PASHA_BANK ANNUAL REPORT 2021

General Information Financial Information and Risk Management Review Information on Management and Corporate Governance Principles The Central Bank of Turkey kept the policy rate at 17% in its January and February meetings and emphasized its tight monetary policy position to reach its 5% inflation target. In February, the Central Bank increased TL required reserve ratio by 200 basis points for all maturities and raised interest rate to be applied for required reserve in TL to 13.5%. USD/TL rate which was 7.44 at the beginning of 2021 went down to 6.96 at mid‑February. At the March meeting, the Central Bank increased the policy rate beyond market expectations from 17% to 19%. Naci Ağbal, Central Bank Governor resigned from his position on 20 March and Şahap Kavcıoğlu was appointed as the new Governor. After this change, volatility dominated the domestic markets and the new Governor’s actions were closely observed by the markets. The Central Bank increased required reserve ratio in foreign currency further by 200 basis points for all maturities. Moreover, it took the decision to cease the opportunity to set the TL required reserve in terms of foreign currency in October 2021. The Central Bank, under the governance of Kavcıoğlu decreased the policy rate by 100 basis points in September, 200 basis points in October, 100 basis points in November and 100 basis points in December to 14%. After a total of 500 basis points decrease, USD/TL exchange rate went up to 17.85. To take a hold of TL’s devaluation and foreign exchange rate fluctuations, the Government implemented FX‑linked TRY deposit instrument which was positively perceived by the markets, USD/TL exchange rate started to decrease and closed the year at 13.32. Increasing trend in inflation was experienced in Turkey as well as around the world due to increase in energy costs and supply problems. Consumer price index was 14.97% in January, but it started to increase beyond expectations all months, except May. With the high devaluation of TL, annual CPI inflation reached 36.08% in December, which is the highest level since September 2018. Annual D‑PPI inflation also increased to 79.89% which was the highest level realized since April 2002. Overview of 2021 and Expectations for 2022 The exchange rate, which increased with the interest rate cuts, decreased with the Government implemented FX‑linked TRY Deposit instrument. CBRT has cut the policy rate by 500 basis points since September. 500 basis points Inflation (%, annual change) 79.89 25.15 33.64 15.47 7.36 36.08 14.60 20.30 11.92 11.60 2021 2020 2019 2018 2017 CPI PPI