TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS TOGETHER WITH INDEPENDENT AUDITOR’S REPORT AT 31 DECEMBER 2016 (Convenience Translation of Publicly Announced Consolidated Financial Statements and Independent Auditor’s Report Originally Issued in Turkish, See in Note I. of Section Three) CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITOR’S REPORT ORIGINALLY PREPARED AND ISSUED IN TURKISH To the Board of Directors of Türkiye Cumhuriyeti Ziraat Bankası A.Ş.; Report on Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Türkiye Cumhuriyeti Ziraat Bankası A.Ş. (“the Bank”) and its subsidiaries (collectively referred to as the “Group”) as at 31 December 2016 and the related consolidated statement of income, consolidated income and expense items under shareholders’ equity, consolidated statement of changes in shareholders’ equity, consolidated statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Consolidated Financial Statements Bank management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the “Banking Regulation and Supervision Agency (“BRSA”) Accounting and Reporting Legislation which includes “Regulation on Accounting Applications for Banks and Safeguarding of Documents” published in the Official Gazette no.26333 dated 1 November 2006 , other regulations on accounting records of Banks published by BRSA, circulars and interpretations published by BRSA, and Turkish Accounting Standards for the matters not regulated by the aforementioned legislations and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Independent Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Our audit was conducted in accordance with the “Regulation on Independent Audit of Banks” published by the BRSA on the Official Gazette No.29314 dated 2 April 2015 and Independent Auditing Standards that are part of Turkish Standards on Auditing published by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Those standards require that ethical requirements are complied with and that the audit is planned and performed to obtain reasonable assurance whether the financial statements are free from material misstatement. An independent audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on independent auditor’s professional judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to error or fraud. In making those risk assessments, the independent auditor considers internal control relevant to the bank’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the bank’s internal control. An independent audit includes also evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the independent audit evidence we have obtained during our audit is sufficient and appropriate to provide a basis for our audit opinion. Basis for the qualified opinion As mentioned in Section II. Note 7.d1 of Explanations and Notes to the Consolidated Financial Statements; as of 31 December 2016, the accompanying consolidated financial statements include a free provision amounting to TL 945.000 thousand (TL295.400 thousand of this provision amount was reversed from the income statement in the current year), provided by the Bank management in line with the conservatism principle considering the circumstances that may arise from any changes in the economy or market conditions. Qualified 0pinion In our opinion, except for the effect of the matter described in the “Basis for the qualified opinion” paragraph above, on the consolidated financial statements, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Türkiye Cumhuriyeti Ziraat Bankası A.Ş. and its subsidiaries as at 31 December 2016 and its financial performance and its cash flows for the year then ended in accordance with BRSA Accounting and Reporting Legislation. Report on Other Responsibilities Arising From Regulatory Requirements In accordance with subparagraph 4 of Article 402 of the Turkish Commercial Code No. 6102 (“TCC”); no significant matter has come to our attention that causes us to believe that the Bank’s bookkeeping activities for the period 1 January - 31 December 2016 are not in compliance with TCC and provisions of the Bank’s articles of association in relation to financial reporting. In accordance with subparagraph 4 of Article 402 of the TCC; the Board of Directors submitted to us the necessary explanations and provided required documents within the context of audit. Additional Paragraph for Convenience Translation The effects of differences between accounting principles and standards explained in detail in Section Three and accounting principles generally accepted in countries in which the accompanying consolidated financial statements are to be distributed and International Financial Reporting Standards (“IFRS”) have not been quantified in the accompanying consolidated financial statements. Accordingly, the accompanying consolidated financial statements are not intended to present the financial position, results of operations and changes in financial position and cash flows in accordance with the accounting principles generally accepted in such countries and IFRS. PwC Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. Didem Demer Kaya, SMMM Partner Istanbul, 17 February 2017 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE THE CONSOLIDATED FINANCIAL REPORT OF TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. AS OF 31 DECEMBER 2016 The Parent Bank’s Headquarter Address: Anafartalar Mahallesi Atatürk Bulvarı No: 8 06050-Altındağ/ANKARA Phone: (312) 584 20 00 Facsimile: (312) 584 49 63 Website: www.ziraatbank.com.tr The consolidated financial report includes the following sections in accordance with the “Communiqué on the Financial Statements and Related Explanation and Notes that will be Publicly Announced” as sanctioned by the Banking Regulation and Supervision Agency.  GENERAL INFORMATION ABOUT THE PARENT BANK  CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP  EXPLANATIONS ON ACCOUNTING POLICIES  EXPLANATIONS ON THE FINANCIAL POSITION OF THE GROUP  EXPLANATIONS AND NOTES RELATED TO THE CONSOLIDATED FINANCIAL STATEMENTS  OTHER EXPLANATIONS AND NOTES  EXPLANATIONS ON INDEPENDENT AUDITOR’S REPORT Within the framework of this financial report, our consolidated financial statements of subsidiaries, associates and jointly controlled entities are as follows: DOMESTIC JOINT VENTURES FOREIGN JOINT VENTURES Ziraat Hayat ve Emeklilik A.Ş. Ziraat Bank International A.G. Ziraat Sigorta A.Ş. Ziraat Bank BH d.d. Ziraat Finansal Kiralama A.Ş. Ziraat Bank (Moscow) JSC Ziraat Yatırım Menkul Değerler A.Ş. Kazakhstan Ziraat Int. Bank Ziraat Portföy Yönetimi A.Ş. Ziraat Bank Azerbaycan ASC Ziraat Katılım Bankası A.Ş. Ziraat Bank Montenegro AD Ziraat Gayrimenkul Yatırım Ortaklığı A.Ş ASSOCIATES SUBSIDIARIES Arap Türk Bankası A.Ş. Turkmen Turkish Joint Stock Commercial Bank UTBANK JSC The accompanying consolidated financial statements and notes to these financial statements which are expressed, unless otherwise stated, in thousand of Turkish Lira have been prepared and presented based on the accounting books of the Bank in accordance with the Regulation on the Principles and Procedures Regarding Banks’ Accounting and Keeping of Documents, Turkish Accounting Standards, Turkish Financial Reporting Standards, and related appendices and interpretations of these, and have been independently audited. ____________________ _____________________ ______________________ Muharrem KARSLI Hüseyin AYDIN Feyzi ÇUTUR Chairman of the Board, Member of the Board, Member of the Board, Member of the Audit Committee CEO Member of the Audit Committee ______________________ _______________________ Peyami Ömer ÖZDİLEK Atakan BEKTAŞ Financial Coordination Senior Vice President Executive Vice President of Financial Reporting and Budget Management For the questions regarding this financial report, contact details of the personnel in charge are presented below: Name/Title : Serkan ÖZKAN / Financial Statements Manager Telephone Number : 0312 584 59 32 Facsimile Number : 0312 584 59 38 SECTION ONE General Information about the Group Page Number I. History of the Parent Bank including its incorporation date, initial legal status and amendments to legal status, if any 1 II. Explanation about the Parent Bank’s capital structure, shareholders of the Bank who are in charge of the management and/or auditing of the Bank directly or indirectly, changes in these matters (if any) and the group the Bank belongs to 1 III. Information on the Board of Directors, members of the audit committee, CEO and Executive Vice President, changes in these matters (if any) and shares of the Parent Bank they possess 1 IV. Information about the persons and institutions that have qualified shares attributable to the Parent Bank 1 V. Summary information on the Parent Bank’s activities and services 2 VI. Differences between the communiqué on preparation of consolidated financial statements of banks and Turkish Accounting Standards and short explanation about the entities subject to full consolidation or proportional consolidation and entities which are deducted from equity or entities which are not included in these three methods 3 VII. Existing or potential, actual or legal obstacles to the immediate transfer of shareholder’s equity, or repayment of debt between the Parent Bank and its subsidiaries 3 SECTION TWO Consolidated Financial Statements I. Consolidated balance sheet 4 II. Consolidated statement of off-balance sheet commitments 6 III. Consolidated statement of income 7 IV. Consolidated statement of profit and loss items accounted under shareholders’ equity 8 V. Consolidated statement of changes in shareholders’ equity 9 VI. Consolidated statement of cash flows 11 VII. The Parent Bank’s statement of profit appropriation 12 SECTION THREE Explanations on Accounting Policies I. Basis of presentation 13 II. Explanations on strategy of using financial instruments and foreign currency transactions 14 III. Explanations on investments in associates, subsidiaries and joint ventures 15 IV. Explanations on forward transactions, opinion contract and derivative instruments 17 V. Explanations on interest income and expense 17 VI. Explanations on fee and commission income and expense 17 VII. Explanations on financial assets 17 VIII. Explanations on impairment of financial assets 20 IX. Explanations on offsetting financial assets and liabilities 20 X. Explanations on sales and repurchase agreements and securities lending transactions 20 XI. Information on assets held for sale and related to discontinued operations and explanations on liabilities related with these assets 21 XII. Explanations on goodwill and other intangible assets 21 XIII. Explanations on property and equipment 21 XIV Explanations on investment property 22 XV. Explanations on leasing transactions 22 XVI. Explanations on provisions, contingent asset and liabilities 23 XVII. Explanations on obligations related to employee rights 23 XVIII. Explanations on taxation 25 XIX. Explanations on insurance technical reserves 27 XX. Explanations on borrowings 27 XXI. Explanations on issuance of share certificates 28 XXII Explanations on avalized drafts and acceptances 28 XXIII. Explanations on government grants 28 XXIV. Cash and cash equivalents 28 XXV. Explanations on segment reporting 28 XXVI. Explanations on other matters 28 SECTION FOUR Explanations Related to the Financial Position and Risk Management of the Bank I. Explanations on the components of consolidated shareholders’ equity 29 II. Explanations on the consolidated credit risk 35 III. Risks including the consolidated capital capacity buffer calculations 43 IV. Explanations on the consolidated currency risk 43 V. Explanations on the consolidated interest rate risk 45 VI. Explanations on the position risk of consolidated equity securities 48 VII. Explanations on consolidated liquidity risk management and consolidated liquidity coverage ratio 48 VIII. Explanations on consolidated leverage 55 IX. Explanations on consolidated risk management 56 X. Explanations on consolidated operating segments 77 XI. Explanations related to presentation of financial assets and liabilitites at their fair values 80 XII. Explanations on the activities carried out on behalf and on account of other parties 81 SECTION FIVE Explanations and Notes Related to Consolidated Financial Statements I. Explanations and notes related to consolidated assets 82 II. Explanations and notes related to consolidated liabilities 100 III. Explanations and notes related to consolidated off-balance sheet accounts 108 IV. Explanations and notes related to consolidated income statement 112 V. Explanations and notes related to changes in consolidated shareholders’ equity 116 VI. Explanations and notes related to consolidated statement of cash flows 117 VII. Explanations and notes to the risk group of the Parent Bank 118 VIII. Explanations and notes related to subsequent events 119 SECTION SIX Other Explanations and Notes I. Information on the Parent Bank’s rating that has been determined by international credit rating agencies 120 SECTION SEVEN Explanations on Independent Auditor’s Report I. Explanations on independent auditor’s report 121 II. Explanations and notes prepared by the independent auditors 121 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION ONE GENERAL INFORMATION ABOUT THE GROUP I. HISTORY OF THE PARENT BANK INCLUDING ITS INCORPORATION DATE, INITIAL LEGAL STATUS AND AMENDMENTS TO LEGAL STATUS, IF ANY The foundation of Türkiye Cumhuriyeti Ziraat Bankası A.Ş. (“Ziraat Bankası” or “the Parent Bank”) is based on Government Funds established in 1863. In 1883, Government Funds were replaced with Benefit Funds. The Parent Bank was officially established by the re-organization of the Benefit Funds in 1888, to grant loans to farmers, to accept interest-bearing deposits and to act as a moneylender and an intermediary for agricultural operations. While all of the shares of the Parent Bank that are entitled to carry out all kinds of banking activities belong to The Undersecretariat of Treasury ("the Treasury") of the Prime Ministry of Turkish Republic, all of the Parent Bank's shares have been transferred to the Turkey Wealth Fund in accordance with the decision of the Council of Ministers dated January 24, 2017 and with decree no. 2017/9756. The head office of the Parent Bank is in Ankara. II. EXPLANATION ABOUT THE PARENT BANK’S CAPITAL STRUCTURE, SHAREHOLDERS OF THE BANK WHO ARE IN CHARGE OF THE MANAGEMENT AND/OR AUDITING OF THE BANK DIRECTLY OR INDIRECTLY, CHANGES IN THESE MATTERS (IF ANY) AND THE GROUP THE BANK BELONGS TO While the only shareholder of the Parent Bank is the Treasury, all of the Parent Bank's shares have been transferred to the Turkey Wealth Fund in accordance with the decree of the Council of Ministers dated 24 January 2017 and numbered 2017/9756. III. INFORMATION ON THE BOARD OF DIRECTORS, MEMBERS OF THE AUDIT COMMITTEE, CEO AND EXECUTIVE VICE PRESIDENTS, CHANGES IN THESE MATTERS (IF ANY) AND SHARES OF THE PARENT BANK THEY POSSESS Name Administrative Function Members of the Board of Directors Muharrem KARSLI Chairman Hüseyin AYDIN CEO and Member Yusuf DAĞCAN Vice Chairman and Member Cemalettin BAŞLI Member Feyzi ÇUTUR Member Mehmet Hamdi YILDIRIM Member Metin ÖZDEMİR Member Mustafa ÇETİN Member Salim ALKAN Member Audit Committee Members Muharrem KARSLI Member Feyzi ÇUTUR Member Executive Vice Presidents Alpaslan ÇAKAR Distribution Channels Management Bilgehan KURU Treasury and International Banking Bülent SUER Operational Transactions Mehmet Cengiz GÖĞEBAKAN Loan Policies Musa ARDA Loan Allocation and Management Peyami Ömer ÖZDİLEK Financial Coordination Yüksel CESUR Internal Systems The directors above-mentioned do not retain any shares of the Parent Bank’s capital. IV. INFORMATION ABOUT THE PERSONS AND INSTITUTIONS THAT HAVE QUALIFIED SHARES ATTRIBUTABLE TO THE PARENT BANK Name/Trade Name Amount of Share Percentage of Share % Paid-in Shares Unpaid Shares Treasury 5.100.000 100 5.100.000 - While the only shareholder of the Parent Bank is the Treasury, all of the Parent Bank's shares have been transferred to the Turkey Wealth Fund in accordance with the decree of the Council of Ministers dated 24 January 2017 and numbered 2017/9756. 1 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) GENERAL INFORMATION ABOUT THE GROUP (Continued) V. SUMMARY INFORMATION ON THE PARENT BANK’S ACTIVITIES AND SERVICES The purpose of activity of the Parent Bank is stated in articles of association as to perform all kinds of banking activities including acceptance of deposits. For this purpose, the Parent Bank can perform all sorts of operations, without prejudice to the provisions of the banking regulations and other legislations, such as launching all kinds of cash and non-cash loans in terms of Turkish Lira and foreign currencies, acting as an intermediary in trade and issue of the financial instruments that are used in local and international markets, performing investment banking transactions, forwards dealing in domestic and foreign futures markets, providing funds from interbank money market, domestic and foreign markets, making all kinds of capital market transactions, acting as an intermediary in export and import transactions, acting as an agency for insurance and other financial institutions, participating in all sort of partnership that is founded by domestic or foreign banks or participated by them within the terms of the related legislation or establishing new partnerships for this purpose, performing all kinds of conservative transactions, such as; acquiring limited real and personal claims like all kinds of movable and immovable goods, industrial and intellectual properties, right of usufruct, easement, superficies and disposing and transferring acquired properties and rights, placing pledge and mortgage on those properties and rights, releasing pledged and mortgaged items and declaring leasing agreements and sale commitments to the Registry Office. As of 31 December 2016, The Parent Bank carries its activities with a grand total of 1.786 domestic branches; including 20 corporate branches, 79 entrepreneurial branches, 76 dynamic entrepreneurial branches, 1.606 branches and 5 mobile branches (31 December 2015: 1.786 domestic branches including 1.596 branches, 22 corporate branches, 80 entrepreneurial branches, 83 dynamic entrepreneurial branches, 5 mobile branches) and 28 branches abroad including 23 branches and 5 sub branches (New York branch in United States, London branch in England, Tbilisi branch and Batumi, Marneuli sub branches in Georgia, Baghdad and Arbil branches in Iraq, Athens, Komotini, Xanthi and Rhodes branches in Greece, Sofia branch and Plovdiv, Kardzhali and Varna sub branches in Bulgaria, Jeddah branch in Saudi Arabia, Pristina in Kosovo, Lefkoşa, Girne, Güzelyurt, Gazimağusa, Gönyeli, Akdoğan, Near East University, Karaoğlanoğlu, Karakum and İskele sub branches in Turkish Republic of Northern Cyprus). The Bank also has a representative office in Tehran, Iran. The Parent Bank signed a contract with T. İş Bankası A.Ş. on 22 January 2007 to provide longer installment plan and bonus points to their credit card users and benefit from all the advantages within Maximum credit card at merchants that are a part of Maximum plan. Also with this contract the Bank has the right to register members for Maximum. Transactions between the two banks are administered by Interbank Card Center. Başakkart is a bank card through which demand deposit accounts and agricultural loan accounts can be linked. Bank can associate Başakkart with enterprise loans below TL 100 and agricultural loan limits in line with the demands of the customers. All limits of loan accounts assigned to the Başakkart can be used via POS machines of the Bank in Başakkart Member Business points for the purchase of agr icultural inputs (feed, grain, fuel, etc.). According to preferences of customers, maximum 90% of cash limits of loan accounts can be used through the branches/ATMs of the Bank. Repayments regarding the transactions with Başakkart can be made through the branches of the Bank. Agricultural products/services obtained by using Başakkart are repaid without any interest charge within the time periods defined by the Bank. The Parent Bank and subsidiaries consolidated with the Parent Bank are together referred as the “Group”. As of 31 December 2016, the number of the Group’s employees is 27.030 (31 December 2015: 27.397). 2 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) GENERAL INFORMATION ABOUT THE GROUP (Continued) VI. DIFFERENCES BETWEEN THE COMMUNIQUE ON PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS OF BANKS AND TURKISH ACCOUNTING STANDARDS AND SHORT EXPLANATION ABOUT THE ENTITIES SUBJECT TO FULL CONSOLIDATION OR PROPORTIONAL CONSOLIDATION AND ENTITIES WHICH ARE DEDUCTED FROM EQUITY OR ENTITIES WHICH ARE NOT INCLUDED IN THESE THREE METHODS According to Communiqué regarding the Preparation of the Consolidated Financial Statements and Turkish Accounting Standards, Araptürk Bankası A.Ş, one of the associates of the Parent Bank, and Turkmen Turkish Joint Stock Commercial Bank, UTBANK JSC (formerly named as “Uzbekistan-Turkish Bank”) entities under common control are consolidated through “Equity Method” in accompanying consolidated financial statements of the Bank. Ziraat Teknoloji A.Ş., which is subsidiary of the Bank, is not consolidated into the Bank’s consolidated financial statements in accordance with Communiqué of the Preparation Consolidated Financial Statements since this entity is not financial institution. Kredi Kayıt Bürosu and Bankalararası Kart Merkezi which are associates of the bank are not consolidated but carried at cost since these entities are not controlled by the Bank and are not financial companies. All other subsidiaries are fully consolidated. VII. EXISTING OR POTENTIAL, ACTUAL OR LEGAL OBSTACLES TO IMMEDIATE TRANSFER OF SHAREHOLDER’S EQUITY, OR REPAYMENT OF DEBT BETWEEN THE PARENT BANK AND ITS SUBSIDIARIES None. 3 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION TWO CONSOLIDATED FINANCIAL STATEMENTS I. CONSOLİDATED BALANCE SHEET (CONSOLIDATED STATEMENT OF FINANCIAL POSITION) Note Current Period Prior Period (Section (31/12/2016) (31/12/2015) ASSETS Five I) TL FC Total TL FC Total I. CASH BALANCES WITH THE CENTRAL BANK OF TURKEY (1) 8.174.747 32.470.758 40.645.505 4.102.225 32.832.452 36.934.677 II. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT or (LOSS) (Net) (2) 1.232.112 487.459 1.719.571 687.695 284.571 972.266 2.1 Financial Assets Held for Trading 1.232.112 487.459 1.719.571 687.695 284.571 972.266 2.1.1 Public Sector Debt Securities 35.694 5.131 40.825 35.031 4.377 39.408 2.1.2 Securities Representing a Share in Capital - - - 580 - 580 2.1.3 Derivative Financial Assets Held for Trading 1.196.418 482.328 1.678.746 652.084 280.194 932.278 2.1.4 Other Marketable Securities - - - - - - 2.2 Financial Assets at Fair Value Through Profit or Loss - - - - - - 2.2.1 Public Sector Debt Securities - - - - - - 2.2.2 Securities Representing a Share in Capital - - - - - - 2.2.3 Loans - - - - - - 2.2.4 Other Marketable Securities - - - - - - III. BANKS (3) 1.586.083 2.733.983 4.320.066 1.911.314 3.054.377 4.965.691 IV. MONEY MARKET PLACEMENTS 33.968 218.976 252.944 50.408 65.765 116.173 4.1 Interbank Money Market Placements - 113.813 113.813 - 48.732 48.732 4.2 Istanbul Stock Exchange Money Market Placements 30.800 - 30.800 41.143 - 41.143 4.3 Receivables from Reverse Repurchase Agreements 3.168 105.163 108.331 9.265 17.033 26.298 V. FINANCIAL ASSETS AVAILABLE FOR SALE (Net) (4) 44.271.134 14.857.080 59.128.214 42.359.768 11.677.170 54.036.938 5.1 Securities Representing a Share in Capital 109.021 540.377 649.398 108.407 500.274 608.681 5.2 Public Sector Debt Securities 43.700.624 14.199.635 57.900.259 42.100.780 11.067.797 53.168.577 5.3 Other Marketable Securities 461.489 117.068 578.557 150.581 109.099 259.680 VI. LOANS AND RECEIVABLES (5) 173.678.548 70.395.797 244.074.345 142.067.085 50.441.311 192.508.396 6.1 Loans and Receivables 173.427.099 70.395.797 243.822.896 141.197.622 50.429.880 191.627.502 6.1.1 Loans Granted to Risk Group of The Bank - 22.397 22.397 - 25.125 25.125 6.1.2 Public Sector Debt Securities - - - - - - 6.1.3 Other 173.427.099 70.373.400 243.800.499 141.197.622 50.404.755 191.602.377 6.2 Loans under Follow-up 4.210.742 169.748 4.380.490 3.129.083 93.617 3.222.700 6.3 Specific Provisions (-) 3.959.293 169.748 4.129.041 2.259.620 82.186 2.341.806 VII. FACTORING RECEIVABLES - - - - - - VIII. INVESTMENTS HELD TO MATURITY (Net) (6) 3.630.564 5.164.351 8.794.915 4.567.447 5.656.028 10.223.475 8.1 Public Sector Debt Securities 3.491.761 5.156.130 8.647.891 4.533.588 5.613.041 10.146.629 8.2 Other Marketable Securities 138.803 8.221 147.024 33.859 42.987 76.846 IX. INVESTMENTS IN ASSOCIATES (Net) (7) 104.935 951 105.886 98.927 1.914 100.841 9.1 Accounted with Equity Method 98.869 - 98.869 92.861 - 92.861 9.2 Unconsolidated Associates 6.066 951 7.017 6.066 1.914 7.980 9.2.1 Financial Associates - - - - 1.097 1.097 9.2.2 Non-financial Associates 6.066 951 7.017 6.066 817 6.883 X. INVESTMENTS IN SUBSIDIARIES (Net) (8) 7.457 - 7.457 7.457 - 7.457 10.1 Unconsolidated Financial Subsidiaries 1.220 - 1.220 1.220 - 1.220 10.2 Unconsolidated Non-Financial Subsidiaries 6.237 - 6.237 6.237 - 6.237 XI. ENTITIES UNDER COMMON CONTROL (Net) (9) - 101.105 101.105 - 77.771 77.771 11.1 Accounted with Equity Method - 101.105 101.105 - 77.771 77.771 11.2 Unconsolidated Entities Under Common Control - - - - - - 11.2.1 Financial Entities Under Common Control - - - - - - 11.2.2 Non Financial Entities Under Common Control - - - - - - XII. RECEIVABLES FROM LEASING TRANSACTIONS (10) 705.449 1.778.218 2.483.667 594.625 1.768.777 2.363.402 12.1 Finance Lease Receivables 855.662 2.000.508 2.856.170 728.968 2.014.538 2.743.506 12.2 Operating Lease Receivables - - - - - - 12.3 Other - - - - - - 12.4 Unearned Income ( - ) 150.213 222.290 372.503 134.343 245.761 380.104 XIII. DERIVATIVE FINANCIAL ASSETS FOR HEDGING PURPOSES (11) - - - - - - 13.1 Fair Value Hedges - - - - - - 13.2 Cash Flow Hedges - - - - - - 13.3 Hedges for Investments Made in Foreign Countries - - - - - - XIV. TANGIBLE ASSETS (Net) (14) 5.749.260 122.749 5.872.009 4.874.436 83.248 4.957.684 XV. INTANGIBLE ASSETS (Net) (15) 333.302 34.562 367.864 232.759 13.358 246.117 15.1 Goodwill - - - - - - 15.2 Other 333.302 34.562 367.864 232.759 13.358 246.117 XVI. REAL ESTATES FOR INVESTMENT PURPOSE (Net) (12) 643.290 - 643.290 - - - XVII. TAX ASSET 87.690 5.914 93.604 271.567 1.091 272.658 17.1 Current Tax Asset 1.121 5.914 7.035 4.740 1.091 5.831 17.2 Deferred Tax Asset (16) 86.569 - 86.569 266.827 - 266.827 XVIII. ASSETS HELD FOR SALE AND ASSETS HELD FROM DISCONTINUED OPERATIONS (Net) (13) 562.983 32 563.015 241.558 - 241.558 18.1 Held for Sale 562.983 32 563.015 241.558 - 241.558 18.2 Held from Discontinued Operations - - - - - - XIX. OTHER ASSETS (17) 1.398.325 1.310.143 2.708.468 1.385.582 857.132 2.242.714 TOTAL ASSETS 242.199.847 129.682.078 371.881.925 203.452.853 106.814.965 310.267.818 The accompanying explanations and notes form an integral part of these consolidated financial statements. 4 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) I. CONSOLIDATED BALANCE SHEET (CONSOLIDATED STATEMENT OF FINANCIAL POSITION) Note Current Period Prior Period (Section (31/12/2016) (31/12/2015) LIABILITIES AND EQUITY Five II) TL FC Total TL FC Total I. DEPOSITS (1) 152.475.037 80.436.956 232.911.993 120.975.369 69.944.728 190.920.097 1.1 Deposits Held By the Risk Group of the Bank 33.645 18.875 52.520 27.015 11.370 38.385 1.2 Other 152.441.392 80.418.081 232.859.473 120.948.354 69.933.358 190.881.712 II. DERIVATIVE FINANCIAL LIABILITIES HELD FOR TRADING (2) 239.703 413.662 653.365 28.659 271.523 300.182 III. FUNDS BORROWED (3) 1.338.546 23.087.983 24.426.529 1.213.775 19.573.628 20.787.403 IV. MONEY MARKET BALANCES 35.075.206 12.270.423 47.345.629 28.389.499 14.744.813 43.134.312 4.1 Interbank Money Market Borrowings 4.640.000 - 4.640.000 1.100.000 - 1.100.000 4.2 Istanbul Stock Exchange Takasbank Borrowings 50.000 - 50.000 - - - 4.3 Funds Provided under Repurchase Agreements 30.385.206 12.270.423 42.655.629 27.289.499 14.744.813 42.034.312 V. MARKETABLE SECURITIES ISSUED (Net) 2.390.059 4.680.692 7.070.751 2.331.124 3.088.273 5.419.397 5.1 Bills 2.156.778 - 2.156.778 2.199.333 756.233 2.955.566 5.2 Asset-backed Securities 101.459 - 101.459 - - - 5.3 Bonds 131.822 4.680.692 4.812.514 131.791 2.332.040 2.463.831 VI. FUNDS 6.020.839 - 6.020.839 5.931.129 - 5.931.129 6.1 Borrower Funds - - - - - - 6.2 Other 6.020.839 - 6.020.839 5.931.129 - 5.931.129 VII. MISCELLANEOUS PAYABLES 1.305.967 1.260.934 2.566.901 1.509.413 869.723 2.379.136 VIII. OTHER LIABILITIES (4) 3.046.595 479.291 3.525.886 2.053.649 414.619 2.468.268 IX. FACTORING PAYABLES - - - - - - X. PAYABLES FROM LEASING TRANSACTIONS (Net) (5) - - - - - - 10.1 Finance Lease Payables - - - - - - 10.2 Operating Lease Payables - - - - - - 10.3 Other - - - - - - 10.4 Deferred Finance Lease Expenses ( - ) - - - - - - XI. DERIVATIVE FINANCIAL LIABILITIES FOR HEDGING (6) - - - - - - 11.1 Fair Value Hedges - - - - - - 11.2 Cash Flow Hedges - - - - - - 11.3 Hedges for Investments Made in Foreign Countries - - - - - - XII. PROVISIONS (7) 7.378.704 159.957 7.538.661 6.272.108 93.629 6.365.737 12.1 General Provisions 3.983.630 58.795 4.042.425 2.871.184 54.634 2.925.818 12.2 Restructuring Provisions - - - - - - 12.3 Employee Benefits Provisions 885.586 1.888 887.474 858.476 1.823 860.299 12.4 Insurance Technical Reserves (Net) 1.294.767 - 1.294.767 1.097.588 - 1.097.588 12.5 Other Provisions 1.214.721 99.274 1.313.995 1.444.860 37.172 1.482.032 XIII. TAX LIABILITY (8) 899.544 10.030 909.574 801.633 7.582 809.215 13.1 Current Tax Liability 899.544 6.567 906.111 800.981 5.877 806.858 13.2 Deferred Tax Liability - 3.463 3.463 652 1.705 2.357 XIV. LlABILITIES FOR ASSETS HELD FOR SALE AND HELD FROM DISCONTINUED OPERATIONS (Net) (9) - - - - - - 14.1 Held for Sale - - - - - - 14.2 Held from Discontinued Operations - - - - - - XV. SUBORDINATED LOANS (10) - - - - - - XVI. SHAREHOLDERS' EQUITY (11) 39.451.361 (539.564) 38.911.797 30.874.192 878.750 31.752.942 16.1 Paid-in Capital 5.100.000 - 5.100.000 5.000.000 - 5.000.000 16.2 Capital Reserves 3.270.984 (539.564) 2.731.420 2.162.865 878.750 3.041.615 16.2.1 Share Premium - - - - - - 16.2.2 Share Cancellation Profits - - - - - - 16.2.3 Marketable Securities Valuation Differences (844.719) (549.296) (1.394.015) (1.376.470) 871.303 (505.167) 16.2.4 Tangible Assets Revaluation Reserves 4.178.008 9.732 4.187.740 3.607.167 7.447 3.614.614 16.2.5 Intangible Assets Revaluation Reserves - - - - - - 16.2.6 Revaluation Reserves of Real Estates for Investment Purpose - - - - - - 16.2.7 Bonus Shares of Subsidiaries, Associates and Entities Under Common Control 17.388 - 17.388 17.388 - 17.388 16.2.8 Hedging Funds (Effective Portion) - - - - - - 16.2.9 Value Increase on Assets Held for Sale - - - - - - 16.2.10 Other Capital Reserves (79.693) - (79.693) (85.220) - (85.220) 16.3 Profit Reserves 22.871.718 - 22.871.718 18.146.025 - 18.146.025 16.3.1 Legal Reserves 3.393.778 - 3.393.778 3.061.444 - 3.061.444 16.3.2 Statutory Reserves - - - - - - 16.3.3 Extraordinary Reserves 18.052.605 - 18.052.605 13.659.246 - 13.659.246 16.3.4 Other Profit Reserves 1.425.335 - 1.425.335 1.425.335 - 1.425.335 16.4 Profit or Loss 8.207.208 - 8.207.208 5.564.157 - 5.564.157 16.4.1 Prior Years Profit/Loss 1.322.284 - 1.322.284 186.366 - 186.366 16.4.2 Net Period Profit/Loss 6.884.924 - 6.884.924 5.377.791 - 5.377.791 16.5 Minority Shares 1.451 - 1.451 1.145 - 1.145 TOTAL LIABILITIES AND EQUITY 249.621.561 122.260.364 371.881.925 200.380.550 109.887.268 310.267.818 The accompanying explanations and notes form an integral part of these consolidated financial statements. 5 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. CONSOLIDATED STATEMENT OF OFF-BALANCE SHEET COMMITMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) II. CONSOLIDATED STATEMENT OF OFF-BALANCE SHEET COMMITMENTS Note Current Period Prior Period (Section (31/12/2016) (31/12/2015) Five III) TL FC Total TL FC Total A OFF-BALANCE SHEET COMMITMENTS (I+II+III) 61.626.173 127.615.763 189.241.936 38.991.884 100.500.525 139.492.409 I. GUARANTEES AND WARRANTIES (1),(3) 26.076.864 56.644.251 82.721.115 19.789.565 41.101.309 60.890.874 1.1 Letters of Guarantee 25.872.985 42.719.354 68.592.339 19.689.042 30.018.744 49.707.786 1.1.1 Guarantees Subject to State Tender Law 1.490.146 7.994.602 9.484.748 1.182.000 5.742.948 6.924.948 1.1.2 Guarantees Given for Foreign Trade Operations 21.980.667 33.311.238 55.291.905 17.004.896 23.740.445 40.745.341 1.1.3 Other Letters of Guarantee 2.402.172 1.413.514 3.815.686 1.502.146 535.351 2.037.497 1.2 Bank Acceptances 34.549 4.227.349 4.261.898 12.965 4.181.142 4.194.107 1.2.1 Import Letter of Acceptance 29.427 4.224.206 4.253.633 12.965 4.173.792 4.186.757 1.2.2 Other Bank Acceptances 5.122 3.143 8.265 - 7.350 7.350 1.3 Letters of Credit 157.159 9.170.443 9.327.602 87.558 6.869.898 6.957.456 1.3.1 Documentary Letters of Credit 157.159 9.125.262 9.282.421 87.558 6.831.047 6.918.605 1.3.2 Other Letters of Credit - 45.181 45.181 - 38.851 38.851 1.4 Prefinancing Given as Guarantee - - - - - - 1.5 Endorsements - - - - - - 1.5.1 Endorsements to the Central Bank of the Republic of Turkey - - - - - - 1.5.2 Other Endorsements - - - - - - 1.6 Purchase Guarantees on Marketable Security Issuance - - - - - - 1.7 Factoring Guarantees - - - - - - 1.8 Other Guarantees 12.000 520.131 532.131 - 31.525 31.525 1.9 Other Collaterals 171 6.974 7.145 - - - II. COMMITMENTS (1),(3) 18.528.082 6.321.850 24.849.932 16.023.661 4.062.087 20.085.748 2.1 Irrevocable Commitments 18.508.007 5.047.801 23.555.808 16.009.885 3.932.546 19.942.431 2.1.1 Asset Purchase and Sale Commitments 372.517 1.764.007 2.136.524 153.461 1.695.131 1.848.592 2.1.2 Deposit Purchase and Sales Commitments - - - - - - 2.1.3 Share Capital Commitments to Associates and Subsidiaries - - - - - - 2.1.4 Loan Granting Commitments 3.538.378 204.109 3.742.487 2.693.280 314.414 3.007.694 2.1.5 Securities Issue Brokerage Commitments - - - - - - 2.1.6 Commitments for Reserve Deposit Requirements - - - - - - 2.1.7 Commitments for Cheques 3.173.733 34 3.173.767 3.079.620 10 3.079.630 2.1.8 Tax and Fund Liabilities from Export Commitments 458 - 458 27 - 27 2.1.9 Commitments for Credit Card Limits 7.258.758 17.155 7.275.913 7.130.144 1.130 7.131.274 2.1.10 Commitments for Credit Cards and Banking Services Promotions 22.138 - 22.138 20.185 - 20.185 2.1.11 Receivables from Short Sale Commitments of Marketable Securities - - - - - - 2.1.12 Payables for Short Sale Commitments of Marketable Securities - - - - - - 2.1.13 Other Irrevocable Commitments 4.142.025 3.062.496 7.204.521 2.933.168 1.921.861 4.855.029 2.2 Revocable Commitments 20.075 1.274.049 1.294.124 13.776 129.541 143.317 2.2.1 Revocable Loan Granting Commitments - 3.966 3.966 - 4.898 4.898 2.2.2 Other Revocable Commitments 20.075 1.270.083 1.290.158 13.776 124.643 138.419 III. DERIVATIVE FINANCIAL INSTRUMENTS (2) 17.021.227 64.649.662 81.670.889 3.178.658 55.337.129 58.515.787 3.1 Hedging Derivative Financial Instruments - - - - - - 3.1.1 Transactions for Fair Value Hedge - - - - - - 3.1.2 Transactions for Cash Flow Hedge - - - - - - 3.1.3 Transactions for Foreign Net Investment Hedge - - - - - - 3.2 Trading Transactions 17.021.227 64.649.662 81.670.889 3.178.658 55.337.129 58.515.787 3.2.1 Forward Foreign Currency Buy/Sell Transactions 1.353.480 3.719.751 5.073.231 1.301.255 4.034.444 5.335.699 3.2.1.1 Forward Foreign Currency Transactions-Buy 628.181 1.913.250 2.541.431 659.599 2.010.626 2.670.225 3.2.1.2 Forward Foreign Currency Transactions-Sell 725.299 1.806.501 2.531.800 641.656 2.023.818 2.665.474 3.2.2 Swap Transactions Related to Foreign Currency and Interest Rates 15.656.747 60.918.593 76.575.340 1.864.357 51.259.311 53.123.668 3.2.2.1 Foreign Currency Swap-Buy 13.485.251 20.739.673 34.224.924 482.054 23.157.990 23.640.044 3.2.2.2 Foreign Currency Swap-Sell 2.171.496 30.856.286 33.027.782 1.382.303 21.865.695 23.247.998 3.2.2.3 Interest Rate Swap-Buy - 4.661.317 4.661.317 - 3.117.813 3.117.813 3.2.2.4 Interest Rate Swap-Sell - 4.661.317 4.661.317 - 3.117.813 3.117.813 3.2.3 Foreign Currency, Interest rate and Securities Options 11.000 11.318 22.318 13.046 43.374 56.420 3.2.3.1 Foreign Currency Options-Buy 5.500 5.659 11.159 6.523 21.687 28.210 3.2.3.2 Foreign Currency Options-Sell 5.500 5.659 11.159 6.523 21.687 28.210 3.2.3.3 Interest Rate Options-Buy - - - - - - 3.2.3.4 Interest Rate Options-Sell - - - - - - 3.2.3.5 Securities Options-Buy - - - - - - 3.2.3.6 Securities Options-Sell - - - - - - 3.2.4 Foreign Currency Futures - - - - - - 3.2.4.1 Foreign Currency Futures-Buy - - - - - - 3.2.4.2 Foreign Currency Futures-Sell - - - - - - 3.2.5 Interest Rate Futures - - - - - - 3.2.5.1 Interest Rate Futures-Buy - - - - - - 3.2.5.2 Interest Rate Futures-Sell - - - - - - 3.2.6 Other - - - - - - B. CUSTODY AND PLEDGES RECEIVED (IV+V+VI) 933.725.665 147.072.049 1.080.797.714 651.413.498 103.351.722 754.765.220 IV. ITEMS HELD IN CUSTODY 251.122.581 14.575.165 265.697.746 87.806.488 11.305.131 99.111.619 4.1 Customer Fund and Portfolio Balances - - - - - - 4.2 Investment Securities Held in Custody 3.549.338 6.213.402 9.762.740 30.615.944 4.389.662 35.005.606 4.3 Checks Received for Collection 6.276.854 553.317 6.830.171 4.604.119 344.759 4.948.878 4.4 Commercial Notes Received for Collection 6.345.097 568.396 6.913.493 4.785.677 309.112 5.094.789 4.5 Other Assets Received for Collection 8.834 - 8.834 8.934 - 8.934 4.6 Assets Received for Public Offering 230.498.311 3.354 230.501.665 44.394.987 10.431 44.405.418 4.7 Other Items Under Custody 4.441.948 7.179.931 11.621.879 3.394.628 6.246.167 9.640.795 4.8 Custodians 2.199 56.765 58.964 2.199 5.000 7.199 V. PLEDGES RECEIVED 682.010.015 130.623.295 812.633.310 563.004.107 90.760.553 653.764.660 5.1 Marketable Securities 1.557.574 37.532 1.595.106 938.313 28.100 966.413 5.2 Guarantee Notes 14.412.792 2.535.527 16.948.319 13.252.277 2.088.733 15.341.010 5.3 Commodity 1.508.261 70.224 1.578.485 1.158.807 18.248 1.177.055 5.4 Warranty - - - - - - 5.5 Immovable 601.855.777 103.085.496 704.941.273 500.207.394 68.056.740 568.264.134 5.6 Other Pledged Items 62.670.402 24.881.798 87.552.200 47.442.107 20.558.160 68.000.267 5.7 Pledged Items-Depository 5.209 12.718 17.927 5.209 10.572 15.781 VI. ACCEPTED INDEPENDENT GUARANTEES AND WARRANTIES 593.069 1.873.589 2.466.658 602.903 1.286.038 1.888.941 TOTAL OFF-BALANCE SHEET COMMITMENTS (A+B) 995.351.838 274.687.812 1.270.039.650 690.405.382 203.852.247 894.257.629 The accompanying explanations and notes form an integral part of these consolidated financial statements. 6 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. CONSOLIDATED INCOME STATEMENT AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) III. CONSOLIDATED INCOME STATEMENT Not3 INCOME AND EXPENSE ITEMS (Section Current Period Prior Period Five IV) 1/1-31/12/2016 1/1-31/12/2015 I. INTEREST INCOME (1) 28.245.867 22.652.115 1.1 Interest Income from Loans 22.087.279 16.913.431 1.2 Interest Income from Reserve Deposits 189.263 60.293 1.3 Interest Income from Banks 220.658 183.023 1.4 Interest Income from Money Market Placements 12.888 6.690 1.5 Interest Income from Marketable Securities 5.527.745 5.247.722 1.5.1 Financial Assets Held for Trading 3.300 1.551 1.5.2 Financial Assets at Fair Value through Profit and Loss 6.757 6.851 1.5.3 Financial Assets Available-for-Sale 4.736.009 4.447.190 1.5.4 Investments Held-to-Maturity 781.679 792.130 1.6 Finance Lease Income 169.087 158.873 1.7 Other Interest Income 38.947 82.083 II. INTEREST EXPENSES (2) 13.571.301 11.626.986 2.1 Interest Expense on Deposits 10.058.576 8.700.897 2.2 Interest on Borrowings 527.712 441.424 2.3 Interest on Money Market Borrowings 2.532.653 2.128.599 2.4 Interest on Marketable Securities Issued 397.521 294.559 2.5 Other Interest Expense 54.839 61.507 III. NET INTEREST INCOME/EXPENSES (I - II) 14.674.566 11.025.129 IV. NET FEES AND COMMISSIONS INCOME/EXPENSES 1.516.567 1.230.276 4.1 Fees and Commissions Received 1.874.407 1.561.382 4.1.1 Non-cash Loans 358.369 256.628 4.1.2 Other (13) 1.516.038 1.304.754 4.2 Fees and Commissions Paid 357.840 331.106 4.2.1 Non-cash Loans 4.624 58 4.2.2 Other 353.216 331.048 V. DIVIDEND INCOME (3) 32.901 6.419 VI. TRADING PROFIT/LOSS (Net) (4) (169.993) (141.717) 6.1 Profit/Loss from Capital Market Operations 31.757 78.468 6.2 Profit/losses on Derivative Financial Transactions (5) (1.817.527) (1.260.621) 6.3 Profit/Loss from Foreign Exchanges 1.615.777 1.040.436 VII. OTHER OPERATING INCOME (6) 3.227.587 2.433.906 VIII. TOTAL OPERATING INCOMES/EXPENSES (III+IV+V+VI+VII) 19.281.628 14.554.013 IX. PROVISION FOR LOSSES ON LOANS OR OTHER RECEIVABLES (-) (7) 3.576.252 1.547.271 X. OTHER OPERATING EXPENSES(-) (8) 6.687.827 6.146.784 XI. NET OPERATING PROFIT/LOSS (VIII-IX-X) 9.017.549 6.859.958 XII. GAINS RECORDED AFTER MERGER - - XIII. PROFIT/LOSS ON EQUITY METHOD 21.914 28.025 XIV. GAIN/LOSS ON NET MONETARY POSITION - - XV. INCOME BEFORE TAXES FROM CONTINUNING OPERATIONS (XI+...+XIV) (9) 9.039.463 6.887.983 PROVISION FOR TAXES ON INCOME FROM CONTINUING XVI. OPERATIONS(±) (10) (2.154.328) (1.510.009) 16.1 Current Tax Provision (2.061.503) (927.367) 16.2 Deferred Tax Provision (92.825) (582.642) XVII. NET PROFIT/LOSSES FROM CONTINUING OPERATIONS (XV±XVI) (11) 6.885.135 5.377.974 XVIII. INCOME FROM DISCONTINUED OPERATIONS - - 18.1 Income from Non-current Assets Held for Sale - - 18.2 Profit from Sales of Associates, Subsidiaries and Joint Ventures (Business Partners) - - 18.3 Other Income from Discontinued Operations - - XIX. EXPENSES FROM DISCONTINUED OPERATIONS (-) - - 19.1 Expenses for Non-current Assets Held for Sale - - 19.2 Loss from Sales of Associates, Subsidiaries and Joint Ventures (Business Partners) - - 19.3 Other Expenses from Discontinued Operations - - PROFIT /LOSSES BEFORE TAXES FROM DISCONTINUED OPERATIONS XX. (XVIII-XIX) - - XXI. PROVISION FOR INCOME TAXES FROM DISCONTINUED OPERATIONS (±) - - 21.1 Current tax provision - - 21.2 Deferred tax provision - - XXII. NET PROFIT/LOSSES FROM DISCONTINUED OPERATIONS (XX±XXI) - - XXII. NET PROFIT/LOSSES (XVII+XXII) (12) 6.885.135 5.377.974 23.1 Group’s Profit/Loss 6.884.924 5.377.791 23.2 Minority Shares Profit/Loss 211 183 Earnings/Loss per Share 1,361 1,070 The accompanying explanations and notes form an integral part of these consolidated financial statements. 7 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. CONSOLIDATED STATEMENT OF PROFIT AND LOSS ITEMS ACCOUNTED UNDER SHAREHOLDERS’ EQUITY AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) IV. CONSOLIDATED STATEMENT OF PROFIT AND LOSS ITEMS ACCOUNTED UNDER SHAREHOLDERS’ EQUITY Current Period Prior Period PROFIT AND LOSS ITEMS ACCOUNTED UNDER SHAREHOLDERS` EQUITY (31/12/2016) (31/12/2015) I. ADDITIONS TO THE MARKETABLE SECURITY VALUATION DIFFERENCES ON AVAILABLE FOR SALE FINANCIAL ASSETS (1.142.948) (3.100.004) II. TANGIBLE ASSETS REVALUATION DIFFERENCES 793.533 (19.696) III. INTANGIBLE ASSETS REVALUATION DIFFERENCES - - IV. CURRENCY TRANSLATION DIFFERENCES FOR FOREIGN CURRENCY TRANSACTIONS 169.453 145.354 V. PROFIT OR LOSS ON CASH FLOW HEDGE DERIVATIVE FINANCIAL ASSETS (Effective Part of Fair Value Differences) - - VI. PROFIT/LOSS FROM FOREIGN INVESTMENT HEDGE DERIVATIVE FINANCIAL ASSETS (Effective Part of Fair Value Changes) - - VII. EFFECTS OF CHANGES IN ACCOUNTING POLICY AND ADJUSTMENT OF ERRORS - - VIII. OTHER INCOME AND EXPENSE ITEMS ACCOUNTED UNDER SHAREHOLDERS’ EQUITY ACCORDING TO TAS 6.909 (17.130) IX. DEFERRED TAXES RELATED TO VALUATION DIFFERENCES (88.539) 624.463 X. NET PROFIT OR LOSS ACCOUNTED DIRECTLY UNDER SHAREHOLDERS’ EQUITY (I+II+...+IX) (261.592) (2.367.013) XI. CURRENT YEAR PROFIT/LOSS 6.885.135 5.377.974 11.1 Net change in fair value of marketable securities (transfer to profit-loss) 31.757 78.468 11.2 Reclassification of cash flow hedge transactions and presentation of the related under income statement - - 11.3 Reclassification of foreign net investment hedge transactions and presentation of the related part under income statement - - 11.4 Other 6.853.378 5.299.506 XII. TOTAL PROFIT/LOSS RELATED TO THE PERIOD (X±XI) 6.623.543 3.010.961 The accompanying explanations and notes form an integral part of these consolidated financial statements. 8 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY AS OF 31 DECEMBER 2015 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) V. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY Current Rev. Diff. in Note Adjustmen Share Period Prior Period Marketable Rev. Diff. in Bonus Tangible Held (Section Paid-in t to Paid- Share Cancl. Legal Statutory Extraordinary Other Net Net Sec. Valuation Tangible and Shares from Hedging for Sale/Disc. Minority Total 31 December 2015 Five V) Capital in Capital Premium Profits Reserves Reserves Reserves Reserves Profit/(Loss) Profit/(Loss) Differences Intang. Assets Investments Funds Operat. Shares Equity I. Balance at the Beginning of the Period 2.500.000 543.482 - - 2.852.218 - 11.880.556 850.461 - 4.495.841 1.841.393 3.634.310 17.388 - - 1.383 28.617.032 - Changes During the Period II. Increase/Decrease Related to Merger - - - - - - - - - - - - - - - - - III. Marketable Securities Valuation Differences - - - - 25.764 - - - - - (2.504.311) - (421) (2.478.968) IV. Hedging Funds (Active Part) - - - - - - - - - - - - - - - - - 4.1 Cash-Flow Hedge - - - - - - - - - - - - - - - - - Hedges for Investments Made in Foreign 4.2 Countries - - - - - - - - - - - - - - - - - V. Revaluation Differences of Tangible Assets - - - - - - - - - - - (19.696) - - - - (19.696) VI. Revaluation Differences of Intangible Assets - - - - - - - - - - - - - - - - - VII. Bonus Shares of Associates, Subsidiaries and Entities under Common Control (Business Partners) - - - - - - - - - - - - - - - - - VIII. Foreign Exchange Differences - - - - (12.397) - - - - - 157.751 - - - - 145.354 IX. Changes Resulted from Disposal of Assets - - - - - - - - - - - - - - - - - Changes Resulted from Reclassification of X. Assets - - - - - - - - - - - - - - - - - XI. Effect of Changes in Shareholders' Equity of Associates to the Bank's Shareholders’ Equity - - - - - - - - - - - - - - - - - XII. Increase in Capital 2.500.000 (543.482) - - - - (1.281.518) - - - - - - - - - 675.000 12.1 Cash 675.000 - - - - - - - - - - - - - - 675.000 12.2 From Internal Resources 1.825.000 (543.482) - - - - (1.281.518) - - - - - - - - - - XIII. Issuance of Share Certificates - - - - - - - - - - - - - - - - - XIV. Share Cancellation Profits - - - - - - - - - - - - - - - - - XV. Adjustment to Paid-in Capital - - - - - - - - - - - - - - - - - XVI. Other - - - - - - - (13.703) - (258.966) - - - - - - (272.669) XVII. Net Profit or Losses - - - - - - - - 5.377.791 - - - - - - 183 5.377.974 XVIII. Profit Distribution - - - - 195.859 - 3.060.208 503.357 - (4.050.509) - - - - - - (291.085) 18.1 Dividend Distributed - - - - - - - - - (291.085) - - - - - - (291.085) 18.2 Transfers to Legal Reserves - - - - 195.859 - 3.060.208 503.357 - (3.759.424) - - - - - - - 18.3 Other - - - - - - - - - - - - - - - - - Balance at the End of the Period (I+II+III+……+XVI+XVII+XVIII) 5.000.000 3.061.444 13.659.246 1.340.115 5.377.791 186.366 (505.167) 3.614.614 17.388 - - 1.145 31.752.942 The accompanying explanations and notes form an integral part of these consolidated financial statements. 9 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) V. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY Current Rev. Diff. in Note Adjustment Share Period Prior Period Marketable Rev. Diff. in Bonus Tangible Held (Section Paid-in to Paid-in Share Cancl. Legal Statutory Extraordinary Other Net Net Sec. Valuation Tangible and Shares from Hedging for Sale/Disc. Minority Total 31 December 2016 Five V) Capital Capital Premium Profits Reserves Reserves Reserves Reserves Profit/(Loss) Profit/(Loss) Differences Intang. Assets Investments Funds Operat. Shares Equity I. Balance at the Beginning of the Period 5.000.000 - - - 3.061.444 - 13.659.246 1.340.115 - 5.564.157 (505.167) 3.614.614 17.388 - - 1.145 31.752.942 Changes During the Period II. Increase/Decrease Related to Merger - - - - - - - - - - - - - - - - - III. Marketable Securities Valuation Differences - - - - 21.038 - - - - - (1.029.329) - - - - (1.407) (1.009.698) IV. Hedging Funds (Active Part) - - - - - - - - - - - - - - - - - 4.1 Cash-Flow Hedge - - - - - - - - - - - - - - - - - 4.2 Hedges for Investments Made in Foreign Countries - - - - - - - - - - - - - - - - - V. Revaluation Differences of Tangible Assets - - - - - - - - - - - 573.126 - - - - 573.126 VI. Revaluation Differences of Intangible Assets - - - - - - - - - - - - - - - - - VII. Bonus Shares of Associates, Subsidiaries and Entities under Common Control (Business Partners) - - - - - - - - - - - - - - - - - VIII. Foreign Exchange Differences - - - - 28.972 - - - - - 140.481 - - - - - 169.453 IX. Changes Resulted from Disposal of Assets - - - - - - - - - - - - - - - - - X. Changes Resulted from Reclassification of Assets - - - - - - - - - - - - - - - - - XI. Effect of Changes in Shareholders' Equity of Associates to the Bank's Shareholders’ Equity - - - - - - - - - - - - - - - - - XII. Increase in Capital 100.000 - - - - - (28.000) - - - - - - - - - 72.000 12.1 Cash 72.000 - - - - - - - - - - - - - - - 72.000 12.2 From Internal Resources 28.000 - - - - - (28.000) - - - - - - - - - - XIII. Issuance of Share Certificates - - - - - - - - - - - - - - - - - XIV. Share Cancellation Profits - - - - - - - - - - - - - - - - - XV. Adjustment to Paid-in Capital - - - - - - - - - - - - - - - - - XVI. Other - - - - - - - 5.527 - 920.597 - - - - - 1.502 927.626 XVII. Net Profit or Losses - - - - - - - - 6.884.924 - - - - - - 211 6.885.135 XVIII. Profit Distribution - - - - 282.324 - 4.421.359 - - (5.162.470) - - - - - - (458.787) 18.1 Dividend Distributed - - - - - - - - - (458.787) - - - - - - (458.787) 18.2 Transfers to Legal Reserves - - - - 282.324 - 4.421.359 - - (4.703.683) - - - - - - - 18.3 Other - - - - - - - - - - - - - - - - - Balance at the End of the Period (I+II+III+……+XVI+XVII+XVIII) 5.100.000 - - - 3.393.778 - 18.052.605 1.345.642 6.884.924 1.322.284 (1.394.015) 4.187.740 17.388 - - 1.451 38.911.797 The accompanying explanations and notes form an integral part of these consolidated financial statements. 10 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. THE PARENT BANK’S STATEMENT OF PROFIT APPROPRIATION AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) VI. CONSOLIDATED STATEMENT OF CASH FLOWS Note (Section Current Period Prior Period Five VI) 01/01-31/12/2016 01/01-31/12/2015 A. CASH FLOWS FROM BANKING OPERATIONS 1.1 Operating Profit Before Changes in Operating Assets and Liabilities 8.121.027 6.323.398 1.1.1 Interest Received 27.012.143 21.545.770 1.1.2 Interest Paid (13.228.937) (9.551.706) 1.1.3 Dividend Received 32.901 5.910 1.1.4 Fees and Commissions Received 1.870.333 1.559.056 1.1.5 Other Income 1.859.502 2.778.322 1.1.6 Collections from Previously Written-off Loans and Other Receivables 1.320.006 1.672.811 1.1.7 Payments to Personnel and Service Suppliers (2.503.144) (2.205.013) 1.1.8 Taxes Paid (2.461.592) (1.376.568) 1.1.9 Other (5.780.185) (8.105.184) 1.2 Changes in Operating Assets and Liabilities 1.773.837 (1.514.862) 1.2.1 Net (Increase)/Decrease in Trading Securities (8.198) (10.699) 1.2.2 Net (Increase)/Decrease in Fair Value Through Profit/Loss Financial Assets - 72 1.2.3 Net (Increase)/Decrease in Banks 3.585.434 (6.895.275) 1.2.4 Net (Increase)/Decrease in Loans (50.566.370) (46.446.483) 1.2.5 Net (Increase)/Decrease in Other Assets (1.463.783) (355.201) 1.2.6 Net Increase/(Decrease) in Bank Deposits 1.922.269 7.394.228 1.2.7 Net Increase/(Decrease) in Other Deposits 44.174.863 38.589.301 1.2.8 Net Increase/(Decrease) in Funds Borrowed 3.596.415 5.153.250 1.2.9 Net Increase/(Decrease) in Payables - - 1.2.10 Net Increase/(Decrease) in Other Liabilities 533.207 1.055.945 I. Net Cash Provided from Banking Operations 9.894.864 4.808.536 B. CASH FLOWS FROM INVESTMENT ACTIVITIES II. Net Cash Provided from Investing Activities (5.106.003) (3.298.144) 2.1 Cash Paid for Purchase of Associates, Subsidiaries and Entities under Common Control - - 2.2 Cash Obtained from Sale of Associates, Subsidiaries and Entities under Common Control - - 2.3 Fixed Assets Purchases (121.439) (469.500) 2.4 Fixed Assets Sales 267.620 47.741 2.5 Cash Paid for Purchase of Financial Assets Available for Sale (15.709.293) (16.459.962) 2.6 Cash Obtained from Sale of financial Assets Available for Sale 11.685.516 16.928.030 2.7 Cash Paid for Purchase of Investment Securities (937.418) (154.288) 2.8 Cash Obtained from Sale of Investment Securities 2.841.260 1.234.485 2.9 Other (3.132.249) (4.424.650) C. CASH FLOWS FROM FINANCING ACTIVITIES III. Net Cash Provided from Financing Activities 809.398 572.608 3.1 Cash Obtained from Funds Borrowed and Securities Issued 4.030.931 3.046.208 3.2 Cash Used for Repayment of Funds Borrowed and Securities Issued (2.990.333) (2.367.350) 3.3 Marketable Securities Issued - - 3.4 Dividends Paid (231.200) (106.250) 3.5 Payments for Finance Leases - - 3.6 Other - - IV. Effect of Change in Foreign Exchange Rate on Cash and Cash Equivalents (1) 1.183.517 589.946 V. Net Decrease/ Increase in Cash and Cash Equivalents (I+II+III+IV) 6.781.776 2.672.946 VI. Cash and Cash Equivalents at the Beginning of the Period (1) 9.118.137 6.445.191 VII. Cash and Cash Equivalents at the End of the Period (1) 15.899.913 9.118.137 The accompanying explanations and notes form an integral part of these consolidated financial statements. 11 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. THE PARENT BANK’S STATEMENT OF PROFIT APPROPRIATION AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) Current Period Prior Period (2) VII. THE PARENT BANK’S STATEMENT OF PROFIT APPROPRIATION (1) (31/12/2016) (31/12/2015) I. DISTRIBUTION OF CURRENT YEAR INCOME 1.1 Current Year Income 8.569.135 6.567.623 1.2 Taxes And Duties Payable (-) 1.992.715 1.405.153 1.2.1 Corporate Tax (Income tax) 1.895.194 821.329 1.2.2 Income withholding tax - - 1.2.3 Other taxes and duties 97.521 583.824 A. NET INCOME FOR THE YEAR (1.1-1.2) 6.576.420 5.162.470 1.3 Prior Year Losses (-) - - 1.4 First Legal Reserves (-) - 258.124 1.5 Other Statutory Reserves (-) - - B. NET INCOME AVAILABLE FOR DISTRIBUTION [(A-(1.3+1.4+1.5)] 6.576.420 4.904.346 1.6 First Dividend To Shareholders (-) - 250.000 1.6.1 To Owners Of Ordinary Shares - 250.000 1.6.2 To Owners Of Privileged Shares - - 1.6.3 To Owners Of Preferred Shares - - 1.6.4 To Profit Sharing Bonds - - 1.6.5 To Holders Of Profit And Loss Sharing Certificates - - 1.7 Dividends To Personnel (-) - 186.788 1.8 Dividends To Board Of Directors (-) - - 1.9 Second Dividend To Shareholders (-) - 22.000 1.9.1 To Owners Of Ordinary Shares - 22.000 1.9.2 To Owners Of Privileged Shares - - 1.9.3 To Owners Of Preferred Shares - - 1.9.4 To Profit Sharing Bonds - - 1.9.5 To Holders Of Profit And Loss Sharing Certificates - - 1.10 Second Legal Reserves (-) - 24.200 1.11 Statutory Reserves (-) - - 1.12 Extraordinary Reserves - 4.421.358 1.13 Other Reserves - - 1.14 Special Funds - - II. DISTRIBUTION OF RESERVES 2.1 Appropriated Reserves - - 2.2 Second Legal Reserves (-) - - 2.3 Dividends To Shareholders (-) - - 2.3.1 To Owners Of Ordinary Shares - - 2.3.2 To Owners Of Privileged Shares - - 2.3.3 To Owners Of Preferred Shares - - 2.3.4 To Profit Sharing Bonds - - 2.3.5 To Holders Of Profit And Loss Sharing Certificates - - 2.4 Dividends To Personnel (-) - - 2.5 Dividends To Board Of Directors (-) - - III. EARNINGS PER SHARE 3.1 To Owners Of Ordinary Shares 1,2999 1,0488 3.2 To Owners Of Ordinary Shares ( % ) 129,99 104,88 3.3 To Owners Of Privileged Shares - - 3.4 To Owners Of Privileged Shares ( % ) - - IV. DIVIDEND PER SHARE 4.1 To Owners Of Ordinary Shares - - 4.2 To Owners Of Ordinary Shares ( % ) - - 4.3 To Owners Of Privileged Shares - - 4.4 To Owners Of Privileged Shares ( % ) - - ((1) Profit distribution is approved by the Parent Bank's Ordinary General Assembly and is based on the unconsolidated financial statements. As of the date of preparation of the financial statements, the meeting for Ordinary General Assembly has not been held. (2) The profit distribution table for the prior period becomes definite with the decision of the Ordinary General Assembly after the publishing of 31 December 2015 audited financial statements. It is rearranged in this direction. The accompanying explanations and notes form an integral part of these consolidated financial statements. 12 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE EXPLANATIONS ON ACCOUNTING POLICIES I. BASIS OF PRESENTATION The consolidated financial statements are prepared within the scope of the “Regulation on Accounting Applications for Banks and Safeguarding of Documents” related with Banking Law numbered 5411 published in the Official Gazette no.26333 dated 1 November 2006 and other regulations related to reporting and accounting principles on accounting records of Banks published by Banking Regulation and Supervision Agency (“BRSA”) and circulars and interpretations and in case where a specific regulation is not made by BRSA, Turkish Accounting Standards 34 “Interim Financial Reporting Standards” and Turkish Financial Reporting Standards (“TFRS”) and related appendices and interpretations (all referred as “BRSA Accounting and Financial Reporting Legislation” or “BRSA Principles”) put into effect by Public Oversight Accounting and Auditing Standards Authority (“POA”). The format and content of the publicly announced consolidated financial statements and notes to these statements have been prepared in accordance with the “Communiqué on Publicly Announced Financial Statements, Explanations and Notes to These Financial Statements”, published in the Of ficial Gazette No. 28337, dated 28 June 2012 and amendments to these Communiqué. The Parent bank maintains its books in Turkish Lira in accordance with the Banking Law, Turkish Commercial Code and Turkish Tax Legislation. Financial statements of subsidiaries in abroad are prepared in accordance with prevalent law and legislation in their country, adjustments and reclassifications are reflected on the purpose of fair presentation pursuant to TFRS. The consolidated financial statements have been prepared in thousands of Turkish Lira (TL), under the historical cost convention as modified in accordance with inflation adjustments applied until 31 December 2004, except for the financial assets and liabilities carried at fair value. Consolidated balance sheet and consolidated statement of off-balance sheet commitments as of 31 December 2016 are presented comparatively with independently audited balances as of 31 December 2015 while consolidated income statement, consolidated statement of income and expense items accounted under sharehold ers’ equity, consolidated statement of cash flows and consolidated statement of changes in shareholders’ equity. Unless otherwise specified, all balances in the financial statements and footnotes are expressed in Thousand Turkish Lira (“TL”). The preparation of financial statements requires the use of certain critical estimates on assets and liabilities reported as of balance sheet date or amount of contingent assets and liabilities explained and amount of income and expenses occurred in related period. Although these estimates rely on the management’s best judgment, actual results can vary from these estimates. Judgements,estimates and the effects of the changes are explained in related notes. The amendments of TAS and TFRS which have entered into force as of 1 January 2016 have no material impact on the Group’s accounting policies, financial position and performance. The amendments of TAS and TFRS, except TFRS 9 Financial Instruments, is predicted no impact on the accounting policies, financial condition and performance of the Group. The Group conducts the preparations in line with TFRS 9 Financial Instruments Standard, which will have entered into force as of 1 January 2018. The accounting policies and valuation principles applied in the preparation of these financial statements are defined and applied in accordance with TAS. Those accounting policies and valuation principles are explained in Notes II. to XXVI. below. Additional paragraph for convenience translation into English: The differences between accounting principles, as described in the preceding paragraphs, and accounting principles generally accepted in countries in which the accompanying consolidated financial statements are to be distributed and International Financial Reporting Standards (“IFRS”) have not been quantified in the accompanying consolidated financial statements. Accordingly, these consolidated financial statements are not intended to present the financial position, results of operations and changes in financial position and cash flows in accordance with the accounting principles generally accepted in such countries and IFRS. 13 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) II. EXPLANATIONS ON THE STRATEGY OF USING FINANCIAL INSTRUMENTS AND FOREIGN CURRENCY TRANSACTIONS Main activity of the Parent Bank comprises banking services, such as; launching all kinds of cash and non-cash loans in terms of Turkish Lira and foreign currencies, performing transactions in local, international money and capital markets, supporting agricultural sector financially and collecting deposits in Turkish Lira and foreign currencies. The Parent Bank’s main funding source is Turkish Lira deposits, repurchase agreements, issued securities, and shareholders’ equity. The Parent Bank directs these funds to assets with high return and low risk. These assets include predominantly domestic government bonds and loans. The Parent Bank’s liquidity structure covers the financing of all liabilities at due date. Although most of the sources in the Parent Bank’s balance sheet are with fixed interest rate, some of the securities in assets have floating interest rate. Since the remaining time to re-pricing date of sources is short, cost of sources is repriced in short periods based on the market conditions. Moreover, the Parent Bank adopts high return principle for its long-term placements. Loans and securities are instruments from which the Parent Bank gets returns above the average returns within its lines of activity. Letter of guarantees, bank loans, commercial letter of credits, repayment commitments for cheques and commitments for credit card limits are the most important risk areas within the off-balance sheet accounts. Since the Parent Bank’s total debt to the market is low among its total liabilities, the Parent Bank can borrow easily from short-term markets, such as; Borsa Istanbul (“BIST”), Central Bank of the Republic of Turkey, Money Market or Interbank Money Market in case of need. In case of a liquidity crisis, the deposit base of the Bank is not presumed to be significantly affected from such a case since the Parent Bank is a public bank with an extensive branch network. Cost and return of foreign currency assets are subject to a close follow up. Positive margin of profit is sustained by adjusting deposit interest rates in line with the market interest rates. Foreign currency operations are recognized at transaction date and valued by Parent Bank’s prevailing counter currency buying rate. At period ends, foreign currency asset and liability balances are valued at the Parent Bank’s period end counter currency buying rates and translated to Turkish currency and the resulting exchange differences are recognized as a “Foreign exchange gain or loss”. Foreign currency capital amounts transferred to the equity participations operating abroad are evaluated and presented on the financial statements with the exchange rate on the date of the transfer. Assets and liabilities and income statement items of the abroad branches of the Parent Bank are translated into Turkish Lira with the Bank’s prevailing counter currency buying rates at the balance sheet date. 14 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) III. EXPLANATIONS ON INVESTMENTS IN ASSOCIATES, SUBSIDIARIES AND JOINT VENTURES a. Consolidation principles applied: The consolidated financial statements have been prepared in accordance with the procedures listed in the “Communiqués related to the Regulation on the Preparation of the Consolidated Financial Statements of Banks” published in the Official Gazette No. 26340 dated 8 November 2006 and the “Consolidated Financial Statements” (“TFRS 10”). 1. Consolidation principles for subsidiaries: Subsidiaries (including special purpose entity) are all entities, in which the Group has power to control the financial and operating policies for the benefit of the Parent Bank, either (a) through the power to exercise more than 50% of the voting rights relating to shares in the companies owned directly and indirectly by itself; or (b) although not having the power to exercise more than 50% of the using rights, otherwise having the power to exercise control over the financial and operating policies. Control is evident when the Parent Bank owns, either directly or indirectly, the majority of the share capital of the company or owns the privileged shares or owns the right of controlling the operations of the company in accordance with the agreements made with other shareholders or owns the right of appointment or the designation of the majority of the board of directors of the company. Subsidiaries are consolidated with full consolidation method by considering the outcomes of their activities and the size of their assets and shareholders’ equity in scope of the materiality principle. Financi al statements of the related subsidiaries are included in the consolidated financial statements beginning from the date control on their activities are transferred to the Group. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. In accordance with the full consolidation method, balance sheet, income statement and off balance sheet items of the subsidiaries have been consolidated line by line with the balance sheet, income statement and off balance sheet of the Parent Bank. The book value of the investments of the Group in each subsidiary has been netted off with the portion of each subsidiary’s capital that belongs to the Group. Unrealized gains and losses and balances resulti ng from the transactions among the subsidiaries included in consolidation have been eliminated. In order to determine the net income of the Group, minority shares in the net income of the consolidated subsidiaries have been identified and deducted from the net income of the subsidiary. In the consolidated balance sheet, minority shares have been presented separately from the liabilities and the shares of the Group shareholders. Also, in the income statement, minority shares have been presented separately. The subsidiaries included in consolidation, their title, their place of incorporation, their main activities and their effective shareholding rates are as follows: 31 December 2016 31 December 2015 Parent Parent Bank’s Parent Bank’s Risk Parent Risk Group Bank’s Share Group Share Bank’s Share Share Address Main Percentage Percentage Percentage Percentage Title (City/Country) Activities (%) (%) (%) (%) Ziraat Hayat ve Emeklilik A.Ş. Istanbul/Turkey Insurance 100,00 100,00 100,00 100,00 Ziraat Sigorta A.Ş. Istanbul/Turkey Insurance 100,00 100,00 100,00 100,00 Ziraat Finansal Kiralama A.Ş. Istanbul/Turkey Leasing 100,00 100,00 100,00 100,00 Ziraat Yatırım Menkul Değerler A.Ş. Istanbul/Turkey Investment Management 99,60 99,60 99,60 99,60 Ziraat Portföy Yönetimi A.Ş. Istanbul/Turkey Portfolio Management 99,70 99,80 99,70 99,80 Ziraat Katılım Bankası A.Ş. Istanbul/Turkey Banking 100,00 100,00 100,00 100,00 Ziraat Gayrimenkul Yatırım Ortaklığı A.Ş Istanbul/Turkey Real Estate 100,00 100,00 - - Ziraat Bank International AG Frankfurt/Germany Banking 100,00 100,00 100,00 100,00 Ziraat Bank BH d.d. Sarajevo/Bosnia Herzegovina Banking 100,00 100,00 100,00 100,00 Ziraat Bank (Moscow) JSC Moscow/Russia Banking 100,00 100,00 100,00 100,00 Kazakhstan Ziraat Int. Bank Almaty/Kazakhstan Banking 99,58 99,58 99,58 99,58 Ziraat Bank Azerbaycan ASC Baku/Azerbaijan Banking 100,00 100,00 100,00 100,00 Ziraat Bank Montenegro AD Podgorica/Montenegro Banking 100,00 100,00 100,00 100,00 15 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) III. EXPLANATIONS ON INVESTMENTS IN ASSOCIATES, SUBSIDIARIES AND JOINT VENTURES (Continued) a. Consolidation principles applied (Continued): 2. Consolidation principles of associates and joint ventures: An Associate is a partnership with which the Parent Bank participates in its capital and has significant effect on it although it has no capital or management control, whose main operation is banking and which operates according to special legislation with permission and license and is established abroad. The related associate is consolidated with equity method in accordance with materiality principle. Significant effect refers to the participation power on the constitution of the financial and management policies of the participated associate. If the Parent Bank has 10% or more voting right on the associate, as long as it is not proved otherwise, it will be accepted that the Parent Bank has significant effect on that associate. Equity method is an accounting method which foresees the increase or decrease of the book value of capital share in an associate from the changed amount in the associate participating shareholder’s equity during the period by the portion of the participant and the deduction of the dividend from the associate from the changed value of the associate amount. The associates and joint ventures consolidated with the equity method, their title, their place of incorporation, their main activities and their effective shareholding rates are as follows: 31 December 2016 31 December 2015 Parent Parent Parent Bank’s Parent Bank’s Risk Bank’s Risk Group Bank’s Group Share Share Share Share Address Main Percentage Percentage Percentage Percentage Title (City/Country) Activities (%) (%) (%) (%) Turkmen Turkish Joint Stock Commercial Bank Ashkhabad/Turkmenistan Banking 50,00 50,00 50,00 50,00 UTBANK JSC Tashkent/Uzbekistan Banking 50,00 50,00 50,00 50,00 Arap Türk Bankası A.Ş. Istanbul/Turkey Banking 15,43 15,43 15,43 15,43 3. Principles applied during share transfer, merger and acquisition: None. 4. Transactions with minority shareholders: The Group considers transactions with minority shareholders as transactions within the Group. For acquisitions from minority shareholders, the difference between the acquisition cost and related portion of net assets’ booked value is deducted from equity. Profit or loss resulting from sales to minority shareholders is booked under equity. b. Presentation of unconsolidated subsidiaries and associates in consolidated financial statements: Turkish Lira denominated unconsolidated associates and subsidiaries are booked at cost value after clarifying the impairment if any, in accordance with “Consolidated Financial Statements” (“TFRS 10”) are recognized in the consolidated financial statements. When the cost of investments, associates and share certificates which are classified under available for sale portfolio is higher than the net realizable value, the carrying amount is reduced to the net realizable or fair value if any, considering whether the value decrease is temporary or permanent and the ratio of the value decrease. 16 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) IV. EXPLANATIONS ON FORWARD TRANSACTIONS, OPTION CONTRACT and DERIVATIVE INSTRUMENTS The Bank’s derivative transactions mostly include cross cur rency swaps, currency and precious metal swaps, long term financing operations, full indemnity options and foreign currency forward contracts. The Bank has no embedded derivative instruments separated from the articles of association. The derivative instruments of the Parent Bank are classified as trading or hedging instruments in accordance with Turkish Accounting Standard on TAS 39 “Financial Instruments: Recognition and Measurement”. The Parent Bank has no derivative instruments for hedging purposes as of the balance sheet date. Accordingly, the Parent Bank is not subject to conditions whether derivative instruments do not meet the determination criteria for being classified as hedging instruments or whether such derivative transactions are finalized through sale, term expiry or fulfillment of obligations under the contract. Derivative instruments are recognized at fair value on contractual date and subsequently re-valued at their fair values and associated with the income statement. If the fair value of derivative financial instruments is positive, it is disclosed under the main account “Financial Assets at Fair Value Through Profit or Loss” in “Trading Derivative Financial Assets” and if the fair value difference is negative, it is disclosed under “Financial Liabilities at Fair Value Through Profit or Loss” in “Trading Derivative Financial Liabilities”. Fair value changes are recorded under “Derivative Financial Transactions Gains/Losses” in income statement. The fair values of the derivative financial instruments are calculated using quoted market prices or by using discounted cash flow models. Liabilities and receivables arising from the derivative instruments are followed in the off-balance sheet accounts from their contractual values. V. EXPLANATIONS ON INTEREST INCOME AND EXPENSE Interest income and expenses are recognized on an accrual basis using the internal rate of return method in conformity with TAS 39 “Financial Instruments: Recognition and Measurement”. In accordance with the Communiqué on “Methods and Principles on Determining the Nature of Loans and Other Receivables and Allocation of Provisions” came into force after being published in the Official Gazette numbered 26333 dated 1 November 2006, no interest accrual is calculated for non-performing loans. Realized interest accruals calculated for non-performing loans and recognized as income although not collected are reversed and interest income related to these loans is recognized as interest income only when they are collected. VI. EXPLANATIONS ON FEE AND COMMISSION INCOME AND EXPENSE Commission income from banking, agency and intermediary services is recognized as income on the date they are collected. Whereas, commission income from individual, corporate and entrepreneurial cash loans are recognized on an accrual basis by using internal rate of return method and transferred to the income statement in accordance with the matching principle. Other fees and commission expenses are recorded as expense on the date they are paid. VII. EXPLANATIONS ON FINANCIAL ASSETS Financial instruments comprise financial assets and liabilities and derivative instruments. They are included in the balance sheet of the Group, if the Group is a legal party to these instruments. Financial assets mainly constitute the Group’s commercial activities and operations. These instruments have the ability to expose, affect and diminish the liquidity, credit and interest rate risks in the financial statements. Financial assets are classified as investments held-to-maturity, bank loans and receivables, financial assets available for sale or held-for-trading at initial recognition. Sale and purchase transactions of financial assets are accounted for using the settlement date basis. 17 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) VII. EXPLANATIONS ON FINANCIAL ASSETS (Continued) a. Financial assets at fair value through profit or loss: In Group, financial assets, which are classified as “financial assets at fair value through profit or loss”, are trading financial assets and are either acquired for generating profit from short-term fluctuations in the price or dealer’s margin, or are the financial assets included in a portfolio in which a pattern of short-term profit making exists independent from the acquisition purpose. Trading securities are initially recognized at cost. The cost of the securities is recognized as fair value. Subsequently, trading securities are carried at fair value in the financial statements. Government bonds and treasury bills included in held for trading and available for sale portfolios traded in BIST are carried at weighted average exchange prices of BIST as of the balance sheet date and those securities that are not traded in BIST are carried at prices of the Central Bank of the Republic of Turkey. Eurobonds are carried at prices in the over the counter markets. The positive difference between the cost and fair value of held for trading securities is accounted under “Other Interest and Income Accrual” and the negative difference is accounted under “Impairment Loss for Marketable Securities” account. The positive difference between the cost and amortized cost is accounted under “Interest income” account; the negative difference is accounted as impairment loss. The positive difference between the fair value and amortized cost is accounted under “Profit fro m Capital Market Operations” account and the negative difference is accounted under “Loss from Capital Market Operations” account. b. Held-to-maturity financial assets: Investments held to maturity include financial assets other than bank loans and receivables and those where there is an intention of holding until maturity and the relevant conditions for fulfillment of such intention, including the funding ability, and where there are fixed or determinable payments with fixed maturity. Marketable securities classified as Financial Assets Held to Maturity may subject to exchange-repurchase bids or refundment transactions within the scope of early redemption. Investments held to maturity are subsequently measured at amortized cost with internal rate of return, and they are accounted by setting forth provision for impairment loss (impairment loss expense) or by posting interest income accrual. There are not any financial assets that are previously classified as investments held-to-maturity but prohibited to be classified in this portfolio for two years because of incompliance with the principles of financial assets classification. Interests received from investments held to maturity are recognized as an interest income. Held to maturity assets are initially recognized at cost value. c. Loans and receivables: The Parent Bank loans and receivables represent financial assets other than those held for trading or held for sale in a short period generated through providing cash, assets or rendering services to the debtor. The loans and receivables originated by the Parent Bank are initially carried at cost value. Bank loans are measured at amortized cost with internal rate of return. Short-term and long-term loans are grouped as open or guaranteed; FC loans are recognized with fixed price and at period-ends revalued by the counter foreign exchange buying rate of the Bank. Foreign exchange indexed loans are used as TL by the valid counter foreign exchange buying rate of the Bank at usage date. Repayments of these loans are collected as calculated TL value by the valid counter foreign exchange selling rate of Bank at installment date. 18 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) VII. EXPLANATIONS ON FINANCIAL ASSETS (Continued) The Group sets specific and general provisions for loans and other receivables in accordance with the regulations stated by the Communiqué published on the Official Gazette numbered 26333 and dated 1 November 2006 on “Methods and Principles on Determining the Nature of Loans and Other Receivables and Allocation of Provisions”. In addition to this, in the related Regulation and interpretations of BRSA does not include any clause which prevents to reflect excess provisions than the required level. Allocated provisions are deducted from the income for the period. If the receivables for which provisions were set in the previous years are collected, provision for allowances are released and recognized as income under “Other Operating Income” account. Releases of current period provisions are made by the reversal of the amount from the “Provision for Impairment of Loans and Other Receivables” account. d. Available-for-sale financial assets: Available-for-sale financial assets are defined as financial assets other than the ones classified as “loans and receivables”, “held-to-maturity assets” or “financial assets at fair value through profit or loss”. Available for sale assets are initially recognized at cost value. The cost of the securities is recognized as fair value. Available-for-sale financial assets are subsequently re-measured at fair value in financial statements. The difference between fair value and cost of available for sale financial assets is booked as interest income accruals or impairment provision. Furthermore, amortized cost using the effective interest method and cost value is compared and the difference is booked as interest income or impairment expense. Fair value and amortized cost of these securities are compared and the difference is recognized in shareholders’ equity as “Marketable Securities Value Increase Fund”. When these financial assets are disposed of or impaired the related fair value differences accumulated in the shareholders’ equity are transferred to the income statement. When there is no price quotation in an active market for price formations to constitute the basis of the fair value or in such a situation when the reasonable value is not measured confidentially; the fair value of the available-for-sale financial assets are carried at amortised cost using the effective interest method or appropriate valuation methods. Regarding the banking operations of Ziraat Bank, there exist ineffective shares of Kredi Garanti Fonu, Central Bank of the Republic of Turkey and Milli Reasürans T.A.Ş. The related investments are classified under available-for-sale financial assets and are carried out at book value. The reason to explain the necessary action is the inability to reliably measure the subject asset type at fair value. 19 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) VIII. EXPLANATIONS ON IMPAIRMENT OF FINANCIAL ASSETS A financial asset or a group of financial assets is subject to impairment loss only if there is an objective indication that the occurrence of one or more than one event (“loss event”) subsequent to the initial recognition of that asset has an effect on the reliable estimate of the expected future cash flows of the related financial asset and asset group. If revalued amounts of financial assets at fair value through profit/loss is less than the prior revalued amounts, initially, value of prior records regarding the value increase are adjusted according to the recent value and if the impairment loss is more than the prior value increase, difference is reflected to “Impairment Expense for Marketable Securities”. If there is an increase in value, initially recognized impairment loss is reversed. If financial assets available for sale are subject to permanent impairment, the amount is charged to “ Impairment Expense for Marketable Securities” account in accordance with the related Turkish Accounting Standard. If subsidiaries, associates, entities under common control and assets held to maturity are subject to permanent impairment, the amount is charged to “Impairment Expenses for Subsidiaries, Associates, and Assets Held to Maturity”. The principles for the accounting of provisions for loans and receivables are explained in detail in Note VII. of this section. Loans and other receivables are classified by the Parent Bank in accordance with the Communiqué on “Methods and Principles on Determining the Nature of Loans and Other Receivables and Allocation of Provisions” published in the Official Gazette numbered 26333 and dated 1 November 2006. IX. EXPLANATIONS ON OFFSETTING FINANCIAL ASSETS AND LIABILITIES Financial assets and liabilities shall be offset and the net amount presented in the balance sheet when, and only when the Parent Bank currently has a legally enforceable right to set off the recognized amounts or intends either to collect/settle on a net basis or to realize the asset and settle the liability simultaneously. X. EXPLANATIONS ON SALES AND REPURCHASE AGREEMENTS AND SECURITIES LENDING TRANSACTIONS Securities subject to repurchase agreements are classified in “held for trading”, “available for sale” and/or “held - to-maturity” portfolios and they are valued based on the revaluation principles of the related portfolios. Funds obtained by these agreements are followed under the “Funds from Repurchase Agreements” account in the balance sheet and interest expense accrual is calculated using the internal rate of return method. Funds given against securities purchased under agreements (“Reverse Repo”) to resell are accounted under “Receivables from Reverse Repurchase Agreements” on the balance sheet and interest income accrual is calculated using internal rate of return method. As of the balance sheet date, there are no securities lending transactions. 20 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XI. INFORMATION ON ASSETS HELD FOR SALE AND RELATED TO DISCONTINUED OPERATIONS AND EXPLANATIONS ON LIABILITIES RELATED WITH THESE ASSETS Parent Bank’s tangible assets acquired in consideration of receivables are accounted for in accordance with the requirements of the Communiqué on “Methods, Principles for Purchase and Sale of Precious Metal and Sale of Goods and Immovables Obtained in Return of Receivables” published in the Official Gazette numbered 26333 and dated 1 November 2006 and these assets are subject to revaluation by no means. A discontinued operation is a part of the Parent Bank’s business classified as sold or held -for-sale. The operating results of the discontinued operations are disclosed separately in the income statement. The Parent Bank has no discontinued operations. XII. EXPLANATIONS ON GOODWILL AND OTHER INTANGIBLE ASSETS As at the balance sheet date, the Group has no goodwill. Other intangible assets are measured at cost on initial recognition and any directly attributable costs of setting the asset to work for its intended use are included in the initial measurement. Subsequently, intangible assets are carried at historical costs after the deduction of accumulated depreciation and the provision for value decreases. Other intangible assets are amortized by using the straight line method based on their useful lives. Useful lives of other intangible assets are determined by the consideration of items as; useful life of asset, maintenance costs incurred to obtain expected economic benefit from assets and technical, technological or any other type of obsolescence. Amortization method used in the current period is not subject to any change. Depreciation period is 5 years (20% annual depreciation rate) for establishment/formation expenses for other intangible assets with uncertain leasing period or leasing period over 5 years and depreciation rate is proportional with period for those with certain leasing period. The Group recognizes its software costs incurred under the intangible assets-intangible rights account and the expenses that do qualify as development are added to software’s initial costs and amortized over 3 years considering the useful lives. The Parent Bank has determined estimated useful lives of the intangible assets between 3 and 15 years and it applies depreciation rates between 6,67% to 33,3 %. XIII. EXPLANATIONS ON PROPERTY AND EQUIPMENT Property and equipment is measured at its cost when initially recognised and any directly attributable costs of setting the asset in working order for its intended use are included in the initial measurement.. As of 31 January 2014 the Bank has changed its accounting policies and has decided to pursue the real estates registered in its portfolio at fair values. In this context, for all real estates registered in the Parent Bank’s inventory, appraisal study was carried by independent expertise companies, and from 1 January 2014 valuation results are reflected in the accounting records. As a result of the fair valuation of the real estates which is included in tangible fixed assets, TL 4.177.866 revaluation difference is followed under shareholders’ equity as of 31 December 2016. As of 30 January 2014, the net book amount of real estates of the tangible assets before valuation was TL 816.950. Property, plant and equipment (except for immovable assets) are presented in the financial statements over their remaining cost after deducting accumulated depreciation from cost amounts, if any, and after deducting accumulated depreciation from their fair values. Tangibles are depreciated over their estimated useful lives using the straight-line method.The amortization method applied in the current period has not been changed. 21 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XIII. EXPLANATIONS ON PROPERTY AND EQUIPMENT (Continued) Estimated depreciation rates of tangible fixed assets are as follows; Buildings : 2% Vehicles and Fixtures : 2 - 20% Gains or losses emerging from the disposal of tangible assets are recognized in the profit or loss account as difference between net revenue of a related intangible asset and its net book value. Ordinary maintenance and repair expenses of tangible fixed assets items are recognized as expenses. Investment expenditures that increase the future benefit by enhancing the capacity of tangible assets are capitalized. The investment expenditures include the cost components which are used either to increase the useful life or the capacity of the asset or the quality of the product or to decrease the costs. There are no mortgages, pledges or similar precautionary measures on tangible fixed assets or commitments given for the purchase or any restrictions designated for the use of those tangible fixed assets. XIV. EXPLANATIONS ON INVESTMENT PROPERTY Investment properties consist of assets held for rent and / or gain on valuation. The related real estates, which the Group owns, are shown in the attached consolidated financial statements by fair value method within the framework of TAS 40 "Investment Property". Gains and losses arising from changes in fair value of investment properties are recognized in profit or loss when incurred. XV. EXPLANATIONS ON LEASING TRANSACTIONS The Group performs financial operations as “Lessor” and “Lessee”. a. Accounting of leasing transactions for the lessee: Financial Lease The Group, as the lessee, recognizes its leasing operations in accordance with the requirements of TAS 17 “Leases”. Fixed assets that are acquired under financial leasing are amortized with respect to the rates used for directly acquired assets that have similar nature. Assets held under financial leases are recognized under the tangible fixed assets account and are depreciated on annual and monthly basis with respect to their useful lives. Principal and installment paid for tangible fixed assets that are acquired under financial leasing are charged to liability account “Finance Lease Payable”, whereas interests are recognized in “Deferred Financial Leasing Expenses” account. At installment payments, principal and interest amount of installment amount are de bited to “Financial Lease Payable” account, whereas interest is credited in “Deferred Financial Leasing Expenses” account and recorded to the“Other Interest Expenses’’. The Parent Bank does not perform financial operations as “Lessor”. Operational Lease Leases, in which the majority of risk and return of property belongs to lessor, are classified as operating lease. Payments that are made as operating leases are accounted in income statements with linear method during the lease period. b. Accounting of leasing transactions for lessor: Subject to financial leasing in the consolidated balance sheet of the entity is shown as a receivable equal to net leasing. The interest income is determined so as to form a fixed revenue return ratio using net investment method related to lease asset of the lessor, and the portion of interest income which does not take part in the related term is followed under the unearned interest income account. 