Transparent200‘6 Annual Report ‘6200 Contents Annual Report‘6 ADDRESS 8

annual report

transparent200‘6 annual report ‘6200 Contents annual report‘6 ADDRESS 8

BANK’S PORTRAIT 12

Key Financial Ratios 14

Main achievements in 2006 15

Shareholders, Board of Directors, Management Board 15

RESULTS OF BANK TURANALEM DEVELOPMENT IN 2006 18

Kazakhstan economic and banking sector performance in 2006 20

BTA group development 22

DEVELOPMENT STRATEGY OF BANK TURANALEM 24

CORPORATE BUSINESS 28

RETAIL BUSINESS 32

SMALL AND MEDIUM-SIZED BUSINESS 38

SUBSIDIARIES 42

Insurance market 44

Pension market 45

Investment market 45

Leasing market 46

Mortgage market 46

STOCK MARKETS 48

Treasury operations in the stock market 50

International Capital Markets 50

Syndicated loans 51

Trade financing 52 annual report

BTA GROUP’S MANAGEMENT SYSTEM 54 The structure of BTA group 56 ‘6 Corporate governance 57

Risk management and internal control 57

Human resources management 58

Social responsibility 60

BTA GROUP’S FINANCIAL STANDING REVIEW 64

Net interest income 66

Non-interest income 66

Operational expenditures, taxation, net income 67

Financial performance 67

CONSOLIDATED FINANCIAL STATEMENTS 70

Report of independent auditors 72

Consolidated balance sheets 73

Consolidated statement of income 74

Consolidated statements of changes in share capital 75

Consolidated statements of cash flows 78 ADDRESS annual report‘6

annual report

DEAR SHAREHOLDERS, CUSTOMERS AND STAFF MEMBERS OF THE BANK! In 2006 Bank «TuranAlem» despite tough competition remained its leading positions and showed impressive growth rates. We tripled net income and more than doubled share- ‘6 holders’ capital and assets. We made one more step to establish the bank as CIS largest financial institute by starting the asset consolidation program. Last year BTA entered list of five top banks on asset volume in CIS. Bank’s 2006 net income increased from 110 mln. to 307,7 mln. dollars USA, assets doubled and totaled some 16,3 billion dollars USA, bank’s shareholders’ capital increased from 650 mln. to 1,5 billion dollars USA. In the accounting period we strengthened our positions in retail, small and medium- sized business. For the first time in Kazakhstan the amount of fixed deposits in one bank exceeded 1 billion dollars USA and by the end of the year comprised 1,4 billion dollars USA. In 2006 retail loan volume increased by 2,8 times and comprised 1,3 billion dollars USA. Small and medium business portfolio almost doubled and comprised 1,2 billion dollars USA. 6,7 billion dollars USA was given to finance bank’s corporate customers. In 2006 BTA continued its policy on investor base diversification. Euro bond issue transactions in sterling pounds, Japanese yens as well as loans in Polish zlotys became first in the history of Kazakh banking system. Bank’s subsidiaries in insurance, pension, investment, mortgage, leasing segments of the financial market successfully developed and largely contributed into Bank «Turan- Alem» achievements. Our nearest strategic goal is to become the largest private financial institution in CIS. To achieve such goal it is necessary to develop BTA as a banking group. In 2006 we purchased majority interest in JSC «Temirbank», JSC «BTA Insurance» and JSC Insurance Company «London-Almaty» within this new development strategy. The bank’s development strategy is based on our main competitive advantage – inno- vations desire to develop our presence in new markets and diversify the range of our services. We constantly work to improve quality of service. In accordance with our business growth our social program is also extended. Bank «TuranAlem» social policy is focused on patronage where the Bank makes all the efforts to restore cultural and spiritual heritage of Kazakhstan. Our goal is investments into Kazakhstan’s future. Bank’s success was noted by international experts. «Euromoney» magazine gave BTA «The Best Borrower in the Developing Markets» award, «Trade Finance» magazine awarded the bank for participation in the best deal of 2006, «Itogi» magazine gave «The Bank of the Year in CIS» award. Notwithstanding the obvious progress we will not stop at what has been accomplished. The increasing competition in the banking market both in Kazakhstan and CIS makes us go a step ahead of the market, provides our customers with new high quality banking services. Feed forward lead strategy gives us confidence in future. Today BTA is a team of professionals, shareholders always ready to support the bank, customers who trust us. I am confident that 2007 will get us closer to achieve our strategic goal.

Sincerely, Roman Solodchenko Chairman of the Management Board Bank’s Portrait annual report‘6 JSC «Bank TuranAlem» is one of the largest banks of Kazakhstan which provides a wide range of financial services. The bank has more than 80-years history being a legal successor of Promstroybank of USSR.

Developed regional network, high quality service and competitive services allow the bank to keep its leading positions of the Kazakh banking system.

At present «TuranAlem» is a contemporary financial institute which has subsidiary specialized companies operating in all basic segments of the financial market.

Shareholders European Bank for Reconstruction and Development International Financial Corporation Dutch Bank for Development East Capital Consortium

Regional network 22 branches and 214 cash settlement units in Kazakhstan 11 banks which are strategic partners in CIS and Turkey

Business volume II bank in Kazakhstan and V bank in CIS on the assets volume

Staff members 5259 employees (Bank) 9726 employees (Group)

Ratings Standard and Poor’s: Long term issuer’s rating – ВВ Outlook – Positive Moody’s Investors Service: Long term debt rating – Ваа2 Outlook – Stable Fitch Ratings: Long term issuer’s rating – ВВ+ Outlook – Positive

Key Financial Ratios

Ratio As at December 31 2006 2005 2004 Return on averaged common shareholders’ equity 36,7% 26,8% 20,8% Return on averaged total shareholders’ equity 35,8% 26,1% 20,7% Return on average value of assets 3,0% 1,9% 1,3% Net interest margin 4,2% 4,4% 5,2% Net interest spread 3,3% 3,4% 4,4% Cost to income 28,7% 37,0% 33,3% Operating expenses of average value of total assets 2,1% 2,4% 2,8% 14 Risk weighted capital adequacy ratio 16,76% 16,11% 14,58% annual report

Main achievements in 2006 • Equity capital of BTA Group increased by 123% in which it reached 194.618 mln. ‘6 Tenge. • The net income of BTA Group is 2,7 times more in which it reached 39.078 mln. Tenge. • Standard & Poor’s Agency has improved long-term credit rating from «ВВ-» to «ВВ», as well as the outlook on ratings from «stable» to «positive». • Bank «TuranAlem» was the first to make a borrowing deal in the Polish Zlotys in the region. The bank attracted 5-year loan of 200 mln. Polish Zlotys. • The bank was the first in CIS to place Eurobonds in sterling pounds. The bank issued 3-year bonds with the value of £200 mln. • Bank’s largest Eurobonds placement for the developing markets’ issuers comprised ¤500 mln. • The bank attracted syndicated loan of $1 111 bln. • For the first time in Kazakhstan the volume of fixed deposits in one bank exceeded $1 bln. • In 2006 bank «TuranAlem» purchased majority interest in JSC «Temirbank», JSC «BTA Insurance» and JSC Insurance Company «London-Almaty» within the program to consolidate assets.

In 2006 the bank was awarded with several prizes:

• «Deal of the year » (Trade Finance magazine, Great Britain)

• «Best deals of the year » (Global Trade Review magazine, Great Britain)

• «Best borrower in the developing markets» (Euromoney magazine, Great Britain)

• «Bank of the year in CIS» («Itogi» magazine, Russia)

• «Best bank of 2006» (Grand Prize of «Golden Altyn» award, Kazakhstan)

• «Perfect bank» (National Consumers League, Kazakhstan).

Shareholders Bank’s shareholders include world largest financial institutions: • European Bank for Reconstruction and Development (United Kingdom of Great Britain and Northern Ireland) • International Finance Corporation (United States of America) • Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden NV (Netherlands) • East Capital Consortium (Sweden) 15 The Board of Directors

Chairman of the Board of Directors Mukhtar K. Ablyazov

Deputies of the Chairman of the Board of Directors Yerkin N. Tatishev Saduakas Kh. Mameshtegi

Members of the Board of Directors Akmaral N. Ablyazova Yerlan N. Tatishev Konstantin A. Kolpakov Talgat A. Akhsambiyev Irakli N. Managadze Yurki P. Talvite

Management Board

Chairman of the Management Board Roman V. Solodchenko

Deputies of the Chairman of the Management Board Abilakim S. Zhumakhmetov Azat D. Battakov Bolat M. Baimirov Genrig I. Kholodzinskyi Murat M. Yuldashev

Managing Directors – members of the Managing Board Bakhyt D. Otarbekov Indira K. Izteleuova 16 Asylmurat S. Ramazanov annual report‘6 RESULTS OF BANK TURANALEM DEVELOPMENT IN 2006 annual report‘6 Growth of Kazakhstan’s economy and banking sector in 2006 Macroeconomic Performance

In the last few years Kazakhstan’s economy has been growing rapidly. The growth is generally being driven by better general macroeconomic performance, proper monetory and fiscal policies, favorable commodity prices and ongoing structural reforms.

