VKF_FRAE_2017

CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED UNCONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUEDIN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE VAKIFLAR BANKASI TÜRK ANONİM ORTAKLIĞI EXPLANATIONS AND NOTES RELATED TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017 (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) PART III: FINANCIAL HIGHLIGHTS AND RISK MANAGEMENT 220 VakıfBank Annual Report 2017 7. Explanations on Operational Risk The “Basic Indicator Method” that is mentioned in "Regulation on Measurement and Assessment of Capital Adequacy of Banks" Communiqué published in the Official Gazette no. 29511 on 23 October 2015 is used in the operational risk calculation of the Bank. Under the scope of the calculation, the value found by multiplying the average of the fifteen percent of the year-end gross income amounts realized by the Bank over the last three years by twelve and half is considered as the operational risk. Annual gross revenue is calculated by deducting profit/loss derived from the sale of available-for-sale assets and held-to-maturity securities, extraordinary income and indemnity insurance gains from the total of net interest income and non-interest income. The whole bank personnel is responsible from the deduction and control of the operational risks in the context of their mission and work proccesses. All of the units of the bank are obligated to take precautions about the risk deduction aspect related with their on operations via insurance and other risk transfer mechanisms. Current Period 2PP 1PP Current Period Total/Positive GI year number Ratio (%) Total Gross income 6,260,273 7,331,177 9,216,778 7,602,743 15 1,140,411 Amount subject to Operational Risk (Amount*12,5) - - - - - 14,255,142 Prior Period 2PP 1PP Current Period Total/Positive GI year number Ratio (%) Total Gross income 6,159,500 6,232,883 7,272,016 6,554,800 15 983,220 Amount subject to Operational Risk (Amount*12,5) 12,290,249 8. Interest Rate Risk Related to Banking Book Bank has evaluated to Interest rate risk arising from on-balance sheet and off-balance sheet positions in banking accounts in accordance with “Regulation on Measurement and Evaluation of Interest Rate Risk in Banking Accounts with Standard Shock Method” performs and reports on these measurement based results and analyzes on weekly and monthly periods. In addition, in the Asset-Liability Management Committee meetings, the sensitivity of the active, passive and off-balance sheet items to the interest rate is evaluated taking into consideration the market developments. In line with the management of interest rate risk arising from banking accounts; Scenario analysis, gap analysis to date of re-pricing, behavioral analysis, core demand deposit level, duration and maturity mismatch metrics, option risk, base risk and yield curve risk components are followed together. Current Period Currency Applied Shock (+/- x basis points) Gains/Losses Gains / Shareholders’ Equity Losses/ Shareholders’ Equity 1 TRY 500/(400) (2,370,615) / 2,318,845 (%8.22) / %8.04 2 EURO 200/(200) (537,399) / 364,920 (%1.86) / %1.27 3 USD 200/(200) 513,644 / (536,219) %1.78 / (%1.86) Total (for negative shocks) - 2,147,546 %7.45 Total (for positive shocks) - (2,394,370) (%8.30) Prior Period Currency Applied Shock (+/- x basis points) Gains/Losses Gains / Shareholders’ Equity Losses/ Shareholders’ Equity 1 TRY 500/(400) (2,210,943)/2,186,994 (%9.45)/%9.34 2 EURO 200/(200) 388,955/1,240 %1.66/%0.01 3 USD 200/(200) 603,486/(601,248) %2.58/(%2.57) Total (for negative shocks) - 1,586,986 %6.78 Total (for positive shocks) - (1,218,502) (%5.21)