GEMs Banking/Finance 12 November 2003 BENDER Initiation of Coverage Global Research Equity Turk Ekonomi Bank (TEB) Reuters: TEBNK.IS Bloomberg: TEBNK.TI Exchange: ISE Ticker: Buy Price at 07 November 2003 TL 3,275/USc0.22 Price target - 12mth (USc) 0.36 (64%) Good things come in small 52-week range (USc) 0.23 - 0.12 ISE 11,536

Price/Price relative packages TE B 10/11/03 3600 Hakan Aksoy Murat Gulkan 3400 (+90) 212 252 2000 (+90) 212 252 4648 3200 [email protected] [email protected] 3000 2800 Initiating coverage with Buy recommendation, USc0.36 (TL6,175) TP 2600 2400

TEB has an established commercial banking operation and the smallest 2200 government securities position of the Turkish banks we cover. Banks that 2000 1800

depend on income from government paper will be chasing retail banking 1600 NDJ FMAMJ J AS ONDJ FMAMJ J ASO PRICE PRICE REL. TO ISE NATIONAL 100 - PRICE INDEX business as returns on T-bills begin to dwindle. In our opinion, given TEB’s HIGH 3500.00 10/1/02, LOW 1800.00 7/11/01, LAST 3200.00Source: 7/11/03 DATASTREAM Performance (%) 1m 3m 12m commercial prowess, strong asset quality and clean equity, a rarity among Absolute 16% 54 45% ISE 16% 22% 2% Company Focus Turkish banks, we believe its shares are mispriced. The discount to the sector looks too great and we initiate cover with a Buy recommendation. Stock data Strong earnings growth expectations for 2003 and 2004 Market cap (US$m) 121 Shares outstanding (m) 55,125 We expect net earnings to grow by 70% YoY in 2003 and 25% in 2004, Avg daily volume (US$m) 0.6 primarily on the back of an expanding loan book and lower monetary Major shareholders: Colakoglu Group 80% Free float 20% losses. Furthermore, TEB may consider a securitised loan of $75-100m in Beta (2 years) 0.73 1H04. This should allow the bank to expand its asset size by 5% and give Index Membership ISE high-margin long-term loans. Expansion plan should bring growth opportunities TEB aims to expand its network by one-third to 100 branches within the next two years, for which plans have already been finalised. A carefully thought out expansion plan, combined with TEB’s superior banking skills should create a further growth opportunity for the bank. Strong catalysts for a market re-rating TEB trades at FY03E and FY04E P/BV of 0.60x and 0.54x with respective ROAEs of 13.6% and 14.4%, representing discounts of 62% and 61% to the average of , Isbank and Garanti. We view a discount of this magnitude as unjustified given that TEB maintained its asset quality in the 2001 crisis. The recent increase in daily trading volume to $0.58m from $0.16m in 1H03 and earnings growth expectations for 2003 and 2004 could be catalysts for a re-rating. Our target market cap. of $199m - which includes a small-bank discount - implies 64% share price upside in US$ terms. At our target value the shares would be trading at a 32% discount to GEM peers and 30% discount to Turkish banks on 2004E P/BV/ROE. Non compliance with the IMF programme would have a negative impact on Treasury yields and thus bank profits.

Forecasts and ratios Year End 2000A 2001A 2002A 2003E 2004E Net interest income (US$m) 899 1,111 1,371 1,533 1,419 Net income (US$m) 374 -164 412 534 565 P/E (x) 10.0 NM 9.0 7.0 6.6 P/BV (x) 2.1 2.5 2.0 1.6 1.3 ROE (%) 22.1 -10.1 24.4 24.7 21.7

Deutsche Bank AG does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE BODY OF THIS RESEARCH 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

TEB Banking/Finance BUY USD Page Target Value: TL6,175 Price: TRL 3275

FYE 31-Dec PER SHARE DATA 1999 2000 2001 2002 2003E 2004E Earnings per Share (USc) 0.57 0.28 -0.57 0.26 0.45 0.56 Price & Price Relative Earnings per ADR (USD) NM NM NM NM NM NM 3500 30

Book Value per Share (USc) 0.21 0.31 0.26 0.29 0.37 0.41 Dividends per Share (USc) 0.00 0.00 0.00 0.00 0.01 0.02 3000 25 PROFIT & LOSS (USD m) 1999 2000 2001 2002 2003E 2004E Net Interest Income 116 138 92 110 108 107 2500 Fee Income 22 34 26 17 21 24 20 Other Noninterest Income 39 23 30 24 23 29 Total Revenue 176 194 147 151 151 160 2000

15 Noninterest Expenses -100 -132 -95 -83 -86 -96 Pre-Provisions Profit 76 63 52 68 65 64 1500

-1 -4 -6 -9 -5 -4 Loan Loss Provisions 10 Non-Operating income/(expense) -14 -18 -70 -26 -15 -14 1000 Net Income Before Taxes 61 40 -24 32 45 47

Taxes -25 -20 -11 -17 -19 -15 5 500 Income from Subsidiaries 0000 00 Extraordinary Items 0000 00 Net Income Pre-Minorities 36 20 -35 15 26 32 0 0 Net Income 31 16 -31 14 25 31 37567 37658 37749 37840 37931 31 16 -31 14 25 31 Net Income Pre-Extraordinaries TEB (TRL) Relative to ISE NATIONAL 100 Dividends 0000 79

BALANCE SHEET (USD m) 1999 2000 2001 2002 2003E 2004E Securities Portfolio 360 154 210 72 123 129

Gross Loans 437 690 757 825 894 1,028 Performing Loans 436 687 745 813 879 1,007 Past Due Loans 1 3 12 12 15 21 Reserves -2 -6 -7 -13 -11 -7

Interest-Earning Assets 1,494 1,740 1,813 2,034 2,058 2,333 Total Assets 1,707 2,018 2,013 2,257 2,303 2,619

Deposits 773 918 1,299 1,661 1,416 1,586 Total Equity 118 168 142 157 202 223

KEY RATIOS (%) 1999 2000 2001 2002 2003E 2004E Net Interest Margin 9.08.24.85.25.04.7 Past Due Loans Return on Avg Assets 2.1 0.8 -1.6 0.7 1.1 1.2 1200 3% Return on Avg Equity 30.5 10.8 -20.1 9.6 13.7 14.4

Efficiency Ratio 72.7 76.8 80.9 65.6 67.3 73.1 Fee Income/Avg Assets 1.51.81.30.80.91.01000 Noninterest Exp/Avg Assets 6.87.14.73.93.83.9 2%

NPLs/Gross Loans 0.30.41.61.51.72.0 800 Reserves/NPLs 199.9 193.7 60.4 107.0 69.4 34.0 Reserves/Gross Loans 0.50.81.01.61.20.7 2%

