and loss Sharing Certificates To Profit Sharing Bonds Dividend to Personnel (-) To Owners of the profit and loss Sharing Certificates Dividend to Board of Directors (-) Dividend to Personnel (-) Second Dividend to Shareholders (-) Dividend to Board of Directors (-) To Owners of Ordinary Shares Second Dividend to Shareholders (-) To Owners of Preferred Stocks To Owners of Ordinary Shares To Owners of Preferred Stocks (Preemptive Rights) To Owners of Preferred Stocks To Profit Sharing Bonds To Owners of Preferred Stocks (Preemptive Rights) To Owners of the profit/loss Sharing Certificates To Profit Sharing Bonds Second Legal Reserves (-) To Owners of the profit/loss Sharing Certificates Statutory Reserves (-) Second Legal Reserves (-) Extraordinary Reserves Statutory Reserves (-) Other Reserves Extraordinary Reserves Special Funds Other Reserves Special Fundsfrom Reserves Distribution 2,501,727- 1,330,2679,132 9,132 1,319,715 507 1,319,715 507 - II. 2.1. 2.2. 2.1. 2.3. 2.2. 2.3.1. 2.3. 2.3.2. 2.3.1. 2.3.3. 2.3.2. 2.3.4. 2.3.3. 2.3.5. 2.3.4. 2.4. 2.3.5. 2.5. 2.4. 2.5. III. Distribution from Reserves Distributed Reserves Second Legal Reserves (-) Distributed Reserves Dividends to Shareholders (-) Second Legal Reserves (-) The Owners of Ordinary Shares Dividends to Shareholders (-) The Owners of Preferred Stocks The Owners of Ordinary Shares The Owners of Preferred Stocks (Preemptive Rights) The Owners of Preferred Stocks The Profit Sharing Bonds The Owners of Preferred Stocks (Preemptive Rights) The Owners of the profit/loss Sharing Certificates The Profit Sharing Bonds Share to Personnel (-) The Owners of the profit/loss Sharing Certificates Share to Board of Directors (-) Share to Personnel (-) Share to Board of Directors (-) Earnings per Share - - III. 3.1. 3.2. 3.1. 3.3. 3.2. 3.4. 3.3. Earnings Share To Ownersper of Stocks To To Owners Owners of of Stocks Stocks (%) To Owners of Preferred Stocks To Owners of Stocks (%) To To Owners Owners of of Preferred Preferred Stocks Stocks (%) -- -- - - IV. 4.1. 4.2. 4.1. 4.3. 4.2. 4.4. 4.3. 4.4. Dividend Share To Ownersper of Stocks To Owners of Stocks (%) To Owners of Stocks To Owners of Preferred Stocks To Owners of Stocks (%) To Owners of Preferred Stocks (%) To Owners of Preferred Stocks To Owners of Preferred Stocks (%) - 3.4. IV. (*) (**) (*) (**) - -- To Ownersper of Preferred Dividend Share Stocks (%) Prior Period 01.01.2020 Prior Period31.12.2020 (*) 01.01.2020 31.12.2020 (*) - -- The profit distribution of the Bank is decided at the General Assembly meeting which is not yet held as of the date of the preparation of these financial statements. Deferred tax benefit is presented under other tax and legal liabilities. Deferred tax benefit can not be included in the dist ributable profit, thus it is classified under extraordinary The profit distribution of the Bank is decided at the General Assembly meeting which is not yet held as of the date of the preparation of these financial statements. reserves. Deferred tax benefit is presented under other tax and legal liabilities. Deferred tax benefit can not be included in the dist ributable profit, thus it is classified under extraordinary reserves. The accompanying notes are an integral part of these financial statements The accompanying notes are an integral part of these financial statements 10 10 259
262. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION THREE EXPLANATIONS ON ACCOUNTING POLICIES IN THE RELATED PERIOD 1. Explanations on Basis of Presentation 1.1. The preparation of the consolidated financial statements and related notes and explanations in accordance with the turkish accounting standards and regulation on accounting applications for banks and safeguarding of documents The Parent Bank prepares its financial statements in accordance with the “Regulation on The Procedures And Principles For Accounting Practices And Retention of Documents By Banks” published in the Official Gazette dated 1 November 2006 with numbered 26333, and other regulations on accounting records of banks published by the Banking Regulation and Supervision Agency (“BRSA”) as well as the circulars and pronouncements published by the BRSA. For matters not regulated by the aforementioned legislations, the Bank prepares its financial statements in accordance with the BRSA Accounting and Financial Reporting Legislation, which comprises the terms of the Turkish Financial Reporting Standards issued by the Public Oversight Accounting and Auditing Standards Authority. Additional paragraph for convenience translation The differences between the standards set out by BRSA Accounting and Financial Reporting Legislation and the accounting principles generally accepted in countries in which the accompanying financial statements are to be distributed and International Financial Reporting Standards (IFRS) have not been quantified in the accompanying financial statements. Accordingly, the accompanying financial statements are not intended to present the financial position, results of operations and changes in financial position and cash flows in accordance with the accounting principles generally accepted in such countries and IFRS. 1.2. Accounting policies and valuation principles applied in the preparation of consolidated financial statements: The financial statements have been prepared on the historical cost basis except for the financial instruments at fair value through profit or loss, and the financial assets and liabilities at fair value through other comprehensive income that are measured at fair values. The preparation of consolidated financial statements in conformity with BRSA Accounting and Financial Reporting Legislation requires the Group management to make assumptions and estimates with respect to the assets and liabilities on the balance sheet and contingent issues outstanding as of the balance sheet date. These assumptions and estimates mainly consist of calculations of the fair values of financial instruments and the impairment on assets. The assumptions an estimates are reviewed regularly and, when necessary, appropriate corrections are made and the effects of such corrections are reflected on the income statement. COVID-19 pandemic, which has emerged in China, has spread to various countries in the world, causing potentially fatal respiratory infections, negatively effects both regional and global economic conditions, as well as it causes disruptions in operations, especially countries that are exposed to the epidemic. As a result of the spread of COVID-19 around the world, several measures are still being taken in in our country as well as in the world in order to prevent the spread of the virus and measures are still being taken. In addition to the measures, economic measures are also taken to minimize the economic impact of the virus outbreak on individuals and businesses in our country and worldwide. Since it is aimed to update the most recent financial information in the year-end financial statements prepared as of December 31, 2021, considering the magnitude of the economic changes due to COVID-19, the Bank made certain estimates in the calculation of expected credit losses and disclosed them in third section footnote numbered 1.5 “Explanations on Expected Credit Loss”. In the upcoming periods, the Bank will update its revelant assumptions are necessary and revise the realizations of past estimates. 1.3. Changes in accounting estimates, errors and classifications If changes in accounting estimates are related to only one period, they are applied in the current period in which the change is made, and if they are related to future periods, they are applied both prospectively and in the future periods. Significant accounting errors are applied retrospectively and prior period financial statements are restated. There were no significant changes in the accounting estimates of the Group in the current year. In the announcement published by the Public Oversight Accounting and Auditing Standards Authority on January 20, 2022, it is stated that TAS 29 Financial Reporting in Hyperinflationary Economies does not apply to the TFRS financial statements as of December 31, 2021, since the cumulative change in the general purchasing power of the last three years according to Consumer Price Index (CPI) is 74.41%. In this respect, consolidated financial statements as of December 31, 2021 are not adjusted for inflation in accordance with TAS 29. 11 260
263. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.4. Preparation of the financial statements as regards to the current purchasing power of money Until 31 December 2004, the financial statements of the Group were subject to inflation adjustments in accordance with Turkish Accounting Standard No: 29 “Financial Reporting in Hyperinflationary Economies” (“TAS 29”). As per the BRSA decision numbered 1623 and dated 21 April 2005 and the BRSA circular dated 28 April 2005 it was stated that the indicators for the application of inflation accounting were no longer applicable. Consequently, as of 1 January 2005, the inflation accounting has not been applied. 1.5. TFRS 3 explanations on business combinations standard The acquisition of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Bussiness combinations are accounted in accordance with TFRS 3 "Business Combinations" except for the assets (or disposal groups) that are classified as held for sale in accordance with TFRS 5 "Non-current Assets Held for Sale and Discontinued Operations" are measured in accordance with that Standard. The interests of non-controlling shareholders in the acquire is initially measured at the non-controlling’s proportion of the fair value of the assets, liabilities and contingent liabilities recognized. When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. ▪ Explanations regarding the accounting policy applied for the acquisition of Neova Katılım Sigorta A.Ş. Following the necessary legal permissions on May 5, 2020, the Bank finalized the purchase of Neova Katılım Sigorta A.Ş. by completing the share transfer process. The Bank purchased 78,864,212 shares by paying TL 745,860 and increased the partnership share in Neova Katılım Sigorta A.Ş. from 7% to 100% by owning all the shares. This acquisition has been evaluated as a merger of entities under common control and has been accounted for using the aggregation method (Pooling of interest). According to this method, the assets and liabilities of Neova Katılım Sigorta A.Ş. are included in the financial statements over the book values determined in accordance with TFRS at the merger date, and no goodwill has arisen in the financial statements as a result of the merger. 1.6 Disclosures regarding TFRS 9 financial instruments TFRS 9 “Financial Instruments”, which is effective as at 1 January 2018 is published by the Public Oversight Accounting and Auditing Standards Authority (“POA”) in the Official Gazette numbered 29953 dated 19 January 2017. As of 1 January 2018, the application of TFRS 9 replaced “TAS 39: Financial Instruments: Recognition and Measurement.” standard. TFRS 9 also includes new principles for general hedge accounting which aims to harmonize hedge accounting with risk management applications. In the admission of the accounting policies, TFRS 9 presents the option of postponing the adoption of TFRS 9 hedge accounting and continuing to apply the hedge accounting provisions of TAS 39. 12 261
264. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) All recognized financial assets that are within the scope of TFRS 9 are required to be initially measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and profit share on the principal amount outstanding, are generally measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under TFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment in other comprehensive income, with only dividend income generally recognized in profit or loss. Dividends obtained from such investments are accounted in the financial statements as profit or loss unless they are evidently a part of the recoverable cost of investment. As a result of the combination of contractual cash flow characteristics and business models, the differences in the classification of financial assets are reflected in the financial statements compared to the current classification in TAS 39. During the first recognition of a financial asset into the financial statements, business model determined by the Parent Bank management and the nature of contractual cash flows of the financial asset are taken into consideration. Classification and measurement of financial instruments According to TFRS 9 requirements, classification and measurement of financial assets will depend on the business model within which financial assets are managed and their contractual cash flow characteristics whether the cash flows represent “solely payments of principal and profit share” (SPPI). Upon initial recognition each financial asset shall be classified as either fair value through profit or loss (“FVTPL”) amortized cost or fair value through other comprehensive income (“FVOCI”). As for the classification and measurement of financial liabilities, the application of the existing terms of TAS 39 remain largely unchanged under TFRS 9. Explanations on expected credit loss As of 1 January 2018, the Parent Bank will recognize provisions for impairment in accordance with the TFRS 9 requirements according to the “Regulation on the Procedures and Principles for Classification of Loans by Banks and Provisions to be set aside” published in the Official Gazette dated 22 June 2016 numbered 29750. The expected credit loss estimates are required to be unbiased, probability-weighted and should include supportable information about past events, current conditions, and forecasts of future economic conditions. Modeling studies were carried out on the principal components of the Expected Loan Loss calculation and the default probability (CTR) models were developed on various loan portfolios. Credit portfolios are determined according to customer segments that form the basis of banking activities. The cyclical default probabilities generated by these models developed for use in the Internal Rating Based Approach (IDD) are translated into the Instantaneous Default Probabilities and these instantaneous default probabilities are used when calculating the Expected Loan Loss on TFRS 9. Loss in Default (LID) calculation is made using models established on the basis of sub-segments based on the Bank's internal collection data. Default Amount (TT) corresponds to the balance used in cash at the reporting date for cash loans, non-cash loans and balance after application of the loan to commitment risks. 262 13
265. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Macroeconomic scenarios affect PD values. The expected credit loss amount is calculated by weighting 3 different scenarios as Base, Good and Bad scenarios. The probability of default of the debtors and the loss rates in default vary with each scenario. As of December 31, 2021, The Group reflected the data obtained with the best estimation method to the estimates and judgements used in the calculation of expected credit losses, with the best estimation method, for the possible effects of the COVID-19 outbreak. In the light of the aforementioned data, the Group revised its macroeconomic expectations in the calculation of expected credit loss, and the calculation made taking into account the change in PD with the update in the EDF model was reflected in the financial statements. Due to their nature, model updates are reflected in financial statements with a delay due to the macroeconomics effects of events that cause changes and occur at different times. For this reason, the bank establishes additional provisions for the sector or customers that are considered to have a high impact, by making sector-based valuatios when deemed necessary to eliminate the timing difference. The Group maintains this approach as of December 2021. When deemed necessary, the Bank will review these assumptions according to the course of the pandemic in the future. Within the scope of Article 4 and 5 of the Regulation On Procedures And Principles For Classification Of Loans And Provisions in accordance with the BRSA Decisions numbered 8948 dated 17 March 2020 and numbered 8970 dated 27 March 2020, due to the disruptions in economic and commercial activities resulting from the Covid-19 outbreak, the 90 days default periods for loans to be classified as non-performing loans shall be applied as 180 days; the 30 days periods for loans to be classified as stage 2 shall be applied as 90 days according to assembly’s resolution dated on 17 March 2020. As of September 30, 2021, it has been decided to end the implementation. With the announcement made on September 16, 2021, it was decided to end the flexibility as of the end of September 30, 2021; however, as of 1 October 2021, the same application as previously stated will be continued by the banks for the 1st stage loans with a delay period of more than 31 days and not exceeding 90 days. As of 1 October 2021, in addition to the 1st stage loans, it has been decided to continue with the same practice for the 2nd stage loans with a delay period exceeding 91 days and not exceeding 180 days. The forecast of expected credit losses is unbiased, probabilistic-weighted and includes supportable information about past events, current conditions and predictions of future economic conditions. The Group applies a ‘three-stage’ impairment model depending on the gradual increase in credit risk observed since initial recognition Stage 1: Includes financial assets not having significant increase in their credit risk from initial recognition till the following reporting date or financial assets having low credit risk at the reporting date. It is recognized 12-month expected credit losses for such financial assets. Stage 2: Includes financial assets having significant increase in their credit risk subsequent to the initial recognition, but not having objective evidence about impairment. It is recognized life time expected credit losses for such financial assets. In this context; The basic considerations that are taken into account in determining the significant increase in the credit risk of a financial asset and its transfer to Phase 2 are, but are not limited to, the following. • Delayed by more than 30 days as of the reporting date • Restructuring • Close Monitoring • Evaluation of distortion in Rating Note The definition of the deterioration in the rating is the comparison of the credit rating at the opening date and the rating date at the reporting date by using the Parent Bank's internal rating-based credit rating models. If the rating calculated for the loan at the reporting date exceeds the specified threshold values, the rating is deemed as deterioration. Stage 3: Includes financial assets having objective evidence about impairment at the reporting date. It is recognized lifetime expected credit losses for such financial assets. 14 263
266. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) The Parent Bank periodically evaluates the provisions of loans and other receivables in accordance with TFRS 9 retrospectively on the basis of their results and, if deemed necessary, revises the basketing rules and the parameters used in the calculation of the related provision balances. However, based on the BRSA's decisions dated March 17, 2020 and numbered 8948 with dated March 27, 2020 and numbered 8970; due to the impediments in the economic and commercial activities which have been occurred as a result of the COVID-19 pandemic, according to the articles 4 and 5 of the Regulation on the Procedures and Principles Regarding the Classification of Loans and Provisions the foreseen 90-day delay period for the non-performing loans classification was made possible to apply as 180 days; until September 30, 2021, the application of the foreseen 30-day period for the classification for Stage 2 as 90 days has been enabled. With the announcement made on September 16, 2021, it was decided to end the flexibility as of the end of September 30, 2021; however, as of 01.10.2021, the same application as previously stated will be continued by the banks for the 1st stage loans with a delay period of more than 31 days and not exceeding 90 days. As of 01.10.2021, in addition to the 1st stage loans, it has been decided to continue with the same practice for the 2nd stage loans with a delay period exceeding 91 days and not exceeding 180 days. 1.7 Revenue from TFRS 15 disclosures regarding the standard of revenue from customer contracts TFRS 15 Revenue from Customer Contracts provides a single, comprehensive model and guidance on the recognition of revenue and is recorded in accordance with TFRS 15. 1.8 Explanations on TFRS 16 leases standard The leasing transactions are presented by the lessess as assets (right-of-use assets) and liabilities from leasing transactions. TFRS 16 Standard eliminates the dual accounting model of leasing transactions on balance sheet and operational leasing transactions as direct expense except balance sheet. Within the scope of TFRS 16, the Group reflects the existence of a lease obligation and a right of use to the financial statements at the date of initial application. The Group measures the leasing liability on the present value of the remaining lease payments, discounted at their present value using the alternative borrowing cost ratio at the date of initial application of the Parent Bank. In addition, the Bank measures the existence of the right to use of such right at an amount equal to the lease obligation, which is reflected in the statement of financial position immediately after the first application date, adjusted for the amount of all prepaid or accrued lease payments. As of December 31, 2021, the right-of-use assets classified tangible assets gross amounting to TL 596,973 in the balance sheet of the Group and lease obligations gross amounting to TL 567,488 In the twelve-month period that ended as of the same date, financial expenses amounting to TL 53,632 and depreciation expenses amounting to TL 128,569 were incurred. As of 31 December 2021, the Bank has usage assets amounting to TL 551,438 classified under tangible fixed assets and TL 522,188 lease obligations in the balance sheet. In year end that ended as of the same date, a financial expense of TL 52,653 and depreciation expense of TL 113,822 occurred. On 5 June 2020, Public Oversight Accounting and Auditing Standards Authority (“POA”) has changed to TFRS 16 “Leases” standard by publishing Privileges Granted in Lease Payments -"Amendments to TFRS 16 Leases" concerning Covid-19. With this change, tenants are exempted from whether there has been a change in the rental priviliges in lease payments due to Covid-19. This change did not have a significant impact on the financial status or performance of the Group. 2. Explanations on strategy of using financial instruments and foreign currency transactions The Group follows an asset-liability management strategy that mitigates risk and increases earnings by balancing the funds borrowed and the investments in various financial assets. The main objective of asset-liability management is to limit the Parent Bank’s exposure to liquidity risk, currency risk and credit risk while increasing profitability and strengthening the Parent Bank’s equity. The assets-liabilities committee (ALC) manages the assets and liabilities within the trading limits on the level of exposure placed by the Executive Risk Committee. 15 264
267. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Gains and losses arising from foreign currency transactions have been recorded in the period in which the transaction took place. Foreign currency denominated monetary assets and liabilities are valued with the period end exchange rates published by the Central Bank of Turkey converting them into Turkish Lira and valuation differences of foreign currencies have been recognized in the income statement under the net foreign exchange income/expense account. The foreign currency exchange differences resulting from the translation of debt securities issued and monetary financial instruments into Turkish Lira are included in the income statement. There are no foreign currency differences capitalized by the Group. 3. Investments in Associates and Subsidiaries Consolidated and Financial Statements '' Turkey Accounting Standard for Consolidated Financial Statements" (TFRS 10) has been prepared in accordance with the provisions. Titles, locations of the headquarters, main operations and Group’s shares relating the consolidated entities are as follows: Title Address (City/Country) Operation 31-Dec-21 31-Dec-20 Consolidation method Frankfurt/Germany Banking %100.00 %100.00 Full consolidation Nevoa Katılım Sigorta A.Ş. İstanbul/Turkey Financial Instution %100.00 %7.00 Full consolidation KT Kira Sertifikaları Varlık Kiralama A.Ş. İstanbul/ Turkey Financial Instution %100.00 %100.00 Full consolidation KT Sukuk Varlık Kiralama A.Ş. İstanbul/ Turkey Financial Instution %100.00 %100.00 Full consolidation KT Portföy Yönetimi A.Ş. İstanbul/ Turkey Financial Instution %100.00 %100.00 Full consolidation Körfez Gayrimenkul Yatırım Ortaklığı A.Ş. İstanbul/ Turkey Financial Instution %75.00 %75.00 Full consolidation Katılım Emeklilik ve Hayat A.Ş. İstanbul/ Turkey Financial Instution %50.00 %50.00 Accounted with equity pick-up Kt Portföy Kuveyt Türk Yabancı Katılım Serbest Özel Fon İstanbul/Turkey Investment Fund %100.00 - Full consolidation KT Bank AG Parent Bank and the subsidiaries, the financial tables of which are consolidated along with the Parent Bank, are collectively referred as “the Group.” Consolidation basis of subsidiaries Subsidiaries are entities whose capital and management are directly or indirectly controlled by the Parent Bank. Subsidiaries are consolidated by the full consolidation method, within the framework of significance on the basis of operational outcomes, assets sizes and equity sizes. The financial statements of the relevant subsidiaries are included in the consolidated financial statements as of the date that control is transferred to Parent Bank. Control denotes any of the following circumstances: the Parent Bank directly or indirectly through subsidiaries has over 50% of the voting rights or, dominance over the voting rights as described afore does not exist but the Parent Bank owns the preferred shares, or; the Parent Bank has voting rights appropriating more than %50 percent of all voting rights due to the agreements signed with other shareholders, or; the Parent Bank has the authority to manage the operational and financial policies of the entity due to certain arrangements or agreements, or; the Parent Bank has the power to influence the majority of the votes within the Board of Directors or any other executive organ vested with similar rights, or; the Parent Bank by any means has the power to appoint or dismiss the majority of the Board of Directors. In accordance with the full consolidation, all of the assets, liabilities, income, expense and off-balance sheet liabilities of the subsidiaries are consolidated with the assets, liabilities, income, expense and off-balance sheet liabilities of the Parent Bank. The carrying value of the Group’s investment in each subsidiary is offset with the cost value of the subsidiary’s capital owned by the Group. Balances regarding the transactions between the subsidiaries in the scope of the consolidation and the unrealized gains/losses are reciprocally offset. Minority shares within the net income of the consolidated subsidiaries are determined provided that the net income of the Group shall be calculated, and these minority shares are presented as a seperate item in the income statement. Minority shares are presented under the equity in the consolidated balance sheet. In the case where the accounting policies implemented by the subsidiary are different than the Parent Bank, the accounting policies are reconciled. 16 265
268. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4. Explanations on forward transactions and option contracts and derivative instruments The Group enters into forward agreements to decrease its currency risk and to manage its foreign currency liquidity. Derivative instruments are classified as ‘hedging derivative financial asset’ and ‘derivative financial assets/liabilities at fair value profit or loss’. The Group classifies its derivative instruments as “Derivative Financial Instruments Held for Hedging Purposes” and “Derivative Financial Instruments Held for Trading” in accordance with TAS 39. Even though some derivative transactions economically hedge risk, since all necessary conditions for hedge accounting are not met, they are accounted for as “held for trading” within the framework of TAS 39, and are reflected in the “Derivative Financial Assets/liabilities at fair value profit or loss” account in the balance sheet. The Group has no derivative financial assets/liabilities for hedging purposes as of balance sheet date. Fair values of foreign currency forward transactions and swaps are calculated by using the discounted cash flow model. Differences resulting from the changes in the fair values of derivatives held for trading are accounted under ‘Trading Income/Loss’ line in the income statement. Embedded derivatives are separated from the host contract if the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss. Embedded derivatives are accounted as derivative instruments in-line with TAS 39. If the embedded derivatives are closely related with the host contract, embedded derivatives are accounted for in-line with the relevant standard applicable for the host contract. The Group's cash flow hedging process has ended as of December 2021. Benchmark Rate Reform - Stage 2, which introduces amendments to TFRS 9, TAS 39, TFRS 7, TFRS 4 and TFRS 16, effective from January 2021, was published in December 2020 and early application of the changes is permitted. With the amendments made, certain exceptions are provided in the basis used in determining the contractual cash flows and in the hedge accounting provisions. The changes came into effect from 1 January 2021. Loans given from items indexed to benchmark interest rates in the Bank's financial statements and securities assets; Securities issued, derivative transactions and loans obtained through repo constitute liabilities. These changes do not have a significant impact on the Bank's financial position or performance. As of 31 December 2021, the Bank has no hedging transactions based on the benchmark interest rate. 5. Explanations on profit share income and expense Profit share income is recognized in the income statement on an accrual basis by using the method of internal rate of return and is accounted under profit share income account in the financial statements. While applying the internal rate of return method, the Group amortizes the fees included in the account of the effective profit rate over the expected life of the financial instrument. If the financial asset is impaired and classified as a non-performing loan, profit accruals and rediscount calculations for these customers within the scope of TFRS 9 Financial Instruments Standard. The Group calculates expense accrual in accordance with the unit value calculation method on profit/loss sharing accounts and reflects these amounts in “Funds Collected” account on the balance sheet. 6. Explanations on fees and commission income and expenses Other than fees and commission income and expenses received from certain banking transactions that are recorded as income or expense in the period they are collected, fees and commission income and expenses are recognized in the income statement depending on the duration of the transaction. Except for fees and commissions that are integral part of the effective interest rates of financial instruments measured at amortized costs, the fees and commissions are accounted for in accordance with TFRS 15 Revenue from Contracts with Customers. Except for certain fees related with certain banking transactions and recognized when the related service is given, fees and commissions received or paid, and other fees and commissions paid to financial institutions are accounted under accrual basis of accounting throughout the service period In accordance with the provisions of TAS, commission and fees collected in advance for loans granted are deferred and reflected to the income statement by using the internal rate of return method. Unearned portion of the commission and fees relating to the future periods are recorded to the “Unearned Revenues” account under “Other Liabilities” on the balance sheet. 17 266
269. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 7. Explanations on financial assets The Group classifies and accounts for its financial assets as ‘Fair Value Through Profit/Loss’, ‘Fair Value Through Other Comprehensive Income,’ or ‘Amortized Cost.’ Such financial assets, are recognized and derecognized as per the terms of “Recognition and Derecognition in Financial Statements” under the section three of the “TFRS 9 Financial Instruments” regarding the classification and measurements of financial instruments, published in the Official Gazette numbered 29953 and dated 19 January 2017 by Public Oversight, Accounting and Auditing Standards Authority (“POA”). When financial assets are included in the financial statements for the first time, they are measured at fair value. Transaction costs are initially added to fair value or deducted from fair value at the initial measurement of financial assets other than the "Fair Value at Fair Value Through Profit or Loss". The Group recognizes a financial asset in the financial statements only when it becomes a party to the contractual terms of a financial instrument. During the initial recognition of a financial asset, the business model determined by parent Bank management and the nature of contractual cash flows of the financial asset are taken into consideration. When the business model determined by the Parent Bank management is changed, all affected financial assets are reclassified and this reclassification is applied prospectively. In such cases, no adjustments is made to gains, losses or profit shares that were previously recorded in the financial statements. 7.1 Financial assets at fair value through profit/loss Financial assets at fair value through profit/loss are financial assets that are managed within a business model other than the business model whose objective is achieved by holding contractual cashflows for collection and the business model whose objective is achieved by collecting and selling contractual cash flows. Also, in case that the contractual terms of financial assets do not give rise on specified dates to cash flows that are solely payments of principal and profit share on the principal amount, such assets are those that are, obtained with the aim of providing profit from the short-term price or other factor fluctuations in the market or are part of a portfolio aiming to obtain short-term profit, regardless of the reason of acquisition. 7.2 Financial assets at fair value through other comprehensive income A financial asset is classified as at fair value through other comprehensive income when the asset is managed within a business model whose objective is achieved by collecting contractual cash flows and selling the financial asset, as well as when the contractual terms of the financial asset give rise on specified dates to cash flows are solely payments of principal and profit share on the principal amount. Financial assets at fair value through other comprehensive income are recognized by adding transaction cost to acquisition costs that reflect the fair value of the financial asset. After the recognition, financial assets at fair value through other comprehensive income are remeasured at fair value. Profit share income calculated with effective profit share method regarding the financial assets at fair value through other comprehensive income and dividend income from equity securities are recorded to income statement. “Unrealized gains and losses,” which is the difference between the amortized cost and the fair value of financial assets at fair value through other comprehensive income, are not reflected in the income statement of the period until the acquisition of the asset, sale of the asset, the disposal of the asset, or the impairment of the asset. “Unrealized gains and losses” are accounted under the “Accumulated other comprehensive income or expense to be reclassified through profit or loss” under shareholders’ equity. Equity securities, which are classified as financial assets at fair value through other comprehensive income, are carried at fair value, in the case that the securities have a quoted market price in an active market and/or the fair values of the securities can be reliably measured. In contrary case, the securities are carried at cost, less provision for impairment. During initial recognition an entity can make an irrevocable election regarding the presentation of the subsequent changes in the fair value of the investment in an equity instrument, that is not held for trading purposes, in the other comprehensive income. In the case that the entity elects to present the changes as described, dividends arising from the investment is accounted in the financial statements as profit or loss. 18 267
270. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 7.3 Financial assets measured at amortized cost In the case that a financial asset is held within a business model whose objective is achieved both by collecting contractual cash flows and that the contractual terms of the financial asset give rise to cash flows on specified dates that are solely payments of principal and profit share on the principal amount, the financial asset is classified as financial asset measured at amortized cost. Financial Assets Measured at Amortized Cost; are financial assets, other than loans and receivables, which are held for the purpose of custody until maturity, with conditions necessary for such assets to be held until contractual maturity met, including funding ability; and which have fixed or determinable payments and fixed maturities. Financial assets measured at amortized cost are initially recognized at cost and subsequently measured at amortized cost using the internal rate of return method. Profit share income related to Financial Assets measured at amortized cost is reflected in the income statement. 7.4 Derivative financial assets The major derivative instruments utilized by the Group are foreign currency swaps, cross currency swaps and currency forwards. Payables and receivables arising from the derivative instruments are recorded in the off-balance sheet accounts at their contractual values. Derivative transactions are valued at their fair values subsequent to their acquisition. In accordance with the classification of derivative financial instruments, the fair value amounts are classified as "Derivative Financial Assets Designated at Fair Value Through Profit or Loss." The fair value differences of derivative financial instruments are recognized in the income statement under trading profit/loss line in profit/loss from derivative financial transactions. The fair value of derivative instruments is calculated by considering the market value of the derivatives or by using the discounted cash flow model. 7.5 Loans Loans are financial assets that have fixed or determinable payments terms and are not quoted in an active market. Loans are initially recognized at acquisition cost plus transaction costs presenting their fair value and thereafter measured at amortized cost using the "Effective Profit Share Rate (internal rate of return) Method". 8. Explanations on offsetting of financial assets and liabilities Financial assets and liabilities are offset and the net amount is reported in the balance sheet when the Parent Bank has a legally enforceable right to offset the recognized amounts and there is an intention to collect/pay the related financial assets and liabilities on a net basis, or to realize the asset and settle the liability simultaneously. 9. Explanations on sale and repurchase agreements and lending of securities Central Bank of the Republic of Turkey (“CBRT”) made some changes on orders for open market transactions (“OMT”) and prepared an additional frame contract for participation banks in order to present rent certificates to open market operations of CBRT in accordance with the principles of participation banks. According to this agreement; a new type of transaction was formed which enables participation banks to resell or repurchase rent certificates on their portfolio to CBRT when they are in need of funding or in attempt to evaluate the excess liquidity In this context, OMT were carried out with the CBRT for the first time on 14 June 2013, by subjecting the Treasury Lease Certificates, which were include in assets, to the repurchase transactions. From this date, the Bank performs sale transactions of treasury lease certificates that are recognized in the assets of the balance sheet in return for conditional repurchasing by tendering to purchase auctions held by CBRT with various maturities; and thusly raises funds. As of 31 December 2021, the Group has repurchased agreement amounting to TL 6,495,137 (31 December 2020: 185,225). 268 19
271. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10. Explanations on assets held for sale and discontinued operations and related liabilities As mandated by the Banking Act 5411 Article 57 “banks cannot participate in commercial real-estate and commodity trade with the exception of real-estate and commodity based agreements within the scope of Capital Markets Act No. 2499, and precious metal trade as seen appropriate by the board, and cannot participate in partnerships with firms whose main business activity is commercial real-estate, with the exception of real-estate investment partnerships and companies that finance mortgaged residential estates. The rules and procedures regarding the sales of real-estate and commodities that were acquired due to receivables and debtors’ obligations to the bank are determined by the board.” Assets that meet the criteria for classification as assets held for sale are measured at the lower of the carrying amount of assets and fair value less any costs to be incurred for disposal. Assets held for sale are not amortized and presented in the financial statements separately. In order to classify an asset as held for sale, the sale should be highly probable and the asset (or disposal group) should be available for immediate sale in its present condition. Highly saleable condition requires a plan by the management regarding the sale of the asset (or the disposal group) together with an active program for the determination of buyers as well as for the completion of the plan. Also the asset (or the disposal group) should be actively in the market at a price consistent with its fair value. In addition, the sale is expected to be recognized as a completed sale within one year after the classification date and the necessary transactions and procedures to complete the plan should demonstrate the fact that there is remote possibility of making any significant changes in the plan or cancellation of the plan. Various events and conditions may extend the completion period of the disposal over one year. If such delay arises from any events and conditions beyond the control of the entity and there is sufficient evidence that the entity has an ongoing disposal plan for these assets, such assets (or disposal group) can remain to be classified as assets (or disposal group) held for sale. Extension of the period necessary to complete the sale, does not avoid the classification of the related asset (or disposal group) to be classified as asset held for sale. A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale. Discontinued operations are presented separately in the income statement. The Group has no discontinued operations. 11. Explanations on goodwill and other intangible assets Intangible assets are stated at cost adjusted for inflation until 31 December 2004, less provision for impairment, if any, and accumulated amortization and amortized with straight-line method. The other intangible assets of the Group comprise mainly computer software. The useful lives of such assets acquired prior to 2004 have been determined as 5 years and for the year 2004 and forthcoming years, as 3 years. The depreciation period for licenses is determined based on the period in the license agreements. There is no goodwill related to associates and subsidiaries. 12. Explanations on tangible assets Fixed assets are stated at cost adjusted for inflation until 31 December 2004, less accumulated depreciation and provision for impairment, if any. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The annual rates used for amortization are as follows: Property Movables, leased assets 2% 6.67% - 20% Depreciation is calculated on a pro-rata basis for the assets that have been placed in use for less than one year as of the balance sheet date. Leasehold improvements are depreciated over the term of the lease agreements by straight-line method. If the recoverable amount (the higher of value in use and fair value) of a tangible asset is less than its carrying value, impairment loss is provided and the carrying value is written down to its recoverable amount. Gains or losses resulting from disposals of the fixed assets are recorded in the income statement as the difference between the net proceeds and net book value of the asset. 20 269
272. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Expenses for repair costs are capitalized if the expenditure increases economic life of the asset; other repair costs are expensed as incurred. The capital expenditures made in order to increase the capacity of the tangible asset or to increase its future benefits are capitalized on the cost of the tangible asset. The capital expenditures include the cost components which are used either to increase the useful life or the capacity of the asset or the quality of the product, or to decrease the costs. Property held for long-term rental yields and/or capital appreciation is classified as investment property. Investment properties are stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful lives of the properties. 13. Explanations on leasing transactions For contracts concluded prior to 1 January 2019, the Group assesses whether the contract has a lease qualification or include a lease transaction. (a) The right to obtain almost all of the economic benefits from the use of the leased asset and, (b) Whether the leased asset which has the right to manage its use is evaluated The Group has started implementing the TFRS 16 - Leases standard from 1 January 2019, the first date of the TFRS 16 standard. At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. Lease payments are discounted by using the Group’s alternative borrowing profit rate. The Group has recognized the right to lease assets equal to the lease obligation by restating the previously paid or accrued lease payments. The right of the use asset The Group reflects the existence of a right of use and a lease obligation to the financial statements at the date the lease is commenced. The right to use asset is recognized first by cost method and includes the following: (a) The first measurement amount of the lease obligation, (b) The amount obtained by deducting all rental incentives received from all lease payments made at or before the date of the rental. When the Group applying cost method, the existence of the right of use: (a) Accumulated depreciation and accumulated impairment losses are deducted and (b) Measures the restatement of the lease obligation over the adjusted cost. The Group applies the depreciation liabilities in TAS 16 Tangible Fixed Assets while depreciating the right of use asset. The Group determines whether the right of use has been impaired and recognizes any identified impairment losses in accordance with TAS 36 – Impairment of Assets. Lease obligation At the effective date of the lease, the Group measures the leasing liability at the present value of the lease payments not paid at that time. Lease payments are discounted using the Group’s alternative borrowing interest rate. The profit on the lease liability for each period of the lease term is the amount found by applying a fixed periodic profit rate to the remaining balance of the lease liability. Periodic profit rate is the Group’s borrowing profit rate. After the beginning of a contract, the Group remeasures its lease liability to reflect changes in lease payments. The Group reflects the restatement amount of the lease obligation to the financial statements as revised in the presence of the right of use. 21 270
273. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 14. Explanations on insurance technical provisions TFRS 4 requires that all contracts issued by insurance companies be classified as either insurance contracts or investment contracts. Contracts with significant insurance risk are considered insurance contracts. Insurance risk is defined as risk, other than financial risk, transferred from the holder of a contract to the issuer. Contracts issued by insurance companies without significant insurance risk are considere investment contracts. Invesment contracts are accounted for in accordance with TAS 39 “Turkish Accounting Standard for Financial Instruments: Recognition and Measurement”. Within the framework of the current insurance regulation, insurance technical provisions accounted by insurance companies for unearned Premium claims, unexpired risk reserver, outstanding claims and life-mathematical reserves are presented in the consolidated financial statements. Unearned premium reserve is recognized on accrued premiums without discount or commision which extends to the next period or periods on a daily basis for the current insurance contracts. If the outstanding claim reserve is established and confirmed by approximation and if there are unpaid or unidentifed compensation amounts in both prior and current Accounting periods; it is separated for estimated yet unreported compensation amounts. On the other hand, actuarial chan ladder method is used to estimate the reserve amount to be set aside in the current period by looking at the data of the past materialized losses. If the reserve amount found as a result of this method exceeds the amount of reserve fort he amount of uncertain indemnity, additional reserve must be set aside fort he difference. Reinsurance companies recognize fort he outstanding claims that is declared by the companies, accrued and determined on account. Insurance companies of the Group cede premium and risks in the normal course of business in order to limit the potential for losses arising from risks accepted Insurance premiums ceded to reinsurers on contract that are deemed to transfer significant insurance risk are recognized as an expense in a manner that is consistent with the recognition of insurance premium revenue arising from the underlying risks being protected. Cost which vary and are directyl associated with the acquisition of insurance and reinsurance contracts including brokerage, commissions, underwriting expenses and other acquisition costs are deferred and amortized over the period of contract, consistent with the earning of premium. 15. Insurance technical income and expense In insurance companies, premium income is obtained after diminishing the shares transferred from arranged policy income to reassurer. Claims are recorded in expense on accrual basis. Outstanding loss provisions are recognized for the claims reported but not paid yet and for the claims that incurred but not reported. Reassurer’ shares of outstanding and paid claims are offset in the provisions. 16. Explanations on provisions and contingent liabilities Provisions and contingent liabilities are accounted for in accordance with “Turkish Accounting Standard for Provisions, Contingent Liabilities and Contingent Assets” (TAS 37). Provisions are recognized when the Bank has a present obligation, legal or constructive, as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate can be made of the amount of the obligation. As per the “Matching Principle,” a provision is provided for the liabilities arising as a result of past events in the period they arise, if it is probable that the liability will be settled and a reliable estimate for the liability amount can be made. When a reliable estimate of the amount of the obligation cannot be made or it is not probable that an outflow of resources will be required to settle the obligation, the obligation is considered as a “Contingent” liability and is disclosed in the related notes to the financial statements. 22 271
274. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 17. Explanations on liabilities relating to employee benefits 17.1 Defined benefit plans In accordance with existing social legislation, the group is required to make severance pay to each employee who has completed over one year of service with the group and who retires or quits the employment to receive old age or disability benefits, to fulfill the compulsory military service, because of the marriage (for females) or because of the other compulsive reasons as defined in the laws and whose employment is terminated due to reasons other than resignation or misconduct. Liabilities amount which is related to “Turkish Accounting Standard on Employee Benefits” (“TAS 19”) is reflected accompanying financial statements and these liabilities are calculated by an independent actuary firm. Group is accounted all actuarial profit and loss under Statement of other Comprehensive Income. The Group’s employees are not members of any pension fund, foundations, union or other similar entities. 17.2 Defined contribution plans The group pays defined contribution plans to publicly administered Social Security Funds for its employees as mandated by the Social Security Association. The Bank has no further payment obligations other than this contribution share. The contributions are recognized as employee benefit expense when they are due. 17.3 Short term benefits to employees In accordance with “TAS 19”, vacation pay liabilities are defined as “Short Term Benefits to Employees” and accrued as earned. Group management calculates bonus accrual if it foresees that the budgeted year-end figures approved by the Board of Directors are attainable. 18. Explanations on Taxation Current Tax As per the terms of the provisional article 11 added to the Law No. 5520 by the Article 13 of the Law No. 7316, it was established that the rate of 20%, as disclosed in the first paragraph of the Article 32 of the Corporate Tax Law No. 5520, shall be applied as 25% over the corporation income for the tax period of the years 2021, 23% for the taxation period of 2022. (and for entities that are appointed with special accounting period, for the accounting periods beginning within the relevant year). In this context, corporate tax will be collected at the rate of 25% for the 2021 period and 23% for the year 2022 for corporate taxpayers. In addition, in the said periods, temporary tax will be paid by the corporate taxpayers at the rate of 25% for 2021 and 23% for 2022, according to the principles specified in the Income Tax Law, to be deducted from the corporate tax of the aforementioned tax periods. This rate is applied on taxable income which is calculated by adjusting the income before tax for certain disallowable expenses, tax exempt income and other allowances. No further tax is applicable unless the profit is distributed. In accordance with the tax legislation, the temporary tax rate for 2021 will be paid at the rate of 25% for the year 2021 and 23% for the year 2022 over the tax bases formed quarterly, and the temporary taxes paid within the year are deducted from the corporate tax calculated over the annual corporate tax return of that year. Withholding taxes is not applied to dividends distributed to companies resident in Turkey or companies who earn income in Turkey through their resident representatives in Turkey. With the Council of Minister’s decision numbered 2009/14593 and 2009/14594 which are published in official gazette numbered 27130 and dated 3 February 2009, some deduction rates in 15th and 30th articles of the corporate tax law numbered 5520 were re-determined. In accordance with this, dividends distributed to companies other than companies resident in Turkey or companies who earn income in Turkey through their resident representatives in Turkey are subject to 10% withholding taxes. Double tax treaty agreements are also taken into consideration during the application of withholding taxes on dividends distributed to real persons and to foreign-based taxpayers. Addition of profit to share capital is not considered as dividend distributed therefore no withholding taxes is applied. 23 272
275. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) For the purpose of issuance of certificate of leasing immovables to resource institutions, with the sale of asset leasing companies, the scope of Financial Leasing, Factoring and Financing Companies Law No.6361, dated 21 November 2012 in order to lease it back and in case of taking back at the end of the contract, with the sale of financial leasing companies and asset leasing by asset leasing companies, for profit from the sale of the immovable property inherited from the institution applies this rate as 100% and for the immovable is not compulsory to be in assets at least for a period of two years. But the mentioned immovable’s; except in case of failure to fulfill the obligations arising from the source institution, the lesser or leasing agreement, immovable in question by the asset leasing company, in case of selling a third person or institutions, these immovable’s with the carrying value before its transfer to resource institution or asset leasing in lesser or asset leasing company, in mentioned institutions taking into consideration the total amount of depreciation is taxable for corporation engaged in the sale. Corporate tax returns are filed by the thirtieth day of the fourth month following the balance sheet date and taxes is paid in one installment by the end of that month. Corporate tax losses can be carried forward for a maximum period of five years following the year in which the losses were incurred. However, losses cannot be carried back to offset profits from previous periods. The tax authorities can inspect tax returns and the related accounting records for a retrospective maximum period of five years. In Turkey, there is no procedure for a final and definite agreement on tax assessments. With the “Law Amending the Tax Procedure Law and the Corporate Tax Law”, which was accepted on the agenda of the Turkish Grand National Assembly on January 20, 2022, the application of inflation accounting was postponed starting from the balance sheet dated on December 31, 2023 Deferred Tax For taxable temporary differences arising between the tax bases of assets and liabilities and their carrying amounts, as per the provisions of “Turkish Accounting Standard on Income Taxes” (“TAS 12”), the Group calculates deferred tax liability over all taxable temporary differences and deferred tax asset or liabilities over taxable temporary differences, apart from the provisions for Expected Credit Losses for 12-Months (Stage 1) and for Lifetime Credit Losses (Stage 2) with significant increase in the credit risk after initial recognition, to the extent that is probable that taxable profit will be available in subsequent periods. Deferred tax asset and liabilities are shown in the accompanying financial statements on a net basis. The tax effect regarding the items directly accounted in equity are also reflected in equity. 20% tax rate is used in the calculation of deferred tax assets and liabilities. Updated tax rates in the upcoming periods will be taken into account in the calculation of deferred tax assets and liabilities. 19. Explanations on Additional Disclosures on Borrowings Borrowings other than funds collected are measured at amortized cost using the internal rate of return method after the initial recognition. The Group does not apply hedging techniques on related borrowings. The Group has not issued convertible bonds. 20. Explanations on Share Certificates Issued There is no significant amount of transaction costs on Bank about share certificates. 21. Explanations on Acceptances and Availed Drafts Acceptances and availed drafts are realized simultaneously with the payment dates of the customers and they are presented as commitments in off-balance sheet accounts. 22. Explanations on Government Grants There are no government grants received by the Group. 23. Explanations on Segment Reporting The Group conducts its activities in three separate segments: Corporate and Commercial Banking, Retail Banking, Treasury and International Banking. Each department serves with its own products and the results of the activities are monitored on the basis of these departments. Segment reporting is disclosed in Section Four, Note 14. 24. Explanations on Other Matters The Group has no disclosures on other matters. 24 273
276. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION FOUR 1. INFORMATION RELATED TO FINANCIAL POSITION AND RISK MANAGEMENT OF THE GROUP Explanations on Consolidated Equity Items Total capital and Capital adequacy ratio have been calculated in accordance with the “Regulation on Equity of Banks” and “Regulation on Measurement and Assessment of Capital Adequacy of Banks”. As of 31 December 2021 Group’s total capital has been calculated as TL 19,958,724 (31 December 2020: TL 12,705,468), capital adequacy ratio is %22.34 (31 December 2020: %19.97). Fluctuations are experienced in the financial markets mainly as a result of the COVID-19 outbreak, in the press statement made by the BRSA on March 23, 2020. Therefore, in accordance with the BRSA's Decision No. 9795 dated 16 September 2021; In the calculation of the amount subject to credit risk in accordance with the Regulation on Measurement and Evaluation of Capital Adequacy; To be able to use the simple arithmetic average of the Central Bank foreign exchange buying rates of the last 252 business days before the calculation date, when calculating the amounts valued in accordance with the Turkish Accounting Standards and the relevant special provision amounts for monetary assets and non-monetary assets other than items in foreign currency measured in terms of historical cost, to continue the application until a Board Decision is taken to the contrary, In addition, in accordance with the BRSA's decision dated April 16, 2020 and numbered 8999; Within the scope of the Regulation on Measurement and Assessment of Capital Adequacy of Banks, it is enabled to apply 0% risk weight in the calculation of the amount subject to credit risk to the receivables of banks from the Central Government of the Republic of Turkey and arranged in FX. The Parent Bank used these opportunities in its Capital Adequacy calculations as of December 31, 2021. 25 274
277. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.1. Components of Consolidated Total Capital Current Period 31/12/2021 Amount COMMON EQUITY TIER I CAPITAL Paid-In Capital To Be Entitled For Compensation After All Creditors Share Premium Reserves Other Comprehensive Income According to TAS Profit Current Period Profit Prior Period Profit Minority Shares Bonus Shares From Associates, Affiliates And Joint-Ventures Not Accounted In Current Period's Profit Common Equity Tier I Capital Before Deductions Deductions From Common Equity Tier I Capital Valuation Adjustments Calculated As Per The Article 9. (I) Of The Regulation On Bank Capital Current And Prior Periods' Losses Not Covered By Reserves, And Losses Accounted Under Equity According To TAS Leasehold Improvements On Operational Leases Goodwill Netted With Deferred Tax Liabilities Other Intangible Assets Netted With Deferred Tax Liabilities Except Mortgage Servicing Rights Net Deferred Tax Asset/Liability Differences Arise When Assets And Liabilities Not Held At Fair Value, Are Subjected To Cash Flow Hedge Accounting Total Credit Losses That Exceed Total Expected Loss Calculated According To The Regulation On Calculation Of Credit Risk By Internal Ratings Based Approach Securitization Gains Unrealized Gains And Losses From Changes In Bank’s Liabilities’ Fair Values Due To Changes In Creditworthiness Net Amount Of Defined Benefit Plans Direct And Indirect Investments Of The Bank On Its Own Tier I Capital Shares Obtained Against Article 56, Paragraph 4 Of The Banking Law Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or Less Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or More Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital Mortgage Servicing Rights Exceeding The 10% Threshold Of Tier I Capital Net Deferred Tax Assets Arising From Temporary Differences Exceeding The10% Threshold Of Tier I Capital Amount Exceeding The 15% Threshold Of Tier I Capital As Per The Article 2, Clause 2 Of The Regulation On Measurement And Assessment Of Capital Adequacy Of Banks The Portion Of Net Long Position Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or More Of The Issued Share Capital Not Deducted From Tier I Capital Mortgage Servicing Rights Not Deducted Excess Amount Arising From Deferred Tax Assets From Temporary Differences Other Items To Be Defined By The BRSA Deductions From Tier I Capital In Cases Where There Are No Adequate Additional Tier I Or Tier II Capitals Total Deductions From Common Equity Tier I Capital Total Common Equity Tier I Capital 26 Prior Period 31/12/2020 Amount 4,600,000 24,525 3,411,612 482,295 3,266,312 3,355,492 (89,180) 36,019 11,820,763 - 4,600,000 24,525 1,996,805 204,250 1,324,475 1,746,138 (421,663) 30,004 8,180,059 - 16,538 73,968 347,516 115,397 77,641 77,771 260,421 - - - - - 52,112 4,869 - 51,258 4,869 - - - - - - - 610,400 11,210,363 471,960 7,708,099 275
278. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) ADDITIONAL TIER I CAPITAL BEFORE DEDUCTIONS Capital corresponding to privileged shares not included in the core capital and the related issuance premiums Borrowing instruments deemed appropriate by the Authority and related issuance premiums Borrowing instruments deemed appropriate by the Authority and the related issuance premiums (those covered by Provisional Article 4) Additional Capital Before Discounts - - 3,317,165 1,851,633 - - 3,317,165 1,851,633 Deductions From Additional Tier I Capital - - Direct And Indirect Investments Of The Bank On Its Own Additional Tier I Capital (-) Investments In Equity Instruments Issued By Banks Or Financial Institutions Invested In Bank’s Additional Tier I Capital And Having Conditions Stated In The Article 7 Of The Regulation Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or Less Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital (-) The Total Of Net Long Position Of The Direct Or Indirect Investments In Additional Tier I Capital Of Unconsolidated Banks And Financial Institutions Where The Bank Owns More Than 10% Of The Issued Share Capital (-) Other Items To Be Defined By The BRSA (-) - - - - - - - - - - Items To Be Deducted From Tier I Capital During The Transition Period Goodwill And Other Intangible Assets And Related Deferred Taxes Not Deducted From Tier I Capital As Per The Temporary Article 2, Clause 1 Of The Regulation On Measurement And Assessment Of Capital Adequacy Of Banks (-) Net Deferred Tax Asset/Liability Not Deducted From Tier I Capital As Per The Temporary Article 2, Clause 1 Of The Regulation On Measurement And Assessment Of Capital Adequacy Of Banks (-) Deduction From Additional Tier I Capital When There Is Not Enough Tier II Capital (-) - - - - - - Total Deductions From Additional Tier I Capital - - Total Additional Tier I Capital 3,317,165 1,851,633 14,527,528 9,559,732 Debt Instruments And The Related Issuance Premiums Defined By The BRSA Debt Instruments And The Related Issuance Premiums Defined By The BRSA (Covered By Temporary Article 4) Provisions (Amounts Explained In The First Paragraph Of The Article 8 Of The Regulation On Bank Capital) 4,644,031 2,592,281 - - 905,540 652,104 Total Deductions From Tier II Capital 5,549,571 3,244,385 - - Direct And Indirect Investments Of The Bank On Its Own Tier II Capital (-) Investments In Equity Instruments Issued By Banks And Financial Institutions Invested In Bank’s Tier II Capital And Having Conditions Stated In The Article 8 Of The Regulation Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or Less Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital (-) The Total Of Net Long Position Of The Direct Or Indirect Investments In Additional Tier I Capital And Tier II Capital Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or More Of The Issued Share Capital Exceeding The 10% Threshold Of Tier I Capital (-) Other Items To Be Defined By The BRSA (-) - - - - - - - - - - Total Deductions From Tier II Capital - - 5,549,571 3,244,385 20,077,099 12,804,117 Total Tier I Capital (Tier I Capital= Common Equity Tier I Capital + Additional Tier I Capital) TIER II CAPITAL Deductions From Tier II Capital Total Tier II Capital Total Equity (Total Tier I And Tier II Capital) 27 276
279. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Total Tier I Capital and Tier II Capital (Total Equity) Loans Granted Against The Articles 50 And 51 Of The Banking Law (-) Net Book Values Of Movables And Immovables Exceeding The Limit Defined In The Article 57, Clause 1 Of The Banking Law And The Assets Acquired Against Overdue Receivables And Held For Sale But Retained More Than Five Years (-) Other Items To Be Defined By The BRSA (-) Items To Be Deducted From The Sum Of Tier I And Tier II Capital (Capital) During The Transition Period The Portion Of Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or Less Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital Not Deducted From Tier I Capital, Additional Tier I Capital Or Tier II Capital As Per The Temporary Article 2, Clause 1 Of The Regulation (-) The Portion Of Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns More Than 10% Of The Issued Share Capital Exceeding The 10% Threshold Of Above Tier I Capital Not Deducted From Additional Tier I Capital Or Tier II Capital As Per The Temporary Article 2, Clause 1 Of The Regulation (-) The Portion Of Net Long Position Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or More Of The Issued Share Capital, Of The Net Deferred Tax Assets Arising From Temporary Differences And Of The Mortgage Servicing Rights Not Deducted From Tier I Capital As Per The Temporary Article 2, Clause 2, Paragraph (1) And (2) And Temporary Article 2, Clause 1 Of The Regulation (-) CAPITAL Total Capital (Total Of Tier I Capital And Tier II Capital) Total Risk Weighted Assets CAPITAL ADEQUACY RATIOS CET1 Capital Ratio (%) Tier I Capital Ratio (%) Capital Adequacy Ratio (%) BUFFERS Bank-Specific Total CET1 Capital Ratio Capital Conservation Buffer Ratio (%) Systemic Significant Bank Buffer Ratio (%) Additional CET1 Capital Over Total Risk Weighted Assets Ratio Calculated According To The Article 4 Of Capital Conservation And Counter-Cyclical Capital Buffers Regulation Amounts Lower Than Excesses As Per Deduction Rules Remaining Total Of Net Long Positions Of The Investments In Equity Items Of Unconsolidated Banks And Financial Institutions Where The Bank Owns 10% Or Less Of The Issued Share Capital Remaining Total Of Net Long Positions Of The Investments In Tier I Capital Of Unconsolidated Banks And Financial Institutions Where The Bank Owns More Than 10% Or Less Of The Issued Share Capital Remaining Mortgage Servicing Rights Net Deferred Tax Assets Arising From Temporary Differences Limits For Provisions Used In Tier II Capital Calculation General Loan Provisions For Exposures In Standard Approach (Before Limit Of One Hundred And Twenty Five Per Ten Thousand) General Loan Provisions For Exposures In Standard Approach Limited By 1.25% Of Risk Weighted Assets Total Loan Provision That Exceeds Total Expected Loss Calculated According To Communiqué On Calculation Of Credit Risk By Internal Ratings Based Approach Total Loan Provision That Exceeds Total Expected Loss Calculated According To Communiqué On Calculation Of Credit Risk By Internal Ratings Based Approach, Limited By 0.6% Risk Weighted Assets Debt instruments subjected t o Article 4 (to be implemented between January 1 , 2018 and January 1, 2022) Upper limit for Additional Tier I Capital subjected to temprorary Article 4 Amounts Excess the Limits of Additional Tier I Capital subjected to temprorary Article 4 Upper limit for Additional Tier II Capital subjected to temprorary Article 4 Amounts Excess the Limits of Additional Tier II Capital subjected to temprorary Article 4 - - 11,607 106,768 5,828 92,821 - - - - - - 19,958,724 89,353,714 12,705,468 63,613,084 12.55 16.26 22.34 12.12 15.03 19.97 2.50 2.50 - 2.50 2.50 - 8.05 7.62 - - - - 6,298,549 905,540 4,652,363 652,104 - - - - - - 277 28
280. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Information on debt instruments to be included in equity calculation: Issuer KT One Company Limited Instrument Code (CUSIP, ISIN vb.) XS2028862998 BRSA regulation on Shareholders ' Equity Legislation to which the Instrument is subject Consideration In Equity Calculation Subject to consideration application reduced by 10% from 1/1/2015 Validity on a consolidated or unconsolidated basis or both consolidated and unconsolidated basis Instruments Type Amount taken into account in equity calculation (as of last reporting date-TL million) Nominal value of the Instrument (TL million)) The account in which the Instrument is followed accounting Export date of the Instrument Maturity structure of the Instrument (demand/term)) Not Being Subject Current on both consolidated and unconsolidated basis Subordinated Sukuk (Additional Tier I Capital) XS2384355520 BRSA regulation on Shareholders ' Equity Not Being Subject Current on both consolidated and unconsolidated basis Subordinated Sukuk (Tier II Capital) 663 4,644 2,654 3470003 16/07/2019 Demand 5 Years (Due Date : 16/07/2024) Yes 663 3470003 28/09/2020 Demand 5 Yıl (Due Date : 28/09/2025) Yes 4,644 3470003 16/09/2021 10 Years and 3 Month Term 5 Yıl Üç Ay (Due Date:16/12/2026) Yes 16/07/2024 – Complete 28/09/2025 – Complete 16/12/2026 -Complete 16/07/2024 28/09/2025 16/12/2026 Fixed Divident payments 9.13% None Mandatory Fixed Divident payments 9.95% None Mandatory Fixed Divident payments 6.13% None Mandatory Trigger events/events that would cause conversion if converted to stock Fully or partially convert property if it can be converted to stock If it can be converted to stock, the conversion rate Forced or optional conversion property, if it can be converted to stock Types of convertible Instruments, if convertible to stock Issuer of the debt instrument to be converted, if it can be converted to stock Value reduction feature Trigger events/events to cause reduction if value reduction is enabled If it has a value reduction feature, it has a total or partial value reduction feature If the value reduction property is continuous or transient If the value can be temporarily reduced, the value increment mechanism In the case of liquidation, which is in the order in respect of the right of receivables (the instrument which is located just above this instrument of borrowing)) Whether or not the provisions of Articles 7 and 8 of the regulation on the shareholders ' equity of the banks are not met Which of the conditions contained in Articles 7 and 8 of the regulation on the shareholders ' equity of the banks are not met 29 278 Not Being Subject Current on both consolidated and unconsolidated basis Subordinated Sukuk (Additional Tier I Capital) KT21 T2 Company Limited 2,654 Initial maturity of the Instrument Whether the issuer has the right to refund subject to BRSA approval Date of repayment option, contingent repayment options and amount to be paid back Subsequent repayment option dates Dividend payments Fixed or variable dividend payments Dividend ratio and index value for dividend ratio Whether there are any restrictions that stop paying dividends The ability to be completely optional, partially optional or mandatory Whether there is an element to encourage repayment, such as a dividend rate hike Non-accumulative or cumulative property Ability to convert to stock KT AT One Company Limited XS2227803819 BRSA regulation on Shareholders ' Equity None None None Noncumulative Noncumulative Noncumulative Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock Cannot be converted into stock No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction No Value Reduction Tier - 1 Tier - 1 Tier - 2 None None None None None None
281. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.2 Approaches applied to assess the adequacy of internal capital requirement in terms of current and future activities Internal evaluation process is established for continuously evaluating and maintaining the types, componenets and distribution of the adequate level of capital in order to provide for various risks exposed to or to be exposed to. The final purpose of the evaluation process of the internal capital requirement, is to define and evaluate all the risks included or not in the calculations of the legal capital requirements, within the frame of the activities of the Parent Bank, and to provide the availability od adequate capital in order to cover these risks and the application of the risk management techniques. The results obtained in this evaluation process by taking into consideration, the Parent Banks’ growth strategy, assets-liabilities structure, funding sources, liquidıty position, foreign currency position, the effect of the price and market fluctuations on the capital, which are among the variables of the economy, aim to provide the continuity of the mentioned capital adequacy level at the determined level in compliance with the Banks’ risk profile and risk appetite. Within this scope, capital structure is reviewed as based on the frame of the activities and risks exposed to, and the internal capital requirement, probable to occur within the direction of targets and strategies of the Group is evaluated. This evaluation includes interest rate risk, concentration risk, liquidation risk, reputation risk, residual risk, country risk and strategic risk arising of the banking books as well as market, credit and operational risks. Capital requirement internal evaluation is evaluated to be a developing process and the development areas for the future period are determined and plans are prepared. 2. Explanations and disclosures related to consolidated credit risk Credit risk means the risks and damages to arise as a result of partial or complete non-fulfillment of the obligations timely by non-compliance of the counter party with the requirements of the agreement concluded with the Group. With regards to the credit risk, the debtor or the group of deptors is subjected to risk limitation. The upper limit of the rate of the credits granted to the companies in one sector to the total credits is determined annually by the Board of Directors and is updated as required. The credit risk which the Group is subjected to outside of Turkey is followed up by the Board of Directors within the frame of the determined limits on the basis of countries and regions. Within this scope, the total risk which the Group had taken in the foreign country or region, the total of the credit risk taken by the banks residing abroad and/or their branches in Turkey, the total risks of the credits generated to the people residing abroad or with foreign nationally, the risk total taken over the corporate customers and/or banks to which the partners residing in Turkey but of which the principal shareholder or shareholders reside in another country, had given guarantee and in required cases, the risk total taken by the Bank in Turkey should be followed up. The risks and limits arising of the treasury transactions and customer based commercial transactions are followed up daily. Moreover, the control of the limits allocated as based on the degrees of the correspondent banks and the maximum risk that the Group can take within its equities are also performed daily. The risk limits relevant to the transactions performed daiy are determined and the risk intensity relevant to off the balance sheet transactions are being followed up. As provided for in the Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for the Loans, the credit worthiness of the debtors of the loans and the other receivables are followed up at regular intervals, in case of early determination of a probable repayment problem, the credit limits redefined and additional guarantees are taken and this way the prevention of the bank’s loss is aimed. The account statement documents for the loan generations are taken as defined in the legislation. The guarantees are taken within the frame of the relevant legislation, by consideration of the quality of the credit and the financial structure of the company and as based on the allocation decision taken by the credit committee Futures and option contracts and other similar contract positions are not held. The indemnified non-cash loans are subject to the same risk weight as the unpaid credits, in accordance with the “Regulation on the Procedures and Principles for the Determination of the Qualifications of Credits and Other Receivables in Banks and the Proviions to be Forded”. Renewed and restructured loans are monitored in accordance with the methods set out in the relevant legislation. Foreign trade financing and inter-banks loan transactions are performed by a wide network of correspondents and the countr risks, limits, correspondent risks and limits are regularly evaluated within this scope. There is no important credit risk concentration when evaluated together with the financial activities of the other financial institutes. 30 279
282. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) The Parent Bank’s top 100 and 200 cash loan customers represents 30% and 37% of the total cash loan portfolio, respectively. The Parent Bank’s top 100 and 200 non-cash loan customers represent 31% and 41% of the total non-cash loan portfolio, respectively. The Parent Bank’s top 100 and 200 cash and non-cash loan customers represent 27% and 34% of the total cash and noncash loan portfolio, respectively. Risk Classifications Conditional and unconditional receivables from central governments or Central Banks Conditional and unconditional receivables from regional or local governments Conditional and unconditional receivables from administrative bodies and noncommercial undertakings Conditional and unconditional receivables from multilateral development banks Conditional and unconditional receivables from international organizations Conditional and unconditional receivables from banks and brokerage houses Conditional and unconditional receivables from corporates Conditional and unconditional receivables from retail portfolios Conditional and unconditional receivables secured by mortgages Past due receivables Receivables defined under high risk category by BRSA Securities collateralized by mortgages Securitization positions Short-term receivables from banks, brokerage houses and corporate Investments similar to collective investment funds Stock Investments Other receivables Total Current Period Risk Amount (*) 76,644,948 - Average Risk Amount(**) 63,360,327 - 334,877 21,172,808 39,938,304 19,784,497 25,204,771 148,417 316,338 105,266 112,938 11,422,427 195,185,591 294,440 16,968,880 35,654,143 15,067,183 23,111,487 179,549 205,010 258,611 92,767 8,847,381 164,039,778 (*) Includes total risk amounts before the effect of credit risk mitigation but after credit conversions. (**) Average risk amounts are the arithmetical average of the amounts in monthly reports prepared starting from the date of publication of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Bank. 31 280
283. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Risk Classifications Conditional and unconditional receivables from central governments or Central Banks Conditional and unconditional receivables from regional or local governments Conditional and unconditional receivables from administrative bodies and non-commercial undertakings Conditional and unconditional receivables from multilateral development banks Conditional and unconditional receivables from international organizations Conditional and unconditional receivables from banks and brokerage houses Conditional and unconditional receivables from corporates Conditional and unconditional receivables from retail portfolios Conditional and unconditional receivables secured by mortgages Past due receivables Receivables defined under high risk category by BRSA Securities collateralized by mortgages Securitization positions Short-term receivables from banks, brokerage houses and corporate Investments similar to collective investment funds Stock Investments Other receivables Total Prior Period Risk Amount (*) 52,541,435 - Average Risk Amount (**) 46,059,100 - - - 257,348 10,844,546 29,908,024 14,182,890 21,852,188 243,934 145,506 75,196 84,991 6,559,826 220,804 10,548,957 24,190,958 12,555,220 18,635,524 264,990 139,541 98,535 65,478 6,447,057 136,695,884 119,226,164 (*) Includes total risk amounts before the effect of credit risk mitigation but after credit conversions. (**) Average risk amounts are the arithmetical average of the amounts in monthly reports prepared starting from the date of publication of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Bank. 32 281
284. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.1. Profile of significant exposures in major regions Conditional and unconditional receivables from central governments ot Central Banks Conditional and unconditional receivables from multilateral development banks Conditional and unconditional receivables from banks and brokerage houses Conditional and unconditional receivables from corporates Conditional and unconditional receivables from retail portfolios Conditional and unconditional receivables secured by mortgages 76,644,948 - 10,774,374 35,219,026 18,519,722 - - 1,051,381 4,557,709 - - 3,163,663 19,716 Off-Shore Regions - - 1,973 USA, Canada - - Other Countries Investment and associates, subsidiaries and joint ventures Undistributed Assets / Liabilities(***) - Current Period (*) Domestic European Union Countries OECD Countries (**) Total Past due receivables Receivables defined under high risk category by BRSA Investments similar to collective investment funds Stock Investments Other Receivables Total 25,006,530 148,257 308,548 105,266 - - 166,726,672 1,217,316 39,988 79 5,157 - - - 6,871,630 3,241 11,612 17 85 - - - 3,198,334 61,673 2,905 89,582 - - - - - 156,133 5,500,448 88 1,164 1,142 - 127 - - - 5,502,969 334,877 680,969 80,092 40,149 55,917 64 2,421 - - - 1,194,488 - - - - - - - - 112,938 - 112,938 - - - - - - - - 11,422,427 11,422,427 334,877 21,172,808 39,938,304 19,784,497 25,204,771 148,417 316,338 105,266 112,938 11,422,427 195,185,591 76,644,948 (*) Includes total risk amounts before the effect of credit risk mitigation but after credit conversions. (**) Includes OECD countries other than EU countries, USA and Canada. (***) Includes assets and liability items that cannot be allocated on a consistent basis. (****) Stands for the risk categories listed in “Regulations on Measurement and Assessment of Capital Adequacy Ratios of Banks.” Prior Period (*) Domestic European Union Countries OECD Countries (**) Off-Shore Regions USA, Canada Other Countries Investment and associates, subsidiaries and joint ventures Undistributed Assets /Liabilities(***) Total Conditional and unconditional receivables from central governments ot Central Banks Conditional and Conditional unconditional and receivables unconditional from receivables multilateral from banks development and brokerage banks houses Conditional and unconditional receivables from corporates Conditional and unconditional receivables from retail portfolios Conditional and unconditional receivables secured by mortgages Receivables defined under high Past due risk category receivables by BRSA Investments similar to collective investment funds Total 52,541,435 - 4,495,935 26,830,010 13,612,650 21,697,804 240,366 123,676 75,196 - - 119,617,072 - - 685,457 1,908,656 2,953,148 51,038 532,512 5,118 39,700 11,835 2,998 3 21,830 - - - - 4,235,645 1,976,650 - - 5,930 10,468 181 33,605 323 - - - - 50,507 - 257,348 3,089,839 658,729 2,504 60,856 667 31,762 6,287 62,957 244 - - - - 3,099,297 1,071,896 - - - - - - - - - 84,991 - 84,991 - - - - - - - - - - 6,559,826 6,559,826 52,541,435 257,348 10,844,546 29,908,024 14,182,890 21,852,188 243,934 145,506 75,196 84,991 6,559,826 136,695,884 (*) Includes total risk amounts before the effect of credit risk mitigation but after credit conversions. (**) Includes OECD countries other than EU countries, USA and Canada. (***) Includes assets and liability items that cannot be allocated on a consistent basis. (****) Stands for the risk categories listed in “Regulations on Measurement and Assessment of Capital Adequacy Ratios of Banks.” 33 282 Stock Other Investments Receivables
285. (*) Services - - - 76,644,948 - - - - - - - - - - - - - - - - - - - - - 334,877 - - - - - 334,877 - - - 334,877 - - - - - - - - Conditional and unconditional receivables from multilateral development banks - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from international organizations 21,172,808 - - - - - 21,172,808 - - - 21,172,808 - - - - - - - - - Conditional and unconditional receivables from banks and brokerage houses 39,938,304 6,515,827 786,730 59,327 14,605 954,653 1,572 1,497,214 73,555 6,112,113 9,499,769 8,431,186 4,031,144 8,544,368 2,367,192 14,942,704 4,044 59,601 485,173 548,818 Conditional and unconditional receivables from Corporates 19,784,497 5,554,191 552,653 50,169 176 279,514 6,163 1,022,960 151,560 4,193,997 6,257,192 2,002,176 374,038 4,257,947 945,298 5,577,283 1,113 115,524 277,018 393,655 Conditional and unconditional retail receivables (*) Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. (**) Stands for the risk categories listed in Regulations on Measurement and Assessment of Capital Adequacy Ratios of Banks. Total Others - - - Educational Services - - - Health and Social - - - Rental Services - - - - 76,644,948 - - Professional Services Real Estate and Financial Institutions Telecom. Transportation and Dining Accommodation and Trade Wholesale and Retail Services Construction Water Electricity, Gas and - - - Production 76,644,948 - - Mining and Quarrying - - - Manufacturing - - - Fishery - - - - Stockbreeding - - - - Forestry Farming and Agriculture Conditional and unconditional receivables from regional or local governments Conditional and unconditional receivables from administrative bodies and noncommercial enterprises Risk profile by sectors or counterparties Conditional and unconditional Current Period receivables from central governments or central banks 2.2. (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 34 25,204,771 8,599,956 604,284 103,802 65 456,951 54,520 732,934 252,944 4,380,325 6,585,825 3,588,137 373,795 4,535,381 941,727 5,850,903 1,573 104,369 474,008 579,950 Conditional and unconditional receivables secured by Mortgages 148,417 14,088 663 1,676 - 2,407 - 5,310 5,063 30,592 45,711 52,893 156 33,103 862 34,121 - 1,065 539 1,604 Past due receivables KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 316,338 316,338 - - - - - - - - - - - - - - - - - - Receivables defined in high risk category by BRSA - - - - - - - - - - - - - - - - - - - - Securities collateralized by mortgages - - - - - - - - - - - - - - - - - - - - Securitization positions - - - - - - - - - - - - - - - - - - - - Short-term receivables from banks, brokerage houses and corporates 105,266 - - - - - 105,266 - - - 105,266 - - - - - - - - - Investments similar to collective investment funds 112,938 - - - - - 112,938 - - - 112,938 - - - - - - - - - Stock Investmenst 11,422,427 11,422,427 - - - - - - - - - - - - - - - - - - Other receivables 81,288,291 16,406,854 1,513,592 163,104 246 1,004,410 30,370,743 1,648,568 300,753 9,567,785 44,569,201 7,179,835 509,555 9,254,802 2,277,535 12,041,892 6,730 227,450 856,329 TL 1,090,509 113,897,300 16,015,973 430,738 51,870 14,600 689,115 68,062,349 1,609,850 182,369 5,149,242 76,190,133 6,894,557 4,269,578 8,115,997 1,977,544 14,363,119 - 53,109 380,409 FC 433,518 195,185,591 32,422,827 1,944,330 214,974 14,846 1,693,525 98,433,092 3,258,418 483,122 14,717,027 120,759,334 14,074,392 4,779,133 17,370,799 4,255,079 26,405,011 6,730 280,559 1,236,738 Total (*) 1,524,027 Section V: Financial Information and Risk Management Practices 283
286. ) - - - - - 52,541,435 - - - - - - - - - - 52,541,435 - - - - - 52,541,435 - - - - - - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from administrative bodies and noncommercial enterprises 257,348 - - - - - 257,348 - - - 257,348 - - - - - - - - - Conditional and unconditional receivables from multilateral development banks - - - - - - - - - - - - - - - - - - - Conditional and unconditional receivables from international organizations 10,844,546 - - - - - 10,844,546 - - - 10,844,546 - - - - - - - - - Conditional and unconditional receivables from banks and brokerage houses 29,908,024 4,549,541 735,857 42,025 11 707,598 35,327 1,323,557 51,168 4,505,966 7,401,509 6,537,670 2,878,328 5,877,264 2,206,974 10,962,566 1,348 33,267 422,123 456,738 Conditional and unconditional receivables from Corporates 14,182,890 4,386,405 426,080 49,127 3,494 182,845 3,348 617,845 102,827 3,088,213 4,473,779 1,384,963 286,470 2,767,732 634,065 3,688,267 2,157 64,605 182,714 249,476 Conditional and unconditional retail receivables (*) Includes risk amounts before the effect of credit risk mitigation but after the credit conversions. (**) Stands for the risk categories listed in Regulations on Measurement and Assessment of Capital Adequacy Ratios of Banks. Total Others Services Health and Social Services Educational Services Professional Rental Services Real Estate and Institutions Financial and Telecom. Transportation and Dining Accommodation Retail Trade Wholesale and Services Construction and Water Electricity, Gas Production Quarrying Mining and - - - Manufacturing - - - - - - Fishery Stockbreeding - - - - Conditional and unconditional receivables from regional or local governments Forestry Farming and Agriculture Prior Period Conditional and unconditional receivables from central governments or central banks (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 35 21,852,188 8,322,570 512,365 118,851 86 389,677 42,780 443,599 243,384 3,813,872 5,564,614 3,074,401 302,534 3,374,290 714,788 4,391,612 603 87,145 411,243 498,991 243,934 12,515 5,953 7,139 18 3,861 66 11,311 12,542 51,970 92,860 100,690 1,785 23,973 4,412 30,170 - 4,877 2,822 7,699 Conditional and unconditional receivables secured by Past due Mortgages receivables KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 145,506 145,506 - - - - - - - - - - - - - - - - - - Receivables defined in high risk category by BRSA - - - - - - - - - - - - - - - - - - - - Securities collateralized by mortgages - - - - - - - - - - - - - - - - - - - - Securitization positions - - - - - - - - - - - - - - - - - - - - Short-term receivables from banks, brokerage houses and corporates 75,196 - - - - - 75,196 - - - 75,196 - - - - - - - - - Investments similar to collective investment funds 84,991 - - - - - 84,991 - - - 84,991 - - - - - - - - - Stock Investmenst 6,559,826 6,559,826 - - - - - - - - - - - - - - - - - - Other receivables 68,557,873 15,757,893 1,401,524 159,002 240 815,435 21,888,653 1,388,657 265,686 8,957,769 34,876,966 6,173,383 530,874 8,097,605 2,169,516 10,797,995 4,097 163,829 783,710 TL 951,636 68,138,011 8,218,470 278,731 58,140 3,369 468,546 41,996,384 1,007,655 144,235 2,502,252 46,459,312 4,924,341 2,938,243 3,945,654 1,390,723 8,274,620 11 26,065 235,192 FC 261,268 136,695,884 23,976,363 1,680,255 217,142 3,609 1,283,981 63,885,037 2,396,312 409,921 11,460,021 81,336,278 11,097,724 3,469,117 12,043,259 3,560,239 19,072,615 4,108 189,894 1,018,902 Total (*) 1,212,904 Kuveyt Türk Annual Report 2021 284
287. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.3. Analysis of maturity-bearing exposures according to remaining maturities: Risk Categories (*) – Current Period Conditional and unconditional receivables from central governments or Central Banks Conditional and unconditional receivables from regional or local governments Conditional and unconditional receivables from administrative bodies and non-commercial undertakings Conditional and unconditional receivables from multilateral development banks Conditional and unconditional receivables from international organizations Conditional and unconditional receivables from banks and brokerage houses Conditional and unconditional receivables from corporates Conditional and unconditional receivables from retail portfolios Conditional and unconditional receivables secured by mortgages Past due receivables Receivables defined under high risk category by BRSA Collateralized securities Securitization positions Short-term receivables from banks, brokerage houses and corporate Investments similar to collective investment funds Stock Investments Other Receivables Total 1 month 1–3 months Time to Maturity 3–6 months 6–12 months Over 1 year 15,722,410 - - 315,286 19,656,442 - - - - - - - - - - - - - - 334,877 2,590,072 320,980 5,151,695 151,918 491,253 3,473,418 2,474,528 1,527,158 2,993,443 2,243,669 1,533,238 12,018,425 3,294,199 1,930,398 4,413,148 3,095,794 3,778,266 16,989,706 8,388,977 16,435,710 217,482 1,099 - 4,567 3,067 - 103 - 2,042 491 - 92,247 100,506 112,938 - 26,006,167 7,098,964 22,394,820 11,756,945 62,602,656 (*) Includes total risk amounts before the effect of credit risk mitigation but after credit conversions. (**) Stands for the risk categories listed in Regulations on Measurement and Assessment of Capital Adequacy Ratios of Banks. Time to Maturity Risk Categories (*) – Prior Period Conditional and unconditional receivables from central governments or Central Banks Conditional and unconditional receivables from regional or local governments Conditional and unconditional receivables from administrative bodies and noncommercial undertakings Conditional and unconditional receivables from multilateral development banks Conditional and unconditional receivables from international organizations Conditional and unconditional receivables from banks and brokerage houses Conditional and unconditional receivables from corporates Conditional and unconditional receivables from retail portfolios Conditional and unconditional receivables secured by mortgages Past due receivables Receivables defined under high risk category by BRSA Collateralized securities Securitization positions Short-term receivables from banks, brokerage houses and corporate Investments similar to collective investment funds Stock Investments Other Receivables Total 1 month 1–3 months 3–6 months 6–12 months Over 1 year 4,938,677 - - - - - - - - - - - - 5,294,479 5,414,730 2,135,905 1,202,800 145,506 20,921 - 482,334 1,195,651 987,609 767,140 15,645 - 11,721 5,333,584 2,245,923 1,693,683 7,180 - 19,153,018 3,448,379 9,292,091 778,383 19,108,807 257,348 63,165 326,989 3,947,355 13,984,082 1,934,120 6,717,234 2,476,893 15,711,672 31,450 84,991 9,199,916 56,222,573 (*) Includes total risk amounts before the effect of credit risk mitigation but after credit conversions. (**) Stands for the risk categories listed in Regulations on Measurement and Assessment of Capital Adequacy Ratios of Banks. 36 285
288. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.4 Exposure Categories In compliance with the 7th Article of the Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks, determination of the risk weights in calculation of the risk weighted sums is performed based on the credit ratings provided by the rating companies. The ratings of an international credit rating agency are used for the Banks and Corporate Receivables asset class, which is limited to the receivables that are resident abroad. Receivables from banks are analyzed in two separate receivable classes according to their original maturity. If the original maturity is 3 months or less, they are assigned to “Short Term Receivables from Banks and Intermediary Institutions”, if it is more than 3 months it is assgined to “Receivables from Banks and Intermediary Institutions”. The banks and institutions established within the country are evaluated as unrated. The ratings given by the international credit rating agency are used to determine the risk weighted asset class. The ratings of the credit rating agency are being used for Banks and Corporate Receivables asset class limited to the counterparties which are resident abroad. Exposure Categories Exposures from Banks and Brokerage Houses Credit Quality Grade 1 2 3 4 5 6 Unrated Fitch Rating Risk AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC C D Unrated Exposures to Central Governments or Central Banks Exposures to Corporates Exposure Categories Receivables With Original Maturity Less Than 3 Months Receivables with Original Maturity greater than 3 Months %0 %20 %20 %20 %20 %20 %50 %50 %50 %20 %50 %100 %100 %50 %100 %100 %100 %50 %100 %150 %150 %150 %150 %150 %100 %20 (*) %50 (*) %100 (*) This is used under the condition of not being less than the implemented one in the centralized management of the Parent Bank’s located country. 286 37
289. Credit risk using the standard approach 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Receivables from central governments and Central Banks Receivables from regional and local government Receivables from administrative bodies and non-commercial entities Receivables from multilateral development banks Receivables from international organizations Receivables from banks and brokerage houses Receivables from corporate Retail receivables Receivables secured by residential property Receivables secured by commercial property Non-performing receivables Receivables in high-risk categories Mortgage-backed securities Short term receivables to banks , brokerage houses and corporates Investments similar to collective investment funds Other receivables Stock investments Total Risk Classes 2.5.1. Credit risk exposed and credit risk mitigation effects 2.5 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 38 On-balance sheet amount 71,423,660 334,877 19,396,042 36,436,335 16,894,133 10,657,780 12,999,048 148,417 316,338 105,266 11,422,427 112,938 180,247,261 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 On-balance sheet amount 75,608,995 334,877 19,396,042 32,603,584 16,749,676 10,611,657 12,861,012 124,451 316,338 105,266 11,422,427 112,938 180,247,263 Off-balance sheet amount 399,825 3,407,363 2,857,929 383,704 1,144,236 8,193,057 Receivable post Receivable before Off-balance sheet amount 2,799,611 7,059,657 8,595,982 776,693 2,370,794 21,602,737 CCF and CRM CCF and CRM 6,166,233 35,131,430 14,151,347 3,801,491 9,308,342 57,099 464,836 19,479 2,570,603 112,938 71,783,798 RWA 31 98 72 35 66 46 147 19 23 100 RWA density RWA and RWA density Section V: Financial Information and Risk Management Practices 287
290. 288 Exposures by asset classes and risk weights Receivables from central governments and Central Banks Receivables from regional and local government Receivables from administrative bodies and non-commercial entities Receivables from multilateral development banks Receivables from international organizations Receivables from banks and brokerage houses Receivables from corporate Retail receivables Receivables secured by residential property Receivables secured by commercial property Non-performing receivables Receivables in high-risk categories Mortgage-backed securities Short term receivables to banks , brokerage houses and corporates Investments similar to collective investment funds Stock investments Other receivables Total * 35% Risk Weight is classified in the others section. 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Risk Classes / Risk Weights (Current Period) 2.5.2. 0% - - 86,054,060 - - - - - - 8,828,137 - 82,130 - - 4,870 12,761 - 82,853 174,229 - - - - - - - - 10% 423,918 490,782 10,508 - 334,877 - - 75,608,995 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 39 - - 612 - - - 108,569 8,752,980 - - - 6,105,200 - - - - - 50% 14,491,874 14,967,361 29,609 - 4,189 - - 1,820 383 182,733 119,246 459,819 485,918 13,208,157 - - - - - 20% KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 18,657,937 - - - - - - - - - 18,657,937 - - - - - - - 75% - - - - - 43,166,178 2,564,681 112,938 18,335 - - - 2,738 4,895,306 - 65,931 35,034,247 472,002 100% - - - - - - - - - - - 309,648 - - - - - 309,648 150% 200% - - - - - - - - - - - - - - - - - - - - - - - - - - 11,422,427 112,938 105,266 - - 316,338 124,451 14,005,248 10,995,361 19,607,605 36,010,947 19,795,867 - 334,877 - - 75,608,995 Total risk amount (post-CCF and CRM) 10,793,262 188,440,320 - - - - - - - - 10,793,262 Others* Kuveyt Türk Annual Report 2021
291. Receivables from central governments and Central Banks Receivables from regional and local government Receivables from administrative bodies and non-commercial entities Receivables from multilateral development banks Receivables from international organizations Receivables from banks and brokerage houses Receivables from corporate Retail receivables Receivables secured by residential property Receivables secured by commercial property Non-performing receivables Receivables in high-risk categories Mortgage-backed securities Short term receivables to banks , brokerage houses and corporates Investments similar to collective investment funds Stock investments Other receivables Total * 35% Risk Weight is classified in the others section. 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Risk Classes / Risk Weights (Prior Period) 0% 62,514,981 3,777,505 - 22,731 - - 19 861 82,410 57,575 281,308 318,136 16,923 - 257,348 - - 57,700,165 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) - - - - - - - - - - - - - - - - - - 10% 40 9,850,851 1,591 - 36,610 - - - 412 110,029 73,308 256,042 340,426 9,032,433 - - - - - 20% KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 7,822,427 - - 9,444 - - - 172,644 6,944,903 - - - 695,436 - - - - - 50% 12,285,557 - - - - - - - - - 12,285,557 - - - - - - - 75% - - - - - 33,211,433 2,780,730 84,991 6,411 - - - 7,600 4,074,145 - - 25,773,717 483,839 100% - - - - - - - - - - - 145,487 - - - - - 145,487 150% 200% - - - - - - - - - - - - - - - - - - - - - - - - - - 6,559,826 84,991 75,196 - - 145,506 181,517 11,211,487 9,839,848 12,822,907 26,432,279 10,228,631 - 257,348 - - 57,700,165 Total risk amount (post-CCF and CRM) 9,708,965 135,539,701 - - - - - - - - 9,708,965 Others* Section V: Financial Information and Risk Management Practices 289
292. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.6. Risk amounts according to risk weights Current Period %0 %20 %10 %25 %35 %50 %75 %100 %150 Other Risk Classes %200 Deductions from Equity Risk Weights Exposures before Credit Risk Mitigation Exposures after Credit Risk Mitigation Prior Period 80,679,312 - 13,241,955 - 11,041,484 15,314,386 19,678,584 48,168,258 316,338 - - 499,381 86,054,060 - 14,491,874 - 10,793,262 14,967,361 18,657,937 43,166,175 309,648 - - 499,381 %0 %20 %10 %25 %35 %50 %75 %100 %150 Other Risk Classes %200 Deductions from Equity Risk Weights Exposures before Credit Risk Mitigation Exposures after Credit Risk Mitigation 2.7. 56,159,234 - 9,070,634 - 10,098,454 8,349,267 14,165,097 37,551,509 145,506 - - 487,996 62,514,981 - 9,850,851 - 9,708,966 7,822,427 12,285,557 33,211,433 145,487 - - 487,996 Information by major sectors and type of counterparties Impaired Loans; are the credits that either overdue more than 90 days as of the reporting date or are treated as impaired due to their creditworthiness according to TFRS 9 Financial Instruments. For such credits, “specific provisions” are allocated as TFRS 9 suggests. Past Due Loans; are the credits that overdue up to 90 days but not impaired. For such credits, “general provisions” are allocated within the scope of TFRS 9. Current Period (**) Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accommodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services. Professional Services Educational Services Health and Social Services Others Total Loans Impaired Loans Significant Increase in Credit Risk (Stage II) 245,611 231,260 13,065 1,286 2,338,746 631,093 1,533,057 174,596 2,526,686 3,276,685 1,618,844 225,960 450,777 33,439 623,331 9 76,365 247,960 1,049,410 9,437,138 (*) Provisions for expected credit loss include Stage II and Stage III provisions. (**) Leasing receivables are not included. 41 290 Provisions Default (Stage III) 33,900 14,129 19,771 561,557 155,218 396,355 9,984 1,187,755 1,150,166 699,548 147,909 95,547 5,529 48,889 113,883 38,861 149,137 3,082,515 Expected Credit Loss Provisions (*) 177,971 156,508 21,041 422 1,668,420 507,855 1,116,386 44,179 1,781,507 2,405,780 1,254,951 285,463 192,239 5,974 432,205 1 164,186 70,761 261,990 6,295,668
293. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Prior Period (**) Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accommodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services. Professional Services Educational Services Health and Social Services Others Total Loans Impaired Loans Significant Increase in Credit Risk (Stage II) 254,002 233,481 19,499 1,022 2,121,591 490,170 1,505,834 125,587 1,480,599 2,874,720 1,572,153 204,438 249,028 7,820 457,523 5,207 64,574 313,977 824,376 7,555,288 Provisions Default (Stage III) 50,399 28,780 18,341 3,278 453,590 62,382 356,249 34,959 1,288,690 1,028,716 656,152 106,068 96,309 3,939 38,410 183 67,631 60,024 148,859 2,970,254 Expected Credit Loss Provisions (*) 95,534 75,984 15,872 3,678 900,336 181,608 667,459 51,269 1,551,475 1,526,464 904,496 160,115 131,261 4,012 165,592 799 77,756 82,433 195,101 4,268,910 (*) Provisions for expected credit loss include Stage II and Stage III provisions. (**) Leasing receivables are not included. 2.8. Movements in value adjustments and provisions Current Period (*****) Stage 3 Provisions (*) Stage 1&2 Provisions (**) Prior Period (*****) Stage 3 Provisions (*) Stage 1&2 Provisions (**) (*) (**) (***) (****) (*****) Opening Balance (After TFRS9 Provisions for period Provision Reversals (***) 2,524,317 2,924,384 1,282,918 3,290,124 610,807 395,527 Opening Balance (After TFRS9 Provisions for period Provision Reversals (***) 1,702,008 1,538,514 331,486 99,614 1,557,589 1,485,484 Represents Stage III expected loss provision. Represents Stage I and Stage II expected loss provision. Includes provision reversals and exchange rate differences. Represents loans written off from assets. It does not include provisions for non-cash loans. Other Adjustments (****) Closing Balance 408,047 - 2,788,381 5,818,981 Other Adjustments (****) Closing Balance 403,794 - 2,524,317 2,924,384 42 291
294. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.9. Risk involved in counter cyclical capital buffer calculation Current Period Country Turkey Germany Marshall Islands Albania Malta England Iraq Italy Saudi Arabia Russia Other RWAs of Banking Book for Private Sector Lending RWA of calculated within Trading Accounts Total 57,304,734 5,724,699 107,017 51,878 34,672 24,936 23,554 21,535 7,107 4,992 42,048 - 57,304,734 5,724,699 107,017 51,878 34,672 24,936 23,554 21,535 7,107 4,992 42,048 RWAs of Banking Book for Private Sector Lending RWA of calculated within Trading Accounts Total 42,914,258 6,389,664 56,079 43,248 20,621 20,368 13,187 11,373 4,772 2,979 18,021 - 42,914,258 6,389,664 56,079 43,248 20,621 20,368 13,187 11,373 4,772 2,979 18,021 Prior Period Country Turkey Germany England Albania Iraq Marshall Islands Italy Saudi Arabia Qatar Hungary Other 2.10. Information of cash and noncash loans according to parent bank risk rating system The Bank calculates the probability of delinquency and internal rating notes for the portfolio of Corporate/Commercial/SME loans based on statistical methods in Turkish Commercial Code. Ratings are shown the table below as of 31 December 2021. High Quality Medium Quality Average Below Average Cash Loans Non-Cash Loans Total %48.04 %35.78 %12.17 %4.01 %66.87 %23.61 %7.19 %2.33 %50.36 %34.28 %11.55 %3.81 Note: All portfolio is rated. 43 292
295. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 3. Explanations on consolidated currency risk Foreign currency risk represents the Group’s exposure to loss due to the changes in foreign currency exchange rates. All foreign currency assets, liabilities and foreign currency forward transactions are considered in calculation of capital to be employed for foreign currency risk according to standard method. The “standard method” and the “value at risk method” used in legal reporting are used to measure the exchange rate risk of the Group. Measurements made under the standard method are carried out on a monthly basis and measurements made under the risk-exposed Value Method are carried out on a daily basis. The Parent Bank monitors daily the designated limits set by the Board of Directors and additionally observes the possible value changes in foreign currency positions. The limits are determined and followed both for the net foreign currency position and for the cross-exchange rate risk within the position. As a tool of foreign currency risk management, foreign currency forward transactions are used when necessary to mitigate the risk. As of 31 December 2021, the Group carries a net foreign currency long position of TL 584,272 (31 December 2020 – TL 21,796,612 short position) comprising of TL 304,773 balance sheet short position (31 December 2020 - TL 21,889,484 long position) and TL 279,499 off balance sheet long position (31 December 2020 – TL 102,872 long position). The announced current foreign exchange buying rates of the Parent Bank as of 31 December 2021 and the previous five working days are as follows (full TL): USD EUR GBP CHF JPY 24/12/2021 27/12/2021 28/12/2021 29/12/2021 30/12/2021 Balance Sheet Valuation Rate 11.59337 13.14634 15.55061 12.64138 0.10140 11.33396 12.82523 15.19147 12.32887 0.09891 11.78151 13.34247 15.83407 12.84602 0.10257 12.26809 13.85752 16.47226 13.35944 0.10672 12.95715 14.66517 17.46344 14.13843 0.11254 13.26866 15.02175 17.91170 14.52923 0.11527 The simple arithmetic averages of the major current foreign exchange buying rates of the Parent Bank for the thirty days preceding the balance sheet date are as follows (full TL): Monthly average FC purchase rate USD EUR GBP CHF JPY 13.62454 15.40218 18.12620 14.79793 0.11968 44 293
296. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Consolidated Currency risk of the Group Current Period Assets Cash (cash in vault, effectives, money in transit, cheques purchased) and balances with the Central Bank of the Republic of Turkey (***) Banks (*****) Financial assets at fair value through profit and loss Money market placements Financial assets at fair value through other comprehensive income Loans and finance lease receivables (*) Subsidiaries, associates and joint ventures Financial assets at amortized cost Derivative financial assets for hedging purposes Tangible assets Intangible assets Other assets Total Assets Liabilities Current account and funds collected from Banks via participation accounts Current and profit sharing accounts FC Money market borrowings Funds provided from other financial institutions Marketable securities issued Miscellaneous payables Derivative financial liabilities for hedging purposes Other liabilities (****) Total Liabilities Net balance sheet position Net off-balance sheet position Financial derivative assets Financial derivative liabilities Non-cash loans (**) Prior Period Total assets Total liabilities Net balance sheet position Net off-balance sheet position Financial derivative assets Financial derivative liabilities Non-cash loans (**) EUR USD Other FC (***) Total 21,391,407 2,741,048 6,095,764 32,988,306 528,903 65,286 108,915 2,397,962 66,317,591 22,758,220 2,718,123 1,706,211 9,781,981 34,563,359 5,044,810 1,571 14 74,348 76,648,637 17,440,402 9,849,138 10,364,898 27,396 7,043 37,688,877 61,590,029 15,308,309 12,071,109 15,877,745 67,579,061 5,573,713 66,857 108,929 2,479,353 180,655,105 1,276,766 32,940,029 549,849 935,363 433,285 36,135,292 174,127 79,236,601 10,970,475 1,220,786 1,175,635 92,777,624 480,066 50,586,358 25,053 66,440 51,157,917 1,930,959 162,762,988 11,520,324 2,181,202 1,675,360 180,070,833 30,182,299 (31,148,919) 461,079 31,609,998 3,261,176 (16,128,987) 17,466,057 22,428,894 4,962,837 4,935,753 (13,469,040) 13,528,864 14,352,732 823,868 274,986 584,272 (153,998) 37,242,705 37,396,703 8,471,915 37,591,207 18,020,699 19,570,508 (19,869,202) 730,800 20,600,002 1,840,536 31,661,053 51,448,283 (19,787,230) 20,187,707 25,033,494 4,845,787 2,349,832 16,225,780 37,805,670 (21,579,890) 21,580,979 21,919,119 338,140 205,654 85,478,040 107,274,652 (21,796,612) 21,899,484 47,683,413 25,783,929 4,396,022 Includes foreign currency indexed loans amounting to TL 2,009,070 (31 December 2020 – TL 1,740,355) followed as TL on the balance sheet and expected credit loss amounting to TL 3,664,484 (**) Does not have any effect to the net off-balance sheet position. (***) Precious metals are included in “Other FC” column. Includes the expected loss provisions amounting to TL 192 in the balance sheet. (****) Other liabilities at fair value through TL 4,764 in the calculation of profit / loss of securities are not included in the foreign currency risk of impairment provisions. It also includes a provision for foreign currency indexed loans amounting to TL 178,870 (*****) Includes provisions for expected losses amounting to TL 2,165 in the balance sheet (*) Foreign currency amounts that are not included in the currency risk table due to the legislation related to calculation of foreign currency net position to equity standard ratio, are explained by their gradation in the financial statements below; • • • • • 294 Derivative financial assets held for trading TL 592,855 (31 December 2020 – TL 333,060) Prepaid expenses: TL 1,303 (31 December 2020 – 693 TL) Derivative financial liabilities held for trading: TL 64,866 (31 December 2020 – TL 286,320) Marketable securities of FC revaluation reverse: TL 65,917 (31 December 2020 - TL (94,206)) Derivative financial liabilities held for hedging: None (31 December 2020 - None)
297. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Receivables/Payables related to derivative financial instruments include foreign currency purchase/sale transactions and forward precious metal purchases that are amounting to; • • • • Forward foreign currency purchase transactions TL 1,788,778 (31 December 2020 – TL 1,121,892) Forward foreign currency sale transactions: TL 3,018,472 (31 December 2020 – TL 1,177,606) Precious metal purchase transactions: TL 13,177,082 (31 December 2020 – TL 20,984,650) Precious metal sale transactions: TL 52,347 (31 December 2020 – TL 30,525) Currency risk sensitivity The Group is mainly exposed to foreign currency risk in EURO, USD and GOLD. The following table shows the Group’s sensitivity to 10% change in both USD, EURO and GOLD exchange rate. % changes on foreign currency USD EUR GOLD %10 %10 %10 Current Period 123,774 (101,898) 16,064 Effects on Profit / Loss Effects on equity Prior Period Current Period 40,048 194,489 (29,869) (97,959) 11,870 16,064 Prior Period 31,035 (29,901) 11,870 4. Explanations related to stock position risk 4.1 Relation of risks with gains accounted under equity and analyzing according to their aims including strategic reasons and the accounting policies applied and general information about valuation techniques with assumptions in this application, the elements that manipulate valuation and important changes The Group’s non-quoted securities are accounted for fair value. When the fair value cannot be reliably measured, the cost method is used. 46 295
298. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4.2. Carrying value of share investments, for fair value and quoted securities, comparison with market value if market value is significantly different from fair value Curent Period Equity Securities Investments Comparison Carrying Value Securities at Fair Value Through Other Comprehensive Income Quoted Securities Investments in Associates Quoted Securities Investment in Subsidiaries Quoted Securities Other Quoted Securities Fair Value Market Value 84,074 - 84,074 23,680 89,258 - - - Prior Period Equity Securities Investments Carrying Value Securities Available-for-Sale Quoted Securities Investments in Associates Quoted Securities Investment in Subsidiaries Quoted Securities Other Quoted Securities 4.3 Fair Value Market Value 49,146 23,680 61,311 - 49,146 - - - - Realized gains/losses, revaluation surplus, unrealized gains/losses on equity securities and results included in core and supplementary capitals None. 5. Consolidated liquidity risk management and liquidity coverage ratio The liquidity risk of the Group is the risk of being unable to fulfill its payment obligations on time due to not having enough cash sources or cash inflows to finance its cash outflows fully and on time due to cash flow instabilities. It has been evaluated in two main categories: Funding Liquidity Risk: It is a kind of risk which does not meet the any unexpected loss and non defaulting debts and liabilities. Market Liquidity Risk: It is a kind of risk which consists of the position that cannot be sold without affecting market price due to insufficient market depth or market conditions’ deterioration or that cannot be completed with the position of market price for any reasons. Liquidity risk is managed by the Asset and Liability Committee (ALCO) and relevant business units within the framework of the Liquidity Risk Policy and risk appetite approved by the Board of Directors. In liquidity risk management, the measures to be taken and the practices to be implemented are determined, taking into account normal economic and stress conditions. The Bank defines the liquidity risk, measures, monitors and periodically presents the risks with liquidity risk measurement methods in accordance with international standards. Liquidity risk stress tests are carried out on a monthly basis. Emergency Funding Plan (Liquidity Contingency Plan) was created to regulate the procedures and principles for the bank to ensure and maintain sufficient liquidity level under stress conditions. The ratios of the bank regarding the liquidity risk are well above the legal limits. The Bank keeps the liquidity buffer at high levels, taking into account the periods when liquidity risk may increase. Due to this approach, it was evaluated that the negative effects of the global COVID-19 epidemic did not have a significant effect on the liquidity need of the Bank. 47 296
299. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 5.1 Information on risk capacity of the Group, Responsibilities and structure of liquidity risk management, the Bank’s internal liquidity risk reporting, communication between the Board of Directors and business lines on liquidity risk strategy, policy and application The applications and responsibilities related to the liquidity risk has been determied according to the Treasury Liquidity and Market Management Policies and Practices approved by Board of Directors. The Group’s liquidity and funding policy is to own sufficient liquidity reserve and funding opportunities to meet its liabilities even in cases of stress, resulting from the market conditions or other conditions specific to the Bank. The Group has a strong capital structure and is supported by its main shareholder is Kuwait Finance House; also its current and paticipation accounts are spread to the base and are stable, and its sources of foreign borrowing are diversified. Hence, by the virtue of the aforementioned facts, the Bank has a high risk capacity. In addition, the Liquidity Coverage Ratio of the Group which insures its cash outflows with the high-quality liquid assets is deemed high. The Bank also has limits available for use at Central Bank of Turkey and other financial institutions. Indicators regarding the liquidity position are analyzed and liquidity risk is evaluated at the ALCO meetings attended by the senior management. Furthermore, the Board of Directors are informed through the Audit Committee. For the management of liquidity risk, the Risk Management Department follows the funding and liquidity risks, market conditions, in the participating accounts, the distribution of different currencies, maturity, cost and expected future cash flow requirements (particularly with regard to large deposits). Reports on the liquidity gap analysis prepared weekly by Budget and Management Reporting and monitored by the Asset and Liability Committee. These units also estimate the possible liquidity needs of the Group in case of urgent situations and generate action plans based on these estimates. Risk Management Department follows the limits on liquidity risk determined by the Board of Directors. Risk Management Department, in addition to these, is implementing monthly liquidity stress tests to measure the effects of negative scenarios on liquidity position of the Group. The Treasury Group Managemant manages the liquidity risk and funding risk in order to prevent insufficiencies of funding relating to any time or any source and makes reports related with the liquidity position to Asset and Liability Committee regularly. Official and International Reporting Directorate tracks the liquidity coverage ratio and the results are reported to the BRSA. 48 297
300. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 5.2. Information on the centralization degree of liquidity management and funding strategy and the functioning between the Group and the Group’s subsidiaries The Group's liquidity management is performed by the Asset and Liability Management. Depending on the Parent Bank's consolidated subsidiaries are subject to liquidity risk is managed in-house, but the necessary communication and coordination within the Assistant General Manager in charge of Treasury and International Banking are provided. 5.3 Information on the Group’s funding strategy including the policies on funding types and variety of maturities Group spread to the base of current and partipication accounts and that a stable, long-term diversification and aims to be the source of the funds used. Ratio of liquid assets to total assets ratio and risk indicators related to liquidity, credit and the ratio of funds, issues such as the concentration in collected funds are being closely monitored. 5.4 Information on liquidity management on the basis of currencies constituting a minimum of five percent of the Groups’s total liabilities Almost all liabilities of the Group are denominated in Turkish Lira, American Dollar, Euro or Gold. The TL denominated liquidity of the Group is managed through the open market transactions implemented by the Central Bank of the Turkish Republic and interbank operations. Liabilites denominated in TL are used in order to fund assets that are denominated in TL, assets denominated in TL are generated through foreign exchange based funds with swap operations if necessary. Foreign currency funds are provided with the foreign sourced credits denominated in foreign currency and sukuk-financial certificates issued. Liquidity denominated in foreign currency is kept at the interbank operations and accounts of the corresponding bonds within the limits. Liabilities denominated in Gold are kept at the required reserve accounts of the Central Bank of the Turkish substantialy. 5.5. Information on liquidity risk mitigation techniques Liquidity risk is mitigated by using techniques such as maintaining high quality liquid asset buffer to cover possible fund outflows, diversification of funding sources so far as possible and inclusion to the base, homogenizing the maturity distribution of repayments as far as possible, obtaining limits from funding institutions to use when necessary and ensuring that a determined portion of funding sources are comprised of deposits. In addition, core deposit analysis is performed and concentration on collected funds are closely monitored. 5.6. Information on the use of stress tests In order to analyze the source of the possible liquidity insufficiencies and whether comformably move exists on existing off-balance sheet and balance sheet positions relavant with liquidity risk expectation, 3 types liquidity stress tests are applied by Risk Management Directorate. These includes stress test scenarios are special to the Group, related with the overall market or scenarios take in consideration both of the situations. Stress tests telated with liquidity risk are repeated at monthly periods. Results are tracked with key risk indicators and monitored by Senior Management. 5.7. General information about the contingency funding plan Necessary strategy and procedures for the management of possible liquidity crisis are determined with the Contingency Funding Plan, which is approved and reviewed every year by the Executive Risk Committee. The actions to be taken favor the benefits of depositors, creditors of the Bank and shareholders. Indicators of Contingency Funding Plan were determined, in case of unexpected progress at the liquidity situation occur or at situations trigger of other indicators, plan is put into use. After Liquidity Contingency Plan is put into use, Liquidity Contingency Management Commitee is responsible from the determination of actions to be taken. 49 298
301. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 5.8 Analysis of financial liabilities by remaining contractual maturities The following table is prepared before the Group’s liabilities are undiscounted and based on the earliest date to the payment. Adjustment column shows the items that give rise to probable cash exit according to contractual terms at later period. The items that are mentioned are included the maturity analysis however they are not included in the balance sheet value of financial liabilities at the balance sheet. Up to 1 month 1-3 month 3-12 months 1-5 years Above 5 years Total Adjustments Balance Sheet Value 31 December 2021 Funds Collected Other Fundings Debts from lease transaction Securities issued Funds from repo transaction Total 198,990,478 12,844,375 145,384 1,021,332 15,461 26,669 2,209,487 1,489,930 6,505,472 207,866,282 15,382,306 8,754,151 1,363,777 5,101 221,957,882 1,096,848 7,617,647 5,355,148 15,236,359 106,080 351,803 81,153 581,166 3,699,417 6,505,472 9,957,079 9,333,227 5,441,402 247,980,296 - 221,957,882 (3,511,881) 11,724,478 (171,713) 409,453 (67,243) 3,632,174 (10,335) 6,495,137 (3,761,172) 244,219,124 6,715,547 4,946,413 848,336 14,020 126,694,561 146,860 2,709,958 4,548,423 2,694,681 11,710,390 24,612 98,136 183,852 28,254 349,294 881,784 3,796,075 5,819,437 185,613 7,768,803 11,550,582 5,580,611 2,736,955 144,759,295 - 126,694,561 (1,915,804) 9,794,586 349,294 (660,164) 5,159,273 (388) 185,225 (2,576,356) 142,182,939 31 December 2020 Funds Collected(*) Other Fundings Debts from lease transaction Securities issued Funds from repo transaction Total 114,170,245 1,610,468 14,440 1,141,578 185,613 117,122,344 Maturity analysis for guarantees and contingencies Demand Up to 1 month 1-3 months 3-12 months 1-5 years Above 5 years Unallocated Total 5,943,716 150,932 753,786 3,141,516 1,741,609 107,255 - 11,838,814 11,063 28,513 43,712 30,395 - - - 113,683 1,312,914 868,813 8,136,506 483,662 1,094,602 4,908 663,107 1,897,008 1,409,737 32,646 4,614,294 220,205 5,890 1,967,704 107,255 - 4,521,120 912,257 17,385,874 4,637,690 132,884 594,287 2,651,575 1,509,732 62,465 - 9,588,633 15,514 21,830 1,564 - - - 40,996 246,461 476,051 1,820 1,984 396,679 1,094,152 427,027 65,962 3,146,128 66,917 8,336 1,584,985 4,536 67,001 - 1,685,022 546,682 11,861,333 31 December 2021 Letters of Guarantee Bills of Exchange and Bank Acceptances Letters of Credit Other guarantees Pre-financings given as guarantee Total 31 December 2020 Letters of Guarantee Bills of Exchange and Bank Acceptances Letters of Credit Other guarantees Pre-financings given as guarantee Total 2,088 468,566 464,044 5,572,388 50 299
302. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Contractual maturity analysis of derivative instruments 31 December 2021 Derivatives financial assets held for trading Foreign exchange derivatives: Entry Exit Hedging purposes financial assets Foreign exchange derivatives Entry Exit Total Cash Inflow Total Cash Outflow Up to 1 month 1-3 months 3-12 months 5 years 1-5 years and over 21,499,096 21,133,880 11,714,093 11,666,551 2,172,566 2,028,973 1,507,265 887,348 - 36,893,020 35,716,752 21,499,096 21,133,880 11,714,093 11,666,551 2,172,566 2,028,973 1,507,265 887,348 - 36,893,020 35,716,752 19,446,342 20,158,833 26,065,934 27,145,532 845,511 790,854 990,716 905,607 - 47,348,503 49,000,826 - - - - - - Total 31 December 2020 Derivatives financial assets held for trading Foreign exchange derivatives: Entry Exit Hedging purposes financial assets Foreign exchange derivatives Entry Exit Total Cash Inflow Total Cash Outflow 19,446,342 20,158,833 26,065,934 27,145,532 51 300 845,511 790,854 990,716 905,607 - 47,348,503 49,000,826
303. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 5.9 Liquidity coverage ratio Total Unweighted Value (Average) (*) Current Period TL+FC Total Weighted Value (Average) (*) FC TL+FC FC HIGH-QUALITY LIQUID ASSETS 1 Total high-quality liquid assets (HQLA) 64,936,772 52,416,818 62,919,223 50,399,269 - - - CASH OUTFLOWS Retail deposits and deposits from small business 2 customers, of which: 3 Stable deposits 68,880,158 15,157,013 6,612,422 1,647,541 15,782,818 - 857,744 - 4 53,097,340 15,157,013 5,754,678 1,647,541 42,839,618 33,599,404 26,050,311 20,955,633 - - - - 5 Less stable deposits Unsecured wholesale funding, of which: 6 Operational deposits 7 Non-operational deposits 30,292,008 22,666,483 13,502,701 10,022,712 8 Unsecured funding 12,547,610 10,932,921 12,547,610 10,932,921 9 Secured wholesale funding - - 29,307,494 27,424,727 29,307,494 27,424,727 29,225,451 27,424,727 29,225,451 27,424,727 82,043 - 82,043 - - - - - - - - - 20,634,803 6,315,493 2,008,144 371,179 - - 63,978,371 50,399,080 - - - - - - - 10 Other cash outflows of which: Outflows related to derivative exposures and other 11 collateral requirements 12 Outflows related to restructured financial Instruments Payment commitments and other off-balance sheet 13 commitments granted for debts to financial markets Other revocable off-balance sheet commitments and 14 contractual obligations Other irrevocable or conditionally revocable off-balance 15 sheet obligations 16 TOTAL CASH OUTFLOWS CASH INFLOWS 17 Secured receivables 18 Unsecured receivables 31,030,251 18,570,377 23,653,369 16,915,639 19 Other cash inflows 30,032,712 26,177,091 30,032,712 26,177,091 20 TOTAL CASH INFLOWS 61,062,963 44,747,468 53,686,081 43,092,730 21 TOTAL HQLA Upper Limit Applied Value 62,919,223 50,399,269 22 TOTAL NET CASH OUTFLOWS 15,994,593 12,599,770 393.38 400.00 23 LIQUIDITY COVERAGE RATIO (%) (*) The average of last three months’ liquidity coverage ratio calculated by monthly simple averages. The table below presents highest, lowest and average liquidity coverage ratios for the last 3 months of 2021: Highest TL+FC FC 465.04 470.80 Date 07/10/2021 07/07/2021 Lowest 348.31 292.07 Date 07/12/2021 07/09/2021 Average 398.48 402.87 The liquidity coverage rate is calculated by the proportion of high quality liquid assets held by the bank to its one month maturity cash outflows. Important balance sheet items that determine the rate; Compulsory provisions held by the CBRT, repo / non-repurchase securities, institutional qualified participation accounts, funds from abroad and receivables from banks. These items have more impact on the liquidity coverage ratio than the liquidity assets and net cash outflows, because they have a high share of the current cointegration, high concentration and variability over time. 52 301
304. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Liquidity risk management and liquidity coverage ratio (continued) Prior Period HIGH-QUALITY LIQUID ASSETS 1 Total high-quality liquid assets (HQLA) CASH OUTFLOWS Retail deposits and deposits from small business 2 customers, of which: 3 Stable deposits 4 Less stable deposits 5 Unsecured wholesale funding, of which: 6 Operational deposits 7 Non-operational deposits 8 Unsecured funding 9 Secured wholesale funding 10 Other cash outflows of which: Outflows related to derivative exposures and other 11 collateral requirements 12 Outflows related to restructured financial Instruments Payment commitments and other off-balance sheet 13 commitments granted for debts to financial markets Other revocable off-balance sheet commitments and 14 contractual obligations Other irrevocable or conditionally revocable off-balance 15 sheet obligations 16 TOTAL CASH OUTFLOWS CASH INFLOWS 17 Secured receivables 18 Unsecured receivables 19 Other cash inflows 20 TOTAL CASH INFLOWS Total Unweighted Value (Average) (*) TL+FC FC Total Weighted Value (Average) (*) TL+FC FC 39,648,579 - 25,901,529 - 38,662,197 - 24,915,147 - 55,219,940 12,199,949 43,019,991 26,153,465 19,089,094 7,064,371 16,267,567 16,267,567 19,781,632 13,698,769 6,082,863 26,571,971 16,568,126 4,911,996 609,997 4,301,999 15,278,159 8,157,205 7,120,954 26,565,022 1,626,757 1,626,757 11,939,524 5,800,167 6,139,357 16,566,735 26,566,415 5,556 16,568,126 - 26,565,022 - 16,566,735 - - - - - - - - - 17,403,730 20,624,936 26,782,067 47,407,003 4,719,856 12,432,686 26,152,418 38,585,104 21 TOTAL HQLA 22 TOTAL NET CASH OUTFLOWS 23 LIQUIDITY COVERAGE RATIO (%) 1,534,567 239,311 48,289,744 30,372,327 16,488,161 11,906,245 26,779,564 26,149,915 43,267,725 38,056,160 Upper Limit Applied Value 38,662,197 24,915,147 12,072,436 7,593,082 320.25 328.13 (*) The average of the calculated liquidity coverage ratio for the last three months based on the monthly simple arithmetic average The table below presents highest, lowest and average liquidity coverage ratios for the last 3 months of 2020: Prior Period TL+FC FC Highest 366.55 399.18 Date 31/12/2020 31/12/2020 Lowest 298.64 301.60 Date 21/11/2020 14/11/2020 Average 323.32 332.10 The liquidity coverage ratio is calculated by the ratio of the high quality liquid assets of the parent bank to the net cash outflows within the one-month maturity window. Important balance sheet items which are influential over the aforementioned ratio may be specified as required reserves held in the presence of TC Central Bank, securities not subject to repo/assurance, institutional qualified participation accounts, funds of foreign origins and receivables from banks. These items have a higher influence over the liquidity coverage ratio as their amounts have a higher share of liquid assets and net cash outflows, their consideration rate is higher and they may show variability over time. 53 302
305. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Presentation of assets and liabilities according to their remaining maturities Demand Up to 1 month 1-3 Months 3-12 months 1-5 Years 30,768,750 15,354,846 36,205,529 - 719,577 26,930 - - 94,360 - 977,846 - 617,933 - 2,716,875 6,792,401 10,611,006 1,167,673 3,580,549 17,669,587 4,537,512 4,215 48,840,471 54,870,969 1,978,942 132,023,986 2,458,969 - Total Liabilities 136,461,897 Net liquidity gap Prior period Total assets Total liabilities Net liquidity gap (87,621,426) Current period Assets Cash (cash in vault, effectives, cash in transit, Cheques purchased) and balances with the Central Bank of the Republic of Turkey Banks (*) Financial assets at fair value through profit and loss Money market placements Financial assets at fair value through other comprehensive income Loans (**) Loans measured at amortised cost Other assets (***) Total assets Liabilities Current account and funds collected from banks via participation accounts Current and profit sharing accounts Funds provided from other financial institutions Money market borrowings Marketable securities issued Miscellaneous payables Other Liabilities (****) (*) (**) (***) (****) 20,556,136 75,029,738 (54,473,602) Unallocated (***) Total - (3,015) - 66,971,264 16,101,353 11,000,080 - - 249,882 - 12,940,101 - 3,600,071 44,625,413 204,090 - 17,927,254 49,634,157 597,524 1,882,944 6,111,676 596,423 - 171,487 (5,528,316) (621) 4,379,556 32,071,762 123,123,523 5,934,928 10,151,263 27,489,286 49,074,437 81,041,959 6,708,099 (731,027) 267,294,194 23 64,987,527 23,699 6,495,137 2,193,429 244,814 2,358,400 12,844,375 1,794,476 1,438,745 1,362,066 8,754,151 650,887 135,380 1,363,777 4,599,053 198,459 5,101 4,656,363 29,415 16,697,020 1,978,965 219,978,917 11,724,478 6,495,137 3,632,174 2,703,783 20,780,740 76,303,029 17,439,662 9,540,418 6,161,289 4,690,879 16,697,020 267,294,194 (21,432,060) 10,049,624 39,534,019 74,880,670 2,017,220 (17,428,047) - 29,894,129 10,641,824 19,252,305 52,673,745 4,078,713 48,595,032 4,907,794 42,275 4,865,519 381,846 11,753,616 (11,371,770) 158,197,113 158,197,113 - 30,061,101 44,542,867 (14,481,766) 19,722,362 12,108,080 7,614,282 Over 5 years Expected losses are netted off with provision. Includes receivables from leasing transactions and presented with netting off with the expected credit loss. Certain assets in the balance sheet that are necessary for the banking operations but cannot be readily convertible into cash in the near future, s uch as tangible assets, investments in associates and subsidiaries, stationary supplies and prepaid expenses are included under unallocated assets. The unallocated other liabilities consist of equity and provisions balances. 54 303
306. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 6. Explanations on consolidated leverage ratio 6.1 Disclosure of leverage ratio template The leverage ratio table prepared in accordance with the communiqué “Regulation on Measurement and Assessment of Leverage Ratios of Banks” published in the Official Gazette no. 28812 dated 5 November 2013 is presented below. 1 2 On-balance sheet assets (*) On-balance sheet items (excluding derivative financial instruments and credit derivatives but including collateral) (Assets deducted in determining Tier I Capital) 3 Total on-balance sheet risks (sum of lines 1 and 2) Current Period Prior Period 242,597,555 160,626,497 (592,935) (478,778) 242,004,620 160,147,719 Replacement cost associated with all derivative instruments and credit derivatives Add-on amounts for PFE associated with all derivative instruments and credit derivatives Total risks of derivative financial instruments and credit derivatives (sum of lines 4 to 5) Securities or commodity financing transactions (SCFT) 1,374,232 629,764 624,826 482,894 1,999,058 1,112,658 7 Risks from SCFT assets (excluding on-balance sheet) 2,231,136 2,119,201 8 Risks from brokerage activities related exposures Total risks related with securities or commodity financing transactions (sum of lines 7 to 8) Other off-balance sheet transactions - - 2,231,136 2,119,201 80,445,071 69,537,344 (44,108,586) (42,998,895) 36,336,485 26,538,449 13,397,322 9,567,064 282,571,299 189,918,027 Derivative financial instruments and credit derivatives 4 5 6 9 10 Gross notional amounts of off-balance sheet transactions 11 (Adjustments for conversion to credit equivalent amounts) 12 Total risks of off-balance sheet items (sum of lines 10 and 11) Capital and total risks 13 Tier I Capital 14 Total risks (sum of lines 3, 6, 9 and 12) Leverage ratio 15 Leverage ratio 4.76 5.04 (*) Amounts in the table are three-month average amounts. The leverage ratio calculated on the basis of the arithmetic average of the the amounts realized at the end of each month for the past three-month period as of the Group’s consolidated balance sheet date was 4.76% (31 December 2020 – 5.04%). The main reason for the changes from the previous period is that the increase in the items related to the finance transactions secured by securitisation instruments and goods is higher compared to the increase in other items. Therefore, the core capital increased by 40% due to the profit for the period, balance-sheet risks increased by 51%, and off-balance sheet items increased by 37%. Accordingly, the leverage ratio of the current period compared to the previous year shows a decrease of 28 basis points. 55 304
307. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 7. Explanations on consolidated fair values of financial assets and liabilities The table summarizes the book value and fair value of the financial assets and liabilities that were not accounted by the values in Group’s financial statements. Book value is the sum of the acquisition value and accumulated profit share accruals. Book Value Current Prior Period Period Financial assets Banks Financial Assets at Fair Value Through Other Comprehensive Income Financial Assets Aalued at Amortised Cost Loans and Lease Receivables Financial liabilities Current account and funds collected from banks via participation accounts. Other current and profit sharing accounts Money market borrowings Funds provided from other financial institutions Issued securities Other Liabilities Leasing payables Fair Value Current Prior Period Period 16,104,368 7,370,553 16,104,368 7,370,553 32,071,762 5,935,549 128,644,734 20,723,085 6,499,810 80,077,369 32,071,762 5,932,941 127,500,496 20,723,085 6,512,551 78,598,461 1,978,965 843,686 219,978,917 125,850,875 6,495,137 185,225 11,724,478 9,794,586 3,632,174 5,159,273 4,839,114 2,193,882 409,453 349,294 1,978,965 843,686 219,978,917 125,850,875 6,488,859 185,000 11,528,956 10,728,442 3,554,920 5,222,499 4,839,114 2,193,882 409,453 349,294 The estimated fair value of the loans is calculated by discounting future cash flows by using current market rates of profit share. The fair value of financial assets and liabilities carried at amortized cost other than loans, available for sales financial assets and funds provided from other financial institutions approximates to their book values since they are short term in nature and their effective profit share rates are similar with current effective profit rates. 8. Explanations on the activities carried out on behalf and account of other persons The Group does not perform purchases, sales and custody services in the name of others. The Group has no fiduciary based transactions. 9. Explanations on hedge accounting practices None (31 December 2020 – None). 10. Explanations on consolidated risk management Risk Management System refers to the Board of Directors, the Audit Committee, the Risk Management Committee, Asset-Liability Committee (“ALCO”) and the Risk Management Department (“RMD”) which has been composed in order to manage systemic risks that the Parent Bank is exposed. The Board of Directors is the owner of the Parent Bank's Risk Management System and ensures the establishment of an effective, sufficient and appropriate risk management system as well as the continuity of the system. The main objective of the Parent Bank's Risk Management System is to identify, measure, monitor and control the risks that the Bank is exposed to, by determining the policies, limits and procedures to control, to monitor, and if necessary to change the risk-return structure of the Bank's future cash flows and the level & the quality of related activities. 56 305
308. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.1. Explanations on Risk Management and Risk Weighted Amounts 10.1.1. GBA – Bank’s risk management approach What kind of an interaction does the Parent Bank’s risk profile has with the management board’s risk appetize and how does the business model determine the Parent Bank’s risk profile and how it interacts with it (i.e. Key risks regarding the business model and each one of these risks’ effect on the explanations); Kuveyt Türk’s business model fundamentally consisted of two main operating areas. These main areas are current accounts in accordance with the non-interest banking rules, collecting funds through profit/loss participation accounts and providing the usage of funds to its cilents through these funds and equity. The business model of the Bank occurs an exposure of some significant risks. These significant risks are evaluated and identified by the Parent Bank’s Internal Capital Competence Evaluation Process. Parent Bank’s risk strategy for all significant risks is formed in writing. Parent Banks are required to form a structure which is composed of the policies and processes regarding determining the risk appetite and following it’s units’ compliance because of the regulation regarding the Parent Banks Internal Systems and Internal Capital Competence Evaluation Process, numbered 29057 and published by the Official Gazette on 11 July 2014. In order to comply with this regulation Risk Appetite Policy is published by the Risk Management Leadership and approved by the Board of Directors. In accordance with the Parent Bank’s Risk Appetite Policy, risk levels and risk limits of each kind of risks which appeared important are collectively determined to achieve the Parent Bank’s goals and to actualize the Parent Bank’s strategies by taking the risk capacity of the Parent Bank into consideration. Bank’s risk strategy and risk limits are determined by the Board of Directors. The units which perform the risk measurement and management are carrying out their businesses independently from execution units. Fundamentally, control and management activities devoted to credit, market, liquidity, operational and other significant risk types are occurred. Due to the business model, Risk Management Leadership strategically contribute to the Parent Bank to identify, follow, measure and manage all risks which the Parent Bank may expose. Credit Risk Management and Modelling unit which is one of the units which constitutes the Risk Management Leadership, carries out the risk measurement and management works regarding the credit risks. Market Risk, Operational Risk, Risk and Capital Planning Department which is another unit which carries out its businesses under the Risk Management Leadership, coordinates the Parent Bank’s capital planning works and manage risks regarding the market, operations, liquidity and other important risk types. 306 57
309. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Parent Bank has a credit predominant active structure due to its main business model. Reflecting the Bank’s business model, total actives, predominantly consisted of dues regarding receivables from leasing and cash loans. The Parent Bank predominantly aims to grow sustainably by funding the real sector’s financing and increasing the credit amount by taking the risk-return balance into the consideration. Within the frame of its business model, the main risk type which the Parent Bank exposed/predicts to be exposed damage is credit risk. The significant risks within the scope of Parent Bank’s credit risks are as follows; • • • Credit Risk states the possibility of loan loss which the Parent Bank may expose due to the the partial or total nonpayment of its credit client on time in accordance with the contract made between the credit client and the Bank. Counterparty credit risk refers to the defaut risk of the counterparty of the transaction before the last payment in the cash flow of this transaction of which brings on obligation to both sides. Concentration risk covers risks arising from concentration between different types of risk or on an individual risk basis which may result in large losses that could threaten the Parent Bank's ability to maintain its core operations or its financial structure or which could cause significant changes in the Bank's risk profile. The parent bank is exposed to market risk due to its treasury transactions and other financial operatings. However, correspondingly with the risk appetite, the bank takes care to ensure that its market risk-generating assets have high credit rating and liquidity, and it does not carry a speculative foreign exchange position in order to hedge foreign exchange risk. The parent bank is exposed to operational risk due to its operatings, processes carried out, human resources, systems and external resources. Operational risks in the bank are managed under the supervision of the Board of Directors within the framework of identifying, evaluating, monitoring and reducing/controlling the risks. The current risk management is considered to be in line with the size of the bank, taking into account the level and importance of the risk. Explanations on risk reporting processes provided to the board of directors and senior management, in particular the scope and main content of the reporting, Timely and comprehensive reporting of risks exposed within the scope of Risk management activities and risks arising from transactions carried out with the risk group of the Parent Bank is carried out by the head of Risk Management. The Parent Bank produces regular reports from the risk measurement models it uses and analyzes the reports. Risk measurement and risk monitoring results are reported to the Board of directors or to the Risk Committee and senior management regularly and on time by the Risk Management Presidency. The reports prepared include the level and development of significant risks and their effects on capital needs, the compliance of assumptions used in risk measurement and evaluation systems, the adequacy of the level of capital that the parent bank should hold for all important risks, its compliance with legal and internal capital targets and ratios, the need for future capital and changes to be made in, business continuity plans, etc. includes information. The parent bank organizes a report on risk measurement, capital and liquidity planning and risk management capabilities under the scope of ICAAP at least once a year and in any case as of the end of the year. 58 307
310. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.1.2. Overview of risk weighted amounts Risk Weighted Amounts 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Current Period 31/12/2021 Prior Period 31/12/2020 Credit risk (excluding counterparty credit risk) (CCR) Standardised approach (SA) Internal rating-based (IRB) approach Counterparty credit risk Standardised approach for counterpary credit risk (SA-CCR) Internal model method (IMM) Basic risk weight approach to internal model’s equity position in the banking account Investments made in collective investment companies – lookthrough approach Investments made in collective investment companies – mandate-based approach Investments made in collective investment companies – 1250% risk weighting Approach Settlement risk Securitization exposures in banking book IRB ratings-based approach (RBA) IRB supervisory formula approach (SFA) SA/simplified supervisory formula approach (SSFA) Market risk Standardised approach (SA) Internal model approaches (IMM) Operational risk Basic indicator approach 71,764,319 71,783,798 659,413 51,904,896 51,923,351 244,931 5,741,146 5,742,704 52,753 659,413 - 244,931 - 52,753 - - - - 19,479 18,455 1,558 - - - 5,574,076 5,574,076 11,336,427 11,336,427 3,838,461 3,838,461 7,606,341 7,606,341 445,926 445,926 906,914 906,914 89,353,714 63,613,084 7,148,297 Standardised approach Advanced measurement approach Amounts below the thresholds for deduction from capital (subject to 250% risk weight) Floor adjustment Total (1+4+7+8+9+10+11+12+16+19+23+24) 59 308 Minimum Capital Requirements Current Period 31/12/2021
311. Equity Total Liabilities Other Liabilities Deferred Tac Liabilities Subordinated Debt Instruments Current Tax Liabilities Lease Payables Provisions Derivative Financial Liabilities Financial Liabilities at Fair Value Through Profit or Loss Debt to money markets Securities Issued (Net) Borrowings Funds Collected Liabilities Other Assets Total Assets Current Tax Asset Deferred Tax Asset Investment Properties (Net) Tangible Assets (Net) Intangible Assets (Net) Jointly Controlled Entities (Joint Ventures) (Net) Property And Equipment Held For Sale Purpose And Related To Discontinued Operations (Net) Subsidiaries Factoring Receivables Lease Receivables Expected Loss Provisions (-) Loans Derivative Financial Assets Financial Assets at Fair Value Through OCI Financial Assets Measured at Amortised Cost Financial Assets at Fair Value Through Profit and Loss Receivables From Money Markets Cash and Balances with Central Bank of Turkey Banks Asset Current Period 221,957,882 3,623,982 6,495,137 3,632,174 257,764 409,453 5,207,331 1,282,020 8,100,496 4,839,114 11,488,841 267,294,194 66,974,279 16,104,368 12,940,101 32,071,762 5,935,549 1,398,784 8,610,377 119,801,314 11,925,935 240,891 23,680 89,258 1,084,542 362,184 63,598 1,882,944 5,005,382 267,294,194 Carrying values in financial statements prepared as per TAS 60 221,957,882 3,623,982 6,495,137 3,632,174 257,764 409,453 5,207,331 1,282,020 8,100,496 4,839,114 11,488,841 267,294,194 66,974,279 16,104,368 12,940,101 32,071,762 5,935,549 1,398,784 8,610,377 119,801,314 11,925,935 240,891 23,680 89,258 1,084,542 362,184 63,598 1,882,944 5,005,382 267,294,194 Carrying values in legal consolidation prepared as per TAS - 66,974,279 16,104,368 32,071,762 5,935,549 2,788,381 120,021,246 11,925,935 240,891 23,680 89,258 1,084,542 362,184 63,598 1,882,944 5,005,382 258,997,237 Credit Risk 6,495,137 6,495,137 1,398,784 1,398,784 Counterparty Credit Risk Securization Positions Carrying values of items in accordance with Turkish Accounting Standards 10.1.3. Differences and matching between asset and liabilities’ carrying values in financial statements and in capital adequacy calculation (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 - - - 12,940,101 12,940,101 Market Risk 221,957,882 3,623,982 3,632,174 257,764 409,453 5,207,331 1,282,020 8,100,496 4,839,114 11,488,841 260,799,057 5,821,996 73,968 347,516 (5,400,512) No subject to capital requirements or subject to deducation from capital Section V: Financial Information and Risk Management Practices 309
312. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.1.4 Main sources of differences between regulatory exposure amounts and carrying values in financial statements Total Items subject to Items subject securitisati to credit risk on framework framework Items subject to counterparty credit risk framework Items subject to market risk framework 1- Carrying Value of Assets in Accordance with TAS (as in template 1B) 267,294,194 258,997,237 - 1,398,784 12,940,101 2- Carrying Value of Liabilities in Accordance with TAS (as in template 1B) 3- Total net amount 4- Off-balance sheet amounts 5- Differences in valuations 267,294,194 156,945,618 - 258,997,237 7,600,941 - - 6,495,137 7,893,921 1,525,759 - 12,940,101 72,401,233 - 6 Differences due to different netting rules (other than those already included in row 2) 7- Differences due to consideration of provisions 8- Differences due to prudential filters 9-Risk Amounts 424,239,812 (78,157,861) 188,440,317 - 9,419,680 85,341,334 10.2. General qualitative information on credit risk 10.2.1. How the business model translates into the components of the group’s credit risk profile The business model of the Group basically consists of two main business fields: collecting funds by means of current accounts and profit/loss participation accounts subject to the interest-free banking rules and using those funds and equity funds to make funds available to customers. Because of these main business fields, the group’s assets have a creditweighted structure. Reflecting this business model, its total assets are cash credit-weighted and financial leasing receivable-weighted. The group lends funds to finance the real sector in general and increases its volume of credits by taking into account its risk-return balance to achieve sustainable growth. The risk profile of the Group indicates the types of risks to which it is exposed or expects to be exposed, and its risk level by type of risk. The largest type of risk to which the Group is exposed or expects to be exposed within its current and target business model is the credit risk. Since the risk of concentration is one of the most important components of the credit risk, concentration limits were set by sector for the concentration risk. Internal limits are set for cash, noncash and total credits for each of 20 different sectors. Limits were set for monitoring Defaulted Credit Exposures in mentioned sectors and for taking corrective measures. With regard to concentration of the credit risk, internal limits were set for the top 10, 20, 30, 40, 50 and 100 debtor/credit risk groups. Furthermore, country limits were set to avoid concentration in countries selected as part of the sovereign risk process. 10.2.2. Criteria and approach used for defining credit risk policy and for setting credit risk limits The main purpose of the credit risk policy are to measure the counterparty risk undertaken as part of a credit transaction, to monitor the risk against the legal limits and the Bank’s internal limits, to research new techniques and applications for measuring and controlling the risk, to monitor overdue receivables, to analyze the reason of overdue, and to take measures to prevent such reasons from repeating. The term ‘credit risk’ refers to the potential loss the Bank might be exposed to because of credit borrowers’ partial or full default of the credit agreements they signed with the bank. This term also includes the loss of market value because of the breakdown of the counterparty’s financial position. This term includes both on-balance sheet and off-balance sheet transactions. Risk limits are set by openly relating it with the Bank’s volume on consolidated and non-consolidated basis within the financial system as part of its risk appetite structure. In this context the appetite for risk approved by the Board of Directors are divided between and allocated to other levels considered necessary by type of risk. The uses of the limits are closely monitored, and overdrafts are reported to the executive management for ensuring the necessary measures to be taken. 61 310
313. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.3. Structure and organization of the credit risk management and control function Risk Control and Compliance Group works under the Risk Committee reporting to the Board of Directors. Risk Control and Compliance Group Manager and Risk Management Department Manager working under the former are in charge of and responsible for the strategies and policies approved by the Board of Directors and for performing the other tasks assigned by the Risk Committee. Credit Risk Management and Modeling Unit is one of the units comprising the Risk Management Department performs the risk measurement and management tasks concerning the credit risk. 10.4. Relations between the credit risk management, risk control, compliance and internal audit functions The units within the scope of internal systems have been established within the organizational structure of the Parent Bank depending on the Board of Directors. The Board of Directors has transferred its duties and responsibilities related to risk management, internal control and compliance to the Risk Committee consisting of three members of the board of directors. The Risk Management Department, the Internal Control Department and the Compliance Department carry out their activities under the supervision and coordination of the Risk Committee. The Board of Directors carries out its duties and responsibilities related to internal audit through the Audit Committee, which consists of three members of the Board of Directors. The Chairman of the Board of Inspectors performs internal audit activities under the supervision and coordination of the Audit Committee. The internal control function of the Parent Bank is performed by the Internal Control Department. Internal Control System has been founded in such a manner to be capable and efficient to mitigate, manage, monitor and control the exposure risks of the Parent Bank in accordance with the Parent Bank’s organizational structure and business fields as well as changing circumstances, and covers all domestic and international branches, head office, consolidated subsidiaries and all business activities of the Parent Bank. The internal control system and internal control activities of the Parent Bank are designed by the Internal Control Department in cooperation with the relevant management executives and are performed at a sufficient and efficient extent. Compliance Department is in charge of managing the Parent Bank’s compliance risk and taking it under control in an efficient way, forecasting and preventing the risk in question, and ensuring the Parent Bank’s activities to comply with the applicable laws and regulations. Risk Management Department performs the tasks of determining, measuring and managing the exposure risks of the Parent Bank. An efficient risk management system infrastructure has been established for credit risk management tasks, credit policy, and risk management activities falling within the credit risk policy. The internal credit risk limits set by the Board of Directors are measured and reported at regular intervals to the Risk Committee. Audit Department is in charge of assuring the Board of Directors and the executive management that the Parent Bank’s business activities are performed in accordance with the Banking Law, other applicable laws and regulations and the internal strategies, policies, principles and targets of the bank, and that the internal control and risk management systems are efficient and sufficient. 10.5. Scope and main content of the reporting on credit risk exposure and on the credit risk management function to the executive management and to the Board of Directors Risk Management Report for the Executive Management, which is the basic report presented to the Board of Directors and the executive management, is prepared quarterly. The report in question contains the basic subjects described below. Quality of the assets are analyzed in accordance with the classification specified in the Regulation on Procedures and Principles for Determination of Qualifications of Loans and Other Receivables by Banks and Provisions to be set aside and the assets are compared with those of the previous fiscal period to monitor the sustainability of the asset quality. The report describes the credit risk limits and the figures realized in the relevant fiscal period. Credits lent in 20 different economic sectors are monitored by cash, non-cash and total credits. Credit shares and development trends of the economic sectors are monitored. The risk limits set in accordance with the Parent Bank’s appetite for risk and the figures realized are explained. Observed key risk indicators include the ratio of credit risk-weighted items over the total assets, the ratio of the total gross amount of defaulted credits over the total financing (cash credits) portfolio and their distribution by sector, distribution of guarantees by guarantee group, the ratio of the top 10/20/30/40/50/100 risks over the total financing (cash and non-cash credits) portfolio, and the ratio of write-off. 62 311
314. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Distribution of cash credits by maturity term is monitored. Detailed information is given about the top 10 customers against whom internal or legal proceedings were filed, their limits, risks, guarantees and provisions, description of their sectors and their state are described. The trend of restructured credits is monitored. Also, loans to risk group of the Parent Bank are reported. Sovereign ratings, limits and used limits are monitored and compared with the previous fiscal year. The Parent Bank creates credit portfolios in accordance with its internal segment structure. These segments are divided into sub-segments. Risks realized for cash, non-cash and total credits are monitored by each of these portfolios. Real estate price indexes are analyzed to monitor whether the values of the real estates received as guarantees for the funds lent have increased or decreased. These real estates are also monitored by subcategory in accordance with the classification of regions published by the Turkish Central Bank. They are also compared with the House Price Index of Turkey published by the Turkish Central Bank. Credit quality of assets Current Period 1 2 Loans Debt securities Off-balance sheet exposures (*) Total 3 4 Gross amount valued as per TAS and presented in the financial statements prepared according to legal consolidation Defaulted Non-defaulted 3,082,515 129,014,884 38,298,950 1 2 3 4 Loans Debt securities Off-balance sheet exposures (*) Total Net amount 2,788,381 291,639 129,309,018 38,007,311 527,586 30,379,913 522,426 30,385,073 3,610,101 197,693,747 3,602,446 197,701,402 (*) Accruals of derivative transactions are presented as net amounts under impairments. Prior Period Provisions / depreciation and impairment Gross amount valued as per TAS and Provisions / presented in the financial statements prepared according to legal consolidation depreciation and impairment Defaulted Non-defaulted 2,970,254 80,077,369 2,524,317 27,433,847 210,952 Net amount 80,523,306 27,222,895 451,980 19,952,357 439,754 19,964,583 3,422,234 127,463,573 3,175,023 127,710,784 (*) Accruals of derivative transactions are presented as net amounts under impairments. Changes in stock of defaulted loans and debt securities 1 2 3 4 5 6 Defaulted loans and debt securities at end of the previous reporting period Loans and debt securities that have been defaulted since the last reporting period Receivables back to non-defaulted status Amounts written off Other changes Defaulted loans and debt securities at end of the reporting period (1+2-3-4±5)(*) 63 312 Current Period 2,970,254 1,376,194 408,047 (855,886) 3,082,515 Prior Period 2,109,681 1,638,811 403,794 (374,444) 2,970,254
315. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.6. Qualitative disclosures related to the credit quality of assets 10.6.1 Scope and definitions of “overdue” and “provision allocated” receivables for accounting purposes and the differences of definitions between “overdue” and “provision allocated”, if any Overdue receivables: Overdue receivables and provision allocated receivables are determined according to the Communique on Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves. Provision for receivables: All financial instruments other than those covered by TFRS 9 and whose fair value is reflected in the profit / loss. 10.6.2. The part of the overdue receivables (past 90 days) for which provision is not allocated and reasons for this application All loans that have completed the delay process determined in accordance with the legal regulations within the relevant month in the Parent Bank are automatically taken into follow-up accounts and are subject to special provision. In very exceptional cases and due to a court decision, the delay process is stopped, and the Bank's loan amount in this context is insignificant as of December 31, 2021. 10.6.3. Definitions of the methods used when determining the provision amount TFRS 9 requires a 12-month expected credit loss provision for all financial assets in Stage 1 and the expected credit loss for all other financial assets. 12-month expected credit loss represents the portion of the expected credit loss from probable default events within 12 months after the reporting date. Lifetime losses are losses from all possible default events during the expected life of the financial instrument after the reporting date. Lifetime refers to the maturity of the financial instrument. In non-maturity financial instruments, the bank calculates the behavioral maturity and uses this to calculate the expected loan loss. The ECLs are calculated at each instrument level by taking into account the projected cash flows, the PD (Probability of default), the LGD (Loss given default), the CCR (Credit Conversion Rate) and the discount rate. In small, very unimportant and unrated portfolios, the ECL can be estimated on a collective basis. 10.6.4. Definition of restructured receivables The financial terms in existing financial difficulties may be amended to facilitate payment of the debt, and the original loan terms that were previously signed can be changed according to the borrower's new financing power and structure when the loan cannot be repaid or a potential non-repayment is encountered. In order for a loan to be considered as restructured, the debtor must be in financial difficulty and the debtor must be provided with the concession requirements for changing the loan conditions. 64 313
316. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.6.5. Breakdown of exposures by geographical areas, industry and ageing Distribution of cash receivables by sectors is as follows Current Period – Cash Loan Amount 14,874,360 8,771,465 419,228 1,133,739 10,938,898 4,254,884 1,915,895 6,363,595 15,743,711 5,110,897 9,207,506 7,440,687 1,645,501 4,152,816 481,438 2,080,281 776,903 10,747,052 21,442,487 592,941 3,632,965 131,727,249 Sector Individual Other Services Education Real Estate and Brokerage Financial Services Food, Beverage, Tobacco Government Production Construction (Commitment) Construction (Build-and-sell) Public Services (Electricity, Water & Gas) Mining & Chemistry Machinery Equipment Automative Oil, Gas and Oil Products Health Agriculture Textile Wholesale & Retail Tourism Transportation & Warehouse Total Prior Period – Cash Loan Amount 14,531,103 4,853,895 341,301 789,411 3,796,867 2,309,211 1,658,117 4,017,691 9,152,145 4,227,056 4,714,626 4,213,394 663,178 2,754,410 1,288,244 1,449,528 494,186 5,637,005 13,813,184 416,342 1,926,729 83,047,623 The distribution of cash receivables by geographical regions is as follows. Region Akdeniz Region Dogu Anadolu Region Ege Region Güneydogu Anadolu Region Iç Anadolu Region Karadeniz Region Marmara Region Foreign Total Current Period – Cash Loan Amount 8,885,628 1,992,872 5,796,850 7,766,209 20,384,485 3,334,466 66,450,397 17,116,342 131,727,249 Prior Period – Cash Loan Amount 5,664,298 1,580,628 5,077,225 4,585,283 13,978,808 2,581,377 44,981,832 4,598,172 83,047,623 Current Period – Cash Loan Amount 59,544,343 35,736,437 20,970,367 14,413,860 1,062,242 131,727,249 Prior Period – Cash Loan Amount 30,628,127 25,110,861 13,461,570 12,460,525 1,386,540 83,047,623 The maturity distribution of cash receivables is as follows. Maturity Distribution 1-3 years 3-5 years 5 years and more Up to 1 year Defaulted Total 65 314
317. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.6.6. Provisions based on geographical and sectoral concentration and written off amounts Current Period - Sector Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accomodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services Professional Services Educational Services Health and Social Services Other TOTAL Prior Period - Sector Agriculture Farming and Stockbreeding Forestry Fishery Manufacturing Mining and Quarrying Production Electricity, Gas and Water Construction Services Wholesale and Retail Trade Accomodation and Dining Transportation and Telecommunication Financial Institutions Real Estate and Rental Services Professional Services Educational Services Health and Social Services Other TOTAL Non-Performing Loans 33,900 14,129 19,771 561,557 155,218 396,355 9,984 1,187,755 1,150,166 699,548 147,909 95,547 5,529 48,889 113,883 38,861 149,137 3,082,515 Specific Provisions 30,204 12,827 17,377 490,917 140,135 341,057 9,725 1,107,079 1,034,267 621,122 137,120 85,323 5,503 44,636 106,375 34,188 125,914 2,788,381 Write-Offs (*) 16,621 13,796 2 2,823 103,295 15,618 86,202 1,475 112,898 155,568 110,210 2,386 33,408 902 1,148 7,514 19,665 408,047 Non-Performing Loans 50,399 28,780 18,341 3,278 453,590 62,382 356,249 34,959 1,288,690 1,028,716 656,152 106,068 96,309 3,939 38,410 183 67,631 60,024 148,859 2,970,254 Specific Provisions 38,958 23,340 12,340 3,278 390,889 53,334 306,499 31,056 1,135,664 853,605 552,266 88,081 77,281 3,865 32,504 146 52,426 47,036 105,201 2,524,317 Write-Offs 18,921 2,283 16,638 45,388 6,621 38,320 447 86,652 229,493 66,467 919 157,404 1,084 416 3,203 23,340 403,794 (*) Refers to the loans worth TL 153,338 that were deleted in 2020, one hundered percent provisioned from non-performing loans and sold to an asset management company. 66 315
318. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Current Period - Geopraphic Region Marmara Region Güneydogu Anadolu Region Iç Anadolu Region Akdeniz Region Ege Region Dogu Anadolu Region Karadeniz Region Foreign Non-performing loans 1,667,765 137,832 824,963 175,919 165,289 69,691 33,950 7,106 3,082,515 Provisions 1,478,442 132,291 768,159 162,414 154,071 61,411 31,107 486 2,788,381 Write-Offs 278,636 15,193 38,553 22,065 23,998 15,132 4,209 10,261 408,047 Prior Period - Geopraphic Region Marmara Region Güneydogu Anadolu Region Iç Anadolu Region Akdeniz Region Ege Region Dogu Anadolu Region Karadeniz Region Foreign Total Non-performing loans 1,563,800 227,320 755,803 125,209 189,331 38,755 34,373 35,663 2,970,254 Provisions 1,307,313 187,949 683,200 111,948 162,867 35,916 28,682 6,442 2,524,317 Write-Offs (*) 174,219 15,544 23,859 125,413 14,773 3,520 3,481 42,985 403,794 Total (*) Includes loans deleted from assets in 2020 and the amount of TL 110,353 that has been reserved for 100% of non-performing loans and sold to an asset management company 10.6.7. Aging analysis for non-performing loans Current period Corporate and Commercial Loans Retail Loans Credit cards Other Total Prior Period Corporate and Commercial Loans Retail Loans Credit cards Other Total Up to 3 Months 3-12 Months 258,271 264,114 5,054 7,683 10,422 6,119 273,747 277,916 Up to 3 Months 739,545 5,039 2,567 747,151 3-12 Months 560,048 15,922 6,888 582,858 1-3 Years 2,135,269 21,322 5,890 2,162,481 1-3 Years 1,427,721 41,077 7,820 1,476,618 3-5 Years 229,408 42,272 1,705 273,385 3-5 Years 115,934 7,062 855 123,851 10.6.8. Breakdown of Restructured receivables according to their provisions Restruction Status Performing Non-Performing Total Current Period - Risk 3,257,703 662,378 3,920,081 67 316 Prior Period - Risk 2,624,343 264,327 2,888,670 5 Years and Over 89,846 4,852 289 94,987 5 Years and Over 38,185 1,322 269 39,776
319. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.7. Credit Risk Mitigation 10.7.1 Qualitative information on Credit Risk Mitigation Techniques Within the framework of the credit transactions carried out by the parent bank, all the collateral documents received in the presence of the branch personnel are checked by the branch operations staff and forwarded to the collateral followup Directorate through the main banking application. The systematic entries of the guarantees are completed by the personnel of the guarantee follow-up directorate where signature compliance, authorization checks and validity examinations are performed. 10.7.2 Credit risk mitigation techniques Current Period 1 2 3 4 Loans Debt securities Total Overdue Prior Period 1 2 3 4 Loans Debt securities Total Overdue Exposures Collateralized unsecured: amount of Exposures carrying Exposures exposures secured by amount as per secured by secured by financial TAS collateral collateral guarantees 86,871,005 35,189,340 3,119,489 7,248,673 38,007,311 124,878,316 35,189,340 3,119,489 7,248,673 81,507 168,958 13,189 43,669 Collateralized Collateralized amount of amount of exposures Exposures exposures secured by secured by secured by financial credit credit guarantees derivatives derivatives 5,915,414 5,915,414 27,132 - Exposures Collateralized unsecured: amount of Exposures carrying Exposures exposures secured by amount as per secured by secured by financial TAS collateral collateral guarantees 52,894,387 20,064,424 1,520,553 7,564,495 27,222,895 80,117,282 20,064,424 1,520,553 7,564,495 112,344 231,779 1,322 101,814 Collateralized amount of exposures secured by financial guarantees 5,961,858 5,961,858 62,382 Exposures secured by credit derivatives - Collateralized amount of exposures secured by credit derivatives - 10.8. Explanations on Counterparty Credit Risk (CCR) 10.8.1. Risk management objectives and polices for CCR Determination of the creditworthiness of financial counterparties has been made in addition to the Credit Policy of the Parent Bank in accordance with the regulations published by BRSA and the international practices in order to limit the exposure to be suffered by the Parent Bank in case of financial counterparty default. This annex describes allocation of limit to financial counterparties and continuous monitoring activities. In this respect, the creditworthiness assessments of the financial and non-financial entities for CCRs especially including sovereign assessments and limits are finally decided by the committees specified under the Policy. 10.8.2. The method used to allocate the operatioal limits defined in terms of internal capital for CCR and central counterparty risks Internal model method is not used for calculating the capital requirements for counterparty credit risk and central counterparty risks. 10.8.3. Policies relating to guarantees and other risk mitigation and assessments concerning counterparty credit risk, including central counterparty risk All of the Parent Bank’s counterparty credit risk and central counterparty limits are non-committed limits and they include cash and non-cash limits. In case of any transactions involving non-cash risk exposure, the reassurance of the organizations such as International Development Banks is used. If required, cash collateral is sought in order to minimize the exposure. In case of transactions involving cash risk exposure, the risk exposure is mitigated by obtaining shares and bills (sukuk) as security. 68 317
320. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.8.4. Rules with respect to wrong-way risk Internal model is not used for CCR; and as such, no calculation is made with respect to the wrong-way risk. 10.8.5. The impact in terms of the amount of collateral that the bank is required to provide in case of a credit rating downgrade In case of a decrease in the credit rating, there is no additional collateral amount that our parent bank has to provide. 10.8.6. Counterparty credit risk (CCR) approach analysis Current Period Replacement Cost 1 Standardised Approach CCR (for derivatives) (*) Internal Model Method (for repo transactions, securities or commodity lending or borrowing 2 transactions, long settlement transactions and securities financing transactions) Simple Approach for credit risk mitigation (for repo transactions, securities or commodity lending or 3 borrowing transactions, long settlement transactions and securities financing transactions) Comprehensive Approach for credit risk mitigation (for repo transactions, securities or commodity 4 lending or borrowing transactions, long settlement transactions and securities financing transactions) Value-at-Risk (VaR) for repo transactions, securities or commodity lending or borrowing 5 transactions, long settlement transactions and securities financing transactions 6 Total Prior Period 1 Standardised Approach CCR (for derivatives) (*) Internal Model Method (for repo transactions, securities or commodity lending or borrowing 2 transactions, long settlement transactions and securities financing transactions) Simple Approach for credit risk mitigation (for repo transactions, securities or commodity lending or 3 borrowing transactions, long settlement transactions and securities financing transactions) Comprehensive Approach for credit risk mitigation (for repo transactions, securities or commodity lending or 4 borrowing transactions, long settlement transactions and securities financing transactions) Value-at-Risk (VaR) for repo transactions, securities or commodity lending or borrowing transactions, long 5 settlement transactions and securities financing transactions 6 Total 1,042,314 EEPE 483,445 1.4 Risk amount after Risk credit weighted risk amounts mitigation 1,525,759 640,761 640,761 Replacement Potential future Cost exposure 391,901 580,188 EEPE Risk amount after Alpha credit Risk used for risk weighted computing regulatory mitigation amounts EAD 1.4 972,089 212,000 212,000 69 318 Potential future exposure Alpha used for computing regulatory EAD
321. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 10.8.7. Capital requirement for credit valuation adjustment (CVA) Current Period Total portfolios subject to the Advanced CVA capital obligation 1 (i) VaR component (including the 3×multiplier) (ii) Stressed VaR component (including the 2 3×multiplier) All portfolios subject to the Standardised CVA 3 capital obligation 4 Total subject to the CVA capital obligation Risk amount (after using credit risk mitigation techniques) Prior Period Risk amount (after using Risk weighted credit risk Risk weighted amounts amounts mitigation techniques) 1,525,759 18,652 972,089 32,931 1,525,759 18,652 972,089 32,931 70 319
322. 320 Receivables from regional and local government Receivables from administrative bodies and non-commercial entities Receivables from multilateral development banks Receivables from international organizations Receivables from banks and brokerage houses Receivables from corporate Retail receivables Other receivables Total 2 3 4 5 6 7 8 9 10 5 ,221,288 - - - - - - - - 5,221,288 0% 10% - - - - - - - - - - - 4 Receivables from multilateral development banks 5 Receivables from international organizations 6 Receivables from banks and brokerage houses 7 Receivables from corporate 8 Retail receivables 9 Other receivables 10% - - - - - - - - - - (*) Total credit risk: The amount related to capital adequacy calculation after counterparty credit risk measurement techniques are applied. (**) Other assets: The template includes amounts that are not included in counterparty credit risk reported in CCR8. (***) 35% Risk Weight is classified in Others. 456,708 - 3 Receivables from administrative bodies and non-commercial entities 10 Total - 456,708 0% 2 Receivables from regional and local government 1 Receivables from central governments and Central Banks Prior Period - Risk Classes / Risk Weights * (*) Total credit risk: The amount related to capital adequacy calculation after counterparty credit risk measurement techniques are applied. (**) Other assets: The template includes amounts that are not included in counterparty credit risk reported in CCR8. (***) 35% Risk Weight is classified in Others. Receivables from central governments and Central Banks 1 Curent Period - Risk Classes / Risk Weights * 10.8.8. CCR exposures by risk class and risk weights (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) - - - - - - - - - - 71 576,986 - - - 576,986 20% 603,026 - - - 603,026 20% - - - - - - - - - - 39,436 507 - - 38,929 50% 777,899 3,984 - - 773,915 50% KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 - - - - - - - - - - - - - - 17,793 - 17,793 75% 32,436 - 32,436 75% - - - - - - - - - - - - 62,612 3,465 - 59,147 100% 104,863 10,259 - 94,604 100% 150% 150% - - - - - - - - - - - - - - - - - - - - 200% 200% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,648 2,648 Others *** 5,760 5,760 Others *** - - - - - - - - - - 212,000 4,646 13,345 59,147 134,862 Total credit risk* 640,761 14,267 24,327 94,604 507,563 Total credit risk* Kuveyt Türk Annual Report 2021
323. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 11. Securitization positions None. 12. Explanations on the activities carried out on behalf and account of other persons, fiduciary-based transactions The Group does not perform purchases, sales and custody services in the name of others. The Bank has no fiduciary-based transaction agreements. 13. Qualitative explanations on market risk 13.1. Group's processes and strategies Procedures for the identification, measurement, monitoring and control of the market risk of the group, as well as processes for risk protection and strategies/processes for monitoring of the continuity of the hedging effectiveness, as well as the strategic objectives for the group's trading activities. Risk management activities are consisting of the measurement, monitoring, control and reporting of the risks, arising from risks incurred on the consolided and solo basis and transactions carried out with the risk group that the Bank is involved in. These activities are carried out by the Parent Bank's Risk Management Department. The definition of the market risk is made by legislation within the scope of the Pillar 1 risks. The components of the market risk that do not fall within the scope of Pillar 1 risks are assessed internally. This process is carried out by the Risk Management Department with the consultation to other relevant departments. Measurement of the market risk is carried out by the Risk Management Department. Market risk is measured by the standard method as specified in the third part of the Regulation on the Measurement and Evaluation of Banks' Capital Adequacy. The Risk Management Department adopts international standardized methods and advanced statistical methods, which are included in the legislation, in the measurement of risks falling within the scope of the Pillar 2. Developed models as well as the stress tests and scenario analysis are used in the measurement and monitoring of the market risk. The primary purpose of market risk is for the bank's risk exposure to be within the limits specified by the legislation and to be in accordance with the Bank's risk appetite. In this context, market risk is periodically measured, monitored and reported. Risk limits related to market risk are established in accordance with the Group's Risk Appetite Policy. Aforementioned risk limits are determined by the Board of Directors and reviewed at least once a year. Limit usages are closely monitored. Risk mitigation techniques have been applied in line with the size and complexity of the undertaking market risk and the controls are implemented in order to ensure their effectiveness. Treasury Group Department monitors foreign currency positions and cash flows on behalf of the Parent Bank. Moreover, new products and projects are examined in terms of market risk management and appropriate internal controls are implemented in case of necessity. The ParentBank's strategic objectives for trading activities are given below. • • • Ensure that the parent bank's lease certificate portfolio is managed at the optimum level within the riskreturn balance limits Implement transaction by taking into account the future prospects of market developments/movements and the framework of trading opportunities in the current market prices Invest in Sukuk (lease certificates) as an alternative investment tool to manage the liquidity profitably 72 321
324. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 13.2. The organization and structure of the market risk management function Definition of the market risk management structure established for the implementation of the Parent Bank's strategies and processes and the communication mechanism and relationship between the different parties involved in market risk management, as described in paragraph 1 of 12.1. The market risk service operates under the Deputy Head responsible from the Market Risk, Operational Risk and Capital Planning within Risk Management Department. This service directly reports to the Board of Directors through the Risk Committee. The results of risk measurement and risk monitoring are shared with other related units. The activities coordinated within the Internal Capital Adequacy Assessment Process are carried out together with other relevant departments of the Parent Bank. 13.3. Structure and scope of risk reporting and/or measurement systems Within the scope of risk management system, the Group established a reporting system which ensures effective analysis and evaluation for market risks. The risk measurement and risk monitoring results is reported to the Risk Committee on a timely manner. There is a risk measurement system which covers the scope and complexity of significant market risk components including transactions and operations exposed to market risk. This system is being audited regularly. The details of the market risk calculated as of 31 December 2020 and 31 December 2021 in accordance with the principles in the third part of the "The Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks" published in the Official Gazette numbered 29511 and dated 23 October 2015 are as follows: 13.4. Market risk under standardised approach Risk Weighted Amounts Current Period 1 2 3 4 5 6 7 8 9 Outright products 5,574,076 3,847,896 Profit share risk (general and specific) Equity risk (general and specific) Foreign exchange risk Commodity risk Options Simplified approach Delta-plus method Scenario approach Securitisation Total 3,348,235 66,214 615,471 1,544,156 5,574,076 2,509,715 149,230 1,188,951 3,847,896 73 322 Prior Period
325. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 13.5. Explanations on Operational Risk: "Basic Indicator Method" is used in operational risk calculation of the Group. The sum that is the basis for the operational risk is calculated by the use of the gross revenues of the Group for the last 3 years 2020, 2019 and 2018 in compliance with "Third Section "Calculation of the Operational Risk" of The Regulation on Measurement and Assessment of Capital Adequacy Ratios of Goup published in the Official Gazette numbered 29111 and dated 6 September 2014. The annual gross revenue is calculated by addition of the net fees and commission revenues, dividend income obtained other than subsidiaries and affiliates, the trading gain/loss(net) and other operating income to the net profit share income and by deduction of the gain/loss from the sale of the assets accounted other than the trading book, extraordinary income, the operational expenses for the support services taken from the main shareholder of the parent bank, subsidiary of the parent bank or subsidiary of the shareholder of the parent bank performing the calculation or the institutions which are subject to the relevant Regulation or the equivalent arrangements and the operational expenses for the support service taken from a bank and the amounts compensated from insurance. TL 363,564 corresponding to the 8% of TL 17,044,547 used in the calculation of the operational risk within the scope of "Capital adequacy standard rate" indicated in the disclosure I of this section, represents the operational risk which might be exposed to. TL 363,564 also defines the minimum capital sum which is required in order to eliminate the mentioned risk. Current Period Gross Income Value at Operational Risk (Total*12.5) Prior Period Gross Income Value at Operational Risk (Total*12.5) 31/12/2018 Amount 4,018,300 31/12/2019 Amount 5,375,818 31/12/2020 Amount 8,744,165 Total/ No. of Years of Positive Gross 6,046,094 Rate (%) 15 31/12/2017 Amount 2,776,027 31/12/2018 Amount 4,018,300 31/12/2019 Amount 5,375,818 Total/ No. of Years of Positive Gross 4,056,715 Rate (%) 15 Total 906,914 11,336,427 Total 608,507 7,606,341 13.6. Profit-share rate risk related to banking book 13.6.1. Economic value differences arising from fluctuations in profit share rates in accordance with the regulation on measurement and evaluation of profit share rates derived from banking accounts with standard shock method Current Period 1 2 3 4 5 6 Currency TRY TRY USD USD EURO EURO Total (For Negative Shocks) Total (For Positive Shocks) Applied Shock (+/- x basis points) (+) 500bp (-) 400bp (+) 200bp (-) 200bp (+) 200bp (-) 200bp Gains/Losses (521,604) 486,326 748,776 (792,981) 162,645 (158,010) (464,665) 389,817 Gains/Shareholder’s EquityLosses/shareholder’s Equity (%2.73) %2.55 %3.92 (%4.15) %0.85 (%0.83) (%2.43) %2.04 * Parent Bank 74 323
326. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Prior Period 1 2 3 4 5 6 Currency TRY TRY USD USD EURO EURO Total (For Negative Shocks) Total (For Positive Shocks) Applied Shock (+/- x basis points) (+) 500bp (-) 400bp (+) 200bp (-) 200bp (+) 200bp (-) 200bp Gains/Losses (1,930,380) 1,815,712 471,594 (514,239) 371,746 (385,722) 915,751 (1,087,040) Gains/Shareholder’s EquityLosses/shareholder’s Equity (%15.27) %14.36 %3.73 (%4.07) %2.94 (%3.05) %7.24 (%8.60) *Parent Bank 13.7. Risk management objectives and policies In accordance with Group’s strategies, risk policies and vision, the analysis that RMS presents to Risk Committee are credit risks, market risks, liquidity risks, operational risks and IT risk evaluations. Besides, in accordance with market trends, economic conduct and the Parent Bank’s strategic growth, capital adequacy stress test and scenario analyses, evaluation of economic development in the World and Turkey is presented to Risk Committee and Board of Directors by RMS. These analyses contribute to Parent Bank Top Management’s resolution process about risk appetite and awareness of risks, capital adequacy, strategy revisions and future estimation. In addition, Risk Management Service verifies its own coordination to be ready proactively in business availability of Kuveyt Türk and situations connected with it. Risk Management Service continues risk monitoring and analyzing operations in accordance with Board of Director’s Parent Bank’s mission, vision and growth strategy to prevent the potential risks. In this context credit and market risks, liquidity risk, operational risks and all limits, internal personal scoring and corporate rating modeling with IT risks issues, IT risk evaluation, operational lost data base, key risk indicators, operational risk insurances, market risk calculations, following up of treasury transactions and asset-liability risks are being monitorized. Hierarchy of valuation techniques which establishes basis for fair value calculation of financial assets and liabilities Level 1: Quoted prices in active markets for identical assets and liabilities. Level 2: Financial instruments valued by applying methods that are based on observable market prices, directly or indirectly, on data that has significant effect on the fair value reflected in the inputs Level 3: Financial instruments valued by applying methods that are not based on observable market prices, directly or indirectly, on data that has significant effect on the fair value reflected in the inputs. Fair value hierarchy of the financial assets and liabilities of the Bank carried at fair value according to the foregoing principles as of 31 December 2021 and 31 December 2020 are given in the table below: 324 75
327. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Current Period Level 1 Level 2 Financial assets Financial assets at fair value through profit or loss Forward transactions Swap transactions Government debt securities Other marketable securities 11,035,607 11,035,607 - 3,303,278 358,296 1,040,488 1,904,494 - 14,338,885 358,296 1,040,488 11,035,607 1,904,494 Financial assets at fair value through other comprehensive income Equity securities Government debt securities Other marketable securities 31,790,271 84,074 31,706,197 - 281,491 281,491 - 32,071,762 84,074 31,706,197 281,491 - 257,764 132,843 124,921 - - 257,764 132,843 124,921 - Level 3 Total Financial liabilities Financial liabilities at fair value through profit or loss Forward transactions Swap transactions Financial liabilities for hedging purposes Level 3 Total Prior Period Level 1 Level 2 Financial assets Financial assets at fair value through profit or loss Forward transactions Swap transactions Government debt securities Other marketable securities 7,050,998 7,050,998 - 1,173,807 52,326 409,280 712,201 - 8,224,805 52,326 409,280 7,050,998 712,201 20,538,784 49,146 20,489,638 - 184,301 184,301 - 20,723,085 49,146 20,489,638 184,301 - 1,676,806 26,008 1,650,798 - - 1,676,806 26,008 1,650,798 - Financial assets at fair value through other comprehensive income Equity securities Government debt securities Other marketable securities Financial liabilities Financial liabilities at fair value through profit or loss Forward transactions Swap transactions Financial liabilities for hedging purposes No transfers have taken place between Level 1 and Level 2 in the current year. 76 325
328. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 14. Explanations on consolidated business segments The Parent Bank operates in Corporate and Commercial Banking, Retail Banking, Treasury and International Banking sectors. Corporate and Commercial Banking: Special cash flow and financial solutions are provided to customers through loans, non-cash loans, foreign trade financing services and similar customized products to meet the financial needs of the customers. Domestic and foreign business opportunities are supported by using different corporate banking instruments to serve the sustainability of the production of entities. Retail Banking includes fund collection, installment commercial loans, business loans, non cash loans, consumer financing and credit cards. The Bank serves in the range of products areas of profit share accounts creation, banking services, trade finance, checks, POS services, credit cards, ATM services, online banking and mobile banking in these fields. In Treasury and International Banking, the relationships with foreign correspondent banks and investment institutes are executed directly or via branches abroad, representative offices and agencies. The firms, which are exceed size limits, are classified “corporate” customers and directed to the Corporate Banking. The products are the same with the Commercial Banking. The aim of international banking is to enable foreign trade financing and develop mutual long-term financing agreements with foreign banks. Besides supplying syndicated loans and issue the Sukuk for the Bank, investment banking also supplies syndicated loans in corporate basis for the firms and groups in Turkey. The Treasury in addition to monitoring foreign currency position and liquidity of the Bank, also conducts spot and forward transactions in TL or foreign currencies, performs derivative transactions (forward, swap) with banks and customers, trades of gold within the context of membership of Istanbul Gold Exchange, trades share certificates in BIST and international markets and conducts murabaha transactions with foreign banks. 326 77
329. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Selected balance sheet and income statement items according to segments Current Period 1 January 2021-31 December 2021 Retail Banking Corporate and Commercial Banking Treasury and international Banking Unallocated Group’s total operation Operating income Operating expenses (-) Transfers between segments Net operating income(loss) Income from associates Income (loss) before tax Provision for taxation (-) Net income for the period 7,445,351 7,168,940 3,536,129 3,812,540 3,812,540 3,812,540 10,049,459 2,527,008 (3,394,812) 4,127,639 4,127,639 4,127,639 2,563,644 1,439,541 (141,317) 982,786 982,786 982,786 4,298,142 (4,298,142) 27,947 (4,270,195) 1,279,103 (5,549,298) 20,058,454 15,433,631 4,624,823 27,947 4,652,770 1,279,103 3,373,667 Segment assets Associates, subsidiaries and joint ventures Undistributed assets 37,357,906 - 77,548,111 - 143,876,590 - 112,938 8,398,649 258,782,607 112,938 8,398,649 Total assets 37,357,906 77,548,111 143,876,590 8,511,587 267,294,194 Segment liabilities Undistributed liabilities Shareholders’ equity 191,641,197 - 36,811,822 - 16,023,869 - 11,328,465 11,488,841 244,476,888 11,328,465 11,488,841 Total liabilities 191,641,197 36,811,822 16,023,869 22,817,306 267,294,194 Corporate and Commercial Banking Treasury and international Banking Current Period 31 December 2021 Prior Period 1 January 2020 – 31 December 2020 Operating income Operating expenses (-) Transfers between segments Net operating income(loss) Income from associates Income (loss) before tax Provision for taxation (-) Net income for the period Retail Banking Unallocated Group’s total operation 3,100,377 4,462,239 2,372,885 1,011,023 1,011,023 1,011,023 8,515,534 2,098,580 (479,349) 5,937,605 5,937,605 5,937,605 1,234,829 711,817 (1,893,536) (1,370,524) (1,370,524) (1,370,524) 3,334,548 (3,334,548) 20,930 (3,313,618) 551,618 (3,865,236) 12,850,740 10,607,184 2,243,556 20,930 2,264,486 551,618 1,712,868 Segment assets Associates, subsidiaries and joint ventures Undistributed assets 29,924,797 - 43,516,111 - 72,523,747 - 84,991 12,147,467 145,964,655 84,991 12,147,467 Total assets 29,924,797 43,516,111 72,523,747 12,232,458 158,197,113 Prior Period 31 December 2020 Segment liabilities Undistributed liabilities Shareholders’ equity 105,235,906 - 21,636,217 - 16,987,622 - 6,306,554 8,030,814 143,859,745 6,306,554 8,030,814 Total liabilities 105,235,906 21,636,217 16,987,622 14,337,368 158,197,113 Prior Period 31 December 2020 78 327
330. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION FIVE EXPLANATIONS AND NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS 1. Explanations and notes related to consolidated assets 1.1. Information regarding the cash assets and the Central Bank of Republic of Turkey 1.1.1 Cash and balances with the Central Bank of Republic of Turkey Cash/foreign currency The Central Bank of Republic of Turkey Other (*) Total TL 734,131 4,620,318 29,609 5,384,058 Current period FC 6,849,096 47,690,909 7,050,216 61,590,221 TL 630,548 512,354 1,525 1,144,427 Prior period FC 3,011,244 19,967,199 988,100 23,966,543 (*) As of 31 December 2021, precious metal account amounting to TL 7,050,216 (31 December 2020 - TL 988,021 and money in transit amounting to TL 29,609 (31 December 2020 – TL 1,604) are presented in this line 1.1.2 Balances with the Central Bank of Turkey Unrestricted demand deposit Restricted time deposit Unrestricted time deposit Total Current Period TL FC 4,540,821 11,485,380 79,497 36,205,529 4,620,318 47,690,909 Prior Period TL FC 499,584 1,493,876 12,770 18,473,323 512,354 19,967,199 According to the CBRT's Communiqué on Required Reserves No. 2005/1, banks operating in Turkey; Required reserve ratios for Turkish lira and foreign currency liabilities are determined between 3% and 26% by differentiating according to the maturity of liabilities, and these rates are applied by banks as of the date of the report. 1.2 Information on financial assets at fair value through profit and loss As of 31 December 2021, there are no financial assets at fair value through profit and loss subject to repurchase transactions, given as a collateral or blocked (31 December 2020 – None). Positive differences related to marketable derivative financial assets: Current period TL FC 356,312 1,984 449,617 590,871 805,929 592,855 Forward transactions Swap transactions Futures transactions Options Other Total 328 79 Prior period TL FC 49,633 2,693 78,913 330,367 128,546 333,060
331. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.3 Information on Banks 1.3.1. Information on Banks Current Period Banks Domestic Foreign (*) Headquarters and branches abroad Other Financial Institutions Total Prior Period TL 793,894 793,894 - FC TL 15,310,474 1,114,456 2,723,863 1,113,965 12,586,611 491 - FC 6,256,097 113,981 6,142,116 - 793,894 15,310,474 1,114,456 6,256,097 (*) As a result of the changes in the Uniform Chart of Accounts implemented by the BRSA as of January 1, 2021, the foreign curren cy collaterals given for the derivative transactions made by the Bank with foreign banks, which were monitored in the other assets account in the bank balance sheet in the previous periods, started to be monitored in the banks account as of the current period. As of 31 December 2021, the relevant amount is 308,849 TL. 1.3.2 Information on foreign banks account Unrestricted Amount EU Countries USA and Canada OECD Countries (*) Off-shore Banking Regions Other Total Current Period 3,947,681 7,919,998 81,785 2,810 634,337 12,586,611 Restricted Amount Prior Period 1,649,966 3,842,631 34,493 1,535 613,982 6,142,607 Current Period Prior Period - - - - (*) EU countries, OECD countries other than the US and Canada 1.4 Information on financial assets at fair value through other comprehensive income Debt Securities Quoted on stock exchange Not quoted on stock exchange Share certificates/Investment Funds Quoted on stock exchange Not quoted on stock exchange Impairment provision (-) Total Current period Prior Period 32,249,966 32,249,966 130,255 106,190 24,065 308,459 32,071,762 20,852,757 20,852,757 90,887 75,105 15,782 220,559 20,723,085 1.4.1 Information on financial assets given as collateral or blocked at fair value reflected in other comprehensive income As of the balance sheet date, there are financial assets given TL 11,410,139 (31 December 2020: TL 8,480,912) as collateral whose fair value difference is reflected to other comprehensive income. 1.4.2 Information on financial assets whose fair value difference subject to repo transaction is reflected to other comprehensive income As of the balance sheet date, there are financial assets subject to sale transactions with the promise of repurchase, of which TL 6,495,137 (31 December 2020 – 179,750) is reflected to other comprehensive income. 80 329
332. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5 Explanations on financial assets measured at amortized cost: 1.5.1 All types of loans and advances given to shareholders and employees of the Group: Current period Cash Non-Cash 6,955 21,246 21,228 6,955 18 64,316 2,297 40,564 1,320 111,835 24,863 Direct loans granted to shareholders Corporate shareholders Real person shareholders Indirect loans granted to shareholders Loans granted to employees Total Cash 4,695 4,695 54,992 27,605 87,292 Prior period Non-Cash 6,709 6,677 32 6,632 541 13,882 1.5.2 Information on standart loans, loans underclose monitoring and restructured loans under close monitoring Current Period - Cash Loans Loans Export Loans Import Loans Corporation Loans Consumer Loans Credit Cards Loans given to financial sector Other Other Receivables Total Prior Period - Cash Loans Loans Export Loans Import Loans Corporation Loans Consumer Loans Credit Cards Loans given to financial sector Other Other Receivables Total 330 Standard Loans 107,281,320 10,658,321 4,064,392 49,455,992 14,385,713 2,369,729 9,179,662 17,167,511 339 107,281,659 Standard Loans 67,420,988 4,967,766 1,971,303 33,990,065 12,754,463 1,237,324 3,238,490 9,261,577 8,295 67,429,283 81 Loans Under Close Monitoring Restructured Loans Not Subject to Revised Restructuring Contract Refinance Terms 6,178,454 3,257,703 167,651 238,568 3,419,753 3,176,331 356,836 17,082 226,046 21,267 1,769,600 43,023 983 6,179,437 3,257,703 Loans Under Close Monitoring Restructured Loans Not Subject to Revised Restructuring Contract Refinance Terms 4,813,370 2,615,066 230,900 87,512 3,495,756 2,533,424 298,219 62,118 130,190 19,524 570,793 117,575 9,277 4,930,945 2,624,343 -
333. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Information on standart loans and loans under close monitoring and restructured loans under close monitoring regarding provision Standard Loans Current Period Loans Under Close Monitoring Current Period Standard Loans Prior Period Loans Under Close Monitoring Prior Period 12 Month Expected Credit Losses (*) 2,311,693 - 1,179,791 Significant Increase in Credit Risk Total 2,311,693 3,507,288 3,507,288 1,179,791 1,744,593 1,744,593 (*) Includes expected credit loss of other financial assets measured at amortized cost amounting TL 621 (31 December 2020: 1,094 TL). 1.5.3 Distribution of cash loans and other receivables according to their maturities Loans Under Close Monitoring Current Period Short Term Loans Medium- and Long-Term Loans Total Standard Loans Not Subject to Restructuring Restructured 36,108,221 71,173,438 107,281,659 1,445,164 4,734,273 6,179,437 92,192 3,165,511 3,257,703 Loans Under Close Monitoring Standard Loans Not Subject to Restructuring Restructured Short Term Loans 18,132,548 1,028,543 59,885 Medium- and Long-Term Loans 49,296,735 3,902,402 2,564,458 Total 67,429,283 4,930,945 2,624,343 Prior Period 82 331
334. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.4 Information on consumer loans, retail credit cards, loans given to personnel and personnel credit cards Short term 132,770 32,641 42,993 32,401 24,735 88 88 936,138 247,995 688,143 6,916 6,916 2,100 49 724 1,327 24,701 10,286 14,415 - Medium and long term 12,927,445 10,534,935 1,845,143 235,966 311,401 1,658,257 1,563,957 93,909 391 70 70 38,971 3,730 18,725 16,516 21 21 - Total 13,060,215 10,567,576 1,888,136 268,367 336,136 1,658,345 1,563,957 93,997 391 936,208 248,065 688,143 6,916 6,916 41,071 3,779 19,449 17,843 24,722 10,307 14,415 - - - - Overdraft Account-TL (Real Person) - - - Overdraft Account-FC (Real Person) - - - 1,102,713 14,624,764 15,727,477 Current Period Consumer Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Retail Credit Cards-TL With Installment Without Installment Retail Credit Cards-FC With Installment Without Installment Personnel Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Personnel Credit Cards-TL With Installment Without Installment Personnel Credit Cards-FC Installment based Without-installment Total 83 332
335. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Prior Period Consumer Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Consumer Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Retail Credit Cards-TL With Installment Without Installment Retail Credit Cards-FC With Installment Without Installment Personnel Loans-TL Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Indexed Housing Loans Vehicle Loans Consumer Loans Other Personnel Loans-FC Housing Loans Vehicle Loans Consumer Loans Other Personnel Credit Cards-TL With Installment Without Installment Personnel Credit Cards-FC Installment based Without-installment Overdraft Account-TL (Real Person) Overdraft Account-FC (Real Person) Total 84 Short term 74,023 17,783 31,924 21,382 2,934 172 172 545,977 120,545 425,432 3,340 3,340 1,985 466 1,519 13,761 5,696 8,065 - Medium and long term 12,698,649 10,717,815 1,574,270 215,488 191,076 314,708 246,690 41,060 26,958 70 70 25,263 2,401 15,844 7,018 21 21 - Total 12,772,672 10,735,598 1,606,194 236,870 194,010 314,880 246,690 41,232 26,958 546,047 120,615 425,432 3,340 3,340 27,248 2,401 16,310 8,537 13,782 5,717 8,065 - - - - - - - 639,258 13,038,711 13,677,969 333
336. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.5 Information on commercial installment loans and corporate credit cards Current Period Commercial Installment Loans-TL Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Indexed Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Business Loans Vehicle Loans Consumer Loans Other Corporate Credit Cards-TL With Installment Without Installment Corporate Credit Cards-FC With Installment Without Installment Overdraft Account-TL (Legal Entity) Overdraft Account-FC (Legal Entity) Total Prior Period Commercial Installment Loans-TL Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Indexed Business Loans Vehicle Loans Consumer Loans Other Commercial Installment Loans-FC Business Loans Vehicle Loans Consumer Loans Other Corporate Credit Cards-TL With Installment Without Installment Corporate Credit Cards-FC With Installment Without Installment Overdraft Account-TL (Legal Entity) Overdraft Account-FC (Legal Entity) Total 334 85 Short term 994,450 32,149 788,312 173,989 8,187 8,187 1,315,908 3,602 1,312,306 1,625,478 681,084 944,394 23,717 23,717 Medium and long term 11,754,294 1,793,796 6,813,277 3,147,221 515,770 17,567 1,028 497,175 6,703,940 741,402 847,628 19,917 5,094,993 - 3,967,740 18,974,004 22,941,744 Short term 497,383 6,008 405,890 85,485 11,254 11,254 453,371 2,194 451,177 816,278 307,667 508,611 7,591 7,591 Medium and long term 9,234,322 1,995,773 4,705,779 2,532,770 505,184 57,668 11,001 436,515 3,565,574 490,181 112,901 2,962,492 - Total 9,731,705 2,001,781 5,111,669 2,618,255 516,438 68,922 11,001 436,515 4,018,945 490,181 115,095 3,413,669 816,278 307,667 508,611 7,591 7,591 1,785,877 13,305,080 15,090,957 Total 12,748,744 1,825,945 7,601,589 3,321,210 523,957 25,754 1,028 497,175 8,019,848 741,402 851,230 19,917 6,407,299 1,625,478 681,084 944,394 23,717 23,717 -
337. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.6. Allocation of loans by customers Public Private Total Current period Prior period 833,335 115,885,464 116,718,799 396,326 74,588,245 74,984,571 1.5.7 Breakdown of domestic and foreign loans Domestic loans Foreign loans Total Current period 106,647,337 10,071,462 116,718,799 Prior period 69,932,474 5,052,097 74,984,571 Current period 193 193 Prior period 169 169 Current period 145,268 99,920 2,543,193 2,788,381 Prior period 473,916 5,172 2,045,229 2,524,317 1.5.8 Loans granted to subsidiaries and associates Loans granted directly to subsidiaries and associates Loans granted indirectly to subsidiaries and associates Total 1.5.9 Specific provisions for loans or default (Third Stage) provisions Loans and receivables with limited collectability Loans and receivables with doubtful collectability Uncollectible loans and receivables Total 1.5.10 Information on non-performing loans (Net) 1.5.10.1 Information on loans and other receivables included in loans under follow-up account, which are restructured or rescheduled Current Period (Gross Amount Before Specific Provisions) Restructured Loans and Receivables Prior Period (Gross Amount Before Specific Provisions) Restructured Loans and Receivables III. Group Loans and Receivables with Limited Collectibilit IV. Group V. Group Loans and Receivables with Doubtful Uncollectible Loans Collectibility and Receivables 45,215 45,215 216 216 616,947 616,947 - 1,577 1,577 262,750 262,750 86 335
338. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.10.2 Information on the movement of total non-performing loans: Group III Group IV Loans and receivables with Loans and limited receivables with collectability doubtful collectability 550,571 11,192 248,891 177,048 2 534,984 534,984 542,619 60,392 20,395 8,818 204,088 151,392 145,267 99,920 58,821 51,472 Current Period Ending balance of prior period 31.12.2020 Additions in the current period (+) Transfers from other categories of non-performing loans (+) Transfers to other categories of non-performing loans (-) Collections in the current period (-) Write offs (-)(**) Sold Porfolio (-) Corporate and commercial loans Retail loans Credit Cards Other Ending balance of the current period Specific provisions (-) Net balances on balance sheet Group III Group IV Loans and receivables with Loans and limited receivables with collectability doubtful collectability 250,407 318,133 542,258 10,412 197,258 197,197 471,975 44,897 42,636 550,571 11,192 473,916 5,172 76,655 6,020 Prior Period Ending balance of prior period 31.12.2019 Additions in the current period (+) Transfers from other categories of non-performing loans (+) Transfers to other categories of non-performing loans (-) Collections in the current period (-) Write offs (-) Sold Porfolio (-) Corporate and commercial loans Retail loans Credit Cards Other Ending balance of the current period Specific provisions (-) Net balance at the balance sheet Group V Uncollectible loans and receivables 2,408,491 950,255 542,619 2 775,099 399,229 2,727,035 2,543,193 183,842 Group V Uncollectible loans and receivables 1,541,141 1,086,141 471,969 55 286,911 250,456 153,338 153,338 2,408,491 2,045,229 363,262 (*) The Group, sold its risk amounting to TL 153,338 which was provided 100% provision from its non-performing loans, to the asset management company for TL 50,000 (**) With the decision of the top management of the Bank, it has been decided to include the project/loan of the customers in the cancellation accounts. The effect of these transactions on the NPL ratio is 31 basis points. 336 87
339. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.10.3 Information on non-performing loans granted as foreign currency Current Period Ending balance of the current period Provision amount (-) Net balance at the balance sheet Prior Period Ending balance of the current period Provision amount (-) Net balance at the balance sheet Group III Group IV Group V 4,131 2,711 1,420 77,730 42,863 34,867 486,606 444,856 41,750 532,560 458,800 73,760 1 1 312,782 253,025 59,757 1.5.10.4 Gross and net amounts of non-performing loans with respect to user groups Current period (Net) Loans granted to real persons and legal entities (Gross) Specific provision (-) Loans to real persons and legal entities (Net) Banks (Gross) Specific provision (-) Banks (Net) Other loans and receivables (Gross) Specific provision (-) Other loans and receivables (Net) Group III Loans and receivables with limited collectability 58,821 204,088 145,267 58,821 - Group IV Loans and receivables with doubtful collectability 51,472 151,392 99,920 51,472 - Group V Uncollectible loans and receivables 183,842 2,727,035 2,543,193 183,842 - 76,655 550,571 473,916 76,655 - 6,020 11,192 5,172 6,020 - 363,262 2,408,491 2,045,229 363,262 - Prior period (net) 31.12.2020 Loans to real persons and legal entities (Gross) Specific provision (-) Loans to real persons and legal entities (Net) Banks (Gross) Specific provision (-) Banks (Net) Other loans and receivables (Gross) Specific provision (-) Other loans and receivables (Net) The Parent Bank has collaterals such as cash, mortgages, pledges, and checks of customer issued for non-performing loans. 88 337
340. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.5.10.5. Aging analysis of past due but not impaired financial assets per classes of financial instruments is as follows: I. Current Period Loans and Receivables Corporate Loans Retail Loans Credit Cards Total Less than 30 days 31-60 days 61-90 Days (*) Total 6,547,648 240,182 201,862 6,989,692 283,769 85,012 13,673 382,454 384,863 43,806 18,002 446,671 7,216,280 369,000 233,537 7,818,817 (*) Based on the BRSA's decisions dated 17 March 2020 and numbered 8948 and dated 27 March 2020 and numbered 8970, the risks in the number of delay days of 90-180 days are presented in this line. Prior Period Loans and Receivables Corporate Loans Retail Loans Credit Cards Total Less than 30 days 31-60 days 61-90 Days(*) Total 5,734,223 259,740 128,633 6,122,596 123,369 36,192 7,255 166,816 703,172 58,781 13,699 775,652 6,560,764 354,713 149,587 7,065,064 (*) Based on the BRSA's decisions dated 17 March 2020 and numbered 8948 and dated 27 March 2020 and numbered 8970, the risks in the number of delay days of 90-180 days are presented in this line. 1.5.10.6 Information on profit share accruals, rediscounts and valuation differences computed for non-performing loans and their provision: The Parent Bank Current Period (Net) Profit share accruals, rediscount and valuation differences Provision (-) The Parent Bank Prior Period (Net) Profit share accruals, rediscount and valuation differences Provision (-) III. Group Loans with Limited Collectibility 5,926 42,160 36,234 IV. Group Loans with Doubtful Collectibility 5,709 15,327 9,618 III. Group Loans with Limited Collectibility 371 4,485 4,114 IV. Group Loans with Doubtful Collectibility 460 865 405 V. Group Uncollectible Loans 19,648 377,087 357,439 V. Group Uncollectible Loans 51,485 319,370 267,885 1.5.10.7. Main guidelines for liquidation process of uncollectible loans and other receivables: Loans and other receivables, which were deemed uncollectible according to the “Principles and Procedures for the Determination of the Quality of Loans and Other Receivables and Reserves to be provided for these Loans” published in the Official Gazette No. 26333 dated 1 November 2006 and for which a full impairment provision has been made, are written off as per the decision of the Bank top management. Within 20201, non-performing loans amounting to TL 397,786 have been written-off (31 December 2020 – TL 250,456). 1.5.11 Information on the write-off policy The Bank’s write off policy is to write-off the loan receivables that have been already transferred to legal follow-up and fully provided for and for which there is no possibility of collection through legal process and for which there is no collateral. Such loans are written off as per the decision of top management. 89 338
341. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.6 Information on other financial assets measured at amortised cost 1.6.1 Information on Other Financial Assets Measured at Amortized Cost Current Period 5,935,549 5,395,037 540,512 621 5,934,928 Debt Securities Quoted on a Stock Exchange Not Quoted Expected Loss Provision (-) Total Prior Period 6,499,810 6,203,203 296,607 1,094 6,498,716 1.6.2 Movements of Other Financial Assets Measured at Amortized Cost During The Year Current Period 6,499,810 2,231,090 979,285 3,774,636 621 5,934,928 Opening Balance Foreign Exchange Gain/Loss Purchases During the Year Disposals Through Sales and Redemptions Expected Loss Provision (-) Total Prior Period 3,212,924 1,353,136 1,933,750 1,094 6,498,716 1.7 Information on investment in associates (Net) 1.7.1 The Parent Bank used a 1.49% ownership of the shares of Kredi Garanti Fonu A.Ş. amounting to TL 7,659 (31 December 2020 – TL 7,659), 1.15% ownership of the shares of Islamic International Rating Agency amounting to TL 277 (31 December 2020 – TL 33), and, Swift shares amounting to TL 3,567 (31 December 2020 – TL 390) and 0.0035% ownership of the shares traded in Borsa İstanbul A.Ş amounting to TL 15 (31 December 2020 – TL 15) and %2.86 ownership of the shares of JCR Avrasya Derecelendirme A.Ş amounting to TL 2,755 (31 December 2020 – 2,755 ), VISA INC. shares amounting to TL 12,555 (December 31, 2020 – TL 7,008) are classified as financial assets at fair value through other comprehensive income since the Bank’s ownership in these entities is less than 10% and the Parent Bank does not have a significant influence on these entities. 1.7.2 Information about investments in unconsolidated associates: None (31 December 2020 – None). 1.7.3 Information related to consolidated associates: None (31 December 2020 – None). 1.8 Information on subsidiaries (Net) 1.8.1 Although the Bank has control power over the management and capital of its non-financial subsidiaries, Körfez Tatil Beldesi Turistik Tesisler ve Devremülk İşletmeciliği San. Ve Tic. A.Ş and Architecht Bilişim Sistemleri ve Pazarlama Tic A.Ş does not confirm to the definition of financial subsidiary in accordance with “Regulation related to the Preparation of Consolidated Financial Statements by Banks” published in the Official Gazette No. 26340 dated 8 November 2006; hence this subsidiary has not been consolidated. 90 339
342. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.8.2 Information on subsidiaries Title 1 2 3 4 5 6 8 9 Address (City/Country) Körfez Tatil Beldesi Turistik Tesisler ve Devremülk İşletmeciliği San.ve Tic. A.Ş. Körfez Gayrimenkul Yatırım Ortaklığı A.Ş. KT Sukuk Varlık Kiralama A.Ş. KT Kira Sertifikaları Varlık Kiralama A.Ş. KT Bank AG (*) Architecht Bilişim Sistemleri ve Pazarlama Tic A.Ş KT Portföy Yönetimi A.Ş. Neova Katılım Sigorta A.Ş. Bank’s share percentage, if different-voting percentage (%) Bank’s risk group share percentage (%) İstanbul/Türkiye 99.99 99.99 İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye Frankfurt/Almanya İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye 75.00 100.00 100.00 100.00 100.00 100.00 100.00 78.15 100.00 100.00 100.00 100.00 100.00 100.00 (*) As of 31 December 2021, financial figures for this entity in the table above are based on the financial information prepared in accordance wit the local regulations of the country in which this entity operates. 1.8.2 Information on subsidiaries Information on subsidiaries in the order presented in the above table 1 2 3 4 5 6 8 9 Total Assets 59,726 185,110 684 4,591,921 12,972,775 103,497 39,503 4,300,166 Equity 52,565 144,075 673 359 1,638,867 89,998 31,386 816,508 Total Fixed assets 5,955 64,830 174,201 12,347 4,957 30,980 Income Profit from Share marketable Income securities 167 4,164 - Current period profit/loss 8,642 24,080 24 49 16,990 37,153 10,285 234,369 Prior period profit /loss 13,859 6,155 11 17 7 32,887 10,169 166,389 Fair Value - Movement regarding the subsidiaries Current Period Balance at the beginning of the year Movements during the year Purchases Transfers from subsidiaries (net) Bonus shares Dividends from current year income Sales Revaluation increase Impairment Capital commitment payments Balance at the end of the year Capital commitments Share percentage at the end of the year (%) 340 23,680 23,680 - 91 Prior Period 23,680 23,680 -
343. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Sectoral information on consolidated subsidiaries and the related carrying amounts Current Period 610,120 751,796 75,419 1,437,335 Banks Insurance Companies (*) Factoring Companies Leasing Companies Finance Companies Other Financial Subsidiaries Total (*) Prior Period 610,120 751,796 75,419 1,437,335 The Bank has obtained the necessary legal permissions as of 5 May 2020, Neova Katılım Sigorta A.Ş. completed the share transfer transactions and concluded the purchase. Neova Katılım Sigorta A.Ş., which has purchased 78,864,212 shares by paying 745,860 TL with the purchase transaction, and 7% before sales increased its partnership share to 100% by owning all the shares. Subsidiaries that are quoted on the stock exchange Current Period 53,418 53,418 Quoted in Domestic Stock Exchange Quoted in Foreign Stock Exchange Total Prior Period 53,418 53,418 1.8.3 Information on capital adequacies of major subsidiaries: The shareholder's equity of KT Bank AG, the bank's subsidiary in Germany, calculated as of December 31, 2021 is EUR 110,197,621 and the capital adequacy ratio are %21.6. 1.9 Information on joint ventures (business partnerships) (Net) Katılım Emeklilik ve Hayat A.Ş. (*) 1.10 Bank’s share percentage Total assets %50 6,127,196 Equity Total fixed assets Current period profit/loss Prior period profit /loss 173,160 33,805 55,894 166,389 Information on finance lease receivables (Net) 1.10.1 Presentation of remaining maturities of net finance leases Less than 1 year 1 to 4 years More than 4 years Total Gross 4,988,502 7,038,160 1,125,718 13,152,380 Current Period Net 4,126,747 6,705,970 1,093,218 11,925,935 Gross 2,249,517 2,829,259 622,145 5,700,921 Prior Period Net 1,783,178 2,631,776 596,042 5,010,996 1.10.2 Net investments in finance leases Current Period 13,152,380 1,226,445 11,925,935 Gross receivable from finance leases Unearned finance lease income (-) Unearned finance lease income (-) Net receivable from finance leases Prior Period 5,700,921 689,925 5,010,996 341 92
344. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.10.3 Information on finance lease contracts The Parent Bank determines the settlements of the financial lease agreements in accordance with related legislations. Payment terms and amounts may be rearranged with additional agreements upon customers’ requests. On the agreements, the Bank gives the customer the option to buy the related property. According to the Financial Lease Law, if a customer does not fulfill its obligations until 60 days, the Bank sends a notice to the customer and the Bank takes legal action against the customer if necessary. Non-performing finance lease receivables amounting to TL 45,706 are included in the non-performing loans in the balance sheet (31 December 2020 – TL 52,668). 1.11 Information on derivative financial assets for hedging purposes None. (31 December 2020 – None). 1.12. Explanations on Tangible Assets Current Period Cost Opening balance, 1 January 2021 Additions Disposals Transfers Impairment / cancellation Ending balance, 31 December 2021 Accumulated Depreciation (-) Opening balance, 1 January 2021 Amortisation cost Disposals Transfers Ending balance, 31 December 2021 Cost at the end of period Accumulated depreciation at the end of period (-) Closing net book value Prior Period Cost Opening balance, 1 January 2020 Additions Disposals Transfers Impairment / cancellation Ending balance, 31 December 2020 Accumulated Depreciation (-) Opening balance, 1 January 2020 Amortisation cost Disposals Transfers Ending balance, 31 December 2020 Cost at the end of period Accumulated depreciation at the end of period (-) Closing net book value Buildings Vehicles Other Tangible Assets Total 212,412 41,323 (6) 4,756 258,485 655,804 211,021 (82,490) (4,756) 779,579 110,655 60,513 (915) 170,253 580,106 126,477 (189,816) (17) 516,750 1,558,977 439,334 (273,227) (17) 1,725,067 37,825 7,947 (5) 2 45,769 262,759 149,950 (71,598) (2) 341,109 30,836 29,900 (704) 60,032 303,475 74,505 (184,349) (16) 193,615 634,895 262,302 (256,656) (16) 640,525 258,485 45,769 212,716 779,579 341,109 438,470 170,253 60,032 110,221 516,750 193,615 323,135 1,725,067 640,525 1,084,542 Buildings Leased Tangible Assets Vehicles Other Tangible Assets Total 241,596 2,520 (31,700) (4) 212,412 512,677 162,272 (49,532) (3) 30,390 655,804 61,862 48,987 (193) 110,656 486,064 121,112 (27,077) 7 580,106 1,302,199 334,891 (108,502) 30,390 1,558,978 30,003 7,981 (159) 37,825 162,826 127,897 (27,961) (3) 262,759 12,616 18,475 (254) 30,837 250,411 57,742 (4,681) 3 303,475 455,856 212,095 (33,055) 634,896 212,412 37,825 174,587 655,804 262,759 393,045 110,656 30,837 79,819 580,106 303,475 276,631 1,558,978 634,896 924,082 93 342 Leased Tangible Assets
345. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.13. Explanations on Intangible Assets 1.13.1. Gross carrying value and accumulated amortization balances at the beginning and at the end of the period Current Period 593,816 (231,632) 362,184 Cost Accumulated Amortization Total (net) Prior Period 396,455 (123,310) 273,145 1.13.2. Movements of intangible assets between the beginning and the end of the period Current Period 273,145 206,399 46,128 71,232 362,184 Opening balance Additions Disposals (-), net Depreciation amount (-) Closing net book value Prior Period 201,999 176,494 23,193 82,155 273,145 Intangible assets include computer software and program licenses which are purchased for banking systems. 1.14. Explanations on investment property Current Period 77,457 11,128 24,987 63,598 Opening balance Additions Disposals (-), net Depreciation amount (-) Closing net book value 94 Prior Period 37,646 39,970 159 77,457 343
346. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 1.15 Information on deferred tax asset As of 31 December 2021, deferred tax is offset as TL 1,882,994 in the balance sheet. In accordance with the related regulations deferred tax asset calculated as of 31 December 2021 is TL 2,283,664 (31 December 2020 – TL 932,455) and deferred tax liability is TL 400,720 (31 December 2020 – TL 96,933 TL). Employee Benefits Liability Retirement Pay Liability Deferred Income Impairment Provision for Subsidiaries, Fixed Assets and Assets Held for Sale Rediscounts for Derivative Instruments Held for Trading (Net) TFRS 9 Provisions Precious Metals Valuation Difference Carry Forward Financial Loss Securities Valuation Difference Other Deferred Tax Asset Derivative Transactions Valuation Differences Tangible Assets Valuation Differences Financial Assets Valuation Differences Precious Metal Valuation Difference Other Deferred Tax Liability Deferred Tax Asset (Net) Current period 80,393 46,001 103,388 79 58,624 781,020 1,034,507 115,397 26,545 37,710 2,283,664 (298,868) (16,375) (55,030) (1,877) (28,570) Prior period 48,263 37,460 73,122 1,281 243,384 427,891 73,642 812 26,600 932,455 (12,842) (48,114) (23,908) (12,069) (400,720) (96,933) 1,882,944 835,522 Table of deferred tax asset movement As of January, 1 Deferred Tax (Expense) / Income Deffered Tas Accounted Under Other Comprehensive Income Other Deferred Tax Asset Current period 835,522 860,500 139,675 47,247 Prior period 416,853 274,753 120,571 23,345 1,882,944 835,522 Current Period Prior Period 240,891 519,087 1.16. Assets held for sale and assets of discontinued operations Opening balance Additions Transfer from tangible assets Disposals (-), net Transfer to tangible assets Depreciation amount (-) Impairment losses provision (-) 519,087 61,085 339,281 - Closing net book value 1.17 473,326 172,426 126,665 - Information on other assets As of balance sheet date, the Group’s other assets amount to TL 5,005,382 (31 December 2020 – TL 10,037,261). Other assets balance does not exceed 10% of the total assets on the balance sheet excluding off balance sheet commitments. 95 344
347. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION FIVE 2. Explanations and notes related to consolidated liabilities 2.1 Information on funds collected 2.1.1 Information on maturity structure of funds collected Current period I. Real persons current accounts-TL II. Real persons profit sharing accounts TL III. Other current accounts-TL Public sector Commercial sector Other institutions Commercial and other institutions Banks and participation banks Central Bank of Republic of Turkey Domestic banks Foreign banks Participation banks Others IV. Profit sharing accounts-TL Public sector Commercial sector Other institutions Commercial and other institutions Banks and participation banks V. Real persons current accounts-FC VI. Real persons profit sharing accounts-FC VII. Other current accounts-FC Commercial residents in Turkey Commercial residents in Abroad Banks and participation banks Central Bank of Republic of Turkey Domestic banks Foreign banks Participation banks Others VIII. Profit sharing accounts- FC Public sector Commercial sector Other institutions Commercial and other institutions Banks and participation banks IX. Precious metal funds X. Profit sharing accounts special funds - TL Residents in Turkey Residents Abroad XI. Profit sharing accounts special funds - FC Residents in Turkey Residents Abroad Total Demand 20,546,940 8,099,967 266,234 7,705,471 80,279 47,983 47,619 364 46,298,760 22,674,121 16,871,245 4,329,204 1,473,672 1,471,529 2,143 36,383,140 134,002,928 Up to 1 Month 10,745,047 789,508 213 669,267 119,807 221 14,008,297 1,398,089 54 1,295,745 46,632 55,658 7,765,461 34,706,402 Up to 3 Months 12,876,588 1,142,169 987 941,873 199,286 23 17,538,758 2,698,807 2,182,976 232,733 283,098 3,919,840 38,176,162 Up to 6 months 762,988 41,733 746 15,144 25,843 1,949,138 386,232 99,152 287,060 20 667,511 3,807,602 Up to 9 months - Up to 1 year 731,611 592,682 24,979 552,592 14,993 118 3,496,048 496,198 73,526 422,672 419,769 5,736,308 1 year and over 784,511 130,431 129,951 452 28 4,379,765 186,346 73,564 112,782 15,572 5,496,625 Accumulated profit sharing accounts 19,753 7 7 12,095 31,855 Total 20,546,940 25,920,498 8,099,967 266,234 7,705,471 80,279 47,983 47,619 364 2,696,530 26,925 2,308,834 360,381 367 23 46,298,760 41,384,101 22,674,121 16,871,245 4,329,204 1,473,672 1,471,529 2,143 5,165,672 54 3,724,963 1,101,879 338,776 49,171,293 221,957,882 There are no 7 days notification accounts of the Group. 96 345
348. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) Up to 1 month - Up to 3 Months - Up to 6 Up to 9 months months - Prior period Demand I. Real persons current accounts-TL 9,214,591 II. Real persons profit sharing accountsTL - 6,461,888 8,497,859 508,942 III. Other current accounts-TL 5,029,690 Public sector 194,879 Commercial sector 4,783,318 Other institutions 39,576 Commercial and other institutions Banks and participation banks 11,917 Central Bank of Republic of Turkey Domestic banks Foreign banks 11,614 Participation banks 303 Others IV. Profit sharing accounts-TL 602,957 989,697 42,390 Public sector 322 602 645 Commercial sector 530,069 841,232 33,935 Other institutions 72,504 147,843 7,810 Commercial and other institutions 62 Banks and participation banks 20 V. Real persons current accounts-FC 21,358,154 VI. Real persons profit sharing accountsFC - 6,979,266 8,866,523 1,111,289 VII. Other current accounts-FC 10,739,481 Commercial residents in Turkey 8,823,743 Commercial residents in Abroad 1,282,174 Banks and participation banks 633,564 Central Bank of Republic of Turkey Domestic banks Foreign banks 628,905 Participation banks 4,659 Others VIII. Profit sharing accounts- FC 745,772 1,656,288 107,516 Public sector 3 Commercial sector 670,072 1,404,349 34,838 Other institutions 32,466 91,760 72,666 Commercial and other institutions 43,231 160,179 12 Banks and participation banks IX. Precious metal funds 28,025,054 5,342,933 2,559,094 379,540 X. Profit sharing accounts special funds TL Residents in Turkey Residents Abroad XI. Profit sharing accounts special funds - FC Residents in Turkey Residents Abroad Total 74,366,970 20,132,816 22,569,461 2,149,677 There are no 7 days notification accounts of the Group. 97 346 - Accumulated Up to 1 year and profit sharing over accounts 1 year 956,849 109,333 108,842 491 - 22,604 2 2 - 17,177,534 5,029,690 194,879 4,783,318 39,576 11,917 11,614 303 2,057,124 13,034 1,801,166 242,834 70 20 21,358,154 - 2,284,117 2,464,048 - 177,058 123,297 30,766 58,728 - 145,794 64,569 498 - 281,184 10,713 4,205 90 21,709,448 10,739,481 8,823,743 1,282,174 633,564 628,905 4,659 2,809,931 3 2,198,753 407,255 203,920 36,598,608 - - - 729,392 312,745 11,465 287,086 14,186 8 - Total 9,214,591 - - - 3,784,496 3,664,240 26,901 126,694,561
349. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.1.2 nformation’s on current and profit share accounts that are in the scope of Saving Deposit/Saving Deposit Insurance Fund. 2.1.2.1 Current and Participation Accounts Attributable to Real Entities/Persons under the Guarantee of Saving Deposit Insurance Fund Exceeding the Limit of the Deposit Insurance Fund: Under the guarantee of saving deposit insurance Current period Real persons current and profit sharing accounts that are not subject to commercial activities TL accounts FC accounts Foreign branches’ deposits under foreign authorities’ insurance Off-shore banking regions’ under foreign authorities’ insurance Exceeding the limit of saving Deposit Prior period Current period Prior period 24,964,865 39,675,693 15,907,330 33,522,314 21,500,880 86,313,956 10,483,445 40,073,387 - - - - - - - - Funds collected by Participation Banks (except for foreign branches) through current and profit share accounts which are opened by real persons and denominated in Turkish Lira or foreign currency with a limit of maximum of TL 150,000 (including both capital and profit shares) for each person is under the guarantee of Saving Deposit Insurance Fund in accordance with the Banking Law No. 5411 which issued in official gazette no. 25893 on 1 November 2005. 2.1.2.2 If the headquarters of the Parent Bank is abroad and the deposit account in its Turkish branch is in the scope of the insurance policy in the country of the headquarter of the Bank is founded, it should be explained: The headquarters of the Parent Bank is in Turkey. 2.1.2.3 Current and Profit Share Accounts of the real persons who are not in the scope of Saving Deposits Insurance Fund: The Parent Bank has no current or profit sharing accounts which are not under the guarantee of the Saving Deposit Insurance Fund except for the current and profit sharing accounts of shareholders, member of Board of Directors, CEO, the Vice Presidents and their first degree relatives. Foreign branches’ profit sharing accounts and other accounts Profit sharing accounts and other accounts of controlling shareholders and profit sharing accounts of their mother, father, spouse, children in care Profit sharing account and other accounts of President and Members of Board of Directors, CEO and Vice Presidents and profit sharing accounts of their mother, father, spouse and children in care Profit sharing account and other accounts in scope of the property holdings derived from crime defined in article 282 of Turkish Criminal Law No:5237 dated 26 September 2004 Profit sharing accounts in participation banks which are established in Turkey in order to engage in off-shore banking activities solely Current Period Prior Period - - - - 12,955 11,651 - - - - 98 347
350. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.2 Information on derivative financial liabilities held for trading Derivative financial liabilities held for trading: Forward transactions Swap transactions Futures transactions Options Other Total 2.3. TL Current Period FC TL Prior Period FC 130,125 62,773 192,898 2,718 62,148 64,866 23,081 1,367,405 1,390,486 2,927 283,393 286,320 TL Current Period FC 132,958 3,286,870 3,419,828 TL 129,343 45,929 175,272 Prior Period FC TL Current Period FC TL Prior Period FC 150,142 54,012 204,154 1,386,472 2,033,356 3,419,828 175,272 175,272 3,914,835 1,114,214 5,029,049 Information on funds borrowed 2.3.1 Information on banks and other financial institutions Loans from The Central Bank of the Republic of Turkey From Domestic Banks and Institutions From Foreign Banks, Institutions and Funds Total 194,154 10,000 204,154 38,870 4,990,179 5,029,049 2.3.2 Information on maturity structure of borrowings: Short-term Medium and Long-Term Total 2.3.4 Explanations related to the concentrations of the Parent Bank’s major liabilities: There is no risk concentration of the Parent Bank’s current and profit-sharing accounts. 2.4. Information on securities issued None 2.5 Information on other liabilities and miscellaneous payables As of 31 December 2021, other liabilities amount to TL 2,135,331 (31 December 2020 – TL 1,410,151), miscellaneous payable amount to TL 2,703,783 (31 December 2020 - TL 783,731), both of them do not exceed 10% of the balance sheet total. 2.6 Information on finance lease payables (net) Current Period Gross Net 22,595 21,162 102,929 96,326 451,837 291,965 Less than 1 year 1 to 4 years More than 4 years Total 577,361 409,453 Prior Period Gross 147,042 253,354 127,183 527,579 Net 137,379 165,644 46,271 349,294 The Parent Bank used FTP (Fund Transfer Pricing) rates as an alternative borrowing rate of profit at 1 January 2019. Relevant ratios are revised and revised in 2-week periods after 1 January 2019. The change in Participation Bank payments uses an unmodified discount rate unless the variable profit share rate is related. If the change in the lease payments results from variable profit share rate s (LIBOR, EURIBOR), the lessee will use a revised discount rate reflecting changes in the profit share rate. 348 99
351. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.6.1. Information on the changes in agreements and new obligations originating from these changes None (31 December 2020 – None). 2.6.1.1. Information on Financial Lease Obligations None (31 December 2020 – None). 2.6.1.2 Information on Operational Leases The leasing transactions, in which all risks and benefits of the leased asset are held by the lessor, are classified as operational leases. Such transactions consist of rent contracts of branches which may be cancelled by declaration. There are no significant commitments regarding the changes at the operational lease agreements. The payments related with operational leases are recognized as expense in the income statement during the period of the agreement in equal installments. 2.7 Information on hedging derivative financial liabilities None (31 December 2020 – None). 2.8 Information on provisions 2.8.1 Information on provisions related with foreign currency evaluation difference of foreign currency indexed loans: As of 31 December 2021, effect of decrease in exchange rates on foreign currency indexed loans amounting to TL 50 (31 December 2020 – TL 3) and TL 7 for leasing receivables (31 December 2020 – TL 87) is offset against loans and receivables accounts. 2.8.2 Information on other provisions Non-Cash loans that are not converted into cash Special Provisions for non-cash loans General Provisions for non-cash loans Provision for Profits will be Allocated to Partipation Accounts Other (*) Total Current Period Prior Period 522,425 486,379 678,145 957 206,380 440,411 165,538 447,552 3,237 109,796 1,894,286 1,166,534 (*) The other part of the main period amounting to TL 101,360 (December 31, 2020 - TL 35,525) is TL 9,395 (31 December 2020 - TL 100) for the expense of TL 63,404 (31 December 2020 - TL 56,211) is the amount for impairment loss. Provision for collected delay penalties 32,221 (December 31, 2020 – TL 3,385) which may be refunded is the amount related to other provision. 2.8.3 Information on provisions for employee benefits Provisions for employee benefits consist of reserve for employee termination benefits amounting to TL 228,869 (31 December 2020 – TL 189,033), vacation pay liability amounting to TL 3,575 (31 December 2020 – TL 2,714), performance premium amounting to TL 213,920 (31 December 2020 – TL 145,178), retirement bonuses on payment of TL 130,241 (31 December 2020 – TL 86,659), committee fee amounting to TL 17,256 (31 December 2020 – TL 12,321) and other fees amounting to TL 4,554 (31 December 2020 – TL 243). Under the Turkish Labor Law, the parent Bank is required to pay termination benefits to each employee who has completed at least one year of service and whose employment is terminated without due cause, is called up for military service, dies or retires or earns the right to retire. The amount payable consists of one month’s salary limited to a maximum of TL 8,284.51 (full amount) (31 December 2020 – TL 6,730.15 (full amount)) for each year of service. The liability is not funded, as there is no funding requirement. 100 349
352. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) The reserve has been calculated by estimating the present value of the future probable obligation of the Bank arising from the retirement of its employees. TAS 19 requires actuarial valuation methods to be developed to estimate the enterprise’s obligation for such benefits. Accordingly, the following actuarial assumptions were used in the calculation of the total liability. Current Period 19.10 15.80 Discount rate (%) Inflation rate (%) Prior Period 12.10 8.00 Movements in the reserve for employment termination benefits during period are as follows Current Period Balance at the beginning of the period Provisions recognized during the period Paid during the period Actuarial loss / gain Balances at the end of the period 2.9 189,033 49,512 (10,744) 1,068 228,869 Prior Period 122,748 30,769 (4,704) 40,220 189,033 Explanations on tax liability 2.9.1 Explanations on current tax liability 2.9.1.1 Information on tax provisions: TL 1,282,020 (31 December 2020 - TL 389,870) 2.9.1.2 Information on taxes payable Current Period 30,189 2,347 54,819 103,722 9,482 17,938 2,078 220,575 Taxation of marketable securities Taxation of immovable property Banking Insurance Transaction Tax (BITT) Foreign Exchange Transaction Tax Value Added Tax Payable Income tax deducted from wages Other Total Prior Period 26,382 969 30,458 23,676 2,792 15,010 1,679 100,966 2.9.1.3 Information on premiums (*): Current Period 10,527 11,333 751 1,628 24,239 Social Insurance Premiums-Employee Social Insurance Premiums-Employer Unemployment insurance-Employee Unemployment insurance-Employer Other Total (*) Included in sundry creditors line item on the balance sheet. 2.9.1.4 Information on deferred tax liability: None (31 December 2020 - None). 2.10 Information on payables related to assets held for sale: None (31 December 2020 – None). 350 101 Prior Period 8,626 9,270 617 1,484 19,997
353. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.11 Information on subordinated loans Current Period From Domestic Banks From Other Domestic Institutions From Foreign Banks From Other Foreign Institutions Total 2.12 Prior Period TL - FC 8,100,496 TL - FC 4,590,265 - 8,100,496 - 4,590,265 Information on shareholders’ equity 2.12.1 Presentation of paid-in capital Current Period 4,600,000 (4,869) 4,595,131 Common shares Preferrence shares Repurchased shares amount (*) Total Prior Period 4,600,000 (4,869) 4,595,131 (*) It represents the Parent Bank’s acquisition of its own shares as a result of the Bank’s shareholders not using their right of preference according to the commitment made in the capital increase in the Bank. 2.12.2 Amount of Paid-in Capital, Disclosure on whether the parent Bank Applies the Registered Share Capital System, and, if so, the Ceiling Amount of the Registered Share Capital Registered capital system is not applied in the Bank. 2.11.3 Information on the share capital increases during the period and their sources; other information on increased capital shares in the current period None 2.11.4 Information on share capital increases from capital reserves during the current period: None 2.11.5 Possible effect of estimations made for the Group’s revenues, profitability and liquidity on equity considering prior period indicators and uncertainties: Based on the evaluation made considering the Group’s prior and current period indicators related to net profit share and commission income, it is observed that the Bank continues its operations profitably. 2.11.6 Summary of privileges given to shares representing the capital None. (31 December 2020- None) 102 351
354. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 2.12.7 Information on marketable securities value increase fund Current Period TL FC From Associates, Subsidiaries and Entities Under Common Control (Joint Vent.) Valuation Difference (*) Foreign Exchange Difference Total Prior Period TL FC - - - - 57,132 57,132 (65,917) (65,917) (81,130) (81,130) 94,206 94,206 (*) Valuation difference is calculated taking the tax effect of the rent certifications in the account, which are classified as “Government Debt Securities” and “Other Marketable Securities” under financial assets at fair value through other comprehensive income in the balance sheet. 2.13 Information on minority shares 31 December 2021 – 36,019 TL. (31 December 2020; 30,004 TL) 3. Explanations and notes related to off-balance sheet contingencies and commitments 3.1. Explanations on off-balance sheet accounts 3.1.1 Types and amounts of irrevocable commitments: Commitment for credit card limits, as of 31 December 2021 amounts to TL 5,336,868 (31 December 2020 – TL 3,503,366); payment commitments for cheque books amounts to TL 1,750,116 (31 December 2020 – TL 1,372,786). 3.1.2 Types and amounts of probable losses and obligations arising from off-balance sheet items including below items: 3.1.2.1 Non-cash loans including guarantees, bank acceptances, collaterals and others that are accepted as financial commitments and other letter of credits: As of 31 December 2021, the Group has guarantees and surety ships constituting of TL 11,838,814 (31 December 2020 – TL 9,588,633) of letters of guarantee; TL 113,683 (31 December 2020 – TL 40,996) of acceptances and TL 4,521,120 (31 December 2020 – TL 1,685,022) of letters of credit. Also, banks has other acceptances amounting to TL 912,257 (31 December 2020 – TL 546,682). 3.1.2.2 Revocable, irrevocable guarantees and other similar commitments and contingencies: There are no other than those explained in 2.i 3.1.3 Total amount of non-cash loans Non-cash loans given against cash loans With original maturity of 1 year or less With original maturity of more than 1 year Other non-cash loans Total 352 103 Current period Prior period 74,766 74,766 17,311,108 17,385,874 33,229 33,229 11,828,104 11,861,333
355. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 3.1.4. Sectorial risk concentration of non-cash loans: Current Period Agriculture Farming and stockbreeding Forestry Fishery Manufacturing Mining and quarrying Production Electricity, Gas, Water Construction Services Wholesale and Retail Trade Hotel, Food and Beverage Services Transportation and Telecom. Financial Institutions Real Estate and Renting Services Self-Employment Type Services Educational Services Health and Social Services Other Total Agriculture Farming and stockbreeding Forestry Fishery Manufacturing Mining and quarrying Production Electricity, Gas, Water Construction Services Wholesale and Retail Trade Hotel, Food and Beverage Services Transportation and Telecom. Financial Institutions Real Estate and Renting Services Self-Employment Type Services Educational Services Health and Social Services Other Total TL % FC % 133,738 37,343 95,089 1,306 1,832,447 493,168 1,093,192 246,087 3,568,096 2,813,633 1,710,046 93,430 481,137 18,929 71,475 232 25,953 412,431 566,045 8,913,959 1.50 0.42 1.07 0.01 20.55 5.53 12.26 2.76 40.03 31.56 19.18 1.05 5.40 0.21 0.80 0.00 0.29 4.63 6.36 100.00 70,364 53,692 16,672 3,094,034 638,387 2,333,739 121,908 1,089,374 3,116,270 2,014,153 31,128 503,573 344,148 8,078 1,327 213,863 1,101,873 8,471,915 0.83 0.63 0.20 0.00 36.53 7.54 27.55 1.44 12.86 36.78 23.77 0.37 5.94 4.06 0.10 0.00 0.02 2.52 13.00 100.00 FC 29,596 21,670 7,926 1,467,734 421,851 1,006,187 39,696 603,648 1,466,554 729,169 22,615 363,945 226,343 27,995 1,237 95,250 828,490 4,396,022 % 0.67 0.49 0.18 0 33.39 9.6 22.89 0.9 13.73 33.36 16.59 0.51 8.28 5.15 0.64 0 0.03 2.17 18.85 100 TL 75,932 38,954 36,978 1,426,416 338,206 774,486 313,724 3,036,920 2,346,149 1,314,073 103,682 475,975 18,502 52,713 272 19,695 361,237 579,894 7,465,311 Prior Period % 1.02 0.52 0.5 0 19.11 4.53 10.37 4.2 40.68 31.43 17.6 1.39 6.38 0.25 0.71 0 0.26 4.84 7.77 100 104 353
356. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 3.1.5. Non-cash loans classified under Group I and II Current Period Letters of Guarantee (*) Bills of Exchange and Bank Acceptances Letters of Credit Endorsements Underwriting Commitments Factoring Related Guarantees Other Guarantees and Securities (*) Total Group I TL 7,566,294 1,044 10,875 827,674 8,405,887 Prior Period Group II FC 3,376,955 112,639 4,380,274 70,962 7,940,830 Group I TL 252,197 3,067 13,600 268,864 FC 167,699 126,904 294,603 Group II TL FC TL FC 6,724,723 2,551,225 268,049 44,636 4,503 34,535 1,000 958 14,424 1,649,067 21,531 409,241 94,070 43,371 Total 7,152,891 4,328,897 312,420 67,125 (*) As of 31 December 2021, there are 3. stage Letters of Guarantee amounting to TL 475,669 (December 31, 2020 – TL 402,572) and Other Guarantees and Bails amounting to TL 21 (31 December 2020 - TL 2). Letters of Guarantee (*) Bills of Exchange and Bank Acceptances Letters of Credit Endorsements Underwriting Commitments Factoring Related Guarantees Other Guarantees and Securities (*) 3.2. Financial derivative instruments Trading Derivatives Curent Period Prior Period Foreign currency related derivative Foreign Currency Related Derivative Transactions (I): Currency Forwards-Purchases, sales Currency Swaps-Purchases, sales Currency Futures Currency Options-Purchases, sales Interest rate related derivative transactions (II): Interest rates forwards-Purchase, sales Interest rates swaps-Purchases, sales Interest rates options-Purchases, sales Interest rates futures-Purchases, sales Other trading derivatives (III) A. Total trading derivatives (I+II+III) 354 Hedging Derivatives Fair value hedges Cash flow hedges Foreign currency investment hedges B. Total Hedging Derivatives 72,522,170 4,662,241 67,859,929 87,602 72,609,772 - Total Derivatives Transactions (A+B) 72,609,772 105 84,075,081 2,735,214 81,339,867 12,274,248 96,349,329 96,349,329
357. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) The Group enters into short-term swap transactions based on its market expectations and cash flow. These transactions are generally short-term and consist of foreign currency to foreign currency and foreign currency to Turkish Lira agreements. As of 31 December 2021, in the contracts the Group has entered in TL, US Dollars, Euros, British Pounds, Saudi Arabian Riyal, Russian Ruble, Silver and Gold currencies, the Bank has commitments to buy TL 1,439,007,000 USD 1,581,289,000, EUR 26,982,000, GBP 43,797,000, CHF 7,285,000 in return of selling commitments of TL 1,338,947,000 USD 264,511,000, EUR 2,051,366,000, GBP 63,000. (As of 31 December 2020 in the contracts the Group has entered in TL, US Dollars, Euros, British Pounds and Malaysian Ringite currencies, the Bank has commitments to buy TL 786,085, USD 3,290,068,000, EUR 71,021,000, GBP 44,126,000, SAR 56,279,000 and RUB 54,078,000 in return of selling commitments of TL 24,397,571 USD 530,027,000, EUR 2,268,647,000, GBP 29,000 and RUB 38,805,000). 3.3. Credit derivatives and risk exposures on credit derivatives None. 3.4. Contingent liabilities and assets: In accordance with decision of the Bank’s Board of Directors numbered 1117 and dated 21 June 2011, recoverable foreign currency loan granting commitments to real and legal persons and who do not have the unconditional right to utilize these commitment has been translated into Turkish Lira and no longer followed as foreign currency commitments. 3.5. Explanations on custodian and intermediary services: None. 3.6. Summary Information on the Parent Bank’s Rating by the International Rating Institutions Fitch Rating’s October, 2020 Long-Term Issuer Default Rating Notes B+ Short-Term Issuer Default Rating B Local Currency Long-Term Issuer Default Rating BB- Local Currency Short-Term Issuer Default Rating B Financial Capacity Ratio b+ Support Rating 4 4. Explanations and notes related to the statement of consolidated income 4.1 Information on profit share income 4.1.1 Information on profit share received from loans Current period TL 7,095,760 2,244,092 4,539,776 311,892 7,095,760 Profit share on loans Short term loans Medium and long-term loans Profit share on non-performing loans Premiums received from resource utilization support fund Total 106 FC 1,627,919 388,760 1,170,754 68,405 1,627,919 Prior period TL 5,250,272 1,117,394 4,085,874 47,004 5,250,272 FC 1,033,495 200,101 831,630 1,764 1,033,495 355
358. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4.1.2 Information on profit share received from banks Current period TL FC 230,553 111,982 9,009 5,578 95,829 348,113 104,838 The Central Bank of the Republic of Turkey Domestic Banks Foreign Banks Branches and head office abroad Total TL 37,473 102,242 60,698 200,413 Prior period FC 98 66,551 342 66,991 4.1.3 Information on profit share income from securities portfolio Current Period TL FC 62,206 202,865 Financial Assets at Fair Value Through Profit or Loss Financial Assets at Fair Value Reflected in Other Comprehensive Income Financial Assets Valued Over Amortized Cost Total 2,573,437 121,909 2,757,552 510,314 133,495 846,674 TL 114,454 Prior Period FC 228,084 1,772,260 51,580 1,938,294 349,355 186,632 764,071 4.1.4 Information on profit share income received from associates and subsidiaries Current Period Prior Period 182 180 Profit share income received from associates and subsidiaries 4.2 Information on profit share expenses 4.2.1 Information on the profit share given to the loans used TL 258,360 230,553 23,751 4,056 258,360 Banks The Central Bank of the Republic of Turkey Domestic banks Foreign banks Branches and head office abroad Other Institutions Total Current period FC 150,096 3,464 146,632 355,772 505,868 TL 61,421 37,473 22,052 1,896 61,421 Pirior period FC 35,557 4,506 31,051 337,447 373,004 4.2.2 Profit share expense given to associates and subsidiaries Current Period 1,079 Profit share expenses given to associates and subsidiaries Prior Period 1,034 4.2.3 Profit share expense paid to securities issued 31 December 2021; 884,948 TL (1 January – 31 December 2020: 365,387 TL). 4.3 Information on dividend income Financial Assets at Fair Value Through Profit or Loss Financial Assets at Fair Value Through Other Comprehensive Income Other Total 356 107 Current Perid 6,042 6,042 Prior Period 68 68
359. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4.4 Distribution of profit share on funds based on maturity of funds Current period Account name Turkish Lira Collected funds from banks through current and profit share accounts Real person’s non-trading profit sharing account Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Total Foreign curency Banks Real person’s non-trading profit sharing account Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Precious metal accounts Total Grand Total Profit Sharing Accounts Up to 1 month - Turkish Lira Collected funds from banks through current and profit share accounts Real person’s non-trading profit sharing account Public sector profit sharing account Commercial sector profit sharing account Other institutions profit sharing account Total Foreign curency Banks Real person’s non-trading profit sharing account Public sector profit sharing account. Commercial sector profit sharing account Other institutions profit sharing account Precious metal accounts Total Grand Total Up to 6 Up to 9 months months Up to 1 year Above 1 year Accumulated profit sharing accounts Total 2 - - - - - 2 1,226,974 1,402,886 36 120 67,492 99 - 76,345 94 98,608 - 2,438 - 2,874,743 349 85,602 122,762 2,230 - 2,081 1,430 - 214,105 16,142 24,530 2,528 - 517 67 - 43,784 1,328,754 1,550,300 72,349 - 79,037 100,105 2,438 3,132,983 - - - - - - - - 64,389 - 103,445 - 8,458 - - 14,783 - 18,359 - 87 - 209,521 - 5,899 11,199 387 - 209 52 - 17,746 451 8,379 1,905 4,156 6 629 - 7 520 - - 2,369 13,684 79,118 120,705 9,480 - 15,519 18,411 87 243,320 1,407,872 1,671,005 81,829 - 94,556 118,516 2,525 3,376,303 Accumulated profit Above 1 sharing year accounts Total Prior period Account name - Up to 3 months Profit Sharing Accounts Up to 1 month Up to 3 months Up to 6 Up to 9 months months Up to 1 year - 1 - - - - - 1 552,292 25 816,805 27 51,283 54 - 61,964 39 93,576 - 1,358 - 1,577,278 145 47,506 91,317 4,310 - 1,795 1,324 - 146,252 5,484 12,324 967 - 440 115 - 19,330 605,307 920,474 56,614 - 64,238 95,015 1,358 1,743,006 15 559 27 - - - - 601 42,018 - 81,687 - 9,074 - - 10,000 - 14,125 - 25 - 156,929 - 3,869 11,087 384 - 410 53 - 15,803 387 8,614 1,395 6,313 111 845 - 63 791 - - 1,956 16,563 54,903 101,041 10,441 - 11,264 14,178 25 191,852 660,210 1,021,515 67,055 - 75,502 109,193 1,383 1,934,858 108 357
360. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4.5 Information on trading income/loss (Net) Current period 3,056,725 140,437,301 87,941 9,062,386 131,286,974 (137,380,576) (31,305) (7,755,588) (129,593,683) Net Income Gain on capital market transactions Gain on derivative financial instruments Foreign exchange profit Losses (-) Losses on capital market transactions Losses on derivative financial instruments Foreign exchange losses 4.6 Pirior period 847,844 61,984,441 74,885 5,905,668 56,003,888 (61,136,597) (29,857) (8,116,336) (52,990,404) Information on other operating income The details of other operating income are presented below. There are no unusual items in the other operating income which materially affect the income of the Bank. Reversal of prior period provisions Income from sale of assets Revenues from real estates sold under the lease certificate. Income from the real estate sales’ gains by rent certificates Other Income Total 4.7 Current Period 1,391,226 40,443 209,867 5,656 813,207 2,460,399 Prior Period 1,688,050 69,847 8,052 53,408 1,819,357 Current Period (*) 4,573,043 1,249,261 2,040,864 1,282,918 15,264 15,264 - Prior Period (*) 3,240,522 731,099 807,415 1,702,008 22,488 22,488 - 158,358 4,746,665 302,730 3,565,740 Provisions for loan losses and other receivables of the Bank Expected Credit Loss 12 month expected credit loss (Stage 1) Significant increase in credit risk (Stage 2) Non-performing loans (Stage 3) Marketable Securities Impairment Expense Financial Assets at Fair Value through Profit or Loss Financial Assets at Fair Value Through Other Comprehensive Income Impairment losses from Associates, Subsidiaries and Jointly Controlled Entities Investments in Associates Subsidiaries Joint Ventures Other (**) Total (*) Includes the provisions in the “Other Provision Expenses” line in the Income Statement. (**) Includes free provisions that can be allocated from profit to be distributed to participation accounts according to provisions regulation. 358 109
361. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4.8 Information on other operating expenses Provision for retirement pay liability (*) Impairment expenses of tangible assets Depreciation expenses of tangible assets Impairment expenses of intangible assets Depreciation expenses of intangible assets Depreciation expenses of assets held for sale Other operating expenses Maintenance expenses Advertisement expenses Communication expenses Stationery expense Heating, electricity and water expenses Vehicle expenses Cleaning expenses Leasing Expenses Related to TFRS 16 Exceptions Other expenses Losses on sales of assets Deposit insurance fund expenses Other Total (*) Includes the provisions in the” Personnel Expenses “line in the Income Statement. Current Period 38,768 262,302 71,232 606,886 111,139 79,303 79,083 43,817 31,501 14,137 10,180 4,475 233,251 4,967 429,377 1,615,132 3,028,664 Prior Period 26,065 1,095 212,095 82,155 493,978 92,209 46,007 64,681 10,437 26,048 9,328 8,688 14,204 222,376 344 320,386 1,201,969 2,338,087 According to the decision of POA dated March 26, 2021, the fee information for the reporting period for services received from the independent auditor or audit organization is given in the following table. These fees also include the audit fees of the Bank's subsidiaries. The fee information given in the table is excluding VAT. Current Period Independent audit fee for the reporting period (*) Fees for tax consulting services The cost of other assurance services The cost of other services outside the independent audit Total Prior Period 6,846 1,274 Independent audit services provided by other Independent Audit companies 225 - 8,120 225 Independent audit services provided by the group auditor 3,834 944 Independent audit services provided by other Independent Audit companies 343 - 4,778 343 Independent audit services provided by the group auditor Independent audit fee for the reporting period (*) Fees for tax consulting services The cost of other assurance services The cost of other services outside the independent audit Total (*) The Bank's foreign currency exchange purchase valuation rates were used for foreign currency independent audit fees at the end of the period 31 December 2021 / 31 December 2020. 110 359
362. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4.9 Information on profit/loss from continued and discontinued operations before taxes Income before tax amounting to TL 4,652,770 increased by 105,47% as compared to the prior period (1 January - 31 December 2020 – TL 2,264,486). Income before tax includes TL 8,067,748 (1 January - 31 December 2020 – TL 6,535,122) net profit share income and TL 508,093 (1 January - 31 December 2020 – TL 261,839) net fees and commission income. Other operating expense amount is TL 3,028,664 (1 January - 31 December 2020 – TL 2,312,022). 4.10 Information on tax provision for continued and discontinued operations Current period tax provision for the period amounting to TL 2,139,603 (1 January-31 December 2020 - TL 826,371), deferred tax income of TL 155,118 (1 January-31 December 2020 - TL 187,277) and TL 1,015,618 (1 January-31 December 2020 - TL 462,030) deferred tax income is recognized. 4.11 Information on net income/loss from continued and discontinued operations There is no income or loss for discontinued operation in net operating income after tax. 4.12 Information on net income/loss 4.12.1 The nature and amount of certain income and expense items from ordinary operations is disclosed if the disclosure for nature, amount and repetition rate of such items is required for a complete understanding of the Group's performance for the period: As of 31 December 2021, net profit share income is TL 8,067,748 (1 January-31 December 2020 – TL 6,535,122), net fees and commission income is TL 508,093 (1 January-31 December 2020 – TL 261,839). 4.12.2 Effect of changes in accounting estimates on income statement for the current and, if any for subsequent periods: None (1 January – 31 December 2020 – None). 4.12.3 Profit/Loss attributable to minority interest Profit/(Loss) attributable to minority interest Current Period 18,175 111 360 Prior Period (33,270)
363. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 4.13 Details of sub accounts comprising at least 20% of other items in income statement, exceeding 10% of total income statement: As of 31 December 2021, other fees and commissions received is TL 1,115,473 (1 January - 31 December 2020 – TL 725,542), TL 312,322 of this amount is related with credit card fees and commissions (1 January – 31 December 2020 – TL 147,028) and TL 198,049 of this amount is related with POS machine commissions (1 January – 31 December 2020 -118,516 TL). As of 31 December 2021, other fees and commissions given is TL 748,678 (1 January – 31 December 2020 – TL 588,668), TL 242,607 (1 January – 31 December 2020 – TL 111,537) of this amount is related with POS clearing commissions and installation expenses, TL 76,380 (1 January – 31 December 2020 – TL 38,445) of this amount is related with fees and commissions paid for credit cards 5. Explanations and Disclosures Related to Statement of Consolidated Equity 5.1 There are no disclosed dividend amounts subsequent to the balance sheet date, prior to the presentation of the financial statements. Decision on the dividend distribution will be made in the General Assembly. However, the General Assembly has not been held as of the date when the accompanying financial statements are finalized. 5.2 In the current year, the Parent Bank made dividend payments amounting to TL 9,132 to members of Board of Directors. In the Ordinary General Assembly meeting held in 25 March 2021 it has been decided that TL 70,927 would be transferred to legal reserves, TL 1,319,715 would be transferred to extraordinary reserve, TL 507 would be transferred to other reserves. 6. Explanations and Disclosures Related to Statement of Cash Flows 6.1. Information on consolidated cash and cash equivalents: 6.1.1. Components of cash and cash equivalents and accounting policy applied in their determination: “Cash” is defined as cash in vault and foreign currency cash, cash in transit, checks purchased, unrestricted amount in the Central Bank and demand deposits in Banks. “Cash equivalents” is defined as money market placements, investments in securities and time deposits in banks with original maturity less than three months. 6.1.1.1.Cash and cash equivalents at the beginning of the period: Current Period Prior Period Cash Cash in TL/foreign currency, others Demand deposits at banks (Up to 3 months) Cash Equivalents Interbank money markets Time deposits at banks Marketable securities 13,995,430 6,624,877 7,370,553 - 19,216,292 10,784,364 8,431,928 - Total cash and cash equivalent 13,995,430 19,216,292 112 361
364. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 6.1.1.2. Cash and cash equivalents at the end of the period: 6.2. Current Period Prior Period Cash Cash in TL/foreign currency, others Demand deposits at banks (Up to 3 months) Cash Equivalents Interbank money markets Time deposits at banks Marketable securities 39,187,590 23,083,222 16,104,368 - 13,995,430 6,624,877 7,370,553 - Total cash and cash equivalent 39,187,590 13,995,430 Cash and cash equivalent items which are restricted for the usage of the Parent Bank by legal or other limitations None (31 December 2020 – None). 6.3. Explanations on other items in the cash flow statement “Other items” amounting to TL (3,186,043) (1 January-31 December 2020: TL (2,332,109)) in “Operating profit before changes in operating assets and liabilities” consists of fees and commissions paid and other operating expenses except for collection from non-performing loans and personnel expenses. “Net increase/decrease in other liabilities” amounting to TL 13,819,193 (1 January-31 December 2020: TL 2,473,519) in “Changes in operating assets and liabilities” consists of changes in sundry creditors, other liabilities and taxes and other duties payables. “Net increase/decrease in other assets” amounting to TL (5,119,157) (1 January-31 December 2020: TL (9,559,006)) in “Changes in operating assets and liabilities” consist of changes in prepaid rent expense and other asset. 6.4. Effects of the change in foreign currency rates on cash and cash equivalents Effect of the changes in foreign currency rates on cash and cash equivalents has been calculated approximately TL 27,297,784 as of 31 December 2021 (31 December 2020 – TL 5,637,262). The effects of the change in foreign currency rates on cash and cash equivalents is calculated according to multiplying fx difference between balance sheet date and cash entered date and related cash amount. 113 362
365. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 7. Explanations and notes related to risk group of the Parent Bank: 7.1 The volume of transactions related to the risk group of the Parent Bank, the loans and funds collected which have not been completed at the end of the period and the income and expenses related to the period Current period: Risk group of the Group (*) Loans and other receivables Balance at beginning of period Balance at end of period Profit share and commission income Investment in associates, subsidiaries and joint ventures (business partnerships Cash Non-Cash 169 193 - Other real or legal persons included in the risk group Cash Non-Cash Direct and indirect shareholders of the Bank Cash Non-Cash 16,291 28,603 182 4,695 6,955 526 6,709 21,246 145 54,992 64,315 4,361 6,632 2,297 - (*) Defined in the Subsection 2, Article 49 of the Banking Law No. 5411. Prior period: Risk group of the Group (*) Loans and other receivables Balance at beginning of period Balance at end of period Profit share and commission income Investment in associates, subsidiaries and joint ventures (business partnerships) Cash Non-Cash 182 169 - Other real or legal persons included in the risk group Cash Non-Cash Direct and indirect shareholders of the Bank Cash Non-Cash 18,827 16,291 180 1,868 4,695 258 7,206 6,709 85 780,512 54,992 5,263 723 6,632 - (*) Defined in the Subsection 2, Article 49 of the Banking Law No. 5411. 7.1.1 Information on current and profit sharing accounts of the Parent Bank’s risk group Risk group of the Group (*) Current and profit sharing accounts Balance at beginning of period Balance at end of period Profit share expense Investment in associates, subsidiaries and joint ventures (business partnerships) Current Current Period period 24,405 28,489 1,079 54,178 24,405 1,034 Direct and indirect shareholders of the Bank Current Current period Period 58,677 104,748 980 151,321 58,677 852 Other real or legal persons included in the risk group Current Current period period 203,570 348,052 265 137,061 203,570 271 (*) Defined in the Subsection 2, Article 49 of the Banking Law No. 5411 7.1.2 Forward and option agreements and other similar agreements with the risk group of the Parent Bank Risk group of the Group (*) Transactions at Fair Value through Profit or Loss Balance at beginning of period Balance at end of period Total Profit / Loss Hedging Transactions Balance at beginning of period Balance at end of period Total Profit / Loss Investment in associates, subsidiaries and joint ventures (business partnerships) Current Prior period period Direct and indirect shareholders of the Bank Current Prior period period Other real or legal persons included in the risk group Current Prior period period - - 716,065 1,992,498 (2,476) 607,498 716,065 (13,619) - - - - - - - - 114 363
366. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 7.1.3 Information on loans received from the Parent Bank’s risk group Risk group of the Group Borrowings Balance at beginning of period Balance at end of period Profit share expense Investment in associates, subsidiaries and joint ventures (business partnerships) Current period Direct and indirect shareholders of the Bank Current period Prior period - - - Prior period 1,481,347 270,055 4,641 - 68,696 1,481,347 41 Other real or legal persons included in the risk group Current period Prior period - - (*) Defined in the Subsection 2, Article 49 of the Banking Law No. 5411 7.1.4 Information on subordinated loans used by the Parent Bank from the risk group Subordinated additional capital (Tier-I) sukuks amounting to USD 200,000,000 (full amount) executed by the Parent Bank on July 16, 2019 and USD 50,000,000 (full amount) executed by the Parent Bank on 28/09/2020 are provided by Kuwait Finance House. Kuwait Finance House owns USD 35,000,000 (full amount) of the subordinated additional capital (Tier-II) sukuk amounting to USD 350,000,000 (full amount) executed by the Parent Bank on September 16, 2021. 7.2 Information on remunerations provided to top management As of 1 January - 31 December 2021, the Group has paid TL 107,497 to top management (1 January - 31 December 2020 TL 85,244). 8. Domestic, foreign and off-shore branches or equity investments and foreign representative offices 8.1. Domestic and foreign branches and representative offices Domestic branches (*) Number of Branches 442 Number of Employees 4,098 Country Foreign representative offices Foreign bank Off-shore branches Foreign branches (*) (**) 8.2. 5 1 - 117 3 - Germany Bahrain - Total Assets (Thousands, TL) 12,973 13,807 - Legal Capacity (USD) 45,982,036 - The personnel working at Headquarters, Operation Center and Region quarters are not included in the domestic branches personnel number. Bahrain Branch is controlled by the Central Bank of Bahrain and the total of Assets is 13,807,219 Turkish lira as of 31 December 2021. Opening or closing of domestic and foreign branches and representative offices and significant changes in organizational structure In 2021, 7 new domestic branches (2020 - 4 branches) were opened. The Group does not have any domestic or foreign branches that were closed in 2021 (2020- None). 364 115
367. Section V : Financial Information and Risk Management Practices KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) 9. Significant events and matters arising subsequent to balance sheet date Parent Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 05, 2022 with a nominal value of TL 100,000 and a maturity of 77 days with a cost of 17.51%. Parent Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 5, 2022 with a nominal value of TL 300,000 and a maturity of 77 days with a cost of 17.26%. Parent Bank KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 12, 2022 with a nominal value of TL 600,000 and a maturity of 84 days with a cost of 17.75%. Parent Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 13, 2022 with a nominal value of TL 200,000 and a maturity of 95 days with a cost of 13.81%. Parent Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 14, 2022 with a nominal value of TL 150,000 and a maturity of 84 days with a cost of 17.75%. Parent Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 26, 2022 with a nominal value of TL 425,000 and a maturity of 84 days with a cost of 17.75%. Parent Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on January 27, 2022 with a nominal value of TL 300,000 and a maturity of 89 days with a cost of 18.25%. Parent Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on February 2, 2022 with a nominal value of TL 60,000 and a maturity of 85 days with a cost of 17.26%. Parent Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on February 3, 2022 with a nominal value of TL 250,000 and a maturity of 85 days with a cost of 13,81%. Parent Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on February 4, 2022 with a nominal value of TL 300,000 and a maturity of 82 days with a cost of 17.75%. Parent Bank, KT Leasing Certificates Varlık Kiralama A.Ş. has issued sukuk on February 16, 2022 with a nominal value of TL 200,000 and a maturity of 70 days with a cost of 17.66%. 116 365
368. Kuveyt T ürk Annual Report 2021 KUVEYT TÜRK KATILIM BANKASI ANONİM ŞİRKETİ NOTES AND DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-ENDED 31 DECEMBER 2021 (Amounts expressed in thousands of Turkish Lira ( TL) unless otherwise stated.) SECTION SIX OTHER EXPLANATIONS 1. Other matters which must be explained in terms of explicitness, interpretability and understandability of the balance sheet: None. SECTION SEVEN INDEPENDENT AUDITORS’ REPORT 1. Explanations audit report The consolidated financial statements have been audited by Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (A Member Firm of Ernst & Young Global Limited) and the independent auditors’ report dated 21 February 2022 is presented preceding the financial statements. 2. Notes and disclosures prepared by the independent auditor None. 366 117
371. Contents SECTION I : INTRODUCTION 12 Message from the Chairman 14 Message from the CEO 16 Agenda of the Ordinary General Assembly 16 Amendments to the Articles of Association 17 Kuveyt Türk in Brief 20 About Kuveyt Türk 22 Shareholding and Capital Structure 24 The Story of 32 Successful Years 28 Summary of Financial Indicators 30Awards 32 Macroeconomic and Sector Outlook 34 Kuveyt Türk’s Position in the Industry SECTION II: ASSESSMENT OF ACTIVITIES IN 2021 36 Retail Banking 44 SME Banking 50 Corporate and Commercial Banking 54 Treasury and International Banking 58Loans 60Strategy 64 Digital Transformation and Innovation 66 Information Technologies (IT) SECTION III: SUSTAINABILITY 72 Sustainability Approach 73 Social Responsibility 76 Environmental Responsibility 78 Human Resources Practices 84 Kuveyt Türk Academy SECTION IV: MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES 86 Board of Directors 89 Senior Management 93 Organizational Chart 94 Summary Report of the Board of Directors Submitted to the General Assembly 95 Executives within Internal Systems 96 Senior Management Committees 99 Related Party Transactions 100 Outsourced Services SECTION V: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES 102 Annual Report Compliance Opinion 103 Annual Report Statement of Responsibility 104 Review of the Audit Committee on Internal Systems 107 Advisory Board’s Assessment on the Bank’s Compliance with Interest-Free Banking Principles and Standards 108 Assessment on Financial Status, Profitability and Solvency 108 Ratings of Kuveyt Türk by International Rating Agencies 109 Information on Risk Management Policies 111 Five-Year Summary Financial Information 113 Independent Auditor’s Report, Unconsolidated Financial Statements, and Footnotes to the Financial Statements for the Accounting Period January 1- December 31, 2021 241 Independent Auditor’s Report, Consolidated Financial Statements and Footnotes to the Financial Statements for the Accounting Period January 1- December 31, 2021 Contact Information and Branch Directory Contact Information and Branch Directory HEAD OFFICE Büyükdere Cad. No: 129/1 Esentepe 34394 Şişli/İstanbul Tel : (0212) 354 11 11 (pbx) Fax : (0212) 354 12 12 KUVEYT TÜRK BANKING HUB Cumhuriyet Mah. Özgürlük Cad. No:11/A Çayırova/Kocaeli Phone: (0262) 723 55 55 Fax : (0262) 723 56 56 Website E-Mail Trade Registry No Mersis No Call Center : www.kuveytturk.com.tr : musterimemnuniyeti@kuveytturk.com.tr : 250489 : 0600002681400074 : 444 0 123 / 0850 251 0 123 LOCAL BRANCH DIRECTORY Kuveyt Türk’s branch network is composed of 442 branches in total, 441 in Turkey and one in Bahrain. Detailed information about the local branches can be found by clicking on the following link to the Bank’s website. https://www.kuveytturk.com.tr/en/branches-and-atms OVERSEAS SERVICE POINTS BAHRAIN BRANCH Dilmun Tower (A), 121 Government Avenue P.O. Box 1363 Manama/BAHRAIN Phone: +973 17 20 11 11 Fax : +973 17 22 33 25 KT BANK AG-FRANKFURT BRANCH Schillerstraße 19-25-60313 Frankfurt am Main/GERMANY Phone: +49 69 920 39 16-0 Fax: +49 69-9203916-99 KT BANK AG-BERLIN BRANCH Leipziger Straße 26-10117 Berlin/GERMANY Phone: +49 30 209 15 76-0 Fax : +49 30 209 15 76-99 KT BANK AG-MANNHEIM BRANCH U1, 9-68161 Mannheim/GERMANY Phone: +49 62 172 73 85-0 Fax : +49 62 172 73 85-45 KT BANK AG-COLOGNE BRANCH Venloer Straße 160 – 50823 Cologne/GERMANY Phone: +49 221 1792595-0 Fax : +49 221 1792595-29 KT BANK AG-MUNCHEN BRANCH Altheimer Eck 3 80331 München/ GERMANY Phone: +49 89 212694116 Fax : +49 89 212694129 Proudly produced by FİNAR. www.finarkurumsal.com
372. INTEREST-FREE , SUSTAINABLE DRIVING FORCE FOR TURKEY KUVEYT TÜRK ANNUAL REPORT 2021 HEAD OFFICE Büyükdere Cad. No: 129/1 Esentepe 34394 Şişli/İstanbul Phone: (0212) 354 11 11 (pbx) www.kuveytturk.com.tr Call Center: 444 0 123 Annual Report 2021