PUBLICATION OF THE BANKS ASSOCIATION OF TURKEY NO: 56

BANKS IN TURKEY 2005

MAY 2006 ISBN 975 - 8564 - 32 - 3 ISSN 1300 - 6460

Copyright © The Banks Association of Turkey, 2006

Publication Name : Banks in Turkey Publication Type : Local Periodical Publication Period : Annual Owner of the Publication : The Banks Association of Turkey Managing Director : Dr. Ekrem Keskin Address : Nispetiye Cad. Akmerkez, B3 Blok Kat 13, Etiler, 34340 østanbul Phone : 90-212-282 09 73 Fax : 90-212-282 09 46 E-mail : [email protected]

Printed in : Graphis Matbaa San.ve Tic. Ltd. ùti. Address : YüzyÕl Mah. MatbaacÕlar Sitesi, 1.Cad. No 139, Ba÷cÕlar, 34560 østanbul Phone : 90-212-629 06 07(PBX) Fax : 90-212-629 03 85 E-mail : [email protected]

All rights reserved. No part of this report may be reproduced or transmitted, in any form or by any means, electronic, photocopying or otherwise, without the prior written permission of the Banks Association of Turkey.

Whilst every effort has been made to ensure that the information contained in this book is correct, the Banks Association of Turkey can not accept any responsibility for any errors or omissions or for any consequences resulting therefrom.

This book is prepared from the year-end audited and non-consolidated "The Common Data Set -Financial Statements and Related Explanation and Footnotes" of banks, which are prepared according to the Accounting Standard No.17 and sent to the Banks Association of Turkey. Contents

Page No.

Preface………………………………..….…………………………………………… v

Main Economic Indicators………...………………………………….……………vi

Turkish Economy and Turkish Banking System in 2005………………………I-1

Overview….……………………………….……………………………………… I-1 Developments in the Turkish Economy in 2005………..……….…………..… I-13 Turkish Banking System in 2005 …………………………………………...…… I-34

The Banks Association of Turkey and Banks Operating in Turkey…………………………………..…………………… II-1

Turkish Banking System……………………………..………………..…………… II-9

Deposit Banks..…………………………………...……...... …………………... II-14

State-owned Banks..……...……………...... ……....……………… II-18 Privately-owned Banks...... …….....…...……...... ……...... ………… II-22 Banks Under the Deposit Insurance Fund...... ………….....…………... II-26 Foreign Banks……………………………………...………..…...... ……..... II-30

Development and Investment Banks………………….………………………… II-34

i Page No.

Balance Sheets of the Banks………..……………………………….…………… II-39

Deposit Banks...... …………………….....…...... …...…… II-41

State-owned Banks…………………...... ……..………………...... II-43 Türkiye Cumhuriyeti Ziraat BankasÕ A.ù.……………………………… II-44 Türkiye Halk BankasÕ A.ù……………………………………………..… II-48 Türkiye VakÕflar BankasÕ T.A.O………………………………………… II-52

Privately-owned Banks……………………..………………………………… II-57 Adabank A.ù…………………………………………..…………………… II-58 Akbank T.A.ù……………………………………………………………… II-62 Alternatif Bank A.ù…………………………………...……..…………… II-66 Anadolubank A.ù………………………………………...…...…...……… II-70 Denizbank A.ù……………………………………...…………………… II-74 Finans Bank A.ù………………………………………………………… II-78 Koçbank A.ù.…………………………………..………………………… II-82 MNG Bank A.ù.…………………………...……………………………… II-86 Oyak Bank A.ù.…………………………………………………………… II-90 ùekerbank T.A.ù.………………………………………………………… II-94 Tekfenbank A.ù …………………………………………………………… II-98 Tekstil BankasÕ A.ù.……………………………………………………… II-102 Turkish Bank A.ù.………………………………….……..……………… II-106 Türk Ekonomi BankasÕ A.ù.……………………………………………… II-110 Türkiye Garanti BankasÕ A.ù.…………………………………………… II-114 Türkiye øú BankasÕ A.ù.…………………………………………………… II-118 YapÕ ve Kredi BankasÕ A.ù……………………………………………… II-122

Banks Under the Deposit Insurance Fund...... …….....………...... II-127 Birleúik Fon BankasÕ A.ù………………………………………………… II-128

Foreign Banks………………………………………………………..….. II-133 ABN AMRO Bank N.V.……………………………………..…………… II-134 Arap Türk BankasÕ A.ù……………………………………………….… II-138 Banca di Roma S.P.A……………………………………….…………… II-142 Bank Mellat……………………………………..……………………….… II-146 BankEuropa BankasÕ A.ù..…………………………………………..…… II-150 Citibank A.ù.. …………………………………...………………………… II-154 Deutsche Bank A.ù.………………………………………...…………… II-158 Fortis Bank A.ù.………………………………………...………………… II-162 Habib Bank Limited……………………………………….……………… II-166 HSBC Bank A.ù.……………………………………………..…………… II-170 JPMorgan Chase Bank N.A.…….………………………...…………… II-174 Sociéte Générale (SA)……………………………………...…………… II-178 WestLB AG……………………..………………………………...……… II-182

ii Page No.

Developmet and Investment Banks…….……………………………………… II-187 BankPozitif Kredi ve KalkÕnma BankasÕ A.ù.………………………… II-188 Calyon Bank Türk A.ù.………………...………………………………… II-192 ÇalÕk YatÕrÕm BankasÕ A.ù.………………..…………………..………… II-196 Diler YatÕrÕm BankasÕ A.ù………………………………………….…… II-200 GSD YatÕrÕm BankasÕ A.ù……………………………………...………… II-204 øller BankasÕ…………………………………………….…….…………… II-208 øMKB Takas ve Saklama BankasÕ A.ù.…………………..…………… II-212 Nurol YatÕrÕm BankasÕ A.ù……………………………………………… II-216 Taib YatÕrÕmbank A.ù.………………………………………...………… II-220 Tat YatÕrÕm BankasÕ A.ù.…………………………………………….…… II-224 Türk Eximbank…………………………………………………...……… II-228 Türkiye KalkÕnma BankasÕ A.ù.…………………………………..……… II-232 Türkiye SÕnai KalkÕnma BankasÕ A.ù.…………………..……………… II-236

Appendix………...... …...... II-241

Table 1 Turkish Banks - Ranked by Total Assets, as of December 31, 2005 II-242 Table 2 Number of Branches and Employees by the Banks and Groups, as of December 31, 2005……………………………………… II-244 Table 3 Presentation of Assets and Liabilities According to their Outstanding Maturities, as of December 31,2005…………………..… II-246 Table 4 Interest Rate Sensitivity of Assets, Liabilities and Off Balance-Sheet Items based on repricing dates, as of December 31, 2005………...… II-247 Table 5 Information on Currency Risk, as of December 31,2005…………… II-248 Table 6 Saving Deposits, as of December 31, 2005…………………………… II-249 Table 7 Number of Deposit Accounts, as of December 31, 2005…………… II-250 Table 8 Maturity Sructure of Deposits, as of December 31, 2005…………... II-252 Table 9 Classification of Deposits, as of December 31, 2005……………...… II-254 Table 10 Deposits by Geographical Regions and Provinces, as of December 31, 2005………………………………………………… II-256 Table 11 Loans by Geographical Regions and Provinces, as of December 31, 2005……………………………………………..… II-259 Table 12 Classification of Cash Loans, as of December 31, 2005……………. II-262 Table 13 Sector Concentrations for Cash Loans, as of December 31, 2005… II-264 Table 14 Sectoral Risk Concentrations of Non-cash Loans, as of December 31, 2005………………………….…………………… II-265 Table 15 Bank Employees by Sex and Education, as of December 31, 2005… II-266 Table 16 Equity Participations and Affiliated Companies of Turkish Banks Abroad, as of December 31, 2005…………………… II-268 Table 17 Branches and Representative Offices of Turkish Banks Abroad, as of December 31, 2005………………………………………………… II-272 Table 18 Representative Offices in Turkey, as of December 31, 2005………. II-275

Glossary…...... ………………...... II-277

iii

Preface

'Banks in Turkey 2005' provides general information about the Turkish banking system and the banks operating in Turkey as well as their audited financial tables which are prepared according to the Accounting Standard No. 17. This book also offers an overall evaluation of the performance of the Turkish economy and the banking sector in 2005.

In addition, more details and tables that are prepared according to the Accounting Standard No 17, in terms of banks or groups, can be found in the web site of the Association (www.tbb.org.tr).

It is hoped that this publication will be useful for those who are interested.

