2005 Annual Report

Transcription

2005 Annual Report

Annual Report 2005
Fikret Mualla, The Square-Paris, 1952
Fikret Mualla
The artist Fikret Mualla left an impact on
the world of art not only with his paintings
but also with the story of his tragic life,
ending on July 20, 1967, in France, where
he was buried in a Paris cemetery reserved
for the unclaimed. Born in 1903 in Istanbul,
Fikret Mualla attended the French teaching
Saint Joseph and Galatasaray high schools.
Going to Germany to study engineering,
Mualla drifted toward art and soon his
works began to be published in various
German magazines. On his return to Turkey
in 1930, Fikret Mualla worked as an art
teacher at Galatasaray High School and at
the Secondary School in Ayval›k. During
this period, he also designed costumes for
the operettas "Lüküs Hayat," "Deli Dolu,"
and "Saz Caz" performing at the Istanbul
Municipal Theater. Preparing designs for
"Yeni Adam" magazine as well, the artist
in addition illustrated Naz›m Hikmet’s book
of poetry, "Varan 3." Undergoing
treatment at Bak›rköy Mental Hospital in
1936, the artist, upon the suggestion of
the artist Abidin Dino, later painted 30
scenes of Istanbul as his contribution to
the World Art Exhibition that was to be
held in New York. When some of the
designs he created for the magazine "Ses"
in 1939 were found to be obscene, he was
brought to court and later acquitted, after
which he went to Paris and settled there.
Treated for mental illness several times
more as a result of the emotional
upheavals of the war years, homesickness,
alcohol addiction and the police phobia
that caused him great suffering, the artist
held his first personal exhibit in Paris in
1954. This was followed by a second
exhibit the next year. Living his life under
the patronage of various art connoisseurs,
Fikret Mualla was cared for after the stroke
he suffered in 1962 until the end of his
life, by Madam Angles whom he had met
at the end of the 1950s. Creating a
synthesis of fauvism with the deep colorist
impressionism he employed in his works,
Fikret Mualla transferred the streets of
Paris, its cafés and amusement spots onto
his canvas using gouache technique,
watercolors and oils. Not interested in the
basic issues of art and artistic trends, the
artist developed a lyric narrative in his
work, enriched with the flavor of his own
inner emotions. Fikret Mualla’s remains
were brought back to Turkey in 1974 and
buried in the Karacaahmet Cemetery. His
paintings, brought up to be auctioned in
Paris, were officially acquired by the
Turkish State and placed in the Fikret
Mualla Room at the Ankara Museum of
Painting and Sculpture.
CONTENTS
Financial Highlights 01 GSD Bank in Brief 02 The GSD Group in Brief 03 Message from the Board of Directors 04 The Turkish Economy 07 Review of
Operations 11 Board of Directors 20 Executive Management 22 Auditors’ Report, Financial Statements, and Notes to Financial Statements 25 Directory
GSD Bank‘s
financial highlights
(YTL thousands)
2005
43,595
58,030
81,067
25,650
46,615
2,857
39.24%
Cash Loans
Non-Cash Credits
Total Assets
Funds Borrowed From Banks
Shareholders’ Equity
Net Profit
Capital Adequacy Ratio (BIS)
2004
50,197
57,397
73,227
24,155
43,361
2,409
41.87%
Total Assets
(%)
Loans & Advances
59%
Deposits
with Banks
9%
Investment
Securities
10%
Lease
Receivables
6%
Trading
Securities
8%
Other Assets
8%
01
GSD BANK ANNUAL REPORT 2005
GSD Bank in brief
Since its establishment, GSD Bank
has built long-term relationships
with its customers by instilling
confidence in them through tailormade and customer-focused
solutions.
GSD Bank was founded as a non-deposit-taking bank in 1999
with a focus on domestic and international trade finance.
This focus differentiates GSD Bank from other privatelyowned non-deposit-taking banks. GSD Bank is a whollyowned subsidiary of GSD Holding, a prominent name
internationally which is active in foreign trade and financial
services with well-known and reputable subsidiary companies
under its umbrella.
• As a relatively new bank, GSD Bank’s main target since its
inception has been growth. Having weathered economic
crises soon after its foundation, the Bank has sustained
consistent and controlled growth.
• In accordance with the GSD Group’s policies, prudent
approaches have been adopted in all activities, most notably
in credit allocation and risk management.
• GSD Bank places high priority on attaining and maintaining
financial strength and sufficient levels of liquidity at all
times. The capability to adapt to changing economic
conditions and emphasis on liquidity has enabled the
02
management to maneuver the Bank successfully through
troubled times.
• Due to the managerial skills of its highly experienced
executive team, GSD Bank has achieved a cost effective
structure and has continuously enhanced its competitive
stance in the marketplace. Sound decision-making and
effective implementation of policies go hand in hand at GSD
Bank.
• Since its establishment, GSD Bank has built long-term
relationships with its customers by instilling confidence in
them through tailor-made and customer-focused solutions.
The importance given to customer satisfaction has made GSD
Bank a much sought after and reliable partner.
• With the aim of operating as a reputed niche player in
Turkey’s banking industry, GSD Bank’s specialized products
and services are among the best on offer.
The GSD Group in brief
GSD Holding was founded in 1996 to coordinate and oversee
the activities of the GSD Group of companies and to help
establish a common corporate culture across the Group.
GSD Holding is also responsible for establishing major
operational guidelines and setting the standards for enterprise
risk management and corporate governance. It is a strong
advocate of the concepts of customer focus and higher service
quality in all business lines. This philosophy is effectively
communicated to all its subsidiaries and affiliates and
unwavering adherence to these tenets is expected from all
Group companies and staff members.
Today, in addition to foreign trade-related services via GSD
Foreign Trade, the GSD Group is active in almost all areas of
financial services: Banking with Tekstilbank and GSD Bank,
financial leasing with Tekstil Leasing, domestic and
international factoring with Tekstil Factoring, investment
banking and capital market brokerage services with Tekstil
Securities, insurance brokerage with GSD Insurance,
Key Consolidated Financial Figures of GSD Holding
(YTL millions)
Total Assets
Shareholder's Equity
Net Profit
M. Turgut Y›lmaz
Founder and Chairman of GSD Holding
2005
2,362
236
16.6
2004
1,795
184
9.4
Figures are extracted from financial statements prepared in accordance with
IFRS, in equivalent purchasing power as at December 31, 2005.
The GSD Group is active in
almost all areas of financial
services through its
banking, leasing, factoring,
and brokerage subsidiaries
as well as in foreign trade.
off-shore banking with The Euro Textile Bank Offshore Ltd.
and international financial services with GSD International
Limited. Additionally, aware of its social responsibilities,
the GSD Group is active in philanthropic activities through
GSD Educational Foundation building schools across the
country.
At the end of 2005, the GSD Group’s consolidated assets
amounted to YTL 2.36 billion, 92% of which was accounted
for by the financial subsidiaries’ assets. The growth in the
financial services segment helped boost the Group’s overall
profitability. The GSD Group’s growth strategy is based on
providing intermediary services to commercial activity, rather
than competing in industrial production. It has adopted a
prudent management approach, giving priority to growth by
equity rather than through borrowing. Therefore, sustainable
profitability is the main pillar of the Group’s investment
strategy. In its investments, the Group attaches priority to
specialization over diversification, thus allowing resources
to be channeled into businesses where strategic strength
and expertise can be accumulated.
Breakdown of net profit and assets by field of
activity within the GSD Group
Banking
Factoring
Foreign Trade
Leasing
Holding
Eliminations
Total
Share in
Net Profit (%)
68
20.1
17.3
3.5
(8.6)
(0.3)
100
Share in
Total Assets (%)
88.0
3.6
9.4
1.8
1.7
(4.5)
100
One of the major highlights for the year was the GSD Holding’s
decision to increase its capital in December 2005 in cash
from YTL 80 million to YTL 120 million. In the beginning of
2006, GSD Holding’s capital was further increased in cash to
YTL 200 million.
Maximizing shareholders’ value has always been an
indispensable goal for the GSD Group. It believes that
maintaining a satisfactory return on equity is the real measure
of its performance. Nearly all of GSD Holding shares have
been publicly traded on the Istanbul Stock Exchange (ISE)
since 1999, which makes GSD Holding a truly public company.
03
Message from the
Board of Directors
It is always useful to look back from time to time to assess
past events and our performance and learn from these
experiences in order to blaze a better trail in front of us. The
end of each year, when we prepare our annual report, provides
us with this opportunity.
Some of the major developments making up the agenda of
the world economy during 2005 were the rising oil prices,
China’s spectacular growth in conquering the world
economically, the excess liquidity in global markets, a series
of natural disasters with the worst being the earthquake in
Kashmir, Iran’s threatening nuclear row, and the on-going
war in Iraq.
Amid these events, some of which were close to our borders,
Turkey fared well both politically and economically, fuelled
by the optimism created after the official start of the EU
accession talks. The economic growth concurrent with a highly
successful disinflation program is especially worthy of
mention. After many decades of negligible foreign direct
investments, restored political and economical stability
helped Turkey attract foreign capital in almost all industries,
with the banking sector at the forefront. As many foreign
banks are entering Turkey, they are establishing a solid
footing in our country. Some of the leading foreign banks
are acquiring majority or minority shares in local banks and
are here to change the Turkish banking scene forever. We
believe competition among banks will increase further in a
low inflation environment with narrowed profit margins.
Generally speaking, this intensified competition will benefit
not only bank customers and all the economic players
involved, but will also aid the banks by helping them control
costs and forcing them to launch new products and services
to strengthen their market positions.
While looking ahead with confidence, the widening current
account deficit and chronic unemployment issues are two
threatening factors that may turn things sour in the future.
We believe continued dedication to the IMF-sponsored
economic program will help alleviate any forthcoming
problems resulting from these issues in the days ahead.
In 2005, GSD Bank achieved solid financial and operational
results further strengthening its position as a niche player
within the banking industry.
Favorable financial and operational results
GSD Bank maintained its usual wise stance in 2005, managing
its balance sheet with utmost care in light of economic
04
developments in Turkey and internationally. We succeeded
in augmenting our total loans to assets ratio to 59%. We
continued pursuing prudent policies in risk assessment and
management throughout our lending and securities trading
operations. One of the hallmarks of GSD Bank distinguishing
it from its peers is its vigilant lending policy and effective
implementation of procedures that enable the Bank to achieve
a non-performing loans ratio that is lower than the industry
average. In recognition of the need for a solid financial
structure, the Bank maintained its comfortable capital
adequacy ratio, paving the way for future growth
opportunities. By diversifying revenue sources and focusing
on real banking products we recorded a net profit of YTL 2.9
million by the end of 2005.
The composition of earnings reflects strong results from
corporate banking, treasury activities, and transaction
banking.
Customer focused flexible policies
Since its inception in 1999, GSD Bank has firmly established
itself as a unique financial institution. As a specialist bank
operating under a non-deposit-taking license, GSD Bank has
based its strategy on offering creative and customized
banking services to a select clientele. Close contacts with
the Turkish business community, knowledge of local markets,
and an understanding of the international economic
environment have contributed to GSD Bank’s ability to create
opportunities through engineering complex trade
transactions.
Sustainable growth in domestic and international trade forms
a major part of our business plan for the future. Equally
important to our future success is our customer oriented and
flexible policies supplemented by our aim of always being
innovative and creative in customer service. We believe these
are the tenets that solidify the foundations of GSD Bank.
Dedicated management team
The management of GSD Bank strictly adheres to the
strategies and principles adopted in this ever-changing
economic environment. Client relationships are the focal
point of our philosophy and we acknowledge that the market
niche we have created can be maintained only by meeting
the needs of a satisfied clientele.
In 2005, GSD Bank achieved
solid financial and
operational results further
strengthening its position as
a niche player within the
banking industry.
While serving the clients in a most efficient manner, we have
developed our in-house corporate governance guidelines
which provide a smooth running of shareholder, employee,
and client relations, in addition to complying with all the
requirements of regulatory bodies. Thus far, the management
has met all the strategic targets set by the Board of Directors
since its inception thanks to the diligent discipline and
determination they have demonstrated from the beginning.
Long-lasting client and correspondent relationships
The success of GSD Bank in 2005 has been the result of the
Bank’s ability to plan and pursue a workable strategy for
building sustainable client relationships, adding value to all
of its social and economic stakeholders and creating new
avenues of business for them. The long lasting client
relationships we have established over the years in our core
business lines fuelled our domestic and international trade
finance activity in 2005, resulting in a 42% increase in the
credit lines extended by international financial institutions.
