ASYA KATILIM BANKASI A.Ş. INDEPENDENT AUDITORS REPORT, UNCONSOLIDATED FINANCIAL STATEMENTS AND NOTES FOR THE YEAR ENDED DECEMBER 31, 2007

Transcription

1 INDEPENDENT AUDITORS REPORT, UNCONSOLIDATED FINANCIAL STATEMENTS AND NOTES FOR THE YEAR ENDED DECEMBER 31, 2007 (Translated into English from the Original Turkish Report)

2 INDEPENDENT AUDITORS REPORT FOR THE YEAR JANUARY 1, 2007 DECEMBER 31, 2007 To the Board of Directors of Asya Katılım Bankası A.Ş. Istanbul We have audited the accompanying balance sheet of Asya Katılım Bankası A.Ş. as at December 31, 2007 and the related statements of income, cash flows and changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements : The Board of Directors of the Bank is responsible for the preparation and fair presentation of the financial statements in accordance with the regulation on Procedures And Principles Regarding Banks Accounting Practices And Maintaining Documents published in the Official Gazette dated November 1, 2006 and numbered and Turkish Accounting Standards ( TAS ), Turkish Financial Reporting Standards ( TFRS ) and other regulations, circulars, communiqués and pronouncements in respect of accounting and financial reporting made by Banking Regulation and Supervision Agency ( BRSA ). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility: Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the regulation on Licensing and Operations of Audit Firms in Banking published in the Official Gazette No: on November 1, 2006 and the International Standards on Auditing. We planned and performed our audit to obtain reasonable assurance whether the financial statements are free from material misstatements. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the consideration of the effectiveness of internal control and appropriateness of accounting policies applied relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independent Auditors Opinion: In our opinion, accompanying financial statements present fairly, in all material respects, the financial position of Asya Katılım Bankası A.Ş. as at December 31, 2007 and the results of its operations and its cash flows for the year then ended in accordance with the prevailing accounting principles and standards set out as per Article 37 of the Banking Act No: Additional paragraph for the English translation: The effect of the differences between the accounting principles summarized in Section 3 and the accounting principles generally accepted in countries in which the accompanying financial statements are to be distributed and International Financial Reporting Standards (IFRS) have not been quantified and reflected in the accompanying financial statements. The accounting principles used in the preparation of the accompanying financial statements differ materially from IFRS. Accordingly, the accompanying financial statements are not intended to present the Bank s financial position and results of its operations in accordance with accounting principles generally accepted in such countries of users of the financial statements and IFRS. DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş. Member of DELOITTE TOUCHE TOHMATSU Sibel Türker Partner Istanbul, February 27, 2008

3 THE UNCONSOLIDATED FINANCIAL REPORT OF ASYA KATILIM BANKASI A.Ş. Address of the Headquarter of the Bank : Küçüksu Caddesi Akçakoca Sokak No: Ümraniye/İSTANBUL Phone and Fax Numbers of the Bank : / Website of the Bank : Electronic Mail Address to Contact : raporlama@bankasya.com.tr The unconsolidated financial report designed by the Banking Regulation and Supervision Agency in line with Communiqué on Financial Statements to be Publicly Announced and the Related Policies and Disclosures consists of the sections listed below: - GENERAL INFORMATION ABOUT THE BANK - UNCONSOLIDATED FINANCIAL STATEMENTS OF THE BANK - EXPLANATIONS ON THE CORRESPONDING ACCOUNTING PRINCIPLES APPLIED IN THE RELEVANT PERIOD - INFORMATION ON FINANCIAL STRUCTURE OF THE BANK - EXPLANATORY DISCLOSURES AND FOOTNOTES ON UNCONSOLIDATED FINANCIAL STATEMENTS - OTHER EXPLANATIONS AND FOOTNOTES - INDEPENDENT AUDITORS REPORT The unconsolidated financial statements and the explanatory footnotes and disclosures, unless otherwise indicated, are prepared in Thousands of the New Turkish Lira, in accordance with the Communiqué on Banks Accounting Practice and Maintaining Documents, Turkish Accounting Standards, Turkish Financial Reporting Standards, related communiqués and the Banks records, have been independently audited and presented as attached. February 27, 2008 Tahsin TEKOĞLU Ünal KABACA Yusuf İzzettin İMRE Kamil YILMAZ Chairman of the Board of Directors General Manager Assistant General Manager Responsible of Financial Reporting Manager In Charge of Financial Reporting Cemil ÖZDEMİR Member of the Audit Committee M. Şevki KAVURMACI Member of the Audit Committee Responsible personnel for the questions that can be raised on the financial statements: Name-Surname: Çiğdem Özdemir Title: Assistant Manager in Charge of Budgeting and Financial Controlling Telephone Number: Fax Number:

