Quality Assurance System

A quality assurance system has been established by SAHA, encompassing its partners, board of directors including the chairman and members, executives, members of the rating committee, and rating experts. This system ensures that these individuals possess professional qualifications, adhere to relevant regulations, and confirm the accuracy of the conducted ratings. The quality assurance system operates independently and is adequately funded.

Two non-executive board members, selected from SAHA’s board of directors, are appointed to oversee the functioning of the quality assurance system. The board members responsible for the quality assurance system are chosen among candidates compliant with the relevant regulations of the Banking Regulation and Supervision Agency (BDDK). In the event that partners, board members, executives, rating committee members, or rating experts become aware of any violations of the Quality Assurance System rules, they promptly report such incidents to the board members responsible for the quality assurance system for immediate notification to the BDDK.

The quality assurance system undergoes an annual review. Following the board’s acceptance of the quality assurance system report, it is submitted to the BDDK by the end of April and disclosed on SAHA’s website.

Principles of the Quality Assurance System

A) Professional Competence

Members of the board of directors responsible for the quality assurance system, members of the rating committee, and rating experts must possess the qualifications outlined below:

1. For rating experts:
   
   1. They must have completed at least four years of undergraduate education.
   2. They must hold professional competence certificates in rating issued by authorized institutions domestically or internationally and have a minimum of three years of experience in banking, independent auditing, or rating, or a minimum of five years of experience in these fields.
2. For members of the rating committee, which must consist of at least three individuals, at least two-thirds of them must:
   
   1. Be residents of Turkey,
   2. Have served as general managers in banks, deputy general managers responsible for loans, or members of credit committees, or served as presidents or members in regulatory bodies, deputy presidents or department heads in the regulatory authority, or have a minimum of seven years of experience in the relevant field. This includes periods of service as risk management personnel in banks, rating experts in rating agencies, or, inclusive of their service terms, banking experts or sworn bank auditors in the regulatory authority.
      
      

B) Professional Requirements

SAHA’s partners, members of the board of directors and executives, members of the rating committee, and rating experts are obliged to comply with the provisions of the Banking Regulation and Supervision Agency’s (BDDK) Rating Communiqué.

1. Independence is a set of behaviors and attitudes that ensure SAHA’s partners, members of the board of directors and executives, members of the rating committee, and rating experts conduct their professional activities with accuracy and impartiality.
   
   
2. SAHA’s partners, members of the board of directors and executives, members of the rating committee, and rating experts must refrain from conflicts of interest that may arise during their work, avoid any intervention that may affect their honesty and impartiality, and disclose their opinions reached as a result of the rating process in their reports without considering their own or others’ direct or indirect interests. SAHA’s partners, members of the board of directors and executives, members of the rating committee, and rating experts:
   
   1. Cannot participate in the decision-making process of the management of customers receiving rating services, their partnerships directly or indirectly controlled by them, or partnerships directly or indirectly controlled by them, except for the development, coding, and testing of rating models.
   2. Cannot be involved in the rating process related to customers for whom they or their third-degree relatives, including blood relations, or spouses, are in equivalent or higher executive positions in terms of authority and responsibility, even if they are employed as partners, chairpersons or members of the board of directors, or general managers or deputy general managers in banks, or any other titles with at least seven years of experience in the relevant field, including periods of service as risk management personnel in banks, rating experts in rating agencies, or banking experts or sworn bank auditors in the regulatory authority.
   3. Cannot hold positions, including but not limited to chairpersons or members of the board of directors, managers, or partners, in the bank where rating services were provided or in partnerships where the bank holds qualified shares during the two years preceding the provision of rating services, cannot serve in any capacity in these entities for the next two years, and cannot directly or indirectly own shares in their stocks, excluding those acquired through investment funds.
      
      
3. SAHA’s partners, members of the board of directors, executives, members of the rating committee, rating experts, and their third-degree relatives, including blood relatives, or spouses:
   
   1. Cannot engage in any interest relationship, other than ordinary economic relationships, with customers for whom rating services are provided, partnerships controlled directly or indirectly by them, or partnerships under the control of their customers, in a privileged manner according to market conditions, and cannot directly or indirectly own shares in their stocks, excluding those acquired through investment funds.
   2. Cannot serve as chairpersons or members of the board of directors, general managers, or deputy general managers, or in other capacities with significant decision-making authority and responsibility, in customers for whom rating services are provided, partnerships controlled by customers, or partnerships controlled by customers, even if their third-degree relatives, including blood relatives, or spouses, are employed in these entities.
      
      
4. SAHA’s partners, members of the board of directors, executives, members of the rating committee, and rating experts cannot be chairpersons or members of the board of directors, executives, or partners in another rating agency or in organizations providing independent audit or valuation services. They cannot work as independent auditors, rating experts, or valuation experts.

