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AT A GLANCE
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TURKEY At a glance
Economic Statistics GNP 300 bio (2004) GNP
Growth 9.9 (2004) Inflation 8.9
(2004) Imports 97 bio (2004) Exports 63
bio (2004) Current Account - 16 bio
(2004) Debt/GNP 82 Unemployment 10.3
(2004)

• Facts
• Capital Ankara
• Population 72 mio (2004)
• Location East Europe Middle East
• Time GMT 2
• Sovereign B (SP)
• Map

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TURKEY At a glance
15th in 2004 World Population Ranking
Source World Bank
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TURKEY At a glance
20th in 2004 World GDP ranking

Source World Bank
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HIGHLIGHTS of TURKISH ECONOMY
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SELECTED INDICATORS
Highlights of Turkish Economy

• A high level of growth has been achieved even in
  the presence of
• declining inflation and fiscal consolidation
• The main driver of growth is the private sector
  the public sector
• is no more the main source of growth
• Increase in productivity was the highest
  contributor to growth.

Source The Bank Association of Turkey
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Highlights of Turkish Economy

• ECONOMY GROWS FAST
• As far as GNP is concerned, Turkish economy
  reached 10 growth rate in 2004.
• This has been the highest growth rate realised
  since 1966
• In 2005, the growth rate is expected to reach
  5.Growth is slowing down in Turkey due to
  declining productivity growth, increasing oil
  prices and intensifying competitive pressure from
  China and Far East.

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Interest Rates
Highlights of Turkish Economy

• In the last three years, there has been a
  gradual decline in nominal and real interest
  rates parallel to the improved economic
  indicators.
• Turkish Eurobonds have outperformed the emerging
  markets bond index.
• Foreign banks began issuing TRY instruments up
  to 10 years of maturity.

Source www.tcmb.gov.tr
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Highlights of Turkish Economy

• INTEREST RATES FALLING
• Turkish economy has strengthened in last years
  and interest rates remain
• remarkably low.
• The annual nominal rate hovers around 16.5 and
  real interest rates are
• about 9 .
• 2004 inflation rate (consumer prices) was 10.6
  . It was 164.5 in 1994
• and 39.8 in 2000.

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SELECTED INDICATORS
Highlights of Turkish Economy
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SELECTED INDICATORS
Highlights of Turkish Economy
Current account deficit is widening in both USD
nominal terms and in terms of GNP. The rise in
crude oil prices is a major factor affecting the
deficit.
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Inflation
Highlights of Turkish Economy
Year End Inflation (CPI) Expectations
Target 35
Target 20
Target 12
Target 8

• Inflation dynamics have changed significantly
  and ensured steady decline in inflation
• Inflation target is now a more credible anchor

2006 2007 Program targets As of June 2005,
Annual Percentage Change Source www.die.gov.tr
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Current Status of the Structural Reforms
Financial Sector Reform

• Banking Sector Regulation and Supervision in
  line with EU Standards
• Approval of the Pension Reform Legislation
  (Structural Performance Criteria). Partially
  realisation. Full completion foreseen for 4th
  quarter of 2005.
• Approval of the Banking Law (Structural
  Performance Criteria) The bulk of the issue is
  resolved . Finalisation is foreseen for
  September,2005.
• SDIF to Sell the Remaining Non Performing Loans
  by Auction (The first NPL auction is completed
  .The second one is expected to be finalised by
  end October 2005. Current bidders are Lehman
  Brothers/Finansbank, Goldman Sachs, Merril
  Lynch/TSKB and CSFB.

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Current Status of the Structural Reforms
Financial Sector Reform

• State Bank Reform
• Financial Restructuring
• Operational Restructuring
• Preparation for Restructuring
• Launch of the First IPO of Vakifbank
• Adopting a timetable for phasing out of the
  special privileges and obligations of the state
  banks
• Separation of the Board of Halk Bank and Ziraat
  Bank

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Achievements on the Structural Reforms
Financial Sector Reform

• Strengthening the Private Banks
• CAR-Capital Adequacy Ratio- Improvement
• Vulnerabilities Reduced
• Consolidation Encouraged

• Improving the Resolution of Non- Viable Banks
• Strengthened Institutional Capacity for
  Resolution
• Accelerated Resolution of Intervened Banks
• Faster Recovery of Assets

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Current Situation of the Structural Reforms
Public Sector Reform

• Rationalizing Public Sector Budget Investment
• Code of Ethical Conduct for Civil Servants
• Law on Freedom of Informations for Citizens

• Financial Management and Control Law
• Public Procurement Law
• Rationalizing Public Sector Employment

