The activities of internal audit, internal control and risk management in our Bank are carried out respectively by the Supervisory Board, Directorate of the Internal Control and Compliance Department and Directorate of the Risk Management Department.

The following is aimed with our organization that is established in a way to include all our units and branches;

• To continue banking operations in a secure manner in line with the legislation, policy, principles and objectives,
• To achieve periodical profit targets, to perform the financial and administrative reporting in a timely and secure manner,
• To define Ziraat Participation’s legal, nominal and financial risks, to measure, report, and monitor the risks and to minimize the concerned risks by controlling them.

The Functioning of Internal Audit
The Supervisory Board controls whether the operations carried out by the Bank’s all units and branches are in accordance with the law and other relevant legislation and the Bank’s strategies, policies, principles and objectives; the effectiveness of internal control and risk management systems within the framework of risk-based audit approach.

The Supervisory Board continues to work in such a manner to contribute to the decision-making processes by informing the Bank’s senior management.

Before the Bank became operational, the Supervisory Board coordinated the formation of processes and work flows in line with the Bank legislation in order to ensure the formation of internal control mechanisms in a secure and healthy manner. After June 2015, the Supervisory Board assessed the effectiveness and efficiency of the operational steps that comprise of primary processes by auditing the Bank activities’ compliance with the processes which they are subjected to in accordance with the provisions of “Regulation on the Bank Information Systems and Banking Processes Audit to be Realized by External Audit Institutions” and assessed the secondary processes.

The branch, unit and process audits were fully and timely completed in accordance with the Audit Plan prepared to be implemented in 2015. The 2016 Audit Plan preparation works are still ongoing by taking into consideration the risks carried by the branches and units and in a manner compliant with the Bank objectives and policies.

The Management’s Declaration pertaining to the 2015 operations, which is prepared in order to present assurance about the effectiveness, adequacy and compliance of internal controls on the information systems and banking processes, was prepared in time by adding the reports regarding the audits of the companies from which information systems processes audits and support services are procured.

The Supervisory Board closely monitored the changes stipulated by the legislative regulations, the Banking Regulation and Supervision Agency decisions, the Bank’s Senior Management and the Headquarters units, and regularly revised the audit points.

The Functioning of Internal Control System
Within the scope of “Regulation on Banks’ Internal System and Intrinsic Capital Adequacy Assessment Processes”, Internal Control activities were configured in a way to cover the branches’ and the Headquarters units’ operations.

The purpose of Internal Control activities is to ensure the protection of the Bank’s assets, effective and efficient conduct of the operations, unity and reliability of the accountancy and reporting system and timely access to the information.

Within our newly established Bank, Internal Control activities were carried out on the following topics: functional segregation of duties; division of responsibilities; establishment of the accountancy and reporting system, the information system and the Bank’s internal communication channels in a manner that they will operate effectively; the creation of work flow charts in which the controls on the Bank’s work processes and work steps are indicated.

Internal Control activities were conducted in compliance with the Bank’s main goals and strategies within the framework of law, other relevant legislation, the Bank’s internal policies and rules, and common banking practices. Moreover, while carrying out the activities, a proactive approach was adopted to make sure that the compliance to changing strategy, risk perception and conditions is provided without wasting time.

Internal Control system contributed to the carrying out of the Bank’s operations in compliance with the domestic and international legislations and competition conditions through the control matrixes that are prepared pursuant to the adopted proactive manner and regularly revised based on the possible changes.

The branch controls are carried out within the framework of the control plans prepared according to the opening dates of new branches and periodical risk situations.

Research-Development studies are continuing in order to carry out technology-focused, central, and real-time internal control activities, and to help the relevant business units to take a rapid action against the common shortcomings.

The control periods of Headquarters units were determined by taking into consideration of the functions of the units, the risks they carry, job descriptions and the units’ effect on the Bank’s balance sheet and were revised in accordance with the needs.