22 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XVI. EXPLANATIONS ON PROVISIONS, CONTINGENT ASSET AND LIABILITIES Provisions other than the specific and general provisions set for loans and other receivables and provisory liabilities are accounted in accordance with TAS 37 “Turkish Accounting Standard on Provisions, Contingent Liabilities and Contingent Assets Corresponding”. The Group provides provision in case of an existing liability (legal or implicit) as a result of an incident that took place in the past, there is possibility of disposal of assets that bring economic benefit and the liability is measurable. When a reliable estimate of the amount of obligation from The Parent Bank cannot be made, it is considered that a “contingent” liability exists and it is disclosed in the related notes to the financial statements. For transactions that can affect financial structure, provisions are provided by using the existing data if they are accurate, otherwise by using the estimates. As of the balance sheet date, there are no probable contingent liabilities resulting from past events whose amount can be reliably measured. Contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the entity. Contingent assets are not recognized in financial statements since this may result in the recognition of income that may never be realized. Contingent assets are disclosed where an inflow of economic benefits is probable. Contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognized in the financial statements in which the change occurs. XVII. EXPLANATIONS ON OBLIGATIONS RELATED TO EMPLOYEE RIGHTS a. Employment Termination and Vacation Benefits The Parent Bank recognizes its liabilities of employment terminations and vacation benefits in accordance with TAS 19 “Employee Benefits” and estimates the net present value of future liabilities arising from employment terminations and vacation benefits and reflects this provision amount in the financial statements. Under the Turkish legislation as supplemented by union agreements, Employment Termination Benefit payments are made in case of retirement or employment termination or resignation depending on the arise of the legal conditions. According to the related legislation, depending on the status and position of the employee in the Bank and social security institution, Employment Termination Benefit Provision is calculated based on the final salary at the date of retirement or leave (to the extent that the payments and/or salary amount does not exceed the Employment Termination Benefit Provision ceiling). The Parent Bank uses independent actuaries in determining liability, and also makes assumptions relating to the discount rate, future salary increases, and the employee turnover. These assumptions are reviewed on an annual basis. Retirement benefit obligation is TL 695.237 as of 31 December 2016. (31 December 2015: TL 689.727) Current Period Prior Period Discount rate (%) 11,40 10,70 Expected Inflation rate (%) 8,00 7,00 23 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XVII. EXPLANATIONS ON OBLIGATIONS RELATED TO EMPLOYEE RIGHTS (Continued) Communiqué on “Turkish Accounting Standard (TAS19) about Benefits for Employee (No:9)” published in Official Gazette by Public Oversight Accounting and Auditing Standards Authority (“POA”) on 12 March 2013 numbered 28585, was entered into force for the account periods starting after 31 December 2012 on accounting treatment of actuarial profit and loss resulting from changes in actuarial assumptions or differences between actual and actuarial assumptions. After the deferred tax effect, the Parent Bank classified the actuarial loss of TL 78.342 as "Other Comprehensive Expenses" in financial statements. (31 December 2015: TL 85.078 actuarial loss). In every year the unused vacation liability is calculated based on number of unused vacation days which is calculated by subtracting cumulative summation of used vacation days of all personnel from legally deserved vacation days. The Parent Bank is not employing its personnel by means of limited-period contracts. b. Liability of T.C Ziraat Bankası and T. Halk Bankası Members Pension and Relief Fund (TZHEMSAN) Some of the Parent Bank’s personnel are the members of T.C. Ziraat Bankası and T. Halk Bankası A.Ş. Employees’ Pension Fund (“Fund”) which was established by 2 0th provisional article of Social Security Law Act numbered 506. As of 31 December 2016 the number of personnel who benefit from the Fund, excluding dependents is 22.221 (31 December 2015: 21.347). 18.450 of these members are active while 3.771 are passive members. (31 December 2015: 17.644 active members, 3.703 passive members). In accordance with 23rd provisional clause of the Banking Law numbered 5411, the pension fund established within Social Security Law is expected to be transferred to the Social Security Institution by three years following the declaration of the Banking Law numbered 5411. Procedures and principles of the transfer are determined by the decision of Council of Ministers numbered 2006/11345 dated 30 November 2006. However, the 1st paragraph of the 1st article of the 23rd provisional clause of Banking Law numbered 5411 allowing pension funds to be transferred to Social Security Institution (“SSI”) is annulled following the resolution of Constitutional Court declared in the Official Gazette dated 31 March 2007 numbered 26479 E.2005/139, K.2007/13 and K.2007/33. With the publication of the reasoning of the decision, the Gra nd National Assembly of Turkey (“GNAT”) started to work on new legal arrangements regarding the transfer of the fund members to SSI and the related articles of the “Law Regarding the Changes in Social Insurance and General Health Insurance Law and Other Re lated Laws and Regulations” No 5754 (“the New Law”) regulating the transfer of the funds were approved by the GNAT on 17 April 2008. The New Law was published in the Official Gazette dated 8 May 2008, numbered 26870 and came into force. According to the new law bank pension funds participants and salaried members or the rightful owners would be transferred to Social Security Institution and would be subject to its legislation within three years beginning from the date of publication without any required transaction. Three years transfer period would be extended by two years at most with the decision of Council of Ministers. In accordance with the related legislation, as of the transfer date, the cash value of the liabilities will be calculated by considering the income and expenses of the transferred funds by the insurance branches and by using the actuarial interest rate of 9,80%. Moreover, the unfulfilled other social rights and payments existed in the settlement deeds of the subjected pension funds of the transferred participants, members or the rightful owners will be continued to be fulfilled by the employer entities of the funds and its participants. In accordance with 58th article and 7th provisional article of the Banking Law, restricting banks from transferring any funds to the pension funds in order to compensate the actuarial deficits effective from 1 January 2008, has been delayed up to 5 years. 24 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XVII. EXPLANATIONS ON OBLIGATIONS RELATED TO EMPLOYEE RIGHTS (Continued) Based on the Council of Ministers’ decree numbered 2011/1559 and issued in the Official Gazette numbered 27900, dated 9 April 2011, and 20 th provisional article of law numbered 506, the deadline for transferring banks, insurance and reinsurance companies, chambers of commerce, chambers of industry, exchange markets and the participants of the funds that were founded for the personnel constituting these entities and the ones having salary or income and the right holders of them to Social Security Institution has been extended for two years. Besides, the phrase of “two years” in Clause (2), Article 1 of the temporary 20th provision of the law numbered 5510 is revised as “four years” with the law numbere d 6283 amending on the Social Insurance and General Health Insurance Law, published in the Official Gazette numbered 28227, dated 8 March 2012. Based on the Council of Ministers’ decree numbered 2014/6042 and issued in the Official Gazette numbered 28987 dated 30 April 2014, the participants of the funds that were founded for the personnel constituting these entities and the ones having salary or income and the right holders of them to Social Security Institution has been extended for one year. Lastly, 51st article of Law No.6645 dated 23 April 2015, published on Official Gazette and the first paragraph of the transient 20th article of Law No.5510 related to the transfer of Bank and Insurance Funds to Social Security Institution; “Council of Ministers is the authority to determine the date of transfer of banks, insurance and reassurance companies, boards of trade, chambers of industry and stock markets or the participants of funds established for their constitute union personnel and the ones that were endowed salary or income and their beneficiaries within the scope of transient 20th article of Law No.506. As from the transfer date, the participants are considered as insured within the scope of clause (a), first paragraph and 4 th article of this Law. The technical balance sheet report as of 31 December 2016 which is prepared in accordance with the new law and the rate determined as 9,80%, concluded no technical deficit arises in the above mentioned fund. Since the Parent Bank has no legal right to hold the present value of any economic benefits available in the form of refunds from Pension Fund or reductions in future contributions to Pension Fund, no asset is recognized in the Bank’s financial statements. XVIII. EXPLANATIONS ON TAXATION a. Current Tax Turkish Tax Legislation does not permit the Parent Bank to file tax return over consolidated subsidiaries financial statements. Therefore, tax provisions which reflected to consolidated financial statements have been calculated per company. Corporate Tax Law No. 5520 was taken into effect after being published in the Official Gazette dated 21 June 2006 No.26205. Many clauses of the “New Tax Law” are effective from 1 January 2006. According to the New Tax Law, the corporate tax rate in Turkey is payable at the rate of 20% as of 1 January 2006. The corporate tax rate is calculated on the total income of the Bank after adjusting for certain disallowable expenses, exempt income (like affiliation privilege) and other allowances. No further tax is payable unless the profit is distributed. Dividends paid to non-resident corporations, which have a place of business or permanent attorney in Turkey or to resident corporations are not subject to withholding tax. Otherwise, dividends paid are subject to withholding tax at the rate of 15%. An increase in capital via issuing bonus shares is not considered as profit distribution and no withholding tax incurs in such a case. 25 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XVIII. EXPLANATIONS ON TAXATION (Continued) Corporations are required to pay advance corporate tax quarterly at a rate of 20% on their corporate income. Advance tax is declared by the 14th and paid by the 17th day of the second month following each calendar quarter end. Advance tax paid by corporations for the current period is credited against the annual corporation tax calculated on the annual corporate income in the following year. Despite the offset, if there is temporary prepaid tax remaining, this balance can be refunded or used to offset any other financial liabilities to the government. A 75% portion of the capital gains derived from the sale of equity investments and immovable properties held for at least two years is tax exempt, if such gains are added to paid-in capital in accordance with Corporate Tax Law or held in a special account under shareholder’s equity for five years. Under the Turkish Corporate Tax Law, losses can be carried forward to offset against future taxable income for up to five years. Losses cannot be carried back to offset profits from previous periods. In Turkey, there is no procedure for a final and definitive agreement on tax assessments with tax authorities. Tax returns are required to be filled and delivered to the related tax office until the evening of the 25th of the fourth month following the balance sheet date and the accrued tax is paid until the end of the same month. Tax returns are open for 5 years from the beginning of the year following the balance sheet date and during this period the tax authorities have the right to audit tax returns, and the related accounting records on which they are based, and may issue re-assessments based on their findings. Tax rates used in tax calculation considering the related countries’ tax le gislation as of 31 December 2016 are presented below: Russia 20,00% Kazakhstan 20,00% Germany 15,00% Bosnia Herzegovina 10,00% Azerbaijan 20,00% Montenegro 9,00% b. Deferred tax In accordance with TAS 12 " Turkish Accounting Standards Relating to Income Tax", the Parent Bank calculates and recognizes deferred tax for temporary differences between the bases calculated based on the accounting policies used and valuation principles and that calculated under the tax legislation. Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences. However, deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized as deferred tax liability or asset if the temporary difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of a deferred tax asset is audited at each balance sheet date. Carrying amount of a deferred tax asset can be reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to be applied in the period in which the liability is settled or the asset realized and reflected in the statement of income as expense or income. Moreover, if the deferred tax is related with items directly recorded under the equity in the same or different period, deferred tax is associated directly with equity. Deferred tax asset and deferred tax liability are presented as net in these financial statements through offsetting them on individual financial statements of consolidated subsidiaries. The deferred tax benefit is not taken into account in profit distribution in accordance with the relevant circular of BRSA. 26 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XIX. EXPLANATIONS ON INSURANCE TECHNICAL RESERVES Technical Reserves Reserve for unearned premiums: Reserve for unearned premiums consists of the part of the premiums accrued for the insurance contracts in force without gaining any commission or other deductions and remaining on the gross basis on the day of the next accounting period or accounting period. Unexpired risk provision: Within the framework of Regulation on Technical Reserves, insurance companies are required to account for an unexpired risk reserve against the probability that, future losses incurred from in force policies may exceed the unearned premium reserve accounted for the related policies considering expected ratios. Expected loss ratio is calculated by dividing the current year incurred losses to current year earned premiums. In accordance with “the circular about the Change of Unexpired Risks Reserve Calculation” numbered 2012/15 published by Tr easury, if the loss ratio for a branch is higher than 95%, net unexpired risk reserve for that branch is calculated by multiplying the ratio in excess of 95% with net unearned premium reserve for the related branch; and gross unexpired risk reserve for that branch is calculated by multiplying the ratio in excess of 95% with gross unearned premium reserve for the related branch. The difference between gross and net amounts is considered as the reinsurance share. Reserve for outstanding claims: Insurance companies provide reserve for outstanding claims, incurred and reported but not yet settled in the current or previous years based on reported balances or estimates when actual balances are not exactly known and incurred but not yet reported claims. Within the calculation of reserve for outstanding claims, incurred and reported but not yet settled, entire shares of expense required for maturation of compensation reports including calculated or estimated expert, referee, consultant, court and communication expenses are taken into account and subrogation, salvage and similar revenue items are not discounted. Incurred subrogation, salvage and similar revenue items whose codes of practice will be determined by the undersecretariat are shown under the related credit account of the asset side of the balance sheet and interrelated with period income in condition that subrogation of rights has been gained. Offset provision: In Article 9 of “Communiqué Regarding the Technical Reserves of Insurance and Reinsurance Co mpanies and the Assets that these Reserves Recorded” numbered 27655 dated 28 July 2010, it is stated that insurance companies provide offset provision for loan and earthquake assurances in order to compensate the possible fluctuations in the assurance rates and catastrophic risks in the succeeding accounting periods. Mathematical provisions: Mathematical provisions indicate sum of bonus provisions and actuarial mathematical provisions calculated separately according to technical principles in tariff for each agreement in force. Life branch mathematical provision of the company consists of actuarial mathematical provisions calculated for long-term life insurances on credit. Actuarial mathematical provisions are the differences between risk premiums taken for risks undertaken by the Company and cash values of the liabilities to beneficiaries and insurants. XX. EXPLANATIONS ON BORROWINGS The Group accounts its debt instruments in accordance with TAS 39 "Financial Instruments: Recognition and Measurement". In the following periods, all financial liabilities are carried at amortized cost by using the internal rate of return method. The Bank has no borrowings that require hedging techniques for accounting and revaluation of debt instruments and liabilities representing the borrowings. If required, the Parent Bank borrows from domestic and foreign real people and entities with debt instruments such as bill/bond issuance. These transactions are recognized at fair value including acquisition costs at the transaction date while accounted with effective interest rate method over their discounted costs in the following periods. The Group has issued no convertible bonds and has no instruments representing its own borrowings. 27 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XXI. EXPLANATIONS ON ISSUANCE OF SHARE CERTIFICATES Since the Group does not have issued shares, there are no transaction costs related to share issue in the current period. XXII. EXPLANATIONS ON AVALIZED DRAFTS AND ACCEPTANCES Commitments regarding bill guarantees and acceptances of the Group are presented in the “Off -Balance Sheet” commitments. XXIII. EXPLANATIONS ON GOVERNMENT GRANTS There are no government incentives utilized by the Group as of the balance sheet date. XXIV. CASH AND CASH EQUIVALENTS Cash and cash equivalents are cash on hand, demand deposits and other highly liquid short-term investments with maturities of 3 months or less following the date of acquisition, which is readily convertible to a known amount of cash, and does not bear the risk of significant amount of value change. The book values of these assets represent their fair values. Cash equivalents and balances regarding banks are valued by the period end counter foreign currency buying rate of the Bank. For the purposes of the cash flow statement, “Cash” include s cash, effectives, cash in transit, purchased cheques and demand deposits including balances with the Central Bank; and “Cash equivalents” include interbank money market placements and time deposits at banks with original maturity periods of less than three months. XXV. EXPLANATIONS ON SEGMENT REPORTING Information about operating segments which are determined in line with TFRS 8 “Turkish Accounting Standard about Operating Segments” together with organizational and internal reporting structure of the Group, are disclosed in Note X. of Section Four. XXVI. EXPLANATIONS ON OTHER MATTERS In accordance with the decision taken in the General Assembly of the year 2015, which was carried out on 30 March 2016, from TL 5.162.470 net profit, which is subject to distribution, TL 258.124 is transferred to first legal reserve and TL 24.200 is transferred to second legal reserve TL 220.000 was paid to employees and TL 231.200 is distributed to Treasury after deducting withholding tax of 15% (TL 40.800) in cash. In this context, TL 4.388.146 of the profit is preserved; dividend payment made to Treasury on 15 April 2016, and TL 186.788 was paid to employees as an additional premium . In accordance with the decision taken at the General Assembly Meeting of the Parent Bank, the remaining amount of TL 33.212 was transferred to "profit reserves" account. 28 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY Total capital and Capital adequacy ratio have been calculated in accordance with the “Regulation on Equity of Banks” and “Regulation on Measurement and Assessment of Capital Adequacy of Banks”. As of 31 December 2016 Bank’s total capital has been calculated as TL 41.715.232, Capital adequacy ratio is 13,86%. As of 31 December 2015, Bank’s total capital amounted to TL 35.243.638, Capital adequacy ratio was 14,56% calculated pursuant to former regulations. This ratio is well above the minimum ratio required by the legislation. a) Information Related to The Components of Shareholders' Equity: Amount as per the regulation Amount before 1/1/2014* COMMON EQUITY TIER 1 CAPITAL Paid-in capital following all debts in terms of claim in liquidation of the Bank 5.100.000 Share issue premiums - Reserves 22.871.718 Gains recognized in equity as per TAS 4.804.405 Profit 8.207.208 Current period profit 6.884.924 Prior period profit 1.322.284 Shares acquired free of charge from subsidiaries, affiliates and jointly controlled partnerships and cannot be recognised within profit for the period 17.388 Minorities’ Share 139 Common Equity Tier 1 Capital Before Deductions 41.000.858 Deductions from Common Equity Tier 1 Capital Common Equity as per the 1st clause of Provisional Article 9 of the Regulation on the Equity of Banks - Portion of the current and prior periods’ losses which cannot be covered through reserves and losses reflected in equity in accordance with TAS 2.090.373 Improvement costs for operating leasing 100.306 Goodwill netted with related deferred tax liabilities - Other intangible assets netted off related deferred tax liabilities except mortgage servicing rights 220.718 367.865 Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net off related tax liability) - Differences are not recognized at the fair value of assets and liabilities subject to hedge of cash flow risk - Communiqué Related to Principles of the amount credit risk calculated with the Internal Ratings Based Approach, total expected loss amount exceeds the total provision - Gains arising from securitization transactions - Unrealized gains and losses due to changes in own credit risk on fair valued liabilities - Defined-benefit pension fund net assets - Direct and Indirect Investments of the Bank in its own Tier I Capital - Shares obtained contrary to the 4th clause of the 56th Article of the Law - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital exceeding 10% of Common Equity of the Bank - Portion of mortgage servicing rights exceeding 10% of the Common Equity - Portion of deferred tax assets based on temporary differences exceeding 10% of the Common Equity - Amount exceeding 15% of the common equity as per the 2nd clause of the Provisional Article 2 of the Regulation on the Equity of Banks - Excess amount arising from the net long positions of investments in common equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital - 29 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY (Continued) Amount as per the regulation Amount before 1/1/2014* Excess amount arising from mortgage servicing rights - Excess amount arising from deferred tax assets based on temporary differences - Other items to be defined by the BRSA - Deductions to be made from common equity due to insufficient Additional Tier I Capital or Tier II Capital - Total Deductions from Common Equity Tier I Capital 2.411.397 Total Common Equity Tier I Capital 38.589.461 ADDITIONAL TIER I CAPITAL Preferred stock not included in Common Equity Tier I Capital and the related share premiums - Debt instruments and premiums approved by BRSA - Debt instruments and premiums approved by BRSA (Covered by Temporary Article 4) - Third parties’ share in the Additional Tier I capital - Third parties’ share in the Additional Tier I capital (Covered by Temporary Article 3) - Additional Tier I Capital before Deductions - Deductions from Additional Tier I Capital Direct and Indirect Investments of the Bank on its own Additional Tier I Capital (-) - Investments of Bank to Banks that invest in Bank's additional equity and components of equity issued by financial institutions with compatible with Article 7 - Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or less of the Issued Share Capital Exceeding the 10% Threshold of above Tier I Capital - The Total of Net Long Position of the Direct or Indirect Investments in Additional Tier I Capital of Unconsolidated Banks and Financial Institutions where the Bank Owns more than 10% of the Issued Share Capital - Other Items to be defined by the BRSA - Items to be Deducted from Tier I Capital during the Transition Period Goodwill and other intangible assets and related deferred tax liabilities which will not deducted from Common Equity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) 147.146 Net deferred tax asset/liability which is not deducted from Common Equity Tier 1 capital for the purposes of the sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) - Deductions to be made from common equity in the case that adequate Additional Tier I Capital or Tier II Capital is not available (-) - Total Deductions from Additional Tier I Capital - Total Additional Tier I Capital - Total Tier I Capital (Tier I Capital= Common Equity Tier I Capital + Additional Tier I Capital) 38.442.315 TIER II CAPITAL Debt instruments and share issue premiums deemed suitable by the BRSA - Debt instruments and share issue premiums deemed suitable by BRSA (Covered by Temporary Article 4) - Third parties’ share in the Tier II Capital - Third parties’ share in the Tier II Capital (Temporary Article 3) - Provisions (Amounts explained in the first paragraph of the article 8 of the Regulation on the Equity of Banks) 3.313.441 Tier II Capital Before Deductions 3.313.441 Deductions from Tier II Capital Direct and indirect investments of the Bank on its own Tier II Capital (-) - Investments of Bank to Banks that invest on Bank's Tier 2 and components of equity issued by financial institutions with the conditions declared in Article 8 - Portion of the total of net long positions of investments made in equity items of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or less of the issued common share capital exceeding 10% of Common Equity of the Bank (-) - 30 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY (Continued) Amount as per the regulation Amount before 1/1/2014* Portion of the total of net long positions of investments made in Additional Tier I Capital item of banks and financial institutions outside the scope of consolidation where the Bank owns 10% or more of the issued common share capital of Common Equity of the Bank - Other items to be defined by the BRSA (-) - Total Deductions from Tier II Capital - Total Tier II Capital 3.313.441 Total Capital (The sum of Tier I Capital and Tier II Capital) 41.755.756 The sum of Tier I Capital and Tier II Capital (Total Capital) 41.755.756 Loans Granted against the Articles 50 and 51 of the Banking Law - Net book values of movables and immovables exceeding the limit defined in the Article 57, Clause 1 of the Banking Law and the assets acquired against overdue receivables and held for sale but retained more than five years 38.071 Other items to be defined by the BRSA (-) 2.453 Items to be deducted from the sum of Tier I and Tier II Capital (“Capital”) during the Transition Period The Sum of net long positions of investments (the portion which exceeds the 10% of Banks Common Equity) in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - The Sum of net long positions of investments in the Additional Tier 1 capital and Tier 2 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity which will not deducted from Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - The Sum of net long positions of investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity, mortgage servicing rights, deferred tax assets arising from temporary differences which will not deducted from Common Equity Tier 1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds - CAPITAL Total Capital (Total of Tier I Capital and Tier II Capital) 41.715.232 Total Risk Weighted Assets 300.953.790 CAPITAL ADEQUACY RATIOS Common Equity Tier I Capital Adequacy Ratio (%) 12,82 Tier I Capital Adequacy Ratio (%) 12,77 Capital Adequacy Ratio (%) 13,86 BUFFERS Bank-specific total buffer ratio Capital conservation buffer ratio (%) 0,63 Bank-specific counter-cyclical capital buffer ratio (%) 0,01 The ratio of Additional Common Equity Tier 1 capital which will be calculated by the first paragraph of the Article 4 of Regulation on Capital Conservation and Countercyclical Capital buffers to Risk Weighted Assets 4,82 Amounts below the Excess Limits as per the Deduction Principles Portion of the total of net long positions of investments in equity items of unconsolidated banks and financial institutions where the bank owns 10% or less of the issued share capital exceeding the 10% threshold of above Tier I capital 153.707 Portion of the total of investments in equity items of unconsolidated banks and financial institutions where the bank owns 10% or less of the issued share capital exceeding the 10% threshold of above Tier I capital 97.415 31 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY (Continued) Amount as per the regulation before Amount 1/1/2014* Remaining Mortgage Servicing Rights - Net Deferred Tax Assets arising from Temporary Differences 86.569 Limits for Provisions Used in Tier II Capital Calculation General provisions for standard based receivables (before tenthousandtwentyfive limitation) 4.042.425 Up to 1.25% of total risk-weighted amount of general reserves for receivables where the standard approach used 3.313.441 Excess amount of total provision amount to credit risk Amount of the Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - Excess amount of total provision amount to 0,6% of risk weighted receivables of credit risk Amount of the Internal Ratings Based Approach in accordance with the Communiqué on the Calculation - Debt Instruments Covered by Temporary Article 4 (effective between 1.1.2018-1.1.2022) Upper Limit for Additional Tier I Capital Items subject to Temporary Article 4 - Amounts Excess the Limits of Additional Tier I Capital subjected to temporary Article 4 - Upper limit for Additional Tier II Capital subject to temporary Article 4 - Amounts Excess the Limits of Additional Tier II Capital subject to temporary Article 4 - (*) Amounts considered within transition provisions 32 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY (Continued) Prior Period (*) COMMON EQUITY TIER 1 CAPITAL Paid-in Capital to be Entitled for Compensation after All Creditors 5.000.000 Share Premium - Share Cancellation Profits - Reserves 18.146.025 Income recognized under equity in accordance with TAS 4.486.075 Profit 5.564.157 Current Period’s Profit 5.377.791 Prior Period’s Profit 186.366 Free Provisions for Possible Risks 1.257.419 Bonus Shares from Associates, Subsidiaries and Joint-Ventures not Accounted in Current Period’s Profit 17.388 Minority Shares 25 Common Equity Tier 1 Capital Before Deductions 34.471.089 Deductions from Common Equity Tier 1 Capital Net loss for the prior year losses and uncovered portion of the total reserves and losses that are recognized under equity in accordance with TAS (-) 1.461.847 Leasehold Improvements on Operational Leases (-) 98.800 Goodwill and intangible asset and the related deferred tax liability (-) 98.447 Net Deferred Tax Asset / Liability (-) - Excess amount expressed in the law (Article 56 4th paragraph) (-) - Bank's direct or indirect investments on its own Tier 1 Capital (-) - Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible long positions, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold) - Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible long positions (amount above 10% threshold) of Tier 1 Capital - Mortgage servicing rights (amount above 10% threshold) of Tier 1 Capital - Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability) - Amounts exceeding 15% of Tier 1 Capital according to Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks (2nd article temporary second paragraph (-) - Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible long positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above 10% threshold) - Amounts related to mortgage servicing rights (-) - Excess amount of deferred tax assets from temporary differences (-) - Other Items Determined by BRSA (-) - The amount to be deducted from common equity tier 1 capital (-) - Total Deductions from Common Equity Tier 1 Capital 1.659.094 Total Common Equity Tier 1 Capital 32.811.995 ADDITIONAL TIER 1 CAPITAL Premiums that are not included in Common Equity Tier 1 Capital - Bank's borrowing instruments and related issuance premium (issued after 1.1.2014 ) - Bank's borrowing instruments and related issuance premium (issued before 1.1.2014 ) - The shares of third parties in additional Tier 1 Capital - Additional Tier 1 Capital before Deductions - Deductions from Additional Tier 1 Capital - Bank's direct or indirect investment in Tier 1 Capital (-) - Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or less of the Issued Share Capital Exceeding the 10% Threshold of Common Equity Tier I Capital (-) - The Total of Net Long Position of the Direct or Indirect Investments in Additional Tier I Capital of Unconsolidated Banks and Financial Institutions where the Bank Owns more than 10% of the Issued Share Capital (-) - Other Items Determined by BRSA (-) - The amount to be deducted from Additional Tier 1 Capital (-) - Total Deductions from Additional Tier 1 Capital - Total Additional Tier 1 Capital - 33 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY (Continued) Prior Period (*) Deductions From Tier 1 Capital 147.670 The amount related to goodwill or other intangible assets not deducted from Common Equity Tier 1 Capital (-) 147.670 The amount related to deferred tax assets not deducted from Common Equity Tier 1 Capital (-) - Tier 1 Capital 32.664.325 TIER 2 CAPITAL Bank's borrowing instruments and related issuance premium (issued after 1.1.2014 ) - Bank's borrowing instruments and related issuance premium (issued before 1.1.2014 ) - Pledged assets of the shareholders to be used for the Bank’s capital increases - General Provisions 2.580.430 Third parties share in Tier 2 capital - Tier 2 Capital Before Deductions 2.580.430 Deductions From Tier 2 Capital Bank's direct or indirect investment in Tier 2 capital (-) - Total of Net Long Positions of the Investments in Equity Items of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or less of the Issued Share Capital Exceeding the 10% Threshold of Common EquityTier I Capital (-) - The Total of Net Long Position of the Direct or Indirect Investments in Additional Core Capital and Tier II Capital of Unconsolidated Banks and Financial Institutions where the Bank Owns 10% or more of the Issued Share Capital Exceeding the 10% Threshold of Tier I Capital (-) - Other Items Determined by BRSA (-) - Total Deductions From Tier 2 Capital - Tier 2 Capital 2.580.430 TOTAL CAPITAL BEFORE REGULATORY DEDUCTIONS 35.244.755 Loan granted to Customer against the Articles 50 and 51 of the Banking Law - Net Book Values of Immovables Exceeding 50% of the Equity and of Assets Acquired against Overdue Receivables and Held for Sale as per the Article 57 of the Banking Law but Retained More Than Five Years (-) 1.044 Loans extended to banks, financial institutions (domestic and abroad) and qualified shareholders, like secondary subordinated loan and debt instruments purchased from these institutions issued, like primary and secondary subordinated loan (-) - Securitization positions that is deducted -preferably- from the shareholders' equity (Article 20 paragraph 2 ) (-) - Other items to be defined by BRSA (-) 73 The sum of partnership share on banks and financial institutions, with shareholding of less than 10%, but exceeding 10% of Common Equity Tier 1not deducted from Common Equity Tier 1, Tier 1 or Tier 2 (-) - The sum of partnership share on banks and financial institutions, with shareholding of more than 10%, but exceeding 10% of the bank (-) - The sum of partnership share on banks and financial institutions, with shareholding of more than 10%, but exceeding 10% of bank(-) - TOTAL CAPITAL 35.243.638 Amounts below deduction thresholds The sum of partnership share on banks and financial institutions, with shareholding of less than 10% 121.043 The sum of partnership share on banks and financial institutions, with shareholding of more than 10% 82.240 Mortgage servicing rights - Deferred tax assets arising from temporary differences (net of related tax liability) (-) 266.827 (*) Total capital has been calculated in accordance with the “Regulations regarding to changes on Regulation on Equity of Banks” effective from date 31 March 2016, the information given in the prior period column has been calculated pursuant to former regulation and reflects the information dated 31 December 2015. a) Information Related to the Components which Subject to Temporary Implementation in the Calculation of Equity: None. b) Necessary explanations in order to reach an agreement between the statement of shareholders’s equity and balance-sheet amounts: The difference between Total Capital and Equity in the consolidated balance sheet mainly arises from the general provision. In the calculation of Total Capital, general provision up to 1,25% credit risk is taken into consideration as Tier II Capital. On the other hand, in the calculation of the Total Capital, improvement costs for operating leases followed under tangible assets in the balance sheet, intangible assets and net book value of immovables that are acquired against overdue receivables and retained more than five years, other items defined by the regulator are taken into consideration as amounts deducted from Total Capital. 34 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) II. EXPLANATIONS ON THE CONSOLIDATED CREDIT RISK Credit risk is the possibility of loss that the Parent Bank may be exposed due to the partial or complete default of the debtor by not complying to the obligations of the agreement made, or due to the decrease in credit worthiness. The limits of the credit customers are identified, after combined assessment of various factors like the financial and non-financial information of the credit customers, credit requirements, sectoral and geographical features and, in conformity with the legal legislation, in line with the credit authorization limits of the branches, Regional Managements, Group Presidencies, Department Presidencies, Assistant General Management, General Manager, Credit Committee and Board of Directors. The average limits identified related the credit portfolio are approved by the Board of Directors and revised when required. The identified limits are allocated by related departments on Regional Managements basis by considering the factors like portfolio structure, potentials of the customers and credit, regional and sectoral characteristics, competencies of the personnel. In order to prevent the risk intensity on the corporate and entrepreneurial loan portfolio, limits are determined and followed on the basis of group companies, private and public firms, and different debtor groups. The Parent Bank’s credit authority limits on given consumer loans are defined with the separation of type and guarantee and these limits are updated according to economic conjuncture and demands of Regional Managements/Branches. In line with the budgeted targets, TL/FC Cash/Non-Cash/Corporate/ Entrepreneurial loan placements are issued and followed on sectoral and regional basis. The loans issued by the branches are periodically analyzed on the basis of the limits, subjects, guarantees, maturities, accounts followed, outstanding balances, numbers of the customers, and followed on customer and regional basis. After the opening of the lines of the corporate/entrepreneurial loans, the firms are continued to be monitored and the changes at the financial structures and market relations of the credit firms are followed. The credit limits are identified and approved for one year and renewed in case of no negative change in the situation of the customer (financial structure, market, guarantee, etc.). The Parent Bank is assessing credibility of the customer as the essential factor in issuing credits and creditors’ credit worthiness are ascertained during credit application and limit allocation/renewal. Documents to be obtained during the application are evidently mentioned in regulations and appropriateness of the documents obtained during application is controlled by internal audit departments. The Parent Bank considers guarantees as important in minimization and elimination of the risk. As a result of policies and process based on obtaining reliable and robust guarantees, the Parent Bank’s credit risk significantly declines. On January 2011 the Parent Bank started applying internal ratings processes as a decision support system for analyzing credit worthiness and determining credit allocation for corporate/ entrepreneurial consumer loans. The Parent Bank is not engaging in credit transactions that are not defined at the legislation and not put into the practice. The Parent Bank makes provision in conformity with the “Communiqué on Methods and Principles on Determining the Nature of Loans and Other Receivables and Allocation of Provisions”. Identification of limits for domestic and foreign banks are done by rating which is determined by considering the needs of clients and departments together with financial and economic conditions of the banks and their countries. When banks and/or countries are financially or economically risky, identified limits can be restricted with maturity, amount or type of transaction or use of credit is called off. Since the Parent Bank’s abroad lending operations have no significant effect on the financial statements, and operations and transactions are diversified via the use of different financial institutions in various countries, the Parent Bank is not believed to be exposed to a significant credit risk as a result of these operations. 