JSC Ziraat Bank’s
Tbilisi Branch
Financial Statement
as ofDecember 31, 2012
and
Independent Auditors’ Report
Tbilisi
2013
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Content
Independent auditors’s report
Financial statement
Balance...... 5
Statement of income& loss ...... 6
Statement of cash flow ……………………………………………………………………………………….7
Statement on changes in the equity ...... 8
Explanatory notes on financial statement
1.introduction...... 9
2. Basis of Preparation and accounting policy principles ...... 10
3. Adoption of new and revised standards and interpretations ...... 13
4. Cash and cash equivalents ...... 15
5. Requirements to banks and other financial institutions ...... 16
6.Investments held before payment ...... 17
7. Loans and receivablesto customers ...... 17
8. Fixed assets ...... 20
9. Intangible Assets...... 21
10. Other assets ...... 21
11. Liabilities to customers ...... 22
12. Other liabilities ...... 22
13. Equity ...... 23
14. Contingent liabilities...... 24
15. Interest income and expenses ...... 24
16. Fee and comission income and expenses ...... 25
17. Administration and operation expenses ...... 25
18. Management of financial risks ...... 26
19. Related party transactions ...... 29
20. Adjustments of the previous period ...... 29
21. Uncertain liabilities...... 30
22. Events after the balance sheet date ...... 30
Independent Auditors’ Report
Tothe management and shareholders of JSC Ziraat Bank’s Tbilisi Branch
We haveauditedthe accompanying financial statement of JSC "Ziraat Bank’sTbilisiBranch", which comprises the statement of balance sheet, statement of comprehensive income, statementof cash flow, statement on the changes in the equity and accounting policy review as of December31, 2012and explanatory notes.
Management's responsibility for the financial reporting
The management is responsible for preparation and fair presentation of these financial statementsin compliance with theInternational FinancialReportingStandards. The mentioned responsibilities include: preparation of financial statementwithout accidental or intentional substantialinaccuracies anddesigning, implementation and maintaining internal control mechanisms for fair presentation of financial statements.
Auditor's Responsibility
We are obliged toexpress our opinion with respect to this financialstatementbased on our audit.Theaudit was conducted in accordance with theinternational standards on auditing. Those standards require that we comply with ethical requirements and plan and conduct such audits in order to obtain the reasonable assurance whether such financial statements are free from material misstatements.
The audit involvesperforming the proper procedures in order to obtain the audit evidenceon the amounts and the informaitonproduced in this financial statement. The selected procedures depend on the auditor’sprofessional judgement, including the risks assessment ofmaterial misstatementinthe financial statement whether due to fraud or error. While assessingsuch risks, the auditors consideredthe internal control system that is related to preparation and fair presentation of the financial statementsby the entityin order to design audit procedures and submitthe reporton the effectiveness of the entity's internal control system.The audit also includes evaluating the appropricy of accounting policies applied by the managementand evaluation of accounting assessmentcompliance, as well as the assessment of statement submission.
We consider that the conducted audit provides sufficient basis for making the conclusions.
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conclusion
In our opinion, the presented financial statements, taking into account all the material aspects, fairly reflect the financial position of the Bank as ofDecember 31,2012, as well as the financial results of the Bank’s performanceand its cash flows for theyear then ended in accordance with the International Financial Reporting Standards.
Marine Qshutashvili
Director
Ltd ” Georgian Audit”
Berdo Khutsishvili
Auditor
Tbilisi, 29April 2013.