We are very pleased with the mutually beneficial cooperation
we have built with our valuable correspondents. Moreover,
we are fully confident that the expanding business volume
in years to come will be instrumental in further solidifying
these relationships.
sharing with us their very considerable knowledge and
experience. We are also grateful to the Board of Directors
for the contributions they have made throughout the year.
Last, but not least, we would like to thank to all GSD Bank
employees for their diligence and dedication at all times.
Looking ahead…
GSD Bank's special niche in the market is the result of our
unique approach to banking. We will continue to assiduously
capitalize on this niche we have created with an emphasis
on customer focus and high service quality. We believe that
only as our customers benefit from their collaboration with
GSD Bank our business will grow and add value to our
shareholders’ investments.
We have the utmost confidence that GSD Bank will continue
to excel as a specialist bank of the highest caliber. As we
come to the end of our 7th successful year, we are now
looking forward to an even more rewarding year ahead.
A. Erdem Yörüko¤lu
Chairman
Diligently working for success
We have increased specialization and refined our skills by
continuously training our human resources and upgrading
controls, technology, and systems. This has successfully
translated into an improved service quality to our clients as
witnessed by the operational results achieved in 2005. The
continued support of our shareholder, GSD Holding, since
our establishment, has been invaluable. We would like to
take this opportunity to express our appreciation to them for
Yasef Coyas
Board Member and General Manager
05
06
The Turkish economy
Strict adherence to structural
reforms and financial discipline will
increase the resilience of the
economy to external shocks and
support the low inflation/high
growth path in the forthcoming
period.
Positive developments in the economy
The economic programs introduced after the crises have
shifted expectations to positive terrain and some significant
improvements have been obtained during the past three
years. The historical reduction in inflation rates, without a
doubt, comes first among these accomplishments. This
development has been supported along with the improvement
of public finances and structural reforms.
As a result of these positive developments, the Turkish
economy has registered a growth beyond its targets for the
last three years in a row.
Strict adherence to structural reforms and financial discipline
will increase the resilience of the economy to external shocks
and support the low inflation/high growth path in the
forthcoming period. Reforms in the financial sector are aimed
at strengthening the regulatory and supervisory framework,
promoting efficiency and competition in the banking sector
and facilitating sound banking practices, thus establishing
confidence in the sector. Today, thanks to a new Banking
Law and full compliance with Basel Core Principles and EU
requirements, the stability of the banking system has become
more solid than ever.
Inflation under control
Concerning the prudent fiscal policies, structural reforms
and the changes in the institutional framework have resulted
in remarkable achievements leading to price stability. Hence,
the Central Bank of Turkey (CBRT) successfully utilized an
implicit inflation-targeting scheme in the fight against
inflation over the past four years.
As a result, inflation targets have been attained for four
years in a row, significantly enhancing the credibility of the
monetary policy. Annual CPI inflation, which was 73.2% as
recently as January of 2002, is now down to single digit
figures, standing at 7.72% as of the end of 2005.
This performance in disinflation has had an obvious positive
effect on the economic growth. Today, the main sources of
growth are the improvement in productivity and increased
export performance by the private sector. The economy is
expected to maintain this growth trend in 2006 and onward
and the main aim is to achieve a sustainable growth rate of
5.0%.
Sound monetary policies
Additionally, both nominal and real interest rates have
declined significantly. The average maturity of the Treasury
issues increased considerably and Turkish Eurobond spreads,
used as a proxy for the country risk premium, have dropped
significantly since 2001.
Turkish spreads are at historical lows and much tighter than
the current ratings imply. Despite the global fluctuations in
the international markets, Turkey has maintained a positive
market sentiment where the hikes and the upward volatility
in the Turkish spreads were short-lived. Volatility in exchange
rates has gradually decreased thanks to the transparent and
consistent operation of the floating exchange rate regime.
All these together triggered the reverse-dollarization process
where the weight of Turkish lira denominated investments
in portfolio preferences is now on an upward path. The CBRT
has shifted to formal inflation targeting as of January 1,
2006, and will continue to implement the floating exchange
rate regime.
The CBRT is aiming for year-end inflation rates of 5% this
year and 4% next year as well as in 2008. Inflation targeting
will further improve policy transparency and thus reduce the
risk premium. We expect the moderate disinflation process
to remain intact and thereby allow the Central Bank to lower
short-term interest rates by 150 basis points to 12% by the
end of 2006. We project that Turkey’s sovereign rating may
be upgraded by at least one notch in 2006. All major agencies
currently rate Turkey three notches below investment grade
with all maintaining a positive outlook.
Improved conditions for Treasury borrowing
The borrowing cost for the Treasury steadily declined in terms
of lira denominated discounted borrowing instruments. On
annual compounding terms, the average cost of borrowing
contracted to 16.3% as of December 2005, indicating a
significant decline when compared to the 2004 year-end
figure of 24.9%. The average maturity of internal borrowing
has been extended to 24.7 months.
Fikret Mualla, The Balerina
07
The Turkish economy
Reduction in budget deficits
The improvement in Turkey’s macroeconomic fundamentals
has mainly stemmed from the reduction in the budget deficit.
Indeed, it was the primary budget balance (budget balance
before interest payments) that was the main anchor of the
original IMF program in 2001, which envisioned that a high
primary budget balance would reduce the government’s need
to borrow, helping it to roll over its large debt obligations.
The central government budget deficit has currently fallen
to around 3% of GNP, down from 16.5% of GNP four years
ago. Moreover, we estimate the gross public sector debt
stock to have fallen to 68.9% as of October 2005, a drop from
96% in 2001. Furthermore, the reduction in the budget deficit
has allowed a "crowding-in" of private investment.
The increase in cash flows from privatization revenues
constitutes an important source of non-debt-creating
financing for the Treasury.
The central government budget targets a primary surplus of
6.1% in 2006 with the overall balance envisaged at around
2.5% of GNP. The consolidated budget realizations for 2005
disclosed recently by the Ministry of Finance are quite
positive in the sense that the budget deficit declined to
around 2% of the GDP and the primary surplus was as high
as 7.4% of GDP.
The high non-tax revenues exhibited a major performance
in attaining the considerably high primary surplus and the
record-low budget deficit. The decline in interest payments
was also crucial in the achievement of the low budget deficit.
The cost of imports declining with the appreciation in the
Turkish lira has triggered the export-led production increase.
Due to the intensifying imports, the growth performance
registered above the envisaged level on a large scale
regarding the year-end effective growth figures.
Widening current account deficit
Turkey’s current account deficit increased from US$ 15.7
billion (5.2% of GDP) in 2004 to US$ 22.9 billion (6.3% of
GDP) in 2005. This widening was mainly derived from the
resilience in domestic demand and to the rapid recovery in
investment appetite, but largely was due to high oil and
metal prices along with the transforming characteristics of
Turkey’s exports.
The recent upward trend in raw and semi-finished goods
imports was generated by the changes in the composition
of the GDP and export growth. In terms of foreign trade
dynamics, the shares of automotive, consumer durables and
machinery, and equipment exports are increasing mainly
depending on imported raw and semi-finished goods.
The strengthening trend in the lira has not been a major
factor behind the current account deficit deterioration. The
side effects of the lira strength have been compensated by
the continued productivity gains and real wage stagnation,
the combination of which has resulted in persistently low
unit labor costs. The main reason behind the current account
deficit has been the widening of the trade deficit in 2005
mainly due to higher commodity prices, in particular oil and
energy prices. Surging energy prices not only deteriorate
Turkey’s external balances but also pose inflationary threats
through primary and secondary effects.
Soaring exports
The exports volume reached a record level in 2005 with the
rapid increases in productivity supported by lower unit costs.
In 2005 as a whole, exports rose by 15.8% and reached US$
73.1 billion, while imports rose by 19% and amounted to US$
116 billion. The trade deficit increased by 24.9% and reached
US$ 42.9 billion. The exports to imports ratio, which stood
at 64.8% in 2004, fell to 63% in 2005.
The rapid improvement in the quality of current account
deficit financing has been significant. The financing of
the current account is dominated by abundant capital
inflows where strong investment, increasing foreign direct
investment (FDI), privatizations, and a steadily decreasing
PSBR have improved the medium-term prospects for the
balance of payments.
The rise in the imports of capital goods stemmed from the
vigorous investment demand while the rise in the imports of
consumption goods was stimulated both by the strong
consumption demand and by the fact that domestic
consumption goods are increasingly being substituted for
their imported equivalents, due to the real appreciation of
the Turkish lira.
Yet despite these large financing needs and also the need
to make net repayments to the IMF, Turkey’s Central Bank
reserves continue to increase thanks to strong capital inflows.
These capital inflows have not only been rising in quantity
but improving also in quality. In particular, the maturity of
external borrowing by Turkish banks and corporations has
been lengthened substantially.
08
The main objective of the economic
policies and structural reforms
implemented in Turkey is to
complete the process of full
membership in the EU in a rapid and
successful manner.
Foreign direct investments breaking records
A similar trend is evident in corporate borrowing. The most
significant improvement in the capital account is the upswing
in FDI inflows by following completion of some key deals in
the last two months of the year, especially in the
telecommunications and banking sectors. According to the
balance of payment statistics of the CBRT, the total value of
inflow reached US$ 9.7 billion in 2005, manifesting a 239%
increase as compared to the 2004 value of US$ 2.8 billion.
Due to the Government’s determination to promote its
privatization agenda, and given also the foreign interest in
the Turkish corporate sector inspired by the progress towards
EU accession, FDI inflows can be expected to stay strong in
the coming years.
Treasury borrowing requirement
The domestic debt stock, which stood at the YTL 224.5 billion
(US$ 167.3 billion) level as of 2004 year-end, increased by
YTL 20.3 billion in 2005 to reach YTL 244.8 billion (US$ 182.4
billion) by the end of the year.
The relative decline in the Treasury’s borrowing requirement
in 2005 compared to previous years has led to a deceleration
in the rate of increase in the domestic debt stock. Hence,
the domestic debt stock as a ratio to the GDP is expected to
have continued its decline in 2005. In fact, based on our GDP
estimation for 2005, the domestic debt stock is calculated
to have declined to 50% of the GDP by the 2005 year-end,
as compared to 52% by 2004 year-end.
The composition of the domestic debt stock by instruments
indicates that the share of FX-indexed/FX-denominated
government debt instruments (GDI) declined in 2005,
whereas the share of floating rate notes (FRN) increased.
This development in the domestic debt stock, although
reducing the vulnerability of the domestic debt to exchange
rate shocks, increased the vulnerability to interest rate jolts.
Regarding the stronger macroeconomic performance and
improved expectations the maturity of domestic borrowing
increased considerably in 2005. Hence, the average borrowing
maturity rose to 27.4 months as of December 2005, compared
to 17.4 months as of December 2004. So the average
borrowing maturity increased by around 10 months in 2005.
In line with this extension of the average borrowing maturity,
the apparent decline in the real interest rate on the domestic
debt stock has been the most prominent positive step in
terms of debt dynamics. In fact, the real interest rate of the
domestic debt stock, which stood at 9.49% in December
2004, declined to 7.96% as of December 2005.
Prospective EU membership is fuelling the economy
Turkey has recorded a remarkable progress on the journey
towards full membership in the European Union (EU) and
negotiations with the EU were officially launched on October
3, 2005. The main objective of the economic policies and
structural reforms implemented in Turkey is to complete the
process of full membership in the EU in a rapid and successful
manner.
The recent performance displayed by the Turkish economy
supports the achievement of a persistent stability and thereby
the attainment of a strong measure of success in some of
the implemented social policies. The Government has had
the economic foresight in the pre-accession period to
construct the base of the policies towards long-term
objectives and targets.
In this respect, these economic policies aim at achieving a
sustainable growth performance, involving the convergence
of inflation, which has already declined to single-digit levels,
to EU averages permanently and forming a sustainable fiscal
structure. By reaching these targets, initially introduced in
the context of the Copenhagen and Maastricht criteria, Turkey
is going to achieve an increase in the welfare level of its
society.
Since Turkey will be able to strictly stick to its reform-oriented
path of modernization in all aspects of its economic and
social standards, it is wise to expect the reaping of enormous
benefits from the integration of two regions with significantly
different factor endowments and a straightforward economic
insight.
09
10
Review of operations
A major advantage GSD Bank has
over its peers is the capability to
interact with the clients on a
one-on-one basis and develop
tailor-made credit packages that
best meet their requirements.