35 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) II. EXPLANATIONS ON THE CONSOLIDATED CREDIT RISK (Continued) Foreign financial institution and country risks of the Parent Bank are generally taken on financial institutions and countries which are rated by international rating institutions. Treasury operations are executed in the frame of pre- determined authorization and limits, these authorization and limits are monitored. Client transactions within the context of Fund Management are done in the frame of general loan limits determined for the clients. The Parent Bank engages in foreign currency swaps and forward transactions considering its asset-liability balance and legal limits. These are not considered to generate material risk given the amount of these transactions in the balance sheet. In line with the regulation on provisions, if the cash risk of a customer classified as nonperforming, the non-cash is classified as nonperforming under the same group where the cash risks were already followed and specific provision is reserved. Restructured and rescheduled loans are also booked in line with procedures and under accounts defined by the related regulation. Furthermore, they are monitored by the Parent Bank in line with credit risk policies. In this context, financial situation and commercial operations of related customers are analyzed and in terms of restructured plan, whether principal and interest payments have been paid is being checked and necessary measures are taken. The percentage of top 100 and top 200 cash loans of the Parent Bank in the total cash loan portfolio is 26% and 31% respectively (31 December 2015: 24% and 29%). The percentage of top 100 and top 200 non-cash loans of the Parent Bank in the total non-cash loan portfolio is 57% and 67% respectively (31 December 2015: 57% and 68%). The percentage of top 100 and top 200 cash and non-cash loans of the Parent Bank in the total cash and non-cash loan portfolio is 27% and 34% respectively (31 December 2015: 32% and 38%). General provision made by the Group for the credit risk is TL 4.042.425 ( 31 December 2015: TL 2.925.818). 36 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) II. EXPLANATIONS ON THE CONSOLIDATED CREDIT RISK (Continued) Conditional and Conditional Conditional and unconditional Conditional and and Conditional and Short-term Investment unconditional Conditional and receivables from unconditional unconditional unconditional Conditional Conditional and Receivables s receivables unconditional administrative units receivables from receivables receivables Conditional and and unconditional Receivables from banks, similar to Investments from central receivables from and non- multilateral from from banks and unconditional unconditional receivables defined in high Securities brokerage collective in Equity governments or regional or local commercial development international brokerage corporate retail secured by Past due risk category collateralised Securitisation houses and investment Instruments Other central banks governments enterprises banks organisations houses receivables receivables mortgages receivables by BRSA by mortgages positions corporate funds (3) receivables Total Current Period Domestic 81.494.892 565.919 556.142 - - 35.659.916 141.901.115 90.940.885 36.926.407 - 317.409 - - - 1.690.437 108.269 17.916.021 408.077.412 European Union Countries 90.707 - - - - 20.866.347 250.162 51.486 - - 2.352 - - - - 5 1.621 21.262.680 OECD Countries (1) - - - - - 580.628 - - - - - - - - - - - 580.628 Off-shore Banking Regions - - - - - 18.223 - - - - - - - - - - - 18.223 USA, Canada 902.384 - - - - 2.170.335 182.428 851 - - - - - - - - - 3.255.998 Other Countries 987.708 19.131 202 - - 1.312.871 2.365.345 214.851 4.987 - 8.932 - - - - 16.177 106.908 5.037.112 Subsidiaries, Associates and Joint Ventures - - - - - 110.453 2.756.198 95.256 - - - - - - - - - 2.961.907 Unallocated Assets/Liabilities (2) - - - - - - - - - - - - - - - - - - Total 83.475.691 585.050 556.344 - - 60.718.773 147.455.248 91.303.329 36.931.394 - 328.693 - - - 1.690.437 124.451 18.024.550 441.193.960 Conditional and Conditional and Conditional and Conditional Conditional unconditional unconditional unconditional and and Conditional Short-term receivables Conditional and receivables from receivables unconditional unconditional Conditional and Receivables Receivables Investments from central unconditional administrative from receivables receivables Conditional and and unconditional defined in Securities from banks, similar to governments receivables from units and non- multilateral from from banks and unconditional unconditional receivables high risk collateralised brokerage collective or central regional or local commercial development international brokerage corporate retail secured by Past due category by Securitisation houses and investment Other banks governments enterprises banks organisations houses receivables receivables mortgages receivables by BRSA mortgages positions corporate funds receivables Total Prior Period Domestic 80.008.237 458.047 543.175 6 - 31.214.385 116.607.457 71.678.263 18.125.101 567.395 9.210.227 - - - 105.708 14.893.725 343.411.726 European Union Countries 132.481 1.125 - - - 9.117.569 814.682 90.882 - 2.383 16.653 - - - 84 - 10.175.859 OECD Countries (1) - - - - - 265.927 47.787 - - - - - - - - - 313.714 Off-shore Banking Regions - - - - - - - - - - - - - - - - - USA, Canada 1.823.928 - 1.235 - - 558.297 349.731 587 - - 610 - - - - - 2.734.388 Other Countries 445.255 1.741 289 - - 1.282.648 1.418.544 362.740 458 11.053 12.603 - - - - - 3.535.331 Subsidiaries, Associates and Joint Ventures - - - - - 329.317 5.219 - - 2 5.097 - - - - 394.578 734.213 Unallocated Assets/Liabilities (2) - - - - - - - - - - - - - - - - - Total 82.409.901 460.913 544.699 6 - 42.768.143 119.243.420 72.132.472 18.125.559 580.833 9.245.190 - - - 105.792 15.288.303 360.905.231 Prepared with the numbers after conversion rate to credit and before credit risk reduction. 1. OECD Countries other than EU countries, USA and Canada 2. Assets and liabilities that could not be distributed on a consistent basis. 3. "Investments in Equity Securities" are added to the risk classes in the current period and the prior period related balances are included in "Other receivables". 37 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) II. EXPLANATIONS ON THE CONSOLIDATED CREDIT RISK (Continued) Risk Profile by Sectors or Counterparties Risk Classes Conditional Conditional and Conditional and Conditional unconditional and Conditional Conditional unconditional and receivables unconditional and and Conditional Short-term receivables unconditional from receivables unconditional unconditional Conditional Conditional and Receivables Receivables Investments from central receivables administrative from receivables receivables and and unconditional defined in from banks, similar to governments from regional units and non- multilateral from from banks and unconditional unconditional receivables high risk Securities brokerage collective Investments in or central or local commercial development international brokerage corporate retail secured by Past due category by collateralised Securitisati houses and investment Equity Other Curent Period banks governments enterprises banks organisations houses receivables receivables mortgages receivables BRSA by mortgages on positions corporate funds Instruments (3) receivables TL FC Total Sectors/Counter Parties Agriculture 702 1.482 7.029 - - - 5.548.643 3.505.501 817.466 - 3.415 - - - - - 376.398 9.755.635 505.001 10.260.636 Farming and Stockbreeding 207 401 6.838 - - - 5.134.000 3.052.231 701.481 - 2.068 - - - - - 372.845 9.147.991 122.080 9.270.071 Forestry 495 19 15 - - - 289.016 95.127 24.753 - 221 - - - - - 1.277 154.897 256.026 410.923 Fishing - 1.062 176 - - - 125.627 358.143 91.232 - 1.126 - - - - - 2.276 452.747 126.895 579.642 Manufacturing 61.780 1.878 34.153 - - - 58.742.461 5.001.098 1.273.596 - 16.577 - - - - - 189.306 24.811.195 40.509.654 65.320.849 Mining and Quarrying - 28 18 - - - 4.636.921 93.345 15.466 - 111 - - - - - 228 871.956 3.874.161 4.746.117 Production 61.769 557 34.126 - - - 40.126.593 4.882.437 1.209.498 - 13.082 - - - - - 188.900 19.664.555 26.852.407 46.516.962 Electric, Gas and Water 11 1.293 9 - - - 13.978.947 25.316 48.632 - 3.384 - - - - - 178 4.274.684 9.783.086 14.057.770 Construction 2 17 35.024 - - 24.751.829 2.484.734 1.197.335 - 24.060 - - - 44.445 - 38.133 9.197.463 19.378.116 28.575.579 Services 4.706.730 3.191 359.674 - - 37.671.538 45.771.291 14.339.452 4.523.846 - 23.109 - - - 1.629.184 124.451 85.707 73.781.636 35.456.537 109.238.173 Wholesale and Retail Trade 194 974 5.266 - - - 16.161.645 9.956.769 1.979.728 - 14.293 - - - - - 55.447 22.019.263 6.155.053 28.174.316 Hotel Food and Beverage Services 553 92 1.617 - - - 3.255.399 793.261 314.825 - 1.861 - - - - - 5.327 1.568.326 2.804.609 4.372.935 Transportation and Telecommunic ation 1.135 230 240.829 - - - 7.833.000 1.717.855 308.005 - 2.148 - - - - - 19.387 2.999.659 7.122.930 10.122.589 Financial Institutions 4.546.680 742 28.560 - - 36.609.842 8.154.742 344.920 1.789 - 2.419 - - - 1.409.018 124.052 728 40.819.172 10.404.320 51.223.492 Real Estate and Leasing Services 77.823 621 5.897 - - 1.061.696 9.443.830 1.187.505 1.711.146 - 1.811 - - - 220.166 - 3.883 5.314.326 8.400.052 13.714.378 Self Employment Services - - - - - - 5 - - - - - - - - - - - 5 5 Education Services 71.623 13 57.499 - - - 206.370 117.682 40.692 - 128 - - - - - 245 396.355 97.897 494.252 Health and Social Services 8.722 519 20.006 - - - 716.300 221.460 167.661 - 449 - - - - 399 690 664.535 471.671 1.136.206 Other 78.706.477 578.482 120.464 - - 23.047.235 12.641.024 65.972.544 29.119.151 - 261.532 - - - 16.808 - 17.335.006 158.909.402 68.889.321 227.798.723 Total 83.475.691 585.050 556.344 - - 60.718.773 147.455.248 91.303.329 36.931.394 - 328.693 - - - 1.690.437 124.451 18.024.550 276.455.331 164.738.629 441.193.960 Prepared with the numbers after conversion rate to credit and before credit risk reduction. 38 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) II. EXPLANATIONS ON THE CONSOLIDATED CREDIT RISK (Continued) Risk Classes Conditional Conditional Conditional and and Conditional Conditional Conditional and and unconditional unconditional and and Short-term Prior Period unconditional unconditional receivables from receivables unconditional unconditional Conditional Conditional Conditional and Receivables from banks, Investments receivables from receivables administrative from receivables receivables and and unconditional defined brokerage similar to central from regional units and non- multilateral from from banks unconditional unconditional receivables in high risk Securities houses collective governments or or local commercial development international and brokerage corporate retail secured by Past due category by collateralised Securitisation and investment Other central banks governments enterprises banks organisations houses receivables receivables mortgages receivables BRSA by mortgages positions corporate funds receivables TL FC Total Sectors/Counter Parties Agriculture - - - - - - 5.367.692 29.522.167 372.435 939 14.732 - - - - 2.135.196 37.037.707 375.454 37.413.161 Farming and Stockbreeding - - - - - - 5.008.120 29.327.342 350.327 868 13.200 - - - - 2.135.196 36.736.567 98.486 36.835.053 Forestry - - - - - - 249.657 101.415 2.844 52 956 - - - - - 118.741 236.183 354.924 Fishing - - - - - - 109.915 93.410 19.264 19 576 - - - - - 182.399 40.785 223.184 Manufacturing - - 99.937 - - - 49.676.668 3.600.767 129.348 13.206 55.336 - - - - - 21.476.532 32.098.730 53.575.262 Mining and Quarrying - - 17 - - - 2.943.934 65.519 3.896 728 767 - - - - - 609.615 2.405.246 3.014.861 Production - - 99.910 - - - 37.307.778 3.522.345 124.765 12.467 53.360 - - - - - 18.163.848 22.956.777 41.120.625 Electric, Gas and Water - - 10 - - - 9.424.956 12.903 687 11 1.209 - - - - - 2.703.069 6.736.707 9.439.776 Construction - - 25.807 - - - 15.577.566 2.133.204 50.527 476.784 28.053 - - - - - 6.802.064 11.489.877 18.291.941 Services 3.364.216 420 255.291 6 - 25.498.855 38.329.576 11.750.851 713.311 25.290 235.951 - - - 105.792 444.911 53.030.495 27.693.975 80.724.470 Wholesale and Retail Trade - 17 4.292 - - - 16.767.663 8.233.270 420.414 14.298 85.580 - - - - - 20.818.213 4.707.321 25.525.534 Hotel Food and Beverage Services - 132 65 - - - 2.546.544 745.067 66.731 1.510 13.478 - - - - - 1.383.613 1.989.914 3.373.527 Transportation and Telecommunication - 79 73.236 - - - 5.611.522 1.517.944 93.142 1.122 13.982 - - - - - 2.676.702 4.634.325 7.311.027 Financial Institutions 3.364.216 192 120 6 - 24.679.740 2.735.243 4.986 1.044 35 89.157 - - - 3.692 444.911 22.292.626 9.030.716 31.323.342 Real Estate and Leasing Services - - 78.240 - - 819.115 9.949.784 952.002 101.853 8.044 25.612 - - - 102.100 - 4.980.141 7.056.609 12.036.750 Self Employment Services - - - - - - - - - - - - - - - - - - - Education Services - - 69.773 - - - 252.627 102.145 5.540 94 1.327 - - - - - 356.120 75.386 431.506 Health and Social Services - - 29.565 - - - 466.193 195.437 24.587 187 6.815 - - - - - 523.080 199.704 722.784 Other 79.045.685 460.493 163.664 - - 17.269.288 10.291.918 25.125.483 16.859.938 64.614 8.911.118 - - - - 12.708.196 103.137.799 67.762.598 170.900.397 Total 82.409.901 460.913 544.699 6 - 42.768.143 119.243.420 72.132.472 18.125.559 580.833 9.245.190 - - - 105.792 15.288.303 221.484.597 139.420.634 360.905.231 Prepared with the numbers after conversion rate to credit and before credit risk reduction. (1) “"Investments in Equity Securities"” are added to the risk classes in the current period and the prior period related balances are included in “Other receivables”. 39 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) II. EXPLANATIONS ON THE CONSOLIDATED CREDIT RISK (Continued) Analysis of Maturity-Bearing Exposures According to Remaining Maturities: Term to Maturity 6-12 1 Month 1-3 Months 3-6 Months Months Over 1 Year Exposure Classifications Conditional and unconditional exposures to central governments or central banks 2.706.887 463.633 244.145 294.538 79.766.488 Conditional and unconditional exposures to regional governments or local authorities 5.789 5 - 10.602 568.654 Conditional and unconditional receivables from administrative units and non-commercial enterprises 19.932 14 5.040 135.688 395.670 Conditional and unconditional exposures to multilateral development banks - - - - - Conditional and unconditional exposures to international organisations - - - - - Conditional and unconditional exposures to banks and brokerage houses 43.893.505 7.831.441 716.006 3.061.227 5.216.594 Conditional and unconditional exposures to corporates 1.158.216 3.998.386 5.913.535 29.267.002 107.118.109 Conditional and unconditional retail exposures 812.394 287.229 796.669 19.636.529 69.770.508 Conditional and unconditional exposures secured by real estate property 505 17.421 34.340 3.024.620 33.854.508 Past due receivables - - - - - Receivables defined in high risk category by BRSA 65.909 - 4.735 2.647 255.402 Exposures in the form of bonds secured by mortgages - - - - - Securitization Positions - - - - - Short term exposures to banks, brokerage houses and corporates - - - - - Exposures in the form of collective investment undertakings 3.729 - - 6.660 1.680.048 Grand Total - - - - 124.451 48.666.866 12.598.129 7.714.470 55.439.513 298.750.432 Prepared with the numbers after conversion rate to credit and before Credit Risk Reduction. Grades of Fitch Ratings International Rating Agency are used in determining risk weights for risk classes being used rating grade of risk classes indicated in article 6 of Communiqué on "Measurement and Assessment of Capital Adequacy of Banks". Additionally, grades of Fitch Ratings International Rating Agency were used for receivables from central government and central bank of our country and counter parties abroad. Counter parties resident are accepted as “gradeless” and take risk weight suited for “gradeless” category in relevant risk class. For determination of risk weight regarding items that export or issuer rating not included to purchase/sale accounts is firstly considered to export rating, and also issuer’s credit rating is considered in the absenc e of export rating. Exposures by Risk Weights: Deductions Risk Weights 0% 10% 20% 35% 50% 75% 100% 150% 200% 250% 1250% from Equity 1 Exposures before Credit Risk Mitigation 50.099.581 - 42.900.897 - 64.079.237 124.752.469 159.033.083 328.693 - - - 508.694 2 Exposures after Credit Risk Mitigation 90.732.960 - 11.133.702 27.239.255 72.622.990 90.503.101 148.633.963 327.989 - - - 508.694 Prepared with the numbers after conversion rate to credit. 40 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) II. EXPLANATIONS ON THE CONSOLIDATED CREDIT RISK (Continued) Information in Terms of Major Sectors and Type of Counterparties: Impaired Credits; are the credits that were deemed to be impaired because of the credibility or delaying more than 90 days as of the end of the reporting period. For these credits “Special Provision” calculation is made within the scope of Regulation on Provisions. Past Due Credits; are the credits whose maturity delayed up to 90 days as of the end of the reporting period but not incurred to impairment. For these credits “General Provision” calculation is made within the scope of Regulation for Provisions. Credits Impaired Past Due Value Credits Credits Adjustments Provisions Agriculture 644.185 975.960 38.832 399.592 Farming and Stockbreeding 636.678 970.533 38.616 392.085 Forestry 3.611 2.768 110 3.611 Fishery 3.896 2.659 106 3.896 Manufacturing 747.251 710.467 28.104 747.251 Mining and Quarrying 17.647 9.964 396 17.647 Production 714.232 591.060 23.353 714.232 Electricity, Gas and Water 15.372 109.443 4.355 15.372 Construction 928.570 225.290 8.904 921.909 Services 993.099 1.334.373 52.553 993.099 Wholesale and Retail Trade 809.886 941.100 37.322 809.886 Accommodation and Dining 37.549 107.784 4.289 37.549 Transportation and Telecom. 47.916 94.304 3.752 47.916 Financial Institutions 2.935 8.272 118 2.935 Real Estate and Rental Services 66.572 140.478 5.572 66.572 Professional Services 1.299 - - 1.299 Educational Services 13.666 24.233 964 13.666 Health and Social Services 13.276 18.202 536 13.276 Other 1.067.385 1.205.505 53.228 1.067.190 Total 4.380.490 4.451.595 181.621 4.129.041 (*) Valuation adjustments represent general provisions reserved for overdue loans. Information about Value Adjustment and Change in Provisions: Provision for Provision Other Closing Opening Balance Period Reversals Adjustments Balance 1 Specific Provisions 2.341.806 2.227.262 (440.027) - 4.129.041 2 General Provisions 2.925.818 1.122.469 (5.862) - 4.042.425 41 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) II. EXPLANATIONS ON THE CONSOLIDATED CREDIT RISK (Continued) The table below shows the maximum exposure to credit risk for the components of the financial statements: Current Period Prior Period Financial Assets at Fair Value Through Profit/Loss 1.719.571 972.266 Banks 4.320.066 4.965.691 Interbank Money Market Placements 252.944 116.173 Available-for-Sale Financial Assets 59.128.214 54.036.938 Held-to-Maturity Investments 8.794.915 10.223.475 Loans 244.074.345 192.508.396 Other Assets 2.272.834 1.779.481 Total Credit Risk Exposure of Balance Sheet Items 320.562.889 264.602.420 Financial Guarantees 82.721.115 60.890.874 Commitments 24.849.932 20.085.748 Total Credit Risk Exposure of Off-Balance Sheet Items 107.571.047 80.976.622 Total Credit Risk Exposure 428.133.936 345.579.042 Information about Credit Quality per Class of Financial Assets Current Period Prior Period Neither Neither past due Past due past due Past due nor but not nor but not Financial Assets impaired impaired Total impaired impaired Total Banks 4.320.066 - 4.320.066 4.965.691 - 4.965.691 Financial Assets at Fair Value Through Profit or Loss 1.719.571 - 1.719.571 972.266 - 972.266 Loans Given: 239.371.301 4.451.595 243.822.896 187.583.048 4.044.454 191.627.502 Corporate/ Entrepreneurial Loans 130.127.678 2.405.053 132.532.731 101.080.065 1.683.745 102.763.810 Consumer Loans 64.001.050 1.071.525 65.072.575 50.067.212 1.384.628 51.451.840 Specialized Loans 45.242.573 975.017 46.217.590 36.435.772 976.081 37.411.853 Available-for-Sale Financial Assets 59.128.214 - 59.128.214 54.036.938 - 54.036.938 Held-to-Maturity Investments 8.794.915 - 8.794.915 10.223.475 - 10.223.475 Carrying amount per class of financial assets whose terms have been renegotiated by the Parent Bank and the management of other associates: Current Period Prior Period Banks - - Financial Assets at Fair Value Through Profit or Loss - - Loans Given: 8.113.296 4.093.485 Corporate/Entrepreneurial Loans 3.081.574 1.210.992 Consumer Loans 1.397.886 768.734 Specialized Loans 3.633.836 2.113.759 Other - - Available-for-Sale Financial Assets - - Held-to-Maturity Investments - - 42 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) III. RISKS INCLUDING THE CONSOLIDATED CAPITAL CAPACITY BUFFER CALCULATIONS Country Banking Accounts RWA Trade Accounts RWA TOTAL Bosnia and Herzegovina 2.085.257 - 2.085.257 Germany 1.660.909 - 1.660.909 United Kingdom 832.642 - 832.642 USA 820.449 - 820.449 France 699.077 - 699.077 Kazakhstan 472.266 - 472.266 Turkish Republic of Northern Cyprus 368.126 - 368.126 Iraq 230.787 - 230.787 Netherlands 220.864 - 220.864 Uzbekistan 167.514 - 167.514 Other 1.647.707 - 1.647.707 IV. EXPLANATIONS ON THE CONSOLIDATED CURRENCY RISK a) Whether the Parent Bank is exposed to foreign currency risk, whether the effects of this matter are estimated, whether limits for the daily followed positions are determined by the Board of Directors: The Parent Bank’s policy is to avoid carrying significant position by means of foreign currency management. Therefore, the Parent Bank is not exposed to significant currency risks. Risks are monitored by the currency risk tables prepared based on the standard method. Besides, VAR (Value at Risk) is calculated for daily foreign exchange position and reported to the related departments. VAR based currency risk limit is also daily followed which was approved by Board of Directors. Moreover, dealer’s positions and limits for foreign exchange transactions are under the authorization of the Board of Directors. b) Hedge against foreign exchange debt instruments and net foreign exchange investments by hedging derivative instruments, if material: None. c) Management policy for foreign currency risk: “Liquidity Gap Analysis”, “Reprising Gap Analysis” and “Structural Liquidity Gap Analysis” which takes into account historical reprising rates of foreign currency accounts, are prepared periodically in order to define liquidity and interest rate risks at US Dollar and Euro, which are mainly used by the Parent Bank in its operations. Also, daily VAR analysis for following the currency risk and within the context of legal reporting, Foreign Currency Net General Position/Shareholders’ Equity Ratio and Foreign Currency Liquidity Position are also monitored regularly. d) Current foreign exchange bid rates of the Parent Bank for the last 5 business days prior to the financial statement date: 100 USD EUR AUD DKK SEK CHF CAD NOK GBP SAR JPY 23.12.2016 3,4990 3,6519 2,5088 0,4913 0,3791 3,4074 2,5833 0,4013 4,2845 0,9330 2,9814 26.12.2016 3,4924 3,6524 2,5107 0,4914 0,3801 3,4039 2,5852 0,4011 4,2915 0,9311 2,9844 27.12.2016 3,5071 3,6645 2,5202 0,4929 0,3795 3,4092 2,5917 0,4017 4,2983 0,9350 2,9853 28.12.2016 3,5307 3,6701 2,5318 0,4938 0,3837 3,4285 2,6012 0,4037 4,3141 0,9413 3,0000 29.12.2016 3,5126 3,6718 2,5277 0,4941 0,3848 3,4293 2,5950 0,4041 4,2974 0,9366 3,0097 31.12.2016 3,5076 3,6998 2,5350 0,4977 0,3874 3,4527 2,6110 0,4065 4,3431 0,9352 3,0054 43 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IV. EXPLANATIONS ON THE CONSOLIDATED CURRENCY RISK (Continued) e) Simple arithmetic average of the Parent Bank’s current foreign exchange bid rates for the last 30 days prior to the balance sheet date: USD EUR AUD DKK SEK CHF CAD NOK GBP SAR 100 JPY 3,4836 3,6693 2,5570 0,4935 0,3780 3,4151 2,6098 0,4057 4,3460 0,9290 3,0011 Information on the foreign currency risk of the Group: EUR USD Other FC Total Current Period Assets Cash (Cash in vault, effectives, money in transit, cheques purchased) and Balances with Central Bank of the Republic of Turkey 9.300.739 16.571.048 6.598.971 32.470.758 Banks 879.305 1.277.127 577.551 2.733.983 Financial Assets at Fair Value Through Profit and Loss(4) - 4.549 582 5.131 Money Market Placements - 51.508 167.468 218.976 Financial Assets Available-for-Sale 4.081.076 10.720.858 55.146 14.857.080 Loans(1) 25.233.765 46.279.570 1.507.788 73.021.123 Subsidiaries, Associates, Entities Under Common Control (Joint Ventures)(3) 17.856 83.249 951 102.056 Investments Held-to-Maturity 1.344.761 3.819.092 498 5.164.351 Derivative Financial Assets for Hedging Purposes - - - - Tangible Fixed Assets 8.172 1.403 113.174 122.749 Intangible Assets 21.345 1 13.216 34.562 Other Assets(5) 2.145.956 849.210 77.049 3.072.215 Total Assets(4) 43.032.975 79.657.615 9.112.394 131.802.984 Liabilities Interbank Deposits 5.017.303 4.196.585 639.590 9.853.478 Foreign Currency Deposits 44.057.736 22.389.687 4.136.055 70.583.478 Money Market Borrowings 306.464 11.963.959 - 12.270.423 Funds Provided from Other Financial Institutions 7.471.450 15.613.721 2.812 23.087.983 Issued Marketable Securities - 4.679.782 910 4.680.692 Sundry Creditors 1.138.814 88.602 33.518 1.260.934 Derivative Financial Liabilities for Hedging Purposes - - - - Other Liabilities 380.234 200.772 68.272 649.278 Total Liabilities 58.372.001 59.133.108 4.881.157 122.386.266 Net Balance Sheet Position (15.339.026) 20.524.507 4.231.237 9.416.718 Net Off-Balance Sheet Position (2) 14.918.785 (22.310.574) (2.618.075) (10.009.864) Financial Derivative Assets 17.015.895 7.710.930 2.593.074 27.319.899 Financial Derivative Liabilities 2.097.110 30.021.504 5.211.149 37.329.763 Non-Cash Loans 19.785.282 32.994.991 3.863.978 56.644.251 Prior Period Total Assets 28.646.698 70.463.073 8.430.490 107.540.261 Total Liabilities 47.955.846 57.791.690 2.989.459 108.736.995 Net Balance Sheet Position (19.309.148) 12.671.383 5.441.031 (1.196.734) Net Off-Balance Sheet Position (2) 19.608.010 (13.277.253) (5.051.654) 1.279.103 Financial Derivative Assets 21.904.831 5.192.850 1.210.435 28.308.116 Financial Derivative Liabilities 2.296.821 18.470.103 6.262.089 27.029.013 Non-Cash Loans 13.108.152 24.916.400 3.076.757 41.101.309 (1) TL 1.335.293 equivalent of EUR and TL 1.290.033 equivalent of USD loans are originated as foreign currency indexed loans (31 December 2015: TL 296.717 equivalent of EUR and TL 721.987 equivalent of USD). (2) Indicates the net balance of receivables and payables on derivative financial instruments. (3) The foreign currency capital investments to Subsidiaries, Associates and Joint Ventures are evaluated with historical rates on the date of the fair value determination and capital investments made in the subsequent periods are evaluated with the rates on the date of the capital investment and followed with TL currency equivalents. No exchange rate difference arises from such investments. (4) Derivative financial assets held for trading and liabilities are not included in the table. (5) Prepaid expenses amounting TL 22.092 among other expenses are not included in the table. 44 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) V. EXPLANATIONS ON THE CONSOLIDATED INTEREST RATE RISK a) Information related to interest rate sensitivity of assets, liabilities and off-balance sheet items (Based on days to repricing dates): 5 Years and Non-Interest Current Period Up to 1 Month 1-3 Months 3-12 Months 1-5 Years Over Bearing Total Assets Cash (Cash in Vault, Effectives, Money in Transit, Cheques Purchased) and Balances with Central Bank of the Republic of Turkey 26.781.761 - - - - 13.863.744 40.645.505 Banks 1.477.014 428.485 52.425 - - 2.362.142 4.320.066 Financial Assets at Fair Value Through Profit and Loss 557.806 715.937 377.618 63.530 4.433 247 1.719.571 Money Market Placements 252.944 - - - - - 252.944 Financial Assets Available- for-Sale 6.262.067 6.231.045 10.886.839 16.553.494 18.466.636 728.133 59.128.214 Loans Given 71.989.277 19.739.060 54.872.411 77.739.693 19.482.455 251.449 244.074.345 Investments Held-to- Maturity 3.616.855 830.145 71.144 2.594.090 1.682.681 - 8.794.915 Other Assets 185.447 167.603 603.548 1.421.095 183.447 10.385.225 12.946.365 Total Assets 111.123.171 28.112.275 66.863.985 98.371.902 39.819.652 27.590.940 371.881.925 Liabilities Interbank Deposits 6.867.493 1.597.664 2.014.652 - - 1.496.123 11.975.932 Other Deposits 116.331.186 25.869.031 22.188.911 1.412.078 119.357 55.015.498 220.936.061 Money Market Borrowings 41.796.418 3.747.109 1.085.940 716.162 - - 47.345.629 Sundry Creditors 32.684 22.243 26.398 1.089 - 2.484.487 2.566.901 Issued Marketable Securities 836.455 1.468.491 391.680 4.374.125 - - 7.070.751 Funds Provided from Other Financial Institutions 4.098.207 4.683.460 11.771.437 2.443.385 1.430.040 - 24.426.529 Other Liabilities 1.082.103 511.427 565.202 6.511.950 33.307 48.856.133 57.560.122 Total Liabilities 171.044.546 37.899.425 38.044.220 15.458.789 1.582.704 107.852.241 371.881.925 Balance Sheet Long Position - - 28.819.765 82.913.113 38.236.948 - 149.969.826 Balance Sheet Short Position (59.921.375) (9.787.150) - - - (80.261.301) (149.969.826) Off-Balance Sheet Long Position 808.683 2.200.356 - - - - 3.009.039 Off-Balance Sheet Short Position - - (373.698) (1.428.568) - - (1.802.266) Total Position (59.112.692) (7.586.794) 28.446.067 81.484.545 38.236.948 (80.261.301) 1.206.773 (1) Balances without fixed maturity are shown in the “Up to 1 Month” and “Non-Interest Bearing” columns. (2) TL 5.950.057 of fund balance, whose risk does not belong to the Parent Bank, in other liabilities is shown under the “1 - 5 Years” column TL 70.782 of fund balance is not granted as loan and is shown under the “Non-Interest Bearing” column. (3) Deferred tax asset is shown under the non-interest bearing column. (4) Net balance of loans under follow-up is shown under the “Non-Interest Bearing” column in loans given. (5) Total shareholders’ equity is shown under the non-interest bearing column. 45 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) V. EXPLANATIONS ON THE CONSOLIDATED INTEREST RATE RISK (Continued) Non- Up to 1 5 Years and Interest Prior Period Month 1-3 Months 3-12 Months 1-5 Years Over Bearing Total Assets Cash (Cash in Vault, Effectives, Money in Transit, Cheques Purchased) and Balances with the Central Bank of the Republic of Turkey 68.125 - - - - 36.866.552 36.934.677 Banks 1.157.187 406.252 911.110 186.488 - 2.304.654 4.965.691 Financial Assets at Fair Value Through Profit and Loss 295.829 178.096 435.552 55.405 4.265 3.119 972.266 Money Market Placements 107.491 8.682 - - - - 116.173 Financial Assets Available- for-Sale 5.507.414 7.012.479 10.929.787 15.394.736 14.583.841 608.681 54.036.938 Loans Given 60.645.124 18.800.306 47.376.453 54.506.749 10.171.491 1.008.273 192.508.396 Investments Held-to-Maturity 3.439.949 1.648.784 941.158 2.770.608 1.422.976 - 10.223.475 Other Assets 89.872 249.773 547.672 1.380.783 169.571 8.072.531 10.510.202 Total Assets 71.310.991 28.304.372 61.141.732 74.294.769 26.352.144 48.863.810 310.267.818 Liabilities Interbank Deposits 7.354.580 834.458 135.475 1.082.644 - 279.728 9.686.885 Other Deposits 96.091.616 23.456.511 18.875.407 1.696.356 3.550 41.109.772 181.233.212 Money Market Borrowings 36.325.722 4.312.765 1.841.293 654.532 - - 43.134.312 Sundry Creditors 30.900 10.002 22.550 1.012 - 2.314.672 2.379.136 Issued Marketable Securities 932.357 1.609.322 497.397 2.380.321 - - 5.419.397 Funds Provided from Other Financial Institutions 2.433.574 4.575.233 11.276.835 1.708.833 792.928 - 20.787.403 Other Liabilities 212.627 203.088 413.406 6.370.792 34.885 40.392.675 47.627.473 Total Liabilities 143.381.376 35.001.379 33.062.363 13.894.490 831.363 84.096.847 310.267.818 Balance Sheet Long Position - - 28.079.369 60.400.279 25.520.781 - 114.000.429 Balance Sheet Short Position (72.070.385) (6.697.007) - - - (35.233.037) (114.000.429) Off Balance Sheet Long Position 621.061 1.300.401 - 44.401 - - 1.965.863 Off Balance Sheet Short Position - - (111.409) (1.222.188) - - (1.333.597) Total Position (71.449.324) (5.396.606) 27.967.960 59.222.492 25.520.781 (35.233.037) 632.266 (1) Balances without fixed maturity are shown in the “Up to 1 Month” and “Non-Interest Bearing” columns. (2) TL 5.833.179 of fund balance, whose risk does not belong to the Parent Bank, in other liabilities is shown under the “1 - 5 Years” column. TL 97.950 of fund balance is not granted as loan and is shown under the “Non -Interest Bearing” column. (3) Deferred tax asset is shown under the non-interest bearing column. (4) Net balance of loans under follow-up is shown under the “Non-Interest Bearing” column in loans given. (5) Total shareholders’ equity is shown under the non-interest bearing column. 46 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) V. EXPLANATIONS ON THE CONSOLIDATED INTEREST RATE RISK (Continued) b) Average interest rate applied to the monetary financial instruments (Represents the values belong to the Parent Bank): (%) EUR USD JPY TL Current Period Assets Cash (Cash in Vault, Effectives, Money in Transit, Cheques Purchased) and Balances with the Central Bank of the Republic of Turkey(1) 0,03 0,49 3,36 Banks 1,56 2,82 - 8,44 Financial Assets at Fair Value Through Profit and Loss - 5,36 - 7,98 Money Market Placements - - - - Financial Assets Available-for-Sale 4,73 5,64 - 9,20 Loans Given (2) 4,30 5,52 - 12,82 Investments Held-to-Maturity 6,48 7,20 - 9,75 Liabilities - Interbank Deposits (3) 0,45 1,09 - 8,24 Other Deposits (4) 0,94 1,14 - 6,52 Money Market Borrowings 0,95 1,82 - 8,55 Sundry Creditors - - - - Issued Marketable Securities - 4,37 - 9,77 Funds Provided from Other Financial Institutions 0,92 2,23 - 8,38 (1) The ratio on TL column denotes the interest rates applied for required reserve at CBRT. (2) Credit card loan balances are not included. (3) Rates shown in the table are calculated by using the annual domestic simple interest rates, except for foreign currency interbank deposits. (4) Rates include also demand deposit data. EUR USD JPY TL Prior Period Assets Cash (Cash in Vault, Effectives, Money in Transit, Cheques Purchased) and Balances with the Central Bank of the Republic of Turkey(1) - 0,28 - 3,45 Banks 1,30 1,82 - 9,68 Financial Assets at Fair Value Through Profit and Loss - 5,36 - 6,84 Money Market Placements - - - - Financial Assets Available-for-Sale 4,71 5,68 - 9,09 Loans Given (2) 4,09 4,98 - 12,82 Investments Held-to-Maturity 6,42 7,08 - 9,71 Liabilities Interbank Deposits (3) 0,65 0,58 - 9,06 Other Deposits (4) 1,21 1,12 - 7,19 Money Market Borrowings 0,72 1,05 - 9,84 Sundry Creditors - - - - Issued Marketable Securities 0,59 3,79 - 10,86 Funds Provided from Other Financial Institutions 1,22 1,69 - 10,03 (1) The ratio on TL column denotes the interest rates applied for required reserve at CBRT. (2) Credit card loan balances are not included. (3) Rates shown in the table are calculated by using the annual domestic simple interest rates, except for foreign currency interbank deposits. (4) Rates include also demand deposit data. 47 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) VI. EXPLANATIONS ON THE POSITION RISK OF CONSOLIDATED EQUITY SECURITIES 1. Equity securities position risk derived from banking books: a. Comparison with the market value if the market value is significantly different from the fair value for balance sheet, fair and market values of equity shares: There is no significant difference between balance sheet value, fair value and market value of investments in equity instruments. b. The breakdown of capital requirements on the basis of related stock investments depending on the method of the calculation of capital requirement which is chosen by Bank among approaches that are allowed to be used within the Comminiqué regarding Credit Risk Standard Method or the Calculation of Counterparty Credit Risk based upon İnterior Ra ting Approaches: The stock investments, partaking in banking accounts according to the credit risk standard method, are amounted TL 124.451 and 100% of them are risk weighted. VII. EXPLANATIONS ON THE CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND CONSOLIDATED LIQUIDITY COVERAGE RATIO General principles of liquidity and financial emergency management and the related application procedures are considered in the scope of “Regulation for Liquidity Risk and Liquidity and Financial Emergency Management”. The Parent Bank performs “Remaining Maturity Analysis” for the observation of the maturity structure of the balance sheet, “Liquidity Gap” and “Structural Liquidity Gap Analysis” for the monitoring of the liquidity and between periods and Liquidity Stress Test for the evaluation of the Parent Bank’s liquidity and in the worst case scenario and the loss associated with it. The renewal of deposits which constitutes the Parent Bank’s most crucial funding resource is monitored on a daily basis. Besides, in orde r to compare the Bank’s level of liquidity risk with the sector, average remaining maturity balances of Bank-Sector and legal liquidity rates are monitored. 1) Liquidity Risk a) Explanations related to the liquidity risk management including the Parent Bank’s risk capacity, responsibilities and structure of liquidity risk management, reporting of liquidity risk in internal banking, the strategy of liquidity risk and how to provide the communication of policies and implementations with board of directors and business lines: The Parent Bank’s risk capacity, risk appetence, responsibilities and tasks of liquidity risk management and share issues of points related liquidity risk management with bank network are explained in “Regulations of Risk Management, Stress Test Program and İsedes Regulations” of the Parent Bank. In this context, liquidity risk strategies and policies are published in periodically on weeks, months and years with all of the units with board directors in bank. Moreover, analyses done and reports are handled in the Assets-Liability Commission Conferences, Board of Director is informed by Audit Commission. b) Liquidity management and the degree of centralization of fund strategies, the information about the procedure between bank and the partners of bank: Continuously the information exchange is actualized about the liquidity need and surpluses between the Parent Bank and its partners, the compulsory directions and treats are moderated by Treasury Management and International Banking Assistant General Management to direct liquidity risk and surpluses in effective way. 48 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) VII. EXPLANATIONS ON THE CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND CONSOLIDATED LIQUIDITY COVERAGE RATIO (Continued) c) Explanation related to policies regarding fund resources times variations of funding strategy of bank: The Parent Bank’s fundamental funding resources are deposits, the strategy of preserving the common base structure of deposits are sustained. Moreover, within the diversification strategy of resources structure, long-term and appropriate costed resources rate that are out of deposits are aimed to be raised. In the resources out of deposits; repurchase agreements, post finance, syndication credits, credits assured by international finance associations, exported securities, capital market transactions and credits taken by bilateral agreements are placed. d) Explanation related to liquidity management as currencies forming at least 5 percentage of aggregate liabilities of the Parent Bank: The Parent Bank’s total liabilities are consisted of mostly TL, USD and EUR currencies. Besides these currencies, valid for other currencies, daily and long-term cash flows are pursued and liquidity management is formed in effective way by some projections are being performed regarding future. e) Information related to the techniques about the reduction of current liquidity risk: The Parent Bank’s source of funds is mainly formed of deposits. The Parent Bank’s deposits do not fluctuate considerably in line with the broadly dispersed customer network. Besides, in order to increase the fund range and decrease the maturity gap between assets and liabilities, giving weight to liabilities other than deposits such as bond/bill issuance, repo and funds borrowed. As for the asset side of the Parent Bank, within the scope of reformatting short-term cash cycle, dissonance reducing the maturity of asset and liability, the policy for shortening the average maturity on loans being pursued. e) Explanation regarding the usage of the stress test In the presence of unexpected negative circumstances, stress tests being done in order to test the endurance of the bank. These actions have been shared with key management and all related units for the purpose of taking necessary precautions. Additionally, stress tests also taken into consideration on subjects like the Parent Bank’s estimated financial position for the next period, the progress of legal ratios and the liquidity need in short and long term as part of budget practices. f) General information on liquidity urgent and unexpected situation plan: The internal and external sources which can be used in an emergency case to satisfy the liquidity need are periodically followed and the borrowing limits of the Parent Bank from organized market and other banks are on the level where they meet the structural liquidity deficits on different maturity segments. The Parent Bank lines off its exposition to liquidity risk by limits that are approved from Board of Directors and within the frame of “Regulations of Risk Management, Stress Test Program and Internal Capital Adequacy Assessment Process (ICAAP)”. 2) Liquidity Coverage Ratio: Within the frame of the regulation named “Regulation on the Calculation of Liquidity Coverage Ratio” issued by BRSA in the Official Gazette numbered 28948, dated 21 March 2014, the Parent Bank calculates the liquidity coverage ratio and reports it to BRSA monthly in consolidated base. The liquidity coverage ratio sails above the frontier limits determined by BRSA. Within the last 3 months (October-November-December) the consolidated ratios are as follows: Take place for FC as 86,61 in October, for TL+FC as 81,65; take place for FC as 92,29 in November, for TL+FC as 76,33; take place for FC as 102,33, for TL+FC as 77,90 in December 49 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) VII. EXPLANATIONS ON THE CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND CONSOLIDATED LIQUIDITY COVERAGE RATIO (Continued) Total Unweighted Value Total Weighted Value (average) (average) Current Period TL+FC FC TL+FC FC High Quality Liquid Assets High Quality Liquid Assets 47.060.923 26.647.052 Cash Outflows Retail and Small Business Customers, of which; 143.898.400 51.675.017 11.622.939 5.167.502 Stable deposits 55.338.033 - 2.766.902 - Less stable deposits 88.560.367 51.675.017 8.856.037 5.167.502 Unsecured wholesale funding , of which; 80.482.580 24.151.123 46.653.885 16.242.578 Operational deposit 1.687.101 291.581 421.775 72.895 Non-operational deposits 67.505.167 17.490.912 34.986.034 9.818.460 Other unsecured funding 11.290.312 6.368.630 11.246.076 6.351.223 Secured funding - - Other cash outflows, of which; 20.783.315 13.237.304 5.963.394 11.556.687 Derivatives cash outflow and liquidity needs related to market valuation changes on derivatives or other transactions 2.133.363 10.295.383 2.133.363 10.295.383 Obligations related to structured financial products - - - - Commitments related to debts to financial markets and other offbalance sheet obligations 18.649.952 2.941.921 3.830.031 1.261.304 Other revocable off-balance sheet commitments and contractual Obligations 39.627 21.913 1.981 1.096 Other irrevocable or conditionally revocable off-balance sheet Obligations 40.843.572 24.557.903 9.739.071 3.337.772 Total Cash Outflows 73.981.270 36.305.635 Cash Inflows Secured lending - - - - Unsecured lending 17.850.713 7.875.744 12.618.858 6.975.435 Other cash inflows 1.480.005 780.641 1.465.414 766.050 Total Cash Inflows 19.330.718 8.656.385 14.084.272 7.741.485 Total Adjusted Value Total HQLA Stock 47.060.923 26.647.052 Total Net Cash Outflows 59.896.998 28.564.150 Liquidity Coverage Ratio (%) 78,57 93,29 (*) The average of last three months’ month-end consolidated liquidity ratios. 50 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) VII. EXPLANATIONS ON THE CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND CONSOLIDATED LIQUIDITY COVERAGE RATIO (Continued) Total Unweighted Value Total Weighted Value (average) (average) Prior Period- 31 December 2015 TL+FC FC TL+FC FC High Quality Liquid Assets High Quality Liquid Assets 43.380.868 29.708.281 Cash Outflows Retail and Small Business Customers, of which; 121.726.943 42.781.057 8.952.673 3.468.796 Stable deposits 64.400.433 16.186.193 3.220.022 809.310 Less stable deposits 57.326.510 26.594.863 5.732.651 2.659.486 Unsecured wholesale funding , of which; 61.931.778 25.359.764 35.541.320 17.100.150 Operational deposit 1.134.952 130.783 283.738 32.696 Non-operational deposits 53.253.252 20.361.335 27.725.692 12.205.264 Other unsecured funding 7.543.574 4.867.646 7.531.890 4.862.190 Secured funding - - Other cash outflows, of which; 55.748.866 27.338.257 17.187.989 7.964.955 Derivatives cash outflow and liquidity needs related to market valuation changes on derivatives or other transactions 1.812.166 1.800.891 1.812.166 1.800.891 Obligations related to structured financial products - - - - Commitments related to debts to financial markets and other offbalance sheet obligations 41.890.713 13.629.912 14.773.485 5.568.653 Other revocable off-balance sheet commitments and contractual obligations 803.467 754.693 40.173 37.735 Other irrevocable or conditionally revocable off-balance sheet obligations 11.241.753 11.151.993 562.088 557.600 Total Cash Outflows 61.681.982 28.533.901 Cash Inflows Secured lending - - - - Unsecured lending 11.124.921 2.633.933 7.167.150 1.968.010 Other cash inflows 867.709 573.329 867.709 573.329 Total Cash Inflows 11.992.629 3.207.262 8.034.859 2.541.339 Total Adjusted Value Total HQLA Stock 43.380.868 29.708.281 Total Net Cash Outflows 53.647.123 25.992.563 Liquidity Coverage Ratio (%) 80,86 114,30 (*) The average of last three months’ month-end consolidated liquidity ratios. 