Türkiye Halk Bankası A.Ş. U.S.$500,000,000 5.000% Notes due 2021

Transcription

Türkiye Halk Bankası A.Ş.
a Turkish banking institution organised as a joint stock company
U.S.$500,000,000 5.000% Notes due 2021
Türkiye Halk Bankası A.Ş., a Turkish banking institution organised as a joint stock company (the "Bank", "Halkbank" or the "Issuer"), is issuing
U.S.$500,000,000 5.000% Notes due 2021 (the "Notes"). The Notes have not been and will not be registered under the U.S. Securities Act of 1933,
as amended (the "U.S. Securities Act"), or the securities or "blue sky" laws of any state of the United States of America ("United States" or "U.S."),
or any other jurisdiction, and are being offered: (a) for sale in the United States to qualified institutional buyers ("QIBs") as defined in, and in
reliance upon, Rule 144A ("Rule 144A") under the U.S. Securities Act (the "U.S. Offering"), and (b) for sale outside the United States to persons
other than U.S. persons ("U.S. Persons") as defined in, and in reliance upon, Regulation S ("Regulation S") under the U.S. Securities Act (the
"International Offering" and, with the U.S. Offering, the "Offering"). For a description of certain restrictions on the sale and transfer of the Notes,
see "Plan of Distribution" and "Transfer Restrictions".
INVESTING IN THE NOTES INVOLVES RISKS. PROSPECTIVE INVESTORS SHOULD CONSIDER THE RISKS AND
UNCERTAINTIES SET FORTH UNDER "RISK FACTORS".
Interest on the Notes will be paid on 13 January and 13 July in each year; provided that if any such date is not a Business Day (as defined herein),
then such payment will be made on the next Business Day. Principal of the Notes is scheduled to be paid on 13 July 2021, but may be paid earlier
under certain circumstances as further described herein. The Notes initially will be sold to investors at a price equal to 99.781% of the principal
amount thereof. For a detailed description of the Notes, see "Conditions of the Notes". The net proceeds of the Notes will be used by the Issuer for
general corporate purposes.
The Offering Memorandum has been approved by the Central Bank of Ireland (the "Central Bank of Ireland"), as competent authority under
Directive 2003/71/EC, as amended (the "Prospectus Directive"). The Central Bank of Ireland only approves this Offering Memorandum as meeting
the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. This Offering Memorandum constitutes a prospectus for the
purposes of Article 5 of the Prospectus Directive. Application has been made to the Irish Stock Exchange plc for the Notes to be admitted to the
official list (the "Official List") and trading on its regulated market (the "Main Securities Market"). The Main Securities Market is a regulated
market for the purposes of Directive 2004/39/EC (the "Markets in Financial Instruments Directive"). Such approval relates only to the Notes
which are to be admitted to trading on a regulated market for the purposes of Directive 2004/39/EC and/or which are to be offered to the public in
any Member State of the European Economic Area. Application has been made to the Capital Markets Board of Turkey (the "CMB") in its capacity
as competent authority under Law No. 6362 of the Republic of Turkey ("Turkey") relating to capital markets (the "Capital Markets Law") for the
issuance of the Notes by the Bank outside Turkey. The Notes cannot be sold outside Turkey before the necessary approvals are obtained from the
CMB. The issuance of the Notes and the issuance certificate (ihraç belgesi) was approved by the CMB on 3 May 2016 and the tranche issuance
certificate (tertip ihraç belgesi) relating to the Notes is expected to be obtained from the CMB on or prior to the Issue Date.
The Notes are expected on issue to be rated BBB- by Fitch Ratings Ltd. ("Fitch") and Baa3 by Moody's Investors Services Limited ("Moody's", and
together with Fitch, the "Rating Agencies"). A rating is not a recommendation to buy, sell or hold securities and may be subject to revision,
suspension or withdrawal at any time by the assigning rating organisation. As of the date of this Offering Memorandum, each of the Rating Agencies
is established in the European Union (the "EU") and registered under Regulation No 1060/2009, as amended (the "CRA Regulation"). As such, the
Rating Agencies are included in the list of credit rating agencies published by the European Securities and Markets Authority on its website in
accordance with the CRA Regulation.
All payments in respect of the Notes by or on behalf of the Issuer shall be made without withholding or deduction for, or on account of, any
Taxes (as defined in Condition 9) imposed or levied by or on behalf of a Relevant Jurisdiction (as defined in Condition 9), unless the
withholding or deduction of the Taxes is required by law. In that event, subject to certain exceptions set forth in the Conditions, the Issuer
will pay such additional amounts as may be necessary in order that the net amounts received by the Noteholders after the withholding or
deduction shall equal the respective amounts which would have been receivable in respect of the Notes in the absence of such withholding or
deduction. See "Conditions of the Notes―9. Taxation". The withholding tax rate on interest payments in respect of Turkish bonds issued
outside of Turkey varies depending on the original maturity of such bonds as specified under decree numbered 2010/1182 published 29
December 2010 and decree numbered 2011/1854 published on 29 June 2011 (the "Decrees"). Pursuant to the Decrees, with respect to bonds
with a maturity of 5 years and more, the withholding tax rate on interest is 0%. Accordingly, the withholding tax rate on interest on the
Notes is 0%.
The Notes are being offered under Rule 144A and under Regulation S by Arab Banking Corporation (B.S.C), Emirates NBD P.J.S.C., Citigroup
Global Markets Limited, Goldman Sachs International, HSBC Bank plc or UniCredit Bank AG (collectively, the "Initial Purchasers"), subject to
their acceptance and right to reject orders in whole or in part. The Notes will initially be represented by global certificates in registered form (the
"Global Certificates"). The Notes offered and sold in the United States to QIBs in reliance on Rule 144A (the "Rule 144A Notes") will be
represented by beneficial interests in one or more permanent global certificates in fully registered form without interest coupons (the "Restricted
Global Certificate"). The Restricted Global Certificate will be registered in the name of Cede & Co., as nominee for the Depository Trust Company
("DTC"), and will be deposited on or about the Closing Date with the Bank of New York Mellon in its capacity as custodian (the "Custodian") for
DTC. The Notes offered and sold outside the United States to persons other than U.S. Persons in reliance on Regulation S (the "Regulation S
Notes") will be represented by beneficial interests in a single, permanent global certificate in fully registered form without interest coupons (the
"Unrestricted Global Certificate"). The Unrestricted Global Certificate will be deposited on or about the Closing Date with, and registered in the
name of a nominee for the common depositary for Euroclear Bank SA/NV ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream,
Luxembourg"). It is expected that the Global Certificates will be delivered against payment therefor in immediately available funds on 13 July
2016—i.e., the eighth business day following the date of pricing of the Notes (such date being referred to herein as the "Closing Date" and such
settlement cycle being herein referred to as "T+8").
Joint Global Coordinators
Citigroup
Goldman Sachs International
HSBC
UniCredit Bank
Joint Bookrunners and Joint Lead Managers
Bank ABC
Emirates NBD Capital
Citigroup
HSBC
UniCredit Bank
The date of this Offering Memorandum is 5 July 2016.
This Offering Memorandum constitutes a Prospectus for the purpose of Article 5 of Directive 2003/71/EC
as amended by Directive 2010/73/EU and for the purpose of giving information with regard to the Issuer
and the Notes which, according to the particular nature of the Issuer and the Notes, is necessary to enable
investors to make an informed assessment of the assets and liabilities, financial position, profit and losses
and prospects of the Issuer and of the rights attaching to the Notes.
The Issuer, having made all reasonable enquiries, confirms that this Offering Memorandum contains all
information which is material in the context of the issuance and offering of the Notes, that the
information contained in this Offering Memorandum is true and accurate in all material respects and is
not misleading, that the opinions and intentions expressed in this Offering Memorandum are honestly
held and that there are no other facts the omission of which would make this Offering Memorandum or
any of such information or the expression of any such opinions or intentions misleading in any material
respect and all reasonable enquiries have been made by the Issuer to ascertain such facts and to verify the
accuracy of all such information and statements.
This Offering Memorandum does not constitute an offer of, or an invitation by or on behalf of the Issuer
or the Initial Purchasers to subscribe for or purchase, any Notes. The distribution of this Offering
Memorandum and the offer or sale of the Notes in certain jurisdictions is restricted by law. Persons into
whose possession this Offering Memorandum may come are required by the Issuer and the Initial
Purchasers to inform themselves about and to observe any such restrictions.
No person has been authorised in connection with the offering of the Notes to give any information or
make any representation regarding the Issuer, the Initial Purchasers or the Notes other than as contained
in this Offering Memorandum. Any such representation or information must not be relied upon as having
been authorised by the Issuer, the Initial Purchasers or any other person. Neither the delivery of this
Offering Memorandum nor any subscription or sale made hereunder at any time shall imply under any
circumstances that there has been no change in the Issuer's affairs or that the information contained in it
is correct as of any time subsequent to its date. This Offering Memorandum may only be used for the
purpose for which it has been published.
No representation or warranty, express or implied, is made by the Initial Purchasers as to the accuracy or
completeness of the information set forth in this document, and nothing contained in this document is, or
shall be relied upon as, a promise or representation, whether as to the past or the future. None of the
Initial Purchasers assumes any responsibility for the accuracy or completeness of the information set
forth in this document. Each person contemplating making an investment in the Notes must make its own
investigation and analysis of the creditworthiness of the Issuer and its own determination of the
suitability of any such investment, with particular reference to its own investment objectives and
experience, and any other factors which may be relevant to it in connection with such investment. In
particular, each potential investor should:
(a)
have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the
merits and risks of investing in the Notes and the information contained in this Offering
Memorandum or any applicable supplement;
(b)
have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its
particular financial situation, an investment in the Notes and the impact such investment will
have on its overall investment portfolio;
(c)
have sufficient financial resources and liquidity to bear all of the risks of an investment in the
Notes, including where the currency for principal and interest payments (U.S. Dollar) is different
from the potential investor's currency;
(d)
understand thoroughly the terms of the Notes and be familiar with the behaviour of the financial
markets in which they participate; and
(e)
be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for
economic, interest rate and other factors that may affect its investment and its ability to bear the
applicable risks.
None of the Issuer or the Initial Purchasers or any of their respective representatives is making any
representation to any offeree or purchaser of the Notes regarding the legality of any investment by such
offeree or purchaser under applicable legal, investment or similar laws. Each investor should consult with
his own advisers as to the legal, tax, business, financial and related aspects of a purchase of the Notes.
GENERAL INFORMATION
In this Offering Memorandum, the "Bank", "Halkbank" and the "Issuer" refer to Türkiye Halk Bankası A.Ş.
and the "Group" refers to the Bank and its consolidated subsidiaries, unless the context otherwise requires.
Unless otherwise indicated, the "Board of Directors" and the "Board" refer to the board of directors of the
Bank.
Unless otherwise indicated, the "Turkish Government" refers to the government of Turkey, "BRSA" refers to
the Banking Regulation and Supervision Agency of Turkey (Bankacılık Düzenleme ve Denetleme Kurumu),
"Central Bank" refers to the Central Bank of Turkey (Türkiye Cumhuriyet Merkez Bankası), and "Treasury"
refers to the Undersecretariat of Treasury of the Prime Ministry of Turkey (T.C. Başbakanlık Hazine
Müsteşarlığı).
Unless otherwise indicated, "Turkstat" refers to Turkish Statistical Institute (Türkiye istatistik Kurumu).
Unless otherwise indicated, "Noteholder" refers to the registered holder of any Note.
Unless otherwise indicated, all references in this Offering Memorandum to "Initial Purchasers" refer to Arab
Banking Corporation (B.S.C), Emirates NBD P.J.S.C., Citigroup Global Markets Limited, Goldman Sachs
International, HSBC Bank plc or UniCredit Bank AG.
Unless otherwise indicated, references to "resident" herein refer to tax residents of Turkey and references to
"non-resident" herein refer to persons who are not tax residents of Turkey.
The Notes have not been, and will not be, registered under the U.S. Securities Act or under the securities laws of
any state or other jurisdiction of the United States and may not be offered or sold within the United States or to,
or for the account or benefit of, U.S. Persons, except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the U.S. Securities Act and in compliance with applicable laws of
any state or other jurisdiction of the United States. Prospective investors are hereby notified that the seller of the
Notes may be relying upon the exemption from the provisions of Section 5 of the U.S. Securities Act provided
by Rule 144A. Each investor, by purchasing a Note (or a beneficial interest therein), agrees that the Notes (or
beneficial interests therein) may be reoffered, resold, pledged or otherwise transferred only upon registration of
the Notes under the U.S. Securities Act or pursuant to the exemptions therefrom described under "Transfer
Restrictions", as applicable. Each investor also will be deemed to have made certain representations and
agreements as described therein. Any resale or other transfer, or attempted resale or other attempted transfer,
that is not made in accordance with the transfer restrictions may subject the transferor and transferee to certain
liabilities under applicable securities laws.
The Offering of the Notes has been authorised by the CMB only for the purpose of the sale of the Notes outside
Turkey in accordance with Article 15/b of Decree 32 on the Protection of the Value of the Turkish Currency (as
issued in August 1989 and amended in December 1990, June 1991, March 1993, October 1994, April 1997,
December 1998, July 1999, July 2001, June 2003, August 2004, December 2004, March 2006, December 2006,
January 2008, March 2009, June 2009, November 2011, May 2012, December 2012, March 2013, May 2013,
May 2014 and April 2015 ("Decree 32"), and the Communiqué on Debt Instruments Serial II, No: 31.1 and,
accordingly, the Notes (or beneficial interests therein) will neither be offered or sold to Turkish residents in
accordance with the decision of the BRSA dated 6 May 2010 (No. 3665) (as notified by the BRSA in its letter to
the Turkish Banking Association dated 10 May 2010 and numbered 9392) nor will they be offered or sold
within Turkey under current capital markets regulations. The decision of the BRSA only applies to the initial
offer and sale of the Notes by the Bank at the time of their issue, and pursuant to Article 15/d/ii of Decree 32,
Turkish residents are permitted to purchase or to sell the Notes (or beneficial interest therein) in the secondary
markets provided that they purchase or sell such Notes (or beneficial interests) in the financial markets outside
of Turkey and such sale and purchase is made through banks and/or licensed brokerage institutions authorised
pursuant to CMB regulations.
Except as described in this Offering Memorandum, beneficial interests in the Global Certificates will be
represented through accounts of financial institutions acting on behalf of beneficial owners as direct and indirect
participants in DTC, Euroclear and Clearstream, Luxembourg. Except as described in this Offering
Memorandum, owners of beneficial interests in the Global Certificates will not be entitled to have the Notes
registered in their names, will not receive or be entitled to receive physical delivery of the Notes in definitive
form and will not be considered holders of the Notes under the Notes and the Agency Agreement.
An application has been made to admit the Notes to listing on the Irish Stock Exchange plc; however, no
assurance can be given that such application will be accepted.
i
In connection with the issue of Notes to be underwritten by the Initial Purchasers, the Initial Purchaser or
Initial Purchasers (if any) named as the stabilising manager(s) (the "Stabilising Manager(s)") (or persons
acting on behalf of any Stabilising Manager(s)) in this Offering Memorandum may over-allot Notes or
effect transactions with a view to supporting the market price of the Notes at a level higher than that
which might otherwise prevail. However, there is no assurance that the Stabilising Manager(s) (or
persons acting on behalf of a Stabilising Manager) will undertake any stabilisation action. Any
stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the
offer of the relevant issue of Notes is made and, if begun, may be ended at any time, but it must end no
later than the earlier of 30 days after the Issue Date (as defined in Condition 6) and 60 days after the date
of the allotment of the relevant Notes. Any stabilisation action or over-allotment must be conducted by
the relevant Stabilising Manager(s) (or persons acting on behalf of any Stabilising Manager(s)) in
accordance with all applicable laws and rules. Notwithstanding anything herein to the contrary, the Bank
may not (whether through over-allotment or otherwise) issue more Notes than have been approved by the
CMB.
Other than the approvals by the CMB, the Notes have not been approved or disapproved by any state securities
commission or any other U.S., Turkish, United Kingdom or other regulatory authority, nor have any of the
foregoing authorities passed upon or endorsed the merits of this Offering or the accuracy or adequacy of this
Offering Memorandum. Any representation to the contrary may be a criminal offence.
The distribution of this Offering Memorandum and the offering of the Notes (and beneficial interests therein) in
certain jurisdictions may be restricted by law. Persons that come into possession of this Offering Memorandum
are required by the Bank and the Initial Purchasers to inform themselves about and to observe any such
restrictions.
This Offering Memorandum does not constitute an offer to sell or the solicitation of an offer to buy the Notes
(or any beneficial interest therein) in any jurisdiction in which such offer or solicitation is unlawful. In
particular, there are restrictions on the distribution of this Offering Memorandum and the offer and sale of the
Notes (and beneficial interests therein) in the United States, Turkey, the United Kingdom and numerous other
jurisdictions.
RESPONSIBILITY STATEMENT
The Issuer accepts responsibility for the information contained in this Offering Memorandum. To the best of the
knowledge and belief of the Issuer (which has taken all reasonable care to ensure that such is the case), the
information contained in this Offering Memorandum is in accordance with the facts and contains no omission
likely to affect the import of such information. This Offering Memorandum has been approved by the Central
Bank of Ireland, which is the competent authority for the purpose of the Prospectus Directive and the relevant
implementing measures in Ireland. The Central Bank of Ireland only approves this Offering Memorandum as
meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive.
The Issuer has derived substantially all of the information contained in this Offering Memorandum concerning
the Turkish market and its competitors, which may include estimates or approximations, from publicly available
information, including press releases and filings made under various securities laws. Unless otherwise indicated,
all data relating to the Turkish banking sector and the Turkish economy, including statistical data, in this
Offering Memorandum have been obtained from the BRSA's website at www.bddk.org.tr, Turkstat's website at
www.turkstat.gov.tr, the Central Bank's website at www.tcmb.gov.tr, the Banks Association of Turkey's website
at www.tbb.org.tr, the Turkish Treasury's website at www.hazine.gov.tr or the Interbank Card Centre's website
at www.bkm.com.tr. Data has been downloaded and/or observed on various days during May and June 2016 and
may be the result of calculations made by the Bank and therefore may not appear in the exact same form on such
websites or elsewhere. Such websites should not be deemed to be a part of, or to be incorporated into, this
Offering Memorandum. Unless otherwise indicated, the sources for statements and data concerning the Bank
and its business are based on best estimates and assumptions of Halkbank's management. Halkbank's
management believes that these assumptions are reasonable and that its estimates have been prepared with due
care. The data concerning the Bank included herein, whether based on external sources or based on Halkbank's
management internal research, constitute Halkbank's management's best current estimates of the information
described.
The BRSA Financial Statements (as defined below) incorporated by reference in this Offering Memorandum are
direct and accurate translations of the Turkish originals. The translations of words and other information from
Turkish into English for the purpose of inclusion in this Offering Memorandum are direct and accurate. In the
event of a discrepancy between the Turkish language source and the English translation, the Turkish language
source prevails.
ii
Where third party information has been used in this Offering Memorandum, the source of such information has
been identified. In the case of the presented statistical information, similar statistics may be obtainable from
other sources, although the underlying assumptions and methodology, and consequently the resulting data, may
vary from source to source. Where information has been sourced from a third party, such publications generally
state that the information they contain has been obtained from sources believed to be reliable, but that the
accuracy and completeness of such information is not guaranteed. Such data, while believed to be reliable and
accurately extracted by the Bank for the purposes of this Offering Memorandum, have not been independently
verified by the Bank or any other party and you should not place undue reliance on such data included in this
Offering Memorandum. Information sourced from third parties has been accurately reproduced and, as far as the
Bank is aware and able to ascertain from the information published by such third party sources, no facts have
been omitted which would render the reproduction of this information inaccurate or misleading.
TURKISH TAX CONSIDERATIONS
All payments in respect of the Notes by or on behalf of the Issuer shall be made without withholding or
deduction for, or on account of, any Taxes (as defined in Condition 9) imposed or levied by or on behalf of a
Relevant Jurisdiction (as defined in Condition 9), unless the withholding or deduction of the Taxes is required
by law. In that event, subject to certain exceptions set forth in the Conditions, the Issuer will pay such additional
amounts as may be necessary in order that the net amounts received by the Noteholders after the withholding or
deduction shall equal the respective amounts which would have been receivable in respect of the Notes in the
absence of such withholding or deduction. See "Conditions of the Notes―9. Taxation". The withholding tax rate
on interest payments in respect of Turkish bonds issued outside of Turkey varies depending on the original
maturity of such bonds as specified under the Decrees. Pursuant to the Decrees, with respect to bonds with a
maturity of 5 years and more, the withholding tax rate on interest is 0%. Accordingly, the withholding tax rate
on interest on the Notes is 0%.
FORWARD-LOOKING STATEMENTS
This Offering Memorandum contains statements that may be considered to be "forward-looking statements" as
that term is defined in the U.S. Private Securities Litigation Act of 1995. Forward-looking statements appear in
a number of places throughout this Offering Memorandum, including, without limitation, under "Risk Factors",
"Use of Proceeds", "Management's Discussion and Analysis of Financial Condition and Results of Operations",
"The Group and its Business" and elsewhere in this Offering Memorandum, and include, but are not limited to,
statements regarding:
•
strategy and objectives;
•
trends affecting the Group's results of operations and financial condition;
•
asset and loan portfolios;
•
loan loss reserve;
•
capital adequacy;
•
legal and regulatory proceedings;
•
Turkish economic trends;
•
developments in the Turkish banking sector; and
•
the Group's potential exposure to risks that might affect the Group's business and operations.
In some cases, forward-looking statements may be identified by words such as "believes", "expects",
"anticipates", "projects", "intends", "plans", "should", "could", "would", "may", "will", "seeks", "estimates",
"probability", "risk", "target", "goal", "objective", "future" or similar expressions or variations on such
expressions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially
from those expressed in these forward-looking statements.
The Bank has identified some of the risks inherent in forward-looking statements under "Risk Factors" in this
Offering Memorandum. Other important factors that could cause the Group's actual results, performance,
achievements or financial condition to differ materially from those in forward-looking statements include,
among others:
•
the impact of economic, political and social developments in Turkey;
•
changes in the banking and financial markets in Turkey;
iii
•
continued economic growth and continued stability of inflation rates in Turkey;
•
existing and future governmental monetary regulations, legislative developments, developments
related to taxation, or accounting standards or practices;
•
changes in the Bank's ownership by Turkish state-controlled entities or other changes in policy by
such entities;
•
changes or volatility in interest rates, foreign exchange rates, asset prices, equity markets,
commodity prices and estimates of the impact of such factors on the Group's financial condition
and results of operations (including with respect to financial assets and liabilities);
•
the Group's ability to manage any mismatches between interest-earning assets and interest-bearing
liabilities;
•
the Group's ability to implement its growth strategy and expand and develop its customer base and
branch network;
•
the Group's ability to expand its loan portfolio at historical rates and maintain asset quality;
•
risks related to significant industry and/or borrower concentrations in the Group's loans and
deposit portfolios;
•
changes in consumer spending, saving and borrowing habits in Turkey, including changes in
government policies which may influence investment decisions;
•
the timely development and acceptance of new financial products and services and the perceived
overall value of these products and services by the Group's clients;
•
the effects of competition in the markets in which the Group operates, which may be influenced by
regulation or deregulation;
•
the Group's ability to compete in its business lines and increase or maintain market shares,
including its ability to compete effectively against other banks in the Turkish banking market;
•
the Group's ability to hedge certain risks economically;
•
the Group's ability to meet capital adequacy or other requirements;
•
the adequacy of the Group's funding sources and liquidity and changes in the Bank's ability to fund
its future operations and capital needs through borrowings or otherwise;
•
the Group's ability to hire and retain key personnel;
•
the failure, interruption in or breach of the Group's information systems;
•
counterparty risk;
•
the Group's ability to control expenses and changes in the Group's operating costs;
•
operational risks;
•
risks related to the Group's risk management strategies and policies;
•
the actual maturity of contractual obligations and commercial commitments;
•
the Group's ability to carry out acquisitions, disposals and any other strategic transactions;
•
the performance of, and the Group's ability to manage, its equity participations;
•
the Group's success in managing the risks involved in the foregoing, which depends, among other
things, on the Bank's ability to anticipate events that cannot be captured by the statistical models
the Bank uses; and
•
force majeure and other events beyond the Group's control.
This list of important factors is not exhaustive. There may be other risks, including risks of which the Bank is
unaware, that could adversely affect the Group's results or the accuracy of forward-looking statements in this
Offering Memorandum. When relying on forward-looking statements, which may be found in "Risk Factors",
"Use of Proceeds", "Management's Discussion and Analysis of Financial Condition and Results of Operations",
"The Group and its Business" and elsewhere in this Offering Memorandum, you should carefully consider the
foregoing factors and other uncertainties and events, especially in light of the political, economic, social and
legal environment in which the Group operates. Such forward-looking statements speak only as of the date on
iv
which they are made. Accordingly, the Group does not undertake any obligation to update or revise any of them,
whether as a result of new information, future events or otherwise. The Group does not make any representation,
warranty or prediction that the results anticipated by such forward-looking statements will be achieved. Such
forward-looking statements represent, in each case, only one of many possible scenarios and should not be
viewed as the most likely or standard scenario.
The forward-looking statements contained in this Offering Memorandum are based on the beliefs of Halkbank's
management, as well as the assumptions made by and information currently available to Halkbank's
management. Although Halkbank's management believes that the expectations reflected in such forward-looking
statements are reasonable, no assurances can be given that such expectations will prove to be correct. Given
these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. Important
factors that could cause actual results to differ materially from Halkbank's management's expectations are
contained in cautionary statements in this Offering Memorandum, including, without limitation, in conjunction
with the forward-looking statements included in this Offering Memorandum and specifically under "Risk
Factors" and above. In addition, under no circumstances should the inclusion of such forward-looking
statements in this Offering Memorandum be regarded as a representation or warranty by the Group, the
Privatization Administration, the Initial Purchasers or any other person with respect to the achievement of the
results set out in such statements or that the underlying assumptions used will in fact be the case. If any of these
risks and uncertainties materialise, or if any of these underlying assumptions prove to be incorrect, the Group's
actual results of operations or financial condition could differ materially from that described herein as
anticipated, believed, estimated or expected.
All subsequent written and oral forward-looking statements attributable to the Group are expressly qualified in
their entirety by reference to these cautionary statements.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
The Bank and its Turkish subsidiaries maintain their books of account and prepare their statutory financial
statements in Turkish Lira in accordance with the Turkish Banking Law as approved by the Turkish Parliament
on 19 October 2005 and published in the Official Gazette on 1 November 2005 (the "Banking Law"), the
"Regulation on Accounting Applications for Banks and Safeguarding of Documents" published in the Official
Gazette No. 26333 dated 1 November 2006, which refers to Turkish Accounting Standards and Turkish
Financial Reporting Standards issued by the Turkish Accounting Standards Board, and additional explanations
and notes related to them and other decrees, notes and explanations related to accounting and financial reporting
principles published by the BRSA and other relevant rules promulgated by the Turkish Commercial Code (Law
No. 6102) (the "TCC"), the CMB and Turkish tax regulations (such laws, regulations, decrees, notes and
explanations taken together, "BRSA Reporting Standards"). The statutory financial statements are prepared
both on an unconsolidated "Bank-only" basis and on a consolidated basis with its financial subsidiaries and are
provided to the CMB, the BRSA and the Borsa İstanbul (the "BIST") in accordance with applicable regulations.
The Bank's foreign subsidiaries and foreign branch in Bahrain maintain their books of accounts and prepare
their statutory financial statements in accordance with the statutory rules and regulations applicable in their
jurisdictions.
None of the BRSA Financial Statements (as defined below) have been prepared in accordance with International
Financial Reporting Standards ("IFRS"), including International Accounting Standards ("IAS") as promulgated
by the International Accounting Standards Board ("IASB"). BRSA Reporting Standards differ in certain
respects from IFRS. For example, provisioning for loan losses in accordance with BRSA Reporting Standards is
different from provisioning for loan losses in accordance with IFRS (IAS 39) and is based on prescribed
minimum provisioning levels (as a percentage of the loan amount) based on the number of days overdue,
whereas provisioning for loan losses in accordance with IFRS is based on the present value of future cash flows
discounted at original effective interest rates.
Although the Group is not required by Turkish law to prepare financial statements in accordance with IFRS, the
Group has historically prepared annual and semi-annual financial statements that have been prepared and
presented in accordance with IFRS.
While BRSA Accounting and Reporting Regulation has been converging with IFRS over recent years, such
regulation still differs in certain respects from IFRS, and the Group does not prepare, and the Bank is not
providing in this Offering Memorandum, any reconciliation between IFRS and the BRSA Reporting Standards
or the BRSA Financial Statements. For a discussion of certain key differences between IFRS and BRSA
Reporting Standards, see "Appendix A—Summary of Differences Between IFRS and BRSA Reporting Standards".
With the exception of the key differences set forth in Appendix A hereto, the Bank directs any investor
concerned with the differences between IFRS and BRSA Reporting Standards to consult its own advisors.
v
Unless otherwise specified, financial information contained or incorporated by reference in this Offering
Memorandum has been prepared, in respect of the Group, in accordance with BRSA Reporting Standards on a
consolidated basis (referred to herein as "BRSA consolidated") and, in respect of the Bank, in accordance with
BRSA Reporting Standards on an unconsolidated basis (referred to herein as "Bank-only" or "BRSA
unconsolidated"). For a summary of the differences between BRSA consolidated and unconsolidated figures,
see "Appendix B—Summary of Differences Between BRSA Consolidated and Unconsolidated Figures".
The "Conditions of the Notes" refers to the Group's financial statements prepared and presented in
accordance with IFRS, whereas the financial information referred (unless stated otherwise) in the rest of
this Offering Memorandum is provided pursuant to BRSA Reporting Standards.
The financial statements incorporated by reference in this Offering Memorandum consist of:
•
the unaudited consolidated financial statements of the Group as of and for the three months ended 31
March 2016 (including comparative financial statements for the three months ended 31 March 2015
and as of 31 December 2015) and the notes thereto, prepared in accordance with BRSA Reporting
Standards, together with the independent auditor's review report thereon (the "Interim Consolidated
BRSA Financial Statements");
•
the audited consolidated financial statements of the Group as of and for the year ended 31 December
2015 (including comparative financial statements as of and for the year ended 31 December 2014) and
the notes thereto, prepared in accordance with BRSA Reporting Standards, together with the
independent auditor's report thereon (the "2015 Consolidated BRSA Financial Statements");
•
independent auditor's report thereon (the "2014 Consolidated BRSA Financial Statements");
•
independent auditor's report thereon (the "2013 Consolidated BRSA Financial Statements" and,
together with the Interim Consolidated BRSA Financial Statements, the 2015 Consolidated BRSA
Financial Statements and the 2014 Consolidated BRSA Financial Statements, the "BRSA
Consolidated Financial Statements");
•
the unaudited unconsolidated financial statements of the Bank as of and for the three months ended 31
Standards, together with the independent auditor's review report thereon (the "Interim Unconsolidated
BRSA Financial Statements");
•
the audited unconsolidated financial statements of the Bank as of and for the year ended 31 December
independent auditor's report thereon (the "2015 Unconsolidated BRSA Financial Statements");
•
independent auditor's report thereon (the "2014 Unconsolidated BRSA Financial Statements");
•
independent auditor's report thereon (the "2013 Unconsolidated BRSA Financial Statements" and,
together with the Interim Unconsolidated BRSA Financial Statements, the 2015 Unconsolidated BRSA
Financial Statements and the 2014 Unconsolidated BRSA Financial Statements, the "BRSA
Unconsolidated Financial Statements");
•
the notes thereto, prepared in accordance with IFRS, together with the independent auditor's report
thereon (the "2015 Consolidated IFRS Financial Statements");
vi
•
thereon (the "2014 Consolidated IFRS Financial Statements"); and
•
thereon (the "2013 Consolidated IFRS Financial Statements" and, together with the 2015
Consolidated IFRS Financial Statements and the 2014 Consolidated IFRS Financial Statements, the
"IFRS Consolidated Financial Statements").
Collectively, the BRSA Consolidated Financial Statements and the BRSA Unconsolidated Financial Statements
are referred to herein as the "BRSA Financial Statements".
Certain financial and other information presented in various tables in this Offering Memorandum, including
certain tables in "Selected Statistical and Other Information", have been prepared on the basis of the Bank's own
internal accounts, statistics and estimates, and are unaudited. The Initial Purchasers are not responsible for the
completeness or accuracy of, and investors are cautioned against placing undue reliance upon, such information.
Unless otherwise indicated, references to "TL" with respect to the BRSA Financial Statements are references to
the Turkish currency rounded to the nearest thousand. Unless otherwise indicated, references to "U.S.$", "$",
"U.S. Dollars" or "Dollars" in this Offering Memorandum are to United States Dollars rounded to the nearest
million. Unless otherwise indicated, references to "EUR", "Euro" and "€" are to the single currency of the
participating member states of the European Union (the "EU") that was adopted pursuant to the Treaty of Rome
of 27 March 1957, as amended by the Single European Act 1986 and the Treaty on European Union of
7 February 1992, as amended.
For the convenience of the reader, this Offering Memorandum presents translations of certain Turkish Lira
amounts into Dollars at the Turkish Lira exchange rates for purchases of Dollars announced by the Central Bank
(the "TL/$ Exchange Rate"). See "Exchange Rates". No representation is made that the Turkish Lira or Dollar
amounts in this Offering Memorandum could have been or could be converted into Dollars or Turkish Lira, as
the case may be, at any particular rate or at all. For a discussion of the effects on the Bank of fluctuating
exchange rates, see "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Certain figures included in this Offering Memorandum have been subject to rounding adjustments. Accordingly,
figures shown for the same category presented in different tables may vary slightly and figures shown as totals
in certain tables may not be an arithmetic aggregation of the figures that precede them.
Unless otherwise indicated, the sources for statements and data concerning the Bank and its business are based
on best estimates and assumptions of Halkbank's management. Halkbank's management believes that these
assumptions are reasonable and that its estimates have been prepared with due care. The data concerning the
Bank included herein, whether based on external sources or based on Halkbank's management internal research,
constitutes Halkbank's management's best current estimates of the information described.
Independent Auditor
Akis Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (the Turkish member firm of KPMG
International Cooperative, a Swiss entity) ("KPMG") was appointed as the Bank's external auditors as of
9 February 2010.
The Interim Consolidated BRSA Financial Statements and the Interim Unconsolidated BRSA Financial
Statements (together, the "Interim BRSA Financial Statements") have been reviewed by KPMG. KPMG's
review reports attached to such financial statements note that KPMG applied limited procedures in accordance
with professional standards for a review of interim financial information; KPMG's review reports also state that
KPMG did not audit and they do not express an opinion on such interim financial information. Accordingly, the
degree of reliance on their review reports should be restricted in light of the limited nature of the review
procedures applied. The interim financial information extracted from the Interim BRSA Financial Statements is
subject to any adjustments that may be necessary as a result of the audit process to be undertaken in respect of
the 2016 financial year of the Group and the Bank. Nothing in this paragraph should be taken as implying that
the Bank does not take responsibility for the information contained or incorporated by reference in this Offering
Memorandum.
The 2015 Consolidated BRSA Financial Statements, the 2014 Consolidated BRSA Financial Statements, the
2013 Consolidated BRSA Financial Statements, the 2015 Unconsolidated BRSA Financial Statements, the 2014
vii
Unconsolidated BRSA Financial Statements and the 2013 Unconsolidated BRSA Financial Statements
(collectively, the "Annual BRSA Financial Statements") have been audited by KPMG in accordance with
Turkish Auditing Standards published by the Public Oversight Accounting and Auditing Standards Authority.
The KPMG audit reports in relation to the 2015 Consolidated BRSA Financial Statements, the 2015
Unconsolidated BRSA Financial Statements, the 2013 Consolidated BRSA Financial Statements and the 2013
Unconsolidated BRSA Financial Statements each included a qualification as such financial statements included
a general provision and general provisions are not recognised under BRSA Reporting Standards. Halkbank's
management elected to take these general provisions in light of potential negative circumstances that might arise
from any change in the economy or market conditions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations—Significant Factors Affecting the Group's Financial Condition
and Results of Operations—Provisioning" and the KPMG audit reports in relation to the 2015 Consolidated
BRSA Financial Statements, the 2015 Unconsolidated BRSA Financial Statements, the 2013 Consolidated
BRSA Financial Statements and the 2013 Unconsolidated BRSA Financial Statements.
NON-GAAP MEASURES OF FINANCIAL PERFORMANCE
To supplement the Group's consolidated financial statements presented in accordance with BRSA Reporting
Standards, Halkbank's management uses certain ratios and measures included in this Offering Memorandum that
would be considered non-GAAP financial measures in the United States. A body of generally accepted
accounting principles such as BRSA Reporting Standards or IFRS is commonly referred to as "GAAP". NonGAAP financial measures are financial measures that measure historical or future financial performance,
financial position or cash flows but that exclude or include amounts that would not be so excluded or included in
the most comparable GAAP measures. These non-GAAP financial measures are not a substitute for GAAP
measures, for which Halkbank's management has responsibility.
For the Group, such non-GAAP measures include: yield, net interest margin, net interest spread, cost to income
ratio, operating expenses to total average assets ratio, return on average total assets, return on average
shareholders' equity, dividend payout ratio, loans to total deposits, loans to total assets, securities to total assets,
deposits to total liabilities, non-performing loans to total cash loans, loan losses reserves to non-performing
loans and non-performing loans excluding pre-2001 NPLs, among others. See "Selected Financial and Other
Information—Key Ratios and Other Information" for a description of how these non-GAAP measures are
calculated.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial
information presented in compliance with BRSA Reporting Standards or IFRS. Non-GAAP financial measures
as reported by the Group may not be comparable to similarly titled amounts reported by other companies. These
non-GAAP financial measures are used in the internal management of the Group, as well as generally in the
Turkish banking industry, along with the most directly comparable GAAP financial measures, in evaluating
operating performance. Halkbank's management believes that these non-GAAP financial measures, when
considered in conjunction with GAAP financial measures, enhance investors' and management's overall
understanding of the Group's financial performance. In addition, because the Group has historically reported
certain non-GAAP results to investors, Halkbank's management believes the inclusion of non-GAAP financial
measures provides consistency in the Group's financial reporting.
ENFORCEMENT OF JUDGMENTS AND SERVICE OF PROCESS
The Bank is a public joint stock company organised under the laws of Turkey. All or substantially all of the
directors and officers of the Bank named herein reside inside Turkey and all or a significant portion of the assets
of such persons may be, and substantially all of the assets of the Bank are, located in Turkey. As a result, it may
not be possible for investors to effect service of process upon such persons or entities outside Turkey or to
enforce against them in the courts of jurisdictions other than Turkey any judgments obtained in such courts that
are predicated upon the laws of such other jurisdictions. In order to enforce such judgments in Turkey, investors
should initiate enforcement lawsuits before the competent Turkish courts. In accordance with Articles 50-59 of
Turkey's International Private and Procedure Law (Law No. 5718), the courts of Turkey will not enforce any
judgment obtained in a court established in a country other than Turkey unless:
(a)
there is in effect a treaty between such country and Turkey providing for reciprocal enforcement of court
judgments,
(b)
there is de facto enforcement in such country of judgments rendered by Turkish courts; or
(c)
there is a provision in the laws of such country that provides for the enforcement of judgments of Turkish
courts.
viii
There is no treaty between Turkey and the United States or Turkey and the United Kingdom providing for
reciprocal enforcement of judgments. There is no de facto reciprocity between Turkey and the United States.
Turkish courts have rendered at least one judgment in the past confirming de facto reciprocity between Turkey
and the United Kingdom. However, since de facto reciprocity is decided by the relevant court on a case-by-case
basis, there is uncertainty as to the enforceability of court judgments obtained in the United States or the United
Kingdom by Turkish courts in the future. Moreover, there is uncertainty as to the ability of an investor to bring
an original action in Turkey based on the U.S. federal or any other non-Turkish securities laws.
In addition, the courts of Turkey will not enforce any judgment obtained in a court established in a country other
than Turkey if:
(a)
the defendant was not duly summoned or represented or the defendant's fundamental procedural rights
were not observed;
(b)
the judgment in question was rendered with respect to a matter within the exclusive jurisdiction of the
courts of Turkey;
(c)
the judgment is incompatible with a judgment of a court in Turkey between the same parties and relating
to the same issues or, as the case may be, with an earlier foreign judgment on the same issue and
enforceable in Turkey;
(d)
the judgment is not of a civil nature;
(e)
the judgment is clearly against public policy rules of Turkey;
(f)
the court rendering the judgment did not have jurisdiction to render such judgment;
(g)
the judgment is not final and binding with no further recourse for appeal under the laws of the country
where the judgment has been rendered; or
(h)
the judgment was rendered by a foreign court that has deemed itself competent even though it has no
actual relationship with the parties or the subject matter at hand.
In connection with the issuance of Notes, Halkbank will designate Law Debenture Corporate Services Limited
as its agent upon whom process may be served in connection with any proceedings in England.
AVAILABLE INFORMATION
To permit compliance with Rule 144A in connection with resales of the Notes, for as long as the Notes are
"restricted securities" within the meaning of Rule 144(a)(3) under the U.S. Securities Act, Halkbank is required
to furnish, upon request of a holder of the Notes or a prospective purchaser designated by such holder, the
information required to be delivered under Rule 144A(d)(4) if, at the time of such request, Halkbank is neither a
reporting company under Section 13 or Section 15(d) of the U.S. Securities Exchange Act of 1934, as amended
(the "U.S. Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder.
ix
TABLE OF CONTENTS
OVERVIEW ......................................................................................................................................... 1
RISK FACTORS ................................................................................................................................ 12
DOCUMENTS INCORPORATED BY REFERENCE...................................................................... 36
SELECTED FINANCIAL AND OTHER INFORMATION ............................................................. 38
USE OF PROCEEDS ......................................................................................................................... 42
EXCHANGE RATES ......................................................................................................................... 43
CAPITALISATION OF THE GROUP .............................................................................................. 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ........................................................................................................... 45
SELECTED STATISTICAL AND OTHER INFORMATION ......................................................... 70
THE GROUP AND ITS BUSINESS .................................................................................................. 89
RISK MANAGEMENT.................................................................................................................... 114
MANAGEMENT .............................................................................................................................. 131
OWNERSHIP ................................................................................................................................... 141
TURKISH BANKING SYSTEM ..................................................................................................... 142
TURKISH REGULATORY ENVIRONMENT ............................................................................... 144
CONDITIONS OF THE NOTES ..................................................................................................... 166
THE GLOBAL CERTIFICATES ..................................................................................................... 178
BOOK-ENTRY CLEARANCE SYSTEMS ..................................................................................... 180
TAXATION ...................................................................................................................................... 182
CERTAIN ERISA CONSIDERATIONS ......................................................................................... 186
PLAN OF DISTRIBUTION ............................................................................................................. 188
ADDITIONAL SELLING RESTRICTIONS ................................................................................... 190
TRANSFER RESTRICTIONS ......................................................................................................... 191
LEGAL MATTERS .......................................................................................................................... 194
OTHER GENERAL INFORMATION ............................................................................................. 195
APPENDIX A SUMMARY OF DIFFERENCES BETWEEN IFRS AND BRSA REPORTING
STANDARDS
APPENDIX B SUMMARY OF DIFFERENCES BETWEEN BRSA CONSOLIDATED AND
UNCONSOLIDATED FIGURES
x
OVERVIEW
Overview of the Group
The following overview should be read in conjunction with, and is qualified in its entirety by, the detailed
information appearing elsewhere or incorporated by reference in this Offering Memorandum, including,
without limitation, in the BRSA Financial Statements, including the notes thereto.
General
Halkbank is a full-service commercial and retail banking group and provides a broad range of products and
services to more than 8.8 million retail, small and medium sized enterprise ("SMEs") and commercial and
corporate customers across Turkey and select international markets. Halkbank's name has been associated with
tradesmen, artisans and other SMEs in Turkey since 1938, and SMEs remain at the core of the Group's customer
base today, although the Group has, since its establishment, also expanded its business into additional segments.
Halkbank offers services to its customers through a nationwide branch network, which as of 31 March 2016
consisted of 951 domestic branches (with at least one branch in every province of Turkey).
According to the Banks Association of Turkey, as of 31 March 2016, Halkbank was the sixth largest bank in
Turkey in terms of total assets (TL 195.3 billion), the sixth largest in terms of loans (TL 132.7 billion), the sixth
largest in terms of deposits (TL 125.8 billion) and the fifth largest in terms of numbers of branches. As of 31
March 2016, Halkbank had a total of 17,158 employees including 51 employees outside of Turkey.
According to data published by the BRSA, Halkbank's market share in Turkey in loans and assets was 8.6% and
8.2% respectively as of 31 March 2016. On a Bank-only BRSA basis, the Bank's loans and receivables
increased to TL 132.7 billion as of 31 March 2016, from TL 126.7 billion as of 31 December 2015, representing
a growth rate of 4.7%. As of 31 March 2016 and according to data published by the BRSA, Halkbank had a
9.8% market share in the deposit market in Turkey, with total deposits of TL 125.9 billion, representing 64.4%
of Halkbank's total liabilities and shareholders' equity. It was the second largest bank in Turkey in terms of TL
deposits (11.2% market share), the fifth largest in terms of branches (8.5% market share) and the sixth largest in
terms of loans (8.6% market share), assets (8.2% market share) and foreign currency deposits (7.9% market
share). On a Bank-only BRSA basis, the Bank had a loans to total deposits ratio (including deposits from banks
and deposits from customers) of 105.4%, 103.8% and 101.4% as of 31 March 2016, 31 December 2015 and 31
March 2015, respectively, which was low compared to the Turkish banking sector which had a loans to total
deposits ratio of 119.1%, 119.2% and 118.6% as of 31 March 2016, 31 December 2015 and 31 March 2015,
respectively. In addition, on a Bank-only BRSA basis, as of 31 March 2016, the Bank had a market share with
respect to housing loans, consumer loans, retail loans and credit card loans of 8.6%, 7.8%, 7.0% and 3.4%,
respectively.
As of 31 March 2016 and on a Bank-only BRSA basis, the Bank's return on average equity and return on
average assets were 13.7% and 1.4%, respectively, while the corresponding rates of return for the Turkish
banking sector during the same period were 12.3% and 1.4%, respectively, according to data published by the
BRSA. As of 31 December 2015 and on a Bank-only BRSA basis, the Bank's return on average equity and
return on average assets were 13.0% and 1.3%, respectively, while the corresponding rates of return for the
Turkish banking sector during the same period were 10.5% and 1.2%, respectively, according to data published
by the BRSA.
Halkbank has five principal businesses: SME Banking, Corporate and Commercial Banking, Retail Banking,
Treasury Management and International Banking. In addition, Halkbank, through its subsidiaries and other
companies in which Halkbank has an interest, provides, among other services, brokerage, insurance, leasing,
factoring, real estate investment, fund and portfolio management, and overseas banking services.
SME Banking. Halkbank has a leading SME franchise in Turkey. Halkbank's principal products and services
provided to SMEs include deposits, investment and working capital loans, specialised loans (including
cooperative loans and fund loans, some of which are unique to Halkbank in the Turkish banking sector), noncash loans (i.e., guarantees and letters of credit), treasury products and cash management services. As of 31
December 2015 and on a Bank-only BRSA basis, Halkbank's loans and receivables to SME borrowers
comprised 39% of its total loans and receivables. Halkbank's management believes that the SME sector accounts
for the largest single segment of the Turkish GDP and that the SME sector is still underserviced and
underpenetrated in terms of financial service products. As of 31 December 2015, Halkbank had approximately
1.2 million SME customers (which Halkbank classifies as businesses with annual turnover of TL 40 million or
less). Of Halkbank's 1.2 million SME customers, approximately 760,000 are artisans, craftsmen and tradesmen,
many of whom are members of credit union cooperatives that have strong relationships with Halkbank.
1
Corporate and Commercial Banking. Halkbank's Corporate and Commercial Banking operations provide
corporate and commercial customers with loans, commercial finance, financial services related to import and
export transactions, treasury management services, international banking services, financial intermediation
services (provided through Halkbank's subsidiaries or other companies in which Halkbank has an interest) and
asset management. One of Halkbank's strengths has been its deposit base, which has enabled it to provide
competitive corporate lending services. As of 31 December 2015, Halkbank had over 4,100 commercial
customers (which Halkbank classifies as businesses with annual turnover of between TL 40 million and TL 150
million) and over 1,700 corporate customers (which Halkbank classifies as businesses with annual turnover of
TL 150 million or more). As of 31 December 2015 and on a Bank-only BRSA basis, Halkbank's loans and
receivables to corporate and commercial borrowers comprised 39% of its total loans and receivables.
Retail Banking. Halkbank's retail banking operations provide retail customers with retail loans, deposit banking,
debit card and credit card services, payroll accounts, utility and other payment systems. As of 31 December
2015, Halkbank had approximately 7.6 million retail customers (out of Halkbank's approximately 8.8 million
total customers). As of 31 December 2015, the Group's savings deposits represented 28.7% of total deposits.
Halkbank is also active in the retail loan market, which has grown significantly in Turkey since 2009. As of 31
December 2015, Halkbank had more than 1.1 million retail borrowers and 1.8 million credit card customers. As
of 31 December 2015 and on a Bank-only BRSA basis, Halkbank's loans and receivables to retail borrowers
comprised 22% of its total loans and receivables.
Treasury Management. Halkbank's Treasury Management department's key role is to manage the Group's assets
and liabilities, funding and liquidity risk. The Treasury Management department deals with foreign currencies,
money market instruments, fixed income securities transactions and currency swaps. The Treasury Management
department also manages the Group's investment securities portfolio, which recently has included an increased
percentage of consumer price index-linked securities issued by the Turkish Government ("CPI-Linked
Securities"). Although Halkbank's treasury management activities are primarily focused on asset and liability
management for the Group, the Treasury Management department also generates profits as one of the 13
primary dealers of Turkish Government bonds, through its management of mutual funds offered to customers
and in its participation in the repurchase agreement market.
International Banking. Halkbank's International Banking operations provide letters of credit, letters of guarantee,
export and import financing and structured financing products, and also support customers in the area of
medium and long-term capital goods financing under the export credit agency insurance schemes offered by
many countries. Through its collaborations with multinational development agencies, the International Banking
division also helps Halkbank gain access to long-term funding commitments to support its lending to its SME
customers. In addition to having correspondent relations with approximately 2,000 bank head offices and their
foreign branches around the world, the Group has four branches in the Turkish Republic of Northern Cyprus and
one branch in Bahrain. Halkbank also has representative offices in London, United Kingdom, Tehran, Iran and
Singapore which do not conduct, and are not authorised to conduct, any lending or deposit taking activities. In
addition, as of 31 March 2016, Halkbank owned 98.78% of the shares of a banking subsidiary in Macedonia
named Halkbank A.D., Skopje, 82.47% of the shares of a banking subsidiary in Serbia named Halkbank A.D,
Beograd, and also owned 30.00% of the shares of Demir Halkbank (Nederland) N.V., a bank operating
primarily in the Netherlands. The Bank intends to expand its international presence.
History and Principal Shareholder
Halkbank was established in 1933 pursuant to a statute passed by the Turkish Parliament and became
operational in 1938. In November 2000, Law 4603 was enacted, pursuant to which state-owned banks were
required to prepare themselves for eventual privatisation. Under this law, it was agreed that Halkbank's
organisational structure would be revised and its employees would be subject to private law provisions.
In 2004, Halkbank merged with Pamukbank. The merger with Pamukbank significantly strengthened
Halkbank's retail banking capabilities, provided it with a more technologically advanced IT system (MISTRAL),
which was deployed throughout Halkbank's networks, and created other synergies from the combination and
rationalisation of the operations of the two banks.
In May 2007, the Privatization Administration sold 25% of its shareholding in Halkbank through an initial
public offering and a listing on the BIST. Immediately after such offering and listing, the Privatization
Administration owned 75.03% of the outstanding share capital of Halkbank and the public free float of
Halkbank's shares on the BIST corresponded to 24.98% of Halkbank's outstanding shares.
In November 2012, the Privatization Administration sold 24% of its shareholding in Halkbank through a followon public offering and listing on the BIST. The offering was the largest public share offering to ever be
conducted on the BIST. As of the date of this Offering Memorandum, the Privatization Administration owns
2
51.06% of the outstanding share capital of Halkbank and the public free float of Halkbank's shares on the BIST
corresponds to 48.93% of Halkbank's outstanding shares.
Strengths
Halkbank's management believes Halkbank has a number of key strengths. These strengths include:
•
Fast growing and attractive Turkish market. With approximately 78.7 million inhabitants as of
31 December 2015, Turkey is the second largest European country by population and its
population continues to grow. Approximately 50% of the population is below the age of 30. In
2015, Turkey had, according to Turkstat, 1.3% population growth compared to the EU average of
0.3%. Turkish GDP grew by 4.0% in 2015 and 3.0% in 2014 according to data published by
Turkstat, compared to, according to Eurostat, a GDP growth rate in the EU of 2.0% in 2015 and of
1.4% in 2014. According to data published by the BRSA, the Turkish banking sector grew as well,
with a 18.2% and 15.1% increase in total banking assets, a 19.7% and 18.5% increase in loans and
17.9% and 11.1% growth in deposits, respectively, for the year ended 31 December 2015 and the
year ended 31 December 2014. Halkbank's management believes that growth prospects of the
Turkish banking market will benefit from the relatively low levels of banking penetration. As of 31
December 2015, Turkey's loan to GDP ratio was 69%, its deposits to GDP ratio was 59%, its
mortgage loans to GDP ratio was 7% and its assets to equity multiple was 8.9. Halkbank's
management believes that this relatively low level of banking penetration will give Turkish banks
the opportunity to continue to expand and broaden their customer and asset base.
•
Leading SME franchise. Halkbank has a leading SME franchise in Turkey and its name has been
associated with artisans, craftsmen, tradesmen and other SMEs in Turkey since 1938. As a result
of this long-standing market position, SMEs remain at the core of the Group's customer base today.
As of 31 December 2015 and on a Bank-only BRSA basis, Halkbank's loans and receivables to
SME borrowers comprised 39% of its total loans and receivables. In particular, Halkbank currently
has the exclusive right to provide cooperative loans to artisans, craftsmen, tradesmen and other
SMEs through a network of credit union cooperatives under the Turkish Treasury's programme to
subsidise loans to these organisations. Halkbank's cooperative loans are mandatorily guaranteed by
the credit union cooperatives. In December 2015, Halkbank had approximately 353,000 customers
who are members of over 981 different credit union cooperatives throughout Turkey. In addition,
Halkbank has been able to obtain access to low-cost and long-term funding from multinational
development agencies, such as the World Bank, the European Investment Bank, and the French
Development Agency, to support Halkbank's loans and receivables to SMEs. Also, in order to help
reduce their borrowing costs, Halkbank's loans to SMEs (as defined by the Turkish Government as
enterprises with less than TL 40 million in annual turnover and less than 250 employees) operating
in the manufacturing sector are exempt from a banking insurance transaction tax of 5% of interest
expense on such loans.
•
Strong capitalisation. Despite intense competition in the Turkish banking sector, the Group has
maintained its strong capital position in recent periods. The Group has a strong capital base which
is mostly in the form of core capital accumulated by high profit generation and a relatively stable
deposit base without any issuances of subordinated loans. The Bank's unconsolidated total capital
ratio, computed under Basel III, was 13.7% as of 31 March 2016 (13.8% as of 31 December 2015).
In addition, the Bank's shareholder equity increased by 17.5% to TL 19.4 billion as of 31
December 2015 compared to TL 16.5 billion as of 31 December 2014. As of 31 March 2016, the
Bank's shareholder equity was TL 20.4 billion.
•
Well-established nationwide franchise and distribution platform. Halkbank has one of the largest
customer franchises in Turkey, with approximately 8.8 million customers, which includes 7.6
million retail customers and approximately 1.2 million SME, commercial and corporate customers.
As of 31 March 2016 and according to data published by the BRSA, Halkbank operated the fifth
largest branch network in Turkey, with 951 domestic branches. One of Halkbank's competitive
advantages is that, in addition to its network of 201 branches in Istanbul and 154 branches in
Ankara and İzmir (which Halkbank plans to continue to expand), Halkbank also has an extensive
branch network throughout the rest of Turkey, with 589 of Halkbank's branches located outside of
these three cities. Moreover, Halkbank has a prominent presence across Anatolia, which
Halkbank's management believes represents an expansion opportunity given the less intense
competition and lower banking penetration in that region. As of 31 December 2015, Halkbank also
had 3,585 ATMs nationwide, as well as other alternative distribution channels such as Internet,
3
telephone and SMS banking. As of 31 December 2015, approximately 89% of all customer
transactions processed by the Group were made through its alternative distribution network.
•
Strong funding structure. One of Halkbank's key strengths is its relatively low-cost funding
structure, supported by a large, stable deposit base. On a Bank-only BRSA basis, Halkbank's total
deposits were TL 125.9 billion as of 31 March 2016 (TL 122.1 billion as of 31 December 2015),
representing 64.4% as of 31 March 2016 (65.1% as of 31 December 2015) of the Bank's total
liabilities and shareholders' equity. On a Bank-only BRSA basis, Halkbank's time deposit ratio,
which is defined as the rollover ratio of the Bank's time deposits, was 82.3% as of 31 March 2016
(83.2% as of 31 December 2015). On a Bank-only BRSA basis, 13.67% of total deposits from
customers were low-cost demand deposits as of 31 March 2016 (14.08% as of 31 December 2015).
On a Bank-only BRSA basis, the Bank's loans to total deposits ratio was 105.4% as of 31 March
2016 (103.8% as of 31 December 2015), which was low compared to both the sector average of
118.6% and its principal Turkish bank competitors' average of 107.6%, and Halkbank's
management believes that the Group's balance sheet offers additional potential to fund further
growth in loans and receivables. Halkbank's management also believes that Halkbank was
relatively less impacted than many of its competitors by the actions of the Central Bank to limit
loan growth. Halkbank maintained a prudent asset liability policy that allowed it to access less
costly funding from the Central Bank through repurchase transactions because of the size of its
Turkish Government securities portfolio.
•
Prudent credit assessment and high asset quality. On a Bank-only basis, the Bank had a TL 4.1
billion non-performing loan ("NPL") portfolio as of 31 March 2016 (compared to TL 3.97 billion,
TL 3.70 billion and TL 2.25 billion as of 31 December 2015, 2014 and 2013, respectively) and the
Bank's NPL portfolio accounted for 3.0% of its total gross loan portfolio as of 31 March 2016
(3.1% as of 31 December 2015). Halkbank's management believes that relatively low NPL
formation has been enhanced by its long-standing experience with its SME customers. Unlike
certain other institutions in the Turkish banking sector, Halkbank has not written-off or sold to
third parties any of its non-performing loans. A significant portion of the Group's non-performing
loans date from 2001 and earlier, and were classified as NPLs in the aftermath of the economic
crisis in Turkey in 2000-2001 and subsequent reorganisation of state banks. Excluding these
legacy NPLs, the Group's NPL ratio would be lower.
Strategy
Halkbank's primary objectives are as follows: (i) to further strengthen its SME franchise; (ii) to increase its
market share in retail banking, including continuing to increase the credit card services it offers via its own
credit card brand, "Paraf"; and (iii) to achieve further growth while preserving profitability, low cost funding
and efficiency. The detailed actions Halkbank is taking in order to implement its primary objectives are as
follows:
•
Continue to Strengthen the Group's SME Franchise. Halkbank's management believes that the
SME sector accounts for the largest single segment of the Turkish GDP, is still underserviced and
underpenetrated in terms of financial service products, and offers significant growth opportunities.
In order to expand its existing SME customer base, Halkbank intends to capitalise on its SME
banking experience, and to increase its SME customer base by:
•
Expanding relationship with existing SME customers. Halkbank intends to continue expanding
its relationship with existing SME customers by offering value-added services, such as ongoing technical information and financial consultancy, and increasing cross-selling of both
core banking products and additional financial services, including short-term and long-term
loans, deposit products, treasury products, insurance products and payment services through
both general marketing and one-on-one communication. In addition, Halkbank plans to
increase its SME customer base by providing competitively priced ancillary financial services,
such as foreign exchange, trade finance, derivative products and pension fund services.
Halkbank also plans to continue to offer a number of special types of loans to its SME
customers in order to address their particular needs (including loans tied to seasonal and other
factors).
•
Meeting the needs of SMEs. Halkbank intends to meet the needs of SMEs seeking to obtain
long-term funding by combining its expertise in SME project assessment and its strong track
record of accessing long-term financing with favourable interest rates from multinational
development agencies such as the World Bank, the European Investment Bank, and the
French Development Agency.
4
•
•
Continuing regular collaboration with chambers and unions. Halkbank intends to continue to
collaborate regularly with Chambers of Commerce, the Union of Chambers and Commodity
Exchanges of Turkey, local unions of craftsmen and artisans and the Small and Medium
Industry Development Organisation to further develop its SME customer base.
Increase its Market Share in Retail Banking. Halkbank intends to further develop its retail
customer base by focusing on customer segmentation and continuing to develop and offer
additional products and services to its retail customers to address their particular needs. Halkbank
intends to increase its retail customer base by:
•
Better utilising its national branch network to cross-sell products to existing customers.
Halkbank seeks to cross-sell additional value-added products to retail customers. Since the
Group has a high proportion of depositors with relatively large balances Halkbank's
management believes Halkbank can offer tailor-made retail products to its growing retail
customer base and believes that its retail customers have not been fully utilised for
cross-selling to date.
•
Designing and developing new retail loan products to enable it to further expand its retail
loan portfolio. Halkbank has been introducing many innovative products, including
specialised products for different vocational groups with different needs. Halkbank now aims
to extend its products to new, relatively higher-income customers (including payroll and other
retail customers) through initiatives such as Halkbank's "Ready Credit Package" which allows
select customers to be pre-approved for personal, vehicle and housing loans.
•
Continuously monitoring legal, financial and sectoral improvements and being one of the first
banks that provides solutions to its customers. In May 2012, the Urban Transformation Law,
entered into force. Its major aim is to demolish and re-construct old and damaged buildings
and ensure greater safety in the event of a significant earthquake. Accordingly Halkbank
signed a private loan agreement with the Ministry of Environment and Urban Planning and
designed new loan products for the reconstruction of collapsed buildings, for tenants and
landholders and for building reinforcement. The customers using Halkbank's Urban
Transformation credits will benefit from low interest rates with the support of the ministry.
•
Continuing to increase the credit card services that it offers via its own credit card brand
"Paraf". Halkbank introduced a loyalty program for its own credit card brand, "Paraf", during the
fourth quarter of 2012. As part of this introduction, Halkbank engaged in advertising and
marketing activities to promote this new brand of credit card services. Since the launch of the
Paraf product, Halkbank has seen significant increases in the number of credit cards issued, the
number of merchant points of service, and in issuer and acquirer volumes. The number of credit
cards issued increased by 1.0% from 3,793,671 as of 31 December 2015 to 3,832,271 as of 31
March 2016, while growth of the number of credit cards issued increased to 11.0% for the year
ended 31 December 2015 from 5.2% for the year ended 31 December 2014. The increase can be
attributed in part to the general rise in interest rates and other governmental policies imposed to
reduce lending. Halkbank's market share with respect to credit card loans increased to 3.4% as of
31 March 2016 (compared to 3.2% as of 31 December 2015) and its credit card market share as
acquirer increased from 5.8% to 6.1%.
•
Achieve Further Growth while Preserving Profitability, Low Cost Funding and Efficiency.
Halkbank's management believes Halkbank can further grow across all of its main product
segments while increasing profitability and efficiency by:
•
Focusing on cost efficiency and increasing service quality. Halkbank completed its OMEGA
project in 2014. The OMEGA project included a number of key initiatives, including
centralising administrative functions formerly performed at the branch level and investing in
information technology to enhance its customer relationship management applications and
product deployment, and streamline business processes. Halkbank's management believes
Halkbank can utilise its nationwide branch network to increase its business with existing
customers and their partners, affiliates, agents and distributors. In addition, Halkbank is
committed to ensuring the effectiveness of all critical processes, especially in credit and risk
management, and in growing productivity in all business processes by means of product
diversity, transaction system security, high-quality services and competitive pricing.
•
Increasing its loan portfolio while retaining prudent risk management. The Group grew its
loan portfolio by 4.7% to TL 133,175 million as of 31 March 2016 from TL 127,220 million
5
as of 31 December 2015, while increasing its focus on corporate and SME loans, as opposed
to retail loans, for which Halkbank continues to follow a controlled growth strategy. The
Group achieved strong loan portfolio growth in the year ended 31 December 2015, increasing
its loans and receivables by 24.9% to TL 127,220 million as of 31 December 2015 from
TL 101,831 million as of 31 December 2014. Halkbank will seek to focus on the most
profitable customer segments (particularly its corporate and SME customer bases) while
maintaining prudent risk management and credit quality. Consistent with overall market
trends, in mid-2014 Halkbank increased its loan pricing following a rapid increase in the cost
of financing in early 2014 to support its net interest margin. Loan pricing, across all loan
segments continued to increase during 2015. However in the first quarter of 2016, the costs of
TL funds began to fall as a result of deceleration of headline inflation and subsequent interest
rate cuts made by the Central Bank. Subsequent reductions in loan pricing may occur,
especially if the cost of TL funds declines further as a result of both local and global economic
uncertainties. Halkbank also intends to develop new loan products where its historical
relationships and sector knowledge can be utilised, and to participate in structured finance
transactions and provide profitable loans to its large corporate and commercial customer base.
•
Increasing Halkbank's deposit base and reducing the cost of deposits. One of Halkbank's key
strengths is its large, stable deposit base, which Halkbank intends to increase (especially lowcost demand deposits by acquiring payroll customers) by acquiring new payroll customers and
new branch openings in big cities. Halkbank's management believes this effort will be aided
by the growth of its loan portfolio and cash services offered by the Group (including its
payroll services).
•
Increasing non-interest income. Given its growing cash and non-cash loan portfolio, the
Group intends to continue to focus on generating additional net fees and commissions income;
although net fees and commission income decreased by 17.3% to TL 248 million for the three
months ended 31 March 2016, from TL 300 million for the three months ended 31 March
2015, it had increased by 15.3% to TL 1,094 million for the year ended 31 December 2015,
from TL 949 million for the year ended 31 December 2014 and is expected to remain an
important source of the Group's operating income. Halkbank intends to increase its fees and
commission income through various initiatives, including further expansion of its non-cash
lending business to its corporate, commercial and SME customers, further participation in
syndications, project finance and trade finance, expansion of its financial services business
(particularly through mutual funds, and life and non-life insurance products) and through
brokerage activity in government bonds and foreign exchange.
•
Continuing to focus on NPL collections. Halkbank's management believes strong NPL
collections will continue to be an area of focus, with proactive implementation of loan
restructuring protocols with borrowers, as well as foreclosures on collateral where required.
•
Focusing on developing but still underpenetrated areas in Turkey. Halkbank opened 49
branches in 2015, 23 branches in 2014, 56 branches in 2013 and will continue to open new
branches in large cities and where potentially profitable, and close unprofitable branches.
•
Diversifying funding sources by utilising international sources of funding and debt capital
market instruments. In 2010, Halkbank obtained a U.S.$130 million and €349 million dualtranche one-year term loan from a syndicate of 27 international lenders. The facility was most
recently renewed until July 2017 with an aggregate principal amount of U.S.$175 million and
€476.5 million, respectively. In July 2012, Halkbank issued U.S.$750 million aggregate
principal amount of 4.875% notes due 19 July 2017. In February 2013, Halkbank issued its
second Eurobond of U.S.$750 million aggregate amount of 3.875% coupon rate which was
the lowest coupon for a 7-year bank issuance from Turkey. In June 2014, Halkbank issued
U.S.$500 million aggregate principal amount of 4.750% notes due 4 June 2019. In February
2015, the Bank issued its fourth Eurobond of U.S.$500 million aggregate amount of 4.750%
notes due 11 February 2021. Halkbank intends to continue to diversify its funding base with
international financings and debt capital market instruments.
6
Risk Factors
An investment in the Notes involves risk. Prior to making an investment decision, prospective investors should
carefully consider all of the information in this Offering Memorandum, including, without limitation, the risks
and uncertainties described in "Risk Factors". The risk factors set out in "Risk Factors" describe the risks and
uncertainties that Halkbank's management believes are the principal risks and uncertainties the Group faces. If
any of the events discussed in "Risk Factors" occur, the value of the Notes could decline and you could lose all
or part of your investment. Additional risks and uncertainties that do not currently exist or of which Halkbank's
management is unaware or which Halkbank's management currently does not believe to be material may also
become important factors that adversely affect the Group and any investment in the Notes.
7
Overview of the Conditions of the Notes
The following is an overview of certain information relating to the offering of the Notes, including the principal
provisions of the terms and conditions thereof. This overview is indicative only, does not purport to be complete
and is qualified in its entirety by the more detailed information appearing elsewhere in this Offering
Memorandum. See, in particular, "Conditions of the Notes".
Issue:
Interest
Dates:
U.S.$500,000,000 principal amount of 5.000% Notes due 2021.
and
Interest
Payment
The Notes bear interest from and including 13 July 2016 at the rate of
5.000% per annum, payable semi-annually in arrear on 13 January
and 13 July in each year. The first payment (for the period from and
including 13 July 2016 to but excluding 13 January 2017) shall be
made on 13 January 2017. See "Conditions of the Notes―6. Interest".
Maturity Date:
13 July 2021
Yield:
5.050%
Issue Price:
99.781%
Fiscal Agent and Principal Paying
Agent:
The Bank of New York Mellon, London Branch
Registrar:
The Bank of New York Mellon (Luxembourg) S.A.
Transfer Agent, U.S. Paying Agent
and Custodian:
The Bank of New York Mellon
Use of Proceeds:
The net proceeds will be used by the Issuer for general corporate
purposes. See "Use of Proceeds".
Status:
The Notes are senior, direct, unconditional and (subject to the
provisions of Condition 4) unsecured obligations of the Issuer and
(subject as provided above) rank and will rank pari passu, without
any preference among themselves, with all other outstanding
unsecured and unsubordinated obligations of the Issuer, present and
future, but, in the event of insolvency, only to the extent permitted by
applicable laws relating to creditors' rights. The Notes are issued
pursuant to the Turkish Commercial Code (Law No. 6102), the
Capital Markets Law (Law No. 6362), Article 15/b of Decree 32 on
the Protection of the Value of the Turkish Currency and the
Communiqué on Debt Instruments Serial II, No. 31.1.
Negative Pledge:
The Issuer agrees that so long as any Note remains outstanding (as
defined in the Agency Agreement) the Issuer will not create or have
outstanding any Security Interest (as defined in Condition 4) upon, or
with respect to, any of its present or future business, undertaking,
assets or revenues (including any uncalled capital) to secure any
Relevant Indebtedness (as defined in Condition 4), unless the Issuer,
in the case of the creation of a Security Interest, before or at the same
time and, in any other case, promptly, takes any and all action
necessary to ensure that:
(i)
all amounts payable by it under the Notes are secured by
the Security Interest equally and rateably with the
Relevant Indebtedness; or
(ii)
such other Security Interest or other arrangement
(whether or not it includes the giving of a Security
Interest) is provided as is approved by an Extraordinary
Resolution (which is defined in the Agency Agreement
as a resolution duly passed by a majority of not less than
three-fourths of the votes cast) of the Noteholders,
provided always that nothing shall prevent the Issuer from creating or
permitting to subsist any Security Interest upon, or with respect to,
8
any present or future assets or revenues or any part thereof which is
created pursuant to (i) a Covered Bond (as defined in Condition 4), or
(ii) any securitisation of receivables, asset-backed financing or similar
financing structure (created in accordance with normal market
practice) and whereby all payment obligations secured by such
Security Interest or having the benefit of such Security Interest are to
be discharged principally from such assets or receivables (or in the
case of Direct Recourse Securities (as defined in Condition 4), by
direct unsecured recourse to the Issuer), provided that the aggregate
most-recently published balance sheet value of assets or receivables
subject to any Security Interest created in respect of an issuance of
(A) Covered Bonds and (B) any other secured Relevant Indebtedness
(other than Direct Recourse Securities) of the Issuer, when added to
the nominal amount of any outstanding Direct Recourse Securities,
does not, at any time, exceed 15% of the consolidated total assets of
the Issuer and its Subsidiaries (as shown in the most recent audited
consolidated financial statements of the Issuer prepared in accordance
with IFRS). See "Conditions of the Notes―4. Negative Pledge".
Certain Covenants:
The Issuer agrees to certain covenants, including, without limitation,
covenants limiting transactions with affiliates. See "Conditions of the
Notes―5. Covenants".
Redemption for Taxation Reasons:
All the Notes, but not some only, may be redeemed at the option of
the Issuer at any time (subject to certain conditions), at their principal
amount (together with interest accrued to but excluding the date of
redemption) if, (a) as a result of any change in, or amendment to, the
laws or regulations of a Relevant Jurisdiction (as defined in Condition
9), or any change in the application or official interpretation of the
laws or regulations of a Relevant Jurisdiction, which change or
amendment becomes effective after 30 June 2016, on the next Interest
Payment Date (as defined in Condition 6) (i) the Issuer would be
required to pay additional amounts as provided or referred to in
Condition 9 and (ii) the Issuer would be required to make any
withholding or deduction for, or on account of, any Taxes (as defined
in Condition 9) imposed or levied by or on behalf of the Relevant
Jurisdiction, beyond the prevailing applicable rates on the Issue Date
(as defined in Condition 6) and, (b) the requirement cannot be
avoided by the Issuer taking reasonable measures available to it. See
"Conditions of the Notes―8.2. Redemption for Taxation Reasons".
Redemption for Change of Control:
Following the occurrence of a Change of Control (as defined in
Condition 8), each Noteholder will have a right, at such Noteholder's
option, to require the Issuer to redeem all, but not some only, of such
Noteholder's Notes on the Change of Control Put Date (as defined in
Condition 8) at 100% of their principal amount together with interest
accrued to but excluding the date of redemption. See "Conditions of
the Notes―8.3. Redemption upon a Change of Control".
Taxation and Payment of
Additional Amounts:
All payments in respect of the Notes by or on behalf of the Issuer
shall be made without withholding or deduction for, or on account of,
any Taxes (as defined in Condition 9) imposed or levied by or on
behalf of a Relevant Jurisdiction (as defined in Condition 9), unless
the withholding or deduction of the Taxes is required by law. In that
event, subject to certain exceptions, the Issuer will pay such
additional amounts as may be necessary in order that the net amounts
received by the Noteholders after the withholding or deduction shall
equal the respective amounts which would have been receivable in
respect of the Notes in the absence of the withholding or deduction.
See "Conditions of the Notes―9. Taxation".
Events of Default:
The Notes will be subject to certain Events of Default (as defined in
9
Condition 11), including, without limitation, events relating to nonpayment of principal or interest due in respect of the Notes, breach of
obligations under the Conditions, cross-defaults in respect of
Indebtedness for Borrowed Money (as defined in Condition 11) and
bankruptcy and insolvency. See "Conditions of the Notes―11. Events
of Default".
Form, Transfer and Denominations:
Delivery of the Regulation S Notes and the Rule 144A Notes, in each
case in book-entry form, will be made on or about the Closing Date.
The Regulation S Notes will be represented by beneficial interests in
the Unrestricted Global Certificate, in registered form, without
interest coupons attached, which will be delivered to a common
depositary for, and registered in the name of a common nominee of,
Euroclear and Clearstream, Luxembourg, on or about the Closing
Date. The Rule 144A Notes will be represented by beneficial interests
in the Restricted Global Certificate, in registered form, without
interest coupons attached, which will be deposited with the
Custodian, and registered in the name of Cede & Co., as nominee for,
DTC. Except in limited circumstances, certificates for Notes
evidencing individual holdings will not be issued in exchange for
beneficial interests in the Global Certificates. See "Conditions of the
Notes", "The Global Certificates" and "Book-Entry Clearance
Systems".
Interests in the Rule 144A Notes will be subject to certain restrictions
on transfer. See "Transfer Restrictions". Interests in the Global
Certificates will be shown on, and transfers thereof will be effected
only through, records maintained by Euroclear and Clearstream,
Luxembourg, in the case of the Regulation S Notes, and by DTC and
its direct and indirect participants, in the case of Rule 144A Notes.
See "Book-Entry Clearance Systems".
Notes will be issued in denominations of U.S.$200,000 and in integral
multiples of U.S.$1,000 thereafter. See "Conditions of the
Notes―1.1. Form and Denomination".
Governing Law:
The Notes are, and any non-contractual obligations arising therefrom
shall be, governed by and shall be construed in accordance with
English law. See "Conditions of the Notes―16.1. Governing Law".
Listing:
Application has been made to the Irish Stock Exchange plc for the
Notes to be admitted to the Official List and trading on the Irish Stock
Exchange plc's Main Securities Market.
Selling Restrictions:
The Notes have not been, and will not be, registered under the U.S.
Securities Act or under the securities laws of any state or other
jurisdiction of the United States and may not be offered or sold within
the United States or to, or for the account or benefit of, U.S. Persons,
except pursuant to an exemption from, or in a transaction not subject
to, the registration requirements of the U.S. Securities Act and in
compliance with applicable laws of any state or other jurisdiction of
the United States. The offer and sale of Notes is also subject to
restrictions in Turkey and the United Kingdom. See "Additional
Selling Restrictions" and "Transfer Restrictions".
Risk Factors:
For a discussion of certain risk factors relating to Turkey, the Issuer
and the Notes that prospective investors should carefully consider
prior to making an investment in the Notes, see "Risk Factors".
Regulation S Security Codes:
ISIN: XS1439838548
Common Code: 143983854
Rule 144A Security Codes:
ISIN: US900150AE37
10
CUSIP: 900150AE3
Common Code: 144174500
Representation of Noteholders:
There will be no trustee.
11
RISK FACTORS
An investment in the Notes involves risk. Prior to making an investment decision, prospective investors should
carefully consider all of the information in this Offering Memorandum, including, without limitation, the risks
and uncertainties described below. The risk factors set out below describe the risk and uncertainties that
Halkbank's management believes are the principal risks and uncertainties it faces. If any of the events discussed
below occur, the value of the Notes could decline and you could lose all or part of your investment. Additional
risks and uncertainties that do not currently exist or of which Halkbank's management is unaware or which
Halkbank's management currently does not believe to be material may also become important factors that
adversely affect the Group and any investment in the Notes.
Prospective investors should also refer to the other information set out or incorporated by reference in this
Offering Memorandum, including the BRSA Financial Statements and the Bank-only BRSA financial statements
for the three months ended 31 March 2016 and the related notes to each set of statements, as well as the
information in "Management's Discussion and Analysis of Financial Condition and Results of Operations". For
additional information concerning Turkey, its economy, its legal and regulatory environment and other related
matters, see "Exchange Rates", "The Group and its Business", "Turkish Banking System" and "Turkish
Regulatory Environment".
Risk Factors Relating to the Group
The Group's loan portfolio, deposit base and government securities are concentrated in Turkey and adverse
changes affecting the Turkish economy could have a material adverse effect on its business, financial
condition, results of operations and prospects.
The Group's loans and receivables constituted 66.6% of its total assets, or TL 127.2 billion, as of 31 December
2015 and 66.8% of its total assets, or TL 133.2 billion, as of 31 March 2016. Substantially all of these loans and
receivables were made to borrowers located in Turkey. The Group's deposits constituted 71.3% of its total
liabilities, or TL 122.5 billion, as of 31 December 2015 and 70.4% of its total liabilities, or TL 126.2 billion, as
of 31 March 2016, almost all of which were located in Turkey. The Group's business is significantly dependent
upon its customers' ability to make payments and meet their other obligations, which in turn is materially
impacted by the strength of the Turkish economy. In addition, 14.8% of the Group's total assets were invested in
Turkish Government securities as of 31 December 2015 (14.5% as of 31 March 2016), which may also increase
the Group's susceptibility to political and fiscal risks at the sovereign level. The Group's geographical
concentration in Turkey also may contribute to the volatility of its earnings.
