TÜRKİYE HALK BANKASI A.Ş. The Project Financial Statements of “Micro Small and Medium Enterprise and Large Enterprise Supply Chain Finance Project” With Independent Auditors’ Report As at 31 December 2019 INDEPENDENT AUDITORS’ REPORT To the Board of Directors of Türkiye Halk Bankası A.Ş. Qualified Opinion We have audited the accompanying project financial statements of Türkiye Halk Bankası A.Ş. (the “Bank”), which comprise the project balance sheet as at 31 December 2019 and the statement of designated account which includes a summary of funds received from the International Bank for Reconstruction and Development (“IBRD”), the summary of expenditures shown under the main project headings and by main categories of expenditures for the period between 1 January 2019 and 31 December 2019, and notes to the project financial statements, including a summary of significant accounting policies (together “the project financial statements”). In our opinion, except for the effects of the matter described in the basis for qualified opinion section of our report, the accompanying project financial statements of the Bank as at 31 December 2019 and for the period between 1 January 2019 and 31 December 2019 are prepared, in all material respects, in accordance with the financial reporting provisions of Terms of Reference (“TOR”) (Note 3) of the agreement dated 28 December 2015 between the IBRD and the Bank. Basis for Qualified Opinion The Bank did not recognize the accrued interest income on the amounts due from loan customers and the accrued interest expenses on the amount due to IBRD and any commission amount on the balances in the project financial statements, although such accruals were included in its statutory financial statements. We were unable to determine its impact on the project financial statements of the Bank as at 31 December 2019 and for the period between 1 January 2019 and 31 December 2019. We 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 Project Financial Statements section of our report. We are independent of the Bank in accordance with the Code of Ethics for Independent Auditors (“Code of Ethics”) published by the Public Oversight Accounting and Auditing Standards Authority, together with the ethical requirements that are relevant to our audit of the project financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter - Basis of Accounting and Restriction on Distribution and Use We draw attention to Note 3 to the project financial statements, which describe the basis of accounting. The project financial statements are prepared to assist the Bank to comply with the financial reporting provisions of the TOR of the agreement referred to above. As a result, the project financial statements may not be suitable for another purpose. Our report is intended solely for the IBRD and the Bank and should not be distributed to or used by parties other than the IBRD and the Bank. Our opinion is not modified in respect of this matter. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation of the project financial statements in accordance with the financial reporting provisions of TOR, and for such internal control as management determines is necessary to enable the preparation of the project financial statements that is free from material misstatement, whether due to fraud or error. In preparing the project 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. Those charged with governance are responsible for overseeing the Bank’s financial reporting process. Auditors’ Responsibilities for the Audit of the Project Financial Statements Our objectives are to obtain reasonable assurance about whether the project financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s 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 the project 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 project 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 auditor’s report to the related disclosures in the schedule 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 auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern. 