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PART III: FINANCIAL HIGHLIGHTS AND RISK MANAGEMENT
Credit Risk
Credit risk arises from the failure of a
counterparty to fulfil its obligations, partially
or completely, in accordance with contractual
requirements. The credit risk definition of the
Bank takes the credit risk definition of the
Banking Law as a base and comprises the credit
risks involved in all products and activities.
Credit Risk is managed within the scope of the
“Credit Risk Management Policy Document”.
Furthermore, the Bank evaluated the Country
Risk (previously specified under the Credit Risk)
in a separate Policy Document, due to the fact
that a Country Risk Guide was issued by the
Banking Regulation and Supervision Agency.
“Country Risk Management Policy Document”
describes the Country Risk as; “As consequence
of incidents or uncertainties impacting
economic, social and political circumstances;
if debtors in a foreign country (central
management, corporate or other) cannot fulfill
their responsibilities abroad or avoid fulfilling
their responsibilities abroad, Country Risk is
the possibility of loss a Bank may face directly
and/or indirectly carrying the risks of the
debtors in the foreign country in its portfolio”.
Indirect country risk, central management risk,
transmission risk, macroeconomic risk, indirect
FX risk and transfer risk are evaluated within the
scope of Country Risk Management Process, as
the main components of the Country Risk. The
findings being obtained from analyses of the
composition and concentration of the Bank’s
loan portfolio (type of loan, currency, maturity,
sector, geographic region, borrower, holding,
group, subsidiaries); from the portfolio quality
(standard loans, non-performing loans, deferred
loans, analysis of the data obtained from
the credit rating system); from the portfolio
analysis (duration, average maturity, interest
rate sensitivity); from country risk and scenario
analyses and the studies on possible events of
default are reported to the Board of Directors,
the Audit Committee and the Bank’s top
management as individual and monthly reports.
The Bank uses rating and scoring models for
the assessment of the debtor’s credit quality.
For the mentioned models, validation studies
are made at regular intervals. These activities
will be carried out by the Validation Department
established in 2015.
Sector concentration limits and country risk
limits are determined with an aim to define the
risks resulting from credit concentrations and to
create a well-balanced credit portfolio. These
limits are updated taking into consideration
the Bank’s credit policy and macroeconomic
developments.
Credit risk in fair value, measured within the
scope of the provisions of the “Regulation
on Measurement and Evaluation of Capital
Adequacy of Banks,” is reported to the
Bank’s top management and the BRSA in
unconsolidated and consolidated basis quarterly.
Capital Adequacy Standard Ratio is closely
monitored in the Bank, calculated on a daily
basis and reported to the top management
after the scenario analysis/stress testing is
performed.
The Bank’s ultimate goal is to use credit risk
internal methods in accordance with Basel
III, the European Union Capital Adequacy
Regulations and international best practices.
Within this scope, the activities for Credit The
Internal Ratings-Based (İDD) Approach, initiated
within the Bank, are carried out in coordination
with the Appraisal & Financial Analysis
Department.
Counterparty Credit Risk
Counterparty credit risk is the risk that a
counterparty to a mutual transaction, that
obligates both parties, will default before the
date of final payment of such transaction is
due. This risk type is managed pursuant to the
“Counterparty Credit Risk Management Policy
Document” updated in 2015.
Counterparty credit risk exposures are calculated
on the basis of the banking book and the
trading book portfolios, in accordance with the
“Regulation on Measurement and Evaluation of
Capital Adequacy of Banks” and using the Fair
Value Valuation Method. Within the context of
the capital adequacy calculations, the exposure
values are reported to BRSA and the Bank’s top
management monthly on an unconsolidated and
a consolidated basis.
Concentration Risk
Concentration risk arises due to a specific
concentration of the Bank’s assets, liabilities,
and business lines; this risk type is managed
pursuant to the “Concentration Risk
Management Policy Document” updated in
2015. The Bank establishes concentration limits,
which are closely monitored and reported to top
management. Limits are controlled on a regular
basis and revised if needed, in parallel with
economic developments, expectations, and the
Bank’s objectives and strategies.
