1 Investor Presentation BRSA Bank Only Results 1 st Half, 2006 August,2006
1
Investor PresentationBRSA Bank Only Results
1st Half, 2006August,2006
2
History
Established in April 1954 under the special law “Türkiye Vakıflar Bankasi Türk Anonim OrtaklığıKanunu” to manage cash derived from revenues and expenditures of charitable organisationsset up during the Ottoman Empire period, conducting banking activities with branch offices in Ankara, Istanbul and IzmirIn 1957, made its first venture towards broadening its sevices by establishing Güneş InsuranceCompanyOver the next 20 years continued to expand its geographic presence in Turkey reaching 206 branches by 1977Since the early 1990s, Vakifbank has increased the scope of its retail banking and diversified its loan portfolio by including equipment financing, enterprise loans, auto loans, mortgage loans, and credit cards. In 2000, Vakifbank began offering internet banking servicesVakifbank is now a full service commercial and retail bank headquartered in Ankara, providing retail, commercial and investment banking services through a network of 306 branches, 116satellite branches and five mobile branches, covering 81 Turkish citiesInternationally, Vakifbank has subsidiaries in Austria (which operates a branch in Frankfurt anda branch in Köln) and the Turkish Republic of Northern Cyprus and two branches in New York and Bahrain.
3
52 years of evolving strategy and product innovation
Established in Ankara
Opens 10 branches
Reaches 206 branches
Reaches 269 branches
Focus on retail lendingInitiates overdraft facilities (Bankomat-724) and telephone bankingPOS project
Overhaul and modernisation of management structure
New York branch opens
Begins to issue Visa and MasterCard
Begins to grant housing loans with maturities up to 20 years
Expansion of retail savings products—mutual funds or foreign currency products
Syndicated loans of US$850m
Completion of very successfulIPO
Fitch and Moody’s upgrade credit rating
Company-wide restructuring programme to boost efficiency
US$750m diversified payment rights securitisation
19541956
19771984
19921995
1998
20032004
2005
2000
Internet banking launched
Upgrade of IT
Fitch and Moody’supgrade creditrating
Fitch upgrades credit rating
4
Following successful IPO in November 2005, c. 25% of Vakifbank of is now listed
Main Shareholders General Directorate of Foundations The GDF manages foundations owning 58.45% of the shares in the Bank (43.0% in the form of Class A shares and 15.45% in the form of Class B shares). The GDF was established in 1924 to administer and regulate existing and future Turkish charitable foundations as a state entity directly reporting to the Prime Minister. Non-Affiliated Foundations The non-affiliated foundations are independent foundations with separate boards of trustees. They currently hold Class B shares, constituting 0.19% of the Bank’s equity. Vakifbank Pension Fund The Vakifbank Pension Fund has a 16.10% stake in the Bank’s capital as a Class C shareholder. The Bank’s employees contribute to the Vakifbank Pension Fund as opposed to the mandatory social security coverage provided by the state Social Insurance Institution. Other Shareholders The other shareholders consist of individual or legal entities that together own 0.08% of the Bank’s equity as Class C Shareholders. Free Float Public domestic and international shareholders.
Ownership structure
General Directorate
of Foundations58,45%
VakifBankEmployee
Pension fund16,10%
Other0,27%
Free float25,18%
5
Vakıfbank: An Overview of 1H2006 results & financial performance trends
Total Assets 33,828.3
Gross Loans 17,163.9
Securities 10,204.8
Total Deposits 22,633.2
Shareholders’ Equity 3,848.5
Net Interest Income 781.5
Net Profit 423.2
Branch Network 308
Customer Number Over 6 million
B/S mixIncreased share of loans in total assetsDecreasing securities portfolioIncreased funding from retail deposits
B/S growth
Strong asset growth driven primarily by rapid loan expansion (retail and SME loans)
Asset quality
Decreasing level of NPLs, stringent credit review/scoring systems100% NPL coverage
Capitalisation
Strong capitalisation levels, allowing for future growth
Revenue mix
Increased share of interest income from loans, rather than securitiesFocus on generating fee & commission income
Profitability Well managed cost base and efficient network
6
Financial performance 1st Half 2006Balance sheet highlights
Continued rapid expansion of credit portfolio supported by growth in deposits and fundsborrowed.