The table below provides information on Kazakhstan’s GDP and number of population as at 2004 – 2006 years:

2006 2005 2004

Nominal GDP, billion Tenge 9 739 7 591 5 870

Real GDP growth, % 10,6 9,7 9,6

GDP per capita, thousands tenge 632,65 498,77 389,39

Population at the end of each year, million people 15,39 15,22 15,07

The source: Agency on the Statistics of the Republic of Kazakhstan.

In 2006 GDP structure was not considerably changed. Nevertheless, the construction share was increased from 7, 4% up to 8, 9%. Real estate transactions share is also substantial -15, 1%.

In 2006 industrial growth was slow (7%) which, however, is higher than the index of 2005 (4, 6%). High growth of nominal GDP was provided by high prices on Kazakhstan’s strategic export goods which are mainly oil and gas.

Individual income continued to increase in 2006, and that was the major factor contributing to a stronger domestic demand for goods and services in the consumer market, which in turn supported the strong imports of mostly food products and manufactured goods.

In 2006, imports amounted to 23, 7 bln USD or 136, 4% versus 2005, and exports amounted to 38, 3 bln USD (137, 3% versus 2005).

Kazakhstan’s Budget plan in 2006 is fulfilled by 108, 9% versus the primary plan of 2 147, 3 bln tenge, the actual revenues amounted to 2 338, 0 bln. tenge. In 2006 budget revenues exceeded the cost-based ones (operational balance) by 187, 5 bln. tenge.

In 2006 net international reserves grew by 170% and National Fund assets - by 74%. These indices reached as at the end of 2006 19,109 and 14,085 bln USD accordingly.

The real average monthly wage amounted to 10,7% in 2006, according to the Agency on Statistics of the Republic of Kazakhstan. Expected overall growth of real wages enables greater economic growth and positive developments in the banking sector.

Economic stability and the attractive investment environment in the country generally enhanced the country’s image. Kazakhstan was the first CIS country 20 to receive investment rating from leading international rating agencies. annual report

Recent trends in international markets have also had a positive impact on Ka- zakhstan’s macroeconomic performance. Growth trends in Kazakhstan’s economy are very likely to continue in the midterm. ‘6 Banking sector

Favorable macroeconomic performance positively influences development of Kazakhstan’s banking sector.

As at end of 2006, the number of registered banks in Kazakhstan amounted to 33, regardless the Bank for Development of Kazakhstan. In 2006, the assets of the banking system totaled some 8 874, 6 bln tenge, growing by 96, 6%. The assets of the banking system totaled some 91% with respect to the GDP. The aggregate capital of the II Tier banks grew by 99, 1% in 2006 reaching 879, 5 bln. tenge.

The aggregate loans and deposits of the banking sector also grew in 2006. The loan portfolio of the Banks grew by 2 929, 9 bln tenge (95, 7%) up to 5 992, 0 bln tenge. Bank deposits totaled some 4 714, 9 bln tenge (+86, 9%).

Individual deposits as at the January 1, 2007 have totaled some 1 034, 2 bln tenge, which was 73, 3% more than the 2006 levels. The growth in deposits is the most obvious evidence of the growing public confidence in Kazakhstan’s banking sector recognized as the most advanced banking sector in the CIS.

These high growth rates require an adequate supervision of the activities of the commercial banks from the regulatory bodies. The steps taken by the NBK and the AFS to stabilize the banking sector continue to have a positive impact on the banking sector and they support:

• The growing confidence of the public in banks;

• A steady Tenge rate;

• Much stronger risk management in terms of capital adequacy, liquidity, currency position value and the quality of loan portfolio.

21 BTA group growth The financial results of BTA group activities

In 2006, BTA kept its leading positions and high growth rates in terms of serious competitive environment in the financial market. The Bank became more successful, stronger and stable financial institution.

Consolidated net profit of the Bank in 2006 totaled some $307,7 mln, growing by 2,8 times more versus 2005, aggregate assets -$16 339,7 million (growth by 2,2 times), share capital -$1 532,4 million (growth by 2,4 times), loan portfolio - $10 578,1 million (the growth is more than by 2 times).

Bank loans are given to the customers, who work in the following sectors of economy: oil and gas production (6, 2% of the total loan portfolio), agriculture (5, 2%), food industry (3, 6%), transport (3, 1%), retail trade (2, 3%) and other sectors of economy.

At the same time the bank’s strategic activity is still small and medium business enterprises and retail consumers lending.

Thus, SME loan portfolio grew by 66% last year, reaching $1 165 million as at the end of the reporting period, retail loans - by 2, 6 times up to $1 331 million.

A steady growth of individual deposits is the main evidence of the public’s confidence in the bank. In 2006, individual fixed period deposits grew by 71% up to $1 402 million. Regional network development

Bank «TuranAlem» has one of the biggest regional networks. The formation and development of stable and profitable branch network is the basic and the most effective method of the Bank’s regional priorities realization. As at January 1, 2007 Bank’s branch network included 22 branches and 214 units which include 119 retail units and 95 universal units.

In 2007, the number of units throughout Kazakhstan is planned up to 300.

Apart from the domestic expansion, Bank «TuranAlem» is successfully realizing regional development strategy in the territory of CIS by establishing representative offices and banks –strategic partners. Expanding its geographical presence, we are seeking to be closer to our clients.

Moreover, the development in CIS allows us differentiating business and, as a result, the risks and revenue sources.

At present, bank has 11 banks – strategic partners: in Kazakhstan, Russia, Ukraine, Belarus, Georgia, Armenia, Kyrgyzstan, and Turkey. Also, Bank’s representative offices are functioning in PRC and UAE.

BTA plans to open a subsidiary bank in PRC, Azerbaijan and in long-term per- spective – in Uzbekistan. 22 annual report‘6 Development strategy of Bank TuranAlem annual report‘6 In 2006 the Board of Directors of Bank «TuranAlem» adopted the bank’s development strategy till 2015.

Within this strategy there is decision to develop as a universal bank in Kazakh- stan and to enter the target foreign markets by establishing a banking group.

One of the basic Bank’s competitive advantages is innovation culture which is a desire to expand its presence in the new markets and continuously extend and adapt its product line, offer high-technological services thus satisfying market needs.

The main source of BTA’s dynamic growth is the realization of the large market potential of post-soviet countries (CIS), sharing common past and, to some ex- tent, similar approach to business practice.

We possess a thorough knowledge of the local market and clients’ needs, that allows to compete with foreign financial institutions present in the market. Be- ing a leader of the banking system in Kazakhstan, we transfer our experience of development to neighboring countries.

BTA aims to become the largest private bank of CIS. Moreover, the Bank plans to use dynamically developing routes of external trade of Kazakhstan and other CIS countries, in order to expand its presence in countries – largest trade partners of CIS, including Turkey, China and others.

According to the development strategy till 2015, Bank «TuranAlem» plans to oc- cupy leading positions in Kazakhstan with the market share not less than 25%, in Russia – not less than 2%, in other countries –not less than 5%.

26 annual report‘6 Corporate business annual report‘6 Bank «TuranAlem» is a lender to the largest corporations in Kazakhstan. By lending large corporations we contribute to the country’s economy development. The bank is also a lender to a number of economically important projects for the country.

At present corporate business is the largest segment of the bank’s business. Loan share to large companies is more than 70% of the loan portfolio.

In 2006, the loan portfolio grew by 69% reaching 883 bln. Tenge.

CORPORATE BUSINESS FINANCING

bln. Tenge

By the end of 2006, about 400 companies of different economy sectors got the bank’s loans. Among the bank’s customers there is a larger number of construction, trade and transport companies.

Performing credit operations the bank adequately assesses the customer’s creditworthiness. At present, the bank is lending the main economic sectors thus diversifying its loan portfolio.

LOAN PORTFOLIO STRUCTURE, 2006

0,5% Construction 38,3% 9,3%

Trade 22,6% 22,6% 19,1% Industry 19,1%

Agriculture 8,2% 2,1% Transport 2,1% 8,2%

Communications 0,5%

Other 9,3% 38,3% 30 annual report‘6 Retail business annual report‘6 Retail business is the strategically important activity of Bank «TuranAlem». To keep the existing positive dynamics of retail business development the Bank will work on the improving customer service as well as reducing self-cost of the services.

