2021 Integrated Annual Report for an Inclusive and Robust Economy for Climate Action for Our Employees for Transparent Management for Next- Generation Banking for Efficient Operations for Future Generations We take responsibility... #ourworldourfuture Contents 06 50 109 133 Guidance Completed Project Information in different sections or reports Uncompleted Project Information on the website PRODUCED CAPITAL FINANCIAL CAPITAL SOCIAL-RELATIONAL CAPITAL HUMAN CAPITAL Ongoing Project Redirects to Contents page INTELLECTUAL CAPITAL NATURAL CAPITAL 04 Introduction 05 About the Report 06 AN OVERVIEW OF İŞBANK 08 10 Corporate Profile İşbank's Vision, Goals, Values and Strategy İşbank in Figures in 2021 10 12 İşbank from 1924 to Today 14 Messages from the Executives 22 LOOKING INTO THE FUTURE 22 Operating Environment: General Evaluations 26 Global Tendencies, Risks, Opportunities and Forecasts 29 HOW DO WE CREATE VALUE? 29 Our Business Model: İşbank Banking İşbank's Sustainability Journey 32 Sustainability Priorities 33 Sustainability Management 38 Stakeholder Expectations and İşbank's Response 39 Initiatives Supported in the Field of Sustainability 44 Contribution to Sustainable Development Goals 46 50 RELIABLE FINANCIAL ACTOR 52 We Take Responsibility for an Inclusive and Robust Economy Financial Performance 56 İşbank and its Activities in 2021 57 İşbank's Subsidiaries 63 71 Flawless Customer Experience 74 Responsible Products and Services Financial Inclusion 76 81 Financial Literacy 82 Responsible Marketing 84 We Take Responsibility for Climate Action Climate Change Risk Management Environmental and Social Risk Management in Loans 87 89 92 Products and Services Contributing to a Green Economy 98 We Take Responsibility for Next-Generation Banking 100 Digital Banking 104 106 Innovation and Entrepreneurship Information Safety 109 RESPONSIBLE OPERATIONS 110 We Take Responsibility to Mitigate Negative Impacts of Our Operations 110 Supply Chain Management 114 Environmental Impact 118 Operational Efficiency 120 We Take Responsibility for Our Employees 123 Employee Engagement and Satisfaction 124 Employee Rights 125 Family Friendly Employer 126 Employer of Choice 126 Preferred Employer 127 Equal Opportunity and Diversity 129 Talent Management 133 GOOD CORPORATE CITIZEN 134 We Take Responsibility for Transparent and Ethical Management 137 Management Structure 138 Board of Directors 142 Executive Board 144 Organization Chart 146 146 150 Information on Board of Directors meetings İşbank Committees Information on Risk Management Policies Applied per Risk Types 153 Managers of Internal Systems 154 Audit Committee's Assessment on the Operation of Internal Audit, Internal Control, Compliance and Risk Management Systems, and Information on its Activities in the Reported Period 159 Business Ethics 159 Anti-Bribery and Anti-Corruption 160 Stakeholder Dialogue 161 Transparency and Reporting 162 Corporate Governance Principles Compliance Statement 163 Corporate Governance Compliance Report 170 Corporate Governance Information Form 181 Sustainability Principles Compliance Framework 188 Dividend Distribution Policy 189 Summary Report of the Board of Directors 190 Agenda of the Annual Meeting 191 Dividend Distribution Proposal Annual Meeting Documents 192 We Take Responsibility for Future Generations 194 Projects in the Field of Education 196 Projects in the Field of Environment 196 Projects in the Field of Culture and Art 200 Special Section: Combating the COVID-19 Pandemic 202 FINANCIAL REPORTS AND ANNEXES 207 Non-Consolidated Financial Report 310 Consolidated Financial Report 428 ANNEXES 428 Projects to Improve Customer Experience 432 Activities for which Support Services are Received in Accordance with the Regulation on Procurement of Support Services for Banks 434 Additional Information Provided Within the Scope of Relevant Legislation 436 Information on Transactions Carried out with the Bank's Risk Group 436 Corporate Memberships 437 Fundings Received from International Financial Institutions by İşbank as of 31.12.2021 İşbank's Credit Ratings 438 Financial Highlights and Key Ratios for the Five-Year Period 442 443 Awards Received in 2021 446 Changes in Sustainability Priorities of İşbank 447 Direct and Indirect Subsidiaries 451 Changes in Percentage of Participation in Subsidiaries 452 Human Resources Data 457 UN Women's Empowerment Principles Progress Statement 458 Amendments to the Articles of Incorporation in 2021 460 Independent Auditor's Report on the Board of Directors’ Annual Report 462 Non-Financial Data Reporting Guidance and Independent Assurance Report 471 GRI Content Index 480 Company Information Introduction "We Take Responsibility..." İşbank has set out the theme of its first integrated annual report as "We Take Responsibility". Preparing to celebrate its 100th anniversary in 2024 and continuing to work with the vision of "The Bank of the Future", İşbank has always provided permanent support to the country's economy since the day it was founded. The economic and social difficulties caused by the COVID-19 pandemic, the increasing adverse effects of climate change, and income inequality have affected Turkey as well as the rest of the world. Many organizations, families and individuals have had to face both financial and moral difficulties in this period. An inclusive, low-carbon and innovative economy has become more urgent than ever. During this process of change, the banking sector plays an important role. İşbank is aware of its duties and responsibilities in this regard. In line with its historical mission, the Bank operates with the aim of becoming a reliable partner that focuses on the welfare of all segments of society with innovative and creative economic growth target which is respectful of natural life balance. 2021 Integrated Annual Report aims to shed light on the vision of how the value creation model, which is called İşbank Banking, will be managed in this transition period. 2021 report summarizes the Bank’s approach to taking responsibility and the value creation for its stakeholders in four main sections. The "How Do We Create Value?" section explains the value creation process through İşbank Banking, which reflects İşbank’s integrated sustainability approach. This section includes the sustainability priorities revised in 2021, sustainability initiatives supported, communication with stakeholders and contribution to United Nations Sustainable Development Goals. The "Reliable Financial Actor" section presents the role that İşbank plays as a financial organization for an inclusive and robust economy. This section includes the changes anticipated by the financial sector and İşbank's goals for a sustainable financial performance, the customer experience that İşbank considers while presenting its products and services, and its performance in inclusion, financial literacy, raising savings awareness, as well as İşbank's roles and targets in climate action. The final part of the Reliable Financial Actor section includes İşbank's digitalization journey and the performance in this field. The "Responsible Operations" section sets out the projects and practices developed by İşbank to minimize the negative environmental impacts of its operations and extend the working standards of the Bank throughout the supply chain. This section also reports the responsibilities İşbank takes for its employees, how İşbank employees are getting prepared for the banking competencies of the future, and the Bank's gender equality approach. The "Good Corporate Citizen" section summarizes the Bank's corporate governance structure, ethical and responsible banking approach, management principles, and performance. The "We Take Responsibility for Future Generations" section presents a summary of İşbank's vision of corporate social responsibility and projects realized in line with this vision. Effects of the COVID-19 pandemic continued all over the world in 2021. The measures taken by İşbank for its employees and customers within the scope of the pandemic are also reported in a separate section in the report. İşbank has positioned sustainability, which is the basis of its business model, as one of the main focal points of its corporate strategy with a holistic approach. As an indicator of this approach, the Bank has prepared its first Integrated Annual Report, which includes a comprehensive evaluation of its financial and non-financial performance in 2021. İşbank, which completed 2021 with success despite all the global turmoil, shall continue to take into consideration economic, social and environmental effects of its activities and take responsibility for the country's economy as a reliable institution. About the Report İşbank prepared its first Integrated Annual Report in 2021. This report aims to shed light on the responsibilities İşbank has taken in the rapidly changing new economic system. Structure and content of the report İşbank’s first integrated annual report provides up-to-date information about the Bank's activities carried out with its approach focusing on creating sustainable and shareable value by taking into consideration financial and non-financial capital elements together. The 2021 Integrated Annual Report includes İşbank's 2021 performance, the value created for all of its stakeholders with this performance, the risks and opportunities it has faced in the value creation process, and the integration of the Bank's sustainability priorities into business model. A separate section has been created in the report in order to explain the measures taken in the fields of employee health, customer service, and business continuity with regards to the Coronavirus (COVID-19) pandemic that continued to impact the whole world in 2021. See Fight Against COVID-19 Period and scope of the report The İşbank 2021 Integrated Annual Report presents the Bank's performance for the period between January 1st, 2021 and December 31st, 2021. The Integrated Annual Report includes consolidated and unconsolidated financial statements and independent audit report. The scope of the report covers İşbank's activities in Turkey and operations abroad. The activities of the Bank's subsidiaries are not included in the scope of reporting. Compliance and legislation İşbank, which is publicly traded on Istanbul Stock Exchange, ensures that the Bank's 2021 Integrated Annual Report is in compliance with the minimum requirements of the Banking Regulation and Supervision Agency (BRSA) and the Capital Markets Board (CMB) on annual reporting. The İşbank Integrated Annual Report is compatible with the Integrated Reporting Framework (Framework) of the International Integrated Reporting Council (IIRC). The 2021 Integrated Annual Report has been prepared in accordance with the GRI Standards-Comprehensive practice published by the Global Reporting Initiative (GRI). See GRI Standards Content Index In organizing the content of report, the Provisional Standard for Commercial Banks guide released by the Sustainability Accounting Standards Board - SASB, United Nations Environment Program Finance Initiative's (UNEP-FI) Principles for Responsible Banking, and Carbon Disclosure Project's (CDP) Climate Change Program Guidance were utilized. The report also includes İşbank's contribution to the United Nations Sustainable Development Goals. See Contribution to Sustainable Development Goals. İşbank, a signatory of the United Nations Women's Empowerment Principles (UN WEPs), has prepared detailed performance summary on gender equality. The Bank's performance in this area can be found in the Women's Empowerment Principles Progress Statement. Principles Progress Statement See Women's Empowerment Audit The financial statements included in İşbank's 2021 Integrated Annual Report have been audited by Güney Bağımsız Denetim ve SMMM A.Ş. See Compliance Opinion KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. has provided limited assurance on selected non-financial information. Environmental Management System has been audited within the scope of ISO 14001: 2015 standard under DAkkS accreditation by TÜV SÜD. See Independent Assurance Report İşbank's Senior management statement In the opinion of İşbank's senior management, this report includes all the topics in terms of value creation for the Bank's stakeholders while presenting a holistic evaluation of the Bank's financial and non-financial performance for the period between January 1st, 2021 and December 31st, 2021 and its plans for the future. The statement of responsibility regarding this report has been prepared as per the relevant legislation and presented on the KAP platform. The statement can be found on the Bank's corporate website. Contact The report is accessible via the Public Disclosure Platform (KAP) and on www.isbank.com.tr Please send your opinions and suggestions on the report to sustainability@isbank.com.tr. 4 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 5 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen An Overview of İşbank Widespread Shareholding Structure Deep-Rooted Banking Tradition Having a widespread shareholder base, İşbank has approximately 175 thousand shareholders, consisting of institutional and individual investors. 37.26% of the Bank’s capital is owned by İşbank Members' Supplementary Fund, the members of which are around 49 thousand employees and retirees. İşbank's Shareholding Structure** Atatürk Shares* 28.09% Free Float 34.65% İşbank, the first national bank of the Turkish Republic, was founded on August 26, 1924 in line with the decisions taken at the İzmir First Economics Congress by directives of Atatürk. Since the day it was founded, İşbank has been a brand synonymous with trust, dignity and reputation in the eyes of its stakeholders in national and international markets. Having undertaken pioneering roles and critical duties in economic life based on its founding mission, the Bank has not hesitated to take responsibility in difficult times. İşbank creates permanent value for its stakeholders in the medium and long term, as it does in the short term, with its deep-rooted and powerful business model. Innovative Banking for 97 Years İşbank has been operating in Turkey for 97 years with its sustainable and robust financial structure. Celebrating its 97th year in 2021, the Bank carries out its activities in line with the vision of developing innovative products, services and applications that meet the banking expectations of the future through pioneering practices within the sector. There are many innovations that İşbank has introduced to the banking sector. Introducing the first ATMs to Turkey, İşbank's ATM named "Bankamatik" has become a brand. İşbank was the first bank in Turkey to offer the Internet branch and mobile banking application to its customers. Increasing its investments in technology every year, İşbank has also made a difference in the sector in next-generation digital banking applications. For detailed information, please see Subsidiaries on page 63 and Direct and Indirect Subsidiaries on page 64. İşbank Members' Supplementary Pension Fund 37.26% *These shares belong to Atatürk and are represented by the Republican People's Party in accordance with Atatürk's will. Since the dividend income of these shares was left to the Turkish Linguistic Society and Turkish Historical Society in accordance with Atatürk's will, dividend payments are made to the aforementioned institutions within the framework of the will and legal framework. **The shareholding structure is provided as of 31.12.2021. (31.12.2020: Pension Fund 37.08%, Atatürk Shares 28.09%, Free float 34.83%). Corporate Profile As one of the most reliable financial institutions in Turkey, İşbank plays a role in building the financial futures of millions of customers through its digital service channels and service network throughout the entire country. İşCep (the mobile app), Call Center, 6,476 ATMs in Turkey and the Turkish Republic of Northern Cyprus (TRNC), and 570,212 POS devices (including online POS). İşbank carries out cross border banking activities with 2 branches in Iraq, 2 branches in Kosovo, 2 branches in the UK, 1 branch in Bahrain and 14 branches in the TRNC as of the end of 2021. The Bank has 2 representative offices, one in Shanghai (China) and the other one in Cairo (Egypt). In addition to aforementioned, İşbank carries out banking activities via its subsidiaries in Germany, Russia and Georgia. İşbank Group is an integrated organization with domestic and international subsidiaries operating in many fields. As of the end of 2021, İşbank holds direct and indirect shares in 132 companies. The number of companies controlled directly or indirectly by the Bank is 109. İşbank, an organization synonymous with trust, consistency and dignity, works for an inclusive and environment-friendly economy with its sense of responsibility stemming from its history. As of the end of 2021, with 22,802 employees providing service to 20.7 million customers, İşbank is the largest private bank in Turkey with its total asset size of TL 926.6 billion. İşbank is amongst the most highly respected institutions of the banking sector with its products and services in corporate, commercial, SME, retail and private banking. İşbank provides services to its customers with 62 Regional Directorates and 1,174 branches in Turkey in addition to the Head Office in Istanbul, Tuzla Technology and Operations Center (TUTOM), Tuzla Atlas Data Center, and Ankara Operations Center (ATOM). Providing service through its branches and digital channels developed as a result of huge investments, İşbank continues to create value for its customers through its Internet Branch, 20.7 million Customers Strong and Sustainable Financial Structure 22,802 Employees İşbank has a strong, resilient and agile financial structure. As of the year-end 2021, İşbank's shareholder equity amounts to TL 86.8 billion and its capital adequacy ratio is 20.4%, well above the legal limit. The Bank reinforces its support to its customers by taking advantage of the opportunities created by its sustainable and strong financial structure. The biggest private bank in Turkey with total assets of TL 926.6 billion 8 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 9 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen İŞBANK'S VISION, GOALS, VALUES AND STRATEGY İşbank in Figures in 2021 Our Vision Becoming the bank of the future, creating sustainable value with an inclusive and participatory approach Our Strategic Goals Commitment to our country Strong and sustainable financial performance Efficient risk management Flawless customer experience Value creating technology and innovation leadership Happy and productive human resource Ethical and responsible banking compassionate towards people, society and the environment Our Values Innovation, Solidarity, Common Sense, Reliability, Sincerity, Transparency guided by the principles of "Intelligence, diligence, integrity, technical and methodical work" Our Strategy Managing our balance sheet to ensure sustainable and value-added growth while using our internal and external resources in accordance with the priorities of the country's economy and getting prepared for the future by continuously improving our business model along with our group companies and all our business partners in the period of technological transformation. TL 926.6 billion Asset Size TL 493.4 billion Cash Loans TL 595.6 billion Deposits TL 86.8 billion Shareholders’ Equity the leader among private banks 20.7 million customers 10.2 million number of total digital banking customers 1,174 domestic branches 21 overseas branches 97% local procurement rate 90% customer satisfaction score 30 thousand number of chess classes opened in schools 57 awards number of national and international awards 20.2 million number of users served by Bankamatik ATMs, including customers of other banks 36.6% share of Bankamatiks among total monetary transactions 85 thousand number of Geleceğe Orman (Forest for the Future) users 2.1 million number of Maximum Mobile users 2.6 million Social media followers 95.6% ratio of transactions out of total transactions made through non-branch channels in İşbank 439 thousand number of İŞ'TE KOBİ views (İşbank’s website for SMEs) 5.4 million number of credit card customers receiving digital credit card statements 79.1 million MWh the amount of clean energy generated through the projects financed by İşbank in the last 3 years 1,008 MW total installed capacity of renewable energy projects financed in 2021 Number of investments subjected to environmental and social risks assessment. Low Risk Sustainalytics ESG Risk Rating person*hours of total sustainability training hours CDP Climate Change Report Rating 55% Rate of women employees 44% Rate of women managers 2.01% Employee turnover rate 29.3 hours Average training time per employee 98% Unionization rate Infrastructure - Public Private Partnership / Highway Projects Infrastructure Projects financed by Isbank. Infrastructure - Public Private Partnership / Public Health Campus Projects Investment amount: Remaining Commitment: USD 23.3 billion USD 0.4 billion Reached Infrastructure Capacity Toplam 1,266 km the total length of roads Total Risk: USD 1.6 billion Investment Amount: Remaining Commitment: USD 3.4 USD 0.06 billion billion Reached Infrastructure Capacity: Total 9,217 Beds in Total Total Risk: USD 0.7 billion 10 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 11 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen İşbank from 1924 to Today 1990s İşbank further solidified its position as the sector's pioneer in alternative distribution channels when it launched "Mavi Hat (Blue Line)" in 1991 and the first online banking branch in 1997. 2000s Maintaining strong and stable growth, İşbank relocated the Bank's headquarters from Ankara to İstanbul in 2000. In 2006, İşbank initiated the Transformation Project that aimed at restructuring a customer-focused approach in line with its strategic goals. As a result, the Bank successfully completed many projects, which was referred to as a structural revolution. In the light of rapid advances in technology, İşbank continued to improve the innovative multichannel banking network, allowing customers to utilize the most suitable channel to perform all banking transactions conveniently, quickly and reliably on a 24/7 basis. 1920s and 1930s İşbank, the first national bank of the Turkish Republic was established on August 26, 1924 in line with the decisions taken at the İzmir First Economics Congress with Atatürk's directives. Expanding to a country-wide branch network throughout Turkey upon its foundation, İşbank was the first Turkish bank to establish branches abroad, with the first international branches opened in Hamburg, Germany, and in Alexandria, Egypt in 1932. 1950s The Bank extended its portfolio of subsidiaries. As the Bank's subsidiaries became the drivers of Turkish industry, the Bank invested in and financed numerous industries, with a focus on manufacturing. 1980s In the 1980s, İşbank increased the number of its overseas branches. For İşbank, the 1980s were characterized by the growing importance of multichannel banking, and the Bank started offering an even broader range of products to its customers. In 1982, İşbank introduced the first ATMs to Turkey, and its ATMs named "Bankamatik" became a brand. 1960-1970s In the 1960s and 1970s, İşbank focused on extending its branch network. 2010s Initiating the customer-centered Digital Transformation Program with the vision of becoming "Turkey's Best Digital Bank", İşbank founded MaxiTech, its subsidiary, in Silicon Valley, USA in 2016 to support digital transformation. The "Workup by İşbank" Entrepreneurship Program was initiated in order to support high potential and technology-focused initiatives (Startups). In addition, the "Innovation Committee" was established at İşbank in order to spread the innovation culture and continue innovation processes without interruption. In 2018, İşbank continued to consolidate its leadership in digital banking by integrating the personal assistant application Maxi into the service platform, which rapidly achieved a record number of customer contacts. 2020s Under the extraordinary conditions of COVID-19 pandemic, İşbank demonstrated its support to households and companies through products and services provided. The Bank also maintained its success in providing long-term funds from international markets under favorable conditions and extended its support to the Turkish economy. İşbank went one step further in the world of innovation with the opening of the Shanghai Innovation Center. With TekCep service, Turkey's first open banking app, the Bank made it possible to track account movements at different banks via İşCep. 12 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 13 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Message from the Chairperson Getting ready to celebrate its 100th anniversary in 2024, İşbank is strongly prepared for the future with its innovative and technological practices in line with its mission, while fulfilling its responsibilities as a financial institution. Esteemed Stakeholders, İşbank and its subsidiaries are a large group that supports the sustainable growth and development of Turkey with the products and services they offer for export and manufacturing, as well as the employment they create. Parallel to the mission of ensuring the economic independence it has assumed since the early years of Turkish Republic the Bank has always offered its resources for the primary economic needs of the country. İşbank has acted with a long-term perspective and inclusive, participative approach for all the actors of the economy throughout its history. Getting ready to celebrate its 100th anniversary in 2024, İşbank is strongly prepared for the future with its innovative and technological practices in line with its mission, while fulfilling its responsibilities as a financial institution. İşbank Banking As we have seen more frequently in recent years, climate change which can lead to natural disasters and migration, has begun to gain more importance as a real and financial risk factor within the framework of increasing sensitivity to global problems along with the pandemic. The financial sector stands out due to its transformative power in terms of the measures to be taken against climate change and its effects. As an institution that is aware of its responsibilities in this field, we plan our activities in a way that will increase both the current product range and the financing we provide with the approach of “creating shared and sustainable value". We embody this approach in our business model that we name "İşbank Banking", and accordingly use all capital elements efficiently and effectively. We cooperate with our customers in order to create more value added and ensure that the digital transformation in the economy spreads to all sectors. We maintain our strong financial support to SMEs, the most important components of our economy. Each year we enlarge the extent of our products and services that will enhance the participation of women and young people in the economy. We take initiatives in order to eliminate the destructive impacts of climate change and introduce the opportunities of the transition economy to our customers. Sustainability is one of the main focal points of our corporate strategy In our credit processes, we have been analyzing environmental and social risks since 2012. We continue to focus on expanding this process in a way that will not be limited to investment projects over a certain amount. By identifying the environmental and social risks of our customers, we aim to contribute to their green transformation and encourage them. We contribute to the mitigation of the risks and impacts of climate change by financing renewable energy projects. After 2015, we allocated all of the new project financing for electricity generation to renewable energy projects. We believe that increasing the participation of women enterprises in the economy and increasing the number of women in the workforce are the key elements to sustainable development, and we work in this direction. As a signatory of the United Nations Women's Empowerment Principles (WEPs), we have reinforced our stance in many areas, from providing finance and training activities for female entrepreneurs to the egalitarian attitude that we have displayed in our workplace. We believe that conducting our activities by taking these internationally approved principles into consideration will create significant added value. We adopt an approach that combines digitalization and sustainability in agriculture and thus bringing agriculture, technology and finance together. We aim to create an effect on food safety and resource productivity with our activities in this field. Considering the social benefit, as well as the needs and expectations of all its stakeholders, İşbank relates the outputs from its value creation process with the United Nations Sustainable Development Goals that it has contributed to, and demonstrates its support for global goals. We position sustainability, which we have internalized with the corporate culture, as one of the main focal points of our corporate strategy. The Bank carries out all of its activities to this end with the involvement of all İşbank employees and under the leadership of its Board of Directors. 14 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 15 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen We adopt an understanding that takes the needs of all segments of society into account. While designing our products and services as well as our social responsibility projects, we adopt an understanding that takes the needs of all segments of society into accout. Since our establishment, we have acted with an understanding to create inclusive, sustainable and shareable social and economic value. We undertake social responsibility projects in various fields, such as education, culture, art and the environment. In our projects that are designed to create long-term benefits, we prioritize activities that support the education and life quality of our children whom we will entrust our future. We have been the main sponsor of the Turkish Chess Federation since 2005. With the support we provide, we aim to help raising generations who are able to think and approach problems analytically, and develop strategies, while making chess an easily accessible sport to our children and youth all over the country. Our decision to extend this support for another 5 years indicates the importance that we attach to education and social development. Within the framework of sponsorship, the total number of chess classes opened throughout the country has reached 30,000, and the number of licensed sportspersons has reached 1 million. We have given away 14 million printed books to primary students so far within the scope of the “One Million Books, One Million Children” Campaign, now in its 15th year. During the pandemic, we uploaded books to the digital platform in 2020 and 2021. In addition, the books were also printed in the Braille alphabet and sent to the schools providing education for the visually impaired. In cooperation with Darüşşafaka since 2008, we have continued to support "81 Students in 81 Cities" project, which is one of the most comprehensive and long-term projects in the field of education in the country. Within the scope of the project, nearly 750 students, including 296 students in 2021, have graduated so far. The students, whose education expenses in Darüşşafaka are covered by İşbank starting from the 5th grade, continue to receive support during their university years, as well. With the revenue obtained from the İş Portföy TEMA Variable Fund, the first environmental fund to adopt the principle of investing in environmental-friendly companies, we support the Environmental Education Programs of the TEMA Foundation. With the programs designed specifically for preschool and elementary school children, we create opportunities for them to spend time in nature, to observe and discover nature to find out more about the earth they live on and increase their environmental awareness. In the 2021-2022 academic year, within the scope of environmental education programs, about 200 thousand children were reached in 81 cities. Recently, we have also initiated the Impact Entrepreneurship Program along with the Koç University Entrepreneurship Research Center KWORKS. The program aims to support the scaling of technology-based initiatives that create an environmental and social impact on areas such as quality education, healthy and quality life, climate, accessible and clean energy, sustainable cities and communities. In this way, we will contribute to the sustainable solution-making process for environmental and social problems. order to carry our Bank and our country into the future with this sense of responsibility and create value by combining our experience from the past with strong human and financial capital and taking advantage of the opportunities provided through technology and digitalization. For a brighter future, we will maintain our multifaceted contribution and support to all our stakeholders, particularly our children. I would like to take this opportunity on behalf of our Board of Directors to thank all our stakeholders, especially İşbank members, who have contributed to the success of our Bank so far by adhering to the principles set forth by our Founder, Mustafa Kemal Atatürk. We Take Responsibility for a Brighter Future Yours sincerely, The negative impacts of the pandemic and climate change serve as a kind of warning for the future for every country and institution. Reassessment of the distribution of scarce resources and transition into inclusive and sustainable economic growth models planned with a long-term perspective have become an agenda that is more urgent than ever before. Strong institutions and qualified human resources are needed for this economic transformation. As old as our Republic, our Bank successfully managed crises and fluctuations throughout history and took on essential responsibilities in hard times. We will continue to work in Adnan Bali Chairperson 16 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 17 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Message from the CEO We fulfill our responsibility in building an inclusive economy that takes care of the welfare of all segments of society. Therefore, we have set out the theme of our first Integrated Annual Report in 2021 as "We Take Responsibility". Esteemed Stakeholders, The economic, social and cultural impacts of the pandemic still continue in the world. The global economy has made a rapid recovery in 2021 thanks to the widespread vaccination and the economic measures taken. However, despite the recovery in economic activity, disruptions in the supply chain and increased energy and commodity costs led to a rise in the inflation indicators on a global scale. As of the second half of 2021, normalization in monetary policies began in many countries depending on the deterioration in inflation expectations. The global economy is expected to maintain its growth in 2022 with a slight deceleration. Economic activity in Turkey gained momentum as a result of the positive impact of domestic and international demands in 2021. On the other hand, a significant increase in inflation was recorded due to both domestic dynamics and inflationary pressures in the world. In this period, in spite of the strong growth and the positive picture drawn by the export performance, both global and domestic conditions for the Turkish economy have become more challenging in terms of price stability. The banking sector, on the other hand, managed the risks successfully with its strong financial structure while maintaining its continuous financial support to the national economy in an environment where instability has increased in financial markets. We take responsibility İşbank continues to work in line with the mission of "reinforcing the political independence of the Republic of Turkey with economic independence" spelled out by Mustafa Kemal Atatürk. The economic challenges stemming from the pandemic and the negative effects of climate change are felt deeply in our country and around the world, and this makes an inclusive, fair and green transition necessary. In this difficult period that we are experiencing these days, as an institution aware of its responsibilities, we make our short, medium, and long term plans to include the actions that will create an effect and contribute to our livable common future. Accordingly, we fulfill our responsibility to build an inclusive economy that looks out for the well-being of all segments of society. Therefore, we have set out the theme of our first Integrated Annual Report in 2021 as "We Take Responsibility". We continued to create value with our strong financial performance In 2021, the 97th year of our Bank, we continued to support the national economy with the products and services we provided to the real sector and households. We successfully completed a year which was challenging all over the world. With our total assets reaching TL 926.6 billion as of year-end, we have maintained our position as "the biggest private bank in Turkey". In 2021, we also maintained our leadership among private banks in terms of credits, deposits and shareholder equity, as well as total assets. With our cash loans reaching TL 493.4 billion as of year-end 2021, the total equity we provided for the economy through non-cash loans increased to TL 193.4 billion. The total financing provided to SMEs, one of the most important components of our economy, in the form of cash and non-cash loans reached TL 135.7 billion as of 2021. In 2021, we also took important steps to diversify the products and services we offer to households while expanding the presentation channels. We increased our business volume in private banking by using all channels effectively, especially digital ones. Our total retail loans reached TL 109.7 billion with an increase of 27.2% compared to the previous year. Our Bank, which is known as an institution synonymous with trust, prestige and dignity by all its stakeholders, has become the first choice of account owners this year once again. The total deposit volume reached TL 595.6 billion at year-end 2021. We maintained our market share leadership amongst private banks in terms of total deposits, commercial deposits and demand deposits. We build the bank of the future Approaching our 100th anniversary, our target is to build the bank of the future with its business model, organization structure, service concept, competencies of employees, and technological infrastructure. While standing out as a leader in utilizing technology and digitalization in the most convenient way, we focus on establishing a young, dynamic, modern banking concept that is ahead of its time with the help of our powerful balance sheet performance and the contribution of our sustainability activities. While establishing an innovation center across a wide geography from Silicon Valley to China by adapting digitalization to all our processes, we have determined it as our main priority to provide quality and customized banking services to meet the expectations of our customers with a flawless digital experience with our investments in technology. We broke ground in fields such as "Open banking", "platform banking", "invisible banking", and "personalized banking with artificial intelligence" that have the potential to change the conventional banking concept. Within this framework, the number of digital banking customers, which was 9.2 million at year-end 2020, surpassed 10 million in 2021. In the same period, the number of our mobile banking customers reached over 10 million. The ratio of comparable transactions made through our non-branch channels to total transactions reached 96% in 2021. We continue to support next-generation entrepreneurship We act with an inclusive and holistic approach in the field of entrepreneurship, one of our areas of focus. When we consider that entrepreneurship positively affects economic growth, we believe that a story of growth can be written through entrepreneurship in Turkey. Our Bank, which has supported entrepreneurs since the first years of its establishment, maintains its effectiveness in the entrepreneur ecosystem with a broad perspective. 18 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 19 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Solid value suggestions that we have made for next- generation entrepreneurship in the last 5 years also continued to increase in 2021. The 8th term of our Workup Entrepreneurship Program was completed successfully, and the 9th term was initiated with 12 startups. Thus, the number of startups accepted to the program reached 119 while the number of graduates in 8 terms was 81. We launched WorkupAgri, a vertically oriented entrepreneurship program for the first time in 2021. With this program, we aim to increase the value proposition offered by our Bank to its customers and contribute to the country's agriculture in the field of digitalization with sustainable solutions. With the ARYA Women’s Investment Program, we continue to support female entrepreneurs to help them access investment and put technological business models into practice. In this context, we reached 270 female entrepreneurs. Maxis Innovative Venture Capital Fund, in which our Bank invested by undertaking funds transfers up to TL 100 million, has invested in another 2 Workup graduates this year. The number of ventures the Fund invested in reached 5. We opened our İstanbul Entrepreneurship Branch in November 2021, which will serve our focus as the bank of the future by bringing the impact and footprint created by our Bank in the entrepreneurship ecosystem to our main focus of activity. We offer a broad value proposition that includes non-financial products and services, as well as a team who is able to speak a common language with startups at our branch, meet their needs and expectations that distinguish them from other customers, and offer products and services that fit into their life stages. We support green transformation in economy We encourage green transformation in economy to take advantage of the opportunities while considering the risks and opportunities caused by climate crisis, not only in terms of our own operations, but also in terms of our customers with our transformative power. We carry out important studies for transition to renewable energy resources that play a significant role in eliminating the negative impacts of climate change on people and the environment. In 2021, the share of renewable energy projects in our total energy generation projects portfolio was 71%. The total installed power size of the number of renewable energy projects financed reached to 10,886 MW. We mediate our customers' green transition with our loans such as "Green Mortgage", "Solar Loan by İşbank", "Energy Efficiency Loan", "Marine Conservation Loan". We aim to encourage our customers to make more environmental-friendly choices with the "Geleceğe Orman (Forest for the Future)" project, which was launched in September 2021 and integrated into İşCep, our mobile banking app. Within the scope of this application which reached 100 thousand participants in a short period of six months, participants donated 1,250 saplings to the TEMA Foundation. I interpret this as a good indicator of behavioral change in our customers. We finance transformation where agriculture meets technology During the pandemic, we have witnessed how risky it may become to meet agricultural and food needs when disruptions occur in the supply chain. Agriculture is one of the most critical sectors of countries. We believe that the agriculture sector, in which we have a competitive advantage thanks to our country's geographical and natural conditions, should be developed. Given its added value in terms of the economy, we place agricultural banking among our strategic priorities. Our activities in this field are based on financing the transition of producers by combining finance and technology efficiently. Within this framework, we offer innovative products and services, such as ImeceMobil, to support this transition, and build it on structures that are specially designed with narratives where producers and consumers meet. With our intensified efforts in recent years, the number of agricultural banking customers increased by 18% to 357 thousand in 2021, and the cash loans provided increased by 54% to approximately TL 10.5 billion. Moreover, the number of stations within the scope of the "Digital Agriculture Solution", which was 134 at the end of 2020, increased to 224 in 2021. We provided a total of TL 57 million in economic benefits with the early warning and irrigation, fertilization and spraying recommendations made to 13,200 farmers. The farmers, who benefited from the irrigation, fertilization and satellite- supported special services of the ImeceMobil application, saved 2,100 tons of water per 10 decares. We are on our way to "Leadership in Payment Systems" One of our strategic priorities is "Leadership in Payment Systems". Within this framework, in 2021, we implemented the organizational change bringing together all marketing functions of payment systems. In line with our strategy to create a payment system ecosystem, we launched the Pazarama brand. By increasing the number of credit card customers above the sector, we became the bank with the biggest share gain among our competitors. We held the top position among private banks in commercial credit card shopping turnover market share by continuing the pace we achieved in 2021 through the end of the year. Our employees are an integral part of our vision for the bank of the future Our employees constitute an integral part of our vision for the bank of the future. We continue to invest in cutting-edge learning technologies in order to provide our employees with the competencies of the future. In 2021, we launched the Data Analytics Development Program, which is available to all our employees and aims to promote the competencies in data analytics and artificial intelligence. A total of 8,350 employees participated in this program, designed to support talent transformation in analytical and digital roles, and they received over 70,000 hours of training. Our "New Digital Learning Infrastructure" project is also ongoing. With the new infrastructure, personalized trainings will be presented based on an artificial intelligence-based suggestion system, and our employees will have easier access to the contents. Esteemed stakeholders, The effects of the coronavirus outbreak and climate change on health, social life, the environment, and the economy reminded us once again of the fragile balance our civilization was built on, and how important it is to work together to make it more resilient. The need for all institutions and organizations to take responsibility to build a sustainable future became clearer as we should take lessons from our experience in this process. İşbank, an institution synonymous with a sense of trust, which will celebrate its 100th year in 2024, will continue to support the country's economy and stakeholders as it always has. We shall fulfill our responsibility for our country, our society, and a more livable world today, as we did yesterday. I would like to take this opportunity to thank all of our business partners and stakeholders for their invaluable support and trust, as well as all of the İşbank employees who always work with great dedication and integrity. Yours sincerely, Hakan Aran Chief Executive Officer 20 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 21 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Looking into the Future Operating Environment: General Evaluations Global Economy In the second year of the pandemic, the world economy recovered rapidly, thanks to a lower impact from the pandemic and the ongoing support of the economic measures taken. According to IMF data, the global economy, which contracted by 3.1% in 2020, is predicted to have completed 2021 with a growth of 5.9% and expected to continue growing in 2022, though at a slower pace. On the other hand, supply shortages, which became a serious problem as a result of this rapid recovery while the pandemic conditions persist, as well as rapidly increasing food and energy prices due to the problems caused by climate change, have exacerbated inflationary pressures on a global scale. The annual rate of increase in producer prices has reached double-digit levels in many countries, and annual consumer price inflation has reached the highest levels since the 90s in leading economies such as the USA and Germany. The inflationary world outlook strengthened the expectations that the leading central banks could begin earlier to the normalization process in their monetary policies . In fact, during its November meeting, the US Federal Reserve (FED) opted to reduce its asset purchase program by USD 15 billion on a monthly basis, and increased the amount of cuts to USD 30 billion in December. In this environment, developing countries have adopted a more cautious stance in their monetary policies. The novel coronavirus variant omicron, which emerged in the last weeks of November and raised concerns, also has a negative impact on global economic activity expectations, causing fluctuations in global risk perception. In 2022, along with the pandemic, the course of supply-side constraints, inflation trends, and central bank policies in developed countries will be the main factors that shape the economic outlook. Turkish Economy In 2021, the Turkish economy grew by 11% annually with the substantial contribution of consumption expenditures and exports. In the first half of the year, investment expenditures also contributed significantly to growth. The amount of monthly exports, which surpassed USD 20 billion for the first time in September, were above this level in the final quarter of the year. Turkey's total export volume, which was USD 169.6 billion in 2020, reached USD 225.3 billion in 2021. The budget displayed a positive outlook throughout 2021. The significant increase in tax revenues supported by the recovery in economic activity was behind this development. The budget deficit of TL 192.2 billion in 2021 was lower than the TL 230 billion forecast in the Medium Term Program announced in early September. However, the rapid monthly rise in budget deficit drew attention in December, when financial market volatility increased significantly. The external balance outlook improved in 2021 when compared to 2020. The current account balance had deteriorated due to the negative effects of the pandemic in 2020 and the current account deficit to GDP ratio was realized as 5%, the highest level since 2013. With a decrease in the foreign trade deficit and the recovery in tourism revenues in 2021, the current account deficit tended to decline. In 2021, the current account deficit decreased by USD 20.7 billion as compared to the previous year, and became USD 14.9 billion. In spite of the strong growth and the positive picture drawn by the export performance, the fact that both global and domestic conditions for the Turkish economy have become more challenging in terms of price stability in 2021 brought along a deterioration in risk perception, particularly in the last months of the year. Expectations that the FED would raise interest rates sooner than expected, rising global commodity prices, strong domestic demand and increased volatility in financial markets, particularly the depreciation of the Turkish Lira, caused inflationary pressures to increase throughout the year. The Central Bank of the Republic of Turkey (CBRT), on the other hand, reduced the policy rate by a total of 500 basis points to 14% at its meetings in September, October, November and December. Under such conditions, annual CPI inflation reached 36.08% in December 2021. In this period, annual D-PPI inflation was realized as 79.89%. The Turkish economy, which recorded rapid growth in 2021 as a result of the low base caused by the pandemic, is expected to normalize in 2022, while rising inflation is expected to remain a significant factor. Banking Sector* In the second year of the pandemic, the banking sector contributed significantly to the recovery in economic activity. The volume of Turkish Lira loans, including loans to the financial sector, increased by 20.7% in 2021, reaching TL 2,675 billion by the end of 2021. In the same period, the volume of FX loans fell to USD 149.4 billion with a decrease of 7.1%. Accordingly, the total loan volume expanded at a rate of 36.5% in 2021 and reached TL 4,648 billion. According to the FX rate adjusted figures, the total loan volume expanded by 11.0% in this period. In 2021, according to the Monthly Bulletin data published by the Banking Regulation and Supervision Agency, the volume of TL deposits including bank deposits reached TL 1,819 billion, increasing annually by 20.0%. The volume of FX deposits in USD terms decreased by 0.7% in this period and was realized as USD 238.2 billion. As a result, total deposit volume increased by 51.0% compared to 2020 and reached TL 4,964 billion in 2021. According to FX rate adjusted figures, the annual increase in total deposit volume was 8.8%. * Calculated using monthly sector data published by the Banking Regulation and Supervision Agency, with participation banks excluded from sector figures. 22 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 23 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Risk Forecasts for 2022 and Beyond İşbank The course of the pandemic, geopolitical developments, and the monetary policies pursued by developed countries are projected to be the primary factors to influence global growth in 2022. In this direction, in the face of rising global inflation, central banks in developed countries are expected to tend to tighten their monetary policies, and new and effective variants of the COVID-19 pandemic continue to pose risks to global economic activity. The risks associated with maintaining capital adequacy against rising domestic inflation and exchange rate volatility, as well as managing asset-liability composition in terms of maturity, foreign currency type, and profitability dimensions, are projected to come to the forefront. These evaluations are included in the footnotes of the financial statements. In addition to the additional measures taken by public authorities to combat the negative impacts of the COVID-19 pandemic on the economy and financial stability, new regulations that have recently become effective have a growing impact on behavior and compliance risks throughout the banking sector. With the impacts of the increasing variety and number of transactions with ongoing digitalization, widespread remote working models, and customers' orientation to interactive channels during the pandemic period, it is observed that the risks of information technologies, cyber security and data protection are on the rise on a global scale. In addition, the risks that may arise from organizational changes caused by remote and hybrid working models, which have become widespread throughout the sector, should be closely monitored. Natural disasters pose a significant risk in terms of their impacts on human life and the amount of physical damage they can cause on monetary assets. Furthermore, climate change has become one of the major global risks threatening human life as well as financial stability due to its negative impact on the economy, markets, and ecosystems, the natural disasters that it may cause, water and food crises, and migration waves. Measures to be taken within the scope of combating climate change are expected to rise both globally and in our country. Fundamental factors such as the sector's balance sheet entering a cautious and balanced growth period as well as the narrowing of the net interest margin compared to 2020 shaped the operating environment for 2021. In order to achieve sustainable profitable growth, İşbank continued to manage its balance sheet in 2021 with a risk-oriented and dynamic approach, while maintaining its balance sheet composition shaped by itsproactive approach taking into account market developments. Aİşbank continued to support the real sector and households with all its means in 2021, a year in which the conditions evolved differently compared to expectations. With 10.9% market share in total assets With 10.6% market share in total loans With 12.0% market share in total deposits 1. * 1. * 1. * *Market share calculations are based on BRSA weekly data; participation banks are excluded. Market share of total assets is calculated in accordance with BRSA monthly data. Ranking among private banks. 24 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 25 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Global Tendencies, Risks, Opportunities and Forecasts We left behind 2021, when the impact of the COVID-19 pandemic continued, extreme natural events and disasters caused by climate change were in the news every day, global economic fluctuations occurred, and the most economically fragile/vulnerable segments of society felt the effects of this process deeply. All these developments have led businesses to revise their working approaches, strategies and values. It became evident that all institutions should redefine their risks and opportunities for ensuring sustainable development. İşbank, which has a deep-rooted corporate structure, has witnessed many critical periods throughout its history and gone through these periods successfully thanks to its risk management approach and visionary management. İşbank closely monitors all global developments that have a potential to affect its activities. Managing its financial and non-financial risks with a holistic perspective, the Bank evaluates its risks and opportunities through a variety of formal and informal processes. 1- Green Transformation: It is expected that 2022 will be a year in which more serious environmental measures will be taken, and expectations from banking sector will increase throughout the World. With the transformation in the financial sector, it is an increasingly common practice for investors toevaluate banks not only on their financial performance, but also on the carbon impact of their balance sheets. National and international regulatory agencies direct banks to identify and report the environmental, social and economic impacts of their customers. It is encouraged to shift loans from polluting sectors to companies and sectors that support the transition economy and provide social benefits. Many banks, including İşbank, make net zero carbon emission commitments regarding the emissions caused by their own operations. However, the most important step that banks can take to stop the impacts of climate change is to provide the resources needed to finance the transformation. Considering the comprehensive ESG (Environmental Social Governance) performance indicators in lending activities, compliance with the new regulations created for the transition to a green economy, purification of loan portfolios from polluting sectors, creation of human resources can manage these processes, and new reporting obligations are all important risks that banks will face in the green transformation process. However, the green transformation also offers important opportunities for the global economy and banks. The amount of investment required to reach the net zero target globally in the next 30 years is estimated to be USD1 150 trillion. In order to finance the transformation, a number of institutions and organizations collaborate to develop innovative methods and technologies. The number of new employment opportunities and creative business lines in this field are growing on a daily basis. İşbank supports green transition in line with its sustainability approach. In line with its long-standing responsible portfolio management approach, the Bank monitors ESG indicators in its lending activities, diversifies the financing resources it has generated in this area as a result of its cooperation with international organizations, and takes into account climate risks in its business processes and credit evaluations. 2- Innovation: Changing customer expectations and needs make a radical transformation inevitable in the banking sector. Digitalization, which has become a necessity in the sector, does not generate revenue growth and differentiation on its own. For this reason, banks identify the areas where innovation is most needed in their operations and products and seek out partnerships in those areas. Supporting common platforms, strengthening cooperation with fintechs, and reaching out to groups that have not been served before are prominent trends in the field of innovation. Factors such as not establishing the correct cost-return balance, being late in catching up with the developments, and the institutional culture that does not support innovation constitute the risks in innovation. İşbank is a crucial actor in next-generation banking activities with its vision of being "the Bank of the Future". Innovation is among the main business strategies for İşbank, which launched many pioneering applications in the field of innovation, such as ATMs named "Bankamatik", the first internet branch, etc. While increasing its corporate innovation capacity with its agile transformation projects, İşbank closely monitors global developments with the centers it has established in different parts of the world. The Bank also implements many projects to support entrepreneurship. 3- Customer-Oriented Banking: A study2 by Accenture3 conducted in 2021 reveals that customers' trust levels in their banks to secure their long-term financial well-being fell from 43% to 29% between 2018 and 2020. Although there are numerous causes for this issue, the decrease in the frequency of one-to-one meetings with customers due to increased digitalization also plays an important role. Digitalization allows for fast, reliable, user-friendly services that are accessible 24/7. However, as a result of increased digitalization, customers' communication with their banks decreases, and they cannot access appropriate guidance and advices on financial services. This development negatively affects customers' financial well-being, reduces the differentiation between banks and customer loyalty. İşbank evaluates the opportunities that digitalization provides regarding accessing financial services along with the risks it creates. The Bank develops practices to maintain its trust- based and warm relationships with its customers through its customer-oriented banking approach. İşbank's digitalization approach bases on the motto "technology next to people, not instead of people." İşbank employees, who are specialized in their fields, also offer the guidance and advice that their customers need through digital solutions. For more information on İşbank's detailed performance and goals on innovation, please visit the "We Take Responsibility for Next- Generation Banking" section. In order to learn about İşbank's practices on customer-oriented banking, please visit the "We Take Responsibility for Inclusive and Solid Economy" section. 4- Risk Management and Compliance: Every day, banks are confronted with a more complex, interconnected, and dynamic risk environment. Cloud technologies, artificial intelligence, climate change, blockchain technology advancements, cyber security, and digital assets all require a new risk approach. Difficulties in obtaining the data needed for risk measurement, as well as situations such as a lack of qualified human resources may cause consequences such as non-compliance with the legislation and inability to manage risks efficiently in banks. Many developments, such as the EU Green Deal and the process of adapting to the outcomes of the Paris Climate Agreement, pose significant compliance risks for both banks and their customers. Bank risk matrices need to evaluate these new risks as comprehensively as mature risks and cooperate with customers in this regard. İşbank has a deep-rooted corporate risk management and compliance culture. The Bank manages financial and non- financial risks together and ensures the compliance with laws, regulations and voluntary standards. For more information on İşbank's detailed performance and goals on green transformation, please visit the "We Take Responsibility for Climate Action" section. For more information on İşbank's performance on risk management and compliance, please visit "We Take Responsibility for a Transparent Management" section. 26 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 27 1Fighting climate change is a $150 trillion battle: Bank of America report Banking Consumer Study: Making digital more human 2Accenture Banking Top 10 Trends for 2022 3 Accenture PLC is a global management consulting and professional services company offering strategy, consulting, digital, technology and operations services. In this section, İşbank’s stance towards the 7 most important global trends affecting the banking sector is discussed.Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen How Do We Create Value? Following the War of Independence, the Republic of Turkey experienced economic and social hardships. In this period, the need for a national institution that could finance the branches of economic activity, contribute to the start of the industrialization movement, and establish a national banking system was felt deeply. Carrying out banking transactions, initiating industrial development, mobilizing national savings, financing basic economic breakthroughs and meeting credit needs were all crucial activities for a newly established country. Adapting to the rapid changes in the world following World War I, accomodatingto new technologies and criteria, and training the workforce to keep up with these changes were among the challenges İşbank experienced. Since the day it was established, İşbank has continuously grown stronger without deviating from its goals and has become a trustworthy brand of ethical and deep-rooted banking on a national and international scale. Today, İşbank continues its activities by adhering to modern banking principles, providing financing for solutions to Turkey's and the world's problems, and supporting an economy that will generate shareable and long-term value for all. The Bank has taken responsibility for inclusive and sustainable economic growth since its establishment. This responsibility approach is embodied in the business model that we call İşbank Banking, which focuses on "creating shareable and sustainable value". Our Business Model: İşbank Banking İşbank Banking is a business model that combines financial and non-financial capital elements with the goal of "producing shareable and sustainable value". With this model, the Bank aims to create value for all its stakeholders both in the short and long term. The value creation model, called "İşbank Banking”, which allows integration of the Bank's sustainability priorities into all decision-making processes, reveals the Bank's understanding of sustainability and the integration of sustainability into business processes. İşbank has positioned sustainability, which is the basis of its business model, as one of the main focal points of its corporate strategy and carries out all its activities in this direction with the participation of all its employees under the ownership of senior management. Looking out for social benefit, as well as the needs and expectations of all its stakeholders, İşbank relates the outputs from its value creation process with the United Nations Sustainable Development Goals that it has contributed to, and demonstrates its support of global goals with the approach of shareable and sustainable value creation. 5- "0" Operation: The fact that artificial intelligence and machine learning have begun to outperform human capabilities in some specific and restricted tasks causes a paradigm shift in the banking sector. In terms of operational activities, these technologies are expected to be applied to a broader area in 2022 and beyond. Banks can now continue their operations with less waste, cost, delay, and error thanks to this process, which is defined as "0" operation. This restructuring, also known as resilient by design, contributes significantly to operational sustainability. Banks define new workflows with these developments, which will result in changes in organizational structure. In these processes, which are carried out in parallel with digitalization, the problems that may occur in cyber security and information technology infrastructure constitute the most important risk. İşbank, in all its operations, adopts targets based on efficiency. Paperless office practices have an important place in the digitalization journey. The Bank integrates artificial intelligence and machine learning into its operations. The resources allocated for information security are being increased every year. 6- Access to Talent: The changing expectations of the new generation employees and the trends of remote working, which have become widespread with the COVID-19 pandemic, have redefined the working life in all sectors. According to the studies, young employees prefer work environments that are goal- oriented, provide social and environmental benefits, and allow employees to express themselves and make a difference. The banking and finance sector, which historically has attracted young talents, struggle to maintain its competitive advantage in this field. Many industries are seeking out experts in fields such as cyber security and machine learning. Furthermore, the "great resignation" wave, which had a particularly strong effect in the USA in 2021, impacted the banking and finance sector, as employees from all levels quit their jobs. In this sector, where qualified employees create a competitive advantage, the inability of banks to access and protect talent poses a significant risk. İşbank has had a different corporate culture since its establishment. The Bank has been positioned as a highly preferred employer thanks to its internal promotion system, long-term employment policy, deep-rooted banking culture, and ethical understanding. İşbank's competent and highly company-dedicated human resources play a significant role in the Bank's corporate success. The Bank provides a variety of development programs to prepare its employees for the competencies of the future, develops agile working systems to meet changing employee expectations, and continues its communication efforts with universities by increasing. 7- Purpose Driven Brands: Developments such as changing consumer and employee expectations, as well as fintechs' competition with established banks due to the fact that it is getting easier to operate in the banking and finance sectors thanks to digitalization, increase the demand for purpose- driven institutions. Stakeholders today assess businesses not only on the services they provide, but also on the global problems they are trying to solve, the values they advocate, and their missions. This change carries both risks and opportunities for banks that interact with many different stakeholder groups. İşbank is an institution of the Republic of Turkey with its main mission being to support the country's growth since 1924, and delivers social benefits through its social responsibility projects, as well as the financing it provides for the economy. In today's marketing and service approach, where value communication is at the forefront, İşbank's clear vision and purpose gives it a significant competitive advantage. 28 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 29 For more information on İşbank's performance on "0" operation, please visit the "We Take Responsibility for Next-Generation Banking" section. For more information on İşbank's detailed performance and goals on access to talents, please visit the "We Take Responsibility for Our Employees" section.For more information on İşbank's detailed performance and goals on purpose-driven brands, please visit the "We Take Responsibility for Future Generations" section.Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Our Business Model: İşbank Banking CAPITAL FIELDS OF ACTIVITY OUTCOMES FINANCIAL CAPITAL HUMAN CAPITAL DOĞAL NATURAL SERMAYE CAPITAL INTELLECTUAL CAPITAL SOCIAL-RELATIONAL CAPITAL PRODUCED CAPITAL I S E I T I R O R P R E D L O H E K A T S | S R O T C A F L A N R E T X E | S D N E R T L A B O L G I G N K N A B E T A V R P I ETHICAL AND TRANSPARENT BANKING RESPONSIBLE FINANCING FLAWLESS CUSTOMER EXPERIENCE PERMANENT COMMITMENT TO TURKEY İŞBANK BANKING CREATING SHAREABLE AND SUSTAINABLE VALUE HAPPY AND PRODUCTIVE HUMAN RESOURCES SOLID FINANCIAL PERFORMANCE EFFICIENT RISK MANAGEMENT TECHNOLOGY AND INNOVATION LEADERSHIP | I G N K N A B E T A R O P R O C | I G N K N A B L A I C R E M M O C | I G N K N A B L A N O S R E P Total loans (cash and non-cash) TL 707.6 billion Return on Average Tangible Equity (%) 20 Capital adequacy ratio 20.4% Rate of women employees 55% Rate of women managers 44% Employee turnover rate 2.01% Unionization rate 98% Share of renewable energy projects in total energy generation projects portfolio 71% Share of renewable energy projects in total financing 6.2% VALUE CREATED For investors and shareholders • Solid financial performance • Reliable investment with an ethical, transparent and responsible banking approach For customers • Financial support with responsible products and services • Access to financial services for all segments of society with inclusive products • Lifelong support with personalized products and services For employees • Reputable and reliable employment • Equal opportunities in human resources management • Decent, modern, healthy workplace environment for employees both physically and psychologically • Professional and personal development opportunity Number of digital banking customers 10.2 million Share of non- branch channels 95.6% For society • Contribution to social well-being with taxes paid • Contribution to the country's economy with the finance provided • Products, services and activities that contribute to combating climate change • Support for education and culture with long-term social investments • Support for increasing financial literacy Number of customers 20.7 million Customer satisfaction score 90% Total number of branches 1,195 Number of Bankamatik (ATMs) 6,476 30 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 31 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 2020 A Sustainability Committee was established, which operates under the Board of Directors. Sustainable Bonds Framework was formed. In line with "Science-Based Goals" (SBT), the goal of being carbon neutral was set. International ESG risk rating was obtained from Sustainalytics. The UN Women's Empowerment Principles (WEPs) were signed. United Nations Environment Program Finance Initiative (UNEP FI) Responsible Banking Principles were signed. 2016 İşbank was included in FTSE4Good Emerging Markets Indices. İŞBANK'S SUSTAINABILITY JOURNEY 2021 The first sustainability-linked syndicated loan agreement was signed. Sustainable Finance Framework was established. Renewable energy has started to be consumed in all of the Bank's operational areas where renewable energy is able to be supplied for electricity consumption. Environmental and Social Impact Evaluation Model "ÇESMOD" was developed. Gender Equality Policy came into effect. Climate Change Risk Policy was formed. CDP Water Safety Report was initiated. 2018 Tuzla Data Center was certificated with LEED v4 Gold for Data Centers. The first Green Project Financing Loan was provided. 2014 The Sustainability Policy, which includes Environmental and Social Impacts, Human Rights and Human Resources, Anti- Bribery and Anti-Corruption, Gifts and Hospitality Policies, was approved by the Board of Directors and put into action. 2017 The Declaration on Sustainable Finance was signed by Global Compact Turkey. Tuzla Technology and Operation Center was awarded the LEED Gold green building certificate. 2012 The first Sustainability Report was published. The UN Global Compact (UNGC) was signed. The "Environmental and Social Risk Evaluation Tool (ERET)" was developed to determine environmental and social risks in loan processes. 2019 The first 100% Green Eurobond transaction was issued by Turkish banks. The first Integrated Report was published. An Environmental Management System (ISO 14001) was formed with international standards. CDP Climate Change Report was initiated. 2015 Sustainable Management System was established. İşbank was included in the BIST Sustainable Index. İşbank Head Office building was awarded BREEAM In- Use Excellent certificate. Sustainability Priorities İşbank closely keeps track of sectoral and global trends in the fields of sustainability, regularly measures stakeholder expectations in this area, and also conducts risk and opportunity analyzes, as well as business processes. In 2021, the Bank updated its sustainability priorities in accordance with the AA1000 Stakeholder Engagement Standard in such a way that it reflected the opinions of İşbank employees and external stakeholder expectations with a large sample size. The 24 topics included in the Bank's materiality matrix were grouped under the headers of "Reliable Financial Actor", "Responsible Operations" and "Good Corporate Citizen". 1,326 Number of stakeholders participated in the prioritization study Prioritization Process 1. Creation of a prioritized issue universe: 4. Review of the issues: A broad issue universe was formed by considering corporate strategies, changing legislation and standards, sectoral practices, corporate engagements, global trends, and stakeholder expectations. The issue universe was reviewed under consideration of the Bank's current practices and priorities. Then, 25 sustainability priorities that affect İşbank's fields of activity were determined. 2. Determining the priority values of the issues: 2.1. Evaluation of stakeholder expectations: The expectations of key stakeholders in the field of sustainability from İşbank were determined as a result of comprehensive online surveys, evaluation of the results of expectation and satisfaction surveys organized for various stakeholder groups, and media research. 2.2. Influence on business strategies: The significance level of the influence of the topics included in the long list of topics on the Bank's business strategies was evaluated through comprehensive employee and manager surveys, corporate strategy and engagement requirements, and global trends. 3. Determining material issues: The 10 issues with the highest potential to affect İşbank's activities and stakeholder expectations were determined. • The identified prioritized issues were reviewed by the Investor Relations and Sustainability Division and senior management. • Key Performance Indicators were reviewed in order to report the performance in the identified focus areas. • The İşbank value creation model was assessed in terms of new focus areas. Reporting and business plans were created by reassessing the expectations of relevant stakeholder groups in focus areas, and target updates were madein necessary cases. 5. Evaluation of global trends: Within the scope of the prioritization work carried out, the risks and opportunities created for the Bank by the sustainability developments affecting the entire world were evaluated. Of the trends with a high potential to affect the global economy, 16 trends declared by the World Economic Forum, which may have an impact on the Bank's activities, were also evaluated in the scope of the surveys and researches carried out. Current practices were reviewed in terms of the trends with high risk and opportunity potential. 32 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 33 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen MATERIAL ISSUES MATRIX PRIMARY ESG ISSUES ACCORDING to STAKEHOLDER GROUPS e e t t i m m o C e v i t u c e x E s r e g a n a M s e e y o l p m E s s e n i s u B s r e n t r a P s r e i l p p u S s e i r a i d i s b u S s r e d l o h e r a h S s e v i t a i t i n I d e t r o p p u S s n o i t u t i t s n I l a i c n a n F i y t i s r e v i n U s t n e d u t S s t s y l a n A s n o i t u t i t s n I c i l b u P s r e m o t s u C s O G N PRIMARY HIGH PRIORITY TOP PRIORITY s r e d l o h e k a t S r o f e c n a t r o p m I 21 7 2 1 4 5 8 9 3 6 11 10 13 12 14 15 18 19 22 23 25 20 16 17 24 1 2 3 4 5 6 7 8 Financial Performance and Profitability Cyber Security and Customer Privacy Employee Rights, Commitment and Satisfaction Combating Climate Change Digital Transformation Employee Health and Safety Responsible financing and investment decisions integrating ESG criteria Risk Management 9 10 11 12 13 14 15 16 Compliance with Changing Legal Regulations Equal Opportunity and Diversity Business Ethics, Transparency and Reporting The Bank's Environmental Footprint Financial Inclusion Customer Centricity Emergency Action Preparation and Business Continuity Preferred Employer Importance for İşbank 17 Corporate Social Responsibility Responsible Product and Service Portfolio National and International Cooperation for Sustainability Responsible Procurement Financial Literacy Communication with Stakeholders Responsible Marketing Supporting Employee Volunteering Open Banking 18 19 20 21 22 23 24 25 Stakeholder groups expressing their opinions Analysts Personal Customers Rating Agencies Financial Institutions Group companies/Subsidiaries Shareholders and Investors Business Partners Public Institutions and Regulatory International Organizations and Initiatives Authorities SMEs and Business Segment Customers Corporate Customers Union Non-Governmental Organizations Suppliers Commercial Customers Universities and Interns at İşbank İşbank Board of Directors İşbank Executive Committee İşbank Managers İşbank Employees f o d r a o B s r o t c e r i D Emergency action preparation and business continuity The Bank's environmental footprint Supporting employee volunteering Employee rights, commitment and satisfaction Employee health and safety Responsible financing and investment decisions integrating ESG criteria Compliance with changing regulations Digital transformation Financial inclusion Financial literacy Financial performance and profitability Equal opportunity and diversity Combating climate change Business ethics, transparency and reporting Corporate social responsibility Customer centricity Risk management Cyber security and customer privacy Responsible marketing National and international cooperation for sustainability Preferred employer 34 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 35 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen MATERIAL ISSUES and REPORTING STANDARDS Issue Reporting Framework GRI SASB TCFD SDG UN WEPs Impact on Business Strategy Stakeholder Expectations Issue Reporting Framework GRI SASB TCFD SDG UN WEPs Impact on Business Strategy Stakeholder Expectations Emergency action preparation and business continuity Open banking The Bank's environmental footprint Supporting employee volunteering 302-1, 302-2, 302-3, 302-4, 302-5, 303-3, 303-5, 305-1, 305-2, 305-3, 305-4, 305-5, 306-2, 306-3, 306-5 Employee rights, commitment and satisfaction 202-1, 401-1, 401-2, 401-3, 402-1 403-1 ,403-2, 403-3, 403-4, 403-5, 403-6, 403-8, 403-9, 403-10, 407-1 304-2, 412-3, 413-2 206-1, 307-1, 419-1 Employee health and safety Responsible financing and investment decisions integrating ESG criteria Compliance with changing regulations Digital transformation Equal opportunity and diversity 201-3, 405-1, 405-2, 406-1 Financial inclusion Financial literacy Financial performance and profitability 201-1, 201-4 Combating climate change Business ethics, transparency and reporting 205-1, 205-2, 205-3, 408-1, 409-1, 410-1, 412-2, 415-1 Corporate social responsibility 203-1, 203-2, 413-1 Customer centricity 417-1, 417-2, 417-3 Communication with Stakeholders Risk management 201-2 Cyber security and customer privacy 418-1 Responsible marketing Responsible procurement 204-1, 308-1, 308-2 414-1, 414-2 Responsible product and service portfolio National and international cooperation for sustainability Preferred employer 404-1, 404-2, 404-3 36 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 37 Düşük Orta Yüksek Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Sustainability Management The Board of Directors of the Bank is the highest management authority in İşbank's sustainability management. The "Sustainability Committee" is the management body responsible for the Bank's sustainability activities. It is managed by the Chairperson of the Board of Directors, consists of two members of the Board of Directors and the Executive Committee, where all business units are represented, and enables a holistic follow-up of sustainability issues. The Deputy Chief Executive responsible for the Investor Relations and Sustainability function assumed the role of Sustainability Leader. Sustainability Committee Sustainability Coordinator Sustainability Leader Investor Relations and Sustainability Division Sustainability Working Group Loans Portfolio Management Risk Management Loan Allocation Financial Institutions Product Development and Marketing Strategy and Corporate Performance Management Purchasing Construction and Property Management Talent Management Human Resources The "Sustainability Committee", which enables tracking of sustainability issues in an integrated manner, is the management body responsible for the Bank's sustainability activities. The Investor Relations and Sustainability Division is responsible for monitoring developments in the field of sustainability, analyzing global trends and ensuring the coordination of these issues within the Bank. The risks related to climate change have been classified in the Bank's Risk Catalogue under strategic risks with the approval of the Board of Directors. The risk of climate change is also monitored by the Risk Committee, the Audit Committee, and the Sustainability Committee due to its importance. Financial and non-financial risks are reported monthly to the Risk Committee and the Board of Directors through the Audit Committee. İşbank reviews its activities, approaches and strategy in line with developing methodologies and global dynamics on a regular basis. The Bank has structured its perspective on sustainability and its activities in the fields of environment, social and governance under the "Sustainability Management System" it established in 2015, and has been developing this structure both in an organizational sense and with innovations in the end-to-end business model. İşbank's Sustainability Policy and other complementary policies form the basis for the functioning of the Sustainability Management System. You can find the policies that set forth İşbank's sustainability approach here. Continuous STAKEHOLDER EXPECTATIONS and İŞBANK'S RESPONSE Communication Frequency Communication Type Requests During the Reporting Period İşbank's Response Customers Branches, Bankamatik ATMs, Internet Branch, Telephone Branch and mobile banking channels, customer relations representatives, meetings, customer satisfaction surveys, social media Less waiting time and fast service Easy access Providing useful information and guidance Increasing functionality of digital contact points The current queue management application has been renewed so customers can follow the estimated waiting times in the branch where they will make transactions. In addition, since 2021, customers are able to receive a queue number through İşCep without going to the branch for their transactions. In order to provide customers with faster service through İşCep, they are now able to make money transfers with other details apart from IBAN. With the "transfer money with FAST system" feature, it is now possible to transfer money quickly. Customer experience is continuously monitored in all channels and customer expectations are considered. In 2021, customers were able to communicate with a customer representative to receive service through the İşCep App. Easy access to services is ensured with an extensive network of branches and Bankamatik ATMs. Branch representatives also provide services through a remote working model. With the İşCep "I Want to Become a Customer (MOI)" feature, those who want to become İşbank customers can now do so via video calls without going to a branch. İşbank maintains its position as the private bank with the most extensive Bankamatik ATM network. Bankamatik ATM devices are positioned to serve the highest number of customers. İşbank has initiated many practices within the scope of financial literacy. İşbank develops systems in order to deliver accurate information to its customers in all platforms. See Financial Literacy See Informing Customers Within the framework of the strategic cooperation with İş Portföy Yönetimi A.Ş. and İş Yatırım Menkul Değerler A.Ş., online Privia Economy Talks were held in the first 2 quarters of the year in order to inform private banking customers about current economic developments and expectations, as well as investment alternatives that may arise in volatile markets. İşCep is the banking app in Turkey with the largest variety of transactions. İşCep's variety of transactions has been increased and it now covers nearly all of the services provided at a branch or via the Call Center. As of 2021, temporary address changes can be made on card deliveries through İşCep, instant password (İşCep) can be received via video calls, and the receipt is displayed in a more practical way at the end of the transaction. For the changes made on İşCep in 2021 See Projects to Improve Customer Experience 38 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 39 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen STAKEHOLDER EXPECTATIONS and İŞBANK'S RESPONSE Communication Frequency Communication Type Requests During the Reporting Period İşbank's Response Communication Frequency Communication Type Requests During the Reporting Period İşbank's Response Customers Analysts Continuous Branches, Bankamatik ATMs, Internet Branch, Telephone Branch and mobile banking channels, customer relations representatives, meetings, customer satisfaction surveys, social media To receive personalized services İşbank's customers can personalize services such as İşCep and Robofon based on their preferences. Staff at İşbank's branches receive regular training to ensure that customers are offered products and services aligned with their financial needs. To be able to examine and monitor their financial status in-depth İşbank's branches provide their customers with detailed information about their financial status. Customers can also obtain information via İşCep and the Call Center. İşCep introduces personal finance management features to allow customers to examine their financial status in-depth and monitor it conveniently. On a yearly and quarterly basis Analyst days, investor meetings, investor presentations, teleconferences, communications of the Investor Relations and Sustainability Division, Integrated Report, Reputation Research More transparent reporting on non- financial performance İşbank Integrated Annual Report, integrating the Bank's financial performance with the ESG (Environmental-Social-Governance) performance, was published. Reporting was done for the Climate Change and Water Security Programs of the Carbon Disclosure Project (CDP). Subjects related to climate risks are based on the UNEP FI Scenarios. The Bank was included in the rating program of Sustainalytics and achieved an ESG risk score of 18.6, i.e. "low risk". Shareholders and Investors General Assembly and investor meetings, investor presentations, analyst and investor days, promotional meetings, teleconferences, daily communications from the Investor Relations and Sustainability Division, İşbank Investor Relations web page, Public Disclosure Platform (KAP), the Information Society Services Platform established as per the Turkish Commercial Code, Integrated Report, CDP Reports To directly and quickly get accurate and up-to-date information about İşbank and exercise their shareholder rights More detailed information about the bank's ESG performance To improve the Bank's risk culture by employing comprehensive and innovative approaches in the risk management domain The Investor Relations and Sustainability Division answers all information requests from shareholders as soon as possible via multiple communication platforms, including especially the KAP platform and the corporate website, actively providing information as necessary. The Ordinary General Assembly meeting was held on 31 March 2021. The Investor Relations and Sustainability Team met with investors via conferences, roadshows and teleconferences to convey the Bank's attitude towards rapidly changing market dynamics. The Bank also provides regular updates on its ESG performance via the sustainability page of the corporate website. İşbank published its first-ever Integrated Annual Report in 2021. The Bank achieved a score of "B" in the Climate Change Program reporting and a score of "C" in the Water Security reporting under the Carbon Disclosure Project. Impact analyses were conducted in accordance with the Principles of Responsible Banking of the United Nations Environment Program Finance Initiative (UNEP FI). The Climate Change Risk Policy addressing the climate change risks that the Bank could be exposed to in connection with its operations was approved by the Board of Directors. Continuous Continuous Working Life Evaluation Survey, training programs, performance evaluation, internal communication platforms, regular executive meetings, practices aimed at improving risk culture Employees Achieving a balance between flexibility and commitment in the hybrid work model Offering training programs to develop digital competencies İşbank established a functional and safe remote working system for its employees. Employees have access to numerous trainings and social content on digital platforms. The Bank organizes a number of training programs to improve the digital competencies of its employees. See Talent Management In 2021, the digital training program "Risk Culture at Our Bank" was offered. A more dynamic work environment with project-based studies Studies on the Agile Working Model, which the Bank defined as the "organizational equivalent of digitalization", were expanded and Agile Transformation Training programs were held. See Agile Workshop Being a leading organization in promoting gender equality The Gender Equality Policy came into effect. The subjects of unconscious bias and gender equality were included in career training programs. The duration of paternity leave was extended beyond the length of time defined in the regulations. 40 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 41 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen STAKEHOLDER EXPECTATIONS and İŞBANK'S RESPONSE Communication Frequency Communication Type Requests During the Reporting Period İşbank's Response Communication Frequency Communication Type Requests During the Reporting Period İşbank's Response Subsidiaries International Organizations and Initiatives Continuous Joint projects, Reputation Research Partnerships in digital transformation Joint projects and information exchange We achieved integration between the products and services of our subsidiaries through numerous digital applications developed in 2021. Data security checks also cover our subsidiaries. Regular meetings are held and results of research projects are evaluated as part of joint projects led in cooperation with Anadolu Hayat Emeklilik A.Ş., Erişim A.Ş. and ATOS A.Ş., an external research firm. Within the framework of the strategic cooperation with İş Portföy Yönetimi A.Ş. (İş Asset Management) and İş Yatırım Menkul Değerler A.Ş., online Privia Economy Talks were held in the first 2 quarters of the year in order to inform private banking customers about current economic developments and expectations, as well as investment alternatives that may arise in volatile markets. Very frequently Conferences, seminars, congresses, workshops, replying to written queries Increasing sustainability partnerships with stakeholders The Bank conducted impact analyses in accordance with the Principles of Responsible Banking of the United Nations Environment Program Finance Initiative (UNEP FI) as a signatory. Reporting was done as per the UN WEPs Declaration. Reporting was done as per the Climate Change and Water Security Programs of the Carbon Disclosure Project (CDP). The Bank supports the Science-Based Targets Initiative (SBTi). The Bank participated in the Global Compact Turkey Sustainable Banking and Finance Working Group, and contributed to the studies on updating the Global Compact Turkey's Declaration on Sustainable Finance. Public Institutions and Regulatory Agencies Media At least four times a year Reporting processes, consultation meetings Full legal compliance İşbank works in close collaboration with public institutions and organizations such as İşbank, SPK and Borsa İstanbul regarding non-financial matters which need to be incorporated in the legislation. Exchange of opinions on new regulations We support and provide our opinions on the efforts of the Banks Association of Turkey (BAT). Continuous Information communication, release of press bulletins, press meetings, private meetings, replying to written queries Quick response to queries and demands İşbank engages in regular and on-demand communication for target group via written, visual and digital media channels to inform the general public about the Bank's activities. Non-Governmental Organizations and Sector Unions Very frequently Information and press meetings, private meetings, replying to written queries, online training, mentorship activities and other joint projects Joint projects and information exchange İşbank's Economic Research Division monitors and reports on developments in both the national and global economy. The web page ekonomi.isbank.com.tr offers a free-of-charge subscription service and had 15,500 subscribers at the end of 2021. İşbank led inclusive financing projects by partnering with many non-governmental organizations, such as Türk Eximbank, TİM, EBRD, Arya and TÜRKONFED, during the reporting period. Financial Institutions and Rating Agencies At least once a year Evaluation and information meetings, Corporate Reports, replying to written queries Transparent reporting on financial and non-financial performance İşbank published its first-ever Integrated Annual Report. İşbank reported to the Water Security Program of the Carbon Disclosure Project (CDP) for the first time in 2021. The Bank has been included in the Sustainalytics ESG risk ratings. It received an ESG score from Refinitiv as part of the BIST Sustainable Index. The Bank was included in the FTSE4Good Emerging Markets Index and the BIST Sustainability Index in 2021 as well. Suppliers Continuous Daily communication with product and service suppliers, projects aimed at increasing sustainability awareness among suppliers Quick and convenient communication, corporate capacity expansion İşbank strives to choose environmentally-friendly products and services during procurement operations. The Bank works in close collaboration with its suppliers to raise their awareness on the importance of sustainability and enhance their corporate capabilities See Supply Chain Management In 2021, İşbank conducted a survey designed to evaluate the performance and current status of its suppliers, determined the suppliers’ awareness under specific categories such as Environment, Labor and Human Rights, Ethics and Sustainable Procurement in order to actively manage the environmental and social impact of its supply chain. The Bank became the first organization in the Turkish banking and finance sector to receive the CIPS certificate. 42 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 43 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Initiatives Supported in the Field of Sustainability The UN Women's Empowerment Principles (WEPs) The UN Women's Empowerment Principles consists of guiding principles for empowering women's place in the business world and society. Communication on Progress for the UN Women's Empowerment Principles United Nations Environment Program Finance Initiative (UNEP FI) Principles of Responsible Banking (PRB) PRINCIPLES FOR RESPONSIBLE BANKING The Principles of Responsible Banking introduced by the UNEP FI are intended to ensure alignment of the signatory banks with the vision set forth by the society in the United Nations Sustainable Development Goals (SDGs) and the Paris Climate Agreement. These principles, which define the role that the banking sector can play to achieve a green and inclusive economy, are designed to maximize the influence of the banking sector on the efforts toward sustainable economic growth. Being a signatory of the UNEP FI Principles of Responsible Banking and a member of the UNEP FI, İşbank has conducted a portfolio impact analysis and maintained its collaborative efforts in the UNEP FI working groups. The UN Global Compact and the Declaration on Sustainable Finance The UN Global Compact is the world's largest corporate sustainability initiative focusing on human rights and ethics. İşbank is committed to complying with the 10 principles of the UN Global Compact in all of its operations. The Bank is a member of the Global Compact Turkey Sustainable Finance Working Group. The group aims to raise awareness on the concept of sustainability across the real sector, especially in the Turkish finance sector, and mobilize the private sector for creating the financial resources needed to achieve the Sustainable Development Goals. İşbank is a signatory of Global Compact Turkey's Declaration on Sustainable Finance, which was prepared by the Global Compact Turkey Sustainable Banking and Finance Working Group. With this declaration, the signatory banks pledged to take environmental and social risks into consideration during loan assessment processes for investments of USD 10 million and above. With the update made in 2021, the scope of the Declaration was further expanded by including the phrase "innovative sustainable finance principles" in addition to "take environmental and social risks into consideration during loan assessment processes". The updated Declaration on Sustainable Finance means that the signatory banks, including İşbank, are committed to not only taking social and environmental risks into consideration during loan assessment processes, but also to playing a leading role in embracing an inclusive, sustainable finance approach that supports the development of sustainability-driven banking products as well as the growth of this market. United Nations Sustainable Development Goals (SDGs) The Sustainable Development Goals are a call for action that includes the goals to be achieved by the end of 2030 by the United Nations member states. It focuses on solving social, cultural and ecological issues grouped under 17 main topics such as ending hunger and poverty, combating climate change, gender equality, quality education, responsible production and consumption worldwide. İşbank is aware of the transformative power and responsibility of the banking and finance sector in sustainable development. Therefore, the Bank supports the United Nations Sustainable Development Goals and reports its direct and indirect contributions to the goals. Contribution to Sustainable Development Goals CDP- Carbon Disclosure Project CDP is an independent global organization that allows publicly -traded companies to disclose information to their investors about how they use natural resources and manage the risks in this area. İşbank has been transparently sharing its environmental goals and performance with its stakeholders within the scope of the CDP Climate Change Program since 2019. The Bank was awarded a score of "B" in the CDP Climate Change Program in 2021. İşbank also began to make disclosures as part of the CDP Water Security Program to report on its water usage as well as the actions taken to manage its impact on water resources in 2021. The Bank was awarded a score of "C" in the CDP Climate Change Program in 2021. Integrated Reporting Turkey Network (ERTA) Founded to raise awareness on integrated reporting and integrated thinking throughout Turkey, ERTA strives to enhance the capacity of businesses and ensure that good practices are shared. It is an association that aims to contribute to the spread of integrated thinking in all institutions and organizations by collaborating with public, private sector, non-governmental and academic institutions at national and international level. The Bank is a member of ERTA. The Banks Association of Turkey (BAT) Sustainability Working Group İşbank is an active participant of the Sustainability Working Group of the Banks Association of Turkey (BAT). The working group shares information on local and global developments in the field of sustainability, exchanges views on sustainability by holding meetings with regulatory institutions and boards, and develops training programs to support the sustainability efforts in the sector. Science-Based Targets Initiative (SBTi) The Science-Based Targets Initiative directs the private sector's climate action by enabling companies to set science-based emission reduction targets in order to keep the global temperature increase below 1.5⁰C and to meet the targets set in the Paris Agreement. In 2021, the Science-Based Targets Initiative developed a scientific roadmap to help decarbonization of the real sector by publishing its first-ever "Net-Zero Standard" Methodology for the finance sector and other sectors as well. İşbank has pledged to use Science-Based Targets as a reference when setting its Scope 1 and 2 emission targets as part of its CDP disclosures. 44 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 45 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen İŞBANK'S ESG RATING AND INDICES IN WHICH IT IS LISTED Sustainalytics Sustainalytics is an internationally recognized research and rating organization that focuses on sustainability and evaluates the environmental, social and governance performance of organizations. İşbank received a rating of "18.6" in the ESG assessment for 2021, achieving a "low risk" level. The Bank's objective is to strengthen its funding structure and become a key player that promotes sustainable and inclusive economic growth by gaining access to green/sustainable funds from international markets by making use of this and other similar ratings from organizations that conduct an in-depth assessment of the Bank's sustainability performance. SÜRDÜRÜLEBİLİRLİK ENDEKSİ BIST BIST SÜRDÜRÜLEBİLİRLİK ENDEKSİ ŞİRKETİ FTSE4Good Emerging Markets Index and BIST Sustainability Index BIST SUSTAINABILITY INDEX The "FTSE4Good Emerging Markets Index", launched by the global index and data provider FTSE Russell under the guardianship of the London Stock Exchange, is viewed as one of the key global indices that organizations take into account as they seek to invest in companies that demonstrate good sustainability practices. BIST SUSTAINABILITY INDEX CONSTITUENT COMPANY Contribution to Sustainable Development Goals The Sustainable Development Goals (SDGs) represent a call for action by the UN to develop solutions to global issues. It is essential that governments, the private sector, academic institutions and non-governmental organizations work collaboratively to make progress toward these goals, which are intended to be achieved by 2030. The banking and finance sector has the necessary expertise and resources to be able to offer solutions, both direct and indirect, to today's global and regional issues. The sector's transformative power and leverage effect on the economy mean that it is well-equipped to make significant contributions to the Sustainable Development Goals. İşbank supports the UN Sustainable Development Goals. The Bank views its contribution to these goals as a key component of its value-creation processes. İşbank indirectly contributes to these goals by providing the necessary funding for solutions that have the potential to help solve the issues associated with the 17 development goals. İşbank also directly contributes to 6 goals that fall into its field of activity. This section provides a summary of the Bank's contribution to these goals. SUSTAINABLE DEVELOPMENT GOAL 4: QUALITY EDUCATION SUSTAINABLE DEVELOPMENT GOAL 7: AFFORDABLE AND CLEAN ENERGY Achieving inclusive and quality education for all should be the top priority to increase economic well-being. The growing global population and increased production mean that the world's need for affordable and clean energy increases each day. İşbank supports the transition to a low-carbon economy and offers finance solutions for renewable energy investments to help energy transformation. See We Take Responsibility for an Inclusive and Solid Economy The Bank also creates resources for the renewable energy sector by committing itself to utilizing renewable resources in its operations. See We Take Responsibility for Climate Action Targets to which the Bank contributes: 7.2: Increasing investments in renewable energy 7.3: Increasing energy efficiency İşbank believes that easily accessible and quality education is essential for sustainable development. Therefore, the Bank not only invests in the development of its employees See Talent Management but also contributes to the education quality of the country through programs led as part of its long-term social responsibility projects. We Take Responsibility for Future Generations Targets to which the Bank contributes: 4.1: Ensuring that all girls and boys complete primary and secondary education 4.2: Ensuring that all girls and boys have access to quality pre-school education 4.3: Increasing access to technical and vocational education 4.4: Improving technical and vocational skills and entrepreneurship 4.5: Eliminating gender equality in education 4.7: Achieving literacy and numeracy in the field of sustainable development 4.a: Providing inclusive learning environments for all The index, which was launched to encourage financial institutions to take environmental, social and governance criteria into consideration when making investment decisions, assesses the performance of organizations against such criteria. The BIST Sustainable Index was created to help the companies listed in Borsa İstanbul gain a better understanding of sustainability and embrace best sustainability practices, and includes only those companies that are publicly traded in Borsa İstanbul and have a top-level corporate sustainability performance. İşbank has been included in the "BIST Sustainability Index" since 2015 and in the "FTSE4Good Emerging Markets Index" since 2016. The Bank also aims to be listed in the Dow Jones Sustainability Index in the future. 46 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 47 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen SUSTAINABLE DEVELOPMENT GOAL 8: DECENT WORK AND ECONOMIC GROWTH SUSTAINABLE DEVELOPMENT GOAL 9: INDUSTRY, INNOVATION AND INFRASTRUCTURE SUSTAINABLE DEVELOPMENT GOAL 10: REDUCED INEQUALITIES SUSTAINABLE DEVELOPMENT GOAL 13: CLIMATE ACTION Technological developments and innovations are the key to creating new jobs and promoting a low-carbon economy. Supporting sustainable industries, investing in scientific research and innovation are essential to make sustainable development possible. İşbank supports the transition to the new economy by focusing on digital banking solutions See We Take Responsibility for Next-Generation Banking financing infrastructure investments, Responsibility for an Inclusive and Solid Economy performing innovative development projects, See We Take See "Innovation and Entrepreneurship" and supporting start-ups. Targets to which the Bank contributes: 9.2: Promoting inclusive and sustainable industrialization 9.4: Supporting clean and environmentally-friendly technologies 9.5: Increasing the budget for Research & Development activities İşbank supports the inclusive business models of the banking and finance sector, believing that it has a critical role to play in ensuring economic well-being for all. Besides its widespread network of branches and digital banking applications See We Take Responsibility for Next Generation Banking the Bank also supports access to financial services and contributes to social welfare through products and services developed for disadvantaged customer groups. See We Take Responsibility for an Inclusive and Solid Economy By making its unbiased and comprehensive economic reports electronically accessible to all, the Bank wishes to allow stakeholders from different backgrounds to benefit from its intellectual knowledge. İşbank also creates value by offering its employees a fair and decent work environment. Our Employees See We Take Responsibility for Targets to which the Bank contributes: 8.2: Increasing the economic added value created 8.3: Creating more decent jobs 8.4: Decoupling economic growth from environmental degradation 8.5: Achieving full employment and decent work for all women and men 8.6: Increasing youth employment 8.7: Eradicating forced labor and ending modern slavery 8.8: Protecting labor rights Policies that empower low-income segments and promote inclusive participation of everyone in economic spheres, regardless of their gender, race or ethnicity, must be embraced to eradicate increased economic and social inequalities. The banking sector has an important role and responsibility to provide financial resources so that such inequalities can be eliminated. İşbank is against all kinds of discrimination. The Bank strives to create sustainable value for all stakeholders by providing a fair work environment Opportunity and Diversity increasing access of disadvantaged groups to financial services Financial Inclusion and supporting long-term social responsibility programs. for Future Generations See Equal See We Take Responsibility See Targets to which the Bank contributes: 10.2: Promoting inclusive economic growth for all 10.3: Eliminating discrimination 10.4: Adopting policies that can prevent inequality The scientific world states that the increase in average temperatures should be limited to a maximum of 2°C in order to minimize the devastating effects of climate change. To achieve this goal, it is necessary to finance alternative production and consumption models with low environmental impact. Supporting the transition to a low-carbon economy, İşbank takes the environmental impacts into consideration when offering products and services. The environmental and social impacts of the projects financed are rigorously reviewed to ensure that appropriate actions are taken to minimize/eliminate potential risks that may arise from the projects. Environmental and Social Risk Management in Loans The Bank also contributes to the combat against climate change by reducing its environmental footprint. See See Environmental Impact Targets to which the Bank contributes: 13.1: Strengthening resilience to climate-related hazards and natural disasters 13.3: Improving awareness on climate change and adaptation 48 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 49 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Reliable Financial Actor An Inclusive and Solid Economy Climate Action Next-Generation Banking We Take Responsibility for an Inclusive and Solid Economy An inclusive and solid economy represents an economic growth model which allows everyone to benefit from economic well-being and creates opportunities for all. With the COVID-19 pandemic, economic and social inequalities reached the highest levels seen during the last 30 years in many OECD countries. times less likely to attend2 university if their parents did not complete secondary school than those children with a parent who has a bachelor's degree. The top 10% of income earners take1 home over ten times more pay than the bottom 10%. Economic inequalities also restrict social mobility, creating a cycle of poverty that persists across generations. Children are at least four Thanks to its financing power, the banking and finance sector has a significant leverage effect in eliminating economic inequalities and achieving inclusive growth. 1 “Inequality puts our world at risk” 2 “Investing in people and places” Material Issues Related Capital Elements Combating Climate Change · Financial Performance and Profitability · Financial Literacy · Financial Inclusion · Customer Centricity · Responsible Products and Services · Responsible Marketing Financial Capital Intellectual Capital Social-Relational Capital Risks Opportunities • Loss of customers due to not understanding customer • Increasing customer satisfaction by developing needs correctly • Losing touch with developments such as platform business models and sharing economy, which are essential components of the new economy • Global economic shrinkage caused by the COVID-19 pandemic • Global uncertainties making long-term planning difficult • Penalties and sanctions that may be incurred due to rapidly changing regulations and non-compliance • Inequalities due to large sub-populations being unable to access financial resources • Reputational risks to the sector due to complex and non- transparent financial transactions and processes • Risks associated with global climate change products and services according to their expectations and needs via regular customer communication • İşbank's ability to quickly make use of emerging opportunities thanks to its robust financial structure • The Bank's dynamic and proactive business strategy that prioritizes sustainable growth • Increasing the Bank's penetration through products specifically developed for disadvantaged segments • Expanding customer base by developing products and services that address the needs of all segments of society • Increasing customer satisfaction by providing customers with accurate and timely information about products and services Contributed SDGs At İşbank, we work hard to help create an inclusive economic model that benefits all segments of society by driving growth and sharing this growth equally. We take responsibility for creating an economic model that is built on sound core principles such as innovation, entrepreneurship, environmental responsibility and equal opportunity and strengthens the next-generation's hopes for our country. KEY PERFORMANCE INDICATORS Total Loan Growth (%) Non-performing Loan Ratio (%) Net Interest Marjin (Swap Adj.) (%) Net Fees and Commissions Growth (%) OPEX Growth (%) Cost / Income Ratio (%)** Return on Average Tangible Equity (%) Return on Average Assets (%) Capital Adequacy Ratio (%) Tier 1 Ratio (%) Leverage (%) Number of Customers (million) Individual Net Promoter Score Individual Net Promoter Score Ranking (among private banks) Commercial Net Promoter Score Commercial Net Promoter Score Ranking (among private banks) 2019 4.7 6.5 3.71 26.4 21.8 38.8 12.1 1.39 17.87 14.97 9.07 19.5 33 1 43 1 Customer satisfaction score (%) 81.2 Number of people reached through Farmer Meetings 4,485 Number of disabled-friendly Bankamatik ATMs 4,410 Number of female entrepreneurs who participated in events to support female entrepreneurs 425 Number of events organized in support of SMEs 34 2020 27.7 5.6 (6.5)* 4.37 0.9 20.5 32.9 11.8 1.25 2021 42.9 4.1 3.14 35.6 34.9 30.8 20.0 1.92 18.68 (18.02)* 20.36 (16.53)* 14.73 (14.17)* 15.78 (12.49)* 7.88 20 59.3 1 45.9 2 86.2 1,500 4,598 448 40 6.75 20.7 72.4 1 79.1 1 90 1,861 5,113 267 29 Number of İŞ'TE KOBİ SME website views 1.1 million 550,000 439,000 Improving financial literacy and savings awareness More than 21 thousand students participated in the workshops held at İşbank Museum. Museum workshops could not be held from March 2020 onwards due to the COVID-19 measures put in place. Museum workshops could not be held due to the COVID-19 measures put in place. Number of feedback responses communicated to the Customer Relationship Program 467,000 824,000 656,000 * Excluding the impact of BRSA forebearance measures. ** Adjusted rates included in 2019, 2020 and 2021 investor presentations. 52 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 53 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen TARGETS TARGETS Targets for 2021 Realization in 2021 Realization Achieving a Net Promoter Score of at least 40 in individual and commercial segments and maintaining leadership among private banks in this area The Bank aims to increase the ratio of disabled- friendly Bankamatik ATMs to more than 80% in 2022. The Bank achieved a Net Promoter Score of 72.4 and 79.1 in individual and commercial segments, respectively, and maintained leadership among banks of similar size. The ratio of disabled-friendly Bankamatik ATMs to the total number of Bankamatik ATMs was 78.9% as of the end 2021. The Bank aims to keep the number of female entrepreneurs supported through activities for female entrepreneurs above 500 every year. As the cooperation protocol between İşbank and Arya Women Investment Platform was executed on 02.07.2021, the planned event dates were rescheduled, with the last three series of Arya Workshops, the Entrepreneur Academy, and the Investor Academy being postponed to 2022. The Bank aims to organize more than 40 events to support SMEs between 2021-2023. It is estimated that the number of views received by the İŞ'TE KOBİ website will reach 1 million 250 thousand in 2023 with an annual increase of 250 thousand. Due to the pandemic, only 29 events could be organized. The İŞ'TE KOBİ website had a total of 439,197 views in 2021. As the software development firm which created the website ceased its operations in June 2021, planned developments could not be done and the Bank began to look for a new software development & hosting firm for the İŞ'TE KOBİ website, focusing on a seamless transition to the new firm to maintain the website in the best possible way. Targets for 2022 and Beyond Achieving a Net Promoter Score of at least 70 in individual and commercial segments and maintaining leadership among banks of similar size >%80 The Bank aims to keep the number of female entrepreneurs supported through activities for female entrepreneurs above 500 every year. 30 events are planned to be organized every year until 2024. The target was revised in 2021. This revision estimates that the number of views received by the İŞ'TE KOBİ website will reach 500 thousand in 2023 with an annual increase of 50 thousand. Targets for 2021 Revised Targets for 2021 Realization in 2021 Realization Targets for 2022 ~ 15% ~ 25% ~ 12% 27% 25% 20% 3.6 - 3.8% ~ 50 bps decrease 3.14% ~ 15% ~ Mid-twenties 36% TL Loan Growth TL Deposit Growth Return on Average Tangible Equity Net Interest Margin (Swap adj.) Net Fees and Commisions Growth OPEX Growth In line with CPI Cost to Income Ratio 41 - 43% Non-performing Loan Ratio <6.5% 35% 34.7% 4.1% >25% >35% >20% ~ 3.8% >30% In line with CPI 35-36% <5% Net Cost of Risk <250 bps <150 bps* 75 bps** <150 bps** Capital Adequacy Ratio (excluding the impact of BRSA forebearance measures) >15% 16.53% >15% * Including currency impact. ** Excluding currency impact. 54 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 55 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Financial Performance İŞBANK and ITS ACTIVITIES in 2021 İşbank's long-standing strong capital structure together with its profitable and healthy growth strategy are the pillars on which its financial success is built. currecny deposits, İşbank also maintained its leadership among private banks in terms of the size of Turkish Lira saving deposits and demand deposits in 2021. Broad Customer and Shareholder Base Diversified Funding Base İşbank boasts a widespread shareholder base which consists of nearly 175 thousand individual and corporate investors. As of the end of 2021, 37.26% of the Bank's capital was held by İşbank Members' Supplementary Pension Fund, the members of which are around 49 thousand employees and retirees. İşbank serves 20.7 million customers as of the end of 2021. The Largest Private Bank in Turkey İşbank increased its total asset size to TL 926.6 billion in 2021 and continued to be “the largest private bank of Turkey”. Achieving its targets to a great extent, İşbank also maintained its leadership among private banks in terms of total loans, deposits and shareholder equity in the same period. Being the private bank that makes the most significant contribution to the national economy, İşbank’s total cash loans reached TL 493.4 billion as of the end of 2021. Turkish Lira loans i grew by 26.6%, while foreign currency loans decreased by 4.7% adjusted for the exchange rate compared to the end of the previous year. The resources provided by the Bank to the economy through non-cash loans reached TL 193.4 billion as of the end of 2021. At the end of 2021, 53.2% of the Bank's total assets consisted of loans, while the share of the securities portfolio in total assets was realized at 15.4%. Thanks to its healthy growth strategy and effective risk management through the loan underwriting processes, İşbank’s NPL ratio stood at 4.1% at the end of 2021. Widespread Deposit Base With its widespread network of services and diversified digital contact points, İşbank offers its customers a wide range of products through various channels and continues to be the bank of choice among savers. İşbank’s total deposits increased by 61.5% in 2021 and reached TL 595.6 billion. Turkish Lira deposits increased by 24.6% compared to the end of the previous year, while foreign currency deposits increased by 3.1%, excluding the currency impact. The share of demand deposits in total deposits was 47.9% at the end of 2021. Being the largest private bank in terms of total deposits and foreign Deposits, which accounted for 64.3% of the total liabilities at the end of 2021, continued to be the primary funding source of İşbank. At the same time, with a cost-sensiteve approach, İşbank continued to utilize non-deposit funding sources in domestic and foreign markets in order to diversify its funding and extend the maturity structure of its liabilities. The non- deposit funding sources, which consists of repo transactions, funds borrowed, securities issued in domestic and foreign markets and subordinated debts, accounted for 19.6% of the total liabilities at the end of 2021. Strong and Resilient Financial Structure The size of the Bank's shareholder equity reached TL 86.8 billion at the end of 2021 with a 28.1% increase compared to the end of the previous year. Maintaining its strong capital structure, İşbank's capital adequacy ratio was realized as 20.4% at the end of the year. The Bank posteda net profit of TL 13.5 billion with a return on average equity of 18.4% and a return on average assets of 1.9% in 2021. The Bank's share in deposit markets calculated based on the monthly sector data dated December 2021 as published by BRSA: » A total market share of 14.2% in savings deposits, with 11.3% and 15.7% respectively in Turkish Lira and foreign currencies » A total market share of 12.5% in the total deposits market (excluding Banks deposits), with 9.5% and 14.1% respectively in Turkish Lira and foreign currencies. As part of its mission to increase savings awareness across all segments of society, the Bank focused on developing artificial intelligence-supported pricing mechanisms and improving the diversity of products and services in 2021 in order to maintain its leadership in deposits, one of its primary sources of funding. The Bank also continued to work on improving sales and marketing of personal banking products across all channels, especially digital contact points, in 2021, a year which was marked by the pandemic. In Q4 of 2021, consumer loans grew by 9.3% with an increase of TL 7.3 billion, while credit cards and total personal loans increased by 9.5% and 9.3%, respectively, compared to Q3. Composition of Assets (%) 2021 2020 Composition of Liabilities (%) 2021 2020 Cash and Banks Securities Loans Subsidiaries and Participations Other Total 22.2 15.4 53.2 4.3 4.9 100 14.6 18.4 58.1 4.4 4.4 100 Deposits Funds Borrowed and Money Markets (1) Other Liabilities Shareholders' Equity Total Key Financial Highlights (TL Million) 2021 2020 Change (%) 64.3 19.6 6.7 9.4 100 62.1 19.6 6.9 11.4 100 Ranking Among Private Banks Total Assets Loans Deposits Shareholders' Equity 926,569 593,902 493,378 345,150 595,628 368,876 86,839 67,781 56.0 42.9 61.5 28.1 1 1 1 1 Key Financial Ratios (%) Interest Earning Assets (2) / Total Assets Loans / Total Assets Loans / Deposits Non-performing Loan Ratio NPL Coverage Ratio Demand Deposits / Total Deposits Shareholders’ Equity / Total Liabilities Capital Adequacy Ratio Return on Average Equity (3) 2021 89,3 53,2 82,8 4,1 66,2 47,9 9,4 20,4 18,4 2020 89,8 58,1 93,6 5,6 63,7 41,7 11,4 18,7 10,9 (1) Includes securities issued and subordinated debts in TL and FC. (2) Interest earning assets include TL and FC required reserves at Central Bank. (3) Average figures are calculated based on quarterly balances. 56 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 57 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen İşbank and its Activities in 2021 Our Main Fields of Activity CORPORATE BANKING PERSONAL BANKING With corporate banking services, İşbank provides local corporations and international companies with services and financing solutions tailored to their needs. PRODUCTS and SERVICES: Project Financing, Risk Management Solutions (Hedging), Digital Solutions HIGHLIGHTS of 2021: Kalyon Güneş Enerjisi Üretim A.Ş. was granted a loan of USD 812 million by a consortium joined by İşbank for financing the Karapınar YEKA Solar Energy Power Plant project with a total installed capacity of 1000 MW. Adnan Polat Enerji Yatırımı A.Ş., a company owning renewable energy power plants portfolio with an installed capacity of 695 MW, was granted a loan by a consortium led by İşbank re-purchasing its own remaining shares. A consortium, leaded by İşbank as Sustainability Representative, provided USD 100 million in total loan to Dowaksa İleri Kompozit Malzemeler San. Ltd. Şti. For its capacity expansion projects, including the Additional Carbon Fiber Production Line investment. "A Sustainability-Linked Loan Mechanism", which involved the company's green and social targets including energy efficiency, employment and social responsibility indicators, was established in order to improve the sustainability practices in relation to this investment. İşbank's activities in the field of personal banking are shaped around the principal target of "becoming the customers' financial solution partner of choice in every stage of their lives”. The Bank's operations are built on a single strategy: to obtain a timely and accurate understanding of the customers' needs in order to offer them the best possible solution and experience. PRODUCTS and SERVICES: Remote Customer Acquisition, Private Pension for My Child, Exchange Rate-Protected Deposits, Artificial Intelligence- and RPA-assisted applications, real-time analytic application development, Remote Customer Management, Forest for the Future HIGHLIGHTS of 2021: 22% of our new customers were acquired through the remote customer acquisition method. With 55,579 participants under the age of 18, İşbank became the sector leader in the Private Pension System in this category. After the Exchange Rate-Protected TL Time Deposit Account products began to be offered at İşbank branches on 23 December 2021, more than 10 thousand FX-protected accounts were opened by the end of 2021 with TL 6.1 billion in savings deposited in these accounts. The share of the sales opportunities generated via real-time analytic applications within total loans lent was 33% in consumer loans and 8% in Overdraft Accounts.AI-assisted analytical models have begun to be used at every step of the customer journey. COMMERCIAL BANKING In line with its mission, İşbank stands by industrial organizations, tradespeople, SMEs and other miscellaneous businesses. Being present at all points of commerce, İşbank offers products and services that create value for its customers throughout Turkey with its widespread branch network. PRODUCTS and SERVICES: Business Credit Card, Daily Deposit Account, Workplace Loan, Maximum İşyerim, POS, TekCep, ÇekCepte, Tradesmen Support Loan, Instant POS, Instant Commercial Loan, Instant Commercial Products, Digital Overdraft Current Account, Maximiles TIM Exporter Card, Instant Agricultural Loan, SME Loans, İmece Card, İşim Card, Tarsim, İmeceMobil, DijiKolay, Denizleri Koruyalım (Let's Protect the Seas) Loan, Digital Supplier Finance System, Project Financing, Risk Management Solutions (Hedging), Digital Solutions HIGHLIGHTS of 2021: İşbank maintained its leadership in installment commercial loans among private banks with a market share of 10,7%|1)|2), and reached a portfolio size of TL 72.1 billion at the end of 2021. In addition to the existing Geothermal Power Plant loans, a loan was provided to Greeneco Enerji Elektrik Üretim A.Ş. by İşbank within the scope of financing the 40 MW Hybrid Solar Power Plant. The Bank generated a fund of USD 40 million with the Loan Agreement entered into with the International Bank for Reconstruction and Development (IBRD) as part of the Access to Inclusive Finance Project. The number of İşim Card holders reached 15,951 at the end of the year. WorkupAgri Agricultural Entrepreneurship Program was launched. The Bank met with nearly 2,000 producers in 16 regions. İşbank is the sector leader in commercial vehicle loans with a market share of 21.33%(1) and a loan volume of TL 11.4 billion at the end of 2021. Workplace loans reached a volume of TL 2.7 billion, which corresponds to a market share of 22.35%(1). Based on its mission to become an integrated solution partner for its customers, İşbank added the "Digital Supplier Finance System" to its portfolio of products designed to simplify and facilitate commerce with the quick and effective way of doing business made possible by digitalization. The Digital Supplier Finance System enables the collection of invoiced debts associated with goods and services sold on credit by paying a discount commission without having to wait for the payment terms. The volume of loans borrowed via this system reached TL 950 million. DijiKolay - a suite of digitalization products designed to help İşbank's customers digitalize business processes and enhance their competitiveness - has been launched and offered to the Bank's customers with nearly 20 digital business process solutions. In response to increased marine pollution, İşbank introduced the Denizleri Koruyalım (Let's Protect the Seas) Loan - the first of its kind in the sector - to address the specific requirements of the marine sector. (1) Calculated using monthly sector data published by the Banking Regulation and Supervision Agency without taking accrued interest and re-discounts into consideration, and participation banks are excluded from sector figures. |2) Overdraft accounts are included. PRIVATE BANKING With its Private Banking operations, İşbank continued to offer tailored alternative products based on the needs and investment preferences of its customers. PRODUCTS and SERVICES: Asset Management, Privia Credit Card, Privia Investment Fund, Privia Consumer Loans, Privia Pension Plan, Financial Status Report, Privia Line HIGHLIGHTS of 2021: In 2021, İşbank continued to offer high-level financial solutions tailored according to the needs and requirements of customers with its professional staff at 13 specialized Private Banking branches, including 7 in Istanbul, 3 in Ankara and 1 in İzmir, Adana and Antalya each. In private banking service areas, the Bank was managing the assets of 10,967 customers worth TL 50.2 billion at the end of 2021. The total customer assets managed by İş Portföy Yönetimi A.Ş. (İş Asset Management) reached TL 5.5 billion with a 145.6% increase compared to the previous year, while the size of private family funds reached TL 4.8 billion with a 157.5% increase. İş Asset Management private family fund setups also continued in 2021, and the number of operational private family funds reached 23 at the end of 2021 with a 91.7% increase compared to the previous year. The size of total funds of private banking customers in Anadolu Hayat Emeklilik products reached TL 1.3 billion at the end of 2021, with an 89.9% increase. Private banking customers are provided with information and updates about İşbank's environmentally friendly/ sustainable investment funds on a regular basis throughout the year. The size of the above-mentioned funds reached TL 272.1 million with a 773% increase compared to the same period of the previous year. 58 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 59 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen PAYMENT SYSTEMS CAPITAL MARKET TRANSACTIONS INTERNATIONAL BANKING The activities of İşbank in the field of payment systems are carried out with the aim of empathizing with the customer with an average level of financial literacy and standing by all customers with a perfect customer experience and designed products and services that can be used easily in daily life whenever they need it. PRODUCTS and SERVICES: Personal and Business Credit Cards, Personal and Business Debit Cards, MaxiPara Cards, İmece Cards, Dealer Cards, Instant Card Applications, Applications for Money Transfers Between Cards, Virtual and HCE Cards, Interest and Fee Applications, Deferred Payment with Interest and Installment Transactions, Installment Limitations, Account Statement, Repayment and Duration of Delay, Points and Miles Applications, Co-branded Card Applications, Contactless Payment HIGHLIGHTS of 2021: As part of its vision of developing sustainable and responsible products and services, İşbank digitalized cards to reduce the use of plastics, expanded the use of contactless payment methods at stores for seamless and quick payment, and used digital copies of credit card contracts for paperless banking in 2021. While business credit card allocation processes used to be managed by the Payment Systems Operations Division, this responsibility has been transferred to the Branches, and card allocations have begun to be executed via the Kripton program. Payment Transactions have begun to be accepted via İşCep and Maximum Mobile, via Kart Karekod from POS devices with credit cards, debit cards and MaxiPara cards, and via FAST Karekod from İşCep Commercial Customers can now quickly apply for a POS device through İşCep, Internet Banking and Maximum İşyerim applications. This way, POS applications for İşim POS, Sanal POS and İmece POS can also be submitted via digital touchpoints. Additionally, the Bank has also begun to digitally store the contracts without requiring a wet signature, which previously needed to be signed by member businesses during the application process. İşbank has begun accepting payments via the UnionPay, QR method on Ingenico POS devices, added TL to the payment currencies available in Alipay, and added Euro to the payment currencies available in the WeChatPay payment method. Furthermore, İstanbul Cards can now be used as a payment method on Ingenico POS devices. With the Maximum İşyerim app, it is now possible to turn an NFC-enabled Android mobile phone into a POS terminal for accepting contactless payments to help protect public health and facilitate payments with more economic tools. This new POS solution also enables PIN code entry via the on-screen keyboard of the phones or tablets used as a POS terminal for payment transactions above the contactless payment limit. Besides allowing small businesses and SMEs to benefit from an affordable solution for payment collection with credit or debit cards, this app is also expected to positively impact on sales thanks to the secure, quick and convenient payment experience that it offers to customers. This app was made available for use by customers in 2021. DIGITAL BANKING HIGHLIGHTS of 2021: In 2021, the diversity of transactions available in İşCep was increased with enriched sales and application capabilities in line with customers' expectations. The number of transactions available in İşCep was increased from 393 to 491 as of November 2021. In 2021, the Instant and Continuous Transfer of Funds (FAST, Fonların Anlık ve Sürekli Transferi) system, the Easy Address (Kolay Adres) designation/money transfer, and payment and money transfer services with TR QR Code began to be offered via the Bank's transaction channels. Services that are expected to create value for customers have been added to İşcep Market, which is part of the İşCep platform, the mobile banking platform with the highest diversity of transactions in the sector. New features have been introduced, such as the ability to view account details in İşCep without logging in, Geleceğe Orman (Forest for the Future), the ability to receive a queue number in İşCep for transactions at the Bank's branches, and secure vehicle buying-selling transactions. In 2021, the Bank began to work to ensure that the personal finance management functions available in İşCep could be operated in accordance with open banking standards. Furthermore, the function set has been expanded with new features such as spending notification for transactions above an average amount, notification of increased invoice amount and re-direction of insights into detail screens. The personal assistant application Maxi supports on-demand resolution of issues, and when unable to resolve an issue, re-directs the customer to the Live Support service so they can get in touch with customer representatives through written, verbal and visual communication. Hybrid digital experience enables instant resolution of issues, offering customers a seamless banking experience. As part of its international banking operations, İşbank cooperates with correspondent banks in terms of payments and foreign trade transactions of its customers, while correspondent banking relations are being managed in the most effective way on the basis of reciprocity. İşbank aims to increase its foreing trade market share and obtain funding from international markets. In addition to foreign trade transactions, miscellaneous services such as issuance of letters of guarantee, wire transfer and TL account services are being provided upon demand of customers of İşbank’s correspondents, within the framework of the current legislation. In order to ensure that its customers can complete their supply processes without interruption by facilitating their access to appropriate financing solutions and products according to their needs, İşbank maintains its efficient and sustainable collaborations with export insurance, credit agencies, and other financial organizations. HIGHLIGHTS of 2021: As of 2021 year-end, İşbank maintains correspondent banking relationship with approximately 1,050 banks in 121 countries. İşbank obtained two sustainability-linked syndication loans in May and November 2021 and determined several environmental and social performance indicators in the related loan agreements. On 25 February 2021, the Bank issued its second green bond, with a maturity of 5-years and an amount of USD 13 million. The İşbank Sustainability Bond Framework, which allows issuing Eurobonds as green bonds, social bonds or sustainability bonds, was updated in 2021 expanding its scope to also cover loan transactions and was renamed as "Sustainable Finance Framework". With its subsidiaries in capital markets, İşbank continues its brokerage services in capital market instruments such as equity markets, precious metals, derivatives and investment funds and offers custody and fund valuation services. As a customer-oriented bank, it also continues its product development and infrastructure projects to meet customer needs in the best way possible. HIGHLIGHTS of 2021: İşbank maintained its leadership in the brokerage sector with a trade volume of TL 1.2 trillion in the Borsa İstanbul Debt Securities Market as of year-end 2021. To obtain long-term funding and diversify funding sources, issuance of debt securities was used as an alternative funding source in 2021, too. Having issued debt securities since 2011, İşbank also continued to issue domestic TL-denominated debt securities in 2021, reaching TL 8.2 billion in issued debt securities. Based on data available as of year-end 2021, İşbank maintained its active position among private deposit banks with a market share higher than 9% in domestic TL-denominated debt securities. İşbank customer holdings in gold deposit accounts reached 70.8 tons at the end of 2021, representing a market share of 16.5% in gold deposit accounts among deposit banks. Generating 8.5% of the trading volume on Borsa İstanbul Equity Market with its subsidiary İş Investment as of year-end 2020, İşbank is one of the leading institutions in the market. İşbank intermediated 8% of the mutual funds distribution in the sector as of year-end 2021. The number of investors who opened an international markets account exceeded 60 thousand in 2021. İşbank plays an active role in the area of custody services with TL 134 billion worth of assets under custody as part of individual and collective custody services as of year-end 2021. With 50 real estate investment funds and venture capital investment funds covered among the mutual funds provided with asset custody services, İşbank has assumed a pioneering role in the sector with respect to custody of alternative mutual funds. Currently, 280 investment funds are receiving custody services from İşbank. 60 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 61 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen CROSS-BORDER BANKING TREASURY MANAGEMENT İşbank’s Subsidiaries Within the scope of Treasury operations, liquidity, interest rate and exchange rate risks were managed in parallel to the Bank’s risk appetite, according to the principles of the Asset/Liability Management Risk Policy and the principles of sustainable profitability. Potential risks that may arise from the interest rate structure and İşbank’s FC position, which is managed as an important element of the liquidity composition, were followed up ad-hoc and on a scenario basis, alongside other interrelated positions. Effective risk management was exercised by utilizing derivative products, along with money and capital markets products depending on market conditions. İşbank's main goal is to optimize the risk-return balance and reinforce its balance sheet structure through a sustainable and profitable growth strategy by focusing on loan and investment portfolios, effective use of capital, dynamic management of FC and liquidity positions as well as cost control. Accordingly, the Bank created a flexible balance sheet composition by taking into consideration all elements, including expansion of the deposit base, i.e. the main source of funding, and diversification of non-deposit sources, optimization of risk-return balance, and fulfillment of customer needs. In line with its mission to support the industrial and economic development of Turkey, İşbank as an integrated group, has acquired many subsidiaries since its incorporation. İşbank's Subsidiary Policy involves: • Enriching the strategic perspective on the activities of existing subsidiaries on a corporate level by taking risk/ return balance and market conditions into consideration, • Pursuing growth on a wide range of companies,, from those newly incorporated to the mature ones, through organic and inorganic methods, and • Ensuring that Group companies are among the pioneering and leading companies in their respective sectors and raising their market value. As of year-end 2021, the Bank directly and indirectly holds shares in 132 companies, 109 of which are controlled by the Bank. As of the same period, 29 companies in which İsbank has direct shares amounted to TL 41.2 billion in the Bank's assets. 73.3% of this amount comes from publicly traded subsidiaries traded in Borsa Istanbul; named Türkiye Sınai Kalkınma Bankası A.Ş., Anadolu Hayat Emeklilik A.Ş., İş Finansal Kiralama A.Ş., İş Gayrimenkul Yatırım Ortaklığı A.Ş., İş Yatırım Menkul Değerler A.Ş. and Türkiye Şişe ve Cam Fabrikaları A.Ş. Additionally, Anadolu Anonim Türk Sigorta Şirketi, İş Girişim Sermayesi Yatırım Ortaklığı A.Ş., TSKB Gayrimenkul Yatırım Ortaklığı A.Ş. and İş Yatırım Ortaklığı A.Ş. are also publicly- held Group companies controlled by İşbank through indirect shareholding. As of year-end 2021, the subsidiaries portfolio accounts for 4.4% of İşbank's assets. İşbank's subsidiaries operate in USA, Germany, United Arab Emirates, Bosnia and Herzegovina, Bulgaria, China, Georgia, India, Netherlands, England, Spain, Italy, Hungary, Egypt, Romania, Russia, Slovakia, Ukraine, Singapore and TRNC. 132 The number of companies in which the Bank directly or indirectly holds shares İşbank Group carries out its cross-border banking operations through its overseas branches, subsidiary banks and representative offices in abroad. İşbank has presence in 11 different foreign countries. 10 of the total of 34 branches belong to Frankfurt-based (Germany) İşbank AG, whereas Moscow-based (Russia) JSC İşbank has 1 branch and Tbilisi-based (Georgia) JSC İşbank Georgia has 2 branches. In addition, there are 2 representative offices in Kazan and St. Petersburg, which are affiliated with JSC İşbank. In addition to the aforementioned, İşbank has 2 branches in Iraq, 2 in Kosovo, 2 in the UK, 1 in Bahrain and 14 in the Turkish Republic of Northern Cyprus (TRNC). The Bank has 2 representative offices, one in Shanghai (China) and the other one in Cairo (Egypt). PRODUCTS and SERVICES: İşbank offers basic banking services to its customers in abroad such as loans, deposit accounts, domestic and international money transfers and foreign trade transactions. In additon, tailor-made products have also been designed in different countries. In recent years, digital channels have gained importance in our services abroad. Therefore, the delivery of products and services is dynamically revised. HIGHLIGHTS of 2021: Technical studies to develop a modern mobile banking product for İşbank's customers in the UK, Kosovo and Iraq have been completed. The mobile app is planned to be launched in early 2022. With the mobile app "ParaGönder" developed by Maxi Digital GMBH, a subsidiary of Softtech (an İşbank Group company), it is possible to send money transactions in Euro from banks in Germany and Austria to İşbank Kosovo branches and to any bank in Kosovo with the assurance of İşbank AG subsidiary bank based in Germany. As of the end of 2021, the total assets of İşbank's overseas organizationamounted to USD 7.5 billion. The share of overseas subsidiaries in this total is 33%, while that of overseas branches is 67%. 62 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 63 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen FINANCE İşbank has financial subsidiaries that are active in banking, insurance, private pension, capital market brokerage, portfolio management, venture capital, factoring, reinsurance, financial leasing, asset management, securities investment trust, investment banking, payment services and real estate investment trust. TSKB Turkey’s first privately-owned development and investment bank TSKB, as a leader among the privately-owned development and investment banks, has undertaken a significant role in Turkey’s economic development since its incorporation in 1950. The Bank continues to add sustainable value for stakeholders and the national economy with the value it generates in economic, environmental and social areas. Offering its customers a wide range of innovative services with its in-depth knowledge in corporate banking, investment banking and advisory services, TSKB has adopted it as its mission to continously contribute and support to the inclusive and sustainable development of the country. Within the framework of the loan agreements executed with development finance institutions, TSKB provides loans in the areas of environment, energy and resource efficiency, as well as social loans supporting women employment, employment in underdeveloped areas, occupational safety and health and allocates funds to investments in diverse sectors in the form of SME loans. Environmental, social, and governance (ESG) matters continue to take an increasingly greater share within the Bank’s activities. In October 2020, TSKB established the "TSKB Green Swan Platform" aimed at taking joint action to tackle the climate emergency that the Bank regards as the biggest obstacle to sustainable and inclusive development. Accordingly, the Bank continues to work towards raising awareness of climate-related risks and enriching its collaborations in this respect. Financial services subsidiaries enrich the range of products and services offered by İşbank to individual and corporate customers in different business lines while also creating complementary and cross-product delivery and sales opportunities. The Bank obtained funds worth USD 192 million by signing a second syndication loan agreement indexed to sustainability criteria on 8 July 2021. Undertaking a key role in the development and sustainable growth of the Turkish economy, TSKB was given a low-risk rating with a score of 13.6 in the Environmental, Social and Governance (ESG) risk rating assessment conducted in September 2021 by Sustainalytics, an independent specialized organization. This low-risk classification affirms that TSKB continues to be one of the best in its category among other Turkish and global banks. TSKB is also one of the leading organizations when it comes to corporate governance. The Bank's corporate governance rating score improved even further from 9.56 to 9.59 out of 10 in October 2021. In December, the Bank also entered into the "Geothermal Development Project - Additional Finance" loan agreement, worth USD 150 million which would be provided by the World Bank under the guarantee of the Central Bank of the Republic of Turkey to be lent to private sector companies for financing geothermal investments. On a consolidated basis, TSKB had TL 7 billion in shareholder equity and TL 86.1 billion in total assets as of year-end 2021. In its review dated 10 December 2021, Fitch Ratings affirmed TSKB’s long-term local currency IDR rating as "BB-", and foreign currency IDR as "B+", and the outlook for the Bank’s long-term local currency rating was confirmed as negative. Finally, TSKB was assigned a national long-term rating of AA (tur), Viability Rating of (b+) and a "stable" outlook. www.tskb.com.tr İşbank Germany İşbank Russia A leading financial institution backed by Turkish capital Serving customers at 3 locations in Russia in Europe Founded in 1992, İşbank Germany grew and thrived within the financial system in Europe over the course of 28 years, since then it helped customers in Turkey to access the European financial system. Having successfully adapted to the changing dynamics throughout its operations for more than a quarter of a century, İşbank Germany operates in Germany with 9 branches and in the Netherlands with one branch. As of December 2021, the Bank had 156 employees and EUR 1.9 billion in total assets and EUR 229 million in total shareholder equity. İşbank Germany provides finance solutions for foreign trade transactions between Turkey and EU member states with a focus on corporate banking. www.isbank.de İşbank Georgia İşbank’s organization in Georgia The presence of İşbank in Georgia, Turkey’s border neighbor which is the gateway to the Caucasus, started with the branch opened in Batumi in 2012. The Tbilisi branch became operational in 2014, and from 2015 onwards, the existing branches were transformed into a subsidiary bank under JSC İşbank Georgia. Mainly offereing corporate banking services and having 63 employees, İşbank Georgia had total assets worth USD 125 million (GEL 387 million) and its shareholder equity amounted to USD 34 million (GEL 105 million) as of December 2021. www.isbank.ge İşbank has been cultivating its presence and operations in Russia, one of Turkey’s important trade partners, since 2011. With 94 employees on its payroll, İşbank Russia has 1 branch in Moscow, one representative office in Saint- Petersburg and one in Kazan. Concentrated mostly on corporate banking services, İşbank Russia’s total assets were worth USD 216 million (RUB 16,141 million) and its shareholder equity was registered as USD 60 million (RUB 4,496 million) as of year-end 2021. www.isbank.com.ru Anadolu Hayat Emeklilik The first publicly-traded private pension and life insurance company Turkey’s first life insurer, Anadolu Hayat Emeklilik A.Ş., is also the first publicly-traded company operating in the private pension and life insurance sector. As of year-end 2021, the Company had total assets of TL 51.5 billion and a shareholder equity of TL 1.9 billion on a consolidated basis. As of the same date, total customer funds managed by the Company in private pension and life insurance was about TL 48.4 billion. In 2021, in order to provide future assurance to those under the age of 18, the “Pension Plan for Children” product has started to be sold and achieved the highest sales numbers in this new field of activity. As the pandemic highlighted the importance of sustainability, Anadolu Hayat Emeklilik published its first Sustainability Report that described the Company's activities on the sustainability front. www.anadoluhayat.com.tr 64 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 65 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen FINANCE Anadolu Sigorta İş Leasing Leading establishment of the Turkish insurance sector Turkey’s pioneering financial leasing company Anadolu Anonim Türk Sigorta Şirketi - one of the leading non-life insurance companies in Turkey - generated TL 10.7 billion worth of premiums as of year-end 2021. The company had total assets of TL 16.1 billion and shareholder equity of TL 2.5 billion on a consolidated basis as of year-end 2021. The Company was assigned a score of 9.55 in the Corporate Governance Rating Report issued in November 2021. Anadolu Sigorta has been included in the BIST Sustainability Index since 1 October 2021 and is aiming to publish the Integrated Sustainability Report and issue a CDP Declaration in 2022. Supporting sustainability through its products, Anadolu Sigorta introduced, the "Electrical Vehicle Insurance" product, providing coverage against all risks that vehicle insurance typically covers, in 2021 in line with the increasing number of electric and hybrid vehicles in Turkey. In 2021, Anadolu Sigorta received many awards that demonstrate its brand value, innovative and pioneering approach to business, capabilities in digital transformation and the top-level customer experience. The company received the first place award in the "Future of Artificial Intelligence" category at the "IDC Turkey Digital Transformation Awards 2021" with its project titled "Calculation of Outstanding Claims Through Machine Learning" and also received the Golden Sardis Award in the "Best Mobile App" category at the Sardis Awards with its digital insurance service "Juno". www.anadolusigorta.com.tr As one of the pioneers of the leasing sector in Turkey since its foundation in 1988, İş Finansal Kiralama A.Ş. (İş Leasing) operates with the mission of prioritizing SMEs in its funding activities, developing and maintaining a large and high-quality portfolio, and meeting customer demands with effective, quick and high quality solutions. İş Leasing had TL 20.3 billion in total assets and TL 2.1 billion in shareholder equity on a consolidated basis, while its leasing receivables amounted to TL 11.3 billion as of December 2021. With the statement issued on 26 February 2021, the international credit rating agency Fitch Ratings assigned İş Leasing a long-term foreign currency rating of B+, a long- term local currency rating of B+, and a long-term national credit rating of A+(tur). The above-mentioned ratings were confirmed on 10 December 2021. İş Leasing aims to be a part of the solution in the combat against all environmental and social problems facing the world today, including climate change. Accordingly, the company introduced the Environmental and Social Risk Governance System (ESRG) Project. Displaying İş Leasing's approach to sustainability, this project also defines the governance mechanisms and all necessary processes put in place to manage the company's environmental and social impact. İş Leasing is committed to continue its sustainability-driven activities at full pace as a pioneering company in the sector. İş Leasing's corporate governance rating score has increased from 9.21 out of 10 in December 2020 to 9.29 in December 2021. www.isleasing.com.tr Moka All shares of Moka Ödeme Kuruluşu Anonim Şirketi, a payment services company, were purchased in January 2021, and the company's name was later changed to Moka Ödeme ve Elektronik Para Kuruluşu A.Ş. in November 2021. www.moka.com Millî Reasürans İş GYO Uninterrupted reinsurance services since 1929 One of Turkey’s largest real estate investment trusts Established in 1929 and having undertaken an important role in the formation and development of the Turkish insurance sector, Millî Reasürans T.A.Ş. (Millî Reasürans) has total assets worth TL 21.8 billion and shareholder equity worth TL 4 billion on a consolidated basis as of year-end 2021. Millî Reasürans has a branch operating in Singapore in line with the Company’s strategy to export its know-how and reinsurance experience acquired in the national market to global markets. As of year-end 2021, premiums generated internationally accounted for 26% of the Company’s total premiums. The financial strength rating of Millî Reasürans was revised as "B" in July 2021 by A.M. Best, the world’s most prestigious rating institution in the insurance sector. The Company’s national credit rating assigned by Standard & Poor’s was affirmed as "tr A+" in December 2021. www.millire.com İş Faktoring An innovative approach to the accounts receivable factoring sector Being one of the pioneering companies in the sector since its incorporation in 1993 with its robust financial structure and customer-oriented approach to business, İş Faktoring A.Ş. (İş Faktoring) has been offering quick and competitive services in the areas of finance, guarantees and collections. As of year-end 2021, İş Faktoring has TL 6.9 billion in total assets and TL 634 million in shareholder equity. www.isfaktoring.com.tr Being one of the sector’s leading actors with its solid portfolio and financial structure, İş Gayrimenkul Yatırım Ortaklığı A.Ş. (İş GYO) focuses on maintaining and developing a diversified and well-balanced portfolio. As of year-end 2021, the Company’s total assets amounted to TL 6.7 billion, and its shareholder equity totaled TL 5.5 billion. Based on the review conducted by Saha Kurumsal Yönetim ve Kredi Derecelendirme Hizmetleri A.Ş. in August 2021, the Company’s Long-Term National (TR) and Short-Term National (TR) ratings were affirmed as AA and A1+, respectively, with a stable outlook assigned to both, and thus the Company was assessed within the investment category. İş GYO decided to develop a residential and office project in Üsküdar Altunizade and began the construction work in November 2021. Meanwhile, sales of the Topkapı İnİstanbul project was completed in 2021. All of the 16 villas offered for sale in the Ömerli Kasaba project in early 2021 were sold. www.isgyo.com.tr İş Yatırım A leading and pioneering investment house in capital markets İş Yatırım Menkul Değerler A.Ş. (İş Yatırım) offers brokerage services in domestic and international capital markets, investment advisory, and corporate finance services. Being one of the 6 publicly-traded brokerage houses in the sector, the Company is the only brokerage house in Turkey traded on BIST 100. Having long-term and short-term national credit ratings of "AAA" and "A1+", respectively, as affirmed by SAHA Kurumsal Yönetim ve Kredi Derecelendirme A.Ş. on 24 September 2021 with a stable outlook, İş Yatırım had TL 14.2 billion in total assets and TL 2.8 billion in shareholder equity on a consolidated basis as of December 2021. İş Yatırım stands out in the sector with its outstanding return on equity and the remarkable increase in its market value. www.isyatirim.com.tr 66 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 67 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen FINANCE İş Portföy The customer portfolio of İş Portföy Yönetimi A.Ş. (İş Asset Management) mainly consists of corporate customers such as investment funds, pension funds, venture capital funds, real estate funds, insurance companies and foundations. Pension funds managed by İş Asset Management include Anadolu Hayat and Axa Hayat funds. The size of the managed portfolio amounted to TL 94 billion as of year-end 2021, with the real estate investment fund and venture capital investment fund reaching TL 2.8 billion and TL 1.3 billion in size, respectively. Being one of the first portfolio management companies to set up a venture capital fund in the sector, it offers its participants a successful return performance. There is an exponential increase in global interest in thematic funds with a portfolio that consists of investment instruments based on specific themes such as environmental, social and corporate governance, sustainability, clean energy and digitalization. Defining 2021 as the "Year of Transformation", İş Asset Management has gone beyond classical approaches when developing its investment strategies, focusing on "Thematic Investment Funds" that display rapid growth and have an investment strategy based on the transformations in business models, industries, economies or social norms. İş Asset Management divided its Thematic Funds into two main groups: "Technology" and "Environmental, Social and Corporate Governance". The Company offers the ability to invest in rapidly growing global sectors such as Block Chain Technologies, Cyber Security Technologies, Digital Gaming, and Semi-Conductor Technologies. When it comes to the environmental, social and corporate governance theme, the İş Asset Management Tema Variable Fund, the İş Asset Management Electric Vehicles Mixed Fund, and the İş Asset Managment Women’s Equity Fund, which promotes gender equality in business life and offers the opportunity to invest in companies that give importance to the employment of women, are the first of their kinds. İş Asset Management is one of the pioneering companies in the portfolio management sector in the thematic and renewable energy area with the İş Asset Management Electric Vehicles Mixed Fund, İş Asset Management Renewable Energy Mixed Fund, İş Asset Management Renewable Energy Venture Capital Investment Fund and İş Asset Management Infrastructure Venture Capital Investment Fund, all set up and managed by the Company. www.isportfoy.com.tr SOFTWARE Softtech Experienced solution partner in information technologies Established in İstanbul in 2006, Softtech is the largest software company in Turkey, with more than 1,600 employees and total assets close to TL 310 million. Besides its experience in the banking and finance sector, Softtech develops customer-oriented solutions in the domestic and international markets with products in diverse fields and takes initiatives aimed at creating new opportunities and collaborations with a focus on technology. Aside from its offices in Ankara and Cyprus the Company has subsidiaries at the heart of the startup ecosystem, in İstanbul, San Francisco, Shanghai and Frankfurt to monitor, develop and invest in innovation on-site. www.softtech.com.tr HEALTH Bayek Bayındır Healthcare Group (Bayek), a group of companies operating in the healthcare sector with 3 hospitals, 1 medical center and 6 dental clinics, offers quality healthcare services in İstanbul, Ankara and İzmir with its expert staff and robust technological infrastructure. Bayek is the first organization in Turkey to be issued accreditation certificates regarding quality management for its two hospitals simultaneously by the Joint Commission International (JCI), and was re-accredited by JCI for the sixth time in November 2021. www.bayindirhastanesi.com.tr GLASS Şişecam The founder and the unchanging leader of the Turkish glass industry Founded in 1935, Türkiye Şişe ve Cam Fabrikaları A.Ş. (Şişecam) has a broad portfolio of products, especially flat glass, glassware, glass packaging and chemicals, mainly soda ash and chromium chemicals. The Şişecam Group carries out production in facilities and plants located in Turkey as well as in the USA, Egypt, Russia, Georgia, Bulgaria, Bosnia-Herzegovina, Italy, Ukraine, Romania, Germany, Hungary, Slovakia and India. Having produced 45% of the total glass output outside Turkey (as measured on a tonnage basis) and generated 66% of total sales revenues from facilities based abroad and exports from Turkey as of year-end 2021, the Şişecam Group’s exports to more than 150 countries amounted to USD 814 million as of year-end 2021. Positioned as one of the world’s and Europe’s leading companies in the industry, the Şişecam Group was ranked between second and fifth in the world and first to fifth in Europe, in terms of production capacity in glass manufacturing as of December 2021. Ranking fourth in Europe and second in the world in terms of soda production capacity, the Group is the world leader in the production of basic chromium sulphate and ranks second in the production of sodium bichromate. As of year-end 2021, Şişecam had TL 88.7 billion in total consolidated assets and TL 49.4 billion in shareholder equity. In its review dated 3 December 2021, Fitch assigned Şişecam a long-term foreign currency credit rating of "BB-" and revised its outlook from "stable" to "negative”. Moody’s, on the other hand, maintained the Company's long-term foreign currency rating of "B2" and its "negative" outlook on 24 November 2021. The Company’s Corporate Governance Rating Score was 9.55 in December 2021. Türkiye Şişe ve Cam Fabrikaları A.Ş. ranked 18th in the ISO Turkey's Top 500 Industrial Enterprises list for 2020. In addition to the natural soda investment in the U.S. in partnership with Ciner Group as announced in 2019, Şişecam Group also decided to acquire 60% of Ciner Group's soda operations in the U.S. in 2021. Accordingly, the approval processes for the acquisition of 60% of the shares of Ciner Resources Corporation - a Ciner Group company - 60% of the shares of Atlantic Soda LLC and 10% of the shares of Pacific Soda LLC by Sisecam Chemicals USA Inc. were completed, and transfer of the shares took place on 21.12.2021. Upon completion of the natural soda plant investments, Şişecam is expected to become one of the world's largest soda ash producers. Şişecam has decided to invest in two new flat glass product lines in Turkey to address the demand for architectural glass and automotive glass products, and the Company will also establish a new glass packaging factory in Hungary to capitalize on opportunities in the European glass packaging market. Şişecam Group has combined its superior R&D capacity with its production strength to develop a special coating technology that neutralizes viruses and bacteria on glass surfaces. Paşabahçe's V-Block product range, manufactured using the Antimicrobial V-Block Technology that prevents harmful organisms from remaining on glass surfaces, were introduced into the Turkish market in early February before it was subsequently released for sales in international markets. Şişecam has decided to invest in Basalia Technology, a groundbreaking solution in the green and circular economy space developed to turn any kind of waste into value-added products and to support research & development projects in this area. www.sisecam.com.tr 68 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 69 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen FACILITY MANAGEMENT İşmer With the "ISO Integrated Management System Project", for which the procedural work began in 2021 and the certification work will be completed in early 2022, İş Merkezleri Yönetim ve İşletim A.Ş. aims to monitor the ISO 45001 Occupational Health and Safety Standard, ISO 41001 Facility Management Standard, ISO 9001 Quality Management Standard and ISO 14001 Environmental Management Standard under single framework. As a result of this project; by analyzing the customer demands in accordance with the predefined processes in the facilities managed and operated, the production and the periodically revision of the right services based on customer needs will be provided and the processes having potential for improvement will be evaluated. www.ismer.com.tr PLATFORM Topkapı With its marketplace model bringing together firms of any size operating in Turkey, Topkapı Danışmanlık Elektronik Hizmetler Pazarlama ve Ticaret A.Ş. aims to contribute to the development of the online shopping sector in Turkey, offer an improved customer experience supported with next-generation, secure payment solutions by processing customer data, and develop business models that can create maximum stakeholder value. In addition to its payment system solutions, the company also owns the Pazarama platform, which is designed to introduce a unique and innovative approach to the e-commerce sector for all stakeholders. www.topkapidanismanlik.com.tr TELECOMUNICATION İşNet As a result of its strategy for growth in Cloud, Cyber Security and Managed Services, İşNet began to offer Private Cloud, Managed Cloud and Managed Cyber Security services to the leading enterprises in the finance sector in 2021. İşNet closely monitors global technologies and local regulations and is currently continuing its business and product development activities that will drive growth by addressing the industry needs. NETTECAP, a member of İşNet's e-Document family of products, allows users to scan e-Document / 5000- 30000 Invoices and End-of-Day Reports, transfer such documents into computer systems by uploading their photographs or XML files and read the information contained in such documents with the OCR (Optical Character Recognition) technology in order to convert them into meaningful accounting data. As a result of this process cash register receipts and paper invoices are digitized, accounting processes were accelerated by approximately 40%, and environmental benefit was achieved by reducing paper copies. www.isnet.net.tr Flawless Customer Experience İşbank endeavors to become a reliable partner that all customers can access when required and find easy to work with. In line with its strategy of being "the closest bank to customers", the Bank reviews all its systems and processes by looking at them from a customer-experience point of view. Customer Experience İşbank continuously improves its business processes and customer journey experience for more than 20 million customers. The Bank's goal is to create a world in which customer journeys are simplified, all transactions are rendered user-friendly, and personalized experiences are offered, and to provide guidance to the customers in this world. In 2021, customer experience across all branches and digital channels was measured. Feedback from these measurements was utilized by İşbank to offer its customers even better services. Next-generation analytical capabilities were acquired to improve the service experience on digital channels that have become customers’ primary touch point and to offer real-time contextual suggestions and guidance to customers on all digital channels, especially İşCep - İşbank’s mobile app. For this purpose, analyses based on behavioral data on customers were conducted, and more than 45 million interactions were created in 2021. While correct suggestions and guidance were offered to customers in times of need through these interactions, solutions were created for smooth completion of transactions in challenging situations. Customers submitted 1 million product applications, and 502 thousand accounts were successfully opened. Customers were provided with guidance to ensure that more than 3 million transactions could be seamlessly performed via digital channels. The number of error messages encountered by customers while carrying out transactions via digital channels is periodically monitored. Improvement actions are planned to eliminate common errors and simplify the content of error messages. Additionally, action is taken to clarify what customers need to avoid a given error, depending on the type of transaction in question. In the field of Private Banking, the number of customers that the Bank contacted increased compared to previous years, due to meetings held on digital platforms under ongoing pandemic conditions in 2021. İşbank Private Banking offered its customers various arts and sports events throughout 2021, depending on their taste and preferences. In the current year, it was even more important to correctly identify and address customer expectations and needs, retain managed wealth of customers during a period of volatile market conditions, and increase assets by introducing the right investment instruments. In the present conjuncture, effective management of their portfolio with different investment alternatives and a tailored service model positively impacted the customer experience. Customer Feedback İşbank collects customer feedback from multiple channels. Applications transmitted to the Bank by customers via channels such as the corporate website (www.isbank.com.tr), Internet Branch, İşCep, call center, branches, e-mail, fax, letter, official institutions and organizations, and social media are recorded and evaluated as part of the Customer Relationship Program, and efforts are made to meet the related customer demands or find solutions as quickly as possible. Customers' demands and complaints on social media and other online platforms are also closely monitored. In 2021, İşbank received 656 thousand feedback responses from various channels, and 88.7% of this feedback, i.e. feedback remaining after excluding duplicate and non-response applications, was addressed through the Customer Relationship Program. 70 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 71 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Furthermore, as per legislation, the number of applications as submitted by financial consumers in the form of written/ verbal objections or complaints that involve issues, damages or dissatisfaction with the individual products and services as well as the breakdown of such applications on a per subject basis and the associated resolution times are reported to the BRSA every 3 months; this data is also submitted to the Banks Association of Turkey (BAT) at the same time. The data submitted by banks is then consolidated by the BAT and communicated to the member banks every 3 months. The cumulative number of complaints received by İşbank during the first three quarters of 2021 is 208,574, and the Bank ranks 3rd among member banks of the BAT. In 2021, İşbank Call Center received 20 million calls and has held the EN ISO 15838 "Call Communication Centers Standard" Certificate since 2011. Customer Satisfaction Working with the aim of unconditional customer satisfaction, İşbank monitors customer satisfaction levels throughout the year via numerous channels and different methods. İşbank's customer satisfaction and Net Promoter Score (NPS) are compared with peer banks through independent research companies. In 2021, İşbank ranked first in terms of Retail and Commercial NPS among the private banks that were taken as a reference. The Bank's Net Promoter Score (NPS) in Personal Banking was 37, 33, 59 and 72 and the Bank's NPS in Commercial Banking was 56, 43, 46 and 79 in 2018, 2019, 2020 and 2021 respectively. In order to increase customer satisfaction, tailor-made researches are carried out by using the internet branch exit survey, telephone survey and kiosk survey in addition to receiving services from a research company, and actions are taken to improve the customer experience based on the answers received from the surveys. Satisfaction measurement surveys are conducted not only via digital channels and e-mail/SMS, but also physically via kiosks and photoblocks in branches. Measurement surveys are designed to collect feedback by displaying questionnaires to customers at the end of their transactions, including customer journeys, single transactions and workflows which result in an error. Over 3 million customer feedback responses have been obtained so far in digital measurement studies. In 2021, İşCep Net Promoter Score was 62.1, the Retail Internet Branch Satisfaction Score was 84%, the Commercial Internet Branch Satisfaction Score was 82%, and the Bankamatik ATM Satisfaction Score was 86.6%. As a result of the measurement studies carried out via branch kiosks over the past 4 years, it has been determined that branch satisfaction has increased. The satisfaction score based on this feedback was measured as 73% in 2018, 74% in 2019, 78% in 2020 and 82% in 2021. SME and Enterprise Banking conducted multiple surveys in 2021 in order to analyze customer needs and offer them better services to improve the customer experience and journey. The Bank conducts a series of systematically organized surveys and researches covering all life stages of customers, including the Analysis of the Needs of Tradesmen and SMEs and Jargon Research conducted with the KONDA research company, Lapsed/Lost Customer Survey and Potential Customer Researches conducted with the Nielsen Research Company as well as the New Customer Surveys and Loyal Customer Surveys conducted in-house without using external service providers. A "Welcome" survey is conducted with the newly acquired real person tradespeople/businesses and SME customers to monitor their level of satisfaction with the Bank's services. 82% Branch Satisfaction Score 84% Personal Internet Branch Satisfaction Score 82% Commercial Internet Branch Satisfaction Score Customers' expectations regarding private banking services are monitored through frequent analysis of competitors. Additionally, at private banking service outlets where customer expectations of high-quality services are met at the highest level, product feedback is collected from target customer groups about our products and services via the Bank personnel who know the customers personally. These types of feedback are utilized during the development and delivery of new products/services. Applications sent to the Customer Demands Solution Division via the CRP (Customer Relations Platform) and can be resolved by the Division using the screens and applications available to them, are replied to without requiring any additional information or evaluation, while applications related to areas of activity of other Divisions are re-directed to the Head Office Divisions. Frequent applications are answered by the Customer Demands Solution Division using the workflows and pre-defined texts created by related divisions. Every 3 months, the Bank draws up a report about the breakdown and trend of the customer demands and complaints received by the Bank and submits the report to the Board of Directors. During the preparation of this report, information is requested from various Head Office Divisions about the actions that they took to reduce complaints and improve customer experience during the 3-month period in question. Between June and December 2021, 8,737 surveys were conducted via e-mail through Pisano, while 753 questionnaires were completed by customers via phone. Based on survey results, the issues encountered by customers while using channels are remotely detected, customers are provided with proactive support, and action is taken to quickly resolve issues in order to increase customer satisfaction. Conversations are monitored for quality evaluation purposes and feedback is given to customer representatives about the areas for improvement, if any. Customer satisfaction surveys conducted during the Bank's incoming and outgoing calls yielded a score of 4.79 and 4.74 out of 5 for 2020 and 2021, respectively. Informing Customers As per its responsible banking policies, İşbank offers its customers accurate and up-to-date information via different channels and platforms. Customer information channels » New products and services to be made available to customers via digital channels are shared with the İşbank Phone Banking teams to be announced to customer representatives to prepare them for potential customer inquiries before such products and services are delivered. » New products and features to be added to İşCep are explained in the description field for the related version in the app store. » Guidance messages are displayed to customers in digital channels. » Videos are posted about the Bank's products, campaigns and services in the Stories section of İşCep. » The Bank's corporate website provides detailed information about the digital channels, transaction sets and security practices. » Communication campaigns such as mailing, advertisement and announcement are carried out to inform customers about digital channels. » Regarding the potential errors or problems encountered in digital channels, the customer relations service and the call center are immediately notified to ensure that proper guidance is provided and that the errors and problems are re-directed to the related divisions. » Private banking customers are given information by the bank employees in person about products, services and investment alternatives. The customers can also get detailed information about products and services by visiting privia.com.tr. » SME and Enterprise Banking customers are provided with up-to-date information about products and services through various channels including İşCep, the corporate website, corporate social media accounts, Maximum İşyerim application, İŞ'TE KOBİ website, ATMs, e-mail and SMS » QR Codes are included in printed brochures, posters, gazette and magazine adverts to ensure that customers can access detailed information about the product in question by visiting the corporate website. » In addition to the application instructions used for providing information to customers at branches, İşbank also publishes all the details needed about its products via its corporate website isbank.com.tr. In 2021, the Bank did not incur any penalty due to noncompliance with regulations on customer information requirements. 