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ს.ს ”ინვესტბანკი”
მოგება-ზარალის ანგარიშგება 2010 წლის 31 დეკემბრის მდგომარეობით
(throusands in GEL) Notes 31.12.2012 31.12.2011
AssetsCash and cash equivalents / 4 / 4,326 / 4,020
Requirements to banks and other financial institutions / 5 / 683 / 810
Investments held before payment / 6 / 16,817 / 15,295
Loans and receivablesto customers / 7 / 2,066 / 1,843
Pre-paid profit tax and other taxes / 62 / 239
Fixed assets / 8 / 1,049 / 1,326
Intangible assets / 9 / 176 / 189
Other assets / 10 / 122 / 143
Total assets / 25,301 / 23,865
liabilities
Liabilities to customers / 11 / 7,535 / 6,362
Other liabilities / 12 / 519 / 433
TotalLiabilities / 8,054 / 6,795
Equity
Reserve(equity) fund / 15,204 / 15,204
Retained earnings of the previous years / 1,887 / 1,276
income-loss of the current period / 156 / 590
Total Capital / 17,247 / 17,070
Total liabilities and reserve fund / 25,301 / 23,865
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Hasan Ferit Yucheyilmaz David Kistauri
General Director Chief Accountant
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JSC Ziraat Bank Tbilisi Branch
Statement of income-loss as of December 31, 2012
(thousands in GEL) Notes 31.12.2012 31.12.2011
Interest incomeLoans to customers / 259 / 209
Securities / 961 / 1,360
Funds deposited in other banks / 137 / 130
Interest income from securities / 43 / 23
1,400 / 1,722
Interest expenses
Customers’ accounts / (70) / (43)
Amounts payable to other banks / (1) / (1)
(71) / (44)
Net interest income / 15 / 1,329 / 1,678
Reserves on asstes losses / 38 / 84
Net interest income after reserve on credit portfolio impairment / 1,367 / 1,762
Fee and commission income / 460 / 453
Fee and commission expense / (57) / (57)
Net fee and comission income / 16 / 403 / 396
Gains /losses from currency sell-purchase operation / 242 / 202
Gains/loss from from foreign currency revaluation / (16) / (44)
Other opeation incomes / 22 / 52
Total non-interest income / 248 / 210
Administrative and other operational expenses / 15 / (1,850) / (1,722)
Other assets reserve / (12) / (56)
(1,862) / (1,778)
Gains /loss before tax / 156 / 590
Income tax expense
Gains /loss
Net Gains /Loss / 156 / 590
______
Hasan Ferit Yucheyilmaz David Kistauri
General Director Chief Accountant
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The notes set out on pages 9 to 33 form an integral part of these financial statements
JSC Ziraat Bank Tbilisi Branch
Statement of cash flow as of December31, 2012
(thousands in GEL) / Notes / 31.12.2012 / 31.12.2011Cash flows from operations
Income before tax / 156 / 590
Depreciation and amortization / 313 / 99
Total / 469 / 689
Net increase/decrease of reserves deposited in National Bank of Georgia / 127 / (556)
Net increase/decrease of investments
held before payment
(1,522) / 1,531
Net increase/decrease of term deposits / - / -
Net increase/decrease of loans to customers / (223) / (814)
Net increase/decrease of prepaid income tax and other taxes / 177 / 240
Net increase/decrease of deferred profit tax / - / 3
Net increase/decrease of other assets / 21 / (198)
Net increase/decrease of balance on customers’ current accouts / 1,173 / (1,438)
Net increase/decrease of other liabilities / 86 / 206
Net cash flows from operations / 308 / (337)
Cash flow from investment operations
Purchase of fixed assets / (23) / (1,355)
Income from sell of fixed assets / 21 / 25
Net cash flow from investment operations / (2) / (1,330)
Net increase/decrease of cash and cash equivalents / 306 / (1,865)
Cash and cash equivalents at the start of the year / 4,020 / 5,687
Cash and cash equivalents at the end of the year / 4 / 4,326 / 4,020
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Hasan Ferit Yucheyilmaz David Kistauri
General Director Chief Accountant
The notes set out on pages 9 to 33 form an integral part of these financial statements
JSC Ziraat Bank Tbilisi Branch
Gains -Loss Statement as of 31 December 2012
Note / General(equity)
reserves / Retained earnings / Total own equity
Balance as at December 31, 2010 / 15,204 / 1,298 / 16,502
Profit/loss / - / 590 / 590
Profit adjustment as of 2010 / (22) / (22)
Total 2011 year recognized income / - / 568 / 568
Balance as atDecember 31, 2011 / 15,204 / 1,866 / 17,070
Profit/loss / - / 156 / 156
Profit Adjustment of 2011 / - / 21 / 21
Total 2012year recognized income / - / 177 / 177
Balance as at December 31, 2012 / 13 / 15,204 / 2,043 / 17,247
______
Hasan Ferit Yucheyilmaz David Kistauri
General Director Chief Accountant
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The notes set out on pages 9 to 33 form an integral part of these financial statements
JSC Ziraat Bank Tbilisi Branch
Statement on changes in the equity as of 31 December 2012
1. Introduction
Joint-Stock CompanyZiraat Bank’s Tbilisi Branch (hereinafter - the "Bank") was foundedunder the #4 resolutionof head officeof the Turkish company"Emlak Bank" February12,1998 and #7715 permission by Treasury consultancy of the Prime Minister of Republic of Turkey 24 February,1998,as a Turkish JSC "Emlak Bank”Tbilisi Branch.
