Economy and Banking Sectorin Turkey

Beirut, Lebanon December, 2010

2

Content

I.Main features of and recent performance of the Turkish economy

II. Banking sector

III. Near-term expectations

3

Main features and performance of the

Turkish economy

4

• Turkey Turkey has has a a functioning functioning marketmarket economy economy,, capital flows are capital flows are free free and and there is no exchange rate restriction for residents and non-residents there is no exchange rate restriction for residents and non-residents

• Current exchange rate regime is a Current exchange rate regime is a floating systemfloating system

• The Central Bank has been implementing a The Central Bank has been implementing a formal inflation-targeting formal inflation-targeting frameworkframework

• Sovereign credit rating, currently is Sovereign credit rating, currently is BBBB “with stable comment” “with stable comment”

• Services Services and industry have shares of and industry have shares of 60 percent60 percent and and 30 percent30 percent, , respectively.respectively.

• Long term average growth rate is about Long term average growth rate is about 4,54,5 percent percent..

5

• GNP is about USD GNP is about USD 730730 billion, billion, 1166th largest in the worldth largest in the world, , 6th6th in the EU; in the EU; 2nd2nd in the region after Russia. in the region after Russia.

• In terms of total assets of banks, Turkey is ranked the In terms of total assets of banks, Turkey is ranked the 15th15th in the EU. in the EU.

• Member of Member of G-20 countriesG-20 countries

• Income per capita is around Income per capita is around USD 10,000USD 10,000

• Foreign trade volume to GForeign trade volume to GDDP isP is about about 45 percent.45 percent.

• Almost Almost half of Turkey's total tradehalf of Turkey's total trade is with the EU. is with the EU.

• Population is about Population is about 72 million72 million in which the group of in which the group of 15-64 age15-64 age has a has a share of 65 percent. share of 65 percent.

• Unemployment rateUnemployment rate is aboutis about 1111 percentpercent, recently., recently.

Savings gap; around 5% of Gdp

6

Savings and investment balance (As % of Gdp)

-12-10-8-6-4-202468

101214

02 03 04 05 06 07 08 09 10exp

11 t 12 t 13 t

Balance Public sector Private sector

Quick recovery and stable growth in Gdp

7

GDP growth (%)

-6

-4

-2

0

2

4

6

8

10

12

02 03 04 05 06 07 08 09 10exp

11 t 12 t 13 t

8

Steady increase in income per capita

Income per capita (USD)

3.0004.000

5.0006.000

7.0008.000

9.00010.000

11.00012.000

13.000

02 03 04 05 06 07 08 09 10exp

11 t 12 t 13 t

Net capital inflow; change in structure with increasing volume to TL financial assets

9

Net capital flows (USD billion)

-20

-10

0

10

20

30

40

50

60

02 03 04 05 06 07 08 09 10 Spt

Non-financials FDIPortfolio investments FinancialsDeposits

10

The CB’s fx reserves remained strong but fx reserves s/t debt ratio decline recently

CB Fx reserves (billion USD) and Fx reserves/Short-term external debt (%)

10

20

30

40

50

60

70

80

90

02 03 04 05 06 07 08 09 10 Spt

100

110

120

130

140

150

160

170

180

Fx reserves Ratio

Rapid disinflation: inflation has declined to the historically lowest level during the free market economy.

11

Inflation (annual, %)

0

5

10

15

20

25

30

35

02 03 04 05 06 07 08 09 10exp

11 t 12 t 13 t

12

TL remained rather stable against major currencies as policy rate fell steadily

TL/(0,5(USD+Euro)), CB policy rate (%)

1,4

1,5

1,6

1,7

1,8

1,9

02 03 04 05 06 07 08 09 10 Nov

0

10

20

30

40

50

TL/(USD+Euro) Policy rate (right)

Public sector borrowing requirement is about 3% of Gdp

13

Public sector balance (as % of GDP)

-12

-10

-8

-6

-4

-2

0

2

4

02 03 04 05 06 07 08 09 10exp

11 t 12 t 13 t

Government’s demand from the financial sector

14

Public sector and financial sector(%) 2002 2009 2010 Spt

Domestic debt/Demenad for TL and Fx money 106 65 62

Domestic debt/GDP 43 35 33

Total debt/GDP 73 46 44

Domestic debt/Banking sector assets 70 40 38

Demand for financial assets

15

Financial assets(As % of Gdp) 2010 Spt

Money and deposits 52

Securities (market capitilization) 44

G.securities 33

Investment funds 2

Total 131 TL 116 Fx 15

16

Banking sector

17

18

“Turkish banking sector has shown remarkable resilience to the global crisis”

No “high risky” assetsSmall investments in housing financingWell-diversified lending portfolio, mainly to private sector andG-securitiesHigh-capital adequacy level with 20%High-liquidity levelNo change in deposit-quaranty limit, current level is USD 33,000No financial support form the GovernmentBanking sector has kept financing economic activities Increase in NPLs2009 and 2010, have been the profitable years

