1

Financial Services Sector in

October 2017

invest.gov.tr Glossary of Terms

Acronym Definition Acronym Definition ATM Insurance Claims Follow-up and Monitoring HAYMER AUM Assets Under Management System BIST Borsa IMF International Monetary Fund BKM Interbank Card Center N/D No Data BRSA Banking Regulation and Supervision Agency NPL Non-Performing CAGR Compound Annual Growth Rate O/N Overnight Organization for Economic Cooperation and CAR Capital Adequacy Ratio OECD CBRT Central of the Republic of Turkey Development CEO Chief Executive Officer Q Quarter CMB Capital Markets Board of Turkey ROA Return on Assets ROE Return on Equity CRD Capital Requirements Directive Health Insurance Information and Monitoring European Bank of Reconstruction and SAGMER EBRD Center Development SME Small and Medium Enterprises EGM Pension Monitoring Center TBB Association EIU Economist Intelligence Unit TL Turkish Lira EU European Union TSRB Insurance Association of Turkey FCI Factors Chain International FDI Foreign Direct Investment TCMA Turkish Capital Markets Association FİDER Turkish Leasing Agency GDP Gross Domestic Product HATMER Life Insurance Information and Monitoring Center

2 invest.gov.tr Table of Contents

Executive Summary 4 C. Capital Markets 40-55

A. An Overview of Turkish Financial Industry 5-8 i. Brokerage

B. Banking and Financial Intermediary 9-39 ii. Portfolio Management

i. Banking iii. Investment Trusts

ii. Financial Leasing iv. Funds

iii. Factoring v. Infrastructure Providers

iv. Financing D. Insurance 56-69

v. Asset Management i. Non-Life Insurance

vi. Payment Institutions and Electronic Money ii. Life Insurance and Pensions Institutions E. Turkey’s Competitive Landscape 70-83

3 invest.gov.tr Executive Summary

The Turkish financial sector proved resilient during the global A key driver of the Turkish financial sector has been its robust financial turmoil in 2009 as well as the ensuing economic crisis economy with a bright future. Over the past 14 years, Turkish thanks to the regulatory reforms and structural overhaul that the economy has been growing with an average annual real GDP government implemented in the wake of the country’s own growth rate of approximately 5.6 per cent and the growth financial meltdown in the early 2000’s. In fact, the reforms in the momentum is expected to continue. Turkey’s sizeable and sector boosted investor confidence so much that diversified economy has achieved remarkable growth and has become the preferred sector for FDI, attracting USD 49.6 billion became 13th largest economy in the world as of 2016. during the past 15 years. Turkey’s economic growth has resulted in income growth and Banking dominates the Turkish financial sector, accounting for over a growing robust middle class with increasing purchasing 70 percent of overall financial services, while insurance services and power. other financial activities also show significant growth potential. As Turkish economy has expanded, it has integrated with the There are 52 in Turkey (34 deposit banks, 13 development global economy with a staggering increase in its volume of and investment banks, 5 participation banks). Out 52 banks, 21 international transactions. Such developments have further hold significant foreign capital (30% of total assets are held by stimulated economic activity, thus expanded financial foreign investors). activities. An expanding loan base and favorable liquidity conditions contribute to the healthy growth of Turkey’s financial services. The Turkey has also set specific economic targets to achieve by sector enjoys a leading position in the world with an ever-growing 2023, the centennial of the Republic. One of these targets is to asset size and strong equity structure protecting it against shocks transform Istanbul into a prominent financial center. Turkey’s that may arise from or turbulent market conditions. large and young population, qualified labor force and rapidly developing markets along with its geo-strategic location The Turkish insurance market is still underpenetrated (1.5% of makes Istanbul an ideal candidate for an international financial GDP) compared to peer countries and will provide significant hub. Since, the government launched the project for Istanbul potential as new insurers set up shop and acquire a share of the Financial Center, Istanbul has rapidly made progress and is now relatively untapped Turkish market. Turkey has seen strong considered among emerging financial centers in the world. economic growth fueled in part by a young and dynamic population that is increasingly in need of financial products and services.

4 invest.gov.tr A. Overview of the Financial Services Sector

Milestones of Turkey’s Financial Services Industry

1982-2000 2001-2006 2007-2012 2013-…

Capital Market Law Personal Pension Savings and Mortgage Law, Official Restructuring of Istanbul Istanbul Stock Exchange Investment System Law Gazette No. 26454 Stock Exchange and (ISE) Market opens Banking Act, Law No. 5411 Implementation of Basel II Establishment of Borsa standards in Turkey Istanbul A.Ş. Banking Regulation And Regulation on Measurement and Supervision Agency (BRSA) Evaluation of Capital Adequacy Record profitability of the Implementation of Basel III founded of Banks banking sector in Turkey standards in Turkey Consolidation of the Market Law No. 6361 regarding State-owned banks opened from 100 Banks to 49 Banks Financial Leasing, Factoring up participation banks Takasbank is Authorized by and Financial Institutions New regulatory framework for CMB as the National Establishment of Insurance Payment and Electronic Numbering Agency of Turkey Information and Monitoring Money Institutions Start of internet banking Center - TRAMER, SAGMER, Electronic Fund Trading services HATMER, HAYMER Platform of Turkey (TEFAS) All local or foreign insurance , began to operate reinsurance and pension companies operating in Turkey are members of the Insurance Association of Turkey New Capital Market Law No. 6362

invest.gov.tr Source: BRSA, CMB Turkish financial sector, led by banking, has been rapidly growing while attracting tremendous amount of foreign direct investment (FDI)…

CAGR Share Asset Size of Turkey’s Financial Sector (TL Billion) 2008-2016 2016

Banking 4.211 Banking 18 66 Insurance and Private Pension CAGR Central Bank 21 13 Other 18%

Insurance & Pension 21 3

1.130 Other 14 18

Other includes: BIST capitalization, securities, consumer finance, real estate investments, investment trusts, asset management and venture capital investment 2008 2009 2010 2011 2012 2013 2014 2015 2016 trust assets

FDI Flows into Turkish Financial Sector (Cumulative Value in $ Billion, 2002-2016)

Others* 3.1

TOTAL: $49.6 Billion

Banking: 38.7

Source: CBRT, BRSA, TCMA, IAT, CBRT,6 AFI, BIST USD/TL as of 31.12.2016: 3.52 invest.gov.tr *Activities of Holding Companies and Other Activities Auxiliary to Financial Services Turkish financial sector has been a magnet attracting significant amount of FDI..

Greenfield FDI projects in Financial Services M&As by foreign companies in Financial Services

Value ($ Billion) Number Value ($ Billion) Number 2,6 69 67 77 23

63 19

2,2

2003-2009 2010-2016 2003-2009 2010-2016 2003-2009 2010-2016 2003-2009 2010-2016

“Turkey is one of the fastest growing insurance markets “The Turkish banking industry is highly developed and worldwide, supported by a robust economic outlook and a competitive, in our segment in particular. Returns are large, young population. The transaction with Yapı Kredi is a important but for us the importance is mainly in its growth unique opportunity to move into a market-leading position potential, the strategic location and export potential" in one of Europe’s key growth markets which is also an important bridge between Europe and Middle East/Central Asia. This transaction fits perfectly into Allianz’s strategy to use bolt-on acquisitions to strengthen its position in growth Sipko Schat markets.” Executive board member responsible, Commercial banking, . Oliver Bäte, Rabobank obtained banking license from Turkish authorities in 2013 Member of the board of management of Allianz SE. with an initial capital investment of $300 million.

Allianz acquired 94% of YapıKredi Sigorta’s shares for USD 880 million and 80% of YapıKredi Bank’s pension business, YapıKredi Emeklilik, in March 2013.

Source: FDI Market, E&Y invest.gov.tr Turkey’s foreign trade in financial & insurance services has significantly increased in recent years..

Turkey’s Foreign Trade in Financial & Insurance Services ($ Billion)

6 Export Import 4.9 5

4

3 2.4

2

1

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Turkey’s Foreign Trade in Insurance & Pension Services Turkey’s Foreign Trade in Financial Services ($ Billion) ($ Billion)

3 3 Export Import 2.6 Export Import 2,5 2,5 2.3

2 2 1.6 1,5 1,5

1 1 0.8

0,5 0,5

0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 invest.gov.tr Source: CBRT B. Banking and Financial Intermediary

i. Banking ii. Financial Leasing iii. Factoring iv. Financing v. Asset Management vi. Payment Institutions vii. Electronic Money Institutions

invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. The banking sector’s asset size grew to more than TL 2.7 trillion in 2016.

Banking sector – comparison with Euro Area Total Asset Size for the Banking Sector in Turkey (2015)

120% 2500 296 Assets/GDP 105 2000

2.731 80% 166 1500 Loans/GDP 67

1000 40% 164 EA Deposits/GDP 500 56 Turkey

0 407 0% Housing 38 Loans/GDP 6 Total Assets (TL Billion) Total Assets/GDP (%, RHS)

• After the crisis in 2001, the Turkish banking sector was restructured Top 5 Turkish Banks by Asset Size 2016 and became one of the strongests in Europe. (TL Billion) 357

• Turkey enjoys strong asset growth with a stunning CAGR 19%, with a İş Bank 312 remarkable increase in the total assets to GDP ratio from 63% in 2005 to 105% in 2016. Despite that, Turkish banking sector is still Garanti Bank 284 unsaturated when compared with the Euro Area. 271

• State-owned bank Ziraat is the leader in terms of total assets with TL YapıKredi Bank 253 357 billion, followed by İş Bank with TL 312 billion. 0 100 200 300 400

Source: TBB, BRSA, Eurostat, ECB • Non-consolidated balance sheet invest.gov.tr USD/TL as of 31.12.2016: 3.52 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. The total asset size of participation banks was more than TL 132 billion as of end 2016…

Asset Growth of Participation Banks Lending Growth of Participation Banks 140 4,9% 5% 100 6% 120 4,8% 4% 5% 80 4,2%

100 133 84 3% 4% 80 60 2% 3% 2,4% 60 40 1% 2% 40 20 0% 20 10 6 1%

0 -1% 0 0%

Participation Bank Asset Size (TL Billion) Total Loans (TL Billion) Participation Banks' Loan/Total Loan (RHS) Participation Banks' Asset/Total Assets (RHS)

• Islamic banking operations in Turkey started in mid 1980’s under the name of «Special Finance Houses». In 2005, these institutions were renamed as «Participation Banks» and allowed to conduct banking activities in compliance with Islamic principles. Today there are five participation banks operating in Turkey.