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. DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş. Member of DELOITTE TOUCHE TOHMATSU LIMITED Istanbul, 22 May 2020 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project Project Financial Position as of 31 December 2019 ASSETS USD Designated Account - Sub-loans to Beneficiary Enterprises 200,000,000.00 Sub-loans to MSMEs 162,173,091.45 Sub-loans to LEs 37,826,908.55 Other Assets (if any, description to be provided) - TOTAL ASSETS 200,000,000.00 LIABILITIES Amount due to IBRD 200,000,000.00 Credit Line 200,000,000.00 Front-end fee - TOTAL LIABILITIES 200,000,000.00 The accompanying notes are an integral part of these project financial statements. 1 TÜRKİYE HALK BANKASI A.Ş. Statement Of Designated Account Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project Designated Account (DA) Statement for the Year ended 31 December 2019 in USD Note Opening balance as of the year beginning 1 January 2019(*) 21,368,122.21 Add: IBRD advances during the year 6 18,292,029.51 Less: Refund to IBRD from DA during the year - Less: Sub-loans extended to beneficiary enterprises 39,660,151.72 Closing Balance as of the Year ending 31 December 2019 - (*) In the previous report, closing balance was USD 21,363,122.00. The reason of this difference is a typo. In the portfolio details sheet, although the extended amount to **** was actually USD 952,274.40, it was reported USD 957,274.40 in the previous report. Also, there is a USD 0.21 difference, which comes from rounding function of excel. Consequently, the revised balance is USD 21,368,122.21. The accompanying notes are an integral part of these project financial statements. 2 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. Working Capital Loans to MSMEs 2,720,746.36 2,720,746.36 - 121,566,025.00 **** - - - 650,000.00 **** - - - 160,000.00 **** - - - 97,000.00 **** - - - 1,300,000.00 **** - - - 77,203.07 **** - - - 300,000.00 **** - - - 257,000.00 **** - - - 56,250.00 **** - - - 150,000.00 **** - - - 120,000.00 **** - - - 89,000.00 **** - - - 96,000.00 **** - - - 96,000.00 **** - - - 68,719.32 **** - - - 215,000.00 **** - - - 53,689.88 **** - - - 215,000.00 **** - - - 108,517.95 **** - - - 704,050.32 **** - - - 709,260.00 **** - - - 116,942.86 **** - - - 85,227.27 **** - - - 937,090.88 **** - - - 585,681.80 **** - - - 527,113.62 Subtotal 1 - - - 7,774,746.96 The accompanying notes are an integral part of these project financial statements. 3 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. **** - - - 760,309.36 **** - - - 819,992.04 **** - - - 878,057.10 **** - - - 467,484.08 **** - - - 140,379.41 **** - - - 526,834.26 **** - - - 233,953.68 **** - - - 2,340,553.40 **** - - - 118,571.39 **** - - - 242,857.07 **** - - - 102,124.73 **** - - - 270,000.00 **** - - - 600,000.00 **** - - - 500,000.00 **** - - - 937,340.08 **** - - - 146,600.10 **** - - - 384,232.14 **** - - - 840,240.24 **** - - - 286,532.90 **** - - - 401,146.06 **** - - - 469,685.76 **** - - - 587,178.65 **** - - - 853,606.20 **** - - - 1,468,015.75 **** - - - 285,771.40 Subtotal 2 - - - 14,661,465.79 The accompanying notes are an integral part of these project financial statements. 4 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. **** - - - 170,477.62 **** - - - 235,141.54 **** - - - 943,631.12 **** - - - 450,000.00 **** - - - 500,000.00 **** - - - 940,610.88 **** - - - 85,859.01 **** - - - 87,400.04 **** - - - 524,643.07 **** - - - 118,066.14 **** - - - 353,774.13 **** - - - 950,000.00 **** - - - 354,015.12 **** - - - 824,989.20 **** - - - 353,556.63 **** - - - 431,952.90 **** - - - 1,180,271.20 **** - - - 590,130.40 **** - - - 36,033.44 **** - - - 237,200.00 **** - - - 980,000.00 **** - - - 710,818.26 **** - - - 569,280.00 **** - - - 1,193,244.50 **** - - - 298,328.95 Subtotal 3 - - - 13,119,424.15 The accompanying notes are an integral part of these project financial statements. 5 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. **** - - - 662,361.98 **** - - - 662,999.43 **** - - - 361,586.10 **** - - - 600,882.35 **** - - - 475,363.32 **** - - - 237,678.20 **** - - - 750,000.00 **** - - - 437,253.90 **** - - - 438,045.60 **** - - - 294,985.20 **** - - - 238,548.66 **** - - - 596,151.00 **** - - - 89,471.96 **** - - - 358,274.88 **** - - - 491,963.88 **** - - - 287,004.72 **** - - - 287,049.60 **** - - - 347,015.86 **** - - - 340,000.00 **** - - - 264,161.97 **** - - - 237,388.72 **** - - - 440,373.30 **** - - - 241,105.50 **** - - - 601,701.85 **** - - - 377,120.49 Subtotal 4 - - - 10,118,488.45 The accompanying notes are an integral part of these project financial statements. 