72 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 73 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen RESPONSIBLE PRODUCTS AND SERVICES As part of its responsible banking practices, İşbank develops products and services that encompass all segments of society, support savings awareness and promote financial literacy. Developing products that not only take into account the different life stages, economic needs and sectoral requirements of customers, but that are also easy to understand and support savings awareness is the basis of İşbank's understanding of delivering responsible products and services. To this end, İşbank's regulations set out the steps to be taken in order to identify, monitor, control, report and manage the risks that could arise in connection with the Bank's products, services or activities. Any product, service or activity is evaluated to determine if it affects the Bank's risk profile and submitted to the Internal Systems Divisions for a risk-control-compliance analysis. If there are changes that could affect a product, service or activity's risk profile, related divisions may, when necessary, request the risk-control-compliance analysis to be re-conducted before the product, service or activity is made available for use. During the master plan studies for 2022, in order to ensure any product, service or activity to be developed is evaluated from a sustainability point of view, an article has been added to the development request document that allows the Bank to question a product's environmental and social benefits or whether the product is in line with or supports the Bank's sustainability activities. Products and Services for Increasing Awareness on Savings As per its incorporation mission, İşbank aims to spread an awareness of savings to every segment of society. İşbank maintained its position as the bank with the largest deposit base among private banks in 2021 as well. Total deposits grew by 61.5% in 2021, reaching a total size of TL 595.6 billion at the end of the year. Total deposits grew by 61.5% in 2021, reaching TL 595.6 billion at the end of the year. Üstü Kalsın (Keep the Change) The Üstü Kalsın (Keep the Change) application transfers the difference created by the customers rounding their credit card debt to a higher amount of their choice to be deposited into an investment savings account. As of year-end 2021, the number of investors using the application reached 121 thousand, with a total fund size of TL 79 million. Digital Moneybox The Classic İşbank moneybox was developed as a Digital Moneybox that allows those under the age of 18 to save money through digital channels and was introduced to new generations. Money transfers can be easily made to the Digital Moneybox via İşCep, and these amounts are saved in the Moneybox Time Deposit Account. The number of Digital Moneybox users approached 17 thousand as of the end of December 2021, and the total balance of the Moneybox Time Deposit Accounts has exceeded TL 18 million. Moneybox Hybrid Fund The Moneybox Hybrid Fund is a fund with a “saving” purpose that enables making investment in the future of children today. Being the first investment fund developed for children, the Moneybox Hybrid Fund ranks first among similar funds in the sector in terms of number of investors. The number of investors of the Moneybox Hybrid Fund reached 155 thousand as of the end of 2021. Gold Banking The Gold Account, which is a demand deposit account that allows the accumulation of gold in centigrams, makes it easier to buy and sell gold from digital contact points 24 hours a day, 7 days a week. İşbank customers can also earn interest income in grams of gold by opening a Time Deposit Gold Account for their savings in gold. Gold Meetings are held at the branches aimed at transferring the so-called “under the mattress savings” to the banking sector. Gold or jewelry items brought by customers are assessed by gold experts and deposited into the Demand Gold Account in grams of gold. Thus, customers secure their valuable jewelry against the risk of loss and theft. Investment Insurance for My Child Investment Insurance for My Child is a product that you can use to cover the education expenses of your children or to support them better while starting life. The product allows you to save in TL, USD or Euro, while offering benefits such as discounts in contracted health institutions and tax advantages. The total balance of the Investment Insurance for My Child savings accounts was TL 24 million as of the end of 2021. Robofon With İşbank Robofon Consultancy service, everyone who wants to save money is provided with fund consultancy, making it easier to make investment decisions in line with their risk preferences. The Investor Profiling Module of the Robofon Consultant, made available by İşbank at İşCep and the Internet Branch, analyzes the investor's financial situation and needs and determines their risk perception. Thanks to this service, offered to everyone who wants to save even with small amounts, it is easier for investors to make savings and investment decisions by finding the most suitable fund from the Robofon Family managed with İş Asset Management's expertise. Fund consultancy services were successfully provided in 2021, as well, and the total number of customers completing the investor profile questionnaire and receiving fund advice exceeded 180 thousand. İşCep Personal Finance Management The İşCep Personal Finance Management service, which allows customers to view their assets in Anadolu Hayat Emeklilik and İş Yatırım as well as their assets in the Bank and to conveniently control their financial transactions by accessing details of the transactions performed with their cards and accounts, makes it easier for customers to direct their savings while keeping their payments and spending under control. Maximum Time Deposit Account With İşbank's Maximum Time Deposit Account, individual customers who want to invest their savings in the short term can secure their automatic payments and earn overnight interest on their deposits. The total assets held in Maximum Time Deposit Accounts reached TL 1 billion as of year-end 2021. Accumulating Young Account The Accumulating Young Account product, which encourages customers aged between 18 and 26 years to save and provides an additional contribution to their savings with an award interest rate if they reach their target amount of savings, has also been integrated with the Anadolu Hayat Emeklilik Young Pension Plan to register them in the private pension system. The total size of assets held in Accumulating Young Accounts reached TL 1.5 million as of year-end 2021. Daily Earning Account The Daily Earning Account product, which can be opened via İşCep or the Internet Branch, offers customers the opportunity to increase their savings on a daily basis at any time without having to wait for long periods or having to deposit large amounts of money. The total balance of Daily Earning Accounts was TL 8.6 billion at the end of 2021. Exchange Rate-Protected Deposit Account The "Exchange Rate-Protected Deposit Account", which was announced to the general public on 21.12.2021 via a Press Release published by the Ministry of Treasury and Finance and via the "Communique on Encouraging Conversion of FX Deposits to TL Time Deposit and Participation Accounts" published in the Official Gazette dated 21.12.2021 by the Central Bank of the Republic of Turkey (CBRT), was made available to customers on 23.12.2021 in the form of 2 different products: "FX-Protected TL Time Deposit Account for Customers Converting from FX" and "FX-Protected TL Time Deposit Account". Another type of account, i.e. FX-Protected TL Time Deposit Account for Customers Converting from Gold, has also been introduced in accordance with the additional regulation issued on 07.01.2022 by the CBRT. Legal persons domiciled in Turkey began to be able to open an "FX-Protected TL Time Deposit Account for Customers Converting from FX" and "FX-Protected TL Time Deposit Account for Customers Converting from Gold" on 12.01.2022 at İşbank branches. İşbank also made the "FX-Protected TL Time Deposit Account" and the "FX-Protected TL Time Deposit Account for Customers Converting from FX" available via the mobile banking app İşCep starting on 21.01.2022 and 29.01.2022, respectively. Total Balance of FX-Protected Time Deposit Accounts was TL 6.1 billion at the end of 2021İşbank also made the "FX-Protected TL Time Deposit Account" and the "FX-Protected TL Time Deposit Account for Customers Converting from FX" available via the personal İşCep channel starting on 21.01.2022 and 29.01.2022, respectively. Total Balance of FX-Protected Time Deposit Accounts was TL 6.1 billion at the end of 2021. Tailor Made "Private Funds" In 2021, to increase the size of assets managed under Private Banking as part of the agency-based strategic collaboration established between İşbank and its subsidiary İş Portföy Yönetimi A.Ş. (İş Asset Management), "Private Funds" which are created and tailored according to the customer's needs have became more important. The investor profile for these funds includes investors with a high level of financial literacy, who request professional management of their assets and want to make the right risk/return choices with the help of expert staff. The Bank aims to monitor savings under a corporate framework and manage the portfolio as part of a Private Banking loyalty program for many years by transferring the investments to future generations. 74 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 75 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen FINANCIAL INCLUSION INCLUSIVE SUPPORT LOANS İşbank aims to increase and ensure fair distribution of social welfare by developing products and services for all segments of society. SME BANKING İŞ’TE KOBİ The İŞ'TE KOBİ website, which has provided SMEs with quick access to the sectoral information and news they need since 2009, is available at www. istekobi.com.tr. The website includes content for visitors from the tradespeople, entrepreneur, farmer and women entrepreneur segments in addition to SMEs. The İŞ'TE KOBİ website ensures that companies have digital access to training programs on many different subjects such as e-commerce, entrepreneurship, and technology and directly contributes to their digitalization by offering applications and solutions to improve their business. Digital Anatolia The Digital Anatolia meetings, which began to be co- held by İşbank and TÜRKONFED in 2018, continued in 2021 as well after the meetings were moved to online platforms in 2021 due to the pandemic. With the online events attended by experts and senior managers from leading companies in the sector, valuable broadcasts were made that focused on digitalization and sustainability for SMEs. A total of 10 broadcasts in 2021 reached approximately 10,000 individual viewers. After the live broadcasts, recordings of the events were uploaded to Youtube to ensure that they can reach even more people as a comprehensive archive to help SMEs with their digitalization. DijiKolay DijiKolay was launched in 2021 to address the expectations and needs of SME and Business segment customers regarding "digitalization" with a holistic approach, bringing together solutions that include the products, services and applications of digital service providers, and the Bank's existing digital transformation campaigns and services in a single location. In 2022, the Bank will work towards enriching the products and services included in DijiKolay, making DijiKolay a "live service" that addresses customer expectations and thus contributes to the digitalization efforts of the Bank's customers and firms in the sector, managing customer experience in a positive manner and acquiring new customers. Collaboration with KOSGEB İşbank contributes to SMEs' access to financing and supports tradespeople in areas affected by natural disasters via support programs co- executed with the General Directorate of KOSGEB (Small and Medium Enterprises Development Organization of Turkey). As part of its natural disaster relief programs, the Bank signed İstanbul İkitelli Organized Industrial Zone Emergency Support Loan Protocols that covered İzmir, Trabzon's Yomra distric, Edirne, Artvin, Düzce and Rize provinces, the West and Mid-Black Sea Region provinces, and Van's districts affected by floods and forest fires in 2021. As part of these support packages, a total of TL 32.1 million was lent in 216 individual loans. Additionally, in 2021, the Bank continued to offer loans under the "KOSGEB SME Finance Support Program Protocol" signed in 2019, lending TL 91.4 million through 1,509 individual loans. Access to Inclusive Finance Project Under the Loan Agreement for the Inclusive Access to Finance Project signed by and between Türkiye Sınai Kalkınma Bankası A.Ş. (TSKB) (Industrial Development Bank of Turkey) and the International Bank for Reconstruction and Development (IBRD), USD 40 million was provided to the regions adversely affected by the refugee influx and to the SMEs that support women's employment in 2021 through the funds received by İşbank from TSKB. Exporter Card & Maximiles TİM Exporter Card İşbank launched the "Exporter Card" in 2016, a first in the industry for exporting SMEs. With this card, export companies both benefit from all the features of company credit cards and earn MaxiPoints from the export transactions that they carry out through İşbank. Owners of "Maximiles TİM Exporters Card" - a business credit card developed in 2020 in collaboration with the Turkish Exporters Assembly (TİM) - will be able to use their MaxiPoints, earned via their export transactions through İşbank, as MaxiMiles in flight ticket purchases and benefit from many other special advantages. The number of Exporter Cards and Maximiles TİM Exporter Cards increased from 6,720 at the end of 2020 to 8,648 at the end of 2021. As of year-end 2021, the total amount of financing provided to SMEs in cash and non-cash loans reached TL 135.7 billion. Protocol with the Turkish Exporters Assembly (TİM) With the Exporter Support Loan signed by and between İşbank and the Turkish Exporters Assembly (TİM), attractive loan rates were offered to exporters through various types of loans such as the "Women Entrepreneur Export Support Loan" and the "Fair Participation Export Loan". The Bank provided USD 73.4 million worth of funds to exporters under this protocol from the effective date of this protocol to the end of 2021. EBRD - COVID-19 Solidarity Loan As part of a loan agreement signed by and between İşbank and the European Bank for Reconstruction and Development (EBRD), İşbank was granted resources worth USD 54 million to lend to its customers in order to help alleviate some of the economic hardships caused by the COVID-19 pandemic. Each firm that met the loan package criteria could benefit from the COVID-19 Solidarity Loan to borrow a maximum of USD 100 thousand or equivalent amount in Euro or TL. Treasury-backed CGF-guaranteed "Breath" Loan The Union of Chambers and Commodity Exchanges of Turkey, Kredi Garanti Fonu A.Ş. (Credit Guarantee Fund, CGF) and the Bank signed a protocol for the "2021 Breath Loan". Under this protocol, real persons and legal entities that met the SME criteria and were members of the chambers and exchanges (e.g. any of the Commerce and Industry Chambers or any Commerce, Industry or Maritime Commerce chamber or any Commerce Exchange) affiliated with TOBB were given the opportunity to borrow loans with a 18-month term, including a 6-month grace period and the subsequent 12-month repayment period. Depending on the size of the borrowers, loans up to TL 200 thousand per customer were granted with a guarantee rate of 90% provided by KGF A.Ş. Approx. TL 500 million was lent under the protocol. 76 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 77 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen SUPPORT TO AGRICULTURE SECTOR AND FARMERS GENDER EQUALITY IN THE ECONOMY: SUPPORTING WOMEN ENTREPRENEURS The agriculture industry is one of the vital industries for sustainable development. İşbank supports the efforts toward increasing agricultural productivity through projects that reflect its digitalization strategy for the agricultural industry. Thanks to the recommendations given to farmers as well as the data obtained from 30 agricultural monitoring and forecast tools granted to them under the Digital Agriculture project led in collaboration with Vodafone Business, use of input materials including agricultural fertilizers, pesticides and water was reduced, productivity was increased, and environmental waste was reduced. According to the initial results obtained from the agricultural monitoring and forecast tools which began to be used under the project, farmers gained an additional economic benefit of TL 57 million from 27 tools through reduction in use of input materials and increased productivity thanks to the early warnings as well as recommendations sent to 13,200 farmers on irrigation, fertilization and use of pesticides. The Digital Agricultural Loan, launched to ensure widespread use of the agricultural monitoring and forecast devices, continued to be offered. Thanks to the "ImeceMobil" application, which can be downloaded free of charge, financial literacy and income-expense tracking support is provided to farmers, and farmers can make İmece Card and agricultural loan applications without going to a branch. In addition, satellite services and expert-assisted special services available for use in the ImeceMobil application enable farmers to monitor the condition of their lands and the health of their crops. The application also prevents excessive fertilization that pollutes the environment by offering fertilization suggestions and helps farmers avoid incorrect irrigation practices by making irrigation suggestions to reduce use of water, which allows them to keep costs under control and achieve better crop yields. During the pandemic, support loan campaigns with eased collateral requirements were organized. In October 2021, end-to-end agriculture loans (Instant Agricultural Loan) were lent via digital channels, which is a first in the industry, and 1,264 farmers borrowed this loan within 3 months. The documentary "Tarım İçin Su" (Water for Agriculture), which was created to increase awareness of water management and sustainability in agriculture, was broadcast on various TV channels and social media platforms. The total number of farmer customers of İşbank was 356 thousand as of year-end 2021, and 169 thousand customers borrowed agricultural loans. İşbank believes that sustainable development is to be achieved by increasing women's participation in the economy and women’s employment rate. To this end, the Bank increasingly uses both its own resources and foreign funds to support female enterprises. Women Entrepreneur Loan İşbank offers financing support up to TL 500 thousand to tradeswomen who want to grow their business, companies 51% of the shares of which are held by a female partner, companies that have at least one female senior executive and companies 20% of the shares of which are held by female shareholders. As of year-end 2021, the Bank provided TL 6.5 billion in financial support to more than 42 women entrepreneurs. Women's Power in Entrepreneurship with TÜRKONFED İşbank launched WeLead Project in collaboration with TÜRKONFED to identify the current status and needs of women entrepreneurs throughout Turkey, regardless of their sector, and then to develop business for women producers and support their efforts to keep up with the rapid digitalization of the world. Through WeLead Project initiated as part of a contract entered into with TÜRKONFED in 2021, the Bank will carry out various activities in 2022 and 2023 as well to help them keep up with digitalization and develop networks with active organizations in the market, and support them with mentorship and training programs. Women’s Banking In order to increase the number of women in its customer portfolio and improve women's business relations with İşbank, the Bank carries out activities according to a roadmap that the Bank created based on the expectations and needs of its women customers, monitored by the Bank's personal business division, regarding the financial products and services. The Women Banking program, which is still in development, will review the existing processes, products and services of the Bank and align them with women customers, deliver various value propositions and make our services more accessible. Women Entrepreneurs and Young Entrepreneurs Export Support Loan with Turk Eximbank İşbank provided financial support to women and young entrepreneurs through the "Women Entrepreneurs Export Support Loan" and "Young Entrepreneurs Export Support Loan" products under the protocol entered into with Turk Eximbank in order to increase participation of women and young entrepreneurs in export activities. Arya Women Investment Platform With the Arya Investment Preparation Acceleration Program, organized in May 2021 as part of the collaboration between İşbank and the Arya Women Investment Platform, 19 women entrepreneurs went through a 5-week training and mentorship program to get ready to meet investors. At the semi-final event with 51 women participating, entrepreneurs delivered their investor presentations and graduated from the program. In October, a 3-day Arya Retreat event was held in Bodrum with the participation of 81 women investors and investor candidates who had the opportunity to meet the finalist entrepreneurs. After completion of the presentations delivered to the jury and investors, 3 entrepreneurship projects received awards. Besides meeting with the investors, entrepreneurs also benefited from eye-opening workshops, had the opportunity to network and collaborate with each other and listen to the inspiring stories from successful business people from Turkey and other countries. The first of the Arya Workshops training program series designed to contribute to the management skills of women entrepreneurs was held both as a physical and virtual event in December 2021 with 77 female participants. 39 women entrepreneurs also benefited from the Arya Challenge Club Membership which offers them the chance to learn from each other as well as other networking possibilities, the Arya Membership which provides members with various advantages such as free participation in events, and the Arya Shopping Festival which allows the women entrepreneurs to increase their awareness. "İş Asset Management Women Equity Fund" The "İş Asset Management Women Equity Fund", focused on the theme of equal inclusion of women in business life, was offered to investors on International Women's Day 8 March 2021 in collaboration between the Bank's subsidiary İş Asset Management and the Koç University Center for Gender Studies (KOÇ-KAM). The Fund will invest in equity shares of domestic companies that employ women on an equal basis and attaches importance to ensuring women hold management positions. Half of the revenue generated by the Fund will be allocated to the studies with KOÇ- KAM and scholars in order to improve women studies and empower female leadership. When selecting companies to be included in the fund, various criteria are taken into consideration such as having at least one female board member, having women in decision-making positions, and providing other public information content generated under the KOÇ-KAM consultancy. Domestic equity shares of companies that meet at least two of the above criteria can be included in the pool of equities that the Fund can invest in. The criteria defined by KOÇ-KAM include having a female employment rate above the mean female employment rate in Turkey, caring for a balanced private-business life, embracing gender equality and equal pay policies, adopting a fair approach in recruitment processes and supporting social gender equality projects. The Bank will donate 50% of the fund management income from the Fund to the "KOÇ KAM UNESCO Chair - İşbank Women Studies and Women Leadership" Scholarship Program. LIFE STAGE BANKING İşbank desires to maintain a lifelong service relationship with its customers. Therefore, the Bank develops banking service packages that include the products needed for every stage of life, taking into account the expectations in different stages of life such as childhood, youth, working life and retirement. 78 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 79 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen ENABLED BANKING İşbank endeavors to ensure that all of its service areas are suited to disabled users. Verbal and visual directional aids, tactile paving, wheelchair ramps (where physical circumstances permit) and Bankamatik ATMs suited for use by disabled customers are available at our branches. 471 Number of branches suitable for use by visually impaired customers 823 Number of branches suitable for use by the orthopedically impaired Continuous physical and software improvements, such as headphones, tactile surfaces, and use of SMS messages, are made to all of İşbank's Bankamatik ATMs to make sure that they are suited for use by disabled people. İşbank ensures that there is at least one Bankamatik ATM that is suited for use by orthopedically impaired people in each province where it has orthopedically impaired customers, while the number of ATMs with a headphone jack is being gradually increased. Additionally, customers' suggestions and requests regarding the installation of new Bankamatik ATMs or upgrading existing ones so they are accessible by disabled people are carefully evaluated, and the necessary action is taken. The Bank is working to make sure there is at least one Bankamatik ATM in every province that is accessible by orthopedically impaired customers. Special staff members are employed at İşbank's Call Center to allow hearing-impaired customers to receive services at the Bank's branches by communicating via video call. The Bank aims to increase the number of branches and Bankamatik ATMs that are suited for use by disabled customers in 2022. In addition to these, İşbank also develops digital solutions for its disabled customers. The İşCep IOS application supports Voice Over, while the Android application supports TalkBack features. With the Dynamic type feature, text sizes in İşCep can be adjusted according to personal preferences. İşbank's corporate website is compatible with Jaws. The "Enabled Banking" page has been added to our corporate website isbank.com.tr to provide the necessary directions for our disabled customers to easily carry out their transactions. For hearing- impaired customers, a translation plugin has been added to the "Enabled Banking" and "Help" pages which translates content into sign language. In 2021, customers were able to communicate with a customer representative to receive service through the İşCep App. Customers who, while messaging or talking with Maxi, state that they would like to speak to a customer representative are transferred to a Call Center customer representative so they can complete their transactions by messaging with them via the live messaging application. Eye Brand Certification BlindLook is a firm that, with its voice-focused technology, allows any product or service to be freely accessible by visually-impaired people, and cares for them and creates blind-friendly brands. The firm's Eye Brand certification is a global certificate that documents inclusive services offered by blind- friendly brands. The BlindLook's voice-focused accessibility technology that makes products and services accessible by the visually-impaired works in parallel to screen reader programs for them and acts as a narrator on our website by reading out the text content of the images. Before İşbank began collaborating with Blindlook, blind users tested the Bank's different websites. Then they gave feedback about the problems they encountered when using the Bank's tested websites and re-tested the websites after the problems were fixed within 3 weeks. The websites that passed the 2nd test are eligible to receive the "Eye Brand" badge. This badge shows that the website is blind friendly. The websites maximiles.com.tr and maximumgenc.com.tr have passed these tests and received the "Eye Brand" badge. The "Eye Brand" badge is displayed in the footer section of the websites. The certification process for the Bank's corporate website isbank.com. tr is underway, and the badge will be displayed on the home page after it is received. FINANCIAL LITERACY Increased financial literacy within society enables customers to make the right decisions regarding their financial assets and increases trust in the financial sector. İşbank aims to increase the level of financial literacy of every segment of society and every customer from each segment. Economic Research Therefore; Blog posts and training content are published on the İŞ'TE KOBİ website, www.istekobi.com.tr, in order to improve the financial literacy of tradespeople, women entrepreneurs, SMEs, entrepreneurs and farmers. Additionally, the İŞ’TE KOBİ website also includes a specific area where visitors can ask questions and receive answers from experts about various topics such as taxation processes, how to incorporate a new company, and benefits for women entrepreneurs. Under the Women’s Banking program, which is still under development, campaigns and collaborations have been planned to help improve financial literacy among women. With WeLeadDProject initiated as part of a contract entered into with TÜRKONFED in 2021, the Bank will carry out various activities in 2022 and 2023 as well to help them keep up with digitalization and develop networks with active organizations in the market, and support them with programs such as mentorship and training. İşbank and the Arya Women Investment Platform have been jointly organizing a series of training modules, i.e. Arya Workshops, since 2018. This series of training modules offers women financial literacy training free of charge. Local farmer meetings were held to help them with digitalization and improve their financial literacy. In 2021, a total of 1,861 farmers attended 16 meetings. Additionally, with the "ImeceMobil" application, which can be downloaded free of charge, financial literacy support is provided to farmers. İşbank's Economic Research Division monitors and reports on cyclical and structural developments in both the national and global economy. In addition to daily, weekly and monthly periodicals in which the domestic and global economic developments are evaluated, essential data related to Turkey's economy is analyzed and published on the website ekonomi.isbank.com.tr. The website, which provides free subscription services, has approximately 15,500 subscribers as of the end of 2021. The Division shared a total of 17 publications in 2021, including six "Bulletin of Current Developments in Sectors", seven sector reports and four research notes. During the year, the Division drew up the "Sectoral Expectations for 2021" and published the weekly-updated "Course of Consumption Expentidures Per Sector". The Economic Research Division also prepares periodic reports on macroeconomic developments on a daily, weekly and monthly basis. These include "Daily Market Bulletin", "Weekly Bulletin" and "Monthly Economic Review". Additionally, "Data Analyses" reports, including Economic Growth, Inflation Developments, Budget Balance and Balance of Payments, are published on the website on a monthly basis. A total of farmers attended 1,861 16 meetings. 80 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 81 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen RESPONSIBLE MARKETING One of the key expectations of customers in the finance sector, which has complex transactions and processes, is to get accurate and easy-to-understand information from organizations about their products and services. İşbank takes it as a responsibility to provide its customers with consistently accurate, reliable, open and transparent information about its products and services. With a customer- oriented approach, the Bank offers its customers information that facilitates their decision-making process, meets their requirements and does not mislead them. The Bank makes investments to develop the skills of those employees who, directly or indirectly, offer customers such information in this area. As per its Ethical Principles and Code of Conduct, İşbank carries out all of its activities in accordance with the legislation and the Bank's regulations. İşbank endeavors to understand all needs and demands of its customers and provide them with information about possible risks and benefits in an accurate and complete manner. İşbank does not share misleading information with its customers, carries out its activities in a safe manner, complies with legal regulations, and offers innovative products that meet customers' needs to ensure continuity of customer relations. The Bank handles all complaints and suggestions from its customers with utmost care and sensitivity to achieve customer satisfaction by coming up with appropriate and pertinent solutions. İşbank communicates with its customers in an open, simple and complete manner, avoiding misleading, complex, contradictory or repetitive expressions. The Bank provides its customers with information about their next transactions as well as the fee and commission rates and amounts applicable to each transaction in accordance with the Banking legislation. Human Rights and Social Impact Evaluations in Investment and Loan Activities Besides environmental impact, İşbank also considers social impact in its investment and loan appraisals, and demands implementation of certain practices to mitigate affirmative social impacts, if any. The environmental and social risk assessment model which is used by İşbank during environmental and social risk evaluation processes includes a wide range of variables associated with human rights and social impact, such as child and forced labor, public health, occupational health and safety, working conditions, OHS management systems, forced displacement, loss of livelihoods, stakeholder communication, gender equality, sexual harassment, and discrimination. "Public Participation Meetings" are held in all projects as a minimum within the scope of local EIA. Additional stakeholder communication meetings and corporate social responsibility activities are carried out in all investment loans that is subject to environmental and social risk evaluation within the framework of international standards. Investments that are to be financed by the Bank and evaluated the risk score A (high risk) based on the Environmental and Social Risk Evaluation model are subject to an social impact evaluation, including a human rights impact evaluation, in accordance with the requirements of international standards. For major infrastructure investments to be financed by İşbank, the necessary actions are taken to account the social benefit of the society and manage the possible negative impact of such investments through social impact evaluations. Social responsibility budgets are set aside in projects to improve their positive impact to the benefit of the stakeholders affected by the projects. The most common impacts of financed investments include loss of livelihood and forced displacement due to the acquisition of land. For a project that is subject to financing at international standards, individuals and groups affected by the project are identified and classified through the " Resettlement Action Plan" and "Livelihood Restoration Plan", and appropriate actions are determined and commited to eliminate impacts. Within the scope of highway projects studies, social responsibility projects such as renovation and reconstruction of the roads, schools and water lines of the villages on the highway routes, as well as donating agricultural machinery to be offered to the common use of the villages whose incomes are based on agricultural activities, providing seed support, providing art development trainings for female stakeholders, supporting education with certain budgets annually, have been established. 82 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 83 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen We Take Responsibility for Climate Action "While news" of floods - caused by extreme temperatures and forest fires, and cloudbursts - come from worldwide, new records regarding weather events are breaking every day. The city of Zhengzhou in China was devastated by a record- breaking downpour on a single day in July which was equal to the total amount of annual rainfall. Forest fires starting in many regions around the world, from Siberia to the coastlines in the Mediterranean, affected a larger area this year compared to previous years. Many forest fires and flood events occured in Turkey during the summer season.. With the marine mucilage surfacing in the Marmara Sea, the effects of the climate crisis became more evident. Global warming of 1.5°C means increased heat waves, longer warm seasons and shorter cold seasons. Furthermore, global warming of 2°C means that we will reach critical tolerance thresholds for agriculture and health. Since increased temperatures will affect the water cycle, we will see more intense rainfall, floods and droughts in many regions around the world. As the sea level continues to rise, coastlines will be exposed to more frequent and severe flooding and erosion. Increased number of extreme weather events causes concern as they reduce the predictability. The Intergovernmental Panel on Climate Change (IPCC) report published in 2021 shows that some effects of the climate crisis have now become irreversible. General Secretary of the United Nations (UN) describes the report as "code red for humanity". However, many global developments also suggest that the negative effects of climate change are still at a manageable level. Following the UN Climate Conference "COP26" in 2021, the "Glasgow Climate Pact" agreed by 197 countries, has officially recognized the goal of reducing global carbon emissions by 45% by 2030. The decision was taken to double the amount of funds provided by developed countries to developing countries to ensure the adaptation to climate change. Developed countries have reiterated their goal to provide USD 100 billion of climate finance per year by 2025 to achieve climate resiliency. Material Issues Related Capital Elements Responsible Finance and Investment Integrating ESG Criteria · Combating Climate Change Financial Capital Intellectual Capital Social-Relational Capital Natural Capital Risks Opportunities • Existing financial solutions proving to be ineffective as a result of changes in the way of doing business and risk matrix across many sectors due to global warming • Compliance challenges encountered by customers during the transition to a green economy • Contribution to a green and sustainable economy and combating climate change through effective ESG risk management • Possibility to reach new customers as a reliable partner in the transition to a green economy • Ability to access new global fund sources that • Infrastructure deficiencies of organizations for a promote a transition economy transition economy Contributed SDGs KEY PERFORMANCE INDICATORS 2019 2020 2021 Field visits made as part of environmental and social risk evaluation Number of financed projects subjected to environmental and social risk evaluation Sum of financing provided for projects subjected to environmental and social risk evaluation (million USD) Amount of clean energy (million MWh) generated by financed renewable energy projects Total installed power (MW) of renewable energy projects financed by İşbank Share of renewable energy projects in the total energy projects portfolio (%) Carbon Disclosure Project (CDP) Climate Change Report Carbon Disclosure Project (CDP) Water Safety Report 22 13 395 21,9 262 67.3 C - 1 7 365 24,9 5 9 331 32.3 1,950 1,008 69.5 A- - 71 B C TARGETS Targets for 2021 The Bank will continue working to increase the share of renewable energy projects in the total energy generation projects portfolio. In 2021, it is anticipated that 100% of the loans to be allocated for new energy plant investments will be used for renewable energy projects. Realization in 2021 Realization Targets for 2022 and Beyond 100% 100% In 2021, the Bank will create its report as per the Task Force on Climate-related Financial Disclosures (TCFD). İşbank aims to improve reporting on climate change- linked risks and opportunities in order to achieve a better approach to corporate governance and risks. The Bank is still continuing its activities on this front. The target is planned to be preserved. 84 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 85 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Technical actions required to achieve the targets set by the Paris Agreement were defined. A decision has been made to terminate using inefficient fossil fuels gradually. The first step is to achieve a significant, quick and continuous reduction in greenhouse gas emissions and to reach to net zero emissions of CO2. Such action will provide a quick restoration in the air quality and a balanced global temperatures in 20 to 30 years. Experts recommend investing in early warning systems, a climate-resistant economy and infrastructure as a robust way of adapting to climate change. For this purpose,public and private sector collaboration and green innovation are required. A large portion of global CO2 emissions originates from the energy sector. Therefore, it’s important to move toward sources of renewable energy in order to limit the impact of climate change. It appears that private sector investments in renewable energy sources have significantly increased, and the share of electricity generated from renewable energy sources is rising with the help of the support given in recent years. Renewable energy sources account for 53% of the total installed power in Turkey as of year-end 2021. İşbank supports the transition to a low-carbon economy. The Bank analyzes the risks and opportunities associated with the transition economy and gradually increases the number of products and services that support a green economy. As of year-end 2021, renewable energy projects make up 71% of the total number of energy generation projects. İşbank has not participated in financing any new coal-fired thermal power plant investment since 2015.The fact that the Bank will not lend "Loans for financing greenfield investments of coal- and natural gas-fired thermal power plants" has been announced in 2020 by adding these types of loans to the Exclusion List included in the annex to the İşbank's Environmental and Social Impacts Policy. İşbank discloses how it manages its emissions and its exposure to climate risks to all stakeholders through its Climate Change Disclosure Report under the Carbon Disclosure Project (CDP). İşbank works to achieve inclusive and environmentally friendly growth and will continue to closely monitor the risks and opportunities associated with climate change in the years ahead and maintain and improve its activities and commitment in this area. MANAGEMENT of CLIMATE CHANGE RISKS İşbank meticulously evaluates the risks and opportunities associated with climate change. The Bank worked together with an independent consultancy firm to measure and assess the risks and to establish a risk governance structure across the Bank. Based on this joint work, climate change risks have been added to the risk catalogue, which is the Bank's guiding document for risk management activities, as a risk group, with descriptions and examples of the related risk sub-groups. Additionally, the Bank's governance organization has been created with the description of roles and responsibilities regarding management of climate change risks, and the documents "Climate Change Risk Policy" and "Methodology and Implementation Principles Regarding Measurement of Climate Change Risk" have been drawn up and approved by the Board of Directors. İşbank follows a 4-stage path to manage climate risks: 1- IDENTIFYING SUSTAINABILITY PRIORITIES: Sustainability focus areas are identified, and the risks and opportunities in these areas are evaluated on the basis of business unitsthrough comprehensive assessments and stakeholder conversations. For detailed information about how Sustainability Priorities are identified, see page 33 3- PROCESS of IDENTIFYING CLIMATE RISKS: As a finance organization focused on lending loans, İşbank's greatest climate-related risks are associated with its loan portfolio. İşbank prepares a long list of potential risks and opportunities by conducting a detailed review of literature and trend analyses. This evaluation comprises reliable data sources such as publications of international rating organizations (traditional and ESG-driven), the Sustainability Accounting Standards Board (SASB) and think tank publications as well as reports published by industry forums and development banks. Key risks and opportunities on sectoral basis are identified based on the findings. This sectoral perspective is then merged with the inputs of İşbank's experts. Besides additional data points, expert inputs (e.g. official GHG emission data under the UNFCC) are also used to check the results. 2- ENVIRONMENTAL and SOCIAL RISK ASSESSMENT MODEL: All new investment projects to be financed by İşbank with an investment amount of more than USD 10 million are evaluated using the Environmental and Social Risk Evaluation Tool (ÇESMOD ). Projects within this scope are subject to environmental and social risk assessment, and a risk score is determined as a result of this assessment. If the risk of a project is determined to be high, an environmental and social action plan is established in cooperation with the customer to eliminate or mitigate the identified effects, and the follow-up of these actions is provided under the supervision of independent consultants, when necessary. For details, see Environmental and Social Risk Management in Loans 4- PROCESS of IDENTIFYING OPPORTUNITIES RELATED to CLIMATE CHANGE: During this process, İşbank employs a similar methodology as with the process of identifying risks. Opportunities related to climate change are associated with the loan portfolio of the Bank rather than its operations. İşbank conducts regular reviews of the national and international climate agenda, investment plans and sector activities. İşbank views green bonds, green infrastructure finance, green loans/mortgages, green insurance products and resilient products and services as the areas with the biggest potential opportunities. 86 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 87 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen İşbank has added the indicator "Share of Sectors With High Climate Change Risk Within Total Commercial Portfolio" to the solo risk appetite framework to prevent the concentration increases of the sectors that are highly exposed to climate change risks within the portfolio and to provide guidance for composition of the portfolio in subsequent periods. İşbank closely monitors developments in global carbon markets. The Bank held meetings with foreign correspondent banks to discuss the applicability of carbon contracts in international markets to its customers. Accordingly, the Bank plans to develop studies on over-the-counter (OTC) derivative products. İşbank evaluates and analyzes the effects of its commercial loan portfolio under Scope 3, Category 15 "Investment" by also estimating its total absolute emissions. İşbank's commercial loan portfolio accounted for 76.4% of its total loan portfolio and represented the majority of the loan allocation activities as of 2021. The Bank also closely monitors the opportunities associated with a green economy and continuously improves its product portfolio in this area. The weight of products that support the green economy, such as İşbank Green Bond, Solar Loan by İşbank and TEMA Environmental Variable Fund in the Bank's product portfolio is increasing day by day. See Products and Services Contributing to a Green Economy İşbank has been reporting since 2019 within the scope of the Carbon Disclosure Project (CDP) Climate Change Program which allows companies to report to investors how they manage their carbon emission processes, their activities to reduce carbon emissions, and how they manage their risks in this area. İşbank continues to expand the scope of the ISO 14001 Environmental Management System.. İşbank contributes to the efforts for increasing environmental awareness and the forestation activities in our country with many projects and activities in the field of environment. We Take Responsibility for Future Generations Within the scope of the Climate Change Risk Management Project, the actions foreseen to be implemented by the end of 2022 for the opportunities arising from climate change have been defined. Efforts are underway to determine the responsibilities and roadmaps for these initiatives, including enhancing product and financing opportunities that will support the transition to a low-carbon economy, and increasing access to sustainable fund resources. İşbank takes into account all risks (including transition risks and physical risks and the subcategories thereof) arising from climate change at the corporate level. These risks are prioritized and evaluated based on a qualitative and quantitative assessment. As part of the prioritization process, the Bank defines significant financial impact at the transaction and portfolio level by taking three criteria into consideration: 1. CUSTOMER-RELATED RISKS QUALITATIVE EVALUATION THRESHOLD: İşbank evaluates each customer sub-sector with a scale of 1 to 5 in order to identify their exposure to climate risks. Sub-sectors with a risk score of 4 (medium high) or 5 (high) are considered to pose a significant risk to our business. The results are summarized with a heat map that shows high-risk sectors and the loan risk balance in these sectors. 2. CUSTOMER-RELATED RISKS QUANTITATIVE EVALUATION THRESHOLD: İşbank adopts the scenario analysis approach of UNEP-FI in quantitative evaluation. With the scenario analysis, the potential impact of climate risk events such as the implementation of possible carbon taxes or emissions trading systems are evaluated by applying stress testing for the financial operations of companies in selected sectors. An increase in expected credit loss (ECL) above a certain threshold, as calculated based on stressed financials, is accepted as a significant impact. 3. RISKS DIRECTLY ASSOCIATED WITH OPERATIONS İşbank may be exposed to climate-related losses and downtimes in direct connection with its operations. The Bank evaluates and manages its operations accordingly. Climate risks which may result in costs above a certain threshold are accepted as risks that have a significant impact. ENVIRONMENTAL and SOCIAL RISK MANAGEMENT in LOANS The banking sector's main responsibility for climate action is to take environmental and social impact factors into consideration during loan allocation processes. İşbank meticulously monitors the environmental, social and governance risks caused by its lending activities. The Bank supports multi-partner initiatives in the sector to increase knowledge in this area. İşbank is one of the early signatories of Global Compact Turkey's Declaration on Sustainable Finance, which guarantees the inclusion of environmental and social risks as factors to be considered during loan allocation processes. İşbank is also a signatory of the United Nations Environment Program Finance Initiative (UNEP FI) Principles of Responsible Banking. As per this commitment, the Bank has begun conducting an impact analysis for its portfolio to review its environmental, social and governance impact. By using the Environmental and Social Risk Evaluation Tool (ÇESMOD) which was developed within the framework of Bank’s practices, İşbank evaluates all new investment projects with a total investment amount of more than USD 10 million that are under the authority of the Bank's Project Finance, Corporate Loans Underwriting and Commercial Loans Underwriting Divisions and the financing of which is participated in by the Bank. By identifying the categories of environmental and social risks associated with these type of loans, a road map is established to mitigate or eliminate the possible environmental and social impact of the investments. The ERET model, which is used by İşbank since 2013 to evaluate the Environmental and Social Risk Score of investments, was replaced in 2021 with ÇESMOD (Environmental and Social Model), which is more in line with the international standards of risk measurement and can be tailored according to the type of investment, İsbank has begun to use this new model in 2022. With the new ÇESMOD Model, E&S risk scores of the investments financed by the Bank are calculated with initial evaluations conducted with specific sets of questions based on the type of investment, e.g. new facility development, capacity expansion and/or additional facilities or refinancing/ procurement, followed by evaluations conducted with specific sets of questions based on the sector in question, e.g. mining, manufacturing, infrastructure, chemistry, energy and renewable energy. Sets of questions based on type of investment and sector: • EIA decisions, environmental permits, environmental and/or social impact evaluation, • Natural preservatione, critical habitat and ecosystem assessments, • Seismicrisk, use of natural resources, • Waste management, • Air, soil and water quality, • Noise and dust • Occupational health and safety, public health and safety, • Management of chemicals, • Involuntary displacement and stakeholder engagement Factors such as those listed above, the scope of which is set out in the applicable laws and regulations, are evaluated and scored with the answers of the questions specifically developed based on the activities of the company being evaluated. Based on the answers given, the risk category of the project is determined, e.g. high (A), medium high (B+), medium low (B-) and low (C). Thus, a "Project Environmental and Social Evaluation Document" is prepared based on national and international legislation and good practices (e.g. IFC Performance Standards, EBRD Performance Requirements, Equator Principles), and the document is attached to the loan proposal documents which is submitted to the higher management for approval. For all projects deemed eligible based on the evaluations conducted by the Sustainable Finance (SF) team, including but not limited to those projects which are classified by İşbank as high-risk (risk category A), an independent environmental consultant is assigned to act on behalf of the Bank. The independent environmental consultant conducts site visits and literature research to determine the current status of the project and its possible environmental and social impact. As a result of this work, an Environmental and Social Due Diligence (ESDD), which describes the current status and applicability of any permission / approval process regarding environmental obligations as well as the consultant's comments, and an Environmental and Social Action Plan (ESAP), which describes how to mitigate and eliminate these impacts and manage the process, are drawn up and submitted to the Bank. 88 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 89 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen For high-risk projects, an Environmental Impact Evaluation (EIA) Report, which includes additional and more detailed baseline studies, may be requested separately from the EIA application form prepared during the EIA process. Project companies are also demanded to prepare an Environmental and Social Management Plan (ESMP) for management of the risks and impact of their project and submit it to the Bank. Additionally, both during construction phase and operation phase, environmental and social monitoring activities are carried out at agreed intervals regarding the factors (e.g. compliance with environmental legislation, waste management, emission measurements, soil and water analyses, impact on socio-economy, eco-system and habitat, compensation mechanisms, occupational health and safety practices) set out in the ESAP. Our Sustainable Finance (SF) team also participates in the monitoring activities conducted by the environmental consultant as part of field visits in person. While risk categories are identified as part of the Environmental and Social Impact Evaluations conducted by İşbank, biodiversityrisks are evaluated on a per-project basis. For projects which are determined as high risk category and present a number of biodiversity risks, consultants are also requested to prepare a Biodiversity Action Plan (BAP). Due to the COVID-19 pandemic, investment monitoring of the investments mainly conducted in the form of a desktop assessments and the Bank's Sustainable Finance team participate monitoring activities via teleconference meetings joined by consultants and companies. In all projects, "Public Participation Meetings" are held as a minimum within the scope of local EIA, and additional stakeholder communication meetings and corporate social responsibility activities are carried out in all financing in line with international standards. In 2021, the SF team conducted field visits for 5 projects as part of environmental and social risk management. The number of investment projects subject to Environmental and Social Risk Evaluation is 15, 9 of which were financed by İşbank. 9 Number of projects financed under ERET 9 Number of projects financed under ÇESMOD Of these projects with a total amount of USD 331 million, 15.1% were classified in A, 75.4% in B+ and 9.5% in B- risk category on the basis of theloan amount. USD 50.2 million within the scope of 2 projects with "A" risk category USD 249.5 million within the scope of 5 projects with "B+" risk category USD 31.3 million within the scope of 2 projects with "B-" risk category As of year-end 2021, a total of 153 investments were subject to Environmental and Social Risk Evaluation, and 104 of them consist of investments that have been financed and are currently in open status. In 2021, no project was rejected due to the results of the Environmental and Social Risk Assessment (due to environmental and/or social reasons). In the following period, İşbank is planning to conduct a seperate evaluation for measuring the impact of climate change on a company's activities when evaluating environmental and social impact dimensions of investments and their climate impact. Management of Water Risks İşbank evaluates its commercial loan portfolio's exposure to water-related risks and opportunities. While evaluating loan applications, İşbank expects all of its customers to comply with the national regulations applicable to their commercial activities. These include regulations concerning water. Furthermore, İşbank also evaluates potential environmental and social (E&S) impacts of the investment projects financed by the Bank. All projects are evaluated according to national laws and regulations, including the Regulation on Water Pollution Control, Regulation on Urban Waste Water Treatment, Regulation on Surface Water Quality and In all projects financed by İşbank, customers are required to comply with all applicable regulations. At İşbank, the potential ESG risks of all new investments are evaluated according to the ÇESMOD system. ÇESMOD consists of sets of questions which are sorted according to the type of financed investment, such as new facility development, capacity increase and/or additional facility or refinancing/procurement, and specifically prepared for 5 separate sectors (mining, production, infrastructure, chemistry, energy and renewable energy). Water-related risks examined through this model can be grouped under 3 main categories: WATER RESOURCES Negative effects on surface water and groundwater such as change in water temperatures, riverbed variation, important river crossings, maintaining environmental flow in hydroelectric power plants, use of groundwater, use of surface water or sea water as cooling water, WASTEWATER Generation of excessive amounts of wastewater by the project, the degree of pollution of the wastewater, the necessity to build a separate treatment plant to process wastewater from the plant, discharge to the sea (e.g. domestic wastewater, industrial wastewater) CONSUMPTION OF RESOURCES Dependency of the project on natural sources, the amount of water used (intensive use of water) are questioned. In order to reduce the effects of water-related risks, İşbank expects project companies to measure water quality at intervals set out in applicable regulations before and after the project and to report on the use of water and resource efficiency. Management of Forest Risks İşbank evaluates its commercial loan portfolio's exposure to forest-related risks and opportunities; Companies that use forest products as raw materials in their processes must comply with the provisions of national forest laws. In all projects financed by İşbank, customers are required to comply with national laws and regulations on forestry. İşbank evaluates potential E&S risks of projects according to the ÇESMOD methodology. With the ÇESMOD methodology, critical habitat and sensitive areas (EIA Regulation, Annex-5) evaluation and balancing strategy studies are taken into consideration in order to conduct an assessment of forest-related risks. Based on these factors, İşbank considers the project's environmental impact in terms of deforestation and use of forests. For example, large scale highway projects are classified as high-risk (A) projects as they deforrest a significant amount of land. İşbank requires project companies to take certain measures, such as re-locating trees around the project area to appropriate areas and/or planting trees in place of any treedeforrestation , in order to mitigate negative impacts of the investment in sensitive areas. İşbank created the Sustainable Bond Framework in 2020. Funds to be derived from this type of bond will be used for initiatives that can create a positive social impact and to finance green projects. Loans in this category which are associated with SDG 15 (Life on Land) will be allocated to finance certified organic farming activities as well as technologies that improve quality and productivity and allow effective use of natural resources. Activities not financed İşbank rejects any loan applications for activities on the İşbank Exclusion List, which the Bank names in the annex to its Environmental and Social Impacts Policy, without even taking them into consideration. Among activities not financed by the Bank are investments involving forced labor and child employment, the production of weapons of mass destruction and landmines, and the production and trading of internationally prohibited chemicals and drugs or substances that are harmful to the ozone layer. In 2020, loans for financing new greenfield investments of coal- and natural gas-fired thermal power plants to be established for electricity generation were added to the İşbank Exclusion List. The Exclusion List is in the annex of the Environmental and Social Impacts Policy which is available on the website. 90 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 91 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen PRODUCTS and SERVICES CONTRIBUTING to the GREEN ECONOMY İŞBANK and ITS ACTIVITIES in 2021 Financing Renewable Energy Transition to renewable energy sources plays a key role in minimizing the negative effects of climate change on humans and the environment. Renewable energy investments, a key tool in the transition to a green economy, also provide significant economic benefits with the new employment areas that they create. It is essential that renewable energy investments and technologies must be supported to ensure an increase of using renewable sources in energy generation. İşbank is one of the pioneering institutions in financing renewable energy projects in our country. All of the new investment project loans provided by the Bank for electricity generation investments after 2015 has been allocated to renewable energy projects. All of the new project financing provided by İşbank for the energy generation sector in 2021 consists of renewable energy projects, and the Bank will continue to finance renewable energy investments, including especially WPP and SPP projects, in 2022 and beyond. In line with its commitment to allocate 100% of its new investment loans for the energy generation sector to renewable energy investments, the Bank aims to increase the ratio of renewable energy loans to total electricity generation loans even more from its current level of 71%. 71% 6.2% Share of renewable energy projects in İşbank's total energy generation projects portfolio Share of renewable energy projects in İşbank's total loan book. 32.2 million (MWh) Amount of clean energy generated in 2021 through the projects financed by İşbank 114 Number of renewable energy projects financed by İşbank in 2021 1,008 MWh Total installed capacity of the renewable energy projects financed by İşbank in 2021 10,914 MW Total installed capacity of the renewable energy projects financed by İşbank It is anticipated that 100% of the loans to be allocated by İşbank for new energy plant and electricity generation investments will be allocated to the renewable energy projects in 2022. Distribution of Renewable Energy Financing Provided in 2021 Type Quantity Total Installed Capacity (MW) Total Installed Capacity (MW) (Financing Share Ratio Provided) Cash Risk (USD million) Non-Cash Risk (USD million) Total Risk (Cash + Non-Cash) (USD million) BES GES HES RES JES 3 103 3 3 2 9 591 192 118 98 TOTAL 114 1,008 9 200 49 118 63 439 8.3 111.7 7.8 25 29.9 182.7 0.1 3.4 4.7 41.6 0 49.8 8.4 115.1 12.5 66.6 29.9 232.5 Renewable Energy Investments Financed by İşbank Type Quantity Total Installed Capacity (MW) Cash Risk (USD million) Non-Cash Risk (USD million) BES GES HES RES JES 24 598 90 52 36 210 782 6,480 2,443 999 98.7 366.4 1,164.8 264.4 809.9 TOTAL 800 10.914 2.704,2 8 27.9 18.4 389.4 71.3 515 Total Risk (Cash + Non-Cash) (USD) 106.7 394.3 1,183.2 653.8 881.2 3,219,2 Amount of Energy Generated through the Renewable Energy Investments Financed by İşbank Type (MWh) Total Electricity Generated as of 2021 Total Electricity Generated as of 2021 (Financing Share Ratio Provided) BES GES HES RES JES 1,441,829 2,199,270 15,395,182 6,676,713 6,539,237 TOTAL 32,252,231 1,359,506 1,407,911 6,326,220 3,598,717 3,205,229 15,897,583 92 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 93 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen İşbank Sustainable Finance Framework Green Mortgage Cooperation with International Financial Institutions for a Green Economy İşbank has been obtaining medium-long-term, special- purpose financing from international financial institutions such as the European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), Proparco, U.S. International Development Finance Corporation (DFC (formerly known as OPIC)) and the International Finance Corporation (IFC) in order to finance the sectors and activities that contribute to sustainability since 2008. Besides energy efficiency and renewable energy projects, these resources are also used to finance female entrepreneurs, SMEs, agricultural enterprises and businesses located in priority development regions. The Bank also supports the economy by increasing awareness and efficiency in the use of resources through technical consultancy and training received from financial institutions. Closely following developments in the field of sustainable finance, İşbank evaluates the new financing needs of its customers and continues to provide resources for projects that are feasible and comply with lending principles and environmental and social standards. You can find the list of funds obtained by İşbank from international financial institutions and that were outstanding as of year-end 2021 in the "Annexes" section of the report. İşbank has expanded the scope of the Sustainability Bond Framework in 2021 by including loan transactions and turned it into the Sustainable Finance Framework which will also cover green, social or sustainable loans transactions in addition to eurobond issuances. Funds obtained under the framework will be allocated to projects with a positive environmental impact in the areas of renewable energy, energy efficiency, recycling, organic agriculture, clean transportation, green buildings and circular economy, and to finance loans with a positive social impact, such as financing SMEs in underdeveloped regions and women entrepreneurs. The second party opinion was obtained for the Framework prepared in accordance with the Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines published by the International Capital Markets Association (ICMA) and the Green Loan Principles published by the Loan Market Association. Geleceğe Orman (Forest for the Future) Geleceğe Orman (Forest for the Future), which represents a new milestone in the collaboration between İşbank and the TEMA Foundation that has been in place since 2008, was made available for use by the Bank's customers in September 2021. Geleceğe Orman (Forest for the Future) is a gamification application which rewards environmentally friendly banking activities such as opting to not receive printed bank statements or daily life activities such as using public transportation with carbon points, which, upon reaching a certain total target value, automatically results in the donation of a saplings to the TEMA foundation. With 85,200 users as of year-end 2021, Geleceğe Orman (Forest for the Future) is expected to reach 500 thousand people in 3 years, thereby aiming to gain nearly 1 million saplings to nature. According to the information from the TEMA Foundation, 30 thousand newly planted young trees are anticipated to absorb 36 thousand kg of CO2 when they reach 10 years of age. With the Green Loan product, which can be used forfinance various environmentally friendly activities, such as post- insulation (thermal and water insulation) of existing buildings, installation of energy-efficient heating and cooling systems or replacement of old inefficient ones with more energy-efficient systems, replacement of durable goods for individual use with more energy-efficient ones and purchase of solar energy panels, it’s aimed to increase energy savings and to finance the purchase of immovables with energy class "A" and "B". Whereas, a 0.5% loan allocation fee is charged to customers for standard consumer loans and mortgages, only half of that amount is charged to those customers who use Green Loan products for incentive purposes. Solar Loan by İşbank In line with its mission to be the pioneering and leading bank in the renewable energy sector, İşbank developed and introduced a new commercial loan to finance unlicensed rooftop solar power plants (SPPs) to be set up for self- consumption by industrial facilities in 2019. Solar Loan by İşbank is aimed at contributing to the development and widespread use of the "distributed generation" model, which involves efficient, flexible and on-site generation of energy, and the efforts in transforming the generation of energy. In 2021, TL 25.6 million worth of Solar Loan by İşbank was lent. Since the amended version of the Regulation on Unlicensed Electricity Generation which was adopted during the last quarter of 2021 has expanded the scope of roof- and facade- type SPPs by also permitting establishment of on-field SPPs whose production can be settled with its consumption, provided that it remains connected to the limited power of the consumption facility, field-type SPPs have also been included in the scope of Solar Loans by İşbank. Energy Efficiency Loan In 2021, the Bank organized a campaign specific to the Energy Efficiency Loan and discussed collaboration possibilities with specialized firms in this field. Any investment that is designed to reduce costs by increasing energy efficiency can apply for the loan, and the investment amount is determined based on a feasibility report that is drawn up by the authorized EEC (Energy Efficiency Consultancy) firm or 3rd party experts in cases where an EEC firm is not available. Loans can be extended in TL, USD or Euro with grace periods up to 1 year and maturities up to 10 years. TL 25.6 million Amount disbursed under Solar Loan by İşbank TL 179 million Amount disbursed under Green Vehicle Loan TL 172.8 million Amount disbursed under Green Office Premises Loan TL 4 million Amount disbursed under Denizleri Koruyalım (Let's Protect the Seas) 94 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 95 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Marine Conservation Loan Green Agriculture Support İşbank created Marine Conservation Loan, the first of its kind in the sector in terms of its environmental impact, to provide financial support to customers that want to invest in or improve their existing wastewater treatment, wastewater recovery or ballast water treatment systems to prevent or reduce sea pollution incidents and preserve the seas. After its launch in the second half of 2021, TL 4 million has been lent under this loan product. Green Vehicle Loan and Green Office Premises Loan İşbank continues to offer the Green Commercial Vehicle Loan for environmentally friendly electric and hybrid vehicles with low energy costs which are becoming more mainstream each day all around the world as well as the Green Office Premises Loan for those customers that would like to purchase "green buildings" with Energy Performance Certificate (category A or B), LEED (category Gold or higher) or BREEAM (category Very Good and higher) certificates. TL 179 million in green vehicle loans and TL 172.8 million in green office premises loans were lent in 2021. Electric Vehicle Charging Station Installation Loan İşbank has introduced the Electric Vehicle Charging Station Installation Loan to support widespread use of environmentally friendly electric and hybrid vehicles with low energy costs, contribute to the development of the electric vehicle sector, and help EV owners to easily access charging units. With the irrigation campaign and Digital Agriculture Loan, İşbank offers attractive interest rates for customers that would like to invest in next-gen irrigation systems and digital agriculture stations. Pressurized Irrigation Systems Loan İşbank has signed a partnership and financing protocol with the Pressurized Irrigation Industrialists Association (BASUSAD) to ensure widespread use of modern irrigation systems and thus reduce water consumption. In order to support farmers and help them obtain water and energy savings, the Bank has developed the "Irrigation Calculation Tool", which allows farmers to calculate the required amount of investment based on their specific land, and also offers loans for pressurized irrigation systems to improve quality and productivity. Maximum TEMA Card and Environmentally Friendly MaxiPara Card A first in the industry, the Maximum TEMA Card enables the Bank to contribute to the Turkish Foundation for Combating Soil Erosion, for Reforestation and the Protection of Natural Habitats (TEMA) via a participation share as calculated by the amount of shopping done by customers with this card. For customers who would like to help preserve nature while shopping, the Bank offers the Maximum Tema Credit Card with gold card status, eligible for all the benefits and campaigns of a Maximum Card, and the Maximum Tema Company Credit Card for use in commercial purchases of goods and services as well as the Doğasever MaxiPara Card, which is a prepaid card. Maximum TEMA Card is manufactured from environmentally friendly biodegradable card plastic. Raw materials obtained from FSC (Forest Stewardship Council)-certified producers are used in the printed materials of the card, without harming the ecological life. It is possible to apply for a TEMA Card via digital channels. As of year-end 2021, there are >100 thousand Maximum Tema Credit Cards, >7,800 Maximum Tema Business Credit Cards and >1,500 prepaid Doğasever MaxiPara Cards. TEMA Environmental Variable Fund The TEMA Environmental Variable Fund is a pioneering product in the sector, developed to allow environmentally friendly investors to use their savings to promote environmental efforts. With the resources allocated from the Fund to the TEMA Foundation, financial support is provided for environmental projects. The fund, allocating part of its portfolio to invest in businesses which have effective environmental management systems in place, emphasizes that businesses which consider environmental impacts will achieve better financial results in the long term. The environment is one of the key elements of the concept of sustainability, within the scope of its sensitivity to the environment, İşbank has supported the TEMA Foundation's Nature Education Programs with the funds that it gained from İş Asset Management Tema Variable Fund, the first-ever environmental fund in Turkey. Education activities under the program continued in 81 provinces of Turkey during the 2020-2021 education year, reaching more than 400 thousand children at pre-school and primary school age. İş Asset Management Electric Vehicles Mixed Fund Launched in 2018, this fund invests in shares and debt instruments of companies that manufacture electric vehicles and/or operate in a field that supports manufacturing of electric vehicles (e.g. replacement part manufacturing, vehicle technologies development, battery manufacturing, mining). The number of investors purchasing this fund reached 47 thousand as of year-end 2021. İş Asset Management Renewable Energy Mixed Fund Launched in March 2021, this fund invests in shares and debt instruments of companies that operate in the renewable energy field, and the number of investors exceeded 10 thousand by the end of the year. 96 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 97 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen We Take Responsibility for Next-Generation Banking One of the significant effects of the COVID-19 pandemic on the banking sector is that digitalization, which was already a hot trend for a long time, has gained even more speed. Reduced face-to-face communication and closing down of the branches during the pandemic meant that customers who did not previously prefer digital channels have begun to use digital banking applications. Another key development in next-gen banking, digitalization has allowed fintechs, i.e. start-ups in the finance sector, to emerge and develop products and services in parallel to traditional banks. The banking ecosystem is expanding with the vision of these new players. Traditional banks which support entrepreneurship in the field of fintechs can get significant competitive advantages. With its strong digital banking competencies, İşbank aims to fully address its customers' needs for next-gen digital banking. The Bank creates a perfect and secure customer experience at all touchpoints employing digital technologies and analytical methods with an innovative approach. İşbank, which has been operating as an innovative bank for 97 years, supports the entrepreneurship ecosystem both in Turkey and abroad. Material Issues Dijital Digital Transformation · Cyber Security and Customer Privacy · Open Banking Related Capital Elements Intellectual Capital Social-Relational Capital KEY PERFORMANCE INDICATORS Number of Bankamatik ATMs Number of digital banking customers (million) Number of mobile banking customers (million) Share of digital channels in non-cash financial transactions (%) Share of digital channels in sales (%) Number of cardless transactions made from Bankamatik ATMs (million) Amount of cardless transactions performed through Bankamatik ATMs (billion TL) 2019 6,506 8.1 7.8 84.6 40.1 33.8 24.8 2020 6,521 9.2 9 92.1 57.5 35.3 32.4 2021 6,476 10.2 10 94.6 62.7 39.3 40.6 Paper consumption savings achieved by digitalization (pages) 40.4 million 71,2 million 64 milyon Increase in the number of digital banking customers compared to the previous year (%) Share of non-branch channels (%) Number of users reached by Maxi (million) Number of questions answered by Maxi (million) Volume of end-to-end digital commercial loan disbursement through Instant Commercial Loan (million TL) Successful Transactions Index for IT Critical Services (6-Sigma) Number of technological entrepreneurs who were supported to enter the banking system Number of campaigns aimed at promoting the products of technological entrepreneurs Fines incurred due to data security breaches (TL) 12.5 92.2 4.8 18.9 144 4,83 117 7 0 13.6 95.7 5.7 33.3 506 4.81 80 4 11 95.6 6.7 49.1 1,191 4.85 97 16 350,000 150,000 Risks Opportunities TARGETS • Cyber security risks increased with digitalization • Management of reduced need for labor as a result of digitalization • Failure to keep up with rapid economic and technological changes due to large corporate structure • Losing touch with developments such as platform business models and sharing economy, which are essential components of the new economy • Providing personalized products to customers with digital products and services and 24/7 accessibility • Opportunity to establish more effective communication with customers thanks to digitalization of procedures • Becoming a preferred institution in the eyes of stakeholders with data security investments • Becoming an important actor of the new economy with the support provided to entrepreneurs • Strengthening business strategies with partnerships in the field of fintech • Fast decision making and implementation with agile business models Contributed SDGs Targets for 2021 Realization in 2021 Realization Targets for 2022 and Beyond It is aimed to increase the share of digital channels in total sales to above 63% and 76% by 2023. The share of digital channels in total sales reached 62.7% in 2021. The Bank aims to increase the number of customers using digital banking channels to above 10 million by 2021 and 11.5 million by 2023. The number of customers using digital banking channels reached 10.2 million in 2021. The number of technological entrepreneurs who will enter the banking system by 2023 is aimed to be over 100 every year. 97 The Bank aims to increase this ratio to 66% in 2022 and 70% in 2023. The Bank aims to increase this number to 11.5 million by 2023. The target is planned to be preserved until 2023. 98 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 99 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen DIGITAL BANKING At İşbank, the primary goals of digital banking are to engage in contextual interaction with customers, offer personalized and innovative services and provide an end-to-end seamless experience. In 2021, İşbank focused on the following in the field of digital banking: • using digital technologies and analytics with an innovative approach to create a flawless and secure customer experience at all touchpoints, • co-developing services with non-Bank stakeholders to ensure an end-to-end seamless experience within its vision to offer banking service anywhere, and deploying existing services outside İşbank’s channels, • supporting the entrepreneurship ecosystem through the Workup Entrepreneurship Program and collaborating with startups that will create value for the Bank, Group companies and customers, and realizing innovative business models through an open innovation approach, • developing solutions and value propositions that will assist consumers and organizations in making healthy financial decisions, • becoming companies’ integrated business partner in commercial banking and the gateway for all personal customers to the digital world in retail banking, • achieving a broad-based customer portfolio with the inclusion of unbanked customers and commercial establishments with limited access to financial services, while also expanding the customer portfolio, • contributing to nature and the future by adopting new sustainability-driven practices across digital channels. With Maximum Mobile, new developments occurred in the fields of digitalization and contactless payment in 2021. For example, credit card agreements began to be accepted via digital approval and the contactless payment function usage was rolled out. The total number of customers that activated the Maximum Mobile application was up by 22.2% year-over- year to 3.9 million at year-end 2021, whereas the number of 12-month active users increased by 10.7% to 2.1 million. The number of downloads for the Maximum İşyerim application increased from 161,146 in 2020 to 230,131 at year-end 2021. Approximately 72 thousand İşbank customers logged into Maximum İşyerim and began to use the services of the app within the last 12 months. Maxi, İşbank's personal banking assistant working with artificial intelligence and natural language processing technologies and offering one-to-one dialogue experience at digital contact locations, allows customers to carry out their transactions by talking or texting. Maxi interacted with 6.8 million customers and engaged in more than 51 million dialogues in 2021. 64 million pages saved in paper consumption 230 thousand downloads for Maximum İşyerim 2,1 million Maximum Mobile app users Paperless Banking With the possibility to digitally approve credit card and debit card agreements, the ability to use the function to send Registered Electronic Mail (KEP) throughout the Bank, and the implementation of digital signature, the Bank achieved a total paper savings of 64 million pages, reduced the need for labor by 85 FTE (full-time equivalent) and obtained a TL 7.6 million reduction in paper costs in 2021. As of year-end 2021, 5.4 million out of 6.9 million İşbank credit card holders receive only electronic copies of their credit card statements. Based on an agreement entered into with the Tema Foundation, the Tema Foundation has undertaken to plant one young tree for every 100 kg of paper donated by İşbank. The Bank donated 129,017 kg of paper during March 2021 and February 2022, which means that 1,290 young trees will be planted for this period. As part of the Call Center artificial intelligence integrations, Maxi instantly addresses refund claims of customers whose money is stuck in a Bankamatik ATM and has also begun to perform appropriate transactions for customers who would like to report lost or stolen cards. In line with the Bank's mission to serve its customers on a 24/7 basis with proactive solutions, customers whose money is stuck in a Bankamatik ATM are contacted by Maxi within seconds to instantly refund the amount in question. These developments have improved customer experience by helping them to get the services that they need much more quickly. In 2021, the Bank began API development activities according to the standards published in preparation for compliance with the CBRT's open banking legislation. Even before this legislation was enacted, İşbank had already created a collaborative ecosystem by sharing its APIs with third parties that needed them in line with its vision of "Invisible Banking" and became a pioneering bank in the field of open banking. In 2021, 9 new APIs were developed, including functions such as credit card statements, invoice refunds and money transfers/ EFT refund, and the total number of APIs reached 49. The total number of integrations via APIs reached 51 with the addition of 20 new integrations. Developments in Payment Systems In line with our sustainable and profitable growth strategy, we have continued to develop payment system products and services via collaborations in different sectors as part of our vision to offer banking services anywhere and deployed them across digital and/or physical channels in order to address the daily needs of our customers in 2021 as well. We have deployed the following projects and applications in the field acquiring (member merchants): Delivery of Instant POS Service to Corporate Customers via Digital Channels and Digital Storage of Contracts: As part of our efforts to maximize digitalization of member merchant processes, we began to accept applications for POS terminals from corporate customers, in addition to real person tradespeople, in March 2021. Therefore, member merchant application and allocation processes for corporate customers can now be completed without requiring them to visit the Bank's branches. Content arrangements have been put in place so that customers will not be required to wet sign documents for member merchant applications that are received via İşCep, Internet Banking and Maximum İşyerim apps. Thus, contracts electronically signed by customers will be accessible in the "My Contracts" menu under the "My Accounts" section of the İşCep and Internet Banking apps or in the "My Contracts" menu of the Maximum İşyerim app. Instant İmece POS Application: Thanks to the developments carried out in May 2021 to digitalize member merchant applications, customers are now able to apply for and instantly get their İmece POS via İşCep and Internet Banking. Acceptance of İstanbulkart on İşbank's Physical POS Terminals and Maximum Mobil and Maximum İşyerim apps: In March 2021, the Bank entered into a new collaboration with Belbim A.Ş. to introduce a new service which allows member merchants in different sectors to accept and collect payments from İstanbulkart on physical İşbank POS terminals and the Maximum İşyerim app. With the widest payment acceptance set in Turkey, İşbank has created a new area of use for İstanbulkart holders for their daily shopping and payment activities and has begun to offer card payment acceptance services to those people who do not have any Bank card but use İstanbulkart. Acceptance of UnionPay QR Method on İşbank Physical POS Terminals: As part of the agreement between İşbank and UnionPay International, the Maximum İşyerim app can accept QR payments via UnionPay's mobile app since 2020. Thanks to the developments in the payment acceptance methods introduced in 2021, Ingenico POS devices can accept payments in Euro, USD and TL via UnionPay QR code method. POS’um Cepte App: Contactless payment, which offers a quick and convenient payment method, has proved to be an important means to protect people from infectious diseases during pandemics. With the Maximum İşyerim app, it is now possible to turn an NFC-enabled Android mobile phone into a POS terminal for accepting contactless payments to help protect public health and facilitate payments with more economic tools. This new POS solution also enables PIN code entry via the on-screen keyboard of the phones or tablets used as a POS terminal for payment transactions above the contactless payment limit. Besides allowing small businesses and SMEs to benefit from an affordable solution for payment collection with credit or debit cards, this app, introduced in August 2021, is also expected to positively impact sales thanks to the secure, quick and convenient payment experience that it offers to customers. Payment Collection with TR QR Code: With İşbank's development projects regarding POS applications, it will be possible to create QR Codes in the "TR QR Code" format on physical POS terminals and Maximum İşyerim applications and all domestic customers of the Bank will be able to shop by using QR codes at İşbank POS terminals. With the FAST system, payments can be made by using a QR Code. 100 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 101 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Additionally, starting from December 2021, it is now possible to do shopping and collect payments via FAST with TR QR Codes on İşbank physical POS terminals and the Maximum İşyerim application. New Functions in Payment Collection via AliPay Wallet and WeChatPay Method: Thanks to the collaboration dating back to 2019 between İşbank and Alipay, a payment platform with more than one billion wallet users operated by Ant Financial Services Group, an affiliate of China's e-commerce giant Alibaba, payments in USD and Euro via Alipay wallet can be accepted on the Bank's physical POS terminals and Maximum İşyerim application. On 09.03.2021, TL was also added to the list of currencies in which payments are accepted via Alipay wallets. This will allow Chinese tourists to experience shopping in Turkey with their local payment method. Additionally, the WeChatPay payment method, which used to be accepted only on Ingenico model physical POS terminals, is now accepted on all Ingenico brand physical POS terminals and in all cash registry protocols, except for ÖKC and GMP3 protocols, and the Euro has been added as a payment currency. • There are now separate agreement processes for credit card and debit card products, and these agreements can now be accepted with digital approval, • Maximiles Black Card, which allows customers to earn and use MaxiMiles from their shopping transactions at a higher rate based on their total assets at İşbank, is offered to upper segment customers within the customer portfolio, • Development work to include pending debit card and MaxiPara card receivables in the instant collection system has been completed, • Chip Expert and HCE Expert applications have been introduced within the Bank, • Prepaid card infrastructure has been moved to a new system under Petra, and API development work has been completed, • Payment via TR QR Code with credit cards, debit cards and prepaid cards is now available, • Branches have started end-to-end allocation of business credit cards, • İşbank card holders can now use İşCep and Internet Banking, in addition to Maximum Mobile, to communicate their spending chargebacks related to transactions done with their cards, • Customers can now use their MaxiPoints more valuable at POAŞ Dealer cards have begun to be produced digitally. Pazarama. The ability to use Miles while shopping at certain stores has been expanded. Digital Loan Developments Digitalization and contactless payment projects and applications in the field of card issuing in 2021: • Bankamatik cards began to be produced as cards with chips and contactless payment feature, • With İşCep, credit cards can be used for payments on POS terminals with a QR Code, • Newly printed credit cards which have not yet been delivered to the card holder can now be used for e-commerce transactions • Credit card applications are now accepted via the "I Want to Become a Customer (MOI)" feature, • Digital card statements are created for Bankamatik cards, • Document control and digital approval practices are now more commonly used as part of credit card applications, The Bank has collaborated with vehicle listing websites, real estate listing websites and loan comparison websites in order to gain potential customers while they are looking for a house or vehicle at such digital platforms. Accordingly, the Bank's branches have begun to evaluate digital loan applications received from such websites. These initiatives contributed to diversification of our sales channels, reinforcing our competitiveness and increasing conversion rates on loan applications. As of year-end 2021, 80% of consumer loans, including TL 24.2 billion worth of Instant Loans and TL 13.8 billion worth of Credit Ready, were lent as a result of applications via digital channels. İş’te Limit practice, which is a credit limit that can be defined for personal customers without requiring them to visit the Bank's branches and covers all consumer loans, credit card and overdraft account products, and enables limit transfer between these products, was launched on 31 May 2021. İş'te Limit customers can raise their allocated credit limit by reducing their credit card and overdraft account limits or by paying down their consumer loan debts in order to use such limit in other products. With İş'te Limit, a customer can use all of their allocated credit limit in the form of a consumer loan or a credit card within legal limits or an overdraft account up to 25% of the İş'te Limit credit limit, provided that the overdraft account limit does not exceed TL 50,000. Digitalization in Branch Operations In 2021, thanks to the panels developed under the Branch Workdesk project, it is now possible to monitor sales data on a per employee basis and to monitor employee targets and realization of targets and list Branch, Region and Bank sales performance rankings. In order to digitalize and improve customer acquisition processes, in 2021, Real Person Merchants were also included in the scope of the digital approval process to allow them to digitally approve their Banking Services Contract (BSC). Additionally, as part of the I Want to Become a Customer (MOI) process, software developments have been completed to offer transportation of contracts via a Courier service so that people who do not have an NFC-enabled phone or have an NFC-enabled phone but receive an error during the process can complete the process. In order to improve the quality of customer data and reduce the workload of branches, the Farmer Registration System query has been integrated into the Bank's system and can now be run via the NAR-Loan Query Portal across all branches. Launched in 2020, the 1900-Dialogue Center Branch began to offer portfolio services to real person merchant customers in 2021 without requiring them to physically visit our branches and provide suggestions on products and services that could create value for them. As of year-end 2021, TL 44.2 million was spent for the projects under the Personal, Commercial and Branch Digital Transformation programs. The number of branches renovated as part of digital transformation reached 510 as of year-end 2021. We will continue to renovate the remaining branches with designs suited to digital transformation according to the renovation schedule and requirements. Artificial Intelligence At İşbank, artificial intelligence is managed within the framework of its corporate vision and strategies, in an integrated manner with the corporate culture. İşbank aims to maximize customer experience with artificial intelligence applications; and directs employees to areas where they can create higher value with the automation of low value-added works. The "Agile working model" is applied in artificial intelligence, which is one of the priority areas of work in the Bank. The Artificial Intelligence Agile Tribe has been established. As of year-end 2021, AI investments amounted to TL 15.79 million. TL 15.8 million Amount of AI investments Robotic Process Automation İşbank strives to fully utilize new technologies to make life easier for its employees, and has increased the number of robots to 83 in 2021 as part of its digitalization efforts. With 250 new robotic process designs beginning to work on robots, the Bank achieved a time saving of approx. 600 thousand hours during the year. In addition to operational divisions with high transaction volume, robotic process automations have also been introduced in the head office divisions. As routine tasks of employees have been automated, employees are now able to allocate more time to focus on higher value-added tasks. Robots have also begun to affect the lives of customers, increasing customer satisfaction as a result of much quicker service times with automated tasks. Online training was given to 435 employees to allow İşbank employees to develop robotic processes and come up with new automation ideas. The number of robotic processes has rapidly increased as employees have developed their skills and applications are recognized by robots. 102 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 103 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen INNOVATION and ENTREPRENEURSHIP In order to correctly predict the strategic moves capable of changing competition in the digital world where technology is progressing rapidly and take action, İşbank continues its initiatives for developing the technology and business models aligned with the new competitive conditions. Adopting the open innovation approach, the Bank utilizes ideas and technologies which are developed by organizations such as technology companies and universities for various initiatives including development of new products and services. Through innovation centers in the USA, China and Turkey, İşbank follows new technologies and continues its proof- of-concept studies to ensure use of digital technologies and analytical methods with an innovative approach and to create new products. Thanks to the innovation activities and collaboration with different stakeholders in 2021, the Bank has developed the Geleceğe Orman (Forest for the Future) application, which allows customers to convert their points earned from their daily tasks, spending and banking transactions into young tree donations, and introduced the Superapp Developer Platform, which allows external developers to create mini apps within mobile applications with a minimum level of coding and gives super application capabilities to mobile applications. Additionally, 4 proof of concept projects are being undertaken to ensure personalized service delivery to customers in digital channels and to develop gamification competencies. In 2021, two separate projects were completed to set the Bank's innovation and invisible banking strategies. The Social Account feature was redesigned. The Bank is currently working on setting strategies to create new initiatives with a focus on NFT and Metaverse in 2022. As part of our efforts to spread the culture of innovation, we are organizing many workshops and events internally and externally and carrying out processes that create innovative value proposals within the scope of "İş’te Yeni Bir Lider Programı". As per its founding mission, İşbank is an organization that supports all economic activities and especially entrepreneurship and aims to provide this support in a sustainable and accessible manner. In this context, the Bank provides multi-dimensional support to startups, also known as technology-based initiatives, and this ecosystem in order to help them flourish and grow. İşbank is also working on creating its own ecosystem. With its vision of becoming the "Bank of Entrepreneurs and Entrepreneurship" and open innovation approach, İşbank supports the projects developed by initiatives, technology companies and universities. In 2021, the Bank collaborated with 22 initiatives and carried out campaigns and proof-of-concept work. Internal Entrepreneurship Program Thanks to the "Internal Entrepreneurship Program", which was launched to introduce innovative business ideas and develop our employees' teamwork and continuous learning skills, our employees have gained the skills "to think and act like an entrepreneur" and improved their innovation, creativity, risk taking and competitive thinking skills and also get the opportunity to generate their ideas, detect problems, create solutions and launch their products. Entrepreneurship teams, which consist of our employees, improve their knowledge and awareness about innovative business models, entrepreneurship and the basics of internal entrepreneurship, and are given training and mentorship support from their program partners that have experience in entrepreneurship. The program was announced in October 2020, and 181 employees applied to the program with a total of 261 different ideas. The program started with 6 ideas and 25 employees, and following an 8-week "idea validation" stage and a 12-week "incubation" period, 5 entrepreneurship teams reached the finals. During this process, our teams developed their products and conducted field tests with customers by receiving software support in addition to mentorship support. The Bank continues to provide the necessary resources, including software and mentorship support, to the teams that successfully completed the program so that they can become a technology- oriented entrepreneurship and commercialize their products. In 2022, the Innovation and Digital Strategy Division will continue to work on scaling up the 4 entrepreneurship teams that completed the first program. Agile Workshop As part of Agile Transformation, the Agile Management Division was established in September 2020, representing a significant step towards deploying agility across the organization. As of December 2021, 15 Agile Tribes and 14 Chapters / Centers of Excellence were established at İşbank. 725 employees from different disciplines are employed in the 15 Agile Tribes, and the teams concentrate on Retail and Commercial Banking Segment Management, Product Development, Automation, Artificial Intelligence, Technology Platform Management and Next-Gen Work Model. The teams possess a mixed combination of competencies, including business product knowledge, digital, customer experience, data analytics and software development competencies, that are necessary for realizing the targets related to their main focus areas. As of year-end 2022, the Bank aims to establish approx. 25 Agile Areas and reach 1,500 people. 20 internal Agile Coaches have been trained to ensure successful progression of the Agile Transformation. In 2021, more than 12,000 hours of training were organized for our employees with agile roles. Based on the agility measurements at year-end 2021, the Bank achieved a score of 4.23, 4.27 and 4.23 out of 5 in the fields of Employee Satisfaction, Agile Maturity and Team Autonomy, respectively. All scores are above the minimum target score of 4. Workup Entrepreneurship Program The Workup Entrepreneurship Program, which was created to support and accelerate early-stage startups with a technology-oriented, sustainable and scalable business model, has continued since 2017 without interruption. More than 13 thousand applications have been received so far, and a total of 119 entrepreneurs were accepted into the Program, including the ongoing 9th period with 12 entrepreneurs. A total of 81 entrepreneurs completed the program during the first 8 periods, and 32 of the entrepreneurs joining the program received funds totaling USD 9.6 million, each with different investment amounts. Workup Agri, an agricultural acceleration program, was also introduced in 2021. Launched in October, the program continues with 6 entrepreneurs. The İstanbul Entrepreneurship Branch, a specialized branch with services exclusively for entrepreneurs, angel investors and investment funds, began its operations in November. Maxis YGSYF continued its investments in 2021 as well, and invested a total of USD 490 thousand in 2 different entrepreneurs. Softtech Ventures Softtech Ventures was established in order to implement and commercialize early-stage venture ideas internally and externally. With this structure, a strong ecosystem has been realized with an integrated strategy aimed at supporting initiatives that have the potential to scale in the global arena, especially in the Bank’s strategic focus areas. İşbank Future Hub Programı The İşbank Future Hub Program is a long-term development program organized in collaboration with the Yenibirlider Association and İşbank to offer university students the opportunity to be a part of the digital-oriented leadership school of the future, to discover themselves and to build their careers with the perspective of digitalization and get to know the culture of innovation and entrepreneurship closely. In 2021, the Program was organized with the participation of 2 teams consisting of 12 students. Participants are supported in many ways from implementing a digital and innovative idea with the help of mentors from the Digital Banking Division Innovation Unit and Yenibirlider Association ecosystem to educational, cultural and artistic activities. They have the chance to experience next-generation project management approaches and agile working methods. Turkish Entrepreneurship Foundation and Arya Women Investment Platform In addition to the activities carried out within İşbank, extensive cooperation is also carried out with stakeholders who make significant contributions to the ecosystem. The Bank became the main sponsor of the Turkish Entrepreneurship Foundation which plays a key role in introducing university students into the entrepreneurship ecosystem and influences their educational life through scholarships and other support; and also became the main sponsor of the Arya Women Investment Platform, which works to increase both investment and business development opportunities for women entrepreneurs. For detailed information about the project, see the "Financial Inclusion" section of this report. Technological Entrepreneur Tariff İşbank continues to support entrepreneurs with the Technological Entrepreneurship Tariff, which was created to support technology-based initiatives in their establishment period. The Technological Entrepreneur Package offers advantageous financing and service support for technology-oriented, innovative entrepreneurs that have a start-up incorporated within the last 3 years and create added value. With an additional 97 entrepreneurs in 2021, this tariff was designated for a total of 294 entrepreneurs as of year-end 2021. 104 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 105 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen INFORMATION SECURITY In order to accurately predict the strategic moves capable of changing competition in the digital world where technology is progressing rapidly and to take action, İşbank continues its initiatives for developing the technology and business models aligned with the new competitive conditions. Adopting the open innovation approach, the Bank utilizes ideas and technologies which are developed by organizations such as technology companies and universities for various initiatives including development of new products and services. İşbank attaches special importance to all processes that are designed to secure its information assets. With regular investments, technological developments in the field of security are closely monitored and various training and awareness raising activities are carried out to continuously improve the security culture. The Board of Directors has the ultimate responsibility to ensure information security within İşbank. To this end, the Board of Directors develops the required strategy and oversees its implementation via the committee. The Information Security Committee is responsible for developing and implementing information security and personal data protection policies. All organizational units of the Bank are responsible, within the boundaries of their areas of responsibility, for carrying out their activities in accordance with these policies and related standards. Policies and related standards regarding information security and personal data form the basis of any actions to be taken. Additionally, through continuous awareness raising activities, the Bank strives to increase the knowledge of its employees and raise information security awareness among end users. In 2021, 19,583 employees from the Head Office and branches received a total of 21,903 hours of training in the fields of cyber security, social engineering and information security. İşbank's banking processes and information systems are annually audited by the Board of Inspectors in a risk-based manner to provide basis to the Management's Decleration to be submitted to an external auditor in accordance with the "Regulation over External Audit Institutions’ Information Systems and Banking Processes Audits" published by the Turkish Banking Regulation and Supervision Agency (BRSA). Processes for ensuring information security are absolutely covered during the audits of information systems. Accordingly, İşbank's compliance with the Law on Protection of Personal Data no. 6698 and the Banking Law no. 5411 as well as the regulations associated with the said Laws, including especially the Regulation on Banks' Information Systems and Electronic Banking Services (BSEB) which became effective on 01.01.2021, is examined. With priority given to the control targets regarding the provisions included in section 3 "Information Security Management" of the BSEB regulation, and within the framework of the mentioned regulations, the existence, adequacy and effectiveness of a process that includes activities such as risk assessment, approval of the corporate information security policy by the Board of Directors and supervision of its implementation by the Senior Management, conducting studies to increase the awareness of the Bank personnel on information security, classifying all data according to the degree of security sensitivity and conducting security controls at the appropriate level for each class, implementation of information security tests, prevention of data loss, and updates of existing controls and structures created according to technological developments are evaluated. Within the scope of audit studies for information technologies (IT), examinations are carried out to contribute to the achievement of basic goals for the healthy management of IT risks and the effective and efficient use of IT resources. The scope of the said audit work is determined by a risk assessment prepared by taking into account the criticality of the applications and systems for the Bank and their sensitivity in terms of data security. These system-oriented technical reviews are carried out on the basis of local legislation and international best practices, including especially the articles of the BSEB regulation which are directly related to ensuring information security. Similar to the audit activities carried out within the Bank, the internal control environments regarding information security of the Bank's subsidiaries and affiliates and the organizations from which the Bank receives support services are also evaluated within the framework of audit activities. As per the communiqué "Penetration Tests for Information Systems" (Penetration Test Communiqué) published by BRSA on 24.7.2012, banks are required to carry out penetration testing at least once a year. The purpose of penetration testing is to identify and fix vulnerabilities that may result in unauthorized access to the Bank's information systems or sensitive data before such vulnerabilities are exploited. External firms have been carrying out penetration tests at İşbank since 2012 in accordance with the communiqué. Penetration test action plans evaluated regularly by Information Security regarding the findings of the penetration tests are reviewed by the audit team, and the "Penetration Test Finding Follow-up Report" for the current year is reported in the following year. In the ordinary audit activities and investigations carried out by the members of the Board of Inspectors, the effectiveness of the measures taken for confidentiality of customer information is reviewed. In case of a customer complaint submitted to the Bank in relation to an alleged breach of confidentiality due to loss or disclosure of customer information to third parties, the issue is meticulously handled in all aspects and the audit results are reported. Within the scope of the investigations, the data and audit trails in the Bank's systems are analyzed in a holistic and detailed manner, and any situations that indicate reasonable doubt are examined from an analytical perspective. In the event of a reasonable suspicion that such information is disclosed to third parties, investigations on the subject are expanded and if these doubts reflect the truth, the necessary measures and decisions within the scope of both internal regulations and legal legislation are taken without delay. In addition, the processes described in the Bank legislation regarding provision of information to customers about the outcome of such complaints are executed in order to ensure that the complaint owners are notified about the outcome of examinations. Reporting all examination results to the Board of Directors through the Audit Committee and monitoring the measures taken by the relevant unit managements within the framework of audit reports are also within the scope of internal audit activities. Internal Control Division information systems internal control activities team regularly monitors the Bank's various control points in the field of information security at daily, weekly and monthly intervals as part of level two controls, and the identified operation issues are shared with the relevant IT units to fix them. The Internal Control Division's activities include access, privilege and security parameter controls, privileged common user accounts on servers and databases, activity controls for high-privilege users in critical servers and applications for information security, server antivirus software controls, and controls for security of server audit trails. Additionally, regular access and authorization controls are done to ensure that end user privileges in basic applications used for the main banking processes are up to date. Within the framework of the security architecture, there are multiple layers in the communication network infrastructure of İşbank. Anti-DDoS solutions are positioned to prevent suspicious external DDoS (distributed denial of service) traffic targeting the Bank. In the outermost network, incoming and outgoing traffic is controlled by IPS (Intrusion Prevention Systems) and WAF (Web Application Firewall) systems. In order to increase security on the communication network, different zones have been created on the network. Within each zone, there are different firewalls and access control lists (ACLs), and zones are protected by customized rules and security defense mechanisms. In addition, different switches and VLANs (virtual local area networks) have been established in different zones. Outgoing internet traffic is analyzed by secure socket layer (SSL) monitoring tools and protected by sandbox APT (Advanced persistent threat) systems. All server and endpoint devices are protected by endpoint security solutions. Authorizations in the systems are made based on role and in accordance with the principle of separation of duties, and authorizations are regularly reviewed. The trace records created on the systems are transferred to SIEM products, and security warnings are followed by the Security Operations Center within the framework of predetermined rules on a 24/7 basis, and actions are taken regarding security incidents. At İşbank, regular penetration tests are conducted to detect possible system vulnerabilities. Systems are patched to fix any detected vulnerabilities. Information security awareness training is provided and phishing simulations are used to increase awareness among Bank employees. In 2021, to achieve compliance with the Regulation on Information Systems and Electronic Banking Services of Banks, consultancy services were received, and the actions planned to be taken based on the findings are being closely monitored. The K2 - IT New Regulation Compliance Project is being undertaken which includes Information Assets Inventory Management, Implementing and Monitoring Central Audit Management System, Secure Transmission and Encryption of Sensitive Data and Whitelist Management. Approx. TL 96.2 million was invested in information security, cyber security and monitoring of fraudulent transactions during the last 3 years (2019, 2020 and 2021). TL 96.2 million Approximate amount of investment in information security, cyber security and monitoring of fraudulent transactions during the last 3 years. 106 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 107 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Responsible Operations Mitigate the negative impacts of our operations Our Employees We take responsibility to mitigate the negative impacts of our operations As one of the biggest banks in Turkey, İşbank offers services to millions of customers with its operations throughout the country. When managing its widespread network of operations, the Bank aims to minimize its environmental impact, ensure that the suppliers embrace the same working norms as it does, and become a reliable employer for all of its employees. KEY PERFORMANCE INDICATORS Total Number of Suppliers Number of Local Suppliers Ratio of Local Suppliers* (%) Ratio of Procurement from Local Suppliers* (%) 2019 2,604 2,554 98.08 81 2020 2,744 2,673 97.41 92 2021 3,486 3,396 97.42 91 * While calculating the ratios, companies registered in the trade registry and operating in Turkey were accepted as local companies. SUPPLY CHAIN MANAGEMENT Sustainable development is only possible through responsible business models. Positive or negative impacts caused by an organization are not confined to the area of its operations, but may affect a large area based on the size of the organization. Aware of its responsibilities, İşbank aims to propagate its approach to, and standards of, business to its supplier chain as well. By collaborating with its suppliers, it strives to ensure that best practices and products extend to an even larger area. İşbank works to achieve sustainable business success with a financially strong, environmentally friendly supply chain that is also reliable with high-quality production and continuity. Material Issues Responsible Procurement Related Capital Elements Social-Relational Capital Risks Opportunities • Loss of reputation due to adverse events in the • Developing cooperation that will provide efficiency with supply chain effective supply chain management • Operational risks that may occur due to disruptions in the supply chain Contributed SDGs TARGETS Targets for 2021 Realization in 2021 Realization Targets for 2022 and Beyond Maintaining the local supplier ratio at 98% 97.42% Maintaining the current level In line with İşbank's ethical banking approach, the Supplier Code of Conduct, based on the UN Global Compact and İşbank Human Rights and Human Resources Policy, determine the main principles and essentials in purchases of goods and services. The Supplier Code of Conduct, which is available on the Bank's corporate website, is also posted on the "İş'te Marketim" application, which is the main platform in purchasing processes and actively used by the suppliers of İşbank. All suppliers are expected to comply with the principles and policies within the scope of İşbank's Anti-Bribery and Anti-Corruption Policy, Gift and Hospitality Policy and Ethical Principles and Code of Conduct, which are accessible on the same platform, and expected to refrain from acts that would violate these principles. You can access Supplier Management Principles here. İşbank has adopted the principle of continuously improving its suppliers, ensuring organizational excellence, and improving business processes consistently. When selecting suppliers, the Bank chooses one from its existing pool of suppliers based on the nature of procurement in question or tries to reach new alternative suppliers by looking at predefined criteria. The Bank also takes different parameters into consideration, such as reference check, sector analysis and financial analysis, when identifying alternative suppliers. In accordance with the Sustainability Policy, İşbank endeavors to minimize the negative environmental and social impacts caused by suppliers, and to raise the positive effects to maximum levels. In this context, the Bank respects environmental and social criteria in its supplier selection. The requirement to take environmental impacts into consideration during procurement activities is set out in the Procurement Policy. Various criteria are evaluated, such as whether the supplier company has an active environmental management system in place, whether the legal requirements for the disposal of waste generated from the activities carried out for the Bank are met, whether recycled materials are used, and the frequency of environmental emergencies. 110 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 111 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen In procurements with high environmental impact, suppliers are expected to submit the required documents related to the subject. No goods or services are purchased from those suppliers who fail to meet the expectations. Like environmental criteria, social criteria also play a key role in the selection of suppliers at İşbank. Suppliers are expected to adopt work principles similar to those embraced by the Bank. İşbank respects association and collective bargaining rights, and sensitivity on this issue is taken into account in the selection of suppliers. Purchases of goods and services from suppliers that are found to be involved in practices of bribery and corruption are suspended, and such suppliers are banned. Article 2 of the Supplier Management Principles states "No person under the legal working age may be employed”. Accordingly, the Bank does online research and looks into the market sources to gather information about suppliers. The suppliers are also visited according to a schedule. During the reporting period, the Bank received no feedback which could indicate any negative social impact of its suppliers. İşbank has adopted the principle of continuously improving its suppliers, ensuring organizational excellence, and improving business processes consistently. The Bank continued to contribute to the national economy by selecting local suppliers in 2021 as well. Therefore, local suppliers accounted for 97% of the total suppliers, while the amount of procurement from local suppliers accounted for 91% of the total volume of procurement during the reporting period. As part of supply chain management, İşbank expects its suppliers to: • meet the Bank's expectations of quality-logistics performance, • act in accordance with the environmental and ethical rules, • keep up with the developing and changing industry conditions, • make plans in cooperation with the Bank in order to reduce the negative impact of production processes on the environment, • prefer raw materials and materials with minimal impact on the environment during their procurement activities, • try to minimize the environmental impact associated with their production and logistic processes, and • prefer packaging materials with minimal environmental impact. The statement on the opening page of the procurement platform "As İşbank, it is important for us that our suppliers embrace the same values as we do so that procurement processes can be executed in a healthy and sustainable manner. Here you can view our Supplier Management Principles, Antibribery and Anticorruption, and Gifts and Hospitality Policies, which set out the basic principles and procedures to be followed under the relations between İşbank and the suppliers from which services will be purchased”, provides information to all of our suppliers about the above- listed policies. These policies are available at İşbank's corporate website and are accessible by all stakeholders. In 2021, 97% ratio of local suppliers The boxes are made of recyclable material. Concerning the electricity procurement tender for the next period, renewable energy sources have been preferred for all electricity consumption. 173 hybrid vehicles were preferred under the vehicle leasing contract. The Bank has a fleet of 1,913 rental vehicles in total. Hybrid vehicles account for 9% of the total number of vehicles. CIPS Certification In 2021, the CIPS (The Chartered Institute of Procurement & Supply) certification process was undertaken to certify conformance of the Bank's procurement organization and processes to international standards. CIPS is one of the leading professional institutes that sets the best practices and standards in the field of procurement and supply chain management. Corporate CIPS Certificate is a globally recognized accreditation that demonstrates the level of maturity of an organization's supply chain policies, strategies, procedures and processes. By obtaining this certificate, firms can display and prove that they can keep up with the ever-changing business environment in the field of procurement and that they have robust and professional supply practices and systems in place. The Procurement Division has successfully completed all detailed evaluations conducted by the CIPS Institute and an external auditor assigned by the institute. İşbank was awarded the CIPS certificate on 27.10.2021. The Bank became the first organization in the Turkish banking and finance sector to receive this certificate. Supplier Sustainability Performance Measurement Survey Suppliers from which the Bank procures a large amount of products/ services via its procurement application were subject to a survey which included 35 questions in the main fields of environment, labor and human rights, ethics and sustainable procurement. Suppliers who took the survey represent 67% of the procurement budget for 2021. This survey was intended to see the current status of suppliers in terms of sustainability and to raise awareness of sustainability among suppliers. Focus areas included in research Environment Environmental Labor and Human Rights certificates Occupational Environmental safety policy Trainings Environmental Harassment/ Discrimination Child labor Employment of women Human rights management Approach to climate change Waste management Energy management Water management Recycling Emission management Ethics Ethical rules Information management Anti-corruption Fair competition Sustainable Procurement Social responsibility Environmentally friendly products 112 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 113 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen ENVIRONMENTAL IMPACT KEY PERFORMANCE INDICATORS With the current state of the world, one of the main responsibilities of both individuals and corporations is to use natural resources in a responsible manner and to minimize their environmental impact. İşbank takes responsibility for climate action in order to maintain its operations with minimal environmental impact. The Bank sets this responsibility on a firm basis with its targets and commitments. Additionally, İşbank is undertaking many improvement and energy-efficiency projects to reduce its environmental impact. Material Issues The Bank's Environmental Footprint Related Capital Element Natural Capital Risks Opportunities • Increase in operational expenses due to rising energy costs • Failure to meet the requirements of corporate commitments due to noncompliance with environmental regulations • Reduced operational expenses through energy efficiency, reduction of water consumption, and paperless banking practices Climate Targets İşbank added climate change risk to its risk catalogue and developed the Bank's strategy for climate change, which is one of the most important components of the environmental dimension of sustainability. In the combat against climate change, the Bank set its target for reduction of greenhouse gas emissions and stated it in its disclosure under the CDP Climate Change Program: "To reduce the total Scope-1 and Scope-2 greenhouse gas emissions calculated in accordance with the International GHG Protocol by 38% by 2025, 65% by 2030, and to zero by 2035, and to carry out activities as carbon-neutral as of 2035 (target baseline year: 2018)" İşbank has made a commitment to the Science Based Targets Initiative (SBTi) to validate the emission reduction targets on a science-based basis. In the following periods, it is aimed to evaluate Scope-3 emissions from lending activities and the supply chain with a target-based approach. In 2021, the amount of energy generated from renewable energy sources accounted for 84% of the total energy consumption. İşbank was awarded a score of "B" in the CDP Climate Change Program in 2021. Greenhouse Gas Emissions (tons of CO2e - equivalent) 1 Scope 1 Scope 2 Scope 3 Total (Scope 1 + Scope 2) Energy Consumption1 Total Electricity Consumption (kWh) Total Natural Gas Consumption (m3) Fueloil Consumption (lt) Coal Consumption (kg) Diesel Consumption (lt) Total Energy Consumption (GJ) Water Consumption (m3) Total Water Consumption2 City Water (Blue) Waste Water (Gray) Spring Water (Green) Amount of Recovered and Re-used Water Vehicle Fuel Consumption (lt) Fuel Consumption of Company Vehicles (Diesel) Fuel Consumption of Company Vehicles (Gasoline) Fuel Consumption of Employee Shuttles (Diesel) Business Trips with Personal Vehicle (Diesel) Business Trips with Personal Vehicle (Gasoline) Business Trips with Personal Vehicle (LPG) Paper Consumption (ton) Amount of Waste (ton)3 Amount of Electronic Waste Amount of Domestic Waste Amount of Paper Waste Amount of Medical Waste Recycled Hazardous Waste4 Recycled Non-Hazardous Waste Total Amount of Waste Amount of Recycled Paper Amount of Recycled Electronic Waste Emission Intensities Emission per employee (tCO2e/number of employees) 4.4 Emissions according to consolidated asset size (tCO2e/TL million) 0.2 Consolidated emissions by net profit (tCO2e/TL million) 14.9 2018 2019 2020 2021 20,472 68,599 10,563 89,071 21,789 71,781 8,727 93,570 20,629 57,193 7,779 77,822 22,528 8,784 6,458 31,312 127,989,080 132,501,362 119,911,679 121,403,480 4,126,643 8,000 170,586 417,479 756,517 3,879,943 6,400 78,713 351,180 670,254 4,178,163 14,710 77,606 320,068 588,942 5,284,460 11,296 21,869 282,318 630,216 371,244 365,424 0 5,820 5,820 2,718,367 15,335 562,655 - - - 808 345,389 335,964 0 9,425 9,425 4,012,798 11,982 541,627 - - - 679 282,477 278,890 278,890 3,588 3,588 3,639,660 7,592 535,390 36,685 42,740 22,259 643 270,182 262,235 262,235 7,947 7,947 3,155,927 334,694 550,100 40,352 43,731 27,035 503 9 1,884 200 1 13 29 2,116 200 9 30 1,757 129 2 5 41 1,964 129 30 4.3 0.2 17.0 37 861 94 1 7 25 1,026 94 37 3.4 0.1 10.0 23 1,001 346 2 10 189 1,570 346 23 1.4 0.0 2.0 114 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 115 1 The emission and consumption data reported in 2018 included the Head Office buildings, all domestic branches and regional directorates, and in 2019, the Atlas Data Center was also added to this data. The increase in electricity consumption in 2019 was partly due to the inclusion of the data center. 2 Total water consumption = Total amount of discharged water 3 2018-2019-2020 data only includes the Head Office buildings. 2021 data includes the Head Office buildings as well as the service buildings with ISO 14001 certification. 4 Electronic and medical waste was included in 2018 figures. It was not included in other years. Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen TARGETS Targets for 2021 Realization in 2021 Realization Targets for 2022 and Beyond In line with its goal to reduce greenhouse gas emissions, İşBank aims to reduce the total Scope-1 and Scope-2 emissions calculated in accordance with the International GHG Protocol by 38% by 2025, 65% by 2030, and to zero by 2035, and carry out its activities as carbon-neutral as of 2035 (target baseline year: 2018) As of 2021, İşBank has begun to use renewable energy in all its operation points where available and has already achieved its targets for 2025 and 2030. Maintaining the current status The Bank aims to meet at least 50% of the eligible consumer electricity consumption from clean energy sources by 2025 and 100% by 2030, in line with its greenhouse gas emission reduction targets (target baseline year: 2021) Completing the ISO 14001 Environmental Management System certification process of approximately 400 locations in 2020, and obtaining certification to cover all operation and service locations of the Bank by the end of 2022 Thanks to the digitalized processes, the Bank aims to reduce total paper consumption in 2021 by 34.8 million pages compared to 2020. In order to reduce negative environmental impacts in 2021 and beyond, the following targets have been set: • Reducing water consumption by installing a water-saving aerator in all sink faucets of branches, • Saving energy by continuing to change the lighting fixtures to LEDs, • Continuing to replace old type air conditioners with new generation air conditioners with higher efficiency. 100% Maintaining the current status Our 423 branches and divisions received ISO 14001 certification in 2021. The Bank achieved paper savings of 64 million pages compared to 2020. Replacement of aerators is ongoing, with a 60% completion rate as of year-end 2021. Replacement of air conditioners and lighting fixtures with LEDs continues. Obtaining ISO 14001 certification for all operation and service locations of the Bank (excluding social facilities). 0 paper for 2024 Lighting fixtures of 125 Branches will be replaced with LED lights in 2022. Replacement of old type air conditioners with new models is ongoing at our branches which are being refurbished. Management of Environmental Impacts At İşbank, an ISO 14001 Environmental Management System Project has been in place since 2018 in order to reduce its environmental impact and build an environmental management system that complies with international standards. Accordingly, employees with environmental responsibilities are given Environmental Management System Training, while employees at the Internal Control Division receive Environmental Management System Internal Auditor Training. Employees who have just started their career at the Bank are provided with information about the Environmental Management System as part of the "Starting My Career" Trainings. The Environmental Management System is audited by the Internal Control Division on an annual basis. The Bank has not incurred any fines for non- compliance with environmental laws and regulations during the reporting period. As of 2021, İşbank has ISO 14001 Environmental Management System Certificates for 847 locations. The Bank aims to achieve ISO 14001 Environmental Management System Certification for all of its locations by receiving certification for 492 locations by year-end 2022. As of year- end 2021, the ratio of certified locations to the total number of locations of the Bank is 63%, which is expected to be increased to 100% by year-end 2022. İşbank aims to maintain its environmental management system which complies with international standards in the coming years. İşbank ensures that the electronic devices used in operations and whose lifecycle is monitored by the IT Division are recycled in order to reduce its environmental impact. Aware of the harmful effects of electronic waste and the associated economic losses, İşbank sells used electronic items and returns used toner cartridges. The firms to which the Bank sells such used items have AEEE certification. Environmental Impacts in the Supply Chain İşbank monitors the environmental impacts of its supply chain. The criteria specified in the Supplier Management Principles include environmental factors. These criteria affect supplier selection. In procurement activities or operations which have a high environmental impact, such as disposal of wastewater or procurement of batteries, suppliers are evaluated based on their capabilities. No goods or services are procured from suppliers that fail to submit the required documentation. For special procurement activities, suppliers that submit the required documentation are preferred, regardless of price. As of 2021, the Bank has ISO 14001 Environmental Management System Certificates for 847 locations (63% of total locations). 116 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 117 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen OPERATIONAL EFFICIENCY Paperless banking activities are carried out and performance indicators of waste generation, water and energy consumption and carbon emission in the Head Office buildings and branches are monitored. Remote working, a new way of working that İşbank offers to its employees, supports gains in this field. Environmentally Friendly Buildings Environment friendly buildings play a key role in reducing the environmental impact of İşbank's activities. İşbank's big buildings such as the Head Office, operations center and data center were designed to minimize their environmental impact. İşbank Head Office building in Levent, Istanbul has a BREEAM In-use Excellent certificate. Tuzla Technology and Operations Center (TUTOM) received the LEED Gold certificate. The Bank's Tuzla Data Center (Atlas) building has been certified with LEED v4 Gold for Data Centers. Atlas is the first data center in Turkey that meets such high standards. As a result of the improvements and upgrades made for higher energy efficiency, emissions (scope 1+scope 2) were reduced by 46,510 tCO2e, while water consumption was reduced by 12,295 m3. From 2020 when remote working arrangements were put in place to the end of 2021, electricity consumption at the Head Office locations decreased by 8.4%. Energy consumption is reduced by using the energy which is generated during cooling in the ATLAS Data Center building for the heating of office areas. At the Atlas Data Center, the data halls which house IT cabinets are air-cooled with packet type cooling devices in an uninterrupted and redundant manner. After the cabinets are cooled, the heated air is mixed with outdoor air and used for heating the air conditioning systems, thus saving energy. In addition, rainwater is collected and reused after purification. Aerators were installed to reduce water pressure in the TUTOM building in 2021. For the Head Office, ATOM and Atlas Data Center buildings, efforts have been initiated to save water in washbasins by procuring and installing aerators. The process of installing aerators at more than 800 branches and units with ISO 14001 certification began in 2021. At all service buildings, conventional flush tanks were replaced with new models that use less water, and urinals with photocell control were chosen to replace existing urinals. Faucets in lavatories were replaced with water-saving faucets. Thanks to these measures, approximately 15% water savings was achieved. In 2021, during the renovation work across the Bank, lighting, heating and cooling systems of branches were modernized. Existing lights were replaced with LED lighting, while old air conditioners were replaced with high energy-efficient units, and natural gas conversion was carried out at branches that were heated with coal or diesel fuel. At the Head Office Tower1, the heating system pumps were replaced with more energy-efficient models. At the Head Office and TUTOM buildings, all waste is sorted and recycled according to the ISO 14001 Environmental Management System Standard. ENERGY-EFFICIENT BRANCHES İşbank continues its environmental efficiency efforts in its service buildings with a perspective of continuous improvement. The Bank aims to ensure efficient use of energy and resources in order to minimize its environmental impact. Therefore; High-energy class air conditioners are preferred for the air conditioning requirements of branches and Bankamatik ATMs. R32 refrigerant-powered models are being used. One of the most important advantages of using R32 gas air conditioners is that the air conditioners operate with a much smaller amount of gas, thus reducing the consumption of refrigerant gas. LED lighting is applied for the branches under renovation. In this way, the amount of waste and energy consumption of approximately 50% per lighting savings are achieved. Natural gas conversion is carried out in branches heated with diesel fuel. Visors are being installed on Bankamatik ATMs that convert solar energy into electric energy and help reduce energy consumption. Acting as solar panels, the Bankamatik ATM visors can meet a significant portion of the energy need of façade lighting, except for the advertisement panels. These systems are in the testing stage and it is planned to expand their use to all renovated units from 2022 onwards. 118 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 119 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen We Take Responsibility for Our Employees We take responsibility for our employees who are our most precious assets. At İşbank, employees enjoy a respectful, peaceful, safe, fair and supportive work environment. At İşbank, it is a priority to have happy and productive employees who embrace a sound vision of the future. Material Issues Related Capital Elements Employee Rights, Commitment and Satisfaction · Employee Health and Safety · Equal Opportunity and Diversity · Preferred Employer · Supporting Employee Volunteering Human Capital Risks Opportunities • Loss of qualified employees • As per İşbank's general policy on recruitment, only entry-level positions are recruited, while executives are trained in-house and promoted from existing employees of the Bank. All recruitment positions are for recent graduates or young professionals. Therefore, losing "talents" for any reason after they have reached a certain level of maturity in their career is one of the greatest risks for the Bank. • Not being preferred by successful recent graduates who form the Bank's target audience • Decrease in employee engagement due to the changing work habits of the new generation • Loss of workforce and reputation due to lack of equal opportunity for potential and existing employees • Developing products and services suitable for the digital age by forming a creative team with regular trainings on digitalization • To be a preferred employer for recent graduates thanks to a reliable brand and employer image • Keeping employee motivation high by prioritizing work-life balance • To be a preferred institution for young employees thanks to practices in various fields such as agile business models, artificial intelligence, data analytics and comprehensive training programs • Offering long-term career opportunities through İşbank's in-house promotion culture • Being among the leading institutions of the sector in terms of equal opportunity and diversity and being a bank preferred by employees. Contributed SDGs KEY PERFORMANCE INDICATORS Employee turnover rate (%) Number of practices that support employee satisfaction Total number of ideas received from employees Participation rate in employee satisfaction surveys (%) Unionization rate (%) Satisfaction with the human resources practices score as part of the working life evaluation survey Ratio of female employees to the total number of employees (%) Ratio of female employees in senior and middle management (%) (Assistant Manager and above) Average training hours per employee per year* Share of digital trainings within all trainings (%) Hours of training per person in management and leadership development programs Hours of training per person in IT competence development trainings Hours of training per newly recruited employee in their first year 2018 2.00 16 7,168 88 99 69 56 46 23.1 35 15.1 23.1 156 2019 1.86 18 6,292 90 99 67 55 45 25.7 30 14.2 23.4 164 2020 1.6 15 4,260 88 98 71 55 45 25.4 51 11.4 17.6 145 2021 2.01 13 2,950 85 98 68 55 44 29.3 30 16.7 26.3 116 Number of suggestions communicated by employees 7,168 6,292 4,260 2,950 *Training figures exclude participants of refresher trainings, while Private Security Officers and Servant Staff are not included. 120 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 121 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen TARGETS Targets for 2021 Realization in 2021 Realization Targets for 2022 and Beyond Trainings have been prepared in order to inform our employees about the agile working model, which allows employees to feel that they are part of a whole and enables people from different lines of business to work in a coordinated manner. Digital trainings about the basic principles of the agile working model, which was introduced into İşbank with the establishment of the Agile Management Division and provides highly positive results, has been made available to employees in 4 parts under the "Agile Working Principles" via "Learning World". Technical trainings and competency development programs were organized to address special agile working principles according to the needs of different roles. Professional development, digitalization, personal development and leadership trainings were held as part of the "Training Catalogue" throughout the year in order to support the competencies of employees based on their needs and preferences. More than 3,700 individual employees participated in the trainings held in a total of 48 different areas. The "Data Analytics Development Program" was launched in 2021. The program was made available for all interested employees in line with the principle of equal opportunity, and a total of 8,350 employees joined the program and received more than 70,000 hours of training. The new digital learning infrastructure project is still ongoing. Live testing activities have begun. Continuing competency development programs tailored to the needs of roles based on agile working principles under the umbrella of the Agile Academy Offering the Training Catalogue, which was created to increase the professional knowledge of employees, develop competencies in support of their changing roles in the digitalized world and assist them with their professional development throughout the year and ensuring that the employees can benefit from these trainings based on their needs and preferences Launching the "Data Analytics Development Program", a program that will be available for use by all employees and is designed to support skill transformation in analytics and digital roles, starting with basic level trainings and gradually moving towards trainings for advanced analytics roles with tailored learning journeys Launching the "New Digital Learning Infrastructure" project designed to increase digital training hours through innovative learning practices that offer continuous development capabilities with highly tailored content through an artificial intelligence-based suggestion system and allow employees to access trainings much more easily through a learner-driven approach As planning of role-based development journeys of the new areas to be established continues as part of the agile transformation program, training programs will be designed that will increase the level of knowledge and develop the skills of our employees according to their competency needs in the newly established competency lines. Professional development, digitalization, personal development and leadership trainings designed to support the development of employees will continue to be held throughout the year as part of the "Training Catalogue". The "Data Analytics Development Program" will be continued to reach even more employees in order to support competency transformation in the field of data analytics and artificial intelligence. We aim to complete the new digital learning infrastructure project and offer it to our employees. Additionally, a new learning game is being developed in order to help them gain the skills of the future by supporting their personal development and increasing their knowledge of technical banking. The game is planned to be made available for use by our employees in 2022. EMPLOYEE COMMITMENT and SATISFACTION İşbank assumes responsibility for ensuring that its employees work in a satisfactory work environment. The Bank has a deeply-rooted corporate culture and supports employees with their requirements according to today's modern world. Thus, employees remain a part of the İşbank family for many years. Employee commitment and satisfaction are two intertwined concepts that represent İşbank's strengths and form the basis of the Bank's success. Surveys are conducted in the following areas to increase employee satisfaction: training activities, performance management, career management, recruitment process, remuneration and rewards. The results from the surveys are reviewed by the managers to make the required improvements. The latest satisfaction survey at İşbank was conducted in 2020, with the participation of 88% of the employees. It has been decided to conduct employee engagement surveys, which used to be conducted every three years, on an annual basis from 2021 onwards, and to include foreign and Cyprus branch employees in the surveys. These surveys also reveal indicators that identify the potential for improving long-term business outcomes. Practices that support employee satisfaction at İşbank include online tours and workshops, special employee discounts obtained from various organizations, and practices aimed at increasing employee volunteering support. In 2021, a volunteer team of runners consisting of employees of the Bank competed in the Istanbul Marathon and collected donations for TEGV. The fact that employees continue to work at İşbank for many years is a key indicator of employee satisfaction and commitment. 78% of İşbank employees have been working for İşbank for more than 10 years. As of year-end 2021, the employee turnover rate was around 2.01%, and the voluntary turnover rate was 3.49%. 78% of employees have been working for İşbank for more than 10 years. Practices that support employee satisfaction İŞİM Surveys E-Sports Diyetkolik Manager Kit İş Ailem Trips Use of Lodges Education Survey Chain of Morale Service Memories Culture-Art Activities Givin Runs Contests 122 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 123 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen EMPLOYEE RIGHTS İşbank guarantees a work environment in which employee rights are completely protected. The Bank respects freedom of association. All employees are free to unionize and act according to their free will. Accordingly, 98% of the Bank's employees are covered by a collective bargaining agreement. The collective bargaining agreement signed by the Bank and the Finance and Insurance Workers Union (BASİSEN) every two years serves as a guide in determining employee rights. At İşbank, the working conditions, economic and social rights of employees are determined within the framework of the provisions of the Collective Bargaining Agreement and the Bank's legislation. In this context, the principle of freedom of employment and contract as expressed in the Constitution is valid at İşbank. In addition, İşbank is one of the organizations in the sector with the highest rate of unionized employees. Therefore, İşbank does not have any operations with the risk of forced/compulsory labor. Within the scope of the Collective Bargaining Agreement, all İşbank employees, regardless of title and seniority, are eligible for healthcare benefits as per the principles of the Healthcare Benefit Implementation Regulation as well as facilities such as food service and personnel transportation services, and other benefits and support packages such as marriage support package, maternity allowance, child allowance, natural disaster support, goods transportation allowance and immigration allowance. The Remuneration Policy covers the employees and managers of the Bank at all levels and is under the responsibility of the Remuneration Committee, which directly reports to the Board of Directors. Remuneration is managed through transparent and measurable processes and systems, and there is no gender- based wage differentiation. As an indicator of this approach, the median wage paid to female employees was 8%* above the median wage paid to male employees in 2021. In 2021, İşbank's Board of Inspectors reviewed data pertaining to 85% of all of the Bank's employees, including male and female employees working in the Bank's operations in Turkey, except for middle- and top-level managers. Information was collected about the wages paid in 2021 to the employees included in the review. It was concluded that there is no causality relation between differentiation in wages and the gender of our Bank's employees across all regular wages. The salaries of senior executives are determined in accordance with the Bank's strategies, long-term goals and risk management structure and are designed to prevent excessive risk taking. The wage package of the Bank consists of salary, bonus, meals, foreign language compensation, dividend payment determined by the Articles of Incorporation, and other fringe payments that may vary depending on seniority and/or scope of the job. *In the calculation, monthly regular payments made to employees working in Turkey as of the end of 2021 regardless of their performance were taken into account. Payments such as overtime pay, cash compensation, shift compensation and other social benefits and non-guaranteed payments made once a year were not taken into account. 124 | İŞBANK 2021 INTEGRATED ANNUAL REPORT In addition, there are applications where payments such as high productivity allowance, product-based sales premiums and manager bonuses are made in line with the individual performance of the employees. Manager and manager candidates working in branches and the Head Office divisions receive premium payments on an annual basis. Attention is paid to ensure that the manager premium payments are aligned with the performance of employees, the Bank's long-term strategy and the risks assumed. The Bank does not employ variable remuneration practices for key employees. İşbank supports its employees with practices that go beyond their fundamental rights and freedoms: • The Bank also contributes to the sportive lives of its employees with the gym located in the İşbank TUTOM building that is available for all employees. • The Bank has practices that go beyond the legislation. Annual leave, maternity leave, disability and unpaid leave arrangements specified in the Collective Bargaining Agreement can be expanded to grant rights in favor of employees beyond the legal regulations. • In addition, there is also the practice of granting administrative leave by the direct managers upon request of employees for their personal matters. The remote work practice put in place in connection with the pandemic means that the employees now have more time to deal with their personal matters. Compliance with Operating Principles Within the scope of audits conducted by the Board of Inspectors, if a suspicion arises that the Bank employees do not conform to work standards or the Board of Inspectors receives a claim that the operating principles are not complied with, the issue is meticulously reviewed. If tangible evidence is found that proves such suspicion or claim, the reports prepared to allow the necessary administrative decisions to be made in accordance with the Bank's collective labor agreement and the legislation are reviewed by the Board of Inspectors and transferred to the related Head Office Divisions for action. In this context, 39 investigations were carried out and referred to the related Head Office Divisions in 2021. FAMILY-FRIENDLY EMPLOYER INTERNAL COMMUNICATION and EMPLOYEE PARTICIPATION İşbank respects the family life of its employees. The Bank supports its employees in maintaining a good work-life balance. Women may sometimes encounter career disruptions due to factors in their private life, such as childbirth. In order to avoid such disruptions, İşbank has put in place practices that will facilitate the return of female employees to work after childbirth. Thanks to these practices, 99.9% of female employees who took maternity leave in 2021 returned to work. The positions of female employees on maternity leave are preserved, and following the end of their leave, they can continue their duties in the same position and in the same location. They can request unpaid maternity leave before starting work or benefit from part-time work arrangements. For mothers, breastfeeding rooms have been allocated to create a more comfortable working environment after maternity leave. Employees using breastfeeding breaks can also benefit from personnel transportation services. Mother and child benefit from the comprehensive health benefits offered by the Bank. In addition, female employees can use the kindergarten service in the İşbank's TUTOM building. All employees with children are provided with a maternity and child allowance. Male employees can take a longer paternity leave than the length of leave specified in the regulations. 99.9% of female employees who took maternity leave in 2021 returned to work. At İşbank, the ideas and suggestions of our employees are valued. The Bank listens to the employees' suggestions, complaints and feedback through constant communication channels and reflects them in its management and decision-making processes. Various platforms have been created in order to systematically ensure employee communication and participation in İşbank. As part of the Employee Communication Platforms and Programs (ÇİPP), trend surveys are conducted and they contribute to the planning of new activities. Innovations such as cultural tours, competitions and e-sports activities have been introduced via this platform, and the participation of employees in social responsibility activities has been increased. "I Have a Suggestion" is a system that aims to benefit from the knowledge and experience of employees in developing new applications and solutions and improving customer experience. In this way, while enhancing the creativity of the employees, it also increases their job satisfaction. In 2021, employees submitted 2,950 ideas through the "I Have a Suggestion" system. HR Help Desk (Maximo) is a practice where employee opinions, evaluations, requests and complaints are received and forwarded to the relevant units. Submissions coming through the "Negative News Line" can only be viewed and directly answered by the CEO. Thus, employee privacy and confidentiality is protected at the highest level. In 2021, 314 employees created 344 negative news items, and product and process improvements were evaluated by the related business divisions. Employees can report actual or suspected violations of İşbank's Ethical Principles and Operational Rules, the Bank's policies and internal regulations, as well as national and international legislation via the Ethics Hotline. It is essential that the reports are kept confidential; and unless expressly requested, the name of the reporting person is kept confidential. Employees are not exposed to any disciplinary action, direct or indirect retaliation, or put at any disadvantage compared to their peers for reporting a violation. The "About Me" screen was created to support the Bank's decision processes with accurate and detailed information. On the screen, employees can communicate the issues that they believe the Human Resources Function needs to be aware of. The registered information can only be viewed by authorized persons in the Human Resources Management Division and by the employee themselves, and the confidentiality of the shared information is essential. İŞBANK 2021 INTEGRATED ANNUAL REPORT | 125 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen OCCUPATIONAL HEALTH and SAFETY PREFERRED EMPLOYER EQUAL OPPORTUNITY and DIVERSITY İşbank sees providing a healthy and safe work environment as one of its fundamental responsibilities. The most authorized person in charge of OHS at İşbank is the Human Resources Management Division Manager, two reporting levels lower than the General Manager. In line with the provisions of the Occupational Health and Safety Law, OHS Committees where employees are represented are established in the Bank's buildings having more than 50 employees. As of year-end 2021, there are OHS Committees in 38 of İşbank's buildings. The OHS Committees convened 138 times during the year, with 346 committee members participating, including 110 employee representatives. Maintaining a healthy and safe work environment is as important as providing such an environment. Therefore, employees need to have OHS awareness. İşbank organizes trainings to increase OHS awareness among employees. In 2021, 40,146 hours of OHS training were given to 6,529 employees. The pandemic necessitated all organizations to expand the scope of their OHS practices during the last two years. For information about the actions and measures taken by İşbank as part of the Fight against COVID-19, see page 200 of this report. In 2021, 40.146 person-hours of OHS training were given to 6,529 employees. İşbank aims to reach qualified human resources and become the preferred employer for qualified employees. For this purpose, the Bank communicates with potential employees and university students through various channels in order to reach potential future employees. Communication with university students takes place via campus communication, student clubs and career centers. Employees representing the business divisions of the Bank share the corporate culture and their personal experiences with the youth. In-house technologies and innovation studies are communicated to the students. Depending on the requirements of the position, online exams and recruitment processes are monitored. Thanks to online applications, the Bank offers employment opportunities throughout the country. Internship opportunities are offered for students in their last two years of university. This helps students become more familiar with the Bank, observe existing employees and benefit from their perspectives. Besides universities, İşbank also collaborates with non- governmental organizations. As a result of such collaborations, various development programs are undertaken. Within the scope of development programs, university students are offered mentorship, the right to benefit from in-house trainings, and the opportunity to participate in art events organized by the Bank and İş Sanat. This not only helps young people in their education but also enriches their cultural and personal development. İşbank values social diversity and thus puts in place practices that emphasize equal opportunity in its human resources processes. The Bank does not, under any circumstances, allow any discrimination among employees based on factors such as race, origin, religion, language, sect or any belief, sexual orientation/preference, gender, mental or physical disability, age, cultural or social class and opinion. İşbank expects its suppliers to embrace the same attitude on equal opportunity and diversity. The provisions of the Supplier Management Principles expressly prohibit any discrimination based on race, gender, nationality, age, physical disability, association membership, pregnancy or marital status. Gender equality is one of the main elements of İşbank's approach to equal opportunity. Various instruments have been created that promote and facilitate women's participation in business life. İşbank is one of the organizations with the highest number of female employees in Turkey. 55% of İşbank employees are women. The high ratio of female employees is also reflected in the management staff. 44% of the mid-level and top-level managers of the Bank are women. In March 2021, İşbank put into force its Gender Equality Policy pursuant to the decision of the Board of Directors. In line with its equal opportunity and diversity principles, this Policy sets out the basic principles and procedures pertaining to the Bank's practices to preserve gender equality that cover all of the Bank's employees and activities. Additionally, Pursuant to the decision made by the Sustainability Committee in 2021, the Bank has started conducting analyses in order to increase the ratio of women among the management staff. The basic principles and rules adopted by İşbank on equal opportunity and diversity are defined in the Human Rights and Human Resources Policy, and this Policy has been shared with the employees on the in-house portal and corporate website. The relevant Policy is carried out under the responsibility and supervision of the Deputy Chief Executive with whom the Human Resources Function is affiliated. For behaviors that are found to be in violation of the Bank's policies, the necessary disciplinary action, up to termination of the employment contract, is taken according to the applicable provisions of the Collective Labor Agreement. Where circumstances warrant legal action, the violation is brought to the attention of legal authorities. Notifications submitted to the Board of Inspectors regarding violations of the Human Rights and Human Resources Policy are handled by the Board of Inspectors in a sensitive manner. Promotion exams organized by İşbank are conducted according to the principle of equal opportunity. In the Assistant Manager promotion exam, which is the transition process to the executive level, male and female positions are equally announced based on the cultural and market information of the regions where the position is located. The subject of diversity and inclusion is covered in the career trainings with the "Diversity and Inclusion" class. Within the scope of this class which helps us ensure the adoption of these principles, seminars and trainings are organized about diversity, inclusion and gender equality. Assistant Specialists who have just begun to work for İşbank receive a "Diversity and Inclusion" class as part of their Starting My Career Trainings, and employees who have been promoted to Senior and Assistant Manager roles also receive this class as part of their career training program. Breakdown of Employees by Gender* Breakdown of Managers by Gender* Female 55% Male 45% Male 56% Female 44% 126 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 127 *Employees with the title of Private Security Officer are excluded. Rates including Private Security Officers F: 50%, M: 50%. *Submanager and higher titles Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen During this class, the subjects of unconscious bias and gender equality are covered for 1 hour. 599 employees received 599 hours of training. The Bank aims to initiate a new leadership and management development program in 2022 in order to support women's development in their journey to top management levels and enhance their leadership competencies. Various trainings and seminars are held under different programs to increase awareness among managers and manager candidates about diversity, equity and inclusion. In 2021, the seminars "Key to an Equal Future", "Inclusive Leadership" and “Violence Against Women”, which aimed to raise awareness on November 25, International Day for the Elimination of Violence Against Women, were held under Management Development Conferences. Additionally, within the Branch Managers Training Catalogue, a 1-day "Inclusive Leadership" training was held. A total of 1,174 people participated in these trainings. The digital training "Ethical Principles and Operational Rules" about the Bank's ethical principles and operational rules was made available on 14.12.2021. In order to help increase awareness about the correct attitude to be displayed towards disabled people and establish a healthy communication with disabled people; Inclusive Leadership people 630 1,260 hours The Bank continued to provide the trainings ''Correct Approach towards Disability'' and "Sign Language" in 2021 as well. These trainings were completed by employees 1,488 times in 2021. "Diversity and Inclusion" training was held for the Head Office and Branch managers. A total of 313 managers participated in this training, which aims to raise awareness on unconscious bias, cover the subject of gender equality, and provide information about the tools and methods to be used to reduce discriminatory behaviors. With the 2-hour training titled "The Richness of Differences: Diversity and Inclusion" included in the Training Catalogue, the subjects of gender equality and unconscious bias were covered, and a total of 90 employees participated in the training. Gender equality is a sensitive issue that is carefully followed up in İşbank's communication activities. Therefore, in the communication activities, Care is taken to ensure that a female narrator is used. Roles assigned to women are carefully managed, and images that portray women as one of the most precious parts of a society are used. A female-male balance is sought in casting. Texts (script, social media posts, etc.) are drawn up by taking gender equality into consideration. Women's Empowerment (WEPs-Women's Empowerment Principles) İşbank has supported women since its foundation. The motivation behind this support is our belief that women's participation in economic life provides enrichment and is also one of the requirements of sustainable development. İşbank has reinforced this approach by being a signatory to the WEPs. WEPs are a set of principles that represent one of the leading global private sector initiatives and aim to empower women in order to ensure their active participation in economic life across all sectors and at all levels. The WEPs, created in partnership with the UN Global Compact and the UN Gender Equality and Women's Empowerment Unit, calls on the private sector to empower gender equality efforts and to develop policies and programs in support of women in business life. As a signatory of WEPs, İşbank assumes a role in promoting and facilitating participation of women in employment. İşbank participates in the "Activism Against Gender- Based Social Violence" campaign organized by the UN Women between 25 November - 10 December every year by illuminating the İş Towers with orange lights. In 2021, total hours of training: 51% female, 49% male Job applications Male:3,419 Female: 3,337; Ratio of Males: 51% Ratio of Females: 49% OHS Committees Male: 205 Female: 141; Ratio of Males: 59% Ratio of Females: 41% TALENT MANAGEMENT İşbank continuously invests in human capital. Accordingly, the Bank offers its employees opportunities to improve their skills throughout their career and prioritizes the development of future skills as a strategy. In order to develop the competencies of employees, a wide variety of training programs and learning tools personalized with state-of- the-art technologies are offered in line with the principle of equal opportunity. Supporting the continuous development of employees is also aligned with İşbank's vision of "being the bank of the future that creates sustainable value". Newly recruited employees participate in "Starting My Career" training programs, differentiated according to the specific title and duties of participants, starting from their first day on the job. Furthermore, İşbank employees can also benefit from various trainings included in the "Training Catalogue" depending on their specific needs and preferences. As part of the Training Catalogue, more than 3,700 individual employees participated in the trainings organized in a total of 48 different topics in 2021, such as professional development, digitalization, personal development and leadership. In order to support the competencies of the employees working in the branches; training programs were held on different subjects by considering the types of branchesand roles of these employees . For retail banking sales teams at branches, new training modules were added to the "Sales Academy" by focusing on the behavior of next-gen customers and the Bank's digital solutions, and new trainings were designed for specialized areas such as foreign trade, derivative products and insurance. In 2021, more than 18,000 employees received over 80,000 hours of training as part of training programs specially designed for employees at Retail, Commercial and Corporate branches. Trainings on different subjects were also designed to support sales competencies and improve the product and services knowledge of mobile sales teams, and more than 800 employees in retail, commercial and agriculture mobile sales teams received over 6,000 hours of training. Within the design– of these training programs held to support sales competencies and improve the technical knowledge of the sales teams of the Bank, the responsibilities of employees, customers' expectations and needs were taken into account. The training programs were also enriched with role plays and case studies to ensure sales teams serve the right product to the right customer. The design of these programs is based on the responsibilities of employees, customers' expectations and needs. Additionally role playes and case studies are designed. 128 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 129 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Trainings designed as learning journeys were continued in order to support the teams starting to work on agile transformation and technical trainings and competency development programs were created to address special agile working principles according to the needs of different roles such as Team Member and Product Owner. In 2021, more than 12,000 hours of training were organized for employees with agile roles. Various digital trainings, such as "Risk Culture in Our Bank"’, "Social Engineering and Phishing Attacks", "Ethical Principles and Operational Rules", and "Sustainability Training Series", were delivered in order to support all employees’ awareness about the legislation and the Bank's strategic priorities. Additionally, “Sustainable Finance and E&S Risk Management in Lending Acitivities” training was delivered for the employees working in designing and marketing loan products and loan allocation processes. The module "Diversity and Inclusion" was added to various training programs, and trainings and conferences were organized on environmental and social subjects. In 2021, 14,392 hours of training were given to 8,637 employees in order to increase awareness about sustainability-related subjects at İşbank. The Data Analytics Development Program, which is one of the reskilling programs designed to support employees Performance and Learning Culture İşbank executives are trained from within the Bank. This means that employees are also potential future executives. All employees have the opportunity to be promoted to managerial positions in line with their performance. Therefore, the Performance Management System plays a key role in İşbank's human resources practices. Thanks to the performance review process, necessary actions are taken in relation to employees' career development. In 2021, 22,050 employees were given performance feedback. Assessment Center Practices The assessment center practices, which have become a part of our recruitment process, have started to be carried out online. Additionally, with the assessment practices that we use to select the system experts to join the information technologies family, İşbank was awarded the golden medal in the category of "Best Advance in Assessment Utilization to Guide Decisions" at the Brandon Hall Human Capital Management Excellence Awards 2021. transform and enhance their digital competencies, offers a development journey from the basic level of data literacy to advanced analytics trainings. The program is available for all employees, regardless of title and role. It is intended to help employees to gain new skills related to understanding and working with data, develop data literacy and establish a data- driven, decision-making culture. 8,350 employees enrolled in the program and received more than 70,000 hours of training in 2021. At İşbank, management and leadership development programs consist of technical and competency-based trainings that are held for managers from different levels and designed to support the competencies required for the specific role. In 2021, 2,506 employees received 36,865 hours of training in total under the leadership development programs designed to support the next-gen leadership competencies of the Bank's managers and establish a continuous learning- driven leadership culture throughout the Bank, and the academy programs specially designed for specific business areas such as marketing, innovation, artificial intelligence and data engineering. ll employees will be able to access various on-demand learning tools such as videos, e-learning courses and games via the "Learning World" digital learning platform. In 2021, 34 new trainings were delivered via the digital learning platform "Learning World," including "Foreign Trade in Our Bank," "Primary Derivative Products," "Paperless Banking," "Digital Signature," and "Agile Working Principles," to support employees' professional and personal development. These trainings were completed 46,547 times by the employees. The 3rd season of İşGame, a game offered under the motto of "A Banking Journey" in order to increase the technical banking knowledge of employees through different training tools, began in February 2021. 1,824 employees loggedin to the 3rd season of İşGame and solved 3,670,115 questions about technical banking, product details and sales techniques. In addition, the video platform İşTube contains 244 videos, including 26 new videos posted under technical and personal development titles such as "Resilience". 130 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 131 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Good Corporate Citizen Transparent and Ethical Management Social Investments We Take Responsibility for Transparent and Ethical Management Preparing to celebrate its 100th year, İşbank is a bank associated with trust and dignity in the banking sector. While carrying its pioneering role to the future, the Bank adopts a transparent, fair, and accountable management structure without compromising its ethical and principled banking approach. İşbank has a management structure that complies with international standards and is intended to create value for all of its stakeholders. Material Issues Related Capital Elements Business Ethics, Transparency, and Reporting · Risk Management · Complying with Regulations · Communication with Stakeholders · Emergency Action Preparation and Business Continuity Financial Capital Intellectual Capital Social-Relational Capital Risks Opportunities • Penal sanctions that may be incurred due to non-compliance with legal regulations • Losses that may be incurred due to non-financial risks • The potential to maintain existing customer satisfaction and reach new customers with an ethical banking approach • Increasing the interest of investors with an excellent • Operational disruptions which may be caused by reputation and brand value inadequate stakeholder dialogue • Risk of loss of trust with stakeholders and dismissal from relevant engagements due to failure to meet reporting and information sharing requirements • Providing added value by considering stakeholder expectations in product and service development with effective stakeholder communication • Contributing to reputation management with transparent information sharing, gaining a competitive advantage in different performance areas Contributed SDGs KEY PERFORMANCE INDICATORS Number of employees receiving Anti-Bribery and Anti-Corruption Training 2019 7,577 Total hours of Anti-Bribery and Anti-Corruption Training 3,115 2020 7,830 857 2021 5,716 627 Risk Management Number of times the Risk Committee convened: 12 Conducting loss event data analysis Completion of scenario analysis Conducting impact- probability analysis Conducting Top-Down Risk Assessment Number of times the Risk Committee convened: 12 Number of times the Operational Risk Committee convened: 1 Conducting loss event data analysis Completion of scenario analysis Conducting impact- probability analysis Conducting Top-Down Risk Assessment Number of times the Risk Committee convened: 11 Number of times the Operational Risk Committee convened: 2 Conducting loss event data analysis Completion of scenario analysis Conducting impact- probability analysis Conducting Top-Down Risk Assessment Audits carried out by the Board of Inspectors Number of domestic branch audits 245 Number of foreign branch audits Number of subsidiary audits Number of Head Office division audits Number of social media followers (million people) 2 7 14 2.6 Publishing annual integrated report 186 4 10 12 2.7 175 2 10 24* 2.6 Developing cooperation with national and international initiatives See Initiatives Supported in the Field of Sustainability Fulfilling UNEP FI Principles of Responsible Banking commitments See Transparency and Reporting * Audits repeated every year are not included. 134 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 135 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen TARGETS MANAGEMENT STRUCTURE The Board of Directors, the highest management body of İşbank, is responsible for steering the strategies and policies of the Bank. İşbank's Board of Directors consists of 11 members, including 1 woman. Having 3 independent members*, the Board of Directors is composed of non-executive members, except for the CEO. The CEO and Chairperson of the Board of Directors roles at the Bank are assumed by different persons. The Board of Directors has several governance committees in place to support the activities of the Board in various areas. Responsible for implementing the strategies established by the Board of Directors and led by the CEO, the Executive Committee has 13 members other than the CEO, including 2 women. *As per the II-17.1 Corporate Governance Communiqué published on 03.01.2014, the members of the board of directors who are assigned as members of the audit committee, as part of the organization of the board of directors of banks, are considered as independent members of the board of directors. Targets for 2021 Realization in 2021 Realization Targets for 2022 and Beyond The Bank is planning to increase the number of trainings to develop the risk management skills of its employees and increase their awareness on the subject so that an effective risk management approach is widely embraced across the organization. We offered our employees the digital training "Risk Culture in Our Bank" in 2021 according to the "Guideline on Operational Risk Management" published by the Banking Regulation and Supervision Agency (BRSA), which recommends that all employees receive operational risk training as a minimum. This training is intended to teach the concept of risk and the components of risk culture, and to provide information about the activities undertaken to create a healthy risk culture at İşbank. The career training programs organized for employees promoted to Supervisor and Submanager roles at İşbank include the "Risk Management" class. The "Risk Management" class is included in My Career as a Specialist Training, which is organized to support the career development of employees with the title of Senior Assistant Specialist, and it is aimed to increase the knowledge and awareness level of the participants on the subject. Additionally, "Risk Management" training is provided under the Branch Manager Development Program, designed for new Branch Managers, in order to refresh the knowledge of employees and encourage them to display an effective risk management approach. The Risk Management and Risk Culture Seminar was organized in order to increase the level of knowledge of managers and manager candidates and enrich their vision with global examples. The Bank has begun to provide theoretical trainings on risk management and control facility functions to risk competency line members and product owners - the primary audience of the trainings - as per the increased needs of our agile areas in order to ensure widespread use of the Agile Risk Model, which was designed to be applied in Agile Areas. With these trainings, 3,584 participants received 3,546 hours of training. The Bank aims to increase the number of employees to have received the digital training "Risk Culture in Our Bank". Theoretical trainings will continue to be planned for product owners and agile area employees who want to develop their competency in this area. This training will be followed by practical trainings, during which the product owner, product features and risks will be covered. İşbank aims to complete the impact analysis studies of its portfolio in line with the UNEP FI Principles on Responsible Banking by 2024 and contribute to the studies towards sustainable development and global climate targets in line with the targets it has set. In progress 136 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 137 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Committees Information Systems Strategy Committee Audit Committee Human Resources Committee TRNC Internal Systems Committee Credit Committee Corporate Social Responsibility Committee Corporate Governance Committee Operational Risk Committee Risk Committee Sustainability Committee Remuneration Committee Board of Directors Operating Principles Committee 1 2 3 4 5 6 7 8 9 10 11 12 Professional Experience Educational Background Length of Service at Current Position Independent Member of the Board of Directors. Yusuf Ziya Toprak and Ersin Önder Ciftçioğlu are considered as Independent Members of the Board of Directors since they are also members of the Audit Committee. BOARD OF DIRECTORS ADNAN BALİ Chairperson YUSUF ZİYA TOPRAK Vice Chairperson HAKAN ARAN Member of the Board and Chief Executive Officer FERAY DEMİR Member of the Board ERSİN ÖNDER ÇİFTÇİOĞLU Member of the Board University (4-year college) 33 years 9 months University (4-year college) 44 years 1 year 9 months Post Graduate 29 years 9 months University (4-year college) 33 years 5 years 9 months University (4-year college) 36 years 4 years 9 months 5 9 10 11 12 2 4 5 8 9 1 3 5 8 9 5 6 7 10 11 12 2 4 7 8 9 10 Mr. Adnan Bali was born in İslahiye in 1962 and graduated from Middle East Technical University, Faculty of Economics and Administrative Sciences, Department of Economics. He joined İşbank as Assistant Inspector on the Board of Inspectors in 1986. He became Assistant Manager in the Treasury Division in 1994 and served as a Unit Manager in the same division in 1997. He was appointed as Head of the Treasury Division in 1998. Mr. Bali served as the Manager of the Şişli Branch in 2002 and Manager of the Galata Branch in 2004; he was appointed Deputy Chief Executive on 30 May 2006 and Chief Executive Officer of İşbank on 01 April 2011. Elected to İşbank's Board of Directors on 31 March 2021 and Chairperson of the Board of Directors on 01 April 2021, Mr. Bali has also been serving as the Chairperson of the Remuneration Committee, Risk Committee, Sustainability Committee and Board of Directors Operating Principles Committee and as a member of the Credit Committee. Apart from his role in the Bank, Mr. Bali is also the Chairperson of Türkiye Sınai Kalkınma Bankası A.Ş., Softtech Ventures Teknoloji A.