4 PAGE SECTION ONE GENERAL INFORMATION I. Incorporation Date, Initial Status and Subsequent Changes in the Existing Status of the Bank II. Shareholding Structure, Shareholders Having Direct or Indirect, Joint or Individual Control Over The Management of the Bank and Disclosures on Any Related Changes in the Current Year, If Any...1 III. Disclosures on the Chairman & Members of Board of Directors, Audit Committee, General Managers and Assistant General Managers and Their Shares in The Parent Bank IV Individuals and Institutions that have Qualified Shares in the Bank... 2 V. Summary on the Functions and Areas of Activity of the Bank... 2 SECTION TWO THE UNCONSOLIDATED FINANCIAL STATEMENTS I. Balance Sheet-Assets... 3 II. Balance Sheet-Liabilities. 4 II. Statement of Off-Balance Sheet Contingencies and Commitments... 5 III. Statement of Income... 6 IV. Statement of Profit and Loss Items Accounted under Equity... 7 V. Statement of Changes in Shareholders Equity... 8 VI. Statement of Cash Flow 9 VII. Profit Distribution.. 10 SECTION THREE ACCOUNTING PRINCIPLES I. Basis of Presentation II. Use Strategy of Financial Assets and Foreign Currency Transactions III. Forward and Option Contracts and Derivative Instruments IV. Profit Share Income and Expenses V. Fees and Commission Income and Expenses VI. Financial Assets VII. Impairment of Financial Assets VIII. Offsetting Financial Assets and Liabilities IX. Sale and Repurchase Agreements and Lending of Securities X. Assets Held For Sale and Discontinued Operations XI. Goodwill and Other Intangible Assets XII. Tangible Assets XIII. Leasing Transactions XIV. Provisions and Contingent Liabilities XV. Liabilities of Employee Benefits XVI. Taxation XVII. Additional Disclosures on Borrowings XVIII. Share Certificates XIX. Acceptances XX. Government Incentives XXI. Segment Reporting XXII. Other Matters SECTION FOUR INFORMATION ON FINANCIAL STRUCTURE I. Capital Adequacy Standard Ratio II. Credit Risk III. Market Risk IV. Operational Risk 29 V. Currency Risk VI. Interest Rate Risk VII. Liquidity Risk VIII. Presentation of Financial Assets and Liabilities at Fair Value 35 IX. Fiduciary Operations And Transactions Made On Behalf Of. 36

5 PAGE SECTION FIVE EXPLANATIONS AND DISCLOSURES ON THE UNCONSOLIDATED FINANCIAL STATEMENTS I. Assets II. Liabilities III. Off-Balance Sheet Contingencies and Commitments IV. Income Statement V. Statements of Shareholders Equity Movement VI. Statement of Cash Flows. 73 VII. Risk Group of the Bank VIII. Domestic Branches, Agencies & Abroad Branches and Off-shore Branches of the Bank SECTION SIX OTHER DISCLOSURES I. Other Disclosures SECTION SEVEN EXPLANATIONS ON THE INDEPENDENT AUDITORS REPORT I. Independent Auditors Report II. Other Footnotes and Explanations Prepared by the Independent Auditors

6 NOTES TO THE FINANCIAL STATEMENTS SECTION ONE GENERAL INFORMATION I. Incorporation Date, Initial Status and Subsequent Changes in the Existing Status of the Bank: Incorporation of Asya Katılım Bankası A.Ş. ( the Bank ) is permitted with the decision of the Council of Ministers No: 96/8041 on April 11, 1996 as published in the Official Gazette dated April 25, The Bank was registered on September 20, 1996 and the Articles of Association was published in the Trade Registry Gazette on September 25, The Decision regarding the change in the title of the Bank was settled in the Extraordinary General Board of Directors meeting dated December 22, 2005 and the title was changed from Asya Finans Kurumu A.Ş. into Asya Katılım Bankası A.Ş. and it was published in the Trade Registry Gazette on December 26, II. Shareholding Structure, Shareholders Having Direct or Indirect, Joint or Individual Control Over The Management of the Bank and the Disclosures on Any Related Changes in the Current Year, if any: The Bank has no shareholders having more than 10% shareholding or direct or indirect, joint or individual control over the management of the Bank. III. The Chairman & Members of Board of Directors, Audit Committee, General Managers and Assistant General Managers and Their Shares in the Parent Bank: Experience in the Banking and Ownership Educational Administration Sector percentage % Title Name Degree Before Assignment Chairman of the Board of Directors Tahsin TEKOĞLU Bachelor 46 years 0,0003 Members of the Board of Directors Mustafa Şevki KAVURMACI Bachelor 31 years 0,23 Abdurrahman Selçuk BERKSANMaster 35 years 0,0025 Salih SARIGÜL Doctorate 13 years 0,49 Tacettin NEGIŞ Elementary 33 years 0,88 Cemil ÖZDEMİR Bachelor 21 years 0,0003 General Manager Ünal KABACA Master 15 years 0,02 Assistant General Managers Ünsal SÖZBİR Bachelor 10 years - Ayhan KESER Bachelor 6 years - Mustafa BÜYÜKATEŞ Bachelor 19 years - Yusuf İzzettin İMRE Bachelor 19 years - Auditors Ali AKBULUT Bachelor 15 years 0,0002 Ahmet ÇELİK Bachelor 19 years 0,45 Atıf BİLGİN Bachelor 23 years 0,27 1

