1. PARTICIPATION BANKS IN THE FINANCIAL SYSTEM OF TURKEY December, 2012 THE PARTICIPATION BANKS ASSOCIATION OF TURKEY

2. THE VOLUME OF TURKISH FINANCIAL SECTOR (September 2012) 2 Sq. Nr.SECTOR Nr. of INSTITUTIONS IN ASSETS VOLUME BILLION TRYSHARE (%) 1CENTRAL BANK1188,611,2 2BANKS481,308,578,0 Participation Banks450,43,0 3LEASING INST.3119,81.2 4FACTORING INST.7516,31.0 5CONSUMER FINANCING INST.1110,60,6 6INSURANCE INST.5947,42,8 7REINSURANCE INST. (2) 21,6 0,1 8SECURITIES INTERMEDIARY INST. (1) 1019,60.6 9SECURITIES INVEST. TRUSTS (august) 260.70.04 10SECURITIES INVEST. FUNDS (august) -29,71,8 11REAL ESTATE INVEST. TRUSTS (1) 2318,71,1 12VENTURE-CAPITAL TRUSTS (VCT) (1) 40.60.03 13ASSET MANAGEMENT INST.91,00.05 14PORTFOLIO MANAGEMENT INST. (1) 320,30,01 15RETIREMENT INVEST. INST. (august) -18,41,1 16FINANCIAL HOLDING INST. (2) 35,50,3 17CREDIT GUARANTEE FUND (CGF) (2) 10,20,01 Total4261,308,578,0 (1) October 2011 data. (2) December 2011 data Source: BRSA Financial Reports

3. Banking System Participation Banks (Islamic Banks) Development and Investment Banks Deposit Banks (Conventional Banks) 6-Jul-16 THE BANKING SYSTEM OF TURKEY

4. THE VOLUME OF TURKISH BANKING SECTOR (2012) BANKS Nr. of Inst. IN ASSETS VOLUME IN DEPOSITS VOLUME IN LOANS VOLUME Mio TRY SHARE (%) Mio TRY SHARE (%) Mio TRY SHARE (%) Participation Banks (Islamic Banks) 470.2795,148.1986,250.0316,0 Deposit Banks (Conventional Banks) 311.247.57491,0735.47593,8748.30090,2 Development and Investment Banks 1352.7603,90031.2663,8 Total 48 1.370.614100783.673100829.597100 6-Jul-164 *As per BRSA Report. *Deposits From Banks are excluded in deposits volume, Murabaha and Non-performing Loans are excluded in loans volume.

5.  Conventional and participation banks can collect deposits (albeit under different structures) and utilize them through extension of credits, both corporate and retail.  All three types of banking are regulated by the Banking Regulation and Supervision Agency (BRSA) under a single Banking Law and associated regulations. BRSA regulates and supervises all aspects of banking.  The Central Bank is also involved with regards only to foreign currency operations and reserve requirements. 6-Jul-165 TURKISH BANKING REGULATION

6.  Not an alternative, but an integral component of Turkish Banking Sector.  A third type of banking, together with Deposit Banks (Conventional Banks) and Development and Investment Banks.  Participation Banks are functionally similar to Deposit Banks. But collecting and lending methods of funds are different. 6-Jul-166 PARTICIPATION BANKS

7. INTEREST-FREE BANKING REGULATORY ENVIRONMENT  There is no separate regulation regarding participation banking. The law however distinguishes between deposit and participation banking.  Regulations governing fund collection and fund utilization are different between these two types of banks.  Minor differences in accounting methods.  The law taking into account the nature of the profit and loss participation accounts, also allows for a slightly different calculation method for Capital Adequacy Ratio for participation banks.

8.  SPECIAL CURRENT ACCOUNTS (DEMAND ACCOUNTS): - drawn partially or completely at any call. - earnings unpaid, - liability covers principal.  PROFIT / LOSS PARTICIPATION ACCOUNTS (TIME DEPOSIT ACCOUNTS) - Profit/Loss accrued at maturity is shared pro rata. - No profit ratio is fixed in advance. - no guarantee of any revenue or repayment of principal amount after tenor. 6-Jul-168 FUNDS COLLECTING INSTRUMENTS OF PARTICIPATION BANKS

9.  CORPORATE FINANCE SUPPORT : - financing the purchase of goods and service required by the Customer, - costs of the goods and service are paid to the Seller, - Customer becomes indebted to the bank, - payment documents must be kept by the branch.  INDIVIDUAL FINANCE SUPPORT : - financing the purchase of the vehicles, houses and consumer goods required by Consumers, - costs of houses, vehicles,..etc. to be purchased are paid to the Seller, - Customer becomes indebted to the bank. 6-Jul-169 LENDING INSTRUMENTS OF PARTICIPATION BANKS