Ş., and İşbank Members’ Supplementary Pension Fund. Mr. Yusuf Ziya Toprak was born in Trabzon in 1943, and graduated from Istanbul Economics and Commercial Sciences Academy, Department of Finance. Mr. Toprak started to work as an Assistant Inspector on the Board of Inspectors at İşbank in 1967. In the following years, he served as Assistant Manager and Group Manager in the Automation and Organization Divisions, as Manager in the Securities Division, and General Manager at Yatırım Finansman Securities. He was appointed as Deputy Chief Executive at İşbank in 1999. Mr. Toprak, who has retired in 2004, continued serving as the Vice Chairperson and a Member of the Board of Directors at Şişecam until 2010. Mr. Yusuf Ziya Toprak, who was elected as a member of İşbank’s Board of Directors on 31 March 2020 and as the Vice Chairperson of the Board on 1 April 2020, also serves as the Chairperson of the Audit Committee, T.R.N.C. Internal Systems Committee and Operational Risk Committee, a member of the Risk Committee and an alternate member of the Credit Committee. Born in Antakya in 1968, Hakan Aran graduated from the Faculty of Engineering, Computer Engineering Department of Middle East Technical University. He completed his master's degree in Business Administration at Başkent University and he currently continues his PhD studies in Banking at Istanbul Commerce University. Beginning his career at İşbank as a Software Specialist in 1990, Mr. Aran was appointed as the Head of the Software Development Division in 2005. He was promoted to the position of Deputy Chief Executive responsible for operations, digital banking and technology in 2008 and took part in important transformation programs of the Bank. Appointed as İşbank's 17th Chief Executive Officer on 01 April 2021, Mr. Aran also serves as the Chairperson of the Credit Committee, Human Resources Committee and Information Technology Strategy Committee and as a member of the Risk Committee and Operational Risk Committee. Ms. Feray Demir was born in Ağrı in 1968 and graduated from Anadolu University, Faculty of Economics and Administrative Sciences, Business Administration Department. She started her professional career as an Officer at the Sefaköy/Istanbul Branch in 1988. She was appointed as Assistant Section Head in 1990, Section Head in 1995, Sub-Manager in 1996 and as Assistant Manager in 1999 at the same branch. She then served in the same position in the Commercial Loans Division and Corporate Marketing Division at the Head Office. She was appointed as Branch Manager to the Çarşı-Güneşli/ Istanbul Branch in 2005, and then served as Head of Commercial Banking Sales Division from 2007 to 2011. She served as Branch Manager of the Istanbul Corporate Branch from 2011 to 2016. In addition to her duties at the Bank, Ms. Demir also serves as a member of the Board of İşbank Members' Supplementary Pension Fund. Ms. Demir, who was elected to İşbank's Board of Directors on 25 March 2016, 31 March 2017 and 31 March 2020, also serves as a member of the Corporate Social Responsibility Committee, Credit Committee, Remuneration Committee, Sustainability Committee, Corporate Governance Committee and Board of Directors Operating Principles Committee. Mr. Ersin Önder Çiftçioğlu was born in Ankara in 1960 and graduated from Hacettepe University, Faculty of Social and Administrative Sciences, Department of English Linguistics. Mr. Çiftçioğlu began his career at İşbank as an Officer in the Yenişehir/Ankara Branch in 1985, and was appointed as Assistant Section Head, Section Head, Sub- Manager and Assistant Manager in the same branch. In 2007, he was appointed as Assistant Manager at the Başkent/Ankara Corporate Branch and Regional Manager of the SME Loans Underwriting Division of the Adana Region in the same year and subsequently served as Ankara Center I. Region Manager in 2008. He was appointed as the Ege/ Izmir Corporate Branch Manager in 2011 and Başkent/Ankara Corporate Branch in 2016. Mr. Çiftçioğlu, who was elected to İşbank’s Board of Directors on 31 March 2017 and 31 March 2020, also serves as the Chairperson of the Corporate Governance Committee and a member of the Audit Committee, TRNC Internal Systems Committee, Sustainability Committee, Operational Risk Committee and Risk Committee. 138 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 139 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen FAZLI BULUT Member of the Board DURMUŞ ÖZTEK Member of the Board RECEP HAKAN ÖZYILDIZ Member of the Board MUSTAFA RIDVAN SELÇUK Member of the Board AHMET GÖKHAN SUNGUR Member of the Board SADRETTİN YURTSEVER Member of the Board Post Graduate 36 years 2 years 9 months Post Graduate 46 years 1 year 9 months Post Graduate 43 years 1 year 9 months Post Graduate 43 years 1 year 9 months Post Graduate 29 years 1 year 9 months 5 6 6 12 Mr. Durmuş Öztek was born in Sivas, Şarkışla in 1953 and graduated from Ankara University Faculty of Political Sciences, Department of Economics and Finance. He completed his master’s degree in Economics at Vanderbilt University in the USA. Mr. Öztek served as a Finance Auditor between 1975-1986 in the Ministry of Finance. In the following years, he served as Division Head, Deputy General Manager and General Manager in the General Directorate of Budget and Financial Control; Chief Auditor and Member of the Financial Advisory Committee in the Ministry of Finance; Auditor in Turk Telekom, Member of the General Committee in the Council of Higher Education, Financial Counselor in the Turkish Embassy in Brussels. He served as a Ministry Counselor in the Ministry of Finance between 2006- 2011. Mr. Öztek, who was elected to the İşbank Board of Directors on 31 March 2020, serves as a member of the Corporate Social Responsibility Committee and the Board of Directors Operating Principles Committee. Mr. Recep Hakan Özyıldız was born in Bursa in 1956 and graduated from Ankara University Faculty of Political Sciences, Department of Economics and Finance. He completed his master’s degree in Economics at Northeastern University in the USA. Mr. Özyıldız started to work at the Ministry of Treasury and Finance as an Assistant Treasury Specialist in 1978. In the following years, he served as Branch Manager at the Undersecretary of Treasury and Foreign Trade and the General Directorate of Banking and Foreign Exchange; Division Head, Deputy General Manager and General Manager at the General Directorate of Public Finance under the Ministry of Treasury and Finance; Auditor at İşbank, General Manager of the State Economic Enterprises in the Treasury, Senior Advisor of Economics in the Turkish Embassy in London and Assistant Undersecretary in the Ministry of Treasury and Finance. Mr Özyıldız, who is also a columnist and commentator, continues to serve as a part-time academic tutor in Ankara University, Faculty of Political Sciences. Mr. Özyıldız was elected to the İşbank Board of Directors on 31 March 2020. Mr. Fazlı Bulut was born in Pertek in 1964 and graduated from Ankara University, Faculty of Political Science, Department of Economics. He completed his master’s degree in Economic Development at New Hampshire College in the USA. Mr. Bulut served as Account Expert and Senior Account Expert at the Ministry of Finance on the Board of Account Experts from 1985 to 1997. He taught General Accounting at the College of Tourism and College of Computer Technology at Bilkent University from 1996 to 1998. Mr. Bulut served as Vice General Manager and Member of the Board of the Social Insurance Institution from 1997 to 1999. He served as Vice General Manager, General Manager and Member of the Board of Directors in Tepe Home Mobilya ve Dekorasyon Ürünleri San. Tic. A.Ş., a subsidiary of Bilkent Holding, from 1999 to 2011. He subsequently served as a consultant for Bilkent Holding on tax and retailing from 2011 to 2012, as the General Manager of B. Braun Kalyon Medikal ve Dış Ticaret A.Ş. from 2013 to 2015, and as the Coordinator of Financial Affairs in Terra İnşaat Grubu from 2016 to 2017. Mr. Bulut has also published books on various subjects. Mr. Bulut, who was elected to the İşbank Board of Directors on 29 March 2019 and 31 March 2020, also serves as a member of the Corporate Social Responsibility Committee and as an alternate member of the Credit Committee. Mr. Ahmet Gökhan Sungur was born in Yozgat in 1953. He graduated from Middle East Technical University, Department of Chemical Engineering and received his master’s degree from the same department. Mr. Sungur, who started his career in 1975 at the General Institute of Mineral Research and Exploration, Department of Technology, as Chief Specialist Chemical Engineer, worked in Hisarbank and Güntekin İnşaat A.Ş. as a System Analyst between 1981-1982. Later, between 1982-1999, he served as Manager of Software Development at İşbank and Chief Executive Officer at İş Net A.Ş. between 1999-2003. Mr. Sungur was elected as an Independent Member of the İşbank Board of Directors on 31 March 2020. Mr. Mustafa Rıdvan Selçuk was born in Malatya in 1955, and graduated from Ankara University, Faculty of Political Sciences, Department of Economics and Finance. He received his master’s degree in Economics from Vanderbilt University in the USA. Mr. Selçuk started his career in the Ministry of Finance in 1978 as an Assistant Account Expert. In the following years, he served as Account Expert, Senior Account Expert, Division Head in the General Directorate of Revenues, General Manager and Chairperson of Bağkur in the Ministry of Labor and Social Security, Labor and Social Security Advisor in the Turkish Embassy in Copenhagen and as Ministry Advisor in the Ministry of Finance. Mr. Selçuk, who has also served as a Certified Public Accountant since 2003, is an Independent Auditor at BDD Bağımsız Denetim ve Danışmanlık A.Ş., and a partner at Girişim YMM Limited Şti. Mr. Selçuk was elected to the İşbank Board of Directors on 31 March 2020. University (4-year college) 28 years 1 year 9 months 6 7 Mr. Sadrettin Yurtsever was born in Bingöl in 1964 and graduated from Gazi University, Faculty of Education, Department of English Language Education. Mr. Yurtsever, who started his career at İşbank as a candidate officer in the İzmir Branch in 1993, served in the same branch as Section Head and Sub-Manager. He served as Assistant Manager in the SME Loans Underwriting Division of the Denizli Region in 2006, İzmir Central II. Region Sales Division Assistant Regional Manager in 2007, Regional Manager in the same division in 2011, Branch Manager of the Bornova/İzmir Commercial Branch in 2013 and the Mediterranean/Antalya Corporate Branch in 2018. Mr. Yurtsever, who was elected to the İşbank Board of Directors on 31 March 2020, serves as a member of the Corporate Governance Committee and the Corporate Social Responsibility Committee. 140 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 141 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 1 2 3 4 EXECUTIVE COMMITTEE Born in Antakya in 1968, Hakan Aran graduated from the Faculty of Engineering, Computer Engineering Department of Middle East Technical University. He completed his master's degree in Business Administration at Başkent University and he currently continues his PhD studies in Banking at Istanbul Commerce University. Beginning his career at İşbank as a Software Specialist in 1990, Mr. Aran was appointed as the Head of the Software Development Division in 2005. He was promoted to the position of Deputy Chief Executive responsible for operations, digital banking and technology in 2008 and took part in important transformation programs of the Bank. Appointed as İşbank's 17th Chief Executive Officer on 01 April 2021, Mr. Aran also serves as the Chairperson of the Credit Committee, Human Resources Committee and Information Technology Strategy Committee and as a member of the Risk Committee and Operational Risk Committee. Born in Izmir in 1965. Mr. Yalçin Sezen graduated from the Political Sciences and Public Administration Department of Middle East Technical University, Faculty of Economics and Administrative Sciences. In 1987, Mr. Sezen joined İşbank as an Assistant Inspector on the Board of Inspectors. He served in different units of İşbank and was appointed as Deputy Chief Executive on 13 April 2011. Born in Ankara in 1968. Mr. Murat Bilgiç graduated from the International Relations Department of Middle East Technical University, Faculty of Economics and Administrative Sciences. He also holds a master’s degree in Money- Banking-Finance from the University of Birmingham. He attended the Advanced Management Program at Harvard Business School. In 1990, Mr. Bilgiç joined İşbank as an Assistant Inspector on the Board of Inspectors. He served in different units of İşbank and was appointed as Deputy Chief Executive on 25 March 2016. Born in Ankara in 1970. Mr. N. Burak Seyrek graduated from the International Relations Department of Ankara University, Faculty of Political Sciences. He joined İşbank in 1990 as Assistant Specialist in the Training Division. He served in different units and branches of İşbank and also served as Chief Executive Officer at İşbank AG, a subsidiary of İşbank located in Germany. Mr. Seyrek was appointed as Deputy Chief Executive of İşbank on 25 March 2016. 1 5 HAKAN ARAN Member of the Board and Chief Executive Officer ŞAHISMAIL ŞIMŞEK Deputy Chief Executive 2 6 YALÇIN SEZEN Deputy Chief Executive EBRU ÖZŞUCA Deputy Chief Executive 3 7 MURAT BILGIÇ Deputy Chief Executive GAMZE YALÇIN Deputy Chief Executive 4 8 N. BURAK SEYREK Deputy Chief Executive H. CAHIT ÇINAR Deputy Chief Executive 5 6 7 8 Born in Erzurum in 1968. Mr. Şahismail Şimşek graduated from Ankara University, Faculty of Political Science, Department of Finance. He joined İşbank as an Officer at the Yenişehir/Ankara Branch in 1992, and served in different units and branches of İşbank. Mr. Şimşek was appointed as Deputy Chief Executive on 28 November 2017. Born in Ankara in 1971. Ms. Ebru Özşuca graduated from the Economics Department of Middle East Technical University, Faculty of Economics and Administrative Sciences. She also holds a master’s degree from the Economics Department of the Graduate School of Social Sciences at Middle East Technical University and completed her master's degree in International Banking and Finance from the University of Southampton in the UK in 1998. She attended the Advanced Management Program at Harvard Business School in 2015. She joined İşbank as an Assistant Specialist at the Treasury Division in 1993. Ms. Özşuca served in different units of İşbank and was appointed as Deputy Chief Executive on 28 November 2017. Born in Ankara in 1971. Ms. Gamze Yalçın graduated from the Economics Department of Middle East Technical University, Faculty of Economics and Administrative Sciences. She also holds a master’s degree in International Banking and Finance from the University of Birmingham in the UK. She attended the Advanced Management Program at Harvard Business School in 2017. She joined the Organization Division at İşbank as an Assistant Specialist in 1993 and served in different units of İşbank. Ms. Yalçın was appointed as Deputy Chief Executive on 28 November 2017. Ms. Yalçın also serves as İşbank’s Sustainability Leader. Born in Ankara in 1967. Mr. Cahit Çınar graduated from the International Relations Department of Ankara University, Faculty of Political Science. He attended Munich Ludwig- Maximillians University between 1989-1990. He began his career at İşbank as an Assistant Specialist in the Economic Research Division in 1991 and joined the Board of Inspectors as an Assistant Inspector in 1992. He served in different units of İşbank and the Güneşli Corporate Branch and served as Chief Executive Officer at İşbank AG, a subsidiary of İşbank located in Germany. Mr. Çınar was appointed as Deputy Chief Executive of İşbank on 5 October 2018. 9 12 OZAN GÜRSOY Deputy Chief Executive SABRI GÖKMENLER Deputy Chief Executive 10 13 SEZGIN YILMAZ Deputy Chief Executive CAN YÜCEL Deputy Chief Executive 11 14 SEZGIN LÜLE Deputy Chief Executive SEZAI SEVGIN Deputy Chief Executive 9 10 11 Born in Adana in 1974. Mr. Ozan Gürsoy graduated from the Public Administration Department of Middle East Technical University, Faculty of Economic and Administrative Sciences. He also holds a master’s degree in International Banking and Finance from the University of Birmingham in the UK. He joined İşbank as an Assistant Inspector on the Board of Inspectors in 1996. Throughout his career, Mr. Gürsoy served in various units of İşbank and the Gebze Corporate Branch of the Bank and was appointed as Deputy Chief Executive of İşbank on 26.08.2019. Born in Kırcaali in 1975. Mr. Sezgin Yılmaz graduated from Uludağ University, Faculty of Economics and Administrative Sciences, Department of Economics. Mr. Yılmaz started his career as an Officer at the Bursa Branch in 1997. Mr. Yılmaz served in various units and branches of İşbank and was elected to the İşbank Board of Directors on 29 March 2019. Mr. Yılmaz was appointed as Deputy Chief Executive of İşbank on 26.08.2019. Born in Trabzon in 1976. Mr. Sezgin Lüle graduated from the Industrial Engineering Department of Boğaziçi University's Faculty of Engineering in 1998. He completed his master's degree in International Banking and Finance at the University of Birmingham in 2004. Mr. Lüle began his career in the Organization Division of İşbank as an Assistant Organization and Method Specialist in 1998 and became an Assistant Inspector on the Board of Inspectors in 1999. He served as Assistant Manager and Unit Manager at the Board of Project and Change Management between 2008 and 2011 and became the Head of the Enterprise Architecture Division in April 2017. He attended the Advanced Management Program at Harvard Business School in 2019. Mr. Lüle was appointed as Deputy Chief Executive on 28 January 2021. Born in Ankara in 1968. Mr. Sabri Gökmenler graduated from the Computer Engineering Department of Middle East Technical University in 1991 and completed his master's degree in the same department in 1995. 12 Mr. Gökmenler, who began his career at İşbank in 1991 as a Software Specialist, served in Softtech, a subsidiary of İşbank, from 2004 to 2008. He became the Head of the IT Architecture & Security Management Division of İşbank in 2008 and Head of the Information Technologies Division in 2012. Mr. Gökmenler attended the Advanced Management Program at Harvard Business School in 2018 and was appointed as Deputy Chief Executive on 28 January 2021. Born in Ankara in 1978. Mr. Can Yücel graduated from the Economics Department of Middle East Technical University, Faculty of Economics and Administrative Sciences and began his career at İşbank as an Assistant Inspector on the Board of Inspectors in 1999. He served as Assistant Manager in the SME Loans Underwriting Division in 2008, as Assistant Manager in the Corporate Loans Underwriting Division in 2009. He was appointed as Unit Manager in the same division in 2011 and as the Head of the Corporate Loans Underwriting Division in 2016. Mr. Yücel became Branch Manager of the Başkent Corporate/Ankara Branch in 2020 and was appointed as Deputy Chief Executive on 26 August 2021. 13 Born in Istanbul in 1968. Mr. Sezai Sevgin graduated from Marmara University, Faculty of Economics and Administrative Sciences. 14 On 31 July 1990, he began his career at İşbank as an Assistant Inspector on the Board of Inspectors. He became the Branch Manager at İşbank AG Succursale de Paris on 28 May 1998. He was appointed as the Unit Manager in the Corporate Banking Marketing Division on 02 July 2004, and Head of the SME and Commercial Banking Marketing Division on 28 March 2007. He became the Branch Manager of the Gebze Corporate Branch on 13 April 2011 and Maslak Corporate/Istanbul Branch on 28 February 2013. He was appointed as the General Manager of Bayek Healthcare Group, one of İşbank's domestic subsidiaries, on 29 December 2015. Mr. Sevgin was appointed as Deputy Chief Executive of İşbank on 28 December 2021. 142 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 143 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen ORGANIZATION CHART* SECRETARIAT TO THE BOARD OF DIRECTORS BOARD OF INSPECTORS DEPUTY Chief Executive Sezai Sevgin RISK MANAGEMENT DIVISION INTERNAL CONTROL DIVISION CORPORATE COMPLIANCE DIVISION INFORMATION SECURITY DIVISON BOARD OF DIRECTORS CHIEF EXECUTIVE HAKAN ARAN AUDIT COMMITTEE YUSUF ZİYA TOPRAK ERSİN ÖNDER ÇİFTÇİOĞLU DEPUTY Chief Executive Yalçın Sezen DEPUTY Chief Executive Murat Bilgiç DEPUTY Chief Executive N. Burak Seyrek DEPUTY Chief Executive Şahismail Şimşek DEPUTY Chief Executive Ebru Özşuca DEPUTY Chief Executive Gamze Yalçın DEPUTY Chief Executive H. Cahit Çınar DEPUTY Chief Executive Ozan Gürsoy DEPUTY Chief Executive Sezgin Yılmaz DEPUTY Chief Executive Sabri Gökmenler DEPUTY Chief Executive Sezgin Lüle DEPUTY Chief Executive Can Yücel HEAD OFFICE COUNSELLORSHIP CORPORATE COMMUNICATIONS COORDINATION AND GENERAL SECRETARY CORPORATE COMMUNICATIONS DIVISION RETAIL BANKING MARKETING DIVISION RETAIL LOANS UNDERWRITING DIVISION CORPORATE AND COMMERCIAL BANKING MARKETING DIVISION SME BANKING SALES DIVISION TREASURY DIVISION FINANCIAL MANAGEMENT DIVISION LEGAL COUNSELLORSHIP HR MANAGEMENT DIVISION BANKING OPERATIONS & PAYMENT OPERATIONS DIVISION INFORMATION TECHNOLOGIES DIVISION DIGITAL BANKING DIVISION LEGAL AFFAIRS AND FOLLOW UP DIVISION RETAIL BANKING SALES DIVISION PROJECT FINANCE DIVISION COMMERCIAL BANKING SALES DIVISION SME BANKING MARKETING DIVISION ECONOMIC RESEARCH DIVISION FINANCIAL INSTITUTIONS DIVISION SUBSIDIARIES DIVISION STRATEGY & CORPORATE PERFORMANCE MANAGEMENT DIVISION AGILE MANAGEMENT DIVISION DATA MANAGEMENT DIVISION CUSTOMER RELATIONS DIVISION CREDIT MONITORING DIVISION RETAIL BANKING PRODUCT DIVISION COMMERCIAL LOANS UNDERWRITING DIVISION FREE ZONE BRANCHES AGRICULTURAL BANKING MARKETING CAPITAL MARKETS DIVISION INVESTOR RELATIONS AND SUSTAINIBILITY DIVISION TALENT MANAGEMENT DIVISION SUPPORT SERVICES DIVISION PROCUREMENT DIVISION CONSUMER LOANS DIVISION CORPORATE LOANS UNDERWRITING DIVISION BRANCHES ABROAD AND FOREIGN REPRESENTATIVES (OFFICES) COMMERCIAL BANKING PRODUCT DIVISION MANAGERIAL REPORTING & INTERNAL ACCOUNTING DIVISION PRIVATE BANKING MARKETING AND SALES DIVISION FOREIGN TRADE & COMMERCIAL LOAN OPERATIONS DIVISION CONSTRUCTION & REAL ESTATE MANAGEMENT DIVISION ENTERPRISE ARCHITECTURE DIVISION PAYMENT SYSTEMS ECOSYSTEM DIVISION CREDITS PORTFOLIO MANAGEMENT DIVISION PAYMENT SYSTEMS OPERATIONS DIVISION RETAIL LOANS RECOVERY DIVISION PAYMENT SYSTEMS PRODUCT DIVISION COMMERCIAL & CORPORATE LOANS RECOVERY DIVISION Last revised on Jan 27, 2022 144 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 145 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen INFORMATION ABOUT the MEETINGS of the BOARD of DIRECTORS In İşbank, the Board meetings are held at least once a month, yet interim meetings might be held in case of need. Meeting agendas are prepared in accordance with the proposals of Head Office divisions. Moreover, various reports requested by the Board of Directors from the Bank management and off the agenda topics put forward by the Board members are discussed during the meetings. Meeting agenda and related documents are distributed to the Board members in a particular time before the meetings. By the end of 2021, 13 Board meetings were held and 12 of them were held by full participation. 708 pages of minutes were recorded for the said meetings, which lasted 60 hours in total. As of 2021 year-end a total of 337 files were reviewed, which split as 230 files for loan underwriting and 107 files on other issues regarding loans; based on the work carried out by convening meetings or by individual review and signing of the file by each Board Member, which resulted in 232 loan decisions. A total of 332 files were reviewed on non-credit matters and 332 resolutions were taken. Consequently, 775 Board resolutions were made in 2021, including 211 those that were passed during the meetings. İŞBANK COMMITTEES Assessments on İşbank Committees İşbank committees presented their decisions and reports to Board of Directors in 2021, and the necessary decisions have been taken as a result of the assessment of Board of Directors. The Audit Committee The Audit Committee, which consist of two members and was reconstituted by the resolution of the Board of Directors dated 29.5.2020 and Nr. 43822 is chaired by Mr Yusuf Ziya Toprak, Vice Chairperson of the Board of Directors. The other member of the Committee is Mr. Ersin Önder Çiftçioğlu, member of Board of Directors. Pursuant to its working principles, Audit Committee is responsible for holding meetings at least twice a year provided that six- month periods are not exceeded, and it is obligated to inform the Board of Directors about the results of the activities it carried out and measures to be taken based on these results and about necessary practices to be implemented. Moreover the Audit Committee is obligated to provide its recommendations regarding other issues that are deemed significant for the Bank in order to carry out its activities safely. Audit Committee works in collaboration with the Remuneration Committee and the Risk Committee. The Audit Committee is in charge of: • ensuring that the internal systems of the Bank function efficiently and sufficiently, that these systems and the accounting and reporting systems operate within the framework of the related regulations and the Bank’s policies and that the information produced has integrity, • making preliminary assessment necessary to select independent audit firms, rating, valuation and support service institutions; regularly monitoring the activities of these institutions selected by the Board of Directors; evaluating them periodically within the context of the provisions of the legislation; providing information to the Board of Directors, • reviewing the assessments of the independent audit firms, evaluating independent audit results, and making discussions with the independent auditors, • informing the Board of Directors about findings of the independent auditors and internal systems divisions, and about measures taken by the top management and by the units reporting to the top management, • ensuring that the internal audit functions of subsidiaries that are subject to consolidation are coordinated in line with the related regulations, • receiving information and reports about internal systems and functioning of divisions within the scope of internal systems, their operations including consolidated risks, and about related policies and regulations, • ensuring that the financial reports of the Bank are issued in conformity with relevant legislations, regulations and standards, • making assessments in order to ensure whether or not required procedures and principles have been implemented for detecting, measuring, monitoring and controlling potential and existing risks incurred by the Bank; ensuring that risk framework and risk culture, in line with the Bank’s structure and operations, are established within the Bank, • ensuring that internal capital adequacy evaluation process (ICAAP) includes all risks in a consolidated manner, auditing and control processes are established to provide required assurance about its adequacy and accuracy, • evaluating professional education levels and competency of managers and personnel assuming duties in divisions within the scope of internal systems; making suggestions to the Board of Directors for the selection of managers, as well as presenting opinion to the Board of Directors during their dismissal, • establishing communication channels to make sure that information will be provided directly to the Audit Committee or to the internal audit unit or to the Bank inspectors in case of Bank fraud. • if required, gathering information, documents or reports Credit Committee from all Bank units, support service contractors and independent auditors and being subject to Board approval, receiving consultancy from those who are specialists in their respective fields, • reporting to and informing the Board about the results of its own operations, the measures needed to be taken in order for the Bank’s operations to be within the framework of the related legislation and Bank policies in a continuous and secure way and its evaluation, opinion and recommendation on any other issues that are deemed to be important, • fulfilling other responsibilities determined by the related legislations and the duties given by the Board within this framework. As of the end of 2021, Audit Committee held 57 meetings with full participation and adopted 88 resolutions. Turkish Republic of Northern Cyprus (TRNC) Internal Systems Committee TRNC Internal Systems Committee is established within the framework of TRNC Banking Law and related regulations. The Committee which was reconstituted, has two members and as per the resolution of the Board of Directors, dated 29.05.2020, Nr. 43823 the Committee is chaired by Mr. Yusuf Ziya Toprak, the Vice Chairperson of the Board of Directors. The other member of the committee is Mr. Ersin Önder Çiftçioğlu who is a member of the Board. The Committee holds meetings at least twice a year provided that a six month period is not exceeded and informs the Board of Directors on the results of its own activities, its opinion on the measures needed to be taken and the necessary practices to be implemented by the branches, that operate under TRNC office, and other important issues in order for these branches to operate in a secure way. TRNC Internal Systems Committee is responsible for ensuring the efficiency and sufficiency of the internal systems provided by the Bank in relation to the operation of the branches, that operate under TRNC office; ensuring the operation of the internal systems, accounting and reporting systems in line with the law and related regulations and ensuring the integrity of the produced information; carrying out the preliminary assessment of independent audit firms and other companies providing services directly related to other banking operations to be selected by the Board; and monitoring regularly and coordinating these companies that are selected and contracted by the Board. As of 2021 year-end, TRNC Internal Systems Committee held meetings 9 times with full participation of the members and took 9 resolutions. In İşbank, Credit Committee makes resolutions on credit allocation within its authorization limit, makes decisions on demands to change the credit allocation conditions within its authorization limit and carries out other assignments regarding credits given by the Board. Credit Committee consists of three members; one of them is the Chief Executive Officer or Deputy Chief Executive, who is also the chairperson of the Committee and two members from the Board of Directors. Two alternate Committee Members are also designated who will stand if need arises. As the loan proposal files are presented, the Committee makes decision on the credit allocation with consensus, after each Committee Member examines and signs the files. Resolutions of the Credit Committee which have unanimous backing are executed directly while resolutions made on a majority basis are executed following the approval of the Board of Directors. By the end of 2021, by the evaluation of 105 files under the authority of the Credit Committee, 83 resolutions were adopted with full participation of the members. As per the resolution of the Board of Directors, dated 01.04.2021, Nr. 44435, Chief Executive Officer, Mr. Hakan Aran is the Chairperson of the Committee and regular member, Chairperson of the Board of Directors Mr. Adnan Bali and member of the Board of Directors Ms. Feray Demir are the Credit Committee members. Mr. Yusuf Ziya Toprak, Vice Chairperson of the Board of Directors and Mr. Fazlı Bulut, member of the Board of Directors are alternate members of the Credit Committee. Credit Revision Committee Being one of the committees of the Board of Directors, the Credit Revision Committee is constituted every year as per the article of the context of Bank’s Credit Risk Policy put in effect. The Committee holds meetings at least once a year within the framework of the principle of reviewing the loan portfolio, evaluating the relations with credit customers at the end of the year and revising, when necessary, the credit limits allocated to the said persons and corporations for the following year. Credit Revision Committee, composed of Ms. Füsun Tümsavaş, the Chairperson of the Board of Directors, and Mr. Yusuf Ziya Toprak, the Vice Chairperson of the Board of Directors, Ms. Feray Demir, Mr. Ersin Önder Çiftçioğlu and Mr. Sadrettin Yurtsever who are members of the Board of Directors as per the Board of Directors’ resolution dated 21.12.2020, Nr. 44157 for the year 2021; has completed its analyses and evaluations regarding certain firms and groups under the authorization of Board of Directors and Credit Committee on 05.03.2021. 146 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 147 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen As per the Board of Directors' resolution dated 31.12.2021 with no. 44974, the Credit Revision Committee has been re-elected to consist of the following members for 2022: Mr. Adnan Bali, Chairperson of the Board of Directors; Mr. Yusuf Ziya Toprak, Deputy Chairperson of the Board of Directors; and Board Members Ms. Feray Demir, Mr. Ersin Önder Çiftçioğlu and Mr. Sadrettin Yurtsever. Corporate Governance Committee The Corporate Governance Committee was established to monitor İşbank's compliance with the corporate governance principles, make improvements in corporate governance practices and suggestions to the Board, and fulfill the tasks of the Corporate Governance Committee and Nomination Committee as set out in the applicable legislation. The Committee consists of a chairperson and three members. As per the resolution dated 01 April 2021 with no. 44438, Board Member Mr. Ersin Önder Çiftçioğlu was elected as the Committee Chairperson, while Board Members Ms. Feray Demir and Mr. Sadrettin Yurtsever and the Head of the Investor Relations and Sustainability Division Ms. Neşe Gülden Sözdinler were elected as Committee Members. As of year-end 2021, the Corporate Governance Committee held 4 meetings with the full attendance of its members and took 3 decisions. Sustainability Committee The Sustainability Committee was established to develop the Bank's sustainability strategy and policies and submit them to the Board of Directors for approval, to set out the sustainability targets and action plans and ensure coordination within the Bank for their implementation, to ensure that sustainability issues are incorporated in the Bank's strategic business plans, to monitor progress of the metrics and targets, and to perform other similar tasks. The Committee is the highest authority responsible for sustainability activities in the Bank. In accordance with the Board's resolution dated 24.12.2020 with no. 44176, the Committee consists of one chairperson and fourteen members. The Committee Chairperson is Mr. Adnan Bali, and the Committee Members are Ms. Feray Demir, Mr. Ersin Önder Çiftçioğlu, Ms. Gamze Yalçın, Mr. Yalçın Sezen, Mr. Murat Bilgiç, Mr. N. Burak Seyrek, Mr. Şahismail Şimşek, Mr. Ozan Gürsoy, Mr. Sezgin Yılmaz, Mr. Sabri Gökmenler, Mr. Sezai Sevgin, Mr. Suat E. Sözen, Mr. Hürdoğan Irmak and Ms. Neşe Gülden Sözdinler. As of year-end 2021, the Sustainability Committee held 4 meetings with the full attendance of its members and took 4 decisions. 148 | İŞBANK 2021 INTEGRATED ANNUAL REPORT Remuneration Committee The Remuneration Committee was established to perform functions and activities related to monitoring and controlling the remuneration policies of İşbank on behalf of the Board of Directors. The Committee has two members, and as per the resolution of the Board dated 01 April 2021 with no. 44437, Chairperson of the Board of Directors Mr. Adnan Bali was elected as Committee Chairperson and Board Member Ms. Feray Demir was elected as Committee Member. The Remuneration Committee convenes at least four times a year, not to exceed three months between two meetings, and submits to the Board of Directors the results of its activities and its opinions regarding other issues deemed important. Within the framework of compliance to Corporate Governance Principles, the Remuneration Committee is responsible for monitoring and checking policies related to remuneration management on behalf of the Board of Directors, and ensuring that remuneration is in compliance with the Bank's ethical values, internal balances and strategic goals. The Committee is also responsible for evaluating remuneration policy and practices within the framework of risk management; reviewing the remuneration policy and submitting proposals as required to the Board of Directors, as well as fulfilling other responsibilities set out in applicable legislation and the tasks assigned to it by the Board of Directors within this framework. As of year-end 2021, the Remuneration Committee held 7 meetings with full attendance of its members and took 10 decisions. Board of Directors Operating Principles Committee The Board of Directors Operating Principles Committee was established as per the Board's resolution dated 30 September 2021 with no. 44745. The Committee is chaired by Mr. Adnan Bali, Chairperson of the Board of Directors, with the other members being Board Members Ms. Feray Demir and Mr. Durmuş Öztek. The Board of Directors Operating Principles Committee is responsible for submitting its findings, opinions and recommendations regarding the interpretation and implementation of applicable legal provisions, including especially the İşbank Board of Directors Working Principles and Procedures and the Directions on İşbank Board of Directors Working Principles. Risk Committee The Risk Committee is responsible for articulating the risk management strategies and policies to be adhered to by İşbank both on a consolidated and unconsolidated basis, submitting them to the Board of Directors for approval and monitoring their implementation. The Committee is the common communication platform with the Bank's Executive divisions for assessing the risks the Bank is exposed to, making suggestions about the actions to be taken and approaches to be followed. The Committee's principal duties include the following: • Preparing the risk strategies and policies and submitting them to the Board for approval. • Monitoring effective use of the outputs of the internal capital adequacy assessment process in the planning and decision- making processes of the Bank. • Discussing and deciding on the issues raised by the by the Risk Management Division. • Recommending the level of risk limits for exposures/possible exposures to the Board, monitoring violations of these limits and making recommendations regarding elimination of such violations to the Board. • Recommending changes in the risk policies to the Board. • Monitoring the risk management processes, i.e. risk identification, definition, measurement, assessment, control and reporting processes carried out by the Risk Management Division. • Monitoring the accuracy and reliability of the risk measurement methodologies and their results. • Suggesting proposals regarding articulation and amendment of the Bank's risk appetite statement to the Board. • Taking measures to establish a risk culture in the Bank, creating processes to fulfill the responsibility of supervision, understanding all of the risks arising from the activities of the Bank and supervising the integration of these risks to the risk management system of the Bank. Committee members: Chairperson of the Board of Directors and Risk Committee: Adnan Bali Deputy Chairperson of the Board of Directors and Chairperson of the Audit Committee: Yusuf Ziya Toprak Chief Executive Officer and Chairperson of the Credit Committee: Hakan Aran Board Member: Ersin Önder Çiftçioğlu Deputy Chief Executive: Murat Bilgiç Deputy Chief Executive: Gamze Yalçın Deputy Chief Executive and Chairperson of the Asset-Liability Management Committee: Ebru Özşuca Deputy Chief Executive Responsible for Internal Systems: Sezai Sevgin Head of the Corporate Compliance Division: Süleyman H. Özcan Head of the Internal Control Division: H. Umut Togay Head of the Risk Management Division: Hürdoğan Irmak The Risk Committee contributes to the development of group risk policies also through consolidated group meetings with the participation of the Bank's financial and non-financial subsidiaries. The Deputy General Manager responsible for the Subsidiaries Division and the Head of Subsidiaries Division also attend the activities that the Risk Committee carries out on a consolidated basis. During 11 online meetings held in 2021 by the Risk Committee with full attendance of its members, the risk management activities of İşbank and its subsidiaries under the Consolidated Risk Policies were evaluated, the risk reports presented to the Committee were reviewed, and 30 decisions were made regarding the risk management systems and processes. Operational Risk Committee The Operational Risk Committee, which was established by the Board decision dated 30.04.2020 with no. 43790, operates to determine the strategies and policies for managing operational risks that the Bank may be exposed to, improve the operational risk management framework, and strengthen the governance model regarding operational risks. The Committee meets at least twice during a calendar year, and the members are listed below. Deputy Chairperson of the Board of Directors, Chairperson of the Audit Committee, and Chairperson of the Operational Risk Committee: Yusuf Ziya Toprak, Chief Executive Officer: Hakan Aran Board Member: Ersin Önder Çiftçioğlu Deputy Chief Executive: Ozan Gürsoy, Deputy Chief Executive: Sezgin Yılmaz, Deputy Chief Executive: Sezgin Lüle, Deputy Chief Executive: Sabri Gökmenler, Deputy Chief Executive Responsible for Internal Systems: Sezai Sevgin Chairperson of the Board of Inspectors: Gürler Özkök Head of the Corporate Compliance Division: Süleyman H. Özcan, Head of the Internal Control Division: H. Umut Togay, Head of the Risk Management Division: Hürdoğan Irmak, Head of the Information Security Division: Bülent Akdemir, Unit Manager of the Risk Management Division: Burcu Nasuhoğlu The Committee works in collaboration with the Risk Committee and reports operating results to the Board through the Audit Committee. As of year-end 2021, the Operational Risk Committee had 2 online meetings with the attendance of all members and took 6 decisions during the year. Corporate Social Responsibility Committee The Corporate Social Responsibility Committee was established as per the Regulation on Corporate Social Responsibility Practice which was adopted with the resolution of the Board. Its members include Board Members Feray Demir, Fazlı Bulut, Durmuş Öztek (as of 01.04.2020) and Sadrettin Yurtsever (as of 01.04.2020); Deputy Chief Executives Yalçın Sezen and Can Yücel (as of 30.09.2021); Corporate Communications Coordinator and General Secretary Suat Sözen, and Head of the Corporate Communications Division Gül Meltem Atılgan. The Corporate Social Responsibility Committee convenes at regular intervals depending on the agenda. As of year-end 2021, the Committee held 7 meetings and took 10 positive advice decisions. İŞBANK 2021 INTEGRATED ANNUAL REPORT | 149 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen INFORMATION on RISK MANAGEMENT POLICIES APPLIED PER RISK TYPES Besides banking activities, the financial and non-financial risks which the Group is exposed to as a whole need to be analyzed, monitored and reported in accordance with banking-specific risk management principles and the Group's perspective of risk management. This is more than just a legal reporting requirement that needs to be addressed; it has become an industry standard for corporate governance. The Bank's risk management process, which is organized around risk management regulations and helps establish a common risk culture across the organization, has been designed to prioritize "good corporate governance", ensure segregation of units responsible for monitoring and controlling risk from executive functions, identify risks in accordance with international regulations, and facilitate measurement, analysis, monitoring, reporting and control functions. The risk management process and the functions involved in this process are among the top responsibilities of the Board of Directors. The Risk Management Division, which acts through the Risk Committee and forms a functional constituent of the risk management function in collaboration with the Bank Credit Committee and the Asset & Liability Management Committee, not only carries out activities related to regulatory and internal capital adequacy to ensure compliance with the Basel framework in line with the international best practices, but also develops and validates risk measurement methodologies and optimizes the capital adequacy management process. Capital Adequacy Policy The Capital Adequacy Policy sets out the principles and procedures that need to be adhered to when defining the level of capital, on a consolidated and unconsolidated basis, that the Bank must hold against potential losses which might arise from financial risks associated with on- and off-balance sheet items, in addition to non-financial risks caused by the Bank’s operations; and maintaining and monitoring that level of capital by taking into consideration the minimum capital levels determined in accordance with the regulations and the internal capital adequacy assessment process (İSEDES). This Policy is an integral part of the Risk Policies. Credit Risk Policy Credit risk is defined as the possibility with which the Bank may incur losses due to inexecution, whether partially or fully, of the obligations of a counterparty under an agreement with the Bank by failing to meet the requirements of such agreement in a timely manner. The Credit Risk Policy sets the methodology and responsibilities for management, control and monitoring of credit risk as well as other factors related to credit risk limits. İşbank identifies, measures and manages the credit risks associated with all of its products and activities by taking into consideration the transactions defined as credit in article 48 of the Banking Law. The Board of Directors reviews the Bank's credit risk policies and strategies on an annual basis at a minimum. The General Manager and Deputy General Managers and the Division Managers involved in loan processes are responsible for implementing the credit risk policies approved by the Board of Directors. İşbank's credit risk profile is regularly monitored. Current trends of risk indicators and changes in these indicators are reported to senior management at regular intervals. It is essential that concentration of credit risks is avoided. Concentration risk of the credit portfolio is monitored by maintaining a balanced combination of revenue, risk and capital cost. For this purpose, the Board of Directors adheres to credit risk limits which can be set per debtor, sector, type of loan, collateral, country, maturity, currency etc. In managing credit risk, İşbank implements internal risk limits specified by the Board of Directors that restrict the maximum credit risk to be undertaken by the Bank based on parameters such as risk groups and sectors, in addition to the credit risk limits that are mandated by legal regulations. These internal limits are determined in a way that does not lead to concentration of credit risks. The Bank also utilizes credit decision support systems for credit risk management. The Bank ensures that the credit decision support systems and artificial intelligence applications have the capability to enable monitoring of credit risks on a portfolio basis, calculating expected and unexpected losses and correctly evaluating credit risk in pricing, performance management, sales and marketing processes. The risks that the Bank may be exposed to in connection with any models in use are assessed and managed according to the principles and procedures described in the Model Risk Management Policy. Asset and Liability Management Risk Policy Asset-liability management risk is defined as the risk with which the Bank may incur losses due to failure to effectively manage all financial risks of the Bank arising from its assets, liabilities and off-balance sheet transactions. Market risk of the trading portfolio, structural interest rate risk of the banking portfolio, and liquidity risk are all addressed within the scope of asset and liability management risk. All principles and procedures related to the creation and management of the Bank's asset-liability structure and the "Risk Appetite Framework" for the capital to be allocated are established by the Board of Directors. The top priority is to maintain the asset-liability management risk within the limits set out in the legislation as well as the internal risk limits. Within the Bank's risk appetite framework, risk tolerance levels which aim to put a cap on the amount of risk undertaken by the Bank are determined by the Board of Directors for each risk type on both a unconsolidated and consolidated basis. In this process, liquidity, target income level, and general expectations about the risk factors are taken into consideration. The Board of Directors and Audit Committee are obliged to monitor and ensure optimized use of the Bank's capital. For this purpose, they are responsible for checking the risks against the limits and taking actions as necessary. The Asset-Liability Management Committee is responsible for managing asset-liability risk in accordance with the risk appetite framework and risk limits established by the Board of Directors and within the principles and procedures laid out in the policy. The Risk Management Division is responsible for measuring asset-liability management risk, reporting the results, and monitoring compliance with risk limits. The severity of the risk taken is reviewed according to different scenarios. Measurement results are tested to check their reliability and integrity. Asset-liability management risk is reported to the Risk Committee as well as to the Board of Directors through the Audit Committee. Compliance with risk limits is closely and continuously monitored by the Risk Management Division, Asset-Liability Management Committee and related executive units. If the limits are breached, the Risk Management Division promptly reports the breach and its reasons to the Board of Directors through the Audit Committee. The course of action needed to be taken in order to eliminate the breach is determined by the Board of Directors. Asset-liability management processes and compliance with the policy rules are audited by the internal audit system. The principles regarding the audit process, audit reports and fulfillment of action plans to eliminate the errors and gaps detected during audits are established by the Board of Directors. Stress Testing Policy The purpose of the Stress Testing Policy is to detect significant risks and vulnerabilities that may arise from both the Bank- specific adverse developments and from unexpected stress conditions associated with the general economic and financial environment. The stress test program is defined as the collection of stress test analyses conducted to assess risks associated with the Bank’s activities and the methodologies, assumptions and scenarios related to these analyses. In order to ensure that valid and accurate results are obtained, the stress test program is regularly monitored and updated by taking into consideration the Bank’s risk appetite framework, the current economic environment and market conditions, and the Bank’s products, strategies and technological capabilities. The Bank implements a stress test program to conduct an assessment of the risks both from a holistic view (i.e. bank- wide stress tests) and on the basis of the important risk types (i.e. individual stress tests) in accordance with the regulations and its internal procedures, and the results are reported to the senior management, the Board of Directors and other related legal authorities. The Board of Directors is responsible for executing the stress test program as a whole. The Board of Directors ensures that the outcomes of the stress test program are evaluated and used as input for decision making in relevant fields. The Risk Management Division is responsible for conducting the analyses included in the stress test program, reporting the outcomes of the stress tests and monitoring compliance with the risk limits. The scope of the stress test program, the risk factors to be used in the analyses, and the framework of the stress parameters are determined by the Risk Committee. Processes related to the stress test program and compliance with the policy rules are audited by the internal audit system. The principles regarding the audit process, audit reports and fulfillment of action plans to eliminate the errors and gaps detected during audits are established by the Board of Directors. Operational Risk Policy Operational risk is defined as "the risk of loss, including legal risks, due to inadequate or faulty internal processes, people and systems or external factors". Operational risk management activities are carried out by the Risk Management Division. These activities include detecting, identifying, measuring, analyzing, monitoring, reporting and controlling operational risks; following national and international developments in the field of operational risk management; improving existing techniques and methods, and performing the required regulatory reporting, notification and follow-up activities. The principles and procedures of risk management are laid out in the Operational Risk Policy. Operational risks that may be encountered during activities are classified and monitored under the "Risk Catalogue”. The Risk Catalogue serves as the main document to be used when identifying and classifying all possible risks. It is updated to reflect improvements in risk management practices and changing regulations. 150 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 151 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Operational risk is managed with a triple defense line approach within the framework of risk management policies approved by the Board. Risk appetite and the associated internal limits, which are determined by the Board for operational risks, are monitored on a regular basis. When identifying operational risks, internal and external factors that may negatively affect the Bank's operations are taken into consideration. Both qualitative and quantitative methods are utilized together in measuring and assessing operational risks. During measurement and assessment, risks are prioritized based on the financial, legal, reputational and operational implications of the operational risks that the Bank is exposed to. Besides the calculations made within the scope of legal framework, , internal measurement methods, impact- probability analysis, loss event data analysis, scenario analysis, stress tests and risk indicators are also utilized when measuring operational risks. The results are reported to the Board through the Operational Risk Committee and Risk Committee. All operational risks that the Bank may be exposed to in connection with banking and information systems processes; risk levels of new products, services and activities as well as the support and valuation services that the Bank receives; loss events occurring at İşbank which represent operational risks, and risk indicators are regularly monitored by the Risk Management Division and reported to the Risk Committee and the Board. All employees of the Bank display responsible behavior and understand that the principles and procedures laid out in the Bank's legislation, including especially the operational risk policy, are intended to create a work environment that is sensitive to the presence of operational risks and reduces the likelihood of loss by incorporating control mechanisms for theserisks. Reputational Risk Policy Reputational risk refers to potential losses which may be caused by loss of trust in the Bank or damage to the Bank’s reputation as a result of non-compliance with existing legal regulations or negative views of parties such as current or potential customers, partners, competitors and supervisory authorities. The Reputational Risk Policy sets out the principles and procedures to be followed when identifying, assessing, controlling, monitoring, reporting and managing sources of reputational risk that the Bank may be exposed to during its operations. Sources of reputational risk are evaluated both individually and collectively, and appropriate systems and controls are put in place to effectively manage risk factors. The Risk Management Division is responsible for conducting a multi-dimensional assessment of reputational risks and reporting them to the Risk Committee, the Audit Committee and the Board of Directors. All employees carry out their activities in a responsible manner which protects the reputation of the Bank. Consolidated Risk Policies Compliance with risk management principles related to the Bank's subsidiaries is monitored according to the Bank's Consolidated Risk Policies. Subsidiaries follow their own risk management policies which take into account the Consolidated Risk Policies and their own organizational structure. Subsidiaries' risk policies which are approved by their boards of directors form the framework of their risk management systems and processes. Information Systems Risk Management Policy The purpose of the Information Systems Risk Management Policy is to set out the principles to be adhered to when identifying, measuring, monitoring, controlling, reporting and managing the risks associated with the management of information systems. With this policy, the Bank aims to effectively manage its information systems, which play a critical role in sustaining the Bank's activities, by handling the management of information systems as part of its corporate risk management practices. The provisions of this policy are applied in the management of the Bank's information systems and all elements involving these systems. The risks associated with information technologies are basically evaluated as part of the Bank's operational risk management. Since these risks can be multipliers of the other risks arising from banking activities, it is essential that they are measured, closely monitored and controlled by the Bank within the framework of a holistic risk management approach. Model Risk Management Policy The purpose of the Model Risk Management Policy is to establish the principles and procedures regarding the principles of model risk management by addressing the end- to-end lifecycle of the models used by the Bank in performing its operations. With the policy, the Bank aims to manage, through a holistic approach, the model risk to which the models used by the Bank in its activities are exposed due to errors, failures or deficiencies in the lifecycle of the models. At the Bank, model risk is managed via a triple defense line structure whereby the first line of defense is provided by the model owner, model development team, model implementation team, and model user, the second line of defense is provided by the model risk management team, validation team, and internal control, and the third line of defense is provided by the internal audit. Model risk management covers the entire lifecycle of a model. The policy describes the main activities in each step of the model lifecycle as well as the responsibilities of different divisions of the Bank in relation to these activities. Climate Change Risk Policy Climate change risk includes the risks associated with transition to a low-carbon economy and physical risks which may occur depending on the impact of climate change on nature. The Climate Change Risk Policy sets out the principles and procedures to be followed for detecting, identifying, assessing and/or measuring, monitoring, controlling, reporting and managing the climate change risks that the Bank may be exposed to as a result of its activities. Besides being a type of risk which the Bank may be directly exposed to, climate change risk may also be caused by other risks that may arise during the performance of the Bank's activities. Therefore, the Climate Change Risk Policy is an integral part of the Bank's other Risk Policies. The main purpose of climate change risk management is to ensure that the Bank's activities and practices are aligned with its climate change strategy. Responsibilities for management of climate change risk have been defined in the form of a triple defense line. The role of the first line of defense is basically to ensure that the loan decisions are made by considering the climate change risks during the loan allocation process. The second line of defense determines the working principles, rules, policies and requirements in relation to the climate change risk. The third line of defense, within its existing roles and responsibilities, offers reassurance to the Board of Directors that the structure described here functions properly. Managers of Internal Systems Chairman of the Board of Inspectors Head of Risk Management Head of Corporate Compliance Division (Compliance Officer) Head of Internal Control Muzaffer Okay Hürdoğan Irmak Süleyman H. Özcan Hamit Umut Togay 4 years 7 months 30 years Licence 4 years 1 month 21 years Licence 1 year 6 months 28 years Licence 7 years 10 months 24 years Licence Departments Worked Previously Departments Worked Previously Departments Worked Previously Departments Worked Previously Nonperforming Loans Division, Commercial and Corporate Loans Monitoring & Recovery Division, Corporate Compliance Division, Board of Inspectors Corporate Loans Underwriting Division, Board of Inspectors, Risk Management Division Board of Inspectors Accounting Division, Change Management Board, Strategy and Corporate Performance Management Division, Investor Relations Division Board of Inspectors Retail Banking Product Division, Galata Branch Length of Service at Current Position Professional Experience Educational Background 152 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 153 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen AUDIT COMMITTEE’S ASSESSMENTS on the OPERATION of INTERNAL CONTROL, INTERNAL AUDIT, COMPLIANCE and RISK MANAGEMENT SYSTEMS and ITS ACTIVITIES in the REPORTED PERIOD Internal Audit İşbank Board of Inspectors operates under the control of the Board of Directors. By adopting the ethical principles set out in the banking and internal audit regulations and taking international standards on internal audits into consideration, the Board of Inspectors audits the activities of all the Bank’s Head Office divisions, including Internal Control, Risk Management and Corporate Compliance Divisions, as well as banking and IT processes, domestic and foreign branches and subsidiaries in accordance with applicable laws and regulations and the Bank’s internal strategies, policies, principles and goals. The Board of Inspectors also conducts preliminary inspections, examinations and investigations when necessary. İşbank Board of Inspectors, which is certified to be in compliance with international quality standards, performs its duties by combining its long-established audit experience with advanced technology in a modern, risk-focused approach. The Board of Inspectors consists of 152 auditors and assistant auditors and also carries out remote audits with the help of its IT capabilities in addition to on-site audits. Audit reports are submitted to the İşbank Audit Committee, senior management, and related divisions after being classified according to their severity and priority, and the corrective measures taken in order to address audit findings are monitored by the Board of Inspectors. The Board of Directors closely monitor the activities of the Board of Inspectors through periodic activity reports submitted via the Audit Committee. In 2021, the Board of Inspectors conducted audits of 175 domestic and 2 overseas branches, 24 Head Office divisions, 10 subsidiaries, 8 Regional Directorates affiliated with the Retail Loans Underwriting Division and the top 200 companies with the highest risk in the Bank. Additionally, audits were conducted for the following: • Banking Processes and Information Systems – Management's Declaration • Portfolio (Collective) Custody Service • Sustainability Management System • Gender Equality in Remuneration • Compliance Program on Prevention of Laundering Proceeds of Crime and the Financing of Terrorism • London Branch Compliance Program on Prevention of Laundering Proceeds of Crime • Valuation Process • Internal Capital Adequacy Assessment Process (İSEDES) • Liquidity Risk, Counterparty Credit Risk, Structural Interest Rate Risk and Market Risk • Model • TFRS (Individual Assessment) • Follow-up of Penetration Test Findings • BAT Risk Center Processes Information Systems • Central Counterparty Practices • Compliance with Treasury-backed Guarantee System Additionally, PDPL Governance, the Customer Relations Program and the Agile Working Model were reviewed in order to examine the effectiveness and adequacy of operational risk management systems, and audit reports regarding Compliance with the Guidelines on Credit Allocation and Monitoring are being prepared for submission. Furthermore, in accordance with the regulations put into force in 2021, compliance audit activities are being carried out as per the Action Plan and the Guidelines on Credit Allocation and Monitoring. The audits of 20 domestic branches, which began in 2021, are still ongoing. İşbank's banking processes and information systems are audited annually by the Board of Inspectors in accordance with the "Regulation on External Audit Institutions’ Information Systems and Banking Processes Audits" issued by the Turkish Banking Regulation and Supervision Agency. On- site audits were conducted on 28 companies providing support services or technology-intensive services to İşbank in the field of information technologies. The process with which the Bank creates its consolidated and non-consolidated financial statements is also reviewed. Based on the results of audits of banking processes and information systems conducted in 2021: • no material weakness was detected in the processes that could hinder effective, reliable and uninterrupted execution of the Bank's activities, • no issue was detected that could have a significant effect on the integrity, availability, consistency and reliability of the data reported in consolidated and non-consolidated financial statements. Thanks to risk-focused audit plans, a significant portion of İşbank’s loan portfolio was audited in 2021. In 2021, the Bank continued the development and maintenance activities of: • the Human Resources Risk Matrix, which is used as a reference source in identifying personnel-related risks, • the Branch Risk Matrix, which is used to determine the loan portfolio to be audited in line with the Bank's risk-focused review goal, • various practices intended to provide fast and qualified data for in-house fraud detection and investigation studies. Internal Control The main objective of the internal control system is to provide the maximum contribution to achieve İşbank’s corporate targets set in accordance with the Bank’s vision, mission and strategies and stakeholder expectations. To this end, the performance required to ensure that all components of the internal control system operate together in an integrated and effective manner, under the supervision of İşbank’s Board of Directors, with the contribution and support of all İşbank’s employees, is being rigorously carried out with professional care and attention. The design and operational effectiveness of the internal control activities carried out by the relevant units in the process are regularly examined by the Internal Control Division which is an independent function. For this purpose, “onsite” and/or “remote” controls have been carried out by the Internal Control Division with a risk-oriented approach, on the activities of the Bank’s domestic and foreign branches and Head Office units, financial reporting and information systems and internal control structures of the subsidiaries subject to consolidation. Activities for central and continuous monitoring of the effectiveness of controls by using advanced data analytics applications were conducted. The results of the reviews were analyzed by the Internal Control Division and developing proposals, monitoring and follow up activities intended for eliminating the existing deficiencies and preventing the recurrence of the defects were continued. In order to contribute to their professional development, İşbank’s internal control personnel were provided with various trainings during the year. Internal Control Division also supported the Bank’s employees’ trainings in order to increase the awareness of internal control activities across the organization. In accordance with the Bank's Sustainability Policy, control activities regarding the operations carried out within the scope of the Sustainability Management System were conducted. In addition, in terms of assessment and management of environmental impacts, the Bank complies with the international ISO 14001 Environmental Management System standards, and the "internal audit" activities defined within the scope of ISO 14001 - Environmental Management System are carried out by the Internal Control Division. İşbank’s internal control system and internal control activities are structured and operated to make sure that: i) The Bank’s assets are protected, ii) The Bank’s activities are carried out in compliance with the Law and other relevant legislations, the Bank’s internal policies and guidelines, and banking practices, iii) accounting and financial reporting systems function securely and in integrity, and iv) information is provided promptly. Compliance Compliance is the foremost duty and responsibility of all managers and employees of the Bank at any level. Compliance functions and activities executed in the Bank's Head Office divisions, domestic and overseas branches, and its subsidiaries are monitored through the corporate compliance activities conducted within the Corporate Compliance Division, which reports to the Board of Directors. The purpose of the Corporate Compliance Division is to make the maximum contribution to the Bank's efforts to effectively manage and control compliance risk according to a materiality- and risk- based approach and to ensure the execution and management of the Bank's activities in accordance with applicable laws, regulations and standards at all times. The Bank also oversees the effective execution of the corporate compliance activities of its subsidiaries. The necessary researching, analyzing, monitoring, assessing, informing, conducting, coordinating and reporting activities regarding compliance issues are conducted within the Corporate Compliance Division, which consists of three sub-units, namely Regulatory Compliance, Financial Crimes, and Sanctions and International Obligations. 154 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 155 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen The duties and responsibilities of the Compliance Officer as specified in the Law on Prevention of Laundering Proceeds of Crime and other applicable regulations are fulfilled by the Head of the Corporate Compliance Division, who is the legal "Compliance Officer" of the Bank as well. The Head of the Corporate Compliance Division also serves as the "Compliance Officer" of the Financial Group, the parent company of which is İşbank, in accordance with MASAK (Financial Crimes Investigation Board) regulations. Information on the activities of the Corporate Compliance Division is reported/submitted to the Board of Directors through the Audit Committee on a monthly and yearly basis. Besides being the "Compliance Officer" of the Bank, the Head of the Corporate Compliance Division is also a member of the Risk Committee and Operational Risk Committee and a consultant member of the IS Steering Committee, Business and IS Continuity Committee, and Information Security Committee. Activities regarding the prevention of financial crimes and sanctions in the Bank are executed in a purposeful and effective manner in accordance with applicable regulations and the Bank’s Policy and Compliance Program, which were developed for this purpose. İşbank’s Compliance Risk Management Policy and Policy for Combating Financial Crimes and Sanctions are available, both in English and Turkish, under the "Investor Relations / Corporate Governance" page of the Bank’s website www.isbank.com.tr. Officers and Assistant Specialists who have just begun to work for İşbank receive a "Policy for Combating Financial Crimes and Sanctions and Compliance Program" class as part of their Starting My Career Trainings, while employees who have been promoted to Senior and Assistant Manager roles also receive this class as part of their career training program. The Corporate Compliance Division shares information on Financial Crimes, Sanctions, International Obligations and Legal Compliance activities under the Career as a Specialist Internship Program designed to support the career growth of Senior Assistant Specialists at İşbank. Additionally, "Risk Management and Risk Culture" and "Prevention of Financial Crimes" seminars are held as part of the Management Development Conferences to support managers and manager candidates in these fields. İşbank’s Compliance Risk Management Policy and Policy for Combating Financial Crimes and Sanctions are available in English and Turkish on the Bank’s website. Risk Management At İşbank, the risk management process puts "good corporate governance" to the forefront and ensures segregation of units responsible for monitoring and controlling risk from executive functions, identifies risks in accordance with international regulations, and facilitates measurement, analysis, monitoring, reporting and control functions. Besides banking activities, the financial and non-financial risks which the Group is exposed to need to be analyzed as a whole, monitored, and reported in accordance with banking-specific risk management principles and the Group's perspective of risk management. This is more than just a legal reporting requirement that needs to be addressed; it has become an industry standard for corporate governance. The risk management process and the functions involved in it are among the top responsibilities of the Board of Directors. The Risk Management Division, which acts through the Risk Committee and forms a functional constituent of the risk management function in collaboration with the Bank Credit Committee and the Asset & Liability Management Committee, not only carries out activities related to regulatory and internal capital adequacy to ensure compliance with the Basel framework and international best practices, but also develops and validates risk measurement methodologies and optimizes the capital adequacy management process. The risks to which the Bank is exposed are managed with a three line of approach. The first line of defense is comprised of the business units and is responsible for identifying and assessing risks, ensuring continuous implementation of risk management, designing and putting process controls in place, and reporting results according to the Bank's risk appetite, rules, procedures and risk strategies. The second line of defense is comprised of the Risk Management Division, Corporate Compliance Division and Internal Control Division, which report to the Board of Directors. The Risk Management Division is responsible for creating the risk policies and risk catalogue and updating them as necessary; setting and updating control objectives for the risks; measuring, monitoring and reporting the risks, and developing a risk management framework. The Internal Control Division tests the effectiveness of controls, while the Corporate Compliance Division sets the policy for compliance risks and establishes the principles regarding the control targets for compliance risks. In the third line of defense, the Board of Inspectors is responsible for conducting an independent audit of the risk management framework and control systems to ensure their effectiveness and adequacy. Financial Risks NonFinancial Risks Credit Risk Assets/Liability Management Risk Business Risk Other Risks Operational Risk Reputational Risk Strategic Risk Counterparty Risk Market Risk Insurance Risk Fraud Risk Securitization Risk Financial Crime Risk Credit Concentration Risk Structural Interest Rate Risk Settlement Risk Liquidity Risk Country Risk Investment Risk Residual Risk Transaction, Process and Product Risk Human Resources Risk Macro economic/ Systemic Risks Legal and Regulatory Change Risk Business Strategy Risk Environmental Risks Conduct Risk Physical Damage Risk Political Risk Compliance Risk Information Technologies Risks and Cyber Risks Model Risk Climate Change Risk Competition Environment Risk Talent Management Risk New Technology/ Digitalization Risk The Risk Committee, which was established to share risk management principles within the Bank in order to reflect them in decision-making and implementation processes, is responsible for articulating the risk management strategies and policies of the Bank on a consolidated and unconsolidated basis, submitting them to the Board of Directors for approval and monitoring their implementation. Furthermore, the Operational Risk Committee, which was established in April 2020, operates to improve the operational risk management framework and strengthen the governance model regarding operational risks. The Bank's risk management practices are intended to create a common risk culture across the organization. Risk management activities are based on the regulations and best practice guidelines published by the Banking Regulation and Supervision Agency (BRSA). Besides compliance with regulatory limits, the Bank also ensures capital and liquidity adequacy against all risks undertaken by the Bank as part of the Internal Capital Adequacy Assessment Process (ICAAP). The Bank’s level of risk exposure is systematically monitored in accordance with the risk policies and implementation procedures. The Bank runs the risk management process as per internal regulations approved by the Board of Directors, including Capital Adequacy, Credit Risk, Asset-Liability Management Risk, Operational Risk, Model Risk, Climate Change Risk, Stress Testing, Reputational Risk, Consolidated Risk and Information Systems Risk Management Policies. Potential risks which may be encountered during activities are defined and classified in the "Risk Catalogue" of the Bank. In the Risk Catalogue, risks are detailed in two main groups: financial and non-financial risks. Financial and non-financial risks are reported monthly to the Risk Committee and the Board of Directors through the Audit Committee. The Bank uses impact-likelihood analysis, loss event data analysis, scenario analysis, stress testing and risk indicators in addition to the top down risk assessment of operational risks. The risks which are defined in the Risk Catalogue and for which the management principles are explained in detail in the risk policies are reviewed annually, as a minimum, and the related definitions and principles are kept up-to-date. 156 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 157 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen In order to manage the Bank's risk profile and conduct a prospective assessment of it, the scenario analysis method is used to assess the impact on conjectural but unexpected operational risk-type loss events. The scenario analysis allows assessment of catastrophic events which are also referred to as tail risks and rarely occur but create a high impact when they do occur. Scenario analysis results provide inputs to the operational risk management stress testing and top-down risk assessment studies in addition to the operational risk internal capital requirement. Management of Climate Risks Besides financial risks, non-financial risks such as climate change risk, environmental management risk, internal behavior/culture and ethics risks, employee practice and employee relations risks are defined in the Bank's risk catalogue and handled as part of risk management activities. Introducing best practices in the management of climate change risks is a priority for İşbank. With the Climate Change Risk Management Project, which was completed in 2020, the Bank carried out project activities aimed at measuring and reporting the climate change risks to which it may be exposed and developing the principles and procedures of governance and integrating such risks into the Bank's strategy and loan processes. The definition of climate change risk, positioned as a strategic risk in the Bank's risk catalogue, was updated according to TCFD and international best practices to include transition risks and physical risks and was approved by the Board of Directors during the first quarter of 2021. The Climate Change Risk Policy, which sets out the principles and procedures to be followed for detecting, identifying, assessing and/or measuring, monitoring, controlling, reporting and managing the climate change risks that the Bank may be exposed to in connection with its activities, was approved and put into force by the Board of Directors in March 2021. As per the decision of the Board of Directors, the indicator "Share of Sectors With High Climate Change Risk Within Total Commercial Portfolio", monitored on a quarterly basis, was added to the Bank's solo risk appetite framework in September 2021 to prevent the concentration of sectors with a high exposure to climate change risks within the portfolio and provide guidance for composition of the portfolio in subsequent periods. The Bank utilizes a scenario approach in measuring climate change risks. For high-risk sectors, which are identified with the climate change heat map method, an impact analysis for climate change risk events is conducted by taking into account the United Nations Environment Program Finance Initiative (UNEP FI) scenario analysis approach. Management of Reputational Risks Reputational risk refers to potential losses which may be caused by loss of trust in the Bank or damage to the Bank’s reputation as a result of non-compliance with existing legal regulations or negative views of parties such as current or potential customers, partners, competitors and supervisory authorities. The Bank uses the Reputation Index to monitor reputational risk. This index was created by the Bank to serve as an early warning for elements which might potentially impact the Bank's reputation. Assessments of the level of reputational risk are reported to senior management on a quarterly basis as a minimum. It is the senior management's responsibility to monitor and improve compliance with the corporate governance concept, which constitutes the basis of reputational risk. Ersin Önder Çiftçioğlu Member of the Board and the Audit Committee Yusuf Ziya Toprak Vice Chairperson of the Board of Directors and Chairperson of the Audit Committee BUSINESS ETHICS Compliance with business ethics principles has always been among the uncompromising corporate priorities of İşbank. The Bank shapes all of its stakeholder relations in line with these principles. İşbank immediately adopted the Principles of Banking Ethics published by the Banks Association of Turkey in 2001 and began to use these principles as the basis of its operations. The Bank's "Ethical Principles and Operational Rules" came into effect with the Board resolution dated 26.10.2021. İşbank also introduced certain regulations concerning employees and working life in the Collective Bargaining Agreement and the Bank's legislation. Additionally, İşbank's "Human Rights and Human Resources Policy" includes provisions that refer to ethical principles. In 2021, an ethics hotline was put into service to allow employees, customers and other related parties to report any violation of operational rules to the related units of the Bank in accordance with the Ethical Principles and Operational Rules. Reports and notifications regarding bribery, corruption and other similar actions submitted through the Ethics Hotline are monitored by the Board of Inspectors. For behaviors that are found to be in violation of the Bank's policies, the necessary disciplinary action, up to termination of the employment contract, is taken according to the applicable provisions and procedures of the Collective Labor Agreement. Where circumstances warrant legal action, the violation is brought to the attention of legal authorities. Customer complaints can be conveyed via digital channels or to our Branches, Head Office or the Board of Inspectors via e-mail, petition or fax. Complaints submitted by customers to Branches and the Head Office units are transferred to the Customer Relations Platform and followed up on the relevant platform. Of the complaints followed up on the Customer Relations Platform, those complaints which need to be assessed by the Board of Inspectors are transferred to the Board of Inspectors by the related Head Office divisions. Furthermore, employees can contact the Board of Inspectors via phone or e-mail to provide information. With a special application specifically designed for all employees, complaints can be directly submitted to the Head Office, which then transfers them to the Board of Inspectors for evaluation as necessary. During the 1st term training, Junior Assistant Inspectors receive the 1-hour "Ethical Principles" and “Anti-Bribery and Anti-Corruption" training. The topic of "Ethical Principles" is also covered as part of a 1-hour class during the "Branch Managers Development Program", "My Management Career" and "As I Rise in My Career" trainings given to managers and manager candidates. The digital training "Ethical Principles and Operational Rules", which was developed to educate related employees about the basic ethical principles, was made available to employees on 14.12.2021. These basic ethical principles also form the foundation of the business model "İşbank Banking" - a business model focused on creating sharable and sustainable value which was put into effect on 26.10.2021 by the Board of Directors and is incorporated in all strategies of the Bank. In 2021, 1,305 hours of ethical training was given to 2,214 employees. ANTI-BRIBERY and ANTI-CORRUPTION Bribery and corruption risk is defined as the risk that the Bank will incur losses due to an employee of the Bank abusing the power vested in them as part of their role at the Bank in order to, directly or indirectly, secure benefits for themselves or third parties and failing to comply with the anti-bribery and anti-corruption laws and internal regulations. Measuring and prioritizing bribery and corruption risk is done through a top- down risk assessment, impact-probability analysis, loss event data analysis and scenario analysis activities. İşbank’s "Anti-Bribery and Anti-Corruption Policy", which is the reference document for combating bribery and corruption at the Bank, is publicly available on the corporate website. The Anti-Bribery and Anti-Corruption Policy is implemented by the relevant Head Office Division under the supervision of the Corporate Governance Committee. Compliance with the provisions of this policy is audited within the scope of internal audit. The principles regarding fulfillment of the action plans to resolve audit findings are determined by the Corporate Governance Committee. Necessary updates and changes are proposed by the Corporate Governance Committee and put into effect upon approval by the Board of Directors. During the "Getting to Know Our Bank" course within the scope of "Starting My Career" trainings provided to new employees at İşbank, the requirement to act according to the discipline regulations and the "Ethical Banking Principles" is emphasized. This topic is also covered during the "Policy for Combating Financial Crimes and Sanctions and Compliance Program" class for Officers and Assistant Specialists which is included in the same training program. With the "Banking Law" class included in the Career as a Specialist training for Senior Assistant Specialists and the career training programs for employees promoted to Senior and Assistant Manager roles, information is provided about the legal regulations concerning corruption and other similar crimes. 158 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 159 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen The content of the e-training "Policy for Combating Financial Crimes and Sanctions Compliance Program", which is assigned to all employees as a mandatory training, is determined by the Corporate Governance Division and covers information about the topic of "Anti-Bribery and Anti-Corruption". Regular communication is carried out to ensure completion of this training by the employees. At the end of audits, the reports prepared to allow necessary administrative decisions to be made in accordance with the Bank's collective labor agreement and the legislation are reviewed by the Board of Inspectors and transferred to the related Head Office Divisions for action. In 2021, the scale of activities evaluated in relation to corruption risks was found to be at a negligible level compared to the total assets of the Bank. In 2021, 5,716 employees received 627 hours of anti-bribery and anti-corruption training. During routine audits conducted by the Board of Inspectors according to Internal Audit Standards, all risks, including anti- bribery and anti-corruption, are addressed on a periodic basis, and the audit results are reported to authorized divisions of the Bank in accordance with the provisions of applicable legislation, and the outcomes of the reported findings are monitored. Besides existing risks, factors that present potential risks are also identified, appropriate solutions are proposed, and the entire process is monitored. If any violation of anti-corruption policies is detected during the audits, appropriate action is taken according to the internal discipline regulations and legal regulations. In 2021, the Board of Inspectors also conducted inspections concerning the Sustainability Management System and the Compliance Program on Prevention of Laundering Proceeds of Crime and the Financing of Terrorism within the scope of the Head Office audits. Within the scope of 2021 activities, the Bank carried out development and maintenance activities on various practices aiming to provide fast and qualified data for risk assessments, which are the basis for determining personnel-related risks, and for in-house fraud detection and investigation studies. Through examining and reviewing the transactions involving suspicion of misconduct throughout the Bank by the team formed within the Board of Inspectors, the Bank aimed to contribute to both early detection of fraudulent transactions throughout the Bank, and to increase the efficiency and productivity of inspection activities. All findings, reports and customer complaints related to corruption practices are meticulously handled and thoroughly investigated. "Combating Financial Crimes" trainings cover these issues, and any suspicious transactions detected during inspections are reported to the Financial Crimes Investigation Board (MASAK) of the Ministry of Finance. If a violation of the Anti-bribery and Anti-corruption Policy is reported to the Board of Inspectors or detected by the Board of Inspectors during audits, the issue is meticulously examined. The issue is reported to the Audit Committee either promptly or as part of routine reporting activities. The Audit Committee brings the reported issues to the attention of the Board of Directors in order to ensure elimination of the policy violation without delay. The reports which are prepared by the Inspectors carrying out the audits in order to identify and provide solution recommendations and to allow necessary administrative decisions to be made about our employees at fault in accordance with the Bank's Collective Labor Agreement and the legislation are reviewed by the Board of Inspectors and transferred to the related Head Office Divisions for action. STAKEHOLDER DIALOGUE For İşbank, establishing regular, timely and two-way communication with stakeholders is a priority in all activities. For this purpose, the Bank develops dialogue plans in many channels by taking into account different information needs. Aiming to obtain stakeholder opinions by actively using social media platforms, the Bank has a total of 2,635,172 followers on 30 corporate, product and project accounts. The Bank provides comprehensive and up-to-date information through its Annual Reports, Integrated Reports, regular Investor Presentations, Analyst and Investor Days, corporate website, General Assembly and the Material Disclosures published on a per need basis. TRANSPARENCY and REPORTING In line with the principles of transparency and accountability, İşbank conducts reporting activities throughout the year in different channels for stakeholder groups. In 2021, the Bank published its first-ever Integrated Report to present a summary of its activities carried out during the year and to provide information on the integration of its sustainability approach into business processes and sustainability performance. Since 2019, the Bank has been reporting within the scope of the Carbon Disclosure Project (CDP) Climate Change Program. In 2021, the Bank also reported within the scope of the Carbon Disclosure Project Water Program. İşbank is a signatory of the Principles of Responsible Banking of the United Nations Environment Program Finance Initiative (UNEP FI) and thus began to conduct impact analyses. Performance in this area will be regularly reported to all stakeholders. The Bank also reports within the scope of the UN Women's Empowerment Principles as a signatory. İşbank also responds to information requests from numerous rating agencies and assessment bodies throughout the year. A significant part of the data contained in İşbank's Integrated Report is subject to independent external audit. See Independent Audit Report İşbank's corporate website provides up-to-date information to its stakeholders about the latest developments in the Bank and the Bank's products and services. All stakeholders of İşbank can also access all reports of the Bank, Material Disclosures, Investor Presentations and Credit Ratings on the corporate website. Can You Tell Me About Tomorrow? Our podcast channel “Can You Tell Me About Tomorrow?" offers weekly podcasts on various subjects such as science, technology, nature, agriculture, innovation, personal development, psychology and entrepreneurship. The channel is moderated by Güçlü Mete, Executive Editor at Kafa Radio Station. Previous podcasts include "Ormanlarımızı Korumanın Yolları" (How to Protect Our Forests) with Dr. Hikmet Öztürk, "Denizlerimizi Kurtarmanın Yolları" (How to Save Our Seas) with hydrobiologist Levent Artüz, "İklim Değişikliği" (Climate Change) with Prof. Mikdat Kadıoğlu, "Su Kaynaklarımızın Geleceği" (The Future of Our Water Resources) with Vedat Atasoy, "Gelecekte Tarım, Ülkemize ve Dünyaya Yeter mi?" (Will Agriculture Be Sufficient to Feed Our Country and the World?) with Prof. Gökhan Özertan, "Doğa ve Geleceğimiz" (Nature and Our Future) with Deniz Ataç, and "Bir Umut Marmara" (Marmara, A Hope) with Savaş Karakaş. We plan to continue with our podcasts in the future as well. DigitaITaIks Sustainability Talks'21 The online event DigitaITaIks Sustainability Talks'21 was held between 1 September and 6 October 2021 with the support of İşbank as the main sponsor. During the series which consisted of six sessions in total moderated by Ozan Tatar, the founder of DigitaITaIks, 12 speakers who are experts in their fields shared valuable information on the theme of sustainability in different areas. You can access all of the sessions from the DigitalTalks' YouTube channel, and the sessions were watched by more than 2,000 people in 2021. 160 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 161 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Corporate Governance Principles Compliance Statement Corporate Governance Compliance Report İşbank is subject to the provisions stipulated for banks in the Banking legislation and Capital Markets legislation regarding Corporate Governance Principles. The Bank carries out its activities in accordance with the compulsory principles of the Communiqué on Corporate Governance (Communiqué) published by the Capital Markets Board. Bank’s practices regarding the non-compulsory provisions of the principles stipulated in the Communiqué and additional information within in the framework of Corporate Governance are given in the Corporate Governance Compliance Report and Corporate Governance Information Form, which are the parts of Annual Report which is published with the approval of our Board of Directors. There are not any changes foreseen to be performed in the Bank’s managerial practices within the framework of the principles stipulated in the Communiqué. Within the year, procedures were carried out to develop the structure of the Corporate Governance Principles that the Bank is subject to. Under the section of the “Sustainability Principles Compliance Framework” in our Annual Report, the Bank’s practices and information regarding the principles within the scope of the regulation with the same title published by the Capital Markets Board are also included. Company Compliance Status Yes Partial No Exempted Not Applicable Explanation Corporate Governance Compliance Report 1.1. FACILITATING THE EXERCISE OF SHAREHOLDER RIGHTS 1.1.2- Up-to-date information and disclosures which may affect the exercise of shareholder rights are available to investors at the corporate website. 1.2. RIGHT TO OBTAIN AND REVIEW INFORMATION 1.2.1 - Management did not enter into any transaction that would complicate the conduct of special audit. 1.3. GENERAL ASSEMBLY 1.3.2 - The company ensures the clarity of the General Assembly agenda, and that an item on the agenda does not cover multiple topics. 1.3.7- Insiders with privileged information have informed the board of directors about transactions conducted on their behalf within the scope of the company's activities in order for these transactions to be presented at the General Shareholders' Meeting. 1.3.8 - Members of the board of directors who are concerned with specific agenda items, auditors, and other related persons, as well as the officers who are responsible for the preparation of the financial statements were present at the General Shareholders' Meeting. 1.3.10 - The agenda of the General Shareholders' Meeting included a separate item detailing the amounts and beneficiaries of all donations and contributions. 1.3.11 - The General Shareholders' Meeting was held open to the public, including the stakeholders, without having the right to speak. 1.4. VOTING RIGHTS 1.4.1 - There is no restriction preventing shareholders from exercising their shareholder rights. 1.4.2 - The company does not have shares that carry privileged voting rights. 1.4.3-The company withholds from exercising its voting rights at the General Shareholders' Meeting of any company with which it has cross-ownership, in case such cross- ownership provides management control. X X X X X X X X X X In addition to the shareholders of İşbank, the persons mentioned in "İşbank Internal Directive on Working Principles and Procedures of General Assembly" may attend the General Assembly. 162 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 163 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Corporate Governance Compliance Report Company Compliance Status Yes Partial No Exempted Not Applicable Explanation Company Compliance Status Yes Partial No Exempted Not Applicable Explanation In our Bank, minority rights are exercised in line with the related legislation. X X X 1.5. MINORITY RIGHTS 1.5.1 - The company pays maximum diligence to the exercise of minority rights. 1.5.2 - The Articles of Association extend the use of minority rights to those who own less than one twenthieth of the outstanding shares, and expand the scope of the minority rights. 1.6. DIVIDEND RIGHT 1.6.1 - The dividend policy approved by the General Shareholders' Meeting is posted on the company website. 1.6.2 - The dividend distribution policy comprises the minimum information to ensure that the shareholders can have an opinion on the procedure and principles of dividend distributions in the future. 1.6.3 - The reasons for retaining earnings, and their allocations, are stated in the relevant agenda item. 1.6.4 - The board reviewed whether the dividend policy balances the benefits of the shareholders and those of the company. 1.7. TRANSFER OF SHARES 1.7.1 - There are no restrictions preventing shares from being transferred. 2.1. CORPORATE WEBSITE 2.1.1. - The company website includes all elements listed in Corporate Governance Principle 2.1.1. 2.1.2 - The shareholding structure (names, privileges, number and ratio of shares, and beneficial owners of more than 5% of the issued share capital) is updated on the website at least every 6 months. 2.1.4 - The company website is prepared in other selected foreign languages, in a way to present exactly the same information with the Turkish content. X X X X X X X 2.2. ANNUAL REPORT 2.2.1 - The board of directors ensures that the annual report represents a true and complete view of the company's activities. 2.2.2 - The annual report includes all elements listed in Corporate Governance Principle 3.1. CORPORATION'S POLICY ON STAKEHOLDERS 3.1.1- The rights of the stakeholders are protected pursuant to the relevant regulations, contracts and within the framework of bona fides principles. 3.1.3 - Policies or procedures addressing stakeholders' rights are published on the company's website. 3.1.4 - A whistleblowing programme is in place for reporting legal and ethical issues. 3.1.5 - The company addresses conflicts of interest among stakeholders in a balanced manner. 3.2. SUPPORTING THE PARTICIPATION OF THE STAKEHOLDERS IN THE CORPORATION'S MANAGEMENT 3.2.1 - The Articles of Association, or the internal regulations (terms of reference/ manuals), regulate the participation of employees in management. 3.2.2 - Surveys/other research techniques, consultation, interviews, observation method etc. were conducted to obtain opinions from stakeholders on decisions that significantly affect them. 3.3. HUMAN RESOURCES POLICY 3.3.1 - The company has adopted an employment policy ensuring equal opportunities, and a succession plan for all key managerial positions. 3.3.2 - Recruitment criteria are documented. 3.3.3 - The company has a policy on human resources development, and organises trainings for employees. 3.3.4 - Meetings have been organised to inform employees on the financial status of the company, remuneration, career planning, education and health. X X X X X X X X X X X X İşbank employees participate in the management of the Bank via their beneficiary status in İşbank Members' Supplementary Pension Fund, which holds 37.26% of İşbank shares. 164 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 165 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Corporate Governance Compliance Report Company Compliance Status Yes Partial No Exempted Not Applicable Explanation Company Compliance Status Yes Partial No Exempted Not Applicable Explanation X Performance related compensation is used in certain positions. 3.3.5 - Employees, or their representatives, were notified of decisions impacting them. The opinion of the related trade unions was also taken. 3.3.6 - Job descriptions and performance criteria have been prepared for all employees, announced to them and taken into account to determine employee remuneration. 3.3.7 - Measures (procedures, trainings, raising awareness, goals, monitoring, complaint mechanisms) have been taken to prevent discrimination, and to protect employees against any physical, mental, and emotional mistreatment. 3.3.8 - The company ensures freedom of association and supports the right for collective bargaining. 3.3.9 - A safe working environment for employees is maintained. 3.4. RELATIONS WITH CUSTOMERS AND SUPPLIERS 3.4.1-The company measured its customer satisfaction, and operated to ensure full customer satisfaction. 3.4.2 - Customers are notified of any delays in handling their requests. 3.4.3 - The company complied with the quality standards with respect to its products and services. 3.4.4 - The company has in place adequate controls to protect the confidentiality of sensitive information and business secrets of its customers and suppliers. 3.5. ETHICAL RULES AND SOCIAL RESPONSIBILITY 3.5.1 - The board of the corporation has adopted a code of ethics, disclosed on the corporate website. 3.5.2-The company has been mindful of its social responsibility and has adopted measures to prevent corruption and bribery. X X X X X X X X X X 4.1. ROLE OF THE BOARD OF DIRECTORS 4.1.1 - The board of directors has ensured strategy and risks do not threaten the long-term interests of the company, and that effective risk management is in place. 4.1.2 - The agenda and minutes of board meetings indicate that the board of directors discussed and approved strategy, ensured resources were adequately allocated, and monitored company and management performance. 4.2. ACTIVITIES OF THE BOARD OF DIRECTORS 4.2.1-The board of directors documented its meetings and reported its activities to the shareholders. 4.2.2 - Duties and authorities of the members of the board of directors are disclosed in the annual report. 4.2.3-The board has ensured the company has an internal control framework adequate for its activities, size and complexity. 4.2.4 - Information on the functioning and effectiveness of the internal control system is provided in the annual report. 4.2.5 - The roles of the Chairman and Chief Executive Officer are separated and defined. 4.2.7-The board of directors ensures that the Investor Relations department and the corporate governance committee work effectively. The board works closely with them when communicating and settling disputes with shareholders. X X X X X X X X 4.2.8 - The company has subscribed to a Directors and Officers liability insurance covering more than 25% of the capital. X Our Bank’s Board of Directors and Executives are insured against the risk of loss they may cause due to their faults while performing their duties within the scope of a liability insurance policy that names our Bank and our participations as the insured, however, the coverage of insurance is below the mentioned amount. 166 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 167 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Corporate Governance Compliance Report Company Compliance Status Yes Partial No Exempted Not Applicable Explanation Company Compliance Status Yes Partial No Exempted Not Applicable Explanation 4.3. STRUCTURE OF THE BOARD OF DIRECTORS 4.3.9 - The board of directors has approved the policy on its own composition, setting a minimal target of 25% for female directors. The board annually evaluates its composition and nominates directors so as to be compliant with the policy. 4.3.10 - At least one member of the audit committee has 5 years of experience in audit/accounting and finance. 4.4. BOARD MEETING PROCEDURES 4.4.1-Each board member attended the majority of the board meetings in person. 4.4.2 - The board has formally approved a minimum time by which information and documents relevant to the agenda items should be supplied to all board members. 4.4.3 - The opinions of board members that could not attend the meeting, but did submit their opinion in written format, were presented to other members. 4.4.4 - Each member of the board has one vote. 4.4.5 - The board has a charter/written internal rules defining the meeting procedures of the board. 4.4.6 - Board minutes document that all items on the agenda are discussed, and board resolutions include director's dissenting opinions if any. 4.4.7-There are limits to external commitments of board members. Shareholders are informed of board members' external commitments at the General Shareholders' Meeting. X X X X X X X No target ratio is set for the number of female members in the Board of Directors. As of the end of 2021, there is one female members in the Board. Based on the last three terms of İşbank Board of Directors, percentage of the female members in the Board was realized as 17%. X X The duties that İşbank Board members have outside the Bank are provided in the Annual Report which is presented in the General Assembly. 4.5. BOARD COMMITTEES 4.5.5 - Board members serve in only one of the Board's committees. X İlgili mevzuat çerçevesinde bir Yönetim Kurulu üyesi birden fazla komitede görev alabilmektedir. 4.5.6 - Committees have invited persons to the meetings as deemed necessary to obtain their views. 4.5.7 - If external consultancy services are used, the independence of the provider is stated in the annual report. 4.5.8 - Minutes of all committee meetings are kept and reported to board members. 4.6. FINANCIAL RIGHTS 4.6.1-The board of directors has conducted a board performance evaluation to review whether it has discharged all its responsibilities effectively. X X X 4.6.4-The company did not extend any loans to its board directors or executives, nor extended their lending period or enhanced the amount of those loans, or improve conditions thereon, and did not extend loans under a personal credit title by third parties or provided guarantees such as surety in favour of them. 4.6.5 - The individual remuneration of board members and executives is disclosed in the annual report. X X X Restrictions related with the loans to be extended by İşbank to the Board members and employees are defined in article 50 of the Banking Law. In this context, İşbank does not extend loans to its Board members and employees other than those allowed by the law. Total compensation of the Board members and managers with administrative responsibilities is disclosed. On the other hand, the net allowance amount paid to our Board members on an individual basis is determined at our General Assemblies and disclosed to the public together with the General Assembly minutes. 168 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 169 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Corporate Governance Information Form 1. SHAREHOLDERS 1.1. Facilitating the Exercise of Shareholders Rights The number of investor meetings (conference, seminar/etc.) organised by the company during the year In 2021, İşbank participated 16 conferences online for stock and bond investors. In these events, a total of 143 meetings were conducted. In addition to 4 investor events in teleconference and videoconference format, where investors participated via remote access, 75 meetings were held via online connection. 1.2. Right to Obtain and Examine Information The number of special audit request(s) The number of special audit requests that were accepted at the General Shareholders' Meeting - - 1.3. General Assembly Link to the PDP announcement that demonstrates the information requested by Principle 1.3.1. (a-d) www.kap.org.tr/tr/Bildirim/914649 Whether the company provides materials for the General Shareholders' Meeting in English and Turkish at the same time The links to the PDP announcements associated with the transactions that are not approved by the majority of independent directors or by unanimous votes of present board members in the context of Principle 1.3.9 The links to the PDP announcements associated with related party transactions in the context of Article 9 of the Communique on Corporate Governance (II-17.1) The links to the PDP announcements associated with common and continuous transactions in the context of Article 10 of the Communique on Corporate Governance (II-17.1) The name of the section on the corporate website that demonstrates the donation policy of the company General Assembly documents except the list of participants and the minutes of the meeting (invitation to the General Assembly, agenda, proxy statement, information document, dividend distribution proposal, etc.) are presented in Turkish and English simultaneously. - - - İşbank Donation and Contribution Principles can be found on İşbank website, Home Page > About Us > Investor Relations > Corporate Governance > İşbank Donation and Contribution Principles. The relevant link to the PDP with minute of the General Shareholders' Meeting where the donation policy has been approved The number of the provisions of the articles of association that discuss the participation of stakeholders to the General Shareholders' Meeting None Article 47 1.6. Dividend Right The name of the section on the corporate website that describes the dividend distribution policy Minutes of the relevant agenda item in case the board of directors proposed to the general assembly not to distribute dividends, the reason for such proposal and information as to use of the dividend. PDP link to the related general shareholder meeting minutes in case the board of directors proposed to the general assembly not to distribute dividends Home Page >About Us > Investor Relations > Corporate Governance > Dividend Distribution Policy - - General Assembly Meetings General Meeting Date The number of information requests received by the company regarding the clarification of the agenda of the General Shareholders' Meeting 31.03.2021 0 Shareholder participation rate to the General Shareholders' Meeting Percentage of shares directly present at the GSM 0,04% 81,72% Percentage of shares represented by proxy 81,68% Specify the name of the page of the corporate website that contains the General Shareholders' Meeting minutes, and also indicates for each resolution the voting levels for or against Home Page > About Us > Investor Relations > Disclosures to BIST Specify the name of the page of the corporate website that contains all questions asked in the general assembly meeting and all responses to them The number of the relevant item or paragraph of General Shareholders' Meeting minutes in relation to related party transactions - The number of declarations by insiders received by the board of directors 460 Identified stakeholder groups that participated in the General Shareholders' Meeting, if any Shareholders and shareholder representatives as well as Board members, independent auditor representatives and İşbank employees (within the context of the legislation) participated in the General Assembly held in 2021. The link to the related PDP general shareholder meeting notification www.kap.org.tr/tr/Bildirim/922453-922590 1.4. Voting Rights Whether the shares of the company have differential voting rights In case that there are voting privileges, indicate the owner and percentage of the voting majority of shares. The percentage of ownership of the largest shareholder 1.5. Minority Rights Whether the scope of minority rights enlarged (in terms of content or the ratio) in the articles of the association If yes, specify the relevant provision of the articles of association. No - 37,26% No - 2. DISCLOSURE AND TRANSPARENCY 2.1. Corporate Website Specify the name of the sections of the website providing the information requested by the Principle 2.1.1. If applicable, specify the name of the sections of the website providing the list of shareholders (ultimate beneficiaries) who directly or indirectly own more than 5% of the shares. List of languages for which the website is available Home Page > About Us > Investor Relations Home > About Us > Investor Relations > Corporate Overview > Corporate Information > Ownership Structure Turkish and English 170 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 171 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Corporate Governance Information Form 2.2. Annual Report The page numbers and/or name of the sections in the Annual Report that demonstrate the information requested by principle 2.2.2. a) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on the duties of the members of the board of directors and executives conducted out of the company and declarations on independence of board members b) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on committees formed within the board structure c) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on the number of board meetings in a year and the attendance of the members to these meetings ç) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on amendments in the legislation which may significantly affect the activities of the corporation Additional Information Regarding the Related Legislation İşbank Committees Information about the Meetings of the Board of Directors No legislation change that would significantly impact İşbank activities has occured d) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on significant lawsuits filed against the corporation and the possible results thereof Unconsolidated Financial Statements as at and for the Year Ended 31 December 2021 with Independent Audit's Report Thereon - Information on Other Provisions e) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on the conflicts of interest of the corporation among the institutions that it purchases services on matters such as investment consulting and rating and the measures taken by the corporation in order to avoid from these conflicts of interest f) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on the cross ownership subsidiaries that the direct contribution to the capital exceeds 5% g) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on social rights and professional training of the employees and activities of corporate social responsibility in respect of the corporate activities that arises social and environmental results 3. STAKEHOLDERS 3.1. Corporation’s Policy on Stakeholders None İşbank has no cross ownership subsidiaries. We are taking responsibility for our employees / We are taking responsibility for future generations The name of the section on the corporate website that demonstrates the employee remedy or severance policy Compensation principles for Bank employees are determined by the Collective Bargaining Agreement which is shared with the employees through İşbank's Corporate Intranet Portal. The number of definitive convictions the company was subject to in relation to breach of employee rights None The position of the person responsible for the alert mechanism (i.e. whistleblowing mechanism) The contact detail of the company alert mechanism In addition to our employees, all other stakeholders can submit their complaints to the Board of Inspectors through the channels included in the Ethical Principles and Code of Conduct approved by the Board of Directors of our Bank. Following detailed and independent evaluations, complaints are directly examined by the Board of Inspectors or transferred to the relevant units of the Bank. İşbank also has an online communication platform through which employees may submit their requests and complaints to the Senior Management directly. Only a limited number of managers have access to the said platform. E-mail: etik@isbank.com.tr Phone: +90 212 316 14 44 Address: Türkiye İş Bankası A.Ş. Etik Hat İş Kuleleri Kule 1 Kat 34 34330 Levent-Beşiktaş/ İSTANBUL 3.2. Supporting the Participation of the Stakeholders in the Corporation’s Management Name of the section on the corporate website that demonstrates the internal regulation addressing the participation of employees on management bodies No information on this matter is available on our website. Corporate bodies where employees are actually represented Isbank employees participate in the management of the Bank via their beneficiary status in İşbank Members' Supplementary Pension Fund, which holds 37.26% of İşbank shares. 3.3. Human Resources Policy The role of the board on developing and ensuring that the company has a succession plan for the key management positions The name of the section on the corporate website that demonstrates the human resource policy covering equal opportunities and hiring principles. Also provide a summary of relevant parts of the human resource policy. Whether the company provides an employee stock ownership programme The name of the section on the corporate website that demonstrates the human resource policy covering discrimination and mistreatments and the measures to prevent them. Also provide a summary of relevant parts of the human resource policy. Board of Directors create succession plans. Home Page > About Us > Sustainability > Our Policies There isn't an employee stock ownership programme Home Page > About Us > Sustainability > Our Policies The number of definitive convictions the company is subject to in relation to health and safety measures None 3.5. Ethical Rules and Social Responsibility The name of the section on the corporate website that demonstrates the code of ethics Home Page > About Us > Investor Relations > Corporate Governance > Ethical Principles and Code of Conduct The name of the section on the company website that demonstrates the corporate social responsibility report. If such a report does not exist, provide the information about any measures taken on environmental, social and corporate governance issues. Any measures combating any kind of corruption including embezzlement and bribery Home Page > About Us > Sustainability > Our Reports Home Page > About Us > Sustainability > Our Policies 172 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 173 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Corporate Governance Information Form 4. BOARD OF DIRECTORS-I 4.2. Activity of the Board of Directors Date of the last board evaluation conducted 10.12.2021 Whether the board evaluation was externally facilitated Whether all board members released from their duties at the GSM Name(s) of the board member(s) with specific delegated duties and authorities, and descriptions of such duties No Yes No delegation of authority in İşbank Number of reports presented by internal auditors to the audit committee or any relevant committee to the board 338 Specify the name of the section or page number of the annual report that provides the summary of the review of the effectiveness of internal controls Audit Committee's Assessment on the Operation of Internal Audit, Internal Control, Compliance and Risk Management Sytems and Its Activities in the Reported Period Name of the Chairman Name of the CEO Adnan Bali Hakan Aran If the CEO and Chair functions are combined: provide the link to the relevant PDP annoucement providing the rationale for such combined roles Link to the PDP notification stating that any damage that may be caused by the members of the board of directors during the discharge of their duties is insured for an amount exceeding 25% of the company's capital Chairman and General Manager seats are held by different persons Our Bank's Board of Directors and Executives are insured against the risk of loss they may cause due to their faults while performing their duties within the scope of a liability insurance policy that names our Bank and our participations as the insured, however, the coverage of insurance is below the mentioned amount. On the other hand, this issue has not been disclosed on the Public Disclosure Platform. The name of the section on the corporate website that demonstrates current diversity policy targeting women directors None The number and ratio of female directors within the Board of Directors 1 / 9% Composition of Board of Directors Name, Surname of Board Member Whether Executive Director Or Not Whether Independent Director Or Not ADNAN BALİ Non-executive YUSUF ZİYA TOPRAK Non-executive HAKAN ARAN Executive FERAY DEMİR Non-executive ERSİN ÖNDER ÇİFTÇİOĞLU Non-executive FAZLI BULUT Non-executive DURMUŞ ÖZTEK Non-executive RECEP HAKAN ÖZYILDIZ Non-executive MUSTAFA RIDVAN SELÇUK Non-executive AHMET GÖKHAN SUNGUR Non-executive SADRETTİN YURTSEVER Non-executive Not independent director Independent director Not independent director Not independent director Independent director Not independent director Not independent director Not independent director Not independent director Independent director Not independent director The First Election Date To Board Link To PDP Notification That Includes The Independency Declaration Whether the Independent Director Considered By The Nomination Committee Whether She/He is the Director Who Ceased to Satisfy The Independence or Not Whether The Director Has At Least 5 Years’ Experience On Audit, Accounting And/Or Finance Or Not - - Not considered No - - - - Not considered No - - - - - - - - www.kap.org.tr/en/ Bildirim/916723 Considered No - - Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 174 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 175 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Corporate Governance Information Form 4. BOARD OF DIRECTORS-II 4.4. Meeting Procedures of the Board of Directors Number of physical board meetings in the reporting period (meetings in person) 1 physical, 12 online Director average attendance rate at board meetings 99,30% Whether the board uses an electronic portal to support its work or not Yes Number of minimum days ahead of the board meeting to provide information to directors, as per the board charter In accordance with article II/4/b of the Directive on Working Procedures and Principles of İşbank Board of Directors, a copy of the agenda and proposals is sent to the members before the meeting date at a reasonable time which allows them to make the necessary evaluations. The name of the section on the corporate website that demonstrates information about the board charter Articles of Association Number of maximum external commitments for board members as per the policy covering the number of external duties held by directors None 4.5. Board Committees Page numbers or section names of the annual report where information about the board committees are presented Link(s) to the PDP announcement(s) with the board committee charters İşbank Committees www.kap.org.tr/tr/Bildirim/262622 Composition of Board Committees-I Names Of The Board Committees Name Of Committees Defined As "Other" In The First Column Name-Surname of Committee Members Whether Committee Chair Or Not Whether Board Member Or Not Corporate Governance Committee Corporate Governance Committee Corporate Governance Committee Corporate Governance Committee Audit Committee Audit Committee Remuneration Committee Remuneration Committee Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Ersin Önder Çiftçioğlu Yes Board member Feray Demir Sadrettin Yurtsever Neşe Gülden Sözdinler Yusuf Ziya Toprak Ersin Önder Çiftçioğlu Adnan Bali Feray Demir Hakan Aran Adnan Bali Feray Demir Yusuf Ziya Toprak (Alternate Member) Fazlı Bulut (Alternate Member) No No No Yes No Yes No Yes No No No No Board member Board member Not board member Board member Board member Board member Board member Board member Board member Board member Board member Board member Yusuf Ziya Toprak Yes Board member Credit Committee Credit Committee Credit Committee Credit Committee Credit Committee Turkish Republic of Northern Cyprus Internal Systems Committee Turkish Republic of Northern Cyprus Internal Systems Committee Credit Revision Committee Credit Revision Committee Credit Revision Committee Ersin Önder Çiftçioğlu Adnan Bali Yusuf Ziya Toprak Feray Demir Credit Revision Committee Ersin Önder Çiftçioğlu Credit Revision Committee Sadrettin Yurtsever Corporate Social Responsibility Committee Feray Demir Corporate Social Responsibility Committee Sadrettin Yurtsever Corporate Social Responsibility Committee Fazlı Bulut Corporate Social Responsibility Committee Durmuş Öztek Corporate Social Responsibility Committee Yalçın Sezen Corporate Social Responsibility Committee Can Yücel Corporate Social Responsibility Committee Suat E. Sözen Corporate Social Responsibility Committee Gül Meltem Atılgan Risk Committee Risk Committee Risk Committee Risk Committee Risk Committee Adnan Bali Yusuf Ziya Toprak Ersin Önder Çiftçioğlu Hakan Aran Murat Bilgiç No No No No No No No No No No No No No No Yes No No No No Board member Board member Board member Board member Board member Board member Board member Board member Board member Board member Not board member Not board member Not board member Not board member Board member Board member Board member Board member Not board member 176 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 177 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Corporate Governance Information Form Composition of Board Committees-I Names Of The Board Committees Name Of Committees Defined As "Other" In The First Column Name-Surname of Committee Members Whether Committee Chair Or Not Whether Board Member Or Not Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other Risk Committee Risk Committee Risk Committee Risk Committee Risk Committee Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Operational Risk Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Sustainability Committee Ebru Özşuca Gamze Yalçın Sezai Sevgin Hürdoğan Irmak Süleyman H. Özcan H. Umut Togay Yusuf Ziya Toprak Hakan Aran Ersin Önder Çiftçioğlu Ozan Gürsoy Sezgin Yılmaz Sabri Gökmenler Sezgin Lüle Sezai Sevgin Gürler Özkök Süleyman H. Özcan H. Umut Togay Hürdoğan Irmak Bülent Akdemir Burcu Nasuhoğlu Adnan Bali Ersin Önder Çiftçioğlu Feray Demir Gamze Yalçın Yalçın Sezen Murat Bilgiç N. Burak Seyrek Şahismail Şimşek Ozan Gürsoy Sabri Gökmenler Sezgin Yılmaz Sezai Sevgin Suat E. Sözen Hürdoğan Irmak Neşe Gülden Sözdinler Board of Directors Operating Principles Committee Adnan Bali Board of Directors Operating Principles Committee Feray Demir Board of Directors Operating Principles Committee Durmuş Öztek No No No No No No Yes No No No No No No No No No No No No No Yes No No No No No No No No No No No No No No Yes No No Not board member Not board member Not board member Not board member Not board member Not board member Board member Board member Board member Not board member Not board member Not board member Not board member Not board member Not board member Not board member Not board member Not board member Not board member Not board member Board member Board member Board member Not board member Not board member Not board member Not board member Not board member Not board member Not board member Not board member Not board member Not board member Not board member Not board member Board member Board member Board member 4. BOARD OF DIRECTORS-III 4.5. Board Committees-II Specify where the activities of the audit committee are presented in your annual report or website (Page number or section name in the annual report/website) Specify where the activities of the corporate governance committee are presented in your annual report or website (Page number or section name in the annual report/ website) Specify where the activities of the nomination committee are presented in your annual report or website (Page number or section name in the annual report/website) Specify where the activities of the early detection of risk committee are presented in your annual report or website (Page number or section name in the annual report/website) Specify where the activities of the remuneration committee are presented in your annual report or website (Page number or section name in the annual report/website) 4.6. Financial Rights Specify where the operational and financial targets and their achievement are presented in your annual report (Page number or section name in the annual report) Specify the section of website where remuneration policy for executive and non- executive directors are presented. Specify where the individual remuneration for board members and senior executives are presented in your annual report (Page number or section name in the annual report) Information about the activities of Audit Committee which was established within the context of the related legislation is presented in "İşbank Committees" section of the Annual Report. İşbank Committees At İşbank, functions of Nomination Committee are fulfilled by Corporate Governance Committee. Information about the activities of Risk Committe is presented in "İşbank Committees" section of the Annual Report. Information about the activities of Remuneration Committe which was established within the context of the related legislation is presented in "İşbank Committees" section of the Annual Report. Financial Performance, Reliable Financial Actor, Responsible Operations, Good Corporate Citizen Home Page > About Us > Investor Relations > Corporate Governance > Remuneration Policy Additional Information Regarding the Related Legislation 178 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 179 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Corporate Governance Information Form Sustainability Principles Compliance Framework Composition of Board Committees-II Names Of The Board Committees Name of committees defined as "Other" in the first column The Percentage Of Non-executive Directors The Percentage Of Independent Directors In The Committee The Number Of Meetings Held In Person The Number Of Reports On Its Activities Submitted To The Board Corporate Governance Committee Audit Committee Remuneration Committee Other Credit Committee Other Other Other Other Other Other Other Turkish Republic of Northern Cyprus Internal Systems Committee Credit Revision Committee Corporate Social Responsibility Committee Risk Committee Operational Risk Committee Sustainability Committee Board of Directors Operating Principles Committee 75% 100% 100% 80% 100% 100% 50% 64% 64% 33% 100% 25% 100% 0% 20% 100% 40% 0% 18% 14% 7% 0% 4 online 57 7 - 9 7 1 physical, 6 online 11 online 2 online 4 online - 1 12 - - 2 1 8 13 - 1 - PRINCIPLES A. General Principles A1. Strategy, Policy and Targets The Board of Directors determines material ESG issues, risks and opportunities and creates ESG policies accordingly. In terms of the effective implementation of these policies; internal directives, business procedures of Companies etc. can be prepared. The Board of Directors takes decisions for these policies and they are publicly disclosed. Determines the company Strategy in line with the ESG policies, risks and opportunities. It determines and publicly discloses its short and long term goals in line with the Company Strategy and ESG policies. A2. Implementation/Monitoring It determines and publicly discloses the committees / units responsible for the implementation of ESG policies. The responsible committee / unit reports the activities carried out within the scope of the policies to the Board of Directors at least once a year and in any case within the maximum periods determined for the public disclosure of the annual activity reports in the relevant regulations of the Board. It forms implementation and action plans in line with the determined short and long term targets and publicly discloses them. It determines the Key ESG Performance Indicators (KPI) and announces them on a yearly basis. In the presence of verifiable data, it presents KPIs with local and international sector comparisons. Discloses innovation activities that improve sustainability performance for business processes or products and services. COMPLIANCE DEFINITION Yes Home > About Us > Sustainability > Our Policies Global Tendencies, Risks, Opportunities and Forecasts, page 26-28 Our Business Model: İşbank Banking, page 30-31 Yes Reliable Financial Actor, page 52-53, 84-85, 98-99 Responsible Operations, page 110, 111,114, 116, 120, 122 Good Corporate Citizen page 134, 136, 192, 193 2021 CDP Climate Change Report, page 23- 30 Yes İşbank Committees, Sustainability Committee, page 148 Home > About Us > Sustainability > Our Organization Global Tendencies, Risks, Opportunities and Forecasts, page 26-28 Our Business Model: İşbank Banking, page 30-31 Yes Reliable Financial Actor, page 54, 85, 99 Responsible Operations, page 111, 116, 122 Good Corporate Citizen page 136 2021 CDP Climate Change Report, page 23- 30 Yes Yes Key Performance Indicators, page 53, 85, 99, 111, 115, 135, 193 Responsible Products and Services, page 74-75 Products and Services Contributing to a Green Economy, page 92-97 Projects to Improve Customer Experience, page 428-431 Home > About Us > Sustainability > Responsible Products and Services 180 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 181 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Sustainability Principles Compliance Framework PRINCIPLES A3. Reporting It reports its sustainability performance, goals and actions at least once a year and makes it public. Discloses the information on sustainability activities within the scope of the annual report. It is essential to share information that is important for takeholders in understanding the position, performance and development of the company in a direct and concise manner. It can also discloses detailed information and data on the corporate website, and prepare separate reports that directly meet the needs of different stakeholders. It exercises maximum care in terms of transparency and reliability. It objectively explains all kinds of developments about material issues in disclosures and reporting within the scope of the balanced approach. It gives information about which of the United Nations (UN) 2030 Sustainable Development Goals its activities are related to. Makes disclosure regarding the lawsuits filed and / or concluded against environmental, social and corporate governance issues A4. Verification If verified by independent third parties (independent sustainability assurance providers), it discloses its sustainability performance measurements to the public and endeavors to increase such verification processes. COMPLIANCE DEFINITION Home > About Us > Sustainability > Our Reports Yes İşbank 2021 Integrated Annual Report 2021 CDP Climate Change Report Yes Home > About Us > Sustainability Home > About Us > Investor Relations Sustainability Priorities, page 33-36 Yes Changes in Material Issues of İşbank, page 465 Sustainability Management, page 38 Yes Yes Yes Contribution to Sustainable Development Goals, page 46-49 www.kap.org.tr/tr/Bildirim/977504-973221-952353 -947832-945276-928647 Non-Financial Data Reporting Guide and Independent Assurance Report, page 462-470 PRINCIPLES B. Environmental Principles Discloses its policies and practices, action plans, environmental management systems (known by the ISO 14001 standard) and programs in the field of environmental management. Complies with environmental laws and other relevant regulations and discloses them. Explains the limitations of the environmental report to be included in the report to be prepared within the scope of the Sustainability Principles, reporting period, reporting date, data collection process and reporting conditions. Describes the highest level responsible, relevant committees and duties in the company on the issue of environment and climate change. COMPLIANCE DEFINITION Yes We Take Responsibility to Mitigate Negative Impacts of Our Operations, page 110 - 119 Yes Management of Environmental Impacts, page 117 Yes Yes About the Report, page 5 Non-Financial Data Reporting Guide and Independent Assurance Report, page 462-470 Sustainability Management, page 38 İşbank Committees, Sustainability Committee, page 148 Home > About Us > Sustainability > Our Organization 2021 CDP Climate Change Report, page 2- 6 Describes the incentives it offers for the management of environmental issues, including the achievement of goals. Yes 2021 CDP Climate Change Report, page 6- 7 Explain how environmental matters are integrated into business goals and strategies Yes Discloses the sustainability performances fora business processes or products and services and the activities to improve this performance. Explains how it manages environmental issues not just in terms of direct operations but throughout the company’s value chain and integrates suppliers and customers into its strategies. It explains whether it is involved in policy making processes on environmental issues (sectoral, regional, national and international), its cooperation with the associations, related organizations and non- governmental organizations it is a member of, and the tasks it has taken, if any, and the activities it supports. Reports information on its impacts in a periodically comparable manner within the scope of environmental indicators (Greenhouse gas emissions (Scope-1 (Direct), Scope-2 (Energy indirect), Scope-3 (Other indirect)), air quality, energy management, water and wastewater management, waste management, biodiversity impacts) Yes Yes Yes Yes Our Business Model: İşbank Banking, page 30 Global Tendencies, Risks, Opportunities and Forecasts, page 26-28 Reliable Financial Actor, page 84, 97-91 Responsible Operations, page 114 Good Corporate Citizen, page 132 2021 CDP Climate Change Report, page 20-21 Home > About Us > Sustainability > Responsible Products and Services Responsible Products and Services, page 74-75 Products and Services Contributing to a Green Economy, page 92-97 Responsible Operations, page 108 Stakeholder Expectations and İşbank's Response, page 39-40 Supply Chain Management, page 110-113 Home > About Us > Sustainability > Our Policies > Supplier Code Of Conduct Contribution to Sustainable Development Goals, page 44-45 Corporate Memberships, page 436 Home > About Us > Sustainability > Memberships and Initiatives Environmental Impact, page 114-117 Home > About Us > Sustainability > Responsible Banking > Our Environmental Impact 182 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 183 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Sustainability Principles Compliance Framework PRINCIPLES COMPLIANCE DEFINITION PRINCIPLES COMPLIANCE DEFINITION Environmental Impact, page 114-117 Non-Financial Data Reporting Guide and Independent Assurance Report, page 462-470 Environmental Impact, page 114-117 2021 CDP Climate Change Report, page 30-40 Home > About Us > Sustainability > Responsible Banking > Our Environmental Impact Discloses whether its operations or activities are included in any carbon pricing system (Emission Trading System, Cap & Trade or Carbon Tax). Irrelevant Environmental Impact, page 114-117 2021 CDP Climate Change Report, page 24 Discloses the carbon credit information accumulated or purchased during the reporting period. No Yes Yes Yes Yes Yes Describes the standard, protocol, methodology and base year details used to collect and calculate its data. Discloses the status of environmental indicators for the reporting year (increase or decrease) in comparison with previous years. Sets short and long term goals and discloses these goals to reduce its environmental impact. It is recommended that these goals be determined based on Science as suggested by the United Nations Conference of the Parties on Climate Change. If there is progress in the reporting year with respect to the targets set before, it provides information on the subject. Discloses its strategy and actions for combating the climate crisis. Describes the program or procedures for preventing or minimizing the potential negative impact of the products and / or services it offers; explains the actions to reduce greenhouse gas emissions of third parties. Discloses the actions taken to mitigate its environmental impacts, the total number of projects and initiatives carried out along with the environmental benefits / benefits cost savings they provide. It reports the total energy consumption data (excluding raw materials) and explains the energy consumption as Scope-1 and Scope-2. Provides information on electricity, heat, steam and cooling generated and consumed in the reporting year. Carries out studies on increasing the use of renewable energy, transition to zero or low carbon electricity and explains these studies. Discloses data on its renewable energy production and consumption. Develops energy efficiency projects and explains the amount of energy consumption and emission reduction enabled by these studies. Reports the amount of water withdrawn, used, recycled and discharged from underground or aboveground, its sources and procedures (Total water withdrawal by source, water sources affected by water withdrawal; percentage and total volume of recycled and reused water, etc.). We Take Responsibility for Climate Action, page 84-88 2021 CDP Climate Change Report, page 20-30 Home > About Us > Sustainability > Responsible Banking > Combating Climate Change Environmental and Social Risk Management in Loans, page 89-91 Financing Renewable Energy, page 92 Products and Services Contributing to a Green Economy, page 92-97 Home > About Us > Sustainability > Responsible Products and Services > Products Contributing to the Green Economy Yes Environmental Impact, page 114-117 Yes Yes Environmental Impact, page 114-117 Home > About Us > Sustainability > Responsible Banking > Our Environmental Impact Environmental Impact, page 114-117 Home > About Us > Sustainability > Responsible Banking > Our Environmental Impact Yes Environmental Impact, page 114-117 Yes Environmental Impact, page 114-117 Yes Yes 2021 CDP Climate Change Report, page 27-30, 35-36 Responsible Operations, page 108 Environmental Impact, page 114-117 Home > About Us > Sustainability > Responsible Banking > Our Environmental Impact Non-Financial Data Reporting Guide and Independent Assurance Report, page 462-470 İşbank’s operations or activities are not included in the carbon pricing system. It is known that legal authorities are working on establishing a local carbon trading system. All national and international developments are followed closely and development opportunities are evaluated in this area. İşbank aims to reduce the total Scope-1 and Scope-2 greenhouse gas emissions calculated in accordance with the International GHG Protocol by 38% by 2025, 65% by 2030, and to zero by 2035, and to carry out activities as carbon-neutral as of 2035. As of 2021, İşbank has started to use renewable energy in all of its operational points that can be supplied, and has already reached its targets for 2025 and 2030. İşbank primarily carries out focused efforts to reduce its direct and indirect emissions, and in the following periods, it will also be able to consider the purchase of carbon credits in order to zero the emissions it has reduced to a minimum. At this stage, there is no carbon pricing practice in our bank. On the other hand, all activities of our Bank are in a continuous development with the ESG focus, and the implementation of the carbon pricing practice will be evaluated in the following period. Initiatives Supported in the Field of Sustainability, page 44-45 2021 CDP Climate Change Report 2021 CDP Water Security Report Home > About Us > Sustainability > Responsible Banking > Our Environmental Impact No Yes Yes Home > About Us > Sustainability > Our Policies > Human Rights And Human Resources Policy Home > About Us > Sustainability > Our Policies > Human Rights And Human Resources Policy Home > About Us > Sustainability > Our Policies > Gender Equality Polıcy Home > About Us > Sustainability > Our Policies > Supplier Code Of Conduct Home > About Us > Sustainability > Our Policies > Supplier Code Of Conduct Supply Chain Management, page 39-40 Equal Opportunity and Diversity, page 127-129 Financial Inclusion, page 76-80 Equal Opportunity and Diversity, page 127-129 GRI Content Index, page 474 Yes Yes Yes Explains the details if carbon pricing is applied within the company. Discloses all compulsory and voluntary platforms where reports its environmental information. C. Social Principles C1. Human Rights and Employee Rights Forms a Human Rights and Employee Rights Policy with a commitment to fully comply with the Universal Declaration of Human Rights, ILO Conventions which Turkey has confirmed and the legal framework and regulations governing the operation of corporate life in Turkey. Discloses the policy in question and the roles and responsibilities associated with its implementation. Provides equal opportunity in recruitment processes. Considering the supply and value chain effects, it includes fair labor, improvement of labor standards, women's employment and inclusion issues (such as women, men, religious belief, language, race, ethnic origin, age, disability, refugee, etc.) in its policies. Describes the measures taken throughout the value chain for the protection of groups sensitive to certain economic, environmental, social factors (low-income groups, women, etc.) or securing minority rights / equal opportunities. Reports developments regarding discrimination, inequality, human rights violations, forced labor and corrective practices. Explain the regulations to prevent child labor. 184 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 185 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Sustainability Principles Compliance Framework PRINCIPLES COMPLIANCE DEFINITION PRINCIPLES COMPLIANCE DEFINITION Explains policies regarding investment in employees (training, development policies), compensation, vested benefits, right to unionize, work / life balance solutions and talent management. Determines dispute resolution processes by creating mechanisms for employee complaints and dispute resolution. It regularly explains the activities carried out to ensure employee satisfaction. Creates occupational health and safety policies and makes them public. Explain the precautions and accident statistics taken to prevent work accidents and to protect health. Creates and publicly discloses personal data protection and data security policies. Creates an ethical policy (including work, work ethics, compliance processes, advertising and marketing ethics, open information, etc.) and discloses it to the public. Explains the work within the scope of social investment, social responsibility, financial inclusion and access to finance. Organizes information meetings and training programs for employees on ESG policies and practices. C2. Stakeholders, International Standards and Initiatives Carries out its activities in the field of sustainability by taking into account the needs and priorities of all stakeholders (employees, customers, suppliers and service providers, public institutions, shareholders, society and non-governmental organizations, etc.). Regulates and publicly discloses a customer satisfaction policy regarding the management and resolution of customer complaints. Conducts stakeholder communication continuously and transparently; It explains which stakeholders, for what purpose, on what issue and how often it communicated, and the developments in sustainability activities. Publicly discloses the international reporting standards it has adopted (Carbon Disclosure Project (CDP), Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC), Sustainability Accounting Standards Board (SASB), ClimateRelated Financial Disclosures Task Force (TCFD) etc.). We Take Responsibility for Our Employees, page 120-131 Yes Home > About Us > Investor Relations > Corporate Governance > Remuneration Policy Home > About Us > Investor Relations > Corporate Governance > Ethical Principles and Code of Conduct Yes Yes Yes Yes Home > About Us > Sustainability > Our Policies > Occupational Health and Safety Policy Occupational Health and Safety, page 126 Occupational Health and Safety Data, page 456 Home > Privacy Policy Home > About Us > Investor Relations > Corporate Governance > Personal Data Protection Policy Home > About Us > Investor Relations > Corporate Governance > Ethical Principles and Code of Conduct We Take Responsibility for Future Generations, page 192-198 Financial Inclusion, page 76-80 Talent Management, page 129-131 Yes Equal Opportunity and Diversity, page 127-129 Human Resources Data, page 455 Yes Yes Yes Yes Sustainability Priorities, page 33-35 Stakeholder Expectations and İşbank's Response, page 39-40 https://www.isbank.com.tr/en/contact-us https://www.isbank.com.tr/en/contact-form https://www.isbank.com.tr/iletisim-formu-takip Flawless Customer Experience, page 71 Stakeholder Expectations and İşbank's Response, page 39-40 About the Report, page 5 Initiatives Supported in the Field of Sustainability, page 44-45 2021 CDP Climate Change Report Publicly discloses the international organizations or principles (Equator Principles, United Nations Environment Program Finance Initiative (UNEP-FI), United Nations Global Principles (UNGC), United Nations Principles for Responsible Investment (UNPRI) etc.) which it is a signatory or member of, and international principles adopted (International Capital Market Association (ICMA) Green / Sustainable Bond Principles). Makes concrete efforts to be included in Borsa Istanbul Sustainability Index and international sustainability indices (Dow Jones Sustainability Index, FTSE4Good, MSCI ESG Indices, etc.). D. Corporate Governance Principles Makes maximum effort to comply with all Corporate Governance principles as well as the mandatory Corporate Governance principles within the scope of the Capital Markets Board Corporate Governance Communiqué numbered II-17.1. Takes into account the sustainability issue, the environmental impacts of its activities and the principles in this regard while determining its corporate management strategy. Takes the necessary measures to comply with the principles regarding the stakeholders and to strengthen the communication with the stakeholders and applies to the opinions of stakeholders in determining the measures and strategies in the field of sustainability as stated in the Corporate Governance Principles. Works on raising awareness on the issue of sustainability and its importance through social responsibility projects, awareness activities and trainings. Strives to become a member of international standards and initiatives on sustainability and to contribute to studies. Explains policies and programs for the fight against bribery and corruption and the principle of tax integrity Yes İşbank's Sustainability Journey, page 32 Yes Initiatives Supported in the Field of Sustainability, page 44-45 Yes Initiatives Supported in the Field of Sustainability, page 44-45 Yes Yes Yes Yes Yes Corporate Governance Compliance Report, page 163-169 Corporate Governance Information Form, page 170-180 Sustainability Priorities, page 33 Sustainability Management, page 38 We Take Responsibility for a Transparent Management, page 134 2021 CDP Climate Change Report, page 2 Sustainability Priorities, page 33 Sustainability Management, page 38 We Take Responsibility for Future Generations, page 192-198 İşbank's Sustainability Journey, page 32 Initiatives Supported in the Field of Sustainability, page 44-45 Corporate Memberships, page 436 Home > About Us > Sustainability > Memberships and Initiatives Home > About Us > Sustainability > Our Policy > Anti- Bribery And Anti-Corruption Policy Our bank's tax obligations are fulfilled within the framework of the relevant legislation. Detailed information about its tax liability can be found under the heading “Explanations on Tax Applications” https://www.isbank.com.tr/en/about-us/financial- statements 186 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 187 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen ANNUAL MEETING DOCUMENTS İşbank’s Dividend Distribution Policy The principles regarding the profit distribution of the Bank are regulated in Article 58 of the Articles of Incorporation. According to this: "İşbank's principles of dividend distribution are set by article 58 of the Articles of Incorporation. According to this article, after deducting all general expenses from the income arising from the operations of the Bank within a year, including premiums and bonuses and similar payments to the personnel of the Bank, and funds for all kinds of depreciations, as well as necessary provisions, the net profit obtained shall partly be set aside as contingency reserves and partly distributed in the order, manner and at the rates indicated below: a) 1- 5% to statutory reserve fund, 2- 5% as provision for probable future losses, 3- 10% as first contingency reserve If the cause for setting aside of a provision and fund for a probable future loss and/or risk doesn’t exist anymore, the remaining fund will be added to first contingency reserve (a/3) after distribution of net profit referred to in paragraph (a). b) From the balance of the net profit after the reserve fund referred to in paragraph (a) above have been set aside, an amount equal to 6% of the paid up capital represented by Group A, B and C share certificates, shall be distributed to shareholders as the “first dividend”. Should the profit realized in any year be insufficient to provide for the first dividend of 6% referred to above, the balance shall be made up and distributed out of the contingency reserve fund. Provided, however, that any amount thus taken out of the reserve fund shall constitute a charge to be made up out of the profits to be realized in the subsequent years. c) After the reserved fund and the first dividend referred to in paragraphs (a) and (b) above have been provided for, the balance of the net profit shall be set aside and distributed as follows: • 10% for founder shares (limited to the portion of TL 250 thousand – two hundred and fifty thousand –of paid capital) • 20% to the employees of the Bank, and • 10% as second contingency reserve. d) After the amounts set forth in paragraphs (a), (b) and (c) have been set aside and distributed, the balance shall be distributed to the shareholders as “second dividend” in the manner stated below and taking into consideration paragraph (e). 1- The net total of the dividends to be distributed to the holders of Group (A) shares as first and second dividends under paragraphs (b) and (d) may be not exceed 60% of the capital paid up by them, the net total of the dividends to be distributed to holders of Group (B) shares may not exceed 30% of the capital paid up by them, and the net total of the dividends to be distributed to holders of Group (C) shares may not exceed 25% of the capital paid up by them. 2- After the amounts set forth in paragraphs (a), (b) and (c) have been set aside and distributed, should the balance be insufficient to distribute the second dividend in the manner specified by the paragraph (1) above, twice the amount of the paid up capital represented by Group (A) shares the actual amount of the capital represented by Group (B) shares, and the 5/6 (five sixth) amount of the capital represented by Group (C) shares shall be taken as the basis, and, total dividends to be paid to the three Groups of shares shall be calculated separately in the distribution of the second dividend. e) The amount that needs to be added to the statutory reserve under paragraph 2/c of Article 519 of the Turkish Commercial Code, shall be set aside. f) The General Assembly shall, upon proposal of the Board of Directors, decide whether the balance remaining after the distribution and allocation of the net profit as specified above shall be transferred to the extraordinary reserve funds, or carried over to the following year, or up to 80% of such amount be distributed to the shareholders by dividing of the same by the number of shares and the remaining balance be transferred to the extraordinary reserve funds or carried over to the following year. In the calculation of the dividends to be paid to all three Groups of shares; group A shares will be considered as 40 times the share quantity, due to the reason that 20 Group (A) shares each with a nominal value of TL 500 (this amount is related to the period prior to the Law regarding the Monetary Unit of the Turkish Republic (No:5083) on which the rate of change has not been applied) have been changed with 1 Group (A) share with a nominal value of 1 Kurus, Group B shares will be considered as 1.5 times of the share quantity, and Group C shares will be considered as the same quantity." The dividends are distributed within the scope of the related legislation in a manner and at a time determined by General Assembly. Summary Report of the Board of Directors Esteemed Shareholders, welcome to our Bank's 98th Annual General Meeting. As we present the Board of Directors' Report, the Balance Sheet and the Income Statement covering the results of our activities in fiscal year 2021 for your review and approval, we respectfully greet all of you here today. In 2021, the global economy displayed a rapid recovery thanks to the continued support of economic measures and vaccinations which lessened the impact of the pandemic despite new variants of the Covid-19 virus. Supply shortages and disrupted supply chains, which emerged as a result of this rapid recovery while the pandemic conditions persisted, as well as rapidly increasing commodity prices due to the problems caused by climate change, caused inflationary pressures to reach alarming levels on a global scale. With the support of strong domestic demand, export growth and investments, the Turkish economy is estimated to have reached double-digit growth in 2021, exceeding the expectations from the beginning of the year by a large margin. We also observed improvements in budget indicators and the external balance outlook throughout the year. On the other hand, the inflation levels rapidly deteriorated with the impact of global inflationist pressures, fluctuations in financial markets and the strong trend of economic activity. The CBRT maintained its tight monetary policies until September but started a cycle of interest rate cuts as the tight monetary stance had caused commercial loans to shrink even more than anticipated. Therefore, loan growth showed signs of recovery during the last quarter of the year. As of year-end 2021, TL loans in the banking sector, excluding participation banks, grew by 20.6% compared to year-end 2020. The volume of FX loans in USD terms, which had also performed poorly during recent years, decreased by 7.2% in parallel with the continued trend of reducing FX debts. The total loan volume increased by 36.1% in 2021 with the impact of rising exchange rates. The volume of FX deposits increased by 78.4% compared to year-end 2020 with rising exchange rates, while the volume of TL deposits grew by 19.9% during the same period. Thus, the total volume of deposits increased by 51.5% during the year. As of 31.12.2021, compared to the end of the previous year, • The amount of our loans reached TL 493.4 billion with a 42.9% increase, •The amount of our deposits reached TL 595.6 billion with a 61.5% increase, •Our total assets reached TL 926.6 billion with a 56.0% increase, and •The amount of our shareholders' equity reached TL 86.8 billion with a 28.1% increase. Thanks to its stable growth policy and effective risk management practices in loan allocation processes, our Bank achieved an NPL ratio of 4.1% at the end of 2021. At the same time, İşbank maintained its leadership among private banks in terms of the total amount of deposits in 2021 and continued to make use of non-deposit funding sources in domestic and foreign markets in order to diversify funding sources and extend the maturity structure of its liabilities by taking funding costs into consideration. The Bank preserved its strong capital structure throughout the year, with a capital adequacy ratio of 20.4%, well above the regulatory limit, as of year-end 2021. The Bank achieved a net profit of TL 13.5 billion in 2021 with a return on equity and return on asset ratio of 18.4% and 1.9%, respectively. Our Esteemed Shareholders, We hereby submit our Annual Report, Balance Sheet and Income Statement pertaining to our activities during 2021 for your review and approval. We would like to take this opportunity to express our gratitude to our stakeholders for their steadfast trust in our Bank, to the institutions of the Republic of Turkey for their support, and to our employees for their dedicated efforts. We extend our respects to you, our valued shareholders, for having honored this General Meeting with your attendance. İŞBANK BOARD OF DIRECTORS 188 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 189 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Annual General Meeting: As per the resolution of the Board of Directors of İşbank, the Annual General Meeting of the Bank will be held at 14:00 on 25 March 2022, Friday in the İş Kuleleri Headquarters Auditorium, 34330 Levent- İstanbul. Agenda of the Annual Meeting 1. Opening Ceremony, establishment of the Council of Chairmanship 2. Discussion of 2021 Annual Report of the Board of Directors, Financial Statements, the Independent Auditors' Reports and ratification of the Annual Report of the Board of Directors and Financial Statements 3. Discharge of the Board of Directors from their responsibilities for the transactions and accounts of the year 2021 4. Determination of the method and date of allotment of dividends to be distributed, which is permitted by the BRSA based on our Bank's application. 5. Determination of the allowance for the members of the Board of Directors 6. Selection of the Independent Audit Company 7. Permitting the Members of the Board of Directors as per articles 395 and 396 of the Turkish Commercial Code 8. Presenting information to the shareholders on the subjects held in Capital Markets Board Corporate Governance Communique principle no. 1.3.6 9. Presenting information to the shareholders about the donations Profit Distribution Offer As a result of our activities in 2021, our Bank's net profit for the period was TL 13,467,894,852.06. On the other hand, the Bank has prior years’ profit in the total amount of TL 5,414,585,931.21 which results from the application of the TFRS 9 – Financial Instruments reporting standard and stems from the equity method specified in the TAS 27 – Separate Financial Statements accounting standard and emerged due to sales of some of our fixed assets which were monitored in accordance with the TAS 16. As a portion of the net profit for the reporting year is distributed to the Bank's employees pursuant to article 58 of the Bank's Articles of Association, we have an amount of TL 360,000,000.00 set aside in 2021 for dividends to be distributed to the Bank's employees within the framework of the TMS 19 - Employee Benefits accounting standard by taking into consideration our dividend distribution policy, prior practices and the applicable legislation. Accordingly, it is proposed as follows: • the accounting profit making the basis of the distribution be determined as TL 18,882,480,783.27 by adding prior years' profit of TL 5,414,585,931.21 to the net profit for the period, • out of the accounting profit, the portion in the amount of TL 35,131,743.00 arising from the earnings on disposal of real estates be transferred to relevant reserves to be maintained in a specific fund account and for conversion into capital when needed by the Board of Directors in order to benefit from the exclusion provisions set out in article 5 of the Corporate Tax Law no. 5520; and the portion of TL 108,473,520.00 be set aside as a venture capital fund to be allocated to venture capital investment trusts and funds, • the portion in the amount of TL 360,000,000.00, which was set aside for dividends to be distributed to the Bank's employees, be added to the distributable amount, • based on the distributable amount so formed, 10% thereof that needs to be set aside as first extraordinary reserves be increased within the frame of the provisions of the Banking Law and the Turkish Commercial Code and a total of TL 10,056,519,454.58 be set aside as first extraordinary reserves, and the distributable amount of TL 19,098,875,520.27, which includes the first extraordinary reserves mentioned above, be distributed as follows and the remaining amount of TL 33,266,732.16 after distribution be set aside as extraordinary reserves pursuant to the provisions of applicable legislation and Article 58 of the Articles of Association of İşbank. PROFIT FOR THE PERIOD PRIOR YEARS' PROFIT NET ACCOUNTING PROFIT UNDISTRIBUTED PROFIT ADDED TO DISTRIBUTION DISTRIBUTABLE PROFIT I. FIRST DISTRIBUTION (Articles of Incorporation Art. 58/a-b) - 5% Legal Reserves - First Extraordinary Reserves - First Dividends To Group A Shares To Group B Shares To Group C Shares II. SECOND DISTRIBUTION (Articles of Incorporation Art. 58/c-d-e) - To Founder Shares - 20% to the Bank Employees - 10% Legal Reserves - 10% Second Extraordinary Reserves - Second Dividends To Group A Shares To Group B Shares To Group C Shares III. THIRD DISTRIBUTION (Articles of Incorporation Art. 58/f) - Third Dividends To Group A Shares To Group B Shares To Group C Shares - 10% Legal Reserves TL 13,467,894,852.06 5,414,585,931.21 18,882,480,783.27 - 143,605,263.00 360,000,000.00 19,098.875,520.27 17,301,470.031.80 1,797,405,488.47 1,520,182,720.46 277,222,768.01 243,956,035.85 33,266,732.16 954,943,776.01 16,076,526,255.79 60.00 1,740.00 269,998,200.00 9,985.59 359,481,097.69 125,949,288.33 179,740,548.85 540.00 6,960.00 854,994,300.00 7,884.91 8,574.85 221,761,754.65 22,177,821.44 Provided that the above proposal is accepted by the General Assembly, dividend payout to the Bank's shareholders will commence on 29.03.2022, and gross profit shares shown in the table below will be distributed to each share group with a nominal value of TL 1 and to each founder share: Type of Share To Group A shares with a nominal value of TL 1 To Group B shares with a nominal value of TL 1 To Group C shares with a nominal value of TL 1 To each Founder Share Gross TL 8.4849100 0.5956845 0.2992807 4.0624858 190 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 191 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen We Take Responsibility for Future Generations As one of the leading banks in Turkey, İşbank plays a pioneering role in building a better society. We take responsibility for future generations by contributing to the national economy and undertaking long-term social responsibility projects. İşbank undertakes various projects in the fields of education, the environment and culture-art in order to share the added value it creates through its main field of activity with society as much as possible. Social investment programs, including the Bank's corporate social responsibility projects, are executed under the supervision of the Corporate Social Responsibility. Committee, which directly reports to the Board of Directors. İşbank ensures effective stakeholder engagement in its social responsibility projects by bringing together different groups of stakeholders, including especially non-governmental organizations. Such projects are designed to contribute to the Sustainable Development Goals and address the needs of society. Material Issues Corporate Social Responsibility Risks • Loss of reputation • Reduced brand awareness among younger generations Related Capital Element Social-Relational Capital Opportunities • Being a trusted bank in the eyes of stakeholders and society with projects developed in line with society's needs • Projects aligned with the UN Sustainable Development Goals • Direct communication with customers thanks to increased financial literacy • Contribution to corporate reputation Contributed SDGs KEY PERFORMANCE INDICATORS 2018 2019 2020 2021 Contribution to equal opportunities in education 81 Students from 81 Cities Including graduates, the number of students is close to 700. With the 54 students who graduated in 2019, the number of students is nearly 750. In 2020, the total number of graduates reached 231. Supporting the upbringing of generations who read and question, and supporting the cognitive and cultural development of children: "Show Your Report Card, Get Your Book" Campaign - the number of books donated Supporting the upbringing of generations who read and question, and supporting the cognitive and cultural development of children - Book donations to schools - the number of books sent to schools and libraries With the 11th campaign, a total of 13 million books have been donated to primary school students to date. With the 12th campaign, a total of 14 million books have been donated to primary school students to date. More than 52 thousand books were sent to 2,844 schools and libraries. More than 58 thousand books were sent to 3,116 schools and libraries. The 13th campaign was transferred to digital format within the framework of COVID-19 measures, and 4 electronic books were donated. As a result of the pandemic, more than 22 thousand books were sent to more than 1,200 schools and libraries. In 2021, the number of graduates reached 296. The 14th campaign was held as a hybrid campaign within the framework of COVID-19 measures. In addition to the 3 electronic books donated, 1 book was also printed in a limited number. The number of books sent to schools reached 31,615 books which were distributed to 1,734 schools as of year-end 2021. TARGETS Realization in 2021 Realization Targets for 2022 and Beyond Continuing the "Show Your Report Card, Get Your Book" campaign on digital platforms as well due to the Covid-19 pandemic in 2021 Due to COVID-19, it was deemed risky for students to go to our branches, and the project was moved to the digital platform. In addition to the 3 electronic books donated, 1 book was also printed in a limited number. Continuing the "81 students from 81 cities" campaign with the students attending Darüşşafaka and bachelor's degree scholarship holders The total number of our graduates reached 296. The Bank plans to continue the campaign in a hybrid model in 2022 as well, within the framework of COVID-19 measures. The project is still ongoing. İşbank aims to contribute to social development through its social responsibility projects planned to be carried out in a sustainable manner for long-term and widespread access. İşbank makes strong investments in today and in the future and creates permanent value through projects in the fields of training, the environment and culture- art. The Bank will continue its social investment programs where it can create a positive impact in the following periods. 192 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 193 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen PROJECTS in the EDUCATION FIELD Being aware of the effective role of education in ensuring the permanence of social development İşbank carries out inclusive long-term projects in the field of education. The Bank's purpose is to contribute to the education of new generations who embrace the principles of Atatürk and will move our nation up among the ranks of modern societies. Chess İşbank contributes to chess education to make it a popular and easily accessible sport. The Bank became the main sponsor of the Turkish Chess Federation (TSF) in 2005 to help transform chess into a popular sport across the country. İşbank Chess Classes Chess classes are set up in primary and secondary schools to encourage children to play chess, draw the attention of teachers and parents to this sport and eliminate the lack of equipment in schools with limited resources. As of 2021, the total number of chess classes opened in schools reached 30,000.. Main Sponsorship of the Northern Cyprus Chess Federation In addition to being the main sponsor of TSF, İşbank has also been a sponsor of the Northern Cyprus Chess Federation (KKSF) since 2013. After the sponsorship, chess started to take place as a club activity once a week in primary schools in the Turkish Republic of Northern Cyprus (TRNC). All schools in the TRNC have chess classes. Turkish Juniors, Youth and Veterans Chess Championship The "Turkish Juniors and Youth Chess Championship", which is normally held in Antalya in January every year, was held in the Konya - Selçuklu Congress Center between 27 August - 3 September 2021. A total of 1,371 players, including 420 players in the youth category and 951 players in the juniors category, competed at the 2021 Turkish Juniors and Youth Chess Championship. 220 players joined the talent pool of the national chess team as a result of their success at the championship. Players from each age category who ranked high at the championship have earned the right to join the Turkish national teams. Within the framework of the preventive measures implemented due to the coronavirus pandemic, the School Sports Chess Championships were held as a hybrid competition. Turkish Chess Federation Main Sponsorship Following İşbank's main sponsorship of the Turkish Chess Federation, the numbers below have increased: Licensed players from 30,000 to 1,040,216 Chess trainers from 2,000 to 87,054 Chess tournaments from 400 to 12,000 Chess clubs from 600 to 2,205 Title-holders from 6 to 209 Arbiters from 1.738 to 11.726 Total number of medals won 527 In chess tournaments, a total of 27 world championships, 32 second place awards, 39 third place awards, 73 European championships, 69 European second place awards, and 61 European third place awards have been won so far. 81 Students from 81 Cities With the mission of "equal opportunity in education", Darüşşafaka offers children who have lost their mother and/ or father and who have insufficient financial means a quality education under modern conditions from fifth grade to the last year of high school with full scholarship and boarding. With the "81 Students from 81 Cities" project initiated in the 2008-2009 academic year in cooperation with Darüşşafaka, İşbank implemented one of the most comprehensive and long-term projects in the field of education in the country. The education expenses of all students included in the program within the scope of the project are covered by İşbank. Within the scope of the project, at the end of the 2020-2021 academic year, 65 students graduated from the school in this 13th term, and the total number of graduates reached 296. İşbank continues to support students who graduated from Darüşşafaka and passed the university entrance exam under the 81 Students from 81 Cities Project. In addition, within the scope of Koç University's "Anadolu Scholarship Holders" program, the education expenses of a certain number of students who graduate from Darüşşafaka each year are covered by İşbank. The total number of students, including the graduates, is approximately 750. One Million Books, One Million Children One Million Books, One Million Children is "Show Your Report Card, Get Your Book", one of the biggest book campaigns in Turkey carried out to date, was launched by İşbank at the end of the 2007-2008 academic year. The campaign was intended to support the development of children's cognitive and cultural abilities, support the bringing up of a generation who reads and, and contribute to cordial communication between İşbank and children at an early age. The campaign, which was held for the 14th time at the end of the 2020-2021 academic year, was transferred to the digital platform within the scope of coronavirus measures. 3 books were presented to children through the Kumbara Magazine: Bambi, Kayıp Dünya, and İklim Hakkında Konuşalım. In addition, a limited number of books were printed in the Braille alphabet and sent to schools providing education for the visually impaired. For children in regional boarding schools, affection houses, closed youth prisons and juvenile reformatories, a selection of the works published by İşbank’s Cultural Publications and other children's books were provided within the scope of the campaign. Book donations to schools and libraries As part of our social responsibility activities in contribution to education, books published by İş Bankası Kültür Yayınları are sent to schools and public libraries throughout Turkey. In 2021, nearly 32 thousand books were delivered to approximately 2 thousand schools and libraries. Kumbara Magazine (Kumbara Dergisi) The magazines "Kumbara" and "Mini Kumbara", which are prepared with two different contents for 3-6 and 7-14 age groups to provide high-quality, instructional and entertaining content to children, are published digitally. In Kumbara Magazine, which is the main channel of the One Million Books, One Million Children campaign, entertaining content prepared in cooperation with İş Sanat and additional content such as a game called “Piggy Bank Adventure", "Science Heroes Series", "Fun Experiments" and "Arduino" have been published in order to teach financial literacy to children. Golden Youth Award Every year since 1971, students who are successful in the university entrance exam are rewarded with the "Golden Youth" award by İşbank. The number of students, who have received awards to date, exceeded 3,700. The number of students who have been awarded so far has exceeded 3,700. Artificial Intelligence Application and Research Center The "Artificial Intelligence Application and Research Center" was established in cooperation with İşbank and Koç University in order to contribute to the scientific and academic activities of our country and to carry out advanced studies in the field of artificial intelligence, which is of great importance worldwide. In the Artificial Intelligence Center established under the roof of Koç University Faculty of Engineering, Koç University faculty members train experts for industry and academia, as well as work to solve the problems of the business world. Infectious Diseases Application and Research Center During the COVID-19 pandemic, which affected the world and our country, İşbank and Koç University entered into an important cooperation and pioneered the establishment of the "Infectious Diseases Application and Research Center" in order to contribute to the scientific and academic activities of our country in the field of public health. Established within Koç University with the support of İşbank, the center is intended to contribute to the scientific activities of our country in the field of public health, conduct research on infectious diseases, provide diagnosis and treatment solutions for diseases and develop prevention methods. The center, which undertakes coordinated projects among the Faculty of Medicine, Engineering, Science, Economics and Administrative Sciences and Humanities Faculties within Koç University, carries out its activities at the Koç University Hospital in Topkapı. 194 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 195 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen PROJECTS in the ENVIRONMENTAL FIELD PROJECTS in the CULTURE and ART FIELD İş Bankası contributes to the enrichment of culture and art in Turkey. İşbank Cultural Publications offers books and other publications with rich content and high-quality print. On the other hand, art and museum activities have been continued within İş Sanat since 2017. İş Sanat is one of the leading arts organizations of Turkey with its on-stage and music events, activities in the field of plastic arts and historical studies. The Bank also supports projects that are aimed to unearth the archaeological heritage of Turkey, introduce it to the youth and preserve it for the future. Kültür Yayınları Türkiye İş Bankası Kültür YayınlarQuality publishing, contribution to the development of Turkish language and helping children develop the habit of reading at an early age are the main principles of Türkiye İş Bankası Kültür Yayınlar. Within this context, more than 18 million books were presented to readers in 2021. İş Sanat In its 21st season, İş Sanat prepared an online program consisting of artists from our country, taking into account the importance of solidarity in combating the difficulties of the period. Many activities ranging from classical music concerts to local projects, story and poetry recitals, fairy tale theaters, from theater readings to virtual exhibitions were performed. The events recorded in İş Towers Hall are available on İş Sanat's social media accounts. During this season, which started with the İstanbul Ensemble concert on 5 November 2020 and consisted of online events only, 49 music events received 17,831,910 views, 80 literature events attracted 12,120,213 views, and 123 regular contents received 2,524,164 views. Whilst the pandemic conditons eased, people met face-to-face in the open air in front of the İş Towers Kibele Statue as part of the "Happy Hour Friday " activities in autumn. Whereas the 22nd season was prepared with a hybrid approach, and both stage and online events were planned as part of the program. Kibele Art Gallery and Ankara Art Gallery Kibele Art Gallery and Ankara Art Gallery host exhibitions of master artists in the field of plastic arts. No gallery exhibition was planned to be hosted during the 2020-2021 season as per the pandemic measures. At the end of 2021, Kibele Art Gallery and Ankara Art Gallery opened the new season with Beril Anılanmert's exhibition "Logbook" and Soner Genç's exhibition "Treasure of Time", respectively. Mimar Sinan Fine Arts University, Fine Art Conservation and Restoration Laboratory In the "Fine Art Conservation and Restoration Laboratory", which was established in cooperation with Mimar Sinan Fine Arts University to support academic studies on the restoration and conservation of artworks and to contribute to the training of a qualified workforce, maintenance and repair works are carried out on the works in the İşbank Art Collection. In addition, within the scope of the cooperation, an undergraduate program of Fine Art Conservation and Restoration was established within the university in the 2013-2014 academic year and the department continues its educational activities. Contributions in the Field of Archaeology İşbank provides support for archaeological excavations in order to unearth the rich archaeological heritage of Turkey and preserve and reintroduce it to world cultural heritage. In this context, the contribution provided to the "House of Muses" excavations in Zeugma Ancient City in Nizip, Gaziantep started in 2012 and the works were completed in October 2019. In 2021, the Bank made the decision to provide financial support for the roof project planned for the House of Muses. İşbank has been contributing to the "Patara Ancient City" excavations in Kaş, Antalya, together with its subsidiaries Şişecam and Turkish Industrial Development Bank since 2016. As the Year of Patara was extended into 2021, we have extended the duration of our support to this ancient city for 2 more years. We have been supporting the excavations in the Dionysos Temple in "Teos Ancient City" in Seferihisar, Izmir, since 2018 and the excavations of Sütunlu Cadde (column-lined street) in "Nysa Ancient City" in Sultanhisar, Aydın since 2019. For the New Year 2022, the book titled Teos: Inscriptions, Cults and Urban Fabric was authored with Prof. Musa Kadıoğlu as editor. As of 2021, the Bank has decided to support the Stratonikeia Ancient City and Yesemek Hittite Statue Workshop and Islahiye-Nurdağı Region Surface Research. We believe that the archaeological assets to be discovered with the financial support of the bank will not only shed light on the history of civilization in Anatolia, but will also be a great contribution to world heritage. The Bank is also carrying out various communication activities. Within the scope of music events, dance events were held in Patara and Tragedia events were held in Teos, which were made available for online viewers. The Bank has provided financial support to the Istanbul Archaeology Museums for the 18th Istanbul Archaeology Museums Yearbook. İşbank develops various projects in cooperation with non-governmental organizations to create a better world to live in, draw attention to environmental problems associated with deforestation, and ensure the development of environmental awareness in society, especially among children. Nature Education Programs TEMA Foundation's Nature Education Programs are supported with the revenues obtained from the İş Asset Management TEMA Variable Fund -Turkey’s first environmental fund offered by İşbank and its subsidiary İş Portföy. "Nature Education Programs", which are defined as "Mini TEMA" for preschool children and "Junior TEMA" for elementary school-age children, are ecological literacy trainings prepared by the TEMA Foundation for children to spend time in nature, and observe and discover nature by feeling, touching, smelling and hearing. In the 2021-2022 academic year, within the scope of nature education programs, approximately 200 thousand children were reached in 81 cities. Within the scope of the Mini TEMA Nature Education Program, 75,134 children from 2,475 schools benefited from environmental education with the support of 5,405 volunteer teachers. Within the scope of the Junior TEMA Nature Education Program, 100,235 children from 1,787 schools benefited from environmental education with the support of 3,979 volunteer teachers. Additionally, nearly 88,940 children were reached through the education portal. Within the scope of Mini TEMA and Junior TEMA Education Programs, children from 175,369 4,262 Schools benefitted from environmental education with the support of 9,384 volunteer teachers. 