annual report transparent200‘6 annual report ‘6200 Contents annual report‘6 ADDRESS 8 BANK’S PORTRAIT 12 Key Financial Ratios 14 Main achievements in 2006 15 Shareholders, Board of Directors, Management Board 15 RESULTS OF BANK TURANALEM DEVELOPMENT IN 2006 18 Kazakhstan economic and banking sector performance in 2006 20 BTA group development 22 DEVELOPMENT STRATEGY OF BANK TURANALEM 24 CORPORATE BUSINESS 28 RETAIL BUSINESS 32 SMALL AND MEDIUM-SIZED BUSINESS 38 SUBSIDIARIES 42 Insurance market 44 Pension market 45 Investment market 45 Leasing market 46 Mortgage market 46 STOCK MARKETS 48 Treasury operations in the stock market 50 International Capital Markets 50 Syndicated loans 51 Trade financing 52 annual report BTA GROUP’S MANAGEMENT SYSTEM 54 The structure of BTA group 56 ‘6 Corporate governance 57 Risk management and internal control 57 Human resources management 58 Social responsibility 60 BTA GROUP’S FINANCIAL STANDING REVIEW 64 Net interest income 66 Non-interest income 66 Operational expenditures, taxation, net income 67 Financial performance 67 CONSOLIDATED FINANCIAL STATEMENTS 70 Report of independent auditors 72 Consolidated balance sheets 73 Consolidated statement of income 74 Consolidated statements of changes in share capital 75 Consolidated statements of cash flows 78 ADDRESS annual report‘6 annual report DEAR SHAREHOLDERS, CUSTOMERS AND STAFF MEMBERS OF THE BANK! In 2006 Bank «TuranAlem» despite tough competition remained its leading positions and showed impressive growth rates. We tripled net income and more than doubled share- ‘6 holders’ capital and assets. We made one more step to establish the bank as CIS largest financial institute by starting the asset consolidation program. Last year BTA entered list of five top banks on asset volume in CIS. Bank’s 2006 net income increased from 110 mln. to 307,7 mln. dollars USA, assets dou- bled and totaled some 16,3 billion dollars USA, bank’s shareholders’ capital increased from 650 mln. to 1,5 billion dollars USA. In the accounting period we strengthened our positions in retail, small and medium- sized business. For the first time in Kazakhstan the amount of fixed deposits in one bank exceeded 1 billion dollars USA and by the end of the year comprised 1,4 billion dollars USA. In 2006 retail loan volume increased by 2,8 times and comprised 1,3 billion dollars USA. Small and medium business portfolio almost doubled and comprised 1,2 billion dol- lars USA. 6,7 billion dollars USA was given to finance bank’s corporate customers. In 2006 BTA continued its policy on investor base diversification. Euro bond issue trans- actions in sterling pounds, Japanese yens as well as loans in Polish zlotys became first in the history of Kazakh banking system. Bank’s subsidiaries in insurance, pension, investment, mortgage, leasing segments of the financial market successfully developed and largely contributed into Bank «Turan- Alem» achievements. Our nearest strategic goal is to become the largest private financial institution in CIS. To achieve such goal it is necessary to develop BTA as a banking group. In 2006 we pur- chased majority interest in JSC «Temirbank», JSC «BTA Insurance» and JSC Insurance Company «London-Almaty» within this new development strategy. The bank’s development strategy is based on our main competitive advantage – inno- vations desire to develop our presence in new markets and diversify the range of our services. We constantly work to improve quality of service. In accordance with our business growth our social program is also extended. Bank «TuranAlem» social policy is focused on patronage where the Bank makes all the efforts to restore cultural and spiritual heritage of Kazakhstan. Our goal is investments into Kazakhstan’s future. Bank’s success was noted by international experts. «Euromoney» magazine gave BTA «The Best Borrower in the Developing Markets» award, «Trade Finance» magazine awarded the bank for participation in the best deal of 2006, «Itogi» magazine gave «The Bank of the Year in CIS» award. Notwithstanding the obvious progress we will not stop at what has been accomplished. The increasing competition in the banking market both in Kazakhstan and CIS makes us go a step ahead of the market, provides our customers with new high quality banking services. Feed forward lead strategy gives us confidence in future. Today BTA is a team of professionals, shareholders always ready to support the bank, customers who trust us. I am confident that 2007 will get us closer to achieve our strategic goal. Sincerely, Roman Solodchenko Chairman of the Management Board BAnk’s PoRtrait annual report‘6 JSC «Bank TuranAlem» is one of the largest banks of Kazakhstan which provides a wide range of financial services. The bank has more than 80-years history being a legal successor of Promstroybank of USSR. Developed regional network, high quality service and competitive services allow the bank to keep its leading positions of the Kazakh banking system. At present «TuranAlem» is a contemporary financial institute which has subsidiary specialized companies operating in all basic segments of the financial market. Shareholders European Bank for Reconstruction and Development International Financial Corporation Dutch Bank for Development East Capital Consortium Regional network 22 branches and 214 cash settlement units in Kazakhstan 11 banks which are strategic partners in CIS and Turkey Business volume II bank in Kazakhstan and V bank in CIS on the assets volume Staff members 5259 employees (Bank) 9726 employees (Group) Ratings Standard and Poor’s: Long term issuer’s rating – ВВ Outlook – Positive Moody’s Investors Service: Long term debt rating – Ваа2 Outlook – Stable Fitch Ratings: Long term issuer’s rating – ВВ+ Outlook – Positive Key Financial Ratios Ratio As at December 31 2006 2005 2004 Return on averaged common shareholders’ equity 36,7% 26,8% 20,8% Return on averaged total shareholders’ equity 35,8% 26,1% 20,7% Return on average value of assets 3,0% 1,9% 1,3% Net interest margin 4,2% 4,4% 5,2% Net interest spread 3,3% 3,4% 4,4% Cost to income 28,7% 37,0% 33,3% Operating expenses of average value of total assets 2,1% 2,4% 2,8% 14 Risk weighted capital adequacy ratio 16,76% 16,11% 14,58% annual report Main achievements in 2006 • Equity capital of BTA Group increased by 123% in which it reached 194.618 mln. ‘6 Tenge. • The net income of BTA Group is 2,7 times more in which it reached 39.078 mln. Tenge. • Standard & Poor’s Agency has improved long-term credit rating from «ВВ-» to «ВВ», as well as the outlook on ratings from «stable» to «positive». • Bank «TuranAlem» was the first to make a borrowing deal in the Polish Zlotys in the region. The bank attracted 5-year loan of 200 mln. Polish Zlotys. • The bank was the first in CIS to place Eurobonds in sterling pounds. The bank issued 3-year bonds with the value of £200 mln. • Bank’s largest Eurobonds placement for the developing markets’ issuers comprised ¤500 mln. • The bank attracted syndicated loan of $1 111 bln. • For the first time in Kazakhstan the volume of fixed deposits in one bank ex- ceeded $1 bln. • In 2006 bank «TuranAlem» purchased majority interest in JSC «Temirbank», JSC «BTA Insurance» and JSC Insurance Company «London-Almaty» within the program to consolidate assets. In 2006 the bank was awarded with several prizes: • «Deal of the year » (Trade Finance magazine, Great Britain) • «Best deals of the year » (Global Trade Review magazine, Great Britain) • «Best borrower in the developing markets» (Euromoney magazine, Great Britain) • «Bank of the year in CIS» («Itogi» magazine, Russia) • «Best bank of 2006» (Grand Prize of «Golden Altyn» award, Kazakhstan) • «Perfect bank» (National Consumers League, Kazakhstan). Shareholders Bank’s shareholders include world largest financial institutions: • European Bank for Reconstruction and Development (United Kingdom of Great Britain and Northern Ireland) • International Finance Corporation (United States of America) • Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden NV (Netherlands) • East Capital Consortium (Sweden) 15 The Board of Directors Chairman of the Board of Directors Mukhtar K. Ablyazov Deputies of the Chairman of the Board of Directors Yerkin N. Tatishev Saduakas Kh. Mameshtegi Members of the Board of Directors Akmaral N. Ablyazova Yerlan N. Tatishev Konstantin A. Kolpakov Talgat A. Akhsambiyev Irakli N. Managadze Yurki P. Talvite Management Board Chairman of the Management Board Roman V. Solodchenko Deputies of the Chairman of the Management Board Abilakim S. Zhumakhmetov Azat D. Battakov Bolat M. Baimirov Genrig I. Kholodzinskyi Murat M. Yuldashev Managing Directors – members of the Managing Board Bakhyt D. Otarbekov Indira K. Izteleuova 16 Asylmurat S. Ramazanov annual report‘6 RESULTS oF BANK tURAnALeM DeVeLoPMENT IN 2006 annual report‘6 Growth of Kazakhstan’s economy and banking sector in 2006 Macroeconomic Performance In the last few years Kazakhstan’s economy has been growing rapidly. The growth is generally being driven by better general macroeconomic perfor- mance, proper monetory and fiscal policies, favorable commodity prices and ongoing structural reforms. The table below provides information on Kazakhstan’s GDP and number of pop- ulation as at 2004 – 2006 years: 2006 2005 2004 Nominal GDP, billion Tenge 9 739 7 591 5 870 Real GDP growth, % 10,6 9,7 9,6 GDP per capita, thousands tenge 632,65 498,77 389,39 Population at the end of each year, million people 15,39 15,22 15,07 The source: Agency on the Statistics of the Republic of Kazakhstan. In 2006 GDP structure was not considerably changed. Nevertheless, the con- struction share was increased from 7, 4% up to 8, 9%. Real estate transactions share is also substantial -15, 1%. In 2006 industrial growth was slow (7%) which, however, is higher than the index of 2005 (4, 6%). High growth of nominal GDP was provided by high prices on Kazakhstan’s strategic export goods which are mainly oil and gas.