Due to the European economic crisis, economic activity in Turkey slowed in 2012 and 2013, with GDP growth
rates of 2.1% and 4.2% respectively, compared to 8.8% in 2011 and 9.2% in 2010. In 2014 and 2015, Turkey's
GDP growth rates were 3.0% and 4.0%, respectively. Inflation rates remained mostly above target levels in
2013, 2014 and 2015, which could result in changes to fiscal policy, including affecting the Turkish
Government's economic policies, or impact Turkey's economic growth.
In light of external and internal uncertainties, there can be no assurances that the Turkish Government will
continue to successfully implement its current and proposed economic and fiscal policies. Even if the Turkish
Government continues to successfully implement these policies, there can be no assurances that the economic
growth achieved in recent years will continue in light of potential external and internal shocks. Macroeconomic
and political factors, such as regional tensions (including possible political and economic disruptions caused by
military conflict in neighbouring countries and the emergence of the Islamic State of Iraq ("ISIS") in late 2014
and early 2015), political disruption or changes in global economic policy (including, for example, any
additional increases in U.S. interest rates following the U.S. Federal Reserve's December 2015 decision to raise
its benchmark U.S. federal-funds rate by a quarter-percentage point) could have a detrimental impact on the
Turkish economy, or force changes in governmental policy. Moreover, as a major importer of oil, Turkey's
economy is vulnerable to any increase in global oil prices as well as any weakness in its principal trading
markets in the EU. Other key factors that may have a significant impact on economic conditions in Turkey
include the continuing geopolitical tensions in the region.
Although EU-defined Turkish Government debt levels decreased considerably from 77.9% of GDP in 2001 to
32.9% of GDP in 2015, one or more external or internal developments within the wider Turkish economic or
political system could impair the Group's business strategies and have a material adverse effect on its business,
financial condition, results of operations and prospects. Moreover, Turkey remains an emerging market that is
susceptible to a higher degree of volatility than more developed markets and factors such as the current account
deficit, inflation and interest rate and currency volatility remain of concern, particularly in light of the recent
depreciation of the Turkish Lira. See "Risk Factors—Risk Factors Relating to the Group—Fluctuations in
12
foreign currency exchange rates, to the extent they are not adequately hedged against, may adversely affect the
Group's financial position and cash flows".
According to official statistics released by Turkstat, the unemployment rate in Turkey was 9.7% as of 31 March
2016, significantly lower than its peak of 13.9% in April 2009. However, there can be no assurance that the
unemployment rate will experience further improvement, or that unemployment will not worsen in the future.
Continuing high levels of unemployment may affect customers, which could impair the Group's business
strategies and have a material adverse effect on the Group's business, financial condition, results of operations
and prospects.
In October 2015, the Turkish Ministry of Development announced a three-year medium-term economic
programme for 2016 to 2018 which was updated in January 2016 after the formation of the new Turkish
Government. Under this medium-term projected economic programme, the Ministry of Development set GDP
growth targets of 4.5% for 2016 and 5.0% for 2017 and 2018, as well as a gradual decrease in net public debt to
GDP. However, there can be no assurance that the Turkish Government will successfully implement its
economic and fiscal policies or that Turkey will remain economically stable. Future negative developments in
the Turkish economy could impair the Group's business strategies and have a material adverse effect on its
business, financial condition, results of operations and prospects.
Difficult macroeconomic and financial market conditions may have a material adverse effect on the Group's
In response to the global financial crisis beginning in the second half of 2007, the government of the United
States, a number of European governments and international monetary organisations have taken steps intended
to help stabilise the financial system and increase the flow of credit in the global economy. There can be no
assurances as to the actual impact that these measures and related actions will have on the financial markets and
consumer and corporate confidence generally and on the Group specifically, including the levels of volatility
and limited credit availability in wholesale markets that have recently characterised the financial markets. The
failure of these measures and related actions to help stabilise the financial markets and a continuation or
worsening of current financial market conditions could lead to further decreases in investor and consumer
confidence, further market volatility and decline, further economic disruption and, as a result, could have an
adverse effect on the Group's business, financial condition, results of operations and prospects.
Since September 2012, there has continued to be significant global central bank intervention in an attempt to
prevent further deterioration of economic growth, though in the second half of 2014 there were indications that
some of these programs might be reduced or terminated. In January of 2015 the European Central Bank
announced a plan to buy €60 billion of governmental and private sector bonds in order to encourage growth and
keep down interest rates. However, in October 2014, the U.S. Federal Reserve announced it would end its own
quantitative easing programme and, in December 2015, raised its benchmark federal-funds rate by a quarterpercentage point and the U.S. Federal Reserve has indicated that it may continue to gradually increase interest
rates. The reduction or termination of quantitative easing programmes and changes in benchmark interest rates
could reduce global liquidity and weaken capital inflows into Turkey. The ultimate impact of the European
Central Bank's and the U.S. Federal Reserve's actions are impossible to predict and these actions may not result
in the expected benefits for the applicable economies and may have adverse effects on emerging markets such as
Turkey.
The Group and its customers operating in Turkey continue to remain vulnerable to other external financial and
economic factors such as the recent instability of numerous European banks and concerns regarding the ability
of certain EU member states, including Cyprus, Greece, Spain, Portugal, Italy and Ireland, to service their
sovereign debt obligations, as well as concerns regarding the possibility that economic instability might affect
other, more stable, countries, particularly France and Germany. These trends have caused considerable
turbulence in the global financial and credit markets, and, should they worsen further, could lead to the
reintroduction of national currencies in one or more Eurozone countries or, in particularly dire circumstances,
the abandonment of the Euro. These factors could have a material adverse effect on financial markets and
economic conditions throughout the world and, in turn, the market's anticipation of these impacts could have a
material adverse effect on the Group's business, financial conditions and liquidity. In particular, these factors
could disrupt payment systems, money markets, long-term and short-term fixed income markets, foreign
exchange markets, commodities markets and equity markets and adversely affect the cost and availability of
funding.
On 23 June 2016, the UK held a referendum to decide whether the UK's membership of the European Union
would continue. The UK voted in favour of leaving the European Union. There are a number of uncertainties in
connection with the future of the UK and its relationship with the European Union. The negotiation of the UK's
exit terms may take a number of years, and is likely to increase volatility in global financial markets as well as
13
in the EU, which is Turkey's principal export market. The situation and consequences of the referendum and
impact on markets remain highly uncertain. In addition, any future withdrawal by another Member State from
the EU and/or European Monetary Union, any significant changes to the structure of the EU and/or European
Monetary Union or any uncertainty as to whether such a withdrawal or change might occur could have a
material adverse effect on the Group's business, financial condition, results of operations and prospects. The
Group's performance will continue to be influenced by conditions in the global economy. The outlook for the
global economy over the near to medium term remains challenging, which also impacts prospects for
stabilisation and improvement of economic and financial conditions in Turkey.
Furthermore, since December 2010, political instability has increased markedly in a number of countries in the
Middle East, North Africa and Eastern Europe, with armed conflict continuing in Syria. Unrest in those
countries may also have implications for the wider global economy and may negatively affect market sentiment
towards other countries in the region, including Turkey, and towards securities originating in Turkey. In
addition, there have been military and civilian hostilities in both directions across the Syrian-Turkish border.
Representatives of each country have made statements that do not rule out escalated military conflict, and the
political and military tensions between Syria and Turkey may escalate in the future. Furthermore, the emergence
of ISIS, and the subsequent military conflict, has caused significant political and social upheaval in Iraq and
Syria, including along Turkey's borders, and resulted in a significant influx of Syrian and Iraqi (including
Kurdish) refugees into Turkey. There can be no assurances that such disturbances will not have political
repercussions within Turkey. Such disturbances may also have a negative impact on the Turkish economy that
could in turn have a material adverse effect on the Group's business, financial condition, results of operations
and prospects. On 19 March 2016, Turkey signed an agreement with the EU in an effort to control the irregular
flow of refugees from Turkey to the EU; however, such agreement might not be implemented in accordance
with its terms, if at all.
In addition, in response to Turkey shooting down a Russian military aircraft near the Syrian border that Turkey
claimed had violated Turkey's airspace, Russia implemented economic sanctions against Turkey, primarily
aiming at Turkey's agriculture, tourism and construction sectors. Heightened tensions between Turkey and
Russia over Syria might materially affect the Turkish economy negatively, including through any negative
impact on Turkey's tourism revenues or its access to Russian energy supplies (Russia was a large supplier of
natural gas and one of the largest overall trading partners of Turkey in 2015 according to Turkstat). See "Risk
Factors—Risk Factors Relating to Turkey—Conflict and terrorism within Turkey or conflict and terrorism in
neighbouring and nearby countries may have a material adverse effect on the Group's business, financial
condition, results of operations or prospects".
Rapid growth of the Group's loan portfolio might subject the Group to the risk of not being able to maintain
asset quality.
Since 2010, the lending market in Turkey has been growing continuously, and this growth is supported by
relatively low market penetration levels. It grew by 19.7%, 18.5%, and 31.7% for each of the years ended 31
December 2015, 2014 and 2013, respectively, and reached TL 1,485 billion in gross loan transaction volume as
of 31 December 2015, according to the BRSA. Rapid growth in the Group's loan portfolio may lead to
deterioration in the quality of its loan portfolio and an increase of NPL levels in the future. Following large
increases of the Central Bank's rates in January 2014 (see "—The Central Bank's policy on reserve requirements
and interest rates could have a material adverse effect on the Group's business, financial condition, results of
operations and prospects" below), and consecutive interest rate cuts on 18 July and 28 August 2014, the lending
market in Turkey continued growing in 2014, albeit at a slower pace of 18.5% according to the BRSA. In 2015,
the lending market in Turkey grew by 19.7% primarily as a result of the growth in corporate loans and
depreciation in the Turkish Lira. In line with the overall sector, the Group's loan portfolio has growing and the
Group's loans amounted to TL 133.2 billion, TL 127.2 billion, TL 101.8 billion and TL 85.0 billion as of 31
March 2016 and 31 December 2015, 2014 and 2013, respectively. This reflected a loan portfolio growth rate of
24.9% and 19.9% for the year ended 31 December 2015 and the year ended 31 December 2014, respectively.
The ratio of the Group's non-performing loans to total gross cash loans was 3.2%, 3.2%, 3.6% and 2.6% as of 31
March 2016 and 31 December 2015, 2014 and 2013, respectively. The increase in the non-performing loan ratio
as of 31 December 2014 was due primarily to a large corporate loan (with a principal amount of TL 1,076
million) which was classified as non-performing and provisioned 50% according to the regulatory requirements.
Prior to its classification as a non-performing loan, this loan had been classified, under the relevant BRSA
regulations for provisioning, as a Group II Loan (Loans and Receivables under Close Monitoring). The loan
became fully provisioned after additional provisions for the remaining 50% were set aside in the second quarter
of 2015. In addition, Halkbank's management anticipates that the Group may experience a deterioration in its
non-performing loan ratio in 2016 due to expected deterioration in asset quality in the Turkish banking sector as
a result of interest rate and exchange rate volatility, resulting in an increase in non-performing loans, together
14
with expected deceleration in the rate of growth of its total gross cash loans. Rapid growth in the Group's loan
portfolio may lead to deterioration in the quality of its loan portfolio and an increase of NPL levels in the future.
The significant and rapid increase in the Group's loan portfolio requires continued and improved monitoring by
management of the Group's lending policies, credit quality and adequacy of provisioning levels through its risk
management programme. The Group expects to further increase its loan portfolio in the future and any failure
by the Group to manage loan book growth within prudent risk parameters, sufficiently control the credit quality
of its customers or monitor and regulate the adequacy of its provisioning levels, could have a material adverse
effect on its business, financial condition, results of operations and prospects.
The Group's level of profitability may not be sustainable as a result of regulatory, competitive and other
factors impacting the Turkish banking sector.
The Group's profitability may be negatively affected in the short-term and possibly in the long-term as a result
of a number of factors that are generally impacting the Turkish banking sector. Such factors include
macroeconomic shocks, increased competition, particularly as it impacts net interest margins (see "—The Group
faces intense competition in the Turkish banking sector from both private banks and other Turkish Government
owned financial institutions, including as a result of consolidation in the sector, which may result in reduced net
interest margins and fee income and may materially and adversely affect the Group's business, financial
condition, results of operations and prospects"), the interest rate environment in Turkey (see "—The Central
Bank's policy on reserve requirements and interest rates could have a material adverse effect on the Group's
business, financial condition, results of operations and prospects"), and Central Bank and BRSA regulatory
actions that seek to limit the growth of Turkish banks through various conventional and unconventional policy
measures, including increased reserve requirements, increased general provisioning requirements and higher
risk-weighting for general purpose loans (see "—Turkey's high current account deficit may result in Turkish
Government policies that negatively affect the Group's business" and "—The Group is a highly regulated entity
and changes to applicable laws or regulations, the interpretation or enforcement of such laws or regulations or
the failure to comply with such laws or regulations could have an adverse impact on the Group's business,
financial condition, results of operations and prospects"). In addition, there have been a number of significant
changes to capital adequacy rules, including regulations regarding countercyclical capital buffers, systemically
important banks as well as changes to equity and capital adequacy regulations. Although the Group intends to
seek to limit the impact of these factors through its strategy of focusing on profitable sectors and clients, rather
than solely on overall growth, there can be no assurances that such factors would not have a material adverse
effect on the Group's profitability or otherwise on its business, financial condition, results of operations and
prospects.
The BRSA has also introduced new laws and regulations that impose heightened requirements upon specific
retail banking activities. These new requirements may reduce the flexibility and opportunities available to the
Group or increase costs, and have negatively affected, and may continue to negatively affect, the Group's
business and profitability. These new laws and regulations were specifically directed at the retail banking
market in Turkey, imposing limits with respect to fees and commissions charged to customers, increasing the
monthly minimum payments required to be paid by holders of credit cards, increasing reserves and provision
requirements for consumer loans and limiting mortgage loan-to-value ratios.
Changes in interest rate levels may affect the value of the Group's assets sensitive to interest rates and spread
changes, as well as the Group's net interest margins and borrowings costs.
The Group's results of operations depend significantly upon the level of its net interest income, which is the
difference between the total interest income the Group receives on its interest-earning assets and the total
interest expense that it pays on its interest-bearing liabilities. Net interest income is the principal source of
income for the Group. Thus, the differential between the interest rates that it charges on interest-earning assets
and the interest rates that it pays on interest-bearing liabilities (i.e., its average spread), and the volume of such
assets and liabilities, tend to have the most significant impact on the Group's results of operations. For the three
months ended 31 March 2016, on a Bank-only BRSA basis, net interest income of the Bank represented 70.0%
of total operating income before provisions (excluding dividend income) and net interest margin, defined as net
interest income as a percentage of average total interest-bearing assets, was 4.0%. For the three months ended
31 March 2016 and the years ended 31 December 2015, 2014 and 2013, net interest income of the Bank
represented 70.0%, 70.1%, 71.5% and 67.0% of total operating income before provisions (excluding dividend
income), respectively, and the Group's net interest margin was 4.0%, 4.1%, 4.3% and 4.8%, respectively. Net
interest margin has been declining in recent periods due primarily to increased competition in the Turkish
banking sector for deposits which has resulted in increased funding costs. See "—The Central Bank's policy on
reserve requirements and interest rates could have a material adverse effect on the Group's business, financial
condition, results of operations and prospects".
15
Interest rates are highly sensitive to many factors beyond the Group's control, including monetary policies
pursued by the Turkish Government, domestic and international economic and political conditions, and the
Group may be unable to take actions to mitigate any adverse effects of interest rate movements. Income from
financial operations is particularly vulnerable to interest rate volatility, as further illustrated below in the
following paragraph. See also "Management's Discussion and Analysis of Financial Conditions and Results of
Operation—Significant Factors Affecting the Group's Financial Condition and Results of Operations—Interest
Rates". In particular, the Group may be affected by the Central Bank's interest rate policy.
Changes in market interest rates could affect the spread between interest rates charged on interest-earning assets
and interest rates paid on interest-bearing liabilities and thereby affect results of operations. An increase in
interest rates, for instance, could cause interest expense on deposits (which for Turkish banks are typically shortterm and reset frequently) to increase more significantly and quickly than interest income from loans (which are
short, medium and long-term), resulting in a reduction in net interest income. Moreover, an increase in interest
rates (such as the significant increases in January 2014 described in "—The Central Bank's policy on reserve
requirements and interest rates could have a material adverse effect on the Group's business, financial
condition, results of operations and prospects") could reduce demand for the Group's loans, resulting in a
further reduction in net interest income. In addition, a significant fall in average interest rates charged on loans
to customers that is not fully matched by a decrease in interest rates on funding sources, or a significant rise in
interest rates on funding sources that is not fully matched by a rise in interest rates charged, to the extent such
exposures are not hedged, could have a material adverse effect on the Group's business, financial condition,
results of operations and prospects.
The Group faces intense competition in the Turkish banking sector from both private banks and other
Turkish Government-owned financial institutions, including as a result of consolidation in the sector, which
may result in reduced net interest margins and fee income and may materially and adversely affect the
Group's business, financial condition, results of operations and prospects.
The Turkish banking sector is highly competitive and has in recent years undergone a period of consolidation.
As of 31 March 2016, there were 47 banks (excluding the Central Bank and six participation banks which
principally engage in activities in accordance with Islamic principles) operating in Turkey compared to 82 in
1999. A small number of these banks dominate the industry. The top five deposit-taking banks in Turkey
accounted for approximately 54.6% of total assets in Turkey as of 31 December 2015, according to the BRSA.
The decline in the number of banks was principally due to the significant consolidation in the Turkish banking
industry in the early to mid-2000s, the takeovers of many failed banks by the Savings Deposit Insurance Fund
("SDIF") and the stricter requirements set by the BRSA on capital adequacy, provisioning, maximum single
counterparty exposure, accounting, information disclosure and foreign exchange positions.
International banks have shown an increased interest in the banking sector in Turkey. For example, Standard
Chartered Bank of the UK acquired Credit Agricole SA's Turkish banking operations (announced in August
2012), and Bank Audi of Lebanon launched retail operations in Turkey through its Odea Bank subsidiary after
receiving the operating license from BRSA in October 2012. The Commercial Bank of Qatar purchased a
70.8% stake in Alternatifbank AS in March 2013. In September 2014, the application of Rabobank A.Ş. was
also approved by the BRSA. In May 2014, the BRSA issued a permit for the establishment of the main Istanbul
branch of a new deposit bank, Intesa Sanpaolo S.p.A. Italy. In November 2014, Spanish bank Banco Bilbao
Vizcaya Argentaria S.A (BBVA) increased its stake in Türkiye Garanti Bankası A.Ş. to 39.9%. In April 2015,
BRSA approved the purchase by Industrial and Commercial Bank of China Limited of a 75.50% stake in Tekstil
Bank A.Ş. and the business name of this bank was amended to ICBC Turkey Bank A.Ş. as of 19 November
2015. In December 2015 the National Bank of Greece ("NBG") entered into an agreement with Qatar National
Bank regarding the sale of NBG's entire stake in Finansbank; such share transfer is pending subject to
compliance with the closing conditions. In addition, the BRSA also granted permission for Bank of China
Limited to establish a deposit-taking bank in Turkey in May 2016. The entry of foreign owned companies into
the sector, either directly or in collaboration with existing Turkish banks, may increase the already significant
competition in the market.
The banking industry in Turkey is highly competitive across each banking segment and sector, including
segments for fee and commission generating products and services. The intense competition may increase the
pressure for the Group to expand the range and sophistication of its products and services currently offered as
well as reducing its margins. Increased pricing competition in the Turkish banking markets through the offer of
products at significantly lower prices may also impact customer behavioural patterns and loyalty. Any failure to
maintain customer loyalty or to offer customers a wide range of high quality, competitive products with
consistently high levels of service could have a material adverse effect on the Group's business, financial
16
The Group's increased exposure to intense competition in each of its key areas of operation, may, among other
things, limit the Group's ability to increase its client base and expand its operations, reduce its asset growth rate
and profit margins on services it provides and increase competition for investment opportunities. There can be
no assurances, therefore, that the continuation of existing levels of competition or increased competition will not
have a material adverse effect on the Group's business, financial condition, results of operations and prospects.
The Central Bank's policy on reserve requirements and interest rates could have a material adverse effect on
the Group's business, financial condition, results of operations and prospects.
In March and April 2011, the Central Bank announced significant increases in reserve requirement ratios.
Reserve requirement ratios for TL deposits have generally been increasing since 2011 in an attempt by the
Central Bank to discourage loan growth within the Turkish banking sector by increasing the cost of making
loans and receivables to customers. As of the date of this Offering Memorandum, the reserve requirement ratios
for Turkish Lira deposits ranged from 11.5%, for deposits in immediately available funds to 5.0% for deposits
with maturities of more than a year and the reserve requirement ratios for foreign currency deposits ranged from
13.0% for deposits of immediately available funds and 9.0% for deposits with maturities of one year or longer.
See "Turkish Regulatory Environment—Liquidity and Reserve Requirements".
As a consequence of these increases in reserve requirement ratios, Halkbank was required to increase the level
of its non-interest bearing reserves with the Central Bank. Moreover, the Group's total deposits constituted
70.4% and 71.3% of its liabilities as of 31 March 2016 and 31 December 2015, respectively, almost all of which
were located in Turkey and a significant portion of which were short-term. See "—The Group's loan portfolio,
deposit base and government securities are concentrated in Turkey and adverse changes affecting the Turkish
economy could have a material adverse effect on its business, financial condition, results of operations and
prospects". If the Group is not able to increase the term of its deposits or obtain additional sources of financing,
its reserve requirements and associated costs may remain elevated or increase further, which could have a
material adverse effect on the Group's business, financial condition, results of operations and prospects. In
addition, the increases in reserve requirement ratios could also limit or reduce the growth of the Turkish
economy and, consequently, demand for the Group's products and services. See "—The Group's loan portfolio,
prospects".
The increase in reserve requirement ratios have been combined with changes in the Central Bank's interest rate
policies. For example, in meetings in July and August 2013, the Central Bank increased the upper band of the
interest rate corridor (the lending rate) from 6.5% to 7.25% and then 7.75% and also announced that there would
be no funding to banks via the primary dealer repo facility on additional monetary tightening days. In January
2014, the Central Bank held an interim Monetary Policy Committee meeting and increased its overnight
borrowing rate to 8% from 3.5%, its one-week repo rate to 10% from 4.5% and its overnight lending rate to 12%
from 7.75%. This increase in interest rates in 2014 reflected efforts by the Central Bank to counter the
depreciation of the Turkish Lira, especially against the currencies of other emerging markets, and to maintain
price and financial stability by limiting the current account deficit which has been attributed in part to the
excessive growth of consumer loans. On 20 January 2015, the Central Bank reduced the one-week repo rate to
7.75% from 8.25% citing slowdowns in inflation due to lower global oil prices. On 24 March 2016, the Central
Bank reduced the upper limit of its interest rate corridor by 25 basis points to 10.50% due to the reduction in the
need for a wide interest rate corridor in line with the easing of global volatility. The Central Bank held its oneweek repo rate at 7.50% and its overnight borrowing rate at 7.25%. On 20 April 2016, following the
appointment of the new Central Bank governor, the Central Bank reduced the upper limit of its interest rate
corridor further by 50 basis points to 10.00% but left its one-week repo rate and overnight borrowing rate
unchanged. In May 2016, the Central Bank reduced the upper band of the interest rate corridor further by 50
basis points to 9.50%. The composition of the Monetary Policy Committee, consisting of seven members
(including the governor of the Central Bank), might be subject to change as the term of office of three members
expired in April 2016 and June 2016 and the term of office of one member will expire by the end of June 2016,
which might create uncertainty in relation to the policies that will be adopted by the committee. Changes in
interest rates may impact a number of aspects of the Group's business, such as deposits and loans. For a
discussion of how interest rates impact the Group's business, see "Management's Discussion and Analysis of
and Results of Operations—Interest Rates".
For a discussion of other risks that the Group may face as a result of the highly regulated environment in which
it operates, see "—The Group is a highly regulated entity and changes to applicable laws or regulations, the
interpretation or enforcement of such laws or regulations or the failure to comply with such laws or regulations
could have an adverse impact on the Group's business, financial condition, results of operations and prospects".
17
Any failure by the Group to adopt adequate responses to these or other future changes in the regulatory
framework could have a material adverse effect on the Group's business, financial condition, results of
operations and prospects.
The Group may experience credit defaults arising from adverse changes in credit and recoverability that are
inherent in the Group's banking businesses.
The Group's core banking businesses have historically been, and are expected to continue to be, loans to retail,
SME, commercial and corporate customers. As of 31 December 2015, such loans constituted 66.6% of the
Group's total assets. Many factors affect customers' ability to repay their loans or other obligations to the Group.
Some of these factors, including adverse changes in consumer confidence levels due to local, national and
global factors, consumer spending, unemployment levels, bankruptcy rates, and increased market volatility, may
be difficult to anticipate and completely outside of the Group's control. Other factors are dependent upon the
Group's strategy of loan growth (including sector focus) and the viability of the Group's internal credit
application and monitoring systems. See "—The Group's risk management strategies and internal control
capabilities may leave it exposed to unidentified or unanticipated risks". The Group may not correctly assess the
creditworthiness of credit applicants or other counterparties (or their financial conditions may change), and, as a
result, the Group could suffer material credit losses, or experience a deterioration in the quality of its loan
portfolio which requires additional provisioning for anticipated losses. For example, the increase in the Group's
provisions for loan losses as of 31 December 2015 was partly attributable to the classification of a large
corporate loan as an NPL, which had previously been categorised under the relevant BRSA regulations for
provisions as a Group II Loan (Loans and Receivables under Close Monitoring) and was therefore not a loan for
which provisions had hitherto been made.
While the Group seeks to mitigate credit risk, including through diversification of its assets and requiring
collateral for many of its loans, such efforts may be insufficient to protect the Group against material credit
losses. For example, if the value of the collateral securing the Group's credit portfolio is insufficient (including
through a decline in its value after the original taking of such collateral), then the Group will be exposed to
greater credit risk and an increased risk of non-recovery if related credit exposures fail to perform. In addition,
determining the amount of provisions and other reserves for possible credit losses involves the use of numerous
estimates and assumptions. As a result, the level of provisions and other reserves that the Group has set aside
may prove insufficient and the Group may be required to create significant additional provisions and other
reserves in future periods.
All of the aforementioned risks could have a material adverse effect on the Group's business, financial condition,
results of operations and prospects.
The Group's credit portfolio has industry and customer concentration, which renders it susceptible to
deterioration in the financial condition of such industries and customers.
Cash and non-cash loans and receivables to the Group's 10 largest customers represented 14%, 14% and 17% of
its total corporation and commercial cash and non-cash loans and receivables as of 31 December 2015, 2014 and
2013, respectively. In terms of sector concentration, as of 31 December 2015, cash and non-cash loans and
receivables in the services, manufacturing and construction sectors comprised 34.8%, 30.3% and 8.1%,
respectively, of the Group's total cash and non-cash loans and receivables. See "Selected Statistical and Other
Information—The Group's Loan Portfolio—Distribution of Loans and Receivables by Sector". A downturn in
any of these sectors, individually or in the aggregate, may adversely affect the financial condition of the
companies operating in such sectors and may result in, among other things, a decrease in funds that such
corporate and commercial customers hold on deposit with the Group, defaults on their obligations owed to the
Group or a need for the Group to increase provisions in respect of such obligations, any of which could have a
material adverse effect on the Group's business, financial condition, results of operations and prospects.
The Group's SME customer base is particularly sensitive to adverse developments in the Turkish economy,
which renders such lending activities relatively riskier than lending to larger corporate customers.
SME loans accounted for 57.9% of the Bank's total loans as of 31 December 2015 (both Turkish Lira and
foreign currency). SMEs, who typically have less financial strength than large companies (and who, as a result,
may be more affected by negative developments in the Turkish economy including changes in growth,
unemployment and foreign exchange depreciation), are a key component of the Group's current business and
growth strategy. The availability of accurate and comprehensive financial information and general credit
information on which to base credit decisions is more limited for SMEs than is the case for large corporate
clients. Therefore, notwithstanding the credit risk policies and procedures that the Group has in place, the Group
may be unable to evaluate correctly the current financial condition of each prospective borrower and to
determine their long-term financial viability. If the Group is unable to accurately model the risk associated with
18
its SME borrowers, this could have a material adverse effect on the Group's business, financial condition, results
of operations and prospects.
On a Bank-only BRSA basis, the Bank's NPL ratio for its SME loan portfolio was 2.8% as of 31 December
2015, compared to 3.1% for the Bank's entire loan portfolio as of 31 December 2015. A significant portion of
the Group's non-performing loans date from 2001 and earlier, and were classified as NPLs in the aftermath of
the economic crisis in Turkey in 2000-2001 and subsequent reorganisation of state banks. Excluding these
legacy NPLs, the Group's NPL ratio would be lower. It is generally accepted that lending to the SME segment
represents a relatively higher degree of risk than comparable lending to other groups. There can be no
assurances that the Group's NPLs for its SME banking division, or any of its divisions, will not materially
increase in the near to medium term, in particular if there is a deterioration in macroeconomic conditions in
Turkey or if the Group is unable to accurately model the risk associated with the SME or other borrowers to
which it extends credit. See "—The Group's risk management strategies and internal control capabilities may
leave it exposed to unidentified or unanticipated risks". Furthermore, growth in the Group's loan portfolio is due
to increasing loan demand, which may lead to deterioration in the underlying asset quality and an increase in
loan to deposit ratios, due to a relatively slower growth in deposits. Any failure by the Group to manage the
growth of its loan portfolio or the credit quality of its creditors within prudent risk parameters or to monitor and
regulate the adequacy of its provisioning levels could have a material adverse effect on the Group's business,
financial condition, results of operations and prospects.
The Group is controlled by the Privatization Administration, which has no obligation to maintain its level of
ownership in, or provide financial support to, the Group and whose interests may conflict with the interests of
the Bank's Noteholders.
As of the date of this Offering Memorandum, the Privatization Administration owns 51.06% of the outstanding
share capital of the Bank and the public free float of the Bank's shares on the BIST corresponds to 48.93% of the
Bank's outstanding shares. A majority is required to decide matters submitted to a vote of shareholders. Due to
the percentage of the Bank's shares owned by the Privatization Administration, the Privatization Administration
will have the power to control the outcome of most shareholder votes, including amending the Bank's articles of
association (the "Articles") and electing all members of the Bank's board of directors. The interests of the
Privatization Administration may differ from those of the Bank's Noteholders and, although there are certain
measures set forth in the Capital Markets Law, the Turkish Commercial Code (Law No. 6102) (the "TCC") and
other relevant legislation to control the abuse of power by controlling shareholders, such measures may not be
sufficient and the Privatization Administration may prevent the Group from making certain decisions or taking
certain actions that would benefit the Group. Moreover, although the Group has not experienced pressure from
the Privatization Administration to date to conduct transactions upon more favourable terms with Turkish
state-owned or state-controlled legal entities or to deviate from its credit and lending policies and procedures
and although there are certain Turkish laws and regulations aimed at protecting Turkish state-owned or
state-controlled financial institutions from such pressure, there can be no assurances that the Group will not
come under pressure to engage in activities with a lower profit margin than it would otherwise pursue or to
provide financing to certain companies or entities on favourable or non-market terms. Any such activities could
have a material adverse effect on the Group's business, financial condition, results of operations and prospects.
In the event that the Privatization Administration ceases to hold a majority of Bank's outstanding share
capital, the Bank would, after a certain period, no longer be entitled to be the exclusive distributor of
cooperative loans to SMEs through credit union cooperatives or to grant loans to SMEs operating in the
manufacturing sector that are exempt from a banking insurance transaction tax of 5% of interest expense.
While the Group has been directly or indirectly controlled by the Turkish Government since its establishment,
neither the Privatization Administration nor any Turkish Government-controlled entity is under any obligation
to maintain its ownership interest or otherwise support the Group in the event of a future financial crisis or in
any other event. In November 2012, the Privatization Administration, by way of a follow-on public offering on
the BIST, reduced its ownership stake in the Bank from approximately 75% to 51.06%. In the event that the
Privatization Administration ceases to hold a majority of the Bank's outstanding share capital, the Bank would,
after a period of five years from the date the Privatization Administration cease to hold a majority, no longer be
entitled to be the exclusive distributor of cooperative loans to SMEs through credit union cooperatives or to
grant loans to SMEs (as defined by the Turkish Government as enterprises with less than TL 40 million in
annual turnover and less than 250 employees) operating in the manufacturing sector that are exempt from a
banking insurance transaction tax of 5% of interest expense. See "The Group and its Business—Business—SME
Banking". Although Halkbank's management believes that even without an exclusive right to distribute
cooperative loans or to grant loans that are exempt from banking insurance transaction tax, the Group would
retain a strong position in the SME loan market in Turkey because of its deep and long-standing banking
relationships with SMEs and credit union cooperatives, there can be no assurances that any loss of such
19
exclusivity rights or tax exemptions would not have a material adverse effect on the Group's position in the
SME market or, more generally, its business, financial condition, results of operations and prospects.
A significant portion of the Group's total assets is comprised of securities issued by the Turkish Government,
and thus, in the event of a Turkish Government default, there would be a direct negative impact on the Group
in addition to a severe impact on the Turkish economy.
The Group, like other Turkish banks, has traditionally invested a significant portion of its assets in securities
issued by the Turkish Government. As of 31 March 2016, 14.5% of the Group's total consolidated assets were
invested in securities issued by the Turkish Government (14.8% as of 31 December 2015). In addition to any
direct losses that the Group might incur, a default by the Turkish Government in making payments on its
treasury bills and other securities would have a significant negative impact on the Turkish economy and the
Turkish banking system generally and thus would have a material adverse effect on the Group's business,
financial condition, results of operations and prospects. See "—The market for Turkish securities is subject to a
high degree of volatility due to developments and perceptions of risks in other countries".
Security interests or loan guarantees provided in favour of the Group may not be sufficient to cover any
losses in the event of defaults by debtors and may entail long and costly enforcement proceedings.
Granting collateral to obtain a bank loan and foreclosing on security interests are subject to certain costs and
formal limitations under Turkish law. It may not be possible to obtain a security interest, such as a mortgage, for
all loans that the Group provides, and certain of the Group's loans are unsecured or secured only by a personal
guarantee. Enforcement of any type of collateral involves a long and costly procedure under Turkish law. The
Group may have difficulty foreclosing on collateral provided by the borrower or by a third party when debtors
default on their loans and would likely face further difficulties if any of its key customers were to default on
their loans. In addition, the time and costs associated with enforcing security interests in Turkey may make it
uneconomical for the Group to pursue such proceedings, adversely affecting its ability to recover its loan losses.
Any decline in the value or liquidity of collateral may prevent the Group from foreclosing on such collateral for
its full value or at all, in the event that a borrower becomes insolvent and enters bankruptcy, and could thereby
have a material adverse effect on the Group's ability to recover any loan losses.
The Group has incurred, and continues to incur, a risk of counterparty default that arises, for example, from
entering into swaps or other derivative contracts under which counterparties have financial obligations to
make payments to the Group.
The Group routinely executes transactions with counterparties in the financial services industry, including
commercial banks, investment banks, central banks and other institutional clients, resulting in a significant
credit concentration. A significant portion of the Group's hedging and derivative transactions are entered into
with non-Turkish financial institutions. The Group is exposed to counterparty risks which were increased as a
result of financial institution failures and nationalisations during the global financial crisis and will continue to
be exposed to the risk of loss if counterparty financial institutions fail or are otherwise unable to meet their
obligations. In addition, the Group's credit risk would be exacerbated if the collateral it holds cannot be realised,
or is not liquidated, at prices that are sufficient to recover the full amount of the loan or derivative exposure it is
intended to secure. In addition, a default by, or even concerns about the financial resilience of, one or more
financial services institutions could lead to further significant systemic liquidity problems, or losses or defaults
by other financial institutions, which could have a material adverse effect on the Group's business, financial
The Group's business, financial condition, results of operations and prospects have been affected by liquidity
risks in a volatile Turkish market, and may be further affected by liquidity risks, particularly if Turkish or
international financial market conditions deteriorate.
Liquidity risk comprises uncertainties in relation to the Group's ability, under adverse conditions, to access
funding necessary to cover obligations to customers, meet the maturity of liabilities and to satisfy capital
requirements. It includes both the risk of unexpected increases in the cost of financing and the risk of not being
able to structure the maturity dates of the Group's liabilities reasonably in line with its assets, as well as the risk
of not being able to meet payment obligations on time at a reasonable price due to liquidity pressures. The
Group's inability to meet its net funding requirements due to inadequate liquidity could have a material adverse
effect on its business, financial condition, results of operations and prospects.
The Group primarily relies on short-term liabilities in the form of deposits (typically, term deposits with terms
of 30 days to three months) as its source of funding and has a mix of short-, medium- and long-term assets in the
form of retail, consumer and corporate loans, mortgages and credit cards, which may result in asset-liability
20
maturity gaps and ultimately liquidity problems. See "Risk Management—Management of Specific Risks—
Liquidity Risk".
There can be no assurances that depositors will not withdraw their funds at a rate faster than the rate at which
borrowers repay. If deposit growth does not keep pace with loan and asset growth, the Group may need to
access more expensive sources of financing to meet its funding requirements, including wholesale funding.
Furthermore, the Central Bank's recent policies have raised Turkish banks' reserve requirements for Turkish Lira
deposits, which have limited Turkish Lira liquidity. An inability on the Group's part to access funds or to access
the markets from which it raises funds may put the Group's positions in liquid assets at risk and lead the Group
to be unable to finance its operations and growth plans adequately. The Group may be unable to secure funding
in the international capital markets if conditions in these markets, or its credit ratings, were to deteriorate.
A rising interest rate environment could compound the risk of the Group not being able to access funds at
favourable rates. These and other factors could lead creditors to form a negative view of the Group's liquidity,
which could result in less favourable credit ratings, higher borrowing costs and less accessible funds. In addition,
the Group's ability to raise or access funds may be impaired by factors that are not specific to its operations,
such as general market conditions, severe disruption of the financial markets or negative views about the
prospects of the sectors to which the Group provides its loans. While the Group aims to maintain at any given
time an adequate level of liquidity reserves, strains on liquidity caused by any of these factors or otherwise
could adversely affect the Group's business, financial condition, results of operations and prospects.
Despite the Group's liquidity policies, there can be no assurances that the Group will not experience liquidity
issues in the future. In the event that the Group experiences liquidity issues, market disruptions and credit
downgrades may cause certain sources of funding to become unavailable. For example, in the case of a liquidity
crisis, wholesale funding becomes increasingly costly and more difficult to obtain which may adversely affect
borrowing using many capital market instruments including asset-backed securities and Eurobonds. The Group's
inability to refinance or replace deposits and devalued assets with alternative funding available on commercially
reasonable terms, if at all, could result in the failure of the Group to service its debt, fulfil loan commitments or
meet other on- or off-balance sheet payment obligations on specific dates, which could have a material adverse
effect on the Group's business, financial condition, results of operations and prospects.
The Group relies on short-term demand and time deposits as its primary source of funding, but primarily has
medium- and long-term assets, which may result in asset-liability maturity gaps.
In common with other Turkish banks, many of the Group's liabilities are demand and time deposits, whereas its
assets are generally medium to long-term (such as loans and mortgages). Although the Group has accessed
wholesale funding markets (through syndicated loans facilities and international capital markets) in order to
diversify its funding sources, such borrowings have not eliminated asset-liability maturity gaps.
If a substantial portion of the Group's depositors withdraw their demand deposits or do not roll over their time
deposits upon maturity, or if the Group fails to refinance some of its large short- to medium-term borrowings,
the Group may need to access more expensive sources of financing to meet its funding requirements, including
wholesale funding and the foreign exchange markets. No assurances can be given that the Group will be able to
obtain additional funding on commercially reasonable terms as and when required, or at all. The Group's
inability to refinance or replace such deposits or borrowings with alternative funding could have a material
adverse effect on the Group's liquidity, business, financial condition, results of operations and prospects.
The Group may have difficulty raising capital on reasonable terms.
By regulation, the Group is required to maintain certain capital levels and capital adequacy ratios in connection
with its banking business, which depend in part upon the level of the Group's risk-weighted assets. Basel II took
effect in Turkey on 1 July 2012.
Basel III is expected to be implemented in Turkey by 2019. Basel III regulations mainly include requirements
regarding regulatory capital, liquidity adequacy, leverage ratio and counterparty credit risk measurements. The
BRSA issued regulations for the implementation of capital standards and leverage ratios which came into force
on 1 January 2014 and a regulation for the implementation of liquidity coverage ratio which was issued on 21
March 2014 and came into force as of 1 January 2014 (with the exception of certain provisions relating to
minimum coverage ratio levels and the consequences of failing to maintain compliance, which entered into
effect on 1 January 2015). The Bank's total regulatory capital to risk weighted assets ratio calculated in
accordance with the Basel III framework, prepared on an unconsolidated basis in accordance with BRSA
Reporting Standards, was 13.7% as of 31 March 2016 (13.8% as of 31 December 2015). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations—Capital Adequacy". Any other
potential changes relating to Basel III or any other capital adequacy related revisions may impact the manner in
21
which the Group calculates its capital ratios and may impose higher capital requirements, which may require the
Group to raise additional capital in the future to ensure that it has sufficient capital reserves, which, in turn,
could have a material adverse effect on the Group's business, financial condition, results of operations and
prospects. See also "Turkish Regulatory Environment—Capital Adequacy".
Additionally, it is possible that the Group's capital levels could decline due to, among other things, credit losses,
increased credit reserves, currency fluctuations or dividend payments. In addition, the Group may need to raise
additional capital in the future to ensure that it has sufficient capital to support future growth in its assets.
Should the Group desire or be required to raise additional capital, that capital may not be available at all or at a
price that the Group considers to be reasonable. If any or all of these risks come to fruition, then this could have
a material adverse effect on the Group's liquidity, business, financial condition, results of operations and
prospects.
Market risks arising from open positions in interest rate, currency, and equity products affect the Group,
particularly if economic conditions deteriorate.
The Group is exposed to market risk as a consequence of the management of its overall financial position,
including its trading portfolio. Therefore, the Group is exposed to losses arising from adverse movements in
levels and volatility of interest rates, foreign exchange rates and to a lesser extent equity prices. If the Group
were to suffer substantial losses due to any such market volatility it would have a material adverse effect on the
Group's business, financial condition, results of operations and prospects.
Fluctuations in foreign currency exchange rates, to the extent they are not adequately hedged against, may
adversely affect the Group's financial position and cash flows.
A portion of the Group's assets and liabilities are denominated in foreign currencies, particularly the U.S. Dollar
and Euro. As of 31 March 2016, the Group's total foreign currency assets amounted to TL 72.5 billion
(TL 70.9 billion as of 31 December 2015), whereas the Group's total foreign currency liabilities amounted to TL
73.7 billion (TL 73.4 billion as of 31 December 2015), which resulted in a net foreign currency position of TL
(1.0 billion) (TL 0.3 billion as of 31 December 2015). The Group translates such assets and liabilities, as well as
interest earned or paid on such assets and liabilities and gains or losses realised upon the sale of such assets, to
Turkish Lira in preparing its financial statements. As a result, the Group's reported income is affected by
changes in the value of the Turkish Lira against foreign currencies (primarily the U.S. Dollar and Euro).
Moreover, if the Turkish Lira were to depreciate materially against foreign currencies, then it would be more
difficult for the Group's customers with income primarily or entirely denominated in Turkish Lira to repay their
foreign currency-denominated loans.
The Group manages foreign currency risk primarily by using natural hedges that arise from offsetting foreign
currency denominated assets and liabilities. When deemed necessary, the Group enters into foreign currency
swap transactions with other banks. See "Risk Management—Management of Specific Risks—Market Risk—
Currency Risk".
The Group's risk management strategies and internal control capabilities may leave it exposed to unidentified
or unanticipated risks.
In the course of its business activities, the Group is exposed to a variety of risks, including credit risk, market
risk, liquidity risk and operational risk. See "Risk Management". Although the Group invests substantial time
and effort in risk management strategies and techniques, it may nevertheless fail to adequately manage risk in
some circumstances. If circumstances arise that the Group has not identified or anticipated adequately, or if the
security of its risk management systems is compromised, then the Group's losses could be greater than expected,
which could have a material adverse effect on the Group's business, financial condition, results of operations
and prospects.
Some of the Group's methods of managing risk are based on its use of historical market behaviour, which may
not predict future risk exposures that could be significantly greater than historical measures indicate. If its
measures to assess and mitigate risk prove insufficient, the Group may experience unexpected losses which
could have a material adverse effect on its business, financial condition, results of operations and prospects. For
example, assets that are not traded on public trading markets, such as derivative contracts between banks, may
be assigned values that the Group calculates using mathematical models and the deterioration of assets like these
could lead to losses that the Group has not anticipated.
Other risk management practices, including "know-your-client" practices, depend upon the evaluation of
information regarding the markets in which the Group operates, its clients or other matters that are publicly
available or information otherwise accessible to the Group. As such practices are less developed in Turkey than
22
in other, non-emerging markets, and may not have been consistently and thoroughly implemented in the past,
this information may not be accurate, complete, up to date or properly evaluated in all cases.
The Group is also exposed to operational risk, which is the risk of loss resulting from inadequacy or failure of
internal processes or systems or from external events. The Group is susceptible to, among other things, fraud by
employees or outsiders, including unauthorised transactions and operational errors, clerical or record-keeping
errors and errors resulting from faulty computer or telecommunications systems. Given the Group's high volume
of transactions, fraud or errors may be repeated or compounded before they are discovered and rectified.
Consequently, any inadequacy of the Group's internal processes or systems in detecting or containing such risks
could result in unauthorised transactions and errors, which may have a material adverse effect on the Group's
The Group may also suffer service interruptions from time to time due to failures by third party service
providers and natural disasters, which are beyond the Group's control. Such interruptions may result in
interruptions in services to the Group's branches and may impact customer service.
Any material deficiency in the Group's risk management or other internal control policies or procedures may
expose it to significant credit, liquidity, market or operational risk, which may in turn have a material adverse
effect on the Group's business, financial condition, results of operations and prospects.
Any failure or interruption in or breach of the Group's information systems, and any failure to update such
systems, may result in lost business and other losses.
The Group relies heavily on information systems to conduct its business. Any failure or interruption or breach in
security of these systems could result in failures or interruptions in its risk management, general ledger, deposit
servicing and/or loan origination systems. Although the Group has developed back-up systems and business
continuity plans for cases of emergency, if the Group's information systems were to fail, even for a short period
of time, it could be unable to serve some customers' needs on a timely basis and could thus lose their business.
Likewise, a temporary shutdown of the Group's information systems could result in costs that are required for
information retrieval and verification. There can be no assurances that such failures or interruptions will not
occur or that the Group will adequately address them if they do occur. Accordingly, the occurrence of such
failures or interruptions could have a material adverse effect on the Group's business, financial condition, results
of operations and prospects. In addition, there can be no assurances that the rollout or implementation of any
new systems or processes will provide the desired benefit to the Group's business, or will not involve failures or
business interruptions that could have a material adverse effect on the Group's business, financial condition,
results of operations and prospects. See "The Group and its Business—Information Technology".
The Group's success depends upon retaining key members of its senior management.
The Group is dependent upon its senior management to implement its strategy and operate its day-to-day
business. In addition, corporate, retail and other relationships of members of senior management are important
to the conduct of the Group's business. If key members of senior management were to leave the Group, this
prospects.
The Group may have difficulty in hiring and retaining qualified personnel.
The Group's ability to successfully implement its strategy depends upon its ability to recruit and maintain
suitably qualified and capable employees. Even though its human resources policy is aimed at achieving these
goals, it is not possible to guarantee that constraints in this area will not arise in the future. An inability to attract
and retain qualified and capable employees for each position may limit or delay the execution of the Group's
strategy, and could have a material adverse effect on its business, financial condition, results of operations and
prospects.
Labour disputes or other industrial actions could disrupt operations or make them more costly.
Labour disputes or work stoppages could disrupt operations or make them more costly. The Group is exposed to
the risk of labour disputes and work stoppages. The Bank's employees are unionised and the Bank has entered
into a collective bargaining agreement (toplu iş sözleşmesi) with Öz Finans İş on 17 February 2015, which was
effective as of 1 January 2016. Although the Group has not experienced any work stoppages or labour disputes,
there can be no assurances that work stoppages or labour disputes will not occur in the future. If employees
engage in a prolonged work stoppage or strike, it could have a material adverse effect on the Group's business,
financial condition, results of operations and prospects.
23
Restrictive covenants under the Bank's outstanding agreements may adversely affect the Bank's operations,
and a breach of any of these covenants could result in the counterparty exercising remedies against the Bank
or its properties.
The Bank is party to a range of agreements, including in respect of debt instruments issued by the Bank, which
contain restrictive covenants, such as negative pledges, maintenance of certain regulatory authorisations,
refraining from certain transactions with affiliates, and certain financial reporting requirements. These restrictive
covenants may adversely affect the Bank's operations. In addition, a breach of any of these covenants could
result in a default under the applicable agreements, which could result in the counterparty exercising remedies
against the Bank or its properties.
Future events may be different than those reflected in the management assumptions and estimates used in
the preparation of the Group's financial statements, which may cause unexpected reductions in profitability
or losses in the future.
Pursuant to BRSA rules and interpretations in effect as of the date of this Offering Memorandum, the Group is
required to use certain estimates in preparing its financial statements, including accounting estimates to
determine loan loss reserves and the fair value of certain assets and liabilities, among other items. Should the
estimated values for such items prove substantially inaccurate, particularly because of significant and
unexpected market movements, or if the methods by which such values were determined are revised in future
BRSA rules or interpretations, the Group may experience unexpected reductions in profitability or losses.
The Group may not be able to fully comply with anti-money laundering regulations, which could result in
criminal and regulatory fines and reputational damage.
Although the Group has implemented comprehensive anti-money laundering ("AML") and "know-yourcustomer" ("KYC") policies and procedures and seeks to adhere to all requirements under Turkish legislation
aimed at preventing the Group from being used as a vehicle for money laundering, there can be no assurances
that these policies and procedures will be completely effective. Moreover, to a certain extent the Group must
rely upon correspondent banks to maintain and properly apply their own appropriate AML and KYC policies
and procedures. If the Group in the future fails to comply with timely reporting requirements or other AML or
KYC regulations, or is associated with money laundering or terrorist financing, its reputation, business, financial
condition, results of operations or prospects could be adversely affected. In addition, involvement in such
activities may carry criminal or regulatory fines and sanctions.
The audit reports in relation to certain of the BRSA Financial Statements included a qualification.
The audit reports in relation to the 2015 Consolidated BRSA Financial Statements, the 2015 Unconsolidated
BRSA Financial Statements, the 2013 Consolidated BRSA Financial Statements and the 2013 Unconsolidated
BRSA Financial Statements each included a qualification as such financial statements included a general
provision and general provisions are not recognised under BRSA Reporting Standards.
The Group's consolidated statement of financial position as of 31 December 2015 included in the 2015
Consolidated BRSA Financial Statements included a general provision amounting to TL 123.5 million. The
Group's consolidated statement of financial position as of 31 December 2013 included in the 2013 Consolidated
BRSA Financial Statements included a general provision amounting to TL 132.2 million (the 2013 Consolidated
BRSA Financial Statements also included a reversal of a general provision amounting to TL 196.1 million in the
period and which was recorded as income). Halkbank's management elected to take these general provisions in
light of potential negative circumstances that might arise from any change in the economy or market conditions.
Although these general provisions did not impact the Group's level of tax or capitalisation ratios, if the Group
had not established these provisions, then its net income might have been higher in such years. These provisions
may be released in future periods and thus affect net income. See "Management's Discussion and Analysis of
and Results of Operations—Provisioning" and the "Independent auditors' report" in the 2015 Consolidated
BRSA Financial Statements and the 2013 Consolidated BRSA Financial Statements incorporated by reference
in this Offering Memorandum.
Risk Factors Relating to Turkey
Economic instability in Turkey may have a material adverse effect on the Group's business, financial
Since the early 1980s, the Turkish economy has undergone a transformation from a highly protected and
regulated system to a more open market system. Although the Turkish economy has generally responded well to
this transformation, it has experienced severe macroeconomic imbalances, including two financial crises in 1994
24
and 2000-2001, and endured significant current account deficits and a considerable level of unemployment.
While the Turkish economy has been significantly stabilised due, in part, to support from the International
Monetary Fund, Turkey may experience a further significant economic crisis in the future, which could have a
material adverse effect on the Group's business, financial condition and/or results of operations.
The Group's banking and other businesses are significantly dependent upon its customers' ability to make
payments on their loans and meet their other obligations to the Group. If the Turkish economy suffers because
of, among other factors, a reduction in the level of economic activity, devaluation of the Turkish Lira, inflation
or an increase in domestic interest rates, then a greater portion of the Group's customers might not be able to
repay loans when due or meet their other debt service requirements to the Group, which would increase the
Group's past due loan portfolio and could materially reduce its net income and capital levels. In addition, a
slowdown or downturn in the Turkish economy would likely result in a decline in the demand for the Group's
products. The occurrence of any or all of the above could have a material adverse effect on the Group's business,
financial condition and/or results of operations.
Turkey's high current account deficit may result in Turkish Government policies that negatively affect the
Group's business.
Turkey's current account deficit has widened considerably in recent years, largely attributable to a rising trade
deficit. In 2010, Turkey's current account deficit was U.S.$44.6 billion, which increased to U.S.$74.4 billion in
2011 before decreasing to U.S.$48.0 billion in 2012, according to the Central Bank. The decline in the current
account deficit in 2012 was largely the result of coordinated measures initiated by the Central Bank, the BRSA
and the Turkish Ministry of Finance to lengthen the maturity of deposits, reduce short-term capital inflows and
curb domestic demand. The main aim of these measures has been to slow growth in the current account deficit
by controlling the rate of loan growth. Unless there is a decline in credit growth, government authorities have
stated that bank-specific actions might be implemented.
The decline in the current account deficit experienced in 2012 came to an end in early 2013, with the current
account deficit increasing to U.S.$63.6 billion in 2013 due principally to a recovery in domestic demand.
However, in order to support financial stability and address rising inflation, the Central Bank implemented
interest rate increases in January 2014, which had the effect of reducing domestic consumption as well as
consumer loans. This in turn reduced the current account deficit to U.S.$32.2 billion as of the year ended 31
December 2015. Although there have been some improvements due to lower oil prices, it is unclear whether
Turkey's current account deficit will continue to decrease or whether further measures might need to be taken by
the Turkish governmental authorities to control domestic consumption and depreciation of the Turkish Lira. Any
related reduction in economic growth could have a material adverse effect on the Group's business, financial
If the value of the Turkish Lira relative to the U.S. Dollar and other relevant trading currencies changes, then the
cost of importing oil and other goods and services and the value of exports might both change in a
corresponding fashion, resulting in potential increases or decreases in the current account deficit. As an increase
in the current account deficit might erode financial stability in Turkey, the Central Bank has taken certain
actions to maintain price and financial stability. See "—The Central Bank's policy on reserve requirements and
interest rates could have a material adverse effect on the Group's business, financial condition, results of
operations and prospects". Such actions by the Central Bank and similar or other actions that it might take in the
future might not be successful in reducing the current account deficit. If the current account deficit widens more
than anticipated, financial stability in Turkey might deteriorate. Financing the high current account deficit might
be difficult in the event of a global liquidity crisis and/or declining interest or confidence of foreign investors in
Turkey, and a failure to reduce the current account deficit could have a negative impact on Turkey's sovereign
credit ratings. Any such difficulties may lead the Turkish government to seek to raise additional revenue to
finance the current account deficit or to seek to stabilise the Turkish financial system, and any such measures
might adversely affect the Group's business, financial condition and/or results of operations.
In nominal terms, between 31 December 2014 and 31 December 2015, the Turkish Lira depreciated against the
U.S. dollar by 25.4%. In particular, the value of the Turkish Lira depreciated against major currencies in 2015
largely due to the increased risk perception in global markets regarding the market's expectation of the U.S.
Federal Reserve's increase of the U.S. federal-funds rate and the uncertainty resulting from the general elections
in Turkey and other political events described under "Risk Factors—Risk Factors Relating to Turkey—Political
developments in Turkey may have a material adverse effect on the Group's business, financial condition, results
of operations and prospects". In light of developments, the Central Bank prepared a roadmap to react to a
possible rate hike by the U.S. Federal Reserve. The roadmap, which has as its base case a normalisation process
by the U.S. Federal Reserve, proposes the implementation of tight liquidity for the Turkish Lira, balanced
foreign exchange liquidity and financial sector policies that are supportive of a tighter monetary policy. In
25
December 2015, the U.S. Federal Reserve raised the U.S. federal-funds rate by 0.25%. While the impact of such
increase (and any future rate increases) is uncertain, this initial step towards normalisation reduced some
volatility, permitting the Turkish Lira and certain other emerging market currencies to appreciate in the short
term. The Turkish Lira depreciated against the U.S. dollar by 1.7% (on a nominal basis) for the first five months
of 2016. In this context, instead of responding to the U.S. Federal Reserve's actions by changing the interest
rates and implementing the roadmap, the Central Bank tightened further the liquidity of the Turkish Lira.
Having declined to 7.99% in March 2015, the Central Bank's average funding rate increased initially to 8.28%
in April 2015 and then climbed to 8.81% as of the end of 2015. The Central Bank's average funding rate further
increased to 9.14% in February 2016, but then subsequently decreased to below 9% in March 2016 due to the
U.S. Federal Reserve's dovish stance in its March 2016 meeting.
Although Turkey's economic growth dynamics depend to some extent upon domestic demand, Turkey is also
dependent upon trade with Europe. A significant decline in the economic growth of any of Turkey's major
trading partners, such as the EU, could have an adverse impact on Turkey's balance of trade and adversely affect
Turkey's economic growth. While diversification in the export markets towards Middle East and other regional
countries partially offsets the negative impacts of external demand-related risks on domestic economic activity,
the EU remains Turkey's largest export market. A decline in demand for imports from the EU could have a
material adverse effect on Turkish exports and Turkey's economic growth and result in an increase in Turkey's
current account deficit. The continuing political turmoil in certain Middle Eastern markets could lead to a
decline in demand for imports with a similar negative effect on Turkey's economic growth and current account
deficit.
Turkey is an energy-dependent country and recorded U.S.$37.8 billion of energy imports in 2015. In 2015
Turkey's current account deficit reached U.S.$32.2 billion and, as such, energy imports exceeded the country's
current account deficit and represented 18.3% of Turkey's total imports during 2015. While falling oil prices in
December 2015 and early 2016 have resulted in a positive impact on Turkey's current account deficit, any
geopolitical development concerning energy security could have a material impact on Turkey's current account
balance. With regard to this, the efforts in northern Iraq to export its oil reserves via Turkish territory might
lower Turkey's energy costs; however, in order to export its oil reserves, the regional government in northern
Iraq would need to reach an agreement with Iraq's central government. Turkey might also be able to diversify its
energy suppliers and lower its energy cost as a result of the interim arrangement between China, France, Russia,
the United Kingdom, the United States and Germany (the "P5+1 Countries") and Iran. Nonetheless, both of
these approaches are subject to significant political and other risks and may not result in reduced energy costs to
Turkey.
In late 2011, the Turkish Government declared its intention to take additional measures to decrease the current
account deficit, including domestic production incentives and measures aimed at slowing imports and the high
growth rate of loan growth. Accordingly, the Central Bank increased Turkish Lira reserve requirements, while
the BRSA has introduced regulation designed to curb consumer lending. See "Turkish Regulatory Environment".
There can be no assurance that these or any other regulations that may be introduced by the BRSA or the
Central Bank will not have a material adverse effect on the Group's business, financial condition, results of
Turkey's economy has been subject to significant inflationary pressures in the past and may become subject
to significant inflationary pressures in the future.
The Turkish economy has experienced significant inflationary pressures in the past with year-over-year
consumer price inflation rates as high as 69.7% in the early 2000s; however, weak domestic demand and
declining energy prices in 2009 caused the domestic year-over-year consumer price index to decrease to 6.5% at
the end of 2009, the lowest level in many years. Consumer price inflation was 8.8%, 8.2% and 7.4% in 2015,
2014 and 2013, respectively. Domestic producer price inflation was 5.7%, 6.4% and 7.0% in 2015, 2014 and
2013, respectively. Significant global price increases in major commodities such as oil, cotton, corn and wheat
would be likely to increase supply side inflation pressures throughout the world. These inflationary pressures
and any further depreciation of the Turkish Lira may result in Turkish inflation exceeding the Central Bank's
inflation target, which may cause the Central Bank to modify its monetary policy. Inflation-related measures
that may be taken by the Turkish government in response to increases in inflation could have an adverse effect
on the Turkish economy. If the level of inflation in Turkey were to fluctuate or increase significantly, then this
prospects.
26
The Group is a highly regulated entity and changes to applicable laws or regulations, the interpretation or
enforcement of such laws or regulations or the failure to comply with such laws or regulations could have an
adverse impact on the Group's business, financial condition, results of operations and prospects.
The Group is subject to a number of banking, consumer protection, competition, antitrust and other laws and
regulations designed to maintain the safety and financial soundness of banks, ensure their compliance with
economic and other obligations and limit their exposure to risk. These laws and regulations include Turkish laws
and regulations (and in particular those of the BRSA), as well as laws and regulations of certain other countries
in which the Group operates. Additionally, the implementation process of Directives of the European
Community numbered 2006/48/EC and 2006/49/EC ("CRD") and Basel II became effective in July 2012 and
Basel III became effective on 1 January 2014. Prior to the effectiveness of Basel II and Basel III, in order to
monitor the implementation process of the banks on CRD/Basel II, the BRSA had requested banks to submit a
progress survey on the adaptation of CRD/Basel II every six months. Potential changes relating to Basel III,
once implemented by the BRSA in Turkey, may impact the manner in which the Bank calculates its capital
adequacy ratios and may impose higher capital requirements. If the Bank and/or the Group is unable to maintain
its capital adequacy or leverage ratios above the minimum levels required by the BRSA or other regulators
(whether due to the inability to obtain additional capital on acceptable economic terms, losses or otherwise),
then it may be required to seek additional capital and/or sell assets (including subsidiaries) at commercially
unreasonable prices, which could have a material adverse effect on the Group's business, financial condition
and/or results of operations. The Bank's total regulatory capital to risk weighted assets ratio calculated in
accordance with the Basel III framework, prepared on an unconsolidated basis in accordance with BRSA
Reporting Standards, was 13.7% as of 31 March 2016 (13.8% as of 31 December 2015). See "Turkish
Regulatory Environment" for a description of the Turkish banking regulatory environment.
The Banking Law, which was approved by the Turkish Parliament on 19 October 2005 and published in the
Official Gazette on 1 November 2005, replaced the previous Banks Act No. 4389 (the "Banks Act") and was
designed to address the dynamic nature of the banking sector and international financial and economic
developments and to operate in parallel with EU banking laws and regulations as well as international banking
standards. Compared to its predecessor, the Banking Law is much more comprehensive and detailed. EU
banking directives, international rules and standards and relevant country laws and applications were taken into
account during the preparation of the Banking Law. The objective of the Banking Law is to maintain the safety
and soundness of Turkish financial markets and the Turkish credit system and to protect the rights and interests
of investors. Under the Banking Law, customers' rights are regulated with new principles; measures that are to
be taken against systemic risk were introduced; honesty, competence, transparency, confidentiality and ethical
principles were made legal obligations; and an extensive list of judicial offences was defined, which may lead to
heavy penalties. The Banking Law also places a strong emphasis on remedial measures for banks in financial
difficulty.
New laws and regulations may increase the Group's cost of doing business or limit its activities. For instance,
the Central Bank has significantly increased reserve requirement ratios in order to slow down domestic demand,
discourage loan growth and lower inflation. Additionally, a Resource Utilisation Support Fund Levy has been
applied on consumer loans at a rate of 15.0%, mortgage loan-to-value ratios have been limited to 75.0%, a
ceiling on mutual fund fees has been imposed and ceiling rates on credit cards have been decreased. The BRSA
also introduced amendments to its regulations on 18 June 2011 specifically designed to curb consumer lending.
The amendments require all banks with consumer lending portfolios exceeding 20.0% of their overall loan book,
or with non-performing consumer loan (classified as illiquid claims, excluding vehicle and housing loans) ratios
greater than 8.0% of their total consumer loans, to set aside higher general provisioning of 4.0% (as compared to
1.0%) for outstanding standard loans and 8.0% (as compared to 2.0%) for outstanding closely monitored loans.
Under the 8 October 2013 amendment of the same regulation, the banks with consumer loan ratios greater than
25% of their total loans and banks with non-performing consumer loan (classified as illiquid claims (excluding
housing loans)) ratios greater than 8% of their total consumer loans (excluding housing loans) (pursuant to the
unconsolidated financial data prepared as of the general reserve calculation period) are required to set aside a 4%
general provision for outstanding (but not yet due) consumer loans (excluding housing loans) under Group I,
and an 8% general provision for outstanding (but not yet due) consumer loans (excluding housing loans) under
Group II. Since the end of 2013, banks are required to set aside at least 25% of the necessary provisioning due to
the above increase; this increased to 50% at the end of 2014 and to 100% at the end of 2015.
The amendments additionally require banks to increase risk weightings for capitalisation purposes on new
consumer loans (excluding vehicle and housing loans) with maturities of one to two years and above two years
to 150% and 200%, respectively (increased from 100% and 100%, respectively) and also impose certain limits
with respect to fees and commissions charged to the customers and increase the monthly minimum payments
required to be paid by holders of credit cards. The Group might not be able to pass on any increased costs
27
associated with such regulatory changes to its customers, particularly given the high level of competition in the
Turkish banking sector (see "—The Group faces intense competition in the Turkish banking sector from both
private banks and other Turkish Government owned financial institutions, including as a result of consolidation
in the sector, which may result in reduced net interest margins and fee income and may materially and
adversely affect the Group's business, financial condition, results of operations and prospects" above).
Accordingly, the Group might not be able to sustain its level of profitability in light of these regulatory changes
and the Group's profitability would likely be materially adversely impacted until (if ever) such changes could be
incorporated into the Group's pricing.
Additionally, on 7 March 2013, the BRSA introduced a draft communiqué on incremental additional reserve
requirements to be applicable for banks depending on their leverage ratios, which may result in an increase in
reserve requirements. Such measures could also limit or reduce growth of the Turkish economy and
consequently demand for the Group's products and services. The Central Bank also reduced overtime the
monthly cap on individual credit card interest rates from 2.34% in 2012 to 2.02% as of 1 October 2013 (the cap
remained at this rate as of 1 January 2016). On 5 August 2013, the Central Bank introduced caps on commercial
credit cards interest rates in line with the caps on individual cards. Accordingly, the ceiling for contractual
interest rates for commercial cards is set at 2.12%. On 27 May 2013, the Central Bank also amended the
Communiqué on Interest Rates of Deposits and Loans and Other Benefits from Lending Transactions,
introducing an interest rate cap on overdraft loans. Accordingly, the maximum interest rates charged on
overdraft accounts will not exceed that of credit cards. Moreover, on 7 November 2013, the Grand National
Assembly enacted a new consumer protection law, Consumer Protection Law No. 6502 ("New Consumer
Protection Law"), which was published in the Official Gazette dated 28 November 2013 and numbered 28835.
The New Consumer Protection Law came into force in May 2014 and replaced the then existing Consumer
Protection Law No. 4077 ("Existing Consumer Protection Law"). The New Consumer Protection Law's main
aims are to set out a framework to govern the imposition of fees by banks on customers and to increase
transparency and comparability between banks so that customers can make more informed decisions. Pursuant
to this or other regulations, the Government may impose limits or prohibitions on interest rates, fees and/or
commissions charged to customers, including fees associated with credit cards, or otherwise affect payments
received by the Group from its customers, which could have an adverse effect on the Group's business, financial
condition and/or results of operations.
The BRSA published a Regulation on the Measurement and Evaluation of the Capital Adequacy of Banks in the
Official Gazette dated 23 October 2015 and numbered 29511 (the "2015 Capital Adequacy Regulation"),
which entered into force on 31 March 2016, and replaced the previous Regulation on the Measurement and
Evaluation of the Capital Adequacy of Banks, which was published in the Official Gazette dated 28 June 2012
and numbered 28337 and entered into force on 1 July 2012 (the "2012 Capital Adequacy Regulation"). The
2015 Capital Adequacy Regulation sustains the capital adequacy ratios introduced by the former regulation, but
changes the risk weights of certain items. In order to further align Turkish banking legislation with Basel
principles, the BRSA also amended certain regulations and communiqués as published in the Official Gazette
dated 23 October 2015 and numbered 29511, which amendments came into force on 31 March 2016.
On 23 February 2016, the BRSA issued a domestic systemically important banks ("D-SIBs") regulation (the "DSIBs Regulation") in line with the Basel Committee standards, introducing a methodology for assessing the
degree to which banks are considered to be systemically important to the Turkish domestic market and setting
out the additional capital requirements for those banks classified as D-SIBs. The BRSA defines D-SIBs
according to their size, complexity and impact on the financial system and economic activity. The banks are to
be classified under four categories based upon a score set by the BRSA and will be required to keep additional
core Tier 1 capital buffers up to a further 3% buffer for Group 4 banks, 2% for Group 3, 1.5% for Group 2 and
1% for Group 1. In 2016, capital buffer requirements for D-SIBs will be introduced at one-fourth of the full
requirements (i.e., Group 4: 0.75%; Group 3: 0.5%, Group 2: 0.375% and Group 1: 0.25%). The buffers are to
be fully implemented by 2019. See "Turkish Regulatory Environment—Capital Adequacy". As some of the new
banking laws and regulations issued by regulatory institutions have only been implemented over the past two
years, the manner in which those laws and regulations are applied to the operations of financial institutions is
still evolving. Moreover, in light of such new laws and regulation, additional regulatory proceedings or actions
may be commenced by the BRSA and other regulators against Turkish banks to seek to reduce fees and/or
impose additional fines or penalties, which could be material. Further new laws or regulations might be adopted,
enforced or interpreted in a manner that could have a material adverse effect on the Group's business, financial
condition, results of operations and prospects. Any failure to adopt adequate responses to such changes in the
regulatory framework may have a material adverse effect on the Group's business, financial condition, results of
operations and prospects. Finally, non-compliance with regulatory guidelines could expose the Group to
potential liabilities and fines.
28
The BRSA continuously conducts examinations of all banks operating in Turkey. Even small credit
deteriorations are closely monitored by the BRSA. Financial information, total capital ratios, open positions,
liquidity, interest rate risks and credit portfolios are followed up in detail at frequent intervals. Although the
Group has implemented procedures to monitor these issues, there can be no guarantee that the Group will not
breach the ratios and limits set by the regulator.
As applicable to all other enterprises in Turkey, the Bank is also subject to competition and antitrust laws. In
November 2011, the Turkish Competition Board initiated an investigation against the Bank and 11 other banks
operating in Turkey with respect to allegations of acting in concert regarding interest rates and fees on deposits,
loans and credit card services. On 8 February 2013, the Competition Board ruled that the Bank was to be fined
TL 89.7 million (other banks were also fined, ranging from TL 10 million to TL 213 million, with fines
generally based upon net income) in connection with this investigation. As the payment of such amount is
without prejudice to making an appeal, the Bank paid three quarters of this administrative penalty (i.e., TL 67.3
million) in accordance with the provisions of law permitting a 25% reduction if paid within 30 days after the
Bank's receipt of the Competition Board's decision. The Bank has appealed this decision and has initiated
proceedings in the administrative courts. Under articles 57 and 58 of the Law on the Protection of Competition
customers may be able to bring claims against the Bank seeking damages arising from the activities that were
the subject of the Competition Board's investigations, although no customers have brought any such proceedings
nor is there any Turkish precedent for upholding such claims.
The Turkish Government's influence over the Turkish economy could negatively impact the Group's
business.
Traditionally, the Turkish Government has exercised, and continues to exercise, significant influence over many
aspects of the Turkish economy. The Turkish Government is directly involved in the Turkish economy through
its ownership and administration of State Economic Enterprises ("SEEs") which, despite the divestments
undertaken in the Turkish Government's privatisation programme, continue to represent a significant portion of
the Turkish economy. SEEs and other such public enterprises operate in business segments in which the Group
is active or may be active in the future, including businesses in the financial services sector. Accordingly, any
decisions taken by the Turkish Government with respect to SEEs and other such public enterprises may
significantly impact the Turkish economy, which could in turn have a material adverse effect on the Group's
Political developments in Turkey may have a material adverse effect on the Group's business, financial
Negative changes impacting the government and political environment, including the failure of the government
to devise or implement appropriate economic programs, may adversely affect the stability of the Turkish
economy and, in turn, the Group's business, financial condition and/or results of operations. Turkey has been a
parliamentary democracy since 1923. Unstable coalition governments have been common, and in the over 90
years since its formation Turkey had numerous, short-lived governments, with political disagreements
frequently resulting in early elections. Furthermore, though its role has diminished in recent years, the Turkish
military establishment has historically played a significant role in Turkish government and politics, intervening
in the political process.
In May 2013, protests started in İstanbul and soon spread to Ankara and other major cities in Turkey against
plans to replace Gezi Park, an urban park in İstanbul's central Taksim Square, with a commercial development.
These protests resulted in confrontations among protestors and security forces and contributed to a significant
increase in the volatility in Turkish financial markets. Related and similar protests have occurred from time to
time since the original Gezi Park events. While Halkbank's management does not believe that these conflicts
will have a material long-term negative impact on Turkey's economy or the Group's business, financial
condition or results of operation, it is possible that these (or other) protests and related circumstances could have
such an impact and/or a negative impact on investors' perception of Turkey, the strength of the Turkish economy
and/or the value and/or price of the Notes.
Beginning in late 2013, Turkish politics have been particularly volatile, commencing with a series of arrests of
prominent businessmen and family members of some cabinet ministers (three of whom resigned in December
2013) on suspicions of corruption. While the causes of these events are uncertain, there is speculation that it
reflects a division among important elements of the Turkish government, police and judiciary. The government's
responses to these events have included removing from office or reassigning certain prosecutors, judges and
police. Further, in February of 2014, the president of Turkey signed a law changing the manner in which the
police and judicial authorities are supervised by the national government. These developments have led to
concerns about the separation of powers in the national government, and contributed to significant declines in
the value of the Turkish stock market and the Turkish Lira. The occurrence of these events (which coincided
29
with the U.S. Federal Reserve's decision to reduce monthly asset purchases) and when and in what manner they
are resolved, have had and may continue to have: (a) a material negative impact on the Group's business,
financial condition and/or results of operation and (b) a negative impact on investors' perception of Turkey, the
strength of the Turkish economy and/or the value and/or price of the Notes.
Despite the occurrence of these events, the then-current Prime Minister Recep Tayyip Erdoǧan announced his
candidacy to run for the presidency, which he won with approximately 52% of the vote in August 2014.
Elections were held on 7 June 2015 resulting in no party receiving a majority of the members of parliament. The
parties with seats in parliament could not form a coalition within the period provided in the Turkish constitution;
therefore, early elections were held on 1 November 2015. In this election, the Justice and Development Party
(Adalet ve Kalkınma Partisi, or "AKP") received approximately 49% of the vote and a significant majority of
the members of parliament, thus enabling it to form a single- party government. On 22 May 2016, the Central
Executive Board of the AKP held an extraordinary congress in which the AKP appointed Mr. Binali Yildirim as
the new Prime Minister of Turkey following the resignation of Ahmet Davutoğlu. Social and political conditions
remain challenging, including with increased tension resulting from Turkey's conflict with the People's Congress
of Kurdistan (formerly known as the "PKK") (an organisation that is listed as a terrorist organisation by states
and organisations including Turkey, the EU and the United States), and there can be no assurance that such
conditions will not deteriorate.
The events surrounding any future elections and/or the results of such elections could contribute to the volatility
of Turkish financial markets and/or have an adverse effect on investors' perception of Turkey, including
Turkey's ability to adopt macroeconomic reforms, support economic growth and manage domestic social
conditions. Perceptions of political risk have also increased as a result of increased violence in Turkey,
including relating to terrorist attacks, the refugee crisis, tensions with Russia and media reporting. There can be
no assurance that the political situation in Turkey will not deteriorate. Furthermore, certain regulatory actions,
investigations, allegations of past or current wrongdoing and similar actions might increase perceptions of
political conflict or instability. Also, the BRSA's regulatory actions taken towards Asya Katılım Bankası A.Ş.
("Bank Asya") (which involved the SDIF taking over management of Bank Asya on 3 February 2015) have
incurred criticism from a number of Turkish politicians and there can be no assurance that such concerns will
not further increase.
Actual or perceived political instability in Turkey could have a material adverse effect on the Group's business,
financial condition and/or results of operations and on the value of the Notes.
The market for Turkish securities is subject to a high degree of volatility due to developments and perceptions
of risks in other countries.
In general, investing in the securities of issuers that have operations primarily in emerging markets like Turkey
involves a higher degree of risk than investing in the securities of issuers with substantial operations in the
United States, the countries of the EU or other similar jurisdictions. Summarised below are a number of risks
relating to operating in Turkey and other emerging markets.
The market for securities issued by Turkish companies is influenced by economic and market conditions in
Turkey, as well as, to varying degrees, market conditions in other emerging market countries and the United
States. Although economic conditions differ in each country, the reaction of investors to developments in one
country may cause capital markets in other countries to fluctuate. Developments or economic conditions in other
emerging market countries have at times significantly affected the availability of credit to the Turkish economy
and resulted in considerable outflows of funds and declines in the amount of foreign investments in Turkey.
Crises in other emerging market countries may diminish investor interest in securities of Turkish issuers.
Moreover, financial turmoil in any emerging market country tends to adversely affect the prices of equity and
debt securities of issuers in all emerging market countries as investors move their money to more stable,
developed markets. An increase in the perceived risks associated with investing in emerging economies could
dampen capital flows to Turkey and adversely affect the Turkish economy. There can be no assurances that
investors' interest in Turkey will not be negatively affected by events in other emerging markets or the global
economy in general.
Conflict and terrorism within Turkey or conflict and terrorism in neighbouring and nearby countries may
have a material adverse effect on the Group's business, financial condition, results of operations or prospects.
