RESHAPING OF EMERGING MARKETS What does it imply for leasing industries in Turkey and other emerging economies Cüneyt Akpınar EFG Leasing 1

Changing dynamics of the emerging markets & the potential for their leasing industries Special Reference: Turkish Leasing Industry 2

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Shifting Balances *Emerging Economies as % of total World, 2010; Source: IMF Emerging Economies Advanced Economies 4

EM: Strong Human Capital Projected Growth of Working Age Population (Ages 10-65),

They are growing faster than the advanced economies GDP Growth Advanced Economies Emerging Economies Source: IMF Contribution to Global Growth Emerging Economies Advanced Economies Source: HSBC 6

Source: Goldman Sachs, PriceWaterHouseCoopers By 2050… E7 countries, to outperform growth in US, EU, G7 and OECD. E7 to attract the highest levels of capital inflow and substantial increase in trade volumes. 7 *US$ bn at constant 2006 prices Relative Size of G7 and E7 Economies

They invest heavily in sectors where leasing industry is the most active Energy Infrastructure Transportation Telecommunications Health 8

…but their access to financial services remains severely constrained Share of SMEs in GDP growth & employment is very high… Share of Formal SMEs in Formal Manufacturing Employment & GDP, % 9

Key Take Away: Emerging Markets will provide significant growth prospect for their leasing industries… Larger and relatively stronger Offering significant growth potential Under-capitalized Under-leveraged Providing compelling sector/company-specific stories Under-valued Under-penetrated 10

…& significant value-added for global players Margins are higher Returns are stronger Strong M&A activity as well as privatizations and greenfiled investments Scope for know-how transfer and value add Penetration levels are low 11

Bottlenecks in legislative framework ? Unregistered economy ? Cross-border funding? Liquidity ? Instable financial markets ? …&..but “High Return” comes with “High Risk” Corruption ? 12

Special Reference: Turkish Leasing Industry 13

What can Turkey offer different from other Emerging Markets …at the crossroads between East & West, overlapping Europe & Asia geographically …occupies an area approximately equivalent to the quarter of the size of the EU …strategically located on critical energy corridors …is the leading investor in Caucasian and Central Asian Turkic Republics Unique Geographical Location… 14

Consecutive High Growth Rates US$bn% 1970 US$ 13 bn 2000 US$ 200 bn 2011 US$ 776 bn GDP Fast growing economy Source: TURKSTAT 15

Net Public Debt / GDP % Declining Budget Deficit & Net Public Debt Budget Balance / GDP % Source: TURKSTAT 16

Increasing Trade Volumes 1970 US$ 1.5 bn 2000 US$ 81 bn 2011 US$ 382 bn 17

Stronger FDI flows over US$20bn per year in compared to only less than US$1bn historically 18

Promising for Higher Growth Rates due to Low Penetration Levels Car ownership per ‘000 Automotive Loans + Deposits / GDP, % Finance Per capita consumption (toe) Energy 19

Penetration level in the leasing industry is low even compared to other emerging economies Source: London Financial Group and White Clarke Group

Financial Leasing can be applied in the form of domestic lease, cross - border lease. Currently No operational leasing. Main medium-long term equipment financing instrument, especially for SME’s. 31 companies of which 26 are member of the association. First 15 players dominate the market (mainly bank subsidiaries). 4 Participation 11 Investment Banks Contracts : Almost all full payout - mostly fixed interest rate Average term: 3 years Average growth rate: 35% in real terms grovth 55% in US$ terms. Turkish Leasing Industry in a Nutshell 21

Tax base leasing. All rentals are corporate tax deductable. Investment Incentive (up to 100% tax allowance may be reflected to lessee in pricing). 1% VAT against general VAT (over years 11% - 15% - 18%). IFRS tax accounting. No more tax base leasing. Investment Incentive Certificate and VAT advantageous continued. Investment Incentive Certificate, corporate tax allowances application ended gradually (finished by end 2008) VAT advantage of 1% against 8% or 18% continued. No any special tax incentive or advantageous in leasing sector. 1% VAT against general VAT (18%) 6,71219,37328,58124,25037,239 42,963 19,87851,519 6,197 10,18611,195 1st Phase2nd Phase3rd Phase4th Phase 5th Phase Sharp decline due to tax changes coupled with global financial turmoil Strong growth rates: CAGR: 50.23% Another growth phase Strong Growth Rates of the Past are expected to Return with New Legislation and Tax Reform Dec 2007-Jan 2012 June 1985 – June 2003July 2003 – Dec 2005 Jan 2006 – Dec 2007 current 22

Draft Leasing Law What will Change? Operating Lease Sale and Lease Back Sub Leasing Software Leasing ============================================= Supporting Changes Improvement in legal cases (i.e. Get equipment quicker, more severe trade/civil law articles against fraud). No time restriction The voluntary-based Leasing Association will become obligatory, covering all lessors and strengthening its status. Registration of lease contract with the Association will be less bureaucratic compared to the current Notary Public application Higher volumes New Products Less Bureaucracy More Efficiency 23

Future Prospects : Happily Ever After? Penetration levels to increase New financial products their growth in volumes. Improved margins Asset management and risk management will be crucial Technology investments to create competitive advantages Brokership will increase Learning organizations will be formed Specialization/Value Creation/ Innovation will differentiate the lessors. Benchmarking will be key. 24

Further questions Thank you… 25