CORPORATE BANKING
Service quality
Among other corporate banking products, trade finance has
been the core business area for GSD Bank since its inception
seven years ago. The Bank’s relatively small size enables
fast and elaborate credit decisions and effective follow-up
and credit risk management procedures. Due to the Bank’s
long-established focus on corporate lending activities, the
staff has accumulated a vast experience and expertise in
credit analytics as well as a database of companies facilitating
the marketing and decision processes.
Another major advantage GSD Bank has over its peers is the
capability to interact with the clients on a one-on-one basis
and develop tailor-made credit packages that best meet
their requirements. These packages may include a number
of integrated corporate banking products that help facilitate
the client’s manufacturing and domestic and international
trading activities. Cash and non-cash credit products,
international transactions, collections, and payments are
some of the products most used by the Bank’s clients. When
delivering top-notch corporate banking products and services
at world class standards to its clients, GSD Bank never
compromises on quality and always seeks to build mutually
beneficial and long-term relationships with its clients.
Effective credit allocation process
When considering potential clients, GSD Bank refers to its
extensive in-house database of companies as well as
chambers of trade and industry sources. Before a potential
client is approached by GSD Bank’s marketing staff, it is
subjected to a screening process to ensure that it is a credible
company. Following a visit to the company, a comprehensive
report is prepared encompassing a credit limit proposal
together with a collateral structure. This report is then
submitted to the Credit Committee and/or the Board of
Directors for approval. GSD Bank’s credit allocation policy is
conservative, cautious, and highly selective.
Following all necessary approvals and obtaining the
collaterals, the credit line is made available to the client and
the monitoring process begins. During this phase, a close
relationship is maintained with the client in an effort to
monitor their activities and to see whether additional products
may be sold. The monitoring process enables the Bank to
heed early warning signals and take prompt action if the
client’s financial position deteriorates. The effectiveness of
the monitoring process is evidenced by the Bank’s very low
NPL ratio over the years.
The client portfolio
GSD Bank has a well-diversified client portfolio. Although
at first glance a concentration in financial services is
observed, credits to these institutions are mostly secured
with third-party collaterals endorsed to the Bank. These
collaterals are mostly in the form of post-dated checks
representing trade payables of numerous credible companies
from different sectors. Therefore risks are diversified
uniformly within a large group of companies which are actually
the clients of GSD Bank’s client.
Small and medium-size companies make up a larger portion
of the GSD Bank clientele. The composition of the total credit
volume is in favor of non-cash credit lines amounting to a
55% share, whereas cash credit lines comprise a 45% share.
Fikret Mualla, 1954
11
Future plans
It is envisaged that small and
medium-size companies will
continue to dominate the credit
portfolio and that the share of
non-cash credit lines will increase
further in the future.
It is envisaged that small and medium-size companies will
continue to dominate the credit portfolio and that the share
of non-cash credit lines will increase further in the future.
Taking more small businesses into the credit portfolio helps
to diversify risks and increase profitability. The Bank sees
highly collateralized non-cash credits as a source of noninterest income which contributes significantly to the overall
income generating power of the Bank.
Decreasing inflation has narrowed interest margins, forcing
banks to augment their client bases while simultaneously
improving asset quality. This is a challenging task. It means
Marketing strategies are determined by the Marketing
Department under the guidance of the General Manager.
These strategies are reviewed frequently taking into
account the information coming from the clients and are
adjusted periodically to prevailing economic and market
conditions.
Breakdown of Cash Credits into Industries
in 2005 (%)
expanding and diversifying the client base with minimum
risk-bearing companies. GSD Bank, with its traditional focus
on corporate banking, will have no difficulties in facing this
challenge in the future. In terms of staff quality and operational
means, it is well equipped to excel in the coming years.
Breakdown of Non-Cash Credits into Industries
in 2005 (%)
Textile
7%
Finance
60%
l 2%
ica
m
3%
e
Ch rtation
o
p
s
n
%
Tra
Food 3
Automotive 3%
Steel 2%
Finance
71%
Food 5%
Others
13%
ion
at
ort
nsp %
Tra 6
Others
20%
12
%
ile 5
Text
INTERNATIONAL RELATIONS
Breakdown of Total International Trade Volume
33.2
8.4
8.2
26
11.4
16.2
14
6.5
9.3
10.1
04
05
4.1
Focus on international trade finance
Since its establishment, GSD Bank has always placed an
emphasis on the expansion of foreign trade finance activities
and development of international relations with
correspondent banks as a part of its growth strategy. This
unique focus on international transactions has differentiated
the Bank from its peer group of privately owned non-deposittaking banks.
37
(US$ millions)
The year 2005 was one of achievements for GSD Bank in
international business. In only its seventh year of operations,
total correspondent limits increased by 42%, manifesting
the confidence shown by foreign banks in the sound
development of the Bank and the mutually beneficial
relationships built. Total international trade volume continued
to increase, from US$ 41.6 million in 2004 to US$ 45.2 million
in 2005.
International relations and the funding of the GSD Group
companies are also managed by the International Relations
Department.
Total International Trade Volume
00
01
Imports
02
03
Exports
The import transactions maintained an upward trend in 2005
as well, fully consuming the correspondent limits. Last year,
additional credit lines were obtained from foreign institutions
for the first time to finance the leasing transactions.
Correspondent banking
The philosophy GSD Bank pursues in correspondent banking
is based on dedication to commitment, flexibility,
transparency, and reciprocity. Most of the correspondent
banks are located in Europe and the USA, indicative of the
high volume of business conducted in those areas.
(US$ millions)
45.2
41.6
37.4
30.2
14.2
15.8
00
01
02
03
04
05
13
Breakdown of Total Correspondent Lines
(US$ millions)
Cash 21%
Non-Cash
37%
Morabaha
10%
GSM-102
7%
Treasury
25%
Agency credit lines
GSD Bank has credit lines from Turkish Eximbank and the
Commodity Credit Corporation of the US Department of
Agriculture. These credit lines are made available in full to
GSD Bank’s export clients in the textile, cellulose, and
agricultural goods industries.
Following the limit increase approved by the US Department
of Agriculture’s Commodity Credit Corporation, the line was
fully utilized.
As a result of its policy of continuously introducing new trade
products to better serve its clients, GSD Bank developed
relationships with financial institutions in the countries of
the Gulf region and obtained a "Morabaha" line, which is an
Islamic banking product. Subsequently, GSD Bank launched
morabaha financing to its clients in 2005.
Future plans
In 2006, the Bank will carry on with its international banking
policy to further expand its correspondent relations in
accordance with geographical diversity and the nature of
client requirements.
14
TREASURY
Maximizing Group synergy
The Treasury Department at GSD Bank seeks to maximize the
synergy created within the entire GSD Group and therefore
increase effectiveness saving on funding costs. The
Department has established every necessary means to
manage the Group’s funds at an optimized mix of costs,
profits, and risks while maintaining sufficient liquidity at all
times to promptly meet client requirements and legal
obligations.
Treasury management
The treasury function at GSD Bank is organized under FX,
Bonds, and TL desks. However, there are no definite borders
between these units as they collaborate closely in daily
treasury transactions. Additionally, the Treasury Department
handles all pricing issues at GSD Bank.
Trading strategy
The trading strategy is determined based on current and
expected market conditions and is solely guided by client
requirements. Speculative trading is avoided at all times and
positions are invested in with a long-term view.
The competent treasury staff at GSD Bank keeps a close eye
on market developments and acts swiftly when needed to
benefit from arbitrage and hedging opportunities. This
capability enables the Department to stay away from possible
threats and profit from volatilities.
The trading strategy at GSD Bank has always had a long-term
approach and can be best summarized as prudent, innovative,
solution provider, and focused. Owing to these attributes,
GSD Bank has always been a strategic trading partner for
some of the country’s most prominent banks and financial
institutions.
Future plans
One of the primary objectives of the Treasury Department in
the near future is to obtain the necessary funds at optimum
conditions to meet the Bank’s growth targets. For this
purpose, the Department will increase its presence in
domestic interbank markets as well as in the international
banking scene in an effort to raise funding.
GSD Bank aims to be fully compliant
with Basel II in terms of market,
credit and operational risks.
RISK MANAGEMENT
GSD Bank’s Risk Management Group is composed of the
Market Risk, Credit Risk, and Operational Risk Committees.
These Committees serve to mitigate the risks the Bank
encounters during its routine activities and facilitate the risk
management process.
Credit risk management
Credit risk is measured in terms of potential losses that may
result from any unforeseen deterioration in the
creditworthiness of counterparties and/or an unexpected
default. The purpose of the credit risk management function
is to systematically measure, monitor, and manage the risks
and credibility of counterparties.
Operational risk management
Operational risk is a statistically quantifiable event that
may result in the Bank’s monetary or reputation loss due
to wrong-doings of employees and/or malfunctioning of
systems, workflows, and organizational structure other than
market and credit risks.
GSD Bank is building its risk management systems and
tools with Basel II directives in mind. Market, credit, and
operational risks at GSD Bank will be Basel II compliant when
current studies are completed.
Market risk management
Market risk is the probability of loss in the on and off-balance
sheet positions held by the Bank stemming from changes in
interest and foreign currency rates and stock price volatility
in financial markets. GSD Bank employs the standard method
to measure its market risk and prepares a weekly FX rate
report and a monthly market risk report.
15
GSD Bank has a platform-independent
IT infrastructure, that is fully
integrated, fast, and flexible.
The IT set-up
GSD Bank uses a number of platforms in its IT applications.
The mainframes, in use since 1999, are HP Unix K360 and
K460 systems. Additionally, HP and IBM branded PCs are
integrated to the mainframe for certain applications. In the
LAN structure, Cisco & 3Comm network products have been
installed.
The programming language for the general banking
operational software (GBOS) is C working on a UNIX platform.
The clients use Power Builder GUI on PCs. The main database
structure has been built on Informix enabling queries from
PCs and is updated with C-based software applications and
stored procedures.
INFORMATION TECHNOLOGIES
Strengths of the IT infrastructure
GSD Bank’s IT infrastructure is platform-independent, almost
100% integrated, flexible, fast, and user-friendly. These
characteristics enable the Bank to deliver seamless service
to its clients, including numerous sophisticated reporting
facilities addressing the requirements of both the
management and clients.
Other strengths of the Bank’s IT activities are the competency
and experience of the staff members in banking software
applications, a lean organizational structure that eliminates
bureaucracy in determining IT needs, and close cooperation
with other departments of the Bank.
16
A fully equipped remote Disaster Recovery Center is in
operation at Tekstilbank’s Maslak headquarters building on
the European side of Istanbul. This center is capable of
handling all routine banking operations in case any kind of
disaster hits the Bank’s headquarters on the Asian side of
Istanbul.
Accomplishments in 2005
Some of the major projects completed in 2005 were:
• The project within the umbrella of the Turkish Bankers
Association enabling banks to use IBAN codes was
completed.
• GBOS sub-module was developed and put into production
enabling the conducting and monitoring of leasing
transactions.
• The database structure was renewed to store appropriate
credit data allowing for the calculation of internal credit
ratings compliant to Basel II standards.
• The X25 protocol between the EFT system and GBOS was
changed to a TCP-IP protocol.
• Foreign trade banking application software was developed
and launched.
Plans for the future
GSD Bank’s future plans in IT applications can be summarized
as follows:
• To develop the necessary tools to enable corporate
customers to effectively use the Bank’s Internet Branch.
To achieve this, clients will be visited and their requirements
will be examined.
• To implement measures to ensure the platform-independent
operations of the Bank’s IT environment.
• To complete the development of the real time on-line
factoring software, to be integrated with the bookkeeping
function by April 2006 and begin implementation.
17
Subsidiary
GSD INTERNATIONAL LIMITED
GSD International Limited is a wholly owned subsidiary of GSD Bank. The Company was established on the Isle of Man in 1997
with an initial capital of US$ 5 million. Its principal function is the management of the Group's investment portfolio under
the guidance of the Treasury Department of GSD Bank.
Fikret Mualla, 1953
18
19
Board of Directors
20
We believe that only as our customers
benefit from their collaboration with
GSD Bank our business will grow and
add value to our shareholders’
investments.
