AnnualReport 2016 - Welcome to · 4 ECO Trade and Development Bank Annual Report 2016 Board of Governors • Chairman, Board of Governors (May 2016 – May 2017) H.E. Shahin Mustafayev

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AnnualReport 2016

20162016

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table ofcontentsAnnualReport2016

List of Members of the Board of Governors Board of DirectorsManagement CommitteeAudit CommitteeIntroductionPresident’s MessageExecutive SummaryEconomic OverviewOperations Business Strategy and Balance Sheet Items Business Activities (I) Micro, Small and Medium Sized Enterprises (M-SMEs) Finance (II) Trade Finance (III) Corporate and Project Finance Treasury Operations Technical Assistance and Advisory Services Risk Management Project Implementation and Monitoring Procurement and Environment Information Technology Services Internal Audit and Compliance External Auditors Membership to the Bank International Relations Human Resources Planning and Budgeting Board of Governance Meetings Board of Directors MeetingsFinancial Statements

I

II III IV V VI 1 2

3 4 5 6 7 8 9 10 11 12 13 14 15 16 VII

4 ECO Trade and Development Bank

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Board of Governors

• Chairman, Board of Governors (May 2016 – May 2017)H.E. Shahin MustafayevMinister of EconomyRepublic of Azerbaijan

• Islamic Republic of Afghanistan GovernorH.E. Khalil SediqGovernorCentral Bank of the IslamicRepublic of Afghanistan

Alternate GovernorMr. Khan Afzal HadawalFirst Deputy GovernorCentral Bank of the Islamic Republic of Afghanistan

• Republicof AzerbaijanGovernorH.E. Shahin MustafayevMinister of Economy Republic of Azerbaijan

Alternate GovernorMr. Azer BayramovDeputy Minister of FinanceRepublic of Azerbaijan

• Islamic Republicof IranGovernorH.E. Gholamali Kamyab, Vice GovernorCentral Bank of the Islamic Republic of Iran

Alternate GovernorMr. Mehdi GoodarziInternational Director General Central Bank of the Islamic Republic of Iran

• Kyrgyz Republic

GovernorH.E. Baigonchokov Mirlanbek Konushbekovich, Deputy Minister of FinanceKyrgyz Republic

• Islamic Republicof PakistanGovernorH.E. Ashraf Mahmood Wathra GovernorState Bank of Pakistan

Alternate GovernorDr. Waqar Masood KhanFinance Secretary, Finance Division Government of Pakistan

• Republic of Turkey

GovernorH.E. Osman Çelik Undersecretary of Treasury of the Republic of Turkey

Alternate GovernorMr. Ahmet GençPh.D., Deputy Undersecretary Treasury of the Republic of Turkey

(As of 31 December 2016)

5ECO Trade and Development Bank

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Board of Directors

• Islamic Republicof Afghanistan DirectorMr. Qaseem RahimiSecond Deputy GovernorCentral Bank of the IslamicRepublic of Afghanistan

Alternate DirectorMr. Syed Ishaq AlaviDirector GeneralMonetary Policy Department Central Bank of the Islamic Republic of Afghanistan

• Republic of Azerbaijan DirectorMr. Ruslan RustamliDirectorDepartment for Cooperation with International Organizations, Ministry of Economy and IndustryRepublic of Azerbaijan

Alternate DirectorMr. Famil IsmayilovDeputy HeadInternational Relations Department Ministry of Finance Republic of Azerbaijan

• Islamic Republicof Pakistan DirectorMr. Haque NawazAdditional Finance Secretary Finance DivisionGovernment of Pakistan

Alternate DirectorMr. Naveed AlauddinJoint SecretaryExternal Finance Policy Finance DivisionGovernment of Pakistan

• Islamic Republicof Iran DirectorMs. Simin Abdolalizadeh ShahirDirectorInternational Organizations & Studies DepartmentCentral Bank of the Islamic Republic of Iran

Alternate DirectorMr. Nasser FalahatchianDirectorInternational Finance DepartmentCentral Bank of the Islamic Republic of Iran

• Republic of Turkey

DirectorMs. Bengü AytekinHead of DepartmentMultilateral Development BanksUndersecretariat of Treasury of the Republic of Turkey

• Kyrgyz Republic

DirectorMurzaev Kubat SadyrbekovichDepartment of Public Investments and Technical Assistance of theMinistry of FinanceKyrgyz Republic



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Mr. Javaid AslamPresident & Chairman of the Board of Directors

Mr. Burhanettin AktasVice President (Credits)

Mr. Masoud RekabdarVice President (Operations)

Management Committee(As of 31 December 2016)


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Audit Committee

Mr. Deniz Yılmaz(Chairman of the Audit Committee)Head of Department, Directorate General of State Owned EnterprisesUndersecretariat of Treasury of the Republic of Turkey

Mr. Syed Anwar-ul-Hasan BokhariSenior Joint SecretaryMinistry of Finance of the Republic of Pakistan

Mr. Hamid Tehranfar Deputy Governor for Banking Supervision and RegulationCentral Bank of the Islamic Republic of Iran


ETDB AIMS

TO SUPPORT

SUSTAINABLE

DEVELOPMENT

FOR BETTER

LIVING

STANDARDS


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H.E. The Chairman,Board of Governors of the Economic Cooperation Organization (ECO) Trade and Development Bank

Dear Mr. Chairman,

In accordance with Article 26 (2) of the Agreement Establishing the ECO Trade and Development Bank and Section 10 of its By-Laws, I have the honour to submit for the kind attention of the esteemed Board of Governors, the Bank’s Annual Report for 2016 as endorsed by the Board of Directors. The report covers the activities of the Bank including audited financial statements for 2016.

Please accept, Mr. Chairman, the assurances of my highest consideration.

Javaid AslamChairman of the Board of Directors PresidentECO Trade and Development Bank

To the Board of Governors

Our regional expertise

and capabilities

has been earning

ever increasing

recognition among

the development

community


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Introduction

Vision To become the financial pillar of economic cooperation among ECO member states by fostering sustainable economic development and integration

Mission • Promote and facilitate private and public sector investment, cooperation, development and job creation in member states through joint programmes• Foster the growth of intra-regional trade • Contribute to the economic and social development for the welfare of the people in member states• Promote good governance and environment consciousness in all efforts and projects

Core values• Development orientation • Efficiency & Flexibility • Transparency & Accountability• Innovation

• Teamwork• Additionality• Effective Corporate Governance • Sustainability


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Establishment

The Economic Cooperation Organization (ECO) Trade and Development Bank (ETDB) was established by the decision

of the Council of Ministers of ECO member states as a Multilateral Development Bank (MDB) for the purposes of initiating, promoting and providing financial facilities to expand intra-regional trade as well as accelerating economic development. The Bank is structured and operating under prudent policies, rules and regulations which are similarly adopted by other MDBs.

The Articles of Agreement establishing the Bank became effective on August 3, 2005 following the parliamentary approvals of the founding members of the Bank namely the Islamic Republic of Iran, the Islamic Republic of Pakistan and the Republic of Turkey. The Articles of Agreement was registered by the United Nations (UN) under the number 44939 on May 19, 2008, acknowledging the international legal status of the Bank.

The Headquarters Agreement of the Bank was ratified by the Republic of Turkey in July 2007 and the Bank started its operations in December 2008. Its headquarters is in Istanbul (Turkey) and representative offices are in Karachi (Pakistan) and Tehran (Iran). The Bank is staffed with 39 professionals from member states as end of December 2016.

The main functions and activities of the Bank inter alia include: • Financing development projects and intra-regional trade activities • Facilitating private and public sector investments • Cooperating with national and international financial institutions • Mobilizing resources and providing other banking services as may be necessary for the advancement of its purposes

The role of the Bank is to promote sustainable growth in the ECO region. Within this framework, it is important for the Bank to further strengthen its niche in providing development finance and relevant services. The Bank continues to remain responsive to the needs through supporting development of priority projects and trade activities. Combined with its strong local presence and expertise on development challenges of the region, the Bank gives utmost effort to play an important role in reducing the risk perceptions about the member states individually and about the region as a whole while bringing new impetus for the regional cooperation. Therefore, the financial products and services offered by the Bank are based on the strategy to emerge and grow as a strong financial partner in promoting economic growth among member states. All transactions are developmental related and approved by the Board of Directors.

The products are tailored to specific financial requirements, including project, corporate and trade transactions, in order to afford the clients to benefit the most sophisticated financial techniques available in the financial markets. The Bank focuses on financing development programmes and projects at reasonable costs with favourable repayment conditions. Loan tenors may vary up to 10 years (in exceptional cases may exceed 10 years). Overall, the Bank takes lending decisions solely on the merits of projects and its development effect to the member states. In some instances, these projects are of a regional character, benefiting several countries and helping in their economic integration. Both public and private enterprises operating in the member states are benefitting from the resources of the Bank. The financial contribution of the Bank to a project can reach up to 50 percent of the project cost and in case of corporate and trade finance it may be extended up to 100 percent of the


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requirements provided that total amount of each loan shall not exceed internal operational limits of the Bank.

All operations are required to observe criteria set within the negative list of products policy, anti-money laundering regulations as well as procurement and environmental policies of the Bank. The main products and services offered by the Bank inter-alia include;

• Project Finance • Corporate Finance • Trade Finance • M-SMEs Finance • Co-financing and Syndication • Guarantees • Soft Loans • Technical & Advisory Services

The primary target of the ETDB is to finance programmes and projects covering a wide range of socio-economic activities in line with national development plans. Based on its Business Plan and country specific partnership strategy documents, the Bank mainly focuses on following sectors:

• Transportation • Energy • Manufacturing • Infrastructure • Agriculture

The Articles of Agreement was registered by the United Nations (UN)

under the number 44939 on May 19, 2008,

acknowledging the international legal status

of the Bank

the Bank maintains a Negative List of

Goods (including the Bank’s Environmental

Exclusion List), which is regarded

as restricted goods and services that

stand excluded from financing in all its

operations


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Operational Principles

The Bank undertakes its activities within the framework of its operation cycle policy and relevant principles. Accordingly

all operations that the Bank would conduct must be technically, economically, financially, legally, and environmentally sound, accord with its policies and represent an acceptable risk. Financial viability ensures that the Bank can continue to implement its mandate effectively without impairing its capital base.

In particular, the Bank observes in all its operations compliance to the maximum extent possible with the applicable rules and regulations regarding procurement of goods and services, national legislation of member states, and with the provisions of the international conventions, treaties and agreements that limit, restrict or prohibit use, proliferation, generation, or otherwise disfavor the financing of operations that facilitate dealing in goods and services that pose a threat to health and safety of humans, other species, or the environment in general.

To this end, the Bank maintains a Negative List of Goods (including the Bank’s Environmental

Exclusion List), which is regarded as restricted goods and services that stand excluded from financing in all its operations. Goods and services that have the potential of leaking into illegal use or, as a result of manufacturing, handling, storage or trade pose a threat to health and safety, security, or present an intrinsic risk for the environment are specifically excluded from Bank financing. The exclusion list inter alia include weaponry, ammunition, military goods, or goods that may be directly used for military purposes, tobacco, alcohol, narcotic drugs, psychotropic substances, wildlife products radioactive materials, including radioactive waste, etc. Each and every transaction of the Bank is closely monitored by specialist to ensure compliance with all internal and external guidelines and requirements, thereby ensuring full compliance with AML/CFT and KYC requirements. The overriding aim is to create and protect value for shareholders and other stakeholders through ethical, transparent and equitable business processes.


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Governance Structure

The Bank is committed to corporate governance at the highest level to ensure transparency, accountability

and adequate checks and balances on the Bank’s activities. As a multilateral development institution, the Bank is not subject to the supervisory authority of any national jurisdiction. The Articles of Agreement establishing the ETDB define the governance structure which is managed through well-defined responsibilities of its Board of Governors (BoGs), Board of Directors (BoDs) and Management Committee. Accordingly, the corporate governance principals and standards adopted by the BoGs have been developed with close reference to best practices adopted by other peer institutions.

In compliance with its corporate governance policy, the Bank pays utmost attention to the transparency and accountability of its operations. It is fully committed to abide by the generic global corporate governance principles and models. The Bank’s corporate governance policy, codes of conduct and staff regulations outline the principles and practices that would be followed in the operations of the Bank. The key component of effective governance is a clear definition and delineation of responsibilities among the Board of Governors, the Board of Directors and management, as well as targeted reporting with a view to ensure appropriate execution of separate responsibilities.

The essential committees (e.g. Credit Committee, Asset and Liabilities Committee, etc.) of the Bank are fully functional to mitigate risks and sustain operational efficiency. The governance structure is supported by comprehensive internal and external auditing as well as appropriate financial and management information reporting. The Audit Committee of the Bank operates under a clearly defined mandate which spells out its responsibilities, scope, authority and procedure for reporting to the BoGs. The Committee serves in an advisory capacity to the BoGs and ensures that the Bank‘s assets are safeguarded, adequate internal controls are in place and that material risks are effectively managed.

The Bank presents financial statements in its Annual Report, prepared in accordance with the International Financial Reporting Standards (IFRS). Moreover, the Bank has in place a comprehensive Management Information System of reporting to the Board of Directors, in particular information referring to its operations, investments and financial results. In its reporting the Bank aims at providing appropriate information on risk and performance of its activities. Industry best practices guide the evolving reporting practice of the Bank.


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The Board of Governors (BoGs)

The Board of Directors (BoDs)

All powers of the Bank are vested in the BoGs, which consists of one governor and one alternate governor

appointed by each member country, who are high dignitaries/senior officials (Ministers/Undersecretaries/Governors of Central Banks) of the member states. With the exception of powers specifically reserved to it under the Establishment Agreement of the Bank including increasing the Bank’s capital, admitting new members, appointing the

President of the Bank, appointing external auditors for the audit of its accounts, approval of the Bank’s financial accounts, allocation of net profit, and interpretation and amendment of the Establishing Agreement, etc. the BoGs has delegated its other powers to the Board of Directors, whose members are also appointed by each member state. The BoGs hold an annual meeting and such other meetings deemed necessary.

The BoDs is composed of representatives of the member states and have the authority necessary for management of

the Bank except those vested with the BoGs. The powers of the BoDs inter alia include the following:

I. take decisions concerning the business of the Bank and its operations in conformity with the general directions of BoGs; II. submit the accounts for each financial year for the approval of the BoGs at each annual meeting; III. approve the budget of the Bank; IV. propose to the BoGs any amendment to the Establishment Agreement; V. establish such branches, subsidiaries and representative offices as may be

necessary or appropriate to conduct the business of the Bank.

The Directors hold office for a term of three (3) years and may be reappointed. The BoDs meet as often as the business of the Bank may require but not less than six times a year.


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The President

The legal representative and Chief Executive Officer of the Bank is the President. The President is appointed

by the BoGs for a four (4) year term and also serves as the Chairman of the BoDs.

The President is responsible for management of the business of the Bank in accordance with the Bank’s rules and regulations and in line with the directives of the BoGs and the BoDs.

Capital Structure

The unit of account of the Bank is ECO Unit (EU). Each EU is equivalent to one Special Drawing Right (SDR) of the IMF.

The initial authorized capital of the Bank was SDR 1 billion and paid-in capital was SDR 300 million, which was equally paid-in by Turkey, Pakistan and Iran. The membership and capital base of the Bank has been expanding as the other ECO member states join the Bank. In this respect, the Islamic Republic of Afghanistan with paid-in capital contribution of SDR 15 million, the Republic of Azerbaijan with SDR 9.75 million paid-in capital contribution and the Kyrgyz Republic with paid-in capital contribution of SDR 2 million have become the new members of the Bank. Accordingly, the authorized capital of the Bank increased to SDR 1,089,100 thousand and the size of the paid-in capital shall amount to SDR 326,750 thousand. As of 31 December 2016 the paid in share capital was SDR 315,150 thousand since Azerbaijan, Afghanistan and Kyrgyzstan are in process of payment of their paid- in capital contributions.

Kazakhstan, Tajikistan, Uzbekistan and Turkmenistan are still not members but are expected to become the member of the Bank.In common with most MDBs, the ETDB has a share of its capital that is callable; an unconditional and full- faith obligation of each member country to provide additional capital whenever required. Out of the said authorized capital SDR 762,350 thousand may become payable, upon an unanimous decision of the BoGs.

Overall, Turkey, Iran and Pakistan remained the largest shareholders of the Bank with 30.6% stake each, followed by Afghanistan with 4.6%, Azerbaijan with 3.0% and Kyrgyzstan with 0.6%. Compared to previous year, the Bank’s total equity grew by 3,43 percent to SDR 359.327 million by the end of the 2016. Of this increase SDR 4.28 million was in the form of paid-in capital contribution payments of the new members and SDR 7.6 million was from retained earnings for the year.


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Shareholder Structure (%)

According to “Articles of Agreement” establishing the Bank, the membership is open to all ECO member states.

The current membership structure of the ETDB increased to six members namely Afghanistan, Azerbaijan, Iran, Kyrgyzstan, Pakistan and Turkey covering majority of the ECO member states. The Bank is keen to have all ECO member states as the member of the Bank and benefit from its activities. Accession of new members would not only increase the resources of the Bank but would also allow the Bank to further expand its operations and influence in the region. The capital resources of the Bank are expected to increase as per

the business requirements and joining of new members. The Bank is committed to efficient use of its current resources with an aim at optimizing the allocation of funds to different asset classes in the member states without neglecting its purpose and objectives. The Bank has modest financial resources compared to other MDBs and even to some commercial banks in the member states. Therefore, through a recapitalization process, the Bank would enjoy improved prospects for dynamic growth of its operations. Also, Bank’s contribution to the sustainable development of member states would be further enhanced.