6 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. **** - - - 400,000.00 **** - - - 582,648.60 **** - - - 596,683.75 **** - - - 359,023.02 **** - - - 120,000.00 **** - - - 952,722.96 **** - - - 58,078.74 **** - - - 237,513.40 **** - - - 213,948.09 **** - - - 142,632.06 **** - - - 200,000.00 **** - - - 349,691.04 **** - - - 1,197,155.40 **** - - - 717,319.08 **** - - - 287,059.30 **** - - - 286,845.20 **** - - - 419,227.87 **** - - - 990,000.00 **** - - - 865,650.90 **** - - - 311,932.35 **** - - - 719,885.64 **** - - - 119,891.01 **** - - - 59,935.64 **** - - - 1,191,948.40 **** - - - 262,172.94 Subtotal 5 - - - 11,641,965.38 The accompanying notes are an integral part of these project financial statements. 7 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. **** - - - 896,807.25 **** - - - 225,700.56 **** - - - 130,000.00 **** - - - 259,362.51 **** - - - 425,000.00 **** - - - 257,804.21 **** - - - 700,000.00 **** - - - 274,099.61 **** - - - 235,530.60 **** - - - 235,394.44 **** - - - 294,600.93 **** - - - 235,483.32 **** - - - 106,011.97 **** - - - 200,000.00 **** - - - 563,840.80 **** - - - 845,070.30 **** - - - 70,438.36 **** - - - 2,585,650.54 **** - - - 640,000.00 **** - - - 235,000.26 **** - - - 587,730.80 **** - - - 938,858.64 **** - - - 1,764,178.65 **** - - - 235,220.32 **** - - - 280,379.00 Subtotal 6 - - - 13,222,163.06 The accompanying notes are an integral part of these project financial statements. 8 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. **** - - - 1,173,559.20 **** - - - 116,902.30 **** - - - 268,535.60 **** - - - 510,111.19 **** - - - 70,806.91 **** - - - 590,274.70 **** - - - 401,386.80 **** - - - 331,171.15 **** - - - 154,016.79 **** - - - 177,675.81 **** - - - 118,418.73 **** - - - 177,579.69 **** - - - 332,154.87 **** - - - 1,184,860.90 **** - - - 82,730.24 **** - - - 473,961.20 **** - - - 1,000,000.00 **** - - - 59,007.66 **** - - - 192,341.61 **** - - - 589,059.50 **** - - - 317,086.81 **** - - - 547,000.00 **** - - - 180,006.62 **** - - - 710,528.46 **** - - - 236,543.30 Subtotal 7 - - - 9,995,720.03 The accompanying notes are an integral part of these project financial statements. 9 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. **** - - - 1,040,000.00 **** - - - 260,000.00 **** - - - 411,410.76 **** - - - 430,000.00 **** - - - 521,738.60 **** - - - 927,957.60 **** - - - 500,000.00 **** - - - 174,497.48 **** - - - 325,645.32 **** - - - 325,545.75 **** - - - 464,248.40 **** - - - 200,000.00 **** - - - 1,158,851.10 **** - - - 258,000.00 **** - - - 347,944.35 **** - - - 290,568.20 **** - - - 698,256.12 **** - - - 116,686.01 **** - - - 295,598.95 **** - - - 250,000.00 **** - - - 258,879.50 **** - - - 294,254.60 **** - - - 353,045.10 **** - - - 670,000.00 **** - - - 1,532,727.17 Subtotal 8 - - - 12,105,855.00 The accompanying notes are an integral part of these project financial statements. 10 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. **** - - - 353,749.11 **** - - - 212,106.55 **** - - - 990,233.16 **** - - - 351,959.37 **** - - - 150,000.00 **** - - - 59,268.44 **** - - - 350,000.00 **** - - - 253,626.58 **** - - - 573,753.01 **** - - - 1,260,000.00 **** - - - 409,795.55 **** - - - 150,000.00 **** - - - 60,000.00 **** - - - 952,274.40 **** - - - 980,000.00 **** - - - 614,618.10 **** - - - 306,747.43 **** - - - 500,000.00 **** - - - 500,000.00 **** - - - 734,522.34 **** - - - 489,890.96 **** - - - 451,924.85 **** - - - 609,518.60 **** - - - 1,208,644.30 **** - - - 148,720.24 Subtotal 9 - - - 12,671,352.97 The accompanying notes are an integral part of these project financial statements. 11 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year CumulativeSub-Loans LoanLimit ActualDisbursed RemainingLimit (ActualDisbursed) TL USDoreq. TL USDoreq. TL USDoreq. TL USDoreq. **** - - - 467,055.64 **** - - - 56,910.56 **** - - - 65,269.88 **** - - - 231,616.98 **** - - - 433,275.50 **** - - - 82,010.56 **** - - - 177,935.90 **** - - - 568,565.55 **** - - - 204,922.57 **** - - - 340,729.62 **** - - - 274,725.15 **** - - - 54,754.50 **** - - - 54,973.23 **** - - - 80,000.00 **** - - - 341,792.76 **** - - - 684,245.16 **** - - - 99,999.95 **** - - - 285,600.83 **** - - - 107,806.21 **** - - - 396,766.37 **** - - - 73,261.40 **** - - - 91,613.65 **** - - - 458,883.75 **** - - - 92,081.00 **** - - - 277,136.25 Subtotal 10 - - - 6,001,932.97 The accompanying notes are an integral part of these project financial statements. 