Turkey is located in a region that has been subject to ongoing political and security concerns. Political
uncertainty within neighbouring countries, such as Armenia, Georgia, Iran, Iraq and Syria, has been one of the
risks associated with investment in Turkish securities. Since December 2010, political instability has increased
markedly in a number of countries in Eastern Europe, the Middle East and North Africa, including in Ukraine,
30
Libya, Tunisia, Egypt, Syria, Jordan, Bahrain and Yemen. Unrest in those countries may affect Turkey's
relationships with its neighbours, have political implications in Turkey or otherwise have a negative impact on
the Turkish economy, including through both financial markets and the real economy. For example, heightened
tensions between Turkey and Iran could impact the Turkish economy, lead to higher energy prices in Turkey
and further negatively affect Turkey's current account deficit. In addition, certain sectors of the Turkish
economy (such as construction, iron and steel) have operations in (or are otherwise active in or have major
export markets in) the Middle East, North Africa and Eastern Europe and may experience material negative
effects, which in turn may have a material adverse effect on the Group's business, financial condition, results of
The conflict in Syria has been the subject of significant international attention and is inherently volatile and its
impact and resolution is difficult to predict. In early October 2012, Turkish territory was hit by shells launched
from Syria, some of which killed Turkish civilians. On 4 October 2012, the Turkish Parliament authorised the
government for one year to send and assign military forces in foreign countries should such action be considered
appropriate by the government, and on 3 October 2013, the authorisation was extended for one year. Beginning
in October 2014, and continuing through the date of this Offering Memorandum, elevated levels of conflict have
arisen in Iraq and Syria as militants of ISIS seized control of key Iraqi cities, which has caused a significant
displacement of people. In August and September 2014, a U.S.-led coalition began an anti-ISIS aerial campaign
in northern Iraq and Syria. At the end of July 2015, Turkey joined the U.S.-led coalition following a suicide
bomb attack in Suruç, a Turkish town bordering Syria, that killed 32 Turkish civilians and wounded nearly 100
civilians. The attack is suspected to have been carried out by ISIS and marked the beginning of a period of
severely heightened geopolitical tension. Following such incident, Turkey initiated air strikes against ISIS in
Syria and against the PKK in Northern Iraq; the latter country being one of Turkey's largest export markets.
Since July 2015, Turkey has been subjected to a number of terrorist attacks, including a gun and bomb attack on
Istanbul's Ataturk international airport on 28 June 2016 that killed more than 40 people and injured more than
200 others, as well as other attacks in tourist-focused centres in Istanbul, in the city centre in Ankara and in Kilis,
which have resulted in a number of fatalities and casualties. Such incidents are likely to continue to occur
periodically, which could have a material adverse effect on the Turkish economy and the Group's business,
financial condition, results of operation and prospects.
In early 2014, political unrest and demonstrations in Ukraine led to a change in the national government. While
the United States and the EU recognised the new government, Russia claimed that the new government was
illegitimate and was violating the rights of ethnic Russians living in the Crimean peninsula and elsewhere in
Ukraine. Escalating military activities in eastern Ukraine and on its borders, including the Russian annexation of
Crimea and the suspected downing of a large civilian airliner, have combined with Ukraine's very weak
economic conditions to create great uncertainty in Ukraine and the global markets. In addition, the United States
and the European Union have implemented sanctions against certain Russian individuals and businesses as a
result of the conflict. Resolution of Ukraine's political and economic conditions will likely not be obtained for
some time, and the situation could degenerate into increased violence or economic collapse. The disputes could
materially negatively affect Turkey's economy, including through its impact on the global economy and the
impact it might have on Turkey's access to Russian energy supplies. Such circumstances could have a material
adverse effect on the Turkish economy and the Group's business, financial condition, results of operations and
prospects.
In addition, in late 2015, Russian war planes started air strikes in Syria in support of the Syrian government. The
Russian presence in the region has reinforced the Syrian regime and has made the impact of the conflict in Syria
more difficult to predict. On 24 November 2015, Turkey shot down a Russian military aircraft near the Syrian
border claiming a violation of Turkey's airspace, which has resulted in a deterioration of the relationship
between Turkey and Russia. In January 2016, Russia implemented economic sanctions against Turkey,
primarily aiming at Turkey's agriculture, tourism and construction sectors. While the long-term impact of these
events on Turkey's economic and geopolitical circumstances is unpredictable, heightened tensions between
Turkey and Russia over Syria might materially affect the Turkish economy negatively, including through any
negative impact on Turkey's tourism revenues or its access to Russian energy supplies (Russia was a large
supplier of natural gas and one of the largest overall trading partners of Turkey in 2015 according to Turkstat).
Any such negative impacts may have a material adverse effect on the Turkish economy and the Group's
Turkey has also experienced problems with domestic terrorist and ethnic separatist groups as well as other
political unrest within its territory. In particular, Turkey has been in conflict for many years with the PKK.
Turkey has from time to time been the subject of terrorist bomb attacks, including bombings in its tourist and
commercial centres in Istanbul, Ankara and various coastal towns and (especially in the southeast of Turkey)
attacks against its armed forces. As described above following the suicide attack at the Syrian border, Turkey
31
started air strikes against the PKK in northern Iraq. The PKK has since been suspected of further bombings in
Turkey, and the clashes between Turkish security forces and the PKK have intensified in the south-eastern part
of Turkey. The intensifying conflict with the PKK might impact negatively political and social stability in
Turkey.
The above and similar circumstances have had and may continue to have a material adverse effect on the
Turkish economy and/or the Group's business, financial condition, results of operations and prospects.
Turkey is located in a high-risk earthquake zone.
On 17 August 1999, an earthquake measuring 7.6 on the Richter scale struck the area surrounding İzmit. On
12 November 1999, another earthquake measuring 7.2 on the Richter scale occurred in the city of Düzce,
between Ankara and Istanbul. More recently, on 23 October 2011, an earthquake measuring 7.2 on the Richter
scale struck eastern Turkey near the city of Van. A significant portion of Turkey's population and most of its
economic resources are located in a first-degree earthquake risk zone (i.e., the zone with the highest level of risk
of damage from earthquakes) and a number of the Group's properties and projects in Turkey are located in highrisk earthquake zones.
The Group maintains earthquake insurance, but does not have wider business interruption insurance or insurance
for loss of profits, which are not generally available in Turkey. The occurrence of a severe earthquake could
adversely affect one or more of the Group's facilities, causing an interruption in, and having an adverse effect on,
its business. In addition, a severe earthquake could harm the Turkish economy in general, which could adversely
affect the Group's business, financial condition, results of operations and prospects.
Halkbank's credit ratings may not reflect all risks, and changes to Turkey's credit ratings may affect the
Group's ability to obtain funding.
Credit ratings affect the cost and other terms upon which the Group is able to obtain funding. Rating agencies
regularly evaluate Halkbank and their ratings of Halkbank's long-term debt are based on a number of factors,
including its financial strength as well as conditions affecting the financial services industry generally. Any
ratings of Halkbank may not reflect the potential impact of all risks related to the Notes, the global financial
market and the Turkish banking sector, additional factors described in this "Risk Factors" section and any other
factors that may affect the value of the Notes. In light of the difficulties in the financial markets, there can also
be no assurances that any rating agency will maintain Halkbank's current ratings or outlooks, which could
materially adversely affect the trading values of the Notes, the Group's ability to finance its operations and the
expected expansion of its business going forward, any of which could materially adversely affect the Group's
business, financial conditions, results of operations and prospects. A downgrade or potential downgrade of the
Turkish sovereign rating could negatively affect the perception these agencies have of Halkbank's rating. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Credit Ratings".
Investors should be aware that a credit rating is not a recommendation to buy, sell or hold securities and may be
revised, suspended or withdrawn by its assigning rating agency at any time. As of the date of this offering
memorandum, each of the rating agencies is established in the EU and registered under the CRA Regulation. As
such, the rating agencies are included in the list of credit rating agencies published by the European Securities
and Markets Authority on its website in accordance with the CRA Regulation.
Risk Factors Relating to the Notes
U.S. persons investing in the Notes may have indirect contact with countries sanctioned by the Office of
Foreign Assets Control of the U.S. Department of Treasury as a result of the Group's investments in and
business with countries on the sanctions list.
The Office of Foreign Assets Control of the U.S. Department of Treasury ("OFAC") administers regulations
that restrict the ability of U.S. persons to invest in, or otherwise engage in business with certain countries,
including Iran and Sudan, and specially designated nationals (together "Sanction Targets"). As the Group is not
a Sanction Target, OFAC regulations do not prohibit U.S. persons from investing in, or otherwise engaging in
business with the Group. However, to the extent that the Group invests in, or otherwise engages in business
with, Sanction Targets, U.S. persons investing in the Group may incur the risk of indirect contact with Sanction
Targets. The Group is not restricted from doing business in countries that are the subject of OFAC sanctions and
has a representative office in Tehran, Iran (which does not conduct, and is not authorised to conduct, any
lending or deposit taking activities). In addition, the U.S. Department of State and other U.S. government
entities, the United Nations, the European Union and other governments also administer and enforce sanctions
against Iran and certain other countries, persons and entities. Neither the Group nor any of its affiliates is
currently the target of any such sanctions and the Group has adopted policies and procedures designed to
comply with applicable sanction regulations.
32
Although UN sanctions, most European sanctions and certain U.S. sanctions against Iran have been lifted
following a landmark nuclear deal between Iran, the P5+1 Countries and the EU, the U.S. and EU still maintain
significant sanctions against Iran related to its support for terrorism and its human rights record, with a number
of Iranians still remaining on the U.S. Treasury Department's sanctions list. It should also be noted that the U.S.
sanctions that were removed were mostly secondary sanctions, which seek to prevent non-U.S. individuals and
companies from trading with Iran. Substantial U.S. primary sanctions remain in place, which limit significantly
the extent to which U.S. individuals and companies can participate in any opening up of Iran's economy. In
addition, the previous sanctions imposed on Iran could be re-implemented and the landmark Iran nuclear deal
contains provisions which could lead to the previous UN resolutions against Iran "snapping back" into place
automatically following any noncompliance by Iran. See "The Group and its Business—Business—International
Banking".
Defined majorities of Noteholders may bind Noteholders who do not vote or who vote in a manner contrary to
the majority.
The Conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting
their interests generally. These provisions permit defined majorities to bind all Noteholders including
Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner
contrary to the majority.
Adverse change of law may affect Notes.
The Conditions of the Notes are based on English law in effect as of the date of this Offering Memorandum.
Similarly, the enforcement rights of the Noteholders against the Group and its assets in Turkey assume the
application of Turkish law as presently in effect. No assurance can be given as to the impact of any possible
judicial decision or change to Turkish or English law or administrative practice after the date of this Offering
Memorandum.
Exchange rate risks and exchange controls.
Halkbank will pay principal and interest on the Notes in U.S. Dollars. This presents certain risks relating to
currency conversions if an investor's financial activities are denominated principally in a currency or currency
unit (the "Investor's Currency") other than U.S. Dollars. These include the risk that exchange rates may
significantly change (including changes due to devaluation of the U.S. Dollar or revaluation of the Investor's
Currency) and the risk that authorities with jurisdiction over Halkbank's or the Investor's Currency may impose
or modify exchange controls. An appreciation in the value of the Investor's Currency relative to the U.S. Dollar
would decrease (1) the Investor's Currency-equivalent yield on the Notes, (2) the Investor's Currency-equivalent
value of the principal payable on the Notes and (3) the Investor's Currency-equivalent market value of the
Notes.
Turkish Government and monetary authorities may impose (as some have done in the past) exchange controls
that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or
principal than expected, or no interest or principal.
The Notes constitute unsecured obligations of Halkbank.
Halkbank's obligations under the Notes will constitute unsecured obligations. Accordingly, any claims against
Halkbank under the Notes would be unsecured claims. The ability of Halkbank to pay such claims will depend
upon, among other factors, its liquidity, overall financial strength and ability to generate cash flows. Moreover,
the ability of the Group to make payments from Turkey will depend upon, among other factors, the Turkish
Government not having imposed any prohibitive foreign exchange controls, the Group's ability to obtain U.S.
Dollars in Turkey and the Group's ability to secure any applicable necessary approval from the relevant
authority, which could be affected by changes in Turkish exchange controls. Any such restrictions or failure to
obtain the necessary approval could affect the Group's ability to make payment of interest and principal under
the Notes.
Claims of Noteholders under the Notes are effectively junior to those of certain other creditors.
The Notes are unsecured and unsubordinated obligations of Halkbank. Subject to statutory preferences, the
Notes will rank equally with any of Halkbank's other unsecured and unsubordinated indebtedness. However, the
Notes will be effectively subordinated to all of Halkbank's secured indebtedness, to the extent of the value of the
assets securing such indebtedness, and other preferential obligations under Turkish law (including, without
limitation, liabilities that are preferred by reason of reserve and/or liquidity requirements required by law to be
maintained by the Group with the Central Bank, claims of individual depositors with the Group to the extent of
any excess that such depositors are not fully able to recover from the SDIF, claims that the SDIF may have
33
against the Group and claims that the Central Bank may have against the Group with respect to certain loans
made by it to the Group).
There may not be an active trading market for the Notes.
There can be no assurance that an active trading market for the Notes will develop, or, if one does develop, that
it will be maintained. If an active trading market for the Notes does not develop or is not maintained, the market
or trading price and liquidity of the Notes may be adversely affected. If the Notes are traded after their initial
issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the
market for similar securities, general economic conditions and the financial condition of the Group. Although
application has been made for the Notes to be admitted to the Official List and to trading on the Main Securities
Market of the Irish Stock Exchange, there can be no assurance that such application will be accepted or that an
active trading market will develop or, if one does develop, that it will be maintained. Accordingly, the Group
can give no assurance as to the development or liquidity of any trading market for the Notes.
The market price of the Notes may be volatile.
The market price of the Notes could be subject to significant fluctuations in response to actual or anticipated
variations in the Group's operating results, actual or anticipated variations in the operating results of the Group's
competitors, adverse business developments, changes to the regulatory environment in which the Group
operates, changes in financial estimates by securities analysts and the actual or expected sale of a large number
of Notes, as well as other factors, including the trading market for Turkish sovereign debt. In addition, in recent
years the global financial markets have experienced significant price and volume fluctuations which, if repeated
in the future, could adversely affect the market price of the Notes without regard to the Group's business,
financial condition, results of operations or prospects.
The market price of investments in the Notes is also influenced by economic and market conditions in Turkey
and, to varying degrees, economic and market conditions in emerging markets generally. Although economic
conditions differ in each country, the reaction of investors to developments in one country may cause capital
markets in other countries to fluctuate. Developments or economic conditions in other emerging market
countries have at times significantly affected the availability of credit to the Turkish economy and resulted in
considerable outflows of funds and declines in the amount of foreign investments in Turkey. Crisis in other
emerging market countries may diminish investor interest in securities of Turkish issuers, including the Issuer's,
which could adversely affect the market price of investments in the Notes.
Halkbank will have the right to redeem the Notes upon the occurrence of certain legislative changes
requiring it to pay additional taxes if the withholding increases above current levels, if any, applicable to
such Notes.
The withholding tax rate on interest payments in respect of Turkish bonds issued outside of Turkey varies
depending on the original maturity of such bonds as specified under the Decrees. Pursuant to the Decrees, with
respect to bonds with a maturity of 5 years or more, the withholding tax rate on interest is 0%. Accordingly, the
withholding tax rate on interest on the Notes is 0%. Halkbank will have the right to redeem the Notes at their
principal amount together with interest accrued to but excluding the date of redemption if (a) as a result of any
change in, or amendment to, the laws or regulations of a Relevant Jurisdiction (as defined in Condition 9), or
any change in the application or official interpretation of the laws or regulations of a Relevant Jurisdiction,
which change or amendment becomes effective after 30 June 2016, on the next Interest Payment Date (as
defined in Condition 6) (i) Halkbank would be required to pay additional amounts as provided or referred to in
Condition 9; and (ii) Halkbank would be required to make any withholding or deduction for, or on account of,
any Taxes (as defined in Condition 9) imposed or levied by or on behalf of the Relevant Jurisdiction, beyond the
prevailing applicable rates on the Issue Date (as defined in Condition 6); and (b) the requirement cannot be
avoided by Halkbank taking reasonable measures available to it. No assurance can be given that, upon such a
redemption, Noteholders will be able to reinvest the amounts received upon redemption at a rate that will
provide the same rate of return as their investment in the Notes.
Investors may have difficulty enforcing foreign judgments against Halkbank or its management.
Halkbank is a public joint stock company organised under the laws of Turkey. All or substantially all of the
directors and officers of the Bank named herein reside inside Turkey and all or a significant portion of the assets
of such persons may be, and substantially all of the assets of the Bank are, located in Turkey. As a result, it may
not be possible for investors to effect service of process upon such persons or entities outside Turkey or to
enforce against them in the courts of jurisdictions other than Turkey any judgments obtained in such courts that
are predicated upon the laws of such other jurisdictions. In order to enforce such judgments in Turkey, investors
should initiate enforcement lawsuits before the competent Turkish courts. In accordance with Article 54 of
34
Turkey's International Private and Procedure Law (Law No. 5718), the courts of Turkey will not enforce any
judgment obtained in a court established in a country other than Turkey unless:
(a)
there is in effect a treaty between such country and Turkey providing for reciprocal enforcement of court
judgments;
(b)
there is de facto enforcement in such country of judgments rendered by Turkish courts; or
(c)
there is a provision in the laws of such country that provides for the enforcement of judgments of Turkish
courts.
There is no treaty between Turkey and the United States or Turkey and the United Kingdom providing for
reciprocal enforcement of judgments. There is no de facto reciprocity between Turkey and the United States.
Turkish courts have rendered at least one judgment in the past confirming de facto reciprocity between Turkey
and the United Kingdom. However, since de facto reciprocity is decided by the relevant court on a case-by-case
basis, there is uncertainty as to the enforceability of court judgments obtained in the United States or the United
Kingdom by Turkish courts in the future. Moreover, there is uncertainty as to the ability of an investor to bring
an original action in Turkey based on the U.S. federal or any other non-Turkish securities laws.
In addition, the courts of Turkey will not enforce any judgment obtained in a court established in a country other
than Turkey if:
(a)
the defendant was not duly summoned or represented or the defendant's fundamental procedural rights
were not observed;
(b)
the judgment in question was rendered with respect to a matter within the exclusive jurisdiction of the
courts of Turkey;
(c)
the judgment is incompatible with a judgment of a court in Turkey between the same parties and relating
to the same issues or, as the case may be, with an earlier foreign judgment on the same issue and
enforceable in Turkey;
(d)
the judgment is not of a civil nature;
(e)
the judgment is clearly against public policy rules of Turkey;
(f)
the court rendering the judgment did not have jurisdiction to render such judgment;
(g)
the judgment is not final and binding with no further recourse for appeal under the laws of the country
where the judgment has been rendered; or
(h)
the judgment was rendered by a foreign court that has deemed itself competent even though it has no
actual relationship with the parties or the subject matter at hand.
Investors in the Notes must rely on DTC, Euroclear and Clearstream, Luxembourg procedures.
The Rule 144A Notes will be represented on issue by a Restricted Global Certificate that will be deposited with
a custodian for DTC. The Regulation S Notes will be represented on issue by an Unrestricted Global Certificate
that will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. Except in the
limited circumstances described under "The Global Certificates―Registration of Title", investors will not be
entitled to receive Notes in definitive form. DTC, Euroclear and Clearstream, Luxembourg and their respective
direct and indirect participants will maintain records of the beneficial interests in the Global Certificates. While
the Notes are represented by the Global Certificates, investors will be able to trade their beneficial interests only
through DTC, Euroclear and Clearstream, Luxembourg and their respective direct and indirect participants, as
more fully described under "Book-Entry Clearance Systems".
While the Notes are represented by the Global Certificates, Halkbank will discharge its payment obligation
under the Notes by making payments through the relevant clearing systems. A holder of a beneficial interest in a
Global Certificate must rely on the procedures of the relevant clearing system and its participants to receive
payments under the Notes. Halkbank has no responsibility or liability for the records relating to, or payments
made in respect of, beneficial interests in either Global Certificate. Holders of beneficial interests in a Global
Certificate will not have a direct right to vote in respect of the Notes. Instead, such holders will be permitted to
act only to the extent that they are enabled by the relevant clearing system and its participants to appoint
appropriate proxies.
35
DOCUMENTS INCORPORATED BY REFERENCE
The following documents that have been previously published and filed with the BRSA shall be incorporated in,
and form part of, this Offering Memorandum:
•
the unaudited consolidated financial statements of the Group as of and for the three months ended 31
Standards, together with the independent auditor's review report thereon;
•
independent auditor's report thereon;
•
•
•
the unaudited unconsolidated financial statements of the Bank as of and for the three months ended 31
Standards, together with the independent auditor's review report thereon;
•
•
•
•
thereon;
•
thereon; and
•
thereon.
The BRSA Financial Statements listed above, all of which are in English, were prepared as convenience
translations of the Turkish language BRSA financial statements of the Group and Bank (which translations the
Bank confirms were direct and accurate). The English-language BRSA Financial Statements were not prepared
for the purpose of their inclusion in this Offering Memorandum.
36
Copies of documents incorporated by reference in this Offering Memorandum can be obtained without charge
from the registered office of the Bank and from the Bank's website at
https://www.halkbank.com.tr/en/international-banking/83/financial-reports (such website is not, and should not
be deemed to, constitute a part of, or be incorporated into, this Offering Memorandum).
The contents of any website referenced in this Offering Memorandum do not form part of (and are not
incorporated into) this Offering Memorandum.
Any documents themselves incorporated by reference in the documents incorporated by reference in this
Offering Memorandum shall not form part of this Offering Memorandum.
37
SELECTED FINANCIAL AND OTHER INFORMATION
Financial Data
The following tables present selected financial and other information of the Group as of and for the three
months ended 31 March 2016 and 2015 and as of and for the years ended 31 December 2015, 2014 and 2013,
which have been extracted from the BRSA Consolidated Financial Statements. Prospective investors should
read the following information in conjunction with "Presentation of Financial and Other Information",
"Management's Discussion and Analysis of Financial Condition and Results of Operations" and the BRSA
Consolidated Financial Statements, including the notes thereto.
Income Statement Data
Interest income ...........................................................
Interest expense ..........................................................
Net interest income ...................................................
Fees and commissions income ....................................
Fees and commissions expenses .................................
Net fees and commissions income ............................
Profit/loss from capital market operations ..................
Profit/loss from financial derivative transactions ........
Foreign exchange gains/losses ....................................
Loans and other receivables impairment loss
provisions ...............................................................
Dividend income.........................................................
Other operating income ..............................................
Other operating expenses ............................................
Net operating income/(loss) ......................................
Share of profit of equity-accounted investees .............
Income/(loss) before taxes ........................................
Tax income provision .................................................
Net profit/(loss)..........................................................
Profit/(loss) attributable to:
Group's profit/loss ..................................................
Minority shares profit/loss......................................
Three months ended
31 March
2016
2015
BRSA Consolidated
Year ended
31 December
2015
2014
(TL thousands)
2013
4,041,460
3,061,833 13,972,712 11,718,970
(2,433,177) (1,723,884) (8,038,592) (6,385,518)
1,608,283
1,337,949
5,934,120
5,333,452
374,105
404,726
1,522,184
1,414,162
(126,244)
(104,900)
(428,250)
(464,997)
247,861
299,826
1,093,934
949,165
3,897
24,070
32,960
300,329
(211,460)
(741,996)
125,581 (1,416,795)
235,449
741,612
(399,300)
1,193,706
9,391,175
(4,397,625)
4,993,550
1,159,547
(306,722)
852,825
323,093
462,114
(538,416)
(276,106)
—
414,519
(1,384,609)
637,834
3,706
641,540
(112,404)
529,136
(887,616)
11,780
1,362,299
(3,085,162)
3,494,467
11,915
3,506,382
(653,657)
2,852,725
540,589
(11,453)
38
(260,646) (1,376,855) (1,229,151)
—
6,254
23,141
334,882
1,677,504
1,095,182
(916,838) (4,206,319) (3,413,481)
818,859
2,887,879
2,835,548
3,796
10,481
10,343
822,655
2,898,360
2,845,891
(176,424)
(570,050)
(558,588)
646,231
2,328,310
2,287,303
643,549
2,682
2,317,984
10,326
2,270,398
16,905
2,842,698
10,027
BRSA Consolidated
As of 31
March
2016
Balance Sheet Data
Assets:
Cash and Balances with the Central Bank ............................
24,800,070
Banks ....................................................................................
2,014,611
Financial assets at fair value through profit or loss:
Trading financial assets ....................................................
372,445
Money Market Placements ...................................................
643,595
Loans and Receivables.......................................................... 133,175,221
Factoring Receivables ...........................................................
638,238
Finance Lease Receivables (Net) ..........................................
2,153,439
Investment securities:
Financial Assets available for Sale (Net)..........................
12,179,521
Held to maturity investment (Net) ....................................
16,754,647
Investment in Associates ......................................................
271,522
Investment in Subsidiaries ....................................................
38,029
Tangible Assets (Net) ...........................................................
3,136,993
Intangible Assets (Net) .........................................................
108,177
Assets held for sale and held from discontinued operations
(Net) .................................................................................
2,069
Investment Properties (Net) ..................................................
505,972
Tax Asset ..............................................................................
106,538
Other Assets ..........................................................................
2,414,398
Total Assets ......................................................................... 199,315,485
As of 31 December
2015
2014
(TL thousands)
2013
23,500,539
2,617,651
20,331,936
1,458,532
20,021,395
1,908,775
339,507
53,874
127,219,551
486,885
2,204,752
225,980
302,107
101,831,153
361,345
1,902,536
185,320
230,684
84,968,927
325,332
1,693,756
11,535,143
16,904,877
264,031
38,029
3,144,367
102,314
9,195,847
17,869,082
226,118
37,859
1,683,915
82,601
9,827,949
18,973,598
227,051
30,604
1,463,302
67,039
2,694
485,594
50,920
2,050,762
191,001,490
8,776
24,529
309,467
1,502,478
157,354,261
6,971
36,344
16,771
1,552,464
141,536,282
Liabilities:
Deposits from banks .............................................................
Deposits from customers ......................................................
Derivative financial liabilities held for trading .....................
Funds Borrowed....................................................................
Money Market Balances .......................................................
Marketable Securities Issued (Net) .......................................
Funds ....................................................................................
Provisions .............................................................................
Tax liability...........................................................................
Factoring Payables ................................................................
Other liabilities and sundry creditors ....................................
Subordinated Capital ............................................................
Total Liabilities ...................................................................
19,027,400
107,154,801
224,122
21,218,906
12,926,172
8,489,830
1,973,258
3,674,547
539,978
803
4,109,251
—
179,339,068
14,690,850
107,813,534
175,673
22,143,737
8,455,957
8,840,560
1,963,699
3,161,477
449,265
224
4,092,696
47,144
171,834,816
17,182,545
86,471,605
184,729
14,181,774
8,765,937
6,091,394
1,769,291
2,801,230
560,767
—
3,527,581
—
141,536,853
10,017,304
90,377,875
53,492
15,086,352
1,261,476
4,151,666
1,488,542
2,457,561
221,157
—
3,049,842
—
128,165,267
Equity:
Paid-in capital .......................................................................
Capital reserves.....................................................................
Profit reserves .......................................................................
Profit/Loss ............................................................................
Total equity excluding minority shares .............................
1,250,000
2,919,743
12,594,157
3,023,379
19,787,279
1,250,000
2,635,235
12,597,223
2,482,790
18,965,248
1,250,000
1,458,276
10,520,206
2,410,166
15,638,648
1,250,000
976,974
8,063,847
2,917,247
13,208,068
Minority Shares ....................................................................
Total Liabilities and Shareholders' Equity .......................
189,138
199,315,485
201,426
191,001,490
178,760
157,354,261
162,947
141,536,282
39
Key Ratios and Other Information
The Group calculates certain ratios in order to measure its performance and to compare its performance to that
of its main competitors. See "Non-GAAP Measures of Financial Performance". The following table sets out
certain key performance indicators for the Group as of and for the periods indicated:
BRSA Consolidated
As of and for
three months
ended 31
As of and for year ended
March
31 December
2016
2015
2014
2013
(percentages, except employees and branches)*
Profitability Ratios:
Yield(1) .........................................................................................................
Net interest margin(2) ...................................................................................
Net interest spread(3) ....................................................................................
Cost to income ratio(4) ..................................................................................
Operating expenses to total average assets ratio(5) .......................................
Return on average total assets(6) ...................................................................
Return on average shareholders' equity(7) ....................................................
Dividend payout ratio(8) ...............................................................................
Balance Sheet Ratios:
Loans to total deposits(9) ..............................................................................
Loans to total assets(10) .................................................................................
Securities to total assets(11) ...........................................................................
Deposits to total liabilities(12) .......................................................................
Cost of Risk(13) .............................................................................................
Credit Quality Ratios:
Non-performing loans to total cash loans(14) ................................................
Loan losses reserves to non-performing loans(15) .........................................
Capital Adequacy Ratios:
Tier I regulatory capital to risk-weighted assets and market risk(16) ............
Total regulatory capital to risk-weighted assets and market risk .................
Other Information:
Operating income before provisions (excluding dividend income)(17) .........
Employees(18) ...............................................................................................
Branches(19) ..................................................................................................
9.9
4.0
4.0
60.2
2.8
1.1
10.8
—
9.6
4.1
4.1
49.7
2.4
1.3
13.3
15.9
9.4
4.3
4.4
45.8
2.3
1.5
15.7
14.7
9.0
4.8
4.9
41.4
2.5
2.3
22.9
13.1
105.5
66.8
14.6
70.4
0.54
103.8
66.6
14.9
71.3
0.76
98.2
64.7
17.3
73.2
0.94
84.6
60.0
20.4
78.3
0.58
3.2
75.3
3.2
75.7
3.6
65.4
2.6
80.7
12.08
12.77
12.36
13.04
12.04
12.73
12.75
13.31
2,298,549 8,464,799 7,455,039 7,455,465
17,158
17,104
17,314
14,798
951
944
895
872
*Operating income before provisions (excluding dividend income) is in TL thousands.
(1)
Yield represents interest income as a percentage of average interest-earning assets (which is the average of the opening and closing
interest-earning assets for the applicable period).
(2)
Net interest margin represents net interest income before provisions for loan losses as a percentage of average interest-earning assets.
(3)
Net interest spread represents the difference between the average rate of interest earned on interest-earning assets and the average rate
of interest accrued on interest-bearing liabilities.
(4)
Cost to income ratio represents total operating expenses (excluding net impairment losses on financial assets) divided by total
operating income before provisions (excluding dividend income).
(5)
Operating expenses to total average assets ratio represents total operating expenses (excluding net impairment losses on financial
assets) divided by total average assets (which is the average of the opening and closing balances for the applicable period).
(6)
Return on average total assets represents profit for the period as a percentage of average total assets (which is the average of the
opening and closing balances for the applicable period).
(7)
Return on average shareholders' equity represents profit for the period as a percentage of average shareholders' equity (which is the
average of the opening and closing balances for the applicable period).
(8)
Dividend payout ratio represents dividends paid divided by profit for the period. This information is unavailable for the three months
ended 31 March 2016.
(9)
Loans to total deposits ratio represents total loans and receivables divided by total deposits (deposits from banks and deposits from
customers).
(10) Loans to total assets ratio represents total loans and receivables divided by total assets.
(11) Securities to total assets ratio represents securities divided by total assets.
(12) Deposits to total liabilities ratio represents total deposits (deposits from banks and customers) divided by total liabilities (excluding
shareholders' equity).
(13) Cost of risk represents the impairment charge for the period minus recoveries and reversals for the period, divided by average net
loans (which is the average of the opening and closing balances for the applicable period). As of 31 March 2016 and 31 December
2015, 2014 and 2013, on a Bank-only BRSA basis the cost of risk ratio was 0.53, 0.74, 0.94 and 0.58, respectively.
40
(14) Non-performing loans to total cash loans ratio represents non-performing loans divided by total cash loans.
(15) Loan losses reserves to non-performing loans ratio represents loan losses reserves divided by non-performing loans. As of 31 March
2016 and 31 December 2015, 2014 and 2013, loan loss reserves to non-performing loans was 75.8%, 76.2%, 65.2% and 80.6%,
respectively, on a Bank-only BRSA basis, compared to 72.2%, 74.6%, 73.9% and 76.3% as of the same dates for the Turkish banking
sector.
(16) The Group began calculating capital adequacy ratios in accordance with the Basel II capital adequacy framework for periods ending
on or after 30 September 2012. The Group is also monitoring developments relating to the implementation of Basel III, which may
impact the manner in which the Group calculates capital adequacy ratios and may impose higher capital requirements. See "Risk
Factors—Risk Factors Relating to Turkey—The Group is a highly regulated entity and changes to applicable laws or regulations, the
interpretation or enforcement of such laws or regulations or the failure to comply with such laws or regulations could have an adverse
impact on the Group's business, financial condition, results of operations and prospects".
(17) Operating income before provisions (excluding dividend income) represents the Group's operating income (which equals the sum of
net interest income, net fees and commission income, net trading income from securities, net trading gains/loss from derivative
financial instruments, foreign exchange gains/losses net, net cost of insurance operations, and other operating income) before
provisions (excluding dividend income).
(18) Employees represent the total number of employees of the Bank (including 51, 50, 49 and 44 employees outside of Turkey as of 31
March 2016 and 31 December 2015, 2014 and 2013, respectively).
(19) Branches represent the total number of domestic branches of the Bank.
41
USE OF PROCEEDS
The Bank will use the net proceeds for general corporate purposes.
42
EXCHANGE RATES
The following tables set forth, for the periods indicated, information concerning the period average and periodend buying rates for U.S. Dollars and Euro for the periods indicated. The rates set forth below are provided
solely for your convenience and were not used by the Bank in the preparation of the Bank's consolidated
financial statements incorporated by reference in this Offering Memorandum. No representation is made that
Turkish Lira could have been, or could be, converted into U.S. Dollars or Euro at that rate or at any other rate.
Period End(1)
Year
2010 ..................................................................
2011 ..................................................................
2012 ..................................................................
2013 ..................................................................
2014 ..................................................................
2015 ..................................................................
Three months ended 31 March 2016.................
April 2016 .........................................................
May 2016 ..........................................................
1-17 June 2016..................................................
1.5376
1.8889
1.7826
2.1343
2.3269
2.9181
2.8334
2.8150
2.9560
2.9296
Period High
Period Low
(TL per U.S.$)
1.5978
1.9065
1.8889
2.1604
2.3671
3.0599
3.0436
2.8591
2.9826
2.9515
1.3884
1.4955
1.7340
1.7459
2.0711
2.2778
2.8334
2.8150
2.7928
2.8894
Period Average(2)
1.4992
1.6710
1.7924
1.9013
2.1881
2.7235
2.9437
2.8347
2.9266
2.9227
Source: Central Bank
(1)
Represents the TL/U.S.$ exchange rates for the purchase of U.S. Dollars determined by the Central Bank on the previous
working day.
(2)
The period average on an annual basis was calculated as monthly averages by taking the month end closing rates of the
TL/U.S$ exchange rates, whereas monthly averages were calculated by taking the daily average of the TL/U.S.$ exchange rates.
Period End(1)
Year
2010 ..................................................................
2011 ..................................................................
2012 ..................................................................
2013 ..................................................................
2014 ..................................................................
2015 ..................................................................
Three months ended 31 March 2016.................
April 2016 .........................................................
May 2016 ..........................................................
1-17 June 2016..................................................
2.0491
2.4592
2.3517
2.9365
2.8207
3.1776
3.2081
3.1944
3.2906
3.2932
Period High
Period Low
(TL per Euro)
2.1427
2.5685
2.4442
2.9844
3.2053
3.4684
3.3329
3.2487
3.3750
3.2992
1.8939
2.0201
2.1778
2.3118
2.7535
2.6234
3.1613
3.1882
3.1908
3.2841
Period Average(2)
1.9890
2.3233
2.3043
2.5277
2.9060
3.0181
3.2438
3.2134
3.3147
3.2901
Source: Central Bank
(1)
Represents the TL/EUR exchange rates for the purchase of Euro determined by the Central Bank on the previous working day.
(2)
The period average on an annual basis was calculated as monthly averages by taking the month end closing rates of the TL/EUR
exchange rates, whereas monthly averages were calculated by taking the daily average of the TL/EUR exchange rates.
43
CAPITALISATION OF THE GROUP
The following table, prepared in accordance with BRSA, sets forth the total shareholders' equity of the Group as
of 31 March 2016, which has been extracted or derived from the Interim Consolidated BRSA Financial
Statements. Prospective investors should read the following information in conjunction with "Presentation of
Financial and Other Information", "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the BRSA Financial Statements, including the notes thereto.
BRSA Consolidated
As of 31 March 2016
(TL thousands)
Paid-in Capital ...................................................................................................................................
Capital Reserves ................................................................................................................................
Profit Reserves ...................................................................................................................................
Profit/Loss .........................................................................................................................................
Minority Shares .................................................................................................................................
Total shareholders' equity...............................................................................................................
As of the date hereof, there has been no significant change in total capitalisation since 31 March 2016.
44
1,250,000
2,919,743
12,594,157
3,023,379
189,138
19,976,417
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Presentation of Financial and Other Information"
and the BRSA Financial Statements, including the notes thereto, incorporated by reference in the Offering
Memorandum. Unless otherwise specified, financial information contained in this Offering Memorandum as of
and for the three months ended 31 March 2016 and 2015 and as of and for the years ended 31 December 2015,
2014, and 2013 has been prepared on the basis of BRSA Reporting Standards. The income statement, balance
sheet and other financial data as of and for the three months ended 31 March 2016 and 2015 and as of and for
the years ended 31 December 2015, 2014 and 2013 have been extracted from the BRSA Financial Statements.
The Group also calculates certain ratios in order to measure its performance and to compare its performance to
that of its main competitors. See "Non-GAAP Measures of Financial Performance" and "Selected Financial and
Other Information—Key Ratios and Other Information".
The following discussion includes forward-looking statements that involve risks and uncertainties. Actual
results could differ materially from those anticipated in the forward-looking statements as a result of numerous
factors, including the risks discussed in "Forward-Looking Statements" and "Risk Factors" appearing
elsewhere in this Offering Memorandum.
The Group's financial condition and results of operations depend significantly upon the macroeconomic
conditions prevailing in Turkey and prospective investors should, among other things, consider the risks and
uncertainties set out under "Risk Factors—Risk Factors Relating to the Group" and "Risk Factors—Risk
Factors Relating to Turkey".
The KPMG audit reports in relation to the 2015 Consolidated BRSA Financial Statements, the 2015
Unconsolidated BRSA Financial Statements, the 2013 Consolidated BRSA Financial Statements and the 2013
Unconsolidated BRSA Financial Statements each included a qualification as such financial statements included
a general provision and general provisions are not recognised under BRSA Reporting Standards. See
"Presentation of Financial and Other Information".
Overview of Business
services to more than 8.8 million retail, SME and commercial and corporate customers across Turkey and select
international markets. Halkbank's name has been associated with tradesmen, artisans and other SMEs in Turkey
since 1938, and SMEs remain at the core of the Group's customer base today, although the Group has, since its
establishment, also expanded its business into additional segments and geographic markets. Halkbank offers a
nationwide network of services to its customers, which as of 31 March 2016 consisted of 951 domestic branches
(with at least one branch in every province of Turkey).
For the year ended 31 December 2015, the Group's net profit was TL 2,328 million, an increase of 1.8%
compared to TL 2,287 million for the year ended 31 December 2014, and its total assets were
TL 191,001 million as of 31 December 2015, an increase of 21.4% compared to total assets of
TL 157,354 million as of 31 December 2014. For the three months ended 31 March 2016, the Group's net profit
was TL 529 million, a decrease of 18.1% compared to TL 646 million for the three months ended 31 March
2015, and its total assets were TL 199,315 million as of 31 March 2016, an increase of 4.4% compared to total
assets of TL 191,001 million as of 31 December 2015.
Significant Factors Affecting the Group's Financial Condition and Results of Operations
Turkish Economy
The Group operates primarily in Turkey. Accordingly, the Group's results of operations and financial condition
are and will continue to be significantly affected by Turkish political and economic factors, including the
economic growth rate, the rate of inflation and fluctuations in exchange and interest rates. See "Risk Factors—
Risk Factors Relating to Turkey".
The following table sets out key Turkish economic indicators as of and for the three months ended 31 March
2016 and 2015 and as of and for the years ended 31 December 2015, 2014 and 2013:
As of and for three
months ended 31
March
2016
2015
GDP (TL billions) ......................................................................................
GDP (U.S.$ billions)..................................................................................
GDP growth (%) ........................................................................................
45
499.3
169.5
4.8
443.9
180.8
2.5
As of and for year ended
31 December
2015
2014
2013
1,953.5 1,748.1 1,562.5
719.9
799.3
823
4.0
3.0
4.2
GDP per capita (U.S.$) ..............................................................................
Unemployment Rate (%) ...........................................................................
Central Bank policy rate (%) .....................................................................
Benchmark yield (period-end, %) ..............................................................
Inflation (%) ..............................................................................................
Exports (U.S.$ billions) ........................................................................
Imports (U.S.$ billions) .............................................................................
Trade deficit (U.S.$ billions) .....................................................................
Current account deficit (U.S.$ billions) .....................................................
Budget surplus/(deficit) (TL billions) ........................................................
—*
9.7
7.50
9.99
7.5
34.7
46.8
12.1
7,822
0.05
—*
10.6
7.50
8.77
7.6
37.1
52.3
15.3
10,541
(5.4)
9,261
10.3
7.50
10.68
8.8
143.8
207.2
63.3
32,141
(22.6)
10,395
9.9
8.25
7.95
8.2
157.6
242.1
84.5
43,552
(23.3)
10,822
9.0
4.50
10.01
7.4
151.8
251.6
99.8
63,603
(18.4)
Source: Central Bank, Turkstat and Ministry of Finance
*
Information is not available.
By the end of 2011, due to a combination of high commodity prices, strong domestic demand in Turkey and
weakness in the global economic environment and the primary export markets for Turkey's goods and services,
Turkey's current account deficit increased and the inflation rate rose to 10.5%. In 2012, GDP growth slowed to
2.1% on a yearly basis, from 8.8% in 2011. Contributing to this slow-down in economic activity were the
Central Bank actions aimed at reducing the current account deficit and the inflation rate coupled with continued
weakness in the global economic environment and the primary markets for Turkey's goods and services.
Inflation rates remained mostly above target levels in 2012 but declined in the last two months of the year,
falling within the target range of the Central Bank. In addition, the expansionary policies of developed
economies and Turkey's strong capital inflow outlook allowed the Central Bank to ease monetary conditions and
reduce its policy rates during late 2012 and early 2013.
Economic activity accelerated in early 2013 as a result of an improvement in domestic demand. Through midMay, capital inflows accelerated as global liquidity increased; however, global liquidity started to decline as of
the end of May 2013 as a result of the U.S. Federal Reserve's signal that it would start tapering its monthly asset
purchases, which resulted in weaker capital inflows to Turkey and depreciation of the Turkish Lira.
Notwithstanding this softening, the Turkish economy remained relatively resilient during 2013 with GDP
growth of 4.2%. The level of economic growth decreased during the second half of 2013 and the first quarter of
2014 as Turkey was negatively impacted by domestic political developments and the deterioration in the global
appetite for emerging market assets, which resulted in capital outflows, contributed to the depreciation of the
Turkish Lira and triggered a sharp increase by the Central Bank in its short-term interest rates.
The growth rate of the Turkish economy was weaker in 2014, with GDP growth of 3.0%, compared to 4.2% in
2013, principally reflecting the combined effects of tighter external financing conditions and higher domestic
interest rates. However, the impact of falling crude oil prices started to translate into a significant improvement
on the current account deficit which was 5.7% of GDP in 2014 in comparison to 7.9% of GDP in 2013.
Turkey had GDP growth of 4.0% in 2015, amidst uncertainties arising mainly from both domestic factors such
as the prolonged election cycles together with the volatilities in interest rates and the value of the Turkish Lira
and external factors such as the first interest rate hike from the U.S. Federal Reserve and a further weakening
appetite for emerging market assets. The current account deficit improved due to the low global oil price
environment and reduced to 4.4% of GDP whereas the inflation rate continued to remain at a relatively high
level, reflecting the currency pass through effect of a depreciating Turkish Lira and higher food prices.
In the first three months of 2016, economic conditions were volatile in many emerging markets, including
Turkey, as a result of several factors, including expectations regarding slower growth in China and low
commodity and oil prices, uncertainty regarding Turkey's political and geopolitical conditions, primarily
resulting from continued and intensified conflict with the PKK, the regional conflicts and the terrorist attacks in
Turkey, sanctions implemented against Russia and sanctions implemented by Russia against Turkey as a result
of the conflict in Syria (see "Risk Factors—Risk Factors Relating to Turkey—Conflict and terrorism within
Turkey or conflict and terrorism in neighbouring and nearby countries may have a material adverse effect on
the Group's business, financial condition, results of operations or prospects"), all of which had a negative
impact on economic growth in Turkey in the short-term and resulted in increased interest rates and higher
inflation.
Halkbank's management expects that the Turkish economy will continue to grow in 2016, as both internal
economic growth dynamics and global conditions are expected to be relatively more supportive and following
the end of the prior election cycle.
The Group's loan portfolio grew by 24.9% in 2015 compared to 2014, driven primarily by the growth in foreign
currency-denominated loans granted to corporate customers as a result of currency depreciation. The growth of
46
the TL loans was relatively moderate as the Group followed a controlled growth strategy in retail lending in an
attempt to avoid negative impacts from regulatory actions that have been taken step-by-step by the BRSA and
the Central Bank since 2011. The Group's loan portfolio grew by 19.9% in 2014, driven primarily by SME and
commercial loans, with the overall deceleration in loan growth compared to previous periods attributable to a
combination of slower economic growth in 2014, a significant rise in interest rates by the Central Bank in early
2014 and increased regulations issued by the BRSA in relation to the retail banking sector.
See "Risk Factors—Risk Factors Relating to the Group—The Group's loan portfolio, deposit base and
government securities are concentrated in Turkey and adverse changes affecting the Turkish economy could
have a material adverse effect on its business, financial condition, results of operations and prospects", "Risk
Factors—Risk Factors Relating to the Group—The Central Bank's policy on reserve requirements and interest
rates could have a material adverse effect on the Group's business, financial condition, results of operations
and prospects" and "Risk Factors—Risk Factors Relating to Turkey—Turkey's high current account deficit may
result in Turkish Government policies that negatively affect the Group's business".
Global Economic Conditions
Although the global economy recovered somewhat in the first half of 2011, widespread concern regarding levels
of public sector debt around the world and regarding the stability of numerous banks in certain European
countries (including Greece, Spain, Portugal, Italy and Ireland) had a negative impact on macroeconomic
conditions. During the second half of 2011 and the first half of 2012, global economic conditions weakened, as
real gross domestic product (GDP) declined in Europe, and real GDP in the United States and Japan grew at a
slower pace. In addition, the global economy was further impacted by slowing economic conditions in China.
After tentative recovery signs during the first quarter of 2012, concerns regarding European sovereign debt risk
heightened as a result of political uncertainty in Greece and concerns about the fiscal outlook in Spain and Italy.
These conditions contributed to generally wider credit spreads, lower global equity prices and higher volatility
levels.
Since the start of the global economic crisis, there has been an increase in the scale of global central bank
intervention in an attempt to prevent further deterioration of economic growth. The European Central Bank
announced in June 2014 that it would conduct a series of targeted longer-term refinancing operations (TLTROs)
to improve bank lending to the Euro area non-financial private sector over a two year window. In September
2014, the European Central Bank announced two new purchase programmes, namely the ABS purchase
programme (ABSPP) and the third covered bond purchase programme (CBPP3), and an additional €60 billion
asset purchase plan was announced in January 2015. The programmes are expected to enhance transmission of
monetary policy and support provision of credit to the Euro area economy, with the intention of providing
further monetary policy accommodation. However, in October 2014, the U.S. Federal Reserve announced it
would end its own quantitative easing programme and, in December 2015, raised its benchmark federal-funds
rate by a quarter-percentage point. The U.S. Federal Reserve has indicated that it may continue to gradually
increase interest rates. The ultimate impact of the European Central Bank's and the U.S. Federal Reserve's
actions are impossible to predict and these actions may not result in the expected benefits for the applicable
economies and may have adverse effects on emerging markets such as Turkey. Crude oil prices fell by 46.8% in
2014, from approximately U.S.$94 per barrel in January 2014 to approximately U.S.$50 per barrel in January
2015. Crude oil prices declined further in 2015 before rebounding to approximately U.S.$50 per barrel by early
June. These sharp declines in oil prices have had a positive effect on the economic growth and the current
account deficits of energy-importing countries, including Turkey, but the future impact of these factors remains
uncertain.
The Group and its customers operating in Turkey remain susceptible to other external financial, economic and
political events and the Group's performance will continue to be influenced by conditions in the global economy.
There has been significant political instability and military conflicts in certain parts of the Middle East and
Eastern Europe, including several of Turkey's neighbours, such as Syria, Iraq, and Ukraine. While the Group
does not operate in these countries, these developments directly impact the Group to the extent that such
conflicts spillover into Turkey (particularly the southeastern region of Turkey) and indirectly impact the Group
to the extent that its customers are exposed to risks in such countries. See "Risk Factors—Risk Factors Relating
to Turkey—Conflict and terrorism within Turkey or conflict and terrorism in neighbouring and nearby countries
may have a material adverse effect on the Group's business, financial condition, results of operations or
prospects". The outlook for the global economy over the near to medium term remains challenging, which also
impacts prospects for stabilisation and improvement of economic and financial conditions in Turkey. See "Risk
Factors—Risk Factors Relating to the Group—Difficult macroeconomic and financial market conditions have
had, and could continue to have, a material adverse effect on the Group's business, financial condition, results
of operations and prospects".
47
Interest Rates
One of the primary factors influencing the Group's profitability is the level of short-term interest rates in Turkey,
which affects the return on its securities portfolio and its loan and deposit rates. Interest rates earned and paid on
the Group's assets and liabilities reflect, to a certain degree, current inflation, expectations regarding inflation,
shifts in short-term interest rates set by the Central Bank and movements in long-term real interest rates.
Because the Group's interest-bearing liabilities (principally deposits) generally re-price faster than its
interest-earning assets, changes in the short-term interest rates in the economy generally are reflected in the rates
of interest paid by the Group on its liabilities before such interest rates are reflected in the rates of interest
earned by the Group on its assets. Therefore, when short-term interest rates fall, the Group is generally
positively affected (for example, the value of its fixed rate securities portfolio may increase, as occurred in 2009,
and its interest margins can improve). On the other hand, when short-term rates increase (as was the case in
January 2014 when the Central Bank announced significant increases in short-term interest rates), the Group's
interest margin is generally negatively affected as it will generally pay higher interest rates on its
interest-bearing liabilities before it can modify the rates of its interest-earning assets. An increase in long-term
rates generally has at least a short-term negative effect on the Group's net interest margin because its
interest-earning assets generally have a longer re-pricing duration than its interest-bearing liabilities and because
a portion of its interest-earning assets have fixed rates of interest. In addition, rising interest rates initially would
likely reduce the value of the Group's securities investment portfolio, but ultimately would likely result in
increased interest income on other assets included in this portfolio.
The Group's balance sheet structure provides a partial hedge against short- to medium-term interest rate
movements. Lower interest rates, together with economic stability, support loan growth and NPL collections.
Higher interest rates, on the other hand, have a positive effect on yields on securities, since a considerable
amount of the Group's securities have a variable interest rate, which partly mitigates higher deposit costs and
slowing loan growth.
In anticipation of the present interest rate environment, the Group's strategy has been, and continues to be, to
expand its business into the profitable corporate and SME banking, which offer a fair risk-adjusted return on
high asset quality along with cross-selling opportunities and to increase its fees and commission income.
Halkbank's management also seeks to increase the proportion of its variable rate assets and liabilities, as
compared to its fixed rate assets and liabilities, to the extent such variable rate assets and liabilities become
available to the Group on favourable terms.
Securities Portfolio
Interest income derived from the Group's securities portfolio accounted for 17.3%, 15.9%, 17.0%, 23.0% and
22.3% of its total interest income for the three months ended 31 March 2016 and 2015 and the years ended 31
December 2015, 2014 and 2013, respectively.
The securities portfolio for most Turkish banks is comprised principally of Turkish Government debt securities,
and the Group's securities portfolio is comprised solely of such Turkish Government debt securities. The
Group's investment securities portfolio (which includes securities held as available-for-sale or as held-tomaturity investments) represented 14.6%, 16.4%, 14.9%, 17.3% and 20.4% of the Group's total assets as of 31
March 2016 and 2015 and 31 December 2015, 2014 and 2013, respectively. This decrease in the share of
investment securities in the Group's total assets reflects the Group's current strategy to increase focus on its
customers and to expand the share of loans in the Group's asset portfolio. Accordingly, the Group does not
expect the percentage of its assets invested in securities to increase significantly in the near to medium term.
As the Group's investment securities portfolio is comprised largely of high quality securities (solely Turkish
Government debt securities), the Group experienced insignificant credit losses on its investment securities
portfolio and established immaterial provisions relating thereto during the three months ended 31 March 2016
and the years ended 31 December 2015, 2014 and 2013. However, its trading portfolio (solely Turkish
Government debt securities) and available-for-sale investment securities portfolio are marked-to-market with the
mark-to-market losses or gains being included in income (for the trading portfolio and where there is a
permanent impairment of available-for-sale securities) or shareholders' equity (for the available-for-sale
portfolio) as appropriate. In case of permanent impairments of held-to-maturity securities, such impairment
losses are also recognised in income. See the BRSA Financial Statements incorporated by reference in this
Offering Memorandum and "Selected Statistical and Other Information—Securities Portfolio". In the three
months ended 31 March 2016 and the year ended 31 December 2015, the Bank continued to purchase floating
rate notes mostly in the form of consumer price index linked securities issued by the Turkish Government. See
"—Analysis of the results of operations for the three months ended 31 March 2016 and 2015 and the years
ended 31 December 2015, 2014 and 2013—Interest income".
48
Loan Portfolio Growth
The Group has generally pursued a policy of increasing its loan portfolio, in particular with an emphasis on the
higher yielding business segments of SME, corporate and commercial as well as retail customers. Particularly as
the rate of inflation has decreased in Turkey and per capita income among the Group's targeted customer base
has increased since 2005, the demand for commercial, small business and retail credit has grown. These
developments have resulted in an overall increase in the Group's loans and receivables. The Group's loans and
receivables of TL 127,220 million as of 31 December 2015 represented an increase of 24.9% from TL 101,831
million as of 31 December 2014, which in turn was an increase of 19.9% from TL 84,969 million as of 31
December 2013. In 2013 and 2014, the Central Bank took measures to curb loan growth, especially in the retail
segment. Beginning in the last quarter of 2013, BRSA also took further steps to change the composition of
economic growth in favour of export and production businesses and to curb domestic demand by making retail
lending less attractive for the banks while decreasing general provisions for SME and export loans. All those
steps have slowed the momentum of the growth of the Bank's retail loan portfolio. For the year ended 31
December 2015, retail loan growth was 7.2%, down from 8.4% for the year ended 31 December 2014. See "Risk
Factors—Risk Factors Relating to the Group—The Central Bank's policy on reserve requirements and interest
rates could have a material adverse effect on the Group's business, financial condition, results of operations
and prospects" and "Risk Factors—Risk Factors Relating to the Group—Rapid growth of the Group's loan
portfolio might subject the Group to the risk of not being able to maintain asset quality".
Provisioning
The Group's financial results are significantly affected by the amount of provisions for possible loan losses
recorded in any period. The Group's loans and receivables impairment loss provisions increased by 5.9% to TL
276 million for the three months ended 31 March 2016, from TL 261 million for the three months ended 31
March 2015, due primarily to certain performing loans that turned into non-performing loans. Interest rate and
exchange rate volatility resulted in an increase in non-performing loans during the three months ended 31 March
2016, which has been a sectoral trend in the banking industry as a whole. The Group's loans and receivables
impairment loss provisions increased by 12.0% to TL 1,377 million in 2015, from TL 1,229 million in 2014,
which in turn was an increase of 38.5% from TL 888 million in 2013. The increases were mainly due to further
provision requirements as the Group's loan portfolio grew and certain performing commercial loans that turned
into non-performing loans in 2014 (though with strong collateralisation).
March 2016 and 31 December 2015, 2014 and 2013, respectively. The increase in the non-performing loan ratio
as of 31 December 2014 was due primarily to a large corporate loan (with a principal amount of TL 1,076
million) which was classified as non-performing and provisioned 50% according to the regulatory requirements.
Prior to the classification as a non-performing loan, this loan had been classified, under the relevant BRSA
regulations for provisioning, as a Group II Loan (Loans and Receivables under Close Monitoring). The loan
became fully provisioned after the remaining 50% additional provisions were set aside in the second quarter of
2015. The decrease in non-performing loan ratio as of 31 December 2015 mainly stemmed from a deceleration
in new non-performing loans combined with a 24.9% growth in the amount of cash loans. Halkbank's
management anticipates that the Group may experience a deterioration in its non-performing loan ratio in 2016
due to expected deterioration in asset quality in the Turkish banking sector as a result of interest rate and
exchange rate volatility, resulting in an increase in non-performing loans, together with expected deceleration in
the rate of growth of its total gross cash loans.
Halkbank's management believes that its low NPL formation has been enhanced by its long-standing experience
with its SME customers. Unlike certain other institutions in the Turkish banking sector, Halkbank has not
written-off or sold to third parties any of its non-performing loans. A significant portion of the Group's nonperforming loans date from 2001 and earlier, and were classified as NPLs in the aftermath of the economic crisis
in Turkey in 2000-2001 and subsequent reorganisation of state banks. Excluding these pre-2001 NPLs, the
Group's NPL ratio would be lower. On a Bank-only BRSA basis, the following table shows the NPL ratio of the
Bank (including and excluding the pre-2001 NPLs) compared to the sector for the periods specified. For a
description of the provisioning schedule for NPLs, see "Turkish Regulatory Environment―Loan Loss Reserves".
49
As of 31 March
2016
Halkbank..............................................................................
Halkbank (excluding pre-2001 NPLs) .................................
Sector ...................................................................................
3.0
2.7
3.4
BRSA Unconsolidated
As of 31 December
2015
2014
(%)
3.1
2.7
2.8
3.6
3.1
2.8
2013
2.6
2.0
3.0
Source: Halkbank (Halkbank and sector comparison data calculated on a BRSA unconsolidated basis
In addition to the provisions that the Group is required to take for NPLs according to BRSA requirements,
Halkbank's management may take additional "free" provisions (either in the form of specific provisions or
general provisions (which are not recognised under BRSA Reporting Standards)) should the management
determine this to be prudent. For example, in 2015, Halkbank's management decided to reverse some of the
general provisions which were set aside in the past for retail loans because the share of the Group's retail loans
in total loan portfolio dropped below 25%. An additional provisioning requirement for retail loans was
implemented in 2011 that required additional provisions in respect of credit cards if the bank's retail loans were
in excess of 25% of its total loans. This additional provisioning requirement was extended to general purpose
consumer loans in 2013. In the second quarter of 2015, the Group reversed TL 430.3 million of general
provisions (which had been recorded in order to allow for potential risks which may arise from interest rate and
exchange rate volatility, resulting in an increase in non-performing loans and thereby leading to a deterioration
in asset quality) as income under "Other operating income" in the income statement while setting aside TL
272.5 million of new general provisions for the same purpose. As concerns with respect to the operational
environment faded and the Group's asset quality showed further improvement in the second half of 2015,
Halkbank's management reversed TL 110 million of such general provisions in the third quarter of 2015 and
then a further TL 39 million in the fourth quarter of 2015. The Group does not have any free (general or specific)
provisions as of 31 March 2016 since the remaining TL 123.5 million was reversed in the first quarter of 2016.
In addition to the negative impact on net income caused by the increase to total operating expenses resulting
from such provisions, from a tax perspective the Group is unable to deduct these general provisions from its
taxable income. Also, the KPMG audit reports in relation to the 2015 Consolidated BRSA Financial Statements,
the 2015 Unconsolidated BRSA Financial Statements, the 2013 Consolidated BRSA Financial Statements and
the 2013 Unconsolidated BRSA Financial Statements each included a qualification as such financial statements
included a general provision and general provisions are not recognised under BRSA Reporting Standards.
Exchange Rates
A portion of the Group's assets and liabilities are denominated in foreign currencies, particularly the U.S. Dollar
and the Euro. As of 31 March 2016, 36.4% of the Group's total assets and 37.0% of the Group's total liabilities
were denominated in foreign currencies. The Group follows a square foreign exchange position policy (which is
designed to ensure that foreign exchange assets are matched by foreign exchange liabilities denominated in the
same currency after taking into account the effect of derivative instruments) to minimise its currency risk and
also uses derivatives as needed. Historically, the Group has maintained and may continue to maintain gaps
between the balances of such assets and liabilities. The Group's net balance sheet opening position was TL 519
million, TL (981 million), TL 252 million and TL (3,613 million) as of 31 March 2016 and 31 December 2015,
2014 and 2013, respectively. The Group translates such assets and liabilities, as well as interest earned or paid
on such assets and liabilities, and gains or losses realised upon the sale of such assets, into Turkish Lira in
preparing its financial statements. Nevertheless, the overall effect of exchange rate movements on the Group's
results of operations depends on the rate of depreciation or appreciation of the Turkish Lira against its principal
trading and financing currencies, as well as the successful implementation of the Group's hedging strategies.
The Group recorded a net foreign exchange gain of TL 235 million for the three months ended 31 March 2016, a
net foreign exchange loss of TL 399 million for the year ended 31 December 2015, a net foreign exchange gain
of TL 1,194 million for the years ended 31 December 2014 and a net foreign exchange loss of TL 538 million
for the years ended 31 December 2013. See "—Analysis of the results of operations for the three months ended
31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013—Net trading income from
securities, Net trading income/(loss) from derivative financial instruments and Foreign exchange losses" for
more information on the variations in net foreign exchange losses.
Exchange rate movements also affect the TL-equivalent value of the Group's foreign currency denominated
assets and capital, which can affect capital adequacy either positively (for example, if the TL appreciates, then
assets in foreign currencies convert into fewer TL in the calculations of capital adequacy ratios and thus increase
50
the capital adequacy ratios) or negatively (for example, if the TL depreciates, then assets in foreign currency
convert into more TL in the calculations of capital adequacy ratios and thus reduce the capital adequacy ratios).
Critical Accounting Policies
The Group's accounting policies are integral to understanding its financial condition and results of operations
presented in the BRSA Financial Statements and the notes thereto. The Group's significant accounting policies
are described in notes to the Interim Consolidated BRSA Financial Statements under "Section Three—
Explanations on Consolidated Accounting Policies". The preparation of the financial statements in accordance
with BRSA Reporting Standards requires management to make estimates and assumptions that affect the
application of policies and in the measurement of income and expenses in the profit and loss statement and in
the carrying value of assets and liabilities on the balance sheet and in the disclosure of information in the notes
to the financial statements. The estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the circumstances, the results of which form the
basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other
sources. The actual results may differ from these estimates.
Halkbank's management believes that the following significant accounting policies require more critical
judgments or estimates or involve a greater degree of complexity in the application of accounting policies that
affect the Group's financial condition and results of operations.
Classification of financial assets and fair value
Financial assets constitute the majority of the commercial activities and operations of the Group. Financial
assets have the ability to expose, affect and diminish the risks of liquidity, credit and interest in the Group's
financial statements.
Fair value is the amount for which an asset could be exchanged or a liability could be settled, between
knowledgeable willing parties in an arm's length transaction. Market value is the amount obtainable from the
sale or payable on the acquisition of a financial instrument in an active market, if one exists.
The estimated fair values of financial assets have been determined by the Group using the available market
information and appropriate valuation methodologies. However, judgment is necessarily required to interpret
market data to develop the estimated fair value. Hence, estimations presented in the Group's accounts may not
be same as the prices that could be achieve in current market conditions in the case of assets disposals. Book
values of some financial assets (which equal their costs) are assumed to approximate to their fair values due to
their short term nature.
Financial assets held for trading
Financial assets held for trading are financial assets, which are either acquired for generating a profit from shortterm fluctuations in price or dealer's margin, or are financial assets included in a portfolio with a pattern of
short-term profit taking.
Financial assets held for trading are presented in the balance sheet with their fair values and are subject to
valuation at fair values after the initial recognition. Valuation gains or losses are recognised in the profit/loss
accounts. Interest gained from the retention of held for trading financial assets are recognised under the interest
income and dividends gained from the shares are recognised under the dividend income in the income statement.
If these assets are disposed of prior to their maturity periods, loss or gain from the disposal is recognised in the
income statement by using interest income/expense accounts under profit/loss from the capital market
operations.
Loans and receivables
Loans and receivables represent unquoted financial assets in an active market that provide money, goods or
services to the debtor with fixed or determinable payments.
Loans and receivables are initially recognised with their fair values including settlement costs and carried at
their amortised costs calculated using the internal rate of return at the subsequent recognition. Transaction fees,
dues and other expenses paid for loan guarantees are recognised under the profit and loss accounts.
Consumer and corporate cash loans are recognised under the accounts specified by the Uniform Chart of
Accounts and Explanations with their original balances based on their context.
Foreign currency indexed consumer and corporate loans are followed at TL accounts after converting into TL by
using the opening exchange rates. At the subsequent periods, increases and decreases in the loan capital are
recognised under the foreign currency income and expense accounts in the income statement depending on
51
foreign currency rates being higher or lower than opening date rates. Repayments are calculated using the
exchange rates at the repayment dates and exchange differences are recognised under the foreign currency
income and expense accounts in the income statement.
Non-performing loans are classified in accordance with the regulation on "Methods and Principles for the
Determination of Loans and Other Receivables to be Reserved for and Allocation of Reserves" (the "Regulation
on Loans and Provisions") published in the Official Gazette No: 26333 dated 1 November 2006 and amended
with the regulation published in the Official Gazette No: 29677 dated 7 April 2016 and specific provisions are
allocated for those loans. Specific provisions are reflected to "820/821 Provisions and Impairment Expenses
82000/82100 Specific Provisions Expenses" account. Provisions released in same year are recognised as a credit
movement under the "Provision Expenses", released portion of the previous period provisions are recognised
under the "Other Operating Income" account.
Impairment of financial assets
At each balance sheet date, the Group reviews the carrying amounts of its financial asset or group of financial
assets whether there is an objective indication that those assets have suffered an impairment loss. If such
indication exists, the Group determines the related impairment amount.
A financial asset or a group of financial assets is subject to impairment loss only if there is an objective
indication that the occurrence of one or more than one event ("loss event") subsequent to the initial recognition
of that asset has an effect on the reliable estimate of the expected future cash flows of the related financial asset
and asset group. Irrespective of their high probability of incurrence, future expected losses are not recognised.
Impairment losses attributable to the investments held to maturity are measured as the difference between the
present values of estimated future cash flows discounted using the original interest rate of financial asset and the
book value of asset. The related difference is recognised as a loss and it decreases the book value of the financial
asset. At subsequent periods, if the impairment loss amount decreases, impairment loss recognised is reversed.
When a decline occurs in the fair values of the "financial assets available for sale" of which value decreases and
increases are recognised in equity, the accumulated profit/loss that had been recognised directly in equity is
transferred from equity to period profit or loss. If, in a subsequent period, the fair value of the related asset
increases, the impairment loss is reversed, with the amount of the reversal recognised in profit or loss.
For loans and receivables, Halkbank's management performs consistent loan portfolio reviews and if any doubts
on the collectability of the loans arise, the related loans are classified in accordance with the Regulation on
Loans and Provisions. The Bank does not limit the provision amount for the non-performing loans recognised
before 1 January 2008 with the minimum rates defined in the related regulation and allocates specific provision
for such loan amounts in full and they are recognised in the statement of income. Bank sets specific provision
for non-performing loans recognised after 1 January 2008 through deducting the collateral amount, calculated in
accordance with the related coefficient rates defined in the Article 10 of the related legislation, from the followup amount and setting provision between 20% and 100% by taking the minimum rates in the Regulation on
Loans and Provisions into consideration for the outstanding follow-up risk amount excluding the surety ship
type of collaterals defined in the Article 9 of the related legislation. Non-indemnified non-cash loans extended to
follow-up entities are added to the follow-up risk amount after conversion by credit conversion rates defined in
the Regulation on Loans and Provisions. The Bank sets provision between 20% and 100% by taking the
minimum rates in the Regulation on Loans and Provisions into consideration for the outstanding follow-up risk
amount that are calculated by deducting the collateral amount and in accordance with the related coefficient
rates defined in the Article 10 of the related legislation. Collections made related to those loans are offset against
the capital and interest collections are recognised under the "Interest Received from Non-performing Loans"
item of the income statement.
Other than specific allowances, the Bank provides "general allowances" for loan and other receivables classified
in accordance with the Regulation on Identification of and Provision against Non-Performing Loans and Other
Receivables. The Bank is providing 1% general allowance for cash loans and other receivables and 0.2%
general allowances for non-cash loans. In accordance with the Communiqué on Change in the Regulation on
Loans and Provisions published on 28 May 2011 No: 27947 Official Gazette, banks are able to change the terms
of the payment plans of their loans and other receivables monitored under standard and other receivables group
given that those loans and receivables qualify for the prerequisites. However, if the changes extend the initial
payment plan, a general provision allocated accordingly with the related loans and other receivables given that it
is no less than the five times of the predetermined ratio and for loans and other receivables followed under close
monitoring provision cannot fall below 2.5 times of the designated ratio.
52
Employee benefit plan liabilities
Employee benefits liabilities are recognised in accordance with the Turkish Accounting Standard No: 19
"Employee Benefits". According to related legislation and union contracts, the Bank is required to make lump
sum retirement payments to employees who have completed one year of service, is called up for military
service, dies, resigns, retires or whose employment is terminated without due cause, or for female employees
who resign within one year subsequent to her marriage. The Group provides provision by estimating the present
value of the future retirement pay liability.
The retirement pay provision of the Bank has been determined by the actuarial report of an independent
valuation company. As of 1 January 2013, actuarial gains and losses are recorded under the shareholders' equity
according to the revised TAS 19.
Taxation
In accordance with the Article 32 of the Corporate Tax Law No: 5520, the corporate tax rate is calculated at the
rate of 20%. The tax legislation requires advance tax of 20% to be calculated and paid based on earnings
generated for each quarter.
The amounts thus calculated and paid are offset against the corporate tax liability for the year. Accrued advance
tax as of 31 December 2015 was paid in February 2016 and accrued advance tax as of 31 March 2016 was paid
in May 2016.
Tax expense is the sum of the current tax expense and deferred tax charge. Current year tax liability is
calculated over taxable profit. Taxable profit is different from the profit in the income statement since taxable
income or deductible expenses for the following years and non-taxable and non-deductible items are excluded.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be
utilised.
The carrying amount of a deferred tax asset is reviewed at each balance sheet date. An entity shall reduce the
carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit
will be available to allow the benefit of part or all of that deferred tax asset to be utilised.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or
the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also dealt with in equity.
Prepaid corporation taxes and corporation tax liabilities are offset as they relate to income taxes levied by the
same taxation authority on each consolidated entity's non-consolidated financial statements. Deferred tax assets
and liabilities are also offset.
Changes in Accounting Standards
On 22 June 2016, the BRSA published a new regulation on Procedures and Principles for Classification of
Loans and Provisions to be Set Aside (the "2016 Regulation on Provisions and Classification of Loans") that
would replace the Regulation on Provisions and Classification of Loans and Receivables as of 1 January 2017 in
order to ensure compliance (by 1 January 2018) with the requirements of IFRS and the Financial Sector
Assessment Programme, which is a joint programme by the International Monetary Fund and the World Bank.
The 2016 Regulation on Provisions and Classification of Loans would requires banks to adopt IFRS 9 principles
(unless an exemption is granted by the BRSA) related to the assessment of credit risk by the end of 2017 and to
set aside general provisions in line with such principles. See "Turkish Regulatory Environment—Loan Loss
Reserves".
The Group does not plan to adopt the proposed standard prior to its effective date and the extent of the impact of
such proposed standard has not been determined yet.
Analysis of the Results of Operations for the Three Months Ended 31 March 2016 and 2015 and the
Years Ended 31 December 2015, 2014 and 2013
The following summary financial and operating data for the three months ended 31 March 2016 and 2015 and
for the years ended 31 December 2015, 2014 and 2013 has been extracted from the BRSA Financial Statements.
The information below should be read in conjunction with the BRSA Financial Statements and the notes thereto
incorporated by reference in this Offering Memorandum.
53
Three months ended
31 March
2016
2015
Income Statement Data
Interest income ...........................................................
Interest expense ..........................................................
Net interest income ...................................................
Fees and commissions income ....................................
Fees and commissions expenses .................................
Net fees and commissions income ............................
Profit/loss from capital market operations ..................
Profit/loss from financial derivative transactions ........
BRSA Consolidated
Year ended
31 December
2015
2014
(TL thousands)
4,041,460
3,061,833 13,972,712 11,718,970
(2,433,177) (1,723,884) (8,038,592) (6,385,518)
1,608,283
1,337,949
5,934,120
5,333,452
374,105
404,726
1,522,184
1,414,162
(126,244)
(104,900)
(428,250)
(464,997)
247,861
299,826
1,093,934
949,165
3,897
24,070
32,960
300,329
(211,460)
235,449
(276,106)
Foreign exchange gains/losses ....................................
Loans and other receivables impairment loss
provisions ...............................................................
Dividend income.........................................................
Other operating income ..............................................
Other operating expenses ............................................
Net operating income/(loss) ......................................
Share of profit of equity-accounted investees .............
Income/(loss) before taxes ........................................
Tax income provision .................................................
Net profit/(loss)..........................................................
—
414,519
(1,384,609)
637,834
3,706
641,540
(112,404)
529,136
Profit/(loss) attributable to:
Group's profit/loss ..................................................
Minority shares profit/loss......................................
540,589
(11,453)
(741,996)
741,612
(260,646)
2013
9,391,175
(4,397,625)
4,993,550
1,159,547
(306,722)
852,825
323,093
125,581 (1,416,795)
(399,300)
1,193,706
462,114
(538,416)
(1,376,855) (1,229,151)
—
6,254
23,141
334,882
1,677,504
1,095,182
(916,838) (4,206,319) (3,413,481)
818,859
2,887,879
2,835,548
3,796
10,481
10,343
822,655
2,898,360
2,845,891
(176,424)
(570,050)
(558,588)
646,231
2,328,310
2,287,303
(887,616)
11,780
1,362,299
(3,085,162)
3,494,467
11,915
3,506,382
(653,657)
2,852,725
643,549
2,682
2,317,984
10,326
2,270,398
16,905
2,842,698
10,027
of its main competitors. See "Non-GAAP Measures of Financial Performance" and "Selected Financial and
Other Information—Key Ratios and Other Information". The following table sets out certain key performance
indicators for the Group for the periods indicated:
BRSA Consolidated
Three months ended 31
March
Year ended 31 December
2016
2015
2015
2014
2013
(%)
Yield(1) ..............................................................................
Net interest margin(2) ........................................................
Net interest spread(3) .........................................................
Cost to income ratio(4) .......................................................
Operating expenses to total average assets ratio(5) ............
Return on average total assets(6) ........................................
Average return on equity(7) ...............................................
Dividend payout ratio(8) ....................................................
Operating income before provisions (excluding
dividend income)(9) .......................................................
9.9
4.0
4.0
60.2
2.8
1.1
10.8
—
9.1
4.0
4.0
45.9
2.3
1.6
16.1
—
9.6
4.1
4.1
49.7
2.4
1.3
13.3
15.9
9.4
4.3
4.4
45.8
2.3
1.5
15.7
14.7
9.0
4.8
4.9
41.4
2.5
2.3
22.9
13.1
2,298,549
1,996,343
8,464,799
7,455,039
7,455,465
(1)
Yield represents interest income as a percentage of average interest-earning assets.
(2)
Net interest margin represents net interest income before provisions for loan losses as a percentage of average interest-earning assets.
(3)
Net interest spread represents the difference between the average rate of interest earned on interest-earning assets and the average rate
of interest accrued on interest-bearing liabilities.
(4)
Cost to income ratio represents total operating expenses (excluding net impairment losses on financial assets) divided by total
operating income before provisions (excluding dividend income).
(5)
Operating expenses to total average assets ratio represents total operating expenses (excluding net impairment losses on financial
assets) divided by total average assets (which is the average of the opening and closing balances for the applicable period).
(6)
Return on average total assets represents profit for the period as a percentage of average total assets (which is the average of the
(7)
Average return on equity represents profit for the period as a percentage of average shareholders' equity (which is the average of the
(8)
Dividend payout ratio represents dividends paid divided by profit for the period. This information is unavailable for the three months
ended 31 March 2016 and 2015.
54
(9)
Expressed in TL thousands. Operating income before provisions (excluding dividend income) represents the Group's operating
income (which equals the sum of net interest income, net fees and commission income, net trading income from securities, net trading
gains/loss from derivative financial instruments, foreign exchange gains/losses net, net cost of insurance operations, and other
operating income) before provisions (excluding dividend income).
Interest income
The Group's total interest income consists of interest income from loans and receivables, from holding interest
bearing securities, from deposits at banks and other financial institutions and from other money market
placements, as well as other interest income. Total interest income is a function of both the volume of interest
bearing assets and the yield that the Group earns on these assets. The Group's loans and receivables comprise
the largest portion of the Group's total assets, representing 66.8%, 66.6%, 64.7% and 60.0% of the Group's total
assets as of 31 March 2016 and 31 December 2015, 2014 and 2013, respectively. As a result, the interest rates
the Group earns on its loans and receivables typically have the largest impact on the Group's total interest
income. For information on the average interest rates earned by the Group on its interest earning assets, see
"Selected Statistical and Other Information—Average Balances".
The Group's total interest income increased by 32.0% to TL 4,041 million for the three months ended 31 March
2016 from TL 3,062 million for the three months end 31 March 2015. The increase was due primarily to an
increase in loan yields due to higher market interest rates and loan repricing. See "—Interest on loans" below.
The Group's total interest income increased by 19.2% to TL 13,973 million for the year ended 31 December
2015 from TL 11,719 million for the year end 31 December 2014, which in turn was an increase of 24.8% from
TL 9,391 million for the year ended 31 December 2013. The increase in total interest income in 2015 primarily
reflected a 28.6% increase in interest income on loans mainly due to increases in the size of the Group's loan
portfolio, which was offset in part by a 11.9% decline on interest income on securities mainly due to a reduction
in yields on CPI-Linked Securities as a result of lower trailing twelve-month inflation rates during the period
between November 2014 and October 2015 as compared to the period between November 2013 and October
2014. The increase in total interest income in 2014 primarily reflected a 23.1% increase in interest income on
loans, as well as a 28.9% increase in interest income on securities. See "—Interest on loans" and "—Interest on
marketable securities" below.
The following tables set out the components of the Group's total interest income for the periods indicated:
BRSA Consolidated
Three months ended 31 March
2016
2015
(TL thousands)
Interest on loans .....................................................................
Interest income on marketable securities ...............................
Interest received from banks ..................................................
Interest income from money market placements ...................
Other interest income .............................................................
Total interest income ...........................................................
3,234,443
700,295
29,861
78
76,783
2,513,710
488,339
10,436
18
49,330
28.7
43.4
186.1
333.3
55.7
4,041,460
3,061,833
40.0
BRSA Consolidated
2015
2014
2013
(TL thousands)
Interest on loans .....................................................................
Interest income on marketable securities ...............................
Interest received from banks ..................................................
Interest income from money market placements ...................
Other interest income .............................................................
Total interest income ...........................................................
11,317,212
2,372,295
49,397
2,641
231,167
13,972,712
Change
2016/15
(%)
8,800,720
2,694,188
30,948
111
193,003
11,718,970
7,147,995
2,089,823
20,213
1,425
131,179
9,391,175
Change Change
2015/14 2014/13
(%)
28.7
(11.9)
59.6
2,279.3
19.8
19.2
23.1
28.9
53.1
(92.2)
46.5
24.8
Interest on loans
Interest income on loans increased by 28.7% to TL 3,234 million for the three months ended 31 March 2016
from TL 2,514 million for the three months ended 31 March 2015, due primarily to an increase in loan volume,
as well as a smaller impact from improvement on average yield on the Group's loan portfolio.
Interest income on loans increased by 28.7% to TL 11,317 million for the year ended 31 December 2015 from
TL 8,801 million for the year ended 31 December 2014, which in turn was an increase of 23.1% from TL 7,148
million for the year ended 31 December 2013. The increases in 2015 and 2014 were due primarily to increases
55
in loan volume, as well as smaller impacts from improvements in average yields on the Group's loan portfolio.