• Gross loan portfolio increased by 75.4% to YTL17.2bn YoY
• Customer deposits grew by 17.1% to YTL22.6bn YoY
• Significant growth in higher yielding YTL products: YTL loans grew by 66.2%; YTL deposits registered a 8.8% growth YoY
• Funds borrowed grew by 90.3% to YTL4.9bn YoY
Share of loans in total assets increased to 47.6% compared to 32.5% in 1H2005, while the share of securities portfolio contracted to 30.2% from 35.6% in 1H2005
Loan to deposit ratio reached 71.2% in 1st H 2006 compared to 44.0% in 1st H 2005
Prudent provisioning and improving loan quality: NPLs down to 6.1% of gross loan portfolio in 1st Half 2006 and are fully provisioned
During the fluctuation in 2Q06, long in FX position and has no P&L effect.98% of YTL securities are carried under available-for-sale portfolio, profits and losses beingbooked under equity where the loss was YTL 421 mn.
7
VakifBank is a market leader, particularly in retail and SME finance
Total market share (%) (31.03.2006)
9.0%
29.0%
9.9%
4.9%
8.1% 8.3%
3.8%
15.0%12.3%
4.9%
17.8%
6.5%
TotalDeposits
Publicsalary
accounts*
YTLdeposits
Mutualfunds**
Total Loans Retailloans***
Credit Card
CommercialInstallment
Loans
ATMs Branches Debit Card #
Credit Card #
Deposits / Funding Credits Distribution
Source: Turkish Banks Association reports under BRSA standards as of March 31 2006, Capital Markets Board* VakıfBank estimates** Data based on CMB as of June 30, 2006*** Includes home, auto and other. Credit card loans, overdrafts, and State Mass Housing Authority (TOKI) loans not included
8
Diversification of asset mix towards interest-earning assets
Breakdown of assets (YTLbn) Interest earning assets (YTLbn)
1.5 2.3 2.54.7 4.8 2.6
9.810.5
10.2
8.9
11.9 16.11.0
1.00.91.91.5
1.4
1H05 2005 1H06
Cash and central bank Interbank Securities LoansFixed assets Other
Strong growth in assets driven by rapid expansion of loan portfolioContinued diversification away from securities–from 35.9% of total assets in 1H 2005 to 30.2% in 1H 2006
Inte
rest
ear
ning
asse
ts: 8
5.5%
Inte
rest
ear
ning
asse
ts: 8
3.1%
23.6%
4.7 4.8 2.6
9.8 10.510.2
8.911.9 16.1
1H05 2005 1H06
Interbank Securities Loans
23.5%
23.4
27.2
28.9
33.8
27.3
7.4%
7.7%
30.2%
47.6%
2.7%4.4%
5.5%17.2%
35.6%
32.5%
3.7%5.2%
9
Rapid expansion of loan portfolio continued…
2,426 2,533 2,966 3,253 4,2385,526
6,5377,524
7,9499,651
10,312
11,638
8,9639,787
10,915
12,904
14,549
17,164
Q1 Q2 Q3 Q4 Q1 Q2
FX YTL
Gross loans (YTLmm) Comments
Loan portfolio registered a CAGR of 45.7% increasein 1H2006 from 1Q2005
After a slowdown in the first three quarters of 2005 due to IPO preparations, gross loan growth resumed with total portfolio increasing by 33.0% in 1H2006
YTL loans grew by 54.7% while FX-denominated loans increased by 118.4% from 1H2005 to1H2006.