The Banks Association of Turkey

v The Turkish Economy Main Economic Indicators Unit 2003 2004 2005 2006* Growth

GNP % 5.9 9.9 7.6 5.0 Agriculture -2.5 2.0 5.6 1.5 Industry 7.8 9.4 6.5 5.1 Services 6.7 11.7 8.6 5.7

Sectoral breakdown (at current prices) % Agriculture 13.1 12.0 11.0 11.0 Industry 30.3 30.0 30.0 29.0 Services 56.6 58.0 59.0 60.0

GNP USD billion 239 300 361 382 GNP TRY million 356,681 428,932 486,401 541,857 Population Million 70.4 71.3 72.3 73.0 Income per capita In USD terms 3,383 4,172 5,008 5,235

Source-use As % of GNP

Fixed-capital outlays 16 19 20 21 Public 5555 Private 11 15 15 16

Total savings % 19 20 20 21 Public -5 -1 2 3 Private 25 22 18 18 Savings gap -4 -6 -7 -7 Public -10-7-3-2 Private 6 1 -4 -5 Total consumption 81 80 82 79 Public 12 12 11 12 Private 68 68 71 67 GNP deflator % 23956

Unemployment

Overall % 11 10 10 … Urban 14 14 13 … Rural 777…

Inflation % (Twelve month chg) Producer** 16 14 3 … Consumer 20 9 8 5

Public sector balance, as % of GNP %

PSBR (excluding privatization) 9.5 5.1 1.7 1.0 PSBR (including privatization) 9.6 5.5 2.5 2.7 PSBR (excluding. interest. payments) -7.8 -8.9 -9.0 8.9 Budget deficit 11.3 7.1 3.1 -2.5 Budget deficit (excluding interest payments) 9.6 10.9 10.4 6.4 SEEs -0.7 -0.6 -0.5 0.5 Public administrations 0.4 0.0 0.0 0.0 Funds -0.1 -0.4 -0.5 -1.5 Other -1.4 -1.0 -0.4 -0.5

Consolidated budget TRY million

Revenues 100,283 109,887 134,819 144,058 Expenditures 140,054 140,200 144,562 157,271 Interest expenditures 65,450 56,488 45,680 46,260 Budget deficit -46,128 -30,313 -9,743 -13,213 Primary balance 19,322 26,175 35,936 33,047

Financing 42,290 31,624 10,345 13,213

External borrowing 2,685 3,505 -1,228 -3,025 G-bonds 54,856 25,853 33,773 14,768 Short-term financing -11,973 4,859 -12,455 17,793 T-bills -11,973 4,859 -12,455 CB advances 0 0 0 * Programme target ** Wholesale price index until 2004.

vi Unit 2003 2004 2005 2006* Selected ratios %

Revenue/GNP 28.1 25.6 27.7 26.6 Expenditure/GNP 39.3 32.7 29.7 29.0 Personnel expenditure/GNP 8.5 6.7 6.5 6.5 Interest expenditure/GNP 18.3 13.2 9.4 8.5 Investment/GNP 2.0 1.9 2.0 2.0

Personnel expenditure/total expenditure 21.6 21.9 22.0 22.7 Interest expenditure/total expenditure 41.8 41.1 31.6 29.4 Investment/total expenditure 5.1 4.7 6.7 6.8

Outstanding domestic debt TRY million

G-bonds 169,745 194,211 226,964 … T-bills 24,642 30,272 17,818 … Total Government securities 194,387 224,483 244,782 … CB advances 0 0 0 … Devaluation account 0 0 0 … Total 194,387 224,483 244,782 …

Outstanding Domestic G. securities/GNP % 54 52 47 … Outstanding debt/GNP 79 75 68 …

Interest rates % (Annual simple average) G-bonds 43 19 14 … T-bills (3-month) 44 23 14 … G-securities (maturity) 323 368 663 …

Exchange rates

USD (Year-end) 1.3933 1.3363 1.3418 … (Twelve month chg) % -15 -4 0 … Euro (year-end) 1.7575 1.8233 1.5875 … (Twelve month chg) % 2 4 -13 …

CB Balance Sheet TRY million

Total balance sheet 76,473 74,658 90,700 … As % of GNP % 21 17 19 … Net fx assets 17,262 23,048 49,480 … Net domestic assets 28,753 21,071 17,732 … Lending to Government 28,747 25,272 21,439 … Reserve money 15,010 20,328 32,696 … CB money 24,134 24,743 38,547 … Fx position USD million 394 2,748 15,513 … Fx reserves USD million 33,639 36,006 50,518 …

Monetary aggregates

M1 TRY million 21,564 29,469 46,963 … M2 80,923 109,344 163,467 … M2Y 149,855 185,418 243,277 … Repos (R) 3,067 1,528 1,486 … Investment Funds (F) 12,911 16,532 21,584 … G-securities held by non banks (D) TRY million 53,327 67,034 65,252 … Loans 67,210 100,101 153,059 …

M2RF 96,901 127,404 186,537 … M2RFY 165,833 203,478 266,347 … M2RFYD* 219,160 270,512 331,599 … *M2RFYD: monetary assets+repos+investment funds+D

M2RF/GNP % 27 30 38 … M2RFY/GNP % 46 47 55 … Loans/GNP % 19 23 31 … * Programme target

vii Unit 2003 2004 2005 2006* Financial assets TRY million

Monetary assets 165,833 201,949 231,072 … TL 96,901 125,875 154,632 … FX 68,932 76,074 76,440 … Securities 287,092 353,769 466,032 … Shares 96,073 129,287 218,318 … Bonds and Bills 191,019 224,482 247,714 … Government 191,019 224,482 247,714 … Private 000… Investment Funds 12,912 16,531 21,584 … Total 465,837 572,249 718,688 …

Foreign trade USD billion

Exports 45.6 62.8 73.0 79.0 Developments in the Turkish Economy Imports 67.2 97.2 116.0 124.0 Trade deficit 21.6 34.4 43.0 45.0 and the Banking System in 2005

Foreign trade as of GNP %

Exports 19.1 20.9 20.2 20.7 Imports 28.1 32.4 32.1 32.5 Trade deficit 9.0 11.5 11.9 11.8

Balance of payments USD billion

Trade balance -14.0 -23.9 -32.6 -34.3 Invisible balance 7.2 8.3 9.7 12.0 Current account balance -6.8 -15.6 -22.9 -22.0

Current account balance/GNP % -2.8 -4.8 -6.4 -6.0

Capital movements USD billion 7.1 17.7 44.1 -22.0 Foreign direct investment 1.2 2.0 8.6 4.2 Portfolio investment 2.6 8.0 13.7 7.4 Net errors and ommissions 5.0 2.3 2.0 0.0 Change in reserves 4.0 1.0 17.8 0.0

International fx reserves USD billion

CB reserves 33.6 36.0 50.5 … Commercial banks 14.9 21.1 22.6 … Total 48.5 57.1 73.1 …

Outstanding external debt USD million Total 145,350 162,240 170,062 … Long-term capital 122,337 129,671 131,851 … Government 69,627 73,838 67,735 … Central Bank 21,504 18,114 12,654 … Private sector 31,206 37,720 51,461 … Non-financials 26,283 29,437 36,289 … Financials 4,923 8,283 15,173 … Short term 23,013 32,589 38,211 … Government 0 0 0 … Central Bank 2,860 3,287 2,763 … Private sector 20,153 29,282 35,448 … Non-financials 9,692 14,753 17,666 … Financials 10,461 14,529 17,782 …

Istanbul Stock Exchange

Number of companies traded 265 275 282 … ISE index In USD terms 778 1,075 1,687 … Daily trading volume USD million 407 593 793 … Total trading volume USD million 100,165 147,755 197,386 … Market capitilization USD billion 69,003 98,073 159,274 … Market P/E 15 14 17 … * Programme target viii Developments in the Turkish Economy and the Banking System in 2005

%DQNVLQ7XUNH\

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øVWDQEXO6WRFN([FKDQJHLQFUHDVHGVLJQLILFDQWO\  )RUHLJQWUDGHYROXPHFRQWLQXHGWRJURZEXWLWORVWPRPHQWXPWKHUDWLRRIIRUHLJQWUDGH YROXPHWR*13ZDVUHDOL]HGDVSHUFHQW%RWKH[SRUWVDQGLPSRUWVJUHZDVLPSRUWV H[FHHGHG86'ELOOLRQIRUWKHILUVWWLPH7KXVFRYHUDJHUDWLRRIH[SRUWVWRLPSRUWV FRQWLQXHGWRIDOOUHFRUGLQJLWVORZHVWOHYHOLQWKHDIWHUPDWKRI  &XUUHQW DFFRXQW EDODQFH JDYH D UHFRUG GHILFLW GHSHQGLQJ RQ WKH H[SDQVLRQ RI WKH IRUHLJQWUDGH7KHUDWLRRIFXUUHQWDFFRXQWGHILFLWWR*13URVHWRSHUFHQW2QWKH RWKHUKDQGFDSLWDOLQIORZVDPRXQWHGWRUHFRUGYROXPH/RDQVREWDLQHGIURPDEURDGE\ ILQDQFLDO LQVWLWXWLRQV DQG QRQEDQN VHFWRUV LQFUHDVHG FRQVLGHUDEO\ ZKLOH WKH SXEOLF VHFWRU DQG WKH &HQWUDO %DQN RI 7XUNH\ PDGH QHW IRUHLJQ GHEW SD\PHQWV LQ  )RUHLJQ GLUHFW LQYHVWPHQWV UHDFKHG UHFRUG OHYHOV GXH WR WKH ULVLQJ IRUHLJQ LQYHVWRUV¶ LQWHUHVW WR 7XUNLVK PDUNHW $QRWKHU VLJQLILFDQW GHYHORSPHQW ZDV WKH KLJKHU JURZWK LQ IRUHLJQLQYHVWRUV¶LQYHVWPHQWVLQERWKVWRFNVDQGJRYHUQPHQWVHFXULWLHV'HSHQGLQJRQ

 I-1 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

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¶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

 I-2 %DQNVLQ7XUNH\

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¶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¶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¶V H[WHUQDO GHEW LQFUHDVHGZKLOHWKDWRIWKHSXEOLFVHFWRUGHFUHDVHG7KHUDWLR RIRXWVWDQGLQJH[WHUQDO GHEWWR*13GHFUHDVHGWRSHUFHQWLQIURPSHUFHQWLQ  $QLPSRUWDQWUHIOHFWLRQRIWKHGHYHORSPHQWVH[SHULHQFHGLQ7XUNLVKHFRQRP\LQ  SHULRG ZDV WKH XSJUDGLQJ RI 7XUNH\¶V FUHGLW UDWLQJ ZKLFK PRYHG IURP %VWDJQDQWLQWR%%SRVLWLYH 6 3 DWWKHHQGRI  0HGLXPWHUP HFRQRPLF SURJUDP DQG IRUHFDVWV IRU  SHULRG 7KH 3URJUDPWDUJHWVWRPHHWWKH(8HFRQRPLFFULWHULDDWWKHHQGRI  $FFRUGLQJ WR WKH IRUHFDVWV XQGHU WKH PHGLXPWHUP HFRQRPLF SURJUDP DQG EDVLF HFRQRPLFDJJUHJDWHVIRUSHULRG7XUNH\¶V*URVV'RPHVWLF3URGXFW *'3 

