Credit Risk

Credit risk refers to the losses that may arise from the failure of a borrower to make expected principal and interest payments and fulfill other obligations on cash loans, the failure of the issuer of a purchased security to meet its obligations, or the payment of compensation by the Bank to a financing institution under a guarantee or to an exporter/contractor/organization under an insurance policy for non-cash loans.

The risk weights of the Bank’s assets, considered within the framework of capital adequacy calculations, are determined in accordance with BRSA regulations.

Loans are extended within the authority granted to the Board of Directors to achieve the Bank’s sub-loan targets set in its annual programs.

Losses arising from political risks undertaken by Türk Eximbank due to its loan, guarantee, and insurance activities are covered by the Ministry of Treasury and Finance of the Republic of Türkiye, in accordance with Article 4/C added to Law No. 3332 by Law No. 3659 and the Law on the Regulation of Public Finance and Debt Management No. 4749 dated March 28, 2002. Buyer’s Credits are implemented on a transaction-by-transaction basis by resolution of the Board of Directors and, pursuant to Article 10 of Law No. 4749 dated March 28, 2002, on the Regulation of Public Finance and Debt Management, upon the approval of the Minister responsible for the Ministry of Treasury and Finance of the Republic of Türkiye. In the Bank’s annual program, the limit for any country is restricted both in terms of the maximum risk that can be undertaken and on a disbursement basis within the year.

Under Buyer’s Credits, a sovereign guarantee or a bank guarantee deemed acceptable by Türk Eximbank is required as primary collateral. Sovereign guarantee letters can be issued by the Ministry of Finance or the Ministry of Economy, depending on the legislation of the borrowing country. Letters of guarantee undertake that the principal, interest, and all other costs related to the loan will be paid and remain valid until the loan’s maturity. In addition to collateral under a sovereign guarantee, additional collateral, such as a current-account undertaking provided by the buyer-credit intermediary bank on behalf of the borrower and letters of guarantee from abroad, may also be requested.

To assess countries’ creditworthiness, the Bank regularly monitors OECD country risk classifications, reports from Berne Union member institutions, reports from independent credit rating agencies, country reports prepared internally by the Bank, and the financial statements of banks whose risks are assumed.

The risks and limits of companies and banks are regularly monitored by the responsible units. Domestic and foreign bank limits are calculated using a Bank methodology based on qualitative and quantitative criteria that seeks to simplify unnecessarily allocated limits and fully align them with Basel III rules.

In the credit allocation process, the customer’s creditworthiness, funding capacity, cash flow, liquidity facilities, risk analysis criteria, debt repayment capacity, export volume, potential and segment are evaluated as a whole to determine the collateral structure.

In addition to the financial and organizational information obtained from firms, we follow a verification and comprehensive research methodology, drawing on various sources (Central Bank of the Republic of Türkiye memzuç records, Trade Registry Gazettes, Chamber of Commerce registration information, data from the Ministry of Trade of the Republic of Türkiye, banks and other companies operating in the same sector etc.). On the other hand, in addition to analyzing the company’s financial statements for the last three years, the Bank conducts a general assessment of the company by considering the current state of the sector in which it operates, economic and political developments in its target foreign markets, its advantages and disadvantages against domestic and foreign competitors, and the factors affecting them. Furthermore, if the company associated with Türk Eximbank operates within a holding or a non-holding group, developments that could affect the group’s activities and the group’s bank debts are closely examined, and a company analysis report is prepared by taking the group risk factor into account in the company evaluation.

The Bank operates within the limits approved by the Board of Directors for all its foreign currency transactions, including derivative products. The sectoral and geographical distribution of credit risk parallels Türkiye’s export composition and is regularly monitored.

The Bank is not subject to the provisions of Article 54 of the Banking Law No. 5411 regarding credit limits. However, the Bank takes care to comply with the general credit limitations imposed by the Banking Law. In accordance with Board Decision No. 11173, which imposes obligations on Development and Investment Banks (excluding Istanbul Takas ve Saklama Bankası A.Ş. and İller Bankası A.Ş.), the Risk Management Directorate monitors, taking leverage into account, the ratio of the total risk amount of loans that the Bank may extend to an individual, a legal entity, or to risk groups, relative to its core capital.