• The total asset size of participation banks was more than TL 132 billion by the end of 2016, growing at an impressive CAGR of 27% since 2005. The share of participation banks in banking sector assets increased from 2.4 % in 2005 to 4.9% in 2016.

Source:TKBB invest.gov.tr USD/TL as of 31.12.2016: 3.52 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. Through the years, Turkish banking sector has attracted many foreign investors..

Distribution of Banking Assets by Ownership • As of end 2016, 34% of the banking assets were owned by public banks, 37% by private banks, 29% by foreign banks. 100% 4%

29% • The share of foreign banks in total assets increased from 80% just 4% in 2004 to 29% in 2016 while the share of state 58% owned bank decreased to 34% from 38%. 60% 37% • As of June 2017, there are 52 banks in Turkey. There are a 40% total of 34 savings banks, 13 development and investment banks and 5 participation banks. 20% 38% 34% • 5 of the deposit banks are state owned banks, namely, 0% Ziraat Bankası, Halk Bankası, Vakıflar Bankası, and 2004 2016 Birleşik Fon Bankası. State Private Turkish Shareholders Foreign Shareholders • Additionally, there are 4 state owned development and Type of Banks, June 2017 investment banks: İlbank, Takasbank (Istanbul Settlement and Custody Bank Inc.), Türk Eximbank and Development Bank of Turkey. Participation 5

Development 13 & 52 Investment 34 Deposit

invest.gov.tr Source:BRSA Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. While Turkish banking sector has been growing at full speed, it has also diversified its funding sources..

Banking Sector Growth (TL Billion) Liabilities of Turkish Banks

2.731 6% 10%

15% 11% Other Liabilities 0% 4% Loans 6% 6% Shareholder's Equity 11% Deposits 1.734 Assets 15% Securities Issued 1.453

Money Market

62% Banks 53%

Deposits 306 191 99

2004 Dec-2016 2004 Dec-2016

Source:BRSA USD/TL as of 31.12.2016: 3.52 invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst.

Loans have performed double-digit growth rates over the past decade.. Intermediary Financial and Banking

Development of Non-Cash and Cash Loans (TL Billion) Total SME Loans

2.000 400 350 1.600 300 CAGR CAGR 250 22% 22% 1.200 200 150 800 100 50 400 0

0

Total Loans Extended to Medium Size Enterprises Total Loans Extended to Micro Enterprises Cash Loans Non-cash Loans Total Loans Extended to Small Enterprises

• Cash and non-cash loans increased at a rate of CAGR 22% from 2006 to 2016. Non-cash loans surpassed TL 550 billion as of end 2016, while cash loans were more than TL 1,700 billion. • SMEs are the backbone of the Turkish economy. Turkish banks started funding SMEs at an increased rate from 2006. Total SME loan amounts increased at a CAGR of 22% during this period with more than TL 420 billion in 2016.

Source: BRSA, Note: SME is defined by BRSA as an entity that employs less than 250 workers and has USD 40 million or less total net sales or balance sheet size invest.gov.tr USD/TL as of 31.12.2016: 3.52 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. New products offered by banks increased the amount of consumer loans...

Consumer Loan Breakdown by Type of Loan (TL Billion)

400 Vehicle Loans 350 Risk

300 Consumer & other Loans

250 Mortgage Loans CAGR 200 22%

150

100

50

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

• Total consumer loans increased substantially with a CAGR of 23% from 2005 to 2016 exceeding TL 418 billion. • The increase in different loan product categories offered by banks supported the increase in consumer loans. Within this scope, the introduction of mortgage loans, which constitute more than 39% of total consumer loans, reached to more than TL 160 billion with a CAGR of 26% from 2005 to 2016.

Source:BRSA invest.gov.tr USD/TL as of 31.12.2016: 3.52 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. Banks’ improved risk management keeps the NPL ratio around 3%, well-positioned vis-à-vis peer economies..

Non-Performing Loans (NPL) Ratio NPL (%), 2016

6% 6,0%

5,3% 0 2 4 6 8 10

Romania 10,0 4% Russia 9,4 India 9,2 Hungary 7,4 3,2% Czech Rep. 4,8 2% Poland 4,0 Brazil 3,8 Turkey 3,2 0% South Africa 2,9 2,9 Mexico 2,2

• Turkish banks have been barely affected by the global economic crisis of 2009, and were able to maintain low levels of NPL ratios. The NPL ratio of Turkish banks was 3.2% as of end 2016. The main reason for this level was the comprehensive risk management framework applied by the banks.

Source: BRSA, IMF invest.gov.tr NPL Ratio: Non-Performing Loans/Total Loans Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. The solid capital structure of Turkish banks allowed the sector to enjoy high profits…

Fees, Commissions and Banking Services Income/Total Income Banking Sector Profit ( TL Billion) (Percentage) 16% 190

170 195 14%

150 15% 14%

130 14% 14% 110 12% 13%

90 13%

12%

12%

103

12% 12%

70 12% 85 10%

50 38 10%

30 20 44 10 8% -10 -6,7 -30 -23 2009 2010 2011 2012 2013 2014 2015 2016 6%

Interest Income Interest Expense 4% Non-Interest Income (Expense) Net Profit (RHS) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

• The strong growth in the Turkish banking sector was also reflected in its profits exceeding TL 38 billion in 2016.

• The total interest income, which includes interest received from loans given, interest received from required reserves, interest received from other banks and interest received from money market transactions increased over TL 195 billion.

• The banking sector not only benefits from increased income from interest but also from fees collected from other banking activities. The share from fees, commissions and banking services is around 12%

Source: BRSA invest.gov.tr USD/TL as of 31.12.2016: 3.52 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. The sector grew as a result of its strong asset quality and was able to maintain high profits…

ROA Country Comparison, 2016 ROE Country Comparison, 2016

Turkey 2,0% Turkey 17,5%

Czech Rep 1,4% Czech Rep 17,4%

Poland 0,8% Poland 9,0%

USA 0,4% UK 5,6%

UK 0,4% USA 3,2%

Russia 0,2% Russia 1,8%

• The Turkish banking sector’s return on asset (ROA) ratio was stronger than that of banks in major financial centers as well as Eastern European countries. In 2016, ROA was 2.0% in Turkey.

• Moreover, return on equity was, again, well above that of the USA and Europe with 17.5% in 2016.

Source: IMF Financial Soundness Indicators invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. Turkey’s growing banking sector also resulted in the increase in the number of bank branches.

Total Number of Bank Branches in Turkey Including Foreign Branches (2006-2016) • The total number of branches increased at a CAGR of 5% 13.000 11.747 21 21 between 2006 and 2016. 12.000 20,9 20 • The highest number of branches belongs to commercial 11.000 20 banks, followed by participation banks and development 10.000 19 banks. 19 9.000 18,0 • The per branch employee number decreased as a result 18 of the increasing trend towards centralization of branch 8.000 7.204 18 operations as well as the increase in automated

7.000 17 functions, mobile and internet banking.

2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016

# of Branch Employee per Branch (RHS)

Development of Cashpoints (ATMs) in Turkey (2008-2016) • The development of the banking sector over recent 60.000 years has affected the usage of cashpoints. As of end 48.421 50.000 2016, there were a total of 48,421 ATM cashpoints in Turkey. 40.000 • Between 2008 and 2016, the number of ATMs grew at a 30.000 21.970 CAGR of 11%. 20.000

10.000

0 2008 2009 2010 2011 2012 2013 2014 2015 2016

invest.gov.tr Source: BRSA, BKM Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. Banks also started focusing on alternative technologies that provide low cost and faster transaction services.

Internet Banking Transaction Volumes Transaction Volumes ( TL Billion) ( TL Million)

4.000 Cash Transfers 1.200 Cash Transfers 3.500 Investments Payments 1.000 Investments 3.000 Credit Cards Credit Cards 800 2.500 Other Payments Other 2.000 600

1.500 400 1.000 200 500

0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016

• The internet banking transaction value increased CAGR 22% between 2008 and 2016. Cash transfers had the lions’ share in total internet banking transactions with 72% and increased impressively by a CAGR of 24% from 2008 to 2016. Notwithstanding the large share from cash transfers, the fastest growth was observed in payments with a staggering growth performance of 32% CAGR.

• The mobile banking transaction values rose hundredfold since 2011 with CAGR of 145% and exceeded TL 1 trillion in 2016. It is noteworthy to mention the development of mobile phone users and the number of 3G/4G LTE phone subscribers. In 2016, the number of mobile banking users increased by 58% exceeding 19 million. 4G LTE service was launched by all operators in April 2016.

Source: TBB invest.gov.tr USD/TL average for 2016: 3.02 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. Transactions for both credit and debit cards have increased significantly…

• Turkey’s vibrant and growing economy had a positive impact Development of Credit Cards and Transaction Volume (2008-2016) on the development of credit and debit cards, providing significant potential for banks. 700 70 600 60 500 50 400 40 • The number of credit cards in Turkey increased at a CAGR of 300 30 4% between 2008 and 2016. And, a staggering CAGR of 16% was realized during this time in transaction volume reaching 200 20 TL 601 billion in 2016. 100 10 0 0 2009 2010 2011 2012 2013 2014 2015 2016

Transaction Volume (TL Billion) • The rapid development was also observed for debit cards. In Total Number of Credit Cards (Million, RHS) 2016, transaction volume reached TL 580 billion and the CAGR since 2008 was 18%. Development of Debit Cards and Transaction Volume (2008-2016) 700 140 600 120 500 100 400 80 300 60 200 40 100 20 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016

Transaction Volume ( TL Billion) Total Number of Debit Cards (Million, RHS)

Source:BKM invest.gov.tr USD/TL average for 2016: 3.02 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst.

