VKF_FRAE_2017

307 VakıfBank Annual Report 2017 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE VAKIFLAR BANKASI TÜRK ANONİM ORTAKLIĞI AND ITS FINANCIAL SUBSIDIARIES EXPLANATIONS AND NOTES RELATED TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017 (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) sector and the geographical position of customers, where they operate and other factors that may affect their operations are considered in the evaluation process of loans. Apart from ordinary intelligence operations, the financial position of the customer is mainly analyzed based on the balance sheets and the income statements provided by the loan customer, the documents received in accordance with the related regulation for their state of accounts and other related documents. Credit limits are subject to revision regarding the overall economic developments and the changes in the financial information and operations of the customers. Collaterals for the credit limits are determined on a customer basis in order to ensure bank placements and their liquidity. The amount and type of the collateral are determined regarding the creditworthiness of the credit users. The Bank holds collateral against loans and advances to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. The Group has risk control limits for derivative transaction (futures, options, etc.) positions, which effects credit risk and market risk. For credit risk management purposes, Risk Management Department operates in • The determination of credit risk policies in coordination with the Bank’s other units, • The determination and monitoring of the distribution of concentration limits with respect to sector, geography and credit type, • The contribution to the formation of rating and scoring systems, • The submit to the Board of Directors and the senior management of not only credit risk management reports about credit portfolio’s distribution (borrower, sector, geographical region), credit quality (impaired loans, credit risk ratings) and credit concentration but also scenario analysis reports, stress tests and other analyses, • The studies regarding the formation of advanced credit risk measurement approaches. Credit risk is defined and managed for all cash and non-cash agreements and transactions, which carry counterparty risk. Loans with renegotiated terms are followed in accordance with The Parent Bank’s credit risk management and follow-up principles. The financial position and trading operations of related customers are continuously analyzed and principal and interest payments, scheduled in renegotiation agreement, are strictly controlled by related departments. In the framework of The Parent Bank’s risk management concept, long term commitments are accepted more risky than short term commitments. Besides, risk limits defined for long term commitments and collaterals that should be taken against long term commitments are handled in a wider range compared to short term commitments. Indemnified non-cash loans are regarded as the same risk weight with the loans that are past due and unpaid. Banking operations and lending activities carried in foreign countries are not exposed to material credit risks, due to related countries’ financial conditions, customers and their operations. The Group classifies its past due and impaired receivables as shown below in accordance with the “Regulation on Procedures and Principles for Determination of Qualifications of Loans and Other Receivables and Provisions to be Set Aside”. • For which recovery of principal and interest or both delays from their terms or due dates are more than 90 days but not more than 180 days are classified as “Group Three- Loans and Other Receivables With Limited Recovery”, • For which recovery of principal and interest or both delays from their terms or due dates are more than 180 days but not more than 360 days are classified as “Group Four- Loans and Other Receivables With Suspicious Recovery”, • For which recovery of principal and interest or both delays from their terms or due dates are more than 360 days are classified as “Group Five - Loans and Other Receivables Having the Nature of Loss”, Regardless of the guarantees and pledges received, the Group provides 20% provision for the Loans and Other Receivables classified in Group Three, 50% provision for the Loans and Other Receivables classified in Group Four and 100% in Group Five. The Group’s largest 100 cash loan customers compose 26.16% of the total cash loan portfolio (December 31, 2016: 26.83%). The Group’s largest 100 non-cash loan customers compose 52.90% of the total non-cash loan portfolio (December 31, 2016: 55.78%). The Group’s largest 100 cash loan customers compose 17.27% of total assets of the Group and the Group’s largest 100 non-cash loan customers compose 16.71% of total off-balance sheet items (December 31, 2016: 18.04% and 15.30%). The Group’s largest 200 cash loan customers compose 32.46% of the total cash loan portfolio (December 31, 2016: 32.99%).