196 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 197 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen MUSEOLOGY AND HISTORY STUDIES İşbank Museum (Yenicami, Istanbul) Since opening its doors in November 2007, İşbank Museum has been telling and presenting the long-established corporate history of the Bank as well as the economic development of Turkey through banking equipment, documents, communication tools, photographs, advertising-promotional materials and films. The Museum, which had been closed for visits on 20 November 2020 as part of pandemic measures, opened its doors again on 8 June 2021. On 28 October 2021, the exhibition titled “After a Century / Fronts, People and Great Victory” was opened for visitors. Nearly 20 thousand people have visited the exhibition since its launch. Inspired by the 2 medals previously donated to our museum, we invited the general public to lend their memorabilia from the time of the National Struggle and war medals of their family elders to be displayed in the İstiklal (Independence) exhibition. A special area was prepared within the exhibition for 285 medals that were borrowed. The total number of visitors in 2021 reached 31,653, while the total number of visitors since the opening of the Museum reached 1,855,733. İstiklal Exhibition Towards the 100th Anniversary of the Great Victory The İstiklal Exhibition, which was originally opened within İşbank Museum in 2019, was expanded with İzmir-specific additions and re-opened for visitors at İzmir Kültürpark Atlas Pavilion on 30 August 2021. The exhibition will be open until 9 September 2022, which commemorates the 100th anniversary of the liberation of İzmir. İşbank Museum of Economic Independence (Ulus, Ankara) İşbank transformed its historical building in Ulus, Ankara, which had served for many years as the bank's third Head Office building, into a museum in order to share with the public its experience, which is of great importance in terms of national economic history. The historical Ulus building, one of the capital's landmarks, was opened in 2019 as the "İşbank Museum of Economic Independence" to host documents and memories of the country's economic independence and development process. While there are permanent exhibitions on the ground, 1st and 2nd floors of the museum, the İş Sanat Ankara Gallery is on the 3rd floor, temporary exhibition halls are on the 4st floor and an event hall is on the 5st floor. Temporary exhibition halls host the exhibition titled "Independence in the 100th Anniversary of the War of Independence", a part of which was opened in Istanbul. The Museum was closed to visitors three times during the year as per the pandemic measures. The number of visitors reached 19,818 in 2021, while the total number of visitors reached 103,830. A documentary about the building's history and opening of the Museum was filmed on 26 August. Preparations for the Art Museum The restoration of the Art Museum building, which started in 2020, continued in 2021 as well. Prof. Gül İrepoğlu, Prof. Rahmi Aksungur and Burçak Madran were assigned as founding curator, plastic arts consultant and museological consultant, respectively, during this period. The exhibition hosted more than 50 thousand visitors from its opening date to the end of the year. Istanbul Foundation for Culture and Arts - International Istanbul Music Festival The Bank sponsored the Festival Orchestra & Hande Küden concert which was performed in the courtyard of St. Benoit high school on 31 August 2021 as part of the 49th International Istanbul Music Festival. 198 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 199 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen SPECIAL SECTION: COMBATING THE COVID-19 PANDEMIC v The year 2021 was an extraordinary year in terms of Business Continuity Management activities all around the world due to the impact of the coronavirus pandemic. Thanks to its technological investments and digitalization projects, İşbank was able to take quick action during the pandemic and allowed its employees to work remotely in a secure manner. During this challenging period, including especially the full lockdowns in 2021, business continuity measures were taken which covered the Head Office, Regional Directorates and Branches, and the remote working practices which began in 2020 continued in 2021. Business continuity practices • As part of the pandemic measures, computers prepared in advance to allow information systems to function properly were quickly delivered to related branches and employees by our field and planning teams. • 2,875 notebooks and 161 SIM cards were supplied to the Head Office Divisions. • For our branches, a total of 3,639 notebooks were allocated, with an additional 641 notebooks being supplied in 2021, to meet their requirements as per remote working arrangements. Thus, the percentage of employees who were provided with a notebook for use when working remotely reached 52%. Additionally, 86% of the Head Office employees were provided with the necessary hardware and equipment for remote working. • 55” LCD screens were installed in 50 branches, and main queue screens were installed on branch displays at • 200 branches so that customers could wait outside the buildings without needing to go inside to check the queue. • Software and ultrasonic sensor equipment were developed which allowed customers to take their tickets without touching the queue management kiosks. • The notebooks owned by the Bank were prevented from accessing the internet when used outside the bank's network without a VPN service, and development activities started to ensure that the traffic would go through the bank's security devices after a VPN connection was established. • This prevented notebooks from connecting to unsecure networks. • As part of YNÇM, the Bank invested in VDI licenses and infrastructure in order to ensure that the divisions working remotely could work with virtual clients in a more secure and sustainable environment, instead of establishing remote desktop connections to physical computers. • Teleconferencing software was enhanced with Jabber Softphone, virtual conference rooms and Zoom app solutions so that collaborative meetings with a large number of participants could be seamlessly held. Work life practices • As the Coronavirus pandemic began to impact the entire world in early 2020, the Bank focused on pandemic measures and follow-up activities by prioritizing the health of employees and their families as part of its Occupational Health and Safety practices. • The Bank put a comprehensive set of measures in place by reviewing and taking into consideration the practices and recommendations of the World Health Organization, the Ministry of Health of the Republic of Turkey, and Infectious Diseases Associations as well as other countries, organizations and institutions. • Employees were constantly informed about the pandemic and measures through videos and announcements, and thousands of questions and notifications conveyed by employees through the Bank's internal communication channels such as e-mail, phone, Maximo, Corona Pandemic Line and "I Have a Suggestion" were answered. • All employees who tested positive for COVID-19 were closely monitored, and the necessary measures and actions were taken to ensure that other employees working at the same Branch/Region/Head Office buildings as the infected employees were not negatively affected, and the course of the pandemic was reported on a regular basis. • A digital system was soon put in place that allowed reporting and monitoring of the current status of our employees in terms of COVID-19 infection via the system. • Emergency action plans of all branches and buildings were renewed, and pandemic risk assessment reports and pandemic plans were prepared. • In 2021, the "New Practices in the Banking Sector Introduced During the COVID-19 and Post-COVID-19 Period", "Everyone Is Their Own Hero" and "Resilience" trainings were provided. • Under the pandemic, all training activities have been rapidly adapted to the new conditions. As of early March 2020, all classroom trainings began to be offered as live digital trainings (via platforms such as Zoom and Webex). (However, some trainings such as Basic First -aid, First Aid Refresher, and Private Security Refresher trainings continued to be provided in a classroom environment due to legal requirements). • In addition to the digital trainings "Cyber Security Measures at Home" and "Remote Working Guide" provided to assist our employees as they worked outside the office in 2020, the digital training "Remote Connection Methods" providing the directions and workflow steps to ensure our employees could securely connect to the Bank's systems was also made available to our employees as remote working practices were widely adopted in 2021. • The digital training "Basics of JIRA" was also made available to our employees to provide them with information about the use of the "JIRA" application which helped teams to carry out business processes and meet project schedules in a collaborative way regardless of their location. • During the pandemic, “Increasing Our Psychological Resilience", "Managing Our Anxiety", “Being a Parent While Working Remotely", "Managing Time Quality", “Managing Emotions”, "Tips for Effective Communication and Motivation" and "Emotional Resilience" video trainings were presented to the employees through the Learning World/İşTube. • "Remote Team Management" training, which provides information about communication, contact, motivation, delegation and task follow-up with a team when working remotely, will continue to be given to Head Office managers in order to ensure efficient use of İşbank's remote working model. • The Bank is working with related stakeholders to evaluate and review remote access privileges and the systems accessed, and to minimize the information security risks associated with remote working by developing alternative solutions. The trace records created by endpoint protection solutions installed in corporate computers and the operating system security warnings are sent to the central trace record tracking system. This data is then reviewed by the Security Defense and Intelligence Center (GİSM) to detect possible security issues. To ensure continuity of this data flow, IT teams are working on changing/improving the design of remote access. Measures taken since the onset of the pandemic: • Our employees began to work remotely in rotation. • Remote and hybrid work models and flexible working hours were put in place as a pilot program as per the business requirements of the Head Office Divisions. • Remote and hybrid work models were put in place at some branches as a pilot program. • An unlimited supply of masks, gloves and hand sanitizers were provided to protect the health of our employees. • Acrylic panels were installed in dining halls and branches to protect our employees and customers against transmission. • Home internet services were provided for our call center employees. • Proper nutrition training was given to our employees as a preventive health measure. Support Provided to Customers • In the field of personal banking, to support the economy and households during the pandemic, customers with an overdraft account were given the ability to defer interest charges until September 2021. • In the field of agricultural banking, a special POS provision was created to support the beekeepers affected by forest fires by allowing the beekeepers in Muğla and Aydın to purchase materials with zero interest applied. For farmers affected by the drought, debt deferral arrangements were provided. • As part of a loan agreement signed by and between İşbank and the European Bank for Reconstruction and Development (EBRD), the Bank was granted resources worth USD 54 million to lend to its customers in order to help alleviate some of the economic hardships caused by the COVID-19 pandemic. Each firm that met the loan package criteria could benefit from the COVID-19 Solidarity Loan to borrow a maximum of USD 100,000 or equivalent amount in Euro or TL. • Deferral/restructuring requests for commercial loan payments were evaluated with due care in order to limit the negative effects of the pandemic on customers, and such requests were accepted to the maximum extent possible to achieve customer satisfaction. 200 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 201 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Maslak Mah. Eski Büyükdere Cad. Orjin Maslak İş Merkezi No:27 K:2-3-4 34485 Sarıyer/İstanbul TÜRKİYE INDEPENDENT AUDITOR’S REPORT To the Shareholders of Türkiye İş Bankası Anonim Şirketi: Audit of Unconsolidated Financial Statements Qualified Opinion We have audited the accompanying unconsolidated financial statements of Türkiye İş Bankası A.Ş (the Bank), which comprise the statement of balance sheet as at December 31, 2021, and the unconsolidated statement of income, unconsolidated statement of profit or loss and other comprehensive income, unconsolidated statement of changes in shareholders’ equity and unconsolidated statement of cash flows for the year then ended and notes to the unconsolidated financial statements, and a summary of significant accounting policies and other explanatory information. In our opinion, except for the effects of the matter on the unconsolidated financial statements described in the Basis for Qualified Opinion paragraph, the accompanying unconsolidated financial statements present fairly, in all material respects, the unconsolidated financial position of Türkiye İş Bankası A.Ş. as at December 31, 2021 and financial performance and unconsolidated its cash flows for the year then ended in accordance with the prevailing accounting principles and standards set out as in accordance with “Regulation on Accounting Applications for Banks and Safeguarding of Documents” published in the Official Gazette no.26333 dated November 1, 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. Basis for Qualified Opinion As explained in Section Five Part II-i.4.5 and IV.f, the accompanying unconsolidated financial statements as at December 31, 2021 include a free provision at an amount of TL 4,075,000 thousands of which TL 2,875,000 thousands was provided in prior years and TL 1,200,000 thousands provided in the current period by the Bank management for the possible effects of the negative circumstances which may arise from the possible changes in the economy and market conditions which does not meet the recognition criteria of “Turkish Accounting Standard” (TAS) 37 “Provisions, Contingent Liabilities and Contingent Assets”. Our audit was conducted in accordance with “Regulation on independent audit of the Banks” published in the Official Gazette no.29314 dated April 2, 2015 by BRSA (BRSA Independent Audit Regulation) and Independent Auditing Standards (“ISA”) which are the part of Turkish Auditing Standards issued by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with of Code of Ethics for Independent Auditors (Code of Ethics) published by POA and have fulfilled our other 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 qualified opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the unconsolidated financial statements of the current period. Key audit matters were addressed in the context of our audit of the unconsolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Basis for Qualified Opinion section we have determined the matters described below to be the key audit matters to be communicated in our report. Türkiye İş Bankası Anonim Şirketi Unconsolidated Financial Statements As at and For the Year Ended December 31, 2021 With Independent Auditor’s Report Thereon This report includes “Independent Auditor’s Report” comprising 6 pages and; "Unconsolidated Financial Statements and Related Disclosures and Footnotes” comprising 119 pages. Convenience Translation of the Independent Auditors’ Report Originally Issued in Turkish (See Note I in Section Three) 202 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 203 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT Key Audit Matter How the Key Audit Matter is addressed in our audit Pension Fund Obligations TFRS 9 “Financial Instruments” Standard and recognition of impairment on financial assets and related significant disclosures As presented in Section III disclosure VIII, the Bank recognizes expected credit losses of financial assets in accordance with TFRS 9 Financial Instruments standard. We considered impairment of financial assets as a key audit matter since: • Amount of on and off-balance sheet items that are subject to expected credit loss calculation is material to the financial statements. • There are complex and comprehensive requirements of TFRS 9. • The classification of the financial assets is based on the Bank’s business model and characteristics of the contractual cash flows in accordance with TFRS 9 and the Bank uses significant judgment on the assessment of the business model and identification of the complex contractual cash flow characteristics of financial instruments. • The Bank's determines fair value of its financial assets, reflected at fair value in accordance with the relevant business model category, according to Level 3 if there are financial inputs that are not observable in the fair value measurement and that contain significant estimates and assumptions. • Policies implemented by the Bank management include compliance risk to the regulations and other practices. • Processes of TFRS 9 are advanced and complex. • Judgements and estimates used in expected credit loss, complex and comprehensive. • Disclosure requirements of TFRS 9 are comprehensive and complex. Our audit procedures included among others include: • Evaluating the appropriateness of accounting policies as to the requirements of TFRS 9, Bank’s past experience, local and global practices. • Reviewing and testing of processes which are used to calculate expected credit losses by involving our Information technology and process audit specialists. • Evaluating the reasonableness and appropriateness of the key judgments and estimates determined by the management and the methods, judgments, and data sources used in calculating expected losses, taking into account the standard requirements, including the actions taken against the COVID-19 impacts, and the industry and global practices. • Reviewing the appropriateness of criteria in order to identify the financial assets having solely payments of principal and interest and checking the compliance to the Bank’s Business model. • Reviewing the Bank’s classification and measurement models of the financial instruments (financial instruments determined as Level 3 according to fair value hierarchy) and comparing with TFRS 9 requirements • Evaluating the alignment of the significant increase in credit risk determined during the calculation of expected credit losses, default definition, restructuring definition, probability of default, loss given default, exposure at default and macro-economic variables that are determined by the financial risk management experts with the Bank’s past performance, regulations, and other processes that has forward looking estimations. • Evaluating the impact of the COVID-19 outbreak on macroeconomic variables used in credit staging and expected credit loss calculations, together with important forward-looking estimates and assumptions. • Assessing the completeness and the accuracy of the data used for expected credit loss calculation. • Testing the mathematical accuracy of expected credit loss calculation on sample basis. • Evaluating the judgments and estimates used for the individually assessed financial assets. • Evaluating the accuracy and the necessity of post-model adjustments. • Auditing of TFRS 9 disclosures. It has been addressed whether there have been any significant changes in regulations governing pension liabilities, employee benefits plans during the period, that could lead to adjust the valuation of employee benefits. Support from actuarial auditor of our firm, has been taken to assess the appropriateness of the actuarial assumptions and calculations performed by the external actuary. We further focused on the accuracy and adequacy of the Bank’s provision provided for the deficit and also disclosures on key assumptions related to pension fund deficit. Employees of the Bank are members of “Türkiye İş Bankası A.Ş. Mensupları Emekli Sandığı Vakfı”, (“the Fund”), which is established in accordance with the temporary Article 20 of the Social Security Act No. 506 and related regulations. The Fund is a separate legal entity and foundation recognized by an official decree, providing all qualified employees with pension and post-retirement benefits. As disclosed in the “Section Three Note XVII” to the financial statements, Banks will transfer their pension fund to the Social Security Institution and the authority of the “Council of Ministers” on the determination of the mentioned transfer date is changed as “President” in the Decree Law No. 703 published in the Official Gazette numbered 30473 and dated July 9, 2018. According to the technical balance sheet report as at 31 December 2021 prepared considering the related articles of the Law regarding the transferrable benefit obligations for the non- transferrable social benefits and payments which are included in the articles of association, the Fund has an actuarial and technical deficit which is fully provisioned for. The valuation of the Pension Fund liabilities requires judgment in determining appropriate assumptions such as defining the transferrable social benefits, discount rates, salary increases, demographic assumptions, inflation rate estimates and the impact of any changes in individual pension plans. The Bank Management uses Fund actuaries to assist in assessing these assumptions. Considering the subjectivity of key assumptions and estimate used in the calculations of transferrable liabilities and the effects of the potential changes in the estimates used together with the uncertainty around the transfer date and given the fact that technical interest rate is prescribed under the law ,we considered this to be a key audit matter. Derivative Financial Instruments Derivative financial instruments including foreign exchange contracts, currency and interest rate swaps, currency and interest rate options, futures and other derivative financial instruments which are held for trading are initially recognized on the statement of financial position at fair value and subsequently are re-measured at their fair value. Details of related amounts are explained in “Section Five Note I.c.” and “Section Five Note II.b”. Our audit procedures included among others involve reviewing policies regarding fair value measurement accepted by the bank management fair value calculations of the selected derivative financial instruments which is carried out by valuation experts of another entity who are in the same audit network within our firm and the assessment of used estimations and the judgements and testing the assement of operating effectiveness of the key controls in the process of fair value determination. Fair value of the derivative financial instruments is determined by selecting most convenient market data and applying valuation techniques to those particular derivative products. Derivative Financial Instruments are considered by us as a key audit matter because of the subjectivity in the estimates, assumptions and judgements used. 204 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 205 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen INDEPENDENT AUDITOR’S REPORT Responsibilities of Management and Directors for the Unconsolidated Financial Statements Bank management is responsible for the preparation and fair presentation of the unconsolidated financial statements in accordance with the BRSA Accounting and Reporting Legislation and for such internal control as management determines is necessary to enable the preparation of the financial statement that is free from material misstatement, whether due to fraud or error. In preparing the unconsolidated financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Bank’s financial reporting process. Auditor’s Responsibilities for the Audit of the Unconsolidated Financial Statements In an independent audit, the responsibilities of us as independent auditors are: Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with BRSA Independent Audit Regulation and ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with BRSA Independent Audit Regulation and ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the unconsolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. (The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.) • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the unconsolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the unconsolidated financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with government with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the unconsolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements 1) In accordance with Article 402 paragraph 4 of the Turkish Commercial Code (“TCC”) no 6102; no significant matter has come to our attention that causes us to believe that the Bank’s bookkeeping activities and financial statements for the period January 1 – December 31, 2021 are not in compliance with the TCC and provisions of the Bank’s articles of association in relation to financial reporting. 2) In accordance with Article 402 paragraph 4 of the TCC; the Board of Directors submitted to us the necessary explanations and provided required documents within the context of audit. The engagement partner who supervised and concluded this independent auditor’s report is Fatma Ebru Yücel. Additional paragraph for convenience translation to English As explained in detail in Note I of Section Three, the effects of differences between accounting principles and standards set out by regulations in conformity with BRSA Accounting and Financial Reporting Legislation, accounting principles generally accepted in countries in which the accompanying unconsolidated financial statements are to be distributed and International Financial Reporting Standards (“IFRS”) have not been quantified in the accompanying unconsolidated financial statements. Accordingly, the accompanying unconsolidated 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. Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi A member firm of Ernst & Young Global Limited Türkiye İş Bankası A.Ş. The Unconsolidated Financial Report As At And For The Year Ended December 31, 2021 Headquarters Address: İş Kuleleri, 34330, Levent/İstanbul Telephone: 0212 316 00 00 Fax: 0212 316 09 00 Web site: www.isbank.com.tr E-mail: musteri.iliskileri@isbank.com.tr The unconsolidated financial report as at and for the year ended prepared in accordance with the communiqué of “Financial Statements and Related Disclosures and Footnotes to be announced to Public by Banks” as regulated by Banking Regulation and Supervision Agency, comprises the following sections: GENERAL INFORMATION ABOUT THE BANK UNCONSOLIDATED FINANCIAL STATEMENTS EXPLANATIONS ON THE ACCOUNTING POLICIES INFORMATION ON FINANCIAL STRUCTURE AND RISK MANAGEMENT DISCLOSURES AND FOOTNOTES ON THE UNCONSOLIDATED FINANCIAL STATEMENTS OTHER EXPLANATIONS INDEPENDENT AUDITOR’S REPORT The unconsolidated financial statements for the year ended and related disclosures and footnotes in this report are prepared in accordance with the Regulation on the Procedures and Principles for Accounting Practices and Retention of Documents by Banks, “Banking Regulation and Supervision Agency” (BRSA) regulations, “Turkish Accounting Standards”, “Turkish Financial Reporting Standards” and the related statements and guidance and in compliance with the financial records of our Bank. Unless otherwise stated, the accompanying unconsolidated financial report is presented in thousands of Turkish Lira (TL) and has been subjected to independent audit and presented as the attached. Ersin Önder Çiftçioğlu Member of the Board and the Audit Committee Yusuf Ziya Toprak Deputy Chairperson of the Board of Directors and Chairperson of the Audit Committee Adnan Bali Chairperson of the Board of Directors Ali Tolga Ünal Head of Financial Management Division Gamze Yalçın Deputy Chief Executive In Charge of Financial Reporting Hakan Aran Chief Executive Officer The authorized contact person for questions on this financial report: Name – Surname/Title: Neşe Gülden Sözdinler/Head of Investor Relations and Sustainability Division Phone No : +90 212 316 16 02 Fax No : +90 212 316 08 40 E-mail : nese.sozdinler@isbank.com.tr investorrelations@isbank.com.tr Website : www.isbank.com.tr 8 Şubat 2022 İstanbul, Türkiye 206 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 207 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen CONTENT SECTION I General Information about the Bank I. II. III. IV. V. VI. Explanations on the Establishment Date and Initial Status of the Bank, History Including the Changes in the Former Status Explanations on the Capital Structure, Shareholders who Directly or Indirectly, Solely or Jointly Undertake the Management and Control of the Bank, any Changes in the Period, and Information on the Bank’s Risk Group Explanations on the Chairperson’s, Directors’, Auditors’, Chief Executive Officer’s and Deputy Chief Executives’ Shares, if any, and the Areas of their Responsibility at the Bank Information on the Bank’s Qualified Shareholders Summary Information on the Bank’s Functions and Business Lines Existing or Potential, Actual or Legal Obstacles on the Transfer of Shareholder’s Equity Between the Bank and its Subsidiaries or the Reimbursement of Liabilities 210 210 210 211 211 VII. Written Policies on Assessment of Ensuring Compliance on Market Discipline, Disclosure Obligations, Frequency and Accuracy of Related Disclosures 211 SECTION II Unconsolidated Audit Financial Statements I. II. III. IV. V. VI. Balance Sheet (Statement of Financial Position) – Assets Balance Sheet (Statement of Financial Position) – Liabilities Statement of Off-Balance Sheet Items Statement of Profit or Loss Statement of Profit or Loss and Other Comprehensive Income Statement of Changes in the Shareholders’ Equity VII. Statement of Cash Flows VIII. Statement of Profit Distribution SECTION III Explanations on Accounting Policies I. II. III. IV. V. VI. Basis of Presentation Strategy for Use of Financial Instruments and Foreign Currency Transactions Associates and Subsidiaries Forward, Option Contracts and Derivative Instruments Interest Income and Expenses Fees and Commission Income and Expenses VII. Financial Assets VIII. Impairment of Financial Assets IX. X. XI. Offsetting Financial Instruments Sale and Repurchase Agreements and Securities Lending Transactions Non-current Assets Held for Sale and Discontinued Operations and Related Liabilities XII. Goodwill and Other Intangible Assets XIII. Tangible Assets XIV. Leasing Transactions XV. Provisions and Contingent Liabilities XVI. Contingent Assets XVII. Liabilities Regarding Employee Benefits XVIII. Taxation XIX. Borrowings XX. Equity Shares and Issuance of Equity Securities XXI. Bank Acceptances and Bills of Guarantee XXII. Government Incentives XXIII. Segment Reporting XXIV. Other Disclosures 212 213 214 216 217 218 220 221 222 222 223 223 223 223 223 224 225 225 226 226 226 226 227 227 227 228 229 229 229 229 229 229 SECTION IV Information on the Financial Position and Risk Management of the Bank I. II. III. IV. V. VI. Explanations on Shareholders’ Equity Explanations on Credit Risk Explanations on Currency Risk Explanations on Interest Rate Risk Explanations on Equity Shares Risk Arising from Banking Book Explanations on Liquidity Risk Management and Liquidity Coverage Ratio VII. Explanations on Leverage Ratio VIII. Explanations on Other Price Risks IX. X. XI. Explanations on Presentation of Financial Assets and Liabilities at Fair Value Explanations on Transactions Carried Out on Behalf of Third Parties and Fiduciary Transactions Explanations on Risk Management Objectives and Policies XII. Explanations on Segment Reporting SECTION V Disclosures and Footnotes on the Unconsolidated Financial Statements I. II. III. IV. V. VI. Disclosures and Footnotes on Assets Disclosures and Footnotes on Liabilities Disclosures and Footnotes on Off-Balance Sheet Items Disclosures and Footnotes on Statement of Income Disclosures and Footnotes on the Statement of Changes in Shareholders’ Equity Disclosures and Footnotes on Statement of Cash Flows VII. Disclosures and Footnotes on the Bank’s Risk Group VIII. Disclosures on the Bank’s Domestic, Foreign, Off-Shore Branches or Subsidiaries and Foreign Representative Offices IX. Subsequent Events SECTION VI Other Explanations I. Explanations on the Bank’s Credit Ratings SECTION VII Explanations on the Independent Audit Report I. II. Explanations on the Independent Auditors’ Report Explanations and Footnotes of the Independent Auditors Report 230 237 246 248 252 253 258 259 259 261 261 277 279 293 300 302 306 307 308 309 309 309 309 309 208 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 209 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen I. Explanations on the Establishment Date and Initial Status of the Bank, History Including the Changes in the Former Status The Parent Bank’s shares attributable to the Directors and members of the Audit Committee, to the CEO and the Deputy Chief Executives are of minor importance. TÜRKİYE İŞ BANKASI A.Ş. (“the Bank”) was established on August 26, 1924 to operate in all kinds of banking activities and to initiate and/or participate in all kinds of financial and industrial sector undertakings when necessary. There is no change in the Bank’s status since its establishment. IV. Information on the Bank’s Qualified Shareholders II. Explanations on the Capital Structure, Shareholders who Directly or Indirectly, Solely or Jointly Undertake the Management and Control of the Bank, any Changes in the Period, and Information on the Bank’s Risk Group As of December 31, 2021, 37.26% of the Bank’s shares are owned by T. İş Bankası A.Ş. Supplementary Pension Fund (Fund), 28.09% are owned by the Republican People’s Party- CHP (Atatürk’s shares) and 34.65% are on free float (December 31, 2020: Fund 37.08%, CHP 28.09%, Free float 34.83%). III. Explanations on the Chairperson’s, Directors’, Auditors’, Chief Executive Officer’s and Deputy Chief Executives’ Shares, if any, and the Areas of their Responsibility at the Bank Name Surname/Company Shares Ownership Paid-in Capital Unpaid Capital T. İş Bankası A.Ş. Mensupları Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı (İşbank Members’ Supplementary Pension Fund) Cumhuriyet Halk Partisi – Republican People’s Party - (Atatürk’s Shares) 1,676,813 1,264,142 %37.26 %28.09 1,676,813 1,264,142 V. Summary Information on the Bank’s Functions and Business Lines In line with the relevant legislation and principles stated in the Articles of Incorporation of the Bank, the Bank’s activities include operating in retail, commercial, corporate and private banking, foreign currency and money market operations, marketable securities operations, international banking services and other banking operations, as well as initiating or participating in all kinds of financial and industrial sector corporations as may be required. VI. Existing or Potential, Actual or Legal Obstacles on the Transfer of Shareholders’ Equity between the Bank and its Subsidiaries or the Reimbursement of Liabilities None. VII. Written Policies on Assessment of Ensuring Compliance on Market Discipline, Disclosure Obligations, Frequency and Accuracy of the Related Disclosures The Bank has written policies on assessment of ensuring compliance on market discipline, disclosure obligations, frequency and accuracy of related disclosures. The mentioned policies which are agreed by Board of Directors’ can be obtained from the Bank’s website. Chairperson and Members of the Board of Directors: Name and Surname Areas of Responsibility Adnan Bali Yusuf Ziya Toprak Hakan Aran Feray Demir Ersin Önder Çiftçioğlu Fazlı Bulut Durmuş Öztek Recep Hakan Özyıldız Mustafa Rıdvan Selçuk Ahmet Gökhan Sungur Sadrettin Yurtsever Chairperson of the Board of Directors, Remuneration Committee, Chairperson of the Risk Committee, Sustainability Committee and Chairperson of the Board of Directors Operating Principles Committee and the Member of the Credit Committee Deputy Chairperson of the Board of Directors, Chairperson of the Audit Committee, TRNC Internal Systems Committee and Operational Risk Committee, Member of the Risk Committee and Substitute Member of the Credit Committee Chief Executive Officer and Board Member, Chairperson of the Credit Committee, Human Resources Committee and Information Systems Strategy Committee, Natural Member of the Risk Committee, Chairperson of the Executive Committee Director, Member of the Credit Committee, Corporate Governance Committee, Remuneration Committee, Corporate Social Responsibility Committee, Sustainability Committee, and the Member of the Board of Directors Operating Principles Committee Director, Chairperson of the Sustainability Committee, Member of the Audit Committee and TRNC Internal Systems Committee Director, Member of Corporate Social Responsibility Committee and Substitute Member of the Credit Committee Director, Member of Corporate Social Responsibility Committee, and the Member of the Board of Directors Operating Principles Committee Director Director Director Director, Member of Corporate Governance Committee and Corporate Social Responsibility Committee Chief Executive Officer and Deputy Chief Executives: Name and Surname Areas of Responsibility Hakan Aran Yalçın Sezen Murat Bilgiç Nevzat Burak Seyrek Şahismail Şimşek Ebru Özşuca Gamze Yalçın H. Cahit Çınar Ozan Gürsoy Sezgin Yılmaz Sabri Gökmenler Sezgin Lüle Can Yücel Sezai Sevgin Chief Executive Officer and Member of the Board of Directors, Credit Committee, Chairperson of Human Resources Committee and Information Technologies Strategic Committee Natural Member of Risk Committee, Member of Opertional Risk Committee and Chairperson of the Executive Committee Retail Banking Marketing, Sales and Products, Retail Loans, Digital Banking, Member of the Corporate Social Responsibility Committee and Sustainability Committee Corporate Loans, Commercial Loans and Retail Loans Allocation, Project Finance, Member of the Risk Committee and Sustainability Committee Corporate and Commercial Banking Marketing, Commercial Banking Sales, Transboundary Banking, Free Zone Branches, Member of the Sustainability Committee SME and Enterprise Banking Product and Sales, Agricultural Banking Marketing, Commercial Banking Product, Member of Sustainability Committee Treasury, Economic Research, Capital Markets, Member of the Risk Committee Financial Management, Financial Institutions, Investor Relations and Sustainability, Managerial Reporting and Internal Accounting, Information Technologies Strategic Committee, Member of Risk Committee and Sustainability Committee Legal Consultancy, Associates, Member of the Operational Risk Committee Human Resources Management, Strategic and Corporate Performance Management, Member of Operational Risk Committee and Sustainability Committee Banking Base Operations, Agile Management , Support Services, External Operations and Commercial Loan Operations, Construction and Real Estate Management, Corporate Architecture, Member of Operational Risk Committee, Sustainability Committee and Information Technologies Strategic Committee Information Technologies, Data Management, Acquisition, Member of Operational Risk Committee and Information Technologies Strategic Committee Customer Relations Coordination Responsible, Digital Banking, Customer Relations, Card Payment Ecosystems,Card Payment Operations, Card Payment Products and Member of Operational Risk Committee Legal Affairs and Legal Proceedings, Commercial and Corporate Loans and Retail Loans Proceedings, Loans Monitoring, Credits Portfolio Management, and the Member of the Corporate Social Responsibility Committee Information Security, Internal Control, Corporate Compliance, Natural Member of the Risk Committee, Information Technologies Strategic Committee, Member of the Operational Risk Committee and Sustainability Committee Mr. Serkan Uğraş Kaygalak retired from his position at the Bank At the meeting of the Bank’s Board of Directors dated 28.12.2021, it was decided that Mr. Sezai Sevgin would be appointed as Deputy Chief Executive of the Bank following the necessary notifications and permissions to the Banking Regulation and Supervision Agency. Mr. H. Cahit Çınar participates in the sessions organized on a consolidated basis within the scope of his Membership in the Risk Committee. 210 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 211 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Türkiye İş Bankası A.Ş. Unconsolidated Balance Sheet (Statement of Financial Position) Türkiye İş Bankası A.Ş. Unconsolidated Balance Sheet (Statement of Financial Position) ASSETS Footnotes CURRENT PERIOD (31/12/2021) PRIOR PERIOD (31/12/2020) LIABILITIES Footnotes CURRENT PERIOD (31/12/2021) PRIOR PERIOD (31/12/2020) THOUSAND TL THOUSAND TL V-I-c-i 580,390 21,343,776 21,924,166 195,480 4,864,637 5,060,117 VIII. FACTORING PAYABLES 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 II. 2.1 2.2 2.3 2.4 2.4.1 2.4.2 2.5 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. FINANCILA ASSETS (Net) Cash and Cash Equivalents Cash and Balances with Central Bank Banks Money Market Placements Expected Credit Loss (-) TL FC Total TL FC Total 77,063,730 248,977,452 326,041,182 50,998,250 110,703,730 161,701,980 17,445,369 188,544,363 205,989,732 5,987,913 80,941,630 86,929,543 17,280,450 164,642,771 181,923,221 5,563,679 65,342,682 70,906,361 168,221 23,961,080 24,129,301 427,313 15,622,248 16,049,561 V-I-a V-I-ç 0 3,302 0 0 59,488 62,790 0 3,079 0 0 23,300 26,379 Financial Assets at Fair Value Through Profit or Loss V-I-b 2,220,989 8,351,219 10,572,208 1,466,421 2,714,953 4,181,374 Government Debt Securities Equity Securities Other Financial Assets 477,614 207,094 6,006,316 6,483,930 458,187 665,281 167,674 147,257 566,315 261,922 733,989 409,179 1,536,281 1,886,716 3,422,997 1,151,490 1,886,716 3,038,206 Financial Assets at Fair Value Through Other Comprehensive Income V-I-d 56,816,982 30,738,094 87,555,076 43,348,436 22,182,510 65,530,946 56,387,087 28,618,627 85,005,714 42,920,765 20,327,275 63,248,040 80,176 472,152 552,328 76,843 269,119 345,962 349,719 1,647,315 1,997,034 350,828 1,586,116 1,936,944 Government Debt Securities Equity Securities Other Financial Assets Derivative Financial Assets 1.4.1 Derivative Financial Assets at Fair Value Thorugh Profit or Loss 580,390 21,343,776 21,924,166 195,480 4,864,637 5,060,117 1.4.2 Derivative Financial Assets at Fair Value Thorugh Other Comprehensive Income 0 0 0 0 0 0 Financial Assets Measured at Amortised Cost (Net) 310,048,682 222,249,550 532,298,232 249,597,920 134,219,237 383,817,157 Loans Lease Receivables Factoring Receivables V-I-e V-I-ı 287,305,913 226,902,837 514,208,750 231,136,428 134,385,174 365,521,602 0 0 0 0 0 0 0 0 0 0 0 0 Other Financial Assets Measured at Amortised Cost (Net) V-I-f 41,733,414 4,679,320 46,412,734 35,451,053 6,208,384 41,659,437 Government Debt Securities Other Financial Assets Expected Credit Loss (-) 41,550,971 2,111,385 43,662,356 35,395,702 5,029,387 40,425,089 182,443 2,567,935 2,750,378 55,351 1,178,997 1,234,348 18,990,645 9,332,607 28,323,252 16,989,561 6,374,321 23,363,882 ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) V-I-n 818,101 Investments in Associates (Net) V-I-g 311,081 Unconsolidated Financial Subsidiaries 13,073,619 4,539,438 17,613,057 10,389,989 2,614,932 13,004,921 V-I-ğ 34,610,826 4,539,438 39,150.264 23,121,146 2,614,932 25,736,078 Unconsolidated Non-Financial Subsidiaries 21,537,207 818,101 0 0 311.081 0 0 0 9,532 9.532 0 827,633 1,214,294 5,800 1,220,094 827,633 1,214,294 5,800 1,220,094 0 0 0 0 34,921,907 4,539,.438 39,461,345 23,387,451 2,614,932 26,002,383 0 0 0 311,081 266,305 0 0 311,081 266,305 0 0 0 266,305 0 266,305 0 0 0 0 21,537,207 12,731,157 0 0 0 0 0 0 0 0 0 0 8,659,882 39,978 8,699,860 6,576,739 33,540 1,747,103 3,006 1,750,109 1,329,996 0 0 0 0 1,747,103 3.006 1,750,109 1,329,996 0 0 0 0 0 0 0 0 845 0 845 0 0 12,731,157 0 0 0 6,610,279 1,330,841 0 1,330,841 0 0 87,529 2,470,081 2,557,610 2,093,900 1,326,594 3,420,494 7,774,473 7,158,580 14,933,053 5,046,647 4,752,557 9,799,204 V-I-h V-I-j V-I-k V-I-l V-I-m V-I-o Held For Sale Discontinued Operations EQUITY INVESTMENTS Associates Accounted by using Equity Method Unconsolidated Associates Subsidiaries (Net) Joint Ventures (Net) Joint Ventures Accounted by using Equity Method Unconsolidated Joint Ventures TANGIBLE ASSETS (Net) INTANGIBLE ASSETS (Net) Goodwill Other INVESTMENT PROPERTY (Net) VIII. CURRENT TAX ASSET IX. X. DEFERRED TAX ASSET OTHER ASSETS (Net) I. II. III. IV. 4.1 4.2 4.3 V. 5.1 5.2 VI. VII. 7.1 7.2 DEPOSITS FUNDS BORROWED MONEY MARKETS SECURITIES ISSUED (Net) Bills Asset Backed Securities Bonds FUNDS Borrower Funds Other FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS TL FC Total TL FC Total V-II-a V-II-c 167.618.387 428.009.989 595.628.376 134.513.823 234.362.668 368.876.491 2.505.052 63.146.374 65.651.426 2.113.127 38.318.218 40.431.345 39.121.801 9.113.694 48.235.495 17.958.135 5.038.402 22.996.537 V-II-ç 5.194.456 25.441.356 30.635.812 5.436.832 25.403.816 30.840.648 3.133.754 0 0 0 3.133.754 3.960.641 0 0 0 0 3.960.641 0 2.060.702 25.441.356 27.502.058 1.476.191 25.403.816 26.880.007 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 DERIVATIVE FINANCIAL LIABILITIES V-II-b-g 6.163.475 6.423.058 12.586.533 1.336.155 6.598.330 7.934.485 Derivative Financial Liabilities at Fair Value Thorugh Profit or Loss 6.163.475 6.423.058 12.586.533 1.336.155 6.598.330 7.934.485 Derivative Financial Liabilities at Fair Value Thorugh Other Comprehensive Income IX. X. 10.1 10.2 10.3 10.4 XI. XII. XIII. 13.1 13.2 XIV. 14.1 14.2 XV. XVI. 16.1 16.2 LEASE PAYABLES PROVISIONS Restructuring Provisions Reserve for Employee Benefits Insurance Technical Provisions (Net) Other Provisions CURRENT TAX LIABILITIES DEFERRED TAX LIABILITIES LIABILITIES RELATED TO ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS Held For Sale Discontinued Operations SUBORDINATED DEBT Loans Other Debt Instruments OTHER LIABILITIES SHAREHOLDERS' EQUITY Paid-in capital Capital Reserves 16.2.1 Share Premium 16.2.2 Share Cancellation Profits 16.2.3 Other Capital Reserves 16.3 16.4 Accumulated Other Compherensive Income or Loss Not Reclassified Through Profit or Loss Accumulated Other Compherensive Income or Loss Reclassified Through Profit or Loss 16.5 Profit Reserves 16.5.1 Legal Reserves 16.5.2 Status Reserves 16.5.3 Extraordinary Reserves 16.5.4 Other Profit Reserves 16.6 Profit or Loss 16.6.1 Prior Periods' Profit or Loss 16.6.2 Current Period Profit or Loss 16.7 Minority Shareholder V-II-f V-II-ğ V-II-h V-II-h V-II-ı 0 0 0 0 0 0 0 0 0 0 0 0 1.614.884 85.555 1.700.439 1.330.308 58.909 1.389.217 14.400.399 1.086.919 15.487.318 9.644.891 579.699 10.224.590 0 2.392.832 0 0 0 0 0 0 2.392.832 1.481.897 0 0 0 0 0 0 1.481.897 0 12.007.567 1.086.919 13.094.486 8.162.994 579.699 8.742.693 1.816.875 14.344 1.831.219 2.415.583 4.524 2.420.107 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 V-II-i 2.296.445 35.174.552 37.470.997 2.286.510 19.852.049 22.138.559 0 0 0 0 0 0 2.296.445 35.174.552 37.470.997 2.286.510 19.852.049 22.138.559 V-II-e V-II-j 24.978.068 5.524.050 30.502.118 15.321.692 3.547.309 18.869.001 89.923.933 -3.084.642 86.839.291 67.900.540 -119.088 67.781.452 4.500.000 1.113.235 108.944 0 1.004.291 0 204 204 0 0 4.500.000 4.500.000 1.113.439 1.125.985 109.148 90.520 0 0 1.004.291 1.035.465 0 204 204 0 0 4.500.000 1.126.189 90.724 0 1.035.465 7.840.024 -617 7.839.407 4.233.464 -617 4.232.847 11.507.178 -3.084.229 8.422.949 4.880.015 -118.675 4.761.340 46.081.015 5.065.786 0 41.015.229 0 18.882.481 5.414.586 13.467.895 0 0 0 0 0 0 0 0 46.081.015 40.079.251 5.065.786 4.673.489 0 0 41.015.229 35.405.762 0 0 18.882.481 13.081.825 5.414.586 6.270.908 13.467.895 6.810.917 0 0 0 0 0 0 0 0 40.079.251 4.673.489 0 35.405.762 0 13.081.825 6.270.908 6.810.917 TOTAL ASSETS 441,121,407 485,447,617 926,569,024 340,245,197 253,657,235 593,902,432 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 355.633.775 570.935.249 926.569.024 260.257.596 333.644.836 593.902.432 212 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 213 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Türkiye İş Bankası A.Ş. Unconsolidated statement of off-balance sheet items Türkiye İş Bankası A.Ş. Unconsolidated statement of off-balance sheet items OFF BALANCE SHEET ITEMS Footnotes CURRENT PERIOD (31/12/2021) PRIOR PERIOD (31/12/2020) OFF BALANCE SHEET ITEMS Footnotes CURRENT PERIOD (31/12/2021) PRIOR PERIOD (31/12/2020) TL FC Total TL FC Total TL FC Total TL FC Total THOUSAND TL THOUSAND TL A. OFF-BALANCE SHEET CONTINGENCIES and COMMTMENTS (I+II+III) V-III 284.514.410 709.267.988 993.782.398 216.016.443 398.524.226 614.540.669 GUARANTEES AND SURETYSHIPS 46.066.357 147.369.066 193.435.423 39.746.728 79.828.486 119.575.214 Letters of Guarantee 45.796.275 85.701.218 131.497.493 39.206.983 48.225.907 87.432.890 Guarantees Subject to State Tender Law 865.540 764.138 1.629.678 687.709 535.767 1.223.476 Guarantees Given for Foreign Trade Operations 4.204.824 46.666.437 50.871.261 4.416.349 24.422.710 28.839.059 Other Letters of Guarantee Banks Acceptanees Import Letter of Acceptance Other Bank Acceptances Letters of Credit Documentary Letters of Credit Other Letters of Credit Prefinancing Given as Guarantee Endorsements Endorsements to the Central Bank of Tureky Other Endorsements Purchase Guarantees for Securities Issued Factoring Guarantees Other Guarantees Other Suretyships COMMITMENTS 40.725.911 38.270.643 78.996.554 34.102.925 23.267.430 57.370.355 111.350 14.670.501 14.781.851 84.800 9.374.903 9.459.703 0 111.350 158.732 105.367 53.365 498.510 498.510 0 216.670 216.670 14.171.991 14.283.341 84.800 9.158.233 9.243.033 42.736.471 42.895.203 454.945 19.082.336 19.537.281 29.051.381 29.156.748 435.024 13.372.331 13.807.355 13.685.090 13.738.455 19.921 5.710.005 5.729.926 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4.260.876 4.260.876 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3.145.340 3.145.340 0 0 97.612.185 45.290.289 142.902.474 70.648.692 20.505.458 91.154.150 Irrevocable Commitments 96.073.979 35.197.535 131.271.514 69.830.795 14.234.226 84.065.021 Forward Asset Purchase Commitments 9.291.941 17.794.260 27.086.201 2.240.523 4.198.612 6.439.135 Forward Asset Purchase Commitments Capital Commitments to Associates and Subsidiaries 0 0 0 0 0 0 0 0 0 0 0 0 Loan Granting Commitments Securities Underwriting Commitments Commitments for Reserve Deposit Requirements Commitments for Cheque Payments Tax and Fund Liabilities from Export Commitments Commitments for Credit Card Expenditure Limits Commitments for Credit Card and Banking Services Promotions Receivables from Short Sale Commitments Payables from Short Sale Commitments Other Irrevocable Commitments Revocable Commitments 34.174.955 1.702.741 35.877.696 24.688.380 1.009.054 25.697.434 0 0 3.291.900 41.377 46.524.830 208.406 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3.291.900 2.641.068 41.377 26.068 46.524.830 37.915.127 208.406 179.370 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.641.068 26.068 37.915.127 179.370 0 0 2.540.570 15.700.534 18.241.104 2.140.259 9.026.560 11.166.819 1.538.206 10.092.754 11.630.960 817.897 6.271.232 7.089.129 Revocable Loan Granting Commitments 1.488.206 10.092.754 11.580.960 752.897 6.271.232 7.024.129 Other Revocable Commitments 50.000 0 50.000 65.000 0 65.000 DERIVATIVE FINANCIAL INSTRUMENTS 140.835.868 516.608.633 657.444.501 105.621.023 298.190.282 403.811.305 Derivative Financial Instruments Held for Risk Management Fair Value Hedges Cash Flow Hedges Net Foreign Investment Hedges 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 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 1.8 1.9 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 2.1.13 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 Derivative Financial Instruments Held for Trading 140.835.868 516.608.633 657.444.501 105.621.023 298.190.282 403.811.305 Forward Foreign Currency Buy/Sell Transactions 13.885.441 46.330.649 60.216.090 6.312.076 28.172.122 34.484.198 3.2.1.1 Forward Foreign Currency Buy Transactions 9.851.253 20.305.444 30.156.697 4.782.648 12.591.821 17.374.469 3.2.1.2 Forward Foreign Currency Sell Transactions 4.034.188 26.025.205 30.059.393 1.529.428 15.580.301 17.109.729 3.2.2 Currency and Interest Rate Swaps 117.694.703 424.446.452 542.141.155 95.665.431 237.078.233 332.743.664 3.2.2.1 Currency Swap Buy Transactions 3.2.2.2 Currency Swap Sell Transactions 3.2.2.3 Interest Rate Swap Buy Transactions 3.2.2.4 Interest Rate Swap Sell Transactions 6.016.040 158.921.467 164.937.507 4.334.346 87.338.121 91.672.467 111.278.663 66.277.089 177.555.752 89.556.285 22.896.516 112.452.801 200.000 200.000 99.623.948 99.823.948 887.400 63.421.798 64.309.198 99.623.948 99.823.948 887.400 63.421.798 64.309.198 3.2.3 Currency, Interest Rate and Seurity Options 8.573.317 21.264.309 29.837.626 1.523.960 14.050.208 15.574.168 3.2.3.1 Currency Call Options 3.2.3.2 Currency Put Options 3.2.3.3 Interest Rate Call Options 3.2.3.4 Interest Rate Put Options 3.2.3.5 Securities Call Options 3.2.3.6 Securities Put Options 3.2.4 Currency Futures 3.2.4.1 Currency Buy Futures 3.2.4.2 Currency Sell Futures 3.2.5 Interest Rate Futures 3.2.5.1 Interest Rate Buy Futures 3.2.5.2 Interest Rate Sell Futures 3.2.6 Other 4.553.586 6.303.322 10.856.908 951.985 2.936.454 3.888.439 4.019.731 6.549.875 10.569.606 571.975 3.273.722 3.845.697 0 0 0 0 682.407 0 682.407 0 0 0 0 4.205.556 4.205.556 4.205.556 4.205.556 0 0 687.983 687.983 0 0 0 0 0 0 0 0 0 23.879.240 23.879.240 0 0 0 0 3.920.016 3.920.016 3.920.016 3.920.016 0 0 0 0 1.370.390 2.119.556 1.949.448 4.069.004 687.983 682.407 1.521 1.948.141 1.949.662 2.118.035 1.307 2.119.342 0 0 0 0 0 0 0 0 0 0 16.940.271 16.940.271 B. CUSTODY AND PLEDGES RECEIVED (IV+V+VI) 796.887.897 993.775.709 1.790.663.606 616.280.990 563.097.495 1.179.378.485 ITEMS HELD IN CUSTODY Customers' Securities Held 60.617.295 121.635.447 182.252.742 43.881.000 70.901.615 114.782.615 0 0 0 0 0 0 Investment Securities Held in Custody 33.813.447 4.930.182 38.743.629 25.350.314 4.451.310 29.801.624 Cheques Received for Collection 23.306.991 68.668.580 91.975.571 15.218.680 37.822.146 53.040.826 Commercial Notes Received For Collection 2.980.895 26.788.763 29.769.658 2.858.449 17.207.412 20.065.861 Other Assets Received For Collection Assets Received for Public Offering Other Items Under Custody Custodiands PLEDGED ITEM Marketable Securities Guarantee Notes Commodity Warranty Real Estates Other Pledged Items Pledged Items-Depository ACCEPTED BILL, GUARANTEES AND SURETIES 0 0 0 0 0 0 0 0 0 0 0 0 515.962 21.247.922 21.763.884 453.557 11.420.747 11.874.304 0 0 0 0 0 0 736.270.602 872.140.262 1.608.410.864 572.399.990 492.195.880 1.064.595.870 53.604.619 352.719 53.957.338 45.877.542 156.869 46.034.411 2.516.138 33.012.695 35.528.833 2.669.349 19.101.121 21.770.470 144.690.167 75.209.001 219.899.168 109.623.146 31.574.919 141.198.065 0 0 0 0 0 0 398.843.430 580.623.489 979.466.919 344.351.988 340.246.167 684.598.155 136.616.248 182.942.358 319.558.606 69.877.965 101.116.804 170.994.769 0 0 0 0 0 0 0 0 0 0 0 0 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. TOTAL OFF-BALANCE SHEE COMMITMENTS (A+B) 1.081.402.307 1.703.043.697 2.784.446.004 832.297.433 961.621.721 1.793.919.154 214 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 215 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Türkiye İş Bankası A.Ş. Unconsolidated Income Statement INCOME STATEMENT 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. INTEREST INCOME Interest Income on Loans Interest Income on Reserve Deposits Interest Income on Banks Interest Income on Money Market Placements Interest Income on Marketable Market Placements Financial Assets at Fair Value Through Profit or Loss Financial Assets at Fair Value Through Other Compherensive Income Financial Assets at Measured at Amortised Cost Financial Lease Income Other Interest Income INTEREST EXPENSE (-) Interest on Deposits Interest on Funds Borrowed Interest on Money Market Funds Interest on Securities Issued Financial Lease Expense Other Interest Expenses NET INTEREST INCOME (I - II) NET FEES AND COMMISSIONS INCOME Fees and Commissions Received Non-cash Loans Other Fees and Commissions Paid (-) Non-cash Loans Other DIVIDEND INCOME TRADIG INCOME/(LOSS) (Net) Gains/(Losses) on Securities Trading Derivative Financial Transactions Gains/Losses Foreign Exchange Gains/(Losses) OTHER OPERATING INCOME GROSS OPERATING INCOME (III+IV+V+VI+VII) EXPECTED CREDIT LOSS (-) OTHER PROVISION EXPENSES (-) PERSONNEL EXPENSE (-) OTHER OPERATING EXPENSES (-) NET OPERATING INCOME/(LOSS) (VIII-IX-X-XI-XII) AMOUNT IN EXCESS RECORDED AS GAIN AFTER MERGER PROFIT/LOSS FROM ASSOCIATES ACCOUNTED FOR USING THE EQUITY METHOD NET MONETARY POSITION GAIN/LOSS PROFIT/LOSS ON CONTUNUING OPERATIONS BEFORE K/Z (XIII+...+XVI) TAX PROVISION FOR CONTINUING OPERATIONS (±) Current Tax Provision Deferred Tax Income Effect (+) Deferred Tax Expense Effect (-) NET PERIOD PROFIT/LOSS FROM CONTUNUING OPERATIONS (XVII±XVIII) INCOME ON DISCONTINUED OPERATIONS Income on Assets Held for Sale Gain on Sale of Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Other expense on Discontinued Operations EXPENSE ON DISCONTINUED OPERATIONS (-) Expense on Assets Held For Sale Loss on Sale of Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Other expense on Discontinued Operations PROFIT/LOSS ON DISCONTINUED OPERATIONS BEFORE TAX (XX-XXI) TAX PROVISION FOR DISCONTINUED OPERATIONS (±) Current Tax Provision Deferred Tax Expense Effect (+) Deferred Tax Income Effect (-) NET PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XXII±XXIII) NET PERIOD PROFIT/LOSS (XIX+XXIV) Earnings per Share (*) (*) Expressed in exact TL. 216 | İŞBANK 2021 INTEGRATED ANNUAL REPORT Footnotes V-IV-a V-IV-b V-IV-c V-IV-ç V-IV-d V-IV-e V-IV-e V-IV-f V-IV-g V-IV-ğ V-IV-h Türkiye İş Bankası A.Ş. Unconsolidated Statement of Profit or Loss and Other Comprehensive Income THOUSAND TL CURRENT PERIOD (01/01-31/12/2021) PRIOR PERIOD (01/01-31/12/2020) PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME THOUSAND TL CURRENT PERIOD (01/01-31/12/2021) PRIOR PERIOD (01/01-31/12/2020) 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 PROFIT/LOSS FOR THE PERIOD OTHER COMPREHENSIVE INCOME Other comprehensive income that will not be reclassified to profit or loss Revaluation Surplus on Tangible Assets Revaluation Surplus on Intangible Assets Gains/(Losses) on remeasurements of Defined Benefit Plans Other Income/Expense Items of Other Comprehensive Income not to be Reclassified to Profit or Loss Taxes Relating to Components of Other Comprehensive Income not to be Reclassified to Profit or Loss Other Income/Expense Items not be reclassified to profit or loss Exchange Differences on Translation Valuation and/or Reclassification Profit or Loss from Financial Assets at Fair Value through Other Comprehensive Income Income/(Loss) Related with Cash Flow Hedges Income/(Loss) Related with Hedges of Net Investments in Foreign Operations 13,467,895 7,268,169 3,606,560 1,606,325 0 -713,198 2,731,426 -17,993 3,661,609 1,702,150 -532,979 0 0 Other Income/Expense Items of Other Comprehensive Income to be Reclassified to Other Profit or Loss 2,433,200 Taxes Relating to Components of Other Comprehensive Income to be Reclassified to Profit or Loss 59,238 III. TOTAL COMPREHENSIVE INCOME (I+II) 20,736,064 6,810,917 1,647,924 -137,457 -17,036 0 -72,288 -64,294 16,161 1,785,381 587,725 930,213 0 0 459,584 -192,141 8,458,841 60,904,343 44,448,255 849,109 133,704 890 15,434,222 128,118 9,421,203 5,884,901 0 38,163 29,963,074 18,085,126 1,530,274 5,081,676 4,761,496 255,389 249,113 30,941,269 7,619,945 9,742,778 1,291,970 8,450,808 2,122,833 1,521 2,121,312 20,735 -5,149,127 357,107 -1,046,262 -4,459,972 4,401,570 37,834,392 10,837,246 3,612,921 6,366,681 9,545,008 7,472,536 0 8,003,345 0 15,475,881 2,007,986 1,103,778 2,855,911 1,951,703 13,467,895 0 0 0 0 0 0 0 0 0 0 0 0 0 42,516,332 31,987,586 84,888 134,033 666 10,276,024 27,489 6,161,252 4,087,283 0 33,135 17,274,293 9,521,065 1,448,001 1,496,380 3,972,083 235,210 601,554 25,242,039 5,617,613 6,790,418 1,111,518 5,678,900 1,172,805 1,518 1,171,287 21,487 -3,341,357 335,938 -10,390,437 6,713,142 2,436,205 29,975,987 10,213,836 2,516,084 5,191,989 6,604,997 5,449,081 0 3,406,471 0 8,855,552 2,044,635 3,823,786 434,581 2,213,732 6,810,917 0 0 0 0 0 0 0 0 0 0 0 0 0 V-IV-ı 0 13,467,895 0.119712228 0 6,810.917 0.060540274 İŞBANK 2021 INTEGRATED ANNUAL REPORT | 217 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Türkiye İş Bankası A.Ş. Unconsolidated Statement of Changes in Shareholders' Equity Türkiye İş Bankası A.Ş. Unconsolidated Statement of Changes in Shareholders' Equity CHANGES IN SHAREHOLDERS' EQUITY Footnotes Paid-in Capial Share Premium Share Certificate Cancellation Profits Other Capital Reserves Accumulated Other Comprehensive Income that will not be reclassified in Profit/(Loss) Tangable assets accumulated revaluation reserve increase/ (Decrease) Accumulated gains/(losses) on remeasurements of defined benefit plans Other (1) Accumulated Other Comprehensive Income that will be reclassified in Profit/(Loss) Exchange differences on translation reserve Accumulated gains/(losses) due to revaluation and/or reclassification of financial assets measured at fair value through other comprehensive income Other (2) Profit Reserves Prior Period Profit / (Loss) Net Current Period Profit / (Loss) Total Shareholder's Equity I II 2.1 2.2 III IV V VI VII VIII IX X XI 11.1 11.2 11.3 I II 2.1 2.2 III IV V VI VII VIII IX X XI 11.1 11.2 11.3 V-V PRIOR PERIOD ( 31/12/2020 ) Beginning Balance Adjustment in accordance with TAS 8 The Effect on Adjustments The Effect of Changes in Accounting Policies New Balance (I+II) Total Comprehensive Income Capital Increase in Cash Capital Increase Through Internal Reserves Paid-in Capital Inflation adjustment difference Convertible Bonds Subordinated Debt 4,500,000 5,814 1,038,013 2,734,864 -226,266 1,861,706 930,843 395,484 1,649,632 34,007,790 11,975,585 58,873,465 4,500,000 5,814 1,038,013 2,734,864 -226,266 1,861,706 -15,332 -57,831 -64,294 930,843 587,725 395,484 738,072 1,649,632 459,584 34,007,790 11,975,585 6,810,917 58,873,465 8,458,841 Increase/(Decrease) Through Other Changes 84,910 -2,548 Profit Distribution Dividend Paid Transfer to Reserves Other 6,071,461 366,784 -6,071,461 6,071,461 -6,071,461 449,146 Ending Balance (III+IV+…...+X+XI) 4,500,000 90,724 1,035,465 2,719,532 -284,097 1,797,412 1,518,568 1,133,556 2,109,216 40,079,251 6,270,908 6,810,917 67,781,452 CURRENT PERIOD ( 31/12/2021 ) Beginning Balance Adjustment in accordance with TAS 8 The Effect on Adjustments The Effect of Changes in Accounting Policies New Balance (I+II) Total Comprehensive Income Capital Increase in Cash Capital Increase Through Internal Reserves Paid-in Capital Inflation adjustment difference Convertible Bonds Subordinated Debt 4,500,000 90,724 1,035,465 2,719,532 -284,097 1,797,412 1,518,568 1,133,556 2,109,216 40,079,251 13,081,825 67,781,452 4,500,000 90,724 1,035,465 2,719,532 -284,097 1,445,692 -570,558 1,797,412 2,731,426 1,518,568 1,702,150 1,133,556 -473,741 2,109,216 2,433,200 40,079,251 13,081,825 13,467,895 67,781,452 20,736,064 Increase/(Decrease) Through Other Changes 18,424 -31,174 Profit Distribution Dividend Paid Transfer to Reserves Other 6,001,764 6,001,764 Ending Balance (III+IV+…...+X+XI) 4,500,000 109,148 1,004,291 4,165,224 -854,655 4,528,838 3,220,718 659,815 4,542,416 46,081,015 -869,736 -6,797,503 -661,415 -6,001,764 -134,324 5,414,586 -882,486 -795,739 -661,415 -134,324 86,839,291 13,467,895 (1) Accumulated amounts of other comprehensive income of investments accounted by the equity method, which will not be reclassified to profit or loss, and other comprehensive income items that will not reclassified as other profit or loss. (2) Gain/losses on cash flow hedges, share of other comprehensive income from equity method investments to be reclassified to profit/loss and accumulated amounts of other comprehensive income items to be reclassified as other profit or loss. (*) Prior Periods' Profit or Loss includes classifications made within the scope of "TAS-27-Individual Financial Statements". (**) According to the articles of Association of the Bank, it is the dividend amount distributed to the Bank personnel. 218 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 219 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen NET PROFIT FOR THE PERIOD (1.1-1.2) 13,467,895 6,817,179 PRIOR YEARS LOSSES (-) FIRST LEGAL RESERVES (-) OTHER STATUTORY RESERVES (-) 0 0 0 0 392,297 152,066 NET PROFIT ATTRIBUTABLE TO [(A-(1.3+1.4+1.5)] 13,467,895 6,272,816 Türkiye İş Bankası A.Ş. Unconsolidated Statement of Cash Flows Türkiye İş Bankası A.Ş. Unconsolidated Statement of Profit Distribution Table CASH FLOWS FROM BANKING OPERATIONS I. DISTRIBUTION OF CURRENT YEAR PROFIT (1) Footnotes CURRENT PERIOD (01/01-31/12/2021) PRIOR PERIOD (01/01-31/12/2020) THOUSAND TL 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 Operating Profit Before Changes in Operating Assets and Liabilities 14,064,345 28,104,080 Interest Received Interest Paid Dividend Received Fees and Commissions Received Other Income Collections from Previously Written off Loans and Other Receivables Cash Payments to Personnel and Service Suppliers Taxes Paid Other 54,774,522 -28,575,621 837,502 9,740,804 999,236 2,802,041 -10,730,457 -2,688,207 -13,095,475 V-VI 38,484,202 -16,404,956 543,139 6,801,535 787,561 1,597,389 -9,077,374 -3,077,002 8,449,586 1.2 Changes in Operating Assets and Liabilities 79,007,898 -2,891,050 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 Net (Increase) / Decrease in Financial Assets at Fair Value Through Profit or Loss Net (Increase) / Decrease in Due From Banks Net (Increase) / Decrease in Loans Net (Increase) / Decrease in Other Assets Net (Increase) / Decrease in Bank Deposits Net (Increase) / Decrease in Other Deposits Net (Increase) / Decrease in Financial Liabilities at Fair Value Through Profit or Loss Net (Increase) / Decrease in Funds Borrowed Net (Increase) / Decrease in Matured Payables Net (Increase) / Decrease in Other Liabilities -3,878,212 -16,411,725 -56,752,805 -2,370,308 -1,077,510 127,280,892 0 600,469 0 31,617,097 V-VI -634,886 -5,493,793 -43,633,155 -3,189,215 -1,055,791 35,499,546 0 -8,474,053 0 24,090,297 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. V. VI. Net Cash Provided From Banking Operations 93,072,243 25,213,030 CASH FLOWS FROM INVESTING ACTIVITIES Net Cash Provided from Investing Activities -7,296.356 -17,791,592 Cash Paid for the Purchase of Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Cash Obtained from sale of Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Cash Paid for the Purchase of Tangible Asset Cash Obtained from sale of Tangible Asset Cash Paid for the Purchase of Financial Assests at Fair Value Through Other Comprehensive Income Cash Obtained from sale of Financial Assests at Fair Value Through Other Comprehensive Income Cash Paid for Purchase of Financial Assests Measured at Amortised Cost Cash Obtained from sale of Financial Assests Measured at Amortised Cost (*) Other CASH FLOWS FROM FINANCING ACTIVITIES Net cash provided from financing activities Cash Obtained from funds borrowed and securities issued Cash used for repayment of funds borrowrd and securities issued Equity Instrumens Dividends Paid Payments for Finance Leases Other Effect of Change in foreign exchange rare on cash and cash equivalents -135,636 0 -500,697 223,992 -24,036,024 17,782,022 -15,700,230 15,819,175 -748,958 -635,402 0 -530,639 214,005 -20,625,367 12,958,458 -15,274,452 6.752,597 -650,792 -15,071,710 -2,831,398 7,897,669 -21,609,192 0 -795,739 -564,448 0 20,922,579 -23,253,700 0 0 -500,277 0 -1,171,636 -1,105,433 V-VI V-VI V-VI Net increase in cash and cash equivalents 69,532,541 3,484,607 Cash and cash equivalents at beginning of the period 45,361,908 41,877,301 VII. Cash and cash equivalents at end of the period 114,894,449 45,361,908 (*) Includes Redeemed Financial Assets measured at amortized cost. CURRENT PERIOD PROFIT (2) TAXES AND DUES PAYABLE (-) Corporate Tax (Income Tax) Income Tax Withholding Other Taxes and Dues Payable (3) 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 First Dividend to Shareholders (-) To Owners of Ordinary Shares To Owners of Preffered Shares To Preffered Shares (Preemptive Rights) To Profit Sharing Bonds To Holders of Profit / Loss Share Certificates DIVIDENDS TO PERSONNEL (-) DIVIDENDS TO THE BOARD OF THE DIRECTORS (-) SECOND DIVIDEND TO SHAREHOLDERS (-) To Owners of Ordinary Shares To Owners of Privileged Shares To Owners of Preffered Shares To Profit Sharing Bonds To Holders of Profit / Loss Share Certificates STATUTORY RESERVES (-) EXTRAORDINARY RESERVES OTHER RESERVES SPECIAL FUNDS II. DISTRIBUTION FROM RESERVES 2.1 2.2 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 2.3 2.4 III. 3.1 3.2 3.3 3.4 IV. 4.1 4.2 4.3 4.4 DISTRIBUTED RESERVES DIVIDENDS TO SHAREHOLDERS (-) To Owners of Ordinary Shares To Owners of Privileged Shares To Owners of Preffered Shares To Profit Sharing Bonds To Holders of Profit / Loss Share Certificates DIVIDENDS TO PERSONNEL (-) DIVIDENDS TO THE BOARD OF DIRECTORS (-) EARNINGS PER SHARE TO OWNERS OF ORDINARY SHARES (4) TO OWNERS OF ORDINARY SHARES ( % ) TO OWNERS OF PREFERRED SHARES (4) TO OWNERS OF PREFERRED SHARES ( % ) DIVIDEND PER SHARE TO OWNERS OF ORDINARY SHARES (4) TO OWNERS OF ORDINARY SHARES ( % ) TO OWNERS OF PREFERRED SHARES (4) TO OWNERS OF PREFERRED SHARES ( % ) THOUSAND TL CURRENT PERIOD (31/12/2021) PRIOR PERIOD (31/12/2020) 15,475.881 2,007,986 1,057,464 46,314 904,208 8,861,814 2,044,635 3,788,280 35,506 -1,779,151 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.1197 299 0 0 0 0 0 0 270,000 269,998 2 0 0 0 134,324 0 411,092 411,085 3 4 0 0 0 5,457,400 0 0 0 0 0 0 0 0 0 0 0 0.0605 151 0 0 0.0061 15.14 0.0018 17.55 220 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 221 (1) The decision for dividend payment is made at the Annual General Meeting. Annual General Meeting has not been held as of the reporting dat. (2) Prior Perods' Profit amounting to TL 6,262 which is included to the base of profit distribution, is diclosed in the prior period's net profit amount in the statement. (3) Deferred Tax Expense/Income (4) Expresed in Exact TL. Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Section Three: Explanations On Accounting Policies I. Basis of Presentation: The unconsolidated financial statements, related notes, and explanations in this report are prepared in accordance with the “Regulation on Accounting Applications for Banks and Safeguarding of Documents” and other regulations on accounting records of Banks published by Banking Regulation and Supervision Agency and circulars and interpretations published by Banking Regulation and Supervision Authority, (together referred as “BRSA Accounting and Financial Reporting Legislation”) and requirements of Turkish Financial Reporting Standards (TFRS) published the Public Oversight Accounting and Auditing Standards Authority for the matters not regulated by the aforementioned legislations. COVID-19 outbreak, which started in China and spread globally in the first half of 2020, caused serious effects on both economic and social life. In addition to the social life effects of the cautions taken to ensure the control of outbreak in many countries, there are also consequences observed which is negatively affecting economic activity both on regional and global scale. As in other countries where the pandemic is effective, various cautions also have been taken in our country in social and economic terms. The Bank sustains its activities for the period precisely by closely monitoring the processes related to outbreak, postponing retail and non-retail customers' due debts, restructuring with grace period and existing or additional limit allocations in respect with customers’ needs. Assessments regarding to possible effects of the COVID-19 outbreak through the measurement of expected credit losses are explained in the Section Three “VIII. “Explanations on Impairment of Financial Assets”. “Interest Rate Benchmark Reform- Stage 2”, brought changes in various TAS / TFRSs effective from January 1, 2021, was released in December 2020 within the scope of the project of transition of the benchmark interest rates carried out by the International Accounting Standards Board (IASB). It was concluded that as of December 31, 2021, the changes have not occurred significantly on the Bank's financial statements. According to the statement made by the POA on 20.01.2022, it was stated that the enterprises applying TFRS do not need to make any adjustments in the financial statements for 2021 in accordance with the TAS 29 Financial Reporting Standard for High-Inflation Economies. In this context, no inflation adjustment was made in accordance with TAS 29 when preparing the financial statements dated December 31, 2021. Additional paragraph for convenience translation to English The differences between accounting principles, as described in these preceding paragraphs and accounting principles generally accepted in countries in which unconsolidated financial statements are to be distributed and International Financial Reporting Standards (“IFRS”) have not been quantified in these unconsolidated financial statements. Accordingly, these unconsolidated 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. The accounting policies applied in the current period are in line with the prior period financial statements. The accounting policies and valuation principles used in the preparation of financial statements are presented below in detail. II. Strategy for Use of Financial Instruments and Foreign Currency Transactions 1. The Bank’s Strategy on Financial Instruments The Bank’s main activities comprise private, retail, commercial and corporate banking, money market and securities market operations, as well as activities related to international banking services. In conformity with the general liability structure of the banking system, the Bank’s liabilities are mainly composed of short-term deposits and other medium and long- term liabilities. The liquidity risk that may arise from this liability structure can be easily controlled through deposit continuity, as well as widespread network of the correspondent banks, market maker status (The Bank is one of the market makers banks) and by the use of liquidity facilities of the Central Bank of Republic of Turkey (“CBRT”). As a result, the liquidity of the Bank and the banking system can be easily monitored. On the other hand, foreign currency liquidity requirements are met by the money market operations and currency swaps. Most of the funds collected bear fixed interest, and by closely monitoring the developments in the sector, both fixed and floating rate placements are made based on the yields of alternative investment instruments. Safety principle has always been the top priority in placements and the placements are focused on high yielding and low risk assets by considering their maturity structure. Accordingly, a pricing policy aiming at high return is implemented in the long-term placements and attention is paid to the maximum use of non-interest income generation opportunities. The Bank determines its lending strategy by taking into consideration the international and national economic data and expectations, market conditions, current and potential credit customers’ expectations and tendencies, and risks such as; interest rate, liquidity, currency and credit risks. Furthermore, in conformity with this strategy, the Bank acts within the legal limits in terms of asset-liability management. The primary objectives related to balance sheet components are set by the long-term plans shaped along with budgeting; and the Bank takes the required positions against the short-term currency, interest rates and price fluctuations in accordance with these plans and the course of the market conditions. Foreign currency, interest rate and price fluctuations in the markets are monitored instantaneously. While taking positions, in addition to the legal limits, the Bank’s own transaction and control limits are also effectively monitored in order to avoid limit overrides. The Bank’s asset-liability management is executed by the Asset-Liability Management Committee, within the risk limits determined by the Board of Directors, in order to keep the liquidity risk, interest rate risk, currency risk and credit risk within certain limits depending on the equity adequacy and to maximize profitability. 2. Foreign Currency Transactions Foreign currency monetary assets and liabilities on the balance sheet are converted into Turkish Lira by using the prevailing exchange rates at the balance sheet date. Non-monetary items in foreign currencies carried at fair value are converted into Turkish Lira by the rates at the date of which the fair value is determined. Exchange rate differences arising from the conversions of monetary foreign currency items and the collections of and payments in foreign currency transactions are reflected to the income statement. The Bank started to apply equity method for the foreign associates and subsidiaries which were followed with historical rates in accordance with the TAS 27 “Separate Financial Statements” In this context, foreign subsidiaries are accounted at current rates in the financial statement and the resulting exchange differences are accounted under equity. The financial statements of the foreign branches of the Bank are prepared in the currency of the primary economic environment in which the entity operates (functional currency). The financial statements of foreign branches are expressed in TL which is the functional currency of the Bank and the presentation currency of the financial statements. Assets and liabilities of the foreign branches of the Bank are converted into TL by using the prevailing exchange rates at the balance sheet date. Income and expenses are converted by at exchange rates at the dates of the transactions. The exchange rate differences arising from the conversion are recorded in the shareholders’ equity. III. Associates and Subsidiaries The Bank accounts, its associates, and subsidiaries in accordance with equity method which described in TAS 28. Under the equity method, Bank’s share of net assets of the associates and subsidiaries is recognized in the Bank’s financial statements. The profit or loss of the Bank includes the Bank’s share of the profit or loss of the associates and subsidiaries and Bank’s other comprehensive income or expenses include the Bank’s share of other comprehensive income or expenses of the associates and subsidiaries. Mergers / acquisitions and change in share ratios of related associates and subsidiaries during the period are shown under the item "Increase / Decrease through Other Changes" in the statement of changes in shareholders’ equity. IV. Forward, Option Contracts and Derivatives Instruments Derivative transactions of the Bank consist of foreign currency and interest rate swaps, forwards, foreign currency options and interest rate options. The Bank has no derivative instruments decomposed from the main contract. The Bank classifies derivative transactions, which act as a hedge but does not meet qualification criteria for hedge accounting, as "Derivative Financial Assets at Fair Value through Profit or Loss" in accordance with the “TFRS 9 Financial Instruments” requirements. Derivative transactions are recorded at their fair value at the date of contract, receivables and payables arising from these transactions are recorded in off-balance sheet accounts. Derivative transactions are measured at fair value at subsequent reporting dates and if the valuation difference is positive, they are classified as "Derivative Financial Assets at Fair Value through Profit or Loss", if it is negative they are classified as "Derivative Financial Liabilities at Fair Value through Profit or Loss". The differences arising from the valuation of derivative transactions are associated with the income statement. On off-balance sheet items table, options which generated assets for the Bank are presented under “call options” line and which generated liabilities are presented under “put options” line. V. Interest Income and Expenses Interest income is calculated by using the effective interest rate method (the rate that equal the future cash flows of a financial asset or liability to its present net book value) to gross carrying amount of financial asset in conformity with “TFRS 9 Financial Instruments” except financial asset that is not a purchased or originated credit- impaired financial asset but subsequently has become credit-impaired. Under the scope of TFRS 9 application, the Bank does not reverse the interest accruals and rediscounts of non-performing loans and other receivables and monitors the related amounts under interest income and calculates expected credit loss on these amounts according to the related methodology. VI. Fees and Commission Income and Expenses Wages and commissions those that are not an integral part of the effective interest rate of the financial instruments measured at amortized cost are accounted for in accordance with "TFRS 15 - Revenue from Customer Contracts". Fees and commission income and expenses are recognized either on accrual basis or by using the effective interest method. Income earned in return for services rendered contractually or due to operations like sale or purchase of assets on behalf of a third party real person or corporate body are recognized in income accounts in the period of collection. VII. Financial Assets The Bank within the scope of “TFRS 9 Financial Instruments”, classifies and accounts its financial assets as “Financial Assets at Fair Value Through Profit or Loss”, “Financial Assets at Fair Value Through Other Comprehensive Income” or “Financial Assets at Measured at Amortized Cost” by taking into account their business model and contractual cash flow characteristics. Financial assets are recognized or derecognized according to TFRS 9 “Recognition and Derecognition in Statement of Financial Position” requirements. The Bank recognizes a financial asset in its statement of financial position when it becomes a party to the contractual provisions of the financial instrument. Financial assets are measured at their fair value on initial recognition in the financial statements. The Bank has three different business models for classification of financial assets: • Business model aimed at holding financial assets in order to collect contractual cash flows: Financial assets held under the mentioned business model are managed to collect contractual cash flows over the life of these assets. The Bank manages its assets held under this portfolio in order to collect certain contractual cash flows • Business model aimed at collecting contracted cash flows of financial assets and selling: In this business model, the Bank intends both to collect contractual cash flows of financial assets and to sell these assets. • Other business models: A business model in which financial assets; are not held within the scope of a business model aimed at collection of contractual cash flows and within the scope of a business model aimed at collecting and selling contracted cash flows, are measured by reflecting fair value in profit or loss. The Bank is able to reclassify all affected financial assets in case it changes the business model that is used for the management of financial asset. In the event of the termination of the rights related to the cash flows from a financial asset, the transfer of all risks and rewards of the financial asset to a significant extent or has no longer control of the financial assets, the Bank derecognizes the financial asset. 1. Financial Assets at Fair Value Through Profit or Loss Financial assets except financial assets measured at amortized cost or at fair value through other comprehensive income, are measured at fair value through profit or loss. Financial assets at fair value through profit or loss are financial assets held for the purpose of generating profit from short-term fluctuations in price or similar factors in the market or being part of a portfolio for profitability in the short term, regardless of the acquisition reason or financial assets that are not held in a business model that aims at collecting and/or selling contractual cash flows of financial assets. Financial assets at fair value through profit or loss are initially measured at fair value on the balance sheet and are subsequently re-measured at fair value. Gains or losses arising from the valuation are related to profit and loss accounts. In some cases, restructuring, alteration or counterparty changes of contractual cash flows of loans may lead to derecognition of related loans in accordance with TFRS 9. When the change in the financial asset results from derecognizing the existing financial asset from the financial statements and the revised financial asset is recognized in the financial statements, the revised financial asset is considered as a new financial asset in accordance with TFRS 9. When it is determined that there are significant changes between the new conditions of the revised financial asset and the first conditions in related agreements, the Bank evaluates the new financial asset according to the current business models. When it is determined that the contractual conditions do not only result in cash flows that include principal and interest payments at certain dates, the financial asset is recognized at fair value and is subject to valuation. The differences arising from the valuation are reflected in the nominal accounts. The Bank recognizes loans at fair value through profit or loss, if the contractual terms of the loan, do not result in cash flow including the principal payments and interest payments generated from principal amounts at certain dates. These loans are valued at their fair values after their recognition and the losses or gains arising from the valuation are included in the profit and loss accounts. 222 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 223 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 2. Financial Assets at Fair Value Through Other Comprehensive Income Stage 3: Financial assets at fair value through other comprehensive income are financial assets that are held under a business model that aims both to collect contractual cash flows and to sell financial assets, and financial assets with contractual terms that lead to cash flows that are solely payments of principal and interest on the principle amount outstanding at specific dates. Financial assets at fair value through other comprehensive income are initially recognized at their fair value including their transaction costs on the financial statements. The initial recognition and subsequent valuation of such financial assets, including the transaction costs, are carried out on a fair value basis and the difference between amortized cost and the cost of borrowing instruments is recognized in profit or loss by using the effective interest method. Dividend income arising from investments in equity instruments that are classified as at fair value through other comprehensive income is also recognized in income statements. Gains and losses, except impairment gain or loss and foreign exchange gain or loss, arising from changes in the fair value of financial assets at fair value through other comprehensive income are reflected to other comprehensive income until derecognized or reclassified. When the value of the financial asset is collected or financial asset is disposed, the related fair value differences accumulated in the shareholders’ equity are transferred to the profit or loss statement. During the initial introduction to financial statements, amendments to the fair value of an investment in an equity instrument within the framework of TFRS 9 that are not held for trading or that are not valued in a financial statement of an entity that acquires business combinations under the “TFRS 3 Business Combinations” may be subject to an irreversible preference regarding these amendments being accounted in other comprehensive income. In such case dividends taken from mentioned investment will be accounted in financial statement as profit or loss. 3. Financial Assets Measured at Amortized Cost Financial assets measured at amortized cost are those financial assets that are held within the framework of a business model aimed at collecting contractual cash flows over the life of the asset and which result in cash flows that include principal and interest on the principal amount outstanding at specific dates. Financial assets measured at amortized cost with the initial recognition at fair value including transaction costs are subject to valuation with their discounted cost value by using the effective interest rate method, after eliminating any provision for impairment if there is any. Interest income measured by using the effective interest rate method are recognized in the income statement as an “interest income”. The Bank evaluates its loans within the framework of current business models and can be classified as Financial Assets measured at Amortized Cost. VIII. Impairment of Financial Assets In accordance with the “TFRS 9-Financial Instruments” and the regulation “Procedures and Principals regarding Classification of Loans and Allowances Allocated for Such Loans” issued by BRSA, the Bank recognizes expected credit loss allowance on financial assets at fair value through other comprehensive income, financial assets measured at amortized cost, impaired credit commitments and financial guarantee contracts. Within the scope of TFRS 9, the expected credit loss is calculated according to the “three-stage” impairment model based on the change in the loan quality of financial assets after initial recognition and detailed in the following headings: Stage 1: An important determinant for calculating the expected credit loss in accordance with TFRS 9 is to assess whether there is a significant increase in the credit risk of the financial asset. Financial assets that have not experienced a significant increase in credit risk since the initial recognition are monitored in the stage one. Impairment for credit risk for the Stage 1 financial assets is equal to the 12-month expected credit losses. Based on the BRSA's decision dated 17.06.2021 and numbered 9624, until 30.09.2021, the 30-days past due period foreseen for loans, in order to be classified as Stage 2, has been to be applied as 90 days past due for Stage 1 loans. In addition, the Bank provides provisions for customers in this group with a delay of more than 30 days, in accordance with its own risk policies and models, which also evaluate the borrower’s conditions. Based on the BRSA's decision dated 16.09.2021 and numbered 9795, as of 30.09.2021 the 30-days past due period foreseen for loans, in order to be classified as Stage 2 and the 90-days past due for Stage 1 has come to an end. Stage 2: Financial assets that experienced a significant increase in the credit risk since initial recognition, are transferred to Stage 2. The expected credit loss of these financial assets are measured at an amount equal to the instrument’s lifetime expected credit loss. In order to classify a financial asset in the stage 2, the following criteria is considered: Overdue between 30-90 days Restructuring of the loan Significant deterioration in the probability of default In other respect, the 30-days past due period foreseen for loans to be classified as Stage 2, to be applied as 90 days for Stage 1 loans until the date of 30.09.2021 in accordance with the BRSA's decision dated 17.06.2021 and numbered 9624. For the abovementioned group with a past due date more than 90 days, the Bank allocates provisions in accordance with its risk policies and applies grouping approach and models in which also evaluate the borrower's conditions. Based on the BRSA's decision dated 16.09.2021 and numbered 9795, as of 30.09.2021 the 30-days past due period foreseen for loans, in order to be classified as Stage 2 and the 90-days past due for Stage 1 has come to an end. In case of a significant deterioration in the probability of default, the credit risk is considered to be increased significantly and the financial asset is classified as stage 2. The absolute and gradual thresholds used to increase the probability of default are differentiated on the basis of portfolio and product group. In this manner, for the commercial portfolio, definition of increase in the probability of default is the comparison between the probability of default on loan’s opening date, obtained from the integrated rating/score based on internal rating and probability of default of the same loan on reporting date, obtained from the integrated rating/score based on internal rating. For the individual portfolio, it is accepted that the probability of default is worsened in cases where the behavioral score falls below the thresholds determined on the basis of the product and the probability of default exceeds the thresholds determined on the basis of the product. Financial assets with sufficient and fair information for impairment at the reporting date, are classified in the third stage. Expected credit loss of these financial assets is measured at an amount equal to the lifetime expected credit loss. The following basic factors are considered for the classification of a financial asset in the third stage: • More than 90 days past due • Whether the credit rating is weakened, has suffered a significant weakness or cannot be collected or there is a certain opinion on this matter In other respect, based on the BRSA's decision dated 17.06.2021 and numbered 9624, the 90-days past due period for classifying loans as non-performing loans is applied as 180 days until 30.09.2021. Based on the BRSA's decision dated 16.09.2021 and numbered 9795, the implementation of the 90-days past due period for the classification of loans as non-performing loans as 180 days was terminated as of the end of 30.09.2021. While estimating the expected credit loss, statistical models, methods and tools are used in accordance with the relevant legislation and accounting standards. Expected credit loss is measured using reasonable and supportable information by taking current and forecasts of future economic information into consideration, including macroeconomic factors. Three scenarios, base scenario, optimistic scenario and the worst scenario, are used in forecasting studies made by macroeconomic models. The variables used in these macroeconomic estimates Industrial Production Index, Employment Ratio and Credit Default Swap indicators. The validity of the risk parameter estimates used in the calculation of expected credit losses is reviewed and evaluated at least annually within the framework of model validation processes. Macroeconomic forecasts and risk delinquency data used in risk parameter models are re-evaluated every quarter to reflect the changes in economic conjuncture and are updated if needed. In this context, as a result of the review activities carried out in June 2021, the models of the probability of default in the relevant period and the macroeconomic models relating the probability of default to macroeconomic variables and the forward-looking forecasts were updated. In December 2021, macroeconomic forecasts which are approved by the Board of Directors began to be used. Except for demand or revolving loans, the maximum period for which expected credit losses are to be determined is the contractual life of the financial asset. For demand or revolving loans, maturity is determined by taking the future risk mitigation processes into account such as behavioral maturity analyses performed by the Bank and cancellation/revision of the Bank’s credit limit. While calculating the expected credit loss, aside from assessment of whether there is a significant increase in credit risk or not, basic parameters expressed as probability of default, loss given default and exposure at default are used. Probability of Default: Represents the probability of default on the loan over a specified time period. In this context, the Bank has developed models to calculate 12-month and life-time default probabilities by using internal rating based credit rating models. As for the Group Companies historical probability of default data has also been observed. Loss Given Default (LGD): Defined as the damage caused by the default of borrower to the total balance of the exposure at the time of default. The LGD estimates are determined in terms of credit risk groups that are detailed in the Bank’s data resources and system facilities. The model used for the estimation of the LGD was established by taking into account the direct cost items during the collection process, based on the historical data of the Bank’s collection, cash flows are discounted at effective interest rates. Exposure at Default: For cash loans, the cash balance at the date of report, for non-cash loans the balance calculated using the Credit Conversion Factor (CCF) is represented by Exposure at Default. Credit Conversion Factor: Calculated for non-cash loans (undrawn limit for revolving loans, commitments, non-cash loans etc.) The historical limit usage data of the Bank for revolving loans are analyzed and the limit amount that can be used until the moment of default is estimated. For non-cash loans, the cash conversion ratio of the loan amount is estimated by analyzing the product type and the past compensation amount of the bank. Credit risks, which require qualitative assessments due to their characteristics and differ by grouping in this manner, are considered as individual within the internal policies. Calculations are made by the method of discounted cash flows with the effective interest rate expected from the relevant financial instrument. Discounted cash flows are estimated for 3 different scenarios in which parameters are differentiated, and individual expected credit loss is calculated by taking into consideration the cash deficit amounts weighted according to probabilities. Developments recorded in the Bank, the world and the Turkish economy, and besides that, as mentioned above, the Bank allocated expected credit losses by reflecting additional provisions through individual assessments performed for the customers that operates in sectors where the impact might be high in accordance with the Bank’s risk policies. Expected credit loss is reflected in the income statement. Released provisions in the current year are accounted under “Expected Credit Loss Expenses” and released provision which is carried from the prior year are accounted under “Other Operating Income”. Receivables evidenced through the Legal Process that collection is not possible can be written-off by fulfilling the requirements of the Tax Procedure Law. Besides, the loans for which specific provision is allocated and for which there is no reasonable expectation of recovery might be written-off. IX. Offsetting Financial Instruments Financial assets and financial liabilities shall be offset, and the net amount shall be presented in the balance sheet only when a party currently has a legally enforceable right to set off the recognized amounts or intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. X. Sale and Repurchase Agreements and Securities Lending Transactions Marketable securities subject to repurchase agreements are classified under “Financial Assets at Fair Value through Profit and Loss”, “Financial Assets at Fair Value through Other Comprehensive Income” or “Financial Assets Measured at Amortised Cost” in the Bank’s portfolio and they are valued according to the valuation principles of the related portfolios. Funds obtained from the repurchase agreements are recognized under “Funds from Repurchase Transactions” account in liabilities. For the difference between the sale and repurchase prices determined by the repo agreements for the period; expense accrual is calculated using the effective interest rate method. Reverse repo transactions are recognized under the “Receivables from Reverse Repo Transactions” account. For the difference between the purchase and resale prices determined by the reverse repo agreements for the period; income accrual is calculated using the effective interest rate method. 224 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 225 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen XI. Non-current Assets Held for Sale and Discontinued Operations and Related Liabilities Assets that meet the criteria to be classified as held for sale within the scope of “IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations” are measured at the lower one of their fair value and their carrying amount which from the costs to sell are deducted and presented separately within the financial statements. In order to classify a tangible fixed asset as held for sale, the asset (or the disposal group) should be available for an immediate sale in its present condition subject to the terms of any regular sales of such assets (or such disposal groups) and the sale should be highly probable. For a highly probable sale, the appropriate level of management must be committed to a plan to sell the asset (or the disposal group), and an active programme to complete the plan should be initiated to locate a customer. Also, the asset (or the disposal group) should have an active market sale value, which is a reasonable value in relation to its current fair value. Events or circumstances may extend the completion of the sale more than one year. Such assets are still classified as held for sale if there is sufficient evidence that the delay in the sale process is due to the events and circumstances occurred beyond the control of the entity or the entity remains committed to its plan to sell the asset (or disposal group). A discontinued operation is a component of a bank that either has been disposed of or is classified as held for sale. Gains or losses relating to discontinued operations are presented separately in the income statement. XII. Goodwill and Other Intangible Assets As at the balance sheet date, there is no goodwill recorded in the unconsolidated balance sheet of the Bank. The Bank’s intangible assets consist of software programs. The purchased items are presented with their acquisition costs less the accumulated amortization and impairment provisions. In case there is an indication of impairment, the recoverable amount of the related intangible asset is estimated within the framework of “TAS 36 –Impairment of Assets” and impairment provision is set aside in case the recoverable amount is below its acquisition cost. The related assets are amortized by the straight-line method considering the estimated useful life. The amortization method and period are periodically reviewed at the end of each year. XIII. Tangible Assets The Bank follows its real estates in use, which are recorded under tangible fixed assets, according to the revaluation model within the framework of "TAS 16 – Property, Plant and Equipment" since 2015. The positive difference between the net book value of real estate property values and the renewed expertise values which are determined by the licensed valuation in 2021, companies are recorded under the shareholders’ equity. In case there is an indication of impairment, the recoverable amount of the related intangible asset is estimated within the framework of “TAS 36 – Impairment of Assets” and impairment provision is set aside in case the recoverable amount is below its acquisition cost. Tangible assets other than the land and construction in progress are amortized at the straight-line method, according to their estimated useful lives. The estimated useful life, residual amount and the method of amortization are reviewed every year for the possible effects of the changes that occur in the estimates and if there is any change in the estimates, they are recognized prospectively. Assets held under finance lease are depreciated over the expected useful life of the related assets. Assets subject to leasing are depreciated according to relevant contract periods. Leasehold improvements are amortized in equal amounts considering their useful life. However, in any case the useful life cannot exceed leasing term. When the lease period is not certain or longer than 5 years, the amortization period is recognized as 5 years. The difference between the sales proceeds arising from the disposal of tangible assets or the inactivation of a tangible asset and the book value of the tangible assets are recognized in the income statement. Regular maintenance and repair costs incurred for tangible assets are recognized as expense. There are no pledges, mortgages and similar encumbrances on tangible assets. The “Regulation on Procedures and Principles for the Trading of Precious Metals by Banks and the Disposal of Commodities and Real Properties acquired by Banks due to their Receivables” has been abolished by BRSA effective from January 1, 2017. Real properties acquired by Group due to their receivables and not treated in the scope of “TFRS 5 - Non-current Assets Held for Sale and Discontinued Operations" has been started to follow under “Other Assets” in accordance with the related accounting standard from the current period. The depreciation rates used in amortization of tangible assets and their estimated useful lives are as follows: Buildings Safe Boxes Other Movables XIV. Leasing Transactions Estimated Economic Life (Year) Depreciation Rate 50 2-50 2-25 2% 2% – 50% 4% - 50% Assets acquired through financial leases are carried at the lower of their fair values or amortized value of the lease payments. Leasing payables are recognized as liabilities in the balance sheet while the interest payable portion of the payables is recognized as a deferred amount of interest. Finance lease payments are separated as financial expense and principal amount payment, which provides a decrease in finance lease liability, thus helps a fixed rate interest on the remaining principal amount of the debt to be calculated. Within the context of the Bank’s general borrowing policy, financial expenses are recognized in the income statement. Assets held under financial leases are recognized under the “Property, Plant and Equipment” account and are depreciated by using the straight-line method. The Bank does not participate in the financial leasing transactions as a “lessor”. The Bank accounts its operating leases in accordance with the TFRS 16 "leases" standard. Operating leases within the framework of the aforementioned standard are monitored in a similar manner to financial leases. For the agreements within the scope of TFRS 16, the right of use asset and the lease payments are reflected to the financial statements and they are presented under "Tangible Assets" and "Liabilities from Financial Leases", respectively. The lease liability is calculated by discounting the future lease payments by the use of the Bank or alternative borrowing interest rates at the date of initial application or contract date. Fixed assets, which are accounted as right of use assets, are subject to depreciation considering the period of the contract. Interest expenses and foreign exchange differences related to the lease liabilities are associated with profit and loss statement. XV. Provisions and Contingent Liabilities As of the end of the reporting period, a past event is deemed to give rise to a present obligation if, taking account of all available evidence, it is more likely than not that a present obligation exists, the entity recognizes a provision in the financial statements. As of the end of the reporting period where it is more likely that no present obligation exists at the end of the reporting period, the entity discloses a contingent liability on footnotes unless the possibility of an outflow of resources embodying economic benefits is remote. In the financial statements, a provision is made for an existing commitment resulted from past events if it is probable that the commitment will be settled, and a reliable estimate can be made of the amount of the obligation. Provisions are calculated based on the reliable estimates of management on the expenses to incur as of the balance sheet date to fulfill the liability by considering the risks and uncertainties related to the liability. In case the provision is measured by using the estimated cash flows required to fulfill the existing liability, the book value of the related liability is equal to the present value of the related cash flows. If the amount is not reliably estimated and there is no probability of cash outflow from the Bank to settle the liability, the related liability is considered as “contingent” and disclosed in the notes to the financial statements. XVI. Contingent Assets The contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the Bank. Since showing the contingent assets in the financial statements may result in the accounting of an income, which will never be generated, the related assets are not included in the financial statements, but if there is a possibility that an inflow of economic benefits of these assets may occur then it is explained in the footnotes of the financial statements. Nevertheless, the developments related to the contingent assets are constantly evaluated and if it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognized in the financial statements of the period in which the change occurs. XVII. Liabilities Regarding Employee Benefits 1. Severance Indemnities and Short-Term Employee Benefits According to the related regulation and the collective bargaining agreements, the Bank is obliged to pay termination benefits for employees who retire, die, quit for their military service obligations, who have been dismissed as defined in the related regulation or (for the female employees) who have voluntarily quit within one year after the date of their marriage. Within the scope of “TAS 19-Employee Benefits”, the Bank allocates severance indemnity provisions for employee benefits by estimating the present value of the probable future liabilities. According to TAS 19, all actuarial gains and losses occurred are recognized under shareholder’s equity. The Bank also allocates provision for the unused paid vacation. 2. Retirement Benefit Obligations Türkiye İş Bankası A.Ş. Emekli Sandığı Vakfı (“İşbank Pension Fund”), of which each Bank employee is a member, has been established according to the provisional Article 20 of the Social Security Act No. 506. As per provisional article numbered 23 of the Banking Law numbered 5411, it is ruled that Bank pension funds, which were established within the framework of Social Security Act, will be transferred to the Social Security Institution, within 3 years after the publication of such law. Methods and principles related to transfer have been determined as per the Cabinet decision dated 30 November 2006 numbered 2006/11345. However, the related article of the act has been cancelled upon the President’s application dated November 2, 2005, by the Supreme Court’s decision dated March 22, 2007, numbered E.2005/39, K.2007/33, which was published on the Official Gazette dated March 31, 2007 and numbered 26479 and the execution decision was ceased as of the issuance date of the related decision. After the justified decree related to cancelling the provisional Article 23 of the Banking Law was announced by the Constitutional Court on the Official Gazette dated December 15, 2007 and numbered 26731, Turkish Grand National Assembly started to work on establishing new legal regulations, and after it was approved at the General Assembly of the TGNA, the Law numbered 5754 “Emendating Social Security and General Health Insurance Act and Certain Laws and Decree Laws”, which was published on the Official Gazette dated 8 May 2008 and numbered 26870, came into effect. The new law decrees that the contributors of the Bank pension funds, the ones who receive salaries or income from these funds and their rightful beneficiaries will be transferred to the Social Security Institution and will be subject to this Law within 3 years after the release date of the related article, without any need for further operation. The three-year transfer period can be prolonged for maximum 2 years by the Cabinet decision. However related transfer period has been prolonged for 2 years by the Cabinet decision dated March 14, 2011, which was published on the Official Gazette dated April 9, 2011 and numbered 27900. In addition, by the Law “Emendating Social Security and General Health Insurance Act”, which was published on the Official Gazette dated March 8, 2012 and numbered 28227, this period of 2 years has been raised to 4 years after that related transfer period has been prolonged for one more year by the Cabinet decision dated April 8, 2013, which was published on the Official Gazette dated 3 May 2013 and numbered 28636 also this period has revalidated one more year by the Cabinet decision dated February 24, 2014, which was published on the Official Gazette dated April 30, 2014 and numbered 28987. The Council of Ministers has been lastly authorized to determine the transfer date in accordance with the last amendment in the first paragraph of the 20th provisional article of Law No.5510 implemented by the Law No. 6645 on Amendment of the “Occupational Health and Safety Law and Other Laws and Decree Laws” published in the Official Gazette dated April 23, 2015 and numbered 29335. This authority was transferred to the President with the delegated legislation No.703 which was published in the repetitive Official Gazette No. 30473 dated July 9, 2018. On the other hand, the application made on 19 June 2008 by the Republican People’s Party to the Constitutional Court for the annulment and motion for stay of some articles, including the first paragraph of the provisional article 20 of the Law, which covers provisions on transfers, was rejected in accordance with the decision taken at the meeting of the afore-mentioned court on 30 March 2011. The aforementioned Law also states that; • Through a commission constituted by the attendance of one representative separately from the Social Security Institution, Ministry of Finance, Turkish Treasury, State Planning Organization, Banking Regulation and Supervision Agency, Savings Deposit Insurance Fund, one from each pension fund, and one representative from the organization employing pension fund contributors, related to the transferred persons, the cash value of the liabilities of the pension fund as of the transfer date will be calculated by considering their income and expenses in terms of the lines of insurance within the context of the related Law, and technical interest rate of 9.8% will be used in the actuarial calculation of the value in cash, • And that after the transfer of the pension fund contributors, the ones who receive salaries or income from these funds and their rightful beneficiaries to the Social Security Institution, these persons’ uncovered social rights and payments, • despite being included in the trust indenture that they are subject to, will be continued to be covered by the pension funds and the employers of pension fund contributors. In line with the new law, the Bank obtained a technical actuarial valuation report from the licensed actuary for the year ended December 31, 2021. In related period’s financial statements, Bank provided full provision for the total amount of technical and actual deficit stated in the actuarial report of the aforementioned period. The actuarial assumptions used in the related actuarial report are given in Section Five Note II-i-4.1. 226 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 227 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen İşbank Members’ Supplementary Pension Fund has been founded to provide beneficiaries with additional social security and solidarity rights to compulsory social security benefits as per the provisions of the Turkish Commercial Code and Turkish Civil Code. XVIII. Taxation 1. Corporate Tax: In accordance with the Provisional Article 13 added to the Corporate Tax Law Numbered 5520 with the Law Numbered 7316, the 20% rate foreseen in the calculation of the corporate tax for the corporate earnings of the 2021 taxation period is determined as 25% (starting from the declarations to be submitted as of July 1, 2021 and to be valid for the corporate earnings for the taxation period starting from January 1, 2021), and as 23% for the corporate earnings for the 2022 taxation period. In this context, the Corporate Tax rate as of December 31, 2021 is 25%. As per the Corporate Tax law, temporary tax is calculated and paid quarterly in line with the principles of the Income Tax Law and at the corporate tax rate. The temporary tax payments are deducted from the current period’s corporate tax. The 4th provisional tax for the year 2021 will be paid in February 2022 for to be deducted from the corporate tax of the current taxation period. Tax expense consists of current tax and deferred tax. The current tax liability is calculated over the portion of the period subject to taxation. The taxable profit differs from the profit stated in the income statement, as the income and expense items that can be taxable or deductible at other periods, and items that are not taxable or deductible are excluded. The current tax amounts payable are netted off with prepaid tax amounts and presented on the financial statements. Within the framework of the Corporate Tax Law numbered 5520, 75% of the gains on the sale of the participation shares, which were held in the assets for a minimum of 2 whole years and 75% of the gains on the sale of immovable are exempt from tax provided that they are added to the capital as set forth by the Law or that they are kept in a special fund under liabilities for a period of 5 years. However, in accordance with Article 89 / a of the Law No. 7061 and Article 5.1.e and Article 5.1.f of the Corporate Tax Law, which were published in the Official Gazette dated December 5, 2017 and numbered 30261, the 75% applied in terms of immovable sales mentioned above has been reduced to 50% which is effective from the date of publication of the Law. In accordance with the provision of Article 298 / A of the Tax Procedure Law, the necessary conditions for inflation adjustment in the calculation of corporate tax as of the end of the 2021 calendar year have been met. However, the application of inflation adjustment in the calculation of corporate tax was postponed to 2023 with the regulation made with the "Law on the Amendment of the Tax Procedure Law and the Corporate Tax Law" numbered 7352 published in the Official Gazette dated 29.01.2022 and numbered 31734. Accordingly, VUK (Tax Procedure Law) financial statements for the 2021 and 2022 accounting periods, including the provisional tax periods, will not be subject to inflation adjustment, and the 2023 accounting period will not be subject to inflation adjustment as of the temporary tax periods. will be subject to inflation adjustment regardless. 2. Deferred Tax: Deferred tax asset or liability is determined by calculating the tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and the amounts considered in the legal tax base account, by taking the legal tax rates into account. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Free provisions that are allocated for possible future risks are are not subject to deferred tax calculation. No tax assets or liabilities are recognized for the temporary timing difference that affects neither the taxable profit nor the accounting profit and that arises from the initial recognition in the balance sheet, of assets and liabilities, other than the goodwill and mergers. The Bank calculates deferred tax for the provisions allocated for Stage 1 and Stage 2 expected credit loss. The carrying values of deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is measured at enacted tax rates prevailing in the period or about to be enacted when the assets are realized or liabilities are settled, and the tax is recognized as income or expense in the income statement. Nonetheless, if the deferred tax is related to assets directly associated with the equity in the same or different period, it is directly recognized in the equity accounts. In accordance with the Provisional Article 13 added to the Corporate Tax Law Numbered 5520 with the Law Numbered 7316, the 20% rate foreseen in the calculation of the corporate tax for the corporate earnings of the 2021 taxation period is determined as 25% (starting from the declarations to be submitted as of July 1, 2021 and to be valid for the corporate earnings for the taxation period starting from January 1, 2021), and as 23% for the corporate earnings for the 2022 taxation period. The Bank has calculated deferred tax by using 20%, 23%, 25% rates considering the periods when deferred tax assets and liabilities are realized. Deferred tax assets and liabilities are shown in financial tables by way of offsetting. 3. Tax Practices in the Countries that Foreign Branches Operate: Turkish Republic of Northern Cyprus (TRNC) In accordance with TRNC tax legislation, 15% income tax is accrued on the remaining tax base after 10% corporate tax is deducted from corporate income. The tax bases for companies are determined by adding the expenses that cannot be deducted according to TRNC regulations, to commercial gains and by subtracting exemptions and deductions from commercial gains. Income tax is paid in June, and corporate tax payment is made in two equal installments, in May and in October. On the other hand, withholding tax is paid in TRNC over interest income and similar gains of the companies. The related withholding tax payments and provisional tax paid every quarter during the year are deducted from corporate tax payable and the difference between withholding and provisional tax amounts and corporate tax payable is discounted from income tax provided that the withholding tax and paid provisional tax amounts are higher than corporate tax amount. England Corporate earnings are subject to 19% corporate tax in England. The relevant rate is applied to the tax base that is determined by adding the expenses that cannot be deducted due to the regulations, to commercial gains and by subtracting exemptions and deductions from commercial gains. In other respect, if the tax base calculated in accordance with the country legislation is within a certain range, the temporary corporate tax is paid in July, October of the relevant year and in January and April of the following year; If it is over a certain amount, it is paid in 4 installments in March, June, September and December of the relevant year. The corporate tax amount must be finalized and paid by the end of September of the year following the year of profit. In case the corporate tax payable as a result of the calculation is below the temporary taxes paid, the difference amount is deducted later or paid back to the Branch by the authority. Bahrain Banks in Bahrain are not subject to tax according to the regulations of the country. The Republic of Iraq (Iraq) The corporate tax rate in Iraq is 15%, and the corporate tax is paid on a consolidated basis to the tax office of the foreign bank's central branch. The first branch established in Iraq is considered as the central branch. Foreign bank branches whose central branch is within the boundaries of the Central Government must submit their consolidated financial statements to the relevant tax office by the end of May of the following year, and branches of foreign banks whose central branch is within the boundaries of the Northern Iraq Regional Government by the end of June of the following year at the latest and must pay the tax. Northern Iraq Regional Government tax offices can accrue fixed taxes other than the specified rate and can postpone the last payment period. Kosovo Corporate earnings are subject to income tax rate of 10% according to the Kosovo legislation. This ratio is applied to the tax base that will be calculated as a result of the implementation of exemptions, deductions, addition of disallowable expenses, to the corporate income and that are calculated in accordance with the tax laws. Tax has to be paid in advance until April, July, October and the 15th day of January of the following year by four installments. If those prepaid taxes are lower than the final corporate tax, the difference is paid until the end of March of the following year, in case of a claim made by the company, if it is higher, then the difference is returned to the institution by the tax authorities after the inspection conducted by those institutions. 4. Transfer Pricing: Transfer pricing is regulated through Article 13 of Corporate Tax Law titled “Transfer Pricing through Camouflage of Earnings”. Detailed information for the practice regarding the subject is found in the “General Communiqué Regarding Camouflage of Earnings through Transfer Pricing”. According to the aforementioned regulations, in the case of making purchase or sales of goods or services with relevant persons/corporations at a price that is determined against “arm’s length principle”, the gain is considered to be distributed implicitly through transfer pricing and such distribution of gains is not subject to deductions according to article 11 of Corporate Tax Law in means of corporate tax. XIX. Borrowings The Bank, whenever required, generates funds from individuals and institutions residing domestically and abroad by approaching the borrowing instruments in the form of syndication, securitization, collateralized borrowing and issue of bonds/bills. Such transactions are at first carried at acquisition cost, and in the following periods they are valued at amortized cost measured by using the effective interest rate method. XX. Equity Shares and Their Issuance Share issuance related to costs is recognized as expenses. Dividend income related with the equity shares are determined by the General Assembly of the Shareholders. Weighted average number of shares outstanding is taken into account in the calculation of earnings per share. In case the number of shares increases by way of bonus issues as a result of the capital increases made by using the internal sources, the calculation of earnings per share is made by adjusting the weighted average number of shares, which were previously calculated as at the comparable periods. The adjustment means that the number of shares used in calculation is taken into consideration as if the bonus issue occurred at the beginning of the comparable period. In case such changes in the number of shares occur after the balance sheet date, but before the ratification of the financial statements to be published, the calculation of earnings per share are based on the number of new shares. The Bank’s earnings per share calculations taking place in the income statement are as follows: Profit distributable to shareholders Weighted average number of share certificates (Thousand figure) Earnings per share – (in full TL) Current Period 13,467,895 112,502,250 0.119712228 Prior Period 6,810,917 112,502,250 0.060540274 XXI. Bank Acceptances and Bills of Guarantee Bill guarantees and acceptances are realized simultaneously with the customer payments and they are presented as possible liabilities and commitments in the off- balance sheet accounts. XXII. Government Incentives There are no government incentives utilized by the Bank, during the current or prior accounting periods. XXIII. Segment Reporting Business segment is the part of an enterprise, • which conducts business operations where it can gain revenues and make expenditures (including the revenues and expenses related to the transactions made with the other parts of the enterprise), • whose operating results are regularly monitored by the authorities with the power to make decisions related to the operations of the enterprise in order to make decisions related to the funds to be allocated to the segment and to evaluate the performance of the segment, and • which has its separate financial information. Information on the Bank’s business segmentation and related information is explained in Section IV, Note XII. XXIV. Other Disclosures According to the Uniform Chart of Accounts published on January 1, 2021, the collateral amounts for the derivative transactions made with foreign banks which was accounted under “Other Assets” in the prior period has been reclassified to “Cash and Cash Equivalents-Banks”. In order to comply with the statement of financial position of the current period, a reclassification of TL 2,517,503 was made between the mentioned lines in the statement of financial position dated December 31, 2020. The effects of this reclassification on the cash flow have also been updated. The aforementioned reclassification did not have a significant effect on the size and performance of the Bank's statement of financial position. 228 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 229 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Section Four: Information On The Financial Position And Risk Management Of The Bank I. Explanations on Shareholders’ Equity The capital adequacy standard ratio of the bank is 20.36%. (31.12.2020: 18.68%). The capital adequacy standard ratio for the current period was calculated based on the Regulation on Measurement and Assessment of Capital Adequacy of Banks and other legal regulations and the BRSA regulation dated 21.12.2021 and numbered 9996. Within the scope of this regulation, the equity amount calculated without reflecting the negative net valuation differences of the securities included in the "Fair Value Through Other Comprehensive Income" portfolio was taken into consideration; in the calculation of the amount subject to credit risk, the simple arithmetic average of the last 252 business days in the foreign exchange buying rates of the Central Bank of the Republic of Turkey was used. COMMON EQUITY TIER I CAPITAL Paid-in Capital to be Entitled for Compensation after All Creditors Share Premium Legal Reserves Other Comprehensive Income according to TAS Profit Net Current Period Profit Prior Period Profit Bonus Shares from Associates, Subsidiaries 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 Current Period Prior Period 6,115,938 109,148 45,454,002 23,175,203 18,882,481 13,467,895 5,414,586 6,115,938 90,724 39,469,305 10,088,593 13,081,825 6,810,917 6,270,908 93,736,772 68,846,385 1,434,150 48,823 393,890 48,658 Current Period Prior Period 3,574,883 90,161,889 2,180,193 66,666,192 Total Deductions from Common Equity Tier I Capital Total Common Equity Tier I Capital ADDITIONAL TIER I CAPITAL Preferred Stock not Included in Common Equity Tier I Capital and the Related Share Premiums 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) Additional Tier I Capital before Deductions 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 Consolidated Banks and Financial Institutions where the Bank does not own 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 Consolidated Banks and Financial Institutions where the Bank owns more than 10% of the Issued Share Capital Other items to be Defined by the regulator 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 Evaluation of Capital Adequacy of Banks (-) Net Deferred Tax Asset/Liability not deducted from Tier 1 Capital as per the Temporary Article 2, Clause 1 of the Regulation on Measurement and Evaluation 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 Other Intangible Assets Netted with Deferred Tax Liabilities Except Mortgage Servicing Rights 1,561,603 1,207,338 Total Tier I Capital (Tier I Capital= Common Equity Tier I Capital + Additional Tier I Capital) 90,161,889 66,666,192 Remaining after deducting from the related deferred tax liability with the deferred tax asset based on future taxable income, except for deferred tax assets based on temporary differences 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 1 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 (amount above 10% threshold) Net Deferred Tax Assets arising from Temporary Differences Exceeding the Threshold of Tier I Capital Amount Exceeding the 15% Threshold of Tier 1 Capital as per the Article 2, Clause 2 of the Regulation on Measurement and Evaluation of Capital Adequacy of Banks The Portion of Net Long Position of the Investments in Equity Items of Consolidated Banks and Financial Institutions where the Bank owns 10% or more of the Issued Share Capital not deducted from Tier 1 Capital Excess Amount arising from Mortgage servicing rights Excess Amount arising from Deferred Tax Assets from Temporary Differences Other items to be defined by the regulator Deductions from Tier I Capital in cases where there are no adequate Additional Tier I or Tier II Capitals 530,307 530,307 TIER II CAPITAL 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) Tier II Capital Before Total Deductions 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 The Total of Net Long Position 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 Tier I Capital (-) The Total 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 Exceeding the 10% Threshold of Tier I Capital (-) Other items to be Defined by the regulator (-) Total Deductions from Tier II Capital Total Tier II Capital Total Equity (Total Tier I and Tier II Capital) Deductions from Total Equity (Tier I Capital and Tier II Capital) Loans Granted against the Articles 50 and 51 of the Banking Law 18,606,250 11,481,250 1,046,800 6,512,019 1,253,000 5,141,120 26,165,069 17,875,370 26,165,069 116,326,958 1,274 1,194 17,875,370 84,541,562 1,102 721 Net Book Values of Movables and Immovable’s 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 regulator 80 381 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 Consoli-dated Banks and Financial Institutions where the Bank does not own 10% or less of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital not deducted from Tier I Capital, Additional Core Capital or Tier II Capital as per the Temporary Article 2, Clause 1 of the Regulation 230 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 231 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Current Period Prior Period Information on Subordinated Liabilities: The Portion of Total of Net Long Positions of the Investments in Equity Items of Consoli-dated 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 Addi-tional Tier I Capital or Tier II Capital as per the Temporary Article 2, Clause 1 of the Regula-tion The Portion of Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank owns 10% of the Issued Share Capital, Deferred tax assets based on temporary differences and the right to offer mortgage as per the Temporary Article 2, Clause 1, Sub Clause 1 and 2 of the Regulation CAPITAL Total Capital (Total of Tier I Capital and Tier II Capital) Total Risk Weighted Assets CAPITAL ADEQUACY RATIOS Common Equity Tier I Capital Ratio (%) Tier I Capital Ratio (%) Capital Adequacy Ratio (%) BUFFERS Total Additional Common Equity Requirement Ratio (a+b+c) a) Capital Conservation Buffer Ratio (%) b) Bank-specific Counter-Cyclical Capital Buffer Ratio (%) c) Systematic Important Bank Buffer Ratio (%) Additional Common Equity Tier I 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 116,325,684 571,357,082 84,540,460 452,476,866 15.78 15.78 20.36 2.560 2.500 0.060 0.000 9.78 14.73 14.73 18.68 2.560 2.500 0.060 0.000 8.73 280,196 242,174 2,557,610 3,420,494 General Loan Provisions for Exposures in Standard Approach (before limit of one hundred and twenty five per ten thousand) 15,233,222 10,923,729 General Loan Provisions for Exposures in Standard Approach Limited by 1,25% of Risk Weighted Assets 6,512,019 5,141,120 Total Loan Provision that Exceeds Total Expected Loss Calculated According to the Communiqué on Calculation of Credit Risk by Internal Ratings Based Approach Total Loan Provision that Exceeds Total Expected Loss Calculated According to the 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 January 2018-1 January 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 1,046,800 17,272,200 1,253,000 9,086,000 Issuer Türkiye İş Bankası A.Ş. Türkiye İş Bankası A.Ş. Türkiye İş Bankası A.Ş. Türkiye İş Bankası A.Ş. Unique identifier (CUSIP, ISIN etc.) US900151AB70 - XS0847042024 US900151AF84 - XS1003016018 US90016BAF58 – XS1623796072 XS2106022754 Governing law(s) of the instrument It is subject to English Law except for certain articles that will be subject to Turkish Law. Issued within the scope of BRSA Regulation on Banks’ Equity. It is subject to English Law except for certain articles that will be subject to Turkish Law. Issued within the scope of BRSA Regulation on Banks’ Equity. It is subject to English Law except for certain articles that will be subject to Turkish Law. Issued within the scope of BRSA Regulation on Banks’ Equity. It is subject to English Law except for certain articles that will be subject to Turkish Law. Issued within the scope of BRSA Regulation on Banks’ Equity. Taking into account in equity calculation Subject to 10% deduction as of 1/1/2015 Yes Eligible at unconsolidated/ consolidated Instrument type Amount recognized in regulatory capital (Currency in million, as of most recent reporting date) Unconsolidated -Consolidated Bond Par value of instrument 13,085 No No No Unconsolidated -Consolidated Bond 1,047 5,234 Unconsolidated -Consolidated Unconsolidated -Consolidated Bond 6,543 6,543 Bond 9,814 9,814 Accounting classification Subordinated Liabilities Subordinated Liabilities Subordinated Liabilities Subordinated Liabilities Original date of issuance 24.10.2012 Perpetual or dated Original maturity date Issuer call subject to prior supervisory (BRSA) approval Dated 10 Years Yes 10.12.2013 Dated 10 Years Yes 29.06.2017 Dated 11 Years Yes 22.01.2020 Dated 10 Years Yes Optional call date, contingent call dates and redemption amount The Bank: (1) provided that subject to having obtained the prior approval of the BRSA and the date which may not be earlier than fifth anniversary of the Issue Date a) can purchase b) can redeem all bonds if any taxes imposed or levied (2) can redeem all bonds in case of the deduction from equity. The Bank: (1) provided that subject to having obtained the prior approval of the related legislation, can purchase or otherwise acquire treasury stock (2) provided that subject to having obtained the prior approval of the BRSA, (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity. The Bank has the option to repay all of the related bonds on June 29, 2023 provided that subject to having obtained the prior approval of the BRSA. The Bank: (1) provided that subject to having obtained the prior approval of the related legislation, can purchase or otherwise acquire treasury stock (2) provided that subject to having obtained the prior approval of the BRSA, (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity. The Bank has the option to repay all of the related bonds on January 22, 2025 provided that subject to having obtained the prior approval of the BRSA. The Bank: (1) provided that subject to having obtained the prior approval of the related legislation, can purchase or otherwise acquire treasury stock (2) provided that subject to having obtained the prior approval of the BRSA, (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity. Subsequent call dates, if applicable None. Coupons / dividends Fixed or floating dividend/coupon Coupon rate and any related index Existence of a dividend stopper Fully discretionary, partially discretionary or mandatory Existence of step up or other incentive to redeem Fixed 6 % None. None. None. None. Fixed 7.85 % None. None. None. None. Fixed 7 % None. None. None. None. Fixed 7.75 % None. None. None. Noncumulative or cumulative Noncumulative Noncumulative Noncumulative Noncumulative 232 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 233 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Convertible or non-convertible None. None. None. None. If convertible, conversion trigger (s) If convertible, fully or partially If convertible, conversion rate If convertible, mandatory or optional conversion If convertible, specify instrument type convertible into If convertible, specify issuer of instrument it converts into Write-down feature None If write-down, write-down trigger(s) If write-down, full or partial If write-down, permanent or temporary If temporary write-down, description of write-up mechanism Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) In accordance with Regulations on Equities of Banks.Article 8.2.ğ. bonds have deleted option from records. Due to the losses incurred, where the Bank is at the point at which the BRSA may determine pursuant to Article 71 of the Banking Law that: (i) its operating license is to be revoked and the Bank is liquidated or (ii) the rights of all of its shareholders (except to dividends), and the management and supervision of the Bank, are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable). In accordance with Regulations on Equities of Banks.Article 8.2.ğ bonds have deleted option from records. In accordance with Regulations on Equities of Banks.Article 8.2.ğ. bonds have deleted option from records. Due to the losses incurred, where the Bank is at the point at which the BRSA may determine pursuant to Article 71 of the Banking Law that: (i) its operating license is to be revoked and the Bank is liquidated or (ii) the rights of all of its shareholders (except to dividends), and the management and supervision of the Bank, are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable) Due to the losses incurred, where the Bank is at the point at which the BRSA may determine pursuant to Article 71 of the Banking Law that: (i) its operating license is to be revoked and the Bank is liquidated or (ii) the rights of all of its shareholders (except to dividends), and the management and supervision of the Bank, are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable) Partially or completely Partially or completely Partially or completely Permanent Permanent Permanent Paid before shares and the primary of subordinated debt and after all the other debts. Paid before shares and the primary of subordinated debt and after all the other debts. Paid before shares and the primary of subordinated debt and after all the other debts. Paid before shares and the primary of subordinated debt and after all the other debts. In compliance with article number 7 and 8 of “Own fund regulation” Yes Yes Yes Yes Details of incompliances with article number 7 and 8 of “Own fund regulation” Don't vest with the conditions stated in clause of the Article 7 and the clause of 8.2. (ğ) To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. Issuer Türkiye İş Bankası A.Ş. Unique identifier (CUSIP, ISIN etc.) TRSTISB72712 Türkiye İş Bankası A.Ş. TRSTISB62911 Türkiye İş Bankası A.Ş. TRSTISB92918 Governing law(s) of the instrument Is subject to Turkish Law. Has been issued in accordance with the BRSA Communiqué regarding the Equity of Banks. Is subject to Turkish Law. Has been issued in accordance with the BRSA Communiqué regarding the Equity of Banks. Is subject to Turkish Law. Has been issued in accordance with the BRSA Communiqué regarding the Equity of Banks. Taking into account in equity calculation Subject to 10% deduction as of 1/1/2015 No No No Eligible at unconsolidated / consolidated Instrument type (types to be specified by each jurisdiction) Amount recognized in regulatory capital (Currency ın TL million, as of most recent reporting data) Nominal value of instrument (TL Million) Accounting classification Original date of issuance Perpetual or dated Original maturity date Issuer call subject to prior supervisory approval Yes 08.08.2017 Dated 10 Years Unconsolidated – Consolidated Unconsolidated - Consolidated Unconsolidated – Consolidated Bond 1,100 1,100 Bond 800 800 Bond 350 350 Subordinated Liabilities Subordinated Liabilities Subordinated Liabilities 19.06.2019 Dated 10 Years Yes 26.09.2019 Dated 10 Years Yes Optional call date, contingent call dates and redemption amount The Bank; (1) can purchase bills that subject to having obtained the prior approval of the BRSA and the date which may not be earlier than fifth anniversary of the Issue Date (2) (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity The Bank; (1) can purchase bills that subject to having obtained the prior approval of the BRSA and the date which may not be earlier than fifth anniversary of the Issue Date (2) (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity The Bank; (1) can purchase bills that subject to having obtained the prior approval of the BRSA and the date which may not be earlier than fifth anniversary of the Issue Date (2) (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity Subsequent call dates, if applicable None. Interest/Dividend Payment Fixed or floating coupon/dividend payments Floating None. Floating None. Floating Coupon rate and any related index Government Debt Security for 5 years + 350 base points TRLIBOR with 3 months maturity + 100 base points Government Debt Security for 5 years + 350 base points Existence of a dividend stopper Fully discretionary, partially discretionary or mandatory Existence of step up or other incentive to redeem Noncumulative or cumulative None. None. Convertible into equity shares None. If convertible, conversion trigger (s) Non-cumulative If convertible, fully or partially None. If convertible, conversion rate If convertible, mandatory or optional conversion If convertible, specify instrument type convertible into If convertible, specify issuer of instrument it converts into None. None. None. None. None. None. None. None. None. None. Non-cumulative None. Non-cumulative None. 234 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 235 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Write-down feature If write-down, write-down trigger(s) If bond can be written-down, full or partially If bond can be written-down, permanent, or temporary If temporary write-down, description of write-up mechanism Position in subordination hierarchy in case of liquidation (instrument type immediately senior to the instrument) In accordance with Regulations on Equities of Banks, Article 8 (2) (ğ), bonds have deleted option from records. In accordance with Regulations on Equities of Banks, Article 8 (2) (ğ), bonds have deleted option from records. In accordance with Regulations on Equities of Banks, Article 8 (2) (ğ), bonds have deleted option from records. Due to the losses incurred, within the framework of Article 71 of the Banking Law, (1) the Bank’s operating license is to be revoked and liquidated or (2) the rights of all of its shareholders (except to dividends) and the management and supervision of the Bank are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable) based on the decision of the BRSA. Due to the losses incurred, within the framework of Article 71 of the Banking Law, (1) the Bank’s operating license is to be revoked and liquidated or (2) the rights of all of its shareholders (except to dividends) and the management and supervision of the Bank are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable) based on the decision of the BRSA. Due to the losses incurred, within the framework of Article 71 of the Banking Law, (1) the Bank’s operating license is to be revoked and liquidated or (2) the rights of all of its shareholders (except to dividends) and the management and supervision of the Bank are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable) based on the decision of the BRSA. Partially or Completely Partially or Completely Partially or Completely Permanent Permanent Permanent Paid before shares and the primary of subordinated debt and after all the other debts. Paid before shares and the primary of subordinated debt and after all the other debts. Paid before shares and the primary of subordinated debt and after all the other debts. In compliance with article number 7 and 8 of Regulation on Bank Capital Yes. Yes. Yes. Details of incompliances with article number 7 and 8 of Regulation on Bank Capital To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. Explanations on the reconciliation of amounts on the equity items statement and amounts on the balance sheet: Current Period Shareholders’ equity Carrying Amount 86,839,291 Leasehold improvements on operational leases 48,823 Goodwill and intangible assets Provision Subordinated debt Deductions from shareholders’ equity Capital 1,750,109 15,233,222 37,470,997 1,274 Amounts in Equity 91,772,315 (48,823) (1,561,603) 6,512,019 19,653,050 (1,274) 116,325,684 (*) The related amounts are calculated in accordance with “Regulation on Equities of Banks”. In this context, part of the expected credit loss of stage 1 and stage 2 up to 1.25 % of amount subject to credit risk, part; subordinated loans according to fourth article of the regulation, have been taken into consideration in equity calculation. On the other hand, in the calculation, the equity amount calculated in accordance with the HIN II. Explanations on Credit Risk 1. Credit risk is defined as the possibility of incurring loss where the counterparty in a transaction, partially or completely fails to meet its contractual obligations in due time in an agreement with the Bank. The Bank’s position against the credit risk limits defined by the current legislation is monitored by the Board. Within this framework, loans extended to Risk Groups and the Bank’s Risk Group, including the Bank; loans in high amounts and limitations regarding the shares in participations are monitored according to the limits determined in connection with the size of the shareholders’ equity. Credit risk limits of customers are determined depending on the financial situation and loan requirements of the borrowers, in strict compliance with the relevant banking legislation, within the framework of loan authorization limits of Branches, Regional Offices, Loan Divisions, the Deputy Chief Executives responsible for loans, the CEO, the Credit Committee and Board of Directors. These limits may be changed as may be deemed necessary by the Bank. Moreover, all commercial credit limits are revised periodically, provided that each period does not exceed a year. Furthermore, the borrowers and borrower groups forming a large proportion of the overall placement are subject to risk limits in order to provide further minimization of potential risk. The geographical distribution of borrowers is consistent with the concentration of industrial and commercial activities in Turkey. The distribution of borrowers by sector is monitored closely for each period and sectoral risk limits have been determined to prevent concentration of risk in sectoral sense. The credit-worthiness of customers is monitored on a consistent basis by using company rating and scoring models specially developed for this purpose, and the audit of statements of account received is assured to have been made in accordance with the provisions as stipulated by the relevant legislation. Utmost importance is given to ensure that loans are furnished with collaterals. Allocation decision, by the definition of credit risk, is not based on the assumption of collaterals can be liquidized. Most of the loans extended are collateralized by taking real estate, movable or commercial enterprise under pledge, promissory notes and other liquid assets as collateral, or by acceptance of bank letters of guarantee and individual or corporate guarantees. Jurisdictional applicability of collaterals in default, time required to convert to money and ability to maintain expected values are taken into consideration from the beginning of the credit allocation process. Most of the loans are collateralized by the receipt of real estate and securities pledge, commercial enterprise pledge, exchange notes and other liquid securities receivables, bank letters of guarantees and surety of other persons and institutions. It is an important element of the credit policy that disinclude concentration on collaterals. Non-performing and impaired loans has been classified in accordance with the “TFRS 9-Financial Instruments” and BRSA’s “Regulation on Procedures and Principles for Classification of Loans and Provisions to be set aside”. The detailed descriptions of these methods correspond with accounting practices, are included in Section Three Note VIII. Credit risk is the risk reduction effects without taking into consideration the total amount of exposures after offsetting transactions with different risk classes according to the types and amounts of disaggregated risks are listed below the average for the period. 236 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 237 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Amount subject to credit risk (*) Risk Classifications Exposures to central governments or central banks Exposures to regional governments or local authorities Exposures to administrative bodies and non-commercial undertakings Exposures to multilateral development banks Exposures to international organizations Exposures to banks and brokerage houses Corporates exposures Retail exposures Exposures secured by residential real estate property Exposures secured by commercial real estate property Past due items Items in regulatory high-risk categories Exposures in the form of bonds by mortgages Short term exposures to banks, brokerage houses and corporates Exposures in the form of collective investment undertakings Other items Share Certificate Investment Current Period Risk Amount Average Risk Amount (**) 264,713,872 214,008,092 342,308 587,608 299,645 37,110,005 306,274,932 126,174,590 24,777,988 27,717,894 6,791,059 23,644,249 1,586,280 27,148,061 38,685,526 395,467 537,899 262,665 36,845,064 290,212,366 123,261,858 13,046,179 24,579,458 7,119,226 9,365,333 1,702,165 24,916,443 31,487,099 (*) Risk amounts after the credit conversions and the effects of credit risk mitigation (**) Average risk amounts are the arithmetical average of the amounts in quarterly reports prepared. 2. There are certain control limits on forward transactions in terms of counter parties, and the risks taken for derivative instruments are evaluated along with other potential risks resulting from the market fluctuations. 3. As a result of the current level of customers’ needs and the progress in the domestic market in this particular area, the Bank uses derivative transactions either for hedging or for commercial purposes. Derivative instruments with a remarkable volume are monitored with consideration that they can always be liquidated in case of need. 4. Indemnified non-cash loans are considered as having the same risk weights as unpaid cash loans. The rating and scoring systems applied by the Bank, includes detailed company analysis and enables rating of all companies and loans without any restrictions regarding credibility. Loans and companies, which have been renewed, restructured or rescheduled, are rated within the scope of this system. Specialized loans are evaluated by a special rating system, which is based on the credibility of the counterparty as well as the feasibility and risk analysis of the cash flows created mainly by the projects undertaken or the asset financed. 5. Lending transactions abroad are conducted by determining the country risks of related countries within the context of the current rating system and by taking the market conditions, country risks, and the relevant legal limitations into account. Furthermore, the credibility of banks and other financial institutions established abroad is examined within the framework of the ratings that are determined by rating agencies and backed with CDS-IR (based on credit default swap) ratings and credit limits are assigned to the related banks and financial institutions accordingly. 6. i. The share of the Bank’s receivables from the top 100 and 200 cash loan customers in the overall cash loan portfolio stands at 31%, 39%, respectively (December 31, 2020: 27%, 36%). 9. The net values of the collaterals of the closely monitored loans are given below in terms of collateral types and risk matches. Type of Collateral Personal Current Period Commercial and Corporate Credit Cards Personal Credit Cards Prior Period Commercial and Corporate 8,318,497 291,707 204,747 586 681,452 37,128 1,469,688 Real Estate Mortgage (*) 1,085,464 8,038,098 Cash Collateral (Cash, securities pledge, etc.) 48,643 Pledge on Wages and Vehicles 2,344,742 248,190 331,996 499 Cheques & Notes Other (Suretyship, commercial enterprise under pledge, commercial papers, etc.) Non-collateralized Total 450,396 33,902,536 236,678 23,694,264 3,411,382 7,340,627 7,588,212 50,109,531 2,206,344 2,206,344 1,432,206 3,857,152 5,398,670 37,908,471 1,067,462 1,067,462 (*) The mortgage and/or pledge amounts on which third parties have priorities are deducted from the fair values of collaterals in expertise reports; and after comparing the results to the mortgage/pledge amounts and loan balances, the smallest figures are considered to be the net value of collaterals. 10. The net values of the collaterals of non-performing loans are given below in terms of collateral types and risk matches. Type of Collateral Real Estate Mortgage (*) Cash Collateral Vehicle Pledge Other (Suretyship, commercial enterprise under pledge, commercial papers, etc.) Current Period Prior Period Net Value of the Collateral Loan Balance Net Value of the Collateral Loan Balance 5,444,533 657 263,607 6,716,113 5,444,533 657 263,607 6,716,113 5,580,741 366 286,435 7,262,883 5,580,741 366 286,435 7,262,883 (*) The mortgage and/or pledge amounts on which third parties have priorities are deducted from the fair values of collaterals in expertise reports, and after comparing the results to the mortgage/pledge amounts and loan balances the smallest figures are considered to be the net value of collaterals. 11. The aging analysis of the receivables past due but not impaired in terms of financial asset classes, is as follows: Current Period (*) Loans Corporate / Commercial Loans Consumer Loans Credit Cards 31-60 Days (**) 61-90 Days (**) (***) Total 79,196 155,537 393,119 627,852 689,714 70,167 204,307 964,188 768,910 225,704 597,426 1,592,040 ii. The share of the Bank’s receivables from the top 100 and 200 non-cash loan customers in the overall non-cash portfolio stands at 44%, 57% respectively (December 31, Total 2020: 45%, 58%). iii. The share of the Bank’s cash and non-cash receivables from the top 100 and 200 loan customers in the overall cash and non-cash loans stands at 17%, 23%, respectively (December 31, 2020: 17%, 23%). Companies that are among the top loan customers ranked according to cash, non-cash and total risks are leaders in their own sectors, the loans advanced to them are in line with their volume of industrial and commercial activity. A significant part of such loans is extended on a project basis, with their repayment sources being analyzed in accordance with the banking principles to be considered as satisfactory and associated risks are determined and duly covered by obtaining appropriate guarantees when deemed necessary. 7. The total value of the stage 1 and stage 2 expected credit loss allocated for credit risk stands at TL 14,511,914 (December 31, 2020: TL 10,375,920). 8. The Bank measures the quality of its loan portfolio by applying different rating/scoring models on cash commercial/corporate loans, retail loans and credit cards. The breakdown of the rating/scoring results, which are classified as “Strong”, “Standard” and “Below Standard” by considering their default features, is shown below. The loans whose borrowers’ capacity to fulfill their obligations is very good, are defined as “Strong”, whose borrowers’ capacity to fulfill its obligations in due time is reasonable, are defined as “Standard” and whose borrowers’ capacity to fulfill their obligations is poor, are defined as “Below Standard”. (*) The loans classified as closely monitored that are not past due or past due for less than 31 days is TL 55,682,522. (**) Related figures show only overdue amounts of installment based commercial loans and installment-based consumer loans; the principal amounts of the loans which are not due as of the balance sheet date are equal to TL 1,185,836 and TL 1,196,104 respectively. Prior Period (*) Loans Corporate / Commercial Loans Consumer Loans Credit Cards Total 31-60 Days (**) 61-90 Days (**) Total 120,921 28,118 60,020 209,059 1,564,999 147,779 184,618 1,897,396 1,685,920 175,897 244,638 2,106,455 Strong Standard Below Standard The table data comprises behavior rating/scoring results. 238 | İŞBANK 2021 INTEGRATED ANNUAL REPORT Current Period Prior Period %45.06 %49.68 %5.26 48.71 % 43.51 % 7.78 % (*) The loans classified as closely monitored that are not past due or past due for less than 31 days is TL 37,329,789. (**) Related figures show only overdue amounts of installment based commercial loans and installment-based consumer loans; the principal amounts of the loans which are not due as of the balance sheet date are equal to TL 2,660,732 and TL 736,109 respectively. (***) Based on the decisions taken by the BRSA within the scope of the COVID-19 outbreak, only the overdue amounts (1,369,804 TL) of the loans that have delayed more than 90 days as of 17.03.2020 and continue to be classified under close monitoring are included and the payment of these loans its outstanding balance is 2,097,786 TL. İŞBANK 2021 INTEGRATED ANNUAL REPORT | 239 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 12. Profile of significant exposures in major regions Current Period Domestic European Union OECD Countries (**) Off-Shore Banking Regions USA, Canada Other Countries Investments in Associates, Subsidiaries and Jointly Controlled Entities Undistributed Assets/ Liabilities (***) Total Risk Groups (*) Contingent and Non- Contingent Receivables from Central Governments or Central Banks (****) Contingent and Non- Contingent Receivables from Regional Government or Domestic Government Contingent and Non- Contingent Receivables from Administrative Units and Non- Commercial Enterprises Contingent and Non- Contingent Receivables from Multilateral Development Banks Contingent and Non- Contingent Receivables from International Organizations Contingent and Non- Contingent Receivables from Banks and Intermediaries Contingent and Non- Contingent Corporate Receivables Contingent and Non- Contingent Retail Receivables Contingent and Non- Contingent Receivables Secured by Residential Property 260,247,872 393 1,136,972 3,328,635 264,713,872 342,280 587,534 299,645 28 74 342,308 587,608 299,645 5,913,906 16,832,796 8,512,787 1,405 4,209,839 1,639,272 37,110,005 294,656,816 982,718 2,629,437 652,920 3,369 7,349,672 124,213,264 245,659 143,404 1,545 37,789 1,532,929 51,549,305 212,708 45,683 85 34,547 653,554 Non-Performing Receivables 6,653,184 127,476 4,330 1,349 4,720 23,255,664 92,613 12,713 1,377 13,994 267,888 Receivables are identified as high risk by the Board Secured Marketable Securities Securitization Positions Short-term Receivables and Short-term Corporate Receivables from Banks and Intermediaries Investments as Collective Investment Institutions 1,586,280 Other Receivables 26,581,561 110,895 455,605 Share Certificate Investments 38,685,526 Total 795,587,666 18,605,258 12,103,604 657,332 5,437,859 14,776,772 38,685,526 (*) Risk amounts after the credit conversions and the effects of credit risk mitigation (**) OECD countries other than EU countries, USA and Canada (***) Assets and liabilities that are not consistently allocated. (****) Credits guaranteed by the Undersecretariat of Treasury are included in the class of receivables from central government. 306,274,932 126,174,590 52,495,882 6,791,059 23,644,249 1,586,280 27,148,061 38,685,526 885,854,017 Prior Period Domestic European Union OECD Countries (**) Off-Shore Banking Regions USA, Canada Other Countries Investments in Associates, Subsidiaries and Jointly Controlled Entities Undistributed Assets/ Liabilities (***) Total Risk Groups (*) Contingent and Non-Contingent Receivables from Central Governments or Central Banks (****) 171,550,123 554 1,381,513 2,167,530 175,099,720 Contingent and Non-Contingent Receivables from Regional Government or Domestic Government 454,664 Contingent and Non- Contingent Receivables from Administrative Units and Non- Commercial Enterprises Contingent and Non-Contingent Receivables from Multilateral Development Banks Contingent and Non-Contingent Receivables from International Organizations Contingent and Non-Contingent Receivables from Banks and Intermediaries Contingent and Non-Contingent Corporate Receivables Contingent and Non-Contingent Retail Receivables Contingent and Non-Contingent Receivables Secured by Residential Property 1 93 546,941 36,797 192,154 5,040,922 16,705,749 5,463,934 11,772 3,678,389 1,222,927 245,186,583 878,894 760,374 592,449 902,905 5,674,901 107,085,755 341,011 127,212 1,358 48,685 1,469,511 454,665 547,034 228,951 32,123,693 253,996,106 109,073,532 33,285,077 110,679 29,606 126 9,658 25,586 33,460,732 Non-Performing Receivables 7,321,663 12,428 208 2,231 6,450 Receivables are identified as high risk by the Board 165,740 1 15 Secured Marketable Securities Securitization Positions Short-term Receivables and Short-term Corporate Receivables from Banks and Intermediaries Investments as Collective Investment Institutions 1,581,841 Other Receivables 21,287,537 9.340 Equity Investments 26,315,903 Total 593,506,846 18,086,113 6,582,828 605,705 6,023,381 10,567,014 26,315,903 (*) The figures represent total risk amounts before credit risk mitigation and after credit conversion factor. (**) OECD countries other than EU countries, USA and Canada (***) Assets and liabilities that are not consistently allocated (****) Credit Guarantee Fund guaranteed by the Undersecreteriat of Treasury are included in the receivables from central governments. 7,342,980 165,756 1,581,841 21,296,877 26,315,903 661,687,790 240 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 241 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 13. Risk profile by sectors or counterparties: (1) (**) (2) Sectors/Counterparty (*) Agricultural Farming and Raising Livestock Forestry Fishing Industry Mining Production 42,012 39,609 917 1,486 1,031,211 20,385 993,819 Electricity, gas, and water 17,007 Construction Services 1,102,436 138,609,511 Wholesale and Retail Trade 1,174,187 Hotel, Food and Beverage Services Transportation and Telecommunication 300,534 4,202,103 Current Period Bank (4) (3) 532 461 71 33,475 33,475 4,563 (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) TP YP Toplam Current Period Bank 2,583,125 4,622,076 691,707 40,417 154,192 6,591,972 1,542,089 8,134,061 1,723,853 4,569,094 642,897 37,023 152,972 6,480,754 685,155 7,165,909 26,603 832,669 22,705 30,277 143,084,433 11,363,740 6,032,300 273,603 90,997,114 10,826,832 46,055,019 263,305 33,502,377 5,057,865 3,233 45,577 293 3,101 699 521 54,272 56,946 249 54,521 856,685 913,631 7,947,901 2,161,578 165,739 18,753,156 61,386,522 123,154,711 184,541,233 77,901 48,323 3,399 1,473,045 4,982,866 6,455,911 7,564,090 521,967 154,369 18,753,156 50,992,615 78,818,732 129,811,347 305,910 1,591,288 7,971 4,278,608 2,409,240 185,827 8,920,862 39,353,113 48,273,975 19,237,987 27,302,929 46,540,916 464,598 299,645 36,385,396 105,497,726 42,063,968 21,982,511 1,618,485 1,028,028 1,586,280 608,731 19,297,443 141,234,472 228,207,850 369,442,322 42,161,235 24,699,996 10,108,863 558,929 423,011 114,020 52,522,849 26,717,392 79,240,241 7,169,755 2,431,754 3,025,167 170,082 118,540 4,754,981 8,460,851 13,215,832 9 26,376,167 10,127,024 2,224,748 751,418 251,552 114,785 17,601,362 26,446,444 44,047,806 Financial Institutions 132,735,419 339,710 299,645 36,385,396 17,714,786 555,874 792,378 1,405 Real Estate and Renting Services 45,040 Self-Employment Services 32,835 Education Services 46,419 Health and Social Services 72,974 84,181 35,793 4,716 189 4,888,884 1,720,446 3,932,915 96,169 741,510 1,046,842 859,042 405,189 5,586,347 1,076,843 406,469 908,184 583,787 14,924 10,969 14,589 7,127 60,451 90,843 15,710 60,794 1,586,280 608,731 16,291,596 52,650,982 154,667,365 207,318,347 2,777,042 8,155,555 5,449,573 13,605,128 1,974,991 394,225 2,369,216 1,154,503 1,095,726 2,250,229 2,419,249 4,976,274 7,395,523 Other Total 123,928,702 342,308 84,440 724,609 21,607,271 63,066,941 17,595,155 561,339 22,110,463 26,539,330 634,927 225,830,636 51,364,849 277,195,485 264,713,872 342,308 587,608 299,645 37,110,005 306,274,932 126,174,590 52,495,882 6,791,059 23,644,249 1,586,280 27,148,061 38,685,526 454,281,589 431,572,428 885,854,017 (1) Contingent and non-contingent exposures to central governments or central banks (2) Contingent and non-contingent exposures to regional governments or local authorities (3) Contingent and non-contingent exposures to administrative bodies and non-commercial undertakings (4) Contingent and non-contingent exposures to multilateral development banks (5) Contingent and non-contingent exposures to international organizations (6) Contingent and non-contingent exposures to banks and brokerage houses (7) Contingent and non-contingent corporate receivables (8) Contingent and non-contingent retail receivables (9) Contingent and non-contingent exposures secured by real estate property (10) Past due receivables (11) Receivables in regulatory high-risk categories (12) Other receivables (13) Share Certificate Investments (14) Stock Investments (*) Risk amounts after the credit conversions and the effects of credit risk mitigation (**) Credit Guarantee Fund guaranteed by the undersecreteriat of treasury are included in the receivables from central governments. 242 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 243 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 14. Analysis of maturity-bearing exposures according to remaining maturities: Risk Amounts according to Risk Weights Risk Groups (*) Contingent and Non-Contingent Receivables from Central Governments or Central Banks Contingent and Non-Contingent Receivables from Regional Governments or Domestic Governments Contingent and Non-Contingent Receivables from Administrative Units and Non-Commercial Enterprises The multilateral development banks and non-contingent receivables Contingent and Non-Contingent Receivables from Banks and Intermediaries Contingent and Non-Contingent Corporate Receivables Contingent and Non-Contingent Retail Receivables Contingent and Non-Contingent Collateralized Receivables with Real Estate Mortgages Receivables are identified as High Risk by the Board 1 Month 1-3 Months 3-6 Months 6-12 Months Over 1 Year Total Current Period Time to Maturity 7,088,091 9,386,431 5,241,139 5,242,241 113,429,233 140,387,135 2,065 808 489 7,580 331,366 342,308 2,806 360,630 28,617 97,238 74,311 563,602 246,181 53,464 299,645 7,755,227 2,377,936 2,259,325 6,956,019 4,699,161 24,047,668 14,635,901 29,613,634 38,161,033 45,048,877 175,814,410 303,273,855 35,852,634 2,693,801 3,973,279 11,691,157 67,303,761 121,514,632 1,016,275 1,268,066 2,586,977 4,306,161 40,288,565 49,466,044 252,100 2,883 3,973 10,339 20,943,185 21,212,480 Total 66,605,099 45,950,370 52,254,832 73,359,612 422,937,456 661,107,369 (*) The figures represent total risk amounts before credit risk mitigation and after credit conversion factor. 15. Information on Risk Classes In the calculation of the amount subject to credit risk, determining the risk weights related to risk classes stated on the sixth article of “Regulation on Measurement and Evaluation of Capital Adequacy of Banks”, is based on the Fitch Ratings’ and JCR Avrasya Derecelendirme A.Ş. international rating. “Contingent and Non-Contingent Receivables from Banks and Intermediaries” are receivables from related parties residing in foreign countries against the risk evaluated in class with “Contingent and Non-Contingent Receivables from Central Governments or Central Banks” are receivables that are evaluated in the class will be the subject of risk weights determined in accordance with Fitch Ratings issued by the rating of the risk. “Contingent and Non-Contingent Receivables from Banks and Intermediaries” in the class with resident banks and brokerage firms in the dorm evaluated risk “Contingent and Non-Contingent Corporate Receivables” in the class evaluated dorm resident companies and financial institutions in the TL-denominated receivables, the risk weights that will be the subject of JCR Avrasya Derecelendirme A.Ş. international rating grades assigned by it are used. The aforementioned application is made in accordance with BRSA decision No. 8875 dated 21.02.2020, which allows the national grades assigned by the relevant organization to be taken into account in the calculations of amounts based on credit risk. If a receivable-specific rating is performed, risk weights to be applied on the receivable are determined by the relevant credit rating. Risk Weight 0% 20% 35% 50% 75% 100% 150% 250% Other (**) Mitigation in Shareholders’ Equity (**) Amount Before Credit Risk Mitigation (*) Amount After Credit Risk Mitigation 264,770,367 41,602,941 24,836,316 61,674,314 124,395,008 351,258,369 23,930,490 280,196 389,140 1,607,847 272,939,387 40,846,869 24,777,988 61,587,520 121,117,602 340,312,566 23,602,749 280,196 389,140 1,607,847 (*) The figures represent total risk amounts before credit risk mitigation and after credit conversion factor. (**) Related balance includes receivables from central counterparties subject to 2% risk weight. 16. Miscellaneous Information According to Type of Counterparty or Major Sectors Significant Sectors/Counterparty Current Period Agricultural Farming and Raising Livestock Forestry Fishing Industry Mining Production Electricity, gas, and water Construction Services Wholesale and Retail Trade Hotel, Food and Beverage Services Transportation and Telecommunication Financial Institutions Real Estate and Renting Services Self-Employment Services Education Services Health and Social Services Other Total 1 1.1 1.2 1.3 2 2.1 2.2 2.3 3 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 5 6 Loans Depreciated (TFRS 9) Significant Increase in Credit Risk (Stage 2) Non-Performing (Stage 3) Provisions Expected Credit Loss (TFRS 9) 713,865 518,333 1,385 194,147 22,460,675 45,758 6,792,887 15,622,030 4,127,515 22,748,411 5,093,651 5,214,520 4,167,140 17,521 5,491,812 407,349 127,685 2,228,733 9,606,036 59,656,502 166,146 149,766 1,829 14,551 7,001,146 117,916 2,501,111 4,382,119 6,047,460 5,448,195 2,587,088 540,374 1,636,348 9,620 496,020 59,845 57,421 61,479 2,167,612 20,830,559 252,676 194,930 1,693 56,053 10,580,731 78,323 3,511,668 6,990,740 4,281,706 7,073,436 2,877,911 1,007,291 1,562,674 10,333 1,134,225 70,970 64,914 345,118 2,696,901 24,885,450 17. Information on Value Adjustments and Change in Credit Provisions: Stage 3 provisions Stage 1 and Stage 2 Provisions 12,975,961 10,375,920 4,295,960 9,357,641 (3,480,926) (5,221,647) 13,790,995 14,511,914 Beginning Balance Additional Provisions Reversal of Provisions Other Value Adjustment Ending Balance The table related to mapping the ratings used in the calculations and credit quality grades, which is stated in the Annex of Regulation on Measurement and Evaluation of Capital Adequacy of Banks, is given below: 18. Exposures Subject to Counter-cyclical Capital Buffer Credit Quality Grades 1 2 3 4 5 6 Risk Rating AAA via AA- A+ via A- BBB+ via BBB- BB+ via BB- B+ via B- CCC+ and lower Country Turkey Germany TRNC England Albania Malta Kosova Marshall Island Iraq Cayman Island Other RWA Calculations for Private Sector Loans in Banking Book RWA calculations for Trading Book Total 375,441,490 4,259,853 3,536,709 2,299,964 1,501,401 1,085,701 1,084,821 743,226 677,942 652,744 883,977 207,095 49,931 375,648,585 4,259,853 3,536,709 2,299,964 1,501,401 1,085,701 1,084,821 743,226 677,942 652,744 933,908 244 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 245 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen III. Explanations on Currency Risk The exposed currency risk of the Bank is result of the difference between the assets denominated in and indexed to foreign currencies and liabilities denominated in foreign currencies. Furthermore, parity fluctuations of different foreign currencies are another element of the currency risk. The currency risk is managed by the internal currency risk limits which are established as a part of the Bank’s risk policies. The Assets and Liabilities Committee and the Assets and Liabilities Management Unit meet regularly to take the necessary decisions for hedging exchange rate and parity risks within the framework of the limits determined by the “Net Foreign Currency Overall Position/Shareholders’ Equity” ratio which is a part of the legal requirement and the internal currency risk limits specified by the Board of Directors. Foreign exchange risk management decisions are strictly applied. In measuring currency risk, both the Standard Method and the Value at Risk Model (VAR) and Expected Shortfall are used as applied in the statutory reporting. Measurements made within the scope of the Standard Method are carried out on a monthly basis and form the basis of determining the capital requirement for hedging currency risk. Risk measurements made within the context of the VAR are practiced on a daily basis using the historical and Monte Carlo simulation methods. Scenario analyses are conducted to support the calculations made within the VAR context. Expected loss calculations are also carried out daily. The results of the measurements made on currency risk are reported to the Key Management and the risks are closely monitored by taking into account the market and the economic conditions. The Bank’s foreign currency purchase rates at the date of balance sheet and for the last five working days of the period announced by the Bank in TL are as follows: Date December 31, 2021 December 30, 2020 December 29, 2020 December 28, 2020 December 27, 2020 December 24, 2020 USD 13,0850 12,9097 12,4600 11,6965 11,3492 11,5260 EUR 14,8390 14,6396 14,1297 13,2381 12,8552 13,0359 The Bank’s last 30-days arithmetical average foreign currency purchase rates: USD: 13,2847 TL EURO: 15,0164 TL Sensitivity to currency risk: The Bank’s sensitivity to any potential change in foreign currency rates has been analyzed. In the analysis presented below, 10% change, which is also the amount used for the internal reporting purposes, is anticipated in USD, EUR, GEL and CHF. USD EURO GEL CHF (*) Indicates the values before tax % Change in Foreign Currency 10 % increase 10 % decrease 10 % increase 10 % decrease 10 % increase 10 % decrease 10 % increase 10 % decrease Current Period (31,038) 31,038 284,955 (284,955) 44,033 (44,033) 44,448 (44,448) Effects on Profit/Loss (*) Prior Period 36,357 (36,357) 355,066 (355,066) 21,256 (21,256) 30,076 (30,076) Information on currency risk: Current Period Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey (1) Banks Financial Assets at Fair Value through Profit/Loss (2) Money Market Placements Financial Assets at Fair Value Through Other Comprehensive Income Loans (3) Investments in Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Financial Assets Measured at Amortised Cost Derivative Financial Assets Held for Risk Management Tangible Assets (2) Intangible Assets (2) Other Assets (2) Total Assets Liabilities Banks Deposits Foreign Currency Deposits (4) Money Market Funds EUR USD Other FC Total 79,164,133 64,172,172 21,306,466 164,642,771 6,123,593 2,442,160 8,142,099 6,926,516 2,379,006 109,284,998 28,352,062 113,456,248 3,340,030 891,290 2,814,609 973,421 9,695,388 5,560,441 7,026 4,157,234 1,199,408 23,961,080 14,929,117 30,738,094 226,898,480 4,539,438 4,679,320 24,110 2,041 8,109 34,260 1,160,926 204,810,246 5,639,176 229,504,923 212,450 43,119,943 7,012,552 477,435,112 1,397,361 141,588,919 473,547 209,595,715 9,113,694 248,254 74,706,193 2,119,162 425,890,827 9,113,694 63,146,374 60,615,908 2,700,732 Funds Provided from Other Financial Institutions 20,665,269 42,481,105 Marketable Securities Issued (5) Miscellaneous Payables Derivative Financial Liabilities Held for Risk Management 347,566 60,470,981 2,198,166 144,927 155,000 Other Liabilities (2) Total Liabilities Net Balance Sheet Position Net Off Balance Sheet Position Derivative Financial Assets (6) Derivative Financial Liabilities (6) Non-Cash Loans Prior Period Total Assets Total Liabilities Net Balance Sheet Position Net Off Balance Sheet Position Derivative Financial Assets Derivative Financial Liabilities Non-Cash Loans 2,287,752 166,286,867 3,965,134 328,298,342 215,956 75,470,330 6,468,842 570,055,539 38,523,379 (34,917,922) 23,722,933 58,640,855 63,144,010 102,183,304 93,727,659 8,455,645 (4,939,836) 14,700,689 19,640,525 37,579,765 (98,793,419) 102,207,134 151,052,076 48,844,942 75,747,621 129,902,511 189,170,266 (59,267,755) 60,694,619 83,998,250 23,303,631 37,803,128 (32,350,387) 33,934,554 37,319,331 3,384,777 8,477,435 25,579,089 47,021,181 (21,442,092) 22,680,380 23,965,091 1,284,711 4,445,593 (92,620,427) 101,223,766 212,094,340 110,870,574 147,369,066 257,664,904 329,919,106 (72,254,202) 78,435,163 122,664,030 44,228,867 79,828,486 (1) Precious metals accounts amounting TL 20,081,293 are included. (2) In accordance with the Communiqué regarding the principles of the “Regulation on Measurement and Practices of Banks’ Net Overall FC Position/Shareholders’ Equity Ratio on a Consolidated and Unconsolidated Basis”, Foreign Currency Income Accruals of Derivative Financial Instruments (TL 14,765,878), Operating Lease Development Costs (TL 5,718), Intangible assets (TL 3.006), Deferred Tax Asset (TL 2,470,081), Prepaid Expenses (TL 183,722), Stage 1 and Stage 2 expected credit loss (TL (8,727,116)), Assets Held for Sale and Related to Discontinued Operations (TL 9,532), in liabilities; Foreign Currency Expense Accruals of Derivative Financial Instruments (TL 3,740,958) and Shareholders’ Equity (TL (3,084,642)) in Stage 1 and Stage 2 expected credit loss for non-cash loans (TL 223,394) in liabilities are not included in currency risk calculations. (3) Foreign currency indexed loans amounting TL 698,316 presented in TL loans in the balance sheet are included in the table above. TL 444,604 is USD indexed, TL 246,881 is EUR indexed, TL 1,189 is CHF indexed, TL 5,642 is GBP indexed. (4) Precious metals deposit accounts amounting TL 54,040,023 are included. (5) Includes Tier 2 subordinated bonds which are classified on the balance sheet as subordinated loans. (6) The derivative transactions within the context of forward foreign currency options and foreign currency forwards definitions included in the Communiqué above are taken into consideration. 246 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 247 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen IV. Explanations on Interest Rate Risk a. Interest rate sensitivity of assets, liabilities and off balance sheet items (Based on time remaining to repricing date): Interest rate risk is defined as the impairment in the value of the Bank’s interest sensitive Asset, liabilities and off-balance sheet items due to interest rate fluctuations. A method which takes into consideration the effect of standard interest shocks on the economic values of the Bank’s on and off-balance sheet interest sensitive accounts is used for measuring the interest rate risk arising from the banking accounts, whereas the interest rate risk related to interest sensitive financial instruments followed under trading accounts is assessed within the scope of market risk. Potential effects of interest rate risk on the Bank’s assets and liabilities, market developments, the general economic environment and expectations are regularly followed in meetings of the Asset-Liability Committee, where further measures to reduce risk are taken when necessary. The Bank’s on and off-balance sheet interest sensitive accounts other than the assets and liabilities exposed to market risk are monitored and controlled by the limits on the ratio of structural interest rate risk to equity and tier 1 capital determined by the Board within the scope of asset-liability management risk policy. Moreover, scenario analyses formed in line with the average maturity gaps and the historical data and expectations are also used in the management of the related risk. In addition, the impact of changes in interest rates on the Bank’s net interest income is regularly analyzed. Within this framework, the limit on the ratio of change in net interest income to the capital is expected to occur under various scenarios are monitored and regularly reported to senior management. Interest rate sensitivity In this part, the sensitivity of the Bank’s assets and liabilities to the interest rates has been analyzed assuming that the year-end balance figures were the same throughout the year. Mentioned analysis shows how the FC and TL changes in interest rates by one point during the one-year period affect the Bank's income accounts and shareholders' equity under the assumption maturity structure and balances are remain the same all year round at the end of the year. During the measurement of the Bank’s interest rate sensitivity, the profit/loss on the asset and liability items that are evaluated with market value are determined by adding to/deducting from the difference between the expectancy value of the portfolio after one year in case there is no change in interest rates and the value of the portfolio one year later, which is measured after the interest shock, the interest income to be additionally earned/to be deprived of during the one year period due to the renewal or repricing of the related portfolio at the interest rates formed after the interest shock. On the other hand, in the profit/loss calculation of assets and liabilities that are not evaluated by the current market prices, it is assumed that assets and liabilities with fixed interest rates will be renewed at maturity date and the assets and liabilities having variable interest rates will be renewed at the end of repricing period with the market interest rates generated after the interest shock. Within this context, ceteris paribus, the possible changes that may occur in the Bank’s profit and shareholders’ equity in case of 100 basis point increase/decrease in TL and FC interest rates on the reporting day are given below: % Change in the Interest Rate (*) Effect On Profit/Loss Effect on Equity (**) TL FC (***) Current Period 100 bps increase 100 bps decrease 100 bps increase 100 bps decrease 987,676 (1,762,490) Prior Period 674,620 (1,226,541) Current Period (1,809,125) 1,993,226 Prior Period (1,124,477) 1,247,244 (*) Changes in interest rates is calculated assuming that the expectations reflected in inflation. The effects on the profit/loss and shareholders’ equity are stated with their before tax values. (**) The effect on the profit/loss is mainly arising from the fact that the average maturity of the Bank’s fixed rate liabilities is shorter than the average maturity of its fixed rate assets. (***) The effect on the shareholders’ equity is arising from the change of the fair value of securities followed under Financial Assets Available for Sale. Current Period Assets Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Non-interest Bearing Total Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 14,620,305 167,302,916 181,923,221 Banks 3,736,353 208,939 20,184,009 24,129,301 Financial Assets at Fair Value through Profit/Loss (*) Money Market Placements Financial Assets at Fair Value Through Other Comprehensive Income Loans Financial Assets Measured at Amortised Cost Other Assets (**) Total Assets Liabilities Banks Deposits Other Deposits Money Market Funds Miscellaneous Payables Marketable Securities Issued (***) Funds Provided from Other Financial Institutions 8,199,318 9,326,626 7,138,279 5,623,571 3,530 2,205,050 32,496,374 19,965,684 16,404,869 13,928,740 19,161,533 17,516,956 577,294 87,555,076 96,042,600 44,023,134 144,511,067 181,377,115 48,139,857 114,977 514,208,750 8,277,298 12,224,444 15,562,809 8,408,689 1,939,494 46,412,734 2,883,389 36,960,179 39,843,568 153,724,947 82,188,012 181,140,895 214,570,908 67,599,837 227,344,425 926,569,024 1,599,410 1,084,200 1,261 254,580,741 33,534,194 18,275,640 1,244,478 42,595,997 2,299,805 3,339,693 1,584,249 1,249,305 4,923,360 22,221,079 22,368,163 17,344,902 3,628,174 37,755,079 22,277,040 1,684,916 306,217 1,062,316 3,747,187 284,246,136 591,881,189 48,235,495 22,947,587 24,531,836 68,106,809 65,651,426 Other Liabilities (****) Total Liabilities 3,998,152 3,949,203 3,646,271 1,453,969 1,286,172 110,081,315 124,415,082 309,236,028 83,545,841 69,760,984 26,751,526 18,937,291 418,337,354 926,569,024 Balance Sheet Long Position Balance Sheet Short Position (155,511,081) (1,357,829) (190,992,929) (347,861,839) 111,379,911 187,819,382 48,662,546 347,861,839 Off Balance Sheet Long Position 6,817,975 17,021,725 Off Balance Sheet Short Position (2,289,875) (12,871,498) (6,587,375) 23,839,700 (21,748,748) Total Position (148,693,106) 15,663,896 109,090,036 174,947,884 42,075,171 (190,992,929) 2,090,952 (*) The balance includes derivative financial assets (**) The expected loss provisions are shown in Non-Interest column. (***) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. (****) Equity is included in ‘’non-interest bearing’’ column. 