TURKIVE HALK BANKASI A.$.

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized TURKIVE HALK BANKASI A.$. The Project Financial Statements of "Micro Small and Medium Enterprise and Large Enterprise Supply Chain Finance Project" With Independent Auditors' Report As at 31 December 2016 Public Disclosure Authorized 1 August 2017 This report contains 3 pages of independent auditors' report and 8 pages of project financial statements and notes to the project financial statements.

2 Akis Bagimsiz Denetim ve Serbest Muhasebeci Mali MGOavirlik A5. Kavacik ROzgarli Bahge Mah. Kavak Sok. No:29 Beykoz istanbul Tel +90 (216) Fax +90 (216) www,kpmg.com.tr Independent Auditors' Report Qualified Opinion We have audited the accompanying project financial statements of TOrkiye Halk Bankasi A.$. (the "Bank"), which comprise the project balance sheet as at 31 December 2016 and the statement of designated account which includes a summary of funds received from the International Bank for Reconstruction and Development ("IBRD"), the summary of expenditures shown under the main project headings and by main categories of expenditures for the period between 1 January 2016 and 31 December 2016 and a summary of significant accounting policies and other explanatory information ("the project financial statements"). The project financial statements have been prepared by management of Tflrkiye Halk Bankasi A.$. based on the financial reporting provisions of Terms of Reference ("TOR") of the agreement dated 28 December 2015 between IBRD and the Bank. In our opinion, except for the effects, if any, on the project financial statements of the matters described in the "Basis for Qualified Opinion" paragraph, the project financial statements of Torkiye Halk Bankast A.$. as at 31 December 2016 and for the period between 1 January 2016 and 31 December 2016 are prepared, in all material respects, in accordance with the financial reporting provisions of TOR (Note 3) of the agreement between IBRD and the Bank.

Basis for Opinion The Bank did not recognize the accrued interest income on the amounts due from loan customers and the accrued interest expenses on the amount due to 1BRD and any commission amount

3 Basis for Opinion The Bank did not recognize the accrued interest income on the amounts due from loan customers and the accrued interest expenses on the amount due to 1BRD and any commission amount on the balances in the project financial statements. We were unable to determine its impact on the project financial statements of the Bank as at 31 December 2016 and for the period between 1 January 2016 and 31 December We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statement section of our report. We are independent of the Company in accordance with International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the (consolidated) financial statements in Turkey and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis ofmatter - Basis ofaccounting and Restriction on Use and Distribution We draw attention to Note 3 to the project financial statements, which describe the basis of accounting. The financial statements are prepared to assist the Bank to comply with the financial reporting provisions of the TOR of the agreement referred to above. As a result, the project financial statements may not be suitable for another purpose. Our report is intended solely for TUrkiye lalk Bankasi A.J. and International Bank for Reconstruction and Development and should not be distributed to or used by parties other than Tiirkiye Halk Bankasi A.$. or International Bank for Reconstruction and Development. Emphasis ofmatter: Financial Covenants We draw attention to Note 5. There are financial covenants that the Bank should comply with. However, the Bank did not comply with the covenants as described below: According to "Section I Implementation Arrangements" in the Loan Agreement, "Ensure that at least fifteen percent (15%) of the Loan financing Sub-loans to MSMEs is made for: (a) Sub-loans financing Investment Subprojects located in the Priority Regions; or (b) Sub-loans financing Working Capital Subprojects where the goods consultant services and non-consulting services so financed are used in the Priority Regions." Due to Decisions of the Council of Ministers dated October 17, 2014 Priority Regions was established as Adiyaman, Agri, Aksaray, Amasya, Ardahan, Artvin, Bartin, Batman, Bayburt, Bing8l, Bitlis, Canakkale (Bozcaada and GbkVeada district), Cankin, Corum, Diyarbakir, Elazig, Erzincan, Erzurum, Giresun, GUmflihane, Hakkari, Igdir, Kahramanmara, Karabik, Karaman, Kars, Kastamonu, Kirikkale, Kirgehir, Kilis, Malatya, Mardin, Mu4, Nev ehir, Nigde, Ordu, Osmaniye, Rize, Samsum, Siirt, Sinop, Sivas, $anhurfa, 5irnak, Tokat, Trabzon, Tunceli, Van, Yorgat, Zonguldak. It was observed that, the share of Sub-loans to MSMEs given to Priority Regions in total amount of Sub-loans to MSMEs is 10.2% by the date of 31 December Our opinion is not modified in respect of this matter. Responsibilities of Management and Those Charged with Governance for the Financial Statement Management is s responsible for the preparation and presentation of the project financial statements in accordance with the financial reporting provisions of TOR, and for such internal control as management determines is necessary to enable the preparation of the financial statement that is free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the Company's financial reporting process.

