Recent developments

in banking sector

in Turkey

Ankara

February, 2012

Content

I. Economic environment

II. Banking sector

III. Near-term expectations

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Economic environment

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Quick recovery and rather stable growth in Gdp

-6

-4

-2

0

2

4

6

8

10

06 07 08 09 10 11 12 t 13 t 14 t

GDP growth (%)

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Steady increase in income per capita

3.000

4.000

5.000

6.000

7.000

8.000

9.000

10.000

11.000

12.000

13.000

02 11 12 t 13 t 14 t

Income per capita (USD)

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Savings ratio in private sector has declined

10

11

12

13

14

15

16

17

18

19

20

-8

-4

0

4

8

12

16

20

24

28

02 03 04 05 06 07 08 09 10 11 12prg

Savings ratio (As % of Gdp)

Total Public sector Private sector

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New measures are likely to narrow savings gap

-12

-10

-8

-6

-4

-2

0

2

4

06 07 08 09 10 exp 11 t 12 t 13 t

Savings and investment balance (As % of Gdp)

Balance Public sector Private sector

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Net capital inflow; change in structure with increasing

volume to TL financial assets

-20

-10

0

10

20

30

40

50

60

70

80

02 03 04 05 06 07 08 09 10 11

Net capital flows (USD billion)

Deposits Financials Portfolio investments FDI Non-financials

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TL began to apriciate against major currincies

again, following a sharp depreciated in 2011

100

105

110

115

120

125

130

135

07 08 09 10 11 12

Real exchange rate(2003=100)

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Public sector borrowing requirement is getting

lower

-6

-5

-4

-3

-2

-1

0

1

2

3

06 07 08 09 10 11 t 12 t 13 t 14 t

Public sector balance (as % of Gdp)

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Rapid disinflation: historically lowest level during the

free market economy.

0

10

20

30

40

50

60

02 03 04 05 06 07 08 09 10 11 12 t 13 t

Inflation and interes rates on G-securities (annual, %)

Inflation Interest rates on G-securities

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Less crowding out, more loans

10

20

30

40

50

60

35

45

55

65

75

02 03 04 05 06 07 08 09 10 11

Public sector debt and loans(as % of Gdp)

Public sector debt Loans

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Banking sector

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Banks in Turkey

Banks in Turkey(As of December 2011) Number of banks Share in total

assets (%)

Deposit banks 32 92

State-owned 4 28

Private 11 51

Foreign-owned* 17 13

Development and investment banks 12 3

Participation banks 4 8

Total 48 100

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Supervision in financial sector

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Foreign owned banks’ share

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

Shareholders' equity Total assets

2002 5,4 3,2

2010 20,1 23,9 23,8

2011 Spt 20,0 24,4 24,7

*weighted share in non-public shares

The largest ten account for 88% of total assets

Concentration ratio*% 02 10 11 Sep

Largest five**

Assets 58 63 61

Deposits 61 66 63

Loans 55 57 58

Largest ten**

Assets 81 87 88

Deposits 86 91 91

Loans 74 86 87

* Deposit, investment and development banks

** According to total assets

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Rapid growth in banking sector

50

55

60

65

70

75

80

85

90

95

100

200

300

400

500

600

700

02 03 04 05 06 07 08 09 10 11

%USD billionTotal assets (dep+inv banks)

Total assets As % of Gdp

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“Remarkable resilience to the global crisis”

No “high risky” assets

Small investments in housing financing

Well-diversified lending portfolio, mainly to private sector and

G-securities

High-capital adequacy level with 16,6%

High-liquidity level

No change in deposit-quaranty limit, current level is TL 50,000

No financial support form the Government

Banking sector has kept financing economic activities

Decrease in NPLs following a shortlive rise

2009, 2010, 2011; became profitable years

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Rapid rise in lending

Selected balance sheet items*

As % of Gdp 2002 2010 2011

Securities portfolio 25 26 22

TL 15 22 18

Total loans 15 45 49

TL 7 32 35

Fx 8 13 14

Total assets 61 87 90

TL 34 65 65

Fx 26 23 26

* Deposit, investment and development banks

2011 Gdp estimated

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Strong deposits base

Selected balance sheet items*

As % of Gdp 2002 2010 2011

Deposits 39 53 50

TL 17 37 33

Fx 23 16 16

Non-deposit funds 10 17 24

Shareholders' equity 7 12 11

Total liabilities 61 87 90

TL 30 61 60

Fx 31 27 31

* Deposit, investment and development banks

2011 Gdp estimated

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Stronger shareholders’ capital enabled the

banking sector to change its risk structure...

12

14

16

18

20

22

24

26

28

30

32

10

20

30

40

50

60

70

80

90

02 03 04 05 06 07 08 09 10 11

Shareholders' equity and Capital Adequacy

Shareholders' equity (USD billion) CA ratio (%, right)

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Lending to consumer’s share has risen

Breakdown of total loans

(As % of GDP) 2002 2010 2011

Corporates 13 29 33

SMEs 0 10 11

Consumer+credit cards 2 15 17

Consumer 1 11 13

Housing 0 5 5

Automobile 0 0 1

Others 0 6 7

Credit cards 1 4 4

Total 15 44 49

*Deposits, investment and development banks

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NPLs have remanied at a rather low level

2,0

2,5

3,0

3,5

4,0

4,5

5,0

5,5

6,0

06 07 08 09 10 11

NPLs (as % of total loans)

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ROE exceeded interest on G-securities recently

7

12

17

22

27

06 07 08 09 10 11

ROE and interest rate on G-securities (Annual, %)

ROE Interest rate

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Financial institutions have a share of 35

percent in the total market capitilization

20

25

30

35

40

45

0

25

50

75

100

125

02 03 04 05 06 07 08 09 10Spt

10 11 12Jan

Market capitilization of financial institutions

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

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Compared with the international figures

Financial sector

Selected indicatorsAs % of GDP

2010 World EM TR

Bank assets 159 89 91

Capital markets 238 99 75

Market capitilization 88 58 43

Debt securities 151 41 32

Public 66 26 32

Private 85 16 1

Total 397 189 166

Source: IMF, Global Financial Stability Report, Spt 2011

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Compared with the EU figures

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EU-Turkey

Selected indicators, 2010EU TR

Income per capita Euro 24.405 7.377

Bank assets per capita Euro 84.190 6.719

Assets/Gdp % 345 91

Loans/Gdp % 144 48

Consumer loans/Gdp % 8 6

Housing loans/Gdp % 43 5

Source: ECB, EBF, BAT

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Strengths Weakness

Strong competition St maturity of deposits

Capital adequacy High intermediary costs

Assets quality Small scale

Balance sheet structure

Opportunities Threats

Growth potential Pressure on cost of funding

Increase in non-interest margin Capital flows

Change in asset structure Sudden contraction

Increase in off-balance sheet Regulatory changes

Borrowing from abroad Decline in capital adequacy

SWOT analysis of the banking sector, 2012

Growth in banking sector has been faster than Gdp

-10

-5

0

5

10

15

20

25

30

02 03 04 05 06 07 08 09 10 11 12 e 13 e 14 e

Growth in Gdp and banking sector assets (%)

Gdp Total assets

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Expectations for the near future

• Larger and deeper financial markets

• Measures to encourage domestic savings

• Lengthening the maturities of deposits and borrowing

• Higher lending to private sector

• Intense competition in retail business

• Better risk management and risk pricing

• Sufficient earnings to feed capital

• Decline in margin with widening business activity

• Positive atmosphere for foreign investors

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Thank you.

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