(Convenience Translation of Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish, See Section 3.1) Türkiye Cumhuriyeti Ziraat Bankası Anonim Şirketi Consolidated Financial Statements As of and For the Year Ended 31 December 2018 With Independent Auditors’ Report Thereon (Convenience Translation of consolidated Financial Statements and Related Disclosures and Footnotes Originally Issued in Turkish) 27 February 2019 This report contains “Independent Auditors’ Report” comprising 6 pages and; “Consolidated Financial Statements and Related Disclosures and Footnotes” comprising 176 pages. Convenience Translation of the Independent Auditor’s Report Originally Prepared and Issued in Turkish to English (See Note I in Section Three) INDEPENDENT AUDITOR’S REPORT To the General Assembly of Türkiye Cumhuriyeti Ziraat Bankası A.Ş. A) Audit of Consolidated Financial Statements Qualified Opinion We have audited the consolidated financial statements of Türkiye Cumhuriyeti Ziraat Bankası A.Ş. (“the Bank”) and its consolidated financial affiliates (together will be referred as “the Group”) which comprise the consolidated balance sheet as at 31 December 2018 and the consolidated statement of profit or loss, consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in shareholders’ equity, consolidated statement of cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. In our opinion, except for the effect of the matter described in the Basis for Qualified Opinion section of our report, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Bank as at 31 December 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with the “Banking Regulation and Supervision Agency (“BRSA”) Accounting and Reporting Legislation” which includes the “Regulation on Accounting Applications for Banks and Safeguarding of Documents” published in the Official Gazette No. 26333 dated 1 November 2006, and other regulations on accounting records of banks published by Banking Regulation and Supervision Board and circulars and interpretations published by BRSA and requirements of Turkish Financial Reporting Standards for the matters not regulated by the aforementioned legislations. Basis for Qualified Opinion As disclosed in section five footnote II.9.3.1, the accompanying consolidated balance sheet as at 31 December 2018 include a general reserve of total of TL 982.000 thousands, of which TL 1.475.000 thousand was recognised in prior years, TL 30.000 thousand have been recognised in current year and 523.000 thousands have been reversed in the current period and, which is provided by the Group management for the possible effects of the negative circumstances which may arise in the economy or market conditions. We conducted our audit in accordance with the “Regulation on Independent Audit of the Banks” (“BRSA Auditing Regulation”) published in the Official Gazette No.29314 dated 2 April 2015 by BRSA and Standards on Auditing which is a component of the Turkish Auditing Standards issued by the Public Oversight Accounting and Auditing Standards Authority (“POA”) (“Standards on Auditing issued by POA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We declare that we are independent of the Bank in accordance with the Code of Ethics for Auditors issued by POA (POA’s Code of Ethics) and the ethical requirements in the regulations issued by POA that are relevant to audit of Consolidated financial statements, and we have fulfilled our other ethical responsibilities in accordance with the POA’s Code of Ethics and regulations. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Basis for Qualified Opinion section we have determined the matters described below to be the key audit matters to be communicated in our report. Impairment of loans measured at amortised cost Refer to Section Three, No: VIII to the consolidated financial statements relating to the details of accounting policies and significant judgments of for impairment in loans measured at amortised cost Key audit matter How the matter is addressed in our audit As of 31 December 2018, loans measured at Our procedures for testing the impairment of amortised cost comprise 70% of the Group’s loans included below: total assets.  We tested the design and operating The Group recognizes its loans in accordance effectiveness of the controls on lending, with the Regulation on the Procedures and collateralization, collection, follow-up, Principles for Classification of Loans by Banks classification and impairment procedures and Provisions to be set aside (the "Regulation") are tested with the involvement of published on the Official Gazette No. 29750 information risk management specialists. dated 22 June 2016 and TFRS 9 Financial  We evaluated the adequacy of the Instruments standard ("Standard"). subjective and objective criteria that is As of 1 January 2018, due to the adoption of the defined in the Group's impairment Regulation and Standard, in determining the accounting policy compared with the impairment of loans it is started to apply Regulation and Standard. "expected credit loss model" rather than the  We evaluated the Group's business model "incurred loss model". The new model contains and methodology and the evaluation of the significant assumptions and estimates. calculations were carried out with the The significant assumptions and estimates of control testing and detailed analysis by the the Group’s management are as follows: involvement of specialist. - significant increase in credit risk; - incorporating the forward looking macroeconomic information in calculation of credit risk; and - design and implementation of expected credit loss model. The determination of the impairment of loans  We performed loan reviews for selected measured at amortised cost depends on the credit loan saples which include a detailed default status, the model based on the change in examination and testing their the credit risk at the first recognition date and the classfication. In this context, the current classification of the loans measured at amortised status of the loan customer has been cost according to the model. Establishing an evaluated by including prospective accurate classification is a significant process as the information and macroeconomic variables. calculation of expected credit loss varies to the  We tested the accuracy and completeness staging of the financial assets. of the data in the expected loss calculation The Group calculates expected credit losses on a models. Also the expected credit loss collective basis. The collective basis expected credit calculation of the risk parameters were loss calculation is based on complex processes examined and the risk parameters for the which are modelled by using current and past data selected sample portfolios were sets and expectations and the forward looking recalculated. expectations are reflected by macroeconomic  We assessed the macroeconomic models models. which are used to reflect forward lookBing Impairment on loans measured at amortised cost expectations and tested the effect of the was considered to be a key audit matter, due to the risk parameters by recalculation method. significance of the estimates, assumptions, the level  We evaluated the qualitative and of judgements and its complex structure as quantitative assessments which are used explained above. in determining the significant increase in credit risk.  Additionally, we also evaluated the adequacy of the consolidated financial statement disclosures related to impairment provisions. Pension plan Refer to Section III Note: XVI to the consolidated financial statements relating to the details of accounting policies and significant judgments for pension plan. Key audit matter How the matter was addressed in our audit The Bank’s defined benefit pension plan (the “Plan”) Our procedures for testing the defined benefit is managed by “T.C. Ziraat Bankası ve T. Halk pension plan in accordance with the key Bankası Mensupları Emekli ve Yardım Sandığı assumptions made by management include (TZHEMSAN) Vakfı” (the “Fund”) established as per below: the provisional article 20 of the Social Security Law  We have involved our own actuarial No. 506 and the Bank’s employees are the members specialist to assess the appropriateness of of this Fund (TZHEMSAN). the actuarial assumptions and calculations As disclosed in the footnote 3.16 to the consolidated performed by the external actuary. financial statements, the Plan is composed of benefits which are subject to transfer to Social  We have assessed whether there have Security Foundation (“SSF”) as per the Social been any significant changes in actuarial Security Law no.5510 provisional article 20, and assumptions, methods and underlying other social rights and pension benefits provided by regulations used in calculations. the Bank that are not transferable to SSF. The Significant changes during the period in Council of Ministers has been authorized to pension plan benefits, plan assets or determine the transfer date. Following the transfer, membership profiles which affect liabilities the non-transferable social rights and pension have been evaluated. benefits provided under the Plan will be covered by  Additionally, the adequacy of consolidated the funds and the institutions that employ the financial statement disclosures, including funds’ members. disclosures of key assumptions and As of 31 December 2018, the Bank’s transferrable judgments have been evaluated. liabilities are calculated by an independent actuary using the actuarial assumptions regulated by Law,  We have evaluated whether the and in accordance with the Decision of the Council TZHEMSAN plan assets are adequate to of Ministers announced in the Official Gazette dated cover the Pension Plan liabilities, under the 15 December 2006 and No.26377. methods and assumptions used. As of December 31, 2018, the liabilities of the Bank which are not related to the current period are calculated by an independent actuary according to TAS 19 Employee Benefits. The valuation of the Pension Fund liabilities requires judgment in determining appropriate assumptions such as defining the transferrable social benefits, discount rates, salary increases, inflation levels, demographic assumptions, and the impact of changes in Pension Plan. Management uses independent actuaries to assist in assessing the uncertainty around these assumptions. The key judgments and assumptions used in calculation of transferrable liabilities disclosed at the footnote II.9.4.3 of section five, plus the uncertainty around the transfer date and basis of the transfer calculation given the fact that the technical interest rate is prescribed under the law, we considered this to be a key audit matter. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the BRSA Accounting and Reporting Legislation, 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. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Responsibilities of auditors in an audit are as follows: Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with BRSA Auditing Regulation and Standards on Auditing issued by POA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with BRSA Auditing Regulation and Standards on Auditing issued by POA we exercise professional judgment and maintain professional skepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.  Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However , future events or conditions may cause the Group to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. B) Other Legal and Regulatory Requirements 1) Pursuant to the fourth paragraph of Article 402 of the Turkish Commercial Code (“TCC”) No. 6102; 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 2018 are not in compliance with TCC and provisions of the Bank’s articles of association in relation to financial reporting. 2) Pursuant to the fourth paragraph of Article 402 of the TCC; the Board of Directors provided us the necessary explanations and required documents in connection with the audit. Additional paragraph for convenience translation to English: The accounting principles summarized in Note I of Section Three, differ from the accounting principles generally accepted in countries in which the accompanying consolidated financial statements are to be distributed and International Financial Reporting S tandards (“IFRS”). Accordingly, the accompanying consolidated financial statements are not intended to present the financial position and results of operations in accordance with accounting principles generally accepted in such countries of users of the consolidated financial statements and IFRS. KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi A member firm of KPMG International Cooperative Erdal Tıkmak, SMMM Partner 27 February 2019 İstanbul, Turkey CONVENIENCE TRANSLATION OF PUBLICLY ANNOUNCED CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ 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 2018 The Bank’s Headquarter Address: Hacıbayram 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 year end 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 PARENT BANK  EXPLANATIONS ON ACCOUNTING POLICIES  EXPLANATIONS ON THE FINANCIAL POSITION AND RISK MANAGEMENT OF THE GROUP  EXPLANATIONS AND NOTES RELATED TO THE CONSOLIDATED FINANCIAL STATEMENTS  OTHER EXPLANATIONS  INDEPENDENT AUDITORS’ REPORT Within the framework of this financial report, our consolidated financial statements of subsidiaries, associates and jointly controlled entities are as follows: DOMESTIC SUBSIDIARIES FOREIGN SUBSIDIARIES 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. JSC Ziraat Bank Georgia Ziraat Girişim Sermayesi Yatırım Ortaklığı A.Ş. Ziraat Bank Uzbekistan JSC ASSOCIATES JOINT VENTURES Arap Türk Bankası A.Ş. Turkmen Turkish Joint Stock Commercial Bank The accompanying consolidated financial statements and notes to these financial statements which are expressed, unless otherwise stated, in thousands 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. ______________________ _______________________ ______________________ Dr. Ahmet GENÇ Hüseyin AYDIN Feyzi ÇUTUR Chairman of the Board Member of the Board, Member of the Board, CEO Member of the Audit Committee ______________________ _______________________ ______________________ Yusuf BİLMEZ Bilgehan KURU Neslihan ARAS Member of the Board, Executive Vice President of Senior Vice President of Financial Member of the Audit Committee Treasury and International Banking 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 Fax Number : 0312 584 59 38 SECTION ONE General Information about the Parent Bank 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 Parent 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 of which the Bank belongs to 1 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 1 IV. Information about the persons and institutions that have qualified shares attributable to the Parent Bank 2 V. Summary information on the Parent Bank’s activities and services 2 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 3 VII. The Existing Or Potential, Actual Or Legal Obstacles On The Immediate Transfer Of Shareholders’ Equit y Or Repayment Of Debt Between the Parent Bank And Its Subsidiaries 3 SECTION TWO Current year Consolidated Financial Statements I. Balance sheet- Assests 5 II. Balance sheet- Liabilities and Equity 6 III. Statement of off-balance sheet commitments 7 IV. Statement of profit or loss 8 V. Statement of profit or loss and other comprehensive income 9 VI. Statement of changes in shareholders’ equity 10 VII. Statement of cash flows 11 VIII. Statement of profit distribution 12 Prior year Consolidated Financial Statements I. Balance sheet- Assests 13 II. Balance sheet- Liabilities 14 III.. Statement of off-balance sheet commitments 15 IV Statement of income 16 V. Statement of income and expense items accounted under shareholders’ equity 17 VI. Statement of changes in shareholders’ equity 18 VII. Statement of cash flows 19 VIII. Statement of profit distribution 20 SECTION THREE Explanations on Accounting Policies I. Basis of presentation 21 II. Explanations on strategy of using financial instruments and foreign currency transactions 22 III. Information on consolidated subsidiaries 22 IV. Explanations on forward transactions, options and derivative instruments 24 V. Explanations on interest income and expense 25 VI. Explanations on fee and commission income and expense 25 VII. Explanations on financial assets 25 VIII. Explanations on impairment of financial assets 27 IX. Explanations on offsetting of financial instruments 29 X. Explanations on sales and repurchase agreements and securities lending transactions 30 XI. Information on assets held for sale and related to discontinued operations and explanations on liabilities related with these assets 30 XII. Explanations on goodwill and other intangible assets 31 XIII. Explanations on property and equipment 31 XIV. Explanations on leasing transactions 32 XV. Explanations on provisions, contingent asset and liabilities 32 XVI. Explanations on obligations related to employee rights 33 XVII. Explanations on taxation 35 XVIII. Explanations on insurance technical reserves 37 XIX. Explanations on borrowings 37 XX. Explanations on issuance of share certificates 37 XXI. Explanations on avalized drafts and acceptances 38 XXII. Explanations on government grants 38 XXIII. Cash and cash equivalents 38 XXIV. Explanations on segment reporting 38 XXV. Explanations on other matters 39 XXVI. Explanations on prior period accounting policies not available for the current period 42 SECTION FOUR Explanations Related to the Financial Position and Risk Management I. Explanations on the components of consolidated shareholders’ equity 44 II. Explanations on consolidated credit risk 50 III. Explanations on the consolidated currency risk 62 IV. Explanations on the consolidated interest rate risk 64 V. Explanations on the position risk of consolidated equity securities 67 VI. Explanations on consolidated liquidty risk management and liquidity coverage ratio 67 VII. Explanations on consolidated leverage 73 VIII. Explanations on consolidated risk management 74 IX. Explanations on consolidated operating segments 103 X. Explanations on the fair value realization of financial assets and liabilities 106 XI. Explanations on the activities carried out on behalf and on account of other parties 107 SECTION FIVE Explanations and Notes Related to Consolidated Financial Statements I. Explanations and notes related to assets 108 II. Explanations and notes related to liabilities 140 III. Explanations and notes related to off-balance sheet accounts 155 IV. Explanations and notes related to income statement 162 V. Explanations and notes related to the changes in shareholders equity 171 VI. Explanations on consolidated cash flow statements 172 VII. Explanations and notes to the risk group of the Parent Bank 172 VIII. Explanations and notes related to subsequent events 174 IX. Explanations and notes related to domestic, foreign, off-shore branches or affiliates and foreign representatives of the Parent Bank 174 SECTION SIX Other Explanations I. Information on the Parent Bank’s rating that has been determined by international rating agencies 175 II. Other explanations on the Group’s operations 175 SECTION SEVEN Explanations on Independent Auditors’ Report I. Explanations on Independent Auditors’ report 176 II. Explanations and notes prepared by the independent auditors 176 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 2018 (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”, “the Bank” or “the Parent Bank”) is based on Government Funds established in 1863. In 1883, Government Funds were replaced with Benefit Funds. The 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. All shares of The Parent Bank, which was given the authority to perform all the banking activities, belonged to the Republic of Turkey Prime Ministry Undersecretariat of Treasury (“Treasury”) transfered to the Turkish Wealth Fund with the decision of the Council of Ministers numbered 2017/9756 dated 24 January 2017. The Parent Bank’s head office is located in Ankara. II. EXPLANATION ABOUT THE PARENT BANK’S CAPITAL STRUCTURE, SHAREHOLDERS OF THE PARENT 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 OF WHİCH THE BANK BELONGS TO The total share capital of the Parent Bank is TL 6.100.000. This capital is divided into 6.100.000.000 registered share with a nominal value of TL 1 each and is fully paid. The Parent Bank's sole shareholder is the Turkish Wealth Fund. The decision of increasing the capital of the Parent Bank by TL 6.100.000 was approved by the Parent Bank's Ordinary General Assembly on 13 August 2018 and the capital increase and the related amendment to the articles of association of the Articles of Association were registered on 22 October 2018. It was announced on 24 October 2018 in the Trade Registry Gazette No. 9688. The accounting for the capital increase was made on 9 November 2018 with the permission of Banking Regulation and Supervision Agency. 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 Dr. Ahmet GENÇ Chairman Hüseyin AYDIN CEO and Member Yusuf DAĞCAN Vice Chairman and Member Cemalettin BAŞLI Member Feyzi ÇUTUR Member Metin ÖZDEMİR Member Mahmut KAÇAR Member Salim ALKAN Member Yusuf BİLMEZ Member Audit Committee Members Yusuf BİLMEZ Member Feyzi ÇUTUR Member Executive Vice Presidents Ali KIRBAŞ Banking Operations and Communication Alpaslan ÇAKAR Retail Branch Banking-2 Bilgehan KURU Treasury and International Banking Mehmet Cengiz GÖĞEBAKAN Loan Policies Musa ARDA Loan Allocation and Management Peyami Ömer ÖZDİLEK Internal Operations Süleyman TÜRETKEN Retail Branch Banking-1 Yüksel CESUR Internal Systems The Parent Bank's Chairman and Members of the Board of Directors, Members of the Audit Committee, General Manager and Deputy General Managers do not own any shares of the Parent Bank. 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION ONE (Continued) GENERAL INFORMATION ABOUT THE GROUP(Continued) 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 Turkish Wealth Fund 6.100.000 100 6.100.000 - The Parent Bank's sole shareholder is the Turkish Wealth Fund. V. SUMMARY INFORMATION ON THE 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 2018, Parent Bank carries its activities with a grand total of 1.773 branches; 1.750 domestic branches including 20 corporate branches, 87 entrepreneurial branches, 1.638 branches and 5 mobile branches (31 December 2017: 1.759 domestic branches including 1.639 branches, 20 corporate branches, 95 entrepreneurial branches, 5 mobile branches) and 23 branches abroad London branch in England, Baghdad and Arbil branches in Iraq, Athens, Komotini, and Xanthi branches in Greece, Sofia, Plovdiv, Kardzhali and Varna branches in Bulgaria, Jeddah branch in Saudi Arabia, Pristina, Prizren and Peja branch in Kosovo, Bahrain branch in Bahrain, Lefkoşa, Girne, Güzelyurt, Gazimağusa, Gönyeli, Taşkınköy, Karaoğlanoğlu and İskele branches in Turkish Republic of Northern Cyprus. The Bank also has 1 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. The agreement which has been signed with T. Iş Bankası A.Ş. has ended on 31 December 2018. Moreover, Ziraat Bank’s card branding and loyalty program which was launched in 2017, has reached the final stage for the establishment and put into practice in February 2018. Within the scope of the program, the credit card product will be presented together to the users with the bank card product by one plastic. In addition, new features of saving and budget friendly qualities will be brought into action for both credit card and bank card products which the Bank is the leader. Bankkart Başak is a bank card through which demand deposit accounts and agricultural loan accounts can be linked. The Parent Bank can associate Bankkart Başak 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 Parent Bank in Başakkart Member Business points for the purchase of agricultural 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 Parent 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 the consolidated subsidiaries in Note III are referred to as ‘Group’ as a whole. As of 31 December 2018, the Group has 27.276 employees (31 December 2017: 26.918). 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION ONE (Continued) 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, Arap Türk Bankası A.Ş, one of the associates of the Parent Bank, and Turkmen Turkish Joint Stock Commercial Bank which is an entity of Parent Bank under common control will be taken into the scope of consolidation “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 Parent Bank and are not financial subsidiaries. All other subsidiaries are fully consolidated. VII. THE EXISTING OR POTENTIAL, ACTUAL OR LEGAL OBSTACLES ON THE IMMEDIATE TRANSFER OF SHAREHOLDERS’ 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION TWO CONSOLIDATED FINANCIAL STATEMENTS Current Period Consolidated Financial Statements I. Balance Sheet- Assets II. Balance Sheet- Liability III. Off-balance sheet commitments IV. Statement of profit or loss V. Statement of profit or loss and other comprehensive income VI. Satement of changes in shareholders’equity VII. Stement of cash flows VIII. Statement of profit distribution Prior Period Consolidated Financial Statements I. Balance Sheet- Assets II. Balance Sheet- Liability III. Off-balance sheet commitments IV. Income statement V. Statement of income and expense items accounted under shareholders’ equity VI. Statement of changes in shareholders’equity VII. Statement of cash flows VIII. Statement of profit distribution 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) I. CONSOLİDATED BALANCE SHEET (CONSOLIDATED STATEMENT OF FINANCIAL Current Period POSITION) Note 31 December 2018 ASSETS (Section Five I) TL FC Total I. FINANCIAL ASSETS (NET) 71.859.970 79.256.668 151.116.638 1.1 Cash and Cash Equivalents 7.815.408 44.414.292 52.229.700 1.1.1 Cash and Balances with Central Bank (1) 5.159.473 37.723.020 42.882.493 1.1.2 Banks (4) 2.594.530 6.502.590 9.097.120 1.1.3 Money Markets 61.405 188.682 250.087 1.2 Financial Assets Measured at Fair Value Through Profit or Loss (2) 536.584 6.246.194 6.782.778 1.2.1 Government Securities 505.480 5.895.402 6.400.882 1.2.2 Equity Securities 8 - 8 1.2.3 Other Financial Assets 31.096 350.792 381.888 1.3 Financial Assets Measured at Fair Value Through Other Comprehensive Income (5),(6) 56.610.615 23.222.432 79.833.047 1.3.1 Government Securities 55.241.367 22.647.572 77.888.939 1.3.2 Equity Securities 125.580 252.138 377.718 1.3.3 Other Financial Assets 1.243.668 322.722 1.566.390 1.4 Financial Assets Measured at Amortised Cost (8) 5.404.610 4.877.935 10.282.545 1.4.1 Government Securities 5.207.791 4.876.659 10.084.450 1.4.2 Other Financial Assets 196.819 1.276 198.095 1.5 Derivative Financial Assets (3) 1.548.540 510.238 2.058.778 1.5.1 Derivative Financial Assets Measured at Fair Value Through Profit or Loss 1.548.540 510.238 2.058.778 1.5.2 Derivative Financial Assets Measured at Fair Value Through Other Comprehensive Income - - - 1.6 Non-Performing Financial Assets - - - 1.7 Expected Credit Loss (-) (21) 55.787 14.423 70.210 II. LOANS (NET) (7) 263.463.461 135.594.418 399.057.879 2.1 Loans 262.903.728 132.869.206 395.772.934 2.1.1 Measured at Amortised Cost 262.903.728 132.828.354 395.732.082 2.1.2 Fair Value Through Profit or Loss - 40.852 40.852 2.1.3 Fair Value Through Other Comprehensive Income - - - 2.2 Lease Receivables (12) 1.449.276 2.529.404 3.978.680 2.2.1 Financial Lease Receivables 2.118.748 2.908.117 5.026.865 2.2.2 Operating Lease Receivables - - - 2.2.3 Unearned Income (-) 669.472 378.713 1.048.185 2.3 Factoring Receivables - 2.147 2.147 2.3.1 Measured at Amortised Cost - 2.147 2.147 2.3.2 Fair Value Through Profit or Loss - - - 2.3.3 Fair Value Through Other Comprehensive Income - - - 2.4 Non-Performing Loans 7.750.674 1.005.323 8.755.997 2.5 Expected Credit Loss (-) 8.640.217 811.662 9.451.879 2.5.1 12 Month Expected Credit Losses (Stage I) 882.310 113.905 996.215 2.5.2 Significant Increase in Credit Risk (Stage II) 2.232.388 32.346 2.264.734 2.5.3 Credit-Impaired Losses (Stage III / Specific Provision) 5.525.519 665.411 6.190.930 III. PROPERTY AND EQUIPMENT HELD FOR SALE PURPOSE AND RELATED TO DISCONTINUED OPERATIONS (Net) (15) 1.230.611 68 1.230.679 3.1 Held for Sale Purpose 1.230.611 68 1.230.679 3.2 Related to Discontinued Operations - - - IV. EQUITY INVESTMENTS 147.786 89.787 237.573 4.1 Investments in Associates (Net) (9) 139.811 2.337 142.148 4.1.1 Associates Valued Based on Equity Method 133.745 - 133.745 4.1.2 Unconsolidated Associates 6.066 2.337 8.403 4.2 Subsidiaries (Net) (10) 7.975 - 7.975 4.2.1 Unconsolidated Financial Subsidiaries 1.738 - 1.738 4.2.2 Unconsolidated Non-Financial Subsidiaries 6.237 - 6.237 4.3 Joint Ventures (Net) (11) - 87.450 87.450 4.3.1 Joint Ventures Valued Based on Equity Method - 87.450 87.450 4.3.2 Unconsolidated Joint Ventures - - - V. PROPERTY AND EQUIPMENT (Net) (16) 6.600.795 202.960 6.803.755 VI. INTANGIBLE ASSETS (Net) (19) 683.280 48.426 731.706 6.1 Goodwill - - - 6.2 Other 683.280 48.426 731.706 VII. INVESTMENT PROPERTY (Net) (14) - - - VIII. CURRENT TAX ASSET 53.287 7.336 60.623 IX. DEFERRED TAX ASSET (20) 1.639.462 96 1.639.558 X. OTHER ASSETS (22) 4.287.712 3.220.873 7.508.585 TOTAL ASSETS 349.966.364 218.420.632 568.386.996 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these 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 BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) AS OF 31 DECEMBER 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) II. CONSOLIDATED BALANCE SHEET (CONSOLIDATED STATEMENT OF FINANCIAL POSITION) Note (Section Current Period Five II) 31 December 2018 LIABILITIES AND EQUITY TL FC Total I. DEPOSITS (1) 184.601.759 169.773.489 354.375.248 II. FUNDS BORROWED (3) 1.196.347 33.652.422 34.848.769 III. MONEY MARKETS (4) 56.213.158 12.390.480 68.603.638 IV. SECURITIES ISSUED (Net) (5) 4.326.776 12.617.088 16.943.864 4.1 Bills 1.761.094 106.896 1.867.990 4.2 Asset Backed Securities 1.375.097 - 1.375.097 4.3 Bonds 1.190.585 12.510.192 13.700.777 V. FUNDS 6.073.748 - 6.073.748 5.1 Borrower Funds - - - 5.2 Other 6.073.748 - 6.073.748 VI. FİNANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS - - - VII. DERIVATIVE FINANCIAL LIABILITIES (2) 1.156.322 511.847 1.668.169 7.1 Derivative Financial Liabilities at Fair Value Through Profit or Loss 1.156.322 511.847 1.668.169 7.2 Derivative Financial Liabilities at Fair Value Through Other Comprehensive Income - - - VIII. FACTORING LIABILITES - - - IX. LEASE LIABILITIES (Net) (7) - - - 9.1 Financial Lease - - - 9.2 Operating Lease - - - 9.3 Other - - - 9.4 Deferred Financial Lease Expenses ( - ) - - - X. PROVISIONS (9) 4.637.486 113.586 4.751.072 10.1 Restructuring Provisions - - - 10.2 Reserve for Employee Benefits 1.342.697 4.324 1.347.021 10.3 Insurance Technical Provisions (Net) 1.739.355 - 1.739.355 10.4 Other Provisions 1.555.434 109.262 1.664.696 XI. CURRENT TAX LIABILITY (10) 1.607.656 19.295 1.626.951 XII. DEFERRED TAX LIABILITY (11) - 8.669 8.669 XIII. LIABILITIES FOR PROPERTY AND EQUIPMENT HELD FOR SALE AND RELATED TO DISCONTINUED OPERATIONS (Net) (12) - - - 13.1 Held for Sale Purpose - - - 13.2 Related to Discontinued Operations - - - XIV. SUBORDINATED DEBT INSTRUMENTS (13) - - - 14.1 Loans - - - 14.2 Other Debt Instruments - - - XV. OTHER LIABILITIES (6) 8.547.463 10.810.430 19.357.893 XVI. SHAREHOLDERS' EQUITY (14) 62.844.885 (2.715.910) 60.128.975 16.1 Paid-in capital 6.100.000 - 6.100.000 16.2 Capital Reserves (483) - (483) 16.2.1 Share Premium - - - 16.2.2 Share Cancellation Profits - - - 16.2.3 Other Capital Reserves (483) - (483) 16.3 Accumulated Other Comprehensive Income or Loss that will not be Reclassified to Profit or Loss 4.110.411 67.143 4.177.554 16.4 Accumulated Other Comprehensive Income or Loss that will be Reclassified to Profit or Loss (780.255) (2.783.053) (3.563.308) 16.5 Profit Reserves 37.320.380 - 37.320.380 16.5.1 Legal Reserves 4.026.361 - 4.026.361 16.5.2 Status Reserves - - - 16.5.3 Extraordinary Reserves 31.732.384 - 31.732.384 16.5.4 Other Profit Reserves 1.561.635 - 1.561.635 16.6 Profit or (Loss) 16.092.374 - 16.092.374 16.6.1 Prior Periods' Profit or (Loss) 6.748.737 - 6.748.737 16.6.2 Current Period Profit or (Loss) 9.343.637 - 9.343.637 16.7 Minority Interest 2.458 - 2.458 TOTAL LIABILITIES AND EQUITY 331.205.600 237.181.396 568.386.996 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these 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 STATEMENT OF OFF BALANCE SHEET COMMITMENTS AS OF 31 DECEMBER 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) III. CONSOLIDATED STATEMENT OF OFF-BALANCE SHEET COMMITMENTS Current Period Note (Section 31 December 2018 Five III) TL FC Total A OFF-BALANCE SHEET COMMITMENTS (I+II+III) 100.186.509 221.199.122 321.385.631 I. GUARANTEES AND WARRANTIES (1),(3) 42.358.851 89.288.857 131.647.708 1.1 Letters of Guarantee 42.052.714 61.662.493 103.715.207 1.1.1 Guarantees Subject to State Tender Law 1.809.270 13.798.953 15.608.223 1.1.2 Guarantees Given for Foreign Trade Operations 35.394.204 43.373.848 78.768.052 1.1.3 Other Letters of Guarantee 4.849.240 4.489.692 9.338.932 1.2 Bank Acceptances 26.238 8.290.788 8.317.026 1.2.1 Import Letter of Acceptance 26.238 8.288.714 8.314.952 1.2.2 Other Bank Acceptances - 2.074 2.074 1.3 Letters of Credit 274.137 18.114.396 18.388.533 1.3.1 Documentary Letters of Credit 274.137 18.008.378 18.282.515 1.3.2 Other Letters of Credit - 106.018 106.018 1.4 Prefinancing Given as Guarantee - - - 1.5 Endorsements - 202.092 202.092 1.5.1 Endorsements to the Central Bank of the Republic of Turkey - 202.092 202.092 1.5.2 Other Endorsements - - - 1.6 Purchase Guarantees on Marketable Security Issuance - - - 1.7 Factoring Guarantees - 2.172 2.172 1.8 Other Guarantees - 1.010.273 1.010.273 1.9 Other Collaterals 5.762 6.643 12.405 II. COMMITMENTS (1),(3) 36.323.782 14.578.481 50.902.263 2.1 Irrevocable Commitments 36.150.769 10.188.966 46.339.735 2.1.1 Asset Purchase and Sale Commitments 2.192.245 5.070.064 7.262.309 2.1.2 Deposit Purchase and Sales Commitments - - - 2.1.3 Share Capital Commitments to Associates and Subsidiaries - - - 2.1.4 Loan Granting Commitments 8.547.764 20.980 8.568.744 2.1.5 Securities Issue Brokerage Commitments - - - 2.1.6 Commitments for Reserve Deposit Requirements - - - 2.1.7 Commitments for Cheques 2.876.065 37 2.876.102 2.1.8 Tax and Fund Liabilities from Export Commitments 6.925 - 6.925 2.1.9 Commitments for Credit Card Limits 13.341.463 22.436 13.363.899 2.1.10 Commitments for Credit Cards and Banking Services Promotions 23.620 - 23.620 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 9.162.687 5.075.449 14.238.136 2.2 Revocable Commitments 173.013 4.389.515 4.562.528 2.2.1 Revocable Loan Granting Commitments - 372.805 372.805 2.2.2 Other Revocable Commitments 173.013 4.016.710 4.189.723 III. DERIVATIVE FINANCIAL INSTRUMENTS (2) 21.503.876 117.331.784 138.835.660 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 21.503.876 117.331.784 138.835.660 3.2.1 Forward Foreign Currency Buy/Sell Transactions 2.524.108 3.223.439 5.747.547 3.2.1.1 Forward Foreign Currency Transactions-Buy 1.014.221 1.760.205 2.774.426 3.2.1.2 Forward Foreign Currency Transactions-Sell 1.509.887 1.463.234 2.973.121 3.2.2 Swap Transactions Related to Foreign Currency and Interest Rates 18.958.168 114.084.371 133.042.539 3.2.2.1 Foreign Currency Swap-Buy 242.703 51.873.780 52.116.483 3.2.2.2 Foreign Currency Swap-Sell 18.715.465 33.664.931 52.380.396 3.2.2.3 Interest Rate Swap-Buy - 14.272.830 14.272.830 3.2.2.4 Interest Rate Swap-Sell - 14.272.830 14.272.830 3.2.3 Foreign Currency, Interest rate and Securities Options 21.600 23.974 45.574 3.2.3.1 Foreign Currency Options-Buy 10.800 11.987 22.787 3.2.3.2 Foreign Currency Options-Sell 10.800 11.987 22.787 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) 1.351.947.272 250.674.668 1.602.621.940 IV. ITEMS HELD IN CUSTODY 484.862.074 29.618.131 514.480.205 4.1 Customer Fund and Portfolio Balances - - - 4.2 Investment Securities Held in Custody 19.513.200 9.949.943 29.463.143 4.3 Checks Received for Collection 10.913.777 1.298.021 12.211.798 4.4 Commercial Notes Received for Collection 9.935.885 899.959 10.835.844 4.5 Other Assets Received for Collection 8.816 - 8.816 4.6 Assets Received for Public Offering 421.800.764 7.242 421.808.006 4.7 Other Items Under Custody 22.687.433 17.067.264 39.754.697 4.8 Custodians 2.199 395.702 397.901 V. PLEDGES RECEIVED 865.830.685 218.134.914 1.083.965.599 5.1 Marketable Securities 2.419.375 1.439.047 3.858.422 5.2 Guarantee Notes 17.840.388 4.474.610 22.314.998 5.3 Commodity 2.371.854 452.978 2.824.832 5.4 Warranty - - - 5.5 Immovable 756.841.771 153.479.598 910.321.369 5.6 Other Pledged Items 86.352.088 58.269.304 144.621.392 5.7 Pledged Items-Depository 5.209 19.377 24.586 VI. ACCEPTED INDEPENDENT GUARANTEES AND WARRANTIES 1.254.513 2.921.623 4.176.136 TOTAL OFF-BALANCE SHEET COMMITMENTS (A+B) 1.452.133.781 471.873.790 1.924.007.571 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these 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 OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) IV. CONSOLIDATED STATEMENT OF PROFIT OR LOSS Note (Section Current Period INCOME AND EXPENSE ITEMS Five IV) 1 January-31 December 2018 I. INTEREST INCOME (1) 56.134.708 1.1 Interest on Loans 43.353.615 1.2 Interest on Reserve Requirements 734.653 1.3 Interest on Banks 493.737 1.4 Interest on Money Market Transactions 33.749 1.5 Interest on Marketable Securities Portfolio 11.121.497 1.5.1 Fair Value Through Profit or Loss 6.693 1.5.2 Fair Value Through Other Comprehensive Income 10.013.039 1.5.3 Measured at Amortised Cost 1.101.765 1.6 Financial Lease Income 271.810 1.7 Other Interest Income 125.647 II. INTEREST EXPENSE (-) (2) 32.269.251 2.1 Interest on Deposits 20.535.591 2.2 Interest on Funds Borrowed 1.501.841 2.3 Interest Expense on Money Market Transactions 8.816.678 2.4 Interest on Securities Issued 1.261.636 2.5 Other Interest Expenses 153.505 III. NET INTEREST INCOME (I - II) 23.865.457 IV. NET FEES AND COMMISSIONS INCOME 2.694.706 4.1 Fees and Commissions Received 3.863.598 4.1.1 Non-cash Loans 745.087 4.1.2 Other (12) 3.118.511 4.2 Fees and Commissions Paid 1.168.892 4.2.1 Non-cash Loans 510 4.2.2 Other 1.168.382 V. PERSONNEL EXPENSE (-) 3.175.068 VI DIVIDEND INCOME (3) 4.808 VII. TRADING INCOME /(LOSS) (Net) (4) (3.801.156) 7.1 Trading Gains / (Losses) on Securities 10.859 7.2 Gains / (Losses) on Derivative Financial Transactions (4.068.267) 7.3 Foreign Exchange Gains / (Losses) 256.252 VIII. OTHER OPERATING INCOME (5) 3.450.126 IX. GROSS OPERATING INCOME (III+IV+V+VI+VII+VIII) 23.038.873 X. EXPECTED CREDIT LOSS (-) (6) 5.225.689 XI. OTHER OPERATING EXPENSES (-) (7) 5.983.608 XII. NET OPERATING INCOME/(LOSS) (IX-X-XI) 11.829.576 XIII. EXCESS AMOUNT RECORDED AS INCOME AFTER MERGER - INCOME/(LOSS) FROM INVESTMENTS IN SUBSIDIARIES CONSOLIDATED BASED ON XIV. EQUITY METHOD 46.756 XV. INCOME/(LOSS) ON NET MONETARY POSITION - XVI. PROFIT/LOSS BEFORE TAX FROM CONTINUED OPERATIONS (XII+…+XV) (8) 11.876.332 XVII. TAX PROVISION FOR CONTINUED OPERATIONS (±) (9) (2.532.212) 17.1 Current Tax Provision (2.721.984) 17.2 Deferred Tax Income Effect (+) (2.726.149) 17.3 Deferred Tax Expense Effect (-) 2.915.921 XVIII. CURRENT PERIOD PROFIT/LOSS FROM CONTINUED OPERATIONS (XVI±XVII) (10) 9.344.120 XIX. INCOME FROM DISCONTINUED OPERATIONS - 19.1 Income from Non-current Assets Held for Sale - 19.2 Profit from Sales of Associates, Subsidiaries and Joint Ventures - 19.3 Income from Other Discontinued Operations - XX. EXPENSES FOR DISCONTINUED OPERATIONS (-) - 20.1 Expenses for Non-current Assets Held for Sale - 20.2 Loss from Sales of Associates, Subsidiaries and Joint Ventures - 20.3 Expenses for Other Discontinued Operations - XXI. PROFIT/LOSS BEFORE TAX FROM DISCONTINUED OPERATIONS (XIX-XX) - XXII. TAX PROVISION FOR DISCONTINUED OPERATIONS (±) - 22.1 Current Tax Provision - 22.2 Deferred Tax Expense Effect (+) - 22.3 Deferred Tax Income Effect (-) - XXIII. CURRENT PERIOD PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XXI±XXII) - XXIV. NET PROFIT/(LOSS) (XVIII+XXIII) (11) 9.344.120 24.1 Profit/(Loss) from the Group 9.343.637 24.2 Profit /(Loss) from Minority Interest 483 Earning/(Loss) per share (in TL full) 1,647 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these 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 PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) V. CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Current Period 1 January-31 December 2018 I. CURRENT PERIOD PROFIT/LOSS 9.344.120 II. OTHER COMPREHENSIVE INCOME (3.401.517) 2.1 Not Reclassified to Profit or Loss 521.447 2.1.1 Property and Equipment Revaluation Increase/Decrease (107.965) 2.1.2 Intangible Assets Revaluation Increase/Decrease - 2.1.3 Defined Benefit Pension Plan Remeasurement Gain/Loss 75.582 2.1.4 Other Comprehensive Income Items Not Reclassified Through Profit or Loss 679.067 2.1.5 Tax Related Other Comprehensive Income Items Not Reclassified Through Profit or Loss (125.237) 2.2 Reclassified to Profit or Loss (3.922.964) 2.2.1 Foreign Currency Translation Differences 523.104 2.2.2 Valuation and/or Reclassification Income/Expense of the Financial Assets at Fair Value through Other Comprehensive Income (5.425.064) 2.2.3 Cash Flow Hedge Income/Loss - 2.2.4 Foreign Net Investment Hedge Income/Loss - 2.2.5 Other Comprehensive Income Items Reclassified Through Profit or Losses - 2.2.6 Tax Related Other Comprehensive Income Items Reclassified Through Profit or Loss 978.996 III. TOTAL COMPREHENSIVE INCOME (I+II) 5.942.603 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these 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 FOR THE YEAR ENDED 31 DECEMBER 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) Other Accumulated Comprehensive Income Other Accumulated Comprehensive Income That Will Not Be Reclassified to Profit or Loss That Will Be Reclassified to Profit or Loss Other (Accumulated Other (Other Gains or Losses on Comprehensive Cash Flow VI. CONSOLIDATED Income of Hedges, Other STATEMENT OF Associates and Comprehensive CHANGES IN Joint Ventures Income of SHAREHOLDERS' Accounted for Associates and EQUITY Using Equity Accumulated Joint Ventures Method that will gains (losses) Accounted for not be due to Using Equity Reclassified to revaluation Method that will Profit or Loss and and/or be Reclassified to Other reclassification Profit or Loss and Accumulated of financial Other Tangible Accumulated Amounts of Other assets Accumulated and Gains / Losses Comprehensive measured at Amounts of Other Share Intangible on Income that will Exchange fair value Comprehensive Current Shareholders’ certificate Other Assets Remeasurements not be Differences through other Income that will Prior period period equity before Total Paid-in Share Cancel capital Revaluation of Defined Reclassified to on comprehensive be Reclassified to Profit net net profit minority Minority Shareholders’ Capital Premium profits reserves Reserve Benefit Plans Profit or Loss) Translation income Profit or Loss) Reserves profit/(loss) /(loss) interest Shares Equity Current Period 31 December 2018 Balance at the beginning of the I. period 5.600.000 - - (252) 4.064.351 (95.521) 831.263 2.120.621 (1.767.831) - 29.660.259 8.068.601 - 48.481.491 1.665 48.483.156 Adjustment in accordance with II. TMS 8 - - - - - - - - 2.402 - - 5.401.136 - 5.403.538 - 5.403.538 2.1 Effect of adjustment - - - - - - - - - - - - - - - - Effect of changes in accounting 2.2 policies - - - - - - - - 2.402 - - 5.401.136 - 5.403.538 - 5.403.538 III. New balance (I+II) 5.600.000 - - (252) 4.064.351 (95.521) 831.263 2.120.621 (1.765.429) - 29.660.259 13.469.737 - 53.885.029 1.665 53.886.694 Total comprehensive income IV. (loss) - - - - (98.150) 62.985 556.612 523.104 (4.446.378) - - 9.343.637 5.941.810 793 5.942.603 V. Capital increase in cash 500.000 - - - - - - - - - - - - 500.000 - 500.000 Capital increase through VI. internal reserves - - - - - - - - - - - - - - - - Issued capital inflation VII. adjustment difference - - - - - - - - - - - - - - - - VIII. Convertible bonds - - - - - - - - - - - - - - - - IX. Subordinated debt - - - - - - - - - - - - - - - - Increase (decrease) through X. other changes, equity - - - (231) - - (1.143.986) - 4.774 - 1.219.121 - 79.678 - 79.678 XI. Profit distribution - - - - - - - - - - 7.660.121 (7.940.121) - (280.000) - (280.000) 11.1 Dividends distributed - - - - - - - - - - - (280.000) - (280.000) - (280.000) 11.2 Transfers to legal reserves - - - - - - - - - - 7.582.399 (7.582.399) - - - - 11.3 Other - - - - - - - - - - 77.722 (77.722) - - - - Balance at the End of the Year (III+IV+…...+X+XI) 6.100.000 - - (483) 3.966.201 (32.536) 243.889 2.643.725 (6.207.033) - 37.320.380 6.748.737 9.343.637 60.126.517 2.458 60.128.975 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these 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. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) VII. CONSOLIDATED STATEMENT OF CASH FLOWS Note (Section Current Period Five VI) 1 January-31 December 2018 A. CASH FLOWS FROM BANKING OPERATIONS 1.1 Operating Profit Before Changes in Operating Assets and Liabilities 1.892.753 1.1.1 Interest Received 50.363.075 1.1.2 Interest Paid (30.573.694) 1.1.3 Dividend Received 4.808 1.1.4 Fees and Commissions Received 3.863.598 1.1.5 Other Income 3.450.126 1.1.6 Collections from Previously Written-off Loans 1.183.842 1.1.7 Payments to Personnel and Service Suppliers (3.800.553) 1.1.8 Taxes Paid (3.096.364) 1.1.9 Other (19.502.085) 1.2 Changes in Operating Assets and Liabilities 21.173.587 1.2.1 Net Increase/Decrease in Financial Assets at Fair Value Through Profit or Loss (6.724.201) 1.2.2 Net (increase) / decrease in due from banks and other financial institutions 9.211.129 1.2.3 Net (increase) / decrease in loans (70.080.799) 1.2.4 Net (increase) / decrease in other assets (7.432.023) 1.2.5 Net increase / (decrease) in bank deposits 22.343.023 1.2.6 Net increase / (decrease) in other deposits 61.520.023 1.2.7 Net Increase/Decrease in Financial Liabilities at Fair Value Through Profit or Loss 1.119.259 1.2.8 Net increase / (decrease) in funds borrowed 3.573.693 1.2.9 Net increase / (decrease) in payables 1.2.10 Net increase / (decrease) in other liabilities 7.643.483 I. Net Cash Provided from Banking Operations 23.066.340 B. CASH FLOWS FROM INVESTMENT ACTIVITIES II. Net Cash Provided from Investing Activities (15.687.718) 2.1 Cash paid for acquisition of investments, associates and subsidiaries (49.535) 2.2 Cash obtained from disposal of investments, associates and subsidiaries - 2.3 Purchases of property and equipment (421.891) 2.4 Disposals of property and equipment 304.933 2.5 Purchase of Financial Assets at Fair Value Through Other Comprehensive Income (26.780.508) 2.6 Sale of Financial Assets at Fair Value Through Other Comprehensive Income 11.929.917 2.7 Purchase of Financial Assets Measured at Amortised Cost (3.515.803) 2.8 Sale of Financial Assets Measured at Amortised Cost 2.631.165 2.9 Other 214.004 C. CASH FLOWS FROM FINANCING ACTIVITIES III. Net Cash Provided from Financing Activities 2.061.980 3.1 Cash Obtained from Funds Borrowed and Securities Issued 9.555.088 3.2 Cash Used for Repayment of Funds Borrowed and Securities Issued (7.993.108) 3.3 Issued Equity Instruments 500.000 3.4 Dividends Paid 3.5 Payments for Finance Leases - 3.6 Other - IV. Effect of Change in Foreign Exchange Rate on Cash and Cash Equivalents (1) 5.015.333 V. Net Decrease/ Increase in Cash and Cash Equivalents (I+II+III+IV) 14.455.935 VI. Cash and Cash Equivalents at the Beginning of the Period (1) 13.839.511 VII. Cash and Cash Equivalents at the End of the Period (1) 28.295.446 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these 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. CONSOLIDATED STATEMENT OF PROFIT DISTRIBUTION FOR THE YEAR ENDED 31 DECEMBER 2018 (Unless otherwise stated amounts are expressed in thousand s of Turkish Lira (“TL”).) Current Period VIII. PROFIT DISTRIBUTION STATEMENT (*) 31 December 2018 I. DISTRIBUTION OF CURRENT YEAR INCOME 1.1 Current Year Income 10.033.684 1.2 Taxes And Duties Payable (-)(3) 2.242.602 1.2.1 Corporate Tax (Income tax) 2.242.602 1.2.2 Income withholding tax - 1.2.3 Other taxes and duties - A. NET INCOME FOR THE YEAR (1.1-1.2) 7.791.082 1.3 Prior Year Losses (-) - 1.4 First Legal Reserves (-) - 1.5 Other Statutory Reserves (-) - B. NET INCOME AVAILABLE FOR DISTRIBUTION [(A-(1.3+1.4+1.5)] 7.791.082 1.6 First Dividend To Shareholders (-) - 1.6.1 To Owners Of Ordinary Shares - 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 (-) - 1.8 Dividends To Board Of Directors (-) - 1.9 Second Dividend To Shareholders (-) - 1.9.1 To Owners Of Ordinary Shares - 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 (-) - 1.11 Statutory Reserves (-) - 1.12 Extraordinary Reserves - 1.13 Other Reserves - 1.14 Special Funds II. DISTRIBUTION OF RESERVES - 2.1 Appropriated Reserves - 2.2 Dividends To Shareholders (-) - 2.2.1 To Owners Of Ordinary Shares - 2.2.2 To Owners Of Privileged Shares - 2.2.3 To Owners Of Preferred Shares - 2.2.4 To Profit Sharing Bonds - 2.2.5 To Holders Of Profit And Loss Sharing Certificates - 2.3 Dividends To Personnel (-) - 2.4 Dividends To Board Of Directors (-) - - III. EARNINGS PER SHARE - - 3.1 To Owners Of Ordinary Shares 1,3735 3.2 To Owners Of Ordinary Shares ( % ) 137,35 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 ( % ) - (*) Profit distribution is approved by the Parent Bank's Ordinary General Assembly. As of the date of the preparation of financial statements, the meeting for Ordinary General Assembly has not been held. (**) The deferred tax benefit amounted TL 169.856 is not taken into account in profit distribution. 12 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 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) I. CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) Note Prior Period (Section 31 December 2017 ASSETS Five I) TL FC Total I. CASH BALANCES WITH THE CENTRAL BANK OF TURKEY (23) 5.277.535 40.942.802 46.220.337 II. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT or (LOSS) (Net) (24) 904.588 563.275 1.467.863 2.1 Financial Assets Held for Trading 904.588 563.275 1.467.863 2.1.1 Public Sector Debt Securities 24.367 37.470 61.837 2.1.2 Securities Representing a Share in Capital 5 - 5 2.1.3 Derivative Financial Assets Held for Trading (25) 880.049 516.718 1.396.767 2.1.4 Other Marketable Securities 167 9.087 9.254 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 (26) 2.373.229 3.258.911 5.632.140 IV. MONEY MARKET PLACEMENTS 40.122 92.263 132.385 4.1 Interbank Money Market Placements - 24.171 24.171 4.2 Istanbul Stock Exchange Money Market Placements 38.043 - 38.043 4.3 Receivables from Reverse Repurchase Agreements 2.079 68.092 70.171 V. FINANCIAL ASSETS AVAILABLE FOR SALE (Net) (27),(28) 45.961.580 17.676.651 63.638.231 5.1 Securities Representing a Share in Capital 118.095 845.817 963.912 5.2 Public Sector Debt Securities 45.331.743 16.690.632 62.022.375 5.3 Other Marketable Securities 511.742 140.202 651.944 VI. LOANS AND RECEIVABLES (29) 231.413.967 85.606.521 317.020.488 6.1 Loans and Receivables 231.188.481 85.606.521 316.795.002 6.1.1 Loans Granted to Risk Group of The Bank - - - 6.1.2 Public Sector Debt Securities - - - 6.1.3 Other 231.188.481 85.606.521 316.795.002 6.2 Loans under Follow-up 4.790.067 238.900 5.028.967 6.3 Specific Provisions (-) 4.564.581 238.900 4.803.481 VII. FACTORING RECEIVABLES - 1.614 1.614 VIII. INVESTMENTS HELD TO MATURITY (Net) (30) 2.863.604 4.762.159 7.625.763 8.1 Public Sector Debt Securities 2.757.318 4.761.212 7.518.530 8.2 Other Marketable Securities 106.286 947 107.233 IX. INVESTMENTS IN ASSOCIATES (Net) (31) 127.251 1.168 128.419 9.1 Accounted with Equity Method 121.185 - 121.185 9.2 Unconsolidated Associates 6.066 1.168 7.234 9.2.1 Financial Associates - - - 9.2.2 Non-financial Associates 6.066 1.168 7.234 X. INVESTMENTS IN SUBSIDIARIES (Net) (32) 7.583 - 7.583 10.1 Unconsolidated Financial Subsidiaries 1.346 - 1.346 10.2 Unconsolidated Non-Financial Subsidiaries 6.237 - 6.237 XI. ENTITIES UNDER COMMON CONTROL (Net) (33) - 52.036 52.036 11.1 Accounted with Equity Method - 52.036 52.036 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 (34) 852.715 2.028.804 2.881.519 12.1 Finance Lease Receivables 1.073.052 2.278.160 3.351.212 12.2 Operating Lease Receivables - - - 12.3 Other - - - 12.4 Unearned Income ( - ) 220.337 249.356 469.693 XIII. DERIVATIVE FINANCIAL ASSETS FOR HEDGING PURPOSES (35) - - - 13.1 Fair Value Hedges - - - 13.2 Cash Flow Hedges - - - 13.3 Hedges for Investments Made in Foreign Countries - - - XIV. TANGIBLE ASSETS (Net) (39) 6.535.523 144.109 6.679.632 XV. INTANGIBLE ASSETS (Net) (42) 494.932 37.156 532.088 15.1 Goodwill - - - 15.2 Other 494.932 37.156 532.088 XVI. REAL ESTATES FOR INVESTMENT PURPOSE (Net) (36) - - - XVII. TAX ASSET 32.197 8.858 41.055 17.1 Current Tax Asset 5.741 5.520 11.261 17.2 Deferred Tax Asset (37) 26.456 3.338 29.794 XVIII. ASSETS HELD FOR SALE AND ASSETS HELD FROM DISCONTINUED OPERATIONS (Net) (38) 674.731 88 674.819 18.1 Held for Sale 674.731 88 674.819 18.2 Held from Discontinued Operations - - - XIX. OTHER ASSETS (43) 2.858.008 1.332.149 4.190.157 TOTAL ASSETS 300.417.565 156.508.564 456.926.129 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these financial statements. 13 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 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) II. CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) Note Prior Period (Section 31 December 2017 LIABILITIES AND EQUITY Five II) TL FC Total I. DEPOSITS (15) 167.014.412 115.555.201 282.569.613 1.1 Deposits Held By the Risk Group of the Bank 30.053 14.053 44.106 1.2 Other 166.984.359 115.541.148 282.525.507 II. DERIVATIVE FINANCIAL LIABILITIES HELD FOR TRADING (16) 235.506 313.404 548.910 III. FUNDS BORROWED (17) 1.763.056 29.355.197 31.118.253 IV. MONEY MARKET BALANCES 43.189.819 13.119.704 56.309.523 4.1 Interbank Money Market Borrowings 41.850.000 19.335 41.869.335 4.2 Istanbul Stock Exchange Takasbank Borrowings - - - 4.3 Funds Provided under Repurchase Agreements (18) 1.339.819 13.100.369 14.440.188 V. MARKETABLE SECURITIES ISSUED (Net) (19) 4.298.047 9.176.233 13.474.280 5.1 Bills 3.562.491 - 3.562.491 5.2 Asset-backed Securities 557.804 - 557.804 5.3 Bonds 177.752 9.176.233 9.353.985 VI. FUNDS 6.030.575 - 6.030.575 6.1 Borrower Funds - - - 6.2 Other 6.030.575 - 6.030.575 VII. MISCELLANEOUS PAYABLES 2.474.671 1.668.719 4.143.390 VIII. OTHER LIABILITIES (20) 1.947.850 628.104 2.575.954 IX. FACTORING PAYABLES - - - X. PAYABLES FROM LEASING TRANSACTIONS (Net) (21) - - - 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 (22) - - - 11.1 Fair Value Hedges - - - 11.2 Cash Flow Hedges - - - 11.3 Hedges for Investments Made in Foreign Countries - - - XII. PROVISIONS (23) 10.170.466 191.571 10.362.037 12.1 General Provisions 5.500.371 134.827 5.635.198 12.2 Restructuring Provisions - - - 12.3 Employee Benefits Provisions 1.325.862 3.058 1.328.920 12.4 Insurance Technical Reserves (Net) 1.514.046 - 1.514.046 12.5 Other Provisions 1.830.187 53.686 1.883.873 XIII. TAX LIABILITY (24) 1.304.963 5.475 1.310.438 13.1 Current Tax Liability 999.597 3.741 1.003.338 13.2 Deferred Tax Liability 305.366 1.734 307.100 XIV. LlABILITIES FOR ASSETS HELD FOR SALE AND HELD FROM DISCONTINUED OPERATIONS (Net) (25) - - - 14.1 Held for Sale - - - 14.2 Held from Discontinued Operations - - - XV. SUBORDINATED LOANS (26) - - - XVI. SHAREHOLDERS' EQUITY (27) 47.619.530 863.626 48.483.156 16.1 Paid-in Capital 5.600.000 - 5.600.000 16.2 Capital Reserves 2.168.384 863.626 3.032.010 16.2.1 Share Premium - - - 16.2.2 Share Cancellation Profits - - - 16.2.3 Marketable Securities Valuation Differences (1.798.011) 844.055 (953.956) 16.2.4 Tangible Assets Revaluation Reserves 4.051.876 12.475 4.064.351 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 16.2.8 Hedging Funds (Effective Portion) - - - 16.2.9 Value Increase on Assets Held for Sale - - - 16.2.10 Other Capital Reserves (102.869) 7.096 (95.773) 16.3 Profit Reserves 30.317.558 - 30.317.558 16.3.1 Legal Reserves 3.824.868 - 3.824.868 16.3.2 Statutory Reserves - - - 16.3.3 Extraordinary Reserves 24.836.410 - 24.836.410 16.3.4 Other Profit Reserves 1.656.280 - 1.656.280 16.4 Profit or Loss 9.531.923 - 9.531.923 16.4.1 Prior Years Profit/Loss 647.804 - 647.804 16.4.2 Net Period Profit/Loss 8.884.119 - 8.884.119 16.5 Minority Shares 1.665 - 1.665 TOTAL LIABILITIES AND EQUITY 286.048.895 170.877.234 456.926.129 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these financial statements . 14 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 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) Current Period Note 31 December 2017 (Section III. CONSOLIDATED STATEMENT OF OFF-BALANCE SHEET COMMITMENTS Five III) TL FC Total A OFF-BALANCE SHEET COMMITMENTS (I+II+III) 73.022.242 160.157.172 233.179.414 I. GUARANTEES AND WARRANTIES (5),(7) 36.067.838 66.258.784 102.326.622 1.1 Letters of Guarantee 35.800.639 45.354.359 81.154.998 1.1.1 Guarantees Subject to State Tender Law 1.676.924 8.472.455 10.149.379 1.1.2 Guarantees Given for Foreign Trade Operations 30.334.670 34.377.923 64.712.593 1.1.3 Other Letters of Guarantee 3.789.045 2.503.981 6.293.026 1.2 Bank Acceptances 30.004 6.277.094 6.307.098 1.2.1 Import Letter of Acceptance 30.004 6.270.461 6.300.465 1.2.2 Other Bank Acceptances - 6.633 6.633 1.3 Letters of Credit 233.745 14.291.714 14.525.459 1.3.1 Documentary Letters of Credit 233.745 14.202.295 14.436.040 1.3.2 Other Letters of Credit - 89.419 89.419 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 - 1.635 1.635 1.8 Other Guarantees 3.450 329.962 333.412 1.9 Other Collaterals - 4.020 4.020 II. COMMITMENTS (5),(7) 23.846.740 11.162.799 35.009.539 2.1 Irrevocable Commitments 23.810.655 8.857.039 32.667.694 2.1.1 Asset Purchase and Sale Commitments 232.731 4.596.925 4.829.656 2.1.2 Deposit Purchase and Sales Commitments - - - 2.1.3 Share Capital Commitments to Associates and Subsidiaries - - - 2.1.4 Loan Granting Commitments 5.048.840 15.021 5.063.861 2.1.5 Securities Issue Brokerage Commitments - - - 2.1.6 Commitments for Reserve Deposit Requirements - - - 2.1.7 Commitments for Cheques 3.761.911 23 3.761.934 2.1.8 Tax and Fund Liabilities from Export Commitments 1.966 - 1.966 2.1.9 Commitments for Credit Card Limits 8.645.831 19.817 8.665.648 2.1.10 Commitments for Credit Cards and Banking Services Promotions 26.137 - 26.137 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 6.093.239 4.225.253 10.318.492 2.2 Revocable Commitments 36.085 2.305.760 2.341.845 2.2.1 Revocable Loan Granting Commitments - 3.356 3.356 2.2.2 Other Revocable Commitments 36.085 2.302.404 2.338.489 III. DERIVATIVE FINANCIAL INSTRUMENTS (6) 13.107.664 82.735.589 95.843.253 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 13.107.664 82.735.589 95.843.253 3.2.1 Forward Foreign Currency Buy/Sell Transactions 3.617.638 5.662.634 9.280.272 3.2.1.1 Forward Foreign Currency Transactions-Buy 1.536.329 3.100.467 4.636.796 3.2.1.2 Forward Foreign Currency Transactions-Sell 2.081.309 2.562.167 4.643.476 3.2.2 Swap Transactions Related to Foreign Currency and Interest Rates 9.122.190 76.717.313 85.839.503 3.2.2.1 Foreign Currency Swap-Buy 426.798 37.618.583 38.045.381 3.2.2.2 Foreign Currency Swap-Sell 8.695.392 28.602.108 37.297.500 3.2.2.3 Interest Rate Swap-Buy - 5.248.311 5.248.311 3.2.2.4 Interest Rate Swap-Sell - 5.248.311 5.248.311 3.2.3 Foreign Currency, Interest rate and Securities Options 367.836 355.642 723.478 3.2.3.1 Foreign Currency Options-Buy 183.918 177.821 361.739 3.2.3.2 Foreign Currency Options-Sell 183.918 177.821 361.739 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) 1.132.404.895 169.456.560 1.301.861.455 IV. ITEMS HELD IN CUSTODY 367.086.784 19.908.153 386.994.937 4.1 Customer Fund and Portfolio Balances - - - 4.2 Investment Securities Held in Custody 8.329.436 7.039.458 15.368.894 4.3 Checks Received for Collection 9.077.998 938.449 10.016.447 4.4 Commercial Notes Received for Collection 8.110.316 569.700 8.680.016 4.5 Other Assets Received for Collection 8.816 - 8.816 4.6 Assets Received for Public Offering 328.865.001 8.857 328.873.858 4.7 Other Items Under Custody 12.693.018 11.200.593 23.893.611 4.8 Custodians 2.199 151.096 153.295 V. PLEDGES RECEIVED 764.354.880 147.468.325 911.823.205 5.1 Marketable Securities 2.713.833 383.446 3.097.279 5.2 Guarantee Notes 16.070.650 2.895.574 18.966.224 5.3 Commodity 1.923.260 81.296 2.004.556 5.4 Warranty - - - 5.5 Immovable 670.555.120 110.699.922 781.255.042 5.6 Other Pledged Items 73.086.808 33.393.966 106.480.774 5.7 Pledged Items-Depository 5.209 14.121 19.330 VI. ACCEPTED INDEPENDENT GUARANTEES AND WARRANTIES 963.231 2.080.082 3.043.313 TOTAL OFF-BALANCE SHEET COMMITMENTS (A+B) 1.205.427.137 329.613.732 1.535.040.869 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these financial statements. 15 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 INCOME FOR THE YEAR ENDED 31 DECEMBER 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) IV CONSOLIDATED STATEMENT OF INCOME Note INCOME AND EXPENSE ITEMS (Section Prior Period Five IV) 1 January-31 December 2017 I. INTEREST INCOME (13) 37.104.621 1.1 Interest Income from Loans 29.559.462 1.2 Interest Income from Reserve Deposits 395.544 1.3 Interest Income from Banks 271.352 1.4 Interest Income from Money Market Placements 347.886 1.5 Interest Income from Marketable Securities 6.250.242 1.5.1 Financial Assets Held for Trading 6.138 1.5.2 Financial Assets at Fair Value through Profit and Loss - 1.5.3 Financial Assets Available-for-Sale 5.579.005 1.5.4 Investments Held-to-Maturity 665.099 1.6 Finance Lease Income 197.759 1.7 Other Interest Income 82.376 II. INTEREST EXPENSES (14) 18.990.284 2.1 Interest Expense on Deposits 12.605.985 2.2 Interest on Borrowings 721.937 2.3 Interest on Money Market Borrowings 4.848.800 2.4 Interest on Marketable Securities Issued 724.924 2.5 Other Interest Expense 88.638 III. NET INTEREST INCOME/EXPENSES (I - II) 18.114.337 IV. NET FEES AND COMMISSIONS INCOME/EXPENSES 1.943.504 4.1 Fees and Commissions Received 2.406.518 4.1.1 Non-cash Loans 506.128 4.1.2 Other (11) 1.900.390 4.2 Fees and Commissions Paid 463.014 4.2.1 Non-cash Loans 560 4.2.2 Other 462.454 V. DIVIDEND INCOME (15) 7.749 VI. TRADING PROFIT/LOSS (Net) (16) (845.653) 6.1 Profit/Loss from Capital Market Operations 44.164 6.2 Profit/losses on Derivative Financial Transactions (865.123) 6.3 Profit/Loss from Foreign Exchanges (24.694) VII. OTHER OPERATING INCOME (17) 3.737.922 VIII. TOTAL OPERATING INCOMES/EXPENSES (III+IV+V+VI+VII) 22.957.859 IX. PROVISION FOR LOSSES ON LOANS OR OTHER RECEIVABLES (-) 3.493.344 X. OTHER OPERATING EXPENSES(-) (18) 7.969.003 XI. NET OPERATING PROFIT/LOSS (VIII-IX-X) 11.495.512 XII. GAINS RECORDED AFTER MERGER - XIII. PROFIT/LOSS ON EQUITY METHOD APPLIED SUBSIDIARIES 20.359 XIV. GAIN/LOSS ON NET MONETARY POSITION - XV. INCOME BEFORE TAXES FROM CONTINUING OPERATIONS (XI+...+XIV) (19) 11.515.871 XVI. PROVISION FOR TAXES ON INCOME FROM CONTINUING OPERATIONS (±) (20) (2.631.539) 16.1 Current Tax Provision (2.601.014) 16.2 Deferred Tax Provision (30.525) XVII. NET PROFIT/LOSSES FROM CONTINUING OPERATIONS (XV±XVI) (21) 8.884.332 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 - XX. PROFIT /LOSSES BEFORE TAXES FROM DISCONTINUED OPERATIONS (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) - XXIII. NET PROFIT/LOSSES (XVII+XXII) (22) 8.884.332 23.1 Group’s Profit/Loss 8.884.119 23.2 Minority Shares Profit/Loss 213 Earnings per Share (Full TL) 1,675 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these financial statements. 16 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 INCOME AND EXPENSE ITEMS ACCOUNTED UNDER SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) V. CONSOLIDATED STATEMENT OF INCOME AND EXPENSE ITEMS ACCOUNTED UNDER SHAREHOLDERS’ EQUITY Prior Period PROFIT AND LOSS ITEMS ACCOUNTED UNDER SHAREHOLDERS` EQUITY 1 January-31 December 2017 ADDITIONS TO THE MARKETABLE SECURITY VALUATION DIFFERENCES ON AVAILABLE FOR SALE FINANCIAL I. ASSETS 564.179 II. TANGIBLE ASSETS REVALUATION DIFFERENCES 93.433 III. INTANGIBLE ASSETS REVALUATION DIFFERENCES - IV. CURRENCY TRANSLATION DIFFERENCES FOR FOREIGN CURRENCY TRANSACTIONS 424.682 V. PROFIT OR LOSS ON CASH FLOW HEDGE DERIVATIVE FINANCIAL ASSETS (Effective Part of Fair Value Differences) - PROFIT/LOSS FROM FOREIGN INVESTMENT HEDGE DERIVATIVE FINANCIAL ASSETS (Effective Part of Fair Value VI. 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 (51.321) IX. DEFERRED TAXES RELATED TO VALUATION DIFFERENCES (330.677) X. NET PROFIT OR LOSS ACCOUNTED DIRECTLY UNDER SHAREHOLDERS’ EQUITY (I+II+...+IX) 700.296 XI. CURRENT YEAR PROFIT/LOSS 8.884.332 11.1 Net change in fair value of marketable securities (transfer to profit-loss) 44.164 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 8.840.168 XII. TOTAL PROFIT/LOSS RELATED TO THE PERIOD (X±XI) 9.584.628 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these financial statements. 17 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 FOR THE YEAR ENDED 31 DECEMBER 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) VI. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY Marketable Rev. Diff. Rev. Diff. in Note Adjustment Share Current Period Prior Period Sec. in Tangible Bonus Shares Tangible Held 31 December 2017 (Section Paid-in to Paid-in Share Cancel Legal Statutory Extraordinary Other Net Net Valuation and Intang. from Hedging for Sale/Disc. Minority Total Five V) Capital Capital Premium Profits Reserves Reserves Reserves Reserves Profit/(Loss) Profit/(Loss) Differences Assets Investments Funds Operat. shares Equity I. Balance at the Beginning of the Period 5.100.000 - - - 3.393.778 - 18.052.605 1.345.642 - 8.207.208 (1.394.015) 4.187.740 17.388 - - 1.451 38.911.797 Changes During the Period II. Increase/Decrease Related to Merger - - - - - - - - - - - - - - - - - III. Marketable Securities Valuation Differences - - - - - - - - - - 440.059 - - - - 1 440.060 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 - - - - - - - - - - - (123.389) - - - - (123.389) VI. Revaluation Differences of Intangible Assets - - - - - - - - - - - - - - - - - VII. Bonus Shares of Associates, Subsidiaries and Entities under Common Control (Business Partners) - - - - - - - - - - - - - - - - - VIII. Foreign Exchange Differences - - - - - - - 424.682 - - - - - - - - 424.682 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 - - - - - - - (16.966) - 7.448 - - - - - - (9.518) XII. Increase in Capital 500.000 - - - - - - - - - - - - - - - 500.000 12.1 Cash 500.000 - - - - - - - - - - - - - - - 500.000 12.2 From Internal Resources - - - - - - - - - - - - - - - - - XIII. Issuance of Share Certificates - - - - - - - - - - - - - - - - - XIV. Share Cancellation Profits - - - - - - - - - - - - - - - - - XV. Adjustment to Paid-in Capital - - - - - - - - - - - - - - - - - XVI. Other - - - - - - - (41.057) - - - - - - - (41.057) XVII. Net Profit or Losses - - - - - - - - 8.884.119 - - - - - - 213 8.884.332 XVIII Profit Distribution - - - - 431.090 - 6.783.805 (151.794) - (7.566.852) - - - - - - (503.751) 18.1 Dividend Distributed - - - - - - - - - (503.751) - - - - - - (503.751) 18.2 Transfers to Legal Reserves - - - - 431.090 - 6.783.805 (151.794) - (7.063.101) - - - - - - - 18.3 Other - - - - - - - - - - - - - - - - - Balance at the end of the period (I+II+III+……+ XVI+XVII+XVIII) 5.600.000 - - - 3.824.868 - 24.836.410 1.560.507 8.884.119 647.804 (953.956) 4.064.351 17.388 - - 1.665 48.483.156 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these financial statements. 18 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 CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) VII. CONSOLIDATED STATEMENT OF CASH FLOWS Note (Section Prior Period Five VI) 1 January-31 December 2017 A. CASH FLOWS FROM BANKING OPERATIONS 1.1 Operating Profit Before Changes in Operating Assets and Liabilities 7.704.826 1.1.1 Interest Received 35.748.972 1.1.2 Interest Paid (18.665.259) 1.1.3 Dividend Received 7.031 1.1.4 Fees and Commissions Received 2.406.518 1.1.5 Other Income 1.185.821 1.1.6 Collections from Previously Written-off Loans 1.520.060 1.1.7 Payments to Personnel and Service Suppliers (2.867.747) 1.1.8 Taxes Paid (2.978.291) 1.1.9 Other (8.652.279) 1.2 Changes in Operating Assets and Liabilities (12.513.361) 1.2.1 Net (Increase)/Decrease in Trading Securities (247.731) 1.2.2 Net (Increase)/Decrease in Fair Value Through Profit/Loss Financial Assets - 1.2.3 Net (Increase)/Decrease in Banks (8.129.980) 1.2.4 Net (Increase)/Decrease in Loans (70.981.593) 1.2.5 Net (Increase)/Decrease in Other Assets (1.168.360) 1.2.6 Net Increase/(Decrease) in Bank Deposits 12.445.351 1.2.7 Net Increase/(Decrease) in Other Deposits 44.255.334 1.2.8 Net Increase/(Decrease) in Funds Borrowed 7.240.990 1.2.9 Net Increase/(Decrease) in Payables - 1.2.10 Net Increase/(Decrease) in Other Liabilities 4.072.628 I. Net Cash Provided from Banking Operations (4.808.535) B. CASH FLOWS FROM INVESTMENT ACTIVITIES II. Net Cash Provided from Investing Activities (5.098.534) 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 (531.876) 2.4 Fixed Assets Sales 230.588 2.5 Cash Paid for Purchase of Financial Assets Available for Sale (18.982.629) 2.6 Cash Obtained from Sale of financial Assets Available for Sale 16.074.784 2.7 Cash Paid for Purchase of Investment Securities (433.646) 2.8 Cash Obtained from Sale of Investment Securities 1.910.559 2.9 Other (3.366.314) C. CASH FLOWS FROM FINANCING ACTIVITIES III. Net Cash Provided from Financing Activities 6.442.188 3.1 Cash Obtained from Funds Borrowed and Securities Issued 9.272.510 3.2 Cash Used for Repayment of Funds Borrowed and Securities Issued (3.076.164) 3.3 Issued Equity Instruments 500.000 3.4 Dividends Paid (250.000) 3.5 Payments for Finance Leases (8.698) 3.6 Other 4.540 IV. Effect of Change in Foreign Exchange Rate on Cash and Cash Equivalents (1) 1.404.479 V. Net (Decrease)/ Increase in Cash and Cash Equivalents (I+II+III+IV) (2.060.402) VI. Cash and Cash Equivalents at the Beginning of the Period (1) 15.899.913 VII. Cash and Cash Equivalents at the End of the Period (1) 13.839.511 As mentioned in Note I of Section Three, the current period financial statements have been prepared by using different accounting policies from the accounting policies used in the preparation of the prior period financial statements and the prior period financial statements and footnotes have not been restated. Prior period financial statements are presented separately in this report. The accompanying explanations and notes form an integral part of these financial statements. 19 ONVENIENCE 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 DISTRIBUTION FOR THE YEAR ENDED 31 DECEMBER 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) Prior Period VIII. PROFIT DISTRIBUTION STATEMENT (*) 31 December 2017 I. DISTRIBUTION OF CURRENT YEAR INCOME 1.1 Current Year Income 10.286.699 1.2 Taxes And Duties Payable (-) 2.346.578 1.2.1 Corporate Tax (Income tax) 2.300.432 1.2.2 Income withholding tax - 1.2.3 Other taxes and duties 46.146 A. NET INCOME FOR THE YEAR (1.1-1.2) 7.940.121 1.3 Prior Year Losses (-) - 1.4 First Legal Reserves (-) 397.006 1.5 Other Statutory Reserves (-) - B. NET INCOME AVAILABLE FOR DISTRIBUTION [(A-(1.3+1.4+1.5)] 7.543.115 1.6 First Dividend To Shareholders (-) 280.000 1.6.1 To Owners Of Ordinary Shares 280.000 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 (-) - 1.8 Dividends To Board Of Directors (-) - 1.9 Second Dividend To Shareholders (-) - 1.9.1 To Owners Of Ordinary Shares - 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 (-) 25.000 1.11 Statutory Reserves (-) - 1.12 Extraordinary Reserves 7.160.393 1.13 Other Reserves - 1.14 Special Funds 77.722 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 1,4966 3.2 To Owners Of Ordinary Shares ( % ) 149,66 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 0,050 4.2 To Owners Of Ordinary Shares ( % ) 5,00 4.3 To Owners Of Privileged Shares - 4.4 To Owners Of Privileged Shares ( % ) - *The profit distribution table for the previous period has been finalized with the decision of the Ordinary General Assembly after the publication of the audited financial statements as of 31 December 2017 and restated accordingly. 20 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 2018 (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 principles on accounting records of Banks published by Banking Regulation and Supervision Agency (BRSA) and circulars and interpretations published by BRSA (together referred as BRSA Accounting and Reporting Legislation) and in case where a specific regulation is not made by BRSA, Turkish Accounting Standards, within the scope of Turkish Accounting Standards (“TAS”) and Turkish Financial Reporting Standards (“TFRS”) and related appendices and interpretations (referred as “Turkish Accounting and Financial Reporting Regulations” or “Reporting Standards”) 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 Official Gazette No. 28337, dated 28 June 201 2 and amendments to these Communiqué. The 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 histori cal cost convention, except for the financial assets and liabilities carried at fair value. 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 and estimates are explained in related notes. Unless otherwise specified, all balances in the financial statements and footnotes are expressed in Thousand Turkish Lira (“TL”). 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 q uantified 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. Changes in Accounting Policies As of 1 January 2018 the Group has applied TFRS 9 Financial Instruments (TFRS 9) published by POA according to “Regulation on the Procedures and Principles for Classification of Loans by Banks and Provisions to be set aside” published in the Official Gazette dated 22 June 2016 numbered 29750 f or the fırst time in attached consolidated financial statements. Prior period financial statements and notes were not restated in accordance with the transition provisions of TFRS 9. Therefore, the impact of the first application of standard has been reflected to Prior years' profit or loss and attached financial statements are presented separately rather than comparatively. TFRS 9 has been in effect as of 1 January 2018, the impact on opening balances are presented in Note XXV of Section Three. The TAS 39 measurement categories of financial assets at fair value through profit or loss, available for sale and held-to- maturity have been replaced by; financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income and financial assets at amortised cost, respectively as a consequence of TFRS 9. TFRS 15 Revenue from Contracts with Customers and other TAS/TFRS changes have not significant impact on Group's accounting policies, financial position and performance. TFRS 16 Leases standard abolishes the dual accounting model currently applied for lessees through recognizing finance leases in the balance sheet whereas not recognizing operational lease. Instead, it is set forth a single model similar to the accounting of finance leases (on balance sheet). For lessors, the accounting stays almost the same. The standard is effective from annual periods beginning on and after 1 January 2019 and the adoption process regarding the mentioned amendments continues as of the reporting date. 21 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) II. EXPLANATIONS ON STRATEGY OF USING FINANCIAL INSTRUMENTS AND FOREIGN CURRENCY TRANSACTIONS Main activity of the Parent Bank comprises of 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, shareholders’ equity and government funds transferred from the budget, ministerial offices and other public resources to the Bank by means of legislative and administrative decisions. 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 Bank’s balance sheet are with fixed interest ra te, 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 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 expense limit commitments for credit card 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, Mo ney Market or Interbank Money Market in case of need. In case of a liquidity crisis, the deposit base of the Parent Bank is not presumed to be significantly affected from liquidity risk since the 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 the 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”. USD capital amounts transferred to the equity participations operating The Parent Bank’s abroad are evaluated and presented on the financial statements with the exchange rate on valuation date. For currency risk arising from foreign currency translation, Euro denominated deposits are used as hedging instruments. Assets and liabilities and income statement items of the abroad branches of the Parent Bank are translated into Turkish Lira with the Parent Bank’s prevailing counter currency buying rates at the balance sheet date. III. INFORMATION ON CONSOLIDATED SUBSIDIARIES 1. 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”). 1.1. 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. 22 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) III. INFORMATION ON CONSOLIDATED SUBSIDIARIES (Continued) 1.1. Consolidation Principles for Subsidiaries(Continued) 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. Financial 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 resulting 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 2018 31 December 2017 Parent Parent Bank’s Bank’s Parent Risk Parent Risk Bank’s Group Bank’s Group Share Share Share Share Address Percentage Percentage Percentage Percentage Title (City/Country) Main Activities (%) (%) (%) (%) Ziraat Hayat ve Emeklilik A.Ş. İstanbul/Turkey Insurance 100,00 100,00 100,00 100,00 Ziraat Sigorta A.Ş. İstanbul/Turkey Insurance 100,00 100,00 100,00 100,00 Ziraat Finansal Kiralama A.Ş. İstanbul/Turkey Leasing 100,00 100,00 100,00 100,00 Ziraat Yatırım Menkul Değerler A.Ş. İstanbul/Turkey Brokerage Houses 99,60 99,60 99,60 99,60 Ziraat Portföy Yönetimi A.Ş. İstanbul/Turkey Portfolio Management 99,70 99,80 99,70 99,80 Ziraat Katılım Bankası A.Ş. İstanbul/Turkey Banking 100,00 100,00 100,00 100,00 Ziraat Gayrimenkul Yatırım Ortaklığı A.Ş.İstanbul/Turkey Real Estate 100,00 100,00 100,00 100,00 Ziraat Girişim Sermayesi Ortaklığı A.Ş. İstanbul/Turkey Venture Capital 100,00 100,00 100,00 100,00 Ziraat Bank International AG Frankfurt/Germany Banking 100,00 100,00 100,00 100,00 Ziraat Bank BH d.d. Banking Sarajevo/Bosnia and Herzegovina 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 JSC Ziraat Bank Georgia Tbilisi/Georgia Banking 100,00 100,00 100,00 100,00 Ziraat Bank Uzbekistan JSC Tashkent/ Uzbekistan Insurance 100,00 100,00 100,00 100,00 1.2. 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. 23 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) III. INFORMATION ON CONSOLIDATED SUBSIDIARIES (Continued) 1.2. Consolidation Principles of Associates and Joint Ventures 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 sh areholder’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, place of incorporation, main activities, effective shareholding rates and direct and indirect shareholding rates are as follows: 31 December 2018 31 December 2017 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 Arap Türk Bankası A.Ş. Istanbul/Turkey Banking 15,43 15,43 15,43 15,43 1.3. Principles Applied During Share Transfer, Merger and Acquisition Acquisition of entities are accounted by the purchase method on the date of purchase when the control is being transferred to the Group. Control explains managing power of Group on entity’s financial and operational policies for the purpose of providing benefit from operations of entity. While evaluating control, executable potential voting rights are taken consideration by Group. 1.4. 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. 1.5. Presentation of Unconsolidated Subsidiaries and Associates in Consolidated Financial Statements Turkish lira denominated unconsolidated associates and subsidiaries are booked at cost value, less any impairment if any, and recognized in the consolidated financial statements. IV. EXPLANATIONS ON FORWARD TRANSACTIONS, OPTIONS AND DERIVATIVE INSTRUMENTS The Group’s derivative transactions include cross swap transactions related to currency, swap transactions related to interest rates, currency and precious metal swaps, long-term financing transactions, full indemnity options and forward foreign currency buy/sell transaction contracts. The Parent Bank has no embedded derivative instruments separated from the articles of association. Derivative financial instruments of the Group are classified under "TFRS 9 Financial Instruments Standard" , "Derivative Financial Assets Designated at Fair Value through Profit or Loss" or "Derivative Financial Assets Designated at Fair Value through Other Comprehensive Income”. Derivative financial instruments are initially recognized at fair value. Derivative transactions, depending on the fair value being positive or negative is shown as financial assets at fair value through profit/ loss or financial liabilities at fair value through profit/loss in the following periods of the recording. Differences arising from the fair value of the valuation result are recognized in Statement of Profit or Loss in Profit/Losses from derivative financial transactions under Trading Profit/Loss. 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. 24 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) V. EXPLANATIONS ON INTEREST INCOME AND EXPENSE Interest income and expenses of Group are recognized according to the effective interest method (rate equal to the rate in calculation of present value of future cash flows of financial assets or liabilities). Interest income from financial assets are recognized as gross carrying amount according to the effective interest rate method except for interest income from purchased or originated credit-impaired financial assets or financial assets that are not purchased or originated credit-impaired financial assets but subsequently have become credit-impaired financial assets. If the expectations for the cash flows in the financial asset are revised for reasons other than the credit risk, the amendment is reflected in the carrying amount of the asset and in the related income statement line and is amortized over the estimated life of the financial asset. VI. EXPLANATIONS ON FEE AND COMMISSION INCOME AND EXPENSE Income and losses from banking, agency and intermediary services are recognized as income/loss and conformant with TFRS 15 Revenue from Contracts wıth Customers on the date they are collected. Prepaid expense amounts are recognize as expense on an accrual basis during the service period. Commision income from consumer, corporate and entrepreneurial loans are transferred to income accounts according to periodicity principle using effective interest rate method on an accrual basis. VII. EXPLANATIONS ON FINANCIAL ASSETS As TFRS 9 has been put into effect on 1 January 2018, the Group's accounting policy for financial instruments is summarized as follows. Financial assets are recognized or derecognized according to TFRS 9 Financial Instruments Part 3 Recognition and Derecognition. Financial assets are measured at fair value at initial recognition in the financial statements. They are included in the balance sheet of the Group, if the Group is a legal party to these instruments. The Group categorizes its financial assets as “Fair Value Through Profit/Loss”, “Fair Value Through Other Comprehensive Income” or “Measured at Amortized Cost”. Financial instruments comprise financial assets and liabilities and derivative instruments. This classification is based on the contractual cash flow characteristics of the related business model used for management of the financial assets at initial recognition. 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. 25 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) VII. EXPLANATIONS ON FINANCIAL ASSETS (Continued) Classification and Measurement within the Scope of TFRS 9 In accordance with TFRS 9 Financial Instruments Standard, financial assets are classified.as a measured at amortized cost, fair value through other comprehensive income and fair value through profit or loss. -The business model used by the entity for the management of financial assets, -Properties of contractual cash flows of a financial asset. To determine the classification of financial assets, Business Model Test and Cash Flow Characteristics Test are performed. Financial assets at fair value through profit or loss Financial assets at fair value through profit/loss are financial assets that are either acquired for generating a profit from short term fluctuations in prices or are financial assets included in a portfolio aiming to short-term profit making. Financial assets at the fair value through profit or loss are initially recognized at fair value and remeasured at their fair value after recognition. All gains and losses arising from these valuations are reflected in the income statement. Government bonds and treasury bills included in held for trading and available for sale port folios traded in BİST are carried at weighted average exchange prices of BİST 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. All gains and losses arising from these valuations are reflected in the profit or loss account. Financial Assets at Fair Value Through Other Comprehensive Income In addition to financial assets within a business model that aims to hold to collect contractual cash flows and aims to hold to sell, financial asset with contractual terms that lead to cash flows are solely payments of principal and interest at certain dates, they are classified as fair value through other comprehensive income. Financial assets at fair value through other comprehensive income are recognized by adding transaction cost to acquisition cost reflecting the fair value of the financial asset. After the recognition, financial assets at fair value through other comprehensive income are remeasured at fair value. Interest income calculated with effective interest rate method arising from financial assets at fair value through other comprehensive income and dividend income from equity securities are recorded to income statement. “Unrealized gains and losses” arising from the difference between the amortized cost and the fair value of financial assets at fair value through other comprehensive income are not reflected in the income statement of the period until the acquisition of the asset, sale of the asset, the disposal of the asset, and impairment of the asset and they are accounted under the “Accumulated other comprehensive income or expense to be reclassified through profit or loss” under shareholders’ equity. When these securities are collected or disposed of, the accumulated fair value differences reflected in the equity are reflected to the income statement. 26 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) VII. EXPLANATIONS ON FINANCIAL ASSETS (Continued) Financial Assets at Fair Value Through Other Comprehensive Income Equity securities, which are classified as financial assets at fair value through other comprehensive income, that have a quoted market price in an active market and whose fair values can be reliably measured are carried at fair value. Equity securities that do not have a quoted market price in an active market and whose fair values cannot be reliably measured are carried at cost, less provision for impairment. Regarding the banking operations of the Group, there exist ineffective shares of Kredi Garanti Fonu, Türk Ticaret Bankası in liquidation, Borsa İstanbul, Borica Bank Services AD, Central Bank of the Republic of Turkey and Milli Reasürans T.A.Ş. The related investments are classified und er financial assets at fair value through other comprehensive income and are carried out at book value. Financial Assets Measured at Amortized Cost Financial assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are classified as financial assets measured at amortized cost. Financial assets measured at amortized cost are initially recognized at acquisition cost including the transaction costs which reflect the fair value of those instruments and subsequently recognized at amortized cost by using effective interest rate method. Interest income obtained from financial assets measured at amortized cost is accounted in income statement. Fair value through other comprehensive income” and “measured at amortized cost” securities portfolio of the Group include Consumer Price Indexed (CPI) Bonds. CPI’s are valued and accounted according to the effective interest rate method which is calculated according to the real coupon rate and the reference inflation index on the issue date. As it is mentioned in the Undersecretariat of Treasury’s Investor Guide of CPI, the reference index used during the calculation of the actual coupon payment amount is the previous two months CPI’s. The Bank det ermines its expected inflation rates in compliance with this guide. Estimated inflation rate used during the year can be updated if necessary. Loans Loans are financial assets that have fixed or determinable payments terms and are not quoted in an active market. Loans are initially recognized at acquisition cost presenting thereafter measured at amortized cost using the "Effective Interest Rate Method". Loans, short- and long-term loans are classified as open and collateralized, FX-denominated loans are recorded at a fixed price, and the Bank is subject to evacuation by the foreign exchange buying rate. Short-term and long-term loans are grouped as open or guaranteed; FC loans are recognized with fixed price and 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. The Parent Bank’s loans are recognized under the "Measured at Amortized Cost" account. VIII. EXPLANATIONS ON IMPAIRMENT OF FINANCIAL ASSETS Explanations on Expected Loss Provisions The main principle of the expected credit loss model is to reflect the general outlook of deterioration or improvement in the credit quality of financial instruments. The amount of expected credit losses known as loss provision or provision varies according to the degree of increase in credit risk. There are two measurements according to the general approach: - 12-Month Expected Loss Provision (Stage 1) applies to all assets unless there is a significant deterioration in credit quality. - Lifetime Expectation Loss (Stage 2 and Stage 3) is applied when there is a significant increase in credit risk. 27 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) VIII. EXPLANATIONS ON IMPAIRMENT FINANCIAL ASSETS (Continued) Impairment As of 1 January 2018, the Group recognize provisions for impairment in accordance with TFRS 9 requirements according to the “Regulation on the Procedures and Principles for Classification of Loans by Banks and Provisions to be set aside” published in the Official Gazette dated 22 June 2016 numbered 29750. In this framework, as of 31 December 2017, method of provisions for impairment as set out in accordance with the related legislation of BRSA is changed by applying the expected credit loss model under TFRS 9. The expected credit loss model includes instruments that are recorded at amortized cost or at fair value in other comprehensive income tables (such as bank deposits, loans and securities) and, in addition, financial lease receivables that are not measured at fair value through profit or loss, credit commitments and financial guarantee contracts. The guiding principle of the expected credit loss model is to reflect the increase in credit risk of financial instruments or the general view of the recovery. The amount of allowance for the loss depends on the extent of the increase in credit risk since the initial issuance of the loan. Expected credit loss is an estimate of the expected credit losses over the life of a financial instrument also the following aspects are important for the measurement. - Probability-weighted and neutral amount determined by taking into account possible outcomes, - Time value of money, - Reasonable and supportable information on past events, current conditions and forecast of future economic conditions, at the time of reporting, without excessive cost and effort. These financial assets are divided into three categories depending on the gradual increase in credit risk observed since their initial recognition: 12 Month Expected Credit Losses (Stage 1) For the financial assets at initial recognition or that do not have a significant increase in credit risk since initial recognition. Impairment for credit risk is recorded in the amount of 12-month expected credit losses. For such assets impairment for credit risk is recorded in the amount of 12-month expected credit losses. It is valid for all assets unless there is a significant deterioration in the quality of the loan. The expected 12 month loss values (within 12 months after the reporting date or within a shorter period if the life of a financial instrument is shorter than 12 months) are part of the estimation of loss of life expectancy. Significant Increase in Credit Risk (Stage 2) Financial assets are transferred to stage 2 if there is a significant increase in credit risk. The expected loss provision is calculated by calculating the 1-year maturity for loans under stage 1, and the expected loss provision for loans under stage 2 is calculated by taking into consideration the remaining maturity. The main criteria taken into consideration in determining the credit risk of the financial asset to be significantly increased and transferred to the stage 2 are the close monitoring, the number of delay days being 30 and above, and the Parent Bank's internal early warning system note Credit-Impaired Losses (Stage 3 / Specific Provision) Includes financial assets that have objective evidence of impairment at the reporting date. For these assets, lifetime expected credit losses are recognized and interest revenue is calculated on the net carrying amount. It is considered a debt as default on these two conditions; - Objective Default Definition: It means debt having past due more than 90 days. - Subjective Default Definition: It means it is considered that a debt is unlikely to be paid. Whenever it is considered that an obligor is unlikely to pay its credit obligations, it should be considered as defaulted regardless of the existence of any past-due amount or of the number of days past due 28 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) VIII. EXPLANATIONS ON IMPAIRMENT FINANCIAL ASSETS (Continued) Impairment (Continued) Credit-Impaired Losses (Stage 3 / Specificl Provision) (Continued) Collective assessment of financial instruments is based on homogeneous group assets referring to portfolio segmentation including similar credit risk and product characteristics. Credits that differ in cash flows or have different characteristics with other credits may be subject to individual valuation instead of aggregate valuation. A credit loss can be defined as the difference between all contractual cash flows that are outstanding under the contract and the original expected Effective Interest Rate value and discounted cash flows. When cash flows are estimated, the following situations are considered. - During the expected life of the financial instrument, all contractual terms of the financial instrument, - Cash flows expected to be obtained from collateral sales. In the calculation of the expected credit loss, the basic parameters which are expressed as probability of default, loss in default and default amount are used. Probability of Default Probability of default refers to the likelihood that a loan will default at a certain time. In Default Probability models, sectorial information for the corporate portfolio and product information for the Individual portfolio are taken as the basis Default Amount The default amount represents the expected gross receivable if a loan is defaulted. Loss Given Default Loss given default refers to the ratio of the economic net loss resulting from the default of a loan to the default amount. In other words, it refers to the ratio of net loss due to a defaulted loan to the balance at the time of default. Future Expectations The effect of future expectations is included in the credit risk parameters used in the calculation of expected credit losses by using scenarios related to macroeconomic factors. The main macroeconomic indicators that create these estimation models are the ratio of Gross Domestic Product (GDP) and Consumer Price Index (CPI). Macroeconomic estimation models include more than one scenario and the related scenarios are taken into account in the expected credit loss calculations. The Methodology of Behavioral Maturity Calculation For the loans in Stage 1, which have less than one year to due date and for the loans in Stage 2, which have more than one year are to due date are calculated until the maturity day and the lifetime (until maturity date). In this calculation, the remaining maturity information of the loan is taken as basis for each loan. While this information is used for products with real maturity information, behavioral maturity is calculated by analyzing historical data for products with no maturity information. Expected loss provisions are calculated based on these maturities depending on the type of loan. IX. EXPLANATIONS ON OFFSETTING FINANCIAL INSTRUMENTS Financial assets and liabilities are offset and the net amount is reported in the balance sheet when the Group has a legally enforceable right to offset the recognized amounts and there is an intention to collect/pay the related financial assets and liabilities on a net basis, or to realize the asset and settle the liability simultaneously. 