 I-3 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

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¶V SURJUDP H[SRUWV ZLOO ULVH WR 86'  ELOOLRQ DQG LPSRUWV WR 86'  ELOOLRQDWWKHHQGRIWKLVSHULRGJHQHUDWLQJDFXUUHQWDFFRXQWGHILFLWDWDURXQGSHUFHQW RI*13  'HYHORSPHQWVLQLQGXVWULDOVHFWRUVDIWHU&RPSDQ\$FFRXQWV¶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¶ HTXLW\ DQG  SHUFHQW ZHUHILQDQFHGE\EDQNORDQV  6RXUFH&RPSDQ\$FFRXQWV¶5HSRUW  7KH&HQWUDO%DQNRIWKH5HSXEOLFRI7XUNH\

 I-4 %DQNVLQ7XUNH\

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¶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ÕIODU%DQNDVÕ7$2ZDV RIIHUHGWRSXEOLFLQ  7XUNLVK EDQNLQJ VHFWRU LQ  SHULRG +DUPRQL]DWLRQ ZLWK LQWHUQDWLRQDO UHJXODWLRQVLQFUHDVHGFRPSHWLWLRQDQGDVLJQLILFDQWULVHLQVKDUHKROGHUV¶HTXLW\  6WDELOLW\ PDLQWDLQHG LQ HFRQRP\ UDSLG HFRQRPLF JURZWK IDOO LQ LQIODWLRQ DQG WKH GHFOLQHG*RYHUQPHQW¶VGHPDQGIRUIXQGVDOOFRQWULEXWHGWRWKHLQFUHDVHRIFRPSHWLWLRQ LQWKHPDUNHWV2QWKHRWKHUKDQGWKHEDQNLQJUHJXODWLRQVKDYHEHHQKDUPRQL]HGZLWK LQWHUQDWLRQDO VWDQGDUGV WR D JUHDW H[WHQW 7KH VWUXFWXUH RI WKH EDQNLQJ V\VWHP ZDV UHLQIRUFHGIROORZLQJWKHUHVWUXFWXULQJSURFHVV 

 I-5 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

 I-6 %DQNVLQ7XUNH\

7KH PRVW VLJQLILFDQW HIIHFW RI WKH GHYHORSPHQWV LQ 7XUNLVK HFRQRP\ DQG ILQDQFLDO VHFWRULQSHULRGRQWKHEDQNLQJV\VWHPZDVWKHJURZWKDQGFKDQJHLQWKH EDODQFH VKHHW VWUXFWXUH RI WKH EDQNLQJ V\VWHP 7RWDO DVVHWV DPRXQWHG WR 86'  ELOOLRQXSIURP86'ELOOLRQ7KHUDWLRRIWRWDODVVHWVWR*13URVHE\SHUFHQWDJH SRLQWVDQGUHDFKHGSHUFHQW7KHVKDUHRI75<GHQRPLQDWHGIXQGVLQWRWDOOLDELOLWLHV URVH WR  SHUFHQW IURP  SHUFHQW LQ WKH VDPH SHULRG /LNHZLVH WKH VKDUH RI 75< GHQRPLQDWHGDVVHWVLQWRWDODVVHWVURVHWRSHUFHQWIURPSHUFHQW7KLVVWHPPHG IURPWKHUREXVWGHPDQGIRU75<DVZHOODVWKHVORZULVHLQ75<HTXLYDOHQFHRIIRUHLJQ IXQGVGXHWRWKHDSSUHFLDWLRQRI75<DJDLQVWPDMRUIRUHLJQFXUUHQFLHV  $QRWKHUVLJQLILFDQWGHYHORSPHQWZDVWKHVWUHQJWKHQLQJRIVKDUHKROGHUV¶HTXLW\ZKLFK LQFUHDVHGWR86'ELOOLRQIURP86'ELOOLRQ7KHUDWLRRIIUHHVKDUHKROGHUV¶HTXLW\ WRWRWDODVVHWVURVHWRSHUFHQWIURPSHUFHQWDOVRZLWKWKHHIIHFWRIWKHUHGXFWLRQ LQIL[HGDVVHWV&RQVHTXHQWO\WKHUDWLRRIVKDUHKROGHUV¶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UN(NRQRPL%DQNDVÕ$ùZDVERXJKWE\%133DULEDV SHUFHQWRIWKHVKDUHVRI7UN'Õú 7LFDUHW%DQNDVÕ$ùE\)RUWLVEDQN196$DQG SHUFHQW RI WKH VKDUHV RI 7*DUDQWL %DQNDVÕ $ù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

 I-7 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

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

 I-8 %DQNVLQ7XUNH\

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³SDUWLFLSDWLRQ EDQNV´ DQG WKH VFRSH RIWKH /DZ LV H[SDQGHG WR LQFOXGH WKH ILQDQFLDO KROGLQJ FRPSDQLHV %DQNLQJ 6XSHUYLVLRQ DQG 5HJXODWLRQ $JHQF\ $JHQF\ DQG6DYLQJV'HSRVLW,QVXUDQFH)XQG )XQG DVZHOO      

 I-9 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

0DLQ0RGLILFDWLRQV,QWURGXFHG8QGHU%DQNLQJ/DZ1R  )LHOGRI$FWLYLW\DQG  )LHOGVRIDFWLYLW\WKDWFDQEHSHUIRUPHGE\EDQNVDUHH[SUHVVO\OLVWHGE\ /LFHQVHV WKH/DZ  3HUPLVVLRQV DQG DXWKRUL]DWLRQV WR EH JUDQWHG WR EDQNV UHJDUGLQJ WKHLU IRXQGDWLRQDQGDFWLYLWLHVDUHGHVLJQHGPRUHFRPSUHKHQVLYHO\DV DSDUW RISUXGHQWLDOVXSHUYLVLRQ7KHSULQFLSOHVIRUDQQRXQFLQJGHFLVLRQVUHODWHG WR UHMHFWLRQ RI SHUPLVVLRQ DSSOLFDWLRQV DQG WR UHYRFDWLRQ RI WKH SUHYLRXVO\JUDQWHGOLFHQVHVDUHDGRSWHGXQGHUWKH/DZ  0LQLPXP VKDUHKROGHUV¶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³&RUSRUDWH *RYHUQDQFH 3ULQFLSOHV´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¶HTXLW\VKDOOQRWEHOHVVWKDQWKHLQLWLDOFDSLWDO 7KHUHVKDOOEHDSURYLVLRQUHJXODWLQJWKHOLTXLGLW\DGHTXDF\ /RDQGHILQLWLRQKDVEHHQEURDGHQHG %DQNV DUH REOLJHG WR SURPSWO\ LQIRUP WKH $JHQF\ ZKHQ WKH\ UHDFKWKH WKUHVKROGVUHJDUGLQJDOOOLPLWDWLRQVDQGVWDQGDUGUDWLRV  /RDQVWR  ,QFDVHVZKHUHORDQVZLOOEHH[WHQGHGWRUHDODQGOHJDOSHUVRQVLQWKH 5LVN*URXSV VDPH ULVN JURXS WKH QHFHVVDU\ GHFLVLRQ VKDOO EH WDNHQ E\ WZR WKLUGV PDMRULW\RIWKHERDUGRIGLUHFWRUV¶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

 I-10 %DQNVLQ7XUNH\

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¶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

 I-11 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

  0DLQ0RGLILFDWLRQV,QWURGXFHG8QGHU%DQNLQJ/DZ1R  /HJDO2EOLJDWLRQV  &RQILGHQWLDOLW\REOLJDWLRQKDVEHHQPDGHPRUHVWULFW  ,WLVDLPHGWRPDNHHWKLFDOSULQFLSOHVSUHYDLO $UHJXODWLRQIRUWKHSURWHFWLRQRIWKHSUHVWLJHRIWKHEDQNLQJVHFWRUDVD ZKROHVKDOOEHSUHSDUHG  2WKHU3URYLVLRQV  ,WKDVEHHQSURYLGHGWKDWLQFRPHDFTXLUHGRXWRIPHUJHUVGLYLVLRQVDQG VWRFNFKDQJHVVKDOOEHH[HPSWHGIURPFRUSRUDWHWD[DQGWKDWWKHWHUP ³EDQN´ DV UHIHUUHG LQ RWKHU ODZV VKDOO DOVR HPEUDFH SULYDWH ILQDQFH LQVWLWXWLRQV  )LQDQFLDO5HVWUXFWXULQJ3URJUDPZKLFKZDVLQLWLDWHGLQ-XQHWHUPLQDWHGLQ-XQH $WRWDORIFRPSDQLHVZDVFRYHUHGE\WKHSURJUDPDQGDWRWDORI86' PLOOLRQRIGHEWZDVUHVWUXFWXUHGXQGHUWKLVSURJUDP  'LIIHUHQFHVLQWD[DWLRQRIWKHLQYHVWPHQWLQVWUXPHQWVKDYHEHHQHOLPLQDWHGWRDJUHDW H[WHQW E\ WKH /DZ 1R  DERXW ³+DUPRQL]DWLRQ RI WKH 7D[ /DZV ZLWK WKH 1HZ 7XUNLVK/LUDDQG$PHQGPHQWLQ6RPH/DZV´7KXVDZLWKKROGLQJWD[RISHUFHQWKDV EHHQDSSOLHGWRWKHJRYHUQPHQWVHFXULWLHVDQGGHSRVLWVSULYDWHVHFWRUERQGVDQGELOOV  ³5RDG 0DS LQ 7UDQVLWLRQ WR %DVHO,,´ ZDV DQQRXQFHG WR WKH SXEOLF E\ %DQNLQJ 5HJXODWLRQDQG6XSHUYLVLRQ$JHQF\ %56$ RQ0D\DIWHUWDNLQJWKHRSLQLRQV RI WKH EDQNLQJ VHFWRU IRU DQ HIILFLHQW SODQQLQJ RI WKH WUDQVLWLRQ SURFHVV WR %DVHO,, ,QVWUXFWLRQPHHWLQJVZHUHKHOGLQPDQ\FLWLHVIRUWKHSXUSRVHRILQIRUPLQJWKHLQGXVWULDO VHFWRUILUPVDERXW%DVHO,,XQGHUWKHFRRUGLQDWLRQRI8QLRQRI 7XUNLVK&KDPEHUVDQG ([FKDQJHVDQGDOVRZLWKWKHSDUWLFLSDWLRQRIWKHUHSUHVHQWDWLYHVIURP%56$DQGWKH %DQNV$VVRFLDWLRQRI7XUNH\  