A Success Story: ICBC Intermediary Financial and Banking

• ICBC Turkey Bank A.Ş. (formerly known as Tekstil Bankası A.Ş.) was incorporated as a privately owned bank in 1986 and "ICBC’s decision to enter the Turkish market in 2015 was aiming shares of the Bank have started publicly trading in the Borsa to develop financial service network between China and Istanbul (BIST) as of 1990. Turkey in order to tie economic relations between the • GSD Holding A.Ş. acquired 75.5% of the Tekstil Bankası countries due to its globalization strategy. Turkey, being the A.Ş.’s shares and became the majority shareholder in 2007; financial center between the West and East, offering and the remaining shares at 24.5% continued to publicly advantages of growing economy and geographical location, trade in the BIST. enabled ICBC’s institutions to boom project-oriented financial services and strengthen the synergy between its already • Industrial of China Limited (ICBC) and GSD established commercial and financial partners.." holding came to an agreement in 2014 for the sale of 75.5% of the shares of the Bank. XU KEEN, Chairman of the Board of Directors ICBC Turkey, • Shares were successfully transferred to ICBC on May 22nd, 2015. • The corporate name of the Bank has been changed from “Tekstil Bankası A.Ş.” to “ICBC Turkey Bank A.Ş.” • In 2016, ICBC Turkey’s total assets increased by 23% and reached to TL 8.2 billion. Similary, deposits and loans of the Bank increased by 30% and 23% in the same year.

Source: ICBC Turkey invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst.

Financial Services Sector: Intermediary Financial and Banking Selected Players

Iş Bank Garanti Bank Akbank Ziraat Bank • Iş Bank was established in 1924 • Founded in 1946, Garanti is • Established in 1948 in Adana • Homeland Funds, the origin and is Turkey’s largest private Turkey’s second largest for cotton growers, Akbank of Ziraat Bank, was founded bank. with total is owned by Sabancı Holding in 1863 to support farmers assets worth TL 284 billion and other shareholders and agricultural • The bank’s shares are held by by the end of 2016. development. the Işbank Pension Fund, the • Akbank provides consumer, Republican People’s Party and • Garanti is controlled by the commercial, SME, corporate • The Republic of Turkey 32% of the shares were open to Spanish bank BBVA, with and services Prime Ministry Under public. Doğuş Holding having the as well as foreign exchange, secretariat of the Treasury minority shares. foreign trade financing and is the sole owner of Ziraat • Iş Bank’s total assets were TL treasury transactions. Bank. 312 billion by the end of 2016. • Garanti provides integrated financial services in every • The bank’s total assets • Ziraat Bank is the largest • Iş Bank’s products and services segment of banking and has reached approximately TL bank in Turkey and has the include retail, corporate subsidiaries for pension, life 271 billion by the end of most extensive network. banking and capital market insurance, factoring, 2016. operations and other financial • Ziraat Bank’s total assets leasing, brokerage and services such as private reached TL 357 billion by asset management on both pensions, insurance, asset the end of 2016. national and international management, leasing and levels. factoring.

Source:Company websites invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst.

Participation Banks: Intermediary Financial and Banking Selected Players

Ziraat Katılım Albaraka Kuveyt Türk • Ziraat Katılım is Turkey’s first state- • Established in 1984 by Albaraka Banking • Kuveyt Türk started its activities in 1989. owned participation bank established Group, Islamic Development Bank and • It is owned by Kuwait Finance House, the in 2015 other investors; it is a pioneer in Public Institution for Social Security of participation banking in Turkey. • It operates in credit intermediation Kuwait, the Turkish Directorate General and related activities. • Albaraka had TL 32.8 billion of total assets of Foundations and the Islamic as of end 2016. Development Bank. • Türkiye Finans had assets worth TL 7.9 by the end of 2016. • Albaraka Türk offers its customers • Kuveyt Türk’s total assets were TL 48.4 participation accounts, personal and billion in 2016. • The bank has retail, commercial and , leasing and project- SME banking services for both national • The bank’s main products are current and based services. and international customers. participation accounts, investment and saving accounts and leasing.

Source: Company websites invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst.

invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. Financial leasing assets grew at a CAGR of 14% between 2007 and 2016.

Financial Leasing Transaction Volume Financial Leasing Asset Size Growth in Turkey (2016) 48 100 40% 2,0% 44 Transaction Volume 40 80 Leasing Asset Size (TL Billion) Penetration (RHS) 30% 36 Leasing Volume/GDP (RHS) 1,6% 32 60 28 20% 1,2% 24 40 20 0,8% 10% 16 20 12 8 0,4% 0 0% 4 0 0,0%

• Turkey’s leasing transaction volume reached USD 7.7 billion in 2015, which means approximately 10% CAGR since 2011. Despite the huge growth in Turkey’s leasing sector, it is still underpenetrated but significant upside potential as leasing asset size grows. • The total asset size grew at an impressive CAGR of 14% from 2007 to 2016 to more than TL 44 billion. • Furthermore, participation banks in Turkey can also conduct financial leasing operations on tangible items.

Source: FKB, White Clarke Global Leasing Report invest.gov.tr USD/TL as of 31.12.2016: 3.52 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. Real estate had the highest share in financial leasing with 28% in 2015.

Financial Leasing Investment by Product Type Financial Leasing Receivables in Turkey (2015)

60 14% Real Estate 16% 50 12% Construction Equipment 51 4% 24% 10% Machinery and Equipment 40 8% Metal Processing 30 7% 6% Textile Equipment 20 4% 7% Medical Equipment Other 10 2% 25%

0 0% 17% 2008 2009 2010 2011 2012 2013 2014 2015 2016 Leasing Receivables ( TL Billion) NPL (RHS)

• The Turkish government promotes financial leasing operations. As of December 2011, it reduced the VAT applied for leasing operations to 1% for leasers that have investment incentive documents. The items that can be leased include steam boilers, steam turbines, concrete pumps and centrifuges among other items. In light of this support, financial leasing receivables steadily increased. • Financial leasing receivables increased at CAGR of 17.6% between 2008 and 2016 exceeding TL 51 billion in 2016. • Leasing of construction equipment had the highest share in terms of investment amount with 25%, followed by real estate with 24%.

Source: BRSA, FKB invest.gov.tr USD/TL as of 31.12.2016: 3.52 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst.

Leasing Sector Operational Figures Intermediary Financial and Banking

Leasing Sector Operational Figures

2010 2011 2012 2013 2014 2015 2016

Number of Companies 16 17 18 32 29 28 26

Number of Branches 69 72 75 117 138 143 141

Number of Personnel 1,286 1,217 1,258 1,361 1,458 1,504 1,519

Number of Clients 50,428 43,294 45,089 46,752 52,041 56,396 58,373

Number of Contracts 10,186 14,648 17,787 19,790 20,302 23,124 23,751

• The leasing sector in Turkey makes up a significant part of the non-banking sector with 23,751 contracts in 2016. • In 2016, the number of skilled personnel in the leasing sector was 1,519 and the total number of clients was 58,373. • With 26 institutions all across Turkey, leasing companies provide necessary services to their clients.

Source: FKB invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst.

The leasing sector is a promising one with 14% growth in revenues in 2016 compared to 2015. Intermediary Financial and Banking

Leasing Revenues and Net Profits/Loss (TL Million)

3.500 3.127 Leasing Revenues 3.000 Net Profit/Loss • Revenues in the leasing sector in Turkey have been 2.500 increasing since 2009.

2.000 1.538 • As of 2016, leasing revenues were TL 3,127 million, which 1.500 corresponds to a 14% increase compared to the previous year and 9% CAGR since 2008. 922 1.000 • Net profit increased from TL 809 million to TL 922 million in 590 2016. 500

0 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: BRSA invest.gov.tr USD/TL average for 2016: 3.02 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. Leasing Sector: Selected Players

BNP PARIBAS SIEMENS AG GARANTI YATIRIM Leasing Solutions Leasing Leasing Leasing • BNP Paribas Leasing • Siemens Finansal Kiralama • Garanti Leasing was founded • Yatırım Leasing was Solutions, a global leader in A.Ş. was established in 1997 in 1990. founded in 1993. It joined financial services, signed a by Siemens AG Leasing, TETAŞ Group in 2004. The • It uses Garanti Bank branches cooperation agreement with which has offices in more company offers its clients as a distribution channel. In TEB Leasing in 2005. than 20 countries. investment services in 2007, Garanti Leasing different sizes and terms • In 2009, BNP acquired Fortis • Siemens leases printing founded Garanti Fleet. and consultancy to promote Leasing. machines, textile, tourism • Garanti Leasing aims to leasing activities in Turkey. and office equipment, • TEB Leasing and Fortis become the first Turkish transport vehicles, • Yatırım Leasing provides Leasing then merged under leasing company to open computers and software, financing for capital such as the umbrella of BNP Paribas offices overseas. cranes and construction medical and construction Finansal Kiralama A.Ş. in 2011. machinery, power stations • Business premises, real equipment, press and • BNP leases medical and data and communication and estate, medical and office packaging, appliances for processing equipment, security systems. equipment, construction, metals and textile sectors. energy facilities, transport textile and manufacturing • The company’s total assets vehicles, construction machinery can be leased from were TL 96.4 million in 2016. machinery and real estate. Its Garanti Leasing. total assets in 2016 was TL • Garanti Leasing’s total assets 3.1 million. in 2016 amounted to TL 5.5 million.

invest.gov.tr Source: Company Websites Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst.

The assets in the factoring sector in Turkey have been increasing significantly, reaching TL 33.1 Intermediary Financial and Banking billion in 2016.