The improvements in average yield on the Group's loan portfolio resulted primarily from relatively high level of
interest rates in the Turkish loan market generally during 2015 and 2014. See "Selected Statistical and Other
Information―Analysis of Changes in Net Interest Income and Interest Expense by Volume and Rate".
Interest income on marketable securities
Interest income on the Group's securities portfolio increased by 43.4% to TL 700 million for the three months
ended 31 March 2016 from TL 488 million for the three months ended 31 March 2015, due primarily to an
improvement on yields on CPI-Linked Securities as a result of higher trailing three-month inflation rates during
the period between November 2015 and January 2016 as compared to the period between November 2014 and
January 2015.
Interest income on the Group's securities portfolio decreased by 11.9% to TL 2,372 million for the year ended
31 December 2015 from TL 2,694 million for the year ended 31 December 2014, which in turn was an increase
of 28.9% from TL 2,090 million for the year ended 31 December 2013. The decrease in the Group's interest
income on securities in 2015 was due primarily to a decrease in yields on CPI-Linked Securities due to lower
trailing twelve-month inflation rates during the period between November 2014 and October 2015 as compared
to the period between November 2013 and October 2014, as well as a smaller impact from a reduction in the
size of the Group's securities portfolio. The increase in the Group's interest income on securities in 2014 was
due primarily to an increase in the size of the Group's securities portfolio, as well as a smaller impact from an
increase in yields on CPI-Linked Securities as a result of higher trailing twelve-month inflation rates during the
period between November 2013 and October 2014 as compared to the period between November 2012 and
October 2013. See "Selected Statistical and Other Information―Analysis of Changes in Net Interest Income and
Interest Expense by Volume and Rate".
As of 31 March 2016 and 31 December 2015, 2014 and 2013, 31.9%, 30.9%, 32.7% and 31.5%, respectively, of
the Bank's securities portfolio was comprised of CPI-Linked Securities.
Interest expense
The Group's interest expense consists of interest expense on deposits, on other money market deposits and on
borrowings, on bonds issued as well as other interest expense. Interest expense is a function of both the volume
of interest bearing liabilities and the interest rates that the Group pays on these liabilities. The Group's deposits
are the largest portion of the Group's total liabilities, representing 70.4%, 71.3%, 73.2% and 78.3% of the
Group's total liabilities as of 31 March 2016 and 31 December 2015, 2014 and 2013, respectively. As a result,
the interest rates the Group pays on its deposits typically have the largest impact on the Group's total interest
expense. For information on the average interest rates paid by the Group on its interest earning liabilities, see
"Selected Statistical and Other Information—Average Balances".
The Group's total interest expense increased by 41.1% to TL 2,433 million for the three months ended 31 March
2016 from TL 1,724 million for the three months ended 31 March 2015, which primarily reflected an increase in
interest on deposits mainly due to an increase in deposit volumes, as well as a smaller impact from an increase
on interest rates paid on deposits.
The Group's interest expense increased by 25.9% to TL 8,039 million in 2015 from TL 6,386 million in 2014,
which in turn was an increase of 45.2% from TL 4,398 million in 2013. The increases in 2015 and 2014
primarily reflected increases in interest on deposits mainly due to increases in deposit volumes as well as
smaller impacts from increases on interest rates paid on deposits.
The following tables set out the components of the Group's total interest expense for the periods indicated:
BRSA Consolidated
2016
2015
(TL thousands)
Interest on deposits ................................................................
Interest on money market deposits.........................................
Interest on borrowings ...........................................................
Interest on bonds issued* .......................................................
Other interest expense............................................................
Total interest expense ..........................................................
*Represents interest expense on TL-denominated bonds.
56
1,981,162
179,677
120,323
121,777
30,238
2,433,177
1,381,113
141,921
81,521
100,944
18,385
1,723,884
Change
2016/15
(%)
43.4
26.6
47.6
20.6
64.5
41.15
BRSA Consolidated
2015
2014
2013
(TL thousands)
Interest on deposits ................................................................
Interest on money market deposits.........................................
Interest on borrowings ...........................................................
Interest on bonds issued* .......................................................
Other interest expense............................................................
Total interest expense ..........................................................
6,325,313
738,807
413,094
457,351
104,027
8,038,592
5,147,030
542,820
322,722
278,922
94,024
6,385,518
3,800,927
103,819
259,963
180,911
52,005
4,397,625
Change Change
2015/14 2014/13
(%)
22.9
36.1
28.0
64.0
10.6
25.9
35.4
422.9
24.1
54.2
80.8
45.2
*Represents interest expense on TL-denominated bonds.
Interest on deposits
Interest on deposits increased by 43.4% to TL 1,981 million for the three months ended 31 March 2016 from TL
1,381 million for the three months ended 31 March 2015, due primarily to an increase in deposit volumes of
12.7% from both retail and corporate depositors, as well as a smaller impact from an increase on interest rates
paid on deposits in response to competition in the deposit market.
Interest on deposits increased by 22.9% to TL 6,325 million in 2015 from TL 5,147 million in 2014, which in
turn was an increase of 35.4% from TL 3,801 million in 2013. The increase in interest on deposits in 2015 was
due primarily to an increase in deposit volumes of 10.8% from both retail and corporate depositors, as well as a
smaller impact from an increase in interest rates paid on deposits (in particular, on TL-denominated deposits) in
response to intense competition in the deposit market. The increase in interest on deposits in 2014 was due
primarily to an increase in deposit volumes of 13.2% from both retail and corporate depositors and an increase
in interest rates paid on deposits which mainly resulted from the continuation of the impact of interest-rate
increases made by the Central Bank in early 2014 which resulted in significantly higher average interest rates on
TL-denominated deposits. See "Selected Statistical and Other Information―Analysis of Changes in Net Interest
Income and Interest Expense by Volume and Rate".
Net interest income
Net interest income is the difference between the Group's total interest income and total interest expense—i.e.,
the difference between the interest income that the Group receives on its interest earning assets and the interest
expense that it pays on its interest bearing liabilities. Net interest income is the principal source of income for
the Group and thus the differential between the interest rates that it receives on interest earning assets and the
interest rates that it pays on interest bearing liabilities (i.e., its average spread), and the volume of such assets
and liabilities, tend to have the most significant impact on the Group's results of operations. Net interest income
represented 70.0%, 67.0%, 70.1%, 71.5% and 67.0% of total operating income before provisions (excluding
dividend income) for the three months ended 31 March 2016 and 2015 and the years ended 31 December 2015,
2014 and 2013, respectively.
The Group's net interest income increased by 20.2% to TL 1,608 million for the three months ended 31 March
2016 from TL 1,338 million for the three months ended 31 March 2015, reflecting an increase in interest income
(as described above under "—Interest income"), which was offset in part by an increase in interest expense (as
described above under "—Interest expense").
The Group's net interest income increased by 11.3% to TL 5,934 million in 2015 from TL 5,333 million in 2014,
which in turn was an increase of 6.8% from TL 4,994 million in 2013, in each case reflecting increases in
interest income (as described above under "—Interest income" above), which were offset in part by increases in
interest expense (as described above under "—Interest expense" above).
The Group's net interest margin was 4.0%, 4.0%, 4.1%, 4.3% and 4.8% for the three months ended 31 March
2016 and 2015 and the years ended 31 December 2015, 2014 and 2013, respectively. Net interest margin has
decreased in recent periods due primarily to increased competition in the Turkish banking sector for deposits
which has resulted in increased funding costs.
For additional information, see "Selected Statistical and Other Information—Average Interest-Earning Assets,
Yields, Margin and Spreads".
Net fees and commissions income
Net fees and commissions income is the difference between the Group's fees and commissions income and fees
and commissions expenses. Net fees and commissions income is the second largest source of income for the
57
Group. The Group earns fees and commission income on both capital-intensive products (such as origination
fees on cash loans, fees for letters of credit and guarantees and fees in connection with insurance transactions)
and non-capital-intensive products (such as investment advice and brokerage fees in respect of debt and equity
trading).
The Group's net fees and commissions income decreased by 17.3% to TL 248 million for the three months
ended 31 March 2016 from TL 300 million for the three months ended 31 March 2015, due primarily to a
decrease in income generated from insurance transactions and money transfers, together with the termination in
early 2016 of the ability to collect account maintenance fees due to a final decision of the Turkish Council of
State prohibiting banks from collecting such fees.
The Group's net fees and commissions income increased by 15.3% to TL 1,094 million in 2015 from TL 949
million in 2014, which in turn was an increase of 11.3% from TL 853 million in 2013. The increase in net fees
and commissions income in 2015 was due primarily to increased fees and commissions arising from non-cash
loans, such as letters of guarantee and letters of credit issued for the benefit of the Group's corporate and
commercial customers and decreasing total fee and commissions expenses as a result of the decline in
commissions paid for credit cards. In 2014, net fees and commissions increased on income generated from
credit cards and corporate customers which offset increasing commissions paid for credit cards.
The following tables set out the components of the Group's fees and commission income and expenses for the
periods indicated:
BRSA Consolidated
2016
2015
(TL thousands)
Non-cash loans ..........................................................................
Other ..........................................................................................
Fees and commissions income .................................................
Non-cash loans ..........................................................................
Other ..........................................................................................
Fees and commissions expenses ..............................................
Net fees and commissions income ...........................................
63,080
311,025
374,105
(1,086)
(125,158)
(126,244)
247,861
Change
2016/15
(%)
48,318
356,408
404,726
(646)
(104,254)
(104,900)
299,826
30.6
(12.7)
(7.6)
68.1
20.1
20.3
(17.3)
BRSA Consolidated
Change Change
2015
2014
2013
2015/14 2014/13
(TL thousands)
(%)
Non-cash loans ..........................................................................
Other ..........................................................................................
Fees and commissions income .................................................
Non-cash loans ..........................................................................
Other ..........................................................................................
Fees and commissions expenses ..............................................
Net fees and commissions income ...........................................
220,807
1,301,377
1,522,184
(3,169)
(425,081)
(428,250)
1,093,934
186,032
1,228,130
1,414,162
(3,242)
(461,755)
(464,997)
949,165
159,371
1,000,176
1,159,547
(3,678)
(303,044)
(306,722)
852,825
18.7
6.0
7.6
(2.3)
(7.9)
(7.9)
16.7
22.8
22.0
(11.9)
52.4
51.6
15.3
11.3
Profit/loss from capital market operations
Variations in profit/loss from capital market operations depend to a large degree on the level of market volatility.
The Bank tends to record a larger amount of net trading income from securities during periods of high market
volatility and less net trading income from securities during periods of low market volatility.
Profit from capital market operations decreased by 83.3% to TL 4 million for the three months ended 31 March
2016 from TL 24 million for the three months ended 31 March 2015, due primarily to the lack of trading
opportunities stemming from the high level of interest rates.
Profit from capital market operations decreased by 89.0% to TL 33 million in 2015 from TL 300 million in 2014,
which in turn was a decrease of 7.1% from TL 323 million in 2013. The decrease in 2015 was due primarily to
less profitable trading opportunities that arose in 2015 as compared to 2014 due to high level of interest rates
and narrower bid/offer spreads. The decrease in 2014 was attributable to increased swap costs (mostly short
term and cross currency) which resulted from an increasing dependence of the Group to alternative TL funding
instruments in order to lower average TL funding costs.
58
Profit/loss from financial derivative transactions and Foreign exchange gains/losses
The Group's loss from financial derivative transactions was TL 211 million for the three months ended 31
March 2016, compared to a loss from financial derivative transactions of TL 742 million for the three months
ended 31 March 2015. The Group's profit from financial derivative transactions was TL 126 million in 2015,
compared to a loss from financial derivative transactions of TL 1,417 million in 2014 and a profit from financial
derivative transactions of TL 462 million in 2013. The Group primarily uses derivative financial instruments to
hedge its own positions, as described in more detail in the paragraph below.
The Group's foreign exchange gains/losses include both realised and unrealised gains/losses. The realised
gains/losses result from the settlement of foreign exchange transactions and spot legs of derivative transactions,
whereas unrealised gains/losses arise from the Group's foreign currency positions. The unrealised gains/losses
consist of two parts—unrealised gains/losses on the balance sheet position and unrealised gains/losses on the
off-balance sheet position. The foreign exchange gains/losses arising from the settlement of foreign exchange
transactions and the unrealised gains/losses from the balance sheet foreign currency position are included under
"Foreign exchange gains/losses", whereas both the realised and unrealised gains/losses on off-balance sheet
transactions and positions (which principally result from forward legs of derivative transactions) are recorded
under "Profit/loss from derivative transactions". Therefore, although the Group did not hold any material foreign
currency net open positions throughout the three months ended 31 March 2016 or 2015 or the years ended 31
December 2015, 2014 or 2013 (considering both on-balance sheet and off-balance sheet positions), "Foreign
exchange gains/losses" varied among these years depending upon the balance sheet and off-balance sheet
positions in gross terms. For the three months ended 31 March 2016, the Group recorded a foreign exchange
gain of TL 235 million, compared to a foreign exchange gain of TL 742 million for the three months ended 31
March 2015. In 2015, the Group recorded a foreign exchange loss of TL 399 million, compared to a foreign
exchange gain of TL 1,194 million in 2014 and a foreign exchange loss of TL 538 million in 2013.
Loans and other receivables impairment loss provisions
Loans and other receivables impairment loss provisions consists primarily of provisions for loan losses, which is
comprised of amounts for specifically identified impaired and non-performing cash loans plus a further portfolio
basis allowance amount that Halkbank's management believes to be adequate to cover the inherent risk of loss
present in the pool of performing cash loans. In addition to provisions for possible losses on cash loans and noncash loans, the Group's loans and other receivables impairment loss provisions include provisions for tangible
assets and goodwill, investment in equity participations, other receivables and (where applicable) reversal of
prior year provisions.
The Group's loans and other receivables impairment loss provisions increased by 5.9% to TL 276 million for the
three months ended 31 March 2016, from TL 261 million for the three months ended 31 March 2015, due
primarily to a slight increase in specific provisions resulting from relatively higher non-performing loan
generation in the first quarter of 2016.
The Group's loans and other receivables impairment loss provisions increased by 12.0% to TL 1,377 million in
2015, from TL 1,229 million in 2014, which in turn was an increase of 38.5% from TL 888 million in 2013. In
2014 and 2015, the Group's provisions increased due primarily to specific provisions which were set aside for
one non-performing corporate loan (for detailed information see "―Provisioning") although the Group
benefited from lower general provisioning rates for SME loans which were reduced to 0.5% from 1.0% in 2013
and for certain credit card loans and general purpose consumer loans which were reduced to 1% from 4% as the
Group strategically reduced the share of its retail loans to below 25% of its total loan portfolio.
The following table sets out the movements in the Group's loans and receivables impairment loss provisions for
the periods indicated:
BRSA Consolidated
Three months ended
Year ended
31 March
31 December
2016
2015
2015
2014
(TL thousands)
Specific provisions on loans and receivables:
Group III (loans and receivables with limited collectability) ..........
Group IV (loans and receivables with doubtful collectability) .......
Group V (uncollectible loans and receivables) ...............................
Specific provisions on loans and receivables...............................
General loan provision expenses.....................................................
Provision expenses for possible losses ............................................
59
149,958
3,739
22,507
176,204
59,721
—
96,107
4,932
35,246
136,285
82,821
—
231,262
190,811
442,617
864,690
291,794
123,500
241,854
556,587
80,920
879,361
135,445
—
2013
248,212
111,299
80,469
439,980
325,238
—
Marketable securities impairment losses ........................................
Impairment losses from associates, subsidiaries, jointly
controlled entities (joint ventures) and investments held-tomaturity ......................................................................................
Other ...............................................................................................
Total ...............................................................................................
—
—
—
40,181
276,106
—
—
13
—
—
—
41,540
96,871
214,345
260,646 1,376,855 1,229,151
—
122,385
887,616
March 2016 and 31 December 2015, 2014 and 2013, respectively. The decrease in the non-performing loan ratio
as of 31 December 2015 was attributable primarily to a solid collection performance, coupled with strong
growth in the loan portfolio which exceeded the increase in the amount of non-performing loans. The increase in
the non-performing loan ratio as of 31 December 2014 was due primarily to a large corporate loan (with a
principal amount of TL 1,076 million) which was classified as non-performing and provisioned 50% according
to the regulatory requirements. Prior to the classification as a non-performing loan, this loan had been classified,
under the relevant BRSA regulations for provisioning, as a Group II Loan (Loans and Receivables under Close
Monitoring). The loan became fully provisioned after the remaining 50% additional provisions were set aside in
the second quarter of 2015.
Other operating income
Other operating income increased by 23.9% to TL 415 million for the three months ended 31 March 2016 from
TL 335 million for the three months ended 31 March 2015, due primarily to the income from the reversal of a
general provision amounting to TL 123.5 million. See "—Provisioning" above.
Other operating income increased by 53.2% to TL 1,678 million in 2015 from TL 1,095 million in 2014, which
in turn was a decrease of 19.6% from TL 1,362 million in 2013. The increase in 2015 was due primarily to a
reversal of prior years' general provision that had been set aside for retail loans amounting to TL 430 million
together with increasing life insurance income. See "—Provisioning" above. The decrease in 2014 was due
primarily to a high base effect arising from the reversal of the prior years' provision in 2013.
The following tables set out the components of the Group's other operating income for the periods indicated:
BRSA Consolidated
2016
2015
(TL thousands)
Change
2016/15
(%)
Adjustments for Prior Period Expenses ..............................................
Life Insurance Income ........................................................................
Receivable from the asset sale on credit terms ...................................
Rent income ........................................................................................
199,559
162,404
17,838
14,068
150,329
140,365
19,204
1,499
32.7
15.7
(7.1)
838.5
Other income ......................................................................................
20,650
414,519
23,485
334,882
(12.1)
Other operating income....................................................................
23.8
BRSA Consolidated
2015
2014
2013
(TL thousands)
Adjustments for Prior Period Expenses ..............................................
Life Insurance Income ........................................................................
Receivable from the asset sale on credit terms ...................................
Rent income ........................................................................................
428,843
523,378
70,129
7,129
645,300
591,444
86,627
23,283
74.6
39.8
1.7
225.4
102,319
65,703
Other operating income.................................................................... 1,677,504 1,095,182
15,645
1,362,299
55.7
320.0
53.2
(19.6)
Other income ......................................................................................
748,861
731,824
71,300
23,200
Change Change
2015/14 2014/13
(%)
(33.5)
(11.5)
(19.0)
(69.4)
Other operating expenses
Other operating expenses increased by 51.0% to TL 1,385 million for the three months ended 31 March 2016
from TL 917 million for the three months ended 31 March 2015, due primarily to an increase in personnel
expense and an increase in provision expenses of the Group's insurance subsidiary arising from regulatory
changes on incurred but not reported incidents in the motor third party liability insurance segment. Although a
transition period was permitted by the regulator, the Group has decided to book all respective expenses at once,
60
which had a significant impact on the Group's other operating expenses for the three months ended 31 March
2016.
Other operating expenses increased by 23.2% to TL 4,206 million in 2015 from TL 3,413 million in 2014 due
primarily to an increase in personnel expenses arising from wage growth and a sharp increase in headcount at
the end of 2014 (mainly due to the expansion of the Group's branch network) together with fee rebates to retail
customers; such rebates were charged in the past but reclaimed by the customers based on a court decision, and
increased to TL 214 million in 2015 from TL 109 million in 2014. Other operating expenses increased by 10.6%
from TL 3,085 million in 2013 to TL 3,413 million in 2014, due primarily to increases in personnel costs and
fee rebates. See "—Personnel expenses", "—Other operating expenses" and "—Other" below.
The following tables set out the components of the Group's other operating expenses for the periods indicated:
BRSA Consolidated
2016
2015
(TL thousands)
Personnel expenses ......................................................................................
Reserve for employee termination benefits..................................................
Depreciation expenses of fixed assets ..........................................................
Amortisation expenses of intangible assets..................................................
Impairment expense of assets that will be disposed of.................................
Amortisation expenses of assets that will be disposed of.............................
Other operating expenses .............................................................................
Loss on sales of assets .................................................................................
Other ............................................................................................................
Other operating expenses ..........................................................................
481,527
26,458
28,938
7,618
410
982
258,703
565
579,408
1,384,609
388,015
21,553
27,259
3,611
332
1,068
205,501
431
269,068
916,838
BRSA Consolidated
2015
2014
2013
(TL thousands)
Personnel expenses ................................................................
Reserve for employee termination benefits..............................
Depreciation expenses of fixed assets ......................................
Amortisation expenses of intangible assets..............................
Impairment expense of assets that will be disposed of...........
Amortisation expenses of assets that will be disposed of.......
Impairment expense for property and equipment held for
sale ....................................................................................
Other operating expenses .......................................................
Loss on sales of assets ...........................................................
Other ......................................................................................
Other operating expenses ....................................................
Change
2016/15
(%)
24.1
22.8
6.2
111.0
23.5
(8.1)
25.9
31.1
115.3
51.0
Change
Change
2015/14
2014/13
(%)
1,629,124
67,067
114,110
20,973
1,714
7,654
1,329,790
56,204
113,313
9,489
2,398
4,158
1,158,645
52,854
110,686
7,567
1,365
3,873
22.5
19.3
0.7
121.0
(28.5)
84.1
14.8
6.3
2.4
25.4
75.7
7.4
—
1,130,048
4,503
1,231,126
4,206,319
25
1,057,108
10,746
830,250
3,413,481
59
1,088,145
1,487
660,481
3,085,162
(100.0)
6.9
(58.1)
48.3
(57.6)
(2.9)
622.7
25.7
23.2
10.6
The Group's costs (which include total operating expenses excluding net impairment losses on financial assets)
to income (which includes operating income minus dividend income, except for provisions made on a portfolio
basis to cover any inherent risk of loss for cash loans and non-cash loans) ratio increased to 60.2% for the three
months ended 31 March 2016 from 45.9% for the three months ended 31 March 2015, reflecting an increase in
other operating expenses that was offset in part by an increase in operating income. See "—Other operating
income" and "—Other operating expenses" above.
The Group's cost-to-income ratio increased to 49.7% for the year ended 31 December 2015 from 45.8% for the
year ended 31 December 2014, which in turn was an increase from 41.4% for the year ended 31 December 2013.
The increase in 2015 reflected an increase in other operating expenses which was offset in part by increase in
other operating income. The increase in 2014 reflected an increase in other operating expenses, together with a
decrease in other operating income. See "—Other operating income" and "—Other operating expenses" above.
A similar ratio monitored by the Group is its ratio of operating expenses (calculated for this purpose as total
operating expenses excluding net impairment losses on financial assets) to total average assets, which was 2.8%,
2.3%, 2.4%, 2.3% and 2.5% for the three months ended 31 March 2016 and 2015 and the years ended 31
61
Personnel expenses
Personnel expenses increased by 24.2% to TL 482 million for the three months ended 31 March 2016 from TL
388 million for the three months ended 31 March 2015, due primarily to wage growth due to inflation and
compensation paid to personnel relocated from the Ankara office to the new headquarters in Istanbul.
Personnel expenses increased by 22.5% to TL 1,629 million in 2015 from TL 1,330 million in 2014, which in
turn was an increase of 14.8% to from TL 1,159 million in 2013. The increase in personnel expenses in 2015
was due primarily to wage growth and sharp increase in headcount at the end of 2014 (mainly due to the
expansion of the Group's branch network), while the increase in 2014 was due primarily to increases in
employee headcount and wage growth. The wage growth in 2015 and 2014 was due in part to Turkish consumer
price index-related increases in salaries paid to Halkbank's personnel.
Other operating expenses
Other operating expenses increased by 25.7% to TL 259 million for the three months ended 31 March 2016
from TL 206 million for the three months ended 31 March 2015, due primarily to the branch expansion strategy
that the Group has continued to follow in the first quarter of 2016.
Other operating expenses increased by 6.9% to TL 1,130 million for the year ended 31 December 2015 from TL
1,057 million for the year ended 31 December 2014, which in turn was a decrease of 2.8% from TL 1,088
million for the year ended 31 December 2013, which was due primarily to the Group's domestic branch
expansion (growing from 872 branches as of 31 December 2013 to 895 branches as of 31 December 2014, and
then growing further to 944 branches as of 31 December 2015).
Other
Other expenses increased by 115.3% to TL 579 million for the three months ended 31 March 2016 from TL 269
million for the three months ended 31 March 2015, due primarily to the increase in provision expenses of the
Group's insurance subsidiary arising from regulatory changes on incurred but not reported incidents in the motor
third party liability insurance segment
Other expenses increased by 48.3% to TL 1,231 million for the year ended 31 December 2015 from TL 830
million for the year ended 31 December 2014, which in turn was an increase of 25.7% from TL 660 million for
the year ended 31 December 2013. The increases in 2015 and 2014 were due primarily to increases in
repayments of certain fees to certain retail customers as a result of final court decisions requiring the Bank to
repay fees charged in prior periods in connection with the making of certain loans.
Tax income provision
The tax income provision decreased by 36.3% to TL 112 million for the three months ended 31 March 2016
from TL 176 million for the three months ended 31 March 2015, attributable to the decrease in income before
taxes.
The tax income provision increased by 2.1% to TL 570 million in 2015 from TL 559 million in 2014, which in
turn was a decrease of 14.5% from TL 654 million in 2013. These changes in the tax income provision were due
primarily to changes in the Group's profit before income tax during these periods.
The Group's effective tax rate (calculated as the tax income provision, including deferred taxes, divided by its
income before tax) was 17.5%, 21.4%, 19.7%, 19.6% and 18.6% for the three months ended 31 March 2016 and
2015 and the years ended 31 December 2015, 2014 and 2013, respectively. The Group's income tax payable on
its corporate tax income was TL 196 million, TL 74 million, TL 118.2 million, TL 352.7 million and TL 62.7
million for the three months ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and
2013, respectively.
Net profit/(loss)
Net profit decreased by 18.1% to TL 529 million for the three months ended 31 March 2016 from TL 646
million for the three months ended 31 March 2015, primarily reflected an increase in other operating expenses
and a decrease in net fees and commissions income. See "—Net interest income", "—Net fees and commissions
income", "—Other operating income" and "—Other operating expenses" above.
Net profit increased by 1.8% to TL 2,328 million for the year ended 31 December 2015 from TL 2,287 million
for the year ended 31 December 2014, which in turn was a decrease of 19.8% from TL 2,853 million for the
year ended 31 December 2013. The increase in net profit in 2015 primarily reflected increases in net interest
income, in net fees and commissions income and in other operating income, which were largely offset by
increases in other operating expenses and in loans and other receivables impairment loss provisions. The
62
decrease in net profit in 2014 primarily reflected increases in other operating expenses and in loans and other
receivables impairment loss provisions and a decrease in other operating income, which was offset in part by
increases in net interest income and in net fees and commissions income. See "—Net interest income", "—Net
fees and commissions income", "—Loans and other receivables impairment loss provisions", "—Other operating
income" and "—Other operating expenses" above.
Analysis of Financial Condition as of 31 March 2016 and 31 December 2015, 2014 and 2013
The following summary balance sheet data as of 31 March 2016 and 31 December 2015, 2014 and 2013 has
been extracted without material adjustment from the BRSA Financial Statements. The information below should
be read in conjunction with the BRSA Financial Statements and the notes thereto incorporated by reference in
this Offering Memorandum.
BRSA Consolidated
As of 31
March
2016
Balance Sheet Data
Assets:
Cash and Balances with the Central Bank ............................
Banks ....................................................................................
Trading financial assets ....................................................
Money Market Placements ...................................................
Loans and Receivables..........................................................
Factoring Receivables ...........................................................
Finance Lease Receivables (Net) ..........................................
Financial Assets available for Sale (Net)..........................
Held to maturity investment (Net) ....................................
Investment in Associates ......................................................
Investment in Subsidiaries ....................................................
Tangible Assets (Net) ...........................................................
Intangible Assets (Net) .........................................................
Assets held for sale and held from discontinued operations
(Net) .................................................................................
Investment Properties (Net) ..................................................
Tax Asset ..............................................................................
Other Assets ..........................................................................
Total Assets .........................................................................
As of 31 December
2015
2014
(TL thousands)
2013
24,800,070
2,014,611
23,500,539
2,617,651
20,331,936
1,458,532
20,021,395
1,908,775
372,445
643,595
133,175,221
638,238
2,153,439
339,507
53,874
127,219,551
486,885
2,204,752
225,980
302,107
101,831,153
361,345
1,902,536
185,320
230,684
84,968,927
325,332
1,693,756
12,179,521
16,754,647
271,522
38,029
3,136,993
108,177
11,535,143
16,904,877
264,031
38,029
3,144,367
102,314
9,195,847
17,869,082
226,118
37,859
1,683,915
82,601
9,827,949
18,973,598
227,051
30,604
1,463,302
67,039
2,069
505,972
106,538
2,414,398
199,315,485
2,694
485,594
50,920
2,050,762
191,001,490
8,776
24,529
309,467
1,502,478
157,354,261
6,971
36,344
16,771
1,552,464
141,536,282
Liabilities:
Deposits from banks .............................................................
Deposits from customers ......................................................
Derivative financial liabilities held for trading .....................
Funds Borrowed....................................................................
Money Market Balances .......................................................
Marketable Securities Issued (Net) .......................................
Funds ....................................................................................
Provisions .............................................................................
Tax liability...........................................................................
Factoring Payables ................................................................
Other liabilities and sundry creditors ....................................
Subordinated Capital ............................................................
Total Liabilities ...................................................................
19,027,400
107,154,801
224,122
21,218,906
12,926,172
8,489,830
1,973,258
3,674,547
539,978
803
4,109,2513
—
179,339,068
14,690,850
107,813,534
175,673
22,143,737
8,455,957
8,840,560
1,963,699
3,161,477
449,265
224
4,092,696
47,144
171,834,816
17,182,545
86,471,605
184,729
14,181,774
8,765,937
6,091,394
1,769,291
2,801,230
560,767
—
3,527,581
—
141,536,853
10,017,304
90,377,875
53,492
15,086,352
1,261,476
4,151,666
1,488,542
2,457,561
221,157
—
3,049,842
—
128,165,267
Equity:
Paid-in capital .......................................................................
Capital reserves.....................................................................
Profit reserves .......................................................................
Profit/Loss ............................................................................
Total equity excluding minority shares .............................
1,250,000
2,919,743
12,594,157
3,023,379
19,787,279
1,250,000
2,635,235
12,597,223
2,482,790
18,965,248
1,250,000
1,458,276
10,520,206
2,410,166
15,638,648
1,250,000
976,974
8,063,847
2,917,247
13,208,068
Minority Shares ....................................................................
Total Liabilities and Shareholders' Equity .......................
189,138
199,315,485
201,426
191,001,490
178,760
157,354,261
162,947
141,536,282
of its main competitors. See "Non-GAAP Measures of Financial Performance" and "Selected Financial and
63
Other Information—Key Ratios and Other Information". The following table sets out certain key performance
indicators for the Group as of the dates indicated:
As of
31 March
2016
Loans to total deposits(1) ..............................................................................
Loans to total assets(2) ..................................................................................
Securities to total assets(3) ............................................................................
Deposits to total liabilities(4) ........................................................................
Cost of Risk(5) ..............................................................................................
Non-performing loans to total cash loans(6) .................................................
Loan losses reserves to non-performing loans(7) ..........................................
BRSA Consolidated
As of
31 December
2015
2014
(%)
105.5
66.8
14.6
70.4
0.54
3.2
75.3
103.8
66.6
14.9
71.3
0.76
3.2
75.7
2013
98.2
64.7
17.3
73.2
0.94
3.6
65.4
84.6
60.0
20.4
78.3
0.58
2.6
80.7
(1)
Loans to total deposits represents total loans and receivables divided by total deposits (deposits from banks and deposits from
customers).
(2)
Loans to total assets represents total loans and receivables divided by total assets.
(3)
Securities to total assets represents securities divided by total assets.
(4)
Deposits to total liabilities represents total deposits (deposits from banks and customers) divided by total liabilities.
(5)
Cost of risk represents impairment charge for the period minus recoveries and reversals for the period, divided by average net loans
(which is the average of the opening and closing net loan balances for the applicable period).
(6)
Non-performing loans to total cash loans represents non-performing loans divided by total cash loans.
(7)
Loan losses reserves to non-performing loans represents loan losses reserves divided by non-performing loans.
Total Assets
The Group's total assets increased by 4.4% to TL 199,315 million as of 31 March 2016 from TL 191,001 million
as of 31 December 2015, which primarily reflected growth in the Group's loans and receivables, coupled with
cash and balances held with the Central Bank. The Group's total assets increased by 21.4% to TL 191,001
million as of 31 December 2015 from TL 157,354 million as of 31 December 2014, which primarily reflected
increases in the Group's loans and receivables, reserve deposits with the Central Bank and investment securities.
The Group's total assets increased by 11.2% to TL 157,354 million as of 31 December 2014 from TL 141,536
million as of 31 December 2013, which primarily reflected an increase in the Group's loans and receivables and
reserve deposits with the Central Bank.
Loans and Receivables
Loans and receivables have historically comprised the largest portion of the Group's total assets. Loans and
receivables represented 66.8%, 66.6%, 64.7% and 60.0% of the Group's total assets as of 31 March 2016 and 31
The Group's loans and receivables increased by 4.7% to TL 133,175 million as of 31 March 2016 from TL
127,220 million as of 31 December 2015, due primarily to increasing demand for the Group's loans and
receivables in line with improved economic growth in Turkey during the period.
The Group's loans and receivables of TL 127,220 million as of 31 December 2015 represented an increase of
24.9% from TL 101,831 million as of 31 December 2014, which in turn was an increase of 19.8% from TL
84,969 million as of 31 December 2013. The increases in loans and receivables were due primarily to improving
economic conditions in Turkey and increasing demand for the Group's loans and receivables. In late 2013,
however, the Central Bank undertook certain measures to change the composition of economic growth in favour
of export and production businesses by making retail lending less attractive for the banks while decreasing
general provisions for SME and export loans.
The following table sets out the components of the Group's loans and receivables as of the dates indicated:
As of
31 March
2016
BRSA Consolidated
As of
31 December
2015
2014
(TL thousands)
Non-specialised loans
105,596,234 101,554,274
Corporation loans........................................................................... 69,131,366 65,759,491
Export loans ................................................................................... 3,876,095
3,925,487
Import loans ...................................................................................
—
—
64
81,379,746
48,628,980
3,036,120
—
2013
68,385,463
40,138,953
2,406,513
—
Loans given to financial sector ...................................................... 2,153,036
2,271,599
Consumer loans ............................................................................. 25,610,755 25,040,905
Credit cards .................................................................................... 3,188,343
3,089,028
Other .............................................................................................. 1,636,639
1,467,764
Specialised lending:
24,726,749 23,030,670
Other receivables ...........................................................................
—
—
Accruals ......................................................................................... 1,777,055
1,617,788
Performing Loans and Receivables ............................................ 132,100,038 126,202,732
2,405,798
23,101,464
2,909,654
1,297,730
17,888,631
—
1,277,138
100,545,515
1,318,733
21,068,067
2,657,934
795,263
15,125,451
—
1,021,333
84,532,247
4,189,536
(3,172,717)
—
3,719,046
(2,433,408)
—
2,264,208
(1,827,528)
—
Loans and Receivables................................................................. 133,175,221 127,219,551
101,831,153
84,968,927
Non-performing loans and receivables and allowance for
impairment:
Loans under follow-up ................................................................... 4,347,964
Specific provisions......................................................................... (3,272,781)
Portfolio allowance for impairment on loans .................................
—
Total Liabilities
The Group's total liabilities increased to TL 179,339 million as of 31 March 2016 from TL 171,835 million as of
31 December 2015, which primarily reflected an increase in deposits from banks and money market balances.
The Group's total liabilities of TL 171,835 million as of 31 December 2015 represented an increase of 21.4%
from TL 141,537 million as of 31 December 2014, which in turn was an increase of 10.4% from TL 128,165
million as of 31 December 2013. The increase in total liabilities in 2015 and 2014 primarily reflected increases
in deposits from customers, funds borrowed, money market balances and debt securities issued.
The following summarises the four principal categories of the Group's liabilities—deposits from banks, deposits
from customers, obligations under repurchase agreements and loans and receivables from banks.
Deposits from banks
Deposits from banks represented 10.6%, 8.5%, 12.1% and 7.8% of the Group's total liabilities as of 31 March
2016 and 31 December 2015, 2014 and 2013, respectively.
The Group's deposits from banks increased by 29.5% to TL 19,027 million as of 31 March 2016 from TL
14,691 million as of 31 December 2015, due primarily to relatively favourable interest rates offered by the
Group to attract bank deposits which were relatively low cost compared to other sources of funding.
The Group's deposits from banks decreased by 14.5% to TL 14,691 million as of 31 December 2015 from TL
17,183 million as of 31 December 2014, which in turn was an increase of 71.5% from TL 10,017 million as of
31 December 2013. The decrease in deposits from banks in 2015 was due primarily to the shift towards
alternative sources of funding in foreign currency which were relatively low cost compared to other sources of
funding. The increase in 2014 was attributable to the relatively favourable interest rates offered by the Group on
such deposits in Turkish Lira, which were more attractive for the Group compared to the customer deposits in
terms of pricing. The Bank also believes that the strong institutional relationships it has maintained with other
banks enable it to manage the portfolio strategically, depending on the level of interest rates and the pricing of
other alternative funding sources.
Deposits from customers
Deposits from customers have historically comprised the largest portion of the Group's total liabilities. Deposits
from customers represented 59.7%, 62.7%, 61.1% and 70.5% of the Group's total liabilities as of 31 March 2016
and 31 December 2015, 2014 and 2013, respectively.
The Group's deposits from customers decreased by 0.6% to TL 107,155 million from TL 107,814 million as of
31 December 2015, due primarily to a change in funding strategy pursuant to which the Group increased
deposits from banks and money market balances (which were relatively low cost sources of funding) and
reduced deposits from customers (which were relatively high cost sources of funding).
The Group's deposits from customers increased by 24.7% to TL 107,814 million as of 31 December 2015 from
TL 86,472 million as of 31 December 2014, which in turn was a decrease of 4.3% from TL 90,378 million as of
31 December 2013. The increase in the customer deposit base of the Group in 2015 was due primarily to the
overall growth of deposits in the Turkish banking market, as well as specific efforts by the Group to expand its
deposit base (principally from SMEs and retail customers). For example, the Group's level of demand deposits
increased to TL 17,417 million as of 31 December 2015 from TL 16,224 million as of 31 December 2014, due
to the overall growth in the Turkish economy and in part to the "Bordro 24" payroll service, which provides
payroll and account deposit services to private and public sector employees whose employers have entered into
65
multi-year payroll servicing agreements with Halkbank. The decrease in 2014 was attributable to the strategic
change from customer deposits towards other funding sources including bank deposits in order to mitigate the
impact of higher market interest rates following the Central Bank's rate hikes.
Obligations under repurchase agreements
Obligations under repurchase agreements represented 6.5%, 4.9%, 6.0% and 0.6% of the Group's total liabilities
as of 31 March 2016 and 31 December 2015, 2014 and 2013, respectively. The Group uses repurchase
agreements as an important funding source to manage liquidity in the short-term and the share of the outstanding
balances of such transactions in the Group's balance sheet changes depending upon the relative costs of funding
in the market.
The Group's obligations under repurchase agreements increased by 39.4% to TL 11,622 million as of 31 March
2016 from TL 8,336 million as of 31 December 2015, due primarily to an increase in short term repro
transactions held with the Central Bank, which offered relatively lower pricing compared to alternative Turkish
Lira funding sources.
The Group's obligations under repurchase agreements of TL 8,336 million at 31 December 2015 represented a
decrease of 1.1% from TL 8,427 million as of 31 December 2014, which in turn was an increase from TL 780
million as of 31 December 2013.
In its November 2013 and December 2013 meetings, the Central Bank announced that one month repo auctions
were terminated, that the maximum amount of funding via one-week repo was reduced from TL 10 billion to TL
6 billion and that the total amount of funding offered to primary dealer banks was reduced to approximately TL
6.5 billion. In January 2014, to counter a significant depreciation in the Turkish Lira, the Central Bank increased
its overnight TL borrowing rate to 8% from 3.5%, its one-week repo rate to 10% from 4.5% and its overnight
lending rate to 12% from 7.75%. The Central Bank cut its one week repo rate initially from 10% to 9.5 in May
2014, further to 8.75% in June 2014, to 8.25% in July 2014, to 7.75 in January 2015 and then to 7.50% in
February 2015 while overnight lending rate reduced from 12% to 11.25% in August 2014 to 10.75% in February
2015 and further to 10.50% in March 2016. In May 2016, the Monetary Policy Committee of the Central Bank
kept its one week repo rate at 7.50% and borrowing rate at 7.25% but reduced its overnight lending rate from
10.0% to 9.50%.
Given the significant increase in the TL term deposit pricing and severe competition among Turkish banks, the
Group increased its share of repurchase agreements with the Central Bank significantly in 2014 and again in the
three months ended 31 March 2016, as well as other alternative sources of funding to meet its short term
funding needs.
Loans and receivables from banks
As deposits in the Turkish banking market are generally of a short-term duration, the Group has obtained
wholesale funding on a more limited basis principally to better match the maturity and currency of its longerterm assets. This funding has included (among others) syndicated bank loans. Loans and receivables from banks
represented 11.8%, 12.9%, 10.0% and 11.8% of the Group's total liabilities as of 31 March 2016 and 31
The Group's loans and receivables from banks decreased to TL 21,219 million as of 31 March 2016 from TL
22,144 million as of 31 December 2015, due primarily to depreciation of the Turkish Lira.
The Group's loans and receivables from banks increased by 56.1% to TL 22,144 million as of 31 December
2015 from TL 14,181 million as of 31 December 2014, which in turn was a 6.0% decrease from TL 15,086
million as of 31 December 2013. The increase in loans and receivables from banks in 2015 was due primarily to
an increase in funding obtained from multinational development agencies and the renewal of syndicated loan
facilities.
Total equity excluding minority shares
Total equity excluding minority shares increased to TL 19,787 million as of 31 March 2016 from TL 18,965
million as of 31 December 2015, due primarily to an increase in the Group's retained earnings.
Total equity attributable to equity holders of the Bank increased by 21.2% to TL 18,965 million as of 31
December 2015 from TL 15,639 million as of 31 December 2014, which in turn was an increase of 18.4% from
TL 13,208 million as of 31 December 2013. These increases in total equity attributable to equity holders of the
Bank were due to increases in the Group's retained earnings. The Group paid 9.6%, 12.2% and 19.4% of the
Group's profit for the period as dividends for the years ended 31 December 2015, 2014 and 2013, respectively.
66
Capital Expenditure
The Group's fixed asset purchases totalled TL 107 million, TL 126 million, TL 2,320 million, TL 475 million
and TL 331 million for the three months ended 31 March 2016 and 2015 and the years ended 31 December 2015,
2014 and 2013, respectively. The Group's fixed asset purchases during these periods principally related to
expenses incurred in connection with properties securing non-performing loans.
Liquidity and Capital Resources
Historically, the Group's primary source of funding has been, and is expected to continue to be, short-term
deposits from customers. See "Risk Management—Management of Specific Risks—Liquidity Risk".
Deposits from customers represented 59.7%, 62.7%, 61.1% and 70.5% of the Group's total liabilities as of 31
March 2016 and 31 December 2015, 2014 and 2013, respectively. Total deposits, including both deposits from
customers and deposits from banks, represented 70.4%, 71.3%, 73.2% and 78.3% of total liabilities as of 31
March 2016 and 31 December 2015, 2014 and 2013, respectively. As of 31 March 2016, demand deposits from
customers represented 16.2% of total deposits from customers, whereas time deposits from customers
represented 83.8% of total deposits from customers. TL-denominated deposits from customers represented
66.1% of the total deposits from customers as of 31 March 2016.
The following table sets forth the allocation of the Group's funding as of 31 March 2016 and 31 December 2015,
2014 and 2013:
As of
31 March
2016
Time deposits from customers ..............................
Demand deposits from customers .........................
Deposits from banks .............................................
Obligations under repurchase agreements.............
Loans and receivables from banks ........................
Interbank money market borrowings ....................
Other liabilities and shareholders' equity ..............
Total .....................................................................
BRSA Consolidated
As of
31 December
2015
2014
(%)
44.9
8.8
9.5
5.8
10.6
0.4
20.0
100.0
47.3
9.1
7.7
4.4
11.6
0.1
19.8
100.0
44.6
10.3
10.9
5.4
9.0
—
19.8
100.0
2013
53.2
10.7
7.1
0.6
10.7
—
17.7
100.0
Off-Balance Sheet Arrangements
The Group enters into certain financial transactions with off-balance sheet risk in the normal course of business
in order to meet the needs of its customers and not for speculative purposes. These transactions involve varying
degrees of credit risk and are not reflected in the Group's balance sheet. The Group's maximum exposure to
credit losses in connection with these transactions is represented by the contractual amount of these transactions.
Since many of the commitments are expected to expire without being drawn upon, the total amount does not
necessarily represent future cash requirements.
The following table sets out details of the Group's commitments and contingencies as of the dates indicated,
other than derivative financial liabilities which are discussed below:
As of
31 March
2016
Letters of guarantee .........................................................................
Letters of credit ................................................................................
Import acceptances ..........................................................................
Other guarantees ..............................................................................
Total non-cash loans ......................................................................
Other commitments .........................................................................
Commitments for credit card expenditure limits..............................
BRSA Consolidated
As of
31 December
2015
2014
(TL thousands)
2013
31,216,475
4,952,074
153,964
4,715,750
30,866,677
5,016,951
154,337
3,999,261
24,968,993
3,923,602
108,977
3,864,369
20,393,936
3,825,259
165,770
2,735,464
41,038,263
11,852,768
11,579,443
Total ................................................................................................ 64,470,474
40,037,226
10,860,302
11,181,001
62,078,529
32,865,941
9,569,945
10,329,418
52,765,304
27,120,429
9,632,082
9,896,720
46,649,231
67
The Group's total commitments and contingencies increased by 3.9% to TL 64,470 million as of 31 March 2016
from TL 62,079 million as of 31 December 2015, due primarily to an increase in the volume of letters of
guarantee issued in the first quarter of 2016.
The Group's total commitments and contingencies increased by 17.7% to TL 62,079 million as of 31 December
2015 from TL 52,765 million as of 31 December 2014, which in turn was an increase of 13.1% from TL 46,649
million as of 31 December 2013. These increases in the Group's commitments and contingencies were due
primarily to its non-cash lending business (represented by a significant increase in issuance by the Group of
letters of guarantee and acceptance credits partially offset by a decrease in issuances of letters of credit).
The Group mainly issues letters of guarantee by the order of construction companies to be used as performance
bonds in Turkey and in the principal export markets for Turkey's goods and services. The Group also issues
letters of credit, acceptance and other payment commitments arising in a wide variety of transactions.
Since 2006, the Group has utilised transactions with derivative instruments including interest rate swaps and
currency swaps in the foreign exchange and capital markets. Most of these derivative transactions are
considered to be effective economic hedges under the Group's risk management policies. Derivative financial
instruments are initially recognised at fair value on the date when a derivative contract is entered into and
subsequently re-measured at fair value. Any gains or losses arising from changes in fair value on derivatives that
do not qualify for hedge accounting are recognised in the income statement. All derivatives are carried as assets
when fair value is positive and as liabilities when fair value is negative. As of 31 March 2016, the carrying
amount of derivative financial assets was TL 256 million and the carrying amount of derivative financial
liabilities was TL 224 million. The Group does not engage in derivative transactions for speculative purposes.
Capital Adequacy
The Group is required to comply with capital adequacy guidelines promulgated by the BRSA, which are based
upon the standards established by the Bank for International Settlements (the "BIS"). These guidelines require
banks to maintain adequate levels of regulatory capital against risk-bearing assets, off-balance sheet exposures,
market risk and other risk positions. Further to the Regulation on Equities of Banks published in the Official
Gazette dated 1 November 2006 and numbered 26333 (the "2006 Equity Regulation"), which was replaced by
the 2013 Equity Regulation published in the Official Gazette dated 5 September 2013 and numbered 28756
(which entered into effect on 1 January 2014) (the "2013 Equity Regulation"), the Group's total capital ratio
was (through the end of 2013) calculated by dividing: (a) the sum of its "Tier I" capital (which comprises its
share capital, reserves, retained earnings, and profit for the period for the current period), plus its "Tier II"
capital (which comprises general provisions, and secondary subordinated loans) less deductions from capital; by
(b) the aggregate of its risk-weighted assets, risk weighted off-balance sheet exposures and market and other risk.
Deductions from capital is comprised mainly of items that have been defined pursuant to the BRSA capital
requirement rules. Those items which should be deducted from capital include certain capital loans, the net book
values of tangible and intangible assets which exceed the limits set out in the BRSA capital requirement rules,
assets acquired as a result of overdue receivables and held for sale but retained for more than five years and
other items as defined by the BRSA. For additional information on the rules governing the Group's capital
adequacy ratios, see "Turkish Regulatory Environment—Capital Adequacy".
The Group maintains regulatory capital adequacy ratios on both a Bank-only and consolidated basis in excess of
the regulatory minimums required and recommended levels. The following table sets forth the calculation of the
Group's capital adequacy ratios as of each of the indicated dates based upon its BRSA financial statements.
As of 31 March
2016
BRSA Consolidated
As of 31 December
2015
2014
(TL thousands, except percentages)
2013
Tier I capital..........................................................
Tier II capital ........................................................
Deductions from capital ........................................
Total regulatory capital ......................................
19,385,030
1,198,835
(93,915)
20,489,950
19,058,857
1,139,290
(98,636)
20,099,511
15,640,521
1,277,829
(378,925)
16,539,425
13,647,660
850,726
(251,873)
14,246,513
Risk-weighted assets .............................................
Value at market risk ..............................................
Value at operational risk .......................................
Total .....................................................................
160,495,139
6,388,538
12,718,488
179,602,165
137,237,783
6,667,208
12,041,060
155,946,051
115,674,871
3,321,613
10,946,889
129,943,373
94,586,562
3,104,450
9,358,597
107,049,609
68
Capital Adequacy Ratios:
Tier I capital adequacy ratio .................................
Total capital adequacy ratio ..................................
12.1%
12.8%
12.4%
13.0%
12.0%
12.7%
12.7%
13.3%
The application of Basel II became mandatory for all banks operating in Turkey effective from 1 July 2012.
Within the context of the implementation of the Basel III framework in Turkey, the 2006 Equity Regulation was
replaced by the 2013 Equity Regulation as noted above. As a result, the calculations regarding capital adequacy
for periods from 1 January 2014 have been performed in accordance with the 2013 Equity Regulation and other
regulations newly enacted and/or amended by the BRSA and thus might not be directly comparable to ratios for
earlier dates. See "Turkish Regulatory Environment—Capital Adequacy" for additional information.
Credit Ratings
Fitch Ratings Ltd. ("Fitch") affirmed the Bank's long-term foreign currency issuer default rating at BBB- on 15
October 2015. Moody's Investors Services Limited ("Moody's") affirmed the Bank's long-term foreign currency
issuer default rating at Baa3 on 15 October 2015.
69
SELECTED STATISTICAL AND OTHER INFORMATION
The following tables, which present certain selected statistical information and ratios of the Group as of the
dates and for the periods indicated, have been derived from, inter alia, the Bank's own internal accounts,
statistics and estimates and have not been audited. The information below should be read in conjunction with
"Presentation of Financial and Other Information", "Non-GAAP Measures of Financial Performance",
"Management's Discussion and Analysis of Financial Condition and Results of Operations" the BRSA
Consolidated and Unconsolidated Financial Statements, including the notes thereto.
Average Balances
The following tables set out the average balances of assets and liabilities of the Group for the year ended 31
December 2015, 2014 and 2013. For purposes of the following tables, except as otherwise indicated, the average
balances are based on beginning and end-period balances. If these balances had been calculated on a "weighted
average" or "daily" basis, differences may have resulted, which could be material. See the alternative yield
information presented on the basis of averages calculated on a daily basis in "—Average Interest-Earning Assets,
Yields, Margin and Spreads". Average interest rates have been calculated by dividing the corresponding item of
interest income or expense by such average balances.
BRSA Unconsolidated
31 December 2015
Interest
ASSETS
Interest-Earning Assets
Deposits in banks(1) ....................................................................
TL ..................................................................................
Foreign Currency...........................................................
Securities ...................................................................................
TL ..................................................................................
Loans and receivables to customers and other interest earning
asset(2)(3) ...................................................................................
TL ..................................................................................
Total Interest-Earning Assets .................................................
Average
Average Rate
Balance
10,999,642
1,712,825
9,286,817
27,344,451
22,275,728
5,058,723
53,080
31,268
21,812
2,341,046
2,058,252
282,794
0.5%
1.8%
0.2%
8.6%
9.2%
5.6%
111,242,414
77,611,467
33,630,948
11,262,782
9,483,496
1,779,286
149,576,507
13,656,908
10.1%
12.2%
5.3%
9.1%
Non-Interest-Earning Assets
Cash and cash equivalents .........................................................
Tangibles ...................................................................................
Equity participations ..................................................................
Other assets and accruals ...........................................................
11,719,810
1,891,681
8,388,188
Total Non-Interest-Earning Assets .........................................
21,999,678
171,576,185
Total Average Assets ...............................................................
________________________________________
(1)
(2)
(3)
Comprises balances with banks, interbank funds sold and reserve deposits at the Central Bank.
Overdue interest is included in interest column for loans and receivables.
Loans and receivables include fund loans for which the Group's interest income is only the spread on the total interest.
ASSETS
Interest-Earning Assets
Deposits in banks(1) ..............................................
TL ...........................................................
Foreign currency ....................................
Securities .............................................................
TL ...........................................................
Loans and receivables to customers and other
interest-earning assets(2)(3) ..............................
TL ...........................................................
Total Interest-Earning Assets ...........................
BRSA Unconsolidated
Year ended 31 December 2014
Year ended 31 December 2013
Average
Averag
Average
Average
Balance
Interest
e Rate
Balance
Interest
Rate
3,014,454
39,793
2,974,662
27,584,617
23,871,135
3,713,482
13,016
8,594
4,422
2,652,451
2,453,562
198,889
0.4%
21.6%
0.1%
9.6%
10.3%
5.4%
1,335,979
142,653
1,193,327
25,719,110
22,952,246
2,799,864
12,520
6,634
5,886
2,053,202
1,917,193
136,009
0.9%
4.7%
0.5%
8.0%
8.4%
4.9%
90,120,869
64,253,552
25,867,317
8,785,666
7,490,757
1,294,909
9.7%
11.7%
5.0%
73,625,223
52,022,885
21,602,338
7,138,921
5,968,885
1,170,036
120,719,939
11,451,133
9.5%
100,680,311
9,204,643
9.7%
11.5%
5.4%
9.1%
70
Non-Interest-Earning Assets
Cash and cash equivalents ...................................
Tangibles .............................................................
Equity participations ............................................
Other assets and accrued interest .........................
Total Non-Interest Earning Assets ...................
Total Average Assets .........................................
(1)
(2)
(3)
18,409,085
1,573,609
6,980,631
26,963,324
147,683,263
16,220,268
1,490,322
5,721,671
23,432,261
124,112,572
Comprises balances with banks, interbank funds sold and reserve deposits at the Central Bank.
Overdue interest is included in interest column for loans and receivables.
Loans and receivables include fund loans for which the Group's interest income is only the spread on the total interest.
LIABILITIES
Interest-Bearing Liabilities
Deposits from customers .................................................................
TL ........................................................................................
Foreign Currency.................................................................
Funds Borrowed and Other interest bearing liabilities .....................
TL ........................................................................................
Foreign currency .................................................................
Obligations under repurchase agreements and money market
borrowings .....................................................................................
TL ........................................................................................
BRSA Unconsolidated
For the year ended 31 December 2015
Average
Balance
Interest
Average Rate
91,883,424
63,815,150
28,068,274
28,719,196
6,994,532
21,724,665
6,386,395
5,770,086
616,309
881,170
308,997
572,173
7.0%
9.0%
2.2%
3.1%
4.4%
2.6%
8,411,511
7,931,658
479,853
726,537
723,544
2,993
Total For Interest-Bearing Liabilities ..........................................
TL ........................................................................................
129,014,131
78,741,340
50,272,792
7,994,102
6,802,627
1,191,475
8.6%
9.1%
0.6%
6.2%
8.6%
2.4%
Total Non-Interest-Bearing Liabilities
Demand Deposit ..............................................................................
Accrued interest and other liabilities................................................
Current and deferred tax liabilities...................................................
Equity ..............................................................................................
Total Interest Bearing Liabilities..................................................
Total Average Liabilities ...............................................................
21,043,736
3,060,770
477,416
17,980,133
42,562,054
171,576,185
LIABILITIES
Interest-Bearing Liabilities:
Deposits from customers and other banks .................
TL ................................................................
Foreign currency ..........................................
Funds borrowed and other interest-bearing
liabilities ...............................................................
TL.................................................................
Foreign currency ..........................................
Obligations under repurchase agreements and money
market borrowings.....................................................
TL ................................................................
Foreign currency..........................................
Total Interest-Bearing Liabilities ...........................
Non-Interest-Bearing Liabilities:
Demand deposits .......................................................
Equity ........................................................................
BRSA Unconsolidated
For the year ended 31 December
2014
2013
Average
Average
Average
Average
Balance
Interest
Rate
Balance
Interest
Rate
82,108,222 5,196,523
56,816,932 4,618,632
25,291,291
577,891
6.3%
8.1%
2.3%
73,020,244 3,839,052
50,392,300 3,271,671
22,627,944
567,381
5.3%
6.5%
2.5%
22,284,038
6,008,295
16,275,744
621,564
254,208
367,356
2.8%
4.2%
2.3%
16,935,260
4,727,091
12,208,169
452,262
155,908
296,354
2.7%
3.3%
2.4%
4,592,086
521,497
4,476,482
521,363
115,604
134
108,984,346 6,339,584
11.4%
11.6%
0.1%
5.8%
576,323
84,331
421,212
83,398
155,111
933
90,531,827 4,375,645
14.6%
19.8%
0.6%
4.8%
20,124,054
15,340,848
71
17,344,806
13,234,364
Accrued interest and other liabilities .........................
Total Non-Interest-Bearing Liabilities ..................
Total Average Liabilities.........................................
2,871,413
38,698,917
147,683,263
2,651,925
33,580,745
124,112,572
Analysis of Changes in Net Interest Income and Interest Expense by Volume and Rate
The following table presents certain information regarding changes in interest income and interest expense of
the Group during the periods indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to:
•
Changes in volume (changes in average outstanding balances multiplied by the prior year's average
interest rate); and
•
Changes in interest rate (changes in average interest rate times the average outstanding balances at
end of the year).
BRSA Consolidated
2015/2014
2014/2013
Increase/(Decrease) due to
Increase/(Decrease) due to
changes in
changes in
Volume
Rate
Total
Volume
Rate
Total
(TL thousands)
(TL thousands)
Interest Income
Interest on loans and receivables (including
overdue interest income) ........................................ 2,360,830
Interest on securities .............................................. (94,228)
Interest on deposits with banks and other
financial institutions and money market
49,505
placements and other interest income ....................
Total Interest Income .......................................... 2,316,107
Interest Expense
Interest on deposits ................................................ 768,863
Interest on other money market deposits ............... 234,404
Interest on funds borrowed and funds granted
279,108
for loan...................................................................
16,080
Other interest expense............................................
Total Interest Expense ......................................... 1,298,455
1,017,652
Net changes in net interest income .....................
155,662
(227,665)
2,516,492
(321,893)
1,506,276
445,217
146,449
159,148
1,652,725
604,365
9,638
(62,365)
59,143
2,253,742
(1,722)
1,949,771
72,427
378,024
70,705
2,327,795
409,420
(38,417)
1,178,283
195,987
744,582
400,647
601,521
38,354
1,346,103
439,001
(10,307)
268,801
149,957
10,813
160,770
(6,077)
354,619
(416,984)
10,003
1,653,074
600,668
(44,772)
1,250,415
699,356
86,791
737,478
(359,454)
42,019
1,987,893
339,902
Average Interest-Earning Assets, Yields, Margin and Spreads
The following table shows the average interest-earning assets, interest-bearing liabilities, interest income,
interest expenses, net interest income, average yields, average margins and average spreads for the Group for
each of the periods indicated.
2015
BRSA Unconsolidated
2014
2013
Average interest-earning assets(1)
TL .......................................................................................
Total ....................................................................................
101,600,019
47,976,488
149,576,507
88,164,480
32,555,460
120,719,939
75,117,783
25,562,528
100,680,311
Average interest-bearing liabilities(1)
TL .......................................................................................
Total ....................................................................................
78,741,340
50,272,792
129,014,131
67,301,708
41,682,638
108,984,346
55,540,603
34,991,224
90,531,827
Interest Income
TL .......................................................................................
11,573,016
2,083,892
9,952,913
1,498,220
7,892,712
1,311,931
72
Total ....................................................................................
13,656,908
11,451,133
9,204,643
Interest Expense
TL .......................................................................................
Total ....................................................................................
6,802,629
1,191,473
7,994,102
5,386,923
952,661
6,339,584
3,509,488
866,157
4,375,645
Net Interest Income
TL .......................................................................................
Total ....................................................................................
4,770,387
892,419
5,662,806
4,565,990
545,559
5,111,549
4,383,224
445,774
4,828,998
Average Yield(2)
TL .......................................................................................
Total ....................................................................................
11.4%
4.3%
9.1%
11.3%
4.6%
9.5%
10.5%
5.1%
9.1%
Average Margin(3)
TL .......................................................................................
Total ....................................................................................
4.7%
1.9%
3.8%
5.2%
1.7%
4.2%
5.8%
1.7%
4.8%
Average Spread(4)
TL .......................................................................................
Total ....................................................................................
2.8%
2.0%
2.9%
3.2%
2.3%
3.7%
4.2%
2.7%
4.3%
(1)
(2)
(3)
(4)
Average balances based on beginning and end period data.
Yield represents interest income as a percentage of average interest-earning assets.
Margin represents net interest income before provisions for loan losses as a percentage of average interest-earning assets.
Spread represents the difference between the average rate of interest earned on interest-earning assets and the average rate of interest
accrued on interest-bearing liabilities.
Return on Average Assets and Equity
The following table sets out certain of the Group's selected financial ratios and other data for the periods
indicated:
BRSA
2015
2014
2013
Profit for the period ...............................................................................................
2,328,310
2,287,303
Average total assets(1) ............................................................................................ 174,177,876 149,445,272
Average shareholders' equity(1) .............................................................................. 17,492,041 14,594,212
Net income as a percentage of average total assets ................................................
1.2
1.4
Net income as a percentage of average shareholders' equity .................................
13.3
15.6
Average shareholders' equity as a percentage of average total assets ....................
9.2
9.3
(1)
2,852,725
125,295,507
12,435,636
2.0
22.9
9.8
Average balances are based on beginning and end period data.
Balance Sheet Currency Profile
The following table sets out the Group's balance sheet currency profile as of 31 December 2015, 2014 and 2013:
73
BRSA Consolidated
As of 31 December 2015
(TL thousands)
Total foreign currency assets .......................................................................................................
Total foreign currency liabilities ..................................................................................................
Net foreign currency position(1) ................................................................................................
72,454,319
(73,435,501)
(981,182)
BRSA Consolidated
(TL thousands)
52,614,630
(52,362,533)
252,097
BRSA Consolidated
(TL thousands)
50,048,447
(53,661,600)
(3,613,153)
Interest-Earning Deposits with Other Banks
The following table sets out the amount of interest-earning deposits with other banks as of the dates indicated:
BRSA Unconsolidated
(TL thousands)
Interest-earning deposits with other banks:
TL ................................................................................................................................................
Foreign currency ..........................................................................................................................
Total ............................................................................................................................................
10,036
849,257
859,293
BRSA Unconsolidated
(TL thousands)
TL ................................................................................................................................................
Total ............................................................................................................................................
20,939
957,596
978,535
BRSA Unconsolidated
(TL thousands)
TL ................................................................................................................................................
Total ............................................................................................................................................
37,739
1,578,915
1,616,654
Securities Portfolio
Overview
The Group's securities portfolio comprises financial assets at fair value through profit or loss, investment
securities available-for-sale and investment securities held-to-maturity. The Group enters into Turkish
Government bond auctions held by the Turkish Treasury as one of 13 primary dealers (market makers). In
addition, the Group buys and sells Turkish Government bonds and Eurobonds in over-the-counter transactions,
through the BIST bonds/bills market and directly with its customers. The Group also enters into purchases and
sales of securities under repurchase agreements. Investments sold under repurchase agreements continue to be
recognised in the balance sheet and are measured in accordance with the accounting policy for either assets held
in its trading portfolio, held-to-maturity or as available-for-sale, as appropriate.
As of 31 March 2016 and on a Bank-only BRSA basis, 47.7% of the Bank's securities portfolio was represented
by floating rate securities, with 52.3% represented by fixed rate securities.
74
The following table shows a breakdown of securities held by the Group as of the dates indicated:
BRSA Consolidated
As of 31 December
2014
(TL thousands)
2015
TL ...............................................................................................................
Foreign currency .........................................................................................
Available-for-sale
TL ...............................................................................................................
Held-to-maturity
TL ...............................................................................................................
Total ...........................................................................................................
2013
52,398
34,005
89,473
12,887
33,681
11,978
7,478,138
4,057,005
6,522,618
2,673,229
7,681,406
2,146,543
14,791,048
2,113,829
28,526,423
16,292,845
1,576,237
27,167,289
17,830,196
1,143,402
28,847,203
As of 31 March 2016 and 2015, the proportion of investment securities represented by Turkish Lira was 78.9%
and 83.0%, respectively and the proportion represented by foreign currency was 21.1% and 17.0%, respectively.
Financial assets at fair value through profit or loss
Securities purchased with the intention of recognising short-term profits and financial assets that are designated
on initial recognition are classified as financial assets at fair value through profit or loss. Derivatives are also
classified as trading unless they are designated as effective hedging instruments. After initial recognition,
securities that are classified as trading are measured at estimated fair value. Changes in the estimated fair value
are included in the consolidated statements of income incorporated by reference in this Offering Memorandum
within gains less losses from securities. In determining estimated fair value, trading securities are valued at the
daily average price, if quoted on an exchange, or the last bid price, if traded over the counter. When market
prices are not available or if liquidating the Group's position would reasonably be expected to affect market
prices, fair value is determined by applying an internal rate of return to the last average market price.
The following table sets out a breakdown of the financial assets at fair value through profit or loss portfolio of
the Group as of the dates indicated:
BRSA Consolidated
As of 31 December
2015
2014
2013
(TL thousands)
Turkish Government bonds and Eurobonds issued by the Turkish Government ...
Other ......................................................................................................................
Total trading portfolio .........................................................................................
61,672
277,835
339,507
65,732
160,248
225,980
34,862
150,458
185,320
Available-for-Sale Portfolio
Available-for-sale assets are financial assets that are not held for trading purposes, nor intended by the Group to
be held to maturity. The portfolio of securities classified as available-for-sale primarily consists of Turkish
Government bonds and Eurobonds, treasury bills and unlisted equity securities (which represent the Group's
equity holdings in companies whose shares are not publicly traded).
The following table sets forth the available-for-sale securities portfolio by type of securities as of the dates
indicated:
BRSA Consolidated
As of 31 December
2015
2014
2013
(TL thousands)
Treasury bills and Turkish Government bonds ......................................................
Repurchase agreements..........................................................................................
Other ......................................................................................................................
Total available-for-sale portfolio ........................................................................
75
9,765,730
1,624,489
144,924
11,535,143
7,870,377
1,286,912
38,558
9,195,847
9,796,695
4,638
26,616
9,827,949
Held-to-Maturity Securities
Held-to-maturity assets are financial assets with fixed or determinable payments and fixed maturity that the
Group intends and has the ability to hold to maturity. The Group cannot classify any financial asset as held-tomaturity if it has, during the current financial year or during two preceding financial years, sold or transferred
held-to-maturity investments before maturity subject to certain conditions and limitations. The Group's
aggregate securities portfolio is mainly composed of held-to-maturity securities. Redemptions from held-tomaturity securities are invested in loans and marketable securities which are accounted for primarily as
available-for-sale as well as, from time to time, trading securities.
The held-to-maturity securities portfolio of the Group and its subsidiaries consists of TL Turkish Government
bonds, foreign currency- denominated bonds, treasury bills, foreign currency-indexed Turkish Government
bonds and Turkish Government Eurobonds.
The following table sets out certain information relating to the Group's portfolio of held-to-maturity securities as
of the dates indicated:
BRSA Consolidated
As of 31 December
2015
2014
2013
(TL thousands)
Treasury bills and Turkish Government bonds ......................................................
Repurchase agreements..........................................................................................
Other ......................................................................................................................
Total held-to-maturity securities ........................................................................
9,847,864
7,039,584
17,429
16,904,877
10,865,937
6,992,376
10,769
17,869,082
18,201,388
764,916
7,294
18,973,598
On a Bank-only BRSA basis, the following table sets forth an overview of the Bank's Turkish Lira held-tomaturity securities as of 31 December 2015, 2014 and 2013:
BRSA Unconsolidated
As of 31 December
2015
2014
2013
(TL thousands)
Security Type
Fixed ......................................................................................................................
Floating ..................................................................................................................
Total ......................................................................................................................
5,775,291
8,970,038
14,745,329
6,316,534
9,939,064
16,255,598
6,856,880
10,930,999
17,787,879
On a Bank-only BRSA basis, the following table sets forth an overview of the Bank's foreign currency held-tomaturity securities as of 31 December 2015, 2014 and 2013:
BRSA Unconsolidated
As of 31 December
2015
Security Type
Fixed U.S. Dollar
denominated securities ......... U.S.$666,023
Fixed Euro-denominated
securities...............................
—
Floating Macedonian denar
(MKD) denominated
—
securities...............................
U.S.$666,023
Total .........................................
2014
(TL thousands (unless stated otherwise))
2013
1,931,468
U.S.$655,681
1,508,067
U.S.$503,164
1,066,707
—
—
—
—
—
—
1,931,468
—
U.S.$655,681
—
1,508,067
—
U.S.$503,164
—
1,066,707
76
Maturities of Securities
On a Bank-only BRSA basis, the following tables set out the maturities of the TL-denominated securities in the
Bank's securities portfolio as of the dates indicated:
TL-Denominated Securities
Up to
3 months
Trading ...................................................
Available-for-sale ...................................
Held-to-maturity .....................................
419
1,591
502,587
Up to
3 months
Trading ...................................................
Held-to-maturity .....................................
6,376
349,512
1,049,425
3 months to
1 year
30,771
121,920
1,271,470
Up to
3 months
Trading ...................................................
Held-to-maturity .....................................
3 months to
1 year
8,810
596,513
1,586,486
3 months to
1 year
24
401,470
1,187,851
4,944
798,943
3,202,784
BRSA Unconsolidated
1-5
More than
years
5 years
(TL thousands)
27
3,403,840
4,419,953
2
3,553,642
8,773,364
BRSA Unconsolidated
1-5
More than
years
5 years
(TL thousands)
53
2,062,189
3,889,950
17
3,546,942
9,507,692
BRSA Unconsolidated
1-5
More than
years
5 years
(TL thousands)
6,900
2,700,669
5,696,723
—
3,545,008
7,700,521
Demand
—
—
—
Demand
—
—
—
Demand
—
—
—
Total
6,824
7,308,585
14,745,329
Total
39,651
6,327,564
16,255,598
Total
11,868
7,446,090
17,787,879
On a Bank-only BRSA basis, the following tables set out the maturities of the foreign currency securities in the
Bank's securities portfolio as of the dates indicated:
Foreign-Denominated Securities
Up to
3 months
Trading ..........................................................
Available-for-sale ..........................................
Held-to-maturity ............................................
3 months
to 1 year
—
142,651
—
Up to
3 months
Trading ..........................................................
Held-to-maturity ............................................
3 months
to 1 year
—
116,855
—
Up to
3 months
Trading ..........................................................
Held-to-maturity ............................................
15,462
35,811
—
139
—
—
3 months
to 1 year
—
194,685
—
77
135
—
—
BRSA Unconsolidated
1-5
More than
years
5 years
(TL thousands)
—
680,313
—
—
3,041,633
1,931,468
BRSA Unconsolidated
1-5
More than
years
5 years
(TL thousands)
12,748
661,149
—
—
1,819,613
1,508,067
BRSA Unconsolidated
1-5
More than
years
5 years
(TL thousands)
11,843
669,296
—
—
1,230,677
1,066,707
Demand
—
—
—
Demand
—
—
—
Demand
—
—
—
Total
15,462
3,900,408
1,931,468
Total
12,887
2,597,617
1,508,067
Total
11,978
2,094,658
1,066,707
Substantially all of the Bank's held-to-maturity portfolio is comprised of Turkish Government securities. The
following table sets out the redemption table for selected Turkish Government securities by year and currency
on a Bank-only BRSA basis:
TL
2015 .............................................................................................................................
2016 .............................................................................................................................
2017 .............................................................................................................................
2018 .............................................................................................................................
2019 .............................................................................................................................
2020 .............................................................................................................................
2021 .............................................................................................................................
2022 .............................................................................................................................
2023 .............................................................................................................................
BRSA Unconsolidated
Euro
U.S. Dollar
(millions)
2,420
1,38
275
1,648
445
2,322
1,314
2,090
3,405
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The Group's Loan Portfolio
Overview
The Group's loan portfolio is characterised under four main headings: (i) retail loans (which include consumer
loans, housing loans, car loans and credit card loans), (ii) commercial loans (which include manufacturer loans,
agriculture loans, small business loans, service and construction loans, trade finance, project finance and
structured finance), (iii) cooperative loans and (iv) fund loans. As of 31 December 2015, 68.3% of the Group's
loan portfolio consisted of TL-denominated loans with the remaining 31.7% comprising foreign currency
denominated loans.
As of 31 December 2015, 54% of the Group's loan portfolio (based on the maturity determined from the initial
opening and excluding accruals) consisted of medium-term and long-term loans (which are classified as loans
maturing from one year or more), with the remaining 45% consisting of short-term loans (which are classified as
loans maturing in less than one year). As of 31 December 2015, 14.3% of the Group's loans matured from zero
to three months, 31.4% from three months to one year, 43% from one to five years and 11.3% from more than
five years. As of 31 December 2015, the Group's medium-term and long-term loans consisted primarily of
cooperative loans, fund loans both with and without risk borne by the Group, project finance, investment loans,
consumer loans and mass housing loans, while commercial loans (which consist of both corporate and
commercial loans) have shorter maturities (mostly below one year). Non-cash loans comprise mainly guarantees
and letters of credit.
Loans and Receivables
Loans and receivables have historically comprised the largest portion of the Group's total assets. As of 31
December 2015, 2014 and 2013, loans and receivables represented 66.6%, 64.7% and 60.0%, respectively, of
the Group's total assets.
Distribution of Loans and Receivables by Sector
The following tables set out the Group's cash and non-cash loans and receivables to customers and financial
institutions by sector as of the dates indicated:
Cash
Non-cash
Agricultural .........................................
Farming and raising livestock .........
Forestry...........................................
Fishing ............................................
Manufacturing ....................................
Mining ............................................
Production ......................................
Electric, gas and water ....................
Construction ........................................
666,934
595,967
3,461
67,506
34,253,964
450,180
29,135,374
4,668,410
3,650,578
34,272
30,172
152
3,948
16,360,420
175,334
12,857,564
3,327,522
9,896,118
78
Consolidated BRSA
As of
31 December 2014
Cash
Non-cash
(TL thousands)
530,677
476,023
3,281
51,373
28,038,581
357,101
25,289,027
2,392,453
3,188,982
31,641
18,322
174
13,145
14,150,465
474,978
10,131,074
3,544,413
6,884,956
Cash
Non-cash
509,365
457,204
5,962
46,199
23,834,821
401,940
22,076,106
1,356,775
2,603,150
19,848
15,573
362
3,913
10,928,569
166,468
8,931,224
1,830,877
6,010,567
Services ................................................ 44,752,047
Wholesale and retail trade .............. 21,645,903
Hotel, food and beverage services ..
5,318,219
Transportation and
9,791,917
telecommunications ........................
Financial Institutions ......................
2,694,181
Real estate and renting services ......
2,927,490
Self-employment services...............
708,029
Education services ..........................
667,935
Health and social services...............
1,028,373
Other(1) ................................................. 42,879,209
Total loans ........................................... 126,202,732
Non-performing loans ...........................
4,189,536
Specific Provisions ............................... (3,172,717)
127,219,551
Total .....................................................
(1)
13,517,938
6,419,843
142,359
42,280,880
18,379,028
2,967,915
11,443,414
5,267,795
105,228
29,672,351
13,660,653
2,121,165
9,847,793
4,297,085
99,309
478,796
6,757,783
368,029
4,864,783
334,702
2,896,753
3,405,988
10,628
71,790
91,781
228,478
40,037,226
—
—
40,037,226
2,589,762
9,144,623
910,076
444,367
1,087,326
26,506,395
100,545,515
3,719,046
(2,433,408)
101,831,153
3,381,346
1,439,363
2,211,973
5,999,591
10,972
509,894
22,310
276,941
75,761
799,961
355,465 27,912,560
32,865,941 84,532,247
—
2,264,208
— (1,827,528)
32,865,941 84,968,927
3,165,901
1,864,190
10,779
17,049
58,778
313,652
27,120,429
—
—
27,120,429
"Other" primarily includes retail loans and receivables.
Distribution of Loans and Receivables by Geographical Region
The following table sets out certain information on the Group's net loans and receivables by geographical
concentration as of the dates indicated:
2015
Domestic ......................................................................................................
EU countries ................................................................................................
OECD countries(*) ........................................................................................
Offshore Banking Regions...........................................................................
United States, Canada ..................................................................................
Other countries ............................................................................................
Investment and associates, subsidiaries and joint ventures ..........................
Total ............................................................................................................
(*)
BRSA Consolidated
As of 31 December
2014
(TL thousands)
207,375,180
1,107,362
1,211,902
29
744,548
891,824
1,351,628
212,682,473
176,829,589
248,046
5,208
—
1,281,252
514,108
41,383
178,919,586
2013
147,095,756
1,010,168
22,655
—
292,866
915,022
990,076
150,326,543
OECD countries other than EU countries, the United States and Canada.
Composition of Loan Portfolio by Currency
As of 31 December 2015, foreign currency denominated loans comprised TL 41,864 million of the Group's loan
portfolio (of which U.S. Dollar and Euro obligations were the most significant portion), compared to TL 28,796
million as of 31 December 2014.
The following table sets out an analysis of the exposure of the Group's performing cash loan portfolio as of the
dates indicated:
2015
TL ...................................................................................................................
U.S. Dollars ....................................................................................................
Euro ................................................................................................................
Other ...............................................................................................................
Total ...............................................................................................................
BRSA Consolidated
As of 31 December
2014
(TL thousands)
84,338,442
23,732,797
17,220,659
910,834
126,202,732
71,749,341
17,577,621
10,663,712
554,841
100,545,515
2013
58,645,637
16,095,274
9,391,766
399,570
84,532,247
As of 31 December 2015, 2014 and 2013 and on a Bank-only BRSA basis, the Bank's performing cash loan
portfolio was TL 125.8 billion (with TL 86.3 billion represented by Turkish Lira and TL 39.5 billion represented
by foreign currency), TL 100.5 billion (with TL 73.0 billion represented by Turkish Lira and TL 27.5 billion
represented by foreign currency) and TL 84.4 billion (with TL 59.6 billion represented by Turkish Lira and TL
24.8 billion represented by foreign currency), respectively.
