IslamIc Retail BankIng In Turkey Prague, March 22nd 2011 Sabri ULUS Türkiye Finans Participation Bank A.S.

OUTLINE ISLAMIC BANKS ARE CALLED “PARTICIPATION BANKS” IN TURKEY BRIEF HISTORY OF ISLAMIC BANKING IN TURKEY NOTES ABOUT ISLAMIC BANKING NOTES ABOUT RETAIL BANKING ISLAMIC RETAIL BANKING PRODUCTS SWOT ANALYSIS GRAPHICS ABOUT THE BANKING SECTOR TFKB s RETAIL BANKING VISION

PARTICIPATION BANKS IN TURKEY (ISLAMIC BANKS) Established in 1985 Shareholder Structure National Commercial Bank 64,68 %, Boydak Group 21,56 %, Ulker Group 13,76 % Established in 1996. Shareholder Structure Public 50,89 %, Others 49,11 % Established in 1989. Shareholder Structure Kuwait Finance House 62,24 %, Turkish Foundations General Directorate 18,72 %, IDB 9 %, Social Security Inst. Kuwait 9 % Established in 1985. Shareholder Structure Albaraka Banking Group 54,06 %, Public 22,10 %, IDB 7,84 %

BRIEF HISTORY OF ISLAMIC BANKING IN TURKEY 1983 Initiated under the title of “Special Finance Houses” with a governmental decree with the aim of gaining THE conservative funds into the Turkish economy. Taken under the regulatory umbrella of Turkish Banking Act which added a valuable legitimacy to their internal and external existence. Deposit Insurance System was established to secure the savings at current profit/loss sharing accounts under certain terms. Started being called as “Participation Banks” with a clarifying effect to their legal status. Under the supervision of Banking Regulation and Supervision Agency (BRSA) , Central Bank of Turkey and other public financial authorities like Turkish conventional banks. 1999 2001 2005 TODAY

NOTES ABOUT ISLAMIC BANKING IN TURKEY TURKEY IS ONE OF THE FEW LUMINOUS COUNTRIES PROVEN SUCCESSFULL DURING THE GLOBAL CRISIS WITH ITS DYNAMIC ECONOMY AND SUCCESSFULL FOREIGN POLICY. TURKISH FINANCIAL SECTOR, DOMINATED BY THE BANKS (INCLUDING THE CENTRAL BANK) WITH A 91 % SHARE, IS THE BIGGEST SECTOR OF TURKISH ECONOMY. TURKISH BANKS ARE AS COMPETITIVE AS THEIR GLOBAL COUNTERPARTS IN MANY RESPECTS. ISLAMIC BANKING IS PERCEIVED AS A PROFITABLE OPPORTUNITY TO GENERATE NEW AND COMPLEMENTARY BUSINESS TO CONVENTIONAL BANKING. ALTHOUGH ISLAMIC BANKING HAS BEEN OFFERED TO TURKEY FOR THE LAST 3 DECADES, IT STILL REMAINS ON THE FRINGES OF A CONVENTIONAL BANKING SYSTEM AND THERE IS A LONG WAY TO GO. EXISTING PARTICIPATING BANKS ARE MAJORLY OWNED BY GULF AND TURKISH INVESTORS. MUCH OF THE ISLAMIC PRODUCTS HAVE BEEN SOURCED FROM THE GULF. THE GULF AND OTHER ISLAMIC BANKING HUBS CONTINUE TO GENERATE ROLE MODELLING FOR TURKEY.

NOTES ABOUT THE RETAIL BANKING IN TURKEY ASSET VALUE OF TURKISH BANKING SECTOR IS 927 BILLION TL, TOTAL LOANS MAKE 51,3 % (2010/3Q) THE MOST IMPORTANT GROWTH HUB OF BANKING SYSTEM IS RETAIL BANKING, RETAIL BANKING PROFITS CONSTITUTE APPROXIMATELY 50 % OF THE TOTAL BANKING EARNINGS. RETAIL LOANS ARE BEING MARKETED MAINLY BY BANKS, ALTERNATIVE DISTRIBUTION CHANNELS, VEHICLE DEALERS, CONTRACTORS AND REAL ESTATE AGENTS. RETAIL LOANS WITH MORE THAN 5 YEARS MATURITY IS 30 % IN THE OVERALL. ALTERNATIVE DISTRIBUTION CHANNELS ARE BECOMING A BIG MARKETING POWER EACH PASSING DAY. AN INTENSE COMPETITION IS OBSERVABLE IN THE BANKING SECTOR OVER THE HOUSING CONSTRUCTION PROJECTS.

