ANNUAL REVIEW 2009 ONTENTS 3 Introduction 4 Financial Highlights 6 Business Highlights 10 Message from the Chairman 12 Board of Directors 14 Message from the CEO 16 Senior Management 18 The Anadolu Group 23 Corporate Governance 26 Business Review 28 International Financial Institutions 29 Treasury 31 Corporate and Commercial Banking 35 Retail Banking 35 Internal Systems 41 Business Development 42 Human Resources 44 Information Technology 47 ABank Financial Subsidiaries 48 Anadolu Group Financial Subsidiaries 50 Consolidated Balance Sheet and Statement of Income December 31, 2009 52 Directory CFS Auditors’ Report and Financial Statements CFS Interim Financial Statements - 30 June 2010 ABank in Turkey ABank continues to improve its performance, operating within a prudent and efficient structure that revives in accordance with the changing objectives and requirements. ABank Annual Review 2009 NTRODUCTION A Brief History ABank was established in 1991 and became a listed company in 1995, when it offered 20% of its shares to the public. The following year, the Anadolu Group, one of Turkey's leading conglomerates, purchased 80% of ABank’s shares from the Do¤an Group. Today, the Anadolu Group owns 96% of ABank’s shares, with the remaining 4% publicly traded on the Istanbul Stock Exchange (ISE). ABank is a medium-sized Turkish bank that predominately serves medium-sized companies through a network of 46 branches throughout Turkey, as of year-end 2009. This network places ABank in a strong position to cater to the major industrial and commercial regions of Turkey, where 75% of the country’s GNP is generated. With its dynamic structure, efficiency, customized services, product range, and strong, sustained growth, ABank has established itself as a reputable name in Turkey’s growing banking sector. Strategy ABank provides commercial/corporate banking services and products, with a special focus on the growing segment of Small and Medium-Sized Enterprises. The Bank excels in designing customized solutions that mesh efficiency, strength, and flexibility, and it maintains close relations with its growing customer base. ABank’s highly efficient branch network has a proven track record of effectiveness and sustained profitability, and it is a key component of the Bank’s operating strategy. ABank closely monitors its branches and the related business units, constantly looking to improve efficiency and profitability - the cornerstones of the Bank’s business philosophy. In the wake of the recent global financial crisis, ABank has placed utmost importance on preserving its asset quality while simultaneously maintaining support for its core customers. ABank has recently made a strategic decision to re-enter Retail Banking, offering selective retail products and targeting the “mass affluent” customer segment with tailor-made products. The Retail Banking organization has been set up for both Head Office and branch operations. Service and Product Range ABank values the close relations it enjoys with its customers, to whom it offers a complete range of services, including commercial/corporate banking, treasury, and investment banking. The Bank’s main product ranges cover trade finance instruments, working capital finance, cash management, and portfolio management. ABank’s subsidiary, AYat›r›m, and ALease, an Anadolu Group company, provide financial leasing, brokerage services, and investment banking. The marketing synergy between ABank and these two financial institutions have created a remarkable competitive advantage; AYat›r›m’s strong customer portfolio and ALease’s ability to offer long-term contract-based leases give ABank’s customers a solid source of financial support. ABank conducts its banking operations at global standards, offering banking services that stress discipline, flexibility, and customer-awareness. These qualities are supported by the Bank’s high-tech infrastructure, strong capital base, sophisticated risk management, operating efficiency, and, most importantly, its talented and dynamic staff. 3 ABank Annual Review 2009 INANCIAL HIGHLIGHTS (USD million) 2006 2007 2008 2009 % Change Total Assets 1,416 2,248 2,483 2,419 -2.6 Total Loans (cash + non cash) 1,624 2,541 2,397 2,844 18.7 Cash Loans (after provisioning) 956 1,600 1,574 1,800 14.3 Non Cash Loans 668 941 823 1,045 27.0 Customer Deposits 793 1,457 1,753 1,657 -5.5 Total Securities 90 124 196 355 90.9 Total Equity 138 296 265 307 15.8 Net Income 27 65 35 43 20.1 Funds Borrowed 397 298 353 264 -25.2 Number of Branches 29 40 46 46 Total Assets Total Loans (cash + non cash) 2,844 (USD Million) (USD Million) 2,483 2,541 2,419 2,248 2,397 1,624 1,416 20062007 2008 2009 20062007 2008 2009 Customer Deposits (USD Million) 1,753 1,657 1,457 793 20062007 2008 2009 4 ABank Annual Review 2009 Total Equity Net Income (USD Million) 307 (USD Million) 296 265 65 43 138 35 27 2006 2007 2008 2009 2006 2007 2008 2009 Cost / Income Capital adequacy