Thousand SDRAuthorized Capital : 1,089,100 Callable Capital : 762,350 Paid-in Capital : 326,750

(Including Azerbaijan, Afghanistan and Kyrgyzstan payables)

Azerbaijan%2,98

Pakistan%30,60

Turkey%30,60

Iran%30,60

Kyrgyzstan%0,61

Afghanistan%4,59

Promoting feasible structural reforms

that can raise potential output and resilience to shocks

in all countries paired with equally shared multilateral

collaboration initiatives would

ensure acceleration of growth across

economies


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President’s Message

The ECO Trade and Development Bank (ETDB) commenced its operations in December 2008 to play an important

role in supporting sustainable growth in its members. Since then, the ETDB has come a long way. The Bank has in put in place the necessary operational policies, procedures and administrative structure to work with public and private sector partners and effectively channel resources into sustainable investment. We are committed to further consolidate and strengthen this foundation which is firmly guided by our strategy to support the solutions to some of development challenges faced by our member countries. However, considering its limited resources relative to the needs of the region, ETDB’s focus should intensify towards acting as catalyzer of development finance. With the increasing number of operations, the Bank is strengthening its capabilities to crystalize its value addition.

On the global economic perspective, it may be underlined that global economic activity has gained momentum after nine years since the start of the crisis. Nevertheless, the world economy still faces headwinds. The global growth which was 3.1 percent in 2016 is projected to grow at a pace of 3.5 percent in 2017 and 3.6 percent in 2018. This subdued recovery is based on complex reasons but weak gains in manufacturing and trade are among the prominent downside risks. Promoting feasible structural reforms that can raise potential output and resilience to shocks in all countries paired with equally shared multilateral collaboration initiatives would ensure acceleration of growth across economies. Progress on the global regulatory reform agenda remains vital to ensure a safe and resilient global financial system that can continue to promote economic activity and growth. At this point, caution is also needed

In cooperation with all relevant partners, we look

forward to further contribute sustainable development , integration and prosperity

in the ECO region.


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on avoiding imbalances that could result from disorderly policy rates hikes and balance-sheet contraction plans of major central banks.

Overall, 2016 was another challenging year for the global economy as well as the economies of the ECO member countries. Volatility in markets, slowing down of capital flows, monetary policies of major economies, possible shift toward protectionism and geopolitical developments continue to weigh on economic development strategies of our region. However, our member countries have shown great resilience. The real GDP growth for the ECO region was recorded at 4% in 2016 which was a marked improvement over the preceding year’s growth print. Total public debt of the region reached USD 638 billion which amounted to 35 percent of the regional output is one of the lowest in the world among regional blocs. The GDP per capita (PPP based) for the ECO region estimated to stood at USD 11,712 in 2016, which amounted to a growth print of 9.8 percent compared to a year ago. The modest improvement in the region’s growth outlook for 2017 mostly reflects some recovery in commodity prices, improvements in industrial output as well as more competitive currencies. Nevertheless, endowed with variety of enormous resources and geo-strategic advantages, the ECO region remains truly an attractive destination for investment and doing business. We shall take advantage of external conditions to press ahead with prioritized growth-friendly structural reforms and advance fiscal adjustment, where needed.

Within the limits of its resources, the ETDB continued to assist the member countries to address some of these challenges, through its development assistance instruments. Since 2008, the total amount of loans disbursed to various operations in the member states exceeded SDR 823 million (USD 1.2 billion) as end of December 2016. Compared to previous year, the outstanding loans increased by 14 percent reaching to all-time high of SDR 268 million (USD 360 million) by the end of 2016. The current portfolio of the Bank is highly developmental intensive. The Bank incorporates strong financial, social

and environmental safeguards in order to expand its operations sustainably. The Bank is committed to corporate governance at the highest level to ensure transparency and accountability.

We have a major role in encouraging the private sector and integrating our entrepreneurs into global supply chain. Speed, adoption, agility, and innovative thinking will be critical to succeed and meet aspirations within the current rapid changing business environment. Unlike the previous three industrial revolutions, we are witnessing an exponential progress of the industry 4.0 paradigm. Since Small- and medium-sized businesses (SMEs) are major source of growth and employment in our region, we need to facilitate their transition towards this new paradigm. Therefore, under our dedicated lending program, we have provided more than SDR 251 mln (USD 338 mln) for development of SMEs. In addition, through micro-finance institutions, the Bank has been expanding access to finance by the lower-income groups and micro-enterprises as well. On the other hand, significant parts of our resources are channeled to trade finance, making the Bank’s involvement in the region’s trade more inclusive. Indeed, we are doing ever more in supporting development of successful projects. Our involvement in realizations of various projects in the areas of wind power, transport, infrastructure and energy efficiency have been remarkable. These projects are assessed as having good or excellent development impact.

The investment requirements in our member states are huge and, to meet these, we aim to work together with all relevant public and private institutions, multilateral and bilateral partners. In this respect, our dialogue with other Multilateral Development Banks such as IFC, ADB and IDB on developing strategic synergies for the benefit of the region has intensified, and culminated with co-financing arrangements. We are determined to expand such relations confidently.

Although the Bank does not aim to maximize earnings but earns a sufficient amount of


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return to maintain healthy financial ratios and safeguard its capital base. The total assets of the Bank are amounted to SDR 474 mln (USD 638 mln) by the end of 2016. Accordingly our net operating income amounted to SDR 7.4 mln (USD 10 mln) in 2016. The Bank has accumulated no NPL’s this far which is one of the best levels among the peer institutions.

Certainly, these positive results reflect the continued efforts of the Bank in improving operational processes and Enterprise-wide Risk Management (ERM) approach. Certain efforts have been employed to improve loan approval processing. A competent credit response time has been achieved to effectively serve the needs. The Bank uses risk-based processes to accelerate loan approvals for certain types of low-risk, small-scale and/or programme lending. With a comprehensive risk management framework encompassing all stages of operation cycle, the Bank remains poised to tap into any quality lending opportunity.

We are coming close to achieving early our strategic operational targets set under the business plan for 2013-17. Added to this, we will expand our suite of products in terms of funding and lending. We will continue to explore fund raising opportunities in the local capital markets of our members as well as global capital markets. We will ensure that we maintain a conservative leverage ratio so as to obtain the highest possible credit rating and the best possible financing terms for our

members. In fact, the Bank should expand at this stage in terms of capital and membership. The membership base of the Bank has been enlarged to include majority of the ECO member states. Joining of the remaining four ECO countries namely Kazakhstan, Tajikistan, Uzbekistan and Turkmenistan would help the Bank to further advance its activities over the entire region. It will also consolidate the ECO family.

On a final note, I would like to underline that there are a lot more grounds for us to cover. Obviously we also have some challenges which are not underestimated or ignored. But, I am confident that with the support of member states, ETDB would further mobilize its skills and experience to deliver significant impact. Taking this opportunity, I would like to express my sincere gratitude to the esteemed members of the BoGs and BoDs for their valuable guidance and continued support. I also thank my colleagues at the Bank for their dedication and team work which continues to manifest itself in the growth and financial performance of the Bank. The human resources continue to be our most precious asset and source of energy. We are all committed to progress the Bank toward its noble goal of becoming a prominent financial pillar in the region.

Javaid AslamPresident

Since 2008, the total amount of loans disbursed to various operations in the member states exceeded SDR 823 million

(USD 1.2 billion) as end of December 2016.

The Bank is putting efforts to mobilize further resources

for enhancing trade, development of M-SMEs, meeting the financing

and technical assistance needs

of corporates and projects in the member

states


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Executive Summary

ETDB, as a regional Multilateral Development Bank (MDB), has a clear mandate to foster socio-economic

development and support the growth of intra-regional trade among ECO member states. The vision of the Bank is to become the financial pillar of economic cooperation among the member states. The Bank’s headquarter is in Istanbul and staffed with 39 professionals from member states. It has a modest equity amounting to SDR 359 million as end of 2016. The Bank is conducting its operations according to internationally accepted financial rules and prudent operational policies/procedures which are closely aligned to the practices of other MDBs.

The representative offices of the Bank in Tehran (Iran) and Karachi (Pakistan) have the role to identify and coordinate the operations of the Bank. During more than eight years of operation, the Bank has been able to built-up an efficient organizational structure and established fundamental internal regulatory framework to improve its development effectiveness, governance and additionality. Although the Bank is endowed with a modest capital but its business model and targets remain realistic to steadily leverage capabilities in the coming years. The right capabilities and knowledge built on internationally accepted practices are improving the ability of Bank to enhance loan growth, manage risks and implement good core expense management.

The operating environment during 2016 has been remarkably challenging. The year will be remembered for profound developments in international relations weighed on the hopes of stronger global economic growth. Despite capacity-constrained factors on boosting economies and fluctuation in global

trade, the outlook for the global economy is one of subdued growth. The global growth which was 3.1 percent in 2016 is projected to grow at a pace of 3.5 percent in 2017 and 3.6 percent in 2018. At this point, caution is needed on avoiding imbalances that could result from diverging monetary policies of major economies, possible shift toward protectionism and geopolitical developments. In this context, the ECO countries relatively remain vulnerable to global stresses.

The Real GDP growth for the ECO region was recorded at 4.08% in 2016 which was a marked improvement over the preceding year’s growth print. The region’s nominal GDP increased to USD 1.82 trillion in 2016 which amounted to 2.4 percent of the global output. In 2016 estimated GDP per capita (PPP based) for the region stood at USD 11,712 which amounted to a growth print of 9.8 percent compared to a year ago. The region is composed of countries with different level of development. There are promising opportunities for investment while the regional countries are advancing in their developmental goals and aspirations. Participation to global supply chain, trade and investment inflows to the region is increasing. In this respect, the Bank has positioned itself as a viable development institution to support mobilization of financial and technical resources to the member countries.

Despite numerous challenges, the Bank has been making substantial progress regarding strategic objectives defined in its Business Plan (2013-2017). The Bank is putting efforts to mobilize further resources for enhancing trade, development of M-SMEs, meeting the financing and technical assistance needs of corporates and projects in the member


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states. The current portfolio of the Bank is well diversified vis-à-vis the member states and the sectors. The Bank maintains a highly developmental intensive portfolio without having any NPLs. It represents one of the best performances among the peer institutions. Implementing a strategic dialogue with member countries through Country Partnership Strategy documents helps the Bank to remain relevant and support main developmental needs. In this context, sectors such as infrastructure, manufacturing, agriculture, energy, transport and communications, which have potential impact on the development of the member states, have been given special attention. The main achievements of the Bank are summarized as below;

a. Approved certain operational documents and wherever required made amendments to current documents in order to maintain an updated operating structure and guidelines.

b. Necessary mechanisms are employed to streamline business processes. A competent credit response time has been achieved to effectively serve the needs.

c. Since 2008, when the Bank started its operations, the total amount of loans disbursed to various operations in the member states have exceeded SDR 823 million (USD 1.2 billion) as end of December 2016.

d. Good asset quality: well diversified portfolio in terms of sector and country without any non-performing loan.

e. The total assets of the Bank amounted to SDR 474.3 million by the end of 2016.

f. The Bank succeeded in financing several flagship projects and continues to capitalize on new opportunities to support financing needs of the public and private entities.

g. The Micro and Small & Medium Size Enterprises support program and trade finance facility continue to deliver positive developmental results.

h. The outstanding loan portfolio reached to all-time high of SDR 268 million by the end of 2016 which increased by 14 percent compared to a year ago.

i. The total reserves and retained earnings of the Bank amounted to about SDR 44 million by the end of 2016.

j. Net profit for the year 2016 was SDR 7.4 million representing 17.3 percent increase compared to previous year.

k. The RoA was 1.6% and the RoE stood at 2.1% as end of December 2016

l. While maintaining a liquidity cushion i.e.12% of equity, the treasury operations continued to make the best possible use of funds and avoid any currency open position.

m. The Bank has made significant progress in focusing its activities on enhancing Enterprise-wide Risk Management (ERM) approach and improving its internal credit rating system.

n. The Bank continued to incorporate strong financial, social and environmental safeguards in order to expand its operations sustainably.

o. The Bank continued to strengthen its technological infrastructure to leverage business by integrating all technological enhancements with the business processes mainly in three areas, SAP (Banking Application), Business Continuity (Disaster Recovery) and Security (Firewall upgrade).

p. The Bank continued to prepare regular supervision/monitoring reports to mitigate various risks in the specific operations and sustain the robust status of the loan portfolio.

q. Strategic cooperation arrangements with relevant Multilateral Development Banks such as IFC, EBRD, IsDB, ADB, etc. have been pursued to enhance co-financing operations.


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r. Highly calibrated human resources and dedicated staff continue to manifest itself in the growth and encouraging financial performance of the Bank.

s. Expansion of membership base has been pursued decisively. With joining of Azerbaijan, Afghanistan and Kyrgyzstan, the membership base of the Bank has been enlarged to include six ECO member states.

Overall, the Bank is committed to advance its vision over the coming years and adopt the necessary measures to achieve them. The strong regional ownership structure and deep understanding of business dynamics in the region provide the Bank a specific

comparative advantage in mobilizing resources for sustainable development. With a comprehensive risk management framework encompassing all stages of operation cycle, the Bank remains poised to tap into any quality lending opportunity. Meanwhile, looking at the experiences of other MDBs, a recapitalization process would enable the Bank to do more. Going forward, the other four ECO member states namely Kazakhstan, Tajikistan, Uzbekistan and Turkmenistan are expected to join and benefit from the activities of the Bank. Certainly with the support of member states and other partners, the Bank looks forward to further support sustainable development, integration and prosperity in the ECO region.


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Economic Overview

Real GDP growth for the ECO region was recorded at 4.08% in 2016 which was a marked improvement over the

preceding year’s growth print. The pronounced deceleration in region-wide growth observed last year was somewhat moderated and economic activity gained a solid footing across the region. A strong turnaround in Iranian economy after the contraction witnessed last year provided the main impetus to the region’s overall headline growth. Half-year growth for Iran was recorded at 7.4% in 2016/17 and end-year growth is projected to come in at 6.6%.

The gradual but subdued improvement in oil prices coupled with improved external market conditions in 2016 helped ECO region’s natural resource dependent economies to post recovery in commodity exports. Furthermore, economic reforms undertaken in the form of fiscal support, foreign exchange adjustment and structural reforms allowed the said countries to be better placed to absorb the negative oil price shock. Gradual economic recovery took hold in Russia in 2016 which resulted in upswing in remittances observed across Central Asian states. The above developments helped arrest the slowdown of their respective economies.

ECO region’s nominal GDP increased to USD 1.82 trillion in 2016 which amounted to 2.4 percent of the global output. A better gauge of the region’s output dynamics is captured by observing GDP measured in terms of purchasing power parity (PPP). In 2016 GDP (PPP based) stood at USD 5.45 trillion compared to USD 4.87 trillion (PPP based) recorded last year, which amounted to a growth print of 12 percent in nominal terms.

Living standard as measured by average nominal GDP per capita income metric rose for the ECO region in 2016 to an estimated USD 3,914. A more nuanced approach is to look at GDP per capita measured on PPP basis to grasp a better understanding of the change in living standards in the region. In 2016 estimated GDP per capita (PPP based) for the ECO region stood at USD 11,712 compared to 2015 estimate of USD 10,659 (PPP based), which amounted to a growth print of 9.8 percent.

ECO region’s comparison with other regional blocks in regards to economic performance as measured by real GDP growth rate shows that it fared well with other blocks with the exception of ASEAN which posted a relatively higher growth rate (Figure 1).

Figure 1: Real GDP Growth Rates of Selected Regions, 2016

Source: IMF

CEE

ASEAN

MENA

CIS

ECO

-4 -2 0 2 4 6 8

20162015


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Map of ECO Member States

Republic of Turkey

Republic of Afghanistan

Republic of Uzbekistan

Kyrgyz Republic

Republic of Tajikistan

Republic of Turkmenistan

Republic of Azerbaijan

Islamic Republic of Iran

Islamic Republic of Pakistan

Republic of Kazakhstan


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2016

Developments in headline inflation varied across the ECO region. In Azerbaijan and Kazakhstan inflation rate reached double-digits mostly on account of weaker currency as the currency regime was switched to free float from a pegged exchange rate. In Turkey and Afghanistan inflation rose on account of depreciation pressures in foreign exchange market which led to exchange rate pass-through to consumer prices. Inflation in Iran moderated to single digits because of implementation of prudent monetary and fiscal policies.

In 2016 the government fiscal balance deterioration witnessed last year moderated somewhat in almost all ECO countries amid a rise in revenue due to uptick in economic activity and gradual rise in oil prices. Tajikistan and Kyrgyzstan were the exception whose budget deficit rose due to pressure on revenues emanating from slowdown in remittances. The regional fiscal deficit to GDP

ratio increased slightly to 2.7 percent compared to last year but is still moderate compared to other comparator regions (Table 1).

The natural resource economies of ECO region saw major deterioration of their current account (CA) balances and one member country (Turkmenistan) recorded double-digit CA deficit expressed as percentage of GDP on account of decline in oil prices and slowdown in foreign direct investment inflows. On the other hand, energy net-importer members witnessed moderation in CA deficits on account of the gradual but subdued rise in oil prices prevalent in 2016. The overall regional CA deficit in 2016 moderated to USD 28.4 billion from USD 35.1 billion recorded last year while CA balance expressed as percentage of GDP for the ECO region came at -1.55 percent compared to -2.04 percent in 2015 (Table 1).