In line with the collateralization policy, and given that lending is largely based on domestic bank risk, the Bank may assume, excluding treasury transactions, credit risk of up to 20% of the total cash and non-cash credit exposure for a single bank, depending on economic conditions, in order to fulfill its lending mission.

Türk Eximbank’s short, medium, and long-term loan programs are offered under the financial conditions (maturity, interest, collateral, etc.) approved by the Board of Directors and in adherence to the program-specific application principles. Loan pricing is determined by the Asset-Liability Committee, taking into account the cost of funds, all aspects of the loan provided, the customer’s creditworthiness, the transaction’s maturity, the collateral structure, and changes in market interest rates, and it also reflects the Bank’s mission to provide exporters with financing at costs that will enhance their competitiveness in current markets and in high-risk or new countries.

Commercial and political risks arising from insurance programs are transferred to reinsurance companies through annually renewed agreements. As a general principle, a certain portion of these risks is retained by Türk Eximbank. As of 2025, this ratio is 50%.

Within the framework of export credit insurance activities, premium rates are determined by considering the elements of the relevant risks (payment method, maturity, risk class of the buyer/bank/government, country risk class, market conditions, international pricing, etc.) and the maturity of the receivable to be insured.

For cash loans, credit is extended by the decision of the Head Office Credit Committee, within the maturity, interest, and collateral elements determined by the Board of Directors, provided that the credit risk level for a company is not exceeded. This authority is limited to 1% of the Bank’s equity.

The Bank’s cash/non-cash domestic bank limits for short-term TL and foreign currency loans are approved by the Board of Directors.

For directly extended loans, primary collateral is established at 100% of the total principal, interest, and export commitment risk of the loan. Primary collateral elements include bank letters of guarantee, government debt securities, Bank insurance policies, cash and securities pledges, mortgages, and guarantees from İGE and the Credit Guarantee Fund.

Within the authority granted by the Board of Directors, buyer limit requests up to a certain amount are decided upon by the relevant units in a tiered manner, while all buyer limit requests exceeding this amount are decided by the Board of Directors.

The maximum loan amount that can be allocated to a company by the Bank is stated in the Application Principles of the respective loans, and these amounts are determined by a Board of Directors resolution.

Pursuant to Article 93 of Banking Law No. 5411 and in line with coordinated macroprudential measures to strengthen financial stability and ensure the efficient use of resources for the effective functioning of the credit system, Capital Adequacy Ratio (CAR) calculations are carried out in accordance with various regulations published by the BRSA and are reflected in statutory reports.

Counterparty credit risk, which is included in credit risk in BRSA reporting, is a type of risk that considers the probability of loss arising when either of the two parties in a derivative and/or money market contract fails to fulfill its obligations, and it includes default risk, credit valuation adjustment, and central counterparty risk. It is considered a hybrid risk because it is affected by both credit risk and market risk. The relevant risk category is calculated using the Basel III Standardized Approach.

Operational Risk

Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, personnel, and systems, or from external events.

The amount subject to operational risk, calculated according to the “Basic Indicator Approach” in compliance with BRSA regulations, is considered within the scope of Basel II’s Pillar 1 risks in the calculation of the Bank’s capital adequacy ratio.

In addition to legal reporting, compliance with the risk appetite level is monitored by considering the Bank’s losses subject to operational risk, which are recorded in the Loss Database. Within the framework of policies set by the Board of Directors, the function of managing operational risk is carried out by the Operational Risk Committee.

Market Risk

Market risk refers to the probability of loss that may arise from fluctuations in financial markets in the positions held in the Bank’s on-balance sheet and off-balance sheet accounts, due to changes in interest rates, exchange rates, and prices, and the resulting changes that may occur in the Bank’s income and expense items and return on equity.

In measuring the market risk to which the Bank is exposed, “Currency Risk,” “Specific Risk,” and “Interest Rate Risk” (the Bank has no Equity Position Risk) are calculated in accordance with the “Standard Method for Measuring Market Risk” published by the Banking Regulation and Supervision Agency of Türkiye (BRSA).