Total Assets of the Factoring Sector (TL Billion) Factoring Sector Selected Financial Indicators

35 33,1 TLBillion 2011 2012 2013 2014 2015 2016

30 Receivables 14.2 16.3 20.1 24.7 24.9 31.1 25 CAGR 20% NPLs (%) 4% 5% 4.9% 4.5% 5.5% 4.8% 20

15 Reserves 0.4 0.7 0.8 0.9 1.2 1.3

10 7,8 Banks 0.5 0.7 0.6 0.4 0.3 0.5 5 Credit 11.5 12.8 15.5 18.4 18.0 23.5 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 SE Equity 3.4 3.9 4.0 4.4 4.6 5.1

• In Turkey, factoring was introduced in 1988 to support manufacturers’ export activities. One of the major advantages of factoring is its ability to provide companies with immediate cash flow for their accounts receivable. • Turkish factoring sector has been growing with a CAGR of 20% betwwen 2008 and 2016, reaching TL 33.1 billion by the end of 2016. • Receivables in the sector grow with a CAGR of 17% since 2011.

Source: BRSA, FKB invest.gov.tr USD/TL as of 31.12.2016: 3.52 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. Factoring revenues increased by 17% in 2016 demonstrating a vast potential in the sector.

Factoring Revenues and Net Profit • The revenue and net profit of the factoring sector have (TL Billion) been increasing since 2009.

5 4,3 0,7 • Compared to 2009, factoring revenues increased 220% 4,5 reaching TL 4.3 billion in 2016. 0,6 4 • The net profits in factoring reached TL 665 million in 2016. 3,5 0,5

3 0,4 2,5 0,3 2 1,8 1,5 0,2 1 0,1 0,5 0 0,0

Factoring Revenues Net Profit (RHS)

Source: BRSA invest.gov.tr USD/TL average for 2016: 3.02 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst.

The total numbers of clients and contracts have been increasing in the factoring sector Intermediary Financial and Banking demonstrating its high service potential.

Factoring Sector Operational Figures

2011 2012 2013 2014 2015 2016

Number of 75 78 76 76 66 62 Companies Number of Agencies & 243 247 319 366 379 360 Branches

Number of Personnel 3,819 4,186 4,650 4,980 4,804 4.716

Number of Clients 91,029 84,769 87,624 93,327 95,416 98,908

• The table above provides some of the most crucial operational figures of the factoring sector. The sector continued its growth between 2011 and 2016 in almost every operational activity. • For example, the number of branches and agencies in the factoring sector increased from 243 in 2011 to 360 in 2016. This also resulted in the increase of highly skilled personnel in this field reaching a total of 4,716, which is a 23% increase compared to 2011.

Source: BRSA invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. Factoring Sector: Selected Players

Garanti Factoring YapıKredi Factoring TEB Factoring • Garanti Factoring was established in • YapıKredi Factoring was established in • TEB Factoring was established in Turkey 1990 in order to provide factoring 1999. in 1997. services to industrial and commercial • The company provides services to • The company provides factoring services companies. commercial companies and more than domestically and internationally. • Garanti Factoring open edits shares 90% of its customer base is small and • Since 1998, TEB Factoring is a member of to the public in 1993 and is traded on medium size enterprises. the Factors Chain International. . • YapıKredi Factoring is an active member • The total assets of TEB Factoring in 2016 • The company currently has 20 of both the Factoring Association and amounted to TL 1.7 billion. branches in 14 cities of Turkey. Factors Chain International (FCI). • The total assets of the company were • In 2016, the total assets of YapıKredi TL 2.9 billion in 2016. Factoring were TL 3.1 billion.

Source: Company Websites invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Leasing Inst. Inst. Turkish consumer financing sector has been constantly growing since 2009.

Consumer Financing Sector Assets (2009-2016) • One of the main advantages of consumer financing 35 32,8 50% companies is their ability to provide fast and efficient loans for their customers. Most consumer financing companies in 30 40% Turkey are focused on specific financing fields such as car 25 30% loans or mortgages, which allow them to serve their 20 20% customers faster and with a variety of choices targeted to 15 them. 10% 10 • Also, it is important to note that with the amendment of Law 0% 5 No. 6361 regarding "Leasing, Factoring and Financing 0 -10% Company Law," new benefits were introduced in the 2009 2010 2011 2012 2013 2014 2015 2016 consumer financing sector in 2012. Total Assets (TL Billion) % Growth (RHS) • According to the law, financing companies now have the title of credit institutions and are now allowed to provide cash loan up to 5% of their total assets. Consumer Financing Sector Selected Financial Indicators 2011-2016 (TL Billion) • As of 2016, total assets for the consumer financing sector was TL 32.8 billion increasing by 21% compared to the 2011 2012 2013 2014 2015 2016 previous year.

Receivables 8.4 10.7 14.5 18.1 23.8 27.8 • Non-performing loans (NPLs) ratio in the sector has been relatively low, revolving around 3%. NPLs (%) 2.9% 2.8% 2.7% 2.7% 3.0% 3.3% Reserves 0.1 0.1 0.2 0.2 0.3 0.4 Banks 0.2 0.5 0.9 0.7 0.8 1.6 Credit 7.1 9.0 12.6 16.4 22.0 27.9 SE Equity 0.6 0.9 1.2 1.4 1.7 2.7

Source: BRSA, CBRT invest.gov.tr USD/TL as of 31.12.2016: 3.52 Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Major Players Leasing Inst. Inst.

Name Web Page What They Do

ALJ Finance was founded in 2011 by Saudi Arabian ALJ car distributors. The company’s total assets https://www.aljfinans.com.tr/ reached TL 1 billion in 2016. DD Founded in 2006 by Doğan Holding and as the first mortgage company of Turkey. http://www.ddm.com.tr Mortgage

Established in 1999 by Volkswagen and Doğuş Finans, VDF offers 5 types of credit covering 7 brands for its http://www.vdf.com.tr/ customers across Turkey.

Şeker Finans started its operations in 2008 under the name Istanbul Finans and then merged with https://sekerfinans.com.tr/ Şekerbank in 2010. It offers mortgage and renovation work loans.

In 2015, it provided USD 21.7 billion loans, USD 13.7 billion insurance. Its total financial support accounted http://www.eximbank.gov.tr for 20.4% of Turkey’s exports. As of 2015, it has total assets worth of TL 44.4 billion.

Koçfinans offers its customers car, mortgage and education loans. Since its founding in 1995, the company http://www.kocfinans.com.tr/ has provided credit for more than 3.8 million customers, approximately USD 11 billion worth of loans.

Koç Fiat Kredi was founded in 2000 by Koç Holding and Fiat and was later bought by Tofaş Türk Otomobil https://www.kocfiatkredi.com.tr Fabrikaları A.Ş. It is a captive finance company serving 4 brands. In 2016, the company made loans worth of TL 2.3 billion. http://www.man-financial- Since it started its operations in 2005, MAN offers consumer credits for MAN vehicles and trucks. services.com.tr/ Orfin has been operating since 2011 and has a financial portfolio of products worth EUR 22.5 billion http://www.orfin.com.tr/ worldwide. In Turkey, the company has TL 192 million shareholders equity and offers its services for the sales of the Renault and Dacia brands. TEB Cetelem was the product of the partnership between TEB Financial Investments A.Ş and BNP Paribas http://www.tebcetelem.com.tr/ , which has been active in Turkey since 1995.

Since 1863 the cooperative has given general purpose loans for agricultural producers including loans for http://tarimkredi.org.tr/ pesticides, fertilizers, animal husbandry, oil, and irrigation up to TL 50,000, which is to be repaid in 1 - 4 years with interest rates varying between 8 or 10%.

Source: Company Websites invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. NPL management to create value Leasing Inst. Inst. for the financial system

• Asset Management Companies are licensed and regulated by the BRSA ➢ to collect NPL portfolios with different loan types and security structures ➢ loans ➢ credit card receivables ➢ and other assets of ➢ different financial institutions including banks, leasing companies and others. ➢ by using their own capital or issuing bonds ➢ to liquidate or resell by restructuring Functions of Asset Management Companies  clean-up of banks’ balance sheets  provide liquidity to financial system  Restore financial customers to good financial health

• There are 12 Asset Management companies in Turkey

invest.gov.tr Financial Payment E-Money Intermediary Financial and Banking Banking Factoring Financing Asset Man. Alternative payment systems Leasing Inst. Inst. have been emerging in Turkey

➢ Payment Institutions are licensed and regulated by the BRSA ➢ Maturing financial markets, developing fintech ecosystem and growing e-commerce market made it attractive for banks and non-bank institutions to operate in alternative payment systems ➢ There are 27 payments institutions operating in Turkey ➢ Services provided by Payment Institutions: ➢ Virtual POS ➢ Fraud Protection ➢ Mobile Payments ➢ Marketplace solutions ➢ Invoice Payments ➢ On top of the services provided by Payment Isntitutions, Electronic Money Isntitutions are allowed to issue Electronic Money which is a digital equivalent of cash. ➢ There are 8 Electronic Money Institutions operating in Turkey.