Table 1: Key Economic Indicators by ECO Region and Member Country-2016

Source: (i) National Statistical Offices & (ii) IMF

Real GDP Growth

(percent)

Inflation average consumer (percent)

Central Gov. Budget Balance/GDP

(percent)

Current Account Balance/GDP (percent)

Afghanistan 2 4.4 0.14 7.08

Azerbaijan -3.8 12.4 -1.4 -3.8

Iran 6.5 8.8 -2.7 6.3

Kazakhstan 1.1 14.5 -4.3 -6.1

Kyrgyzstan 3.8 0.4 -3.4 -9.4

Pakistan 4.7 2.9 -4.3 -1.1

Tajikistan 6.9 6 -4.4 -5.1

Turkey 2.9 7.8 -2.2 -3.8

Turkmenistan 6.2 3.5 -1.3 -21

Uzbekistan 7.8 7.9 -0.3 1.4

ECO 4.08 7.7 -2.7 -1.55


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The general gross government debt to GDP ratios in general were up across the region. The remittance depended countries like Tajikistan and Uzbekistan saw rise in their debt to GDP ratios due to contraction witnessed in remittance inflow on account of weakening Russian economy. Total public debt of the region reached USD 638 billion which amounted to 35 percent of the regional output which is one of the lowest in the world among regional blocs.

The adverse impact of external negative shock experienced by Central Asian countries somewhat eased in 2016 and downward pressure on their respective currencies abated relative to the preceding year. Turkey continued

to witness downward pressure on its currency and rapid depreciation and surge in volatility was observed due to the deteriorating capital inflows. Other member countries’ currencies were somewhat relatively stable and didn’t show any significant variation.

In the World Bank’s “Doing Business 2017” report which provides ease of doing business ranking for 190 countries, Kazakhstan scored the best ranking among the ECO region member countries and also improved on its ranking over the last year. Similarly, Tajikistan also fared well and its ranking improved slightly compared to the preceding year. Rest of the member countries witnessed deterioration in their respective rankings (Figure 2).

Figure 2: Ease of Doing Business Indicator- 2016

Source: Doing Business Survey 2017, World Bank

-50

0

50

100

150

200

Afghanistan

Azerbaijan

Iran

Kazak

hstan

Kyrgyzstan

Pakistan

Tajikistan

Turkey

Uzbekistan

0

-14

4

-6-8

6

-2-2-6

8769

128144

75

35

120

65

183

2016 RankingChange in Raking Since 2015


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2016

Operations

1. Business Strategy and Balance Sheet ItemsIn view of the standing global economic challenges in general and business dynamics specific to the operating environment in the member states, the role of the Bank assumes particular significance in providing further support to sustainable development efforts of the member countries. In line with its mandate and available resources, the Bank continued to remain focused and responsive to meet the emerging needs of the member states through offering various products and services.

2016 has been reasonably a good year for the ETDB. The Bank attained important milestones which provide a strong foundation for future growth. In 2016, the operational focus has been intensified through credit lines extended to financial institutions for development M-SMEs and trade activities. Loans to corporates centred for development of projects in various sectors and catering their trade finance needs. In view of the development priorities of the member states, effectiveness, financial viability and accountability have been main pillars of the Bank's operational strategy. Since 2008, when the Bank started its operations, the total amount of loans disbursed to various operations in the member states amounted to SDR 823 million (USD 1.2 billion) as end of December 2016.

On the other hand, the membership base of the Bank continues to expand. Azerbaijan, Afghanistan and Kyrgyzstan became the members of the Bank. The said new members continued their paid-in capital contribution payments without any delay. Currently majority of ECO member states are members of the Bank and the remaining four ECO member states are also projected to join soon.

Accession of new members would not only increase the resources of the Bank but would also allow the Bank to further expand its operations and influence in the region.

As the business and geographical operational scope is expanding with joining of new members, the Bank is intensifying its efforts on enhancing risk management perspective. The importance of well-functioning risk management system has been clearly demonstrated during the financial turbulence of the last few years. The Bank maintained its current well-diversified portfolio across member states and sectors so as to mitigate concentration risk. The internal rating model of the Bank has been recently supplemented with a sensitivity analysis practices. The Bank has also focused to increase co-financing agreements with relevant MDBs, bilateral financial institutions to mobilize additional resources to prospective projects in the member states. Overall, the Bank has been conducting its operations with sound corporate governance and operational policies to ensure responsibility, transparency and accountability. All operations are required to observe criteria set within the negative list of products policy, anti-money laundering regulations as well as environmental policy.

Building on the experiences of past years, the current country partnership strategy reports for the member states provide basis for assessing potential investment requirements and further enhancing the operational dialogue with the public and private sector. The Bank updates these reports bi-annually in order to identify potential engagement areas and to carry forward successful operations. The Bank has successfully launched its first credit operation in Azerbaijan and making preparations to


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capitalize on other investment avenues. The Bank is also putting efforts to launch its operations in Afghanistan and Kyrgyzstan as well.

The Business Plan (2013-2017) adopted by the Board of Governors (BoGs) defines the strategic road map of the Bank. The 2017 will be a planning year for the Bank as it approaches towards completion of its current business plan. However, in line with the current business plan and country strategy reports, the following main targets have been focused by the Bank;

• Maintaining a well-diversified (sector and country wise) portfolio without non-performing loan,

• Ensuring an update operating structure, processes and procedures,

• Building a robust project pipeline,• Engaging more credit operations in the new

member states,• Increasing the membership base,• Enhancing the co-financing arrangements

with relevant partners,• Making preparation for obtaining a favorable

external credit rating,• Strengthening the enterprise-wide risk

management perspective,• Maintaining an efficient IT infrastructure to

ensure well-functioning of an integrated system,

• Improving the human resources and technical capabilities on need basis,

• Adhering to prudent banking practices notably in view of new developments in the field of Anti-Money Laundering and Combating the Financing of Terrorism (AML-CFT) and KYC requirements.

The Bank achieved the majority of its performance milestones set forth in said Plan and made substantial progress on the remaining few. According to the base-line scenario of the said plan the total assets of the Bank are projected to amount SDR 574 million and to SDR 650 million by the end of 2015 and 2016 respectively. The total assets of the Bank was SDR 466 million by the end of 2015 and further increased to SDR 474 million as end of 2016. The difference in the target of base-line scenario vis-a-vis the current situation derives mainly from the postponement of envisaged capital increase assumptions and long-term borrowing plan. In addition, the Bank faced several challenges to attain outstanding loan levels targeted in the base-line scenario due to diminishing business demand and operation limitations in some of the member states. On the other hand, the Bank has been able to markedly attain higher income levels compare to targets of the base-line scenario. The total reserves including retained earnings which accumulated to SDR 44 million by the end of 2016 exceeded the business plan’s 2016 target level of SDR 39 million. The disbursements of committed loans with respect to approved operations in the member states would also continue in the coming years as per their progress levels. Meanwhile, lending activities are expected to progress in the coming period through approval of series of operations and projects in the pipeline. Eventually these would increase the Bank’s outstanding loan levels to the permissible limits envisaged in the capital utilization framework.


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(i) Balance SheetIn 2016, the Bank’s total assets were SDR 474,375 thousand at the end of the year against SDR 466,527 thousand as of 2015, representing 2 percent expansion. Bank placements amounted to SDR 180,048 thousand representing 38 percent of total balance sheet size. Other loans to banks and

loans to customers amounted to SDR 157,063 thousand and SDR 110,742 thousand, respectively.

As of 31 December 2016, 76 percent of the Bank’s assets are funded with the members’ equity amounting to SDR 359,327 thousand. Total short-term funds borrowed amounted to SDR 109,139 thousand.

Compositions of Liabilities & Equity 31 December 2016

%1

%23

%76

Total EquityDeposits from BanksOther LiabilitiesRetirement Benefit Obligations

Compositions of Assets 31 December 2016

%2

%4

%23

%33

%38

Bank PlacementsOther Loans to BanksLoans to CustomersInvestments SecuritiesFixed Assets


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(ii) Loan PortfolioThe Bank initiated loan operations in December 2008 and total approved operations (SME finance operations to financial intermediaries, trade and project finance operations to customers) amounted to SDR 1,494 million. Total disbursements to various operations by the end of 2016 amounted SDR 509 million

and additionally SDR 314 million of trade finance loans have been disbursed to banks in member countries. As at December 2016, disbursed funds were amounted to SDR 823 million and total repayments were SDR 555 million. So far, the Bank did not have any non-performing loan.

Portfolio Development 2013-2016 (SDR million)

The Bank increased the size of the outstanding loan portfolio to SDR 268 million thousand compared to SDR 235 million in the previous year, an increase of 14 percent. Funds committed but not yet disbursed stood at SDR

50,947 thousand at the end of the year.

The allocation of active operations and outstanding portfolio among member countries as of 31 December 2016 is as follows:

Outstanding Operations by Country 31 December 2016 (SDR million)

Azerbaijan 2;%1

Pakistan 81;%30

Iran 46;%17

Turkey 139;%52

Turkey 139;Iran 46;Pakistan 81;Azerbaijan 2;


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2016

In addition, the Bank strives to diversify its operations across different sectors. In this context, diversification of operations towards finance, manufacturing, infrastructure, energy, transportation, mining and agriculture is given special attention. The Bank also increased the share of medium sized projects and private sector operations in its portfolio. The attention of operations in finance sector emanates from the twin objectives of the Bank to support development of local financial institutions and

enhance operations in financing trade and development of M-SMEs. The Bank has been able to facilitate public-private cooperation schemes in realization of several infrastructure projects. Interventions in manufacturing sector supported the major industrial conglomerates in the member states to adopt new technologies and upgrade their production and export capacities. The breakdown of the Bank’s loan portfolio by industry sectors as of 31 December 2016 is as follows:

Loans by industry sectors 31 December 2016 (SDR million)

0

45

90

135

180

ManufacturingPower and Energy

Sovereign, Municipal and Environmental InfrastructureFinancial İstitutions

8

20

23

157

83

1018

Outstanding Undrawn Commitments


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(iii) RevenuesTo support its objective of financial viability, the Bank is guided primarily by market practice in managing its day-to-day affairs and applies a conservative risk/return oriented approach to treasury operations. As the Bank’s main purpose is to promote economic activity and trade in the region, the Bank does not intend to maximise profits in the course of its activities, but seeks at least to recover its operating costs and the cost of capital employed.

The Bank pursues its operational mandate with strict budgetary discipline, ensuring that its limited resources are utilised efficiently. As a corollary of strict budgetary discipline, the Bank continuously strives for productivity enhancement.

Interest income from lending activities increased to SDR 7,565 thousand, from SDR 6,279 thousand in 2015. Treasury activities in 2016 generated interest income of SDR 3,745 thousand from money market and securities portfolio. Operating income for the year was SDR 11,895 thousand compared to SDR 10,754 thousand in 2016 represent a 11 percent increase.

(iv) ExpensesInterest expense for the year decreased from SDR 955 thousand in 2015 to SDR 742 thousand, due to the lower Euro base interest rates. Operating expenses in 2016, including depreciation, were SDR 4,421 thousand compared to SDR 4,384 thousand over the previous year.

Personnel expenses (e.g. salaries, benefits, contributions made on behalf of the employees and staff development expenses, etc.) amounted to SDR 3,637 thousand, showed an increase of SDR 133 thousand from the previous year. Other administrative costs (e.g. travel, office occupancy, third party fees, maintenance

costs, etc.) had a decrease of SDR 86 thousand from the previous year to an amount of SDR 551 thousand. Overall, operating expenses were well within the 2016 budget targets, reflecting the Bank’s focus on budgetary discipline and effective cost controls.

(v) Net IncomeThe Bank posted a net profit of SDR 7,474 thousand, representing 17 percent increase compared to SDR 6,370 thousand in 2015 while the quality of the lending portfolio remained sound, experiencing no impaired loan operations.

(vi) ProvisioningFor the purposes of the Bank’s provisioning requirements, provisions are deemed to be in one of the following two categories:

• Specific provisions are for the likelihood of impairment of specific, individually significant exposures, and have a direct relation to the asset whose likelihood of impairment they cover. Impairment is determined following an impairment test, carried out if evidence of credit deterioration is found during regular monitoring.

• General loan loss provisions relate to unidentified losses inherent in the Bank’s performing loan portfolio.

Since, there are no financial assets that are impaired there is no spesific allowance for impairment as of 31 December 2016. Having a loan portfolio of all significant loans reviewed regularly and no non-performing loan history general provisions were cancelled in 2015. IFRS 9 Financial Instruments imposes changes in classification and provisioning requirements of financial instruments.The new standard will be effective after 1 January 2018. In this respect, in 2017 the Bank will work on the necessarry changes in SAP and will coordinate studies regarding the amendment of Bank’s provisioning policies.


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2016

2. Business ActivitiesAs a regional development financial institution, the Bank puts efforts to add value and mobilize resources to complement commercial lending in supporting regional cooperation and sustainable development. The Bank follows the strategy to pursue a dynamic business model focused on enhancement of regional trade, development of M-SMEs, meeting the financing and technical assistance needs of corporates and projects in the member countries.

The funds available for Bank’s lending operations, offered at near-market terms. Loans are normally provided under sovereign guarantee, although the Bank may accept an unsecured position where it is judged to be consistent with prudent risk perspective. The financial structure of a project/transaction, financial strength of the sponsors, technology, collaterals, tenor, and sector are also taken into consideration. The process of selecting projects and operations is based on the assessment of additionality and development effect. Development impact, in particular, tends to preclude a preferential factor in allocation funds towards projects and operations with the optimum risk/return ratio. Since 2008, the total loans disbursed to various operations have exceeded SDR 823 million (USD 1.2 billion) as end of 2016.

(i) M-SMEs FinanceThe SMEs play important role in economic growth, employment and expanding trade in the member states. In line with its main goals, promoting the production and innovation capacity of vibrant SMEs in the member states

remains a priority for the Bank. Under SMEs facility, the Bank has been extending medium term funds to local financial institutions to be utilized for financing needs of the SMEs. Moreover, through micro-finance institutions, the Bank focuses to increase access to finance by micro-enterprises and lower-income groups. Cooperation with financial institutions ensures that Bank’s funds are transmitted to the M-SMEs effectively and development of financial services is supported as well. During 2008-2016, the Bank disbursed USD 338 million M-SME facilities to the qualified customers in the member states. Based on the data provided by the partner financial institutions, over 1,000 SMEs benefitted from these funds which were mainly active in the manufacturing, printing, energy, telecommunication, food processing, construction, pharmaceuticals, textile, trade and services sectors, thereby contributing to the economic development and job creation. In addition, it is considered that over 55,000 micro-entrepreneurs have benefitted from intermediated funds of the Bank.

(ii) Trade FinanceThe Bank has been expanding its trade finance facility as one of its main activities with aim to support the economic growth and intra-regional trade. The Bank provides supports to traders through financial intermediaries in member countries for diverse activities including line of credits, issuing guarantees, discounting, forfaiting, buyer’s credit which all are designed to meet all different requirements in trade finance. During 2008-2016, total disbursed loans through this form of facility to member countries amounted to USD 461 million.

Loan disbursements during 2008-2016 as per country (thousand USD)

Iran Pakistan Turkey Azerbaijan Total

M-SMEs Dev. Loans 52,13 47,50 235,91 3,00 338,54

Trade Finance 70,25 146,13 241,62 3,83 461,83

Corporate Finance 57,48 150,00 72,80 - 280,28

Project Finance 61,16 49,24 35,00 - 145,40

Total 241,02 392,87 585,33 6,83 1.226


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(iii) Corporate and Project FinanceThe Bank provides short/medium to long term finance to corporates for trade finance and capacity development needs. The project finance loans are provided in line with Bank’s overall objective of fostering economic development in the member states. The process of selecting projects is based on but not limited to the assessment of incremental and development impact with special attention given to the national priorities of the member states.

The total disbursement during 2008-2016 period including undisbursed commitments under corporate and project finance operations have been intensified and amounted to USD 484 million. The Bank has been able to finance successful projects in the member states in the areas of transport, wind power, energy efficiency and rural/agricultural infrastructure. As a result, the bank has continued and progressed in expanding its footprint and

visibility in the developmental corporate, project and trade financing activities in the member states through offering customized solutions in line with its overall objectives of fostering sustainable economic development and social progress.

The Bank cooperates actively with other international development institutions such as such as IFC, ADB, and IDB in order to conduct co-financing arrangements in the common member states.

On risk and portfolio management side, the Bank laid special emphasis on ensuring frequent and optimal supervision and monitoring of operations to preempt any signs of weakness. It is heartening to note that the entire portfolio enjoys healthy and regular status without any signs of distress or irregularities, signifying high level of financial discipline and professionalism by the bank’s clientele.

Some of Corporate and Project finance operations in the member states

# Name of Client Operations ETDB Contribution Amount

1. Istanbul Metropolitan Municipality /Turkey

Procurement of subway vehicles for Metro Line Project USD 35,000,000

2. Tehran Province Water and Wastewater Company / Iran

Shahriar Water and Waste Water System Project EURO 18,000,000

3. Regional Water Authority of Iran (KRWA)/ Iran Siazakh Irrigation Project EURO 16,890,000

4 South Khorassan Waste Water Company / Iran Birjand Waste Water Treatment Project EURO 16,975,000

5. Government of Pakistan Trade Finance Facility USD 35,000,000

6. Zorlu Energy Pakistan Limited/ Pakistan Wind Power Farm Project USD 18,550,000

7. DG Khan Cement Company Limited (DGKCC ) / Pakistan

Waste heat recovery plant and refused derive fuel facilities Project USD 20,985,000

8. Soft Loan to Government of Pakistan

Facility for supporting reconstruction and rehabilitation efforts following massive floods

USD 10,000,000

9. Vestel Elektronik San. ve Tic. A.Ş./Turkey

Corporate Finance -Trade Finance Facility EURO 20,000,000

10. Mazandaran Power Transmission Project/Iran

Expansion and modernization of electric transmission and distribution infrastructure

EURO 20,000,000


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3. Treasury OperationsThe Treasury’s activities are auxiliary to the core business of the Bank. One of the major functions of Treasury is to provide funds for the lending departments efficiently and effectively keeping in consideration the cost and availability based on ETDB flows. The funds which remain unutilized by lending departments remained with Treasury which is placed in a manner to increase the return for the bank while keeping them available as and when required by the lending departments.