7 NOTES TO THE FINANCIAL STATEMENTS SECTION ONE (Cont d) GENERAL INFORMATION (Cont d) IV. Individuals and Institutions that have Qualified Shares in the Bank: Name / Commercial Name Share Amount Share Ratio Paid Shares Unpaid Shares ORTADOĞU TEKSTİL TİC. SAN. A.Ş , BJ TEKSTİL TİCARET VE SANAYİ A.Ş , OSMAN CAN PEHLİVAN , BİRİM BİRLEŞİK İNŞAATÇILIK MÜMESSİLLİK SAN. VE TİC. A.Ş , FORUM İNŞAAT DEKORASYON TURİZM SAN. VE TİC. A.Ş , ABDULKADİR KONUKOĞLU , MUAMMER İHSAN KALKAVAN , NEGİŞ GİYİM İMALAT VE İHRACAT A.Ş , İRFAN HACIOSMANOĞLU , HASAN SAYIN , İBRAHİM SAYIN , FEHİM ARICI , Other , V. Summary on the Functions and Areas of Activity of the Bank: The Bank operates in accordance with the principles of interest-free banking as a participation bank, by collecting funds through current accounts and profit sharing accounts, and lending such funds through production support, finance lease and profit/loss sharing partnership. The Bank has two ways of collecting funds; current accounts and profit sharing accounts. The Bank classifies current accounts and profit sharing accounts in accordance with their maturities in its accounting system. Profit sharing accounts are categorized into five different maturity groups; one month, up to three months (three months included), up to six months (six months included), up to one year and one year and more than one year (one month, three months, six months and one year profit share payment). The Bank could determine the participation rates on profit/loss sharing accounts with respect to the maturity group of TRY and foreign currency accounts, seperately under the limitation that the participation rate on loss shall not be less than 50%, for different currency type, amount and maturity groups specifically. The Bank constitutes specific fund pools, allocated to the individually predetermined projects for financing purposes. Profit sharing accounts, which are part of the funds collected for project financing purpose, are distinguished from others with respect to the terms, accounted seperately from the others and it is not allowed to make any transfers from these accounts to any other maturity groups. Specific fund pools are clarified at the end of the financing period. The Bank has no specific fund pools as of December 31, In addition to the regular banking activities, the Bank operates as an agency on behalf of Işık Sigorta A.Ş., through its branches. 2

8 SECTION TWO THE UNCONSOLIDATED FINANCIAL STATEMENTS

9 UNCONSOLIDATED BALANCE SHEET THOUSAND NEW TURKISH LIRA CURRENT PERIOD PRIOR PERIOD Audited Audited ASSETS Note (31/12/2007) (31/12/2006) TRY FC Total TRY FC Total I. CASH AND BALANCES WITH THE CENTRAL BANK (1) II. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS (Net) (2) Trading financial assets Public sector debt securities Share certificates Other marketable securities Financial assets at fair value through profit and loss Public sector debt securities Share certificates Other marketable securities Derivative financial assets held for trading III. BANKS (3) IV. MONEY MARKET PLACEMENTS V. FINANCIAL ASSETS AVAILABLE FOR SALE (Net) (4) Share certificates Public sector debt securities Other marketable securities VI. LOANS (5) Loans Loas to risk group of the Bank Other Non-performing loans Specific provisions (-) ( ) (77) ( ) (89.798) (304) (90.102) VII. HELD TO MATURITY INVESTMENTS (Net) (6) VIII. INVESTMENTS IN ASSOCIATES (Net) (7) Accounted for under equity method Unconsolidated associates Financial associates Non-financial associates IX. INVESTMENTS IN SUBSIDIARIES (Net) (8) Unconsolidated financial subsidiaries Unconsolidated non-financial subsidiaries X. ENTITIES UNDER COMMON CONTROL (Net) (9) Unconsolidated Financial subsidiaries Non-financial subsidiaries XI. FINANCE LEASE RECEIVABLES (Net) (10) Finance lease receivables Operating lease receivables Other Unearned income ( - ) (53.889) - (53.889) (45.744) - (45.744) XII. DERIVATIVE FINANCIAL ASSETS FOR HEDGING PURPOSES (11) Fair value hedge Cash flow hedge Hedge of net investment risks in foreign operations XIII. TANGIBLE ASSETS (Net) (12) XIV. INTANGIBLE ASSETS (Net) (13) Goodwill Other XV. INVESTMENT PROPERTY (Net) (14) XVI. TAX ASSET (15) Current tax asset Deferred tax asset XVII. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Net) (16) Held for Sale Discontinued Operations XVIII. OTHER ASSETS (17) TOTAL ASSETS The accompanying notes are integral part of these financial statements. 3