600 Equity/Assets 6.98.37.17.08.88.5 Total Capital Ratio NA NA NA NA NA NA 1% Loans/Assets 25.6 34.2 37.6 36.5 38.8 39.2 400 Loans/Deposits 56.5 75.1 58.3 49.7 63.1 64.8

1% VALUATION 1999 2000 2001 2002 Current 2004E 200 Market Cap (USD m) NA 214 90 84 122 NM

P/E (x) 3.8 7.6 nm 8.2 4.8 3.8 0 0% P/BV (x) 0.80.70.80.70.60.5 1999 2000 2001 2002 2003 2004

Gross Loans NPLs/Gross Loans RHS Shares (m) 55,125 55,125 55,125 55,125 55,125 55,125 Source: Company data, DB estimates

Hakan Aksoy +90 212 252 4224 [email protected]

Page 2 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Investment Thesis

Outlook Declining T-bill yields, strong GDP growth in 2003/04, and falling inflation should give the Turkish banking sector a much-needed boost. Unlike 2000, when yields fell sharply in the aftermath of an IMF agreement, the contraction this time around has been more disciplined. A gradual transition to a low interest rate environment also prevents stiff price competition in banking products. Loan penetration in Turkey stands at only 18% of GDP, a far cry from the 37% in Emerging Europe. We estimate penetration at 40% at the end of the decade, driven by Turkey’s sustainable economic growth rate of 5%.

As a small-scale bank, TEB is focused on corporate and private banking. At just 5% of assets, it has the smallest government securities position of the Turkish banks under our coverage. Loans, on the other hand, account for 42% of the total balance sheet vs. a Turkish banking sector average of 31%. TEB has no industrial participations and a gross NPL ratio of only 2%, thanks to its conservative lending culture. The bank has approximately one month of maturity mismatch, substantially below the Turkish banks’ average of six months.

We expect earnings to grow by 70% in 2003, implying an ROE of 13.6% on the back of growth in loans, lower monetary losses and higher trading income on declining T-bill yields. In 2004, we expect net earnings to rise by a respectable 25% with an ROAE of 14.4%. TEB may consider taking $75-100m via a securitised loan in 1H04. A $100m deal should expand the bank's asset size by 5% and allow it to tap into high-margin clients.

Valuation With forecast FY03 and FY04 P/BV of 0.6x and 0.54x, TEB trades at discounts of 62% and 61% to the average of Akbank, Isbank and Garanti, compared with a discount of just 19% at the time of the IPO in 2000. Although small banks typically trade at a discount to their larger peers, such an expansion in the discount looks unwarranted given that TEB was able to maintain its asset quality during the 2001 crisis. The recent rise in daily trading volume to $0.58m from $0.16m in 1H03 and earnings growth expectations for 2003 and 2004 could be catalysts for a re-rating.

Based on a dividend discount model, we value TEB at $199m, implying 64% upside from its current $121m market capitalisation. We attach a 25% small-bank discount to our DDM-derived valuation of $218m. Even at our target price, TEB would trade at a 32% discount its GEM peers and 30% to Turkish banks on 2004E P/BV/ROE.

TEB, with its superior asset quality and expertise in corporate and private banking would, in our view, be one of the best acquisition targets for foreign banks. A tie up with a foreign partner would eliminate our 25% discount. We believe that under stabilised macro conditions, foreign banks would begin to take a serious look at Turkey. Note that foreign banks only own 6% of total sector assets.

Risks Prospects for the Turkish banking sector hinge on adherence to the IMF programme, given the negative impact that non-compliance would have on Treasury yields and consequently on bank profits.

Deutsche Bank AG Page 3 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Table of Contents Valuation ...... 5 Auspicious macro environment ...... 10 A disciplined decline towards a low yield environment...... 10 “Real Banking” ...... 12 Superior asset quality ...... 15 TEB in a low yield environment ...... 19 Earnings outlook...... 21 Appendix ...... 25

Page 4 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Valuation

P/BV multiple hits rock-bottom in 2003 and now a recovery is in the making TEB went public in February 2000 at $394m and a P/BV of 2.1x for FY00. The IPO was held at a time when banking sector stocks were leading the bull run in the aftermath of the IMF standby agreement.

Figure 1: Historic P/BV

2.3 2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5 0.3 02/00 05/00 08/00 11/00 02/01 05/01 08/01 11/01 02/02 05/02 08/02 11/02 02/03 05/03 08/03

Source: Bender, Reuters

TEB’s low book value relative to the average of Akbank, Garanti and Isbank would seem to verify our view that investors have overlooked its shares since the 2001 crisis. The relative book value chart below shows that TEB’s discount to the average of the large three banks has risen from 19% at the time of the IPO to 59% currently. In our view, this level of discount is unwarranted since TEB was able to rise above the economic crisis without substantial damage, while other large banks other than Akbank are still in recovery mode.

Figure 2: TEB’s Relative P/BV to Akbank, Garanti and Isbank’s average 0.00 01/00 03/00 06/00 08/00 11/00 01/01 04/01 07/01 09/01 12/01 03/02 05/02 -0.10

-0.20

-0.30

-0.40

-0.50

-0.60

-0.70

-0.80

Source: Bender, Reuters

Deutsche Bank AG Page 5 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

If we adjust the book values of Isbank and Garanti for anticipated losses in participations, unutilised deferred tax assets and NPLs, TEB’s discount rises to 61% for 2003 and 60% for 2004.

Valuation summary We value TEB at $199, implying 64% upside from its current mcap of $121m. We reach our target value by attaching a 25% small-bank discount to our DDM-derived fair value of $262m.

The discount not, in our view, justified in the long term: 1) We expect the bank to have a 14.5% sustainable ROE, which will allow it to expand its equity base.

2) With its superior asset quality and expertise in corporate and personal banking, TEB looks a prime acquisition target for foreign banks, in which case we would remove our 25% discount. TEB’s business plan (not targeting the mass retail market) and relatively small size should not be a handicap for potential acquirers, as was the case for BCP’s acquisition of Site Bank and Société Générale’s interest in . Note that both of these banks were smaller than TEB with 2 and 22 branches, respectively.

Figure 3: Valuation Summary DDM valuation ($m) 265 Small bank discount (25%) -66 Target Price for 2004 ( $m) 199

Current Mcap ( $m) 121 Upside Potential (%) 64%

TEB's Target P/BV for 2004 0.91 TEB's Estimated ROE for 2004 14.4% TEB's Target (P/BV) / (ROE) 6.3

DB GEM Average P/BV vs. ROE 9.35 TEB's target 2004E (P/BV)/(ROE)'s discount (@ $199m target mcap) (%) -32%

Turkish banks' Average P/BV vs. ROE for 2004E 9.03

TEB's target (P/BV)/(ROE)'s discount (@ $199m target mcap) (%) -30% Source: Bender

Note that even TEB’s target multiples remain at notable discounts to both local and GEM peers, 30% and 32% respectively in terms of 2003 and 2004 estimated (P/BV)/ROE.