E-commerce Transactions (2012-2016)

300 80 250 60 200 150 40 100 20 50 0 0 2012 2013 2014 2015 2016

Number of Transactions (million) Volume of Transactions (billion TL) (RHS)

39Source: BKM invest.gov.tr C. Capital Markets

i. Borsa Istanbul ii. Brokerage iii. Portfolio Management iv. Investment Trusts v. Funds (Investment and Pension)

invest.gov.tr Capital

A brief timeline of developments in Turkish Capital Markets Markets

ISE demutuailized Electronic Fund Capital Markets Law Liberalization of New IFRS regulation New Capital Markets and transformed to Distribution passed Foreign Investment was adopted Law passed Borsa Istanbul Platform of Turkey CMB was established Fully automated Public Disclosure Borsa Istanbul (TEFAS) began to operate Istanbul Stock trading started Platform was merged with Istanbul Exchange was Corportate introduced Gold Exchange and established Governance First Islamic Bond Derivatives Principles were was issued Exchange published First ETF was established Capital Markets Board Equity Debt Market Banks Market Takasbank

Public Companies Central T Brokerage Firms B Registration C Listed Companies I Agency

M Portfolio Funds (TEFAS) S Licensing and A Management T Training Agency Companies Public Offering Rating of Equities Companies and Investment Trusts Independent of Corporate Debt Audit Companies

Institutions Products Infrastructure Providers invest.gov.tr Capital

Regulatory Framework of the Turkish Capital Markets Markets

•CML is in accordance with EU regulations •The goal is to have a robust and well functioning Capital Markets capital markets while strengthening the investor protection •CML defines capital market activities and types Law (CML) of institutions allowed to operate in capital markets

•CMB is the regulatory and supervisory authority in the Turkish Capital Markets •CMB aims to ensure the safe, fair, effective and Capital Markets orderly functioning of the capital markets while protecting investor rights •CMB regulates and supervises Board (CMB) •«Capital Users» and «Capital Providers» •Intermediaries and Instruments •Market Infrastructure Providers

Intermediaries •Brokerage Firms •Portfolio Management Companies and •Investment Trusts Instruments •Funds Market Infrastructure Providers

invest.gov.tr PortfolioPortfolio InfrastructureInfrastructure Capital BrokerageBrokerage InvestmentInvestmentTrusts Trusts FundsFunds ManagementManagement ProvidersProviders

In Turkey, only brokerage firms are allowed to trade equities. Markets

Total Assets of Brokerage Firms ( USD Billion)

7 6,4 6,5 6,5 6,0 6 5,3 5 4,2 4

3 Brokerage Firms Fact Sheet 2 • As of 2016, there are 66 brokerage firms performing in the equity market 1 • 76% of the total share of the trading volume in the equity market was 0 generated by domestic individuals, corporations and institutional 2011 2012 2013 2014 2015 2016 investors. Foreign investors contributed 24% of total trading volume. • In the derivatives exchange market, 66 brokerage firms were operating as of 2016. The total trading volume of intermediaries was TL 1.1 Breakdown of Revenue for Brokerage Firms trillion in 2016. 72% of the trades were made by domestic investors ( 2016) and 28% by foreign investors. Brokerage 7% 5% Commissions

Revenues from 19% Services

Proprietary Trading 70% Profit/Loss

Other Revenues

43 Source:TCMA invest.gov.tr Portfolio Infrastructure Capital

Brokerage Investment Trusts Funds Markets Capital Management Providers

Turkey’s Portfolio Management industry has a higher potential than that of its peers… Markets

Types of Portfolio Management Companies

Porfolio Real Estate Portfolio Venture Capital Portfolio Management Companies Management Companies Management Companies •Establish and manage •Establish and manage •Establish and manage •Securities Mutual Funds •Real Estate Investment Funds •Venture Capital Investment Funds •Foreign Mutual Funds •Pension Mutual Funds •Guaranteed Funds •Protected Funds •Investment Funds •Real Estate Investment Funds •Venture Capital Investment Funds

50 Portfolio management companies Total Portfolio size is 34.6 billion USD (TL 122 billion)

19% CAGR of portfolio size since the global financial crisis 211 portfolio managers

TL 333 million of Portfolio Management Commissions TL 3.5 million Investment Consultancy Revenues

Source : CMB, TCMA invest.gov.tr Portfolio Infrastructure Capital

Brokerage Investment Trusts Funds Markets Capital Management Providers

Turkey’s Portfolio Management industry has a higher potential than that of its peers… Markets

Portfolio Size / GDP

140 4.7% 5,0% TRY 4,5% Bulgaria 120

Billions 4,0% Turkey 4,7% 122 100 3,5% Romania Croatia 3,0% 80 Portugal 2,5% Poland 13,8% 60 2,0% Italy 24,1% 40 1,5% Belgium

1,0% Finland 20 49,7% 0,5% Germany 6 61,9% Sweden 0 0,0% 80,2% Malta

Netherlands 115% Portfolio Size Portfolio Size/GDP (RHS) 0% 20% 40% 60% 80% 100% 120%

• Total portfolio size of portfolio management companies has been increasing with a CAGR of 24% since 2002 and reached 122 billion TL (35 billion USD) at the end of 2016. • On the other hand, total portfolio size/GDP ratio is on upward trend and increased to 4.7%. • Besides, the ratio still lags behind that of other developed and developing European countries, which means a higher potential for future growth.

Source:CMB, TCMA, EFAMA invest.gov.tr Portfolio Infrastructure Capital

Brokerage Investment Trusts Funds Markets Capital Management Providers

Net asset value of Investment Trusts more than doubled in the last 6 years… Markets

Investment Trusts • Investment Trusts are close-ended joint-stock Securities companies with a fixed number of shares which Investment Trusts manage portfolio of capital market instruments and real estates. Real Estate • There are 3 types of Investment Trusts Investment Trusts • Securities Investment Trusts (SIT): Securities Investment Trusts are required to invest at

least 25% of their assets in equities that are Trusts Venture Capital issued by Turkish companies. Investment Trusts • Real Estate Investment Trusts (REIT): Real Investment Estate Investment Trusts manage a portfolio composed of real estates, real estate projects, real estate-based rights, infrastructural investments and services, and other capital Net Asset Value of Investment Trusts market and Money market instruments. 30 • Venture Capital Investment Trusts (VCIT): 26.4 Venture Capital Investment Trusts can TRY 25 23.7 22.9 purchase stocks and borrowing instruments 20.0 issued by the entrepreneur companies, issue 20 17.2 Billions borrowing instruments, participate in the 15 12.9 active management of the entrepreneur 10 company, and invest in other venture capital investment trusts. 5 • Investment trusts may employ portfolio managers to 0 manage their own portfolios. They can also get 2011 2012 2013 2014 2015 2016 portfolio management or investment advisory service from Portfolio Management Companies. SIT REIT VCIT • Investors trade shares of investment trusts in the stock Exchange. They are paid dividends at the end of the years.

Source:CMB invest.gov.tr Portfolio Infrastructure Capital

Brokerage Investment Trusts Funds Markets Capital Management Providers

43 companies are managing mutual funds as of December 2016… Markets

Securities Mutual Funds • Mutual funds are established in the form of open-end Foreign investment companies in Turkey. • They do not have any legal entity. Mutual Funds Guaranteed • There are two different types of mutual funds in Turkey, Type A and Type B. Real Estate • Type A mutual funds are required to invest at least 25% Protected Investment Funds of their assets in equities that are issued by Turkish companies. Venture Capital Investment • Mutual funds that have no such obligations are Investment Funds Funds classified as Type B mutual funds. • Kinds of mutual funds are classified according to their asset Pension Funds allocation such as • Securities • Foreign Net Asset Value of Mutual Funds • Guaranteed 50.000 • Protected 45.000 43.755 • Investment 40.000 • There are 384 mutual funds as of December 2016 with a net million TL million asset value of TL 43.8 billion. 35.000 30.000 25.000 20.000 15.000 10.000 9.347 5.000 0

47 Source:CMB invest.gov.tr Portfolio Infrastructure Capital

Brokerage Investment Trusts Funds Markets Capital Management Providers

A new investment fund instrument for Turkey: Real Estate Investment Funds… Markets

Securities Real Estate Investment Funds (REIFs): • established and managed by Portfolio Management Companies Foreign or Real Estate Portfolio Management Companies. • can be sold to Qualified Investors Mutual Funds Guaranteed • REIFs are allowed to engage only in management of portfolios comprised of the following assets and transactions: Real Estate • Real estates and property rights, Protected Investment Funds • Private and public debt instruments, and shares of joint- stock companies established in Turkey Venture Capital Investment • Foreign private and public debt instruments and joint- Funds Investment Funds stock company shares • and participation account; Pension Funds • Investment fund units; • Repo and reverse repo transactions; • Warrants and certificates; • Lease certificates and real estate certificates; Net Asset Value, 2016 • Settlement and Custody Bank Money transactions; • Cash collaterals and premiums of derivative transactions; • Specially designed foreign investment instruments and loan participation notes deemed appropriate by the Board, • Other investment instruments deemed appropriate by TL the Board. 87,1 • at least 80% of the portfolio of a REIF should be invested in real million estate.

Source: invest.gov.tr CMB Portfolio Infrastructure Capital

Brokerage Investment Trusts Funds Markets Capital Management Providers

An investment fund focused on ventures… Markets

Securities Venture Capital Investment Funds (VCIFs): • established and managed by Portfolio Management Companies Foreign or Venture Capital Portfolio Management Companies. • can be sold to Qualified Investors Mutual Funds Guaranteed • VCIFs are allowed to engage only in management of portfolios comprised of the following assets and transactions: Real Estate • Venture capital investments Protected Investment Funds • Private and public debt instruments, and shares of joint- stock companies established in Turkey Venture Capital Investment • Foreign private and public debt instruments and joint- Funds Investment Funds stock company shares • Time deposit and participation account; Pension Funds • Investment fund units; • Repo and reverse repo transactions; • Warrants and certificates; • Lease certificates and real estate certificates; Net Asset Value, 2016 • Settlement and Custody Bank Money transactions; • Cash collaterals and premiums of derivative transactions; • Specially designed foreign investment instruments and loan participation notes deemed appropriate by the Board, • Other investment instruments deemed appropriate by TL the Board. 73,9 • at least 80% of the portfolio of a VCIF should be invested in million ventures.