12 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. **** - - - 600,000.00 **** - - - 91,864.45 **** - - - 232,178.00 **** - - - 455,802.68 **** - - - 148,305.29 **** - - - 150,000.00 **** - - - 381,868.80 **** - - - 63,054.09 **** - - - 281,441.70 **** - - - 106,305.57 **** - - - 188,679.20 **** - - - 104,062.20 **** - - - 42,606.36 **** - - - 571,428.30 **** - - - 841,121.10 **** - - - 187,952.20 **** - - - 563,348.40 **** - - - 571,001.65 **** - - - 760,456.00 **** - - - 592,286.45 **** - - - 37,972.28 **** - - - 110,266.12 **** - - - 70,843.64 **** - - - 379,319.40 **** 80,152.09 80,152.09 - 80,152.09 **** 209,090.82 209,090.82 - 209,090.82 **** 94,994.02 94,994.02 - 94,994.02 **** 65,913.37 65,913.37 - 65,913.37 **** 206,358.89 206,358.89 - 206,358.89 **** 1,147,227.00 1,147,227.00 - 1,147,227.00 **** 141,616.28 141,616.28 - 141,616.28 **** 525,393.90 525,393.90 - 525,393.90 **** 150,000.00 150,000.00 - 150,000.00 **** 100,000.00 100,000.00 - 100,000.00 Subtotal 11 2,720,746.36 2,720,746.36 - 10,252,910.23 Total MSME Working Capital Loans Portfolio (1+2+3+4+5+6+7+8+9+10+11) 2,720,746.36 2,720,746.36 - 121,566,025.00 The accompanying notes are an integral part of these project financial statements. 13 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. Investment Loans to MSMEs 6,444,563.57 6,444,563.57 - 40,607,066.45 **** - - - 355,745.20 **** - - - 131,103.36 **** - - - 538,194.41 **** - - - 2,500,000.00 **** - - - 1,000,000.00 **** - - - 924,855.46 **** - - - 979,459.25 **** - - - 170,473.86 **** - - - 300,000.00 **** - - - 350,818.00 **** - - - 95,000.00 **** - - - 2,172,215.61 **** - - - 292,840.90 **** - - - 353,861.67 **** - - - 708,156.48 **** - - - 432,413.70 **** - - - 1,400,000.00 **** - - - 1,400,000.00 **** - - - 144,508.65 **** - - - 1,624,992.88 **** - - - 1,741,217.70 **** - - - 141,898.85 **** - - - 131,233.55 **** - - - 1,562,703.00 **** - - - 266,730.60 Subtotal 1 - - - 19,718,423.12 The accompanying notes are an integral part of these project financial statements. 14 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. **** - - - 1,221,395.60 **** - - - 1,226,433.40 **** - - - 132,696.35 **** - - - 132,338.15 **** - - - 1,850,000.00 **** - - - 125,000.00 **** - - - 613,494.85 **** - - - 1,840,010.70 **** - - - 981,036.16 **** - - - 63,379.38 **** - - - 612,648.60 **** - - - 612,590.90 **** - - - 75,000.00 **** - - - 1,500,000.00 **** - - - 56,336.75 **** - - - 779,370.90 **** - - - 163,980.10 **** - - - 84,443.58 **** - - - 188,757.50 **** - - - 140,186.85 **** - - - 233,409.25 **** - - - 150,119.12 **** - - - 708,871.13 **** - - - 952,580.50 **** 38,024.24 38,024.24 - 38,024.24 **** 95,194.59 95,194.59 - 95,194.59 **** 41,594.96 41,594.96 - 41,594.96 **** 19,040.07 19,040.08 - 19,040.08 **** 21,999.21 21,999.21 - 21,999.21 **** 44,913.50 44,913.50 - 44,913.50 **** 567,934.10 567,934.10 - 567,934.10 **** 19,169.44 19,169.44 - 19,169.44 **** 925,101.84 925,101.84 - 925,101.84 **** 337,174.80 337,174.80 - 337,174.80 **** 693,240.80 693,240.80 - 693,240.80 Subtotal 2 2,803,387.55 2,803,387.55 - 17,247,467.31 The accompanying notes are an integral part of these project financial statements. 15 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. **** 838,982.93 838,982.93 - 838,982.93 **** 1,116,010.30 1,116,010.30 - 1,116,010.30 **** 15,997.23 15,997.24 - 15,997.24 **** 293,132.17 292,131.17 - 293,132.17 **** 24,607.54 24,607.54 - 24,607.54 **** 1,127,606.80 1,127,606.80 - 1,127,606.80 **** 224,839.04 224,839.04 - 224,839.04 Subtotal 3 3,641,176.01 3,641,176.02 - 3,641,176.02 Total MSME Investment Loans Portfolio (1+2+3) 6,444,563.56 6,444,563.57 - 40,607,066.45 Total MSME Portfolio 9,165,309.92 9,165,309.92 - 162,173,091.45 The accompanying notes are an integral part of these project financial statements. 