Local Comparison TEB has the lowest P/BV and P/E multiples in our Turkish banks universe, both of which we regard as unwarranted. TEB’s success in maintaining its asset quality during the 2001 crisis was not reflected in its valuations during the stock market recovery in 2003. A partial explanation for this is the bank’s lower ROE compared to its peers, yet it is not sufficient to explain why TEB trades at below 1x P/BV multiple. Low trading volume, which averaged $0.2m in 1H03, could be another reason. However, in the most recent one-month period, TEB’s shares saw an average turnover of $0.6m, which weakens the volume argument. We believe

Page 6 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

any book value below 1x is unjustifiable for TEB. Other Turkish banks trade at an average of 1.59x and Finansbank the second tier-two bank trades at 0.9x for 2003.

International Comparison In our GEM banking universe, TEB has the lowest P/BV ratio. TEB’s forecast ROE is 13.6% for 2003 and 14.4% for 2004, both of which are above our Emerging Market Banks’ averages. The average 2004E P/BV/ROE figure for our GEM banking coverage is 9.35x and TEB’s estimated 3.76x implies a 60% discount. The lack of investor interest in second-tier stocks and concerns about weak trading volumes in 2002 and 1H03 could be the reason behind the discount.

Figure 4: DB GEM banks P/BV vs.. ROE table as at 7 November 2003 M Cap P/E (x) P/ BV (x) ROE (%) P/BV / ROE (US$ M) 2002 2003E 2004E 2002 2003E 2004E 2002 2003E 2004E 2003E 2004E Emerging Asia Average 20.9 14.5 12.2 2.3 2.1 1.8 9.2 13.7 16.3 14.98 11.32 Latin America Average 10.5 9.9 8.3 1.9 1.6 1.4 19.7 18.2 18.4 9.05 7.81 Poland Average 49.5 21.2 16.6 2.3 2.2 2.1 6.9 11.1 13.0 19.72 16.05 South Africa Average 9.5 6.8 6.2 1.3 1.2 1.1 20.9 20.0 20.1 5.97 5.62 DB EMERGING MARKET AVERAGE 19.9 12.4 10.5 2.0 1.8 1.6 15.7 15.8 16.9 11.15 9.35 Turkish Banks 13,123 26.9 8.2 9.5 1.5 1.1 1.0 23.9 17.0 12.1 6.54 8.13 Tier 1 banks 12,685 37.6 9.6 12.0 1.8 1.3 1.1 20.7 17.5 10.5 7.32 10.88 Akbank 5,729 13.7 6.3 9.1 3.0 1.7 1.5 26.3 35.1 17.5 4.97 8.35 Garanti 1,990 116.1 9.5 14.2 1.9 1.5 1.3 1.6 17.5 9.8 8.37 13.55 Isbank 3,951 18.7 14.0 13.1 1.5 1.3 1.2 9.1 10.1 9.6 13.07 12.58 YKB 1,015 1.8 8.8 11.5 0.7 0.6 0.6 45.9 7.1 4.9 8.16 11.26 Tier 2 Banks 438 5.7 5.4 4.6 1.0 0.8 0.7 30.3 16.1 15.4 4.83 4.39 Finansbank 320 3.1 5.9 5.4 1.3 1.0 0.8 50.9 18.6 16.4 5.23 5.02 TEB 118 8.2 4.8 3.8 0.7 0.6 0.5 9.6 13.6 14.4 4.30 3.66 Source: Bender, Reuters

DDM Valuation Cost of equity (CoE): We used a variable CoE, declining from 15.5% in FY04 to 15% in FY05 and 11.5% by FY14. The CoE is calculated by using the risk free rate plus equity risk premium (ERP). For the risk free rate, we used the 10-year US Treasury bond yield of 4%. ERP (11.5%) is estimated by using volatility in the Stock Exchange and the New York Stock Exchange, multiplied by TEB’s two-year stock beta of 0.74.

Deutsche Bank AG Page 7 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Figure 5: DDM Summary Transition period (FY04-FY14) TEB Payout ratio (%) 32 Discount rate FY04E (%) 15.4 Av. discount rate (FY05-FY14) (%) 13.4 PV of dividends ($mn) 106 Stage 1 P/BV (x) 0.48

Stable period (FY14-) FY14-FY17 Value of dividends (av. Next three years) 32 Growth (%) 5.0 ROE (%) 14.5 Discount rate (%) 11.0 PV of dividends ($mn) 159 Stage 2 P/BV (x) 0.71

Total PV of expected dividends ($m) 265 Implied P/BV (Stage 1 + Stage 2) 1.19 Source: Deutsche Bank estimates and company data

Page 8 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Figure 6: DDM Summary (%) DDM target $m Growth Initial discount rate (FY05) 0 6.5 6.0 5.0 4.5 4.0 17.0 274 256 230 219 211 16.0 295 276 247 235 226 15.0 318 297 265 253 242 14.0 343 320 285 272 260 13.0 371 345 307 293 280 Implied (target) P/BV Growth Initial discount rate (FY05) 6.5 6.0 5.0 4.5 4.0 17.0 1.23 1.15 1.03 0.98 0.94 16.0 1.32 1.23 1.10 1.05 1.01 15.0 1.42 1.33 1.19 1.13 1.09 14.0 1.54 1.43 1.28 1.22 1.17 13.0 1.66 1.55 1.38 1.31 1.25 Upside Potential Growth Initial discount rate (FY05) 6.5 6.0 5.0 4.5 4.0 17.0 127 112 90 81 74 16.0 144 128 104 95 87 15.0 163 145 119 109 100 14.0 183 164 136 125 115 13.0 206 185 154 142 132 Upside potential with 25% small bank discount Initial discount rate (FY05) Growth 6.5 6.0 5.0 4.5 4.0 17.0 70 59 42 36 31 16.0 83 71 53 46 40 15.0 97 84 64 57 50 14.0 113 98 77 68 61 13.0 130 114 91 81 74 Upside potential with 30% small bank discount Initial discount rate (FY05) Growth 6.5 6.0 5.0 4.5 4.0 17.0 59 48 33 27 22 16.0 71 59 43 36 31 15.0 84 72 53 46 40 14.0 98 85 65 57 51 13.0 114 100 78 69 62 Upside potential with 35% small bank discount Initial discount rate (FY05) Growth 6.5 6.0 5.0 4.5 4.0 17.0 47 38 23 18 13 16.0 58 48 32 26 21 15.0 71 59 42 36 30 14.0 84 72 53 46 40 13.0 99 85 65 57 51 Source: Deutsche Bank estimates and company data

Deutsche Bank AG Page 9 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Auspicious macro environment

A disciplined decline towards a low yield environment Treasury yields continued to decline through 1H03. The contraction this time around however has been more disciplined than in 2000. Recall that the rapid decline in yields had raised concerns over lower profitability in the banking sector. This of course prompted banks to lend aggressively on worries that net interest margins would contract in a low-yield environment. The ensuing price competition caused margins to shrink.