The total Treasury assets amounted to USD 262.4 million as end of December 2016. In cash flow, Treasury is in charge of managing banks short and long-term liquidity requirements. The Bank’s liquidity is maintained at a minimum of 12% of the total equity minus total property and equipment and intangible assets plus long term borrowing with remaining time to maturity greater than six months. On the FX risk, the department manages the FX risk in five currencies as its functional currency is SDR. In doing so, Treasury proactively included Chinese yuan in its operational currency and thus reducing its open currency position as it was included in SDR starting from October 1, 2016. The Department engages in currencies borrowings and placements through money market transactions and ensures effective management of the Bank’s short-term funds utilizing various instruments such as FX swaps, placements and other available tools. The Bank manages the interest rate risk in accordance with the opinions of the ALCO.

Since the Bank’s ordinary operations are inherently relatively risky, the management of treasury activities is conservative. Treasury has always made their outmost efforts to maintain its compliance with the Bank’s polices, as well as market standard practice criteria in connection to doing profitable transactions while completing its main functions at the first stance. ALCO supervises the treasury’s asset management policies and provides it with any input that it deems to be necessary. All in all, the Bank coordinates and ensures discipline, certify adequacy of liquidity under normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank’s reputation.

4. Technical Assistance and Advisory ServicesThe Bank aims to assist member states in formulating and coordinating development strategies and plans; improving institutional capacities; undertaking sector and policy oriented studies; and improving knowledge about development, regional cooperation, and integration issues. The Technical assistance (TA) services have been determined as a key tool in meeting this objective and important element of the Bank’s operational strategy. Overall, in view of its modest capital base, the Bank is allocating a certain amount to technical assistance activities within its annual budget. The strategy of the Bank is to use this limited amount in order to co-finance and mobilize external grant sources from bilateral and multilateral donors.

In this respect, the Bank has sponsored the ECO/IRU Silk Road Truck Caravan project and a WTO workshop organized for ECO countries in cooperation with the ECO Secretariat, the Ministry of Economy of Turkey and the Islamic Development Bank in Istanbul during July 2013.

The Bank also supported a similar WTO-related workshop organized during 2-3 May 2016 in Islamabad-Pakistan in coordination with the ECO Secretariat and the Ministry of Commerce of Pakistan. ETDB supports the accession of ECO Member States to the WTO which will also have positive effect on enhancement of intra-regional trade. Any trade agreement or facilitation arrangement within the region whether bilateral, multilateral (e.g ECOTA) or at global level within the WTO framework would serve the ETDB to enhance its role and mandate to provide support for trade. Therefore, in cooperation with potential partners, the Bank would continue to build-up its expertise and resources for providing more technical assistance services in the coming years.

5. Risk Management The Bank is committed to actively identify and manage all risks inherent in its activities in order to achieve its mandate and safeguard its capital base. The Bank pays particular


AnnualReport2016

attention to managing credit risks in the course of its core activities, market risks in its treasury activities along with compliance and operational risks. The Bank’s risk management policies are established for the identification and assessment of the risks, which the Bank may be exposed to and also to set appropriate risk limit controls for monitoring the same. The financial policies of the Bank approved by the BoDs establish the guiding principles for sound financial management and provide the framework within which the Bank pursues its mandate.

Credit proposals are prudently reviewed and lending decisions are made in line with the Bank’s overall risk appetite and strategy. The Credit Committee (CC) considers all matters related to the financing operations of the Bank and expresses opinions with respect to the appropriateness of the due diligence and appraisal process. Subsequently, all credit proposals are approved by the BoDs.

Within this framework, the risk management function in the Bank provides an independent review and identifies key credit risk to the business proposals. Carries out on & off-site due diligence exercises on potential borrowers and calculates the overall credit score of the credit proposal by using an internal credit rating model. The model which produces an overall credit score is designed to capture the financial standing of borrowers in terms of financial strength, experience and market position in the industry. The credit rating model is based on various defined categories which are assigned credit scores using quantitative and qualitative information. In order to safeguard the interest of the Bank, financial covenants & other conditions are proposed to ensure that where credit risk is not adequately mitigated, the same was off-set by including covenants in the loan agreement. The outcome of these analysis as an independent credit opinion which form an integral part of the Concept Clearance Document (CCD) & Final Review Document (FRD) submitted for the consideration of the Credit Committee (CC) and the BoDs.

As part of an Early Warning Signal (EWS) exercise, the risk management department conducts stress test on the Banks’ existing borrowers in order to assess their robustness to absorb financial shocks under various economic scenarios. The relevant reports provide details on the various levels of stress that counterparties can absorb before incurring losses. Moreover, to avoid breach in policy, the risk management department checks compliance and adherence to the defined country and operation limits. It also provides input on supervision reports submitted by the business departments and update the internal credit rating of obligors based on the latest available financial data. On a regular basis, the internal credit rating model was reviewed to ascertain if any changes / amendments were required to be made. Additionally, in order to get a snapshot of the Bank’s overall performance, credit portfolio review reports are prepared on regular basis.

The Bank’s treasury investment policy adopted by the BoDs defines the risk parameters to be observed by treasury in managing its exposures. The ALCO is responsible for setting strategic direction in ALM risk management and establishes specific numerical limits, targets, and guidelines within which tactical and operational ALM decision making takes place. Accordingly, the treasury credit risks and credit portfolio of the Bank are reviewed on a monthly basis by the ALCO.

The Bank defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The definition includes legal risk but excludes strategic and reputational risk. To this end, the Bank takes appropriate measures to achieve a high level of operational risk awareness and to enhance the operational risk management. Overall, in pursuit of its developmental mandate, the Bank continued to strengthen its Enterprise-wide Risk Management (ERM) approach.


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2016

6. Project Implementation and Monitoring

The project implementation & monitoring activities are focused to provide strategic and operational advice on various activities within the framework of Operational Cycle Policy and Credit Operations Manual. This function makes significant contribution in maintaining an effective credit administration and management system.

In this respect, business proposals relating to various stages of operation cycle are reviewed by the relevant department and necessary inputs including collateral arrangement are proposed to safeguard the interest of the Bank. While providing opinion on financial structure and risk profile of the project, recommendations are made for adopting key performance indicators (KPIs) to gauge the performance of the project outputs. Furthermore, feedbacks are provided at pre-signing stage for various documents such as term sheet, condition precedents and loan agreements. The department also participates in the process of granting waivers and amendments on the recommendation of various departments and co-operates in disbursement control in coordination with the related department.

The Bank continued to prepare regular supervision and monitoring reports for various projects in order to monitor compliance with covenants and other major conditions of the loan agreement. Overall progress of each operation is evaluated vis-à-vis the implementation plan and any delays/problems are identified to mitigate various risks. KPIs are evaluated and recommendations are provided to streamline and optimize the implementation of the various stages of the operation cycle. It helps the Bank to preempt any signs of weakness while ensuring that the entire portfolio enjoys healthy and regular status. In addition, regular Exception Reports were prepared to document breaches with regard to covenants of the loan agreements.

The Bank ensures proper maintenance of operation registration system and an Operational Database maintained to record

operations for which eligibility review was approved by the Credit Committee. The database summarizes the key aspects of the operation and is constantly updated as the project moves through various stages of the operation cycle.

The Credit Committee, as per the financial policies of the Bank, is the relevant body to discuss the credit related issues. In 2016, fourteen (14) Credit Committee meetings were convened to discuss various credit proposals. Afterwards all the credit proposals are submitted for the final decision of the BoDs.

7. Procurement and Environment The Bank is accountable in all its operations for the proper use of funds. Therefore, implementation of sound procurement practices is encouraged as an important part of development. The Bank takes all necessary measures to ensure that good procurement practices are applied in both public and private sector operations. To this end, general principles to achieve economy, efficiency, competition, fair treatment and transparency guide the Bank’s requirements. All the projects are considered to ensure that the procurement of goods and services in the project conforms to the policy and loan agreement and supervise the implementation of procurement plans. The policy applies to all procurement contracts financed in whole or in part from Bank’s loans.

The Bank also considers effective environmental reviewing as a quality stamp. From the environmental point of view, the project must adhere to the environmental policy and regulations governed by the Bank as well as the country’s laws. This includes conformity of the project with acceptable internationally recognized standards and norms.

The Bank is determined to promote environmental soundness and sustainable developments in all its operations through ensuring that the operation do not add to existing pollution and favor the use of cleaner technologies and renewable resources, waste reduction, and resource recovery and recycling. This is well reflected in the projects


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financed by the Bank that promote a greener and healthier environment. Transactions involving goods mentioned in the ETDB‘s Negative List of Goods (including the Bank‘s Environmental Exclusion List) are excluded from financing.

8. Information Technology (IT) ServicesThe IT function continued to render a key supporting role in the Bank’s operations. Within the scope of IT governance, where possible and financially feasible, emphasis placed on automated controls. The IT department maintained an array of financial business systems including SAP, Thomson Reuters, SWIFT, and financial portal on Intranet with SQL Database support. In line with the Bank’s strategic plan, the Bank successfully implemented the customization of SAP software according to its needs. The system enabled the Bank to automate various processes. Internal trainings for the staff have been conducted to make best use of the system features. In this respect, an internal SAP Steering Working Group (SSWG) is responsible to ensure facilitation of an efficient and effective system.

During the year under review, the Bank continued to improve its existing technological infrastructure by integrating all technological enhancements with the business processes mainly in three areas, SAP (Banking Application) Project, Business Continuity (Disaster Recovery) Project and Security (Firewall upgrade). The Bank maintains comprehensive Disaster Recovery systems in order to ensure rapid recovery and high availability for its operations in case of any severe event. The latest technologies are being used to replicate corporate legacy data residing on mission-critical systems on the existing platform to an ISP’s Data Center located outside Istanbul on daily basis. On regular basis, data recovery tests are conducted in order to ensure integrity of the replicated legacy data.

An internal network of desktop workstations, laptops, digital office equipment, networking equipment, operating systems and servers

developed and maintained in conjunction with the Bank’s business requirements. On the part of IT security, necessary measures are taken in order to increase security level of the Bank’s Corporate Legacy data in line with the best IT industry practices.

A helpdesk service has been providing assistance to all ETDB staff with use of MS Office Professional and other related software as well as the printers and photocopiers. Besides the software support, this helpdesk support additionally covered connection problems, password recovery, file services, printer services, internet services, email services, telephony services, and remote office access for Representative Offices, etc. Going forward, while managing costs, IT infrastructure maintenance and enhancement services will continue in order to ensure that the Bank regularly improves its capabilities to this end.

9. Internal Audit and ComplianceInternal audit and compliance (IAC) function provides an independent evaluation of the internal controls, risk management and governance processes in the Bank. IAC operates according to its Charter and the annual audit plans approved by Bank’s Audit Committee. Each annual audit plan delineates IAC’s annual activities during its calendar year which starts on 1st July each year and end on 30th June next year.

The IAC has attained its planed objectives mentioned in the Bank annual audit plan efficiently and effectively. It has been able to make constructive comments, recommendations and action plans on the following topics during the period:

• Advisory study on the corporate governance principles and best practices

• Financial covenant determination and control process audit

• Internal purchasing process audit• Providing advisory service regarding internal

audit and compliance functions, and revision of the related policies and procedures

• Planning and budgeting process audit


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• Treasury operation process audit • Review of the swap deals done by the Bank• Ad-hoc assignments given by the Bank’s

President and Audit Committee

IAC has also been able to perform the following:• Board of Governors’ resolution follow-up• Liaising the preparation of the Audit

Committee’s annual report to be submitted to the BOGs

• Advisory services to the Bank’s departments on their request

• Proposing the necessary revisions in the Bank’s policies and procedures

• Preparation of the annual internal audit plan• Providing the secretarial assistance to the

Audit Committee meetings• Performing the compliance related functions

and providing the related advices

The IAC is following up and coordinating the required efforts in order to clear the recommendations with the respective process owners and Bank’s Management by taking into consideration the consultations of the Audit Committee. As one of the main monitoring functions and line of defense of the Bank, the IAC is trying its best to make sure the assurance of internal controls, risk management and governance within the Bank, specifically in the following respects;

• Evaluation of the validity, accuracy and completeness of documentation and other information as regards to financial, accounting, administrative, managerial and operational functions of the Bank,

• Promotion of responsibility and awareness throughout the Bank to evaluate risks, anticipate emerging issues, and identify deviations from established controls,

• Recommendations on control mechanisms and measures conducive to prevention and/ or correction of undesired developments,

• Fostering an environment of continuous improvement in controls and risk awareness, and in continuous self-checking control environment,

• Assessment of the reliability and integrity of financial information as well as the means to identify, measure, classify and report such

information, • Review of the operations and programs of

the Bank to ascertain whether, from the viewpoint of established internal controls, results are consistent with stated missions and goals,

• Effectiveness and efficiency of operations,• Compliance with the required regulations,

policies, procedures, guidelines, manuals, contracts, and other requirements, and

• Safeguarding of assets.

On the compliance function, the IAC has assisted the Bank in identifying, assessing, monitoring and reporting in matters relating to the institution, its operations and to personal conduct. The IAC also ensures compliance with policies, procedures, guidelines, rules and regulations, and assesses the degree of compliance with them, assists the Bank in managing the compliance risk, and also provides consulting in the areas of anti-money laundering (AML), know-your-customer (KYC), and combating terrorist financing activities, helping Bank’s departments to smoothly run their activities and responsibilities.

Particular emphasis is placed on adopting reference best practices. In this context, the IAC provides relevant and necessary advice and training for the staff on related issues if required. The Bank, as an international financial organisation, is accountable to its stakeholders and in its operations calls for very high standards of integrity, transparency and accountability.

10. External AuditorsUpon the recommendations of the BoDs and approval of the BoGs, qualified external auditors of international repute registered in a member country are appointed for a term of one year, renewable on such terms and conditions as approved by the BoDs to audit the affairs of the Bank and to report to the BoDs on a periodic basis as may be decided by the BoDs. In relation to the 2016 audit, the Bank’s auditors are Akis Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. “a member of KPMG international cooperative”.


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The External Auditors’ provided a signed auditor’s opinion on the truth and fairness of the Bank’s 2016 financial statements prepared in accordance with International Financial Reporting Standards (IFRS). Appointment or discharge of the external auditors are recommended and their performance is reviewed by the Audit Committee.

11. Membership to the BankAccording to “Articles of Agreement” establishing the Bank, the membership is open to all ECO member states. The Bank is keen to have all ECO member states as the member of the Bank and benefit from its activities. The Bank has adopted a New Membership Principles in order to effectively facilitate accession of new members. Accordingly, in cooperation with the ECO Secretariat, the Bank continued to pursue a comprehensive program to encourage other ECO member states to become a member. Consequently, Afghanistan, Azerbaijan and Kyrgyzstan have become the members of the Bank and membership base of the Bank has been enlarged to include six ECO member states. The new members of the Bank continue to make their paid-in capital contributions payments on time according to the agreed instalments.

With joining of new members, the current membership structure of the ETDB has been expanded to include majority of the ECO member states. However, the other four ECO member states namely Kazakhstan, Tajikistan, Turkmenistan and Uzbekistan are also expected to join the Bank soon. This would certainly help the Bank to further expand its operations and development influence across the region effectively.

12. International RelationsThe Bank continued actively to improve its institutional relations with member states, international institutions and the business communities. The Bank has been maintaining a close liaison with the ECO Secretariat and has duly participated in all the relevant events and meetings of the Secretariat. In this respect, as one of the specialized institute of the ECO, the Bank has attended to various ECO events

namely the 21st Executive Committee Meeting of ECO Chamber of Commerce and Industries that was held in Tehran on 14-17 August and 27th Meeting of the ECO Regional Planning Council (RPC) that was held in Tehran on 5-8 December 2016.

To build and maintain a favourable climate of public opinion, the Bank continued to keep close cooperation especially with the business organisations operating in the ECO region. The effective relation with media has been kept alive through press releases published regularly about the each operations of the Bank. The website of the Bank has also been updated as an effective tool for creating a better awareness of the Bank’s role and operations in member countries and worldwide.

13. Human ResourcesThe Bank acknowledges that the efficient and successful management of Human Resources (HR) function is fundamental to the success of any organization and realization its strategic targets. The main objective is to adopt the best HR practices in the finance industry. The Bank adheres to this key factor in recruiting high-caliber people as well as to retain its staff members within the best international practices. The HR management has been structured on four essential fundamentals: fair and transparent recruitment process, a competitive remuneration system, performance appraisal policy and offering learning opportunities to its staff.

As end of December-2016, the total number of staff of the Bank was 39 (2015-year end: 38). The Bank does its recruitment with preference given to its member countries equally. Learning and development of staff are fundamental to attracting and retaining/developing required skills. By taking into consideration the development needs of staff members in parallel to annual staff performance process as well as business requirements, the staff members are encouraged to attend training programs, seminars and conferences.

Compensation and benefits constitute the very basic pillar of HR management, where the Bank regularly reviews the Benefit System


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Policy vis-à-vis the needs. Additionally, the Bank provides its staff and their family members a comprehensive medical plan as well as life insurance plan for its staff members. The Bank operates a pension plan which includes first pillar as hybrid plan that is comprised of a defined benefit plan and defined contribution plan and second and third pillars as defined contribution plan. The Bank benefits from the SAP HR-platform which enables an online track of staff members’ personal information, remuneration details, organizational changes as well as their leave data.