ISLAMIC RETAIL BANKING PRODUCTS PROFIT LOSS SHARING (MUDARABA) TRADE WITH MARK UP (MURABAHA) ELECTRONIC CARDs, INTERNET-MOBILE BRANCHs,ATMs, CALL CENTERs REVENUE INDEXED BONDS PERSONAL TAWARRUQ EQUITY PARTICIPATION (MUSHARAKA) PRECIOUS METAL ACCOUNTS SECURITIES ISLAMIC PENSION FUND LEASING (IJARA) SPOT AND FORWARD FX

S W T O SWOT ANALYSIS TURKEY - DYNAMIC ECONOMY -WELL REGULATED BANKING SYSTEM - EARLY RECOVERY FROM GLOBAL CRISES - PBs ADDRESSING TO ALL POPULATION SEGMENTS WITH NO SPECIFIC RELIGIOUS TONATION - PBs OFFERING MORE TOLERANT WORKING CONDITIONS ESP. DURING CRISES - CUSTOMER SEGMENTATION-RELATION MANAGEMENT AND ADC WIDELY UTILIZED IN RETAIL BANKING - DOMINANCE OF CONVENTIONAL RETAIL BANKING - STILL A LONG WAY TO GO FOR INCREASING PUBLIC RECOGNITION OF ISLAMIC BANKING - ABSENCE OF SOPHISTICATED ISLAMIC MONEY MARKETS - NEED FOR NEW REGULATIONS FACILITATING ISLAMIC BANKING SERVICES - NARROW PLAYING FIELD, IN COMPARISON WITH CONVENTIONAL RETAIL BANKING - MATURITY MISMATCH AND HIGH LIQUIDITY RISK - LACK OF INSTITUTIONALIZED TURKISH SHARIAH BOARDS - NEED FOR PROPERLY EDUCATED STAFF - YOUNG AND GROWING POPULATION - UNBANKED POPULATION TO BE INTRODUCED WITH ISLAMIC FINANCIAL SERVICES - LOW HOUSEHOLD INDEBTEDNESS - TECHNOLOGICAL INVESTMENTS TO ADC - GOOD REPUDIATION OF BANKING SECTOR PERFORMANCE - INCREASING INTEGRATION WITH INTERNATIONAL MARKETS TURKEY T O

% Sector Participation Banks +29% +52% +32% +57% DEPOSITS AND LOANS 2008 2009 2010/3Q 2008 2009 2010/3Q DEPOSITS LOANS Deposits have increased more than loans both at the banking sector and participation banks during the last 3 years.

% Sector Participation Banks +36% +127% -22% 39% +27% +89% RETAIL LOANS HOME FINANCE VEHICLE 2008/3Q 2009/3Q 2010/3Q 2008/3Q 2009/3Q 2010/3Q PERSONAL FINANCE Home and personal finance loans take the lead in the increase rate all over 2010. Personal tawarruq and securities financing are taken to the agenda of participation banks nowadays. Personal finance loans, having a 30 % share in overall retail loans, offer attractive profit rates at short run maturities.

% 64 % Sector 33% UP TO 48 M PBs 22% SECTOR LOAN TERMS RETAIL LOANS / TOTAL LOANS 48-60 M 6 % TFKB 23% 61-72 M 10 % 2010/3Q 20 % 2009 73-120 M 2010/3Q 64 72 A pretty high percentage of time deposits have less than 1-3 months maturity and because of the differences in the asset/liability structure, the sector may be subject to maturity mismatch from time to time. 6 10 18 20 7

+27 % 14,94 14,30 PBs +21 % 12,70 CREDIT CARDS VOLUME CREDIT CARDS LEGAL FOLLOW UP 10,96 TFKB 8,27 10,41 9,05 Sector 8,04 6,52 2008 2009 2010/3Q Banking sector, with high investment volumes at electronic cards innovation and advertising, has a big competition stage while participation banks are close follower of conventional banks with lower NPL performance.

WHAT IS REVENUE INDEXED BOND? 1 ST ISLAMIC PENSION FUND BY TURKIYE FINANS PENSION FUND COMPANIES ARE UNDER THE SUPERVISION OF UNDERSECRETARIAT OF TREASURY, CAPITAL MARKETS BOARD OF TURKEY, ISE SETTLEMENT AND CUSTODY BANK INC.,etc. TODAY 100 % BACKED BY NON-INTEREST REVENUE INDEXED BONDS IN THE NEAR FUTURE WILL BE BACKED BY PROFIT/LOSS SHARING ACCOUNTS, PRECIOUS METAL ACCOUNTS, SECURITIES,etc. GREAT ELASTICITY IN THE ENTRANCE AND EXIT OF THE FUND. 1st Islamic Bond issued by Undersecretariat of Treasury in 2009 Based on beneficialownership of income streams generated by state entities. WHAT IS REVENUE INDEXED BOND? TAX ADVANTAGE ! UP TO 35 % OF MONTHLY INSTALLMENTS ARE DEDUCTABLE FROM INCOME TAX