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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) Transfer Pricing Transfer pricing is regulated through article 13 of Corporate Tax Law titled “Transfer Pricing through camouflage of earnings”. Detailed information for the practice regarding the subject is found in the “General Communiqué Regarding Camouflage of Earnings Through Transfer Pricing”. According to the aforementioned regulations, in the case of making purchase or sales of goods or services with relevant persons/corporations at a price that is determined against “arm’s length principle”, the gain is considered to be distributed implicitly through transfer pricing and such distribution of gains is not subject to deductions in means of corporate tax. XVIII. EXPLANATIONS ON BORROWINGS Trading and derivative financial liabilities are valued with their fair values and the other financial liabilities are carried at “amortised cost” using the effective interest method. The Bank utilises various hedging techniques to minimise the currency, interest rate and liquidity risks of its financial liabilities. XIX. EXPLANATIONS ON ISSUANCE OF SHARES CERTIFICATES Transaction costs regarding the issuance of share certificates are accounted under shareholders’ equity after eliminating the tax effects. Dividend payments are determined by the General Assembly of Bank. The Bank has not issued any share certificates. No dividend payments were announced after the balance sheet date. XX. EXPLANATIONS ON AVALIZED DRAFTS AND ACCEPTANCES Avalized drafts and acceptances shown as liabilities against assets are included in the “Off-balance sheet commitments”. XXI. EXPLANATIONS ON GOVERNMENT INCENTIVES None. XXII. EXPLANATIONS ON PROFIT RESERVES AND PROFIT DISTRIBUTION Retained earnings as per the statutory financial statements other than legal reserves are available for distribution, subject to the legal reserve requirement referred to below. Under the Turkish Commercial Code (“TCC”) the legal reserves are composed of first and second reserves. The TCC requires first reserves to be 5% of the profit until the total reserve is equal to 20% of issued and fully paid-in share capital. Second reserves are required to be 10% of all cash profit distributions that are in excess of 5% of the issued and fully paid-in share capital. However holding companies are exempt from this application. According to the Turkish Commercial Code, legal reserves can only be used to compensate accumulated losses and cannot be used for other purposes unless they exceed 50% of paid-in capital. XXIII. EXPLANATIONS ON EARNINGS PER SHARE Earnings per share are calculated by dividing net profit for the year to the weighted average number of shares outstanding during the period concerned. Earnings per share disclosed in the income statement are calculated by dividing net profit for the year to the weighted average capital outstanding during the period concerned. In Turkey, companies can increase their share capital by making a pro-rata distribution of shares (“bonus shares”) to existing shareholders from retained earnings. For the purpose of earnings per share computations, the weighted average number of shares outstanding during the year has been adjusted in respect to bonus shares issued without a corresponding change in resources by giving them a retroactive effect for the year in which they were issued and for each earlier period. Where the number of outstanding shares increase due to distribution of bonus shares after the balance sheet date but before the release of the financial statements, earnings per share computations are performed based on the revised average number of shares. Annual Report 2020 PASHA Bank Year-End Financial Report 131