PASHA BANK ENG 20

PASHA Yatırım Bankası A.Ş. Notes to Unconsolidated Financial Statements at 31 December 2020 (Amounts are expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) (Convenience Translation of Publicly Announced Financial Statements Originally Issued in Turkish, See Note I of Section Three) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) II. EXPLANATIONS ON STRATEGY OF USING FINANCIAL INSTRUMENTS AND FOREIGN CURRENCY TRANSACTIONS The general strategy of the Bank of using financial instruments is to sustain an optimal balance between the yield of the instruments and their risks. The most important funding source of the Bank is shareholders’ equity - internal funding, in addition external funding including funding from repo transactions and borrowing from domestic and foreign financial institutions is utilised. Funds obtained from internal and external sources are invested in high yield and quality financial assets and currency, interest rate and liquidity risks are being kept within the limits following the asset-liability management strategy. The currency, interest and liquidity risks of on-balance sheet and off-balance sheet assets and liabilities are managed in accordance with the risk limits accepted by the Bank and the related legal limits. Derivative instruments are mainly utilised for liquidity needs and for mitigating currency and interest rate risks. The position of the Bank as a result of foreign currency activities being held at minimum levels and the exposed currency risk is followed within the determined levels by the Board of Directors by considering the limits given by the Banking Law. Foreign currency denominated monetary assets and liabilities are translated with the Bank’s foreign currency bid rates prevailing at the balance sheet date. Gains and losses arising from such valuations are recognised in the income statement under the account of “Foreign exchange gains or losses”. III. EXPLANATIONS ON FORWARD TRANSACTIONS, OPTIONS AND DERIVATIVE INSTRUMENTS The Bank does not have any embedded derivative instruments. Derivative financial instruments of the Bank are classified under “TFRS 9 Financial Instruments” (“TFRS 9”), “Derivative Financial Assets/Liabilities Designated at Fair Value through Profit or Loss” or “Derivative Financial Assets/Liabilities Designated at Fair Value through Other Comprehensive Income”. Payables and receivables arising from the derivative instruments are recorded in the off-balance sheet accounts at their contractual values. Derivative transactions are valued at their fair values subsequent to their acquisition. In accordance with the classification of derivative financial instruments, if the fair value is positive, the amount is classified as “Derivative Financial Assets Designated at Fair Value Through Profit or Loss” or “Derivative Financial Assets Designated at Fair Value Through Other Comprehensive Income”, if the fair value is negative, the amount is classified as “Derivative Financial Liabilities Designated at Fair Value Through Profit or Loss” or “Derivative Financial Liabilities Designated at Fair Value Through Other Comprehensive Income”. The fair value differences of derivative financial instruments designated at fair value through profit or loss are recognized in the income statement under trading profit/loss line in profit/loss from derivative financial transactions. IV. EXPLANATIONS ON INTEREST INCOME AND EXPENSE Interest income and expenses are recognized in the income statement by using the “effective interest rate method”. The Bank calculate interest income accrual for the non-performing loans that are not fully provisioned in the period they occur. V. EXPLANATIONS ON FEE AND COMMISSION INCOME AND EXPENSE Except for fees and commissions that are integral part of the effective interest rates of financial instruments measured at amortized costs, the fees and commissions are accounted for in accordance with TFRS 15 Revenue from Contracts with Customers. Except for certain fees related with certain banking transactions and recognized when the related service is given, fees and commissions received or paid, and other fees and commissions paid to financial institutions are accounted under accrual basis of accounting throughout the service period. Income from asset purchases to a third party or by natural or legal persons contracts are recognized in the period they occur. Annual Report 2020 PASHA Bank Year-End Financial Report 123