 I-12 %DQNVLQ7XUNH\

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

 I-13 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

6HFWRUDO*URZWK5DWHVDQG%UHDNGRZQ   3HUFHQWDJHFKDQJH 3HUFHQWDJHVKDUHLQ*13 LQFRQVWDQWSULFHV  LQFXUUHQWSULFHV                $JULFXOWXUH         ,QGXVWU\         6HUYLFHV         6RXUFH7XUNVWDW  ,QGXVWULDOVHFWRUDQGVHUYLFHVHFWRUFRQWLQXHGWREHOHDGLQJVHFWRUVEHKLQGWKHJURZWK LQ7XUNLVKHFRQRP\LQ7KHJURZWKUDWHLQPDQXIDFWXULQJLQGXVWU\SULQFLSDOVXE VHFWRURILQGXVWULDOVHFWRUZDVSHUFHQW*URZWKUDWHLQWKHVXEVHFWRUVRILQGXVWULDO VHFWRUVXFKDVPDLQO\IRRGWREDFFRSDSHUSURGXFWVPDFKLQHU\ DQGHTXLSPHQWXVHG LQ FRPPXQLFDWLRQ DQG RIILFH ZRUNV PDLQ PHWDO LQGXVWU\ IRUHVWU\ FKHPLFDOV SODVWLFV DQGUXEEHU\PHWDOJRRGVPLQHUDOSURGXFWVHOHFWULFDODQGPHGLFDOWRROVDQGIXUQLWXUH ZDVHYHQKLJKHUWKDQWKHJURZWKLQPDQXIDFWXULQJLQGXVWU\DVD ZKROH3URGXFWLRQLQ HQHUJ\ VHFWRU LQFUHDVHG E\  SHUFHQW $QQXDO DYHUDJH FDSDFLW\ XWLOLW\ UDWH LQ PDQXIDFWXULQJLQGXVWU\GHFUHDVHGE\SHUFHQWDJHSRLQWVWRSHUFHQW7KLVUDWH ZDVSHUFHQWLQSXEOLFVHFWRUDQGSHUFHQWLQSULYDWHVHFWRU  2QWKHH[SHQGLWXUHVVLGHFRQVXPSWLRQJUHZE\SHUFHQWZKLOHLQYHVWPHQWVLQFUHDVHG E\SHUFHQW7KHJURZWKLQDJJUHJDWHGHPDQGPDLQO\VWHPPHGIURPSULYDWHVHFWRU $FFRUGLQJO\FRQVXPSWLRQH[SHQGLWXUHVLQFRQVWDQWSULFHVURVHE\SHUFHQWLQSULYDWH VHFWRU ZKLOH WKLV JURZWK ZDV RQO\  SHUFHQW LQ SXEOLF VHFWRU 7KH ULVH LQ LQYHVWPHQW H[SHQGLWXUHVZDVSHUFHQWLQSULYDWHVHFWRUDQGSHUFHQWLQSXEOLFVHFWRU3XEOLF VHFWRU LQYHVWPHQW H[SHQGLWXUHV LQFUHDVHG JURZWK LQ SXEOLF VHFWRU IL[HG FDSLWDO LQYHVWPHQWV UHVXOWHG IURP PDFKLQHU\ DQG HTXLSPHQW LQYHVWPHQWV ZKLFK JUHZ E\  SHUFHQW %XLOGLQJ FRQVWUXFWLRQV LQFUHDVHG E\  SHUFHQW ZKLOH PDFKLQHU\ DQG HTXLSPHQWLQYHVWPHQWVURVHE\SHUFHQWLQSULYDWHVHFWRU

7KHVKDUHVRISULYDWHFRQVXPSWLRQH[SHQGLWXUHVDQGLQYHVWPHQWH[SHQGLWXUHVLQ*'3 ZHUH  SHUFHQW DQG  SHUFHQW UHVSHFWLYHO\ 7KH VKDUH RI SXEOLF FRQVXPSWLRQ H[SHQGLWXUHVLQ*'3ZDVSHUFHQWZKLOHWKDWRISXEOLFLQYHVWPHQWH[SHQGLWXUHVLQ *'3ZDVSHUFHQW

 I-14 %DQNVLQ7XUNH\

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

 I-15 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

3URGXFWLYLW\,QGH[ $QQXDOSHUFHQWDJHFKDQJH    ,9 , ,, ,,, ,9   3HUZRUNHU      3HUKRXU      6RXUFH7XUNVWDW

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

 I-16 %DQNVLQ7XUNH\

$FFRUGLQJO\ XQHPSOR\PHQW UDWH LQ  ZDV  SHUFHQW 8UEDQ XQHPSOR\PHQW GHFUHDVHG E\  SHUFHQWDJH SRLQW WR  SHUFHQW 8QHPSOR\PHQW UDWH ZDV  SHUFHQW ZKHQ XQGHUHPSOR\PHQW ZDV DOVR LQFOXGHG 2I WKH WRWDO HPSOR\PHQW  SHUFHQWZDVHPSOR\HGLQVHUYLFHVVHFWRUSHUFHQWLQDJULFXOWXUHDQGSHUFHQWLQ LQGXVWULDOVHFWRU  ,QIODWLRQ  $IWHUIDOOLQJWRVLQJOHGLJLWILJXUHLQLQIODWLRQLQ7XUNH\FRQWLQXHGWRGHFUHDVHDWD VORZHUUDWHLQ,QPRQWKVRISURGXFHUSULFHLQGH[ 33, GHFUHDVHGWR SHUFHQWZKLOHFRQVXPHUSULFHLQGH[ &3, GHFUHDVHGWRSHUFHQW,QIODWLRQUDWHZDV EHORZWKHSHUFHQWWDUJHWRI&3,7KHDYHUDJHDQQXDOSULFHLQFUHDVHZDVSHUFHQW LQSURGXFHUSULFHVDQGSHUFHQWLQFRQVXPHUSULFHV

7KH SHULRG RI WUDQVLWLRQ WR LQIODWLRQ WDUJHWLQJ UHJLPH HQGHG LQ  &HQWUDO %DQN RI 7XUNH\DQQRXQFHGWKDWLQIODWLRQWDUJHWLQJDSSOLFDWLRQVWDUWHGLQ7XUNH\DVRI7LJKW ILVFDO SROLF\ FDSLWDO LQIORZV GXH WR SRVLWLYH DWPRVSKHUH LQ LQWHUQDWLRQDO PDUNHWV DQG &HQWUDO %DQN¶V DGKHUHQFH WR D PRQHWDU\ SROLF\ WDUJHWLQJ SULFH VWDELOLW\ KDG SRVLWLYH HIIHFWV RQ WKH H[SHFWDWLRQV DQG DWWLWXGHV 5LVLQJ RLO SULFHV DQG H[SHFWDWLRQV IRU 86 LQWHUHVW UDWHV WR HQWHU LQWR D ULVLQJ WUHQG IDLOHG WR KDYH QHJDWLYH HIIHFWV LQ WKH VKRUW WHUP 7KHVH GHYHORSPHQWV OHG WR D IDYRUDEOH HQYLURQPHQW IRU WKH LPSOHPHQWDWLRQ RI LQIODWLRQWDUJHWLQJUHJLPH  ,QIODWLRQ 3HUFHQWDJH        $QQXDODYHUDJH  3URGXFHU     &RQVXPHU     PRQWK  3URGXFHU     &RQVXPHU     6RXUFH7XUNVWDW7KHGDWDXQWLOEHORQJVWR:3,  

 I-17 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

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¶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