2006 became successful for Bank «TuranAlem» in terms of retail business. Wid- ening of the services range, performance of assumed liabilities, active social position enhanced public confidence in the Bank.

Last year due to new customers and loyalty of our current customers we increased our market positions in the retail services segment.

Lending

The Bank’s retail loan portfolio grew by 2, 6 times reaching 169 bln tenge in 2006.

RETAIL BUSINESS FINANCING

bln. Tenge

In 2006, the bank’s focus was on mortgage and auto lending, which resulted in the growth of these products in the Bank’s portfolio from 37, 2% up to 41, 4% and from 6, 3% up to 7, 7% accordingly.

The Bank is continuously offering new products to the customers and working on service improvement. As a result, the bank managed to increase the average monthly number of loans by 3 times in 2006 versus 2005.

In 2006, the bank continued to develop alternative sales channels - Call center and agent’s network. Up to 20% sales in 2006 on some products was made with the help of agents and partners of the Bank.

The Bank remained market’s leader on sale of Charge Cards with a share of 19, 6% from the total number of circulating cards. The main focus was on the credit cards expansion. In the market growth rates of 1,3 times, the number of cards in circulation almost doubled.

Moreover, a significant growth was observed on the lending volumes through the credit cards. Thus, volume of limits, set on credit cards reached 2, 6 bln tenge as at the end of the year, that amounted to 33% of the market.

To satisfy needs of BTA customers in service of debit cards the Bank constantly 34 increases the infrastructure of automatic teller machines. Thus, in 2006 the annual report

quantity of installed automatic teller machines amounted to 190 units reaching some 501 ATM which totaled in 22% share in the BVU market. ‘6 In 2007 the Bank will develop network of large specialized divisions such as the Centers of mortgage lending, Centers of Auto Crediting, Specialized divisions for the depositors with the extension of the universal divisions network.

Deposits

At present, Bank «TuranAlem» provides more than 10 kinds of fixed deposits for the population.

In 2006 the volume of natural persons’ deposits grew by 68% up to 200-bln tenge. Fixed Deposits of population comprised major part of deposits - 178 bln tenge.

FIXED DEPOSITS OF NATURAL PERSONS

bln. Tenge

The Bank always pays much attention to this part of retail business, due to which we are the leaders in this market segment. The bank’s share in the market of natural persons’ fixed deposits is 20%.

Transfers and payments Western Union Transfers

In 2006, Bank’s share on the volume of Western Union transfers grew by 4% and totaled 17%.

Number of transfers grew by 51%, and their volume by 76%.

In 2006, increase of the Bank’s market share was enhanced by increase West- ern Union transfers units in the bank’s branches. Moreover, a specialized unit was opened in Almaty and a round-the-clock unit in Astana.

In 2006, two branches of the bank won the contest of Top Teams, held by West- ern Union Company in such nominations as “The best unit in all respects” and “The best unit on the growth of money transfers”. Faster transfers

In 2006 «TuranAlem» Bank was the first bank in Kazakhstan who developed and introduced its own system of express-transfers between the natural persons without account establishing. 35 During introduction of the pilot project (3, 5 months) the transfers on this system totaled to 1, 37 million USD.

In short-term outlook, beside the Banks of Russia, Armenia, Georgia, Kyrgyz- stan, Tajikistan, the banks of Azerbaijan, Ukraine, Uzbekistan, Baltic Countries, Turkey, UAE, China are planned to be introduced into this transfer system.

Payments

Bank “TuranAlem”, having the largest branch network, is one of the main opera- tors in the market of cash payments.

In 2006, the Bank received cash payments by 67% more, reaching 59, 7 bln tenge.

According to the payments types the main share is taken by utility payments.

PAYMENTS BY SERVICES 1% 4% Utility payments 37% 6% Mortgage loans 26% 8% (including BTA Ipoteka) Budget payments 18% 37% Cellular communications 8% 18% Education 6%

Insuarance payments 4% 26% Pension payments 1%

In 2006, utility payments grew by 55%, and the bank’s market share in this segment increased by 5%, reaching some 32%.

CASH UTILITY PAYMENTS

bln. Tenge

BTA Market Share %

In 2007, the Bank is aimed at increasing its share in this market segment up to 35%.

Moreover, the bank is intended at developing Cash-in terminals, which allow to 36 speed up the customer service. annual report‘6 Small and Medium -Sized Business annual report‘6 Small and medium-sized business is the basis of any economy stable development. The work with the SMB subjects is one of priority activities of the bank.

In 2006, loans made for SMB subjects grew by 66% and amounted to 148-bln tenge, as at the end of the year.

SMALL AND MEDIUM BUSINESS FINANCING

bln. Tenge

Within this direction Bank «TuranAlem» offers 8 unique loan programs for all categories of subjects of SMB.

Moreover, the Bank is successfully working with international financial institutions within SMB financing framework. Particularly, since 1998 Bank «Turan- Alem» has been working on the program of European Bank for Reconstruction and Development, being its active participant and leader.

By financing SMB subjects, the Bank tries to diversify its portfolio, at the same time providing representatives of different sectors with an opportunity for loans.

STRUCTURE OF SMB LOAN PORTFOLIO BY SECTORS OF ECONOMY

Trade 43% 9,8% Construction 1,6% 6,3%

Industry 9,8% 25,4% 11,6% Agriculture 6,3% 3,9% Transport & communications 3,9%

Other 5,4% 43%

40 annual report‘6 Subsidiaries annual report‘6 Today BTA is not just a Bank, it is a group of companies, represented in all segments of the financial market. Strategic decision on the banking group model was taken long ago and is correct. We were the first in Kazakhstan who chose this way, and today this fact is our main competitive advantage. Today we can satisfy any financial needs of the clients: from opening the bank account to investment management.

Insurance market

In the insurance market Bank «TuranAlem» is presented by four specialized subsidiary companies. They are JSC «BTA Insurance», JSC «BTA Zhizn», JSC «BTA Zabota» and JV JSC «SK «London – Almaty». The collected insurance premiums grew by 4 times in 2006, reaching 24 bln tenge, that totals to 19% of insurance market of the Republic of Kazakhstan.

JSC «BTA Insurance»

«BTA Insurance» is specialized on auto insurance, insurance of property and liabilities.

The company holds licenses to perform insurance activities in 14 classes of voluntary insurance and 7 classes of compulsory insurance; the services of the company are available in 20 towns of Kazakhstan.

«BTA Insurance» share in the insurance market is 9% (4th place), and in the auto insurance segment the company takes the 1st place with 15% of the market share.

JSC «BTA Zhizn»

«BTA Zhizn» is specialized on the personal insurance, providing its customers with three types of insurance: term, accumulative and annuity.

The company is represented by 11 agencies, and more than 5 000 insurance agents on life insurance throughout Kazakhstan.

«BTA Zhizn» is the leader in the market of personal insurance, taking some 23,4% of the market, in the market of life insurance - 92%, annuity insurance - 41,2%.

The management system of the company corresponds to the International Qual- ity Management Standard ISO9001: 2000.

JSC «BTA Zabota»

«BTA Zabota» is the second specialized medical insurance company in Kazakh- stan.

According to the results of 2006 the company entered three top leaders in the market of medical insurance by insurance premiums.

The company’s share in the market of medical insurance grew from 3% up to 11% for the reporting period. 44 Today the number of insured customers is more than 11 000 persons. annual report

The bank’s MediService company provides the customers with the medical service, being represented in 22 cities of Kazakhstan. ‘6 JV «London – Almaty»

The priority development of JV «London – Almaty» is the voluntary insurance of legal entities.

The company has adopted the Standards of quality management ISO 9001- 2000.

In 2006, collected insurance premiums grew by 2, 5 times, and the payment of insurance compensations decreased by 14% versus 2005.

The share of the company in the market increased by 1, 5% totaled 5, 9% at the end of year.

Pension market

In the pension market Bank «TuranAlem» is presented by «SPF «BTA Kazakh- stan».

There are also two trade unions as founders of the Fund: «The Trade Union of Coal Industry Employees» and «The Trade Union of Karaganda Region’s Mining and Smelting Industry Employees».

«SPF «BTA Kazakhstan» has representative offices in 19 towns of Kazakhstan, as well as agent units in major district centers of the country.

This Fund is the only one whose shares are included into official list of Kazakh- stani stock exchange.

In 2006, pension accruals in the fund grew by 76% reaching some 83, 8 bln tenge. The number of depositors increased by 20% and amounted to 712 666 persons for the same period.

