2006 ANNUAL REPORT PRESENTATION CORPORATE PROFILE 1 HALKBANK'S CAPITAL STRUCTURE 2 FINANCIAL HIGHLIGHTS 3 HALKBANK'S STRATEGIES 4 HALKBANK'S HISTORICAL DEVELOPMENT 6 CHAIRMAN'S MESSAGE 8 GENERAL MANAGER'S ASSESSMENT OF 2006 10 ACTIVITIES IN 2006 14 SUBSIDIARIES AND AFFILIATES 26 CHANGES MADE IN THE ARTICLES OF ASSOCIATION DURING THE YEAR 28 COMPLIANCE OPINION FOR THE ANNUAL REPORT 32 MANAGEMENT AND CORPORATE GOVERNANCE BOARD OF DIRECTORS 34 SENIOR MANAGEMENT 36 ORGANIZATION CHART 38 COMMITTEES 40 THE HEADS OF INTERNAL CONTROL SYSTEM UNITS 43 BOARD OF DIRECTORS REPORT 44 HUMAN RESOURCES PRACTICES 45 ACTIVITIES FOR WHICH SUPPORT SERVICES ARE OUTSOURCED 46 FINANCIAL INFORMATION AND ASSESSMENT ON RISK MANAGEMENT STATUTORY AUDITORS’ REPORT FOR OPERATING AND FISCAL YEAR 2006 47 THE AUDIT COMMITTEE’S ASSESSMENT OF THE FUNCTIONING OF THE INTERNAL CONTROL, INTERNAL AUDIT, AND RISK MANAGEMENT SYSTEMS AND THE COMMITTEE’S ACTIVITIES IN 2006 50 FINANCIAL STANDING, PROFITABILITY, AND SOLVENCY 52 RISK MANAGEMENT POLICIES ADHERED TO ACCORDING TO TYPES OF RISK 54 CREDIT RATINGS AND NOTES 55 5-YEAR SUMMARIZED FINANCIAL HIGHLIGHTS 56 AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT 58 CONSOLIDATED INDEPENDENT AUDITORS’ REPORT 128 PRESENTATION 1 CORPORATE PROFILE COMMITTED TO ITS PRINCIPLE OF CUSTOMER SATISFACTION, HALKBANK IS A LEADING BANK WITH HIGH TRANSACTION VOLUMES THAT DELIVERS HIGH-QUALITY SERVICE TO A BROAD CUSTOMER BASE. HALKBANK SUPPLIES BANKING SERVICES CONSISTING OF A RICH ARRAY OF PRODUCTS AND FLEXIBLE SOLUTIONS TO 6 MILLION CORPORATE, COMMERCIAL, ENTREPRENEUR, AND RETAIL CUSTOMERS. IN ADDITION TO 553 NATIONAL BRANCHES THAT PROVIDE THE FOUNDATION FOR ITS MODERN APPROACH TO BANKING COMMUNICATION, HALKBANK IS ALSO THE CENTER OF AN EXTENSIVE SERVICE NETWORK OF ATM, INTERNET, TELEPHONE, TV, AND SMS DELIVERY CHANNELS. HALKBANK SHAPES ITS VISION OF BEING THE REGION'S LEADING SME BANK WITH ITS PHILOSOPHY OF SUPPORTING TRADESMEN AND ARTISANS, THE REASON FOR WHICH IT WAS ORIGINALLY FOUNDED NEARLY 70 YEARS AGO. CONTINUING TO PLAY THIS ROLE ON AN EVER-INCREASING BASIS IS ONE OF THE BANK'S BASIC BUSINESS STRATEGIES. A COMPREHENSIVE RESTRUCTURING PROGRAM CARRIED OUT IN THE LAST FEW YEARS HAS MADE HALKBANK MUCH MORE EFFECTIVE, DYNAMIC, AND CUSTOMER-FOCUSED TODAY THAN EVER. THE BANK WILL CONTINUE TO SUPPORT ALL ENTREPRENEURS THAT CREATE VALUE FOR THE NATIONAL ECONOMY AND TO NOURISH THE BANKING INDUSTRY AND CAPITAL MARKETS WITH AN INNOVATIVE AND SOUND PERCEPTION OF BUSINESS. HALKBANK: A PRODUCTIVE TURKEY’S BANK HALKBANK 2006 ANNUAL REPORT PRESENTATION 2 Total assets Shareholders' equity Net profit TRY 34,425 million TRY 3,780 million TRY 863 million The Bank's total assets were up Halkbank has a high capital adequacy As a result of the importance it gave 28.19% year-on-year and reached ratio of 31.95%. Despite cash to improving the quality of its assets TRY 34,425 million. During 2006 dividends that it paid out, Halkbank's and to their productivity, Halkbank importance was given to improving shareholders' equity increased 15% booked a year-end profit of TRY 863 the quality of the Bank's assets in the year to end-2006. million in 2006, 56% higher than that and to their productivity. The most of the previous year. important changes among asset items were