 I-18 %DQNVLQ7XUNH\

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

 I-19 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

ILQDQFLQJ RI WKH EXGJHW GHILFLW GXH WR SRVLWLYH GHYHORSPHQWV VXFK DV IDOO LQ LQWHUHVW UDWHVJURZWKRIGRPHVWLFERUURZLQJSRUWIROLRKHOGE\QRQEDQNVHFWRUVDQGH[WHQVLRQ RIWKHPDWXULWLHV  )LQDQFLQJ QHHG RI EXGJHW ZDV PHW FRPSOHWHO\ WKURXJK GRPHVWLF ERUURZLQJ 1HW H[WHUQDO ERUURZLQJ ZDV UHGXFHG E\ 75<  ELOOLRQ 7KH 7UHDVXU\ FRQWULEXWHG WR WKH HIIRUWV RI WKH &HQWUDO %DQN WR PDQDJH WKH OLTXLGLW\ WKURXJK ERUURZLQJ DERYH LWV UHTXLUHPHQW7KHUHZDVDQLQFUHDVHRI75<ELOOLRQDWFDVKEDQNDFFRXQWLWHP  )LQDQFLQJRIWKH&RQVROLGDWHG%XGJHW   75<PLOOLRQ $VSHUFHQWDJHRI*13         )LQDQFLQJ       ([WHUQDOERUURZLQJ QHW        'RPHVWLFERUURZLQJ       2WKHU        $WRWDORI75<ELOOLRQRIGHEWUHSD\PHQWZDVPDGHLQ :LWKWKHDGGLWLRQRI EXGJHW GHILFLW RI 75<  ELOOLRQ WR WKLV ILJXUH WKH WRWDO ILQDQFLQJ QHHG LQ  DPRXQWHGWR75<ELOOLRQ75<ELOOLRQRIWKLVILQDQFLQJQHHGZDVPHWWKURXJK IRUHLJQ ERUURZLQJ DQG WKH UHPDLQLQJ 75<  ELOOLRQ ZDV PHW WKURXJK GRPHVWLF ERUURZLQJ2WKHUUHYHQXHVZKLFKZHUHFRQVLVWHGRIPDLQO\SULYDWL]DWLRQUHYHQXHVDQG WKH UHVRXUFHV WUDQVIHUUHG E\ 6DYLQJV 'HSRVLW ,QVXUDQFH )XQG ZHUH 75<  ELOOLRQ 7KHUHZDVDOVRDQLQFUHDVHRI75<ELOOLRQLQWKH7UHDVXU\¶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

 I-20 %DQNVLQ7XUNH\

7KHVKDUHRIWKHIL[HGLQWHUHVWVHFXULWLHVLQRXWVWDQGLQJGRPHVWLFGHEWVWRFNGHFUHDVHG WR  SHUFHQW IURP  SHUFHQW DQG WKDW RI WKH IRUHLJQ H[FKDQJH VHQVLWLYH VHFXULWLHV GHFUHDVHGWRSHUFHQWIURPSHUFHQW7KHVKDUHRIWKHLQWHUHVWVHQVLWLYHVHFXULWLHV LQRXWVWDQGLQJGRPHVWLFGHEWVWRFNURVHWRSHUFHQWIURPSHUFHQW

2XWVWDQGLQJ GRPHVWLF GHEW LQFUHDVHG DW D KLJKHU UDWH FRPSDUHG ZLWK RXWVWDQGLQJ H[WHUQDOGHEW7KLVZDVPDLQO\GXHWRWKDWWKHEXGJHWILQDQFLQJZDVDOPRVWPHWWKURXJK E\ GRPHVWLF ERUURZLQJ GHSHQGLQJ RQ IDYRUDEOH ERUURZLQJ FRQGLWLRQV LQ WKH GRPHVWLF PDUNHW 2Q WKH RWKHU KDQG SXEOLF VHFWRU¶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

 I-21 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

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¶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

 I-22 %DQNVLQ7XUNH\

75<FRQWLQXHGWRDSSUHFLDWHDJDLQVWPDMRUFXUUHQFLHVLQUHDOWHUPVGHVSLWHWKHIRUHLJQ H[FKDQJH GHPDQG FUHDWHG E\ WKH &HQWUDO %DQN ,Q QRPLQDO WHUPV WKH YDOXH RI 75< DJDLQVW 86' UHPDLQHG QHDUO\ XQFKDQJHG LQ  ZKLOH LW DSSUHFLDWHG DERXW  SHUFHQWDJDLQVWHXUR7KHUHIRUH75<DSSUHFLDWHGDJDLQVWERWKFXUUHQFLHVLQUHDOWHUPV ZKHQWKHLQIODWLRQUDWHLQ7XUNH\ZDVWDNHQLQWRFRQVLGHUDWLRQ

6WURQJIRUHLJQH[FKDQJHVXSSO\FRQVLGHUDEO\DIIHFWHGWKHSRVLWLRQRIWKHEDODQFHVKHHW RI WKH &HQWUDO %DQN ,Q  PRQWK SHULRG RI  WKH &HQWUDO %DQN¶V EDODQFH VKHHW JUHZ DW D UDWH RI  SHUFHQW ZKLFK ZDV DERYH WKH LQIODWLRQ UDWH $FFRUGLQJ WR WKH PRQWKO\DYHUDJHILJXUHVJURZWKUDWHLQWKH&HQWUDO%DQN¶VEDODQFHVKHHWZDVRQO\ SHUFHQW$VRIWKHHQGRIWKHUDWLRRIWKH&HQWUDO%DQN¶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¶)[GHSRVLWV      7RWDOGRPHVWLFOLDELOLWLHV      6RXUFH&HQWUDO%DQNRIWKH5HSXEOLFRI7XUNH\

 I-23 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

7KHPDUNHWVSUHIHUUHGUHPDLQLQJLQOLTXLGSRVLWLRQGXULQJWKH\HDU6RPHSDUWRIH[FHVV OLTXLGLW\ZDVDEVRUEHGE\WKH&HQWUDO%DQNWKURXJKRSHQPDUNHWRSHUDWLRQVZKLOHVRPH SDUWRILWUHWXUQHGWRWKH&HQWUDO%DQNDVSXEOLFGHSRVLWV

)RUHLJQH[FKDQJHUHVHUYHVRIWKH&HQWUDO%DQNRI7XUNH\UHDFKHG86'ELOOLRQLQ  E\ DQ LQFUHDVH RI 86'  ELOOLRQ FRPSDUHG ZLWK WKH SUHYLRXV \HDU 3ULQFLSDO SDUWRIWKLVLQFUHDVHVWHPPHGIURPIRUHLJQH[FKDQJHSXUFKDVHDXFWLRQVRIWKH&HQWUDO %DQN7KH%DQN¶VQHWIRUHLJQH[FKDQJHSRVLWLRQURVHWR86'ELOOLRQIURP86' ELOOLRQ &RQVHTXHQWO\ WRWDO LQFUHDVH LQ QHW IRUHLJQ H[FKDQJH SRVLWLRQ RI WKH &HQWUDO %DQNH[FHHGHG86'ELOOLRQLQWKHODVWIRXU\HDUV   &HQWUDO%DQN¶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

 I-24 %DQNVLQ7XUNH\

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

 I-25 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

HIIHFWV RQ 75< GHPDQG 2Q WKH RWKHU KDQG LQGLYLGXDO LQYHVWRUV¶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

 I-26 %DQNVLQ7XUNH\

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¶EUDQFKHVLQ7XUNH\ SHUIRUPLQJORDQVQRQSHUIRUPLQJORDQVDIWHUSURYLVLRQLQJ  WRWRWDOGHSRVLWVUHSRVURVHWRSHUFHQWIURPSHUFHQW  7RWDOORDQV  75<PLOOLRQ         7RWDOORDQV     3HUIRUPLQJORDQV     1RQSHUIRUPLQJORDQV QHW      1RQSHUIRUPLQJORDQV     7RWDOORDQV*13 SHUFHQWDJH       /RDQVDUHH[WHQGHGE\GRPHVWLFEUDQFKHVRIWKHEDQNLQJV\VWHP 3HUIRUPLQJORDQVQRQSHUIRUPLQJORDQV QHW  7RWDOORDQVRIWKHEDQNLQJV\VWHP ORDQVWRILQDQFLDOV\VWHPDUHH[FOXGHG  /RDQVXQGHUIROORZXSDIWHUSURYLVLRQLQJ QHWEDQNLQJV\VWHP  /RDQVXQGHUIROORZXSEHIRUHSURYLVLRQLQJ JURVVEDQNLQJV\VWHP  6RXUFH&HQWUDO%DQNRIWKH5HSXEOLFRI7XUNH\  7RWDO ORDQV H[FOXGLQJ WKRVH ORDQV H[WHQGHG E\ GHSRVLW EDQNV¶ EUDQFKHV DEURDG LQFUHDVHG E\  SHUFHQW LQ FXUUHQW SULFHV DQG E\  SHUFHQW LQ FRQVWDQW SULFHV 3HUIRUPLQJ ORDQV JUHZ E\  SHUFHQW ZKLOH QRQSHUIRUPLQJ ORDQV DIWHU SURYLVLRQLQJ

 I-27 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

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¶ORDQV     3HUIRUPLJORDQV     1RQSHUIRUPLQJORDQV QHW      1RQSHUIRUPLQJORDQV JURVV        )RU,QIRUPDWLRQ  &RQVXPHUORDQVDQGFUHGLWFDUGVORDQV     &RQVXPHUORDQV     &UHGLWFDUGVORDQV     5DWLRV  7RWDOGHSRVLWVUHSR*13     7RWDOORDQV'HSRVLWVUHSR     'HSRVLWEDQNV¶ORDQV*13     &RQVXPHUORDQV*13     6RXUFH&HQWUDO%DQNRIWKH5HSXEOLFRI7XUNH\  7KHUDWLRRIWRWDOORDQVH[WHQGHGE\GHSRVLWEDQNVWR*13ZDVSHUFHQW7KHUDWLRRI QRQSHUIRUPLQJ ORDQV LQ GHSRVLW EDQNV WR WRWDO ORDQV GHFUHDVHG WR  SHUFHQW IURP  SHUFHQW  7RWDOORDQVH[WHQGHGE\GHSRVLWEDQNVYLDWKHLUEUDQFKHVDEURDGUHDFKHG75< PLOOLRQ7RWDOORDQV SHUIRUPLQJDQGQRQSHUIRUPLQJDIWHUSURYLVLRQLQJ H[WHQGHGE\WKH 7XUNLVK EDQNLQJ V\VWHP DPRXQWHG WR 75<  PLOOLRQ ZKHQ VXFK NLQG RI ORDQV ZHUHLQFOXGHG  'HYHORSPHQWVLQ,VWDQEXO6WRFN([FKDQJH  ,VWDQEXO6WRFN([FKDQJH ,6( ,QGH[FRQWLQXHGWRLQFUHDVHERWK LQGROODUDQG75< WHUPV,6(,QGH[LQFUHDVHGE\SHUFHQWLQGROODUWHUPVDQGUHDFKHGSRLQWV