1
2
3
4
5
Ali Erdem Yörüko¤lu
Akgün Türer
Tevfik Tözün Tarman
Turhan Alpan
Yasef Coyas
6 Nihat Yalç›ntafl
7 Ergün Aral
Chairman
Member of the Board
Member of the Board
Member of the Board
Member of the Board and General Manager
Statutory Auditor
Statutory Auditor
3
5
21
6
4
7
1
2
Executive Management
22
5
1 Yasef Coyas
2 Zuhal Kirpikli
6
4
1
3
2
3 Hülya Sivasl›gil
Member of the Board and General Manager
Assistant General Manager, Treasury
Assistant General Manager, Marketing
Yasef Coyas is a graduate of the School of
Business Administration at Bo¤aziçi
University. He joined the GSD Group in 1997
and was subsequently promoted to the
position of General Manager and Board
Member of GSD Bank. He also serves as a
Board Member of GSD Holding, Tekstil
Leasing, GSD Insurance, GSD International,
and Tekstil Securities.
Zuhal Kirpikli holds a degree in Business
Administration from Istanbul University. She
joined the GSD Group in 1992 as Treasury
Manager, and currently she is the Assistant
General Manager responsible for Treasury at
GSD Bank.
Hülya Sivasl›gil is a graduate in Industrial
Engineering from Bo¤aziçi University and
holds a Masters Degree in Banking from
Marmara University. She served at Tekstilbank
between 1990-1998 and joined GSD Bank in
2004.
4 Neflat Kardefl
5 R›za Erkan
6 Murat Turhan
Group Head, Information Technology
Group Head, Operations
Group Head, Credits
Neflat Kardefl holds a degree in Mathematics
from Hacettepe University. He joined the GSD
Group in 1990, serving in Tekstilbank's IT
Department, where he was promoted to IT
Manager in 1998. Since 1999, he has been
serving as the Head of GSD Bank’s IT
Department.
R›za Erkan holds a degree in Law from Ankara
University. He joined the GSD Group in 1989
at Tekstilbank’s Izmir Branch. In 1998, he was
appointed to the Head Office as Head of
Operations. In 1999, he moved to GSD Bank
where he has since been serving as Head of
Operations.
Murat Turhan holds a degree in Public Finance
from Gazi University. He joined the GSD Group
in 1998 and, since 2005, has been serving as
the Group Head of Credits.
23
24
GSD Yat›r›m Bankas› Anonim fiirketi
Consolidated Financial Statements
Together with Report of Independent Auditors
December 31, 2005
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
GSD Yat›r›m Bankas› Anonim fiirketi:
We have audited the accompanying financial statements of GSD Yat›r›m Bankas› Anonim fiirketi (the Bank- a Turkish corporation) and its subsidiary (collectively the Group),
which comprise the consolidated balance sheet as of December 31, 2005 and the consolidated income statement, consolidated statement of changes in equity and consolidated
cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes, all expressed in the equivalent purchasing power of
New Turkish Lira as of December 31, 2005. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the financial statements of GSD International Limited, a consolidated subsidiary, whose statements
reflect total assets of YTL 7,110 thousands and net profit of YTL 374 thousands as of and for the year ended December 31, 2005. Those statements were audited by other auditors
whose report has been furnished to us and our opinion expressed therein so far as it relates to the amounts included for GSD International Limited, is based solely on the report
of other auditors.
We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of the
Group as of December 31, 2005 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
April 6, 2006
Istanbul, Turkey
CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2005
(Currency - In thousands of New Turkish Lira)
Notes
2005
2004
ASSETS
Cash and balances with The Central Bank
3
412
344
Deposits with banks and other financial institutions
3
7,537
7,192
Reserve deposits at The Central Banks
4
1,111
903
Trading securities
5
6,114
5,636
Loaned securities
5
3,178
95
15
33
82
Loans and advances
6
48,152
56,166
Minimum lease payments receivable
7
4,922
-
Derivative financial instruments
Investment securities:
5
8,365
1,993
Premises and equipment
Available-for-sale
8
294
452
Intangible assets
9
9
25
192
Deferred tax asset
14
177
Other assets
10
763
147
81,067
73,227
7,004
4,186
Total assets
LIABILITIES AND EQUITY
LIABILITIES
Other money market deposits
11
15
1
79
Funds borrowed
12
25,650
24,155
Other liabilities
13
1,479
917
Provisions
13
318
408
Income taxes payable
14
Total liabilities
-
121
34,452
29,866
EQUITY
Equity attributable to equity holders of the parent
46,615
43,361
Share capital issued
16
15,000
15,000
Adjustment to share capital
16
21,813
21,813
Unrealized gains/(losses) on available-for-sale investments
5,570
363
4,232
6,185
-
-
Total equity
46,615
43,361
Total liabilities and equity
81,067
73,227
Other reserves and retained earnings
17
Minority interest
The accompanying policies and explanatory notes on pages 32 through 60 form an integral part of these consolidated financial statements.
28
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005
Notes
2005
2004
Interest income
Interest on loans and advances
9,454
11,184
Interest on securities
982
1,342
Interest on deposits with banks and other financial institutions
312
390
Other interest income
57
13
Total interest income
10,805
12,929
(2,157)
(1,538)
Interest expense
Interest on funds borrowed and deposits from other banks
Other interest expense
(15)
(22)
Total interest expense
(2,172)
(1,560)
8,633
11,369
(1,247)
(375)
7,386
10,994
241
124
7,627
11,118
847
976
Net interest income
Provisions for impairment on loan and lease receivables
6
Net interest income after provision for impairment on loan and lease receivables
Foreign exchange gain/(loss)
Net interest income after provision for impairment on loan and
lease receivables and foreign exchange gain
Other operating income
Fees and commissions income
Trading income
Other income
32
107
851
904
Operating expenses
Fees and commissions expense
(215)
(133)
Salaries and employee benefits
19
(1,779)
(1,973)
Depreciation and amortization
8, 9
(222)
(259)
Taxes other than on income
Other expenses
20
Profit from operating activities before income tax and monetary loss
Income tax - current
14
Income tax - deferred
14
(169)
(404)
(1,504)
(1,527)
5,468
8,809
(738)
(1,055)
(7)
(19)
Monetary gain/(loss)
(1,866)
(5,326)
Net profit for the year
2,857
2,409
29
30
-
Accumulated deficit netted off
21,813
-
-
-
-
-
21,813
(16,032)
-
-
-
-
37,845
-
37,845
capital
to share
gains/
5,570
-
5,207
-
5,207
-
363
-
260
-
260
-
103
103
-
investments
available-for-sale
(losses) on
922
-
-
-
-
721
201
(1,454)
-
-
-
201
1,454
-
1,454
reserves
Legal
3,310
(4,810)
2,857
2,857
-
(721)
5,984
17,486
2,409
2,409
-
(201)
(13,710)
(103)
(13,607)
earnings
Retained
46,615
(4,810)
8,064
2,857
5,207
-
43,361
-
2,669
2,409
260
-
40,692
-
40,692
Total
15,000
-
Dividends paid
At December 31, 2005
-
Total income/expense for the year
17
-
-
Net change in unrealized gain on available-for-sale investments
-
Transfer to statutory reserves
5
-
Total income/expense for the year
15,000
-
2
-
Net change in unrealized gain on available-for-sale investments
At December 31, 2004/January 1, 2005 (as restated)
-
15,000
-
15,000
capital
Transfer to statutory reserves
At January 1, 2004 (as restated)
Effect of adopting changes in IAS 39
At January 1, 2004 (as previously reported)
Notes
Share
Adjustment
Unrealized
Attributable to equity holders of the parent
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
interest
Minority
46,615
(4,810)
8,064
2,857
5,207
-
43,361
-
2,669
2,409
260
-
40,692
-
40,692
equity
Total
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2005
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005
2005
2004
Cash flows from operating activities
Interest received
Interest paid
Fees and commissions received
Trading income
Recoveries of loans (Note 6)
Fees and commissions paid
Cash payments to employees (Note 19)
Cash received from other operations
11,046
13,062
(2,054)
(1,612)
847
976
32
367
1
2
(215)
(133)
(1,851)
(1,927)
1,090
904
Cash paid due to other operations
(1,753)
(2,003)
Income taxes paid
(1,178)
(1,895)
5,965
7,741
Cash flows from operating activities before changes in operating assets and liabilities
Changes in operating assets and liabilities
Time deposits with original maturities of more than three months
Trading and loaned securities
6,970
4,547
(3,822)
(653)
Reserve deposits at The Central Bank
(208)
(164)
Loans and advances
6,928
(11,700)
(4,922)
-
Other assets
2,316
4
Other liabilities
2,100
3,771
15,327
3,546
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchases of available-for-sale securities (Note 5)
Proceeds from sale of available-for-sale securities (Note 5)
Investment securities
Purchases of property and equipment (Note 8)
Proceeds from the sale of property and equipment and intangible assets
Purchase of intangible assets (Note 9)
(1,347)
-
119
-
-
87
(52)
(269)
4
2
-
(1)
(1,276)
(181)
Proceeds from funds borrowed
-
-
Repayments of funds borrowed
-
-
Dividends paid
(4,810)
-
Net cash used in financing activities
(4,810)
-
Effect of net foreign exchanges difference and monetary gain (loss) on monetary items
(1,858)
(5,144)
7,383
(1,779)
542
2,321
7,925
542
Net cash (used in) provided by investing activities
Cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year (Note 3)
Cash and cash equivalents at end of year (Note 3)
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005
(Currency - In thousands of New Turkish Lira, unless indicated otherwise)
1. CORPORATE INFORMATION
General
GSD Yat›r›m Bankas› Anonim fiirketi (the Bank) was registered on December 22, 1998 at Turkish Trade Registry Gazette, in accordance with the decision number
98/10962 taken by the Council of Ministers on April 20, 1998. The Bank was registered as an investment bank and commenced its operations on April 7, 1999, after
obtaining the necessary banking permissions from the Turkish Undersecretariat of Treasury (the Treasury) and the Central Bank of Turkey (the Central Bank) as of
February 24, 1999.
The registered office address of the Bank is Ayd›nevler Mahallesi, ‹nönü Caddesi, GSD Binas› No:14, Küçükyal› 81570, Maltepe - ‹stanbul, Turkey.
The consolidated financial statements of the Bank are authorized for issue by the management on April 6, 2006. The General Assembly and certain regulatory bodies
have the power to amend the statutory financial statements after issue. The parent and ultimate parent of the Bank is GSD Holding A.fi. (GSD Holding) whose majority
shares are publicly traded.
Nature of Activities of the Group
For the purposes of the consolidated financial statements, the Bank and its consolidated subsidiary are referred to as “the Group”.
The operations of the Group consist of investment banking provided in Turkey and investing activities provided abroad. The Bank does not have any branches.
The subsidiary included in consolidation and effective shareholding percentage of the Group as of December 31, 2005 and 2004 is as follows:
Place of
Incorporation
DOUGLAS/UK
GSD INTERNATIONAL LTD
Principal Activity
Investing
Effective Shareholding
and Voting Rights %
2005
2004
100.0
100.0
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of Preparation
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS). The consolidated
financial statements have been prepared under the historical cost convention, except for available-for-sale securities, trading securities and derivative financial
instruments that have been measured at fair value.
The Bank maintains its books of account and prepares its statutory financial statements in accordance with the regulations on accounting and reporting framework
and accounting standards which are determined by the provisions of Turkish Banking Law and accounting standards promulgated by the other relevant laws and
regulations. GSD International Limited (GSD International), the consolidated subsidiary, maintains its books of account in accordance with Isle of Man Companies
Acts. The consolidated financial statements have been prepared from statutory financial statements of the Bank and its subsidiary and presented in accordance with
IFRS in New Turkish Lira (YTL) with adjustments and certain reclassifications for the purpose of fair presentation in accordance with IFRS. Such adjustments mainly
comprise the effects of restatement for the changes in the general purchasing power of Turkish Lira, consolidation of subsidiary, deferred taxation and employee
termination benefits.
32
2.2 Summary of Significant Accounting Policies, Judgments and Estimates
Judgments and Estimates
The preparation of the financial statements in accordance with IFRS requires management to make estimates and assumptions that are reflected in the measurement
of income and expense in the profit and loss statement and in the carrying value of assets and liabilities in the balance sheet, and in the disclosure of information in
the notes to the financial statements. Managers do exercise judgment and make use of information available at the date of the preparation of the financial
statements in making these estimates. The actual future results from operations in respect of the areas where these judgments and estimates have been made may in
reality be different than those estimates. This may have a material effect on the financial statements.
The judgments and estimates that may have a significant effect on amounts recognized in the financial statements are discussed in the relevant sections of this note
below.