Under the resolution of the joint administrative council of the Turkish company "Emlak Bank” 06 July, 2001, JSC "Ziraat Bank" and JSC "People's Bank" and according to#5508permission oftheSupervision Department of the Turkish banks,the branch continued its performance under the status of JSC Ziraat Bank’sTbilisi Branch.
JSC Ziraat Bank’sTbilisi Branchwas registered in the legal form of a foreign company on March2, 1998 at Tbilisi Chughureti District Court, State registration number № 03/5-8-62. Under the resolution of December 25, 2002Tbilisi Didube-Chughureti district court, the branch was re-registered under its current status / name.
The tax registration took place on March 4, 1998 and the Bank was awarded the taxpayer identification code 202057610.
The Bank carries out its activities under the banking license №231–1 issued by the National Bank of Georgia (hereinafter - the "NBG") on March 16, 1998.
The Bank’s registered office is located at the following address: 148 Aghmashenebeli Ave, Tbilisi Georgia. However, during the reporting period, the Bank actually performs its activities at the following address: 61Aghmashenebeli Ave,Tbilisi,Georgia.
The bank is involved in the activities defined under the Georgian law on"Activities of Commercial Banks” in Georgian territory. Also, partly abroad through the correspondent accounts.
During the reporting period JSCZiraat Bank Tbilisi Branchdoes not own the service centres.
By 01.01.2012, the bank had 27 employees, and by the end of the reporting period 01.01.2013 the bank had25 employees.
Operating Environment of theBank
Georgia is located in a complicated region where for the previous years the world's largest countries’ geopolitical interests encountered. Despite the ongoing reforms inside the country, its currency is not freely convertible. The tax, customs and accounting legislationof Georgia has also beenthe subject of different interpretations and changes which occur frequently.
In Georgia there is a considerable degree of uncertainty regarding the future development of the domestic economic policy. The future economic direction of Georgia alongside with the tax, legal, regulatory and political developments, is largely dependantupon the effectiveness of economic, financial and monetary measuresundertaken by the new government.
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The notes set out on pages 9 to 33 form an integral part of these financial statements
JSC Ziraat Bank Tbilisi Branch
Explanatory notes to financial statements as of December31,2012
During the reporting period, the current post-crisis political - economic events (Russian -Georgian post-war situation, world financial crisis, etc.) are still unidentified and therefore, make the bank operating environment difficult.
2.Basis of Preparation and Accounting Policy Principles
This financial statement has been prepared in accordance withthe International Financial Reporting Standards ("IFRS"),using the initial value method, except for investments and the financial instruments reflected and assessed at fair value in theincome or loss which are shown at fair value.
The Bank maintains its accounting records in accordance with the regulations of the banking business activities and accounting. The financial statement has been prepared under the mentioned accounting records and, if necessary, shall be corrected in order to come in compliance with the International Financial Reporting Standards.
This financial statement has been compiled in the national currency of Georgia, the Lari (thousand GEL). The operations in other currency transactions are recorded as foreign currency transactions.
The preparation of the financial statements requires to make assumptionsthat affect the reported amounts of assets and liabilities presented in the statement, the disclosureof contingent assets and liabilities as at the date of preparation the financial statement and the reported amounts of revenues and expenses submittedduring the reporting period. Although these estimates are based on the management's best knowledgeof the current events and actions, the actual results may ultimately differ from those estimates.
Accounting policies, which have been used in the preparation of these financial statements, are described below.
Cash and cash equivalents. Cash and cash equivalentsinclude "NBG" - cash balances (excluding the mandatory reserves), all interbank placements with initial maturity period of 90 days. The amounts, in terms of which the restrictions occurfor more than 90 days, are subject to withdraw from cash and cash equivalents. The Cash and cash equivalentsare reflected at amortized cost.
Mandatory cash balances with NBG.The mandatory cash balances in NBG are reflected at amortized cost and represent mandatory reserve deposits which are not intended to finance theBank’s daily operations.
Investments held before payment.Theinvestments held before payment are non-derivative financial assets with a fixed or determinable payments. The Bank has the intention and ability to keep these securities prior to due date. The reflection of such securities isperformed by amortized cost based on the method of effective interest rate,excluding the reserve of impairment losses.
Funds in other banks.The funds in other banks with more than three months maturity period are subject to recognition when the Bank gives money in advance to counteragent banks with payments unquoted non-derivative receivableson fixed or determinable days, with no intention of trading operations. The amounts in other banks are reflected at amortized cost.