Source:CMB invest.gov.tr Portfolio Infrastructure Capital

Brokerage Investment Trusts Funds Markets Capital Management Providers

Pension reform unlocked Turkey’s potentian in Pension Funds… Markets

Securities Pension Funds: • can be established by Pension companies Foreign • it is an investment product like mutual funds, run just specifically for individuals who have decided to participate in individual Mutual Funds Guaranteed retirement system. • The contributions collected from the individuals are transmitted Real Estate to pension funds which are established as the structure of a Protected Investment Funds mutual fund. • the participants are entitled to choose among a wide range of Venture Capital Investment funds Investment Funds Funds • Funds are managed by Portfolio Management companies. • There are 263 pension funds in Turkey as of December 2016 with Pension Funds a total asset value of TL 58.5 billion. • Auto-enrolment in private pension plans has recently been introduced which offers significant growth opportunity for Consolidated Portfolio Structure of Pension Funds as of pension funds. December 2016 Money Market 60 7 Instruments Stocks 6,62 12% 10% 50 6 Others 15% 5 40 53,409 3,13 4 30 Foreign 3 Securities 20 10% Corporate 2 Bonds 10 7% 0,01 1 0 0

Reverse Government Repo Bonds 1% 45% Total Fund Value (TL billion) # of Participants (million)

Source: CMB, EGM invest.gov.tr Portfolio Infrastructure Capital

Brokerage Investment Trusts Funds Markets Capital Management Providers

TEFAS: A new platform for Funds trading Markets

Total Volume, 2016

TEFAS TL 21,6 billion

• TEFAS is an electronic platform which provides access to all mutual funds Number of Institutions, 2016

Participati on Banks; 59 2 Brokerage ; 25 • All individuals and institutional investors with an investment Banks; 18 account can use TEFAS to trade mutual funds founded by any Portfolio Management Company Portfolio Management; 14

Number of Funds, 2016 Mixed Funds; 6 Precious Money Metals 257 Market • TEFAS allows the investors to reach comperative statistics Funds; 11 Funds; 3 Basket Funds; 13 Debt Participati Funds; 72 on Funds; 23 Equity Variable Funds; 68 Funds; 61

Source:TEFAS invest.gov.tr Portfolio Infrastructure Capital

Brokerage Investment Trusts Funds Markets Capital Management Providers

Case Study: BIST, a fully integrated Exchange Markets

SHAREHOLDERS MARKET DATA & INDICES Primary cash markets:LISTINGS

Domestic and foreign IPOs/SPOs - 190k users of market data Turkish Debt securities (e.g., corporate bonds, ) Others products Capital 8,1% Markets - 383 index types (equity indices, Assoc. debt securities indices, - 405 listed companies 1,3% sustainability index etc.) - USD 169 Bn Market Capitilization Nasdaq OMX 7,0% TRADING

EBRD 10% Turkiye Equity Debt Securities Precious Metals Derivatives Wealth and Stones Fund 73,6% - stocks, rights - Government - options on equity, - gold, silver, coupons, ETFs, bonds, corporate index, currency and palladium, warrants and bonds, Eurobonds, futures on equity, platinum certificates sukuk, repo indext, precious metals, transactions commodity, power, - 9 Bn USD traded foreign indices, ETFs - Over 1 million value in 2016 - 3.2 trillion USD etc. equity investor traded value in 2016 pool with +280 - +170 Bn USD traded

HORIZONTAL INTEGRATIONHORIZONTAL billion USD value in 2016 trading volume in 2016 Borsa İstanbul brings together all the exchanges operating in the Turkish capital markets under a single CLEARING & SETTLEMENT REGISTRY roof. • Transparent • Efficient Takas Istanbul (Istanbul Settlement and Merkezi Kayıt Istanbul (MKK) Custody Bank) • Reliable Borsa İstanbul’s share in MKK: 30.1 % Accessible markets • VERTICAL - CCP of Turkish Capital Markets (total share: 70.5%)

Borsa İstanbul is on its road to be a world-exchange INTEGRATION - Borsa İstanbul’s share in Takas Istanbul: Takas Istanbul’s share in MKK: 64.9% technology which linkes with other markets. This vision 63.04% will add value to the drive of making Istanbul an international financial center. 52 Source:Borsa Istanbul invest.gov.tr Portfolio Infrastructure Capital

Brokerage Investment Trusts Funds Markets Capital Management Providers

Borsa Istanbul has liquidity of 200%, which exceeds emerging market exchanges. Markets

Comparison of Exchanges (2016) 400 240%

300 180%

Billion 200 120% USD

100 60%

0 0% Budapest Stock Exchange Dubai Egyptian Exchange Borsa Istanbul Qatar Stock Exchange

Market Value Trading Volume Market Value/GDP (RHS) Trading Volume/Market Value (RHS)

• BIST is the Turkish stock exchange located in Istanbul. There are 405 companies that are quoted on Borsa Istanbul. The exchange aims to have 1,000 companies listed from a minimum of 10 different countries by 2023. Thus strengthening its position and ensuring its competitiveness on the global arena. • BIST had a market value of USD 158 billion and a annual trading volume of more than USD 325 billion as of December 2016. • BIST has a higher market value and trading volume from other major peer exchanges in the region. However, compared to developed markets there is considerable growth potential. • BIST’s liquidity was higher with a 200% trading volume to market value ratio.

Source: WFE, IMF invest.gov.tr Portfolio Infrastructure Capital

Brokerage Investment Trusts Funds Markets Capital Management Providers

Borsa Istanbul: An attractive place for fund raising Markets

Number of Public Offerings Total Value of Public Offerings (USD Billion) 405 5,7 Equities

65 Over 1000 Warrants

52 5,4 9 ETFs

2008-2011 2012-2016 2008-2011 2012-2016

Number of Corporate Debt Issuances Total Value of Corporate Debt Issuances

758 35 800 30,3 29 700 30 621 26,1 25,5 23,5 600 517 25 500 20 400 330 USDBillion 15 11,1 300 235 10 200 58 5 100 16 1,3 0 0 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016

Source:CMB, Borsa Istanbul, TCMA invest.gov.tr D. Insurance

i. Non-Life Insurance ii. Life Insurance and Pensions

invest.gov.tr Insurance Non-Life Life Insurance and Pensions The premiums to GDP ratio in Turkey is low, demonstrating potential for growth in the future years.

Total Premiums as a Percentage of GDP, Country Comparison (2015) Total Premium Growth as % of GDP in Turkey

Ukraine 1,41% 1,55% 1,55%

Turkey 1,55% 1,5% 1,40% 1,40% 1,33% 1,29% 1,28% Bulgaria 2,18%

Czech Republic 3,27% 1,0% India 3,44%

China 3,57%

0,5% Brazil 3,90%

Spain 5,10%

Germany 6,24% 0,0% 2009 2010 2011 2012 2013 2014 2015 Italy 8,68%

• Turkey’s total premiums as a percentage of GDP is 1.55%. • The insurance market is still underpenetrated compared to peer countries and will provide significant potential as new insurers set up shop and acquire a share of the relatively untapped Turkish market. Turkey has seen strong economic growth fueled in part by a young and dynamic population that is increasingly in need of financial products and services.

Source: Swiss Re, Sigma, World Insurance in 2015 invest.gov.tr Insurance Non-Life Life Insurance and Pensions Turkey’s insurance sector asset size grew at a CAGR of 21% between 2008 and 2016.

• There are a total of 62 active insurance and retirement • The asset size of non-life insurance increased a stunning pension companies in Turkey of which 38 are non-life CAGR 16%, while the asset size of life insurance and pension insurance companies, 4 life insurance and 18 pension companies also reported a significant increase of a CAGR of companies and 2 reassurance company as of 2015. 24% during the same period.

Asset Size of Turkey’s Insurance Sector Growth of Premiums in Turkey ( TL Billion) (TL Billion) 40 120 35 100 43 30 CAGR 80 34 25 19% 28 60 20 24 40 19 77 16 62 15 CAGR 15 14 51 20 13 38 16% 25 32 10 13 17 21 0 5 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 Life Non-Life Non-Life Insurance Companies Life Insurance and Pension Companies 2009 2010 2011 2012 2013 2014 2015 2016

• Total asset size increased at a CAGR of 21% between 2008 • Life insurance premiums grew at CAGR of 16% between and 2016 in the non-life and life insurance sector surpassing 2009 and 2016 to over TL 5,030 million, while non-life TL 120 billion in 2016. insurance grew at a CAGR of 19% exceeding TL 35,440 million.

Source: TSB invest.gov.tr USD/TRY as of 31.12.2016: 3.52 Insurance

Non-Life Life Insurance and Pensions Insurance The premiums grew in every business line of insurance between 2009 and 2016.

Breakdown of Premiums in 2016 Premium Written CAGR Share in Total Premimum (TL Million) (2009-2016)

Land Vehicles 32% 2,2 2,5 3,0 3,9 5,4 5,5 7,5 12,9 28% Liability* • Premiums grew in every business line in the insurance sector between 15% 2,7 3,1 3,8 4,5 5,0 5,1 5,6 6,2 13% Land Vehicles 2009 and 2016. The areas of land vehicles liability and general losses, grew 9% General Losses 0,9 1,0 1,5 1,7 2,2 2,4 3,0 3,5 21% considerably registering CAGRs of 28% and 21% respectively. Health 10% 1,4 1,7 2,0 2,2 2,5 2,9 3,4 4,2 17%

Fire and Forces 12% 1,9 2,0 2,3 2,6 3,3 3,8 4,4 4,8 14% of Nature 2009 2010 2011 Life 2012 12% 1,8 2,2 2,7 2,7 3,0 3,3 3,8 5,0 16% 2013 2014 2015 Other Non- Life** 2016 10% 1,4 1,6 1,9 2,0 2,4 2,9 3,4 3,8 15%

58 Source: TSB *Land vehicles liability insurance is compulsory. invest.gov.tr **Other non-life insurance includes accident, railway rolling stock, aircraft, maritime, aircraft liability, general liability, credit, suretyship, financial losses, legal protection and assistance. Insurance

Non-Life Life Insurance and Pensions Insurance Banks are increasingly considering insurance products for cross-selling opportunities.

Premium Distribution by Sales Channels • Insurance sales in Turkey are conducted via direct sales, agencies, bancassurance and brokers. 100% • Total insurance sales reached about TL 40,5 billion in 2016. 9% 10% 9% 10% 10% 10% 11% 11% 11% 88% of these sales were non-life insurance sales with more 17% 19% than TL 35 billion in sales, while the rest were life insurance 22% 23% 23% 23% 23% 22% 22% sales with a total worth of more than TL 5 billion. • Agencies had the biggest share in total sales constituting 50% more than 60% of total sales with with around TL 25 billion. 65% 62% The significant amount of sales is due to the strong presence 60% 59% 60% 60% 60% 60% 61% of agencies in Turkey. There were more than 15,000 actively operating agencies as of 2016. • Agency sales are followed by bancassurance sales. Bancassurance grew from 17% to 22% from 2008 to 2016, 8% 10% 9% 8% 7% 6% 6% 6% 6% 0% exceeding TL 8.8 billion in total sales. 2008 2009 2010 2011 2012 2013 2014 2015 2016

Direct Agency Bank assurance Broker

Source: Undersecretariat of Treasury, TSB invest.gov.tr Insurance

Non-Life Life Insurance and Pensions Insurance Allianz is the market leader in non-life insurance, the life insurance market is dominated by Ziraat..

