PASHA BANK ANNUAL REPOT 2024

EXPLANATIONS ON ACCOUNTING POLICIES (Continued) VI. EXPLANATIONS ON FINANCIAL ASSETS (Continued) Financial Assets at Fair Value Through Other Comprehensive Income (Continued) Financial assets measured at fair value through other comprehensive income are recorded by adding transaction costs to the acquisition costs that reflect their fair value. After recognition, these financial assets are measured at their fair value. For securities traded on Borsa İstanbul (BIST), fair values are determined using the weighted average settlement prices on BIST at the balance sheet date. The interest income calculated using the effective interest method for financial assets measured at fair value through other comprehensive income, as well as dividend income from securities representing ownership interests, are reflected in the income statement. The difference between the fair value and the amortized cost of financial assets measured at fair value through other comprehensive income, i.e., “Unrealized gains and losses” is not reflected in the income statement until the realization of the related financial asset, such as collection, sale, disposal, or impairment. Instead, it is monitored under the equity account “Other accumulated comprehensive income or expense that will be reclassified in profit and loss”. When these securities are collected or disposed of, the accumulated fair value differences reflected in equity are recognized in the income statement. Equity securities, which are classified as financial assets at fair value through other comprehensive income are measured at fair value. However, in some exceptional cases, cost may be an appropriate estimation method for determining fair value. The cost is estimated to be the case fair value is reflected in the best way possible. The Bank’s portfolio of securities measured at fair value through other comprehensive income includes inflation-indexed bonds linked to the consumer price index (CPI). The principal amounts of these CPI government bonds are protected against inflation over their maturity. These securities are valued and accounted for using the effective interest method, based on an index calculated by taking into account the reference inflation index and the estimated inflation rate on the issuance date. The reference indices used in the calculation of the actual interest payments for these securities are based on the CPI from two months prior. During initial recognition an entity can make an irrevocable choice as to record the changes of the fair value of investment in an equity instrument that is not held for trading purposes in the other comprehensive income. In the case of this preference, the dividend from the investment is recognized in the financial statements as profit or loss. Financial Assets Measured at Amortized Cost A financial asset is classified as an amortized cost financial asset if it is held within a business model whose objective is to collect the contractual cash flows, and if the contractual terms of the financial asset result in cash flows that consist solely of principal payments and interest payments on the principal amount on specified dates. Financial assets measured at amortized cost are initially recognized at acquisition cost including the transaction costs which reflect the fair value of those instruments and subsequently recognized at amortized cost by using effective interest rate (internal rate of return) method. Interest income obtained from financial assets measured at amortized cost is accounted in the income statement. Loans Loans are financial assets with fixed or determinable payments that are not listed on an active market. These loans are initially recorded at their acquisition costs, which reflect their fair value, including transaction costs. After recognition, they are measured at amortized cost using the “Effective interest (internal rate of return) Method”. All of the Bank’s loans are recorded under the “Measured at Amortized Cost” account. 145 Financial Information and Risk Management Review PASHA Yatırım Bankası A.Ş. Notes to the Unconsolidated Financial Statements As of and for the Year Ended 31 December 2024 (Continued) (Convenience translation of publicly announced financial statements originally issued in Turkish) (Amounts are expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.)