2005 2006
CAGR: 45.7%
+33.0%
32.2%
67.8%
10
Rapid expansion of loan portfolio continued…
Strong growth on loan to deposit ratio with focus on profitability.
27.5% 33.3% 36.8%47.6%
2003 2004 2005 1H2006
Loan/Asset (%)Loan/Deposit (%)
37.1% 45.9% 51.9%71.2%
2003 2004 2005 1H2006
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…with strong focus on retail and SME lending…
Breakdown of loans by sector Comments
Good position in traditionally strong regions of central and eastern Turkey • Selective expansion in
Istanbul region To strengthen its retail franchise, VakifBankintroduced 637 SME portfolio managers, 388 retail portfolio managers and 477 marketing associates within 1H2006As a result of these initiatives, cross-selling ratio for SME portfolio managers is 2.09x and for retail portfoliomanagers is 2.03x in June2006
YE2005 1H2006
Overdraft 2.7%Credit card
3.9%
Mortgages 11.6%
Auto 1.6%
Other11.3%
SME19.6%
Commercial 49.3%
Overdraft 3.6%Credit card
5.8%
Mortgages 8.4%
Auto 2.2%
Other10.6%
SME21.5%
Commercial 47.9%
12
…and in particular on high margin products
3,8455,698
7,9381,966
2,554
3,149
627
994
1,870
678
694
638
408
429
439
333
262
256
1,043
1,274
1,819
1H05 2005 1H06
Commercial SME Mortgages *Credit cards Overdraft AutoOther
81.0%
Retail, SME and COMM. loans (YTLmm) Comments
High yields in retail & SME lending: credit card 36%, commercial installment loans22%, retail loans 18%For the 1st half 2006; averageyield on YTL loans is 19.78%, average yield on FX loans is 7.21% where average cost on YTL deposits is 13.33% andaverage cost on FX deposits3.55%Loans grew by 35.3 in 1H2006 comparing to the end of 2005. driven by commercial loansgrowth of 39.3%, SME loansgrowth of 23.3% and housingloans growth of 88.1%.
16.112
11.905
8.900
*:Includes Housing Loans+TOKI. (YTLmm)
1H2005: 485 Housing Loans+142 TOKI
2005:860 Housing Loans+134 TOKI
1H2006: 1.741 Housing Loans+129 TOKI
13
Steady and significant improvement in asset quality
9.1% 7.7% 6.1%
1H05 2005 1H06
Gross NPLs as % of gross loans Comments
Despite rapid expansion of the loan portfolio, NPLscontinued to decrease reaching 6.1% of total gross loan portfolio in 1H2006 compared to 9.1% in 1H2005Since 2003, loan loss provisions cover 100% of NPLs
-3.0 p.p.
Gross NPLs and provisions (YTLmm)
885,762998,927 1,051,767
885,762998,927 1,051,767
1H05 2005 1H06
Gross NPLs Provisions
14
Securities portfolio evolution
Securities 1H 2006 (YTLmm)
1,313 879 650
7,867 9,275 9,507
577 361 47
1H05 2005 1H06
Trading securities portfolio Portfolio available for sale Securities held to maturity
9,757 10,515
5.9%
80.6%
13.5%
3.4%
88.2%
8,4 %
Security portfolio breakdown by interest 1H 2006
10,205
0.5 %
93.2%
6,3%
Comments
The securities portfolio increased by 5% in YoYbut its share in total assets continued to decline—from 35.6% in 1H05 to 30.2% in 1H06
Portfolio of securities available for sale stood at 93.2% of total securities portfolio in 1H06 compared to 80.6% in 1H05
For the 1st half 2006; average yield on YTL security portfolio is 16.3% and average yield on FX security portfolio is 7.7%
YTL FX
Fixed; 61.4%
Variable; 38.6% Fixed;
44.9%Variable; 55.1%
15