29 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) X. EXPLANATIONS ON SALES AND REPURCHASE AGREEMENTS AND SECURITIES LENDING TRANSACTIONS Securities subject to repurchase agreements (“Repos”) are classified as “Financial assets at fair value difference through profit or loss”, “Financial assets at fair value difference through other comprehensive income” and “Measured at amortized cost” in the balance sheet according to the investment purposes and measured according to the portfolio of the Group to which they belong. Funds obtained under repurchase agreements are accounted under “Funds provided under repurchase agreements” in liability accounts and differences between the sale and repurchase prices determined by these repurchase agreements are accrued evenly over the life of the repurchase agreement using the “Effective interest (internal 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, securities borrowed by the Group are monitored in Financial assets at fair value through profit/loss portfolio at market value as of the date of borrowing. There is no valuation for securities nevertheless commission/interest payables are valued. XI. INFORMATION ON ASSETS HELD FOR SALE AND RELATED TO DISCONTINUED OPERATIONS AND EXPLANATIONS ON LIABILITIES RELATED WITH THESE ASSETS The Group’s assets that were acquired due to receivables, are accounted in the financial statements in accordance with the regulations of “Turkish Financial Reporting Standard for Assets Held for Sale and Discontinued Operations (TFRS 5)”. The assets that meet the criteria of being classified under assets held for sale are measured at the lower of their book values or fair value less costs to be incurred for sale, depreciation for these assets is ceased and these assets are presented separately in the balance sheet. In order for an asset to be classified as an asset held for sale, the related asset (or the asset group to be disposed) shall be ready to be sold immediately under usual conditions and should have a high possibility to be sold. To have a high possibility of sale, a plan should have been made for the sale of the asset (or the asset group to be disposed) and an active program should have been started by the management, aiming to complete the plan and determine the buyers. The properties obtained from the Group’s receivables are shown at the fixed assets held for sale line according to the execution of the forward sales agreement. A discontinued operation is a part of an entity which is classified as to be disposed or held for sale. The results related to discontinuing operations are presented separately in the income statement. The Group does not have any discontinued operations. 30 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XII. EXPLANATIONS ON GOODWILL AND OTHER INTANGIBLE ASSETS As at the balance sheet date, the Group has no goodwill within the financial statements. 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 five 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 Tangible assets are 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 Parent 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 31 December 2016 valuation results are reflected in the accounting records. As a result of the fair valuation of the real estates of the Group, TL 3.966.201 net is followed under shareholders’ equity as of 31 December 2018. As of 30 January 2014, the net book amount of real estates of the tangible assets before valuation was TL 816.950. Tangible assets (except for immovables) 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. Tangible assets are depreciated over their estimated useful lives using the straight-line method. The amortization method applied in the current period has not been changed. Estimated useful lives and amortization rates of tangible assets are below: Estimated Useful Lives (Year) Amortization Rate Buildings 50 2% Safe-deposit boxes 50 2% Other movable properties 3-25 4-33,33% Assets held under financial leases 4-5 20-25% 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. 31 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XIV. EXPLANATIONS ON LEASING TRANSACTIONS 1. 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 debited to “Financial Lease Payable” account, whereas interest is credited in “Deferred Financial Leasing Expenses” account and recorded to the “Other Interest Expenses”. 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. 2 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 XV. EXPLANATIONS ON PROVISIONS, CONTINGENT ASSET AND LIABILITIES Provisions other than provisions for impairment 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. 32 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XVI. EXPLANATIONS ON OBLIGATIONS RELATED TO EMPLOYEE RIGHTS Employment Termination and Vacation Benefits The Group recognizes its liabilities of employment terminations and vacation benefits in accordance with TAS 19 “Turkish Accounting Standard about Benefits for Employee” and estimates the net present value of future liabilit ies 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 Group and social security institution, retirement bonus pension/severance payments are calculated for the hours that the personnel has worked. Employment termination is calculated based on actuarial assumptions. This assumptions based on the calculation are below: The Parent Bank uses independent actuaries in determining liability, and also makes assumptions about issues such as discount rate and inflation. These assumptions are reviewed on an sixth month basis. As of 31 December 2018, retirement benefit obligation is TL 836.363 (31 December 2017: TL 820.157). Current Period Prior Period Discount Rate 16,30% 12,10% Inflation 12,00% 8,90% 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. The Group’s actuarial loss amounting to TL 32.536 was classified under shareholders’ equity in the financials. Unused vacation liability is calculated based on number of unused vacation days which is calculated by subtracting 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. 33 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XVI. EXPLANATIONS ON OBLIGATIONS RELATED TO EMPLOYEE RIGHTS (Continued) Liability of T.C. Ziraat Bankası and T. Halk Bankası Members Pension and Relief Fund (TZHEMSAN) Some of the Parent Bank’s and Ziraat Katılım Bankası A.Ş. personnel are the members of T.C. Ziraat Bankası and T. Halk Bankası A.Ş. Employees' Pension Fund (“Fund”) which was established by 20th provisional article of Social Security Law Act numbered 506. In accordance with 23rd provisional clause of the Parent 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. As of 31 December 2018 the number of personnel who benefit from the Fund, excluding dependents, is 23.308 (31 December 2017: 22.531). 19.458 of these members are active while 3.850 are passive members. (31 December 2017: 18.723 active members, 3.808 passive members). With the publication of the reasoning of the decision, the Grand 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 Related Laws and Regulations” No 5754 (“the New Law”) regulating the transfer o f 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. Based on the Council of Ministers’ decree numbered 2011/1559 and issued in the Official Gazette numbered 27900, dated 9 April 2011, and 20th 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 numbered 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. 34 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XVI. EXPLANATIONS ON OBLIGATIONS RELATED TO EMPLOYEE RIGHTS (Continued) Liability of T.C. Ziraat Bankası and T. Halk Bankası Members Pension and Relief Fund (TZHEMSAN) (Continued) 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 4th article of this Law. The technical balance sheet report as of 31 December 2018 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. XVII. EXPLANATIONS ON TAXATION Current Tax The corporate tax rate of 20% implementation on the Corporate Tax Law No. 5520 was taken into effect on 1 January 2006 after being published in the Official Gazette dated 21 June 2006 numbered 26205 , will be applied as 22% for corporation earnings for three years from 1 January 2018 with the regulation dated 28 November 2017 numbered 7061. Furthermore, Cabinet is made authorized to decrease this ratio to 20% from 22%. The Parent Bank applies new regulations to its current and deferred tax responsibilities. The corporate tax rate is calculated on the total income of the Bank after adjusting for certain disallowable expenses, exempt income (like affiliate gains) and other allowances. If there is no dividend distribution, no further tax charges are made. 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. Corporations are required to pay advance corporate tax quarterly at a rate of 22% 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. According to 5.1.e. article of Corporation Tax Law which is important tax exemption that is applied by banks, corporations’ 50% of revenues that occur from selling of their real estates, are in assets, that belong to the corporations a t least two years (730 days), 75% of revenues that occur from selling their founding bonds that are belong to the corporations as long as time of participation stocks, redeemed shares and option to call are exempted from Corporation Tax. (It was changed with 89th article of code 7061 that entries into force in 5 December 2017. According to dated 23 December 2017 3rd article of Corporation Tax Code (CTC) 14 annunciation this exemption will apply as ratio of 75% for selling that made till the 5 December 2017, after this date it will apply as ratio of 50%.) This exemption applies to the period the sale is made and the part of return on sales that benefits from the exemption is held in a special fund in the liabilities account until the end of the fifth year started from the following year sale is made. However, the sales payment must be collected until the end of the second calendar year following the year in which the sale is made. Taxes which are not realized in time due to the exemption that hits uncollected sales payment are considered tax loss. Taxes which does not accrue on time because the applying exemption for the transfer of the expemted part of revenue to the other accounts with other ways out of capitalizing in five years or withdrawn from company or transferring from limited taxpayer corporations to the headquarters, are considered as tax loss. This is also be applicable in the condition of liquidation of business (Except transfers and divisions that make according to this code). 35 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XVII. EXPLANATIONS ON TAXATION (Continued) Current Tax (Continued) Moreover, according to 5.1.f. article of Corporation Tax Law; corporations which have been fallen to legal proceedings because of owe to the bank or Savings Deposit Insurance Funds, and their warranters’ real estates, participation stocks, founding bonds, redeemed shares, options to call of mortgagors’ revenues that used for against debts or transferring to SDIF, 75% of real estates, and 50% others are exempted from Corporation tax. (It was changed with 89th article of code 7061 that entries into force in 5 December 2017. According to 3rd article of Corporation Tax Code (CTC) 14 annunciation dated 23 December 2017 this exemption will apply as ratio of 75% for selling that made till the 5 December 2017, after this date it will apply as ratio of 50%.) 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 legislation as of 31 December 2017 are presented below: Russia 20% Kazakhstan 20% Azerbaijan 20% Germany 15% Georgia 15% Uzbekistan 15% Bosnia Herzegovina 10% Montenegro 9% 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 reviewed 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. 36 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XVIII. EXPLANATIONS ON INSURANCE TECHNICAL RESERVES 1. Technical Reserves Reserve for Unearned Premiums Reserve for unearned premiums represents the proportions of the premiums written in a period that relate to the period of risk subsequent to the balance sheet date, without deductions of commission or any other expense. 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 Treasury, 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. 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. XIX. EXPLANATIONS ON BORROWINGS The Group accounts its debt instruments in accordance with TFRS 9 “Financial Instruments” In the following periods, all financial liabilities are carried at amortized cost by using effective interest rate 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 Group 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. XX. EXPLANATIONS ON ISSUANCE OF SHARE CERTIFICATES The decision to increase the capital of Parent Bank to TL 6.100.000 was approved by the Parent Bank's Ordinary General Assembly held on 13 August 2018, and the capital increase and the related amendment to the articles of association of the Articles of Association were registered on 22 October 2018. It was announced in the Trade Registry Gazette No. 9688. The accounting for this capital increase was made on 9 November 2018 with the permission of BRSA. 37 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XXI. EXPLANATIONS ON AVALIZED DRAFTS AND ACCEPTANCES Commitments regarding bill guarantees and acceptances of the Group are presented in the “Off-Balance Sheet” commitments. XXII. EXPLANATIONS ON GOVERNMENT GRANTS There are no government incentives utilized by the Group as of the balance sheet date. XXIII. 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” includes 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. XXIV. 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 s tructure of the Group, are disclosed in Note VIII of Section Four. 38 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XXV. EXPLANATIONS ON OTHER MATTERS Explanations on Profit Distribution In accordance with the decision taken in the General Assembly of the year 2017, which was carried out on 13 August 2018, from TL 7.940.121 net profit, TL 397.006 is transferred to first legal reserve and TL 25.000 was transferred to second legal reserve. TL 280.000 was paid to shareholder as a first dividend and TL 250.000 was paid to employees as an additional payment. 50% of the sales revenue of the real estates sold in 2017 is TL 77.722 thousand and transferred to Other Reserves for monitoring in a special fund account. Within this framework, it has been decided to keep TL 7.160.393 of the profit within the Parent Bank. Developments related to TFRS 9 Transition Process TFRS 9 “Financial Instruments”, which is effective as at 1 January 2018 is published by the Public Oversight Accounting and Auditing Standards Authority (“POA”) in the Official Gazette numbered 29953 dated 19 January 2017. TFRS 9 sets out the new principles for the classification and measurement of financial instruments, impairment for credit risk on financial assets and hedge accounting. According to TFRS 9 requirements, classification and measurement of financial assets will depend on the business model within which financial assets are managed and their contractual cash flow characteristics whether the cash flows represent solely payments of principal and interest. Explanations on the impact of TFRS 9 implementation of the Group are below. TFRS-9 TFRS-9 31 December ASSETS Reclassification Remeasurement 1 January 2018 2017 impact impact FINANCIAL ASSETS (Net) 124.716.719 (118.686) 100.148 124.698.181 Cash and cash equivalents 51.984.862 - - 51.984.862 Cash and balances at Central Bank 46.220.337 - - 46.220.337 Banks 5.632.140 - - 5.632.140 Receivables from Money Markets 132.385 - - 132.385 Financial assets measured at fair value to profit or loss 71.096 - - 71.096 Financial assets measured at fair value to other comprehensive income 63.638.231 - - 63.638.231 Financial assets measured at amortised cost 7.625.763 - - 7.625.763 Derivative financial assets 1.396.767 - - 1.396.767 Non-performing financial assets - - - - Allowance for expected credit losses (-) - 118.686 (100.148) 18.538 LOANS (Net) 319.903.621 (4.917.056) 4.900.932 319.887.497 Loans 316.795.002 - - 316.795.002 Loans measured at amortised cost 316.795.002 - - 316.795.002 Receivables from leasing transactions 3.075.898 - - 3.075.898 Factoring Receivables 1.614 - - 1.614 Non-performing loans 5.028.967 - - 5.028.967 Allowance for expected credit losses (-) 4.997.860 4.917.056 (4.900.932) 5.013.984 12-Month expected credit losses (Stage 1) - 4.680.739 (4.092.769) 587.970 Significant increase in credit risk (Stage 2) - 236.317 (90.124) 146.193 Credit-Impaired (Stage 3) 4.997.860 - (718.039) 4.279.821 NON-CURRENTS ASSETS OR DISPOSAL GROUPS HELD FOR SALE AND FROM DISCONTINUED OPERATIONS (Net) 674.819 - - 674.819 JOINT VENTURES 188.038 - - 188.038 Investments in associates (Net) 128.419 - - 128.419 Investments in subsidiaries (Net) 7.583 - - 7.583 Jointly Controlled Partnerships (Joint Ventures) (Net) 52.036 - - 52.036 TANGIBLE ASSETS (Net) 6.679.632 - - 6.679.632 INTANGIBLE ASSETS AND GOODWILL (Net) 532.088 - - 532.088 INVESTMENT PROPERTIES (Net) - - - - CURRENT TAX ASSET 11.261 - - 11.261 DEFERRED TAX ASSETS 29.794 - - 29.794 OTHER ASSETS 4.190.157 - - 4.190.157 TOTAL ASSETS 456.926.129 (5.035.742) 5.001.080 456.891.467 39 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XXV. EXPLANATIONS ON OTHER MATTERS (Continued) Reconciliation of statement of financial position balances to TFRS 9 (Continued) TFRS-9 TFRS-9 LIABILITIES AND EQUITY 31 December 2017 Reclassification Remeasurement 1 January 2018 impact impact DEPOSITS 282.569.613 - - 282.569.613 FUNDS BORROWED 31.118.253 - - 31.118.253 MONEY MARKETS 56.309.523 - - 56.309.523 SECURITIES ISSUED (Net) 13.474.280 - - 13.474.280 FUNDS 6.030.575 - - 6.030.575 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS - - - - DERIVATIVE FINANCIAL LIABILITIES 548.910 - - 548.910 FACTORING LIABILITIES - - - - PROVISIONS 10.362.037 (5.038.318) (428.230) 4.895.489 General Provısıon 5.635.198 (5.635.198) - - Reserve for Employee Benefits 1.328.920 - - 1.328.920 Insurance Technical Reserves (Net) 1.514.046 - - 1.514.046 Other provısıon 1.883.873 596.880 (428.230) 2.052.523 CURRENT TAX LIABILITY 1.003.338 - 209.250 1.212.588 DEFERRED TAX LIABILITY 307.100 - (180.901) 126.199 OTHER LIABILITIES 6.719.344 - - 6.719.344 SHAREHOLDER’S EQUITY 48.483.156 2.576 5.400.961 53.886.693 Paid in capital 5.600.000 - - 5.600.000 Capital reserves (95.773) 95.521 - (252) Other capital reserves (95.773) 95.521 - (252) Accumulated Other Comprehensive Income or Loss that will not be Reclassified to Profit or Loss - 3.968.830 - 3.968.830 Accumulated Other Comprehensive Income or Loss that will be Reclassified to Profit or Loss - (933.992) (175) (934.167) Marketable Securities Valuation Differences (953.956) 953.956 - - Tangible Assets Revaluation Reserves 4.064.351 (4.064.351) - - Bonus Shares of Subsidiaries, Associates and Entities Under Common Control 17.388 (17.388) - - Profit Reserves 30.317.558 - - 30.317.558 Legal Reserves 3.824.868 - - 3.824.868 Status Reserves - - - - Extraordinary Reserves 24.836.410 - - 24.836.410 Other Profit Reserves 1.656.280 - - 1.656.280 Profit or (Loss) 9.531.923 - 5.401.136 14.933.059 Prior Periods' Profit or (Loss) 647.804 - 5.401.136 6.048.940 Current Period Profit or (Loss) 8.884.119 - - 8.884.119 Minority Interest 1.665 - - 1.665 TOTAL LIABILITIES AND EQUITY 456.926.129 (5.035.742) 5.001.080 456.891.467 40 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XXV. EXPLANATIONS ON OTHER MATTERS (Continued) Reconciliation of the opening balances of the provision to TFRS 9 Book value before TFRS 9 Book value after TFRS 9 31 December 2017 Remeasurements 1 January 2018 Loans Provision 9.914.916 (4.900.932) 5.013.984 Stage 1 (1) 4.680.739 (4.092.769) 587.970 Stage 2 (1) 236.317 (90.124) 146.193 Stage 3 4.997.860 (718.039) 4.279.821 Financial Assets (2) 121.262 (100.323) 20.939 Non-Cash Loans (3) 735.115 (428.230) 306.885 Stage 1 and 2 596.880 (460.448) 136.432 Stage 3 138.235 32.218 170.453 Total 10.771.293 (5.429.485) 5.341.808 (1) Represents general provisions for stage 1 and 2 loans before TFRS 9. (2) Within the scope of TFRS 9, provisions include provisions for Amortized Cost, Fair Value through Other Comprehensive Income, Receivables from Banks and Receivables from Money Markets. (3) Before TFRS 9, the expected credit loss for stage 1 and 2 non-cash loans is classified “12. General Provision” and expected credit loss for stage 3 non-cash loans is classified “12.5. Other Provisions” under liabilities. In accordance with TFRS 9, the expe cted loss provisions for the Stage 1, Stage 2 and Stage 3 non-cash loans are in the "10.4 Other Provisions" column in the liabilities. The Impact of TFRS 9 Transition to Equity According to paragraph 15 of Article 7 of TFRS 9 Financial Instruments Standards published in the Official Gazette numbered 29953 dated 19 January 2017, it is stated that it is not compulsory to restate previous period information in accordance with TFRS 9 and if the previous period information is not restated, it is stated that the difference between the book value of 1 January 2018 at the date of application should be reflected in the retained earning of equity. The explanations about the transition effects to TFRS 9 presented in the equity items under the scope of this article are given below. The difference between the provision for impairment of the prior period and allowance for expected credit losses that is measured in accordance with TFRS 9 impairment model as of 1 January 2018 amounting to TL 5.429.485 as income is recorded to "Prior years' profits or losses" in shareholders’ equity. As stated in the Communiqué on “Uniform Chart of Accounts and Prospectus” issued on 20 September 2017, for general provisions (TFRS 9 expected loss provisions for the loans at first and second stages), deferred tax assets calculation has started as of 1 January 2018. Within this scope, deferred tax assets amounting to TL 180.901 have been reflected to the opening financials of 1 January 2018 and the related amount has been recorded to “Prior years' profits or losses” in shareholders' equity. For the specific provisions (TFRS 9 allowance for expected credit losses for third stage loans) which have been cancelled due to TFRS 9 transition, income tax loss amounting to TL 209.250 is recorded to “Prior years’ profits or losses” in equity as of 1 January 2018. The general provision amounting to TL 2.402 relating to equity investments in available-for-sale financial assets, which were presented under general provision in before TFRS 9, has been started to be recognized in “Other accumulated comprehensive income that will be reclassified in profit or loss” under equity. 41 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XXVI. EXPLANATIONS ON PRIOR PERIOD ACCOUNTING POLICIES NOT AVAILABLE FOR THE CURRENT PERIOD "TFRS 9 Financial Instruments" standard came into effect instead of "TAS 39 Financial Instruments: Recognition and Measurement" as of 1 January 2018. Accounting policies lost their validity with the transition of TFRS 9 are given below: Financial assets at fair value through profit or loss Financial assets, which are classified as “financial assets at fair value through profit or loss”, are trading financial asse ts 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 BİST are carried at weighted average exchange prices of BİST as of the balance sheet date and those securities that are not traded in BİST 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 from Capital Market Operations” account and the negative difference is accounted under “Loss from Capital Market Operations” account. Held-to-maturity financial assets Investments held to maturity include financial assets other than Group 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. 42 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION THREE (Continued) EXPLANATIONS ON ACCOUNTING POLICIES (Continued) XXVI. EXPLANATIONS ON PRIOR PERIOD ACCOUNTING POLICIES NOT AVAILABLE FOR THE CURRENT PERIOD (Continued) Loans and receivables Group 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. Group loans and receivables 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 revalued by the counter foreign exchange buying rate of the Parent Bank. Foreign exchange indexed loans are used as TL by the valid counter foreign exchange buying rate of the Parent 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. 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”. However, there is no judgement in the related Regulation and the BRSA's related disclosures that would prevent further provision of the minimum amounts required. Allocated provisions are deducted from the income for the period. The Group reserves specific provisions for non-performing loans over the minimum ratios specified in the Regulation without considering the collaterals. 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. The Group allocates general provisions for the first and second group loans and other receivables above the minimum rates specified in the Regulation. 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 Asset 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 amortised 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 The Group, there exist ineffective shares of Kredi Garanti Fonu, Türk Ticaret Bankası in liquidation, Borsa İstanbul, Borica Bank Services AD, 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. 43 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT 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 2018 Group’s total capital has been calculated as TL 63.884.017 (31 December 2017: TL 51.743.724), capital adequacy ratio is 14, 23% (31 December 2017: 14,60%). This Group’s ratio is well above the minimum ratio required by the legislation. 1. Information Related to The Components of Shareholders' Equity Amount as per the regulation before Current Period 1/1/2014* COMMON EQUITY TIER 1 CAPITAL Paid-in capital following all debts in terms of claim in liquidation of the Bank 6.100.000 - Share issue premiums - - Reserves 35.758.745 - Gains recognized in equity as per TAS 8.398.062 - Profit 16.092.374 - Current Period Profit 9.343.637 - Prior Period Profit 6.748.737 - Shares acquired free of charge from subsidiaries, affiliates and jointly controlled partnerships and cannot be recognised within profit for the period 17.388 - Minority Shares 289 Common Equity Tier 1 Capital Before Deductions 66.366.858 - 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 6.240.052 - Improvement costs for operating leasing 62.118 - Goodwill (net of related tax liability) - - Other intangibles other than mortgage-servicing rights (net of related tax liability) 731.706 731.706 Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of 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 Common Equity - - 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 - - Excess amount arising from mortgage servicing rights - - 44 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT (Continued) I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY (Continued) 1. Information Related To The Components Of Shareholders' Equity (Continued) Amount as per the regulation Current Period before 1/1/2014* 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 7.033.876 - Total Common Equity Tier I Capital 59.332.982 - 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(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 (-) - - Transition from the Core Capital to Continue to deduce Components 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 (-) - - 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) 59.332.982 - TIER II CAPITAL Debt instruments and share issue premiums deemed suitable by the BRSA - - Debt instruments and share issue premiums deemed suitable by BRSA (Temporary Article 4) - - Provisions (Article 8 of the Regulation on the Equity of Banks) 4.552.906 - Tier II Capital Before Deductions 4.552.906 - 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(-) - - 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 exceeding 10% of Common Equity of the Bank - - Other items to be defined by the BRSA (-) - - Total Deductions from Tier II Capital - - Total Tier II Capital 4.552.906 - Total Capital (The sum of Tier I Capital and Tier II Capital) 63.885.888 - 45 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT (Continued) I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY 1. Information Related To The Components Of Shareholders' Equity (Continued) Amount as per the regulation before Current Period 1/1/2014* Total Tier I Capital and Tier II Capital ( Total Equity) 63.885.888 - 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 - - Other items to be defined by the BRSA (-) 1.871 - In transition from Total Core Capital and Supplementary Capital (the capital) to Continue to Download Components 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 Tier1 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) 63.884.017 - Total Risk Weighted Assets 448.874.719 - CAPITAL ADEQUACY RATIOS CET 1 Capital Ratio (%) 13,22 - Tier I Capital Ratio (%) 13,22 - Capital Adequacy Ratio (%) 14,23 - BUFFERS Total additional core capital requirement ratio (a+b+c) 3,41 - a) Capital conservation buffer requirement (%) 1,88 - b) Bank specific countercyclical buffer requirement (%) 0,032 c) Higher bank buffer requirement ratio (%) (**) 1,5 - Additional CET 1 Capital Over Total Risk Weighted Assets Ratio Calculated According to the Article 4 of Capital Conservation and Counter-Cyclical Capital Buffers Regulation 5,22 - Amounts Lower than Excesses as per Deduction Rules - Remaining 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 174.201 - Remaining Total of Net Long Positions of the Investments in Tier I Capital of Unconsolidated Banks and Financial Institutions where the Bank Owns more than 10% or less of the Issued Share Capital 65.943 - Remaining Mortgage Servicing Rights - Net Deferred Tax Assets arising from Temporary Differences 1.639.558 - Limits for Provisions Used in Tier II Capital Calculation General Loan Provisions for Exposures in Standard Approach (before limit of one hundred and twenty five per the thousand 4.552.906 - General Loan Provisions for Exposures in Standard Approach Limited by 1.25% of Risk Weighted Assets 4.552.906 - Total Loan Provision that Exceeds Total Expected Loss Calculated According to Comminique on Calculation of Credit Risk by Internal Ratings Based Approach - - Total Loan Provision that Exceeds Total Expected Loss Calculated According to Comminique on Calculation of Credit Risk by Internal Ratings Based Approach, Limited by 0.6% Risk Weighted Assets - - 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 - - Amount of Additional Tier I Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit - - Upper Limit for Additional Tier II Capital Items subject to Temporary Article 4 - - Amount of Additional Tier II Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit - - (*) Amounts considered within transition provisions 46 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT (Continued) I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY (Continued) 1. Information Related To The Components Of Shareholders' Equity (Continued) Amount as per Prior Period the regulation 31 December 2017 before 1/1/2014* COMMON EQUITY TIER 1 CAPITAL Paid-in capital following all debts in terms of claim in liquidation of the Bank 5.600.000 - Share issue premiums - - Reserves 30.317.558 - Gains recognized in equity as per TAS 4.911.781 - Profit 9.531.923 - Current Period Profit 8.884.119 - Prior Period Profit 647.804 - Shares acquired free of charge from subsidiaries, affiliates and jointly controlled partnerships and cannot be recognised within profit for the period 17.388 - Minority Shares 178 - Common Equity Tier 1 Capital Before Deductions 50.378.828 - 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 1.897.159 - Improvement costs for operating leasing 83.440 - Goodwill (net of related tax liability) - - Other intangibles other than mortgage-servicing rights (net of related tax liability) 425.670 532.088 Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of 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 - - Defined-benefit pension fund net assets - - Direct and indirect investments of the Bank in its own Common Equity - - 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 - - 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 2.406.269 - Total Common Equity Tier I Capital 47.972.559 - 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(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 - - 47 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY (Continued) 1. Information Related To The Components Of Shareholders' Equity (Continued) Amount as per the Prior Period regulation before 31 December 2017 1/1/2014* Total Tier I Capital and Tier II Capital ( Total Equity) - - 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 (-) - - Transition from the Core Capital to Continue to deduce Components 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 (-) 106.418 - 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) 47.866.141 - TIER II CAPITAL Debt instruments and share issue premiums deemed suitable by the BRSA - - Debt instruments and share issue premiums deemed suitable by BRSA (Temporary Article 4) - - Provisions (Article 8 of the Regulation on the Equity of Banks) 3.879.292 - Tier II Capital Before Deductions 3.879.292 - 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(-) - - 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 exceeding 10% of Common Equity of the Bank - - Other items to be defined by the BRSA (-) - - Total Deductions from Tier II Capital - - Total Tier II Capital 3.879.292 - Total Capital (The sum of Tier I Capital and Tier II Capital) 51.745.433 - Deductions from Total Capital 51.745.433 - 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 - - Other items to be defined by the BRSA (-) 1.709 - In transition from Total Core Capital and Supplementary Capital (the capital) to Continue to Download Components 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 Tier1 capital for the purposes of the first sub-paragraph of the Provisional Article 2 of the Regulation on Banks’ Own Funds (-) - - 48 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY (Continued) 1. Information Related To The Components Of Shareholders' Equity (Continued) Amount as per the Prior Period regulation before 31 December 2017 1/1/2014* CAPITAL Total Capital (Total of Tier I Capital and Tier II Capital) 51.743.724 - Total Risk Weighted Assets 354.454.906 - CAPITAL ADEQUACY RATIOS CET 1 Capital Ratio (%) 13,53 - Tier I Capital Ratio (%) 13,50 - Capital Adequacy Ratio (%) 14,60 - BUFFERS Total additional core capital requirement ratio (a+b+c) 2,28 - a) Capital conservation buffer requirement (%) 1,25 - b) Bank specific countercyclical buffer requirement (%) 0,026 c) Higher bank buffer requirement ratio (%) 1,00 - Additional CET 1 Capital Over Total Risk Weighted Assets Ratio Calculated According to the Article 4 of Capital Conservation and Counter-Cyclical Capital Buffers Regulation 5,53 - Amounts Lower than Excesses as per Deduction Rules - Remaining 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 156.212 - Remaining Total of Net Long Positions of the Investments in Tier I Capital of Unconsolidated Banks and Financial Institutions where the Bank Owns more than 10% or less of the Issued Share Capital 68.380 - Remaining Mortgage Servicing Rights - Net Deferred Tax Assets arising from Temporary Differences 29.794 - Limits for Provisions Used in Tier II Capital Calculation General Loan Provisions for Exposures in Standard Approach (before limit of one hundred and twenty five per the thousand 5.635.198 - General Loan Provisions for Exposures in Standard Approach Limited by 1.25% of Risk Weighted Assets 3.879.292 - Total Loan Provision that Exceeds Total Expected Loss Calculated According to Comminique on Calculation of Credit Risk by Internal Ratings Based Approach - - Total Loan Provision that Exceeds Total Expected Loss Calculated According to Comminique on Calculation of Credit Risk by Internal Ratings Based Approach, Limited by 0.6% Risk Weighted Assets - - 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 - - Amount of Additional Tier I Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit - - Upper Limit for Additional Tier II Capital Items subject to Temporary Article 4 - - Amount of Additional Tier II Capital Items Subject to Temporary Article 4 that Exceeds Upper Limit - - (*) Amounts considered within transition provisions The systemic significant bank buffer ratio has been shown as “-” in the consolidated financial report since it is necessary to fill in the systematic (**) significant banks that are not required to prepare financial statements in the context of the 4th paragraph of Article 4 of the "Regulation on Systemic Significant Banks". 49 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) I. EXPLANATIONS ON THE COMPONENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY (Continued) 2. Necessary Explanations in order to Reach an Agreement Between the Statement of Shareholders’s Equity and Balance-Sheet Amounts Current Period Balance sheet Amount of Value at capital value adjustment report Paid-in capital 6.100.000 - 6.100.000 Other Capital Reserves (483) 483 - Bonus Shares from Associates, Subsidiaries and Joint-Ventures not Accounted in Current Period's Profit - 17.388 17.388 Portion of the current and prior periods’ losses which cannot be covered through reserves and profit reflected in equity in accordance with TAS (-) - 8.398.062 8.398.062 Accumulated Other Comprehensive Income or Loss Not Reclassified Through Profit or Loss 4.176.552 (4.176.552) - Accumulated Other Comprehensive Income or Loss Reclassified Through Profit or Loss (3.562.306) 3.562.306 - Profit Reserves 37.320.380 (1.561.635) 35.758.745 Profit or Loss 16.092.374 - 16.092.374 Prior Periods’ Profit/Loss 6.748.737 - 6.748.737 Current Period Net Profit/Loss 9.343.637 - 9.343.637 Deductions from Common Equity Tier I Capital (1) - 7.033.876 7.033.876 Minority Shares - 289 289 Common Equity Tier 1 capital 60.128.975 - 59.332.982 Tier 1 capital - - 56.752.366 Provisions - - 4.552.906 Tier 2 capital (2) - 4.552.906 4.552.906 Shareholders’ Equity Adjustments (3) - 1.871 1.871 Total Shareholders’ Equity 60.128.975 3.755.042 63.884.017 (1) The regulations cover Common Equity Tier 1 capital adjustments within the framework of paragraphs 9-1-b and c. (2) The regulations cover general loan provisions included in Tier 2 capital within the framework of paragraphs 8-1-a. (3) The regulations cover Shareholders’ Equity adjustments within the framework of paragraphs 9 -8-ç. II. EXPLANATIONS ON CONSOLIDATED CREDIT RISK 1. Information on Credit Risk Credit risk is the possibility of loss that the group 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, Group Presidencies, Department Presidencies, Assistant General Management, General Manager, Credit Committee and Board of Directors. In order to prevent the risk intensity on the commercial loan portfolio, limits are determined and followed on the basis of group companies, private and public firms, and different debtor groups. Similarly, in determining the limits of the agricultural loan portfolio the structures of the regions are considered. The bank’s credit authority limits on given consume r loans are defined with the separation of type and guarantee and these limits are updated according to economic conjuncture and demands of Regional Directorates /Branches. The limits,subjects, collateral structure, maturities, accounts booked, outstanding balances of the loans allocated by the branches are periodically analyzed depending on the number of customers andand monitored on customer and regional basis. 50 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) II. EXPLANATIONS ON CONSOLIDATED CREDIT RISK (Continued) 1. Information on Credit Risk (Continued) After the opening of the lines of the commercial 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, collateral, 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 analysing credit worthiness and determining credit allocation for Corporate/Commercial/Entrepreneurial consumer loans. The Parent Bank makes provision in conformity with the “Communiqué on Methods and Principles for 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 financ ial 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. 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. Non-cash risks of customers classified as non-performing loans in accordance with the Communiqué on “Methods and Principles on Determining the Nature of Loans and Other Receivables and Allocation of Provisions”are subjected to expected loss provision (Stage 3) under the same regulation, when the related risks are reimbursed and transformed into cash recievables, they are followed up in the same risk group as the cash loan which was previously classified as non- performing loans and the expected losses provision (Stage 3) continues to be provided. 