 I-28 %DQNVLQ7XUNH\

DQG LQFUHDVHG E\  SHUFHQW LQ 75< WHUPV WR  SRLQWV 7RWDO WUDGH YROXPH H[SDQGHGE\SHUFHQWDQGUHDFKHG86'ELOOLRQ 

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¶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

 I-29 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

)RUHLJQ7UDGH 86'ELOOLRQ         ([SRUWV     ,PSRUWV     )RUHLJQWUDGHGHILFLW     )RUHLJQWUDGHYROXPH     )RUHLJQWUDGHGHILFLW*13     ([SRUW,PSRUW     3ULFH,QGH[      ([SRUWV     ,PSRUWV     4XDQWLW\LQGH[      ([SRUWV     ,PSRUWV     6RXUFH7XUNVWDW  $YHUDJH  %DVHG RQ  PRQWKV DYHUDJH H[SRUW TXDQWLW\ LQGH[ DQG LPSRUWV TXDQWLW\ LQGH[ LQFUHDVHGE\SHUFHQWDQGSHUFHQWUHVSHFWLYHO\ZKLOHH[SRUWSULFHLQGH[URVHE\ SHUFHQWDQGLPSRUWSULFHLQGH[E\SHUFHQW  )RUHLJQ7UDGHE\&RPPRGLW\*URXSV   ([SRUWV ,PSRUWV  86' 3HU 3HU 86' 3HU 3HU PLOOLRQ FKDQJH VKDUH PLOOLRQ FKDQJH VKDUH   &DSLWDOJRRGV       ,QWHUPHGLDWHJRRGV       &RQVXPHUJRRGV       2WKHU       7RWDO       6RXUFH7XUNVWDW 

 I-30 %DQNVLQ7XUNH\

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¶V IRUHLJQ WUDGH YROXPHZKLOHQRQ(8FRXQWULHV¶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¶V IRUHLJQ WUDGH *HUPDQ\ ZDV IROORZHGE\,WDO\DQG5XVVLDZLWKSHUFHQW8QLWHG.LQJGRPDQG8QLWHV6WDWHVZLWK SHUFHQW ([SRUWV WR *HUPDQ\ FRQVWLWXWHG  SHUFHQW RI 7XUNH\¶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

 I-31 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

FRPSDUHG WR  DQG KDG D FRQWULEXWLRQ RI 86'  ELOOLRQ WR WKH FXUUHQW DFFRXQW EDODQFH7KHGHILFLWLQLQYHVWPHQWUHYHQXHVZDVXQFKDQJHGDW86'ELOOLRQ,QWHUHVW H[SHQGLWXUHVZKLFKZDVWKHPRVWVLJQLILFDQWLWHPLQWKHLQYHVWPHQWUHYHQXHVEDODQFH URVHWR86'ELOOLRQIURP86'ELOOLRQ  &XUUHQW$FFRXQW%DODQFH 86'PLOOLRQ        &XUUHQWDFFRXQWEDODQFH     *HQHUDOPHUFKDQGLVH     ([SRUWV     ,PSRUWV     6HUYLFHV QHW      7RXULVP QHW      ,QFRPH QHW      'LUHFWLQYHVWPHQWV     3RUWIROLRLQYHVWPHQWV     2WKHULQYHVWPHQWV     ,QWHUHVWH[SHQGLWXUHV     &XUUHQWWUDQVIHUV     :RUNHUVUHPLWWDQFHV      &DSLWDOLQIORZVJDLQHGPRPHQWXPDVDUHIOHFWLRQRIWKHLPSURYHGERUURZLQJFRQGLWLRQV LQLQWHUQDWLRQDODQGFDSLWDOPDUNHWVDVZHOODVWKHJHQHUDOLPSURYHPHQWLQHFRQRPLF SHUIRUPDQFHDQGFRQVHTXHQWO\FDSLWDOLQIORZVLQWR7XUNH\ZDVKLJKHUWKDQWKHFXUUHQW DFFRXQWGHILFLWLQ&DSLWDOLQIORZVZKLFKDFFRXQWHGWR86'ELOOLRQDVRIWKH HQGRIURVHWR86'ELOOLRQDWWKHHQGRI  &DSLWDODQG)LQDQFLDO$FFRXQW 86'PLOOLRQ       &DSLWDODQGILQDQFLDODFFRXQW     &DSLWDODFFRXQW QHW      )LQDQFLDODFFRXQW QHW      'LUHFWLQYHVWPHQWVDEURDG QHW      3RUWIROLRLQYHVWPHQWV QHW      2WKHULQYHVWPHQWV QHW      1HWHUURUVDQGRPLVVLRQV     *HQHUDOEDODQFH     ,0)DFFRXQWV     2IILFLDOUHVHUYHV      7KHUH ZDV DOVR D VLJQLILFDQW FKDQJH LQ WKH VWUXFWXUH RI WKH FDSLWDO IORZV LQWR 7XUNH\ )RUHLJQ ERUURZLQJ RI SULYDWH VHFWRULQFUHDVHGZKLOH SXEOLF VHFWRUFRQWLQXHG WR PDNH QHWIRUHLJQGHEWSD\PHQW'LUHFWIRUHLJQFDSLWDOLQIORZVUHDFKHGWKHUHFRUGOHYHOVGXHWR WKH DFFHOHUDWLRQ LQ SULYDWL]DWLRQ SURFHVV DQG LQYHVWPHQWV LQ WKH EDQNLQJ V\VWHP 1HW IRUHLJQ GLUHFW FDSLWDO LQIORZV URVH WR 86'  ELOOLRQ IURP 86'  ELOOLRQ $GGLWLRQDOO\ IRUHLJQ LQYHVWRUV¶ GHPDQG IRU FDSLWDO PDUNHWV LQVWUXPHQWV FRQWLQXHG DQG UHDFKHG QHDUO\86'ELOOLRQ  1HWHUURUVDQGRPLVVLRQVDFFRXQWFRQWLQXHGWRGHFUHDVHLQDVOLNHLWGLGLQ 1HWHUURUVDQGRPLVVLRQVLWHPZKLFKZDV86'ELOOLRQLQGHFUHDVHGWR86' ELOOLRQ DV RI WKH HQG RI  $ QHW SD\PHQW RI 86'  ELOOLRQ ZDV PDGH WR WKH ,QWHUQDWLRQDO0RQHWDU\)XQGLQ

 I-32 %DQNVLQ7XUNH\

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

2XWVWDQGLQJH[WHUQDOGHEWLQFUHDVHGE\SHUFHQWLQKRZHYHULWVUDWLRWR*13 GURSSHGE\SHUFHQWDJHSRLQWVWRSHUFHQWFRPSDUHGZLWKDVDKLJKHUJURZWK ZDV UHFRUGHG LQ *13 7KH UDWLR RI ORQJWHUP RXWVWDQGLQJ H[WHUQDO GHEW WR *13

 I-33 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

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Õ%DQNDVÕ$ùWR$NEDQN7$ù 7KHPRVWLPSRUWDQWGHYHORSPHQWLQWKHEDQNLQJVHFWRULQZHUHWKHLQFUHDVHLQWKH GLUHFWRULQGLUHFWLQYHVWPHQWVE\IRUHLJQLQYHVWRUVLQWKHVHFWRU:LWKLQWKLVIUDPHZRUN SHUFHQWRIWKHVKDUHVRI7UN(NRQRPL%DQNDVÕ$ùZHUHDFTXLUHGE\%133DULEDV SHUFHQWRIWKHVKDUHVRI7UN'Õú7LFDUHW%DQNDVÕ$ùZHUHDFTXLUHGE\)RUWLVEDQN 196$DQGSHUFHQWRIWKHVKDUHVRI7*DUDQWL%DQNDVÕ$ùZHUHDFTXLUHGE\*( &DSLWDO&RUSRUDWLRQ  2IWKHEDQNVRSHUDWLQJLQ7XUNH\ZHUHGHSRVLWEDQNVZHUHGHYHORSPHQWDQG LQYHVWPHQW EDQNV 2I WKH GHSRVLW EDQNV  ZHUH VWDWH RZQHG EDQNV DQG  ZHUH SULYDWHO\RZQHG EDQNV 7KHUH ZDV RQH EDQN XQGHU WKH PDQDJHPHQW RI 6DYLQJV 'HSRVLW,QVXUDQFH)XQG7KHQXPEHURIIRUHLJQEDQNVZDV$VIRUWKHGHYHORSPHQW DQGLQYHVWPHQWEDQNVZHUHVWDWHRZQHGEDQNVZHUHSULYDWHO\RZQHGEDQNVDQG ZHUHIRUHLJQEDQNV

 I-34 %DQNVLQ7XUNH\

7KHLQFUHDVHLQWKHQXPEHURIEDQNEUDQFKHVDOVRFRQWLQXHGLQ7RWDOQXPEHURI EUDQFKHV URVH E\  WR  7KLV LQFUHDVH ZDV  LQ GHSRVLW EDQNV DQG  LQ GHYHORSPHQWDQGLQYHVWPHQWEDQNV7'Õú7LFDUHW%DQNDVÕ$ùZDVWUDQVIHUUHGWRWKH IRUHLJQ EDQNV JURXS E\ WDNLQJ WKH QDPH RI )RUWLVEDQN $ù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