Strong deposit growth is supporting the expansion of credit portfolio
19.322.3 22.5
2.8
3.75.1
1.6
0.7
1.0
0.5
0.6
0.4
0.9
0.8
1.0
25.1
28.1
30.0
1H05 2005 1H06
Customer deposits FundsInterbank ProvisionsOther
Breakdown of liabilities (YTLbn) Comments
Total liabilities grew by 19.5% in 1H2006 comparingto 1H2005, driven by continued expansion of deposit base and increase in external fundingCustomer deposits posted a 16.6% growth in 1H2006 and accounted for 75.0% of total liabilities
19.5%
19.3 22.3 22.5
8.9 11.916.1
1H05 2005 1H06
Customer deposits Loans
Loans and customer deposits (YTLbn)
46.1% 53.3% 71.6%
Loans/Deposits
75.0%
3.3%1.4%3.3%
17.0%3.6%2.0%6.4%
11.2%
76.8%
2.8%2.1%2.5%
13.2%
79.4%
Note: Customer deposits exclude interbank depositsTotal liabilities excluding equity
16
Deposit base composition and evolution
Customer deposit breakdown by type and currency Comments
Ensured strong profitability bymaintaining liquidity levels andcontrolling interest expensesthrough slightly increasing of customer deposits.Despite the FX rate increase in 2Q06, YTL deposit base is almost flat.
Deposit composition by type
1H2005Amount % Amount % %Amount
2005 1H2006
¹ Represents deposits taken from retail customers² Represents deposits taken from government related corporates, SMEs and other entities which are not individuals³ Totals do not include Interbank deposits
(YTLmm)
Total: YTL19.3bn Total: YTL22.6bn
1H2005 1Q2006
YTL-demand14.2%
YTL-term56.7%FX-demand
5.0%
FX-term24.1%
YTL-demand12.8%
YTL-term56.0%
FX-demand8.5%
FX-term22.8%
Saving deposits¹ 2,745 14.2% 3,664 16.4% 4,447 19.7%Demand 456 2.4% 548 2.4% 725 3.2%Term 2,289 11.9% 3,116 14.0% 3,722 16.5%Public and Commercial² 10,921 56.6% 12,262 54.9% 11,070 49.0%Demand 2,279 11.8% 2,282 10.2% 2,160 9.6%Term 8,642 44.8% 9,980 44.7% 8,910 39.5%Foreign currency 5,627 29.2% 6,398 28.7% 7,067 31.3%Demand 968 5.0% 778 3.5% 1,922 8.5%Term 4,659 24.1% 5,620 25.2% 5,145 22.8%
Total³ 19,293 100.0% 22,324 100.0% 22,584 100.0%
17
State deposits remained almost unchanged
State deposits (YTLmm) Comments
2,992
4,853
7,2847,307
20.7%
32.2%31.8%
27.6%
2003 2004 2005 1H06
State Deposits Share of state depositsVakifBank did not experience a significant withdrawal of state deposits after IPOMuch less pressure feltafter two largest depositdepartures in Q3 2005 andQ1 2006
18
Strengthened capitalisation to support rapid growth
Paid in share capital 1,000.0 1,279.0 1,279.0 Adjustment to paid-in capital 605.8 605.8 605.8Share premium 0 1,172.3 1,172.1
Reserves 326.9 326.9 421.8
Profit 208.4 535.2 423.2
Prior year income/loss 0 0 0
Total core capital 2,141.1 3,919.2 3,901.9Supplementary capital 569.9 540.2 167.9
Total capital 2,711.0 4,459.4 4,069.8Deductions (260.4) (403.0) (381.4)
Total shareholders’ equity 2,450.6 4,056.4 3,688.4
RWA 11,823.9 14,498.5 18,224.5Market risk 1,509.1 1,474.9 1,557.6
Capital adequacy ratios 18.4% 25.4% 18.6%
Capital position Comments
The bank successfully raised YTL1,45mm through an IPO in November 2005
Subordinated debt of YTL213mm was paid back to SDIF
In General Assembly, the bank has decidedto pay YTL 399.4mm tothe shareholders andYTL 100.5mm waspaid to D Groupshareholders (freefloat) in 2Q06.