4 Atudito-s' Responsibilities for the Audit of the Project Financial Statement Our objectives are to obtain reasonable assurance about whether the project financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial statement. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the financial statement, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. istanbul 1 August 2017

5 TORKYE HALK BANKASI A.5. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project Project Balance Sheet as of the Semester ended 31 December 2016 in USD ASSETS Designated Account 35,242,785 Sub-loans to Beneficiary Enterprises 4,757,215 Sub-loans to MSMEs 4,757,215 Sub-loans to LEs Other Assets (if any, description to be provided) TOTAL ASSETS 40,000,000 LIABILITIES Amount due to World Bank 40,000,000 Credit Line 40,000,000 Front-end fee Other Liabilities (if any, description to be provided) - TOTAL LIABILITIES 40,000,000 The accompanying notes are an integral part of these project financial statements. 1

6 TORKWYE HALK BANKASI A.$. Micro Small and Medium Enterprises and Large Enterprises in the Supply Chain Project Designated Account (DA) Statement as of the Semester ended 31 December 2016 in USD Opening balance as of the Semester beginning 1 January 2016 Note Add: IBRD advances during the Semester 6 40,000,000 Less: Refund to IBRD from DA during the semester Less: Sub-loans extended to beneficiary enterprises 7 4,757,215 Closing Balance as of the Semester ended 31 December ,242,785 The accompanying notes are an integral part of these project financial statements. 2

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8 NOTES TO THE PROJECT FINANCIAL STATEMENTS 1. OBJECTIVES AND NATURE OF THE PROJECT Tarkiye Halk Bankasi A.$. (the "Bank" or "Halkban-") received loan of USD 200,000,000 for Access to Finance For Micro Small and Medium Enterprises and Large Enterprises ("MSMEs and LEs") in the Supply Chain Project (the "Project") from the International Bank for Reconstruction and Development ("IBRD"). The main objective of the Project is to increase MSMEs and LEs' access to credit, in rum contributing to their growth. By providing MSMEs and LEs' with access to credit through a credit line, the Project will help increase their sales and productivity. IBRD agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement USD 200,000,000, as such amounts may be converted from time to time through a Currency Conversion in accordance with the provisions of Section 2.08 of the Loan Agreement, to assist in the financing the Project. The loan is backed by a Government counter-guarantee. 2. OPERATIONS OF THE PROJECT IMPLEMENTING AGENCY Tfirkiye Halk Bankasi A.$. was established in Turkey in accordance with the Law No: 2284 in 1933 and began its operations in 1938 and still continues its activities as a public commercial bank. As per the decree of the Higher Council of Privatization numbered 2007/8 and dated 5 February 2007; 25% of the public shares that were previously held by the Privatization Administration were privatized by a public offering and the Bank's shares were registered to Capital Market Board records by decision number 16/471 dated 26 April The shares were traded on the Borsa Istanbul A.$. as of 10 May As per the decree of the Higher Council of Privatization numbered 2012/150 and dated 4 October 2012; 23.92% of the public shares that were previously held by the Privatization Administration were privatized by a second public offering and privatization was completed on 21 November By High Council of Privatization, The shares of % and nominal value of TL 638,826 in the Bank's paid-up capital that belong to the Republic of Turkey Prime Ministry Privatization Administration by removing from scope and program of privatization after obtaining the necessary permits, it has been decided to transfer to the Turkey Asset Fund, which will be managed by the Asset Management Company of Turkey until the decision as date of 3 February 2017 except for the Prime Ministry Privatization Administration, no person or institute had any qualified shares attributable to the Bank. The Bank's service activities and operating areas: The Bank's operating areas include, commercial financing and corporate banking, fund management operations, retail banking and credit card operations. As of 31 December 2016, the Bank operates with a total of 964 branches consisting of 959 domestic and 5 foreign branches that are 4 in Cyprus and I in Bahrain. Domestic branches include 35 satellite branches. The Bank has also 3 representative office in England, Iran and Singapore. 4

9 3. SIGNIFICANT ACCOUNTING POLICIES The project financial statements have been prepared in accordance with generally accepted accounting principles and practices. The Bank did not recognize the accrued interest income on the amounts due from loan customers and the accrued interest expenses on the amount due to World Bank, any commission amount and any other charges on the balances in the project financial statements. These project financial statements are presented in USD. The significant accounting policies are as follows: 3.1 Designated account Designated account presents Word Bank Fund which is not yet disbursed to MSMEs and LEs. Undisbursed amount as of the current period is USD 35,242,785. Designated account is recognized initially at their principal amounts, and subsequently are continued to be measured with their principal amounts. 3.2 Sub-loans to beneficiary enterprises Sub-loans to beneficiary enterprises amounts are financial assets which are not traded in an active market and have fixed or floating payments. Sub-loans to beneficiary enterprises amounts are recognized initially at their principal amounts, and subsequently are continued to be measured with their principal amounts. Disbursements to the local firms are recorded in local currency and converted to foreign currency with the exchange rate as of the date of the disbursement. The collections from the local firms are converted with the exchange rate prevailing on the collection date. The balance includes EUR 129,000, USD 3,586,250 and TL 2,920,000 of principal amounts which makes USD 4,757,215, in total, when converting with the exchange rates available at the transforming dates of retroactively financed loans were used. Since there is not any predefined exchange rate in the Loan Agreement, different exchange rates have been used during the lifetime of the Project. 3.3 Amounts due to World Bank Amounts due to World Bank are recognized initially at their principal amounts, and subsequently are continued to be measured with their principal amounts. The balance includes amount of USD 4,757,215 that used from IBRD fund amount of USD 200,000, RESTRICTED USE OF FUNDS AND OTHER ASSETS In accordance with the loan agreement between the Bank and IBRD, funds available in the Special Account are restricted to project purposes only. 5