   Independence is considered to be compromised in the following cases:

   1. Violation of the provisions in the second, third, and fourth paragraphs of Article 8 of the BDDK Communiqué.
   2. Failure to report to the responsible board members of the quality assurance system, to be immediately reported to the BDDK, any direct or indirect benefits obtained from the customer beyond what is stipulated in the rating contract or any promises to provide such benefits.
   3. Unpaid rating fees for past periods or the revelation of subsequent payments beyond the agreed amount in the contract without a valid reason, or the discovery that such payments have been made.
   4. The connection of the rating fee to conditions or a predetermined rating estimate after the completion of the rating process.
   5. Determination that the customer’s creditworthiness is determined by a method different from the default definition, calculation period, and rating methodology reported and disclosed to the BDDK.
   6. Income obtained from a customer exceeding fifteen percent of the total period incomes obtained by the end of that year from the third fiscal year after obtaining the authorization.
      
      
5. SAHA continuously keeps the following information and documents ready for inspection by the BDDK and the Capital Markets Board (SPK):
   
   1. Methodology documents approved by the board of directors,
   2. Rating notes given to customers, data underlying these notes, working papers, reports submitted to the rating committee, rating committee decisions, and rating reports whose minimum qualifications are determined by the BDDK and SPK,
   3. Backward-looking test results prepared on a period basis for each methodology used in determining creditworthiness, explanations on how these results were obtained, and reasons for considering customers in default in this analysis,
   4. Transition matrices if it is deemed sufficient that sufficient data has been formed.
      
      
6. SAHA retains the originals of the working papers prepared during the rating activity and their annexed information and documents, which will not raise doubts about their health, for a period of ten years from the end of the accounting period following their preparation. Legal disputes are retained until the resolution of the dispute.
   
   
7. SAHA informs the BDDK and the SPK on a continuous basis and is ready for inspection:
   
   1. Methodology documents approved by the board of directors,
   2. Rating notes given to customers, data underlying these notes, working papers, reports submitted to the rating committee, rating committee decisions, and rating reports whose minimum qualifications are determined by the BDDK and SPK,
   3. Backward-looking test results prepared on a period basis for each methodology used in determining creditworthiness, explanations on how these results were obtained, and reasons for considering customers in default in this analysis,
   4. Transition matrices if it is deemed sufficient that sufficient data has been formed.
      
      
8. When SAHA makes any significant changes to its rating methodologies or believes that a change has occurred, it informs the relevant authorities within 30 days of the change, providing information about the change and its consequences. To determine whether a change is considered significant, a reassessment is made of the rating notes given in the last three accounting periods using the same methodology, and the absolute values of the differences between the rating notes given before the change and the new rating notes obtained using the changed rating methodology are calculated on a customer-by-customer basis using the main rating note table. If the ratio of the sums of these differences to the total number of rating notes given during the same period exceeds one-tenth, the change is considered significant. All changes are reported to the relevant authorities if these assessments are not made or are not possible.
   
   
9. Regardless of whether they are considered significant or not, changes in rating methodologies and any analyses, if any, are recorded in detail and systematically, and must be entered into the board of directors’ decision book.
   
   
10. SAHA subjects its methodologies to various stress tests and scenario analyses at least once a year, considering economic downturns, sectoral downturns, changes in market risk factors, liquidity squeezes, etc., and keeps the results showing the impact of these tests and analyses on rating notes
    
    

C) SAHA Rating Procedures and Principles

1. Written processes have been established to ensure that rating experts collect information in accordance with the rating methodologies or information-sharing contracts disclosed to the Authority and the public, and analyze this information impartially.
2. Depending on the nature of the customer and the rating activity, a sufficient number of qualified rating experts are allocated from those who did not participate in the negotiations regarding the customer and the rating fee.
3. In credit ratings, financial statements approved for compliance with the accounting principles determined by the Turkish Accounting Standards Board by certified public accountants and sworn financial advisors licensed according to Law No. 3568 dated 1/6/1989 and authorized for auditing are taken into account.
4. Working papers are prepared to prove that the rating is conducted in accordance with the relevant regulations of the BDDK and the rating methodologies announced by SAHA. A record system is created for these working papers and other information and documents supporting the rating opinion.
5. It is mandatory to determine the final rating note to be given to the customer by the SAHA rating committee based on which methodology will be used to determine which main and/or sub-asset category a customer belongs to, and therefore, which methodology will be used to determine the rating note, and the working papers, attachments prepared by the rating experts, and their opinions.
6. The results of rating activities and rating notes are updated continuously by monitoring developments when there is a significant change in macroeconomic or customer-related financial or non-financial conditions that may affect the creditworthiness of the customer or the information forming the basis of the given rating, at least once a year, or at periods agreed upon in the rating contract or in case of significant changes. If necessary, changes are made to the rating note, and in this case, the reason for changing the previous rating note is reported to the risk center. If the previous rating note has already been disclosed to the public, the reason for changing the previous rating note is also disclosed to the public.
7. In the case of giving an unrequested rating note for a customer, in accordance with the procedures and principles determined in the BDDK Regulation, it is essential to have conducted a requested rating for the customer within the last two accounting periods and to review the rating notes to be given at least every six months with their justifications and report to the Risk Center. Unrequested rating notes for a customer may be given once within two accounting periods after the requested rating for that customer.
8. For an unrequested rating note to be given to a customer, detailed analyses must be conducted to the extent that a requested rating note can be given to the relevant customer. This unrequested rating note must be considered in calculating the capital adequacy ratio of banks.
9. Unrequested rating notes cannot be given for banks.
   