Functional and Presentation Currency
Functional and Presentation Currency for the Bank
As a result of a long period of high inflation, the Turkish Lira (TL) has ended up in large denominations, creating difficulty in expressing and recording transactions. A
new law was enacted in January 31, 2004 to introduce Yeni Türk Liras› (New Turkish Lira, YTL), as the new currency unit for the Republic of Turkey effective January 1,
2005. The conversion rate for TL against YTL is fixed at YTL 1 to TL 1,000,000 throughout the period of one year until complete phase-out of TL. Effective January 1,
2005, the Bank’s functional and presentation currency is YTL and consolidated financial statements including comparative figures for the prior periods are presented
in thousands of YTL.
The restatement for the changes in the general purchasing power of YTL is based on IAS 29 (“Financial Reporting in Hyperinflationary Economies”). IAS 29 requires
that financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuring unit current at the balance sheet date and the
corresponding figures for previous periods be restated in the same terms. Determining whether an economy is hyperinflationary in accordance with IAS 29 requires
judgment as the standard does not establish an absolute rate, instead it considers the following characteristics of the economic environment of a country to be
strong indicators of the existence of hyperinflation: (a) the general population prefers to keep its wealth in non monetary assets or in a relatively stable currency;
amounts of local currency held are immediately invested to maintain purchasing power, (b) the general population regards monetary amounts not in terms of local
currency but in terms of a relatively stable currency; prices may be quoted in that currency, (c) sales and purchases on credit take place at prices that compensate
for the expected loss of purchasing power during the credit period, even if the period is short, (d) interest rates, wages and prices are linked to a price index and (e)
the cumulative inflation rate over three years is approaching, or exceeds 100%. As of December 31, 2005, the three-year cumulative rate has been 35.61%
(December 31, 2004 - 69.72%) based on the indices published by the State Institute of Statistics (SIS), and local authorities, which govern the reporting
requirements of the Group in Turkey, ceased the requirements for application of inflation accounting effective from January 1, 2005. However, IAS 29 is continued to
be applied in the preparation of the IFRS financial statements until the positive trends are confirmed as “other than temporary”. This is also consistent with the
conclusion of the International Practices Task Force of the American Institute of Certified Public Accountants (AICPA) for reporting purposes under generally accepted
principles accounting principles in the United States of America. Based on the current trends of and developments, Turkey is expected to come off hyperinflationary
status effective from January 1, 2006.
Index and conversion factors as of the end of the three year period ended December 31, 2005 are given below:
Dates
December 31, 2002
December 31, 2003
December 31, 2004
December 31, 2005
Index
6,478.80
7,382.10
8,403.80
8,785.74
33
Conversion Factors
1.3561
1.1901
1.0454
1.0000
The main guidelines for the above mentioned restatement are as follows:
-
the financial statements of prior year, including monetary assets and liabilities reported therein, which were previously reported in terms of the measuring unit
current at the end of that year are restated in their entirety to the measuring unit current at December 31, 2005.
-
monetary assets and liabilities reported in the consolidated balance sheet as of December 31, 2005 are not restated because they are already expressed in terms
of the monetary unit current at that balance sheet date.
-
the inflation adjusted share capital was derived by indexing cash contributions, dividends reinvested, transfers from statutory retained earnings and income
from sale of equity investments and property transferred to share capital from the date they were contributed.
-
non-monetary assets and liabilities which are not carried at amounts current at the balance sheet date and other components of equity are restated by applying
the relevant conversion factors.
-
the effect of general inflation on the net monetary position is included in the income statement as monetary gain (loss).
-
all items in the income statement are restated by applying appropriate average conversion factors with the exception of depreciation, amortization, gain or loss
on disposal of non-monetary assets, which have been calculated based on the restated gross book values and accumulated depreciation/amortization.
Restatement of balance sheet and income statement items through the use of a general price index and relevant conversion factors does not necessarily mean that
the Group could realize or settle the same values of assets and liabilities as indicated in the consolidated balance sheets. Similarly, it does not necessarily mean that
the Group could return or settle the same values of equity to its shareholders.
Functional Currency of Foreign Subsidiary
As of December 31, 2005 and 2004, the foreign subsidiary (GSD International, which was previously classified as integral foreign operation) has the same functional
currency as the reporting entity.
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Bank and its subsidiary, as at December 31 each year.
Subsidiary is the entity over which the Group has power to govern the financial and operating policies so as to benefit from its activities. Subsidiary in which the
Group owns directly or indirectly more than 50% of the voting rights, or has power to govern the financial and operating policies under a statute or agreement is
consolidated. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group
controls another entity.
Subsidiary is fully consolidated from the date of acquisition, being the date on which control is transferred to the Group and ceases to be consolidated from the date
on which control is transferred out of the Group.
The purchase method of accounting is used for acquired businesses. The purchase method of accounting involves allocating the cost of the business combination to
the fair value of assets acquired and liabilities and contingent liabilities assumed at the date of acquisition. The excess of the cost of acquisition over the fair value
of Group’s share of the identifiable net assets acquired is recorded as goodwill.
The financial statements of the subsidiary is prepared for the same reporting year as the parent Bank, using consistent accounting policies.
All intra-group balances, transactions, and unrealized gains on intra-group transactions are eliminated; unrealized losses are also eliminated unless the transaction
provides evidence of impairment of the asset transferred.
The equity and net income attributable to minority shareholders’ interests are shown separately in the balance sheet and income statement, respectively, except
where the minority shareholders, who are nominee shareholders, do not exercise their minority rights.
34
Foreign Currency Translation
The consolidated financial statements are presented in YTL, which is the Bank’s functional and presentation currency. Each entity in the Group determines its own
functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are
initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement.
Foreign currency translation rates used by the Group as of respective year-ends are as follows:
EUR/YTL (full)
1.7450
1.8268
1.5875
December 31, 2003
December 31, 2004
December 31, 2005
USD/YTL (full)
1.3958
1.3421
1.3418
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and accumulated impairment in value.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Machinery and equipment
Office equipment
Furniture, fixtures and vehicles
Leasehold improvements
5 years
5 years
5 years
Lease period
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end.
The carrying values of premises and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be
recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets of cash generating units are written
down to their recoverable amount. The recoverable amount is defined as the amount that is the higher of the asset’s fair value less costs to sell and value in use.
Impairment losses are recognized in the income statement. There is no impairment recorded related to premises and equipment.
An item of premises and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising
on derecognizing of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income
statement in the year the asset is derecognized.
Intangible Assets
Intangible assets acquired separately from a business are capitalized at cost. Following initial recognition intangible assets are carried at cost less any accumulated
amortization and any accumulated impairment losses. Intangible assets with finite lives are amortized on a straight-line basis over the best estimate of their useful
lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. There is no impairment recorded related to intangible
assets. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes
in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization
period or method, as appropriate, and treated as changes in accounting estimates.
The Group amortizes intangible assets with a finite life on a straight-line basis over the estimated useful lives of 5 years.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the
asset and are recognized in the income statement when the asset is derecognized.
35
Investments and Other Financial Assets
The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; and available-for-sale
financial assets. When financial assets are recognized initially, they are measured at fair value. The Group determines the classification of its financial assets at
initial recognition.
All regular way purchases and sales of financial assets are recognized on the settlement date i.e. the date that the asset is delivered to or by the Group. Regular way
purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in
the market place. Changes in fair value of assets to be received during the period between the trade date and the settlement date are accounted for in the same way
as the acquired assets i.e. for assets carried at cost or amortized cost; change in value is not recognized. It is recognized in profit or loss for assets classified as
financial assets at fair value through profit or loss; and it is recognized in equity for assets classified as available-for-sale
Financial assets at fair value through profit or loss
Financial assets classified as held-for-trading are included in this category. Trading securities are securities, which were either acquired for generating a profit from
short-term fluctuations in price or dealer’s margin, or are securities included in a portfolio in which a pattern of short-term profit taking exist. Derivatives are also
classified as held-for-trading unless they are designated as effective hedging instruments. Gains or losses on investments held-for-trading are recognized in
income.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group
provides money, goods or services directly to a debtor with no intention of trading the receivable. Such assets are carried at amortized cost using the effective
interest method less any impairment in value. Gains and losses are recognized in income when the loans and receivables are derecognized or impaired, as well as
through the amortization process. Interest earned on such loans and receivables is reported as interest income.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the two
preceding categories. After initial recognition, available-for-sale financial assets are measured at fair value. Gains or losses on remeasurement to fair value are
recognized as a separate component of equity until the investment is derecognized, or until the investment is determined to be impaired, at which time the
cumulative gain or loss previously reported in equity is included in the income statement. However, interest calculated on available-for-sale financial assets using
effective interest method is reported as interest income.
For investments that are traded in an active market, fair value is determined by reference to stock exchange or current market bid prices, at the close of business on
the balance sheet date. For investments where there is no market price or market price is not indicative of the fair value of the instrument, fair value is determined
by reference to the current market value of another instrument which is substantially the same, recent arm's length transactions, discounted cash flow analysis and
other valuation techniques commonly used.
Repurchase and Resale Transactions
The Group enters into sales of securities under agreements to repurchase such securities at a fixed price at a fixed future date. Such securities, which have been sold
subject to a repurchase agreement (‘repos’), are recognized in the balance sheet and are measured in accordance with the accounting policy of the security portfolio
which they are part of. Securities sold subject to repurchase agreements (‘repos’) are reclassified in the financial statements as loaned securities when the
transferee has the right by contract or custom to sell or repledge the collateral. The counterparty liability for amounts received under these agreements is included in
other money market deposits. The difference between sale and repurchase price is treated as interest expense and accrued over the life of the repurchase
agreements using the effective interest method.
36
Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts
and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.
Recognition and Derecognition of Financial Instruments
The Group recognizes a financial asset or financial liability in its balance sheet when and only when it becomes a party to the contractual provisions of the
instrument.
The Group derecognizes a financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) when the rights to receive cash
flows from the asset have expired; or while retaining the right to receive cash flows from the asset the Group has also assumed an obligation to pay them in full
without material delay to a third party; or the Group has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks
and rewards of the asset, or has transferred the control of the asset.
The Group does not have any assets where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained
substantially all the risks and rewards of the asset nor transferred control of the asset, that are recognized to the extent of the Group’s continuing involvement in the
asset.
The Group derecognizes a financial liability when the obligation under the liability is discharged or cancelled or expires.
When an existing liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the
respective carrying amounts is recognized in profit or loss.
Cash and Cash Equivalents
For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash and balances with The Central Bank (excluding obligatory reserve
deposits), deposits with banks and other financial institutions and other money market placements with an original maturity of three months or less.
Impairment of Financial Assets
a) Assets carried at amortized cost
In determining whether an impairment loss should be recorded in the income statement, the Group makes judgments as to whether there is any observable data
indicating that there is a measurable decrease in the estimated amounts recoverable from a portfolio of loans and individual loans. Objective evidence that a
financial asset or group of assets is impaired includes observable data that comes to the attention of the Group about the following loss events:
(a) significant financial difficulty of the issuer or obligor;
(b) a breach of contract, such as a default or delinquency in interest or principal payments by more than 90 days;
(c) the Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a concession that the lender would not
otherwise consider;
(d) it becoming probable that the borrower will enter bankruptcy or other financial reorganization;
(e) the disappearance of an active market for that financial asset because of financial difficulties; or
(f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial
recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including:
(i) adverse changes in the payment status of borrowers; or
(ii) national or local economic conditions that correlate with defaults on the assets in the group.
37
All loans with principal and/or interest overdue for more than 90 days are considered as impaired and individually assessed.
If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured based
on the difference between the asset’s carrying amount and the estimated recoverable amount. The carrying amount of the asset is reduced through the use of an
allowance account. The amount of the loss is recognized in the income statement. The estimated recoverable amount of a collateralized financial asset is measured
based on the present value amount that is expected to be realized from foreclosure less costs for obtaining and selling the collateral, whether or not the foreclosure
is probable.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or
collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed
financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets
is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are
not included in a collective assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was
recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. Any
subsequent reversal of impairment loss is recognized in income statement, to the extent that the carrying value of the asset does not exceed its amortized cost at the
reversal date. The amount of the reversal should not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the
impairment not been recognized at the date the impairment is reversed.
