INDEPENDENT AUDITOR'S REPORT

To the General Assembly of Türkiye Halk Bankası A.Ş.

  1. Report on the Audit of the Financial Statements
  1. Qualified Opinion

We have audited the financial statements of Türkiye Halk Bankası A.Ş. ("the Bank"), which comprise the unconsolidated balance sheet as at 31 December 2022, and the unconsolidated statement of profit or loss, unconsolidated statement of profit or loss and other comprehensive income, unconsolidated statement of changes in shareholders' equity and unconsolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, except for the effects of the matters on the unconsolidated financial statements described in the basis for the qualified opinion paragraphs, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2022, and its financial performance and its cash flows for the year then ended in accordance with "the Banking Regulation and Supervision Agency ("BRSA") Accounting and Reporting Regulations" including the regulation on "The Procedures and Principles Regarding Banks' Accounting Practices and Maintaining Documents" published in the Official Gazette dated 1 November 2006 with No. 26333, and other regulations on accounting records of banks published by the Banking Regulation and Supervision Board and circulars and pronouncements published by the BRSA and provisions of Turkish Financial Reporting Standards (TFRS) for the matters not legislated by the aforementioned regulations.

  1. Basis for Qualified Opinion

The Bank reclassified the government bonds amounting to TRY 18.965.006 thousand, which were previously classified under financial assets at fair value through other comprehensive income according to the business model prepared in accordance with Turkish Financial Reporting Standard ("TFRS") 9, into financial assets measured at amortised cost and reversed the marketable securities revaluation fund accumulated under other comprehensive income or loss to be reclassified through profit or loss amounting to TRY 2.229.977 thousand on 23 May 2018. The reclassification constitutes a departure from TFRS 9. The government bonds reclassified into financial assets measured at amortised cost as at 31 December 2022 amounted to TRY 31.249.779 thousand. If such classification were not made, total assets and shareholders' equity, excluding tax effect, would be lower by TRY 3.501.034 thousand as at 31 December 2022.

We conducted our audit in accordance with the regulation on "Independent Auditing of Banks" published in the Official Gazette dated 2 April 2015 with No. 29314 and Standards on Independent Auditing ("SIA") which is a part of Turkish Auditing Standards published by the Public Oversight Accounting and Auditing Standards Authority ("POA"). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the Code of Ethics for Independent Auditors ("Code of Ethics") published by the POA, together with the ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements

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and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

  1. Emphasis of Matter

As detailed in Section Six Note One, we draw attention to the following:

On October 15, 2019, the US Department of Justice, United States Attorney Southern District of New York indicted the Bank in the Southern District of New York Court ("District Court") for the violations of Iranian sanctions. This criminal case is pending at the District Court. The proceedings are stayed as the Bank requests an appeal under the "Foreign Sovereign Immunity Act" ("FSIA"). The process is currently at the stage of appealing in the US Supreme Court.

In addition, a civil case was filed against the Bank on March 27, 2020 with a claim for damages by plaintiffs in the Southern District of New York Court "on the grounds that they (plaintiffs) could not collect their judgments from Iran due to the violations of sanctions." District Court dismissed the case. Plaintiffs have appealed the decision to the US Court of Appeals for the Second Circuit ("Second Circuit"). The Court's decision is pending.

At this stage, the Bank's Management stated that there is no penalty, compensation, sanction or other measure arising from the pending criminal and civil cases against the Bank. There is an uncertainty if any decisions will be made by the US authorities that may adversely affect the financial position of the Bank. No provision has been made in the financial statements of the Bank related to these matters. However, the above mentioned matters do not affect the opinion provided by us.

  1. Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the 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 explained in the Basis for Qualified Opinion section, the issues described below have been identified as key audit matters and are disclosed in our report.

Key Audit Matter

How the matter was addressed in the audit

Impairment of loans in accordance with

TFRS 9 "Financial Instruments Standard"

Impairment of loans is a key area of

As part of our audit work, the following

judgement for the management. The Bank

procedures were performed:

has the total loans amounting to TRY

842.617.528 thousand, which comprise 61%

We assessed and tested the design,

of the Bank's total assets in its

implementation and operating effectiveness of

unconsolidated financial statements and the

key controls applied by the Bank with respect

total provision for expected credit loss

to classification of loans and determination and

amounting to TRY 53.309.206 as at 31

calculation of impairments. Our information

December 2022.

system experts have also participated to

perform these procedures.