   

D) Reporting Format

SAHA presents the credit rating notes it provides to its clients in the form of a report. The date of preparation of this report is considered as the date on which the credit rating notes are given to the customer. At least the following points are included in a credit rating report:

1. Trade name of the rated customer, its address, and contact information,
2. Time period during which the rating activity was conducted,
3. Dates of the financial statements, if any, used during the rating activity,
4. Summary evaluations related to the specific factors affecting the creditworthiness of the customer, the financial data considered, and the sector in which the customer operates,
5. Credit rating notes given to the customer, validity periods, and report date,
6. Names, surnames, titles, signatures, and contact information of the rating experts conducting the rating activity or activities and the members of the rating committee determining the final credit rating note,
7. Trade name, address, and contact information of the rating organization,
8. Other information if requested by the Board.
   
   

Members of the SAHA board responsible for the quality assurance system, members of the rating committee, and rating experts adhere to the following principles:

1. Objectivity: The evaluation methodologies used in rating customers should be based on various verification tests confirmed by past rating experience. Verification tests and the evaluation of the methodology should be continuously reviewed, and methodologies should be sensitive to changes in financial conditions. Verification tests are conducted at least once a year. The rating methodology should be consistent to give similar rating notes to a customer or two customers with similar risks in the same asset category, rated by different rating committees or rating experts.
2. Independence/Impartiality: It is a requirement that the ratings of a rating agency are made free from all kinds of pressures, including economic pressures. The rating process should be as independent as possible from the ownership structure of the authorized rating agency and any potential conflicts of interest on the board of directors.
3. International accessibility/transparency: All real and legal persons, domestic and foreign, should have free access to all rating notes given by the authorized rating agency to its customers and the important points considered when giving a rating through the rating agency’s website. The general procedures, methodology, and basic assumptions used in the rating agency’s evaluation of the rating should also be freely accessible.
4. Disclosure obligation: Information and documents required to be disclosed to the public according to the BDDK Regulation and other information that may be deemed necessary by the Authority should be prepared in a way that is easily understandable to the public and disclosed.
5. Resource sufficiency: The authorized rating agency must have all the necessary resources to be able to make high-quality evaluations. In order for the rating to be more effective and reliable, a continuous relationship should be maintained with the rated customer.
6. Market acceptance/reputation: The rating agency should be preferred in the market and have quality assurance systems that prevent the misuse of confidential information. It is necessary that the rating agency’s ratings are trusted by third parties and institutions, and the ratings given by the rating agency are used by third parties.
   
   

Partners of the authorized rating agency, board members and executives, rating committee members, and rating experts cannot make any commitments to their customers regarding the results of the rating activities they perform or will perform within the scope of the authorizations given by the Board.

Authorized rating agencies cannot accept rating activities for which the knowledge and abilities of the responsible members of the quality assurance system, rating committee members, and rating experts are not sufficient.

Rating committee members and rating experts assigned by authorized rating agencies must show the necessary professional care and diligence in planning, conducting, and concluding the rating task and giving the rating note. The care and diligence shown by these individuals represent the attention and effort that a careful and prudent rating committee member or rating expert would give to details and findings under the same conditions.

E) Review of the Quality Assurance System

The level of compliance with the following principles is considered in the review of the quality assurance system:

1. Task Distribution

   The rating work is carried out by a rating expert who has the necessary level of information, professional competence, and skills, and the results of this work are used as the basis for the rating note given by the rating committee.

2. Guidance

   In order to ensure that the rating activity is of the desired quality and that a complete and accurate opinion is given at the end of the rating, the work is reviewed at every level, and rating experts are guided in their duties.

3. Seeking Opinions

   In cases deemed necessary, opinions may be sought from individuals with relevant experience and knowledge, subject to the principles of confidentiality, independence, and impartiality.

4. Task Acceptance and Continuity

   An evaluation is made for accepting new tasks or continuing the rating activity in future periods. In the evaluation, the independence of the customer, especially in terms of compliance with the principles of independence, and the scope and size of the service to be provided are assessed.

5. Conducting Retrospective Tests

   Processes have been established for the identification and correction of systematic rating errors in rating activities through retrospective tests.

6. Monitoring of Credit Ratings

   Credit ratings are reviewed at least once a year and in any case when there are significant changes. A detailed summary is prepared on how the review was conducted.

7. Monitoring

   The adequacy and functionality of quality assurance methods are monitored.

This regulation, prepared on November 20, 2020, enters into force on the date it is approved by the SAHA Board of Directors.