Economic recovery is expected to continue in 2004. Following better-than- expected growth in 2002, we expect economic growth to continue in 2003 and 2004 at 6% and 5% respectively. We foresee 2003 CPI and WPI at 20% and 21%, close to the government’s targets of 20% and 17.4%. We anticipate the declining trend to continue through 2004 to c17% and c15% respectively.

Government paper unlikely to lose its allure: Average yields on Treasury paper fell to below 40% at end-August from 65% at end-March and 51% at end-June. Assuming that the economic programme remains on track, our base case scenario assumes yields at 27% by end-2003 and 22% by end-2004, implying real yields of 12% and 9%, respectively.

Figure 7: Yields on Government Securities Average Auction Yields vs Real Rates (1 year forward looking) 200% Avg. Auction Rates Re al Rate s 150%

100%

50%

0%

-50% Jul-03 Jul-02 Jul-01 Jul-00 Jul-99 Oct-03 Oct-02 Jan-03 Oct-01 Jan-02 Oct-00 Jan-01 Oct-99 Jan-00 Jan-99 Apr-03 Apr-02 Apr-01 Apr-00 Apr-99

* Real rate is calculated by dividing the current average rate at auctions by 12-month forward looking WPI inflation. After Jul-02, Bender's inflation estimates are used. Source: Turkish Treasury, Bender

Loan growth picking up: According to BRSA data, sector TL loans rose by 10% in real terms in the first six months of 2003 compared to FY02. Note that FX loans increased by 12% after adjusting for a strengthening TL and $1.5bn worth of NPLs defined as performing loans in 1H03, on the back of loan restructurings. We anticipate total loans increasing by 23% in 2004 up from an estimated 21% in 2003, in line with declining interest rates. Banks followed the CBT’s rate cuts by gradually lowering their deposit and loan rates. Banks reckon that demand for retail loans would pick up should retail loan rates decline to 32-35% from the current 45%.

Page 10 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

However, high NPL ratios and a high level of restructured loans are likely to hold back some banks: Despite the recovery in 2002, some Turkish private banks are still suffering from high NPLs and might not have the appetite to take additional risks. According to the BRSA, the sector’s gross NPLs have declined by 20% in real terms YTD to $6.6bn in 1H03. However, the bulk of the improvement came from further loan restructurings in 2003, estimated at around $1.5bn. The gross NPL ratio also improved to 15% from 18% at end-FY02. The treatment of restructured loans as “performing” (estimated at $4.9bn as of 1H03) and the reversal of related NPL provisions after just six months of regular payments should be viewed with caution since we believe these loans are still suspect and that maturities of three to nine years quite long.

Deutsche Bank AG Page 11 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

“Real Banking”

TEB in Turkish banking With 77 branches, TEB is a small-scale bank which focuses on corporate and private banking. With its unconsolidated asset size of $1.7bn as of 1H03, the bank has a 1.3% share in total sector assets, 1.8% in performing loans and 1.3% in deposits.

TEB has successfully established a niche for itself by engaging in prudent banking. At a time (not so long ago) when funding government paper through open short forex positions was all the rage, the bank chose to focus on corporate and private banking services. Trade finance-related lending and cash management services constitute the core of TEB’s corporate banking business. TEB provides commercial clients with the ability to monitor and direct their cash flows on a real-time basis. The bank is ranked in the top ten in Turkey in terms of volume of transactions from cash management services.

Private banking has always been a core business for the bank. Indeed, TEB was the first to establish branches specifically dedicated to private banking.

Loans: second highest exposure in lending in proportion to balance sheet size Among peer group banks, TEB has a 37% loan-to-asset ratio as of 1H03, second highest after Finansbank. Following a 26% rise in 3Q, TEB’s loan-to-asset ratio rose further to 42%. Loans to corporates constitute 52% of the total loan book, medium scale company loans stand at 44% and consumer credits at 4.6%.

Figure 8: DB/Bender Turkish banks universe, loan to assets (BRSA, 1H03, bank-only) Loan/assets (%) Msec/assets (%) Bank Placements/Assets (%) Akbank 27 48 6 Garanti 30 40 4 Isbank 29 35 4 YKB 37 23 3 Finansbank 39 36 4 TEB 37 6 39 Source: BRSA Bank-only financials

TEB continues to gain market share in loans in 1H03. TEB’s FX loans rose by 19% during the Jan-Jun 2003 period, substantially above the 12% growth rate in sector FX loans, while its TL loans rose by 9%, in line with sector TL loans. As a result, the bank’s market share in FX loans rose to 1.83% from 1.73% as at end 2002, whereas it has been maintained at 1.8% for TL loans.

On the other hand, the bank’s share in foreign trade transactions is growing, as of 1H03 it had risen to 6.6% from 5.5% by the end of 2002.

Lowest exposure to Treasury bills in proportion to balance sheet size High liquidity and low exposure to government paper have historically been the bank’s primarily asset structure strategy. As of 1H03, TEB had a mere $106m of government paper (BRSA, bank-only), corresponding to 6% of total assets. Accordingly, its interest income from government securities constituted only 8% of total interest income as opposed to the Tier 1 banks’ average of 48% and Finansbank’s 47%. On the other hand, TEB’s interest income on loans accounted for 51% of total interest income, the second highest after YKB’s 60%.

Page 12 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

We think the low dependence on government securities will prove important for the bank in order for it to maintain its NIMs with low real yields in a stabilised environment.

Figure 9: Turkish banks: interest income breakdown

60% 60% 51% 47% 47% 48% 46% 45% 47%

35%

23%

8%

Akbank Garanti Isbank YKB Finansbank TEB

Interest Income on Securities /Total Interest Income (LHS) Interest Income on Loans /Total Interest Income (RHS)

Source: Bender

Third highest NIMs after Akbank and Finansbank As of 1H03, TEB has the third highest margins among the listed banks under our coverage although it has not benefited from the decline in government security yields, as is the case for other listed banks in our universe. In line with its business plan, TEB primarily targets the corporate banking segment, a highly price-sensitive segment where margins are quite low.

Figure 10: Banks’ adjusted net interest margins (for net monetary & FX losses and capital gains)

14.0% 11.6% 12.0% 10.4% 10.0%

6.8% 8.0%

6.0% 4.8% 4.2% 4.0% 2.5%

2.0%

0.0% Akbank Garanti Isbank YKB Finansbank TEB FY02 1H03

Source: Bender

A low-cost deposit base is one of the major reasons behind strong NIMs. Thanks to its strong reputation and low risk profile, TEB has a loyal low-cost

Deutsche Bank AG Page 13 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

depositor base. During the 2001 crisis, depositors considered the bank to be a safe haven despite its small scale.