10. CUSTOMER (INDIVIDUAL OR CORPORATE) PARTICIPATION BANK SUPPLIER OF GOODS ELIGIBLE GOODS Machinery Vehicles Commodities Raw materials Real estate Rights and benefits Consumer goods Services (1) Customer applies for financing by submitting a REQUEST FORM INDIVIDUAL OR CORPORATE FINANCE SUPPORT BY PARTICIPATION BANKS (2) Bank approves or rejects the financing request CORPORATE (3-a) The Bank may send an ORDER FORM to the Supplier for the purchase of goods *The purchase of the goods should be evidenced by a commercial invoice and delivery confirmation. INDIVIDUAL (3-b) The Bank may alternatively give a POWER OF ATTORNEY to the Customer for the purchase of the goods on behalf of the bank *I.e. İn home financing the transfer of title deed is essential. SPOT PAYMENT GOODS CUSTOMER (INDIVIDUAL OR CORPORATE) (4) Through a SALE CONTRACT, the goods are transferred to the Customer DEFERRED PAYMENT GOODS

11.  LEASING : - movable/immovable goods are purchased by PBs, - purchased goods are hired to the Customer, - and transferred to the Lessee after the payments.  PROFIT AND LOSS PARTNERSHIP INVESTMENT: - associate investment with the Customer is the case, - financing and labour parts, financing amount and profit/loss shares are determined, - Profit and Loss Sharing Investment Agreement is regulated before, - after completion of the investment or projects, profit or loss is shared by partners. 6-Jul-1611

12.  ASSETS GROWTH  FUNDS RAISED GROWTH  ALLOCATED FUNDS GROWTH  ALLOCATED FUNDS / RAISED FUNDS RATIO  SHAREHOLDERS’ EQUITY GROWTH  MAIN FINANCIAL FIGURES of PBs  BRANCHES AND STAFF GROWTH Central Bank of the Republic of Turkey USD/TRY FX Rates for 31-Dec-2009 : 1.4945 ; 31-Dec-2010 :1.5450 ; 31-Dec-2011 : 1.8980 ; 31-Dec-2012 : 1.7862 6-Jul-16 THE GROWTH OF PARTICIPATION BANKS

13. YEARSPB.sGROWTH (%) BANKING SECTOR SHARE (%) 20002.266.000 106.549.0002,13% 20012.365.0004,37%218.873.0001,08% 20023.962.00067,53%216.637.0001,83% 20035.112.93429,05%254.863.0002,01% 20047.298.60142,75%313.751.0002,33% 20059.945.43136,26%406.915.0002,44% 200613.729.72038,05%498.587.0002,75% 200719.435.08241,55%580.607.0003,35% 200825.769.42732,59%731.640.0003,52% 200933.628.03830,50%833.968.0004,03% 201043.339.00028,88%1.006.672.0004,31% 201156.076.92929,39%1.217.711.0004,61% 201270.279.00025,33%1.370.614.0005,13% ASSETS GROWTH (Thousand TRY)

14. ASSETS GROWTH (% share) 6-Jul-1614

15. RAISED FUNDS (Thousand TRY) YEARSPB.sGROWTH (%) BANKING SECTOR SHARE (%) 20001.863.000 70.305.0002,65% 20011.917.0002,90%149.438.0001,28% 20023.206.00067,24%145.594.0002,20% 20034.111.00028,23%164.923.0002,49% 20045.992.00045,76%203.386.0002,95% 20058.369.00039,67%261.948.0003,19% 200611.237.00034,27%324.069.0003,47% 200714.943.00032,98%371.927.0004,02% 200819.210.00028,56%472.695.0004,06% 200926.841.00039,73%522.415.0005,14% 201033.828.00026,03%631.119.0005,36% 201139.869.28217,86%707.510.0005,64% 201248.198.00020,89%783.888.0006,15%

16. RAISED FUNDS (% share)

17. YEARSPB.sGROWTH (%) BANKING SECTOR SHARE (%) 2000 1.726.000 32.939.0005,24% 2001 1.072.000 -37,89%58.413.0001,84% 2002 2.101.000 95,99%54.860.0003,83% 2003 3.001.000 42,84%72.169.0004,16% 2004 4.894.000 63,08%107.615.0004,55% 2005 7.407.000 51,35%160.005.0004,63% 2006 10.492.000 41,65%228.141.0004,60% 2007 15.332.000 46,13%293.928.0005,22% 2008 19.733.000 28,70%384.417.0005,13% 2009 24.911.209 26,24%418.684.0005,95% 2010 32.084.000 28,79%554.128.0005,79% 2011 41.103.435 28,11%708.771.0005,80% 2012 50.031.000 21,72%829.597.0006,03% ALLOCATED FUNDS (Thousand TRY)