10 UNCONSOLIDATED BALANCE SHEET THOUSAND NEW TURKISH LIRA CURRENT PERIOD PRIOR PERIOD Audited Audited LIABILITIES AND EQUITY Note (31/12/2007) (31/12/2006) TRY FC Total TRY FC Total I. FUND COLLECTED (1) Fund from risk group of the Bank Other II. DERIVATIVE FINANCIAL LIABILITIES HELD FOR TRADING (2) III. FUNDS BORROWED (3) IV. MONEY MARKET BALANCES V. MARKETABLE SECURITIES ISSUED (NET) VI. SUNDRY CREDITORS VII. OTHER LIABILITIES (4) VIII. FINANCE LEASE PAYABLES (Net) (5) Finance lease payables Operating lease payables Other Deferred finance lease expenses ( - ) (675) - (675) (125) (41) (166) IX. DERIVATIVE FINANCIAL LIABILITIES FOR HEDGING PURPOSES (6) Fair value hedge Cash flow hedge Hedge of net investment in foreign operations X. PROVISIONS (7) General loan loss provisions Restructuring provisions Reserve for employee benefits Insurance technical reserves (Net) Other provisions XI. TAX LIABILITY (8) Current tax liability Deferred tax liability XII. PAYABLES RELATED TO ASSETS HELD FOR SALE (Net) (9) Held for sale Discontinued operations XIII. SUBORDINATED LOANS (10) XIV. SHAREHOLDERS' EQUITY (11) Paid-in capital Capital reserves Share premium Share cancellation profits Marketable securities revaluation reserve Tangible assets revaluation reserve Intangible assets revaluation reserve Investment property revaluation reserve Bonus shares obtained from associates, subsidiaries and jointly controlled entities Hedging funds (Effective portion) Value increase on assets held for resale Other capital reserves Profit reserves Legal reserves Status reserves Extraordinary reserves Other profit reserves Profit or loss Prior year income / (losses) (2.366) - (2.366) Current year income / (losses) Minority shares TOTAL LIABILITIES AND EQUITY The accompanying notes are an integral part of these financial statements. 4

11 UNCONSOLIDATED STATEMENT OF OFF-BALANCE SHEET CONTINGENGIES AND COMMITMENTS THOUSAND NEW TURKISH LIRA CURRENT PERIOD PRIOR PERIOD Audited Audited (31/12/2007) (31/12/2006) Note TRY FC Total TRY FC Total A. OFF BALANCE SHEET COMMITMENTS AND CONTINGENCIES (I+II+III) I. GUARANTEES (1), (2) Letters of Guarantees Guarantees subject to State Tender Law Guarantees given for foreign trade operations Other letters of guarantee Bank loans Import letter of acceptances Other bank acceptances Letter of credits Documentary letter of credits Other letter of credits Prefinancing given as guarantee Endorsements Endorsements to the Central Bank of Turkey Other endorsements Other guarantees Other collaterals II. COMMITMENTS (1), (2) Irrevocable commitments Forward asset purchase commitments Share capital commitment to associates and subsidiaries Loan granting commitments Securities underwriting commitments Commitments for reserve deposit requirements Payment commitment for checks Tax and fund liabilities from export commitments Commitments for credit card expenditure limits Commitments for promotions related with credit cards and banking activities Receivables from short sale commitments Payables for short sale commitments Other irrevocable commitments Revocable commitments Revocable loan granting commitments Other revocable commitments III. DERIVATIVE FINANCIAL INSTRUMENTS (4) Derivative financial instruments for hedging purposes Fair value hedge Cash flow hedge Hedge of net investment in foreign operations Held for trading transactions Forward foreign currency buy/sell transactions Forward foreign currency transactions-buy Forward foreign currency transactions-sell Other Forward buy/sell transactions Other B. CUSTODY AND PLEDGED ITEMS (IV+V+VI) IV. ITEMS HELD IN CUSTODY Assets under management Investment securities held in custody Checks received for collection Commercial notes received for collection Other assets received for collection Assets received for public offering Other items under custody Custodians V. PLEDGED ITEMS Marketable securities Guarantee notes Commodity Warranty Properties Other pledged items Pledged items-depository VI. ACCEPTED INDEPENDENT GUARANTEES AND WARRANTIES TOTAL OFF BALANCE SHEET ACCOUNTS (A+B) The accompanying notes are an integral part of these financial statements. 5