 I-35 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

1XPEHURI(PSOR\HHV        'HSRVLWEDQNV    6WDWHRZQHGEDQNV    3ULYDWHO\RZQHGEDQNV    %DQNVLQWKH)XQG    )RUHLJQEDQNV    'HYHORSPHQWDQGLQYHVWPHQWEDQNV    6WDWHRZQHGEDQNV    3ULYDWHO\RZQHGEDQNV    %DQNVLQWKH)XQG    7RWDO      SHUFHQW RI EDQN HPSOR\HHV ZHUH HPSOR\HG E\ GHSRVLW EDQNV DQGSHUFHQWE\ GHYHORSPHQW DQG LQYHVWPHQW EDQNV 2I GHSRVLW EDQNV¶ HPSOR\HHV  SHUFHQW ZHUH HPSOR\HGE\VWDWHRZQHGEDQNVSHUFHQWE\SULYDWHO\RZQHGEDQNVDQGSHUFHQW E\IRUHLJQEDQNV  1XPEHURI%UDQFKHVDQG(PSOR\HHV3HU%DQN   %UDQFK (PSOR\HH          'HSRVLWEDQNV       6WDWHRZQHGEDQNV       3ULYDWHO\RZQHGEDQNV       %DQNVLQWKH)XQG       )RUHLJQEDQNV       'HYDQGLQYHVWEDQNV       6WDWHRZQHGEDQNV       3ULYDWHO\RZQHGEDQNV       %DQNVLQWKH)XQG       7RWDO        7KH QXPEHU RI EDQN EUDQFKHV DQG HPSOR\HHV GHFUHDVHG LQ  SHULRG DV D UHVXOW RI WKH WUDQVIHUULQJ RI WKH ILQDQFLDOO\ ZHDNHQHG EDQNV WR 6DYLQJV 'HSRVLW ,QVXUDQFH)XQGDQGRUFORVXUHRIVXFKEDQNVZLWKLQWKHIUDPHZRUNRIWKHUHVWUXFWXULQJ SURJUDPLPSOHPHQWDWLRQRIUHVWUXFWXULQJSURJUDPLQVWDWHRZQHGEDQNVEDQNPHUJHUV DVZHOODVEDQNV¶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¶ HTXLW\ DQG LQFUHDVHGFRPSHWLWLRQ7KLVLQFUHDVHLQIXQGVFDXVHGDUDSLGJURZWKLQORDQV

 I-36 %DQNVLQ7XUNH\

7RWDO EDODQFH VKHHW RI WKH EDQNLQJ VHFWRU UHFRUGHG D JURZWK RI 75<  ELOOLRQ LQ   SHUFHQW RI WKLV JURZWK 75<  ELOOLRQ  UHVXOWHG IURP GHSRVLWV DQG  SHUFHQW  75<  ELOOLRQ  UHVXOWHG IURP QRQGHSRVLW IXQGV DQG WKH UHPDLQLQJ SDUW FDXVHGE\RWKHUOLDELOLWLHVDQGVKDUHKROGHUV¶HTXLW\2IWKHIXQGVSURYLGHGSHUFHQW 75<ELOOLRQ ZHUHVHWDVLGHIRUORDQVSHUFHQW 75<ELOOLRQ IRUVHFXULWLHV SRUWIROLRDQGSHUFHQW 75<ELOOLRQ IRUOLTXLGDVVHWV  1RPLQDO&KDQJHLQ%DODQFH6KHHW,WHPV&RPSDUHGWR'HFHPEHU 75<PLOOLRQ   $VVHWV -XQH 'HFHPEHU /LTXLGDVVHWV   6HFXULWLHV   /RDQV   2WKHUDVVHWV   7RWDO   75<   )[     /LDELOLWLHV -XQH 'HFHPEHU 'HSRVLWV   1RQGHSRVLWIXQGV   6KDUHKROGHUV¶HTXLW\   2WKHUOLDELOLWLHV   7RWDO   75<   )[    ,QGHSRVLWEDQNVJURXSVWDWHRZQHGEDQNVSULYDWHO\RZQHGEDQNVDQGIRUHLJQEDQNV LQFUHDVHGE\SHUFHQWSHUFHQWDQGSHUFHQWUHVSHFWLYHO\2QWKHRWKHUKDQG JURZWKUDWHRIWKHGHYHORSPHQWDQGLQYHVWPHQWEDQNVZDVSHUFHQW

 I-37 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

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

 I-38 %DQNVLQ7XUNH\

&RQFHQWUDWLRQLQ%DQNLQJ6HFWRU  3HUFHQWDJH        /DUJHVWILYH  7DVVHWV     7GHSRVLWV     7ORDQV     /DUJHVWILYH  7DVVHWV     7GHSRVLWV     7ORDQV      ,QWHUPVRIWRWDODVVHWV  ,QWHUPVRIWRWDODVVHWVL]HWKHUHZHUHVWDWHRZQHGDQGSULYDWHO\RZQHGEDQNVLQ WKHODUJHVWILYHEDQNVDVRI'HFHPEHUZKLOHWKHUHZHUHVWDWHRZQHGEDQNVDQG  SULYDWHO\ RZQHG EDQNV DV RI 'HFHPEHU  7KHUH ZHUH  VWDWH RZQHG DQG  SULYDWHO\RZQHGEDQNVLQWKHODUJHVWWHQEDQNVLQ7XUNH\LQWKHVDPHSHULRGV  7KH1XPEHURI%DQNVE\$VVHW6L]H

USD billion +0-1 1-2 2-5 5-10 10-20 20-40 40+ 99 05 99 05 99 05 99 05 99 05 99 05 05 Number Deposit 37 14 10 5 7 5 6 5 4 2 1 4 2 State-owned 111121 Privat.-owned 15 4 6 3 5 2 5 3 3 2 21 In the Fund 17 10 1 1 1 2 Foreign 5 3 1 1 Dev. and Inv. 17 10 1 1 3 banks Total 54 24 11 5 8 5 6 4 4 4 1 4 2

&XUUHQF\6WUXFWXUHRI%DODQFH6KHHWDQG³)[$VVHWV)[/LDELOLWLHV´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µ1HW*HQHUDO3RVLWLRQ¶LQWKHUHJXODWLRQRQVWDQGDUGUDWLRIRU)[1HW*HQHUDO 3RVLWLRQ&DSLWDO %DVH LVVXHG E\ WKH &HQWUDO %DQN DQG %56$ +HQFH )[ GHQRPLQDWHG ORDQV LQ WKH EDODQFHVKHHW )[DVVHWVDQG)[OLDELOLWLHVLQWKHRIIEDODQFHVKHHWDUHQRWLQFOXGHGLQWKHIRUPHUGHILQLWLRQ

 I-39 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

%DQNLQJ6HFWRU¶V)RUHLJQ([FKDQJH3RVLWLRQLQ%DODQFH6KHHW 86'PLOOLRQ        'HSRVLWEDQNV      6WDWHRZQHGEDQNV    3ULYDWHO\RZQHGEDQNV    %DQNVLQWKH)XQG  « « )RUHLJQEDQNV    'HYHORSPHQWDQGLQYHVWPHQWEDQNV    7RWDO    6RXUFH%56$ %DQNVLQWKH)XQGH[FOXGHG  $VVHWVDQGOLDELOLWLHVLQGH[HGWRIRUHLJQH[FKDQJHZHUHQRWLQFOXGHGLQWKHGHILQLWLRQRI ³);DVVHWV);OLDELOLWLHV´7KHGLIIHUHQFHEHWZHHQIRUHLJQH[FKDQJHDVVHWVDQGIRUHLJQ H[FKDQJHOLDELOLWLHVLQWKHEDODQFHVKHHWURVHIURP86'ELOOLRQLQWR86' ELOOLRQLQ$FFRUGLQJWRWKHFDOFXODWLRQVPDGHE\%56$LQFOXGLQJDOVR)[LQGH[HG DVVHWV DQG OLDELOLWLHV IRUHLJQ H[FKDQJH SRVLWLRQ LQ WKH EDODQFH VKHHW RI WKH EDQNLQJ VHFWRULQGLFDWHGDGHILFLWRI86'ELOOLRQE\WKHHQGRI  $VVHW6WUXFWXUH  7KHLQFUHDVHLQ75<GHPDQGDOVRFRQWLQXHGLQ7KHVKDUHRI75<LQWRWDODVVHWV FRQWLQXHGWRULVH7KHVKDUHRIORDQVLQWRWDODVVHWVURVHE\SHUFHQWDJHSRLQWVWR SHUFHQWGXHWRVWURQJJURZWKLQHFRQRPLFDFWLYLW\DQGWKHULVHLQGHPDQGIRUFRUSRUDWH ORDQVDQGFRQVXPHUORDQV7KHUDWLRRIORDQVWRGHSRVLWVLQFOXGLQJWKHORDQVH[WHQGHG E\GHSRVLWEDQNV¶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

 I-40 %DQNVLQ7XUNH\

$FFRUGLQJ WR %56$ GDWD WRWDO ORDQV H[WHQGHG E\ GRPHVWLF EUDQFKHV DQG EUDQFKHV DEURDGJUHZE\SHUFHQWDQGUHDFKHG75<ELOOLRQ2IORDQVSHUFHQWZHUH 75<GHQRPLQDWHGDQGSHUFHQWZHUH)[GHQRPLQDWHG%\WKHHQGRILQGLYLGXDO ORDQVZKROHVDOHWUDGHUVWH[WLOHDQGILQDQFLDOLQWHUPHGLDU\LQVWLWXWLRQVKDGSHUFHQW SHUFHQWDQGSHUFHQWVKDUHLQWRWDOORDQVUHVSHFWLYHO\