16 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. Working Capital Loans to LEs 26,580,969.77 26,580,969.77 - 26,580,969.76 **** 948,738.72 948,738.72 - 948,738.71 **** 390,602.31 390,602.31 - 390,602.30 **** 500,000.00 500,000.00 - 500,000.00 **** 1,114,308.40 1,114,308.40 - 1,114,308.40 **** 281,456.93 281,456.93 - 281,456.92 **** 950,000.00 950,000.00 - 950,000.00 **** 957,020.73 957,020.73 - 957,020.73 **** 612,048.14 612,048.14 - 612,048.14 **** 679,267.56 679,267.56 - 679,267.56 **** 112,765.55 112,765.55 - 112,765.55 **** 335,824.35 335,824.35 - 335,824.35 **** 953,067.94 953,067.94 - 953,067.94 **** 4,000,000.00 4,000,000.00 - 4,000,000.00 **** 500,000.00 500,000.00 - 500,000.00 **** 200,000.00 200,000.00 - 200,000.00 **** 1,038,957.75 1,038,957.75 - 1,038,957.75 **** 1,000,000.00 1,000,000.00 - 1,000,000.00 **** 4,556,622.40 4,556,622.40 - 4,556,622.40 **** 966,201.21 966,201.21 - 966,201.21 **** 966,201.21 966,201.21 - 966,201.21 **** 966,201.21 966,201.21 - 966,201.21 **** 499,556.20 499,556.20 - 499,556.20 **** 567,080.55 567,080.55 - 567,080.55 **** 339,886.47 339,886.47 - 339,886.47 **** 120,000.00 120,000.00 - 120,000.00 **** 950,000.00 950,000.00 - 950,000.00 **** 1,121,355.60 1,121,355.60 - 1,121,355.60 **** 392,178.61 392,178.61 - 392,178.61 **** 561,627.95 561,627.95 - 561,627.95 The accompanying notes are an integral part of these project financial statements. 17 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project SUB-LOANS EXTENDED DURING THE YEAR AND CUMULATIVE SUB-LOANS as of the year ended 31 December 2019 (Continued) Sub-Loans Extended During the Year Cumulative Sub-Loans Loan Limit Actual Disbursed Remaining Limit (Actual Disbursed) TL USD or eq. TL USD or eq. TL USD or eq. TL USD or eq. Investment Loans to LEs 3,913,872.03 3,913,872.03 - 11,245,938.79 **** - - - 3,662,388.00 **** - - - 1,222,190.20 **** - - - 2,447,488.56 **** 2,229,967.23 2,229,967.23 - 2,229,967.23 **** 1,683,904.80 1,683,904.80 - 1,683,904.80 Total LE Portfolio 30,494,841.80 30,494,841.80 37,826,908.55 Total Project Portfolio 39,660,151.72 39,660,151.72 - 200,000,000.00 The accompanying notes are an integral part of these project financial statements. 18 NOTES TO THE PROJECT FINANCIAL STATEMENTS 1. OBJECTIVES AND NATURE OF THE PROJECT Türkiye Halk Bankası A.Ş. (the “Bank” or “Halkbank”) received loan of USD 200,000,000 for Access to Finance For Micro Small and Medium Enterprises and Large Enterprises (“MSMEs and LEs”) in the Supply Chain Project (the “Project”) from the International Bank for Reconstruction and Development (“IBRD”). The main objective of the Project is to increase MSMEs and LEs’ access to credit, in turn contributing to their growth. By providing MSMEs and LEs’ with access to credit through a credit line, the Project will help increase their sales and productivity. IBRD agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement USD 200,000,000, as such amounts may be converted from time to time through a Currency Conversion in accordance with the provisions of Section 2.08 of the Loan Agreement, to assist in the financing the Project. The loan is backed by a Government counter-guarantee. 2. OPERATIONS OF THE PROJECT IMPLEMENTING AGENCY Türkiye Halk Bankası A.Ş. was established in Turkey in accordance with the Law No: 2284 in 1933 and began its operations in 1938 and still continues its activities as a public commercial bank. As per the decree of the Higher Council of Privatization numbered 2007/8 and dated 5 February 2007; 25% of the public shares that were previously held by the Privatization Administration were privatized by a public offering and the Bank’s shares were registered to Capital Market Board records by decision number 16/471 dated 26 April 2007. The shares were traded on the Borsa İstanbul A.