Nominal income ratio grew by 63,59% (1st place among SPF) for the period since December, 2003 to December, 2006.

Investment market

The subsidiary company JSC «TuranAlem Securities» is the leader in the investment market of Kazakhstan and within last five years has confidently preserved its leading positions in the market on the volumes of non-governmental securities trade. By the results of 2006 the share of company in this segment was 35, 1% of all trades.

In 2006, «TuranAlem Securities» successfully issued the loans on debentures amounting to 161,7 bln tenge, participated in the issue of several Kazakhstani companies shares. One of the important events of the year is the formation of the parallel shares circulation of Kazakh issuer Kazakhmys Plc, simultaneously in two areas - London Stock Exchange (LSE) and Kazakhstan Stock Exchange (KASE). «TuranAlem Securities» was a financial consultant of Kazakhmys Plc in the organization of this project and allocation among the Kazakhstani investors of the shares totaling to more than 100 mln pounds sterling. 45 In 2006 the company «TuranAlem Securities» extended its product line by offering the customers services to organize debt financing in the international capital markets and attendant consulting on these products. In 2006, the company organized a number of successful transactions in clients’ interests on buying and selling businesses in the territory of Kazakhstan and the near abroad totaling to more than 100 mln. of USD.

The company has 14 unit investment trusts which assets amount to some 12, 3-bln tenge in its trust management.

In 2007, «TuranAlem Securities» is planning to expand the geography of atten- dance, ensure best customer service and enter the number of absolute leaders of Kazakhstan’s investment companies and CIS countries.

Leasing services

Bank «TuranAlem» is represented in the leasing service market trough its dedi- cated subsidiary JSC «BTA ORIX Leasing» (Bank «TuranAlem» share is 45%).

Shareholders apart from the Bank are ORiX Corporation of Japan (35%), ORIX Leasing Pakistan (10%), and IFC (10%).

The company is specialized on the services in financial, operative leasing, fac- toring for the subjects of SMB. The company has representative offices in 10 cities of Kazakhstan.

At present, the leasing portfolio of the company is 4, 3 bln tenge. At the end of 2006 «BTA ORIX Leasing» occupied 9% of leasing market in Kazakhstan.

Mortgage market

Bank «TuranAlem» subsidiary JSC «BTA Ipoteka» is the first 100% private mortgage company.

The mortgage portfolio of the company (subject to off-balanced assets) grew by 76% in 2006 reaching 73, 2 bln tenge.

«BTA Ipoteka» has a long-term credit rating «BB-», forecast – stable of the Standard & Poor’s rating agency.

At present «BTA Ipoteka» offers its clients a complete range of services in the sphere of mortgage lending. The company has branch offices in 22 towns of Kazakhstan.

46 annual report‘6 Stock markets annual report‘6 Treasury operations in the stock market

Bank «TuranAlem» is an active participant in the currency market and equity market.

JSC «Bank TuranAlem» is the Primary dealer of Ministry of Finance of the Republic of Kazakhstan in MEKKAMs and MEOKAMs, the Primary agent on short-term Notes of the National bank of the Republic of Kazakhstan.

The volume of transactions with securities in 2006 reached: in the primary market - 605, 5 bln tenge, in the secondary market - 1 002, 5 bln tenge. Trans- actions with sold out securities totaled to 1 095, 3 bln tenge.

In 2006, in the state securities sale sector the share of the Bank amounted to some 15, 8% (2nd place), corporate bonds sale sector the Bank’s share amounted to 8, 7% (2nd place). Moreover, in 2006, Bank «TuranAlem» actively worked in the REPO stock market, and its share of the Bank amounted to 15, 7% (1st place).

Besides, Bank «TuranAlem» is one of the most important participants of the financial market of the Republic of Kazakhstan and the major operator in the Kazakhstan Stock Market (KASE) on foreign currencies (USD, RUR), performing arbitrage, forward, forex, interbank credit-and-deposit transactions and futures operations.

In 2006, the Bank entered into 3 705 transactions in all currencies totaling to 1 653, 8 bln tenge.

In 2006, Bank «TuranAlem» share in trade volumes in the stock currency market amounted to 8, 4%.

International Capital Markets

Bank «TuranAlem» has a great experience in the international capital markets. We constantly create precedents for the national banking system, us- ing new instruments for securities issue. By attracting new resources in the international capital markets, the Bank keeps to the policy of inventory base diversification.

In 2006, Bank «TuranAlem» qualitatively improved the fund structure, thus the focus was on the issue of debt securities with longer maturities and geographical diversification of fund resources. Successful allocation of hybrid perpetual bonds totaling to 400 mln. of USD in the beginning of the year confirmed the high level of international investors confidence in the Bank.

Apart from conventional issue of Eurobonds in USA dollars and euro, during 2006 BTA was a leader among Kazakhstani banks to allocate Eurobonds in other currencies. The Bank discovered new category of local investors who invest into instruments, denominated in their national currency. Such issues are Eurobonds in Polish zlotys, Japanese yens, and English Pounds Sterling. All mentioned allocations were conducted within Mid-term Eurobonds Program framework (EPF) – framework prospectus of emissions registered at London Stock Exchange. With the help of EPF Bank «TuranAlem» issued series of Eu- 50 robonds of different kinds, namely securities with fixed and floating rates, cur- annual report

rency rate pegged, with the options of early repayment, etc. In some issues interest and currency risks were hedged with the help of currency and interest swap transactions, which allowed the Bank to optimize the level of risks and ‘6 expenses under its promissory instruments.

In general, 2006 was successful for the Bank in the external capital markets on the volumes and the currency diversification of the outstanding Eurobonds. The level of investors’ confidence grew pro rata to the increase of the bank’s international ratings and due to the bank’s predictable policy of external borrowings.

Syndicated loans

Syndicated loans are one of the ways to raise funds in order to finance transactions made by the bank’s customers in the trading sector. Starting back in 1999, the Bank succeeded in getting syndicated loans and since then such loans have amounted to more than 3 200 mln. of USD and by the end of 2006 the syndicated loan portfolio totaled some 1 503,5 mln. of USD.

The Bank was always distinguished by entering into exemplary for Kazakhstan transactions. So were the transactions of 2006. In June 2006, the bank received first Asian syndicated loan worth some 110 mln. of USD. This loan allowed differentiating investors base as it was oriented to the investors of South-eastern Asia, which were greatly interested in the transaction, and result of re-sub- scription on the loan was more than 100% from the initial announced sum of 50 mln. of USD. This transaction is exemplary for Kazakh banking sector, as the investors were represented by a large group of Asian investors who haven’t invested in this region before.

In July 2006, the Bank attracted Islamic financing on Murabaha agreement amounting to some 200 mln. of USA dollars. The loan is unprecedented for Ka- zakh market as it was received after introduction of new stricter rules of funds disposal, received according to the Shariath law, in accordance with which the bank should not only receive but also place the funds in accordance with the principles of the Shariath, and that was successfully realized.

In September 2006 the Bank again completed an exemplary deal in Kazakh- stan’s market – it received a global syndicated loan worth 1 111 mln. of USA dollars. Geographically, the diverse syndicate of banks which have different approaches to measuring the risks was represented by 55 banks from all over the world. Apart from receiveing syndicated loans, in November 2006 the Bank received Club loan amounting to some 200 mln. of USA dollars from the group of investors, which have great confidence in the Bank.

Bank «TuranAlem» is also an active borrower in the market of syndicated loans, since 2004 it has been actively performing a borrower’s role and since that time participated in 22 syndicated loans of CIS banks on either funded or non-funded basis. In 2006, the Bank participated in syndicated loans of 17 CIS banks. The most number of transactions was with the Russian banks (59%), Belarus (29%) and Kazakhstan (6%).

It is also necessary to note that having great experience and long credit history in the market of syndicated loans; the Bank is intended to organize syndicated loans for CIS banks and made first steps in this sphere. 51 Trade financing

Bank «TuranAlem» is an outstanding leader in trade financing with the market share some 37, 4%. Trade financing portfolio amounted to 3 345 mln. of USA dollars at the end of 2006, which in aggregate with the general blank credit lines in favor of BTA is more than 4 315 mln. of USA dollars demonstrates the possibilities and growing potential of the Bank.

Increased competition in this segment of the market increases the attractive- ness of trade financing for the customers and stimulates the Bank to expand and diversify its product line either for the customers in the Republic of Ka- zakhstan or in CIS countries.

BTA trade financing portfolio includes such products as letters of credit, war- ranties, export-and-credit agencies, forfeiting, pre-export/ pre-import financing, project financing, club transactions, and the terms of financing are varied from 1 year up to 12 years.