12 UNCONSOLIDATED STATEMENT OF INCOME THOUSAND NEW TURKISH LIRA CURRENT PERIOD PRIOR PERIOD STATEMENT OF INCOME Note Audited Audited (31/12/2007) (31/12/2006) I. PROFIT SHARE INCOME (1) Profit share on loans Profit share on reserve deposits Profit share on banks Profit share on money market placements Profit share on marketable securities portfolio Held-for-trading financial assets Financial assets at fair value through profit and loss Available-for-sale financial assets Investment-held for maturity Finance lease income Other profit share income - - II. PROFİT SHARE EXPENSE (2) ( ) ( ) 2.1 Expense on profit sharing accounts ( ) ( ) 2.2 Profit share expense on funds borrowed (19.599) (3.698) 2.3 Profit share expense on money market borrowings Expense on securities issued Other profit share expense (2.669) (1.195) III. NET PROFIT SHARE INCOME (I - II) IV. NET FEES AND COMMISSIONS INCOME Fees and commisions received Non-cash loans Other (12) Fees and commisions paid (52.898) (39.006) Non-cash loans (244) Other (12) (52.654) (39.006) V. DIVIDEND INCOME (3) - - VI. NET TRADING INCOME (4) Securities trading gains / (losses) Foreign exchange gains / (losses) VII. OTHER OPERATING INCOME (5) VIII. NET OPERATING INCOME (III+IV+V+VI+VII) IX. PROVISION FOR LOAN LOSSES AND OTHER RECEIVABLES (-) (6) ( ) (74.765) X. OTHER OPERATING EXPENSES (-) (7) ( ) ( ) XI. NET OPERATING INCOME/(LOSS) (VIII-IX-X) XII. AMOUNT IN EXCESS RECORDED AS GAIN AFTER MERGER - - XIII. GAIN / (LOSS) ON EQUITY METHOD - - XIV. GAIN / (LOSS) ON NET MONETARY POSITION - - XV. PROFIT/(LOSS) FROM CONTINUED OPERATIONS BEFORE TAXES (XI+ +XIV) XVI. TAX PROVISION FOR CONTINUED OPERATIONS (±) (51.564) (49.899) 16.1 Provision for current income taxes (48.130) (32.342) 16.2 Provision for deferred taxes (3.434) (17.557) XVII. NET PROFIT/(LOSS) FROM CONTINUED OPERATIONS (XV±XVI) XVIII. INCOME ON DISCONTINUED OPERATIONS Income on assets held for sale Income on sale of associates, subsidiaries and jointly controlled entities (Joint Vent.) Income on other discontinued operations - - XIX. LOSS FROM DISCONTINUED OPERATIONS (-) Loss from assets held for sale Loss on sale of associates, subsidiaries and jointly controlled entities (Joint vent.) Loss from other discontinued operations - - XX. PROFIT / (LOSS) ON DISCONTINUED OPERATIONS BEFORE TAXES (XVIII-XIX) - - XXI. TAX PROVISION FOR DISCONTINUED OPERATIONS (±) Provision for current income taxes Provision for deferred taxes - - XXII. NET PROFIT/LOSS FROM DISCONTINUED OPERATIONS (XX±XXI) - - XVIII. NET PROFIT/LOSS (XVII+XXII) (11) Group s profit/loss Minority shares - - Earnings per share 0,74 0,53 The accompanying notes are an integral part of these financial statements. 6

13 STATEMENT OF PROFIT AND LOSS ITEMS ACCOUNTED UNDER EQUITY THOUSAND NEW TURKISH LIRA CURRENT PERIOD PRIOR PERIOD STATEMENT OF PROFIT AND LOSS ITEMS ACCOUNTED UNDER EQUITY ( 31/12/2007) ( 31/12/2006) I. Additions to marketable securities revaluation differences for available for sale financial assets - - II. Tangible assets revaluation differences - - III. Intangible assets revaluation differences - - IV. Foreign exchange differences for foreign currency transactions - - V. Profit/Loss from derivative financial instruments for cash flow hedge purposes (Effective portion of fair value differences) - - VI. Profit/Loss from derivative financial instruments for hedge of net investment in foreign operations (Effective portion of fair value differences) VII. The effect of corrections of errors and changes in accounting policies - - VIII. Other profit loss items accounted under equity due to TAS - - IX. Deferred tax of valuation differences - - X. Total Net Profit/Loss accounted under equity (I+II+ +IX) - - XI. Profit/Loss Change in fair value of marketable securities (Transfer to Profit/Loss) Reclassification and transfer of derivatives accounted for cash flow hedge purposes to Income Statement Transfer of hedge of net investments in foreign operations to Income Statement Other - - XII. Total Profit/Loss accounted for the period (X±XI) - - The accompanying notes are an integral part of these financial statements. 7

14 UNCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY THOUSAND NEW TURKISH LIRA Effect of inflation Share Note Accounting on Certificate Current Period Prior Period Marketable STATEMENT OF CHANGES OF SHAREHOLDER'S EQUITY Paid-in Capital Capital and Other Capital Reserves Share Premium Cancellation Profits Legal Reserves Statutory Reserves Extraordinary Reserve Other Reserve Net Income / (Loss) Securities Net Income / (Loss) Revaluation Reserve Total Equity Before Minority Shares Minority Shares Total Equity PRIOR PERIOD AUDITED (01/01-31/12/2006) I. Beginning Balance (72.429) II. Corrections according to TAS The effect of corrections of errors The effects of changes in accounting policy III. New Balance (I+II) (72.429) Changes in period IV. Increase/Decrease related to merger V. Marketable securities revaluation differences VI. Hedging Funds (Effective Portion) Cash-flow hedge Hedge of net investment in foreign operations VII. Tangible assets revaluation differences VIII. Intangible assets revaluation differences IX. Bonus shares obtained from associates, subsidiaries and jointly controlled X. Foreign exchange differences XI. The disposal of assets XII. The reclassification of assets XIII. The effect of change in associate s equity XIV. Capital increase Cash Internal sources XV. Share premium XVI. Share cancellation profits XVII. Inflation adjustment to paid-in capital XVIII. Other IX. Period net income/(loss) X. Profit distribution (92.682) (20.000) 10.1 Dividends distributed (20.000) (20.000) 10.2 Transfers to reserves (2.619) Other (92.682) Closing Balance (III+IV+...+XIV+XV+XVI) (2.366) CURRENT PERIOD AUDITED (01/01-31/12/2007) I. Prior Period Balance (2.366) Changes in period II. Increase/Decrease related to merger III. Marketable securities revaluation differences IV. Hedging Funds (Effective Portion) Cash-flow hedge Hedge of net investment in foreign operations V. Tangible assets revaluation differences VI. Intangible assets revaluation differences VII. Bonus shares obtained from associates, subsidiaries and jointly controlled VIII. Foreign exchange differences IX. The disposal of assets X. The reclassification of assets XI. The effect of change in associate s equity XII. Capital increase Cash Internal sources XIII. Share premium XIV. Share cancellation profits XV. Inflation adjustment to paid-in capital XVI. Other VII. Period net income/(loss) VIII. Profit distribution ( ) Dividends distributed Transfers to reserves ( ) Other ( ) Closing Balance (I+II+III+-...+XII+XIII+XIV) The accompanying notes are an integral part of these financial statements. 8