51 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) VII. EXPLANATIONS ON THE CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND CONSOLIDATED LIQUIDITY COVERAGE RATIO (Continued) 3) Minimum statements concerning liquidity coverage ratio by Banks a) Important points affecting the results of liquidity coverage ratio and the changes of the considered items in the course of time to calculate this ratio: Bank deposit, which has not a fluctuant structure, together with constituting an important part of its sources and liquidity coverage ratio, in proportion to other deposits, public deposits can cause periodic changes within total deposits. When comparing with the previous periods, the percentage of the total deposit in financial statement does not change and has an increasing sail. As well as its low turn into cash ratio, since the non-cash loans have a remarkable extent in proportion to financial statement, they have an influence on the calculation of liquidity coverage ratio.Comparing to previous periods, non-cash loans are tend to increase. As a guarantee for the repo transactions a portfolio of securities which includes T-Bills and government bonds is being used. The securities which have been used for the repo transactions lose their flexibility. Hence as a result of the usage method of the securities as a guarantee the liquidity coverage ratio is effected. b) High quality liquid assets are comprised to which items: All of the high-quality liquid assets of the calculation of Liquidity Coverage Ratio are First Quality Liquid Assets. These; cash, the accounts in Central Bank, reserve requirements and securities from the portfolio (The important part of bonds and T-bills issued by Republic of Turkey Prime Ministry Undersecretariat of Treasury, other bonds). c) Funds are comprised of which items and their volume in all funds: The major part of the resources of funds in Bank is comprised of deposits, the remaining is divided according to their share in the balance sheet as repo, borrowings, and issued securities. d) Information about cash out-flows arising from derivative operations and margin operations likely to processing: Derivative operations in Bank are carried out on the purpose of protection from the risks that may exist or occur in the balance sheet, liquidity management, or meet customer demand. Customer operations are carried out under the “Framework Agreement on Purchase and Sale of Derivative Instruments” or ISDA (Internation al Swaps and Derivatives Association) and CSA (Credit Support Annex) with additional, as well as operations performed by the banks is performed again ISDA and CSA contracts signed. Operations performed under the said contracts in the determined periods are subject to daily market valuation and additional collateralization as cash. Operations could create additional collateral input or output depending on market valuation. e) The concentration limits regarding collateral and counterparty and product based fund resources: For the counterparty and product based concentration limits are determined under “Regulations of Risk Management, Stress Test Program and the Bank’s Internal Capital Adequacy Assessment Process (ICAAP)” with the approval of Senior Management. These limits are followed in particular frequency. Besides, It has reported to the relevant units and Senior Management. There is no excess regarding the limits during operating period. 52 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) VII. EXPLANATIONS ON THE CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND CONSOLIDATED LIQUIDITY COVERAGE RATIO (Continued) f) Liquidity risk and needed funding on the basis of the bank itself, the branches in foreign countries and the partnerships consolidated by considering operational and legal factors preventing liquidity transfer: The needed and surplus of liquidity of the branches in foreign countries of the bank and partnerships consolidated are followed and managed regularly. There is no constraint of operational and legal factors preventing liquidity transfer. In the analysis made, it is observed that the impact of the foreign branches and subsidiaries on the Bank’s liquidity structure remain limited comparing to the size of the balance sheet. The need and surplus of the liquidity is encountered properly between partnerships, as well as the branches abroad. g) Explanations of cash in-flow and cash out-flow items that are considered to be related to liquidity profile of the bank and to be placed on the calculation of liquidity coverage ratio but not on the second paragraph of the disclosure template: All items on the calculation of liquidity coverage ratio are included in calculation in aggregated form on the table. In this context, there is no point included in the calculation of liquidity coverage ratio and not included in the disclosure template. 53 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) VII. EXPLANATIONS ON THE CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND CONSOLIDATED LIQUIDITY COVERAGE RATIO (Continued) Presentation of assets and liabilities according to their remaining maturities: 5 Years and Undistributed (1) (2) Demand Up to 1 Month 1-3 Months 3-12 Months 1-5 Years Over Total Current Period Assets Cash (Cash in vault, effectives,Money in transit, cheques purchased) and Balances with the Central Bank of the Republic of Turkey 40.619.305 - - - - - 26.200 40.645.505 Banks 2.362.142 1.477.014 428.485 52.425 - - - 4.320.066 Financial Assets at Fair Value Through Profit and Loss 247 557.807 521.717 565.534 67.188 4.433 2.645 1.719.571 Money Market Placements 3 252.941 - - - - - 252.944 Financial Assets Available- for-Sale 4.806 1.623.787 1.787.212 7.783.230 21.312.279 25.967.502 649.398 59.128.214 Loans Given - 9.171.064 16.877.885 90.431.269 100.643.804 26.698.874 251.449 244.074.345 Investments Held-to- Maturity - 1.192.908 830.145 71.144 5.018.037 1.682.681 - 8.794.915 Other Assets 3.675.633 96.540 165.862 578.601 1.389.090 271.208 6.769.431 12.946.365 Total Assets 46.662.136 14.372.061 20.611.306 99.482.203 128.430.398 54.624.698 7.699.123 371.881.925 Liabilities Interbank Deposits 1.496.123 6.867.493 1.597.664 2.014.652 - - - 11.975.932 Other Deposits 55.015.498 115.325.760 26.025.332 22.921.721 1.608.923 38.827 - 220.936.061 Funds Provided from Other Financial Institutions - 1.483.610 2.546.851 12.955.209 4.739.022 2.701.837 - 24.426.529 Money Market Borrowings - 41.796.418 3.747.109 1.085.940 716.162 - - 47.345.629 Issued Marketable Securities - 836.455 1.575.727 259.858 4.398.711 - - 7.070.751 Sundry Creditors 1.997.790 502.235 18.291 1.089 - - 47.496 2.566.901 Other Liabilities (3) 5.829.856 779.785 918.648 564.087 6.511.950 901.285 42.054.511 57.560.122 Total Liabilities 64.339.267 167.591.756 36.429.622 39.802.556 17.974.768 3.641.949 42.102.007 371.881.925 Liquidity Gap (17.677.131) (153.219.695) (15.818.316) 59.679.647 110.455.630 50.982.749 (34.402.884) - Net Off-Balance Sheet Position - 101.816 (4.584) 511.465 598.076 - - 1.206.773 Financial Derivative Assets - 23.887.140 7.574.728 2.638.403 2.677.243 - - 36.777.514 Financial Derivative Liabilities - 23.785.324 7.579.312 2.126.938 2.079.167 - - 35.570.741 Non-cash Loans 39.328.862 1.045.731 5.027.611 18.874.379 14.761.801 3.682.731 - 82.721.115 Prior Period Total Assets 41.104.345 10.803.851 15.486.534 80.786.469 111.901.898 42.331.227 7.853.494 310.267.818 Total Liabilities 45.955.242 143.301.990 34.327.033 32.360.482 15.755.955 3.084.016 35.483.100 310.267.818 Liquidity Gap (4.850.897) (132.498.139) (18.840.499) 48.425.987 96.145.943 39.247.211 (27.629.606) - Net Off-Balance Sheet Position - (123.663) (7.420) 21.298 506.582 - - 396.797 Financial Derivative Assets - 21.505.764 730.692 1.640.019 2.462.004 - - 26.338.479 Financial Derivative Liabilities - 21.629.427 738.112 1.618.721 1.955.422 - - 25.941.682 Non-cash Loans 32.747.550 492.394 2.678.785 13.191.131 9.677.305 2.103.709 - 60.890.874 (1) Assets which are required for banking operations and could not be converted into cash in short-term, such as; tangible assets, associates, subsidiaries and entities under common control, office supply inventory, prepaid expenses and net non-performing loans as well as securities representing a share in capital; and other liabilities such as provisions which are not considered as payables and equity are classified as undistributed . (2) Deferred tax asset is included under the “Undistributed” column. (3) TL 5.950.057 of the funds balance, whose risk is not born by the Parent Bank, is included in other liabilities and shown under the "1-5 years" column, fund balance amounted to TL 70.782 is not granted as loan and is included under “Up to One Month” column. 54 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) VII. EXPLANATIONS ON THE CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND CONSOLIDATED LIQUIDITY COVERAGE RATIO (Continued) Presentation of liabilities according to their remaining maturities: Up to 1-5 Over 5 Current Period(1) 1 Month 1-3 Months 3-12 Months Years Years Total Bank Deposits 8.607.501 1.603.770 2.025.178 - - 12.236.449 Other Deposits 168.765.620 26.250.886 23.335.495 1.628.281 53.240 220.033.522 Funds Borrowed from Other Financial Institutions 1.500.321 2.564.338 13.190.000 4.825.200 1.528.815 23.608.674 Funds Borrowed from Interbank Money Market 41.818.169 3.757.618 1.101.437 734.017 - 47.411.241 Total 220.691.611 34.176.612 39.652.110 7.187.498 1.582.055 303.289.886 Prior Period (1) Bank Deposits 7.655.366 1.871.304 153.224 34.739 - 9.714.633 Other Deposits 135.809.027 23.447.423 19.064.948 1.841.496 3.686 180.166.580 Funds Borrowed from Other Financial Institutions 947.247 3.436.293 10.785.315 3.697.676 1.261.495 20.128.026 Funds Borrowed from Interbank Money Market 36.309.740 4.319.621 1.854.917 672.295 - 43.156.573 Total 180.721.380 33.074.641 31.858.404 6.246.206 1.265.181 253.165.812 (1) Amounts related with the fund balances are not included in the table since decomposition on the basis of their remaining maturities could not be performed. VIII. EXPLANATIONS ON CONSOLIDATED LEVERAGE 1) Explanations on the subjects caused a gap between prior and current period leverage: The Bank’s leverage calculated by force of the regulation “Regulation on Measurement and Assessment of Leverage Ratios of Banks” is 8,00% (31 December 2015: 8,33%). The change on leverage results heavily from the increase on risk amounts of balance sheet assets. The regulation sentenced the minimum leverage as 3%. Balance sheet assets Current Period (*) Prior Period (*) On-balance sheet items (excluding derivative financial instruments and credit derivatives but including collateral) 359.875.628 305.987.769 (Assets deducted in determining Tier 1 capital) (2.072.001) (1.358.811) Total on-balance sheet risks (sum of lines 1 and 2) 357.803.627 304.628.958 Derivative financial instruments and credit derivatives Replacement cost associated with all derivative financial instruments and credit Derivatives 1.516.660 906.945 Add-on amounts for PFE associated with all derivative financial instruments and credit derivatives 394.485 294.821 Total risks of derivative financial instruments and credit derivatives 1.911.145 1.201.766 Securities or commodity financing transactions (SCFT) Risks from SCFT assets 4.889.181 4.611.358 Risks from brokerage activities related exposures - - Total risks related with securities or commodity financing transactions 4.889.181 4.611.358 Other off-balance sheet transactions Gross notional amounts of off-balance sheet transactions 105.343.560 79.187.009 (Adjustments for conversion to credit equivalent amounts) (1.415.380) (362.843) Total risks of off-balance sheet items 103.928.180 78.824.166 Capital and total risks Tier 1 capital 37.505.342 32.430.099 Total risks 468.532.133 389.266.248 Leverage ratio Leverage ratio % 8,00 8,33 (*) Three month average of the amounts in the table are taken. 55 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) VIII. EXPLANATIONS ON LEVERAGE (Continued) 2) An extract comparison table of total risks placed in consolidated financial statements coordinated in accordance with TAS: Current Period(**) Prior Period(**) Total assets in consolidated financial statements prepared in accordance with Turkish Accounting Standards (**) 371.922.921 310.301.585 The difference between total assets prepared in accordance with Turkish Accounting Standards and total assets in consolidated financial statements prepared in accordance with the communiqué “Preparation of Consolidated Financial Statements” 40.996 33.767 The difference between the amounts of derivative financial instruments and credit derivatives in consolidated financial statements prepared in accordance with the communiqué “Preparation of Consolidated Financial Statements” and risk amounts of such instruments 76.404.601 57.881.888 The difference between the amounts of securities or commodity financing transactions in consolidated financial statements prepared in accordance with the communiqué “Preparation of Consolidated Financial Statements” and risk amounts of such instruments 39.216.454 38.777.772 The difference between the amounts of off-balance items in consolidated financial statements prepared in accordance with the communiqué “Preparation of Consolidated Financial Statements” and risk amounts of such items 1.415.380 362.843 Other differences between the amounts in consolidated financial statements prepared in accordance with the communiqué “Preparation of Consolidated Financial Statements” and risk amounts of such items (42.588.977) (42.482.185) Total Risk Amount 468.532.133 389.266.248 (**) The amounts shown in the table are 3 month averages. (**) The current account balance of the Consolidated Financial Statements prepared in accordance with paragraph 5 in Article 5 of The Communiqué on Preparation of Consolidated Financial Statements of Banks has been prepared by using the temporary financial statements dated 31 December 2016 of the non-financial partners. IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT This section contains notes and explanations regarding the "Communiqué on Disclosures about Risk Management to be Announced to Public by Banks" released by the Banking Regulation and Supervision Agency (BRSA), published in the Official Gazette no. 29511 on 23 October 2015 and became effective as of 31 March 2016. As part of its controlling activities, the Risk Management Group Presidency conducts controls on Risk Management Explanations. Two different control processes, e.g. Calculation of Capital Adequacy process and other Risk Management processes, are conducted by the relevant unit periodically in line with capital adequacy control points and guidelines as well as control points for other Risk management field of activity and guideline. Furthermore, as part of legislation compliance controls, compliance of all activities, new transactions and products planned by the Bank with relevant laws, legislation, internal Bank policies and banking practices is controlled. Accordingly, compliance of legislative regulations regarding Risk Management Explanations with internal Bank practices is also controlled. Controlling activities conducted by the Head Office Units are performed in line with the control periods determined by considering functions of Units and risks they bear, job definitions of the Units and their impact on the Bank's balance sheet. Control processes by the Head Office Units are performed based on control points determined according to process, duties and powers of unit's field of activity and control techniques are elaborated in the head office control guideline. 56 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) 1. Explanations on Risk Management and Risk Weighted Amount a) Bank's Risk Management Approach i. It has to do with how the business model determines the Bank's risk profile; how it interacts with it (e.g. key risks related to the business model and how each of these risks is reflected on explanations); and how the Bank's risk profile interacts with the risk appetite approved by the board of directors While risk appetite determines the Bank's risk level, risk capacity determines its risk appetite and, therefore, risk profile. Local and international conjuncture is also considered to determine the risk level. Establishment of forward-looking strategies and policies is also considered in this regard. The Bank's risk level is restricted to the limits consistent with its risk appetite. Risk limits are determined in accordance with the level of risks that may be assumed by the Bank, its activities, size and complexity of its products and services. The limits are revised and, if needed, updated regularly in line with the developments in market conditions, the Bank's strategy and risk appetite. Critical thresholds (signal and limit values) indicating that limits are approached due to internal or external developments have been identified. In the event that these values are approached or exceeded, relevant units take required actions. Parameters regarding signal and limit structure as well as limit values of parameters are determined in coordination with the relevant units and implemented upon approval of the Audit Committee and Board of Directors. Signal and limit values based on risk weighted assets are monitored by the Bank's Risk Management Group Presidency regularly and actual values are reported periodically to the Bank's Top Management. ii. Risk management structure: Responsibilities distributed at the Bank (e.g. supervision and delegation of authority); segregation of duties by risk type, business unit, etc.; relations between structures included in risk management processes (e.g. board of directors, top management, separate risk committee, risk management unit, compliance, internal audit function) The Bank's Top Management and relevant units perform their risk management duties, authorities and responsibilities in line with the relevant legal legislation and internal Bank regulations. Structure of the Bank's risk management is consistent with the Regulation on Internal Systems and Internal Capital Adequacy Assessment Processes of Banks. Accordingly, internal system units consisting of the Inspection Board Presidency, Internal Control and Compliance Group Presidency and Risk Management Group Presidency report to the Audit Committee and Board of Directors through the Vice President who is responsible for internal systems and operates separate from executive units. Risk measurement and monitoring activities are conducted as part of risk management and the results are considered in strategic decision-making process by relevant units and bodies. Risk management operations are conducted in accordance with the Regulation on the Internal Systems and Internal Capital Adequacy Assessment Processes of Banks, issued by the BRSA, within the scope of Regulation on Risk Management, Stress Test Program and the Bank’s Internal Capital Adequacy Assessment Process (“ICAAP”) approved by the Bank’s Board of Directors. 57 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) Organizational structure of the Bank's Risk Management Group Presidency consists of credit risk management, market risk management, operational risk management and statement risks management units. Duties of risk management: - Ensuring identification, measurement, reporting, monitoring and control of risks exposed through policies, practices and limits established to monitor, control and revise, when necessary, the risk-return structure of the Bank's cash flows in the future, quality and level of its associated activities - Conducting stress tests and scenario analyses - Establishing and maintaining a system that will ensure determination of capital required to cover significant risks exposed or possible risks and assessment of capital adequacy/requirement level in line with the strategic goals - Preparing ICAAP reports periodically. ICAAP analyses and activities are validated by a team that reports to the Audit Committee independently from the team that develops and implements the methodology of such activities. The same team issues a Validation Report as well. Analyses and activities conducted within the process, including validation activities are reviewed by the Inspection Board Presidency and a Review Report is issued for the results. iii. Channels used for disseminating and implementing risk culture within the Bank (e.g. codes of conduct, manuals including operational limits or procedures to be performed when risk thresholds are exceeded, procedures for identifying and sharing risk issues between business units and risk units) The Bank exercises maximum efforts to perceive both risks and returns accurately during its activities and maintain its perspective for disseminating risk culture across the Bank. Accordingly, goals, vision and strategic approaches are shared in large group meetings held by the Bank's Top Management with employees. Signal and limit structure established based on risk weighted assets is one of the channels used to disseminate risk culture within the Bank. Parameters for signal and limit structure and limit values of parameters are determined by risk management by consulting the relevant units and approved by the Board of Directors. It is ensured that risk signal and limit structure is forwarded to relevant units in the Bank and the structure is understood by the staff. Usage levels for signal and risk parameters are subject to reports submitted to the Top Management. If limits are exceeded, the Bank's Top Management is notified. In such a case, matters such as risk mitigation, risk transfer or risk-averse, increasing collaterals and so on can be considered as part of required actions. If limits are exceeded, forward-looking strategies and policies of the Bank —including budget figures—can be reviewed or,where necessary, revised. Another channel used to disseminate the risk culture is in the scope of ICAAP activities. It is essential to include assessment results for capital adequacy in the ICAAP Report covering all significant risks of the Bank. The report is prepared in coordination with risk management and with participation from other relevant units. Similarly, the Bank's budget goals for the upcoming years are also established with the participation of relevant units. The Bank's Top Management and relevant units conduct their ICAAP duties, authorities and responsibilities in line with the Bank regulations and relevant legal legislation. 58 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) iv. Principal elements and scope of risk measurement systems The Bank's risk measurement system functions in line with the best practices, legal regulations, fields of activity and product ranges in a consistent, reliable and integrated way. Regarding the inclusion of risk measurement results in decision-making processes, reports are elaborated with extensive explanations and assumptions to avoid any misinterpretation that may arise from errors and deficiencies. Required activities are performed to engage in design, selection, implementation and pre-approval processes for risk measurement models; review accuracy, reliability and performance of models regularly through various methodologies and make required revisions accordingly; and report results of analyses conducted with such models. The Bank's capital adequacy ratio is calculated in accordance with the Communiqué on Measurement and Assessment of Capital Adequacy of Banks, Communiqué on Credit Risk Mitigation Techniques and other relevant legal regulations. Counter parties/operations related to the credit risk are separated on the basis of risk classes mentioned in Appendix-1 of the Communiqué on Measurement and Assessment of Capital Adequacy of Banks, and each of them is assigned by the weight of risk in line with the matters specified for relevant risk class. Then, they are subject to risk mitigation in accordance with the principles of Communiqué on Credit Risk Mitigation Techniques and weighted based on the risk weights. After deduction of specific provisions in accordance with Communiqué on Methods and Principles for the Determination of Loans and Other Receivables to be Reserved for and Allocation of Reserves, non-cash loans and commitments are included in the calculation of credit-risk-weighted amount with loan conversion rates presented in article 5 of Communiqué on Measurement and Assessment of Capital Adequacy of Banks. Trading accounts and the values deducted from the capital base in the shareholders’ equity computation are excluded from calculation of credit risk-weighted assets. Calculations regarding to the counter party credit risk are made for repurchase agreement and derivative transactions. These transactions are added to the calculations after applying the rates presented in the amendments of the Communiqué on Measurement and Assessment of Capital Adequacy of Banks and Communiqué on Credit Risk Mitigation Techniques. Calculations regarding counter parties credit risks are made with the basic financial collateral method and extensive collateral method for banking accounts and trading accounts respectively. The amount subject to the total market risk is calculated through the standard method. Furthermore, value at risk forecasts are made on a daily basis and backward testing is performed so as to measure performance of the model. Liquidity Coverage Ratio and Liquidity Risk Analysis reports for the liquidity risk are prepared in accordance with the relevant regulations. Furthermore, stress test is performed to assess maturity mismatch between sources and uses, contractual maturities as well as behavioral maturities of assets and liabilities, the Bank's liquidity requirement in a worst case scenario and relevant damages that may be incurred based on scenario and sensitivity analysis activities. Control of interest rate risk on banking accounts entails monitoring rate and maturity mismatch between sources and uses of fixed and variable interest rates, contractual maturities as well as behavioral maturities assets and liabilities and the effects of the usual and unusual changes in interest rates which is possibly uptrend and downtrend. 59 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) v. Explanations provided to the board of directors and top management on risk reporting processes, particularly scope and main contents of reporting It is essential to inform the Top Management about developments and results of the analysis and activities conducted in order to achieve efficiency in risk management. Accordingly, a reporting system for informing Top Management is established and required measures are taken for healthy functioning of the system. Informing process as part of reporting should be based on the most current data available on a periodical basis. Reports issued contain, at minimum, information on risk amount and development, legal capital requirement, legal ratios for liquidity and interest rate risks, stress test analysis results, effect of such results on capital adequacy level and ratios, realization level of risk limits and limitations, and assumptions of risk measurement method used. As part of the reporting system, an information systems infrastructure is established for external reporting and required actions are taken to fulfill legal obligations fully in a timely manner in this regard. vi. Explanations on stress test (e.g. assets subject to stress test, scenarios applied, methodologies used and the use of stress test in risk management) Stress test is intended to pre-assess the effect of negative developments in specified risk factors on amounts subject to risk and capital adequacy/requirement level. Conducting the stress test periodically is essential, and test result must be included in internal reporting and considered in strategic decision-making process or capital management. Results of stress test analysis are considered while establishing risk management policies. In stress test activities, shock is applied to risk factors determined (factors specific to debtor or transaction or macroeconomic variables such as exchange rate, price, interest and so on), and the effects of results on risk- weighted asset amount and capital adequacy ratio are identified. Accordingly, risk factors are identified first and then assumptions to be implemented are determined and possible losses in the future are estimated. Stress test activities include creating scenarios, which are unlikely, if not impossible, and which may affect the Bank's risk level significantly. The results of stress test are subject to internal Bank reporting and ICAAP Report. The results of stress test may be used in processes to determine the Bank's risk appetite or risk limits and identify new and current business strategies as a planning instrument and their effect on capital utilization. Analyses of credit risk based on internal and external risk factors, counter party credit risk, liquidity risk, interest rate risk and market risk are conducted in the case of stress tests which are subject to internal reporting. The Board of Directors is responsible for assessing the results of the Stress Test Program and taking actions based on the results. Accordingly, actions such as revision of risk appetite, strategy and risk limits or restriction of activities to specific sectors or portfolios can be taken. vii. The Bank's risk management, aversion and mitigation strategies and processes based on business model and monitoring processes for continuous efficiency of safeguards and mitigants Amounts subject to credit risk can be mitigated by using one or more risk mitigation techniques in line with the legal regulations. Funded or unfunded credit safeguard instruments are considered while using the risk mitigation technique. Whether credit safeguard instruments meet minimum compulsory conditions specified in legal regulations is checked via the system. The Bank performs risk mitigation with a simple financial method. Credibilities of guarantors are monitored and assessed in the scope of credit revision maturity. All Bank employees are responsible for control and mitigation of operational risks based on their job definitions and business processes. All Bank units are obliged to take risk mitigation measures for mitigation of operational risks that may occur in their respective fields of activity through insurance and other risk transfer mechanisms. 60 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) The Bank's market risk is mitigated through derivatives or other financial products by considering current conjuncture and risk appetite, risk capacity and risk level. Long term liabilities are obtained and the interest rate risk arising from liquidity and banking accounts is limited through the transactions performed. Diversification of resources is deemed important for managing the liquidity risk that may occur. While the Bank’s fundamental funding resources are deposits, the strategy of preserving the common base structure of deposits is sustained. Besides, liabilities other than deposits such as bond/bill issuance, repo and credits are deemed important for increasing the fund range and decreasing the maturity gap between assets and liabilities. As for the asset side of the Bank, policies intended to reduce average credit maturity are pursued as part of measures to improve short term cash cycle and minimize maturity mismatch between assets and liabilities. As part of management of interest rate risk, measures are taken to reduce repricing maturity mismatch of interest sensitive assets and liabilities. b) Overview of RWA Minimum capital Risk Weighted Amount requirement Current Period Prior Period Current Period 1 Credit Risk (excluding counterparty credit risk) 260.065.282 203.551.045 20.805.223 2 Standardised approach 260.065.282 203.551.045 20.805.223 3 Internal rating-based approach - - - 4 Counterparty credit risk 3.323.247 2.113.638 265.860 5 Standardised approach for counterparty credit risk 3.323.247 2.113.638 265.860 6 Internal model method - - - Basic risk weight approach to internal models equity position in the 7 banking account - - - Investments made in collective investment companies-look through 8 approach - - - Investments made in collective investment companies-mandate-based 9 approach 1.686.718 102.098 134.937 Investments made in collective investment companies-1250% 10 weighted risk approach - - - 11 Settlement risk - - - 12 Securitization positions in banking accounts - - - 13 IRB ratings-based approach - - - 14 IRB Supervisory Formula approach - - - 15 SA/simplified supervisory formula approach - - - 16 Market risk 15.358.775 17.618.138 1.228.702 17 Standardised Approach 15.358.775 17.618.138 1.228.702 18 Internal model Approaches - - - 19 Operational risk 20.519.768 18.052.275 1.641.581 20 Basic Indicator Approach 20.519.768 18.052.275 1.641.581 21 Standard Approach - - - 22 Advanced measurement approach - - - The amount of the discount threshold under the equity(subject to a 23 250% risk weight) - 667.594 - 24 Floor adjustment - - - 25 Total (1+4+7+8+9+10+11+12+16+19+23+24) 300.953.790 242.104.788 24.076.303 61 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT 1. Connections between Consolidated Financial Statements and Risk Amounts a) Differences Between Accounting Consolidation and Legal Consolidation and Matching of the Subject Amount assessed in accordance Value of items according to TAS with TAS as reported in financial Valued amount according to TAS Subject to Credit Subject to Counterparty Not subject to capital obligation or is statements (*) within legal consolidation Risk Credit Risk Securitization positions Subject to Market Risk deducted from capital Assets Cash Balances with the Central Bank of Turkey 40.645.505 40.645.505 40.645.505 - - - - Financial Assets Held for Trading 1.719.571 1.719.571 - 1.678.746 - 40.825 - Financial Assets at Fair Value Through Profit or Loss (Net) - - - - - - - Banks 4.320.022 4.320.066 4.320.066 - - - - Receivables from Money Market 252.944 252.944 144.613 108.331 - - - Financial Assets Available for Sale (Net) 59.128.214 59.128.214 12.280.871 19.470.378 - 27.014.433 - Loan and Receivables 244.074.345 244.074.345 244.071.892 - - - 2.453 Factoring Receivables - - - - - - - Investments Held To Maturity (Net) 8.794.915 8.794.915 4.108.987 4.685.928 - - - Associates (Net) 118.911 105.886 105.886 - - - - Subsidiaries (Net) 1.220 7.457 7.457 - - - - Entities Under Common Control (Net) 101.105 101.105 101.105 - - - - Receivables from Leasing Transactions 2.483.667 2.483.667 2.483.667 - - - - Derivative Financial Assets for Hedging Purposes - - - - - - - Tangible Assets (Net) 5.873.532 5.872.009 5.733.632 - - - 138.377 Intangible Assets (Net) 378.341 367.864 - - - - 367.864 Real Estates for Investment Purposes (Net) 643.290 643.290 643.290 - - - - Tax Asset 93.604 93.604 93.604 - - - - Assets Held for Sale and Assets Held from Discontinued Operations (Net) 563.015 563.015 563.015 - - - - Other Assets 2.730.720 2.708.468 2.708.468 - - - - Total Assets 371.922.921 371.881.925 318.012.058 25.943.383 - 27.055.258 508.694 Liabilities Deposits 232.898.440 232.911.993 - - - - - Derivative Financial Liabilities Held for Trading 653.365 653.365 - - - - - Funds Borrowed 24.426.529 24.426.529 - 2.508.783 - - - Money Market Debts 47.345.629 47.345.629 - 42.655.629 - - - Marketable Securities Issued 7.070.751 7.070.751 - - - - - Funds 6.020.839 6.020.839 - - - - - Miscellaneous Payables 2.591.581 2.566.901 - - - - - Other Liabilities 3.525.886 3.525.886 - - - - - Factoring payables - - - - - - - Payables from Leasing Transactions (Net) - - - - - - - Derivative Financial Liabilities for Hedging - - - - - - - Provisions 7.548.961 7.538.661 - - - - - Tax Liabilities 909.593 909.574 - - - - - Liabilities for Assets Held for Sale and Held from Discontinued Operations (Net) - - - - - - - Subordinated Loans - - - - - - - Shareholders’ Equity 38.931.347 38.911.797 - - - - - Total Liabilities 371.922.921 371.881.925 - 45.164.412 - - - (*) . The current account balance of the Consolidated Financial Statements prepared in accordance with paragraph 5 of Article 5 of the Communiqué on Preparation of Consolidated Financial Statements of Banks has been prepared by using the temporary financial st atements of the non-financial associates as of 31 December 2016 62 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) b) The main sources of the differences between the risk amounts and the amounts assessed in accordance with TAS in the Consolidated financial statements Subject to Subject to Credit Securitization Counterparty Subject to Total Risk Positions Credit Risk Market Risk Assets valued under legal consolidation in accordance with TAS 371.881.925 318.012.058 - 25.943.383 27.055.258 Estimated amounts of liabilities under legal consolidation in accordance with TAS - - - 45.164.412 - Total net amount under legal consolidation 371.881.925 318.012.058 - (19.221.029) 27.055.258 Off-balance sheet items 146.873.354 45.859.575 - 41.438.831 - Valuation Differences - - - - - Differences arising from different netting rules - - - - - Differences arising from consideration of provisions - - - - - Differences arising from the applications of the Institution - - - - - Risk Amounts 518.755.279 363.871.633 - 22.217.802 27.055.258 c) Explanations on the differences between the amounts assessed in accordance with TAS and the risk amounts There is no significant difference between the financial statement values of the assets and liabilities with the values included in the capital adequacy calculation. 2. Credit Risk Explanations 1) General explanations on credit risk a) General qualitative information on credit risk i. Transformation of bank's business model into components in credit risk profile The banks must allocate risk limits approved by board of directors of the banks and monitor limit utilization pursuant to Article 38 of the Regulation on the Internal Systems and Internal Capital Adequacy Assessment Processes of Banks issued by the BRSA and published in the Official Gazette no. 29057 dated 11 July 2014. Furthermore, pursuant to paragraph 5 of the same article, it is expected to establish a signal structure that will serve as an early warning mechanism in addition to the limit structure. Additionally, principle 5 of the Guideline for Counter Party Credit Risk Management announced to the public by the BRSA with the Agency Decision no. 6827 dated 31 March 2016 states that banks must allocate a limit for counter party credit risk (CCR). Pursuant to aforementioned regulations, to what extent the Bank gets closer to allocated limits approved by the board of directors or to what extent these levels were exceeded must be monitored by the risk management unit which was structured independent from executive units. This practice that was included in monitoring function of the risk management unit is significant as it presents a legal obligation and it helps optimization of resource utilization. As part of the variation in customer segmentation due to changing organizational structure of the Bank, credit risk signal and limit parameters were determined on the basis of corporate, entrepreneur and personal segment in line with the customer segment structure and they are updated according to the changes in the segmentation structure. Signal and limit values for counter party credit risk transactions were determined separately for banking accounts and trading accounts based on portfolio type. Calculations were made based on ratio of risk weighted asset amounts calculated for relevant parameters to total credit and market risk weighted asset amounts and they are reported to the Bank's Top Management periodically through relevant units. 63 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) In an attempt to prevent significant effects of unfavorable developments in the portfolio subject to market risk, it is essential to restrict risk level to the limits in line with the Bank's risk appetite. Market risk limits were determined as interest rate risk and currency risk limits. Current values for such limits are calculated on a daily basis with market data and reported to the Bank's Top Management through relevant units. Market risk signal and limit values are monitored dynamically in the light of market developments and,, if necessary, updated based on the developments in the Bank's strategy and risk appetite. ii. Criteria and approach adopted for determining credit risk policy and credit risk limits As part of credit risk management, the Bank's risk management team conducts the functions of identification, measurement, monitoring and controlling of credit risk in line with the structure, size, complexity and growth rate of products and activities and reports the analysis, including stress test, and its results to the Bank's Top Management. In an attempt to prevent significant effects of unfavorable developments in the portfolio subject to credit risk, credit risk level was restricted to the limits in line with the Bank's risk appetite. The limits are revised and, if needed, updated regularly in line with the developments in market conditions, the Bank's strategy and risk appetite. There is a signal and limit structure in place, indicating that credit risk limits are almost reached as a result of internal and external developments. Parameters for signal and limit structure and limit values of parameters are determined by risk management by consulting the relevant units. The approval of Audit Committee and Board of Directors is sought in order to implement parameters and signal/limit threshold values within the Bank. It is ensured that risk signal and limit structure is forwarded to relevant units in the Bank and the structure is understood by the relevant staff. Actual values are monitored closely by the risk management Actual values regarding signal and limit parameters are reported to the Bank's Top Management. iii. Structure and organization of credit risk management and control function The Bank's internal system units consist of the Inspection Board Presidency, Internal Control and Compliance Presidency and Risk Management Group Presidency. Credit risk management is one of the four services under the Risk Management Group Presidency. Activities conducted at the credit risk management unit, which is subject to inspection and controlling activities periodically, aim to establish and maintain a credit risk management infrastructure that is structured enough to meet legal obligations and flexible enough to accommodate the best practices. Accordingly, capital amount that should be reserved for credit risk is calculated; risk mitigation techniques are implemented; stress tests are conducted; credit risk signal and limit structures are monitored; activities are conducted to calculate credit risk with advanced methods and developments that may affect the Bank's credit risk are monitored. Analyses conducted are reported to the Top Management and relevant units periodically. iv. Relationship between credit risk management, risk control, legal compliance and internal audit functions Risk Management Group Presidency goes through inspection and control activities periodically. In case of any findings, they are reported and required activities are performed. Furthermore, inspection and control units involve in the process also for the ICAAP activities that constitute a significant part of risk management activities. Accordingly, ICAAP analyses and activities are validated by Internal Control and Compliance Group Presidency that reports to the Audit Commission independent from the team that develops and implements the methodology of the ICAAP analyses. The same team issues a Validation Report as well. The entire ICAAP process is subject to an inspection by the Inspection Board Presidency and reported through Examination Report issued. 