Following economic tendencies of development of Kazakhstan and number of other CIS countries, one of the strategic purposes of BTA activity is the en- couragement to the development of small-to-medium business by creating the favorable conditions of crediting. In order to realize this strategy the Bank started financial leasing program which provided a number of tax advantages and minimum financing term is 36 months. As the source of financing BTA uses trading credit lines from foreign banks-correspondents.

Also, due to the dynamic development of the bank the term of the majority blank credit lines in favor of BTA increased up to 4-5 years which correspond- ingly increased the terms of customers’ projects.

Export potential of the country is growing every year which is resulted in that more BTA customers are interested in pre-export financing of their contracts. The basic advantage of this product for the Bank’s customers is relatively low financing price.

Trade financing is one of the priority activities of the Bank and BTA is intended to preserve its leading positions in this segment, with the purposes of which it will continue to develop and introduce new products and ideas for more complete and better satisfaction of the customer’s needs.

52 annual report‘6 BTA Group’s Management System annual report‘6 The structure of BTA group

Today BTA group is represented by a number of companies which work in all segments of the financial market.

Bank «TuranAlem» manages its subsidiaries and controlled companies through participation of the Bank’s representatives in the Boards of Directors of these companies.

BANK TURANALEM

INSURANCE MARKET: JSC BTA INSURANCE JV JSC IC LONDON – ALMATY JSC BTA ZABOTA JSC BTA ZHIZN

MORTGAGE MARKET JSC BTA IPOTEKA

PENSION MARKET JSC SPF BTA KAZAKHSTAN

BANKS-PARTNERS (11 BANKS, 7 CIS COUNTRIES AND TURKEY)

LEASING MARKET JSC BTA ORIX LEASING

INVESTMENT MARKET JSC TURANALEM SECURITIES

Banks-partners

KAZAKHSTAN ARMENIA TEMIRBANK BTA INVESTBANK

BELARUS KYRGYZSTAN ASTANAEXIMBANK INEXIMBANK

UKRAINE TURKEY BTA BANK SHEKERBANK

GEORGIA RUSSIA 56 SILKROADBANK SIB • OMSKBANK • BTA KAZAN • AGROINCOMBANK annual report

Corporate governance Corporate governance is one of the highest priorities of the Group. ‘6 The Code of Corporate Governance is approved and is being implemented in the bank. Its fundamental principles are: • protecting the rights and interests of shareholders; • effective management by the Board of Directors and the Management Board; • ensuring transparency and accuracy of disclosure on the company’s activities; • legitimate operations and ethical behavior; • perusing effective dividend policies; • perusing effective human resource policies; • environmental protection; • Establishing policies to resolve corporate conflicts.

Principles of the corporate governance are adopted in all subsidiaries of Bank «TuranAlem».

On February 22, 2007, General meeting of shareholders approved and adopted new Regulation on «The Board of Directors of Joint Stock Company «Bank «TuranAlem» with the purpose to improve corporate procedures and corporate governance policies in Bank «TuranAlem». Corporate governance and control are as follows: • General Meeting of Shareholders. • The Board of Directors. • The Management Board with the Chairman • Internal Audit Service • External auditor.

Major business decisions are made by the General meeting of shareholders within its competence and are determined by the articles of association and by the Board of Directors. Day-to-day administrative decisions are made by the Management Board and the Chairman of the Management Board of the Bank.

Risk-management and internal control

Financial markets represent a complex, high-tech and volatile environment where business is associated with diverse current and identified risks. In order to secure the banking activities it is necessary to implement an effective system of risk management and adequate controls.

The Bank has to date created and implemented basic framework for managing banking risks. In 2005, the Agency on Financial Supervision implemented Basel II Guidelines (standardized approach) and II Tier Banks were ordered to follow. In light of new rules in line with Basel II the quantitative assessments of operational and market risks are implemented and approaches to the system of credit risk management are strengthened. The Bank constantly improves 57 risk management system on the basis of the widely spread technologies in the modern banking system, wider use of mathematic modeling approaches and internal control system development. Today, new software Egar Credit Risk is being implemented which will assist to manage credit risk systematically on all levels of the Bank’s crediting activities. The work on standardization of the asset operations, setting and accounting of the risk limits use, centralization of the regional and branch risks assessment system. A centralized system of market risks management including the interest and price risk management, currency risk, liquidity loss risk is being improved.

The Bank timely and adequately reacts to the change of environment. The complex of measures to analyze and assess potential risks and prevention of emer- gencies are regularly conducted.

The Board of Directors is primarily responsible for risk management and control. Executive bodies, realizing the tasks of the Board of Directors are the Risk Committee, Credit Committee, and Committee on assets and liabilities management. The functional duties on risk management are performed by Credit Risk division the Head Office and branch network, at the Retail business risk management (credit and country risks), Analytical center (liquidity risk, market and prudential risks), Internal Audit, legal service (operational, legal risks), and the Brand-office (risk of goodwill).

Bank’s risk management structure is based on the following principles: • Business integration and risk management; • Independence and centralization of the risk management system; • Standard operations and technology; • Identification and measuring of the risk; • obligatory control and risk assessment of new instruments and activities; • limits; • reporting risks.

Bank «TuranAlem» also works hard at providing the best quality in loan port- folios. We have improved our risk control system of loan portfolio and are in the process of improving internal risk controls. Our strategy is to phase out the significant increase in the loans and to focus more on strategically profitable customers that can be offered a wide range of other services.

Quality of Loan Portfolio

2006 2005 2004 Non-performing loans / gross loans 0,6% 0,6% 0,6% Provisions portfolio / gross loans 5,0% 5,6% 6,7%

Human resources management

As at January 1, 2007 headcount of BTA staff is 5 259 persons, 90% of them have higher education. The average age of the employees in the bank is a bit more 58 than 29 years. annual report

Business scale and the number of employees determine an effective personnel policy. We consider our workers to be the most valuable asset of the Bank. ‘6 The main task of relationship regulation between the employer and the employee is the development and realization of the policy concerning the personnel development as a key factor of business development to achieve competitive advantage of the Bank in the financial market.

The Bank experiences significant organizational changes the reason of it being the adoption of new development strategy till 2015. These changes con- cern all organization on all the levels, including each employee, and the role of professional behavior, personal attitude of each employee to the changes and new requirements to work are strengthened. It is very important that either strategic committee, in the structure of which there were the top-management and line managers which initiated the creation of new strategy, or employees have coherent understanding of the necessity of such changes, their adoption and awareness of what results and style of the work shall be expected in line with these changes. This was the main focus of corporate trainings through the whole organization entitled «Strategy of Ascension» which enhanced building of a strong team aimed at one result.

In terms with new actual requirements the Code of business ethics was re- newed, there is a working group on ethics which is aimed at solving working situations and determine certain behavior models for the employees in different situations, which allows creating the general standards of behavior based on the bank’s valuables.

The Bank is working on optimizing main directions of HR policies, from the model of bank’s cooperation with the labor-market to the system of compensations and benefits to keep effective employees.

Bank «TuranAlem» slogan in the labor market is «Plan Your Career At Scale», that reveals the bank’s intention to select people to the team who are intended at successive professional development and long term relations with the employer, in its turn the company has all potentials to construct career at scale in line with the growth and development of the Bank. As before, the Bank’s focus is not only on the experience, but on the energy and potential of young specialists. This year the bank set the graduation program by which about 150 successful graduates of different Almaty universities competed for the working place, and the program will be carried out every year. With the aim of successive and timely education the training center was established to develop standard education program, based on the requirements to employees and aimed at the customer service quality improvement. Special attention is given to the programs on business qualities development through which the valuables of the Bank are seen.

Subject to the needs of the business different kinds of educations are applied from specific financial trainings, participations in large projects and to individual trainings in organizations which are the partners of the Bank.