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 in the total cash loan portfolio is 27% and 33% respectively (31 December 2017: 23% and 28%). The percentage of top 100 and top 200 non-cash loans in the total non-cash loan portfolio is 49% and 60% respectively (31 December 2017: 57% and 67%). The percentage of top 100 and top 200 cash and non-cash loans in the total cash and non-cash loan portfolio is 28% and 35% respectively (31 December 2017: 27% and 34%). TFRS 9 expected loss provisions for the loans for the Stage 1 and Stage 2 are amounted TL 3.500.696 (31 December 2017: TL 5.635.198) 51 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) II. EXPLANATIONS ON CONSOLIDATED CREDIT RISK (Continued) 2. The Profile of Important Risks of Important Regions Conditional Conditional Conditional Conditional and Conditional and Conditional and and and unconditional unconditional and unconditional Conditional Short-term unconditional unconditional receivables receivables unconditional receivables Conditional and Receivables receivables Investments receivables from receivables from administrative from receivables from Conditional and and unconditional defined in from banks, similar to Investments central from regional units and non- multilateral from banks and unconditional unconditional receivables high risk Securities brokerage collective in Equity governments or or local commercial development international brokerage corporate retail secured by Past due category collateralised Securitisation houses and investment Instruments Other central banks governments enterprises banks organisations houses receivables receivables mortgages receivables by BRSA by mortgages positions corporates funds (3) receivables Total Current Period Domestic 105.971.128 682.786 542.144 - - 21.394.107 256.336.366 136.363.786 54.822.568 2.325.682 226.182 - - - 1.146.549 124.424 23.190.242 603.125.964 European Union Countries 64.087 - - - - 26.636.834 2.063.237 132.114 - 1.727 803 - - - - 9 76.638 28.975.449 OECD Countries (1) - - - - - 988.063 281.482 - - - - - - - - - - 1.269.545 Off-shore Banking Regions - - - - - 142.333 - - - - - - - - - - - 142.333 USA, Canada - - - - - 4.019.793 1.090.168 842 - - - - - - - - - 5.110.803 Other Countries 2.200.674 2.049 63 - - 1.345.902 3.654.763 1.943.517 32.140 287 2.213.318 - - - - 24.001 131.793 11.548.507 Subsidiaries, Associates and Joint Ventures - - - - - 196.602 756.309 6.067 - - - - - - - - - 958.978 Unallocated Assets/Liabilities (2) - - - - - - - - - - - - - - - - - - Total 108.235.889 684.835 542.207 - - 54.723.634 264.182.325 138.446.326 54.854.708 2.327.696 2.440.303 - - - 1.146.549 148.434 23.398.673 651.131.579 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. 52 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) II. EXPLANATIONS ON CONSOLIDATED CREDIT RISK (Continued) 2. The Profile of Important Risks of Important Regions (Continued) Conditional and Conditional Conditional and unconditional Conditional and and Conditional and Conditional Short-term unconditional Conditional and receivables from unconditional unconditional unconditional Conditional Conditional and Receivables receivables Investments receivables from unconditional administrative receivables from receivables receivables and and unconditional defined in from banks, similar to central receivables from units and non- multilateral from from banks and unconditional unconditional receivables high risk Securities brokerage collective Investments governments or regional or local commercial development international brokerage corporate retail secured by Past due category collateralised Securitisation houses and investment in Equity Other central banks governments enterprises banks organisations houses receivables receivables mortgages receivables by BRSA by mortgages positions corporates funds Instruments Receivables (3) Total Prior Period 121.526.03 Domestic 75.265.929 644.283 652.406 - - 7.401.426 181.255.187 0 47.607.741 - 552.922 - - - 1.199.276 116.361 20.567.359 456.788.920 European Union Countries 27.917 - - - - 24.055.991 1.952.422 119.532 - - - - - - - 1.582 67.943 26.225.387 OECD Countries (1) - - - - - 679.480 51.003 - - - - - - - - - - 730.483 Off-shore Banking Regions - - - - - 221.401 283.110 - - - - - - - - - - 504.511 USA, Canada - - - - - 2.108.446 1.473.286 491 - - - - - - - - - 3.582.223 Other Countries 553.705 7.995 23 - - 810.351 3.850.086 149.524 14.155 - 900.844 - - - - 26.266 87.964 6.400.913 Subsidiaries, Associates and Joint Ventures - - - - - 1.018.461 6.522 6.066 - - - - - - - - 1.031.049 Unallocated Assets/Liabilities (2) - - - - - - - - - - - - - - - - - - Total 75.847.551 652.278 652.429 - - 36.295.556 188.871.616 121.801.643 47.621.896 - 1.453.766 - - - 1.199.276 144.209 20.723.266 495.263.486 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 53 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO FINANCIAL POSITION OF THE BANK (Continued) II. EXPLANATIONS ON CONSOLIDATED CREDIT RISK (Continued) 3. Risk Profile by Sectors or Counterparties Risk Classes Conditional and Conditional Conditional Conditional Conditional unconditional and and Conditional Short-term and unconditional and receivables from unconditionalunconditional Conditional Conditional Conditional and Receivables from banks, Investments receivables from unconditional administrative receivables from receivables and unconditional and and unconditional defined brokerage similar to central receivables from units and multilateral from receivables from unconditional unconditional receivables in high risk Securities houses collective Investments governments or regional or local non-commercial development international banks and corporate retail secured by Past due category by collateralised Securitisation and investment in Equity Other Current Period central banks governments enterprises banksorganisations brokerage houses receivables receivables mortgages receivables BRSA by mortgages positions corporatse funds Instruments receivables TL FC Total Sectors/Counter Parties Agriculture 119 473 11.578 - - - 3.148.963 5.123.165 975.337 87.723 16.503 - - - - - 328.551 8.735.465 956.947 9.692.412 Farming and Stockbreeding 37 473 11.578 - - - 2.393.782 4.730.831 937.275 83.913 16.265 - - - - - 327.433 8.166.538 335.049 8.501.587 Forestry 82 - - - - - 542.020 170.433 18.774 2.409 43 - - - - - 931 253.963 480.729 734.692 Fishing - - - - - - 213.161 221.901 19.288 1.401 195 - - - - - 187 314.964 141.169 456.133 Manufacturing 74.812 6.082 31.472 - - - 102.697.768 9.095.843 1.735.009 380.890 220.415 - - - - - 171.546 40.480.949 73.932.888 114.413.837 Mining and Quarrying - - - - - - 5.261.839 161.125 24.311 4.515 485 - - - - - 79 937.494 4.514.860 5.452.354 Production 74.806 19 2.115 - - - 71.032.920 8.839.852 1.690.740 373.774 20.114 - - - - - 171.325 33.755.760 48.449.905 82.205.665 Electric, Gas and Water 6 6.063 29.357 - - - 26.403.009 94.866 19.958 2.601 199.816 - - - - - 142 5.787.695 20.968.123 26.755.818 Construction - - 61.108 - - - 51.499.361 4.688.200 1.386.610 183.195 290.793 - - - 166.360 - 27.020 20.345.449 37.957.198 58.302.647 Services 44.587.748 3.861 306.953 - - 54.721.656 85.456.430 27.782.163 5.297.105 590.937 161.304 - - - 980.189 148.434 355.031 89.799.084 130.592.727 220.391.811 Wholesale and Retail Trade 18 1.435 6.357 - - - 25.022.115 19.717.803 2.935.788 383.933 28.162 - - - - - 60.819 36.161.310 11.995.120 48.156.430 Hotel Food and Beverage Services 302 13 1.237 - - - 4.823.337 1.602.016 796.019 41.884 64.060 - - - - - 6.718 2.565.455 4.770.131 7.335.586 Transportation and Telecommunication 4.786 249 152.113 - - - 16.003.428 2.733.835 513.700 25.224 4.333 - - - - - 20.173 4.562.539 14.895.302 19.457.841 Financial Institutions 44.342.749 934 18.112 - - 49.270.612 14.988.333 540.608 2.429 41 - - - - 655.514 148.007 262.364 29.901.297 80.328.406 110.229.703 Real Estate and Leasing Services 138.682 248 792 - - 5.451.044 23.315.891 2.455.183 849.168 131.275 63.276 - - - 324.675 - 4.493 14.728.635 18.006.092 32.734.727 Self Employment Services - - - - - - - 261 - - - - - - - - - - 261 261 Education Services 100.492 - 115.705 - - - 457.251 263.689 80.586 5.926 170 - - - - - 194 751.956 272.057 1.024.013 Health and Social Services 719 982 12.637 - - - 846.075 468.768 119.415 2.654 1.303 - - - - 427 270 1.127.892 325.358 1.453.250 Other 63.573.210 674.419 131.096 - - 1.978 21.379.803 91.756.955 45.460.647 1.084.951 1.751.288 - - - - - 22.516.525 177.571.572 70.759.300 248.330.872 Total 108.235.889 684.835 542.207 - - 54.723.634 264.182.325 138.446.326 54.854.708 2.327.696 2.440.303 - - - 1.146.549 148.434 23.398.673 336.932.519 314.199.060 651.131.579 Prepared with the numbers after conversion rate to credit and before Credit Risk Reduction . 54 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO FINANCIAL POSITION OF THE BANK (Continued) II. EXPLANATIONS ON CONSOLIDATED CREDIT RISK (Continued) 3. Risk Profile by Sectors or Counterparties(Continued) Risk Classes Conditional Conditional Conditional Conditional and Conditional and and Conditional and Short-term unconditional and unconditional unconditional and unconditional Conditional from receivables unconditional receivables from receivables unconditional receivables Conditional Conditional and Receivables banks, Investments from central receivables administrative units from receivables from banks and and unconditional defined brokerage similar to governments from regional and multilateral from and unconditional unconditional receivables in high risk Securities houses collective Investments or central or local non-commercial development international brokerage corporate retail secured by Past due category by collateralised Securitisation and investment in Equity Other Prior Period banks governments enterprises banks organisations houses receivables receivables mortgages receivables BRSA by mortgages positions corporatse funds Instruments receivables TL FC Total Sectors/Counter Parties Agriculture 955 873 12.484 - - - 2.535.564 4.897.362 923.014 - 15.941 - - - - - 354.858 8.233.364 507.687 8.741.051 Farming and Stockbreeding 359 529 8.789 - - - 2.083.448 4.087.431 781.167 - 15.298 - - - - - 350.881 7.135.750 192.152 7.327.902 Forestry 596 9 17 - - - 292.976 161.127 16.607 - 202 - - - - - 1.040 235.186 237.388 472.574 Fishing - 335 3.678 - - - 159.140 648.804 125.240 - 441 - - - - - 2.937 862.428 78.147 940.575 Manufacturing 59.644 4.306 24.574 - - - 72.711.951 7.624.224 1.282.114 - 40.886 - - - - - 180.431 34.217.961 47.710.169 81.928.130 Mining and Quarrying - 28 20 - - - 5.281.465 136.470 10.155 - 706 - - - - - 33 1.129.681 4.299.196 5.428.877 Production 59.644 513 17.903 - - - 50.429.522 7.414.515 1.210.388 - 40.151 - - - - - 180.238 28.498.568 30.854.306 59.352.874 Electric, Gas and Water - 3.765 6.651 - - - 17.000.964 73.239 61.571 - 29 - - - - - 160 4.589.712 12.556.667 17.146.379 Construction - 19 32.953 - - - 32.414.489 4.164.129 823.346 - 26.716 - - - 52.385 - 36.474 14.526.065 23.024.446 37.550.511 Services 6.170.310 5.861 409.066 - - 26.334.184 64.696.030 23.624.020 3.909.971 - 303.154 - - - 1.146.891 144.209 287.228 63.148.306 63.882.618 127.030.924 Wholesale and Retail Trade 113 1.315 4.005 - - - 19.728.420 16.449.171 2.189.105 - 182.064 - - - - - 58.802 31.423.049 7.189.946 38.612.995 Hotel Food and Beverage Services 671 95 3.878 - - - 3.818.691 1.414.294 422.841 - 115.343 - - - - - 5.933 2.243.004 3.538.742 5.781.746 Transportation and Telecommunication 1.213 636 262.693 - - - 8.145.651 2.558.014 431.149 - 1.521 - - - - - 19.566 4.223.912 7.196.531 11.420.443 Financial Institutions 5.983.839 760 23.238 - - 25.053.482 13.710.545 399.463 2.005 - - - - - 268.569 143.781 197.735 13.075.382 32.708.035 45.783.417 Real Estate and Leasing Services 113.624 934 1.022 - - 1.280.702 18.395.693 2.187.180 743.226 - 3.686 - - - 878.322 - 4.576 10.638.060 12.970.905 23.608.965 Self Employment Services - - - - - - - - - - - - - - - - - - - - Education Services 68.494 14 98.139 - - - 336.916 214.021 29.998 - 166 - - - - - 169 587.950 159.967 747.917 Health and Social Services 2.356 2.107 16.091 - - - 560.114 401.877 91.647 - 374 - - - - 428 447 956.949 118.492 1.075.441 Other 69.616.642 641.219 173.352 - - 9.961.372 16.513.582 81.491.908 40.683.451 - 1.067.069 - - - - - 19.864.275 171.174.231 68.838.639 240.012.870 Total 75.847.551 652.278 652.429 - - 36.295.556 188.871.616 121.801.643 47.621.896 - 1.453.766 - - - 1.199.276 144.209 20.723.266 291.299.927 203.963.559 495.263.486 Prepared with the numbers after conversion rate to credit and before Credit Risk Reduction . 55 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO FINANCIAL POSITION OF THE BANK (Continued) II. EXPLANATIONS ON CONSOLIDATED CREDIT RISK (Continued) 4. Analysis of maturity-bearing exposures according to remaining maturities Current Period Term to Maturity 1-3 3-6 6-12 Over 1 1 Month Months Months Months Year Exposure Classifications: Conditional and unconditional exposures to central governments or central banks 3.190.166 146.176 2.228.434 3.748.741 98.922.372 Conditional and unconditional exposures to regional governments or local authorities 5.070 18 2.617 25.851 651.279 Conditional and unconditional receivables from administrative units and non-commercial enterprises 16.028 2.095 5.806 28.982 489.296 Conditional and unconditional exposures to multilateral development banks - - - - - Conditional and unconditional exposures to international organisations - - - - - Conditional and unconditional exposures to banks and brokerage houses 29.848.921 8.870.171 2.649.512 3.196.716 10.158.314 Conditional and unconditional exposures to corporates 14.162.717 6.828.394 2.807.300 42.057.080 198.326.834 Conditional and unconditional retail exposures 3.094.293 465.243 945.403 27.325.243 106.616.144 Conditional and unconditional exposures secured by real estate property 9.178 27.356 22.577 3.344.313 51.451.284 Past due receivables 1.701.750 376 34 190 625.346 Receivables defined in high risk category by BRSA 144.115 397.463 1.234 30.164 1.867.327 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 - - - 331.624 814.925 Investments in Equity Instruments - - - - 148.434 Grand Total 52.172.238 16.737.292 8.662.917 80.088.904 470.071.555 Prepared with the numbers after conversion rate to credit and before Credit Risk Reduction. Prior Period Term to Maturity 1-3 3-6 6-12 Over 1 1 Month Months Months Months Year Exposure Classifications: Conditional and unconditional exposures to central governments or central banks 1.387.023 317.877 361.058 3.649.803 70.131.790 Conditional and unconditional exposures to regional governments or local authorities 18.243 21 - 77.433 556.581 Conditional and unconditional receivables from administrative units and non-commercial enterprises 13.280 2.694 8.350 131.817 496.288 Conditional and unconditional exposures to multilateral development banks - - - - - Conditional and unconditional exposures to international organisations - - - - - Conditional and unconditional exposures to banks and brokerage houses 17.779.569 7.053.443 2.657.175 3.126.047 5.679.322 Conditional and unconditional exposures to corporates 1.836.284 4.482.760 3.499.798 46.853.190 132.199.584 Conditional and unconditional retail exposures 1.080.347 318.001 796.283 30.696.020 88.910.992 Conditional and unconditional exposures secured by real estate property 1.658 13.096 17.770 6.269.599 41.319.773 Past due receivables - - - - - Receivables defined in high risk category by BRSA 320.539 9.066 108.711 246.153 769.297 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 91.131 - - 31.268 1.076.877 Investments in Equity Instruments - - - - 144.209 Grand Total 22.528.074 12.196.958 7.449.145 91.081.330 341.284.713 Prepared with the numbers after conversion rate to credit and before Credit Risk Reduction. 56 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO FINANCIAL POSITION OF THE BANK (Continued) II EXPLANATIONS ON CONSOLIDATED CREDIT RISK (Continued) 4. Analysis of maturity-bearing exposures according to remaining maturities (Continued) In determining the risk weights for the risk classes used in the risk ratings from the risk classes specified in Article 6 of the Regulation on the Measurement and Assessment of Capital Adequacy of Banks, the notes of the Fitch Ratings International Rating Agency for foreign banks and the Islamic International Rating Agency (IIRA) for countries are used. Domestic counterparties are considered as “Gradeless” and take the risk weight in accordance with the category of “Gradeless” in the 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 absence of export rating. 5. Exposures by risk weights: Current Period Deductions from Risk Weights 0% 10% 20% 35% 50% 75% 100% 150% 200% 250% 1250% Equity Exposures before Credit Risk 1 Mitigation 99.567.310 - 29.418.621 - 48.806.263 190.809.897 280.089.185 2.440.303 - - - 795.695 Exposures after Credit Risk 2 Mitigation 144.615.328 - 14.046.093 47.341.458 67.804.137 121.074.727 253.882.231 2.367.605 - - - 795.695 Prepared with the numbers after conversion rate to credit. Prior Period Deductions from Risk Weights 0% 10% 20% 35% 50% 75% 100% 150% 200% 250% 1250% Equity 1 Exposures before Credit Risk Mitigation 69.031.962 - 16.210.820 - 40.924.004 167.535.150 200.107.784 1.453.766 - - - 617.237 2 Exposures after Credit Risk Mitigation 98.399.031 - 10.790.410 40.264.374 50.833.939 108.105.150 185.417.955 1.452.627 - - - 617.237 Prepared with the numbers after conversion rate to credit. 57 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO FINANCIAL POSITION OF THE BANK (Continued) II. EXPLANATIONS ON CONSOLIDATED CREDIT RISK (Continued) 6. Information in terms of major sectors and type of counterparties: Impaired Credits 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 “TFRS 9 expected loss provisions (Stage 3)” calculation is made within the scope of Regulation on Provisions. Past Due Credits 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 “TFRS 9 expected loss provisions (Stage 2)” calculation is made within the scope of Regulation for Provisions. Current Period Loans Provisions Impaired (TFRS 9) Provisions for Expected Credit Significant Increase in Non-performing loans Loss (TFRS ) Credit Risk (Stage 3) (Stage 2) Agriculture 2.285.479 1.235.943 691.978 Farming and Stockbreeding 2.267.296 1.221.040 680.255 Forestry 8.272 7.921 5.283 Fishery 9.911 6.982 6.440 Manufacturing 1.745.324 1.610.824 1.196.262 Mining and Quarrying 193.054 22.100 17.018 Production 1.282.925 1.568.239 1.135.738 Electricity, Gas and Water 269.345 20.485 43.506 Construction 2.610.197 641.562 483.811 Services 10.989.288 3.113.760 4.440.277 Wholesale and Retail Trade 1.893.371 1.905.735 1.532.700 Accommodation and Dining 520.936 128.932 106.655 Transportation and Telecom. 7.466.416 118.762 1.979.081 Financial Institutions 5.012 4.367 3.109 Real Estate and Rental Services 833.884 908.346 784.385 Professional Services 1.610 - 27 Educational Services 34.470 26.412 16.129 Health and Social Services 233.589 21.206 18.191 Other 1.848.121 2.153.908 1.643.336 Total 19.478.409 8.755.997 8.455.664 58 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO FINANCIAL POSITION OF THE BANK (Continued) II. EXPLANATIONS ON CONSOLIDATED CREDIT RISK (Continued) 6 Information in terms of major sectors and type of counterparties: (Continued) Past Due Credits (Continued) Prior Period Credits Impaired Past Due Value Credits Credits Adjustments (1) Provisions Agriculture 685.172 1.192.641 44.518 466.542 Farming and Stockbreeding 678.882 1.186.381 44.284 460.252 Forestry 3.140 4.301 161 3.140 Fishery 3.150 1.959 73 3.150 Manufacturing 961.019 806.177 29.740 961.019 Mining and Quarrying 15.292 8.511 295 15.292 Production 930.922 604.988 22.253 930.922 Electricity, Gas and Water 14.805 192.678 7.192 14.805 Construction 997.569 461.872 17.061 990.908 Services 1.195.192 2.046.428 70.890 1.195.192 Wholesale and Retail Trade 977.823 1.222.626 42.310 977.823 Accommodation and Dining 50.878 325.123 10.247 50.878 Transportation and Telecom. 58.676 86.017 3.211 58.676 Financial Institutions 5.348 8.468 105 5.348 Real Estate and Rental Services 70.307 203.605 7.560 70.307 Professional Services 235 809 - 235 Educational Services 14.938 24.339 908 14.938 Health and Social Services 16.987 175.441 6.549 16.987 Other 1.190.015 994.037 74.108 1.189.820 Total 5.028.967 5.501.155 236.317 4.803.481 (1) Valuation adjustments represent general provisions reserved for overdue loans. 59 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO FINANCIAL POSITION OF THE BANK (Continued) II. EXPLANATIONS ON CONSOLIDATED CREDIT RISK (Continued) 7. Information about Value Adjustment and Change in Provisions Opening Provision for Provision Other Closing Current Period Balance Period Reversals Adjustments Balance 1 Specific Provisions(Stage III) 4.279.821 2.270.633 (359.524) - 6.190.930 2 General Provisions (Stage I and Stage II) 734.163 2.737.054 (210.268) - 3.260.949 Opening Provision for Provision Other Closing Prior Period Balance Period Reversals Adjustments Balance 1 Specific Provisions 4.129.041 1.226.192 (551.752) - 4.803.481 2 General Provisions 4.042.425 1.605.626 (12.853) - 5.635.198 The table below shows the maximum credit sensitivity of financial statement items. Current Period Prior Period Financial Assets at Fair Value Through Profit/Loss 6.782.778 1.467.863 Banks 9.097.120 5.632.140 Interbank Money Market Placements 250.087 132.385 Financial Assets Measured at Fair Value Through Other Comprehensive Income 79.833.047 63.638.231 Financial Assets Measured at Amortised Cost 10.282.545 7.625.763 Loans 399.057.879 317.020.488 Other Assets 5.352.422 2.186.895 Total credit risk exposure of balance sheet items 510.655.878 397.703.765 Financial Guarantees 131.647.708 102.326.622 Commitments 50.902.263 35.009.539 Total credit risk exposure of off-balance sheet items 182.549.971 137.336.161 Total credit risk exposure 693.205.849 535.039.926 Current Period Prior Period Neither past due Past due Neither past Past due nor but not due nor but not Financial Assets impaired impaired Total impaired impaired Total Banks 9.097.120 - 9.097.120 5.632.140 - 5.632.140 Financial Assets at Fair Value Through Profit or Loss 6.782.778 - 6.782.778 1.467.863 - 1.467.863 Loans: 376.294.525 19.478.409 395.772.934 311.293.848 5.501.154 316.795.002 Corporate/Entrepreneurial Loans 222.366.233 15.717.769 238.084.002 172.508.184 3.451.287 175.959.471 Consumer Loans 92.252.466 1.544.535 93.797.001 85.552.624 858.408 86.411.032 Specialized Loans 61.675.826 2.216.105 63.891.931 53.233.040 1.191.459 54.424.499 Financial Assets Measured at Fair Value Through Other Comprehensive Income 79.833.047 - 79.833.047 63.638.231 - 63.638.231 Financial Assets Measured at Amortised Cost 10.282.545 - 10.282.545 7.625.763 - 7.625.763 60 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO FINANCIAL POSITION OF THE BANK (Continued) II. EXPLANATIONS ON CONSOLIDATED CREDIT RISK (Continued) 7. Information about Value Adjustment and Change in Provisions (Continued) Carrying amount of financial assets which maturity or agreement terms have been renegotiated by managements of the Parent Bank and other subsidiaries are below. Current Period Prior Period Banks - - Financial Assets at Fair Value Through Profit or Loss - - Loans (1) 10.552.812 11.442.115 Corporate/Entrepreneurial Loans 5.901.981 4.385.615 Consumer Loans 1.091.982 1.560.437 Specialized Loans 3.558.849 5.496.063 Other - - Available-for-sale Financial Assets - - Held-to-maturity Investments - - (1) Accruals are not included. 8. Risks Including the Capital Capacity Buffer Calculations Current Period Country Banking Accounts RWA Trading Accounts RWA TOTAL Bosnia and Herzegovina 3.356.346 - 3.356.346 Germany 1.471.948 - 1.471.948 USA 1.111.759 226.040 1.337.799 Turkish Republic of Northern Cyprus 736.951 - 736.951 Azerbaijan 675.488 12.621 688.109 Kazakhstan 570.651 - 570.651 Uzbekistan 459.405 3.121 462.526 Switzerland 333.304 - 333.304 Netherlands 332.034 - 332.034 Russia 326.055 - 326.055 Other 2.439.973 130.400 2.570.373 Prior Period Country Banking Accounts RWA Trading Accounts RWA TOTAL USA 3.590.608 - 3.590.608 United Kingdom 2.301.506 3.502 2.305.008 Germany 2.221.782 2.949 2.224.731 Bosnia and Herzegovina 948.706 872.493 1.821.199 Iraq 591.988 - 591.988 France 586.744 - 586.744 Turkish Republic of Northern Cyprus 367.879 205.576 573.455 Singapore 470.348 - 470.348 Saudi Arabia 392.178 54.228 446.406 Netherlands 417.619 1.327 418.946 Other 3.146.990 66.587 3.213.577 61 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) III EXPLANATIONS ON THE CONSOLIDATED CURRENCY RISK 1. 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 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 authorizatio n of the Board of Directors. 2. Hedge against foreign exchange debt instruments and net foreign exchange investments by hedging derivative instruments, if material None. 3. Management policy for foreign currency risk “Liquidity Gap Analysis”, “Repricing Gap Analysis” and “Structural Liquidity Gap Analysis” which takes into account historical repricing 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. 4. Current foreign exchange bid rates of the Parent Bank for the last 5 business days prior to the financial statement date USD EUR AUD DKK SEK CHF CAD NOK GBP SAR 100 JPY 24.12.2018 5,2411 5,9906 3,6981 0,8026 0,5805 5,3128 3,8563 0,6005 6,6719 1,3970 4,7525 25.12.2018 5,2524 5,9673 3,7030 0,8021 0,5781 5,3400 3,8700 0,5989 6,6743 1,4001 4,7641 26.12.2018 5,2292 5,9534 3,6902 0,7974 0,5744 5,2708 3,8447 0,5933 6,6300 1,3939 4,7297 27.12.2018 5,2418 5,9799 3,6855 0,8013 0,5805 5,3195 3,8416 0,5960 6,6273 1,3973 4,7330 28.12.2018 5,2145 5,9726 3,6772 0,8003 0,5828 5,3225 3,8249 0,6005 6,6166 1,3901 4,7258 31.12.2018 5,2422 5,9934 3,6947 0,8028 0,5859 5,3134 3,8415 0,6027 6,7089 1,3975 4,7656 5. 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 5,2604 5,9865 3,7711 0,8022 0,5825 5,3075 3,9166 0,6097 6,6682 1,4023 4,6921 62 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) III. EXPLANATIONS ON THE CONSOLIDATED CURRENCY RISK (Continued) 6. Information on the foreign currency risk of the Group EUR USD Other FC(1) Total Current Period Assets Cash (Cash in vault, effectives, money in transit, cheques purchased) and Balances with Central Bank of the Republic of Turkey 16.096.284 12.501.196 9.125.499 37.722.979 Banks 1.514.757 2.380.625 2.593.756 6.489.138 Financial Assets at Fair Value Through Profit and Loss 2.086.278 4.156.795 3.121 6.246.194 Money Market Placements - - 188.665 188.665 Financial Assets at Fair Value Through Other Comprehensive Income 5.451.987 17.631.391 139.054 23.222.432 Loans(2) 57.505.938 76.914.874 3.028.946 137.449.758 Subsidiaries, Associates, Entities Under Common Control (Joint Ventures)(4) - 87.450 2.337 89.787 Financial Assets Measured at Amortised Cost 910.872 3.958.304 8.608 4.877.784 Derivative Financial Assets for Hedging Purposes - - - - Tangible Fixed Assets 17.014 434 185.512 202.960 Intangible Assets 21.505 - 26.921 48.426 Other Assets (6) 1.999.088 1.045.875 145.963 3.190.926 Total Assets (5) (7) 85.603.723 118.676.944 15.448.382 219.729.049 Liabilities Interbank Deposits 9.118.048 7.728.018 387.329 17.233.395 Foreign Currency Deposits 88.566.189 51.194.251 12.779.654 152.540.094 Money Market Borrowings - 12.390.480 - 12.390.480 Funds Provided from Other Financial Institutions 11.412.440 22.236.586 3.396 33.652.422 Issued Marketable Securities 60.344 12.463.334 93.410 12.617.088 Miscellaneous payables 2.134.376 39.531 9.362 2.183.269 Derivative Financial Liabilities for Hedging Purposes - - - - Other Liabilities 2.637.838 4.458.711 1.672.162 8.768.711 Total Liabilities 113.929.235 110.510.911 14.945.313 239.385.459 Net Balance Sheet Position (28.325.512) 8.166.033 503.069 (19.656.410) Net Off-Balance Sheet Position (3) 27.761.346 (11.215.345) 1.959.819 18.505.820 Financial Derivative Assets 32.585.452 31.666.487 3.666.863 67.918.802 Financial Derivative Liabilities 4.824.106 42.881.832 1.707.044 49.412.982 Non-Cash Loans 36.646.822 45.965.469 6.676.566 89.288.857 Prior Period Total Assets 55.633.927 91.531.503 12.988.685 160.154.115 Total Liabilities 77.180.954 84.737.365 7.781.885 169.700.204 Net Balance Sheet Position (21.547.027) 6.794.138 5.206.800 (9.546.089) Net Off-Balance Sheet Position (3) 22.012.420 (9.288.810) (3.168.835) 9.554.775 Financial Derivative Assets 26.541.737 17.055.288 2.548.157 46.145.182 Financial Derivative Liabilities 4.529.317 26.344.098 5.716.992 36.590.407 Non-Cash Loans 26.178.914 35.515.822 4.564.048 66.258.784 1) TL 768.374 equivalent of USD, TL 1.086.966 equivalent of EUR loans are originated as foreign currency indexed loans (31 December 2017: TL 2.021.754 equivalent of USD, TL 2.165.005 equivalent of EUR and TL 2.040 equivalent of GBP) 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 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 in other assets amounting to TL 36.685 are not included in the table. 6) Expected loss provisions for financial assets and other assets are reflected in related items. 63 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) IV EXPLANATIONS ON THE CONSOLIDATED INTEREST RATE RISK 1. Information Related to Interest Rate Sensitivity of Assets, Liabilities and Off-Balance Sheet Items (Based on days to repricing dates) Up to 1 1-3 3-12 1-5 5 Years Non-Interest Current Period Month Months Months Years and Over Bearing Total Assets Cash (Cash in Vault, Effectives, Money in Transit, Cheques Purchased) and Balances with Central Bank of the Republic of Turkey 23.637.930 - - - - 19.244.100 42.882.030 Banks 3.910.863 429.440 748.570 52.552 - 3.941.683 9.083.108 Financial Assets at Fair Value Through Profit and Loss 21.145 10.522 10.663 42.018 5.966 6.692.464 6.782.778 Money Market Placements 249.987 - - - - - 249.987 Financial Assets at Fair Value Through Other Comprehensive Income 8.920.898 8.347.762 18.869.647 21.082.365 21.942.052 670.323 79.833.047 Loans Given (3) 127.815.015 35.816.349 73.662.425 132.928.386 26.349.811 2.485.893 399.057.879 Financial Assets Measured at Amortised Cost 2.388.245 883.236 1.945.688 1.626.076 3.429.926 7.839 10.281.010 Other Assets (2) 550.141 1.304.545 504.152 95.773 20.037 17.742.509 20.217.157 Total Assets (1) (5) 167.494.224 46.791.854 95.741.145 155.827.170 51.747.792 50.784.811 568.386.996 Liabilities Interbank Deposits 15.448.356 5.224.199 494.669 113.039 - 4.151.647 25.431.910 Other Deposits 148.819.779 47.427.841 41.617.560 4.254.360 282.375 86.541.423 328.943.338 Money Market Borrowings 64.330.322 2.671.990 1.118.379 482.947 - - 68.603.638 Sundry Creditors 21.402 - 124.850 - - 5.404.163 5.550.415 Issued Marketable Securities 1.425.962 1.964.991 4.137.675 9.415.236 - - 16.943.864 Funds Provided from Other Financial Institutions 5.817.048 9.738.616 12.419.697 5.809.914 1.063.494 - 34.848.769 Other Liabilities (4) 3.508.399 908.612 1.465.331 903.168 4.859.282 76.420.270 88.065.062 Total Liabilities (1) 239.371.268 67.936.249 61.378.161 20.978.664 6.205.151 172.517.503 568.386.996 Balance Sheet Long Position - - 34.362.984 134.848.506 45.542.641 - 214.754.131 Balance Sheet Short Position (71.877.044) (21.144.395) - - - (121.732.692) (214.754.131) Off-Balance Sheet Long Position 509.574 2.062.209 - - - 75.511 2.647.294 Off-Balance Sheet Short Position 469.564 965.120 (74.986) (193.925) - - 1.165.773 Total Position (70.897.906) (18.117.066) 34.287.998 134.654.581 45.542.641 (121.657.181) 3.813.067 (1) Balances without fixed maturity are shown in the “Up to 1 Month” and “Non -Interest Bearing” columns. (2) Deferred tax asset is shown under the “Non-Interest Bearing ” column. (3) Net balance of loans under follow-up is shown under the “Non-Interest Bearing” column in loans given. (4) Total shareholders’ equity is shown under the “Non-Interest Bearing” column. (5) Allowance for expected losses for financial assets and other assets are reflected in the related items. 64 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) IV. EXPLANATIONS ON THE CONSOLIDATED INTEREST RATE RISK (Continued) 1. Information Related to Interest Rate Sensitivity of Assets, Liabilities and Off-Balance Sheet Items (Continued) (Based on days to repricing dates) Up to 1 1-3 3-12 5 Years Non-Interest Prior Period 31 December 2017 Month Months Months 1-5 Years and Over Bearing Total Assets Cash (Cash in Vault, Effectives, Money in Transit, Cheques Purchased) and Balances with Central Bank of the Republic of Turkey 34.986.464 - - - - 11.233.873 46.220.337 Banks 2.587.026 1.110.786 53.308 - - 1.881.020 5.632.140 Financial Assets at Fair Value Through Profit and Loss 650.931 466.520 282.567 62.631 5.010 204 1.467.863 Money Market Placements 132.385 - - - - - 132.385 Financial Assets Available-for-Sale 4.475.074 6.406.801 14.676.889 16.496.888 20.572.603 1.009.976 63.638.231 Loans Given (4) 80.254.771 22.495.445 77.822.618 109.794.406 26.427.762 225.486 317.020.488 Investments Held-to-Maturity 2.841.118 38.661 1.314.541 1.628.610 1.802.833 - 7.625.763 (3) Other Assets 202.210 222.845 637.881 1.478.947 313.647 12.333.392 15.188.922 Total Assets (1) 126.129.979 30.741.058 94.787.804 129.461.482 49.121.855 26.683.951 456.926.129 Liabilities Interbank Deposits 8.208.140 2.058.662 2.903.605 75.510 - 2.104.256 15.350.173 Other Deposits 137.118.504 26.369.070 31.962.941 2.134.968 128.701 69.505.256 267.219.440 Money Market Borrowings 52.098.847 1.842.847 1.524.704 843.125 - - 56.309.523 Sundry Creditors 20.832 - 11.339 - - 4.111.219 4.143.390 Issued Marketable Securities 1.037.916 2.031.130 1.369.741 7.147.958 1.887.400 135 13.474.280 Funds Provided from Other Financial Institutions 4.371.514 7.108.659 15.502.599 3.126.560 1.008.921 - 31.118.253 Other Liabilities (2) (5) 1.377.415 297.811 430.455 6.571.837 19.889 60.613.663 69.311.070 (1) Total Liabilities 204.233.168 39.708.179 53.705.384 19.899.958 3.044.911 136.334.529 456.926.129 Balance Sheet Long Position - - 41.082.420 109.561.524 46.076.944 - 196.720.888 Balance Sheet Short Position (78.103.189) (8.967.121) - - - (109.650.578) (196.720.888) Off-Balance Sheet Long Position 793.471 1.712.937 - - - - 2.506.408 Off-Balance Sheet Short Position 319.906 314.728 (9.626) (1.113.533) - - (488.525) Total Position (76.989.812) (6.939.456) 41.072.794 108.447.991 46.076.944 (109.650.578) 2.017.883 (1) Balances without fixed maturity are shown in the “Up to 1 Month” and “Non-Interest Bearing” columns. (2) TL 5.972.568 of fund balance, whose risk does not belong to the Parent Bank, in other liabilities is shown under the “1 - 5 Years” column. TL 58.007 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. 65 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) IV EXPLANATIONS ON THE CONSOLIDATED INTEREST RATE RISK (Continued) 2. Average Interest Rate Applied to the Monetary Financial Instruments (Represents the Values Belonging 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) - 2,00 - 13,00 Banks 0,71 4,33 - 23,35 Financial Assets at Fair Value Through Profit and Loss 2,34 5,18 - 8,78 Money Market Placements - - - - Financial Assets Available-for-Sale 4,68 5,70 - 12,59 Loans Given (2) 4,95 7,28 4,85 15,54 Investments Held-to-Maturity 6,63 7,32 17,06 Liabilities Interbank Deposits (3) 0,52 2,32 - 23,33 Other Deposits (4) 1,32 2,26 - 14,19 Money Market Borrowings - 3,76 - 24,33 Sundry Creditors - - - - Issued Marketable Securities 0,60 4,77 1,50 21,40 Funds Provided from Other Financial Institutions 1,22 3,94 - 21,13 (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) - 1,50 - 4,00 Banks 0,42 2,28 - 12,28 Financial Assets at Fair Value Through Profit and Loss - 5,36 - 10,72 Money Market Placements - - - - Financial Assets Available-for-Sale 4,74 5,61 - 9,90 Loans Given (2) 4,51 6,02 - 13,44 Investments Held-to-Maturity 6,63 7,20 - 11,05 Liabilities Interbank Deposits (3) 0,48 1,57 - 12,47 Other Deposits (4) 1,05 1,73 - 7,67 Money Market Borrowings 0,92 2,44 - 12,74 Sundry Creditors - - - - Issued Marketable Securities 1,00 4,74 1,50 13,72 Funds Provided from Other Financial Institutions 1,21 3,02 - 10,51 (1) The ratio on TL column denotes the interest rates applied for required reserve at CBRT. (2) Credit card loans 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. 66 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) V. EXPLANATIONS ON THE POSITION RISK OF CONSOLIDATED EQUITY SECURITIES 1. Equity Securities Position Risk Derived from Banking Books 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 Comparison Investments in Equity Instruments - Current Period Balance Sheet Value Fair Value Market Value 1. Investment in Equity Instruments Group A - - - Traded on Stock Exchange - - - 2. Investment in Equity Instruments Group B - - - Traded on Stock Exchange - - - 3. Investment in Equity Instruments Group C - - - Traded on Stock Exchange - - - 4. Investment in Equity Instruments Group Other - - - Other (*) 148.434 148.434 - (*) The market values are taken into account as fair values because the equity investments are not traded in the stock exchange. Comparison Investments in Equity Instruments - Prior Period Balance Sheet Value Fair Value Market Value 1. Investment in Equity Instruments Group A - - - Traded on Stock Exchange - - - 2. Investment in Equity Instruments Group B - - - Traded on Stock Exchange - - - 3. Investment in Equity Instruments Group C - - - Traded on Stock Exchange - - - 4. Investment in Equity Instruments Group Other - - - Other (*) 144.209 144.209 - (*) The market values are taken into account as fair values because the equity investments are not traded in the stock exchange. The breakdown of capital requirements on the basis of related investments in equity instruments 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 Rating Approaches The investments in equity instruments, partaking in banking accounts according to the credit risk standard method, are amounted TL 148.434 and 100% of them are risk weighted (31 December 2017: are amounted TL 144.209 and 100% of them are risk weighted). VI. EXPLANATIONS ON CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND LIQUIDITY COVERAGE RATIO General principles of liquidity and financial emergency situation management and the related application procedures are considered in the scope of “Regulation for Liquidity Risk and Liquid ity and Financial Emergency Situation Management and ICAAP Regulations”. 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 order to compare the Parent Bank’s level of liquidity risk with the sector, average remaining maturity balances of Bank-Sector maturity structure and legal liquidity rates are monitored. 67 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VI. EXPLANATIONS ON CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND LIQUIDITY COVERAGE RATIO (Continued) 1. Liquidity Risk 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 e xplained in “Regulations of Risk Management, Stress Test Program and ICAAP Regulations” of the Parent Bank. In this context, liquidity risk strategies, policies implementations are published in periodically on weeks, months and years with all of the units with board directors in Parent Bank. Moreover, analyses done and reports are handled in the Assets-Liability Commission Conferences, Board of Director is informed by Audit Commission. 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. 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. 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 curr encies. 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. 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. 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 Parent 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. 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 “Regulation on Risk Management, Stress Test Program and ICAAP Regulations”. 68 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VI. EXPLANATIONS ON LIQUIDITY RISK MANAGEMENT AND LIQUIDITY COVERAGE RATIO (Continued) 1. Liquidity Coverage Ratio (Continued) Within the framework of "Regulation on Calculation of Liquidity Covered Rate of Banks" published in the Official Gazette dated 21 March 2014 and numbered 28948 by the BRSA, the Bank calculates the Liquidity Cover Rate and transmits consolidated on weekly and consolidated on montly basis to the BRSA. In the last three months (October- November-December), the consolidated rates are as follows: October FC, 108,75%, TL+FC 75,16%; November FC, 123,26%, TL + FC 80,91%; The December FC was 131,90%, and the TL+FC was 86,71% (31 December 2017: Consolidated rates in the last three months were October FC, 181,79%, TL+FC 96,49%, November FC 199,41%, TL+FC 92,73%, December FC 207,67%, TL+FC 86,31% repectively) Total Unweighted Value Total Weighted Value (Average) (*) (Average) (*) Current Period TL+FC FC TL+FC FC HIGH QUALITY LIQUID ASSETS High Quality Liquid Assets 60.776.637 41.550.730 CASH OUTFLOWS Retail and Small Business Customers, of which; 237.477.599 111.531.864 20.221.723 11.153.180 Stable deposits 70.520.740 133 3.526.037 7 Less stable deposits 166.956.859 111.531.731 16.695.686 11.153.173 Unsecured wholesale funding, of which; 109.306.463 49.758.643 61.872.016 30.339.716 Operational deposit 5.919.940 692.801 1.475.920 169.135 Non-operational deposits 86.845.916 41.314.525 45.505.184 22.564.219 Other unsecured funding 16.540.607 7.751.317 14.890.912 7.606.362 Secured funding - - Other cash outflows, of which; 54.422.069 16.368.421 13.776.439 11.048.459 Derivatives cash outflow and liquidity needs related to market valuation changes on derivatives or other transactions 9.084.643 8.718.617 9.084.643 8.718.617 Obligations related to structured financial products - - - - Commitments related to debts to financial markets and other off-balance sheet obligations 45.337.426 7.649.804 4.691.796 2.329.842 Other revocable off-balance sheet commitments and contractual obligations 9.716 5.279 486 264 Other irrevocable or conditionally revocable off-balance sheet obligations 103.619.895 40.186.025 5.246.376 2.009.549 TOTAL CASH OUTFLOWS 101.117.040 54.551.168 CASH INFLOWS Secured lending - - - - Unsecured lending 37.311.748 17.355.983 24.488.020 12.869.927 Other cash inflows 1.495.591 7.261.514 1.469.443 7.235.366 Total Cash Inflows 38.807.339 24.617.497 25.957.463 20.105.293 Upper Limit Applied Amounts TOTAL HQLA STOCK 60.776.637 41.550.730 TOTAL NET CASH OUTFLOWS 75.159.577 34.445.875 LIQUIDITY COVERAGE RATIO (%) 80,86 120,63 (*) The average of last three months’ liquidity coverage ratio calculated by monthly simple averages. 69 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VI. EXPLANATIONS ON CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND LIQUIDITY COVERAGE RATIO (Continued) 2. Liquidity Coverage Ratio (Continued) Total Unweighted Value Total Weighted Value (Average)(*) (Average) (*) Prior Period TL+FC FC TL+FC FC High Quality Liquid Assets High Quality Liquid Assets 51.969.108 42.724.037 Cash Outflows Retail and Small Business Customers, of which; 183.599.877 73.938.183 15.184.556 7.393.818 Stable deposits 63.508.627 - 3.175.431 - Less stable deposits 120.091.250 73.938.183 12.009.125 7.393.818 Unsecured wholesale funding , of which; 87.300.313 35.897.745 47.013.225 21.610.215 Operational deposit 5.207.052 651.604 1.301.763 162.901 Non-operational deposits 66.176.640 26.149.586 30.641.992 13.170.168 Other unsecured funding 15.916.621 9.096.555 15.069.470 8.277.146 Secured funding - - Other cash outflows, of which; 40.073.487 10.183.005 10.396.630 6.002.182 Derivatives cash outflow and liquidity needs related to market valuation changes on derivatives or other transactions 2.470.900 2.833.447 2.470.900 2.833.447 Obligations related to structured financial products - - - - Commitments related to debts to financial markets and other off- balance sheet obligations 37.602.587 7.349.558 7.925.730 3.168.735 Other revocable off-balance sheet commitments and contractual obligations 244.960 217.867 12.248 10.893 Other irrevocable or conditionally revocable off-balance sheet obligations 39.616.655 27.946.305 2.465.677 1.815.226 Total Cash Outflows 75.072.336 36.832.334 Cash Inflows Secured lending - - - - Unsecured lending 25.040.855 7.349.811 17.444.144 5.913.101 Other cash inflows 1.059.177 9.126.013 1.056.421 9.123.257 Total Cash Inflows 26.100.032 16.475.824 18.500.565 15.036.358 Total HQLA Stock 51.969.108 42.724.037 Total Net Cash Outflows 56.571.771 21.795.976 Liquidity Coverage Ratio (%) 91,86 196,02 (*) The average of last three months’ liquidity coverage ratio calculated by monthly simple averages. 70 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VI EXPLANATIONS ON CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND LIQUIDITY COVERAGE RATIO (Continued) 3. Minimum Statements Concerning Liquidity Coverage Ratio by Banks 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. While considering 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 has 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. Bonds and bills in the securities portfolio are used as collateral for repo transactions.Since the securities used in repo transactions lose the characteristic of being free, liquidity coverage ratio is affected due to the ability of securities to be used as collateral. 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 are; 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). Funds are comprised of which items and their volume in all funds The major part of the resources of funds in Group is comprised of deposits, the remaining is divided according to their share in the balance sheet as repo, borrowings, and issued securities. Information about cash out-flows arising from derivative operations and margin operations likely to processing Derivative operations in Parent 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 (International 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. The concentration limits regarding collateral and counterparty and product based fund resources For the counterparty and product based concentration limits are determined under Regulation on Risk Management, Stress Test Program and the Parent Bank’s Internal Capital Adequacy Assessment Process (“ICAAP”) with the approval of the Parent Bank’s 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. 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 Parent 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 Parent 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. 71 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO FINANCIAL POSITION AND RISK MANAGEMENT OF THE BANK (Continued) VI. EXPLANATIONS ON CONSOLIDATED LIQUIDITY RISK MANAGEMENT AND LIQUIDITY COVERAGE RATIO (Continued) 3. Minimum Statements Concerning Liquidity Coverage Ratio by Banks (Continued) 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. 