Despite the turmoil in 2Q06, Vakifbank’sCAR is still one of thehighest in TurkishBanking Sector.
1H2005 2005YE 1H2006(YTLmm)
19
Net banking income posted healthy growth in 1H2006
Net banking income grew by a CAGR of 9.7% overthe last 1 year, with a growth rate of 10.1% in 1H2006 comparing to 1H2005Continuous diversification from securities to more client-driven business
(YTLmm) 2004 2005 1H05 1H06 Net interest income 1,185 1,318 693 782
Net F&C income 250 294 145 155
Net trading income 117 176 82 (12)
Dividend income 4 3 3 6
Other operating income 246 129 81 177
Total operating income 1,801 1,919 1,004 1,108
Total operating expenses (-)
722 732 361 402
Operating profit 1,079 1,188 643 706
Provisions (-) 344 434 329 136
Tax provisions (-) 143 226 109 157
Income from investments and associates
48 7 3 9
Net monetary gain/loss (16) 0 0 0
Net income 624 535 208 423
693 782
14515582
-12
81177
1H05 1H06
Net interest income Net F&C income Net trading income Other
Net banking income composition (YTLmm)
1,0011,102
CAGR: 9.7%
20
Net fee and commission income continues to grow
Non-interest income composition (YTLmm) Net F&C income % of operating income
26.6% 29.4%
-3.6%
48.4% 49.1%
48.4%
26.3% 21.5%
48.0%
1H05 2005 1H06
Trading Income Net F&C Other
14.4% 15.3% 14.0%
1H05 2005 1H06
308 599 320
Net F&C income up by 7.3% driven by increase in cash loansTrading income is -12 mm YTL due to foreign exchange losses• Trading account securities gains : 44 mm YTL• Foreign exchange losses : -56 mm YTL
Other income is increased by FX Denominated Loans and Securities FX rate increase gains.• FX Denominated Loans : 49 mm YTL• FX Denominated Securities : 40 mm YTL
21
Increasing interest income from loan activities
Net interest income up by 12.8% comparingto 1H2005, despite declining margins• From 1st quarter 2006 net interest
income grew by 3.2% in 2nd quarter2006
• increasing income from lending activityFurther move toward higher margin loans in YTL
Net interest income(YTLmm)
397352 341
309
385
315
1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006
Yield on loans and deposits (%)Interest income (YTLmm)
27.0%
19.8%
6.2% 7.2%
13.8% 13.3%
2.9% 3.6%
1H05 1H06YTL LOANS FX LOANS YTL DEPOSITS FX DEPOSIT
38.2% 36.6% 32.5%
52.6% 52.3% 54.7%
9.2% 11.1% 12.8%
1H05 2005 1H06
Securities Loans Money Market&Banks
1,734 3,591 2,082
22
Operating expenses under control
Virtually no growth in costs, despite going through restructuring at branch andheadquarter level.