The bank is working to improve the system of remuneration and benefits for the employees based on the Principles of internal justice and external competitive- ness that allow maintaining the image of the employer, which is taking care for its staff. Moreover, there are different corporate awards, supporting the long- term relations and improvement personal achievements of each employee. This 59 year there were such nominations as «Meritorious Service», «Leader of the year», «Prize for diligence», «Celebration of anniversary» (upon length of service 10, 15, 20 years), which are accompanied with general recognition of the team and tangible rewards. One of the most important directions of the corporate culture policies is the improvement of internal communications channels which is revealed in active use of internal site for discussing different strategically important questions and solving current tasks on-line, regular Bank’s newspaper issue which focus is on the questions of development and current activity of the bank’s departments. The special focus is on organization of communication, information sessions, where ability to speak is granted not only to top-management but the experience transferring in bank through the demonstration of successfully realized projects by BTA employees is practiced. Social responsibility JSC «Bank TuranAlem» is aimed to lead its activity in line with the Principles of corporate social responsibility. The Bank is trying to contribute to Kazakhstan’s economy development and citizens life quality improvement. The Bank cares about the moral and spiritual development of the country this is why the charity and humanitarian investments are important part of the bank’s corporate social responsibility. Our purpose is to invest in future of Kazakhstan. Strict observance of all mentioned obligations is the key competitive advantage of the Bank, and the factor which forms its reputation and the positive image. It is necessary to note, that the Bank is working in this direction for the representatives of all levels of social responsibility. Thus, the important level of social responsibility of the Bank is the employees and their families, whose welfare directly depends on the welfare of the Bank. The second level of responsibility is our customers and shareholders who trusted their funds to the Bank. And, of course, at the widest and largest sense the bank is responsible to the so- ciety of Kazakhstan and countries of its presence. We see our mission in keep- ing the solidarity of the culture and historical space of CIS, on the one hand and popularization of Kazakh culture outside the country – from the other hand. The social policy of Bank «TuranAlem» is aimed at the sponsorship where the bank does the large work to restore cultural and spiritual heritage of Kazakh- stan. Thus, in 2006 the second series of «Golden collection of Kazakh cinema» from the cinema fund «Kazakh film» named after Shaken Aimanov was restored and returned to the native audience. The famous films of Kazakh cinema were in the archives of Gosfilm fund of USSR in Moscow. All old copies were unfit, it was impossible to neither show or re-record. The idea to restore cinematographic inheritance of Kazakhstan grew the necessity to preserve valuables of national consciousness. Thus, the second series of restored films was added to the first ten pictures restored in 2005, and came into the market. The selection of old films belonged to the citizens of Kazakhstan. There is a special site in Internet devoted to this event (www.goldkino.kz ). The leading companies of Kazakhstan were invited to cooperate. During two months the citizens of Kazakhstan voted for the films through the SMS-messages, filling the newspapers’ coupons and 60 visiting the site of «Gold collection». annual report

In 2006, JSC «Bank TuranAlem» continued the cooperation with the masters of art. Together with the Cultural social fund of Marat Besengaliev BTA organized the festival «Concerts in the Motherland». The goal of the festival is to gather ‘6 native musicians and singers of Kazakhstan, who live and work abroad, to ac- quaint the young generation of our country with Kazakh, and at the same time foreign stars. By preseting «Concerts in the Motherland» to the country Bank «TuranAlem» contributed to the development of young generation of Kazakh- stan. Festival of 2006 was participated by such stars as Elena Kelissidi – soloist of Covent Garden, Royal Opera House (London), Metropolitan Opera (New York) and Baltimore Opera; Fuat Mansurov – national artist of USSR, leader bandmas- ter of the State Academical Big Theater of Russia; Marat Bisengaliyev – Hon- ored Worker of Kazakhstan, owner of the first «Platinum Tarlan», awards of the independent Club of Sponsors; Almas Serkebayev – a composer, Honored Art Worker of Kazakhstan, laureate of State Prize, member of Management of Com- posers Union of Kazakhstan; Temirjan Erjanov – is the laureate of international contests (Piano, San-Francisco, USA), Vladimir Afanasiyev – is the laureate of international contests (percussion, Athena, Greek), Serjan Kaukov – the soloist of Moscow ballet, Russia.

Moreover, last year Bank «TuranAlem» and Cultural Social Fund of Marat Bisen- galiyev established joint orchestra «Kazakh philharmonic orchestra Turan- Alem». Philharmonic Orchestra was established after two much-talked-of art- projects «Concerts in the Motherland» in 2005 - 2006. It is for the first time in the history of culture, when an orchestra is named after the Bank. The purpose of the orchestra is the promotion of Kazakh culture in the world arena, popularization of classic art, Kazakh folklore and art of modern native authors.

Last year «TuranAlem» was a guide of cultural projects of Georgia and Kazakh- stan, as the matters of friendship, respect of the nations dependent not only on the economical connections. To strengthen and unite creative and cultural relations among people holding the same views. In Tbilisi there was the first culture festival «Crossroads: Kazakhstan - Georgia» held by «TuranAlem» Bank. At the same time, the project on the first Kazakh musical was launched, which was shown to the Georgian audience. It is believed to become a business card of Ka- zakhstan, ethnic implementation of the latest cultural tendencies in the world.

Thanks to Bank «TuranAlem» many countries evidenced the grand project – the first domestic blockbuster «Nomad». Mr. Nursultan Nazarbaev, President of the Republic of Kazakhstan dreamed about the creation of historical film about Ka- zakh people that could attract attention of the whole world. The road show of the movie-novel about the formation of state self-consciousness of the Kazakhs of XVIII century became a starting point in restoration of the national cinemato- graph.

Annually the Bank helps children suffering cancer diseases and undergoing treatment in the National child’s rehabilitation center «Urpak», sponsoring different actions to children who lack parental caress, as well as other acts of charity. Thus, last year, Bank «TuranAlem» carried out a unique action in honor of children’s holiday. Every child born on June 1 was presented with the deposit «Children’s» for the sum of 10000 tenge. The action did not finish on the same day, it had been lasting for a month. BTA staff visited all maternity hospitals of the city and presented young mothers with the gift certificate, which meant that newborn who even has not the name, is the owner of the deposit «Children’s» 61 for the sum of 10000 tenge. The doctors noticed that such action was the first during their medical practice. Within this action 68 deposits were given to the newborns.

This is just a small part of projects, performed by Bank «TuranAlem» to help and support cultural and social life of the country. There are no samples of global success in the history, its goal was only capital. BTA is aware that it is the guide of its country’s and nation’s interests.

62 annual report‘6 BTA GROUP’S FINANCIAL STANDING REVIEW annual report‘6 Net interest income Interest income of the Group by the end of 2006 amounted to 132689 mln tenge, exceeding an index of 2005 by 69% or 54403 million tenge. The increase oc- curred due to 84% growth of average annual interest assets from 787546 million tenge in 2005 to 1452648 million tenge in 2006. Interest credit income on customers in 2005 increased by 67% from 69789 mln. tenge to 116368 million tenge in 2005 as a result of average annual balance increasing of credit profile by 84% - from 579923 million tenge in 2005 to 1067 million tenge in 2006. In 2006, average annual balance of security portfolio increased by 51% amounting to 211958 million tenge versus 140133 million tenge in 2005. Interest income on securities portfolio increased from 6524 million tenge in 2005 to 9470 million tenge in 2006, profit amounted to 45%. Interest profit on bank deposits has also increased amounting to 6851 million tenge after gain received by 2005 in 3.5 times. Increase is related to the increase of annual interest balances on the funds in credit institutions from 14857 million tenge in 2005 to 55654 million tenge in 2006.

Interest expenditures of the Group increased by 78% and amounted 81225 mln. tenge. Increase of interest expenditures by 35526 million tenge by 2005 is determined by increase of interbank borrowings, debt securities issue, and deposit base growth.

Average annual balances of issued debt securities amounted to 503554 million tenge versus 241044 million tenge in 2005 reaching 76% growth of interest expenses on securities which amounted 36 954 million tenge.

Interest expenditures on interbank borrowings have grown more than 2 times (from 11155 million tenge in 2005 to 24191 million tenge in 2006). This growth is connected with increase of average annual balances on the funds of credit institutions from 220689 million tenge in 2005 to 459097 million tenge in 2006.

Interest expenditures on customer’s deposits amounted 20080 million tenge, increase totaling 45% in 2005, or 6505 million tenge that is connected with increase of average annual balances on customer’s deposits by 57% in 2006 or 150741 million tenge. Net interest income till depreciation amounted 51464 mln. tenge, that exceeds the result of 2005 by 58%, or 18877 million tenge.

Net interest income of the Group in 2006 totaled 18269 million tenge. Non-interest income of the Group

Net income on commissions and duties in 2006 versus 2005 increased by 97% and amounted 24477 million tenge. Increase is stipulated by growth of commission income on documentary operations, asset management and cash-settlement and transfer transactions.

Net income on financial assets, fair value included into profit and loss account amounted 16585 million tenge. Gain to this index of 2005 was 13570 million tenge that is connected with credit operations of the Group on purchase and sale of 66 securities. annual report

Other non interest profits grew up to 3192 million tenge in 2006 versus 1678 million tenge in 2005. 90% gain is stipulated by the share in the income of associated companies totaling 2364 million tenge. Also in 2006, the Group totally ‘6 purchased 100% of authorized capital of JSC BTA Insurance and 99.4% of JS JV Insurance company London-Almaty, that exceeded share of the purchaser in net fair assets value, obligations and contingent liabilities of target company over the cost price in the sum of 1136 million tenge, reflected in the consolidated profit-and-loss account. Total amount of non-interest profits of the Group increased more than 3 times in 2006 versus 2005 and amounted to 56464 million tenge. Operational expenditures, taxation, net income

Operational expenditures of the Group increased from 18894 million tenge in 2005 to 31103 million tenge in 2006, profit amounted 65%. Growth was basically due to personnel expenses (from 6930 million tenge in 2005 to 11320 million tenge in 2006) and administration expenses (from 7083 million tenge in 2005 to 14174 million tenge in 2006), that is due to expansion of the Group’s business.