15 STATEMENT OF CASH FLOWS THOUSAND NEW TURKISH LIRA CURRENT PERIOD PRIOR PERIOD Audited Audited Note (01/01-31/12/2007) (01/01-31/12/2006) A. CASH FLOWS FROM BANKING OPERATIONS 1.1 Operating profit before changes in operating assets and liabilities Profit share income received Profit share expense paid ( ) ( ) Dividend received Fees and commissions received Other income Collections from previously written off loans Payments to personnel and service suppliers ( ) (79.304) Taxes paid (37.611) (27.081) Others (82.699) ( ) 1.2 Changes in operating assets and liabilities (8.247) Net (increase) decrease in financial assets Net (increase) decrease in financial assets at fair value through profit or loss Net (increase) decrease in due from banks and other financial institutions ( ) (77.383) Net (increase) decrease in loans ( ) ( ) Net (increase) decrease in other assets (12.322) Net increase (decrease) in bank deposits (15.539) ( ) Net increase (decrease) in other deposits Net increase (decrease) in funds borrowed Net increase (decrease) in due payables Net increase (decrease) in other liabilities I. Net cash provided from banking operations B. CASH FLOWS FROM INVESTING ACTIVITIES II. Net cash provided from investing activities (87.483) (39.809) 2.1 Cash paid for purchase of entities under common control, associates and subsidiaries (51.469) (25.562) 2.2 Cash obtained from sale of entities under common control, associates and subsidiaries Fixed assets purchases (63.106) (21.204) 2.4 Fixed assets sales Cash paid for purchase of financial assets available for sale Cash obtained from sale of financial assets available for sale Cash paid for purchase of investment securities Cash obtained from sale of investment securities Other C. CASH FLOWS FROM FINANCING ACTIVITIES III. Net cash provided from financing activities (15.714) Cash obtained from funds borrowed and securities issued Cash used for repayment of funds borrowed and securities issued Capital increase Dividends paid - (20.000) 3.5 Payments for finance leases (15.714) (8.606) 3.6 Other - - IV. Effect of change in foreign exchange rate on cash and cash equivalents V. Net increase in cash and cash equivalents VI. Cash and cash equivalents at the beginning of the year VII. Cash and cash equivalents at the end of the year The accompanying notes are an integral part of these financial statements 9

16 PROFIT DISTRIBUTION TABLE THOUSAND NEW TURKISH LIRA CURRENT PERIOD PRIOR PERIOD (31/12/2007) (31/12/2006) I. DISTRIBUTION OF CURRENT PERIOD PROFIT (**) 1.1 CURRENT PERIOD PROFIT TAXES AND DUES PAYABLE (-) (51.564) (49.899) Corporate Tax (Income Tax) (48.130) (32.342) Withholding Tax Other taxes and dues (*) (3.434) (17.557) A. NET PERIOD PROFIT ( ) PRIOR YEAR'S LOSSES (-) - (2.366) 1.4 FIRST LEGAL RESERVES (-) - (7.199) 1.5 OTHER STATUTORY RESERVES (-) - - B. DISTRIBUTABLE NET PERIOD PROFIT [(A-( )] FIRST DIVIDEND TO SHAREHOLDERS (-) To Owners of Ordinary Shares To Owners of Preferred Stocks To Owners of Preferred Stocks (Preemptive Rights) To Profit Sharing Bonds To Owners of the profit /loss Sharing Certificates DIVIDEND TO PERSONNEL (-) DIVIDEND TO BOARD OF DIRECTORS (-) SECOND DIVIDEND TO SHAREHOLDERS (-) To Owners of Ordinary Shares To Owners of Preferred Stocks To Owners of Preferred Stocks (Preemptive Rights) To Profit Sharing Bonds To Owners of the profit /loss Sharing Certificates SECOND LEGAL RESERVE (-) STATUS RESERVES (-) EXTRAORDINARY RESERVES - ( ) 1.13 OTHER RESERVES SPECIAL FUNDS - - II. DISTRIBUTION FROM RESERVES 2.1 DISTRIBUTED RESERVES SECOND LEGAL RESERVES (-) SHARE TO SHAREHOLDERS (-) To Owners of Ordinary Shares To Owners of Preferred Stocks To Owners of Preferred Stocks (Preemptive Rights) To Profit Sharing Bonds To Owners of the profit /loss Sharing Certificates SHARE TO PERSONNEL (-) SHARE TO BOARD OF DIRECTORS (-) - - III. EARNINGS PER SHARE 3.1 TO OWNERS OF STOCKS TO OWNERS OF STOCKS ( % ) TO OWNERS OF PREFERRED STOCKS TO OWNERS OF PREFERRED STOCKS ( % ) - - IV. DIVIDEND PER SHARE TO OWNERS OF STOCKS TO OWNERS OF STOCKS ( % ) TO OWNERS OF PREFERRED STOCKS TO OWNERS OF PREFERRED STOCKS ( % ) - - (*) Deferred tax expense is presented in "other tax and dues" line. (**) Profit distribution is agreed on the General Assembly Meeting and as of the reporting date, the General Assembly meeting has not been held, yet. The accompanying notes are an integral part of these financial statements. 10