A write off is made when all or part of a loan is deemed uncollectible or in the case of debt forgiveness. Such loans are written off after all the necessary procedures
have been completed and the amount of the loss has been determined. Write offs are charged against previously established allowances and reduce the principal
amount of a loan. Subsequent recoveries of amounts previously written off are included in income.
The methodology and assumptions used for estimating both the amount and timing of recoverable amounts are reviewed regularly to reduce any differences between
loss estimates and actual loss experience.
b) Assets carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably
measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss
is measured as the difference between the asset’s carrying amount and the present value of its recoverable amount. There is no impairment recorded related to
assets carried at cost.
c) Available-for-sale financial assets
The Group determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost.
This determination of what is significant or prolonged requires judgment.
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair
value, less any impairment loss previously recognized in profit or loss, is transferred from equity to the income statement. Reversals of impairment losses on debt
instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment
loss was recognized in profit or loss.
There is no decline in fair value below cost recorded in the fair value reserve in equity.
38
Interest-bearing Deposits and Borrowings
All deposits and borrowings are initially recognized at the fair value of consideration received less directly attributable transaction costs. After initial recognition
interest-bearing deposits and borrowings are subsequently measured at amortized cost using the effective interest method. Gains or losses are recognized in the
income statement when the liabilities are derecognized as well as through the amortization process.
Employee Termination Benefits
(a) Defined Benefit Plans
In accordance with existing social legislation in Turkey, the Bank is required to make lump-sum termination indemnities to each employee who has completed over
one year of service with the Bank and whose employment is terminated due to retirement or for reasons other than resignation or misconduct.
Such defined benefit plan is unfunded. Provision is made for the present value of the defined benefit obligation calculated using the Projected Unit Credit Method.
All actuarial gains and losses are recognized in the income statement.
(b) Defined Contribution Plans
For defined contribution plans, the Group pays contributions to publicly administered Social Security Funds on a mandatory basis. The Group has no further payment
obligation once the contributions have been paid. The contributions are recognized as employee benefits expense when they are due.
Provisions
Provisions are recognized when the Group has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is
presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.
Leases
(a) The Group as Lessee
Operating leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. These include rent agreements of
Head Office, which are cancelable subject to a period notice. Related payments are recognized as an expense in the income statement on a straight-line basis over
the lease term.
When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognized as an
expense in the period in which the termination takes place.
39
(b) The Group as Lessor
Finance leases
A finance lease is a lease that transfers substantially all the risk and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. The
Group classifies leased assets as a receivable equal to the net investment in the lease. Finance income is based on a pattern reflecting a constant periodic rate of
return on the net investment outstanding. Initial direct costs are included in the initial measurement of the finance lease receivable and reduce the amount of
income recognized over the lease term.
Income and Expense Recognition
Interest income and expense are recognized in the income statement for all interest bearing instruments on an accrual basis using the effective interest method. The
effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability (or group of financial assets or financial liabilities)
and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial instrument or, when appropriate, throughout the period to the next repricing date. When calculating
the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment) but does not
consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate,
transaction costs, and all other premiums or discounts.
Fees and commissions are generally recognized on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn
down are deferred (together with related direct costs) and recognized as an adjustment to the effective interest rate of the loan. Commission and fees arising from
negotiating or participating in the negotiation of a transaction for a third party are recognized on completion of the underlying transaction.
Fee for bank transfers and other banking transaction services are recorded as income when collected.
Income Tax
Tax expense (income) is the aggregate amount included in the determination of net profit or loss for the period in respect of current and deferred tax.
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered or paid to the taxation authorities. The tax
rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences, except:
-
where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business com
bination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
-
in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
40
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is
probable that taxable profit will be available against which the deductible temporary differences, carry-forward of unused tax credits and unused tax losses can be
utilized except:
-
where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
-
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognized to the extent that it is
probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be
utilized.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each
balance sheet date and are recognized to the extent it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled,
based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Income tax relating to items recognized directly in equity is recognized in equity and not in the income statement.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities, and deferred
taxes relate to the same taxable entity and the same taxation authority.
Derivative Financial Instruments
The Group enters into transactions with derivative instruments, primarily forwards in the foreign exchange markets. These derivative transactions are considered as
effective economic hedges under the Group's risk management policies; however since they do not qualify for hedge accounting under the specific provisions of IAS
39 (“Financial Instruments: Recognition and Measurement”), they are treated as derivatives held for trading. Derivative financial instruments are initially recognized
at fair value on the date which a derivative contract is entered into and subsequently remeasured at fair value. Any gains or losses arising from changes in fair value
on derivatives that do not qualify for hedge accounting are recognized in income statement.
Fair values are obtained from quoted market prices, to the extent publicly available, discounted cash flows and options pricing models as appropriate. All derivatives
are carried as assets when fair value is positive and as liabilities when fair value is negative.
Fiduciary Assets
Assets held by the Group in a fiduciary, agency or custodian capacity for its customers are not included in the balance sheet, since such items are not treated as
assets of the Group.
2.3 Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year except that the Group has adopted those new/revised standards mandatory
for financial years beginning on or after January 1, 2005.
41
The changes in accounting policies resulting from the adoption of the following new or revised standards which are relevant to the Group’s operations are summarized
below:
Starting from January 1, 2005, the Company has reflected fair value change of available-for-sale securities under equity as International Accounting Standard (IAS)
39 - Financial Instruments: Recognition and Measurement is amended effective from January 1, 2005. The Company recognized gains and losses related with
available-for-sale securities in income statement till January 1, 2004. According to the amendment in the accounting policy, balance sheet as of December 31, 2004
and income statement for the period ended December 31, 2004 are restated retrospectively, as mentioned in the standard.
As shown in the statement of changes in equity, effects of these adjustments, which did not change the total shareholder’s equity, are summarized below:
Unrealized gains/(losses) on available-for-sale investments
Other reserves and retained earnings
Net income for the year
Reported at
December 31, 2004
6,548
2,669
Restated
363
6,185
2,409
Effect of
Restatement
363
(363)
(260)
IAS 1 (revised) “Presentation of Financial Statements” has affected the presentation of minority interest and other disclosures.
IAS 21 (revised) “The Effects of Changes in Foreign Exchange Rates” had no material effect on the Group’s policy. The functional currency of the consolidated entity
has been re-evaluated based on the guidance to the revised standard. All the Group entities have the same functional currency as their measurement currency.
IAS 24 (revised) “Related Party Disclosures” has affected the identification and definition of related parties and some other related party disclosures.
IFRS 3 “Business Combinations”, IAS 36 (revised) “Impairment of Assets” and IAS 38 (revised) “Intangible Assets” resulted no effect on Group’s policies.
IAS 10 “Events After the Balance Sheet Date”, IAS 16 “Property, Plant and Equipment”, IAS 17 “Leases”, IAS 27 “Consolidated and Separate Financial Statements”, IAS
32 “Financial Instruments: Disclosure and Presentation” and IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” had no material effect on the
Group’s accounting policies.
IFRSs and IFRIC Interpretations Not Yet Effective
The Group has not applied the IFRSs and IFRIC Interpretations that have been issued but are not yet effective. In this context, the Group expects that the adoption of
IFRS 7 “Financial Instruments-Disclosures”, which supersedes IAS 30 and disclosure requirements of IAS 32 and is effective for annual periods beginning on or after
January 1, 2007 will impact the presentation of additional disclosures on financial instruments. Other than this, IFRIC 4 “Determining Whether an Arrangement
Contains a Lease”, which is required to be applied for annual periods beginning on or after January 1, 2006 is not expected to have an impact on the Group’s financial
statements in the period of initial application. The other pronouncements (IFRS 6 “Exploration for and Evaluation of Mineral Resources”, IFRIC 5 “Rights to Interests
Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds”) are not relevant to the Group’s operations.
Reclassification of Comparative Information
The Group has made certain reclassifications in the consolidated financial statements as of December 31, 2004 to be consistent with the current year presentation.
Major reclassifications are as follows:
-
YTL 95 of loaned securities has been classified separately from trading securities.
YTL 408 of provisions has been classified separately from other liabilities.
42
3. CASH AND CASH EQUIVALENTS
Cash on hand
Balances with The Central Bank
Less: Time deposits with original maturities of more than three months
Cash and cash equivalents in the cash flow statement
2005
1
411
2004
1
343
412
344
7,537
7,192
(24)
(6,994)
7,925
542
The effective interest rates on deposits and placements are as follows:
2005
Effective Interest Rate
New Turkish Lira
Foreign Currency
2.10%
2004
New Turkish Lira
Foreign Currency
4.5%
4. RESERVE DEPOSITS AT THE CENTRAL BANK
According to the regulations of The Central Bank of Turkish Republic, banks are obliged to a reserve a portion of certain liability accounts as specified in the related
decrees. Such mandatory reserves are not available for use in the Group’s day to day operations.
As of December 31, 2005 and 2004, the reserve deposit requirements applicable in Turkey for New Turkish Lira and foreign currency deposits were 6% and 11%,
respectively.
As of December 31, 2005, the interest rates applied for Turkish Lira and foreign currency reserve deposits are 10.25% (2004 - 12.5%) and 1.14% (2004 - 0.41%),
respectively.
43
5. INVESTMENTS IN SECURITIES
Trading Securities:
Amount
Trading securities at fair value
Debt instruments
Turkish government bonds & treasury bills
6,114
Total trading securities
6,114
2005
New
Foreign
Turkish Lira
Currency
14.22%
-
Amount
5,636
2004
New
Turkish Lira
Foreign
Currency
29.30%
-
5,636
Investment Securities:
Available-for-sale securities
Mutual Funds
Equity instruments - listed (*)
Total available-for-sale securities
2005
2004
8,365
8,365
119
1,874
1,993
(*) Includes GSD Holding shares.
Loaned Securities:
Carrying value of debt instruments given as collateral under repurchase agreements which are classified as loaned securities and related liabilities are:
Trading securities
2005
3,178
2004
95
Carrying value of securities given as collateral under repos
3,178
95
Related liability
3,004
110
Loaned securities are fixed interest securities. Repurchase agreements mature within 1 month.
In addition, as of December 31, 2005, government securities with carrying values of YTL 6,114 (2004 - YTL 5,636) are pledged to the Central Bank, and the Istanbul
Menkul K›ymetler Borsas› Takas ve Saklama Bankas› Anonim fiirketi (Istanbul Stock Exchange Clearing and Custody Bank Incorporation) for regulatory requirements
and as a guarantee for stock exchange and money market operations.
44
The movement in investment securities is summarized as follows:
2005
Available-for-sale
1,993
(63)
1,347
(119)
5,207
8,365
At January 1
Exchange differences and monetary gain/(loss) on monetary assets
Additions
Disposals (sale)
Changes in fair value
At December 31
2004
Available-for-sale
2,080
(347)
260
1,993
All securities under available-for-sale portfolio are fixed interest securities.
6. LOANS AND ADVANCES
Corporate loans
Consumer loans
Total performing loans
Amount
43,953
64
44,017
Loans in arrears
Less: Specific reserve for impairment
Less: Portfolio reserve for impairment
Total
6,855
(2,368)
(352)
48,152
2005
New
Foreign
Turkish Lira
Currency
20.61% 8.31%-8.69%
-
Amount
50,487
67
50,554
2004
New
Turkish Lira
28%-60%
-
Foreign
Currency
6%-12%
-
7,167
(1,224)
(331)
56,166
6,371 YTL of the loans have floating interest rates.
The portfolio reserve for impairment is provided based on past experience, management’s assessment of current economic condition, the quality and inherent risk in
the credit portfolio of the Group.
Movements in the reserve for impairment on loans and advances:
Reserve at beginning of year
Provision for impairment
Recoveries
Provision net of recoveries
Monetary gain
2005
1,555
1,248
(1)
1,247
(82)
2004
1,342
377
(2)
375
(162)
Reserve at end of the year
2,720
1,555
Loans in arrears represents impaired loans and advances on which interest is not being accrued and loans overdue for more than 90 days for which interest is
suspended.
45
7. MINIMUM LEASE PAYMENTS RECEIVABLE
Not later than 1 year
Later than 1 year but not later than 5 years
2005
2,458
3,138
2004
-
Minimum lease payments receivable, gross
5,596
-
Less: Unearned interest income
(674)
-
Net investment in finance leases
4,922
-
Minimum lease payments receivable, net
4,922
-
2005
2,062
2,860
4,922
2004
-
Net investment in finance leases are analyzed as follows:
Not later than 1 year
Later than 1 year but not later than 5 years
Total
As of December 31, 2005 YTL 4,715 of gross lease receivables are denominated in foreign currency (EUR) and YTL and all are given to construction industry. The
average interest rate is 8.89% and 18.75% for foreign currency denominated receivables and YTL receivables respectively. Finance lease receivables have fixed
interest rates.