14. Planning and BudgetingThe Bank pursues its operational mandate with strict budgetary discipline, ensuring that its limited resources are utilized efficiently. The Bank’s financial management is based on the principles which inter alia include financial viability, market and performance orientation, comprehensive risk management, transparency, accountability and effective corporate governance. Financial viability ensures that the Bank can continue to implement its mandate effectively without impairing its capital base. It also enables the Bank to move towards self-sufficiency in meeting the growing demand for its financing. As a corollary of strict budgetary discipline, the Bank continuously strives for productivity enhancement.

The Bank’s planning and budgeting process is carried out within the directives of BoDs approved policies and based on the medium-term strategy defined in the Business Plan approved by the BoGs. The Business Plan which is comprised of the strategic, operational and financial plans of the Bank, is further detailed at country level in the respective country partnership strategy reports, and is implemented through annual budgets. The annual budget document is approved by the BoDs and includes short-term strategies, operational targets, work programs and related financial reports.

ETDB’s corporate governance structure is supported by appropriate financial and management information reporting.

In its financial reporting, the Bank aims to provide appropriate information on risk and performance of its activities. Industry best practice guides the evolving disclosure practice both in public financial reports and management information reporting. The Bank presents financial statements in the Annual Report, prepared in accordance with the International Financial Reporting Standards. Pursuant to Article 26 of the Establishing Agreement, Annual Report is transmitted to the member states and the ECO Secretariat.

In 2016, annual budget and resource allocation process were executed in parallel with preparation of 2017 annual budget. Execution of the Annual Budget is monitored on an on-going basis and the results are reported to the Senior Management and BoDs on a regular basis. The banking application project-SAP enabled efficient and effective implementation of the Bank’s accounting, budgeting, and reporting systems. The Bank maintains a basic Management Information System to support its internal structure by providing detailed financial and management information. Analyses relating to operations, revenues and cost effectiveness continued to be conducted.This data is utilized for decision-making, performance reporting, monitoring and internal control purposes. Moreover, key monitoring tools will be developed and effective performance measurement control mechanism will be established.

15. Board of Governors Meetings The 15th Annual Meeting of the Board of Governors was held on 31 May 2016 in Istanbul. At the meeting, the Board members reviewed the performance of the Bank and approved the 2015 Financial Statements annexed to the 2015 External Audit Report.

The Board designated the Governor of the Republic of Azerbaijan as the Chairman for one year term from May 2016 to May 2017.

16. Board of Directors MeetingsAs a responsible body for the overall guidance of the Bank’s operations, the BoDs held six meetings during 2016. In these meetings, the Board of Directors covered a broad range


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of policy, financial and administrative issues including margin for loan pricing, credit limits for trade and M-SME financing facilities, treasury investments and guarantees for various financial institutions operating in the member countries. Several loans for corporate

and project financing were also endorsed by the BoDs in order to support the economic development in the region. The Board also adopted amendments to the relevant policies and guidelines of the Bank to ensure compliance to best practices.

IndependentAudıtors’Report &Fınancıal StatementsAnnualReport2016


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Independent Auditors’ Report

To the Board of Directors of The Economic Cooperation Organization Trade and Development Bank,

Report on the Audit of the Financial Statements

OpinionWe have audited the financial statements of The Economic Cooperation Organization Trade and Development Bank (“the Bank”), which comprise the statement of financial position as at 31 December 2016, the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Bank as at 31 December 2016, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for OpinionWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Akis Bağımsız Denetim ve SerbestMuhasebeci Mali Müşavirlik A.Ş.Kavacık Rüzgarlı Bahçe Mah. Kavak Sok.No: 29 Beykoz 34805 İstanbul

Telephone +90 (216) 681 90 00Fax +90 (216) 681 90 90Internet www.kpmg.com.tr


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Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Akis Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş.A member of KPMG International Cooperative

Orhan Akova Partner

11 April 2017İstanbul, Turkey


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Statement Of Financial Position At 31 December 2016 (Amounts expressed in thousands of ECO Unit (“EU”) unless otherwise indicated.)

The accompanying notes form an integral part of these financial statements.

Notes 31 December 2016 31 December 2015

ASSETS

Loans and advances to banks 7 337,111 317,471

Loans and advances to customers 8 110,742 109,939

Investment securities: Available-for-sale 9 16,248 28,388

Derivative financial instruments 6 238 285

Intangible assets 10 158 222

Property and equipment 11 9,639 9,809

Other assets 12 239 413

Total assets 474,375 466,527

LIABILITIES

Deposits from banks 13 109,139 114,759

Derivative financial instruments 6 2,342 1,213

Retirement benefit obligations 14 2,682 2,017

Other liabilities 15 885 1,128

Total liabilities 115,048 119,117

EQUITY

Share capital 16 315,150 310,870

Revaluation reserve

- Reserve for available-for-sale investment securities 81 (82)

Other reserves 36,622 30,252

Retained earnings 7,474 6,370

Total equity 359,327 347,410

Total liabilities and equity 474,375 466,527


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Statement Of Profit Or Loss And Other Comprehensive Income For The Year Ended 31 December 2016 (Amounts expressed in thousands of ECO Unit (“EU”) unless otherwise indicated.)


Profit or Loss Notes 31 December 2016 31 December 2015

Interest income 17 11,310 10,899

Interest expense 17 (742) (955)

Net interest income 10,568 9,944

Impairment (loss)/reversal on loans, net 7, 8, 19 - 405

Net interest income after loan impairment 10,568 10,349

Fee and commission income 18 415 448

Fee and commission expense 18 (10) (5)

Net fee and commission income 405 443

Foreign exchange gain/(loss), net 831 (122)

Other operating income 91 84

Operating income 11,895 10,754

Personnel expenses 19 (3,637) (3,504)

Other administrative expenses 19 (551) (637)

Depreciation and amortization 10, 11, 19 (233) (243)

Operating expenses (4,421) (4,384)

Net profit for the period 7,474 6,370

Other comprehensive income:

Items that are or may be reclassified subsequently to profit or loss

Net change in fair value of available for sale financial assets 163 (410)

Other comprehensive income 163 (410)

Total comprehensive income 7,637 5,960


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Statement Of Changes In Equity For The Year Ended 31 December 2016 (Amounts expressed in thousands of ECO Unit (“EU”) unless otherwise indicated.)


Share Capital

Reverse for available-for-sale

İnvestment Securities

Other Reserves

Retained Earnings Total

1 January 2015 306,510 328 25,159 5,093 337,090

Increase in paid-in share capital 4,360 - - - 4,360

Appropriation of profit - - 5,093 (5,093) -

Fair value losses on available-for-sale financial assets - (410) - - (410)

Net profit for the period - - - 6,370 6,370

31 December 2015 310,870 (82) 30,252 6,370 347,410

1 January 2016 310,870 (82) 30,252 6,370 347,410

Increase in paid-in share capital 4,280 - - - 4,280

Appropriation of profit - - 6,370 (6,370) -

Fair value gains on available-for-sale financial assets - 163 - - 163

Net profit for the period - - - 7,474 7,474

31 December 2016 315,150 81 36,622 7,474 359,327


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Statement Of Cash Flows For The Year Ended 31 December 2016 (Amounts expressed in thousands of ECO Unit (“EU”) unless otherwise indicated.)

Notes 31 December 2016 31 December 2015

Cash flows from operating activities:

Net profit for the period 7,474 6,370

Adjustments for:

Depreciation and amortization 10, 11, 19 233 243

Net impairment loss on loans and advances 7, 8 - (405)

Accrued interest and expenses (368) 636

Measurement of derivative financial instruments at fair value 6 1,176 (2,476)

Provision for retirement benefit obligations 14 370 329

Other non-cash items (389) 1,393

Cash flows from operating activities beforechanges in operating assets and liabilities 8,496 6,090

Changes in operating assets and liabilities:

Change in loans and advances to banks 34,262 (23,567)

Change in loans and advances to customers (262) (23,971)

Change in other assets 175 (194)

Change in retirement benefit obligations 295 (211)

Change in deposits from banks (5,613) (1,234)

Change in other liabilities (243) 170

Net cash from/(used in) operating activities 37,110 (42,917)

Cash flows from investing activities:

Purchase of investment securities (4,295) (3,507)

Proceeds from sale of investment securities 16,363 -

Purchase of property and equipment 11 - (37)

Purchase of intangible assets 10 - (54)

Net cash from/(used in) investing activities 12,068 (3,598)

Cash flows from financing activities:

Increase in paid-in share capital 4,280 4,360

Net cash from financing activities 4,280 4,360

Net increase/(decrease) in cash and cash equivalents 53,458 (42,155)

Effects of exchange-rate changes on cash and cash equivalents 389 (1,393)

Cash and cash equivalents at the beginning of the period 31,752 75,300

Cash and cash equivalents at the end of the period 5 85,599 31,752



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Notes To The Financial Statements For The Year Ended 31 December 2016 (Amounts expressed in thousands of ECO Unit (“EU”) unless otherwise indicated.)

NOTE 1 - GENERAL INFORMATION

The Economic Cooperation Organization Trade and Development Bank (“the Bank” or “ETDB”) is a multilateral development finance institution established under the Articles of Agreement (“the Agreement”) with the mission; to promote and facilitate private and public sector investment, cooperation, development and job creation in member states through joint programs, to foster the growth of intra-regional trade, to contribute to the economic and social development for the welfare of the people in member states and promote good governance and environment consciousness in all efforts and projects.

The status, privileges and immunities of the Bank and persons connected therewith in the Republic of Turkey are defined in the Headquarters Agreement between the ECO Trade and Development Bank and the Government of the Republic of Turkey (the “Headquarters Agreement”) signed on 27 December 2006. The Headquarters Agreement was ratified by the Grand National Assembly and the President of the Republic of Turkey by Law No. 5638 and was published in Official Gazette dated 3 July 2007 with No. 26571.

The headquarters address of the Bank is “Bomonti Business Center, Cumhuriyet Mah. Silahşör Caddesi, Yeniyol Sk. No: 8 Kat: 14, 34380 Bomonti Şişli - Istanbul Turkey”.

The Management Committee of the Bank decided to submit the financial statements for the year ended 31 December 2016 to the Board of Directors on 11April 2017.

As of 31 December 2016, the number of employees of the Bank is 39 (31 December 2015: 38).


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The principal accounting policies applied in the preparation of this financial information are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(a) Basis of preparation These financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS comprise accounting standards issued by the International Accounting Standards Board (“IASB”) and its predecessor body and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) and its predecessor body.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Bank’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.

(b) New standards and amendments

The Bank has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2016.

• IFRS 14 Regulatory Deferral Accounts • Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)• Clarification of acceptable methods of depreciation and amortisation (Amendments to IAS 16

and IAS 38) • Equity Method in Separate Financial Statements (Amendments to IAS 27)• Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

(Amendments to IFRS 10 and IAS 28)• Investment Entities: Applying the consolidation exception (Amendments to IFRS 10, IFRS 12

and IAS 28)• Disclosure Initiative (Amendments to IAS 1)• Annual Improvements to IFRS 5, IFRS 7, IAS 19 and IAS 34

(c) New and revised IFRSs in issue but not yet effective

• IFRS 9 Financial Instruments• IFRS 15 Revenue from Contracts with Customers• IFRS 16 Leases• Recognition of deferred tax assets for unrealized losses (Amendments to IAS 12)• Disclosure initiative (Amendments to IAS 7)• Classification and measurement of share-based payment transactions (Amendments to IFRS 2)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


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The application of these new standards is not expected have a material impact on the Bank's financial statements in the period of initial application, except for IFRS 9.

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these financial statements, the significant judgments made by management in applying the Bank’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements for the year ended 31 December 2015.

(d) Foreign currency translation Functional and presentation currency In accordance with Article 4 of the Agreement the unit of account of the Bank is ECO Unit (“EU”) that is equivalent to one Special Drawing Right (“SDR”) of the International Monetary Fund (“IMF”).

In accordance with the Article 11 of the Agreement, the Bank’s “functional currency” is the SDR and all transactions are recorded in SDR. The Bank’s “presentation currency” is ECO Unit (“EU”).

Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions as provided by the International Monetary Fund (IMF). Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of profit or loss and other comprehensive income.

Exchange rates used by the Bank at the reporting dates were as follows:

31 December 2016 31 December 2015

1 EU (SDR) = United States Dollar 1.3443 1.3857

Euro 1.2753 1.2728

Chinese Yuan 9.2910 N/A

Japanese Yen 157.018 167.1160

Pound Sterling 1.09278 0.9351

Turkish Lira 4.73431 4.0497

Iranian Rial 43,386.58 41,752.1000

Pakistani Rupee 140.90342 145.3150

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


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(e) Loans and advances Loans and advances are recorded when the Bank advances money to purchase or originate an unquoted non-derivative receivable from a customer due on fixed or determinable dates and has no intention of trading the receivable. Loans and advances are carried at amortized cost.

When impaired financial assets are renegotiated and the renegotiated terms and conditions differ substantially from the previous terms, the new asset is initially recognized at its fair value (Notes 7 and 8).

(f) Financial instruments and impairment Recognition The Bank initially recognizes financial assets and financial liabilities on the date that they are originated.

A financial asset or financial liability is initially measured at fair value plus (for an item not subsequently measured at fair value through profit or loss) transaction costs that are directly attributable to its acquisition or issue.

Investment securities intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates or exchange rates, are classified as available-for-sale.

Available-for-sale investment securities are initially recognised at fair value, which is the cash consideration including any transaction costs.

Financial liabilities including deposits from banks are recognized initially at cost which represents their fair values.

Derecognition The Bank derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset transferred. Any interest in transferred financial assets that is created or retained by the Bank is recognized as a separate asset or liability.

The Bank derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.

Subsequent measurement Subsequent to initial recognition, financial assets designated at fair value through profit or loss are measured at fair value, except any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured. If a market for a financial instrument is not active, the Bank establishes fair value using a valuation technique. Valuation



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techniques include using recent arms’ length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analysis and option pricing models.

The interest calculated using effective interest method is recognized in the statement of profit or loss and other comprehensive income and the gains and losses being the difference between the amortized cost and the fair value of the available-for-sale investment securities are recognised under the equity, except for impairment losses and foreign exchange gains and losses, until the financial asset is derecognised.

All non-trading financial liabilities, loans and receivables and held-to-maturity investment securities are measured at amortized cost less impairment losses. The amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment.

Deposits from banks are stated at amortized cost, including transaction costs, and any difference between net proceeds and the redemption value is recognized in the statement of profit or loss and other comprehensive income over the period of the financial liability using the effective interest method (Note 13).

Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Bank has access at that date. The fair value of a liability reflects its non-performance risk.

When available, the Bank measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an on-going basis.

If there is no quoted price in an active market, then the Bank uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received. If the Bank determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between



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the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.

The Bank recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.

Identification and measurement of impairment At each reporting date the Bank assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows on the asset that can be estimated reliably.

The Bank considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. All significant assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at amortized cost) with similar risk characteristics.

Impairment losses on assets carried at amortized cost are measured as the differential between the carrying amount of the financial assets and the present value of estimated cash flows discounted at the assets’ original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against loans and advances. Interest on the impaired asset continues to be recognized through the unwinding of the discount.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for the groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through profit or loss.

If an available-for-sale investment security is determined to be impaired, the cumulative gain or loss previously recognised under the equity is recognised in the statement of profit or loss and other comprehensive income.

(g) Derivative financial instruments Derivatives are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. The fair values of derivative financial instruments that are quoted in active markets are determined from quoted market prices




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in active markets including recent market transactions. The fair values of financial derivatives that are not quoted in active markets are determined by using valuation techniques, including discounted cash flow models. Where valuation techniques (for instance, models) are used to determine fair values, they are validated and periodically reviewed. Fair values of derivatives are carried as assets when positive and as liabilities when negative. The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the consideration given or received). Derivative financial instruments are classified as held for trading (Note 6).

(h) Property and equipment Property and equipment excluding construction in progress are carried at cost less accumulated depreciation and permanent impairment if any. Depreciation is calculated using the straight-line method to write down the cost of such assets to their residual values over their estimated useful life as follows:

Useful lives

Machinery and equipment 4-5 years

Motor vehicles 5 years

Furniture and fixtures 5-10 years

Buildings (Shell and core) 50 years

Buildings (Interior fit-out) 15 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less cost to sell and value in use.

Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are taken into account for the determination of net profit.

Expenses for the repair of property and equipment are charged against income. They are, however, capitalized if they result in an enlargement or substantial improvement of the respective assets (Note 11).




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(i) Intangible assets Intangible assets consist of computer software program and licenses. Intangible assets are measured at cost, less accumulated amortization and impairment losses. Amortization is charged to the statement of profit or loss and other comprehensive income on a straight-line basis over the estimated useful lives of intangible assets not exceeding period of five years (Note 10).

(j) Leasing transactions Assets acquired under finance lease agreements are capitalized at the inception of the lease at the fair value of the leased asset, which is the amount of cash consideration given for the leased asset. Lease payments are treated as comprising capital and interest elements; the capital element is treated as reducing the capitalized obligation under the lease and the interest element is charged to income. Depreciation on the leased asset is also charged to income on a straight-line basis over the useful life of the asset.

Other leases are operating leases and are recognized in the statement of profit or loss and other comprehensive income in the period they incur.

(k) Impairment of non-financial assets At each reporting date, the Bank evaluates whether there is any impairment indication on the asset. When an indication of impairment exists, the Bank estimates the recoverable values of such assets. Impairment exists if the carrying value of an asset or a cash generating unit is greater than its recoverable amount which is the higher of value in use or fair value less costs to sell. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. An impairment loss is recognized immediately in the statement of profit or loss and other comprehensive income. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows which are largely independent of the cash flows from other assets or group of assets. An impairment loss recognized in prior periods for an asset is reversed if the subsequent increase in the asset’s recoverable amount is caused by a specific event since the last impairment loss was recognized. Such a reversal amount cannot be higher than the previously recognized impairment and is recognized as income in the financial statements.