Selected items

19

Banks in TurkeySelected indicatorsAs of September, 2010 Deposit banks Investment and Participation Total

banks development b banks

Number of banks 33 12 4 49

Numer of branches 9.294 44 533 9.871

Employment 171.957 5.394 11.442 188.793

Selected items

20

Banks in TurkeySelected indicatorsAs of September, 2010 Deposit banks Investment and Participation TotalUSD billion banks development b banks

Assets 595 19 28 642Loans 302 10 17 329Deposits 376 0 21 397Shareholders equity 75 9 4 88

21

Foreign owned banks’ share

Ownership structure (%)Free flot Non residents' share* Non residents' share*

Shareholders' equity Total assets

2002 5,4 3,22009 19,5 24,5 23,02010 June 19,7 21,7 20,7

*weighted share in non-public shares

22

The largest ten banks account for 87% of total assets

Concentration ratio% 02 10 JuneLargest five* Assets 58 63 Deposits 61 66 Loans 55 57Largest ten* Assets 81 87 Deposits 86 91 Loans 74 85* According to total assets

23

Rapid growth in banking sector

Total assets (dep+inv banks)

100

200

300

400

500

600

700

02 03 04 05 06 07 08 09 10 Spt

USD billion

505560657075808590

%

Total assets As % of GDP (right)

24

Rapid rise in lending

Selected balance sheet itemsAs % of Gdp 2002 2010 Spt

Securities portfolio 25 26 TL 15 22Total loans 15 43 TL 7 32 Fx 8 12Total assets 61 85 TL 34 63 Fx 26 222010 GDP estimated

25

Deposits account for more than half of the liabilities

Selected balance sheet itemsAs % of Gdp 2002 2010 Spt

Deposits 39 52 TL 17 36 Fx 23 16Non-deposit source 10 15Shareholders' equity 7 12Total liabilities 61 85 TL 30 59 Fx 31 262010 GDP estimated

Stronger shareholders’ capital and free capital enabled the banking sector to change its risk structure...

26

Shareholders' equity, free capital (USD billion) and Capital adequacy ratio (%)

0

20

40

60

80

100

02 09 Dec 10 Spt

0

5

10

15

20

25

30

Shareholders' equity Free capital CA (right)

Banks continued to finance economy ...

27

Loans ( USD billion) 2002 2010 Spt

Total loans 32 317

Corporates 28 209

SMEs 0 69

Consumers 4 108

Securities portfolio 52 190

Deposit, development and investment banks

Lending to consumer’s share has risen in total

28

Breakdown of total loans(%) 2002 2010 Spt

Corporates 87 66

SMEs 22

Consumer+credit cards 13 34

Consumer 4 25

Housing 1 11

Automobile 1 1

Others 2 13

Credit cards 8 9

Total 100 100

*Deposits, investment and development banks

NPLs began to decline in 2010

29

NPLs*(%) 26.12.2008 31.12.2009 28.10.2010

Total (before provisions) 3,6 5,7 4,4Total (after provisions) 0,7 1,0 0,6Provisions for NPLs 80,8 82,9 85,4

Cosumer loans 2,3 4,3 3,1Credit cards 7,2 11,6 9,7Corporate 3,6 5,3 4,2 SMEs 5,3 8,4 5,9

* Deposits, investment and development banks

30

ROE has reached the record in 2009

Real return on shareholders' equity (Annual, adjusted by consumer inflation %)

-20

-15

-10

-5

0

5

10

15

02 03 04 05 06 07 08 09 10 Spt

31

Financial institutions have a share of 40 percent in the total market capitilization

Market capitilization of financial institutions

0

25

50

75

100

125

02 03 04 05 06 07 08 09 10 Oct

20

25

30

35

40

45

Market cap. (USD billion)

Share in the total market cap.(%, right)

32

Compared with the international figures

EU-TurkeySelected indicators, 2009

EU TR

Income per capita Euro 23.578 6.134Bank assets per capita Euro 84.234 5.395Loans per capita Euro 38.247 2.540Assets/Gdp % 357 88Loans/Gdp % 162 42Consumer loans/Gdp % 8 9Housing loans/Gdp % 43 5

33

Sustainable growth led by private sector

Near-term expectations 2006-2010 2011 2012 2013average

GDP growth % 2,7 4,5 5,0 5,5Income per capita USD 9.174 10.624 11.405 12.157Inflation y-o-y, % 8,5 5,3 5,0 4,9PSBR As % GDP 1,8 2,1 1,8 1,2Public sector debt As % GDP 43 41 39 37Current account balance As % GDP -5,0 -5,4 -5,0 -4,9Unemployment rate % 11,2 12 11,7 11,4

The Government programme target

34

Thank you.