79
Composition by Maturity
The following table sets out certain information relating to the maturity profile of the Group's loan portfolio
based on the remaining term to maturity as of the dates indicated:
Up to
3 months(1)
31 December 2015 ................................
31 December 2014 ................................
31 December 2013 ................................
(1)
3 months to
1 year
BRSA Consolidated
1-5
More than
years
5 years
(TL thousands)
Undistributed
18,076,989 39,613,982 54,228,091 14,247,908
17,232,012 31,653,418 43,913,241 7,746,844
14,147,525 26,938,522 37,267,229 6,178,971
Total
3,762 126,202,732
— 100,545,515
— 84,532,247
Includes demand loans, loans having no stated schedule of repayment and no stated maturity and overdrafts.
Distribution of Loans by Size
The following table sets out certain information on Halkbank's loan portfolio by size of loans, excluding interest
accruals, as of the dates indicated:
2015
Greater than TL 1 million ....................................
Greater than TL 500 thousand but less than
TL 1 million .........................................................
TL 500 thousand ..................................................
TL 100 thousand ..................................................
Less than TL 50 thousand ....................................
Total ....................................................................
BRSA Unconsolidated
As of 31 December
2014
% of
Amount
total
Amount
% of
total
68,466,086
54.42
50,169,180
4,727,420
3.76
13,930,085
14,981,303
23,694,230
125,799,124
2013
Amount
% of
total
49.93
40,146,030
47.56
4,430,285
4.41
3,842,019
4.55
11.07
11,258,630
11.20
9,451,856
11.20
11.91
18.83
100.00
12,357,821
22,265,370
100,481,286
12.30
22.16
100.00
10,115,913
20,857,623
84,413,441
11.98
24.71
100.00
The increase in the percentage of smaller loans in the loan portfolio reflects the Group's strategy in expanding its
lending activities with retail and SME customers. As of 31 December 2015, the receivables of the Group from
its top 100 and 200 cash loan customers are respectively 21.4% and 26.7% of its total cash loans, compared to
18.9% and 24.1% respectively as of 31 December 2014.
Lending Policies and Procedures
For information on the Group's lending policies and procedures, see "Risk Management".
Portfolio Supervision and Non-Performing Loans
The Group's credit monitoring department provides monthly reports to the Board detailing all aspects of its
credit activity, including the number of new problem loans, the status of existing non-performing loans and
collections. The Group's senior management monitors the timeliness of debt repayments and the classified loans
and contingent liabilities. Prompt action is taken by the appropriate departments having responsibility for
supervising and monitoring loan repayments if any principal or accrued interest repayment problems arise. The
Group's determination of whether a repayment problem has arisen is based on a number of objective and
subjective criteria, including changes to the borrower's turnover in accounts held by the Group, changes to the
borrower's economic and financial activity giving rise to the suspicion that a loan is not being used for its
original purpose, applications to change credit terms, failure of the borrower to fulfil the terms and conditions of
its loan agreement and refusal of a borrower to cooperate in supplying current information.
Any overall deterioration in the quality of the Group's loan portfolio or increased exposure relating to offbalance sheet contingent liabilities is brought to the attention of the Board.
Non-performing loans comprise loans where the payment of interest, fees or principal is unpaid 90 days after the
due date. The entire principal amount of non-performing loans is added to provisions. The Group does not writeoff non-performing loans, regardless of the amount of time they have been outstanding. When a loan is placed
on non-performing status, interest income ceases to accrue. A non-performing loan is restored to accrual status
80
when all arrears have been paid and it is considered likely that the customer will continue timely performance. A
non-performing loan may also be restored to accrual status if it is determined that the repayment of principal and
interest is reasonably assured on collection such as in the case when all amounts due under a loan are fully
collateralised by cash or marketable securities and actions have commenced to foreclose on the collateral.
However, more typically the Group seeks to collect on non-performing loans and close its commitments.
On 18 June 2011, the BRSA also introduced a new regulation specifically designed to curb consumer lending.
The regulation requires all banks with consumer lending portfolios exceeding 20% of their overall loan book, or
with non-performing consumer loan (classified as frozen receivables, excluding vehicle and housing loans)
ratios greater than 8% of their total consumer loans, to set aside higher general provisioning of 4% (increased
from 1%) for outstanding standard loans and 8% (increased from 2%) for outstanding closely monitored loans.
Currently, the BRSA requires a Turkish bank to provide a general reserve of 1.0% of its cash loan portfolio plus
0.2% of the non-cash loan portfolio, excluding loans in arrears.
The following tables set out an ageing analysis of past due but not impaired financial assets per classes of
financial instruments as of the dates indicated:
Less than
30 days
Loans and receivables:
Corporate loans ...........................................................................................
SME loans ...................................................................................................
Consumer loans...........................................................................................
Credit cards .................................................................................................
Total ...........................................................................................................
60,244
185,466
27,899
117,687
391,296
Less than
30 days
Corporate loans ...........................................................................................
SME loans ...................................................................................................
Consumer loans...........................................................................................
Credit cards .................................................................................................
Total ...........................................................................................................
BRSA Consolidated
Between
Between
31 and
61 and
60 days
90 days
(TL thousands)
6,553
41,183
9,775
19,847
77,358
4,388
32,274
6,242
11,814
54,718
BRSA Consolidated
Between
Between
31 and
61 and
60 days
90 days
(TL thousands)
12,886
106,913
39,439
133,991
293,229
117
12,861
5,939
25,049
43,966
3,851
16,175
4,810
15,141
39,977
BRSA Consolidated
Between
Between
Less than
31 and
61 and
30 days
60 days
90 days
(TL thousands)
Corporate loans ............................................................................................
SME loans....................................................................................................
Consumer loans ...........................................................................................
Credit cards ..................................................................................................
Total ............................................................................................................
81
45,318
92,435
36,454
122,995
297,202
11,849
19,073
5,913
20,934
57,769
417
15,644
4,201
10,949
31,211
Total
71,185
258,923
43,916
149,348
523,372
Total
16,854
135,949
50,188
174,181
377,172
Total
57,584
127,152
46,568
154,878
386,182
The following table set out certain information on the Group's consolidated gross loan portfolio by credit quality
classification as of the dates indicated:
BRSA Consolidated
As of 31 December
As of 31 December
2015
2014
(% of
(% of
(% of
gross
gross
gross
(TL thousands) loans) (TL thousands) loans) (TL thousands) loans)
Cash loans:
Performing loans ...............................................
Non-performing loans .......................................
Contingencies and commitments ...........................
Cash loans and commitments and
contingencies, gross .............................................
126,202,732
4,189,536
40,037,226
74.0
2.5
23.5
170,429,494 100.0
100,545,515
3,719,046
32,865,941
73.3
2.7
24.0
84,532,247
2,264,208
27,120,429
74.2
2.0
23.8
137,130,502 100.0
113,916,884
100.0
As of 31 December 2015, the Group's ratio of non-performing loans to total gross loans was 2.5%, as compared
to 2.7% and 2.0% as of 31 December 2014 and 2013, respectively. For more information on the industry
requirements for classification of non-performing loans, see "Turkish Regulatory Environment—Loan Loss
Reserves".
During the past several years the Group has made reversals of provisions mainly following collections of
outstanding amounts from the borrower, which amounted to TL 556 million, TL 274 million and TL 401 million
as of 31 December 2015 and 31 December 2014 and 2013 and respectively.
Analysis of the Non-Performing Loans
The following tables set forth an analysis of the movements in the non-performing loans for Halkbank for each
period indicated below and on a Bank-only BRSA basis:
BRSA Unconsolidated
Corporate,
Commercial,
SME Loans
Balances at beginning of period ................................................................
Net additions and recoveries .....................................................................
Write-offs .................................................................................................
Balances at end of period .......................................................................
Retail
Credit
Loans
Cards
(TL thousands)
3,134,705
178,336
—
3,313,041
374,245
48,181
—
422,246
190,711
47,560
—
238,271
Total
3,699,661
274,077
—
3,973,738
BRSA Unconsolidated
Corporate,
Commercial,
SME Loans
Write-offs .................................................................................................
Retail
Credit
Loans
Cards
(TL thousands)
1,831,763
1,302,942
—
3,134,705
293,293
80,952
—
374,245
120,120
70,591
—
190,711
Total
2,245,176
1,454,485
—
3,699,661
BRSA Unconsolidated
Corporate,
Commercial,
SME Loans
Write-offs .................................................................................................
82
1,626,398
205,365
—
1,831,763
Retail
Credit
Loans
Cards
(TL thousands)
252,796
40,497
—
293,293
80,452
39,668
—
120,120
Total
1,959,646
285,530
—
2,245,176
The amount of the net additions or reversals to the allowance charged to operating expenses were net additions
of TL 274 million for the year end 31 December 2015, TL 1,454 million and TL 286 million for the years ended
31 December 2014 and 2013 respectively.
Non-Performing Loans by Sector
The following tables set out Halkbank's non-performing loans by sector as of the dates indicated and on a BRSA
consolidated basis:
BRSA Consolidated
% in
% of total
Cash
NPLs
cash loans
Sector:
Agriculture ..............................................................................................................
Farming and raising livestock ......................................................................
Forestry ........................................................................................................
Fishing ..........................................................................................................
Manufacturing ........................................................................................................
Mining ..........................................................................................................
Production ....................................................................................................
Electric, gas and water..................................................................................
Construction Services .............................................................................................
Wholesale and retail trade .....................................................................................
Hotel, food and beverage services ..........................................................................
Transportation and telecommunication ................................................................
Financial institutions ..............................................................................................
Real estate and renting services .............................................................................
Self-employment services .......................................................................................
Education services ..................................................................................................
Health and social services.......................................................................................
Other ........................................................................................................................
Total .........................................................................................................................
82,674
75,043
482
7,149
1,968,771
132,563
1,833,302
2,906
354,552
717,866
112,807
46,794
11,258
123,143
21,166
2,862
18,539
729,104
2.0
1.8
0.0
0.2
47.0
3.2
43.8
0.1
8.5
17.1
2.7
1.1
0.3
2.9
0.5
0.1
0.4
17.4
0.1
0.1
0.0
0.0
1.6
0.1
1.5
0.0
0.3
0.6
0.1
0.0
0.0
0.1
0.0
0.0
0.0
0.6
4,189,536
100.0
3.3
BRSA Consolidated
% in
% of total
Cash
NPLs
cash loans
Sector:
Agriculture ..............................................................................................................
Forestry ........................................................................................................
Fishing ..........................................................................................................
Manufacturing ........................................................................................................
Mining ..........................................................................................................
Production ....................................................................................................
83
85,785
78,103
487
7,195
1,814,175
132,615
1,680,279
1,281
251,084
590,476
114,689
39,297
7,713
187,138
5,934
3,358
2.3
2.1
0.0
0.2
48.8
3.6
45.2
0.0
6.8
15.9
3.1
1.1
0.2
5.0
0.2
0.1
0.1
0.1
0.0
0.0
1.8
0.1
1.7
0.0
0.3
0.6
0.1
0.0
0.0
0.2
0.0
0.0
14,601
604,796
0.4
16.3
0.0
0.6
3,719,046
100.0
3.7
Other ........................................................................................................................
Total .........................................................................................................................
BRSA Consolidated
% in
% of total
Cash
NPLs
cash loans
Sector:
Agriculture ..............................................................................................................
Forestry ........................................................................................................
Fishing ..........................................................................................................
Manufacturing ........................................................................................................
Mining ..........................................................................................................
Production ....................................................................................................
Other ........................................................................................................................
98,679
91,012
636
7,031
752,896
10,515
741,278
1,103
167,844
523,705
111,390
44,109
10,448
31,091
6,358
1,834
20,204
495,650
4.4
4.0
0.0
0.3
33.3
0.5
32.7
0.1
7.4
23.1
4.9
2.0
0.5
1.4
0.3
0.1
0.9
21.9
0.1
0.1
0.0
0.0
0.9
0.0
0.9
0.0
0.2
0.6
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.6
Total .........................................................................................................................
2,264,208
100.0
2.7
As of 31 December 2015, the Group had a TL 4.19 billion NPL portfolio, which was 75.7% provisioned. In
addition, the Group's NPL portfolio accounts for 2.5% of the Group's total gross loan portfolio as of 31
December 2015. While the Group recovered and recorded reversals for 11.8% of its NPLs for the year end 31
December 2015, there can be no assurances that if there were a decline in the Turkish economy, the Group's
collection rates on its NPL portfolio would not also decline, which may adversely affect the Group's earnings.
For more information, see "Risk Factors—Risk factors Relating to the Group—The Group's loan portfolio,
prospects".
Cash and Balances with Other Financial Institutions
The tables set forth below provide breakdown of cash and other balances with other financial institutions for the
dates indicated. Reserve deposits at the Central Bank represented 8.9%, 9.2% and 10.9% of the Group's total
assets as of 31 December 2015, 2014 and 2013, respectively.
2015
Cash on hand ...............................................................................................
Balances with Central Bank including reserve deposits...............................
Due from banks (Deposits with banks and other financial institutions) .......
Total ............................................................................................................
BRSA Consolidated
As of 31 December
2014
(TL thousands)
1,258,794
22,241,745
2,671,525
26,172,064
1,000,135
19,331,801
1,742,639
22,074,575
2013
816,075
19,205,320
2,133,459
22,154,854
The following table sets out a breakdown of cash and balances with other financial institutions as of the dates
indicated:
84
2015
Demand........................................................................................................
Time.............................................................................................................
Money Market Placements ..........................................................................
Total ............................................................................................................
BRSA Consolidated
As of 31 December
2014
(TL thousands)
1,767,172
850,479
53,874
2,671,525
368,394
1,072,138
302,107
1,742,639
2013
253,453
1,649,322
230,684
2,133,459
As of 31 December 2015, the Group's major sources of funds for its lending and investment activities were
deposits from customers, which accounted for 56.4% of the Group's total funding and, to a lesser extent, other
liabilities (which consist of mainly repurchase agreements and provisions), which accounted for 23.2% of the
Group's total funding, funds borrowed, which accounted for 12.6% of the Group's total funding, and deposits
from banks, which accounted for 7.7% of the Group's total funding.
The following table sets out the Group's sources of funding as of the dates indicated:
2015
Deposits from customers ........................................
Deposits from banks ...............................................
Funds borrowed ......................................................
Other liabilities .......................................................
Total
107,813,534
14,690,850
24,107,436
44,389,670
191,001,490
BRSA Consolidated
As of 31 December
%
2014
%
2013
56 86,471,605
8 17,182,545
13 15,951,065
23 37,749,046
100 157,354,261
55 90,377,875
11 10,017,304
10 16,574,894
24 24,566,209
100 141,536,282
%
64
7
12
17
100
The availability of such funds is influenced by factors such as prevailing interest rates, market conditions and
levels of competition.
Deposits from Customers and Banks
The following table sets out a breakdown of the Group's deposits based on figures from customers by
composition as of the dates indicated:
2015
Savings deposits(1) ...............................................
Time ..................................................................
Demand.............................................................
Public, commercial and other deposits(2) .............
Time ..................................................................
Demand.............................................................
Total ....................................................................
(1)
(2)
35,213,242
30,919,892
4,293,350
36,958,546
29,857,372
7,101,174
72,171,788
BRSA Consolidated
As of 31 December
2014
%
2013
%
49
43
6
51
41
10
100
30,363,726
26,432,222
3,931,504
30,819,727
23,150,147
7,669,580
61,183,453
50
44
6
50
37
13
100
29,800,774
26,516,508
3,284,266
32,596,389
24,362,170
8,234,219
62,397,163
%
48
43
5
52
39
13
100
Represents deposits taken from retail customers.
Represents deposits taken from government-related corporations, SMEs, other entities which are not individuals.
The following table sets out certain information relating to the deposits owed to customers and banks in TL and
foreign currency as of the dates indicated:
2015
Foreign currency deposits ..............................
TL deposits ....................................................
Total ..............................................................
43,696,043
78,808,341
122,504,384
85
BRSA Consolidated
As of 31 December
%
2014
%
36
64
100
34,265,713
69,388,437
103,654,150
33
67
100
2013
36,006,617
64,388,562
100,395,179
%
36
64
100
As of 31 March 2016 and on a Bank-only BRSA basis, foreign currency deposits represented TL 43.3 billion or
34% of total deposits and TL deposits represented TL 82.6 billion or 66% of total deposits.
The following table sets out a breakdown of the Group's demand and time deposits as of the dates indicated:
BRSA Consolidated
As of 31 December
%
2014
%
2015
Demand..........................................................
Time...............................................................
Total ..............................................................
20,928,833
101,575,551
122,504,384
17
83
100
21,638,400
82,015,750
103,654,150
21
79
100
2013
%
18,692,179
81,703,000
100,395,179
19
81
100
As of 31 March 2016 and on a Bank-only BRSA basis, demand deposits represented 17.7% of total deposits and
time deposits represented 82.3% of total deposits.
The following table sets out the remaining maturity of deposits made with the Group by amount as of the dates
indicated:
2015
Up to 1 month ................................................
From 1-3 months............................................
From 3-12 months..........................................
From 1-5 years ...............................................
Over 5 years ...................................................
Total ..............................................................
BRSA Consolidated
As of 31 December
2014
(TL thousands)
85,361,682
29,506,440
7,116,549
511,874
7,839
122,504,384
2013
73,989,850
21,191,052
8,050,799
417,242
5,207
103,654,150
71,448,324
19,544,716
9,137,942
258,986
5,211
100,395,179
As of 31 March 2016 and 31 December 2015, 2014 and 2013, on a Bank-only BRSA basis, total deposits
amounted to TL 126 billion, TL 122 billion, TL 104 billion and TL 101 billion, respectively. As of 31 March
2016 and on a Bank-only BRSA basis, total deposits were composed of: inter-bank deposits (15%), commercial
deposits (17%), retail deposits (56%), deposits by public institutions (10%) and other deposits (2%).
The following table sets out a breakdown of TL time deposits by amount as of 31 December 2015 and on a
Bank-only BRSA basis:
BRSA Unconsolidated
% of Total TL Time Deposits
Amount
TL 0–5,000 .....................................................................................................................
TL 5,001–25,000 ............................................................................................................
TL 25,001–50,000 ..........................................................................................................
TL 50,001–100,000 ........................................................................................................
TL 100,001–500,000.......................................................................................................
TL 500,001–1,000,000....................................................................................................
TL+1,000,000 .................................................................................................................
0.5
4.0
4.8
7.2
19.1
6.7
57.8
The following table sets forth the Group's 20 largest depositors by percentage of total customer deposit base and
type as of 31 December 2015*:
% of
Total
Rank
1
2
3
4
5
6
........................................................................................................................................................
........................................................................................................................................................
........................................................................................................................................................
........................................................................................................................................................
........................................................................................................................................................
........................................................................................................................................................
86
2.0
1.8
1.7
1.7
1.2
1.0
Customer
Type
Corporate
Other
Corporate
Corporate
Corporate
Corporate
7 ........................................................................................................................................................
8 ........................................................................................................................................................
9 ........................................................................................................................................................
10 ........................................................................................................................................................
11 ........................................................................................................................................................
12 ........................................................................................................................................................
13 ........................................................................................................................................................
14 ........................................................................................................................................................
15 ........................................................................................................................................................
16 ........................................................................................................................................................
17 ........................................................................................................................................................
18 ........................................................................................................................................................
19 ........................................................................................................................................................
20 ........................................................................................................................................................
0.8
0.8
0.6
0.5
0.5
0.4
0.4
0.4
0.4
0.4
0.4
0.3
0.3
0.3
Percentage of total customer deposit base ..........................................................................................
15.9
Corporate
SME
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
SME
Corporate
Corporate
Corporate
Corporate
Corporate
*Deposits from banks are not included.
The Group's deposits from banks comprise demand and time deposits. The Group's deposits from banks
decreased to TL 14,691 million as of 31 December 2015 from TL 17,183 million as of 31 December 2014.
Repurchase Obligations
Halkbank enters into repurchase transactions both directly with customers and through the Central Bank Repo
Market. In addition to financing short term liquidity needs, Halkbank seeks to take advantage of arbitrage
opportunities between the money and repurchase markets. Halkbank perceives repurchase transactions as a
meaningful source of short term funds, particularly given Halkbank's significant securities portfolio which may
be used in such transactions. The following table sets out a breakdown of repurchase transactions as of the dates
indicated and on a Bank-only BRSA basis:
2015
BIST Repo Market ............................................................................................
Central Bank Repo Market ..............................................................................
Banks (FX Repos) ...........................................................................................
Customers .......................................................................................................
Interest Accrual ...............................................................................................
Total ...............................................................................................................
BRSA Unconsolidated
As of 31 December
2014
(TL millions)
—
5,878
2,326
97
6
8,310
2013
—
5,137
3,161
109
—
8,413
—
700
—
71
—
771
Funds Borrowed
The following table sets out a breakdown of funds borrowed by source as of the dates indicated:
2015
Borrowings from domestic banks and institutions ..........................................
Borrowings from overseas banks and institutions...........................................
Total ...............................................................................................................
87
BRSA Consolidated
As of 31 December
2014
(TL thousands)
3,845,272
20,262,164
24,107,436
2,787,239
13,163,826
15,951,065
2013
3,081,097
13,493,797
16,574,894
The following table sets out certain information as to the currency of the Group's principal borrowings
outstanding as of the periods indicated:
2015
TL borrowings ................................................................................................
Foreign currency borrowings ..........................................................................
Total ...............................................................................................................
BRSA Consolidated
As of 31 December
2014
(TL thousands)
3,278,218
20,829,218
24,107,436
3,112,881
12,838,184
15,951,065
2013
2,633,665
13,941,229
16,574,894
The following tables set out the maturity profile of the Group's borrowings as of the dates indicated:
BRSA Consolidated
Amount
% of total
(TL thousands)
Up to one month ....................................................................................................................
1 to 3 months .........................................................................................................................
3 to 12 months .......................................................................................................................
1 to 5 years.............................................................................................................................
Over 5 years ...........................................................................................................................
Adjustments ...........................................................................................................................
Total ......................................................................................................................................
814,497
2,667,550
11,165,398
5,880,670
2,064,916
(449,294)
22,143,737
3.68
12.05
50.42
26.56
9.33
(2.03)
100.00
BRSA Consolidated
Amount
% of total
(TL thousands)
Up to one month ....................................................................................................................
1 to 3 months .........................................................................................................................
3 to 12 months .......................................................................................................................
1 to 5 years.............................................................................................................................
Over 5 years ...........................................................................................................................
Adjustments ...........................................................................................................................
Total ......................................................................................................................................
1,310,282
1,374,915
4,535,413
5,294,145
2,026,821
(359,802)
14,181,774
9.24
9.69
31.98
37.33
14.29
(2.54)
100.00
BRSA Consolidated
Amount
% of total
(TL thousands)
Up to one month ....................................................................................................................
1 to 3 months .........................................................................................................................
3 to 12 months .......................................................................................................................
1 to 5 years.............................................................................................................................
Over 5 years ...........................................................................................................................
Adjustments ...........................................................................................................................
Total ......................................................................................................................................
576,771
1,025,031
7,896,427
3,843,557
2,177,675
(433,109)
15,086,352
3.82
6.79
52.34
25.48
14.43
(2.87)
100.00
The Group has entered into a number of TL and foreign currency financings with other banks and financial
institutions, which have an average maturity of six months to over five years.
Short-term borrowings
The following table sets out information regarding Halkbank's short-term borrowings (maturities of less than
one year), including deposits, for the periods presented:
2015
Short-term borrowings ..............................................................................
88
154,306,383
BRSA Consolidated
As of 31 December
2014
(TL thousands)
127,709,953
2013
117,376,008
THE GROUP AND ITS BUSINESS
Incorporation
Halkbank was incorporated on 23 May 1938 as a joint stock company under the laws of Turkey. Halkbank is
registered with the Istanbul Chamber of Commerce under number 862070 and has its registered offices at
Barbaros Mahallesi, Şebboy Sokak No:4 34746 Ataşehir, Istanbul, Turkey. The telephone number of Halkbank
is +90 216 503 70 00.
Overview
services to more than 8.8 million retail, small and medium sized enterprise ("SMEs") and commercial and
corporate customers across Turkey and select international markets. Halkbank's name has been associated with
tradesmen, artisans and other SMEs in Turkey since 1938, and SMEs remain at the core of the Group's customer
base today, although the Group has, since its establishment, also expanded its business into additional segments.
Halkbank offers services to its customers through a nationwide branch network, which as of 31 March 2016
consisted of 951 domestic branches (with at least one branch in every province of Turkey).
According to the Banks Association of Turkey, as of 31 March 2016, Halkbank was the sixth largest bank in
Turkey in terms of total assets (TL 195.3 billion), the sixth largest in terms of loans (TL 132.7 billion), the sixth
largest in terms of deposits (TL 125.8 billion) and the fifth largest in terms of numbers of branches. As of 31
March 2016, Halkbank had a total of 17,158 employees including 51 employees outside of Turkey.
According to data published by the BRSA, Halkbank's market share in Turkey in loans and assets was 8.6% and
8.2% respectively as of 31 March 2016. On a Bank-only BRSA basis, the Bank's loans and receivables
increased to TL 132.7 billion as of 31 March 2016, from TL 126.7 billion as of 31 December 2015, representing
a growth rate of 4.7%. As of 31 March 2016 and according to data published by the BRSA, Halkbank had a
9.8% market share in the deposit market in Turkey, with total deposits of TL 125.9 billion, representing 64.4%
of Halkbank's total liabilities and shareholders' equity. It was the second largest bank in Turkey in terms of TL
deposits (11.2% market share), the fifth largest in terms of branches (8.5% market share) and the sixth largest in
terms of loans (8.6% market share), assets (8.2% market share) and foreign currency deposits (7.9% market
share). On a Bank-only BRSA basis, the Bank had a loans to total deposits ratio (including deposits from banks
and deposits from customers) of 105.4%, 103.8% and 101.4% as of 31 March 2016, 31 December 2015 and 31
March 2015, respectively, which was low compared to the Turkish banking sector which had a loans to total
deposits ratio of 119.1%, 119.2% and 118.6% as of 31 March 2016, 31 December 2015 and 31 March 2015,
respectively. In addition, on a Bank-only BRSA basis, as of 31 March 2016, the Bank had a market share with
respect to housing loans, consumer loans, retail loans and credit card loans of 8.6%, 7.8%, 7.0% and 3.4%,
respectively.
As of 31 March 2016 and on a Bank-only BRSA basis, the Bank's return on average equity and return on
average assets were 13.7% and 1.4%, respectively, while the corresponding rates of return for the Turkish
banking sector during the same period were 12.3% and 1.4%, respectively, according to data published by the
BRSA. As of 31 December 2015 and on a Bank-only BRSA basis, the Bank's return on average equity and
return on average assets were 13.0% and 1.3%, respectively, while the corresponding rates of return for the
Turkish banking sector during the same period were 10.5% and 1.2%, respectively, according to data published
by the BRSA.
Treasury Management and International Banking. In addition, Halkbank, through its subsidiaries and other
companies in which Halkbank has an interest, provides, among other services, brokerage, insurance, leasing,
factoring, real estate investment, fund and portfolio management, and overseas banking services.
SME Banking. Halkbank has a leading SME franchise in Turkey. Halkbank's principal products and services
provided to SMEs include deposits, investment and working capital loans, specialised loans (including
cooperative loans and fund loans, some of which are unique to Halkbank in the Turkish banking sector), noncash loans (i.e., guarantees and letters of credit), treasury products and cash management services. As of 31
December 2015 and on a Bank-only BRSA basis, Halkbank's loans and receivables to SME borrowers
comprised 39% of its total loans and receivables. Halkbank's management believes that the SME sector accounts
for the largest single segment of the Turkish GDP and that the SME sector is still underserviced and
underpenetrated in terms of financial service products. As of 31 December 2015, Halkbank had approximately
1.2 million SME customers (which Halkbank classifies as businesses with annual turnover of TL 40 million or
less). Of Halkbank's 1.2 million SME customers, approximately 760,000 are artisans, craftsmen and tradesmen,
many of whom are members of credit union cooperatives that have strong relationships with Halkbank.
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Corporate and Commercial Banking. Halkbank's Corporate and Commercial Banking operations provide
corporate and commercial customers with loans, commercial finance, financial services related to import and
export transactions, treasury management services, international banking services, financial intermediation
services (provided through Halkbank's subsidiaries or other companies in which Halkbank has an interest) and
asset management. One of Halkbank's strengths has been its deposit base, which has enabled it to provide
competitive corporate lending services. As of 31 December 2015, Halkbank had over 4,100 commercial
customers (which Halkbank classifies as businesses with annual turnover of between TL 40 million and TL 150
million) and over 1,700 corporate customers (which Halkbank classifies as businesses with annual turnover of
TL 150 million or more). As of 31 December 2015 and on a Bank-only BRSA basis, Halkbank's loans and
receivables to corporate and commercial borrowers comprised 39% of its total loans and receivables.
Retail Banking. Halkbank's retail banking operations provide retail customers with retail loans, deposit banking,
debit card and credit card services, payroll accounts, utility and other payment systems. As of 31 December
2015, Halkbank had approximately 7.6 million retail customers (out of Halkbank's approximately 8.8 million
total customers). As of 31 December 2015, the Group's savings deposits represented 28.7% of total deposits.
Halkbank is also active in the retail loan market, which has grown significantly in Turkey since 2009. As of 31
December 2015, Halkbank had more than 1.1 million retail borrowers and 1.8 million credit card customers. As
of 31 December 2015 and on a Bank-only BRSA basis, Halkbank's loans and receivables to retail borrowers
comprised 22% of its total loans and receivables.
Treasury Management. Halkbank's Treasury Management department's key role is to manage the Group's assets
and liabilities, funding and liquidity risk. The Treasury Management department deals with foreign currencies,
money market instruments, fixed income securities transactions and currency swaps. The Treasury Management
department also manages the Group's investment securities portfolio, which recently has included an increased
percentage of CPI-Linked Securities. Although Halkbank's treasury management activities are primarily focused
on asset and liability management for the Group, the Treasury Management department also generates profits as
one of the 13 primary dealers of Turkish Government bonds, through its management of mutual funds offered to
customers and in its participation in the repurchase agreement market.
International Banking. Halkbank's International Banking operations provide letters of credit, letters of guarantee,
export and import financing and structured financing products, and also support customers in the area of
medium and long-term capital goods financing under the export credit agency insurance schemes offered by
many countries. Through its collaborations with multinational development agencies, the International Banking
division also helps Halkbank gain access to long-term funding commitments to support its lending to its SME
customers. In addition to having correspondent relations with approximately 2,000 bank head offices and their
foreign branches around the world, the Group has four branches in the Turkish Republic of Northern Cyprus and
one branch in Bahrain. Halkbank also has representative offices in London, United Kingdom, Tehran, Iran and
Singapore which do not conduct, and are not authorised to conduct, any lending or deposit taking activities. In
addition, as of 31 March 2016 Halkbank owned 98.78% of the shares of a banking subsidiary in Macedonia
named Halkbank A.D., Skopje, 82.47% of the shares of a banking subsidiary in Serbia named Halkbank A.D,
Beograd, and also owned 30.00% of the shares of Demir Halkbank (Nederland) N.V., a bank operating
primarily in the Netherlands. The Bank intends to expand its international presence.
Strengths
Halkbank's management believes Halkbank has a number of key strengths. These strengths include:
•
Fast growing and attractive Turkish market. With approximately 78.7 million inhabitants as of
31 December 2015, Turkey is the second largest European country by population and its
population continues to grow. Approximately 50% of the population is below the age of 30. In
2015, Turkey had, according to Turkstat, 1.3% population growth compared to the EU average of
0.3%. Turkish GDP grew by 4.0% in 2015 and 3.0% in 2014 according to data published by
Turkstat, compared to, according to Eurostat, a GDP growth rate in the EU of 2.0% in 2015 and of
1.4% in 2014. According to data published by the BRSA, the Turkish banking sector grew as well,
with a 18.2% and 15.1% increase in total banking assets, a 19.7% and 18.5% increase in loans and
17.9% and 11.1% growth in deposits, respectively, for the year ended 31 December 2015 and the
year ended 31 December 2014. Halkbank's management believes that growth prospects of the
Turkish banking market will benefit from the relatively low levels of banking penetration. As of 31
December 2015, Turkey's loan to GDP ratio was 69%, its deposits to GDP ratio was 59%, its
mortgage loans to GDP ratio was 7% and its assets to equity multiple was 8.9. Halkbank's
management believes that this relatively low level of banking penetration will give Turkish banks
the opportunity to continue to expand and broaden their customer and asset base.
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•
Leading SME franchise. Halkbank has a leading SME franchise in Turkey and its name has been
associated with artisans, craftsmen, tradesmen and other SMEs in Turkey since 1938. As a result
of this long-standing market position, SMEs remain at the core of the Group's customer base today.
As of 31 December 2015 and on a Bank-only BRSA basis, Halkbank's loans and receivables to
SME borrowers comprised 39% of its total loans and receivables. In particular, Halkbank currently
has the exclusive right to provide cooperative loans to artisans, craftsmen, tradesmen and other
SMEs through a network of credit union cooperatives under the Turkish Treasury's programme to
subsidise loans to these organisations. Halkbank's cooperative loans are mandatorily guaranteed by
the credit union cooperatives. In December 2015, Halkbank had approximately 353,000 customers
who are members of over 981 different credit union cooperatives throughout Turkey. In addition,
Halkbank has been able to obtain access to low-cost and long-term funding from multinational
development agencies, such as the World Bank, the European Investment Bank, and the French
Development Agency, to support Halkbank's loans and receivables to SMEs. Also, in order to help
reduce their borrowing costs, Halkbank's loans to SMEs (as defined by the Turkish Government as
enterprises with less than TL 40 million in annual turnover and less than 250 employees) operating
in the manufacturing sector are exempt from a banking insurance transaction tax of 5% of interest
expense on such loans.
•
Strong capitalisation. Despite intense competition in the Turkish banking sector, the Group has
maintained its strong capital position in recent periods. The Group has a strong capital base which
is mostly in the form of core capital accumulated by high profit generation and a relatively stable
deposit base without any issuances of subordinated loans. The Bank's unconsolidated total capital
ratio, computed under Basel III, was 13.7% as of 31 March 2016 (13.8% as of 31 December 2015).
In addition, the Bank's shareholder equity increased by 17.5% to TL 19.4 billion as of 31
December 2015 compared to TL 16.5 billion as of 31 December 2014. As of 31 March 2016, the
Bank's shareholder equity was TL 20.4 billion.
•
Well-established nationwide franchise and distribution platform. Halkbank has one of the largest
customer franchises in Turkey, with approximately 8.8 million customers, which includes 7.6
million retail customers and approximately 1.2 million SME, commercial and corporate customers.
As of 31 March 2016 and according to data published by the BRSA, Halkbank operated the fifth
largest branch network in Turkey, with 951 domestic branches. One of Halkbank's competitive
advantages is that, in addition to its network of 201 branches in Istanbul and 154 branches in
Ankara and İzmir (which Halkbank plans to continue to expand), Halkbank also has an extensive
branch network throughout the rest of Turkey, with 589 of Halkbank's branches located outside of
these three cities. Moreover, Halkbank has a prominent presence across Anatolia, which
Halkbank's management believes represents an expansion opportunity given the less intense
competition and lower banking penetration in that region. As of 31 December 2015, Halkbank also
had 3,585 ATMs nationwide, as well as other alternative distribution channels such as Internet,
telephone and SMS banking. As of 31 December 2015, approximately 89% of all customer
transactions processed by the Group were made through its alternative distribution network.
•
Strong funding structure. One of Halkbank's key strengths is its relatively low-cost funding
structure, supported by a large, stable deposit base. On a Bank-only BRSA basis, Halkbank's total
deposits were TL 125.9 billion as of 31 March 2016 (TL 122.1 billion as of 31 December 2015),
representing 64.4% as of 31 March 2016 (65.1% as of 31 December 2015) of the Bank's total
liabilities and shareholders' equity. On a Bank-only BRSA basis, Halkbank's time deposit ratio,
which is defined as the rollover ratio of the Bank's time deposits, was 82.3% as of 31 March 2016
(83.2% as of 31 December 2015). On a Bank-only BRSA basis, 13.67% of total deposits from
customers were low-cost demand deposits as of 31 March 2016 (14.08% as of 31 December 2015).
On a Bank-only BRSA basis, the Bank's loans to total deposits ratio was 105.4% as of 31 March
2016 (103.8% as of 31 December 2015), which was low compared to both the sector average of
118.6% and its principal Turkish bank competitors' average of 107.6%, and Halkbank's
management believes that the Group's balance sheet offers additional potential to fund further
growth in loans and receivables. Halkbank's management also believes that Halkbank was
relatively less impacted than many of its competitors by the actions of the Central Bank to limit
loan growth. Halkbank maintained a prudent asset liability policy that allowed it to access less
costly funding from the Central Bank through repurchase transactions because of the size of its
Turkish Government securities portfolio.
•
Prudent credit assessment and high asset quality. On a Bank-only basis, the Bank had a TL 4.1
billion non-performing loan ("NPL") portfolio as of 31 March 2016 (compared to TL 3.97 billion,
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TL 3.70 billion and TL 2.25 billion as of 31 December 2015, 2014 and 2013, respectively) and the
Bank's NPL portfolio accounted for 3.0% of its total gross loan portfolio as of 31 March 2016
(3.1% as of 31 December 2015). Halkbank's management believes that relatively low NPL
formation has been enhanced by its long-standing experience with its SME customers. Unlike
certain other institutions in the Turkish banking sector, Halkbank has not written-off or sold to
third parties any of its non-performing loans. A significant portion of the Group's non-performing
loans date from 2001 and earlier, and were classified as NPLs in the aftermath of the economic
crisis in Turkey in 2000-2001 and subsequent reorganisation of state banks. Excluding these
legacy NPLs, the Group's NPL ratio would be lower.
Strategy
Halkbank's primary objectives are as follows: (i) to further strengthen its SME franchise; (ii) to increase its
market share in retail banking, including continuing to increase the credit card services it offers via its own
credit card brand, "Paraf"; and (iii) to achieve further growth while preserving profitability, low cost funding
and efficiency. The detailed actions Halkbank is taking in order to implement its primary objectives are as
follows:
•
•
Continue to Strengthen the Group's SME Franchise. Halkbank's management believes that the
SME sector accounts for the largest single segment of the Turkish GDP, is still underserviced and
underpenetrated in terms of financial service products, and offers significant growth opportunities.
In order to expand its existing SME customer base, Halkbank intends to capitalise on its SME
banking experience, and to increase its SME customer base by:
•
Expanding relationship with existing SME customers. Halkbank intends to continue expanding
its relationship with existing SME customers by offering value-added services, such as ongoing technical information and financial consultancy, and increasing cross-selling of both
core banking products and additional financial services, including short-term and long-term
loans, deposit products, treasury products, insurance products and payment services through
both general marketing and one-on-one communication. In addition, Halkbank plans to
increase its SME customer base by providing competitively priced ancillary financial services,
such as foreign exchange, trade finance, derivative products and pension fund services.
Halkbank also plans to continue to offer a number of special types of loans to its SME
customers in order to address their particular needs (including loans tied to seasonal and other
factors).
•
Meeting the needs of SMEs. Halkbank intends to meet the needs of SMEs seeking to obtain
long-term funding by combining its expertise in SME project assessment and its strong track
record of accessing long-term financing with favourable interest rates from multinational
development agencies such as the World Bank, the European Investment Bank, and the
French Development Agency.
•
Continuing regular collaboration with chambers and unions. Halkbank intends to continue to
collaborate regularly with Chambers of Commerce, the Union of Chambers and Commodity
Exchanges of Turkey, local unions of craftsmen and artisans and the Small and Medium
Industry Development Organisation to further develop its SME customer base.
Increase its Market Share in Retail Banking. Halkbank intends to further develop its retail
customer base by focusing on customer segmentation and continuing to develop and offer
additional products and services to its retail customers to address their particular needs. Halkbank
intends to increase its retail customer base by:
•
Better utilising its national branch network to cross-sell products to existing customers.
Halkbank seeks to cross-sell additional value-added products to retail customers. Since the
Group has a high proportion of depositors with relatively large balances Halkbank's
management believes Halkbank can offer tailor-made retail products to its growing retail
customer base and believes that its retail customers have not been fully utilised for
cross-selling to date.
•
Designing and developing new retail loan products to enable it to further expand its retail
loan portfolio. Halkbank has been introducing many innovative products, including
specialised products for different vocational groups with different needs. Halkbank now aims
to extend its products to new, relatively higher-income customers (including payroll and other
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retail customers) through initiatives such as Halkbank's "Ready Credit Package" which allows
select customers to be pre-approved for personal, vehicle and housing loans.
•
Continuously monitoring legal, financial and sectoral improvements and being one of the first
banks that provides solutions to its customers. In May 2012, the Urban Transformation Law,
entered into force. Its major aim is to demolish and re-construct old and damaged buildings
and ensure greater safety in the event of a significant earthquake. Accordingly Halkbank
signed a private loan agreement with the Ministry of Environment and Urban Planning and
designed new loan products for the reconstruction of collapsed buildings, for tenants and
landholders and for building reinforcement. The customers using Halkbank's Urban
Transformation credits will benefit from low interest rates with the support of the ministry.
•
Continuing to increase the credit card services that it offers via its own credit card brand
"Paraf". Halkbank introduced a loyalty program for its own credit card brand, "Paraf", during the
fourth quarter of 2012. As part of this introduction, Halkbank engaged in advertising and
marketing activities to promote this new brand of credit card services. Since the launch of the
Paraf product, Halkbank has seen significant increases in the number of credit cards issued, the
number of merchant points of service, and in issuer and acquirer volumes. The number of credit
cards issued increased by 1.0% from 3,793,671 as of 31 December 2015 to 3,832,271 as of 31
March 2016, while growth of the number of credit cards issued increased to 11.0% for the year
ended 31 December 2015 from 5.2% for the year ended 31 December 2014. The increase can be
attributed in part to the general rise in interest rates and other governmental policies imposed to
reduce lending. Halkbank's market share with respect to credit card loans increased to 3.4% as of
31 March 2016 (compared to 3.2% as of 31 December 2015) and its credit card market share as
acquirer increased from 5.8% to 6.1%.
•
Achieve Further Growth while Preserving Profitability, Low Cost Funding and Efficiency.
Halkbank's management believes Halkbank can further grow across all of its main product
segments while increasing profitability and efficiency by:
•
Focusing on cost efficiency and increasing service quality. Halkbank completed its OMEGA
project in 2014. The OMEGA project included a number of key initiatives, including
centralising administrative functions formerly performed at the branch level and investing in
information technology to enhance its customer relationship management applications and
product deployment, and streamline business processes. Halkbank's management believes
Halkbank can utilise its nationwide branch network to increase its business with existing
customers and their partners, affiliates, agents and distributors. In addition, Halkbank is
committed to ensuring the effectiveness of all critical processes, especially in credit and risk
management, and in growing productivity in all business processes by means of product
diversity, transaction system security, high-quality services and competitive pricing.
•
Increasing its loan portfolio while retaining prudent risk management. The Group grew its
loan portfolio by 4.7% to TL 133,175 million as of 31 March 2016 from TL 127,220 million
as of 31 December 2015, while increasing its focus on corporate and SME loans, as opposed
to retail loans, for which Halkbank continues to follow a controlled growth strategy. The
Group achieved strong loan portfolio growth in the year ended 31 December 2015, increasing
its loans and receivables by 24.9% to TL 127,220 million as of 31 December 2015 from TL
101,831 million as of 31 December 2014. Halkbank will seek to focus on the most profitable
customer segments (particularly its corporate and SME customer bases) while maintaining
prudent risk management and credit quality. Consistent with overall market trends, in mid2014 Halkbank increased its loan pricing following a rapid increase in the cost of financing in
early 2014 to support its net interest margin. Loan pricing, across all loan segments continued
to increase during 2015. However in the first quarter of 2016, the costs of TL funds began to
fall as a result of deceleration of headline inflation and subsequent interest rate cuts made by
the Central Bank. Subsequent reductions in loan pricing may occur, especially if the cost of
TL funds declines further as a result of both local and global economic uncertainties.
Halkbank also intends to develop new loan products where its historical relationships and
sector knowledge can be utilised, and to participate in structured finance transactions and
provide profitable loans to its large corporate and commercial customer base.
•
Increasing Halkbank's deposit base and reducing the cost of deposits. One of Halkbank's key
strengths is its large, stable deposit base, which Halkbank intends to increase (especially lowcost demand deposits by acquiring payroll customers) by acquiring new payroll customers and
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new branch openings in big cities. Halkbank's management believes this effort will be aided
by the growth of its loan portfolio and cash services offered by the Group (including its
payroll services).
•
Increasing non-interest income. Given its growing cash and non-cash loan portfolio, the
Group intends to continue to focus on generating additional net fees and commissions income;
although net fees and commission income decreased by 17.3% to TL 248 million for the three
months ended 31 March 2016, from TL 300 million for the three months ended 31 March
2015, it had increased by 15.3% to TL 1,094 million for the year ended 31 December 2015,
from TL 949 million for the year ended 31 December 2014 and is expected to remain an
important source of the Group's operating income. Halkbank intends to increase its fees and
commission income through various initiatives, including further expansion of its non-cash
lending business to its corporate, commercial and SME customers, further participation in
syndications, project finance and trade finance, expansion of its financial services business
(particularly through mutual funds, and life and non-life insurance products) and through
brokerage activity in government bonds and foreign exchange.
•
Continuing to focus on NPL collections. Halkbank's management believes strong NPL
collections will continue to be an area of focus, with proactive implementation of loan
restructuring protocols with borrowers, as well as foreclosures on collateral where required.
•
Focusing on developing but still underpenetrated areas in Turkey. Halkbank opened 49
branches in 2015, 23 branches in 2014, 56 branches in 2013 and will continue to open new
branches in large cities and where potentially profitable, and close unprofitable branches.
•
Diversifying funding sources by utilising international sources of funding and debt capital
market instruments. In 2010, Halkbank obtained a U.S.$130 million and €349 million dualtranche one-year term loan from a syndicate of 27 international lenders. The facility was most
recently renewed until July 2017 with an aggregate principal amount of U.S.$175 million and
€476.5 million, respectively. In July 2012, Halkbank issued U.S.$750 million aggregate
principal amount of 4.875% notes due 19 July 2017. In February 2013, Halkbank issued its
second Eurobond of U.S.$750 million aggregate amount of 3.875% coupon rate which was
the lowest coupon for a 7-year bank issuance from Turkey. In June 2014, Halkbank issued
U.S.$500 million aggregate principal amount of 4.750% notes due 4 June 2019. In February
2015, the Bank issued its fourth Eurobond of U.S.$500 million aggregate amount of 4.750%
notes due 11 February 2021. Halkbank intends to continue to diversify its funding base with
international financings and debt capital market instruments.
History
Halkbank was established in 1933 pursuant to a statute passed by the Turkish Parliament in order to meet the
credit needs of tradesmen and artisans, who were adversely affected by the shortages, inflation and high interest
rates at that time in Turkey. None of the banks or public organisations that were created in the early years
following the establishment of Republic of Turkey in 1923 successfully addressed the credit needs of tradesmen
and artisans, even though these two groups made up the single largest segment of the Turkish economy at that
time. Halkbank became operational in 1938.
Although Halkbank initially only lent money through its cooperative or "Popular Funds", Halkbank was
authorised in 1950 to open branches and lend money directly to its customers. In 1964, Halkbank embarked on
an ambitious programme whereby its capital was increased and Halkbank became a more active player in the
Turkish banking sector by establishing a nationwide branch network. This resulted in the strong growth of
Halkbank's deposit and lending volumes.
In November 2000, Law 4603 was enacted, pursuant to which state-owned banks were required to prepare
themselves for eventual privatisation. Under this law, it was agreed that Halkbank's organisational structure
would be revised and its employees would be subject to private law provisions.
To enable this transformation, Halkbank's activities were reorganised in 2001 under five main departments:
Marketing, Credit, Support Services, Non-Branch Profit Centres, and Financial Control & Risk Management.
As a result, Halkbank began to focus more on customer-oriented marketing than it had in the past. Furthermore,
in 2001, 96 branches of the insolvent Türkiye Emlak Bankası were transferred to Halkbank.
In the second half of 2004, Halkbank merged with Pamukbank. The merger with Pamukbank significantly
strengthened Halkbank's retail banking capabilities, provided it with a more technologically advanced IT system
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(MISTRAL), which was deployed throughout Halkbank's networks, and created other synergies from the
combination and rationalisation of the operations of the two banks.
In May 2007, the Privatization Administration sold approximately 25% of its shareholding in Halkbank through
an initial public offering and a listing on the BIST. Immediately after such offering and listing, the Privatization
Administration owned 75.03% of the outstanding share capital of Halkbank and the public free float of
Halkbank's shares on the BIST corresponded to 24.98% of Halkbank's outstanding shares.
In October 2010, Halk Gayrimenkul Yatırım Ortaklığı A.Ş. was established with the purpose of carrying out
activities permitted by the CMB regulations relating to real estate investment companies and, in 2013, made a
public offering of its shares. As of 31 March 2016, Halkbank owned 79.07% of the shares of Halk Gayrimenkul
Yatırım Ortaklığı A.Ş.
In April 2011, Halkbank acquired a majority of the shares of Izvozna I Kreditna Bank A.D. Skopje, which is
based in Macedonia, from one of Halkbank's related entities Demir-Halkbank (Nederland) N.V. Halkbank
changed the trade name of the acquired bank to "Halk Banka A.D., Skopje" as of 14 July 2011. As of 31 March
2016, Halkbank owned 98.78% of the shares of Halk Banka A.D., Skopje. Halk Banka A.D., Skopje is a fullservice retail and commercial bank in the Republic of Macedonia, providing a variety of services including
deposit banking, corporate and retail lending, foreign exchange services, domestic and foreign payment services,
fixed income instrument trading, and trade finance. Halk Banka A.D., Skopje does not operate in any
jurisdiction other than Macedonia.
In June 2011, Halk Portföy Yönetimi A.Ş. was established with the purpose of providing securities portfolio
management services and investment advice, as well as engaging in other capital markets activities. As of 31
March 2016, Halkbank owned 75.00% of the shares of Halk Portföy Yönetimi A.Ş.
In January 2012, Halk Hayat ve Emeklilik A.Ş., in which the Bank has a majority shareholding, received its
operating license from the Undersecretariat of Treasury, and in the second half of 2012 it began offering private
pension products.
In June 2012, Halk Faktoring A.Ş. was established with the purpose of providing services in relation to all
financings which are consistent with applicable law for domestic and international commercial transactions. As
of 31 March 2016, Halkbank owned 97.50% of the shares of Halk Faktoring A.Ş.
In July 2012, the Bank issued U.S.$750 million aggregate principal amount of 4.875% notes due 19 July 2017
(the "2017 Notes"). Interest on the 2017 Notes is payable semi-annually in arrear on 19 January and 19 July in
each year. The 2017 Notes are senior unsecured obligations of the Bank and rank pari passu, without any
preference among themselves, with all other outstanding unsecured and unsubordinated obligations of the Bank,
present and future, subject to applicable laws relating to creditors' rights.
In November 2012, the Privatization Administration sold approximately 24% of its shareholding in Halkbank
through a follow-on public offering and listing on the BIST. As of the date of this Offering Memorandum, the
Privatization Administration owned 51.06% of the outstanding share capital of Halkbank and the public free
float of Halkbank's shares on the BIST corresponds to 48.93% of Halkbank's outstanding shares.
In February 2013, the Bank issued U.S.$750 million aggregate principal amount of 3.875% notes due
5 February 2020 (the "2020 Notes"). Interest on the 2020 Notes is payable semi-annually in arrear on
5 February and 5 August in each year. The 2020 Notes are senior unsecured obligations of the Bank and rank
pari passu, without any preference among themselves, with all other outstanding unsecured and unsubordinated
obligations of the Bank, present and future, subject to applicable laws relating to creditors' rights.
In June 2014, the Bank issued U.S.$500 million aggregate principal amount of 4.750% notes due 4 June 2019
(the "2019 Notes"). Interest on the 2019 Notes is payable semi-annually in arrear on 4 December and 4 June in
each year. The 2019 Notes are senior unsecured obligations of the Bank and rank pari passu, without any
preference among themselves, with all other outstanding unsecured and unsubordinated obligations of the Bank,
present and future, subject to applicable laws relating to creditors' rights.
On 15 January 2015 the Bank announced that it had received regulatory approval from the BRSA to establish an
Islamic participation banking unit. In October 2015, however, the Bank announced that, while the project
remained under consideration for the future, it had applied to the BRSA to cancel the establishment
authorisation. Accordingly, the BRSA cancelled the authorisation in October 2015 and the TL 1 billion capital
increase which was intended by the Bank to be used as initial capital for the Islamic participation bank was
cancelled as well.
In February 2015, the Bank issued U.S.$500 million aggregate principal amount of 4.750% notes due 11
February 2021 (the "2021 Notes"). Interest on the 2021 Notes is payable semi-annually in arrear on 11 August
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and 11 February in each year. The 2021 Notes are senior unsecured obligations of the Bank and rank pari passu,
without any preference among themselves, with all other outstanding unsecured and unsubordinated obligations
of the Bank, present and future, subject to applicable laws relating to creditors' rights.
The Bank has also completed an acquisition in Serbia; it acquired 76.76% of Serbia's Cacanska Bank as of 20
March 2015.
Business
Treasury Management and International Banking. In addition, Halkbank (through its subsidiaries and other
companies in which Halkbank has an interest) provides, among other services, brokerage, insurance, fund and
portfolio management and overseas banking services.
SME Banking
Overview
Halkbank's name has been associated with tradesmen, artisans and other SMEs in Turkey since 1938, and SMEs
remain at the core of the Group's customer base today. Halkbank's management believes that the SME sector
accounts for the largest single segment of the Turkish GDP and that the SME sector is still underserviced and
underpenetrated in terms of financial service products. Halkbank's principal products and services provided to
SMEs include deposits, working capital loans, specialised loans (including cooperative loans and fund loans,
some of which are unique to Halkbank in the Turkish banking sector), non-cash loans (i.e., guarantees and
letters of credit), treasury products and cash management services.
As of 31 December 2015, Halkbank has approximately 1.2 million SME customers which it served through 862
of its 944 domestic branches.
As of 31 December 2015 and on a Bank-only BRSA basis, Halkbank's loans and receivables to SME borrowers
(as classified by Halkbank under "—Customer Segmentation" below) comprised 39% of its total loans and
receivables. According to data published by the BRSA, as of 31 December 2015, Halkbank's market share in
Turkey in terms of loans to SMEs was 14.3%.
Customer Segmentation
In order to differentiate its products and services according to the specific needs of its customers, Halkbank
divides its SME customers into segments based upon annual turnover, credit limit and banking volume.
Halkbank further divides its SME customers by industry, as each industry has different needs that require
tailored banking products.
As of 31 December 2015, Halkbank had approximately 1.2 million SME customers (which Halkbank classifies
as businesses with annual turnover of TL 40 million or less). Of Halkbank's 1.2 million SME customers,
approximately 760,000 were artisans, craftsmen and tradesmen, many of whom are members of credit union
cooperatives which have a strong relationship with Halkbank, while approximately 465,000 SME customers
were incorporated enterprises in the services and trade, manufacturing or construction sectors with employee
headcount ranging from less than 10 employees to up to 250 employees.
Historically, Halkbank classified SMEs as businesses with annual turnover of TL 25 million or less. However,
as of 6 January 2015, Halkbank adjusted its classification of SMEs to businesses with an annual turnover of TL
40 million or less to comply with the Turkish Government definition.
Products and Services
Deposit Accounts. The Group offers savings accounts, commercial accounts and foreign currency accounts to its
SME customers.
Specialised loans. The Group offers cooperative loans and fund loans to its SME customers, some of which are
products unique to Halkbank in the Turkish banking sector.
•
Cooperative loans. Halkbank has been providing artisans, craftsmen and tradesmen with credit
guarantees and surety services since 1942. In 1951, Halkbank began extending such credits
through credit union cooperatives, and today Halkbank still has strong banking relationships with
these organisations and their approximately 760,000 members who represent approximately
63.3% of Halkbank's SME customer base as of 31 December 2015.
Pursuant to the decree of Council of Ministers dated 12 March 2007, Halkbank is the exclusive
distributor of cooperative loans in Turkey to SMEs through a network of local credit union
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cooperatives. The Turkish Treasury provides subsidies of 50% on the interest payments for these
cooperative loans, making them more affordable for small-sized entrepreneurs. As of 31 December
2015, Halkbank had approximately 353,000, customers who are members of over 960 different
credit union cooperatives throughout Turkey. The majority of these cooperative loans were
extended with maturities of up to five years and with monthly, quarterly or semi-annual instalment
payments.
Halkbank bears credit risk on cooperative loans and holds collateral (as of 31 December 2015,
approximately 6.4% of such collateral was held in cash collateral accounts at Halkbank).
Cooperative loans are mandatorily guaranteed by the Turkish credit union cooperatives.
As of 31 December 2015, the Group's total amount of outstanding cooperative loans was TL
16,159 million, which accounted for 8.5% of the Group's total loans and receivables to customers.
For more information, see "Selected Statistical and Other Information—The Group's Loan
Portfolio".
In the event that the Privatization Administration ceases to hold a majority of Halkbank's
outstanding share capital, Halkbank would, after a period of five years from the date the
Privatization Administration cease to hold a majority, no longer be entitled to be the exclusive
distributor of cooperative loans to SMEs through credit union cooperatives or to grant loans to
SMEs (as defined by the Turkish Government as enterprises with less than TL 40 million in annual
turnover and less than 250 employees) operating in the manufacturing sector that are exempt from
a banking insurance transaction tax of 5% of interest expense.
•
Fund loans. Fund loans include a variety of pass-through loans granted to SMEs, which are
offered by Halkbank through funds which are made available by Turkish Government agencies,
including the Ministry of Industry and Commerce, Mass Housing Administration and the Turkish
Treasury. For the majority of its fund loan portfolio, Halkbank acts as the intermediary and
receives commissions for distributing these loans to SME customers while bearing no credit risk.
Other SME loans. Halkbank also offers special types of credit products to its SME customers. These loans are
categorised in the following types: (i) manufacturer loans; (ii) farmer loans; (iii) artisan and craftsmen loans; (iv)
entrepreneur loans; (v) franchising loans; (vi) machinery manufacturing loans; and (vii) innovation loans. The
products within these main loan groups include, but are not limited to: (i) loans for pharmacies; (ii) loans for
firms in the tourism industry that offer flexible repayment terms specifically designed to the cash flow structure
of that sector; (iii) loans for owners of taxis, minibuses and other forms of privately owned public transportation
who are members of a professional chamber or association to provide, among other things, working capital,
vehicle maintenance coverage and repair or renewal expenses; (iv) loans for private individuals and firms that
transport passengers and cargo on highways to obtain their licences from the Turkish Ministry of Transportation;
and (v) loans provided to farmers who are registered with chambers of agriculture to pay for, among other things,
seed and fertiliser and tractor and agricultural machinery and which are repayable at harvest time.
In order to help reduce their borrowing costs, Halkbank's loans to SMEs (as defined by the Turkish Government
as enterprises with less than TL 40 million in annual turnover and less than 250 employees) operating in the
manufacturing sector are exempt from a banking insurance transaction tax of 5% of interest expense in
accordance with Excise Tax Law (No. 6802).
Under the decree of Council of Ministers dated 12 March 2007, in the event that the Privatization
Administration ceases to hold a majority of Halkbank's outstanding share capital, Halkbank would retain its
right as the exclusive distributor of cooperative loans for a period of five years from the date that the
Privatization Administration ceased to hold a majority. Moreover, the exemption from the banking insurance
transaction tax under the Excise Law (No. 6802) for loans to SMEs operating in the manufacturing sector would
also remain in place for five years from the date that the Privatization Administration ceased to hold a majority.
Halkbank's management believes that even without an exclusive right to distribute cooperative loans or to grant
loans that are exempt from banking insurance transaction tax, the Group would retain a strong position in the
SME loan market in Turkey because of its deep and long-standing banking relationships with SMEs and credit
union cooperatives.
Long-term agency financing. Through its collaborations with multinational development agencies such as the
World Bank, the European Investment Bank (EIB), French Development Agency (AFD) and Council of Europe
Development Bank (CEB), Halkbank has accessed long-term funding commitments for use in meeting the
investment and working capital needs of its SME customers. Halkbank has entered into 24 agency financing
agreements totalling approximately €2.5 billion in the last decade. Maturities of the facilities range from 5 years
to 30 years and have an average maturity of 4.5 years.
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Approximately 7% of the outstanding principal amount of agency funding was secured by Halkbank with
Turkish Government securities in Halkbank's securities portfolio, and approximately 9% of such funding was
provided without any security. The remaining 84% was guaranteed by the Turkish Treasury.
Halkbank uses loans from multinational development agencies not only to support SMEs in terms of financing
but also to provide consultancy services on social responsibility projects in relation to the environment,
occupational health and safety and energy efficiency.
Corporate and Commercial Banking
Overview
Halkbank's principal products and services provided to the Group's corporate and commercial customers include
corporate and commercial loans, commercial finance, financial services related to import and export transactions,
treasury management services, international banking services, financial intermediation services (provided
through Halkbank's subsidiaries or other companies in which Halkbank has an interest), and asset management.
As of 31 December 2015, Halkbank had 5,900 corporate and commercial customers which it served through 43
dedicated branches. Halkbank's corporate and commercial customers are also served by branches in locations
where there are no corporate or commercial branches.
As of 31 December 2015 and on a Bank-only BRSA basis, Halkbank's loans and receivables to corporate and
commercial borrowers (as classified by Halkbank as of 31 December 2015 under "—Customer Segmentation"
below) comprised 39% of its total loans and receivables. The Group's 20 largest corporate and commercial
borrowers in terms of nominal cash loan values accounted for 27% of the Group's total loans and receivables as
of 31 December 2015. As of 31 December 2015, deposits from corporate and commercial customers comprised,
on a Bank-only BRSA basis, approximately one-fourth of Halkbank's total deposits from customers.
Halkbank intends to increase its market share of the corporate and commercial banking market, expand its
existing corporate and commercial customer portfolio and diversify risk within its portfolio. Halkbank's
management believes that the strength of the Turkish corporate and commercial banking market will permit
Halkbank to continue to cross-sell various banking and financial services to Turkish businesses.
As of 31 December 2015, Halkbank had over 4,100 commercial customers (which Halkbank classifies as
businesses with annual turnover of between TL 40 million and TL 150 million) and over 1,700 corporate
customers (which Halkbank classifies as businesses with annual turnover of TL 150 million or more).
Corporate and Commercial Loans. Loans to corporate and commercial customers consist of short-term and
long-term loans with maturities generally ranging from one month to ten years. Major sectors of corporate and
commercial lending are: manufacturing, construction and services. For more information, see "Selected
Statistical and Other Information—The Group's Loan Portfolio—Distribution of Loans and Receivables by
Sector". Halkbank offers cash management loans, working capital loans, long and medium-term loans for
general purposes and loans for new premises.
Trade Finance. Halkbank offers trade finance facilities including short-term (up to 24 months) and long-term
(from 2 up to 10 years) financing as well as various import and export-related services such as letters of credit
confirmations, letters of credit and promissory note discounts, letters of guarantee issues, export credit agency
covered financing, collections and remittances.
Structured and Project Finance. Halkbank is an active provider of financing for its corporate and commercial
customers for project finance, acquisition/privatisation finance and structured finance products. Halkbank has
also participated in syndicated loans with an aggregate principal amount of U.S.$5.3 billion in 2015, U.S.$4.5
billion in 2014, U.S.$2.2 billion in 2013, U.S.$907 million in 2012, U.S.$907 million in 2011, U.S.$721 million
in 2010 and U.S.$156 million in 2009. Halkbank intends to increase its participation in the syndicated loan
market for the leading corporations of Turkey primarily through privatisation projects, which have played an
important part in Halkbank's increasing participation in this market.
Project finance loans are typically for investments in conjunction with large international development agencies,
such as the European Investment Bank and the World Bank. Additionally, TL and foreign
currency-denominated pre-export loans are extended by Halkbank in order to support the export-oriented
industries, to increase their competitive strength in international markets and to provide financing at the export
preparation stage.
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Corporate Card Services. Corporate cards are issued to corporate and commercial customers for payment of
general and administrative expenses. At the customer's option, various limits and restrictions on the use of the
corporate card account can be set for security purposes. Customised payment cards are also available to
corporate and commercial customers.
Retail Banking
Overview
Halkbank's retail banking operations provide retail customers with retail loans, deposit banking, bank and credit
card services and cash management products.
As of 31 December 2015, Halkbank had approximately 7.6 million retail customers which it served through 898
of its 944 domestic branches.
As of 31 December 2015 and on a Bank-only BRSA basis, the total amount of Halkbank's loans and receivables
to retail borrowers comprised 22% of its total loans and receivables. The Group strategically reduced the share
of its retail loans to below 25% of its total loan portfolio so as to benefit from certain lower general provisioning
rates. According to data published by the BRSA, Halkbank's market share in Turkey in terms of loans to retail
customers was 6.9% as of 31 December 2015.
Halkbank's management believes that the economic development and modernisation of Turkey will continue to
present significant opportunities for growth and profitability for leading Turkish financial institutions within the
retail banking sector. In addition to its comprehensive range of banking products, Halkbank seeks to provide
"product bundles" (with the aim of selling multiple products to its customers) comprising also retail banking
services with the aim of becoming each customer's primary bank.
As of 31 December 2015, the Group had approximately 7.6 million retail customers (of the Group's
approximately 8.8 million customers). Halkbank utilises its extensive branch network and alternative
distribution channels, co-branding and co-marketing to attract new retail customers. Halkbank also targets
owners and employees of businesses that are already Halkbank customers in another capacity. In addition, many
of Halkbank's retail customers are payroll clients employed by public sector companies. As of 31 December
2015, the Group had more than 1.1 million retail borrowers and 1.8 million credit card customers.
Halkbank offers a broad range of retail banking and financial products and services to its retail customers
including TL demand and time deposit accounts and foreign currency demand and time deposit accounts, retail
loans, payroll services, credit and debit cards, utility payment services and insurance and mutual funds.
Deposit accounts. Deposit collection from retail customers is a principal focus of Halkbank as retail deposits
provide low-cost and long-term funds to be invested in loans and other assets. Halkbank has been increasing its
domestic branch network for many years with the goal of increasing the number of Halkbank's retail customers
and obtaining a stronger and more diversified deposit base.
Halkbank offers TL and foreign currency demand and time deposits to its retail customers. As of 31 December
2015, the Group's savings deposits (which largely represents deposits from retail customers) totalled TL 35.2
billion, representing 28.7% of its total deposits. The Group's TL demand deposits from retail customers
increased by 9.2% to TL 4.3 billion as of 31 December 2015, from TL 3.9 billion as of 31 December 2014, due
in part to its "Bordro 24" payroll service. Through "Bordro 24", Halkbank provides payroll account and deposit
services to private and public sector employees whose employers have entered into multi-year payroll servicing
agreements with Halkbank. As of 31 December 2015, more than 1.5 million people utilised the "Bordro24"
service, out of which approximately 900,000 were public sector employees and approximately 270,000 were
private sector employees. Halkbank also provides similar services to approximately 1.8 million recipients of
pensions from the Turkish Government's social security agencies.
Retail loans. As of 31 December 2015 and on a Bank-only BRSA basis, Halkbank's loans and receivables to
retail borrowers comprised 22% of its total loans and receivables.
Halkbank offers general purpose consumer loans, housing loans and automobile loans, as described further
below:
•
General Purpose Consumer Loans. Halkbank's general purpose consumer loans largely consist of
wage or salary backed loans that are available only to employees of companies which have a
payroll agreement with Halkbank or to pension recipients of social security agencies who have
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their pension payments deposited directly into an account with Halkbank. The average maturity of
such loans is approximately 2.2 years.
•
Housing Loans. Halkbank's housing loans are generally focused on high and medium net worth
individuals with a strong credit history. Although the Group's maximum loan-to-value ratio is 75%,
which is in line with the current maximum housing loan-to-value ratio permitted by the Turkish
authorities, the average loan-to-value ratio of the Group's housing loan portfolio at origination was
47.0% as of 31 December 2015. The average original term of the Group's mortgages is 6.25 years,
with most loans having an original maturity of either 5 or 10 years. All housing loans are TL
denominated and fixed rate loans.
•
Automobile Loans. As of 31 December 2015, automobile loans represented 0.4% of the Group's
total retail loans and were primarily composed of secured loans to finance the purchase of both
new and used vehicles. The average term of these loans is approximately 2.6 years and most have
fixed rates.
Credit and debit cards. Halkbank has agreements with Visa and MasterCard entitling it to issue Classic, Gold,
Platinum, Business and Affinity and co-branded credit cards. Bank 24 cards (the name of Halkbank's debit
cards) can be used to withdraw cash and make transfers not only from Halkbank's own ATMs, but also from
approximately 44,428 different locations across Turkey through the ATM networks of other banks. As of 31
December 2015, the Group had approximately 1.8 million credit card customers (with approximately 60,000
new cards issued during 2015), 11.66 million debit cards (with 1.5 million new cards issued during 2015) and
281,877 POS terminals.
Halkbank introduced a loyalty program for its own credit card brand, "Paraf", during the fourth quarter of 2012.
As part of this introduction, Halkbank engaged in advertising and marketing activities to promote this new brand
of credit card services. With the new loyalty program, Halkbank aims to increase the range of products available
for card payment systems, and targets a measured increase in its market share in the credit card segment.
Utility Payments. Halkbank's regular payments system enables customers who have a retail loan and/or a deposit
account with Halkbank to pay their utility bills and credit card debts by direct debit. Halkbank's management
believes that some of these utility payment users could be potential customers for new products and aims to
cross-sell to these users. In 2015, there were approximately 3.2 million automatic payment orders representing a
15% increase from 2014.
Insurance and mutual funds. Halkbank offers through its branch network a variety of life and non-life insurance
and mutual fund products, as well as brokerage services to its retail customers. For more information, see "—
Subsidiaries and Affiliated Companies" below.
Treasury Management
Halkbank's Treasury Management department's key role is to manage the Group's assets and liabilities, funding
and liquidity risk. The Treasury Management department is located in Istanbul and primarily deals with foreign
exchange and money market operations, fixed income securities transactions and currency swaps.
Although Halkbank's treasury management activities are primarily focused on asset and liability management it
also generates profit as one of the 13 primary dealers (market makers) of Turkish Government bonds, through
its participation in the repo market and management of mutual funds offered to customers.
The Bank entered into approximately 10.7% of the repurchase transactions in the Turkish repo market with a
total transaction value of TL 755.2 billion as of 31 December 2015.
As of 31 December 2015, Halkbank also managed assets representing 4.4% of the market in Turkish
Government treasury bills and bonds.
The Bank has access to a diverse range of funding options and engages in foreign exchange and money market
transactions in both organised markets and over-the-counter transactions. In this context, the Bank makes active
use of Central Bank repo tenders, Central Bank interbank money markets, Central Bank market-making
possibilities, BIST repo market, Takasbank money market, interbank repo market, TL-foreign exchange swap
markets, and interbank TL-foreign exchange repo markets.
The Bank engages in forward, option, swap and other derivative transactions for the purposes of hedging, tenor
and interest risk management, and liquidity management.
Currency swap transactions carried out for liquidity management purposes have an average tenor ranging from
overnight to three months. With these swap transactions the Bank is able to provide cheaper liquidity relative to
the repo markets without creating any additional currency or other risk.
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The Bank uses cross currency swaps and collateralised funding for the purpose of tenor and interest risk
management. The goal of these transactions is to decrease or eliminate the negative balance sheet impacts of
longer tenor loans (especially housing loans). The volume of these transactions was U.S.$398 million as of 31
December 2015.
The Bank started offering gold deposit services in August 2009 with the purpose of product diversification and
alternative resource creation. The Bank held gold deposits of approximately TL 1,068 million as of 31
December 2015.
International Banking
With an extensive global network of correspondent banks (approximately 2,000 connections with bank head
offices and their foreign branches globally), Halkbank is capable of handling a variety of international trade
transactions.
As of 31 March 2016, Halkbank's total export and import trade finance volume was approximately U.S.$6.2
billion, while its market share stood at 7.7% according to Turkstat. Halkbank's management expects that
Halkbank will further increase its market share in the future through cross selling opportunities. Through its
collaborations with Euler Hermes, Coface, Serv, ONDD, Sace, Saudi Fund for Development, The Export-Import
Bank of The Republic of China and other well-known export credit agencies, Halkbank's management believes
Halkbank is well-positioned to meet its customers' medium to long-term import financing needs.
Halkbank is one of the leading banks in Turkey utilising U.S. Department of Agriculture's Export Credit
Guarantee programme ("GSM-102"). GSM-102 underwrites credit extended by the private banking sector in the
United States (or, less commonly, by a U.S. exporter) to approved foreign banks using U.S. Dollar-denominated,
irrevocable letters of credit to pay for food and agricultural products sold to foreign buyers. The total amount of
credit available to Turkey for the financial year 2015 under the programme stands at U.S.$600.0 million.
The Group has further expanded its relations with international banks within the framework of structured
financing operations over the past several years as a result of which it received offers from correspondent banks
to arrange and participate in syndicated loans. In 2010, Halkbank obtained a U.S.$130 million and €349 million
dual-tranche one-year term loan from a syndicate of 27 international lenders. The facility was renewed in 2011
and increased to an aggregate principal amount of U.S.$145 million and €607 million, respectively, with a oneyear maturity. The facility was renewed again until July 2013 and expanded to a syndicate of 46 international
lenders with an aggregate principal amount of U.S.$207.5 million and €558 million, respectively. In June 2013,
Halkbank signed again one year syndicated loan protocol with a consortium of 41 banks from 19 countries
securing dual-tranche syndicated loan with a total amount of €562 million and U.S.$259 million. In June 2014,
Halkbank renewed its syndicated loan protocol with a consortium of 34 banks from 17 countries, securing a
dual-tranche syndicated loan with a total amount of €511.5 million and U.S.$112 million, respectively. In June
2015, Halkbank again renewed its syndicated loan protocol with a consortium of 37 financial institutions from
18 countries, securing a dual-currency syndicated loan with a total amount of €640 million and U.S.$169 million,
respectively. The facility was most recently renewed until July 2017 with an aggregate principal amount of
U.S.$175 million and €476.5 million, respectively.
In July 2012, the Bank issued its first Eurobond of U.S.$750 million aggregate amount of 4.875% notes due 19
July 2017. The offering received substantial international demand from investors in the U.S., Europe and Asia.
In February 2013, Halkbank issued its second Eurobond of U.S.$750 million aggregate amount of 3.875% note
due 5 February 2020 which was the lowest coupon for a 7-year bank issuance from Turkey. In June 2014, the
Bank issued its third Eurobond of U.S.$500 million aggregate amount of 4.750% notes due 4 June 2019. In
February 2015, the Bank issued its fourth Eurobond of U.S.$500 million aggregate amount of 4.750% notes due
11 February 2021.
Through its collaborations with multinational development agencies such as the World Bank, the European
Investment Bank (EIB), French Development Agency (AFD) and Council of Europe Development Bank (CEB),
Halkbank has accessed long-term funding commitments for use in meeting the investment and working capital
needs of its SME customers. Halkbank has entered into 24 agency financing agreements totalling approximately
€2.5 billion in the last decade. Maturities of the facilities range from 5 years to 30 years and have an average
maturity of 4.5 years.
Furthermore, through its collaborations with multinational development agencies, the International Banking
division helps Halkbank gain access to long-term funding commitments to support its lending to its SME
customers. For more information, see "—SME Banking—Long-term agency financing" above.
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Halkbank is developing relations with institutional investors interested in equity and fixed income securities. In
that context, Halkbank periodically organises meetings with domestic and international investors and analysts
and participates in international events taking place in Turkey or abroad.
Relations with credit rating agencies are also maintained as part of the Bank's international banking activities.
The Bank obtains credit rating services from different credit rating agencies with the goal of providing
information to its investors, business counterparties and customers regarding the Bank's financial condition.
As of the date of this Offering Memorandum, Halkbank had four branches in the Turkish Republic of Northern
Cyprus and one branch in Bahrain, which also acts as a representative for the Group in fostering relationships
with financial institutions in the region.
As of 29 April 2011, the Group terminated its operations at its three financial services branches in Germany
(located in the cities of Cologne, Mannheim and Dortmund) as a result of certain regulatory changes relating to
licensing in the German banking market. These branches had handled money transfers to Turkey and deposit
acceptances with third-party countries.
Halkbank has completed two acquisitions in Macedonia since 2011, and it intends to utilise its strong position in
the Macedonian market in order to continue expanding in the Balkans region. The Bank has also completed an
acquisition in Serbia; it acquired 76.76% of Serbia's Cacanska Bank as of 20 March 2015. Cacanska Banka AD
Cacak changed its name to Halkbank A.D. Beograd and as of 31 December 2015, Halkbank controlled 82.47%
of the company. The Bank's representative office in London has started its activities as of 14 April 2014. The
Bank targets opening new branches and increasing its market share in Macedonia and in Serbia, as well as new
acquisitions or opening branches in other markets such as Kosovo. Separately, the Bank also opened a
representative office in Singapore in May 2016.
Halkbank facilitates foreign trade transactions of its customers through collaborations with correspondent banks
all over the world. As Europe has begun to recover from the economic crisis, it has offered growth opportunities
to Halkbank's customers, particularly through increased exports, and, despite adverse political and economic
developments in countries such as Iraq, Russia, and Ukraine, business volumes have also improved with
Turkey's other trading partners. In response to the Eurozone economic crisis, Halkbank's customers in recent
periods are executing increasing volumes of business in markets outside of Europe. The Middle East, Asia and
Africa have in recent periods seen an increasing proportion of Turkey's foreign trade volume.
With respect to Iran, on 11 June 2012, the United States exempted Turkey from certain Iran-related sanctions,
which took effect on 28 June 2012, on the basis that Turkey had reduced its purchases of Iranian oil sufficiently
to be given a six-month exemption. On 29 November 2013, the United States extended this exemption for an
additional 180 days. On 24 November 2013, the P5+1 Countries entered into an interim agreement with Iran
entitled the "Joint Plan of Action" (the "JPOA"). Under the JPOA it was agreed that, in exchange for Iran taking
certain voluntary measures to ensure that its nuclear program is used only for peaceful purposes, the U.S. and
EU would voluntarily suspend certain sanctions for a period of six months. On 20 January 2014, the U.S. and
EU indicated that they would begin implementing the temporary relief measures provided for under the JPOA.
The JPOA and the negotiations under it which followed eventually led to the Joint Comprehensive Plan of
Action (the "JCPOA"). The JCPOA is an international agreement on the nuclear program of Iran reached in
Vienna on 14 July 2015 between Iran, the P5+1 Countries and the EU. Under this landmark nuclear deal, Iran
agreed to limit its sensitive nuclear activities through a number of factors including the elimination of its
stockpile of medium-enriched uranium, a reduction in its stockpile of low-enriched uranium by 98% and a
reduction in the number of its gas centrifuges for 13 years. To monitor and verify Iran's compliance under the
JCPOA, the International Atomic Energy Agency will have regular access to all Iranian nuclear facilities. Under
the JCPOA, in return for verifiably abiding by its commitments, Iran will receive relief from U.S., EU and
United Nations Security Council nuclear-related sanctions. On 16 January 2016 (the "Implementation Day"), it
was announced that many of the international sanctions that had been imposed on Iran were to be lifted. The
catalyst for removing the sanctions was the announcement by the United Nations nuclear watchdog that Iran had
fulfilled relevant commitments under the JCPOA. As a result, United Nations sanctions on Iran were lifted, as
were most European restrictions, including an embargo on oil imports. The U.S. withdrew its nuclear sanctions
on Iran, which included penalties on companies and banks from other countries doing business with Iran. Iran
was also granted access to certain funds which had previously been frozen in international banks. In addition, a
senior U.S. official stated that a number of individuals were to be removed from the U.S. Treasury Department's
sanctions list. It should be noted that the U.S. sanctions that were removed were mostly secondary sanctions,
which seek to prevent non-U.S. individuals and companies from trading with Iran. Substantial U.S. primary
sanctions remain in place, which limit significantly the extent to which U.S. individuals and companies can
participate in any opening up of Iran's economy. There are, however, limited exceptions to the continuing U.S.
primary sanctions (e.g., the import into the U.S. of Iranian carpets and foodstuffs is now permitted). In addition,
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the U.S. and the EU still maintain significant sanctions on Iran related to its support for terrorism and human
rights record, with a number of Iranians still remaining on the U.S. Treasury Department's sanctions list. These
measures include penalties on international businesses and banks that do business with companies controlled by
the Iranian Revolutionary Guards.