4. Presentation of Assets and Liabilities According to Their Remaining Maturities Up to 1 3-12 5 Years and Undistributed Demand 1-3 Months 1-5 Years (1) (2) (3) Total Month Months Over Current Period Assets Cash (Cash in Vault, Effectives, Money in Transit, Cheques Purchased) and Balances with the Central Bank of the Republic of Turkey 19.258.129 23.623.901 - - - - - 42.882.030 Banks 3.941.683 3.912.032 428.271 748.570 52.552 - - 9.083.108 Financial Assets at Fair Value Through Profit and Loss 8 3.610 10.522 10.663 59.553 5.966 6.692.456 6.782.778 Money Market Placements - 249.987 - - - - - 249.987 Financial Assets Measured at Fair Value Through Other Comprehensive Income 70.422 692.082 3.662.682 8.492.750 32.260.941 34.276.452 377.718 79.833.047 Loans Given 357.843 19.827.384 24.975.821 156.623.275 161.667.637 33.493.989 2.111.930 399.057.879 Financial Assets Measured at Amortised Cost 7.839 492.124 883.236 1.945.688 3.522.197 3.429.926 - 10.281.010 Other Assets 7.506.861 479.704 1.302.726 548.552 95.773 20.037 10.263.504 20.217.157 Total Assets 31.142.785 49.280.824 31.263.258 168.369.498 197.658.653 71.226.370 19.445.608 568.386.996 Liabilities Interbank Deposits 4.151.647 15.448.356 5.224.199 498.606 109.102 - - 25.431.910 Other Deposits 86.541.423 148.809.641 47.408.503 41.508.356 4.348.488 326.927 - 328.943.338 Funds Provided from Other Financial Institutions - 3.063.523 4.000.462 12.824.200 11.551.026 3.409.558 - 34.848.769 Money Market Borrowings - 64.330.322 2.671.990 1.118.379 482.947 - - 68.603.638 Issued Marketable Securities - 1.425.962 1.785.096 4.317.570 9.415.236 - - 16.943.864 Sundry Creditors 3.295.076 2.045.910 - 124.850 - - 84.579 5.550.415 Other Liabilities (3) 20.639.607 1.872.062 1.908.697 1.356.994 903.169 6.171.802 55.212.731 88.065.062 Total Liabilities 114.627.753 236.995.776 62.998.947 61.748.955 26.809.968 9.908.287 55.297.310 568.386.996 Liquidity Gap (83.484.968) (187.714.952) (31.735.689) 106.620.543 170.848.685 61.318.083 (35.851.702) - Net Off-Balance Sheet Position - (291.050) (967.025) 122.547 672.964 - (44) (462.608) Financial Derivative Assets - 35.660.859 14.439.645 3.000.559 1.793.273 - 19.360 54.913.696 Financial Derivative Liabilities - 35.951.909 15.406.670 2.878.012 1.120.309 - 19.404 55.376.304 Non-cash Loans 45.706.867 4.670.432 10.165.962 38.893.051 27.158.917 4.856.928 195.551 131.647.708 Prior Period Total Assets 50.919.082 18.929.714 23.628.689 116.762.600 164.763.387 71.096.945 10.825.712 456.926.129 Total Liabilities 80.054.211 202.342.883 37.340.267 54.711.293 22.933.230 6.034.152 53.510.093 456.926.129 Liquidity Gap (29.135.129) (183.413.169) (13.711.578) 62.051.307 141.830.157 65.062.793 (42.684.381) - Net Off-Balance Sheet Position Financial Derivative Assets - 289.511 (50.634) (18.587) 520.911 - - 741.201 Financial Derivative Liabilities - 31.372.193 5.138.945 4.045.596 2.487.182 - - 43.043.916 Non-cash Loans - 31.082.682 5.189.579 4.064.183 1.966.271 - - 42.302.715 44.309.179 4.153.866 4.677.686 25.135.933 20.450.899 3.599.059 - 102.326.622 (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) Non-performing loans net-off related provision for expected loss of stage 3 are presented in “ undistributed” column. (4) Allowance for expected credit losses for financial assets and other assets are recognized in the related account. 72 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VI. EXPLANATIONS ON LIQUIDITY RISK MANAGEMENT AND LIQUIDITY COVERAGE RATIO (Continued) 5 Presentation of Liabilities According to Their Remaining Maturities Up to 1-5 Over 5 Current Period(*) 1 Month 1-3 Months 3-12 Months Years Years Total Bank deposits 20.217.961 5.250.549 503.618 109.102 - 26.081.230 Other deposits 231.814.869 48.124.210 43.088.228 4.429.641 402.565 327.859.513 Funds borrowed from other financial institutions 3.110.764 4.095.296 13.353.528 13.126.717 4.872.440 38.558.745 Funds borrowed from Interbank money market 64.540.404 2.690.943 1.120.332 485.048 - 68.836.727 Total 319.683.998 60.160.998 58.065.706 18.150.508 5.275.005 461.336.215 Prior Period (*) Bank deposits 10.323.344 2.062.576 2.914.582 78.044 - 15.378.546 Other deposits 206.995.434 26.630.764 32.466.021 2.229.065 199.114 268.520.398 Funds borrowed from other financial institutions 1.443.218 4.345.334 17.052.210 6.862.001 3.928.073 33.630.836 Funds borrowed from Interbank money market 52.168.911 1.849.922 1.542.807 846.503 - 56.408.143 Total 270.930.907 34.888.596 53.975.620 10.015.613 4.127.187 373.937.923 (*) 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. VII EXPLANATIONS ON CONSOLIDATED LEVERAGE 1. Explanations on the Difference Between the Prior and Current Period of Leverage Ratio The Parent Bank’s consolidated leverage calculated by force of the regulation “Regulation on Measurement and Assessment of Leverage Ratios of Banks” is 7,66% (31 December 2017: 7,98%). The decrease on leverage results occur from the increase on total risk amount. 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) 570.386.642 452.721.717 (Assets deducted in determining Tier 1 capital) (7.798.391) (2.586.076) Total on-balance sheet risks (sum of lines 1 and 2) 562.588.251 450.135.641 Derivative financial instruments and credit derivatives Replacement cost associated with all derivative financial instruments and credit Derivatives 2.253.807 1.590.316 Add-on amounts for PFE associated with all derivative financial instruments and credit derivatives 631.144 500.985 Total risks of derivative financial instruments and credit derivatives 2.884.951 2.091.301 Securities or commodity financing transactions (SCFT) Risks from SCFT assets 5.082.975 5.102.788 Risks from brokerage activities related exposures - - Total risks related with securities or commodity financing transactions 5.082.975 5.102.788 Other off-balance sheet transactions Gross notional amounts of off-balance sheet transactions 183.788.436 136.027.916 (Adjustments for conversion to credit equivalent amounts) (3.650.093) (1.937.432) Total risks of off-balance sheet items 180.138.343 134.090.484 Capital and total risks Tier 1 capital 57.496.516 47.185.249 Total risks 750.694.520 591.420.214 Leverage ratio Leverage ratio % 7,66 7,98 (*) Three month average of the amounts in the table are taken. 73 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTİON FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VII EXPLANATIONS ON CONSOLIDATED LEVERAGE 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(**) 568.436.479 456.979.890 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” 49.483 53.761 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 142.583.287 97.270.270 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 21.524.007 14.574.814 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 3.650.093 1.937.432 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 (28.788.983) (18.087.286) Total Risk Amount 750.661.186 591.420.214 (*) The amounts shown in the table are 3 month averages. (**) The current year balance of the Consolidated Financial Statements prepared in accordance with paragraph 6 of 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 2018 of the nonfinancial subsidiaries. VIII. 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. 1. Explanations on Risk Management and Risk Weighted Amount 1.1 Parent Bank's Risk Management Approach It has to do with how the business model determines the Parent 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 Parent Bank's risk profile interacts with the risk appetite approved by the board of directors While risk appetite determines the Parent 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 Parent 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 Parent 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 Parent 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 Commission and Board of Directors. Signal and limit values based on risk weighted assets are monitored by the Parent Bank's Risk Management Group Presidency regularly and actual values are reported periodically to the Parent Bank's Top Management. 74 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 1. Explanations on Risk Management and Risk Weighted Amount (Continued) 1.1 Parent Bank's Risk Management Approach (Continued) Risk management structure: Responsibilities distributed at the Parent 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 and internal audit function) The Parent 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 Parent 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. Organizational structure of the Parent 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 Parent 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. Channels used for disseminating and implementing risk culture within the Parent 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 Parent 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 Parent 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 Parent Bank and the structure is understood by the staff. Usage levels for signal and risk parameters are subject to reports submitted to the Parent Bank Top Management. 75 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 1. Explanations on Risk Management and Risk Weighted Amount (Continued) 1.1 Parent Bank's Risk Management Approach (Continued) If limits are exceeded, the Parent 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 Parent 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 Parent 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 Parent Bank's Top Management and relevant units conduct their ICAAP duties, authorities and responsibilities in line with the Parent Bank regulations and relevant legal legislation. Principal elements and scope of risk measurement systems The Parent 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 Parent 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 expected loss provisions for the loans for the stage 3 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 t he 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. 76 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 1. Explanations on Risk Management and Risk Weighted Amount (Continued) 1.1 Parent Bank's Risk Management Approach (Continued) 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 Parent 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. 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. 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 Parent 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, operational 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. 77 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 1. Explanations on Risk Management and Risk Weighted Amount (Continued) 1.1 Parent Bank's Risk Management Approach (Continued) The Parent 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 Parent 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. The Parent 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 Parent 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 Parent Bank, policies 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. 78 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 1. Explanations on Risk Management and Risk Weighted Amounts 1.1 Parent Bank's Risk Management Approach (Continued) Overview of Risk Weighted Amounts Minimum capital Risk Weighted Amount requirement Current Period Prior Period Current Period 1 Credit Risk (excluding counterparty credit risk) 396.750.839 305.800.542 31.740.067 2 Standardised approach 396.750.839 305.800.542 31.740.067 3 Internal rating-based approach - - - 4 Counterparty credit risk 3.747.369 3.434.653 299.790 5 Standardised approach for counterparty credit risk 3.747.369 3.434.653 299.790 6 Internal model method - - - 7 Basic risk weight approach to internal models equity position in the banking account - - - 8 Investments made in collective investment companies-look through approach - - - 9 Investments made in collective investment companies-mandate-based approach 1.022.273 1.108.145 81.782 10 Investments made in collective investment companies-1250% 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 15.630.514 18.965.749 1.250.441 17 Standardised approach 15.630.514 18.965.749 1.250.441 18 Internal model approaches - - - 19 Operational risk 31.723.724 25.145.817 2.537.898 20 Basic Indicator approach 31.723.724 25.145.817 2.537.898 21 Standard approach - - - 22 Advanced measurement approach - - - 23 The amount of the discount threshold under the equity(subject to a 250% risk weight) - - - 24 Floor adjustment - - - 25 Total (1+4+7+8+9+10+11+12+16+19+23+24) 448.874.719 354.454.906 35.909.978 79 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 2 Connections Between Financial Statements and the Risk Amounts Differences Between Accounting Consolidation and Legal Consolidation and Matching of the Subject Carrying values of items Valued amount Not subject to Carrying values according to capital as reported in TAS within Subject to requirements or published legal Subject to counterparty Subject to the Subject to the subject to financial consolidation credit risk credit risk securitization market risk deduction from Current Period statements (*) (*) framework framework on framework framework capital Assets Cash and balances at central bank 42.882.493 42.882.030 42.882.493 - - - - Banks 9.083.108 9.083.108 9.086.630 - - - - Receivables from Money Markets 249.987 249.987 317.114 65.500 - - - Financial assets measured at fair value to profit or loss 6.782.778 6.782.778 8 - - 6.782.770 - Financial assets measured at fair value to other comprehensive income 79.833.047 79.833.047 51.509.173 28.169.653 - 28.323.874 - Financial assets measured at amortised cost 10.281.010 10.281.010 10.282.545 1.996.979 - - - Derivative financial assets 2.058.778 2.058.778 - 2.058.778 - - - 398.336.13 Loans (Net) 395.077.052 395.077.052 0 - - - 1.871 Investments in associates (Net) 163.826 142.148 142.148 - - - - Investments in subsidiaries (Net) 1.738 7.975 7.975 - - - - Jointly Controlled Partnerships (Joint Ventures) (Net) 87.450 87.450 87.450 - - - - Lease receivables 3.978.680 3.978.680 3.978.680 - - - - Factoring reveivables 2.147 2.147 2.147 - - - - Tangible Assets (net) 6.805.720 6.803.755 6.741.637 - - - 62.118 Intangible Assets (net) 734.541 731.706 - - - - 731.706 Investment Propertıes (Net) - - - - - - - Tax Asset 1.700.181 1.700.181 1.700.181 - - - - Non-Currents Assets Or Disposal Groups "Held For Sale" And "From Discontinued Operatıons (Net) 1.230.679 1.230.679 1.230.679 - - - - Other Assets 7.483.264 7.454.485 7.508.585 - - - - 533.813.57 Total Assets 568.436.479 568.386.996 5 32.290.910 - 35.106.644 795.695 Liabilities Deposıts 354.351.571 354.375.248 - - - - - Funds Borrowed 34.848.769 34.848.769 - 2.860.112 - - - Money Markets 68.603.638 68.603.638 - 25.950.344 - - - Securities Issued (Net) 16.943.864 16.943.864 - - - - - Funds 6.073.748 6.073.748 - - - - - Derivative Financial Liabilities 1.668.169 1.668.169 - - - - - Factoring payables - - - - - - - Other Liabilities 19.381.901 19.357.893 - - - - - Factoring Lıabılıtıes - - - - - - - Provisions 4.769.265 4.751.072 - - - - - Tax Liability 1.635.620 1.635.620 - - - - - Non-Currents Liabilities or Disposal Groups "Held For Sale" And "From Discontinued Operatıons (Net) - - - - - - - Subordinated Debt Instruments - - - - - - - Shareholders’ Equity 60.159.934 60.128.975 - - - - - Total Liabilities 568.436.479 568.386.996 - 28.810.456 - - - (*) It shows the Bank’s consolidated financial statements. 80 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3 Connections Between Financial Statements and the Risk Amounts Differences Between Accounting Consolidation and Legal Consolidation and Matching of the Subject Carrying values of items in accordance with TAS Carrying Not subject values as Valued amount to capital reported in according to Subject to Subject to requirements published TAS within Subject to counterparty Subject to the the market or subject to financial legal credit risk credit risk securitization risk deduction Prior Period statements (*) consolidation framework framework framework framework from capital Assets Cash and balances at central bank 46.220.337 46.220.337 46.220.337 - - - - Financial assets held for trading 1.467.863 1.467.863 - 1.396.767 - 71.096 - Financial assets designated at fair value through profit or loss - - - - - - - Banks 5.632.140 5.632.140 5.632.140 - - - - Receivables from money markets 132.385 132.385 62.214 70.171 - - - Available for sale financial assets (net) 63.638.231 63.638.231 18.613.864 2.179.191 - 42.845.176 - Loans and receivables 317.020.488 317.020.488 317.018.779 - - - 1.709 Factoring receivables 1.614 1.614 1.614 - - - - Held to maturity investments (net) 7.625.763 7.625.763 5.315.124 2.310.639 - - - Investments in associates (net) 146.075 128.419 128.419 - - - - Investments in subsidiaries (net) 1.346 7.583 7.583 - - - - Investments in joint ventures (net) 52.036 52.036 52.036 - - - - Leasing receivables 2.881.519 2.881.519 2.881.519 - - - - Derivative financial assets held for hedges - - - - - - - Tangible assets (net) 6.682.102 6.679.632 6.596.192 - - - 83.440 Intangible assets (net) 548.753 532.088 - - - - 532.088 Investment properties (net) - - - - - - - Tax assets 41.055 41.055 41.055 - - - - Non-current assets and disposal groups classified as held for sale (net) 674.819 674.819 674.819 - - - - Other assets 4.213.364 4.190.157 4.190.157 - - - - Total assets 456.979.890 456.926.129 407.435.852 5.956.768 - 42.916.272 617.237 Liabilities Deposits 282.549.116 282.569.613 - - - - - Derivative financial liabilities held for trading 548.910 548.910 - - - - - Loans 31.118.253 31.118.253 - 2.726.897 - - - Debt to money markets 56.309.523 56.309.523 - 14.440.188 - - - Debt securities in issue 13.474.280 13.474.280 - - - - - Funds 6.030.575 6.030.575 - - - - - Various debts 4.179.377 4.143.390 - - - - - Other liabilities 2.575.954 2.575.954 - - - - - Factoring debts - - - - - - - Debts from leasing transactions - - - - - - - Derivative financial liabilities held for hedges - - - - - - - Provisions 10.375.563 10.362.037 - - - - - Tax liability 1.310.438 1.310.438 - - - - - Liabilities included in disposal groups classified as held for sale (net) - - - - - - - Subordinated debts - - - - - - - Equity 48.507.901 48.483.156 - - - - - Total liabilities 456.979.890 456.926.129 - 17.167.085 - - - (*) It shows the Bank’s consolidated financial statements. 81 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 2. Connections Between Financial Statements and the Risk Amounts The main sources of the differences between the risk amounts and the amounts assessed in accordance with TAS in the financial statements Subject to counterparty Subject to the Subject to credit credit risk market risk Current Period Total risk framework framework framework Asset carrying value amount under scope of regulatory consolidation 568.386.996 533.757.038 32.290.910 35.106.644 Liabilities carrying value amount under regulatory scope of consolidation - - 28.810.456 - Total net amount under regulatory scope of consolidation 568.386.996 533.757.038 3.480.454 35.106.644 Differences in valuations 244.474.188 79.032.680 69.186.526 - Valuation Differences - - - - Differences due to different netting rules, other than those already included in row 2 - - - - Differences due to consideration of provisions - - - - Differences due to prudential filters - - - - Amount of Risk 812.861.184 612.789.718 72.666.980 35.106.644 Subject to counterparty Subject to the Subject to credit credit risk market risk Prior Period Total risk framework framework framework Asset carrying value amount under scope of regulatory consolidation 456.926.129 407.435.852 5.956.768 42.916.272 Liabilities carrying value amount under regulatory scope of consolidation - - 17.167.085 - Total net amount under regulatory scope of consolidation 456.926.129 407.435.852 (11.210.317) 42.916.272 Differences in valuations 180.798.732 58.591.260 48.292.227 - Valuation Differences - - - - Differences due to different netting rules, other than those already included in row 2 - - - - Differences due to consideration of provisions - - - - Differences due to prudential filters - - - - Amount of Risk 637.724.861 466.027.112 37.081.910 42.916.272 Explanations on differences between risk amounts and valued amounts in accordance with the Turkish Accounting Standards There is no significant difference between financial statement values of assets and liabilities and values included in capital adequacy calculation. 3. Credit Risk Explanations 3.1. Transformation of Parent 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 structures. 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 Parent 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 Parent 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. 82 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3 Credit Risk Explanations (Continued) 3.1. Transformation of bank's business model into components in credit risk profile (Continued) 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. 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 Parent 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 Parent 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 Parent Bank's strategy and risk appetite. 3.2. Criteria and approach adopted for determining credit risk policy and credit risk limits As part of credit risk management, the Parent 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 Parent 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 Parent 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 Parent 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 Parent Bank's Top Management. 3.3 Structure and organization of credit risk management and control function The Parent 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 Parent Bank's credit risk are monitored. Analyses conducted are reported to the Top Management and relevant units periodically. 3.4. 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. 83 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3. Credit Risk Explanations (Continued) 1.3. Relationship between credit risk management, risk control, legal compliance and internal audit functions (Continued) The controls on Risk Management Disclosures are carried out within the scope of Risk Management Department activities. Two separate control processes are carried out periodically in the related unit, Capital Adequacy Calculation process and other Risk Management processes control, and are carried out within the scope of capital adequacy check points and guide and control points and guidance related to other risk management activities. All activities, new transactions and products planned by the Parent Bank; compliance with relevant laws, regulations, internal policies and banking practices is controlled. In this context, the compliance of the legislative regulations regarding the Risk Management Disclosures with the intra-Parent bank practices is also checked. The control activities carried out in the Head Office Units are carried out in accordance with the control periods determined by taking into account the functions and the risks of the units, the duties of the units and their effects on the Parent Bank's balance sheet. The control processes of the Head Office Units are carried out through the control points determined according to the processes, duties and powers of the unit and the control techniques are detailed in the General Directorate Control Manual. 3.5. 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 Parent 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 Parent 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, actualization level of risk limits and limitations and assumptions of risk measurement method used. 3.6. Credit Quality of Assets Allowances/Amortisation Current Period Defaulted Non-defaulted and impairments Net values Loans 8.755.997 399.753.761 9.451.879 399.057.879 Debt Securities - 105.216.973 6.259.825 98.957.148 Off-balance sheet exposures 279.906 177.707.537 466.897 177.520.546 Total 9.035.903 682.678.271 16.178.601 675.535.573 Allowances/Amortisation Prior Period Defaulted Non-defaulted and impairments Net values Loans 5.028.967 316.795.002 4.803.481 317.020.488 Debt Securities - 74.462.980 1.731.123 72.731.857 Off-balance sheet exposures 138.057 134.994.316 734.937 134.397.436 Total 5.167.024 526.252.298 7.269.541 524.149.781 84 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3. Credit Risk Explanations (Continued) 3.7 Changes in the Defaulted Receivables and Debt Instruments Current Period 1 Defaulted loans and debt securities at end of the previous reporting period 5.028.967 2 Loans and debt securities that have defaulted since the last reporting period 4.989.088 3 Returned to non-defaulted status 85.686 4 Amounts written off - 5 Other changes (1.176.372) 6 Defaulted loans and debt securities at end of the reporting period (1+2-3-4±5)(*) definitions 8.755.997 (*) Provisions for non-cash loans are not included in the table. Prior Period 1 Defaulted loans and debt securities at end of the previous reporting period 4.380.490 2 Loans and debt securities that have defaulted since the last reporting period 2.168.537 3 Returned to non-defaulted status 37.244 4 Amounts written off - 5 Other changes (1.482.816) 6 Defaulted loans and debt securities at end of the reporting period (1+2-3-4±5)(*)definitions 5.028.967 (*) Provisions for non-cash loans are not included in the table. 3.8 Additional Explanations on Credit Quality of Assets 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 Parent Bank classifies its credits and other receivables and allocates expected loss 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. 29750 dated 22 June 2016. 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 Parent Bank sets expected credit loss provisions for the stage 1 and stage 2 for credits classified as “Standard Credits” and “Under Close Monitoring” and expected loss provisions for the loans for the stage 3 for credits classified as “Non-Performing Loans”. 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 Parent 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 expected loss 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 Parent Bank. Definitions of methods used for determining provision amount The Bank sets expected loss provisions for loans and other receivables in accordance with the regulations stated by the Communiqué published on the Official Gazette numbered 29750 and dated 22 June 2016 on “Methods and Principles on Determining the Nature of Loans and Other Receivables and Allocation of Provi sions”. However, there is no judgement in the related Regulation and the BRSA's related disclosures that would prevent further provision of the minimum amounts required. 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 priory imply failure, to make their loan repayment in a timely manner due to temporary liquidity problems. 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3. Credit Risk Explanations (Continued) 3.8. Additional Explanations on Credit Quality of Assets (Continued) 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 Non Preforming Expected Loss Receivables Loans Provisions Total Domestic 374.792.054 8.051.768 7.038.353 375.805.469 European Union Countries 355.730 27.358 25.921 357.167 USA, Canada 5.485 4.239 4.522 5.202 OECD Countries 7.646.502 144 53.162 7.593.484 Off-Shore Banking Regions - - - - Other 12.973.163 672.488 2.329.921 11.315.730 Total 395.772.934 8.755.997 9.451.879 395.077.052 (1) OECD countries other than EU countries, USA and Canada. Expected Loss Loans and Receivables Non Preforming Loans Provisions Total Agriculture 71.375.479 1.235.943 902.725 71.708.697 Farming and Stockbreeding 70.414.156 1.221.040 886.526 70.748.670 Forestry 680.808 7.921 7.738 680.991 Fishing 280.515 6.982 8.461 279.036 Manufacturing 90.625.737 1.610.824 1.504.393 90.732.168 Mining and Quarrying 5.069.288 22.100 35.311 5.056.077 Production 61.889.635 1.568.239 1.314.078 62.143.796 Electric, Gas and Water 23.666.814 20.485 155.004 23.532.295 Construction 40.932.134 641.562 552.381 41.021.315 Services 92.822.388 3.113.760 4.704.539 91.231.609 Wholesale and Retail Trade 35.636.639 1.905.735 1.622.172 35.920.202 Hotel Food and Beverage Services 6.519.034 128.932 130.182 6.517.784 Transportation and Telecommunication 14.876.288 118.762 1.995.695 12.999.355 Financial Institutions 8.710.638 4.367 49.739 8.665.266 Real Estate and Leasing Services 25.419.286 908.346 867.581 25.460.051 Self-Employment Services 2.179 - 41 2.138 Education Services 765.177 26.412 19.265 772.324 Health and Social Services 893.147 21.206 19.864 894.489 Other 100.017.196 2.153.908 1.787.841 100.383.263 Total 395.772.934 8.755.997 9.451.879 395.077.052 3 – 12 5 Years and Current Period Demand Up to 1 Month 1 – 3 Months Months 1 – 5 Years Over Undistributed Total Loans and Receivables 357.843 19.827.384 24.975.821 156.623.275 161.667.637 33.493.989 2.111.930 399.057.879 3 – 12 5 Years and Prior Period Demand Up to 1 Month 1 – 3 Months Months 1 – 5 Years Over Undistributed Total Loans and Receivables - 12.619.158 20.021.874 108.426.306 136.421.696 37.779.465 1.751.989 317.020.488 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3 Credit Risk Explanations (Continued) 3.9. Additional Explanations on Credit Quality of Assets (Continued) 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 499.701 201.575 1.767.995 2.469.271 Retail Loans 63.928 12.439 5.405 81.772 Specialized Loans 604.810 183.072 95.164 883.046 Total 1.168.439 397.086 1.868.564 3.434.089 (1) Explanations on the amounts; For the loans with instalments, the overdue installment amounts, for other type of credits, the overdue principal amount and the remaining principal amounts of intallmanent results with a grand total of TL 16.044.320 Prior Period Up to 1 Month 1-2 months 2-3 months Total Loans and Receivables (1) Corporate/Entrepreneur Loans 183.818 40.551 94.113 318.482 Retail Loans 46.378 9.079 3.665 59.122 Specialized Loans 650.860 113.326 46.076 810.262 Total 881.056 162.956 143.854 1.187.866 (1) Explanations on the amounts; For the loans with instalments, the overdue installment amounts, for other type of credits, the overdue principal amount and the remaining principal amounts of intallmanent results with a grand total of TL 4.313.289 Breakdown of restructured receivables by allocation of provision Out of the Group's total restructured loans amounting to TL 3.860.586, a portion of TL 3.576.692 consists of performing loans and remaining portion of TL 283.894 consists of non-performing loans. While the specific provision allocated for non-performing loans amounts to TL 171.941, no expected loss provision (Stage 3) was allocated for non-performing loans of TL 360, whose risk is not assumed by the Parent Bank. 3.9. Credit risk mitigation 3.9.1. Qualitative requirements to be disclosed to public regarding credit risk mitigation techniques 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 used while mitigating credit risk within the Group. 3.10. Credit risk mitigation techniques – Overview Unsecured Collateralized Collateralized Current Period 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 338.343.135 12.205.965 1.587.257 47.788.901 19.917.358 - - Debt Securities 96.898.370 - - - - - - Total 435.241.505 12.205.965 1.587.257 47.788.901 19.917.358 - - Of which defaulted 8.084.352 1.274 134 670.371 330.907 - - 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3. Credit Risk Explanations (Continued) 3.10. Credit risk if standard approach is used (Continued) Unsecured Collateralized Collateralized receivables: portions of portions of Prior Period 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 279.574.611 9.363.583 1.229.502 28.082.294 22.633.132 - - Debt Securities 72.731.857 - - - - - - Total 352.306.468 9.363.583 1.229.502 28.082.294 22.633.132 - - Of which defaulted 5.028.967 - - - - - - 3.11. Credit risk if standard approach is used 3.11.1. Qualitative explanations on ratings used by the banks while calculating credit risk with standard approach Names of Credit Rating Agencies (CRA) and Export Rating Agencies (ERA) used by the Parent Bank and the reasons in case of any change during the reporting period The Parent Bank uses ratings of Fitch Ratings International Rating Agency and Islamic International Rating Agency (IIRA) while calculating the amount subject to credit risk through standard approach. Risk classes using CRA and ERA ratings Grades of Fitch Ratings International Rating Agency are used for Receivables from Banks and Brokerage Houses. 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. Explanation on how credit rating of debtor is used for other assets of debtor in banking accounts 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. 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. 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3 Credit Risk Explanations (Continued) 3.12. Standard Approach- Loan risk Exposure and the Effects of Loan Risk Reduction Techniques Exposures before CCF and Exposures post-CCF and Current Period CRM CRM RWA and RWA density Off-balance On-balance sheet On-balance On-balance Off-balance On-balance Risk Classes sheet amount amount sheet amount sheet amount sheet amount sheet amount Exposures to sovereigns and their central banks 107.894.178 758.747 144.868.014 2.509.956 20.460.158 13,9% Exposures to regional and local governments 653.608 69.730 673.614 49.958 346.954 48,0% Exposures to administrative bodies and non-commercial entities 259.479 726.398 882.834 300.059 1.108.297 93,7% Exposures to multilateral development banks - - - - - - Exposures to international organizations - - - - - - Exposures to banks and brokerage houses 47.446.731 15.377.723 47.442.723 7.906.935 10.994.443 19,9% Exposures to corporates 198.718.093 120.286.115 176.984.914 63.780.014 237.941.365 98,8% Retail exposures 133.616.322 36.461.303 118.485.575 3.715.750 90.889.469 74,4% Exposures secured by residential property 47.446.107 331.458 47.194.835 178.693 16.589.279 35,0% Exposures secured by commercial property 6.879.814 550.210 6.727.011 327.865 3.594.586 51,0% Past-due items 2.327.696 - 1.996.804 - 1.356.832 68,0% Exposures in high-risk categories 2.229.276 368.990 2.214.980 197.389 3.593.812 149,0% 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 1.080.488 133.558 1.080.488 66.061 1.022.273 89,2% Other exposures 23.398.673 - 23.398.673 - 13.474.579 57,6% Equity share investments 148.434 - 148.434 - 148.434 100,0% Total 572.098.899 175.064.232 572.098.899 79.032.680 401.520.481 61,7% 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 2018 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3 Credit Risk Explanations (Continued) 3.12. Standard Approach- Loan risk Exposure and the Effects of Loan Risk Reduction Techniques Exposures before CCF and Exposures post-CCF and Prior Period CRM CRM RWA and RWA density Off-balance On-balance sheet On-balance On-balance Off-balance On-balance Risk Classes sheet amount amount sheet amount sheet amount sheet amount sheet amount Exposures to sovereigns and their central banks 75.394.429 1.038.524 98.885.484 1.349.004 13.455.561 13,4% Exposures to regional and local governments 587.481 250.973 552.719 87.005 302.111 47,2% Exposures to administrative bodies and non-commercial entities 265.860 839.262 672.079 394.194 595.666 55,9% Exposures to multilateral development banks - - - - - - Exposures to international organizations - - - - - - Exposures to banks and brokerage houses 30.986.562 11.528.627 31.329.544 5.724.699 8.999.727 24,3% Exposures to corporates 140.836.527 92.127.308 129.254.159 47.236.484 173.970.630 98,6% Retail exposures 117.848.737 25.803.736 105.559.266 3.418.145 81.131.739 74,4% Exposures secured by residential property 40.322.262 71.565 40.254.872 34.154 14.107.921 35,0% Exposures secured by commercial property 7.047.490 416.229 6.781.281 209.935 3.568.296 51,0% Past-due items - - - - - - Exposures in high-risk categories 1.338.433 246.328 1.338.377 115.333 2.179.008 149,9% 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 1.176.969 45.897 1.176.969 22.307 1.108.145 92,4% Other exposures 20.723.266 - 20.723.267 - 10.780.327 52,0% Equity share investments 144.209 - 144.209 - 144.209 100,0% Total 436.672.225 132.368.449 436.672.226 58.591.260 310.343.340 62,7% 90 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 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3. Credit Risk Explanations (Continued) 3.13. Standard Approach: Receivables related with Risk Classes and Risk Weights 35% 50% Total risk Current Period secured by secured by amount Risk Classes/ Risk Weight property property (post-CCF 0% 10% 20% mortgage mortgage 50% (*) 75% 100% 150% 200% Other and CRM) Exposures to sovereigns and their central banks 106.942.573 - 9.399 - - 39.935.440 - 490.558 - - - 147.377.970 Exposures to regional and local government 31.656 - 35 - - 689.868 - 2.013 - - - 723.572 Exposures to administrative bodies and non-commercial entities 74.516 - 100 - - - - 1.108.277 - - - 1.182.893 Exposures to multilateral development banks - - - - - - - - - - - - Exposures to international organizations - - - - - - - - - - - - Exposures to banks and brokerage houses 26.299.347 - 13.204.035 - - 14.985.279 - 860.997 - - - 55.349.658 Exposures to corporates 497.556 - 405.916 - - 4.002.552 - 235.858.904 - - - 240.764.928 Retail exposures 710.828 - 414.870 - - 900 121.074.727 - - - - 122.201.325 Exposures secured by residential property 8.215 - 5.108 47.341.458 - - - 18.747 - - - 47.373.528 Exposures secured by commercial property 2.609 - 3.087 - 6.910.422 - - 138.758 - - - 7.054.876 Past-due items 134 - - - - 1.279.676 - 716.994 - - - 1.996.804 Exposures in high-risk categories 449 - 2.387 - - - - 41.928 2.367.605 - - 2.412.369 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 124.276 - - - - - - 1.022.273 - - - 1.146.549 Equity share investments - - - - - - - 148.434 - - - 148.434 Other exposures 9.923.169 - 1.156 - - - - 13.474.348 - - - 23.398.673 Total 144.615.328 - 14.046.093 47.341.458 6.910.422 60.893.715 121.074.727 253.882.231 2.367.605 - - 651.131.579 (*) Demonstrates all receivables that are consisting of 50% risk weighted and out of the line “Exposures secured by commercial property”. 91 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 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON RISK MANAGEMENT (Continued) 4. Credit Risk Explanations (Continued) 3.13. Standard Approach: Receivables related with Risk Classes and Risk Weights 35% 50% Total risk Prior Period secured by secured by amount Risk Classes/ Risk Weight property property (post-CCF 0% 10% 20% mortgage mortgage 50% (*) 75% 100% 150% 200% Other and CRM) Exposures to sovereigns and their central banks 73.768.405 - 1.050 - - 26.019.364 - 445.669 - - - 100.234.488 Exposures to regional and local government 43.442 - 34 - - 588.288 - 7.960 - - - 639.724 Exposures to administrative bodies and non-commercial entities 90.553 - 64 - - 760.006 - 215.650 - - - 1.066.273 Exposures to multilateral development banks - - - - - - - - - - - - Exposures to international organizations - - - - - - - - - - - - Exposures to banks and brokerage houses 13.546.044 - 10.177.499 - - 12.732.946 - 597.754 - - - 37.054.243 Exposures to corporates 295.791 - 343.733 - - 3.898.470 - 171.952.649 - - - 176.490.643 Retail exposures 607.878 - 264.383 - - - 108.105.150 - - - - 108.977.411 Exposures secured by residential property 7.861 - 1.751 40.264.374 - - - 15.040 - - - 40.289.026 Exposures secured by commercial property 4.238 - 1.562 - 6.834.865 - - 150.551 - - - 6.991.216 Past-due items - - - - - - - - - - - - Exposures in high-risk categories 752 - 329 - - - - 2 1.452.627 - - 1.453.710 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 91.131 - - - - - - 1.108.145 - - - 1.199.276 Equity share investments - - - - - - 144.209 - - - 144.209 Other exposures 9.942.936 - 5 - - - - 10.780.326 - - - 20.723.267 Total 98.399.031 - 10.790.410 40.264.374 6.834.865 43.999.074 108.105.150 185.417.955 1.452.627 - - 495.263.486 (*) “Demonstrates all receivables that are consisting of 50% risk weighted and out of the line “Exposures secured by commercial property. 92 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 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3. Credit Risk Explanations (Continued) 3.14. Credit risk under Internal Ratings-Based (IRB) Approach Standard approach is used in the Parent Bank's credit risk calculations. 3.15. Counter Party Credit Risk Explanations Risk management goals and policies for CCR As part of the Parent 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. 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 Parent Bank upon approval of the Audit Committee and Board of Directors. Internal limits are determined by considering the Parent Bank's budget, strategy and expectations for upcoming years, developments in Turkey and abroad and historical realization of risks. 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 Parent 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 Parent Bank's balance sheet. Results of stress test analysis are considered while establishing risk management policies. 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. 93 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 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3. Credit Risk Explanations (Continued) 3.15. Counter Party Credit Risk Explanations (Continued) Rules for countertrend risk Boasting a strong lending and collateralization structure, the Parent 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. Amount of additional collateral that the Parent Bank must submit in case of a decline in credit rating As the Parent Bank has no transactions in connection with credit rating, there is not any additional collateral amount it must pay. 3.16. Evaluation of Counterparty Credit Risk in Accordance with the Measurement Methods EEPE Alpha used (Effective for Current Period Potential Expected computing Exposure Replacement future Positive regulatory at default cost exposure Exposure) (*) EAD post CRM RWA Valuation Method according to fair value - CCR (for derivatives) 1.845.786 585.789 2.431.575 1.134.522 Standardised approach - CCR 1 (for derivatives) - - 1,4 - - Internal Model Method (for derivatives, Repo Transactions, Marketable 2 Securities or Commodity 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 lending or borrowing transactions, 3 transactions with a long settlement time, Marketable Security transactions with credit) 16.337.647 1.739.740 Comprehensive Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable Securities or Commodity lending or borrowing 4 transactions, transactions with a long settlement time, Marketable Security transactions with credit) 3.178.525 817.062 Commodity lending or borrowing transactions, transactions with a long 5 settlement time, Marketable Security transactions with credit - - 6 Total 3.691.324 (*) Effective Expected Positive Exposure EEPE Alpha used (Effective for Prior Period Potential Expected computing Exposure Replacement future Positive regulatory at default cost exposure Exposure) (*) EAD post CRM RWA Valuation Method according to fair value - CCR (for derivatives) 1.222.532 472.091 1.694.623 689.801 Standardised approach - CCR 1 (for derivatives) - - 1,4 Internal Model Method (for derivatives, Repo Transactions, Marketable 2 Securities or Commodity 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 lending or borrowing transactions, 3 transactions with a long settlement time, Marketable Security transactions with credit) 9.347.972 1.661.979 Comprehensive Approach for credit risk mitigation (for derivatives, Repo Transactions, Marketable Securities or Commodity lending or borrowing 4 transactions, transactions with a long settlement time, Marketable Security transactions with credit) 3.292.474 1.049.737 Commodity lending or borrowing transactions, transactions with a long 5 settlement time, Marketable Security transactions with credit - - 6 Total 3.401.517 (*) Effective Expected Positive Exposure 94 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 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON RISK MANAGEMENT (Continued) 3. Credit Risk Explanations (Continued) 3.17. Capital Requirement for Loan Valuation Adjustments Current Period 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 2.431.575 56.045 4 Total subject to the CVA capital charge 2.431.575 56.045 Prior Period 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 1.694.623 33.136 4 Total subject to the CVA capital charge 1.694.623 33.136 95 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 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3. Credit Risk Explanations (Continued) 3.18. Standardised approach - CCR exposures by risk class and risk weights Current Period Total credit Risk Weight /Regulatory portfolio 0% 10% 20% 50% 75% 100% 150% Other exposure (*) Exposures to sovereigns and their central banks 880.014 - - 5.242 - 61.494 - - 946.750 Exposures to regional and local governments 5.017 - - - - - - 5.017 Exposures to administrative bodies and non-commercial entities 1.812 - - - - - - 1.812 Exposures to multilateral development banks - - - - - - - - - Exposures to international organizations - - - - - - - - - Exposures to banks and brokerage houses 26.243.471 - 6.442.448 4.122.603 - 18.501 - - 36.827.023 Exposures to corporates 59.801 - - - - 305.088 - - 364.889 Retail exposures 4.395 - - - 5.149 - - - 9.544 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 124.277 - - - - 6.012 - - 130.289 Equity share investments - - - - - - - - - Other exposures - - - - - - - - - Other assets (**) - - - - - - - - - Total 27.318.787 - 6.442.448 4.127.845 5.149 391.095 - - 38.285.324 (*) Total credit exposure: the amount relevant for the capital requirements calculation, having applied CRM techniques. (**) Other assets: Includes amount that are not within the counterparty credit risk reported in the table of risks to the central counterparty. 96 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 2017 (Unless otherwise stated amounts are expressed in thousands of Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) EXPLANATIONS ON RISK MANAGEMENT (Continued) 4. Credit Risk Explanations (Continued) 3.18 Standardised approach - CCR exposures by risk class and risk weights Prior Period Total credit Risk Weight /Regulatory portfolio 0% 10% 20% 50% 75% 100% 150% Other exposure (*) Exposures to sovereigns and their central banks 1.202.647 - - - - 68.092 - - 1.270.739 Exposures to regional and local governments 18.243 - - - - - - - 18.243 Exposures to administrative bodies and non-commercial entities 10.861 - - - - - - - 10.861 Exposures to multilateral development banks - - - - - - - - - Exposures to international organizations - - - - - - - - - Exposures to banks and brokerage houses 13.520.606 - 5.417.224 4.288.280 - 1.412 - - 23.227.522 Exposures to corporates 8.396 - - - - 135.429 - - 143.825 Retail exposures 7.618 - - - 2.846 - - - 10.464 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 91.131 - - - - - - - 91.131 Equity share investments - - - - - - - - - Other exposures - - - - - - - - - Other assets (**) - - - - - - - - - Total 14.859.502 - 5.417.224 4.288.280 2.846 204.933 - - 24.772.785 (*) Total credit exposure: the amount relevant for the capital requirements calculation, having applied CRM techniques. (**) Other assets: Includes amount that are not within the counterparty credit risk reported in the table of risks to the central counterparty. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3. Credit Risk Explanations (Continued) 3.19. Risk classes and counterparty credit risk explanations None. Collaterals for CCR Current Period Collateral for other Collateral for derivative transactions transactions Collateral received Collateral given Collateral Collateral Segregated Unsegregated Segregated Unsegregated received given Cash-domestic currency - - - - 14.898.153 - Cash-foreign currency - - - - 14.612.240 - Domestic sovereign debts - - - - 4.005 - Other sovereign debts - - - - 61.425 - Government agency debts - - - - - - Corporate debts - - - - - - Equity securities - - - - - - Other collateral - - - - - - Total - - - - 29.575.823 - Prior Period Collateral for other Collateral for derivative transactions transactions Collateral received Collateral given Collateral Collateral Segregated Unsegregated Segregated Unsegregated received given Cash-domestic currency - - - - 2.213.213 - Cash-foreign currency - - - - 14.791.915 - Domestic sovereign debts - - - - 1.961 - Other sovereign debts - - - - 68.040 - Government agency debts - - - - - - Corporate debts - - - - - - Equity securities - - - - - - Other collateral - - - - - - Total - - - - 17.075.129 - Credit Derivatives None. Risk Weight changes under CCR on the Internal Modeling Management Methods. None. Risks Related with Other Parts of the Center Exposure at default (post- RWA CRM) 1 Exposure to Qualified Central Counterparties (QCCPs) (total) 709.305 17.957 2 Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which - - 3 (i) OTC Derivatives - - 4 (ii) Exchange-traded Derivatives - - 5 (iii) Securities financing transactions 462.693 9.254 6 (iv) Netting sets where cross-product netting has been approved - - 7 Segregated initial margin - 8 Non-segregated initial margin - - 9 Pre-funded default fund contributions 246.612 8.703 10 Unfunded default fund contributions - - 11 Exposures to non-QCCPs (total) - - 12 Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which ) - - 13 (i) OTC Derivatives - - 14 (ii) Exchange-traded Derivatives - - 15 (iii) Securities financing transactions - - 16 (iv) Netting sets where cross-product netting has been approved - - 17 Segregated initial margin - - 18 Non-segregated initial margin - - 19 Pre-funded default fund contributions - - 20 Unfunded default fund contributions - - 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 3 Credit Risk Explanations (Continued) 3.19. Risk classes and counterparty credit risk explanations (Continued) Explanations on Securitization Disclosures None. 4. Explanations on Market Risk (Continued) 4.1. The Parent 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 Parent 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 Parent 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 Parent 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. The amount subject to market risk is calculated and monitored with standard method and advanced measurement method at the Parent Bank. Furthermore, scenario analysis and stress tests are also conducted periodically. 4.2. Organization and structure of market risk management function: Definition of market risk management structure established for implementation of the Parent Bank's strategies and processes as mentioned in line) 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 Parent 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 Parent 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 Parent Bank's Top Management regularly. 4.3. Structure and scope of risk reporting and/or measurement systems The amount subject to the Parent 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 Parent 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 reviewed 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 Parent Bank's Board of Directors. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 4.3. Structure and scope of risk reporting and/or measurement systems (Continued) Standard approach-Current Period RWA Outright products 1 Interest rate risk (general and specific) 11.757.115 2 Equity risk (general and specific) 454.090 3 Foreign exchange risk 3.419.309 4 Commodity risk - Options 5 Simplified approach - 6 Delta-plus method - 7 Scenario approach - 8 Securitisation - 9 Total 15.630.514 Standard method is being used by the Parent Bank to calculate the risk of the sector. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 4 Explanations on Market Risk (Continued) 4.3. Structure and scope of risk reporting and/or measurement systems (Continued) Standard approach-Period Period RWA Outright products 1 Interest rate risk (general and specific) 16.149.450 2 Equity risk (general and specific) 1.639.080 3 Foreign exchange risk 1.177.219 4 Commodity risk - Options 5 Simplified approach - 6 Delta-plus method - 7 Scenario approach - 8 Securitisation - 9 Total 18.965.749 Standard method is being used by the Parent Bank to calculate the risk of the sector. 5. Explanations on the Operational Risk In the Parent 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,trading profit/loss (net) and other operating incomes and also by deducting profit/loss gained from sale of securities monitored out of purchase-sale account, extraordinary incomes(Subsidiaries and Affiliate Shares Included), 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/Number of Ratio Current Period 31.12.2015 31.12.2016 31.12.2017 Positive GI years (%) Total Gross Income 12.794.636 17.048.849 20.914.474 16.919.320 15 2.537.898 Amount Subject to Operational Risk (Total * 12,5) 31.723.724 Total/Number of Ratio Prior Period 31.12.2014 31.12.2015 31.12.2016 Positive GI years (%) Total Gross Income 10.389.823 12.794.636 17.048.849 13.411.103 15 2.011.665 Amount Subject to Operational Risk (Total * 12,5) 25.145.817 6. Explanations on the Interest Rate Risk for Banking Book 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 Parent Bank’s Internal Capital Adequacy Assessment Process (“ICAAP”)”. Parent 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 risk s 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. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) VIII. EXPLANATIONS ON CONSOLIDATED RISK MANAGEMENT (Continued) 6. Explanations on the Interest Rate Risk for Banking Book (Continued) 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 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. Shock Applied Gains/ (Losses) Gains/Equity- Type of Currency -Current Period (+/- x basis point) (Losses)/Equity 1. TL 500 (7.858.209) (13,08%) 2. TL (400) 7.553.954 12,58% 3. EUR 200 335.294 0,56% 4. EUR (200) (305.553) (0,51%) 5. USD 200 (1.960.562) (3,26%) 6. USD (200) 2.589.906 4,31% Total (of negative shocks) 9.838.307 16,38% Total (of positive shocks) (9.483.477) (15,79%) Shock Applied Gains/ (Losses) Gains/Equity- Type of Currency-Prior Period (+/- x basis point) (Losses)/Equity 1. TL 500 (8.225.752) (16,42%) 2. TL (400) 8.041.194 16,05% 3. EUR 200 79.838 0,16% 4. EUR (200) 214.983 0,43% 5. USD 200 (661.922) (1,32%) 6. USD (200) 926.963 1,85% Total (of negative shocks) 9.183.140 18,33% Total (of positive shocks) (8.807.836) (17,58%) Notes and explanations prepared in accordance with “the Communiqué on Disclosures about Risk Management to Be Announced to Public by Banks” published in Official Gazette no. 29511 on 23 October 2015 and became effective as of 31 March 2016 are presented in this section. As of 31 December 2018, the following notes to be presented on a quarterly and semi-annually basis according to Communiqué have not been presented due to usage of standard approach for the calculation of capital adequacy by the Bank. RWA flow statements of market risk exposures under an Internal Model Approach (IMA) RWA flow statements of Counterparty Credit Risk (CCR) exposures under the Internal Model Method (IMM) RWA (Risk Weighted Amounts) flow statements of credit risk exposures under IRB 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) IX. EXPLANATIONS ON CONSOLIDATED OPERATING SEGMENTS Organizational and internal reporting structure of the Group is determined in line with TFRS 8 “Operating Segments”. The Group has operations in retail banking, corporate and SME banking, specialized banking, investment banking and international banking areas. Known as having the most extensive branch network in retail banking sector, the Parent Bank renders services, such as; deposits, consumer loans, loans originated from public funds whose risk does not belong to the Parent Bank, pension payments, credit cards, automatic and regular payment, cheques and notes, money transfer order, foreign exchange transactions, ATM internet banking, mobile banking, safe-deposit box and insurance brokerage services. Moreover, existing banking products are improved and new banking products are launched in order to increase profitability of Parent Bank and benefit from the services undertaken as being a state bank. By “Finart” IT 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 SME banking, the Group allocates 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 are conducted by the Treasury Management and International Banking Executive Vice Presidency and, spot and forward TL, foreign currency, precious metal, securities derivative transactions are executed in local and international organized and over the counter money and capital markets and also The Parent Bank's liquidity and securities portfolio management, deposit and non-deposit funding activities are executed. Additionally the distrubuiton of treasury products between branches and other channels for marketing purposes and the intermediaiton to the customers’ trade finance are other responsibilities of the EVP The Bank acts as an intermediary for transaction of securities and Eurobonds by the related departments, for transaction of shares and public offerings as an agency of Ziraat Yatırım Menkul Değerler A.Ş. and for transaction of mutual funds founded by Ziraat Portföy Yönetimi A.Ş. and other portfolio management companies’, and keeps records of these financial instruments and the Bank performs repo/reverse repo transactions. Besides the Bank have long term financing from banks and international financial institutions issues bonds in local and international markets, manages relationship with correpsondant banks and relatiosn with international investors so as to diversify its funding base are among the responsibilities of the Department. Besides, the Parent Bank has commission revenue from life, non-life and private pension insurance and other finance institutions by rendering agency services through its Branches. As of 31 December 2018 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”. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) IX. EXPLANATIONS ON CONSOLIDATED OPERATING SEGMENTS (Continued) 1 Table for Segment Reporting Corporate/ Treasury/ Retail Entrepreneurial Specialized Investment Consolidation Other/ Current Period Banking banking Banking Banking Corrections Undistributed Total OPERATING INCOME/EXPENSE Interest Income 11.590.132 20.457.267 6.933.515 16.756.337 - 397.457 56.134.708 Interest Income from Loans 11.590.132 20.457.267 6.933.515 4.372.701 - - 43.353.615 Interest Income from Banks - - - 493.737 - - 493.737 Interest Income from Securities - - - 11.121.497 - - 11.121.497 Other Interest Income - - - 768.402 - 397.457 1.165.859 Interest Expense 13.205.477 5.500.168 - 13.410.101 - 153.505 32.269.251 Interest Expense on Deposits 13.205.477 5.500.168 - 1.829.946 - - 20.535.591 Interest Expense on Funds Borrowed - - - 1.501.841 - - 1.501.841 Interest Expense on Money Market Transactions - - - 8.816.678 - - 8.816.678 Interest Expense on Securities Issued - - - 1.261.636 - - 1.261.636 Other Interest Expense - - - - - 153.505 153.505 Net Interest Income/Expense (1.615.345) 14.957.099 6.933.515 3.346.236 - 243.952 23.865.457 Net Fees and Commission Income/Expense 1.818.791 1.540.803 99.403 (795.106) - 30.815 2.694.706 Fees and Commissions Received 1.818.791 1.558.354 99.539 13.885 - 373.029 3.863.598 Fees and Commissions Paid - 17.551 136 808.991 - 342.214 1.168.892 Personnel Expenses - - - - - 3.175.068 3.175.068 Dividend Income - - - 292.310 (287.502) - 4.808 Trading Income/Loss (Net) - - - (3.761.230) - (39.926) (3.801.156) Other Operating Income 36.047 191.351 30.671 4.260 - 3.187.797 3.450.126 Provision for Expected Loss (-) 1.170.972 3.152.377 805.633 1.096 - 95.611 5.225.689 Other Operating Expense 1.723.739 85.283 53.863 - - 4.120.723 5.983.608 Income Before Tax (2.655.218) 13.451.593 6.204.093 (914.626) (287.502) (3.968.764) 11.829.576 Profit/Loss on Equity Method Applied Subsidiaries - - - - 46.756 - 46.756 Tax Provision - - - - - (2.532.212) (2.532.212) Net Profit/Loss (2.655.218) 13.451.593 6.204.093 (914.626) (240.746) (6.500.976) 9.344.120 SEGMENT ASSETS Financial Assets at FV Through P/L - - - 6.782.778 - - 6.782.778 Banks and Other Financial Institutions - - - 9.333.095 - - 9.333.095 Financial Assets Measured at Fair Value Through Other Comprehensive Income (Net) - - - 79.830.814 2.233 - 79.833.047 Loans 94.703.180 219.844.242 64.158.050 17.086.392 - 3.266.015 399.057.879 Derivative Financial Assets - - - 10.281.010 - - 10.281.010 Financial Assets Measured at Amortised Cost (Net) - - - 2.058.778 - - 2.058.778 Associates, Subsidiaries and Joint Ventures - - - 7.655.170 (7.417.597) - 237.573 Other Assets - - - - 1.831 60.801.005 60.802.836 TOTAL SEGMENT ASSETS 94.703.180 219.844.242 64.158.050 133.028.037 (7.413.533) 64.067.020 568.386.996 SEGMENT LIABILITIES Deposits 257.256.430 62.710.117 - 26.578.726 - 7.829.975 354.375.248 Derivative Financial Liabilities Held for Trading - - - 1.668.169 - - 1.668.169 Funds Borrowed - - - 34.848.769 - - 34.848.769 Money Market Funds - - - 68.603.638 - - 68.603.638 Securities Issued (Net) - - - 16.943.864 - - 16.943.864 Provisions 4.339 453.913 - - - 4.292.820 4.751.072 Other Liabilities - - - - (27.731) 27.094.992 27.067.261 Shareholders’ Equity - - - - (7.385.802) 67.514.777 60.128.975 TOTAL SEGMENT LIABILITIES 257.260.769 63.164.030 - 148.643.166 (7.413.533) 106.732.564 568.386.996 OTHER SEGMENT ITEMS Capital Investment - - - - - - - Amortization Expense - - - - - 361.204 361.204 Restructuring Costs - - - - - - 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) IX. EXPLANATIONS ON CONSOLIDATED OPERATING SEGMENTS (Continued) 1. Table for Segment Reporting (Continued) Corporate/ Treasury/ Retail Entrepreneurial Specialized Investment Consolidation Other Prior Period Banking banking Banking Banking Corrections /Undistributed Total OPERATING INCOME/EXPENSE Interest Income 9.239.085 13.996.880 5.666.738 7.761.386 - 440.532 37.104.621 Interest Income from Loans 9.239.085 13.996.880 5.666.738 617.901 - 38.858 29.559.462 Interest Income from Banks - - - 161.413 - 109.939 271.352 Interest Income from Securities - - - 6.246.957 - 3.285 6.250.242 Other Interest Income - - - 735.115 - 288.450 1.023.565 Interest Expense 7.867.279 3.910.137 - 7.081.634 - 131.234 18.990.284 Interest Expense on Deposits 7.867.279 3.910.137 - 822.819 - 5.750 12.605.985 Interest Expense on Funds Borrowed - - - 706.871 - 15.066 721.937 Interest Expense on Money Market Transactions - - - 4.848.800 - - 4.848.800 Interest Expense on Securities Issued - - - 703.144 - 21.780 724.924 Other Interest Expense - - - - - 88.638 88.638 Net Interest Income/Expense 1.371.806 10.086.743 5.666.738 679.752 - 309.298 18.114.337 Net Fees and Commission Income/Expense 1.423.588 588.016 108.385 (345.522) - 169.037 1.943.504 Fees and Commissions Received 1.423.588 598.132 108.441 6.835 - 269.522 2.406.518 Fees and Commissions Paid - 10.116 56 352.357 - 100.485 463.014 Dividend Income - - - 284.531 (282.201) 5.419 7.749 Trading Income/Loss (Net) - - - (774.694) (52.863) (18.096) (845.653) Other Operating Income 39.539 347.455 22.212 1.807 (158.008) 3.484.917 3.737.922 Provision for Loans or Other Receivables Losses 769.220 1.479.692 491.575 254 2.466 750.137 3.493.344 Other Operating Expense 117.315 808.918 51.861 - (101) 6.991.010 7.969.003 Income Before Tax 1.948.398 8.733.604 5.253.899 (154.380) (495.437) (3.790.572) 11.495.512 Profit/Loss on Equity Method Applied Subsidiaries - - - - 20.359 - 20.359 Tax Provision - - - - - (2.631.539) (2.631.539) Net Profit/Loss 1.948.398 8.733.604 5.253.899 (154.380) (475.078) (6.422.111) 8.884.332 SEGMENT ASSETS Financial Assets at FV Through P/L - - - 1.439.036 - 28.827 1.467.863 Banks and Other Financial Institutions - - - 4.074.040 - 1.690.485 5.764.525 Financial Assets Available for Sale (Net) - - - 63.625.878 1.727 10.626 63.638.231 Loans 86.409.546 164.623.963 54.642.948 11.336.455 - 7.576 317.020.488 Held to Maturity Investments (Net) - - - 7.595.887 - 29.876 7.625.763 Associates, Subsidiaries and Joint Ventures - - - 5.313.062 (5.161.312) 36.288 188.038 Other Assets - - - - (104.524) 61.325.745 61.221.221 TOTAL SEGMENT ASSETS 86.409.546 164.623.963 54.642.948 93.384.358 (5.264.109) 63.129.423 456.926.129 SEGMENT LIABILITIES Deposits 199.692.047 61.906.376 - 16.842.602 - 4.128.588 282.569.613 Derivative Financial Liabilities Held for Trading - - - 547.769 - 1.141 548.910 Funds Borrowed - - - 30.458.041 - 660.212 31.118.253 Money Market Funds - - - 56.309.523 - - 56.309.523 Securities Issued (Net) - - - 13.296.528 - 177.752 13.474.280 Provisions - - - - 25.094 10.336.943 10.362.037 Other Liabilities - - - - (104.524) 14.164.881 14.060.357 Shareholders’ Equity - - - - (5.184.680) 53.667.836 48.483.156 TOTAL SEGMENT LIABILITIES 199.692.047 61.906.376 - 117.454.463 (5.264.110) 83.137.353 456.926.129 OTHER SEGMENT ITEMS Capital Investment - - - - - - - Amortization Expense - - - - - 341.282 341.282 Restructuring Costs - - - - - - - 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) X. EXPLANATIONS ON THE FAIR VALUE REALIZATION OF FINANCIAL ASSETS AND LIABILITIES 1. Information Regarding the Fair Value of Financial Assets and Liabilities Current Period Book Value Fair Value Financial Assets 498.520.678 498.548.800 Banks 9.097.120 9.097.120 Due from Interbank Money Market 250.087 250.087 Financial Assets Measured at Fair Value Through Other Comprehensive Income 79.833.047 79.833.047 Financial Assets Measured at Amortised Cost 10.282.545 10.310.667 Loans 399.057.879 399.057.879 Financial Liabilities 411.718.296 411.718.296 Bank Deposits 25.431.910 25.431.910 Other Deposits 328.943.338 328.943.338 Funds Borrowed from Other Financial Institutions 34.848.769 34.848.769 Issued Marketable Securities 16.943.864 16.943.864 Miscellaneous Payables 5.550.415 5.550.415 Prior Period Book Value Fair Value Financial Assets 394.049.007 394.457.489 Due from Interbank Money Market 132.385 132.385 Banks 5.632.140 5.632.140 Available-for-sale Financial Assets 63.638.231 63.638.231 Held-to-maturity Investments 7.625.763 8.034.245 Loans 317.020.488 317.020.488 Financial Liabilities 331.305.536 331.305.536 Bank Deposits 15.350.173 15.350.173 Other Deposits 267.219.440 267.219.440 Funds Borrowed from Other Financial Institutions 31.118.253 31.118.253 Issued Marketable Securities 13.474.280 13.474.280 Miscellaneous Payables 4.143.390 4.143.390 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. 2. 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 Bank’s balance sheet, are presented with respect to such basis of classification in the table b elow: 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FOUR (Continued) EXPLANATIONS RELATED TO THE FINANCIAL POSITION AND RISK MANAGEMENT(Continued) X. EXPLANATIONS ON THE FAIR VALUE REALIZATION OF FINANCIAL ASSETS AND LIABILITIES (Continued) 2. Information on Fair Value Measurements Recognized in the Financial Statements (Continued) Current Period Level 1 Level 2 Level 3 Total Financial Assets at Fair Value Through Profit or (Loss) 6.782.778 - - 6.782.778 Government Debt Securities 6.400.882 - - 6.400.882 Equity Securities 8 - - 8 Other Marketable Securities 381.888 - - 381.888 Financial Assets at Fair Value Through Other Comphrehensive Income 79.377.439 310.530 117.650 79.805.619 Government Debt Securities 77.888.939 - - 77.888.939 Equity Securities 227.647 4.993 117.650 350.290 Other Marketable Securities 1.260.853 305.537 - 1.566.390 Derivative Financial Assets 28.910 2.029.868 - 2.058.778 Loans at Fair Value Through Profit or Loss - - 40.852 40.852 Subsidiaries and Joint Ventures(2) - - 87.450 87.450 Total Assets 86.189.127 2.340.398 245.952 88.775.477 Derivative Financial Liabilities 31.241 1.636.928 - 1.668.169 Total Liabilities 31.241 1.636.928 - 1.668.169 (1) Since equity securities under the heading of Derivative Financial Assets Measured at Fair Value through Other Comprehensive Income amounting to TL 27.428 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. ) (2) Information on domestic partnerships monitored over acquisition cost is not shown in this table. Prior Period Level 1 Level 2 Level 3 Total Financial Assets at Fair Value Through Profit or (Loss) 71.096 1.396.767 - 1.467.863 Government Debt Securities 61.837 - - 61.837 Equity Securities 5 - - 5 Trading Derivative Financial Assets - 1.396.767 - 1.396.767 Hedging Derivative Financial Assets - - - - Other Marketable Securities 9.254 - - 9.254 Available-for-Sale Financial Assets 62.890.403 610.423 114.219 63.615.045 Equity Securities(1) 820.208 6.299 114.219 940.726 Government Debt Securities 62.022.375 - - 62.022.375 Other Marketable Securities 47.820 604.124 - 651.944 Subsidiaries and Joint Ventures(2) - - 52.036 52.036 Total Assets 62.961.499 2.007.190 166.255 65.134.944 Trading Derivative Financial Liabilities - 548.910 - 548.910 Hedging Derivative Financial Liabilities - - - - Total Liabilities - 548.910 - 548.910 (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. (2) Information on domestic partnerships monitored over acquisition cost is not shown in this table. XI. EXPLANATIONS ON THE ACTIVITIES CARRIED OUT ON BEHALF AND ON ACCOUNT OF OTHER PARTIES 1. Transaction, Custody, Management and Consultancy Services of the Bank on behalf of Third Parties: The Group 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 group 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. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS I. EXPLANATIONS AND NOTES RELATED TO ASSETS In accordance with the transition provisions of TFRS 9, the prior period financial statements and footnotes are not restated. Footnotes prepared on different bases are presented in separate tables. 1. Information on Cash and Balances with Central Bank of the Republic of Turkey Current Period TL FC Cash in TL/Foreign Currency 2.099.128 1.668.232 Central Bank of the Republic of Turkey 3.059.195 35.869.303 Other 1.150 185.485 Total 5.159.473 37.723.020 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 Republic 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 8%; for deposits up to 6-months maturity 5%; for deposits up to 1-year maturity 3%; for deposits 1-year and longer maturity 1,5%; for TL liabilities other than deposits up to 1-year maturity 8%; for TL liabilities other than deposits between 1- and 3-years maturity 4,5%; for TL liabilities other than deposits more than 3-years maturity 1,5%; for FC deposit accounts, demand deposits, up to 1-month, up to 3- months, up to 6-months and up to 1-year maturities 12%; for FC deposit accounts with 1-year and longer maturity 8%, for FC liabilities other than deposits up to 1-year maturity 20%; for FC liabilities other than deposits up to 2-years maturity 15%; for FC liabilities other than deposits up to 3-years maturity 10%; for FC liabilities other than deposits up to 5-years maturity 6%; and for FC liabilities other than deposits more than 5-years maturity 4%. 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. Information on the account of the Central Bank of the Republic of Turkey Current Period TL FC Unrestricted Demand Deposit 2.723.598 12.551.557 Unrestricted Time Deposit - 6.689 Restricted Time Deposit - 763 Other (1) 335.597 23.310.294 Total 3.059.195 35.869.303 (1) Includes required reserves and CBRT Restricted Electronic Money Funds amounting to TL 7.537. Required reserve of branches abroad amounting to TL 163.388 is presented in this line. TL 11.677.219 of the current period’s FC required reserve is the part of the TL required reserves that are held in FC. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Continued) 2. Information on Financial Assets at Fair Value Through Profit and Loss Given or Blocked as Collateral or Subject to Repurchase Agreements None. 3. Positive Differences Related to The Derivative Financial Assets Held-for-Trading Current Period Derivative financial assets held-for-trading TL FC Forward Transactions 243.173 28.128 Swap Transactions 1.305.367 481.402 Futures Transactions - - Options - 708 Other - - Total 1.548.540 510.238 4. Information on Banks and Other Financial Institutions 4.1. Information on Bank Balances Current Period TL FC Banks Domestic Banks 2.415.689 97.528 Foreign Banks 178.841 6.405.062 Foreign Head Office and Branches - - Total 2.594.530 6.502.590 4.2. Information on Foreign Bank Accounts Unrestricted Amount Restricted Amount Current Period Current Period European Union Countries 1.421.520 - USA, Canada 1.761.747 - OECD Countries (1) 290.057 - Off-shore Banking Regions - - Other 3.109.680 899 Total 6.583.004 899 (1) OECD countries except EU countries, USA and Canada. 5. Explanation Regarding to the Comparison of Net Values of Financial Assets Measured at Fair Value Through Other Comprehensive Income Given or Blocked as Collateral and Subject to Repurchase Agreements Current Period Assets Subject to Repurchase Agreements 29.004.119 Assets Blocked/Given as Collateral 45.767.374 Total 74.771.493 6. Information on Financial Assets Measured at Fair Value Through Other Comprehensive Income Current Period Debt Securities 85.616.480 Quoted in Stock Exchange 85.247.015 Not Quoted in Stock Exchange 369.465 Share Certificates 473.465 Quoted in Stock Exchange 227.330 Not Quoted in Stock Exchange 246.135 Provision for Impairment (-) 6.256.898 Total 79.833.047 109 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Continued) 7. Information Related to Loans 7.1 Information on All Types of Loans and Advances Given to Shareholders and Employees of The Group Current Period Cash Non-Cash Direct Loans Granted to Group Shareholders - - Legal Entities - - Individuals - - Indirect Loans Granted to Group Shareholders - - Loans Granted to Group Employees (1) (2) 403.046 - Total 403.046 - (1) Interest rediscount and interest accrual amounting TL 4.261, are not included in the table above. (2) Since the balance of overdraft accounts related to employees amounting TL 22.076, is showed under Table 7.4. as overdraft accounts (real person), it is not included to the table above. 7.2 Information on the First and Second Group Loans Including Restructured or Rescheduled Loans Current Period Loans under Follow-up Restructured Cash Loans Performing Loans Non-restructured Revised Contract Terms Refinanced Non-Specialized Loans 309.583.530 13.275.350 2.191.593 - Commercial Loans 198.443.229 5.677.965 2.117.141 - Export Loans 6.629.524 46.720 - - Import Loans 508.257 5.440 - - Loans Given to Financial Sector 2.933.264 6.052.521 - - Consumer Loans 86.986.557 1.304.871 71.925 - Credit Cards 5.831.331 134.811 434 - Other 8.251.368 53.022 2.093 - Specialized Lending (1) (2) 58.636.554 1.518.720 534.642 - Other Receivables - - - - Interest Income Accruals (2) 8.074.441 1.841.776 116.328 - Total 376.294.525 16.635.846 2.842.563 - (1) Agricultural loans of funds originated are shown in specialized lendings. (2) Farmer support agricultural loans are shown in specialized lendings. Performing Loans Loans under Follow-up Expected Provision Loss for 12 months 996.215 - Significant Increase in Credit Risk - 2.264.734 110 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Continued) 7. Information Related to Loans (Continued) 7.2 Information on the First and Second Group Loans Including Restructured or Rescheduled Loans (Continued) No. of extensions Performing Loans Loans under Follow-up 1 or 2 Times Extended 5.751.339 4.023.315 3 - 4 or 5 Times Extended 398.011 357.312 Over 5 Times Extended 10.447 12.388 Extension Periods Performing Loans Loans under Follow-up 0 - 6 Months 3.166.569 2.203.595 6 – 12 Months 1.005.320 463.096 1 - 2 Years 335.644 314.268 2 - 5 Years 1.500.893 1.294.090 5 Years and Over 151.371 117.966 Total 6.159.797 4.393.015 7.3. Loans According to Maturity Structure Loans under Follow-up Performing Loans Non-restructured Restructured Short-term Loans 78.927.486 1.694.221 400.841 Medium and Long-term Loans 289.292.598 13.099.849 2.325.394 (1) Rediscounts are not included. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Current Period)(Continued) 7. Information Related to Loans (Continued) 7.4. Information on Consumer Loans, Individual Credit Cards and Personnel Loans and Personnel Credit Cards Medium and Short-Term Long-Term Total Consumer Loans-TL 785.136 84.977.991 85.763.127 Real Estate Loans (2) 13.436 53.180.598 53.194.034 Vehicle Loans 5.719 266.645 272.364 Consumer Loans (2) 765.981 31.530.748 32.296.729 Other - - - Consumer Loans- Indexed to FC 1.231 554.870 556.101 Real Estate Loans - 52.703 52.703 Vehicle Loans - 523 523 Consumer Loans 954 270.718 271.672 Other 277 230.926 231.203 Consumer Loans-FC 7.083 189.717 196.800 Real Estate Loans 214 37.041 37.255 Vehicle Loans - - - Consumer Loans 2.006 94.040 96.046 Other 4.863 58.636 63.499 Individual Credit Cards-TL 4.541.131 118.449 4.659.580 With Installment 1.300.562 114.937 1.415.499 Without Installment 3.240.569 3.512 3.244.081 Individual Credit Cards-FC 504 - 504 With Installment - - - Without Installment 504 - 504 Personnel Loans-TL 11.102 234.224 245.326 Real Estate Loans - 2.265 2.265 Vehicle Loans - 102 102 Consumer Loans 11.102 231.857 242.959 Other - - - Personnel Loans-Indexed to FC 7.316 23.916 31.232 Real Estate Loans 7.276 3.557 10.833 Vehicle Loans - 133 133 Consumer Loans 31 7.977 8.008 Other 9 12.249 12.258 Personnel Loans-FC 6 2.779 2.785 Real Estate Loans - 1.001 1.001 Vehicle Loans - - - Consumer Loans - 863 863 Other 6 915 921 Personnel Credit Cards-TL 120.677 2.141 122.818 With Installment 39.914 2.048 41.962 Without Installment 80.763 93 80.856 Personnel Credit Cards-FC 885 - 885 With Installment - - - Without Installment 885 - 885 Overdraft Accounts-TL (Real Person) 1.550.710 - 1.550.710 Overdraft Accounts-FC (Real Person) 17.254 18 17.272 Total (1) 7.043.035 86.104.105 93.147.140 (1) TL 678.267 of interest income accrual is not included in the table above. (2) Consumer loans originated from funds amounting to TL 3.839.218 of are included in the table above. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Current Period)(Continued) 7. Information Related to Loans (Continued) 7.5. Information on Commercial Installment Loans and Corporate Credit Cards Current Period Short-Term Medium and Long-Term Total Commercial Installment Loans-TL 1.662.607 32.448.158 34.110.765 Business Loans 17.073 460.549 477.622 Vehicle Loans 93.421 944.940 1.038.361 Consumer Loans 1.552.113 30.852.721 32.404.834 Other - 189.948 189.948 Commercial Installment Loans- Indexed to FC 219.289 938.792 1.158.081 Business Loans 788 59.578 60.366 Vehicle Loans - 46.410 46.410 Consumer Loans - - - Other 218.501 832.804 1.051.305 Commercial Installment Loans - FC 311.912 28.941.566 29.253.478 Business Loans - - - Vehicle Loans 407 19.046 19.453 Consumer Loans 160.509 28.492.473 28.652.982 Other 150.996 430.047 581.043 Corporate Credit Cards-TL 1.167.050 14.704 1.181.754 With Installment 353.950 14.640 368.590 Without Installment 813.100 64 813.164 Corporate Credit Cards-FC 1.033 2 1.035 With Installment 902 - 902 Without Installment 131 2 133 Overdraft Account-TL (Legal Entity) 663.279 - 663.279 Overdraft Account-FC (Legal Entity) 18.754 - 18.754 Total (1) 4.043.924 62.343.222 66.387.146 (1) Accruals and rediscount amounts are not included in the table above. 7.6. Loans According to Types Of Borrowers Current Period Public 5.036.418 Private 380.703.971 Interest Income Accruals of Loans 10.032.545 Total 395.772.934 7.7. Breakdown of Domestic and International Loans Current Period Domestic Loans 372.670.578 Foreign Loans 13.069.811 Interest Income Accruals of Loans 10.032.545 Total 395.772.934 7.8. Loans Granted to Subsidiaries and Associates None 7.9. Provisions provided against loans Current Period Loans and other receivables with limited collectability 726.013 Loans and other receivables with doubtful collectability 760.225 Uncollectible loans and other receivables 4.704.692 Total 6.190.930 113 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Current Period)(Continued) 7. Information related to loans (Continued) 7.10. Information On Non-Performing Receivables (Net) 7.10.1. Information on Non-Performing Receivables which are Restructured Group III Group IV Group V Loans and Loans and receivables with receivables with doubtful Uncollectible limited collectability collectability loans and receivables Current Period 53.834 77.194 152.866 (Gross amounts before the specific provisions) - - - Rescheduled loans 53.834 77.194 152.866 7.10.2. Information on the Movement of Non-Performing Receivables Group III Group IV Group V Loans and Loans and receivables with receivables with doubtful Uncollectible loans and limited collectability collectability receivables Prior Period Ending Balance 395.153 559.151 4.074.663 Additions (+) 4.159.063 252.363 577.662 Transfers from Other Categories of Loans under Follow-Up (+) - 2.286.112 1.423.026 Transfers to Other Categories of Loans under Follow-Up (-) 2.286.112 1.423.026 - Collections (-) 347.600 253.869 582.373 Deducted from the record (-) (1) 31.399 2.485 44.332 Debt Sale (-) - - - Corporate and Commercial Loans - - - Consumer Loans - - - Credit Cards - - - Other - - - Current Period End Balance 1.889.105 1.418.246 5.448.646 Specific Provision (-) 726.013 760.225 4.704.692 Net Balance on Balance Sheet 1.163.092 658.021 743.954 (1) Consist of amount transferred to the Stage I and Stage II loans. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Current Period)(Continued) 7. Information Related to Loans (Continued) 7.10. Information On Non-Performing Receivables (Net) (Continued) 7.10.3. Information on Foreign Currency Non-Performing Loans Group III Group IV Group V Loans with limited Loans with doubtful collectability collectability Uncollectible loans Current Period: Period Ending Balance 583.308 63.507 358.508 Provision (-) 267.579 46.440 351.392 Net Balance on Balance Sheet 315.729 17.067 7.116 7.10.4. Gross and Net Amounts of Non-Performing Receivables According to User Groups Group III Group IV Group V Loans with limited Loans with doubtful collectability collectability Uncollectible loans Current Period (Net) 1.163.092 658.021 743.954 Loans to Real Persons and Legal Entities (Gross) 1.889.105 1.418.246 5.313.440 Provision (-) 726.013 760.225 4.569.486 Loans to Real Persons and Legal Entities (Net) 1.163.092 658.021 743.954 Banks (Gross) - - - Provision (-) - - - Banks (Net) - - - Other Loans and Receivables (Gross) - - 135.206 Provision (-) - - 135.206 Other Loans and Receivables (Net) - - - 7.10.5. Information on accruals of interest,rediscount and valuation effect and their provisions calculated for non- performing loans banks which provide expected credit loss according to TFRS 9 Group III Group IV Group V Loans with limited collectability Loans with doubtful collectability Uncollectible loans Current Period (Net) 67.001 29.159 9.399 Interest Accruals and Valuation Differences 116.066 65.264 28.958 Provision (-) 49.065 36.105 19.559 7.10.6. 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 ParentBank and assets of the debtor(s) are realized while receivables of the 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. 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. 7.10.7. Explanations on Write-Off Policy The Group 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. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Current Period)(Continued) 7.10.8. Other Explanations and Disclosures Current Period Corporate/SME Consumer Specialized Total Neither Past Due nor Impaired Loans (1) 222.366.233 92.252.466 61.675.826 376.294.525 Past Due but not Impaired Loans 15.717.769 1.544.535 2.216.105 19.478.409 Impaired Loans 6.638.847 1.010.065 1.107.085 8.755.997 Total 244.722.849 94.807.066 64.999.016 404.528.931 Specific Provisions of Impaired Loans (-) 4.887.148 739.444 564.338 6.190.930 Net Loan Amount 239.835.701 94.067.622 64.434.678 398.338.001 (1) TL 3.839.218 consumer, TL 1.950.642 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. 8. Information on Held-To-Maturity Investments 8.1. Information on Comparative Net Values of Held-to-Maturity Investments Subject to Repo Transactions and Given as a Collateral/Blocked Invesments measured at amortised cost subject to repo transactions Current Period TL FC Government Bonds 177.923 1.819.056 Treasury Bills - - Other Public Sector Debt Securities - - Bank Bonds and Bank Guaranteed Bonds - - Asset Backed Securities - - Other - - Total 177.923 1.819.056 116 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Current Period)(Continued) 8. Information on Held-To-Maturity Investments (Continued) 8.1. Information on Comparative Net Values of Held-to-Maturity Investments Subject to Repo Transactions and Given as a Collateral/Blocked Invesments measured at amortised cost given as collateral or blocked Current Period TL FC Bills - - Bonds and Similar Investment Securities 3.790.424 3.019.229 Other - - Total 3.790.424 3.019.229 8.2. Information on Government Securities Measured at Amortised Cost Current Period Government Bonds 10.076.568 Treasury Bills - Other Public Sector Debt Securities 7.882 Total 10.084.450 8.3 Information on Invesments Measured at Amortised Cost Current Period Debt securities 10.282.653 Quoted in a Stock Exchange 10.076.676 Not Quoted in a Stock Exchange 205.977 Provision for Impairment (-) 108 Total 10.282.545 8.4 Movements of Invesments Measured at Amortised Cost Current Period Beginning Balance 7.625.763 Foreign Currency Differences on Monetary Assets 1.772.252 Purchases During the Year (*) 3.515.803 Disposals through Sales and Redemptions (2.631.165) Provision for Impairment (-) 108 Period End Balance 10.282.545 (*) Accruals are shown in “Purchases During the Year”. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Current Period)(Continued) 9. Information about Associates Accounts (Net) 9.1. Information about Unconsolidated Associates The Bank’s Share Address Percentage, if Different, The Bank’s Risk Group Description (City/ Country) Voting Percentage (%) Share Percentage (%) 1 Bankalararası Kart Merkezi A.Ş. Istanbul/Turkey 12,50 17,98 2 Kredi Kayıt Bürosu A.Ş. Istanbul/ Turkey 10,00 9,09 Total Non- Income from Shareholders’ Current Interest Income Marketable Current Period Prior Period Fair Total Assets(2) Equity(2) Assets(2)(3) (2) Securities(2) Profit / Loss (2) Profit / Loss (2) Value (1) 1 124.867 68.647 56.073 4.658 - 19.635 9.198 - 2 310.575 176.864 165.369 9.559 - 30.615 44.798 - (1) There is no fair value due to the fact that associates are not traded in the stock exchange (2) Current period information of associates has been provided from limited reviewed financial statements as of 31 December 2018. Prior period profit/loss information of associates has been provided from audited financial statements as of 31 December 2017. (3) Total fixed assets include tangible and intangible assets. 9.2. 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 25,00 15,43 Total Non- Income from Current Prior Period Total Shareholders Current Interest Income Marketable Period Profit Profit / Loss Fair Assets(2) ’ Equity(2) Assets(2) (2) Securities(2) / Loss (2) (2) Value (1) 1 5.995.076 866.788 117.413 271.724 38.065 100.978 80.268 - (1) Since shares of Arap Türk 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 un audited financial statements as of 31 December 2018. Prior period profit/loss information of Arap Türk Bankası A.Ş. has been provided from audited financial statements as of 31 December 2017. 9.3. Information about Consolidated Associates (Net) Current Period Balance at the Beginning of the Period 121.185 Movement During the Period 12.560 Additions - Bonus Share Certificates - Shares of Current Year Profits 15.581 Transfer - Sales - Revaluation Increase 374 Impairment Provision 3.395 Balance at the End of the Period 133.745 Capital Commitments - Period Ending Share of Capital Participation (%) 15,43 118 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Current Period)(Continued) 9. Information about Associates Accounts (Net) 9.4. Sectoral Information and Related Amounts of Associates Current Period Banks 133.745 Insurance Companies - Factoring Companies - Leasing Companies - Finance Companies - Other Financial Associates - 9.5. Associates Quoted to a Stock Exchange None (31 December 2017: None). 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Current Period)(Continued) 10. Information on Subsidiaries (Net) 10.1. Information on Unconsolidated Subsidiaries The Parent Bank’s Share Percentage- The Parent Bank’s Address if different Voting Group Share Description (City/ Country) Percentage (%) Percentage (%) 1 Ziraat Teknoloji A.Ş. Istanbul/Turkey 100,00 100,00 Total Non- Income from Total Shareholder Current Interest Marketable Current Period Prior Period Assets(2) s’ Equity(2) Assets(2) Income (2) Securities(2) Profit / Loss (2) Profit / Loss (2) Fair Value (1) 1 58.593 16.730 4.800 1.620 286 3.635 2.460 - (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 2018. Prior period profit/loss information has been provided from audited financial statements as of 31 December 2017. 10.2. Information on Consolidated Subsidiaries In the consolidated financial statements of the Parent Bank, 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 shareholders’ equity. The Bank’s Share Percentage-if The 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 99,80 6 Ziraat Katılım Bankası A.Ş. İstanbul/Turkey 100,00 100,00 7 Ziraat Gayrimenkul Yatırım Ortaklığı A.Ş. İstanbul/Turkey 100,00 100,00 8 Ziraat Girişim Sermayesi Yatırım Ortaklığı A.Ş. (*) İstanbul/Turkey 100,00 100,00 9 Ziraat Bank International A.G. Frankfurt/Germany 100,00 100,00 10 Ziraat Bank BH d.d. Sarajevo/Bosnia and Herzegovina 100,00 100,00 11 Ziraat Bank (Moscow) JSC Moscow/Russia 100,00 100,00 12 Kazakhstan Ziraat Int. Bank Almaty/Kazakhstan 100,00 99,58 13 Ziraat Bank Azerbaycan ASC Baku/Azerbaijan 100,00 100,00 14 Ziraat Bank Montenegro AD Podgorica/Montenegro 100,00 100,00 15 JSC Ziraat Bank Georgia Tbilisi/Georgia 100,00 100,00 16 Ziraat Bank Uzbekistan JSC Tashkent/ Uzbekistan 100,00 100,00 (*) Establishment procedures of Ziraat Girişim Sermayesi Yatırım Ortaklığı Anonim Şirketi, as a subsidiary of the Parent Bank, are completed by a registration in the Turkish Trade Registry Gazette on 14 November 2018 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Current Period)(Continued) 10. Information on Subsidiaries (Net) (Continued) 10.2. Information on Consolidated Subsidiaries (Continued) Total Non- Income from Current Prior Period Shareholders Shareholders’ Current Interest Marketable Period Profit / Profit /Loss Fair Value equity amount Total Assets(4) Equity(4) Assets(4) Income (3) (4) Securities(2) (4) Loss (4) (4) (1) needed 1 7.934.269 1.035.806 2.318 323.057 - 549.108 447.839 - - 2 1.588.415 644.324 5.438 155.264 - 294.914 221.883 - - 3 3.340.955 375.887 1.320 7.041 - 40.930 68.279 - - 4 261.424 182.010 378 - 1.115.445 68.147 40.740 - - 5 64.084 60.171 364 9.670 31.796 20.902 15.843 - - 6 22.188.803 2.218.584 132.512 1.953.615 136.942 322.665 158.902 - - 7 1.915.039 1.684.115 1.511.320 - - 133.176 236.712 - - 8 751.498 751.420 - 1.901 - 1.420 - - - 9 9.077.947 1.407.742 22.318 330.944 3.097 108.242 77.864 1.355.100 - 10 3.123.497 528.750 105.018 123.012 327 (106.929) 6.050 610.350 - 11 527.474 205.466 10.127 47.824 327 19.911 11.415 209.829 - 12 973.678 372.132 18.547 62.531 - 34.663 24.381 382.795 - 13 699.343 200.830 53.697 42.922 622 4.257 9.054 202.831 - 14 397.194 83.430 4.320 11.805 891 (3.885) (3.915) 77.207 - 15 226.931 102.525 8.533 5.705 3.418 4.455 1.252 110.598 - 16 322.099 135.444 4.494 28.631 - 3.023 12.967 166.462 - (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) The amount of Ziraat Katılım Bankası A.Ş. shown in interest income column includes incomes from the participation funds . (4) Information on Ziraat Katılım Bankası A.Ş. has been provided from audited financial statements as of 31 December 2018, the prior period profit/loss balances have been provided from audited financial statements as of 31 December 2017. Information on other subsidiaries shown in the table above has been provided from audited financial statements as of 31 December 2018, the prior period profit/loss balances have been provided from audited financial statements as of 31 December 2017. Information on Consolidated Subsidiaries (Represents Values Belonging To the Parent Bank) Current Period Balance at the Beginning of the Period 5.138.250 Movements During the Period 2.256.158 Additions to Scope of Consolidation - Purchases (*) 1.521.015 Bonus Shares Obtained - Dividends from current year income - Sales - Revaluation Increase 807.408 Impairment Provision (-) 72.265 Balance at the End of the Period 7.394.408 Capital Commitments - Share percentage at the end of the period (%) - (*) Paid Capital Increases made during the period are classified under “Purchases” account. 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Current Period)(Continued) 10.3. Sectoral Information and Related Amounts of Subsidiaries (Represents Values Belonging To the Parent Bank) Current Period Banks 4.865.172 Insurance Companies 129.972 Factoring Companies - Leasing Companies 282.839 Financing Companies - Other Financial Subsidiaries 2.116.425 10.4. Subsidiaries which are Quoted an a Stock Exchange None (31 December 2017: None). 11. Information on Entities Under Common Control (Joint Ventures) Entities under Common Control Parent Bank’s Group’s Current Non- Current Long Term (Joint Ventures) (*) Share(**) Share Assets Assets Liabilities Income Expense Turkmen Turkish Joint Stock Commercial Bank 174.905 174.905 3.798.310 14.917 19.868 86.875 55.699 Total 174.905 174.905 3.798.310 14.917 19.868 86.875 55.699 (*) Information on entity under joint control is provided from the unaudited financial statements as of 31 December 2018. (**) Represents the Parent Bank’s share in the shareholders’ equity of this entity under common control based on the shareholding rate of the Bank. Entities under common control domiciled and operating in the Parent Bank’s consolidated financial statement 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. 