248 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 249 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Prior Period Assests Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Non-interest Bearing Total Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 3,076,982 67,829,379 70,906,361 Banks 4,522,726 136,518 45,738 8,827,076 16,049,561 Financial Assets at Fair Value through Profit/Loss (*) Money Market Placements Financial Assets at Fair Value Through Other Comprehensive Income 1,381,494 1,290,113 4,005,775 997,989 7,470 1,558,650 9,241,491 18,325,551 8,933,436 12,984,006 11,561,103 13,291,720 435,130 65,530,946 Loans 71,342,009 32,663,401 96,030,000 133,492,165 31,861,030 132,997 365,521,602 Financial Assets Measured at Amortised Cost 8,288,856 7,600,549 16,871,549 7,319,256 1,579,227 41,659,437 Other Assets (**) Total Assets Liabilities Banks Deposits Other Deposits 5,071,030 22,439,507 24,993,034 112,008,648 50,624,017 129,937,068 153,370,513 46,739,447 101,222,739 593,902,432 2,584,686 409,869 768 1,080,222 4,075,545 160,014,577 37,603,795 13,737,662 526,688 152,918,224 364,800,946 Money Market Funds 22,996,534 3 Miscellaneous Payables 425,062 Marketable Securities Issued (***) 1,080,972 5,104,639 12,275,296 24,729,251 9,789,049 Funds Provided from Other Financial Institutions Other Liabilities (****) Total Liabilities 1,059,824 23,448,656 13,126,348 2,303,162 493,355 2,586,492 2,756,982 1,755,976 1,154,150 1,090,336 84,322,597 93,666,533 190,748,147 69,323,944 40,896,050 28,713,251 11,372,740 252,848,300 593,902,432 22,996,537 14,527,257 14,952,319 52,979,207 40,431,345 Balance Sheet Long Position 89,041,018 124,657,262 35,366,707 249,064,987 Balance Sheet Short Position (78,739,499) (18,699,927) (151,625,561) (249,064,987) Off Balance Sheet Long Position 3,665,121 9,971,763 649,650 Off Balance Sheet Short Position (5,576,573) (8,123,500) 14,286,534 (13,700,073) b. Average interest rates applied to monetary financial instruments: Current Period Assets Cash (Cash in Vault. Foreign Currency Cash. Money in Transit. Cheques Purchased) and Balances with the Central Bank of Turkey Banks Financial Assets at Fair Value through Profit/Loss Money Market Placements Financial Assets at Fair Value Through Other Comprehensive Income Loans Financial Assets Measured at Amortised Cost Liabilities Banks Deposits Other Deposits Money Market Funds Miscellaneous Payables Debt Securities Issued (*) EUR % 0.15 1.92 3.29 4.42 2.92 0.11 0.03 Funds Provided from Other Financial Institutions 1.86 (*) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. Prior Period Assets Cash (Cash in Vault. Foreign Currency Cash. Money in Transit. Cheques Purchased) and Balances with the Central Bank of Turkey Banks Financial Assets at Fair Value through Profit/Loss EUR % 0.33 2.09 Total Position (75,074,378) (8,728,164) 89,690,668 119,080,689 27,243,207 (151,625,561) 586,461 Money Market Placements (*) The balance includes derivative financial assets (**) The expected loss provisions are shown in Non-Interest column. (***) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. (****) Equity is included in ‘’non-interest bearing’’ column. Financial Assets at Fair Value Through Other Comprehensive Income 2.18 Loans Financial Assets Measured at Amortised Cost Liabilities Banks Deposits Other Deposits Money Market Funds Miscellaneous Payables Debt Securities Issued (*) 4.74 1.80 0.11 0.05 Funds Provided from Other Financial Institutions 1.86 (*) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. JPY % JPY % USD % 0.20 2.59 4.82 5.26 3.37 0.38 0.13 1.49 6.50 2.44 USD % 0.13 2.12 4.66 5.83 3.88 1.01 0.15 1.75 6.22 2.58 TL % 8.50 11.39 14.41 22.06 18.15 18.84 15.50 11.57 13.98 18.22 13.75 TL % 12.00 15.27 13.90 14.66 14.17 12.81 16.50 10.65 16.93 13.81 11.02 250 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 251 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen V. Explanations on Equity Shares Risk Arising from Banking Book a. Accounting policies related to equity investments in associates and subsidiaries can be seen in the Section Three Note III.2. b. Balance Sheet Value of Equity Investment, fair value, and for publicly traded, if the market value is different from the fair value comparison to the market price: Investments in Shares Quoted Investments in Shares Group A Subsidiaries Financial Subsidiaries Non-Financial Subsidiaries Non-Quoted Subsidiaries Financial Subsidiaries Non-Financial Subsidiaries Associates Financial Associates Non-Financial Associates Book Value Fair Value Market Value (*) Comparison 22,482,626 41,580,067 10,063,540 20,110,336 280,196 30,885 7,549,517 1,426,871 (*) Represents the sum of the market values of the related companies. c. Information on revaluation surpluses and unrealized gains/losses on equity securities and results included in Common Equity and Tier II Capital Portfolio Private Equity Investments Shares Traded on a Stock Exchange Other Stocks Total Realized Gains/ losses During the period Revaluation Increases Unrealized Gains and Losses Total Including into Tier I Capital (*) Total Including into Common Equity Including into Tier II Capital 25,681,724 6,362,179 32,043,903 25,681,724 6,362,179 32,043,903 (*) Represents the amounts reflected to equity according to the equity method. d. Capital requirement as per equity shares: Portfolio Carrying Value Total RWA Private Equity Investments Share Traded on a Stock Exchange Other Stocks Total 30,173,876 9,287,469 39,461,345 30,173,876 8,221,084 38,394,960 Minimum Capital Requirement 2,413,910 657,687 3,071,597 VI. Explanations on Liquidity Risk Management and Liquidity Coverage Ratio Liquidity risk may occur as a result of funding long-term assets with short-term liabilities; The Bank’s liquidity is managed by the Asset-Liability Management Committee in accordance with the business strategies, legal requirements, current market conditions and expectations regarding the economic and financial conjuncture. The Bank’s principal source of funding is deposits. Although the average maturity of deposits is shorter than that assets as a result of the market conditions, the Bank’s wide network of branches and stable core deposit base are its most important safeguards of funding. Additionally, the Bank borrows medium and long-term funds from institutions abroad. Concentration limits are generally used in deposit and non-deposit borrowings in order to prevent adverse effects of concentrations in the liquidity risk profile of the Bank. In order to meet the liquidity requirements that may arise from market fluctuations, considerable attention is paid to the need to preserve liquidity and efforts in this respect are supported by projections of Turkish Lira and Foreign Currency (FC) cash flows. The term structure of TL and FC deposits, their costs and amounts are monitored on a daily basis. During these studies historical events and future expectations are taken into account as well. Based upon cash flow projections, prices are differentiated for different maturities and measures are taken accordingly to meet liquidity requirements. Moreover, potential alternative sources of liquidity are determined to be used in case of extraordinary circumstances. The liquidity risk exposure of the Bank has to be within the risk capacity limits which are prescribed by the legislation and the Bank’s risk appetite defined in its business strategy. It is essential for the Bank to have an adequate level of unencumbered liquid asset stock which can be sold or pledged, in case a large amount of reduction in liquidity sources occurs. The level of liquid asset buffer is determined in accordance with the liquidity risk tolerance which is set by the Board of Directors. Asset-Liability Management Committee is responsible for monitoring the liquidity position, determining appropriate sources of funds and deciding the maturity structure in accordance with the limits which are set by the Board of Directors. The Treasury Division is responsible for monitoring the liquidity risk, in accordance with the Asset and Liability Management Risk Policy limits, objectives set out in the business plan and the decisions taken at the meetings of Asset-Liability Management Committee. The Treasury Division is also responsible for making liquidity projections and taking necessary precautions to reduce liquidity risk, by using the results of stress testing and scenario analysis. Within this scope, Treasury Division is monitoring the Turkish Lira (TL) and foreign currency (FC) liquidity position instantly and prospectively based on the information provided from the branches, business units and IT infrastructure of the Bank. The assessment of long-term borrowing opportunities is carried out regularly in order to balance the cash inflows and outflows and to mitigate the liquidity risk. The Bank creates liquidity through repurchase agreements and secured borrowings based on the high quality liquid asset portfolio, through securitization and other structured finance products which are created from the asset pools like credit card receivables and retail loans. The Bank applies liquidity stress tests to measure liquidity risk. In this approach, in liquidity stress scenarios in which parameters are determined by the Board of Directors, the ability of the Bank’s liquid assets’ in covering cash outflows within a one-month horizon has been described. Liquidity adequacy limits for TL and FC are determined by Board of Directors, based on the liquidity requirements and risk tolerance of the Bank. The liquidity risk is measured by the Risk Management Division and results are reported to the related executive functions, senior management and Board of Directors. The reflections of conveniences provided for loan customers on repayments due to the COVID-19 outbreak and pressure in financial markets on the Bank’s liquidity adequacy are analyzed under various scenarios. It is essential for the Bank to monitor the liquidity position and funding strategy continuously. In case of a liquidity crisis that may arise from unfavorable market conditions, extraordinary macroeconomic situations and other reasons which are beyond the control of the Bank, “Emergency Action and Funding Plan” is expected to be commissioned. In that case, related committees have to report the precautions taken and their results to the Board of Directors through Audit Committee. The Bank’s Foreign Currency (FC) and total (TL+FC) liquidity coverage ratio averages for the last three months, the highest value and the lowest value occurred in this period are given below. The lowest value Applicable week The highest value Applicable week Current Period Prior Period TL+FC 156.10 29.10.2021 221.43 17.12.2021 FC 424.93 05.11.2021 563.53 31.12.2021 TL+FC 156.34 23.10.2020 175.72 01.01.2021 FC 278.05 16.10.2020 509.90 11.12.2020 252 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 253 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Liquidity Coverage Ratio: Current Period HIGH QUALITY LIQUID ASSETS High Quality Liquid Assets Cash Outflows Total Unweighted Value (*) Total Weighted Value (*) TL+FC FC TL+FC FC Prior Period High Quality Liquid Assets High Quality Liquid Assets Cash Outflows Total Unweighted Value (*) Total Weighted Value (*) TL+FC FC TL+FC FC 130,597,014 79,075,224 186,865,178 132,130,558 Retail and Small Business Customers, of which; 277,386,679 181,076,534 25,425,186 18,107,653 Retail and Small Business Customers, of which; 378,422,583 251,550,732 35,109,104 25,155,073 Stable deposits Less stable deposits Unsecured wholesale funding, of which; Operational deposits Non-operational deposits Other unsecured funding Secured funding 54,663,092 323,759,491 156,530,467 1,298,868 124,839,220 30,392,379 251,550,732 99,600,447 16,358 87,623,801 11,960,288 2,733,155 32,375,949 78,040,627 324,717 55,995,721 21,720,189 25,155,073 49,738,926 4,089 37,964,858 11,769,979 Other cash outflows, of which; 6,925,853 9,574,477 6,925,853 9,574,477 Derivatives cash outflow and liquidity needs related to market valuation changes on derivatives or other transactions Obligations related to structured financial products Commitments related to debts to financial markets and other off- balance sheet obligations Other revocable off-balance sheet commitments and contractual obligations Other irrevocable or conditionally revocable off-balance sheet obligations TOTAL CASH OUTFLOWS CASH INFLOWS Secured lending Unsecured lending Other cash inflows TOTAL CASH INFLOWS TOTAL HQLA STOCK TOTAL NET CASH OUTFLOWS LIQUIDITY COVERAGE RATIO (%) 3,012,776 5,661,400 3,012,776 5,661,400 3,913,077 3,913,077 3,913,077 3,913,077 9,471,060 7,896,326 473,553 394,816 276,500,278 147,811,844 29,290,876 17,217,122 149,840,013 102,080,414 50,870,034 5,579,482 56,449,516 33,497,689 58,582,613 92,080,302 40,653,842 5,579,482 46,233,324 30,367,269 58,582,613 88,949,882 Upper Limit Applied Value 186,865,178 103,606,689 179.94 132,130,558 26,084,775 506.44 (*) The simple arithmetic average calculated for the last three months of the weekly simple arithmetic average. Stable deposits Less stable deposits Unsecured funding, of which; Operational deposits Non-operational deposits Other unsecured funding Secured funding Other cash outflows, of which; Derivatives cash outflow and liquidity needs related to market valuation changes on derivative or other transactions Obligations related to structured financial products Commitments related to debts to financial markets and other off- balance sheet obligations Other revocable off-balance sheet commitments and contractual obligations Other irrevocable or conditionally revocable off-balance sheet obligations Total Cash Outflows Cash Inflows Secured lending Unsecured lending Other cash inflows Total Cash Inflows Total Hqla Stock Total Net Cash Outflows Liquidity Coverage Ratio (%) 46,269,638 231,117,041 105,988,053 1,349,088 86,784,021 17,854,944 5,539,673 1,794,273 181,076,534 60,698,942 67,444 54,115,267 6,516,231 8,108,203 4,362,803 2,313,482 23,111,704 51,951,497 337,272 39,686,643 11,927,582 5,506 5,539,673 18,107,653 29,970,499 16,861 23,622,939 6,330,699 5,506 8,108,203 1,794,273 4,362,803 3,745,400 3,745,400 3,745,400 3,745,400 7,028,663 6,284,510 351,433 314,226 196,973,518 92,425,535 21,527,379 11,455,358 104,800,674 67,961,445 1,484 33,794,601 1,596,986 35,393,071 21,391,709 44,734,361 66,126,070 25,760,071 1,596,986 27,357,057 18,943,694 44,734,361 63,678,055 Upper Limit Applied Value 130,597,014 77,443,617 169.04 79,075,224 18,754,820 435,80 (*) The simple arithmetic average calculated for the last three months of the weekly simple arithmetic average. Compared to prior period, a decrease in the total liquidity coverage ratio and a slight increase in the foreign currency liquidity coverage ratio has been observed for the fourth quarter of 2021. The foreign currency liquidity coverage ratio fell due to an increase in net cash outflows, while the total liquidity coverage ratio increased due to an increase in the stock of high-quality liquid assets. Total and Foreign Currency liquidity coverage ratios are continuing to hover far above the minimum level (respectively 100% and 80%) pursuant to legal legislations. The Liquidity Coverage Ratio which has been introduced to ensure banks to preserve sufficient stock of high quality assets to meet their net cash outflows that may occur in the short term is calculated as per the Communiqué on “Measurement and Assessment of the Liquidity Coverage Ratio of Banks’ published by BRSA. The ratio is directly affected by the level of unencumbered high quality assets which can be liquidated at any time and net cash inflows and outflows arising from the Bank’s assets, liabilities and off-balance sheet transactions. The Bank’s high quality liquid asset stock primarily consists of cash, the accounts held at CBRT and unencumbered government bonds which are issued by Turkish Treasury. The Bank’s principal source of funding is deposits. In terms of non-deposit borrowing, funds received from repurchase agreements, marketable securities issued, and funds borrowed from financial institutions are among the most significant funding sources of the Bank. In order to manage liquidity effectively, concentration of liquidity sources and usages should be avoided. Due to the strong and stable core deposit base of the Bank, deposits are received from a diversified customer portfolio. In addition, in order to provide diversification in liquidity sources and usages, liquidity concentration limits are used effectively. Total amount of funds borrowed from a single counterparty or a risk group is closely and instantaneously monitored, taking liquidity concentration limits into account. In addition to these, the cumulative liquidity deficits that the Bank is exposed to in various maturity tranches are periodically monitored and reported to the senior management. Cash flows of derivatives that will take place within 30 days are taken into account in calculation of liquidity coverage ratio. Cash outflows of derivatives that arise from margin obligations, are reflected to the results in accordance with the methodology articulated in the related legislation. Liquidity risk of the Bank, its foreign branches and subsidiaries that are to be consolidated are managed within the regulatory limits and in accordance with the group strategies. For the purposes of effectiveness and sustainability of liquidity management, funding sources of group companies and funding diversification opportunities in terms of markets, instruments and tenor are evaluated and liquidity position of the group companies are monitored continuously by the Bank. 254 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 255 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Presentation of assets and liabilities according to their remaining maturities: Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Unallocated (*) Total Current Period Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 96,225,661 85,697,560 Banks 22,341,126 1,579,236 208,939 Financial Assets at Fair Value through Profit/Loss (**) Money Market Placements Financial Assets at Fair Value Through Other Comprehensive Income 2,201,562 8,196,887 9,277,458 7,110,583 5,703,099 6,785 181,923,221 24,129,301 32,496,374 In compliance with the “IFRS 7”, the following table indicates the maturities of the Bank’s major financial assets and liabilities which are not qualified as derivatives. The following tables have been prepared by referencing the earliest dates of collections and payments without discounting the liabilities. The interest to be collected from and paid to the related liabilities is included in the following table. Adjustments column shows the items that may cause possible cash flows in the following periods. The values of the related liabilities registered in balance sheet do not include these amounts. Current Period Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total Adjustments (-) Balance Sheet Value Liabilities Deposits Funds Provided from Other Financial Institutions Money Market Funds Marketable Securities Issued (*) Leasing Liabilities 285,308,452 256,676,019 35,076,238 18,499,054 1,293,714 596,853,477 1,225,101 595,628,376 1,659,611 8,456,296 36,706,015 19,613,123 1,416,626 67,851,671 2,200,245 65,651,426 42,654,340 2,304,287 3,370,651 48,329,278 93,783 48,235,495 1,635,592 2,834,652 25,742,077 31,141,372 23,533,539 84,887,232 16,780,423 68,106,809 47,228 105,530 333,691 1,301,918 2,043,284 3,831,651 2,131,212 1,700,439 577,294 948,712 5,126,339 5,025,034 46,197,045 29,680,652 87,555,076 (*) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. Loans (***) 21,726,820 49,205,281 49,537,602 144,667,746 182,605,659 45,635,083 20,830,559 514,208,750 Financial Assets Measured at Amortised Cost Other Assets Total Assets Liabilities Bank Deposits Other Deposits Funds Provided from Other Financial Institutions Money Market Funds Marketable Securities Issued (****) Miscellaneous Payables Other Liabilities Total Liabilities Liquidity Gap Net Off Balance Sheet Position 1,457,319 1,392,098 4,453,101 27,536,507 11,573,709 6,150,670 102,251 1,159,356 32,431,291 143,072,463 153,235,665 65,644,687 161,256,464 263,201,666 86,896,229 53,261,850 1,062,316 1,599,410 1,084,200 1,261 284,246,136 254,580,400 33,533,081 18,271,625 1,249,947 1,651,668 8,308,327 35,759,011 18,565,099 1,367,321 42,595,997 2,299,805 3,339,693 1,249,305 2,626,916 22,221,079 22,368,163 19,641,346 24,167,058 288,196 286 76,296 9,209,310 5,395,168 3,904,172 1,870,447 406,135 103,629,850 285,308,452 335,053,148 53,535,693 83,497,127 44,129,952 21,414,802 103,629,850 (142,235,989) (181,817,483) 12,108,994 77,759,337 219,071,714 65,481,427 (50,368,000) 3,200,930 2,669,768 (75,036) 1,505,529 446,812 Derivative Financial Assets 133,805,197 54,101,623 37,634,533 45,771,066 61,283,833 Derivative Financial Liabilities 130,604,267 51,431,855 37,709,569 44,265,537 60,837,021 Non-cash Loans 116,766,721 2,615,908 9,773,054 44,500,563 14,566,743 5,212,434 Prior Period Total Assets Total Liabilities Liquidity Gap 57,715,009 95,196,846 40,303,774 114,198,380 182,017,491 64,872,902 39,598,030 153,998,446 207,552,170 48,350,387 48,184,016 42,899,254 13,939,492 78,978,667 (96,283,437) (112,355,324) (8,046,613) 66,014,364 139,118,237 50,933,410 (39,380,637) Net Off Balance Sheet Position (1,843,165) (3,082,458) (232,208) 653,246 Derivative Financial Assets 60,975,648 44,234,852 23,095,200 26,504,775 44,842,885 Derivative Financial Liabilities 62,818,813 47,317,310 23,327,408 25,851,529 44,842,885 Non-cash Loans 67,592,573 2,568,566 5,824,087 23,768,593 15,584,033 4,237,362 46,412,734 39,843,568 926,569,024 3,747,187 591,881,189 65,651,426 48,235,495 68,106,809 24,531,836 124,415,082 926,569,024 7,748,003 332,596,252 324,848,249 193,435,423 593,902,432 593,902,432 (4,504,585) 199,653,360 204,157,945 119,575,214 (*) Asset items, such as Tangible Assets, Subsidiaries and Associates, Office Supply Inventory, Prepaid Expenses and Non-Performing Loans, which are required for banking operations and which cannot be converted into cash in short-term, other liabilities such as Provisions which are not considered as payables and Shareholders’ Equity, are shown in the “Unallocated” column. (**) Includes Derivative financial assets. (***) Non performing loans are included in “Unallocated” column. (****) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. Prior Period Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total Adjustments (-) Balance Sheet Value Liabilities Deposits Funds Provided from Other Financial Institutions Money Market Funds Marketable Securities Issued (*) Leasing Liabilities 153,998,446 163,018,733 38,316,955 13,925,240 555,303 369,814,677 938,186 368,876,491 475,361 3,724,126 20,846,201 15,834,477 1,565,678 42,445,843 2,014,498 40,431,345 23,044,216 3 23,044,219 47,682 22,996,537 1,298,508 1,925,408 15,144,504 32,577,652 15,571,435 66,517,507 13,538,300 52,979,207 36,530 76,918 262,719 1,053,002 1,914,942 3,344,111 1,954,894 1,389,217 (*)Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. The following table shows the remaining maturities of non-cash loans of the Bank. Current Period Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total Letters of Credit 39,975,559 299,733 Letters of Guarantee 75,331,583 1,272,415 Acceptances Other Total 583,828 875,751 1,028,920 14,840 853,893 6,663,085 2,256,076 1,753,195 12,823 42,895,203 32,272,226 12,915,460 3,042,724 131,497,493 10,359,840 553,187 14,781,851 115,302 1,085,273 2,169,710 4,260,876 116,766,721 2,615,908 9,773,054 44,500,563 14,566,743 5,212,434 193,435,423 Prior Period Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total Letters of Credit 14,423,731 980,613 941,460 3,190,944 533 Letters of Guarantee 52,527,771 1,261,618 4,065,504 16,134,892 10,858,891 2,584,214 Acceptances Other Total 66,504 574,567 326,335 817,123 4,348,430 3,901,311 67,592,573 2,568,566 5,824,087 23,768,593 15,584,033 4,237,362 119,575,214 94,327 823,298 1,653,148 3,145,340 19,537,281 87,432,890 9,459,703 256 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 257 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen The following table shows the remaining maturities of derivative financial assets and liabilities of the Bank. b. Explanations on leverage ratio: Current Period Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total Current Period (*) Prior Period (*) Forwards Contracts-Buy Forwards Contracts-Sell Swaps Contracts-Buy Swaps Contracts-Sell Futures Transactions-Buy Futures Transactions-Sell Options-Call Options-Put Other Total 4,585,527 4,427,855 107,655,756 121,096,795 5,079,666 4,945,190 16,618,675 6,561,281 6,546,390 40,811,617 41,894,966 96,253 86,971 2,944,784 2,842,085 3,749,131 14,439,205 14,527,936 17,078,760 17,111,486 591,730 595,436 4,012,940 3,962,813 3,023,796 4,570,684 4,557,212 40,956,563 39,464,506 487,638 58,258,759 57,811,947 3,025,074 3,025,074 30,156,697 30,059,393 264,761,455 277,379,700 687,983 682,407 15,062,464 14,775,162 23,879,240 264,409,464 105,533,478 75,344,102 90,036,603 122,120,854 657,444,501 On-Balance sheet items On-balance sheet items (excluding derivatives and SFTs, but including collateral) Assets amounts deducted from Tier 1 capital Total on balance sheet exposures Derivative exposures and credit derivatives Replacement cost associated with derivative financial instruments and credit derivatives The potential amount of credit risk with derivative financial instruments and credit derivatives The total amount of risk on derivative financial instruments and credit derivatives Investment securities or commodity collateral financing transactions 843,622,223 (1,492,485) 842,129,738 21,043,586 3,570,324 24,613,910 607,154,346 (1,185,021) 605,969,325 8,811,454 2,608,300 11,419,754 The amount of risk investment securities or commodity collateral financing transactions (Excluding on balance sheet items) 4,020,316 4,969,503 Risk amount of exchange brokerage operations Prior Period Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total Total risks related with securities or commodity financing transactions 4,020,316 4,969,503 Forwards Contracts- Buy Forwards Contracts- Sell Swaps Contracts-Buy Swaps Contracts-Sell Futures Transactions-Buy Futures Transactions-Sell Options-Call Options-Put Other Total 2,597,630 2,567,063 46,285,705 57,206,194 272,674 297,024 2,691,230 2,654,710 9,222,231 123,794,461 3,671,735 3,615,646 32,186,709 42,385,680 720,385 765,850 495,343 492,814 7,218,000 91,552,162 8,622,850 8,451,373 11,231,842 11,539,355 956,603 1,056,468 2,033,885 2,030,192 500,040 2,482,254 2,475,647 23,275,336 22,628,697 43,002,073 43,002,073 747,185 747,185 1,840,812 1,840,812 46,422,608 52,356,304 89,685,770 17,374,469 17,109,729 155,981,665 176,761,999 1,949,662 2,119,342 7,808,455 7,765,713 16,940,271 403,811,305 VII. Explanations on Leverage Ratio a. Explanations on Differences Between Current and Prior Years’ Leverage Ratios Off -Balance Sheet Items Gross notional amount of off-balance sheet items Adjustments for conversion to credit equivalent amounts The total risk of off-balance sheet items Capital and Total Exposures Tier 1 Capital Total Exposures Leverage Ratio Leverage Ratio (*) Three-month average of the amounts in Leverage Ratio table. VIII. Explanations on Other Price Risks 317,341,135 (9,508,394) 307,832,741 79,582,511 1,178,596,705 215,539,119 (6,838,414) 208,700,705 65,479,340 831,059,287 6.75 7.88 The Bank is exposed to stock price risk due to its investments in companies being traded on the Borsa İstanbul A.Ş. (BIST). The Bank’s unconsolidated leverage ratio is calculated in accordance with the principles of the “Regulation on Measurement and Evaluation of Banks’ Leverage Level”. The Bank’s consolidated Leverage ratio is 6.75% (December 31, 2020: 7.88%). According to Regulation the minimum leverage ratio is 3%. The changes in the leverage ratio are mostly due to the increase in total risk amounts. The Bank's sensitivity to stock price risk at the reporting date was measured with an analysis. In the analysis, with the assumption of all other variables were held constant and the data (stock prices) used in the valuation method are 10% higher or lower. According to this assumption, in shares traded in Borsa Istanbul and followed under Financial Assets at Fair Value through Profit or Loss account, expected to have an effect amounting to TL 20,710 increase/decrease. IX. Explanations on Presentation of Assets and Liabilities at Fair Value 1. Information on fair values of financial assets and liabilities Financial Assets Money Market Placements Banks Financial Assets at Fair Value through Other Comprehensive Income Investments Financial Assets Measured Amortized Cost Loans Financial Liabilities Banks Deposits Other Deposits Funds Provided from Other Financial Institutions Marketable Securities Issued (*) Miscellaneous Payables Book Value Fair value Current Period Prior Period Current Period Prior Period 24,129,301 87,555,076 46,412,734 16,049,561 65,530,946 41,659,437 24,129,488 87,555,076 47,220,154 16,048,801 65,530,946 41,641,633 493,378,191 345,150,130 473,839,057 328,268,442 3,747,187 4,075,545 3,720,360 4,068,196 591,881,189 364,800,946 591,066,944 363,992,492 65,651,426 68,106,809 24,531,836 40,431,345 52,979,207 14,952,319 64,104,888 65,538,148 24,531,836 39,928,073 53,708,214 14,952,319 (*) Includes subordinated bonds which are classified on the balance sheet as subordinated loans. 258 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 259 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Strike prices, quotations, market prices determined by the CBRT and published in the Official Gazette and the values calculated by using alternative models, are taken as the basis in the fair value determination of Financial Assets at fair value through other comprehensive income. X. Explanations on Transactions Carried Out on Behalf of Third Parties and Fiduciary Transactions The Bank gives trading and custody services in the name and on the account of its customers. The Bank has no fiduciary transactions. When the prices of the financial assets measured at amortized cost cannot be measured in an active market, fair values are not deemed to be reliably determined and amortized cost, calculated by the internal rate of return method, are taken into account as the fair values. XI. Explanations on Risk Management Objectives and Policies Fair values of banks, loans granted, deposits and funds borrowed from other financial institutions and marketable securities are calculated by discounting the amounts in each maturity bracket formed according to repricing periods, using the rate corresponding to relevant maturity bracket in the discount curves based on current market conditions. Explanations according to “Communiqué on Public Disclosures about Risk Management” published on the Official Gazette No.29511 dated October 23, 2015 are included below. The Bank uses the standardised approach for calculation of capital charge for credit risk, therefore explanations about internal ratings-based approach are not included. 2. Information on fair value measurements recognized in the financial statements “IFRS 13 - Fair Value Measurement” standard requires the items, which are recognized in the balance sheet at their fair values to be shown in the notes by being classified within a range. According to this, the related financial instruments are classified into three levels in such a way that they will express the significance of the data used in fair value measurements. At the first level, there are financial instruments, whose fair values are determined according to quoted prices in active markets for identical assets or liabilities, at the second level, there are financial instruments, whose fair values are determined by directly or indirectly observable market data, and at the third level, there are financial instruments, whose fair values are determined by the data, which are not based on observable market data. The financial assets, which are recognized in the balance sheet at their values, are shown below as classified according to the aforementioned principles of ranking. Current Period Financial Assets at Fair Value Through Profit and Loss Debt Securities Equity Securities Derivative Financial Assets at Fair Value through Profit and Loss Other Financial Assets at Fair Value Thtough Profit or Loss (*) Debt Securities Equity Securities Other Derivative Financial Liabilities Level 1 477,614 207,096 45,397,989 Level 2 Level 3 6,006,316 458,185 21,924,166 1,536,281 41,329,574 518,082 24,966 12,586,533 1,886,716 250,219 (*) Since they are not traded in an active market, the equity securities TL 34,246 under the financial assets at fair value through other comprehensive income are shown in the financial statements at acquisition cost and the related securities are not shown in this table. Prior Period Financial Assets at Fair Value Through Profit and Loss Debt Securities Equity Securities Derivative Financial Assets Held for Trading Other Financial Assets Available-for-Sale (*) Debt Securities Equity Securities Other Derivative Financial Liabilities Level 1 167,674 147,257 42,667,184 Level 3 5,852 1,886,716 350,829 Level 2 566,315 261,922 5,060,117 1,145,638 22,077,803 320,025 89,168 7,934,485 (*) Since they are not traded in an active market, the equity securities TL 25,937 under the financial assets available-for-sale are shown in the financial statements at acquisition cost and the related securities are not shown in this table. The movement table of financial assets at level 3 is given below: Balance at the Beginning of the Period Purchases Redemption or Sales Valuation Difference Transfers Balance at the end of the Period Current Period 2,243,397 (5,852) (100,610) 2,136,935 Prior Period 2,249,059 (5,662) (2,243,397) Real estates which are presented in the financial statements at fair value are classified at level 3. The loans measured at fair value through profit and loss under Level 3 consists of loan granted to the special purpose entity which is disclosed in the Section V footnote I-f.2 and footnote I.r. The mentioned loan’s fair value is determined by the various valuation methods. The potential changes in the fundamental estimations and assumptions in the valuation work may affect the carrying fair value of the loan. The reflections of developments related to the COVID-19 outbreak on the Bank's risk profile and risk appetite framework are closely monitored. The levels at which the capital adequacy ratio of the Bank will reach are estimated and monitored with stress tests. In addition, reverse stress tests are regularly carried out by the Bank considering the increase in deteriorated loan portfolio and exchange rate shocks which might cause the capital adequacy to fall within the legal limits. a. General Information on Risk Management Approach and Risk Weighted Amounts a.1. The Bank's risk management approach Bank is exposed to financial and non-financial risks which are required to be analyzed, monitored and reported within specific risk management principles of the Bank and with the perspective of risk management. The risk management process is organized within the framework of risk management and serves the creation of a common risk culture in corporate level; which brings “corporate governance” to forefront, the independence of the internal audit and monitoring units from the business units that undertake risks is established risk is defined in accordance with international regulations and in this context measurement, analysis, monitoring, reporting and control functions are carried. Risk management process and the functions involved in the process is one of the primary responsibilities of the Board of Directors. The Risk Committee operates to prepare the Bank's risk management strategies and policies, submit them to the Board of Directors for approval and monitor the implementations. Evaluating the capital adequacy and observing the active use of results in Bank’s planning and decision making processes, establishing and monitoring limits related to main risks, monitoring the activities of risk management (determining, defining, measuring, evaluating and managing risk) and monitoring results and methods in measuring risk are also under their authority and responsibility of the Committee. Committee reports activity results to the Board of Directors through Audit Committee. The Operational Risk Committee is engaged in determining strategies and policies for the management of operational risks that the Bank may be exposed to, developing an operational risk management framework, and strengthening the governance model for operational risks. The Committee reports the results of its activities to the Board of Directors through the Audit Committee. The Bank’s risk management process is carried out within the framework of risk policies which are issued by the Board of the Directors via Internal Systems Manager by taking the recommendations of the Risk Management Department into account and which include the written standards that are implemented by the business units. These policies which are entered into force in line with the international practices are general standards which contain organization and scope of the risk management function, risk measurement policies, duties and responsibilities of the risk management group, procedures for determining risk limits, ways to eliminate limit violations, compulsory approvals and confirmations to be given in a variety of events and situations. In the aforementioned risk policies, the Bank’s risk appetite framework is defined as a set of approaches that determine the risk capacity, the risk appetite, the risk tolerance and that include the policies, procedures, controls and systems for reporting and monitoring of the limits set for the Bank’s risk profile and the indicators in the framework. The Bank's risk appetite framework, which is formed in accordance with the above-mentioned factors and entered into force with the Board of Directors approval, includes indicators that are aligned with the business plan, the strategic programme, capital and remuneration planning and comparable on a business unit level to the extent possible. The compliance to the limits within the framework is periodically monitored and the realization of the risk appetite indicators are reported to the Risk Committee and the Boards on a monthly basis. In order to build a strong corporate culture that has a risk management perspective, the Bank has policies, processes, systems and a control system that is integrated with the Bank’s risk management system to effectively control the bank's risk management system is available. All employees of the Bank essentially perform their duties in a responsible manner that aims to develop controls to reduce or eliminate the probability of the Bank to incur losses related to the operational risks. In the process risk analysis studies, risks and the related controls are evaluated together with employees performing the relevant process in a holistic approach. Procedures to be followed in case of a risk threshold breach and risk definitions are given in the risk politics. Code of conducts, operation manuals, the sharing of duties between business units and risk units are announced to the Bank’s staff. The risk reports that analyse the results reached by the Bank and the comprehensive risk assessment and comparison of these results with a risk management perspective are periodically submitted to the Risk Committee and to the Board through the Audit Committee. The content of the above mentioned reports could be summarised as follows: • Capital adequacy ratio, the progression of the components of this ratio and the issues that affect the aforementioned ratio, • Monitoring the compliance status of the limits set by the Board of Directors as a part of the risk appetite framework and based on the components of the main risk types, • In addition to the assessment of the loan portfolio on the basis of counterparties and loan types, monitoring of the portfolio as a whole according to parameters such as maturity, sector, geography, risk ratings, arrears, defaults, • Measuring the assets and liabilities management risk, and reporting of measurement results, • Monitoring of all risks assessed in the context of operational risk within the scope of non-financial risks, including operational risk, loss events that occurred in the Bank and risk indicators, • Testing the measurement results in terms of completeness and reliability, • Analysing the level of risk indicators under various stress scenarios, • Examining various concentration indicators and the course followed by these indicators 260 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 261 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen As per the communique on “Bank’s Internal Systems and Internal Capital Adequacy and Assessment Process” and “Guidelines for Stress Testing of Banks to Use in Capital and Liquidity Planning”, stress tests are conducted for the entire risks that the Bank is exposed to and on the basis of significant risk categories. As a part of the holistic stress tests, risk appetite, capital planning, strategic plan and budget, action plans for emergencies and unexpected situations related to miscellaneous risks and other issues considered as significant are taken into consideration. In the holistic and individual stress test processes carried out by the Bank, the most advanced approaches used in risk measurement in the Bank are used as much as possible, together with the methods that are the basis of legal reporting (standard approaches for credit and market risk, basic indicator approach for operational risk). In the stress tests, both the first pillar risks (credit risk, market risk, operational risk) in scope of the regulatory framework and all the other risks that the Bank is exposed to independent of the regulatory framework are taken into account in a holistic perspective. In determining the course of capital adequacy under various scenarios during the planning horizon, the actions that the Bank will take in case of stress conditions and the impact of the diversified growth strategies of business units on the capital adequacy and the balance sheet are considered. The reflections of developments related to the COVID-19 outbreak on the Bank's risk profile and risk appetite framework are closely monitored. The negative effects of the COVID-19 outbreak are also taken into account in the calculation of expected credit loss. The levels at which the capital adequacy ratio of the Bank will reach are estimated and monitored with stress tests. In addition, reverse stress tests are carried out regularly, by determining the problematic loan growth rate and increase in exchange rates, which will cause the Bank's capital adequacy to fall within the legal limits. The scope and content of the Bank's risk management system in terms of the main risk types are listed below. Bank's risk mitigation strategies and processes for the assessment of their effectiveness are given in Fourth Section II No. "Explanations on Credit Risk" under the Section IV, XI-f.1 notes. No. "The Public Disclosure of Qualitative Information Related to the Market Risk" mentioned in the section. Credit risk Credit risk is defined as the risk of the failure to comply with the requirements or failing to fulfill its obligations partially or totally of the counter side of the transaction contract with the Bank. The methodology and responsibilities of the credit risk management, controlling and monitoring and the framework of credit risk limitations specified with the credit risk policy. The Bank defines measures and manages credit risk of the all products and activities. Board of Directors review the Bank’s credit risk policies and credit risk strategy on an annual basis as a minimum. Top Management is responsible for the implementation of credit risk policies which are approved by Board of Directors. As a result of loans and credit risks analysis all findings are reported to Board of Directors and Top Management on a regular basis. In addition to transaction and company- based credit risk assessment process, monitoring of credit risk also refers to an approach with monitoring and managing the credit as a whole maturity, sector, security, geography, currency, credit type and credit rating. In the Bank’s credit risk management, along the limits as required by legal regulations, the Bank utilizes the risk limits to undertake the maximum credit risk within risk groups or sectors that the Board of Directors determines. These limits are determined such a way that prevents risk concentration on particular sectors. In case of exceeding the limits, the excess and its reasons are immediately reported to the Risk Committee and Board of Directors. The actions to be taken to remedy the excess and the time to eliminate the excess are concluded under the authority of the Board of Directors. The results of the controls regarding the excess of the risk limits and the evaluations of these limits are presented by Internal Audit and Risk Management Group to Top Management and Board of Directors. The Bank uses credit decision support systems which are created for the purpose of credit risk management, lending decisions, controlling the credit process and credit provisioning. The consistency of the credit decision support systems with the structure of the Bank’s activities, size and complexity is examined continuously by internal systems. Credit decision support systems contain the Risk Committee assessment and approval of Board of Directors. Asset and Liability Management Risk Asset-liability management risk defined as the risk of Bank’s incurring loss due to managing all financial risks that are inflicted from the Bank's assets, liabilities and off- balance sheet transactions, ineffectively. Trading book portfolio’s market risk, structural interest rate risk and liquidity risk of the banking portfolio; are considered within the scope of the asset liability management. Complying the established risk limits and being at the limits that stipulated by the legislation are the primary priority of Asset-liability management risk. Risk limits are determined by the Board of Directors by taking into consideration of the Group's liquidity, target income level and general expectations about changes in risk factors. Board of Directors and the Audit Committee are responsible for following the Bank's capital is used optimally; for this purpose, checking the status against risk limits and providing the necessary actions are taken. Asset and Liability Management Committee is responsible for managing the Asset and Liability risk within the framework of operating principles that are involved in the risk appetite and risk limits are set by the Board of Directors in accordance with the policy statement. Asset and liability management processes and compliance with the provisions of the policy are controlled and audited by the internal audit system. The execution of the audit, reporting the audit results, action plans for the elimination of errors and gaps identified as a result of inspections regarding the fulfillment of the principles, are determined by the Board of Directors. Operational Risk Operational risk is defined as “the possibility of loss resulting from inadequate or failed internal processes, people and systems, or from external events, including legal risk”. Studies consisted and are formed of occur by execution of identification, definition, measurement, analysis, monitoring of operational risk, providing and reporting the necessary control related to monitoring the progress of our country and the world, the development of techniques and methods, necessary legal reporting, notification and conduct of follow-up transactions. Studies on the subject are conducted by the Department of Risk Management. Operational risks that arise due to the activities are defined in "Bank Risk Catalogue" and classified in respect of species. Bank Risk Catalogue is kind of the fundamental document that used for identification and classification of all at the risk that may be encountered. It is updated in line with the changes in the nature of the processes and activities. Qualitative and quantitative methods are used in a combination for measurement and evaluation of the operational risks. In this process, information use that obtained from "Impact-Probability Analysis", "Missing Event Data Analysis", "Risk Indicators", “Scenario Analysis”, “Top-Down Risk Assessment”, “Internal Model” methods. Methods prescribed by legal regulations are applied as minimum in determining the capital requirement level for the operating risk. The Operational Risk Committee acts to determine the strategies and policies for the management of the operational risks that the Bank may be exposed to, to develop the operational risk management framework and to strengthen the governance model regarding operational risks. The Committee works in cooperation with the Risk Committee and reports its operating results to the Board of Directors through the Audit Committee. All risks are assessed in the context of operational risk, loss events and the risk indicators same as operational risks that occurred in the Bank, are monitored on a regular basis by the Department of Risk Management and reported periodically to the Risk Committee, Operational Risk Committee and the Board of Directors. Model Risk Management and Validation Operations Model risk is the risk of financial losses and/or loss of reputation that the Bank may be exposed to due to errors and/or malfunctions that occur during the creation, implementation or use of models used in its activities. In order to address the model risk in a holistic manner, the model definition, model life cycle and triple line of defense structure and the duties and responsibilities of all functions of the Bank in this structure are defined in the model risk management policy. Model risk management and validation activities in the second line of defense of the triple line of defense structure; creating the model inventory, determining and approving the model class, validating the models, preparing periodic reports on the Bank's model risk and presenting those reports to the Risk Committee, Audit Committee and Board of Directors. Risk measurement models are validated at least once a year according to international standards. Within the scope of validation, activities are carried out to test the performance and validity of models with statistical methods, to examine the quality of the data used in the model development phase and the conceptual soundness of the selected methods, and to evaluate the health of the processes created for the use of the models. The results of the validation activities are reported to the Risk Committee, Audit Committee and the Board of Directors. a.2. Overview of risk weighted amounts: Credit risk (excluding counterparty credit risk) (CCR) Of which standardized approach (SA) Of which internal rating-based (IRB) approach Counterparty credit risk Of which standardised approach for counterparty credit risk (CCR) Of which internal model method (IMM) Equity positions in banking book under basic risk weighting or internal rating-based approach Equity investments in funds – look-through approach Equity investments in funds – mandate-based approach Equity investments in funds – 1250% weighted risk approach Settlement risk Securitization positions in banking accounts Of which IRB ratings-based approach (RBA) Of which IRB Supervisory formula approach (SFA) SA/simplified supervisory formula approach (SSFA) Market risk Of which standardised approach (SA) Of which internal model approaches (IMM) Operational Risk Of which Basic Indicator Approach Of which Standardised approach (SA) Of which Advanced measurement approach Risk Weighted Amounts Minimum Capital Requirements Current Period Prior Period Current Period 504,344,844 504,344,844 14,329,919 14,329,919 400,826,453 400,826,453 8,461,391 8,461,391 40,347,588 40,347,588 1,146,394 1,146,394 1,586,280 1,396,354 126,902 10,104,488 10,104,488 40,291,061 40,291,061 8,532,063 8,532,063 32,655,169 32,655,169 808,359 808,359 3,223,285 3,223,285 The amounts below the thresholds for deduction from capital (subject to a 250% risk weight) 700,490 605,435 56,039 Floor adjustment Total 571,357,082 452,476,866 45,708,567 262 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 263 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Prior Period Assets Cash and CBRT Current Period Assets Cash and CBRT b. Linkages between Financial Statements and Risk Amounts b.1. Differences and matching between asset and liabilities’ carrying values in financial statements and risk amounts in capital adequacy calculation Carrying values of items in accordance with Turkish Accounting Standards Carrying values of items in accordance with Turkish Accounting Standards Carrying values in financial statements prepared as per TAS Subject to credit risk Subject to counterparty credit risk Securitization Positions Subject to market risk Not subject to capital requirements or subject to deduction from capital Carrying values in financial statements prepared as per TAS Subject to credit risk Subject to counterparty credit risk Securitization Positions Subject to market risk Not subject to capital requirements or subject to deduction from capital Banks and Money Market Placements 24,129,301 181,923,221 181,923,221 24,129,301 Banks and Money Market Placements 13,532,058 70,906,361 70,906,361 16,049,561 Financial Assets at Fair Value Through Profit/Loss Financial Assets at Fair Value Through Other Comprehensive Income Derivative Financial Assets at Fair Value Through Profit/Loss Derivative Financial Assets at Fair Value Through Other Comprehensive Income Financial Assets at Amortised Cost- Credit Financial Assets at Amortised Cost- Other Financial Assets Financial Assets at Amortised Cost- Expected Loss Provisions (-) Assets Held for Sale and Discontinued Operations Investment in Associates, Subsidiaries and Joint-Ventures Tangible Assets Intangible Assets Investment Properties Current Tax Asset Deferred Tax Asset Other Assets Total Assets Liabilities Deposits Funds Borrowed Money Market Funds Marketable Securities Issued Derivative Financial Liabilities at Fair Value Through Profit/Loss Derivative Financial Liabilities at Fair Value Through Other Comprehensive Income Leasing Transaction Liabilities Provisions Current Tax Liability Deferred Tax Liability Subortinated Debts Other Liabilities Shareholders' Equity Total Liabilities 10,572,208 9,441,624 87,555,076 87,555,076 21,924,166 21,924,166 21,924,166 1,130,584 1,474,079 9,381,439 514,208,750 514,208,750 46,412,734 46,412,734 28,323,252 28,323,252 827,633 827,633 39,461,345 39,461,345 8,699,860 1,750,109 8,651,037 1,750,109 48,823 1,561,603 2,557,610 14,870,263 926,569,024 595,628,376 65,651,426 48,235,495 30,635,812 12,586,533 1,700,439 15,487,318 1,831,219 37,470,997 30,502,118 86,839,291 926,569,024 2,557,610 14,870,263 925,389,617 21,924,166 11,986,102 1,610,426 5,111,969 48,235,495 12,586,533 53,347,464 12,586,533 Financial Assets at Fair Value Through Profit/Loss Financial Assets at Fair Value Through Other Comprehensive Income Derivative Financial Assets at Fair Value Through Profit/Loss Derivative Financial Assets at Fair Value Through Other Comprehensive Income 4,181,374 3,294,280 65,530,946 65,530,946 5,060,117 5,060,117 5,060,117 887,094 684,680 3,876,906 Financial Assets at Amortised Cost-Credit 365,521,602 365,521,602 Financial Assets at Amortised Cost- Other Financial Assets Financial Assets at Amortised Cost- Expected Loss Provisions(-) Assets Held for Sale and Discontinued Operations Investment in Associates, Subsidiaries and Joint-Ventures Tangible Assets Intangible Assets Investment Properties Current Tax Asset Deferred Tax Asset Other Assets Total Assets Liabilities Deposits Funds Borrowed Money Market Funds Marketable Securities Issued Derivative Financial Liabilities at Fair Value Through Profit/Loss Derivative Financial Liabilities at Fair Value Through Other Comprehensive Income 41,659,437 41,659,437 23,363,882 23,363,882 1,220,094 1,220,094 26,002,383 26,002,383 6,610,279 1,330,841 6,561,621 1,330,841 48,658 1,207,338 3,420,494 12,290,328 593,902,432 368,876,491 40,431,345 22,996,537 30,840,648 7,934,485 3,420,494 12,290,328 592,966,680 5,060,117 5,448,680 1,255,996 7,056,940 22,996,537 7,934,485 Leasing Transaction Liabilities 1,389,217 Provisions Current Tax Liability Deferred Tax Liability Subortinated Debts Other Liabilities Shareholders' Equity Total Liabilities 10,224,590 2,420,107 22,138,559 18,869,001 67,781,452 593,902,432 30,053,477 7,934,485 264 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 265 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 1 2 3 4 5 6 7 8 9 10 11 1 2 3 4 5 6 7 8 9 10 11 b.2. The main sources of the differences between the risk amounts and the amounts assessed in accordance with TAS in the financial statements Current Period Total Credit Risk Asset carrying value amount under scope of TAS 926,569,024 925,389,617 926,569,024 670,197,753 925,389,617 139,078,854 Liabilities carrying value amount under scope of TAS Total net amount scope of financial statement Off-balance sheet amounts Repo style transactions (*) Differences in valuations Differences due to different netting rules Differences due to consideration of provisions Differences due to prudential filters Differences due to risk mitigation (**) Risk Amounts (*) According to the "Regulation on Measurement and Evaluation of Capital Adequacy of Banks", it is the counterparty credit risk amount calculated for repo style transactions. (**) The source of the difference is collaterals of exposures to which credit risk mitigation is applied in the calculation of capital adequacy. (134,964,810) (65,293,708) 864,209,953 30,545,431 600,431 Securitization Positions Counterparty credit risk Market risk 11,986,102 12,586,533 600,431 21,924,166 (53,347,464) 75,271,630 26,056,873 4,488,558 Prior Period Total Credit Risk Asset carrying value amount under scope of TAS 593,902,432 592,966,680 593,902,432 408,834,224 592,966,680 85,236,037 Liabilities carrying value amount under scope of TAS Total net amount scope of financial statement Off-balance sheet amounts Repo style transactions (*) Differences in valuations Differences due to different netting rules Differences due to consideration of provisions Differences due to prudential filters Differences due to risk mitigation (**) Risk Amounts Securitization Positions Counterparty credit risk Market risk 5,448,680 7,934,485 2,485,805 5,060,117 (30,053,476) 35,113,593 7,523,188 4,717,151 (21,923,476) (5,657,406) 650,621,835 12,240,339 2,485,805 (*) According to the "Regulation on Measurement and Evaluation of Capital Adequacy of Banks", it is the counterparty credit risk amount calculated for repo style transactions. (**) The source of the difference is collaterals of exposures to which credit risk mitigation is applied in the calculation of capital adequacy. The Bank intends to use fair value measurement methods in accordance with IFRS 13 using valuation methodologies based primarily on observable data. In this context, market prices, quoted prices, prices set by CBRT and published in official gazette and internal pricing models are also utilized in the fair value measurement of the financial assets in the form of securities. Valuation models that use market data such as interest rates, efficiency curves, currency, and volatility curves are used as the basis for derivative transactions while third party valuation services are also available. The accuracy of the market prices, data and / or model inputs used in valuation under the independent price validation process is regularly checked and the suitability of the results provided by the third-party pricing service is tested at regular intervals. c. Explanation on Credit Risk c.1. General Information on Credit Risk c.1.1. General qualitative information on credit risk This information is included in footnotes under Section Four, Note II "Explanations on Credit Risk," and Section Four, Note XI-a.1. c.1.2. Credit quality of assets: Current Period Loans (*) Debt Securities Off-balance sheet exposures Total Gross Carrying Calue in Financial Statements Prepared in Accordance with Turkish Accounting Standards (TAS) Defaulted 20,830,559 1,606,025 22,436,584 Non-defaulted 493,378,191 138,938,624 323,100,912 955,417,727 Allowances/ amortization and impairments Net Values 13,790,995 1,214,355 15,005,350 500,417,755 138,938,624 323,492,582 962,848,961 (*) The credit balance, which is measured at fair value through profit and loss, as detailed in section five 1-B-3, is not included in the above tables. Prior Period Loans (*) Debt Securities Off-balance sheet exposures Total Gross Carrying Calue in Financial Statements Prepared in Accordance with Turkish Accounting Standards (TAS) Defaulted 20,371,472 909,307 21,280,779 Non-defaulted 345,150,130 107,252,064 202,730,928 655,133,122 Allowances/ amortization and impairments Net Values 12,975,961 694,245 13,670,206 352,545,641 107,252,064 202,945,990 662,743,695 (*) The credit balance, which is measured at fair value through profit and loss, as detailed in section five 1-B-3, is not included in the above table. c.1.3. Changes in stock of default loans and debt securities (*): Defaulted loans and debt securities at end of the previous reporting period Loans and debt securities that have 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 20,371,472 6,350,286 (1,017,053) (2,006,458) (2,867,688) 20,830,559 18,883,474 5,120,175 (145,197) (37,283) (3,449,697) 20,371,472 Current Period Prior Period (*) Indemnified non-cash loans or non-cash loans not converted into cash, of the firms which are followed under “Non-performing Loans” accounts are not included in the table. c.1.4. Additional Explanation About the Credit Quality of Assets Bank’s methods for determining provision amounts and classification of its loans are mentioned in the Section Three Note VIII. The bank is restructuring its loans classified as first and second group as well as non-performing loans. Restructuring in performing loans are made by granting a new loan or extending the term date of credit given to customer by Bank. Restructuring of a contract is made on customer’s demand or with the purpose of enhancing the solvency of customer. Restructuring in non-performing loans are generally made by establishing a new redemption plan within the context of a protocol aiming the collection of those receivables whose redemption plan are not valid because of delinquency previously. The breakdown of receivables in terms of geographic regions, sectors and remaining maturities are represented in “Explanations on Credit Risk” in the Section Four Notes II. On the basis of sector-based provisions for receivables are presented in the footnote numbered Section Four II-16. The amounts of the receivables that are set aside for the geographical regions are as follows. The amount of non-performing loans which are written off in 2020 is TL 2,006,458. 266 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 267 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Current Period Prior Period Non-Performing Loans Specific Provision Non-Performing Loans Specific Provision Domestic EU Countries OECD Countries (*) Off-shore Banking Regions USA, Canada Other Countries Total 20,397,941 247,369 35,901 7,731 141,617 20,830,559 13,498,359 119,892 30,765 6,382 135,597 13,790,995 20,176,357 39,197 1,275 8,560 146,083 20,371,472 12,802,981 26,484 1,067 6,329 139,100 12,975,961 (*) OECD countries other than the EU countries, USA and Canada The aging analysis of past-due receivables is included in Section Four Note II-11. c.2. Credit risk mitigation c.2.1. Qualitative Requirements to be Disclosed to The Public Regarding Credit Risk Mitigation Techniques In the calculation of the Bank’s Credit Risk Mitigation in accordance with the “Communiqué on Credit Risk Mitigation Techniques” published in the Official Gazette numbered 29111 on 6 September 2014, the financial collaterals are taken into consideration. The Bank takes local currency and foreign currency deposit pledges into consideration as financial collaterals in calculating regulatory capital adequacy. Information on key characteristics of the policies and processes related to the assessment and management of collateral are included in footnotes under Section IV No. II, "Credit Risk Explanations". c.2.2. Credit risk mitigation techniques: Current Period Exposures unsecured Exposures secured by collateral Exposures secured by collateral, of which: secured amount Exposures secured by financial guarantees (*) Exposures Secured by Financial Guarantees, of which: Secured Amount Exposures secured by credit derivatives Exposures secured by credit derivatives, of which: secured amount Loans (**) 577,741,977 10,355,755 8,618,981 10,746,384 9,724,012 Debt securities 153,871,817 Total 731,613,794 10,355,755 8,618,981 10,746,384 9,724,012 Of which defaulted 23,623,595 (*) Consists loans of Credit Guarantee Fund guaranteed by the Undersecretariat of Treasury. (**) The credit balance, which is measured at fair value through profit and loss, as detailed in section five 1-B-3, is not included in the above table. Prior Period Exposures unsecured Exposures secured by collateral Exposures secured by collateral, of which: secured amount Exposures secured by financial guarantees (*) Exposures Secured by Financial Guarantees, of which: Secured Amount Exposures secured by credit derivatives Exposures secured by credit derivatives, of which: secured amount Loans (**) 336,672,229 4,761,729 3,987,435 11,111,682 9,097,809 Debt securities 107,252,064 Total 443,924,293 4,761,729 3,987,435 11,111,682 9,097,809 Of which defaulted 7,395,512 (*) Consists loans of Credit Guarantee Fund guaranteed by the Undersecretariat of Treasury. (**) The credit balance, which is measured at fair value through profit and loss, as detailed in section five 1-B-3, is not included in the above table. c.3. Credit risk if standard approach is used c.3.1. Qualitative disclosures about the ratings notes used by banks to calculate credit risk by standard approach The mentioned disclosure is presented in Section Four Note XI-a.1. c.3.2. Standard approach - Exposure credit risk and credit risk mitigation effects Current Period Exposures before CCF and CRM Exposures post-CCF and CRM RWA and RWA density On-balance sheet amount Off-balance sheet amount On-balance sheet amount Off-balance sheet amount Risk- weighted amount Risk-weighted amount density Exposures to sovereigns and their central banks 247,509,946 Exposures to regional and local governments 342,151 950 870 Exposures to administrative bodies and non- commercial entities 508,139 208,921 Exposures to multilateral development banks 299,645 Exposures to international organizations 342,041 503,509 299,645 255,525,435 9,188,437 3,328,651 171,168 1.26% 50.00% 587,608 100.00% 267 84,099 16,023,828 88,814,213 Exposures to banks and securities firms 21,099,626 21,072,853 21,086,177 Exposures to corporates Retail exposures 227,307,338 152,695,779 217,460,719 123,310,683 74,788,316 120,335,451 5,839,139 Exposures secured by residential property Exposures secured by commercial property Past-due loans 24,218,274 25,111,231 6,791,059 1,364,158 3,708,957 Exposures in higher-risk categories by the Board 23,813,122 1,246,361 24,171,142 25,111,231 6,791,059 23,493,603 606,846 2,606,663 150,646 12,328,560 279,530,445 95,895,190 8,672,296 17,226,269 5,208,451 35,364,332 Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Equity investments in the form of collective investment undertakings Equity investments Other exposures Total 1,536,280 50,000 1,536,280 50,000 1,586,280 27,016,787 38,685,526 21,509,499 27,016,787 38,685,526 131,274 15,893,526 39,105,820 767,549,807 276,646,664 762,358,605 123,495,412 514,898,596 0.00% 33.22% 91.27% 76.00% 35.00% 62.15% 76.70% 149.57% 100.00% 58.54% 101.09% 58.12% Prior Period Exposures before CCF and CRM Exposures post-CCF and CRM RWA and RWA density On-balance sheet amount Off-balance sheet amount On-balance sheet amount Off-balance sheet amount Risk- weighted amount Risk-weighted amount density Exposures to sovereigns and their central banks 164,764,668 Exposures to regional and local governments 454,543 1,231 490 Exposures to administrative bodies and non- commercial entities 505,480 103,885 Exposures to multilateral development banks 228,549 803 Exposures to international organizations 454,435 504,767 228,549 173,863,011 1,236,709 Exposures to banks and securities firms 18,683,494 16,676,675 18,683,494 Exposures to corporates Retail exposures 193,661,164 123,382,253 185,880,826 110,514,185 51,613,908 105,736,196 3,337,336 Exposures secured by residential property Exposures secured by commercial property Past-due loans 10,323,829 20,410,195 7,342,980 312,988 3,555,456 Exposures in higher-risk categories by the Board 63,926 869,651 10,306,924 20,410,195 7,342,980 63,926 143,168 2,600,445 101,830 230 42,267 402 13,440,199 68,115,280 Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Equity investments in the form of collective investment undertakings Equity investments Other exposures Total 1,516,841 65,000 1,516,841 21,278,047 26,315,903 6,112,340 21,278,047 26,315,903 65,000 18,830 576,063,804 202,694,680 572,586,094 89,101,696 409,127,921 2,163,946 227,333 1.24% 50.00% 547,034 100.00% 0.00% 32.52% 98.37% 75.00% 35.00% 61.77% 76.50% 100.21% 10,446,986 249,859,909 81,805,149 3,657,532 14,214,647 5,617,703 166,103 1,396,354 88.27% 12,346,061 26,679,164 57.97% 101.38% 61.83% 268 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 269 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 0% 10% 20% 25% 35% 50% 75% 100% 150% 250% Other (*) Total 10% 20% 25% 35% 50% 75% 100% 150% 250% % 250 Total Risk Weights Bank Prior Period Risk Weights Bank 172,935,757 35 2,163,928 175,099,720 c.3.3. Standardised Approach-Exposures by Risk Classes and Risk Weights: Current Period Risk Groups Exposures to sovereigns and their central banks 261,385,207 Exposures to regional and local governments Exposures to administrative bodies and non-commercial entities Exposures to multilateral development banks 299,645 Exposures to international organizations Exposures to banks and securities firms Exposures to corporates Retail exposures Exposures secured by residential property Exposures secured by commercial property Past-due loans (*) Exposures in higher-risk categories by the Board Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Equity investments in the form of collective investment undertakings Equity investments Other exposures Total 11,254,535 272,939,387 29 3,328,636 264,713,872 342,280 28 587,608 342,308 587,608 299,645 22,305,274 18,541,595 13,781,596 958,860 11,190 53,085 37,110,005 23,259,559 264,041,919 95,804 336,055 306,274,932 121,117,602 5,056,988 24,777,988 20,983,251 6,734,643 3,166,861 3,622,553 1,645 53,944 96,195 23,494,110 126,174,590 24,777,988 27,717,894 6,791,059 23,644,249 40,846,869 24,777,988 61,587,520 121,117,602 340,312,566 23,602,749 280,196 389,140 885,854,017 1,586,280 38,405,330 15,893,526 280,196 1,586,280 38,685,526 27,148,061 (*) Related balance includes receivables from central counterparties subject to 2% risk weight.. Risk Groups Exposures to sovereigns and their central banks Exposures to regional and local governments Exposures to administrative bodies and non-commercial entities Exposures to multilateral development banks 228.951 Exposures to international organizations Exposures to banks and securities firms Exposures to corporates Retail exposures Exposures secured by residential property Exposures secured by commercial property Past-due loans Exposures in higher-risk categories by the Board Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Equity investments in the form of collective investment undertakings Equity investments Other exposures Total 454,664 1 547,034 454,665 547,034 228,951 19,714,488 11,826,138 567,163 15,904 32,123,693 1,503,520 5,866,767 246,625,814 5 109,073,532 10,450,092 17,591,986 5,418,654 3,726,033 3,341,469 275,478 75,865 13,332 76,559 253,996,106 109,073,532 10,450,092 23,010,640 7,342,980 165,756 370,975 1,210,866 1,581,841 8,950,816 182,115,524 21,218,008 10,450,092 39,912,463 109,073,532 298,308,051 367,946 242,174 661,687,790 26,073,729 12,346,061 242,174 26,315,903 21,296,877 270 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 271 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen d. Explanations on Counterparty credit risk d.1. Qualitative Explanations on Counterparty credit risk The counterparty credit risk that the Bank is exposed to be managed within the framework of general limit allocation and credit risk mitigation that are outlined in the credit risk policy. In setting general credit limits, the counterparty credit risks of customers as well as their cash and noncash risks are taken into account with a holistic view. Moreover, the total position of the transactions which create counterparty credit risk is also monitored under a separate risk limit. The counterparty credit risk, which stems from derivatives and repo style transactions including transactions with qualified central counterparties that result in liabilities for both sides, is measured according to the Appendix-2 and Appendix-4 of the "Regulation on Measurement and Evaluation of Capital Adequacy of Banks". Counterparty credit risk valuation method based on the calculation of fair values of the derivative transactions is implemented. In calculating the potential credit risk, the amount of the contract is multiplied by the rates given in the regulation. The replacement costs of derivative instruments are calculated based on the valuation of the related contracts according to the fair value method. Most of the credit risk related to the derivative transactions with other banks is subject to daily collateral clearing agreements mutually signed with related parties and the counterparty credit risk is hence reduced. On the other hand, the risk-reducing effect of such agreements is not considered in the calculation of the counterparty credit risk under the capital adequacy legislation. There are no guarantees received or sold by credit derivatives by the Bank in the context of trading or banking accounts. d.2. Counterparty credit risk (CCR) approach analysis: Current Period Replacement Cost Potential Future Exposure Exposure after Credit Risk Mitigation Risk Weighted Amounts Standardised Approach -CCR (for derivatives) (*) 15,126,470 2,525,157 17,651,627 7,438,966 Comprehensive Approach for credit risk mitigation (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions) 3,603,297 820,234 Total 15,126,470 2,525,157 21,254,924 8,259,200 (*) Transactions with central counterparties are not included. Prior Period Replacement Cost Potential Future Exposure Exposure after Credit Risk Mitigation Risk Weighted Amounts Standardised Approach -CCR (for derivatives) (*) 4,675,225 1,871,467 6,546,692 4,640,300 Comprehensive Approach for credit risk mitigation (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions) 4,510,615 1,650,727 Total 4,675,225 1,871,467 11,057,307 6,291,027 (*) Transactions with central counterparties are not included. d.3. Capital obligation for credit valuation adjustment (CVA): Total portfolio value with standardized approach CVA capital charge 17,651,627 6,061,815 Total subject to the CVA capital charge 17,651,627 6,061,815 6,546,692 6,546,692 2,160,332 2,160,332 Current Period Prior Period Risk Amounts Risk Weighted Amounts Risk Amounts Risk Weighted Amounts d.4. CCR exposures by risk class and risk weights: Current Period 0% 10% 20% 50% 75% 100% 150% Other (*) Risk Weights Total Credit Exposure 9,034,901 9,034,901 Risk Groups Conditional and unconditional exposures to sovereigns and their central banks Conditional and unconditional exposures to regional and local governments Conditional and unconditional exposures to administrative bodies and non-commercial entities Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and securities firms Exposures to corporates Retail exposures Other Exposures Total 130 130 2,199,970 3,723,422 1 247,813 269,495 5,754,644 24,547 5,923,393 6,271,952 24,547 389,140 389,140 9,034,901 2,447,783 3,992,917 24,547 5,754,775 389,140 21,644,063 (*) Related balance includes receivables from central counterparties subject to 2% risk weight. 272 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 273 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Prior Period 0% 10% 20% 50% 75% 100% 150% Total Credit Exposure Risk Weights Risk Groups Conditional and unconditional exposures to sovereigns and their central banks Conditional and unconditional exposures to regional and local governments Conditional and unconditional exposures to administrative bodies and non-commercial entities Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and securities firms Exposures to corporates Retail exposures Exposures secured by residential property Exposures secured by commercial property Exposures in high-risk categories Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Equity investments in the form of collective investment undertakings Equity investments Other Exposures Other Assets Total d.5. Collateral for CCR: 1,066,957 1,066,957 146 146 2,201,826 3,867,157 3 976 3,906,228 14,014 6,068,986 3,907,204 14,014 1,066,957 2,202,802 3,867,157 14,014 3,906,377 11,057,307 d.6. Credit derivatives exposures: None. d.7. Exposures to central counterparties (CCP): Current Period Prior Period Post CRM risk exposure RWA Post CRM risk exposure RWA 8,904 7,782 7,742 40 478,874 432,350 428,010 4,340 10,031 8,647 8,560 87 1,122 46,524 1,384 576,066 389,140 387,118 2,022 146,312 40,614 Exposure to Qualified Central Counterparties (QCCPs) (total) Exposures for trades at WCCPs (excluding initial margin and default fund contributions); of which (i) OTC Derivatives (i) Exchange-traded Derivatives (i) Repo-reverse repo transactions, credit securities transactions and securities or commodities lending or borrowing (i) Netting sets where cross-product has been approved Segregated initial margin Non-segregated initial margin Paid guarantee fund amount Unpaid guarantee fund commitment Exposures to non-QCCPs (total) Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which (i) OTC Derivatives (ii) Exchange-traded Derivatives (iii) Securities financing transactions (iv) Nettinf sets where cross-product has been approved Segregated initial margin Non-segregated initial margin Pre-funded default fund contributions Unfunded default fund contributions Explanations on securitizations: None. f. Market Risk Explanations Collateral used in derivative transactions Collateral used in other transactions f.1. Qualitative information to be disclosed to the public regarding market risk Current Period Received Collateral Given Collateral Segregated Unsegregated Segregated Unsegregated Cash- Domestic Currency Cash- Other Currencies Total Given Collateral Received Collateral 40,360,089 8,394,718 48,754,807 Collateral used in derivative transactions Collateral used in other transactions Prior Period Received Collateral Given Collateral Segregated Unsegregated Segregated Unsegregated Cash- Domestic Currency Cash- Other Currencies Total Given Collateral Received Collateral 19,280,623 10,055,863 29,336,486 Market risk is defined as the risk that may reduce the market value of the trading portfolio due to the changes in the risk factors named interest rate, exchange rates, equities and the price of commodities and options. The procedures for the management of market risk are discussed in the Bank's "Asset and Liability Management Risk Policy" and those procedures are in line with the risk/return expectations of the Bank and with the limits that are defined in the risk appetite framework. Limits related to market risk; are established by the Board and are revised periodically in order to reflect market conditions and best practices in the industry. Compliance to those limits is closely monitored by the Risk Management Department, Asset and Liability Management Committee and by the executive departments. Additionally, compliance with the provisions relating to the procedures and policies of market risk management is audited by the internal audit system. Trading activities of the securities that are included in the calculation of market risk is carried out by taking the Asset-Liability Committee decisions, risk policies and established limits into consideration and risks arising due to these activities are hedged using derivatives transactions where necessary. Measurement of market risk, reporting of results, and monitoring compliance with the risk limits are among the key responsibilities of the Risk Management Department. Analyses related to market risk are reported to the Risk Committee and to the Board via the Audit Committee by the Risk Management Department. The trading book of the Bank included in market risk calculations consists of on balance-sheet financial assets that are held for trading intent, derivatives that provide hedge to those instruments and foreign currency positions. The market risk carried by the Bank is measured and monitored using two methods known respectively as the Standard Method and the Value at Risk Model (VAR) and Expected Shortfall in accordance with the local regulations which are established in compliance with the international legislations. In this context, the exchange rate risk emerges as the most important component of the market risk. The market risk calculations using the Standard Method are performed at the end of each month and the measurement results are included in the statutory reports as well as being reported to the Bank’s top management. The Value at Risk Model and Expected Shortfall are another alternative for the Standard Method used for measuring and monitoring market risk. This model is used to measure the market risk on a daily basis in terms of interest rate risk, currency risk and equity share risk and is a part of the Bank’s daily internal reporting. Further retrospective testing (back-testing) is carried out on a daily basis to determine the reliability of the daily risk calculation by the VAR model, which is used to estimate the maximum possible loss for the following day. Scenario analyses which support the VAR model used to measure the losses that may occur in the ordinary market conditions are practiced, and the possible impacts of scenarios that are developed based on the future predictions and the past crises, on the value of the Bank’s portfolio are determined and the results are reported to the Bank’s top management. 274 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 275 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen f.2. Standardised Approach: Current Period Outright Products Interest rate risk (general and specific) Equity risk (general and specific) Foreign exchange risk Commodity risk Options Simplified approach Delta-plus method Scenario approach Securitisations Total g. Explanations on Operational Risk Current Period Prior Period i. Remuneration policy RWA 9,118,589 3,798,288 464,125 4,265,063 591,113 985,899 985,899 RWA 8,428,564 3,109,788 521,550 4,714,538 82,688 103,499 103,499 10,104,488 8,532,063 The operational risk capital requirement is calculated according to Regulation on Measurement and Evaluation of Capital Adequacy of Banks' article number 24, is measured using the Basic Indicator Approach once a year in parallel with domestic regulations. As of December 31, 2021, the operational risk amount is TL 40,291,061 (December 31, 2020: TL 32,655,169) and information about the calculation is given below. Current Period Gross Income Value at operational risk (Total*12.5) Prior Period Gross Income Value at operational risk (Total*12.5) 2 PP Amount 1 PP Amount CP Amount Total/No. of Years of Positive Gross Rate (%) Total 17,545,195 19,200,037 27,720,464 3 15 3,223,285 40,291,061 2 PP Amount 1 PP Amount CP Amount Total/No. of Years of Positive Gross Rate (%) Total 15,503,039 17,545,195 19,200,037 3 15 2,612,414 32,655,169 h. The interest rate risk of the banking book items: Interest rate risk arising from the banking accounts is defined as negative effect risk on capital of the changes in market interest rates due to differences in interest settlement and re-pricing on, differences in interest-earning assets taking part in the banking book; interest-bearing liabilities; interest-bearing derivative transactions inclusive of the policies established by the Board of Directors, is managed within the framework of the strategies set by the Bank Asset-Liability Committee. Compliance with internal risk limits for banking portfolio is closely and continuously monitored by the Risk Management Department and Asset-Liability Committee and the measurement results are reported to the Board of Directors on a monthly basis. Duration and sensitivity analysis are conducted on a monthly basis by the Bank in the scope of monitoring of interest rate risk arising from the banking books about Interest Rate Risk in the Banking Accounts from the Regulation on Measurement and Assessment of Standard Shock Method which is published in the Official Gazette No. 28034 dated 23 August 2011. In the duration analysis, the maturity gap between assets and liabilities of the balance sheet are determined by the calculation of the weighted average maturities based on the asset that sensitive to interest rate and liabilities and off-balance sheet transactions re-pricing period. In the interest rate risk sensitivity analysis, the influence of the various interest rate change scenarios to the economic value of the Bank's capital is examined. In the calculations made within the framework of the said regulation, behavioral maturity modeling is performed for demand deposits with low sensitivity to interest changes and whose original maturity is longer than the contractual maturity. In these studies, which are defined as core deposit analysis, based on historical data, calculations are made for what amount of demand deposits will remain within the bank for what maturity, and these analyzes are used as an input in quantifying the interest rate risk arising from banking accounts in a way that does not contradict legal provisions. Currency Applied Shock (+/- x basis point) Revenue/ Loss Revenue/Shareholders’ Equity – Loss/ Shareholders’ Equity TL TL EUR EUR USD USD Total (for Negative Shocks) Total (for Positive Shocks) (+) 500 (-) 400 (+) 200 (-) 200 (+) 200 (-) 200 276 | İŞBANK 2021 INTEGRATED ANNUAL REPORT (7,658,934) 7,003,704 709,875 48,870 (1,201,907) 2,876,981 9,929,555 (8,150,966) (6.79) % 6.21% 0.63% 0.04% (1.07) % 2.55% 8.80% (7.23) % The Remuneration Committee, which is established to carry out the duties and activities related to the monitoring and supervision of the Bank's remuneration applications on behalf of the Board of Directors, consists of two members. The Remuneration Committee meets at least twice a year, not exceeding six months, and reports to the Board of Directors on the results of the activities carried out and important matters considered to have an impact on the Bank’s position. As of the end of 2021, the Remuneration Committee met 7 times and made a total of 10 decisions. Regarding compliance with the Corporate Governance Principles, the Remuneration Committee monitors and supervises the practices related to wage management on behalf of the Board of Directors; the fees are in line with the Bank's ethical values, internal balances and strategic objectives; the evaluation of the remuneration policy and its practices in the context of risk management; it is responsible for the presentation of the proposals determined in line with the requirements of the salary policy and the other responsibilities determined by the provisions of the applicable legislation and the fulfillment of the duties given by the Board of Directors in this framework. As of the end of 2021, the number of qualified employees working at the Bank is 27. The monetary and social rights of employees are determined in accordance with the Chartering Policy in the framework of the legislation related to the Collective Labor Agreement. The Bank carries out its practices with regard to remuneration policies within the framework of relevant banking and capital market legislation. This policy includes all managers and employees. Premium payments are made once a year to managers and managers who work in branches and headquarters units. It is considered that managerial premium payments are in line with the Bank's long-term strategy and the risks assumed, as well as the performance of its employees. There are no variable fees for qualified employees in the Bank. The compliance of the wage levels in the bank with the sector wage levels is monitored by participating in independent and anonymous wage surveys, which are held twice a year. Within the scope of the remuneration policy, the Bank's pricing practices are planned and executed on the basis of effective risk management, prevention of excessive risk taking, compliance with relevant legislation and scope and structure of the bank's activities, strategies, long-term objectives and risk management structures. The fees to be paid to the managers and employees of the Bank at every stage; It is essential that the Bank is in line with its ethical values, internal balances and strategic objectives, and that it is not only associated with its short-term performance. Payments made to employees are determined in a manner that will positively impact the Bank's corporate values and on the basis of objective conditions. Payments to be made to the managers of the units within the internal systems and to their staff are determined by taking into account the performance of the relevant personnel in relation to their functions, as they are in the audit or oversight, or are independent of the performance of the activity unit they control. XII. Explanations on Segment Reporting The Bank’s operations are classified as corporate, commercial, retail and private banking, and treasury/investment banking. Services to the large corporations, SMEs and other trading companies are provided through various financial instruments within the scope of the corporate and commercial operations. Services such as project financing, operating and investment loans, deposit and cash management, credit cards, cheques and bills, foreign trade transactions and financing, letter of guarantees, letter of credits, forfeiting, foreign currency trading, bill collections, payrolls, investment accounts, tax collections and other banking services are provided for the aforementioned customer segments. Retail banking services are comprised of individuals needs such as deposits, consumer loans, overdraft accounts, credit cards, bill collections, remittances, foreign currency trading, safe-deposit boxes, insurance, tax collections, and investment accounts and by other banking services. All kinds of financing and cash management services provided to individuals in the high-income level are recognized as Private Banking activities. Treasury transactions are comprised of medium- and long-term funding tools such as securities trading, money market transactions, spot and forward TL and foreign currency trading, and derivative transactions such as forwards, swaps, futures and options, as well as syndications and securitizations. The details about the aforementioned investments are stated in Note I.h-I.i of Section Five. Statement of information related to business segmentation is given below. Below mentioned information has been prepared with the data obtained from the Bank's management reporting system. İŞBANK 2021 INTEGRATED ANNUAL REPORT | 277 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Current Period Interest Income Interest Expense Fees and Commissions Income Fees and Commissions Expense Dividend Income Trading Income/Loss (Net) Other Income Expected Credit Loss and Other Provision Expenses Other Operating Expense Income/Loss from Investments in Subsidiaries Accounted by Equity Method Income Before Tax Tax Provision Net Period Profit Total Assets Total Liabilities Prior Period Interest Income Interest Expense Commission İncome Commission Expense Dividend Income Trading Income/Loss (Net) Other Income Provision Expense Other Expense Income/Loss from Investments in Subsidiaries Accounted by Equity Method Income Before Tax Tax Provision Net Period Profit Total Assets Total Liabilities Corporate/Commercial Banking Individual/Private Banking Treasury Transaction/ Investment Activities Unallocated Total 31,950,917 6,733,700 6,695,135 12,339,254 10,607,910 2,675,474 2,643,970 7,091,015 2,560,293 307,201 688,195 6,078,683 16,417,925 11,373,446 20,735 (5,149,127) 7,414 16,416 8,003,345 196,247 1,248,018 372,169 2,122,833 1,442,985 60,904,343 29,963,074 9,742,778 2,122,833 20,735 (5,149,127) 4,401,570 6,654,541 14,450,167 7,272,713 15,911,689 8,003,345 15,475,881 2,007,986 13,467,895 394,696,667 241,815,534 99,234,839 330,076,297 228,168,114 194,580,263 204,469,404 926,569,024 160,096,930 926,569,024 Corporate/Commercial Banking Individual/Private Banking Treasury Transaction/ Investment Activities Unallocated Total 23,136,025 3,665,548 4,521,230 8,577,446 5,362,953 2,251,040 1,525,979 7,515,789 2,087,678 245,951 534,157 4,914,808 10,495,611 6,916,464 21,487 (3,341,357) 122 20,047 3,406,471 307,250 1,329,328 18,148 42,516,332 17,274,293 6,790,418 1,172,805 1,172,805 664,153 4,659,927 4,794,500 21,487 (3,341,357) 2,436,205 12,729,920 11,796,986 3,406,471 8,855,552 2,044,635 6,810,917 270,351,279 139,082,382 78,230,289 216,936,068 154,079,599 124,341,574 88,723,762 593,902,432 113,542,408 593,902,432 Section Five: Disclosures and Footnotes On The Unconsolidated Financial Statements I. Disclosures And Footnotes On Assets A. Cash and Central Bank of Turkey: a.1. Cash and balances with the Central Bank of Turkey: Current Period Prior Period Cash in TL/Foreign Currency Central Bank of Turkey Other Total TL 2,627,481 14,652,969 17,280,450 FC 12,182,962 152,099,358 360,451 164,642,771 a.2. Information on balances with the Central Bank of Turkey: TL 14,652,969 Current Period FC 66,674,939 85,424,419 152,099,358 Unrestricted Demand Deposit Unrestricted Time Deposit Restricted Time Deposit Other (*) Total 14,652,969 (*) The amount of reserve deposits held at the Central Bank of Turkey. a.3. Information on reserve requirements: TL 2,486,601 3,077,078 5,563,679 TL 3,077,078 3,077,078 FC 6,615,956 58,365,617 361,109 65,342,682 Prior Period FC 19,977,563 38,388,054 58,365,617 As per the Communiqué no. 2013/15 “Reserve Deposits” of the Central Bank of the Republic of Turkey (“CBRT”), banks keep reserve deposits at the CBRT for their TL and FC liabilities mentioned in the communiqué. The reserve deposit rates vary according to their maturity compositions; the reserve deposit rates are realized between 3% - 8% for TL deposits and other liabilities, between 19% - 26% for FC deposits and between 5% - 21% for other FC liabilities. Reserves are calculated and set aside every two weeks on Friday for 14-day periods. Interest is paid for required reserves which are in TL in accordance with the procedures and principles determined by the CBRT. According to the Communique on Required Reserves published in the Official Gazette dated 01.07.2021 and numbered 31528, the possibility of establishing Turkish lira required reserves in foreign currency was terminated as of 01.10.2021. Within the scope of the "Communique on Supporting the Conversion of Turkish Lira Deposit and Participation Accounts" numbered 2021/14, the conversion rate from USD, EUR and GBP denominated foreign currency deposit accounts and foreign exchange denominated participation fund accounts to time TL deposit and participation accounts was 10% as of the obligation date of 15.04.2022. and banks that reached 20% as of 08.07.2022 liability date, it has been decided not to apply an annual commission of 1.5% over the portion up to the amount to be kept for their liabilities until the end of 2022. b. Information on Financial Assets at Fair Value through Profit and Loss: b.1. Financial Assets at fair value through profit and loss, which are given as collateral or blocked: As of 31.12.2021, the amount of financial assets given as collateral/blocked at fair value through profit or loss is TL 4.010,802 (31 December 2020: None). b.2.Financial assets at fair value through profit and loss, which are subject to repurchase agreements: Financial assets at fair value through profit and loss, which are subject to repurchase agreements as at December 31, 2021 are amounting to TL 115,057 (December 31, 2020: TL 44,192). b.3. All creditors including the Bank reached an agreement on restructuring the loans granted to the company. As stated in the year 2019, loans of the company had been planning to be restructured based on required permits and necessary approvals within a new special purpose entity which was already incorporated or will be incorporated in the Republic of Turkey and owned by the creditors either directly or indirectly through takeover of the shares, that have been pledged by the company as a guarantee for the credit risk. Above mentioned process was completed in 2018 and, in this context the Bank owns 11.5972% of the newly formed special purpose entity. At the Ordinary Meeting of General Assembly of 2018 held in 2019, it has been decided to increase the share capital of the mentioned company by TL 3,982,230, all to be covered by common receivables. Whereas the Bank’s ownership ratio in the company has not changed, the nominal value of the shares owned increased from TL 6 to TL 461,833. Amount in question is recognized under Assets Held for Sale and Discontinued Operations account. The remaining loan amount after the capital increase amounting to TL 1,886,716 (31.12.2020: TL 1,886,716), is accounted under financial assets at fair value through profit or loss. The amount of impairment recognized for the total asset converted into loan and capital is TL 3,393,933 and is classified under the specified item. Assets, which are converted into loan and capital, amounted TL 2,348,549 are measured at fair value under TFRS 9 “Financial Instruments” standard and TFRS 5 “Assets Held For Sale and Discontinued Operations” Standard. Balance of related asset is followed in financial statements as Stage 3 within the scope of “TFRS 13 – Fair Value Measurement” standard. The Bank re-evaluated the fair value of the relevant financial asset as of the end of the period and did not make any change in the current value monitored during the period. If the growth rate and risk-free return rate on investment used in the discounted cash flow method used in valuation are increased or decreased by 0.25%, provided that all other variables are constant, the total value of assets recognized in the financial statements and profit before tax will increase by about TL 55 million (full TL amount) or will decrease by TL 49 million (full TL amount). Although the process continues as of the report date, as announced on the Public Disclosure Platform on 17 December 2021, negotiations have started for the sale of the said shares to the Turkey Wealth Fund. b.4. TL 1,302,654 of other financial assets consists of the mutual funds; Quasar İstanbul Konut Gayrimenkul and Quasar İstanbul Ticari Gayrimenkul which were founded by İş Portföy Yönetimi A.Ş. 278 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 279 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen c. Positive differences on derivative financial assets held for trading: e.3. Information on financial assets at Fair Value through Other Comprehensive Income: Derivative Financial Assets at Fair Value Through Profit or Loss Forward Transactions Swap Transactions Futures Options Other Total d. Information on Banks: d.1. Information on Banks: Banks Domestic Banks Foreign Banks Foreign Head Office and Branches Total d.2. Information on foreign banks: TL 307,790 31,882 240,718 580,390 TL 118 168,103 168,221 Current Period Prior Period FC 1,697,249 18,159,836 456,221 1,030,470 21,343,776 Current Period FC 628,822 23,332,258 23,961,080 TL 150,545 41,156 3,779 195,480 TL 230,204 197,109 427,313 FC 369,782 4,323,287 81,008 90,560 4,864,637 Prior Period FC 318,280 15,303,968 15,622,248 EU Countries USA, Canada OECD Countries (*) Off-shore Banking Regions Other Total Restricted Amount Unrestricted Amount Current Period 6,992,733 4,798,843 3,164,571 3,083,978 18,040,125 Prior Period 5,672,853 3,185,966 2,007,029 1,593,433 12,459,281 Current Period 2,504,313 1,732,111 1,223,812 5,460,236 Prior Period 1,411,758 73,252 1,032,493 524,293 3,041,796 Debt Securities Quoted on a Stock Exchange Not- Quoted (*) Share Certificates Quoted on a Stock Exchange Not-Quoted Impairment Losses (-) Other Total Current Period 92,072,307 47,467,263 44,605,044 552,328 552,328 5,094,482 24,923 87,555,076 Prior Period 65,691,796 42,827,077 22,864,719 345,962 345,962 643,691 136,879 65,530,946 (*) Refers to the debt securities, which are not quoted on the Stock Exchange or which are not traded, although quoted, on the Stock Exchange at the end of the related period. f. Information related to loans: f.1. Information on all types of loans and advances given to shareholders and employees of the Bank: Current Period Prior Period Cash Non-Cash Cash Non-Cash Direct Lending to Shareholders Corporate Shareholders Individual Shareholders Indirect Lending to Shareholders Loans and Other Receivables to Employees Total 353,655 353,655 861 861 297,475 297,475 864 864 f.2. Information about the Standard loans and loans under close monitoring and loans under close monitoring that have been restructured: (*) OECD countries other than the EU countries, USA and Canada.Expected credit loss for cash and cash equivalents: Cash Loans Standard Loans Nakit ve nakit benzerleri için ayrılan beklenen zarar karşılıkları Beginning of period provisions Additional provisions within the period Transfers within the period Write-offs from Assets Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 Currency Exchange Difference Current Period Ending Provisions Stage 1 26,379 44,434 (18,484) 10,461 62,790 Current Period Stage 2 Stage 3 Prior Period Stage 1 Stage 3 Stage 2 27,806 33,144 (27,234) (7,337) 26,379 Non-specialized loans Corporation Loans Export Loans Import Loans Loans Extended to Financial Sector Consumer Loans Credit Cards Other Specialized Loans Other Receivables Total Loans Not Subject to Restructuring 27,337,872 16,297,556 1,106,168 1,788 5,880,626 1,390,622 2,661,112 Loans Under Close Monitoring Restructured Loans Loans with Revised Contract Terms 12,528,763 8,720,426 8,145 815,722 2,984,470 Refinance 19,789,867 11,672,321 310,623 1,460,001 6,346,922 433,721,689 184,569,325 45,488,638 16,361,315 77,897,519 34,575,102 74,829,790 433,721,689 27,337,872 12,528,763 19,789,867 e. Information on Financial Assets at Fair Value through Other Comprehensive Income: e.1. Information on financial assets at Fair Value through Other Comprehensive Income, which are given as collateral or blocked: Financial assets at fair value through other comprehensive income, which are given as collateral or blocked, amount to TL 21,372,033 as at December 31, 2021 (December 31, 2020: TL 17,730,908). e.2. Information on financial assets at Fair Value Through Other Comprehensive Income, which are subject to repurchase agreements: Financial assets at fair value through other comprehensive income, which are subject to repurchase agreements amount to TL 32,267,910 as at December 31, 2021 (December 31, 2020: TL 18,376,335). Current Period Prior Period 12 Month Expected Credit Losses (Stage I) 3,417,459 Standard Loans Loans Under Close Monitoring Standard Loans 2,566,751 Loans Under Close Monitoring Significant Increase in Credit Risk (Stage II) 11,094,455 7,809,169 According to TFRS 9, the expected loss provisions calculated for the stage 1 and stage 2 loans have generally changed in parallel with the related loan balances. 280 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 281 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen f.3. Information on Maturity analysis of cash loans f.5. Information on commercial installments loans and corporate credit cards: Cash Loans Standard Loans Short-term Loans and Other Receivables 127,579,147 Medium and Long-term Loans and Other Receivables 306,142,542 Loans under close monitoring Loans Not Subject to Restructuring 4,131,219 23,206,653 Restructured Loans 1,455,561 30,863,069 f.4. Information on consumer loans, retail credit cards, personnel loans and personnel credit cards: Short-Term Medium and Long Term Interest and Income Accruals Total Consumer Loans – TL Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Consumer Loans – FC Indexed Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Consumer Loans – FC Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Retail Credit Cards – TL With Installments Without Installments Retail Credit Cards – FC With Installments Without Installments Personnel Loans-TL Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Personnel Loans- FC Indexed Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Personnel Loans – FC Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Personnel Credit Cards – TL With Installments Without Installments Personnel Credit Cards-FC With Installments Without Installments Overdraft Accounts – TL (real persons) Overdraft Accounts – FC (real persons) 2,898,136 30,822 25,242 2,842,072 23,016,151 8,244,933 14,771,218 28,094 28,094 28,523 28,523 153,787 58,894 94,893 282 282 2,726,338 77,925,583 23,971,198 1,188,360 52,766,025 2,821 2,821 1,106,106 1,106,106 147,142 3,929 573 142,640 2,833 2,833 1,437,351 278,409 14,555 1,144,387 27,147 27,147 141,196 141,196 2,553 29 5 2,519 277 277 42,552 82,261,070 24,280,429 1,228,157 56,752,484 29,968 29,968 24,263,453 9,351,039 14,912,414 28,094 28,094 178,218 3,958 578 173,682 156,897 61,727 95,170 282 282 2,768,890 Total 28,851,311 79,184,485 1,651,076 109,686,872 Short-Term 3,960,174 16,413 375,936 3,567,825 Medium and Long Term 60,662,469 2,723,188 11,025,339 46,913,942 Interest and Income Accruals 1,042,381 21,132 82,943 938,306 163,505 5,504 3,012 154,989 80,999 5,668,158 193,250 193,242 8 12,097,914 5,573,496 6,524,418 6,710 6,710 1,565,680 446,975 13,843 6,511 426,621 37,222 37,222 34,846 34,846 29,242 17,711,477 66,687,382 1,590,666 Total 65,665,024 2,760,733 11,484,218 51,420,073 610,480 19,347 9,523 581,610 5,786,379 5,786,379 12,326,010 5,766,738 6,559,272 6,710 6,710 1,594,922 85,989,525 Commercial Loans With Installments-FC 80,999 5,668,158 Commercial Loans With Installments-TL Real Estate Loans Vehicle Loans General Purpose Commercial Loans Other Commercial Loans With Installments-FC Indexed Real Estate Loans Vehicle Loans General Purpose Commercial Loans Other Real Estate Loans Vehicle Loans General Purpose Commercial Loans Other Corporate Credit Cards-TL With Installments Without Installments Corporate Credit Cards-FC With Installments Without Installments Overdraft Accounts – TL (corporate) Overdraft Accounts – FC (corporate) Total f.6. Allocation of loan by borrowers: Public Private Total f.7. Domestic and foreign loans: Domestic Loans Foreign Loans Total f.8. Loans granted to subsidiaries and associates: Direct Loans Granted to Subsidiaries and Associates Indirect Loans Granted to Subsidiaries and Associates Total f.9. Information on impairment provisions of Loans (Stage 3): Loans with Limited Collectability Loans with Doubtful Collectability Uncollectible Loans Total Current Period 6,082,101 487,296,090 493,378,191 Current Period 474,816,677 18,561,514 493,378,191 Current Period 6,287,638 6,287,638 Current Period 848,210 1,160,409 11,782,376 13,790,995 Prior Period 4,665,025 340,485,105 345,150,130 Prior Period 334,033,334 11,116,796 345,150,130 Prior Period 5,368,800 5,368,800 Prior Period 12,659 1,325,036 11,638,266 12,975,961 f.10. Information on non-performing loans (Net): f.10.1. Information on non-performing loans, which are restructured or rescheduled: Group III Group IV Group V Loans with Limited Collectability Loans with Doubtful Collectability Uncollectible Loans Current Period (Gross amounts before the provisions) Restructured Loans Prior Period (Gross amounts before the provisions) Restructured Loans 118,515 118,515 323 323 54,316 54,316 109,749 109,749 3,333,401 3,333,401 1,641,053 1,641,053 282 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 283 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen f.10.2. Information on the movement of total non-performing loans f.10.3. Information on foreign currency non-performing loans: Group III Group IV Group V Loans with Limited Collectability Loans with Doubtful Collectability Non Performing Loans Prior Period Ending Balance Corporate and Commercial Loans Retail Loans Credit Cards Other Additions (+) Corporate and Commercial Loans Retail Loans Credit Cards Other Transfers from Other NPL Categories (+) Corporate and Commercial Loans Retail Loans Credit Cards Other Transfers to Other NPL Categories (-) Corporate and Commercial Loans Retail Loans Credit Cards Other Collections (-) (*) Corporate and Commercial Loans Retail Loans Credit Cards Other Write-Offs (-) Corporate and Commercial Loans Retail Loans Credit Cards Other Debt Sale (-) (**) Corporate and Commercial Loans Retail Loans Credit Cards Other Currency Change Effect Corporate and Commercial Loans Retail Loans Credit Cards Other Current Period Ending Balance Corporate and Commercial Loans Retail Loans Credit Cards Other Provisions (-) Corporate and Commercial Loans Retail Loans Credit Cards Other Net Balance on Balance Sheet 12,659 11,601 1,003 55 2,338,714 1,450,855 573,488 312,422 1,949 485,668 304,300 136,456 42,963 1,949 196,204 54,117 82,580 59,507 2,631 24 2,603 4 277 250 27 1,667,147 1,104,265 352,879 210,003 848,210 531,412 193,200 123,598 818,937 2,916,512 2,616,562 206,205 93,745 3,696,606 3,028,397 411,728 256,418 63 485,668 304,300 136,456 42,963 1,949 4,375,118 3,934,391 306,661 132,054 2,012 535,999 266,397 169,805 99,797 1,120 908 179 33 12 12 1,340 1,332 8 2,187,877 1,748,895 277,752 161,230 1,160,409 897,158 163,170 100,081 1,027,468 17,442,301 15,495,879 1,001,958 815,995 128,469 314,966 291,433 3,710 9,543 10,280 4,375,118 3,934,391 306,661 132,054 2,012 3,822,317 3,382,384 287,695 139,232 13,006 905,808 903,887 752 1,159 10 1,096,887 356,687 356,762 381,081 2,357 668,162 666,693 1,377 92 16,975,535 15,745,438 668,497 436,120 125,480 11,782,376 10,715,590 560,154 391,777 114,855 5,193,159 (*) As of 31 December 2021, the amount of 867,724 TL has been deducted within the framework of the amendment made in the "Regulation on the Procedures and Principles Regarding the Classification of Loans and Provisions for These" published in the Official Gazette dated 27 November 2019 and numbered 30961. (**) In the current period, our receivables, which make up TL 745,486 of the portfolio consisting of non-performing loans, have been collected from the sales price of TL 71,850 in cash, to Emir Varlık Yönetim A.Ş., İstanbul Varlık Yönetim A.Ş., Future Varlık Yönetim A.Ş. , Hedef Varlık Yönetim A.Ş. and Arsan Varlık Yönetim A.Ş.; Our receivables, constituting a portion of TL 351,413, were transferred to İstanbul Varlık Yönetim A.Ş. After the sale of portfolio consisting of write-offs and non-performing loans, the Bank's non-performing loan ratio decreased from 4.42% to 4.05% as of 31.12.2021. Current Period Balance at the End of the Period Provisions (-) Net Balance on Balance Sheet (*) Prior Period Balance at the End of the Period Provisions (-) Net Balance on Balance Sheet (*) Group III Group IV Group V Loans with Limited Collectability Loans with Doubtful Collectability Uncollectible Loans 602,138 291,909 310,229 11,050 11,050 1,070,131 545,376 524,755 1,652,612 665,110 987,502 10,547,942 6,459,390 4,088,552 9,050,836 5,001,086 4,049,750 (*) In addition to the loans extended in foreign currency, loans which are monitored in Turkish Lira are included. f.10.4. Information on gross and net non-performing loans as per customer categories: Group III Group IV Group V Loans with Limited Collectability Loans with Doubtful Collectability Uncollectible Loans Current Period (Net) Loans to Individuals and Corporate (Gross) Provisions (-) Loans to Individuals and Corporate (Net) Banks (Gross) Provisions (-) Banks (Net) Other Loans (Gross) Provisions (-) Other Loans (Net) Prior Period (Net) Loans to Individuals and Corporate (Gross) Provisions (-) Loans to Individuals and Corporate (Net) Banks (Gross) Provisions (-) Banks (Net) Other Loans (Gross) Provisions (-) Other Loans (Net) 818,937 1,667,147 848,210 818,937 12,659 12,659 1,027,468 2,187,877 1,160,409 1,027,468 1,591,476 2,916,512 1,325,036 1,591,476 5,193,159 16,850,055 11,667,521 5,182,534 125,480 114,855 10,625 5,804,035 17,313,832 11,526,544 5,787,288 128,469 111,722 16,747 f.10.5. Information on interest accruals, valuation differences and related provisions calculated for non-performing loans: Current Period (Net) Interest accruals and valuation differences Provisions (-) Prior Period (Net) Interest accruals and valuation differences Provisions (-) Group III Group IV Group V Loans with Limited Collectability Loans with Doubtful Collectability Uncollectible Loans 103,070 205,266 102,196 136,063 282,220 146,157 147,364 297,299 149,935 379,597 1,460,295 1,080,698 522,279 1,511,827 989,548 284 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 285 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen f.10.6. Outline of the liquidation policy for uncollectible loans and other receivables g.5. Movement of financial assets measured at amortised cost within the year: In order to ensure the liquidation of non-performing loans, all possibilities evaluated to ensure maximum collection according to the legislation. Primarily, administrative initiatives are taken to deal with the borrower. Collection through legal proceedings is applied if there is no possibility of collection, liquidation or structuring for receivables through negotiations. Our receivables that cannot be collected through administrative and legal initiatives can be written off from the assets within the framework of portfolio-based receivables sales or write-offs, by fulfilling the requirements of the Tax Procedure Law. f.10.7. Information on write-off policy Receivables classified as non-performing loans are collected primarily within the framework of administrative contacts with the debtors, and if no result is obtained, legal proceedings are applied. In case of deletion of NPLs from assets, one of the methods of destruction, receivable sale and write-off can be applied. In the Bank's write-off policy within the framework following the amendment made in Article 53 of the Banking Law with the Law on Income Tax and amending Certain Laws No. 19.07.2019/7186, along with the "Classification of Loans and the Procedures and Principles for the Reserves to be Allocated" published in the Official Gazette No. 27.11.2019 / 30961, the following statements are issued: - The portion of the receivables, which are monitored under the Fifth Group-Uncollectible Loans and allocated for lifetime expected credit loss due to the default of the debtor, can be write-off to the extent of the maximum provision amount, - write-off is an accounting practice and does not result in the remission of the receivable, - the receivables to be write-off must be monitored as non-performing loans for at least 1 year. Receivables that are proven to be uncollectible in legal follow-up process can be write-off within the instructions of Tax Procedure Law. Expected Credit Loss: Current Period Prior Period Stage 1 Stage 2 Stage 3 Provisions beginning of the period 2,566,751 Additional provisions within the period 2,018,263 Transfers within the period (1,359,941) Write-offs from Assets Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 Currency Exchange Difference 473,529 (361,801) (21,047) 101,705 Provisions at the end of the period 3,417,459 7,809,169 6,148,847 (1,799,663) (466,441) 368,343 (1,212,754) 246,954 11,094,455 g. Financial Assets Measured at Amortised Cost: g.1. Financial Assets Measured at Amortised Cost given as collateral or blocked: 12,975,961 3,049,611 (1,468,889) (1,998,407) (7,088) (6,542) 1,233,801 12,548 Stage 1 1,457,857 1,765,113 (737,231) 79,332 (69,133) (4,384) 75,197 13,790,995 2,566,751 Stage 2 Stage 3 3,696,174 5,463,265 (1,010,378) (71,309) 73,848 (415,661) 73,230 7,809,169 10,326,031 3,500,177 (1,235,396) (28,363) (8,023) (4,715) 420,045 6,205 12,975,961 Financial assets measured at amortised cost given as collateral or blocked amount to TL 9,520,594 as at December 31, 2021 (December 31, 2020: TL 8,880,626). g.2. Financial Assets Measured at Amortised Cost subject to repurchase agreements: Financial assets measured at amortised cost, which are subject to repurchase agreements amount to TL 17,843,004 as at December 31, 2021 (December 31, 2020: TL 6,421,414). g.3. Information on government securities measured at amortised cost: Government Bonds Treasury Bills Other Public Debt Securities Total g.4. Information on financial assets measured at amortised cost: Debt Securities Quoted on a Stock Exchange Not Quoted (*) Impairment Losses (-) Total Current Period 43,662,356 Prior Period 40,425,089 43,662,356 40,425,089 Current Period 46,412,734 44,951,778 1,460,956 46,412,734 Prior Period 41,659,437 40,626,988 1,032,449 41,659,437 Beginning Balance Foreign Exchange Differences Arising on Monetary Assets Purchases During the Year Disposals through Sales and Redemption Impairment Losses (-) Valuation effect Balance at the End of the Period Expected credit loss for financial assets measured at amortised cost Current Period 41,659,437 2,747,218 15,700,230 (15,819,174) 2,125,023 46,412,734 Prior Period 30,888,355 1,247,679 15,274,452 (6,752,597) 1,001,548 41,659,437 Prior Period Stage 2 Stage 3 Beginning Term Provision Additional Provisions During the Period Disposal During the Period Stage 1 12,001 18,508 (10,266) Write-off Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 Exchange Rate Differences Period-end Provisions 100 20,343 h. Information on associates (Net): h.1. General information on associates: Current Period Stage 2 Stage 3 Stage 1 7,768 10,031 (5,869) 71 12,001 No. 1- 2- Title Address (City/ Country) Bank’s Share Percentage-If Different, Voting Percentage (%) Bank’s Risk Group Share Percentage (%) Arap Türk Bankası A.Ş. Kredi Kayıt Bürosu A.Ş. İstanbul/TURKEY İstanbul/TURKEY 20.58 9.09 20.58 9.09 h.2. Information on financial statements of associates in the above order (*): No. 1- 2- Total Assets Shareholders’ Equity Total Tangible Assets Interest Income (**) Securities Income Current Period Profit/Loss Prior Period Profit/Loss Fair Value 10,205,582 1,361,769 544,660 339,776 223,069 297,247 432,044 13,036 41 163,288 47,719 100,781 48,549 (*) Shows September 30, 2021 amounts for Kredi Kayıt Bürosu A.Ş. and December 31, 2021 amounts for Arap Türk Bankası A.Ş (**) Includes interest income on securities. h.3. Movement of investments in associates: Beginning Balance Movements During the Period Purchases Bonus Shares Acquired Dividends Received from Current Year Profit Sales Revaluation Increase (*) Impairment Other(**) Balance at the end of the period Capital commitments Contribution in equity at the end of the period (%) Current Period 266,305 Prior Period 250,459 44,776 311,081 25,199 -9,353 266,305 (*) Indicates unlisted debt securities, and debt securities that have not been traded at the end of the related periods while they are listed (*) The differences arising from accounting by equity method is included. (**) Due to the change in the ownership structure of Bankalararası Kart Merkezi A.Ş. and the loss of significant influence within the scope of "TAS 28-Investments in Subsidiaries and Joint Ventures" in the previous period, the company is classified to Financial Assets at Fair Value through Other Comprehensive Income. 286 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 287 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen h.4. Sectoral information on financial associates and the related carrying amounts: i.2. General information on subsidiaries (*): Current Period 280,196 Prior Period 242,174 No Title Address (City/ Country) Bank’s Share Percentage-if Different, Voting Rights (%) Bank’s Risk Group Share Percentage (%) Associates Banks Insurance Companies Factoring Companies Leasing Companies Finance Companies Other Financial Participations Total h.5. Associates quoted on a stock exchange: None. h.6. Associates disposed of in the current period: None. h.7. Associates acquired in the current period: None. i.Information on subsidiaries (Net): i.1. Information on the equity of major subsidiaries: 280,196 242,174 Türkiye Sınai Kalkınma Bankası A.Ş. İş Gayrimenkul Yatırım Ortaklığı A.Ş. Insurance / Reinsurance Companies İş Finansal Kiralama A.Ş. İş Yatırım Menkul Değerler A.Ş. COMMON EQUITY TIER I CAPITAL Common Equity Tier I Capital Before Deductions Deductions from Common Equity Tier I Capital (-) 7,354,514 5,476,126 4,867,316 1,999,205 2,768,792 173,692 1,713 93,029 9,294 102,178 1- 2- 3- 4- 5- 6- 7- 8- 9- 10- 11- 12- 13- 14- 15- Anadolu Hayat Emeklilik A.Ş. Joint Stock Company İsbank Join Stock Company Isbank Georgia İş Finansal Kiralama A.Ş. İş Gayrimenkul Yatırım Ortaklığı A.Ş. İş Merkezleri Yönetim ve İşletim A.Ş. İş Net Elektronik Bilgi Üretim Dağıtım Ticaret ve İletişim Hizmetleri A.Ş. İş Yatırım Menkul Değerler A.Ş. İşbank AG Kültür Yayınları İş Türk A.Ş. Milli Reasürans T.A.Ş. Trakya Yatırım Holding A.Ş. Türkiye Sınai Kalkınma Bankası A.Ş. Türkiye Şişe ve Cam Fabrikaları A.Ş.(*) İstanbul/TURKEY Moscow/RUSSIA Tbilisi/GEORGIA İstanbul/ TURKEY İstanbul/ TURKEY İstanbul/ TURKEY İstanbul TURKEY İstanbul TURKEY Frankfurt-Main/GERMANY İstanbul/ TURKEY İstanbul/ TURKEY İstanbul/ TURKEY İstanbul/ TURKEY İstanbul/ TURKEY MOKA Ödeme ve Elektronik Para Kuruluşu A.Ş. İstanbul/ TURKEY 62.00 100.00 100.0 27.79 52.06 86.33 100.00 65.74 100.00 99.17 87.60 100.00 47.68 50.93 100.00 83.00 100.00 100.00 58.24 65.44 100 100.00 70.78 100.00 100.00 87.60 10.00 51.37 57.02 100.00 (*) The purchased free float shares of listed subsidiaries in Borsa Istanbul (BIST) namely, Anadolu Hayat Emeklilik A.Ş., İş Finansal Kiralama A.Ş, and İş Yatırım Menkul Değerler A.Ş., which are booked under "Financial Assets at Fair Value Through Profit or Loss" account are not included. (Board of Directors Decision dated December 25, 2015) Total Common Equity Tier I Capital 7,180,822 5,474,413 4,774,287 1,989,911 2,666,614 i.3. Financial statement information related to subsidiaries in the above order (*): ADDITIONAL TIER I CAPITAL Additional Tier I Capital before Deductions Deductions from Additional Tier I Capital (-) Total Tier I Capital TIER II CAPITAL 7,180,822 5,474,413 4,774,287 1,989,911 2,666,614 Tier II Capital Before Deductions 4,585,272 Deduction from Tier II Capital (-) Total Tier II Capital 4,585,272 Total Tier I Capital and Tier II Capital 11,766,094 5,474,413 4,774,287 1,989,911 2,666,614 Deductions from Total Tier I Capital and Tier II Capital (-) EQUITY 11,766,094 5,474,413 4,774,287 1,989,911 2,666,614 No Total Assets Shareholders’ Equity Total Tangible Assets Interest Income Securities Income 1- 2- 3- 4- 5- 6- 7- 8- 9- 10- 11- 12- 13- 14- 15- 51,499,993 1,884,515 398,843 2,732,941 1,623,847 758,858 440,328 20,376,915 2,139,443 72,137 40,440 31,147 6,676,321 5,475,663 5,510,853 137,788 188,691 71,245 89,961 14,213,244 3,072,116 28,062,570 3,395,122 106,002 7,183,128 1,412,735 82,019 3,000,423 1,033,350 86,092,535 7,021,766 7,744 35,690 151,535 294,252 9,266 829,788 632,467 884,455 553,910 111,221 61,347 1,509,893 6,283 2,564 7,327 569,927 551,693 960 406,668 2,708 4,675,202 52,241,686 27,447,137 19,422,078 513,042 119,578 45,024 2,550 5,526 Additional Shareholders’ Equity Required Current Period Profit/ Loss Prior Period Profit/Loss 699,988 12,739 28,165 310,063 1,329,920 15,618 15,532 526,939 2,644 20,760 197,586 266,502 8,971 16,203 Fair Value (**) 5,184,510 2,174,211 2,914,600 61,909 14,031 17,439 41,537 3,496 2 1,119,554 1,233,477 977,305 8,168,905 160,475 44,781 10,380 833,782 143,158 26,174 548,966 29,067 1,097,309 4,152,078 2,143 59,514 18,061 348,599 40,598 709,473 4,040,400 2,147,817 25,145,924 (4,164) (*) Trakya Yatırım Holding A.Ş., İş Merkezleri Yönetim ve İşletim A.Ş., İş Net Elektronik Bilgi Üretim Dağıtım Ticaret ve İletişim Hizmetleri A.Ş., Kültür Yayınları İş Türk A.Ş. are December 31, 2020, and Türkiye Şişe ve Cam Fabrikaları A.Ş. as of September 30, 2021, and others are September 30, 2021. (**) Fair value represents the market value of the company. 288 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 289 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen i.4. Movement of investments in subsidiaries: m. Information on tangible assets (net): Balance at the Beginning of the Period Movements in the Period Purchases (*) Bonus Shares Acquired Dividends Received from Current Year Profit Sales Revaluation Surplus/Deficit (**) Impairment Balance at the End of the Period Capital Commitments Contribution in equity at the end of the period (%) Current Period 25,736,078 135,635 13,278,551 39,150,264 Prior Period 20,820,095 831,528 4,084,455 25,736,078 (*) The amount in the current period is due to the purchase and capital increase of Moka Ödeme Kuruluşu A.Ş. and the amount in the prior period is due to the purchasing shares of Türkiye Sınai Kalkınma Bankası A.Ş., İş Gayrimenkul Yatırım Ortaklığı A.Ş., Milli Reasürans T.A.Ş., İş Net Elektronik Bilgi Üretim Dağıtım Ticaret and İletişim Hizmetleri A.Ş. by cash, Türkiye Şişe ve Cam Fabrikaları A.Ş and İş Gayrimenkul Yatırım Ortaklığı A.Ş.'s shares followed in the Financial Assets at Fair Value Through Profit or Loss account is classified under subsidiaries and due to the capital increase of Trakya Yatırım Holding A.Ş. (**) The differences arising from accounting by equity method is included. Real Estates Leased Tangible Assets Buildings Under Construction Vehicles Other Tangible Assets Total Prior Period Cost 4,413,556 2,227,147 40,908 Accumulated Depreciation (45,560) (943,998) Net Book Value Current Period End: 4,367,996 1,283,149 40,908 Net Book Value at the Beginning of the Period 4,367,996 1,283,149 Change During the Period (Net) (*) 1,796,081 590,814 40,908 43,924 Depreciation Impairment (21,375) 24,506 (364,155) Net Currency Translation Differences (*) 12,852 Cost at the Period End 6,180,660 2,867,073 84,832 Accumulated Depreciation at the Period End (13,452) (1,344,413) Closing Net Book Value 6,167,208 1,522,660 84,832 (*) Maliyet bedeli ile birikmiş amortisman kalemlerindeki hareketleri içermektedir. 26,403 (17,077) 9,326 9,326 5,268 (3,892) 270 31,315 (20,343) 10,972 3,060,702 9,768,716 (2,151,802) (3,158,437) 908,900 6,610,279 908,900 298,294 (297,090) 4,084 6,610,279 2,734,381 (686,512) 24,506 17,206 3,342,423 12,506,303 (2,428,235) (3,806,443) 914,188 8,699,860 i.5. Sectoral information on financial subsidiaries and the related carrying amounts: n. Information on Intangible Assets: Related Companies Banks Insurance Companies Factoring Companies Leasing Companies Finance Companies Other Financial Subsidiaries Total i.6. Subsidiaries quoted on stock exchange: Traded on domestic stock exchanges Traded on foreign stock exchanges Total Current Period 8,036,340 4,353,568 Prior Period 5,580,606 3,659,077 544,978 442,361 4,678,171 17,613,057 Current Period 30,173,876 3,322,877 13,004,921 Prior Period 19,420,364 30,173,876 19,420,364 i.7. Subsidiaries disposed of in the current period: None. i.8. Subsidiaries acquired in the current period: Subsidiaries acquired in the current period: With the authorization given to the Head Office by the Board of Directors decision dated July 27, 2020, with the completion of necessary procedures, 100% share of MOKA Ödeme Kuruluşu A.Ş. was transferred to the Bank. j. Information on jointly controlled entities: There are no jointly controlled entities of the Bank. k. Information regarding finance lease receivables of the Bank (Net): The Bank has no finance lease receivables. l. Explanations on derivative financial assets held for risk management: The Bank has no derivative financial assets held for risk management. Net Book Value at the Beginning of the Period Change During the Period (Net) (*) Depreciation Impairment Net Currency Translation Differences (*) Cost at the Period End Accumulated Depreciation at Period End Closing Net Book Value (*) The balance includes the movements in cost and accumulated depreciation items. o. Explanations on investment property: The Bank has no investment property. Current Period 1,330,841 748,959 (334,798) 5,107 4,183,060 (2,432,951) 1,750,109 Prior Period 913,509 650,812 (233,969) 489 3,428,397 (2,097,556) 1,330,841 290 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 291 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen p. Information on deferred tax asset: As of December 31, 2021, the Bank has deferred tax asset amounting to TL 2,557,610. Such deferred tax asset is calculated based on the temporary differences between the book value of the Bank’s assets and liabilities and their tax basis measured as per the prevailing tax regulation. When the items comprising, the temporary differences are followed under equity, the related tax asset/liability is directly recognized under equity items. II. Disclosures And Footnotes On Liabilities a. Information on Deposits: a.1. The maturity structure of deposits (current period): Deferred Tax (Asset)/Liability: Tangible and Intangible Assets Provisions (*) Valuation of Financial Assets Other Net Deferred Tax (Asset)/Liability: Current Period Prior Period 715,369 (5,339,164) 1,799,736 266,449 (2,557,610) 482,628 (3,187,481) (670,706) (44,935) (3,420,494) (*) Comprised of employee termination benefits, actual and technical deficits of the pension fund, the provisions for credit card bonus points, expected credit loss for Stage 1 and Stage 2 loans and other provisions. Opening Balance Deferred Tax Income / (Expense) (Net) Deferred Taxes Recognised Under Shareholders’ Equity Deferred Taxes Recognised Under Previous Years’ Profits and Losses Exchange Rate Differences Deferred Tax Asset q. Information on assets held for sale and discontinued operations: Balance at the Beginning of the Period Transfers (Net) Depreciation (Net) Impairment Losses (-) Current Period 3,420,494 (904,208) 41,245 79 2,557,610 Current Period 1,220,094 -392,461 Prior Period 1,831,108 1,779,152 (175,980) (13,786) 3,420,494 Prior Period 1,102,181 117,920 -7 Balance at the End of the Period 827,633 1,220,094 Investment in a special purpose company whose details be given in section five footnote I.b.3 is classified within the scope of “TFRS-5 Assets Held for Sale and Discontinued Operations”. As stated in the same footnote, share of the Bank in the company's capital nominal values increase from TL 6 to TL 461,833 and this amount is disclosed under the line of Transfers (Net). On the other hands an international investment bank is authorized as a sales advisor in 2019 for the sale of the relevant company or the shares owned by the company and in this context, necessary works related to the sale and negotiations with potential investors have been initiated. Although the process continues as of the report date, as announced on the Public Disclosure Platform on 17 December 2021, negotiations have started for the sale of the said shares to the Turkey Wealth Fund. The other assets classified as “Assets Held for Sale” consist of securities and real estates. Those real estates subject to sale are announced on the Bank’s web site. Announcements about the real estates subject to sale are also made by means of newspaper advertisements and similar media. The Bank has no discontinued operations. r. Information on Other Assets: Current Period Demand 7 Days Notice Up to 1 Month 1-3 Months 3-6 Months 6 Months to 1 Year 1 Year and Over Accumulated Deposits Total Savings Deposits 29,129,615 10,101,438 62,338,966 8,091,893 879,420 1,026,512 Foreign Currency Deposits 189,169,045 34,629,765 127,216,568 6,360,203 2,627,763 11,845,167 Residents in Turkey 170,392,877 32,260,729 110,981,890 4,853,136 1,507,234 4,219,586 6,422 2,293 1,517 Residents Abroad 18,776,168 2,369,036 16,234,678 1,507,067 1,120,529 7,625,581 776 Public Sector Deposits 1,205,680 11,796 139,914 1,073 374 200 Commercial Deposits 18,126,103 17,701,731 12,082,163 173,276 515,975 28,850 Other Institutions Deposits 602,088 571,697 3,160,538 40,352 2,411 51,875 Precious Metals Deposits 46,013,605 1,055,562 150,880 6,508,325 311,651 Interbank Deposits 1,062,316 555,375 1,133,496 59 149,738 846,203 The Central Bank of the Republic of Turkey 480 Domestic Banks Foreign Banks 198,421 863,350 Participations Banks 65 450,260 105,115 538,289 595,207 59 148,477 1,261 846,203 111,574,266 371,850,804 324,216,969 47,633,835 1,359,037 48,628,098 4,428,961 54,040,023 3,747,187 480 1,335,447 2,411,195 65 Other Total 285,308,452 63,571,802 207,127,207 14,817,736 10,684,006 14,110,458 8,715 595,628,376 Within the scope of the “Communique on Supporting the Conversion of Turkish Lira Deposit and Participation Accounts” published by the CBRT in the Official Gazette dated 21.12.2021 and numbered 31696 and the press release of the Ministry of Treasury and Finance dated 21.12.2021, the Bank offers its customers a currency protected TL deposit product in the current period has begun. As of 31.12.2021, the amount of the currency protected deposit product opened in this context is TL 6,116,412. Prior Period Demand 7 Days Notice Up to 1 Month 1-3 Months 3-6 Months 6 Months to 1 Year 1 Year and Over Accumulated Deposits Total Savings Deposits 21,210,302 6,277,095 59,511,073 2,134,712 449,790 751,497 Foreign Currency Deposits 85,173,313 13,672,849 82,906,004 4,267,728 1,600,498 8,243,988 Residents in Turkey 76,779,624 12,445,636 71,922,330 3,136,509 932,741 Residents Abroad 8,393,689 1,227,213 10,983,674 1,131,219 667,757 3,170,672 5,073,316 8,557 1,263 878 385 Public Sector Deposits 941,849 1,272 70,444 7,829 329 195 Commercial Deposits 12,898,520 7,822,448 14,259,436 191,959 1,924,058 9,691 Other Institutions Deposits 541,979 565,554 2,396,713 123,706 2,265 26,155 Precious Metals Deposits 32,152,261 390,882 Interbank Deposits 1,080,222 1,671,325 1,002,743 87,716 65,260 4,013,730 163,286 255,227 768 The Central Bank of the Republic of Turkey 510 Domestic Banks Foreign Banks 113,549 957,065 Participations Banks 9,098 754,461 916,864 192,488 810,255 65,260 180,729 74,498 768 90,343,026 195,865,643 168,388,390 27,477,253 1,021,918 37,106,112 3,656,372 36,807,875 4,075,545 510 1,241,227 2,824,710 9,098 Other Total 153,998,446 30,010,543 160,537,295 6,878,910 8,245,897 9,195,580 9,820 368,876,491 The “other assets” item of the balance sheet does not exceed 10% of total assets. a.2. Savings deposits which are under the guarantee of Savings Deposits Insurance Fund exceeding the insurance limit: Savings Deposits Savings Deposits Foreign Currency Savings Deposits Other Deposits in the Form of Savings Deposits Foreign Branches’ Deposits Under Foreign Authorities’ Insurance Off-shore Banking Regions’ Deposits Under Foreign Authorities Insurance Under the Guarantee of Savings Deposits Insurance Fund Exceeding the Limit of Deposit Insurance Fund Current Period 54,291,725 58,931,256 19,430,372 6,751,204 Prior Period 47,354,070 42,668,430 17,580,279 4,157,656 Current Period 56,062,849 175,476,819 31,613,866 3,869,864 Prior Period 41,824,890 88,281,588 17,357,298 1,683,372 292 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 293 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen a.3. Savings deposits which are not under the guarantee of deposit insurance fund: Securitization deals: Foreign Branches’ Saving Deposits and Other Accounts Deposits and Other Accounts held by Main Shareholders and their Relatives Current Period 3,869,864 Deposits and Other Accounts of the Chairperson and Members of Board of Directors, Chief Executive Officer, Senior Executive Officers and their Relatives 29,224 Deposits and Other Accounts Covered by Assets Generated Through the Offenses Mentioned in Article 282 of the Turkish Criminal Code No,5237 and Dated 26 September 2004 Deposits in the Banks to be Engaged Exclusively in Off-shore Banking in Turkey Prior Period 1,683,372 28,274 b. Information on Derivative Financial Liabilities Held for Trading: Derivative Financial Liabilities at Fair Value Through Profit or Loss Forward Transactions Swap Transactions Futures Options Other Total TL 2,021,990 4,010,202 131,283 6,163,475 c. Banks and other financial institutions: c.1. Information on banks and other financial institutions: Current Period Prior Period FC 237,698 5,597,391 461,724 126,245 6,423,058 TL 150,410 1,185,745 1,336,155 FC 234,473 5,879,693 33,164 451,000 6,598,330 Current Period Prior Period TL FC TL Funds borrowed from the Central Bank of Turkey Domestic banks and Institutions 667,413 Foreign banks, institutions and funds 1,837,639 Total 2,505,052 c.2. Maturity analysis of funds borrowed: 7,245,047 55,901,327 63,146,374 613,999 1,499,128 2,113,127 FC 12,010 3,573,917 34,732,291 38,318,218 Current Period Prior Period TL 653,857 1,851,195 2,505,052 FC 6,295,676 56,850,698 63,146,374 TL 613,482 1,499,645 2,113,127 FC 1,259,942 37,058,276 38,318,218 Short-term Medium and Long-term Total c.3. Information on funds borrowed: Information on funds received through syndicated loans and securitization deals, which take a significant place among funds borrowed, are given below. Syndication loans: Date of Use May, 2021 November, 2021 Funds Borrowed 300,000,000 USD + 544,650,000 EUR 328,000,000 USD + 434,000,000 EUR Maturity 1 year 1 year The Bank obtained funds by way of putting on securitization deals all its claims and receivables based on diversified payment rights in USD, EUR and GBP through TIB Diversified Payment Rights Finance Company. Information on funds received through securitization is given below. Date Structured Entity June 2012 December 2013 December 2014 March 2015 October 2015 October 2016 December 2016 December 2017 December 2017 December 2017 Other Transactions: TIB Diversified Payment Rights Finance Company TIB Diversified Payment Rights Finance Company TIB Diversified Payment Rights Finance Company TIB Diversified Payment Rights Finance Company TIB Diversified Payment Rights Finance Company TIB Diversified Payment Rights Finance Company TIB Diversified Payment Rights Finance Company TIB Diversified Payment Rights Finance Company TIB Diversified Payment Rights Finance Company TIB Diversified Payment Rights Finance Company Amount EUR 125,000,000 EUR 50,000,000 USD 220,000,000 USD 75,000,000 USD 221,200,000 USD 55,000,000 USD 158,800,000 USD 265,000,000 EUR 125,000,000 USD 125,000,000 Final Maturity 12 years 12 years 14 years 7-15 years 10 years 12 years 10-13 years 5-7 years 5 years 9 years Remaining Debt Amount as at December 31, 2021 EUR 34,375,000 EUR 20,000,000 USD 140,000,000 USD 18,000,000 USD 103,687,500 USD 37,560,964 USD 91,290,954 USD 103,000,000 EUR 41,666,667 USD 125,000,000 As of August 2014, in connection with the future cash flows securitization program amounting to USD 500 million on 10 years maturity, the bank has increased the total amount of the financial instrument USD 600 million by obtaining the same structured USD 100 million in September 2017. d. Information on Debt Securities Issued (Net): TL 3,133,754 2,060,702 5,194,456 Current Period FC 25,441,356 25,441,356 TL 3,960,641 1,476,191 5,436,832 Prior Period FC 25,403,816 25,403,816 Bills Bonds Total e. Concentration on the Bank's liabilities: 64% of the Bank's liabilities consists of deposits, 7% of loans borrowed, 7% of securities issued and Tier II subordinated loans. Deposits have spread to a wide customer base with different characteristics. Borrowings are composed of funds obtained from various financial institutions through syndication, securitization, post-financing and money markets. f. Information on Other Liabilities: Other liabilities do not exceed 10% of the balance sheet total. g. Information on Lease Payables (net): 1 Yıldan Az 1-4 Yıl Arası 4 Yıldan Fazla Toplam Gross 17.713 171.033 3.642.905 3.831.651 Current Period Prior Period Net 17.177 143.594 1.539.668 1.700.439 Gross 20.892 79.957 3.243.262 3.344.111 Net 19.984 72.306 1.296.927 1.389.217 h. Explanations on Hedging Derivative Financial Liabilities: The bank has no financial liabilities held for hedging derivatives. i. Information on Provisions: i.1. Reserves for employee benefits: According to the related regulation and the collective bargaining agreements, the Bank is obliged to pay employee termination benefits to employees who retire, die, quit for their military service obligations, who have been dismissed as defined in the related regulation or to the female employees who have voluntarily quit within one year after the date of their marriage. In accordance with the related regulations, the amount of employee termination benefits is TL 8,284.51 (exact TL amount as at December 31, 2021), which is one month salary for each service year and cannot exceed the base wage ceiling for employee termination benefits. A provision for severance pay to allocate that employees need to be paid upon retirement is calculated by estimating the present value of probable amount. The liability of the Bank arising from severance payment is determined in accordance with the actuarial report prepared by an independent valuation company. As of December 31, 2021, provision amounting to TL 2,278,323 is reflected in the financial statements (December 31, 2020: TL 1,393,897). 294 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 295 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Main actuarial assumptions used in calculation of severance pay liability are as follows: The assets of the pension fund are as follows. • In the calculation, the discount rate is 19.10%, the inflation rate is 15.07%, and the real wage increase rate is 2%. • In the calculation, the ceiling of 8,284.51 TL (full TL amount) valid as of 31.12.2021 was taken as basis. • Retirement age is taken into account as the earliest age at which individuals can retire. • CSO 1980 mortality table is used for probability of death for women and men. The movements related to provision for employee termination benefits are given below: Present value of defined benefit obligation at the beginning of the period Service Cost Interest Cost Benefits paid Loss/(Gain) due to Settlements / Reductions / Terminations Past Service Cost Actuarial loss/(gain) Defined benefit obligation at the end of the period Current Period 1,393,897 94,375 166,952 (101,163) 11,064 713,198 2,278,323 Prior Period 1,168,051 81,633 133,694 (67,817) 6,045 3 72,288 1,393,897 In addition to the employee termination benefits the Bank allocates provisions for the unused vacation pay liability. As of December 31, 2021, provision for unused vacation pay is amounting to TL 114,509 (December 31, 2020: TL 88,000). i.2. Provisions for exchange losses in the principal amount of foreign currency indexed loans: Since foreign currency indexed loans are followed based on the rates on the lending date, the Bank incurs a loss if the exchange rates decrease and makes profit if the exchange rate increases. As of December 31, 2021, and December 31, 2020, provision amount for the currency evaluation losses in the principal amount of foreign currency indexed loans is not available. i.3. As of December 31, 2021, the Bank’s specific provisions for indemnified non-cash loans balance is TL 1,214,355 (December 31, 2020: TL 694,245) which is allocated for the non-cash loans of companies whose loans are followed under “Non-performing Loans” accounts. i.4. Information on other provisions: i.4.1. Liabilities arising from retirement benefits: Liabilities of pension funds founded as per the Social Security Act: Within the scope of the explanations given in Section Three Note XVII, in the actuarial report which was prepared as of December 31, 2021 for Türkiye İş Bankası A.Ş. Emekli Sandığı Vakfı (İşbank Pension Fund) by a licensed actuary, of which each Bank employee is a member, and which has been established according to the provisional Article 20 of the Social Security Act No. 506, the amount of actuarial and technical deficit stands at TL 6,095,055. As of the same date, a provision was reserved for this amount in the financial statements. The above-mentioned actuarial audit, which was made in accordance with the principles of the related law, measures the cash value of the liability as of December 31, 2021, in other words; it measures the amount to be paid to the Social Security Institution by the Bank. Actuarial assumptions used in the calculation are given below. • 9.8% technical deficit interest rate is used. • 34.5% total premium rate is used. • CSO 1980 woman/man mortality tables are used. Below table shows the cash values of premium and salary payments of the Bank as of December 31, 2021, taking the health expenses within the Social Security Institution limits into account. Net Present Value of Total Liabilities Other Than Health Net Present Value of Long Term Insurance Line Premiums Net Present Value of Total Liabilities Other Than Health Net Present Value of Health Liabilities Net Present Value of Health Premiums Net Present Value of Health Liabilities Pension Fund Assets Amount of Actuarial and Technical Deficit Current Period (15,810,869) 5,858,707 (9,952,162) (1,873,541) 4,247,562 2,374,021 1,483,086 (6,095,055) Prior Period (12,863,517) 5,185,068 (7,678,449) (1,564,560) 3,759,175 2,194,615 1,247,723 (4,236,111) Cash and Cash Equivalents Securities Portfolio Other Total Current Period 984,609 439,018 59,459 1,483,086 Prior Period 752,948 439,787 54,988 1,247,723 Health benefits that are still being paid will be determined within the framework of the Social Security Institution legislation and related regulations with the transfer. i.4.2. Provision of credit cards and promotion of banking services applications: As of December 31, 2021, the Bank has recognized provisions amounting to TL 108,873 for the amount which is recognized within the framework of credit card expenses of credit card customers or promotions for banking services. (December 31, 2020: TL 72,709). i.4.3. As mentioned public disclosures of the Bank on December 31, 2012 and December 19, 2013; an inspection has been made by the inspectors of Tax Inspection Board to "Türkiye İş Bankası A.Ş. Mensupları Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı" ("İşbank Supplementary Pension Fund"), which was founded as per the provisions of the Turkish Commercial and Civil Codes, regarding the payments that fulfill İşbank's liabilities within the framework of the Articles of Foundation of the Pension Fund and the relevant legislation. As a result of this investigation, tax audit reports were prepared for the years 2007, 2008, 2009, 2010, 2011 claiming that the aforementioned liabilities should be taxed in terms of wage base, thus, they should be subject to withholding tax and stamp duty. According to this report, the total amount of tax and penalties notified to Bank was TL 74,353 for 2007 and 2008; and as of reporting date TL 151,899 for 2009, 2010 and 2011 and it was stated that the Bank applied to tax courts to cancel these tax notifications and some of the court decisions were determined in favor of the Bank and some others were determined against the Bank. In this context, for the finalized decisions of Regional Administrative Courts related to the years 2007 and 2008 against the Bank, the Bank applied to the Constitutional Court. According to decisions made by Constitutional Court up to reporting date, there is no predictability in legal conformity for taxing the Bank's contributions to the Pension Fund in terms of wage base and for this reason it was accepted that property right of the Bank has been violated according to the 35th article of Constitution. The Court decided that the amount of tax, penalties and default interest which was paid by the Bank should be paid back to the Bank as for compensation with its legal interest. According to the decision of the Constitutional Court, it is expected that the cases related to the periods 2007, 2008, 2009, 2010 and 2011 will conclude in favor of the Bank. In this context, the provisions amounting to TL 207,402 which had been allocated for the mentioned periods, reversed at 2015. In the last decision of the constitutional court numbered 2016/2400 regarding the legal proceedings initiated upon the conclusion of the lawsuits amounting to TL 61,060 for the 20 periods in 2012 and 2013 against the bank; it was accepted that the predictability criterion was realized after the 2012 tax review, and it was concluded that the Bank’s ownership rights were not violated for December 2012 and beyond periods. However, since the aforementioned periods were filed by making a reservation and paying taxes, the mentioned decision had no additional effect on the financial statements. In addition, at a case file, which was one of the lawsuits regarding the repayment of income tax stoppage and stamp tax which has been paid by reservation statement beginning from December 2013, of which its court decision was rendered in favor of the Bank, has been reversed by the majority of the votes of the Assembly after it was submitted to the General Assembly of Tax Courts. Regarding the mentioned periods, the legal process is ongoing. Within the scope of these developments, the Bank recognized provisions amounting to TL 162,960 (December 31, 2020: TL 128,837). i.4.4. In 1993, Dışbank A.Ş. shares which were owned by the Bank were sold to Lapis Holding A.Ş. In 2008, it was claimed that USD 52.6 million of the amount, which was paid upfront within the context of the sale agreement, had been provided from the funds of the insolvent TYT Bank A.Ş. by the buyer and payment of the mentioned amount as well as the interest to be calculated to the Savings Deposit Insurance Fund (SDIF) was demanded. The administrative actions initiated by the SDIF in 2008 were revoked by Council of State Administrative Law Chambers 13th upon the application of the Bank. The decisions which were in favour of the Bank were reversed by Plenary Session of the Law Chamber upon the appeal of the SDIF. Council of State Administrative Law Chambers 13th decided to reject the applications of the Bank in January 2016 due to their obligation to obey the decisions of reversal. After the aforementioned court decisions, although the legal process was still in progress, the collection procedures were carried out within the context of Law No. 6183 and TL 298,466 including the default interest, was collected from the Bank by the SDIF at prior periods and made provision for the whole amount. As a part of the legal process, individual application to the Constitutional Court of Republic of Turkey has been made by the Bank was not concluded positively. On the other hand, the legal process is still ongoing within the framework of the ongoing lawsuits and other available legal options. i.4.5. Except the other provisions indicated above, the Bank Management allocated free provision within conservatism principle, for negative circumstances which may arise from the possible changes that may arise in the economy and market conditions, amounting to TL 4,075,000 of which TL 2,875,000 provided in prior years and TL 1,200,000 was provided in the current period. 296 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 297 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen j. Information on Tax Liability: j.1. Information on current tax liability: j.1.1. Information on tax provision: Explanations in relation to taxation and tax calculations were stated in section three notes XVIII. As of 31.12.2021, the remaining corporate tax debt as a result of netting of temporary taxes paid with corporate tax liability is TL 1,051,363. j.1.2. Information on taxes payable: Corporate Tax Payable Tax on Securities Income Tax on Real Estate Income Banking Insurance Transaction Tax Foreign Exchange Transaction Tax Value Added Tax Payable Other Total j.1.3. Information on premiums: Social Security Premiums – Employees Social Security Premiums – Employer Bank Pension Fund Premiums – Employees Bank Pension Fund Premiums – Employer Pension Fund Membership Fees and Provisions-Employees Pension Fund Membership Fees and Provisions-Employer Unemployment Insurance – Employees Unemployment Insurance – Employer Others Total Current Period 1,051,363 234,685 5,590 324,422 117,926 23,653 65,785 1,823,424 Prior Period 1,938,446 198,896 2,174 191,585 18,192 9,624 54,557 2,413,474 Current Period Prior Period 267 329 2,397 4,796 6 7,795 218 262 2,049 4,100 4 6,633 j.2. Information on deferred tax liabilities: None. k. Information on Payables for Assets Held for Sale and Discontinued Operations The Bank does not have any payables for assets held for sale and discontinued operations. l. Information on subordinated loans Bank has issued subordinated debt securities, to be included in the contribution capital calculation, with the following nominal values; • 10 year-term in the amount of USD 1,000,000 with interest rate of 6% on October 24, 2012, 10 year-term in the amount of USD 400,000,000 with interest rate of 7.85% on December 10, 2013, 11 year-term having a call option on 6th year in the amount of USD 500,000,000 with interest rate of 7% on June 29, 2017 and 10 year-term having a call option on 5th year in the amount of USD 750,000,000 with interest rate of 7.75% on January 22, 2020 for the purpose of making available to the individuals and legal persons who are resident abroad, • TL 1,100,000,000 on August 8, 2017, TL 800,000,000 June 19, 2019 and TL 350,000,000 September 26, 2019 (Full TL amount) each with a 10-year maturity and floating interest rates for qualified investors without being offered to the public in Turkey. The total of the aforementioned debt securities is TL 37,470,997 as of December 31, 2021 (December 31, 2020: TL 22,138,559). Current Period Prior Period m. Information on shareholders’ equity: m.1. Presentation of paid-in capital: Common shares Preferred shares Total Current Period 4,499,970 30 4,500,000 Prior Period 4,499,970 30 4,500,000 m.2. Explanation as to whether the registered share capital system ceiling is applicable at the Bank, if so, the amount of registered share capital: Capital System Registered Capital System Paid-in Capital 4,500,000 Ceiling 10,000,000 m.3. The capital increase made in current period: None. m.4. Information on capital increase through transfer from capital reserves during the current period: None. m.5. Significant commitments of the Bank related to capital expenditures within the last year and the following quarter, the general purpose thereof, and the estimation of funds required for them: There is no capital commitment. m.6. Information regarding the shares of the company acquired: The Bank has repurchased shares amounting to TL 530,307 in accordance with the Board of Directors Decision dated August 17, 2018. m.7. Previous periods’ indicators related to income, profitability and liquidity, and the estimated effects of forecasts, which are to be made by taking into consideration the uncertainties of these indicators, on the Bank’s equity: The Bank’s balance sheet is managed in a prudent way to ensure that the effect of risks arising from interest rates, exchange rates and loans is at the lowest level. m.8. Privileges Granted to Shares: Turkish Commercial Law and related registration are kept conditionally; Group (A) shares each with a nominal value of 1 Kurus have the privileges of; • Receiving 20 times the number of shares in the distribution of bonus shares issued from conversion of extraordinary and revaluation reserves generated in accordance with the relevant laws (Article 18 of the Articles of Incorporation) • Exercising the preference rights as 20 times (Article 19 of the Articles of Incorporation), and Despite having a lower nominal value, Group (B) shares, each with a nominal value of 1 Kurus, have the same rights with the Group (C) shares having a nominal value of 4 Kurus each. Furthermore, Group (A) and (B) shares, each with a nominal value of 1 Kurus, are granted privileges in distribution of profits pursuant to Article 58 of the Articles of Incorporation. m.9. Information on marketable securities value increase fund: Financial Assets At Fair Value Through Other Comprehensive Income 3,390,517 TL Valuation Difference Deferred Tax Effect Foreign Exchange Differences 4,232,605 (842,088) Current Period Prior Period FC (2,730,702) (3,353,951) 623,249 TL 1,309,647 1,631,517 (321,870) FC (176,091) (219,884) 43,793 Total 3,390,517 (2,730,702) 1,309,647 (176,091) n. Information on Dividend Distribution: At the Bank’s Ordinary General Assembly, held on March 31, 2021, it was decided to allocate net profit from operating activities of 2020, amounting to TL 6,810,917 as follows; • Adding the sales profit amounting to TL 6,262 from the disposed real estates in the accounting period; recorded under retained earnings within the framework of the TP FC TP FC relevant accounting standard. Debt Instruments To Be Included In Additional Capital Calculation Subordinated Loans Subordinated Debt Instrument Debt Instruments To Be Included In Contribution Capital Calculation 2,296,445 35,174,552 2,286,510 19,852,049 Subordinated Loans Subordinated Debt Instrument Total 2,296,445 2,296,445 35,174,552 35,174,552 2,286,510 2,286,510 19,852,049 19,852,049 • The total amount of TL 152,066, which includes TL 17,066 from real estate sales profits to be added to the capital and TL 135,000 from the amount allocated as venture capital fund, of the balance sheet profit to be distributed amounting to TL 6,817,179 allocation as special reserve fund, • of the amount as a basis for distribution of TL 6,665,113; • TL 681,088 to A, B and C group shares as cash, • TL 4 to the founding shares as cash, • TL 134,324 as cash dividend to employees to be distributed, • TL 5,849,697 as legal and extraordinary reserves to be reserved, has been decided. As at March 31, 2021; TL 6,001,763 was transferred to reserves account, cash dividends were distributed to the shares other than the shares acquired by the Bank, as of April 2, 2021. Since the Bank's Ordinary General Assembly Meeting for 2021 has not been held as of the report date, the profit from the activities of the aforementioned period has not been distributed. 298 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 299 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen III. Disclosures And Footnotes On Off Balance Sheet Items a. Explanations to Liabilities Related to Off-Balance Sheet Items: a.1. Types and amounts of irrevocable loan commitments: Commitment for customer credit card limits amounts to TL 46,524,830 and commitment to pay for cheque leaves amounts to TL 3,291,900. The amount of commitment for the forward purchase of assets is TL 13,624,944 and for the forward sale of assets is TL 13,461,257. a.2. The structure and amount of probable losses and commitments resulting from off-balance sheet items, including those below: As of December 31, 2021, the Bank’s provisions for indemnified non-cash loans balance is TL 1,214,255 (December 31, 2020: TL 694,245) which is allocated for the non- cash loans of companies whose loans are followed under “Non-performing Loans” accounts. Commitments are shown in the table of “off-balance sheet items”. a.3. Guarantees, bank acceptances, collaterals that qualify as financial guarantees, and non-cash loans including other letters of credit: Bank Acceptances Letters of Credit Other Guarantees Total a.4. Certain guarantees, provisional guarantees, suretyships and similar transactions: Letters of Tentative Guarantees Letters of Certain Guarantees Letters of Advance Guarantees Letters of guarantee given to customs offices Other Letters of Guarantee Total a.5. Total Non-cash Loans: Non-cash Loans against Cash Risks With Original Maturity of 1 Year or Less With Original Maturity More Than 1 Year Other Non-cash Loans Total Current Period 14,781,851 42,895,203 4,260,876 61,937,930 Current Period 1,708,305 71,821,482 12,802,694 6,090,285 39,074,727 131,497,493 Current Period 39,074,716 9,466,630 29,608,086 154,360,707 193,435,423 Prior Period 9,459,703 19,537,281 3,145,340 32,142,324 Prior Period 1,546,664 48,468,139 7,724,665 6,556,617 23,136,805 87,432,890 Prior Period 23,136,802 3,374,827 19,761,975 96,438,412 119,575,214 a.6. Sectoral risk concentration of non-cash loans: Agriculture Farming and Livestock Forestry Fishery Industry Mining and Quarrying Manufacturing Industry Electricity, Gas, Water Construction Services Wholesale and Retail Trade Current Period TL 296,207 199,806 82,391 14,010 12,116,069 320,342 8,066,185 3,729,542 7,521,162 25,865,094 15,532,556 Hotel and Restaurant Services 450,043 Transport and Communications Financial Institutions 3,081,863 4,543,921 Real Estate and Rental Services. 1,418,515 Self-Employment Services Education Services Health and Social Services Other Total 502,777 73,900 261,519 267,825 46,066,357 a.7. Non-cash Loans classified under Group I and Group II: Non-cash Loans Letters of Guarantee Bank Acceptances Letters of Credit Endorsements Underwriting Commitments of the Securities Issued Factoring Related Guarantees Other Guaranties and Warranties b. Explanation on Derivative Financial Instruments: (%) 0.64 0.43 0.18 0.03 26.30 0.70 17.50 8.10 16.33 56.15 33.72 0.98 6.69 9.86 3.08 1.09 0.16 0.57 0.58 100 FC 574,535 229,323 1,734 343,478 88,813,291 928,731 79,892,456 7,992,104 20,920,930 36,245,354 17,777,209 1,711,937 7,815,025 6,974,597 1,340,206 303,205 5,300 317,875 814,956 147,369,066 (%) 0.39 0.16 0.00 0.23 60.27 0.63 54.21 5.43 14.20 24.59 12.06 1.16 5.30 4.73 0.91 0.21 0.00 0.22 0.55 100 Prior Period TL 189,630 155,107 27,935 6,588 11,217,718 182,761 7,049,096 3,985,861 4,443,454 23,704,537 15,091,119 329,800 2,388,311 3,984,452 1,286,263 383,396 57,331 183,865 191,389 39,746,728 (%) 0.48 0.39 0.07 0.02 28.22 0.46 17.73 10.03 11.18 59.64 37.97 0.83 6.01 10.02 3.24 0.96 0.15 0.46 0.48 100 FC 331,934 68,163 9 263,762 46,398,363 638,665 40,451,308 5,308,390 11,402,539 21,231,780 10,445,618 814,125 4,323,220 3,569,322 1,538,899 89,705 1,426 449,465 463,870 79,828,486 (%) 0.42 0.09 0.00 0.33 58.12 0.80 50.67 6.65 14.28 26.60 13.09 1.02 5.42 4.47 1.93 0.11 0.00 0.56 0.58 100 TL 44,473,483 44,209,792 111,350 152,341 Group I FC 143,129,984 81,677,052 14,656,595 42,600,166 TL 1,341,644 1,335,253 6,391 Group II FC 3,079,264 2,928,004 13,906 134,859 4,196,171 2,495 Majority of the Bank’s derivative transactions comprise foreign currency and interest rate swaps, forward foreign exchange trading, and currency and interest rate options. Even though some derivative transactions economically provide risk hedging, since all necessary conditions to be defined as items suitable for financial risk hedging accounting are not met, they are recognized as “fair value through profit or loss” within the framework of IFRS 9 “Financial Instruments”. c. Explanations Related to Contingencies and Commitments: Balance of the “Other Irrevocable Commitments” account, which comprised the letters of guarantees, guarantees and commitments submitted by the Bank pursuant to its own internal affairs, and guarantees given to third parties by other institutions in favor of the Bank and the commitments due to housing loans extended within the scope of unfinished house projects followed amounts to TL 18,241,104. The cheques given to customers is presented under off balance sheet commitments, as per the related regulations is amounting to TL 3,291,900. In case the cheques presented for payment to beneficiaries are not covered, the Bank will be obliged to pay the uncovered amount up to TL 1,680 (in exact TL amount) for the cheques that are subject to the Law numbered 3167 on “the Regulation of Payments by Cheque and Protection of Cheque Holders”, and up to TL 2,670 (in exact TL amount) for the cheques that are subject to the “Cheque Law” numbered 5941. The uncollected amount will be followed under “Indemnified Non-Cash Loans”. d. Explanations related to transactions made on behalf of or on the account of others: It is explained in Note X under Section Four. 300 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 301 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen IV. Disclosures And Footnotes On Statement Of Income a. Interest Income a.1. Information on interest income on loans: Interest Income on Loans (*) Short-term Loans Medium and Long-term Loans Interest on Non-performing Loans Premiums Received from State Resource Utilization Support Fund Current Period TL FC TL Prior Period FC 9,588,271 24,105,926 944,278 1,260,182 8,549,468 130 5,386,490 17,841,576 611,055 782,646 7,310,803 55,016 b.2. Information on interest paid to associates and subsidiaries: Interest Paid to Associates and Subsidiaries b.3. Information on interest paid on marketable securities issued: Current Period 409,674 Prior Period 325,684 Interest on Securities Issued 1,260,390 3,501,106 1,110,714 2,861,369 Current Period TL FC TL Prior Period FC Total 34,638,475 9,809,780 23,839,121 8,148,465 b.4. Information on Interest Expense on Deposits According to Maturity Structure: (*) Includes fee and commission income on cash loans. a.2. Information on interest income on banks: The Central Bank of Turkey Domestic Banks Foreign Banks Foreign Head Offices and Branches Total a.3. Information on interest income from securities: Financial Assets at Fair Value Through Profit or Loss Financial Assets at Fair Value Through Other Comprehensive Income Financial Assets Measured at Amortised Cost Total TL 71,739 31,889 103,628 TL 52,159 8,216,820 5,757,657 14,026,636 Current Period Prior Period FC 528 29,548 30,076 TL 55,354 10,886 66,240 FC 3,006 2,277 62,510 67,793 Current Period Prior Period FC 75,959 1,204,383 127,244 1,407,586 TL 23,168 5,244,238 3,962,685 9,230,091 FC 4,321 917,014 124,598 1,045,933 a.4. Information on interest income received from associates and subsidiaries: Interest Income from Associates and Subsidiaries b. Interest Expense b.1. Information on interest expense from funds borrowed: Banks Central Bank of Turkey Domestic Banks Foreign Banks Foreign Head Offices and Branches Other Institutions Total (*) (*) Includes fee and commission expenses from cash loans. 302 | İŞBANK 2021 INTEGRATED ANNUAL REPORT Current Period 613,651 Prior Period 439,591 TL 315,064 88,398 226,666 315,064 Current Period Prior Period FC 991,290 138,803 852,487 223,920 1,215,210 TL 211,590 59,876 151,714 211,590 FC 950,388 1,667 79,944 868,777 286,023 1,236,411 Demand Deposits Up to One Month Up to Three Months Up to Six Months Up to One Year Over One Year Accumulated Deposits Time Deposits 236,834 109,341 1,089,360 10,622,231 622,976 1,257 11,337 1,811,687 2,203,211 44,565 438,198 328 59,735 51,297 87,086 47 285,246 446 115,091 645 9 3,697 4,064 3,183,703 13,384,318 734,336 372,825 122,861 645 17,798,756 18,582 327 18,909 177,776 457 3,363 181,596 6,848 307 411 7,566 3,202,612 13,565,914 741,902 3,396 495 10,611 14,502 387,327 62,602 380 637 63,619 186,480 1 1 646 Current Period TL Bank Deposits Savings Deposits Public Sector Deposits Commercial Deposits Other Institutions Deposits Deposits with 7 Days Notice Total FC Foreign Currency Deposits Bank Deposits Deposits with 7 Days Notice Precious Metals Deposits Total Grand Total Prior Period TL 10 58 68 89 88 177 245 Demand Deposits Up to One Month Up to Three Months Up to Six Months Up to One Year Over One Year Accumulated Deposits Time Deposits Bank Deposits Savings Deposits Public Sector Deposits Commercial Deposits Other Institutions Deposits Deposits with 7 Days’ Notice 74 1 24 1 114,908 516,129 571 887,694 33,334 67,871 4,170 5,217,171 212,256 4,704 1,340,325 239,748 363 45,680 31,626 772 50,900 9 145,999 7,996 95,003 11 6,125 385 817 Total FC 100 1,552,636 6,869,819 294,095 205,676 101,524 817 9,024,667 Foreign Currency Deposits Bank Deposits Deposits with 7 Days’ Notice Precious Metals Deposits Total Grand Total 95 63 158 258 34,528 1,537 36,065 302,570 1,764 2,332 306,666 1,588,701 7,176,485 17,640 987 453 19,080 313,175 11,750 1,468 12,719 25,937 231,613 105,814 1,561 1,105 108,480 210,004 12 12 829 472,409 7,380 16,609 496,398 9,521,065 İŞBANK 2021 INTEGRATED ANNUAL REPORT | 303 Total 346,175 12,537,399 12,978 4,363,634 538,570 269,294 2,054 15,022 286,370 18,085,126 Total 187,795 6,092,277 5,658 2,425,847 313,090 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen c. Information on dividend income: f. Other operating expenses: Financial Assets at Fair Value Through Profit and Loss Financial Assets at Fair Value Through Other Comprehensive Income Other Total Current Period Prior Period 9,176 11,559 20,735 6,670 14,817 21,487 d. Information on trading income/losses (Net): Income Securities Trading Gains Gains on Derivative Financial Instruments (*) Foreign Exchange Gains Losses (-) Securities Trading Losses Losses on Derivative Financial Instruments (*) Foreign Exchange Losses Trading Income /Losses (Net) Current Period Prior Period 381,403 33,122,723 1,931,276,362 24,296 34,168,985 1,935,736,334 (5,149,127) 344,909 10,221,141 608,874,079 8,971 20,611,578 602,160,937 (3,341,357) Current Period Prior Period Reserve for Employee Termination Benefits Bank Pension Fund Deficit Provisions Impairment Losses on Tangible Assets Depreciation Expenses of Tangible Assets Impairment Losses on Intangible Assets Impairment Losses on Goodwill Amortization Expenses of Intangible Assets Impairment Losses on Equity Accounted Investments Impairment Losses on Assets to be Disposed Depreciation Expenses of Assets to be Disposed Impairment Losses on Assets Held for Sale and Subject to Discontinued Operations Other Operating Expenses Leasing Expenses Related to Exceptions to IFRS 16 Repair and Maintenance Expenses Advertisement Expenses (*) Other Expenses (*) Loss on Sale of Assets Other (**) Total 171,229 1,858,944 5,795 686,512 334,798 4,279,084 116,435 237,531 286,996 3,638,122 1,799 2,206,847 9,545,008 153,557 742,085 607,672 233,969 5,320 3,219,275 99,885 194,017 207,975 2,717,398 1,836 1,641,283 6,604,997 (*) Income arising from foreign currency changes related to derivative transactions amounts to TL 28,826,011 and the losses amount to TL 30,043,929 and the amount of net losses TL 1,217,918 (December 31, 2020 profit: TL 5,574,364, loss: TL 15,102,319). (*)) The amount of expenditure made by the Bank within the scope of donation, aid and social responsibility projects in the current period is TL 78,991 (December 31, 2020:TL 101,099). (**)In the current period the part of the related item amounting to TL 466,924 is comprised of expenses of fees, taxes, pictures and funds. e. Information on other operating income: Other operating income mainly consists of expected credit loss reversals or collections from Stage 3 loans, and income from fees received from customers in return for various banking services and sales of fixed assets. f. Information on expected credit loss and other provision expense: Expected Credit Loss 12 Month Expected Credit Loss (Stage I) Significant Increase in Credit Risk (Stage II) Non-performing Loans (Stage III) Impairment Losses on Marketable Securities Financial Assets at Fair Value Through Profit or Loss Financial Assets at Fair Value Through Other Comprehensive Income Impairment Losses on Associates, Subsidiaries and Joint-Ventures Associates Subsidiaries Jointly Controlled Entities Other (*) Total Current Period 10,837,246 1,247,511 3,781,961 5,807,774 16,416 14,145 2,271 Prior Period 10,213,836 1,323,697 4,307,187 4,582,952 20,047 2,129 17,918 i. Information on provision for taxes from continuing and discontinued operations The Bank's profit before tax arises from continuing activities. As of 31 December 2021, TL 30,941,269 of the profit before tax consists of net interest income, TL 7,619,945 of net fee and commission income, and the total of personnel expenses and other operating expenses is TL 15,911,689. j. Information on provision for taxes from continuing and discontinued operations As of December 31, 2021, the amount of the Bank’s tax provision is TL 2,007,986 and the amount consists of current tax expense that is amounting to TL 1,103,778 and consists of deferred tax expense amounting TL 904,208. k. Information on Net Operating Profit/Loss after Net Profit/Loss from Continuing and Discontinued Operations: The Bank’s net profit made from its continuing operations as of December 31, 2021 amounts to TL 13,467,895. l. Information on net period profit/loss: l.1. Income and expenses resulting from ordinary banking activities: There is no specific issue required to be disclosed for the Bank’s performance for the nine-month period between January 1, 2021 – December 31, 2021. l.2. Effects of changes in accounting estimates on the current and future periods’ profit/loss: There is no issue to be disclosed. l.3. ‘‘The other’’ item which is located at the bottom of “Fees and Commissions Received” in the income statement consist of various fees and commissions received from transactions such as credit card transactions, capital market transactions. m. Explanation on other items on the income statement: Other items do not exceed 10% of the total amount of the income statement. n. Fees for services received from an independent audit firm: 3,596,505 14,450,167 2,496,037 12,729,920 In accordance with the decision of public oversight, accounting and auditing standards authority dated 26.03.2021, the fees for the reporting period regarding the services received from the independent auditor or independent audit firm are given in the table below. In addition to the Bank, the fees for services rendered to the Bank's domestic/foreign subsidiaries and jointly controlled partnerships are included in the aforementioned fees, which are stated as VAT excluded. (*) The amount of current period consists of provision for impairment loss for financial assets at fair value through profit or loss and the free provision expense of TL 1,200,000. Independent audit fee for the reporting period Other Assurance Services and Other Non-Audit Fees Total Current Period Prior Period 22,282 5,709 27,991 18,148 2,898 21,046 304 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 305 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen V. Disclosures And Footnotes On Statement Of Changes In Shareholders’ Equity VII. Dısclosures And Footnotes On The Bank’s Rısk Group The paid-in capital is TL 4,500,000 in legal records. As of balance sheet date, the balance of legal reserves is TL 5,065,786 and the balance of extraordinary reserves is TL 41,015,229. Detail of the securities increase fund is explained in Section Five Note II-m.9 and TL 218,839 of this amount is the deferred tax effect on financial assets at fair value through other comprehensive income (31 December 2020: TL (278,077)). Revaluation value increase of TL 500.773 in total for the real estates classified under tangible fixed assets but not within the scope of TAS 40-Investment Property, due to the fact that the Bank is in its own use in its consolidated financial statements, is reflected in the unconsolidated financial statements prepared as of 31 December 2021, in TAS 27-Individual Financial Within the scope of the tables, it is classified under the item “increase/decrease due to other changes” in the statement of changes in shareholders' equity. VI. Disclosures And Footnotes On Statement Of Cash Flows The operating profit to TL 14,064,345 before the changes in operating assets and liabilities mostly comprised of TL 54,774,522 of interest received from loans and securities, and TL 28,575,621 of interest paid on deposits, loans, money market transactions and marketable securities borrowed by the Bank. The account ‘’Other’’ classified under operating profit other than fees and commissions paid, cash payments to personnel and service suppliers and taxes paid consists of other operating expenses, exchange and derivative gains/losses accounts is TL 13,095,475 (December 31, 2020: TL (8,449,586)). Net Increase (Decrease) in Other Liabilities account classified in changes of assets and liabilities resulting from the changes in Funds Provided Under Repurchase Agreements, miscellaneous payables, other liabilities and taxes, duties, charges, and premiums increase as TL 31,617,097 (December 31, 2020: TL 24,090,297 increase). Net Cash Provided from Other Investing Activities account includes net cash flows from sale of intangible assets and declined by TL 748,958 (December 31, 2020: TL 650,792 decrease). The effect of changes in foreign exchange rates on cash and cash equivalents is TL (1,171,636) as of December 31, 2021 (December 31, 2020: TL (1,105,433)). Due to the high rate of turnover of related foreign currency assets, the difference between the last 30 days’ arithmetic average of currency exchange rates and the year-end currency exchange rate is used to calculate the effect of change in foreign exchange rate. Cash, cash in foreign currency, unrestricted deposits in Central Bank of Turkey, money in transit, cheques purchased, precious metals, money market operations as well as demand and timed up to 3 months are defined as cash and cash equivalents. Cash and cash equivalents at beginning of the period: Cash Cash in TL and Foreign Currency Central Bank of Turkey and Other Cash Equivalents Banks’ Demand Deposits and Time Deposits Up to 3 Months Money Market Receivables Total Cash and Cash Equivalents Current Period Prior Period December 31, 2020 December 31, 2019 32,467,082 9,102,557 23,364,525 12,894,826 12,894,826 29,616,634 5,489,353 24,127,281 12,260,667 12,260,667 45,361,908 41,877,301 The total amount resulting from the transactions made in the previous period shows the total cash and cash equivalents as of the beginning of the current period. Cash and cash equivalents at end of the period: Cash Cash in TL and Foreign Currency Central Bank of Turkey and Other Cash Equivalents Banks’ Demand Deposits and Time Deposits Up to 3 Months Money Market Receivables Total Cash and Cash Equivalents Current Period Prior Period December 31, 2020 December 31, 2019 96,225,661 14,810,443 81,415,218 18,668,788 18,668,788 32,467,082 9,102,557 23,364,525 12,894,826 12,894,826 114,894,449 45,361,908 a. Information on the volume of transactions relating to the Bank’s risk group, incomplete loan and deposit transactions and period’s profit and loss: a.1. Information on loans held by the Bank’s risk Group Current Period: Bank’s Risk Group Loans Investments in Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Direct and Indirect Shareholders of the Bank Other Real Persons and Corporate Bodies that have been Included in the Risk Group Cash Non-Cash Cash Non-Cash Cash Non-Cash Balance at the beginning of the period Balance at the end of the period Interest and commission income received 5,368,800 6,287,638 612,064 9,877,227 16,814,945 6,879 2,585,068 4,452,442 232,067 494,875 608,277 8,628 Prior Period: Bank’s Risk Group Loans Investments in Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Direct and Indirect Shareholders of the Bank Other Real Persons and Corporate Bodies that have been Included in the Risk Group Cash Non-Cash Cash Non-Cash Cash Non-Cash Balance at the beginning of the period Balance at the end of the period Interest and commission income received 1,735,386 5,368,800 438,338 5,971,958 9,877,227 4,916 3,855,442 2,585,068 157,039 658,330 494,875 7,028 a.2. Information on deposits held by the Bank’s risk group: Bank’s Risk Group Deposits Investments in Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Direct and Indirect Shareholders of the Bank Other Real Persons and Corporate Bodies that have been Included in the Risk Group Cash Non-Cash Cash Non-Cash Cash Non-Cash Balance at the beginning of the period 8,875,726 Balance at the end of the period Interest expense on deposits 12,421,537 248,189 4,354,282 8,875,726 160,986 157,226 302,826 25,060 8,896 157,226 4,833 1,409,177 2,053,129 52,100 7,768,540 1,409,177 89,244 a.3. Information on forward and option agreements and other similar agreements made with the Bank’s risk group: İştirak, Bağlı Ortaklık ve Birlikte Kontrol Edilen Ortaklıklar (İş Ortaklıkları) Bankanın Doğrudan ve Dolaylı Ortakları Risk Grubuna Dahil Olan Diğer Gerçek ve Tüzel Kişiler Cari Dönem Önceki Dönem Cari Dönem Önceki Dönem Cari Dönem Önceki Dönem 1,574,671 1,966,285 (62,997) 1,192,862 1,574,671 (70,139) 4,033 (2,179) 399,392 (12,541) Banka’nın Dahil Olduğu Risk Grubu Transactions at Fair Value Through Profit and Loss Beginning of the period End of the period Total Profit/Loss Transactions for hedging purposes Beginning of the period End of the period Total Profit/Loss 306 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 307 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen b. Disclosures for Bank’s risk group: IX. Subsequent Events In accordance with the relevant decision of the Banking Regulation and Supervision Agency, the special purpose entity and the mentioned company’s subsidiary Türk Telekom A.Ş, are not included in the Bank’s risk group, where details are disclosed in Section V, footnote I.b.3 and I.r. Within the scope of the decision of the Board of Directors regarding the issue of debt instrument on September 6, 2021, the Bank issued a financial bond with a nominal value of TL 2,562,362 after December 31, 2021. b.1. The relation of the Bank with corporations in its risk group and under its control regardless of whether there are any transactions between the parties: All types of corporate and retail banking services are provided to these corporations in line with the articles of Banking Law. b.2. The type and amount of transaction carried out, and its ratio to the overall transaction volume, values of principal items and their ratios to overall items, pricing policy and other items in addition to the structure of the relationship: The transactions carried out are mainly loan and deposit transactions. The ratio of loans extended to the risk group to the overall cash loans is 2.18%, while the ratio (excluding NPL) to the overall assets is 1.16%; the ratio of deposits of the risk group corporations to the overall deposits is 2.48%, while the ratio to overall liabilities is 1.59%, the comparable pricing method is used for the transactions. b.3. Purchase and sale of real estates, other assets and services, agency agreements, finance lease contracts, transfer of information obtained through research and development, license agreements, funding (including loans and provision of support as cash capital or capital-in-kind), guarantees and collaterals, and management agreements: Security purchases are made by İş Finansal Kiralama A.Ş., a subsidiary of the Bank, through leasing activities when required. The Parent Bank’s branches act as agents of Anadolu Anonim Türk Sigorta Şirketi and Anadolu Hayat Emeklilik A.Ş. Furthermore, through its branches, the Bank mediates the order transmission for İş Yatırım Menkul Değerler A.Ş. and carries out agency activities of İş Portföy Yönetimi A.Ş. If requested, cash and non-cash loan requirements of corporations within the risk group are met in accordance with the limits imposed by the Banking Law and the prevailing market conditions. b.4. As of December 31, 2021, total worth of the shares, which the Bank purchased from its subsidiaries that are traded on Istanbul Stock Exchange, and accounted under the Financial Assets at Fair Value Through Profit or Loss in accordance with the Board of Directors decision dated December 25, 2015 and relevant following decisions is TL 207,050 (December 31, 2020: TL 147,183). c. Total salaries and similar benefits paid to the (executive members and senior executives) In the current period, the net payment provided to the key management amounts is TL 46,975 (December 31, 2020: TL 36,814). VIII. Disclosures On The Bank’s Domestic, Foreign, Off-Shore Branches Or Associates And Foreign Representative Offices Domestic Branches (*) 1.174 22.470 Number Employees Foreign Representative Offices Foreign Branches Off-Shore Branches 1 1 2 14 2 2 1 3 2 45 205 39 32 6 (*) The Branches located in Free Trade Zones in Turkey are included among domestic branches. Country of Incorporation China Egypt England T.R.N.C. Iraq Kosovo Bahrain Total Assets 41,179,719 15,362,143 4,401,749 2,322,319 10,609,478 Legal Capital 1,765 80,000 588,024 148,390 Section Six: Other Explanations i. Explanations On The Bank’s Credit Ratings: MOODY’S Long-term Foreign Currency Deposit Long-term Local Currency Deposit Long-term Foreign Currency Senior Debt Short-term Foreign Currency Deposit Short-term Local Currency Deposit FITCH RATINGS Long-term Foreign Currency Issuer Default Rating Long-term Local Currency Issuer Default Rating Short-term Foreign Currency Issuer Default Rating Short-term Local Currency Issuer Default Rating National Long-term Rating Viability Rating Government Support Rating STANDARD & POOR'S Long-term Counterparty Credit Rating Short-term Counterparty Credit Rating Long-term National Scale Rating Long-term Local Currency Issuer Default Rating Rating Outlook (*) B3 B3 B3 NP NP B+ B+ B B A+ (tur) b+ b- B+ B trA+ trA-1 Negative Negative Negative - - Negative Negative - - Stable - - Negative - - - The dates when the Bank's credit ratings/outlooks were last updated are given below: Moody's: 10.12.2020, Fitch Ratings: 10.12.2021, Standard & Poor's: 15.12.2021 (*) Outlook: “Stable” indicates that the current rating will not be changed in the short term; “positive” indicates that the current rating is very likely to be upgraded and “negative” indicates that the current rating is very likely to be downgraded. Section Seven: Explanations On The Auditors’ Independent Audit Report I. Explanations On The Auditors’ Independent Audit Report: The unconsolidated financial statements and disclosures for the period ended December 31, 2021 have been audited by Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi (A member firm of Ernst&Young Global Limited) and the independent auditors’ report dated February 8, 2020 is presented preceding the unconsolidated financial statements. II. Explanations And Footnotes Of The Independent Auditors Report There are no significant issues or necessary disclosures or notes in relation to the Bank’s operations other than those mentioned above. 