It should be noted that the Implementation Day does not mean that the previous sanctions imposed on Iran
cannot be re-implemented. An agreed dispute resolution procedure is included in the JCPOA to handle cases of
suspected noncompliance by Iran. If a violation is identified and not resolved under the procedure specified in
the JCPOA, the matter will be referred to the UN Security Council. The UN Security Council then has 30 days
to adopt a resolution to continue the sanctions lifting. If it does not, the previous UN resolutions against Iran
will "snap back" into place automatically.
Halkbank plays an intermediary role in crude oil import transactions, and has adopted policies and procedures
designed to comply with applicable sanctions regulations.
Distribution Network
Halkbank offers its banking services through an extensive distribution network which includes branches as well
as alternative distribution channels such as ATMs, Internet and telephone banking.
Branches
As of 31 March 2016, Halkbank had a network of 951 domestic branches, which comprised the fifth largest
branch network in Turkey according to the Banks Association of Turkey. Halkbank opened 49 new branches in
2015, and will continue to open new branches where potentially profitable. This network is managed through 25
regional directorates. In addition, Halkbank has at least one branch in every province of Turkey.
Approximately 37.6% of Halkbank's branch network is located in Istanbul, Ankara and Izmir, whereas the
remaining approximately 62.4% is located outside of those three cities. Halkbank employs approximately 18.1
people on average per branch (which is in line with the sector average) and approximately 13,815 employees
worked in branches as of 31 December 2015.
Halkbank has three types of branches, all aimed at serving distinct customer groups as set forth in the table
below:
Corporate
For businesses with annual
turnover of TL 150 million or
above
6 corporate branches
Commercial
Branch
For businesses with annual turnover of
between TL 40 and TL 150 million
For businesses with annual turnover of TL
40 million or less and for individuals
37 commercial branches
901 branches
On 6 January 2015, Halkbank revised its the customer segmentation to comply with the government's definition,
and now includes business with annual turnover up to TL 40 million as SMEs.
Halkbank's international branches consist of four branches in the Turkish Republic of Northern Cyprus and one
branch in Bahrain. In addition, as of 31 March 2016 Halkbank owned 98.78% of the shares of a banking
subsidiary in Macedonia named Halk Banka A.D., Skopje and also owns 30.00% of the shares of
Demir-Halkbank (Nederland) N.V., a bank operating primarily in the Netherlands.
Alternative Distribution Networks
Halkbank also uses its alternative distribution network (such as ATMs, Internet banking, 24-hour telephone
banking, Mobile banking, kiosks, TV banking and e-commerce) to reach its customers. As of 31 December
2015, approximately 89% of all customer transactions processed by the Group were through its alternative
distribution network.
ATM Network
As of 31 December 2015, Halkbank had 3,585 ATMs (representing 7.4% of total ATMs in Turkey according to
Interbank Card Centre), compared to 3,388 ATMs as of 31 December 2014, 2,961 ATMs as of 31 December
2013, 2,554 ATMs as of 31 December 2012, 2,157 ATMs as of 31 December 2011 and 1,745 ATMs as 31
December 2010. Of these 3,585 ATMs as of 31 December 2015, 1,736 were located in branches. In addition,
Halkbank's customers can use the ATMs of other Turkish banks. Customers can withdraw and deposit cash, pay
credit card bills and purchase mutual funds and Turkish Government bonds and treasury bills using Halkbank's
ATMs. As of 31 March 2016, Halkbank had 3,618 ATMs nationwide in comparison to 3,440 ATMs as of 31
March 2015.
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POS Network
As of 31 December 2015, the Group had approximately 1.8 million credit card customers (with approximately
60,000 new cards issued during 2015), 11.66 million debit cards (with 1.5 million new cards issued during 2015)
and 281,877 POS terminals.
Other Alternative Distribution Channels
Apart from its branch, ATM and POS networks, Halkbank utilises alternative distribution channels such as:
Internet
Call Centre
•
•
•
•
•
•
•
•
Mobile
•
SMS
•
TV Banking
e-commerce
•
•
•
•
•
Available to retail, SME, commercial and corporate customers
Integrated customer relationship management (CRM) and campaign management
applications
Single customer view
Banking products/transactions offered through Halkbank's internet banking application
Account and credit card servicing, bill payment, investment brokerage and related services
First banking call centre in Turkey
More than 400 banking transactions can be executed through the call centre
Customers can transfer to specialised lines designed specifically for certain segments,
including an SME line designed to address the special needs of SME customers
The Bank's mobile banking platform can be accessed from internet browsers or mobile
applications developed for Apple® users; the mobile platform provides customers with
banking services and a range of information such as ATM/branch addresses, promotion
details, and exchange rates
Information regarding bank statements, values of funds, repo rates and exchange rates are
delivered to customers by SMS; also information about cash flows or financial situation are
sent to customers on their demand by SMS
Campaigns for new products and services are also delivered
Halkbank is one of the two banks which initially launched TV banking in Turkey
Offered through the digital satellite network, Digiturk, which has over 3 million subscribers
Eight different functions offered through Halkbank's TV banking platform
Halkbank's virtual POS system offers solutions for e-Commerce firms for online credit card
processing needs; as of 31 December 2015, Halkbank had 67,500 virtual POS
Halkbank's customers actively use internet banking and Halkbank's call centre. Approximately 1 million
customers utilise internet banking to execute approximately 12.3 million transactions per month, while
approximately 547,000 customers utilise Halkbank's call centre to execute approximately 4 million transactions
per month.
Halkbank encourages its customers to use its alternative distribution channels for their banking needs and aims
to increase transaction volumes through its alternative distribution channels due to the significantly lower costs
per transaction associated with these channels (compared to branch-facilitated transactions).
Marketing and Sales
Halkbank's management believes that its future growth will, in part, depend on the effective implementation of
its marketing and sales strategies. The primary objective of Halkbank's marketing and sales strategies is to
create a loyal customer base and to offer them a variety of products that will contribute to the Group's long-term
profitability. Halkbank has three main marketing departments, which are organised under three different
assistant general managers: the Small Business-SME Marketing Department, the Corporate-Commercial
Marketing Department, and Retail Products Marketing Department.
The Small Business-SME Marketing Department focuses on sales coordination, product management and
performance management for SME customers. Among other things, the department (i) establishes and monitors
sales, marketing and efficiency strategies, conducts follow-up on marketing projects targeted to specific sectors
and conducts branch, regional office and customer visits; (ii) develops and improves new products for targeted
sectors and sector projects, organises campaigns to increase the use of existing products, analyses competition
and conducts market and customer research; and (iii) establishes and monitors targets for a variety of projects,
evaluates performance by branch, region and regional manager and provides reporting and operational support
services.
The Corporate-Commercial Marketing Department focuses on Halkbank's existing and potential corporate and
commercial customers and provides project assessment and financial analysis services to corporate and
commercial customers. Marketing and sales activities include a variety of banking services to the Group's
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corporate and commercial customers, including product management, cash management, performance
management and customer relationship monitoring. Product management activities include the development of
new products, the monitoring of productivity, the planning of new projects, as well as coordination and
structuring of products and pricing. Performance management activities include performance evaluation and
monitoring, the planning and the establishment of targets and strategy management to improve efficiency.
Customer relations activities include visits to companies, portfolio management, the monitoring of efficiency,
reporting and monitoring of activities. The project evaluation and marketing function also assists in monitoring
Halkbank's internal rating models used in granting loans to the Group's SME, commercial and corporate
customers. For more information on these internal rating models, see "Risk Management".
The Retail Products Marketing Department focuses on meeting the needs of existing and potential retail
customers, cross-selling activities and improving the retail product range. The Retail Products Marketing
Department's activities include product management, sales management, data monitoring and insurance services.
Product management activities include improving existing products and services, launching new products and
services and conducting advertising activities. Sales management activities include determining retail loan
targets on a regional basis, monitoring and reporting on interest rates and fees and commissions of competitors,
providing information to branches on retail products, pricing retail loans and responding to customers' needs and
complaints. Data monitoring activities include analysing customer information according to demographic
characteristics and financial behaviours and developing new strategies accordingly. Insurance services activities
include improving the sales strategies of insurance products, arranging insurance policies for the Bank's
property and reporting insurance figures on a regional and branch basis.
Competition
Although the banking industry in Turkey is highly competitive, Halkbank's management believes that Halkbank
is well-positioned to compete in this environment due to its extensive distribution network, large customer base
and strengths in SME as well as retail and corporate and commercial banking. The banking sector in Turkey has
gradually consolidated, which has resulted in a smaller, but more focused, competitive environment. As of 31
March 2016, there were 47 banks (excluding the Central Bank and six participation banks which principally
engage in activities in accordance with Islamic principles) operating in Turkey compared to 82 in 1999. The
decline in the number of banks was principally due to the significant consolidation in the Turkish banking
industry in the early to mid-2000s, the takeovers of many failed banks by the SDIF and the stricter requirements
set by the BRSA on capital adequacy, provisioning, maximum single-counterparty exposure, accounting,
information disclosure and foreign exchange positions.
The following table ranks the top ten deposit-taking banks in Turkey, according to market share in assets, assets
and total shareholders' equity as of 31 December 2015:
BRSA Unconsolidated
Market share
in assets
Assets
Shareholders'
equity
(TL millions, except percentages)
Türkiye Cumhuriyeti Ziraat Bankası A.Ş. ....................................
12.8%
302,848
31,546
Türkiye İş Bankası A.Ş. ................................................................
11.7%
275,717
32,035
Türkiye Garanti Bankası A.Ş ........................................................
10.8%
254,342
30,981
Akbank T.A.Ş. ..............................................................................
10.0%
234,809
26,689
Yapı ve Kredi Bankası A.Ş. ..........................................................
9.3%
220,369
23,084
Türkiye Halk Bankası A.Ş. ........................................................
8.0%
187,729
19,424
Türkiye Vakıflar Bankası T.A.O...................................................
7.8%
182,947
16,767
Finans Bank A.Ş. ..........................................................................
3.6%
85,727
9,023
Denizbank A.Ş. .............................................................................
3.6%
84,220
8,269
Türk Ekonomi Bankası A.Ş. .........................................................
3.1%
71,960
6,962
Source: BRSA, Banks Association of Turkey
*Public banks based on BRSA classifications.
As indicated in the above table, the top five banks in Turkey accounted for approximately 54.6% of total assets
in Turkey as of 31 December 2015. Halkbank views its main competitors as the other six largest Turkish banks,
as these banks typically compete for similar retail, SME, commercial and corporate customers.
105
Subsidiaries and Affiliated Companies
Halkbank has an affiliate portfolio comprising 23 companies, through which it offers, among other things,
insurance, brokerage, financial and trade services. Through its affiliate portfolio, Halkbank aims to create a
well-coordinated financial services group that can increase cross-selling opportunities and product diversity and
maximise the value of the Group's services in Turkey and abroad.
The following table sets out Halkbank's primary subsidiaries and affiliates, Halkbank's effective share
ownership in each of these primary subsidiaries and affiliates and the entity's total assets, shareholders' equity,
total revenues and net income as of 31 December 2015:
Business description
Halkbank
ownership
Total
assets
Shareholders'
equity
Net
income
(TL millions, except percentages)
Halk Leasing ........................................................
Financial Leasing
Halk Investment Securities ..................................
Halk REIT* ..........................................................
Halk Banka A.D., Skopje .....................................
Halk Bank Beograd
Halk Factoring .....................................................
Halk Life and Pension Insurance .........................
Halk Insurance .....................................................
Halk Portfolio Management .................................
Bileşim Alternative Distribution Channels ..........
KOBI Venture Capital Investment Trust..............
Demir-Halkbank (Nederland) N.V .......................
100.00%
2,395.2
304.3
7.0
Capital
Markets
Brokerage Operations
99.96%
175.9
100.4
10.9
Real Estate Investment
Trust
Banking
Banking
Factoring
Life Insurance
Elementary Insurance
Portfolio Management
Alternative D.C.
Venture capital
investment trust Bank
Banking
79.03%
974.7
878.9
58.4
98.78%
82.47%
97.50%
100.00%
89.18%
75.00%
100.00%
1,491.2
815.9
493.9
679.7
827.7
14.3
32.0
216.5
149.7
57.4
322.9
114.6
13.1
20.2
19.2
(3.3)
8.6
109.8
(25.0)
4.5
1.5
31.47%
47.4
46.9
0.7
30.00%
5,987.2
745.6
34.5
________________________________________
* As of 31 March 2016, Halkbank A.Ş. has a share of 79.1% of Halk REIT's capital. The share of 7.1% of total capital is public shares
traded at BIST.
The Bank's consolidated subsidiaries and affiliates total assets are TL 13,946 million and make up 7.3% of
assets of our Bank's consolidated balance sheet. Also, the Bank's consolidated subsidiaries and affiliates total
equity is TL 2,974 million and has a share of 15.5% of equity in our Bank's consolidated balance sheet.
Halkbank conducts its operations both domestically and internationally, through its branches, subsidiaries and
affiliated companies. Set forth below are descriptions of Halkbank's principal subsidiaries and affiliates (with
ownership percentages expressed in this section reflecting ownership by members of the Group).
Halk Finansal Kiralama (Halk Leasing)
Halk Leasing was established in 1991 to provide financial leasing products and services in Turkey and other
countries. As of 31 December 2015, Halkbank controlled 100.00% of the company.
As of 31 December 2015 the company had TL 2.3 billion leasing receivables. In 2015, the company maintained
its growth strategy in a highly competitive environment, and managed to increase its business volume while
enhancing profitability. Halkbank's management views Halk Leasing as one of Halkbank's core subsidiaries,
which helps to diversify its product base and provides cross selling opportunities.
Halk Yatırım Menkul Değerler A.Ş. (Halk Investment Securities)
Halk Investment Securities was established in 1997 as a brokerage house. As of 31 December 2015, Halkbank
controlled 99.96% of the company. Halk Investment Securities offers the following services and products:
Trading Brokerage, Portfolio Management, Investment Consultancy, Public Listing Intermediary, Margin
Trading, Short Selling, Securities Lending, Trading Brokerage for Derivative Financial Instruments and
Intermediary for Leveraged Trading.
Halk Investment Securities operates through every Halkbank branch and 9 company branches. Customers
interact directly with dealers at trading platforms and dealers place orders in the BIST through a Halk
Investment system.
106
According to the decision of CMB's meeting numbered 28, dated 15 October 2015 and III-37.1 of Investment
Services and on the activities of the Ancillary Services Communiqué on Principles and III-39.1 of Investment
Schemes Establishment and Operation Principles of Communication, Halk Invest is approved as a "Broadly
authorised intermediary institution" by the CMB pursuant to the certificate dated 11 November 2015 (no.G015(269)).
Due to the cancellation of "Exchange Outside Brokerage Certificate of Authority" dated 18 May 1998, issued to
the Bank in accordance with the abolished 2499 Capital Market Law by the CMB Decision published in the
Turkey Trade Registry Gazette on 9 November 2015 within the frame of operating permits renewed by the
cancellation of the Trade Registry, in accordance with III-37.1 of Investment Services and on the activities of
the Ancillary Services Communiqué on Principles and III-39.1 of Investment Schemes Establishment and
Operation Principles of Communication, the registration of the new mandate given to the Bank by the CMB was
carried out simultaneously.
Within this framework, the actual "Agency Agreement" between the Bank and Halk Investment Securities has
been cancelled and instead of the suggested agreement "The Activity of Reception and Transmission of Orders"
agreement approved by the CMB was signed on 11 November 2015.
Halk Investment Securities aims to keep growing in parallel with the developing Turkish capital markets, by
focusing on corporate finance, reinforcing its position in intermediary services, and increasing its service quality
through effective distribution and technological infrastructure. One other key goal of Halk Invest is to become a
reference point for the Halk Group in capital markets.
Halk Gayrimenkul Yatırım Ortaklığı (Halk REIT)
Halk Gayrimenkul Yatırım Ortaklığı was founded in 2010 to invest in real estate, real estate projects, capital
market instruments and related real estate-linked investments.
Halk REIT aims to become an important player in the real estate investment sector by increasing its added value
through new projects, and by accelerating the company's growth and profitability.
Halk REIT completed its public offering of shares in 2013 and is now a publicly traded company in BIST.
As of 31 March 2016, Halkbank held 79.07% of Halk REIT's total capital.
Halk Banka A.D., Skopje
Halk Banka A.D., Skopje was established on 15 March 1993 as a joint stock company. Halkbank acquired a
majority of the shares of Izvozna I Kreditna Bank A.D. Skopje, domiciled in Macedonia, from Demir Halkbank
(Nederland) N.V. as of 8 April 2011. Halkbank changed the trade name of the acquired bank to "Halk Banka
A.D., Skopje" as of 14 July 2011. As of 31 March 2016, Halkbank controlled 98.78% of the company.
Halk Banka A.D., Skopje is a full-service retail and commercial bank based in the Republic of Macedonia,
providing a variety of services including, but not limited to, deposit banking, corporate and retail lending,
foreign exchange services, domestic and foreign payment services, fixed income instrument trading, and trade
finance. Halk Banka A.D., Skopje does not operate in any jurisdiction other than Macedonia. As of 31
December 2015, Halk Banka A.D., Skopje had 34 branches, 431 employees and 1 representative office in
Belgrade, Serbia.
In October 2012, Halk Banka A.D., Skopje completed the process of acquiring the total assets, liabilities,
branches and staff of Ziraat Bank A.D., Skopje, which operated in Macedonia.
Halk Bank AD, Beograd
Cacanska Banka A.D., Cacak was established on 13 September 2005 to provide payment operations and credit
and deposit operations in the country and abroad.
In order to provide high quality banking services internationally and increase our presence in the Balkan Region,
on 27 May 2015 by payment of EUR 10.1 million Türkiye Halk Bankası, gained the ownership of 139,680
shares which comprise 76.75% of the share capital of Cacanska Banka AD after which it officially became a
majority owner of Cacanska Banka AD, Cacak. The necessary procedures for the transfer of shares have been
completed.
With the decision of its extraordinary shareholders meeting, Cacanska Banka AD Cacak changed its name to
"Halkbank A.D. Beograd (Halkbank Belgrad)" and its head office moved from Cacak to the Serbian capital city
of Belgrade, "Bulevar Milutina Milankovica no.9z". The name change has been approved by Serbian legal
authorities on 22 October 2015. As of 31 December 2015, Halkbank controlled 82.47% of the company.
107
As at 31 December 2015 the Bank was comprised of 3 branches in Belgrade, 12 branch offices located in the
towns of Jagodina, Gornji Milanovac, Cacak, Kraljevo, Uzice, Kragujevac, Krusevac, Arandelovac, Valjevo,
Sabac, Nis, Novi Sad, and 9 sub-branches in Paracin, Pozega, Topola, Ivanjica, Vrnjacka Banja, Leskovac,
Mladenovac and Cacak (2 sub-branches) and 377 employees.
The main objective of is to become a bank with significant market share and attractive position in the regions of
Central and Western Serbia. It primarily focuses on the segment of small and medium sized enterprises that
have a key role in the economic development in Serbia. It accomplishes its business targets in a responsible way,
with due regard to the development and protection of social and environmental community.
In the forthcoming period, it will respond to all challenges arising from the economic crisis, increase its market
share and upgrade individual approach to servicing SMEs and retail customers.
Halk Faktoring A.Ş. (Halk Factoring)
Halk Factoring was incorporated on 6 June 2012 to provide factoring services in relation to all financings which
are consistent with applicable law for domestic and international commercial transactions. On 27 January 2012 a
preliminary authorisation application was filed with the BRSA for the establishing of Halk Factoring A.Ş. and
on 11 April 2012, the BRSA gave preliminary authorisation for the establishment of the company. On 6 June
2012 Halk Factoring A.Ş. was officially registered with and announced by the Istanbul Trade Registry Office.
The Bank's strategy with regard to factoring is to support the "Halk" brand, and to provide customers with low
cost funding opportunities, a diverse range of factoring products, and the support of the Bank's qualified staff.
Pursuant to the operating license granted by the BRSA, the company began transaction on 10 December 2012.
The Bank intends to have one of the top five factoring businesses in Turkey.
As of 31 December 2015, Halkbank controlled 97.50% of the company.
Halk Hayat ve Emeklilik A.Ş. (Halk Life and Pension)
Halk Hayat ve Emeklilik A.Ş. is a life insurance company that was established in 1998 to provide accident, life
insurance and reinsurance products and services both in Turkey and other countries. The company has 3 agents,
which are individual entrepreneurs.
Halk Hayat ve Emeklilik A.Ş. aims to reinforce its position in the sector, and has started providing private
pension services in the second half of 2012 and now has a considerable presence in the market as of 31
December 2015.
Halk Sigorta A.Ş. (Halk Insurance)
Halk Sigorta A.Ş., which was founded in 1958, is a general insurance company offering a variety of products
including, but not limited to, vehicle, accident, fire, transportation and health insurance products. As of 31
December 2015, Halkbank controlled 89.18% of the company.
The company operates through 8 regional directorates (except the Head Office), 668 agents. In addition, all
Halkbank branches act as agencies for Halk Insurance.
Halk Portföy Yönetimi A.Ş. (Halk Portfolio Management)
Halk Portföy Yönetimi A.Ş. was founded in 2011 for the purpose of managing portfolios consisting of capital
market instruments as a proxy by concluding portfolio management contracts with customers and performing
investment consultancy and capital market activities.
Bileşim Alternatif Dağıtım Kanalları ve Ödeme Sistemleri A.Ş. (Bileşim Alternative Distribution Channels and
Payment Systems)
Bileşim A.Ş. was established on 27 March 1998 with the purpose of providing credit related banking products,
cards and other electronic payment systems, call centres, online banking, ATM and other electronic banking
products, providing new services emerging with the developments in technology and risk management services
related to banking products. Pursuant to the Turkish Competition Authority's approval for the share transfer
transaction, Halkbank's acquisition of Ziraat Group's 76.00% equity stake in the Bank's affiliate Bileşim A.Ş.
was finalised on 22 July 2013 and the company became a wholly-owned subsidiary of the Bank. As of 31
December 2015 Halkbank owned 100.00% of Bileşim.
108
KOBİ Girişim Sermayesi Yatırım Ortaklığı A.Ş. (Venture Capital Investment Trust)
The company was established in 1999 with the purpose of providing the necessary capital resources and
strategic support for SMEs with high growth potential. In 2012, the company expanded its purpose, by a
decision of shareholders, to include portfolio management as well as to establish and manage a "business
angels" network which would gather angel investors with the purpose of financing the capital needs of seed-toventure stage companies and create an environment for matching financing with such companies.
The company continues to focus on innovative projects by entrepreneurs that are active in new markets with
high growth potential, or in new technologies, products, production techniques, or services.
The company has adopted the following steps to support entrepreneurship from the very initial stage:
•
•
•
to invest in innovative ideas from entrepreneurs with a vision, where their ideas offer high growth
potential with new markets, new technology or products and designs with new production methods;
to provide financial and managerial contribution to SMEs facing lack of resources and/or lack of
capacity even though they have an advantage over their competitors in terms of production and/or
services; and
to form the necessary infrastructure necessary for the development of venture capital and business
angels models in Turkey and for increasing public awareness.
Demir-Halkbank (Nederland) N.V.
Rotterdam-headquartered Demir-Halkbank (Nederland) N.V. ("Demir-Halkbank") was established in 1992 as
a Turkish-owned commercial bank under the laws of the Netherlands.
The bank conducts its international banking activities with 128 employees through locations in the Netherlands
(Rotterdam, Head Office), Germany (Düsseldorf Central Branch), branches in Belgium (Brussels Central
Branch, Antwerp, Charleroi, Liege), and a representative office in Istanbul. As of 31 December 2015, Halkbank
controlled 30.00% of Demir Halkbank. The remaining 70.00% of the company's shareholding is held by HCBG
Holding BV, which belongs to the Cıngıllıoğlu Group.
Starting its operations in 1992 as a small-scale bank with equity of EUR 8.1 million, DHB Bank reached the
status of a fully-fledged bank offering commercial and retail banking products with equity of EUR 236.2 million
and a EUR 1.9 billion balance sheet size as of 31 December 2015.
Thanks also to its wide retail deposit base collected in the three countries of operation and under the Dutch
Guarantee Scheme, the bank offers, aside from its international and Turkey credit programs, financial support to
Turkish companies which have investments and operations outside Turkey, primarily located in the European
Economic Area countries.
Cancellation of proposed sale of insurance affiliates
Halkbank intended to sell 90% (or up to 100% if offered) of its interest in Halk Hayat ve Emeklilik A.Ş. and its
interest in Halk Sigorta A.Ş., comprised of its 89.18% holding as well as 4.31% held by the subsidiary Halk
Yatırım Menkul Değerler. However, the authorisation for the sale of such shares was cancelled by the
Privatization Administration at its discretion and accordingly in September 2015 the Bank announced that the
tender process regarding the sale of shares in Halk Sigorta A.Ş. and Halk Hayat ve Emeklilik A.Ş. was cancelled.
Cancellation of authorisation to establish an Islamic participation bank
On 23 December 2014 the Bank announced that its Board of Directors had approved a TL 1 billion capital
increase to fund the creation of an Islamic participation banking unit. On 19 January 2015 the Bank announced
that it had received regulatory approval from the BRSA to establish such an Islamic participation banking unit.
In October 2015, however, the Bank announced that, while the project remained under consideration for the
future, it had applied to the BRSA to cancel the establishment authorisation. Accordingly, the BRSA cancelled
the authorisation in October 2015 and the TL 1 billion capital increase which was intended by the Bank to be
used as initial capital for the Islamic participation bank was cancelled as well.
Properties
As of 31 December 2015, the total net book value of the Group's fixed assets (comprising land, land
improvements, buildings and computer hardware among other fixed assets) represented TL 3,144 million (1.6%
of the Group's total assets). The Group maintains comprehensive insurance coverage on all properties that it
owns.
109
The Group currently owns 404 properties and leases 788 properties for use in its operations. As 31 December
2015, 326 branches were owned while 577 were leased for an average period of 8.5 years.
Information Technology
IT Governance
Halkbank's IT governance, risk and compliance policies include:
•
IT Governance: IT strategies and tactical plans have been defined in accordance with Halkbank's
business strategies.
•
IT Risk Management: Halkbank has established an IT risk management framework according to
the RiskIT Framework published by Information Systems Audit and Control Association (ISACA).
•
IT Compliance Management: Halkbank tracks and manages its IT compliance in accordance with
Control Objectives for Information and related Technology (COBIT) and local regulations.
IT Infrastructure
Halkbank's IT service infrastructure is broadly distributed across Turkey, with the architecture based on a
central, fully online system. The Data Centre serves all banking applications. Core banking applications are
mostly served by IBM mainframe systems consisting of two main processing units. The master data is stored
centrally and the banking information of customers is kept on a secure database. Halkbank's alternative
distribution channels, intranet and internet applications run on Intel Systems and SQL/Server databases. All of
Halkbank's branches are connected through an online system, with redundant infrastructure. Infrastructure for
development, testing, production, training, data warehouse and system programming environments are available
with sufficient capacity. The entire core banking system relies on a single data model in order to maintain a
single and unique entry system for specific data (in order to avoid duplicate entries and data synchronisation
problems and to maintain data integrity).
Since 2005, Halkbank has made significant investments in software development platforms, network
infrastructure and added new functions to reach customers more effectively. Halkbank plans to make additional
investments in an effort to improve Halkbank's IT infrastructure in areas such as business intelligence and
software governance and information management.
Software Environment
Banking System is a modular in-house developed system which is sufficiently flexible for Halkbank to easily
integrate new services and procedures. The system is integrated for all distribution channels and external
software, and provides continuous online services, allows users to monitor all transactions via universal
customer numbers and produces reports on internal metrics, such as employee performance, through its
uninterrupted and secure structure.
Halkbank's computer systems are fully automated and, with the exception of some non-core systems, are fully
centralised and integrated through the Banking Application. Management's ability to make informed decisions is
facilitated by data mining and campaign management modules, which enable managers to readily generate
customised reports. Halkbank has also implemented an integrated desktop platform to allow employees single
sign-on access to all computer applications, permitting more flexible usage and improved data sharing between
applications.
Halkbank has also constructed an Operational Excellence Centre, which is expected centralise certain functions
of individual banking branches and thereby reduce their operational load. Through the use of a business process
management system, this centre is expected to integrate process flows and improve operational efficiency.
Disaster Recovery Systems
Halkbank maintains a synchronised back-up version of all of its critical systems.
Halkbank's extended remote copy service is co-located in an outsourced site in İzmir. According to the current
structure, in the event of a system-wide failure, the site in İzmir can take over all major bank transactions in a
matter of hours and provide a sufficient level of CPU capacity. Halkbank tests the integrity of this system at
least once a year and, as of date of this Offering Memorandum, no significant problems have been observed
during these trial runs.
Halkbank's Data Centre systems have not encountered any system-wide failures that may affect its main
banking activities. The systems are restarted for maintenance once every three months during the approved
maintenance windows.
110
Halkbank's IT network infrastructure is mostly based on network infrastructure developed by Turk Telekom.
However, other operators are also used for operator redundancy. Halkbank seeks to minimise the impact of
potential failures on the network via redundant network designs.
Outsourcing
Halkbank determines which services will be outsourced by conducting a feasibility study and comparing the
cost and duration of developing the service in-house versus outsourcing the service. Some of the services
Halkbank currently outsources are as follows:
•
Disaster recovery centre services to IBM,
•
Credit Card Management system, including ATM and POS services,
•
Maintenance of IT hardware,
•
Software development in need of urgent implementation and specialty knowledge.
Budget
Halkbank continues to invest in its information technology infrastructure to maintain and develop its systems.
Halkbank's direct information technology expenses were TL 76.4 million, TL 65.2 million and TL 58.7 million
for the years ended on 31 December 2015, 2014 and 2013, respectively.
Insurance
The Group's fixed and liquid assets are covered by general insurance arrangements covering normal risks, the
majority of which are provided by Halkbank's subsidiaries (Halk Sigorta A.Ş. and Halk Hayat ve Emeklilik
A.Ş.). Loans which are secured by real estate are also required by the Group to be insured against normal risks,
such as fire, together with value protection. All retail loan customers are required to have life insurance.
Halkbank does not maintain any credit risk insurance in relation to defaults by its customers as this is generally
not available in Turkey.
Employees
As of 31 December 2015, Halkbank had 17,104 employees, compared to 17,314 employees as of 31 December
2014 and 14,798 as of 31 December 2013. As of 31 December 2015, 80.8% of employees were employed in
Halkbank's branches and 19.2% were employed in Halkbank's head office and regional offices.
The following table sets out the number of employees of Halkbank, divided into those working in the head and
regional offices and those working in the branches, calculated using BRSA standards as of the dates indicated:
As of 31
March
2016
Employees at Head and Regional Offices ..............................................
Employees at Branches ..........................................................................
Total.......................................................................................................
3,236
13,922
17,158
2015
As of 31 December
2014
3,289
13,815
17,104
2,520
14,794
17,314
2013
2,237
12,561
14,798
As of 31 December 2015, the average age of Halkbank's employees was approximately 34 years, while the
average number of years with Halkbank by its professional staff was 9.8 years.
Halkbank places emphasis on ensuring that its employees have a sufficient level of education and experience for
operational efficiency and effectiveness, and has a policy aimed at changing employee compensation to a
broader performance based approach as well as trying to replace higher cost retiring employees with lower cost
new staff. As of 31 December 2015, 82.7% of the total employees had a bachelor's degree (compared to 82.2%
in 2014), 6.6% of the total employees held masters or doctorate degrees (compared to 6.6% in 2014) and 17.3%
of the staff had a secondary school education as their highest level of education.
Halkbank places an emphasis on training and career development. All employees have specified training
sessions and duration quotas in line with their current positions and functions. All of these training programmes
are organised by the related department and are mandatory for employees at all levels. Halkbank also provides
online training applications to its employees under the name "Halk Academy".
Wage Determination
Halkbank classifies its personnel into four categories: administrative, support, career and specialised. Within
each group, employees are differentiated into levels to determine their titles, wages, fringe benefits and bonus
schemes.
111
The Board determines minimum and maximum wages, with individual compensation based on qualifications
(such as education, language ability and seniority) and performance. As is customary in large Turkish
companies, employee compensation includes an extra payment equal to one month's salary four times a year, in
January, April, July and October.
Managing director and director level employee packages have two components, salary and compensation, as
determined by calculations contained in Halkbank's Board-approved salary determination manual. Maximum
compensation is determined by the Board and individual compensation is determined by Halkbank's general
manager. There are no performance based award mechanisms for the Managing Director and director level
managers in the headquarters or in regional offices, but other personnel are subject to compensation adjustment
based on performance ratings.
Branch managers' performance is monitored and their branches' relative performance is compared on a variety
of metrics (such as financial performance) to: (i) their own past performance; (ii) the performance of other
Halkbank branches, regionally and from other regions; (iii) budget realisation rates; and (iv) branches of other
banks in the region. Each branch manager receives a performance score based on the branch's performance, and
branch managers who demonstrate consistently high scores may move from a lower rated branch to a higher
rated branch. In addition, branch managers are awarded benefits such as higher base salaries, bonuses and nonmonetary benefits such as company cars as a result of good performance.
Pensions and Termination Benefits
In accordance with existing legislation in Turkey, the Bank and its subsidiaries in Turkey are required to make
lump-sum severance payments to each employee who has completed one year of service with the Group and
whose employment is terminated due to retirement or for reasons other than resignation, end of contract term or
misconduct.
Such severance payments are unfunded since there is no funding requirement in Turkey. The cost of providing
such severance payments is determined by independent actuaries annually using the projected unit credit method.
All actuarial gains and losses are recognised in profit or loss.
In calculating the related liability to be recorded in the financial statements for these severance payments, the
Group uses independent actuaries and also makes assumptions and estimates relating to, among other things, the
discount rate to be used, expected turnover of employees, and future change in salaries and compensation. These
assumptions and estimates are reviewed regularly. The carrying value of employee severance payment
provisions was TL 423 million as of 31 March 2016.
In addition to the employee severance payments, the Group maintains privately administrated defined benefit
pension plans, Türkiye Halk Bankası Emekli Sandığı Vakfı (formerly Pamukbank T.A.Ş. Memur ve
Müstahdemleri Emekli ve Yardım Sandığı Vakfı) and T.C. Ziraat Bankası and Türkiye Halk Bankası A.Ş.
Mensupları Emekli ve Yardım Sandığı Vakfı. The members of the plan receive pension benefits on retirement,
dependent on several factors such as age, years of service and compensation. The Group recognised the liability
in the balance sheet in respect to these plans equal to the present value of the defined benefit obligation at the
balance sheet less the fair value of the assets. The defined benefit obligation is calculated annually by
independent actuaries. The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using the expected interest rates for Turkish Lira. The Group recognises actuarial
gains or losses in profit or loss.
In accordance with existing legislation in Turkey, pension funds are required to be transferred directly to the
social security fund (the "SSF"). Although the timeline for this was originally set as three years starting from
8 May 2008, the Council of Ministers decided to extend the deadline for such transfer to 8 May 2015, with a
change in the Official Gazette No. 28987 dated 30 April 2014, and afterwards by an amendment to Social
Security and General Health Care Law (Law No.5510) made in April 2015, all of the deadlines were abolished
and the Council of Ministers has been authorised to determine the timing for such transfer. Certain provisions of
the legislation requiring transfer were challenged before the Constitutional Court and, while a previous version
of this law was found to be unconstitutional by the Constitutional Court in 2007, on 30 March 2011, the
Constitutional Court ruled that this law was constitutional and rejected the claim that it should be cancelled.
Although no official work has commenced to implement the transfer of the Group's pension funds to the SSF,
the Group engaged Hewitt Associates and Doç. Dr. Güçkan Yapar and E.B. Burak Uygun, Independent
Actuaries, to conduct actuarial studies, which are reported no deficits based upon the assumptions stated in the
applicable law. These assumptions are sensitive to elements such as the number of employees in the current
workforce, the workforce turnover rate, the aging rate of the workforce and the other parameters stipulated in
the relevant legislation. Therefore, it is possible that the actuarial studies may turn out to be incorrect if any of
112
the assumptions on which they are based differ from the calculations made at the time of the actual transfer. If
there is a shortfall at the time of the transfer of the pension funds (as determined by the SSF), then the Group
would be liable to make the supplemental payments described above for fifteen years.
The excess benefits, which are not subject to the transfer to the SSF, are accounted for in the Group's BRSA
Financial Statements. The obligation in respect of this retained portion of the benefit plan is calculated by
estimating the amount of future benefit that employees have earned in return for their service in the current and
prior periods, which benefit is discounted to determine its present value by using the projected unit credit
method and any unrecognised past service costs and the fair value of any plan assets are reduced.
The pension and medical benefits transferable to the SSF and the excess benefits are calculated annually by an
independent actuary registered with the Undersecretariat of Treasury. As per the latest independent actuary
reports dated 31 December 2015, the Group has no excess obligation that needed to be provided for as of
31 December 2015.
Legal Proceedings
Except as otherwise set forth herein, the Group is subject to various ongoing legal proceedings but Halkbank's
management does not believe that such proceedings, individually or taken together, are likely to have a material
adverse effect on the business of the Group or on the results of its operations or financial condition.
Anti-Money Laundering Policies
Halkbank is committed to the highest standards of AML and counter-terrorist financing ("CTF") compliance
and requires management and employees to adhere to these standards to prevent use of Halkbank's products and
services for money laundering or terrorist financing purposes.
Halkbank, its subsidiaries and foreign branches have adopted policies and procedures designed to comply with
applicable AML, CTF and KYC laws in Turkey, particularly Law No. 5549 on Prevention of Laundering
Proceeds of Crime published in the Official Gazette dated 18 October 2006, together with the recommendations
of FAFT. Minimum standards and duties include customer identification, record keeping, suspicious activity
reporting, employee training, an audit function and designation of a compliance officer. Suspicious transactions
must be reported to the Turkish Financial Intelligence Unit, Financial Crimes Investigation Board.
To ensure that Halkbank is not unknowingly used as an intermediary in money laundering and other similar
criminal activities, an AML programme has been implemented and must be followed by all employees.
Halkbank has established a Compliance Department and designated a Compliance Officer in order to ensure the
compliance to applicable AML, CTF and KYC laws, rules and regulations. Halkbank's branches and
subsidiaries, regardless of their geographic location, must adhere to Halkbank's policies provided that such
policies do not conflict with the applicable AML, CTF or KYC legislation of their host country. The Group has
not experienced any significant cases of fraud in the past 10 years.
113
RISK MANAGEMENT
General
Assessment and control of risk is critical to the Group's success. The principal risks inherent in the Group's
business are credit risk, liquidity risk, market risk (including interest rate risk and foreign exchange rate risk)
and operational risk.
Risk Management Organisation
The Group's current system of risk management, including its operational risk framework, operational risk
policy, application principles and emergency action plans, has been in place since January 2004 and is fully
integrated into the Group's internal systems for planning, management and control. The Group continues to
maintain and develop its risk management system, which has been established both to meet the Group's ongoing
internal risk management needs and to comply with legal and regulatory requirements and other applicable
standards, including BRSA regulations and the Basel II/ Basel III criteria.
The Board is ultimately responsible for developing and monitoring the Group's risk management, internal
control and internal audit policies and strategies. The Board approves the Group's general principles of risk
control and risk management, its limits for all relevant risks and the procedures that the Group applies in
controlling and managing its risks.
In line with legal and regulatory requirements, the Board has established an Audit Committee whose mandate is
to ensure that the Board's monitoring functions are duly carried out. The Audit Committee is composed of two
non-executive members of the Board. The Audit Committee reports to the Board on the results of the Group's
risk management, internal control and internal audit activities, as well as its views on any other risk-related
issues that it deems important. See "Management—Board Committees". The Group has also established a Risk
Management department, an Internal Control department and a Board of Inspectors, all of which report to the
Board through the Audit Committee.
Risk Management department
The Risk Management department is in charge of identifying, measuring, monitoring and reporting the Group's
credit, liquidity, market and operational risks, and reports to the BRSA on a regular basis in compliance with the
regulation published by BRSA. The Risk Management department is also carrying out necessary stress tests on a
monthly basis. The stress tests apply various sensitivity analyses on interest rates and foreign exchange
parameters, as well as on certain credit parameters such as probability of default (PD), loss given default (LGD),
and exposure at default (ED). The threshold for the stress tests is the 12% capital adequacy ratio, which is the
ratio that is recommended by the BRSA as well as the ratio that is required by the BRSA as a condition for
banks to open new branches and engage in off-shore banking. However, for the banks that accept such
restrictions, the minimum capital adequacy ratio set by BRSA is 8% which is compatible with Basel standards.
Also there are capital buffers that have to be held in addition to 8% for any dividend pay-outs. The Bank has
met the minimum CAR of 8% and the additional capital buffers which are the countercyclical capital buffer, the
capital conservation buffer and the systemically important bank buffer in respect of all stress tests conducted to
date. The mission of the Risk Management department is to ensure, together with executive management, that
risks taken by the Group align with its policies and are compatible with its profitability and credit rating
objectives.
As of 31 December 2015, the Risk Management department is comprised of a team of 12 employees trained in
statistics.
Management of Specific Risks
The Group's risk management processes distinguish among the types of risks set out below.
Credit Risk
Credit risk is the risk that counterparties may be unable to meet their obligations in accordance with the terms of
their agreements with the Group. The Group is subject to credit risk through its lending, trading, hedging and
investing activities and in cases where it acts as an intermediary on behalf of third parties. The Group's primary
credit risk exposure relates to its lending activities and is focused in Turkey where its main operations take place.
The Group manages its exposure to credit risk through involvement with highly credible banks and entities, and
by limiting the aggregate risk from any sector or geographical region. Exposure to credit risk is also managed
through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital
repayment obligations and by changing lending limits where appropriate. The Group also attempts to obtain
114
adequate collateral for loans given and other receivables. Such collateral may include suretyships, mortgages on
property, government securities, cash blockages and customer or real person checks.
The Group rates each of its loans given to its corporate and commercial customers, and rates many of its loans to
its SME customers, using the internal risk rating methodologies described below in "—Internal Risk Rating
Methodologies for Loans to Companies". The Group requires additional guarantees from its customers with high
risk ratings, or does not provide loans to such customers, or applies strategies in order to decrease the level of
risk from loans to such customers.
As prescribed in the Communiqué on Determining the Nature of Loan and Other Receivable Provisions
Allocated by the Banks and Procedures and Principles of Allocating Provisions, the credit worthiness of the
debtors of the loans and other receivables is monitored regularly. Credit limits are determined according to the
debtor's audited statement of accounts where available, or otherwise according to internal risk rating criteria
such as the salary and total indebtedness of the customer. Loan limits and guarantee factors are monitored and
updated at least once a year and also as deemed necessary and in accordance with changes in economic
conditions.
The Risk Management department monitors the Group's exposure to credit risk by generating and submitting
monthly reports on credit risk to the Board and the heads of relevant departments. Monthly reports show the
distribution by sector of performing and past-due cash and non-cash loans, the distribution of performing and
past-due retail loans by maturity, the currency distribution of loans, the rating concentrations of the corporate
and SME loan portfolios in terms of sectors and exposures, and the regional distribution of the loan portfolio.
As of 31 December 2015, the share of cash loans from the Group's top 100 cash loan customers was 21.4%, of
its total cash loans. As of 31 December 2015, the share of non-cash loans from the Group's top 100 non-cash
loan customers was 50.1% of its total non-cash loans. As of 31 December 2015, the share of cash and non-cash
loans from the Group's top 100 customers was 18.3% of its total assets (including off-balance sheet assets).
As of 31 December 2015, the general loan loss provision related to the credit risk incurred by the Bank in
accordance with the legislation on "Determining the Nature of Loans and Receivables and Principles and
Procedures on the Allocation of Loan and Receivable Provisions" was TL 1,124 million.
For a breakdown of the Group's loans and receivables by sector and geographical region, see "Selected
Statistical and Other Information— The Group's Loan Portfolio—Distribution of Loans and Receivables by
Sector" and "Selected Statistical and Other Information— The Group's Loan Portfolio—Distribution of Loans
and Receivables by Geographical Region". For a breakdown of the Group's loans and receivables by credit
quality and for an ageing analysis of past due but not impaired financial assets, see "Selected Statistical and
Other Information— The Group's Loan Portfolio—Portfolio Supervision and Non-Performing Loans".
Derivatives
The Group maintains strict control limits on net open derivative positions (i.e., the difference between purchase
and sale contracts), by both amount and term. At any one time, the amount subject to credit risk is limited to the
current fair value of instruments that are favourable to the Group (i.e., assets where their fair value is positive),
which in relation to derivatives is only a small fraction of the contract, or notional values used to express the
volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits
with customers, together with potential exposures from market movements. Collateral or other security is not
usually obtained for credit risk exposures on these instruments, except where the Group requires margin
deposits from counterparties.
Credit-related commitments
The primary purpose of these instruments is to ensure that funds are available to a customer as required.
Guarantees and standby letters of credit (which represent irrevocable assurances that the Group will make
payments in the event that a customer cannot meet its obligations to third parties) carry the same credit risk as
loans. Documentary and commercial letters of credit (which are written undertakings by the Group on behalf of
a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms
and conditions) are collateralised by the underlying shipments of goods to which they relate and therefore carry
less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to
extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to
extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments.
However, the likely amount of loss is less than the total unused commitments, as most commitments to extend
credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to
maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk
than shorter-term commitments.
115
Liquidity Risk
Liquidity risk is the current or prospective risk to earnings and capital arising from an institution's inability to
meet its liabilities when they come due without incurring unacceptable costs. It reflects the potential mismatch
of payment obligations to incoming payments, taking into account unexpected delays in repayments (term
liquidity risk) or unexpectedly high payment outflows (withdrawal/call risk). Liquidity risk involves the risk of
unexpected mismatches in maturities of assets and liabilities and the risk of being unable to liquidate a position
in a timely manner on reasonable terms.
The Group uses domestic and foreign markets for its liquidity needs. Halkbank's management believes the
Group has relatively low external capital requirements, which historically it has met by borrowing on local
markets. However, the Group is seeking to expand its wholesale borrowing, particularly to meet its need for
longer-term liabilities due to the asset-liability mismatch common to many Turkish banks. Potential cash
sources include syndicated loans, money market borrowings from domestic banks and repurchase transactions in
international markets, as well as through the issuance of debt instruments into international debt capital markets.
Historically, the Group's primary source of funding has been its deposits from customers. As of 31 December
2015, 2014 and 2013, deposits from customers represented 62.7%, 61.1% and 70.5%, respectively, of the
Group's total liabilities. In July 2012, the Bank issued U.S.$750 million aggregate principal amount of 4.875%
notes due 19 July 2017, in February 2013 it issued U.S.$750 million aggregate principal amount of 3.875%
notes due 5 February 2020, in June 2014 it issued U.S.$500 million aggregate principal amount of 4.750% notes
due 4 June 2019 and in February 2015 it issued U.S.$500 million aggregate principal amount of 4.750% notes
due 11 February 2021.
The Group's investment securities portfolio consists mainly of held-to-maturity investments. As of 31 December
2015 40.4% of the Group's investment securities portfolio was composed of available-for-sale investment
securities, whereas the remaining 59.3% was composed of held-to-maturity investment securities.
Net liquidity gap
The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is
fundamental to the management of the Group. It is unusual for banks to be completely matched, as transacted
business is often of uncertain term and of different types. Furthermore, due to the short-term maturity structure
of deposits in Turkey, maturity mismatches are a common problem for Turkish banks. An unmatched position
potentially enhances profitability, but also increases the risk of losses. Halkbank's management believes that
liquidity requirements to support calls under guarantees and standby letters of credit may be considerably less
than the total outstanding contractual amount of the commitments, as a commitment to extend credit does not
necessarily represent future cash requirements, as many of these commitments may expire or terminate without
being funded. See "Risk Factors—Risk Factors Relating to the Group—The Group's risk management strategies
and internal control capabilities may leave it exposed to unidentified or unanticipated risks".
The following tables set out information according to remaining maturities of the Group's assets and liabilities
as of the dates indicated:
Demand
ASSETS
Cash (cash in TL, foreign
currency cash, money
in transit, checks
purchased, precious
metals) and balances
with the Central Bank..
Up to 1
month
BRSA Consolidated as of 31 March 2016
3-12
5 years and
1-3 months
months
1-5 years
over
Undistributed
Total
6,355,650
5,017,172
8,970,972
4,216,094
210,815
272
29,095
24,800,070
Banks ...............................
Financial assets at fair
value through profit
and loss ........................
Money market
placements ...................
Financial assets
available-for-sale .........
1,621,457
297,959
89,759
17
—
462
4,957
2,014,611
5,154
86,568
34,494
52,145
75,402
115,277
3,405
372,445
—
643,595
—
—
—
—
—
643,595
—
76,807
197,632
1,349,160
3,969,831
6,466,896
119,195
12,179,521
Loans(2) ............................
Held-to-maturity
investments ..................
Other assets(3)...................
Total assets .....................
1,076,452
8,691,996
10,648,829
41,788,540
55,376,080
14,518,141
—
132,100,038
—
2,447,099
11,505,812
337,600
71,465
15,223,162
1,457,112
357,576
21,756,374
1,279,579
611,835
49,297,370
4,364,817
1,247,292
65,244,237
9,315,352
264,217
30,680,617
187
5,451,074
5,607,913
16,754,647
10,450,558
199,315,485
116
LIABILITIES
Bank deposits...................
5,118,258
11,553,877
1,533,622
821,643
—
—
—
19,027,400
Other deposits ..................
Funds provided from
other financial
institutions(4) ................
17,712,933
61,913,716
21,290,606
5,502,158
574,781
155,894
4,713
107,154,801
546
1,923,050
2,482,643
9,932,573
2,689,829
4,146,458
43,807
21,218,906
—
11,412,232
1,316,776
197,164
—
—
—
12,926,172
8,489,830
Money market balances
Bonds issued ....................
—
—
815,384
695,682
6,978,764
—
—
Sundry creditors...............
81,126
1,058,320
79,750
337,458
786,232
7
4,830
2,347,723
Other liabilities(1) .............
Total liabilities ...............
4,101,994
27,014,857
(15,509,045)
340,015
88,201,210
(72,978,048)
1,384,440
28,903,221
(7,146,847)
376,837
17,863,515
31,433,855
749,418
11,779,024
53,465,213
723,878
5,026,237
25,654,380
20,474,071
20,527,421
(14,919,508)
28,150,653
199,315,485
—
Liquidity gap ..................
(1)
Shareholders' equity is disclosed in other liabilities line under the undistributed column.
(2)
TL 1,075,183 of non-performing loans with no specific provision, is disclosed in other assets line under the undistributed column.
(3)
Other asset items which are not expected to be converted into cash in short term but required for continuity of banking operations
like tangible and intangible assets, office supply inventory, associates and subsidiaries, prepaid expenses, deferred tax assets and
receivables from NPL are disclosed in other assets under the undistributed column.
(4)
Funds provided from other financial institutions include borrowings.
Demand
ASSETS
in transit, checks
purchased, precious
Banks ...............................
and loss ........................
Money market
placements ...................
Financial assets
Loans(2) ............................
Held-to-maturity
investments ..................
Other assets(3)...................
Total assets .....................
Liabilities
Bank deposits...................
Other deposits ..................
Funds provided from
other financial
institutions(4) ................
Bonds issued ....................
Liquidity gap ..................
Up to 1
month
BRSA Consolidated as of 31 December 2015
3-12
5 years and
1-3 months
months
1-5 years
over
Undistributed
Total
6,442,160
1,756,514
4,722,218
839,928
7,400,316
633
4,763,830
—
120,582
—
269
475
51,164
20,101
23,500,539
2,617,651
9,094
18,535
97,350
162,255
48,953
2
3,318
339,507
33,101
20,773
—
—
—
—
—
53,874
—
1,461,769
138,213
7,150,008
326,186
9,465,212
589,280
39,613,982
4,055,050
54,228,091
6,309,482
14,279,908
116,932
3,762
11,535,143
126,202,732
—
2,122,150
11,824,788
765,436
56,424
13,711,535
765,234
221,789
18,276,720
1,618,752
594,599
47,342,698
4,143,116
1,492,565
64,088,357
9,612,339
182,439
30,384,914
—
5,177,201
5,372,478
16,904,877
9,847,167
191,001,490
3,328,873
17,599,960
8,427,813
56,005,036
2,409,126
27,097,314
525,038
6,591,511
—
511,874
—
7,839
—
—
14,690,850
107,813,534
37
—
—
254,480
4,487,674
25,671,024
(13,846,236)
812,985
7,823,894
47,656
1,035,717
333,183
74,486,284
(60,774,749)
2,651,138
632,063
707,800
75,059
330,120
33,902,620
(15,625,900)
11,023,415
—
858,861
317,417
930,213
20,246,455
27,096,243
5,689,030
—
5,781,652
707,465
595,299
13,285,320
50,803,037
1,966,879
—
1,444,591
155
603,501
4,022,965
26,361,949
253
—
—
8,451
19,378,118
19,386,822
(14,014,344)
22,143,737
8,455,957
8,840,560
2,398,744
26,658,108
191,001,490
—
(1)
(2)
TL 1,016,819 of non-performing loans with no specific provision is disclosed in other assets line under the undistributed column.
(3)
receivables from NPLs are disclosed in other assets under the undistributed column.
(4)
117
Demand
ASSETS
in transit, checks
purchased, precious
Up to 1
month
3-12
5 years and
1-3 months
months
1-5 years
over
Undistributed
Total
5,750,107
4,388,698
5,789,761
4,315,185
87,932
253
—
20,331,936
Banks ...............................
and loss ........................
Money market
placements ...................
Financial assets
368,394
991,408
83,812
14,542
—
376
—
1,458,532
11,170
56,904
45,667
56,384
38,836
9,685
7,334
225,980
—
4,443
297,664
—
—
—
—
302,107
—
170,799
571,281
836,440
2,641,656
4,948,558
27,113
9,195,847
Loans(2) ............................
Held-to-maturity
investments ..................
1,331,240
7,358,003
8,542,769
31,653,418
43,913,241
7,746,844
—
100,545,515
68,170
272,401
1,627,635
2,106,028
3,639,866
10,154,982
—
17,869,082
(3)
467,996
7,997,077
117,672
13,360,328
228,737
17,187,326
703,617
39,685,614
1,395,056
51,716,587
136,928
22,997,626
4,375,256
4,409,703
7,425,262
157,354,261
Bank deposits...................
5,414,668
9,289,406
2,277,003
201,468
—
—
—
17,182,545
Other deposits ..................
Funds provided from
other financial
institutions(4) ................
16,223,732
43,062,044
18,914,049
7,849,331
417,242
5,207
—
86,471,605
17,430
1,344,763
1,354,462
4,408,662
5,109,320
1,947,137
—
14,181,774
—
8,181,354
584,583
—
—
—
—
8,765,937
6,091,394
Other assets ...................
Total assets .....................
LIABILITIES
Bonds issued ....................
—
68,912
491,227
950,550
2,865,352
1,715,353
—
120,041
948,804
99,811
285,514
627,476
—
7,886
2,089,532
3,330,180
25,106,051
(17,108,974)
354,574
63,249,857
(49,889,529)
242,614
23,963,749
(6,776,423)
1,688,771
15,384,296
24,301,318
335,986
9,355,376
42,361,211
294,170
3,961,867
19,035,759
16,325,179
16,333,065
(11,923,362)
22,571,474
157,354,261
—
(1)
Other liabilities .............
Liquidity gap ..................
________________________________________
(1)
(2)
Non-performing loans (net) are presented in other assets.
(3)
(4)
Demand
Up to 1
month
3-12
5 years and
1-3 months
months
1-5 years
over
Undistributed
Total
ASSETS
in transit, checks
purchased, precious
4,549,815
3,952,981
5,433,672
5,997,924
86,804
199
—
20,021,395
253,453
1,609,825
41,900
3,597
—
—
—
1,908,775
—
68,091
26,359
38,564
44,957
5,064
2,285
185,320
—
5,894
224,790
—
—
—
—
230,684
—
499,755
339,943
901,503
3,342,465
4,727,674
16,609
9,827,949
Loans ............................
Held-to-maturity
investments ..................
1,121,733
6,224,592
6,801,200
26,938,522
37,267,229
6,178,971
—
84,532,247
—
264,778
1,663,324
3,409,886
5,259,592
8,376,018
—
18,973,598
(3)
900,205
6,825,206
116,388
12,742,304
276,622
14,807,810
519,104
37,809,100
1,021,107
47,022,154
167,451
19,455,377
2,855,437
2,874,311
5,856,314
141,536,282
Banks ...............................
and loss ........................
Money market
placements ...................
Financial assets
(2)
Other assets ...................
Total assets .....................
LIABILITIES
118
Bank deposits...................
3,585,113
5,825,580
306,452
300,159
—
—
—
10,017,304
Other deposits ..................
Funds provided from
other financial
institutions(4) ................
15,107,066
46,930,565
19,238,264
8,837,783
258,986
5,211
—
90,377,875
3,796
561,385
997,034
7,760,940
3,684,610
2,078,587
—
15,086,352
—
771,416
490,060
—
—
—
—
1,261,476
4,151,666
Bonds issued ....................
—
38,663
30,694
1,001,133
1,763,434
1,317,742
—
125,109
606,323
93,491
261,797
522,900
117
53,428
1,693,165
3,282,174
22,103,258
(15,278,052)
226,027
54,959,959
(42,217,655)
198,929
21,354,924
(6,547,114)
796,055
18,957,867
18,851,233
219,345
6,479,275
40,542,879
275,332
3,576,989
15,878,388
14,050,582
14,104,010
(11,229,679)
18,948,444
141,536,282
—
Liquidity gap ..................
(1)
(2)
Non-performing loans (net) are presented in other assets.
(3)
(4)
Market Risk
Market risk arises from the uncertainty concerning changes in market prices and rates (including interest rates
and foreign exchange rates) and their levels of volatility. Halkbank's management believes that interest rate risk
is the most important component of market risk that the Group faces.
The Group seeks to hedge market risk in accordance with the Communiqué on Measurement and Assessment of
Capital Adequacy of Banks. The Board sets the limits for the level of market risk that the Group may be
exposed to. Those limits are reviewed and revised periodically in line with market conditions and the strategies
of the Group.
The interest rate and exchange rate risks related to the financial positions taken by the Group (both on balance
sheet and off-balance sheet) are measured and monitored by the Risk Management department. In the
computation of capital adequacy, the amount subject to Value At Risk ("VAR") is calculated by using the
standard method as required by the BRSA. Beside the standard method, VAR is also calculated by using the
Group's internal model. In order to measure the performance of the internal model, retrospective tests of model
outputs are performed regularly. In addition, stress tests and scenario analyses are carried out periodically to
measure the effects of unexpected events on the Group's capital adequacy ratios. VAR is calculated with a
confidence interval of 99% and a 10 day holding period daily by two different methods-historic simulation and
parametric method-and these results are reported daily to the Group's senior management.
Daily liquidity and interest rate sensitivity analyses are also prepared. Results of monthly measurement of
market risk and weekly measurement of foreign currency risks are reported to the Group's senior management.
In addition, these data are included in weekly, monthly or quarterly legal reporting to the BRSA. In addition,
daily market risk analysis reports and weekly macroeconomic risk analysis reports are prepared and presented to
relevant personnel, including the heads of Halkbank's Treasury Management and Risk Management departments.
The tables below set out the Group's VAR (calculated using the Bank internal method as required by BRSA) as
of the dates and for the periods indicated, in each case on an unconsolidated BRSA (Bank-only) basis.
As of and for the three months ended
31 March 2016
Interest
Currency
Total
rate VAR
VAR
VAR
(TL thousands)
As of 31 March 2016 ......................................................................................................
Average...........................................................................................................................
Maximum .......................................................................................................................
Minimum ........................................................................................................................
119
82,439
73,346
91,004
61,583
2,338
2,065
3,686
1,668
81,970
73,240
90,053
61,691
As of and for the year ended
31 December 2015
Interest
Currency
Total
rate VAR
VAR
VAR
(TL thousands)
As of 31 December 2015 ................................................................................................
Average...........................................................................................................................
Maximum .......................................................................................................................
Minimum ........................................................................................................................
68,318
39,760
97,505
31,098
1,894
2,535
12,950
1,426
61,369
53,920
94,272
22,721
31 December 2014
Interest
Currency
Total
rate VAR
VAR
VAR
(TL thousands)
As of 31 December 2014 ................................................................................................
Average...........................................................................................................................
Maximum .......................................................................................................................
Minimum ........................................................................................................................
68,730
51,731
90,351
31,098
1,683
4,768
72,327
1,683
68,735
52,577
90,820
31,519
31 December 2013
Interest
Currency
Total
rate VAR
VAR
VAR
(TL thousands)
As of 31 December 2013 ................................................................................................
Average...........................................................................................................................
Maximum .......................................................................................................................
Minimum ........................................................................................................................
57,156
45,484
138,032
13,419
4,072
3,901
9,909
1,693
57,159
45,917
137,676
14,403
Currency Risk
Foreign currency risk is the risk of losses due to adverse exchange rate movements in the market. Foreign
currency-denominated assets and liabilities, together with forward purchase and sale commitments, give rise to
foreign currency exposure.
Halkbank's management believes that the Group's foreign currency exposure is limited as a result of its hedging
strategy. However, potential currency risks are calculated at weekly and monthly periods through the standard
method required by the BRSA and daily through the internal models (VAR) so that the Group's currency risk
can be monitored. The Group manages foreign currency risk primarily by using natural hedges that arise from
offsetting foreign currency denominated assets and liabilities. When deemed necessary, the Group enters into
foreign currency swap transactions with other banks.
The following tables set out the Group's concentrations of assets, liabilities and off balance sheet items in
various currencies as of the dates indicated:
Other
Foreign
Total (TL
Thousands)
EURO
U.S.$
Currency
ASSETS
Cash (cash in vault, foreign currency cash, money in transit,
checks purchased, precious metals) and balances with the
Central Bank ..............................................................................
Banks .........................................................................................
Financial assets at fair value through profit and loss(3) ..............
Money market placements .........................................................
Financial assets available-for-sale .............................................
Loans(2) ......................................................................................
Subsidiaries, associates and entities under common control ......
Held-to-maturity investments ...................................................
Derivative financial assets held for risk management ................
Tangible assets ...........................................................................
Intangible assets .........................................................................
Other assets(3) ............................................................................
Total assets ...............................................................................
120
3,556,872
1,524,255
81,989
159,420
808,891
18,413,205
249,567
10,562
—
—
—
1,147,670
25,952,431
13,720,668
62,388
181,836
—
3,111,800
23,320,002
3,222,736
316,800
1,083
9,877
146,447
917,986
—
—
1,852,149
—
—
—
849,460
43,098,303
175,279
—
57,525
—
46,768
4,894,501
20,500,276
1,903,443
264,908
169,297
4,067,138
42,651,193
249,567
2,037,990
—
57,525
—
2,043,898
73,945,235
LIABILITIES
Bank deposits .............................................................................
Foreign currency deposits .........................................................
Money market balances .............................................................
Funds provided from other financial institutions .......................
Bonds issued ..............................................................................
Sundry creditors .........................................................................
Derivative financial liabilities held for risk management ..........
Other liabilities(3) .......................................................................
Total liabilities..........................................................................
Net balance sheet position .........................................................
Net off-balance sheet position .................................................
Financial derivative assets(4) ......................................................
Financial derivative liabilities(4) .................................................
Non-cash loans(1) .......................................................................
3,939,251
14,223,759
—
8,176,138
—
18,106
—
220,392
26,577,646
(625,215)
3,399,792
20,104,529
998,435
11,760,157
7,042,347
37,764
—
332,745
43,675,769
(577,466)
1,068,461
1,927,423
125,231
3,172,529
1,721,972
8,407,504
36,255,711
998,435
19,982,477
7,042,347
61,102
—
678,368
73,425,944
519,291
1,100,057
861,783
(1,483,006)
478,834
1,859,673
759,616
7,155,206
4,455,784
3,594,001
14,907,697
1,249,908
2,732,914
876,734
7,565,365
7,086,531
22,939,637
—
46,182
—
5,232
—
________________________________________
(1)
Non-cash loans are not included in the off-balance sheet position items.
(2)
Includes TL 1,519,716 of foreign currency indexed loans and their accruals (31 December 2015: TL 1,534,159).
(3)
In accordance with the principles of the "Regulation on Measurement and Practices of Banks' Net Overall FC
Position/Shareholders' Equity Ratio on a Consolidated and Unconsolidated Basis", derivative financial instruments foreign
currency income accruals (TL 24,155), prepaid expenses (TL 185) in assets; and derivative financial instruments foreign
currency expense accruals (TL 5,014) and shareholders' equity (TL 312,257) are not taken into consideration in the currency risk
measurement.
(4)
Receivables from derivative financial instruments include precious metal purchase transactions which amount to TL 122,869;
and derivative transaction liabilities from financial instruments include precious metal sale transactions which amount to TL
2,235,710.
Other
Foreign
Total (TL
Thousands)
EURO
U.S.$
Currency
ASSETS
Central Bank ..............................................................................
Banks .........................................................................................
Financial assets available-for-sale .............................................
Loans(2) ......................................................................................
Subsidiaries, associates and entities under common control ......
Tangible assets ...........................................................................
Other assets(3) ............................................................................
Total assets ...............................................................................
LIABILITIES
Bank deposits .............................................................................
Bonds issued ..............................................................................
121
2,849,880
2,078,425
89,043
—
957,133
17,220,659
242,037
10,728
—
—
—
1,113,900
24,561,805
13,409,708
288,936
166,466
—
2,975,675
23,732,797
—
1,931,468
—
—
—
965,936
43,470,986
2,901,532
173,190
817
33,101
124,197
910,834
—
171,633
—
57,746
—
48,478
4,421,528
19,161,120
2,540,551
256,326
33,101
4,057,005
41,864,290
242,037
2,113,829
—
57,746
—
2,128,314
72,454,319
2,609,967
14,828,856
—
7,801,692
—
53,741
—
260,937
25,555,193
(993,388)
3,464,758
19,738,567
728,499
12,984,388
7,339,847
145,829
—
247,613
44,649,501
(1,178,515)
1,094,569
1,959,326
—
43,138
—
2,636
—
131,138
3,230,807
1,190,721
7,169,294
36,526,749
728,499
20,829,218
7,339,847
202,206
—
639,688
73,435,501
(981,182)
Non-cash loans(1) .......................................................................
1,222,555
1,201,139
(937,097)
1,486,597
2,200,997
978,442
6,417,859
4,318,311
3,117,172
16,013,743
1,300,229
2,237,326
950,945
7,819,537
6,332,940
23,382,547
________________________________________
(1)
(2)
Includes TL 1,534,159 thousand of foreign currency indexed loans and their accruals (31 December 2014: TL 1,047,457
thousand).
(3)
currency income accruals (TL 30,776 thousand), foreign currency intangible assets (TL 17,776 thousand), prepaid expenses (TL
287 thousand) in assets; and derivative financial instruments foreign currency expense accruals (TL 26,998 thousand) and
shareholders' equity (TL 74,269 thousand) and foreign currency minority shares (TL 25,649 thousand) in liabilities are not taken
into consideration in the currency risk measurement.
(4)
Receivables from derivative financial instruments include precious metal purchase transactions which amount to TL 15,278
thousand; and derivative transaction liabilities from financial instruments include precious metal sale transactions which amount
to TL 1,734,898 thousand.
Other
Foreign
Total (TL
Thousands)
EURO
U.S.$
Currency
ASSETS
Central Bank ..............................................................................
Banks .........................................................................................
Financial assets available-for-sale(5) ..........................................
Loans(2) ......................................................................................
Subsidiaries, associates and entities under common control(5) ...
Tangible assets ...........................................................................
Other assets(3) ............................................................................
Total assets ...............................................................................
LIABILITIES
Bank deposits .............................................................................
Bonds issued ..............................................................................
Non-cash loans(1) .......................................................................
2,842,138
264,566
46,013
—
755,617
10,663,712
205,255
—
—
—
—
831,505
15,608,806
10,815,452
833,376
46,593
—
1,842,075
17,577,621
—
1,508,067
—
—
—
878,948
33,502,132
2,514,954
216,115
155
—
73,224
554,841
—
68,170
—
36,773
—
39,460
3,503,692
16,172,544
1,314,057
92,761
—
2,670,916
28,796,174
205,255
1,576,237
—
36,773
—
1,749,913
52,614,630
4,749,087
13,209,677
—
6,023,392
—
27,057
—
129,319
24,138,532
(8,529,726)
2,215,661
11,335,290
231,208
6,784,834
4,649,617
34,310
—
146,495
25,397,415
8,104,717
504,044
2,251,954
—
29,958
—
(35)
—
40,665
2,826,586
677,106
7,468,792
26,796,921
231,208
12,838,184
4,649,617
61,332
—
316,479
52,362,533
252,097
8,889,357
(7,880,918)
(536,675)
471,764
9,614,242
724,885
4,426,846
2,857,612
10,738,530
12,734,159
682,364
1,219,039
639,589
13,154,218
12,682,454
17,800,594
________________________________________
(1)
(2)
Includes TL 1,047,457 thousand of foreign currency indexed loans and their accruals (31 December 2013: TL 861,262 thousand).
(3)
122
(4)
Financial derivative assets include credit default swaps amounting to TL 2,445 thousand and forward precious metal purchase
transactions amounted to TL 805,714 thousand.
(5)
Macar Halkbank (TL 2,063 thousand) and International Garagum Bank (TL 250 thousand), followed as available for sale items
in foreign currency, are presented in financials with their historical costs since they are non-monetary items.
Other
Foreign
Total (TL
Thousands)
EURO
U.S.$
Currency
ASSETS
Central Bank ..............................................................................
Banks .........................................................................................
Financial assets available-for-sale(5) ..........................................
Loans(2) ......................................................................................
Subsidiaries, associates and entities under common control(5) ...
Tangible assets ...........................................................................
Other assets(3) ............................................................................
Total assets ...............................................................................
LIABILITIES
Bank deposits .............................................................................
Bonds issued ..............................................................................
Non-cash loans(1) .......................................................................
7,918,701
1,277,078
19,823
—
746,588
9,391,766
206,348
—
—
—
—
848,165
20,408,469
6,958,578
340,063
22,696
—
1,348,502
16,095,274
—
1,066,707
—
—
—
725,909
26,557,729
2,342,994
128,985
1,284
—
49,140
399,570
—
76,695
—
37,297
—
46,284
3,082,249
17,220,273
1,746,126
43,803
—
2,144,230
25,886,610
206,348
1,143,402
—
37,297
—
1,620,358
50,048,447
3,503,895
16,901,740
—
6,345,918
—
65,796
—
105,364
26,922,713
(6,514,244)
2,080,889
10,554,741
—
7,558,067
3,218,387
55,159
—
240,737
23,707,980
2,849,749
424,303
2,541,049
—
37,244
—
77
—
28,234
3,030,907
51,342
6,009,087
29,997,530
—
13,941,229
3,218,387
121,032
—
374,335
53,661,600
(3,613,153)
6,574,262
(2,867,707)
84,464
3,791,019
7,538,178
963,916
4,025,819
1,528,531
4,396,238
9,854,410
521,062
436,598
427,717
9,587,771
5,796,752
14,307,946
________________________________________
(1)
(2)
Includes TL 861,262 thousand of foreign currency indexed loans and their accruals (31 December 2012: TL 44,365 thousand).
(3)
(4)
Financial derivative assets include credit default swaps amounting to TL 5,873 thousand and forward precious metal purchase
transactions amounted to TL 149,450 thousand.
(5)
Macar Halkbank (TL 2,063 thousand) and International Garagum Bank (TL 250 thousand), followed as available for sale items
in foreign currency, are presented in financials with their historical costs since they are non-monetary items.
Interest Rate Risk
Interest rate risk is the risk of losses due to adverse interest rate movements in the market. The Group is exposed
to interest rate risk either through market value fluctuations of balance sheet items, for example, price risk, or
the impact of rate changes on interest-sensitive assets and liabilities. In Turkey, interest rates have been and may
continue to be volatile. Therefore, interest rate risk is a key component of the Group's asset and liability
123
management. The priority of the Group's Risk Management department is to protect the Group from the effects
of interest rate volatility.
Interest rate risk is managed on a portfolio basis primarily by using natural hedges that arise from offsetting
interest rate sensitive assets and liabilities. Special emphasis is given to providing a balance between the
duration of assets and liabilities. Duration, gap, and sensitivity analyses are the main methods used to manage
interest rate risks.
Simulations on interest income are performed in connection with the forecasted economic indicators used in the
budgeting process of the Group. The Group attempts to minimise the effects of the fluctuations in the market
interest rates on the financial position and cash flows of the Group by revising budget targets.
The following tables set out the Group's interest rate sensitivity based on re-pricing dates as of the dates
indicated:
Up to
1 month
ASSETS
Cash (cash in vault,
foreign currency cash,
money in transit, checks
purchased, precious
metals) and balances with
the Central Bank ................
118,990
Banks and financial
institutions..........................
181,578
value through profit and
loss .....................................
309,628
Money market
placements .........................
169,297
Financial assets availablefor-sale ............................... 2,341,740
Loans ................................. 50,710,087
Held-to-maturity
investments ........................ 7,560,105
Other assets(1)(2) .................. 1,060,873
Total assets........................ 62,452,298
LIABILITIES
Bank deposits ..................... 11,553,181
Other deposits .................... 62,088,837
Money market balances ..... 11,412,232
Sundry creditors .................
992,972
Bonds issued ......................
—
Funds provided from
other financial
institutions(4)....................... 5,050,935
Other liabilities(3) ............... 2,220,378
Total liabilities .................. 93,318,535
Balance sheet long
—
position ..............................
Balance sheet short
position .............................. (30,866,237)
Off-balance sheet long
position ..............................
—
Off-balance sheet short
—
position ..............................
(30,866,237)
Total position ....................
1 to
3 months
3 to
1 year to
Over
Non-interest
12 months
5 years
5 years
bearing
(TL thousands)
Total
—
—
—
—
24,681,080
24,800,070
206,217
17
—
—
1,626,799
2,014,611
7,338
37,803
655
5,221
11,800
372,445
474,298
—
—
—
—
643,595
1,094,097 1,745,779 2,204,827
23,812,484 26,912,038 24,036,460
4,672,744
4,452,415
120,334 12,179,521
2,176,554 132,100,038
1,471,136
877,221 1,961,648 4,884,537
357,452
610,727 1,247,264
227,933
27,423,022 30,183,585 29,450,854 14,242,850
— 16,754,647
6,946,309 10,450,558
35,562,876 199,315,485
1,579,245
21,300,595
1,316,776
1,062,171
815,384
775,897
5,812,921
197,164
143,469
695,682
—
378,995
—
64,257
6,978,764
—
2,474
—
—
—
5,119,077 19,027,400
17,570,979 107,154,801
— 12,926,172
84,854
2,347,723
—
8,489,830
4,841,169 10,737,765
419,502 1,009,912
31,334,842 19,372,810
533,285
1,946
7,957,247
55,196
—
57,670
556 21,218,906
24,498,915 28,150,653
47,274,381 199,315,485
— 10,810,775 21,493,607 14,185,180
(3,911,820)
—
—
764,369
612,369
1,332,390
—
46,489,562
— (11,711,505) (46,489,562)
1,346,914
—
4,056,042
(619,734) (627,983) (1,572,207) (1,319,421)
—
(3,767,185) 10,795,161 21,253,790 14,212,673 (11,711,505)
(4,139,345)
(83,303)
(1)
TL 106,538 of deferred tax assets is disclosed under the non-interest bearing column in other assets and TL 73,073 of deferred
tax liability is disclosed under the non-interest bearing column in other liabilities.
(2)
TL 1,075,183 of non-performing loans with no specific provision are disclosed under the non-interest bearing column in other
assets.
124
(3)
Shareholders' equity is disclosed under the non-interest bearing column in other liabilities line.
(4)
Up to
1 month
ASSETS
Cash (cash in vault, foreign
currency cash, money in
transit, checks purchased,
precious metals) and
balances with the Central
Bank .......................................
Banks and financial
institutions..............................
Financial assets at fair value
through profit and loss ...........
Money market placements .....
Financial assets availablefor-sale ...................................
Loans .....................................
Held-to-maturity
investments ............................
Other assets(1),(2) .....................
Total assets............................
LIABILITIES
Bank deposits .........................
Other deposits ........................
Money market balances .........
Sundry creditors .....................
Bonds issued ..........................
Funds provided from other
financial institutions(4) ............
Other liabilities(3) ...................
Total liabilities ......................
Balance sheet long position....
Balance sheet short position ...
position ..................................
position ..................................
Total position ........................
(1)
1 to
3 months
3 to
12 months
1 year to
5 years
(TL thousands)
Noninterest
bearing
Over
5 years
Total
16,755,948
—
—
—
—
6,744,591
23,500,539
798,714
51,765
—
—
—
1,767,172
2,617,651
247,364
33,101
25,553
20,773
33,349
—
269
—
5,144
—
27,828
—
339,507
53,874
2,359,097
529,117 1,645,419 2,436,137
44,877,032 17,838,272 33,895,040 23,210,103
4,448,231
4,329,749
117,142 11,535,143
2,052,536 126,202,732
7,732,528
761,017 1,352,000 2,154,709 4,904,623
— 16,904,877
1,016,183
221,785
593,799 1,488,452
163,986 6,362,962
9,847,167
73,819,967 19,448,282 37,519,607 29,289,670 13,851,733 17,072,231 191,001,490
8,427,245 2,409,694
56,054,414 27,198,528
7,823,894
632,063
986,732
33,100
47,656
707,800
525,038
6,642,534
—
1,001,111
858,861
—
478,726
—
118,869
5,781,652
— 3,328,873 14,690,850
22,424 17,416,908 107,813,534
—
—
8,455,957
—
258,932
2,398,744
1,444,591
—
8,840,560
1,219,171 4,536,538 11,529,545 4,612,874
245,262
347 22,143,737
2,215,332
189,464
860,918
4,745
— 18,803,642 26,658,108
76,774,443 35,707,187 21,418,007 10,996,866 1,712,277 44,392,709 191,001,490
—
— 16,101,600 18,292,804 12,139,456
— 46,533,860
(2,954,477) 16,258,905
—
—
— 27,320,478 (46,533,860)
—
764,369
612,369
1,332,390
1,346,914
—
4,056,042
—
(619,754) (627,927) (1,565,778) (1,319,421)
—
(2,954,477) (8,244,649) 16,086,042 18,059,416 12,166,949 27,320,478
(4,132,880)
(76,838)
Non performing loans (net) are presented in other assets.
(2)
The balance consists of funds provided from other financial institutions and banks.