(l) Taxation According to Article 12 of Headquarters Agreement dated 27 December 2006, within the scope of its official activities the Bank, its property, movable and immovable, assets income, of whatever nature such as interests, capital gains, currency gains, profits as well as its operations and transactions, purchase of goods and services shall be exempt from all present and future, direct and indirect taxation and duties, including but not limited to Value Added Tax (“VAT”), income tax, withholding tax, stamp duties, Banking and Insurance Transactions Tax (“BITT”), be it of a local or governmental nature.




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(m) Employee benefits

i. Pension plan

The Bank operates a pension plan implemented beginning from 1 October 2008, which includes first pillar as hybrid plan that is comprised of a defined benefit plan and defined contribution plan and second and third pillars as defined contribution plan. The expatriate employees are automatically enrolled in the first pillar whereas participation in the second pillar is at their will. The local employees can also opt for the Bank’s pension plan voluntarily in lieu of Turkish State Social Security Plan. All employees are eligible to participate in the third pillar where participation in the first and/or second pillar is not a pre-requisite.

The requirements for the defined benefit part of the first pillar are attaining normal retirement age (which is 60 in accordance with the Pension Plan Policy), participating in the second pillar and transferring at least the amount equal to 90% of the first pillar account balance excluding the investment returns from the second pillar account to the first pillar account. If these requirements are met then the (participant) employee shall be entitled to the following benefits:

• Immediate pension equal to the amount of 1% of the annual average net basic salary of the employee during his/her eligible service period multiplied by number of years in service of the Bank;

• One twelfth of the immediate pension according to the previous paragraph that shall be paid to the employee every month.

The benefit provided will be as a lump sum but with respect to the rates that are linked to the length of the eligible service period for an employee not fulfilling the requirements described above. In case of death before normal retirement age, the benefit will be provided to employee or his/her legal beneficiary as a lump sum up equal to the balance of employee’s account. Similarly in case of death of an employee already drawing pension, the full amount of the standing balance will be paid as a lump sum to employee’s legal beneficiary.

The pension plan is funded by contributions from employees and by the Bank depending on the type of the plan and with respect to the provisions of the Bank’s Pension Plan Policy. Contribution rates to the pension plan are as follows:

Pension contributions of basic salary Employer % Employee %

First pillar 12 -

Second pillar up to 7 (*) up to 7

Third pillar - up to 10

(*) The Bank contributes to the second pillar if and only if employee contributes but at the same matching rate up to 7%.




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For the defined benefit part of the hybrid plan, the pension liability is calculated by using the “projected unit credit method” by an independent actuary annually. Under this method, the cost of providing pensions is charged to the statement of profit or loss and other comprehensive income so as to spread the regular cost over the service lives of employees.

The pension liability is measured at the present value of the estimated future cash outflows using interest rates of government securities that have terms to maturity approximately the terms of the related liability. All actuarial gains and losses are recognized in income over the average remaining service lives of the employees (Note 14).

ii. Other defined contribution plans

The Bank pays contributions to Turkish State Social Security Plan on a mandatory basis for the local employees who do not opt for the Bank’s pension plan. Obligations for contributions to defined contribution plans are recognized as personnel expense in the statement of profit or loss and other comprehensive income when they are due. The Bank has no further payment obligations once the contributions have been paid.

iii. Reserve for employment termination benefits

Provision for employment termination benefits represents the present value of the estimated total provision of the future probable obligation of entities arising from the retirement of the employees calculated in accordance with the Turkish Labor Law. In accordance with existing social security legislation and Labor Law in Turkey, entities are required to make lump-sum termination indemnities to each employee whose employment is terminated due to retirement or for reasons other than resignation or misconduct and who has completed at least one year of service. Provision is made for the present value of the defined benefit obligation calculated using the projected unit credit method.

However, because of being a multilateral development bank which is operative in different jurisdictions, the necessity of immunity from judicial proceedings has been recognized for the Bank by the Government of Turkey under the provision of the Article 4 of the Headquarters Agreement. Therefore, these financial statements do not include any provision for employment termination benefit according to Turkish Labor Law.

iv. Annual leave pay liability

The Bank provides annual leave pay provision for the employees under its employee Benefit System Policy. Full-time professional staff members are entitled to an annual leave of fifteen workdays per year with service of less than and including ten years and twenty workdays per year with service after ten years and more. New professional staff members will be eligible for annual leave after six months of service (Note 15).

(n) Provisions, commitments and contingencies Provisions are recognized when the Bank has a present legal or constructive obligation as a




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result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation. The discount rate reflects current market assessments of the time value of money and the risks specific to the liability. The discount rate shall be a pre-tax rate and shall not reflect risks for which future cash flow estimates have been adjusted.

Possible assets or obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank are not included in these financial statements and are treated as contingent assets or liabilities (Note 20).

(o) Interest income and expense Interest income and expense are recognized in the statement of profit or loss and other comprehensive income for all instruments measured at amortized cost using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts (Note 17).

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

(p) Fee and commission income and expense Fees and commissions are generally recognized in the statement of profit or loss and other comprehensive income on an accrual basis over the life of the transaction to which they refer or on a cash basis at the time the service is received / the transaction is performed, whichever is more appropriate.

Fees and commission income including commitment fees and front-end fees are recognized as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognized on a straight-line basis over the commitment period.



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Fees and commission expense relates mainly to transaction and service fees, which are expensed as the services are received (Note 18).

(q) Share capital and dividends In accordance with Article 27 of the Agreement, the Board of Governors shall determine annually what part of the net income of the Bank from ordinary capital operations shall be allocated to reserves, provided that no part of the net income of the Bank shall be distributed to members by way of profit until the General Reserves of the Bank shall have attained the level of 25% of the subscribed capital (Note 16).

(r) Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents include cash and balances with banks repayable on demand and money market placements with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Bank in the management of its short-term commitments (Note 5).

(s) Offsetting Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle liability simultaneously.

(t) Segment reporting Operational segment is distinguishable section of the Bank that has different characteristics from other operational segments per earning and conducts the presentation of service group, associated bank products or a unique product.

(u) Earnings per share Since the Bank’s shares are not traded in a public market and the Bank’s financial statements are not filed or not in the process of filing with a securities commission or other regulatory organization for the purpose of issuing shares in a public market, the Bank is not required to disclose basic earnings per share (EPS) information in accordance with IAS 33 “Earnings Per Share”.

(v) Comparatives Comparative figures are reclassified, where necessary, to conform to change, in presentation of the 31 December 2016 financial statements.


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NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on Management’s experience and other factors, including expectations of

future events that are believed to be reasonable under the circumstances. Management also makes certain judgments, apart from those involving estimations, in the process of applying the accounting policies. These disclosures supplement the commentary significant accounting policies (Note 2) and financial risk management (Note 4). Judgments that have the most significant effect on the amounts recognized in the financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

Impairment losses on loans and advances: The Bank reviews its loan portfolio to assess impairment on a continuous basis. In determining whether an impairment loss should be recorded in the statement of profit or loss and other comprehensive income, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of loans before the decrease can be identified with an individual loan in that group. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group.

Having a loan portfolio of all significant loans reviewed regularly and no non-performing loan history, collective allowances were cancelled in 2015.

Fair value of assets and liabilities: a number of the Bank’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. Management has estimated that the fair value of certain financial instruments is not materially different than their carrying values due to their short term nature.

• The fair value of loans and advances is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.

• The fair value of deposits from banks is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.

• The fair value of derivative financial instruments is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.


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The Bank is committed to actively identify and manage all risks inherent in its activities in order to achieve its mandate and safeguard its capital base. The Bank pays particular attention to managing credit risks in the course of its core activities, market risks in its

treasury as along with compliance and operational risks.

The Bank’s risk management policies are established for the identification and assessment of the risks, which the Bank may be exposed to and also to set appropriate risk limit controls for monitoring the same.

The financial policies of the Bank approved by the Bank’s Board of Directors establish the guiding principles for sound financial management and provide the framework within which the Bank pursues its business objectives.

The Board of Directors has established Asset and Liability Management Committee (ALCO) which is responsible for setting strategic direction in market risk management and transfer pricing. ALCO, establishes specific numerical limits, targets, and guidelines within which tactical and operational ALM decision-making must take place.

The Board of Directors has established Credit Committee (CC) which is responsible to guide the Operation Teams through the approval process from Concept Clearance to Final Review, in conformity with the Bank’s Operations Cycle Policy. It considers all matters related to the financing operations of the Bank and expresses opinions with respect to the appropriateness of the due diligence and appraisal process.

Credit risk

Credit risk is the probability of a financial loss to the Bank in case counterparty fails to meet its contractual obligations as they fall due and arises principally from the Bank’s lending and treasury activities.

In view of the Bank’s philosophy of prudent lending, the function of credit risk management has become a critical fulcrum of the Bank’s long term vision and success. Credit analysis is conducted by using various information sources and applying qualitative and quantitative methodologies.

The Bank reviews lending operations and manages the main areas of credit risk which are inherent to the lending activities of the Bank in order to ensure that decisions are made in line with the Bank’s strategy and that loan applications are prudently reviewed. Lending decisions are made to customers by following the guidelines laid down in various policies and through coordination with other business units to ensure that the loans are made in line with the Bank’s overall risk appetite and strategy. All credit applications are evaluated by the Credit Committee which in case of approval elevates the same to the Board of Directors for final approval.

In addition to compliance, the Bank’s management also provides oversight and direction to the activities of risk management to ensure that the Bank’s risk profile is in line with its strategy and operating environment, in a manner which ensures protection to the shareholders.

The Bank’s maximum credit risk is the carrying amounts of each financial asset shown on the statement of financial position.


NOTE 4 - FINANCIAL RISK MANAGEMENT


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The Bank’s exposure to credit risk as at 31 December 2016 and 31 December 2015 are as follows:

Notes To The Financial Statements For The Year Ended 31 December 2016 (Amounts Expressed In Thousands Of Eco Unit (“Eu”) Unless Otherwise Indicated.)

NOTE 4 - FINANCIAL RISK MANAGEMENT (Continued)

As of 31 December 2016, the Bank has no assets held for resale (31 December 2015: None).

(i) Industry sectors:

The following table breaks down the Bank’s credit risk exposure by the industry sector and geographical location of the counterparty.

(()� The money market placements with the banks in Turkey, Iran, Pakistan and other countries amount to EU 120,097 thousand, EU 41,150 thousand, 36 thousand and EU 18,765 thousand, respectively (31 December 2015: EU 92,274 thousand, EU 57,664 thousand, EU 30,046 thousand and EU 11,536 thousand, respectively).


Loans and advances to banks 337,111 317,471

Loans and advances to customers(*) 110,742 109,939

Investment securities: Available-for-sale 16,248 28,388

Derivative financial instruments 238 285

Total 464,339 456,083


OutstandingUndrawn

commitmentsOutstanding

Undrawncommitments

Financial institutions 349,794 7,841 337,108 9,428

Turkey (*) 241,169 7,841 189,663 9,428

Iran (*) 48,022 - 59,551 -

Pakistan (*) 40,349 - 72,801 -

Azerbaijan 1,489 - 3,557 -

Other (*) 18,765 - 11,536 -

Sovereign, Municipal and Environmental infrastructure

87,135 19,583 87,320 25,907

Iran 39,423 19,583 30,601 25,907

Pakistan 34,656 - 39,859 -

Turkey 13,056 - 16,860 -

Power and energy 9,829 - 10,714 -

Pakistan 9,829 - 10,714 -

Manufacturing 17,581 23,523 20,941 -

Turkey 15,839 - 15,879 -

Pakistan 1,742 - 5,062 -

Iran - 23,523 - -

Total 464,339 50,947 456,083 35,335

(()� Financial assets that are past due but not impaired amount to EU 4,665 thousand (31 December 2015: EU 1,010 thousand). Sovereign guarantees are held as collaterals against such past due project finance loans.


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(ii) Geographical sectors: The following table breaks down geographical concentrations of the Bank’s credit risk exposure.

(iii) Segment analysis of credit risk exposures: The following table breaks down the segment distribution of credit risk exposures.

(()� The money market placements with the banks in Turkey, Iran, Pakistan and other countries amount to EU 120,097 thousand, EU 41,150 thousand, EU 36 thousand and EU 18,765 thousand, respectively (31 December 2015: EU 92,274 thousand, EU 57,664 thousand, EU 30,046 thousand and EU 11,536 thousand, respectively).


OutstandingUndrawn

commitmentsOutstanding

Undrawncommitments

Turkey (*) 270,064 7,841 222,402 9,428

Iran (*) 87,445 43,106 90,152 25,907

Pakistan (*) 86,576 - 128,436 -

Azerbaijan 1,489 - 3,557 -

Other (*) 18,765 - 11,536 -

Total 464,339 50,947 456,083 35,335


Financial institutions-Bank placements 180,048 192,256

Financial institutions-SME support program 80,824 87,081

Financial institutions-Trade finance 76,239 38,134

Project finance 68,511 68,522

Customers-Trade finance 42,231 41,417

Investment securities: Available for sale 16,248 28,388

Derivative financial instruments 238 285

Total 464,339 456,083


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(iv) ETDB internal ratings

The Bank assigns its internal risk rating to all counterparties including borrowers and sovereigns in the Banking and Treasury portfolios and reflects the credit worthiness of counterparties. ETDB internal risk rating depicts the credit worthiness of borrowers on a scale of 1 to 10 with a score of 1 denoting the lowest expectation of default while a score of 10 denotes write off.

The table below shows the Bank’s internal risk rating from 1 (lowest risk) to 10 (highest risk) and how this maps to the external ratings of Standard & Poor’s (S&P).

ETDB riskRating category

Broadercategory

ETDBdefinition

ETDB riskrating

Externalrating

equivalent

1 Standard Excellent 1.00 AAA

2 Standard Very strong1.602.002.40

AA+AA

AA-

3 Standard Strong2.603.003.40

A+A

A-

4 Standard Good3.604.004.40

BBB+BBB

BBB-

5 Standard Fair4.605.005.40

BB+BB

BB-

6 Standard Weak5.606.006.40

B+B

B-

7 Watchful Special attention6.607.007.40

CCC+CCC

CCC-

8 Sub-standardExpected loss/

Impaired7.60 CC

9 DoubtfulExpected loss/

Impaired8.60 C

10 Non-performingExpected loss/

Impaired10.00 D


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(iv) ETDB internal ratings (Continued) The following table is an analysis of the banking portfolio (loans and advances excluding the money market placements) and the associated impairment provisions for each of the Bank’s internal risk rating category.

Liquidity risk

Liquidity risk is the probability that the Bank is unable to fund assets or to fulfill its financial obligations on time and/or completely and/or at a reasonable price. The management of the liquidity risk is concentrated on the timing of the cash in-flows and out-flows as well as in the adequacy of the available cash and liquidity securities. The Bank’s commitment in maintaining strong liquidity position is established in policies that are approved by the Board of Directors and the due strategic decisions by ALCO.

According to the ALCO approved procedures at all times, the Bank must have at its disposal a liquidity pool large enough to finance new assets or refinance existing assets. The Bank’s liquidity is maintained at a minimum of 12% of the total equity minus total property and equipment and intangible assets plus long term borrowing with remaining time to maturity greater than six months. The Bank’s liquid assets are maintained in short term placements.




31 December 2016

Risk rating categoryNeither past

due nor impaired

Past due but not impaired(*) Total

Portfolio provision for unidentified impairment

Total net of impairment Total %

2: Very strong 58,367 - 58,367 - 58,367 22%

3: Strong 87,438 - 87,438 - 87,438 33%

4: Good 31,215 - 31,215 - 31,215 11%

5: Fair 63,959 - 63,959 - 63,959 24%

7: Watchful 22,161 4,665 26,826 - 26,826 10%

At 31 December 2016 263,140 4,665 267,805 - 267,805 100%

31 December 2015

Risk rating categoryNeither past

due nor impaired

Past due but not impaired(*) Total

Portfolio provision for unidentified impairment

Total net of impairment Total %

2: Very strong 82,695 1,010 83,705 - 83,705 36%

3: Strong 86,957 - 86,957 - 86,957 37%

4: Good 43,243 - 43,243 - 43,243 18%

5: Fair 21,249 - 21,249 - 21,249 9%

At 31 December 2015 234,144 1,010 235,154 - 235,154 100%


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Liquidity risk (Continued)

The table below analyses the cash flows of the Bank’s financial liabilities and financial assets, putting them into relevant maturity groupings based on the remaining period as of reporting date to contractual maturity date:



31 December 2016

CarryingAmount

Up to1 month

1 to 3Months

3 to 12Months

1 to 5years

Over5 years

Total

Liabilities by typeNon-derivative liabilitiesDeposits from banks 109,139 (15,997) (59,210) (34,328) - - (109,535)Undrawn loan commitments - (50,947) - - - - (50,947)

- Banks - (7,841) - - - - (7,841) - Customers - (43,106) - - - - (43,106)

Total 109,139 (66,944) (59,210) (34,328) - - (160,482)

Derivative liabilitiesTrading FX derivatives 2,342

- Outflow - (24,963) (45,795) - - - (70,758) - Inflow - 23,706 44,772 - - - 68,478

Total 2,342 (1,257) (1,023) - - - (2,280)

Assets by typeNon-derivative assetsLoans and advances to banks 337,111 64,600 110,517 25,642 138,788 8,721 348,268

Loans and advances to customers 110,742 6,107 26,835 24,090 48,347 10,578 115,957

Investment securities 16,248 - - 6,849 10,622 - 17,471

Total 464,101 70,707 137,352 56,581 197,757 19,299 481,696

Derivative assetsTrading FX derivatives 238

- Outflow - (8,294) (11,096) - - - (19,390) - Inflow - 8,392 11,273 - - - 19,665

Total 238 98 177 - - - 275

Net liquidity gap 2,604 77,296 22,253 197,757 19,299 319,209


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Liquidity risk (Continued)



31 December 2015

CarryingAmount

Up to1 month

1 to 3Months

3 to 12Months

1 to 5years

Over5 years

Total

Liabilities by typeNon-derivative liabilitiesDeposits from banks 114,759 (31,723) (83,143) - - - (114,866)Undrawn loan commitments - (35,335) - - - - (35,335)

- Banks - (9,428) - - - - (9,428) - Customers - (25,907) - - - - (25,907)

Total 114,759 (67,058) (83,143) - - - (150,201)

Derivative liabilitiesTrading FX derivatives 1,213

- Outflow - (20,141) (41,423) - - - (61,564) - Inflow - 19,545 40,796 - - - 60,341

Total 1,213 (596) (627) - - - (1,223)

Assets by typeNon-derivative assetsLoans and advances to banks 317,471 78,522 144,048 46,247 42,188 17,463 328,468

Loans and advances to customers 109,939 848 625 15,629 88,180 9,890 115,172

Investment securities 28,388 - 13,933 1,804 14,447 - 30,184

Total 455,798 79,370 158,606 63,680 144,815 27,353 473,824

Derivative assetsTrading FX derivatives 285

- Outflow - (3,561) (11,872) - - - (15,433) - Inflow - 3,653 12,042 - - - 15,695

Total 285 92 170 - - - 262

Net liquidity gap 11,808 75,006 63,680 144,815 27,353 322,662


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Market risk

Market risk is the Bank’s exposure to market variables such as interest rates and exchange rates as well as bond and equity market prices. Since the Bank’s ordinary operations are inherently relatively risky, a conservative and comprehensive risk management framework addressing market risk has been already established with market-standard matching practices.