Enhancing the Role of Private Sector

• Boost to Privatization
• TUPRAS (Petroleum Company)
• TEKEL (Monopoly of Alcoholic Beverages)
• THY (Turkish Airlines)
• Petkim /Türk Telekom
• Reduced Administrative Barriers Red Tape

• Opening the Key Markets to Competition and
  Regulation by Independent Agencies
• Energy Market
• Tobacco Market
• Telecommunication Market
• Sugar Market

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TURKISH BANKING SECTOR
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NUMBER OF BANKS
Turkish Banking Sector

• Players
• State banks (unfair competition for deposits
  large security portfolio holders)
• Several large financial-industrial groups with
  strong position in banking market (Sabanci,
  Cukurova, Dogus, Is, Koc)
• Marginal banks with weak branch networks
• Low share of International banks in the system
• High concentration Top 5 banks make up 60
  assets 48 loans 64 of deposits
• Top 10 banks make up 83 assets 77 loans
  88 of deposits.

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Turkish Banking Sector
BANKS
Commercial Banks
Investment and Development Banks
State-owned
Privately owned
Foreign-owned
State-owned
Privately owned
Foreign-owned

• C Credit and Development Bank
• Calik
• Diler Yatirim
• GSD Yatirim
• Takas Bank
• Nurol
• Tat
• TSKB

• Calyon Bank
• TAIB Yatirim

• Iller
• Exim
• T.Kalkinma Bank

• Ziraat
• Vakifbank
• Halkbank

Corporated in Turkey

• Adabank
• Akuluslararasi
• Alternatif
• Anadolu
• Denizbank
• Finans
• Koc
• MNG
• Oyak
• Sekerbank
• Tekfenbank
• Tekstibank
• Turkish
• TEB
• Garanti
• Isbank
• YKB

• Arap-Turk
• BankEuropa
• Citibank
• Deutsche Bank
• HSBC
• Türk Dis Ticaret Bankasi

Savings Deposit Insurance Fund

• Bayindir

Branches in Turkey

• ABN Amro
• Banca di Roma
• Bank Mellat
• Habib Bank
• JP Morgan Chase
• Soc.Generale
• West LB

Number of Banks 82 (June 00) 48
(August 05)
Source Central Bank of Turkey, Mission
Economique, TUSIAD
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Consolidated Highlights
Turkish Banking Sector
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Financial Structure
Turkish Banking Sector

• Weak Equity
• High reliance on T-Bills -Government continues
  to be the main borrower of the sector
• Maturity Mismatch/ Average tenor of deposits
  around 3 months
• Low savings rate in Turkey
• Low level of free capital/ holding structure of
  some banks
• High portion of interest income related to
  marketable securities activities
• Low feecommission generation
• Declining interest margins necessitating
• 1)increasing asset size
• 2)change in asset structure(more loans-less
  T-Bills)
• 3)increasing efficiency
• 4)mergersacquisition
• Asset quality( no secondary market for problem
  loans)
• Improved open position(large FX position of
  private banks diminished)
• Improved capital buffer for potential risks(
  higher CAR)
• Increasing loan activity(due mainly to consumer
  loans)

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Supervision / Management
Turkish Banking Sector

• Supervision
• Massive monitoring / supervisory action
• Improved transparency in financial statements
• Inflation adjusted financials
• Standard quarterly reporting
• Emphasis on related party lending and NPL
  reporting
• Risk based supervision/adaptation of BASEL II
• New Banking Law focusing on Group Loans
  Ownership problems and
• duties of BRSA

• Management
• Crisis management experience
• High quality personnel

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Opportunities
Turkish Banking Sector

• Share of Foreign Banks is increasing. There is
  still mergeracquistion potential.
• Realised and potential mergers acquisition
  deals in the market
• HSBC / Demirbank
• Koç Bank / Unicredito
• BNP / TEB (50 for 216 Mio)
• Koç / Unicredito / Yapi ve Kredi (57,42 for
  1160 Mio)
• Fortis / Dis (89,34 for 880 Mio)
• Rabo / Seker (36,5 for 90 Mio)
• GE Consumer Finance has purchased the half of the
  formers stake in Garanti (25,5 for USD 1.5 bn)
• Oyak / Finans / Deniz are potential acquisition
  candidates.

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Opportunities
Turkish Banking Sector

• Dynamic Private Sector.
• EU accession
• Potential growth areas
• Consumer Financing
• Mortgage Financing
• Pension Funds
• Commercial and SME loans.
• Banking sector assets correspond only to 75 of
  GNP.
• Increasing banking activities will necessitate
  product diversification.
• Product penetration and product per client
  will increase.