Ş. as of 10 May 2007. As per the decree of the Higher Council of Privatization numbered 2012/150 and dated 4 October 2012; 23.92% of the public shares that were previously held by the Privatization Administration were privatized by a second public offering and privatization was completed on 21 November 2012. The shares belonging to the Prime Ministry Privatization Administration were transferred to Turkey Wealth Fund on 10 March 2017 pursuant to the Decree of the Higher Council for Privatization No. 2017/1 dated 3 February 2017. The Bank’s service activities and operating areas: The Bank’s operating areas include, commercial financing and corporate banking, fund management operations, retail banking and credit card operations. As of 31 December 2019, the Bank operates with a total of 1006 branches consisting of 1000 domestic and 6 foreign branches that are 5 in Cyprus and 1 in Bahrain. Domestic branches include 41 satellite branches. The Bank has also 3 representative office that are 1 in England, 1 in Singapore and 1 in Iran. 19 3. SIGNIFICANT ACCOUNTING POLICIES The project financial statements have been prepared in accordance with generally accepted accounting principles and practices. The Bank did not recognize the accrued interest income on the amounts due from loan customers and the accrued interest expenses on the amount due to IBRD, any commission amount and any other charges on the balances in the project financial statements, although such accruals were included in its statutory financial statements. These project financial statements are presented in USD. The significant accounting policies are as follows: 3.1 Designated account Designated account presents IBRD Fund which is not yet disbursed to MSMEs and LEs. Undisbursed amount as of the current period is USD 0. Designated account is recognized initially at their principal amounts, and subsequently are continued to be measured with their principal amounts. 3.2 Sub-loans to beneficiary enterprises Sub-loans to beneficiary enterprises are financial assets which are not traded in an active market and have fixed or floating payments. Sub-loans to beneficiary enterprises are recognized initially at their principal amounts, and subsequently are continued to be measured with their principal amounts. Disbursements to the local firms other than USD are translated into USD at the prevailing exchange rates as of the date of the disbursements. The collections from the local firms are converted with the exchange rates prevailing on the collection dates. The balance includes EUR 102,812,250.00, USD 40,096,250.00 and TRY 158,811,998.00 of principal amounts which makes USD 200,000,000.00 in total, as translated with the prevailing exchange rates at the disbursement dates when loans were used. The Loan Agreements do not define exchange rates to be used during the lifetime of the Project. 3.3 Amounts due to IBRD Amounts due to IBRD are recognized initially at their principal amounts, and subsequently are continued to be measured with their principal amounts. The balance includes USD 200,000,000.00 that is used from IBRD fund of USD 200,000,000.00. 4. RESTRICTED USE OF FUNDS AND OTHER ASSETS In accordance with the loan agreement between the Bank and IBRD, funds available in the Special Account are restricted to project purposes only. 20 5. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN The balance allocated to Türkiye Halk Bankası A.Ş. to be on-lent out of the proceeds of the loan to the Bank under its respective subsidiary loan agreement is USD 200,000,000. The Bank is obliged to pay a front-end fee in an amount equal to one quarter of one percent (0.25)% of the loan amount, subject to any waiver of a portion of such fee as may be determined by the IBRD from time to time. The loan is a Fixed Spread Loan (FSL) for USD 200,000,000, commitment linked with level repayment of principle, front-end fee amounting to USD 500,000 financed from the Borrower’s own sources, with all conversion options, a 4 year grace period, and 20 years of final maturity, March 15 and September 15 payment dates. In order to draw down funds under the Access to Finance for Micro Small and Medium Enterprise and Large Enterprise Supply Chain Finance Project, the Bank is entering into sub-loan agreements with beneficiary enterprises. The sub-loan agreements are in accordance with the Project sub-loan terms and conditions and prudent banking practices. Sub-loans are being provided for working capital and investment expenditures. Financial covenants: The key covenants with basically the financial effects are detailed below. a) Sub-loans to MSMEs may be made for working capital and investment purposes. Sub-loans to LEs may be made for investment purposes only, including incremental working