The Bank aims to match, wherever possible, the currencies, tenor and interest rate characteristics of its borrowing with those of its lending portfolios. When necessary, the Bank uses appropriate derivative instruments to manage its exposure to exchange rate and interest rate risk.

(i) Foreign currency risk: The Bank is exposed to currency risk through transactions (such as financing operations and borrowings) in foreign currencies. The main measurement currencies of its foreign exchange operations are SDR basket currencies namely; Euro, US Dollar, Chinese Yuan, British Pound and Japanese Yen. As the functional currency of the Bank is SDR, the financial statements are affected by changes in the foreign exchange rates against SDR.

Considering the appetite of clients in the member countries only for US Dollar and Euro in loan and treasury operations the Bank mostly invests in these two currencies. The currency swap and forward transaction are mostly held to provide more liquidity in US Dollar and Euro against Chinese Yuan, British Pound and Japanese Yen.

By policies in place, the Bank monitors the current status of its assets and liabilities in contrast to SDR in order to ensure that it takes foreign exchange risk within the approved limits. For each currency, ALCO has set a limit of ±0.5% of the equity for currency open positions resulted from continuous market movements and/or current cash flow, in order to prevent from repetitive FX transactions which bring unnecessary cost and operational risk. Treasury department is duly responsible to monitor, report to ALCO and regularize any breach of the aforesaid limit.

In order to monitor the foreign currency exposure in each currency, net foreign currency position figures are adjusted by the currency neutral position amounts for each currency based on the allocation of net SDR position by their weights in SDR as of reporting date.




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As at 31 December 2016 and 31 December 2015 the foreign currency position of the Bank is as follows:

(()� The total foreign currency exposure in Japanese Yen, Chinese Yuan, Pound Sterling, Turkish Lira, Pakistani Rupee and Iranian Rial are EU (2,202) thousand, EU (1,149) thousand, EU (1,108) thousand, EU 31 thousand, EU 6 thousand and EU 4 thousand, respectively.

31 December 2016

US Dollar Euro Other (*) Total foreign currency SDR (“EU”) Total

AssetsLoans and advances to banks 143,940 193,156 15 337,111 - 337,111Loans and advances to customers 55,480 55,262 - 110,742 - 110,742Investment securities 14,645 1,603 - 16,248 - 16,248Derivative financial instruments - - - - 238 238Intangible assets - - - - 158 158Property and equipment - - - - 9,639 9,639Other assets 37 156 46 239 - 239

Total assets 214,102 250,177 61 464,340 10,035 474,375

Liabilities and EquityDeposits from banks - 109,139 - 109,139 - 109,139Derivative financial instruments - - - - 2,342 2,342Retirement benefit obligations 2,682 - - 2,682 - 2,682Other liabilities 410 462 13 885 - 885Equity - - - - 359,327 359,327

Total liabilities and Equity 3,092 109,601 13 112,706 361,669 474,375

Net balance sheet position 211,010 140,576 48 351,634 (351,634) -

Off-balance sheet derivativeinstruments net notional position

(56,835) (33,313) 88,143 (2,005) - (2,005)

Net foreign currency position 154,175 107,263 88,191 349,629 (351,634) (2,005)

Currency Neutral Position (152,388) (106,637) (92,609) (351,634) 351,634 -

FX Exposure in notional Ccy (*) 1,787 626 (4,418) (2,005) - (2,005)


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(()� The total foreign currency exposure in Pound Sterling, Japanese Yen, Turkish Lira, and Pakistani Rupee are EU (2,154) thousand, EU (1,534) thousand, EU (21) thousand and EU 4 thousand, respectively.

31 December 2015

US Dollar Euro Other (*) Total foreign currency SDR (“EU”) Total

AssetsLoans and advances to banks 136,038 181,419 14 317,471 - 317,471Loans and advances to customers 63,459 46,480 - 109,939 - 109,939Investment securities 26,783 1,605 - 28,388 - 28,388Derivative financial instruments - - - - 285 285Intangible assets - - - - 222 222Property and equipment - - - - 9,809 9,809Other assets 52 290 71 413 - 413

Total assets 226,332 229,794 85 456,211 10,316 466,527

Liabilities and EquityDeposits from banks - 114,759 - 114,759 - 114,759Derivative financial instruments - - - - 1,213 1,213Retirement benefit obligations 2,017 - - 2,017 - 2,017Other liabilities 661 373 94 1,128 - 1,128Equity (78) (4) - (82) 347,492 347,410

Total liabilities and Equity 2,600 115,128 94 117,822 348,705 466,527

Net balance sheet position 223,732 114,666 (9) 338,389 (338,389) -

Off-balance sheet derivativeinstruments net notional position

(60,318) (1,635) 60,991 (962) - (962)

Net foreign currency position 163,414 113,031 60,982 337,427 (338,389) (962)

Currency Neutral Position (161,214) (112,488) (64,687) (338,389) 338,389 -

FX Exposure in notional Ccy (*) 2,200 543 (3,705) (962) - (962)


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Sensitivity analysis

The basis for the sensitivity analysis to measure foreign exchange risk is an aggregate corporate-level currency exposure. The aggregate foreign exchange exposure is composed of all assets and liabilities denominated in foreign currencies.

The currency value of the SDR is determined by summing the values in US Dollars, with market exchange rates, of the US Dollar, Euro, Japanese Yen, Pound Sterling and the Chinese Yuan. Foreign currency sensitivity is calculated based on 10 percent appreciation/depreciation of the US Dollar against other SDR basket currencies. As at 31 December 2016 and 31 December 2015, this would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.

(ii) Interest rate risk:

Interest rate risk is defined as “the potential variability in a Bank’s net interest income and market value of equity due to changes in the level of market interest rates.” The Bank is exposed to the interest rate risk to the extent that interest-earning assets and interest-bearing liabilities mature or re-price at different time periods or in different amounts. The objective of the Bank’s risk management operations is to avoid from risk/loss by probable market adverse changes in the interest rates of the currencies of the items on the both sides of the statement of financial position as well as off-balance sheet.

Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for the duration of the liquid portfolio. The goal of interest rate risk management is to reduce effect of interest rate change on its Net Interest Income (NII). ALCO is the monitoring body for compliance with these limits and is assisted by Treasury department in its periodical monitoring activities which is reviewed and discussed by ALCO during its monthly meetings and, if necessary, emergency ALCO Meetings which could be held at very short notice.


Appreciation Depreciation Appreciation Depreciation

US Dollar 8,972 (8,560) 8,910 (8,250)

Euro (4,924) 4,377 (5,705) 5,078

Chinese Yuan (1,518) 1,742 - -

Pound (1,264) 1,033 (1,937) 1,691

Japanese Yen (959) 1,176 (913) 1,306

Total 307 (232) 355 (175)


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The interest rate profile of the Bank is as follows:

31 December 2016

Up to1 month

1 to 3Months

3 to 12Months

Over1 years

Non-interest bearing

Total

AssetsLoans and advances to banks 82,357 142,774 111,980 - - 337,111Loans and advances to customers 9,829 46,973 53,940 - - 110,742Investment securities - - 6,332 9,916 - 16,248Derivative financial instruments - - - - 238 238Intangible assets - - - - 158 158Property and equipment - - - - 9,639 9,639Other assets - - - - 239 239Total assets 92,186 189,747 172,252 9,916 10,274 474,375

LiabilitiesDeposits from banks 15,993 59,159 33,987 - - 109,139Derivative financial instruments - - - - 2,342 2,342Retirement benefit obligations - 2,574 - - 108 2,682Other liabilities - - - - 885 885Total liabilities 15,993 61,733 33,987 - 3,335 115,048

Net repricing gap 76,193 128,014 138,265 9,916 6,939 359,327

31 December 2015

Up to1 month

1 to 3Months

3 to 12Months

Over1 years

Non-interest bearing

Total

AssetsLoans and advances to banks 87,123 175,895 54,453 - - 317,471Loans and advances to customers 10,714 41,417 57,808 - - 109,939Investment securities 200 13,708 1,111 13,369 - 28,388Derivative financial instruments - - - - 285 285Intangible assets - - - - 222 222Property and equipment - - - - 9,809 9,809Other assets - - - - 413 413Total assets 98,037 231,020 113,372 13,369 10,729 466,527

LiabilitiesDeposits from banks 31,714 83,045 - - - 114,759Derivative financial instruments - - - - 1,213 1,213Retirement benefit obligations - 1,925 - - 92 2,017Other liabilities - - - - 1,128 1,128Total liabilities 31,714 84,970 - - 2,433 119,117

Net repricing gap 66,323 146,050 113,372 13,369 8,296 347,410


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2016



Sensitivity analysis

Taking into account the historically low levels of the base interest rates (i.e. LIBOR, EURIBOR, etc.), for the assessment of the interest rate sensitivity of the Bank -0.10% and +0.10% shift in the market interest rates were applied to the statement of financial position items which are subject to calculation.

As of reporting date it is assumed that the interest rates are shifted. Hence, the calculated figures do not reflect the effect on current profit or loss and equity if the interest rates during the period would have been different. The table below analyses the effects of -0.10% and +0.10% shift in interest rates on profit or loss and equity at the reporting.


Applied shock Profit or loss Equity (*) Profit or loss Equity (*)

US Dollar - 0.10% (46) (25) (47) (17)

US Dollar + 0.10% 46 26 47 19

Euro - 0.10% (49) (45) (22) (17)

Euro + 0.10% 49 45 22 17

Total (for negative shocks) (95) (70) (69) (34)Total (for positive shocks) 95 71 69 36

Operational risk

The Bank defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The definition includes legal risk but excludes strategic and reputational risk. Appropriate measures are taken to achieve a high level of operational risk awareness and to enhance the operational risk management. The Bank adopts market best practices and methods to manage and coordinate its operational risks. Key processes for the management of operational risk include, amongst others; establishing the necessary internal controls such as the ‘four eyes principle’ and proper segregation of duties within Bank departments; the purchase of corporate and property insurance policies to confront potential losses which may occur as a result of various events and natural disasters; and the approval process of new products to identify and assess the operational risk related to each new product, activity, process and system.

(()� Includes the profit or loss effect.


AnnualReport2016



Capital risk management

As a multilateral financial institution, the Bank is not subject to regulatory capital requirements. However, the Bank preserves an actively managed capital to prudently cover risks in its activities. In this respect, the Bank follows sound standards as benchmarks for risk management and capital framework.

The principal sources of capital increase are through payments of the subscribed capital by the shareholders and the retention of the undistributed element of the profit. Pursuant to Article 4 of the Agreement, the capital stock of the Bank can be increased by the vote of the Board of Governors. In accordance with Article 27 of the Agreement, the Board of Governors determine annually what part of the net income of the Bank from ordinary capital operations shall be allocated to reserves, provided that no part of the net income of the Bank shall be distributed to members by way of profit until the General Reserves of the Bank shall have attained the level of 25% of the subscribed capital. In substance, the primary objective of the Bank’s capital management is to ensure adequate capital is available to expand the Bank’s operations.

Fair value of assets and liabilities

Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price.

The Bank has estimated fair values of financial instruments by using available market information and appropriate valuation methodologies which include credit risk as well. However, judgment is necessarily required to interpret market data to estimate the fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Bank can realize in a current market exchange.

The following methods and assumptions were used to estimate the fair value of the financial instruments for which it is practicable to estimate fair value:

Monetary assetsThe fair values of balances denominated in other than presentation currency, which are translated at year-end exchange rates, are considered to approximate carrying values.

The fair values of certain assets carried at cost, including cash and other assets amounts are considered to approximate their respective carrying values due to their short-term nature and negligible credit losses.

The fair values of loans and advances are determined by discounting contractual cash flows with the sum of original spread and the respective base interest rate as of the reporting date.


AnnualReport

2016



Monetary liabilities

The fair values of deposits from banks are determined by discounting contractual cash flows with the sum of original spread and the respective base interest rate as of the reporting date.

As of 31 December 2016 and 31 December 2015, the carrying amounts and fair values of financial instruments are as follows:

Fair value hierarchy

IFRS 7 requires classification of line items measured at fair value presented in the financial statements according to the defined levels. These levels depend on the observability of data used during fair value calculation; Classification for fair value is generated as followed below:

� Level 1: Assets or liabilities; with prices recorded (unadjusted) in active markets for similar instruments.

� Level 2: Assets or liabilities; that are excluded in the Level 1 of recorded prices directly observable in active markets.

� Level 3: Assets and liabilities; where no observable market data can be used for valuation.

There are not any significant transfers between Level 1 and Level 2 of the fair value hierarchy.

According to these classification principles stated, the Bank’s classification of financial assets and liabilities carried at their fair value are as follows:


Fair Value Carrying Value Fair Value Carrying Value

Financial assets:

Loans and advances to banks 337,205 337,111 317,284 317,471

Loans and advances to customers 111,348 110,742 113,751 109,939

Investment securities 16,248 16,248 28,388 28,388

Derivative financial instruments 238 238 285 285

Total financial assets 465,039 464,339 459,708 456,083

Financial liabilities:

Deposits from banks 109,184 109,139 114,762 114,759

Derivative financial instruments 2,342 2,342 1,213 1,213

Total financial liabilities 111,526 111,481 115,975 115,972


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NOTE 5 - CASH AND CASH EQUIVALENTS

Assets and liabilities measured at fair value

For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances with less than three months maturity from the date of acquisition:

31 December 2016 Level 1 Level 2(*) Level 3 Total


Investment Securities: Available-for-sale 16,248 - - 16,248

Financial assets held for trading

- Derivatives - 238 - 238

Total assets 16,248 238 - 16,486

Financial liabilities at fair value through profit and loss

- Derivatives - 2,342 - 2,342

Total liabilities - 2,342 - 2,342

31 December 2015 Level 1 Level 2(*) Level 3 Total


Investment Securities: Available-for-sale 28,388 - - 28,388

Financial assets held for trading

- Derivatives - 285 - 285

Total assets 28,388 285 - 28,673

Financial liabilities at fair value through profit and loss

- Derivatives - 1,213 - 1,213

Total liabilities - 1,213 - 1,213

31 December 2016

31 December 2015

Loans and advances to banks-demand (Note 7) 518 736

Loans and advances to banks-time (with original maturity less than three months) (Note 7) 85,081 31,016

Total 85,599 31,752

(()� Benchmark interest rates and yield curves are used for calculating the fair values of forward positions.


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2016


NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS

The Bank utilizes the following derivative instruments:

“Currency forwards” represent commitments to purchase or sell foreign and domestic currency, including undelivered spot transactions.

“Currency swaps” are commitments to exchange one set of cash flows for another. Swaps result in an economical exchange of currencies or interest rates. Currency swaps involve the exchange of the principal as well. The Bank risks are represented by the potential cost of replacing the swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing basis with reference to the current fair value and the liquidity of the market. To control the level of risk taken, the Bank assesses counterparties using the same techniques as for its lending activities.

The notional amounts of certain types of financial instruments provide a basis for comparison with instruments recognized on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments, and therefore, do not indicate the Bank’s exposure to credit or price risks. The derivative instruments become favorable (assets) or unfavorable (liabilities) as a result of fluctuations in foreign exchange rates and interest rates relative to their terms.

31 December 2016

Contract / notional amount Fair values

Assets Liabilities

Derivatives held for trading

Currency swaps 2,005 238 2,342

Total derivatives assets held for trading 2,005 238 2,342

31 December 2015

Contract / notional amount Fair values

Assets Liabilities

Derivatives held for trading

Currency swaps 153,035 285 1,213

Total derivatives assets held for trading 153,035 285 1,213


AnnualReport2016


NOTE 7 - LOANS AND ADVANCES TO BANKS

As of 31 December 2016 and 31 December 2015, loans and advances to banks are as follows:

The following table breaks down loans and advances to banks by product type:

The Bank has no impaired loans in the loans and advances to banks portfolio (31 December 2015: None). Collective allowance for impairment losses were cancelled in 2015.

