Convenience translation into english

XX. AVALIZED DRAFTS AND ACCEPTANCES

Avalized drafts and acceptances shown as liabilities against assets are included in the off-balance sheet commitments. No material loss is expected as a result of these transactions.

XXI. GOVERNMENT GRANTS
There is no government grant and support for the Bank.
SECTION FOUR

INFORMATION RELATED TO FINANCIAL POSITION

1. STRATEGY OF USING FINANCIAL INSTRUMENTS AND EXPLANATIONS ON FOREIGN CURRENCY TRANSACTIONS

The Bank’s main operating activity is banking including retail banking, corporate banking, private banking, foreign exchange, money markets and securities transactions (treasury transactions) and international banking services. By nature, the Bank’s activities are principally related to the use of financial instruments. As the main funding source, the Bank accepts deposits from customers for various periods and invests these funds in high quality assets with high interest margins. Other than deposits, the Bank’s most important funding sources are equity and mostly intermediate and long term borrowings from foreign financial institutions. The Bank follows an

assets-liabilities management strategy that mitigates risk and increases earnings by balancing the funds borrowed and the investments on various financial assets with longer periods at higher rates. The Bank has sufficient liquidity. In liquidity management, it is imperative to take into account the term structure of assets and liabilities. The main objective of asset and liability management is to limit the Bank’s exposure to liquidity risk, interest rate risk, currency risk and credit risk while increasing profitability and strengthening the Bank’s equity. The Asset and Liabilities Committee (“ALCO”) manages the assets and liabilities within the trading limits on the level of exposure, placed by the Executive Risk Committee (“ERC”).
Investments in credits and securities, within the frame of their term structure and market conditions, are the areas that generate a higher income than the average calculated for the Bank’s overall areas of activity. In terms of liquidity management, deposit placements in banks have shorter terms and usually lower interest.
To take the advantage of short term capital market fluctuations in currency, interest and price, the Bank takes exposure within the set limits and market conditions. The ERC constantly monitors these exposures and updates the trading limits that are applied according to daily conditions.

The Bank controls and manages the currency risk exposure that arises from foreign currency transactions and foreign currency denominated securities in available-for-sale and other portfolios by using natural hedges that arise from offsetting foreign currency denominated assets and liabilities and with various derivative financial instruments. Currency risk of investments in foreign affiliates and subsidiaries is also managed with similar protective methods.

Interest rate risk is managed on a portfolio basis by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities.
Detailed explanations regarding the Bank’s risk management are given in the notes numbered III, IV, V, VI and VII of this section.