Figure 11: Banks’ demand deposits Demand deposits ($m) Demand deposits/ Demand deposits/ total deposits (%) liabilities (%) Akbank 1,908 18 11 Garanti 1,856 20 14 Isbank 2,628 23 15 YKB 1,577 18 12

Finansbank 370 15 10 TEB 348 31 21 Source: Bender

Interest-earning assets substantially exceed interest-bearing liabilities, another major factor behind strong NIMs: TEB’s fixed assets and participations accounted for a mere 7% of its total assets as of 1H03 (the second lowest in our Turkish banks universe after Akbank’s 4%. The Tier-1 banks’ average was 14% and Finansbank’s 8%). Therefore, the bank is able to utilise a higher portion of its assets in banking business and is able to focus on its core operations. TEB, with its high demand-deposit volume, therefore has the highest interest earning asset surplus relative to its equity, at 159% as of 1H03.

Figure 12: Peer group: interest-earning assets & interest-bearing liabilities BRSA, $m IEA-IBL ($m) IEA-IBL IEA-IBL

% of assets % of equity Akbank 2,134 13 75 Garanti 250 2 18 Isbank 955 5 28 YKB -1,117 -8 -53

Finansbank 172 5 40 TEB 326 19 159 Source: BRSA bank only financials

Monetary losses may be tax deductible under amended tax laws in 2004 - a substantial support to NIMs: According to local press reports, the Ministry of Finance has prepared a draft that seeks to amend the tax law, under which taxation will be based on inflation adjusted accounts. If passed, which we see as highly likely, the new regulations would come into effect in 2004 thereby allowing monetary losses to be tax deductible. The lack of adequate inflation adjustments in Turkish GAAP is one of the reasons behind the equity erosion in Turkish banks. Authorities have, however, repeatedly overlooked this in the past in order not to compromise on tax revenues. Weak profits at the banks following the triple audit and the switch to inflation accounting in 2002 are a major factor preventing them from repairing their balance sheets following the economic crisis.

The former government and the IMF agreed to base taxation on inflation-adjusted financials by January 2003. Its implementation however was delayed by the Iraqi war in early 2003. In the IMF Letter of Intent (LoI), the government has declared its intention to use inflation-adjusted accounts starting from 2004. A fall in inflation in 2003 to around 25% from 33% in 2002 should limit the decline in taxes from banks. Furthermore, the low post-crisis net monetary positions of banks should also

Page 14 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

minimise the damage for the government. The April 2003 IMF LoI specifically addresses the need to improve banking profitability. Note that although capital adequacy ratios at most Turkish banks were above the required threshold, we believe that scars from the economic crisis manifest themselves in the form of deferred tax assets, NPLs or restructured loans.

The change will not benefit all banks, but TEB will benefit. We anticipate the new regulation to add $4m to TEB’s FY04 net earnings (which corresponds to a 1.7% contribution to FY04E ROAE).

Superior asset quality The second lowest NPLs among Turkish banks Thanks to its conservative approach in lending, TEB unsurprisingly bucked the trend in 2001 and maintained its loan quality. As of 1H03, TEB has the second lowest NPL ratio (2.2%) among the Turkish banks under our coverage. The bank has a highly centralised credit approval process, in which branches have in essence a quite limited disbursement authority.

Figure 13: Asset Quality (1H03, inflation adjusted, bank only) Performing Loans Gross NPLs ($m) Net NPLs ($m) Gross NPL Ratio (%) ($m) Akbank 4,443 78 0 2 Garanti 3,996 225 99 5 Isbank 5,059 823 365 14 YKB 4,936 544 -394 10

Finans Bank 1,396 111 70 7 TEB 629 14 11 2

Alternatif Bank 217 41 20 16 (*) 267 7 3 3 Denizbank (*) 388 59 20 13 HSBC (*) 1,198 33 4 3 Koçbank (*) 2,092 291 132 12 MNG Bank (*) 57 7 3 11 Oyak Bank 947 17 14 2 ekerbank 385 66 36 15 Tekfenbank 100 5 1 4 Tekstil Bankası 312 4 2 1 Turkish Bank 11 1 0 7 Disbank 938 63 14 6

ALL 27,372 2,390 396 8.0 Exluding four large banks 8,939 719 327 7.4 Turkish Banks’ Association (TBA), foreign banks (except HSBC) have not been considered due to their negligible sizes (*) As of 1Q03 Source: BRSA

As well as its low NPL ratio, TEB has the second highest provisioning for NPLs (74%) after Akbank

Deutsche Bank AG Page 15 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Figure 14: Provisions against NPLs

100%

72% 74% 63%

44% 44%

Akbank Garanti Isbank YKB Finansbank TEB

NPL provisions/Gross NPLS

Source: Bender

Related party exposure is also the lowest Apart from having no exposure to the group’s industrial participations, TEB’s cash loans to group companies have historically been kept low compared to other banks. Reflecting the cash-rich position of Colakoglu Group companies, TEB’s related party cash exposure is limited to only 0.08% of total loans, in contrast to 4.5% on average for other Tier 2 banks and 18% for the big four listed banks.

Figure 15: Related party exposure Cash loans Non cash loans Cash+Non Cash+Non- cash ($m) Cash/ Equity

$m % of total $m % of total Akbank 203 4.6 270 20.7 473 17 Garanti 329 8.2 170 5.0 499 35 Isbank 762 15.1 367 10.4 1,129 33 YKB 2,090 41.1 447 8.7 2,537 121 Finansbank 2 0.2 52 4.0 54 12 TEB 1 0.1 12 1.8 13 6 Source: BRSA, Bender

Maturity mismatch is the lowest and substantially below the average As of 1H03, TEB has an estimated maturity mismatch of one month vs. the six- month average of the other listed banks under our coverage. The inability of most Turkish banks to secure long-term financing sources is no secret, as reflected in the high maturity mismatch between assets and liabilities. Economic uncertainty, coupled with volatile interest rates, mean that depositors are reluctant to maintain long maturity deposits at banks. As a result, average deposit maturity is around 1.5 months.

The mismatch widened further during the turbulence in 2001, when banks entered into a swap agreement with the Treasury, exchanging their existing government paper (average maturity 5.3 months) for longer-term forex denominated bonds (average 37.2 months) in order to cover their open forex positions. TEB did not participate in the debt swap.