12. Information on Finance Lease Receivables (Net) Information on finance lease receivables are as below: Current Period Gross Gross Less than 1 Year 1.709.543 1.429.167 1-5 Years 2.778.781 2.136.398 More than 5 Years 538.541 413.115 Total 5.026.865 3.978.680 13. Information on Derivative Financial Assets for Hedging Purposes None. 14. Information on Investment Property None. 15. Information on Assets Held For Sale And Tangibles Corresponding Discontinuing Operations 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 Bank. The Group’s immovables acquired amount to TL 1.227.120 consisting of TL 17.591 due to consumer loans, TL 1.109.214 on its commercial loans and TL 100.315 on its agricultural loans. Also, the sum of movables acquired from consumer loan amounts to TL 3.559. 122 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Continued) 16. Explanations on Property And Equipment Operational Tangibles- Leasing Financial Development Other Immovables Leasing Vehicles Costs Tangibles Total Prior Period End Cost 7.030.213 14.184 47.297 279.218 1.163.308 8.534.220 Accumulated Depreciation (-) 962.491 4.826 31.552 195.778 656.711 1.851.358 Impairment (-) 2.768 - - - 462 3.230 Net Book Value 6.064.954 9.358 15.745 83.440 506.135 6.679.632 Current Period End Net Book Value at the Beginning of the Period 6.064.954 9.358 15.745 83.440 506.135 6.679.632 Change During the Period (Net) 152.432 (648) (6.315) (21.851) (41.756) 81.862 - Cost 169.881 840 (370) 15.058 88.894 274.303 - Depreciation – net (-) 17.412 1.488 5.945 36.909 129.451 191.205 - Impairment (-) 37 - - - 1.199 1.236 Net Currency Translation from Foreign Subsidiaries 35.585 - 217 529 5.930 42.261 Cost at Period End 7.235.679 15.024 47.144 294.805 1.258.132 8.850.784 Accumulated Depreciation at Period End (-) 979.903 6.314 37.497 232.687 786.162 2.042.563 Impairment (-) 2.805 - - - 1.661 4.466 Closing Net Book Value 6.252.971 8.710 9.647 62.118 470.309 6.803.755 17. 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. 18. 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. 19. Explanations on Intangible Assets Current Period Book Value Accumulated Depreciation Net Value Establishment Costs 5.326 4.800 526 Goodwill - - - Intangible Rights 1.067.995 336.815 731.180 Total 1.073.321 341.615 731.706 Disclosures for book value, description and remaining useful life for a specific intangible fixed asset that is material to the financial statements: None. Disclosure for intangible fixed assets acquired through government grants and accounted for at fair value at initial recognition: None. 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. The book value of intangible fixed assets that are pledged or restricted for use: None. Amount of purchase commitments for intangible fixed assets: None Information on revalued intangible assets according to their types: None. Amount of total research and development expenses recorded in income statement within the period if any: None. Positive or negative consolidation goodwill on entity basis: Not applicable for the consolidated financial statements Information on Goodwill: None. 123 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Continued) 20. 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 o f 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 Deferred Tax Assets 3.043.972 Deferred Tax Liabilities (1.413.083) Net Deferred Tax Assets/(Liabilities) 1.630.889 Net Deferred Tax Income / Expense 189.772 Current Period Reserve for Employment Termination Benefits 168.754 Short Term Employee Benefits 106.705 Financial Assets Valuation 1.336.360 Other 19.070 Net Deferred Tax Assets/(Liabilities) 1.630.889 As of 31 December 2018, deferred tax income amounting to TL 189.772 was classified on profit or loss table and deferred tax income amounting TL 853.759 was classified under shareholders’ equity. 21 Information on expected credit loss for financial investments Current Period Cash values and central bank 463 Receivables from banks and money markets 14.112 Financial assets appraised over their amortised cost 1535 Other asset 54.100 Total: 70.210 22. Information on Other Assets As of 31 December 2018, other assets do not exceed 10% of the total assets excluding off-balance sheet commitments. 124 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 23. Information on Cash and Balances with Central Bank of the Republic of Turkey as of 31 December 2017 Prior Period TL FC Cash in TL/Foreign Currency 2.312.736 1.475.343 Central Bank of the Republic of Turkey 2.964.799 39.313.476 Other - 153.983 Total 5.277.535 40.942.802 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 Republic 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 maturities 12%; for FC deposit accounts with 1-year and longer maturity 8%, for FC liabilities other than deposits up to 1-year maturity 24%; for FC liabilities other than deposits up to 2-years maturity 19%; for FC liabilities other than deposits up to 3-years maturity 14%; for FC liabilities other than deposits up to 5-years maturity 6%; and for FC liabilities other than deposits more than 5-years maturity 4%. 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. Information on Required Reserves Prior Period TL FC Unrestricted Demand Deposit 2.779.169 4.497.785 Unrestricted Time Deposit - - Restricted Time Deposit - 6.316 Other (1) 185.630 34.809.375 Total 2.964.799 39.313.476 (1) Includes required reserves and CBRT Restricted Electronic Money Funds amounting to TL 8.541. Required reserve of branches abroad amounting to TL 108.320 is presented in this line. TL 18.737.782 of the current period’s FC required reserve is the part of the TL required reserves that are held in FC. 24. Information on Financial Assets at Fair Value Through Profit and Loss Given or Blocked as Collateral or Subject to Repurchase Agreements as of 31 December 2017 None 125 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I.EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 25. Positive Differences Related to the Derivative Financial Assets Held-for-Trading as of 31 December 2017 Prior Period TL FC Forward Transactions 75.527 27.444 Swap Transactions 803.137 485.432 Futures Transactions - - Options 1.385 3.842 Other - - Total 880.049 516.718 26. Information on Banks and Other Financial Institutions as of 31 December 2017 26.1 Information on Bank Balances as of 31 December 2017 Prior Period TL FC Banks Domestic Banks 2.246.529 1.333.807 Foreign Banks 126.700 1.925.104 Foreign Head Office and Branches - - Total 2.373.229 3.258.911 26.2. Information on Foreign Bank Accounts Unrestricted Amount Restricted Amount Prior Period Prior Period European Union Countries 1.261.645 - USA, Canada 109.259 - OECD Countries (1) 71.977 - Off-shore Banking Regions - - Other 608.923 - Total 2.051.804 - (1) OECD countries other than EU countries, USA and Canada. 27. Explanation Regarding to the Comparison of Net Values of Financial Assets Available-For-Sale Given or Blocked as Collateral and Subject to Repurchase Agreements as of 31 December 2017 Prior Period Assets Subject to Repurchase Agreements 15.399.490 Assets Blocked/Given as Collateral 45.702.660 Total 61.102.150 28. Information on Financial Assets Available For Sale as of 31 December 2017 Prior Period Debt Securities 64.386.278 Quoted in Stock Exchange 64.275.184 Not Quoted in Stock Exchange 111.094 Share Certificates 982.967 Quoted in Stock Exchange 824.280 Not Quoted in Stock Exchange 158.687 Provision for Impairment (-) 1.731.014 Total 63.638.231 126 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period) (Continued) 29. Information Related to Loans as of 31 December 2017 29.1 Information on All Types of Loans and Advances Given to Shareholders and Employees of The Group as of 31 December 2017 Prior Period Cash Non-Cash Direct Loans Granted to Group Shareholders - - Legal Entities - - Individuals - - Indirect Loans Granted to Group Shareholders - 188 Loans Granted to Group Employees (1) (2) 343.693 213 Total 343.693 401 (1) Interest rediscount and interest accrual amounting TL 2.911, are not included in the table above. (2) Since the balance of overdraft accounts related to employees amounting TL 16.543, is showed under Table 27.3. as overdraft accounts (real person), it is not included to the table above. 29.2 Information on the First and Second Group Loans and Other Receivables Including Restructured or Rescheduled Loans as of 31 December 2017 Standard Loans Prior Period and Other Receivables Loans under Follow-up Restructured or Cash Loans Loans and Rescheduled Loans and Restructured or Rescheduled Other Loans and other Other Loans and other Receivables receivables with Receivables receivables with Other Other revised contract revised contract (1) terms terms Non-Specialized Loans 250.756.625 3.640.314 - 1.722.726 2.305.738 - Commercial Loans 147.284.029 2.306.103 - 1.068.800 2.074.379 - Export Loans 4.536.246 - - 24.032 - - Import Loans 433.206 607 - 135 2.832 - Loans Given to Financial Sector 8.018.950 - - 5.659 - - Consumer Loans 80.214.729 1.332.499 - 575.102 225.455 - Credit Cards 4.124.899 74 - 43.314 2.409 - Other 6.144.566 1.031 - 5.684 663 - Specialized Lending (1) (2) 45.829.370 4.943.655 - 564.931 552.408 - Other Receivables - - - - - - Interest Income Accruals (2) 5.854.409 269.474 - 115.301 240.051 - Total 302.440.404 8.853.443 - 2.402.958 3.098.197 - (1) Agricultural loans of funds originated are shown in specialized lendings. (2) Farmer support agricultural loans are shown in specialized lendings. Standard Loans and Loans and Other Receivables No. of extensions Other Receivables Under Close Monitoring 1 or 2 Times Extended 8.300.250 2.881.483 3 - 4 or 5 Times Extended 550.318 213.720 Over 5 Times Extended 2.875 2.994 127 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 29. Information Related to Loans as of 31 December 2017 (Continued) 29.2 Information on the First and Second Group Loans and Other Receivables Including Restructured or Rescheduled Loans as of 31 December 2017 (Continued) Standard Loans and Loans and Other Receivables Extension Periods Other Receivables(1) Under Close Monitoring 0 - 6 Months 7.554.937 1.954.951 6 – 12 Months 271.974 294.062 1 - 2 Years 265.174 348.512 2 - 5 Years 716.167 436.757 5 Years and Over 45.191 63.915 Total 8.853.443 3.098.197 29.3 Loans According to Maturity Structure Standard Loans and Other Receivables (1) Loans under Follow-up (1) Loans and Restructured or Loans and Restructured or Other Receivables Rescheduled Other Receivables Rescheduled Short-term Loans 55.143.463 2.246.316 464.131 341.183 Non-specialized Loans 47.356.647 112.780 366.276 108.861 Specialized Loans (2) 7.786.816 2.133.536 97.855 232.322 Other Receivables - - - - Medium and Long-term Loans and Other Receivables 241.442.532 6.337.653 1.823.526 2.516.963 Non-specialized Loans 203.399.978 3.527.534 1.356.450 2.196.877 Specialized Loans (2) 38.042.554 2.810.119 467.076 320.086 Other Receivables - - - - (1) Rediscounts are not included. (2) Agricultural loans originated from funds are shown under Specialized Lending. 128 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 29. Information Related to Loans as of 31 December 2017 (Continued) 29.4 Information on Consumer Loans, Individual Credit Cards and Personnel Loans and Personnel Credit Cards as of 31 December 2017 Medium and Prior Period Short-Term Long-Term Total Consumer Loans-TL 571.124 80.018.469 80.589.593 Real Estate Loans (2) 11.764 48.557.484 48.569.248 Vehicle Loans 4.453 239.864 244.317 Consumer Loans (2) 550.269 30.657.460 31.207.729 Abroad 3.936 376.587 380.523 Other 702 187.074 187.776 Consumer Loans- Indexed to FC 296 210.364 210.660 Real Estate Loans - 23.594 23.594 Vehicle Loans - 132 132 Consumer Loans - - - Other 296 186.638 186.934 Consumer Loans-FC 2.272 114.682 116.954 Real Estate Loans 147 28.298 28.445 Vehicle Loans - - - Consumer Loans 770 55.041 55.811 Abroad 869 30.082 30.951 Other 486 1.261 1.747 Individual Credit Cards-TL 3.336.692 65.152 3.401.844 With Installment 1.153.521 62.085 1.215.606 Without Installment 2.183.171 3.067 2.186.238 Individual Credit Cards-FC 430 - 430 With Installment - - - Without Installment 430 - 430 Personnel Loans-TL 9.482 219.295 228.777 Real Estate Loans - 2.573 2.573 Vehicle Loans - 19 19 Consumer Loans 9.359 208.805 218.164 Abroad 105 2.038 2.143 Other 18 5.860 5.878 Personnel Loans-Indexed to FC 30 12.652 12.682 Real Estate Loans - 3.235 3.235 Vehicle Loans - - - Consumer Loans - - - Other 30 9.417 9.447 Personnel Loans-FC 144 2.516 2.660 Real Estate Loans - 1.134 1.134 Vehicle Loans - - - Consumer Loans 130 1.092 1.222 Other 14 290 304 Personnel Credit Cards-TL 98.438 1.118 99.556 With Installment 39.313 1.038 40.351 Without Installment 59.125 80 59.205 Personnel Credit Cards-FC 18 - 18 With Installment - - - Without Installment 18 - 18 Overdraft Accounts-TL (Real Person) 1.186.402 - 1.186.402 Overdraft Accounts-FC (Real Person) 57 - 57 Total (1) 5.205.385 80.644.248 85.849.633 (1) TL 520.675 of interest income accrual is not included in the table above. (2) Consumer loans originated from funds amounting to TL 3.730.985 of are included in the table above. 129 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 29. Information Related to Loans as of 31 December 2017 (Continued) 29.5 Information on Commercial Installment Loans and Corporate Credit Cards as of 31 December 2017 Medium and Short-Term Long-Term Total Commercial Installment Loans-TL 1.615.341 30.542.566 32.157.907 Business Loans 434 487.934 488.368 Vehicle Loans 76.929 991.295 1.068.224 Consumer Loans 1.363.581 28.719.604 30.083.185 Other 174.397 343.733 518.130 Commercial Installment Loans- Indexed to FC 158.703 580.624 739.327 Business Loans - - - Vehicle Loans 7.847 43.694 51.541 Consumer Loans - - - Other 150.856 536.930 687.786 Commercial Installment Loans - FC 223.400 19.014.867 19.238.267 Business Loans - - - Vehicle Loans - - - Consumer Loans 109.167 18.561.648 18.670.815 Other 114.233 453.219 567.452 Corporate Credit Cards-TL 658.188 10.522 668.710 With Installment 235.346 10.474 245.820 Without Installment 422.842 48 422.890 Corporate Credit Cards-FC 138 - 138 With Installment - - - Without Installment 138 - 138 Overdraft Account-TL (Legal Entity) 182.646 - 182.646 Overdraft Account-FC (Legal Entity) - - - Total (1) 2.838.416 50.148.579 52.986.995 (1) Accruals and rediscount amounts are not included in the table above. 29.6 Loans According to Types Of Borrowers Prior Period Public 4.084.344 Private 306.231.423 Interest Income Accruals of Loans 6.479.235 Total 316.795.002 29.7 Breakdown of Domestic and International Loans as of 31 December 2017 Prior Period Domestic Loans 299.929.540 Foreign Loans 10.386.227 Interest Income Accruals of Loans 6.479.235 Total 316.795.002 29.8 Loans Granted to Subsidiaries and Associates as of 31 December 2017 None. 130 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 29. Information Related to Loans as of 31 December 2017 (Continued) 29.9 Specific provisions provided against loans as of 31 December 2017 Prior Period Loans and other receivables with limited collectability 394.823 Loans and other receivables with doubtful collectability 556.534 Uncollectible loans and other receivables 3.852.124 Total 4.803.481 29.10 Information On Non-Performing Receivables as of 31 December 2017 (Net) 29.10.1 Information on Loans and Other Receivables Included In Non-Performing Receivables which are Restructured or Rescheduled as of 31 December 2017 Group III Group IV Group V Loans and Loans and receivables with receivables with doubtful Uncollectible limited collectability collectability loans and receivables Prior Period 8.215 29.876 151.817 Gross amounts before the provisions - - - Restructured loans 8.215 29.876 151.817 29.10.2 Information on the Movement of Non-Performing Receivables as of 31 December 2017 Group III Group IV Group V Loans and Loans and receivables with receivables with limited doubtful Uncollectible loans Prior Period collectability collectability and receivables Prior Period Ending Balance 379.416 993.140 3.007.934 Additions (+) 1.697.196 170.168 301.173 Transfers from Other Categories of Loans under Follow-Up (+) - 1.505.768 1.915.754 Transfers to Other Categories of Loans under Follow-Up (-) 1.505.768 1.915.754 - Collections (-) (1) 175.691 194.171 1.150.198 Write-offs (-) - - - Corporate and Commercial Loans - - - Consumer Loans - - - Credit Cards - - - Other - - - Current Period End Balance 395.153 559.151 4.074.663 Specific Provision (-) 394.823 556.534 3.852.124 Net Balance on Balance Sheet 330 2.617 222.539 29.10.3 Information on the Movement of Non-Performing Receivables as of 31 December 2017 Group III Group IV Group V Loans and other Loans and other receivables with limited receivables with Uncollectible loans and collectability doubtful collectability other receivables Current Period: Period Ending Balance 32.700 60.049 146.151 Specific Provision (-) 32.700 60.049 146.151 Net Balance on Balance Sheet - - - 131 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS(Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 29 Information Related to Loans as of 31 December 2017 (Continued) 29.10.4 Gross and Net Amounts of Non-Performing Receivables According to User Groups as of 31 December 2017 Group III Group IV Group V Loans and other Loans and other receivables with limited receivables with Uncollectible loans and collectability doubtful collectability other receivables Current Period (Net) 330 2.617 222.539 Loans to Real Persons and Legal Entities (Gross) 395.153 473.910 4.074.663 Specific Provisions (-) 394.823 471.293 3.852.124 Loans to Real Persons and Legal Entities (Net) 330 2.617 222.539 Banks (Gross) - - - Specific Provisions (-) - - - Banks (Net) - - - Other Loans and Receivables (Gross) - 85.241 - Specific Provisions (-) - 85.241 - Other Loans and Receivables (Net) - - - 29.10.5 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 Bank and assets of the debtor(s) are realized while receivables of the 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. 29.10.6 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. 29.10.7 Other Explanations and Disclosures Prior Period Corporate and Entrepreneurial Consumer Specialized Total Neither Past Due nor Impaired Loans (1) 172.508.183 85.552.624 53.233.040 311.293.847 Past Due but not Impaired Loans 3.451.288 858.408 1.191.459 5.501.155 Impaired Loans 3.429.404 917.804 681.759 5.028.967 Total 179.388.875 87.328.836 55.106.258 321.823.969 Specific Provisions of Impaired Loans(-) 3.426.124 914.046 463.311 4.803.481 Net Loan Amount 175.962.751 86.414.790 54.642.947 317.020.488 (1) This line also shows the individual loan amount of TL 3.730.985, agricultural value amounting to TL 2.016.203 and corporate / entrepreneurial loan amounting to TL 18 of which is not related to the Bank 30 Information on Held-To-Maturity Investments as of 31 December 2017 30.1 Information on Comparative Net Values of Held-to-Maturity Investments Subject to Repo Transactions and Given as a Collateral/Blocked as of 31 December 2017 Prior Period TL FC Government Bonds 174.799 2.103.464 Treasury Bills - - Other Public Sector Debt Securities - - Bank Bonds and Bank Guaranteed Bonds - - Asset Backed Securities - - Other - - Total 174.799 2.103.464 132 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 30 Information on Held-To-Maturity Investments as of 31 December 2017 (Continued) 30.1 Information on Comparative Net Values of Held-to-Maturity Investments Subject to Repo Transactions and Given as a Collateral/Blocked as of 31 December 2017 (Condineud) Held-to-maturity investments given as collateral or blocked Prior Period TL FC Bills - - Bonds and Similar Investment Securities 2.369.824 2.651.289 Other - - Total 2.369.824 2.651.289 30.2 Information on Held-to-Maturity Government Bonds and Treasury Bills as of 31 December 2017 Prior Period Government Bonds 7.518.530 Treasury Bills - Other Public Sector Debt Securities - Total 7.518.530 30.3 Information on Held-to-Maturity Investments as of 31 December 2017 Prior Period Debt securities 7.625.763 Quoted in a Stock Exchange 7.518.530 Not Quoted in a Stock Exchange 107.233 Provision for Impairment (-) - Total 7.625.763 30.4 Movements of Held-to-Maturity Investments as of 31 December 2017 Prior Period Beginning Balance 8.794.915 Foreign Currency Differences on Monetary Assets 326.988 Purchases During the Year (*) 434.046 Disposals through Sales and Redemptions (1.930.186) Provision for Impairment (-) - Period End Balance 7.625.763 (*) Accruals are shown in “Purchases During the Year”. 31 Information about Associates Accounts as of 31 December 2017 (Net) 31.1 Information about Unconsolidated Associates as of 31 December 2017 The Bank’s Share Address Percentage, if Different, The Bank’s Risk Group Description (City/ Country) Voting Percentage (%) Share Percentage (%) 1 Bankalararası Kart Merkezi A.Ş. Istanbul/Turkey 12,50 17,98 2 Kredi Kayıt Bürosu A.Ş. Istanbul/ Turkey 10,00 9,09 133 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 31. Information on Held-To-Maturity Investments as of 31 December 2017 (Continued) 31.1 Information about Associates as of 31 December 2017 (Continued) Total Non- Income from Shareholders’ Current Interest Income Marketable Current Period Prior Period Fair (2) Total Assets Equity(2) Assets(2)(3) (2) Securities(2) Profit / Loss (2) Profit / Loss (2) Value (1) 1 93.761 51.077 53.466 1.547 - 11.181 10.403 - 2 263.183 158.185 150.459 1.720 - 36.272 34.759 - (1) Since the associates are not traded on the stock exchange, they do not have fair value. (2) Current period information of associates has been provided from limited reviewed financial statements as of 31 December 2017. Prior period profit/loss information of associates has been provided from audited financial statements as of 31 December 2016. (3) Total fixed assets include tangible and intangible assets. 31.2. Explanation Regarding Consolidated Associates as of 31 December 2017 The Parent Bank’s Share Address The Parent Bank’s Risk Group Percentage, if Different, Voting Description (City/ Country) Percentage (%) Share Percentage (%) 1 Arap Türk Bankası A.Ş. İstanbul/Turkey 22,22 15,43 Total Non- Income from Shareholders’ Current Interest Income Marketable Current Period Prior Period Fair Total Assets(2) Equity(2) Assets(2) (2) Securities(2) Profit / Loss (2) Profit / Loss (2) Value (1) 1 5.063.759 785.384 115.205 164.771 58.528 80.268 61.597 - (1) Since shares of Arap Türk 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 un audited financial statements as of 31 December 2017. Prior period profit/loss information of Arap Türk Bankası A.Ş. has been provided from audited financial statements as of 31 December 2016 31.3. Information about Consolidated Associates as of 31 December 2017 (Net) Prior Period Balance at the Beginning of the Period 98.869 Movement During the Period 22.316 Additions - Bonus Share Certificates - Shares of Current Year Profits 12.385 Transfer - Sales - Revaluation Increase 13.326 Impairment Provision (*) 3.395 Balance at the End of the Period 121.185 Capital Commitments - Period Ending Share of Capital Participation (%) 15,43 (*) Dividend amount received from Arap Türk Bankası A.Ş. 31.4. Sectoral Information and Related Amounts of Associates as of 31 December 2017 Prior Period Banks 121.185 Insurance Companies - Factoring Companies - Leasing Companies - Finance Companies - Other Financial Associates - 31.5. Associates Quoted to a Stock Exchange as of 31 December 2017 None. 134 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 32 Information on Subsidiaries as of 31 December 2017 (Net) 32.1. Information about Unconsolidated Subsidiaries as of 31 December 2017 Address The Parent Bank’s Share Percentage- The Parent Bank’s Group Description (City/ Country) if different Voting Percentage (%) Share Percentage (%) 1 Ziraat Teknoloji A.Ş. İstanbul / Turkey 100,00 100,00 Total Non- Income from Prior Period Total Shareholder Current Interest Marketable Current Period Profit / Loss Assets(2) s’ Equity(2) Assets(2) Income (2) Securities(2) Profit / Loss (2) (2) Fair Value (1) 1 62.950 13.444 19.131 961 150 2.823 2.467 - (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 2017. Prior period profit/loss information has been provided from audited financial statements as of 31 December 2016. 32.2. Information on Consolidated Subsidiaries as of 31 December 2017 Investments related to subsidiaries and joint ventures operating in the Parent Bank’s consolidated financial statements 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 shareholders’ equity. The Bank’s Share The Bank’s Risk Address Percentage-if different Group Share Description (City/ Country) Voting 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 7 Ziraat Gayrimenkul Yatırım Ortaklığı A.Ş. İstanbul/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 and 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 14 JSC Ziraat Bank Georgia(*) Tbilisi/Georgia 100,00 100,00 15 Ziraat Bank Uzbekistan JSC (**) Tashkent/ Uzbekistan 100,00 100,00 (*) Tbilisi, Batum and Marneuli branches of the Parent Bank which were operating in Georgia have been gathered under the Parent Bank’s roof as of 2 May 2017 and continues to operate as a subsidiary with JSC Ziraat Bank Georgia title and all of the capital belonging to the Bank. (**) The share of partnership has increased to 100% and its status become subsidiary from entity under common control and continues it operations as Ziraat Bank Uzbekistan JSC. 135 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 32 Information on Subsidiaries as of 31 December 2017 (Net) 32.2. Information on Consolidated Subsidiaries as of 31 December 2017 Shareholders Total Non- Income from Current Prior Period equity Shareholders’ Current Interest Marketable Period Profit / Profit /Loss Fair Value amount Total Assets(3) Equity(3) Assets(3) Income (3) (4) Securities(2) (3) Loss (3) (3) (1) needed 1 5.785.955 663.224 2.457 200.552 - 449.105 231.541 - - 2 1.152.752 439.579 1.450 94.377 - 226.794 128.912 - - 3 2.637.889 331.959 1.498 1.720 - 65.203 30.003 - - 4 185.304 127.203 494 78.960 856.821 51.053 24.935 - - 5 44.966 39.205 618 3.800 28.198 15.820 8.582 - - 6 12.043.556 1.352.853 74.261 625.722 32.865 98.592 12.437 - - 7 1.551.822 1.550.783 1.253.180 168 - 236.712 13.585 - - 8 7.894.189 979.381 18.750 221.983 2.440 74.888 48.173 971.937 - 9 2.409.237 371.514 81.996 89.695 253 10.973 319 337.820 - 10 412.101 164.371 11.889 35.441 252 11.162 7.271 150.954 - 11 648.822 289.377 15.193 38.218 8.078 23.486 21.508 286.462 - 12 410.543 140.611 26.999 24.712 433 8.676 10.149 162.098 - 13 238.128 32.067 4.074 7.525 258 (3.759) (3.736) 30.508 - 14 136.031 44.890 5.477 2.466 910 1.204 - 53.605 - 15 198.326 98.046 1.544 10.981 - 53.719 11.186 115.629 - (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 Ziraat Katılım Bankası A.Ş. has been provided from limited review ed financial statements as of 31 December 2017, the prior period profit/loss balances have been provided from limited reviewed financial statements as of 31 December 2016. Information on other subsidiaries shown in the table above has been provided from unaudited financial statements as of 31 December 2017, the prior period profit/loss balances have been provided from audited financial statements as of 31 December 2016. (4) The amount of Ziraat Katılım Bankası A.Ş. shown in interest income column includes incomes from the participation funds . (Represents Values Belonging To the Parent Bank) Prior Period Balance at the Beginning of the Period 4.101.352 Movements During the Period 1.036.898 Additions to Scope of Consolidation - Purchases (*) (**) 668.492 Bonus Shares Obtained 3.000 Dividends from current year income - Transfers to available for sale assets - Sales - Revaluation Increase 376.366 Impairment Provision (-) 10.960 Balance at the End of the Period 5.138.250 Capital Commitments - Share percentage at the end of the period (%) - (*) Paid Capital Increases made during the period are classified under “Purchases” account. (**) The share of partnership has increased to 100% and its status become subsidiary from entity under common control and continues it operations as Ziraat Bank Uzbekistan JSC. 136 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 32 Information on Subsidiaries as of 31 December 2017 (Net)(Continued) 32.3. Sectoral Information and Related Amounts of Subsidiaries as of 31 December 2017 (Represents Values Belonging To the Parent Bank) Prior Period Banks 3.359.014 Insurance Companies 129.972 Factoring Companies - Leasing Companies 282.839 Financing Companies - Other Financial Subsidiaries 1.366.425 32.4. Subsidiaries which are Quoted an a Stock Exchange as of 31 December 2017 None 33. Information on Entities Under Common Control (Joint Ventures) as of 31 December 2017 Entities under Common Control Parent Bank’s Group’s Current Non- Current Long Term (Joint Ventures) (*) Share(**) Share Assets Assets Liabilities Income Expense Turkmen Turkish Joint Stock Commercial Bank 51.730 51.730 2.303.598 12.166 12.266 46.932 31.595 Total 51.730 51.730 2.303.598 12.166 12.266 46.932 31.595 (*) Information on entity under joint control is provided from the unaudited financial statements as of 31 December 2017 (**) Represents the Parent Bank’s share in the shareholders’ equity of this entity 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. 137 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS Continued) I. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 34. Information on Finance Lease Receivables as of 31 December 2017 (Net) Information on finance lease receivables are as below: Current Period Gross Gross Less than 1 Year 1.131.066 997.962 1-5 Years 1.710.323 1.479.545 More than 5 Years 509.823 404.012 Total 3.351.212 2.881.519 35. Information on Derivative Financial Assets for Hedging Purposes as of 31 December 2017 None. 36. Information on Derivative Financial Assets for Hedging Purposes as of 31 December 2017 None. 37. Information on Deffered Tax Asset as of 31 December 2017 The Group has deferred tax assets amounting to TL 29.794. 38. Information on Derivative Financial Assets for Hedging Purposes as of 31 December 2017 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 591.901 consisting of TL 14.819 due to consumer loans, TL 672.899 on its commercial loans and TL 61.663 on its agricultural loans. Also, the sum of movables acquired from consumer loan amounts to TL 1.920. 39. Explanations on Property And Equipment as of 31 December 2017 Operational Tangibles- Leasing Financial Development Immovables Leasing Vehicles Costs Other Tangibles Total Prior Period End Cost 6.244.530 12.459 45.850 252.001 961.440 7.516.280 Accumulated Depreciation (-) 937.584 3.419 26.331 151.695 522.468 1.641.497 Impairment (-) 2.312 - - - 462 2.774 Net Book Value 5.304.634 9.040 19.519 100.306 438.510 5.872.009 Current Period End Net Book Value at the Beginning of the Period 5.304.634 9.040 19.519 100.306 438.510 5.872.009 Change During the Period (Net) 743.106 332 (4.008) (17.020) 63.910 786.320 - Cost 768.469 1.739 1.213 27.063 198.153 996.637 - Depreciation – net (-) 24.907 1.407 5.221 44.083 134.243 209.861 - Impairment (-) 456 - - - - 456 Net Currency Translation from Foreign Subsidiaries 17.214 (14) 234 154 3.715 21.303 Cost at Period End 7.030.213 14.184 47.297 279.218 1.163.308 8.534.220 Accumulated Depreciation at Period End (-) 962.491 4.826 31.552 195.778 656.711 1.851.358 Impairment (-) 2.768 - - - 462 3.230 Closing Net Book Value 6.064.954 9.358 15.745 83.440 506.135 6.679.632 40. 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 as of 31 December 2017 None 41. 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 as of 31 December 2017 None 138 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS Continued) II. EXPLANATIONS AND NOTES RELATED TO ASSETS (Prior Period)(Continued) 42. Explanations on Intangible Assets as of 31 December 2017 Prior Period Book Value Accumulated Depreciation Net Value Establishment Costs 8.447 7.723 724 Goodwill - - - Intangible Rights 769.346 237.982 531.364 Total 777.793 245.705 532.088 Disclosures for book value, description and remaining useful life for a specific intangible fixed asset that is material to the financial statements: None Disclosure for intangible fixed assets acquired through government grants and accounted for at fair value at initial recognition: None 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 The book value of intangible fixed assets that are pledged or restricted for use: None Amount of purchase commitments for intangible fixed assets: None Information on revalued intangible assets according to their types: None. Amount of total research and development expenses recorded in income statement within the period if any: None. Positive or negative consolidation goodwill on entity basis: Not applicable for the consolidated financial statements Information on Goodwill: None. 43 Explanations on Other Assets As of 31 December 2017, other assets does not exceed 10% of the total assets excluding off-balance sheet commitments. 139 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES(Current Period) 1. Information on Deposits/Funds Collected 1.1 Information on Maturity Structure of Deposits 7 Day 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 26.085.178 - 2.970.274 75.339.363 8.225.640 3.109.733 3.552.919 163.671 119.446.778 Foreign Currency Deposits 35.462.060 - 12.077.492 48.125.965 9.418.307 9.012.470 27.868.733 5.576 141.970.603 Residents in Turkey 28.739.734 - 10.822.850 37.227.261 5.531.411 3.528.918 7.765.042 4.070 93.619.286 Residents Abroad 6.722.326 - 1.254.642 10.898.704 3.886.896 5.483.552 20.103.691 1.506 48.351.317 Public Sector Deposits 7.082.239 - 3.192.485 5.244.373 2.018.212 3.470.269 101.658 - 21.109.236 Commercial Inst. Deposits 9.223.407 - 5.176.246 8.157.297 829.440 3.681.582 242.536 - 27.310.508 Other Inst. Deposits 1.978.024 - 1.806.775 4.543.593 1.179.194 864.518 538.096 - 10.910.200 Precious Metals 6.710.515 - 67.100 1.194.009 101.328 51.184 71.877 - 8.196.013 Interbank Deposits 4.151.647 - 12.150.631 4.143.899 2.900.136 1.258.825 826.772 - 25.431.910 CBRT 1.038 - - - - - - - 1.038 Domestic Banks 288.147 - 9.295.725 97.998 11.406 2.088 2.085 - 9.697.449 Foreign Banks 2.970.112 - 2.854.906 3.774.861 2.888.730 1.256.737 553.647 - 14.298.993 Participation Banks 892.350 - - 271.040 - - 271.040 - 1.434.430 Other - - - - - - - - - Total 90.693.070 - 37.441.003 146.748.499 24.672.257 21.448.581 33.202.591 169.247 354.375.248 1.2. Saving Deposits Under the Guarantee of Deposit Insurance and Exceeding the Deposit Insurance Limit Under the Guarantee Exceeding Deposit Current Period of Deposit Insurance Insurance Limit Saving Deposits(1) 77.125.284 41.715.586 Foreign Currency Saving Deposits(1) 36.632.643 74.091.093 Other Deposits in the form of Saving Deposits - - Deposits at Foreign Branches and under the Guarantees of Foreign Authority Insurance(2) 1.106.656 161.259 Deposits at Off-Shore Banking Regions’ and under Foreign Authorities’ Insurance - - (1) Related deposit balances do not include foreign branches. (2) In Bulgaria and Greece, since both real person and legal entity’s saving deposits are under the guarantee of insurance and si nce such balances included in insurance limit are calculated by the system, the legal entity saving deposits amounting to TL 140.007 and TL 24.266 respectively, cannot be decomposed by type and are therefore included in the table above Based on the Council of Minister’s decree dated 29 December 200 3 and numbered 2003/6668, TL 649 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 the 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 1.570.390 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. 1.3. Information on Saving Deposits/Real Persons’ Private Current And Accession Accounts Not Related to Commercial Transactions in a Turkish Branch of The Bank Whose Head Office is Abroad, And Reasons if it is Covered in Where The Head Office is Located The Parent Bank’s head office is located in Turkey. 140 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Current Period) (Continued) 1. Information on Deposits/Funds Collected (Continued) 1.4. Saving Deposits of Real Persons Not Covered by the Deposit Insurance Fund Current Period Deposits and other Accounts in Branches Abroad 59.444 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 9.247 Deposits Obtained through Illegal Acts Defined in the 282nd 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. Negative Differences Related to the Derivative Financial Liabilities Held for Trading Current Period TL FC Forward Transactions 272.091 27.360 Swap Transactions 882.868 484.487 Futures Transactions - - Options 1.363 - Other - - Total 1.156.322 511.847 3. Information on Banks and Other Financial Institutions 3.1. General Information on Banks and Other Financial Institutions Current Period TL FC Borrowings from CBRT - - Domestic Banks and Institutions 615.820 5.735.551 Foreign Banks, Institutions and Funds 580.527 27.916.871 Total 1.196.347 33.652.422 3.2. Maturity Structure of Funds Borrowed Current Period TL FC Short-Term 615.434 6.314.775 Medium and Long-Term 580.913 27.337.647 Total 1.196.347 33.652.422 141 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Current Period) (Continued) 3. Information on Banks and Other Financial Institutions (Continued) 3.3. Further Information is Disclosed for the Areas Of Liability Concentrations. Main Liability Concentration Areas are Fund Suppliers, Sector Groups or other Risk Concentration Criteria 62,35 % of the Group’s total liabilities and equity consist of deposits. Deposits have a diversified base and have steady structures. The Group’s liabilities are not subject to a significant concentration risk. 4. Information on Funds Supplied from Repurchase Agreements Current Period TL FC From Domestic Transactions 56.213.158 - Financial Institutions and Organizations 56.007.340 - Other Institutions and Organizations 203.162 - Real Person 2.656 - From Overseas Operations - 12.390.480 Financial Institutions and Organizations - 12.390.480 Other Institutions and Organizations - - Real Person - - Total 56.213.158 12.390.480 5. Information on Securities Issued Current Period TL FC Bank Bonds 1.761.094 106.896 Asset-Backed Securities 1.375.097 - Treasury Bills 1.190.585 12.510.192 Total 4.326.776 12.617.088 6. 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. 7. Information on Finance Lease Payables (Net) In the finance 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 financial leasing transactions. (31 December 2017: None.) 8. Information on Derivative Financial Liabilities for Hedging Purposes There are no derivative financial liabilities for hedging purposes of Group. 142 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Current Period) (Continued) 9. Explanations on Provisions 9.1 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 of Group is TL 228 9.2. Specific Provisions for Unindemnified Non-Cash Loans The expected loss provision for unindemnified non-cash loans of Group (stage three) is TL 227.151. 9.3. Information on Other Provisions 9.3.1. 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 982.000, of which TL 1.475.000 thousand was recognised in prior years, TL 30.000 thousand have been recognised in current year and 523.000 thousands have been reversed in the current period, provided by the Group 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 30.500 and other provision of TL 217 exist for cash transfers made by Bank officials. Current Period Free provisions for possible risks 1.012.717 (1) Includes TL 30.000 free provision, which is set aside by the Ziraat Katılım Bankası A.Ş. 9.3.2. 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, TL 54.287 provision has been provided in financial statements for the lawsuits against the Bank which are not finalized yet amounting to TL 120.850. The Group also provided provisions amounting to TL 227.150 for unindemnified non-cash loans, and TL 239.747 (Stage 1 and Stage 2) and TL 130.795 for other provisions. As a result of the provisions mentioned above, the other provision balance on the Bank’s balance sheet amounts to TL 1.664.696. 143 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Current Period) (Continued) 9. Explanations on Provisions (Continued) 9.4. Liabilities on Reserve for Employee Termination Benefits 9.4.1. 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 2018, unpaid vacation liability amounted to TL 207.658, and employment termination amounted to TL 836.363 are presented under the “Employee Benefits Provision” in the financial statements. 9.4.2. Additional Bonus Provision Paid to Personel The Group provided provisions amounting to TL 303.000 of additional bonus provision with the decission of General Assembly. 9.4.3. 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 2018 and 31 December 2017. 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 an d 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 4.256.114 as of 31 December 2018 (31 December 2017: TL 3.442.106). Current Period Non Medical Assets 2.558.724 Actual and Technical Overrun 4.256.114 The principal actuarial assumptions used are as follows: Current Period Discount rate - Pension benefits transferable to SSI 9,80% - Post employment medical benefits transferable to SSI 9,80% 144 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Current Period) (Continued) 9. Explanations on Provisions (Continued) 9.4. Liabilities on Reserve for Employee Termination Benefits (Continued) 9.4.3. Pension Rights (Continued) To represent mortality rates both before and after retirement, CSO 1980 Female/Male mortality table is used. Plan assets are comprised as follows: Current Period Bank Placements 1.834.427 Property and Equipment 379.187 Marketable Securities 308.779 Other 36.331 Total 2.558.724 10. Information on Tax Liability 10.1. Information on Current Tax Liability 10.1.1. Information on Tax Provisions As of 31 December 2018, the remaining corporate tax liability after deducting temporary taxes paid for the period of the Group is TL 1.001.148. 10.1.2. Information on Current Taxes Payable Current Period Corporate Tax Payable 1.001.148 Taxation on Income From Securities 208.090 Property Tax 2.890 Banking Insurance Transactions Tax (BITT) 246.205 Foreign Exchange Transactions Tax 58 Value Added Tax Payable 16.288 Other 117.251 Total 1.591.930 10.1.3. Information on Premiums Current Period Social Security Premiums - Employee 260 Social Security Premiums - Employer 376 Bank Social Aid Pension Fund Premium - Employee 11.988 Bank Social Aid Pension Fund Premium - Employer 16.712 Pension Fund Membership Fees and Provisions - Employee 1 Pension Fund Membership Fees and Provisions - Employer - Unemployment Insurance - Employee 1.894 Unemployment Insurance - Employer 3.790 Other - Total 35.021 145 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Current Period) (Continued) 11. Information on Deferred Tax Liabilities, if any The Group’s deferred tax liability, for the current term, amounts to TL 8.669 12. 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. 13. Explanations on Subordinated Debts The Group does not have any subordinated debts. 14. Information on Shareholders’ Equity 14.1. Presentation on Paid-In Capital Current Period Common stock 6.100.000 Preferred stock - 14.2. Paid-In Capital Amount, Explanation Whether the Registered Capital System is Applicable by The Parent Bank, if so the Registered Capital Ceiling Amount The Parent Bank does not have a registered capital system. 14.3. Information on Share Capital Increases and Their Sources; Other Information on Increased Capital Shares in the Current Period The decision of increasing the capital of Parent Bank by TL 6.100.000 is approved in General Assembly in 13 Agust 2018. Increase of capital and amendments according to the relevant materials of the Articles of Association was registered on 22 October 2018. It has been announced in the Trade Registry Gazette numbered 9367 dated 22 October 2018. The offsetting transactions of the mentioned capital increase was accounted on 9 November 2019 accordance with the permission from the Banking Regulation and Supervision Agency. Date of Capital Amount of increase Cash Profit reserves subject Capital reserves Increase to capital increase subject to capital increase 22.10.2018 500.000 500.000 - - 146 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Current Period)(Continued) 14. Information on Shareholders’ Equity (Continued) 14.4. Information on Additions from Capital Reserves to Capital in the Current Period There is no share capital amount included in capital. 14.5. 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 Bank has no capital commitments. 14.6. 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. 14.7. Information on Preferred Shares Representing The Capital The Bank has no preferred shares. 14.8. Information on Marketable Securities Value Increase Fund Current Period TL FC From Subsidiaries, Associates and Entities under Common Control 89.269 28.222 Revaluation Difference (4.133) 28.222 Foreign Exchange Difference 93.402 - From Available for Sale Marketable Securities (3.423.980) (2.783.053) Revaluation Difference (5.174.693) (2.783.095) Deferred Tax Effect 1.750.713 (12) Foreign Exchange Difference - 54 Total (3.334.711) (2.754.831) 147 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Prior Period) 15. Information on Deposits/Funds Collected 15.1. Information on Maturity Structure of Deposits Collected 7 Day 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 26.091.092 - 3.414.824 67.470.823 5.082.603 1.158.237 1.034.048 96.557 104.348.184 Foreign Currency Deposits 24.196.973 - 6.995.900 32.461.783 6.838.514 7.907.224 20.646.249 463 99.047.106 Residents in Turkey 19.470.588 - 6.127.263 25.418.213 3.898.520 3.032.340 5.592.478 290 63.539.692 Residents Abroad 4.726.385 - 868.637 7.043.570 2.939.994 4.874.884 15.053.771 173 35.507.414 Public Sector Deposits 6.128.722 - 7.166.830 7.427.947 992.332 5.516.199 56.872 - 27.288.902 Commercial Inst. Deposits 7.337.456 - 4.281.408 8.284.147 574.282 1.501.131 97.707 - 22.076.131 Other Inst. Deposits 2.170.712 - 2.098.970 3.580.174 385.560 829.811 1.159.978 - 10.225.205 Precious Metals 3.580.301 - 45.192 503.299 46.355 25.265 33.500 - 4.233.912 Interbank Deposits 2.104.256 - 6.801.769 2.168.481 1.098.715 2.338.050 838.902 - 15.350.173 CBRT 3.291 - - - - - - - 3.291 Domestic Banks 89.586 - 6.738.902 136.783 193.193 2.047 2.046 - 7.162.557 Foreign Banks 924.653 - 62.867 2.031.698 905.522 2.336.003 836.856 - 7.097.599 Participation Banks 1.086.726 - - - - - - - 1.086.726 Other - - - - - - - - - Total 71.609.512 - 30.804.893 121.896.654 15.018.361 19.275.917 23.867.256 97.020 282.569.613 15.2. Saving Deposits Under the Guarantee of Deposit Insurance and Exceeding the Deposit Insurance Limit Under the Guarantee of Exceeding Deposit Prior Period Deposit Insurance Insurance Limit Saving Deposits(1) 68.870.575 34.813.148 Foreign Currency Saving Deposits(1) 28.077.369 41.270.577 Other Deposits in the form of Saving Deposits - - Deposits at Foreign Branches and under the Guarantees of Foreign Authority Insurance(2) 858.357 101.979 Deposits at Off-Shore Banking Regions’ and under Foreign Authorities’ Insurance - - (1) Related deposit balances do not include foreign branches. (2) In Bulgaria and Greece, since both real person and legal entity’s saving deposits are under the guarantee of insurance and si nce such balances included in insurance limit are calculated by the system, the legal entity saving deposits amounting to TL 92.323 and TL 20.507 respectively, cannot be decomposed by type and are therefore included in the table above. Based on the Council of Minister’s decree dated 29 December 2003 and numbered 2003/6668, TL 917 of demand deposits is not included in the above calculation, since the Parent 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 the 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 718.659 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. 