64 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) v. Scope and main content for reporting to top management and board members on credit risk management function and credit risk exposed It is essential to inform the Bank's Top Management about developments in credit risk management and results of the analysis and activities conducted in order to achieve efficiency in risk management. Accordingly, a reporting system for informing the Bank's Top Management on credit risk management is established and required measures are taken for healthy functioning of the system. Informing process as part of reporting should be based on the most current data available on a periodical basis. Reports issued contain, at a minimum, information on risk amount and development, legal capital requirement, stress test analysis results, effect of such results on capital adequacy level, realization level of risk limits and limitations and assumptions of risk measurement method used. b) Credit Quality of Assets Allowances/amortisation Defaulted Non-defaulted and impairments Net values Loans 4.380.490 243.822.896 4.129.041 244.074.345 Debt Securities - 71.673.528 2.030.828 69.642.700 Off-balance Sheet Exposure - 106.427.839 150.916 106.276.923 Total 4.380.490 421.924.263 6.310.785 419.993.968 c) Changes in the Defaulted Receivables and Debt Instruments 1 Defaulted loans and debt securities at end of the previous reporting period 3.222.700 2 Loans and debt securities that have defaulted since the last reporting period 2.547.336 3 Receivables back to non-defaulted status 245.111 4 Amounts written off - 5 Other changes (1.634.657) 6 Defaulted loans and debt securities at end of the reporting period (1+2-3-4±5) definitions 4.380.490 d) Additional explanations on credit quality of assets i. Differences between definitions and explanations of "deferred" receivables and receivables for which "provision was allocated", and definitions of "deferred" and "provision of allocation", if any The Bank classifies its credits and other receivables and allocates specific and general provisions pursuant to the "Communiqué on Methods and Principles for Determining the Nature of Loans and Other Receivables and Allocation of Provisions” published in the Official Gazette no. 26333 dated 1 November 2006. The term "deferred receivables" is used for credits named "Loans under Close Monitoring" whose maturity is deferred for up to 90 days as of the end of period without any impairments as well as for credits named "Non-performing Loans" whose maturity is deferred for more than 90 days or subject to impairment. In practice, the Bank sets general provisions for credits classified as "Standard Credits" and "Under Close Monitoring" and specific provisions for credits classified as "Non-performing Loans". ii. The portion that is not considered within the scope of "allocation of provision" among deferred receivables (over 90 days) and reasons for this practice The Bank transfers credits whose maturity is deferred for more than 90 days automatically to monitoring accounts pursuant to the classification provisions of Regulation on Provisions, and allocates provision of respective class; whereas it does not allocate specific or general provisions for fund-based credits classified as "Non-performing Loans" pursuant to Article 13 "Exceptions" of the Regulation on Provisions as the relevant risk is not assumed by the Bank. 65 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) iii. Definitions of methods used for determining provision amount Pursuant to provisions of the Regulation on Provisions, the Bank allocates a General Provision of at least one percent (1%) of total standard cash loans and at least two percent (2%) of total cash loans under close monitoring (deferred for less than 90 days) and it calculates general provision by applying general provision rates applicable to cash loans (e.g. 1% for standard loans and 2% for loans under close monitoring) over risk amount calculated pursuant to the provisions of "Communiqué on Measurement and Assessment of Capital Adequacy of Banks" for non-cash loans, commitments and derivative financial instruments. While it is determined in the Regulation on Provisions that specific provision of at least 20%, 50% and 100% must be allocated for loans in groups 3, 4 and 5, respectively, which are classified as non-performing loans (deferred for more than 90 days), a specific provision of 100% is allocated for all loans under follow-up groups of receivables, regardless of their collaterals, pursuant to the precautionary principle. iv. Definitions of restructured receivables Real/legal persons using credit may, from time to time, face usual risks of business life such as failure to include the excessive cost increases in sales prices, loss of market share and turnover, unexpected expenses, problems in collection of receivables due to some factors that are beyond reasonable control of its own businesses or other businesses worked with. They may therefore have temporary liquidity difficulties. It involves setting new loan repayment maturities in line with cash flows for businesses which have no significant problem in credit worthiness and sustain their income-generating activities but fail, or priorly imply failure, to make their loan repayment in a timely manner due to temporary liquidity problems. v. Breakdown of receivables by geographic regions, sectors and remaining maturity; receivable amounts subject to allocation of provision by geographic regions and sectors and their respective provisions; amounts removed from the assets Loans and Loans under Follow- Receivables up Specific Provisions Total Domestic 226.498.658 4.176.355 3.924.906 226.750.107 EU Countries 138.388 12.431 12.431 138.388 USA, Canada 27.793 193 193 27.793 OECD Countries - - - - Off-shore banking region 7.260 - - 7.260 Other Foreign Countries 5.719.987 28.118 28.118 5.719.987 Total 232.392.086 4.217.097 3.965.648 232.643.535 Loans and Loans under Follow- Receivables up Specific Provisions Total Agriculture 49.899.581 644.185 399.592 50.144.174 Farming and Stockbreeding 49.295.582 636.678 392.085 49.540.175 Forestry 352.602 3.611 3.611 352.602 Fishing 251.397 3.896 3.896 251.397 Manufacturing 45.794.478 744.282 744.282 45.794.478 Mining and Quarrying 4.385.467 17.200 17.200 4.385.467 Production 29.499.936 711.979 711.979 29.499.936 Electric, Gas and Water 11.909.075 15.103 15.103 11.909.075 Construction 13.310.680 923.605 916.944 13.317.341 Services 52.206.098 979.194 979.194 52.206.098 Wholesale and Retail Trade 20.685.712 802.160 802.160 20.685.712 Hotel Food and Beverage Services 3.899.201 36.062 36.062 3.899.201 Transportation and Telecommunication 7.325.692 45.853 45.853 7.325.692 Financial Institutions 5.533.523 1.605 1.605 5.533.523 Real Estate and Leasing Services 13.438.275 66.572 66.572 13.438.275 Self Employment Services - - - - Education Services 388.039 13.666 13.666 388.039 Health and Social Services 935.656 13.276 13.276 935.656 Other 71.181.249 925.831 925.636 71.181.444 Total 232.392.086 4.217.097 3.965.648 232.643.535 66 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) Up to 1 3-12 Over 5 Non- Demand Month 1-3 Months Months 1-5 Years Years distributable Total Current Period Loans Granted - 8.685.180 16.150.787 87.914.227 94.336.198 25.305.694 251.449 232.643.535 vi. Aging analysis for deferred receivables The Aging Analysis regarding the loans which are overdue but yet have not lost its value has been presented below; Current Period Up to 1 Month 1-2 Months 2-3 Months Total Loans and Receivables (1) Corporate/Entrepreneur Loans 366.221 51.043 82.207 499.471 Retail Loans 41.679 9.335 4.355 55.369 Directed Loans 346.390 44.254 21.789 412.433 Total 754.290 104.632 108.351 967.273 (1) The amounts in the table are the installment amounts due for installment loans and the overdue principal amounts for other loans and the sum of remaining principal amounts of installment loans is 3.484.322 TL. vii. Breakdown of restructured receivables by allocation of provision Out of the Bank's total restructured loans amounting to TL 8.312.683, a portion of TL 8.112.945 consists of performing loans and remaining portion of TL 199.738 consists of non-performing loans. While the specific provision allocated for non-performing loans amounts to TL 199.567, no specific provision was allocated for non- performing loans of TL 171, whose risk is not assumed by the Bank. 2) Credit risk mitigation a) Qualitative requirements to be disclosed to public regarding credit risk mitigation techniques i. Basic characteristics of policies and processes on the extent of utilization of on-balance sheet and off- balance sheet netting The practice of on-balance sheet and off-balance sheet netting is not used while mitigating credit risk within the Bank. b) Credit risk mitigation techniques - Overview Unsecured Collateralized Collateralized receivables: portions of portions of Amount Collateralized Receivables receivables Receivables receivables assessed Receivables portions of protected by protected by protected by protected by pursuant to secured by collateralized financial financial credit credit TAS guarantee receivables guarantees guarantees derivatives derivatives Loans 236.237.231 6.943.684 1.220.992 893.430 610.373 - - Debt instruments 69.642.700 - - - - - - Total 305.879.931 6.943.684 1.220.992 893.430 610.373 - - Default 4.380.490 - - - - - - 67 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) 3) Credit risk if standard approach is used a) Qualitative explanations on ratings used by the banks while calculating credit risk with standard approach i. Names of Credit Rating Agencies (CRA) and Export Rating Agencies (ERA) used by the Bank and the reasons in case of any change during the reporting period The Bank uses ratings of Fitch Ratings International Rating Agency while calculating the amount subject to credit risk through standard approach. ii. Risk classes using CRA and ERA ratings Grades of Fitch Ratings International Rating Agency are used for receivables from central government and central bank of our country as well as for foreign-based counter parties. Resident counter parties are accepted as “gradeless” and take risk weight appropriate for “gradeless” category in relevant risk class. Rating grades are used in risk classes of Receivables from Central Governments or Central Banks and Receivables from Banks and Brokerage Houses. iii. Explanation on how credit rating of debtor is used for other assets of debtor in banking accounts For determination of risk weight regarding items included in banking accounts which are subject to issue or issuer rating, issue rating is considered first, and issuer’s credit rating is considered in the absence of issue rating. While the rating assigned by Fitch Ratings International Rating Agency corresponds to credit quality level 3 in the risk class "Receivables from Central Governments or Central Banks", ratings used for the risk class "Receivables from Banks and Brokerage Houses" match with different credit quality levels. iv. Matching rating grades on the basis of risk Rating grade assigned by a credit rating agency that is not listed in the BRSA's matching table is not used in calculations. 68 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) b) Standardised approach – Credit risk exposure and credit risk mitigation (CRM) effects: The credit conversion rate The credit conversion rate and the credit amount before and the credit amount after Risk weighted amount and the credit risk mitigation the credit risk mitigation risk weighted amount density Risk Risk Weighted Weighted Average Balance Off-balance Balance Off-balance Average amount Risk classes sheet amount sheet amount sheet amount sheet amount amount density Exposures to sovereigns and their central banks 83.148.313 791.707 88.906.802 378.405 25.092.503 28,1% Exposures to regional and local governments 527.036 232.722 484.507 84.127 277.773 48,8% Exposures to administrative bodies and non-commercial entities 185.075 811.560 379.175 378.764 713.770 94,2% Exposures to multilateral development banks - - - - - - Exposures to international organizations - - - - - - Exposures to banks and brokerage houses 56.729.936 8.479.170 57.091.786 4.526.087 7.804.404 12,7% Exposures to corporates 109.583.886 74.513.827 103.409.641 37.260.183 137.980.703 98,1% Retail exposures 88.375.184 19.755.873 88.280.224 2.917.439 67.916.302 74,5% Exposures secured by residential property 27.200.877 111.527 27.200.877 55.764 9.543.770 35,0% Exposures secured by commercial property 9.458.822 420.049 9.456.125 215.932 4.898.303 50,6% Past-due items - - - - - - Exposures in high-risk categories 308.898 119.744 308.890 19.795 492.014 149,7% Exposures in the form of bonds secured by mortgages - - - - - - Short term exposures to banks, brokerage houses and corporates - - - - - - Exposures in the form of collective investment undertakings 1.667.356 47.437 1.667.356 23.081 1.686.718 99,8% Other exposures 18.024.549 - 18.024.549 - 8.544.536 47,4% Equity share investments 124.451 - 124.451 - 124.451 100,0% Total 395.334.383 105.283.616 395.334.383 45.859.577 265.075.247 60,1% 69 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) c) Standard Approach: Receivables related with Risk Classes and Risk Weights 35% 50% Total risk secured by secured by amount property property (post-CCF Risk Classes/ Risk Weight 0% 10% 20% mortgage mortgage 50% (*) 75% 100% 150% 200% Diğerleri and CRM) Exposures to sovereigns and their central banks 39.856.047 - 14.761 - - 48.649.697 - 764.702 - - - 89.285.207 Exposures to regional and local government 32.187 - 34 - - 517.294 - 19.119 - - - 568.634 Exposures to administrative bodies and non- commercial entities 43.756 - 516 - - - - 713.667 - - - 757.939 Exposures to multilateral development banks - - - - - - - - - - - - Exposures to international organizations - - - - - - - - - - - - Exposures to banks and brokerage houses 40.681.369 - 9.539.932 - - 11.000.308 - 396.264 - - - 61.617.873 Exposures to corporates 116.002 - 1.395.093 - - 2.914.090 - 136.244.639 - - - 140.669.824 Retail exposures 511.274 - 175.558 - - 7.730 90.503.101 - - - - 91.197.663 Exposures secured by residential property 6.594 - 951 27.239.255 - - - 9.841 - - - 27.256.641 Exposures secured by commercial property 4.389 - 3.037 - 9.533.871 - - 130.760 - - - 9.672.057 Past-due items - - - - - - - - - - - - Exposures in high-risk categories 632 - 41 - - - - 23 327.989 - - 328.685 Exposures in the form of bonds secured by mortgages - - - - - - - - - - - - Short term exposures to banks, brokerage houses and corporates - - - - - - - - - - - - Exposures in the form of collective investment undertakings 3.718 - - - - - - 1.686.719 - - - 1.690.437 Equity share investments - - - - - - - 124.451 - - - 124.451 Other exposures 9.476.992 - 3.779 - - - - 8.543.778 - - - 18.024.549 Total 90.732.960 - 11.133.702 27.239.255 9.533.871 63.089.119 90.503.101 148.633.963 327.989 - - 441.193.960 (*) “Demonstrates all receivables that are consisting of 50% risk weighted and out of the line “Exposures secured by commercial property. 70 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) 4) Credit risk under Internal Ratings-Based (IRB) Approach Standard approach is used in the Bank's credit risk calculations. 3. Counter Party Credit Risk Explanations a) Qualitative explanations on counter party credit risk i. Risk management goals and policies for CCR As part of the Bank's counter party credit risk management, the functions of identification, measurement, monitoring and controlling of counter party credit risk are conducted in line with the structure, size, complexity and growth rate of products and activities, and the analysis, including stress test, and its results are reported to the Top Management. As part of capital adequacy ratio calculations, activities for counter party credit risk are an integral part of planning, monitoring and controlling of total risk profile, and counter party credit risk management is integrated to periodic risk management process. In the scope of counter party risk management, it is aimed to meet legal obligations and to establish and maintain counter party credit risk management infrastructure that is flexible and structured enough to accommodate the best practices. Accordingly, it is planned to conduct stress test activities, improve counter party credit risk signal and limit structure and conduct relevant monitoring function. ii. Operational limit allocation method specified in the scope of internal capital calculated for CCR and CCP risks Critical thresholds (signal and limit values) indicating that limits are approached due to internal or external developments have been identified. In the event that these values are approached or exceeded, relevant units take required actions. Parameters for signal and limit structure and limit values of parameters are determined by consulting the relevant units and implemented at the Bank upon approval of the Audit Committee and Board of Directors. Internal limits are determined by considering the Bank's budget, strategy and expectations for upcoming years, developments in Turkey and abroad, and historical realization of risks. iii. Policies for establishing guarantee and other risk mitigation and CCR, including CCP risk In an attempt to identify the counter party credit risk that the Bank may face, risk measurement and monitoring activities are performed and their results are considered in strategic decision-making process. Our risk management structure involves activities to ensure that counter party credit risk measurement system functions and is maintained in line with the best practices, legal regulations, fields of activity and product ranges in a consistent, reliable and integrated way. As part of counter party credit risk management, stress test scenarios were created by anticipating any unfavorable developments in macroeconomic conditions and the Bank's balance sheet. Results of stress test analysis are considered while establishing risk management policies. 71 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) Amount subject to counter party credit risk is calculated with appraisal method based on its fair value in accordance with the Communiqué on Measurement and Assessment of Capital Adequacy of Banks and provisions in Appendix-2, and reported on a monthly basis. Accordingly, replacement cost and potential counter party credit risk amounts are calculated. Furthermore, capital obligation is also calculated for credit appraisal adjustment for all derivatives. Additionally, compliance of transactions posing counter party credit risk with thresholds within signal and limit structure is monitored and research is conducted for counter party credit risk calculations with advanced methods. iv. Rules for countertrend risk Boasting a strong lending and collateralization structure, the Bank avoids collateralization in positive correlation with the debtor's credibility and activities in connection with risk mitigation techniques are performed by considering qualitative criteria specified in legal legislation for calculation of amount subject to credit risk. v. Amount of additional collateral that the Bank must submit in case of a decline in credit rating As the Bank has no transactions in connection with credit rating, there is not any additional collateral amount it must pay. b) Evaluation of counterparty credit risk in accordance with the measurement methods Alpha used for computing Exposure at Potential regulatory default post Replacement future EEPE exposure at Credit Risk Risk weighted cost exposure Amount (*) default Mitigation amounts Valuation Method according to fair value - CCR (for derivatives) 1.561.694 434.662 1.996.356 838.141 Standardised approach - CCR 1 (for derivatives) - - 1,4 - - Internal Model Method (for derivatives, Repo Transactions, Marketable Securities or Commodity 2 lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) - - - - Simple Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable Securities or Commodity 3 lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) 28.145.669 1.635.788 Comprehensive Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable 4 Securities or Commodity lending or borrowing transactions, transactions with a long settlement time, Marketable Security transactions with credit) 2.777.053 828.485 Commodity lending or borrowing transactions, 5 transactions with a long settlement time, Marketable Security transactions with credit - - 6 Total 3.302.414 (*) Effective Expected Positive Exposure c) Consolidated capital requirement for credit valuation adjustment (CVA) Exposure at default post-CRM RWA Total portfolios subject to the Advanced CVA capital charge - - 1 (i) Value at Risk (VaR) component (including the 3×multiplier) - 2 (ii) Stressed VaR component (including the 3×multiplier) - 3 All portfolios subject to the Standardised CVA capital charge 1.996.356 20.833 4 Total subject to the CVA capital charge 1.996.356 20.833 72 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) d) Standard approach - counterparty credit risk by risk classes and risk weights Risk Weight Total credit risk Regulatory portfolio 0% 10% 20% 50% 75% 100% 150% Other exposure (*) Exposures to sovereigns and their central banks 265.289 - - 105.163 - - - - 370.452 Exposures to regional and local governments 5.771 - - 18 - - - - 5.789 Exposures to administrative bodies and non-commercial entities 15.695 - - - - 50 - - 15.745 Exposures to multilateral development banks - - - - - - - - - Exposures to international organizations - - - - - - - - - Exposures to banks and brokerage houses 42.115.329 - 6.404.749 3.758.968 - 781 - - 52.279.827 Exposures to corporates 12.069 - - - - 108.485 - - 120.554 Retail exposures 10.558 - - - 1.211 - - - 11.769 Exposures secured by residential property - - - - - - - - - Past-due items - - - - - - - - - Exposures in high-risk categories - - - - - - - - - Mortgage securities - - - - - - - - - Securitization positions - - - - - - - - - Short term exposures to banks, brokerage houses and corporates - - - - - - - - - Exposures in the form of collective investment undertakings 3.718 - - - - 11 - - 3.729 Equity share investments - - - - - - - - - Other exposures - - - - - - - - - Other assets (**) - - - - - - - - - Total 42.428.429 - 6.404.749 3.864.149 1.211 109.327 - - 52.807.865 (*) Total credit exposure: the amount relevant for the capital requirements calculation, having applied CRM techniques. (**) Other assets: the amount excludes exposures to “Central counterparty” which are reported in Counterparty credit risk . 73 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) e) Risk Classes and Counterparty Credit Risk Explanations (Internal Rating-Based) None. f) Collaterals for consolidated CCR Collateral for other Collateral for derivative transactions transactions Collateral received collateral given Collateral Segregated Unsegregated Segregated Unsegregated Collateral received given Cash-domestic currency - - - - 31.252.959 - Cash-foreign currency - - - - 13.753.198 - Domestic sovereign debts - - - - 3.081 - Other sovereign debts - - - - 105.100 - Government agency debts - - - - - - Corporate debts - - - - - - Equity securities - - - - - - Other collateral - - - - - - Total - - - - 45.114.338 - g) Credit Derivatives None. h) Risk Weight changes under CCR on the Internal Modeling Management Methods. None. i) Exposures to central counterparties (CCP): None. 4. Explanations on Securitization Disclosures None. 5. Market Risk Explanations a) Qualitative information to be disclosed to public on market risk i. The Bank's process and strategies: A disclosure on the Bank's strategic goals for trading activities is made in a manner that includes processes for identification, measurement, monitoring and controlling of the Bank's market risks, hedging processes and strategies/processes for monitoring continuity of hedging efficiency For the purposes of market risk aversion in line with financial risk management, the Bank has identified market risk management activities in accordance with the Communiqué on Measurement and Assessment of Capital Adequacy of Banks and the Regulation on the Internal Systems and Internal Capital Adequacy Assessment Processes of Banks and has taken required precautions. The Bank's market risk management policies and implementation procedures have been specified in the scope of the Regulation on Risk Management, Stress Test Program and ICAAP approved by the Board of Directors. The Bank ensures that measurement, monitoring, limiting, stress test and scenario analysis activities are conducted in line with the structure and complexity of its positions for market risk management and their results are reported periodically. Activities sustained are conducted over a trading portfolio specified by the Bank's Treasury Management and other activities subject to market risk. 74 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) The amount subject to market risk is calculated and monitored with standard method and advanced measurement method at the Bank. Furthermore, scenario analysis and stress tests are also conducted periodically. ii. Organization and structure of market risk management function: Definition of market risk management structure established for implementation of the Bank's strategies and processes as mentioned in line "i)" and definition of communication mechanism and relationship between different parties involved in market risk management Market risk management is a subunit of Risk Management Group Presidency, one of internal systems units established independently from executive units of the Bank. Market risk management activities are conducted in line with the Regulation on Risk Management, Stress Test Program and ICAAP approved with the Board Decision no. 15/18 dated 28 April 2015 and performed by aiming the best practices in this structure. The Bank's trading activities and transactions subject to market risk are monitored and measured regularly, and required practices are performed for risk management. Required reports on market risk are submitted to relevant units and the Bank's Top Management regularly. iii. Structure and scope of risk reporting and/or measurement systems The amount subject to the Bank's market risk is calculated on a monthly basis with the standard method and included in the Bank's capital adequacy ratio. Apart from the standard method, Value at Risk (VaR) estimations are made for trading accounts on a daily basis and reported to relevant units. VaR calculated with Historical Simulation Method is used in daily reporting and limit measurement with a confidence level of 99%. VaR can be calculated with Parametric and Monte Carlo Methods in addition to Historical Simulation Method. Backward testing is performed so as to measure performance of used model and monitor market realization. Also, the Bank performs stress tests and scenario analyses on a daily and monthly basis so as to observe the effect of excessive market fluctuations that are not covered in the models on the Bank’s financial position. Scenario analysis and stress test activities are audited and improved regularly in line with the market dynamics. The market risk exposure is restricted with VaR-based limits (interest rate and currency risk limit) within the context of the Regulation on Risk Management, Stress Test Program and ICAAP. Market risk limits are determined by the Bank's Board of Directors. c) Standardised Approach Risk Weighted Amount Outright products 1 Interest rate risk (general and specific) 12.242.337 2 Equity risk (general and specific) 1.050.625 3 Foreign exchange risk 2.065.813 4 Commodity Risk - Options 5 Simplified Approach - 6 Delta-plus method - 7 Scenario approach - 8 Securitisation - 9 Total 15.358.775 75 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) IX. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT(Continued) 6. Explanations on the Operational Risk In the Bank, Amount subject to Operational Risk is calculated with Basic Indicator Approach based on yearly. The parameter which determines the amount subject to operational risk in Basic Indicator Approach is gross revenue. Yearly gross revenue is calculated by adding net interest incomes to net fees and commission income, dividend income obtained from shares excluding shares of subsidiaries and associates, trading profit/loss (net) and other operating incomes and also by deducting profit/loss gained from sale of assets monitored out of purchase-sale account, extraordinary incomes, operating expense made against support service and amounts compensated from insurance. Within the scope of the performances for modeling with the Advanced Measurement Approach of operational risk, based on the data in Operational Risk Loss database, Operational Value at Risk (OpVAR) measurements are calculated using Monte Carlo Simulation within the scope of Loss Distribution Method. Total/Pozitive GI Ratio 31.12.2013 31.12.2014 31.12.2015 year number (%) Total Gross income 9.832.553 10.313.730 12.685.346 10.943.876 15 1.641.581 Amount subject to Operational Risk 20.519.768 7. Explanations on the Interest Rate Risk for Banking Accounts Banking accounts interest rate risk management strategy policy and implementation procedures are determined within the context of “Regulation on Risk Management, Stress Test Program and the Bank’s Internal Capital Adequacy Assessment Process (“ICAAP”)”. Bank performs scenario analysis with measurements that are suitable for structure and complexness of positions related to the market risk management, limiting, scenario analysis and stress test and also reports the findings cyclically. Bank’s perform analysis related to interest rate risks for the entire balance sheet. New products and services are also evaluated from the point of interest rate risk that is originated from banking accounts. In the risk management, the following methods are followed at minimum level: The follow-up of rate and maturity mismatch between sources and uses of fixed and variable interest rates, the analysis and follow-up of the effects of the usual and unusual changes in interest rates which is possibly uptrend and downtrend on the interest margin and on the current value of assets and liabilities, the analysis and follow-up of contractual maturities as well as behavioral maturities assets and liabilities, monitoring closely of interest margins for provided Turkish Liras and foreign currency, the follow-up of the effects of interest rate changes on Bank’s economic value and capital requirement, the follow-up of potential impacts of valuation methods, the calculation and the determination of the size of interest rate shock in Bank's internal applications, the follow-up of yield curve, basis risk and option risk. Also, in order to limit the impact of interest rate changes on Bank’s financial structure, the interest rate risk limit arising from banking accounts which is approved by the Board of Directors is followed monthly. Applied Shock (+/-x basis Gains/ Shareholders’ Equity- Currency points) Gains/ Losses Losses/ Shareholders’ Equity 1. TL 500 (5.973.447) (14,55%) 2. TL (400) 5.897.170 14,36% 3. EURO 200 100.055 0,24% 4. EURO (200) (65.175) (0,16%) 5. USD 200 (1.075.912) (2,62%) 6. USD (200) 1.337.975 3,26% Total (for negative shocks) 7.169.970 17,46% Total (for positive shocks) (6.949.304) (16,92%) 76 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) X. EXPLANATIONS ON CONSOLIDATED OPERATING SEGMENTS Organizational and internal reporting structure of the Group is determined in line with TFRS 8 “Turkish Accounting Standard about Operating Segments”. The Bank is operating in consumer banking, corporate and entrepreneurial banking, specialized banking, investment banking and international banking areas. Known as having the most extensive branch network in retail (consumer) banking sector, the Parent Bank renders services, such as; deposits, consumer loans, loans originated from funds whose risk does not belong to the Bank, credit cards, automatic payment, cheques and notes, money transfer order, foreign exchange transactions, internet banking, mobile banking, safe-deposit box and insurance brokerage services. Moreover, existing instruments are improved and new banking instruments are created in order to benefit from services undertaken as being a state bank in increasing the profitability of the Parent Bank. By “Finart” system, which is working in a centralized manner, the Parent Bank has the technical infrastructure required by modern banking sector to meet its clients’ needs. In the context of corporate and entrepreneurial banking, the Group gives loans for operations, mid-term and long- term investment loans, foreign trade financing loans, letter of credits and guarantees in Turkish Lira and foreign currencies; renders project financing, other corporate finance related services, foreign exchange transactions and banking services to large-scale corporate clients and middle-small scale enterprises. As the Parent Bank is the main financial institution that meets the financing needs of agricultural sector in Turkey, it extends agricultural operations and investment loans from its own sources for vegetable and animal production, fishery products and agricultural mechanization directly to producers and The Central Union of Turkish Agricultural Credit Cooperatives. Besides, it gives support to entities and enterprises having operations in agricultural sector by acting as an intermediary for loans originated from funds. Treasury transactions and international banking activities; national and international organisation, over-the-counter money, spot and forward Turkish Lira, foreign currency, precious metal, securities, trading of derivative instruments are executed by Treasury Management and International Banking Assistant General Management. Furthermore, bank’s liquidity, securities, deposits and non-deposit equity management activities are carried out. Besides, studies are being conducted to present and market treasury products to our customers in our branches and distribution channels and finance of companies’ foreign trade transactions. By the aut hority of the Service Unit, for the trade of the securities, the mercantile agent of Ziraat Yatırım Menkul Değerler A.Ş undertaken an intermediary role for the public offering of securities and also an intermediary role for the trade of the investment funds managed by Ziraat Portföy Yönetimi A.Ş. and the other asset management firms. The recognition, storage of the mentioned financial derivatives and individual portfolio management services are provided by the discussed subdivision of the Parent Bank. On the other hand, to provide long term financing for the banks and the international finance organizations and diversify the methods of financing on this direction to issue domestic and foreign T-bills and government bonds and as well as to sustain corresponding bank relations and the relation of our Bank with the international investors is on the objectives of the Service Unit. Besides, the Parent Bank has commission revenue from insurance and other finance institutions by rendering agency services through its branches. As of 31 December 2016, explanations on segment reporting as shown on the following page are in line with Communiqué on “Financial Statements to be Publicly Announced and the Accompanying Policies and Disclosures”. 77 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) X. EXPLANATIONS ON CONSOLIDATED OPERATING SEGMENTS (Continued) Table for Segment Reporting: Corporate/ Treasury/ Current Period Retail Entrepreneuri Specialized Investment Consolidation Other/ 31 December 2016 Banking al Banking Banking Banking Correction Undistributed Total OPERATING INCOME/EXPENSE Interest Income 6.926.242 10.029.557 4.629.522 6.303.425 - 357.121 28.245.867 Interest Income from Loans 6.926.242 9.979.925 4.629.507 525.514 - 26.091 22.087.279 Interest Income from Banks - 48.786 - 67.023 - 104.849 220.658 Interest Income from Securities - 846 - 5.515.852 - 11.047 5.527.745 Other Interest Income - - 15 195.036 - 215.134 410.185 Interest Expense 6.594.586 3.039.158 - 3.827.398 - 110.159 13.571.301 Interest Expense on Deposits 6.594.586 3.031.889 - 429.875 - 2.226 10.058.576 Interest Expense on Funds Borrowed - 7.127 - 482.575 - 38.010 527.712 Interest Expense on Money Market Transactions - - - 2.532.649 - 4 2.532.653 Interest Expense on Securities Issued - - - 382.299 - 15.222 397.521 Other Interest Expense - 142 - - - 54.697 54.839 Net Interest Income/Expense 331.656 6.990.399 4.629.522 2.476.027 - 246.962 14.674.566 Net Fees and Commission Income/Expense 1.063.047 404.876 105.147 (243.219) - 186.716 1.516.567 Fees and Commissions Received 1.063.047 411.353 105.147 4.128 - 290.732 1.874.407 Fees and Commissions Paid - 6.477 - 247.347 - 104.016 357.840 Dividend Income - - - 259.184 (231.293) 5.010 32.901 Trading Income/Loss (Net) - 12.698 - (180.806) - (1.885) (169.993) Other Operating Income 35.620 304.484 34.836 - - 2.852.647 3.227.587 Provision for Loans or Other Receivables Losses 958.623 1.829.617 693.715 119 (924) 95.102 3.576.252 Other Operating Expense 76.486 297.851 49.083 - (1.351) 6.265.758 6.687.827 Income Before Tax 395.214 5.584.989 4.026.707 2.311.067 (229.018) (3.071.410) 9.017.549 Profit/Loss on Equity Method - - - - - 21.914 21.914 Tax Provision - - - - - (2.154.328) (2.154.328) Net Profit/Loss 395.214 5.584.989 4.026.707 2.311.067 (229.018) (5.203.824) 6.885.135 SEGMENT ASSETS Financial Assets at FV Through P/L - 9.042 - 1.684.798 - 25.731 1.719.571 Banks and Other Financial Institutions - 767.830 - 2.904.692 - 900.488 4.573.010 Financial Assets Available for Sale (Net) - - - 59.119.312 147 8.755 59.128.214 Loans 63.876.189 122.691.522 46.461.974 10.701.124 - 343.536 244.074.345 Held to Maturity Investments (Net) - 15.975 - 8.749.464 - 29.476 8.794.915 Associates, Subsidiaries and Joint Ventures - 951 - 4.311.740 (4.125.232) 26.989 214.448 Other Assets - 247.399 - - (6.135) 53.136.158 53.377.422 Total Segment Assets 63.876.189 123.732.719 46.461.974 87.471.130 (4.131.220) 54.471.133 371.881.925 SEGMENT LIABILITIES Deposits 157.246.729 60.890.317 10.183 13.325.891 - 1.438.873 232.911.993 Derivative Financial Liabilities Held for Trading - - - 642.476 - 10.889 653.365 Funds Borrowed - 16.458 - 23.459.531 - 950.540 24.426.529 Money Market Funds - - - 47.345.629 - - 47.345.629 Securities Issued (Net) - 4.469 - 6.934.460 - 131.822 7.070.751 Provisions 824 22.114 - - 22.628 7.493.095 7.538.661 Other Liabilities - 38.425 - - (6.135) 12.990.910 13.023.200 Shareholders’ Equity - 252.276 - - (4.147.715) 42.807.236 38.911.797 Total Segment Liabilities 157.247.553 61.224.059 10.183 91.707.987 (4.131.222) 65.823.365 371.881.925 OTHER SEGMENT ITEMS Capital Investment - - - - - - - Amortization Expense - - - - - 376.382 376.382 Restructuring Costs - - - - - - - 78 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) X. EXPLANATIONS ON CONSOLIDATED OPERATING SEGMENTS (Continued) Corporate/ Treasury/ Prior Period Retail Entrepreneurial Specialized Investment Consolidation Other/ Banking Banking Banking Banking Correction Undistributed Total OPERATING INCOME/EXPENSE 31 December 2015 Interest Income 5.775.959 7.143.107 3.481.380 5.858.253 - 393.416 22.652.115 Interest Income from Loans 5.775.959 7.097.986 3.481.380 524.564 - 33.542 16.913.431 Interest Income from Banks - 39.267 - 53.007 - 90.749 183.023 Interest Income from Securities - 2.183 - 5.220.380 - 25.159 5.247.722 Other Interest Income - 3.671 - 60.302 - 243.966 307.939 Interest Expense 5.716.499 2.558.280 - 3.237.389 - 114.818 11.626.986 Interest Expense on Deposits 5.716.499 2.556.806 - 425.029 - 2.563 8.700.897 Interest Expense on Funds Borrowed - - 403.384 - 38.040 441.424 Interest Expense on Money Market Transactions - 736 - 2.127.843 - 20 2.128.599 Interest Expense on Securities Issued - - - 281.133 - 13.426 294.559 Other Interest Expense - 738 - - - 60.769 61.507 Net Interest Income/Expense 59.460 4.584.827 3.481.380 2.620.864 - 278.598 11.025.129 Net Fees and Commission Income/Expense 815.605 327.037 79.035 (191.825) - 200.424 1.230.276 Fees and Commissions Received 815.605 327.941 79.035 5.275 - 333.526 1.561.382 Fees and Commissions Paid 904 197.100 - 133.102 331.106 Dividend Income - - - 213.056 (208.673) 2.036 6.419 Trading Income/Loss (Net) 185 9.623 - (162.541) - 11.016 (141.717) Other Operating Income 24.519 247.764 47.778 3.731 - 2.110.114 2.433.906 Provision for Loans or Other Receivables Losses 402.157 776.519 295.903 1.715 5.026 65.951 1.547.271 Other Operating Expense 45.338 220.676 35.715 - (142) 5.845.197 6.146.784 Income Before Tax 452.274 4.172.056 3.276.575 2.481.570 (213.557) (3.308.960) 6.859.958 Profit/Loss on Equity Method - - - - - 28.025 28.025 Tax Provision - - - - (1.510.009) (1.510.009) Net Profit/Loss 452.274 4.172.056 3.276.575 2.481.570 (213.557) (4.790.944) 5.377.974 SEGMENT ASSETS 31 December 2015 Financial Assets at FV Through P/L - - - 945.774 - 26.492 972.266 Banks and Other Financial Institutions - 378.545 - 3.297.543 - 1.405.776 5.081.864 Financial Assets Available for Sale (Net) - 36.360 - 53.948.118 148 52.312 54.036.938 Loans 51.214.922 95.157.671 37.676.823 8.190.770 - 268.210 192.508.396 Held to Maturity Investments (Net) - 13.407 - 10.144.142 - 65.926 10.223.475 Associates, Subsidiaries and Joint Ventures - 817 - 2.655.366 (2.495.396) 25.282 186.069 Other Assets - 197.145 - - (2.537) 47.064.202 47.258.810 Total Segment Assets 51.214.922 95.783.945 37.676.823 79.181.713 (2.497.785) 48.908.200 310.267.818 SEGMENT LIABILITIES 31 December 2015 Deposits 137.600.974 41.269.946 - 10.828.741 - 1.220.436 190.920.097 Derivative Financial Liabilities Held for Trading - - - 290.275 - 9.907 300.182 Funds Borrowed - 43.305 - 19.463.588 - 1.280.510 20.787.403 Money Market Funds - - - 43.134.312 - - 43.134.312 Securities Issued (Net) - - - 5.287.606 - 131.791 5.419.397 Provisions - 14.470 - - 23.552 6.327.715 6.365.737 Other Liabilities - 19.556 - - (2.537) 11.570.729 11.587.748 Shareholders’ Equity - 235.617 - - (2.518.802) 34.036.127 31.752.942 Total Segment Liabilities 137.600.974 41.582.894 - 79.004.522 (2.497.787) 54.577.215 310.267.818 OTHER SEGMENT ITEMS Capital Investment - - - - - - - Amortization Expense - - - - - 333.360 333.360 Restructuring Costs - - - - - - - 79 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) XI. EXPLANATIONS RELATED TO PRESENTATION OF FINANCIAL ASSETS AND LIABILITIES AT THEIR FAIR VALUES a) Information regarding the fair value of financial assets and liabilities: Book Value Fair Value Current Period Prior Period Current Period Prior Period Financial Assets 316.570.484 261.850.673 316.981.873 262.357.027 Due from Interbank Money Market 252.944 116.173 252.944 116.173 Banks 4.320.066 4.965.691 4.320.066 4.965.691 Available-for-Sale Financial Assets 59.128.214 54.036.938 59.128.214 54.036.938 Held-to-Maturity Investments 8.794.915 10.223.475 9.206.304 10.729.829 Loans 244.074.345 192.508.396 244.074.345 192.508.396 Financial Liabilities 266.976.174 219.506.033 266.976.174 219.506.033 Bank Deposits 11.975.932 9.686.885 11.975.932 9.686.885 Other Deposits 220.936.061 181.233.212 220.936.061 181.233.212 Funds Borrowed from Other Financial Institutions 24.426.529 20.787.403 24.426.529 20.787.403 Issued Marketable Securities 7.070.751 5.419.397 7.070.751 5.419.397 Miscellaneous Payables 2.566.901 2.379.136 2.566.901 2.379.136 Receivables from money markets, receivables from banks and bank deposits are of short term nature, therefore carrying values are considered as fair value. In determination of book and fair value of available-for-sale securities, market prices are taken into consideration. If these securities are not traded in an active market, the indicator prices calculated by CBRT are taken into account. The fair value of held to maturity financial assets is calculated by considering market prices. In cases where these prices cannot be determined, the fair value is assessed on the basis of market prices quoted for securities that have the same attributes in terms of interest, maturity and other terms. The fair value of loans and other deposits represent the sum of the cost and the accrued interest. a) Information on fair value measurements recognized in the financial statements: According to TFRS 7 “Financial Instruments: Explanations” Standard, the accounts recognized with the fair value in the balance sheet should be presented and classified sequentially in the related footnotes. Respectively, such financial instruments are classified in three levels representing the importance of the data used during for the measurement of fair values. At level one, the financial instruments whose fair values are determined with the recorded prices in the active markets for the assets and liabilities with identical fair values; at level two, the financial instruments whose fair value is based on the directly or indirectly observable market indicators and at level three; the financial instruments whose fair value is not based on the directly or indirectly observable market indicators are considered. The financial instruments which are recognized with their fair values at the Parent Bank’s balance sheet, are presented with respect to such basis of classification in the table below: 80 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) XI. EXPLANATIONS RELATED TO PRESENTATION OF FINANCIAL ASSETS AND LIABILITIES AT THEIR FAIR VALUES Current Period Level 1 Level 2 Level 3 Total Financial Assets at Fair Value Through Profit or (Loss) (Net) 52.184 1.667.387 - 1.719.571 Government Debt Securities 40.825 - - 40.825 Share Certificates - - - - Trading Derivative Financial Assets 11.359 1.667.387 - 1.678.746 Hedging Derivative Financial Assets - - - - Other Marketable Securities - - - - Available-for-Sale Financial Assets (Net) 58.518.529 586.499 - 59.105.028 Equity Securities(1) 526.528 99.684 - 626.212 Government Debt Securities 57.900.259 - - 57.900.259 Other Marketable Securities 91.742 486.815 - 578.557 Total Assets 58.570.713 2.253.886 - 60.824.599 Trading Derivative Financial Liabilities 9.737 643.628 - 653.365 Hedging Derivative Financial Liabilities - - - - Total Liabilities 9.737 643.628 - 653.365 (1) Since equity securities under the heading of financial assets available for sale amounting to TL 23.186 are not quoted in an active market, they are presented with their acquisition costs in the financial statements and are not included in the table above Prior Period Level 1 Level 2 Level 3 Total Financial Assets at Fair Value Through Profit or (Loss) (Net) 43.982 928.284 - 972.266 Government Debt Securities 39.408 - - 39.408 Share Certificates 580 - - 580 Trading Derivative Financial Assets 3.994 928.284 - 932.278 Hedging Derivative Financial Assets - - - - Other Marketable Securities - - - - Available-for-Sale Financial Assets (Net) 53.643.249 275.076 95.427 54.013.752 Equity Securities(1) 388.756 101.711 95.028 585.495 Government Debt Securities 53.168.577 - - 53.168.577 Other Marketable Securities 85.916 173.365 399 259.680 Total Assets 53.687.231 1.203.360 95.427 54.986.018 Trading Derivative Financial Liabilities 6.897 293.285 - 300.182 Hedging Derivative Financial Liabilities - - - - Total Liabilities 6.897 293.285 - 300.182 (1) Since equity securities under the heading of financial assets available for sale amounting to TL 23.186 are not quoted in an active market, they are presented with their acquisition costs in the financial statements and are not included in the table above XII. EXPLANATIONS ON THE ACTIVITIES CARRIED OUT ON BEHALF AND ON ACCOUNT OF OTHER PARTIES 1. Transaction, Custody, Management and Consultancy Services of the Parent Bank on behalf of Third Parties: The Parent Bank acts as an intermediary for purchases and sales of government securities on behalf of real persons and corporate, conducts repo transactions, and provides custody services. The Parent Bank does not provide consultancy and management services. 