2.8% 2.6% 2.4%
1H05 2005 1H06
Operating expenses/average assets (%)Other expenses composition (YTLmm)
43.6% 44.3% 43.1%
8.3% 8.1% 7.8%
48.1% 47.5% 49.1%
1H05 2005 1H06Personnel Expenses Amortisation Other Expenses
361 732 402
23
Expansion on NIM and ROE, decrease on C/I
NIM (%) Despite margin pressure NIM is almost flatcompared to 1Q06 in 2Q06Further growth in loans/assets expected to provide more support to Vakifbank’s NIM
Maintained ROE above stated target of 20%
7.10
6.36
5.274.97
5.51 5.52
1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006
ROE (%) Cost/Income (%)
33.3
38.6 37.8
42.7
33.6
38.1
1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006
33.2
4.2
25.6
15.5
20.9 22.1
1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006
24
Performance in line with peer group in 1H2006
5.205.46 5.36
5.57
Isbank Akbank Garanti Vakifbank
31.8
41.2
54.952.3
Isbank Akbank Garanti Vakifbank
NIM (%)
34.33 35.00
43.06
35.95
Isbank Akbank Garanti Vakifbank
Net Profit/Number of Branches (thousandYTL)
Cost/Income (%)
846
1,371
1,108
1,374
Isbank Akbank Garanti Vakifbank
Loans/Number of Branches (mmYTL)
25
Balance Sheet Details for 1H2006: Assets
(Thousand YTL) 2005 1H2006 Growth %
Cash&Balances with Central Bank 1,655,463 1,672,178
1,843,164
747,000
650,264
9,507,210
47,374
16,112,127
573,824
874,986
1,800,158
33,828,285
Banks&Other FI 2,125,899
1.0
(13.3)
(71.8)
(26.1)
2.5
(86.9)
35.3
2.4
(13.1)
(8.4)
Money Market Securities 2,649,000
Trading Securities 879,405
Available for Sale Portfolio 9,275,282
Held to Maturity Securities 360,767
Loans (net) 11,905,056
Subsidiaries&Associates 560,606
Premises&Equipment 1,006,918
Other Assets 1,964,404
Total Assets 32,382,800 4.5
26
Balance Sheet Details for 1H2006: Liabilities
(Thousand YTL) 2005 1H2006 Growth %
Deposits 22,945,691 22,633,191
965,606
4,940,434
146,642
58,051
398,148
3,848,498
837,715
Total Liability 32,382,800 33,828,285 4.5
Interbank Money Market 108,046
(1.4)
793.7
40.6
(3.3)
29.8
(31.9)
(9.7)
Funds Borrowed 3,512,824
Funds 151,597
Taxes and Dues Payable 44,739
Provisions 584,636
Shareholder’s Equity 4,261,408
Other Liability 773,859 8.3
27
P&L for 1st H 2006
(Million YTL) 1H2005 1H2006 Growth %
Net Interest Income 693,092 781,520
155,496
(12,239)
177,388
1,108,541
(401,863)
(136,252)
(156,569)
Net Profit 208,376 423,241 103.1
Net F&C Income 144,907
12.8
7.3
(114.9)
120.2
10.4
11.3
(58.6)
Net Trading Income 82,247
Other Operating Income 80,553
Total Operating Income 1,004,171
Total Operating Expenses (360,968)
Provisions (328,961)
Tax Provisions (108,278) 44.6
28
Subsidiaries and affiliates
Türkiye Vakıflar BankasiT.A.O
Financial Subsidiaries Non-Financial Subsidiaries
Vakıf Yatırım Menkul Degerler A.Ş 99%
Vakifbank International A.G 90%
World Vakıf Off Shore Banking Ltd. 82%
Vakıf Finans Factoring Hizmetleri A.Ş 78%
Vakıf Deniz Finansal Kiralama A.Ş 69%
Vakıf Finansal Kiralama A.Ş 59%
Vakıf Emeklilik A.Ş 54%
Vakıf Girisim Sermayesi Yatırım Ortaklığı A.Ş 46%
Gunes Sigorta A.Ş 35%
Vakıf Gayrimenkul Yatırım Ortaklığı A.Ş 28%
Kıbrıs Vakıflar Bankası Ltd. 15%
Vakıf Menkul Kıymetler Yatırım Ortaklığı A.Ş 12%
Vakıf Sistem Paz.Yaz.Ser.Tic San A.Ş 73%
Vakıf Enerji ve Madencilik A.Ş 66%
Taksim Otelcilik A.Ş 51%
Ataköy Mağazacılık Ticaret A.Ş. 46%
İşkur İşçi İşadamı Kimya Kur. A.Ş. 25%
Vakıf Gayrimenkul Ekspertiz ve Deg. A.Ş 20%
Orta Dogu Yatırım Hizmetleri A.Ş 9%