17 SECTION THREE ACCOUNTING PRINCIPLES I. Basis of Presentation 1. Presentation of Financial Statements The Bank prepares its financial statements and notes in accordance with the Communiqué on Banks Accounting Practice and Maintaining Documents, Turkish Accounting Standards ( TAS ), Turkish Financial Reporting Standards ( TFRS ), other communiqués, pronouncements and explanations about accounting and financial reporting issued by the Banking Regulation and Supervision Agency (BRSA), Turkish Commercial Code and the Tax Legislation. Banks shall not settle their balance sheets without ensuring reconciliation with the legal and auxiliary books and records, branches and domestic and foreign correspondents. The Bank prepares its statutory books, financial statements, and all related documents that provide a basis for those financial statements in accordance with the Turkish Accounting Standards ( TAS ) and regulation on the Procedures And Principles Regarding The Accounting Practices And Documentation of Banks published in the Official Gazette No: dated November , Turkish Commercial Code and the Tax Legislation. The Bank prepares financial statements by applying accounting policies and basis of accounting in accordance with the Turkish Accounting Standards ( TAS ) and related communiqués, pronouncements and explanations issued by the Banking Regulation and Supervision Agency (BRSA). The related accounting policies and basis of accounting are explained below. Accounting Policies Applied As of December 31, 2006, TRY Thousand of foreign exchange loss on the foreign currencyindexed loans is reclassified from the Other Operating Expenses to the Foreign Exchange Losses account; and TRY Thousand of foreign exchange gain on the foreign currency-indexed loans is reclassified from the Other Operating Income to the Foreign Exchange Gains account. 2. Basis of Accounting The accompanying financial statements are based on the Bank s legal books. The Bank has recorded the adjustments of inflation accounting to its legal books beginning from June 30, 2004 to December 31, 2004 in accordance with Act No: 5024 of the Tax Procedural Code. As of December 31, 2003 the financial statements are prepared in accordance with the legal books and historical cost principle except for the revaluation of fixed assets and includes adjustments and reclassifications, including restatement for the changes in the general purchasing power of the Turkish Lira in accordance with International Accounting Standard No: 29 Financial Reporting in Hyperinflationary Economies ( TAS 29 ) before December 31, 2004 for the purpose of fair presentation. 11

18 SECTION THREE (Cont d) ACCOUNTING PRINCIPLES (Cont d) II. Use Strategy of Financial Assets and Foreign Currency Transactions The Bank manages its strategies on the financial instruments, depending on the financing sources. The sources constitute of current and profit sharing accounts. The matters in connection with the liquidity ratio which shall cover liabilities are explained in Section VI, Part I.1. As of the balance sheet date, the Bank s assets and equity structure are sufficient to cover its liabilities. The Bank does not carry a significant foreign currency position risk due to the existing floating exchange rate regime. The investment decisions are made by taking into consideration of the maturity structure of the balance sheet items. The Bank determines specific limits for the balance sheet. The allocation of asset items are designated, and yield analysis are made based on this designation. In the statutory books of the Bank, the transactions recorded in foreign currencies (all other currencies except New Turkish Lira) are translated into the New Turkish Lira at the exchange rates prevailing at the transaction dates. Monetary asset and liabilities denominated in foreign currencies are translated into the New Turkish Lira at the year end exchange rates of the Bank. Foreign exchange gains or losses arising from the translation of monetary items and foreign currency denominated collections or disbursements are recognized in the income statement. III. Forward and Option Contracts and Derivative Instruments The Bank s derivative financial instruments consist of forward agreements. Forwards are recorded at their fair values at the contract date and remeasured at their prevailing fair value in the following reporting periods. Even though some derivative transactions economically provide risk hedging, since all necessary conditions to be defined as items suitable for financial risk hedging accounting are not met, they are recognized as for trading purposes within the framework of the Turkish Accounting Standard for Accounting and Measuring of Financial Instruments ( TAS 39 ) and the related gain or loss is reflected to the income statement. IV. Profit Share Income and Expenses Profit share income and expenses are recognized in the income statement on an accrual basis. Realized and unrealized interest accruals of the non-performing loans are reversed and interest income in connection with these loans is recorded as interest income only when they are collected. V. Fees and Commission Income and Expenses Fees and commission income and expenses are recorded on an accrual or collection basis, depending on the nature of the transaction. 12