Page 16 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Figure 16: Maturity mismatch of Turkish banks under coverage (1H03, BRSA, bank-only) Liquidtity Gap (Assets Up to one 1-3 mths 3-6 mths 6-12 mths +1 yr. Demand minus Liabilities, $m) month Akbank -3,510 420 4,265 2,594 1,060 -4,829 Garanti -393 -2,638 1,247 674 2,316 -1,880 Isbank -4,417 483 1,005 1,814 3,349 -2,235 YKB -3,058 -1,085 727 844 1,767 806 Finansbank -1,226 244 727 167 449 -361 TEB -148 113 -79 76 82 -45

Liquidity Gap, % of assets Akbank -18 2 22 14 6 -25 Garanti -3 -20 9 5 17 -14 Isbank -25 3 6 10 19 -13 YKB -23 -8 5 6 13 6 Finansbank -34 7 20 5 12 -10 TEB -9 7 -5 5 5 -3 Source: Bender (Akbank’s figures are as of 9M03)

Positive free equity TEB had $87m of free capital as of 1H03 that, in our opinion, will give it an important edge when extending high margin-long term loans without a maturity mismatch.

Figure 17: Free capital of private banks (1H03, inflation adjusted, bank only) Equity Fixed assets Participations Net NPLs Free cap Free Cap/Assets (%) Akbank 2,513 391 231 0 1,891 11 Garanti 1,343 929 1,039 126 -751 -6 Isbank 3,212 1,547 1,920 458 -713 -4 YKB 2,069 1,769 730 150 -580 -4

Finans Bank 446 79 215 41 112 3 TEB 205 28 86 4 87 5 Source: TBA

Shareholder structure TEB is owned by the Colakoglu Group with interests in shipping, steel, energy, trade and financial services. The bank’s main shareholders are TEB Mali Yatirimlar (financial holding group) and Colakoglu Metalurji.

Figure 18: TEB’s shareholder structure Share (%) TEB Mali Yatirimlar (100% group owned) 70.1 Colakoglu Metalurji 8.6 Free float 20.0 Other 1.3 Source: Company data

Consolidated affiliates The banking business is complemented by TEB’s subsidiaries that are engaged in leasing, insurance and factoring. TEB Investment, 75%-owned by TEB, provides investment-banking, fixed-income and equity-brokerage services. TEB Leasing (69%) has a 4.4% market share in the domestic leasing business. TEB Factoring (66%) is involved in domestic/international transactions and forfeiting. The company

Deutsche Bank AG Page 17 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

had a 10.4% market share in the sector in 2000. TEB Insurance (50%) specialises in the non-life insurance segment. TEB Asset Management (56%) manages mutual funds worth $350m, with a client base of 33k. The company has a 3% market share and entered into a marketing agreement with Citibank in 1999. TEB Asset Management recently entered into merger talks with ABN Amro Asset Management Turkey and talks are anticipated to be finalised in November. TEB is expected to have a solid majority in the merged company.

TEB operates two wholly-owned subsidiaries in Amsterdam: Economy Bank NV and a private holding company Petek International. Economy Bank, with equity of €45m and an asset size of $658m, provides services in export/import financing, forfeiting, treasury and private banking.

Page 18 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

TEB in a low yield environment

Strategy TEB plans to continue to focus on corporate banking and private banking. The bank does not want to aggressively expand its franchise because this would require a different business plan.

TEB plans to cover retail banking through asset management and mutual funds. As of October 2003, TEB is the 7th largest private bank in terms of $350m of mutual fund volume. On the private banking front, TEB’s assets under management reached $210m as of October 2003. TEB’s asset management company is in the process of entering into a JV in Turkey with ABN Amro Asset Management.

The bank operates a conservative lending policy due to the risk of maturity mismatch (the average maturity in consumer loans is around 12-18 months vs. an average deposits maturity of 1.5 months) and is awaiting further stabilisation in the economy before expanding its consumer lending business.

TEB is not aggressive in the credit card business, although it will continue to provide such services to its clients. We think this is a reasonable strategy given the severe competition and rapidly increasing advertising costs, which make economies of scale an important criterion in the plastics business. As of 9M03, TEB issued 65k credit cards, which corresponds to a 0.4% market share in the total credit card base in Turkey. The bank has 83 ATMs. However, ATM-sharing with other banks provides+3000 ATMs to TEB clients.

New dividend distribution plan implies a dividend yield of 6% In 3Q03, the bank declared that it is to distribute at least 30% of its distributable profits to shareholders starting from 2003, as long as macro conditions and the bank’s capital adequacy ratio allow it. We anticipate the minimum 30% to correspond to a 6% dividend yield for 2003.

However, we think this dividend yield may not be sustainable. The planned expansion in the branch network should allow the bank to increase its risk weighted assets, assuming that it has sufficient CAR to back it. With the growth in loans, the bank targets a decline in the CAR to 14% by end-2003. Furthermore, management does not want a CAR level of lower than 12%.

Flight to quality still a possibility - TEB should be one of the beneficiaries With the collapse of Imar Bank, for the first time since 1994 depositors have confronted the risk of not getting their deposits back. The government has decided to pay back the deposits in Imarbank's case through instalments. The Imarbank experience might now make depositors more selective.

Fee income generation has room for growth As of 1H03, net fee income to average assets ratio was 0.7% for TEB vs. the Tier 1 banks’ average of 1.5% and Finansbank’s 2.8%. TEB’s low fee income is due to its conservative approach in retail banking and its small scale in the credit card business. Loans and foreign trade transactions will therefore be the major source for fee income generation in the future.

Deutsche Bank AG Page 19 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Operating expenses are likely to remain high relative to its peers TEB’s opex base is higher than that of other listed Turkish banks, as observed in its OPEX/av. assets ratio, primarily due to its smaller franchise and high quality employee force. Nevertheless, thanks to strong income generation, the bank has the third lowest Cost/Income ratio after Akbank and Finansbank.

Figure 18: OPEX/ av. Assets Figure 19: Cost/Income

93% 5.0% 79% 4.2% 4.2% 4.3% 3.9% 68% 62% 54% 2.9%

31%

Akbank Garanti Isbank YKB Finansbank TEB Akbank Garanti Isbank YKB Finansbank TEB

FY02 1H03 FY02 1H03

Source: Bank data Source: Bank data

Page 20 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Earnings outlook

We expect TEB to record a net profit of $24.5m (AS, consolidated) in 2003, representing 70% growth YoY and corresponding to an ROAE of 13.6%. GDP growth, declining inflation and lower real yields on government securities have begun to stimulate bank lending. TEB’s loans rose by 26% YoY in 1H03 and 24% in 9M03.

Yields on government securities continued to decline in 4Q to 31% as of 9M03. We anticipate a further decline to 27% by year-end. This, coupled with increasing retail demand in government securities, should allow TEB to increase its trading gains by 35% to $18m by year-end.

