Contents Introduction 2 Our Vision 2 Our Mission 3 Corporate Profile 4 Financial Indicators 6 Highlights from Ziraat Bank’s History 8 Chairman’s Message 12 General Manager’s Message 16 Global Economy 18 Turkish Economy “With Turkey, for Turkey” 20 The Banking Sector 22 An Assessment of 2010: Strategies and Developments 42 Promotional, Cultural and Artistic Activities in 2010 2010 Annual Report 44 Ziraat Bank’s Subsidiaries in 2010 Management and Corporate Governance Practices 48 Ziraat Bank Board of Directors 50 Ziraat Bank Senior Management 52 Board of Directors Report 53 Human Resources Practices 54 Information on the Activities of the Committees 54 Attendance by the Members of the Board of Directors and of the Audit Committee in the Meetings Held During the Reporting Period 55 Related Party Transactions 56 Activities for Which Support Services are Outsourced in Accordance with the “Regulation Concerning the Outsourcing of Support Services by Banks and the Authorization of Organizations Providing Such Services” and the Persons and Organizations from Which They are Obtained Financial Information and Risk Management 58 Statutory Auditors’ Report 59 Audit Committee’s Assessment of the Operation of the Internal Audit, Internal Control, and Risk Management Systems 62 Independent Auditor’s Report; Unconsolidated Financial Statements and Notes for the Period January 1- December 31, 2010 148 Ziraat Bank’s Financial Standing, Profitability and Solvency 150 Ratios 151 Risk Management Policies Adhered to According to Types of Risk 153 31 December 2006 – 31 December 2010 Summary Balance Sheet and Income Statement 154 Credit Ratings 155 Independent Auditor’s Report; Consolidated Financial Statements and Notes for the Period January 1 - December 31, 2010 250 Directory Report on Compliance of Annual Report ZİRAAT BANK’S SHAREHOLDING STRUCTURE To the General Assembly of Shareholders of Türkiye Cumhuriyeti Ziraat Bankası A.Ş. The Undersecretariat for the Treasury of the Republic of Turkey, is the sole owner of Ziraat Bank. The Chairman and We have audited the compliance and consistency of the Board Members, Members of the Board of Auditors, General financial information included in the annual report of Türkiye Manager and Assistant General Managers do not hold Cumhuriyeti Ziraat Bankası A.Ş. (“the Bank”) as of 31 December shares in the Bank. 2010 with the audited financial statements and explanatory notes. The annual report is the responsibility of the Bank’s AMENDMENTS TO THE ARTICLES OF INCORPORATION management. Our responsibility, as independent auditors, is DURING THE REPORTING PERIOD to express an opinion on compliance and consistency of the financial information included in the annual report with the No amendments were made to the Bank’s Articles of audited financial statements and explanatory notes. Incorporation during the 2010 reporting period. We conducted our audit in accordance with principles and procedures set out by the regulations on preparation and issuance of annual report in the Banking Law No.5411 and independent auditing principles. Those regulations require that we plan and perform the audit to obtain reasonable assurance whether the financial information included in the annual report is consistent with the audited financial statements and explanatory notes and free from material misstatement. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial information included in the accompanying annual report presents fairly, in all material respects, the information regarding the financial position of Türkiye Cumhuriyeti Ziraat Bankası A.Ş. at 31 December 2010 in accordance with the principles and procedures set out by the regulations in conformity with article 40 of the Banking Law No.5411 and includes a summary of the Board of Directors’ report and the convenience translations of independent auditor’s reports originally issued by us in Turkish and is consistent with the convenience translations of audited financial statements and explanatory notes originally issued in Turkish. Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. a member of PricewaterhouseCoopers Alper Önder, SMMM Istanbul, 24 February 2011 T.C. Ziraat Bankası A.Ş. 2010 Annual Report 1 “With Turkey, for Turkey” Value-adding Job-creating Industrious Thrifty These are the qualities of the people that we serve as a bank: The qualities of people whose productivity is rooted in the very soil of this country, of people who look forward to a secure future in this country, and of people who want to grow along with this country. 2 T.C. Ziraat Bankası A.