As of December 31, 2005, there is no provision for minimum lease payments receivables.
8. PREMISES AND EQUIPMENT
At January 1, 2005, net of accumulated depreciation
Additions
Disposals
Depreciation charge for the year
At December 31, 2005, net of accumulated depreciation
Furniture, Fixtures
and Office Equipment
54
4
(43)
15
Leasehold
Improvements
171
(96)
75
Motor
Vehicles
211
43
(51)
203
Leased
Assets
16
5
(4)
(16)
1
Total
452
52
(4)
(206)
294
At January 1, 2004, net of accumulated depreciation
Additions
Disposals
Depreciation charge for the year
At December 31, 2004, net of accumulated depreciation
45
44
(35)
54
268
(97)
171
21
225
(2)
(33)
211
45
(29)
16
379
269
(2)
(194)
452
Cost
Accumulated depreciation
Net carrying amount
201
(186)
15
486
(411)
75
331
(128)
203
401
(400)
1
1,419
(1,125)
294
Cost
Accumulated depreciation
Net carrying amount
197
(143)
54
486
(315)
171
288
(77)
211
451
(435)
16
1,422
(970)
452
46
9. INTANGIBLE ASSETS
At January 1, 2005, net of accumulated amortization
Additions
Amortization charge for the year
At December 31, 2005, net of accumulated amortization
Software
25
(16)
9
At January 1, 2004, net of accumulated amortization
Additions
Amortization charge for the year
At December 31, 2004, net of accumulated amortization
88
1
(64)
25
Cost
Accumulated amortization
Net carrying amount
827
(818)
9
Cost
Accumulated amortization
Net carrying amount
827
(802)
25
10. OTHER ASSETS
Transitory accounts and prepaid expenses
Prepaid income and other taxes
Assets held for resale
Others
Total
2005
402
323
11
27
763
2004
132
11
4
147
2005
2004
3,004
4,000
7,004
110
4,076
4,186
11. DEPOSITS
Obligations under repurchase agreements:
- Due to banks
Total
Other money market deposits have fixed interest rates whose average is 13.32%.
47
12. FUNDS BORROWED
Amount
Short-term
Fixed interest
Floating interest
Medium/long-term
Fixed interest
Floating interest
Total
13,969
5,504
15.45%
-
4.30%
4.66%
2,802
3,375
25,650
-
5.72%
4.82%
Amount
Short-term
Fixed interest
Floating interest
Medium/long-term
Fixed interest
Floating interest
Total
2005
New Turkish Lira
Foreign Currency
2004
New Turkish Lira
Foreign Currency
24,155
-
19.00%-20.00%
-
2.00% - 3.90%
-
24,155
-
-
Floating rate
2,789
586
3,375
Fixed rate
-
Floating rate
-
2005
2004
181
1,230
68
1,479
181
623
113
917
318
318
408
408
1,797
1,325
Repayment plan of medium and long-term borrowings is as follows:
2005
Fixed rate
2,802
2,802
2006
2007
2008
Total
2004
Funds borrowed are unsecured.
13. OTHER LIABILITIES AND PROVISIONS
Other liabilities
Taxes and mandatory contributions other than on income
Payment orders
Others
Provisions
Employee termination benefits
Total
48
Employee Termination Benefits
In accordance with existing social legislation, the Bank is required to make lump-sum payments to employees whose employment is terminated due to retirement or
for reasons other than resignation or misconduct. Such payments are calculated on the basis of 30 days’ pay (limited to a maximum of YTL 1.727 and YTL 1.575 at
December 31, 2005 and 2004, respectively) per year of employment at the rate of pay applicable at the date of retirement or termination. In the financial statements
as of December 31, 2005 and 2004, the Group reflected a liability calculated using the Projected Unit Credit Method and based upon factors derived using their
experience of personnel terminating their services and being eligible to receive retirement pay and discounted by using the current market yield on government
bonds at the balance sheet date. The annual ceiling has been increased to YTL 1.771 effective January 1, 2006.
The principal actuarial assumptions used in the calculation of the total liability at the balance sheet dates are as follows:
Discount rate
Expected rates of salary/limit increases
2005
12%
6.175%
2004
16%
10%
2005
408
(55)
(35)
318
2004
442
(15)
61
(80)
408
The movement in provision for retirement pay liability is as follows:
Provision at the beginning of the year
Utilized/paid
Arising during the year
Monetary gain
At the end of the year
14. INCOME TAXES
General Information
The Group is subject to taxation in accordance with the tax procedures and the legislation effective in Turkey and other countries in which the Group companies
operate.
In 2005, the effective corporate tax rate in Turkey is 30% (2004 - 33%).
Corporate tax returns are required to be filed until the fifteenth of the fourth month following the year-end and paid in one installment until the end of the related
month.
The tax legislation provides for a temporary tax of 30% (2004 - 33%) to be calculated and paid based on earnings generated for each quarter. The amounts thus
calculated and paid are offset against the final tax liability for the year.
In 2003 and prior years corporation tax was computed on the statutory income tax base determined in accordance with the Tax Procedural Code without any
adjustment for inflation accounting. Starting from January 1, 2004, taxable income is derived from the financial statements which are adjusted for inflation
accounting. Accumulated earnings arising from the first application of inflation accounting on December 31, 2003 balance sheet is not subject to corporation tax and
similarly accumulated deficits arising from such application is not deductible for tax purposes. Moreover, accumulated tax loss carry forwards related with 2003 and
prior periods will be utilized at their historical (nominal) values in 2004 and future years. In 2005, inflation accounting application for tax purposes was ceased by
the Ministry of Finance based on the decline in the inflation rate.
Corporate tax losses can be carried forward for a maximum period of five years following the year in which the losses were incurred. The tax authorities can inspect
tax returns and the related accounting records for a retrospective maximum period of five years.
49
Effective from April 24, 2003, investment allowances provide a deduction from the corporate tax base of 40% of the purchases of the brand-new fixed assets having
economic useful life and exceeding YTL 10 (2004 - YTL 6) and directly related with the production of goods and services. Investment allowance that arose prior to
April 24, 2003 are taxed at 19.8% (withholding tax) unless they are converted to new type at the will of the companies. Investment allowances can be carried forward
indefinitely with indexed amounts.
10% withholding applies to dividends distributed by resident corporations to resident real persons, those who are not liable to income and corporation tax, nonresident real persons, non-resident corporations (excluding those that acquire dividend through a permanent establishment or permanent representative in Turkey)
and non-resident corporations exempted from income and corporation tax. Dividend distribution by resident corporations to resident corporations are not subject to
a withholding tax. Furthermore, in the event the profit is not distributed or included in capital, no withholding tax shall be applicable.
Capital gains derived from cash sales of equity shares that have been held for at least two years are exempt from corporation tax if the gains are added to share
capital. Furthermore, in the event the profit arising from the dividend receipt is not distributed or is included in capital, no withholding tax shall be applicable. As a
result of the above exemption, the Group did not recognize a deferred tax liability amounting to YTL 1,671 on the undistributed profits of its subsidiary and other
temporary differences pertaining to other investments in shares issued by Turkish companies.
In Turkey, the tax legislation does not permit a parent company and its subsidiaries to file a consolidated tax return. Therefore, provision for taxes, as reflected in
the consolidated financial statements, has been calculated on a separate-entity basis.
As of December 31, 2005 and 2004, prepaid income taxes are netted off with the current income tax liability as stated below:
Income tax liability
Prepaid income taxes
2005
738
(738)
-
2004
1,055
(934)
121
2005
2004
738
1,055
7
745
19
1,074
Major components of income tax expense for the years ended December 31, 2005 and 2004 are:
Consolidated income statement
Current income tax
Current income tax charge
Deferred income tax
Relating to origination and reversal of temporary differences
Income tax expense reported in consolidated income statement
Reconciliation between tax expense and the product of accounting profit multiplied by the statutory income tax rate of the parent for the years ended December 31,
2005 and 2004 is as follows:
Profit before income tax (after monetary loss)
At Turkish statutory income tax rate of 30% (2004 - 33%)
Income not subject to tax
Other, net (including effects of disallowables, permanent differences and
different tax rates applied in different jurisdictions)
Income tax
50
2005
3,104
2004
3,380
931
(2,020)
1,115
(241)
1,834
745
200
1,074
Deferred income tax
Deferred income tax at December 31, 2005 and 2004 relates to the following:
Consolidated
Balance Sheet
Consolidated
Income Statement
2005
2005
2004
25
10
35
34
34
(7)
10
3
(14)
(14)
Deferred income tax assets
Impairment provisions
Employee termination benefits
Others
Gross deferred income tax assets
106
95
11
212
99
122
5
226
11
(22)
7
(4)
(36)
(16)
19
(33)
Deferred income tax asset, net
177
192
(7)
(19)
2005
192
(7)
(8)
177
2004
241
(19)
(30)
192
Deferred income tax liabilities
Difference between tax and reporting bases of
premises and equipment and intangible assets
Others
Gross deferred income tax liabilities
2004
Movement of net deferred tax asset can be presented as follows:
Balance at January 1
Deferred income tax charge recognized in income statement
Monetary gain/(loss)
Balance at period-end
Deferred income tax liabilities have not been established for the withholding and other taxes that would be payable on the unremitted earnings of the subsidiary
operating outside of Turkey as it is not certain whether such amounts will be permanently reinvested or received in cash. If such amounts are collected in cash in the
form of dividends, they will be subject to corporation tax in Turkey. On the other hand, if double tax treaty is signed between Turkey and the country where the
subsidiary is resident, the provisions of double tax treaty will be considered.
15. DERIVATIVES
In the ordinary course of business, the Group enters into various types of transactions that involve derivative financial instruments. A derivative financial instrument
is a financial contract between two parties where payments are dependent upon movements in price in one or more underlying financial instruments, reference rates
or indices. Derivative financial instruments include currency forward contracts.
The table below shows the fair values of derivative financial instruments. The notional amount is the amount of a derivative’s underlying asset, reference rate or
index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at yearend and are neither indicative of the market risk nor credit risk.
51
2005
Derivatives held-for-trading
Forward purchase
Forward sale
2004
Fair value
assets
Fair value
liabilities
Notional amount
in New Turkish
Lira equivalent
33
33
1
1
5,748
5,716
11,464
Fair value
assets
Fair value
liabilities
Notional amount
in New Turkish
Lira equivalent
82
82
79
79
9,532
9,530
19,062
As of December 31, 2005, the majority of outstanding transactions in derivative financial instruments were with the banks and other financial institutions.
16. SHARE CAPITAL
2005
150 Million
Total number of shares, YTL 0.1 (in full YTL), par value
2004
150 Million
As of December 31, 2005 and 2004, the Bank’s historical subscribed and issued share capital was YTL 15,000.
There is no increase in share capital of the Bank during years 2005 and 2004.
As of December 31, 2005 and 2004, the composition of shareholders and their respective % of ownership are summarized as follows:
2005
Amount
15,000
15,000
21,813
36,813
GSD Holding A.fi.
GSD D›fl Ticaret A.fi.
GSD Factoring Hizmetleri A.fi.
GSD Sigorta Arac›l›k Hizmetleri A.fi.
Tekstil Finansal Kiralama A.fi.
Restatement effect
%
100.00
Less than 0.00
Less than 0.00
Less than 0.00
Less than 0.00
2004
Amount
15,000
15,000
21,813
36,813
On September 22, 2004, the Bank has offset its statutory accumulated deficit (amounting to YTL 16,032) against adjustment to share capital.
52
%
100.00
Less than 0.00
Less than 0.00
Less than 0.00
Less than 0.00
17. LEGAL RESERVES, RETAINED EARNINGS AND DIVIDENDS PAID AND PROPOSED
Legal Reserves
The legal reserves consist of first and second legal reserves in accordance with the Turkish Commercial Code. The first legal reserve is appropriated out of the
statutory profits at the rate of 5%, until the total reserve reaches a maximum of 20% of the entity’s share capital. The second legal reserve is appropriated at the rate
of 10% of all distributions in excess of 5% of the entity’s share capital. The first and second legal reserves are not available for distribution unless they exceed 50%
of the share capital, but may be used to absorb losses in the event that the general reserve is exhausted.
