PASHA_BANK_ANNUAL REPORT 2022

General Information Financial Information and Risk Management Review Information on Management and Corporate Governance Principles EXPLANATIONS ON ACCOUNTING POLICIES (Continued) Explanation for convenience translation into English: The effects of differences between accounting principles and standards set out by regulations in conformity with BRSA Accounting and Reporting Legislation and Turkish Accounting Standards except for the matters regulated by BRSA Legislation, accounting principles generally accepted in countries in which the accompanying unconsolidated financial statements are to be distributed and International Financial Reporting Standards (“IFRS”) have not been quantified in the accompanying unconsolidated financial statements. Accordingly, the accompanying unconsolidated financial statements are not intended to present the financial position, results of operations and changes in financial position and cash flows in accordance with the accounting principles generally accepted in such countries and IFRS. 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 sources of the Bank are shareholders’ equity, borrowing from domestic and foreign financial institutions, subordinated loan and debt securities issued. 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 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. 133 PASHA Bank 2022 Annual Report Notes to Unconsolidated Financial Statements at 31 December 2022 Pasha Yatırım Bankası A.Ş. (Amounts are expressed in thousands of Turkish Lira (“TL”) unless otherwise stated.) Convenience translation of publicly announced unconsolidated financial statements originally issued in turkish, see note I of section three