308 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 309 Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Unconsolidated Financial Statements For The Year Ended December 31, 2021(Convenience Translation of Unconsolidated Audit Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Maslak Mah. Eski Büyükdere Cad. Orjin Maslak İş Merkezi No:27 K:2-3-4 34485 Sarıyer/İstanbul TÜRKİYE INDEPENDENT AUDITOR’S REPORT Audit of Consolidated Financial Statements To the Board of Directors of Türkiye İş Bankası Anonim Şirketi; Qualified Opinion We have audited the accompanying consolidated financial statements of Türkiye İş Bankası A.Ş (the Bank) and its subsidiaries (collectively referred as “The Group”), which comprise the consolidated statement of balance sheet as at December 31, 2021, and the consolidated statement of income, consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in shareholders’ equity and consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, and a summary of significant accounting policies and other explanatory information. In our opinion, except for the effects of the matter on the consolidated financial statements described in the Basis for Qualified Opinion paragraph, the accompanying con- solidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2021 and consolidated financial performance and consolidated its cash flows for the year then ended in accordance with the prevailing accounting principles and standards set out as in accordance with “Regulation on Accounting Applications for Banks and Safeguarding of Documents” published in the Official Gazette no.26333 dated November 1, 2006 and other regula- tions 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. Basis of Qualified Opinion As explained in Section Five Part II-i.4.6 and IV.e, the accompanying consolidated financial statements as at December 31, 2021 include a free provision at an amount of TL 4,075,000 thousands of which TL 2,875,000 thousands was provided in prior years and TL 1,200,000 thousands provided in the current period by the Group management for the possible effects of the negative circumstances which may arise from the possible changes in the economy and market conditions which does not meet the recogni- tion criteria of “Turkish Accounting Standard” (TAS) 37 “Provisions, Contingent Liabilities and Contingent Assets”. Our audit was conducted in accordance with “Regulation on independent audit of the Banks” published in the Official Gazette no.29314 dated April 2, 2015 by BRSA (BRSA Independent Audit Regulation) and Independent Auditing Standards (“ISA”) which are the part of Turkish Auditing Standards issued by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with of Code of Ethics for Independent Auditors (Code of Ethics) published by POA and have fulfilled our other 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 qualified opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. Key audit matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Basis for Qualified section we have determined the matters described below to be the key audit matters to be communicated in our report. Türkiye İş Bankası Anonim Şirketi Consolidated Financial Statements As at and For the Year Ended December 31, 2021 This report includes “Independent Auditor’s Report” comprising 6 pages and; "Consolidated Financial Statements and Related Disclosures and Footnotes” comprising 142 pages. (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish) 310 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 311 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT Key Audit Matter How the Key Audit Matter is addressed in our audit Pension Fund Obligations TFRS 9 “Financial Instruments” Standard and recognition of impairment on financial assets and related significant disclosures As presented in Section III disclosure VIII, the Group recognizes expected credit losses of financial assets in accordance with TFRS 9 Financial Instruments standard. We considered impairment of financial assets as a key audit matter since: • Amount of on and off-balance sheet items that are subject to expected credit loss calculation is material to the financial statements. • There are complex and comprehensive requirements of TFRS 9. • The classification of the financial assets is based on the Group’s business model and characteristics of the contractual cash flows in accordance with TFRS 9 and the Group uses significant judgment on the assessment of the business model and identification of the complex contractual cash flow characteristics of financial instruments. • The Group's determines fair value of its financial assets, reflected at fair value in accordance with the relevant business model category, according to Level 3 if there are financial inputs that are not observable in the fair value measurement and that contain significant estimates and assumptions. • Policies implemented by the Group management include compliance risk to the regulations and other practices. • Processes of TFRS 9 are advanced and complex. • Judgements and estimates used in expected credit loss, complex and comprehensive. • Disclosure requirements of TFRS 9 are comprehensive and complex. Our audit procedures included among others include: • Evaluating the appropriateness of accounting policies as to the requirements of TFRS 9, Group’s past experience, local and global practices. • Reviewing and testing of processes which are used to calculate expected credit losses by involving our Information technology and process audit specialists. • Evaluating the reasonableness and appropriateness of management’s key estimates and judgements in expected credit loss calculations including the responses to COVID-19, through selection of methods, models, assumptions and data sources. • Reviewing the appropriateness of criteria in order to identify the financial assets having solely payments of principal and interest and checking the compliance to the Group’s Business model. • Reviewing the Group’s classification and measurement models of the financial instruments (financial instruments determined as Level 3 according to fair value hierarchy) and comparing with TFRS 9 requirements • Evaluating the alignment of the significant increase in credit risk determined during the calculation of expected credit losses, default definition, restructuring definition, probability of default, loss given default, exposure at default and macro-economic variables that are determined by the financial risk management experts with the Group’s past performance, regulations, and other processes that has forward looking estimations. • Evaluating the impact of the COVID-19 outbreak on staging of loans and macroeconomic parameters used in expected credit lossess together with forward-looking estimates and significant assumptions. • Assessing the completeness and the accuracy of the data used for expected credit loss calculation. • Testing the mathematical accuracy of expected credit loss calculation on sample basis. • Evaluating the judgments and estimates used for the individually assessed financial assets. • Evaluating the accuracy and the necessity of post-model adjustments. • Auditing of TFRS 9 disclosures. Employees of the Group are members of “Türkiye İş Bankası A.Ş. Mensupları Emekli Sandığı Vakfı”, (“the Fund”), which is established in accordance with the temporary Article 20 of the Social Security Act No. 506 and related regulations. The Fund is a separate legal entity and foundation recognized by an official decree, providing all qualified employees with pension and post-retirement benefits. As disclosed in the “Section Three Note XX.2” to the financial statements, Banks will transfer their pension fund to the Social Security Institution and the authority of the “Council of Ministers” on the determination of the mentioned transfer date is changed as “President” in the Decree Law No. 703 published in the Official Gazette numbered 30473 and dated July 9, 2018. According to the technical balance sheet report as at December 31, 2021 prepared considering the related articles of the Law regarding the transferrable benefit obligations for the non- transferrable social benefits and payments which are included in the articles of association, the Fund has an actuarial and technical deficit which is fully provisioned for. The valuation of the Pension Fund liabilities requires judgment in determining appropriate assumptions such as defining the transferrable social benefits, discount rates, salary increases, demographic assumptions, inflation rate estimates and the impact of any changes in individual pension plans. The Group Management uses Fund actuaries to assist in assessing these assumptions. Considering the subjectivity of key assumptions and estimate used in the calculations of transferrable liabilities and the effects of the potential changes in the estimates used together with the uncertainty around the transfer date and given the fact that technical interest rate is prescribed under the law, we considered this to be a key audit matter. Derivative Financial Instruments Derivative financial instruments including foreign exchange contracts, currency and interest rate swaps, currency and interest rate options, futures and other derivative financial instruments which are held for trading are initially recognized on the statement of financial position at fair value and subsequently are re-measured at their fair value. Details of related amounts are explained in “Section Five Note I.c.” and “Section Five Note II.b”. Fair value of the derivative financial instruments is determined by selecting most convenient market data and applying valuation techniques to those particular derivative products. Derivative Financial Instruments are considered by us as a key audit matter because of the subjectivity in the estimates, assumptions and judgements used. It has been addressed whether there have been any significant changes in regulations governing pension liabilities, employee benefit plans during the period, that could lead to adjust the valuation of employee benefits. Support from actuarial auditor of our firm, has been taken to assess the appropriateness of the actuarial assumptions and calculations performed by the external actuary. We further focused on the accuracy and adequacy of the Bank’s provision provided for the deficit and also disclosures on key assumptions related to pension fund deficit. Our audit procedures included among others involve reviewing policies regarding fair value measurement accepted by the Group management fair value calculations of the selected derivative financial instruments which is carried out by valuation experts of another entity who are in the same audit network within our firm and the assessment of used estimations and the judgements and testing the assessment of operating effectiveness of the key controls in the process of fair value determination. 312 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 313 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen INDEPENDENT AUDITOR’S REPORT Responsibilities of Management and Directors for the Consolidated Financial Statements Group management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the BRSA Accounting and Reporting Legislation and for such internal control as management determines is necessary to enable the preparation of the financial statement that is free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements In an independent audit, the responsibilities of us as independent auditors are: Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with BRSA Independ- ent Audit Regulation and ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with BRSA Independent Audit Regulation and ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. (The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.) • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank and its subsidiaries’ internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank and its subsidiaries’ ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank and its subsidiaries to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities and business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with government with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements 1) In accordance with Article 402 paragraph 4 of the Turkish Commercial Code (“TCC”) no 6102; no significant matter has come to our attention that causes us to believe that the Bank’s bookkeeping activities and financial statements for the period January 1 – December 31, 2020 are not in compliance with the TCC and provisions of the Bank’s articles of association in relation to financial reporting. 2) In accordance with Article 402 paragraph 4 of the TCC; the Board of Directors submitted to us the necessary explanations and provided required documents within the context of audit. The engagement partner who supervised and concluded this independent auditor’s report is Fatma Ebru Yücel. Additional paragraph for convenience translation to English As explained in detail in Note I of Section Three, the effects of differences between accounting principles and standards set out by regulations in conformity with BRSA Accounting and Financial Reporting Legislation, accounting principles generally accepted in countries in which the accompanying consolidated financial statements are to be distributed and International Financial Reporting Standards (“IFRS”) have not been quantified in the accompanying consolidated financial statements. Accordingly, the accompanying consolidated 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. February 8, 2022 İstanbul, Türkiye 314 | İŞBANK 2021 INTEGRATED ANNUAL REPORT Türkiye İş Bankası A.Ş. The Consolidated Financial Report As At And For The Year Ended December 31, 2021 Headquarters Address: İş Kuleleri, 34330, Levent/İstanbul Telephone: 0212 316 00 00 Fax: 0212 316 09 00 Web Site: www.isbank.com,tr E-mail: musteri.iliskileri@isbank.com.tr The consolidated financial report as at and for the year ended prepared in accordance with the communiqué of “Financial Statements and Related Disclosures and Footnotes to be announced to Public by Banks” as regulated by Banking Regulation and Supervision Agency, comprises the following sections: GENERAL INFORMATION ABOUT THE PARENT BANK CONSOLIDATED FINANCIAL STATEMENTS OF THE PARENT BANK EXPLANATIONS ON THE ACCOUNTING POLICIES INFORMATION ON FINANCIAL STRUCTURE AND RISK MANAGEMENT OF THE GROUP DISCLOSURES AND FOOTNOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS OTHER EXPLANATIONS INDEPENDENT AUDITOR’S REPORT Associates, subsidiaries and structured entities whose financial statements have been consolidated in the consolidated financial report are as follows: Associates ARAP-TÜRK BANKASI A.Ş. Subsidiaries ANADOLU ANONİM TÜRK SİGORTA ŞİRKETİ ANADOLU HAYAT EMEKLİLİK A.Ş. EFES VARLIK YÖNETİM A.Ş. İŞ FAKTORİNG A.Ş. İŞ FİNANSAL KİRALAMA A.Ş. İŞ GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş. İŞ GİRİŞİM SERMAYESİ YATIRIM ORTAKLIĞI A.Ş. İŞ PORTFÖY YÖNETİMİ A.Ş. İŞ YATIRIM MENKUL DEĞERLER A.Ş. İŞ YATIRIM ORTAKLIĞI A.Ş. İŞBANK AG JOINT STOCK COMPANY İŞBANK (JSC İŞBANK) JOINT STOCK COMPANY ISBANK GEORGIA (JSC ISBANK GEORGIA) MAXİS GİRİŞİM SERMAYESİ PORTFÖY YÖNETİMİ A.Ş. MAXIS INVESTMENTS LTD. MİLLİ REASÜRANS T.A.Ş. MOKA ÖDEME VE ELEKTRONİK PARA KURULUŞU A.Ş. TSKB GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş. TÜRKİYE SINAİ KALKINMA BANKASI A.Ş. YATIRIM FİNANSMAN MENKUL DEĞERLER A.Ş. YATIRIM VARLIK KİRALAMA A.Ş. Structured Entities TIB DIVERSIFIED PAYMENT RIGHTS FINANCE COMPANY The consolidated yearended financial statements and related disclosures and footnotes in this report are prepared, in accordance with the Regulation on the Procedures and Principles for Accounting Practices and Retention of Documents by Banks. Banking Regulation and Supervision Agency (BRSA) regulations, Turkish Accounting Standards, Turkish Financial Reporting Standards and the related statements and guidance and in compliance with the financial records of our Bank. Unless otherwise stated the accompanying consolidated financial report is presented in thousands of Turkish Lira (TL) and has been subjected to independent auditand presented as the attached. Ersin Önder Çiftçioğlu Member of the Board and the Audit Committee Yusuf Ziya Toprak Deputy Chairperson of the Board of Directors and Chairperson of the Audit Committee Adnan Bali Chairperson of the Board of Directors Ali Tolga Ünal Head of Financial Management Division Gamze Yalçın Deputy Chief Executive In Charge of Financial Reporting Hakan Aran Chief Executive Officer The authorized contact person for questions on this consolidated financial report: Name – Surname / Title: Neşe Gülden Sözdinler / Head of Investor Relations and Contunity Division Phone No : +90 212 316 16 02 Fax No :+90 212 316 08 40 E-mail : Nese.Sozdinler@isbank.com.tr investorrelations@isbank.com.tr İŞBANK 2021 INTEGRATED ANNUAL REPORT | 315 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen SECTION IV Information on the Financial Position and Risk Management of the Group I. II. III. IV. V. VI. Explanations on Shareholders’ Equity Explanations on Credit Risk Explanations on Currency Risk Explanations on Interest Rate Risk Explanations on Equity Shares Risk Arising from Banking Book Explanations on Liquidity Risk Management and Consolidated Liquidity Coverage Ratio VII. Explanations on Leverage Ratio VIII. Explanations on Other Price Risks IX. X. XI. Explanations on The Presentation of Financial Assets and Liabilities at Fair Value Explanations on Transactions Made on Behalf of Others and Transactions Based on Fiduciary Explanations on Risk Management XII. Explanations on Segment Reporting SECTION V Disclosures and Footnotes on the Consolidated Financial Statements I. II. III. IV. V. VI. Disclosures and Footnotes on Consolidated Assets Disclosures and Footnotes on Consolidated Liabilities Disclosures and Footnotes on Consolidated Off-Balance Sheet Items Disclosures and Footnotes on Consolidated Income Statement Disclosures and Footnotes on the Statement of Changes in Equity Disclosures and Footnotes on The Cash Flow Statement VII. Disclosures and Footnotes on the Bank’s Risk Group VIII. Disclosures on the Bank’s Domestic, Foreign, Off-Shore Branches or Subsidiaries and Foreign Representative Offices IX. Subsequent Events SECTION VI Other Explanations I. Explanation on the Group’s Credit Ratings SECTION VII Explanations on the Independent Audit Report I. II. Explanations on the Independent Auditors’ Report Explanations and Footnotes of the Independent Auditors Report 342 350 360 362 366 367 372 373 373 375 375 391 393 408 415 417 421 421 422 423 425 425 427 427 CONTENT SECTION I General Information about the Parent Bank I. II. III. IV. V. VI. Explanations on the Establishment Date and Initial Status of the Parent Bank, and History Including the Changes in the Former Status Explanations on the Capital Structure, Shareholders who Directly or Indirectly, Solely or Jointly Undertake the Management and Control of the Parent Bank any Changes in the Period, and Information on the Parent Bank’s Risk Group Explanations on the Chairperson’s, Directors’, Auditors’, Chief Executive Officer’s and Deputy Chief Executives’ Shares, if any, and the Areas of their Responsibility at the Bank Information on the Parent Bank’s Qualified Shareholders Summary Information on the Parent Bank’s Functions and Business Lines Differences between the Communiqué on Preparation of Consolidated Financial Statements of Banks and Turkish Accounting Standards and Explanation about the Institutions Subject to Line-By-Line Method or Proportional Consolidation and Institutions which are Deducted from Equity or not Included in These Three Methods VII. Existing or Potential, Actual or Legal Obstacles on the Transfer of Shareholders’ Equity Between the Parent Bank and its Subsidiaries or the Reimbursement of Liabilities VIII. Written Policies on Assessment of Ensuring Compliance on Market Discipline, Disclosure Obligations, Frequency and Accuracy of the Related Disclosures SECTION II Consolidated Financial Statements I. II. III. IV. V. VI. Consolidated Balance Sheet – Assets Consolidated Balance Sheet – Liabilities Consolidated Statement of Off-Balance Sheet Items Consolidated Statement of Profit or Loss Profit or Loss and Other Comprehensive Income Consolidated Statement of Changes in the Shareholders’ Equity VII. Consolidated Statement of Cash Flows VIII. Consolidated Statement of Profit Appropriation SECTION III Explanations on Accounting Policies I. II. III. IV. V. VI. Basis of Presentation Strategy for Use of Financial Instruments and on Foreign Currency Transactions Information on the Consolidated Companies Forward, Option Contracts and Derivative Instruments Interest Income and Expenses Fees and Commission Income and Expenses VII. Financial Assets VIII. Impairment of Financial Assets IX. X. XI. Offsetting Financial Instruments Sale and Repurchase Agreements and Securities Lending Transactions Non-current Assets Held for Sale and Discontinued Operations and Related Liabilities XII. Goodwill and Other Intangible Assets XIII. Tangible Assets XIV. Investment Property XV. Leasing Transactions XVI. Insurance Technical Income and Expense XVII. Insurance Technical Provisions XVIII. Provisions and Contingent Liabilities XIX. Contingent Assets XX. Liabilities Regarding Employee Benefits XXI. Taxation XXII. Additional Information on Borrowings XXIII. Information on Equity Shares and Their Issuance XXIV. Bank Acceptances and Bills of Guarantee XXV. Government Incentives XXVI. Segment Reporting XXVII. Other Disclosures 318 318 318 319 319 319 321 321 322 323 324 326 327 328 330 331 332 332 333 333 334 334 334 335 336 336 336 337 337 338 338 338 338 338 339 339 341 341 341 341 341 341 341 316 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 317 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen SECTION ONE: GENERAL INFORMATION ABOUT THE PARENT BANK The Parent Bank’s shares attributable to the Directors and members of the Audit Committee, to the CEO and the Deputy Chief Executives are of minor importance. I. Explanations on the Establishment Date and Initial Status of the Parent Bank, and History Including the Changes in the Former Status IV. Information on the Parent Bank’s Qualified Shareholders TÜRKİYE İŞ BANKASI A.Ş. (“the Bank” or “the Parent Bank”) was established on August 26, 1924 to operate in all kinds of banking activities and to initiate and/or participate in all kinds of financial and industrial sector undertakings when necessary. There is no change in the Bank’s status since its establishment. II. Explanations on the Capital Structure, Shareholders who Directly or Indirectly, Solely or Jointly Undertake the Management and Control of the Parent Bank, any Changes in the Period, and Information on the Parent Bank’s Risk Group As of December 31, 2021, 37.26% of the Bank’s shares are owned by T. İş Bankası A.Ş. Supplementary Pension Fund (Fund), 28.09% are owned by the Republican People’s Party- CHP (Atatürk’s shares) and 34.65% are on free float (December 31, 2020: Fund 37.08%, CHP 28.09%, Free float 34.83%). III. Explanations on the Chairperson’s, Directors’, Auditors’, Chief Executive Officer’s and Deputy Chief Executives’ Shares, if any, and the Areas of their Responsibility at the Bank Chairperson and Members of the Board of Directors: Name and Surname Areas of Responsibility Adnan Bali Yusuf Ziya Toprak Hakan Aran Feray Demir Ersin Önder Çiftçioğlu Fazlı Bulut Durmuş Öztek Recep Hakan Özyıldız Mustafa Rıdvan Selçuk Ahmet Gökhan Sungur Sadrettin Yurtsever Chairperson of the Board of Directors, Remuneration Committee, Chairperson of the Risk Committee, Sustainability Committee and Chairperson of the Board of Directors Operating Principles Committee and the Member of the Credit Committee Deputy Chairperson of the Board of Directors, Chairperson of the Audit Committee, TRNC Internal Systems Committee and Operational Risk Committee, Member of the Risk Committee and Substitute Member of the Credit Committee Chief Executive Officer and Board Member, Chairperson of the Credit Committee, Human Resources Committee and Information Systems Strategy Committee, Natural Member of the Risk Committee, Chairperson of the Executive Committee Director, Member of the Credit Committee, Corporate Governance Committee, Remuneration Committee, Corporate Social Responsibility Committee, Sustainability Committee, and the Member of the Board of Directors Operating Principles Committee Director, Chairperson of the Sustainability Committee, Member of the Audit Committee and TRNC Internal Systems Committee Director, Member of Corporate Social Responsibility Committee and Substitute Member of the Credit Committee Director, Member of Corporate Social Responsibility Committee, and the Member of the Board of Directors Operating Principles Committee Director Director Director Director, Member of Corporate Governance Committee and Corporate Social Responsibility Committee Chief Executive Officer and Deputy Chief Executives: Name and Surname Areas of Responsibility Hakan Aran Yalçın Sezen Murat Bilgiç Nevzat Burak Seyrek Şahismail Şimşek Ebru Özşuca Gamze Yalçın H. Cahit Çınar Ozan Gürsoy Sezgin Yılmaz Sabri Gökmenler Sezgin Lüle Can Yücel Sezai Sevgin Chief Executive Officer and Member of the Board of Directors, Credit Committee, Chairperson of Human Resources Committee and Information Technologies Strategic Committee Natural Member of Risk Committee, Member of Opertional Risk Committee and Chairperson of the Executive Committee Retail Banking Marketing, Sales and Products, Retail Loans, Digital Banking, Member of the Corporate Social Responsibility Committee and Sustainability Committee Corporate Loans, Commercial Loans and Retail Loans Allocation, Project Finance, Member of the Risk Committee and Sustainability Committee Corporate and Commercial Banking Marketing, Commercial Banking Sales, Transboundary Banking, Free Zone Branches, Member of the Sustainability Committee SME and Enterprise Banking Product and Sales, Agricultural Banking Marketing, Commercial Banking Product, Member of Sustainability Committee Treasury, Economic Research, Capital Markets, Member of the Risk Committee Financial Management, Financial Institutions, Investor Relations and Sustainability, Managerial Reporting and Internal Accounting, Information Technologies Strategic Committee, Member of Risk Committee and Sustainability Committee Legal Consultancy, Associates, Member of the Operational Risk Committee Human Resources Management, Strategic and Corporate Performance Management, Member of Operational Risk Committee and Sustainability Committee Banking Base Operations, Agile Management , Support Services, External Operations and Commercial Loan Operations, Construction and Real Estate Management, Corporate Architecture, Member of Operational Risk Committee, Sustainability Committee and Information Technologies Strategic Committee Information Technologies, Data Management, Acquisition, Member of Operational Risk Committee and Information Technologies Strategic Committee Customer Relations Coordination Responsible, Digital Banking, Customer Relations, Card Payment Ecosystems,Card Payment Operations, Card Payment Products and Member of Operational Risk Committee Legal Affairs and Legal Proceedings, Commercial and Corporate Loans and Retail Loans Proceedings, Loans Monitoring, Credits Portfolio Management, and the Member of the Corporate Social Responsibility Committee Information Security, Internal Control, Corporate Compliance, Natural Member of the Risk Committee, Information Technologies Strategic Committee, Member of the Operational Risk Committee and Sustainability Committee Mr. Serkan Uğraş Kaygalak retired from his position at the Bank At the meeting of the Bank’s Board of Directors dated 28.12.2021, it was decided that Mr. Sezai Sevgin would be appointed as Deputy Chief Executive of the Bank following the necessary notifications and permissions to the Banking Regulation and Supervision Agency. Mr. H. Cahit Çınar participates in the sessions organized on a consolidated basis within the scope of his Membership in the Risk Committee. Name Surname/Company Shares Ownership Paid-in Capital Unpaid Capital T, İş Bankası A.Ş. Mensupları Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı (“İşbank Members’ Supplementary Pension Fund”) Cumhuriyet Halk Partisi – Republican People’s Party (Atatürk’s Shares) 1,676,813 1,264,142 %37.26 %28.09 1,676,813 1,264,142 V. Summary Information on the Parent Bank’s Functions and Business Lines In line with the relevant legislation and principles stated in the Articles of Incorporation of the Bank, the Bank’s activities include operating in retail, commercial, corporate and private banking, foreign currency and money market operations, marketable securities operations, international banking services and other banking operations, as well as initiating or participating in all kinds of financial and industrial sector corporations as may be required. VI. Differences between the Communiqué on Preparation of Consolidated Financial Statements of Banks and Turkish Accounting Standards and Explanation about the Institutions Subject to Full Consolidation Method or Proportional Consolidation and Institutions which are deducted from Equity or not included in these Three Methods Banks are obligated to prepare consolidated financial statements for credit institutions and financial subsidiaries for creating legal restrictions on a consolidated basis based on the “Communiqué on Preparation of Consolidated Financial Statements of Banks” by applying Turkish Accounting Standards. There is not any difference between the related Communiqué and the consolidation operations that is based on Turkish Accounting Standards and Turkish Financial Reporting Standards. The consolidated financial statements in this report includes the subsidiaries of the Bank, which are credit or financial institutions, in accordance with the BRSA regulations. As of current period, there is no credit or financial institution subsidiaries which are excluded in the scope of the consolidation. The Parent Bank and its subsidiaries; - ANADOLU ANONİM TÜRK SİGORTA ŞİRKETİ - ANADOLU HAYAT EMEKLİLİK A.Ş. - EFES VARLIK YÖNETİM A.Ş. - İŞ FAKTORING A.Ş. - İŞ FİNANSAL KİRALAMA A.Ş. - İŞ GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş. - İŞ GİRİŞİM SERMAYESİ YATIRIM ORTAKLIĞI A.Ş. - İŞ PORTFÖY YÖNETIMI A.Ş. - İŞ YATIRIM MENKUL DEĞERLER A.Ş. - İŞ YATIRIM ORTAKLIĞI A.Ş. - İŞBANK AG - JSC İŞBANK - JSC İŞBANK GEORGIA - MAXİS GİRİŞİM SERMAYESİ PORTFÖY YÖNETİMİ A.Ş. - MAXİS INVESTMENTS LTD. - MİLLİ REASÜRANS T.A.Ş. - MOKA ÖDEME VE ELEKTRONİK PARA KURULUŞU A.Ş. - TSKB GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş. - TÜRKİYE SINAİ KALKINMA BANKASI A.Ş. - YATIRIM FİNANSMAN MENKUL DEĞERLER A.Ş. - YATIRIM VARLIK KİRALAMA A.Ş. and Structured Entity; - TIB Diversified Payment Rights Finance Company is included in the consolidated financial statements with “full consolidation method”. The Parent Bank’s associate acting as a credit institution; - ARAP-TÜRK BANKASI A.Ş. is accounted under equity accounting method in the consolidated financial statements. 318 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 319 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Consolidated companies are active in the areas of banking, insurance and reinsurance, private pensions, finance leasing, factoring, real estate investment, venture capital investment, brokerage, investment consulting, portfolio and asset management. Those companies are explained below. Anadolu Anonim Türk Sigorta Şirketi Moka Ödeme ve Elektronik Para Kuruluşu A.Ş. The company was acquired in 2021. The company established of 2014 and it operates in the field of payment services. The title of the company which is called "Moka Ödeme Kuruluşu A.Ş." has been changed to "Moka Ödeme ve Elektronik Para Kuruluşu A.Ş." as of 01.11.2021. The Company was established in 1925 and operates in almost all non-life insurance service. The Company’s shares are traded in the Borsa İstanbul A.Ş. TSKB Gayrimenkul Yatırım Ortaklığı A.Ş. Anadolu Hayat Emeklilik A.Ş. The Company was founded in 1990 and its’ headquarter is located in Istanbul. The company’s main activities are private or group pension and life/death insurance and all kinds of insurance services related to these branches. There are 34 private pension funds offered by the company to the subscribers. The company’s shares are traded in the Borsa Istanbul A.Ş. Efes Varlık Yönetim A.Ş. The field of activity of the company, which was founded in February 2011, is to purchase and sell the receivables with other assets of deposit banks, participation banks and other financial institutions. İş Faktoring A.Ş. The field of operation of the Company, which operates in the factoring sector since 1993, is domestic and foreign factoring operations. İş Finansal Kiralama A.Ş. The core business activity of the Company, which was founded in 2006, is to create and develop an investment property portfolio and to invest in capital market instruments that are based on investment properties. The Company’s shares are traded in the Borsa İstanbul A.Ş. since April 2010. Türkiye Sınai Kalkınma Bankası A.Ş. Türkiye Sınai Kalkınma Bankası A.Ş. (TSKB) which is an industrial development and an investment bank is founded specially to support private sector investments in industry and to provide domestic and foreign capital to Turkish companies. The Bank’s shares are traded in the Borsa İstanbul A.Ş. Yatırım Finansman Menkul Değerler A.Ş. The Company was founded in 1976. The purpose of the Company is to engage in capital market operations stated in its articles of association. Yatırım Varlık Kiralama A.Ş. The purpose of the Company, which is founded in September 20, 2019, is to issue lease certificates exclusively within the framework of the Capital Market Law and related legislation provisions. The Company, whose field of activity is financial leasing within the country and abroad started its business in 1988. The Company’s shares are traded in the Borsa İstanbul A.Ş. VII. Existing or Potential, Actual or Legal Obstacles on the Transfer of Shareholders’ Equity between the Parent Bank and its Subsidiaries or the Reimbursement of Liabilities İş Gayrimenkul Yatırım Ortaklığı A.Ş. None. The Company, whose main field of activity is investing in real estate, capital market instruments backed by real estate, real estate projects and capital market instruments, is conducting its business in the sector as a real estate investment trust since 1999. The Company’s shares are traded in the Borsa İstanbul A.Ş. since its establishment. VIII. Written Policies on Assessment of Ensuring Compliance on Market Discipline, Disclosure Obligations, Frequency and Accuracy of the Related Disclosures The Parent Bank has written policies on assessment of ensuring compliance on market discipline, disclosure obligations, frequency and accuracy of related disclosures. The mentioned policies which are agreed by Board of Directors can be obtained from the Parent Bank’s website. İş Girişim Sermayesi Yatırım Ortaklığı A.Ş. The Company, which started its venture capital business in the year 2000, aims to make long term investments in venture capital firms which established or to be founded in Turkey, have potential development and need resources. The Company’s shares are traded in the Borsa İstanbul A.Ş. since the year 2004. İş Portföy Yönetimi A.Ş. The purpose of the Company, which was founded in 2000, is to engage in capital market operations stated in its articles of association. Among the capital market operations, the company offers portfolio management and investment consulting services only to corporate investors. İş Yatırım Menkul Değerler A.Ş. The Company’s main field of activity is composed of intermediary, corporate finance, investment consulting and private portfolio management services. The Company’s shares are traded in the Borsa İstanbul A.Ş. since May 2007. İş Yatırım Ortaklığı A.Ş. The aim of the Company, which was founded in İstanbul in the year 1995, is to operate in capital market activities which is stated in the principal agreement, and Company’s main field of activities is portfolio management. The Company’s shares are traded in the Borsa İstanbul A.Ş. since April 1996. İşbank AG İşbank AG was founded to carry out the banking transactions in Europe. İşbank AG has 11 branches in total, 10 branches in Germany and 1 branch in Netherlands. JSC İşbank The Bank, which was acquired in 2011 and based in Moscow, is operating banking services as; corporate banking, project finance and foreign trade financing operations with its Moscow Branch and representative offices in St. Petersburg and Kazan. JSC İşbank Georgia The Bank which was established in Georgia in the third quarter of 2015, is operating banking services mainly deposit, loan and exchange transactions. As part of the organizational structure of Parent Bank in abroad, Batumi and Tbilisi branches which were established in 2012 and 2014 respectively proceed its operations as JSC Isbank Georgia. Maxis Girişim Sermayesi Porföy Yönetimi A.Ş. The purpose of the Company, which was founded in November 2017, is to establish and manage capital investment funds in accordance with the Capital Markets Law and related legislations. Maxis Investments Ltd. The purpose of the Company, which was founded in England in the year 2005, is to operate in activities in foreign capital markets. Milli Reasürans T.A.Ş. The Company, which was founded in 1929, aims to provide reinsurance and retrocession services in foreign and domestic branches. It has 1 branch in Singapore. 320 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 321 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Türkiye İş Bankası A.Ş. Consolidated Balance Sheet (Statement of Financial Position) Türkiye İş Bankası A.Ş. Consolidated Balance Sheet (Statement of Financial Position) 264,898 668,883 933,781 203,583 346,271 549,854 VIII. FACTORING PAYABLES SECTION TWO: CONSOLIDATED FINANCIAL STATEMENTS ASSETS Footnotes CURRENT PERIOD (31/12/2021) PRIOR PERIOD (31/12/2020) THOUSAND TL FINANCIAL ASSETS (Net) Cash and Cash Equivalents Cash and Balances with Central Bank Banks Money Market Placements Expected Credit Loss (-) TL FC Total TL FC Total 92,697,746 278,601,171 371,298,917 62,727,896 125,080,583 187,808,479 23,200,606 198,923,187 222,123,793 10,540,314 85,930,760 96,471,074 17,295,382 166,725,843 184,021,225 5,566,057 66,404,333 71,970,390 2,974,478 32,220,764 35,195,242 2,815,653 19,533,980 22,349,633 V-I-a V-I-ç 2,948,099 17,353 44,965 68,385 2,993,064 2,174,268 85,738 15,664 27,259 34,812 2,201,527 50,476 Financial Assets at Fair Value Through Profit or Loss V-I-b 5,768,364 8,712,674 14,481,038 3,745,650 3,054,356 6,800,006 Government Debt Securities Equity Securities Other Financial Assets Financial Assets at Fair Value Through Other Comprehensive Income Government Debt Securities Equity Securities Other Financial Assets Derivative Financial Assets 519,471 6,017,710 6,537,181 168,133 573,788 741,921 2,365,686 460,774 2,826,460 1,345,669 261,922 1,607,591 2,883,207 2,234,190 5,117,397 2,231,848 2,218,646 4,450,494 V-I-d 62,974,176 46,969,483 109,943,659 48,079,020 29,748,250 77,827,270 61,246,085 39,819,974 101,066,059 46,408,231 25,355,465 71,763,696 1,463,193 6,480,626 7,943,819 1,467,206 4,046,514 5,513,720 V-I-c-i 754,600 23,995,827 24,750,427 362,912 6,347,217 6,710,129 1.4.1 Derivative Financial Assets at Fair Value Thorugh Profit or Loss 754,600 23,995,827 24,750,427 362,912 6,347,217 6,710,129 1.4.2 Derivative Financial Assets at Fair Value Thorugh Other Comprehensive Income 0 0 0 0 0 0 Financial Assets Measured at Amortised Cost (Net) 326,322,483 307,111,279 633,433,762 263,081,358 183,553,540 446,634,898 Loans Lease Receivables Factoring Receivables Other Financial Assets Measured at Amortised Cost (Net) Government Debt Securities Other Financial Assets Expected Credit Loss (-) V-I-e 292,585,111 302,937,054 595,522,165 236,661,521 178,069,783 414,731,304 V-I-e-ı 3,642,540 8,682,657 12,325,197 2,710,419 4,993,807 7,704,226 V-I-e V-I-f 5,097,842 1,797,516 6,895,358 3,485,758 1,158,428 4,644,186 45,055,046 6,490,282 51,545,328 38,170,955 7,433,648 45,604,603 44,872,603 3,103,354 47,975,957 38,115,604 5,738,600 43,854,204 182,443 3,386,928 3,569,371 55,351 1,695,048 1,750,399 20,058,056 12,796,230 32,854,286 17,947,295 8,102,126 26,049,421 ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) V-I-n 888,883 Held For Sale Discontinued Operations EQUITY INVESTMENTS 888,883 0 21,918,409 Investments in Associates (Net) V-I-g 316,851 Associates Accounted by using Equity Method Unconsolidated Associates Subsidiaries (Net) Unconsolidated Financial Subsidiaries Unconsolidated Non-Financial Subsidiaries 280,196 36,655 V-I-ğ 21,593,954 0 21,593,954 Joint Ventures (Net) V-I-h 7,604 0 7,604 21,988 21,988 0 0 0 0 0 0 0 0 0 0 0 910,871 910,871 0 1,287,465 15,143 1,287,465 15,143 0 21,918,409 13,052,096 316,851 280,196 36,655 271,231 242,174 29,057 21,593,954 12,775,982 0 0 21,593,954 12,775,982 7,604 0 7,604 4,883 0 4,883 0 0 0 0 0 0 0 0 0 0 0 1,302,608 1,302,608 0 13,052,096 271,231 242,174 29,057 12,775,982 0 12,775,982 4,883 0 4,883 Joint Ventures Accounted by using Equity Method Unconsolidated Joint Ventures TANGIBLE ASSETS (Net) INTANGIBLE ASSETS (Net) Goodwill Other V-I-j V-I-k 11,131,311 275,713 11,407,024 7,928,442 171,512 8,099,954 2,014,282 167,743 2,182,025 1,540,236 113,752 1,653,988 27,994 0 27,994 35,974 0 35,974 1,986,288 167,743 2,154,031 1,504,262 113,752 1,618,014 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 II. 2.1 2.2 2.3 2.4 2.4.1 2.4.2 2.5 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. INVESTMENT PROPERTY (Net) V-I-l 4,601,916 0 4,601,916 3,649,631 0 3,649,631 VIII. CURRENT TAX ASSET IX. X. DEFERRED TAX ASSET OTHER ASSETS (Net) 60,343 14,476 74,819 46,085 2,838 48,923 V-I-m V-I-o 580,561 2,538,415 3,118,976 2,324,870 1,347,866 3,672,736 62,506,945 12,950,409 75,457,354 43,766,791 8,462,159 52,228,950 I. II. III. IV. 4.1 4.2 4.3 V. 5.1 5.2 VI. VII. 7.1 7.2 LIABILITIES Footnotes CURRENT PERIOD (31/12/2021) PRIOR PERIOD (31/12/2020) THOUSAND TL DEPOSITS FUNDS BORROWED MONEY MARKETS SECURITIES ISSUED (Net) Bills Asset Backed Securities Bonds FUNDS Borrower Funds Other FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS TL FC Total TL FC Total V-II-a V-II-c 165,520,943 452,158,260 617,679,203 133,332,439 248,360,954 381,693,393 6,019,498 122,904,185 128,923,683 4,434,966 73,167,922 77,602,888 42,829,398 10,908,455 53,737,853 19,985,947 5,998,700 25,984,647 V-II-ç 8,784,977 39,292,335 48,077,312 7,134,909 32,364,397 39,499,306 5,999,193 757,078 0 0 5,999,193 5,095,133 757,078 377,032 0 0 5,095,133 377,032 2,028,706 39,292,335 41,321,041 1,662,744 32,364,397 34,027,141 11,191 11,191 0 0 680,513 680,513 691,704 691,704 0 0 0 0 6,275 6,275 0 0 115,830 115,830 122,105 122,105 0 0 0 0 DERIVATIVE FINANCIAL LIABILITIES V-II-b-g 7,097,196 6,981,331 14,078,527 1,514,236 7,340,198 8,854,434 Derivative Financial Liabilities at Fair Value Thorugh Profit or Loss 7,097,196 6,981,331 14,078,527 1,514,236 7,340,198 8,854,434 Derivative Financial Liabilities at Fair Value Thorugh Other Comprehensive Income IX. X. 10.1 10.2 10.3 10.4 XI. XII. XIII. 13.1 13.2 XIV. 14.1 14.2 XV. XVI. 16.1 16.2 LEASE PAYABLES PROVISIONS Restructuring Provisions Reserve for Employee Benefits Insurance Technical Provisions (Net) Other Provisions CURRENT TAX LIABILITIES DEFERRED TAX LIABILITIES LIABILITIES RELATED TO ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS Held For Sale Discontinued Operations SUBORDINATED DEBT Loans Other Debt Instruments OTHER LIABILITIES SHAREHOLDERS' EQUITY Paid-in capital Capital Reserves 16.2.1 Share Premium 16.2.2 Share Cancellation Profits 16.2.3 Other Capital Reserves 16.3 16.4 Accumulated Other Compherensive Income or Loss Not Reclassified Through Profit or Loss Accumulated Other Compherensive Income or Loss Reclassified Through Profit or Loss 16.5 Profit Reserves 16.5.1 Legal Reserves 16.5.2 Status Reserves 16.5.3 Extraordinary Reserves 16.5.4 Other Profit Reserves 16.6 Profit or Loss 16.6.1 Prior Periods' Profit or Loss 16.6.2 Current Period Profit or Loss 16.7 Minority Shareholder V-II-f V-II-ğ V-II-h V-II-h V-II-ı 0 0 0 0 0 0 0 0 0 0 0 0 983,934 255,780 1,239,714 756,372 162,368 918,740 27,864,420 7,744,897 35,609,317 20,036,922 3,990,144 24,027,066 0 0 0 0 0 0 2,572,040 4,391 2,576,431 1,618,739 2,192 1,620,931 12,951,315 6,572,513 19,523,828 9,987,925 3,382,651 13,370,576 12,341,065 1,167,993 13,509,058 8,430,258 605,301 9,035,559 2,537,054 24,082 2,561,136 2,836,995 14,987 2,851,982 120,438 4,511 124,949 138,027 6,404 144,431 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 V-II-i 2,296,445 39,182,832 41,479,277 2,286,510 22,139,611 24,426,121 0 0 0 0 0 0 2,296,445 39,182,832 41,479,277 2,286,510 22,139,611 24.426.121 V-II-e V-II-j 74,142,355 9,890,864 84,033,219 50,970,159 6,195,271 57,165,430 98,923,927 -2,755,748 96,168,179 74,597,926 263,794 74,861,720 4,500,000 1,203,468 143,633 0 1,059,835 0 0 0 0 0 4,500,000 4,500,000 1,203,468 1,216,307 143,633 124,549 0 0 1,059,835 1,091,758 0 0 0 0 0 4,500,000 1,216,307 124,549 0 1,091,758 8,054,093 100 8,054,193 4,649,809 100 4,649,909 11,320,953 -3,031,910 8,289,043 4,698,746 -60,675 4,638,071 51,379,015 4,619 51,383,634 44,060,209 4,619 44,064,828 5,832,370 1,930 5,834,300 5,335,033 1,930 5,336,963 225,558 0 225,558 178,599 0 178,599 45,321,087 2,689 45,323,776 38,546,577 2,689 38,549,266 0 0 0 0 0 0 13,085,039 417,874 13,502,913 8,153,556 225,331 8.378.887 -263,478 225,331 -38,147 1,586,175 137,270 1,723,445 13,348,517 192,543 13,541,060 6,567,381 88,061 V-II-k 9,381,359 -146,431 9,234,928 7,319,299 94,419 6,655,442 7,413,718 TOTAL ASSETS 522,722,879 601,681,194 1.124.404.073 399,404,870 318,747,393 718,152,263 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 437,131,776 687,272,297 1,124,404,073 318,031,683 400,120,580 718.152.263 322 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 323 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Türkiye İş Bankası A.Ş. Consolidated statement of off-balance sheet items Türkiye İş Bankası A.Ş. Consolidated statement of off-balance sheet items OFF BALANCE SHEET ITEMS Footnotes CURRENT PERIOD (31/12/2021) PRIOR PERIOD (31/12/2020) OFF BALANCE SHEET ITEMS Footnotes CURRENT PERIOD (31/12/2021) PRIOR PERIOD (31/12/2020) TL FC Total TL FC Total TL FC Total TL FC Total THOUSAND TL THOUSAND TL A. OFF-BALANCE SHEET CONTINGENCIES and COMMTMENTS (I+II+III) 302.695.310 836.880.350 1.139.575.660 229.466.822 482.447.565 711.914.387 GUARANTEES AND SURETYSHIPS V-III 46.412.927 153.202.866 199.615.793 40.128.375 82.758.032 122.886.407 Letters of Guarantee 46.048.608 86.618.355 132.666.963 39.563.027 48.508.183 88.071.210 Guarantees Subject to State Tender Law 865.540 764.138 1.629.678 687.709 535.767 1.223.476 Guarantees Given for Foreign Trade Operations 4.204.824 46.612.126 50.816.950 4.416.349 24.324.692 28.741.041 Other Letters of Guarantee Banks Acceptanees Import Letter of Acceptance Other Bank Acceptances Letters of Credit Documentary Letters of Credit Other Letters of Credit Prefinancing Given as Guarantee Endorsements Endorsements to the Central Bank of Tureky Other Endorsements Purchase Guarantees for Securities Issued Factoring Guarantees Other Guarantees Other Suretyships COMMITMENTS Irrevocable Commitments Forward Asset Purchase Commitments Forward Asset Purchase Commitments Capital Commitments to Associates and Subsidiaries Loan Granting Commitments Securities Underwriting Commitments Commitments for Reserve Deposit Requirements Commitments for Cheque Payments Tax and Fund Liabilities from Export Commitments Commitments for Credit Card Expenditure Limits Commitments for Credit Card and Banking Services Promotions Receivables from Short Sale Commitments Payables from Short Sale Commitments Other Irrevocable Commitments Revocable Commitments 0 111.350 244.637 191.272 53.365 0 0 0 0 0 0 40.978.244 39.242.091 80.220.335 34.458.969 23.647.724 58.106.693 111.350 13.694.523 13.805.873 84.800 8.965.543 9.050.343 582.983 582.983 0 387.585 387.585 13.111.540 13.222.890 84.800 8.577.958 8.662.758 48.629.112 48.873.749 454.945 22.138.966 22.593.911 34.944.022 35.135.294 435.024 16.428.961 16.863.985 13.685.090 13.738.455 19.921 5.710.005 5.729.926 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9.355 16.248 0 0 0 0 0 0 0 0 0 0 0 0 9.355 3.145.340 3.161.588 0 0 8.332 0 4.260.876 4.269.208 0 0 101.316.731 55.685.820 157.002.551 72.767.824 26.364.767 99.132.591 99.221.331 36.748.294 135.969.625 71.400.021 14.882.602 86.282.623 9.373.110 18.354.232 27.727.342 2.250.035 4.322.672 6.572.707 0 0 0 0 157.380 157.380 0 0 0 0 127.172 127.172 34.174.955 1.702.867 35.877.822 24.688.380 1.009.173 25.697.553 0 0 3.291.900 41.377 46.524.830 208.406 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3.291.900 2.641.068 41.377 26.068 46.524.830 37.915.127 208.406 179.370 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.641.068 26.068 37.915.127 179.370 0 0 5.606.753 16.533.815 22.140.568 3.699.973 9.423.585 13.123.558 2.095.400 18.937.526 21.032.926 1.367.803 11.482.165 12.849.968 Revocable Loan Granting Commitments 2.045.400 18.937.526 20.982.926 1.302.803 11.482.165 12.784.968 Other Revocable Commitments 50.000 0 50.000 65.000 0 65.000 DERIVATIVE FINANCIAL INSTRUMENTS 154.965.652 627.991.664 782.957.316 116.570.623 373.324.766 489.895.389 Derivative Financial Instruments Held for Risk Management Fair Value Hedges Cash Flow Hedges Net Foreign Investment Hedges 0 0 0 0 27.012.103 27.012.103 27.012.103 27.012.103 0 0 0 0 0 0 0 0 19.840.766 19.840.766 19.840.766 19.840.766 0 0 0 0 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 1.8 1.9 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 2.1.13 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 Derivative Financial Instruments Held for Trading 154.965.652 600.979.561 755.945.213 116.570.623 353.484.000 470.054.623 Forward Foreign Currency Buy/Sell Transactions 15.504.070 58.953.279 74.457.349 8.922.687 41.994.015 50.916.702 3.2.1.1 Forward Foreign Currency Buy Transactions 11.384.803 25.669.590 37.054.393 6.936.738 18.551.563 25.488.301 3.2.1.2 Forward Foreign Currency Sell Transactions 4.119.267 33.283.689 37.402.956 1.985.949 23.442.452 25.428.401 3.2.2 Currency and Interest Rate Swaps 127.095.137 489.865.606 616.960.743 101.415.909 273.410.206 374.826.115 3.2.2.1 Currency Swap Buy Transactions 3.2.2.2 Currency Swap Sell Transactions 3.2.2.3 Interest Rate Swap Buy Transactions 3.2.2.4 Interest Rate Swap Sell Transactions 9.433.744 177.256.130 186.689.874 6.088.408 96.398.304 102.486.712 116.999.171 81.523.710 198.522.881 93.752.701 29.719.050 123.471.751 331.111 331.111 115.542.883 115.873.994 787.400 73.646.426 74.433.826 115.542.883 115.873.994 787.400 73.646.426 74.433.826 3.2.3 Currency, Interest Rate and Seurity Options 8.943.556 21.274.918 30.218.474 2.003.720 14.257.333 16.261.053 3.2.3.1 Currency Call Options 3.2.3.2 Currency Put Options 3.2.3.3 Interest Rate Call Options 3.2.3.4 Interest Rate Put Options 3.2.3.5 Securities Call Options 3.2.3.6 Securities Put Options 3.2.4 Currency Futures 3.2.4.1 Currency Buy Futures 3.2.4.2 Currency Sell Futures 3.2.5 Interest Rate Futures 3.2.5.1 Interest Rate Buy Futures 3.2.5.2 Interest Rate Sell Futures 3.2.6 Other 4.557.856 6.309.858 10.867.714 1.023.470 3.069.627 4.093.097 4.026.900 6.553.948 10.580.848 707.100 3.346.049 4.053.149 0 0 36.407 322.393 760.477 40.052 720.425 0 0 0 4.205.556 4.205.556 4.205.556 4.205.556 0 0 3.920.016 3.920.016 3.920.016 3.920.016 0 0 36.407 322.393 121.010 152.140 0 1.625 121.010 153.765 1.540.698 2.301.175 3.156.514 2.794.386 5.950.900 1.481.995 1.522.047 507.826 2.647.387 3.155.213 58.703 779.128 2.648.688 146.999 2.795.687 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.662.412 29.345.060 32.007.472 1.071.793 21.028.060 22.099.853 B. CUSTODY AND PLEDGES RECEIVED (IV+V+VI) 920.628.913 1.629.649.597 2.550.278.510 728.033.002 906.245.389 1.634.278.391 ITEMS HELD IN CUSTODY Customers' Securities Held 101.820.670 125.221.499 227.042.169 86.312.364 73.210.438 159.522.802 0 0 0 0 0 0 Investment Securities Held in Custody 73.423.758 8.234.913 81.658.671 67.013.035 6.643.025 73.656.060 Cheques Received for Collection 24.886.014 68.776.278 93.662.292 15.972.224 37.840.329 53.812.553 Commercial Notes Received For Collection 2.994.936 26.962.386 29.957.322 2.873.548 17.306.337 20.179.885 Other Assets Received For Collection Assets Received for Public Offering Other Items Under Custody Custodiands PLEDGED ITEM Marketable Securities Guarantee Notes Commodity Warranty Real Estates Other Pledged Items Pledged Items-Depository ACCEPTED BILL, GUARANTEES AND SURETIES 0 0 0 0 0 0 0 0 0 0 0 0 515.962 21.247.922 21.763.884 453.557 11.420.747 11.874.304 0 0 0 0 0 0 818.808.243 1.504.428.098 2.323.236.341 641.720.638 833.034.951 1.474.755.589 55.405.889 148.526.695 203.932.584 47.823.113 78.780.877 126.603.990 15.393.327 58.309.803 73.703.130 11.883.928 28.867.329 40.751.257 167.725.673 118.466.297 286.191.970 131.913.263 53.111.124 185.024.387 0 0 0 0 0 0 407.968.742 739.657.751 1.147.626.493 352.717.245 432.859.911 785.577.156 172.314.612 439.467.552 611.782.164 97.383.089 239.415.710 336.798.799 0 0 0 0 0 0 0 0 0 0 0 0 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. TOTAL OFF-BALANCE SHEE COMMITMENTS (A+B) 1.223.324.223 2.466.529.947 3.689.854.170 957.499.824 1.388.692.954 2.346.192.778 324 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 325 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Türkiye İş Bankası A.Ş. Consolidated Statement of Profit or Loss INCOME STATEMENT 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 INTEREST INCOME Interest Income on Loans Interest Income on Reserve Deposits Interest Income on Banks Interest Income on Money Market Placements Interest Income on Marketable Market Placements Financial Assets at Fair Value Through Profit or Loss Financial Assets at Fair Value Through Other Compherensive Income Financial Assets at Measured at Amortised Cost Financial Lease Income Other Interest Income INTEREST EXPENSE (-) Interest on Deposits Interest on Funds Borrowed Interest on Money Market Funds Interest on Securities Issued Financial Lease Expense Other Interest Expenses NET INTEREST INCOME (I - II) NET FEES AND COMMISSIONS INCOME Fees and Commissions Received Non-cash Loans Other Fees and Commissions Paid (-) Non-cash Loans Other DIVIDEND INCOME TRADIG INCOME/(LOSS) (Net) Gains/(Losses) on Securities Trading Derivative Financial Transactions Gains/Losses Foreign Exchange Gains/(Losses) OTHER OPERATING INCOME GROSS OPERATING INCOME (III+IV+V+VI+VII) EXPECTED CREDIT LOSS (-) OTHER PROVISION EXPENSES (-) PERSONNEL EXPENSE (-) OTHER OPERATING EXPENSES (-) NET OPERATING INCOME/(LOSS) (VIII-IX-X-XI-XII) AMOUNT IN EXCESS RECORDED AS GAIN AFTER MERGER PROFIT/LOSS FROM ASSOCIATES ACCOUNTED FOR USING THE EQUITY METHOD NET MONETARY POSITION GAIN/LOSS PROFIT/LOSS ON CONTUNUING OPERATIONS BEFORE K/Z (XIII+...+XVI) TAX PROVISION FOR CONTINUING OPERATIONS (±) Current Tax Provision Deferred Tax Income Effect (+) Deferred Tax Expense Effect (-) NET PERIOD PROFIT/LOSS FROM CONTUNUING OPERATIONS (XVII±XVIII) INCOME ON DISCONTINUED OPERATIONS Income on Assets Held for Sale Gain on Sale of Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Other expense on Discontinued Operations EXPENSE ON DISCONTINUED OPERATIONS (-) Expense on Assets Held For Sale Loss on Sale of Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Other expense on Discontinued Operations PROFIT/LOSS ON DISCONTINUED OPERATIONS BEFORE TAX (XX-XXI) TAX PROVISION FOR DISCONTINUED OPERATIONS (±) Current Tax Provision Deferred Tax Expense Effect (+) Deferred Tax Income Effect (-) NET PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XXII±XXIII) NET PERIOD PROFIT/LOSS (XIX+XXIV) Group's Profit/Loss Non-controlling Interest Profit / Loss (-) Earnings per Share (*) (*) Expressed in Exact TL. 326 | İŞBANK 2021 INTEGRATED ANNUAL REPORT Footnotes V-IV-a V-IV-b V-IV-c V-IV-ç V-IV-d V-IV-e V-IV-e V-IV-f V-IV-g V-IV-ğ V-IV-h V-IV-g V-IV-ğ V-IV-h V-IV-ı Türkiye İş Bankası A.Ş. Consolidated Statement of Profit or Loss and Other Comprehensive Income THOUSAND TL CURRENT PERIOD (01/01-31/12/2021) PRIOR PERIOD (01/01-31/12/2020) PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME THOUSAND TL CURRENT PERIOD (01/01-31/12/2021) PRIOR PERIOD (01/01-31/12/2020) 69,449,187 48,414,707 850,107 686,021 401,957 17,499,167 168,216 10,801,345 6,529,606 887,340 709,888 32,530,364 18,048,238 2,612,115 5,396,609 6,048,417 163,612 261,373 36,918,823 6,691,855 10,490,764 1,327,072 9,163,692 3,798,909 12,754 3,786,155 68,548 703,452 1,882,678 -179,759 -999,467 16,883,690 61,266,368 12,667,759 4,142,731 7,715,533 22,665,876 14,074,469 0 4,874,850 0 18,949,319 3,389,061 2,621,921 3,774,382 3,007,242 15,560,258 0 0 0 0 0 0 0 0 0 0 0 0 0 47,960,977 34,768,023 84,960 488,822 116,834 11,565,656 58,357 7,008,929 4,498,370 543,503 393,179 18,898,262 9,483,464 2,344,979 1,584,227 4,733,389 146,707 605,496 29,062,715 4,919,413 7,381,481 1,150,770 6,230,711 2,462,068 6,232 2,455,836 31,057 -1,206,769 1,228,185 -10,138,921 7,703,967 11,733,929 44,540,345 11,379,112 2,770,928 6,301,193 14,877,965 9,211,147 0 1,455,956 0 10,667,103 2,915,351 4,778,594 1,206,397 3,069,640 7,751,752 0 0 0 0 0 0 0 0 0 0 0 0 0 0 15,560,258 13,541,060 2,019,198 0.120362571 0 7,751,752 6,655,442 1,096,310 0.059158301 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 PROFIT/LOSS FOR THE PERIOD OTHER COMPREHENSIVE INCOME Other comprehensive income that will not be reclassified to profit or loss Revaluation Surplus on Tangible Assets Revaluation Surplus on Intangible Assets Gains/(Losses) on remeasurements of Defined Benefit Plans Other Income/Expense Items of Other Comprehensive Income not to be Reclassified to Profit or Loss Taxes Relating to Components of Other Comprehensive Income not to be Reclassified to Profit or Loss Other Income/Expense Items not be reclassified to profit or loss Exchange Differences on Translation Valuation and/or Reclassification Profit or Loss from Financial Assets at Fair Value through Other Comprehensive Income Income/(Loss) Related with Cash Flow Hedges Income/(Loss) Related with Hedges of Net Investments in Foreign Operations 15,560,258 7,207,376 3,824,663 2,692,577 -732,441 1,888,340 -23,813 3,382,713 1,796,559 -1,414,575 Other Income/Expense Items of Other Comprehensive Income to be Reclassified to Other Profit or Loss 2,760,779 Taxes Relating to Components of Other Comprehensive Income to be Reclassified to Profit or Loss 239,950 III. TOTAL COMPREHENSIVE INCOME (I+II) 22,767,634 7,751,752 1,540,414 -195,473 -17,267 -73,754 -121,372 16,920 1,735,887 607,580 1,079,211 262,834 -213,738 9,292,166 İŞBANK 2021 INTEGRATED ANNUAL REPORT | 327 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen I II 2.1 2.2 III IV V VI VII VIII IX X XI 11.1 11.2 11.3 I II 2.1 2.2 III IV V VI VII VIII IX X XI 11.1 11.2 11.3 Türkiye İş Bankası A.Ş. Consolidated Statement of Changes in Shareholders' Equity Türkiye İş Bankası A.Ş. Consolidated Statement of Changes in Shareholders' Equity CHANGES IN SHAREHOLDERS' EQUITY Footnotes Paid-in Capial Share Premium PRIOR PERIOD ( 31/12/2020 ) V-V Accumulated Other Comprehensive Income that will not be reclassified in Profit/(Loss) Accumulated Other Comprehensive Income that will be reclassified in Profit/(Loss) Share Certificate Cancellation Profits Other Capital Reserves Tangable assets accumulated revaluation reserve increase/ (Decrease) Accumulated gains/(losses) on remeasurements of defined benefit plans Other (1) Exchange differences on translation reserve Accumulated gains/ (losses) due to revaluation and/ or reclassification of financial assets measured at fair value through other comprehensive income Other (2) Profit Reserves Prior Period Profit / (Loss) Net Current Period Profit / (Loss) Total Shareholder's Equity Except Non-controlling Interest Non-controlling Interest Total Shareholder's Equity Beginning Balance 4,500,000 39,250 1,087,620 3,466,783 -243,042 1,566,614 1,461,737 477,022 1,021,753 36,844,887 8,413,254 58,635,878 7.065,589 65,701,467 Adjustment in accordance with TAS 8 The Effect on Adjustments The Effect of Changes in Accounting Policies New Balance (I+II) Total Comprehensive Income Capital Increase in Cash Capital Increase Through Internal Reserves Paid-in Capital Inflation adjustment difference Convertible Bonds Subordinated Debt 4,500,000 39,250 1,087,620 3,466,783 -243,042 1,566,614 1,461,737 477,022 1,021,753 36,844,887 8,413,254 58,635,878 7.065,589 65,701,467 -15,212 -59,386 -121,621 608,621 799,041 263,864 6,655,442 8,130,749 1.161,417 9,292,166 Increase/(Decrease) Through Other Changes (*) 85,299 4,138 56,622 -852 3 -3,446 9,708 -229 200,680 315,510 Profit Distribution Dividend Paid Transfer to Reserves Other (**) 7,019,261 -7,005,319 7,005,319 13,942 -7,005,319 667,433 13,942 -630,494 -182,794 -190,292 36,939 -168,852 -190,292 13,942 7,498 21,440 Ending Balance (III+IV+…...+X+XI) 4,500,000 124,549 0 1,091,758 3,508,193 -303,280 1,444,996 2,066,912 1,285,771 1,285,388 44,064,828 1,723,445 6,655,442 67,448,002 7,413,718 74,861,720 CURRENT PERIOD ( 31/12/2021 ) Beginning Balance Adjustment in accordance with TAS 8 The Effect on Adjustments The Effect of Changes in Accounting Policies New Balance (I+II) Total Comprehensive Income Capital Increase in Cash Capital Increase Through Internal Reserves Paid-in Capital Inflation adjustment difference Convertible Bonds Subordinated Debt 4,500,000 124,549 1,091,758 3,508,193 -303,280 1,444,996 2,066,912 1,285,771 1,285,388 44,064,828 8,378,887 67,448,002 7,413,718 74,861,720 4,500,000 124,549 1,091,758 3,508,193 -303,280 2,085,048 -579,952 1,444,996 1,888,340 2,066,912 1,794,485 1,285,771 -902,173 1,285,388 2,757,991 44,064,828 8,378,887 13,541,060 67,448,002 20,584,799 7,413,718 2,182,835 74,861,720 22,767,634 Increase/(Decrease) Through Other Changes (*) 19,084 -31,923 10,816 32 18 651 Profit Distribution Dividend Paid Transfer to Reserves Other (**) 22,664 7,296,142 7,281,290 14,852 Ending Balance (III+IV+…...+X+XI) 4,500,000 143,633 0 1,059,835 5,604,057 -883,232 3,333,368 3,861,415 384,249 4,043,379 51,383,634 -340,005 -8,077,029 -661,415 -7,281,290 -134,324 -38,147 -318,663 -780,887 -661,415 -70,178 -291,447 -299,226 -388,841 -1,072,334 -960,641 -119,472 7,779 -111,693 13,541,060 86,933,251 9,,234,928 96,168,179 (1) Other Comprehensive Income of Associates and Joint Ventures Accounted for Using Equity Method that will not be Reclassified to Profit or Loss and Other Accumulated Amounts of Other Comprehensive Income that will not be Reclassified to Profit or Loss. (2) Accumulated gains/(losses) on cash flow hedges, Other Comprehensive Income of Associates and Joint Ventures Accounted for using equity method that will be classified to Profit/(Loss), Other Accumulated Amounts of Other Comprehensive Income that will be reclassified to Profit or Loss. (*) Includes changes in the Group Shares. (**) In Accordance with TMS 19 "Benefits to Employees", the provisions allocated in the relevant period for the dividend to be distributed to the personnel were added to the distributable profit figure. In the current period, the amount of dividends distributed to bank personnel according to the main contract of the parent Bank is also included. 328 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 329 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Türkiye İş Bankası A.Ş. Unconsolidated Statement of Cash Flows Türkiye İş Bankası A.Ş. Consolidated Statement of Profit Distribution Table CASH FLOWS FROM BANKING OPERATIONS I. DISTRIBUTION OF CURRENT YEAR PROFIT (1) Footnotes CURRENT PERIOD (01/01-31/12/2021) PRIOR PERIOD (01/01-31/12/2020) THOUSAND TL THOUSAND TL CURRENT PERIOD (31/12/2021) PRIOR PERIOD (31/12/2020) Net Cash Provided from Investing Activities -10,310,109 -19,012,653 II. DISTRIBUTION FROM RESERVES 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 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. V. VI. Operating Profit Before Changes in Operating Assets and Liabilities 24,798,475 34,258,222 Interest Received Interest Paid Dividend Received Fees and Commissions Received Other Income Collections from Previously Written off Loans and Other Receivables Cash Payments to Personnel and Service Suppliers Taxes Paid Other 61,253,858 -31,171,346 356,764 10,490,764 8,259,735 3,082,969 -12,745,696 -4,041,939 -10,686,634 V-VI 41,826,344 -18,786,386 252,256 7,381,481 8,424,385 1,689,749 -10,687,883 -4,107,184 8,265,460 1.2 Changes in Operating Assets and Liabilities 79,558,425 -6,144,854 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 Net (Increase) / Decrease in Financial Assets at Fair Value Through Profit or Loss Net (Increase) / Decrease in Due From Banks Net (Increase) / Decrease in Loans Net (Increase) / Decrease in Other Assets Net (Increase) / Decrease in Bank Deposits Net (Increase) / Decrease in Other Deposits Net (Increase) / Decrease in Financial Liabilities at Fair Value Through Profit or Loss Net (Increase) / Decrease in Funds Borrowed Net (Increase) / Decrease in Matured Payables Net (Increase) / Decrease in Other Liabilities -5,146,832 -12,513,917 -63,596,525 -17,844,555 -1,053,465 127,371,908 0 3,054,383 0 49,287,428 V-VI -1,588,087 -4,283,288 -49,982,247 -13,220,708 -620,878 40,951,637 0 -10,764,225 0 33,362,942 Net Cash Provided From Banking Operations 104,356,900 28,113,368 CASH FLOWS FROM INVESTING ACTIVITIES Cash Paid for the Purchase of Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Cash Obtained from sale of Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Cash Paid for the Purchase of Tangible Asset Cash Obtained from sale of Tangible Asset Cash Paid for the Purchase of Financial Assests at Fair Value Through Other Comprehensive Income Cash Obtained from sale of Financial Assests at Fair Value Through Other Comprehensive Income Cash Paid for Purchase of Financial Assests Measured at Amortised Cost Cash Obtained from sale of Financial Assests Measured at Amortised Cost (*) Other CASH FLOWS FROM FINANCING ACTIVITIES Net cash provided from financing activities Cash Obtained from funds borrowed and securities issued Cash used for repayment of funds borrowrd and securities issued Equity Instrumens Dividends Paid Payments for Finance Leases Other Effect of Change in foreign exchange rare on cash and cash equivalents -5,113 0 -830,154 423,335 -44,706,318 35,474,175 -16,224,952 16,481,168 -922,250 -33,500 -24,025 -813,821 322,076 -32,201,013 23,640,507 -16,459,781 7,309,408 -752,504 -12,728,598 -3,278,734 20,594,682 -31,720,839 0 -1,094,965 -507,476 0 28,363,295 -31,014,962 0 -190,292 -436,775 0 -1,317,136 -1,239,044 V-VI V-VI V-VI Net increase in cash and cash equivalents 80,001,057 4,582,937 Cash and cash equivalents at beginning of the period 52,321,545 47,738,608 VII. Cash and cash equivalents at end of the period 132,322,602 52,321,545 (*) Includes Redeemed Financial Assets measured at amortized cost. 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 CURRENT PERIOD PROFIT (2) TAXES AND DUES PAYABLE (-) Corporate Tax (Income Tax) Income Tax Withholding Other Taxes and Dues Payable (3) NET PROFIT FOR THE PERIOD (1.1-1.2) PRIOR YEARS LOSSES (-) FIRST LEGAL RESERVES (-) OTHER STATUTORY RESERVES (-) NET PROFIT ATTRIBUTABLE TO [(A-(1.3+1.4+1.5)] First Dividend to Shareholders (-) To Owners of Ordinary Shares To Owners of Preffered Shares To Preffered Shares (Preemptive Rights) To Profit Sharing Bonds To Holders of Profit / Loss Share Certificates DIVIDENDS TO PERSONNEL (-) DIVIDENDS TO THE BOARD OF THE DIRECTORS (-) SECOND DIVIDEND TO SHAREHOLDERS (-) To Owners of Ordinary Shares To Owners of Privileged Shares To Owners of Preffered Shares To Profit Sharing Bonds To Holders of Profit / Loss Share Certificates STATUTORY RESERVES (-) EXTRAORDINARY RESERVES OTHER RESERVES SPECIAL FUNDS 2.1 2.2 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 2.3 2.4 III. 3.1 3.2 3.3 3.4 IV. 4.1 4.2 4.3 4.4 DISTRIBUTED RESERVES DIVIDENDS TO SHAREHOLDERS (-) To Owners of Ordinary Shares To Owners of Privileged Shares To Owners of Preffered Shares To Profit Sharing Bonds To Holders of Profit / Loss Share Certificates DIVIDENDS TO PERSONNEL (-) DIVIDENDS TO THE BOARD OF DIRECTORS (-) EARNINGS PER SHARE TO OWNERS OF ORDINARY SHARES (4) TO OWNERS OF ORDINARY SHARES ( % ) TO OWNERS OF PREFERRED SHARES (4) TO OWNERS OF PREFERRED SHARES ( % ) DIVIDEND PER SHARE TO OWNERS OF ORDINARY SHARES (4) TO OWNERS OF ORDINARY SHARES ( % ) TO OWNERS OF PREFERRED SHARES (4) TO OWNERS OF PREFERRED SHARES ( % ) 15,475,881 2,007,986 1,057,464 46,314 904,208 13,467,895 0 0 0 13,467,895 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.1197 299 0 0 0 0 0 0 8,861,814 2,044,635 3,788,280 35,506 -1,779,151 6,817,179 0 392,297 152,066 6,272,816 270,000 269,998 2 0 0 0 134,324 0 411,092 411,085 3 4 0 0 0 5,457,400 0 0 0 0 0 0 0 0 0 0 0 0.0605 151 0 0 0.0061 15 0.0018 18 (1) The decision for divdend payment is made at the Annual General Meeting. Annual General Meeting has not been held as of the reporting. (2) Prior Periods' Profit amounting to TL 6,262 which is included to the base of profit distribution, is disclosed in the prior period's net profit amount in the statement. (³) Deferred Tax Expense/Income. (⁴) Expressed in exact TL. Ersin Önder Çiftçioğlu Member of the Board and the Audit Committee Yusuf Ziya Toprak Deputy Chairperson of the Board of Directors and Chairperson of the Audit Committee Adnan Bali Chairperson of the Board of Directors Ali Tolga Ünal Head of Financial Management Division Gamze Yalçın Deputy Chief Executive In Charge of Financial Reporting Hakan Aran Chief Executive Officer 330 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 331 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen SECTION THREE: EXPLANATION ON ACCOUNTING POLICIES I. Basis of Presentation The consolidated financial statements, related notes and explanations in this report are prepared in accordance with the “Regulation on Accounting Applications for Banks and Safeguarding of Documents” and other regulations on accounting records of Banks published by Banking Regulation and Supervision Agency and circulars and interpretations published by Banking Regulation and Supervision Authority, (together referred as “BRSA Accounting and Financial Reporting Legislation”) and requirements of Turkish Financial Reporting Standards (TFRS) published the Public Oversight Accounting and Auditing Standards Authority for the matters not regulated by the aforementioned legislations. COVID-19 outbreak, which started in China and spread globally in the first half of 2020, caused serious effects on both economic and social life. In addition to the social life effects of the cautions taken to ensure the control of outbreak in many countries, there are also consequences observed which is negatively affecting economic activity both on regional and global scale. As in other countries where the pandemic is effective, various cautions also have been taken in our country in social and economic terms. The Bank sustains its activities with the consolidated companies for the period precisely by closely monitoring the processes related to outbreak, postponing retail and non-retail customers' due debts, restructuring with grace period and existing or additional limit allocations in respect with customers’ needs. Assessments regarding to possible effects of the COVID-19 outbreak through the measurement of expected credit losses are explained in the Section Three “VIII. “Explanations on Impairment of Financial Assets”. “Interest Rate Benchmark Reform- Stage 2”, brought changes in various TAS / TFRSs effective from January 1, 2021, was released in December 2020 within the scope of the project of transition of the benchmark interest rates carried out by the International Accounting Standards Board (IASB). The effect of these changes on the Bank's financial statements as of September 30, 2021 has been evaluated and there is no situation that requires early application by the Bank continues to perform required studies to comply with the Interest Rate Benchmark Reform in the current year. According to the statement made by POA on 20.01.2022, it has been stated that there is no need to make any adjustments within the scope of TAS 29 Financial Reporting Standard in Hyperinflationary Economies in the financial statements of 2021, of enterprises that apply TFRS. In this context, while preparing the financial statements dated 31.12.2021, no inflation adjustment was made according to TAS 29. Additional paragraph for convenience translation to English The differences between accounting principles, as described in these preceding paragraphs and accounting principles generally accepted in countries in which consolidated financial statements are to be distributed and International Financial Reporting Standards (“IFRS”) have not been quantified in these consolidated financial statements. Accordingly, these consolidated 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. The accounting policies applied in the current period are in line with the prior period financial statements. The accounting policies and the valuation principles used in the preparation of the consolidated financial statements are presented below in detail. II. Strategy for Use of Financial Instruments and Foreign Currency Transactions 1. The Group’s Strategy on Financial Instruments The Group’s main financial activities comprise a wide range of activities such as banking, insurance and reinsurance services, brokerage services, investment consulting, real estate portfolio and asset management, financial lease, factoring services, portfolio and asset management. The liabilities on the Group’s balance sheet are mainly composed of relatively short-term deposits, parallel to general liability structure of the banking system, which is its main field of activity. As for the non-deposit liabilities, funds are collected through medium and long-term instruments. The liquidity risk that may arise from this liability structure can be easily controlled through deposit continuity, as well as widespread network of the correspondent banks, market maker status (The Parent Bank is one of the market maker banks) and by the use of liquidity facilities of the Central Bank of the Republic of Turkey (CBRT). As a result, the liquidity of the Group and the banking system can be easily monitored. On the other hand, foreign currency liquidity requirements are met by the money market operations and currency swaps. Most of the funds collected bear fixed-interest, and by closely monitoring the developments in the sector, both fixed and floating rate placements are made based on the yields of alternative investment instruments. III. Information on the Consolidated Companies 1. Basis of Consolidation: The consolidated financial statements have been prepared in accordance with the procedures and principles listed in the “Communiqué Related to Regulation on the Preparation of the Consolidated Financial Statements of Banks” published in the Official Gazette numbered 26340 dated November 8, 2006. a. Subsidiaries: A subsidiary is an entity that is controlled by the Parent. Control; is the power of the Parent Bank to appoint or remove from office the decision-taking majority of members of board of directors through direct or indirect possession of the majority of a legal person’s capital irrespective of the requirement of owning minimum fifty-one per cent of its capital; or by having control over the majority of the voting right as a consequence of holding privileged shares or of agreements with other shareholders although not owning the majority of capital. As per the “Communiqué Related to the Preparation of Consolidated Financial Statements of Banks” published in the Official Gazette numbered 26340 dated November 8, there is no subsidiary or financial institution that is not included in the scope of consolidation as of the current period. Detailed information about the Bank’s subsidiaries related to credit and financial institution is given in Section Five Note I.i.3 Under full consolidation method, the assets, liabilities, income and expenses, and off-balance sheet items of subsidiaries are combined with the equivalent items of the Parent Bank. The book value of the Parent Bank's investment in each of the subsidiaries and the Group’s portion of equity of each subsidiary are eliminated. All significant transactions and balances between consolidated subsidiaries are eliminated reciprocally. Non-controlling interests in the net period profit/loss and in the equity of consolidated subsidiaries are calculated separately from the Group’s net period profit/loss and the Group’s shareholders' equity. Non-controlling interests are presented separately in the balance sheet and in the period profit/loss statement. In preparing its consolidated financial statements, the Bank performed necessary corrections to ensure consistency of accounting policies used by consolidated subsidiaries. On the other hand, insurance companies under consolidation are obliged to carry their activities in accordance with the regulations and other legislations issued by Republic of Turkey Ministry t of Treasury and Finance and in the accompanying consolidated financial statements, financial reporting presentations of these companies are maintained in accordance with the insurance legislation. TFRS 3 “Business Combinations” standard prescribes no depreciation to be recognized for goodwill arising on the acquisitions on or after March 31, 2004, realizing positive goodwill as an asset and application of impairment analysis as of balance sheet dates. In the same standard, it is also required from that date onwards that the negative goodwill, which occurs in the case of the Group’s interest in the fair value of acquired identifiable assets and liabilities exceeds the acquisition cost to be recognized in profit or loss. In the current period, positive consolidation goodwill amounting to TL 27,994 resulting from the acquisition of Moka Payment and Electronic Para Organization Inc. is included in the consolidated financial statements. Positive consolidation goodwill amounting to TL 35.974 in the previous period is associated with the results accounts in the current period. The structured entity that is established within the Bank’s securitization loan transactions are included in the consolidated financial statement although the bank does not have any subsidiaries. b. Associates: An associate is a domestic or foreign entity which the Parent Bank participates in its capital and over which it has a significant influence but no control. Significant influence is the power to participate in the financial and operating policy of the investee. If the Parent Bank holds qualified shares in the associate, it is presumed that the Parent Bank has significant influence unless otherwise demonstrated. A substantial or majority ownership by another investor does not necessarily preclude the Parent Bank from having significant influence. Some of the fixed interest liabilities that are issued/used by the Group companies are subject to fair value hedge accounting. The fair value risk of the related fixed interest financial liabilities is protected by interest rate swaps. Explanations on hedge accounting are explained in Section Three, footnote IV.2. Qualified share is the share that directly or indirectly constitutes ten or more than ten percent of an entity’s capital or voting rights and irrespective of this requirement, possession of privileged shares giving right to appoint members of board of directors. The principle of safety is prioritized in placement works, placements are directed to high yield and low risk assets by considering their maturity structures, while taking global and national economic expectations, market conditions, expectations and tendencies of current and potential loan customers, interest rate, liquidity, currency risks and etc, into consideration. In long term placements, a pricing policy aiming at high return is applied in general and attention is paid to maximizing non-interest income generation opportunities. In addition, the Bank and its subsidiaries within the scope of consolidation act in parallel with these strategies and within the legal limits in management of Financial Statements. The primary objectives related to balance sheet components are set by the long-term plans shaped along with budgeting; and the Parent Bank takes the required positions against the short-term currency, interest rates and price fluctuations in accordance with these plans and the course of the market conditions. Foreign currency, interest rate and price fluctuations in the markets are monitored instantaneously. While taking positions, in addition to the legal limits, the Parent Bank’s own transaction and control limits are also effectively monitored in order to avoid limit overrides. The Parent Bank’s asset-liability management is executed by the Asset-Liability Management Committee, within the risk limits determined by the Board of Directors, in order to keep the liquidity risk, interest rate risk, currency risk and credit risk within certain limits depending on the equity adequacy and to maximize profitability. 2. Foreign Currency Transactions The financial statements of the Parent Bank’s branches and financial institutions that have been established abroad are prepared in functional currency prevailing in the economic environment that they operate in; and when they are consolidated, they are presented in TL, which are the functional currency of the Parent Bank and also the currency used in presentation of the financial statements. Foreign currency monetary assets and liabilities on the balance sheet are converted into Turkish Lira by using the prevailing exchange rates at the balance sheet date. Non-monetary items in foreign currencies carried at fair value are converted into Turkish Lira by the rates at the date of which the fair value is determined. Exchange rate differences arising from the conversions of monetary foreign currency items and the collections of and payments in foreign currency transactions are reflected to the income statement. While the Parent Bank and Türkiye Sınai Kalkınma Bankası A.Ş. one of the consolidated subsidiaries, use their own foreign currency exchange rates for their foreign currency transactions, other consolidated institutions residing domestically use the CBRT rates for their foreign currency transactions. Assets and liabilities of the foreign branches of the Parent Bank and financial institutions that have been established abroad are converted into TL by using the prevailing exchange rates at the balance sheet date. Income and expenses of foreign branches are converted by at exchange rates at the dates of the transactions. Incomes and expenses of foreign financial institutions are converted into TL at average foreign currency rates of the balance sheet date as long as there is not a significant fluctuation in currency rates during the period. The exchange rate differences arising from the conversion to TL are recognized in the shareholders’ equity. Equity method is a method of accounting whereby the book value of the investor’s share capital in the subsidiary or the joint venture is either added to or subtracted in proportion with investor’s share from the change in the subsidiary’s or joint venture’s equity within the period. The method also foresees that profit will be deducted from the subsidiaries’ or joint venture’s accordingly recalculated value. Arap-Türk Bankası A.Ş. is a subsidiary of the Bank acting as a credit institution or financial institution, is accounted under the equity method in the consolidated financial statements according to the "Communiqué on the Preparation of Consolidated Financial Statements”. Accounting policies of Arap Türk Bankası A.Ş. are not different than the Parent Bank’s accounting policies. Detailed information about Arap Türk Bankası A.Ş. is given in Section Five Note I.h.2. c. Jointly controlled entities: A joint venture is an agreement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. The Bank does not have any jointly controlled entities which are credit or financial institutions in nature and to be consolidated in the financial statements by the equity method according to the “Regulation on Preparation of Consolidated Financial Statements of Banks”. d. Principles applied during share transfer, merger and acquisition: None. 2. Presentation of subsidiaries, associates and jointly controlled entities which are not credit or financial institutions in consolidated financial statements: The subsidiaries, associates and jointly controlled entities which are not credit or financial institutions owned by the Bank and its subsidiaries are accounted accordingly to the equity method described in TAS 28 “Investments in Associates and Joint Ventures”. IV. Forward, Option Contracts and Derivative Instruments Derivative transactions of the Group consist of foreign currency and interest rate swaps, forwards, foreign currency options and interest rate options. The Group has no derivative instruments decomposed from the main contract. The Group classifies derivative products “Derivative Financial Instruments at Fair Value through Profit or Loss” or ‘’Derivative Financial Instruments through Other Comprehensive Income’’ according to the “TFRS 9-Financial Instruments” principles. 332 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 333 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 1. Derivative Financial Instruments Derivative transactions are recorded at their fair values as of the date of the contract and receivables and payables arising from these transactions are recorded in off- balance sheet accounts. Derivative transactions are measured at their fair values in the reporting periods after their recognition and if the valuation difference is positive, difference is presented under the “Derivative Financial Assets at Fair Value through Profit or Loss” and if the valuation difference is negative, then it is presented under the “Derivative Financial Liabilities at Fair Value through Profit and Loss”. The differences arising from the valuation of derivative transactions are associated with the income statement. On off-balance sheet items table, options which generated assets for the Group are presented under “call options” line and which generated liabilities are presented under “put options” line. 2. Hedging Derivative Financial Instruments TFRS 9 “Financial Instruments” rules that TAS 39 “Financial Instruments: Recognition and Measurement” value hedge accounting may continue to be implemented to hedge the fair value changes against interest rate risk. In this context, the principles of TAS 39 regarding hedge accounting for fair value hedge accounting continue to be applied in the accompanying financial statements. Interest rate swaps are performed in order to hedge the changes in fair value of fixed interest rate financial instruments. In this context, if the valuation differences of the derivative transactions are positive, they are included in “Derivative financial assets at Fair Value through Profit or Loss” and if the valuation differences are negative, they are included in “Derivative Financial Liabilities at Fair Value through Profit or Loss”. Changes in the fair value of the fixed rate financial liabilities subject to hedge accounting and changes in the fair value of interest rate swaps as hedging instruments are recorded under “Trading Profit/Loss” in the income statement. At the beginning of the hedging transaction and in each reporting period, it is expected that the hedging transaction will offset the changes in the hedged risk arising from the hedged transaction (related to the hedged risk) and effectiveness tests are performed in this context. Efficiency tests are carried out with the “Dollar off-set method” and the hedging accounting is continued if the efficiency is between 80% and 125%. The hedge accounting is terminated if the hedging instrument is terminated, realized, sold or the effectiveness test is ineffective. In the case of termination of fair value hedge accounting, the valuation effects of the fair value hedge accounting applied on the hedged financial instruments is reflected to the statement of profit or loss on a straight-line basis over the life of the hedged financial instrument. In some cases, restructuring, alteration or counterparty changes of contractual cash flows of loans may lead to derecognition of related loans in accordance with TFRS 9. When the change in the financial asset results from derecognizing the existing financial asset from the financial statements and the revised financial asset is recognized in the financial statements, the revised financial asset is considered as a new financial asset in accordance with TFRS 9. When it is determined that there are significant changes between the new conditions of the revised financial asset and the first conditions in related agreements, the Group evaluates the new financial asset according to the current business models. When it is determined that the contractual conditions do not only result in cash flows that include principal and interest payments at certain dates, the financial asset is recognized at fair value and is subject to valuation. The differences arising from the valuation are reflected in the nominal accounts. The Group recognizes loans at fair value through profit or loss, if the contractual terms of the loan, do not result in cash flows including the principal payments and interest payments generated from principal amounts at certain dates. These loans are valued at their fair values after their recognition and the losses or gains arising from the valuation are included in the profit and loss accounts. 2. Financial Assets at Fair Value Through Other Comprehensive Income Financial assets at fair value through other comprehensive income are financial assets that are held under a business model that aims both to collect contractual cash flows and to sell financial assets, and financial assets with contractual terms that lead to cash flows that are solely payments of principal and interest on the principle amount outstanding at specific dates. Financial assets at fair value through other comprehensive income are initially recognized at their fair value including their transaction costs on the financial statements. The initial recognition and subsequent valuation of such financial assets, including the transaction costs, are carried out on a fair value basis and the difference between amortized cost and the cost of borrowing instruments is recognized in profit or loss by using the effective interest method. Dividend income arising from investments in equity instruments that are classified as at fair value through other comprehensive income is also recognized in income statements. Gains and losses, except impairment gain or loss and foreign exchange gain or loss, arising from changes in the fair value of financial assets at fair value through other comprehensive income are reflected to other comprehensive income until derecognized or reclassified. When the value of the financial asset is collected or financial asset is disposed, the related fair value differences accumulated in the shareholders’ equity are transferred to the profit/loss statement. During the initial introduction to financial statements, amendments to the fair value of an investment in an equity instrument within the framework of TFRS 9 that are not held for trading or that are not valued in a financial statement of an entity that acquires business combinations under the “TFRS 3 Business Combinations” may be subject to an irreversible preference regarding these amendments being accounted in other comprehensive income. In such case, dividends taken from mentioned investment will be accounted in financial statement as profit or loss. V. Interest Income and Expenses 3. Financial Assets Measured at Amortized Cost Interest income is calculated by using the effective interest rate method (the rate that equals the future cash flows of a financial asset or liability to its present net book value) to gross carrying amount of financial asset in conformity with “TFRS 9 Financial Instruments” except financial asset that is not a purchased or originated credit- impaired financial asset but subsequently has become credit-impaired. Under the scope of TFRS 9 application, the Group does not reverse the interest accruals and rediscounts of non-performing loans and other receivables and monitors the related amounts under interest income and calculates expected credit loss on these amounts according to the related methodology. VI. Fees and Commission Income and Expenses Wages and commissions those that are not an integral part of the effective interest rate of the financial instruments measured at amortized cost are accounted for in accordance with "TFRS 15 - Revenue from Customer Contracts". Fees and commission income and expenses are recognized either on accrual basis or by using the effective interest method. Income earned in return for services rendered contractually or due to operations like sale or purchase of assets on behalf of a third party real person or corporate body are recognized in income accounts in the period of collection. VII. Financial Assets The Bank and its companies within the scope of “TFRS 9 Financial Instruments”, classifies and accounts its financial assets as “Financial Assets at Fair Value Through Profit or Loss”, “Financial Assets at Fair Value Through Other Comprehensive Income” or “Financial Assets at Measured at Amortized Cost” by taking into account their business model and contractual cash flow characteristics. Financial assets are recognized or derecognized according to TFRS 9 “Recognition and Derecognition in Statement of Financial Position” requirements. Financial asset is recognized in the statement of financial position when it becomes party to the contractual provisions of the financial instrument. Financial assets are measured at their fair value on initial recognition in the financial statements. The Group has three different business models for classification of financial assets; • Business model aimed at holding financial assets in order to collect contractual cash flows: Financial assets held under the mentioned business model are managed to collect contractual cash flows over the life of these assets. The Group manages its assets held under this portfolio in order to collect certain contractual cash flows. • Business model aimed at collecting contracted cash flows of financial assets and selling; in this business model, the Group intends both to collect contractual cash flows of financial assets and to sell these assets. • Other business models; A business model in which financial assets; are not held within the scope of a business model aimed at collection of contractual cash flows and within the scope of a business model aimed at collecting and selling contracted cash flows, are measured by reflecting fair value in profit or loss. • The Group is able to reclassify all affected financial assets in case it changes the business model that is used for the management of financial asset. • In the event of the termination of the rights related to the cash flows from a financial asset, the transfer of all risks and rewards of the financial asset to a significant extent or has no longer control of the financial assets, the financial asset is derecognized. 1. Financial Assets at Fair Value Through Profit or Loss Financial assets except financial assets measured at amortized cost or at fair value through other comprehensive income, are measured at fair value through profit or loss. Financial assets at fair value through profit or loss are financial assets held for the purpose of generating profit from short-term fluctuations in price or similar factors in the market or being part of a portfolio for profitability in the short term, regardless of the acquisition reason or financial assets that are not held in a business model that aims at collecting and/or selling contractual cash flows of financial assets. Financial assets at fair value through profit or loss are initially measured at fair value on the balance sheet and are subsequently re-measured at fair value. Gains or losses arising from the valuation are related to profit and loss accounts. Financial assets measured at amortized cost are those financial assets that are held within the framework of a business model aimed at collecting contractual cash flows over the life of the asset and which result in cash flows that include principal and interest on the principal amount outstanding at specific dates. Financial assets measured at amortized cost with the initial recognition at fair value including transaction costs are subject to valuation with their discounted cost value by using the effective interest rate method, after eliminating any provision for impairment if there is any. Interest income measured by using the effective interest rate method are recognized in the income statement as an “interest income”. The Bank and subsidiaries evaluate their loans within the framework of current business models and depending on these evaluations, they can be classified as Financial Assets measured at Amortized Cost. VIII. Impairment of Financial Assets In accordance with the “TFRS 9- Financial Instruments” and the regulation “Procedures and Principals regarding Classification of Loans and Allowances Allocated for Such Loans” issued by BRSA, the Bank recognizes expected credit loss allowance on financial assets at fair value through other comprehensive income, financial assets measured at amortized cost, impaired credit commitments and financial guarantee contracts. Within the scope of TFRS 9, the expected credit loss is calculated according to the “three-stage” impairment model based on the change in the loan quality of financial assets after the initial recognition and detailed in the following headings: Stage 1: An important determinant for calculating the expected credit loss in accordance with TFRS 9 is to assess whether there is a significant increase in the credit risk of the financial asset. Financial assets that have not experienced a significant increase in credit risk since the initial recognition are monitored in the stage 1. Impairment for credit risk for the Stage 1 financial assets is equal to the 12-month expected credit losses. Based on the BRSA's decision dated 17.06.2021 and numbered 9624, until 30.09.2021, the 30-days past due period foreseen for loans, in order to be classified as Stage 2, has been to be applied as 90 days past due for Stage 1 loans. In addition, the Bank provides provisions for customers in this group with a delay of more than 30 days, in accordance with its own risk policies and models, which also evaluate the borrower’s conditions. The 30-days past due period foreseen for loans to be classified as Stage 2, to be applied as 90 days for Stage 1 loans until the date of 30.09.2021 in accordance with the BRSA's decision dated 16.09.2021 and numbered 9795. Stage 2: Financial assets that experienced a significant increase in the credit risk since initial recognition, are transferred to Stage 2. The expected credit loss of these financial assets are measured at an amount equal to the instrument’s lifetime expected credit loss. In order to classify a financial asset in the Stage 2, the following criteria is considered: • Overdue between 30-90 days • Restructuring of the loan • Significant deterioration in the probability of default In other respect, the 30-days past due period foreseen for loans to be classified as Stage 2, to be applied as 90 days for Stage 1 loans until the date of 30.09.2021 in accordance with the BRSA's decision dated 17.06.2021 and numbered 9624. For the abovementioned group with a past due date more than 90 days, the Bank allocates provisions in accordance with its risk policies and applies grouping approach and models in which also evaluate the borrower's conditions. 334 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 335 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen The 30-days past due period foreseen for loans to be classified as Stage 2, to be applied as 90 days for Stage 1 loans until the date of 30.09.2021 in accordance with the BRSA's decision dated 16.09.2021 and numbered 9795. Funds obtained from the repurchase agreements are recognized under “Funds from Repurchase Transactions” account in liabilities. For the difference between the sale and repurchase prices determined by the repo agreements for the period; expense accrual is calculated using the effective interest rate method. In case of a significant deterioration in the probability of default, the credit risk is considered to be increased significantly and the financial asset is classified as stage 2. The absolute and gradual thresholds used to increase the probability of default are differentiated on the basis of portfolio and product group. In this manner, for the commercial portfolio, definition of increase in the probability of default is the comparison between the probability of default on loan’s opening date, obtained from the integrated rating/score based on internal rating and probability of default of the same loan on reporting date, obtained from the integrated rating/score based on internal rating. For the individual portfolio, it is accepted that the probability of default is worsened in cases where the behavioral score falls below the thresholds determined on the basis of the product and the probability of default exceeds the thresholds determined on the basis of the product. Stage 3: Financial assets with sufficient and fair information for impairment at the reporting date, are classified in the third stage. Expected credit loss of these financial assets is measured at an amount equal to the lifetime expected credit loss. The following basic factors are considered for the classification of a financial asset in the stage 3. • More than 90 days past due • Whether the credit rating is weakened, has suffered a significant weakness or cannot be collected or there is a certain opinion on this matter In other respect, based on the BRSA's decision dated 17.06.2021 and numbered 9624, the 90-days past due period for classifying loans as non-performing loans is applied as 180 days until 30.09.2021. Based on the BRSA's decision dated 16.09.2021 and numbered 9795, the implementation of the 90-day past due period for the classifying loans as non-performing loans as 180 days has been terminated by the end of 30.09.2021. While estimating the expected credit loss, statistical models, methods and tools are used in accordance with the relevant legislation and accounting standards. Expected credit loss is measured using reasonable and supportable information by taking current and forecasts of future economic information into consideration, including macroeconomic factors. Three scenarios, base scenario, optimistic scenario and the worst scenario, are used in forecasting studies made by macroeconomic models. The variables used in these macroeconomic estimates include Industrial Production Index, Employment Ratio and Credit Default Swap indicators. The validity of the risk parameter estimates used in the calculation of expected credit losses is reviewed and evaluated at least annually within the framework of model validation processes. Macroeconomic forecasts and risk delinquency data used in risk parameter models are re-evaluated every quarter to reflect the changes in economic conjuncture and are updated if needed. In the expected credit loss calculations, macroeconomic information is taken into account under multiple scenarios. In this framework, as a result of the review activities carried out in June 2021, the probability of default models and macroeconomic models that associate default probabilities with macroeconomic variables have been updated; Future estimates have also been updated. In December 2021, the macroeconomic forecasts in our Bank's Business Program for 2022, which were approved by the Board of Directors, started to be used. Except for demand or revolving loans, the maximum period for which expected credit losses are to be determined is the contractual life of the financial asset. For demand or revolving loans, maturity is determined by taking the future risk mitigation processes into account such as behavioral maturity analyses performed by the Bank and cancellation/revision of the Bank’s credit limit. While calculating the expected credit loss, aside from assessment of whether there is a significant increase in credit risk or not, basic parameters expressed as probability of default, loss given default and exposure at default are used. Probability of Default: Represents the probability of default on the loan over a specified time period. In this context, the Bank has developed models to calculate 12-month and life-time default probabilities by using internal rating based credit rating models. As for the Group Companies historical probability of default data has also been observed. Loss Given Default (LGD): Defined as the damage caused by the default of borrower to the total balance of the exposure at the time of default. The LGD estimates are determined in terms of credit risk groups that are detailed in the Bank’s data resources and system facilities. The model used for the estimation of the LGD was established by taking into account the direct cost items during the collection process based on the historical data of the Bank’s collection, and cash flows are discounted at effective interest rates. Exposure at Default: For cash loans, the cash balance at the date of report, for non-cash loans the balance calculated using the Credit Conversion Factor (CCF) is represented by Exposure at Default. Credit Conversion Factor: It is calculated for non-cash loans (undrawn limit for revolving loans, commitments, non-cash loans etc.) The historical limit usage data of the Bank for revolving loans are analyzed and the limit amount that can be used until the moment of default is estimated. For non-cash loans, the cash conversion ratio of the loan amount is estimated by analyzing the product type and the past compensation amount of the Group. Credit risks, which require qualitative assessments due to their characteristics and differ followed by grouping in this manner, are considered as individual within the internal policies. Calculations are made by the method of discounted cash flows with the effective interest rate expected from the relevant financial instrument. Discounted cash flows are estimated for 3 different scenarios in which parameters are differentiated, and individual expected credit loss is calculated by taking into consideration the cash deficit amounts weighted according to probabilities. Developments recorded in the Bank, the world and the Turkish economy, and besides that, as mentioned above, the Bank allocated expected credit losses by reflecting additional provisions through individual assessments performed for the customers that operates in sectors where the impact might be high in accordance with the Bank’s risk policies. Expected credit loss is reflected in the income statement. Released provisions in the current year are accounted under “Expected Credit Loss Expenses” and released provision which is carried from the prior year are accounted under “Other Operating Income”. Receivables evidenced through the Legal Process that collection is not possible can be written-off by fulfilling the requirements of the Tax Procedure Law. Besides, loans for which specific provision is allocated and for which there is no reasonable expectation of recovery might be written-off. IX. Offsetting Financial Instruments Financial assets and financial liabilities shall be offset and the net amount shall be presented in the balance sheet only when a party currently has a legally enforceable right to set off the recognized amounts or intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. X. Sale and Repurchase Agreements and Securities Lending Transactions Marketable securities subject to repurchase agreements are classified under “Financial Assets at Fair Value through Profit and Loss”, “Financial Assets at Fair Value through Other Compre hensive Income” or “Financial Assets Measured at Amortized Cost” in the portfolio and they are valued according to the valuation principles of the related portfolios. Reverse repo transactions are recognized under the “Receivables from Reverse Repo Transactions” account. For the difference between the purchase and resale prices determined by the reverse repo agreements for the period, income accrual is calculated using the effective interest rate method. XI. Non-current Assets Held for Sale and Discontinued Operations and Related Liabilities Assets that meet the criteria to be classified as held for sale within the scope of “IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations” are measured at the lower one of their fair value and their carrying amount which from the costs to sell are deducted and presented separately within the financial statements. In order to classify a tangible fixed asset as held for sale, the asset (or the disposal group) should be available for an immediate sale in its present condition subject to the terms of any regular sales of such assets (or such disposal groups) and the sale should be highly probable. For a highly probable sale, the appropriate level of management must be committed to a plan to sell the asset (or the disposal group), and an active programme to complete the plan should be initiated to locate a customer. Also, the asset (or the disposal group) should have an active market sale value, which is a reasonable value in relation to its current fair value. Events or circumstances may extend the completion of the sale more than one year. Such assets are still classified as held for sale if there is sufficient evidence that the delay in the sale process is due to the events and circumstances occurred beyond the control of the entity or the entity remains committed to its plan to sell the asset (or disposal group). A discontinued operation is a component of a group that either has been disposed of or is classified as held for sale. Gains or losses relating to discontinued operations are presented separately in the income statement. XII. Goodwill and Other Intangible Assets The Group’s intangible assets consist of consolidation goodwill, software programs and rights. Goodwill arising from the acquisition of a subsidiary represents the excess of cost of acquisition over the fair value of Group’s share of the identifiable assets, liabilities, or contingent liabilities of the acquired subsidiary at the date of acquisition of the control. Goodwill is recognized as an asset at cost and then carried at cost less accumulated impairment losses. In impairment-loss test, goodwill is allocated between the Group’s every cash-generating unit that is expected to benefit from the synergies of the business combination. To control whether there is an impairment loss in the cash-generating units that goodwill is allocated, impairment- loss test is applied every year or more often if there are indications of impairment loss. In the cases, recoverable amount of cash-generating unit is smaller than its book value; impairment loss is firstly used in reduction of book value of the cash-generating unit, and then the other assets proportionally. Goodwill which is allocated for the impairment losses could not be reversed. When a subsidiary is to be sold, related goodwill amount is combined with the profit/loss relating to this disposal. Positive goodwill arising from the Group’s investments in its subsidiaries is recognized in “Intangible Assets”. Explanations on consolidation goodwill are given in Section Three, Note III.1.a.As for other intangible assets, the purchased items are presented with their acquisition costs less the accumulated amortization and impairment provisions. In case there is an indication of impairment, the recoverable amount of the related intangible asset is estimated within the framework of TAS 36 “Impairment of Assets” and impairment provision is set aside in case the recoverable amount is below its acquisition cost. The related assets are amortized by the straight-line method considering their estimated useful life. The amortization method and period are periodically reviewed at the end of each year. XIII. Tangible Assets The Bank and Group companies follow their real estates in use, which are recorded under tangible fixed assets, according to the revaluation model within the framework of "TAS 16 – Property, Plant and Equipment" since 2015. The positive difference between the net book value of real estate property values and the renewed expertise values which are determined by the licensed valuation in 2021companies are recorded under the shareholders’ equity. In case there is an indication of impairment, the recoverable amount of the related intangible asset is estimated within the framework of “TAS 36 – Impairment of Assets” and impairment provision is set aside in case the recoverable amount is below its acquisition cost. Tangible assets other than the land and construction in progress are amortized by the straight-line method, according to their estimated useful lives. The estimated useful life, residual amount and the method of amortization are reviewed every year for the possible effects of the changes that occur in the estimates and if there is any change in the estimates, they are recognized prospectively. Assets held under finance lease are depreciated over the expected useful life of the related assets. Assets subject to leasing are depreciated according to relevant contract periods. Leasehold improvements are amortized in equal amounts considering their useful life. However, in any case the useful life cannot exceed leasing term. When the lease period is not certain or longer than 5 years, the amortization period is recognized as 5 years. The difference between the sales proceeds arising from the disposal of tangible assets or the inactivation of tangible asset and the book value of the tangible assets are recognized in the profit and loss accounts. Regular maintenance and repair cost incurred for tangible assets are recognized as expense. There are no pledges, mortgages and similar encumbrances on tangible assets. The “Regulation on Procedures and Principles for the Trading of Precious Metals by Banks and the Disposal of Commodities and Real Properties acquired by Banks due to their Receivables” has been abolished by BRSA effective from January 1, 2017. Real properties acquired by Group due to their receivables and not treated in the scope of “TFRS 5 - Non-current Assets Held for Sale and Discontinued Operations" has been started to follow under “Other Assets” in accordance with the related accounting standard from the current period. The depreciation rates used in amortization of tangible assets and their estimated useful lives are as follows: Buildings Safe Boxes Other Movables 50 2-50 2-25 2% 2% - 50% 4% - 50% Estimated Economic Life (Year) Depreciation Rate 336 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 337 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen XIV. Investment Property Investment properties are kind of properties held by the Group to earn rent income or benefit from valuation surplus. The investment properties of the Group are measured at their fair values in the consolidated financial statements in accordance with “TAS 40 Investment Property”. Any gains or losses arising from changes in fair values of investment properties are recognised in “Other Operating Incomes” and “Other Operating Expenses” for the related period. XV. Leasing Transactions Assets acquired through financial leases are carried at the lower of their fair values or amortized value of the lease payments. Leasing payables are recognized as liabilities in the balance sheet while the interest payable portion of the payables is recognized as a deferred amount of interest. Finance lease payments are separated as financial expense and principal amount payment, which provides a decrease in finance lease liability, thus helps a fixed rate interest on the remaining principal amount of the debt to be calculated. Within the context of the consolidation general borrowing policy, financial expenses are recognized in the income statement. Assets held under financial leases are recognized under the tangible assets account and are depreciated by using the straight line method. There is one company which exclusively does finance leases (İş Finansal Kiralama A.Ş.) and one bank (Türkiye Sınai Kalkınma Bankası A.Ş.) which operates finance lease activities as per provisional article No 4 of the Banking Law No 5411. Finance lease activities are operated according to the “Law on Financial Leasing. Factoring and Financing” No 6361. The Bank and the Companies in scope of consolidation have accounted for recognized operating leases in accordance with the TFRS 16 "leases" standard. Operating leases within the framework of the aforementioned standard are monitored in a similar manner to financial leases. For the agreements within the scope of TFRS 16, the right-of-use-asset and the lease payments are reflected to the financial statements and they are presented under "Tangible Assets" and "Liabilities from Financial Leases", respectively. The lease liability is calculated by discounting the future lease payments by the use of the Banks or alternative borrowing interest rates at the date of initial application or contract date. Fixed assets, which are accounted as right-of-use assets, are subject to depreciation considering the period of the contract. Interest expenses and foreign exchange differences related to the lease liabilities are associated with profit and loss statement. XVI. 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 these provisions. XVII. Insurance Technical Provisions TFRS 4 “Insurance Standards” 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 considered investment contracts. Investment 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 reserves, outstanding claims and life-mathematical reserves are presented in the consolidated financial statements. Unearned premium reserve is recognized on accrued premiums without discount or commission which extends to the next period or periods on a daily basis for the current insurance contracts. In case the expected loss premium ratio is over 95%, the unexpired risk reserves are recognized for the main branches specified by the Undersecretariat of Treasury. For each main branch, the amount found by multiplying the ratio exceeding 95% by the net unearned premium provision, is added to the unearned premium provision of that main branch. If the outstanding claim reserve is established and confirmed by approximation and if there are unpaid or unidentified compensation amounts in both prior and current accounting periods; it is separated for estimated yet unreported compensation amounts. XIX. Contingent Assets The contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the Parent Bank and the Group. Since showing the contingent assets in the financial statements may result in the accounting of an income, which will never be generated, the related assets are not included in the financial statements, but if there is a possibility that an inflow of economic benefits of these assets may occur then it is explained in the footnotes of the financial statements. Nevertheless, the developments related to the contingent assets are constantly evaluated and if it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognized in the financial statements of the period in which the change occurs. XX. Liabilities Regarding Employee Benefits 1. Severance Indemnities and Short-Term Employee Benefits According to the related regulation and the collective bargaining agreements, the Parent Bank and consolidated Group companies (excluding the subsidiaries residing outside Turkey) are obliged to pay termination benefits for employees who retire, die, quit for their military service obligations, who have been dismissed as defined in the related regulation or (for the female employees) who have voluntarily quit within one year after the date of their marriage. Within the scope of TAS 19 “Employee Benefits”, the Parent Bank allocates severence indemnity provisions for employee benefits by estimating the present value of the probable future liabilities. According to TAS 19, all actuarial gains and losses occurred are recognized under shareholders’ equity. As the legislations of the countries in which the Parent Bank’s non-resident subsidiaries operate do not require retirement pay provision, no provision liability has been recognized for the related companies. In addition, provision is also allocated for the unused paid vacation. 2. Retirement Benefit Obligations İşbank Pension Fund (Türkiye İş Bankası A.Ş. Emekli Sandığı Vakfı), of which each employee of the Parent Bank is a member, has been established according to the provisional Article 20 of the Social Security Act No 506. As per provisional article numbered 23 of the Banking Law numbered 5411, it is ruled that Bank pension funds, which were established within the framework of Social Security Act, will be transferred to the Social Security Institution, within 3 years after the publication of such law. Methods and principles related to transfer have been determined as per the Cabinet decision dated 30 November 2006 numbered 2006/11345. However, the related article of the act has been cancelled upon the President’s application dated November 2, 2005, by the Supreme Court’s decision dated March 22, 2007. Nr.E.2005/39. K.2007/33, which was published on the Official Gazette dated March 31, 2007 and numbered 26479 and the execution decision was ceased as of the issuance date of the related decision. After the justified decree related to cancelling the provisional Article 23 of the Banking Law was announced by the Constitutional Court on the Official Gazette dated December 15, 2007 and numbered 26731. Turkish Grand National Assembly started to work on establishing new legal regulations, and after it was approved at the General Assembly of the TGNA, the Law numbered 5754 “Emendating Social Security and General Health Insurance Act and Certain Laws and Decree Laws”, which was published on the Official Gazette dated May 8, 2008 and numbered 26870, came into effect. The new law decrees that the contributors of the Bank pension funds, the ones who receive salaries or income from these funds and their rightful beneficiaries will be transferred to the Social Security Institution and will be subject to this Law within 3 years after the release date of the related article, without any need for further operation. The three-year transfer period can be prolonged for maximum 2 years by the Cabinet decision. However related transfer period has been prolonged for 2 years by the Cabinet decision dated, March 14, 2011. which was published on the Official Gazette dated April 9, 2011 and numbered 27900, In addition, by the Law “Emendating Social Security and General Health Insurance Act”, which was published on the Official Gazette dated March 8, 2012 and numbered 28227, this period of 2 years has been raised to 4 years after that related transfer period has been prolonged for one more year by the Cabinet decision dated April 8, 2013, which was published on the Official Gazette dated May 3, 2013 and numbered 28636 also this period has revalidated one more year by the Cabinet decision dated February 24, 2014, which was published on the Official Gazette dated April 30, 2014 and numbered 28987. The Council of Ministers has been lastly authorized to determine the transfer date in accordance with the last amendment in the first paragraph of the 20th provisional article of Law No.5510 implemented by the Law No. 6645 on Amendment of the “Occupational Health and Safety Law and Other Laws and Decree Laws” published in the Official Gazette dated April 23, 2015 and numbered 29335. This authority was transferred to the President with the delegated legislation No.703 which published in the repetitive Official Gazette No. 30473 dated July 9, 2018. On the other hand, the application made on June 19, 2008 by the Republican People’s Party to the Constitutional Court for the annulment and motion for stay of some articles, including the first paragraph of the provisional article 20 of the Law, which covers provisions on transfers, was rejected in accordance with the decision taken at the meeting of the afore-mentioned court on March 30, 2011. Mathematical reserve is recognized on actuarial bases in order to meet the requirements of policyholders and beneficiaries for life, health and personal accident insurance contracts for a period longer than a year. The above mentioned Law also states that; On the other hand, actuarial chain 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 for the amount of uncertain indemnity, additional reserve must be set aside for the difference. Reinsurance companies recognize for the 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 contracts 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. Costs which vary and are directly 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. XVIII. Provisions and Contingent Liabilities As of the end of the reporting period, a past event is deemed to give rise to a present obligation if, taking account of all available evidence, it is more likely than not that a present obligation exists, the entity recognizes a provision in the financial statements. As of the end of the reporting period where it is more likely that no present obligation exists at the end of the reporting period, the entity discloses a contingent liability on footnotes unless the possibility of an outflow of resources embodying economic benefits is remote. In the financial statements, a provision is made for an existing commitment resulted from past events if it is probable that the commitment will be settled and a reliable estimate can be made of the amount of the obligation. Provisions are calculated based on the reliable estimates of management of the Parent Bank and subsidiaries on the expenses to incur as of the balance sheet date to fulfill the liability by considering the risks and uncertainties related to the liability. In case the provision is measured by using the estimated cash flows required to fulfill the existing liability, the book value of the related liability is equal to the present value of the related cash flows. If the amount is not reliably estimated and there is no probability of cash outflow from the Group to settle the liability, the related liability is considered as “contingent” and disclosed in the notes to the financial statements. • Through a commission constituted by the attendance of one representative separately from the Social Security Institution, Ministry of Finance, Turkish Treasury, State Planning Organization. Banking Regulation and Supervision Agency. Savings Deposit Insurance Fund, one from each pension fund, and one representative from the organization employing pension fund contributors, related to the transferred persons, the cash value of the liabilities of the pension fund as of the transfer date will be calculated by considering their income and expenses in terms of the lines of insurance within the context of the related Law, and technical interest rate of 9.8% will be used in the actuarial calculation of the value in cash • And that after the transfer of the pension fund contributors, the ones who receive salaries or income from these funds and their rightful beneficiaries to the Social Security Institution, these persons’ uncovered social rights and payments, despite being included in the trust indenture that they are subject to, will be continued to be covered by the pension funds and the employers of pension fund contributors. In line with the new law, the Bank obtained a technical actuarial valuation report from a licensed actuary for the year ended December 31, 2021. In related period’s financial statements, Bank provided full provision for the total amount of technical and actual deficit stated in the actuarial report of the aforementioned period The actuarial assumptions used in the related actuarial report are given in Section Five Note II-h-4-1. Besides the Parent Bank; Anadolu Anonim Türk Sigorta Şirketi, Milli Reasürans T.A.Ş. and Türkiye Sınai Kalkınma Bankası A.Ş. also had actuarial valuations as of December 31, 2021 for their pension funds. The provision amount of actuarial and technical deficit, which was measured according to actuarial report of Milli Reasürans T.A.Ş., is added in the financial statements for the current period. According to actuarial report of Anadolu Anonim Türk Sigorta Şirketi and Türkiye Sınai Kalkınma Bankası, there is not any additional operational or actuarial liability. İşbank Members’ Supplementary Pension Fund has been founded by the Parent Bank to provide beneficiaries with additional social security and solidarity rights to compulsory social security benefits as per the provisions of the Turkish Commercial Code and Turkish Civil Code. Those are also valid for the supplementary pension funds of the employees of Anadolu Anonim Türk Sigorta Şirketi, Milli Reasürans T.A.Ş. and Türkiye Sınai Kalkınma Bankası A.Ş. which are among the other financial institutions of the Group. XXI. Taxation 1. Corporate Tax: Turkish tax legislation does not permit a parent company and its subsidiary to file a consolidated tax return. Therefore, provisions for taxes, as reflected in the accompanying consolidated financial statements, have been calculated on a separate-entity basis. In accordance with the Provisional Article 13 added to the Corporate Tax Law Numbered 5520 with the Law Numbered 7316, the 20% rate foreseen in the calculation of the corporate tax for the corporate earnings of the 2021 taxation period is determined as 25% (starting from the declarations to be submitted as of July 1, 2021 and to be valid for the corporate earnings for the taxation period starting from January 1, 2021), and as 23% for the corporate earnings for the 2022 taxation period. In this context, the Corporate Tax rate as of September 30, 2021 is 25%. 338 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 339 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen As per the Corporate Tax law, temporary tax is calculated and paid quarterly in line with the principles of the Income Tax Law and at the corporate tax rate. The temporary tax payments are deducted from the current period’s corporate tax. The 3rd provisional tax for the year 2021 will be paid in November 2021 for to be deducted from the corporate tax of the current taxation period. Tax provision consists of current tax provision and deferred tax income/expense. The current tax liability is calculated over the portion of the period subject to taxation. The taxable profit differs from the profit involved in the statement of profit and loss, as the income and expense items that can be taxable or deductible at other periods, and items that are not taxable or deductible are excluded. The current tax amounts payable are netted off with prepaid tax amounts and presented on the financial statements. Within the framework of the Corporate Tax Law numbered 5520, 75% of the gains on the sale of the participation shares, which were held in the assets for a minimum of 2 whole years and 75% of the gains on the sale of immovable are exempt from tax provided that they are added to the capital as set forth by the Law or that they are kept in a special fund under liabilities for a period of 5 years. However, in accordance with Article 89 / a of the Law No. 7061 and Article 5.1.e and Article 5.1.f of the Corporate Tax Law, which were published in the Official Gazette dated December 5, 2017 and numbered 30261, the 75% applied in terms of immovable sales mentioned above has been reduced to 50% which is effective from the date of publication of the Law. In accordance with the provision of Article 298 / A of the Tax Procedure Law, the necessary conditions for inflation adjustment in the calculation of corporate tax as of the end of the 2021 calendar year have been met. However, the application of inflation adjustment in the calculation of corporate tax was postponed to 2023 with the regulation made with the "Law on the Amendment of the Tax Procedure Law and the Corporate Tax Law" numbered 7352 published in the Official Gazette dated 29.01.2022 and numbered 31734. Accordingly, VUK (Tax Procedure Law) financial statements for the 2021 and 2022 accounting periods, including the provisional tax periods, will not be subject to inflation adjustment, and the 2023 accounting period will not be subject to inflation adjustment as of the temporary tax periods. will be subject to inflation adjustment regardless. 2. Deferred Tax: Deferred tax asset or liability is determined by calculating the tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and the amounts considered in the legal tax base account, by taking the legal tax rates into account. Deferred tax debts are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Free provisions that are allocated for possible future risks and they are not subject to deferred tax calculation. No tax assets or liabilities are recognized for the temporary timing difference that affects neither the taxable profit nor the accounting profit and that arises from the initial recognition in the balance sheet, of assets and liabilities, other than the goodwill and mergers. The Bank calculates deferred tax for the provisions allocated for Stage 1 and Stage 2 expected credit loss. The carrying values of deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is measured at enacted tax rates prevailing in the period or about to be enacted when the assets are realized or liabilities are settled, and the tax is recognized as income or expense in the income statement. Nonetheless, if the deferred tax is related to assets directly associated with the equity in the same or different period, it is directly recognized in the equity accounts. In accordance with the Provisional Article 13 added to the Corporate Tax Law Numbered 5520 with the Law Numbered 7316, the 20% rate foreseen in the calculation of the corporate tax for the corporate earnings of the 2021 taxation period is determined as 25% (starting from the declarations to be submitted as of July 1, 2021 and to be valid for the corporate earnings for the taxation period starting from January 1, 2021), and as 23% for the corporate earnings for the 2022 taxation period. The Bank has calculated deferred tax by using 20%, 23%, 25% rates considering the periods when deferred tax assets and liabilities are realized. Deferred tax assets and liability of the Bank and consolidated companies are shown by way of offsetting in separate financial statements of each entities. In the consolidated financial statements, on the other hand, the deferred tax assets and liabilities that come from the companies as offset are separately involved in the assets and liabilities. 3. Tax Practices in the Countries that Foreign Branches Operate: Turkish Republic of Northern Cyprus (TRNC) In accordance with TRNC tax legislation, 15% income tax is accrued on the remaining tax base after 10% corporate tax is deducted from corporate income. The tax bases for companies are determined by adding the expenses that cannot be deducted according to TRNC regulations, to commercial gains and by subtracting exemptions and deductions from commercial gains. Income tax is paid in June, and corporate tax payment is made in two equal installments, in May and in October. On the other hand, withholding tax is paid in TRNC over interest income and similar gains of the companies. The related withholding tax payments and provisional tax paid every quarter during the year are deducted from corporate tax payable and the difference between withholding and provisional tax amounts and corporate tax payable is discounted from income tax provided that the withholding tax and paid provisional tax amounts are higher than corporate tax amount. England Corporate earnings are subject to 19% corporate tax in England. The relevant rate is applied to the tax base that is determined by adding the expenses that cannot be deducted due to the regulations, to commercial gains and by subtracting exemptions and deductions from commercial gains. In other respect, if the tax base calculated in accordance with the country legislation is within a certain range, the temporary corporate tax is paid in July, October of the relevant year and in January and April of the following year; If it is over a certain amount, it is paid in 4 installments in March, June, September and December of the relevant year. The corporate tax amount must be finalized and paid by the end of September of the year following the year of profit. In case the corporate tax payable as a result of the calculation is below the temporary taxes paid, the difference amount is deducted later or paid back to the Branch by the authority. Bahrain Banks in Bahrain are not subject to tax according to the regulations of the country. The Republic of Iraq (Iraq) The corporate tax rate in Iraq is 15%, and the corporate tax is paid on a consolidated basis to the tax office of the foreign bank's central branch. The first branch established in Iraq is considered as the central branch. Foreign bank branches whose central branch is within the boundaries of the Central Government must present their consolidated financial statements and pay accrued tax to the relevant tax office by the end of May of the following year, and branches of foreign banks whose central branch is within the boundaries of the Northern Iraq Regional Government must present their financial statements and pay accrued tax by the end of June of the following year at the latest. Northern Iraq Regional Government tax offices can accrue fixed taxes other than the specified rate and can postpone the due date. Kosovo Corporate earnings are subject to income tax rate of 10% according to the Kosovo legislation. This ratio is applied to the tax base that will be calculated as a result of the implementation of exemptions, deductions, addition of disallowable expenses, to the corporate income and that are calculated in accordance with the tax laws. Tax has to be paid in advance until April, July, October and the 15th day of January of the following year by four installments. If those prepaid taxes are lower than the final corporate tax, the difference is paid until the end of March of the following year, in case of a claim made by company, if it is higher, then the difference is returned to the institution by the tax authorities after the inspection conducted by those institution. Georgia Corporate earnings are subject to income tax rate of 15% according to the Georgian legislation. This ratio is applied to the tax base that will be calculated as a result of the implementation of exemptions, deductions, addition of disallowable expenses, to the income of corporations and that are calculated in accordance with the tax laws. In addition, in accordance with the legislation of Georgia, each year during May, July, September and December the amount of tax, that calculated according to the previous year income tax, is paid to the tax office by four equal installments of the probable income that is likely to be obtained the current year. If those prepaid taxes are lower than the final corporate tax, the difference is paid until the beginning of April of the following year, if it is higher, then the difference is returned to the institution by the tax authorities. Germany According to the tax regulations in Germany, corporate gains are subject to 15% corporate tax, 16.7% income and industrial tax. In addition to this, a solidarity tax of 5.5% is calculated over this corporate tax. The tax bases for corporate, income and industrial services are determined by adding the expenses that cannot be deducted according to Germany regulations, to interest, commissions and other operating gains and by subtracting exemptions and deductions from these. The corporate tax payments are made as temporary tax payments in four installments and are deducted from the corporate tax that is finalized at the end of the current year. Russia According to the Russian regulations, corporate gains are subject to 20% corporate tax. The corporate tax base is determined on accrual basis and it is measured by adding the non-deductible expenses to the corporate income gained during the period. Companies in Russia make quarterly tax returns and make provisional tax payment by offsetting the advance taxes paid during the period. Final taxation period for corporate tax is one year and the corporate tax is paid until the end of March of the following year, by considering the provisional taxes paid during the year. Coupon income from government bonds of the Russian Federation and Belarus, as well as the Ruble and some other private bonds issued by Russian companies after January 1, 2017 and traded on the stock exchange are subject to a corporate tax of 15%. The securities in the question income is paid within 10 business days from the end of the month following the bond sale or coupon payment and tax on remaining securities is paid on the day of payment of corporate tax. 4. Transfer Pricing: Transfer pricing is regulated through Article 13 of Corporate Tax Law titled “Transfer Pricing through Camouflage of Earnings”. Detailed information for the practice regarding the subject is found in the “General Communiqué Regarding Camouflage of Earnings through Transfer Pricing”. According to the aforementioned regulations, in the case of making purchase or sales of goods or services with relevant persons/corporations at a price that is determined against “arm’s length principle”, the gain is considered to be distributed implicitly through transfer pricing and such distribution of gains is not subject to deductions according to article 11 of Corporate Tax Law in means of corporate tax. XXII. Additional Information on Borrowings The Parent Bank and its consolidated companies, whenever required, generates funds from individuals and institutions residing domestically and abroad by approaching the borrowing instruments in the form of syndication, securitization, collateralized borrowing and issue of bonds/bills. Such transactions are at first carried at acquisition cost, and in the following periods they are valued at amortized cost measured by using the effective interest rate method. Part of the bills issued by the Group with fixed interest and a part of its liabilities with fixed interest are subject to fair value hedge accounting. While the rediscounted credit risk and accumulated interest amount subject to hedging liability are recognized in “Interest Expenses” under profit/loss statement; net amount resulted of the hedge accounting other than the credit risk and accumulated interest amount are recognized in “Derivative Financial Transactions Gains/Losses” under profit/loss statement by using fair value model. In the balance sheet, these valuations are presented with the related liabilities. XXIII. Information on Equity Shares and Their Issuance Share issuance related to costs is recognized as expenses. Dividend income related with the equity shares are determined by the General Assembly of the Shareholders. Weighted average number of shares outstanding is taken into account in the calculation of earnings per share. In case the number of shares increases by way of bonus issues as a result of the capital increases made by using the internal sources, the calculation of earnings per share is made by adjusting the weighted average number of shares, which were previously calculated as at the comparable periods. The adjustment means that the number of shares used in calculation is taken into consideration as if the bonus issue occurred at the beginning of the comparable period. In case such changes in the number of shares occur after the balance sheet date, but before the ratification of the financial statements to be published, the calculation of earnings per share are based on the number of new shares. The Parent Bank’s earnings per share calculations taking place in the consolidated profit/loss statement are as follows. Group’s net profit Weighted average number of shares (thousands) Earnings per share – (in exact TL) Current Period 13,541,060 112,502,250 0.120362571 Prior Period 6,655,442 112,502,250 0.059158301 XXIV. Bank Acceptances and Bills of Guarantee Bill guarantees and acceptances are realized simultaneously with the customer payments and they are presented as possible liabilities and commitments in the off- balance sheet accounts. XXV. Government Incentives There are no government incentives utilized by the Bank or the companies included in consolidation, during the current or prior accounting periods. XXVI. Segment Reporting Business segment is the part of an enterprise. • which conducts business operations where it can gain revenues and make expenditures (including the revenues and expenses related to the transactions made with the other parts of the enterprise). • whose operating results are regularly monitored by the authorities with the power to make decisions related to the operations of the enterprise in order to make decisions related to the funds to be allocated to the segment and to evaluate the performance of the segment and • which has its separate financial information. Information on business segmentation and related information is explained in Section IV Footnote VIII. XXVII. Other Disclosures According to the Uniform Chart of Accounts that entered into force on 01.01.2021, the amount of guarantees given for derivative transactions with foreign banks, which were followed in "Other Assets" in previous periods, started to be followed under "Cash and Cash Equivalents-Banks". In order to ensure compliance with the current period consolidated statement of financial position, a reclassification of TL 2,637,289 has been carried out among the mentioned items in the consolidated statement of financial position dated 31.12.2020. The effects of this classification on the consolidated statement of cash flows have also been updated. The said reclassification did not have a significant impact on the size and performance of the Bank's consolidated statement of financial position. 340 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 341 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen SECTION FOUR: INFORMATION ON THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE GROUP I. Explanations on Shareholders’ Equity: 1. Explanations on Consolidated Shareholders’ Equity The Bank’s consolidated capital adequacy ratio is 18.69%. (December 31, 2020: 16.99%). The capital adequacy standard ratio for the current period was calculated based on the Regulation on Measurement and Assessment of Capital Adequacy of Banks and other legal regulations and the BRSA regulation dated 21.12.2021 and numbered 9996. Within the scope of this regulation, the equity amount calculated without reflecting the negative net valuation differences of the securities included in the "Fair Value Through Other Comprehensive Income" portfolio acquired before 21.12.2021 was taken into consideration. In the calculation of the amount subject to credit risk in accordance with the same regulation, the simple arithmetic average of the last 252 business days in the foreign exchange buying rates of the Central Bank of the Republic of Turkey was used. COMMON EQUITY TIER I CAPITAL Paid-in Capital to be Entitled for Compensation after All Creditors Share Premium Legal Reserves Other Comprehensive Income According to TAS Profit Net Current Period Profit Prior Period Profit Bonus Shares from Associates, Subsidiaries and Joint-Ventures not Accounted in Current Period’s Profit Minority Shares 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 Current Period Prior Period 6,115,938 143,633 50,721,897 23,224,481 13,502,913 13,541,060 (38,147) (1,117) 2,286,331 95,994,076 6,115,938 124,549 43,421,096 10,401,612 8,378,887 6,655,442 1,723,445 (1,120) 1,850,295 70,291,257 1,144,288 89,996 27,994 343,449 79,888 35,974 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 1 Total Common Equity Tier I capital ADDITIONAL TIER I CAPITAL Privileged stocks not included in common equity and share premiums 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) Shares of Third Parties in Additional Tier I Capital Shares of Third Parties in Additional Tier I Capital (Covered by Temporary Article 3) Additional Tier I Capital before Deductions Deductions from Additional Tier 1 Capital Direct and Indirect Investments of the Bank on its own Additional Core 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 1 Capital during the Transition Period Goodwill and Other Intangible Assets and Related Deferred Taxes not deducted from Tier 1 Capital as per the Temporary Article 2, Clause 1 of the Regulation on Measurement and Evaluation of Capital Adequacy of Banks (-) Net Deferred Tax Asset/Liability not deducted from Tier 1 Capital as per the Temporary Article 2, Clause 1 of the Regulation on Measurement and Evaluation of Capital Adequacy of Banks (-) Deduction from Additional Tier 1 Capital when there is not enough Tier II Capital (-) Total Deductions from Additional Tier I Capital Total Additional Tier I Capital Other Intangible Assets Netted with Deferred Tax Liabilities Except Mortgage Servicing Rights 1,965,525 1,494,511 Total Tier I Capital (Tier I Capital= Common Equity Tier I Capital + Additional Tier I Capital) Remaining after deducting from the related deferred tax liability with the deferred tax asset based on future taxable income, except for deferred tax assets based on temporary differences 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 1 Capital Shares Obtained against Article 56, Paragraph 4 of the Banking Law Total of Net Long Positions of the Investments in Equity Items of Consolidated 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 Consolidated 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 Mortgage Servicing Rights (amount above 10% threshold of above Tier I capital) Deferred Tax Assets Arising from Temporary Differences (amount above 10% threshold of above Tier I Capital) Amount Exceeding the 15% Threshold of Tier 1 Capital as per the Article 2, Clause 2 of the Regulation on Measurement and Evaluation 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 Excess Amount arising from Mortgage Servicing Rights Excess Amount arising from Deferred Tax Assets from Temporary Differences Other Items to be Defined by the BRSA 551,575 542,681 TIER II CAPITAL 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) Shares of Third Parties in Additional Tier I Capital Shares of Third Parties in Additional Tier I Capital (Covered by Temporary Article 3) Provisions (Amounts explained in the first paragraph of the article 8 of the Regulation on Bank Capital) Tier II Capital before Regulatory Adjustments 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 Total Tier II Capital Total Equity (Total Tier I and Tier II Capital) Deductions from 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 Current Period Prior Period 3,779,378 92,214,698 2,496,503 67,794,754 1,586,764 1,243,007 1,586,764 1,243,007 1,586,764 93,801,462 1,243,007 69,037,761 22,518,677 13,670,323 1,046,800 884,387 1,253,000 686,756 7,483,983 31,933,847 5,930,962 21,541,041 31,933,847 125,735,309 1,274 1,194 21,541,041 90,578,802 1,102 721 Other items to be Defined by the BRSA 80 381 342 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 343 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Current Period Prior Period 2. Information on instruments to be included in the consolidated capital calculation: 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 Consolidated CET1 Capital Ratio (%) Consolidated Tier I Capital Ratio (%) Consolidated Capital Adequacy Ratio (%) BUFFERS Total Additional Common Equity Requirement Ratio (a+b+c) a) Capital Conservation Buffer Ratio (%) b) Bank-specific Counter-Cyclical Capital Buffer Ratio (%) c) Systemic 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 125,734,035 672,862,034 90,577,700 533,067,742 13.71 13.94 18.69 4.060 2.500 0.060 1.500 7.94 12.72 12.95 16.99 4.560 2.500 0.060 2.000 6.95 280,196 242,174 3,118,976 3,672,736 General Loan Provisions for Exposures in Standard Approach (before limit of one hundred and twenty-five per ten thousand) 17,706,672 12,251,260 General Loan Provisions for Exposures in Standard Approach Limited by 1,25% of Risk Weighted Assets 7,483,983 5,930,962 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 January 1, 2018 - January 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 1,046,800 17,272,200 1,253,000 9,086,000 Issuer Türkiye İş Bankası A.Ş. Unique identifier (CUSIP, ISIN etc.) US900151AB70- XS0847042024 US900151AF84- XS1003016018 US90016BAF58- XS1623796072 XS2106022754 Governing law(s) of the instrument It is subject to English Law except for certain articles that will be subject to Turkish Law. Issued within the scope of BRSA Regulation on Banks’ Equity. It is subject to English Law except for certain articles that will be subject to Turkish Law. Issued within the scope of BRSA Regulation on Banks’ Equity. It is subject to English Law except for certain articles that will be subject to Turkish Law. Issued within the scope of BRSA Regulation on Banks’ Equity. It is subject to English Law except for certain articles that will be subject to Turkish Law. Issued within the scope of BRSA Regulation on Banks’ Equity. Taking into account in equity calculation Subject to 10% deduction as of 01.01.2015 Yes No No No Unconsolidated -Consolidated Unconsolidated -Consolidated Unconsolidated -Consolidated Unconsolidated -Consolidated Eligible at unconsolidated / consolidated Instrument type (types to be specified by each jurisdiction) Amount recognized in regulatory capital (Currency in mil. as of most recent reporting date) Bond Par value of instrument (Expressed in million TL) 13,085 Bond 1,047 5,234 Bond 6,543 6,543 Bond 9,814 9,814 Accounting classification Subordinated Liabilities Subordinated Liabilities Subordinated Liabilities Subordinated Liabilities Original date of issuance 24.10.2012 Perpetual or dated Original maturity date Issuer call subject to prior supervisory approval Dated 10 Years Yes 10.12.2013 Dated 10 Years Yes 29.06.2017 Dated 11 Years Yes 22.01.2020 Dated 10 Years Yes Optional call date. contingent call dates and redemption amount The Bank; (1) provided that subject to having obtained the prior approval of the BRSA and the date which may not be earlier than fifth anniversary of the Issue Date a) can purchase b) can redeem all bonds if any taxes imposed or levied (2) can redeem all bonds in case of the deduction from equity. The Bank; (1) provided that subject to having obtained the prior approval of the related legislation, can purchase or otherwise acquire treasury stock (2) provided that subject to having obtained the prior approval of the BRSA, (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity. The Bank has the option to repay all of the related bonds on June 29, 2023 provided that subject to having obtained the prior approval of the BRSA. The Bank; (1) provided that subject to having obtained the prior approval of the related legislation, can purchase or otherwise acquire treasury stock (2) provided that subject to having obtained the prior approval of the BRSA, (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity. The Bank has the option to repay all of the related bonds on January 22, 2025 provided that subject to having obtained the prior approval of the BRSA. The Bank; (1) provided that subject to having obtained the prior approval of the related legislation, can purchase or otherwise acquire treasury stock (2) provided that subject to having obtained the prior approval of the BRSA, (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity. Subsequent call dates. if applicable None Coupons / dividends Fixed or floating dividend/coupon Coupon rate and any related index Existence of a dividend stopper Fully discretionary. partially discretionary or mandatory Existence of step up or other incentive to redeem Fixed 6 % None None None None Fixed 7.85 % None None None None Fixed 7 % None None None None Fixed 7.75 % None None None Noncumulative or cumulative Noncumulative Noncumulative Noncumulative Convertible or non-convertible None None None Noncumulative None 344 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 345 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Coupons / dividends If convertible. conversion trigger (s) If convertible. fully or partially If convertible. conversion rate If convertible. mandatory or optional conversion If convertible. specify instrument type convertible into If convertible. specify issuer of instrument it converts into Write-down feature None If write-down. write-down trigger(s) If write-down. full or partial If write-down. permanent or temporary If temporary write-down. description of write-up mechanism Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) In accordance with Regulations on Equities of Banks.Article 8.2.ğ. bonds have deleted option from records. Due to the losses incurred, where the Bank is at the point at which the BRSA may determine pursuant to Article 71 of the Banking Law that: (i) its operating license is to be revoked and the Bank is liquidated or (ii) the rights of all of its shareholders (except to dividends), and the management and supervision of the Bank, are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable). In accordance with Regulations on Equities of Banks.Article 8.2.ğ bonds have deleted option from records. In accordance with Regulations on Equities of Banks.Article 8.2.ğ. bonds have deleted option from records. Due to the losses incurred, where the Bank is at the point at which the BRSA may determine pursuant to Article 71 of the Banking Law that: (i) its operating license is to be revoked and the Bank is liquidated or (ii) the rights of all of its shareholders (except to dividends), and the management and supervision of the Bank, are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable) Due to the losses incurred, where the Bank is at the point at which the BRSA may determine pursuant to Article 71 of the Banking Law that: (i) its operating license is to be revoked and the Bank is liquidated or (ii) the rights of all of its shareholders (except to dividends), and the management and supervision of the Bank, are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable) Partially or completely Partially or completely Partially or completely Permanent Permanent Permanent Paid before shares and the primary of subordinated debt and after all the other debts. Paid before shares and the primary of subordinated debt and after all the other debts. Paid before shares and the primary of subordinated debt and after all the other debts. Paid before shares and the primary of subordinated debt and after all the other debts. In compliance with article number 7 and 8 of “Own fund regulation” Yes. Yes. Yes. Yes. Details of incompliances with article number 7 and 8 of “Own fund regulation” Don't vest with the conditions stated in clause of the Article 7 and the clause of 8.2. ğ To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. Issuer Türkiye İş Bankası A.Ş. Unique identifier (CUSIP, ISIN etc.) TRSTISB72712 TRSTISB62911 TRSTISB92918 Governing law(s) of the instrument Is subject to Turkish Law. Has been issued in accordance with the BRSA Communiqué regarding the Equity of Banks. Is subject to Turkish Law. Has been issued in accordance with the BRSA Communiqué regarding the Equity of Banks. Is subject to Turkish Law. Has been issued in accordance with the BRSA Communiqué regarding the Equity of Banks. Taking into account in equity calculation Subject to 10% deduction as of 01.01.2015 No No. No. Eligible at unconsolidated / consolidated Instrument type (types to be specified by each jurisdiction) Amount recognized in regulatory capital (Currency ın TL million, as of most recent reporting data) Nominal value of instrument (TL Million) Accounting classification Original date of issuance Perpetual or dated Original maturity date Issuer call subject to prior supervisory approval Yes 08.08.2017 Dated 10 Years Unconsolidated – Consolidated Unconsolidated - Consolidated Unconsolidated - Consolidated Bond 1,100 1,100 Bond 800 800 Bond 350 350 Subordinated Liabilities Subordinated Liabilities Subordinated Liabilities 19.06.2019 Dated 10 Years Yes 26.09.2019 Dated 10 Years Yes Optional call date, contingent call dates and redemption amount The Bank; (1) can purchase bills that subject to having obtained the prior approval of the BRSA and the date which may not be earlier than fifth anniversary of the Issue Date (2) (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity The Bank; (1) can purchase bills that subject to having obtained the prior approval of the BRSA and the date which may not be earlier than fifth anniversary of the Issue Date (2) (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity The Bank; (1) can purchase bills that subject to having obtained the prior approval of the BRSA and the date which may not be earlier than fifth anniversary of the Issue Date (2) (a) can redeem all bonds if any taxes imposed or levied (b) can redeem all bonds in case of the deduction from equity Subsequent call dates, if applicable None. Interest/Dividend Payment Fixed or floating coupon/dividend payments Floating None. Floating None. Floating Coupon rate and any related index Government Debt Security for 5 years+350 base points TRLIBOR with 3 months maturity + 100 base points Government Debt Security for 5 years + 350 base points Existence of a dividend stopper Fully discretionary, partially discretionary or mandatory Existence of step up or other incentive to redeem None. None. None. None. None. None. None. None. None. Noncumulative or cumulative Non-cumulative Convertible into equity shares None. Non-cumulative None. Non-cumulative None. If convertible, conversion trigger (s) If convertible, fully or partially If convertible, conversion rate If convertible, mandatory or optional conversion If convertible, specify instrument type convertible into If convertible, specify issuer of instrument it converts into Write-down feature In accordance with Regulations on Equities of Banks, Article 8.2.ğ, bonds have deleted option from records. In accordance with Regulations on Equities of Banks, Article 8.2.ğ, bonds have deleted option from records. In accordance with Regulations on Equities of Banks, Article 8.2.ğ, bonds have deleted option from records. 346 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 347 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Due to the losses incurred, within the framework of Article 71 of the Banking Law, (1) the Bank’s operating license is to be revoked and liquidated or (2) the rights of all of its shareholders (except to dividends) and the management and supervision of the Bank are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable) based on the decision of the BRSA. Due to the losses incurred, within the framework of Article 71 of the Banking Law, (1) the Bank’s operating license is to be revoked and liquidated or (2) the rights of all of its shareholders (except to dividends) and the management and supervision of the Bank are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable) based on the decision of the BRSA. Due to the losses incurred, within the framework of Article 71 of the Banking Law, (1) the Bank’s operating license is to be revoked and liquidated or (2) the rights of all of its shareholders (except to dividends) and the management and supervision of the Bank are to be transferred to the SDIF on the condition that losses are deducted from the capital of existing shareholders (occurrence of either condition means the issuer has become non-viable) based on the decision of the BRSA. Partially or Completely Partially or Completely Partially or Completely Permanent Permanent Permanent Paid before shares and the primary of subordinated debt and after all the other debts. Paid before shares and the primary of subordinated debt and after all the other debts. Paid before shares and the primary of subordinated debt and after all the other debts. If write-down, write-down trigger(s) If bond can be written-down, full or partially If bond can be written-down, permanent or temporary If temporary write-down, description of write-up mechanism Posıtıon in subordination hierarchy in case of liquidation (instrument type immediately senior to the instrument) In compliance with article number 7 and 8 of Regulation on Bank Capital Yes. Yes. Yes. Details of incompliances with article number 7 and 8 of Regulation on Bank Capital To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. To vest conditions stated in clause of the Article 8 and Don't vest the conditions stated in clause of the Article 7. Issuer Türkiye Sınai Kalkınma Bankası A.Ş. Unique identifier (ex CUSIP. ISIN or Bloomberg identifier for private placement) XS1584113184 Governing law(s) of the instrument Taking into account in equity calculation Subject to 10% deduction as of 1/1/2015 Eligible at unconsolidated / consolidated Instrument type (types to be specified by each jurisdiction) Amount recognized in regulatory capital (Currency in mil. as of most recent reporting date) Par value of instrument Accounting classification Original date of issuance Perpetual or dated Original maturity date Issuer call subject to prior supervisory approval Communiqué on SPK-II-31.1 Borrowing Instruments Regulation on Equity of BRSA Banking Sector No Unconsolidated - Consolidated Bond 300 300 Subordinated Debts 28.03.2017 Dated 10 Years Yes Optional call date. contingent call dates and redemption amount 29.03.2022 (After 5th year) There is an early payment option. Subsequent call dates. if applicable Coupons / dividends Fixed or floating dividend/coupon Coupon rate and any related index Existence of a dividend stopper Fully discretionary. partially discretionary or mandatory Existence of step up or other incentive to redeem Noncumulative or cumulative Convertible or non-convertible If convertible. conversion trigger (s) If convertible. fully or partially If convertible. conversion rate If convertible. mandatory or optional conversion If convertible. specify instrument type convertible into If convertible. specify issuer of instrument it converts into Write-down feature If write-down. write-down trigger(s) After 5th year, there is a refund option only once. Fixed / interest payment semiannually, principle payment at the maturity date. 7.625 % None None None Noncumulative None None None None None None In accordance with Banking Law No. 5411 and the Turkish Commercial Code No. 6102, if the possibility of the removal and liquidation of the Bank's operation permission is determined within the framework of the Article 71 of the Banking Law, the BRSA will be able to delete it from the records. If write-down. full or partial If write-down. permanent or temporary If temporary write-down. description of write-up mechanism Partially or completely Permanent None Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) After the debts, before the additional main capital, same as the tier II capital In compliance with article number 7 and 8 of “Own fund regulation” To vest conditions stated in clause of the Article 8. Details of incompliances with article number 7 and 8 of “Own fund regulation” Don't vest the conditions stated in clause of the Article 7. 348 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 349 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 3. Explanations on Reconciliations of Amounts in the Consolidated Capital Items Table and Carrying Amounts in the Consolidated Financial Statements Shareholders’ Equity Group Share Minority Interest Carrying Amount 96,168,179 86,933,251 9,234,928 Leasehold improvements on operational leases 89,996 Goodwill and intangible assets Provisions Subordinated debt Deductions from shareholders’ equity Capital 2,182,025 17,706,672 41,479,277 22,542 Amounts in Equity Calculation (*) 96,790,632 92,033,150 4,757,482 (89,996) (1,993,519) 7,483,983 23,565,477 (22,542) 125,734,035 (*) The related amounts are calculated in accordance with “Regulation on Equities of Banks”. In this context, part of the expected credit loss of stage 1 and stage 2 up to 1.25 % of amount subject to credit risk, part; subordinated loans according to fourth article of the regulation, have been taken into consideration in equity calculation. On the other hand, in the calculation, the equity amount calculated in accordance with the BRSA's 21.12.2021 dated and 9996 numbered regulation and the credit risk amount calculated in accordance with same regulation and with the BRSA regulation dated 21.12.2021 and numbered 9996. II. Explanations on Credit Risk 1. Credit risk is defined as the possibility of incurring loss where the counterparty in a transaction, partially or completely fails to meet its contractual obligations in due time in an agreement with the Bank and its consolidated financial subsidiaries. Banks and financial institutions subject to consolidation, carry out their placement activities in accordance with the credit limitations stipulated by legal regulations of the countries in which they operate. The Parent Bank’s position against the credit risk limits defined by the current legislation is monitored by the Board. Within this framework, loans extended to Risk Groups and the Parent Bank’s Risk Group, including the Parent Bank; loans in high amounts and limitations regarding the shares in participations are monitored according to the limits determined in connection with the size of the shareholders’ equity calculated on a bank-only and consolidated basis. Credit risk limits of customers are determined depending on the financial situation and loan requirements of the borrowers, in strict compliance with the relevant banking legislation, within the framework of loan authorization limits of Branches, Regional Offices, Loan Divisions, and the Deputy Chief Executives responsible for loans, the CEO, the Credit Committee and the Board of Directors. These limits may be changed as may be deemed necessary by the Bank. Moreover, all commercial credit limits are revised periodically, provided that each period does not exceed a year. Furthermore, the borrowers and borrower groups forming a large proportion of the overall placement are subject to risk limits in order to provide further minimization of potential risk. The geographical distribution of borrowers is consistent with the concentration of industrial and commercial activities in Turkey. The distribution of borrowers by sector is monitored closely for each period and sectoral risk limits have been determined to prevent concentration of risk in sectoral sense. The credit-worthiness of customers is monitored on a consistent basis by using company rating and scoring models specially developed for this purpose, and the audit of statements of account received is assured to have been made in accordance with the provisions as stipulated by the relevant legislation The Parent Bank and its financial affiliates give utmost importance to ensure that loans are furnished with collaterals. Most of the loans extended are collateralized by taking real estate, movable or commercial enterprise under pledge, promissory notes and other liquid assets as collateral, or by acceptance of bank letters of guarantee and individual or corporate guarantees. Non-performing and impaired loans have been classified in accordance with the “TFRS 9-Financial Instruments” and BRSA’s “Regulation on Procedures and Principles for Classification of Loans and Provisions to be set aside”. The detailed descriptions of these methods correspond with accounting practices, are included in Section Three Note VIII. Credit risk is the risk reduction effects without taking into consideration the total amount of exposures after offsetting transactions with different risk classes according to the types and amounts of disaggregated risks are listed below the average for the period. Amount subject to credit risk (1) Risk Classifications Current Period Risk Amount Average Risk Amount (2) Conditional and unconditional exposures to central governments or central banks 287,894,662 232,223,090 Conditional and unconditional exposures to regional governments or local authorities Conditional and unconditional exposures to administrative bodies and non-commercial undertakings Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and brokerage houses Conditional and unconditional exposures to corporate Conditional and unconditional retail exposures Exposures secured by residential real estate property Exposures secured by commercial real estate property Past due loans Items in regulatory high-risk categories Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Exposures in the form of collective investment undertakings Stock investments Other items 343,351 604,154 363,923 60,660,289 379,514,464 171,261,069 24,776,358 28,499,946 7,773,698 23,877,608 2,683,178 38,364,284 23,010,720 396,295 555,212 347,793 57,132,945 359,162,341 159,457,265 13,045,772 25,353,237 8,149,479 9,529,467 3,001,275 34,124,177 17,505,044 (1) The figures represent total risk amounts after credit risk mitigation and after credit conversion factor. (2) Average risk amount is identified by using arithmetical averages of risk amounts calculated quarterly in the current period reports. 2. There are certain control limits on forward transactions in terms of counter parties, and the risks taken for derivative instruments are evaluated along with other potential risks resulting from the market fluctuations. 3. As a result of the current level of customers’ needs and the progress in the domestic derivatives market in this particular area, the Parent Bank uses derivative transactions either for hedging or for commercial purposes. Derivative instruments with a remarkable volume are monitored with consideration that they can always be liquidated in case of need. 4. Indemnified non-cash loans are considered as having the same risk weights as unpaid cash loans. The rating and scoring systems applied by the Parent Bank, includes detailed company analysis and enables rating of all companies and loans without any restrictions regarding credibility. Loans and companies, which have been renewed, restructured or rescheduled, are rated within the scope of this system. Specialized loans are evaluated by a special rating system, which is based on the credibility of the counterparty as well as the feasibility and risk analysis of the cash flows created mainly by the projects undertaken or the asset financed. 5. Determining the country risks of the countries concerned in the context of the current rating system credit transactions carried out abroad, market conditions, legal constraints and risks related to the country on this issue into account. In addition, banks and other financial institutions credit worthiness abroad, foreign rating agencies by based on credit ratings that are determined and CDS-IR (based on credit default swaps) a supported developed degree approach is allocated and monitored. 6. i. The share of the Group’s receivables from the top 100 and 200 cash loan customers in the overall cash loan portfolio stands at 30 % and 39 % respectively (December 31, 2020: 27 %, 36 %). ii. The share of the Group’s receivables from the top 100 and 200 non-cash loan customers in the overall non-cash portfolio stands at 46 % and 58 % respectively (December 31, 2020: 46 %, 59 %). iii. The share of the Group’s cash and non-cash receivables from the top 100 and 200 credit customers in the overall assets and non-cash loans stands at 16 % and 22 % (December 31, 2020: 16 %, 22 %). Companies that are among the top loan customers ranked according to cash, non-cash and total risks are leaders in their own sectors, the loans advanced to them are in line with their volume of industrial and commercial activity. A significant part of such loans is extended on a project basis, with their repayment sources being analyzed in accordance with the banking principles to be considered as satisfactory, and associated risks are determined and duly covered by obtaining appropriate guarantees when deemed necessary. 7. Total value of the Stage 1 and Stage 2 expected credit loss allocated for the credit risk carried by Parent Bank and consodilated companies is TL 16,926,688 (December 31, 2020: TL 11,659,777). 8. The Parent Bank measures the quality of its loan portfolio by applying different rating/scoring models on cash commercial/corporate loans, retail loans and credit cards. The breakdown of the rating/scoring results, which are classified as “Strong”, “Standard” and “Below Standard” by considering their default features, is shown below. The loans whose borrowers’ capacity to fulfill their obligations is very good, are defined as “Strong”, whose borrowers’ capacity to fulfill its obligations in due time is reasonable, are defined as “Standard” and whose borrowers’ capacity to fulfill their obligations is poor, are defined as “Below Standard”. Strong Standard Below Standard Table shows rating/scoring results. Current Period Prior Period %45.06 %49.68 %5.26 48.71 % 43.51 % 7.78 % 350 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 351 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 9. The net values of the collaterals of the Group’s closely monitored loans are given below in terms of collateral types and risk matches. 12. Profile of Significant Risk Exposures in Major Regions Type of Collateral Personal Current Period Commercial and Corporate Credit Cards Personal Credit Cards Current Period Domestic European Union OECD Countries (2) Off-Shore Banking Regions USA, Canada Other Countries Investments in Associates, Subsidiaries and Jointly Controlled Entities Unallocated Assets/ Liabilities (3) Total Prior Period Commercial and Corporate 11,237,404 381,335 219,531 586 690,237 37,128 1,469,688 Real Estate Mortgage (1) 1,091,254 12,261,832 Cash Collateral (Cash, securities pledge, etc.) 50,628 Pledge on Wages and Vehicles 2,344,742 544,608 345,122 13,667 Cheques & Notes Other (Suretyship, commercial enterprise under pledge, commercial papers, etc.) 450,396 36,912,380 236,678 25,738,738 Non-collateralized Total 3,411,799 7,348,819 9,047,472 59,125,081 2,206,344 2,206,344 1,433,351 3,867,082 6,138,224 43,715,818 1,067,462 1,067,462 (1) The mortgage and/or pledge amounts on which third parties have priorities are deducted from the fair values of collaterals in expertise reports; and after comparing the results to the mortgage/pledge amounts and loan balances, the smallest figures are considered to be the net value of collaterals. 10. The net values of the collaterals of the Group’s non-performing loans are given below in terms of collateral types and risk matches. Type of Collateral Real Estate Mortgage (1) Cash Collateral Vehicle Pledge Other (Suretyship, commercial enterprise under pledge, commercial papers, etc.) Current Period Prior Period Net Value of the Collateral Loan Balance Net Value of the Collateral Loan Balance 6,516,872 1,523 274,128 8,598,774 6,516,872 1,523 274,128 8,598,774 6,976,076 1,141 291,010 8,153,418 6,976,076 1,141 291,010 8,153,418 (1) The mortgage and/or pledge amounts on which third parties have priorities are deducted from the fair values of collaterals in expertise reports; and after comparing the results to the mortgage/pledge amounts and loan balances, the smallest figures are considered to be the net value of collaterals. 11. The aging analysis of the recievables past due but not impaired in terms of financial asset classes, is as follows: Current Period Loans (1) Corporate / Commercial Loans (3) Consumer Loans Credit Cards Lease Receivables (1) Insurance Receivables Total 31-60 Days (2) 61-90 Days (2) 669,979 120,934 155,926 393,119 2,996 35,737 708,712 964,455 689,981 70,167 204,307 92,609 18,038 1,075,102 Total 1,634,434 810,915 226,093 597,426 95,605 53,775 1,783,814 ( 1) The loans classified under close monitoring that are not past due or past due for less than 31 days is TL 63,984,188. ( 2) Related figures show only overdue amounts of installment based commercial loans and installment based consumer loans; the principal amounts of the loans which are not due as of the balance sheet date are equal to TL 1,572,925 and TL 1,393,092 respectively. ( 3) Includes factoring receivables.. Prior Period Loans (1) Corporate / Commercial Loans (4) Consumer Loans Credit Cards Lease Receivables (1) Insurance Receivables Total 31-60 Days (2) 61-90 Days (2) (3) 209,825 121,649 28,156 60,020 3 16,476 1,897,417 1,564,999 147,800 184,618 14,423 28,439 Total 2,107,242 1,686,648 175,956 244,638 14,426 44,915 226,304 1,940,279 2,166,583 ( 1) The loans classified under close monitoring that are not past due or past due for less than 31 days is TL 42,327,768. ( 2) Related figures show only overdue amounts of installment based commercial loans and installment based consumer loans; the principal amounts of the loans which are not due as of the balance sheet date are equal to TL 2,884,661 and TL 1,316,265 respectively. ( 3) Based on the decisions taken by the BRSA within the scope of the COVID-19 outbreak, only the overdue amounts (TL 1,369,804) of the loans that have been delayed more than 90 days continue to be classified under close monitoring are included, and the payment of these loans is not due. the balance is TL 2,097,786. ( 4) Includes factoring receivables. Risk Groups (1) Contingent and Non- Contingent Receivables from Central Governments or Central Banks (4) Contingent and Non- Contingent Receivables from Regional Government or Domestic Government Contingent and Non- Contingent Receivables from Administrative Units and Non-Commercial Enterprises Contingent and Non- Contingent Receivables from Multilateral Development Banks Contingent and Non- Contingent Receivables from International Organizations Contingent and Non- Contingent Receivables from Banks and Intermediaries Contingent and Non- Contingent Corporate Receivables Contingent and Non- Contingent Retail Receivables Contingent and Non- Contingent Receivables Secured by Residential Property 279,429,592 3,418,735 1,136,972 3,909,363 287,894,662 343,323 593,628 10,452 28 74 341,632 22,291 343,351 604,154 363,923 24,705,086 19,110,911 10,029,676 1,405 5,045,838 1,767,373 60,660,289 359,817,099 4,240,863 4,547,213 678,401 577,216 9,653,672 379,514,464 169,270,774 260,917 143,745 1,545 37,789 1,546,299 171,261,069 52,329,727 212,708 45,683 85 34,547 653,554 Non-Performing Receivables 7,577,907 157,363 4,358 1,349 32,721 23,489,023 92,613 12,713 1,377 13,994 267,888 Receivables are identified as high risk by the Board Secured Marketable Securities Securitization Positions Short-term Receivables and Short-term Corporate Receivables from Banks and Intermediaries Investments as Collective Investment Institutions 2,683,178 Other Receivables 37,697,899 124,282 456,265 603 85,235 Stock Investments 23,010,720 53,276,304 7,773,698 23,877,608 2,683,178 38,364,284 23,010,720 Total 957,937,236 27,628,844 15,581,285 682,813 6,848,308 17,938,498 23,010,720 1,049,627,704 (1) The figures represent total risk amounts before credit risk mitigation and after credit conversion factor. (2) OECD Countries other than EU countries, USA and Canada. (3) Assets and liabilities that are not consistently allocated. (4) Credits guaranteed by the Undersecretariat of Treasury are included in the class of receivables from central government. 352 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 353 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Prior Period Domestic European Union OECD Countries (2) Off-Shore Banking Regions USA, Canada Other Countries Investments in Associates, Subsidiaries and Jointly Controlled Entities Unallocated Assets/ Liabilities (3) Total Risk Groups (1) Contingent and Non- Contingent Receivables from Central Governments or Central Banks(4) Contingent and Non- Contingent Receivables from Regional Government or Domestic Government Contingent and Non- Contingent Receivables from Administrative Units and Non-Commercial Enterprises Contingent and Non- Contingent Receivables from Multilateral Development Banks Contingent and Non- Contingent Receivables from International Organizations Contingent and Non- Contingent Receivables from Banks and Intermediaries Contingent and Non- Contingent Corporate Receivables Contingent and Non- Contingent Retail Receivables Contingent and Non- Contingent Receivables Secured by Residential Property 184,734,393 1,877,495 1,381,513 2,386,225 190,379,626 454,664 547,207 8,028 36,797 319,900 1 93 454,665 555,328 356,697 19,189,061 18,643,498 6,382,545 11,772 4,132,030 1,065,402 49,424,308 297,070,143 4,095,405 2,323,298 617,727 1,212,606 7,160,420 138,709,707 350,862 128,151 1,358 49,537 1,486,312 34,238,655 110,679 29,606 126 9,658 25,586 Non-Performing Receivables 8,423,824 19,968 11,252 2,231 18,015 Receivables are identified as high risk by the Board 319,531 31,018 135 Secured Marketable Securities Securitization Positions Short-term Receivables and Short-term Corporate Receivables from Banks and Intermediaries Investments as Collective Investment Institutions 2,745,702 Other Receivables 28,673,493 15,708 9,340 484 60,481 Stock Investments 13,790,256 Total 715,106,380 25,189,458 9,204,092 630,983 6,788,059 12,202,670 13,790,256 ( 1) The figures represent total risk amounts before credit risk mitigation and after credit conversion factor. ( 2) OECD Countries other than EU countries, USA and Canada. ( 3) Assets and liabilities that are not consistently allocated. ( 4) Credits guaranteed by the Undersecretariat of Treasury are included in the class of receivables from central government. 