We look for an adj. NIM (for net capital market, fx & monetary gains) of 5.2% vs. 4.8% in 2002. On top of rising trading gains, declining net monetary losses with lower inflation should support the bank’s NIMs.

As of 3M03, TEB Insurance has generated a positive bottom line. However, to be on the safe side, we expect its profits in 2H to be tiny. We anticipate the company will end the year at a net loss of $2m, leading to an estimated 1% decline in TEB’s ROE in 2003.

In 2004, we anticipate the bank will record $30.7m in net earnings, implying 25% growth YoY and an ROAE of 14.4%. We think there are strong drivers that will support the bank’s bottom line in 2004:

1) Favourable macro conditions are likely to continue in 2004 in our opinion, with real yields declining to 9% by the end-2004 from an expected 12% by end-2003. We also expect GDP to grow by 5% and CPI to decline to 20% from 15% by the end- 2003.

2) We expect monetary losses to be tax deductible in 2004, contributing an estimated $4.4m to TEB’s FY04 bottom line.

3) We expect TEB Insurance to generate a bottom line profit in 2004.

4) Growth via leverage. TEB may consider a $75-100m via securitisation in 1H04, which should allow it to issue high margin loans.

5) Deterioration in margins should be limited. We expect NIMs (adjusted for net FX gains, monetary losses and capital market gains) to shrink to 4.7% from our estimate of 5.2% in 2003. Although the bank has quite a limited government securities position, we believe its placements in other banks might be sensitive to declining real yields.

We do not foresee competition from other banks in corporate banking loans. This segment is already overbanked and severe price competition has minimised spreads. Foreign banks might have an edge in terms of price competition, as they probably have access to long-maturity cheaper funds from their parent banks. However, these are still marginal players with an aggregate 6% market share in sector assets. Therefore, we anticipate NIMs eroding at a reduced pace in the next two years.

Deutsche Bank AG Page 21 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

TEB’s asset quality has a notable advantage, as most of the Turkish banks still suffer from inflated equities with deferred tax assets, hidden losses in participations and real estate, and/or extensive non-core assets in terms of non-financial affiliates and fixed assets. The only disadvantage for TEB is that its small scale might be a discouraging factor for a foreign bank hoping to enter mass-market retail segment.

9M03 bank-only BRSA results TEB’s 9M 2003 bank-only net earnings rose by 204% YoY to $28m, double the 1H03 bottom line. TEB’s ROE rose to 17.5% in 9M03 from 14% in 1H03 and 5.4% in 9M02.

Net interest income declined by 14% to $72m, due to a 69% decline in interest income on marketable securities. The 9M03-FY2002 average marketable securities of TEB was $85m, 22% lower than the Jan-Sep 2002 average of $108m. Furthermore, yields were around 72% as of September 2002 vs. 35% as of September 2003. Nevertheless, adjusted net interest income (for net fx, monetary and capital market gains) rose to $84m by 14%, YoY. The adjusted NIM rose to 7.6% from 6.8% in 9M02 and 1.3% in 1H03.

Trading income was up by 427% YoY to $18m with declining yields. In 2003, the bank also benefited from the retail demand in government securities, which allowed it to offload its securities at above-market prices.

FX gains increased to $8m from a minus $2m in 9M02. On a bank-only basis, TEB had a short FX position of $8m, which allowed it to benefit from a strengthening TL against hard currencies. The 9M03 results show that the bank switched to a long position of $3m.

Monetary losses declined to $13m from $20m in 9M02, as a result of inflation declining to 10.7% during the first nine months of 2003 vs. 22% in 9M02.

Rising dividend income from participations (to $8m from $5 as of 9M02) and declining NPL provisions (by 75% to $2m) supported the bottom line.

Losses in TEB Sigorta are estimated cause a 1% decline in TEB’s consolidated ROE in 1H03. TEB owns a 50% stake in TEB Sigorta, which is consolidated into its accounts on a line by line basis, since the bank has the management control of the company

TEB’s loans rose by 24% in 3Q03 over 1H03, reaching $769m. The bank’s loan to asset ratio increased to 42% from 37% as of 1H03.

Page 22 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Figure 20: TEB 9M03 BRSA Results ($m, restated for 9M03) 12M02 BRSA 1Q03 BRSA 1H03 BRSA 9M03 BRSA YoY ch.)%) Net Interest Income 112 33 48 72 -14 Fee Income (net) 12 4 7 10 12 Trading Income 14 1 9 18 427 Other Income 14 12 14 17 58 Gross Income 151 50 78 117 9 Operating Expenses 82 22 42 63 11 FX Loss (gain) -1 5 -6 -8 -593 Loan Loss Provision 9 0 0 0 nm Other Provisions 3 1 2 4 nm Pre-tax Profit 59 22 40 58 48 Income Tax 16 4 11 17 74 Extraordinary loss 0 0 0 0 nm Monetary Loss 30 15 15 14 nm Minority Loss 0 0 0 0 nm Net Profit 13 3 14 28 204 Source: Bender (Akbank2s figures are as of 9M03)

Differences between BRSA consolidated accounts and BRSA bank-only accounts

1H03 BRSA results We base our valuations and financials on consolidated IAS accounts, since we believe the BRSA’s reporting standards are still substantially different from those of IAS, such as the lack of deferred tax liabilities. TEB does not release its interim consolidated IAS accounts. However, its consolidated BRSA financials have some key differences from bank-only results, which are likely to be shown in the consolidate IAS statements:

Dividend income of $8m from consolidated affiliates boosts the bank-only bottom line.

n On a consolidated basis, TEB had a long forex position of $4.5m as of 1H03. Therefore the bank recorded a negligible forex loss in 1H03 on a consolidated basis vs. bank-only forex gains of $4m.

n Other income in consolidated accounts fell to $6m as of 1H03 from $12m as of 1H02, due to reclassifications under BRSA’s new accounting policies, introduced at end FY02.