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The Bank recognizes provisions for We have read and analysed the relevant impairment in accordance with the TFRS 9 contract terms to assess management's requirements according to the "Regulation on accounting policy and classification of the the Procedures and Principles for instrument for selected samples.
Classification of Loans by Banks and
Provisions to be set aside" published in the We have performed audit procedures on Official Gazette dated 22 June 2016 selected samples of loans and receivables with numbered 29750. Applied accounting the objective of identifying whether the loss policies are explained in detail in the Section event had occurred and whether the provision 3 Note VIII. The expected credit loss for expected credit loss has been recognized in estimates are required to be unbiased, a timely manner within the framework of the probability-weightedand should include provisions of the relevant regulation. supportable information about past events,
current conditions, and forecasts of future We have tested relevant inputs and
economic conditions.assumptions used by the management
considering the expected credit loss The Bank exercises significant decisions calculation by considering whether those using judgement, interpretation and appear reasonable, the relationship between
assumptions over calculating loan the assumptions and whether the assumptions
impairments. These judgements, are interdependent and internally consistent, interpretations and assumptions are key in the whether the assumptions appropriately reflect development of the financial models built to current market information and collections, measure the expected credit losses on loans. and whether the assumptions appear
reasonable when considered collectively with There is a potential risk of impairment other assumptions, including those for the losses/provisions provided/will be provided same accounting estimates and those for other may not meet the requirements of the TFRS accounting estimates.
9. Failure in determining the loans that are
impaired and not recording the adequate We have tested historical loss data to validate provision for these impaired loans is the the completeness and accuracy of key
aforementioned risk. Accordingly, parameters.
impairment of loans is considered as a key We tested the application of the model to the
audit matter.relevant inputs and the mathematical integrity
of each stage of the expected credit loss
Related explanations relating to the calculation. impairment of loans are presented in Section
5 Note I.5.Based on our discussions with the Bank management, we evaluated whether the key assumptions and other judgements underlying the estimations of impairments were reasonable.
Our specialists are involved in all procedures related to models and assumptions.
We have reviewed disclosures made within the TFRS 9 framework in the financial statements of the Bank with respect to loans and related impairment provisions.
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Key Audit Matter

How the matter was addressed in the audit

Valuation of Pension Fund Obligations

Defined benefit pension plan that the Bank

Our audit work included the following

provides to its employees is managed by

procedures:

Türkiye Halk Bankası AŞ Emekli Sandığı

Vakfı and T.C. Ziraat Bankası ve T. Halk

We involved internal experts (actuary) in our

Bankası Çalışanları Emekli Sandığı Vakfı

audit team to evaluate the assumptions used in

("Plan") which were established by the 20th

the calculation of the pension obligations and

provisional article of the Social Security Law

the appropriateness of the estimates.

numbered 506 (the "Law").

As disclosed in the Section III Note XVII to

It has been tested whether the plan assets meet

plan obligations in accordance with the

the unconsolidated financial statements, the

methods and assumptions used.

Plan is composed of benefits which are

subject to transfer to the Social Security

In addition, reconciliations and tests were

Foundation ("SSF") as per the Social

carried out through sampling of the accuracy

Security Law no.5510 provisional article 20,

of the data provided to the Bank's actuary.

and other social rights and pension benefits

provided by the Bank that are not transferable

We have assessed whether there is a significant

to the SSF. The Council of Ministers has been

change in the actuarial assumptions, methods,

authorized

to

determine

the

transfer date.

legal regulations and legislation used in the

Following

the

transfer,

the

funds and the

calculations and whether the assumptions are

institutions that employ the funds' members

reasonable. In addition, we have reviewed the

will cover the non-transferable social rights

sufficiency of disclosures prepared with this

and pension benefits provided under the Plan

regard.

even if it is included in foundation deed.

As of 31 December 2022, the Bank's transferrable liabilities are calculated by an independent actuary using the actuarial assumptions regulated by the Law, and in accordance with the Decision of the Council of Ministers announced in the Official Gazette dated 15 December 2006 and No.26377. The valuation of the Plan 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 the Plan. Management uses expert opinion of the independent actuary in assessing uncertainties related to these underlying assumptions and estimates.

As described in Section Five Note II.9.f considering the subjectivity of key judgments and assumptions, plus the uncertainty around the transfer date and basis of the transfer

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∙ We selected high-riskareas as, database logging and change management control activities, to prevent and detect whether accesses to financial data had been identified in a timely manner.
∙ We tested the accesses and logging controls underlying all applications that have direct or indirect impacts on financial data generation.
∙ Automated controls and integration controls are tested to underly and detect changes and accesses in the process of financial data generation.
∙ We also tested the appropriateness and accuracy of the information produced by the entity and information used in controls reports as inputs to our controls and outputs generated by the IT components.
∙ Finally, we understood and tested the controls over database, network,
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∙
∙
∙
Security management Change management Operations management
∙ Information generation comprise all layers of information systems (including applications, networks, transmission systems and database). The information systems controls tested are categorized in the following areas:
∙ We identified and tested the Banks' controls over information systems as part of our audit procedures.
The Bank and its finance functions are Procedures within the context of dependent on the IT-infrastructurefor the information technology audit work: continuity of its operations, and the demand
for technology-enabledbusiness services is rapidly growing in the Bank and its subsidiaries. Controls over reliability and continuity of the electronic data processing are within the scope of the information systems internal controls audit. The reliance on information systems within the Bank means that the controls over access rights, continuity of systems, privacy and integrity of the electronic data are critical and found to be key area of focus as part of our risk based scoping.
our
How the matter was addressed in the audit
calculation given the fact that the technical interest rate is prescribed under the Law, we considered this as a key audit matter.
Key Audit Matter
Information Technologies Audit

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Türkiye Halk Bankasi AS published this content on 07 July 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 07 July 2023 15:42:12 UTC.