The Market Risk, which includes the total of Securities, interest-rate risk, and Currency Risk calculated under this method, is prepared monthly, while the Currency Risk calculated within the scope of the “Regulation on the Calculation and Application of the Net Foreign Currency General Position/Equity Standard Ratio by Banks on a Consolidated and Unconsolidated Basis” is prepared weekly and reported to the Agency.

Value at Risk (VaR) and Expected Shortfall calculations are also performed to analyze the potential losses that derivative products and securities subject to trading at the Bank may incur under various market conditions and to obtain statistical information in consideration of international financial literature.

In managing currency risk, the Treasury Directorate monitors the Bank’s positions exposed to currency risk on a daily basis and can conduct transactions by considering market realizations and expectations, provided they remain within the limits approved by the Board of Directors.

The Bank follows a highly balanced policy regarding currency risk between its assets and liabilities. It is essential to ensure the highest possible level of alignment in terms of currency, maturity, and interest rate type between foreign currency assets and liabilities. To this end, borrowing strategies are determined as much as possible in accordance with the Bank’s asset structure. When this is not possible, efforts are made to achieve alignment by using derivative products such as cross-currency swaps (currency and interest) and currency swaps, or by making changes to the Bank’s asset structure where possible.

Interest Rate Risk Arising from the Banking Book

By separating TL and foreign currency-denominated interest-sensitive assets and liabilities on a fixed and floating interest rate basis and showing their weight within assets and liabilities, the potential impact of changes in interest rates on the Bank’s capital is estimated. Assuming that the interest rates applicable to all TL- and foreign currency-denominated interest-sensitive assets and liabilities will be reset at maturity (for fixed-rate instruments) or on interest payment dates (for floating-rate instruments), the interest-sensitive gap (surplus) amount in the relevant currency for the respective maturity buckets is determined by the time remaining to repricing (gap analysis). By disaggregating all interest-sensitive assets and liabilities by their interest rate repricing periods, it is determined in which maturity bucket and in which direction the Bank will be affected by possible symmetric and asymmetric changes in market interest rates.

Maturity mismatches between assets and liabilities are identified by preparing tables showing the weighted average days to maturity for foreign currency-denominated and TL-denominated assets and liabilities on a periodic basis.

The Bank places importance on aligning fixed- and floating-rate assets and liabilities across different foreign currencies and seeks to maintain the mismatch between them at a reasonable level to limit the potential adverse effects of interest rate changes on the balance sheet.

In accordance with the “Regulation on the Measurement and Assessment of Interest Rate Risk Arising from Banking Book with the Standardized Approach,” published by the BRSA in the Official Gazette No. 32898 on May 12, 2025, the submission of the report, which is a stress test measuring the impact of interest rate shocks on the Bank’s balance sheet, continued in 2025.

According to the regulation, the net present value changes that interest rate shocks would create on the Bank’s balance sheet should not exceed 15% of the core capital for the relevant month. This ratio is well below the legal limit due to the Bank’s strong capital base and the close alignment of assets and liabilities.

Liquidity Risk

Liquidity risk is the possibility that banks may not be able to meet their obligations on time and/or at a reasonable cost. In this context, the failure to meet obligations on time is defined as “Funding Liquidity Risk,” while the failure to meet them at reasonable costs is defined as “Market Liquidity Risk.” The purpose of establishing the Bank’s liquidity risk management structure is to meet daily liquidity needs, measure and manage the net funding requirement, and ensure the secure continuation of the Bank’s activities during periods of liquidity crisis originating from the Bank or the market.

The Bank’s general policy on liquidity risk is based on maintaining a cost-effective liquidity level sufficient to meet potential cash flow needs under various operational conditions. For this purpose, cash flow statements are prepared based on outstanding loan balances and available cash balances, and accordingly, the need for additional funding and the timing thereof are determined.

In liquidity management, in addition to liquidity ratios, other balance sheet ratios, rules regarding the amount and maturity structure of liquid assets, and the diversification of funding sources are also taken into account. It is essential to address liquidity risk management from both quantitative and qualitative perspectives.

While quantitative indicators enable the early detection of liquidity risk, the qualitative dimension ensures a sound assessment of the risk by identifying events that trigger liquidity risk.