The findings revealed as a result of all these activities were periodically conveyed to the Bank’s relevant business units and to the senior management.

Information Notes were prepared for the issues which are identified during the Internal Control activities carried out in the Headquarters units and the branches and which are considered being in need of rapid action taken and the notes were quickly shared with the relevant units and/or the senior management.

Recommendation Reports were prepared for the improvement of processes regarding the operations carried out in the Bank and the establishment of control points on these processes which will be complied and implemented by the personnel from all levels, increasing the effectiveness of the controls on the processes, prevention of possible risks, ensuring customer satisfaction and taking cost reducing measures.

Within the framework of 18th article of “Regulation on Banks’ Internal System and Intrinsic Capital Adequacy Assessment Processes”, compliance controls were carried out. In this context, all the operations that the Bank performs or plans to perform with the new transactions and products were controlled in terms of their compliance to law and other relevant legislation, the Bank’s internal policies and rules and the banking practices. Also, the regulations prepared or changed in the Bank were examined and opinions were shared with the relevant units.

The Functioning of Risk Management System
The main purpose of our Bank’s risk management system is to ensure the definition, measurement, monitoring and control of the risks, to which the Bank is exposed, through the policies and the limits determined to monitor, control, and when necessary to change the operations’ nature and level in relation to the risk-return structure that the future cash flows will include.

The main approach in the risk management activities, instilling risk culture across the Bank in accordance with the provisions of “Regulation on Banks’ Internal System and Intrinsic Capital Adequacy Assessment Processes”, to execute the risk management function with best practices by continuously improving the system and the human resources. The activities carried out within the framework of risk management system are given care to be carried out simultaneously with the contributions of the units that are included in the business line with which each risk type is related.

The risk management activities cover the basic headings of credit risk, market risk, operational risk, liquidity risk and other risks. The final objective is to comply with the best practices.

Within the framework of credit risk management activities, the activities for the definition, measurement, monitoring and reporting of the credit risk by using the methods in compliance with Basel II. In this context, the calculation of the amount subject to credit risk, which began legally as of 1 July 2012, is monthly reported to the BRSA in solo basis. Due to the fact that our Bank became operational in May 2015, there is not adequate data for the measurement of credit worthiness in relation to the advance measurement methods. The credit risk limits approved by the Board are monitored; the activities to carry out scenario analysis and stress test regarding the credit portfolios are ongoing. Also, the compliance activities with the Basel III regulations and the regulations revised by the BRSA within the framework of Basel are continuing.

Operational risk management activities comprise the definition, classification, measurement, and analysis of the operational risks. These activities are carried out as part of the Bank’s “Operational Risk Management Regulation” that is prepared in accordance with the arrangements issued on 28 June 2012 by the BRSA to comply with Basel II. The compliance with the operational risk limits approved by the Board, which are determined in order to manage operational risks, is periodically monitored. The risks stem from information technologies and the actions taken are also monitored. The risk assessments are carried out for the companies from which support services are procured within the framework of the BRSA’s regulations that are currently in effect. As part of operational risk, media analysis reports relevant to reputation risk and provided daily from the Bank’s Corporate Communication Service are examined.

Within the scope of market and liquidity risks management; measurement, analysis, limiting, reporting and monitoring activities are carried out pertaining to liquidity risk and dividend rate risk stemming from banking calculations. The analyses conducted are supported with stress test. The compliance to the market and liquidity risk limits, which are approved by the Board and determined to manage the concerned risks, is periodically monitored. Also, Value at Risk is calculated daily with the internal models regarding exchange risk as part of market risk and retrospective test analyses are carried out for these models.

The results of the analyses carried out within the scope of risk management activities and risk indicators are reported annually to the Board of Directors, at three months periods to the Audit Committee, at weekly and daily periods to the operational units.

In order to increase the internal systems personnel’s individual and occupational development, the personnel was ensured to attend internal and external training, conference and seminars, thus, their practical knowledge level was tried to be increased constantly.