Non-Life Insurance Market Share • Allianz was the leader in non-life (Written Premiums) insurance market in terms of written premiums in 2016 with a share of 16% Allianz Sigorta 16.3% after the acquisition of Yapı Kredi Sigorta in 2014. and Axa Allianz with 12.6% and 10.1% 12% Anadolu Sigorta market shares, respectively. Axa Sigorta 8% Mapfre Genel • The large scale non-life insurance companies (the top 5 companies) Ak Sigorta represent 53% of total market as of 4% December 2015.

0% 2008 2009 2010 2011 2012 2013 2014 2015 2016

Life Insurance Market Share (Written Premiums) • Ziraat Hayat and Emeklilik started its 30% operations in the life insurance business in 2009. As of 2010, Ziraat 25% Hayat and Emeklilik became the market Ziraat leader in terms of life insurance 20% premiums and continued to be the 15% leader thanks to its large retail customer base and branch network. Anadolu 10% Ziraat Hayat and Emeklilik had a share Allianz Garanti of 16.5% in 2015, followed by Allianz 5% Halk Hayat with 11.5% and Anadolu with 10.7%. 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: TSB invest.gov.tr Insurance Non-Life Life Insurance and Pensions The government will fund 25% of a participant’s monthly contribution in order to promote savings..

• In October 2001, private pension plans were established in Turkey after the enactment of Law No. 4632 - Private Pension Plans Savings and Investment System. The objective of the new pension regulation can be described as follows: • Increase the savings behavior of the population with the new tax and financial incentives • Involve and integrate the non-working population into the system • Decrease the lapse issue within the system

Government Grants and Advantages Major Conditions for the Individual Pension Plans

• The government will contribute 25% of the monthly • A minimum 10 years in the system participant contribution into a separate pension contract. The • A minimum retirement age of 56 government’s annual contribution will be up to 25% of the gross annual minimum wage. • No more requirement of minimum 10 years of contribution payment • The participant is eligible for the pension fund with the following terms: • Participants can switch funds 6 times and pension plans 4 times a year • 0-3 years of participation (0% of the fund) • Once the participant retires, he/she can claim the amount via three different means (i.e., total payment of asset under • 3-6 years of participation (15% of the fund) management, installed repayment, and annuity contract) • 6-10 years of participation (35% of the fund) • A contract is signed when the first contribution amount is transferred into the company’s account. • 10 years of participation and before the age of 56 (60% of the fund) • The participant has the right to withdraw the money in the fund up to 60 days after the contact has been signed. • 10 years of participation and after the age of 56 • There is gradual tax on net return instead of accumulated (retirement), death and disability (100% of the fund) value. Pricing is based on the riskiness of the pension fund.

Source: EGM invest.gov.tr Insurance

Non-Life Life Insurance and Pensions Insurance In 2015, the size of the Turkish pension funds relative to GDP was almost doubled over the past 6 years.

Pension Funds Relative to the Size of the Economy Pension Funds Relative to the Size of the Economy as Percentage of GDP (2015) as Percentage of GDP (2015)

France 0,5% 6%

Hungary 4,0% 5% Turkey 4,3% 4,4% 4,3%

Germany 6,5% 4% 3,7% 3,4% 3,5% Poland 7,7% 3% Czechia 8,1% 2,2% Spain 9,5% 2% US 79,0%

UK 95,8% 1% Netherlands 168,7% 0% 0% 50% 100% 150% 200% 2010 2011 2012 2013 2014 2015

• Pension funds in the world’s developed and developing countries play a crucial role in the economy since they provide long term funds to the market. • In 2015, the ratio of pension funds to GDP in Turkey was 4.3%, an increase from 2.2% in 2010. The figure is still significantly lower than major OECD countries. However, there is great potential for the market because of the government’s promotion of savings plans to the general population.

Source: OECD, IMF invest.gov.tr Insurance

Non-Life Life Insurance and Pensions Insurance Gross national savings make up 24.9% of Turkey’s GDP in 2016, up from 23.2% in 2013..

Gross National Savings Percentage of GDP (2016) Turkey’s Gross National Savings / GDP

UK 12,6 25,6%

Brazil 16,1 24,9% US 18,6 24,4% 24,5% 19,3 Poland

Italy 19,8 23,2%

France 21,7

Spain 22,4

Turkey 24,9

Germany 27,6 2013 2014 2015 2016 2017f 2018f 2019f 2020f India 30,5

• Gross national savings as a percentage of GDP was 24.9% in 2016, which is relatively lower than other countries. • The Turkish government is trying to increase savings by enhancing the private pension system and generally raising awareness and promoting household savings. Thus, the government aims to increase the savings to 18% by 2018.

63 Source:IMF invest.gov.tr Insurance

Non-Life Life Insurance and Pensions Insurance Both AUM and contribution amounts had rapid growth since 2006 with a CAGR of 34% and 33%, respectively.

Pension Funds (AUM) and Contribution Growth Number of Participants/Contracts in Pension Funds (TL Billion) (Million) 10 1,20 60 Number of Contracts 1,18 Assets Under Management (AUM) Number of Participants 50 Contract per Participant (RHS) Accumulated Total Contribution 8

1,15 53,4 40

44,4 6 30 1,10 4 1,06 20 1,05 10 2

0 0 1,00

• The number of participants in Turkey’s pension funds increased at a CAGR of 20% between 2006 and 2016, while total contributions increased at a CAGR of 33% during the same period. • As of 2016, total contributions reached TL 44.4 billion, which is a staggering 20% increase from the previous year. This increase was due to the new pension regulation, in which the government funds 25% of the monthly contribution and automatic enrolment. • According to the Pension Monitoring Center’s database, the total number of contracts increased to 7.7 million with 6.6 million participants. The assets under management exceeded TL 53 billion.

Source: EGM invest.gov.tr USD/TL as of 31.12.2016: 3.52 Insurance

Non-Life Life Insurance and Pensions Insurance

The top 4 pension funds constituted 61% of the market.

Pension Funds (AUM) Share Market Share for Number of Participants (2016) (2016)

Allianz Allianz 18% 18%

Other; 33% Avivasa Other; 39% Emeklilik ve AvivaSA; 14% Hayat; 20%

Garanti Anadolu Emeklilik; 17% Garanti Hayat ve Emeklilik ve Emeklilik; 19% Anadolu Hayat; 16% Hayat ve Emeklilik; 17%

• Avivasa Yaşam ve Emeklilik is the market leader in the pension fund sector in terms of assets under management. However, it is not the market leader in terms of number of participants. • Garanti Emeklilik ve Hayat and Allianz has the highest share in terms of number of participants with 17% and 18% respectively as the end of 2016.

Source: EGM invest.gov.tr Insurance

Non-Life Life Insurance and Pensions Insurance Non-Life Insurance Sector: Selected Players

AXA Sigorta Allianz Sigorta Anadolu Sigorta Güneş Sigorta

• French insurance giant Axa • In 1988, the German • Anadolu Sigorta was • Güneş Sigorta was entered the Turkish company Allianz along with founded in 1925 by İş Bank. established in 1957. insurance market in 1995 Tokio Marine Insurance • 57% of the company is • Vakıf Emeklilik owns 36% of under the name Axa Oyak from Japan bought shares owned by Milli Reasürans Güneş Sigorta and Life Insurance. of Şark Sigorta operating T.A.Ş. and the rest is Groupama, one of the under Koç Holding. • In 2008, AXA bought publicly listed. leading insurance Oyak’s shares. • Allianz owns 96.2% of the companies in France, owns • Anadolu Sigorta’s total life insurance shares of the 36%. The rest of the shares • 93% of the shares of the assets reached TL 5.3 company. The other 3.8% are owned by the company belong to Axa billion in 2016. is held by Tokio Marine. Retirement Foundation of Holding A.Ş., 7% to Ziraat Vakıfbank’s personnel and Bank and the rest to • A Allianz acquired Yapı the public. smaller stakeholders. Kredi Sigorta in 2014 • Güneş Sigorta's total • Axa Sigorta’s total assets in • Allianz's total assets in assets under management 2016 reached TL 5.4 billion. 2016 reached TL 7.4 billion. reached in 2016 TL 1.2 . billion.

Source: TSB and Company websites invest.gov.tr Insurance

Non-Life Life Insurance and Pensions Insurance Life Insurance Sector: Selected Players

GARANTI EMEKLILIK ve ANADOLU HAYAT ve NN HAYAT ve EMEKLILIK AvivaSA Emeklilik ve Hayat HAYAT EMEKLILIK • Oyak Emeklilik A.Ş., was • Garanti Emeklilik ve Hayat • was • AvivaSA was established in founded in 2003. began its operations in founded in 1990 and is 2007 with approximately 2002. Turkey’s only publicly listed 50% percent of its shares • Dutch financial services insurance company. divided between Sabancı group ING acquired the • 85% of Garanti Hayat ve Holding and Aviva. company in 2007. Emeklilik’s shares are owned • 62% of the company‘s by Garanti Bank, the shares are owned by Iş Bank, • Aviva is a global insurance • Oyak Emeklilik’s name remaining are owned by 20% by Anadolu Sigorta, company headquartered in changed to ING Emeklilik in Dutch insurance company 17% is open to public and Britain with over 50 million 2009. Achmea. less than 1% is held by Milli customers. • The company was renamed Reasürans T.A.Ş. • Garanti Emeklilik ve Hayat’s • AvivaSA had TL 12.9 billion NN Emeklilik in February total assets under • In 2016, the company’s asset under management in 2015. management was more asset under management 2016. •NN Continental Europe than TL 11 billion in 2016. totaled TL 14.4 billion. Holding BV owns the company

Source: TSB and Company websites invest.gov.tr E. Turkey’s Competitive Landscape

i. Turkey’s Macroeconomic Outlook

ii. Favorable Demographics

iii. Skilled and Cost-Competitive Labor Force

iv. Investment Environment & Stakeholders

v. Geostrategic Location

invest.gov.tr Turkey’s sizeable and diversified economy has achieved remarkable growth with a bright future, further increasing financial activity..