(3)
Shareholders' equity is presented in the "non-interest bearing" column.
(4)
Up to
1 month
ASSETS
purchased, precious
with the Central Bank .......
Banks and financial
institutions.........................
3 to
1 year to
Over
Non-interest
1 to 3 months 12 months
5 years
5 years
bearing
(TL thousands)
Total
3,444,506
—
—
—
—
16,887,430
20,331,936
991,784
38,601
83,812
16,701
14,542
25,256
—
23,732
—
16
368,394
121,674
1,458,532
225,980
125
loss ....................................
Money market
placements ........................
4,443
297,664
—
—
—
—
Financial assets
available-for-sale...............
2,071,065
674,342 1,728,516 1,613,663 3,081,148
27,113
(1),
Loans ............................. 35,277,234 14,636,538 21,655,481 22,640,849 3,401,042
2,934,371
Held-to-maturity
investments .......................
8,456,256
517,854 2,167,358 2,216,886 4,510,728
—
95,155
221,542
723,584 1,395,715
146,015
4,843,251
Other assets (2) ...................
Total assets....................... 50,379,044 16,448,453 26,314,737 27,890,845 11,138,949 25,182,233
LIABILITIES
9,289,406
2,277,003
201,468
—
—
5,414,668
Bank deposits ....................
Other deposits ................... 43,066,190 18,922,779 7,932,795
325,437
672 16,223,732
Money market balances ....
8,181,354
584,583
—
—
—
—
924,232
39,744
979,976
25,219
—
120,361
Sundry creditors ................
Bonds issued .....................
68,912
491,227
950,550 2,865,352 1,715,353
—
Funds provided from
other financial
1,294,679
4,868,097 5,336,585 2,339,739
334,591
8,083
institutions(4)......................
1,925,178
175,644 1,382,168
8,304
— 19,080,180
Other liabilities(3) ..............
Total liabilities ................. 64,749,951 27,359,077 16,783,542 5,564,051 2,050,616 40,847,024
Balance sheet long
position .............................
—
— 9,531,195 22,326,794 9,088,333
—
Balance sheet short
position ............................. (14,370,907) (10,910,624)
—
—
— (15,664,791)
position .............................
115,011
840,031
33,634
426,575
—
—
1,456
561,724
29,256
426,167
—
—
position .............................
(14,254,440) (9,508,869) 9,594,085 23,179,536 9,088,333 (15,664,791)
Total position ...................
(1)
302,107
9,195,847
100,545,515
17,869,082
7,425,262
157,354,261
17,182,545
86,471,605
8,765,937
2,089,532
6,091,394
14,181,774
22,571,474
157,354,261
40,946,322
(40,946,322)
1,415,251
1,018,603
2,433,854
(2)
(3)
(4)
Up to
1 month
ASSETS
purchased, precious
metals) and balances with
the Central Bank .................
Banks and financial
institutions...........................
loss ......................................
Money market placements ..
Financial assets availablefor-sale ................................
Loans(1), ...............................
Held-to-maturity
investments .........................
Other assets (2) .....................
Total assets.........................
LIABILITIES
1 to
3 months
3 to
12 months
1 year to
5 years
Over 5 years
(TL thousands)
Noninterest
bearing
Total
44,863
—
—
—
— 19,976,532
1,609,825
41,900
3,597
—
—
253,453
1,908,775
71,262
5,894
34,757
224,790
33,361
—
38,591
—
5,064
—
2,285
—
185,320
230,684
3,144,728
577,210
919,915 2,231,002
27,002,168 14,937,717 17,089,045 20,117,591
2,938,485
3,397,759
16,609
1,987,967
9,827,949
84,532,247
20,021,395
9,372,162 1,603,846 1,347,360 2,776,533
3,873,697
— 18,973,598
146,848
275,099
522,559
997,360
158,806 3,755,642
5,856,314
41,397,750 17,695,319 19,915,837 26,161,077 610,373,811 25,992,488 141,536,282
126
Bank deposits ......................
5,825,580
Other deposits ..................... 46,932,167
Money market balances ......
771,416
Sundry creditors ..................
581,718
Bonds issued .......................
38,663
Funds provided from other
financial institutions(4) .........
2,712,827
1,235,127
Other liabilities(3) ................
Total liabilities ................... 58,097,498
Balance sheet long
position ...............................
—
Balance sheet short
position ............................... (16,699,748)
position ...............................
12,410
(12,020)
position ...............................
(16,699,358)
Total position .....................
(1)
306,452
19,249,198
490,060
36,279
30,694
300,159
8,913,188
—
894,565
1,001,133
—
176,096
—
9,029
1,763,434
— 3,585,113
160 15,107,066
—
—
—
171,574
1,317,742
—
3,910,918 6,039,498
99,493
486,191
24,123,094 17,634,734
1,817,549
9,640
3,775,748
600,301
5,259 15,086,352
— 17,117,993 18,948,444
1,918,203 35,987,005 141,536,282
—
2,281,103 22,385,329
8,455,608
—
10,017,304
90,377,875
1,261,476
1,693,165
4,151,666
33,122,040
(6,427,775)
—
—
— (9,994,517) (33,122,040)
10,146
6,893
—
—
(10,535)
(6,428,164)
(6,896)
—
2,281,100 22,385,329
—
29,449
—
—
8,455,608 (9,994,517)
(29,451)
(2)
(2)
(3)
(4)
Operational Risk
Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people
or systems or from external events.
The Group has been collecting historical loss data according to Basel II requirements since 2005 in order to
analyse, assess and minimise operational losses. Historical losses from operational risks are examined and
ranked according to their frequency and severity. Loss data is also classified according to event type and
business line under the framework of Basel II. The Operational Risk Committee meets regularly and the
measures which will be taken in order to mitigate the operational losses are discussed in the meetings
Halkbank currently uses Basic Indicator Approach in the calculation of capital requirement and this method is
used in legal reporting to the BRSA. As of 31 March 2016, the capital requirement of the Group regarding
operational risks was TL 12,041 million by using the Basic Indicator Approach under Basel II.
In order to further measure the capital requirements with respect to operational risk, the Group regularly
implements studies using the Advanced Measurement Approach in terms of yearly frequency and severity based
on historical loss data. Additionally, stress tests including scenario analysis as an input to the model for extreme
values (e.g., increasing the number or probability of high severity events) are carried out periodically to measure
the effects on the capital adequacy ratio.
Operating within risk tolerances provides a great assurance that Halkbank remains within its risk appetite and
can be used in reporting that actual results either aligns with the Bank's objectives or not in terms of yearly
frequency and severity amounts of operational losses.
The Group has designed disaster recovery plans to deal with the possibility of an earthquake, fire or act of
terrorism.
Collateral and Loan Approval Limits
Authority for extending new loans is delegated across different hierarchical levels within the Group, and
depends on the amount of the loan, the rating of the borrower and the type of collateral available. Collateral is
divided into two categories: first-degree collateral and other collateral. First-degree collaterals include, among
other things, cash and cash equivalents, Turkish Government bonds and Treasury bills, liens on deposits and
gold, whereas other collaterals include, among other things, checks from individuals, assignment of claims and
pledges on automobiles, real estate, equities or commercial undertakings. First-degree collateral is expected to
have 100% liquidity value, whereas other collateral is expected to have less than 100% liquidity value.
The Group generally delegates the evaluation of the creditworthiness of companies and other borrowers to the
branches and the regional directorates. The loan approval limits of authorised employees of the Group are
shown in the table below. Exceptions to these limits may only be granted by the Board.
127
With First-Degree
With Other
Collateral
Collateral
(TL millions)
Approved by:
Board of Directors ....................................................................................................
Credit Committee......................................................................................................
General Manager ......................................................................................................
Deputy General Manager ..........................................................................................
Head of Department ..................................................................................................
Regional Coordinator Credit Committee ..................................................................
Regional Coordinator Credit Sub-Committee ...........................................................
Corporate Branch Credit Committee ........................................................................
Commercial Branch Credit Committee .....................................................................
Branch Credit Committee .........................................................................................
(1)
Unlimited(1)
Unlimited(1)
100.0
100.0
50.0
10.0
10.0
10.0
10.0
2.0
Unlimited(1)
30
10
9
5
2.5
0.5
0.75
0.75
0.40
Up to limits defined by BRSA regulations.
Credit limits
Maximum extendible loan levels with respect to individual private sector companies, individual public sector
companies and individual natural persons are provided for under the Banking Law No. 5411. The Group uses
the criteria established under the Banking Law No. 5411, as well as additional quantitative and qualitative
criteria established by Halkbank's management, in setting maximum extendible loan levels for individual
exposures in its loan portfolio.
Internal Risk Rating Methodologies for Loans to Companies
The Group aims to ensure that all credits extended by the Group to companies are liquid, collateralised with
liquid instruments and profitable. The Group uses three main internal risk-rating methodologies for lending:
KDR (Credit Assessment Report), GKKM (Entrepreneurial Clients Assessment Report) and PDR (Project
Assessment Report).
•
The KDR methodology, which the Group has utilised since October 2006, is used for short- and
medium-term loans to corporate and commercial customers and to SMEs (loans above
TL 2,000,000). This methodology evaluates an applicant's moral values (qualitative criteria such as
the morality and payment habits of the prospective borrower's shareholders), business cycle and
competition within its sector on a 10-grade scale ranging between AAA and D. According to the
Group's credit policies, unsecured lending may be accepted for companies rated BBB or above,
companies rated CCC must post either a 100% lien on assets, a depositary note or guarantee from
the Credit Guarantee Fund and companies rated CC or below must post cash or cash equivalents;
•
The GKKM methodology, which the Group has utilised since June 2005, is used for SME
customers (loans below TL 2,000,000). This methodology consists of a scorecard mechanism
where applicants are judged against 90-120 qualitative and quantitative criteria and classified into
seven risk groups (acceptable for creditworthiness) and has a ranking scale from one to seven, one
being the best and seven being the worst. The requirements for the collateral to loan ratios depend
on the risk group of the applicant; and
•
The PDR methodology, which the Group has utilised since November 2007, is used for
medium- and long-term project finance. This methodology consists of a scorecard mechanism
where applicants' investment projects are assessed against qualitative and quantitative criteria and
classified on a 10-grade scale ranging between AAA and D. This model projects the expected fund
generation of the company during the lifetime of the loan and analyses whether the project can
generate sufficient cash flow to meet the interest payments and repay the principal.
The rating levels determine the type and size of collateral required. Standard discount rates are applied to the
face value of non-cash collateral to calculate collateral value.
Halkbank's management believes that the Group's entire corporate and commercial loan portfolio has been
evaluated during the credit approval process by using the KDR, GKKM or PDR rating models. The table below
sets forth the distribution of the Group's loans (including cash and non-cash loans) as of 31 March 2016 across
various risk rating groups, as prepared in accordance with the internal grading results of the Bank:
128
Corporate and
Commercial Loans
Rating
Risk rating group 1
AAA
Risk rating group 2
AA
6,083,884 Risk rating group 1
1
2,471,724
Risk rating group 3
A
2
2,896,191
Risk rating group 4
BBB
15,134,619 Standard
Risk rating group 5
BB
3
2,543,310
Risk rating group 6
B
4
3,454,129
Risk rating group 7
CCC
5
5,296,034
Risk rating group 8
CC
Risk rating group 9
C
15,817 Risk rating group 6
6
8,357,036
Risk rating group 7
87,385,856 Total
7
7,539,261
32,557,685
Total
Total Risk* (TL
Thousands)
Entrepreneur Firms
Total Risk* (TL
Thousands)
Rating
141,171 High
1,265,008 Below the standard
_________________
*
Only firms rated in the last two years are included. As of 31 March 2016, loans amounting TL 10,755,458 (which are evaluated
but not rated) are not included the table above.
The table below sets forth the definitions of the various risk grades and risk groups:
Risk Grade (1-4)
Risk Group
1.00 - 1.40
AAA
1.41 - 1.80
AA
1.81 - 2.00
A
2.01 - 2.20
BBB
2.21 - 2.40
BB
2.41 - 2.60
B
2.61 - 2.80
CCC
2.81 - 3.20
CC
3.21 - 3.60
C
3.61 - 4.00
D
Risk Grade
(%)
Definition of risk group
The firm is an extremely positive firm with its financial and nonfinancial criteria and it can maintain credibility in the long term.
The firm is a positive firm with its financial and non-financial criteria
and it can maintain credibility in the long term.
The firm has achieved optimisation in terms of financial and nonfinancial criteria and is highly credible in the short term and is
credible in the medium term.
The firm has achieved optimisation in terms of financial and nonfinancial criteria and is credible.
The firm cannot achieve optimisation in some financial and nonfinancial criteria. Whereas credible in the short term, it may have
uncertainty risk in the long term.
Some of the financial and non-financial criteria are negative. The
firm's credibility depends on the positive conjuncture.
Some parts of its financial and non-financial criteria are negative.
The firm's credibility depends on the positive conjuncture and the
collaterals.
The firm is barely acceptable given its financial and non-financial
criteria and has weak credibility.
The firm has no credibility with its financial and non-financial
criteria considered together.
The firm has no credibility under any condition.
100 - 86
85 - 73
72 - 67
66 - 60
59 - 53
52 - 47
46 - 40
39 - 27
26 - 13
12 - 0
Retail Loan Approval
The following chart shows the Bank's retail loan approval limits according to authorised units within the Bank.
These limits can be increased so long as they remain within legal requirements, by way of delegation by the
Board of Directors to the General Manager, and by the General Manager to other units.
Authorised Unit
Maximum Limit
Board of Directors .........................................................................................................................
Credit Committee...........................................................................................................................
General Manager ...........................................................................................................................
Deputy General Manager ...............................................................................................................
Director ..........................................................................................................................................
Branch*..........................................................................................................................................
>TL 30,000,000
TL 30,000,000
TL 10,000,000
TL 5,000,000
TL 2,000,000
TL 300,000
* Represents the maximum automatic allocation limits, in addition to the individual limits within a particular branch and the individual
limits of particular product groups.
129
At the initiation of the retail loan application process, the bank branch performs diligence regarding the
customer's income and credibility. The relevant information is entered into the Retail Loan Decision Module
("RLDM"), which serves as a standardised form for evaluating the application by use of applicable lending laws,
regulations, credit policy rules and scorecard definitions. Based on information provided by the applicant and
the credit bureau, the branch uses the RLDM to generate an outcome of approval, rejection, or manual
evaluation. The RLDM has replaced manual branch authorisation limits, and automated the approval process for
most applications.
Those applications deemed to require manual evaluation are re-evaluated in detail by the Head Office retail loan
department, considering the same factors that govern the RLDM process as well as administrative positions
regarding current economic and strategic circumstances.
A significant portion of retail loans are secured by assets, such as housing or vehicles, or by a lien on salary or
pension payments. The average size of a housing loan portfolio is approximately TL 66,021 and the average
ratio of at-risk credit to collateral is 46.6%.
Risk Settlement
The Group's risk settlement divisions seek to ensure that receivables which are referred to legal proceedings are
collected efficiently and to accelerate the recruiting of expert bankers and lawyers to pursue and settle
collections. Depending on the circumstances, receivables referred to legal proceedings can be restructured either
through redemption plans with specific protocols or through alternative and constructive approaches effected by
the Group. Halkbank's management believes that the Group has one of the best organisations in the Turkish
banking sector in management of receivables.
130
MANAGEMENT
Board of Directors
Pursuant to the Articles, the Board is responsible for Halkbank's management. Under Banking Law 5411, the
boards of Turkish banks must consist of at least five members, including the general manager. The Board of the
Bank currently consists of nine members. All Directors are appointed by the General Assembly for a maximum
of three years. No shareholder of the Bank has a special right to designate or appoint Directors. As per the
Articles, the Board shall appoint one of the Directors as the General Manager who shall meet the criteria for
such role as set out in Banking Law 5411, however the Chairman cannot be appointed as the General Manager
of the Bank.
Article 6 of the Corporate Governance Communiqué of the CMB (published in the Official Gazette dated 3
January 2014 numbered 28871 requires Turkish banks to have at least three independent directors. Board
members who are appointed to the audit committee are also required to be independent. The bank has appointed
three independent directors.
Members of the Board
The following table sets out the members of the Board as of the date of this Offering Memorandum, the date of
their appointment to the Board and expiration date of their current term.
Name:
Recep Suleyman
Ozdil ........................
Sadik Tiltak..................
Ali Fuat
Taşkesenlioğlu.........
Yunus Karan ................
Cenap Asci...................
Ömer Acikgoz..............
Mehmet Aytekin ..........
Yahya Bayraktar ..........
Mehmet Ali Gokce ......
(1)
Position
Date first
appointed
Date current
term expires(1)
Committee memberships
Chairman
28 Aug 2015
27 Mar 2018
Vice Chairman/
Independent Director
General Manager
1 Apr 2014
31 Mar 2017
Audit, Credit
27 Mar 2015
27 Mar 2018
Credit, Assets and Liabilities
Director
Director
Director
Director
1 Apr 2014
31 Mar 2016
31 Mar 2016
31 Mar 2016
31 Mar 2016
31 Mar 2017
31 Mar 2019
31 Mar 2019
31 Mar 2019
31 Mar 2019
31 Mar 2016
31 Mar 2019
Credit, Compensation,
Credit, Corporate Governance
Sustainability
Compensation, Credit
Audit, Corporate Governance, Credit
(Substitute), Sustainability
Corporate Governance, Credit
(Substitute)
The members of the Board are elected for a period of three years.
Recep Suleyman Ozdil, Chairman
Recep Suleyman Ozdil was born in Istanbul in 1961. He graduated from Ankara University, Faculty of Political
Sciences, Economics Department. After beginning his professional career as an Auditor at a private company in
1984, Ozdil served as a Specialist Assistant Manager and Branch Manager at Albaraka Turk Ozel Finans
Kurumu A.Ş. between 1986 and 1993. He worked as a Finance Coordinator at a private company between 1993
and 1995 before undertaking the role of Assistant General Manager at İhlas Finans Kurumu A.Ş. from 1995 to
2001 and at Family Finans Kurumu A.Ş. from 2001 to 2005. Ozdil served as a Board Member and General
Manager at Birlesik Fon Bankasi A.Ş. from 2005 till 2011, and as a Board Member of the Savings Deposit
Insurance Fund between 2011 and 2014. He has been serving as Chairman of T. Halk Bankasi A.Ş. since 28
August 2015.
Sadik Tiltak, Vice Chairman, Independent Director
Sadik Tiltak graduated from Ankara University, Faculty of Political Sciences, Public Finance Department. He
commenced his career as an Assistant Inspector at T. Garanti Bankası A.Ş. in 1988 and later served as a Branch
Manager and Manager at the Head Office Department of the same bank. He was appointed as a Board Member
at T. Vakıflar Bankası T.A.O. on 30 March 2012, and served as a Member of the Loans Committee, Corporate
Governance and Appointment Committee and Audit Committee of this bank. Besides this, he also served as the
Chairman of Vakıf Finans Factoring Hizmetleri A.Ş. and Vice Chairman of Vakıf Gayrimenkul Değerleme A.Ş.,
Vakıf Pazarlama ve Ticaret A.Ş. and Vakıf Portföy Yönetimi A.Ş. as well as a Board Member of Halk Hayat ve
Emeklilik A.Ş. He has been serving as an Independent Board Member since 1 April 2014 and as the Vice
Chairman as of 31 March 2016 at Türkiye Halk Bankası A.Ş. He is also a Board Member of Halk Sigorta A.Ş.
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Ali Fuat Taşkesenlioğlu, General Manager, Director
Ali Fuat Taşkesenlioğlu was born in Erzurum in 1964. He graduated from Atatürk University, Faculty of
Economics and Administrative Sciences, Business Administration Department. He completed a post graduate
degree in the Social Sciences Institute at Beykent University and is currently working on a PhD in Business
Administration at the same university. He began his professional career in 1988 at Yenidoğan Yayın Dağıtım.
After serving as Chief Specialist at the Faisal Finance Institution from 1988 to 1996, he started at Asya
Participation Bank on October 1996 and served as an Assistant Manager of project marketing. He later
continued as Manager of the Merter and Sultanhamam branches, followed by the positions of Division Manager
and Deputy General Manager of the Head Office Loan Allocation Department. Mr. Taşkesenlioğlu was elected
to the Board of Directors of T. Vakıflar Bankası T.A.O on 30 March 2012 and served as an associate member on
the Board of Auditors and the Board of Loans of T. Vakıflar Bankası T.A.O. He later served as the Chairman of
Vakıf Portföy Yönetimi A.Ş., Vice Chairman of Vakıf Finans Factoring Hizmetleri A.Ş., and as Vice Chairman
of Vakıf Menkul Kıymetler Yatırım Ortaklığı A.Ş. from 20 April 2012 until 7 February 2014. Taşkesenlioğlu
has served as a Board Member and General Manager of Türkiye Halk Bankası A.Ş. since 7 February 2014. He
also serves as Chairman of Halk Hayat ve Emeklilik A.Ş.
Yunus Karan, Director
Yunus Karan was born in Giresun in 1940. He received his bachelor's degree in finance and accounting from
Istanbul University, Faculty of Economics and Administrative Sciences, in 1964. Mr. Karan began his
professional career at T.C. Ziraat Bankası A.Ş. in 1965 and served as Branch Manager in various branches of
the bank until 1996. He then served as the Fatih Branch Manager of İhlas Finans Kurumu A.Ş. between 1996
and 1999. Karan was a Board Member at the Ziraat Leasing Finansal Kiralama A.Ş. from 2002 until May 2012
and an Independent Board Member at Halk Gayrimenkul Yatırım Ortaklığı A.Ş. between 14 May 2012 and 31
March 2014. He has been serving as a Board Member at Türkiye Halk Bankası A.Ş since 1 April 2014. He is
also a Board Member at Halk Gayrimenkul Yatırım Ortaklığı A.Ş.
Cenap Asci, Director
Cenap Asci was born in Aksaray in 1967 and graduated from Istanbul University, Faculty of Political Sciences,
Public Administration Department, in 1988. He received his masters degree from the USA, from the Boston
University Faculty of Administration Sciences on International Trade.
He started his career as a Customs Deputy Inspector in 1989. Later he served as a Customs Inspector, Customs
Chief Inspector, the Vice President of the Inspection Board of the Undersecretariat of Customs, the Head of the
Directorate General of Customs, Deputy General Manager of EGO, Deputy General Manager of Customs,
General Manager of Customs and following that he was then appointed as the Undersecretary of the Ministry of
Customs and Trade.
He served as the Minister of Customs and Trade in the 63rd Government (Provisional Council of Ministers)
formed on 28 August 2015.
He has been serving as a Board Member of Türkiye Halk Bankası A.Ş. since 31 March 2016.
Cenap AŞÇI, who speaks English, is married with three children.
Ömer Acikgoz, Director
Ömer Acikgoz was born in Gaziantep in 1963 and completed his primary and secondary education in Gaziantep
and received his bachelor's degree from Ankara Gazi University School of Vocational, Education Department of
Technology Education. He received his master's degree from the same department in the field of Climatisation
and Cooling and his Ph.D. and Associate Professorship from the Economics Department. He served as a faculty
member at the Kırıkkale University, Faculty of Economics and Administrative Sciences, Economics Department.
He has national and international academic publications in both his field and in the field of education.
He conducted research and examinations in the field of energy systems in the USA at Ferris State University
with a World Bank scholarship. He has served as a Faculty Member in Vocational Schools Climatisation and
Cooling Programs for 14 years. He served as an Advisor to the Chairman of the Council of Higher Education
concerning Vocational and Technical Education for approximately 4 years. He has also conducted numerous
UN Projects.
He served as a Member of the Vocational Schools Development Commission, as a delegate in Vocational
Qualifications Authority, Fulbright Commission, UNESCO Turkey Committee, as a Board Member of the
Public Administration Institute for the Middle East, ÖSYM, TÜBITAK TÜSSIDE and as Chairman of the
Advisory Committee of TÜSSIDE. He also served as the General Manager of Vocational and Technical
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Education and as Deputy Undersecretary in the Ministry of National Education between October 2011 and June
2015.
Ömer Acıkgoz, M.D., Associate Professor is serving as the Deputy Undersecretary of the Prime Minister and
Member of the General Assembly of YÖK and as of 31 March 2016 he is serving as a Board Member of
Ömer Acıkgoz, M.D., Associate Professor, speaks fluent English and is married with three children.
Mehmet Aytekin, Director
Mehmet Aytekin was born in Istanbul in 1977, and graduated from Istanbul University, Faculty of Letters,
Philosophy Department, in 2001. He started working at Turkish Airlines in 2004 as an expert and served as the
Australia-New Zealand Manager between 2007 and 2014. He started working at Istanbul Şehir University in
2014 as the Deputy Secretary General and left in 2015 as the Secretary General. Mehmet Aytekin is serving as a
Principal Consultant to the Prime Minister and as of 31 March 2016, he is also serving as a Board Member of
Yahya Bayraktar, Independent Director
Yahya Bayraktar was born in Kemaliye, Erzincan in 1955. He graduated from Istanbul İmam Hatip High School
in 1974, and received his bachelor's degree in Business Administration from the Middle East Technical
University in 1981. Bayraktar began his professional career as assistant inspector at Yapı ve Kredi Bankası in
1982 and was involved in the efforts to perform audits electronically and to switch to computerised systems
during the period when he sat on the Board of Inspectors between 1983 and 1988. In 1988, he joined Faisal
Financial Institution as an inspector and served as Head of the Board of Inspectors and served as Head of the
Board of General Accounting, Marketing, Fund and Banking Services, Trade and Financing (Loan Operations)
between 1991 and 2006. He later served as a Branch Manager at Türkiye Finans Katılım Bankası between 2006
and 2009. Bayraktar is a member of the Board of Trustees of the Erzincan Educational and Cultural Foundation
(EKEV), which is responsible for student scholarships and the organisation of education operations. He
authored a book titled, "Dut Mevsimini Beklerken (Waiting for Berry Season)", in which he compiled his
articles on economics and finance. The book was published by EKEV in 2011. Between 2012 and 2016, he
served as an independent Board Member at Vakıf Menkul Kıymetler Yatırım Ortaklığı A.Ş., a subsidiary of
Vakıflar Bankası. Bayraktar has been an Independent Board Member at our Bank and has been a Board Member
of Halk Gayrimenkul Yatırım Ortaklığı A.Ş. since 31 March 2016.
Mehmet Ali Gokce, Director
Mehmet Ali Gokce was born in Çankırı in 1957 and graduated from Ankara University, Faculty of Theology in
1983. He received certified Banking School Training from the Faculty of Law of Ankara University for 9
months and received his masters degree in Business Management from the University of Turkish Aeronautical
Association Institute of Social Sciences.
He served as an Executive in Töbank between 1979-1984, as a Middle Level Branch Manager in Faisal Finans
Kurumu between 1987-1991, as an Ankara Branch Manager of Kuveyt Türk Katılım Bankası A.Ş. between
1991-1999, as the Deputy General Manager of Anadolu Finans Kurumu between 1999-2005, as the Deputy
General Manager of Türkiye Finans Katılım Bankası A.Ş. between 2006-2011, as the General Manager of
Termikel A.Ş. between 2011-2012, and as a Board Member of Asya Katılım Bankası between 2015-2016.
Mehmet Ali Gökçe is currently serving as the Chairman and General Manager of RCT Varlık Yönetim A.Ş.
(TMSF) and he is also serving as a Board Member of Türkiye Halk Bankası A.Ş. as of 31 March 2016.
Executive Management
Ali Fuat Taşkesenlioğlu, Director and General Manager
See "—Members of the Board" above.
Mehmet Hakan Atilla, Deputy General Manager of International Banking
Mehmet Hakan Atilla was born in 1970 in Ankara. He graduated from Gazi University, Faculty of Economics
and Administrative Sciences, Economics Department. He joined Halkbank in 1995 as a specialist assistant at the
Research Development and Planning Department and proceeded to work as a specialist in the Commercial
Credit Cards and Cash Management Departments. He then held the title of Supervisor and Department Manager
at the Strategic Planning Department. Atilla was the head of the Financial Institutions and Investor Relations
Department between 22 June 2007 and 11 November 2011, before being appointed as the Deputy General
Manager responsible for International Banking (a position which he holds currently).
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Murat Uysal, Deputy General Manager of Treasury Management
Murat Uysal was born in 1971 in Istanbul. He attended Galatasaray High School and later graduated from
Istanbul University, Faculty of Economics, Department of Economics. After obtaining his masters degree from
Marmara University's Institute of Banking and Insurance (Department of Banking), he commenced work with
Tekstilbank in 1998 as a Specialist Assistant. He also served as a Manager and specialist in the Foreign
Exchange, Money Market and Securities Departments. Uysal was head of Halkbank's Money and Capital
Markets department between 7 September 2007 and 11 September 2011 and is currently Deputy General
Manager in charge of Treasury Management since 11 November 2011.
Erdal Erdem, Deputy General Manager of Artisans and SME Banking
Erdal Erdem was born in Çankırı in 1971. After receiving his bachelor's degree in finance from Afyon Kocatepe
University's Faculty of Economics and Administrative Sciences he began his professional career at Türkiye
Finans Kurumu A.Ş. in 1995. He joined Asya Katılım Bankası A.Ş. in 1996, serving as the following positions:
Assistant Specialist, Specialist, Second Manager, Assistant Manager and Manager. Between March 2010 and
January 2012 he held the position of Deputy General Manager in charge of Loans Monitoring, Financial
Analysis and Intelligence, Non-Performing Loans, Construction-Real Estate, and Legal Counsel. Erdem was a
Board Member at T.C. Ziraat Bankası A.Ş. from April 2012 to March 2014. He served as the Deputy General
Manager in charge of Financial Management and Planning between 27 March 2014 and 3 July 2014. He has
been performing his duties as the Deputy General Manager in charge of Artisans and SME Banking at the Bank
since 4 July 2014.
Murat Oktay, Deputy General Manager of Corporate and Commercial Marketing
Murat Oktay was born in 1970 in Ankara. He graduated from the Middle East Technical University, TED
Ankara College and the Faculty of Economics and Administrative Sciences, Department of Economics. He
began his career as Assistant Inspector at Eskişehir Bankası T.A.Ş. in 1991. He worked as an Auditor in
Demirbank A.Ş., as Branch Manager in Finansbank A.Ş., Egsbank A.Ş., Denizbank, Asya Katılım Bankası A.Ş.
and Turklandbank A.Ş., and then as Corporate Branch Manager and Regional Director in Albaraka Türk Katılım
Bankası A.Ş. He has been working as Deputy General Manager responsible for Corporate and Commercial
Marketing at Halkbank since 7 July 2014. He worked as an Auditor in Demirbank A.Ş., as Deputy Manager
responsible for Fund Management and Capital Markets Operations at Finansbank A.Ş., Operations Manager at
Finans Yatırım A.Ş. and a Branch Manager at Egsbank A.Ş., Denizbank A.Ş., Asya Katılım Bankası A.Ş. and
Turklandbank A.Ş. He later served as Corporate Branch Manager and Regional Director at Albaraka Türk
Katılım Bankası A.Ş. Oktay has been serving as Deputy General Manager responsible for Corporate and
Commercial Marketing at Halkbank since 10 July 2014.
Mehmet Akif Aydemir, Deputy General Manager of Loan Allocation and Management
Born in Ankara in 1963, Mehmet Akif Aydemir is a graduate of Ankara University, Faculty of Political
Sciences, Economics Department. He began his career on 20 October 1986 at Pamukbank as an Assistant
Inspector and went on to become an Inspector, Branch Manager and Division Manager. Mr. Aydemir was the
head of the Corporate Loans Department between 10 December 2004 and 3 March 2010 and was the Assistant
General Manager in charge of Corporate and Commercial Loans from 4 March 2010 to 21 July 2011. He has
been working as Assistant General Manager responsible for Loan Allocation and Management at Halkbank
since 22 July 2011.
Hasan Ünal, Deputy General Manager of Retail Banking
Hasan Ünal was born in Karabük in 1968. After receiving his Bachelor's Degree in Engineering Management
from Istanbul Technical University, he began his banking career at Garanti Bank in 1988. He served in
executive positions as Deputy General Manager and General Manager, and has been responsible for card
payment systems, alternative distribution channels and retail banking at various banks and private companies.
Immediately prior to joining Halkbank, he worked as General Manager at Bileşim Alternatif Dağıtım Kanalları
ve Ödeme Sistemleri A.Ş., a subsidiary of Halkbank. He has served as Deputy Manager in charge of retail
banking at Halkbank since 10 July 2014.
Mehmet Sebahattin Bulut, Deputy General Manager of Loan Policies and Risk Monitoring
Mehmet Sebahattin Bulut was born in Erzurum in 1965. After receiving his Bachelor's Degree in Econometrics
from Uludağ University, Faculty of Economics and Administrative Sciences, he began his professional career as
an Assistant Financial Analysis Specialist at T. Vakıflar Bankası T.A.O. in 1994, where he was promoted
successively to Inspector, Manager at various levels, and Head of Department. He then served as a Board and
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Audit Committee Member at various subsidiaries of T. Vakıflar Bankası T.A.O. He has been the Deputy
General Manager in charge of Loan Policies and Risk Monitoring at Halkbank since 10 July 2014.
Selahattin Süleymanoğlu, Deputy General Manager of Banking Operations
Born in 1962 in Alucra, Giresun, Selahattin Süleymanoğlu is a graduate of Gazi University, Faculty of
Economics and Administrative Sciences, Business Administration Department. After finishing his Master's
Degree at the Selçuk University Institute of Social Sciences, Department of International Relations, he began his
career as an Assistant Inspector at Adabank in 1990, going on to work as an Inspector, Manager and Head
manager at T. Emlak Bankası A.Ş. from 1991-2001. Joining Halkbank as a Branch Manager in 2001, he worked
at several branches, including the Ankara Corporate Branch as a Manager. He was Deputy General Manager,
responsible for Risk Collection and Liquidity between 1 July 2007 and 12 January 2009, and was in charge of
Banking Operations between 13 January 2009 and 26 September 2010. He has been working as Deputy General
Manager in charge of Risk Management and Internal Control between 27 September 2010 and 3 July 2014
respectively before being appointed as the Deputy General Manager in charge of Banking Operations as of 4
July 2014.
Erol Göncü, Deputy General Manager of Information Systems and Technical Services
Born in Siirt in 1964, Erol Göncü is a graduate of the Middle East Technical University Department of
Mathematics. He began his career at Pamukbank on 3 October 1988 as a Systems Analyst and went on to hold
the positions of Service Manager and Department Manager. He has been working as a Deputy General Manager
in charge of Information Systems and Technical Services at Halkbank since 9 June 2005.
Mustafa Aydın, Deputy General Manager of Financial Management and Planning
Mustafa Aydın was born in Ürgüp, Nevşehir in 1965. He graduated from the Middle East Technical University,
Faculty of Economics and Administrative Sciences, Department of Public Administration. He began his
professional career at Türkiye Öğretmenler Bankası and went on to work as General Manager at Nahçıvan Türk
Bankası, as Inspector and Branch Manager at Albaraka Türk Katılım Bankası A.Ş. and at Asya Katılım Bankası
A.Ş. He later served as CFO and a Board Member of Bosnia Herzegovina Airlines, as Head of Finance at
Turkish Airlines, as Affiliates Financial Coordinator at THY Teknik A.Ş. and as CFO at Negmar Shipping Ltd.
He has been serving as Deputy General Manager in charge of Financial Management and Planning at Halkbank
since 10 July 2014.
Ömer Faruk Şenel, Deputy General Manager of Support Services
Ömer Faruk Şenel was born in Konya in 1969 and is originally from Denizli. He received his Bachelor's Degree
from Middle East Technical University, Faculty of Economics, and his Master's Degree in Business
Administration from the Fatih University Institute of Social Sciences. He began his professional career as an
Assistant Specialist at T.C. Ziraat Bankası A.Ş. in 1991, and then went on to serve as Inspector, Branch
Manager, Department Manager and Deputy General Manager at Esbank T.A.Ş., Etibank T.A.Ş. and Asya
Katılım Bankası A.Ş., respectively. Mr. Şenel then became Deputy General Manager at Birleşik Fon Bankası
A.Ş. (B.F.B.). He served as Deputy General Manager in charge of Support Services at Halkbank since 10 July
2014.
Salim Köse, Deputy General Manager of Legal Affairs and Proceedings
Salim Köse was born in Afyonkarahisar in 1966. He began his career at T. Emlak Bankası A.Ş. in 1990 while
concurrently studying at the Law School at Istanbul University. He later assumed positions as Assistant Legal
Counsel at Etibank A.Ş. and as Group Director and Deputy Head of Department at the Saving Deposit Insurance
Fund (SDIF). During the latter position, he served as a Board Member and the Chairman of various companies
which had had their management and audit functions transferred to the SDIF. Mr. Köse also participated in the
drafting of Banking Law No. 5411 as representative of the SDIF. Mr. Köse managed Halkbank's Legal
Counselling, Non-performing Loans Department and Risk Monitoring Departments from 2007 until 2011. In
2011 he began practicing as a self-employed lawyer. He has been Deputy General Manager in charge of Legal
Affairs and Proceedings at Halkbank since 10 July 2014.
Ali Ulvi Sargon, Chairman of the Board of Inspectors
Ali Ulvi Sargon was born in Ankara in 1966. After receiving his Bachelor's Degree in Business Administration
at the Faculty of Political Sciences at Ankara University, he began his professional career as Assistant Inspector
at T.İş Bankası A.Ş. in 1989. He went to serve as Branch Manager at Garanti Bank and as Head of Insurance
Fund Asset Management at the Saving Deposit Insurance Fund. Mr. Sargon joined Halkbank as Head of Risk
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Management Department on 17 December 2004, and has served as Chairman of the Board of Inspectors since 4
July 2014.
Board of Auditors
Pursuant to the Articles, the General Assembly must appoint two auditors who must be persons with university
degrees who have had experience in the areas of banking, economics or finance for a minimum period of
10 years and who shall be appointed for a maximum term of three years. There are currently two members on
the Board of Auditors appointed by the General Assembly:
Faruk Özçelik, Member of the Supervisory Board
Faruk Özçelik was born in Hadim, Konya in 1968. He is a graduate of the Ankara University Banking and
Insurance Academy and holds a master's degree in International Relations (from Institute of Social Sciences,
Selçuk University) and a bachelor's degree in Business Administration (from Ankara University, Faculty of
Political Sciences,). Özçelik began his career as an Assistant Auditor at the Republic of Turkey Prime Ministry,
General Directorate of Foundations, later serving as Auditor and Chief Auditor in the same institution and the
Ministry of Public Works and Settlements. Between 2004 and 2009, Özçelik worked as Deputy General
Manager at the Prime Ministry, General Directorate of Personnel and Principals, and later served as the General
Manager of the same institution until 2014. He has also served as a director on the boards of Natural Disasters
Insurances Authority and the Institute of Public Administration for Turkey and the Middle East (TODAİE), and
as a member of the Supervisory Board of Turkish Maritime Operations (Türkiye Denizcilik İşletmeleri A.Ş.).
Özçelik was appointed as the Undersecretary of Ministry of Youth and Sports on 26 January 2014. Currently, he
serves as a member of the Supervisory Board of Türkiye Halk Bankası A.Ş., and on the Istanbul Olympic
Games Presentation and Organisation Committee. Özçelik is married with two children. His interests include
football, volleyball, and athletics. Özçelik speaks French, Arabic, and English.
Zekeriya Kaya, Member of the Supervisory Board
Zekeriya Kaya graduated from Erciyes University, Faculty of Economic and Administrative Sciences,
Economics Department. He has served as an Accounting Inspector, Tax Inspector and Accountant in the
Ministry of Finance. Following that, he served as the Group Manager of the Ankara Tax Office Directorate, the
Head of the Group of the Tax Inspection Board, Head of the Group of Revenue Administration. Zekeriya
KAYA is currently serving as the Head of the Department of Revenue Administration and as of 31 March 2016,
he is also serving as a Board Member of Türkiye Halk Bankası A.Ş.
Board Committees
The Bank has a number of committees comprising various Directors. These committees have been given
primary responsibility for certain matters relating to the operation of the Bank. These committees include,
among others, the Audit Committee, Corporate Governance Committee, Compensation Committee, Credit
Committee, Assets and Liabilities Committee and Operational Risks Working Committee. Certain information
relating to these committees is set out below.
Audit Committee
The Audit Committee was established on 31 October 2006, and is responsible for the effective conduct of
functions related to the Bank's internal audit, risk management, and internal control activities. The Audit
Committee's duties include:
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•
•
•
•
•
assessing the effectiveness of the internal control system through internal control and internal audit
units;
overseeing whether the Bank's internal policies, practices, and procedures approved by the Board of
Directors are being complied with and making recommendations to the Board of Directors on measures
that need to be taken;
monitoring and assessing the Bank's internal audit system;
overseeing whether the internal audit unit is fulfilling the obligations specified in regulations and
internal policies;
examining internal regulations concerning designated strategies, policies, and programmes related to
internal audit and concerning the structure of the internal audit unit and submitting those that it deems
suitable to the Board of Directors for its approval;
assessing whether there exist essential methods, practices and procedures to identify and control the
risks to which the Bank is exposed;
reviewing the independent auditors' assessments concerning the compliance of the Bank's accounting
practices with laws, regulations, and administrative provisions, and reviewing the results of
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•
•
•
•
independent audits together with senior management to resolve any issues concerning which doubts
may be expressed by the independent auditors or in their reports;
assessing the adequacy and reliability of independent auditors, rating agencies, assessor companies, and
support service providers with which the Bank may sign contracts and submitting a report of their
findings to the Board of Directors; repeating these tasks regularly at maximum intervals of
three months during the term of the agreement in the event service is obtained therefrom;
overseeing whether the information contained in the Bank's financial reports is true and complete, and
reporting any findings to relevant authorities;
discussing with the independent auditors whether the Bank's financial reports accurately reflect the
Bank's financial standing, the results of transactions that have been performed, and the Bank's cash
flows, and whether they have been prepared and presented in compliance with the procedures and
principles set out in laws, regulations and other applicable standards; and
reporting their activities conducted during the reporting period, the results thereof, and the opinions of
the Audit Committee to the Board at maximum intervals of six months.
As of the date of this Offering Memorandum, the members of the Audit Committee were Sadık Tiltak and
Yahya Bayraktar.
Corporate Governance Committee
The duties of the Corporate Governance Committee consist of monitoring the Bank's compliance with corporate
governance principles in accordance with the provisions of the "Regulation on the Bank's Corporate Governance
Principles" published by the BRSA, and the "Corporate Governance Principles" published by the CMB, as well
as undertaking improvement efforts and making recommendations to the Board of Directors on these matters.
The chairman of the committee is an independent Board Member to be designated by the Board of Directors. In
the absence of the chairman, another Board Member may serve as the chairman of the Corporate Governance
Committee. The Corporate Governance Committee convenes on dates, at times, and in places determined by the
committee's chairman. Other bank officers may be invited by the committee chairman to take part in meetings to
obtain information from them or to hear their views.
As of the date of this Offering Memorandum, the members of the Corporate Governance Committee were
Yahya Bakraktar, Mehmet Ali Gokce, Cenap Asci, Mustafa Aydın, Mehmet Hakan Atilla, Erdal Erdem, Yusuf
Dayioglu and Yusuf Duran Ocak.
Compensation Committee
Halkbank's Compensation Committee, established pursuant to the Board of Directors' decision dated 27
December 2011, continues to monitor and supervise compensation practices on behalf of the Board of Directors
in an effective manner.
As of the date of this Offering Memorandum, the members of the Compensation Committee were Yunus Karan
and Mehmet Aytekin.
Credit Committee
The Credit Committee performs the credit-related duties assigned to it by the Board. The Credit Committee
must convene at least once a week in a meeting attended by all of its members. The Credit Committee's duties
include:
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implementing lending policies approved by the Board concerning the dimensions of the Bank's total
placements portfolio and its distribution by sector, geographical region, and credit type;
making recommendations to the Board for the determination of principles and procedures relevant to
the Bank's credit policies and to its lending on a portfolio and private individual/corporate entity basis;
and
ensuring that the credit portfolio is managed within the framework of generally accepted risk
management principles.
The Credit Committee may delegate some of its duties and authorities, provided that the scope and limits of
these powers are explicitly defined; but it may not delegate any authorities concerning any type of unsecured
credit other than retail loans and it is responsible for monitoring and checking the activities of the body to which
it has delegated such authorities.
As of the date of this Offering Memorandum, the members of the Credit Committee were Ali Fuat
Taşkesenlioğlu, Sadik Tiltak, and Yunus Karan, and the alternate members of the Credit Committee were Yahya
Bakraktar and Mehmet Ali Gokce.
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Assets and Liabilities Committee
The Assets and Liabilities Committee is responsible for determining policies related to the management of the
Bank's assets and liabilities and to the deployment of resources for that purpose and for making decisions that
will be carried out by the units that are involved in the management of the Bank's balance sheet. The Assets and
Liabilities Committee's duties include discussing and assessing developments in the Bank's financial structure,
portfolio, budget, loan and deposit interest rates, as well as developments in money and capital markets and in
the Bank itself and other banks. The committee regularly meets once a week but it must meet at least once a
month.
As of the date of this Offering Memorandum, the members of the Assets and Liabilities Committee were Ali
Fuat Taşkesenlioğlu, Murat Oktay, Mehmet Akif Aydemir, Erdal Erdem, Hasan Ünal, Mehmet Sebahattin Bulut,
Mustafa Aydın, Mehmet Hakan Atilla, Murat Uysal and Salim Köse.
Operational Risks Working Committee
The Operational Risks Working Committee is responsible for identifying transactions that could give rise to
operational losses and designing procedures to prevent such losses. The Operational Risks Working Committee
meets at least once a month. The Operational Risks Working Committee's duties include:
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•
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•
•
identifying procedures so that the formulation of a database needed for the quantification of the Bank's
operational risks is carried out in coordination with the units involved;
coordinating the activities of units so that any errors and irregularities identified by the Board of
Inspectors or other control units are recorded using a standardised coding system;
identifying any concentration in operational risks and/or elements in operational processes that give rise
to risks based on reports by relevant units, and reporting on these matters to the Bank's Risk Committee
along with measures that should be taken;
conducting technical and administrative activities for the formulation of a database concerning
operational losses sustained in the past;
assessing operational risks related to functional activities in the risk assessment matrix and formulating
views as to their relative weightings; and
fulfilling other duties incumbent upon it as a result of changes in banking legislation, or those that may
be assigned to it by the Bank's Risk Committee.
As at the date of this Offering Memorandum, the members of the Operational Risks Working Committee were
Erdem Özdemir, Ali Cebeci, Ergin Kaya, Mehmet Volkan Sayim, Ali Alev, Kadir Yaylak, Ayşegül Sayın,
İsmail Öngen Akın, Barış Yetim and Serap Bilge Celik.
Sustainability Committee
Halkbank is a foundation established with the aim of contributing to economic development, social stability, and
to finance craftsmen and artisan. Halkbank has contributed greatly to the Turkish economy by providing
financial solutions since its establishment. Today, and also in the past, Halkbank provides actual finance
opportunities to the market but simultaneously considers humanitarian and social development and the
elimination of the effects of global climate change.
For this purpose, Halkbank established a Sustainability Committee in 2015 in order to coordinate works with
respect to sustainability. The Committee consists of two Board Members, five Deputy General Managers (from
the following departments: Loan Policies and Risk Monitoring, International Banking, Human Resources and
Organisation, Banking Operations and Support Services) and six Head of Departments (from the following
departments: Loan Policies Implementation, Financial Institutions and Investor Relations, International Banking
and Structured Finance, Banking Operations, Publicity and Public Relations and Support Services). One of the
Board Members is the president of the Committee and the position of Deputy President is administered by the
Deputy General Manager of Support Services.
The Sustainability Committee meets at least four times a year in order to observe and implement improvements
with respect to sustainable behaviour on the part of the Bank. The duties and powers of the Committee are listed
below:
•
•
•
implementation of "the Sustainability Policy", which is set by the Board of Directors;
coordination of sustainability activities and evaluation of the economic, environmental and social
impacts of the Bank's activities;
to lessen the possible negative effects of the Bank activities from a sustainability perspective and to
take the necessary action by forming working groups with relevant departments;
138
•
•
to determine the principles and procedures about the energy and resource management of the Bank.
This involves analysing data regarding energy and resource consumption, sharing the data with
relevant departments in the Bank so that they can take necessary precautions and reporting the analysis
to certain public informative platforms (i.e., CDP); and
to make comments and suggestions to the Board of Directors with respect to sustainability studies.
As at the date of this Offering Memorandum, the members of the Sustainability Committee were Yahya
Bakraktar, Omer Acikgoz, Mehmet Sabahattin Bulut, Mehmet Hakan Atilla, Erdal Erdem, Selahattin
Süleymanoğlu, Deniz Tekci, Elvan Oztabak, Recep Güleç, Ergin Kaya, Yalçın Kaya and Osman Bektaş.
Service Contracts
The Bank does not have any Directors' service contracts providing benefits to the Directors upon termination of
employment. Pursuant to the Articles the level of compensation of the Directors shall be determined by the
General Assembly.
Compensation
According to article 21 of the Articles, the Bank's Board Members are paid monthly salaries or fees in amounts
determined by the General Assembly. Currently, the Bank pays monthly salaries to its Board Members.
The total compensation paid to the Directors and senior management (including deferred or contingent
compensation accrued for the year) for the year ended 31 December 2015 amounted to TL 24.8 million.
Share Ownership
As of the date of this Offering Memorandum, none of the Directors or executive management beneficially owns
any of the Bank's share capital.
Conflicts of Interest
None of the Directors or executive management has any existing or potential conflicts of interests with respect
to their duties to Halkbank and their private interests or other duties.
Address
The business address of the Bank's Board and executive management is Barbaros Mahallesi, Şebboy Sokak
No:4 34746 Ataşehir – Istanbul.
Organisational Structure
An overview of the Bank's organisational structure is set out below.
139
140
OWNERSHIP
As of 31 December 2015, the share capital of the Bank was TL 1,250,000,000 consisting of 1,250,000,000
shares, each having to a nominal value of TL 1.00. As of the same date the shares were distributed as follows:
Percentage of
Shares
Privatization Administration* .................................................................................................................
Free Float(1)................................................................................................................................................
Other Shareholders ....................................................................................................................................
Total ..........................................................................................................................................................
51.06%
48.93%
0.01%
100.00%
________________________________________
(1)
550 shares held by the Privatization Administration are included as part of the free float.
Main Shareholder
The Bank's main shareholder is the Privatization Administration, which holds 51.06% of the outstanding share
capital of the Bank as of the date of this Offering Memorandum. The Privatization Administration is a legal and
public entity with an exclusive budget which reports directly to the Prime Ministry of the Republic of Turkey.
The Privatization Administration was established by Law 4046 Privatisation Implementations published in the
Official Gazette dated 27 November 1994. The Privatisation Authority was established to limit the role of the
state in the Turkish economy to certain sectors such as health, basic education, social security, national defence
and large scale infrastructure investments, and to provide a legal and structural environment for free enterprise
in Turkey to operate and thereby increase the overall productivity of the Turkish economy by ensuring a more
efficient organisation and management of state-owned enterprises that should be commercialised to be
competitive in the market.
As per Law No. 6237, published in the Official Gazette dated 29 June 2012 and numbered 28338 amending,
amongst others, Law No. 4603 on T.C. Ziraat Bankası, Türkiye Halk Bankası A.Ş. and Türkiye Emlak
Bankası A.Ş., published in the Official Gazette dated 25 November 2000 and numbered 24241, while the
Privatization Administration, as of the date of this Offering Memorandum, is the owner of approximately
51.06% of the outstanding share capital of the Bank, ownership rights to such shares will be exercised by the
minister with whom the Bank is affiliated, i.e., the Deputy Prime Minister for Economic and Financial Affairs of
Turkey, in accordance with the Prime Ministry Circular No. 2014/14 on duty allocation, published in the
Official Gazette dated 1 September 2014 and numbered 29106.
141
TURKISH BANKING SYSTEM
Structural Changes in the Turkish Banking Sector
The Turkish financial sector has gone through major structural changes as a result of the financial liberalisation
programme that started in the early 1980s. The abolition of directed credit policies, liberalisation of deposit and
credit interest rates and liberal exchange rate policies as well as the adoption of international best standard
banking regulations has accelerated the structural transformation of the Turkish banking sector. Since the 1980s,
the Turkish banking sector has experienced a significant expansion and development in the number of banks,
employment in the sector, diversification of services and technological infrastructure. The significant volatility
in the Turkish currency and foreign exchange markets experienced in 1994, 1998 and 2001, combined with the
short foreign exchange positions held by many Turkish banks at those times, affected the profitability and
liquidity of certain Turkish banks. In 2001, this resulted in the collapse of several institutions. The banking
sector also experienced a sharp reduction in shareholders' equity in 2001, with the capital for 22 private sector
banks declining to U.S.$4,916 million at the end of 2001 from U.S.$8,056 million for 28 banks at the end of
2000, according to the Banks Association of Turkey.
The Turkish money markets and foreign exchange markets have stabilised since 2001, in large part due to
regulatory reform and other governmental actions (including a three-part audit undertaken in 2001 and 2002,
after which all private commercial banks were either found to be in compliance with the 8% minimum capital
requirement, transferred to the Savings Deposit Insurance Fund (the "SDIF") or asked to increase their capital
level). The transparency of the system has improved along with the establishment of an independent supervisory
and regulatory framework and new disclosure requirements. Structural changes undertaken have strengthened
the banking sector and resulted in a more level playing field among banks. Certain advantages for state banks
were diminished while the efficiency of the system increased in general as a result of consolidation. According
to the SDIF's official data, since 1994, a total of 25 private banks have been transferred to the SDIF due to,
among other things, weakened financial stability and liquidity, and efforts are continuing on the resolution of the
SDIF banks while restructuring and privatisation of the state banks is progressing.
In August 2004, in an attempt to reduce the regulatory costs inherent in the Turkish banking system, the
government reduced the rate of the Resource Utilisation Support Fund ("RUSF") applicable on short-term
foreign currency commercial loans lent by banks domiciled in Turkey to zero; however, the 3% RUSF charge
for some types of loans provided by banks outside of Turkey with an average repayment term of less than one
year remains valid. In addition, effective from 2 January 2013 RUSF rates for cross-border foreign exchange
borrowings extended by financial institutions outside of Turkey with an average maturity of between one to two
years increased from 0% to 1% and those with an average maturity of between two to three years increased from
0% to 0.5%, while those with an average maturity of three years or more remained at 0%. The government also
increased the RUSF charged on interest of foreign currency-denominated retail loans from 10% to 15% in order
to curb domestic demand fuelled by credit, which was in turn perceived to be adversely affecting Turkey's
current account balance. The Council of Ministers set the RUSF charged on consumer credits to be utilised by
real persons (for non-commercial utilisation) to be 15% with its decision numbered 2010/974, which was
published in the Official Gazette dated 28 October 2010 and numbered 27743.
Number of Banks in the Turkish Banking Sector
As a result of the difficult operating environment for the Turkish banking industry in the late 1990s and early
2000s, the Turkish banking industry has undergone significant consolidation with the total number of banks
(including deposit-taking banks, investment banks and development banks) declining from 82 in 1999 to 45 on
31 December 2008, remaining at that level until February 2011 when Fortis Bank A.Ş. merged with Turk
Ekonomi Bankası A.Ş. In October 2012, Odea Bank A.Ş. commenced operations, and Standard Chartered Bank
purchased Credit Agricole Yatırım Bankası Turk Anonim Şirketi. In December 2012, the Burgan Bank Group
became Eurobank Tekfen Bank's majority shareholder with its acquisition of a 99.26% stake as a result of its
purchase of shares previously belonging to Eurobank and Tekfen Holding. In January 2013, Eurobank Tekfen
Bank began doing business under its new name, Burgan Bank A.Ş. In addition, on 20 December 2012, the
BRSA resolved to permit the establishment of a new deposit bank to be controlled by Bank of Tokyo-Mitsubishi
UFJ Ltd, the operating license for which was given by the BRSA Board decision in September 2013. On 15
November 2013, Portigon AG entered into a liquidation process, after having ceased its operations in Turkey in
August 2013. On 29 May 2014, the BRSA resolved to permit the establishment of the main Istanbul branch of a
new deposit bank, Intesa Sanpaolo S.p.A. Italy. On 2 April 2015, the BRSA announced that Commercial Bank
of China acquired 75.50% of the shares of Tekstil Bank A.Ş. from GSD Holding A.Ş. In May 2015 and
February 2016, the BRSA granted permission to Ziraat Katılım Bankası A.Ş. and Vakıf Katılım Bankası A.Ş.,
respectively, for each to start operations as an Islamic participation bank. In December 2015 the NBG entered
into an agreement with Qatar National Bank regarding the sale of NBG's entire stake in Finansbank; such share
142
transfer is pending subject to compliance with the closing conditions. In addition, the BRSA also granted
permission for Bank of China Limited to establish a deposit-taking bank in Turkey in May 2016.
The table below shows the evolution of the number of banks in the Turkish banking system as of the end of each
indicated year.
Number of banks
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
48
46
46
45
45
45
44
45
45
47
47
_______________________________________
Source: Banks Association of Turkey (www.tbb.org.tr)
Note: Total number of banks includes deposit-taking banks, investment banks and development banks, but excludes participation banks
(Islamic banks).
As of 31 March 2016, 47 banks were operating in Turkey (excluding participation banks). Thirty-four of these
were deposit-taking banks and the remaining banks were investment and development banks (the Central Bank,
as well as six participation banks which conduct their business under different legislation in accordance with
Islamic banking principles, are not included in this analysis). Among the deposit-taking banks, three banks were
state-controlled banks, nine were private domestic banks, 21 were private foreign banks and one was under the
administration of the SDIF.
The Banking Law permits deposit-taking banks to engage in all fields of financial activities, including deposit
collection, corporate and consumer lending, foreign exchange transactions, capital market activities and
securities trading. Typically, major commercial banks have nationwide branch networks and provide a full range
of banking services, while smaller commercial banks focus on wholesale banking. The main objectives of
development and investment banks are to provide medium-and long-term funding for investment in different
sectors.
On 3 February 2015, the SDIF took over management of Bank Asya, a private participation bank. The BRSA
announced that this action was taken due to Bank Asya's violation of a provision of the Banking Law that
requires banks to have a transparent and open shareholding and organizational structure that does not obstruct
the efficient auditing of the banks by the BRSA. On 29 May 2015, the BRSA announced that shareholding
rights (except dividends), management and audit of Bank Asya is to be transferred to the SDIF for partial or full
transfer, sale or merger of the bank pursuant to Article 71 of the Banking Law; provided that any loss shall be
deducted from the shares of the existing shareholders. In May 2016, the Chairman of the BRSA announced that
the SDIF will sell Bank Asya.
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TURKISH REGULATORY ENVIRONMENT
Regulatory Institutions
Turkish banks, branches and representative offices of foreign banks in Turkey are primarily governed by two
regulatory authorities in Turkey, the BRSA and the Central Bank.
The Role of the BRSA
In June 1999, the Banks Act established the BRSA, which is responsible for ensuring that banks observe
banking legislation, supervises the application of banking legislation and monitors the banking system. The
BRSA has administrative and financial autonomy.
Articles 82 and 93 of the Banking Law state that the BRSA, having the status of a public legal entity with
administrative and financial autonomy, is established in order to ensure the application of the Banking Law and
other relevant acts, to ensure that savings are protected and to carry out other activities as necessary by issuing
regulations within the limits of the authority granted to it by the Banking Law. The BRSA is obliged and
authorised to take and implement any decisions and measures in order to prevent any transaction or action that
could jeopardise the rights of depositors and the regular and secure operation of banks and/or could lead to
substantial damages to the national economy, as well as to ensure efficient functioning of the credit system.
The BRSA has responsibility for all banks operating in Turkey, including foreign banks and participation banks.
The BRSA sets various mandatory ratios such as reserve levels, capital adequacy and liquidity ratios. In addition,
all banks must provide the BRSA, on a regular and timely basis, information adequate to permit off-site analysis
by the BRSA of such bank's financial performance, including balance sheets, profit and loss accounts, board of
directors' reports and auditors' reports. Under current practice, such reporting is required on a daily, weekly,
monthly, quarterly and semi-annual basis, depending upon the nature of the information to be reported.
The BRSA conducts both on-site and off-site audits and supervises implementation of the provisions of the
Banking Law and other legislation, examination of all banking operations and analysis of the relationship and
balance between assets, receivables, equity capital, liabilities, profit and loss accounts and all other factors
affecting a bank's financial structure.
Pursuant to the Regulation on the Internal Systems of Banks and Internal Capital Adequacy Assessment Process
of Banks, as issued by the BRSA and published in the Official Gazette dated 11 July 2014 and numbered 29057
(the "ICAAP Regulation"), banks are obligated to establish, manage and develop (for themselves and all of
their consolidated affiliates) internal audit, internal control and risk management systems commensurate with
the scope and structure of their activities, in compliance with the provisions of such regulation. Pursuant to such
regulation, the internal audit and risk management systems are required to be vested in a department of the bank
that has the necessary independence to accomplish its purpose and such department must report to the bank's
board of directors. To achieve this, according to the regulation, the internal control personnel cannot also be
appointed to work in a role conflicting with their internal control duties. The ICAAP Regulation also requires
banks to internally calculate the amount of capital required to cover the risks to which they are or may be
exposed on a consolidated basis and with a forward-looking perspective, taking into account banks' near- and
medium- term business and strategic plans. This process, referred to as the "Internal Capital Adequacy
Assessment Process", should be designed according to the bank's needs and risk attitude and should constitute
an integral part of the decision-making process and corporate culture of the bank. In this context, each bank is
required to prepare an internal capital adequacy assessment process report (the "ICAAP Report") representing
the bank's own assessment of its capital requirements. The first ICAAP Report covering the activities of the
Bank in 2013 was required to be submitted to the BRSA by the end of September 2014. Subsequent filings of
the ICAAP Report are required to be made by the end of March each year.
The Role of the Central Bank
The Central Bank was founded in 1930 and performs the traditional functions of a central bank, including the
issuance of bank notes, implementation of the Government's fiscal and monetary policies, maintenance of price
stability and its continuity, regulation of the money supply, management of official gold and foreign exchange
reserves, monitoring of the financial system and advising the Government on financial matters. The Central
Bank exercises its powers independently of the Government. The Central Bank is empowered to determine the
inflation target together with the Government, and to adopt a monetary policy in compliance with such target.
The Central Bank is the only authorised and responsible institution for the implementation of such monetary
policy.
The Central Bank has responsibility for all banks operating in Turkey, including foreign banks. The Central
Bank sets mandatory reserve levels. In addition, each bank must provide the Central Bank, on a current basis,
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information adequate to permit off-site evaluation of its financial performance, including balance sheets, profit
and loss accounts, board of directors' reports and auditors' reports. Under current practice, such reporting is
required on a daily, weekly, monthly, quarterly and semi-annual basis depending upon the nature of the
information to be reported.
Banks Association of Turkey
The Banks Association of Turkey is an organisation that provides limited supervision of and coordination
among banks (excluding the participation banks) operating in Turkey. All banks (excluding the participation
banks) in Turkey are obligated to become members of this association. As the representative body of the
banking sector, the association aims to examine, protect and promote its members' professional interests;
however, despite its supervisory and disciplinary functions, it does not possess any powers to regulate banking.
Shareholdings
The direct or indirect acquisition by a person of shares that represent 10% or more of the share capital of any
bank or the direct or indirect acquisition or disposition of such shares by a person if the total number of shares
held by such person increases above or falls below 10%, 20%, 33% or 50% of the share capital of a bank,
requires the permission of the Banking Regulation and Supervisory Board (the "BRSB") in order to preserve
full voting and other shareholders' rights associated with such shares. In addition, irrespective of the thresholds
above, an assignment and transfer of privileged shares with the right to nominate a member to the board of
directors or audit committee (or the issuance of new shares with such privileges) is also subject to the
authorisation of the BRSA. In the absence of such authorisation, a holder of such thresholds of shares cannot be
registered in the share register, which effectively deprives such shareholder of the ability to participate in
shareholder meetings or to exercise voting or other shareholders' rights with respect to the shares but not of the
right to collect dividends declared on such shares.
Additionally, the direct and indirect acquisition or the transfer of the shares of a legal entity owning more than
10% of a bank is also subject to BRSA approval if such transfer directly or indirectly results in the total number
of the shares held by a shareholder increasing above or falling below 10%, 20%, 33% or 50% of the share
capital of such legal entity. If such approval is not sought, then the relevant shares would merely entitle its
owner to the dividend rights. In such case, the voting and other shareholder rights are exercised by the SDIF.
The board of directors of a bank is responsible for taking necessary measures to ascertain that shareholders
attending a general assembly have obtained the applicable authorisations from the BRSB. If the BRSB
determines that a shareholder has exercised voting or other shareholders' rights (other than the right to collect
dividends) without due authorisation as described in the preceding paragraph, then it is authorised to direct the
board of directors of a bank to start the procedure to cancel such applicable general assembly resolutions
(including by way of taking any necessary precautions concerning such banks within its authority under the
Banking Law if such procedure has not been started yet). If the shares are obtained on the stock exchange, then
the BRSB may also impose administrative fines on shareholders who exercise their rights or acquire or transfer
shares as described in the preceding paragraph without authorisation by the BRSB. In the case that the
procedure to cancel such general assembly resolutions is not yet started, or such transfer of shares is not deemed
appropriate by the BRSB even though the procedure to cancel such general assembly resolutions is started, then,
upon the notification of the BRSB, the SDIF has the authority to exercise such voting and other shareholders'
rights (other than the right to collect dividends and priority rights) attributable to such shareholder.
Lending Limits
The Banking Law sets out certain lending limits for banks and other financial institutions designed to protect
those institutions from excessive exposure to any one counterparty (or group of related counterparties). In
particular:
•
Credits extended to a natural person, a legal entity or a risk group (as defined under Article 49
of the Banking Law) in the amounts of 10% or more of a bank's shareholders' equity are
classified as large credits and the total of such credits cannot be more than eight times the
bank's shareholders' equity. In this context, "credits" include cash credits and non-cash credits
such as letters of guarantee, counter-guarantees, sureties, avals, endorsements and acceptances
extended by a bank, bonds and similar capital market instruments purchased by it, loans
(whether deposits or other), receivables arising from the future sales of assets, overdue cash
credits, accrued but not collected interest, amounts of non-cash credits converted into cash and
futures and options and other similar contracts, partnership interests, shareholding interests
and transactions recognised as loans by the BRSA. Avals, guarantees and sureties accepted
145
from, a real person or legal entity in a risk group for the guarantee of loans extended to that
risk group are not taken into account in calculating loan limits.
•
The Banking Law restricts the total financial exposure (including extension of credits,
issuance of guarantees, etc.) that a bank may have to any one customer or a risk group directly
or indirectly to 25% of its equity capital. In calculating such limit, a credit extended to a
partnership is deemed to be extended to the partners in proportion to their liabilities. A risk
group is defined as an individual, his or her spouse and children and partnerships in which any
one of such persons is a member of a board of directors or general manager, as well as
partnerships that are directly or indirectly controlled by any one of such persons, either
individually or jointly with third parties, or in which any one of such persons participate with
unlimited liability. Furthermore, a bank, its shareholders holding 10% or more of the bank's
voting rights or the right to nominate Board Members, its Board Members, its general
manager and partnerships directly or indirectly, individually or jointly, controlled by any of
these persons or a partnership in which these persons participate with unlimited liability or in
which these persons act as a member of the board of directors or general managers constitute a
risk group, for which the lending limits are reduced to 20% of a bank's equity capital, subject
to the BRSB's discretion to increase such lending limits up to 25% or to lower it to the legal
limit. Real and legal persons having surety, guarantee or similar relationships where the
insolvency of one is likely to lead to the insolvency of the other are included in the applicable
risk groups.
•
Loans extended to a bank's shareholders (irrespective of whether they are controlling
shareholders or they own qualified shares) registered with the share ledger of the bank holding
more than 1% of the share capital of the bank and their risk groups may not exceed 50% of the
bank's capital equity.
Non-cash loans, futures and option contracts and other similar contracts, avals, guarantees and suretyships,
transactions carried out with credit institutions and other financial institutions, transactions carried out with the
central governments, central banks and banks of the countries accredited with the BRSA, as well as bills, bonds
and similar capital market instruments issued or guaranteed to be paid by them, and transactions carried out
pursuant to such guarantees are taken into account for the purpose of calculation of loan limits within the
framework of principles and ratios set by the BRSA.
The BRSA determines the permissible ratio of non-cash loans, futures and options, other similar transactions,
avals, acceptances, guarantees and sureties, and bills of exchange, bonds and other similar capital markets
instruments issued or guaranteed to be paid by them, and transactions carried out pursuant to such guarantees
are taken into account for the purpose of calculation of loan limits within the framework of principles and ratios
set by the BRSA.
Pursuant to Article 55 of the Banking Law, the following transactions are exempt from the above-mentioned
lending limits:
(a)
transactions backed by cash, cash-like instruments and accounts and precious metals,
(b)
transactions carried out with the Undersecretariat of Treasury, the Central Bank, the Privatization
Administration and the Housing Development Administration of Turkey and transactions carried out
against bonds, bills and other securities issued by or payment of which is guaranteed by these
institutions,
(c)
transactions carried out in Central Bank markets or other legally organised money markets,
(d)
in the event a new loan is extended to the same person or to the same risk group (but excluding checks
and credit cards), any increase due to the volatility of exchange rates, taking into consideration the
current exchange rate of the loans made available earlier in foreign currency (or exchange rate), at the
date when the new loan was extended; as well as interest accrued on overdue loans, dividends and
other elements,
(e)
equity participations acquired due to any capital increases at no cost and any increase in the value of
equity participations not requiring any fund outflow,
(f)
transactions carried out among banks on the basis set out by the BRSA,
(g)
equity participations acquired through underwriting commitments in public offerings, provided that
such participations are disposed of in a manner and at a time determined by the BRSA,
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(h)
transactions that are taken into account as deductibles in calculation of own funds, and
(i)
other transactions to be determined by the BRSA.
Loan Loss Reserves
Pursuant to Article 53 of the Banking Law, banks must formulate, implement and regularly review policies
regarding compensation for losses that have arisen or are likely to arise in connection with loans and other
receivables and to reserve an adequate level of provisions against impairment in the value of other assets, for
qualification and classification of assets, receipt of guarantees and securities and measurement of their value and
reliability. In addition, such policies must address issues such as monitoring loans, follow-up procedures and the
repayment of overdue loans. Banks must also establish and operate systems to perform these functions. All
special provisions set aside for loans and other receivables in accordance with this article are considered as
expenditures deductible from the corporate tax base in the year they are set aside.
Procedures relating to loan loss reserves for non-performing loans are set out in Article 53 of the Banking Law
and in regulations issued by the BRSA. Pursuant to the Regulation on Procedures and Principles for
Determination of Qualifications of Loans and Other Receivables by Banks and Provisions to be Set Aside,
published in the Official Gazette No. 26333 on 1 November 2006 and amended from time to time thereafter (the
"Regulation on Provisions and Classification of Loans and Receivables"), banks are required to classify their
loans and receivables into one of the following groups:
(a)
Group I: Loans of a Standard Nature and Other Receivables: This group involves loans and other
receivables:
(i)
that have been disbursed to natural persons and legal entities with financial creditworthiness,
(ii)
the principal and interest payments of which have been structured according to the solvency
and cash flow of the debtor,
(iii)
the reimbursement of which has been made within specified periods, for which no
reimbursement problems are expected in the future and that can be fully collected, and
(iv)
for which no weakening of the creditworthiness of the applicable debtor has been found.
The terms of a bank's loans and receivables monitored in this group may be modified if such loans and
receivables continue to have the conditions envisaged for this group; however, in the event that such
modification is related to the extension of the initial payment plan under the loan or receivable, a general loan
provision, not being less than five times the sum of 1% of the total cash loan portfolio and five times 0.2% of
the total non-cash loan portfolio (i.e., letters of guarantee, avals and their sureties, and other non-cash loans)
(except for (a) certain cash and non-cash export loans for which the general loan loss reserve is calculated at five
times 0%, and (b) cash and non-cash SME loans, for which the general loan loss reserve is calculated at five
times of 0.5% and 0.1%, respectively) is required to be set aside, and such modifications are required to be
disclosed in the financial reports and made publicly available. This ratio is required to be at least 2.5 times the
Consumer Loans Provisions (as defined below) for amended consumer loan agreements (other than vehicle and
housing loans). The modified loan or receivable may not be subject to this additional general loan provision if
such loan or receivable has low risk, is extended with a short-term loan and the interest payments thereof are
made in a timely manner; provided that the principal amount of such loan or receivable must be repaid within a
year, at the latest, if the term of the loan or receivable is renewed without causing any additional cost to a bank.
(b)
Group II: Loans and Other Receivables under Close Monitoring: This group involves loans and other
receivables:
(i)
that have been disbursed to natural persons and legal entities who are financially creditworthy
and where payments of principal and interest are currently being made in a timely fashion, but
which need to be monitored closely due to reasons such as negative changes in the solvency or
cash flow of the debtor or probable materialisation of the latter or significant financial risk
carried by the person utilising the loan,
(ii)
whose principal and interest payments according to the conditions of the loan agreement are
not likely to be repaid according to the terms of the loan agreement and where the persistence
of such problems might result in partial or full non-reimbursement risk,
(iii)
that are very likely to be repaid but the dates for principal and interest are delayed for more
than 30 days for justifiable reasons but not falling within the scope of "Loans and other
Receivables with Limited Recovery" set forth under Group III below, or
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(iv)
although the credit standing of the debtor has not weakened, there is a high likelihood of
weakening due to the debtor's irregular and unmanageable cash flow.
If a loan customer has multiple loans and one of these loans is classified in Group II and others are classified in
Group I, then all of such customer's loans are required to be classified in Group II. The terms of a bank's loans
and receivables monitored in this group may be modified if such loans and receivables continue to have the
conditions envisaged for this group; however, in the event that such modification is related to the extension of
the initial payment plan under the loan or receivable, a general loan provision, not being less than 2.5 times the
sum of 2% of the total cash loan portfolio and 2.5 times 0.4% of the total non-cash loan portfolio (i.e., letters of
guarantee, avals and their sureties, and other non-cash loans) is required to be set aside and such modifications
are required to be disclosed under the financial reports to be disclosed to the public. This ratio is required to be
at least 1.25 times the Consumer Loans Provisions for amended consumer loan agreements (other than vehicle
and housing loans). The modified loan or receivable may not be subject to this additional general loan provision
if such loan or receivable has low risk, is extended with a short term and the interest payments thereof are made
in a timely manner; provided that the principal amount of such loan or receivable must be repaid within a year,
at the latest, if the term of the loan or receivable is renewed without causing any additional cost to a bank.
(c)
(d)
(e)
Group III: Loans and Other Receivables with Limited Recovery: This group involves loans and other
receivables:
(i)
with limited collectability due to the resources of, or the securities furnished by, the debtor
being found insufficient to meet the debt on the due date, and in case the problems observed
are not eliminated, they are likely to cause loss,
(ii)
the credit standing of whose debtor has weakened and where the loan is deemed to have
weakened,
(iii)
collection of whose principal and interest or both has been delayed for more than 90 days but
not more than 180 days from the due date, or
(iv)
in connection with which the bank is of the opinion that collection by the bank of the principal
or interest of the loan or both will be delayed for more than 90 days from the due date owing
to reasons such as the debtor's difficulties in financing working capital or in creating
additional liquidity.
Group IV: Loans and Other Receivables with Improbable Recovery: This group involves loans and
other receivables:
(i)
that seem unlikely to be repaid or liquidated under existing conditions,
(ii)
in connection with which there is a strong likelihood that the bank will not be able to collect
the full loan amount that has become due or payable under the terms stated in the loan
agreement,
(iii)
whose debtor's creditworthiness is deemed to have significantly weakened but which are not
considered as an actual loss due to such factors as a merger, the possibility of finding new
financing or a capital increase, or
(iv)
there is a delay of more than 180 days but not more than one year from the due date in the
collection of the principal or interest or both.
Group V: Loans and Other Receivables Considered as Losses: This group involves loans and other
receivables:
(i)
that are deemed to be uncollectible,
(ii)
collection of whose principal or interest or both has been delayed by one year or more from
the due date, or
(iii)
for which, although sharing the characteristics stated in Groups III and IV, the bank is of the
opinion that they have become weakened and that the debtor has lost his creditworthiness due
to the strong possibility that it will not be possible to fully collect the amounts that have
become due and payable within a period of over one year.
Pursuant to Article 53 of the Banking Law, banks must calculate the losses that have arisen, or are likely to arise,
in connection with loans and other receivables. Such calculations must be regularly reviewed. Banks must also
reserve adequate provisions against depreciation or impairment of other assets, qualify and classify assets,
receive guarantees and security and measure the reliability and the value of such guarantees and security. In
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addition, banks must monitor loans under review and monitor the repayment of overdue loans and establish and
operate systems to perform these functions. All provisions set aside for loans and other receivables in
accordance with this article are considered expenditures deductible from the corporate tax base in the year they
are set aside. Pursuant to the Regulation on Provisions and Classification of Loans and Receivables, banks are
required to reserve adequate provisions for loans and other receivables until the end of the month in which the
payment of such loans and receivables has been delayed.
The Regulation on Provisions and Classification of Loans and Receivables also requires Turkish banks to
provide a general reserve calculated at 1% of the total cash loan portfolio and 0.2% of the total non-cash loan
portfolio (i.e., letters of guarantee, avals and their sureties, and other non-cash loans) (except for (a) certain cash
and non-cash export loans, for which the general loan loss reserve is calculated at 0% and (b) cash and non-cash
SME loans, for which the general loan loss reserve is calculated at 0.5% and 0.1%, respectively) for standard
loans; and a general reserve calculated at 2% of the total cash loan portfolio and 0.4 % of the total non-cash loan
portfolio (i.e., letters of guarantee, avals and their sureties and other non-cash loans) for closely-monitored loans.
In addition, 25% of such rates will be applied for each check that remains uncollected for a period of five years
after issuance. Pursuant to the Regulation on Provisions and Classification of Loans and Receivables, at least
40% of the general reserve amount calculated according to the above mentioned ratios had to be reserved by 31
December 2012, at least 60% had to be reserved by 31 December 2013, at least 80% shall be reserved by 31
December 2014 and 100% shall be reserved by 31 December 2015.
Banks with consumer loan ratios greater than 25% of their total loans and banks with non-performing consumer
loan (classified as frozen receivables (excluding housing loans)) ratios greater than 8% of their total consumer
loans (excluding housing loans) (pursuant to the unconsolidated financial data prepared as of the general reserve
calculation period) are required to set aside a 4% general provision for outstanding (but not yet due) consumer
loans (excluding housing loans) under Group I, and an 8% general provision for outstanding (but not yet due)
consumer loans (excluding housing loans) under Group II (the "Consumer Loans Provisions").
If the sum of the letters of guarantee, acceptance credits, letters of credit undertakings, endorsements, purchase
guarantees in security issuances, factoring guarantees or other guarantees and sureties and pre-financing loans
without letters of guarantee of a bank is higher than ten times its equity calculated pursuant to banking
regulations, a 0.3% general provision ratio is required to be applied by such bank for all of its standard non-cash
loans. Notwithstanding the above ratio and by taking into consideration the standard capital adequacy ratio, the
BRSA may apply the same ratio or a higher ratio as the general reserve requirement ratio.