Taxation. In 2006, expenses on income tax of the Group amounted to 4552 million tenge that corresponds to effective rate 10.4%. Versus to effective rate of 2005 (9.6%), the increase was due to the growth of taxable interest income.

Net income. In 2006, the Group received net income after accounting of expenses on income tax in amount of 39078 million tenge, exceeding the result of 2005 (14706 mln. tenge) by 2.7 times. Net income, related to the mother company’s shareholder, amounted to 38498 million tenge with analogous growth by 2.7 times in 2005 (14307 million tenge).

Watered income per share increased from 4866 tenge in 2005 to 8360 tenge in 2006. Financial performance

In 2006 aggregate assets of Group increased more than 2 times up to 2075142 versus 997805 million tenge in 2005. The increase of aggregate assets oc- curred basically due to the growth of credit portfolio by 97.4% and securities portfolio by 77.7%. The increase of aggregate assets was influenced by re- quired provisions, which increased to 125573 million tenge in 2006 from 10791 tenge in 2005.

Aggregate obligations of the Group as at December 31, 2006 amounted 1880524 million tenge which is 2 times more versus the end of 2005 (910697 million tenge). Basic increase is marked on issued debt securities for 407089 million tenge, by the funds of credit institutions for 332099 million tenge and on customer’s deposits- for 221478 million tenge.

Equity capital of Group as at 31.12.2006 amounted 194618 million tenge versus 87108 million tenge as at 31.12.2005.

During the year, finished on December 31, 2006, the bank issued 260.042 of non-purchased convertible preferred shares (CPS) with the premium of 10 146 tenge per share. In accordance with conditions of CPS issue, all owners of CPS used the right to convert their shares into simple shares. Conversion was of- 67 ficially registered on May 26, 2006. As a result, issued and fully paid authorized capital of bank as at December 31, 2006 increased by 1134432 simple shares.

On September 7, 2006, bank’s shareholders approved the increase of authorized capital for the amount equal to 400 mln. US dollars, by means of additional shares emission. As a result, the bank increased number of authorized shares by 807102 simples shares with the premium of 62178 tenge per share as at 31.12.2006.

Group’s Capital adequacy ratios calculated in accordance with guidelines of the Basel agreement as at December 31, 2006 were higher versus 2005 and exceed the minimum ratios, set by the Basel agreement: • I Tier capital adequacy ratio -12.88% • I and II Tier capital adequacy ratio -16.76% (16.11% in 2005)

68 annual report‘6 Consolidated financial Statements annual report‘6 Report of independent auditors to the shareholders and Board of Directors of JSC Bank «TuranAlem»

We have audited the attached consolidated financial report of JSC Bank «Turan- Alem» and its subsidiaries (hereinafter – «Groups») including consolidated account balances as of December 31, 2005/2006 and consolidated profit-and-loss accounts, consolidated reports on changes in capital, consolidated cash flow reports in the period for the years then ended and other explanatory remarks.

Leadership’s responsibility for consolidated financial reporting. Leadership shall be entitled to prepare and duly represent of the consolidated financial reporting according to International Standards of Financial Reporting. This duty includes: working out, introduction and implementation of corresponding internal control, necessary for preparing and due representation of the consolidated financial reporting, excluding essential distortions resulting from fraud or mistake; choice and application of corresponding accounting policy and realization of account scores, which correspond to the circumstances.

Auditor’s responsibility. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with International Standards on Audit. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit also includes examining on test basis evidence supporting the amounts and disclosures in the financial statements. The choice of procedures based on auditor’s opinion, including risk estimate of essential distortions from fraud or mistake of financial reporting. Upon risk assessment auditor considers the ar- rangement of system of internal control to preparing and due representation of the financial reporting to determine audit procedures, needed in specific conditions, but not for expression of opinion about efficiency of system of internal control. Audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Conclusion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the consolidated financial position of the Group as at December 31, 2006 and 2005 and the consolidated results of its operations and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

March 12, 2007. Consolidated financial reporting of JSC Bank “TuranAlem” and its subsidiaries, including consolidated balance sheets as at December 31, 2005/2006 and consolidated profit-and-loss accounts, consolidated reports of capital changes, consolidated cash flow reports for then ended periods, survey of essential aspects of accounting policy and explanatory remarks was published on site www.bta.kz 72 annual report

Consolidated Balance Sheets as at December 31 (million tenge) ‘6

Remarks 2006 2005 2004

Assets

Cash & cash equivalents 6 193.640 119.131 51.740

Obligatory reserves 7 125.573 10.791 6.971

Financial assets at fair value through profit-and-loss 8 221.534 110.252 102.182

Amounts due from credit institutions 9 87.452 23.676 6.038

Investment securities, available for sale 10 49.723 42.406 25.426

Credits to customers 11 1.343.414 680.385 409.517

Investments to associated companies 12 5.996 2.205 331

Fixed assets 7.480 1.940 9.396

Goodwill 5 22.849 26 –

Asset on current tax asset 890 – –

Other assets 16.591 6.993 6.701

Total assets 2.075.142 997.805 618.302

Liabilities

Amounts due to the Government and NBK 15 706 844 4.424

Amounts due to credit institutions 16 625.146 293.047 148.331

Amounts due to customers 17 528.192 306.714 226.710

Debt securities issued 18 707.098 300.009 182.079

Liability on deferred tax 14 1.105 – –

Other liabilities 18.277 10.083 9.838

Total liabilities 1.880.524 910.697 571.382

Capital 19

Authorized capital:

• Ordinary shares 52.583 33.276 22.405

• Preferred shares – 3.055 840

Authorized purchased shares (264) (348) (516)

Additional paid in capital 61.292 19.184 5.996

Securities revaluation reserve, available for sale 335 492 375

Foreign currency revaluation reserve (45) – –

Fixed assets revaluation reserve – 18 2.054

Retained income 68.584 30.213 14.099

Total shareholders equity 182.485 85.890 45.253

Minority interest 12.133 1.218 1.667

Total capital 194.618 87.108 46.920

Total liabilities and shareholders’ equity 2.075.142 997.805 618.302

Consolidated financial report of JSC Bank TuranAlem and its subsidiaries, including consolidated balance sheets as as at December 31, 2005/2006 and consolidated profit-and-loss accounts, consolidated reports of capital changes, consolidated cash flow reports for then ended periods, survey of essential aspects of accounting policy and explanatory remarks was published on site www.bta.kz 73 Consolidated Statement of Income (Million Tenge)

Remarks 2006 2005 2004 Interest Income Loans 116.368 69.789 45.444 Securities 9.470 6.524 3.682 Deposits with Other Banks 6.851 1.973 701 132.689 78.286 49.827 Interest Expenses Issued Debt Securities (36.954) (20.969) (11.059) Deposits from customers (20.080) (13.575) (8.730) Deposits and loans from Credit Institutions (24.191) (11.155) (6.317) (81.225) (45.699) (26.106) Net Interest income, before impairment 51.464 32.587 23.721 Impairment charge 13 (33.195) (15.359) (19.251) Net Interest income 18.269 17.228 4.470

Fee and commission income 21 25.106 12.943 9.297 Fee and commission expenses 21 (629) (489) (303) Fees and commissions 21 24.477 12.454 8.994 Gains less losses from financial assets at fair value through profit and loss 22 16.585 3.015 38 Gains less losses from financial assets at fair value through profit and loss • Dealing 5.322 1.977 1.517 • Translation differences 6.888 (1.183) 6.078 Income from insurance operations 6.219 5.262 3.124 Loss from insurance operations (6.356) (4.723) (3.602) Share in Associated Companies Income 2.364 7 5 Exceeding of the purchaser’s share in fair value of identified assets and 5 1.136 – – liabilities and contingent liabilities of target company over self-cost Other (losses) / income (171) 1.132 562 Non-Interest income 31.987 5.487 7.722 Salaries and other employee benefits 23 (11.320) (6.930) (4.388) Administrative and other operating expenses 23 (14.174) (7.083) (4.537) Depreciation and amortization (900) (892) (1.029) Taxes, other than income-tax (1.520) (1.051) (940) Loss on disposal of subsidiaries (19) (850) – Other provisions 13 (2.566) (1.642) (2.293) Obligatory Retail Deposit Insurance (604) (446) (371) Non-Interest expense (31.103) (18.894) (13.558) Income before income tax expense 43.630 16.275 7.628 Income-tax expense 14 (4.552) (1.569) (1.047) Net Income after income tax 39.078 14.706 6.581 Attributable to: Equity holder of the parent 38.498 14.307 6.728 Minority interest in net income (loss) 580 399 (147) Net Income 39.078 14.706 6.581 Basic earnings per share (In Kazakhstani Tenge) 24 8.640 5.238 3.588 Diluted earnings per share (in Kazakhstani Tenge) 24 8.360 4.866 3.527