18. ALLOCATED FUNDS (% share)

19. ALLOCATED FUNDS OVER RAISED FUNDS (%)

20. YEARSPB.sGROWTH (%) BANKING SECTOR SHARE (%) 2000161.000 8.295.0001,94% 2001203.00026,09%19.003.0001,07% 2002400.00097,04%26.099.0001,53% 2003700.00075,00%36.208.0001,93% 2004892.00027,43%46.855.0001,90% 2005951.0006,61%54.687.0001,74% 20061.560.00064,04%59.538.0002,62% 20072.364.00051,54%75.850.0003,12% 20083.729.00057,74%86.425.0004,31% 20094.420.00018,53%110.874.0003,99% 20105.457.00023,47%134.549.0004,06% 20116.193.31413,49%144.650.0004,28% 20127.377.00019,11%181.882.0004,06% SHAREHOLDERS’ EQUITY (Thousand TRY)

21. SHAREHOLDERS’ EQUITY (% share)

22. TOPICS TOTAL Variance (%) 20112012 RAISED FUNDS TRY 24.04128.545%19 FC 11.73515.371%31 FC-PRECIOUS METALS 3.7434.882%14 TOTAL 39.51948.198%22 ALLOCATED FUNDS 41.14050.031%22 NON-PERFORMING LOANS (NET) 453377%-17 NON-PERFORMING LOANS (GROSS) / ALLOCATED FUNDS %3,0%3.0- TOTAL ASSETS 56.14870.279%25 TOTAL SHAREHOLDERS’ EQUITY 6.1937.377%19 PROFIT(NET) 803916%14 6-Jul-16 MAIN FINANCIAL HEADINGS OF PB.s

23. YEARSBRANCHESGROWTH (%)STAFFGROWTH (%) 2000110 2,182 200318871%3,52061% 200425536%4,78936% 200529014%5,74020% 200635522%7,11424% 200742219%9,21530% 200853026%11,02220% 20095606%11,8027% 20106078%12,6778% 201168513%13.8579% 201282921%15.35611% BRANCHES AND STAFF GROWTH

24. 1-PARTICIPATION BANKS, a component of the banking system in Turkey, have brought the idle funds into the system. 2-These banks have provided alternative financial opportunities to manufacturers and businessmen by funding. 3-Working in principle of profit/loss sharing base, the PB.s are less affected by the financial and economic crises lived i.e. in 2001 as an ordinary result of PLS system and healthy lending processes. 4-Participation Banks have been able to distribute satisfactory returns to their depositors (investors). 5-PB.s have been able to fund commercial and industrial sectors with lower and competitive costs. 6-Jul-1624 GENERAL OUTLOOK

25. 6-Regular state auditings have greatly helped in developing the participation banks’ working principles. 7-Because PBs do not invest in domestic government bonds, they have business plans in using the sources therein funding real sector enterprises. 8-PB.s can play an important role in drawing the excess capital observed in the Gulf region to Turkey. By means of Turkish Treaury’s issuing Sukuk in 2012, it is possible to attract a considerable amount of capital into our country from the Gulf region. For that reason, issuing this instrument has made a contribution to Turkish economy. 6-Jul-16

26. 9-In addition, PBs have taken a serious role in murabaha financing gathered from the Gulf region in the form of Syndicated Loans and this method became widespread. Till now, much than 1 billion dollars amount has been provided by the way of this model. 10-In banking sector the «definitive» implementation process of Basel-II began as of July 1 st, 2012. 6-Jul-1626

27. Although nearly %50 of funds were drawn by depositors after the economic crises in 2000 and 2001, PB.s were able to survive and succeed. They did not cause extra burdens on Turkish economy and the public for they survived from these crises with the help of their own internal dynamics. These dynamics can be summarized as follows : 1-In the Liability side of the Balance-Sheet; -In comparison with pre-fixed rates of liabilities, the profit and loss sharing methodology helped PBs to overcome the crises. -Not carrying any interest risks, the PBs have not carried any foreign-exchange risks through making any foreign exchange position deficits. 2-In the Asset side of the Balance-Sheet; -As a result of unique working principles of PB.s, i.e. all credit facilities (loans) are used in terms of a real solid project, funds are paid directly to the Vendor (supplier of commodity) after the purchase of equipments against invoices.., all prevent credits being used in risky and speculative areas on the contrary of their presenting purpose. 6-Jul-16 IN SUMMARY

28. -Also, this method eases controlling over the credits and customers. -The policy of lending loans in instalments and recovering the loans by monthly instalments has been generally regulating the cash flow and liquidity needs of PBs and strengthening the loans security. -Lending against invoices puts an obstacle to irrational behaves by preventing enterprises from using credits and making debts more than their needs. -On the other hand, with the help of a kind of crediting method in PB.s texture called “leasing” provides enterprises credited compatible with their cash flow and on the other hand financing is made compatible with PB.s’ crediting techniques. In another words, this method provides investments to be financed by long-term financing. 6-Jul-16

29. -These methods improve the asset quality by means of increasing the security of the credits. -Because participation banks have based their processes on invoices and formal documents as for their principles, PBs have been helping government in struggling against informal economy. In conclusion PARTICIPATION BANKING; is not only a banking business based on an “interest-free” feature, but also a type of banking which can be formulated by “less risk in liabilities, but higher quality in assets, based on high level of credit securities”. 6-Jul-1629