observed in the cash, available-for-sale securities, and loans categories. HALKBANK'S CAPITAL STRUCTURE Halkbank's paid-in capital is TRY 1,250,000,000, 99.999996207% of originally belonged to the Undersecretariat of Treasury. Under Privatization High Council resolution 2007/8 dated 5 February 2007, which was passed after judgment 2006/4258 dated 29 November 2006 of the 13th chamber of the Council of State had countermanded Privatization High Council resolution 2006/69 dated 11 August 2006, the shares corresponding to the Treasury's stake were transferred to the Privatization Administration. The remaining 0.000003793 of the Bank's capital belongs to other shareholders. The Bank's ultimate controlling shareholder is the Privatization Administration, Prime Ministry, Republic of Turkey. Neither the chairman nor any member of the Board of Directors, nor any statutory auditor, nor any deputy general manager is a shareholder in the Bank. Shareholder Number of Capital Paid-in Unpaid Capital Shares Commitment (TRY) Share (%) Capital (TRY) (TRY) Privatization Administration 1 1,249,999,952.58 99.999996207 1,249,999,952.58 - Banks 5 1.51 0.000000121 1.51 - Chambers of Commerce 12 0.21 0.000000017 0.21 - Cooperatives of Craftsmen 143 1.72 0.000000138 1.72 - Local City Authorities 67 9.39 0.000000751 9.39 - Municipalities 980 18.69 0.000001495 18.69 - Individuals and Corporates 14,465 15.90 0.000001272 15.90 - TOTAL 15,673 1,250,000,000.00 100.000000000 1,250,000,000.00 - BREAKDOWN OF LOANS BREAKDOWN OF DEPOSITS Commercial 12% Fund 8% Public Sector 3% Interbank 3% FX 27% Commercial 52% Retail 19% Other 11% Cooperative 21% Savings 44% HALKBANK 2006 ANNUAL REPORT PRESENTATION 3 FINANCIAL HIGHLIGHTS KEY INDICATORS (TRY million) 2006 2005 Change % Total Assets 34,425 26,854 28.2 Total Loans 11,646 6,330 84.0 Total Deposits 27,188 21,113 28.8 Shareholders' Equity 3,780 3,299 14.6 Pretax Profit 1,117 801 39.5 Net Profit 863 554 55.8 (USD million) Total Assets 24,415 20,055 21.7 Total Loans 8,260 4,727 74.7 Total Deposits 19,282 15,768 22.2 Shareholders' Equity 2,681 2,464 8.8 Pretax Profit 792 598 32.4 Net Profit 612 414 47.8 (%) Interest Bearing Assets/Total Assets 96 96 Total Loans/Total Assets 34 24 NPL/Total Loans (Gross) 9 16 Total Loans/Total Deposits 43 30 Return on Average Assets 3 2 Return on Average Equity 24 18 Net Interest Margin 4 4 31.95% HALKBANK HAS A HIGH CAPITAL ADEQUACY RATIO OF 31.95%. TOTAL LOANS TOTAL DEPOSITS SHAREHOLDERS' EQUITY NET PROFIT (TRY MILLION) (TRY MILLION) (TRY MILLION) (TRY MILLION) 11,646 27,188 3,299 3,780 863 21,113 554 6,330 2005 2006 2005 2006 2005 2006 2005 2006 HALKBANK 2006 ANNUAL REPORT PRESENTATION 4 CREATING ADDED VALUE... TO BE TURKEY'S LEADING SME BANK THAT FULFILLS ALL THE REQUIREMENTS OF UNIVERSAL BANKING AND IS STRONG IN RETAIL BANKING SERVICES... HALKBANK 2006 ANNUAL REPORT PRESENTATION 5 HALKBANK'S FUNDAMENTAL OBJECTIVE TO BE TURKEY'S LEADING SME BANK THAT FULFILLS ALL THE REQUIREMENTS OF UNIVERSAL BANKING AND IS STRONG IN RETAIL BANKING SERVICES AND THAT CONTINUOUSLY CREATES ADDED VALUE FOR CUSTOMERS, SHAREHOLDERS, AND EMPLOYEES BY EFFECTIVELY PROVIDING ALL BANKING SERVICES WITHIN THE OVERALL FRAMEWORK OF THE SOCIAL RESPONSIBILITY THAT IT COMMITS AND OF ITS HIGH MORAL SENSE OF DUTY. HALKBANK'S STRATEGIES • TO OFFER CUSTOMERS SPECIALLY DESIGNED PRODUCT AND SERVICE OPTIONS THROUGH EFFECTIVE MARKETING IN ADDITION TO ITS TRADITIONAL BANKING ACTIVITIES. • TO FOCUS ON CUSTOMER SEGMENTATION AND DEVELOP AND OFFER HIGH QUALITY PRODUCTS AND SERVICES ADDRESSING THE PARTICULAR NEEDS OF SMES AS WELL AS OF RETAIL CUSTOMERS IN THE MIDDLE AND UPPER MIDDLE INCOME GROUPS. • TO TAKE A CUSTOMER-FOCUSED APPROACH TO HIGH-QUALITY SERVICE IN ALL FIELDS OF BANKING. • TO ENSURE THE EFFECTIVENESS OF ALL CRITICAL PROCESSES, ESPECIALLY IN CREDIT AND RISK MANAGEMENT. • TO MAXIMIZE PRODUCTIVITY IN ALL BUSINESS PROCESSES BY MEANS OF A RICH PRODUCT DIVERSITY, TRANSACTION SYSTEM SECURITY, RAPID HIGH QUALITY SERVICE AND COMPETITIVE PRICING. • TO ACHIEVE ONGOING DEVELOPMENT AND MOTIVATION AMONG EMPLOYEES THROUGH EFFECTIVE PERFORMANCE AND CAREER MANAGEMENT SYSTEMS. • TO ENSURE THAT ALL INTERNAL AND EXTERNAL CUSTOMERS RECOGNIZE AND • ACKNOWLEDGE THE BANK'S CORPORATE IDENTITY. • TO PROVIDE THE HIGHEST-QUALITY AND MOST EFFECTIVE SERVICE IN THE BUSINESS OF INTERNATIONAL BANKING. • TO MAINTAIN ITS POSITION AMONG THE SECTOR'S LEADING BANKS IN TERMS OF CUSTOMER NUMBERS, DEPOSIT AND LENDING VOLUMES, TOTAL ASSETS, AND PROFITABILITY. HALKBANK 2006 ANNUAL REPORT PRESENTATION 6 STRONG HALKBANK WILL CONTINUE TO CARRY OUT ITS MISSION AS A STRONG AND TRUSTED BANK THAT IS RECOGNIZED FOR ITS MODERN BANKING APPROACH TO SUPPORT ALL ENTREPRENEURS THAT CONTRIBUTE TOWARDS INCREASES IN OVERALL INVESTMENT, PRODUCTION, AND EMPLOYMENT. HALKBANK 2006 ANNUAL REPORT PRESENTATION 7 HALKBANK'S HISTORICAL DEVELOPMENT 1918-1933: In the midst of war, economic 1950-1992: Halkbank becomes the first In the second half of 2004, all the assets crisis, and deprivation, the Republic of bank in the sector to cater to tradesmen, and liabilities of Pamukbank were Turkey is born. artisans, and small enterprises. transferred to Halkbank. The integration of The first world war, the War of In 1950 Halkbank was authorized to open Pamukbank into Halkbank took place much Independence, and the Great Depression branches and lend money directly to faster and with far fewer difficulties than plunged our country into the severest of borrowers. At the beginning of 1964, the anybody had anticipated. So much so in economic conditions that were Bank embarked upon an ambitious fact, that the merger is now pointed to as characterized by shortages of every kind, program in which its capitalization was a model in the banking industry. Newly rampant inflation, and high interest rates. increased and it became a more active constituted, Halkbank now focused on Recognizing the high-priority need for a player by opening up a national network customer segmentation in which it became balanced social structure, the new republic of branches. The result was a strong rise important to develop and offer high-quality adopted goals aimed at supporting in the Bank's deposit and lending volumes. products and services addressing the tradesmen and artisans and fostering the Halkbank was the first member of the particular needs of SMEs as well as of retail growth and development of popular Turkish banking industry to focus on the customers in the middle and upper-middle banking. However economic difficulties needs of tradesmen and artisans and of income groups.