2. Transactions with other financial institutions under fiduciary transaction agreements and financial services rendered to other financial institutions under the scope of fiduciary transactions and the effects of such services to the financial position of the Parent Bank or the Group: The Parent Bank has no fiduciary transactions. 81 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FIVE EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS 1. a) Information on Cash and Balances with Central Bank of the Republic of Turkey: Current Period Prior Period TL FC TL FC Cash in TL/Foreign Currency 1.738.822 1.053.954 1.723.559 853.611 Central Bank of the Republic of Turkey 6.432.150 31.248.539 2.378.666 31.888.236 Other 3.775 168.265 - 90.605 Total 8.174.747 32.470.758 4.102.225 32.832.452 1) Information on Required Reserves: Banks that are established in Turkey or performing their operations by opening new branches in Turkey are subject to Communiqué on Required Reserves of Central Bank of the Re public of Turkey’s numbered 2013/15. Based on accounting standards and registration layout for banks and companies, the items specified within the Communiq ué, except from liabilities to Central Bank, Treasury, Domestic banks, and head offices and branches in Turkey of the banks established by international agreements, constitute required reserves liabilities. As of the balance sheet date, according to CBRT’s Communiqué about Required Reserves No. 2016/4, the required reserves ratios for commercial banks operating in Turkey are as follows: for demand deposits, notice deposits and for deposits up to 1-month maturity, and for deposits up to 3-months maturity 10,5%; for deposits up to 6-months maturity 7,5%; for deposits up to 1-year maturity 5,5%; for deposits 1-year and longer maturity 4%; for TL liabilities other than deposits up to 1-year maturity 10,5%; for TL liabilities other than deposits between 1- and 3-years maturity 7%; for TL liabilities other than deposits more than 3-years maturity 4%; for FC deposit accounts, demand deposits, up to 1-month, up to 3-months, up to 6-months and up to 1-year maturity 12,5%; for FC deposit accounts with 1-year and longer maturity 8,5%, for FC liabilities other than deposits up to 1-year maturity 24,5%; for FC liabilities other than deposits up to 2-years maturity 19,5%,for FC liabilities for FC liabilities other than deposits up to 3-years maturity 14,5%; for FC liabilities other than deposits up to 5-years maturity 6,5% and for FC liabilities other than deposits more than 5-years maturity 4,5%. According to the press release of CBRT held on 21 October 2014, interest payment for Turkish Lira reserve requirement has been commenced from the November 2014 maintenance period. In addition, according to Press Release of CBRT on Remuneration of Foreign Currency Required and Free Reserves numbered 2015/35, the implementation of remuneration for US dollars denominated required reserves, reserve options and free reserves held at CBRT has been started as of 5 May 2015. As of 31 December 2016, total reserve requirement of the Group is TL 37.360.029 including Central Banks abroad (31 December 2015: TL 35.484.883). b) Information on the account of the Central Bank of the Republic of Turkey: Current Period Prior Period TL FC TL FC Unrestricted Demand Deposit 6.332.401 2.254.151 2.310.541 236.684 Unrestricted Time Deposit - 2.312.376 - - Restricted Time Deposit - - - - Required Reserves (1) (2) 99.749 26.682.012 68.125 31.651.552 Total 6.432.150 31.248.539 2.378.666 31.888.236 (1) Required reserve of branches abroad amounting to TL 88.706 is presented in this line (31 December 2015: TL 78.150). (2) TL 12.506.189 of the current period’s FC required reserve is the part of the TL required reserves that are held in FC (31 December 2015: TL 19.082.468). 82 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) 2. a) Information on financial assets at fair value through profit and loss given or blocked as collateral or subject to repurchase agreements: Current Period Prior Period Assets Subject to Repurchase Agreements - - Assets Blocked/Given as Collateral - 3.960 Total - 3.960 b) Positive differences related to the derivative financial assets held-for-trading: Derivative Financial Assets Held-for- Current Period Prior Period Trading TL FC TL FC Forward Transactions 34.505 62.310 26.116 46.643 Swap Transactions 1.161.871 420.018 625.959 233.506 Futures Transactions - - - Options 42 - 9 45 Other - - - - Total 1.196.418 482.328 652.084 280.194 3. a) Information on banks and other financial institutions: Current Period Prior Period TL FC TL FC Banks Domestic Banks 1.515.980 376.346 1.884.201 408.643 Foreign Banks 70.103 2.357.637 27.113 2.645.734 Foreign Head Office and Branches - - - - Total 1.586.083 2.733.983 1.911.314 3.054.377 b) Information on foreign banks accounts: Unrestricted Amount Restricted Amount Current Period Prior Period Current Period Prior Period European Union Countries 932.505 241.995 7.867 9.108 USA, Canada 1.032.444 1.902.409 - 705 OECD Countries (1) 21.643 8.874 - - Off-Shore Banking Regions - - - - Other 431.433 508.885 1.848 871 Total 2.418.025 2.662.163 9.715 10.684 (1) OECD countries except EU countries, USA and Canada. 83 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) 4. a) Explanation regarding to the comparison of net values of financial assets available-for-sale given or blocked as collateral and subject to repurchase agreements: Current Period Prior Period Assets Subject to Repurchase Agreements 41.422.834 40.599.081 Assets Blocked/Given as Collateral 5.879.016 5.251.648 Total 47.301.850 45.850.729 b) Information on financial assets available for sale: Current Period Prior Period Debt Securities 60.472.357 54.745.634 Quoted in Stock Exchange 60.387.940 54.688.171 Not Quoted in Stock Exchange 84.417 57.463 Share Certificates 686.242 635.564 Quoted in Stock Exchange 528.908 483.687 Not Quoted in Stock Exchange 157.334 151.877 Provision for Impairment (-) 2.030.385 1.344.260 Total 59.128.214 54.036.938 5. Information related to loans: a) Information on all types of loans and advances given to shareholders and employees of the Group: Current Period Prior Period Cash Non-Cash Cash Non-Cash Direct Loans Granted to Shareholders - - - - Legal Entities - - - - Individuals - - - - Indirect Loans Granted to Shareholders - 12.654 - 202 Loans Granted to Employees (1) (2) 290.654 155 267.353 132 Total 290.654 12.809 267.353 334 (1) Interest rediscount and interest accrual amounting TL 2.429, are not included in the table above. (2) Since the balance of overdraft accounts related to employees amounting TL 15.257, is showed under Table 5-d as overdraft accounts (real person), it is not included to the table above. 84 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) b) Information on the first and second group loans and other receivables including restructured or rescheduled loans: Standard Loans and Other Receivables Loans and Other Receivables Under Close Monitoring Restructured or Cash Loans Rescheduled Restructured or Rescheduled Loans and other Loans and other Loans and receivables with Loans and receivables with Other revised contract Other revised contract Receivables terms (1) Other Receivables terms Other Non-Specialized Loans 188.599.169 2.920.997 - 1.907.197 1.558.463 - Commercial loans 113.126.539 1.704.312 - 956.828 1.376.911 - Export Loans 3.765.945 - - 39.940 - - Import Loans 412.179 - - 5.335 77 - Loans Given to Financial Sector 7.832.290 - - - - - Consumer Loans 58.924.331 1.216.509 - 844.444 178.997 - Credit Cards 3.360.318 176 - 46.179 2.478 - Other 1.177.567 - - 14.471 - - Specialized Lending (3) (4) 39.785.103 3.310.904 - 663.003 322.932 - Other Receivables - - - - - - Interest Income Accruals (2) 4.755.128 - - - - - Total 233.139.400 6.231.901 - 2.570.200 1.881.395 - (1) Since Restructured or rescheduled loans cannot be decomposed systematically, they have been shown in the “Loans and Other Receivables with Revised Contract Terms” section. (2) Restructured or rescheduled loans and the loans under close monitoring and the distinction of the accrual amounts of other receivables cannot be obtained by the available information operating system. (3) Fund sourced agricultural loans are shown under specialized lending (4) Agriculturally qualified farmer standby loans have been displayed under specialized lending. Loans and Other Receivables Under No. of extensions Standard Loans and Other Receivables Close Monitoring 1 or 2 Times Extended (*) 6.105.364 1.807.552 3 - 4 or 5 Times Extended 126.534 73.126 Over 5 Times Extended 3 717 (*) Number of modification made according to extent of payment plan of individual loans cannot be decomposed systematically therefore it is shown in this line. Loans and Other Receivables Under Extension Periods Standard Loans and Other Receivables Close Monitoring 0 - 6 Months 2.695.049 911.280 6 Months - 12 Months 890.875 155.536 1 - 2 Years 1.976.803 347.178 2 - 5 Years 621.569 445.045 5 Years and Over 47.605 22.356 Total 6.231.901 1.881.395 85 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) c) Loans according to maturity structure: Standard Loans and Other Loans and Other Receivables under Receivables(1) Close Monitoring(1) Loan and Other Restructured or Loan and Other Restructured or Receivables) Rescheduled) Receivables) Rescheduled) Short-Term Loans and Other Receivables 47.425.027 1.672.881 570.303 230.969 Non-Specialized Loans 39.385.795 161.261 487.302 57.003 Specialized Loans 8.039.232 1.511.620 83.001 173.966 Other Receivables - - - - Medium and Long-Term Loans and Other Receivables 180.959.245 4.559.020 1.999.897 1.650.426 Non-Specialized Loans (2) 149.213.374 2.759.736 1.419.895 1.501.460 Specialized Loans 31.745.871 1.799.284 580.002 148.966 Other Receivables - - - - 1) Rediscounts are not included. (2) Agricultural loans originated from funds are shown under Specialized Lending. 86 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) d) Information on consumer loans, individual credit cards and personnel loans and personnel credit cards: Short-Term Medium and Long-Term Total Consumer Loans-TL 447.204 59.353.061 59.800.265 Real Estate Loans (2) 11.713 33.090.275 33.101.988 Vehicle Loans 2.465 219.156 221.621 Consumer Loans (2) 428.759 25.616.690 26.045.449 Abroad 3.807 306.145 309.952 Other 460 120.795 121.255 Consumer Loans- Indexed to FC 635 145.473 146.108 Real Estate Loans - 16.809 16.809 Vehicle Loans - 147 147 Consumer Loans - - - Other 635 128.517 129.152 Consumer Loans-FC 1.098 113.005 114.103 Real Estate Loans - 12.242 12.242 Vehicle Loans - - - Consumer Loans 168 69.543 69.711 Abroad 797 30.968 31.765 Other 133 252 385 Individual Credit Cards-TL 2.863.060 12.675 2.875.735 With Installment 999.049 9.815 1.008.864 Without Installment 1.864.011 2.860 1.866.871 Individual Credit Cards-FC 403 - 403 With Installment - - - Without Installment 403 - 403 Personnel Loans-TL 9.461 186.389 195.850 Real Estate Loans - 1.775 1.775 Vehicle Loans 11 18 29 Consumer Loans 9.312 178.739 188.051 Abroad 114 1.561 1.675 Other 24 4.296 4.320 Personnel Loans-Indexed to FC 26 8.566 8.592 Real Estate Loans - 2.144 2.144 Vehicle Loans - - - Consumer Loans - 622 622 Other 26 5.800 5.826 Personnel Loans-FC 14 1.321 1.335 Real Estate Loans - 240 240 Vehicle Loans - - - Consumer Loans 7 868 875 Other 7 213 220 Personnel Credit Cards-TL 84.589 282 84.871 With Installment 35.119 213 35.332 Without Installment 49.470 69 49.539 Personnel Credit Cards-FC 6 - 6 With Installment - - - Without Installment 6 - 6 Overdraft Accounts-TL (Real Person) 898.028 - 898.028 Overdraft Accounts-FC (Real Person) - - - Total (1) 4.304.524 59.820.772 64.125.296 (1) TL 398.562 of interest income accrual and rediscount are not included in the table above. (2) Consumer loans originated from funds amounting to TL 3.636.941 of are included in the table above. 87 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) e) Information on commercial installment loans and corporate credit cards: Short-Term Medium and Long-Term Total Commercial Installment Loans-TL 1.554.550 13.987.183 15.541.733 Business Loans 323 517.473 517.796 Vehicle Loans 46.341 923.281 969.622 Consumer Loans 1.408.842 12.368.189 13.777.031 Other 99.044 178.240 277.284 Commercial Installment Loans- Indexed to FC 119.011 428.732 547.743 Business Loans - - - Vehicle Loans - 13.426 13.426 Consumer Loans - - - Other 119.011 415.306 534.317 Commercial Installment Loans - FC 108.438 16.896.596 17.005.034 Business Loans - - - Vehicle Loans - - - Consumer Loans 24.541 16.597.675 16.622.216 Other 83.897 298.921 382.818 Corporate Credit Cards-TL 446.113 2.007 448.120 With Installment 144.318 1.977 146.295 Without Installment 301.795 30 301.825 Corporate Credit Cards-FC 16 - 16 With Installment - - - Without Installment 16 - 16 Overdraft Account-TL (Legal Entity) 120.195 - 120.195 Overdraft Account-FC (Legal Entity) 67 - 67 Total (1) 2.348.390 31.314.518 33.662.908 (1) Accruals and rediscount amounts are not included in the table above. f) Loans according to types of borrowers: Current Period Prior Period Public 4.056.741 3.328.149 Private 235.011.027 184.948.406 Interest Income Accruals of Loans 4.755.128 3.350.947 Total 243.822.896 191.627.502 g) Breakdown of domestic and international loans: Current Period Prior Period Domestic Loans 227.406.151 181.834.465 Foreign Loans 11.661.617 6.442.090 Interest Income Accruals of Loans 4.755.128 3.350.947 Total 243.822.896 191.627.502 h) Loans granted to subsidiaries and associates: None (31 December 2015: None) 88 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) h) Specific provisions provided against loans: Current Period Prior Period Loans and other receivables with limited collectability 377.489 187.917 Loans and other receivables with doubtful collectability 984.449 480.993 Uncollectible loans and other receivables 2.767.103 1.672.896 Total 4.129.041 2.341.806 i) Information on non-performing receivables (net): 1) Information on loans and other receivables included in non-performing receivables which are restructured or rescheduled by the Parent Bank: Group III: Group IV: Group V: Loans and Loans and Receivables with Receivables with Uncollectible Limited Doubtful Loans and Collectability Collectability Receivables Current Period 14.498 58.203 127.037 (Gross amounts before the specific provisions) Loans and other receivables which are restructured 14.498 58.203 127.037 Rescheduled loans and other receivables - - - Prior Period 11.844 51.598 92.945 (Gross amounts before the specific provisions) Loans and other receivables which are restructured 11.844 51.598 92.945 Rescheduled loans and other receivables - - - 2) Information on the movement of non-performing receivables: Group III: Group IV: Group V: Loans and Loans and Receivables with Receivables with Limited Doubtful Uncollectible Loans Collectability Collectability and Receivables Prior Period Ending Balance 331.723 492.416 2.398.561 Additions (+) 1.856.951 240.956 379.889 Transfers from Other Categories of Loans under Follow-up (+) - 1.643.570 1.224.288 Transfers to Other Categories of Loans under Follow-up (-) 1.643.570 1.224.288 - Collections (-) (1) 165.688 159.514 994.804 Write-offs (-) - - - Corporate and Commercial Loans - - - Consumer Loans - - - Credit Cards - - - Other - - - Current Period End Balance (2) 379.416 993.140 3.007.934 Specific Provision (-) (3) 377.489 984.449 2.767.103 Net Balance on Balance Sheet (2) 1.927 8.691 240.831 (1) The restructured and rescheduled loans, are included on the stated sum. (2) Includes the loans originated from funds amounting to TL 251.449 whose risk does not belong to the Parent Bank. (3) As of 31 December 2015 the Bank made 100% provision for the portion of TL 627.566 of the loans under Group V: The Impairement Loss related Credits and Other Receivables which is TL 156.894 after taking guarantees into consideration. Since date of 30 June 2016, the Bank made 100% specific provision for the whole credit risk by giving up to take guarantees into consideration for that loan. 89 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) 3) Information on foreign currency non-performing loans: Group III: Group IV: Group V: Loans and Other Loans and Other Receivables with Receivables with Uncollectible Loans Limited Doubtful and Other Collectability Collectability Receivables Current Period: Period Ending Balance 36.561 41.095 92.092 Specific Provision (-) 36.561 41.095 92.092 Net Balance on Balance Sheet - - - Prior Period: Period Ending Balance 50.271 8.652 34.694 Specific Provision (-) 38.840 8.652 34.694 Net Balance on Balance Sheet 11.431 - - 4) Gross and net amounts of non-performing receivables according to user groups: Group III: Group IV: Group V: Loans and Other Loans and Other Receivables with Receivables with Uncollectible Loans Limited Doubtful and Other Collectability Collectability Receivables Current Period (Net) 1.927 8.691 240.831 Loans to Real Persons and Legal Entities (Gross) 379.416 917.477 3.007.934 Specific Provisions (-) 377.489 908.786 2.767.103 Loans to Real Persons and Legal Entities (Net) 1.927 8.691 240.831 Banks (Gross) - - - Specific Provisions (-) - - - Banks (Net) - - - Other Loans and Receivables (Gross) - 75.663 - Specific Provisions (-) - 75.663 - Other Loans and Receivables (Net) - - - Prior Period (Net) 143.806 11.423 725.665 Loans to Real Persons and Legal Entities (Gross) 331.723 415.807 2.398.561 Specific Provisions (-) 187.917 404.384 1.672.896 Loans to Real Persons and Legal Entities (Net) 143.806 11.423 725.665 Banks (Gross) - - - Specific Provisions (-) - - - Banks (Net) - - - Other Loans and Receivables (Gross) - 76.609 - Specific Provisions (-) - 76.609 - Other Loans and Receivables (Net) - - - j) Information on liquidating policy of uncollectible loans and other receivables: Execution proceedings are carried out for the collection of receivables from loan services of the Parent Bank’s. During this process, tangible guarantees constituting guarantees of receivables of the Parent Bank and assets of the debtor(s) are realized while receivables of the Parent Bank are also tried to be collected and liquidated by means of administrative procedures. Transactions are performed within the context of legislation agreement, which ensures the collection of receivables through administrative channels, and authorizations transferred to the Branch/Regional Management. When the debtor offers exceed authorizations transferred to the Branch/Regional Management or includes matters outside the scope of current legislation agreements and the Branch/Regional Management submit favorable opinion to the Head Office regarding this issue, receivables should be restructured on a company/debtor basis in accordance with the decisions made by the related authorities. 90 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) k) Explanations on write-off policy: The Parent Bank writes off the receivables from its records with the actualized circumstances of deaths of the debtor and/or the related people, refusals of the heritage by the heritors within the legal time limits, becoming legally and effectively impossible of the collection of the receivable, and the given financial accountability decision on the related personnel of the considered receivable. l) Other explanations and disclosures: Corporate and Current Period Entrepreneurial Consumer(1) Agricultural(1) Total Neither Past Due nor Impaired Loans (1) 130.127.678 64.001.050 45.242.573 239.371.301 Past Due but not Impaired Loans 2.405.053 1.071.525 975.017 4.451.595 Impaired Loans 2.797.462 934.653 648.375 4.380.490 Total 135.330.193 66.007.228 46.865.965 248.203.386 Specific Provisions of Impaired Loans(-) 2.796.878 928.172 403.991 4.129.041 Net Loan Amount 132.533.315 65.079.056 46.461.974 244.074.345 (1) TL 3.636.941 consumer, TL2.061.670 agricultural, and TL 18 corporate and entrepreneurial loans originated from funds whose risk does not belong to the Parent Bank, are shown under Neither Past Due nor Impaired Loans. Prior Period Commercial(1) Consumer(1) Agricultural(1) Total Neither Past Due nor Impaired Loans(1) 101.080.065 50.067.212 36.435.771 187.583.048 Past Due but not Impaired Loans 1.683.745 1.384.628 976.081 4.044.454 Impaired Loans 1.900.395 767.119 555.186 3.222.700 Total 104.664.205 52.218.959 37.967.038 194.850.202 Specific Provisions of Impaired Loans(-) 1.312.594 738.998 290.214 2.341.806 Net Loan Amount 103.351.611 51.479.961 37.676.824 192.508.396 (1) TL 3.442.911 consumer, TL 2.135.499 agricultural, and TL 18 corporate and entrepreneurial loans originated from funds whose risk does not belong to the Parent Bank, are shown under Neither Past Due nor Impaired Loans. 6. Information on held-to-maturity investments: a) Information on comparative net values of held-to-maturity investments subject to repo transactions and given as a collateral/blocked: a.1) Held-to-maturity investments subject to repo transactions: Current Period Prior Period TL FC TL FC Government Bonds 2.301.823 2.384.104 1.114.647 3.567.579 Treasury Bills - - - - Other Public Sector Debt Securities - - - - Bank Bonds and Bank Guaranteed Bonds - - - - Asset Backed Securities - - - - Other - - - - Total 2.301.823 2.384.104 1.114.647 3.567.579 91 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) a.2) Held-to-maturity investments given as collateral or blocked: Current Period Prior Period TL FC TL FC Bills - - - - Bonds and Similar Investment Securities 1.089.898 2.252.339 3.009.483 1.987.576 Other - - - - Total 1.089.898 2.252.339 3.009.483 1.987.576 b) Information on held-to-maturity government bonds and treasury bills: Current Period Prior Period Government Bonds 8.647.891 10.133.222 Treasury Bills - - Other Public Sector Debt Securities - 13.407 Total 8.647.891 10.146.629 c) Information on held-to-maturity investments: Current Period Prior Period Debt securities 8.794.915 10.223.475 Quoted in a Stock Exchange 8.647.891 10.146.629 Not Quoted in a Stock Exchange 147.024 76.846 Provision for Impairment (-) - - Total 8.794.915 10.223.475 d) Movements of held-to-maturity investments: Current Period Prior Period Beginning Balance 10.223.475 10.239.816 Foreign Currency Differences on Monetary Assets 475.282 1.064.698 Purchases During the Year 937.418 154.288 Disposals through Sales and Redemptions (2.841.260) (1.235.327) Provision for Impairment (-) - - Period End Balance 8.794.915 10.223.475 Within the year 2008, the Parent Bank has reclassified securities previously classified in available for sale portfolio with nominal values of TL 23.630.115, EUR 717.616 thousand and USD 1.483.317 thousand to held-to-maturity portfolio with fair values of TL 22.971.669, EUR 702.950 thousand and USD 1.562.742 thousand respectively which have been taken into consideration as book values after reclassification. The Bank has also reclassified securities previously classified in financial assets at fair value through profit and loss portfolio with nominal values of EUR 37.951 thousand and USD 45.501 thousand to held-to-maturity portfolio with fair values of EUR 37.178 thousand and USD 62.311 thousand respectively which have been taken into consideration as book values after reclassification in accordance with TAS 39 “Turkish Accounting Standard for Financial Instruments: Recognition and Measurement” published in the Official Gazette No. 27040 dated 31 October 2008 by Public Oversight Accounting and Auditing Standards Authority (“POA”). Revaluation differences of reclassified available for sale securities before deferred tax are TL 68.984, EUR (23.067) thousand and USD (15.207) thousand respectively and are recorded under shareholders’ equity. These balances will be amortized until the redemption date of related securities using straight-line method and recorded as interest income or expense. At the end of balance sheet date, negative revaluation differences under shareholders’ equity are amounted as USD 10.547 thousand and EUR 999 thousand respectively. 92 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) As of balance sheet date, the total fair values of reclassified held for trading securities to held to maturity securities are EUR 24.246 thousand and USD 62.392 thousand respectively. If the reclassification from the held for trading securities portfolio to the held-to-maturity portfolio had not been performed, income accrual amounting to TL 5.272 would have been recorded. As of 31 December 2016, the reclassification from held for trading securities to held-to-maturity investments has an income impact of TL 8.613 (expense). 7. Information about associates (net): a) 1) Information about unconsolidated associates: The Parent Bank’s Share Percentage, if Address Different, Voting The Bank’s Risk Group Description (City/ Country) Percentage (%) Share Percentage (%) 1 Bankalararası Kart Merkezi A.Ş. İstanbul/TURKEY 12,50 17,98 2 Kredi Kayıt Bürosu A.Ş. İstanbul/TURKEY 10,00 9,09 Total Non- Income from Current Shareholders’ Current Interest Marketable Period Prior Period Fair Total Assets(2) Equity(2) Assets(2)(3) Income (2) Securities(2) Profit / Loss (2) Profit / Loss (2) Value (1) 1 82.182 38.919 53.921 904 - 13.002 3.869 - 2 224.364 130.960 138.543 33.538 - 39.302 33.299 - (1) Since shares of associates are not traded in the stock market, fair values cannot be identified. (2) Current period information of associates has been provided from unaudited financial statements as of 31 December 2016. Prior period profit/loss information of associates has been provided from audited financial statements as of 31 December 2015. (3) Total non-current assets include tangible and intangible assets. b) 1) Explanation regarding consolidated associates: The Parent Bank’s Share Percentage, if The Parent Bank’s Risk Address Different, Voting Group Share Description (City/ Country) Percentage (%) Percentage (%) 1 Arap Türk Bankası A.Ş. İstanbul/TURKEY 22,22 15,43 Total Non- Income from Current Shareholders’ Current Interest Marketable Period Profit Prior Period Fair (2) Total Assets Equity(2) Assets(2) Income (2) Securities(2) / Loss (2) Profit / Loss (2) Value (1) 1 4.842.849 640.756 21.157 129.633 52.565 61.597 70.106 - (1) Since shares of ArapTürk Bankası A.Ş. are not traded in the stock market, fair values cannot be identified. (2) Current period information of Arap Türk Bankası A.Ş. has been provided from unaudited financial statements as of 31 December 2016. Prior period profit/loss information of ArapTürk Bankası A.Ş. has been provided from audited financial statements as of 31 December 2015. 93 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) 2) Information about consolidated associates: Current Period Prior Period Beginning Balance 92.861 82.116 Movement During the Period 6.008 10.745 Additions - - Bonus Share Certificates - - Shares of Current Year Profits - - Addition to Scope of Consolidation - - Transfer - - Sales - - Revaluation Increase 6.008 10.745 Impairment Provision - - Ending Balance 98.869 92.861 Capital Commitments - - Period Ending Share of Capital Participation (%) 15,43 15,43 3) Sector information about consolidated associates: Current Period Prior Period Banks 98.869 92.861 Insurance Companies - - Factoring Companies - - Leasing Companies - - Finance Companies - - Other Financial Associates - - 4) Consolidated associates quoted to a stock exchange: None (31 December 2015: None). 8. Information on subsidiaries (net): a) Information about unconsolidated subsidiaries: The Parent Bank’s Share Percentage-if The Parent Bank’s Address different Voting Group Share Description (City/ Country) Percentage (%) Percentage (%) 1 Ziraat Teknoloji A.Ş. Istanbul/TURKEY 100,00 100,00 Total Non- Income from Shareholders’ Current Interest Marketable Current Period Prior Period Fair Value Total Assets(2) Equity(2) Assets(2) Income (2) Securities(2) Profit / Loss (2) Profit / Loss (2) (1) 1 47.820 13.011 11.784 871 96 2.703 2.984 - (1) Since shares of subsidiaries are not traded in the stock market, fair values cannot be identified. (2) Current period information of subsidiaries has been provided from unaudited financial statements as of 31 December 2016. Prior period profit/loss information has been provided from audited financial statements as of 31 December 2015. 94 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) b) Information about consolidated subsidiaries: In consolidated financial statements of Parent Bank’s, investments related to subsidiaries and joint ventures operating abroad in foreign currency are followed by their fair values. For these subsidiaries, fair value is determined by valuation reports, TL equivalents of investments related to subsidiaries are fixed as of revaluation date and revaluation differences added to subsidiaries’ values are recognized in “Marketable Securities Value Increase Fund” under shareholder’s equity. The Parent Bank’s The Parent Share Percentage-if Bank’s Risk Address different Voting Group Share Description (City/ Country) Percentage (%) Percentage (%) 1 Ziraat Hayat ve Emeklilik A.Ş. İstanbul / TURKEY 100,00 100,00 2 Ziraat Sigorta A.Ş. İstanbul / TURKEY 100,00 100,00 3 Ziraat Finansal Kiralama A.Ş. İstanbul / TURKEY 100,00 100,00 4 Ziraat Yatırım Menkul Değerler A.Ş. İstanbul / TURKEY 100,00 99,60 5 Ziraat Portföy Yönetimi A.Ş. İstanbul / TURKEY 100,00 99,70 6 Ziraat Katılım Bankası A.Ş. İstanbul / TURKEY 100,00 100,00 Ziraat Gayrimenkul Yatırım Ortaklığı 7 A.Ş. Istanbul / TURKEY 100,00 100,00 8 Ziraat Bank International A.G. Frankfurt / GERMANY 100,00 100,00 9 Ziraat Bank BH d.d. Sarajevo / BOSNIA HERZEGOVINA 100,00 100,00 10 Ziraat Bank (Moscow) JSC Moscow / RUSSIA 100,00 100,00 11 Kazakhstan Ziraat Int. Bank Almaty / KAZAKHSTAN 100,00 99,58 12 Ziraat Bank Azerbaycan ASC Baku / AZERBAIJAN 100,00 100,00 13 Ziraat Bank Montenegro AD Podgorica / MONTENEGRO 100,00 100,00 Total Non- Income from Current Prior Shareholders Total Shareholders Current Interest Marketable Period Profit / Period Profit Fair ’ Equity Assets(3) ’ Equity(3) Assets(3) Income (3) Securities(2) Loss (3) / Loss (3) Value (1) Needed 1 3.792.342 394.081 3.895 135.535 - 231.541 162.350 - - 2 837.640 265.007 2.418 60.878 - 128.912 86.936 - - 3 2.355.261 265.209 1.348 1.079 - 28.424 37.407 - - 4 129.226 99.745 617 9.720 48.063 24.935 23.990 - - 5 29.775 26.156 760 2.550 18.787 8.204 5.653 - - 6 7.959.507 764.622 66.547 366.243 24.499 30.673 (11.982) - - 7 1.327.028 1.326.409 1.056.312 4.169 - 26.409 - - - 8 6.196.471 730.421 17.419 149.943 2.752 48.173 32.382 782.931 - 9 1.618.882 294.407 69.017 56.187 728 319 27.651 280.456 - 10 318.227 132.731 9.263 18.874 228 7.271 5.307 109.090 - 11 605.795 242.045 14.295 29.330 7.559 21.508 16.676 237.838 - 12 260.101 117.708 22.396 13.784 72 10.149 9.262 135.261 - 13 148.846 21.664 4.070 2.754 160 (3.736) (3.205) 29.540 - (1) The subsidiaries other than the ones presented with fair value are not traded in stock exchange and accordingly fair values cannot be determined and they are carried at cost less impairment, if any. For the subsidiaries having fair value, fair value shows the portion belonging to Ziraat Bank. (2) The income from marketable securities portfolio of Ziraat Yatırım Menkul Değerler A.Ş. and Ziraat Portföy Yönetimi A.Ş. are representing the net sales. (3) Information on subsidiaries shown in the above table has been provided from the unaudited financial statements as of 31 December 2016, the prior period profit/loss balances have been provided from audited financial statements as of 31 December 2015. (4) The amounts shown in Interest Income column belong to Ziraa t Katılım Bankası A.Ş. and contain dividend income. 95 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) 2) Information about consolidated subsidiaries (Represents the values belong to the Parent Bank): Current Period Prior Period Balance at the Beginning of the Period 2.442.943 1.453.735 Movements During the Period 1.658.409 989.208 Additions to Scope of Consolidation - - Purchases (1) 1.446.624 997.857 Bonus Shares Obtained 2.996 16.921 Dividends from Current Year Income - - Transfers to Available for Sale Assets - - Sales - - Revaluation Increase 281.824 227.760 Impairment Provision 73.035 253.330 Balance at the End of the Period 4.101.352 2.442.943 Capital Commitments - - Share Percentage at the End of the Period (%) - - (1) Paid Capital Increases made during the period are classified under “Purchases” account. 3) Sectoral information on consolidated subsidiaries and the related carrying amounts: Current Period Prior Period Banks 2.322.116 1.966.702 Insurance Companies 129.972 129.972 Factoring Companies - - Leasing Companies 282.839 282.839 Financing Companies - - Other Financial Subsidiaries 1.366.425 63.430 c) Subsidiaries which are quoted on a stock exchange: None (31 December 2015: None). 9. a) Information on entities under common control (joint ventures): Entities under Common Parent Bank’s Group’s Current Non- Current Long Term Control (Joint Ventures) (1) Share(2) Share Assets Assets Liabilities Income Expense Turkmen Turkish Joint Stock Commercial Bank 47.649 47.649 967.937 12.930 11.755 37.513 25.788 UTBANK JSC 51.015 51.035 257.090 3.474 21 29.323 20.389 Total 98.664 98.684 1.225.027 16.404 11.776 66.836 46.177 (1) Information on entities under joint control is provided from the unaudited financial statements as of 31 December 2016. (2) Represents the Parent Bank’s share in the shareholders’ equity of these entities under common control based on the shareholding rate of the Bank. Entities under common control domiciled and operating abroad are followed by their fair values. For these entities under common control, fair value is determined by independent valuation firm’s report and revaluation differences are accounted as the value of entities under common control and in “Marketable Securities Value Increase Fund” under shareholders’ equity. 96 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) 10. Information on finance lease receivables (net): Information on finance lease receivables are as below: Current Period Prior Period Gross Net Gross Net Less than 1 Year 1.017.502 892.067 360.879 317.383 1-5 Years 1.553.514 1.356.447 2.192.205 1.874.178 More than 5 Years 285.154 235.153 190.422 171.841 Total 2.856.170 2.483.667 2.743.506 2.363.402 11. Information on derivative financial assets for hedging purposes: The Group has no derivative financial assets for hedging purposes. (31 December 2015: None) 12. Information on investment property The Group has investment property amounted TL 643.290 as of 31 December 2016 (31 December 2015: None). 13. Information on assets held for sale and tangibles corresponding discontinuing operations: The group does not have any discontinuing operations. The assets held for sale are composed of immovables acquired due to consumer, commercial and agricultural loans and immovables for which has no necessity of usage exists by the Parent Bank. Those immovables considered for sales are announced at the web site of the Parent Bank. The Group’s immovables acquired amount to TL 567.177 consisting of TL 14.160 due to consumer loans, TL 488.565 on its commercial loans and TL 64.452 on its agricultural loans. Also, the sum of movables acquired from consumer loan amounts to TL 2.798. Total depreciation expense is TL 6.960 for these held for sale assets. (31 December 2015: The Bank’s immovables acquired amount to TL 244.367 consisting of TL 13.494 due to consumer loans, TL 185.021 on its commercial loans and TL 45.852 on its agricultural loans. Also, the sum of movables acquired from consumer loan amounts to TL 1.849. Total depreciation expense is TL 4.658 for these held for sale assets). 97 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) 14. Explanations on property and equipment: Operational Tangibles- Leasing Financial Development Other Immovables Leasing Vehicles Costs (1) Tangibles Total Prior Period End: Cost 5.287.271 9.869 45.931 210.178 824.742 6.377.991 Accumulated Depreciation (-) 869.320 2.186 23.008 111.378 410.675 1.416.567 Impairment (-) 3.740 - - - - 3.740 Net Book Value 4.414.211 7.683 22.923 98.800 414.067 4.957.684 Current Period End: Net Book Value at the Beginning of the Period 4.414.211 7.683 22.923 98.800 414.067 4.957.684 Change During the Period (Net) 890.423 1.357 (3.404) 1.506 24.443 914.325 Cost 957.259 2.590 (81) 41.823 136.698 1.138.289 Depreciation – Net (-) 68.264 1.233 3.323 40.317 111.793 224.930 Impairment (-) (1.428) - - - 462 (966) Net Currency Translation from Foreign Subsidiaries (-) - - - - - - Cost at Period End 6.244.530 12.459 45.850 252.001 961.440 7.516.280 Accumulated Depreciation at Period End (-) 937.584 3.419 26.331 151.695 522.468 1.641.497 Impairment (-) 2.312 - - - 462 2.774 Closing Net Book Value 5.304.634 9.040 19.519 100.306 438.510 5.872.009 a) The impairment provision set or cancelled in the current period according to the asset groups not individually significant but materially affecting the overall financial statements, and the reason and conditions for this: None. b) Pledges, mortgages and other restrictions on the tangible fixed assets, expenses arising from the construction for tangible fixed assets, commitments given for the purchases of tangible fixed assets: None. 15. Explanations on intangible assets: Current Period Prior Period Book Accumulated Accumulated Value Depreciation Net Value Book Value Depreciation Net Value Establishment Costs 7.686 6.815 871 5.904 5.398 506 Goodwill - - - - - - Intangible Rights 531.831 164.838 366.993 366.035 120.424 245.611 Total 539.517 171.653 367.864 371.939 125.822 246.117 a) Disclosures for book value, description and remaining useful life for a specific intangible fixed asset that is material to the financial statements: None. b) Disclosure for intangible fixed assets acquired through government grants and accounted for at fair value at initial recognition: None. c) The method of subsequent measurement for intangible fixed assets that are acquired through government incentives and recorded at fair value at the initial recognition : None. 98 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED ASSETS (Continued) d) The book value of intangible fixed assets that are pledged or restricted for use: None. e) Amount of purchase commitments for intangible fixed assets: None f) Information on revalued intangible assets according to their types: None. g) Amount of total research and development expenses recorded in income statement within the period if any: None. h) Positive or negative consolidation goodwill on the Group basis: Not applicable for the consolidated financial statements. i) Information on Goodwill: None. 16. Information on deferred tax asset: Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit in accordance with the Turkish Accounting Standards (TAS 12) “Income Taxes”. In the computation of deferred tax, effective tax rates as of the balance sheet date are used in accordance with the current tax legislation. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Calculated deferred tax assets and deferred tax liabilities are net off in the financial statements. Information on calculated deferred tax including deductible temporary differences, financial losses, tax deductibles and tax exemptions is shown below: Current Period Prior Period Deferred Tax Assets 86.569 266.827 Deferred Tax Liabilities 3.463 2.357 Net Deferred Tax Assets 83.106 264.470 Net Deferred Tax Income/Expense (92.825) (582.642) Current Period Prior Period Reserve for Employment Termination Benefits 139.047 141.076 Short Term Employee Benefits 38.447 35.870 Financial Assets Valuation (93.267) 49.940 Other (1.121) 37.584 Net Deferred Tax Assets 83.106 264.470 Current Period Prior Period As of 1 January 264.470 222.649 Addition to Scope of Consolidation - - Effect of Change in the Effective Tax Rate - - Deferred Tax (Expense)/Income (92.825) (582.642) Deferred Tax Expenses (Net) (92.825) (582.642) Deferred Tax Recognized Under Shareholders’ Equity (88.539) 624.463 Deferred Tax Assets 83.106 264.470 17. Information on other assets: As of 31 December 2016 and 2015, other assets do not exceed 10% of the total assets excluding off-balance sheet commitments. 99 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED LIABILITIES 1. a) Information on maturity structure of deposits collected: 1) For deposit banks: 7 Days Call Up to 1 1-3 3-6 6 Months- 1 Year Cumulative Current Period Demand Accounts Month Months Months 1 Year and Over Deposits Total Saving Deposits 22.548.091 - 3.211.532 60.686.575 4.404.259 1.024.789 857.926 44.170 92.777.342 Foreign Currency Deposits 16.043.174 - 6.158.621 19.113.290 5.174.283 4.969.554 16.427.978 619 67.887.519 Residents in Turkey 13.814.369 - 5.883.031 15.986.117 4.411.314 3.059.414 10.853.638 619 54.008.502 Residents Abroad 2.228.805 - 275.590 3.127.173 762.969 1.910.140 5.574.340 - 13.879.017 Public Sector Deposits 6.223.181 - 2.935.849 7.310.177 2.090.069 4.742.350 13.571 - 23.315.197 Commercial Inst. Deposits 6.319.002 - 6.593.154 9.922.821 497.592 67.658 52.483 - 23.452.710 Other Inst. Deposits 1.815.386 - 2.709.644 4.398.157 412.382 827.365 946.954 - 11.109.888 Precious Metals 2.066.664 - 32.607 240.919 23.444 16.479 13.292 - 2.393.405 Interbank Deposits 1.496.123 - 5.033.318 1.687.431 636.144 1.973.477 1.149.439 - 11.975.932 CBRT 5.252 - - - 698 - - - 5.950 Domestic Banks 420.083 - 4.405.931 87.962 191.176 - 6.364 - 5.111.516 Foreign Banks 164.921 - 627.387 1.599.469 444.270 1.973.477 1.143.075 - 5.952.599 Participation Banks 905.867 - - - - - - - 905.867 Other - - - - - - - - - Total 56.511.621 - 26.674.725 103.359.370 13.238.173 13.621.672 19.461.643 44.789 232.911.993 7 Days Call Up to 1 1-3 3-6 6 Months- 1 Year Cumulative Prior Period Demand Accounts Month Months Months 1 Year and Over Deposits Total Saving Deposits 15.846.134 - 2.775.653 54.063.340 4.248.745 990.796 799.896 5.538 78.730.102 Foreign Currency Deposits 12.371.997 - 8.909.641 16.467.457 4.792.177 3.626.058 13.137.046 431 59.304.807 Residents in Turkey 10.900.141 - 8.712.995 14.420.590 4.280.762 2.921.964 9.726.044 431 50.962.927 Residents Abroad 1.471.856 - 196.646 2.046.867 511.415 704.094 3.411.002 - 8.341.880 Public Sector Deposits 5.765.117 - 3.440.895 4.511.961 1.247.351 2.865.402 94.380 13.276 17.938.382 Commercial Inst. Deposits 4.553.542 - 3.605.918 5.111.621 1.071.958 328.128 1.166.738 - 15.837.905 Other Inst. Deposits 1.533.085 - 1.857.417 3.081.800 259.595 737.257 474.829 252.326 8.196.309 Precious Metals 1.039.897 - 25.203 123.939 18.613 9.393 8.662 - 1.225.707 Interbank Deposits 279.728 - 6.127.518 995.229 1.094.520 1.116.474 73.416 - 9.686.885 CBRT 11.521 - - - - - - - 11.521 Domestic Banks 35.674 - 5.046.468 51.023 109.610 36.885 - - 5.279.660 Foreign Banks 87.163 - 1.049.200 944.206 984.910 1.079.589 73.416 - 4.218.484 Participation Banks 145.370 - 31.850 - - - - - 177.220 Other - - - - - - - - - Total 41.389.500 - 26.742.245 84.355.347 12.732.959 9.673.508 15.754.967 271.571 190.920.097 100 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED LIABILITIES (Continued) b) Information on saving deposits: 1) Amounts exceeding the deposit insurance limit: a) Saving deposits under the guarantee of deposit insurance and exceeding the deposit insurance limit: (It reflects the values of the Parent Bank) Under the Guarantee of Deposit Exceeding Deposit Insurance Insurance Limit Saving Deposits Current Prior Current Period Period Period Prior Period Saving Deposits(2) 60.568.084 52.356.589 29.701.060 25.598.381 Foreign Currency Saving Deposits(2) 21.431.931 19.394.479 28.972.511 23.644.817 Other Deposits in the form of Saving Deposits - - - - Deposits at Foreign Branches and under the Guarantees of Foreign Authority Insurance(1) 636.306 549.775 42.853 57.489 Deposits at Off-Shore Banking Regions’ and under Foreign Authorities’ Insurance - - - - (1) In Bulgaria and Greece, since both real person and legal entity’s saving deposits are under the guarantee of insurance and since such balances included in insurance limit are calculated by the system, the legal entity saving deposits amounting to TL 47.282 and TL 13.226 respectively, cannot be decomposed by type and are therefore included in the table above (31 December 2015: Bulgaria and Greece, TL 57.299 and TL 7.465, respectively). (2) Related deposit balances do not include foreign branches. Based on the Council of Minister’s decree dated 29 December 2003 and numbered 2003/6668, TL 940 of demand deposits is not included in the above calculation, since the Bank paid the saving deposits amount attributable to T. İmar Bank T.A.