Dividends Paid and Proposed
Final dividends are not accounted for until they have been ratified at the Annual General Meeting.
In the General Assembly meeting of the Parent Bank, dated April 5, 2005, it was decided to distribute the profit for the year 2004 amounting YTL 4,810 after providing
the legal reserves.
The Group did not declare or pay dividends out of profits for 2005 as of the date of preparation of these financial statements.
18. RELATED PARTY DISCLOSURES
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making the financial
and operating decisions. The Group is controlled by GSD Holding, which owns 99.99% of ordinary shares. For the purpose of these consolidated financial statements,
shareholders of the Bank, GSD Holding, its subsidiaries (Tekstilbankas› A.fi., GSD D›fl Ticaret A.fi., GSD Faktoring Hizmetleri A.fi., Tekstil Finansal Kiralama A.fi.,
Tekstil Menkul De¤erler A.fi., Tekstil Faktoring Hizmetleri A.fi., Tekstil Biliflim Hizmetleri A.fi, GSD E¤itim Vakf›, GSD Sigorta Arac›l›k Hizmetleri A.fi. and Euro Textile
Bank Offshore) are referred to as related parties. Related parties also include individuals that are principal owners, management and members of the Group’s Board
of Directors and their families. With the Board of Directors’ decision numbered 18-b, dated September 15, 2004, 5,984 YTL loan was transferred from Tekstilbank to
the Bank.
2005:
Related party
Direct/Indirect shareholders
Others
Cash
Loans
-
Non-Cash
Loans
22,738
7,380
Placements
7,197
Funds
Borrowed
13,074
Other
Current
Assets
-
Notional
Amount
of Derivative
Transactions
2,860
-
Interest
Income
114
296
Other
Interest Operating
Expense
Income
360
7
67
Funds
Borrowed
14,340
Other
Current
Assets
82
-
Notional
Amount
of Derivative
Transactions
3,056
-
Interest
Income
269
25
Other
Interest Operating
Expense
Income
136
188
902
2004:
Related party
Direct shareholders
Others
Cash
Loans
7,377
-
Non-Cash
Loans
23,116
2,540
Placements
3,559
No provisions have been recognized in respect of loans given to related parties (2004 - nil).
53
Compensation of Key Management Personnel of the Group
The executive and non-executive members of Board of Directors and management received remuneration and fees totaling approximately YTL 891 (2004 - YTL 732)
comprising salaries and other short-term benefits.
19. SALARIES AND EMPLOYEE BENEFITS
Wages and salaries
Cost of defined contribution plan (employers’ share of social security premiums)
Other fringe benefits
Provision for employee termination benefits
Bonuses
Other
Total
2005
1,437
153
149
(90)
112
18
1,779
2004
1,532
175
85
46
95
40
1,973
2005
801
275
182
128
118
1,504
2004
431
310
233
146
407
1,527
Average number of employee is 30 in 2005 (2004 - 29).
20. OTHER EXPENSES
Utilities expenses
Rent expenses
Online data expenses
Audit and consulting expenses
Other
Total
21. GAINS LESS LOSSES ON TRADING SECURITIES
Gains less losses on trading securities arise primarily from fixed income securities.
54
22. COMMITMENTS AND CONTINGENCIES
In the normal course of business activities, the Group undertakes various commitments and incurs certain contingent liabilities that are not presented in the financial
statements including:
2005
42,046
5,768
10,216
58,030
Letters of guarantee
Letters of credit
Acceptance credits
Total
2004
43,867
7,926
5,604
57,397
23. FINANCIAL RISK MANAGEMENT
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group attempts
to control credit risk by monitoring credit exposures, limiting transactions with specific counterparties, and continually assessing the creditworthiness of
counterparties. In addition to monitoring credit limits, the Group manages the credit exposure relating to its trading activities by limiting the duration of exposure.
Concentrations of credit risk arise when a number of counterparties are engaged in similar business activities or activities in the same geographic region, or have
similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions.
Concentrations of credit risk indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or geographic location.
Although, the Group has a concentration of lending to the textile and finance sectors, it seeks to manage its credit risk exposure through diversification of lending
activities to avoid undue concentrations of risks with individuals or groups of customers. It also obtains security when appropriate.
Sectoral breakdown of cash loans is as follows:
2005
26,327
2,890
531
924
1,239
1,203
1,483
698
411
992
735
6,162
43,595
64
358
6,855
(2,720)
48,152
Finance
Textile
Export trade
Construction
Chemical
Manufacturing
Transportation
Food
Automotive
Publishing
Agriculture
Steel
Tourism
Electronics
Others
Corporate loans
Consumer loans
Interest accruals
Loans in arrears
Provision for possible loan losses
55
2004
25,866
3,051
4,971
784
663
2,419
569
757
418
497
314
1,424
467
388
7,609
50,197
67
290
7,167
(1,555)
56,166
Sectoral breakdown of non-cash loans is as follows:
2005
41,176
3,166
3,258
270
2,684
300
7,176
58,030
Wholesale and retail trade
Exports trade
Finance
Textile
Transportation
Metal
Food
Construction
Publishing
Automotive
Media
Tourism
Other
Total
56
2004
6,714
19,871
7,507
2,776
1,156
6,343
1,089
4,645
2,568
1,403
2,806
519
57,397
Liquidity Risk
Liquidity risk is the risk that an entity will be unable to meet its net funding requirements. Liquidity risk can be caused by market disruptions or credit downgrades
which may cause certain sources of funding to become unavailable. To mitigate liquidity risk, the Group diversifies funding sources and assets are managed with
liquidity in mind, maintaining a balance of cash and cash equivalents.
The table below analyses assets and liabilities of the Group into relevant maturity groupings based on the remaining period at balance sheet date to contractual
maturity date.
Up to 1
Month
1 to 3
months
3 to 6
months
6 to 12
months
Over
1 year
Unallocated
Total
As at December 31, 2005
Assets:
Deposits with banks and other financial
institutions and other money market placements
Trading securities
Loans and advances
Intangible assets
Deferred tax asset
Other assets
Total assets
412
-
-
-
-
-
412
7,513
1,111
17,032
184
751
27,003
980
13,110
365
33
14,488
24
290
13,578
498
14,390
1,351
167
1,014
2,532
6,671
130
2,861
177
9,839
8,365
4,135
294
9
12
12,815
7,537
1,111
9,292
8,365
48,152
4,922
33
294
9
177
763
81,067
Liabilities:
Funds borrowed and other money market deposits
Other liabilities and provisions
Deferred tax liability
20,129
1,479
-
312
1
-
3,384
-
5,453
-
3,376
-
318
-
32,654
1
1,797
-
Total liabilities
21,608
313
3,384
5,453
3,376
318
34,452
Net liquidity gap
5,395
14,175
11,006
(2,921)
6,463
12,497
46,615
25,245
23,451
11,552
1,813
13,865
2,750
13,727
1,432
758
12
8,080
408
73,227
29,866
1,794
9,739
11,115
12,295
746
7,672
43,361
Total assets
Total liabilities
Net liquidity gap
57
Currency Risk
Foreign currency risk indicates the possibility of the potential losses that banks are subject to due to adverse movements between currencies. The Bank manages
foreign currency risk by the Risk Committee, The Risk Committee scrutinizes the risks taken by considering the general economic environment and developments in
the markets.
The concentrations of assets, liabilities and off balance sheet items in various currencies are:
New Turkish Lira
Assets:
1
and other money market placements
6
Reserve deposits
46
Trading securities
9,292
8,365
Loans and advances, minimum lease payments receivable
38,356
294
Intangible assets
9
Deferred tax asset
177
Other assets
763
Total assets
57,309
US Dollars
Euro
Other
Total
411
-
-
412
7,239
1,065
8,683
17,398
159
6,035
33
6,227
133
133
7,537
1,111
9,292
8,365
53,074
33
294
9
177
763
81,067
Liabilities:
Funds and other money market deposits
Total liabilities
9,669
812
10,481
14,990
1
769
15,760
7,995
216
8,211
-
32,654
1
1,797
34,452
Net balance sheet position
46,828
1,638
(1,984)
133
46,615
Off-balance sheet position
Net position
46,828
32
1,670
(1,984)
133
32
46,647
Total assets
Total liabilities
59,020
15,391
10,494
13,338
3,640
1,137
73
-
73,227
29,866
Net balance sheet position
43,629
(2,844)
2,503
73
43,361
Off-balance sheet position
Net position
43,629
2
(2,842)
2,503
73
2
43,363
58
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments and cash flows. The Group is exposed to
interest rate risk as a result of mismatches or gaps in the amounts of assets and liabilities and off balance sheet instruments that mature or reprice in a given period.
The Group manages this risk by matching the repricing of assets and liabilities through risk management strategies.
A substantial majority of the Group’s assets and liabilities reprice within three months. Accordingly, there is a limited exposure to interest rate risk.
The table below summarizes the Group’s exposure to interest rate risk on the basis of the remaining period at the balance sheet date to the repricing date.
Up to 1
month
1 to 3
months
3 to 6
months
6 to 12
months
Over
1 year
Non-interest
bearing
Total
Assets:
Deposits with banks and other financial
institutions and other money market placements
Trading securities
Loans and advances
Intangible assets
Deferred tax asset
Other assets
Total Assets
-
-
-
-
-
412
412
7,537
1,111
31,787
184
40,619
980
10,965
365
33
12,343
290
1,104
498
1,892
1,351
31
1,014
2,396
6,671
4,265
2,861
13,797
8,365
294
9
177
763
10,020
7,537
1,111
9,292
8,365
48,152
4,922
33
294
9
177
763
81,067
Liabilities:
Funds borrowed and other money market deposits
21,887
-
752
1
-
6,634
-
3,381
-
-
1,797
-
32,654
1
1,797
-
Total liabilities
21,887
753
6,634
3,381
-
1,797
34,452
Balance sheet interest sensitivity gap
18,732
11,590
(4,742)
(985)
13,797
8,223
46,615
27,237
21,926
11,552
1,813
13,865
2,750
13,727
1,432
5,948
420
899
1,526
73,228
29,867
5,311
9,739
11,115
12,295
5,528
(627)
43,361
Total assets
Total liabilities
Net interest sensitivity gap
59
Market Risk
Market Risk Committee calculates and reports market risks arising from trading operations for the internal use and for the legal reporting requirement to Banking
Regulation and Supervision Agency (BRSA). BRSA reporting methodology is standard method.
Capital Adequacy
To monitor the adequacy of its capital, the Bank uses ratios established by BRSA. These ratios measure capital adequacy (minimum 8% as required by BRSA) by
comparing the Bank’s eligible capital with its balance sheet assets, off-balance sheet commitments and market and other risk positions at weighted amounts to
reflect their relative risk. As of December 31, 2005 and 2004, the Bank’s capital adequacy ratio is above 8%.
24. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Values
Fair values of financial assets and liabilities carried at amortized cost, including mainly loans, lease receivables, deposit with banks and other financial institutions,
reserve deposits at the Central Bank are considered to approximate their respective carrying values due to the fact that the effective interest rates on those represent
the current effective market rates and also their short-term nature.
25. SUBSEQUENT AND OTHER EVENTS
As of January 1, 2006 the annual ceiling for employee termination benefits increased to YTL 1.771.
There is a draft tax legislation announced in the website of Directory of Inland Revenue, which among other changes foresees the reduction of the corporate tax rate
from 30% to 20% effective from January 1, 2006. The draft legislation has not been substantively enacted or enacted as of the date of preparation of these
consolidated financial statements.
60
Directory
GSD BANK A.fi.
GSD Binas›, Ayd›nevler Mah., ‹nönü Cad., Gökçe Sok. No: 14
34854 Küçükyal›, Maltepe, Istanbul, Turkey
Web: www.gsdbank.com.tr
INTERNATIONAL RELATIONS
Contact Person: Yeflim Kayhan, Manager, International Relations
Telephone: (+90 216) 518 01 07
Fax: (+90 216) 489 97 76
E-mail: [email protected]
TREASURY
Contact Person: Zuhal Kirpikli, Assistant General Manager, Treasury
Telephone: (+90 216) 587 90 00
Fax: (+90 216) 489 97 90
MARKETING
Contact Person: Hülya Sivasl›gil, Assistant General Manager, Marketing
Telephone: (+90 216) 587 90 00
Fax: (+90 216) 489 97 49
Finar Corporate Communications © 2006
+90 212 259 43 11
www.gsdbank.com.tr

2005 Annual Report

Transcription

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