312,479,599 140,725,927 34,414,310 8,475,290 350,684 2,745,702 28,759,506 13,790,256 782,911,898 354 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 355 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 13. Risk Profile by Sectors or Counterparties: Sectors/Counterparty (*) (1) (**) (2) 42,010 39,607 917 1,486 Agriculture Farming and Stockbreeding Forestry Fishing Industry Mining Production Electricity, gas, and water 17,007 7,612 Construction Services 1,106,864 145,304,100 Wholesale and Retail Trade 1,187,614 Hotel, Food and Beverage Services Transportation and Telecommunication 300,533 4,202,103 1,055,118 7,612 33,475 20,385 1,017,726 Current Period Consolidated Prior Period Consolidated (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) TP YP Toplam 2,721,242 4,637,370 691,707 40,512 154,192 6,623,687 1,663,878 8,287,565 1,856,397 4,583,263 642,897 37,053 152,972 6,506,687 805,963 7,312,650 32,176 832,669 23,338 30,769 183,295,910 12,483,480 7,200,394 361,524 111,345,756 11,443,123 64,749,760 678,833 39,287,965 5,244,040 3,233 45,577 358 3,101 699 521 8,367,514 2,863,837 240,407 144,783 48,357 3,471 7,821,741 263,229 228,918 400,990 2,552,251 8,018 4,408,450 2,409,917 265,717 59,562 57,438 1,230 60,792 856,685 914,123 193 65 128 18,006,798 67,164,615 159,189,729 226,354,344 1,616,345 6,162,569 7,778,914 18,005,632 54,858,571 95,267,619 150,126,190 1,166 10,689,699 57,759,541 68,449,240 20,344,925 32,382,591 52,727,516 (3) 532 461 71 33,475 4,563 470,693 363,923 58,359,771 124,751,215 43,312,849 22,215,108 1,707,128 1,078,810 1,770,289 1,400,725 4,179,910 123,355,936 281,558,585 404,914,521 48,878,064 25,393,852 10,145,345 592,949 441,974 114,032 54,622,413 32,131,417 86,753,830 8,436,397 2,453,115 3,450,898 190,809 118,590 4,851,504 10,098,838 14,950,342 9 30,211,683 10,279,018 2,232,866 784,793 283,027 463 127,602 18,067,338 30,054,226 48,121,564 Financial Institutions 139,416,572 339,710 363,923 58,359,771 20,668,379 643,390 379,295 1,405 Real Estate and Renting Services 45,040 Self-Employment Services 32,845 Education Services 46,419 Health and Social Services 72,974 84,181 41,888 4,716 189 6,739,295 1,740,621 4,027,514 96,168 1,174,263 1,082,083 938,854 406,743 7,704,280 1,314,027 406,469 922,079 650,642 15,420 10,969 14,615 7,150 60,451 90,849 15,938 60,831 1,770,289 1,400,262 1,635,138 31,998,962 192,986,322 224,985,284 2,303,138 8,013,584 7,082,824 15,096,408 1,865,647 978,170 2,843,817 1,222,589 1,123,129 2,345,718 2,713,899 7,103,659 9,817,558 Other Total 140,386,570 335,739 94,891 2,300,518 29,458,132 105,583,330 17,593,525 752,304 22,138,482 912,889 36,963,366 824,012 304,454,410 52,889,348 357,343,758 287,894,662 343,351 604,154 363,923 60,660,289 379,514,464 171,261,069 53,276,304 7,773,698 23,877,608 2,683,178 38,364,284 23,010,720 521,943,573 527,684,131 1,049,627,704 ( 1) Contingent and non-contingent exposures to central governments or central banks ( 2) Contingent and non-contingent exposures to regional governments or local authorities ( 3) Contingent and non-contingent exposures to administrative bodies and non-commercial undertakings ( 4) Contingent and non-contingent exposures to multilateral development banks ( 5) Contingent and non-contingent exposures to international organizations ( 6) Contingent and non-contingent exposures to banks and brokerage houses ( 7) Contingent and non-contingent corporate receivables ( 8) Contingent and non-contingent retail receivables ( 9) Contingent and non-contingent exposures secured by real estate property ( 10) Past due receivables ( 11) Receivables in regulatory high-risk categories ( 12) Investments in the nature of collective investment enterprise ( 13) Other Receivables. ( 14) Stock Investments. (*) Risk amounts after the credit conversions and the effects of credit risk mitigation (**) Credit Guarantee Fund guaranteed by the undersecreteriat of treasury are included in the receivables from central governments. 356 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 357 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 14. Analysis of maturity-bearing exposures according to remaining maturities: Risk Amounts according to Risk Weights: Current Period Remaining Maturities Risk Groups (1) Contingent and Non-Contingent Receivables from Central Governments or Central Banks Contingent and Non-Contingent Receivables from Regional Governments or Domestic Governments Contingent and Non-Contingent Receivables from Administrative Units and Non- Commercial Enterprises The multilateral development banks and non-contingent receivables Contingent and Non-Contingent Receivables from Banks and Intermediaries Contingent and Non-Contingent Corporate Receivables Contingent and Non-Contingent Retail Receivables Contingent and Non-Contingent Collateralized Receivables with Real Estate Mortgages Receivables are identified as High Risk by the Board 1 Month 1-3 Months 3-6 Months 6-12 Months Over 1 Year Total 11,642,512 11,002,248 5,886,846 6,423,329 126,554,298 161,509,233 2,065 808 489 7,580 332,407 343,349 19,353 360,630 28,617 97,238 74,311 580,149 16,165 284,608 63,150 363,923 20,416,477 5,155,607 4,472,115 9,019,235 8,630,438 47,693,872 24,435,716 33,518,996 41,499,539 51,500,491 227,499,280 378,454,022 37,861,881 2,910,360 4,089,202 11,789,154 68,112,940 124,763,537 1,016,275 1,268,066 2,586,977 4,306,161 41,157,282 50,334,761 343,828 4,408 4,264 62,578 21,023,277 21,438,355 Total 95,754,272 54,505,731 58,568,049 83,205,766 493,447,383 785,481,201 ( 1) The figures represent total risk amounts before credit risk mitigation and after credit conversion factor. 15. Information on Risk Classes: In the calculation of the amount subject to credit risk, determining the risk weights related to risk classes stated on the sixth article of “Regulation on Measurement and Evaluation of Capital Adequacy of Banks”, is based on the Fitch Ratings’ and JCR Avrasya Derecelendirme A.Ş. international rating. “Contingent and Non-Contingent Receivables from Banks and Intermediaries” are receivables from related parties residing in foreign countries against the risk evaluated in class with “Contingent and Non-Contingent Receivables from Central Governments or Central Banks” are receivables that are evaluated in the class will be the subject of risk weights determined in accordance with Fitch Ratings issued by the rating of the risk. “Contingent and Non-Contingent Receivables from Banks and Intermediaries” in the class with resident banks and brokerage firms in the dorm evaluated risk “Contingent and Non-Contingent Corporate Receivables” in the class evaluated dorm resident companies and financial institutions in the TL-denominated receivables, the risk weights that will be the subject of JCR Avrasya Derecelendirme A.Ş. international rating grades assigned by it are used. The aforementioned application is made in accordance with BRSA decision No. 8875 dated 21.02.2020, which allows the national grades assigned by the relevant organization to be taken into account in the calculations of amounts based on credit risk. If a receivable-specific rating is performed, risk weights to be applied on the receivable are determined by the relevant credit rating. The table related to mapping the ratings used in the calculations and credit quality grades, which is stated in the Annex of Regulation on Measurement and Evaluation of Capital Adequacy of Banks, is given below: Credit Quality Grades 1 2 3 4 5 6 Risk Rating AAA via AA- A+ via A- BBB+ via BBB- BB+ via BB- B+ via B- CCC+ and lower Risk Weight 0% 20% 35% 50% 75% 100% 150% 250% Other (2) Mitigation in Shareholders’ Equity Amount Before Credit Risk Mitigation (1) Amount After Credit Risk Mitigation 330,566,059 57,404,351 24,834,688 75,697,248 126,854,636 418,118,571 24,283,127 280,196 507,740 2,083,515 339,553,784 56,648,279 24,776,358 75,610,451 123,094,596 405,200,913 23,955,387 280,196 507,740 2,083,515 ( 1) The figures represent total risk amounts before credit risk mitigation and after credit conversion factor. ( 2) The related balance includes receivables from central counterparties subject to a risk weight of 2%. 16. Miscellaneous Information According to Type of Counterparty of Major Sectors Significant Sectors/Counterparty Current Period Agricultural Farming and Raising Livestock Forestry Fishing Industry Mining Production Electricity, gas, and water Construction Services Wholesale and Retail Trade Hotel, Food and Beverage Services Transportation and Telecommunication Financial Institutions Real Estate and Renting Services Self-Employment Services Education Services Health and Social Services Other Total 1 1.1 1.2 1.3 2 2.1 2.2 2.3 3 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 5 6 Loans Depreciated (TFRS 9) Significant Increase in Credit Risk (Stage 2) Non-Performing (Stage 3) Provisions Expected Credit Loss (TFRS 9) 732,509 524,015 1,385 207,109 25,687,762 93,900 7,935,822 17,658,040 4,929,113 27,407,544 5,825,368 5,220,223 6,873,554 17,521 5,492,554 431,046 132,812 3,414,466 9,923,316 68,680,244 200,328 183,716 2,061 14,551 8,947,649 177,040 2,766,327 6,004,282 6,474,504 6,340,030 2,895,929 605,324 2,044,374 10,131 537,706 119,648 58,164 68,754 2,482,581 24,445,092 289,189 226,410 1,824 60,955 12,329,298 163,657 3,835,543 8,330,098 4,808,109 8,345,713 3,265,978 1,030,051 2,150,234 10,830 1,172,535 132,122 66,977 516,986 2,861,634 28,633,943 17. Information on Value Adjustments and Change in Credit Provisions Beginning Balance Provisions Reversal of Provisions Other Value Adjustments Stage 3 Provisions Stage 1 and Stage 2 Provisions 14,371,889 11,659,777 5,924,495 13,024,189 (4,397,780) (7,757,278) Ending Balance 15,898,604 16,926,688 18. Exposures Subject To Countercyclical Capital Buffer Explanations about exposures subject to consolidated private sector receivables: Country Turkey Germany TRNC England Albania Malta Kosovo Russia Marshall Island Switzerland Other RWA Calculations for Private Sector Loans in Banking Book 443,362,416 6,242,705 3,543,077 3,445,511 1,501,401 1,139,770 1,084,821 1,043,174 821,335 790,878 1,812,210 RWA calculations for Trading Book Total 820,806 1,043 8,095 49,931 444,183,222 6,242,705 3,543,077 3,446,554 1,509,496 1,139,770 1,084,821 1,043,174 821,335 790,878 1,862,141 358 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 359 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen III. Explanations on Currency Risk The exposed currency risk of the Group is result of the difference between the assets denominated in and indexed to foreign currencies and liabilities denominated in foreign currencies. Furthermore, parity fluctuations of different foreign currencies are another element of the currency risk. The currency risk of the Parent Bank is managed by the internal currency risk limits which are established as a part of the Parent Bank’s risk policies. The Assets and Liabilities Committee and the Assets and Liabilities Management Unit meet regularly to take the necessary decisions for hedging exchange rate and parity risks, within the framework of the determined by the “Net Foreign Currency Overall Position/ Shareholders’ Equity” ratio, which is a part of the legal limits requirement and the internal currency risk limits specified by the Board of Directors. Foreign exchange risk management decisions are strictly applied. In measuring the exposed currency risk of the Group, the Standard Method, the Value at Risk Model (VAR) and Expected Shortfall Model are used as applied in the statutory reporting. Measurements made for the Parent Bank within the scope of the Standard Method are carried out on a monthly basis and form the basis of determining the capital requirement for hedging currency risk. Risk measurements made within the context of the VAR are practiced on a daily basis using the historical and Monte Carlo simulation methods. Scenario analyses are conducted to support the calculations made within the VAR context. Expected loss calculations are also carried out daily. The results of the measurements made on currency risk are reported to the Key Management and the risks are closely monitored by taking into account the market and the economic conditions.. The Parent Bank’s foreign currency purchase rates at the date of balance sheet and for the last five working days of the period announced by the Parent Bank in TL are as follows: Date December 31, 2021 December 30, 2021 December 29, 2021 December 28, 2021 December 27, 2021 December 24, 2021 USD 13.0850 12.9097 12.4600 11.6965 11.3492 11.5260 EUR 14.8390 14.6396 14.1297 13.2381 12.8552 13.0359 The Parent Bank’s last 30-days arithmetical average foreign currency purchase rates: USD: 13.2847 TL EURO: 15.0164 TL Sensitivity to currency risk: The Group’s sensitivity to any potential change in foreign currency rates has been analyzed. Within this framework, 10% change is anticipated in USD, EUR, RUB and GEL currencies and the possible impact of the related change is presented below. 10% is the ratio that is used in the internal reporting of the Parent Bank. USD EURO RUB GEL ( 1) Indicates the values before tax. % Change in Foreign Currency 10 % increase 10 % decrease 10 % increase 10 % decrease 10 % increase 10 % decrease 10 % increase 10 % decrease Current Period 416,075 (416,075) 471,624 (471,624) 155,517 (155,517) 84,092 (84,092) Effects on Profit/Loss (1) Priod Period 255,991 (255,991) 447,405 (447,405) 74,306 (74,306) 42,425 (42,425) Information on currency risk: Current Period Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey (1) Banks Financial Assets at Fair Value through Profit/Loss (2) Money Market Placements Financial Assets at Fair Value through Other Comprehensive Income Loans (2) (3) Investments in Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Financial Assets measured at Amortized Cost Derivative Financial Assets Held for Risk Management (2) Tangible Assets (2) Intangible Assets (2) Other Assets (2) Total Assets Liabilities Bank Deposits Foreign Currency Deposits (4) Money Market Funds Funds Provided from Other Financial Inst, Marketable Securities Issued (5) Miscellaneous Payables Derivative Financial Liabilities Held for Risk Management Other Liabilities (2) (6) Total Liabilities Net Balance Sheet Position Net Off Balance Sheet Position Derivative Financial Assets (7) Derivative Financial Liabilities (7) Non-Cash Loans Prior Period Total Assets Total Liabilities Net Balance Sheet Position Net Off Balance Sheet Position Derivative Financial Assets Derivative Financial Liabilities Non-Cash Loans EUR USD Other FC Total 80,075,530 65,333,764 21,316,549 166,725,843 11,808,608 2,654,049 44,965 5,045,869 154,996,889 10,092,216 7,631,806 10,319,940 5,560,441 41,916,588 153,118,519 7,026 5,704,566 32,220,764 15,846,296 44,965 46,969,483 313,819,974 1,030,718 171,824 4,364,918 317,691 2,041 1,094,646 95,345 6,490,282 317,691 269,210 2,463,729 258,292,181 9,307,483 292,085,026 959,371 45,057,884 12,730,583 595,435,091 3,464,936 158,949,135 1,409,347 44,829,483 885,469 693,455 212,905,642 9,499,108 78,036,629 78,330,240 5,026,132 640,881 75,504,211 38,073 144,927 408,666 4,799,272 447,358,988 10,908,455 122,904,185 78,475,167 6,320,267 5,055,761 214,594,131 9,115,724 393,606,930 806,376 77,543,134 14,977,861 685,744,195 43,698,050 (38,937,607) 30,518,476 69,456,083 63,318,833 136,114,708 123,781,189 12,333,519 (8,137,589) 18,521,848 26,659,437 37,692,915 (101,521,904) 107,856,716 170,928,671 63,071,955 81,181,608 (32,485,250) 34,162,909 39,148,208 4,985,299 8,702,425 161,959,197 223,069,097 (61,109,900) 63,964,318 95,161,394 31,197,076 40,551,047 26,508,062 48,563,717 (22,055,655) 23,340,880 27,083,201 3,742,321 4,514,070 (90,309,104) 103,082,018 240,595,355 137,513,337 153,202,866 324,581,967 395,414,003 (70,832,036) 79,167,609 140,766,443 61,598,834 82,758,032 ( 1) Precious metals accounts amounting TL 20,081,293 are included. ( 2) In accordance with the principles of the “Regulation on the Calculation and Implementation of Foreign Currency Net General Position/Equity Standard Ratio by Banks on Consolidated and Non-Consolidated Basis”, Derivative Financial Instruments Foreign Currency Income Accruals (TL 16,544,514) Operating Lease Development Costs (TL 6,503), Deferred Tax Asset (TL 2,538,415), Prepaid Expenses and Taxes (TL 274,189), expected credit loss for stage 1 and stage 2 (TL (10,986,135) Intangible Assets (TL 167,743) Assets Held for Sale and Related to Discontinued Operations(Net)(TL 21,988) in assets and Derivative Financial Instruments Foreign Currency Expense Accruals (TL 4,035,130), Shareholders’ Equity (TL (2,755,748)) and expected credit loss for stage 1 and stage 2 for non-cash loans (TL 244,209) are not taken into consideration in the currency risk measurement. ( 3) Includes leasing and factoring receivables and foreign currency indexed loans which are recognized under TL account. Of the total amount of TL 2,321,114 of the aforementioned loans; TL 1,051,332 is USD indexed, TL 1,262,951 is EUR indexed, TL 1,189 is CHF indexed and TL 5,642 is GBP indexed. ( 4)The item includes TL 54,040,023 precious metals deposit accounts. ( 5) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. ( 6) The borrower funds are presented in the “Other Liabilities” according to their type of currency. ( 7) The derivative transactions in the context of forward foreign currency options and foreign currency forwards definitions included in the Communiqué above are taken into consideration. 360 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 361 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen IV. Explanations on Interest Rate Risk a. Interest sensitivity of assets, liabilities and off-balance sheet items (Based on time remaining to repricing date): Interest rate risk is defined as the impairment in the value of the interest sensitive assets, liabilities and off-balance sheet items due to interest rate fluctuations. A method which takes into consideration the effect of standard interest shocks on the economic values of the Parent Bank’s on and off-balance sheet interest sensitive accounts is used for measuring the interest rate risk arising from the banking accounts, whereas the interest rate risk related to interest sensitive financial instruments followed under trading accounts is assessed within the scope of market risk. Current Period Assets Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Non-interest Bearing Total Potential effects of interest rate risk on the Parent Bank’s assets and liabilities, market developments, the general economic environment and expectations are regularly followed in meetings of the Asset-Liability Committee, where further measures to reduce risk are taken when necessary. The Parent Bank’s on and off-balance sheet interest sensitive accounts other than the assets and liabilities exposed to market risk are monitored and controlled by the limits on the ratio of structural interest rate risk to equity and tier 1 capital determined by the Board within the scope of asset-liability management risk policy. Moreover, scenario analyses formed in line with the average maturity gaps and the historical data and expectations are also used in the management of the related risk. In addition, the effect of the change in interest rates on the Parent Bank's net interest income is analyzed regularly. Within this scope, the ratio of the change expected to occur in net interest income under carious scenarios to the limit on Tier I capital is monitored and regularly reported to the top management. Interest rate sensitivity: In this part, the sensitivity of the Bank’s assets and liabilities to the interest rates has been analyzed assuming that the yearend balance figures were the same throughout the year. Mentioned analysis shows how the FC and TL changes in interest rates by one point during the one-year period affect the Group's income accounts and shareholders' equity under the assumption maturity structure and balances are remain the same all year round at the end of the year. During the measurement of the Group’s interest rate sensitivity, the profit/loss on the asset and liability items that are evaluated with market value are determined by adding to/deducting from the difference between the expectancy value of the portfolio after one year in case there is no change in interest rates and the value of the portfolio one year later, which is measured after the interest shock, the interest income to be additionally earned/to be deprived of during the one year period due to the renewal or repricing of the related portfolio at the interest rates formed after the interest shock. On the other hand, in the profit/loss calculation of assets and liabilities that are not evaluated by the current market prices, it is assumed that assets and liabilities with fixed interest rates will be renewed at maturity date and the assets and liabilities having variable interest rates will be renewed at the end of repricing period with the market interest rates generated after the interest shock. Within this context, ceteris paribus, the possible changes that may occur in the Bank’s profit and shareholders’ equity in case of 100 base point increase/decrease in TL and FC interest rates on the reporting day are given below: % Change in the Interest Rate (1) Effect On Profit/Loss Effect on Equity (2) TL 100 bps increase 100 bps decrease FC (3) 100 bps increase 100 bps decrease Current Period 977,167 (1,068,195) Prior Period 541,645 (1,048,424) Current Period (2,608,623) 2,871,166 Prior Period (1,624,307) 1,804,250 (1) Changes in interest rates is calculated assuming that the expectations reflected in inflation. The effects on the profit/loss and shareholders’ equity are stated with their before tax values. (2) The effect on the shareholders’ equity is arising from the change of the fair value of securities followed under Financial Assets at Fair Value through other comprehensive income. (3) The negative shock imposed on FC interest rates remained below the aforementioned rates in some maturity segments due to LIBOR rates being in low levels. Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 14,634,682 169,386,543 184,021,225 Banks 7,522,586 1,446,001 159,067 26,067,588 35,195,242 Financial Assets at Fair Value through Profit/Loss (1) 9,268,937 10,152,530 7,785,436 6,127,712 300,260 5,596,590 39,231,465 Money Market Placements 2,061,138 775,354 156,572 2,993,064 Financial Assets at Fair Value Through Other Comprehensive Income 21,648,338 19,425,001 17,779,889 26,013,946 23,874,084 1,202,401 109,943,659 Loans (2) 115,872,992 60,061,057 177,179,502 206,721,651 53,925,304 982,214 614,742,720 Financial Assets Measured at Cost 8,800,527 13,843,894 17,813,725 8,513,617 2,573,565 51,545,328 Other Assets (3) Total Assets Liabilities Bank Deposits Other Deposits 5,055,341 76,608 236,851 149,824 81,212,746 86,731,370 184,864,541 105,780,445 221,111,042 247,526,750 80,673,213 284,448,082 1,124,404,073 1,639,400 1,720,923 713,064 1,050,890 1,302,757 6,427,034 255,680,706 36,249,663 24,356,836 3,437,720 962,851 290,564,393 611,252,169 Money Market Funds 46,847,607 2,541,576 4,322,725 25,945 53,737,853 Miscellaneous Payables 2,230,493 60,121 46,585 26,822 73,969,740 76,333,761 Marketable Securities Issued (4) 2,104,244 11,647,841 22,621,436 35,838,166 17,344,902 Funds Provided from Other Financial Institutions Other Liabilities (5)(6) Total Liabilities 12,455,710 53,579,724 50,954,407 9,616,624 2,317,218 5,230,548 4,443,819 3,981,506 1,373,120 1,376,106 141,767,885 158,172,984 326,188,708 110,243,667 106,996,559 51,369,287 22,001,077 507,604,775 1,124,404,073 89,556,589 128,923,683 Balance Sheet Long Position Balance Sheet Short Position (141,324,167) (4,463,222) (223,156,693) (368,944,082) 114,114,483 196,157,463 58,672,136 368,944,082 Off Balance Sheet Long Position 3,422,542 16,148,347 Off Balance Sheet Short Position (1,052,722) (9,325,566) (6,159,597) 19,570,889 (16,537,885) Total Position (137,901,625) 11,685,125 113,061,761 186,831,897 52,512,539 (223,156,693) 3,033,004 (1) Includes Derivative financial assets (2) Includes leasing and factoring receivables. (3) The expected loss provisions are shown in Non-Interest column. (4) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. (5) Shareholders’ equity is included in “non-interest bearing” column. (6) The borrower funds are presented in “Up to 1 month” column in other liabilities. 362 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 363 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Interest rate sensitivity of assets, liabilities and off-balance sheet items (Based on time remaining to repricing date): b. Average interest rates applied to monetary financial instruments: Prior Period Assets Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Non-interest Bearing Total Current Period Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 3,079,150 68,891,240 71,970,390 Cash (Cash in Vault. Foreign Currency Cash. Money in Transit. Cheques Purchased) and Balances with the Central Bank of Turkey Banks 9,914,573 831,263 422,451 11,181,346 22,349,633 Financial Assets at Fair Value through Profit/Loss (1) 1,632,396 1,826,743 4,458,677 1,431,863 424,882 3,735,574 13,510,135 Money Market Placements 1,131,261 628,745 441,521 2,201,527 Financial Assets at Fair Value Through Other Comprehensive Income 18,682,163 10,695,046 15,703,290 14,935,126 16,511,941 1,299,704 77,827,270 Loans (2) 80,443,869 42,331,891 114,173,682 149,466,509 40,014,410 649,355 Financial Assets Measured at Cost Other Assets (3) Total Assets Liabilities Bank Deposits Other Deposits Money Market Funds Miscellaneous Payables Marketable Securities Issued (4) Funds Provided from Other Financial Institutions 427,079,716 45,604,603 8,740,222 5,348,759 9,320,990 18,221,372 7,379,635 1,942,384 33,233 114,513 151,549 51,960,935 57,608,989 128,972,393 65,667,911 153,535,506 173,364,682 58,893,617 137,718,154 718,152,263 2,739,231 677,800 170,153 993,278 1,123,810 5,704,272 160,355,911 39,927,713 16,434,900 2,437,702 617,266 156,215,629 375,989,121 25,547,229 3,240,601 1,887,417 11,642 2,709 425,776 6,231 11,076 49,035,045 52,295,662 25,984,647 5,604,915 14,328,261 32,315,785 9,789,049 6,369,907 32,386,022 27,882,004 6,388,015 4,576,940 63,925,427 77,602,888 Other Liabilities (5)(6) 3,091,277 2,904,132 1,807,737 1,284,754 1,196,611 106,365,735 116,650,246 Total Liabilities 203,231,573 81,514,933 61,055,062 43,430,610 16,179,866 312,740,219 718,152,263 Balance Sheet Long Position Balance Sheet Short Position (74,259,180) (15,847,022) (175,022,065) (265,128,267) 92,480,444 129,934,072 42,713,751 265,128,267 Off Balance Sheet Long Position 1,403,506 7,809,464 1,050,344 Off Balance Sheet Short Position (2,449,955) (7,196,233) 10,263,314 (9,646,188) Total Position (72,855,674) (8,037,558) 93,530,788 127,484,117 35,517,518 (175,022,065) 617,126 (1) Includes Derivative financial assets. (2) Includes leasing receivablesand factoring receivables. (3) The expected loss provisions are shown in Non-Interest column. (4) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. (5) Shareholders’ equity is included in “non-interest bearing” column. (6) The borrower funds are presented in “Up to 1 month” column in other liabilities. Banks Financial Assets at Fair Value through Profit/Loss Money Market Placements Financial Assets at Fair Value Through Other Comprehensive Income Loans (1) Financial Assets Measured at Cost Liabilities Bank Deposits Other Deposits Money Market Funds Miscellaneous Payables Debt Securities Issued (2) Funds Funds Provided from Other Financial Institutions EUR % 0.35 1.92 (2.60) 3.86 4.29 3.11 0.35 0.06 0.65 0.10 1.57 (1) Includes leasing receivables and factoring receivables. (2) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. Prior Period Assets Cash (Cash in Vault. Foreign Currency Cash. Money in Transit. Cheques Purchased) and Balances with the Central Bank of Turkey Banks Financial Assets at Fair Value through Profit/Loss Money Market Placements EUR % 1.37 2.09 Financial Assets at Fair Value Through Other Comprehensive Income 2.29 Loans (1) Financial Assets Measured at Amortized Cost Liabilities Bank Deposits Other Deposits Money Market Funds Miscellaneous Payables Debt Securities Issued (2) Funds Funds Provided from Other Financial Institutions 4.45 1.94 0.26 0.09 0.61 14.04 1.62 (1) Includes leasing receivablesand factoring receivables. (2) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. JPY % JPY % USD % 0.22 2.70 5.21 5.30 5.03 1.09 0.14 1.45 6.43 0.20 2.01 USD % 0.28 4.05 5.07 5.73 5.05 1.22 0.17 1.72 5.87 0.20 2.18 TL % 8.50 18.39 15.78 16.63 21.47 18.30 19.21 15.50 11.57 14.19 18.37 11.00 16.69 TL % 12.00 16.80 15.09 17.11 14.11 14.36 12.85 16.50 10.65 16.98 14.04 12.50 13.98 364 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 365 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen V. Explanations on Equity Shares Risk Arising from Banking Book a. Accounting policies related to equity investments in associates and subsidiaries can be seen in the Section Three Note III.2. b. Balance sheet value of equity investment, fair value and for publicly traded, if the market value is different from the fair value comparison to the market price: Investment in Shares Quoted Investment in Shares Group A Subsidiaries Financial Subsidiaries Non-Financial Subsidiaries (1) Non-Quoted Associate and Subsidiaries Financial Subsidiaries (2) Non-Financial Subsidiaries Subsidiaries Financial Subsidiaries Non-Financial Subsidiaries Book Value Fair Value Market Value (3) Comparison 41,580,067 20,127,409 280,196 36,655 1,466,545 (1) Türkiye Şişe ve Cam Fabrikaları A.Ş. (2) Accounted under the equity method in the consolidated financial statements according to TAS 28 and 1st clause of Article 5 of the “Communiqué on the Preparation of Consolidated Financial Statements”. (3) Refers to the total market value of the company. c. Information on revaluation surpluses and unrealised gains/losses on equity securities and results included in Common Equity and Tier II Capital: Portfolio Private Equity Investments Shares Traded on a Stock Exchange Other Stocks Total Realised Gains/ losses During the period Revaluation Increases Unrealized Gains and Losses Total Including into Tier I Capital (1) Total Including into Tier I Capital Total 18,580,963 18,580,963 236,327 236,327 18,817,290 18,817,290 (1) Represents the amounts reflected to equity according to the equity method d. Capital requirement as per equity shares: Portfolio Private Equity Investments Share Traded on a Stock Exchange Other Stocks Total Carrying Value Total RWA Minimum Capital Requirement 20,127,409 1,783,396 21,910,805 20,127,409 2,203,690 22,331,099 1,610,193 176,295 1,786,488 VI. Explanations on Liquidity Risk Management and Consolidated Liquidity Coverage Ratio Liquidity risk may occur as a result of funding long-term assets with short-term liabilities. The Groups’ liquidity is managed by the Asset-Liability Management Committee in accordance with the business strategies, legal requirements, current market conditions and expectations regarding the economic and financial conjuncture. The Parent Bank’s principal source of funding is deposits. Although the average maturity of deposits is shorter than that of assets as a result of the market conditions, the Bank’s wide network of branches and stable core deposit base are its most important safeguards of funding. Additionally, the Bank borrows medium and long-term funds from institutions abroad. Concentration limits are generally used in deposit and non-deposit borrowings in order to prevent adverse effects of concentrations in the liquidity risk profile of the Bank. In order to meet the liquidity requirements that may arise from market fluctuations, considerable attention is paid to the need to preserve liquidity and efforts in this respect are supported by projections of Turkish Lira and Foreign Currency (FC) cash flows. The term structure of TL and FC deposits, their costs and amounts are monitored on a daily basis. During these studies historical events and future expectations are taken into account as well, based upon cash flow projections, prices are differentiated for different maturities and measures are taken accordingly to meet liquidity requirements. Moreover, potential alternative sources of liquidity are determined to be used in case of extraordinary circumstances. The liquidity risk exposure of the Group has to be within the risk capacity limits which are prescribed by the legislation and the Group’s risk appetite defined in its business strategy. It is essential for the Group to have an adequate level of unencumbered liquid asset stock which can be sold or pledged, in case a large amount of reduction in liquidity sources occurs. The level of liquid asset buffer is determined in accordance with the liquidity risk tolerance which is set by the Board of Directors. Asset-Liability Management Committee is responsible for monitoring the liquidity position, determining appropriate sources of funds and deciding the maturity structure in accordance with the limits which are set by the Board of Directors. The Treasury Division is responsible for monitoring the liquidity risk, in accordance with the Asset-Liability Management Risk Policy limits, objectives set out in the business plan and the decisions taken at the meetings of Asset-Liability Management Committee. The Treasury Division is also responsible for making liquidity projections and taking necessary precautions to reduce liquidity risk, by using the results of stress testing and scenario analysis. Within this scope, Treasury Division is monitoring the Turkish Lira (TL) and foreign currency (FC) liquidity position instantly and prospectively based on the information provided from the branches, business units and IT infrastructure of the Bank. The assessment of long-term borrowing opportunities is carried out regularly in order to balance the cash inflows and outflows and to mitigate the liquidity risk. The Bank creates liquidity through repurchase agreements and secured borrowings based on the high quality liquid asset portfolio, through securitization and other structured finance products which are created from the asset pools like credit card receivables and retail loans. The Bank applies liquidity stress tests to measure liquidity risk. In this approach, in liquidity stress scenarios in which parameters are determined by the Board of Directors, the ability of the Bank’s liquid assets’ in covering cash outflows within a one-month horizon has been described. Liquidity adequacy limits for TL and FC are determined by Board of Directors, based on the liquidity requirements and risk tolerance of the Bank. The liquidity risk is measured by the Risk Management Division and results are reported to the related executive functions, senior management and Board of Directors. The reflections of conveniences provided for loan customers on repayments due to the COVID-19 outbreak and pressure in financial markets on the Bank’s liquidity adequacy are analyzed under various scenarios. It is essential for the Bank to monitor the liquidity position and funding strategy continuously. In case of a liquidity crisis that may arise from unfavorable market conditions, extraordinary macroeconomic situations and other reasons which are beyond the control of the Bank. “Emergency Action and Funding Plan” is expected to be commissioned. In that case, related committees have to report the precautions taken and their results to the Board of Directors through Audit Committee. The Group’s Foreign Currency (FC) and total (TL+FC) liquidity coverage ratio (LCR) averaged for the last three months are given below. October 31, 2021 November 30, 2021 December 31, 2021 October 31, 2020 November 30, 2020 December 31, 2020 TL+FC 156.66 172.64 199.25 TL+FC 162.85 172.12 172.53 Current Period FC 434.83 468.88 507.82 Prior Period FC 300.96 418.24 475.82 366 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 367 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen The Bank’s Foreign Currency (FC) and total (TL+FC) liquidity coverage ratio (LCR) averaged for the last three months are given below. Total Unweighted Value (1) Total Weighted Value (1) TL+FC FC TL+FC FC Liquidity Coverage Ratio: Current Period High Quality Liquid Assets High Quality Liquid Assets Cash Outflows Retail and Small Business Customers, of which; 385,342,542 255,632,298 35,792,010 25,563,230 Stable deposits Less stable deposits 54,844,879 2,742,244 330,497,663 255,632,298 33,049,766 25,563,230 Unsecured wholesale funding, of which; 187,046,797 112,910,239 95,886,913 56,879,781 Operational deposits Non-operational deposits Other unsecured funding Secured funding 1,255,644 16,359 313,911 4,090 134,597,977 98,576,273 60,491,359 43,239,644 51,193,176 14,317,607 35,081,643 13,636,047 65,495 53,327 Other cash outflows, of which; 8,505,992 12,874,684 8,505,992 12,874,684 Derivatives cash outflow and liquidity needs related to market valuation changes on derivatives or other transactions Obligations related to structured financial products Commitments related to debts to financial markets and other off- balance sheet obligations Other revocable off-balance sheet commitments and contractual obligations Other irrevocable or conditionally revocable off-balance sheet obligations Total Cash Outflows Cash Inflows Secured lending Unsecured lending Other cash inflows Total Cash Inflows Total HQLA Stock Total Net Cash Outflows Liquidity Coverage Ratio (%) 4,375,826 8,744,518 4,375,826 8,744,518 4,130,166 4,130,166 4,130,166 4,130,166 53,066,816 46,671,687 2,653,341 2,333,584 287,990,929 156,050,151 29,290,631 17,577,368 172,194,382 115,281,974 112,194 36,588 1,571 1,356 63,377,888 46,531,386 52,758,960 40,975,721 7,972,830 61,206,589 7,972,830 61,206,589 71,462,912 107,774,563 60,733,361 102,183,666 Upper Limit Applied Values 196,731,749 137,922,605 111,461,021 29,261,943 176.18 470.51 (1) The simple arithmetic average calculated for the last three months of weekly simple arithmetic average. 196,731,749 137,922,605 Retail and Small Business Customers, of which; 284,278,935 184,412,860 26,054,861 18,441,286 Prior Period High Quality Liquid Assets High Quality Liquid Assets Cash Outflows Total Unweighted Value (1) Total Weighted Value (1) TL+FC FC TL+FC FC 137,652,570 82,706,283 Stable deposits Less stable deposits Unsecured funding, of which; Operational deposits Non-operational deposits Other unsecured funding Secured funding Other cash outflows, of which; Derivatives cash outflow and liquidity needs related to market valuation changes on derivative or other transactions Obligations related to structured financial products Commitments related to debts to financial markets and other off- balance sheet obligations Other revocable off-balance sheet commitments and contractual obligations Other irrevocable or conditionally revocable off-balance sheet obligations 47,460,641 236,818,294 127,724,546 1,312,536 92,179,706 34,232,304 6,752,800 2,885,234 184,412,860 69,111,661 77,180 61,209,683 7,824,798 9,938,661 6,071,095 2,373,032 23,681,829 67,880,137 328,134 43,827,669 23,724,334 49,796 6,752,800 - 18,441,286 36,572,634 19,295 29,078,250 7,475,089 43,392 9,938,661 2,885,234 6,071,095 3,867,566 3,867,566 3,867,566 3,867,566 38,073,361 32,472,635 1,903,668 1,623,632 186,692,719 86,537,556 19,605,398 10,786,378 Total Cash Outflows Cash Inflows Secured lending Unsecured lending Other cash inflows Total Cash Inflows Total HQLA Stock Total Net Cash Outflows Liquidity Coverage Ratio (%) 270,305 46,427,450 5,169,196 51,866,951 203,045 26,630,710 46,416,513 73,250,268 122,246,660 77,405,983 12,887 35,145,249 5,169,196 40,327,332 12,887 22,537,576 46,416,513 68,966,976 Upper Limit Applied Values 137,652,570 81,919,328 169.17 82,706,283 21,893,173 398.34 ( 1) The simple arithmetic average calculated for the last three months of the monthly simple arithmetic average.. Compared to prior period, an increase in the total liquidity coverage ratio and a decrease in the foreign currency liquidity coverage ratio has been observed for the fourth quarter of 2021. Foreign currency liquidity coverage rate decreased due to the increase in net cash outflows, while the total liquidity coverage rate increased due to the increase in the stock of high quality liquid assets. Total and Foreign Currency liquidity coverage ratios are continuing to hover far above the minimum level (respectively 100% and 80%) pursuant to legal legislations. The Liquidity Coverage Ratio which has been introduced to ensure banks to preserve sufficient stock of high quality assets to meet their net cash outflows that may occur in the short term is calculated as per the Communiqué on “Measurement and Assessment of the Liquidity Coverage Ratio of Banks’ published by BRSA. The ratio is directly affected by the level of unencumbered high quality assets which can be liquidated at any time and net cash inflows and outflows arising from the Group’s assets, liabilities and off-balance sheet transactions. The Group’s high quality liquid asset stock primarily consists of cash and the accounts held at CBRT and unencumbered government bonds which are issued by Turkish Treasury. The Bank’s principal source of funding is deposits. In term of non-deposit borrowing, funds received from repurchase agreements, marketable securities issued and funds borrowed from financial institutions are among the most significant funding sources. In order to manage liquidity effectively, concentration of liquidity sources and usages should be avoided. Due to the strong and stable core deposit base of the Bank, deposits are received from a diversified customer portfolio. In addition, in order to provide diversification in liquidity sources and usages, liquidity concentration limits are used effectively. Total amount of funds borrowed from a single counterparty or a risk group is closely and instantaneously monitored, taking liquidity concentration limits into account. In addition to these, the cumulative liquidity deficits that the Parent Bank is exposed to in various maturity tranches are periodically monitored and reported to the senior management. Cash flows of derivatives that will take place within 30 days are taken into account in calculation of liquidity coverage ratio. Cash outflows of derivatives that arise from margin obligations, are reflected to the results in accordance with the methodology articulated in the related legislation. Liquidity risk of the Bank, its foreign branches and subsidiaries that are to be included in consolidation are managed within the regulatory limits and in accordance with the Group strategies. For the purposes of effectiveness and sustainability of liquidity management, funding sources of Group compaiesy and funding diversification opportunities in terms of markets, instruments and tenor are evaluated and liquidity position of the group companies are monitored continuously by the Parent Bank. 368 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 369 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Presentation of assets and liabilities according to their remaining maturities: Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Unallocated (1) Total Current Period Assets Cash (Cash in Vault, Foreign Currency Cash, Money in Transit, Cheques Purchased) and Balances with the Central Bank of Turkey 96,285,554 87,735,671 Banks 28,224,705 5,365,469 1,446,001 159,067 Financial Assets at Fair Value through Profit/ Loss (2) 5,593,103 9,672,393 10,262,081 7,834,631 5,835,502 33,755 Money Market Placements 2,061,138 775,354 156,572 184,021,225 35,195,242 39,231,465 2,993,064 Financial Assets at Fair Value Through Other Comprehensive Income 1,202,401 1,198,675 6,206,617 7,535,637 56,875,189 36,925,140 109,943,659 In compliance with the “TFRS 7”, the following table indicates the maturities of the Group’s major financial liabilities which are not qualified as derivatives. The following tables have been prepared by referencing the earliest dates of payments without discounting the liabilities. The interest to be paid to the related liabilities is included in the following table. Adjustments column shows the items that may cause possible cash flows in the following periods. The values of the related liabilities registered in balance sheet do not include these amounts. Current Period Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total Adjustments (-) Balance Sheet Value Liabilities Deposits Funds Provided from Other Financial Institutions 291,867,150 257,817,496 38,441,570 25,318,327 4,584,375 1,145,789 619,174,707 1,495,504 617,679,203 5,179,465 10,843,245 48,493,365 46,585,229 23,859,359 134,960,663 6,036,980 128,923,683 Money Market Funds 46,912,274 2,550,211 4,360,066 26,546 53,849,097 111,244 53,737,853 Marketable Securities Issued (Net) (1) Leasing Liabilities 2,348,478 9,678,950 26,563,296 46,508,859 23,533,539 108,633,122 19,076,533 89,556,589 35,971 82,418 272,940 922,507 506,016 1,819,852 580,138 1,239,714 Loans (3)(4) 22,094,908 58,753,675 57,445,306 167,476,665 225,670,531 58,856,543 24,445,092 614,742,720 ( 1) Includes bonds that have the nature of issued secondary subordinated loans, which are classified as subordinated loans on the balance sheet. Financial Assets Measured at Amortized Cost Other Assets Total Assets Liabilities Bank Deposits Other Deposits Funds Provided from Other Financial Institutions Money Market Funds Marketable Securities Issued (5) 1,463,602 2,231,316 5,193,950 29,888,248 12,768,212 51,545,328 16,173,297 8,361,915 178,859 301,254 1,244,777 60,471,268 86,731,370 169,573,968 174,612,538 78,545,534 188,657,776 319,514,247 108,583,650 84,916,360 1,124,404,073 1,302,757 1,639,400 1,720,923 713,064 1,050,890 290,564,393 255,680,365 36,248,550 24,352,821 3,443,189 962,851 5,237,609 10,472,605 46,836,875 43,778,644 22,597,950 46,847,607 2,541,576 4,322,725 25,945 2,104,244 9,351,397 22,621,436 35,838,166 19,641,346 6,427,034 611,252,169 128,923,683 53,737,853 89,556,589 76,333,761 Miscellaneous Payables 51,022,153 24,813,302 348,317 46,871 103,118 Other Liabilities (6) 18,999 10,753,057 6,009,848 4,314,889 1,593,751 300,029 135,182,411 158,172,984 Total Liabilities 342,908,302 347,075,584 66,693,216 103,208,681 85,833,703 43,502,176 135,182,411 1,124,404,073 Liquidity Gap -173,334,334 -172,463,046 11,852,318 85,449,095 233,680,544 65,081,474 -50,266,051 Net Off Balance Sheet Position 1,303,544 2,537,428 314,978 1,850,956 494,422 Derivative Financial Assets 154,345,598 63,995,026 43,416,267 67,227,055 65,745,376 Derivative Financial Liabilities 153,042,054 61,457,598 43,101,289 65,376,099 65,250,954 Non-cash Loans 117,111,116 3,824,077 10,279,933 47,548,648 14,381,524 6,470,495 6,501,328 394,729,322 388,227,994 199,615,793 Prior Period Total Assets Total Liabilities Liquidity Gap Net Off Balance Sheet Position 70,882,432 108,306,733 47,740,826 129,951,527 218,540,351 78,162,987 64,567,407 718,152,263 191,905,025 217,784,796 52,971,043 60,643,545 67,140,284 26,790,441 100,917,129 718,152,263 (121,022,593) (109,478,063) (5,230,217) 69,307,982 151,400,067 51,372,546 (36,349,722) (2,889) (2,546,299) (3,056,205) (152,308) 699,240 7,774 Derivative Financial Assets 1,253,008 73,124,894 48,885,862 29,307,917 41,828,035 48,022,635 Derivative Financial Liabilities 1,255,897 75,671,193 51,942,067 29,460,225 41,128,795 48,014,861 Non-cash Loans 67,981,107 2,833,862 6,189,109 25,982,187 14,953,815 4,946,327 (5,050,687) 242,422,351 247,473,038 122,886,407 Prior Period Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total Adjustments (-) Balance Sheet Value Liabilities Deposits Funds Provided from Other Financial Institutions Money Market Funds Marketable Securities Issued (Net) (1) Leasing Liabilities 157,339,437 163,515,468 40,912,349 16,801,854 3,500,350 735,236 382,804,694 1,111,301 381,693,393 3,136,352 5,045,193 27,715,328 32,071,745 14,548,478 82,517,096 4,914,208 77,602,888 25,611,420 11,687 428,338 26,051,445 66,798 25,984,647 2,274,376 2,511,577 17,477,662 40,245,888 16,003,969 78,513,472 14,588,045 63,925,427 26,713 56,965 205,568 675,895 417,762 1,382,903 464,163 918,740 ( 1) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. The following table shows the remaining maturities of non-cash loans of the Group. Current Period Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total Letters of Credit Letters of Guarantee Acceptances Other Total 39,975,559 75,667,646 583,828 884,083 1,442,386 1,355,867 1,010,984 14,840 1,343,837 4,648,587 1,266,738 196,642 6,702,245 32,852,294 11,984,768 4,104,143 2,233,851 9,932,465 44,745 48,873,749 132,666,963 13,805,873 115,302 1,085,273 2,169,710 4,269,208 117,111,116 3,824,077 10,279,933 47,548,648 14,381,524 6,470,495 199,615,793 Prior Period Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total Letters of Credit Letters of Guarantee Acceptances Other Total 14,423,731 52,890,702 66,504 600,170 1,183,876 1,282,444 367,542 1,206,403 5,581,173 198,728 4,150,104 16,223,311 10,231,470 3,293,179 832,602 4,083,376 600,170 3,700,319 823,298 67,981,107 2,833,862 6,189,109 25,982,187 14,953,815 1,653,148 4,946,327 22,593,911 88,071,210 9,050,343 3,170,943 122,886,407 ( 1) Assets, such as Tangible Assets, Subsidiaries and Associates, Office Supply Inventory, Prepaid Expenses and Non-Performing Loans, which are required for banking operations and which cannot be converted into cash in short-term, other liabilities such as Provisions which are not considered as payables and Shareholders’ Equity, are shown in ‘Unallocated” column. ( 2) The balances include financial derivative assets. ( 3) Includes leasing and factoring receivables. ( 4) Stage 3 Non performing loans are included in “Unallocated” column. ( 5) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. ( 6) The borrower funds are presented in “Up to 1 month” column in other liabilities. 370 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 371 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen The following table shows the remaining maturities of derivative financial assets and liabilities of the Group. c. Explanations on consolidated leverage ratio Current Period Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total Forwards Contracts- Buy Forwards Contracts- Sell Swaps Contracts -Buy Swaps Contracts -Sell Futures Transactions-Buy Futures Transactions-Sell Options-Call Options-Put Other Total Prior Period Forwards Contracts - Buy Forwards Contracts - Sell Swaps Contracts - Buy Swaps Contracts - Sell Futures Transactions - Buy Futures Transactions - Sell Options - Call Options – Put Other Total 9,789,528 10,177,720 7,650,678 7,694,897 120,101,356 48,549,092 133,617,738 49,670,442 7,696 7,967 5,122,288 5,201,143 23,362,216 922,465 175,595 2,949,375 2,919,767 4,920,313 14,817,597 14,931,354 22,481,946 22,068,513 591,886 595,566 4,012,940 3,962,813 3,054,941 4,796,590 4,598,985 62,186,646 60,350,931 670,002 62,720,302 62,225,880 3,025,074 3,025,074 37,054,393 37,402,956 316,039,342 327,933,504 1,522,047 779,128 15,109,677 15,108,797 32,007,472 307,387,652 125,452,624 86,517,556 132,603,154 130,996,330 782,957,316 Demand 816,023 914,210 778,672 2,508,905 Up to 1 Month 1-3 Months 3-12 Months 1-5 Years 5 Years and Over Total 8,645,929 8,521,913 50,595,003 62,209,114 306,435 330,779 2,883,278 2,882,495 4,322,816 4,484,575 34,514,507 44,558,222 1,888,709 1,408,440 628,963 626,246 12,421,141 8,395,451 9,149,971 8,961,042 16,909,423 17,162,503 960,069 1,056,468 2,033,885 2,030,192 504,589 2,553,562 2,546,661 38,527,288 37,834,949 46,181,823 46,174,049 747,185 747,185 1,840,812 1,840,812 25,488,301 25,428,401 186,728,044 207,938,837 3,155,213 2,795,687 8,134,123 8,126,930 22,099,853 148,796,087 100,827,929 58,768,142 82,956,830 96,037,496 489,895,389 VII. Explanations on Leverage Ratio a. Explanations on Differences Between Current and Prior Years’ Leverage Ratios The Bank’s consolidated leverage ratio is calculated in accordance with the principles of the “Regulation on Measurement and Evaluation of Banks’ Leverage Level”. The Bank’s consolidated Leverage ratio is 6.12 % (December 31, 2020: 7.12 %). According to Regulation the minimum leverage ratio is 3%. The changes in the leverage ratio are mostly due to the increase in the risk amounts. b. Summary Comparison Table Related to Total Amount of Asset and Risk Situated in The Consolidated Financial Statements Prepared in Accordance with TAS: Summary Comparison Table Related to Total Amount of Asset and Risk Situated in The Consolidated Financial Statements Prepared in Accordance with TAS The difference between Total Amount of Asset in the Consolidated Financial Statements Prepared in Accordance with TAS and the Communiqué on Preparation of Consolidated Financial Statements of Banks The difference between total amount and total risk amount of derivative financial instruments with credit derivative in the Communiqué on Preparation of Consolidated Financial Statements of Banks (2) The difference between total amount and total risk amount of risk investment securities or commodity collateral financing transactions in the Communiqué on Preparation of Consolidated Financial Statements of Banks (2) The difference between total amount and total risk amount of off-balance sheet transactions in the Communiqué on Preparation of Consolidated Financial Statements of Banks (2) The other differences between amount of assets and risk in the Communiqué on Preparation of Consolidated Financial Statements of Banks (2) Total Exposures (2) Current Period Prior Period 796,665,165 (1) 709,207,993 (7,123,860) (1) (8,944,270) (4,521,050) (3,351,515) 41,010,346 18,116,176 19,341,737 12,865,465 7,102,851 (806,281) 1,376,092,005 963,934,710 ( 1) As the consolidated financial statements dated 31.12.2021 prepared per paragraph 6 of article 5 of the "Communiqué on the Preparation of Consolidated Financial Statements of Banks" have not yet been published as of the report date pursuant the legal regulations, the consolidated financial statement balances of 30.06.2021 are included. ( 2) The amounts in the table represents the average of three months. On-Balance Sheet Items On-balance sheet items (excluding derivatives and SFTs. but including collateral) Asset amounts deducted in determining Basel III Tier 1 capital The total amount of risk on-balance sheet exposures Derivative exposures and credit derivatives Replacement cost associated with derivative financial instruments and credit derivatives The potential amount of credit risk with derivative financial instruments and credit derivatives The total amount of risk on derivative financial instruments with credit derivatives Investment securities or commodity collateral financing transactions The amount of risk investment securities or commodity collateral financing transactions (Excluding on balance sheet items) Risk amount of exchange brokerage operations Current Period (1) Prior Period (1) 1,025,401,026 (1,968,196) 1,023,432,830 23,322,566 4,521,050 27,843,616 730,977,764 (1,548,881) 729,428,883 10,703,858 3,351,515 14,055,373 5,751,181 5,669,548 The total amount of risk investment securities or commodity collateral financial transactions 5,751,181 5,669,548 Off -Balance Sheet Items Gross notional amount for off-balance sheet items Adjustments for conversion to credit equivalent amounts The total amount of risk for off-balance sheet items Capital and Total Exposures Tier 1 Capital Total Exposures Leverage Ratio Leverage Ratio ( 1) Three-month average of the amounts in Leverage Ratio table. VIII. Explanations on Other Price Risk 337,285,014 (18,220,636) 319,064,378 83,746,667 1,376,092,005 226,931,774 (12,150,868) 214,780,906 68,560,575 963,934,710 6.12 7.12 The Group is exposed to stock price risk due to its investments in companies being traded on the BIST. The Group's sensitivity to stock price risk at the reporting date was measured with an analysis. In the analysis, with the assumption of all other variables were held constant and the data (stock prices) used in the valuation method are 10 % higher or lower. According to this assumption in shares traded in Borsa Istanbul and followed under Financial Assets at Fair Value through Profit or Loss account, expected to have an effect amounting to TL 236,569 increase/decrease. IX. Explanations on Presentation of Assets and Liabilities at Fair Value 1. Information on fair values of financial assets and liabilities Financial Assets Money Market Placements Banks Financial Assets at Fair Value Through Other Comprehensive Income Financial Assets Measured at Amortized Cost Loans (1) Financial Liabilities Banks Deposits Other Deposits Funds Provided from Other Financial Institutions Marketable Securities Issued (2) Miscellaneous Payables and funds borrowed Book Value Fair Value Current Period Prior Period Current Period Prior Period 2,993,064 35,195,242 109,943,659 51,545,328 590,297,628 6,427,034 611,252,169 128,923,683 89,556,589 77,025,465 2,201,527 19,712,344 77,827,270 45,604,603 403,934,870 5,704,272 375,989,121 77,602,888 63,925,427 52,417,767 2,993,064 35,181,094 109,943,659 50,990,529 569,711,027 6,185,928 610,797,007 123,962,706 85,380,759 77,025,465 2,201,527 22,324,218 77,827,270 45,702,301 384,847,541 5,586,995 375,097,507 75,876,780 64,293,176 52,417,767 ( 1) Factoring and Leasing Receivables are included. ( 2) Includes Tier 2 subordinated bond which is classified on the balance sheet as subordinated loan. 372 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 373 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Strike prices, quotations, market prices determined by the CBRT and published in the Official Gazette and the values calculated by using alternative models, are taken as the basis in the fair value determination of financial assets at fair value through other comprehensive income. X. Explanations on Transactions Carried Out on Behalf of Third Parties and Fiduciary Transactions The Group gives trading, custody, fund management services in the name and on the account of its customers. The Group has no fiduciary transactions. When the prices of the financial assets measured at amortized cost cannot be measured in an active market, fair values are not deemed to be reliably determined and amortized cost, calculated by the internal rate of return method, are taken into account as the fair values. XI. Explanations on Risk Management Objectives and Policies Fair values of banks, loans granted, deposits and funds borrowed from other financial institutions are calculated by discounting the amounts in each maturity bracket formed according to repricing periods, using the rate corresponding to relevant maturity bracket in the discount curves based on current market conditions. Explanations according to “Communiqué on Public Disclosures about Risk Management” published on the Official Gazette No.29511 dated October 23, 2015 are included below. The Bank uses standardised approach for calculation of capital charge for credit risk, therefore explanations about internal ratings-based approach are not included. 2. Information on fair value measurements recognized in the financial statements TFRS 13 – “Fair Value Measurement” standard requires the items, which are recognized in the balance sheet at their fair values to be shown in the notes by being classified within a range. According to this, the related financial instruments are classified into three levels in such a way that they will express the significance of the data used in fair value measurements. At the first level, there are financial instruments, whose fair values are determined according to quoted prices in active markets for identical assets or liabilities, at the second level, there are financial instruments, whose fair values are determined by directly or indirectly observable market data, and at the third level, there are financial instruments, whose fair values are determined by the data, which are not based on observable market data. The financial assets, which are recognized in the balance sheet at their values, are shown below as classified according to the aforementioned principles of ranking. Current Period Financial Assets at Fair Value Through Profit and Loss Debt Securities Equity Securities Derivative Financial Assets at Fair Value through Profit and Loss Other Financial Assets at Fair Value Through Other Comprehensive Income(1) Debt Securities Equity Securities Other Derivative Financial Liabilities Level 1 Level 2 Level 3 710,080 2,368,275 700,327 65,501,109 140,975 243,653 6,028,045 458,185 24,750,427 2,066,313 41,450,375 745,821 24,966 14,078,527 2,149,813 1,789,775 (1) Since they are not traded in an active market, the equity securities (TL 46,985) under the financial assets at fair value through other comprehensive income are shown in the financial statements at acquisition cost and the related securities are not shown in this table. Prior Period Financial Assets at Fair Value Through Profit and Loss Debt Securities Equity Securities Derivative Financial Assets Held for Trading Other Financial Assets Available-for-Sale(1) Debt Securities Equity Securities Other Derivative Financial Liabilities Level 1 Level 2 290,342 1,345,669 360,628 51,030,195 82,962 657,092 624,882 261,922 6,710,129 1,763,563 24,638,435 428,254 89,168 8,854,434 Level 3 3,187 2,149,813 862,526 (1) Since they are not traded in an active market, the equity securities (TL 38,638) under the financial assets available-for-sale are shown in the financial statements at acquisition cost and the related securities are not shown in this table. The movement table of financial assets at level 3 is given below: Balance at the Beginning of the Period Purchases Redemption or Sales Valuation Difference Transfers Balance at the end of the Period Current Period 3,015,526 1,018,018 (300,848) 307,502 (100,610) 3,939,588 Prior Period 2,771,586 264,274 (74,558) 54,224 3,015,526 Properties that are recorded under tangible assets at fair value by the Bank and consolidated companies are classified in the 3rd level, whereas investment properties are clasiffied both in the 2nd and 3rd level. The loans measured at fair value through profit and loss under Level 3 consists of other financial assets to the special purpose entity which is disclosed in the Section V footnote I-f.2 and footnote I.r. The mentioned loan’s fair value is determined by the various valuation methods. The potential changes in the fundamental estimations and assumptions in the valuation work can affect the carrying fair value of the loan. The implications of developments related to the COVID-19 pandemic on the Group's risk profile and risk appetite framework are closely monitored. With stress tests, the levels of the Group's capital adequacy ratio are estimated and monitored. In addition, reverse stress tests are carried out regularly by determining the problematic loan increase rate and interest and exchange rate increase rates, which will cause the Group's capital adequacy to fall to legal limits. a. General Information on Risk Management and Risk Weighted Amounts a.1 Risk Management Approach of the Group The Group is exposed to financial and non-financial risks which are required to be analyzed, monitored and reported within specific risk management principles and with the perspective of Group risk management. The risk management process is organized within the framework of risk management and serves the creation of a common risk culture in corporate level; which brings “corporate governance” to forefront, the independence of the internal audit and monitoring units from the business units that undertake risks is established risk is defined in accordance with international regulations and in this context measurement, analysis, monitoring, reporting and control functions are carried. Risk management process and the functions involved in the process is one of the primary responsibilities of the Board of Directors. The Risk Committee operates to prepare the Group's risk management strategies and policies, submit them to the Board of Directors for approval and monitor the implementations. Evaluating the capital adequacy and observing the active use of results in planning and decision making processes, establishing and monitoring limits related to main risks, monitoring the activities of risk management (determining, defining, measuring, evaluating and managing risk) and monitoring results and methods in measuring risk are also under their authority and responsibility of the Committee. Committee reports activity results to the Board of Directors through Audit Committee. The Operational Risk Committee operates to determine strategies and policies for managing operational risks that the Bank may be exposed to, to develop an operational risk management framework and to strengthen the governance model for operational risks. The Committee reports the results of the activity to the Board of Directors through the Audit Committee. The Group’s risk management process is carried out within the framework of risk policies which are issued by the Board of the Directors by taking the recommendations of the Risk Management Department into account and which include the written standards that are implemented by the business units. These policies which are entered into force in line with the international practices are general standards which contain organization and scope of the risk management function, risk measurement policies, duties and responsibilities of the risk management group, procedures for determining risk limits, ways to eliminate limit violations, compulsory approvals and confirmations to be given in a variety of events and situations. In the aforementioned risk policies, the Group’s risk appetite framework is defined as a set of approaches that determine the risk capacity, the risk appetite, the risk tolerance and that include the policies, procedures, controls and systems for reporting and monitoring of the limits set for the Group’s risk profile and the indicators in the framework. The Group's risk appetite framework, which is formed in accordance with the above-mentioned factors and entered into force with the Board of Directors approval, includes indicators that are aligned with the business plan, the strategic programme, capital and remuneration planning and comparable on a business unit level to the extent possible. The compliance to the limits within the framework is periodically monitored and the realization of the risk appetite indicators are reported to the Risk Committee and the Boards on a monthly basis. In order to build a strong corporate culture that has a risk management perspective, the Group has policies, processes, systems and a control system that is integrated with the risk management system. All employees of the Group essentially perform their duties in a responsible manner that aims to develop controls to reduce or eliminate the probability of the Group to incur losses related to the operational risks. In the process risk analysis studies, risks and the related controls are evaluated together with employees performing the relevant process in a holistic approach. Procedures to be followed in case of a risk threshold breach and risk definitions are given in the risk politics. Code of conducts, operation manuals, the sharing of duties between business units and risk units are announced to staff. The risk reports that analyse the results reached by the Parent Bank and the comprehensive risk assessment and comparison of these results with a risk management perspective are periodically submitted to the Risk Committee and to the Board through the Audit Committee. The content of the above mentioned reports could be summarised as follows: • Capital adequacy ratio, the progression of the components of this ratio and the issues that affect the aforementioned ratio, • Monitoring the compliance status of the limits set by the Board of Directors as a part of therisk appetite framework and based on the components of the main risk types, • In addition to the assesment of the loan portfolio on the basis of counterparties and loan types, monitoring of the portfolio as a whole according to parameters such as maturity, sector, geography, risk ratings, arrears, defaults, • Measuring the assets and liabilities management risk, and reporting of measurement results, • Monitoring all risks assessed within the scope of non-financial risks, including operational risk, reputational risk and climate change risk, and operational risk qualified loss events and risk indicators occurring at the Bank, • Testing measurement results for their integrity and reliability, • Analysing the level of risk indicators under various stress scenarios, • Examining various concentration indicators and the course followed by these indicators. In addition, analyzes and evaluations regarding the risk level of the companies included in the consolidated risk policies are also included in the mentioned report. 374 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 375 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen As per the communique on “Bank’s Internal Systems and Internal Capital Adequacy and Assessment Process” and “Guidelines for Stress Testing of Banks to Use in Capital and Liquidity Planning”, stress tests are conducted for the entire risks that the Group is exposed to and on the basis of significant risk categories. As a part of the holistic stress tests, risk appetite, capital planning, strategic plan and budget, action plans for emergencies and unexpected situations related to miscellaneous risks and other issues considered as significant are taken into consideration. In the above-mentioned stress tests, the methods that form the basis of regulatory reporting (standard method for credit and market risk, basic indicator method for operational risk) are used. On the other hand, in the stres tests for individual risk types the most advanced approaches used for risk measurement in the Parent Bank are leveraged. In the stress tests, both the first pillar risks (credit risk, market risk, operational risk) in scope of the regulatory framework and all the other risks that the Group is exposed to independent of the regulatory framework are taken into account in a holistic perspective. In determining the course of capital adequacy under various scenarios during the planning horizon, the actions that the Group will take in case of stress conditions and the impact of the diversified growth strategies of business units on the capital adequacy and the balance sheet are considered. The repercussions of developments related to the COVID-19 outbreak on the Bank's risk profile and risk appetite framework are closely monitored. The negative effects of the COVID-19 outbreak are also taken into account in the calculation of loan loss provisions. The levels at which the capital adequacy ratio of the Bank will reach are estimated and monitored with stress tests. In addition, reverse stress tests are carried out regularly, by determining the problematic loan growth rate and exchange rate increase rates, which will cause the Bank's capital adequacy to decrease to legal limits. The scope and content of the Parent Bank's risk management system in terms of the main risk types are listed below. Risk mitigation strategies and processes for the assessment of their effectiveness are given in Fourth Section II No. "Explanations on Credit Risk" under the Fourth Chapter XI-c.2 notes. No. "The Public Disclosure of Qualitative Information Related to the Market Risk " mentioned in the section. Credit Risk Credit risk is defined as the risk of the failure to comply with the requirements or failing to fulfill its obligations partially or totally of the counter side of the transaction contract with the Parent Bank. The methodology and responsibilities of the credit risk management, controlling and monitoring and the framework of credit risk limitations specified with the credit risk policy. The Bank defines measures and manages credit risk of the all products and activities. Board of Directors review the Parent Bank’s credit risk policies and credit risk strategy on an annual basis as a minimum. Key Management is responsible for the implementation of credit risk policies which are approved by Board of Directors. As a result of loans and credit risks analysis all findings are reported to Board of Directors and Key Management on a regular basis. In addition to transaction and company based credit risk assessment process, monitoring of credit risk also refers to an approach with monitoring and managing the credit as a whole maturity, sector, security, geography, currency, credit type and credit rating. In the Parent Bank’s credit risk management, along the limits as required by legal regulations, the Parent Bank utilizes the risk limits to undertake the maximum credit risk within risk groups or sectors that the Board of Directors determines. These limits are determined such a way that prevents risk concentration on particular sectors. Excess risk limits up to legal requirements and boundaries limits are considered as an exception. The Board of Directors has the authority in exception process. The results of the control of risk limits and the evaluations of these limits are presented by Internal Audit and Risk Management Group to Key Management and Board of Directors. The Bank uses credit decision support systems which are created for the purpose of credit risk management, lending decisions, controlling the credit process and credit provisioning. The consistency of the credit decision support systems with the structure of the Parent Bank’s activities, size and complexity is examined continuously by internal systems. Credit decision support systems contain the Risk Committee assessment and approval of Board of Directors. Asset and Liability Management Risk Asset-liability management risk defined as the risk of Group’s incurring loss due to managing all financial risks that are inflicted from the assets, liabilities and off-balance sheet transactions, ineffectively. Trading book portfolio’s market risk, structural interest rate risk and liquidity risk of the banking portfolio; are considered within the scope of the asset liability management. Complying the established risk limits and being at the limits that stipulated by the legislation are the primary priority of Asset-liability management risk. Risk limits are determined by the Board of Directors by taking into consideration of the Group's liquidity, target income level and general expectations about changes in risk factors Board of Directors and the Audit Committee are responsible for following the Group's capital is used optimally; for this purpose, checking the status against risk limits and providing the necessary actions are taken. Asset and Liability Management Committee is responsible for managing the Asset and Liability risk within the framework of operating principles that are involved in the risk appetite and risk limits are set by the Board of Directors in accordance with the policy statement. Asset and liability management processes and compliance with the provisions of the policy are controlled and audited by the internal audit system. The execution of the audit, reporting the audit results, action plans for the elimination of errors and gaps identified as a result of inspections regarding the fulfillment of the principles, are determined by the Board of Directors. Operational Risk Operational risk is defined as “insufficient or unsuccessful internal processes, people and systems, or external events resulting from and legal it is defined as ”the possibility of causing harm", which also includes the risk that may arise. Studies consisted and are formed of occur by execution of identification, definition, measurement, analysis, monitoring of operational risk, providing and reporting the necessary control related to monitoring the progress of our country and the world, the development of techniques and methods, necessary legal reporting, notification and conduct of follow-up transactions. Studies on the subject are conducted by the Department of Risk Management. Operational risks that arise due to the activities are defined in "Bank Risk Catalogue" and classified in respect of species. Bank Risk Catalogue is kind of the fundamental document that used for identification and classification of all at the risk that may be encountered. It is updated in line with the changes in the nature of the processes and activities. Qualitative and quantitative methods are used in a combination for measurement and evaluation of the operational risks. In this process, information use that obtained from "Impact-Probability Analysis", "Missing Event Data Analysis", "Risk Indicators", “Scenario Analysis”, “Top-Down Risk Assessment”, “Internal Model” methods. Methods prescribed by legal regulations are applied as minimum in determining the capital requirement level for the operating risk. Operational Risk Committee that established by a decision of the board of directors on 30.04.2020, the management of operational risks that the bank may be exposed for the determination of policies and strategies, the development of an operational risk management framework and operational risks include activities with the aim of strengthening the governance model. The Committee works in cooperation with the Risk Committee and reports the results of its activities to the Board of Directors through the Audit Committee. All risks are assessed in the context of operational risk, loss events and the risk indicators same as operational risks that occurred in the Parent Bank, are monitored on a regular basis by the Department of Risk Management and reported periodically to the Risk Committee, Operational Risk Committee and the Board of Directors. Model Risk Management and Validation Operations Model risk is the risk of financial losses and / or loss of reputation that the Bank may be exposed to due to errors and / or malfunctions that occur during the creation, implementation or use of models used in its activities. In order to address the model risk in a holistic manner, the model definition, model life cycle and triple line of defense structure and the duties and responsibilities of all functions of the Bank in this structure are defined in the model risk management policy. Model risk management and validation activities in the second line of defense of the triple line of defense structure; creating the model inventory, determining and approving the model class, validating the models, preparing periodic reports on the Bank's model risk and reporting to the Risk Committee, Audit Committee. and submission to the Board of Directors. Risk measurement models are validated at least once a year under international standardsWithin the scope of validation, activities are carried out to test the performance and validity of models with statistical methods, to examine the quality of the data used in the model development phase and the conceptual soundness of the selected methods, and to evaluate the health of the processes created for the use of the models.The results of the validation activities are reported to the Risk Committee and the Board of Directors. Subsidiaries Risk Operations Corporations within the Bank’s consolidated risk policy, in terms of their own business lines, measure, evaluate and monitor risks, establish risk limits. Risk limits are approved by their own Board of Directors. Risk levels are reported to the Bank’s Risk Committee within the periods set by the Bank, to monitor risk levels on consolidated basis. The Bank’s Risk Committee, assesses the risk levels and report the results to the Board of the Directors of the Bank. a.2. General Information on Risk Weighted Amounts Credit risk (excluding counterparty credit risk) (CCR) Of which standardised approach (SA) Of which internal rating-based (IRB) approach Counterparty credit risk Of which standardised approach for counterparty credit risk (CCR) Of which internal model method (IMM) Equity positions in banking book under basic risk weighting or internal rating-based approach Equity investments in funds – look-through approach Equity investments in funds – mandate-based approach Equity investments in funds - 1250% weighted risk approach Settlement risk Securitization positions in banking accounts Of which IRB ratings-based approach (RBA) Of which IRB Supervisory formula approach (SFA) Of which SA/simplified supervisory formula approach (SSFA) Market risk Of which standardised approach (SA) Of which internal model approaches (IMM) Operational Risk Of which Basic Indicator Approach Of which Standardised approach (SA) Of which Advanced measurement approach Risk Weighted Amount Current Period 578,238,623 578,238,623 Prior Period 460,542,007 460,542,007 Minimum Capital Requirements Current Period 46,259,090 46,259,090 17,096,324 17,096,324 10,583,780 10,583,780 1,367,706 1,367,706 2,683,178 2,745,702 214,654 22,674,325 22,674,325 51,469,094 51,469,094 17,495,725 17,495,725 41,095,093 41,095,093 1,813,946 1,813,946 4,117,528 4,117,528 The amounts below the thresholds for deduction from capital (subject to a 250% risk weight) 700,490 605,435 56,039 Floor adjustment Total 672,862,034 533,067,742 53,828,963 376 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 377 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen b. Linkages Between Financial Statements and Risk Amounts b.1 Differences and linkage between scopes of accounting consolidation and regulated consolidation Differences and Linkage Between Accounting Consolidation and Legal Consolidation Scope: Current Period Assets Cash and CBRT Banks and Money Market Placements Financial Assets at Fair Value Through Profit/Loss Financial Assets at Fair Value Through Other Comprehensive Income Derivative Financial Assets at Fair Value Through Profit/Loss Derivative Financial Assets at Fair Value Through Other Comprehensive Income Financial Assets at Measured at Amortised Cost – Loans (3) Financial Assets at Measured at Amortised Cost – Other Financial Assets Financial Assets at Measured at Amortised Cost – Expected Credit Loss (-) Assets Held for Sale and Discontinued Operations Investment in Associates, Subsidiaries and Joint-Ventures Tangible Assets Intangible Assets Investment Properties Current Tax Asset Deferred Tax Asset Other Assets Total Assets Liabilities Deposits Funds Borrowed Money Market Funds Marketable Securities Issued Derivative Financial Liabilities at Fair Value Through Profit/Loss Derivative Financial Liabilities at Fair Value Through Other Comprehensive Income Leasing Liability Provisions Current Tax Liability Deferred Tax Liability Subortinated Debts Other Liabilities Shareholders' Equity Total Liabilities Carrying values in financial statements prepared as per TAS (1) Carrying values in consolidated financial statements prepared as per TAS Carrying values of items in accordance with Turkish Accounting Standards(TAS)(2) Subject to credit risk Subject to counterparty credit risk Securitization Positions Subject to market risk Not subject to capital requirements or subject to deduction from capital 93,205,447 33,145,720 184,021,225 184,021,225 38,188,306 38,188,306 8,409,700 14,481,038 9,704,721 84,199,663 109,943,659 109,943,659 7,584,971 24,750,427 24,750,427 24,750,427 4,776,317 1,474,079 11,111,264 240,346 468,246,586 614,742,720 614,742,720 46,660,825 51,545,328 51,545,328 27,796,267 32,854,286 (32,854,286) 1,249,819 910,871 910,871 1,535,268 21,918,409 21,918,409 26,244,829 11,407,024 11,407,024 3,036,161 4,592,726 52,882 2,182,025 4,601,916 74,819 2,182,025 4,601,916 74,819 5,694,387 3,118,976 3,118,976 40,362,102 75,371,616 75,371,616 89,996 1,993,519 796,665,165 1,124,404,073 1,185,336,328 24,750,427 17,361,660 2,083,515 53,235,157 14,078,527 421,864,993 617,679,203 100,167,706 128,923,683 36,262,848 46,005,292 53,737,853 48,077,312 5,692,646 14,078,527 77,640 1,331,727 1,239,714 31,668,377 35,609,317 1,947,981 311,729 28,169,115 32,808,618 90,356,493 2,561,136 124,949 41,479,277 84,724,923 96,168,179 796,665,165 1,124,404,073 53,235,157 14,078,527 (1) June 30, 2020 amounts are represented, as consolidated financial statements dated December 31, 2020 prepared in accordance with Article No 5 of Clause No 6 in the Communiqué on Preparation of Consolidated Financial Statements of Banks are not published as of reporting date. (2) Leasing and Factoring Receivables are included. 378 | İŞBANK 2021 INTEGRATED ANNUAL REPORT Prior Period Assets Cash and CBRT Carrying values in financial statements prepared as per TAS Carrying values in consolidated financial statements prepared as per TAS Carrying values of items in accordance with Turkish Accounting Standards (TAS) Subject to credit risk Subject to counterparty credit risk Securitization Positions Subject to market risk Not subject to capital requirements or subject to deduction from capital Banks and Money Market Placements 23.385.918 71.614.469 71,970,390 21,913,871 71,970,390 21,913,871 Financial Assets at Fair Value Through Profit/Loss Financial Assets at Fair Value Through Other Comprehensive Income Derivative Financial Assets at Fair Value Through Profit/Loss 4.802.506 6,800,006 3,557,377 77.979.907 77,827,270 77,827,270 6.881.206 6,710,129 6,710,129 6,710,129 Derivative Financial Assets at Fair Value Through Other Comprehensive Income 95.278 3,242,629 684,680 4,763,020 Financial Assets at Measured at Amortised Cost – Loans (1) Financial Assets at Measured at Amortised Cost – Other Financial Assets Financial Assets at Measured at Amortised Cost – Expected Credit Loss (-) Assets Held for Sale and Discontinued Operations Investment in Associates, Subsidiaries and Joint-Ventures Tangible Assets Intangible Assets Investment Properties Current Tax Asset Deferred Tax Asset Other Assets Total Assets Liabilities Deposits Funds Borrowed Money Market Funds Marketable Securities Issued Derivative Financial Liabilities at Fair Value Through Profit/Loss Derivative Financial Liabilities at Fair Value Through Other Comprehensive Income Leasing Liability Provisions Current Tax Liability Deferred Tax Liability Subortinated Debts Other Liabilities Shareholders' Equity Total Liabilities 424.500.069 427,079,716 427,079,716 48.413.493 45,604,603 45,604,603 26.088.000 26,049,421 26,049,421 1.302.606 1,302,608 1,302,608 1.280.688 13,052,096 13,052,096 24.807.871 2.749.347 4.653.743 76.009 8,099,954 1,653,988 3,649,631 48,923 8,099,954 1,653,988 3,649,631 48,923 4.807.716 3,672,736 3,672,736 37.945.167 54,815,763 54,815,763 79,888 1,530,485 709.207.993 718,152,263 714,909,634 6,710,129 8,690,329 1,610,373 8,046,256 24,558,771 8,854,434 373.586.853 381,693,393 85.780.548 25.984.647 43.574.557 77,602,888 25,984,647 39,499,306 9.025.512 8,854,434 152.307 1.161.995 918,740 27.955.124 24,027,066 3.190.345 366.318 24.414.842 28.596.962 85.417.983 2,851,982 144,431 24,426,121 57,287,535 74,861,720 709.207.993 718,152,263 32,605,027 8,854,434 (1) Leasing and Factoring Receivables are included. İŞBANK 2021 INTEGRATED ANNUAL REPORT | 379 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen 1 2 3 4 5 6 7 8 9 10 11 1 2 3 4 5 6 7 8 9 10 11 b.2 The main sources of the differences between the risk amounts and the amounts assessed in accordance with TAS in the financial statements Current Period Total Credit Risk Counterparty credit risk Securitization Position Market risk c. Explanations on Credit Risk c.1. General Information on Credit Risk c.1.1. General Qualitative Information on Credit risk Asset carrying value amount under scope of TAS 1,124,404,073 1,185,336,328 24,750,427 Liabilities carrying value amount under scope of TAS Total net amount under regulatory scope of consolidation Off-balance sheet amounts Repurchase Transactions Valuation Adjustments(1) Differences in valuations Differences due to different netting rules Differences due to consideration of provisions Differences due to prudential filters Differences due to risk mitigation(2) Risk Amounts (53,235,157) 1,124,404,073 1,185,336,328 77,985,584 771,887,904 147,301,592 29,890,333 6,394,736 (242,943,096) (65,728,440) 17,361,660 14,078,527 3,283,133 Relevant information is given in the footnotes below Section Four footnote II “Explanations on Credit Risk” and Section Four footnote numbered XI-a.1. c.1.2. Credit Quality of Assets: Current Period Loans (1) Debt Securities Off-balance sheet exposures Total Gross carrying value in financial statements prepared in accordance with Turkish Accounting Standards (TAS) Defaulted 24.445.092 1,613,512 26,058,604 Non-defaulted 590.297.628 153,871,817 333,971,906 1,078,141,351 Allowances/ Amortization and Impairments Net Values 15.898.604 1,215,814 17,114,418 598.844.116 153,871,817 334,369,604 1,087,085,537 1,023,966,384 36,285,069 3,283,133 (1) Credit balance which is monitored as Financial Assets at Fair Value Through Profit or Loss is not included in the above table. It is shown in detail in Section 5 footnote 1.b.3 ( 1) According to the "Regulation on Measurement and Evaluation of Capital Adequacy of Banks", it is the counterparty credit risk amount calculated for repo style transactions. ( 2) The source of the difference is the collateral for receivables under credit risk mitigation in the calculation of capital adequacy. Prior Period Total Credit Risk Counterparty credit risk Securitization Position Market risk Asset carrying value amount under scope of TAS 718,152,263 714,909,634 6,710,129 (32,605,027) 718,152,263 714,909,634 39,315,156 477,657,792 90,428,221 9,869,395 5,494,929 8,690,329 8,854,434 164,105 Liabilities carrying value amount under scope of TAS Total net amount under regulatory scope of consolidation Off-balance sheet amounts Repurchase Transactions Valuation Adjustments(1) Differences in valuations Differences due to different netting rules Differences due to consideration of provisions Differences due to prudential filters Differences due to risk mitigation(2) Risk Amounts (30,300,466) (5,859,247) 769,178,142 15,364,324 164,105 (1) According to the "Regulation on Measurement and Evaluation of Capital Adequacy of Banks", it is the counterparty credit risk amount calculated for repo style transactions. (2)The source of the difference is the collateral for receivables under credit risk mitigation in the calculation of capital adequacy. The differences between financial statements resulting from legal consolidation and the ones resulting from accounting consolidation are mainly due to the differences in the scope of companies included in consolidation. Legal consolidation only includes partnerships that are in the form of credit institutions or financial institutions in accordance with Article No 5 of Clause No 1 in the “Communiqué on Preparation of Consolidated Financial Statements of Banks” while accounting consolidation includes all partnerships regardless of them being in the form of credit institutions or financial institutions in accordance with Article No 5 of Clause No 6 in the same communiqué. Bank using the valuation methodology are mainly based on data observed may in accordance with TFRS 13 aims to use methods that measure the fair value. In this context, securities qualification reality in the fair value measurement of financial assets in the transaction prices, quotes, set by the CBRT and as the price published in the Official Gazette as are used also necessary from internal pricing models. As for the derivative transactions interest rates, yield curves, foreign exchange, the basis of valuation models using market data such as volatility curves, valuation service is also available from third parties. The market prices used to value the scope of the independent price verification process, data and / or model inputs for accuracy is regularly subjected to control, as well as compliance of the results provided by the pricing services obtained from third parties with respect to certain ranges tested. Prior Period Loans (1) Debt Securities Off-balance sheet exposures Total Gross carrying value in financial statements prepared in accordance with Turkish Accounting Standards (TAS) Defaulted 23,144,846 913,737 24,058,583 Non-defaulted 403,934,870 119,172,863 208,255,293 731,363,026 Allowances/ Amortization and Impairments Net Values 14,371,889 695,465 15,067,354 412,707,827 119,172,863 208,473,565 740,354,255 (1) Credit balance which is monitored as Financial Assets at Fair Value Through Profit or Loss is not included in the above table. It is shown in detail in Section 5 footnote 1.b.3. c.1.3. Changes in Stock of Default Loans and Debt Securities (1) Defaulted loans and debt securities at end of the previous reporting period Loans and debt securities that have 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 23,144,846 6,799,033 (1,017,053) (2,021,889) (2,459,845) 24,445,092 21,102,730 5,667,879 (145,197) (98,452) (3,382,114) 23,144,846 Current Period Prior Period (1) Indemnified non-cash loans or non-cash loans not converted into cash, of the firms which are followed under “Non-performing Loans” accounts are not included in the table. c.1.4. Additional Information on Credit Quality of Assets Bank’s methods for determining provision amounts and classification of its loans are mentioned in the Section Three Note VIII. The bank is restructuring its loans classified as first and second group as well as non-performing loans and receivables. Restructuring in performing loans are made by granting a new loan or extending the term date of credit given to customer by Bank with changing conditions of contract aiming the enhancing of solvency of customer or customer’s demand. Restructuring in non-performing loans are generally made by establishing a new redemption plan within the context of a protocol aiming the collection of those receivables whose redemption plan are not valid because of delinquency previously. The breakdown of receivables in terms of geographic regions, sectors and remaining maturities are represented in “Explanations on Credit Risk” in the Fourth Section note II. On the basis of sector-based provisions for receivables are presented in the footnote numbered Section Four II-16. The amounts of the receivables that are set aside for the geographical regions are as follows. The amount of non-performing loans which are written off in 2021 is TL 2,021,889 380 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 381 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Current Period Prior Period Non-Performing Loans Specific Provisions Non-Performing Loans Specific Provisions Domestic EU Countries OECD Countries (1) 23,474,995 641,517 39,671 Off-Shore Banking Regions 44,950 USA, Canada Other Countries Total 7,731 236,228 24,445,092 15,178,041 471,609 34,495 20,185 6,382 187,892 15,898,604 22,625,959 277,753 3,552 8,756 228,826 23,144,846 13,938,685 244,154 3,326 6,405 179,319 14,371,889 (1) OECD Countries other than EU countries, USA and Canada. The aging analysis of past-due receivables are disclosed under Section Four note II-11. c.2. Credit Risk Mitigation c.2.1. Qualitative Public Disclosures On Credit Risk Mitigation Techniques In the calculation of the Group’s Credit Risk Mitigation in accordance with the “Communiqué on Credit Risk Mitigation Techniques” published in the Official Gazette numbered 29111 on September 6, 2014, the financial collaterals are taken into consideration. The Group takes local currency and foreign currency deposit pledges into consideration as financial collaterals in calculating regulatory capital adequacy. Colleteral valuation and its management policy and primary features processes are givin are given at Section Four note.II under “Information on Credit Risk” disclosure. c.2.2. Credit Risk Mitigation Techniques – Standard Approach Current Period Exposures unsecured Exposures secured by collateral Collateralized amount of exposures secured by collateral Exposures secured by financial guarantees Collateralized amount of exposures secured by financial guarantees Exposures secured by credit derivatives Collateralized amount of exposures secured by credit derivatives Loans (1) 577,741,977 10,355,755 8,618,981 10,746,384 9,724,012 Debt securities 153,871,817 Total Of which defaulted (2) 731,613,794 10,355,755 8,618,981 10,746,384 9,724,012 23,623,595 (1) D(1) Credit balance which is monitored as Financial Assets at Fair Value Through Profit or Loss is not included in the above table. It is shown in detail in Section 5 footnote 1.b.3. (2) The gross amount valued in accordance with the TAS contained in the financial statements is included. Prior Period Exposures unsecured Exposures secured by collateral Collateralized amount of exposures secured by collateral Exposures secured by financial guarantees (1) Collateralized amount of exposures secured by financial guarantees Exposures secured by credit derivatives Collateralized amount of exposures secured by credit derivatives Loans (2) 396.514.406 4.963.570 4.189.276 11.229.851 9.194.462 Borçlanma araçları 119.172.863 Toplam Of which defaulted (3) 515.687.269 4.963.570 4.189.276 11.229.851 9.194.462 22.564.714 (1) Consists loans of Credit Guarantee Fund guaranteed by the Undersecretariat of Treasury. (2) Credit balance which is monitored as Financial Assets at Fair Value Through Profit or Loss is not included in the above table. It is shown in detail in Section 5 footnote 1.b.3. (3) The gross amount valued in accordance with the TAS contained in the financial statements is included. c.3. Credit Risk Under Standardised Approach c.3.1. Qualitative Disclosures on Banks’ Use of External Credit Ratings Under the Standardised Approach for Credit Risk Aformentioned explanations are disclosed under Section Four note XI-a.1. c.3.2. Standard Approach: Credit risk exposure and credit risk mitigation effects: Current Period Exposures before CCF and CRM Exposures post-CCF and CRM RWA and RWA density On-balance sheet amount Off-balance sheet amount On-balance sheet amount Off-balance sheet amount Risk- Weighted Amount Risk-Weighted Amount Density Exposures to sovereigns and their central banks 270,036,409 329,185 278,093,661 9,801,001 Exposures to regional and local governments 343,195 870 Exposures to administrative bodies and non- commercial entities 508,227 231,567 Exposures to multilateral development banks 363,923 Exposures to international organizations 343,084 503,596 363,923 Exposures to banks and securities firms 42,040,070 21,847,240 42,026,622 267 3,736,206 171,690 1.30% 50.00% 100,558 604,154 100.00% 0.00% 32.50% 92.01% 76.00% 35.00% 61.65% 79.49% 149.01% 19,713,260 349,203,244 97,377,938 8,671,725 17,569,776 6,179,114 35,579,530 18,633,667 92,890,256 297,665,741 163,392,828 286,624,208 168,884,127 74,776,645 165,426,261 5,834,808 24,218,278 25,979,947 7,773,698 24,046,483 1,362,521 3,621,770 1,246,361 24,171,145 25,979,947 7,773,698 23,726,962 605,213 2,519,999 150,646 Exposures to corporates Retail exposures Exposures secured by residential property Exposures secured by commercial property Past-due Receivables Exposures in higher-risk categories Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Equity investments in the form of collective investment Undertakings Other exposures Equity investments Total Prior Period Exposures to corporates Retail exposures Exposures secured by residential property Exposures secured by commercial property Past-due loans Exposures in higher-risk categories Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Equity investments in the form of collective investment Undertakings Equity investments Other exposures Total 2,633,178 38,233,010 23,010,720 50,000 21,864,123 2,633,178 38,233,010 23,010,720 50,000 131,274 2,683,178 27,051,365 23,431,014 925,737,006 288,723,110 918,910,015 130,717,689 591,972,194 100.00% 70.47% 101.83% 56.39% Exposures before CCF and CRM Exposures post-CCF and CRM RWA and RWA density On-balance sheet amount Off-balance sheet amount On-balance sheet amount Off-balance sheet amount Risk- Weighted Amount Risk-Weighted Amount Density Exposures to sovereigns and their central banks 179,670,497 268,080 188,865,493 1,514,133 Exposures to regional and local governments 454,543 490 Exposures to administrative bodies and non- commercial entities 505,570 119,941 Exposures to multilateral development banks 356,295 803 454,435 504,858 356,295 Exposures to international organizations Exposures to banks and securities firms 34,063,694 17,032,661 34,063,694 230 50,470 402 15,360,614 71,312,787 249,246,045 131,982,901 241,166,812 142,148,843 51,614,095 137,370,841 3,355,086 10,323,829 21,573,337 8,475,290 248,854 312,988 3,345,490 869,651 10,306,924 21,573,337 8,475,290 248,854 143,168 2,390,881 101,830 2,344,669 227,333 1.23% 50.00% 555,328 100.00% 15,967,375 308,113,161 82,718,375 3,657,532 14,648,062 6,686,802 367,574 0.00% 0.00% 32.31% 98.60% 75.00% 35.00% 61.12% 78.90% 104.82% 0.00% 0.00% 2,680,702 65,000 2,680,702 28,740,676 6,112,340 13,790,256 28,740,676 13,790,256 65,000 18,830 2,545,498 92.71% 19,770,890 14,153,517 68.75% 102.63% 692,278,431 211,724,440 688,598,467 94,313,431 471,756,116 60.26% 382 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 383 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen c.3.3 Standardised Approach: Receivables according to risk classes and risk weights: Current Period Risk Groups 0% (1) 10% 20% 35% 50% 75% 100% 150% 250% Other (2) Total Risk Weights Consolidated Prior Period Risk Groups 0% (1) 10% 20% 35% 50% 75% 100% 150% 200% 250% Total Risk Weights Consolidated 346,370 3,563,021 287,894,662 Exposures to sovereigns and their central banks 187,997,008 75,899 2,306,719 190,379,626 Exposures to corporates 782,189 19,999,364 26,602,963 331,589,700 203,638 336,610 379,514,464 Retail exposures 43,109,482 123,094,596 5,056,991 Exposures to sovereigns and their central banks 283,985,271 Exposures to regional and local governments Exposures to administrative bodies and non-commercial entities Exposures to multilateral development banks 363,923 Exposures to international organizations Exposures to banks and securities firms Exposures secured by residential property Exposures secured by commercial property Past-due loans Exposures in higher-risk categories Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Equity investments in the form of collective investment Undertakings Equity investments 343,323 28 604,154 343,351 604,154 363,923 36,648,915 22,931,570 897,484 11,190 171,130 60,660,289 24,776,358 21,860,341 6,639,605 3,400,695 4,161,476 211,527 171,261,069 24,776,358 28,499,946 7,773,698 125,189 223,387 23,529,032 23,877,608 2,683,178 2,683,178 22,730,524 280,196 23,010,720 Exposures to regional and local governments Exposures to administrative bodies and non-commercial entities Exposures to multilateral development banks 356,697 Exposures to international organizations Exposures to banks and securities firms 454,664 1 555,328 454,665 555,328 356,697 29,950,134 19,009,555 448,715 15904 49,424,308 Exposures to corporates Retail exposures 30,434,760 566,755 7,826,073 304,086,766 5 110,291,167 10,450,092 18,632,312 5,331,906 4,063,230 3,925,807 486,253 117,080 82,745 150,859 312,479,599 140,725,927 10,450,092 23,964,218 8,475,290 350,684 Exposures secured by residential property Exposures secured by commercial property Past-due loans Exposures in higher-risk categories Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Equity investments in the form of collective investment Undertakings Equity investments Other exposures Total Other exposures 11,312,919 27,051,365 38,364,284 Total 339,553,784 56,648,279 24,776,358 75,610,451 123,094,596 405,200,913 23,955,387 280,196 507,740 1,049,627,704 ( 1) Yatırım Varlık Kiralama A.Ş. with transactions of one of the group companies that are not subject to credit risk of Anadolu Hayat Emeklilik A.Ş..It also includes securities that the company blocks on behalf of its insured persons, as well as individual pension receivables. (2) The related balance includes receivables from central counterparties subject to a risk weight of 2%. 400,408 2,345,294 2,745,702 8,988,616 227,777,081 30,516,889 10,450,092 50,579,221 110,291,167 352,402,253 653,021 242,174 782,911,898 13,548,082 19,770,890 242,174 13,790,256 28,759,506 ( 1) Anadolu Hayat Emeklilik A.Ş. of the group companies.it also includes securities that the company blocks on behalf of its insured persons, as well as individual pension receivables. 384 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 385 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen d. Explanations on Counterparty credit risk d.1. Qualitative Disclosures on Counterparty Credit Risk Approach The counterparty credit risk that the Parent Bank exposed to is managed within the framework of general limit allocation and credit risk mitigaiton that are outlined the credit risk policy. In setting general credit limits, the counterparty credit risks of customers as well as their cash and noncash risks are taken into account with a holistic view. Moreover, the total position of the transactions which create counterparty credit risk is also monitored under a separate risk limit. The counterparty credit risk, which stems from derivatives and repo like transactions including transactions with qualified central counterparties that result in liabilities for both sides, is measured according to the Appendix-2 and Appendix-4 of the "Regulation on Measurement and Evaluation of Capital Adequacy of Banks" Counterparty credit risk valuation method based on the calculation of fair values of the derivative transactions is implemented. In calculating the potential credit risk, the amount of the contract is multiplied by the rates given in the regulation. The replacement costs of derivative instruments are calculated based on the valuation of the related contracts according to the fair value method. Most of the credit risk related to the derivative transactions with other banks is subject to daily collateral clearing agreements mutually signed with related parties and the counterparty credit risk is hence reduced. On the other hand, the risk-reducing effect of such agreements is not considered in the calculation of the counterparty credit risk under the capital adequacy legislation. There are no guarantees received or sold by credit derivatives by the Bank in the context of trading or banking accounts. d.2. Counterparty Credit Risk (CCR) Approach Analysis: Current Period Replacement Cost Potential Future Exposure Exposure after Credit Risk Mitigation Risk Weighted Amounts Standardised Approach - CCR (for derivatives) (1) 17,111,025 3,145,731 20,256,756 8,723,392 Comprehensive Approach for credit risk mitigation (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions) 4,896,829 1,616,356 Total 17,111,025 3,145,731 25,153,585 10,339,748 (1) Transactions with central counterparties are not included. Prior Period Replacement Cost Potential Future Exposure Exposure after Credit Risk Mitigation Risk Weighted Amounts Standardised Approach - CCR (for derivatives) 6,235,166 2,178,487 8,413,653 8,413,653 Comprehensive Approach for Credit Risk Mitigation (for repo transactions, securities or commodity lending or borrowing transactions, long settlement transactions and securities financing transactions) 5,304,371 2,097,232 Total 6,235,166 2,178,487 13,718,024 7,847,241 d.3. Capital obligation for credit valuation adjustment (CVA): Total portfolio value with standardized approach CVA capital change 20,256,756 6,743,838 8,413,653 2,718,719 Total subject to the CVA capital change 20,256,756 6,743,838 8,413,653 2,718,719 Current Period Prior Period Risk Amounts Risk Weighted Amounts Risk Amounts Risk Weighted Amounts d.4 CCR Exposures by risk class and risk weights: Current Period Risk Groups Conditional and unconditional exposures to sovereigns and their central banks Conditional and unconditional exposures to regional and local governments Conditional and unconditional exposures to administrative bodies and non-commercial entities Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and securities firms Exposures to corporates Retail exposures Exposures secured by residential property Past-due items Exposures in high-risk categories Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Equity investments in the form of collective investment undertakings Other exposures Equity investments Total 0% 10% 20% 50% 75 % 100% 150% Other (1) Total Credit Risk Weights 9,501,019 9,501,019 5,788 5,788 2,822,386 5,339,074 256,646 343,990 6,852,442 32,240 8,161,460 7,453,078 32,240 9,501,019 3,079,032 5,683,064 32,240 6,858,230 507,740 25,661,325 507,740 507,740 (1) Related balance includes receivables from central counterparties subject to 2% risk weight. 386 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 387 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Prior Period 0% 10% 20% 50% 75 % 100% 150% Other (1) Total Credit Exposure Risk Weights d.6. Credit derivatives exposures: None. d.7. Exposures to central counterparties (CCP): 1,080,938 1,080,938 Current Period Prior Period Post CRM risk exposure RWA Post CRM risk exposure RWA 321 321 Exposure to Qualified Central Counterparties (QCCPs) (total) Exposures for trades at WCCPs (excluding initial margin and default fund contributions); of which (i) OTC Derivatives 803,529 507,740 505,714 12,738 10,155 10,114 Risk Groups Conditional and unconditional exposures to sovereigns and their central banks Conditional and unconditional exposures to regional and local governments Conditional and unconditional exposures to administrative bodies and non-commercial entities Conditional and unconditional exposures to multilateral development banks Conditional and unconditional exposures to international organizations Conditional and unconditional exposures to banks and securities firms Exposures to corporates Retail exposures Exposures secured by residential property Past-due items Exposures in high-risk categories Exposures in the form of bonds secured by mortgages Short term exposures to banks, brokerage houses and corporates Equity investments in the form of collective investment undertakings Other exposures Equity investments Total 2,785,215 5,086,222 3 976 19,613 4,712,837 31,899 7,871,440 4,733,426 31,899 1,080,938 2,786,191 5,105,835 31,899 4,173,161 786,600 14,504,624 786,600 786,600 ( 1) Related balance includes receivables from central counterparties subject to 2% risk weight. d.5. Collateral for CCR: Collateral used in derivative transactions Collateral used in other transactions Current Period Received Collateral Given Collateral Segregated Not Segregated Segregated Not Segregated Cash- Domestic Currency Cash- Other Currencies Government bills/bonds-Domestic Government bills/bonds-FC Corporate bills/bonds Total Given Collateral Received Collateral 40,504,926 10,535,283 297,843 51,338,052 Collateral used in derivative transactions Collateral used in other transactions 862,425 786,600 782,259 4,341 28,350 47,475 17,820 15,732 15,645 87 2,088 2,026 41 194,244 101,545 2,583 (ii) Exchange-traded Derivatives (iii) Repo-reverse transactions, credit securities transactions and securities or commodities lending or borrowing (iv) Netting sets where cross-product has been Segregated initial margin Non-segregated initial margin Paid guarantee fund amount Unpaid guarantee fund commitment Exposures to non-QCCPs (total) Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which (i) OTC Derivatives (ii) Exchange-traded Derivatives (iii) Repo-reverse transactions, credit securities transactions and securities or commodities lending or borrowing (iv) Netting sets where cross-product has been approved Segregated initial margin Non-segregated initial margin Pre-funded default fund contributions Unfunded default fund contributions e. Explanations on securitisations: None. f. Explanations on Market Risk: f.1. Qualitative information disclosed to the public regarding Market Risk Market risk is defined as the risk that may reduce the market value of the trading portfolio due to the changes in the risk factors named interest rate, exchange rates, equities and the price of commodities and options. The procedures for the management of market risk are discussed in the Parent Bank's "Asset and Liability Management Risk Policy" and those procedures are in line with the risk/return expectations and with the limits that are defined in the risk appetite framework. Limits related to market risk; are established by the Board and are revised periodically in order to reflect market conditions and best practices in the industry. Compliance to those limits is closely monitored by the Risk Management Department, Asset and Liability Management Committee and by the executive departments. Additionally, compliance with the provisions relating to the procedures and policies of market risk management is audited by the internal audit system. Trading activities of the securities that are included in the calculation of market risk is carried out by taking the Asset-Liability Committee decisions, risk policies and established limits into consideration and risks arising due to these activities are hedged using derivatives transactions where necessary. Measurement of market risk, reporting of results, and monitoring compliance with the risk limits are among the key responsibilities of the Risk Management Department. Analyses related to market risk are reported to the Risk Comittee and to the Board via the Audit Committee by the Risk Management Deparment. The trading book of the Parent Bank included in market risk calculations consists of on balance-sheet financial assets that are held for trading intent, derivatives that provide hedge to those instruments and foreign currency positions. The market risk carried by the Group is measured and monitored using methods known respectively as the Standard Method and the Value at Risk Model (VAR) and Expected Shortfall in accordance with the local regulations which are established in compliance with the international legislations. In this context, the exchange rate risk emerges as the most important component of the market risk. Prior Period Received Collateral Given Collateral Segregated Not Segregated Segregated Not Segregated Received Collateral Given Collateral The market risk calculations using the Standard Method are performed at the end of each month and the measurement results are included in the statutory reports as well as being reported to the Bank’s top management. Cash- Domestic Currency Cash- Other Currencies Government bills/bonds-Domestic Government bills/bonds-FC Corporate bills/bonds-FC Total 19,973,100 11,632,214 137,736 28,713 31,771,763 The Value at Risk Model and Expected Shortfall is another alternative for the Standard Method used for measuring and monitoring market risk. This model is used to measure the market risk on a daily basis in terms of interest rate risk, currency risk and equity share risk and is a part of the Bank’s daily internal reporting. Further retrospective testing (back-testing) is carried out on a daily basis to determine the reliability of the daily risk calculation by the VAR model, which is used to estimate the maximum possible loss for the following day. Scenario analyses which support the VAR model used to measure the losses that may occur in the ordinary market conditions are practiced, and the possible impacts of scenarios that are developed based on the future predictions and the past crises, on the value of the Bank’s portfolio are determined and the results are reported to the Bank’s top management. 388 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 389 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen f.2. Standardised Approach i. Remuneration policy Outright Products Interest rate risk (general and specific) Equity risk (general and specific) Foreign exchange risk Commodity risk Options Simplified approach Delta-plus method Scenario approach Securitisations Total g. Explanations on Operational Risk Current Period 21,625,301 4,991,613 1,222,400 12,624,138 2,787,150 1,049,024 RWA Prior Period 17,364,027 3,902,163 3,844,363 9,416,413 201,088 131,698 1,049,024 131,698 22,674,325 17,495,725 The operational risk capital requirement is calculated according to “Regulation on Measurement and Evaluation of Capital Adequacy of Banks” article number 24, is measured using the Basic Indicator Approach once a year in parallel with domestic regulations. As of December 31, 2021 the consolidated operational risk amount is TL 51,469,094 information about the calculation is given below (December 31, 2020: TL 41,095,093). Current Period Gross Income Value at operational risk (Total*12.5) Current Period Gross Income Value at operational risk (Total*12.5) 2PP Amount 1PP Amount CP Amount Total/Positive Years of Gross Income Amount Rate (%) Total 22,312,078 24,912,326 35,126,147 3 15 4,117,528 51,469,094 2PP Amount 1PP Amount CP Amount Total/Positive Years of Gross Income Amount Rate (%) Total 18,527,745 22,312,078 24,912,326 3 15 3,287,607 41,095,093 h. The interest rate risk of the banking book items: Interest rate risk arising from the banking accounts is defined as negative effect risk on capital of the changes in market interest rates due to differences in interest settlement and re-pricing on, differences in interest-earning assets taking part in the banking book; interest-bearing liabilities; interest-bearing derivative transactions inclusive of the policies established by the Board of Directors, is managed within the framework of the strategies set by the Parent Bank Asset-Liability Committee. Compliance with internal risk limits for banking portfolio is closely and continuously monitored by the Risk Management Department and Asset-Liability Committee and the measurement results are reported to the Board of Directors on a monthly basis. Duration and sensitivity analysis are conducted on a monthly basis by the Bank in the scope of monitoring of interest rate risk arising from the banking books about Interest Rate Risk in the Banking Accounts from the Regulation on Measurement and Assessment of Standard Shock Method which is published in the Official Gazette No. 28034 dated August 23, 2011. In the duration analysis, the maturity gap between assets and liabilities of the balance sheet are determined by the calculation of the weighted average maturities based on the asset that sensitive to interest rate and liabilities and off-balance sheet transactions re-pricing period. In the interest rate risk sensitivity analysis, the influence of the various interest rate change scenarios to the economic value of the Bank's capital is examined. In the calculations made within the framework of the said regulation, behavioral maturity modeling is performed for demand deposits with low sensitivity to interest changes and whose original maturity is longer than the contractual maturity. In these studies, which are defined as core deposit analysis, based on historical data, calculations are made for what amount of demand deposits will remain within the bank for what maturity, and these analyzes are used as an input in quantifying the interest rate risk arising from banking accounts in a way that does not contradict legal provisions. Currency Applied Shock (+/- x basis point) Gains Loss Revenue/Shareholders’ Equity – Loss/ Shareholders’ Equity TL TL EUR EUR USD USD Total (for Negative Shocks) Total (for Positive Shocks) (+) 500 (-) 400 (+) 200 (-) 200 (+) 200 (-) 200 390 | İŞBANK 2021 INTEGRATED ANNUAL REPORT (7,658,934) 7,003,704 709,875 48,870 (1,201,907) 2,876,981 9,929,555 (8,150,966) (6.79)% 6.21% 0.63% 0.04% (1.07)% 2.55% 8.80% (7.23)% The Remuneration Committee, which is established to carry out the duties and activities related to the monitoring and supervision of the Bank's remuneration applications on behalf of the Board of Directors, consists of two members. The Remuneration Committee meets at least twice a year, not exceeding six months, and reports to the Board of Directors on the results of the activities carried out and important matters considered to have an impact on the Bank’s position. As of the end of 2021, the Remuneration Committee met 7 times and made a total of 10 decisions. Regarding compliance with the Corporate Governance Principles, the Remuneration Committee monitors and supervises the practices related to wage management on behalf of the Board of Directors; the fees are in line with the Bank's ethical values, internal balances and strategic objectives; the evaluation of the remuneration policy and its practices in the context of risk management; it is responsible for the presentation of the proposals determined in line with the requirements of the salary policy and the other responsibilities determined by the provisions of the applicable legislation and the fulfillment of the duties given by the Board of Directors in this framework. As of the end of 2021, the number of qualified employees working at the Bank is 27. The monetary and social rights of employees are determined in accordance with the Chartering Policy in the framework of the legislation related to the Collective Labor Agreement. The Bank carries out its practices with regard to remuneration policies within the framework of relevant banking and capital market legislation. This policy includes all managers and employees. Premium payments are made once a year to managers and managers who work in branches and headquarters units. It is considered that managerial premium payments are in line with the Bank's long-term strategy and the risks assumed, as well as the performance of its employees. There are no variable fees for qualified employees in the Bank. The compliance of the wage levels in the bank with the sector wage levels is monitored by participating in independent and anonymous wage surveys, which are held twice a year. Within the scope of the remuneration policy, the Bank's pricing practices are planned and executed on the basis of effective risk management, prevention of excessive risk taking, compliance with relevant legislation and scope and structure of the bank's activities, strategies, long-term objectives and risk management structures. The fees to be paid to the managers and employees of the Bank at every stage; It is essential that the Bank is in line with its ethical values, internal balances and strategic objectives, and that it is not only associated with its short-term performance. Payments made to employees are determined in a manner that will positively impact the Bank's corporate values and on the basis of objective conditions. Payments to be made to the managers of the units within the internal systems and to their staff are determined by taking into account the performance of the relevant personnel in relation to their functions, as they are in the audit or oversight, or are independent of the performance of the activity unit they control. XII. Explanations on Segment Reporting The Group's activities are classified under corporate/commercial banking, retail/private banking, treasury operations and investment activities, insurance and reinsurance activities and others. Services to the large corporations, SMEs and other trading companies are provided through various financial instruments within the scope of the corporate and commercial operations. Services such as project financing, operating and investment loans, deposit and cash management, credit cards, cheques and bills, foreign trade transactions and financing, letter of guarantee, letter of credit, forfeiting, foreign currency trading, bill collections, payrolls, investment accounts, tax collections and other banking services are provided to the aforementioned customer segments. Retail banking services include deposits, consumer loans, overdraft accounts, credit cards, bill collections, remittances, foreign currency trading, safe-deposit boxes, insurance, tax collections, and investment accounts and other banking services for individuals. All kinds of financing and cash management services provided to individuals in the high-income level are recognized as Private Banking activities. Treasury transactions are comprised of medium and long-term funding tools such as securities trading, money market transactions, spot and forward TL and foreign currency trading, and derivative transactions such as forwards, swaps, futures and options, as well as syndications and securitizations. Investment activities of intermediary institutions and venture capital and real estate investment partnerships are also classified in this area. Investments of subsidiaries who operate in the real sector, investments of associates who operate both in financial and real sector and investments of jointly controlled entities that are presented in the consolidated financial statements are evaluated within the scope of investment activities. Insurance and reinsurance activities include individual pension, life/non-life insurance transactions and reinsurance transactions. The Group's financial leasing, factoring, asset management, portfolio management and payment service activities are classified under the ‘Other’ heading. Information about The Group’s segments are presented below. İŞBANK 2021 INTEGRATED ANNUAL REPORT | 391 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Current Period Interest Income Interest Expense Fees and Commissions Income Fees and Commissions Expense Dividend Income Trading Income/Loss (Net) Other Income Expected Credit Loss and Other Provision Expenses Corporate / Commercial Banking 35,382,354 6,667,695 6,236,181 13,499 Individual / Private Banking Treasury Transaction/ Investment Activities Insurance and Reinsurance Activities Other/ Unallocated Total 12,353,944 10,642,224 2,709,306 19,913,033 13,683,018 837,356 103,959 68,548 703,452 21 95,798 1,514,562 1,799,856 1,537,406 612,123 2,166,889 69,449,187 32,530,364 10,490,764 3,798,909 68,548 703,452 2,633,690 307,201 1,121,310 11,010,299 1,811,190 16,883,690 7,091,015 688,195 73,446 137,851 8,819,983 16,810,490 Other Operating Expense 2,543,719 6,078,683 677,308 12,703,259 8,378,440 30,381,409 Income/Loss from Investments in Subsidiaries Accounted by Equity Method Income Before Tax Tax Provision Net Period Profit Group Profit/Loss Minority Interest Profit/Loss 4,874,850 4,874,850 18,949,319 3,389,061 15,560,258 13,541,060 2,019,198 Total Assets Total Liabilities 469,775,712 99,696,826 305,769,418 338,253,903 276,497,395 247,862,699 50,825,252 72,750,401 227,608,888 1,124,404,073 159,767,652 1,124,404,073 Prior Period Interest Income Interest Expense Fees and Commissions Income Fees and Commissions Expense Dividend Income Trading Income/Loss (Net) Other Income Expected Credit Loss and Other Provision Expenses Corporate / Commercial Banking 25,677,637 4,178,058 4,156,208 10,612 8,592,126 5,402,127 2,281,149 85 1,517,338 245,951 Individual / Private Banking Treasury Transaction/ Investment Activities Insurance and Reinsurance Activities Other/ Unallocated Total 12,424,000 7,836,465 716,455 71,502 31,057 (1,206,769) 350,854 385 71,833 1,208,916 1,267,214 1,481,227 155,836 1,208,916 9,014,735 605,051 47,960,977 18,898,262 7,381,481 2,462,068 31,057 (1,206,769) 11,733,929 7,515,789 534,157 74,924 105,839 5,919,331 14,150,040 Other Operating Expense 2,058,802 4,914,808 564,288 8,059,214 5,582,046 21,179,158 Income/Loss from Investments in Subsidiaries Accounted by Equity Method Income Before Tax Tax Provision Net Period Profit Group Profit/Loss Minority Interest Profit/Loss 1,455,956 1,455,956 10,667,103 2,915,351 7,751,752 6,655,442 1,096,310 Total Assets Total Liabilities 315,988,780 78,552,996 176,196,685 221,704,133 185,117,467 156,650,726 35,704,002 51,755,859 105,426,307 718,152,263 111,844,860 718,152,263 Section Five: Disclosures and Footnotes on the Consolidated Financial Statements I. Disclosures and Footnotes on Consolidated Assets a. Cash and Central Bank of the Republic of Turkey: a.1. Information on Cash and Balances with the Central Bank of the Republic of Turkey: Current Period Prior Period Cash in TL / Foreign Currency Central Bank of the Republic of Turkey Other Total a.2. Information on Balances with the CBRT: Unrestricted Demand Deposit Unrestricted Time Deposit Restricted Time Deposit Other (1) TL 2,627,722 14,667,660 17,295,382 TL 14,667,660 Total 14,667,660 FC 12,234,865 154,122,778 368,200 166,725,843 Current Period FC 66,691,645 87,431,133 154,122,778 ( 1) The amount of reserve deposits held at the Central Bank of the Republic of Turkey. a.3. Explanations on reserve requirement application: TL 2,486,752 3,079,305 5,566,057 TL 3,079,305 3,079,305 FC 6,650,065 59,386,999 367,269 66,404,333 Prior Period FC 19,987,701 39,399,298 59,386,999 As per the Communiqué no. 2013/15 “Reserve Deposits” of the Central Bank of the Republic of Turkey (“CBRT”), banks keep reserve deposits at the CBRT for their TL and FC liabilities mentioned in the communiqué. The reserve deposit rates vary according to their maturity compositions; the reserve deposit rates are realized between 1% - 6% for TL deposits and other liabilities, between 13% - 22% for FC deposits and between 5% - 21% for other FC liabilities. Reserves are calculated and set aside every two weeks on Friday for 14-day periods. Interest is paid for required reserves which are in TL in accordance with the procedures and principles determined by the CBRT. According to the Communique on Required Reserves published in the Official Gazette dated 01.07.2021 and numbered 31528, the possibility of establishing Turkish lira required reserves in foreign currency was terminated as of 01.10.2021. Within the scope of the "Communique on Supporting the Conversion of Turkish Lira Deposit and Participation Accounts" numbered 2021/14, the conversion rate from USD, EUR and GBP denominated foreign currency deposit accounts and foreign exchange denominated participation fund accounts to time TL deposit and participation accounts was 10% as of the obligation date of 15.04.2022. and banks that reached 20% as of 08.07.2022 liability date, it has been decided not to apply an annual commission of 1.5% over the portion up to the amount to be kept for their liabilities until the end of 2022. b. Information on Financial Assets at Fair Value through Profit and Loss: b.1. Financial assets at fair value through profit and loss, which are given as collateral or blocked: Financial assets at fair value through profit and loss, which are given as collateral or blocked as of 31 December 2021, amount to TL 5,872,223 (December 31, 2020: 772,176 TL). b.2. Financial assets at fair value through profit and loss, which are subject to repurchase agreements: Financial assets at fair value through profit and loss, which are subject to repurchase agreements as of 31 December 2021, amount to TL 164,956 (December 31, 2020: TL 61,909). b.3. All creditors including the Group reached an agreement on restructuring the loans granted to a company. As previously stated, loans of the company had been planning to be restructured based on required permits and necessary approvals within a new special purpose entity which was already incorporated or will be incorporated in the Republic of Turkey and owned by the creditors either directly or indirectly through takeover of the shares, that have been pledged by the company as a guarantee for the credit risk. Above mentioned process was completed in 2018 and, in this context the Bank owns 11.5972% and Türkiye Sınai Kalkınma Bankası A.Ş, a group company, owns 1.6172% of the newly formed special purpose entity. At the Ordinary Meeting of the General Assembly of 2018 held in the year of 2019, it has been decided to increase the share capital of the mentioned company by TL 3,982,230, all to be covered by common receivables. Whereas the Bank’s and Türkiye Sınai Kalkınma Bankası A.Ş.’ ownership ratio in company share have not changed, the nominal value of the shares owned increased from TL 6 to TL 461,833 and from TL 1 to TL 64,403 respectively. Related amount is recognized under Assets Held for Sale and Discontinued Operations account. This remaining loan amount after the capital increase of the mentioned company amounting to TL 2,149,813 (31.12.2020: TL 2,149,813) is accounted under financial assets at fair value through profit or loss. The amount of impairment recognized for the total asset converted into loan and capital is TL 3,868,608 and is classified under the specified item. Assets, which are converted into loan and capital, amounted TL 2,676,049 are measured at fair value under TFRS 9 “Financial Instruments” standard and TFRS 5 “Assets Held For Sale and Discontinued Operations” Standard. Balance of related asset is followed in financial statements as Stage 3 within the scope of “TFRS 13 – Fair Value Measurement” standard. The Bank re-evaluated the fair value of the relevant financial asset as of the end of the period, and did not make any changes to the current value monitored during the period.If the growth rate and risk-free return rate on investment used in the discounted cash flow method used in valuation are increased or decreased by 0.25%, provided that all other variables are constant, the total value of assets recognized in the financial statements and profit before tax will increase by about TL 63 million (full TL amount) or will decrease by TL 56 million (full TL amount). Although the process is ongoing as of the date of the report, as announced on the Public Disclosure Platform on 17.12.2021, negotiations have been started for the sale of these shares to the Turkish Wealth Fund. b.4. TL 1,302,654 of other financial assets consists of the mutual funds; Quasar İstanbul Konut Gayrimenkul and Quasar İstanbul Ticari Gayrimenkul which were founded by İş Portföy Yönetimi A.Ş. 392 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 393 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen c. Positive differences on derivative financial assets held for trading: e.3. Information on financial assets at fair value through other comprehensive income: Derivative Financial Assets at Fair Value through Profit or Loss (1) Forward Transactions Swap Transactions Futures Options Other Total TL 329,876 168,837 255,887 754,600 Current Period Prior Period FC 1,746,980 20,505,483 456,389 1,030,470 23,739,322 TL 233,145 123,089 6,678 362,912 FC 463,125 5,445,588 85,245 90,560 6,084,518 ( 1) Includes informationrelated to derivative financial assets held for trading in derivative financial assets. Information on derivative financial assets for hedging purposes is disclosed in Section Five footnote I.1. Debt Securities Quoted on a Stock Exchange Not-Quoted (1) Share Certificates Quoted on a Stock Exchange Not-Quoted Provision for Impairment Losses (-) Other Total Current Period 113,649,539 59,680,425 53,969,114 940,712 114,336 826,376 5,382,509 735,917 109,943,659 Prior Period 76,939,749 49,959,610 26,980,139 562,074 56,322 505,752 682,184 1,007,631 77,827,270 d. Banks Account d.1. Information on Banks: Banks Domestic Banks Foreign Banks Foreign Head Office and Branches Total d.2. Information on foreign banks: TL 2,806,065 168,413 2,974,478 Current Period FC 1,476,997 30,743,767 TL 2,618,265 197,388 Prior Period FC 1,613,288 17,920,692 32,220,764 2,815,653 19,533,980 Current Period Prior Period Unrestricted Amount Resticted Amount Unrestricted Amount Resticted Amount EU Countries USA, Canada OECD Countries (1) Off-shore Banking Regions Other Total 11,894,315 4,947,320 4,458,406 3,914,543 25,214,584 ( 1) OECD countries other than the EU countries, USA and Canada. Expected credit loss for cash and cash equivalents: Provisions beginning of the period Additional provisions within the period Transfers within the period Write-offs from Assets Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 Currency Exchange Difference Provisions at the end of the period Stage 1 50,476 52,272 (29,196) 12,186 85,738 2,569,797 10,603 1,732,114 1,385,082 5,697,596 7,902,000 3,272,983 2,011,931 1,688,333 14,875,247 1,435,709 73,252 1,128,328 605,544 3,242,833 Current Period Stage 2 Stage 3 Prior Period Stage 2 Stage 3 Stage 1 51,910 42,828 (37,179) (7,083) 50,476 ( 1) Refers to the debt securities, which are not quoted on the Stock Exchange or which are not traded, while quoted, on the Stock Exchange at the end of the related period. f. Information related to loans: Leasing and factoring receivables are considered as loans in the footnotes of this section. f.1. Information on all types of loans and advances given to shareholders and employees of the group: Current Period Prior Period Cash Non-Cash Cash Non-Cash Direct Lending to Shareholders Corporate Shareholders Individual Shareholders Indirect Lending to Shareholders Loans and Other Receivables to Employees Total 359,600 359,600 1,404 1,404 301,478 301,478 1,142 1,142 f.2. Information about the Standard Loans and Loans Under Close Monitoring and Loans Under Close Monitoring that have been restructured: Cash Loans Standard Loans Non-specialized loans Corporation Loans Export Loans Import Loans Loans Extended to Financial Sector Consumer Loans Credit Cards Other Specialized Loans Other Receivables Total Loans Under Close Monitoring Restructured Loans Loans Not Subject to Restructuring Loans with Revised Contract Terms 521,617,384 195,087,770 47,039,026 22,251,994 78,342,143 34,575,102 144,321,349 30,625,515 16,690,833 1,106,168 1,788 5,885,995 1,390,622 5,550,109 18,196,059 10,637,086 8,145 2,823 815,722 6,732,283 Refinanced 19,858,670 11,741,124 310,623 1,460,001 6,346,922 521,617,384 30,625,515 18,196,059 19,858,670 e. Information on Financial Assets at Fair Value through Other Comprehensive Income: e.1. Information on financial assets at fair value through other comprehensive income, which are given as collateral or blocked: Financial assets at fair value through other comprehensive income, which are given as collateral or blocked, amount to TL 30,366,014 as of 31 December 2021 (December 31, 2020: TL 22,460,070). e.2. Information on financial assets at fair value through other comprehensive income, which are subject to repurchase agreements: Financial assets at fair value through other comprehensive income which are subject to repurchase agreements amount to TL 34,943,986 as of 31 December 2021 (December 31, 2020: TL 19,425,159). 12 Month Expected Credit Losses Significant Increase in Credit Risk Current Period Prior Period Standard Loans 4,191,349 Loans Under Close Monitoring Standard Loans 3,094,850 Loans Under Close Monitoring 12,735,339 8,564,927 According to TFRS 9, the expected loss provisions calculated for the stage 1 and stage 2 loans have generally changed in parallel with the related loan balances. 394 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 395 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen f.3. Information on Maturity analysis of cash loans: f.5. Information on commercial installments loans and corporate credit cards: Cash Credit Standard Loans Short-term Loans Medium and Long-term Loans 149,780,498 371,836,886 Loans Under Close Monitoring Loans Not Subject to Restructuring 4,419,459 26,206,056 Refinanced 1,686,946 36,367,783 f.4. Information on consumer loans, retail credit cards, personnel loans and personnel credit cards: Short-Term Medium and Long-Term Interest and Income Accruals Consumer Loans-TL Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Consumer Loans – FC Indexed Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Consumer Loans – FC Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Retail Credit Cards-TL With Installments Without Installments Retail Credit Cards-FC With Installments Without Installments Personnel Loans-TL Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Personnel Loans- FC Indexed Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Personnel Loans-FC Real Estate Loans Vehicle Loans General Purpose Consumer Loans Other Personnel Credit Cards-TL With Installments Without Installments Personnel Credit Cards-FC With Installments Without Installments Overdraft Accounts – TL (real persons) Overdraft Accounts – FC (real persons) Total 2,898,136 30,822 25,242 2,842,072 1,620 269 1,351 23,016,151 8,244,933 14,771,218 28,094 28,094 28,718 28,718 646 646 153,787 58,894 94,893 282 282 2,726,338 119,860 28,973,632 77,925,583 23,971,198 1,188,360 52,766,025 2,821 2,821 324,852 11,410 313,442 1,106,106 1,106,106 148,266 3,929 573 143,764 3,806 28 3,778 2,833 2,833 1,437,351 278,409 14,555 1,144,387 27,147 27,147 539 78 461 141,196 141,196 2,692 29 5 2,658 35 35 277 277 42,552 79,514,267 1,651,789 Total 82,261,070 24,280,429 1,228,157 56,752,484 29,968 29,968 327,011 11,757 315,254 24,263,453 9,351,039 14,912,414 28,094 28,094 179,676 3,958 578 175,140 4,487 28 4,459 156,897 61,727 95,170 282 282 2,768,890 119,860 110,139,688 Commercial Loans with Installments-FC 478,320 10,461,253 Short-Term 3,960,174 16,413 375,936 3,567,825 Medium and Long Term 60,662,469 2,723,188 11,025,339 46,913,942 Interest and Income Accruals 1,042,381 21,132 82,943 938,306 163,505 5,504 3,012 154,989 9,865,891 595,362 193,250 193,242 8 102,899 375,421 12,097,914 5,573,496 6,524,418 6,710 6,710 1,565,680 446,975 13,843 6,511 426,621 66,091 59,993 6,098 34,846 34,846 29,242 18,108,798 71,480,477 1,619,535 Total 65,665,024 2,760,733 11,484,218 51,420,073 610,480 19,347 9,523 581,610 11,005,664 10,028,783 976,881 12,326,010 5,766,738 6,559,272 6,710 6,710 1,594,922 91,208,810 Commercial Loans with Installments-TL Real Estate Loans Vehicle Loans General Purpose Commercial Loans Other Commercial Loans with Installments-FC Indexed Real Estate Loans Vehicle Loans General Purpose Commercial Loans Other Real Estate Loans Vehicle Loans General Purpose Commercial Loans Other Corporate Credit Cards-TL With Installments Without Installments Corporate Credit Cards-FC With Installments Without Installments Overdraft Accounts – TL (corporate) Overdraft Accounts – FC (corporate) Total f.6. Distribution of credits according to users: Public Private Total f.7. Domestic and foreign loans: Domestic Loans Foreign Loans Total f.8. Loans granted to subsidiaries and associates: Direct Loans Granted to Subsidiaries and Associates Indirect Loans Granted to Subsidiaries and Associates Total f.9. Information on impairment provisions of Loans (Stage 3): Loans with Limited Collectability Loans with Doubtful Collectability Uncollectible Loans Total Current Period 7,291,579 583,006,049 590,297,628 Current Period 563,177,007 27,120,621 590,297,628 Current Period 2,402,860 2,402,860 Current Period 1,231,704 1,762,150 12,904,750 15,898,604 Prior Period 5,495,644 398,439,226 403,934,870 Prior Period 388,029,854 15,905,016 403,934,870 Prior Period 2,857,404 2,857,404 Prior Period 436,240 1,609,932 12,325,717 14,371,889 f.10. Information on non-performing loans (Net): f.10.1. Information on non-performing loans, which are restructured by the Group: Group III Group IV Group V Loans with Limited Collectability Loans with Doubtful Collectability Uncollectible Loans Current Period (Gross amounts before the provisions) Restructured Loans Prior Period (Gross amounts before the provisions) Restructured Loans 456,906 456,906 132,313 132,313 1,319,183 1,319,183 878,142 878,142 3,847,880 3,847,880 1,698,715 1,698,715 396 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 397 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen f.10.2. Information on the movement of total non-performing loans: f.10.3. Information on foreign currency non-performing loans: Group III Group IV Group V Loans with Limited Collectability Loans with Doubtful Collectability Uncollectible Loans Prior Period Ending Balance Corporate and Commercial Loans Retail Loans Credit Cards Other Additions (+) Corporate and Commercial Loans Retail Loans Credit Cards Other Transfers from Other NPL Categories (+) Corporate and Commercial Loans Retail Loans Credit Cards Other Transfers to Other NPL Categories (-) Corporate and Commercial Loans Retail Loans Credit Cards Other Collections (-) Corporate and Commercial Loans Retail Loans Credit Cards Other Write-Offs (-) (1) Corporate and Commercial Loans Retail Loans Credit Cards Other Debt Sale (-) Corporate and Commercial Loans Retail Loans Credit Cards Other Currency Exchange Effect Corporate and Commercial Loans Retail Loans Credit Cards Other Current Period Ending Balance Corporate and Commercial Loans Retail Loans Credit Cards Other Specific Provisions (-) Corporate and Commercial Loans Retail Loans Credit Cards Other Net Balance on Balance Sheet 823,375 816,356 6,964 55 2,692,791 1,803,921 574,499 312,422 1,949 861,272 677,145 139,215 42,963 1,949 311,251 164,571 87,173 59,507 2,631 24 2,603 4 13,549 9,677 3,872 2,354,561 1,788,214 356,344 210,003 1,231,704 912,447 195,659 123,598 1,122,857 3,775,159 3,473,881 207,533 93,745 3,751,690 3,070,330 424,879 256,418 63 548,739 364,612 139,215 42,963 1,949 4,506,462 4,063,865 308,531 132,054 2,012 615,494 343,529 172,168 99,797 1,120 908 179 33 12 12 564,644 563,599 1,045 3,517,144 3,064,120 291,794 161,230 1,762,150 1,492,825 169,244 100,081 1,754,994 18,546,312 16,554,959 1,046,889 815,995 128,469 354,552 314,960 19,769 9,543 10,280 4,818,995 4,376,398 308,531 132,054 2,012 3,988,597 3,546,078 290,281 139,232 13,006 921,239 919,318 752 1,159 10 1,096,887 356,687 356,762 381,081 2,357 860,251 838,983 21,176 92 18,573,387 17,263,217 748,570 436,120 125,480 12,904,750 11,771,588 626,530 391,777 114,855 5,668,637 (1) As part of the amendment to the “Regulation on Procedures and Principles on the Classification of Loans and Provisions to be Set Aside for Them” published in the Official Gazette No. 30961, receivables amounting to TL 867,724 were deducted from the register (2) In the current period, the part of the receivables constitute non-performing loans amounting to TL 745,486 are transferred to Emir Varlık Yönetim A.Ş., İstanbul Varlık Yönetim A.Ş., Gelecek Varlık Yönetim A.Ş., Hedef Varlık Yönetim A.Ş. and Arsan Varlık Yönetim A.Ş. by collecting TL 71,850 of sales amount in cash.The part of the receivables constitute non-performing loans amounting to TL 315,413 are transferred to İstanbul Varlık Yönetim A.Ş. and Gelecek Varlık Yönetim A.Ş. by collecting TL 53,300 of sales amount in cash (3) After the sale of non-performing loans and the write-off, the consolidated non-performing loan ratio decreased from 4.28% to 3.98% as of 31.12.2021. Current Period Balance at the End of the Period Provisions (-) Net Balance on Balance Sheet (1) Prior Period Balance at the End of the Period Provisions (-) Net Balance on Balance Sheet (1) Group III Group IV Group V Loans with Limited Collectability Loans with Doubtful Collectability Uncollectible Loans 931,130 447,079 484,051 137,815 71,759 66,056 2,390,456 1,141,904 1,248,552 2,438,551 912,785 1,525,766 11,033,205 6,923,386 4,109,819 9,363,546 5,286,740 4,076,806 ( 1) In addition to the loans extended in foreign currency, loans which are monitored in Turkish Lira are included. f.10.4. Information on gross and net non-performing loans as per customer categories: Group III Group IV Group V Loans with Limited Collectability Loans with Doubtful Collectability Uncollectible Loans Current Period (Net) Loans to Individuals and Corporate (Gross) Provisions (-) Loans to Individuals and Corporate (Net) Banks (Gross) Provisions (-) Banks (Net) Other Loans (Gross) Provisions (-) Other Loans (Net) Prior Period (Net) Loans to Individuals and Corporate (Gross) Provisions (-) Loans to Individuals and Corporate (Net) Banks (Gross) Provisions (-) Banks (Net) Other Loans (Gross) Provisions (-) Other Loans (Net) 1,122,857 2,354,561 1,231,704 1,122,857 387,135 823,375 436,240 387,135 1,754,994 3,517,144 1,762,150 1,754,994 2,165,227 3,775,159 1,609,932 2,165,227 5,668,637 18,447,907 12,789,895 5,658,012 6,220,595 18,417,843 12,213,995 6,203,848 128,469 111,722 16,747 f.10.5. Information on interest accruals, valuation differences and related provisions calculated for non-performing loans: Current Period (Net) Interest accruals and valuation differences Provisions (-) Prior Period (Net) Interest accruals and valuation differences Provisions (-) Group III Group IV Group V Loans with Limited Collectability Loans with Doubtful Collectability Uncollectible Loans 107,756 210,639 102,883 (877) (4,336) (3,459) 424,694 841,748 417,054 268,363 474,869 206,506 392,732 1,473,886 1,081,154 522,878 1,512,493 989,615 398 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 399 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen f.10.6. Outline of the liquidation policy for uncollectible loans and other receivables g.5. Movement of financial assets measured at amortized cost within the year: In order to ensure the liquidation of non-performing loans, all possibilities evaluated to ensure maximum collection according to the legislation. First of all, administrative initiatives are taken to deal with the borrower. Collection through legal proceedings used if there is no possibility of collection and configuration with the interviews for other receivables. Our receivables that cannot be collected through administrative and legal initiatives can be written off from the assets within the framework of portfolio-based receivables sales or write-offs, by fulfilling the requirements of the Tax Procedure Law. f.10.7. Explanations on write-off policy: Receivables classified as non-performing loans are collected primarily within the framework of administrative contacts with the debtors, and if no result is obtained, through legal means. In this context, if our uncollected receivables are deleted from assets, one of the methods of destruction, receivable sale and deregistration can be applied. In the Bank's write-off policy within the framework following the amendment made in Article 53 of the Banking Law with the Law on Income Tax and amending Certain Laws No. 19.07.2019/7186, along with the "Classification of Loans and the Procedures and Principles for the Reserves to be Allocated for Them" published in the Official Gazette No. 27.11.2019 / 30961,the following statements are issued: • The portion of the receivables, which are monitored under the Fifth Group-Loss Loans and allocated for lifetime expected loan loss due to the default of the debtor, can be deducted from the record, to the extent of the maximum provision amount, • Write-off is an accounting practice and does not result in the waiver of the receivable, • the receivables to be deducted from the record must be monitored as non-performing loans for at least 1 year. The Bank’s general policy for write-offs of receivables under follow-up is to write of such receivables that are proven to be uncollectible in legal follow-up process within the instructions of Tax Procedure Law. Expected Credit Loss: Provisions beginning of the period Additional provisions within the period Transfers within the period Write-offs from Assets Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 Currency Exchange Difference Current Period Stage 1 Stage 2 Stage 3 3,094,850 3,744,299 (2,855,083) 506,839 (647,781) (26,272) 374,497 8,564,927 6,839,036 -2,394,649 (498,512) 774,317 (1,334,981) 785,201 14,371,889 4,134,573 (2,249,174) (2,013,743) (8,327) (126,536) 1,361,253 428,669 Stage 1 1,710,047 3,206,632 Prior Period Stage 2 4,103,792 6,435,669 (1,910,463) (1,586,260) 85,965 (141,136) (8,658) 152,463 (77,813) 151,472 (623,623) 161,690 8,564,927 Stage 3 11,291,709 4,017,116 (1,570,849) (89,532) (8,152) (10,336) 632,281 109,652 14,371,889 Provisions at the end of the period 4,191,349 12,735,339 15,898,604 3,094,850 g. Financial Assets Measured at Amortized Cost: g.1. Financial Assets Measured at Amortized Cost given as collateral or blocked: Financial assets measured at Amortized cost given as collateral or blocked amount to TL 11,735,769 as at December 31, 2021 (December 31, 2020: TL 9,741,594). g.2. Financial Assets Measured at Amortized Cost subject to repurchase agreements: Financial assets measured at Amortized cost, which are subject to repurchase agreements amount to TL 17,843,004 at December 31, 2021 (December 31, 2020: TL 7,024,998). g.3. Information on government securities measured at Amortized cost: Government Bonds Treasury Bills Other Public Debt Securities Total g.4. Information on financial assets measured at amortized cost: Debt Securities Quoted on a Stock Exchange Not Quoted (1) Impairment Losses (-) Total Current Period 47,975,957 Prior Period 43,854,204 47,975,957 43,854,204 Current Period 51,545,328 48,798,039 2,747,289 51,545,328 Prior Period 45,604,603 43,828,009 1,776,594 45,604,603 Beginning Balance Foreign Exchange Differences Arising on Monetary Assets Purchases During the Year Disposals through Sales and Redemption Impairment Losses (-) Valuation Effect Balance at the End of the Period Expected credit loss for financial assets measured at amortized cost: Current Period 45,604,603 3,677,166 16,224,952 (16,481,168) 2,519,775 51,545,328 Prior Period 33,639,301 1,477,592 16,459,781 (7,309,408) 1,337,337 45,604,603 Current Period Stage 2 Stage 3 Stage 1 17,755 21,565 (11,283) Provisions beginning of the period Additional provisions within the period Transfers within the period Write-offs from Assets Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 Currency Exchange Difference Provisions at the end of the period 957 28,994 h. Information on Associates (Net): Stage 1 11,748 12,654 (6,822) 175 17,755 Prior Period Stage 2 Stage 3 As per the “Communiqué on Preparation of Consolidated Financial Statements of Banks”, credit institutions or financial institutions associates are included in the scope of consolidated financial statements. Within this context, credit institutions and financial associates are accounted in the consolidated financial statements according to TAS 28 - Investments in Associates and Joint Ventures”. h.1. Information on credit institution or financial institution associates that are not accounted by the equity method: None. h.2. Information on credit institution or financial institution associates that are accounted by the equity method: Title Address (City/ Country) Bank’s Share Percentage-If Different. Voting Percentage (%) Bank’s Risk Group Share Percentage (%) Arap Türk Bankası A.Ş. İstanbul/Turkey 20.58 79.42 Information on financial statements of associates in the above order: Total Assets Shareholders’ Equity Total Tangible Assets 10,205,582 1,361,769 223,069 Interest Income (1) 432,044 Securities Income Current Period Profit/Loss Prior Period Profit/Loss Fair Value 41 163,288 100,781 (1) Includes interest income on securities. g.3. Movement of investments in consolidated associates (1): Beginning Balance Movements during the period Purchases Bonus shares acquired Dividends received from the current year profit Sales Revaluation Increase (2) Impairment Balance at the end of the period Capital commitments Contribution in equity at the end of the period (%) Current Period 242,174 Prior Period 220,768 38,022 280,196 21,406 242,174 (1) Indicates unlisted debt securities, and debt securities that have not been traded at the end of the related periods while they are listed. (1) Includes the information related to associate which is a credit institution in which the Bank has direct shares. (2) Includes the equity method accounting differences. 400 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 401 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen h.4. Sectoral information on consolidated associates and the related carrying amounts (1): i.3. Information on consolidated subsidiaries: Current Period 280,196 Prior Period 242,174 Title Address (City/ Country) Bank’s Share Percentage-If Different. Voting Rights (%) (1) Bank’s Risk Group Share Percentage (%) Banks Insurance Companies Factoring Companies Leasing Companies Finance Companies Other Financial Participations Total 280,196 242,174 (1) Includes the information related to associate which is a credit institution in which the Bank has direct shares. h.5. Consolidated associates traded on a stock exchange: None. h.6. Consolidated associates disposed of in the current period: None. h.7. Consolidated associates acquired in the current period: None. h.8. Other issues related to associates: The accounting method for non-financial subsidiaries, associates and jointly controlled associates is changed in accordance with TAS 27 “Individual Financial Statements” to the equity method introduced in TAS 28. The effects of these changes are given in Section Three III.2 numbered footnotes in detail. i. Information on subsidiaries (Net): As per the “Communiqué on Preparation of Consolidated Financial Statements of Banks”, the Bank includes credit institutions or financial institutions subsidiaries in the scope of consolidated financial statements. i.1. Information on the equity of major subsidiaries: Türkiye Sınai Kalkınma Bankası A.Ş. Insurance / Reinsurance Companies İş Gayrimenkul Yatırım Ortaklığı A.Ş. İş Finansal Kiralama A.Ş. İş Yatırım Menkul Değerler A.Ş. COMMON EQUITY TIER I CAPITAL Common Equity Tier I Capital Before Deductions 7,354,514 8,074,495 5,476,126 1,999,205 2,768,792 Deductions from Common Equity Tier I Capital (-) 173,692 Total Common Equity Tier I Capital 7,180,822 275,067 7,799,428 1,713 9,294 5,474,413 1,989,911 102,178 2,666,614 ADDITIONAL TIER I CAPITAL Additional Tier I Capital before Deductions Deductions from Additional Tier I Capital (-) Total Capital TIER II CAPITAL 7,180,822 7,799,428 5,474,413 1,989,911 2,666,614 Tier II Capital Before Deductions 4,585,272 Deduction from Tier II Capital (-) Total Additional Tier II Capital Total Capital and Tier II Capital Deductions from Total Capital and Additional Tier I Capital (-) 4,585,272 11,766,094 7,799,428 5,474,413 1,989,911 2,666,614 CAPITAL 11,766,094 7,799,428 5,474,413 1,989,911 2,666,614 i.2. Information on unconsolidated subsidiaries: None. 1- 2- 3- 4- 5- 6- 7- 8- 9- 10- 11- 12- 13- 14- 15- 16- 17- 18- 19- 20- 21- Anadolu Anonim Türk Sigorta Şirketi Anadolu Hayat Emeklilik A.Ş. Efes Varlık Yönetim A.Ş. İş Faktoring A.Ş. İş Finansal Kiralama A.Ş. İş Gayrimenkul Yatırım Ortaklığı A.Ş. İş Girişim Sermayesi Yatırım Ortaklığı A.Ş. İş Portföy Yönetimi A.Ş. İş Yatırım Menkul Değerler A.Ş. İş Yatırım Ortaklığı A.Ş. İşbank AG JSC İşbank JSC Isbank Georgia İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye Frankfurt/Almanya Moskova/Rusya Tiflis/Gürcistan Maxis Girişim Sermayesi Portföy Yönetimi A.Ş. İstanbul/Türkiye Maxis Investments Ltd. Milli Reasürans T.A.Ş. Londra/İngiltere İstanbul/Türkiye Moka Ödeme ve Elektronik Para Kuruluşu A.Ş. İstanbul/Türkiye TSKB Gayrimenkul Yatırım Ortaklığı A.Ş. Türkiye Sınai Kalkınma Bankası A.Ş. Yatırım Finansman Menkul Değerler A.Ş. Yatırım Varlık Kiralama A.Ş. İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye İstanbul/Türkiye (1) Indirect share of the Group is considered as the Parent Bank’s share percentage. Financial statement information related to consolidated subsidiaries in the above order: 50.21 74.81 66.28 46.43 45.33 60.79 35.37 67.47 67.98 24.97 100.00 100.00 100.00 67.98 67.98 87.60 100.00 45.04 50.46 48.90 48.90 49.79 25.19 33.72 53.57 54.67 39.21 64.63 32.53 32.02 75.03 0.00 0.00 0.00 32.02 32.02 12.40 0.00 54.96 49.54 51.10 51.10 Total Assets Shareholders’ Equity Total Tangible Assets Interest Income (1) Securities Income Current Period Profit/ Loss Prior Period Profit/Loss Fair Value (2) Additional Shareholders’ Equity Required 1- 2- 3- 4- 5- 6- 7- 8- 9- 10- 11- 12- 13- 14- 15- 16- 17- 18- 19- 20- 21- 16.120.481 51.499.993 205.370 6.949.706 20.376.915 6.676.321 279.025 274.024 2.548.455 1.884.515 126.294 634.486 2.139.443 5.475.663 275.530 240.517 379.898 398.843 7.853 6.296 31.147 5.510.853 922 8.570 14.213.244 3.072.116 151.535 275.586 273.854 431 28.062.570 3.395.122 294.252 2.732.941 1.623.847 14.827 320.779 758.858 440.328 9.917 77.671 72.137 40.440 2.518 1.253 732.630 553.910 95.503 627.973 1.509.893 6.283 8.555 29.198 569.927 35.515 551.693 111.221 61.347 790 7.941 7.183.128 3.000.423 829.788 406.668 160.475 119.578 743.565 45.024 739.912 86.092.535 7.021.766 2.557.415 233.809 802.052 239 2.550 729.591 884.455 12.135 3 5.526 2.276 4.675.202 141.316 10.380 6.155 420.369 61.909 8.804 17.439 41.537 2.871 18.342 589.835 699.988 23.631 121.372 310.063 1.329.920 11.976 97.016 510.026 526.939 10.431 55.292 197.586 266.502 2.050 59.256 1.119.554 1.233.477 977.305 42.941 14.031 50.811 143.158 12.739 28.165 4.691 12.484 548.966 2.143 124.879 1.097.309 66.201 49 27.975 59.514 2.644 20.760 (326) 7.585 348.599 (4.164) (45.781) 709.473 44.209 17 3.200.000 5.184.510 2.174.211 2.914.600 611.553 8.168.905 498.018 1.869.400 4.040.400 402 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 403 (1) Includes interest income on securities. (2) Fair value is the companies’ market value. Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen i.4. Movement of investments in subsidiaries (1): Balance at the Beginning of the Period Movements in the Period Purchases (2) Bonus Shares Acquired Dividends Received from the Current Year Profit Sales Revaluation Surplus/Deficit (3) Impairment Balance at the End of the Period Capital Commitments Contribution in equity at the end of the period (%) Current Period 13,004,921 135,635 Prior Period 9,915,702 482,999 4,472,501 2,606,220 17,613,057 13,004,921 (1) Reveals the information related to companies subject to consolidation in which Bank directly owns share. (2) (*) The amount in the current period is due to the purchase and capital increase of Moka Ödeme Kuruluşu A.Ş. and the amount in the prior period is due to the purchasing shares of Türkiye Sınai Kalkınma Bankası A.Ş., İş Gayrimenkul Yatırım Ortaklığı A.Ş., Milli Reasürans T.A.Ş., İş Net Elektronik Bilgi Üretim Dağıtım Ticaret and İletişim Hizmetleri A.Ş. by cash, Türkiye Şişe ve Cam Fabrikaları A.Ş and İş Gayrimenkul Yatırım Ortaklığı A.Ş.'s shares followed in the Financial Assets at Fair Value Through Profit or Loss account is classified under subsidiaries and due to the capital increase of Trakya Yatırım Holding A.Ş. (3) Includes accounting differences by equity method. k. Information regarding finance lease receivables (Net): k.1. Presentation of finance lease receivables according to their remaining maturities: Less than 1 Year 1-4 Years More than 4 Years Total Current Period Prior Period Gross 5,518,419 7,264,644 701,434 13,484,497 Net 4,652,503 6,428,916 622,103 11,703,522 Gross 3,477,055 4,512,253 481,846 8,471,154 Net 2,916,349 3,984,049 437,920 7,338,318 k.2. Information regarding net investments made on finance lease: Gross Finance Lease Investment Unearned Finance Revenue from Finance Lease (-) Net Finance Lease Investment Current Period 13,484,497 1,780,975 11,703,522 Prior Period 8,471,154 1,132,836 7,338,318 k.3. Presentation of operating lease receivables according to their remaining maturities: As at December 31, 2021 the remaining maturities of the Group's operating lease receivable is less than 1 year the total amount is TL 23,537 (December 31, 2020; TL 12,824). i.5. Sectoral information on consolidated subsidiaries and the related carrying amounts (1): l. Positive differences table for hedging derivative financial assets: Banks Insurance Companies Factoring Companies Leasing Companies Finance Companies Other Financial Subsidiaries Total Current Period 8,036,340 4,353,568 544,978 4,678,171 17,613,057 Prior Period 5,580,606 3,659,077 442,361 3,322,877 13,004,921 Part of Derivative Financial Assets at Fair Value Through Profit Loss (1) Net Hedging Derivative Financial Assets Hedging Cash Flow Protection from Net Investment Risk Abroad Total Current Period Prior Period Net Gross 256,505 256,505 Gross 262,699 262,699 (1) Includes information on derivative financial assets for hedging purposes classified under derivative financial assets. (1) Reveals the information related to companies subject to consolidation in which Bank directly owns share. Explanations on hedging derivative financial assets: i.6. Consolidated subsidiaries traded on stock exchange (1): Traded on domestic stock exchanges Traded on foreign stock exchanges Current Period 10,063,540 Prior Period 7,867,084 (1) Reveals the information related to companies subject to consolidation in which Bank directly owns share. i.7. Consolidated subsidiaries disposed of in the current period: None i.8. Subsidiaries acquired in the current period: After the authorization granted to the General Directorate by the decision of the Bank's Board of Directors dated 27.07.2020, the necessary transactions were completed and the 100% share of Moka Ödeme ve Elektronik Para Kuruluşu A.Ş. was transferred to the Bank. i.9. Other issues on subsidiaries: TSKB also acquired the shares owned by Yatırım Finansman Menkul Değerler A.Ş., TSKB Gayrimenkul Değerleme A.Ş. and TSKB Munzam Sosyal Güvenlik ve Yardımlaşma Vakfı in TSKB Sürdürülebilirlik Danışmanlığı A.Ş. and increased his share in the subsidiary to 100%. As explained in Note III.2 of Section Three, non-financial subsidiaries, associates and jointly controlled associates are accounted by using the equity method defined in TAS 28 “Investments in Subsidiaries and Associates” within the scope of TAS 27 “Individual Financial Statements”. j. Information on jointly controlled entities (Net): As per the “Communiqué on Preparation of Consolidated Financial Statements of Banks”, jointly controlled entities as credit institutions or financial institutions are included in the scope of consolidated financial statements. There are no jointly controlled entities which are excluded in the scope of the consolidation. On the other hand, as explained in Note III.2 of Section Three, non-financial subsidiaries, associates and jointly controlled associates are accounted by using the equity method defined in TAS 28 “Investments in Subsidiaries and Associates” within the scope of TAS 27 “Individual Financial Statements”. Derivative Financial Liabilities at Fair Value through Profit/Loss Current Period Prior Period Contract Sum Assets Liability Contract Sum Assets Liabilty Interest Rate Swap Transactions 19,085,248 FC TL Currency Swap Transactions FC TL 19,085,248 7,926,855 7,926,855 208,148 208,148 48,357 48,357 15,214,012 15,214,012 262,699 262,699 4,626,754 4,626,754 154,049 154,049 404 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 405 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Information on fair value hedge accounting is given below. Current Period: Hedging Instrument Hedging Item Risk Exposure Fair Value Difference of Hedging Assets (1) Net fair value of hedging instrument (1) Income statement effect (profit / loss from derivative financial transactions) Interest Rate Swap Transactions Interest Rate Swap Transactions Fixed Interest rate Eurobond and Greenbond Fixed Rate Loans Used Cross Currency Swap Transactions Fixed Interest Rate Eurobond Interest Risk Interest Risk Interest Risk (111,338) 117,468 (24,900) (72,869) 24,016 73,489 6,130 (884) 620 Assets Liabilities (1) The fair value of the protected assets and the hedged assets subject to hedge accounting is shown as the net market value excluding the credit risk and the accumulated interest. Prior Period: Hedging Instrument Hedging Item Risk Exposure Fair Value Difference of Hedging Assets (1) Net fair value of hedging instrument (1) Income statement effect (profit / loss from derivative financial transactions) Interest Rate Swap Transactions Interest Rate Swap Transactions Fixed Rate Loans Used Cross Currency Swap Transactions Fixed Interest rate Eurobonds Fixed Interest rate Eurobonds and Greenbonds Interest rate risk (184,285) 181,026 (3,259) Assets Liabilities Interest rate risk Interest rate risk (41,043) (54,959) 40,450 54,947 (593) (12) l. Information on investment property: Investment properties are properties that the Group holds to earn rentals. Explanations on these subjects are given in Section Three Note XIV. Total rental income obtained from investment properties during the period is TL 150,519 (December 31, 2020: TL 124,724). Net Book Value at the Beginning of the Period Change During the Period (Net) (1) Revaluations Surplus/Deficit Net Book Value at the End of the Period Current Period 3,649,631 51,414 900,871 4,601,916 Prior Period 3,444,979 17,297 187,355 3,649,631 n. Information on deferred tax asset: As of December 31, 2021, the Parent Bank and the other consolidated Group companies has deferred tax asset amounting to TL 3,118,976. Such deferred tax asset is calculated based on the temporary differences between the book value of assets and liabilities and their tax basis measured as per the prevailing tax regulation. When the items comprising the temporary differences are followed under equity, the related tax asset/liability is directly recognized under equity items. Tangible Assets Base Differences Provisions (1) Finance Lease Income Accruals Valuation of Financial Assets Other Net Deferred Tax Asset Current Period 743,080 (6,041,695) 32,401 1,946,829 200,409 (3,118,976) Prior Period 478,240 (3,489,533) 16,384 (598,113) (79,714) (3,672,736) (1) Comprised of employee termination benefits, actual and technical deficits of the pension fund, insurance technical provisions, the provisions for credit card bonus points, expected credit loss for Stage 1 and Stage 2 loans and other provisions. (1) The fair value of the protected assets and the hedged assets subject to hedge accounting is shown as the net market value excluding the credit risk and the accumulated interest. Movement of the deferred tax asset is as follows: Real Estate Right-to-Use Assets Buildings Under Construction Vehicles Other MDV Total Beginning Value m. Information on Tangible Assets: Current Period Previous Period Cost Accumulated Depreciation Net Book Value Current Period Net Book Value at the Beginning of Period Current Period Changes (Net) (1) Depreciation Fee Provision for Impairment (Net) Foreign Exchane Differences (Net) (1) End of Term Cost Accumulated Depreciaton at the End of the Period 6,070,841 (114,817) 5,956,024 5,956,024 2,952,267 (74,526) 24,997 18,311 8,903,796 1,804,042 (956,465) 847,577 847,577 576,863 (371,005) 67,782 2,520,198 248,229 248,229 248,229 43,924 292,153 42,938 (23,900) 19,038 3,483,315 (2,454,229) 1,029,086 11,649,365 (3,549,411) 8,099,954 19,038 5,087 (6,795) 1,325 49,778 1,029,086 409,785 (350,648) 9,703 3,915,335 8,099,954 3,987,926 (802,974) 24,997 97,121 15,681,260 (26,723) (1,398,981) (31,123) (2,817,409) (4,274,236) Deferred Tax Income / (Expense) (Net) Deferred Tax Accounted Under Equity Deferred Tax Accounted Under Previous Year K / Z Exchange rate differences Other Deferred Tax Asset (1) Net Book Value at the End of the Period 8,877,073 1,121,217 292,153 18,655 1,097,926 11,407,024 (1) Includes the movements in cost value and accumulated depreciation items. k. Information on Intangible Assets: Explanation regarding consolidation goodwill that is included in intangible assets is given in Section Three under the caption of “XII. Explanations on Goodwill and Other Intangible Assets.” The table consisting movements of other intangible assets are presented below. Net Balance at the Beginning of the Period Change during the periods (Net) Amortized Cost Foreign Currency Difference Net Book Value at the End of the Period Current Period Prior Period 3,528,305 (767,140) 216,138 16,360 364 2,994,027 1,874,705 1,863,243 (196,818) (13,786) 961 3,528,305 Current Period 1,302,608 (399,379) 7,642 910,871 Prior Period 1,190,220 111,914 (7) 481 1,302,608 (1) In the consolidated financial statements, there are deferred tax assets of TL 3,118.976 and deferred tax liabilities of TL 124.949 in the current period. Explanations on deferred tax liability are given in Section Five, Note II.h.2. n. Information on assets held for sale and discontinued operations: Net Book Value at the Beginning of the Period Change During the Period (Net)(1) Depreciation Impairment Currency Translation Differences (1) Cost at Period End Accumulated Depreciation at Period End Net Book Value at the End of the Period (1) The balance includes the movements in cost and accumulated depreciation items. 406 | İŞBANK 2021 INTEGRATED ANNUAL REPORT Current Period 1,618,014 921,544 (453,413) 67,886 5,284,771 (3,130,740) 2,154,031 Prior Period 1,160,750 752,848 (324,296) 28,712 4,183,145 (2,565,131) 1,618,014 Investment in a special purpose company whose details be given in Section Five footnote I.b.3 is classified within the scope of “TFRS-5 Assets Held for Sale and Discontinued Operations”. As stated in the same footnote, in 2019 the Bank’s and Türkiye Sınai Kalkınma Bankası A.Ş.’s shares’ nominal values in company’s capital increased from TL 6 to TL 461,833 and TL 1 to TL 64,403 respectively and this amount is located in the line “Change during the periods (Net)”. On the other hand, an international investment bank is authorized as a sales advisor in 2019 for the sale of the relevant company or the shares owned by the company and in this context, necessary works related to the sale and negotiations with potential investors has been initiated. Although the process is ongoing as of the date of the report, as announced on the Kamu Aydınlatma Platformu on 17.12.2021, negotiations have been started for the sale of these shares to the Türkiye Varlık Fonu. The other assets classified as “Fixed Assets Held for Sale” mostly consist of real estates. Announcements about the real estates subject to sale are made by using newspaper advertisements and similar media. Additionally, the Parent Bank’s real estates subject to sale are announced on the Bank’s web site. The Group has no discontinued operations. o. Information on other assets of the group: Other assets item does not exceed 10% of the balance sheet total. İŞBANK 2021 INTEGRATED ANNUAL REPORT | 407 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen II. Disclosures And Footnotes on Consolidated Liabilities a. Information on Deposits: a.1. The maturity structure of deposits: Current Period Demand 7 Days Notice Up to 1 Month 1-3 Months 3-6 Months 6 Months to 1 Year 1 Year and Over Accumulated Deposits Total Savings Deposits 29,130,181 10,101,438 62,338,966 8,091,893 879,420 1,026,512 Foreign Currency Deposits 195,521,622 34,766,109 129,130,825 8,364,528 6,984,141 18,549,447 Residents in Turkey 171,143,280 32,092,855 111,457,042 5,338,216 1,907,736 4,904,765 6,422 2,293 1,517 Residents Abroad Public Sector Deposits Commercial Deposits 24,378,342 1,205,680 18,091,217 Other Institutions Deposits 602,088 Precious Metals Deposits 46,013,605 Interbank Deposits 1,302,757 The Central Bank of Turkey 480 Domestic Banks Foreign Banks 288,796 1,013,416 Participation Banks 65 2,673,254 17,673,783 3,026,312 5,076,405 13,644,682 776 11,796 139,914 1,073 374 16,649,887 11,071,146 173,276 515,975 571,697 555,375 3,160,538 1,055,562 1,133,496 450,260 105,115 538,289 595,207 40,352 2,411 150,880 6,508,325 311,651 59 59 848,077 2,587,270 148,477 699,600 2,587,270 200 28,850 51,875 111,574,832 393,318,965 326,845,411 66,473,554 1,359,037 46,530,351 4,428,961 54,040,023 6,427,034 480 1,425,822 5,000,667 65 Other Total 291,867,150 62,656,302 208,030,447 16,822,061 15,738,723 22,555,805 8,715 617,679,203 The Main Partnership Bank has started to offer its customers exchange rate-protected TL deposit products in the current period within the scope of the "Communiqué on Supporting the Transformation into Turkish Lira Deposits and Participation Accounts" published by the CBRT on 21.12.2021 and numbered 31696, and the Turkish Ministry of Treasury and Finance's press release dated 21.12.2021. As of 31.12.2021, the amount of the exchange rate protected deposit product opened in this context is TL 6,116,412. Current Period Demand 7 Days Notice Up to 1 Month 1-3 Months 3-6 Months 6 Months to 1 Year 1 Year and Over Accumulated Deposits Total Savings Deposits 21,210,745 6,277,095 59,511,073 2,134,712 449,790 751,497 Foreign Currency Deposits 88,486,220 14,003,962 84,111,032 5,525,404 3,250,065 12,856,336 Residents in Turkey Residents Abroad 77,521,647 10,964,573 12,178,923 72,291,088 3,506,840 1,114,563 3,613,468 1,825,039 11,819,944 2,018,564 2,135,502 9,242,868 8,557 1,263 878 385 Public Sector Deposits 941,849 1,272 70,444 7,829 329 195 Commercial Deposits 12,882,574 7,734,268 13,182,655 191,959 1,924,058 9,691 Other Institutions Deposits 541,979 565,554 2,396,713 123,706 2,265 26,155 Precious Metals Deposits 32,152,261 390,882 Interbank Deposits 1,123,809 1,803,160 1,002,743 87,716 65,260 4,013,730 163,286 255,227 1,454,073 The Central Bank of Turkey 510 Domestic Banks Foreign Banks Participation Banks 115,744 998,457 9,098 754,461 1,048,699 192,488 810,255 65,260 180,729 74,498 1,454,073 90,343,469 208,234,282 170,227,407 38,006,875 1,021,918 35,925,205 3,656,372 36,807,875 5,704,272 510 1,243,422 4,451,242 9,098 Other Total 157,339,437 30,385,311 160,665,542 8,136,586 9,895,464 15,261,233 9,820 381,693,393 a.2. Savings deposits which are under the guarantee of Savings Deposits Insurance Fund exceeding the insurance limit: a.3. Savings deposits which are not under the guarantee of deposit insurance fund: Foreign Branches’ Saving Deposits and Other Accounts Deposits and Other Accounts held by Main Shareholders and their Relatives Current Period 4,059,511 Deposits and Other Accounts of the Chairperson and Members of Board of Directors, Chief Executive Officer, Senior Executive Officers and their Relatives 29,224 Deposits and Other Accounts Covered by Assets Generated Through the Offenses Mentioned in Article 282 of the Turkish Criminal Code Numbered 5237 and Dated 26 September 2004 Deposits in the Banks to be Engaged Exclusively in Off-shore Banking in Turkey b. Negative Differences on Derivative Financial Liabilities Held for Trading: Prior Period 800,626 28,274 Derivative Financial Liabilities at Fair Value through Profit/Loss (1) Forward Transactions Swap Transactions Futures Options Other Total TL 2,282,720 4,682,562 131,914 7,097,196 Current Period Prior Period FC 265,681 6,127,648 461,757 126,245 6,981,331 TL 212,130 1,301,626 480 1,514,236 FC 265,801 6,432,114 37,234 451,000 7,186,149 (1) Includes information related to derivative financial liabilities held for trading and clsassified under derivative financial liabilities. Information on derivative financial liabilities for hedging purposes is disclosed in Note II.g of Section Five. c. Banks and Other Financial Institutions: c.1. Information on banks and other financial institutions: Current Period Prior Period TL FC TL Funds borrowed from the CBRT Domestic banks and institutions Foreign banks, institutions and funds Total 3,736,112 2,283,386 6,019,498 c.2. Maturity analysis of funds borrowed: 9,586,758 113,317,427 122,904,185 2,594,453 1,840,513 4,434,966 FC 12,010 4,927,294 68,228,618 73,167,922 Current Period Prior Period TL 4,072,916 1,946,582 6,019,498 FC 8,797,761 114,106,424 122,904,185 TL 2,8 44,336 1,590,630 4,434,966 FC 2,622,591 70,545,331 73,167,922 Short-term Medium and Long-term Total c.3. Information on funds borrowed: Under the Guarantee of Savings Deposits Insurance Fund Exceeding the Limit of Deposit Insurance Fund Information on funds received through syndicated loans and securitization deals, which take a significant place among funds borrowed, are given below. Savings Deposits Savings Deposits Foreign Currency Savings Deposits Prior Period 54,291,725 58,931,256 Other Deposits in the Form of Savings Deposits 19,430,372 Foreign Branches’ Deposits Under Foreign Authorities’ Insurance Off-shore Banking Regions’ Deposits Under Foreign Authorities Insurance 14,734,281 408 | İŞBANK 2021 INTEGRATED ANNUAL REPORT Current Period 47,354,070 42,668,430 17,580,279 16,641,572 Prior Period 56,062,849 175,476,819 31,613,866 4,059,511 Önceki Dönem 41,824,890 88,281,588 17,357,298 1,800,626 Syndication loans: Date of Use May 2021 July 2021 Funds Borrowed USD 300,000,000 + EUR 544,650,000 USD 55,000,000 + EUR 116,000,000 November 2021 USD 328,000,000 + EUR 434,000,000 Maturity 1 Year 1 Year 1 Year İŞBANK 2021 INTEGRATED ANNUAL REPORT | 409 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Securitization deals: The Parent Bank obtained funds by putting on securitization deals all its claims and receivables based on diversified payment rights in USD, EUR and GBP through its consolidated structured entity TIB Diversified Payment Rights Finance Company (TIB) which was established in abroad. The Parent Bank monitors securitization credits under the “Borrowings” on its financial statements as per its nature. Information on funds received through securitization is given below. Date June 2012 December 2013 December 2014 March 2015 October 2015 October 2016 December 2016 December 2017 December 2017 December 2017 Other Transactions: Amount EUR 125,000,000 EUR 50,000,000 USD 220,000,000 USD 75,000,000 USD 221,200,000 USD 55,000,000 USD 158,800,000 USD 265,000,000 EUR 125,000,000 USD 125,000,000 Final Maturity Remaining Debt Amount as at December 31, 2021 12 year 12 year 14 year 7-15 year 10 year 12 year 10-13 year 5-7 year 5 year 9 year EUR 34,375,000 EUR 20,000,000 USD 140,000,000 USD 18,000,000 USD 103,687,500 USD 37,560,964 USD 91,290,954 USD 103,000,000 EUR41,666,667 USD 125,000,000 The financing transaction amounting to USD 500 million, with a maturity of 10 years, obtained within the scope of the Diversified Payment Rights (DPR) securitization programme, which had been disclosed on August 2014, has been increased to USD 600 million by an additional funding of USD 100 million with the identical maturity profile on September 2017. d. Information on Debt Securities Issued (Net): Bills Asset backed security Bonds Total TL 5,999,193 757,078 2,028,706 8,784,977 Current Period FC 39,292,335 39,292,335 TL 5,095,133 377,032 1,662,744 7,134,909 Prior Period FC 32,364,397 32,364,397 e. Concentration of the liabilities of the Group: Group’s liabilities 55% are comprised of deposits, 11% are comprised of funds borrowed, 8% are comprised subordinated debt and marketable securities issued and 5% are comprised of debt from money markets. Deposits are distributed among a large variety of customers with different characteristics. The borrowings, on the other hand, are comprised of various funds obtained from financial institutions through syndication, securitization, post-financing and money market operations. f. Information on Other Liabilities: Other liabilities do not exceed 10% of the balance sheet total. g. Information on Lease Payables (Net): Less than 1 year 1-4 years More than 4 years Total Gross 54,978 263,475 1,501,399 1,819,852 Current Period Prior Period Net 38,505 188,386 1,012,823 1,239,714 Gross 47,802 153,914 1,181,187 1,382,903 Net 29,110 110,680 778,950 918,740 h. Negative differences related to derivative financial instruments for hedging purposes: Part of Derivative Financial Liabilities at Fair Value Through Profit Loss (1) Fair Value Hedge Purpose Cash Flow Hedges Net Investment Hedge Abroad Total Current Period Prior Period Gross Net Gross Net 154,049 154,049 (1) Includes the negative differences related to derivative financial assets for hedging purposes classified under derivative financial assets. The transactional details for the hedging derivative financial instruments are disclosed in Note I.l of Section Five. i. Information on Provisions: i.1. Reserves for employee benefits: According to the related regulation and the collective bargaining agreements, the Parent Bank is obliged to pay employee termination benefits to employees who retire, die, quit for their military service obligations, who have been dismissed as defined in the related regulation or to the female employees who have voluntarily quit within one year after the date of their marriage. In accordance with the related regulations, the amount of employee termination benefits is TL 8,284.17 (exact TL amount as of December 31, 2021), which is one-month salary for each service year and cannot exceed the base salary ceiling for employee termination benefits. A provision for severance pay to allocate that employees need to be paid upon retirement is calculated by estimating the present value of probable amount. A provision for severance pay to allocate that employees need to be paid upon retirement is TL 2,424,212 as of December 31, 2021 (December 31, 2020; TL 1,501,616). Main actuarial assumptions used in calculation of severance pay liability are as follows: • In the calculation, the discount rate is 19.10%, the inflation rate is 15.07%, and the real wage increase rate is 2%. • In the calculation, the ceiling of 8,284.51 TL (full TL amount) valid as of 31.12.2021 was taken as basis. • Retirement age is taken into account as the earliest age at which individuals can retire. • CSO 1980 mortality table is used for probability of death for women and men. The movements related to provision for employee termination benefits are given below: Present value of defined benefit obligation at the beginning of the period Current Service Cost Interest Cost Benefits paid Loss/(Gain) due to Settlements / Reductions / Terminations Prior Year Service Cost Actuarial loss/(gain) Defined benefit obligation at the end of the period 1,501,616 110,009 185,885 (116,836) 11,097 732,441 2,424,212 1,260,666 96,112 144,591 (79,882) 6,372 3 73,754 1,501,616 Current Period Prior Period In addition to the retirement pay liability, the Bank and the Group companies included in the consolidation reserve provisions for unused vacation. As of December 31, 2020 the unused vacation provision amount is TL 152,219 (December 31, 2020: TL 119,315). In addition to the benefit obligation, the Bank and the consolidated Group companies make provisions for unused vacations. As of December 31, 2020, the unused vacation provision amount is TL 116,919 (December 31, 2019: TL 95,365). i.2. Provisions for exchange losses in the principal amount of foreign currency indexed loans: Since foreign currency indexed loans are followed based on the rates on the lending date, the Parent Bank incurs a loss if the exchange rates decrease and makes profit if the exchange rate increases. As of December 31, 2021, and December 31, 2020 there is no provision amount for the currency evaluation losses in the principal amount of foreign currency indexed loans. i.3. Specific provisions for non-cash loans, which are not indemnified and not converted into cash: As of December 31, 2021, TL 1,215,914 provision (December 31, 2019: TL 695,465) is allocated for the non-cash loans of companies whose loans are followed under non- performing loans accounts. i.4. Information on other provisions: i.4.1. Liabilities arising from retirement benefits: Liabilities of pension funds founded as per the Social Security Act: Within the scope of the explanations given in. Section Three Note XX.2, in the actuarial report which was prepared as of December 31, 2021 for Türkiye İş Bankası A.Ş. Emekli Sandığı Vakfı (İşbank Pension Fund) by a licensed actuary, of which each Bank employee is a member, and which has been established according to the provisional Article 20 of the Social Security Act numbered 506, the amount of actuarial and technical deficit stands at TL 6,095,055 .According to the actuarial report as at December 31, 2021 of Milli Reasürans T.A.Ş. besides the Parent Bank, the amount of actuarial and technical deficit was determined to be TL 102,999. There is a provision on financial statements to compensate the deficit in mentioned period, the mentioned provision is preserved on current year financial statements as well. In the financial statements for the said period, there are as many provisions as the said deficit amounts, and the said provision amount has been retained in the financial statements for the current period. The above mentioned actuarial audit, which was made in accordance with the principles of the related law, measures the cash value of the liability as of December 31, 2021, in other words, it measures the amount to be paid to the Social Security Institution by the Parent Bank. Actuarial assumptions used in the calculation are given below. • 9.8 % technical deficit interest rate is used. • 34.5 % total premium rate is used. • CSO 1980 woman/man mortality tables are used. Below table shows the cash values of premium and salary payments of the Parent Bank as of December 31, 2021, taking the health expenses within the Social Security Institution limits into account. Net Present Value of Total Liabilities Other Than Health Net Present Value of Long Term Insurance Line Premiums Net Present Value of Total Liabilities Other Than Health Net Present Value of Health Liabilities Net Present Value of Health Premiums Net Present Value of Health Liabilities Pension Fund Assets Amount of Actuarial and Technical Deficit December 31, 2021 December 31, 2020 (15.810.869) 5.858.707 (9.952.162) (1.873.541) 4.247.562 2.374.021 1.483.086 (6.095.055) (12.863.517) 5.185.068 (7.678.449) (1.564.560) 3.759.175 2.194.615 1.247.723 (4.236.111) 410 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 411 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen The assets of the pension fund are as follows: Cash and Cash Equivalents Securities Portfolio Other Total December 31, 2021 December 31, 2020 984,609 439,018 59,459 1,483,086 752,948 439,787 54,988 1,247,723 Health benefits that are still being paid will be determined within the framework of the Social Security Institution legislation and related regulations with the transfer. i.4.2. Provision of credit cards and promotion of banking services applications: The Bank has recognized provisions amounting to TL 108,873 for the amount which is recognized within the framework of credit card expenses of credit card customers or promotions for banking services as of December 31, 2021. (December 31, 2020: TL 72,709) i.4.3. As mentioned public disclosures of the Bank on December 31, 2012 and December 19, 2013; an inspection has been made by the inspectors of Tax Inspection Board to "Türkiye İş Bankası A.Ş. Mensupları Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı" ("İşbank Supplementary Pension Fund"), which was founded as per the provisions of the Turkish Commercial and Civil Codes, regarding the payments that fulfill İşbank's liabilities within the framework of the Articles of Foundation of the Pension Fund and the relevant legislation. As a result of this investigation, tax audit reports were prepared for the years 2007, 2008, 2009, 2010, 2011 claiming that the aforementioned liabilities should be taxed in terms of wage base, thus, they should be subject to withholding tax and stamp duty. According to this report, the total amount of tax and penalties notified to Bank was TL 74,353 for 2007 and 2008; and as of reporting date TL 151,899 for 2009, 2010 and 2011 and it was stated that the Bank applied to tax courts to cancel these tax notifications and some of the court decisions were determined in favor of the Bank and some others were determined against the Bank. In this context, for the finalized decisions of Regional Administrative Courts related to the years 2007 and 2008 against the Bank, the Bank applied to the Constitutional Court. According to decisions made by Constitutional Court up to reporting date, there is no predictability in legal conformity for taxing the Bank's contributions to the Pension Fund in terms of wage base and for this reason it was accepted that property right of the Bank has been violated according to the 35th article of Constitution. The Court decided that the amount of tax, penalties and default interest which was paid by the Bank should be paid back to the Bank as for compensation with its legal interest. Besides of the Bank, an inspection was conducted by Tax Audit Committee Inspectors regarding to the contribution obligations mentioned above for the period 2007- 2011 on Munzam Sosyal Güvenlik ve Yardımlaşma Sandığı Vakfı Mensupları which is founded according to Turkish Commercial Law and Civil Law, owned by “Türkiye Sınai Kalkınma Bankası A.