Average 13th largest economy in the world Annual GDP Growth 2003-2016 % 2016 GDP ($ Trillion, PPP) Real GDP Growth (Index: 2002=100)

250 China (1) 21,3 Turkey 5.6 US (2) 18,6 225 India (3) 8,7

Japan (4) 5,2 3.7 200 Poland Germany (5) 4,0

Russia (6) 3,8 175 Romania 3.5 Brazil (7) 3,1 Czechia 2.6 Indonesia (8) 3,0 150

UK (9) 2,8 Hungary 1.8

France (10) 2,7 125

Mexico (11) 2,3 100

Italy (12) 2,2

2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2014 2015 2016 2017 2018 2019 Turkey (13) 2,0 2002

Source: TurkStat, OECD, World Bank, IMF, PPP: Purchasing Power Parity invest.gov.tr As Turkish economy has developed, it has integrated with the global economy and financial markets with increasing cross-border capital flows..

International Transactions Volume of Turkey (USD Billion)

Financial Account Income & Expenditure 465 Trade in Goods & Services

134

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

International Investment Position of Turkey (USD Billion)

Assets Liabilities 576 Reserve assets 216 Other investment Other investment Portfolio investment Portfolio investment Direct investment Direct investment

62 148

2002 2016 2002 2016

Source: CBRT invest.gov.tr Turkey’s economic growth has resulted in income growth and a growing robust middle class with increasing purchasing power..

Tripling Income per capita (GDP per capita, current prices) US (1) 57.436 Germany (2) 41.902 $10.807 UK (3) 40.096 Japan (4) 38.917 France (5) 38.128 Italy (6) 30.507 Among countries with $3.581 Korea (7) 27.539 population over 50 million, Turkey (8) 10.807 only 8 countries have GDP Russia (9) 8.929 per capita over $10.000 2002 2016 Brazil (10) 8.727

2002 Income Groups 2016 (Annual disposal income per capita)

1 million $55K+ 5 million

3.3 million $25K – $55K 21.2 million 17.8 million $10K – $25K 39.9 million 10.8 23 million $5K – $10K million

21.3 million Under $5K 3 million

Source:IMF, Turkstat, Euromonitor invest.gov.tr Despite increasing income, Turkey still lags behind in financial inclusion as compared to peer economies, giving room for growth in financial services..

Account at a financial institution Saved at a financial institution in the past year (% of population aged (% of population aged 15+) 15+)

70,5 32,2

56,7

9,1

Turkey Average of Upper Middle Income Turkey Average of Upper Middle Income Countries Countries

In order to address financial gaps, Turkey launched a national Financial Inclusion Strategy in 2014

Financial Inclusion Strategy

Access to Financial Products Financial Education Financial Consumer Protection and Services

Source: World Bank Global Findex 2014 invest.gov.tr Turkey has a quite favorable demographic structure with a bright prospect which will further support economic activity in Turkey..

TURKEY EUROPE

90+ 90+

80-84 80-84

70-74 70-74

60-64 60-64

50-54 50-54

40-44 40-44

30-34 30-34

20-24 20-24 Age Groups(%) 10-14

Age10-14 Groups(%)

0-4 0-4 5 3 1 1 3 5 5 3 1 1 3 5 Female Male Female Male

Working Age Population (15-64) Total Dependency Ratio (%) (Index: 2014=100) (Age 0-14 & Age 65+) / Age 15-64

120 75

70 Europe

Turkey 110 65

60

100 55 Turkey Europe 50

90 45 2014 2017 2020 2023 2026 2029 2032 2035 2014 2017 2020 2023 2026 2029 2032 2035 invest.gov.tr Source: Turkstat, Eurostat, UN, 2016 Turkey’s labor markets support the financial sector’s human resources need with a cost-competitive labor base..

Number of People employed in the Turkish Labor Cost per hour in Financial & Insurance Sector, 2016 (EUR) Financial and Insurance Sector (thousand)

301 56,3 51,7 49,7 45,9 43,8 38,5

273 19,1

2009 2016

Availability of Finance Skills, 2017 Availability of IT Skills, 2017 0=Unavailable, 10=Available 0=Unavailable, 10=Available

7,6 7,8 7,5 7,1 7,3 7,5 7,2 6,5 5,9 6,0 6,9 7,0 6,7

6,0

75 Source: Eurostat, Turkstat, IMD invest.gov.tr Turkey’s regulatory environment is highly friendly to foreign direct investment in financial sector.

Turkish Foreign Direct Investment Law FDI Regulatory Restrictiveness* in Financial Services, 2016

Foreign Direct Investment Law Index: 0=Open to FDI; 1=Closed to FDI

National Treatment

0,493 0,432 No ownership restriction

International Arbitration

Guarantee of Transfers

0,067

0,054

0,042

0,033

0,003

0,002 0,002

Purchase of Real Estate 0,000

UK

USA

China

Russia

Poland France

Employment of Expats Turkey

Switzerland

Luxembourg OECD - Average - OECD

Source: OECD *The FDI Index measures the restrictiveness of a country’s FDI rules by looking at four main types of restrictions on FDI: 1. Foreign equity limitations; 2. Screening or approval mechanisms; 3. Restrictions on the employment of foreigners as key personnel; 4. Operational restrictions, e.g. restrictions on branching and on capital repatriation or on land ownership

invest.gov.tr Turkish financial industry is also supported by university & industry collaboration through a finance- oriented technology development zone.

Istanbul Finance Technopark

About Target Groups • Turkey’s first thematic technopark • Companies Operating in the Banking and Finance Sectors • Produce technological and financial information • SMEs that produce hardware and software for the financial • Make innovation in products sector • Commercialize technological and financial information • Start-up Companies operating in the financial, money and • Create investment opportunities in technology intensive capital markets and software, information technology and areas through ensuring the cooperation of research technology sectors companies and organizations with the finance and manufacturing sectors

Shareholders

77 invest.gov.tr Turkey is committed to transform Istanbul into an international financial center..

Istanbul Financial Center

Key Features

• Istanbul Financial Center will house the head offices of the Turkey’s financial market governing bodies, state-owned and private banks, and related businesses. It will cover 4.2 million square meters of office, residential, retail, conference, hotel and park space.

• The government is working to improve the Turkish tax system, legal and fiscal environment, political and economic stability and regulatory framework in order to attract financial investments.

“Besides regional proximity to our clients, İstanbul provides “İstanbul satisfies the majority of the criteria of a financial appropriate infrastructure, convenient airport links, and a good center” quality of life for our staff.”

Tom Shave, Deloitte Senior Manager Dimitris Tsitsiragos, Vice-President, IFC

78 invest.gov.tr Turkey’s financial sector is also strengthened through efficient supervisory and regulatory institutions..

Major Financial Sector Stakeholders

Name Web Page What They Do www.tcmb.gov.tr Its purpose is to create efficiency in all the financial sectors of the economy, especially money, Central Bank of the Republic of credit and capital markets as well as determining and implementing policy contributing to Turkey financial stability, managing foreign exchange and gold reserves, printing money and overseeing payment systems. www.bddk.org.tr Ensures confidence, stability and competitiveness in financial markets to ensure effective operation of the credit system, protects the rights and interests of investors and takes Banking Regulation and necessary measures to make institutions subject their supervision steady and secure. Supervision Agency

www.tbb.org.tr Contributes to the development of banking sector and its competitiveness, prevents unfair The Banking Association of competition and aims to make Istanbul an international financial center in the world. Turkey

www.tsb.org.tr Specializes in the development of the insurance, reinsurance and private pension sectors, TSB The Insurance Association of provides advice to public authorities, monitors developments, conducts research, eliminates Turkey unfair competition of its members and produces a code of ethics for practices.

www.egm.org.tr Since 2007, EGM monitors the pension system on a daily basis, collects data and implements Pension Monitoring Center licensing exams.

www.spk.gov.tr Regulatory and supervisory authority in charge of the securities market, which makes detailed Capital Markets Board of regulations for organizing the market and developing capital market instruments and Turkey institutions. www.borsaistanbul.com Borsa Istanbul A.Ş. was founded in 2012. It trades capital market instruments, foreign currencies, precious metals and gems and other contracts and documents. Borsa Istanbul

80 invest.gov.tr Istanbul’s strategic location and its connectivity with the rest of the world has already enabled it to be a regional hub for global companies..

Follow and cover markets in 16 time zones from New York to Tokyo… connects Turkey to 246 destinations in 120 countries

Source: Turkish Airlines

89 countries Global companies are 80 countries managing dozens of countries from Istanbul 67 countries

52 countries

81 invest.gov.tr Given Turkey’s strategic location, a significant economic activity is taking place around Turkey. . .

Access to Multiple Markets

EUROPE RUSSIA 1,6 Billion People; GDP: $18.3 trillion GDP – $1.3 trillion Import of Financial Services: Import of Financial Services: $24 Trillion GDP; $120 billion $2,4 billion Insurance: $45 billion Insurance: $1,7 billion Population: 146 million around $200 billion trade Population: 676 million in Financial & Insurance Services at a 4-hour flight distance from Turkey

MENA CENTRAL ASIA & CAUCASUS GDP: $3.5 trillion GDP: $0.4 trillion Import of Import of Financial Services: $5,9 billion Financial Services: $200 million Insurance: $13 billion Insurance: $400 million Population: 712 million Population: 85 million

Source: IMF World Economic Outlook and ITC; GDP and Population invest.gov.tr A governmental body Private sector approach Acting as your attached to the Prime with public sector solution partner Ministry capabilities

General & customized Site selection support to Arrangements of business information & find appropriate meetings with Sectoral analysis & location/land for your governmental bodies reports investment and other stakeholders

Facilitating your Matchmaking with local Project launch & Facilitating your investment at all partners & establishing Press release visit to Turkey stages business linkages Services invest.gov.tr invest.gov.tr

Contact: [email protected]