capital. b) At least fifteen percent (15%) of the Loan financing Sub-loans to MSMEs is made for: (a) Sub-loans financing Investment Subprojects located in the Priority Regions; or (b) Sub loans financing Working Capital Subprojects where the goods consultant services and non-consulting services so financed are used in the Priority Regions. (*) c) The amount of an individual sub-loan will not exceed USD 3.5 million equivalent for MSMEs and USD 6 million equivalent for LEs, except as the IBRD shall otherwise agree. The aggregate amount of outstanding Sub-loans to any one MSME or LE shall not exceed USD 5 million equivalent and USD 10 million equivalent, respectively. d) All investment sub-loans to MSMEs must have at least two years maturity and to LEs at least three years maturity. e) For sub-loans above USD 1 million equivalent (excluding sub-projects in Priority Regions), sub- beneficiaries to have a financial debt/equity ratio of not more than 85:15 after the receipt of the sub- loan, unless agreed otherwise by the IBRD. f) The first two sub-loans, irrespective of size, will be subject to prior review by the IBRD. Sub-loans to be provided to a MSME exceeding USD 2,5 million equivalent and to a LE exceeding USD 4,5 million equivalent will require prior approval by the IBRD. g) The relevant authorities must certify that the MSMEs and LEs (sub-beneficiaries) and sub-projects meet environmental laws and standards in force in Turkey. h) Contracts from sub-borrowers where the contracted firms are on the IBRD lists of debarred or suspended firms will not be eligible for financing. i) At least 60 percent of the Loan will be used to fund MSMEs. j) Sub-loans not to be supporting or include the purchase of land or used equipment. k) MSMEs must meet the eligibility criteria defined below: MSMEs are defined as firms with less than TRY 40,000,000 equivalent in sales and less than 250 employees. All private MSMEs (private ownership of more than 50 percent), irrespective of their sector, will be eligible for participation as sub beneficiaries on a commercial basis. l) LEs must meet the eligibility criteria defined below: LEs are defined as firms with at least 25% of their annual sales for MSMEs and less than 1,000 employees. All private LEs (private ownership of more than 50 percent), irrespective of their sector, will be eligible for participation as sub beneficiaries on a commercial basis. (*) Section I. A.5. (c) of Schedule 2 to the Agreement is deleted in its entirety in accordance with the “Loan No. 8569-TR (Micro Small and Medium Enterprise and Large Enterprise Supply Chain Finance Project) Amendment to the Loan Agreement” on 31 May 2019. 21 5. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN (Continued) A Project Implementation Unit (PIU) was established under the International Banking and Financial Institutions Directorate of the Bank. The sub-loans extended to the MSMEs and LEs from the IBRD funds are followed up in the Bank’s general management information system coherent with the procedures of other loans tracked within the system, accounted and reported for. All transactions for the transfers from the IBRD, transfers to MSMEs and LEs or to their suppliers and other Project transactions are accounted for in the main accounting system of the Bank. 6. IBRD ADVANCES Withdrawal Number Date Amount in USD(*) 1 16 February 2016 40,000,000.00 2 22 June 2017 11,009,211.75 3 28 August 2017 26,776,699.43 4 27 September 2017 32,325,704.77 5 27 October 2017 26,383,415.19 6 8 December 2017 18,867,045.43 7 26 June 2018 26,345,893.93 8 22 January 2019 18,292,029.51 200,000,000.00 (*) This table shows disbursements from IBRD to the Bank 22 7. TABLE OF USES OF FUNDS BY LOAN TERMS AND SUB-LOANS IN PRIORITY REGIONS AS OF THE YEAR ENDED 31 DECEMBER 2019 TÜRKİYE HALK BANKASI A.Ş. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project Loan terms and Sub-Loans in Priority Regions as of the Year ended 31 December 2019 in USD Cumulative Project Cumulative Priority Portfolio Regions Portfolio TL USD or equivalent TL USD or equivalent SUB-LOANS EXTENDED TO MSMEs - 162,173,091.45 - 8,570,590.64 Investment Loans - 40,607,066.45 - 7,332,523.14 Short to Medium Term Loans* - - - - Long Term Loans** - 40,607,066.45 - 6,407,421.30 Working Capital Loans - 121,566,025.00 - 1,238,067.50 Short to Medium Term Loans* - 30,372,969.73 - 720,258.91 Long Term Loans** - 91,193,055.27 - 517,808.59 SUB-LOANS EXTENDED TO LEs 37,826,908.55 4,296,007.06 Investment Loans - 11,245,938.79 - - Short to Medium Term Loans* - - - - Long Term Loans** - 11,245,938.79 - - Working Capital Loans - 26,580,969.77 - 4,296,007.06 Short to Medium Term Loans* - 8,805,055.04 - 1,121,355.60 Long Term Loans** - 17,775,914.73 - 3,174,651.46 TOTAL PORTFOLIO - 200,000,000.00 - 12,866,597.70 SHARE OF SUB-LOANS TO PRIORITY REGIONS IN MSME PORTFOLIO (should be 15% by Project closing)*** 7,93% SHARE OF MSME SUB_LOANS IN TOTAL PORTFOLIO (should be 60% by Project Closing) 81.09% * Short to Medium Term : Between 2-3 years ** Long Term : Longer than 3 years *** Section I. A.5. (c) of Schedule 2 to the Agreement is deleted in its entirety in accordance with the “Loan No. 8569 -TR (Micro Small and Medium Enterprise and Large Enterprise Supply Chain Finance Project) Amendment to the Loan Agreement” on 31 May 2019. 23 7. SUBSEQUENT EVENTS As per the Board of Directors' decision dated 4 February 2020, it was decided to transfer 66.67% of the shares of the the Parent Bank’s subsidiary, Bileşim Alternatif Dağıtım Kanalları A.Ş.. As of 22 April 2020, a share transfer agreement was signed between TVF Finansal Yatırımlar A.Ş. ("TVF Financial Investments"), acting as the buyer, and the Bank, acting as the seller, for the purpose of the transfer of shares to TVF Financial Investments, representing the entire capital of Halk Hayat ve Emeklilik A.Ş. and shares representing 89,18% of the capital of Halk Sigorta A.Ş., and share transfers were completed as of the mentioned date. During the Bank's Board of Directors meeting on 11 May 2020, it has been resolved that the Bank's TRY 1.250.000.000 (in full TRY) total issued share capital, comprised of shares of TRY 0,01 nominal value each, shall be increased in a nominal capital amount to be calculated based on the share sale price to be determined in accordance with Wholesale Transactions Procedure of Borsa Istanbul A.Ş. In so doing, all current shareholders' preemptive rights shall be restricted in full and the capital increase shall be conducted in cash and by way of a "private placement" as stipulated in Article 13 of the Communique No. VII-128.1 on Shares, and the total sales proceeds through the capital increase shall amount to TRY 7.000.000.000 (in full TRY). The entirety of the shares issued through the capital increase shall be sold to the Bank's majority shareholder Türkiye Varlık Fonu by way of a private placement without a public offering and through a wholesale transaction on Borsa Istanbul A.Ş. 8. OTHER MATTERS An indictment was filed against the Bank on 15 October 2019 by the New York Southern District Attorney General of the United States Department of Justice, which repeated the allegations made in the case against the former executive of the Bank for violation of Iranian sanctions. Initially, the Bank applied to the District Court on 4 November 2019, requesting a special appearance to discuss the issues of objection and denial of judicial jurisdiction, and rejection of the judge of the case. The District Court dismissed the request of the special appearance on 5 December 2019. The Bank appealed the District Court's decision to the Second Circuit Court of Appeals on 17 December 2019. The Second Circuit Court of Appeals dismissed the Bank's objection on 21 February 2020. In the meeting held by the Bank's Board of Directors on 27 March 2020; it was decided to attend the hearing on 31 March 2020 in the District Court where the case will be discussed, to accept the notification of the case and to appoint William & Connolly law firm with a proxy to represent the Bank in the process. At the hearing on 31 March 2020 held in the District Court; it has been decided to postpone the hearing to 9 June 2020 due to the global scale COVID-19 outbreak. The prosecution process is closely monitored by the Bank through specialized US law firms. The appeal process of the case which resulted in conviction for the defendant former executive of the Bank, who was released on 19 July 2019 and returned back to Turkey, is ongoing. 24