Ş. Savings Deposit Insurance Fund premiums are calculated based on deposit amount attributable to real persons in domestic branches of banks. As total of capital amount and interest expense accruals of saving deposits up to TL 100 attributable to a real person is covered by the insurance, TL 514.083 of interest expense accrual is included in the above-mentioned figures in accordance with the Communiqué on Insurance Deposits and Participation Funds and Premiums Collected by the Savings Deposit Insurance Fund published in the Official Gazette dated 15 February 2013 and numbered 28560. 2) Information on saving deposits/real persons’ private current and accession accounts not related to commercial transactions in a Turkish branch of the Parent Bank whose head office is abroad, and reasons if it is covered in where the head office is located (Information belongs to the Parent Bank): The Parent Bank’s head office is located in Turkey. 101 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED LIABILITIES (Continued) 3) Amounts which are not covered by deposit insurance: a) Saving deposits of real persons not covered by the deposit insurance fund (Values belong to the Parent Bank): Current Period Prior Period Deposits and other Accounts in Branches Abroad 81.373 52.302 Deposits of Ultimate Shareholders and Their Close Family Members - - Deposits of Chairman and Members of the Board of Directors, CEO, Executive Vice Presidents and Their Close Family Members 6.448 3.923 Deposits Obtained through Illegal Acts Defined in the 282 nd Article of the 5237 numbered Turkish Criminal Code dated September 26, 2004 - - Saving Deposits in Banks Established in Turkey Exclusively for Off-Shore Banking Activities - - 2. Information on derivative financial liabilities held for trading: a) Negative differences related to the derivative financial liabilities held for trading: Current Period Prior Period TL FC TL FC Forward Transactions 33.498 50.329 24.700 43.551 Swap Transactions 206.170 363.333 3.956 227.951 Futures Transactions - - - - Options 35 - 3 21 Other - - - - Total 239.703 413.662 28.659 271.523 3. a) General information on banks and other financial institutions: Current Period Prior Period TL FC TL FC Borrowings from CBRT - - - - Domestic Banks and Institutions 403.098 1.653.704 269.760 1.001.940 Foreign Banks, Institutions and Funds 935.448 21.434.279 944.015 18.571.688 Total 1.338.546 23.087.983 1.213.775 19.573.628 b) Maturity structure of funds borrowed: Current Period Prior Period TL FC TL FC Short-Term 394.462 7.048.505 255.656 7.155.010 Medium and Long-Term 944.084 16.039.478 958.119 12.418.618 Total 1.338.546 23.087.983 1.213.775 19.573.628 102 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED LIABILITIES (Continued) 3. c) Further information is disclosed for the areas of the Group’s liability concentrations. Main liability concentration areas are fund suppliers, sector groups or other risk concentration criteria: 62,63% of the Group’s liabilities consist of deposits. De posits have a diversified base and have steady structures. The Group’s liabilities are not subject to a significant concentration risk. d) Information on funds supplied from repurchase agreements: Current Period Prior Period TL FC TL FC From Domestic Transactions 30.385.206 - 27.289.499 - Financial Institutions and Organizations 30.211.399 - 27.068.715 - Other Institutions and Organizations 166.520 - 212.000 - Real Person 7.287 - 8.784 - From Overseas Operations - 12.270.423 - 14.744.813 Financial Institutions and Organizations - 12.270.423 - 14.744.813 Other Institutions and Organizations - - - - Real Person - - - - Total 30.385.206 12.270.423 27.289.499 14.744.813 e) Information on securities issued: Current Period Prior Period TL FC TL FC Bank Bonds 2.156.778 - 2.199.333 756.233 Asset-Backed Securities 101.459 - - - Treasury Bills 131.822 4.680.692 131.791 2.332.040 Total 2.390.059 4.680.692 2.331.124 3.088.273 4. If other liabilities exceed 10% of the balance sheet total, name and amount of sub-accounts constituting at least 20% of these liabilities: Other liabilities do not exceed 10% of the balance sheet total. 5. Information on finance lease payables (net): In the financial lease agreements, lease payments are determined according to the price of leasehold, the Group’s interest rate of commercial loan and maturity of the agreement. The amounts in the lease agreements are paid in equal installments. There are not any restrictions in these agreements that create significant obligations to the Group. The Group has no liabilities from finance leases (31 December 2015: None). 6. Information on derivative financial liabilities for hedging purposes: There are no derivative financial liabilities for hedging purposes (31 December 2015: None). 103 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED LIABILITIES (Continued) 7. Explanations on provisions: a) Information on general provisions: Current Period Prior Period General Provisions 4.042.425 2.925.818 Allocated for Group-I Loans and Receivables 3.271.408 2.506.562 Additional Provision for Loans and Receivables with Extended Maturities 233.456 121.600 Allocated for Group-II Loans and Receivables 181.621 152.015 Additional Provision for Loans and Receivables with Extended Maturities 61.127 28.425 Allocated for Non-Cash Loans 466.954 164.752 Other 122.442 102.489 b) Foreign exchange loss provisions on the foreign currency indexed loans and finance lease receivables: Foreign exchange loss provisions on foreign currency indexed loans and finance lease receivables amount to TL 327 (31 December 2015: TL 5.561). c) Information on specific provisions for unindemnified non-cash loans: The Parent Bank’s specific provisions for unindemnified non-cash loans amount to TL 150.916 (31 December 2015: TL 55.629). d) Information on other provisions: 1) Information on free provisions for possible risks: These financial statements include a free provision which is not in accordance with BRSA Principles amounting to TL 945.000 (TL 295.400 of this provision amount was reversed from the income statement in the current year), provided by the Bank management in line with the conservatism principle considering the circumstances that may arise from any changes in the economy or market conditions. Moreover, the provision of TL 19.700 and other provision of TL 244 exist for cash transfers made by the Parent Bank officials. Current Period Prior Period Provisions for Possible Risks 964.944 1.257.419 2) The names and amounts of sub-accounts of other provisions exceeding 10% of the total provision amount: Based on the information provided by the legal department, lawsuits against the Parent Bank over TL 100 amounts to TL 65.095. Full provision has been provided in these financial statements for law suits ended against the Bank but not finalized yet, amounting to TL 35.709 Based on the decision of the Bank management, provision amounting to TL 60.400 is provided for the consumer loans followed under standard loan portfolio that also have amounts in the non-performing loan portfolio in compliance with the Act on Preservation of Consumers numbered 4077. The provision is made in accordance with the “Communiqué on the Methods and Principles for Determining the Nature of Loans and Other Receivables and Allocation of Provisions”, published in Official Gazette numbered 26333, dated 1 November 2006 and considering the conservatism principle without taking into consideration the guarantees of these loans. The Group also provided provisions amounting to TL 150.916 for unindemnified non-cash loans (31 December 2015: TL 55.629), TL 102.026 for other provisions (31 December 2015: TL 45.625). As a result of the provisions mentioned above, the other provision balance on the Group’s balance sheet amounts to TL 1.313.995 (31 December 2015: TL 1.482.032). 104 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED LIABILITIES (Continued) e) Liabilities on reserve for employee termination benefits: 1) Employment termination benefits and unused vacation rights The Group accounts for its vacation and retirement pay obligations in accordance with the TAS 19 “Employee Benefits”. The vacation and retirement pay obligations recognized in the balance sheet represent the present value of the defined benefit obligation. As of 31 December 2016, unpaid vacation liability amounted to TL 192.237 (31 December 2015: TL 170.572), and employment termination amounted to TL 695.237 (31 December 2015: TL 689.727) are presented under the “Employee Benefits Provision” in the financial statements. Movement of employment termination benefits liability in the balance sheet: Current Period Prior Period As of 1 January 683.269 666.464 Current Service Cost 55.867 46.701 Interest Cost 73.999 46.244 Severance Pay (114.314) (93.519) Payment/Abating Benefits/ Gain (Loss) in consequence of Layoff (212) (76) Actuarial Gain (Loss) (8.420) 17.455 Balance at period end 690.189 683.269 2) Pension Rights The technical balance sheet reports which are prepared in accordance with the principles Act numbered 5754 declared in the Official Gazette dated 8 May 2008 numbered 26870, by using a technical interest rate of 9,80%, concluded that no technical deficit arises in the mentioned fund as of 31 December 2015 and 2014. The liability related to Parent Bank’s benefits to be transferred to SSI as of the balance sheet date is expected payment to be made to SSI during the transfer. Actuarial parameters and results used in calculation of this amount reflects the Act’s, numbered 5754 declared in the Official Gazette dated 8 May 2008 numbered 26870, principles related to pension and health benefits to be transferred to SSI (9,80% real discount rate, etc.). According to related Actuary Report, the Fund’s surplus is TL 2.835.975 as of 31 December 2016 (31 December 2015: TL 2.284.502) Current Period Prior Period Present value of funded obligations 1.197.092 911.002 -Pension benefits transferable to SSI 361.635 212.216 -Post employment medical benefits transferable to SSI 835.457 698.786 Fair value of plan assets 1.638.883 1.373.500 Actuarial Surplus 2.835.975 2.284.502 The principal actuarial assumptions used are as follows: Current Period Prior Period Discount rate - Pension benefits transferable to SSI %9,80 %9,80 - Post employment medical benefits transferable to SSI %9,80 %9,80 To represent mortality rates both before and after retirement, CSO 1980 Female/Male mortality table is used. 105 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED LIABILITIES (Continued) Plan assets are comprised as follows: Current Period Prior Period Amount Amount Bank Placements 1.284.298 1.114.760 Property and Equipment 66.844 149.281 Marketable Securities - - Other 287.741 109.459 Total 1.638.883 1.373.500 8. Information on tax liability: a) Information on current tax liability: 1) Information on tax provisions: As of 31 December 2016, the remaining corporate tax liability after deducting temporary taxes paid for the period is TL 444.505 (31 December 2015: TL 416.922). 2) Information on current taxes payable: Current Period Prior Period Corporate Tax Payable 444.505 416.922 Taxation on Income From Securities 215.147 202.372 Property Tax 2.491 2.237 Banking Insurance Transactions Tax (BITT) 144.072 117.824 Foreign Exchange Transactions Tax 59 28 Value Added Tax Payable 7.091 4.341 Other 67.194 59.961 Total 880.559 803.685 3) Information on premiums: Current Period Prior Period Social Security Premiums - Employee 39 239 Social Security Premiums - Employer 56 341 Bank Social Aid Pension Fund Premium - Employee 8.840 330 Bank Social Aid Pension Fund Premium - Employer 12.400 528 Pension Fund Membership Fees and Provisions - Employee 13 13 Pension Fund Membership Fees and Provisions - Employer 59 45 Unemployment Insurance - Employee 1.382 559 Unemployment Insurance - Employer 2.763 1.118 Other - - Total 25.552 3.173 b) Information on deferred tax liabilities, if any: The Group’s deferred tax liability, for the current term, amounts to TL 3.463 (31 December 2015: TL 2.357). 9. Information on payables for assets held for sale and discontinued operations: The Group does not have any payables for assets held for sale and discontinued operations. 10. Explanations on subordinated debts: The Group does not have any subordinated debts. 106 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED LIABILITIES (Continued) 11. Information on shareholders’ equity: a) Presentation on paid-in capital: Current Period Prior Period Common Stock 5.100.000 5.000.000 Preferred Stock - - b) Paid-in capital amount, explanation whether the registered capital system is applicable by the bank, if so the registered capital ceiling amount: The Parent Bank does not have a registered capital system. c) Information on share capital increases and their sources; other information on increased capital shares in the current period: In accordance with the decision taken at the Ordinary General Assembly, carried out on 30 March 2016, the paid- in capital of the Parent Bank which was TL 5.000.000 has been increased by TL 28.000 from internal sources, and TL 72.000 cash to TL 5.100.000 and the capital increase has been registered to Trade Registry Gazette No. 9071 dated 9 May 2016. d) Information on additions from capital reserves to capital in the current period: None. e) Capital commitments in the last fiscal year and continue until the end of the following interim period, general purpose of these commitments and estimated resources required for these commitments: The Parent Bank has no capital commitments. f) Indicators of the Parent Bank‘s income, profitability and liquidity for the previous periods and possible effects of future assumptions based on the uncertainty of these indicators on the Bank’s equity: In the current period, the Parent Bank follows its operations in line with the previous periods. The Parent Bank’s balance sheet has been managed with precaution by being affected by the interest, rate of exchange and credit risks at the minimum level. This helps to reduce the effects of fluctuations in the market to the Parent Bank’s performance and contributes to the profitability structure to be sustainable. g) Information on preferred shares representing the capital: The Parent Bank has no preferred shares. h) Information on marketable securities value increase fund: Current Period Prior Period TL FC TL FC From Subsidiaries, Associates and Entities under Common Control 615.642 1.025 342.182 61.381 Revaluation Difference - 1.025 - 61.381 Foreign Exchange Difference 615.642 - 342.182 - From Available for Sale Marketable Securities (1.460.361) (550.321) (1.718.652) 809.922 Revaluation Difference (1.657.745) (550.250) (1.618.036) 810.012 Deferred Tax Effect 396.407 (71) 275.247 (90) Foreign Exchange Difference (199.023) - (375.863) - Total (844.719) (549.296) (1.376.470) 871.303 107 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) III. EXPLANATIONS AND NOTES TO CONSOLIDATED OFF-BALANCE SHEET ACCOUNTS 1. Information on off-balance sheet liabilities: a) Nature and amount of irrevocable loan commitments: Current Period Prior Period Payment Commitments for Cheques 3.173.767 3.079.630 Asset Purchase and Sale Commitments 2.136.524 1.848.592 Commitments for Credit Card Expenditure Limits 7.275.913 7.131.274 Loan Granting Commitments 3.742.487 3.007.694 Other Irrevocable Commitments 7.204.521 4.855.029 Commitments for Credit Cards and Banking Services Promotions 22.138 20.185 Tax and Fund Liabilities from Export Commitments 458 27 Share Capital Commitments to Associates and Subsidiaries - - Total 23.555.808 19.942.431 b) Nature and amount of possible losses and commitments arising from the off-balance sheet items including the below mentioned: The Parent Bank has no possible losses arising from the off-balance sheet items. 1) Non-cash loans including guarantees, acceptances, financial guarantees and other letter of credits: Current Period Prior Period Guarantee Letters 68.592.339 49.707.786 Bank Acceptances 9.327.602 6.957.456 Letter of Credits 4.261.898 4.194.107 Other Guarantees 532.131 31.525 Other Securities 7.145 - Total 82.721.115 60.890.874 2) Certain guarantees, temporary guarantees, surety ships and similar transactions: Current Period Prior Period Letters of Certain Guarantees 42.394.237 31.862.854 Letters of Advance Guarantees 18.614.529 13.052.987 Letters of Temporary Guarantees 3.767.887 2.754.448 Letters of Guarantees Given to Customs Offices 786.137 655.110 Other Letters of Guarantees 3.029.549 1.382.387 Total 68.592.339 49.707.786 c) 1) Total non-cash loans: Current Period Prior Period Non-Cash Loans for Providing Cash Loans 1.675.735 1.054.138 With Original Maturity of One Year or Less 25.218 84.954 With Original Maturity of More than One Year 1.650.517 969.184 Other Non-Cash Loans 81.045.380 59.836.736 Total 82.721.115 60.890.874 108 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) III. EXPLANATIONS AND NOTES TO CONSOLIDATED OFF-BALANCE SHEET ACCOUNTS c) 2) Information on sectoral risk concentrations of non-cash loans: Current Period Prior Period TL (%) TL (%) TL (%) TL (%) Agricultural 69.794 0,27 14.374 0,03 38.976 0,20 23.711 0,06 Farming and Raising Livestock 28.426 0,11 92 - 154 0,01 - - Forestry 41.368 0,16 14.282 0,03 38.822 0,20 23.711 0,06 Fishing - - - - - - - - Manufacturing 6.524.288 25,02 28.576.126 50,45 5.062.105 25,58 21.697.254 52,79 Mining and Quarrying 245.428 0,94 268.696 0,47 147.703 0,75 211.946 0,52 Production 4.092.001 15,69 26.241.468 46,33 3.215.109 16,25 19.399.630 47,20 Electric, Gas and Water 2.186.859 8,39 2.065.962 3,65 1.699.293 8,59 2.085.678 5,07 Construction 7.027.294 26,95 15.424.719 27,23 4.364.482 22,05 10.932.056 26,60 Services 11.904.745 45,65 11.824.555 20,88 9.218.292 46,58 6.328.226 15,40 Wholesale and Retail Trade 5.892.322 22,60 3.705.689 6,54 5.048.269 25,51 2.875.098 7,00 Hotel, Food and Beverage Services 141.846 0,54 327.446 0,58 111.654 0,56 176.718 0,43 Transportation and Telecommunication 1.144.919 4,39 3.593.041 6,34 844.375 4,27 1.717.099 4,18 Financial Institutions 3.465.541 13,29 2.715.909 4,79 2.166.818 10,95 374.183 0,91 Real Estate and Leasing Services 1.143.848 4,39 1.413.797 2,50 943.923 4,77 1.103.380 2,68 Self-Employment Services - - 1.572 - - - 4.988 0,01 Education Services 68.225 0,26 7.067 0,01 52.607 0,27 18.500 0,05 Health and Social Services 48.044 0,18 60.034 0,11 50.646 0,26 58.260 0,14 Other 550.743 2,11 804.477 1,42 1.105.710 5,59 2.120.062 5,16 Total 26.076.864 100,00 56.644.251 100,00 19.789.565 100,00 41.101.309 100,00 c) 3) Information on the non-cash loans classified under Group I and Group II: Group I: Group II: TL FC TL FC Non-Cash Loans 25.922.626 56.471.056 154.238 173.195 Letters of Guarantee 25.718.747 42.574.392 154.238 144.962 Bank Acceptances 34.549 4.226.121 - 1.228 Letters of Credit 157.159 9.143.438 - 27.005 Endorsements - - - - Underwriting Commitments - - - - Factoring Guarantees - - - - Other Commitments and Contingencies 12.171 527.105 - - 109 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) III. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED OFF-BALANCE SHEET ACCOUNTS (Continued) 2. Explanations on derivative transactions: Current Period Prior Period Types of Trading Transactions Foreign Currency Related Derivative Transactions (I) 72.348.255 52.280.161 Forward Transactions 5.073.231 5.335.699 Swap Transactions 67.252.706 46.888.042 Futures Transactions - - Option Transactions 22.318 56.420 Interest Related Derivative Transactions (II) 9.322.634 6.235.626 Forward Interest Rate Agreements - - Interest Rate Swaps 9.322.634 6.235.626 Interest Rate Options - - Interest Rate Futures - - Other Trading Derivative Transactions (III) - - A. Total Trading Derivative Transactions (I+II+III) 81.670.889 58.515.787 Types of Hedging Derivative Transactions Fair Value Hedges - - Cash Flow Hedges - - Foreign Currency Investment Hedges - - B. Total Hedging Derivative Transactions - - Total Derivative Transactions (A+B) 81.670.889 58.515.787 The Group has no derivative instruments for hedging purposes. There are no unrealized transactions (those are estimated in the prior period and recognized based on this assumption however; it is clear that those transactions would not be realized) or expense and income from agreements in the income statement in the current period. 110 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) III. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED OFF-BALANCE SHEET ACCOUNTS (Continued) Up to 1 3-12 1-5 Over 5 Current Period Month 1-3 Months Months Years Years Total Derivatives held for trading Foreign exchange derivatives 113.541 (2.490) 507.204 588.518 - 1.206.773 - Inflow 23.745.723 7.461.879 2.929.318 2.640.594 - 36.777.514 - Outflow (23.632.182) (7.464.369) (2.422.114) (2.052.076) - (35.570.741) Interest rate derivatives - - - - - Inflow - - - - 4.661.317 4.661.317 - Outflow - - - - (4.661.317) (4.661.317) Derivatives held for hedging Foreign exchange derivatives - - - - - - - Inflow - - - - - - - Outflow - - - - - - Interest rate derivatives - - - - - - - Inflow - - - - - - - Outflow - - - - - - Total inflow 23.745.723 7.461.879 2.929.318 2.640.594 4.661.317 41.438.831 Total outflow (23.632.182) (7.464.369) (2.422.114) (2.052.076) (4.661.317) (40.232.058) Up to 1 3-12 1-5 Over 5 Prior Period Month 1-3 Months Months Years Years Total Derivatives held for trading Foreign exchange derivatives 55.826 13.237 31.571 296.163 - 396.797 - Inflow 21.376.770 853.321 1.705.788 2.402.600 - 26.338.479 - Outflow (21.320.944) (840.084) (1.674.217) (2.106.437) - (25.941.682) Interest rate derivatives - - - - - - - Inflow - - - - 3.117.813 3.117.813 - Outflow - - - - (3.117.813) (3.117.813) Derivatives held for hedging Foreign exchange derivatives - - - - - - - Inflow - - - - - - - Outflow - - - - - - Interest rate derivatives - - - - - - - Inflow - - - - - - - Outflow - - - - - - Total inflow 21.376.770 853.321 1.705.788 2.402.600 3.117.813 29.456.292 Total outflow (21.320.944) (840.084) (1.674.217) (2.106.437) (3.117.813) (29.059.495) 3. Explanations on contingent assets and liabilities: Provision is allocated for transactions with complete and accurate data that may have an effect on the financial structure of the Bank and otherwise, provision is provided based on the estimations. Group’s liability resulting from the cheques given to its customers amounts to TL 3.173.767 (31 December 2015: TL 3.079.630). As of the balance sheet date, there are no probable contingent liabilities resulting from past events whose amount can be reliably measured. 4. Explanations on services in the name of others: The Parent Bank acts as an intermediary for purchases and sales of government securities on behalf of individuals and entities, conducts repo transactions, and provides custody services. The Parent Bank does not provide consultancy and management services. 111 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED INCOME STATEMENT 1. a) Information on interest income from loans: Current Period Prior Period TL FC TL FC Interest on Loans (1) 18.992.637 3.094.642 14.653.128 2.260.303 Short Term Loans 4.760.476 159.502 3.801.983 108.553 Medium and Long Term Loans 14.109.708 2.933.732 10.685.902 2.151.457 Interest on Non-Performing Loans 122.453 1.408 165.243 293 Premiums from Resource Utilization Support Fund - - - - (1) Includes fees and commissions income on cash loans. (2) The dividend income amount belong to Ziraat Katılım Bank A.Ş shown in interest income from loans column. b) Information on interest received from the banks: Current Period Prior Period TL FC TL FC Central Bank of the Republic of Turkey 4.508 - 1.231 2.024 Domestic Banks 186.166 5.365 159.958 1.197 Foreign Banks 2.182 22.437 1.547 17.066 Head Office and Branches - - - - Total 192.856 27.802 162.736 20.287 c) Information on interest income on marketable securities: Current Period Prior Period TL FC TL FC Financial Assets Held for Trading 938 2.362 1.299 252 Financial Assets at Fair Value through Profit or Loss 6.757 - 5.432 1.419 Financial Assets Available-for-Sale 4.057.061 678.948 3.951.477 495.713 Investments Held-to-Maturity 419.755 361.924 424.006 368.124 Total 4.484.511 1.043.234 4.382.214 865.508 d) Information on interest income from subsidiaries and associates: Current Period Prior Period Interest Income from Subsidiaries and Associates 171 111 2. a) Information on interest expense on borrowings: Current Period Prior Period TL FC TL FC Banks (1) 122.297 394.045 118.534 322.848 Central Bank of the Republic of Turkey - - - - Domestic Banks 35.496 24.041 31.347 11.289 Foreign Banks 86.801 370.004 87.187 311.559 Head Office and Branches - - - - Other Institutions 6.395 4.975 - 42 Total 128.692 399.020 118.534 322.890 (1) Includes fees and commissions expenses on cash loans. 112 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED INCOME STATEMENT (Continued) b) Information on interest expenses given to subsidiaries and associates: Current Period Prior Period Interest Expenses Given to Subsidiaries and Associates 3.807 2.974 c) Information on interest given on securities issued: Current Period Prior Period TL FC TL FC Interest Given on Securities Issued 234.988 162.533 187.920 106.639 d) Maturity structure of the interest expense on deposits: Time Deposit More Demand Up to 1 Up to 3 Up to 6 Up to 1 Than 1 Cumulative Account Name Deposit Month Months Months Year year Deposit Total TL Bank Deposit - 374.045 - - - - - 374.045 Saving Deposit 1 225.477 5.198.683 366.469 76.570 72.004 2.558 5.941.762 Public Sector Deposit 215 342.069 428.687 103.464 308.449 762 - 1.183.646 Commercial Deposit 174 475.218 609.940 51.439 35.050 7.448 - 1.179.269 Other Deposit 100 138.653 378.420 38.739 69.423 29.390 - 654.725 Deposit with 7 Days Notification - - - - - - - - Total 490 1.555.462 6.615.730 560.111 489.492 109.604 2.558 9.333.447 FC Foreign Currency Deposit 1.431 79.366 250.925 55.881 50.008 210.293 15 647.919 Bank Deposit 17 75.252 334 207 1 - - 75.811 Deposit with 7 Days Notification - - - - - - - - Gold Vault - 126 969 142 79 83 - 1.399 Total 1.448 154.744 252.228 56.230 50.088 210.376 15 725.129 Grand Total 1.938 1.710.206 6.867.958 616.341 539.580 319.980 2.573 10.058.576 3. Explanations on dividend income: Current Period Prior Period Trading Financial Assets - - Financial Assets at Fair Value Through Profit or Loss - - Available-for-Sale Financial Assets 31.318 2.188 Other (1) 1.583 4.231 Total 32.901 6.419 (1) Shows the Group’s dividend income from equity investments, subsidiaries, associates and entities under common control. 113 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED INCOME STATEMENT (Continued) 4. Information on trading profit/loss (net): Current Period Prior Period Profit 34.427.463 37.926.627 Profit from the Capital Market Transactions 30.919.244 34.305.620 Profit on Derivative Financial Instruments 3.472.812 3.541.214 Foreign Exchange Gains 35.407 79.793 Loss (-) 34.597.456 38.068.344 Loss from the Capital Market Transactions 29.303.467 33.265.184 Loss on Derivative Financial Instruments 5.290.339 4.801.835 Foreign Exchange Loss 3.650 1.325 5. Information on profit/loss on derivative financial operations: Current Period Prior Period Effect of the change in exchange rates on profit/loss 1.517.551 152.933 Effect of the change in interest rates on profit/loss (3.335.078) (1.413.554) Total (1.817.527) (1.260.621) 6. Information on other operating income: Information on factors covering the recent developments which has significant effect on the Parent Bank’s income and the extent of effect on income: There are no significant matters covering the recent developments which have significant effect on the Parent Bank’s income. Main component of the Bank’s other operating income consists of reversals from prior period provisions amounting to TL 839.296 TL (31 December 2015: TL 776.168) and income from sales of assets amounting to TL 212.041 (31 December 2015: TL 98.170). 7. a) Provision expenses for impairment on loans and other receivables: Current Period Prior Period Specific Provisions for Loans and Other Receivables (1) 2.322.549 912.964 Group III Loans and Receivables 405.978 175.295 Group IV Loans and Receivables 960.422 414.706 Group V Loans and Receivables 956.149 322.963 General Provision Expenses (2) 1.122.469 552.669 Provision Expenses for the Possible Losses 3.960 7.350 Marketable Securities Impairment Expense 618 2.189 Financial Assets at Fair Value through Profit and Loss 142 33 Financial Assets Available for Sale 476 2.156 Impairment Losses from Associates, Subsidiaries, Joint Ventures and Marketable Securities Held to Maturity - 60 Associates - - Subsidiaries - - Entities under Common Control (Business Partners) - - Investment Securities Held to Maturity - 60 Other 126.656 72.039 Total 3.576.252 1.547.271 (1) The relevant balance includes the expenses related to the current period. The provision reversals within the period amounting to TL 440.027 are presented in other operating income (31 December 2015: TL 545.644). (2) The relevant balances include the expenses related to the current period. The provision reversals within the period amounting to TL 5.862 are presented in other operating income. 114 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED INCOME STATEMENT (Continued) 8. a) Information on other operating expenses: Current Period Prior Period Personnel Expenses 2.503.144 2.205.013 Reserve for Employee Termination Benefits 23.070 31.517 Bank Social Aid Provision Fund Deficit Provision - - Tangible Fixed Assets Impairment Expense - - Depreciation Expenses of Tangible Fixed Assets 320.419 284.626 Intangible Assets Impairment Expense - 1.177 Goodwill Impairment Expense - - Amortization Expenses of Intangible Assets 53.160 48.734 Impairment Expense for Equity Shares Subject to the Equity Method - - Impairment Expense for Investment Securities that will be Disposed - - Amortization Expenses of Investment Securities that will be Disposed 2.803 2.619 Impairment Expense for Property, Plant and Equipment Held for Sale and Discontinuing Operations - - Other Operating Expenses 1.414.660 1.261.941 Operational Leasing Expenses 237.969 191.479 Maintenance Expenses 81.235 87.416 Advertisement Expenses 98.614 113.716 Other Expenses 996.842 869.330 Loss on Sales of Assets 1.290 1.605 Other (1) 2.369.281 2.309.552 Total 6.687.827 6.146.784 (1) TL 475.532 of the relevant balance is Savings Deposit Insurance Fund expense accrual (31 December 2015: TL 405.201), TL 499.342 is taxes, fees and tolls expenses (31 December 2015: TL 407.768). 9. Information on profit/(loss) before tax from continuing and discontinuing operations: The Group does not have any discontinuing operations. The compositions of the profit/loss before tax from the continuing operations are following: Current Period Prior Period Net Interest Income 14.674.566 11.025.129 Net Fees and Commissions Income 1.516.567 1.230.276 Dividend Income 32.901 6.419 Trading Income/Expense (Net) (169.993) (141.717) Other Operating Income 3.227.587 2.433.906 Provision for Loan or Other Receivables Losses (-) 3.576.252 1.547.271 Other Operating Expenses (-) 6.687.827 6.146.784 Earning/Loss from Subsidiaries Consolidated with Equity Pick-up 21.914 28.025 Profit/(Loss) from Continuing Operations 9.039.463 6.887.983 10. Information on tax provision for continuing and discontinuing operations As of 31 December 2016, TL 2.154.328 (31 December 2015 TL 1.510.009) of the Group’s total tax provision expense amounting to TL 2.061.503 (31 December 2015: TL 927.367), consists of current tax expense while the remaining balances amounting to TL 92.825 (31 December 2015: TL 582.642 deferred tax income) consists of deferred tax expense. 115 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED INCOME STATEMENT (Continued) 11. Explanation on net income/loss for the period for continued and discontinued operations: The Group’s net operating income after tax amounts to TL 6.885.135 (31 December 2015 TL 5.377.974). 12. Information on net profit/loss: a) Nature, amount and frequency of income and expenses arising from ordinary banking activities, if required for the understanding the performance of the Parent Bank in the current period: The Parent Bank, mainly utilizes its resources from domestic deposits on loans, securities and interbank operations. Besides, it obtains income via commissions taken from non-cash loans, other banking operations and insurance agencies. b) The effect of the change in accounting estimates to the net profit/loss; including the effects to the future period, if any: As of the balance sheet date, there is no change in accounting estimates that may require further explanations in the current period (31 December 2015: None). 13. If other items in the income statement exceed 10% of the income statement total, sub-accounts constituting at least 20% of these items are shown below: The "Other" item under "Fees and Commissions Received" in the Income Statement consists of fees and commission income from credit cards and banking transactions.. V. EXPLANATIONS AND NOTES RELATED TO CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY 1. In accordance with the Turkish Accounting Standards, the disclosures on shareholders’ equity are made accordingly in the order of financial statement items in this section: a) Explanations on inflation adjustment differences for equity items: As per the BRSA’s Circular numbered 5 announced on 28 April 2005 it is stated that the indicators of hyperinflationary period are eliminated to a large extent, inflation accounting applied in the banking system has been ceased as of 1 January 2005 in accordance with the BRSA decree numbered 1623 on 21 April 2005. b) Explanations on profit distribution: In accordance with the decision taken in the General Assembly of the year 2015 which was carried out on 30 March 2016, from TL 5.162.470 TL net profit as of 31 December 2015 which is subject to distribution, TL 258.124 is transferred to first legal reserve and TL 24.200 is transferred to second legal reserve. TL 220.000 is distributed as dividend to employees and TL 231.200 is distributed to Treasury after deducting withholding tax of 15% (TL 40.800) in cash. In this context, TL 4.388.146 of the profit is preserved; dividend payment made to Treasury on 15 April 2016, and within the framework of the dividend to be distributed to employees, at total TL 186.788 is paid. The remaining TL 33.212 from the dividends distributed to the personnel according to the decision taken in the General Assembly of the year. The Parent Bank is planning to distribute its 2016 profit in accordance with its articles of association. However, as of the report date, there is no decision taken regarding the profit distribution. 116 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) V. EXPLANATIONS AND NOTES RELATED TO CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY (Continued) c) Explanations on available for sale financial assets: Available for sale financial assets are not included in the current income statement, until their collections, disposals, sales or losses are realized and those assets are recognized under the “Marketable Securities Revaluation Fund” under equity. In accordance with TAS 39 and due to the change in the Parent Bank’s intention to hold the previously classified as available for sale securities to maturity the Parent Bank has reclassified the securities under available for sale portfolio to held to maturity portfolio. The valuation differences of these securities is presented under shareholders’ equity as a “Marketable Securities Valuation Differences” and transferred to profit/loss with subject to redemption with proportional to the maturity of security. Subsidiaries and jointly controlled entities domiciled and operating abroad are followed by their fair values. For such subsidiaries and entities under common control, the fair value is determined with revaluation report prepared by independent valuation firm and revaluation differences are recognized under “Marketable Securities Revaluation Fund” under equity. d) Profit Reserves: As of the balance sheet date, profit reserves amount to TL 22.871.718, legal reserves amount to TL 3.393.778, profit reserves amount to TL 18.052.605 and other profit reserves amount to TL 1.425.335. e) Explanations Related to Previous Period Profit / Loss: The revaluation increase which was carried under "Property, Plant and Equipment Revaluation Differences" amounting to TL 746.547 related with the properties transferred to Ziraat Gayrimenkul Yatırım Ortaklığı A.Ş. as capital is classified in the Prior Years Profit / Loss under the "TAS 16- Property, Plant and Equipment" standard. VI. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED STATEMENT OF CASH FLOWS 1. Explanations about other cash flows items and the effect of changes in foreign exchange rates on cash and cash equivalents: “Operating Profit before Changes in Operating Assets and Liabilities” amounting to TL 8.121.027 is composed mainly from interest received from loans and securities amounting to TL 27.012.143 and interest paid to deposit and money market operations which is amounting to TL 13.228.937. Other earnings consists primarily net fee, commission income and other operation losses. The effect of change in foreign exchange rates on cash and cash equivalents includes the foreign exchange differences resulted from the translations of cash and cash equivalents in foreign currencies into TL at the exchange rates prevailing at the beginning and end of the year, and amounts to TL 1.183.517 as of 31 December 2016 (31 December 2015: TL 589.946). Cash in TL, cash in foreign currency, Central Bank of the Republic of Turkey, money in transit, bank cheques purchased and cash on money market operations are defined as “cash”; interbank money transactions placements having maturities less than three months, and time deposits in banks are defined as “cash equivalents”. Period opening and end cash and cash equivalents balance: Period Opening Current Period Prior Period Cash in TL and in Foreign Currency 2.577.170 1.869.429 Central Bank of the Republic of Turkey and Other Banks 6.424.794 4.524.233 Money Market Operations 116.173 51.529 Total Cash and Cash Equivalents 9.118.137 6.445.191 Period End Current Period Prior Period Cash in TL and in Foreign Currency 2.792.776 2.577.170 Central Bank of the Republic of Turkey and Other Banks 12.854.193 6.424.794 Money Market Operations 252.944 116.173 Total Cash and Cash Equivalents 15.899.913 9.118.137 117 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) VII. EXPLANATIONS AND NOTES TO THE RISK GROUP OF THE PARENT BANK 1) Volume of related party transactions, income and expense amounts involved and outstanding loan and deposit balances: a) Current Period: Subsidiaries, Associates and Direct or Indirect Other Real and Entities Under Common Control Shareholders Legal Persons in Risk Group of the Parent Bank (Joint Ventures) of the the Parent Bank the Risk Group Cash Non-cash Cash Non-cash Cash Non-cash Loans and Other Receivables (1) Opening Balance 25.125 - - - - - Closing Balance 22.397 - - - - - Interest and Commissions Income 171 - - - - - (1) The cash loans balance includes the investments to associates, subsidiaries and entities under common control. b) Prior Period: Subsidiaries, Associates and Direct or Indirect Other Real and Entities Under Common Control Shareholders Legal Persons in Risk Group of the Parent Bank (Joint Venture) of the the Parent Bank the Risk Group Cash Non-cash Cash Non-cash Cash Non-cash (1) Loans and Other Receivables Opening Balance 8.558 - - - - - Closing Balance 25.125 - - - - - Interest and Commissions Income 111 - - - - - (1) The cash loans balance includes the investments to associates, subsidiaries and entities under common control. c) 1) Deposits held by the Parent Bank’s risk group: Subsidiaries, Associates and Direct or Indirect Other Real and Entities Under Common Shareholders Legal Persons in Risk Group of the Bank Control (Joint Venture) of the Bank the Risk Group Deposits Current Period Prior Period Current Period Prior Period Current Period Prior Period Opening Balance 38.385 261.835 - - - - Closing Balance 52.520 38.385 - - - - Interest Expense on Deposits 3.807 2.974 - - - - 2) Information on forward transactions, option agreements and similar transactions between the Parent Bank’s risk group: None (31 December 2015: None). 3) Information about fees paid to the Group’s key management: Fees paid to the Group’s key management amount to TL 44.194 (31 December 2015: TL 28.787). 118 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) VIII. EXPLANATIONS AND NOTES RELATED TO SUBSEQUENT EVENTS 1) The Parent Bank was continuing its national and international banking activities via its domestic / foreign branches and subsidiaries that serve in different financial areas under the ownership of Undersecretariat of Treasury. With the decision agreed, decree no. 2017/9756 dated 24 January 2017, the Parent Bank will continue its operations under the ownership of the Turkey Wealth Fund. 2) A protocol has been signed with SSO on 1 February 2017 regarding the payment of promotions by the Bank to customers who receive Emekli Sandığı, SSK, Bağ-Kur (all referred as Social Security Organization) pension payments through the Bank. IX. EXPLANATIONS AND NOTES RELATED TO THE DOMESTIC, FOREIGN, OFF-SHORE BRANCHES OR AFFILIATES AND FOREIGN REPRESENTATIVES OF THE PARENT BANK 1) Information on the Parent Bank’s domestic and foreign branches and foreign representatives of the Bank: Number of Number Employees Domestic Branch (1) 1.786 24.932 Country of Incorporation Foreign Representative Office (2) 1 - 1- Iran Statutory Share Total Assets Capital Foreign Branch (2) 1 2 1- USA 1.295.174 412.020 1 2 2- England 5.375.390 184.104 4 2 3- Bulgaria 199.844 52.051 3 6 4- Georgia 97.975 20.149 2 3 5- Iraq 307.190 49.106 4 4 6- Greece 382.891 122.093 1 2 7- Saudi Arabia 120.251 52.614 1 - 8- Kosovo 68.419 36.998 9-T.R. of Northern 10 42 Cyprus 1.201.983 136.238 Off-Shore Banking Region Branches 1 1 1-Bahrein 2.434.370 17.538 (1) Includes the employees of the domestic branches, including the employees of head office and regional management. (2) Excluding the local employees of the foreign branches. 2) Information on the Parent Bank about opening, closing, changing its organization considerably for domestic and foreign branches and foreign representatives of the Parent Bank: In the Parent Bank, 15 new branches were opened, 15 branches were closed within 2016 in Turkey. On the other side, Bahrain branch in Bahrain has started to its operations in 28 November 2016 in abroad. 119 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION SIX OTHER EXPLANATIONS AND NOTES I. INFORMATION ON THE PARENT BANK’S RATING THAT HAS BEE N DETERMINED BY INTERNATIONAL CREDIT RATING AGENCIES Information on the assessment done by the international rating agencies Moody’s Investor Services, Fitch Ratings and JCR Eurasia are as follows: Moody’s Investor Services: September 2016 Outlook Stable Long term Foreign Currency Deposit Ba2 Short term Foreign Currency Deposit Not-Prime Long term Turkish Liras Deposit Ba1 Short term Turkish Liras Deposit Not-Prime Long term Foreign Currency Bond Ba1 Long term Turkish Liras Bond Ba1 Basic Credit Note ba2 Adjusted Basic Credit Note ba2 Fitch Ratings: October 2016 Foreign Currency Commitments Long Term BBB- Outlook Negative Short Term F3 Local Currency Commitments Long Term BBB- Short Term F3 Outlook Negative National Long Term AAA (tur) Outlook Stable Viability Rating bbb- Support Rating 2 Support Rating Base BBB- JCR Eurasia: November 2016 Foreign Currency Commitments Long Term BBB- Outlook Stable Short Term A-3 Outlook Stable Local Currency Commitments Long Term (International) BBB- Outlook Stable Short Term (International) A-3 Outlook Stable National Long Term AAA (Trk) National Short Term A-1+ (Trk) Outlook Stable Support rating 1 Independence from partnership rate A 120 CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH, SEE IN NOTE I. OF SECTION THREE TÜRKİYE CUMHURİYETİ ZİRAAT BANKASI A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2016 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION SEVEN EXPLANATIONS ON THE INDEPENDENT AUDITOR’S REPORT I. EXPLANATIONS ON INDEPENDENT AUDITOR’S REPORT As of 31 December 2016, consolidated financial statements and explanatory notes of the Bank disclosed herein were audited by PwC Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. Independent Auditor’s Report dated 17 February 2017 is presented preceding the financial statements. II. EXPLANATIONS AND NOTES PREPARED BY THE INDEPENDENT AUDITORS None. …………………... 121