15.3. Information on Saving Deposits/Real Persons’ Private Current A nd Accession Accounts Not Related to Commercial Transactions in a Turkish Branch of The Bank Whose Head Office is Abroad, And Reasons if it is Covered in Where The Head Office is Located The Parent Bank’s head office is located in Turkey. 148 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Prior Period) (Continued) 15. Information on Deposits/Funds Collected(Continued) 15.4. Saving Deposits of Real Persons Not Covered by the Deposit Insurance Fund Prior Period Deposits and other Accounts in Branches Abroad 65.522 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 7.476 Deposits Obtained through Illegal Acts Defined in the 282nd 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 - 16. Negative Differences Related to the Derivative Financial Liabilities Held for Trading Prior Period TL FC Forward Transactions 71.896 25.208 Swap Transactions 161.436 286.392 Futures Transactions - - Options 2.174 1.804 Other - - Total 235.506 313.404 17. Information on Banks and Other Financial Institutions 17.1. General Information on Banks and Other Financial Institutions Prior Period TL FC Borrowings from CBRT 410.436 - Domestic Banks and Institutions 426.996 1.843.701 Foreign Banks, Institutions and Funds 925.624 27.511.496 Total 1.763.056 29.355.197 17.2. Maturity Structure of Funds Borrowed Prior Period TL FC Short-Term 826.393 8.772.026 Medium and Long-Term 936.663 20.583.171 Total 1.763.056 29.355.197 17.3. Further Information is Disclosed for the Areas Of Liability Concentrations. Main Liability Concentration Areas are Fund Suppliers, Sector Groups or other Risk Concentration Criteria 61,84% of the Group’s total liabilities and equity consist of deposits. Deposits have a diversified base and have steady structures. TheGroup’s liabilities are not subject to a significant concentration risk. 149 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Prior Period) (Continued) 18. Information on Funds Supplied from Repurchase Agreements Prior Period TL FC From Domestic Transactions 1.339.819 - Financial Institutions and Organizations 1.243.480 - Other Institutions and Organizations 90.588 - Real Person 5.751 - From Overseas Operations - 13.100.369 Financial Institutions and Organizations - 13.100.369 Other Institutions and Organizations - - Real Person - - Total 1.339.819 13.100.369 19. Information on Securities Issued Prior Period TL FC Bank Bonds 3.562.491 - Asset-Backed Securities 557.804 - Treasury Bills 177.752 9.176.233 Total 4.298.047 9.176.233 20. 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. 21. Information on Finance Lease Payables (Net) In the finance 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 financial leasing transactions. 150 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Prior Period) (Continued) 22. Information on Derivative Financial Liabilities for Hedging Purposes There are no derivative financial liabilities of the Group for hedging purposes 23. Explanations on Provisions 23.1. Information on General Provisions Prior Period General Provisions 5.635.198 Allocated for Group-I Loans and Receivables 4.680.739 Additional Provision for Loans and Receivables with Extended Maturities 311.350 Allocated for Group-II Loans and Receivables 236.317 Additional Provision for Loans and Receivables with Extended Maturities 79.190 Allocated for Non-cash Loans 596.880 Other 121.262 23.2. 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 12.990 23.3. Specific Provisions for Unindemnified Non-Cash Loans Specific provisions for unindemnified non-cash loans amount to TL 138.235 23.4. Information on Other Provisions 23.4.1. 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 1.475.000 which has a part of TL 530.000 from the current period, provided by the Group 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 25.150 and other provision of TL 217 exist for cash transfers made by Bank officials. Prior Period Free provisions for possible risks 1.500.384 23.4.2. 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 94.838. Full provision has been provided in these financial statements for law suits ended against the Bank but not finalized yet, amounting to TL 63.600. Together with the provision of consolidated with other associates amounting to TL 340, total provision for lawsuits of the Group amounts to TL 63.940. Based on the decision of the Parent Bank management, provision amounting to TL 38.850 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 conservatism principle without taking into consideration the guarantees of these loans. The Group also provided provisions amounting to TL 138.235 for unindemnified non-cash loans, and TL 142.464 (for other provisions. As a result of the provisions mentioned above, the other provision balance on the Group’s balance sheet amounts to TL 1.883.873 23.5. Liabilities on Reserve for Employee Termination Benefits 23.5.1. Employment Termination Benefits and Unused Vacation Rights The Bank 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 2017, unpaid vacation liability amounted to TL 258.763, and employment termination amounted to TL 820.157 are presented under the “Employee Benefits Provision” in the financial statements. 151 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Prior Period) (Continued) 23.5.2. Additional Bonus Provision Paid to Personel(Continued) The Group provided provisions amounting to TL 250.000 of additional bonus provision with the decission of General Assembly. 23.5.3. 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 2017. 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 3.442.106 as of 31 December 2017 Prior Period Fund Assets 2.038.024 Actual and Technique Deficit/Surplus Amount 3.442.106 The principal actuarial assumptions used are as follows: Prior Period Discount rate - Pension benefits transferable to SSI 9,80% - Post employment medical benefits transferable to SSI 9,80% To represent mortality rates both before and after retirement, CSO 1980 Female/Male mortality table is used. Plan assets are comprised as follows: Prior Period Bank Placements 1.612.918 Property and Equipment 127.096 Marketable Securities 125.000 Other 173.010 Total 2.038.024 152 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Prior Period) (Continued) 24. Information on Tax Liability 24.1. Information on Current Tax Liability 24.1.1. Information on Tax Provisions As of 31 December 2017, the remaining corporate tax liability after deducting temporary taxes paid for the period is TL 474.434. 24.1.2. Information on Current Taxes Payable Prior Period Corporate Tax Payable 474.434 Taxation on Income From Securities 193.987 Property Tax 2.570 Banking Insurance Transactions Tax (BITT) 164.067 Foreign Exchange Transactions Tax 106 Value Added Tax Payable 7.289 Other 132.581 Total 975.034 24.1.3 Information on Premiums Prior Period Social Security Premiums - Employee 37 Social Security Premiums - Employer 52 Bank Social Aid Pension Fund Premium - Employee 9.779 Bank Social Aid Pension Fund Premium - Employer 13.629 Pension Fund Membership Fees and Provisions - Employee 2 Pension Fund Membership Fees and Provisions - Employer 6 Unemployment Insurance - Employee 1.599 Unemployment Insurance - Employer 3.200 Other - Total 28.304 24.2 Information on Deferred Tax Liabilities, if any 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. The Bank’s deffered tax liability tax amounts to TL 277.306 .Information on calculated deferred tax including deductible temporary differences, financial losses, tax deductibles and tax exemptions is shown below: Prior Period Deferred Tax Assets 29.794 Deferred Tax Liabilities 307.100 Net Deferred Tax (Assets)/Liabilities (277.306) Net Deferred Tax Income / Expense (30.525) 153 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) III. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Prior Period) (Continued) 24. Information on Tax Liability (Continued) 24.2 Information on Deferred Tax Liabilities, if any (Continued) Prior Period Reserve for Employment Termination Benefits 163.176 Short Term Employee Benefits 50.538 Financial Assets Valuation (182.639) Other (308.381) Net Deferred Tax Assets/Liabilities (277.306) As of 31 December 2017, deferred tax expense amounting to TL 30.525 was classified on profit or loss table and deferred tax expense amounting TL 330.677 was classified under shareholders’ equity. 25. Information on Payables for Assets Held For Sale and Discontinued Operations The Group does not have a registered capital system. 26. Explanations on Subordinated Debts The Group does not have any subordinated debts. 27. Information on Shareholders’ Equity Prior Period Common stock 5.600.000 Preferred stock - 27.2. Paid-In Capital Amount, Explanation Whether the Registered Capital System is Applicable by The Bank, if so the Registered Capital Ceiling Amount The Group does not have a registered capital system. 27.3. Information on Share Capital Increases and Their Sources; Other Information on Increased Capital Shares in the Current Period There are no capital increases in the current period in Parent Bank. 27.4. Information on Additions from Capital Reserves to Capital in the Current Period There is no share capital amount included in capital. 27.5. 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 Bank has no capital commitments. 27.6. Indicators of The Bank’s Income, Profitability And Liquidity for The Previous Periods and Poss ible Effects of Future Assumptions Based on The Uncertainty of These Indicators on The Parent 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. 27.7. Information on Preferred Shares Representing The Capital The Bank has no preferred shares. 154 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) II. EXPLANATIONS AND NOTES RELATED TO LIABILITIES (Prior Period) (Continued) 27. Information on Shareholders’ Equity(Continued) 27.8. Information on Marketable Securities Value Increase Fund Prior Period TL FC From Subsidiaries, Associates and Entities under Common Control 3.375 - Revaluation Difference - - Foreign Exchange Difference 3.375 - From Available for Sale Marketable Securities (1.801.386) 844.055 Revaluation Difference (2.091.729) 844.213 Deferred Tax Effect 290.343 (158) Foreign Exchange Difference - - Total (1.798.011) 844.055 III. EXPLANATIONS AND NOTES TO CONSOLIDATED OFF-BALANCE SHEET ACCOUNTS 1. Information on Off-Balance Sheet Liabilities(Current Period) 1.1. Nature and Amount Of Irrevocable Loan Commitments Current Period Commitments for Credit Card Expenditure Limits 13.363.899 Other Irrevocable Commitments 14.238.136 Loan Granting Commitments 8.568.744 Payment Commitments for Cheques 2.876.102 Asset Purchase Commitments 7.262.309 Promotion Campaigns Commitments Relating to Credit Card and Bank Services 23.620 Tax and Fund Obligations Resulting from Export Commitments 6.925 Subsidiaries and Associates Capital Contribution Commitments - Total 46.339.735 1.2. Nature and Amount of Possible Losses and Commitments Arising From The Off-Balance Sheet Items Including The Below Mentioned The Group has provided provision amounting to TL 466.897 for possible losses arising from the off-balance sheet items in the current year. 1.2.1. Non-Cash Loans Including Guarantees, Acceptances, Financial Guarantees and Other Letter Of Credits Current Period Guarantee Letters 103.715.207 Letter of Credits 18.388.533 Bank Acceptances 8.317.026 Endorsement 202.092 Factoring Guarantees 2.172 Other Guarantees 1.010.273 Other Warrantees 12.405 Total 131.647.708 1.2.2. Certain Guarantees, Temporary Guarantees, Surety Ships and Similar Transactions Current Period Letters of Certain Guarantees 69.436.954 Letters of Advance Guarantees 21.139.028 Letters of Temporary Guarantees 3.572.721 Letters of Guarantees Given to Customs Offices 1.519.782 Other Letters of Guarantees 8.046.722 Total 103.715.207 155 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) III. EXPLANATIONS AND NOTES TO OFF-BALANCE SHEET ACCOUNTS (Current Period) 1. Information on Off-Balance Sheet Liabilities(Continued) 1.3. Explanations on Non-Cash Loans 1.3.1. Total Non-Cash Loans Current Period Non-Cash Loans for Providing Cash Loans 4.173.468 With Original Maturity of One Year or Less 1.752.900 With Original Maturity of More than One Year 2.420.568 Other Non-Cash Loans 127.474.240 Total 131.647.708 1.3.2. Information on Sectoral Risk Concentrations Of Non-Cash Loans Current Period TL (%) FC (%) Agricultural 495.417 1,17 153.897 0,17 Farming and Raising Livestock 375.354 0,89 56.539 0,06 Forestry 109.984 0,26 19.879 0,02 Fishing 10.079 0,02 77.479 0,09 Manufacturing 9.879.558 23,32 43.387.535 48,59 Mining and Quarrying 319.854 0,76 539.594 0,60 Production 6.300.370 14,87 39.630.275 44,38 Electric, Gas and Water 3.259.334 7,69 3.217.666 3,60 Construction 13.119.115 30,97 23.737.253 26,58 Services 18.203.823 42,98 20.901.588 23,41 Wholesale and Retail Trade 8.116.952 19,16 7.775.028 8,71 Hotel, Food and Beverage Services 230.019 0,54 729.738 0,82 Transportation and Telecommunication 1.734.910 4,10 5.003.296 5,60 Financial Institutions 6.135.365 14,48 5.791.813 6,49 Real Estate and Leasing Services 1.700.920 4,02 1.346.458 1,51 Self-employment Services - - - - Education Services 165.214 0,39 161.174 0,18 Health and Social Services 120.443 0,28 94.081 0,11 Other 660.938 1,56 1.108.584 1,24 Total 42.358.851 100,00 89.288.857 100,00 1.3.3. Information on the Non-Cash Loans Classified Under Group I and Group II Group I: Group II: TL FC TL FC Non-Cash Loans 41.695.054 87.592.050 490.688 1.590.010 Letters of Guarantee 41.388.917 59.993.150 490.688 1.567.282 Bank Acceptances 26.238 8.272.663 - 17.913 Letters of Credit 274.137 18.108.265 - 1.608 Endorsements - 202.092 - - Underwriting Commitments - - - - Factoring Guarantees - 2.172 - - Other Commitments and Contingencies 5.762 1.013.708 - 3.207 156 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) III. EXPLANATIONS AND NOTES TO OFF-BALANCE SHEET ACCOUNTS (Current Period) (Continued) 2. Explanations on Derivative Transactions Current Period Types of Trading Transactions Foreign Currency Related Derivative Transactions: (I) 110.290.000 Forward Transactions 5.747.547 Swap Transactions 104.496.879 Futures Transactions - Option Transactions 45.574 Interest Related Derivative Transactions (II) 28.545.660 Forward Interest Rate Agreements - Interest Rate Swaps 28.545.660 Interest Rate Options - Interest Rate Futures - Other Trading Derivative Transactions: (III) - A. Total Trading Derivative Transactions (I+II+III) 138.835.660 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) 138.835.660 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. 1-5 Over 5 Current Period Up to 1 Month 1-3 Months 3-12 Months Years Years Total Derivatives held for trading Foreign exchange derivatives (281.125) (976.998) 122.549 672.966 - (462.608) - Inflow 35.380.662 14.731.389 3.008.371 1.793.274 - 54.913.696 - Outflow (35.661.787) (15.708.387) (2.885.822) (1.120.308) - (55.376.304) Interest rate derivatives - - - - - - - Inflow - - - 612.937 13.659.893 14.272.830 - Outflow - - - (612.937) (13.659.893) (14.272.830) Derivatives held for hedging Foreign exchange derivatives - - - - - - - Inflow - - - - - - - Outflow - - - - - - Interest rate derivatives - - - - - - - Inflow - - - - - - - Outflow - - - - - - Total Inflow 35.380.662 14.731.389 3.008.371 2.406.211 13.659.893 69.186.526 Total Outflow (35.661.787) (15.708.387) (2.885.822) (1.733.245) (13.659.893) (69.649.134) 157 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) III. EXPLANATIONS AND NOTES TO OFF-BALANCE SHEET ACCOUNTS (Current Period) (Continued) 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. The Group’s liability resulting from the cheques given to its customers amounts TL 2.876.102 TL. 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 Group 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 Group does not provide consultancy and management services. 158 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) III. EXPLANATIONS AND NOTES TO CONSOLIDATED OFF-BALANCE SHEET ACCOUNTS(Prior Period) 5. Information on Off-Balance Sheet Liabilities 5.1. Nature and Amount Of Irrevocable Loan Commitments Prior Period Commitments for Credit Card Expenditure Limits 8.665.648 Other Irrevocable Commitments 10.318.492 Loan Granting Commitments 5.063.861 Payment Commitments for Cheques 3.761.934 Asset Purchase Commitments 4.829.656 Promotion Campaigns Commitments Relating to Credit Card and Bank Services 26.137 Tax and Fund Obligations Resulting from Export Commitments 1.966 Subsidiaries and Associates Capital Contribution Commitments - Total 32.667.694 5.2. Nature and Amount of Possible Losses and Commitments Arising From The Off-Balance Sheet Items Including The Below Mentioned In the current period, the Group has recorded a provision amounting to TL 138.235 for possible losses arising from off- balance sheet items. 5.2.1. Non-Cash Loans Including Guarantees, Acceptances, Financial Guarantees and Other Letter Of Credits Prior Period Guarantee Letters 81.154.998 Letter of Credits 14.525.459 Bank Acceptances 6.307.098 Factoring Guarantees 1.635 Other Guarantees 333.412 Other Warrantees 4.020 Total 102.326.622 5.2.2. Certain Guarantees, Temporary Guarantees, Surety Ships and Similar Transactions Prior Period Letters of Certain Guarantees 52.790.337 Letters of Advance Guarantees 18.527.924 Letters of Temporary Guarantees 3.653.864 Letters of Guarantees Given to Customs Offices 1.332.481 Other Letters of Guarantees 4.850.392 Total 81.154.998 5.3. Explanations on Non-Cash Loans 5.3.1. Total Non-Cash Loans Prior Period Non-Cash Loans for Providing Cash Loans 2.422.713 With Original Maturity of One Year or Less 806.113 With Original Maturity of More than One Year 1.616.600 Other Non-Cash Loans 99.903.909 Total 102.326.622 159 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) III. EXPLANATIONS AND NOTES TO CONSOLIDATED OFF-BALANCE SHEET ACCOUNTS (Prior Period) 5. Information on Off-Balance Sheet Liabilities (Continued) 5.3.2. Information on Sectoral Risk Concentrations Of Non-Cash Loans Prior Period TL (%) FC (%) Agricultural 91.690 0,25 25.014 0,04 Farming and Raising Livestock 28.383 0,08 - - Forestry 63.242 0,18 25.014 0,04 Fishing 65 0,00 - - Manufacturing 9.409.111 26,09 35.555.808 53,66 Mining and Quarrying 282.631 0,78 344.901 0,52 Production 5.453.249 15,12 32.920.814 49,69 Electric, Gas and Water 3.673.231 10,18 2.290.093 3,46 Construction 11.108.609 30,80 17.002.602 25,66 Services 14.371.943 39,85 12.612.077 19,03 Wholesale and Retail Trade 6.973.636 19,33 5.049.343 7,62 Hotel, Food and Beverage Services 200.820 0,56 403.658 0,61 Transportation and Telecommunication 1.492.421 4,14 2.425.130 3,66 Financial Institutions 4.122.232 11,43 3.542.223 5,35 Real Estate and Leasing Services 1.408.682 3,91 1.072.110 1,62 Self-employment Services - - 6.163 0,01 Education Services 99.825 0,28 39.886 0,06 Health and Social Services 74.327 0,21 73.564 0,11 Other 1.086.485 3,01 1.063.283 1,60 Total 36.067.838 100,00 66.258.784 100,00 5.3.3. Information on the Non-Cash Loans Classified Under Group I and Group II Group I: Group II: TL FC TL FC Non-Cash Loans 35.813.607 65.849.943 254.231 408.841 Letters of Guarantee 35.546.408 44.951.554 254.231 402.805 Bank Acceptances 30.004 6.277.094 - - Letters of Credit 233.745 14.285.679 - 6.036 Endorsements - - - - Underwriting Commitments - - - - Factoring Guarantees - 1.635 - - Other Commitments and Contingencies 3.450 333.981 - - 160 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) III. EXPLANATIONS AND NOTES TO CONSOLIDATED OFF-BALANCE SHEET ACCOUNTS (Prior Period) 6. Explanations on Derivative Transactions Prior Period Types of Trading Transactions Foreign Currency Related Derivative Transactions: (I) 85.346.631 Forward Transactions 9.280.272 Swap Transactions 75.342.881 Futures Transactions - Option Transactions 723.478 Interest Related Derivative Transactions (II) 10.496.622 Forward Interest Rate Agreements - Interest Rate Swaps 10.496.622 Interest Rate Options - Interest Rate Futures - Other Trading Derivative Transactions: (III) - A. Total Trading Derivative Transactions (I+II+III) 95.843.253 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) 95.843.253 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. 1-5 Over 5 Prior Period Up to 1 Month 1-3 Months 3-12 Months Years Years Total Derivatives held for trading Foreign exchange derivatives 293.918 (55.041) (18.587) 520.911 - 741.201 - Inflow 30.175.251 6.335.887 4.045.596 2.487.182 - 43.043.916 - Outflow (29.881.333) (6.390.928) (4.064.183) (1.966.271) - (42.302.715) Interest rate derivatives - - - - - - - Inflow - - - 201.322 5.046.989 5.248.311 - Outflow - - - (201.322) (5.046.989) (5.248.311) Derivatives held for hedging Foreign exchange derivatives - - - - - - - Inflow - - - - - - - Outflow - - - - - - Interest rate derivatives - - - - - - - Inflow - - - - - - - Outflow - - - - - - Total Inflow 30.175.251 6.335.887 4.045.596 2.688.504 5.046.989 48.292.227 Total Outflow (29.881.333) (6.390.928) (4.064.183) (2.167.593) (5.046.989) (47.551.026) 7. 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. The Group’s liability resulting from the cheques given to its customers amounts TL 3.761.934. As of the balance sheet date, there are no probable contingent liabilities resulting from past events whose amount can be reliably measured. 8. Explanations on Services in the Name of Others The Group 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 Group does not provide consultancy and management services. 161 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) IV. EXPLANATIONS AND NOTES RELATED TO INCOME STATEMENT(Current Period) 1. Within The Scope of Interest Income 1.1. Information on Interest Income from Loans Current Period TL FC Interest on Loans (1) 35.961.179 7.392.436 Short Term Loans 10.622.841 737.489 Medium and Long Term Loans 24.925.013 6.648.395 Interest on Non-Performing Loans 413.325 6.552 Premiums from Resource Utilization Support Fund - - (1) Includes fees and commissions income on cash loans. 1.2. Information on Interest Received from the Banks Current Period TL FC Central Bank of the Republic of Turkey 64.265 - Domestic Banks 365.912 7.810 Foreign Banks 19.515 36.235 Foreign Head Office and Branches - - Total 449.692 44.045 1.3. Information on Interest Income on Marketable Securities Current Period TL FC Financial Assets Held for Trading 5.041 1.652 Financial Assets at Fair Value through Profit or Loss 8.686.303 1.326.736 Investments Held-to-Maturity 739.208 362.557 Total 9.430.552 1.690.945 1.4. Information on Interest Income from Subsidiaries and Associates The Group has no interest income from its subsidiaries and affiliates. 2. Within the Scope of Interest Expense 2.1. Information on Interest Expense on Borrowings Current Period TL FC Banks (1) 236.002 1.246.290 Central Bank of the Republic of Turkey 6.488 - Domestic Banks 140.054 130.030 Foreign Banks 89.460 1.116.260 Foreign Head Office and Branches - - Other Institutions - 19.549 Total 236.002 1.265.839 (1) Includes fees and commissions expenses on cash loans. 162 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO INCOME STATEMENT (Current Period) (Continued) 2.2 Information on Interest Expenses Given to Subsidiaries and Associates Current Period Interest Expenses Given to Subsidiaries and Associates 2.184 2.3 Information on Interest Given on Securities Issued Current Period TL FC Interest Given on Securities Issued 686.853 574.783 2.4 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 - 1.626.763 7.434 - 88 311 - 1.634.596 Saving Deposit 16 376.260 9.703.455 738.891 183.588 200.648 5.941 11.208.799 Public Sector Deposit 501 618.761 730.264 170.790 673.676 8.867 - 2.202.859 Commercial Deposit 167 766.721 1.100.516 178.632 227.880 4.994 - 2.278.910 Other Deposit 7 192.301 504.804 112.567 135.508 39.804 - 984.991 Deposit with 7 Days Notification - - - - - - - - Total 691 3.580.806 12.046.473 1.200.880 1.220.740 254.624 5.941 18.310.155 FC Foreign Currency Deposit 1.894 254.328 1.050.820 127.552 158.910 426.526 - 2.020.030 Bank Deposit 2.669 169.638 10.233 2.569 5.928 3.682 - 194.719 Deposit with 7 Days Notification - - - - - - - - Precious Metal Deposits - 4.262 5.262 478 301 384 - 10.687 Total 4.563 428.228 1.066.315 130.599 165.139 430.592 - 2.225.436 Grand Total 5.254 4.009.034 13.112.788 1.331.479 1.385.879 685.216 5.941 20.535.591 3. Explanations on Dividend Income Current Period Financial Assets at Fair Value Through Profit or Loss - Financial Assets at Fair Value Through Other Comprehansive Income 3.218 Other (1) 1.590 Total 4.808 (1) Shows the Bank’s dividend income from subsidiaries, associates and entities under common control. 4. Information on Trading Profit/Loss (Net) Current Period Profit 117.400.870 Foreign Exchange Gains 115.241.382 Profit on Derivative Financial Instruments 2.139.338 Profit from the Capital Market Transactions 20.150 Loss (-) 121.202.026 Foreign Exchange Loss 114.985.130 Loss on Derivative Financial Instruments 6.207.605 Loss from the Capital Market Transactions 9.291 163 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO INCOME STATEMENT (Current Period) (Continued) 5. Information on Other Operating Income 5.1. Information on Factors Covering The Recent Developments which has Significant Effect on The 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 Group ’s income. Besides, of the Bank’s other operating income consists of reversals from prior period provisions amounting to TL 1.099.238, income from sales of assets amounting to TL 40.334 and revenue from insurance transactions of amount to TL 2.123.180 6. Provision for Impairment on Loans and Other Receivables of Banks Expected Loss Provisions According to TFRS 9 Current Period Expected Credit Loss Provisions 5.154.583 12 month expected credit loss (stage 1) 596.737 Significant increase in credit risk (stage 2) 2.142.747 Non-performing loans (stage 3) 2.415.099 Marketable Securities Impairment Expense 1.095 Financial Assets at Fair Value through Profit or Loss 101 Financial Assets at Fair Value Through Other Comprehensive Income 994 Subsidiaries, Associates and Entities under Common Control Provision Expenses for Impairment - Associates - Subsidiaries - Joint Ventures - Other 70.011 Total 5.225.689 164 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO INCOME STATEMENT (Current Period) (Continued) 7. Information on Other Operating Expenses Current Period Personnel Expenses(2) 3.175.068 Reserve for Employee Termination Benefits 111.169 Bank Social Aid Provision Fund Deficit Provision - Tangible Fixed Assets Impairment Expense 101 Depreciation Expenses of Tangible Fixed Assets 263.335 Intangible Assets Impairment Expense - Goodwill Impairment Expense - Amortization Expenses of Intangible Assets 97.869 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 - Impairment Expense for Property, Plant and Equipment Held for Sale and Discontinuing Operations 63 Other Operating Expenses 3.276.722 Operational Leasing Expenses 342.172 Maintenance Expenses 114.339 Advertisement Expenses 218.806 Other Expenses 2.601.405 Loss on Sales of Assets 1.013 Other (1) 2.233.336 Total 9.158.676 (1) TL 693.822 of other items consists of Saving Deposit Insurance Fund accrual expense while TL 684.282 consists of taxes, duties and charges expense (2) This table also includes “Personnel Expenses” which is not in the “Other operating expenses”, but is a separate item. 8. 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 Net Interest Income 23.865.457 Net Fees and Commissions Income 2.694.706 Other Operating Income 3.450.126 Dividend Income 4.808 Trading Income/Expense (Net) (3.801.156) Personnel Expenses 3.175.068 Expected Loss Porvisions (-) 5.225.689 Other Operating Expenses (-) 5.983.608 Income / Loss from Subsidiaries Consolidated with Equity Pick-up 46.756 Profit / (Loss) From Continuing Operations 11.876.332 9. Information on Tax Provision for Continuing and Discontinuing Operations As of 31 December 2018, TL 2.532.212 of the Bank’s total tax provision expense consists of amounting to TL 2.721.984 current tax expense while remaining balances amounting to TL 189.772 consists of deferred tax income. 165 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED INCOME STATEMENT (Current Period) (Continued) 10. Explanation on Net Income/Loss for the Period for Continued and Discontinued Operations The Group’s net operating income after tax amounts to TL 9.344.120 11. Information on Net Profit/Loss 11.1. 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. 11.2. 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 12. 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” statement under the “Fees and Commission Income” in the Income Statement mainly consists of commissions received from credit card and fees and commissions received from banking transactions. 166 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED INCOME STATEMENT 13. Interest Income for the Period Ended 31 December 2017 13.1. Information on interest income received from loans for the period ended 31 December 2017 Prior Period TL FC Interest on Loans (1) 25.380.131 4.179.331 Short Term Loans 6.475.997 279.080 Medium and Long Term Loans 18.780.028 3.900.109 Interest on Non-Performing Loans 124.106 142 Premiums from Resource Utilization Support Fund - - (1) Includes fees and commissions income on cash loans. 13.2. Information on Interest Income Received from Banks for the Period Ended 31 December 2017 Prior Period TL FC Central Bank of the Republic of Turkey 22.831 - Domestic Banks 226.587 5.180 Foreign Banks 5.493 11.261 Foreign Head Office and Branches - - Total 254.911 16.441 13.3. Information on Interest Received from Marketable Securities for the Period Ended 31 December 2017 Prior Period TL FC Financial Assets Held for Trading 1.037 5.101 Financial Assets at Fair Value through Profit or Loss - - Financial Assets Available-for-Sale 4.734.678 844.327 Investments Held-to-Maturity 347.565 317.534 Total 5.083.280 1.166.962 13.4. Information on interest income received from associates and subsidiaries for the period ended 31 December 2017 None 14. Interest Expense for the Period Ended 31 December 2017 14.1. Information Related to the Loans Given for the Period Ended 31 December 2017 Prior Period TL FC Banks (1) 114.876 586.961 Central Bank of the Republic of Turkey 2.345 - Domestic Banks 20.321 23.771 Foreign Banks 92.210 563.190 Foreign Head Office and Branches - - Other Institutions - 20.100 Total 114.876 607.061 (1) Includes fees and commissions expenses on cash loans. 14.2. Information on Interest Expense Given to Associates and Subsidiaries for the Period Ended 31 December 2017 Prior Period Interest Expenses Given to Subsidiaries and Associates 1.109 167 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED INCOME STATEMENT 14.3. Information on the Obligations Issued to the Securities Issued for the Period Ended 31 December 2017 Prior Period TL FC Interest Given on Securities Issued 405.944 318.980 14.4. Indication of Interest Paid to the Deposits for the Period Ended 31 December 2017 by Maturity Structure 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 - 757.030 382 - - - - 757.412 Saving Deposit 1 261.053 6.080.075 425.043 85.313 76.798 2.542 6.930.825 Public Sector Deposit 904 392.861 606.224 182.421 524.564 4.667 - 1.711.641 Commercial Deposit 235 341.644 908.552 134.950 152.702 2.428 - 1.540.511 Other Deposit 56 108.442 296.653 33.194 46.523 98.444 - 583.312 Deposit with 7 Days Notification - - - - - - - - Total 1.196 1.861.030 7.891.886 775.608 809.102 182.337 2.542 11.523.701 FC Foreign Currency Deposit 1.118 123.974 428.491 67.960 68.637 270.058 4 960.242 Bank Deposit 12 67.827 45.209 3.674 813 1.121 - 118.656 Deposit with 7 Days Notification - - - - - - - - Precious Metal Deposits - 183 2.680 223 147 153 - 3.386 Total 1.130 191.984 476.380 71.857 69.597 271.332 4 1.082.284 Grand Total 2.326 2.053.014 8.368.266 847.465 878.699 453.669 2.546 12.605.985 15. Explanations on Dividend Income for the Period Ended 31 December 2017 Prior Period Trading Financial Assets - Financial Assets at Fair Value Through Profit or Loss - Available-for-Sale Financial Assets 4.760 Other (1) 2.989 Total 7.749 (1) Shows the Bank’s dividend income from subsidiaries, associates and entities under common control. 16. Explanations on Commercial Profit / Loss for the Year Ended 31 December 2017 (Net) Prior Period Profit 40.052.320 Foreign Exchange Gains 38.704.602 Profit on Derivative Financial Instruments 1.302.240 Profit from the Capital Market Transactions 45.478 Loss (-) 40.897.973 Foreign Exchange Loss 38.729.296 Loss on Derivative Financial Instruments 2.167.363 Loss from the Capital Market Transactions 1.314 168 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED INCOME STATEMENT 17. Explanations on Other Operating Income for the Period Ended 31 December 2017 There are no significant matters covering the recent developments which have significant effect on the Group ’s income. Besides, of the Bank’s other operating income consists of reversals from prior period provisions amounting to TL 697.240 and income from sales of assets amounting toTL 211.106 18. Provision for Impairment Losses on Loans and Other Receivables of the Banks for the Period Ended 31 December 2017 Prior Period Specific Provisions for Loans and Other Receivables (1) 1.236.318 Group III Loans and Receivables 446.771 Group IV Loans and Receivables 416.732 Group V Loans and Receivables 372.815 General Provision Expenses 1.582.806 Provision Expenses for the Possible Losses 549.065 Marketable Securities Impairment Expense 419 Financial Assets at Fair Value through Profit and Loss - Financial Assets Available for Sale 419 Impairment Losses from Associates, Subsidiaries, Joint Ventures and Marketable Securities Held to Maturity - Associates - Subsidiaries - Entities under Common Control (Business Partners) - Investment Securities Held to Maturity - Other 124.736 Total 3.493.344 (1) The related amount represents the period expense and the provision reversal amounting to TL 569.527 is included in other operating income. 19. Information on Other Operating Expenses for the Period Ended 31 December 2017 Prior Period Personnel Expenses 2.744.161 Reserve for Employee Termination Benefits 93.119 Bank Social Aid Provision Fund Deficit Provision - Tangible Fixed Assets Impairment Expense - Depreciation Expenses of Tangible Fixed Assets 266.586 Intangible Assets Impairment Expense 1.068 Goodwill Impairment Expense - Amortization Expenses of Intangible Assets 74.696 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 - Impairment Expense for Property, Plant and Equipment Held for Sale and Discontinuing Operations 931 Other Operating Expenses 2.082.380 Operational Leasing Expenses 290.352 Maintenance Expenses 71.888 Advertisement Expenses 140.886 Other Expenses 1.579.254 Loss on Sales of Assets 719 Other (1) 2.705.343 Total 7.969.003 (1) TL 549.373 of other items consists of Saving Deposit Insurance Fund accrual expense while TL 529.343 consists of taxes, duties and charges expense 169 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IV. EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED INCOME STATEMENT 20. Information on profit / loss before taxes and losses for continuing operations and discontinued operations for the year ended 31 December 2017 The Group does not have any discontinuing operations. The compositions of the profit/loss before tax from the continuing operations are following: Prior Period Net Interest Income 18.114.337 Net Fees and Commissions Income 1.943.504 Other Operating Income 3.737.922 Dividend Income 7.749 Trading Income/Expense (Net) (845.653) Provision for Loan or Other Receivables Losses (-) 3.493.344 Other Operating Expenses (-) 7.969.003 Earning/Loss from Subsidiaries Consolidated with Equity Pick-up 20.359 Profit / (Loss) From Continuing Operations 11.515.871 21. Information on Tax Provision for Discontinued Operations and Discontinued Operations for the Period Ended 31 December 2017 As of 31 December 2017, TL 2.631.539 of the Group’s total tax provision expense amounting to TL 2.601.014 consists of current tax expense while remaining balances amounting to TL 30.525 consists of deferred tax expense. 22. Statement of Net Income / Loss for the Period Ended 31 December 2017 and Discontinued Operations The Group’s net operating income after tax amounts to TL 8.884.332 23. Explanation on net profit / loss for the period ended 31 December 2017 23.1. Explanation of Quality, Size and Repetition Rate of Income and Expense Items Due to Ordinary Banking Transactions for the Period Ended on December 31, 2017 The Group, 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. 23.2. The Effects of the Amendment to the Income Statement for the Period Ended 31 December 2017 on Profit / Loss Effects As of December 31, 2017, there are no changes in the estimates made in relation to the financial statement items. 24. In case the other items in the income statement exceed the 10% of the income statement, the sub-accounts constituting at least 20% of these items are shown for the Period Ended 31 December 2017. The “Others” item under the “Commissions and fees” in the income statement is composed of comm issions and fees from major credit card transactions and banking transactions. 170 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) V. EXPLANATIONS AND NOTES RELATED TO THE CHANGES IN SHAREHOLDERS’ EQUITY 1. Explanations on Changes in Shareholders’ Equity according to Turkey Accounting Standards and Inflation Adjustment Differences for Equity Items Considering the Ranking of Items in the Table As per the BRSA’s Circular numbered 5 announced on 28 April 200 5, 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. 2. Explanations on Profit Distribution Pursuant to the decision taken at the 2017 Ordinary General Assembly Meeting held on August 13, 2018, the first legal reserves from 7.940.121 TL period net profit, of TL 397.006, the first legal reserve of TL 397.006 and the second legal reserve of TL 25.000 The Company decided to allocate TL 280.000 as a first dividend and TL 250.000 as additional payment to the personnel. 50% of the sales revenue of the real estates sold in 2017 was transferred to Other Reserves for TL 77.722 thousand, which will be monitored in a special fund account. Within this framework, it has been decided to leave the Bank amounting to TL 7.160.393 within the Bank. Bank is planning to distribute its profit on 2016 in accordance with its articles of association. However, as of the report date, there is no decision taken regarding the profit distribution. 3. Profit Reserves As of the balance sheet date, profit reserves amount to TL 37.320.380, legal reserves amount to TL 4.026.361 extraordinary reserves amount to TL 31.732.384 and other profit reserves amount to TL 1.561.635. 171 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) VI. EXPLANATIONS ON CONSOLIDATED CASH FLOW STATEMENTS 1. Explanations on the “Other” items and “The Effect of the Change in Foreign Currency on Cash and Cash Equivalent” item in the Cash Flow Statement Operating Profit before Changes in Operating Assets and Liabilities” amounting to TL 1.892.753 is composed mainly from interest received from loans and securities amounting to TL 50.363.075 and interest paid to deposit and money market operations which is amounting to TL 30.573.694 Other earnings consists primarily net fee, commission income and other operation revenue/expenses. 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 5.015.333 as of 31 December 2017 (31 December 2017: TL 1.404.479). 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 3.942.062 2.792.776 Central Bank of the Republic of Turkey and Other Banks 9.765.064 12.854.193 Money Market Operations 132.385 252.944 Total Cash and Cash Equivalents 13.839.511 15.899.913 Period End Current Period Prior Period Cash in TL and in Foreign Currency 5.159.473 3.942.062 Central Bank of the Republic of Turkey and Other Banks 22.885.886 9.765.064 Money Market Operations 250.087 132.385 Total Cash and Cash Equivalents 28.295.446 13.839.511 VII. EXPLANATIONS AND NOTES TO THE RISK GROUP OF THE PARENT BANK 1. Information on the Deposits of the Parent Bank's Risk Group Current Period Subsidiaries, Associates and Direct or Indirect Other Real and Entities Under Common Shareholders Legal Persons in Risk Group of the Parent Bank Control (Joint Ventures) of the Parent Bank the Risk Group Cash Non-cash Cash Non-cash Cash Non-cash Loans Opening Balance - 37.252 - - - 78.923 Closing Balance - 45.815 - - - 648.530 Interest and Commissions Income - - - - - - 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 Parent Bank the Risk Group Cash Non-cash Cash Non-cash Cash Non-cash Loans Opening Balance 22.397 25.951 - - - 59.823 Closing Balance - 37.252 - - - 78.923 Interest and Commissions Income (1) - - - - - - (1) Represent the amount of interest and commissions income as of 31 December 2017. 172 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) VII. EXPLANATIONS AND NOTES TO THE RISK GROUP OF THE PARENT BANK 2. Deposits Held By The Bank’s Risk Group Current Period Subsidiaries, Associates and Direct or Indirect Other Real and Entities Under Common Shareholders Legal Persons in Risk Group of the Parent Bank Control (Joint Venture) of the Parent Bank the Risk Group Deposits Opening Balance 26.398 - 17.708 Closing Balance 27.657 - 13.974 Interest Expense on Deposits 2.184 - 14.504 Prior Period Subsidiaries, Associates and Direct or Indirect Other Real and Entities Under Common Shareholders Legal Persons in Risk Group of the Parent Bank Control (Joint Venture) of the Parent Bank the Risk Group Deposits Opening Balance 30.244 - 22.247 Closing Balance 26.398 - 17.708 Interest Expense on Deposits (1) 1.109 - 3.429 (1) The prior period balance of the deposit interest expense represents the amount at 31 December 2017 3. Information on Forward Transactions, Option Agreements and Similar Transactions Between the Bank’s Risk Group None. (31 December 2017:None). 4. Information about Fees Paid to the Bank’s Key Management Fees paid to the Bank’s key management amount to TL 31.434 (31 December 2017:27.357TL). 173 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION FIVE (Continued) EXPLANATIONS AND NOTES RELATED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) VIII. EXPLANATIONS AND NOTES RELATED TO SUBSEQUENT EVENTS None. IX. EXPLANATIONS AND NOTES RELATED TO DOMESTIC, FOREIGN, OFF-SHORE BRANCHES OR AFFILIATES AND FOREIGN REPRESENTATIVES OF THE BANK 1. Information on the Bank’s Domestic and Foreign Branches and Foreign Representatives of The Bank Number of Number Employees Domestic Branch (1) 1.750 24.559 Country of Incorporation Foreign Representative Office (2) 1 - 1- Iran Statutory Share Total Assets Capital Foreign Branch (2) 1 4 1- England 8.127.929 275.574 4 3 2- Bulgaria 453.668 85.239 2 4 3- Iraq 1.063.775 262.110 3 4 4- Greece 561.578 197.782 1 3 5- Saudi Arabia 1.827.563 78.633 3 - 6- Kosovo 273.508 59.934 8 33 7- T.R. of Northern Cyprus 2.089.848 190.488 1 3 8- Bahrain 16.047.579 26.211 Off-Shore Banking Region Branches - - - - - (1) The number of Head Office and Regional Directorates employees are included in the number of employees in the Domestic Branches. (2) Excluding the local employees of the foreign branches. 2. Information on The Bank About Opening, Closing, Changing its Organization Considerably for Domestic and Foreign Branches and Foreign Representatives of The Bank: In 2018, 2 new branches were opened, 11 branches were closed in Turkey. Prizren and Peja branchs in Kosovo are opened abroad. 174 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION SIX OTHER EXPLANATIONS I. INFORMATION ON THE BANK’S RATING THAT HAS BEEN DETERMINED BY INTERNATIONAL RATING AGENCIES Information on the assessment done by the international rating agencies Moody’s Investor s Service, Fitch Ratings and JCR Eurasia are as follows: Moody’s Investors Service: September 2018 Outlook Negative Long term Foreign Currency Deposit B2 Short term Foreign Currency Deposit Not-Prime Long term Turkish Liras Deposit B1 Short term Turkish Liras Deposit Not-Prime Long term Foreign Currency Bond B1 Long term Turkish Lira Bond B1 Basic Credit Note b2 Adjusted Basic Credit Note b2 Fitch Ratings: October 2018 FC Long Term B+/Negative FC Short Term B TL Long Term BB/Negative TL Short Term B National Long Term AA (tur)/Stable Support 4 Support Rating Base B+ Financial Capability Grade b+ JCR Eurasia: October 2018 Long Term International FC BBB - Outlook Negative Long Term International TL Grade BBB - Outlook Negative Long Term National Grade AAA (Trk) Outlook Stable Short Term International FC A-3 Outlook Negative Short Term International TL Grade A-3 Outlook Negative Short Term National Grade A-1+ (Trk) Supporting Grade 1 Independence from Affiliates Grade A II. OTHER EXPLANATIONS ON THE BANK’S OPERATIONS None. 175 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 2018 (Unless otherwise stated amounts are expressed in Turkish Lira (“TL”).) SECTION SEVEN EXPLANATIONS ON INDEPENDENT AUDITORS’ REPORT I. EXPLANATIONS ON INDEPENDENT AUDITORS’ REPORT As of 31 December 2018, consolidated financial statements and explanatory notes of the Bank disclosed herein were audited by KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (the Turkish member firm of KPMG International Cooperative, a Swiss entity) and Independent Auditors’ Report date 27 February 2019 is presented preceding the financial statements. II. EXPLANATIONS AND NOTES PREPARED BY THE INDEPENDENT AUDITORS None. 176