Consolidated Statements of Changes in Equity Capital as at December 31, 2006, 2005, 2004 (million tenge) ‘6 Share capital-simple shares Share capital- preferred shares Treasury Stock Additional paid-in capital Property and equipment revaluation reserve Securities revaluation reserve available for sale Foreign currency revaluation reserve Retained income Total Minority interest Total equity capital

January 1, 2006 33.276 3.055 (348) 19.184 18 492 – 30.213 85.890 1.218 87.108

Revaluation of securities available for sale, less – – – – – (157) – – (157) 10 (147) taxes

Release of property and equipment revaluation – – – – (18) – – 18 – – – reserve on usage of previously revalued assets

Translation of foreign cur- – – – – – – (45) – (45) – (45) rencies

Total losses recognized – – – – (18) (157) (45) 18 (202) 10 (192) directly in equity

Net income – – – – – – – 38.498 38.498 580 39.078

Total income – – – – (18) (157) (45) 38.516 38.296 590 38.886

Issue of simple shares 8.071 – – 42.113 – – – – 50.184 – 50.184

Issue of preferred shares – 2.600 – 2.638 – – – – 5.238 – 5.238

Purchase of owned shares – – (268) (3.487) – – – – (3.755) – (3.755)

Issue of treasury shares – – 352 844 – – – – 1.196 – 1.196

Dividends – preferred – – – – – – – (145) (145) – (145) shares

Conversion of preferred – shares to simple shares:

• Earlier classified as 5.655 (5.655) – – – – – – – – – capital

• Earlier classified as 5.581 – – – – – – – 5.581 – 5.581 liability

Minority interest on – – – – – – – – – 11.079 11.079 acquisition

Minority interest on – – – – – – – – – (754) (754) disposal December 31, 2006 52.583 – (264) 61.292 – 335 (45) 68.584 182.485 12.133 194.618 75 Consolidated Statements of Changes in Equity Capital as at Decem- ber 31, 2006, 2005, 2004 (Continued) (million tenge) Share capital-simple shares Share capital- preferred shares Treasury Stock Additional paid-in capital Property and equipment revaluation reserve Securities revaluation reserve available for sale Foreign currency revaluation reserve Retained income Total Minority interest

January 01, 2005 22.405 840 (516) 5.996 2.054 375 14.099 45.253 1.667 46.920

Fair value change of available for sale securities, – – – – – 535 – 535 – 535 less tax

Change of sold out fair value of available for sale – – – – – (418) – (418) – (418) securities

Release of property and equipment revaluation – – – – (133) – 133 – – – reserve on usage of previously revalued assets

Release of property and equipment revaluation reserve on disposal – – – – (1.903) – 1.903 – – – of previously revalued assets

Total income recognized – – – – (2.036) 117 2.036 117 – 117 directly in equity

Net income – – – – – – 14.307 14.307 399 14.706

Total income – – – – (2.036) 117 16.343 14.424 399 14.823

Issue of simple shares 10.871 – – 11.029 – – – 21.900 – 21.900

Issue of preferred shares – 2.215 – 2.159 – – – 4.374 – 4.374

Purchase of treasury – – 466 – – – – 466 – 466 shares

Issue of treasury shares – – (298) – – – (298) – (298)

Dividends – preferred – – – – – – (229) (229) (20) (249) shares

Minority interest on – – – – – – – – 762 762 acquisition

Minority interest on – – – – – – – – (1.590) (1.590) disposal 76 31st of December 2005 33.276 3.055 (348) 19.184 18 492 30.213 85.890 1.218 87.108 annual report

Consolidated Statements of Changes in Equity Capital as at Decem- ber 31, 2006, 2005, 2004 (Continued) (million tenge) ‘6 sale for available reserve revaluation Share capital-simple shares Share capital- preferred shares Treasury Stock Additional paid-in capital Property and equipment revaluation reserve Securities Total Minority interest Foreign currency revaluation reserve Retained income

January 01, 2004 16.244 - (628) 1.413 1.737 – 7.182 25.948 1.330 27.278

Fair value change of available for – – – – – 375 – 375 – 375 sale securities, less tax

Revaluation of Fixed assets – – – – 534 – – 534 – 534

Release of property and equipment revaluation reserve on usage – – – – (173) – 173 – – – of previously revalued assets

Release of property and equipment revaluation reserve on – – – – (44) – 44 – – – disposal of previously revalued assets

Total profit for the year, directly – – – – 317 375 217 909 – 909 included in share capital

Net income / (loss) – – – – – – 6.728 6.728 (147) 6.581

Total income – – – – 317 375 6.945 7.637 (147) 7.490

Issue of simple shares 6.161 – – 4.087 – – – 10.248 484 10.732

Issue of preferred shares – 840 – 457 – – – 1.297 – 1.297

Purchase of treasury shares – – (28) – – – – (28) – (28)

Issue of owned treasury – – 140 39 – – – 179 – 179

Dividends – preferred shares – – – – – – (28) (28) – (28)

December 31, 2004 22.405 840 (516) 5.996 2.054 375 14.099 45.253 1.667 46.920

2006 2005 2004 Cash Flow from operating activities: Net income prior to taxation 111.570 53.805 42.728 Income after taxation (69.726) (39.405) (22.342) Income of transactions with foreign currency 5.322 1.977 1.517 Commissions and fees received 23.924 12.497 9.076 Commission and fees paid (831) (486) (96) Insurance Activities Charges (1.466) (1.344) (901) Insurance Activities Income 4.829 4.376 2.863 Salaries (7.723) (5.798) (4.393) Compensation for written off loans 1.906 3.582 3.786 Obligatory Deposits Insurance Charges (604) (446) (371) Expenses on transactions (17.965) (6.901) (3.940) Net Income prior to changes in assets & liabilities 49.236 21.857 27.927 Increase / decrease in operating assets and liabilities Net increase on obligatory reserves (101.311) (3.820) (3.265) Net increase on financial assets at net fair value through profit-and-loss (82.117) (2.593) (44.347) Net increase of amounts due from credit Institutions (48.534) (17.910) (985) Net increase on loans to customers (541.937) (263.486) (198.235) Other net increase on assets, including advance tax payment (4.050) (1.157) (2.492) Net decrease of the amounts due to the Government (898) (3.578) (750) Net increase of amounts due from credit Institutions 297.708 152.693 39.242 Net increase on loans to customers 188.328 70.558 90.118 Income-tax (5.157) (1.300) (897) Net increase (decrease) in other liabilities (12.289) (5.936) 70 Net decrease in operating activities (261.021) (54.672) (93.614) Cash Flows from investing activities Purchases of available in sale securities (828) (17.275) 2.945 Acquisition / sale of subsidiaries (31.259) 1.944 – Investment in associated companies (1.896) (3.742) (326) Purchase of fixed assets (6.687) (5.487) (2.758) Inflow from disposal of fixed assets 2.323 4.505 385 Net expenditures in Investing Activity (38.347) (20.055) 246 Cash flows from Financing Activities Net income of securities issue 323.371 115.573 117.031 Paid up dividends (26) (229) – Sale of simple shares 50.184 21.900 10.732 Sale of preferred shares 5.238 4.374 (3.438) Purchase of treasury shares (3.755) (298) (28) Sale of treasury shares 1.196 466 179 Net Cash flows from Financing Activities 376.208 141.786 124.476 Effect of exchange rate influence on cash and cash equivalents (2.331) 332 (1.059) Net increase in cash and cash equivalents 74.509 67.391 30.049 Cash and cash equivalents at the beginning of the year 119.131 51.740 21.691 Cash and cash equivalents at the end of year 193.640 119.131 51.740 Not-Cash Transactions Conversion of preferred shares into simple: • classified as the capital 5.655 – – • classified as liabilities 5.581 – –

Head office JSC Bank TuranAlem 97, Zholdasbekova str., Samal-2 Almaty, 050051, Republic of Kazakhstan www.bta.kz