Notes to the Consolidated Financial Statements for the Year Ended
31 December 2012
Mathematical reserve is recognized on actuarial bases in order to meet the requirements of policyholders and beneficiaries for life, health
and personal accident insurance contracts for a period longer than a year.
On the other hand, actuarial chain ladder method is used to estimate the reserve amount to be set aside in the current period by looking
at the data of the past materialized losses. If the reserve amount found as a result of this method exceeds the amount of reserve for the
amount of uncertain indemnity, additional reserve must be set aside for the difference.
Reinsurance companies recognize for the outstanding claims that is declared by the companies, accrued and determined on account.
Insurance companies of the Group cede premium and risks in the normal course of business in order to limit the potential for losses arising
from risks accepted. Insurance premiums ceded to reinsurers on contracts that are deemed to transfer significant insurance risk are
recognized as an expense in a manner that is consistent with the recognition of insurance premium revenue arising from the underlying
risks being protected.
Costs which vary and are directly associated with the acquisition of insurance and reinsurance contracts including brokerage, commissions,
underwriting expenses and other acquisition costs are deferred and amortized over the period of contract, consistent with the earning of
XVIII. Provisions and Contingent Liabilities
In the financial statements, a provision is made for an existing commitment resulted from past events if it is probable that the commitment
will be settled and a reliable estimate can be made of the amount of the obligation.
Provisions are calculated based on the best estimates of management on the expenses to incur as of the balance sheet date to fulfil the
liability by considering the risks and uncertainties related to the liability.
In case the provision is measured by using the estimated cash flows required to fulfil the existing liability, the book value of the related
liability is equal to the present value of the related cash flows.
If the amount is not reliably estimated and there is no probability of cash outflow from the Group to settle the liability, the related liability is
considered as “contingent” and disclosed in the notes to the financial statements.
XIX. Contingent Assets
The contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic
benefits to the Parent Bank. Since showing the contingent assets in the financial statements may result in the accounting of an income,
which will never be generated, the related assets are not included in the financial statements. Nevertheless, the developments related to
the contingent assets are constantly evaluated and if it has become virtually certain that an inflow of economic benefits will arise, the asset
and the related income are recognized in the financial statements of the period in which the change occurs.
XX. Liabilities Regarding Employee Benefits
1. Severance Indemnities and Short-Term Employee Benefits
According to the related regulation and the collective bargaining agreements, the Parent Bank and consolidated Group companies (excluding
the subsidiaries residing outside Turkey) are obliged to pay termination benefits for employees who retire, die, quit for their military service
obligations, who have been dismissed as defined in the related regulation or (for the female employees) who have voluntarily quit within
one year after the date of their marriage. Within the scope of TAS 19 “Employee Benefits”, the Parent Bank allocates seniority pay provisions
for employee benefits by estimating the present value of the probable future liabilities. As the legislations of the countries in which
İşbank’s non-resident subsidiaries operate do not require retirement pay provision, no provision liability has been recognized for the related
companies. In addition, provision is also allocated for the unused paid vacation.
2. Retirement Benefit Obligations
İşbank Pension Fund (Türkiye İş Bankası A.Ş. Emekli Sandığı Vakfı), of which each employee of the Parent Bank is a member, has been
established according to the provisional Article 20 of the Social Security Act numbered 506. As per provisional article numbered 23 of
the Banking Law numbered 5411, it is ruled that Bank pension funds, which were established within the framework of Social Security
Institution Law, will be transferred to the Social Security Institution, within 3 years after the publication of such law. Methods and principles
related to transfer have been determined as per the Cabinet decision dated 30 November 2006 numbered 2006/11345. However, the
related article of the act has been cancelled upon the President’s application dated 2 November 2005, by the Supreme Court’s decision
dated 22 March 2007, No.E.2005/39, K.2007/33, which was published on the Official Gazette dated 31 March 2007 and numbered 26479
and the execution decision were ceased as of the issuance date of the related decision.
After the justified decree related to cancelling the provisional article 23 of the Banking Lawwas announced by the Constitutional Court on
the Official Gazette dated 15 December 2007 and numbered 26731, Turkish Grand National Assembly started to work on establishing new
legal regulations, and after it was approved at the General Assembly of the TGNA, the Law numbered 5754 “Emendating Social Security
and General Health Insurance Act and Certain Laws and Decree Laws”, which was published on the Official Gazette dated 8 May 2008 and
numbered 26870, came into effect. The new law decrees that the contributors of the bank pension funds, the ones who receive salaries
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