10 5. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN The balance allocated to Tlirkiye Halk Bankasi A.$. to be on-lent out of the proceeds of the loan to the Bank under its respective subsidiary loan agreement is USD 200,000,000. The Bank is obliged to pay a front-end fee in an amount equal to one quarter of one percent (0.25)% of the loan amount, subject to any waiver of a portion of such fee as may be determined by the IBRD from time to time. The loan is a Fixed Spread Loan (FSL) for USD 200,000,000, commitment linked with level repayment of principle, front-end fee amounting to USD 500,000 financed from the Borrower's own sources, with all conversion options, a 4 year grace period, and 20 years of final maturity, March 15 and September 15 payment dates. In order to draw down funds under the Access to Finance for Micro Small and Medium Enterprise and Large Enterprise Supply Chain Finance Project, the Bank is entering into sub-loan agreements with beneficiary enterprises. The sub-loan agreements are in accordance with the Project sub-loan terms and conditions and prudent banking practices. Sub-loans are being provided for working capital and investment expenditures. Financial covenants: a) Sub-loans to MSMEs may be made for working capital and investment purposes. Sub-loans to LEs may be made for investment purposes only, including incremental working capital. b) At least fifteen percent (15%) of the Loan financing Sub-loans to MSMEs is made for: (a) Sub-loans financing Investment Subprojects located in the Priority Regions; or (b) Sub loans financing Working Capital Subprojects where the goods consultant services and non-consulting services so financed are used in the Priority Regions. c) The amount of an individual sub-loan will not exceed USD 3.5 million equivalent for MSMEs and USD 6 million equivalent for LEs, except as the World Bank shall otherwise agree. The aggregate amount of outstanding Sub-loans to any one MSME or LE shall not exceed USD 5 million equivalent and USD 10 million equivalent, respectively. d) All investment sub-loans to MSMEs must have at least two years maturity and to LEs at least three years maturity. e) For sub-loans above USD I million equivalent (excluding sub-projects in Priority Regions), subbeneficiaries to have a financial debt/equity ratio of not more than 85:15 after the receipt of the subloan, unless agreed otherwise by the World Bank. f) The first two sub-loans, irrespective of size, will be subject to prior review by the World Bank. Subloans to be provided to a MSME exceeding USD 2,5 million equivalent and to a LE exceeding USD 4,5 million equivalent will require prior approval by the World Bank. g) The relevant authorities must certify that the MSMEs and LEs (sub-beneficiaries) and sub-projects meet environmental laws and standards in force in Turkey. h) Contracts from sub-borrowers where the contracted firms are on the World Bank lists of debarred or suspended firms will not be eligible for financing. i) At least 60 percent of the Loan will be used to fund MSMEs. j) Sub-loans not to be supporting or include the purchase of land or used equipment. k) MSMEs must meet the eligibility criteria defined below: MSMEs are defined as firms with less than TRY 40,000,000 equivalent in sales and less than 250 employees. All private MSMEs (private ownership of more than 50 percent), irrespective of their sector, will be eligible for participation as sub beneficiaries on a commercial basis. 1) LEs must meet the eligibility criteria defined below: LEs are defined as firms with at least 25% of their annual sales for MSMEs and less than 1,000 employees. All private LEs (private ownership of more than 50 percent), irrespective of their sector, will be eligible for participation as sub beneficiaries on a commercial basis. 6

11 5. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN (continued) A Project Implementation Unit (PIU) was established under the International Banking and Structured Financing Directorate of the Bank. The sub-loans extended to the MSMEs and LEs from the IBRD funds are followed up in the Bank's general management information system coherent with the procedures of other loans tracked within the system, accounted and reported for. All transactions for the transfers from the IBRD, transfers to MSMEs and LEs or to their suppliers and other Project transactions are accounted in the main accounting system of the Bank. 6. IBRD ADVANCES Withdrawal Number Date Amount in USD 1 16 February ,000,000 (*)Ths lable shows dsbutunierds fmin IRD to de Bank 40,000,000 7

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Public Disclosure Authorized. Public Disclosure Authorized

Public Disclosure Authorized. Public Disclosure Authorized TURKIYE SINAI KALKINMA BANKASI A.$. The Summary Project Financial Statements of "Innovative Access to Finance Project" (the EUR Tranche) With Independent Auditors' Report As at 31 December 2016 14 June