PART I An Overview of the BRSA and its Activities MARCH 1, 2005 DR. SEDAT YETİM

1 “Strong Banking Sector, Strong Economy ” About BRSA? About BRSA? A public legal entity having financial and administrative autonomy A public legal entity having financial and administrative autonomy Established to: Established to: Protect the rights of depositors Protect the rights of depositors Ensure banks to operate in a healthy and efficient manner Ensure banks to operate in a healthy and efficient manner Ensure efficient functioning of the credit system Ensure efficient functioning of the credit system Has a seven-member Board (Banking Regulation and Supervision Board) as its decision-making body Has a seven-member Board (Banking Regulation and Supervision Board) as its decision-making body The chairman of the BRSA is also the chairman of the Board. The chairman of the BRSA is also the chairman of the Board.

2 “Strong Banking Sector, Strong Economy ” Personnel of the BRSA; The BRSA has around 400 employees. The BRSA has around 400 employees. Chairman of the BRSA is also the Chairman of the Board and is appointed for 6 years by the Council of Ministers. Chairman of the BRSA is also the Chairman of the Board and is appointed for 6 years by the Council of Ministers. Members of the Board are appointed for maximum 6 years by the Council of Ministers. 2 of the Board members are replaced on a 2 year term basis. Members of the Board are appointed for maximum 6 years by the Council of Ministers. 2 of the Board members are replaced on a 2 year term basis. Experienced personnel transferred from; Experienced personnel transferred from; The Undersecretariat of the Treasury The Undersecretariat of the Treasury The Central Bank of the Republic of Turkey The Central Bank of the Republic of Turkey The State Planning Organization The State Planning Organization The Ministry of Finance The Ministry of Finance Private Sector Private Sector Assistant auditors and specialists are appointed after an proficiency examination. Assistant auditors and specialists are appointed after an proficiency examination.

3 “Strong Banking Sector, Strong Economy ” BRSA has; -4 VPs -13 Dep’s -Advisors -SBAs

4 “Strong Banking Sector, Strong Economy ” BRSA has 2 functions: SUPERVISION SUPERVISION REGULATION REGULATION

5 “Strong Banking Sector, Strong Economy ” How does the BRSA supervise a bank? Process Process On-site Audit On-site Audit Off-site Monitoring Off-site Monitoring Evaluation and Enforcement (Institutions Departments) Evaluation and Enforcement (Institutions Departments) Decision-Making Mechanism Decision-Making Mechanism

6 “Strong Banking Sector, Strong Economy ” In which conditions a bank is warned before it is taken over? (Banks Act/14-1) Warning Warning The bank receives a warning if the audits reveal that the bank’s operations:  violate the legislation,  are against banking principles and conventions and  jeopardize the bank’s safe functioning. Precautions Precautions If the bank does not comply with the instructions then the Board may take the following measures: If the bank does not comply with the instructions then the Board may take the following measures:  Change the members of the board, appoint new members to the board,  Restrict its activities,  Increase deposit insurance premium or reserve requirement rates,  Other actions deemed necessary.

7 “Strong Banking Sector, Strong Economy ” Advance-level measures In the case it is determined that; a bank’s assets can not cover its liabilities or a bank’s assets can not cover its liabilities or it does not conform with the regulations on liquidity and capital; it does not conform with the regulations on liquidity and capital; the Agency asks for appropriate measures such as;  Capital increase  Retaining of profits  Disposing of non-productive assets  Other necessary actions In which conditions a bank is warned before it is taken over? (Banks Act /14-2)

8 “Strong Banking Sector, Strong Economy ” How does the BRSA make the decision to take over a bank? (Banks Act /14-4) In order for the BRSA to take over a bank, affirming votes of at least 5 members are required. In order for the BRSA to take over a bank, affirming votes of at least 5 members are required.

9 “Strong Banking Sector, Strong Economy ” Why is a bank taken over? Deteriorating financial performance of the bank (Banks Act /14 -3) Deteriorating financial performance of the bank (Banks Act /14 -3)  Endangering the rights of depositors and the security and stability of the financial system Loss incurred on bank by majority shareholders (Banks Act /14 - 4) Loss incurred on bank by majority shareholders (Banks Act /14 - 4)  Directly or indirectly using the bank’s funds for their own benefits