Deutsche Bank AG Page 23 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Figure 21: TEB bank-only BRSA vs. consdolidated BRSA, 1H03 ($m) 1H02 BRSA 1H03 BRSA YoY Change 1H02 BRSA- 1H03 BRSA- YoY Change (%( cons. cons. (%) Net Interest Income 52 48 -8 85 62 -27 Fee Income (net) 6 7 12 12 12 4 Trading Income 2 9 461 4 9 132 Other Income 6 14 145 12 6 -48 Gross Income 66 78 19 113 90 -21 Operating Expenses 33 42 30 54 53 -2 FX Loss/Gain 2 -6 -357 4 0 -93 Loan Loss Provision 3 0 nm 7 2 -69 Other Provisions 2 2 -12 0 0 nm Pre-tax Profit 26 40 57 48 35 -28 Income Tax 6 11 78 12 10 -10 Extraordinary loss 1 0 -96 0 0 nm Monetary Loss 11 15 27 21 18 -16 Minority Loss 0 0 nm 0 0 nm Net Profit 7 14 101 15 6 -59 Source: Company data

Page 24 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Appendix

Figure 22: TEB Consolidated IAS Balance Sheet & Income Statement ($m) 1998 1999 2000 2001 2002 2003E 2004E 2005E Net Interest Income 172 184 192 115 119 108 107 113.6 Fee Income (net) 9 22 34 26 17 21 24 29.7 Trading Income 4 29 9 15 13 18 16 16.7 Other Income 7 9 14 15 11 5 13 13.6 Gross Income 191 245 249 171 160 151 160 173.5 Operating Expenses 74 100 132 95 83 86 96 109.1 FX Loss Provision 62 59 55 24 9 0 0 0.0 Loan Loss Provisions 2 1 4 6 9 5 4 4.8 Other Provisions 0 0 0 0 0 0 0 0 Pre-tax Profit 54 76 58 46 58 59 60 59.6 Income Tax 18 25 20 11 17 19 15 12.4 Extraordinary loss 0 0 0 0 0 0 0 0 Monetary Loss 6 14 18 70 26 15 14 9.4 Monetary Interest 3 5 5 -4 1 1 1 1.2 Net Profit 27 31 16 -31 14 25 31 36.5

Cash and due from banks 380 699 900 858 1,149 1,057 1,196 1,420 Statutory Reserve Requirement 64 60 63 81 81 109 122 152

Gross Loans 278 437 690 757 825 894 1,028 1,282 Gross NPLs 1 1 3 12 12 15 21 26 Loan Loss Allowance 3 2 6 7 13 11 7 12 Net Loans 275 434 684 749 812 883 1,021 1,270

Fixed Income Securities Portfolio 398 360 154 210 72 123 129 136 Accrued Interest ıncome 11 23 40 0 0 0 0 0 Other Investments 2 3 2 1 0 0 0 0 Fixed Assets 20 24 30 25 26 31 35 42 Other Assets 102 103 145 88 116 100 116 132 Total Assets 1,251 1,707 2,018 2,013 2,257 2,303 2,619 3,152

Core Deposits 496 773 918 1,299 1,661 1,416 1,586 1,982 Repo 99 213 60 163 14 47 47 47 Bank Borrowings 463 461 730 310 306 522 650 748 Asset-backed Securities 0 0 0 0 0 0 0 0 Accrued Interest Expense 36 42 51 0 0 0 0 0 Other Liabilities 65 89 80 93 111 109 105 117 Minority Interest 6 11 10 6 7 7 8 9 Shareholder Funds 87 118 168 142 157 202 223 249 Total Liabilities 1,251 1,707 2,018 2,013 2,257 2,303 2,620 3,152 Source: Company data, Bender Securities estimates

Deutsche Bank AG Page 25 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Figure 23: Ratios (%) 1998 1999 2000 2001 2002 2003E 2004E 2005E Net Interest Margin (%) 15.4 13.8 11.5 6.2 5.9 5.0 4.6 4.2 Adj. NIM (after FX & monetary & trading 9.6 9.8 7.7 1.9 4.8 5.2 4.7 4.4 gain/loss) (%) NPLs (% loans) 0.4 0.3 0.4 1.6 1.5 1.7 2.0 2.0 Cost-income (after FX & monetary gain/loss) (%) 61 62 77 134 72 66 67 69 AIEA/Avg Assets (%) 89 90 90 92 94 94 94 94 Avg. Loans/AIEA (%) 22 24 30 36 37 38 39 40 ROAA (%) 2.1 2.1 0.8 -1.6 0.7 1.1 1.2 1.3 ROAE (%) 30.8 30.5 10.8 -20.1 9.6 13.7 14.4 15.5

IEA 1,116 1,554 1,800 1,899 2,114 2,172 2,468 2,978 IEA/Assets (%) 89 91 89 94 94 94 94 94 AIEA 1,116 1,335 1,677 1,849 2,007 2,143 2,320 2,723 Av. Assets 1,251 1,479 1,862 2,016 2,135 2,280 2,461 2,886 AIEA/Avg Assets (%) 89 90 90 92 94 94 94 94 ROAA (%) 2.1 0.8 -1.6 0.7 1.1 1.2 1.3 ROAE (%) 30 11 -20 10 14 14 15 Loan/Assets (%) 26 34 38 37 39 39 41

Av. Equity 87 103 143 155 150 180 213 236 Av.Loans 278 357 563 723 791 859 961 1,155

Growth (%) Assets (%) 36 18 0 12 2 14 20 Loans (%) 58 57 10 8 9 16 24 Deposits (%) 56 19 41 28 -15 12 25

Net fee income/av. Assets (%) 0.7 1.5 1.8 1.3 0.8 0.9 1.0 1.0 OPEX/av. Assets (%) 5.9 6.8 7.1 4.7 3.9 3.8 3.9 3.8 Source: Company data, Bender Securities estimates

Page 26 Deutsche Bank AG 12 November 2003 Banking/Finance Turk Ekonomi Bank (TEB)

Disclosures Additional Information Available upon Request Disclosure checklist Company Ticker Recent Price Disclosure Akbank AKBNK.IS TL7,150 2,6 Garanti GARAN.IS TL3,625 None ısbank ISCTR.IS TL7,300 8,9 YKB YKBNK.IS TL2,020 None TEB TEBNK.IS TL3,275 None Finansbank FINBN.IS TL1,350 None

1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public offering for this company, for which it received fees. 2. Deutsche Bank and/or its affiliate(s) makes a market in securities issued by this company. 3. Deutsche Bank and/or its affiliate(s) acts as a corporate broker or sponsor to this company. 4. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company or derivatives thereof. 5. An employee of Deutsche Bank and/or its affiliate(s) serves on the board of directors of this company. 6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 8. Deutsche Bank and/or its affiliate(s) expects to receive or intends to seek compensation for investment banking services from this company in the next three months. 9. Deutsche Bank and/or its affiliate(s) was a member of a syndicate which has underwritten, within the last five years, the last public offering of this company. 10. Deutsche Bank and/or its affiliate(s) holds 1% or more of the share capital of this company, calculated under computational methods required by German law. 11. Please see special footnote below for other relevant disclosures.

For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://equities.research.db.com. The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Hakan Aksoy Rating key Rating dispersion and banking relationships

Buy: Total return expected to appreciate 10% or more over a 46% 12-month period 160 140 38% Hold: Total return expected to be between 10% to —10% 120 over a 12-month period 100 Sell: Total return expected to depreciate 10% or more over a 80 16% 12-month period 60 40 13% 11% 20 2% 0 Sell Hold Buy

Companies Covered Cos. w/ Banking Relationship

GEMs Universe

Deutsche Bank AG Page 27 Deutsche Bank AG

International locations

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