Ş”. “Milli Reasürans T.A.Ş”, and Anadolu Anonim Türk Sigorta Şirketi. As a result of the issued report that companies a total of TL 33 million (exact amount) tax penalty notices were notified. Assessments made on the subject by the company’s application in accordance with the legislation, which was suspended for Tax Administration concluded that the lack of legal basis of assessment and said assessment were filed in court against the various tax. A number of cases concluded in favor of the Bank, another part of lawsuits concluded against the Bank. According to the decision of the Constitutional Court, it is expected that the cases related to the periods 2007, 2008, 2009, 2010 and 2011 will conclude in favor of the Bank and the litigant Group companies. In this context, the provisions amounting to TL 217,265 which had been allocated for the mentioned periods, reversed at 2015. In the last decision of the constitutional court numbered 2016/2400 regarding the legal proceedings initiated upon the conclusion of the lawsuits amounting to TL 61,060 for the 20 periods in 2012 and 2013 against the bank; it was accepted that the predictability criterion was realized after the 2012 tax review, and it was concluded that the Bank’s ownership rights were not violated for December 2012 and beyond periods. However, since the aforementioned periods were filed by making a reservation and paying taxes, the mentioned decision had no additional effect on the financial statements. In addition, at a case file, which was one of the lawsuits regarding the repayment of income tax stoppage and stamp tax which has been paid by reservation statement beginning from December 2013, of which its court decision was rendered in favour of the Bank, has been reversed by the majority of the votes of the Assembly after it was submitted to the General Assembly of Tax Courts. Regarding the mentioned issue, the legal process is ongoing. In this process, the Group companies are acting together with the Parent Bank and in this regard TL 162,960 (December 31, 2020: TL 128,837) have been transferred to the provision expense accounts in the current period. i.4.4. In 1993, Dışbank A.Ş. shares which were owned by the Bank were sold to Lapis Holding A.Ş. In 2008, it was claimed that USD 52.6 million of the amount, which was paid upfront within the context of the sale agreement, had been provided from the funds of the insolvent TYT Bank A.Ş. by the buyer and payment of the mentioned amount as well as the interest to be calculated to the Savings Deposit Insurance Fund (SDIF) was demanded. The administrative actions initiated by the SDIF in 2008 were revoked by Council of State Administrative Law Chambers 13th upon the application of the Bank. The decisions which were in favour of the Bank were reversed by Plenary Session of the Law Chamber upon the appeal of the SDIF, Council of State Administrative Law Chambers 13th decided to reject the applications of the Bank in January 2016 due to their obligation to obey the decisions of reversal. After the aforementioned court decisions, although the legal process was still in progress, the collection procedures were carried out within the context of Law No. 6183 and TL 298,466 including the default interest, was collected from the Bank by the SDIF at prior periods and made provision for the whole amount. As a part of the legal process, individual application to the Constitutional Court of Republic of Turkey has been made by the Bank was not concluded positively. On the other hand, the legal process is still ongoing within the framework of the ongoing lawsuits and other available legal options. i.4.5. Except the other provisions indicated above, free provision within conservatism principle, for negative circumstances which may arise from the possible changes that may arise in the economy and market conditions, amounting to TL 4,075,000 of which TL 2,875,000 provided in prior years and TL 1,200,000 was provided in the current period. j. Information on Tax Liability: j.1. Information on current tax liability: j.1.1. Information on tax provision: Explanations on taxation and calculations are explained in Note XXI of Section Three. As of December 31, 2021, as a result of the clarification of the Group's corporate tax liability and temporary taxes paid, the remaining corporate tax liability amounts to TL 1,496,283 and as a result of the separate clarification process of each partnership and tax authority, current tax asset amounting to TL 74,819 occurs. j.1.2. Information on taxes payable: Corporate Tax Payable Tax on Securities Income Tax on Real Estate Income Banking Insurance Transaction Tax Foreign Exchange Transaction Tax Value Added Tax Payable Other Total i.1.3. Information on premiums: Social Security Premiums – Employees Social Security Premiums – Employer Bank Pension Fund Premiums – Employees Bank Pension Fund Premiums – Employer Pension Fund Membership Fees and Provisions-Employees Pension Fund Membership Fees and Provisions-Employer Unemployment Insurance – Employees Unemployment Insurance – Employer Other Total Current Period 1,496,283 304,755 6,180 442,711 117,926 46,696 120,263 2,534,814 Prior Period 2,184,343 233,897 2,448 261,320 18,192 16,091 114,029 2,830,320 Current Period Prior Period 4,149 5,100 8,250 5 2,999 5,811 8 26,322 3,520 4,172 6,473 7 2,490 4,987 13 21,662 j.2. Information on deferred tax liabilities: The Parent Bank and the consolidated Group companies have TL 124,949 deferred tax liability as of December 31, 2021. The related deferred tax debt is calculated over the temporary differences between the book values of assets and liabilities in the records and their tax base values calculated according to tax. Tangible Assets Base Differences Provisions Valuation of Financial Assets Other Deferred Tax Liability Current Period Prior Period 107,919 (1,754) 14,098 4,686 124,949 105,528 (9,776) 47,757 922 144,431 k. Information on Payables for Assets Held for Sale and Discontinued Operations The Bank does not have any payables for assets held for sale and discontinued operations. l. Information on subordinated loans The Bank; • As of October 24, 2012, issued 10 year-term bills with a nominal value of USD 1,000,000,000; as of December 10, 2013 issued 10 year-term bills with a nominal value USD 400,000,000; as of June 29, 2017 issued 11 year-term bills with recall option on 6th year and a nominal value USD 500,000,000 and as of January 22, 2020 issued 5 year-term with nominal value of USD 750,000,000 which all have the characteristic of subordinated loans for the purpose of making available to the individuals and legal persons who are resident abroad. Interest rates of aforementioned bonds are 6.00%, 7.85%, 7.00% and 7.75% respectively. • As of August 8, 2017, June 19, 2019 and September 26, 2019; the Bank has issued 10 year-term bills with a nominal value of TL 1,100,000,000, 800,000,000 and 350,000,000 (full TL amount) respectively, with floating interest rates for qualified investors without being offered to the public in Turkey, Nominal value contribution capital has issued borrowing instruments that will be included in the calculation of bonds.The bills mentioned are amounting to TL 37,470,997 as of December 31, 2021 (December 31, 2020 TL 22,138,559). As of March 28, 2017, TSKB, the subsidiary of the Parent Bank, included in the consolidation, issued a bond with a maturity of 10 years and a nominal value of USD 300 million with an interest rate of 7.625% with an interest payment of six months and a quasi-subordinated loan. The balance sheet value of the mentioned borrowing instrument at the end of the period is TL 4,008,280. (December 31, 2020: 2,287,562) Debt Instruments To Be Included In Additional Capital Calculation 5.999.193 Subordinated Loans Subordinated Debt Instrument Current Period TL FC Prior Period FC TL 5.095.133 Debt Instruments To Be Included In Contribution Capital Calculation 2,296,445 39,182,832 2,286,510 22,139,611 Subordinated Loans Subordinated Debt Instrument Total 2,296,445 2,296,445 39,182,832 39,182,832 2,286,510 2,286,510 22,139,611 22,139,611 412 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 413 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen m. Information on consolidated shareholders’ equity: j.1. Presentation of paid-in capital: Common shares Preferred shares Total Current Period 4,499,970 30 4,500,000 Prior Period 4,499,970 30 4,500,000 m.2. Explanation as to whether the registered share capital system ceiling is applicable at bank, if so, the amount of registered share capital: Capital System Registered Capital System Paid-in Capital 4,500,000 Ceiling 10,000,000 m.3. The capital increase made in current period: None. m.4. Capital increase through transfer from capital reserves during the current period: None. m.5. Significant commitments of the Parent Bank related to capital expenditures within the last year and the following quarter, the general purpose thereof, and the estimation of funds required for them: None m.6. Information on shares acquired by the Company: The Parent Bank has repurchased shares amounting to TL 530,307 in accordance with the Board of Directors Decision dated August 17, 2018. m.7. Previous periods’ indicators related to income, profitability and liquidity, and the estimated effects of forecasts, which are to be made by taking into consideration the uncertainties of these indicators, on the Group’s equity: The Parent Bank’s and the Group companies’ balance sheets are managed in a prudent way to ensure that the effect of risks arising from interest rates, exchange rates and loans is at the lowest level. m.8. Privileges Granted to Shares: Turkish Commercial Law and related registration are kept conditionally; Group (A) shares each with a nominal value of 1 Kurus have the privileges of; m. Information on Dividend Distribution At the Bank’s Ordinary General Assembly, held on March 31, 2021, it was decided to allocate net profit from operating acitivities of 2020, amounting to TL 6,810,917 thousand as follows; • Adding the sales profit amounting to TL 6,262 from the disposed real estates in the accounting period; recorded under retained earnings within the framework of the relevant accounting standard. • The total amount of TL 152,066, which includes TL 17,066 from real estate sales profits to be added to the capital and TL 135,000 from the amount allocated as venture capital fund, of the balance sheet profit to be distributed amounting to TL 6,817,179 allocation as special reserve fund, • of the amount as a basis for distribution of TL 6,665,113; • TL 681,088 to A, B and C group shares as cash, • TL 4 to the founding shares as cash, • TL 134,324 as cash dividend to employees to be distributed, • TL 5.849.697 as legal and extraordinary reserves to be reserved, has been decided. As at March 31, 2021; TL 6,001,763 was transferred to reserves account, cash dividends were distributed to the shares other than the shares acquired by the Bank, as of April 2, 2021. III. Disclosures and Footnotes On Consolidated Off-Balance Sheet Items a. Explanations to Liabilities Related to Off-Balance Sheet Items: a.1. Types and amounts of irrevocable loan commitments: Commitment for customer credit card limits amounts to TL 46,524,830 and commitment to pay for cheque leaves amounts to TL 3,291,900. The amount of commitment for the forward purchase of assets is TL 14,003,202 and for the forward sale of assets is TL 13,724,140. a.2. The structure and amount of probable losses and commitments resulting from off-balance sheet items, including those below: The Group’s provisions for indemnified non-cash loans balance is TL 1,215,814 as of December 31, 2021 (December 31, 2020: TL 695,465) which is allocated for the non- cash loans of companies whose loans are followed under “Non-performing Loans” accounts, Commitments are shown in the table of “Off-balance sheet items”. a.3. Guarantees, bank acceptances, collaterals that qualify as financial guarantees, and non-cash loans including other letters of credit: • receiving 20 times the number of shares in the distribution of bonus shares issued from conversion of extraordinary and revaluation reserves generated in accordance with the relevant laws (Article 18 of the Articles of Incorporation), • exercising the preference rights as 20 times (Article 19 of the Articles of Incorporation) and despite having a lower nominal value, Group (B) shares, each with a nominal value of 1 Kurus, have the same rights with the Group (C) shares having a nominal value of 4 Kurus each. Furthermore, Group (A) and (B) shares, each with a nominal value of 1 Kurus are granted privileges in distribution of profits pursuant to Article 58 of the Articles of Incorporation. m.9. Information on marketable securities value increase fund: Bank Acceptances Letters of Credit Other Guarantees Total Current Period Prior Period a.4. Certain guarantee, provisional guarantees, suretyships and similar transactions: Financial Assets At Fair Value Through Other Comprehensive Income Valuation Difference Deferred Tax Effect on Valuation Foreign Exchange Differences Total n. Information on minority interest TL 3,409,376 4,134,003 (777,305) 52,678 3,409,376 Balance at the beginning of the period Distributed Dividend Subsidiaries Profit/Loss on minority interest Effect of change in subsidiaries equity Effect of change in Group’s minority interest Period Ending Balance FC (3,025,127) (3,656,824) 631,697 (3,025,127) Current Period 7,413,718 (299,226) 2,019,198 184,536 (83,298) 9,234,928 TL 1,348,303 1,664,000 (335,623) 19,926 1,348,303 FC (62,532) (93,702) 31,170 (62,532) Prior Period 7,065,589 (190,292) 1,096,310 57,354 (615,243) 7,413,718 Letters of Tentative Guarantees Letters of Certain Guarantees Letters of Advance Guarantees Letters of Guarantee Given to Customs Offices Other Letters of Guarantee Total a.5. Total Non-cash Loans: Non-cash Loans against Cash Risks With Original Maturity of 1 Year or Less With Original Maturity More Than 1 Year Other Non-cash Loans Total Current Period 13,805,873 48,873,749 4,269,208 66,948,830 Current Period 1,708,305 72,902,038 15,463,646 6,090,285 36,502,689 132,666,963 Current Period 38,252,155 9,601,819 28,650,336 161,363,638 199,615,793 Prior Period 9,050,343 22,593,911 3,170,943 34,815,197 Prior Period 1,546,664 49,123,966 9,454,770 6,556,617 21,389,193 88,071,210 Prior Period 22,889,316 3,590,697 19,298,619 99,997,091 122,886,407 414 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 415 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen a.6. Sectoral risk concentration of non-cash loans: Agriculture Farming and Livestock Forestry Fishery Industry Mining and Quarrying Manufacturing Industry Electricity, Gas, Water Construction Services Wholesale and Retail Trade Hotel and Restaurant Services Transport and Communications Financial Institutions Real Estate and Rental Services. Self-Employment Services Education Services Health and Social Services Other Total Current Period TL 296,207 199,806 82,391 14,010 12,430,773 320,570 8,203,756 3,906,447 7,523,221 25,875,351 15,532,556 450,043 3,083,759 4,552,217 1,418,580 502,777 73,900 261,519 287,375 (%) 0.64 0.43 0.18 0.03 26.78 0.69 17.68 8.41 16.21 55.75 33.47 0.97 6.64 9.81 3.06 1.08 0.16 0.56 0.62 FC 499,227 154,015 1,734 343,478 93,956,535 928,731 83,044,828 9,982,976 21,058,983 36,774,135 18,241,371 1,876,235 7,462,048 7,488,074 1,145,172 239,200 5,300 316,735 913,986 (%) 0.33 0.10 0.00 0.23 61.33 0.61 54.21 6.51 13.75 24.00 11.91 1.22 4.87 4.89 0.75 0.16 0.00 0.20 0.59 Prior Period TL 189,630 155,107 27,935 6,588 11,570,309 182,761 7,177,334 4,210,214 4,445,354 23,731,693 15,100,474 329,800 2,391,187 3,999,311 1,286,329 383,396 57,331 183,865 191,389 (%) 0.47 0.39 0.07 0.01 28.83 0.46 17.89 10.48 11.08 59.14 37.63 0.82 5.96 9.97 3.21 0.96 0.14 0.45 0.48 FC 331,934 68,163 9 263,762 49,646,367 638,665 42,317,411 6,690,291 11,176,868 21,466,661 10,399,723 1,025,193 4,047,046 3,902,525 1,539,488 102,698 1,426 448,562 136,202 (%) 0.40 0.08 0.00 0.32 59.99 0.77 51.13 8.09 13.51 25.94 12.57 1.24 4.89 4.72 1.86 0.12 0.00 0.54 0.16 46,412,927 100.00 153,202,866 100.00 40,128,375 100.00 82,758,032 100.00 a.7. Non-cash Loans classified under Group I and Group II: Non-cash Loans Letters of Guarantee Bank Acceptances Letters of Credit Endorsements Underwriting Commitments of the Securities Issued Factoring Related Guarantees Other Guaranties and Warranties b. Information on derivative financial instruments: TL 44,808,126 44,450,198 111,350 238,246 Group I FC 149,073,900 82,704,571 13,680,617 48,492,541 TL 1,348,485 1,342,094 6,391 Group II FC 2,966,747 2,815,220 13,906 135,126 IV. Disclosures and Footnotes on the Consolidated Income Statement a. Interest Income a.1. Information on interest income on loans: Interest Income on Loans (1) Short-term Loans Medium and Long-term Loans Interest on Non-performing Loans Current Period TL FC TL Prior Period FC 10,115,449 24,465,421 1,052,273 1,588,844 11,164,912 27,808 5,585,757 18,118,672 718,313 1,010,925 9,229,416 104,940 Premiums Received from State Resource Utilization Support Fund Total 35,633,143 12,781,564 24,422,742 10,345,281 (1) Includes fee and commission income on cash loans. a.2. Information on interest income on banks: The Central Bank of Turkey Domestic Banks Foreign Banks Foreign Head Offices and Branches Total a.3. Information on interest income from securities: Financial Assets at Fair Value through Profit and Loss TL 576,388 31,929 608,317 TL 88,439 Financial Assets at Fair Value through Other Comprehensive Income 8,946,071 Financial Assets Measured at Amortized Cost Total 6,317,828 15,352,338 a.4. Information on interest income received from associates and subsidiaries: Current Period Prior Period FC 42,304 35,400 77,704 TL 372,578 12,265 FC 3,006 31,273 69,700 384,843 103,979 Current Period Current Period FC 79,777 1,855,274 211,778 2,146,829 TP 41,768 5,731,532 4,314,904 10,088,204 YP 16,589 1,277,397 183,466 1,477,452 8,332 4,196,171 2,495 Interest Received From Affiliates and Subsidiaries Current Period 409,963 Priod Period 292,070 The derivative transactions of the Group mainly consist of money and interest swaps and forward foreign exchange purchase and sale transactions. In addition to these, money, interest and security options and futures transactions are also performed. Although the Group's derivative transactions accounted for trading purposes, there are derivative transactions that are accounted for trading purposes, as all the conditions required to be defined as an item suitable for financial risk hedge accounting are not fulfilled, although they provide economic hedging. On the other hand, derivative transactions, which are carried out to protect against changes in the fair values of financial instruments and have all the necessary conditions for their evaluation within the scope of hedge accounting, are classified as hedging purposes. c. Explanations Related to Contingencies and Commitments: The balance of the “Other Irrevocable Commitments” account, which comprised the letters of guarantees, guarantees and commitments submitted by the Group pursuant to its own internal affairs, and guarantees given to third parties by other institutions in favor of the Parent Bank and the commitments due to housing loans extended within the scope of unfinished house projects followed, amounts to TL 22,140,568. The cheques given to customers is presented under off balance sheet commitments, as per the related regulations is amounting to TL 3,291,900 in case the cheques presented for payment to beneficiaries are not covered, the Parent Bank will be obliged to pay the uncovered amount up to TL 1,680 (in exact TL amount) for the cheques that are subject to the Law numbered 3167 on “the Regulation of Payments by Cheque and Protection of Cheque Holders”, and up to TL 2,670 (in exact TL amount) for the cheques that are subject to the “Cheque Law” numbered 5941, The uncollected amount will be followed under “Indemnified Non-Cash Loans. d. Explanations related to transactions made on behalf of or on the account of others: It is explained in Note X under Section Four. b. Interest Expense b.1. Information on interest expense from funds borrowed: Banks Central Bank of Turkey Domestic Banks Foreign Banks Foreign Head Offices and Branches Other Institutions Total (1) (1) Includes fee and commission expenses from cash loans. TL 689,455 426,628 262,827 1,088 690,543 Current Period Prior Period FC 1,279,070 184,463 1,094,607 642,502 1,921,572 TL 459,129 263,899 195,230 1,757 460,886 FC 1,163,241 1,667 126,911 1,034,663 720,852 1,884,093 416 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 417 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen b.2. Information on interest paid to associates and subsidiaries: c. Explanations on dividend income: Current Period TL Demand Deposits Bank Deposits Savings Deposits Public Sector Deposits Commercial Deposits Other Institutions Deposits Deposits with 7 Days Notice Total FC 10 58 68 Deposits with 7 Days Notice Precious Metals Deposits Total TOTAL Prior Period TL 9,436 9,504 Demand Deposits Interest Paid to Associates and Subsidiaries b.3. Information on interest paid on marketable securities issued: Current Period 108,487 Prior Period 36,112 Interest on Securities Issued 1,611,372 4,437,045 1,284,341 3,449,048 Current Period TL FC TL Prior Period FC b.4. Information on Interest Expense on Deposits According to Maturity Structure: Time Deposits Up to One Month Up to Three Months Up to Six Months Up to One Year Over One Year Accumulated Deposits 236,834 109,341 1,089,360 10,622,231 622,976 1,257 11,337 1,799,009 2,068,714 44,565 438,198 328 58,396 51,297 87,086 47 283,679 446 115,091 645 9 3,184 4,064 Total 346,175 12,537,399 12,978 4,213,040 538,570 Financial Assets with Fair Value Differences Recognized in Profit/Loss Financial Assets with Fair Value Differences Recognized in Comprehensive Income Other Total d. Information on trading profit/losses (Net): Profit Securities Trading Gains Gains on Derivative Financial Instruments (1) Foreign Exchange Gains Losses (-) Securities Trading Losses Losses on Derivative Financial Instruments (1) Foreign Exchange Losses Trading Income/Losses (Net) Current Period Prior Period 47,533 20,057 958 68,548 Current Period 2,033,732,717 42,406,767 47,875,675 1,943,450,275 2,033,029,265 40,524,089 48,055,434 1,944,449,742 703,452 7,507 23,381 169 31,057 Prior Period 694,246,386 42,701,725 29,789,564 621,755,097 695,453,155 41,473,540 39,928,485 614,051,130 (1,206,769) (1) Income arising from foreign currency changes related to derivative transactions amounting TL 39,998,909 and the losses amounting TL 40,803,221 and the amount of net loss is TL 804,312 (December 31, 2020: profit TL 10,143,156 loss TL 19,824,032 and net loss amount TL 9,680,876) 3,171,025 13,249,821 732,997 371,258 122,348 645 17,648,162 e. Information on other operating income: Foreign Currency Deposits Bank Deposits 1,091 8,345 31,584 389 192,184 566 3,363 196,113 9,973 1,289 411 11,673 31,973 3,202,998 13,445,934 744,670 8,551 7,785 10,611 26,947 398,205 116,522 6,774 637 123,933 246,281 1 1 646 Time Deposits Up to One Month Up to Three Months Up to Six Months Up to One Year Over One Year Accumulated Deposits Bank Deposits Savings Deposits Public Sector Deposits Commercial Deposits Other Institutions Deposits Deposits with 7 Days Notice 74 1 24 1 114,903 516,129 571 875,858 33,334 67,871 4,170 5,217,171 212,256 4,704 1,224,253 239,748 363 35,415 31,626 772 50,900 9 138,972 7,996 95,003 11 5,388 385 817 359,906 25,148 15,022 400,076 18,048,238 Total 187,790 6,092,277 5,658 2,279,910 313,090 As at reporting period, TL 10,723,838 of other operating income sources from inclusion and classification of operations of insurance and reinsurance companies; 88% of which is from insurance premiums. (December 31, 2020: TL 8,835,512 , 91%). The remaining amount mainly consists of expected credit loss reversals or collections from Stage 3 loans, and income from fees received from customers in return for various banking services and sales of fixed assets. f. Information on expected credit loss and other provision expense: Expected Credit Loss Expected Credit Loss for 12 Months (Stage 1) Significant Increase in Credit Risk (Stage 2) Non-Performing Loans (Stage 3) Impairment Losses on Marketable Securities Financial Assets at Fair Value through Profit and Loss Financial Assets at Fair Value Through Other Comprehensive Income Impairment Losses on Associates, Subsidiaries and Joint-Ventures Associates Subsidiaries Jointly Controlled Entities Other (1) Total Current Period 12,667,759 1,683,950 4,533,215 6,450,594 21,627 14,145 7,482 Prior Period 11,379,112 1,631,142 4,648,360 5,099,610 20,047 2,129 17,918 4,121,104 16,810,490 2,750,881 14,150,040 Total FC 100 1,540,795 6,753,747 283,830 198,649 100,787 817 8,878,725 (1) Includes provision expense for impairment of financial assets at fair value through profit or loss and free provision expense amounting to TL 1,200,000. Foreign Currency Deposits Bank Deposits 838 5,902 38,181 1,743 Deposits with 7 Days Notice Precious Metals Deposits Total TOTAL 6,740 6,840 318,262 2,065 2,332 322,659 25,402 1,940 453 27,795 311,625 15,603 2,553 12,719 30,875 229,524 160,392 15,237 1,105 176,734 277,521 12 12 829 558,690 29,440 16,609 604,739 9,483,464 39,924 1,580,719 7,076,406 418 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 419 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen g. Other operating expenses: V. Disclosures and Footnotes on Consolidated Statement of Changes in Shareholders’ Equity Current Period Prior Period Reserve for Employee Termination Benefits Bank Pension Fund Deficit Provisions Impairment Losses on Tangible Assets Depreciation Expenses of Tangible Assets Impairment Losses on Intangible Assets Impairment Losses on Goodwill Amortization Expenses of Intangible Assets Impairment Losses on Investments Accounted Under Equity Method Impairment Losses on Assets to be Disposed Depreciation Expenses of Assets to be Disposed Impairment Losses on Assets Held for Sale and Subject to Discontinued Operations Other Operating Expenses Leasing Expenses Related to Exceptions to IFRS 16 Repair and Maintenance Expenses Advertisement Expenses Other Expenses Loss on Sale of Assets Other Total 190,474 1,892,381 5,795 802,974 35,974 453,413 70 4,972,087 153,700 331,078 362,939 4,124,370 2,056 14,310,652 22,665,876 168,124 758,429 686,592 324,296 5,320 1,306 3,739,903 132,158 265,704 249,311 3,092,730 1,854 9,192,141 14,877,965 (1) The Group's expenditure within the scope of donation, aid and social responsibility projects in the current period is TL 79,971 (31.12.2020: TL 104,006). In the table above, TL 11,565,656 of the operating expenses in the “Other” group arises from the insurance and reinsurance companies because of the classification of their activities in the "Other" group, and significant portion of the related expenses is compensation expenses paid (December 31, 2020: TL 7,247,084). The Group's fees, taxes, duties and fund expenses amounting to TL 731,958 are other expense items in the current period "Other" group. h. Information on provision for taxes from continuing and discounted operations The Group's profit before tax arises from continuing operations. As of 31.12.2021, the profit before tax consists of TL 36,918,823 of net interest income, TL 6,691,855 of net fees and commission income, and the total of personnel expenses and other operating expenses is TL 30,381,409. h1. Explanations on net profit / loss of continued and discontinued operations: As of 31.12.2021, the Group's tax provision amounting to TL 3,389,061 consists of current tax provision of TL 2,621,921 and deferred tax income of TL 767,140. The Group does not have any discontinued operations. h2. Explanations on net profit / loss of continued and discontinued operations: The net profit of the Group from its ongoing operations as of 31.12.2020 is TL 15,560,258. i. Information on net period profit/loss: i.1. Income and expenses resulting from ordinary banking activities: There is no specific issue required to be disclosed for the Group’s performance for January 1, 2021-December 31, 2021. i.2. Effects of changes in accounting estimates on the current and future periods’ profit/loss: There is no issue to be disclosed. i.3. “The Other’’ item which is located at the bottom “Fees and Commissions Received” in the income statement consist of various fees and commissions received from transactions such as credit card transactions, capital market transactions and insurance-reinsurance transactions. i.4. Net profit / loss of Minority Interest: Net Profit / Loss of Non-controlling Interest j. Explanation on other items in income statement Other items do not exceed 10% of the total amount of the income statement. k. Fees for services received from an independent audit firm Current Period 2,019,198 Prior Period 1,096,310 In accordance with the decision of KGK dated 26.03.2021, the fees for the reporting period regarding the services received from the independent auditor or independent audit firm are given in the table below. In addition to the Bank, the fees for services rendered to the Bank's domestic/foreign subsidiaries and jointly controlled partnerships are included in the aforementioned fees, which are stated as VAT excluded. Independent Audit Fee for the Reporting Period Other Assurance Services and Other Non-Audit Fees Total 420 | İŞBANK 2021 INTEGRATED ANNUAL REPORT Current Period Prior Period 22,282 5,709 27,991 18,148 2,898 21,046 The paid-in capital is TL 4,500,000 in legal records. As of balance sheet date, the balance of legal reserves is TL 5,834,300 the balance of extraordinary reserves is TL 225,558 and the balance of statuary reserves is TL 45,323,776. The effect of a total revaluation increase of TL 2,692,577, which was formed as a result of revaluation of real estate for use in the current period, on the Group's shareholders' equity is shown in the column “Increase / Decrease in the Accumulated Revaluation of Fixed Assets” by clarifying the deferred tax effect of TL 167,952. The details of revaluation surplus account of securities are shared in the Note Section V-II-l-9. TL (145,608) of this amount is the deferred tax effect on marketable securities at fair value through other comprehensive income (December 31, 2020: TL (304,453)). VI. Disclosures and Footnotes on the Consolidated Statemens of Cash-Flows The consolidated operating profit of TL 24,798,475 before the changes in operating assets and liabilities mostly comprised of TL 61,253,858 of interest received from loans and securities, and TL 31,171,346 of interest paid on deposits, money market transactions and funds borrowed by the Bank. An important part of other revenues, TL 8,259,735 consists of premium collections of insurance companies. The account “Other” classified under operating profit other than fees and commissions paid, cash payments to personnel and service suppliers and taxes paid consists of other operating expenses and foreign exchange gains/losses accounts is TL (10,686,634) (December 31, 2020: TL (8,265,460)). Net Increase (Decrease) in Other Liabilities account classified in changes of assets and liabilities resulting from the changes in Funds Provided Under Repurchase Agreements, miscellaneous payables, other liabilities and taxes, duties, charges, and premiums is decreased by TL 49,287,428 (December 31, 2020: TL 33,362,942 decrease). The Net Cash Provided from Other Investing Activities account includes net cash flows from the sale of intangible assets and declined by TL 922,250 (December 31, 2020: TL 752,504 decrease). The effect of changes in foreign exchange rates on cash and cash equivalents is on the positive side TL (1,317,136) (31.12.2020: TL 1,239,044) as of December 31, 2021. Due to the high rate of turnover of related foreign currency assets, the difference between the last 30 days’ arithmetic average of currency exchange rates and the year- end currency exchange rate is used to calculate the effect of change in foreign exchange rate. Under the same assumption, the effect of change in foreign exchange rate on cash and cash equivalents is calculated. Cash, cash in foreign currency, unrestricted deposits in Central Bank of Turkey, money in transit, cheques purchased, money market operations as well as demand deposits and time deposits up to 3 months are defined as cash and cash equivalents. Cash and cash equivalents at beginning of period: Cash Cash in TL and Foreign Currency Central Bank of Turkey and Other Cash Equivalents Receivables from Money Market Operations Banks’ Demand Deposits and Time Deposits Up to 3 Months Total Cash and Cash Equivalents December 31, 2020 December 31, 2019 32,519,831 9,136,817 23,383,014 19,801,714 2,179,919 17,621,795 52,321,545 29,663,454 5,519,980 24,143,474 18,075,154 1,166,865 16,908,289 47,738,608 The total amount resulting from the transactions made in the previous period shows the total cash and cash equivalents as of the beginning of the current period. Cash and Cash equivalents as of end of the period: Cash Cash in TL and Foreign Currency Central Bank of Turkey and Other Cash Equivalents Receivables from Money Market Operations Banks’ Demand Deposits and Time Deposits Up to 3 Months Total Cash and Cash Equivalents December 31, 2021 December 31, 2020 96,316,663 14,862,587 81,454,076 36,005,939 2,950,824 33,055,115 132,322,602 32,519,831 9,136,817 23,383,014 19,801,714 2,179,919 17,621,795 52,321,545 İŞBANK 2021 INTEGRATED ANNUAL REPORT | 421 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen VII. Disclosures And Footnotes On The Group’s Risk Group a.3. Information on forward and option and other similar agreements made with the Group’s risk group: Investments in Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Direct and Indirect Shareholders of the Bank Other Real Persons and Corporate Bodies that have been Included in the Risk Group Cash Non-Cash Cash Non-Cash Cash Non-Cash b.1. The relations of the Group with corporations in its risk group and under its control regardless of whether there are any transactions between the parties: a. Information on the volume of transactions relating to the Group’s risk group, incomplete loan and deposit transactions and period’s profit and loss: a.1. Information on loans held by the Group’s risk group: Current Period: Group’s Risk Group Loans Investments in Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Direct and Indirect Shareholders of the Bank Other Real Persons and Corporate Bodies that have been Included in the Risk Group Cash Non-Cash Cash Non-Cash Cash Non-Cash Balance at the beginning of the period 2,857,404 Balance at the end of the period 2,402,860 Interest and commission income received 409,863 9,877,588 16,824,670 2,468 1,232,269 1,916,562 168,639 495,030 608,306 4,397 Önceki Dönem: Group’s Risk Group Loans Prior Period: Group’s Risk Group Balance at the beginning of the period 218 5,999,538 Balance at the end of the period 2,857,404 9,877,588 Interest and commission income received 292,070 1,638 2,963,240 1,232,269 103,258 884,605 495,030 2,309 a.2. Information on deposits held by the Group’s risk group: Current Period: Group’s Risk Group Investments in Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Direct and Indirect Shareholders of the Bank Other Real Persons and Corporate Bodies that have been Included in the Risk Group Current Period Current Period Current Period Deposits Balance at the beginning of the period 7,520,649 Balance at the end of the period Interest expense on deposits 10,076,451 108,487 157,226 302,826 25,060 1,153,201 1,710,018 62,988 Group’s Risk Group Investments in Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Direct and Indirect Shareholders of the Bank Other Real Persons and Corporate Bodies that have been Included in the Risk Group Current Period Prior Period Current Period Prior Period Current Period Prior Period Transactions in which the Difference in Fair Value is Reflected in Profit or Loss Balance at the beginning of the period Balance at the end of the period Total Profit/Loss Transactions for hedging purposes 422.104 7.737 Beginning of the period End of the period Total Profit/Loss b. Disclosures for the Group’s risk group: (2.052) In accordance with the relevant decision of the Banking Regulation and Supervision Agency, the special purpose entity and the mentioned company’s subsidiary Türk Telekom A.Ş, are not included in the Bank’s risk group, where details are disclosed in Section V, footnote I.b.3 and I.o. All types of corporate and retail banking services are provided to these corporations in line with the articles of Banking Law. b.2. The type and amount of transaction carried out, and its ratio to the overall transaction volume, values of principal items and their ratios to overall items, pricing policy and other items in addition to the structure of the relationship: The transactions carried out are mainly loan and deposit transactions, The ratio of loans extended to the risk group to the overall loans is 0.76%, while the ratio to the overall assets is 0.38% the ratio of deposits of the risk group corporations to the overall deposits is 1.96%, while the ratio to overall liabilities is 1.08%, The comparable pricing method is used for the transactions. b.3. Purchase and sale of real estates, other assets and services, agency agreements, finance lease contracts, transfer of information obtained through research and development, license agreements, funding (including loans and provision of support as cash capital or capital-in-kind), guarantees and collaterals and management agreements: The Parent Bank’s branches act as agents of Anadolu Anonim Türk Sigorta Şirketi and Anadolu Hayat Emeklilik A.Ş. Furthermore, through its branches, the Bank mediates the order transmission for İş Yatırım Menkul Değerler A.Ş. and carries out agency activities of İş Portföy Yönetimi A.Ş. 32 mutual funds which are founded by the Anadolu Hayat Emeklilik A.Ş. are managed by İş Portföy Yönetimi A.Ş. Securities purchases, when required, are made by İş Finansal Kiralama A.Ş., a subsidiary of the Bank, through leasing. If requested, the cash and non-cash loan needs of the risk group companies are met in accordance with the limits imposed by Banking Law and the prevailing market conditions. c. Total salaries and similar benefits paid to the (executive members and senior executives) In the current period, the net payment provided to the key management of Group amounts TL 167,759 (December 31, 2020: TL 135,024). VIII. Disclosures on the Group’s Domestic, Foreign, Off-Shore Branches or Participations and Representative Offices The Parent Bank – Türkiye İş Bankası A.Ş. Investments in Associates, Subsidiaries and Jointly Controlled Entities (Joint Ventures) Direct and Indirect Shareholders of the Bank Other Real Persons and Corporate Bodies that have been Included in the Risk Group Prior Period Prior Period Prior Period Domestic Branches(1) 1,174 22,470 Number Employees Deposits Balance at the beginning of the period Balance at the end of the period Interest expense on deposits 932,049 7,520,649 36,073 8,896 157,226 4,833 7,802,825 1,153,201 76,599 Foreign Representative Offices Foreign Branches Off-Shore Branches 1 1 2 14 2 2 1 3 2 45 205 39 32 6 (1) The Branches located in Free Trade Zones in Turkey are included among domestic branches. Country of Incorporation China Egypt England TRNC Iraq Kosovo Bahrain Total Assets 41,179,719 15,362,143 4,401,749 2,322,319 10,609,478 Legal Capital 1,765 80,000 588,024 148,390 422 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 423 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Total Assets Legal Capital IX. Subsequent Events (1) The Company, which is headquartered in London, does not have any branch or representative office beside its head office. Yatırım Varlık Kiralama A.Ş. which is included to scope of consolidation during the current period does not have any employees. 12 Singapore 535,010 400,590 Within the scope of the decision of the Board of Directors regarding the issue of debt instrument on September 6, 2021, the Bank issued a financial bond with a nominal value of TL 2,562,362 after December 31, 2021. İşbank AG Domestic Branches (1) Foreign Representative Offices Foreign Branches Off-Shore Branches Number Employees 9 1 149 Country of Incorporation 7 Netherlands 2,529,933 Total Assets Legal Capital (1) The branches of the company, which is headquartered in Germany, in Germany are shown as domestic branches. Number Employees 201 Country of Incorporation Milli Reasürans T.A.Ş. Domestic Branches Foreign Representative Offices Foreign Branches Off-Shore Branches JSC İşbank 1 1 Domestic Branches (1) 3 94 Number Employees Foreign Representative Offices Foreign Branches Off-Shore Branches Country of Incorporation Total Assets Legal Capital (1) The branches of the company, which is headquartered in Moscow, in Russia are shown as domestic branches. JSC İşbank Georgia Domestic Branches (1) 2 63 Number Employees Foreign Representative Offices Foreign Branches Off-Shore Branches Country of Incorporation Total Assets Legal Capital (1) The branches of the company, which is headquartered in Tiflis, in Georgia are shown as domestic branches. Number of employees of consolidated companies that does not have agencies and branches abroad: Anadolu Anonim Türk Sigorta Şirketi Anadolu Hayat Emeklilik A.Ş. Efes Varlık Yönetimi A.Ş. İş Faktoring A.Ş. İş Finansal Kiralama A.Ş. İş Gayrimenkul Yatırım Ortaklığı A.Ş. İş Girişim Sermayesi Yatırım Ortaklığı A.Ş. İş Portföy Yönetimi A.Ş. İş Yatırım Menkul Değerler A.Ş. İş Yatırım Ortaklığı A.Ş. Maxis Girişim Sermayesi Yatırım Ortaklığı A.Ş Maxis Investments Ltd (1) Moka Ödeme ve Elektronik Para Kuruluşu A.Ş. TSKB Gayrimenkul Yatırım Ortaklığı A.Ş. Türkiye Sınai Kalkınma Bankası A.Ş. Yatırım Finansman Menkul Değerler A.Ş. Employees 1,436 1,029 124 114 141 66 5 69 438 5 13 9 39 11 408 131 Section Six: Other Explanations I. Explanations On The Group’s Credit Ratings: Türkiye İş Bankası A.Ş. Rating Outlook (*) MOODY’S Long-term Foreign Currency Deposit Long-term Local Currency Deposit Long-term Foreign Currency Senior Debt Short-term Foreign Currency Deposit Short-term Local Currency Deposit FITCH RATINGS Long-term Foreign Currency Issuer Default Rating Long-term Local Currency Issuer Default Rating Short-term Foreign Currency Issuer Default Rating Short-term Local Currency Issuer Default Rating National Long-term Rating Viability Rating Support Rating STANDARD & POOR'S Long-term Counterparty Credit Rating Short-term Counterparty Credit Rating Long-term National Scale Rating Short-term National Scale Rating B3 B3 B3 Not-Prime Not-Prime B+ B+ B B A+ (tur) b+ b- B+ B trA+ trA-1 Negative Negative Negative - - Negative Negative - - Stable - - Negative - - - The dates when the Bank's credit ratings/outlooks were last updated are given below: Moody's: December 10, 2020, Fitch Ratings: December 10, 2021, Standard & Poor's: December 15,2021 424 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 425 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Section Seven: Explanations On The Independent Auditors’ Report I. Explanations on the Independent Auditors’ Report: The consolidated financial statements and disclosures for the year ended December 31, 2021 have been reviewed by Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi (A member firm of Ernst&Young Global Limited) and the independent auditor’sreport dated February 8, 2022, is presented preceding the consolidated financial statements. II. Explanations and Footnotes of the Independent Auditors Report There are no significant issues or necessary disclosures or notes in relation to the Group’s operations other than those mentioned above. İş Finansal Kiralama A.Ş. FITCH RATINGS Long-term Foreign Currency Issuer Default Rating Long-term Local Currency Issuer Default Rating Short-term Foreign Currency Issuer Default Rating Short-term Local Currency Issuer Default Rating National Long-term Rating Support Rating Rating B+ B+ B B A+(tur) 4 Outlook (*) Negative Negative - - Stable - The date when the credit ratings/outlooks of İş Finansal Kiralama A.Ş were last updated are given below: Fitch Ratings: 10.12.2021 Türkiye Sınai Kalkınma Bankası A.Ş. Rating Outlook (*) MOODY’S Baseline Credit Assessment Long-term Foreign Currency Issuer Rating Short-term Foreign Currency Issuer Rating Long-term Local Currency Issuer Rating Short-term Local Currency Issuer Rating Senior Unsecured Debt Foreign Currency Issuer Rating Foreign Currency GMTN Program Rating FITCH RATINGS Long-term Foreign Currency Issuer Default Rating Long-term Local Currency Issuer Default Rating Short-term Foreign Currency Issuer Default Rating Short-term Local Currency Issuer Default Rating Long-term National Rating Support Rating Subordinated Debt Rating Financial Capacity Rating caa1 B3 Not-Prime B3 Not-Prime B3 (P)B3 B+ BB- B B AA 4b B- b+ - Negative - Negative - Negative - Negative Negative - - Stable - - - The date when the credit ratings/outlooks of TSKB were last updated are given below: Moody's: September 11, 2020, Fitch Ratings: December 10, 2021 (*) Outlook: “Stable” indicates that the current rating will not be changed in the short term; “positive” indicates that the current rating is very likely to be upgraded and “negative” indicates that the current rating is very likely to be downgraded. 426 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 427 Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Türkiye İş Bankası A.Ş.Notes To The Consolidated Financial Statements For The Year Ended December 31, 2021 (Convenience Translation of Consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Note I in Section Three) (Amounts expressed in thousand Turkish Lira (TL) unless otherwise stated.)Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Projects to Improve Customer Experience Below are some of the products and services developed in 2021 by taking customer suggestions and feedback into consideration: Personal Banking Transaction Convenience for Foreign Nationals It is now possible for natural persons with foreign nationality to pay bills at Bankamatik ATMs using the cardless menu. Buying a Package with Maximum Mobile Customers can now top up / buy a package via the Maximum Mobile channel. Monthly Safe Deposit Box Rental It is now possible to rent safe deposit boxes for monthly periods as well. Development activities have been completed so that safe deposit boxes can be rented on a monthly basis and the fees for the safe deposit box can be collected via credit card. HGS Improvements Improvements have been made regarding transaction failures/errors during HGS sales, top up transactions without an automatic payment order, and the digital approval process. Passport IDs It is now possible for customers who are registered in the Bank’s systems with a "Passport" type ID and whose "Valid until" field is populated to send/receive money via Western Union. Bill Payment at Bank Office Following the change in legislation regarding fees that can be charged to financial consumers and commercial customers put into effect in 2020, bill payment services at Branches were temporarily stopped so that transaction fees could be charged in accordance with the legislation. This service was reactivated on 7 April 2021 upon completion of the required development work. Personal Loans COVID-19 Support As an increased number of businesses were closed due to the impact of both higher interest rates and the pandemic, the Bank decided to restructure loans and defer loan payments for 3 months, with interest applied at the current rate of the loan, for those customers applying for a loan restructuring until September 2021 in order to minimize the impact of the COVID-19 pandemic on businesses. Natural Disaster Support The Bank has offered customers affected by the floods and fires in Turkey the opportunity to defer their Consumer Loan and Overdraft account payments interest-free for up to 3 months. Digital Banking İşCep View Preferences Following redesign of the İşCep app, development work continued to offer an even better experience based on the suggestions from customers. The light-blue mode, theme and text size settings in the "View Preferences" menu item under the "Profile and Settings" menu of İşCep can now be customized by the user. In addition, you can now quickly access the "Sign out" button under "Profile and Settings" to securely sign out of your account on İşCep. Sending Money to Other Banks with FAST-7/24 (İşCep, Internet Branch) With the new payment system FAST, you can now send TL to accounts in other domestic banks on a 24/7 basis. We have added functionality to our digital channels so that you can send money to recipients at other banks via your saved list of recipients, registered easy addresses or IBAN and monitor your transaction. Furthermore, the option to transfer money to a registered easy address during wire transfer and EFT processes is offered. Update Information (İşCep, Internet Branch) With the "Update Information" option added to İşCep, personal customers can now update their e-mail address, phone number and address details registered at İşbank. The option, which was already available on Internet Branch, has been renewed in parallel with İşCep to improve the customer experience. Signing In to the Commercial Internet Branch with the Approve Button As part of the development work carried out to improve the customer experience, customers can sign in to their Commercial Internet Branch by pressing the "Approve" button appearing with the instant notification sent to their mobile phone. Card Contract Approval (İşCep, Internet Branch) The digitalization of the contracts in the credit card application process in İşCep and Internet Branch has been completed. Taking a Queue Ticket at a Bank Branch (İşCep) Customers can now use İşCep to take a queue ticket without going to the branch, see the number of people waiting and track the estimated wait time. İstanbulkart Transactions (İşCep) Personal customers can now top up their İstanbulkart, query current balance on their card and perform update transactions on İşCep. SWIFT FX Transfer Query/Cancellation/Outcome (İşCep) You can now view, monitor and cancel your FX transfers via İşCep. Secure Vehicle Purchase-Sales (İşCep Personal, İşCep Commercial) Preparations have been completed so that the used car purchase-sales transactions carried out via a notary public can be completed via İşCep following introduction of this service in Internet Branch. E-mail Verification (Commercial Internet Branch) When commercial customers click on Accounts on their Commercial Internet Branch, an additional screen is displayed with directions to verify their e-mail address. The purpose of this verification was to increase the number of verified e-mail addresses of commercial customers in İşbank's systems. Since documents containing sensitive data are sent to verified e-mail addresses, customers are expected to keep their e-mail address up-to-date and verified. Nearest İşbank Widget (İşCep) The "Nearest İşbank" widget has been added to the widgets on the home screen in iOS 14 for easy access to frequently used information. This allows users to quickly find information about the nearest Branch and Bankamatik ATM. Youth Savings Account (İşCep, Internet Branch) For people aged 18-26 years, a new time deposit account product has been added to the menus. Chargeback to a Credit Card Transaction and Chargeback Monitoring (İşCep) Customers can now submit their chargeback to a spending, cash withdrawal or money transfer transaction done with their İşbank credit cards and Bankamatik cards to the Bank via İşCep. Customers can also monitor the current status of their chargebacks via İşCep. Anadolu Sigorta-Policy Cancellation (İşCep-Insurance) With the Policy Cancellation menu, it is now possible to cancel policies. The menu redirects the customer to Anadolu Sigorta's application so that they can cancel their insurance policy. Instant POS Application Fully authorized users of corporate customers (legal entities) can now submit an Instant POS application and quickly complete their transactions. Addition of an Automatic Limit Increase Order to Card Use Preferences (İşCep, Internet Branch) The automatic limit increase order feature has been added to İşCep. Directions to Issue "Üstü Kalsın" (Keep the Change) Order with Maxi (İşCep- iOS) Customers can now follow the directions to submit an order for the Üstü Kalsın (Keep the Change) service from Maxi. Show/Hide Balance (Bankamatik ATM) The "Show/Hide My Balance" function has been added. Regular Savings Order on İşCep The Regular Savings Order application, which was already available in İşbank branches and Internet Branch and allows the regular transfer of money from demand deposit accounts to time deposit accounts on the maturity date of the time deposit account, is now also available via İşCep channels as of 30.12.2021. Redirecting to the My Receipts Page with the My Receipts Button Shown After Transactions (İşCep) You can use this field to share a receipt at the end of a transaction. Switch to Supplier Finance Application (Commercial Internet Branch) Firms and their users with the Supplier Finance authorization can switch to the platform on tf.isbank.com.tr with a single session on Commercial Internet Branch. This integration makes it possible for firms and their suppliers to create financing based on their invoice transactions. 428 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 429 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Projects to Improve Customer Experience Payment Collection/Refund/Cancellation with QR Code Updating Commercial Profile (İşCep) Customers will be able to complete their shopping payments without using a physical card by scanning a QR Code generated in the POS terminal during checkout. When the integration is completed, shopping refund - cancellation transactions will be possible using the İşCep application to scan QR Codes generated by İşbank POS terminals. E-mail Verification (İşCep Personal) A function has been added that allows e-mail addresses with Unconfirmed and Branch-Confirmed status to be verified via İşCep. Improvement of Experience on Instant Commercial Loan Screens The Instant Commercial Loan Application function has been redesigned to improve the customer experience. "Contact Us" Improvement İşCep has been redesigned so that records of customer feedback provided via İşCep will be displayed as a screen from within İşCep. IBAN Reading from FAST-Camera On the Commercial İşCep app, commercial customers can update their firm and user e-mail address and mobile phone number and view the firm's registered head office address. Cash Flow (Commercial İşCep) The Cash Flow screen on Commercial Internet Branch has also been added to Commercial İşCep. Thus, commercial customers can now view their future-dated time deposit accounts, POS receivables, loan and e-invoice payments in daily and weekly views in the cash flow table on this screen. Use of HIZIR (İşCep) The HIZIR feature, which allows customers to restructure their credit card debts, has been added to İşCep. ÇekCepte (Çekmatik) Transaction (Commercial İşCep) By scanning the QR code of a cheque, you can instantly learn whether a cheque discount credit can be borrowed in return for the cheque. During money transfers with IBAN, upon clicking the camera icon on the screen, the camera opens and allows the IBAN number to be automatically detected and used from paper. My Car (İşCep) Direction to Issue "Üstü Kalsın" (Keep the Change) Order with Maxi from İşCep (Android) Customers can now follow the directions to issue an order for the Üstü Kalsın (Keep the Change) service from Maxi. Viewing İş Magazine from İşCep İş Magazine has been added to İşCep's "Main Menu", viewable only by members of the Bank. Addition of FX Rates Info Text on the Sign-in Screen An artificial intelligence-controlled information text has been added to the İşCep sign-in screen which states "You can perform FX transactions with special rates just for you". Send Money/Request Money (Personal/Commercial) The Request Money menu can now be used to create a QR Code for demand accounts by either entering or not entering an amount. Money transfers up to TL 1,000 to both İşbank and other banks can be performed on a 24/7 basis. Viewing Account Details on the Sign-in Screen (Personal) You can set your favorite account details via the "My Account Details/Show" menu and display them on the İşCep sign-in screen for 90 days without needing to enter your password. In order to ensure customer security, Sign-in Screen preferences can only be changed via saved devices, and account details are shown only on one registered device. Viewing Investment Account Statement (Personal) You can now view your investment account statement via İşCep. Addition of Search and Time Information in the Description Field of Account Statements (Personal/Commercial) Time information has been added to the transactions of a selected account in İşCep. You can search for a transaction description by using the detailed filtering field. Anadolu Sigorta-Mobile Phone Insurance (Personal) Mobile Phone Insurance has been added to the Insurance menu of İşCep. Customers who want to buy insurance can connect to the Anadolu Sigorta application or browser and query transactions for their mobile phone. Moneybox Fund Transactions With İşCep, it is now possible for customers to open a Moneybox fund account on behalf of their children and buy/sell Moneybox funds. Unblocking MCC on Sign-in Screen (İşCep) With the Security Operations menu added to the sign-in screen of İşCep, customers can remove mobile confirmation code blocking, which is imposed following a change of SIM card/network provider, by scanning their ID card with NFC and verifying their identification via facial recognition. Transactions such as payments and insurance that customers can perform for their vehicles have been grouped under the My Car menu. My Home (İşCep) Customers can now quickly access all banking services related to their homes from a single menu. Private Pension AHE SSO (Internet Branch) Customers can access Anadolu Hayat Emeklilik's website without entering any other details on Internet Branch. Showing Account Details on the Sign-in Screen (Commercial İşCep) The function, which was made available for use by personal customers with the previous version of İşCep, has also been introduced to commercial customers with the new release of İşCep. The account details set as favorites in the İşCep "My Account Details/Show" box can be displayed for 90 days without entering a password. Logging into Digital Vault (İşCep) Customers can quickly log into the Digital Vault from within İşCep without entering their password. Customers without a Digital Vault account can easily register by simply approving contracts without entering their customer details. Customers who do not have the Digital Vault app installed on their device will be redirected to the app stores to quickly download the application. Objection to Spending (Internet Branch) Customers can now submit their objections to a spending, cash withdrawal or money transfer transaction done with their İşbank credit cards and Bankamatik cards to the Bank via Internet Branch. BTCTürk Payment (İşCep) Customers can transfer money from İşCep to BTCTürk, a crypto market, on a 24/7 basis. Private Pension for My Child and Life Insurances (İşCep) With the "Private Pension for My Child" and "Life Insurances" (Comprehensive Life Insurance, Critical Disease Insurances) menus added to İşCep, customers can connect to the AHE Mobile app or browser to instantly buy products. Anadolu Sigorta - My Offers (İşCep) With the "My Offers" menu added to the Insurance menu in İşCep, customers can connect to the Anadolu Sigorta application or browser and instantly buy insurance policies. 430 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 431 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Activities for which Support Services are Received in Accordance with the Regulation on Procurement of Support Services for Banks - Support services received from Aras Kurye Servisi A.Ş. for delivery of card products to our customers’ addresses, - Support services received from İnfoteks Bilgisayar Elektronik Telekom San. Tic. LTD. Şti. for maintenance of and running the - Support services received from Aras Kurye Servisi A.Ş. for sending Banking Services Agreements to the addresses of applicants who apply for "Anında Müşteri" and delivering the signed contracts to the Bank, - Support services received from Atos Müşteri Hizmetleri A.Ş. for sales-oriented external calls, - Support services received from ATP Ticari Bilgisayar Ağı ve Elektrik Güç Kaynakları Üretim ve Pazarlama Ticaret A.Ş. regarding the transfer of right to use software and documents, - Support services received from Austriacard Turkey Kart Operasyonları A.Ş. for production and customization of credit cards and debit cards following purchase of credit card and debit card plastics, - Support services received from Bilişim Bilgisayar Hizmetleri Ltd. Şti. for use of the payment application on Cash Registers, - Support services received from Brink's Güvenlik Hizmetleri A.Ş. for international transportation, - Support services received from CMC İletişim ve Çağrı Merkezi Hizmetleri A.Ş. aimed at calling customers and reminding them about deferrals regarding retail loans and credit cards payments; - Support services received from Comdata Teknoloji ve Müşteri Hizmetleri A.Ş. aimed at calling customers and reminding them about deferrals regarding retail loans and credit cards payments; - Support services received from Definex Danışmanlık A.Ş. for the development of credit process optimization software, - Support services received from Definex Danışmanlık A.Ş. for the development of a project loans app, risk center queries and foreign trade processes, - Support services received from Edata Elektronik San ve Tic A.Ş. for maintenance of and running the Bank’s application on cash Bank’s application on cash registers, - Support services received from İş Net Elektronik Bilgi Üretim Dağıtım Ticaret ve İletişim Hizmetleri A.Ş. regarding provision of required resources for the operation, management and maintenance of data processing application servers and server operating systems, and the operation, management and maintenance of communication networks, - Support services received from Karbil Yazılım ve Bilişim Teknolojileri Tic. A.Ş. for maintenance of and running the Bank’s application on cash registers, - Support services received from Key Yazılım Çözümleri A.Ş. regarding expertise software, - Support services received from Konut Kredisi Com Tr Danışmanlık A.Ş. for marketing of consumer loans, - Support services received from KKB Kredi Kayıt Bürosu A.Ş. regarding use of Anadolu Data Center hard disk space, - Support services received from Kurye Net Motorlu Kuryecilik ve Dağıtım Hizmetleri A.Ş. for delivery of credit card products to customer addresses, - Support services received from Kurye Net Motorlu Kuryecilik ve Dağıtım Hizmetleri A.Ş. for delivery of OGS devices to our customers via courier, - Support services received from Loomis Güvenlik Hizmetleri A.Ş. for transporting cheques, promissory notes, other commercial papers and documents, - Support services received from Loomis Güvenlik Hizmetleri A.Ş. for transporting cash, - Support services received from Loomis Güvenlik Hizmetleri A.Ş. for transporting cash abroad, registers, - Support services received from Loomis Güvenlik Hizmetleri A.Ş. for customer collection, transportation, processing and storage, - Support services received from E-Kart Elektronik Kart Sistemleri San. Tic. A.Ş. for production and customization of credit cards and - Support services received from Obase Bilgisayar Danışmanlık Hizmetleri Ticaret San. A.Ş. for outsourcing data analytic activities, debit cards following purchase of credit card and debit card plastics, - Support services received from Enuygun Com İnternet Bilgi Hizmetleri Teknoloji ve Ticaret A.Ş. for marketing of consumer loans, - Support services received from Payten Teknoloji A.Ş. regarding secure e-payment infrastructure for electronic commerce, - Support services received from Plastik Kart Akıllı kart İletişim Sistemleri San. ve Tic. A.Ş. for production and customization of - Support services received from Erişim Müşteri Hizmetleri A.Ş. to meet the demands of customers using the telephone branch; credit cards and debit cards following the purchase of credit card and debit card plastics, - Support services received from Hangisi İnternet ve Bilgi Hizmetleri A.Ş. for marketing of consumer loans, - Support services received from Postkom Basım ve Posta İletişim Hizmetleri A.Ş. for printing and/or enveloping bank statements - Support services received from Hobim Digital Elektronik Hizmetler A.Ş. for printing and/or enveloping bank statements of the credit of credit cards and contracted merchants, and other documents such as letters and notices, cards and contracted merchants, and other documents such as letters and notices, - Support services received from Mikrosaray Mikrobilgisayar Paz. ve Tic. A.Ş. for directing customers to the Bank’s branches to - Support services received from Hugin Yazılım Teknolojileri San. ve Tic. A.Ş. for maintenance of and running the Bank’s application on cash registers, - Support services received from IBM Global Services İş ve Teknoloji Hizmetleri ve Ticaret Ltd. Şti. for system backup of the Disaster upload the Bank's application to cash registers, - Support services received from Mikrosaray Mikrobilgisayar Paz. ve Tic. A.Ş. for maintenance of and running the Bank’s application on cash registers, Recovery Center located in İzmir, - Support services received from MT Bilgi Teknoloji Dış Ticaret A.Ş for maintenance of and running the Bank’s application on cash - Support services received from Iron Mountain Arşivleme Hizmetleri A.Ş. regarding physical archive services, - Support services received from Iron Mountain Arşivleme Hizmetleri A.Ş. for opening archive boxes, scanning of contracts and uploading them into the Bank's system by firm personnel, in addition to physical archive services, - Support services received from Ingenico Ödeme Sistem Çözümleri A.Ş. for maintenance of and running the Bank’s application on cash registers, - Support services received from Innova Bilişim Çözümleri A.Ş. regarding the use of virtual POS, - Support services received from Infina Yazılım A.Ş. regarding purchasing, installation, and maintenance of software and support services to be rendered throughout the term of the contract, registers, - Support services received from Panaroma Bilişim Teknolojileri San. ve Tic. A.Ş. for maintenance of and running the Bank’s application on cash registers, - Support services received from R2 Servis Elektrik, Elektronik ve Bilgisayar Teknolojileri San. ve Tic. A.Ş. for maintenance of and running the Bank’s application on cash registers, - Support services received from Softtech Yazılım Teknolojileri Araştırma Geliştirme ve Pazarlama Tic. A.Ş. for information systems management, information systems infrastructure support, software development, project development, business analysis, systems analysis, project and product consulting, and technical support, - Support services received from Softtech Yazılım Teknolojileri Araştırma Geliştirme ve Pazarlama Tic. A.Ş. for digitalization of financial analysis processes, - Support services received from Token Finansal Teknolojiler A.Ş. for maintenance of and running the Bank’s application on cash registers. 432 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 433 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Additional Information Regarding the Related Legislation Duties İşbank Board of Directors’ members perform outside the Bank • I am capable of dedicating sufficient time to be able to observe the Bank’s activities and to fulfill the requirements of the duties I Name-Surname Position in Bank Duties outside the bank Adnan Bali Chairperson Chairperson of Türkiye Sınai Kalkınma Bankası A.Ş., Chairperson of Türkiye İş Bankası A.Ş. Members Supplementary Pension Fund, Chairperson of the Board of Softtech Ventures Teknoloji A.Ş., Member of the High Advisory Board of Darüşşafaka Society Yusuf Ziya Toprak Vice Chairperson Hakan Aran Member of the Board None None Feray Demir Member of the Board Member of the Board of Türkiye İş Bankası A.Ş. Members Supplementary Pension Fund Ersin Önder Çiftçioğlu Member of the Board Fazlı Bulut Durmuş Öztek Member of the Board Member of the Board None None None Recep Hakan Özyıldız Member of the Board Atatürk University Faculty of Political Sciences Part-Time Instructor Mustafa Rıdvan Selçuk Member of the Board Independent Auditor of BDD Bağımsız Denetim ve Danışmanlık A.Ş., Partner of Girişim YMM Ltd. Şti. Ahmet Gökhan Sungur Member of the Board Sadrettin Yurtsever Member of the Board None None Independence declaration of Mr. Ahmet Gökhan Sungur who is an Independent Member of the Board Mr. Ahmet Gökhan Sungur was nominated as Independent Member of the Board to the Corporate Governance Committee that performs the tasks of the Nomination Committee and Corporate Governance Committee’s “Evaluation Report of Independent Member Nominee” dated 29.01.2020 was submitted to the Board on 30.01.2020. Independence declaration of Mr. Ahmet Gökhan Sungur who was elected as an Independent Member of the Board at the Ordinary General Meeting dated 31.03.2020 is quoted below: “As per the requirements of the legislation, Corporate Governance Principles of Capital Markets Board and the Articles of Incorporation of İşbank, due to my nomination as an “independent member” to the Board of Directors of İşbank, I hereby declare to the committee, İşbank shareholders and all the related parties that; • Within the last five years, no executive employment relation that would give important duties and responsibilities has been established between myself, my spouse, my second degree relatives by blood or by marriage and (i) İşbank and (ii) the subsidiaries of İşbank, and (iii) shareholders who control the management of İşbank or who have significant influence in İşbank and juridical persons controlled by these shareholders; and that I neither possess more than 5% of any and all capital or voting rights or privileged shares nor have significant commercial relations, • • Within the last five years, I have not worked as an executive manager who would have important duties and responsibilities or have not been a member of the Board of Directors or been a shareholder (more than 5%) particularly in the companies that provide auditing, rating and consulting services for the Bank (including tax audit, legal audit, internal audit), and in the companies that the Bank purchase products and services from or sells products and services to within the framework of the agreements signed during the timeframe of selling/ purchasing of the products and services, • I possess the vocational education, knowledge and experience necessary to fulfill the duties I will assume in connection with being an independent board member, • I am not working fulltime in public institutions and organizations, • I am considered as a resident in Turkey according to the Income Tax Law (n.193) dated 31/12/1960, • I have high ethical standards, goodwill and experience necessary to contribute to İşbank’s activities, Maintaining my objectivity in conflicts of interest between İşbank and its shareholders and deciding independently by taking into account the rights of stakeholders, undertake, • I have not been a member of the Board of Directors of İşbank for more than 6 years in total within the last decade, • I have not been an independent member of the Board of Directors in more than three of the companies controlled by İşbank or by the shareholders who control the • management of İşbank and in more than five of the publicly traded companies in total, • I have not been registered and announced on behalf of the juridical person elected as member of the Board of Directors, • I still have all the qualifications as per the Corporate Governance Principles to be an independent member and I will protect all these conditions during the duty term in case of being appointed as independent member. I will inform Board of Directors of İşbank and the Capital Markets Board (simultaneously) about the situation in writing including its reasons in case of losing my independency. And thus, I am independent.” Remuneration • In accordance with the General Assembly decision taken on 31.03.2021, a net allocation of TL 41,300 is paid to the members of the Board of Directors on an individual basis every month. Benefits paid to key management personnel in 2021 amount to TL 43,379 thousands. Moreover, cost of allowance, travel, accommodation, representation, as well as the opportunities in cash and in kind, insurance and similar guarantees for key management personnel in the same year amount to TL 13,204 thousands. Dividend Payments: * İşbank’s dividend payment policy is set out in detail in article 58 of the Bank’s articles of incorporation. Information about the policy is provided in this annual report. The said information is also available on the Bank’s corporate website under the title of Investor Relations, in Turkish and English. Company Share Information: İşbank’s Group A, Group B shares are listed on the Main Market with the symbols of ISATR and ISBTR; İşbank’s Group C shares are listed on the Stars Market with the symbol of ISCTR. İşbank’s Group C shares are traded on London Stock Exchange as Global Depositary Receipts, being subject to “Regulation S”; they are also traded on over-the-counter markets in the USA as American Depositary Receipts, being subject to “Rule 144A”. Changes in the Organizational Structure – As a result of the restructuring of the voice communication organization, the name of the Digital Banking Operations Division was updated as the Customer Relations Division and its activities were rearranged. – The name of the Retail Loan and Card Operations Division was updated as the Payment Systems Operations Division and its activities were rearranged. – The functions of the Internal Operations Division were transferred to other departments and its activities were terminated. – As of 27.01.2022, the Information Security Coordinatorship was transformed into the Information Security Division and it became affiliated to the newly created Deputy Chief Executive position together with the Internal Systems Divisions. Other Issues • No custom audits were carried out at İşbank within the scope of Articles 207, 438 and 439 of the Turkish Commercial Code in 2021. Our bank is subject to public auditing, especially public institutions such as BRSA, CMB, Competition Board, Central Bank. If there is a situation that needs to be disclosed to the public regarding the audits of the aforementioned public institutions in our Bank, they are disclosed via KAP platform. • Mr. Adnan Bali, Chairman of the Board of Directors has a duty as the Chairman of the Board of Türkiye Sınai ve Kalkınma Bankası A.Ş. (TSKB), a subsidiary of İşbank, within the framework of the consent regarding the prohibition to trade with and compete against the company based on related regulations of Turkish Commercial Code. • Companies within the İşbank group do not have any shares in the Bank's capital. • In our Bank's Board Meeting dated 25.02.2022, it has been resolved that our Bank's paid in capital shall be increased from TL 4,500,000,000 to TL 10,000,000,000 within the registered capital ceiling of TL 10,000,000,000, the increase shall be fully funded from extraordinary reserves and shall be distributed to our shareholders as bonus shares, the Head Office shall be authorized to apply to the relevant authorities and fulfill necessary processes and take all actions for the capital increase. • The actions required with respect to the decisions made at Ordinary General Shareholders’ Meeting of 2021 were performed. 434 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 435 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Information on the Transactions Carried Out with the Bank's Risk Group Fundings Obtained from International Financial Institutions (as of 31.12.2021) All financial services provided to companies within İşbank’s Risk Group are provided on an arm’s length basis, subject to the same procedures and policies applicable to third parties. Credit lines and other lending transactions allocated to companies within İşbank’s Risk Group are analyzed and monitored to ensure that such transactions are within regulatory limits. In 2021, the loans extended to Group companies were all below the regulatory risk limits. Corporate Memberships Domestic Memberships International Memberships The Research Institute of Banking and Commercial Law Blockchain Turkey (BCTR) Turkish Marine Environment Protection Association (TURMEPA) European Financial Management & Marketing Association (EFMA) EFMA Affluent & Private Banking Council EFMA Digital Channels Council Foreign Economic Relations Board of Turkey (DEİK) EFMA Insurance Council DEİK Turkey - Iraq Business Council EFMA Operational Excellence Council ERTA Elginkan Community EFMA Physical Channels Council EFMA SME Council Financial Innovation and Technology Association European Association of Communication Directors (EACD) Global Relations Forum İstanbul Foundation for Culture and Arts (İKSV) Association of Corporate Communicators (KİD) National Education Foundation The Advertisers Association The Banks Association of Turkey (BAT) Turkish Informatics Foundation Economic and Social History Foundation of Turkey (History Foundation) Vehbi Koç Foundation Artificial Intelligence and Technology Association European Association for Banking and Financial History (EABH) Institut International d’Etudes Bancaires (IIEB) International Chamber of Commerce (ICC) Turkey National Committee - The Commission on Banking Techniques and Practices Mobile Marketing Association - MMA Turkey The Institute of International Finance (IIF) UN Global Compact Network Turkey European Bank for Reconstruction and Development (EBRD) United Nations Environment Program Finance Initiative (UNEP-FI) PROPARCO International Financial Institution Date of Signature Loan Amount Maturity (years) Purpose of Extending Loans 13.04.2009 € 250,000,000 9.12.2011 € 150,000,000 28.06.2012(1) € 75,000,000 12 10 12 4.12.2013 € 150,000,000 8 European Investment Bank (EIB) 9.05.2014 € 200,000,000 10 Financing SMEs Financing SMEs Financing of energy efficiency and renewable energy projects as part of the MidSEFF Program Financing of SMEs and enterprises with 250 to 3,000 employees Financing the loans to be extended to residential buildings that fall under the scope of Law No. 6306 and conform to the EIB criteria in order to improve earthquake safety and energy efficiency in residential buildings Financing of SMEs and enterprises with 250 to 3,000 employees Financing of energy efficiency and renewable energy projects as part of the MidSEFF Program Financing of SMEs and enterprises with 250 to 3,000 employees Financing of energy efficiency projects as part of the TurSEFF Program Financing of energy efficiency and renewable energy projects as part of the MidSEFF Program Financing of energy efficiency and renewable energy projects as part of the MidSEFF Program Financing of energy efficiency in residences as part of the TurEEFF Program Financing of energy efficiency and renewable energy projects as part of the MidSEFF Program Financing of renewable energy and resource efficiency investments as part of the TurSEFF Program Financing of renewable energy and energy efficiency projects Financing of loans extended to residential buildings conforming to domestic energy efficiency criteria in Turkey Financing agriculture and the energy and resource efficiency activities of small and medium-sized companies operating in the agricultural sectors 30.10.2015(1) $221,200,000 10 $111,200,000 13 01.12.2016(1) $47,600,000 27.10.2011 $6,660,000 10 15 28.06.2012(1) € 50,000,000 12 18.12.2013(1) € 50,000,000 30.03.2015(1) $ 60,000,000 $15,000,000 21.10.2016(1) $55,000,000 12 7 15 12 06.12.2017(1) $55,000,000 7 9.12.2010 € 50,000,000 1.03.2013 € 50,000,000 12 10 30.06.2020 € 25,000,000 10 OPIC IFC 10.12.2014(1) $220,000,000 14 Financing of SMEs, prioritized regions in development and women entrepreneurs $105,000,000 Financing of housing loans, especially green mortgages conforming to IFC energy efficiency criteria 28.12.2017(1) 9 $20,000,000 Provided by the Clean Technology Fund ("CTF") through IFC for use in financing green mortgage loans ensuring energy efficiency. (1) Funding obtained through the transactions made within the scope of the diversified payment rights program. 436 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 437 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Financial Highlights and Key Ratios for the Five-Year Period Financial Highlights and Key Ratios for the Five-Year Period CONSOLIDATED ASSETS (TL thousand) 2017/12* 2018/12 2019/12 2020/12 2021/12 Cash and Equivalents Banks and Receivables from Interbank Money Markets (1) Securities (Net) (2) 3,395,184 4,931,787 5,700,435 9,504,086 15,230,787 44,638,342 51,202,701 70,109,172 87,017,464 206,978,744 66,218,177 77,942,727 97,304,703 128,082,066 173,820,212 Loans,Factoring Receivables and Lease Receivables (3) Associates and Subsidiaries (Net) Fixed Assets (Net) Other Assets (4) Total Assets 275,721,584 303,495,889 316,028,505 403,934,870 590,297,628 7,387,455 9,418,560 11,190,991 13,052,096 21,918,409 10,342,126 11,975,301 13,826,688 14,706,181 19,101,836 30,054,547 40,940,392 50,891,344 61,855,500 97,056,457 437,757,415 499,907,357 565,051,838 718,152,263 1,124,404,073 LIABILITIES (TL thousand) 2017/12* 2018/12 2019/12 31.12.2020 2021/12 Deposits Funds Borrowed and Interbank Money Market Placements (5) Provisions (6) Other Liabilities Shareholders’ Equity Total Liabilities 207,880,492 248,981,402 302,791,204 381,693,393 617,679,203 130,496,873 137,945,969 130,065,019 167,635,067 272,909,829 17,044,695 15,161,685 17,860,585 24,027,066 35,609,317 34,210,740 42,203,408 48,633,563 69,935,017 102,037,545 48,124,615 55,614,893 65,701,467 74,861,720 96,168,179 CONSOLIDATED KEY RATIOS NPL Ratio Coverage Ratio Demand Deposits / Total Deposits Shareholders’ Equity / Total Liabilities Capital Adequacy Standard Ratio Return on Average Assets (12) Return on Average Equity (12) Cost / Income (13) 2017/12* 2018/12 2019/12 31.12.2020 2021/12 2.12% 84.1% 26.3% 11.0% 15.2% 1.7% 14.9% 42.2% 4.06% 56.5% 24.8% 11.1% 15.3% 1.6% 14.8% 35.9% 6.4% 53.5% 28.4% 11.6% 16.4% 1.3% 11.8% 39.8% 5.6% 62.1% 41.2% 10.4% 17.0% 1.2% 11.2% 36.0% 4.1% 65.0% 47.3% 8.6% 18.7% 1.8% 19.2% 34.5% OTHER INFORMATION (TL thousand) 2017/12* 2018/12 2019/12 31.12.2020 2021/12 Regulatory Capital Core Capital Free Capital (14) Demand Deposits 54,979,844 64,189,820 75,055,619 90,577,700 125,734,035 45,054,873 51,413,549 60,581,141 69,037,761 93,801,462 29,638,672 28,971,576 31,093,535 38,572,660 46,881,642 54,724,559 61,655,721 86,043,036 157,339,437 291,867,150 (*) Accounting policy changes made in 2017 and 2018 were applied retrospectively; accordingly, the financial statements of 2017 was restated. 437,757,415 499,907,357 565,051,838 718,152,263 1,124,404,073 - The financial statements of the year 2017 were restated due to the change in the valuation policy of associates and subsidiaries. INCOME STATEMENT (TL thousand) 2017/12* 2018/12 2019/12 2020/12 2021/12 (1) Includes balances at the Central Bank and required reserves. Interest Income (7) Interest Expenses (7) Net Interest Income Net Trading Income 31,108,967 44,078,656 48,453,830 47,960,977 69,449,187 16,277,297 24,492,384 25,654,752 18,898,262 32,530,364 14,831,670 19,586,272 22,799,078 29,062,715 36,918,823 -946,253 -2,293,686 -4,633,920 -1,206,769 703,452 Net Fees and Commissions Income 2,733,423 3,756,035 4,611,770 4,919,413 6,691,855 (2) 2019/12, 2020/12 and 2021/12 balances do not include the loan granted to the special purpose entity, which is classified under Other Financial Assets at Fair Value Through Profit and Loss. (3) Excludes Non-performing Loans. 2018/12 period includes the loan granted to the special purpose entity, which is classified under Other Financial Assets at Fair Value Through Profit and Loss. (4) Includes general provisions after 2017/12 period, and includes the loan granted to the special purpose entity, which is classified under Other Financial Assets at Fair Value Through Profit and Loss in 2019/12, 2020/12 and 2021/12 periods. Dividend Income Other Operating Income Total Operating Income Operating Expenses (8) 18,258 19,655 20,819 31,057 68,548 (5) Includes Turkish Lira and foreign currency securities issued and subordinated debts. 6,765,642 8,120,963 10,942,888 11,733,929 16,883,690 23,402,740 29,189,239 33,740,635 44,540,345 61,266,368 12,862,111 14,656,126 17,512,911 21,179,158 30,381,409 (6) Due to the change in accounting policy, general provisions are not classified in this item after 2017/12 period. (7) Fees and Commissions Received from Cash Loans are shown in Interest Income, Fees and Commissions Given to Cash Loans are shown in Interest Expenses. NET OPERATING PROFIT/LOSS (9) 10,540,629 14,533,113 16,227,724 23,361,187 30,884,959 Provision for Losses on Loans and Other Receivables (10) 3,016,417 7,012,853 9,236,283 14,150,040 16,810,490 Profit/Loss from subsidiaries Based on Equity Method 842,068 1,569,036 1,462,479 1,455,956 4,874,850 PROFIT/(LOSS) BEFORE TAXES 8,366,280 9,089,296 8,453,920 10,667,103 18,949,319 Provision for Taxes NET PERIOD PROFIT/(LOSS KEY RATIOS 1,660,614 1,517,912 1,422,289 2,915,351 3,389,061 6,705,666 7,571,384 7,031,631 7,751,752 15,560,258 2017/12* 2018/12 2019/12 31.12.2020 2021/12 Interest Earning Assets (11) / Total Assets 88.2% Interest Earning Assets (11) / Interest Bearing Liabilities 114.1% Securities / Total Assets Loans / Total Assets Loans / Deposits Retail Loans / Total Loans 15.1% 61.0% 128.5% 21.4% 86.4% 111.7% 15.6% 59.1% 118.6% 19.8% 85.8% 112.0% 17.2% 54.5% 101.6% 20.8% 86.2% 112.7% 17.8% 54.6% 102.7% 22.1% 86.2% 108.9% 15.5% 50.9% 92.6% 19.3% (8) Includes Personnel Expenses. (9) Net Operating Profit / Loss = Total Operating Income - Operating Expenses (10) Named as “Provision for Losses on Loans and Other Receivables” prior to the 2018/12 period. (11) Interest Earning Assets include Turkish Lira and foreign currency required reserves. (12) Averages are calculated by using restated year-end figures for 2017/12 period and by using quarterly balances for the other periods. (13) Cost and income are netted aganist “Insurance Technical Income / Expense”. Operating Income = Total Operating Income + Profit/Loss from Subsidiaries Based on Equity Method. (14) Free Capital = Shareholders’ Equity - (Fixed Assets + Non-Financial Associates and Subsidiaries + Net Non-performing Loans) 438 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 439 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Financial Highlights and Key Ratios for the Five-Year Period Financial Highlights and Key Ratios for the Five-Year Period UNCONSOLIDATED ASSETS (TL thousand) Cash and Equivalents Banks and Receivables from Interbank Money Markets (1) Securities (Net) (2) Loans (3) 2017/12* 2018/12 2019/12 2020/12 2021/12 3,363,250 4,888,627 5,661,559 9,463,666 15,170,894 35,060,422 43,630,394 60,525,991 77,492,256 190,881,628 57,351,543 68,133,659 84,246,760 109,485,041 142,653,302 239,408,795 260,316,291 270,360,084 345,150,130 493,378,191 Associates and Subsidiaries (Net) 13,802,243 17,638,720 21,070,554 26,002,383 39,461,345 Fixed Assets (Net) Other Assets (4) Total Assets 5,162,561 5,996,958 8,478,257 9,161,214 11,277,602 8,094,719 15,782,955 17,716,266 17,147,742 33,746,062 362,243,533 416,387,604 468,059,471 593,902,432 926,569,024 LIABILITIES (TL thousand) 2017/12* 2018/12 2019/12 2020/12 2021/12 Deposits Funds Borrowed and Interbank Money Market Placements (5) Provisions (6) Other Liabilities Shareholders’ Equity Total Liabilities 203,752,032 245,268,846 295,922,002 368,876,491 595,628,376 92,457,257 94,468,343 86,102,534 116,407,089 181,993,730 8,808,734 6,256,462 7,042,357 10,224,590 15,487,318 14,241,243 20,673,329 20,119,113 30,612,810 46,620,309 42,984,267 49,720,624 58,873,465 67,781,452 86,839,291 UNCONSOLIDATED KEY RATIOS Coverage Ratio Demand Deposits / Total Deposits Shareholders’ Equity / Total Liabilities Capital Adequacy Standard Ratio Return on Average Assets (12) Return on Average Equity (12) Cost / Income (13) 2017/12* 2018/12 2019/12 2020/12 2021/12 86.0% 26.3% 11.9% 16.7% 1.8% 15.4% 42.3% 58.7% 24.4% 11.9% 16.5% 1.7% 14.8% 36.4% 54.7% 28.4% 12.6% 17.9% 1.4% 11.4% 39.2% 63.7% 41.7% 11.4% 18.7% 1.3% 10.9% 35.3% 66.2% 47.9% 9.4% 20.4% 1.9% 18.4% 34.7% OTHER INFORMATION (TL thousand) 2017/12* 2018/12 2019/12 2020/12 2021/12 Regulatory Capital Core Capital Free Capital (14) Demand Deposits 50,559,960 58,950,530 69,198,849 84,540,460 116,325,684 42,474,633 49,052,634 57,971,231 66,666,192 90,161,889 29,874,011 29,896,338 30,903,681 38,469,439 46,673,837 53,501,377 59,961,577 84,040,178 153,998,446 285,308,452 (*) Changes in accounting policy were applied retrospectively; accordingly, the financial statements of the year 2017 were restated due to the changes in the valuation methodology of associates and subsidiaries. 362,243,533 416,387,604 468,059,471 593,902,432 926,569,024 (1) Includes balances at the Central Bank and required reserves. INCOME STATEMENT (TL thousand) 2017/12* 2018/12 2019/12 2020/12 2021/12 Interest Income (7) Interest Expenses (7) Net Interest Income Net Trading Income 27,655,465 38,840,381 43,042,350 42,516,332 60,904,343 14,447,809 21,788,130 23,183,222 17,274,293 29,963,074 13,207,656 17,052,251 19,859,128 25,242,039 30,941,269 -1,878,444 -4,071,660 -6,397,400 -3,341,357 -5,149,127 (2) 2019/12, 2020/12 and 2021/12 balances do not include the loan granted to the special purpose entity, which is classified under Other Financial Assets at Fair Value Through Profit and Loss. (3) Excludes Non-performing Loans. 2018/12 period includes the loan granted to the special purpose entity, which is classified under Other Financial Assets at Fair Value Through Profit and Loss. (4) Includes general provisions after 2017/12 period, and includes the loan granted to the special purpose entity, which is classified under Other Financial Assets at Fair Value Through Profit and Loss in 2019/12, 2020/12 and 2021/12 periods. Net Fees and Commissions Income 3,373,715 4,405,201 5.569.128 5,617,613 7,619,945 (5) Includes Turkish Lira and foreign currency securities issued and subordinated debts. Dividend Income Other Operating Income Total Operating Income Operating Expenses (8) 11,072 6,425 9,098 21,487 20,735 1,146,647 1,912,307 3,146,751 2,436,205 4,401,570 15,860,646 19,304,524 22,186.705 29,975,987 37,834,392 7,395,787 8,039,721 9,792,544 11,796,986 15,911,689 NET OPERATING PROFIT/LOSS (9) 8,464,859 11,264,803 12,394,161 18,179,001 21,922,703 Provision for Losses on Loans and Other Receivables (10) 2,633,246 6,343,674 8,325,906 12,729,920 14,450,167 Profit/Loss from subsidiaries Based on Equity Method 1,610,386 2,808,736 2,806,196 3,406,471 8,003,345 PROFIT/(LOSS) BEFORE TAXES 7,441,999 7,729,865 6,874,451 8,855,552 15,475,881 Provision for Taxes NET PERIOD PROFIT/(LOSS KEY RATIOS Interest Earning Assets (11) / Total Assets Interest Earning Assets (11) / Interest Bearing Liabilities Securities / Total Assets Loans / Total Assets Loans / Deposits Retail Loans / Total Loans NPL Ratio 1,240,720 960,780 806,864 2,044,635 2,007,986 6,201,279 6,769,085 6,067,587 6,810,917 13,467,895 2017/12* 2018/12 2019/12 2020/12 2021/12 91.5% 111.9% 15.8% 66.1% 117.5% 23.8% 2.2% 89.3% 109.4% 16.4% 62.5% 106.1% 22.4% 4.1% 89.0% 109.0% 18.0% 57.8% 91.4% 23.6% 6.5% 89.8% 109.9% 18.4% 58.1% 93.6% 25.0% 5.6% 89.3% 106.4% 15.4% 53.2% 82.8% 22.2% 4.1% (6) Due to the change in accounting policy, general provisions are not classified in this item after 2017/12 period. (7) Fees and Commissions Received from Cash Loans are shown in Interest Income, Fees and Commissions Given to Cash Loans are shown in Interest Expenses. (8) Includes Personnel Expenses. (9) Net Operating Profit / Loss = Total Operating Income - Operating Expenses (10) Named as “Provision for Losses on Loans and Other Receivables” prior to the 2018/12 period. (11) Interest Earning Assets include Turkish Lira and foreign currency required reserves. (12) Averages are calculated by using restated year-end figures for 2017/12 period and by using quarterly balances for the other periods. (13) Operating Income = Total Operating Income + Profit/Loss from Subsidiaries Based on Equity Method (14) Free Capital = Shareholders’ Equity - (Fixed Assets + Non-Financial Associates and Subsidiaries + Net Non-performing Loans) 440 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 441 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen İşbank Credit Ratings Awards Granted in 2021 Credit Ratings Assigned by Rating Agencies to the Bank and Related Explanations: Rating Outlook (*) MOODY’S Long-term Foreign Currency Deposit Long-term Local Currency Deposit Long-term Foreign Currency Senior Debt Short-term Foreign Currency Deposit Short-term Local Currency Deposit FITCH RATINGS Long-term Foreign Currency Issuer Default Rating Long-term Local Currency Issuer Default Rating Short-term Foreign Currency Issuer Default Rating Short-term Local Currency Issuer Default Rating National Long-term Rating Viability Rating Government Support Rating STANDARD & POOR'S Long-term Counterparty Credit Rating Short-term Counterparty Credit Rating Long-term National Scale Rating Long-term Local Currency Issuer Default Rating B3 B3 B3 NP NP B+ B+ B B Negative Negative Negative - - Negative Negative - - A+ (tur) Stable b+ b- B+ B trA+ trA-1 - - Negative - - - The dates when the Bank's credit ratings/outlooks were last updated are given below: Moody's 10.12.2020, Fitch Ratings: 10.12.2021, Standard & Poor's: 15.12.2021 (*) Outlook: “Stable” indicates that the current rating will not be changed in the short term; “positive” indicates that the current rating is very likely to be upgraded and “negative” indicates that the current rating is very likely to be downgraded. Latest information about credit ratings of İşbank from rating agencies can be found here. Award Name MarTech MarTech MarTech Social Media Awards / Banks Category Social Media Awards / Social CRM Social Media Awards / Mobile App Social Media Awards / Credit Cards Category Social Media Awards / Venue and Event Category Social Media Awards / Online Banking Category Altın Örümcek / Mobile App Banking & Finance Altın Örümcek / Mobile App Banking & Finance Altın Örümcek / Most Accessible Mobile App Altın Örümcek / Banking & Finance Altın Örümcek / Banking & Finance Altın Pusula Awarded Project Award Maxi Covid-19 Integration Best chatbot technology Dataroid Digital Analytics Platform Best data usage İmeceMobil İşbank Click to WhatsApp - Maxi Digital Vault Maximum İşCep İş Sanat İşCep İşCep İşCep Maximum Youth Maximum Youth Digital Anatolia Best Use of Technology in Direct Marketing Silver Bronze Bronze Gold Gold Silver People's Favorite Jury 1st place 1st place Jury 3rd place People's Favorite Award in Non-Governmental Organizations Category Stevie Int. Business Awards / Achievement in Product Innovation Digital Vault Stevie Int. Business Awards / Achievement in Product Innovation İşCep Market Silver Silver Stevie Int. Business Awards / Most Valuable Corporate Response Maxi Covid-19 Integration Bronze Stevie Int. Business Awards / Consumer Services Stevie Int. Business Awards / Financial Services Stevie Int. Business Awards / Branded Utility of the Year Stevie Int. Business Awards / AI - Machine Learning Solution Digital Vault İşCep PFM MOI Maxi Stevie Int. Business Awards / Marketing Campaign of the Year - Financial Products & Services Maximum Youth Silver Bronze Silver Silver Bronze Global Finance World's Best Digital Bank Awards Best Open Banking API's Best Open Banking API's Sardis Awards Sardis Awards Sardis Awards Sardis Awards İş Asset Management Women Equity Fund İşbank İşbank İşbank Sardis Grand Prize Most Innovative Organization of the Year Organization with the Most Innovative Use of Finance Technologies of the Year Most Responsible Organization of the Year Sardis Awards / Customer Experience and Engagement Dataroid Digital Analytics Platform Golden Sardis Sardis Awards / Customer Experience and Engagement Maxi - Call Center Integration Silver Sardis 442 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 443 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Awards Granted in 2021 Awards Granted in 2021 Sardis Awards / Use of Data Dataroid Digital Analytics Platform Golden Sardis MMA Smarties / Gender Equality in Advertising (EMEA) Award Name Awarded Project Award PSM Awards/Innovation - Innovative Customer Engagement and Experience Dataroid Digital Analytics and Action Platform Golden PSM MMA Smarties / Gender Equality in Advertising (Turkey) İş Asset Management Women Equity Fund İş Asset Management Women Equity Fund Silver Bronze Silver MMA Smarties / Social Messaging / Chat Apps / Text Messaging (EMEA) Maxi-Click to WhatsApp Reklam Modeli Brandon Hall 2021 Human Capital Management Excellence Awards "Best Advance in Competencies and Skill Development" and "Best Results of a Learning Program" Foreign Trade Development Program Golden Award Brandon Hall 2021 Human Capital Management Excellence Awards “Best Most Unique orand Innovative Sales Training Program" Commercial Banking Direct Mobile Sales Development Program Golden Award Award Name Sardis Awards / Innovative Acceleration and Incubation Programs Awarded Project Workup Award Golden Sardis Sardis Awards / Use of Artificial Intelligence Instant Loan Allocation Processes Golden Sardis Sardis Awards / Use of Artificial Intelligence Maxi Silver Sardis Sardis Awards / Other Uses of Innovative Technology İmeceMobil Sardis Awards / Best Mobile App İşCep Golden Sardis Silver Sardis Sardis Awards / Environmental Social Responsibility Environmentally Friendly Cards Silver Sardis Sardis Awards / Environmental Social Responsibility Geleceğe Orman (Forest for the Future) Golden Sardis Sardis Awards / Gender Equality Sardis Awards / Social Innovation Sardis Awards / Sponsorship Smarties X İş Asset Management Women Equity Fund Geleceğe Orman (Forest for the Future) Our 15th Year of Support for Chess Click to WhatsApp - Maxi Fast Company Startup Friendly Companies Fast Company Corporate Entrepreneurship İşbank İmeceMobil Fast Company Magazine 2021 Customer Experience Survey İşbank World Finance Awards İşCep Golden Sardis Silver Sardis Golden Sardis Bronze 1st place Best Internal Entrepreneurship Award Banks Category - 1st place Digital Banking - Best Mobile Banking App Sardis Awards / Environmental Social Responsibility Felis Awards / Financial Services Felis Awards / Pandemic-Specific Innovative Ideas Felis Awards / Financial Services Effie Effie Maximum TEMA Card and Doğasever (Nature Lover) MaxiPara Card Dünyanın Kapıları (Gates of the World) Happy ending! Quarantine is over, Movie theaters are open Silver Success Award Success Award 20th Year İşte Benim Maximum’um (Here’s My Maximum) Felis Award Maximum Youth Cards Alternative Payment Systems and Loyalty Programs Bronze Bronze The Banker Magazine Digital Banking Award Program Tekpos Award in Open Banking Category Efma-Accenture Awards Pay by Link Award in Innovation Category Female Friendly Brands Platform Women Entrepreneurship Program Awareness Payment System Magazine PSM Awards Payment System Magazine PSM Awards / Influencer Communication / Best Promotional Marketing Success Felis / Transformative Marketing Impact / Positive Social Impact Environmental Tekpos Instant POS Most Innovative Product Golden Award Geleceğe Orman (Forest for the Future) Success Award Boğaziçi Environmental Awards Geleceğe Orman (Forest for the Future) Most Environmentally Friendly Mobile App 444 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 445 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Changes in Material Issues of İşbank Direct and Indirect Subsidiaries (*) 2020 2021 The Bank's environmental footprint The Bank's environmental footprint Change The issue’s level of severity changed Employee rights and satisfaction Employee rights and satisfaction Unchanged Responsible financing integrating ESG criteria Responsible financing and investment integrating ESG criteria Addition made Compliance with changing regulations Compliance with changing regulations Digital transformation Digital transformation Equal opportunity and diversity Equal opportunity and diversity Financial inclusion Financial inclusion Financial performance and profitability Financial performance and profitability Combating climate change Combating climate change Business ethics Business ethics, transparency, and reporting Risk management Risk management Information security and customer privacy Cyber security and customer privacy The issue’s level of severity changed Unchanged Unchanged The issue’s level of severity changed Unchanged Unchanged Business ethics, transparency, and reporting issues were merged Unchanged The name and severity of the issue changed Customer centricity Customer centricity Unchanged Social investment programs Corporate social responsibility The name of the issue changed Responsible procurement Responsible procurement The issue’s level of severity changed Responsible product and service portfolio Responsible product and service portfolio Unchanged Financial literacy Financial literacy Unchanged Stakeholder dialogue Communication with stakeholders Responsible marketing Responsible marketing Open banking Supporting employee volunteering Emergency action preparation and business continuity Preferred employer National and international cooperation for sustainability Employee health and safety The name and severity of the issue changed Unchanged New addition New addition New addition New addition New addition New addition Changes in the Portfolio of Direct and Indirect Subsidiaries between 31.12.2020-31.12.2021 DIRECT SUBSIDIARIES Name Anadolu Hayat Emeklilik A.Ş. Arap Türk Bankası A.Ş. İş Finansal Kiralama A.Ş. İş Gayrimenkul Yatırım Ortaklığı A.Ş. İş Merkezleri Yönetim ve İşletim A.Ş. İş Net Elektronik Bilgi Üret. Dağ. Tic. ve İlet. Hizm. A.Ş. İş Yatırım Menkul Değerler A.Ş. İşbank AG JSC Isbank Georgia JSC İşbank Kredi Kayıt Bürosu A.Ş. Kültür Yayınları İş Türk A.Ş. Milli Reasürans T.A.Ş. Moka Ödeme ve Elektronik Para Kuruluşu A.Ş. Trakya Yatırım Holding A.Ş. Türkiye Sınai Kalkınma Bankası A.Ş. Türkiye Şişe ve Cam Fabrikaları A.Ş. 31.12.2021 Direct Share Bank’s Risk Group Share Percentage 62.00% 20.58% 27.79% 52.06% 86.33% 100.00% 65.74% 100.00% 100.00% 100.00% 9.09% 99.17% 87.60% 100.00% 100.00% 47.68% 50.93% 83.00% 20.58% 58.24% 65.44% 100.00% 100.00% 70.78% 100.00% 100.00% 100.00% 9.09% 100.00% 87.60% 100.00% 100.00% 51.37% 57.02% 446 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 447 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Direct and Indirect Subsidiaries (*) INDIRECT SUBSIDIARIES Name Anadolu Anonim Türk Sigorta Şirketi Anavarza Otelcilik A.Ş. Atlantic Soda LLC Sisecam Automotive Rus JSC Sisecam Automotive Rus Trading LLC Batı Karadeniz Elektrik Dağıtım ve Tic. A.Ş. Bayek Tedavi Sağlık Hizmetleri ve İşletmeciliği A.Ş. Camiş Ambalaj Sanayii A.Ş. Camiş Egypt Mining Ltd. Co. Camiş Elektrik Üretim A.Ş. Camiş Madencilik A.Ş. Casaba Yönetim İşl.İmal.İth.İhr.Paz.Sağ.Tem.Güv.Ulş.Tic.ve San.A.Ş. CJSC Brewery Pivdenna Convera Uluslararası Yazılım Arge Teknoloji Yatırımları A.Ş. Covision Medical Technologies Limited Covision Medical Technologies San. Tic. A.Ş. Cromital SPA Efes Varlık Yönetim A.Ş. Erişim Müşteri Hizmetleri A.Ş. Sisecam Automotive Romania SA Gullseye Lojistik Teknolojileri A.Ş. İş Faktoring A.Ş. İş Girişim Sermayesi Yatırım Ortaklığı A.Ş. İş Portföy Yönetimi A.Ş. İş Yatırım Ortaklığı A.Ş. JSC Mina Kanyon Yönetim İşletim ve Pazarlama A.Ş. Kasaba Gayrimenkul İnşaat Taahhüt ve Ticaret A.Ş. Koridor Incorporated Livewell Giyilebilir Sağlık Ürün Hizm. A.Ş. M4 Otelcilik ve Turizm A.Ş. Maxi Digital GmbH Maxis Girişim Sermayesi Portföy Yönetimi AŞ. Maxis Investments Ltd. Maxitech Inc. Merefa Glass Company Ltd. 31.12.2021 INDIRECT SUBSIDIARIES Direct Share Bank’s Risk Group Share Percentage 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 64.31% 50.00% 60.00% 100.00% 100.00% 65.00% 99.80% 100.00% 99.70% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 56.78% 100.00% 38.66% 100.00% 50.00% 100.00% 74.66% 100.00% 40.00% 100.00% 100.00% 100.00% 100.00% 100.00% Name Mikla Yiyecek ve İçecek A.Ş. Miltaş Turizm İnşaat Ticaret A.Ş. Nevotek Bilişim Ses ve İletişim Sistemleri San. ve Tic. A.Ş. Nevotek Intercorporation Nevotek Middle East FZ Limited Liability Company OOO Energosystems OOO Posuda OOO Ruscam Glass Packaging Holding OOO Ruscam Management Company Ortopro Tıbbi Aletler San. Tic. A.Ş. Oxyvit Kimya Sanayii ve Ticaret A.Ş. Pacific Soda LLC Pasabahce Bulgaria EAD Pasabahce Egypt Glass Manufacturing SAE Paşabahçe (Shanghai) Trading Co. Ltd Paşabahçe Glass Gmbh Paşabahçe Mağazaları A.Ş. Paşabahçe Spain SL Paşabahçe SRL Paşabahçe USA Inc Radore İnternet Hizmetleri A.Ş. Radore Veri Merkezi Hizmetleri A.Ş. Sisecam Automotive Germany GmbH Sisecam Automotive Hungary Kft Richard Fritz Prototype Spare Parts Gmbh Sisecam Automotive Slovakia S.R.O. Rudnik Krecnjaka "Vijenac" D.O.O SC Glass Trading BV Sisecam Chemicals Resources LLC Sisecam Chemicals USA Inc Softtech (Shanghai) Technology Co. Ltd. Softtech Ventures Teknoloji A.Ş. Softtech Yazılım Teknolojileri Araştırma Gel. ve Paz. Tic. A.Ş. Şişecam Automotive Bulgaria EAD Şişecam Bulgaria EOOD Şişecam Çevre Sistemleri A.Ş. 31.12.2021 Direct Share Bank’s Risk Group Share Percentage 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 83.57% 88.00% 95.37% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 97.22% 100.00% 60.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 25.50% 25.50% 100.00% 100.00% 100.00% 100.00% 50.00% 100.00% 60.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 90.00% (*) Includes the direct and indirect subsidiaries in which İşbank’s share is equal to or exceeds five percentage points. 448 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 449 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Direct and Indirect Subsidiaries (*) Changes in Share Percentages in Subsidiaries INDIRECT SUBSIDIARIES Name Şişecam Dış Ticaret A.Ş. Şişecam Elyaf Sanayii A.Ş. Şişecam Enerji A.Ş. Şişecam Flat Glass India Private Limited Şişecam Flat Glass Italy S.r.l. Şişecam Flat Glass South Italy SRL Şişecam Glass Packaging B.V. Şişecam Glasspackaging Hungary Kft Şişecam Otomotiv A.Ş. Şişecam Sigorta Aracılık Hizmetleri A.Ş. Şişecam Soda Lukavac DOO Şişecam Trading co. Tatilbudur Kurumsal Hizmetler Turizm ve Ticaret A.Ş. Tatilbudur Seyahat Acenteliği ve Turizm A.Ş. TBC Seyahat Acenteliği ve Turizm A.Ş. Toksöz Spor Malzemeleri Tic. A.Ş. Topkapı Danışmanlık Elektronik Hizmetler Pazarlama ve Ticaret A.Ş. Trakya Glass Bulgaria Ead Trakya Glass Rus AO Trakya Glass Rus Trading OOO Trakya Investment BV TRSG Glass Holding BV TSKB Gayrimenkul Değerleme A.Ş. TSKB Gayrimenkul Yatırım Ortaklığı A.Ş. TSKB Sürdürülebilirlik Danışmanlığı A.Ş. Yatırım Finansman Menkul Değerler A.Ş. Yatırım Varlık Kiralama A.Ş. Sisecam Chemicals Wyoming LLC Ciner Resources LP Ciner Resources General Partners LLC Ciner Wyoming LLC (*) Includes the direct and indirect subsidiaries in which İşbank’s share is equal to or exceeds five percentage points. 31.12.2021 Direct Share Bank’s Risk Group Share Percentage 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 40.00% 40.00% 40.00% 90.63% 100.00% 100.00% 100.00% 100.00% 100.00% 70.00% 100.00% 88.85% 100.00% 98.42% 100.00% 60.00% 74.00% 60.00% 51.00% Direct Share of İşbank as of December 2020 Direct Share of İşbank as of December 2021 Bank's Risk Group Share Percentage as of December 2020 Bank's Risk Group Share Percentage as of December 2021 Companies Entering the Bank’s Risk Group in 2021 Moka Ödeme ve Elektronik Para Kuruluşu A.Ş. Şişecam Chemical Resources LLC Atlantic Soda LLC Şişecam Glasspackaging Hungary Kft TBC Seyahat Acenteliği ve Turizm Ciner Wyoming Holding Co Ciner Resources LP Ciner Resources General Partners LLC Ciner Wyoming LLC - - - - - - - - - 100.00% - - - - - - - - Companies Whose Share Ratio Changed in the Bank's Risk Group in 2021 - - - - - - - - - REASON Acquisition Acquisition Acquisition 100.00% 60.00% 60.00% 100.00% Company establishment 40.00% 60.00% 74.00% 60.00% 51.00% Acquisition Acquisition Acquisition Acquisition Acquisition 50.51% 52.06% 63.89% 65.44% 65.65% 65.74% 70.69% 70.78% 47.23% 47.68% 50.92% 51.37% İş Gayrimenkul Yatırım Ortaklığı A.Ş. İş Yatırım Menkul Değerler A.Ş. Türkiye Sınai Kalkınma Bankası A.Ş. İş Girişim Sermayesi Yatırım Ortaklığı A.Ş. Pacific Soda LLC TSKB Gayrimenkul Yatırım Ortaklığı A.Ş. TSKB Sürdürülebilirlik Danışmanlığı A.Ş. - - - - Companies Removed From the Bank's Risk Group in 2021 Cam Elyaf Sanayii A.Ş. Çayırova Cam Sanayii A.Ş. Madencilik Sanayii ve Ticaret A.Ş. Paşabahçe Investment BV Şişecam Chem Investment Bv Şişecam Flat Glass Holding B.V. - - - - - - - - - - - - - - - - 57.52% 50.00% 56.78% 60.00% 89.53% 88.85% 99.85% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% - - - - - - Transfer of the shares bought from Borsa Istanbul to the subsidiary portfolio Transfer of the shares bought from Borsa Istanbul to the subsidiary portfolio Transfer of the shares bought from Borsa Istanbul to the subsidiary portfolio Sale of shares of our Bank's group company Share purchase from a partner Use of preferential rights not used in the purchase of shares from Borsa Istanbul and cash capital increase by the parent bank Purchase of shares from other shareholders Merger Merger Merger Merger Merger Merger 450 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 451 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Changes in Share Percentages in Subsidiaries Human Resources Data Companies With a Title Change in the Bank's Risk Group in 2021 Former Title New Title Automotive Glass Alliance Rus AO Sisecam Automotive Rus JSC Change of title Automotive Glass Alliance Rus Trading OOO Sisecam Automotive Rus Trading LLC Change of title Glasscorp S.A. Richard Fritz Holding Gmbh Richard Fritz Kft Richard Fritz Spol S.R.O. Ciner Wyoming Holding Co Sisecam Automotive Romania SA Change of title Sisecam Automotive Germany GmbH Change of title Sisecam Automotive Hungary Kft Change of title Sisecam Automotive Slovakia S.R.O. Change of title Sisecam Chemicals Wyoming LLC Change of title Human Resources Data Total Number of Employees Number of Employees Number of Employees Covered by Collective Bargaining Agreements Female Male Female Male Number of Employees by Employment Type Full-time Partial Time Part-time Total Number of Employees by Region and Branch Head Office Branch Region Total 2020 23,518 11,907 11,611 11,702 11,432 2020 23,381 135 2 2021 22,802 11,506 11,296 11,309 11,126 2021 22,678 123 1 23,518 22,802 2020 7.022 15,733 763 23,518 2021 7.083 14,968 751 22,802 Number of Employees by Gender and Age Upper Management (Board of Directors and Executive Committee) 50 years of age and older 2020 2021 30-50 years of age 30 years of age and younger Female Male Female Male Female Male 3 15 2 3 0 0 3 16 0 5 0 0 Employees in Management Positions (Division Manager and above) 2020 2021 50 years of age and older 30-50 years of age 30 years of age and younger Total Breakdown of Employees by Age 50 years of age and older 30-50 years of age 30 years of age and younger Total Number of Employees by Seniority 0-4.99 years 5-9.99 years 10+ years Total Female Male Female Male Female Male 8 27 7 37 0 0 79 2020 492 21,417 1,609 23,518 2020 1,935 4,146 17,437 23,518 8 29 8 37 0 0 82 2021 686 20,914 1,202 22,802 2021 1,609 3,314 17,879 22,802 Employee Turnover Rate (%) 1.60 2.01 452 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 453 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Human Resources Data Employee Trainings Anti-Bribery and Anti-Corruption Training Number of Trainees Man*Hours Ethical Principles Training Number of Trainees Man*Hours Human Rights Training Number of Trainees Man*Hours Sustainability Training** Number of Trainees Man*Hours Sustainability E-Training Number of Trainees Man*Hours **Includes sustainability e-training man*hour data. 2019 2020 2021 7,577 3,115 664 506 260 733 538 4,760 - - 7,830 857 438 331 128 315 1,552 5,946 - - 5,716 627 2,214 1,305 272 727 8,637 14,392 775 388 Human Resources Data Breakdown of Employees by Educational Background Primary School High School College (2 or 3-year Associate Degree) University (4-year college) Post-Graduate PhD Degree Total 2020 57 3,516 534 18,262 1,127 22 23,518 2021 44 3,299 523 17,815 1,100 21 22,802 Number of Employees Eligible for Parental Leave 2019 2020 2021 Number of Employees Eligible for Parental Leave Number of female employees Number of male employees Numbers of Employees Taking and Returning From Maternity Leave Number of Female Employees Eligible for Maternity Leave Number of Female Employees Returning to Work from Maternity Leave Rate of Return from Maternity Leave Retention Rate After Maternity Leave Number of Male Employees Whose Wife Took Maternity Leave 12,252 11,801 11,907 11,611 11,506 11,296 2019 780 1,072 99.5% 96.2% 734 2020 642 880 99.7% 96.5% 580 2021 592 758 99.9% 98.2% 550 Number of Employees Eligible for Parental Leave 12,252 11,907 11,506 Total Employment Created with Subsidiaries Number of Subsidiaries Under Our Control Number of Employees in Subsidiaries Employee Trainings* Average Annual Training Hours Per Employee Average Annual Training Hours Per Female Employee Average Annual Training Hours Per Male Employee 2019 111 34,207 2019 25,7 22,3 29,9 2020 106 34,390 2020 25,4 23,2 28,1 2021 109 35,973 2021 29,3 26,7 32,7 * Training figures exclude participants of refresher trainings, while Private Security Officers and Servant Staff are not included. 454 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 455 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Human Resources Data UN Women's Empowerment Principles Progress Statement Occupational Health and Safety Data 2021 Occupational Health and Safety Data 2021 Injury Rate Absentee Rate (AR) Direct Employment Female Male Direct Employment 0.000079 Female Male 0.00006 0.000019 Contractor Employees Contractor Employees Female Male Female Male Occupational Disease Rate (ODR) Number of Work-related Fatalities Direct Employment Female Male Direct Employment Female Male PRINCIPLES GRI STANDARDS RELATED SECTION Principle 1 - Corporate Leadership Supporting Gender Equality 405-1, 405-2 Message from the General Manager, Initiatives Supported in the Field of Sustainability, Equal Opportunity and Diversity Principle 2 - Equal Opportunity, Participation and Anti- discrimination 202-1, 401-1, 401-3, 405-1, 405-2, 406-1 Equal Opportunity and Diversity Principle 3 - Health, Safety and Freedom from Violence 406-1 Principle 4 - Education and Training 404-1; 404-3 Principle 5 - Business Development, Supply Chain and Marketing Practices 204-1; 103-1; 103-2; 103-3 Equal Opportunity and Diversity, Employee Health and Safety Equal Opportunity and Diversity, Talent Management Supply Chain Management, Business Ethics Initiatives Supported in the Field of Sustainability Contractor Employees Contractor Employees Principle 6 - Community Leadership and Participation 413-1 Principle 7 - Measurement and Transparent Reporting for Gender Equality 405-1; 405-2; 103-1; 103-2; 103-3 Equal Opportunity and Diversity Female Male Female Male Number of Occupational Diseases Number of Fatal Incidents Direct Employment Female Male Direct Employment Female Male Contractor Employees Contractor Employees Female Male Female Male Lost Day Rate (LDR) Number of Incidents Direct Employment Female Male 1.98 1.49 0.49 Direct Employment Female Male 46 32 14 Contractor Employees Contractor Employees Female Male Female Male Days of Absence Due to Accident Accident Frequency Rate* Direct Employment Female Male Contractor Employees Female Male 444 335 109 Direct Employment Female 0.20 0.14 Number of Employees Carrying Out Tasks with a High Risk of Occupational Diseases Direct Employment Contractor Employees 0.20 0.14 * Accident frequency rate: Total number of incidents / (Total working hours - Lost hours)*200,000 456 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 457 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Amendments in the Articles of Incorporation in 2021 ARTICLE PREVIOUS NEW ARTICLE PREVIOUS NEW 25 (1) Elections of Members to the Board of Directors Elections of Members to the Board of Directors 62 (3) Consequences of Liquidation Consequences of Liquidation After the debts of the dissolved Corporation have been settled, and one year has elapsed since the third notice of dissolution, the amount to be paid to each share will be calculated by way of dividing the balance of assets into the total number of shares, by considering one Group (A) share as times 20 due to the reason that 20 Group (A) shares each with a nominal value of TL 500 (this amount is related to the period prior to the Law Regarding the Monetary Unit of the Turkish Republic Numbered 5083, on which the rate of change has not been applied) have been changed with 1 Group (A) share with a nominal value of 1 Kurus, thus by considering each Group (A) share as times 20. After the debts of the dissolved Corporation have been settled, and at least six months has elapsed since the third notice of dissolution, the amount to be paid to each share will be calculated by way of dividing the balance of assets into the total number of shares, by considering one Group (A) share as times 20 due to the reason that 20 Group (A) shares each with a nominal value of TL 500 (this amount is related to the period prior to the Law Regarding the Monetary Unit of the Turkish Republic Numbered 5083, on which the rate of change has not been applied) have been changed with 1 Group (A) share with a nominal value of 1 Kurus, thus by considering each Group (A) share as times 20. In other cases where ownership of shares should, of necessity, cease to exist, payments to be made to the shareholders shall be subject to the provisions of the first paragraph. In other cases where ownership of shares should, of necessity, cease to exist, payments to be made to the shareholders shall be subject to the provisions of the first paragraph. (1) In case of request, the election of a member of the Board of Directors is allowed for a period of less than 3 years. (2) The necessary provision has been added in accordance with the relevant legislation to ensure that the meetings of the Board of Directors can be held electronically. In addition, the provisions regarding the recording of the decisions taken at the Board of Directors meetings have been updated in line with the legislation and the actual practice of our Bank. (3) The article has been amended within the scope of compliance with the amendment made in article 543 of the Turkish Commercial Code. The Board of Directors shall consist of 7 to 11 members, one being the General Manager. Directors, with the exception of the General Manager, shall be elected by the General Assembly for a term of three years, and a new election shall take place at the end of every three years. Directors shall be eligible for re-election. The first Board of Directors, with the exception of the General Manager, consists of the following: Fuad, Deputy for Rize, Fikret, M.D. Deputy for Ertuğrul, Kılıç Ali, Deputy for Gaziantep, İhsan, Deputy for Cebelibereket, Mahmud, Deputy for Siirt, Salih, Deputy for Yozgat, Rasim, Deputy for Sivas, Rahmi, Deputy for İzmir, Kınacı Zade Şakir, Deputy for Ankara. The Board of Directors shall consist of 7 to 11 members, one being the General Manager. Directors, with the exception of the General Manager, shall be elected by the General Assembly for a maximum term of three years. Directors shall be eligible for re-election. The first Board of Directors, with the exception of the General Manager, consists of the following: Fuad, Deputy for Rize, Fikret, M.D. Deputy for Ertuğrul, Kılıç Ali, Deputy for Gaziantep, İhsan, Deputy for Cebelibereket, Mahmud, Deputy for Siirt, Salih, Deputy for Yozgat, Rasim, Deputy for Sivas, Rahmi, Deputy for İzmir, Kınacı Zade Şakir, Deputy for Ankara. ARTICLE PREVIOUS NEW 28 (2) Meetings of the Board of Directors The Board of Directors shall hold their meetings at least once a month at the address where the Head Office is located. The Board of Directors may also hold meetings in any other suitable place, provided that more than one-half of the Board members concur. The presence of more than one-half of the Board members is required for the validity of the meetings. Resolution shall be adopted by the majority of the members present; in the event of an equality of the votes, the matter shall be postponed until the subsequent meeting; should the votes again be equal, the proposal in question shall be considered as rejected. Minutes recording the proceedings and the names of the attending members shall be drawn up and transcribed into the Book of Resolutions of the Board of Directors and it shall be signed by the members present at the meeting. Dissenting members are bound to specify the motives of their dissent and to sign the Book. Should it be necessary to make full or partial copies of the minutes, they shall be required to carry the signature of the Chairman in order to be valid so far as third parties are concerned. Any member who is absent from the meetings of the Board for three consecutive months without a leave from the Board of Directors, shall be deemed to have resigned. Meetings of the Board of Directors The Board of Directors shall hold their meetings at least once a month at the address where the Head Office is located. The Board of Directors may also hold meetings in any other suitable place, provided that more than one-half of the Board members concur. The meetings of Board of Directors may also be held electronically. Those entitled to attend the meetings of the Board of Directors may attend these meetings electronically in line with Article 1527 of Turkish Commercial Code. The Bank may set up an electronic meeting system, which allows those entitled to attend the meetings and vote electronically under the provisions of Communiqué on Electronic Meetings of Commercial Companies other than the General Assembly Meetings of Joint-Stock Companies by Electronic Means, or buy such systems developed for this purpose. At the meetings to be held, pursuant to this provision of the Articles of Incorporation, it shall be ensured that those entitled will be able to exercise their rights specified in the relevant legislation via the system established or the system to be purchased from support service providers as set out in the said Regulation. The presence of more than one-half of the Board members is required for the validity of the meetings. Resolution shall be adopted by the majority of the members present; in the event of an equality of the votes, the matter shall be postponed until the subsequent meeting; should the votes again be equal, the proposal in question shall be considered as rejected. Resolutions taken by the Board of Directors are transcribed into the Book of Resolutions of the Board of Directors in accordance with the legislation and it shall be signed by the members present at the meeting. Dissenting members are bound to specify the motives of their dissent and to sign the Book. Should it be necessary to make full or partial copies of the resolutions, they shall be required to carry the signature of the Chairman in order to be valid so far as third parties are concerned. Any member who is absent from the meetings of the Board for three consecutive months without a leave from the Board of Directors, shall be deemed to have resigned. 458 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 459 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen INDEPENDENT AUDITOR’S REPORT on the ANNUAL REPORT of the BOARD of DIRECTORS 4) The Responsibility of the Board of Directors on the Annual Report Maslak Mah. Eski Büyükdere Cad. Orjin Maslak İş Merkezi No:27 K:2-3-4 34485 Sarıyer/İstanbul TÜRKİYE To the Shareholders of Türkiye İş Bankası Anonim Şirketi 1) Qualified Opinion We have audited the annual report of Türkiye İş Bankası A.Ş. (“the Bank”) and its subsidiaries (“the Group”) for the period of January 1, 2021 – December 31, 2021. In our opinion, except for the matter described in the Basis for Qualified Opinion section of our report, 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 Qualified Opinion As described in the Basis For Qualified Opinion section of Independent Auditor’s Report on the complete set of audited unconsolidated and consolidated financial statements of the Bank and the Group for the period between 1 January 2021 and 31 December 2021 dated February 8, 2022, the unconsolidated and consolidated financial statements as at December 31, 2021 include a free provision at an amount of TL 4,075,000 thousands of which TL 2,875,000 thousands was provided in prior years and TL 1,200,000 thousands provided in the current period by the Bank and the Group management for the possible effects of the negative circumstances which may arise from the possible changes in the economy and market conditions which does not meet the recognition criteria of “Turkish Accounting Standard” (TAS) 37 “Provisions, Contingent Liabilities and Contingent Assets”. 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 Banking Regulation and Supervision Agency (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 qualified opinion. 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 its 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 annual reports of Banks’ published in official gazette no.26333 dated November 1, 2006 , “Regulation on Accounting Applications for Banks and 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. 3) Our Auditor’s Opinion on the Full Set Consolidated and Unconsolidated Financial Statements The name of the engagement partner who supervised and concluded this audit is Fatma Ebru Yücel. We have expressed qualified opinions in our auditor’s reports dated February 8, 2022 on the full set consolidated and unconsolidated financial statements of the Group for the period of 1/1/2021-31/12/2021. 460 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 461 March 3, 2022 İstanbul, Türkiye Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Reporting Guidance Environmental Indicators Total Energy Consumption (GJ) Greenhouse Gas Emissions • Scope 1 (ton CO2e) • Scope 2 (ton CO2e) • Scope 3 (ton CO2e) Reporting Guidance Total energy consumption calculations include electricity, natural gas, fuel-oil, coal and diesel consumption figures. Electricity consumption was initially calculated in kWh and then converted to GJ. In this conversion, a conversion factor of 1 kWh = 0.0036 GJ was used. After calculating monthly natural gas consumption in m3, monthly coal consumption in kg, monthly fuel-oil and diesel consumption in liters in 2021, these consumption values were converted to kWh by using the monthly lower heating values on the invoices. The annual total consumption, calculated as a sum of these monthly consumptions, was then converted to GJ using the conversion factor mentioned above and added to the total energy consumption. The reporting limits for this KPI covers İşbank's operations in Turkey. Greenhouse gas emissions refer to the carbon emissions caused by energy consumption and refrigerant gases during the reporting period. Greenhouse gas emissions arising from İşbank's operations in Turkey were calculated in accordance with The Greenhouse Gas Protocol: A Revised Corporate Accounting and Reporting Standard by Demir Enerji, a firm offering consultancy services in the area of Climate Change and Carbon Management. Greenhouse gas emissions were calculated in 3 different scopes: Scope 1 (Direct Greenhouse Gas Emissions), Scope 2 (Indirect Greenhouse Gas Emissions) and Scope 3 (Other Indirect Greenhouse Gas Emissions). IPCC 5th Assessment Report factors were used for emission factors. Network Emission Factor was calculated based on the data provided by TEİAŞ. Direct greenhouse gas (GHG) emissions (Scope 1) and indirect energy greenhouse gas (GHG) emissions (Scope 2) were reported according to the GHG Protocol – Market-Based approach. Other indirect greenhouse gas (GHG) emissions (Scope 3) were reported according to the GHG Protocol. DEFRA emission factors were used for air travel emissions, and Environmental Paper Network emission factors were used for paper consumption. When calculating greenhouse gas emissions, the following sources causing carbon emissions were considered: Scope 1 emissions*: • Natural gas, diesel, LPG, fuel-oil and coal consumption for heating purposes • Fuels used in generators (Diesel) • Fuel Consumption of Company Vehicles (Diesel and Gasoline) • Refrigerants (leaks reported during installation and maintenance phases were taken into account) Scope 2 emissions*: • Electricity consumption Scope 3 emissions*: • Fuel consumption of Personnel Service Vehicles • Domestic Business Travel (Flight, Bus, Taxi) • International Business Travel (Flight) • Paper Consumption • Fuel Consumption of Private Cars *The reporting limits for this KPI covers İşbank's operations in Turkey. *The impact of remote working is not included in the resource consumption and emission calculations during the reporting period. Personnel service vehicles include the vehicles used for transportation of employees working at the Head Office buildings (İş Kuleleri Kule 1, ATOM, TUTOM and ATLAS buildings) and branches/regions. Fuel consumption was calculated based on the distance figures provided by the transportation firm used for transport of personnel. Use of private vehicles includes use of private vehicles for business travel and business-related purposes by employees working at the Head Office buildings (İş Kuleleri Kule 1, ATOM, TUTOM and ATLAS buildings) and all branches. Company vehicles include all vehicles in the Bank's fleet, including transport vehicles. Fuel consumption data provided by the supplier firm was taken into account. Fuel Consumption of Vehicles • Fuel Consumption of Personnel Service Vehicles (lt) • Fuel Consumption of • Private Cars (lt) • Fuel Consumption of Company Vehicles (lt) Total Yearly Water Consumption (m3) • Total municipal water (blue) consumption (m3) • Total wastewater (grey) consumption (m3) • Total spring water (green) consumption (m3) Total amount of recycled/ reused water (m3) Greenhouse Gas Emission Intensity • Emission Per Employee (tCO2e/Number of Employees) • Emission According to Consolidated Total Assets (tCO2e/million TL) • Emission According to Consolidated Net Profit (tCO2e/million TL) • Amount (tons) and Type of Recycled Hazardous Waste • Amount (tons) and Type of Recycled Non- Hazardous Waste • Amount of Recycled Paper (tons) Renewable Energy Portfolio The number of renewable energy projects financed in 2021, their installed capacity (MW) and the loan amount provided to these projects Total installed capacity of the renewable energy projects financed by İşbank İşbank uses locally supplied municipal water and spring water in its operations in Turkey. The reporting scope includes the total amount of water drawn and used for consumption. Water consumption was evaluated in 3 different categories: Municipal Water (Blue), Wastewater (Gray) and Spring Water (Green). Municipal water (Blue) covers the amount of water purchased from municipalities or other authorized suppliers such as İSKİ. Consumption figures are monitored via invoices and the amount of water paid for in advance on prepaid meters. Consumption at all locations is monitored and reported throughout the year. Consumption figures of some service buildings (28 buildings) cannot be determined in any way. For these buildings, estimated consumption was calculated based on the number of employees according to the TS1258 standard. All municipal water consumption is considered as wastewater (gray). Naturally formed surface water and groundwater are included in the scope of spring water (green). While calculating consumption of spring water (green), meter readings done by the building management were taken into consideration. Spring water consumption also reflects the total amount of recycled water. Rain water is collected, filtered and stored in water tanks at our Head Office Building, Tuzla Technology and Operations Center and the Atlas Data Center buildings, and the consumption of water from these water storage tanks in these buildings is measured and monitored via meters. These are the GHG intensity figures calculated by dividing the Bank's Scope 1 and Scope 2 GHG emissions by the Bank's consolidated assets, consolidated net profit and the total number of employees in Turkey. Consolidated total assets and net profit values of the Bank were taken from the financial statements dated 31 December 2021 which were approved by an independent auditor. Recycled hazardous waste includes batteries, fluorescent lamps, car batteries and toner cartridges. Plastic, metal, and glass are considered as recycled non-hazardous waste. Recycled paper waste includes waste such as paper, cardboard boxes and other similar waste. The reporting limits for waste include ATOM, TUTOM, Kule-1, ATLAS buildings and the Branch buildings with ISO 14001 environmental management certification. When calculating the amount of recycled waste, receipts provided by authorized recycling firms were taken into account. As of 2021, İşbank's portfolio included the following renewable energy projects: • Hydroelectric Power Plant (HPP) • Wind Power Plant (WPP) • Biomass Power Plant (BPP) • Solar Power Plant (SPP) • Geothermal Power Plant (GPP) The loan amount provided for the projects has been determined over the total limit information by taking the sum of cash and non-cash loans extended by the Corporate Loans Underwriting, Commercial Loans Underwriting, Retail Loans Underwriting and Project Finance Divisions of the Bank. In this process, the loan allocation files of the projects were taken as reference in determining the total loan amounts provided to the projects along with the information on installed capacity. The number of renewable energy projects includes the number of power plants financed. When calculating installed capacity for projects financed by consortium structures, bank shares are not taken into consideration, and the total installed capacity of the power plant/plants is reported. Environmental and Social Risk Indicators Number of projects financed after undergoing environmental and social risk evaluation, risk categories Field visits made as part of environmental and social risk evaluation Projects with an investment amount of 10 million USD and more, for which loans were allocated and/or contracted during the reporting year, are evaluated according to the Environmental and Social Risk Evaluation Model (ÇESMOD), which is described in detail under the Responsible Financing section of the Responsible Banking chapter. Projects undergoing the ÇESMOD evaluation process are evaluated against national and international regulations such as IFC (International Finance Corporation) Performance Standards, EBRD (European Bank for Reconstruction and Development) Performance Requirements, and Equator Principles, and a Project Environmental and Social Assessment Document is prepared for each project. This indicator provides the number of field visits carried out within the scope of environmental and social risk assessment to monitor the projects financed in 2021 or before. Field visit notes, photographs and travel details were reviewed during the assurance audit process. 462 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 463 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Reporting Guidance Talent Management Indicators • Average annual training hours per employee • Average training hours per female employee • Average training hours per male employee • Number of employees receiving "Anti-Bribery and Anti-Corruption" training and total training hours • Number of employees receiving "Ethical Principles/Business Ethics" training and total training hours • Number of employees receiving "Human Rights" training and total training hours • Number of employees receiving "Sustainability" training and total training hours • Number of participants of information security trainings and total training hours • Hours of training per newly recruited employee in their first year • Hours of training per person in the management and leadership development program • Hours of training per person in IT competence development trainings • Share of digital trainings within all trainings (%) Human Resources Indicators Total Number of Employees Breakdown of employees by gender and type of employment Employee turnover rate (%) Training hours were calculated by including all trainings, except for private security refresher trainings, given to employees during the year. In this context, the calculations were made by dividing the total hours of training given to the employees during the reporting period by the number of employees as of 31 December 2021 (security and servant staff are not included in these calculations). "Anti-Bribery and Anti-Corruption", "Ethical Principles/Business Ethics", "Human Rights" and "Sustainability" trainings covered the respective subjects. When calculating this indicator, the number of employees who participated in the trainings and the amount of time allocated to those subjects within the trainings were taken into account. There are no trainings directly devoted to the subjects of "Anti-Bribery and Anti-Corruption" and "Human Rights" within the Bank, but these subjects are addressed within certain training programs at certain times. Therefore, when calculating the total hours of training and the number of employees who received these trainings, the time allocated for these subjects within the current training programs are taken into account. When calculating training hours, the hours of the trainings given in these areas within the training programs organized by the Board of Inspectors for the Board Members were not included in the calculation. The subject of human rights is also covered in the course of "Law on Private Security Services and Individual Rights", which is provided to private security personnel as part of their refresher trainings at certain intervals. This subject was not included in the training hour calculations since it is a subject which is covered within the 10-hour refresher trainings provided by different suppliers in different provinces. When calculating the total hours of information security trainings, the number of employees who participated in the trainings covering information security related issues (e.g. cyber security, social engineering and information security) and the number of hours of these trainings were taken into account. Hours of training per newly recruited employee in their first year indicates the ratio of the total hours of training received by new employees during the reporting period to the number of newly recruited employees. When calculating this indicator, private security personnel, members of the Board of Directors, and servant staff were excluded. Hours of training per person in management and leadership development programs are calculated by dividing the total hours of training received by the managers (assistant managers and above) who participated in management and leadership development programs during the reporting period by the number of managers (assistant managers and above) as of 31 December 2021. Hours of training per person in IT competence development trainings is calculated by dividing the total hours of "IT Business Line Trainings" received by the employees of the Information Technologies Division, Data Management Division and Information Security Coordination Division by the number of employees of the Information Technologies Division, Data Management Division and Information Security Coordination Division (excluding private security personnel and servant staff) as of 31 December 2021. Digital trainings include trainings on various subjects such as video, e-training and e-games. The share of digital trainings within all trainings was calculated by dividing the total hours of Digital Trainings completed during the reporting period by the total number of hours calculated for all trainings. The total number of employees includes all employees of İşbank in Turkey and abroad as of 31 December 2021. The total number of employees excludes interns, subcontractors, and the employees of the Bank-Finance and Insurance Workers Union (BASİSEN) and İşbank Members' Supplementary Pension Fund as well as the employees of the Bank's national and international subsidiaries as of 31 December 2021. This indicator represents the breakdown of the total number of employees by gender and employment type (Full Time / Part Time and Partial Time Status). Part time employees include those for whom a working day consists of 4 hours. Partial time status employees include those for whom a working day is 5 hours. Partial time status is provided to contract-based employees as well as permanent staff upon their return from maternity leave or their partners. This indicator represents the ratio of the total number of employees who resigned during the year to the average number of employees. The average number of employees is calculated by dividing the sum of the numbers of Bank employees, as determined at the end of each month (for 12 months), by 12. Rate of female managers (%) Unionization rate (%) Number of employees benefitting from maternity leave Number of employees returning from maternity leave Rate of return from maternity leave (%) Retention rate after maternity leave (%) Number of employees using paternity leave This indicator represents the ratio of the total number of female employees in management roles (assistant manager and above) to the total number of managers (assistant manager and above) as of 31 December 2021 (titles of assistant manager and above include Assistant Managers, IT Managers, Managers and members of the Board of Directors). This indicator represents the ratio of employees who are members of BASİSEN to the total number of employees as of 31 December 2021. This indicator represents the number of female employees who returned from paid or unpaid maternity leave during the reporting period. Raporlama dönemi içerisinde ücretli veya ücretsiz doğum izninden dönen kadın çalışan sayısını ifade etmektedir. This indicator shows the ratio of female employees who returned to work from (paid or unpaid) maternity leave during the reporting period to the total number of female employees whose date of return from (paid or unpaid) maternity leave was within the reporting period. Retention rate after maternity leave is calculated and reported for the year preceding the reporting period, and it is defined as the percentage of female employees who returned from maternity leave and continued to work at İşbank as of the end of the reporting period. The rate of retention reported for 2021 reflects the ratio of female employees who returned from (paid or unpaid) maternity leave in 2020 and continued to work at İşbank for 1 year to the total number of female employees who returned from (paid or unpaid) maternity leave in 2020. The number of employees using paternity leave represents the number of male employees who took paternity leave due to their wife giving birth and whose paternity leave start date was within the reporting period (01.01.2021/31.12.2021). OHS Data on the Basis of Female and Male Employees Number of incidents Injury rate Number of fatal incidents and number of work- related fatalities Number of occupational diseases Absence due to accident Accident frequency rate Lost day rate Occupational disease rate Absentee rate Number of Occupational Health and Safety Committees (OHS Committees) and the total numbers of members and employee representatives in the committees The Occupational Health and Safety data includes those İşbank employees who are employed within the borders of the Republic of Turkey. This indicator represents the definition of work accident as provided in the laws no. 6331 and 5510. In this context, calculations were made by considering the statements of the employees who reported work accidents, the hospital reports, and the reports prepared by the workplace doctor or institution doctor. This is the ratio of the number of injuries resulting from work accidents to the total number of full-time employees. It is the number of deaths due to work accidents. This indicator is evaluated according to the result of the fatalities report submitted by the competent authorities together with judicial authorities after an incident. This indicator represents the number of acute or chronic disease cases suffered by employees due to the nature of their work or conditions of the work. These calculations are made by taking into account the reports sent by the Health Committees authorized by the Turkish Ministry of Health to the related company. This indicator is calculated by taking into account the days of absence due to work accidents. In this regard, calculations were made according to the periods of rest specified in the doctor reports submitted by the employees who reported a work accident to the Human Resources Management Division. The ratio of accidents during the year to total working time was calculated. In this regard, calculations were made according to the formula of "Total Number of Accidents* 200,000/ (Total Working Hours - Lost Hours)". The number of accidents used in this formula is obtained from the accident report forms filled out by employees. While calculating total working hours, official holidays within the year are subtracted and 1 workday is accepted as 8 hours. The lost hours figure is reported by calculating the total number of working hours lost based on the number of days lost due to an accident. This indicator represents the ratio of the number of days lost due to work accidents to the total number of working hours. This calculation used the following formula: (Total Number of Lost Days * 200,000)/Total Working Hours. The lost days used in the formula is derived from the data on absence due to accidents. This indicator represents the ratio of the number of employees who suffer acute or chronic diseases due to the nature of their work or conditions of the work to the total working hours. This calculation used the following formula: (Number of Occupational Diseases * 200,000)/Total Working Hours. This indicator represents the ratio of the number of lost hours to the total number of working hours. This calculation used the following formula: Number of Lost Hours/Total Working Hours. This indicator refers to the number of OHS committees established at the Bank's service buildings with an employee population of 50 or more in accordance with the OHS law no. 6331 and applicable regulations. In this context, the total number of members in OHS committees set out in the applicable law defines the total number of members in the OHS committees, and union representatives are naturally considered as employee representatives. 464 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 465 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Reporting Guidance Independent Assurance Report Other Indicators Total amount of loan agreements signed with international financial institutions within the sustainable framework during the year Number of Customers Number of digital banking customers Number of mobile banking users Customer satisfaction score - Net promoter score Total paper savings thanks to digitized processes Number of saplings planted during the year under the project with the TEMA Foundation Number of graduates from the "81 Students from 81 Cities" Project conducted with Darüşşafaka Total amount of cash loans extended to the agricultural sector (billion TL) Total amount of loans provided to SMEs (billion TL) Number of İŞ'TE KOBİ SME website views Number of Bankamatik ATMs Number of disabled- friendly Bankamatik ATMs Total amount of financing provided to women entrepreneurs In 2021, the amount of funds obtained from international financial institutions such as KfW, EIB, EBRD, Proparco, OPIC and IFC through bilateral agreements or securitization transactions with special loan allocation purposes aimed at creating environmental and social benefits was checked. A list of loan agreements in line with the sustainable framework signed with international financial institutions was obtained from the Financial Institutions Division, and the relevant loan agreements and loan allocation documents were reviewed. Items such as signature date, signatures, loan allocation date, principal amount, interest amount and principal currency in these contracts and loan allocation documents were examined. The bank system screenshots for the relevant loans were examined and compared with the screenshots for the amounts reported to the BRSA and the Central Bank of the Republic of Turkey. This indicator includes all İşbank customers, whether real or legal persons, including inactive personal customers who had an account at İşbank (except for cancelled/inactive customers and customers with non-performing loans) as of 31.12.2021 and potential customers who engaged with the Bank (through a money transfer, loan application, possession of a supplementary card or attorney-client relationship). This represents the number of customers who successfully logged into any of the individual İşCep, commercial İşCep, Maximum Mobile, Maximum İşyerim, individual Internet Branch and Commercial Internet Branch channels with their customer number and password between 01.01.2021 and 31.12.2021. This represents the number of customers who successfully logged into any of the individual İşCep, commercial İşCep, Maximum İşyerim and Maximum Mobile channels with their customer number and password between 01.01.2021 and 31.12.2021. This indicator covers the scores achieved in individual and commercial customer experience surveys conducted by independent research companies during the reporting period. The paper savings data for 2021 was determined based on the number of pages of digitally approved contracts, the number of letters sent via KEP notifications, and the number of digitally signed receipts. The figures for digitally approved contracts and KEP notifications were obtained from the reports created to monitor them. Whereas the number of digitally signed receipts was obtained via a database query. This indicator represents the number of saplings to be planted in 2022 in return for the paper waste (papers belonging to outdated files from the archive) donated to TEMA by İşbank between 1 March 2021 and 31 January 2022, and 1 sapling was planted for each 100 kg of waste paper donation. Receipts regarding collection of paper from archives were reviewed. This indicator represents the number of students who received a scholarship from İşbank under the "81 Students from 81 Cities" scholarship program conducted by İşbank in collaboration with Darüşşafaka and graduated from Darüşşafaka in 2021, and the information contained in the official letter from Darüşşafaka was taken into account. This indicator represents the total amount of retail and commercial cash loans extended to the agriculture and livestock sector in 2021 and also includes those loans that fall under the NACE A code. The labeling and classification of the loans in the system were checked and tested. The way the loans underwriting teams labeled and classified the loans extended to SMEs in the systems was checked and tested with examples. The total amount of financing was reviewed. This indicator includes the number of users who logged into İşbank's website www.istekobi.com.tr, which had been active since 2008, in 2021, and is based on the data from Google Analytics. This indicator represents the total number of İşbank's Bankamatik ATMs in Turkey and the Turkish Republic of Northern Cyprus (TRNC). During the reviews, the data provided by the Interbank Card Center for December 2021 was taken into account. This indicator represents the total number of İşbank's Bankamatik ATMs located in Turkey and the Turkish Republic of Northern Cyprus (TRNC) which were wheelchair-accessible and/or had a headphone jack. The total amount of financing provided in TL to those SMEs which were included in the number of female customers that matched with the BRSA's definition of SME in 2021 was checked and tested. KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. İş Kuleleri, Kule 3, Kat:2-9 Levent 34330 İstanbul +90 212 316 60 00 +90 212 316 60 60 www.kpmg.com.tr Limited Assurance Report To the Board of Directors of T. İş Bankası A.Ş. We were engaged by T. İş Bankası A.Ş. (hereinafter “Bank” or “İş Bankası”), to provide independent limited assurance on the “Selected Information” contained in the Integrated Annual Report of İş Bankası (hereinafter "the Report") for the year ended 31 December 2021. The scope of our assurance is limited to the Selected Information listed for İş Bankası below: • Number of renewable energy projects financed during the year, their installed capacity (MW) and the loan amount provided to these projects (million USD) Number of projects financed after undergoing environmental and social risk evaluation, and risk categories Number of field visits made as part of environmental and social risk management Total amount of cash commercial loans extended to the agricultural sector (billion TL) Total amount of loan agreements signed with international financial institutions within the sustainable framework during the year Amount of supplied renewable energy Total amount of loans provided to SMEs (billion TL) Number of İŞ'TE KOBİ SME website views Total amount of financing provided to women entrepreneurs Number of saplings planted during the year under the project with the TEMA Foundation Number of Customers Net Promoter Score Customer satisfaction score Number of ATMs Number of disabled-friendly ATMs Ratio of disabled-friendly ATMs (%) Number of digital banking customers Number of mobile banking users Total paper savings thanks to digitized processes (pages) Total number of employees Breakdown of employees by gender and type of employment Employee turnover rate (%) • • • • • • • • • • • • • • • • • • • • • • Women employee ratio in senior management (%) • Unionization rate (%) 466 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 467 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Assurance Report • • • Number of employees taking and returning from maternity leave Rate of return from maternity leave and retention rate after maternity leave (%) Number of employees using paternity leave OHS data on the basis of female and male employees • o Number of incidents o Number of fatal incidents o Number of occupational diseases o Days of absence due to accident o Accident frequency rate o Lost day rate (LDR) o Occupational disease rate (ODR) o Absentee rate (AR) o Injury rate o Number of work-related fatalities o Number of employees carrying out tasks with a high risk of occupational diseases • • • • • Amount (tons) and type of waste (electronic, domestic, paper, medical, total) Amount (tons) and type of recycled hazardous waste (car batteries, batteries, fluorescent lamps, toner cartridges) Amount (tons) and type of recycled non-hazardous waste (glass, metal, plastic) Amount of electronic waste recycled Emission intensities (per employee, per consolidated total assets, and per consolidated net profit) Management's responsibilities Management is responsible for the preparation and presentation of the Report for the Selected Information in accordance with the İş Bankası’s Reporting Guidance as described in the Report, and the information and assertions contained within it; for determining the İş Bankası’s objectives in respect of sustainable development performance and reporting, including the identification of stakeholders and material issues; and for establishing and maintaining appropriate performance management and internal control systems from which the reported performance information is derived. • Number of Occupational Health and Safety Committees (OHS Committees) and the total numbers of members and employee Management is responsible for preventing and detecting fraud and for identifying and ensuring that İş Bankası complies with laws and representatives in the committees regulations applicable to its activities. Average training hours per employee, average training hours per female employee, average training hours per male employee Management is also responsible for ensuring that staff involved with the preparation and presentation of the description and the Selected Hours of training per newly recruited employee in their first year Information are properly trained, information systems are properly updated and that any changes in reporting encompass all significant • • • • • • • • Number of employees receiving "Anti-Bribery and Anti-Corruption", "Ethical Principles / Business Ethics", "Human Rights" and "Sustainability" training and total training hours Number of participants of information security trainings and total training hours Share of digital trainings within all trainings (%) Hours of training per person in the management and leadership development program Hours of training per person in Information Technologies (IT) competence development trainings Number of graduates from the "81 Students from 81 Cities" Greenhouse Gas Emissions; • o Scope 1 (ton CO2e) o Scope 2 (ton CO2e) o Scope 3 (ton CO2e) • • • • • • • • • • • • • • Electricity consumption (kWh) Natural gas consumption (m3) Fuel-oil consumption (lt) Coal consumption (kg) Diesel consumption (lt) Total energy consumption (GJ) Fuel consumption of vehicles (lt) (fuel consumption of company vehicles, fuel consumption of personnel service vehicles, fuel consumption due to business travel with private cars) Total water consumption (m3) Total consumption of municipal water - Blue (m3) Total spring water consumption - Green (m3) Total wastewater consumption - Gray (m3) Amount of recovered/re-used water (m3) Paper consumption (tons) Amount of recycled paper (tons) business units. Our responsibilities Our responsibility is to carry out an independent limited assurance engagement and to express a conclusion based on the work performed. We conducted our engagement in accordance with International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements other than Audits or Reviews of Historical Financial Information, issued by the International Auditing and Assurance Standards Board. That Standard requires that we plan and perform the engagement to obtain limited assurance about whether the Selected Information is free from material misstatement. We apply the International Standard on Quality Control 1 (ISQC1) and, in conformity with this Standard, maintain a comprehensive system of quality control including documented policies and procedures regarding the compliance with ethical principles, professional standards and applicable legal and regulatory requirements. We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior. Procedures performed A limited assurance engagement on a Selected Information consists of making inquiries, primarily of persons responsible for the preparation of information presented in the Selected Information, and applying analytical and other evidence gathering procedures, as appropriate. These procedures included: • • • • • • • Interviews with relevant staff at the corporate and business unit level responsible for providing the information in the Selected Information, Using the Reporting Guidance of the Report to measure and evaluate the Selected Information, Evaluating the design and implementation of key processes and controls over the Selected Information, Re-performing, on a sample basis, the calculations used to prepare the Selected Information for the reporting period, Evaluating the disclosure and presentation of the Selected Information in the Report to determine whether it is in line with our overall knowledge of, and experience with, the sustainability performance of İş Bankası, Comparing the information presented in the Selected Information to corresponding information in the relevant underlying sources to determine whether all the relevant information contained in such underlying sources has been included in the Selected Information, Reading the information presented in the Selected Information to determine whether it is in line with our overall knowledge of, and experience with, the sustainability performance of İş Bankası. 468 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 469 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen GRI Content Index Description GRI 101: Foundation 2016 GRI 102: General Disclosures 2016 Corporate Profile Assurance Report The procedures performed in a limited assurance engagement vary in nature and timing from, and are less wide than a reasonable assurance engagement. Consequently, the level of assurance obtained in a limited assurance engagement is lower than that of a reasonable assurance engagement. Inherent limitations Due to the inherent limitations of any internal control structure it is possible that errors or irregularities in the information presented in the Selected Information may occur and not be detected. Our engagement is not designed to detect all weaknesses in the internal controls over the preparation and presentation of the Selected Information, as the engagement has not been performed continuously throughout the period and the procedures performed were undertaken on a test basis. Conclusion Our conclusion has been formed on the basis of, and is subject to, the matters outlined in this report. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusions. Based on the procedures performed and the evidence obtained, as described above, nothing has come to our attention that causes us to believe that the Selected Information as defined in the Report of İş Bankası for the year ended 31 December 2021 is not presented, in all material respects, in accordance with the İş Bankası’s internally developed reporting criteria as explained in the Reporting Guidance. In accordance with the terms of our engagement, this independent limited assurance report on the Selected Information has been prepared for İş Bankası in connect with reporting to İş Bankası and for no other purpose or in any other context. Restriction of use of our report Our report should not be regarded as suitable to be used or relied on by any party wishing to acquire rights against us other than İş Bankası, for any purpose or in any other context. Any party other than İş Bankası who obtains access to our report or a copy thereof and chooses to rely on our report (or any part thereof) will do so at its own risk. To the fullest extent permitted by law, we accept or assume no responsibility and deny any liability to any party other than İş Bankası for our work, for this independent limited assurance report, or for the conclusions we have reached. KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi Şirin Soysal, Partner İstanbul, 3 March 2022 Strategy Ethics and Integrity Descriptions and Page Numbers About the Report, page: 5 An Overview of İşbank, page: 8-13 https://www.isbank.com.tr/en/about-us https:www.isbank.com.tr/iletisim An Overview of İşbank, page: 8-13 https://www.isbank.com.tr/en/about-us An Overview of İşbank, page: 8-13 https://www.isbank.com.tr/en/about-us https://www.isbank.com.tr/en/about-us/sectoral-breakdown An Overview of İşbank, page: 8-13 https://www.isbank.com.tr/en/about-us Equal Opportunity and Diversity, page: 127-128; Human Resources Data, page: 452-455 Supply Chain Management, page: 110-113; Supplier Management Principles https://www.isbank.com.tr/en/about-us/our-policies GRI Content Index: In 2021, 2 new branches were opened, and 34 branches, 1 of which being located abroad, were merged, bringing the total number of branches to 1,195, including 1,174 domestic branches and 21 foreign branches, as of year end. In line with the changes in the fields of electronic commerce ecosystem and payments, İşbank acquired all of the shares of Moka Ödeme Kuruluşu A.Ş. on January 5 2021 in order to benefit from the potential opportunities in these fields. The ecosystem functions of Maximum Mobil and Maximum İşyerim apps were turned into an entrepreneurship, and platform services began to be offered via Topkapı Danışmanlık Elektronik Hizmetler Pazarlama ve Ticaret A.Ş. Risk Management, page: 156-158 Corporate Memberships, page: 436; Initiatives Supported in the Field of Sustainability, page: 44-45 Corporate Memberships, page: 436 Message from the Chairperson, page: 14-15; Message from the General Manager, page: 16-17 Risk Management, page: 156-158; Global Tendencies, Risks, Opportunities and Forecasts, page: 26-28 Business Ethics, page: 159; Ethical Principles, https://www.isbank.com.tr/en/about-us/corporate-governance Business Ethics, page: 159; Ethical Principles, https://www.isbank.com.tr/en/about-us/corporate-governance 102-1 102-2 102-3 102-4 102-5 102-6 102-7 102-8 102-9 102-10 102-11 102-12 102-13 102-14 102-15 102-16 102-17 For the Materiality Disclosures Service, GRI Services assessed that the GRI Content Index is clearly presented and the references for Disclosures 102-40 to 102-49 align with the appropriate sections in the body of the report. This service was performed on the Turkish version of the report. 470 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 471 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen GRI Content Index Governance 102-18 102-19 102-20 102-21 102-22 102-23 102-24 102-25 102-26 102-27 102-28 102-29 102-30 102-31 102-32 102-33 102-34 102-35 102-36 102-37 102-38 102-39 Organization Chart, page: 144 Sustainability Management, page: 38 Sustainability Management, page: 38 Expectations of Stakeholders and İşBank's Response, page: 39-43; Stakeholder Groups and Primary ESG Issues, page: 35 Management Structure, page: 137-143 GRI Content Index: The Chairperson of İşbank has no executive duty. https://www.isbank.com.tr/en/about-us/annual-reports https://www.isbank.com.tr/en/about-us/annual-reports Management Structure, page: 137; https://www.isbank.com.tr/en/about-us/annual-reports Management Structure, page: 138-139; https://www.isbank.com.tr/en/about-us/annual-reports Management Structure, page: 138; https://www.isbank.com.tr/en/about-us/annual-reports Sustainability Management, page: 38; Sustainability Priorities, page: 33 Risk Management, page: 156-158; https://www.isbank.com.tr/en/about-us/annual-reports Sustainability Management, page: 38; Sustainability Priorities, page: 33 Sustainability Management, page: 38 Expectations of Stakeholders and İşBank's Response, page: 39-43 Expectations of Stakeholders and İşBank's Response, page: 39-43 Remuneration Policy, https://www.isbank.com.tr/en/about-us/Documents/investor- relations/remunaration-policy.pdf; Employee Rights, page: 124; Remuneration Committee, page: 148, https://www.isbank.com.tr/en/about-us/annual-reports Remuneration Policy, https://www.isbank.com.tr/en/about-us/Documents/investor- relations/remunaration-policy.pdf; Employee Rights, page: 124; Remuneration Committee, page: 148, https://www.isbank.com.tr/en/about-us/annual-reports Remuneration Policy, https://www.isbank.com.tr/en/about-us/Documents/investor- relations/remunaration-policy.pdf; Employee Rights, page: 124; Remuneration Committee, page: 148, https://www.isbank.com.tr/en/about-us/annual-reports Remuneration Policy, https://www.isbank.com.tr/en/about-us/Documents/investor- relations/remunaration-policy.pdf; Employee Rights, page: 124; Remuneration Committee, page: 148, https://www.isbank.com.tr/en/about-us/annual-reports Remuneration Policy, https://www.isbank.com.tr/en/about-us/Documents/investor- relations/remunaration-policy.pdf; Employee Rights, page: 124; Remuneration Committee, page: 148, https://www.isbank.com.tr/en/about-us/annual-reports Stakeholder Analysis Reporting Practices 102-40 102-41 102-42 102-43 Expectations of Stakeholders and İşBank's Response, page: 39-43, Stakeholder Groups and Primary ESG Issues, page: 35 Employee Rights, page: 124 Stakeholder Dialogue, page: 160; Expectations of Stakeholders and İşBank's Response, page: 39-43; Stakeholder Groups and Primary ESG Issues, page: 35 Stakeholder Dialogue, page: 160; Expectations of Stakeholders and İşBank's Response, page: 39-43 Sustainability Priorities, page: 33; 102-44 Expectations of Stakeholders and İşBank's Response, page: 39-43; Stakeholder Groups and Primary ESG Issues, page: 35 102-45 102-46 102-47 102-48 102-49 102-50 102-51 102-52 102-53 102-54 102-55 102-56 About the Report, page: 5 https://www.isbank.com.tr/en/about-us/annual-reports About the Report, Page: 5 Sustainability Priorities, Page: 33 GRI Content Index: There are no restated data. GRI Content Index: There are no significant changes. About the Report, page: 5 GRI Content Index: This report is İşbank's first-ever Integrated Annual Report. The previous report was published as the Integrated Sustainability Report 2020. About the Report, page: 5 sustainability@isbank.com.tr About the Report, page: 5 GRI Content Index, page: 471 Independent Assurance Statement, page: 460-470 Material Issues Standard Financial Performance and Profitability Description Descriptions and Page Numbers GRI 103: MANAGEMENT APPROACH 2016 GRI 201: ECONOMIC PERFORMANCE 2016 Business Ethics, Transparency and Reporting GRI 103: MANAGEMENT APPROACH 2016 103-1 Explanation of the Material Topic and its Boundary 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach 201-1 201-4 103-1 Explanation of the Material Topic and its Boundary 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach Sustainability Priorities, page: 33; Financial Performance, page: 56-57 Sustainability Priorities, page: 33; Financial Performance, page: 56-57 Sustainability Priorities, page: 33; Financial Performance, page: 56-57 Value Creation Model, page: 29-30; Financial Performance, page: 56-57 GRI Content Index: No government support was received. Sustainability Priorities, page: 33; Management Approach, page: 134, Transparency and Reporting, page: 161 Sustainability Priorities, page: 33; Management Approach, page: 134, Transparency and Reporting, page: 161 Sustainability Priorities, page: 33; Management Approach, page: 134, Transparency and Reporting, page: 161 472 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 473 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen GRI Content Index Business Ethics, Transparency and Reporting Communication with Stakeholders GRI 205: ANTI-CORRUPTION 2016 GRI 408: CHILD LABOR 2016 GRI 409: FORCED OR COMPULSORY LABOR 2016 GRI 410: SECURITY PRACTICES 2016 GRI 412: HUMAN RIGHTS ASSESSMENT 2016 GRI 415: PUBLIC POLICY 2016 Risk Management GRI 103: MANAGEMENT APPROACH 2016 205-1 205-2 205-3 408-1 409-1 410-1 412-2 415-1 103-1 Explanation of the Material Topic and its Boundary 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach GRI 201: ECONOMIC PERFORMANCE 2016 201-2 Compliance With Changing Regulations GRI 103: MANAGEMENT APPROACH 2016 103-1 Explanation of the Material Topic and its Boundary 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach GRI 206: ANTI-COMPETITIVE BEHAVIOR 2016 206-1 GRI 307: ENVIRONMENTAL COMPLIANCE 2016 GRI 419: COMPLIANCE 2016 307-1 419-1 Business Ethics, page: 159 Business Ethics, page: 159 Business Ethics, page: 159 GRI Content Index: Among the recruitment conditions in our Bank's Personnel Regulations, there is a regulation that requires employees "to be over the age of 18". GRI Content Index: The working conditions of employees at İşbank are determined within the framework of the provisions of the labor legislation, the Bank's internal regulations, and the provisions of the Collective Bargaining Agreement. In this context, the principle of freedom of employment and contract as expressed in the Constitution is valid at İşbank. In addition, İşbank is among the organizations with the highest rate of unionized employees in the sector. Therefore, İşbank does not have any operations with the risk of forced / compulsory labor. GRI Content Index: 7.8% of the security personnel attended refresher training in 2021. Business Ethics, page: 159 GRI Content Index: İşbank does not make any donations to political parties. Sustainability Priorities, page 33; Risk Management, page: 156-158 Sustainability Priorities, page 33; Risk Management, page: 156-158 Sustainability Priorities, page 33; Risk Management, page: 156-158 We Take Responsibility for Climate Action, page: 84-86; Risks, Opportunities & Future Insights, page: 26-28 Sustainability Priorities, page: 33; Compliance, page: 155 Sustainability Priorities, page: 33; Compliance, page: 155 Sustainability Priorities, page: 33; Compliance, page: 155 As per the resolution dated 17.01.2020 with no. 20-05/48-M of the Turkish Competition Authority ("Authority"), it has been decided to conduct a preliminary inquiry to determine whether banks and financial institutions with operations in Turkey, including our Bank, and the representation offices thereof, have violated the Law no. 4054 on Protection of Competition (Law no. 4054) as part of their activities regarding deposits, loans, foreign currencies, bonds, stocks and brokerage services. The preliminary inquiry is ongoing, and no decision has yet been reported on whether the Authority will initiate an investigation or not. Other than the lawsuit filed for cancellation of the Competition Authority's decision specified above, there is no lawsuit or investigation associated with anti-competitive behavior in 2021. GRI Content Index: There are no significant fines or sanctions in the reporting period. www.kap.org.tr/tr/Bildirim/974078-971723-959448-897431 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach Digital Transformation Sustainability Priorities, page: 33; Stakeholder Dialogue, page: 160 Sustainability Priorities, page: 33; Stakeholder Dialogue, page: 160 Sustainability Priorities, page: 33; Stakeholder Dialogue, page: 160 103-1 Explanation of the Material Topic and its Boundary Sustainability Priorities, page: 33; Digital Banking, page: 100-103 GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components Sustainability Priorities, page: 33; Digital Banking, page: 100-103 103-3 Evaluation of the Management Approach Sustainability Priorities, page: 33; Digital Banking, page: 100-103 Customer Centricity 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach GRI 417: MARKETING AND LABELING 2016 417-1 417-2 417-3 Cyber Security and Customer Privacy 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach GRI 418: CUSTOMER PRIVACY 2016 418-1 Responsible Financing and Investment Integrating ESG Criteria 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach GRI 304: BIODIVERSITY 2016 GRI 412: HUMAN RIGHTS ASSESSMENT 2016 GRI 413: LOCAL COMMUNITIES 2016 304-2 412-3 413-2 Sustainability Priorities, page: 33; Flawless Customer Experience, page: 71-73 Sustainability Priorities, page: 33; Flawless Customer Experience, page: 71-73 Sustainability Priorities, page: 33; Flawless Customer Experience, page: 71-73 İşBank Banking, page: 30; Responsible Marketing, page: 82; Financial Literacy, page: 81 GRI Content Index: There are no cases associated with noncompliance with the regulations and rules on product and service information and labeling during the reporting period. GRI Content Index: There are no cases associated with noncompliance with the regulations and rules on marketing communication during the reporting period. Sustainability Priorities, page 33; Information Security, page: 106-107 Sustainability Priorities, page 33; Information Security, page: 106-107 Sustainability Priorities, page 33; Information Security, page: 106-107 GRI Content Index: The number of complaints is not disclosed due to data privacy. Sustainability Priorities, page: 33; Environmental and Social Risk Management in Loans, page: 89-91 Sustainability Priorities, page: 33; Environmental and Social Risk Management in Loans, page: 89-91 Sustainability Priorities, page: 33; Environmental and Social Risk Management in Loans, page: 89-91 Environmental and Social Risk Management in Loans, page: 89-91 Environmental and Social Risk Management in Loans, page: 89-91 Environmental and Social Risk Management in Loans, page: 89-91 474 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 475 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen GRI Content Index Responsible Product and Service Portfolio 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components Responsible Marketing 103-3 Evaluation of the Management Approach 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components Financial Inclusion 103-3 Evaluation of the Management Approach 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components Employee Rights and Satisfaction 103-3 Evaluation of the Management Approach 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach GRI 202: MARKET PRESENCE 2016 GRI 401: EMPLOYMENT 2016 GRI 402: LABOR/MANAGEMENT RELATIONS 2016 202-1 401-1 401-2 401-3 402-1 Sustainability Priorities, page: 33; Responsible Products and Services, page: 74-75 Sustainability Priorities, page: 33; Responsible Products and Services, page: 74-75 Sustainability Priorities, page: 33; Responsible Products and Services, page: 74-75 Sustainability Priorities, page: 33; Responsible Marketing, page: 82 Sustainability Priorities, page: 33; Responsible Marketing, page: 82 Sustainability Priorities, page: 33; Responsible Marketing, page: 82 Sustainability Priorities, page: 33; Financial Inclusion, page: 76-80 Sustainability Priorities, page: 33; Financial Inclusion, page: 76-80 Sustainability Priorities, page: 33; Financial Inclusion, page: 76-80 Sustainability Priorities, page: 33; Employee Rights, page: 124 Sustainability Priorities, page: 33; Employee Rights, page: 124 Sustainability Priorities, page: 33; Employee Rights, page: 124 Employee Rights, page: 124 Remuneration Policy, https://www.isbank.com.tr/en/about-us/Documents/investor- relations/remunaration-policy.pdf Human Resource Data, page: 452-455 Employee Rights, page: 124 Remuneration Policy, https://www.isbank.com.tr/en/about-us/Documents/investor- relations/remunaration-policy.pdf Human Resources Data, page: 452-455 GRI Content Index: In case of significant operational changes, legal notice periods are followed. Employee Health and Safety 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach 403-1 403-2 403-3 403-4 403-5 403-6 403-8 403-9 403-10 407-1 GRI 403: OCCUPATIONAL HEALTH AND SAFETY 2018 GRI 407: FREEDOM OF ASSOCIATION OR COLLECTIVE BARGAINING 2016 Equal Opportunity and Diversity 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach GRI 201: ECONOMIC PERFORMANCE 2016 GRI 405: DIVERSITY AND EQUAL OPPORTUNITY 2016 GRI 406: NON-DISCRIMINATION 2016 Preferred Employer 201-3 405-1 405-2 406-1 Sustainability Priorities, page: 33; Occupational Health and Safety, page: 126 Sustainability Priorities, page: 33; Occupational Health and Safety, page: 126 Sustainability Priorities, page: 33; Occupational Health and Safety, page: 126 Occupational Health and Safety, page: 126 Occupational Health and Safety, page: 126 Occupational Health and Safety, page: 126 Occupational Health and Safety, page: 126 Occupational Health and Safety, page: 126 Occupational Health and Safety, page: 126; Fight Against COVID-19, Measures Taken for Employees, page: 200-201 Occupational Health and Safety, page: 126 Human Resources Data, page: 452-455 Human Resources Data, page: 452-455 Employee Rights, page: 124 Sustainability Priorities, page: 33; Equal Opportunity and Diversity, page: 127-128 Sustainability Priorities, page: 33; Equal Opportunity and Diversity, page: 127-128 Sustainability Priorities, page: 33; Equal Opportunity and Diversity, page: 127-128 2020 Activity Report, page: 162, 225-227, https://www.isbank.com.tr/en/about-us/annual-reports Human Resources Data, page: 452-455; Equal Opportunity and Diversity, page: 127-128 GRI Content Index: Remuneration is managed through transparent and measurable processes and systems, and there is no gender-based wage differentiation. This rate is 1 as there is no difference in wages based on gender. Employee Rights, page: 124 GRI Content Index: İşbank takes all decisions about its employees independent of race, religion, language, sect or any belief, sexual orientation/preference, gender, mental or physical disability, age, cultural or social class and thought/opinion differences; it refuses any discrimination against or among the employees and managers. 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach GRI 404: TRAINING AND EDUCATION 2016 404-1 404-2 404-3 Sustainability Priorities, page: 33; Talent Management, page: 129-131; Preferred Employer, page: 126 Sustainability Priorities, page: 33; Talent Management, page: 129-131; Preferred Employer, page: 126 Sustainability Priorities, page: 33; Talent Management, page: 129-131; Preferred Employer, page: 126 Talent Management, page: 129-131 Talent Management, page: 129-131 Talent Management, page: 129-131 476 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 477 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen GRI Content Index Responsible Procurement 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach GRI 204: PROCUREMENT PRACTICES 2016 GRI 308: SUPPLIER ENVIRONMENTAL ASSESSMENT 2016 GRI 414: SUPPLIER SOCIAL ASSESSMENT 2016 The Bank's Environmental Footprint 204-1 308-1 308-2 414-1 414-2 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach GRI 302: ENERGY 2016 GRI 303: WATER AND EFFLUENTS 2018 GRI 305: EMISSIONS 2016 GRI 306: EFFLUENTS AND WASTE 2016 Corporate Social Responsibility 302-1 302-2 302-3 302-4 302-5 303-3 303-5 305-1 305-2 305-3 305-4 305-5 306-2 306-3 306-5 Sustainability Priorities, page: 33; Supply Chain Management, page: 110-113 Sustainability Priorities, page: 33; Supply Chain Management, page: 110-113 Sustainability Priorities, page: 33; Supply Chain Management, page: 110-113 Supply Chain Management, page: 110-113 Supply Chain Management, page: 110-113 Supply Chain Management, page: 110-113 Supply Chain Management, page: 110-113 GRI Content Index: No negative social impacts were observed in the supply chain. Sustainability Priorities, page: 33; Environmental Impact, page 114-117; Environmental and Social Impacts Policy https://www.isbank.com.tr/en/about-us/our-policies Sustainability Priorities, page: 33; Environmental Impact, page 114-117; Environmental and Social Impacts Policy https://www.isbank.com.tr/en/about-us/our-policies Sustainability Priorities, page: 33; Environmental Impact, page 114-117; Environmental and Social Impacts Policy https://www.isbank.com.tr/en/about-us/our-policies Key Performance Indicators, page: 115 Key Performance Indicators, page: 115 Key Performance Indicators, page: 115 Environmental Impact, page: 114-117 Environmental Impact, page: 114-117 Key Performance Indicators, page: 115 Key Performance Indicators, page: 115 Key Performance Indicators, page: 115 Key Performance Indicators, page: 115 Key Performance Indicators, page: 115 Key Performance Indicators, page: 115 Environmental Impact, page: 114-117 Key Performance Indicators, page: 115 GRI Content Index: No significant leakage/spillage incident occurred during the reporting period. GRI Content Index: There is no water resource that is significantly affected by İşbank's activities. 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach GRI 203: INDIRECT ECONOMIC IMPACTS 2016 GRI 413: LOCAL COMMUNITIES 2016 203-1 203-2 413-1 Sustainability Priorities, page: 33; We Take Responsibility for Future Generations, page: 192-199 Sustainability Priorities, page: 33; We Take Responsibility for Future Generations, page: 192-199 Sustainability Priorities, page: 33; We Take Responsibility for Future Generations, page: 192-199 Financial Performance and Profitability, page: 56-57 Financial Performance and Profitability, page: 56-57 Environmental and Social Risk Management in Loans, page: 89-91 Financial Literacy 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components Combating Climate Change 103-3 Evaluation of the Management Approach 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach Emergency Action Preparation and Business Continuity 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach National and International Cooperation for Sustainability 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components Open Banking 103-3 Evaluation of the Management Approach 103-1 Explanation of the Material Topic and its Boundary GRI 103: MANAGEMENT APPROACH 2016 103-2 Management Approach and Its Components 103-3 Evaluation of the Management Approach Sustainability Priorities, page: 33; Financial Literacy, page: 81 Sustainability Priorities, page: 33; Financial Literacy, page: 81 Sustainability Priorities, page: 33; Financial Literacy, page: 81 Sustainability Priorities, page: 33; We Take Responsibility for Climate Action, page: 84-88 Sustainability Priorities, page: 33; We Take Responsibility for Climate Action, page: 84-88 Sustainability Priorities, page: 33; We Take Responsibility for Climate Action, page: 84-88 Sustainability Priorities, page: 33; Combating the COVID-19 Pandemic, page: 200-201 Sustainability Priorities, page: 33; Combating the COVID-19 Pandemic, page: 200-201 Sustainability Priorities, page: 33; Combating the COVID-19 Pandemic, page: 200-201 Sustainability Priorities, page: 33; Initiatives Supported in the Field of Sustainability, page: 44-45 Sustainability Priorities, page: 33; Initiatives Supported in the Field of Sustainability, page: 44-45 Sustainability Priorities, page: 33; Initiatives Supported in the Field of Sustainability, page: 44-45 Sustainability Priorities, page 33; Digital Banking, page: 100-103 Sustainability Priorities, page 33; Digital Banking, page: 100-103 Sustainability Priorities, page 33; Digital Banking, page: 100-103 478 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 479 Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen Company Information Corporate Title: Türkiye İş Bankası Anonim Şirketi Trade Registry Number: 431112 Address: İş Kuleleri 34330 Levent/İstanbul Website: www.isbank.com.tr Contact Information of Branches: Please visit www.isbank.com.tr Company Announcements and Financial Data: İşbank’s financial statements, independent auditor’s reports, annual reports, press releases and disclosures of material events are available on the Bank’s corporate website under the title of Investor Relations, in both Turkish and English. Contact Information Telephone: +90 (212) 316 00 00 Fax: +90 (212) 316 04 04 Call Center: (0850) 724 0 724 E-posta: musteri.iliskileri@isbank.com.tr Social Media Accounts 480 | İŞBANK 2021 INTEGRATED ANNUAL REPORT İŞBANK 2021 INTEGRATED ANNUAL REPORT | 481 Reporting Constultant and Design Kıymet-i Harbiye Yönetim Danışmanlık isbank.com.tr Reliable Financial ActorResponsible OperationsFinancial Reports and AnnexesAn Overview of İşbankLooking into the FutureHow We Create ValueGood Corporate Citizen This report has been printed on recycled paper.