Movement in the collective allowance for loan losses for banks is as follows:

31 December 2016

31 December 2015

Nostro/demand deposits 518 736

Money market placements(With original maturity less than three months) 85,081 31,016

Included in cash and cash equivalents 85,599 31,752

Other loans and advances to banks, grossLess: allowance for impairment

251,512 285,719

- -

Loans and advances to banks, net 337,111 317,471

31 December 2016

31 December 2015

Money market placements 179,530 191,520

SME support program 80,824 87,081

Trade finance 76,239 38,134

Nostro/demand deposits 518 736

Loans and advances to banks, net 337,111 317,471

31 December 2016

31 December 2015

Balance at 1 January - 186

Reversal of impairment allowances (*) - (186)

At period end - -

31 December 2016

31 December 2015

Current 241,674 266,357

Non-current 95,437 51,114

(()� Having a loan portfolio of all significant loans reviewed regularly and no non-performing loan history collective provisions were cancelled in 2015.


AnnualReport

2016


NOTE 8 - LOANS AND ADVANCES TO CUSTOMERS

NOTE 9 - INVESTMENT SECURITIES

As of 31 December 2016 and 31 December 2015, loans and advances to customers are as follows:

As of 31 December 2016 loans and advances to customers include loans to governments of member states amounting to EU 30,498 thousand (31 December 2015: EU 30,822 thousand).

The Bank has no impaired loans in the loans and advances to customers portfolio (31 December 2015: None). Collective allowance for impairment losses were cancelled in 2015.

Movement in the collective allowance for loan losses for customers is as follows:

The Bank has collaterals taken against the loans and advances to customers balances. Collaterals include the guarantees given by Governments of Member Countries (excluding loans to government institutions of member states) and pledged items. The total amount of loans and advances that are collateralized by guarantees of member countries amount to EU 51,913 thousand and pledged items amount to EU 11,297 thousand (31 December 2015: EU 46,382 thousand, EU 15,506 thousand respectively).

Available-for-sale investment securities are measured at their fair value. In assessing the fair value of the available-for-sale securities, bid prices quoted as of the reporting date are used.


Project finance(*) 68,511 68,522

Trade finance 42,231 41,417

Loans and advances to customers, gross 110,742 109,939

Less: allowance for impairment - -

Loans and advances to customers, net 110,742 109,939


Balance at 1 January - 219

Reversal of impairment allowances(*) - (219)

At period end - -


Debt securities - at fair value: Eurobonds 16,248 28,388

Total available-for-sale securities 16,248 28,388


Current 60,680 15,138

Non-current 50,062 94,801


(()� Having a loan portfolio of all significant loans reviewed regularly and no non-performing loan history collective provisions were cancelled in 2015.


AnnualReport2016


Cost 444 468

Accumulated amortization (286) (246)

Net book value 158 222


Cost 10,429 10,482

Accumulated depreciation (790) (673)

Net book value 9,639 9,809


Net book value at 1 January 222 238

Amortization charge (64) (70)

Disposal (24) (6)

Depreciation of disposals 24 6

Additions - 54

Net book value at period end 158 222


NOTE 10 - INTANGIBLE ASSETS

NOTE 11 - PROPERTY AND EQUIPMENT

Movements of intangible assets were as follows:

Machinery and equipment

Motor vehicles

Furniture and fixtures Buildings Total

31 December 2016

Net book value

at 1 January 2016 91 36 10 9,672 9,809

Addition - - - - -

Disposal (34) - (19) - (53)

Depreciation of disposals 34 - 18 - 52

Depreciation charge (48) (18) (1) (102) (169)

Net book value at period end 43 18 8 9,570 9,639

31 December 2015

Net book value

at 1 January 2015 103 57 11 9,774 9,945

Addition 37 - - - 37

Disposal (25) - - - (25)

Depreciation of disposals 25 - - - 25

Depreciation charge (49) (21) (1) (102) (173)

Net book value at period end 91 36 10 9,672 9,809


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2016


NOTE 11 - PROPERTY AND EQUIPMENT (Continued)

NOTE 12 - OTHER ASSETS

NOTE 13 - DEPOSITS FROM BANKS

As of 31 December 2016, property and equipment excluding the motor vehicles were insured against fire, theft and damage to the extent of EU 2,407 thousand. Motor vehicles are insured against accident to the extent of their acquisition cost.

At 31 December 2016, there is no impairment provision on property and equipment (31 December 2015: None).

Deposits from banks in the amount of EUR 139,083 thousand have original maturity of up to twelve months and weighted average interest rate of 0.67 % (31 December 2015: EUR 145,955 thousand with 0.70%).


Receivables from clients (*) 162 295

Pre-paid expenses 57 68

Tax refunds 15 39

Other 5 11

Total 239 413


Deposits from banks in member countries 109,139 114,759

Total deposits from banks 109,139 114,759

Current 109,139 114,759

Non-current - -

(()� According to the loan agreements made with the Bank’s clients, the Bank receives over-due interest, front-end fees and commitment fees over the undrawn commitments to its loan customers and the expenses related with its loan operations. As of 31 December 2016 the Bank has fee receivables and over-due interest receivables amounting to EU 156 thousand and EU 6 thousand respectively according to the signed loan agreements (31 December 2015: EU 172 thousand fee receivables and EU 123 thousand over-due interest).


AnnualReport2016

As of 31 December 2016 and 31 December 2015 retirement benefit obligations are as follows:

Pension plan liabilities

According to the Pension Plan Policy of the Bank, the Bank’s liability is limited up to the 19% of each employee’s basic salary which is the sum of first and second pillar contribution rates.

As at 31December 2016 pension plan liabilities amounting to EU 2,595 thousand comprised of EU 1,120 thousand (31 December 2015: EU 858 thousand) for the Bank’s contributions to the first pillar that is the sum of 12% of each employee’s basic salary; of EU 1,163 thousand (31 December 2015: EU 901 thousand) for the second pillar contributions of the Bank and employees ; of EU 25 thousand (31 December 2015: None) for the third pillar contributions of the employees; and of EU 287 thousand (31 December 2015: EU 187 thousand) for the investment returns regarding the first, second and third pillar contributions paid by the Bank and the employees.

According to the Pension Plan Policy of the Bank, an employee shall become entitled to a disability pension from the first pillar if the employee suffers a disability before attaining normal retirement age. If such a disability occurs the employee shall become entitled to pension contribution in monthly amounts equals to 25% of the employee’s last salary immediately before becoming disabled until the employee’s normal retirement age. After reaching the employee’s normal retirement age the disability pension will cease and, upon the employee’s choice it can be replaced by the pension benefits in accordance with the Pension Plan Policy. The time during which the disability pension has been paid will be included in the employee’s service at the Bank when calculating the total pension benefits of the employee after reaching normal retirement age.

In this framework, actuarial valuation of the disability pension liability of the Bank has been performed by an independent advisory firm. Actuarial valuations have been performed in accordance with the methods and estimations determined in “International Accounting Standard for Employee Benefits” (“IAS 19”). As a result of this valuation, the Bank has accounted EU 87 thousand disability pension liability as at 31 December 2016.

Movements for the retirement benefit obligations are as follows:


1 January 2,017 1,899

Increase during the year 627 573

Benefits paid (57) (539)

Actuarial (gain)/losses for the period 14 (4)

Foreign exchange movements 81 88

At period end 2,682 2,017


Pension plan liabilities 2,595 1,946

Actuarial (gain)/losses 87 71

Total 2,682 2,017


NOTE 14 - RETIREMENT BENEFIT OBLIGATIONS


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2016

The movement in the defined benefit obligation (disability pension liability) over the period is as follows:

The principal actuarial assumptions used were as follows (denominated in USD):

Mortality rate EVK00 standard mortality rates for males and females are used for pre and after retirement mortality.

The average life expectancy in years of a pensioner after retiring at age 60 for both men and women on the reporting date are as follows:

The sensitivity analysis of defined benefit obligation of excess liabilities as of 31 December 2016 is as follows:


NOTE 14 - RETIREMENT BENEFIT OBLIGATIONS (Continued)

31 December 2016

1 January 71

Current service cost 17

Interest cost 4

Amortization of Unrecognized Actuarial Loss / (Gain) (7)

Foreign exchange movements 2

At period end 87

31 December 2016 (%)

31 December 2015 (%)

Discount rate 4.7 5.0

Price inflation 2.3 2.4

Pay increase 3.8 3.9


Male 21.48 21.48

Female 24.40 24.40

Assumption changePension excluding

in-service disability

Salary continuation

Discount rate +1% (19.3%) (8.9%)

Discount rate -1% 25.6% 10.2%


AnnualReport2016

As at 31 December 2016 and 31 December 2015 other liabilities are as follows:

In accordance with Article 4 of the Agreement, the initial authorized capital of the Bank is EU 1,000,000 thousand divided into 10,000 shares each having a par value of EU 100 thousand. The Board of Governors of the Bank increased the authorized capital of the Bank to EU 1,089,100 thousand for subscription by the Islamic Republic of Afghanistan, the Republic of Azerbaijan and Kyrgyz Republic with EU 50,000 thousand, EU 32,500 thousand and EU 6,600 thousand, respectively.

The Republic of Azerbaijan, the Islamic Republic of Afghanistan and The Kyrgyz Republic declared the acceptance of the Articles of Agreement to become members of the Bank on 15 February 2013, 15 March 2014 and 26 August 2015, respectively.

As of 31 December 2016, the subscribed capital is EU 1,089,100 thousand (31 December 2015: EU 1,089,100 thousand) comprising 10,891 shares. The paid-in capital of EU 315,150 thousand (31 December 2015: EU 310,870 thousand) is reflected at its cost.

Out of the said subscribed capital EU 762,350 thousand may become callable (2015: EU 762,350 thousand), upon a unanimous decision of the Board of Governors, by the member countries in such manner and on such terms as deemed fit by the Board of Governors.


NOTE 15 - OTHER LIABILITIES

NOTE 16 - SHARE CAPITAL AND SHARE PREMIUM


Unearned income (*) 765 843

Short-term employee benefits (**) 100 90

Payables to personnel 20 125

Other - 70

Total 885 1,128

(() As of 31 December 2016 the Bank deferred the income amounting to EU 765 thousand (31 December 2015: EU 843 thousand) from front-end commissions during the tenor specified in the loan agreements made with financial institutions and customers. (**) The Bank’s liability is the sum of the monetary values of each full-time professional staff member’s annual leave entitlement which is calculated based on the monthly basic salaries.


AnnualReport

2016

The issued share capitals as of 31 December 2016 and 31 December 2015 are as follows:

As at 31 December 2016 share capital structure of the Bank showing the number of shares, the amount subscribed by each member, including their respective callable and payable as well as the amount paid-in is as follows:


NOTE 16 - SHARE CAPITAL AND SHARE PREMIUM (Continued)

NOTE 17 - NET INTEREST INCOME


Authorized share capital 1,089,100 1,089,100

Less: unallocated share capital - -

Subscribed share capital 1,089,100 1,089,100

Less: callable share capital (762,350) (762,350)

Less: shares called but not yet due (11,600) (15,880)

Paid-in share capital 315,150 310,870


Interest income on:

Loans and advances:

- to financial institutions 7,404 7,077

money market placements 2,925 3,253

other loans and advances 4,479 3,824

- to customers 3,086 2,455

Investment securities 820 1,367

Total interest income 11,310 10,899

Interest expense on:

Deposits from banks (650) (884)

Pension plan liabilities (92) (71)

Total interest expense (742) (955)

Net interest income 10,568 9,944

Shares Subscribed Callable Payable Paid-in

Islamic Republic of Iran (*) 3,333 333,333 233,333 - 100,000

Islamic Republic of Pakistan (*) 3,333 333,333 233,333 - 100,000

Republic of Turkey (*) 3,333 333,333 233,333 - 100,000

Islamic Republic of Afghanistan 500 50,000 35,000 7,200 7,800

Republic of Azerbaijan 325 32,500 22,750 3,120 6,630

Kyrgyz Republic 66 6,600 4,600 1,280 720

Total 10,891 1,089,100 762,350 11,600 315,150

(()� Total number of shares, subscribed capital and callable capital of the three founding members are equal and 10,000; EU 1,000,000 thousand and EU 700,000 thousand, respectively.


AnnualReport2016


NOTE 18 - NET FEE AND COMMISSION INCOME

NOTE 19 - OPERATING EXPENSES


Fee and commission income on loans 415 448

Total fee and commission income 415 448

Commissions paid to banks (10) (5)

Total fee and commission expense (10) (5)

Net fee and commission income 405 443


Salaries and benefits 3,015 2,946

Contributions (*) 554 509

Relocation expenses 66 35

Staff development 2 14

Total personnel expenses 3,637 3,504

Office occupancy expenses 133 139

Consultant and third party fees 100 114

Travel and accommodation expenses 92 139

Operational subscriptions expenses 79 79

Equipment, maintenance and support 69 65

Communication expenses 30 35

Representation expenses 6 29

Other 42 37

Other administrative expenses 551 637

Depreciation and amortization (Notes 10 and 11) 233 243

Total operating expenses 4,421 4,384

(()� Contributions are comprised of staff retirement plan, life insurance and medical insurance contributions made by the Bank on behalf of the employees.


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2016

In the normal course of business activities, the Bank undertakes various commitments and incurs certain contingent liabilities that are not presented in the financial statements including:

The Bank is a multilateral financial institution dedicated to promoting and facilitating private and public sector investments, cooperation and development in member states and fostering the growth of intra-regional trade. The Bank operates in a specific geographical area and the primary reporting format for business segments includes Banking and Treasury operations. Banking activities represent loans to financial institutions for SME support and trade finance, loans to customers for projects and trade finance. Treasury activities include raising debt finance, investing surplus liquidity, managing the Bank’s market risk.

As at 31 December 2016 the Bank has credit limit commitments to the customers due to project finance and SME support program amounting EU 43,106 thousand and EU 7,841 thousand, respectively (31 December 2015: EU 25,907 thousand and EU 9,428 thousand, respectively).

Other commitments comprised of rent guarantees of the Bank for the expatriate staff members.


NOTE 20 - COMMITMENTS AND CONTINGENT LIABILITIES

NOTE 21 - SEGMENT ANALYSIS


Credit limit commitments 50,947 35,335

Other commitments 8 7

Total 50,955 35,342

31 December 2015 Banking Treasury Total

Interest income 7,565 3,745 11,310

Fee and commission income 415 - 415

Total segment revenues 7,980 3,745 11,725

Interest expense (76) (666) (742)

Fee and commission expense - (10) (10)

Foreign exchange losses, net - 922 922

Operating expenses (3,335) (1,086) (4,421)

Segment income before impairment 4,569 2,905 7,474

Net impairment reversal - - -

Net income for the period 4,569 2,905 7,474

Segment assets 274,496 199,879 474,375

Segment liabilities 34,307 80,741 115,048


AnnualReport2016

31 December 2015 Banking Treasury Total

Interest income 6,279 4,620 10,899

Fee and commission income 448 - 448

Total segment revenues 6,727 4,620 11,347

Interest expense (73) (882) (955)

Fee and commission expense - (5) (5)

Foreign exchange losses, net - (38) (38)

Operating expenses (3,306) (1,078) (4,384)

Segment income before impairment 3,348 2,617 5,965

Net impairment reversal 405 - 405

Net income for the period 3,753 2,617 6,370

Segment assets 242,117 224,410 466,527

Segment liabilities 13,939 105,178 119,117


NOTE 21 - SEGMENT ANALYSIS (Continued)

The Bank has the following related parties:

Key management personnel

The Bank’s key management personnel are comprised of the President and two Vice Presidents. They are entitled to a staff compensation package that includes a salary, covered by medical and life insurance, participate in the Bank’s pension plan and are eligible to receive other short term benefits.

The salaries and other benefits paid to key management personnel amount to EU 600 thousand as of 31 December 2016 (31 Dec 2015: EU 535 thousand). This comprises salary and employee benefits of EU 518 thousand (31 Dec 2015: EU 464 thousand) and contributions made by the Bank on behalf of the management personnel of EU 82 thousand (31 Dec 2015: EU 71 thousand). Key management personnel do not receive post-employment benefits like termination benefits, any share-based payments or other long term benefits, except lump sum pension payment.

The members of the Board of Directors are not personnel of the Bank and do not receive any fixed term salaries nor any staff benefits.

The Bank has collected EU 3,340 thousand of the past due receivables of EU 4,665 thousand. Sovereign guarantees are held as collaterals against the remaining EU 1,325 thousand past due project finance loans.

The Bank decided to terminate the contract regarding administrative office work and take over six employees of the sub-contractor company into its payroll effective from 1 February 2017 with all retrospective legal and contractual rights for the term they provide service to the Bank under Turkish Labor Law.

NOTE 22 - RELATED PARTY TRANSACTIONS

NOTE 23 –EVENTS AFTER THE REPORTING PERIOD


AnnualReport

2016

Contact [email protected]

Headquarters Office, IstanbulBomonti Business CenterCumhuriyet Mah. Silahşör Caddesi, Yeniyol SokakNo:8, Kat:14-15-16, 34380Bomonti - Şişli - IstanbulRepublic of TurkeyTelephone: (+90) (212) 393 63 00 Fax: (+90) (212) 393 63 01E-mail: [email protected]

Representative Office, TehranUnit 101, No: 199Dastgerdi St.1919817511 - TehranIslamic Republic of IranTelephone: (+98) (21) 26408321, (+98) (21) 26408322Fax: (+98) (21) 22927020E-mail: [email protected]

Representative Office, KarachiOffice Suite No: 612, Forum Building, Block-9Clifton - KarachiIslamic Republic of PakistanTelephone: (+92) (21) 35306996-7 (2 Lines)Fax: (+92) (21) 35831569 E-mail: [email protected]

AnnualReport 2016

2016

AnnualReport

Documents

AnnualReport 2016 - Welcome to · 4 ECO Trade and Development Bank Annual Report 2016 Board of Governors • Chairman, Board of Governors (May 2016 – May 2017) H.E. Shahin Mustafayev