Loans and receivables to customers. Loans and receivables to customers are subject to reflection when the Bank gives cashfor the purpose to purchase or originatefuture unquoted non-interest accounts receivables on fixed or determineddatesfrom a clientand has no intention to conduct trading with such accounts receivables. The loans and receivables to customers are reflected at amortized cost.
Fixed Assets. Fixed assets are reflected at the historical / (initial) cost, excluding the accumulated depreciation.
The expenses for minor repairs and maintenance are produced in caseof occurrence of such. The expenses for replacing major parts and components of the fixed assets are subject to capitalization, whereas the replaced parts areredeemed.
Recognition of estimated revenues and expenses determined through comparison of fixed assets at balance cost are recognized in income or loss.
Depreciation of fixed assets is calculated through straight-line method to spread the cost of each asset to their residual values over their estimated useful service terms.
Depreciation NormsOffice and computer equipment / 25%
Furniture / 16,67%
Vehicles / 20%
Other fixed assets / 25%
leasehold Improvements / 20%
Intangible Assets. Intangible assets mainly include the Bank’s operational software and also, public relations modules and licenses to various financial and public institutions.
The intangible assets are initially reflected at cost, excluding the accumulated depreciation (straight- line method) in proportion to their useful application deadlines. The amortization of intangible assets for an indefinite period is determiened by 10%.
Operating leases. In the event whenthe Bank is a lessee in respect to a lease through which the ownership risks and benefits are not transferred substantially fromleaseholder to the Bank, all the lease payments are reflectedinincome or loss throughthe straight-line method over the lease term.
Customer funds.Customer funds are non-derivative liabilities to individuals, to state or corporate customers and are reflected at amortized cost.
Income Tax. Income Tax in the financial statement is calculated in compliance with the applicable legislation of Georgia for the period of its execution. The Income Tax includescurrent payments and deferred tax assets/ liabilities and are recognized in income/loss.
The current payment is calculated from the taxable income of the reporting year, using the tax rates which are determined for the date of generating the accounting balances. The current payment is the payment amount from payable(returnable)profit from the net profit (tax loss) of the reporting period. In the financial statement the taxable profit is presented on the basis of tax code. The taxes, except the income tax, are recorded in operation expenses.
The deffered profit payment is calculated using the balance assets and libilities method, including all those temporary differences which occur with the view to producing the financial statement between the assets and liabilities tax base and their current costs. The deffered payment assets are registrered in case if it is possible that there will be future taxable profit during which the temporary differences are annulled. The deffered payment assets and liabilities are determined according to tax rates the use of which are expected in the period when the asset is realized or the liabilittieare paid, depending on the tax rate which is recorded in the accounting balance for the date of its generation.
Since 2010, the Bank has not recognized deferred income tax and /or assets, as according to the peculiarities of its assets and income and theplans of future work, the management believes that the Bank in the future will not have taxable income against which it is possible to use the deferred tax and /or assets.
Reserves on liabilities and payments.Thereserves of liabilities and payments are non-financial liabilities of uncertain term or amount. They are accrued in case ifthe Bank has an existing legal or constructive obligationwhich is based on the previous cases, or is expected to arise the necessity for outflow of accompanying resources of economic benefit in order to pay such obligations, or is possible to identify a reliable amount of such obligation.
Income and expense recognition. Interest income and expenses are recorded in the statement of income and loss for all debt instruments on an accrual basis using the effective yield method. This method, in the form of interest income or expense, classifiesall the fees paid or received by the contractualpartieswhich is an integral part of the effective interest rate.
Penalties, fees and other operating income and expense items are recordedon an accrual basis in income - loss statement when the services have beenprovided and /or received.
Foreign currency translation. Transactions denominated in foreign currencies are recorded at the exchange rate on the date of transaction. The exchange rate differences resultingfrom the settlement oftransactions denominatedin foreign currency are included inthe statement of income – loss using the exchange rate on that particular date.
Monetary assets and liabilities denominated in foreign currencyare translated into Georgian Lari at the official exchange rate of the National Bank of Georgia at the balance sheet date.
Exchange Type / 31.12.2012 / 31.12.2011 / 31.12.20101 US Dollar / 1,6567 / 1,6703 / 1,7728
1 Euro / 2,1825 / 2,1614 / 2,3500
1 Turkish Lira / 0.9247 / 0,8725 / 1,1412
Offsetting.Financial assets and liabilities are subject to offset, whereas the net profit is reported in the balance sheet only when there is a legaly enforceable rightto offset therecognized amounts, and there is an intention to either settle on the net basisor to realize the asset and settle the liabilities simultaneously.
3. Adoption of New and Revised Standards and Interpretations