The Bank meets its short-term liquidity needs through short-term loans obtained from foreign and domestic banks and short-term funds obtained through repos from money markets, while its long-term liquidity needs are met through medium- to long-term borrowings from international institutions such as the World Bank and EIB, and funds obtained from capital markets, such as bond issuances.

The Bank strives to fund its short-term loans from short-term sources and its medium- to long-term loans from medium- to long-term sources, and to minimize the mismatch in this regard as much as possible.

In this context, with respect to liquidity risk in TL and in foreign currencies, the legal limits stipulated in the “Regulation on the Measurement and Assessment of the Liquidity Adequacy of Banks” published by the BRSA are taken into account. In addition to legal liquidity obligations, the Bank’s asset and liability items are classified according to their remaining maturities as on-demand, up to 1 month, 1-3 months, 3-12 months, 1-5 years, and over 5 years, and the asset-liability alignment in the relevant maturities is also closely monitored through stress tests.

The Liquidity Contingency and Emergency Plan has been prepared to protect the rights and interests of parties that could be affected by the improper execution of the Bank’s liquidity-related activities. The implementation of the Liquidity Emergency Plan aims to ensure that the Bank can quickly return to its normal business flows after an emergency. The relevant plan, including actions and processes, has been determined in an integrated manner with the results of the scenarios and assumptions used in the Bank’s current liquidity risk analysis and stress testing. The plan has been created to be compatible and applicable in conjunction with the Bank’s business continuity plans.

One of the Bank’s most important functions is to have funds ready to meet the Bank’s liquidity requirements. While the Bank obtains these funds from various markets, it always considers the cost. However, in crisis situations, securing funding even at a cost may become a priority. Although not mandatory, the Bank resorts to the sources specified in the Liquidity Contingency and Emergency Plan when meeting urgent liquidity needs.

Concentration Risk

Although Türk Eximbank is exempt from Article 54 of the Banking Law on credit limits, the concentration risk metrics determined by the Risk Management Directorate are monitored. Additionally, concentration risk is included in the ICAAP Report, and risk measurement is performed using methods that demonstrate the applicability of concentration risk management, as specified in the “Guideline on Concentration Risk Management,” published by the BRSA.

Sustainability and Climate-Related Financial Risks

The Bank, which prioritizes a quality growth model by proactively managing sustainability (environmental, social, and governance) and climate-related risks and opportunities, builds its fundamental strategic approach on risk management, evaluation of opportunities, and transparency and reporting, taking into account both the “Guideline on the Management of Climate-Related Financial Risks” published by the BRSA and TSRS. In this context, the Board of Directors-approved Sustainability and Climate-Related Financial Risks Policy and the Sustainability and Climate-Related Financial Risks Committee, established to monitor compliance with related risks, serve as a roadmap for promoting a risk-aware culture in sustainability and for the Bank’s long-term growth strategy. Furthermore, in the Türk Eximbank TSRS-Compliant Sustainability Report published in August, studies were conducted to quantify physical and transition risks, and their effects on the Bank’s balance sheet through various transmission mechanisms were analyzed.

Model Risk

This refers to risks that may arise if financial models, risk measurement and assessment models, regulatory reporting models, forecasting and scenario-analysis models, and other mathematical and statistical models used in the Bank’s activities fail to perform as expected because of insufficient accuracy or validity; incorrect or incomplete use; loss of validity of assumptions; inadequate testing; or incorrect implementation. In this context, model risk also includes situations where such inadequacies could lead to outcomes that negatively affect the Bank’s risk measurement, assessment, and decision-making processes.

The models used at the Bank are evaluated during the development, implementation, and monitoring stages, considering their fitness for purpose, the validity of their underlying assumptions, the adequacy of the data used, and the impact of model outputs on decision-making processes. The models’ performance and limitations are regularly monitored, and updates and improvements are implemented as necessary.

Model risk management is carried out within the framework of the Model Risk Management Policy approved by the Board of Directors and the model validation processes. In this context, processes for the development, use, monitoring, and review of models have been defined, and the consistency and appropriateness of model results are assessed through independent review and validation activities.

Additionally, the ICAAP Report includes Structural Interest Rate Risk such as country risk, basis risk, and repricing risk, and stress tests are conducted by taking into account parameters specific to these risks.