ratio (%) (%) 58 58 14.91 14.21 54 13.05 49 12.94 2006 2007 2008 2009 2006 2007 2008 2009 Return on equity (%) 30.7 24.9 15.6 16.0 2006 2007 2008 2009 Number of branches Number of employees 1006 999 46 46 868 40 680 29 626 607 537 459 380 392 331 221 2006 2007 2008 2009 2006 2007 2008 2009 Head office Branches Total Ratings From Fitch Foreign Currency Turkish Lira Long -Term Short Term Individual Support Long Term Short Term National BB B D 3 BB B AA (tur) (stable outlook) (stable outlook) (stable outlook) 5 ABank Annual Review 2009 USINESS HIGHLIGHTS Strong Results ABank had another successful year in 2009. Net profit was an impressive USD 43 million, reflecting the successful completion and implementation of the right strategies during the course of the year. These positive results have been clearly reflected on the Bank’s balance sheet. As of year-end 2009, total consolidated assets had reached USD 2.419 billion, and total equity USD 307 million. ROE and ROA stood at 16,0% and 1.7%, respectively. ABank increased its cash loans by 14% and non-cash loans by 27% over 2008 year-end figures. Total cash loans in 2009 were USD 1,880 million and non-cash loans USD 1,045 million. The capital adequacy ratio as of the year-end 2009 was at a comfortable level of 13,0%. The Bank’s operational efficiency is reflected in its cost-to-income ratio, which stood at 58% as of year-end 2009. Prudent Risk Management ABank is very cautious in its management of credit and market risk; loan exposure in general does not exceed 15% in any sector, which protects the Bank from market fluctuations and turmoils. ABank’s sophisticated credit risk management systems provide the Bank with sound knowledge of its customers’ financial requirements and allow it to deliver diverse products to an expanding portfolio without deviating from the principles of risk prudence. SMEs account for 70% of ABank’s active commercial/corporate customers, representing a risk exposure of approximately 44%. Special attention is given to asset quality at all times, as the Bank maintains prudently conservative risk policies. Close monitoring of sectoral and individual company risks through sophisticated analysis methodology has led to a high quality asset portfolio. In spite of loan growth and the unfavorable market conditions, ABank’s non-performing loan ratio remained at 6.77% in 2009. Considering the dominance of the SME customers in our loan portfolio and the Turkish banking sector’s SME default rate of more than 8.5%, ABank’s NPL ratio could be considered a modest level. Core Banking Philosophy ABank’s business model aims at long-term profitability and growth through commercial/corporate banking services. As such, ABank places particular emphasis on serving Turkey’s vibrant and rapidly growing SME segment. In this capacity, ABank has taken up a strong and valuable position in Turkey’s banking sector. New Products and Services ABank has always given high priority to upgrading and investing in technological infrastructure and developing new and sophisticated banking products and solutions. ABank has supported its demand deposit and loan volume by placing itself at the center of its customers’ cash flow. Created under ABank’s Electronic Revenue Management umbrella structure, the Direct Debit System (DDS) projects are tailor-made and mesh seamlessly with the infrastructure and needs of the customers. These projects have once again highlighted ABank’s dynamic and hassle-free style. Accepting challenges and designing tailor-made solutions are equally important parts of the Bank’s activities on a broader level. 6 ABank Annual Review 2009 Efficient Branch Network ABank has become one of Turkey’s most active banks in lending volume per branch. Branch expansion plans are assessed against concrete efficiency measures, such as branch profitability and cost-to-income and cost-to-asset ratios. To this end, ABank conducts thorough demographic feasibility work aimed at optimizing its domestic customer reach. ABank follows quantitative and systematic studies to identify the most favorable geographic areas in which to expand its branch network and extend this reach. The method for these studies relies on scoring and fieldwork practices applied on a provincial basis. ABank had a network of 46 branches as of year-end 2009, spread across the major industrial regions of Turkey. The Bank is well-positioned to serve Turkey's most important commercial and densely-populated regions, where 75% of the country’s GNP is generated. Strong Shareholders ABank’s principal shareholder is the Anadolu Group, one of Turkey’s largest and most respected industrial conglomerates. The Group is engaged in a wide range of businesses, from beverages to automotive and stationery, financial services, energy, tourism, consumer durables, IT, and healthcare services in both domestic and international markets, making it a central feature of the Turkish business landscape.