Economy and Banking Sector in Turkey Beirut, Lebanon December, 2010

1 Content I.Main features of and recent performance of the Turkish economy II. Banking sector III. Near-term expectations

2 Main features and performance of the Turkish economy

3 Turkey has a functioning market economy, capital flows are free and there is no exchange rate restriction for residents and non-residentsTurkey has a functioning market economy, capital flows are free and there is no exchange rate restriction for residents and non-residents Current exchange rate regime is a floating systemCurrent exchange rate regime is a floating system The Central Bank has been implementing a formal inflation-targeting frameworkThe Central Bank has been implementing a formal inflation-targeting framework Sovereign credit rating, currently is BB “with stable comment”Sovereign credit rating, currently is BB “with stable comment” Services and industry have shares of 60 percent and 30 percent, respectively.Services and industry have shares of 60 percent and 30 percent, respectively. Long term average growth rate is about 4,5 percent.Long term average growth rate is about 4,5 percent.

4 GNP is about USD 730 billion, 16th largest in the world, 6th in the EU; 2nd in the region after Russia.GNP is about USD 730 billion, 16th largest in the world, 6th in the EU; 2nd in the region after Russia. In terms of total assets of banks, Turkey is ranked the 15th in the EU.In terms of total assets of banks, Turkey is ranked the 15th in the EU. Member of G-20 countriesMember of G-20 countries Income per capita is around USD 10,000Income per capita is around USD 10,000 Foreign trade volume to GDP is about 45 percent.Foreign trade volume to GDP is about 45 percent. Almost half of Turkey's total trade is with the EU.Almost half of Turkey's total trade is with the EU. Population is about 72 million in which the group of age has a share of 65 percent.Population is about 72 million in which the group of age has a share of 65 percent. Unemployment rate is about 11 percent, recently.Unemployment rate is about 11 percent, recently.

Savings gap; around 5% of Gdp 5

Quick recovery and stable growth in Gdp 6

7 Steady increase in income per capita

Net capital inflow; change in structure with increasing volume to TL financial assets 8

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

Rapid disinflation: inflation has declined to the historically lowest level during the free market economy. 10

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

Public sector borrowing requirement is about 3% of Gdp 12

Government’s demand from the financial sector 13

Demand for financial assets 14

15 Banking sector

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17 “Turkish banking sector has shown 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 20% High-liquidity level No change in deposit-quaranty limit, current level is USD 33,000 No financial support form the Government Banking sector has kept financing economic activities Increase in NPLs 2009 and 2010, have been the profitable years

Selected items 18

Selected items 19

20 Foreign owned banks’ share

21 The largest ten banks account for 87% of total assets

22 Rapid growth in banking sector

23 Rapid rise in lending

24 Deposits account for more than half of the liabilities

Stronger shareholders’ capital and free capital enabled the banking sector to change its risk structure... 25

Banks continued to finance economy... 26

Lending to consumer’s share has risen in total 27

NPLs began to decline in

29 ROE has reached the record in 2009

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

31 Compared with the international figures EU-Turkey Selected indicators, 2009 EUTR Income per capitaEuro Bank assets per capitaEuro Loans per capitaEuro Assets/Gdp%35788 Loans/Gdp%16242 Consumer loans/Gdp%89 Housing loans/Gdp%435

32 Sustainable growth led by private sector Near-term expectations average GDP growth%2,74,55,05,5 Income per capitaUSD Inflationy-o-y, %8,55,35,04,9 PSBRAs % GDP1,82,11,81,2 Public sector debtAs % GDP Current account balanceAs % GDP-5,0-5,4-5,0-4,9 Unemployment rate%11,21211,711,4 The Government programme target

33 Thank you.