Ş. 2010 Annual Report Our Vision By further strengthening our leading role in the banking industry, to be an extensive and trusted bank that offers high-quality service and is taken as a model by our competitors in Turkey and around the world. Our Mission To support the real sector with a focus on agriculture, to deliver a broad range of suitably-priced products to retail customers through an extensive branch network, and to contribute to the development of the national economy and of the Turkish banking industry in keeping with our sense of social responsibility and commitment to the rules of banking ethics. T.C. Ziraat Bankası A.Ş. 2010 Annual Report 3 Corporate Profile With Turkey, for Turkey Ziraat Bank possesses the most extensive reach of any Having made its debut 147 years ago, Ziraat Bank (“the Turkish bank in the world. Bank”) is headquartered in Ankara. Boasting Turkey’s largest banking service network, Ziraat Bank also offers service to its customers all over the world With total assets worth TL 151.2 billion (USD 98.2 billion) with the service network it established at 74 locations in at the end of 2010, the Bank commands a 15% share in the 16 countries. Moreover, the Bank has a wide portfolio of Turkish banking industry. subsidiaries in Turkey offering services in financial leasing, pensions, insurance, banking, investment banking, portfolio Ziraat Bank serves its customers in the corporate, management, and information technology. This strong commercial, agricultural and retail banking segments with: organization is the most valuable element of Ziraat Bank defining its ability to offer integrated financial services. • 1,379 branches nationwide, • 2,919 ATMs, Ziraat Bank sets a banking model for our country. • 32 Video Teller Machines, Standing for efficiency, productivity, quality, commitment to • Widely used internet branch, ethics, and confidence, the Ziraat brand positions the Bank • Ziraat Mobile Phone branch for mobile phones, as the prestigious and most preferred business partner in • Call center, and Turkey and in international markets. • 22,708 employees. Ziraat Bank will remain a bank that is able to compete in A bank for everyone, Ziraat Bank remained the single tomorrow’s markets and continue to enjoy high levels of provider of banking services at 420 locations across the reputation thanks to the high-quality service it offers, while country in 2010. The number of the Bank’s daily transactions producing added value to the community, employing the reached 3.5 million last year. unique wealth of knowledge it has accumulated over the last 147 years. Ziraat Bank’s strategies, which at the same time cater to the risk-reward balance and profitability, allow the Bank to Ziraat Bank is committed to be a true example of uninterruptedly transfer resources to its customers under sustainability in Turkey and the world, and to keep producing the toughest market conjunctures, while also contributing to added value for all of its stakeholders. economic development. As Turkey’s most profitable bank for the past seven years, Ziraat Bank posted a net profit of more than TL 3.7 billion for the period and controlled a 17% share in the market. Ziraat Bank ranked first in Western Europe and sixth in the world in the “Best Return on Average Capital” category in the “Top 1000 World Banks 2010” listing of The Banker Magazine that is based on year-end 2009 data. 4 T.C. Ziraat Bankası A.Ş. 2010 Annual Report Financial Indicators (TL million) 2010 2009 Change (%) Total Assets 151,160 124,529 21 Liquid Assets and Banks 14,907 14,604 2 Securities Portfolio 76,352 70,988 8 Loans 57,443 36,725 56 Deposits 125,796 98,529 28 Shareholders’ Equity 13,458 10,354 30 Interest Income 12,392 14,203 -13 Interest Expense 7,036 8,134 -13 Pretax Profit 4,469 4,417 1 Net Profit 3,713 3,511 6 Total assets of Ziraat Bank reached TL 151 billion in 2010 with an increase of 21.4%. T.C. Ziraat Bankası A.Ş. 2010 Annual Report 5 3,713 57.4 125.8 TL million TL billion TL billion Ziraat Bank’s net profit rose by Total loan portfolio of Ziraat Bank With its total deposits rising to 5.7% in 2010 and reached TL 3,713 reached TL 57.4 billion in 2010 and TL 125.8 billion in 2010, Ziraat million. took a market share of 10.6%. Bank’s market share increased from 18.4% to 19.4%. Total Assets Loans Deposits Shareholders’ Equity TL million TL million TL million TL million 57,443 125,796 13,458 151,160 124,529 98,529 10,354 36,725 09 10 09 10 09 10 09 10 Ziraat Bank further leveraged its position at the top of the banking sector with its successful financial and operational performance in 2010. 6 T.C. Ziraat Bankası A.Ş. 2010 Annual Report Highlights from Ziraat Bank’s History The founder of national banking industry, as well as the engine and the power source of the Turkish economy, Ziraat Bank has also been the pioneer and the leader of change for 147 years. 1863: A giant is born in the town of Pirot... On August 15, 1888, Ziraat Bank was officially established, The “Homeland Coffers” established in the town of Pirot and was to undertake the functions of the “Homeland in 1863 planted the seeds from which Ziraat Bank grew.