$FFRUGLQJWR%56$GDWDWKHVKDUHRILQGLYLGXDOORDQVLQWRWDO ORDQVDOVRFRQWLQXHGWR JURZLQKHQFHLWLQFUHDVHGE\SHUFHQWDJHSRLQWVWRSHUFHQW7KHVKDUHRI FUHGLWFDUGVLQLQGLYLGXDOORDQVUHDOHVWDWHORDQVDQGDXWRPRWLYHORDQVZDVSHUFHQW SHUFHQWDQGSHUFHQWUHVSHFWLYHO\5HDOHVWDWHORDQVZLWKDVKDUHRISHUFHQW ZDVWKHIDVWHVWJURZLQJLWHP  1RQSHUIRUPLQJ ORDQV EHIRUH SURYLVLRQLQJ  LQFUHDVHG E\  SHUFHQW ZKLOH SURYLVLRQV IRU QRQSHUIRUPLQJ ORDQV JUHZ E\  SHUFHQW 7KHUH ZDV QR PDMRU FKDQJH LQ QRQ SHUIRUPLQJORDQV DIWHUSURYLVLRQLQJ &RQVHTXHQWO\WKHVKDUHRIQRQSHUIRUPLQJORDQV DIWHUSURYLVLRQLQJ LQWRWDODVVHWVGHFUHDVHGIURPSHUFHQWWRSHUFHQW  1RQSHUIRUPLQJ/RDQV DQG6SHFLILF3URYLVLRQV 3HUFHQWDJH    1RQSHUIRUPLQJORDQV 6SHFLILFSURYLVLRQV 7RWDOORDQV 1RQSHUIRUPLQJORDQV       'HSRVLWEDQNV     6WDWHRZQHGEDQNV     3ULYDWHO\RZQHGEDQNV     %DQNVLQWKH)XQG     )RUHLJQEDQNV     'HYDQGLQYHVWEDQNV     7RWDO      %HIRUHSURYLVLRQV    

 I-41 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

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¶HTXLW\      3DLGLQFDSLWDO      6XSSOHPHQWDU\FDSLWDO      5HVHUYHV      3URILWORVV      3UHYLRXV\HDU      &XUUHQW\HDU      2WKHUOLDELOLWLHV      7RWDO      6RXUFH7KH%DQNV$VVRFLDWLRQRI7XUNH\ 

 I-42 %DQNVLQ7XUNH\

1RQGHSRVLWIXQGVKDYLQJDVKDUHRISHUFHQWLQWRWDOOLDELOLWLHVURVHE\SHUFHQW DQGUHDFKHG75<ELOOLRQ7KHVKDUHRIGHEWVWRIRUHLJQEDQNVLQWRWDOQRQGHSRVLW OLDELOLWLHVZDVSHUFHQW7KHUHZDVQRPDMRUFKDQJHLQWKHPDWXULW\VWUXFWXUHLQ $YHUDJHPDWXULW\RIWKHLQWHUHVWUDWHVHQVLWLYHOLDELOLWLHVZDVGD\VZKLOHWKDWRIWKH LQWHUHVWUDWHVHQVLWLYHDVVHWVZDVGD\V  6KDUHKROGHUV¶(TXLW\  7RWDOVKDUHKROGHUV¶HTXLW\LQFUHDVHGE\SHUFHQWWR75<ELOOLRQ 86'ELOOLRQ  7KHUDWLRRIWKHWRWDOVKDUHKROGHUV¶HTXLW\WRWRWDODVVHWVGHFUHDVHGIURPSHUFHQWWR  SHUFHQW 7KH PDMRU FRQWULEXWRUV WR WKH LPSURYHPHQW LQ WKH VKDUHKROGHUV¶ HTXLW\ ZHUHWKHLQFUHDVHVLQUHVHUYHVDQGSDLGLQFDSLWDO  'HSHQGLQJ RQ WKH UDSLG JURZWK RI WRWDO DVVHWV FRPSDUHG WR VKDUHKROGHUV¶ HTXLW\ LQ WKHUDWLRRIWKHVKDUHKROGHUV¶HTXLW\WRWKHULVNZHLJKWHGDVVHWVGHFUHDVHGIURP SHUFHQWLQ'HFHPEHUWRSHUFHQWLQ'HFHPEHU  6KDUHKROGHUV¶HTXLW\   75< 86' 3HUFKDQJH 6HTXLW\ PLOOLRQ PLOOLRQ 75<  7RWDODVVHWV   'HSRVLWEDQNV     6WDWHRZQHGEDQNV     3ULYDWHO\RZQHGEDQNV     %DQNVLQWKH)XQG     )RUHLJQEDQNV     'HYDQGLQYHVWEDQNV     7RWDO      7KHGHFUHDVHLQSHUPDQHQWDVVHWVKHOSHGWRPDLQWDLQWKHJURZWKLQIUHHVKDUHKROGHUV¶ HTXLW\ )UHH VKDUHKROGHUV¶ HTXLW\ VKDUHKROGHUV¶ HTXLW\SHUPDQHQW DVVHWV QRQSHUIRUPLQJORDQVDIWHUSURYLVLRQLQJ LQFUHDVHGIURP75<ELOOLRQWR75<ELOOLRQ 7KHUDWLRRIWKHIUHHVKDUHKROGHUV¶HTXLW\WRWRWDODVVHWVURVHIURPSHUFHQWWR SHUFHQW  :RUNLQJ&DSLWDO   75<PLOOLRQ :RUNFDSLWDO7DVVHWV       'HSRVLWEDQNV     6WDWHRZQHGEDQNV     3ULYDWHO\RZQHGEDQNV     %DQNVLQWKH)XQG     )RUHLJQEDQNV     'HYDQGLQYHVWEDQNV     7RWDO      6KDUHKROGHUV¶HTXLW\SHUPDQHQWDVVHWVORDQVXQGHUIROORZXSDIWHUVSHFLILFSURYLVLRQV  1HWSURILWVRIWKHEDQNLQJVHFWRUFRQWUDFWHGE\SHUFHQWWR75<PLOOLRQEDVHG RQWKHSURILWILJXUHVLQWKHEDODQFHVKHHW7KHLQFUHDVHUDWHRIQHWSURILWVZDVSHUFHQW LQVWDWHRZQHGEDQNVSHUFHQWLQIRUHLJQEDQNVDQGSHUFHQWLQGHYHORSPHQW

 I-43 7XUNLVK(FRQRP\DQG7XUNLVK%DQNLQJ6\VWHPLQ

DQG LQYHVWPHQW EDQNV 1HW SURILWORVV RI SULYDWHO\ RZQHG EDQNV GHFUHDVHG E\  SHUFHQW  1HW3URILW/RVV     3HU 5HWXUQRQ 5HWXUQRQ 1HW3URILW/RVV FKDQJH DVVHWV HTXLW\  75<PLOOLRQ 86'PLOOLRQ 75<  SHUFHQWDJH  SHUFHQWDJH    'HSRVLWEDQNV      6WDWHRZQHGEDQNV      3ULYDWHO\RZQHGEDQNV      %DQNVLQWKH)XQG      )RUHLJQEDQNV      'HYDQGLQYHVWEDQNV      7RWDO       'HVSLWH WKH LQFUHDVH LQ WRWDO DVVHWV DQG VKDUHKROGHUV¶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¶ EUDQFKHV DQG HPSOR\HHV DQG LQYHVWPHQWV$OWKRXJKEDQNV¶QHWFRUSRUDWHSURILWVORVVHVZHUHSRVLWLYHO\DIIHFWHGGXH WR WKH ODFN RI LQIODWLRQ DFFRXQWLQJ DSSOLFDWLRQ LQ  QHW SURILWV GHFUHDVHG E\ 

 I-44 Banks in Turkey 2005 percent to TRY 5.7 billion as a result of 20 percent rise in provisions. The rise in provisions mainly resulted from the revision of the balance sheet of Yapı Kredi Bankası AŞ as of September 2005. Net interest income failed to cover non-interest expenditures in 2005.

3.11. Off-Balance Sheet Items

Guarantees and warranties grew by 16 percent and derivative financial instruments grew by 69 percent in 2005, while commitments decreased by 20 percent. Custody and pledged securities item and total off-balance sheet items increased by 1,075 percent and 702 percent, respectively. The reason of enormous increase in custody and pledged securities items resulted from the change in methodology relating to the investment fund shares by İMKB Takasbank AŞ

Off-Balance Sheet Items, December 2005

TRY million USD million Per. change

Guaranties and warranties 64,856 48,335 16 Commitments 68,230 50,850 -20 Derivative financial instruments 65,894 49,108 69 Custody and pledged securities 3,919,2003 2,920,855 1,075 Total 4,118,183 3,069,148 702

3.12. Number of ATM and Credit Cards

According to the data of Interbank Card Center, total number of credit cards increased by 12 percent to 30 million compared to the end of 2004. Total number of ATM cards also increased by 12 percent and reached 48.2 million by the end of 2005.

Number of ATM, POS and Cards

Dec. 2005 Sept. 2005 Dec. 2004 Annual change

Credit cards 29,978,243 29,050,403 26,681,128 3,297,115 Debit cards 48,243,369 45,798,550 43,084,994 5,158,375 POS 1,140,957 1,102,608 912,118 228,839 ATM 14,823 14,517 13,544 1,279 Source: Interbank Card Centre

The numbers of POS (Point of Sale) and ATM (Automatic Teller Machine) also increased by 25 percent and 9 percent in 2005 and reached 1,140,957 and 14,823 respectively.

I-45