19 SECTION THREE (Cont d) ACCOUNTING PRINCIPLES (Cont d) VI. Financial Assets Financial instruments comprise of financial assets, financial liabilities and derivative instruments. Financial assets and financial liabilities are recognized on the Bank s balance sheet when the Bank becomes a party to the contractual provisions of the instrument. Basically, financial assets form majority of the commercial activities and operations of the Bank. Financial instruments expose, change or reduce the liquidity and credit risks of the Bank s financial statements. Fair value is the amount for which an asset could be exchanged or a liability settled, between knowledgeable willing parties in an arms length transaction. Fair value is best evidenced by a market price, being the amount obtainable from the sale, or payable on the acquisition, of a financial instrument in an active market, if one exists. Estimated fair values of financial assets are determined by the Bank by using the information about the market and relevant valuation methods. However, interpretation of market information is necessary to determine fair value. Therefore, estimated fair values presented in this report may not be necessarily equivalent of the disposal values of such assets derived from current market conditions. Some carrying values of the financial instruments (which are same with their cost values) are assumed to be equal to their fair values because of their short term nature. The methods and assumptions used in determining the reasonable estimated values of all financial instruments are mentioned below. Cash, Banks, and Other Financial Institutions: Cash and cash equivalents comprise of cash on hand, demand deposits, and highly liquid short-term investments not bearing risk of significant value change, and that are readily convertible to a known amount of cash. The book value of these financial assets approximate to their fair value. Financial Assets at Fair Value Through Profit and Loss: Marketable securities at fair value through profit or loss are classified in two categories; i) marketable securities classified as trading securities: acquired or incurred principally for the purpose of selling or repurchasing it in the near term in order to benefit from short-term profit opportunities; ii) marketable securities classified as marketable securities at fair value through profit or loss at initial recognition. The Bank uses the above-mentioned classification when permitted, or for the purposes of providing a more appropriate presentation. In this group, trading securities are initially recognized at cost and measured at fair value on the financial statements. Fair value of debt securities traded in an active market is determined based on the quoted prices or current market prices. The difference between initial cost and fair value of financial assets at fair value through profit and loss is reflected to profit share income or diminution in value of marketable securities accounts. Profit share income from financial assets at fair value through profit and loss is reflected in profit share income. 13

20 SECTION THREE (Cont d) ACCOUNTING PRINCIPLES (Cont d) VI. Financial Assets (Cont d) Investments held to maturity include securities with fixed or determinable payments and fixed maturity when there is an intention of holding till maturity and the relevant conditions for fulfillment of such intention, including the funding ability. This portfolio excludes loans and receivables. Subsequent to initial recognition, held to maturity investments are measured at amortized cost by using the effective interest rate less impairment losses, if any. The Bank has no financial assets acquired and classified as held to maturity investments that cannot be subject to such classification for two years because of the non-performance of tainting rules. The profit share income received from held to maturity investments is recorded as profit share income in the income statement. Marketable securities classified as available for sale are initially recognized at cost including the transaction costs. After initial recognition, available for sale securities are measured at fair value and unrealized gains/losses originating from the difference between the amortized cost and the fair value are recorded in Marketable Securities Value Increase Fund under equity. At the disposal of available for sale financial assets, value increase/decrease recorded in Marketable Securities Value Increase Fund under equity is transferred to the income statement. As of December 31, 2007, the Bank has TRY Thousand of derivative financial assets held for trading at fair value through profit or loss. As of December 31, 2007, the Bank does not retain any available for sale or held to maturity securities. Loans and Receivables: Loans and receivables are recognized at amortized cost. Fees, transaction costs and other similar costs in connection with the guarantees of loans and receivables are not considered as part of the transaction cost and recognized in the income statement. Loans are transferred to the relevant accounts in cash amounts and income accruals are calculated by using the internal rate of return method and the related income is recorded in the profit share income item. Foreign currency and foreign currency indexed loans are evaluated and evaluation differences are accounted under Foreign Exchange Gains and/or Foreign Exchange Losses in the income statement. In presence of evidence on any doubts on the collection of loans, classification and provisioning of such loans are accounted in conformity with the prevailing regulations and such specific provisions are recognized in the income statement. Collections made from these loans are recognized in the account of profit share income received from Doubtful Loans and Receivables. Released provisions are accounted as a cancellation of such provisions if realized in the current year, and the remaining amounts are recognized in the account of collections from the prior year expenses. 14