Turkish banks are also required to set aside general provisions for the amounts monitored under the accounts of
"Receivables from Derivative Financial Instruments" on the basis of the sums to be computed by multiplying
them by the rates of conversion into credit indicated in Article 12 of the "Regulation on Loan Transactions of
Banks" (published in the Official Gazette No. 26333 on 1 November 2006) by applying the general provision
rate applicable for cash loans. In addition to the general provisions, special provisions must be set aside for the
loans and receivables in Groups III, IV and V at least in the amounts of 20%, 50% and 100%, respectively. An
amount equal to 75% less special provisions is set aside for each check slip of customers who have loans under
Groups III, IV and V, which checks were delivered by the Bank at least five years previously; however, if a
bank sets aside specific provisions at a rate of 100% for non-performing loans, then it does not need to set aside
specific provisions for check slips that were delivered by such bank at least two years previously provided that a
registered letter has been sent to the relevant customer requiring it to return the check slips to the bank in no
later than 15 days.
Pursuant to these regulations, all loans and receivables in Groups III, IV and V above, irrespective of whether
any interest or other similar obligations of the debtor are applicable on the principal or whether the loans or
receivables have been refinanced, are defined as "frozen receivables". If several loans have been extended to a
loan customer by the same bank and if any of these loans is considered as a frozen receivable, then all
outstanding risks of such loan customer are classified in the same group as the frozen receivable even if such
loans would not otherwise fall under the same group as such frozen receivable. If a frozen receivable is repaid in
full, then the other loans of the loan customer may be re-classified into the applicable group as if there were no
related frozen receivable.
Pursuant to the Regulation on Provisions and Classification of Loans and Receivables, the BRSA is entitled to
increase these provision rates taking into account the sector and country risk status of the borrower.
Banks must also monitor the following types of security based upon their classification:
Category I Collateral: (a) cash, deposits, profit sharing funds and gold deposit accounts that are
secured by pledge or assignment agreements, promissory notes, debenture bonds and similar securities
issued directly or guaranteed by the Central Bank, the Treasury, the Housing Development
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Administration of Turkey or the Privatization Administration and funds gained from repo transactions
over similar securities and B-type investment profit sharing funds, member firm receivables arising out
of credit cards and gold reserved within the applicable bank, (b) transactions executed with the
Treasury, the Central Bank, the Housing Development Administration of Turkey or the Privatization
Administration and transactions made against promissory notes, debenture bonds, lease certificates and
similar securities issued directly or guaranteed by such institutions, (c) securities issued directly or
guaranteed by the central governments or central banks of countries that are members of the
Organisation for Economic Co-operation and Development (the "OECD"), (d) guarantees and sureties
given by banks operating in OECD member states, (e) securities issued directly or guaranteed by the
European Central Bank, (f) sureties, letters of guarantee, avals and acceptance and endorsement of noncash loans issued by banks operating in Turkey in compliance with their maximum lending limits and
(g) bonds, debentures and covered bonds issued or lease certificates the underlying assets of which are
originated by banks operating in Turkey.
Category II Collateral: (a) precious metals other than gold, (b) shares quoted on a stock exchange and
A-type investment profit sharing funds, (c) asset-backed securities and private sector bonds except ones
issued by the borrower, (d) credit derivatives providing protection against credit risk, (e) the
assignment or pledge of accrued entitlements of real and legal persons from public agencies, (f) liquid
securities, negotiable instruments representing commodities, other types of commodities and movables
pledged at market value, (g) mortgages on real property registered with the land registry and mortgages
on real property built on allocated real estate, provided that their appraised value is sufficient, (h)
export documents based upon marine bill of lading or transport bills, or insured within the scope of an
exportation loan insurance policy, (i) bills of exchange stemming from actual trading relations, which
are received from natural persons and legal entities, (j) insurance policies for trade receivables and (k)
Credit Guarantee Fund (Kredi Garanti Fonu) guarantees not benefitting from Treasury support.
Category III Collateral: (a) commercial enterprise pledges, (b) other export documents, (c) vehicle
pledges, (d) mortgages on aircraft or ships, (e) sureties from real or legal persons whose
creditworthiness is higher than the debtor itself and (f) promissory notes of real and legal persons.
Category IV Collateral: any other security not otherwise included in Category I, II or III.
Assets owned by banks and leased to third parties under financial lease agreements must also be classified in
accordance with the above-mentioned categories.
When calculating the special reserve requirements for frozen receivables, the value of collateral received from
an applicable borrower is deducted from such borrower's loans and receivables in Groups III, IV and V above in
the following proportions in order to determine the amount of the required reserves:
Category
Discount Rate
Category I collateral
Category II collateral
Category III collateral
Category IV collateral
100%
75%
50%
25%
In case the value of the collateral exceeds the amount of the NPL, the above-mentioned rates of consideration
are applied only to the portion of the collateral that is equal to the amount of the NPL.
According to Article 11 of the Regulation on Provisions and Classification of Loans and Receivables, in the
event of a borrower's failure to repay loans or any other receivables due to a temporary lack of liquidity that the
borrower is facing, a bank is allowed to refinance the borrower with additional funding in order to strengthen the
borrower's liquidity position or to structure a new repayment plan. Despite such refinancing or new repayment
plan, such loans and other receivables are required to be monitored in their current loan groups (whether
Group III, IV or V) for at least the next six-month period and, within such period, provisions continue to be set
aside at the special provision rates applicable to the group in which they are included. After the lapse of such
six-month period, if total collections reach at least 15% of the total receivables for restructured loans, then the
remaining receivables are reclassified to the "Renewed/Restructured Loans Account". The bank may refinance
the borrower for a second time if the borrower fails to repay the refinanced loan; provided that at least 20% of
the principal and other receivables are collected on a yearly basis.
In addition to the general provisioning rules, the BRSA has from time to time enacted provisional rules relating
to exposures to debtors in certain industries (such as the maritime industry) or countries (such as rules for real
persons or legal entities residing in or engaged in activities relating to Libya and Syria).
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On 22 June 2016, the BRSA also published the 2016 Regulation on Provisions and Classification of Loans that
would replace the Regulation on Provisions and Classification of Loans and Receivables as of 1 January 2017 in
order to ensure compliance (by 1 January 2018) with the requirements of IFRS and the Financial Sector
Assessment Programme, which is a joint programme by the International Monetary Fund and the World Bank.
The 2016 Regulation on Provisions and Classification of Loans requires banks to adopt IFRS 9 principles
(unless an exemption is granted by the BRSA) related to the assessment of credit risk by the end of 2017 and to
set aside general provisions in line with such principles. Banks exempted by the BRSA from IFRS 9 principles
are required to provide a general reserve calculated at 1.5% of the total cash loan portfolio for standard loans,
and a general reserve calculated at 3% of the total cash loan portfolio for closely-monitored loans. These ratios
will be applied at 1% and 2% respectively until1 January 2018.
Capital Adequacy
Article 45 of the Banking Law defines "Capital Adequacy" as having adequate equity against losses that could
arise from the risks encountered. Pursuant to the same article, banks must calculate, achieve, maintain and report
their capital adequacy ratio, which, within the framework of the BRSA's regulations, cannot be less than 8%.
The BRSA is authorised to increase the minimum capital adequacy ratio and the minimum consolidated capital
adequacy ratio, to set different ratios for each bank and to revise the calculation and notification periods, but
must consider each bank's internal systems as well as its asset and financial structures. Both the minimum total
capital adequacy ratio and the minimum consolidated capital adequacy ratio for the Group as required by the
BRSA is 8% as of 31 December 2015. In addition, as a prudential requirement, the BRSA requires a target
capital adequacy ratio that is 4% higher than the legal capital ratio of 8%.
In order to implement the rules of the report entitled "A Global Regulatory Framework for More Resilient Banks
and Banking Systems" published by the Basel Committee in December 2010 and revised in June 2011 (i.e.,
Basel III) into Turkish law, the 2013 Equity Regulation and amendments to the Regulation on the Measurement
and Evaluation of the Capital Adequacy of Banks were published in the Official Gazette dated 5 September
2013 and numbered 28756 and entered into force on 1 January 2014. The 2013 Equity Regulation defines
capital of a bank as the sum of: (a) principal capital (i.e., Tier I capital), which is composed of core capital and
additional principal capital (i.e., additional Tier I capital) and (b) supplementary capital (i.e., Tier II capital)
minus capital deductions. Pursuant to the Regulation on the Measurement and Evaluation of the Capital
Adequacy of Banks (as so amended): (i) both the minimum core capital adequacy ratio and the minimum
consolidated core capital adequacy ratio are 4.5% and (ii) both the minimum Tier I capital adequacy ratio and
the minimum consolidated Tier I capital ratio are 6.0%.
The BRSA also published several amendments to its regulations and communiqués on various matters, such as
internal capital adequacy ratios and internal systems in accordance with the Basel Committee's Regulatory
Consistency Assessment Programme (the "RCAP"), which is conducted by the BIS with a view to ensure
Turkey's compliance with Basel regulations. The amendments relating to internal systems and internal capital
adequacy ratios entered into force on 20 January 2016 and the 2015 Capital Adequacy Regulation and the
amendments relating to the 2013 Equity Regulation entered into force on 31 March 2016. The 2015 Capital
Adequacy Regulation sustains the capital adequacy ratios introduced by the former regulation, but changed
items including: (a) the risk weights of foreign currency required reserves in the Central Bank from 0% to
Turkey's foreign currency risk weight, which was 50% prior to 31 March 2016, and (b) exclusion of free
provision for possible losses from capital calculations. The 2015 Capital Adequacy Regulation lowered the risk
weights of certain assets, including reducing: (a) the risk weights of residential mortgage loans and credit cards
from 50% to 35%, (b) the risk weights of consumer loans (excluding residential mortgage loans) qualifying as
retail loans (perakende alacaklar) in accordance with the 2015 Capital Adequacy Regulation and instalment
payments of credit cards from a range of 100% to 250% (depending upon their outstanding tenor) to 75%
(irrespective of their tenor); provided that such receivables are not re-classified as "non-performing loans" and
(c) the credit conversion factors of commitments for credit cards and overdrafts from 20% to 0%. These
revisions are expected to result in corresponding increases in the Bank's and the Group's capital adequacy levels.
In addition, the Regulation on the Capital Maintenance and Cyclical Capital Buffer and the Regulation on the
Measurement and Evaluation of Leverage Levels of Banks were published in the Official Gazette dated 5
November 2013 and numbered 28812, which regulations entered into force on 1 January 2014 (with the
exception of certain provisions of the latter regulation that have entered into effect as of 1 January 2015). The
Regulation on the Capital Maintenance and Cyclical Capital Buffer provides additional core capital
requirements both on a consolidated and bank-only basis. Pursuant to this regulation, the additional core capital
requirements are to be calculated by the multiplication of the amount of risk-weighted assets by the sum of a
capital maintenance buffer ratio and bank-specific counter-cyclical buffer ratio. According to this regulation, the
capital conservation buffer for banks is 0.625% for 2016, which will be phased to 2.5% through 2019. The
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BRSA has published: (a) its decision dated 18 December 2015 (No. 6602) regarding the procedures for and
principles on calculation, application and announcement of a countercyclical capital buffer and (b) its decision
dated 24 December 2015 (No. 6619) regarding the determination of such countercyclical capital buffer.
Pursuant to these decisions, the countercyclical capital buffer for Turkish banks' exposures in Turkey was
initially set at 0% of a bank's risk-weighted assets in Turkey (effective as of 1 January 2016); however, such
ratio might fluctuate between 0% and 2.5% as announced from time to time by the BRSA. While deciding on
the countercyclical capital buffer, the BRSA will rely upon the credit-to-GDP gap as a common reference point
in line with the guidance of the BIS. Any increase to the countercyclical capital buffer ratio is to be effective one
year after the relevant public announcement, whereas any reduction is to be effective as of the date of the
relevant public announcement.
In 2013, the BRSA also published the Regulation on the Measurement and Evaluation of the Leverage Level of
Banks (which entered into force on 1 January 2014 with the exception of certain provisions that entered into
effect on 1 January 2015), seeking to constrain leverage in the banking system and ensure maintenance of
adequate equity on a consolidated and bank-only basis against leverage risks (including measurement error in
the risk-based capital measurement approach).
Lastly, the Regulation on Liquidity Coverage Ratios, published in the Official Gazette dated 21 March 2014 and
numbered 28948, seeks to ensure that a bank maintains an adequate level of unencumbered, high-quality liquid
assets that can be converted into cash to meet its liquidity needs for a 30 calendar day period. The Regulation on
Liquidity Coverage Ratios provides that the ratio of the high quality asset stock to the net cash outflows, both of
which are calculated in line with the regulation, cannot be lower than 100% in respect of total consolidated and
non-consolidated liquidity and 80% in respect of total consolidated and non-consolidated foreign exchange
liquidity; however, pursuant to the BRSA Decision on Liquidity Ratios dated 26 December 2014 (No. 6143)
(the "BRSA Decision on Liquidity Ratios") for a period between 5 January 2015 and 31 December 2015, such
ratios were applied as 60% and 40% respectively, and for a period starting from 1 January 2016 and ending on
31 December 2016, such ratios are applied as 70% and 50%, respectively. Furthermore, pursuant to the BRSA
Decision on Liquidity Ratios, such ratios shall be applied in increments of ten percentage points for each year
from 1 January 2017 until 1 January 2019. Unconsolidated total and foreign currency liquidity coverage ratios
cannot be non-compliant more than six times within a calendar year, which includes non-compliances that have
already been remedied. With respect to consolidated total and foreign currency liquidity coverage, these cannot
be non-compliant consecutively within a calendar year and such ratios cannot be non-compliant for more than
two times within a calendar year, including the non-compliances that have already been remedied. The
Regulation on Liquidity Coverage Ratios entered into effect immediately with the provisions thereof becoming
applicable as of 1 January 2014 (with the exception of certain provisions relating to minimum coverage ratio
levels and the consequences of failing to maintain compliance, which have entered into effect as of 1 January
2015 pursuant to the BRSA Decision on Liquidity Ratios).
Under the 2013 Equity Regulation, debt instruments and their issuance premia can be included either in
additional Tier I capital or in Tier II capital subject to certain conditions; however, such amount is required to be
reduced by the amount of any cash credit extended to creditors holding 10% or more of such debt instruments of
a bank (or to any person within such creditors' risk group). In June 2016, the BRSA also published a draft
Communiqué on Principles for Debt Instruments to be Included in Equity Calculations by Banks (the "Draft
Equity Communiqué") under which the BRSA proposes to introduce certain rules in relation to conversion and
write-down of debt instruments to be included in additional Tier I or Tier II capital.
See also a discussion of the implementation of Basel III in "—Basel Committee—Basel III" below.
Tier II Rules under Turkish Law
Previous Tier II Rules. Secondary subordinated debts were, through 31 December 2013, regulated under the
2006 Equity Regulation. The following in this section thus describes the rules previously applicable to the
Bank's secondary subordinated debts that were issued before 1 January 2014, which rules continue to apply to
such subordinated debts notwithstanding the 2013 Equity Regulation.
According to the 2006 Equity Regulation, the net worth of a bank (i.e., the bank's own funds) consists of main
capital and supplementary capital minus capital deductions. In the relevant definition, "secondary subordinated
loans" (which as defined can also include bonds) are listed as one of the items that constitute a bank's
supplementary capital (i.e., "Tier II" capital); however, loans provided to the banks by their affiliates or debt
instruments issued to their affiliates do not fall within the scope of such "secondary subordinated loans". Unless
temporarily permitted by the BRSA in exceptional cases, the portion of primary subordinated debts that is not
included in the calculation of Tier I capital plus the total secondary subordinated debts that, in aggregate,
exceeds 50% of Tier I capital is not taken into consideration in the calculation of Tier II capital. During the final
five years of a secondary subordinated debt, the amount thereof to be taken into account in the calculation of the
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Tier II capital would be reduced by 20% per year. In addition, any secondary subordinated debt with a
remaining maturity of less than one year is not included in the calculation of Tier II capital. Any cash credits
extended by the bank to the provider(s) of the "secondary subordinated loans" (if debt instruments, to the
investor(s) holding 10% or more thereof) and any debt instruments issued by such provider(s) (or investor(s))
and purchased by the bank are also deducted from the amount to be used in the calculation of the Tier II capital.
A secondary subordinated debt is taken into account in the calculation of Tier II capital on the date of the
accounting of such secondary subordinated debt on the books of the relevant bank.
New Tier II Rules. According to the 2013 Equity Regulation (which includes provisional articles relating to the
transition period to the new Tier II Rules), which came into force on 1 January 2014, Tier II capital shall be
calculated by subtracting capital deductions from general provisions, issuance premiums and the debt
instruments that are not to be included in Tier I capital and have been approved by the BRSA upon the
application of board of directors of the applicable bank along with a written statement confirming compliance of
the debt instruments with conditions set forth below (the "New Tier II Conditions"):
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
the debt instrument shall have been issued by the bank and registered with the CMB and shall have been
fully collected in cash,
in the event of dissolution of the bank, the debt instrument shall have priority over debt instruments that are
included in additional Tier I capital and shall be subordinated with respect to rights of deposit holders and
all other creditors,
the debt instrument shall not be related to any derivative operation or contract violating the condition stated
in clause (b) nor shall it be tied to any guarantee or security, in one way or another, directly or indirectly,
the debt instrument must have an initial maturity of at least five years and shall not include any provision
that may incentivise prepayment, such as dividends and increase of interest rate,
if the debt instrument includes a prepayment option, such option shall be exercisable no earlier than five
years after issuance and only with the approval of the BRSA; approval of the BRSA is subject to the
following conditions:
(i) the bank should not create any market expectation that the option will be exercised by the bank,
(ii) the debt instrument shall be replaced by another debt instrument either of the same quality or higher
quality, and such replacement shall not have a restrictive effect on the bank's ability to sustain its
operations, or
(iii) following the exercise of the option, the equity of the bank shall exceed the higher of: (A) the capital
adequacy requirement that is to be calculated pursuant to the Regulation on the Measurement and
Evaluation of Capital Adequacy of Banks along with the procedures and principles on capital buffers
that are to be set by the BRSA (or, after 31 March 2016, the 2015 Capital Adequacy Regulation along
with the Regulation on the Capital Maintenance and Cyclical Capital Buffer), (B) the capital
requirement derived as a result of an internal capital adequacy evaluation process of the bank and (C)
the higher capital requirement set by the BRSA (if any);
however, if tax legislation or other regulations are materially amended, a prepayment option may be
exercised; provided that the above conditions in this clause (e) are met and the BRSA approves,
the debt instrument shall not provide investors with the right to demand early amortisation except for during
a bankruptcy or dissolution process relating to the issuer,
the debt instrument's dividend or interest payments shall not be linked to the creditworthiness of the issuer,
the debt instrument shall not be: (i) purchased by the issuer or by corporations controlled by the issuer or
significantly under the influence of the issuer or (ii) assigned to such entities, and its purchase shall not be
directly or indirectly financed by the issuer itself,
if there is a possibility that the bank's operating license would be cancelled or the probability of transfer of
management of the bank to the SDIF arises pursuant to Article 71 of the Banking Law, removal of the debt
instrument from the bank's records or the debt instrument's conversion to share certificates would be
possible if the BRSA so decides,
in the event that the debt instrument has not been issued by the bank itself or one of its consolidated entities,
the amounts obtained from the issuance shall be immediately transferred without any restriction to the bank
or its consolidated entity (as the case may be) in accordance with the rules listed above, and
as of 31 March 2016, the repayment of the principal of the debt instrument before its maturity is subject to
the approval of the BRSA and the approval of the BRSA is subject to the same conditions as the exercise of
the prepayment option as described under clause (e) above.
Furthermore, procedures and principles regarding the deduction of the debt instrument's value and/or removal of
the debt instrument from the bank's records, and/or the debt instrument's conversion to share certificates are
determined by the BRSA. For this purpose, the BRSA, in June 2016, published the Draft Equity Communiqué
providing certain rules in relation to deduction of the debt instruments' value, removal of debt instruments from
the bank's records and conversion of debt instruments to share certificates.
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Loans (as opposed to securities) that have been approved by the BRSA upon the application of the board of
directors of the applicable bank accompanied by a written statement confirming that all of the New Tier II
Conditions (except the issuance and approval by the CMB) are met also can be included in Tier II capital
calculations. In addition to the conditions that need to be met before including debt instruments and loans in the
calculation of Tier II capital, the 2013 Equity Regulation also provides a limit for inclusion of general
provisions in Tier II capital such that (a) the portion of the general provisions that exceeds 1.25% of the amount
used as a basis for credit risk and (b) the portion of the positive amount obtained pursuant to Schedule 1(39) of
the Communiqué Regarding the Calculation of Amounts Subject to Credit Risk by Internal Rating Methods that
exceeds 6 parts per 1,000 of the total risk weighted amounts subject to Internal Rating Methods pursuant to the
relevant Communiqué is not taken into consideration in calculating the Tier II capital.
Furthermore, in addition to the New Tier II Conditions stated above, the BRSA may require new conditions for
each debt instrument and the procedure and principles regarding the removal of the debt instrument from the
bank's records or the debt instrument's conversion to share certificates are determined by the BRSA.
Applications to include debt instruments or loans into Tier II capital shall be accompanied with the original copy
or a notarised copy of the applicable agreement(s) or, if an applicable agreement is not yet signed, a draft of
such agreement (with submission of a its original or a notarised copy to be submitted to the BRSA within five
business days of the signing of such agreement). The amendments to the 2013 Equity Regulation, which entered
into force on 31 March 2016, provide that if the terms of the executed loan agreement or debt instrument contain
different provisions than the draft thereof so provided to the BRSA, then a written statement of the board of
directors confirming that such difference does not affect Tier II capital qualifications is required to be submitted
to the BRSA within five business days following the signing date of such loan agreement or the issuance date of
such debt instrument. If the interest rate is not explicitly indicated in the loan agreement or the prospectus of the
debt instrument (borçlanma aracı izahnamesi), or if the interest rate is excessively high compared to that of
similar loans or debt instruments, then the BRSA might not authorise the inclusion of the loan or debt
instrument in the calculation of Tier II capital.
Debt instruments and loans that are approved by the BRSA are included in accounts of Tier II capital as of the
date of transfer to the relevant accounts in the applicable bank's records. Loan agreements and debt instruments
that have been included in Tier II capital calculations, and that have less than five years to maturity, shall be
included in Tier II capital calculations after being reduced by 20% each year.
Basel Committee
Basel II. The most significant difference between the capital adequacy regulations in place before 1 July 2012
and the new Basel II regulations is the calculation of risk-weighted assets related to credit risk. The new
regulations seek to align more closely the minimum capital requirement of a bank with its borrowers' credit risk
profile. The impact of the new regulations on capital adequacy levels of Turkish banks will largely stem from
exposures to the Turkish government, principally through the holding of Turkish government bonds. While the
previous rules provided a 0% risk weight for exposures to the Turkish sovereign and the Central Bank, the rules
of Basel II require that claims on sovereign entities and their central banks be risk-weighted according to their
credit assessment, which currently results in a 50% risk weighting for Turkey; however, the Turkish rules
implementing the Basel principles in Turkey (the "Turkish National Discretion") revises this general rule by
providing that all Turkish Lira-denominated claims on sovereign entities in Turkey and all foreign currencydenominated claims on the Central Bank will have a 0% risk weight. According to the 2015 Capital Adequacy
Regulation, which entered into force on 31 March 2016, only Turkish Lira-denominated claims on the Central
Bank continue to be subject to a preferential treatment of a 0% risk weight, whereas the risk weights of foreign
currency-denominated claims on the Central Bank in the form of required reserves have been increased from 0%
to 50%. As a result of these implementation rules, the impact of the new regulations has been fairly limited
when compared to the previous regime.
Basel III. Turkish banks' capital adequacy requirements have been and may continue to be further affected by
Basel III as implemented by the Equity Regulations 2013, which includes requirements regarding regulatory
capital, liquidity, leverage ratio and counterparty credit risk measurements, which are expected to be
implemented in phases until 2019. In 2013, the BRSA announced its intention to adopt the Basel III
requirements and, as published in the Official Gazette dated 5 September 2013 and numbered 28756, adopted
the 2013 Equity Regulation and amendments to the Regulation on the Measurement and Evaluation of the
Capital Adequacy of Banks, both of which entered into effect on 1 January 2014. The 2013 Equity Regulation
introduces core Tier I capital and additional Tier I capital as components of Tier I capital, whereas the
amendments to the Regulation on the Measurement and Evaluation of Capital Adequacy of Banks: (a)
introduced a minimum core capital adequacy standard ratio (4.5%) and a minimum Tier I capital adequacy
standard ratio (6.0%) to be calculated on a consolidated and non-consolidated basis (which are in addition to the
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previously existing requirement for a minimum total capital adequacy ratio of 8.0%) and (b) change the risk
weights of certain items that are categorised under "other assets". The 2013 Equity Regulation has also
introduced new Tier II rules and determined new criteria for debt instruments to be included in the Tier II capital.
In order to further align Turkish banking legislation with Basel principles, the BRSA has published from time to
time new regulations and communiqués amending or replacing the existing regulations and communiqués,
including those published in the Official Gazettes dated 23 October 2015 No. 29511, 20 January 2016 No.
29599 and 23 February 2016 No. 29633, some of which amendments also entered into force on 31 March 2016.
The BIS reviewed Turkey's compliance level with Basel regulations within the scope of the RCAP and
published its RCAP assessment report in March 2016, in which Turkey was assessed as compliant with Basel
standards.
In addition to these implementations: (a) the Regulation on the Capital Maintenance and Cyclical Capital Buffer,
which regulates the procedures and principles regarding the calculation of additional core capital amount, and (b)
the Regulation on the Measurement and Evaluation of Leverage Levels of Banks, through which regulation the
BRSA seeks to constrain leverage in the banking system and ensure maintenance of adequate equity on a
consolidated and non-consolidated basis against leverage risks (including measurement error in the risk-based
capital measurement approach), were published in the Official Gazette dated 5 November 2013 and numbered
28812 and entered into effect on 1 January 2014 with the exception of certain provisions of the Regulation on
the Measurement and Evaluation of Leverage Levels of Banks that have entered into effect as of 1 January 2015.
Lastly, in order to ensure that a bank maintains an adequate level of unencumbered, high-quality liquid assets
that can be converted into cash to meet its liquidity needs for a 30 calendar day period, both on a consolidated
and unconsolidated basis, the Regulation on the Calculation of Bank's Liquidity Coverage Ratio was published
in the Official Gazette dated 21 March 2014 and numbered 28948 and entered into effect immediately with the
provisions thereof becoming applicable as of 1 January 2014 (with the exception of certain provisions relating to
minimum coverage ratio levels and the consequences of failing to maintain compliance, which have entered into
effect as of 1 January 2015).
If the Bank and/or the Group is unable to maintain its capital adequacy or leverage ratios above the minimum
levels required by the BRSA or other regulators (whether due to the inability to obtain additional capital on
acceptable economic terms, losses or otherwise), then it may be required to seek additional capital and/or sell
assets (including subsidiaries) at commercially unreasonable prices, which could have a material adverse effect
on the Group's business, financial condition and/or results of operations.
On 23 February 2016, the BRSA issued the D-SIBs Regulation (relating to domestic systemically important
banks or "D-SIBs") in line with the Basel Committee standards, introducing a methodology for assessing the
degree to which banks are considered to be systemically important to the Turkish domestic market and setting
out the additional capital requirements for those banks classified as D-SIBs. The contemplated methodology
uses an indicator-based approach to identify and classify D-SIBs in Turkey under four different categories: size,
interconnectedness, lack of substitutability and complexity. A score for each bank is to be calculated based upon
their 2014 year-end consolidated financial statements by assessing each bank's position against a threshold score
to be determined by the BRSA. The DSIBs Regulation requires banks identified as D-SIBs to maintain a capital
buffer depending upon their respective classification. As of 1 January 2019, these buffers are to be applied as 3%
for Group 4 banks, 2% for Group 3 banks, 1.5% for Group 2 banks and 1% for Group 1 banks. These additional
capital requirements, coming into effect on 31 March 2016, are to be fully implemented by 2019 subject to a
transitional period as set out below:
Groups
2016
Group 4 .................................................................................................
Group 3 .................................................................................................
Group 2 .................................................................................................
Group 1 .................................................................................................
0.750%
0.500%
0.375%
0.250%
2017
1.500%
1.000%
0.750%
0.500%
2018
2.250%
1.500%
1.125%
0.750%
As of 31 March 2016, the Bank has been classified as a Group 1D-SIB under the D-SIBs Regulation.
Liquidity and Reserve Requirements
Article 46 of the Banking Law requires banks to calculate, attain, maintain and report the minimum liquidity
level in accordance with principles and procedures set out by the BRSA. Within this framework, a
comprehensive liquidity arrangement has been put into force by the BRSA, following the consent of the Central
Bank.
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Pursuant to the Communiqué Regarding Reserve Requirements, which entered into force on 17 January 2014
(the "Communiqué Regarding Reserve Requirements"), starting from 12 February 2016, the reserve
requirements for foreign currency liabilities vary by category and tenor, as set forth below:
Category of Foreign Currency Liabilities
Required Reserve Ratio
Demand deposits, notice deposits, private current accounts, deposit/participation accounts up to
1-month, 3-month, 6-month and 1-year maturities ............................................................................
Deposit/participation accounts with maturities of 1-year and longer .....................................................
Borrowers' deposit account held at development and investment banks ................................................
Other liabilities up to 1-year maturity (including 1-year) ......................................................................
Other liabilities longer than 5-year maturity ..........................................................................................
13%
9%
13%
25%
20%
15%
7%
5%
Pursuant to the Communiqué Regarding Reserve Requirements, starting from 12 February 2016, the reserve
requirements regarding Turkish Lira liabilities vary by category and tenor, as set forth below:
Required Reserve
Ratio
Category of Turkish Lira Liabilities
Demand deposits, notice deposits and private current accounts .............................................................
Deposits/participation accounts up to 1-month maturity (including 1-month) .......................................
Deposits/participation accounts up to 1-year maturity ...........................................................................
Deposits/participation accounts with maturities of 1-year and longer ....................................................
Borrowers' deposit accounts at development and investment banks ......................................................
Other liabilities up to 1-year maturity (including 1-year).......................................................................
Other liabilities up to 3-years maturity (including 3-years) ...................................................................
Other liabilities longer than 3-year maturity ..........................................................................................
11.5%
11.5%
11.5%
8.5%
6.5%
5%
11.5%
11.5%
8%
5%
The reserve requirements also apply to gold deposit accounts. Furthermore, banks are permitted to maintain: (a)
a portion of the Turkish Lira reserve requirements in U.S. Dollars and/or Euro and another portion of the
Turkish Lira reserve requirements in standard gold and (b) a portion or all of the reserve requirements applicable
to precious metal deposit accounts in standard gold, which portions are revised from time to time by the Central
Bank. In addition, banks are required to maintain their required reserves against their U.S. Dollar-denominated
liabilities in U.S. Dollars only.
Furthermore, pursuant to the Communiqué Regarding Reserve Requirements entered into force on 17
January 2014, a bank must establish additional mandatory reserves if its financial leverage ratio falls within
certain intervals. The financial leverage ratio is calculated according to the division of a bank's capital into the
sum of the following items:
(a) its total liabilities,
(b) its total non-cash loans and obligations,
(c) its revocable commitments multiplied by 0.1,
(d) the total sum of each of its derivatives commitments multiplied by its respective loan conversion
rate, and
(e) its irrevocable commitments.
This additional mandatory reserve amount is calculated quarterly according to the arithmetic mean of the
monthly leverage ratio.
A bank also must maintain mandatory reserves for six mandatory reserve periods beginning with the fourth
calendar month following an accounting period and additional mandatory reserves for liabilities in Turkish Lira
and foreign currency, as set forth below:
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Additional Reserve
Requirement
Calculation Period for the Leverage Ratio
Leverage Ratio
From the 4th quarter of 2013 through the 3rd quarter of 2014
Below 3.0%
From 3.0% (inclusive) to 3.25%
2.0%
1.5%
1.0%
From the 4th quarter of 2014 through the 3rd quarter of 2015
Below 3.0%
2.0%
1.5%
1.0%
Following the 4th quarter of 2015 (inclusive)
Below 3.0%
2.0%
1.5%
1.0%
According to a Central Bank press release dated 21 October 2014 (No. 2014-72), interest is payable on the
Turkish Lira portion of reserve requirements as of November 2014.
Additional Reserve Calculation Period for Leverage Ratio Requirement
Beginning in March 2014, reserve accounts may be interest-bearing pursuant to guidelines adopted by the
Central Bank from time to time.
According to the Regulation on the Measurement and Evaluation of the Liquidity Adequacy of Banks issued by
the BRSA and announced in the Official Gazette dated 1 November 2006 and numbered 26333, the liquidity
adequacy ratio of a bank is the ratio of liquid reserves to liabilities of the bank. On a weekly basis, a bank must
maintain: (a) a 100% liquidity adequacy ratio for the first maturity period (assets and liabilities maturing within
seven days are taken into account in calculations on a weekly average as defined by the regulation) and the
second maturity period (assets and liabilities maturing within 31 days of the last working day are taken into
account) on an aggregate basis and (b) an 80% liquidity adequacy ratio on a foreign currency-only basis.
Foreign Exchange Requirements
According to a regulation on foreign exchange net position/capital base issued by the BRSA and published in
the Official Gazette dated 1 November 2006 and numbered 26333, for both the bank-only and consolidated
financial statements, the ratio of a bank's foreign exchange net position to its capital base should not exceed (+/-)
20%, which calculation is required to be made on a weekly basis. The net foreign exchange position is the
difference between the Turkish Lira equivalent of a bank's foreign exchange assets and its foreign exchange
liabilities. For the purpose of computing the net foreign exchange position, foreign exchange assets include all
active foreign exchange accounts held by a bank (including its foreign branches), its foreign exchange-indexed
assets and its subscribed forward foreign exchange purchases; for purposes of computing the net foreign
exchange position, foreign exchange liabilities include all passive foreign exchange accounts held by a bank
(including its foreign branches), its subscribed foreign exchange-indexed liabilities and its subscribed forward
foreign exchange sales. If the ratio of a bank's net foreign exchange position to its capital base exceeds (+/-)
20%, then the bank is required to take steps to move back into compliance within two weeks following the
bank's calculation period. Banks are permitted to exceed the legal net foreign exchange position to capital base
ratio up to six times per calendar year.
Audit of Banks
According to Article 24 of the Banking Law, banks' boards of directors are required to establish audit
committees for the execution of the audit and monitoring functions of the board of directors. Audit committees
shall consist of a minimum of two members and be appointed from among the members of the board of directors
who do not have executive duties. The duties and responsibilities of the audit committee include the supervision
of the efficiency and adequacy of the bank's internal control, risk management and internal audit systems,
functioning of these systems and accounting and reporting systems within the framework of the Banking Law
and other relevant legislation, and integrity of the information produced; conducting the necessary preliminary
evaluations for the selection of independent audit firms by the board of directors; regularly monitoring the
activities of independent audit firms selected by the board of directors; and, in the case of holding companies
covered by the Banking Law, ensuring that the internal audit functions of the institutions that are subject to
consolidation operate in a coordinated manner, on behalf of the board of directors.
The BRSA, as the principal regulatory authority in the Turkish banking sector, has the right to monitor
compliance by banks with the requirements relating to audit committees. As part of exercising this right, the
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BRSA reviews audit reports prepared for banks by their independent auditing firms. Banks are required to select
an independent audit firm in accordance with the Regulation on Independent Audit of Banks, published in the
Official Gazette on 2 April 2015 and numbered 29314. Independent auditors are held liable for damages and
losses to third parties and are subject to stricter reporting obligations. Professional liability insurance is required
for: (a) independent auditors and (b) evaluators, rating agencies and certain other support services (if requested
by the service-acquiring bank or required by the BRSA). Furthermore, banks are required to consolidate their
financial statements on a quarterly basis in accordance with certain consolidation principles established by the
BRSA. The year-end consolidated financial statements are required to be audited whereas interim consolidated
financial statements are subject to only a limited review by independent audit firms. The ICAAP Regulation
established standards as to principles of internal control, internal audit and risk management systems and an
internal capital adequacy assessment process in order to bring such regulations into compliance with Basel II
requirements.
On 23 October 2015 and 20 January 2016, the BRSA issued certain amendments to the ICAAP Regulation to
align the Turkish regulatory capital regime with Basel III requirements. These amendments relating to internal
systems and internal capital adequacy ratios entered into force on 20 January 2016 and the other amendments
entered into force on 31 March 2016. These amendments impose new regulatory requirements to enhance the
effectiveness of internal risk management and internal capital adequacy assessments by introducing, among
others things, new stress test requirements. Accordingly, the board of directors and senior management of a
bank are liable to ensure that a bank has established appropriate risk management systems and applies an
internal capital adequacy assessment process adequate to have capital for the risks incurred by such bank. The
ICAAP report is required to be audited by either the internal audit department or an independent audit firm in
accordance with the internal audit procedures of a bank.
All banks (public and private) also undergo annual audits and interim audits by certified bank auditors who have
the authority to audit banks on behalf of the BRSA. Audits by certified bank auditors encompass all aspects of a
bank's operations, its financial statements and other matters affecting the bank's financial position, including its
domestic banking activities and foreign exchange transactions. Additionally, such audits seek to ensure
compliance with applicable laws and the constitutional documents of the bank. The Central Bank has the right to
monitor compliance by banks with the Central Bank's regulations through on-site and off-site examinations.
The BRSA amended the Regulation on Principles and Procedures of Audits on 23 October 2015 to expand the
scope of the audit of banks in compliance with the ICAAP Regulation. According to this regulation, the BRSA
monitors banks' compliance with the regulations relating to the maintenance of capital and liquidity adequacy
for risks incurred or to be incurred by banks and the adequacy and efficiency of banks' internal audit systems.
The SDIF
Article 111 of the Banking Law relates to the SDIF. The SDIF has been established to develop trust and stability
in the banking sector by strengthening the financial structures of Turkish banks, restructuring Turkish banks as
needed and insuring the savings deposits of Turkish banks. The SDIF is a public legal entity set up to insure
savings deposits held with banks and (along with all other Turkish banks) the Bank is subject to its regulations.
The SDIF is responsible for and authorised to take measures for restructuring, transfers to third parties and
strengthening the financial structures of banks, the shares of which and/or the management and control of which
have been transferred to the SDIF in accordance with Article 71 of the Banking Law, as well as other duties
imposed on it.
(a)
Insurance of Deposits
Pursuant to Article 63 of the Banking Law, savings deposits held with banks are insured by the SDIF.
The scope and amount of savings deposits subject to the insurance are determined by the SDIF upon
the approval of the Central Bank, BRSB and the Treasury. The tariff of the insurance premium, the
time and method of collection of this premium, and other relevant matters are determined by the SDIF
upon the approval of the BRSB.
(b)
Borrowings of the SDIF
The SDIF: (i) may incur indebtedness with authorisation from the Undersecretariat of the Treasury or
(ii) the Undersecretariat of the Treasury may issue government securities with the proceeds to be
provided to the SDIF as a loan, as necessary. Principles and procedures regarding the borrowing of
government debt securities, including their interest rates and terms and conditions of repayment to the
Treasury, are to be determined together by the Treasury and the SDIF.
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(c)
Power to require Advances from Banks
Provided that BRSA consent is received, the banks may be required by the SDIF to make advances of
up to the total insurance premiums paid by them in the previous year to be set-off against their future
premium obligations. The decision regarding such advances shall also indicate the interest rate
applicable thereto.
(d)
Contribution of the Central Bank
If the SDIF's resources prove insufficient due to extraordinary circumstances, then the Central Bank
will, on request, provide the SDIF with an advance. The terms, amounts, repayment conditions, interest
rates and other conditions of the advance will be determined by the Central Bank upon consultation
with the SDIF.
(e)
Savings Deposits that are not subject to Insurance
Deposits, participation accounts and other accounts held in a bank by controlling shareholders, the
chairman and members of the board of directors or board of managers, general manager and assistant
general managers and by the parents, spouses and children under custody of the above, and deposits,
participation accounts and other accounts within the scope of criminally-related assets generated
through the offenses set forth in Article 282 of the Turkish Criminal Code and other deposits,
participation accounts and accounts as determined by the board of the BRSA are not covered by the
SDIF's insurance.
(f)
Premiums as an Expense Item
Premiums paid by a bank into the SDIF are to be treated as an expense in the calculation of that bank's
corporate tax.
(g)
Liquidation
In the event of the bankruptcy of a bank, the SDIF is a privileged creditor and may liquidate the bank
under the provisions of the Execution and Bankruptcy Code No. 2004, exercising the duties and powers
of the bankruptcy office and creditors' meeting and the bankruptcy administration.
(h)
Claims
In the event of the bankruptcy of a bank, holders of savings deposits will have a privileged claim in
respect of the part of their deposit that is not covered by the SDIF's insurance.
Since 15 February 2013, up to TL 100,000 of the amounts of a depositor's deposit accounts benefit from the
SDIF insurance guarantee.
The main powers and duties of the SDIF pursuant to the SDIF regulation published in the Official Gazette dated
25 March 2006 and numbered 26119 are as follows:
(i)
ensuring the enforcement of the SDIF board's decisions,
(ii)
establishing the human resources policies of the SDIF,
(iii)
becoming members of international financial, economic and professional organisations in
which domestic and foreign equivalent agencies participate, and signing memoranda of
understanding with the authorised bodies of foreign countries regarding the matters that fall
within the SDIF's span of duty,
(iv)
insuring the savings deposits and participation accounts in the credit institutions,
(v)
determining the scope and amount of the savings deposits and participation accounts that are
subject to insurance with the opinion of the Central Bank, BRSA and Treasury
Undersecretaries, and the risk-based insurance premia timetable, collection time and form and
other related issues in cooperation with the BRSA,
(vi)
paying (directly or through another bank) the insured deposits and participation accounts from
its sources in the credit institutions whose operating permission has been revoked by the
BRSA,
(vii)
fulfilling the necessary operations regarding the transfer, sale and merger of the banks whose
shareholder rights (except dividends) and management and supervision have been transferred
to the SDIF by the BRSA, with the condition that the losses of the shareholders are reduced
from the capital,
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(viii)
taking management and control of the banks whose operating permission has been revoked
and fulfilling the necessary operations regarding the bankruptcy and liquidation of such banks
by the BRSA,
(ix)
requesting from public institutions and agencies, real persons and legal entities all information,
documents and records in a regular and timely fashion in the framework of Article 123 of the
Banking Law,
(x)
issuing regulations and communiqués for the enforcement of the Banking Law with the SDIF's
board's decision, and
(xi)
fulfilling the other duties that the Banking Law and other related legislation assign to it.
Cancellation of Banking License
If the results of an audit show that a bank's financial structure has seriously weakened, then the BRSA may
require the bank's board of directors to take measures to strengthen its financial position. Pursuant to the
Banking Law, in the event that the BRSA in its sole discretion determines that:
•
the assets of a bank are insufficient or are likely to become insufficient to cover its obligations
as they become due,
•
the bank is not complying with liquidity requirements,
•
the bank's profitability is not sufficient to conduct its business in a secure manner due to
disturbances in the relation and balance between expenses and profit,
•
the regulatory equity capital of such bank is not sufficient or is likely to become insufficient,
•
the quality of the assets of such bank have been impaired in a manner potentially weakening
its financial structure,
•
the decisions, transactions or applications of such bank are in breach of the Banking Law,
relevant regulations or the decisions of the BRSA,
•
such bank fails to establish internal audit, supervision and risk management systems or to
effectively and sufficiently conduct such systems or any factor impedes the audit of such
systems, or
•
imprudent acts of such bank's management materially increase the risks stipulated under the
Banking Law and relevant legislation or potentially weaken the bank's financial structure,
then the BRSA may require the board of directors of such bank:
•
to increase its equity capital,
•
not to distribute dividends for a temporary period to be determined by the BRSA and to
transfer its distributable dividend to the reserve fund,
•
to increase its loan provisions,
•
to stop extension of loans to its shareholders,
•
to dispose of its assets in order to strengthen its liquidity,
•
to limit or stop its new investments,
•
to limit its salary and other payments,
•
to cease its long-term investments,
•
to comply with the relevant banking legislation,
•
to cease its risky transactions by re-evaluating its credit policy,
•
to take all actions to decrease any maturity, foreign exchange and interest rate risks for a
period determined by the BRSA and in accordance with a plan approved by the BRSA, and/or
•
to take any other action that the BRSA may deem necessary.
In the event that the aforementioned actions are not taken (in whole or in part) by the applicable bank, its
financial structure cannot be strengthened despite the fact that such actions have been taken or the BRSA
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determines that taking such actions will not lead to getting a favourable result, then the BRSB may require such
bank to:
•
strengthen its financial structure, increase its liquidity and/or increase its capital adequacy,
•
dispose of its fixed assets and long-term assets within a reasonable time determined by the
BRSA,
•
decrease its operational and management costs,
•
postpone its payments under any name whatsoever, excluding the regular payments to be
made to its employees,
•
limit or prohibit extension of any cash or non-cash loans to certain third persons, legal entities,
risk groups or sectors,
•
convene an extraordinary general assembly in order to change some or all of the members of
the board of directors or assign new member(s) to the board of directors, in the event any
Board Member is responsible for a failure to comply with relevant legislation, a failure to
establish efficient and sufficient operation of internal audit, internal control and risk
management systems or non-operation of these systems efficiently or there is a factor that
impedes supervision or such member(s) of the board of directors cause(s) to increase risks
significantly as stipulated above,
•
implement short-, medium- or long-term plans and projections that are approved by the BRSA
to decrease the risks incurred by the bank and the members of the board of directors and the
shareholders with qualified shares must undertake the implementation of such plan in writing,
and/or
•
to take any other action that the BRSA may deem necessary.
In the event that the aforementioned actions are not taken (in whole or in part) by the applicable bank, the
problem cannot be solved despite the fact that the actions have been taken or the BRSA determines that taking
such actions will not lead to getting a favourable result, then the BRSA may require such bank to:
•
limit or cease its business or the business of the whole organisation, including its relations
with its local or foreign branches and correspondents, for a temporary period,
•
apply various restrictions, including restrictions on the interest rate and maturity with respect
to resource collection and utilisation,
•
remove from office (in whole or in part) some or all of its members of the board of directors,
general manager and deputy general managers and department and branch managers and
obtain approval from the BRSA as to the persons to be appointed to replace them,
•
make available long-term loans; provided that these will not exceed the amount of deposit or
participation accounts subject to insurance, and be secured by the shares or other assets of the
controlling shareholders,
•
limit or cease its non-performing operations and to dispose of its non-performing assets,
•
merge with one or several banks,
•
provide new shareholders in order to increase its equity capital,
•
deduct any resulting losses from its own funds, and/or
•
take any other action that the BRSA may deem necessary.
In the event that: (a) the aforementioned actions are not (in whole or in part) taken by the applicable bank within
a period of time set forth by the BRSA or in any case within 12 months, (b) the financial structure of such bank
cannot be strengthened despite its having taken such actions, (c) it is determined that taking these actions will
not lead to the strengthening of the bank's financial structure, (d) the continuation of the activities of such bank
would jeopardise the rights of the depositors and the participation account owners and the security and stability
of the financial system, (e) such bank cannot cover its liabilities as they become due, (f) the total amount of the
liabilities of such bank exceeds the total amount of its assets or (g) the controlling shareholders or directors of
such bank are found to have utilised such bank's resources for their own interests, directly or indirectly or
fraudulently, in a manner that jeopardised the secure functioning of the bank or caused such bank to sustain a
loss as a result of such misuse, then the BRSA, with the affirmative vote of at least five of its Board Members,
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may revoke the license of such bank to engage in banking operations and/or to accept deposits and transfer the
management, supervision and control of the shareholding rights (excluding dividends) of such bank to the SDIF
for the purpose of whole or partial transfer or sale of such bank to third persons or the merger thereof; provided
that any loss is deducted from the share capital of current shareholders.
In the event that the license of a bank to engage in banking operations and/or to accept deposits is revoked, then
that bank's management and audit will be taken over by the SDIF. Any and all execution and bankruptcy
proceedings (including preliminary injunction) against such bank would be discontinued as from the date on
which the BRSA's decision to revoke such bank's license is published in the Official Gazette. From the date of
revocation of such bank's license, the creditors of such bank may not assign their rights or take any action that
could lead to assignment of their rights. The SDIF must take measures for the protection of the rights of
depositors and other creditors of such bank. The SDIF is required to pay the insured deposits of such bank either
by itself or through another bank it may designate. The SDIF is required to institute bankruptcy proceedings in
the name of depositors against a bank whose banking license is revoked.
Annual Reporting
Pursuant to the Banking Law, Turkish banks are required to follow the BRSA's principles and procedures
(which are established in consultation with the Turkish Accounting Standards Board and international standards)
when preparing their annual reports. In addition, they must ensure uniformity in their accounting systems,
correctly record all their transactions and prepare timely and accurate financial reports in a format that is clear,
reliable and comparable as well as suitable for auditing, analysis and interpretation.
Furthermore, Turkish companies (including banks) are required to comply with the Regulation regarding
Determination of the Minimum Content of the Companies' Annual Reports published by the Ministry of
Customs and Trade, as well as the Corporate Governance Communiqué, when preparing their annual reports.
These reports include the following information: management and organisation structures, human resources,
activities, financial situations, assessment of management and expectations and a summary of the directors'
report and independent auditor's report.
A bank cannot settle its balance sheets without ensuring reconciliation with the legal and auxiliary books and
records of its branches and domestic and foreign correspondents.
The BRSA is authorised to take necessary measures where it is determined that a bank's financial statements
have been misrepresented.
When the BRSA requests a bank's financial reports, the chairman of the board, audit committee, general
manager, deputy general manager responsible for financial reporting and the relevant unit manager (or
equivalent authorities) must sign the reports indicating their full names and titles and declare that the financial
report complies with relevant legislation and accounting records.
Independent auditors must approve the annual reports prepared by the banks.
Banks are required to submit their financial reports to related authorities and publish them in accordance with
the BRSA's principles and procedures.
According to BRSA regulations, the annual report is subject to the approval of the board of directors and must
be submitted to shareholders at least 15 days before the annual general assembly of the bank. Banks must submit
a copy of their annual reports to the BRSA within seven days following the publication of the reports. Banks
must also keep a copy of such reports in their headquarters and a soft copy of the annual report should be
available at a bank's branches in order to be printed and submitted to the shareholders upon request. Besides
they must publish them on their websites by the end of May following the end of the relevant fiscal year.
The BRSA published amendments that entered into force on 31 March 2016 to the Communiqué on Financial
Statements to be Disclosed to the Public (published in the Official Gazette on 28 June 2012), which requires
annual and interim financial statements of banks to include explanations regarding their risk management in line
with the Regulation on Risk Management to be Disclosed to the Public.
Disclosure of Financial Statements
The BRSA published amendments that entered into force on 31 March 2016 to the Communiqué on Financial
Statements to be Disclosed to the Public setting forth principles of disclosure of annotated financial statements
of banks in accordance with the Communiqué on Public Disclosure Regarding Risk Management of Banks and
the 2013 Equity Regulation. The amendments reflect the updated requirements relating to information to be
disclosed to the public in line with the amendments to the calculation of risk-weighted assets and their
implications for capital adequacy ratios, liquidity coverage ratios and leverage ratios. Rules relating to equity
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items presented in the financial statements were amended in line with the amendments to the 2013 Equity
Regulation. Furthermore, the changes require publication of a credit agreement of the bank or a prospectus
relating to a credit or debt instrument, which will be taken into account in the calculation of the capital of a
(parent company) bank as an element for additional principal capital and supplementary capital, on the bank's
website. Additionally, banks are required to make necessary disclosures on their websites immediately upon
repayment of a debt instrument, depreciation or conversion of a share certificate or occurrence of any other
material change.
In addition, the BRSA published the Communiqué on Public Disclosure regarding Risk Management of Banks
that entered into force on 31 March 2016, which expands the scope of public disclosure to be made in relation to
risk management in line with the disclosure requirements of the Basel Committee. According to this regulation,
each bank is required to announce information regarding their consolidated and/or unconsolidated risk
management related to risks arising from or in connection with securitisation, counterparty, credit, market and
its operations in line with the standards and procedures specified in this regulation. In this respect, banks are
required to adopt a written policy in relation to its internal audit and internal control processes.
Financial Services Fee
Pursuant to Heading XI of Tariff No. 8 attached to the Law on Fees (Law No. 492) amended by the Law
No. 5951, banks are required to pay to the relevant tax office to which their head office reports an annual
financial services fee for each of their branches. The amount of the fee is determined in accordance with the
population of the district in which the relevant branch is located.
Anti-Money Laundering
Turkey is a member country of the FATF and has enacted laws and regulations to combat money laundering,
terrorist financing and other financial crimes. In Turkey, all banks and their employees are obligated to
implement and fulfil certain requirements regarding the treatment of activities that may be referred to as money
laundering set forth in Law No. 5549 on Prevention of Laundering Proceeds of Crime.
Minimum standards and duties under such law and related legislation include customer identification, record
keeping, suspicious transaction reporting, employee training, monitoring activities and the designation of a
compliance officer. Suspicious transactions must be reported to the Financial Crimes Investigation Board.
New Consumer Loan, Provisioning and Credit Card Regulations
On 8 October 2013 the BRSA introduced new regulations that aim to limit the expansion of individual loans
(especially credit card instalments). The rules: (a) include overdrafts on deposit accounts and loans on credit
cards in the category of consumer loans for purposes of provisioning requirements, (b) set a limit of TL 1,000
for credit cards issued to consumers who apply for a credit card for the first time if their income cannot be
determined by the bank, (c) require credit card issuers to monitor cardholders' income levels before each limit
increase of the credit card, (d) increase the risk weight for instalment payments of credit cards with a term: (i)
between one and six months from 75% to 100%, (ii) between six and twelve months from 150% to 200% and
(iii) greater than 12 months from 200% to 250% and (e) increase the minimum monthly payment required to be
made by cardholders. Before increasing the limit of a credit card, a bank should monitor the income level of the
consumer. A bank should not increase the limit of the credit card if the aggregate card limit exceeds four times
the consumer's monthly net income. In addition, minimum payment ratios for credit cards may not be lower than
30%, 35% and 40% for credit cards with limits lower than TL 15,000, from TL 15,000 to but excluding TL
20,000 and from TL 20,000, respectively, or 40% for newly-issued credit cards for one year from the date of
first use. The amendments to the 2012 Capital Adequacy Regulation provide risk weights for instalment
payments of credit cards from a range of 100% to 250%, depending upon their outstanding tenor; however, the
2015 Capital Adequacy Regulation, entering into force on 31 March 2016 and at that time replacing the 2012
Capital Adequacy Regulation, lowers the risk weight of these instalment payments to 75%, irrespective of their
tenor.
In addition, amendments to the Regulation on Bank Cards and Credit Cards introduced some changes on the
credit limits for credit cards and income verification so that: (a) the total credit card limit of a cardholder from
all banks will not exceed four times his/her monthly net income in the second and the following years (two
times for the first year) and (b) banks will have to verify the monthly income of the cardholders in the limit
increase procedures and will not be able to increase the limit if the total credit card limit of the cardholder from
all banks exceeds four times his/her monthly net income. The following additional changes regarding minimum
payment amounts and credit card usage were included in the amended regulation: (i) minimum payment
amounts differentiated: (A) among existing cardholders (based upon their credit card limits) and (B) between
existing cardholders and new cardholders, (ii) if the cardholder does not pay at least three times the minimum
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payment amount on his/her credit card statement in a year, then his/her credit card cannot be used for cash
advance and also will not allow limit upgrade until the total statement amount is paid, and (iii) if the cardholder
does not pay the minimum payment amount for three consecutive times, then his/her credit card cannot be used
for cash advances or purchase of goods and services, and such card will not be available for a limit upgrade,
until the total amount in the statements is paid.
The BRSA, by amending the Regulation on Bank Cards and Credit Cards, has adopted limitations on
instalments of credit cards. Pursuant to such limitations, the instalment payment period for the purchase of
goods and services and cash withdrawals is not permitted to exceed nine months (four months for jewellery
expenditures and 12 months for whiteware, furniture expenditures and education fees). In addition, credit card
instalment payments (except for corporate credit cards) are not allowed for telecommunication and related
expenses and purchases of nutriment, fuels, gift cards, gift checks and other similar intangible goods. With
respect to corporate credit cards, the instalments for the purchase of goods and services and cash withdrawals
are not permitted to exceed nine months (12 months for whiteware, furniture expenditures and education fees).
The Law on the Protection of Consumers (Law No. 6502), published in the Official Gazette No. 28835 dated 28
November 2013 and having come into force on 28 May 2014, imposes new rules applicable to Turkish banks,
such as requiring banks to offer to its customers at least one credit card type for which no annual subscription
fee (or other similar fee) is payable. Furthermore, while a bank is generally permitted to charge its customers
fees for accounts held with it, no such fees may be payable on certain specific accounts (such as fixed term loan
accounts and mortgage accounts).
The Regulation Amending the Regulation on Provisions and Classification of Loans and Receivables, which
was published in the Official Gazette dated 8 October 2013 and numbered 28789, reduced the general reserve
requirements for cash and non-cash loans provided for export purposes and obtained by SMEs: (a) for cash
export loans and non-cash export loans, from 1% and 0.2%, respectively, to 0%, (b) for cash SME loans and
non-cash SME loans, from 1% and 0.2% to 0.5% and 0.1%, respectively, (c) for cash export loans whose loan
conditions will be amended in order to extend the first payment schedule, from 5% to 0%, and (d) for cash SME
loans whose loan conditions will be amended in order to extend the first payment schedule, from 5% to 2.5%. In
addition, this regulation altered the requirements for calculating consumer loan provisions by: (i) increasing the
ratio of consumer loans to total loans beyond which additional consumer loan provisions are required from 20%
to 25% and (ii) requiring the inclusion of auto loans and credit cards in the calculation of the ratio of nonperforming consumer loans to total consumer loans ratio (if such ratio is beyond 8%, which ratio was not altered
by these amendments, additional consumer loans provisions are required). Credit cards are included in the
definition of consumer loans by this regulation and the consumer loan provision rate for credit cards in Group I
(Loans of a Standard Nature and Other Receivables) and Group II (Loans and Other Receivables under Close
Monitoring) increased from 1% and 2% to 4% and 8%, respectively.
The Regulation Amending the Regulation on Bank Cards and Credit Cards introduced some changes on the
credit limits for credit cards and income verification so that: (a) the total credit card limit of a cardholder from
all banks will not exceed four times his/her monthly income in the second and the following years (two times for
the first year) and (b) banks will have to verify the monthly income of the cardholders in the limit increase
procedures and will not be able to increase the limit if the total credit card limit of the cardholder from all banks
exceeds four times his/her monthly income. The following additional changes regarding minimum payment
amounts and credit card usage were included in the amended regulation: (i) minimum payment amounts
differentiated for first time cardholders in the sector, new cardholders, existing cardholders and existing
cardholders' second card by customer limits, (ii) if the cardholder does not pay at least three times the minimum
payment amount on his/her credit card statement in a year, then his/her credit card cannot be used for cash
advance and also will not allow limit upgrade until the total statement amount is paid, and (iii) if the cardholder
does not pay the minimum payment amount for three consecutive times, then his/her credit card cannot be used
for cash advances or shopping, and such card will not be available for a limit upgrade, until the total amount in
the statements is paid.
On 31 December 2013, the BRSA passed amendments to the Regulation on Banking Cards and Credit Cards
(originally published in the Official Gazette dated 10 March 2007 and numbered 26458) ("Banking Cards
Regulation"), which imposes limitations on credit card instalment payments, coming into effect from 1
February 2014. Pursuant to such limitations, the instalments for purchase of goods and services and cash
withdrawals are not permitted to exceed nine months. In addition, in respect of telecommunication expenditures,
food and fuel purchases, or gift cards, gift cheques and similar purchases which do not include a specific good
or service, credit cards may not provide for instalment payments. An amendment passed on 22 October 2014
introduced a four-month limit for instalment payment period for jewellery (which had been entirely excluded
from instalment payments in the original amendment dated 31 December 2013). These limitations on
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telecommunication expenditures, food and fuel purchases, gift cards, gift cheques, and jewellery are not
applicable to corporate credit cards.
On 31 December 2013, the BRSA adopted new rules on loan to value and instalments of certain types of loans.
Pursuant to these rules, the minimum loan-to-value requirement for housing loans extended to consumers, for
loans (except auto loans) secured by houses and for financial lease transactions is 75%. In addition, for auto
loans extended to consumers, for loans secured by autos and for financial lease transactions, the loan-to-value
requirement is set at 70%; provided that in each case the sale price of the respective auto is not higher than
TL 50,000. On the other hand, if the sale price of the respective auto is above this TL 50,000 threshold, then the
minimum loan-to-value ratio for the portion of the loan below the threshold amount is 70% and the remainder is
set at 50%. As for limitations regarding instalments, the maturity of consumer loans (other than loans extended
for housing finance and other real estate finance loans) are not permitted to exceed 36 months, while auto loans
and loans secured by autos may not have a maturity longer than 48 months. Provisions regarding the minimum
loan-to-value requirement for auto loans entered into force on 1 February 2014 and the other provisions of this
amendment entered into force on 31 December 2013.
On 3 October 2014, the BRSA published its Regulation on the Procedures and Principles Regarding Fees to be
Collected from Financial Institutions' Customers, which enumerates the fees and commissions that banks may
charge customers and limits their levels. The regulation imposes fee and commission limits on selected
categories of product groups, including deposit account maintenance fees, loan related fees, credit card
commissions, overdraft statement commissions and debt collection notification fees. The charge of any other
fees and commissions by Turkish banks is subject to the BRSA's approval.
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CONDITIONS OF THE NOTES
The following is the text of the terms and conditions of the Notes (the Conditions) which (subject to
modification, amendment and completion and except for the text in italics) will be endorsed on the Certificates
issued in respect of the Notes:
The U.S.$500,000,000 5.000 per cent. Notes due 2021 (the "Notes", which expression shall in these Conditions,
unless the context otherwise requires, include any further notes issued pursuant to Condition 15 and forming a
single series with the Notes) of Türkiye Halk Bankası A.Ş. (the "Issuer") are issued subject to and with the
benefit of an Agency Agreement dated 13 July 2016 (such agreement as amended and/or supplemented and/or
restated from time to time, the "Agency Agreement") made between the Issuer, The Bank of New York Mellon
(Luxembourg) S.A. as registrar in respect of the Notes (the "Registrar"), The Bank of New York Mellon as
transfer agent and U.S. paying agent and The Bank of New York Mellon, London Branch as fiscal agent and
principal paying agent (the "Fiscal Agent") and the other initial paying agents named in the Agency Agreement
(together with the Fiscal Agent and the U.S. paying agent, the "Paying Agents") and the other agents named in
it (together with the Fiscal Agent, the Registrars and the other Paying Agents, the "Agents"). The holders of the
Notes are entitled to the benefit of a Deed of Covenant (the "Deed of Covenant") dated 13 July 2016 and made
by the Issuer. The original of the Deed of Covenant is held by the Fiscal Agent on behalf of such holders at its
specified office.
The statements in these Conditions include summaries of, and are subject to, the detailed provisions of and
definitions in the Agency Agreement. Copies of the Agency Agreement are available for inspection during
normal business hours by the Noteholders at the specified office of each of the Paying Agents. The Noteholders
are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Agency
Agreement and the Deed of Covenant. References in these Conditions to the Fiscal Agent, the Registrars, the
Paying Agents and the Agents shall include any successor appointed under the Agency Agreement.
The owners shown in the records of Euroclear Bank SA/NV ("Euroclear"), Clearstream Banking, société
anonyme ("Clearstream, Luxembourg") and the Depository Trust Company ("DTC") of book-entry interests in
Notes are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the
Agency Agreement and the Deed of Covenant.
1.
FORM, DENOMINATION AND TITLE
1.1
Form and Denomination
The Notes are issued in registered form in amounts of U.S.$200,000 (referred to as the "principal amount" of a
Note) and in integral multiples of U.S.$1,000 thereafter. A note certificate (each a "Certificate") will be issued
to each Noteholder in respect of its registered holding of Notes. Each Certificate will be numbered serially with
an identifying number which will be recorded on the relevant Certificate and in the relevant register of
Noteholders which the Issuer will procure to be kept by the relevant Registrar and at the registered office of the
Issuer. The Notes are issued pursuant to the Turkish Commercial Code (Law No. 6102), the Capital Markets
Law (Law No. 6362), Article 15/b of Decree 32 on the Protection of the Value of the Turkish Currency and the
Capital Markets Law and the Communiqué on Debt Instruments Serial II, No. 31.1 of the CMB or its related
regulation.
The Notes are not issuable in bearer form.
1.2
Title
Title to the Notes passes only by registration in the relevant register of Noteholders. The holder of any Note will
(except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is
overdue and regardless of any notice of ownership, trust or any interest or any writing on, or the theft or loss of,
the Certificate issued in respect of it) and no person will be liable for so treating the holder. In these Conditions,
"Noteholder" and (in relation to a Note) "holder" means the person in whose name a Note is registered in the
relevant register of Noteholders.
For a description of the procedures for transferring title to book-entry interests in the Notes, see "Book-Entry
Clearance Systems".
2.
TRANSFERS OF NOTES AND ISSUE OF CERTIFICATES
2.1
Transfers
A Note may be transferred by depositing the Certificate issued in respect of that Note, with the form of transfer
on the back duly completed and signed, at the specified office of the relevant Registrar or any of the other
Agents.
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For a description of certain restrictions on transfers of interests in the Notes, see "Transfer Restrictions".
2.2
Delivery of new Certificates
Each new Certificate to be issued upon a transfer of the Notes will, within five business days of receipt by the
relevant Registrar or the relevant Agent of the duly completed form of transfer endorsed on the relevant
Certificate, be mailed by uninsured mail at the risk of the holder entitled to the Note to the address specified in
the form of transfer. For the purposes of this Condition, "business day" shall mean a day on which banks are
open for business in the city in which the specified office of the Agent with whom a Certificate is deposited in
connection with a transfer is located.
Except in the limited circumstances described in "The Global Certificates―Registration of Title", owners of
interests in the Notes will not be entitled to receive physical delivery of Certificates. Issues of Certificates upon
transfer of Notes are subject to compliance by the transferor and transferee with the certification procedures
described above and in the Agency Agreement and, in the case of Rule 144A Notes, compliance with the U.S.
Securities Act legend.
Where some but not all of the Notes in respect of which a Certificate is issued are to be transferred a new
Certificate in respect of the Notes not so transferred will, within five business days of receipt by the relevant
Registrar or the relevant Agent of the original Certificate, be mailed by uninsured mail at the risk of the holder
of the Notes not so transferred to the address of such holder appearing on the relevant register of Noteholders or
as specified in the form of transfer.
2.3
Formalities free of charge
Registration of transfer of Notes will be effected without charge by or on behalf of the Issuer or any Agent but
upon payment (or the giving of such indemnity as the Issuer or any Agent may reasonably require) in respect of
any tax or other governmental charges which may be imposed in relation to such transfer.
2.4
Closed Periods
No Noteholder may require the transfer of a Note to be registered during the period of 15 days ending on the due
date for any payment of principal, premium or interest on that Note.
2.5
Regulations
All transfers of Notes and entries on the registers of Noteholders will be made subject to the detailed regulations
concerning transfer of Notes scheduled to the Agency Agreement. The regulations may be changed by the Issuer
with the prior written approval of the Registrar. A copy of the current regulations will be mailed (free of charge)
by the Registrar to any Noteholder who requests one.
3.
STATUS
The Notes are senior, direct, unconditional and (subject to the provisions of Condition 4) unsecured obligations
of the Issuer and (subject as provided above) rank and will rank pari passu, without any preference among
themselves, with all other outstanding unsecured and unsubordinated obligations of the Issuer, present and
future, but, in the event of insolvency, only to the extent permitted by applicable laws relating to creditors'
rights.
4.
NEGATIVE PLEDGE
4.1
Negative Pledge
So long as any Note remains outstanding (as defined in the Agency Agreement) the Issuer will not create or
have outstanding any mortgage, charge, lien, pledge or other security interest (each a "Security Interest") upon,
or with respect to, any of its present or future business, undertaking, assets or revenues (including any uncalled
capital) to secure any Relevant Indebtedness (as defined below), unless the Issuer, in the case of the creation of a
Security Interest, before or at the same time and, in any other case, promptly, takes any and all action necessary
to ensure that:
(a)
all amounts payable by it under the Notes are secured by the Security Interest equally and
rateably with the Relevant Indebtedness; or
(b)
such other Security Interest or other arrangement (whether or not it includes the giving of a
Security Interest) is provided as is approved by an Extraordinary Resolution (which is defined
in the Agency Agreement as a resolution duly passed by a majority of not less than threefourths of the votes cast) of the Noteholders.
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Nothing in this Condition 4 shall prevent the Issuer from creating or permitting to subsist any Security Interest
upon, or with respect to, any present or future assets or revenues or any part thereof which is created pursuant to
(i) a bond, note or similar instrument whereby the payment obligations are secured on a segregated pool of
assets (whether held by the Issuer or any third party guarantor) issued in accordance with the CMB
Communiqué on Mortgage-backed Securities (Serial III, No: 33), as amended or replaced from time to time
(any such instrument, a "Covered Bond"), or (ii) any securitisation of receivables, asset-backed financing or
similar financing structure (created in accordance with normal market practice) and whereby all payment
obligations secured by such Security Interest or having the benefit of such Security Interest are to be discharged
principally from such assets or receivables (or in the case of Direct Recourse Securities, by direct unsecured
recourse to the Issuer), provided that the aggregate most-recently published balance sheet value of assets or
receivables subject to any Security Interest created in respect of an issuance of (A) Covered Bonds and (B) any
other secured Relevant Indebtedness (other than Direct Recourse Securities) of the Issuer, when added to the
nominal amount of any outstanding Direct Recourse Securities, does not, at any time, exceed 15% of the
consolidated total assets of the Issuer and its Subsidiaries (as shown in the most recent audited consolidated
financial statements of the Issuer prepared in accordance with IFRS).
4.2
Interpretation
For the purposes of these Conditions:
"Direct Recourse Securities" means securities issued in connection with any securitisation of receivables or
other payment rights, asset-backed financing or similar financing structure (created in accordance with normal
market practice) and whereby all payment obligations secured by such Security Interest or having the benefit of
such Security Interest are to be discharged principally from such assets or receivables, or by direct unsecured
recourse to the Issuer; and
"Relevant Indebtedness" means (i) any present or future indebtedness (whether being principal, premium,
interest or other amounts) for or in respect of any notes, bonds, debentures, debenture stock, loan stock or other
securities which are for the time being quoted, listed or ordinarily dealt in on any stock exchange, over-thecounter or other organised securities market and having a maturity in excess of 365 days or any loan disbursed
to the Issuer as a borrower under a loan participation note or similar transaction and having an initial maturity at
issue or disbursement in excess of 365 days and (ii) any guarantee or indemnity of any such indebtedness.
5.
COVENANTS
5.1
Maintenance of Authorisations
So long as any Note remains outstanding (as defined in the Agency Agreement), the Issuer shall take all
necessary action to maintain, obtain and promptly renew, and do or cause to be done all things reasonably
necessary to ensure the continuance of, all consents, permissions, licences, approvals and authorisations, and
make or cause to be made all registrations, recordings and filings, which may at any time be required to be
obtained or made in the Republic of Turkey (including, for the avoidance of doubt, with the Capital Markets
Board (in Turkish: Sermaye Piyasası Kurulu) (the "CMB")) for (i) the execution, delivery or performance of the
Agency Agreement, the Deed of Covenant and the Notes or for the validity or enforceability thereof, or (ii) the
conduct by it of the Permitted Business, save for any consents, permissions, licences, approvals, authorisations,
registrations, recordings and filings (collectively, "Permissions") which are not material in the conduct by the
Issuer of the Permitted Business. For the avoidance of doubt, any Permissions relating to the Issuer's ability or
capacity to undertake its banking functions shall not be deemed to be not material in the conduct by the Issuer of
its Permitted Business.
5.2
Transactions with Affiliates
So long as any Note remains outstanding (as defined in the Agency Agreement), the Issuer shall not, and shall
not permit any of its Material Subsidiaries to, in any twelve month period: (a) make any payment to; (b) sell,
lease, transfer or otherwise dispose of any of its properties, revenues or assets to; (c) purchase any properties or
assets from; or (d) enter into or make or amend any transaction, contract, agreement, understanding, loan,
advance, indemnity or guarantee (whether related or not) with or for the benefit of any Affiliate (each, an
"Affiliate Transaction") which Affiliate Transaction has (or when taken together with any other Affiliate
Transaction during such 12 month period, in the aggregate have) a value in excess of U.S.$50,000,000 (or its
equivalent in any other currency) unless such Affiliate Transaction (and each such other aggregated Affiliate
Transaction) is on terms that are no less favourable to the Issuer or the relevant Material Subsidiary than those
that would have been obtained in a comparable transaction by the Issuer or such Material Subsidiary with an
unrelated Person (as defined in the Agency Agreement).
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5.3
Financial Reporting
So long as any Note remains outstanding (as defined in the Agency Agreement), the Issuer shall deliver to the
Fiscal Agent:
(a)
not later than six months after the end of the Issuer's financial year, copies of its audited
consolidated financial statements for such financial year, prepared in accordance with IFRS
consistently applied, together with the corresponding financial statements for the preceding
period, and all such annual financial statements of the Issuer shall be accompanied by the
report of the auditors thereon;
(b)
not later than 120 days after the end of the first six months of each of the Issuer's financial
years, copies of its unaudited consolidated financial statements for such six-month period,
prepared in accordance with IFRS consistently applied, together with the corresponding
financial statements for the preceding period; and
(c)
in the case of every other item referred to in this paragraph (c) below, not later than 20 days
after their initial distribution to any of the persons referred to in this paragraph (c) below, three
copies in English of every balance sheet, profit and loss account or income statement issued to
the members or holders of securities (generally) of the Issuer in their capacity as such and, to
the extent permitted by applicable law, every report or other notice, statement or circular
issued to such members or holders of securities.
For the purposes of this Condition 5:
"Affiliate" in respect of any specified Person (as defined in the Agency Agreement), means any other Person
directly or indirectly controlling or controlled by or under direct or indirect common control with such specified
Person, and, in the case of a natural Person, any immediate family member of such Person. For purposes of this
definition, "control", as used with respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms
"controlling", "controlled by" and "under common control with" shall have correlative meanings.
"Permitted Business" means any business which is the same as or related, ancillary or complementary to any of
the businesses of the Issuer on the Issue Date (as defined below).
6.
INTEREST
6.1
Interest Rate and Interest Payment Dates
The Notes bear interest from and including 13 July 2016 (the "Issue Date") at the rate of 5.000 per cent. per
annum, payable semi-annually in arrear on 13 January and 13 July (each an "Interest Payment Date") in each
year.
6.2
Interest Accrual
Each Note will cease to bear interest from and including its due date for redemption unless, upon due
presentation, payment of the principal in respect of the Note is improperly withheld or refused or unless default
is otherwise made in respect of payment. In such event, interest will continue to accrue until whichever is the
earlier of:
6.3
(a)
the date on which all amounts due in respect of such Note have been paid; and
(b)
five days after the date on which the full amount of the moneys payable in respect of such
Note has been received by the Fiscal Agent or a Registrar, as the case may be, and notice to
that effect has been given to the Noteholder in accordance with Condition 13.
Calculation of Broken Interest
When interest is required to be calculated in respect of a period of less than a full semi-annual interest period, it
shall be calculated on the basis of a 360-day year consisting of 12 months of 30 days each and, in the case of an
incomplete month, the number of days elapsed on the basis of a month of 30 days.
7.
PAYMENTS
7.1
Payments in respect of Notes
Payment of principal and interest will be made by transfer to the registered account of the Noteholder or by U.S.
Dollar cheque drawn on a bank that processes payments in U.S. Dollar mailed to the registered address of the
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Noteholder if it does not have a registered account. Payments of principal and payments of interest due
otherwise than on an Interest Payment Date will only be made against surrender of the relevant Certificate at the
specified office of any of the Agents. Interest on Notes due on an Interest Payment Date will be paid to the
holder shown on the relevant register of Noteholders at the close of business on the date (the "record date")
being the fifteenth day before the due date for the payment of interest.
For the purposes of this Condition, a Noteholder's registered account means the U.S. Dollar account maintained
by or on behalf of it with a bank that processes payments in U.S. Dollars, details of which appear on the relevant
register of Noteholders at the close of business, in the case of principal, on the second Business Day (as defined
below) before the due date for payment and, in the case of interest, on the relevant record date, and a
Noteholder's registered address means its address appearing on the relevant register of Noteholders at that time.
7.2
Payments subject to Applicable Laws
Payments in respect of principal and interest on the Notes are subject in all cases to any fiscal or other laws and
regulations applicable in the place of payment, but without prejudice to the provisions of Condition 9. Any such
amounts withheld or deducted will be treated as paid for all purposes under the Notes, and no additional
amounts will be paid on the Notes with respect to any such withholding or deduction.
7.3
No commissions
No commissions or expenses shall be charged to the Noteholders in respect of any payments made in
accordance with this Condition.
7.4
Payment on Business Days
Where payment is to be made by transfer to a registered account, payment instructions (for value the due date
or, if that is not a Business Day (as defined below), for value the first following day which is a Business Day)
will be initiated and, where payment is to be made by cheque, the cheque will be mailed on the Business Day
preceding the due date for payment or, in the case of a payment of principal or a payment of interest due
otherwise than on an Interest Payment Date, if later, on the Business Day on which the relevant Certificate is
surrendered at the specified office of an Agent.
Noteholders will not be entitled to any interest or other payment for any delay after the due date in receiving the
amount due if the due date is not a Business Day, if the Noteholder is late in surrendering its Certificate (if
required to do so) or if a cheque mailed in accordance with this Condition arrives after the due date for payment.
In this Condition "Business Day" means a day (other than a Saturday or Sunday) on which commercial banks
are open for business in New York City, London, and Istanbul and, in the case of presentation of a Certificate, in
the place in which the Certificate is presented.
7.5
Partial Payments
If the amount of principal or interest which is due on the Notes is not paid in full, the relevant Registrar will
annotate the relevant register of Noteholders with a record of the amount of principal or interest in fact paid.
7.6
Agents
The names of the initial Agents and their initial specified offices are set out in the Agency Agreement. The
Issuer reserves the right at any time to vary or terminate the appointment of any Agent and to appoint additional
or other Agents provided that:
(a)
there will at all times be a Fiscal Agent;
(b)
there will at all times be an Agent (which may be the Fiscal Agent) having a specified office
in a European city;
(c)
there will at all times be a Paying Agent in a jurisdiction (other than the jurisdiction in which
the Issuer is incorporated); and
(e)
there will at all times be a registrar (or registrars) in respect of the Notes.
Notice of any termination or appointment and of any changes in the specified offices of an Agent will be given
to the Noteholders promptly by the Issuer in accordance with Condition 13.
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8.
REDEMPTION AND PURCHASE
8.1
Redemption at Maturity
Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Notes at
their principal amount on 13 July 2021.
8.2
Redemption for Taxation Reasons
If:
(a)
(b)
as a result of any change in, or amendment to, the laws or regulations of a Relevant
Jurisdiction (as defined in Condition 9), or any change in the application or official
interpretation of the laws or regulations of a Relevant Jurisdiction, which change or
amendment becomes effective after 30 June 2016, on the next Interest Payment Date:
(i)
the Issuer would be required to pay additional amounts as provided or referred to in
Condition 9; and
(ii)
the Issuer would be required to make any withholding or deduction for, or on account
of, any Taxes imposed or levied by or on behalf of the Relevant Jurisdiction, beyond
the prevailing applicable rates on the Issue Date; and
the requirement cannot be avoided by the Issuer taking reasonable measures available to it,
the Issuer may at its option, having given not less than 30 nor more than 60 days' notice to the Noteholders in
accordance with Condition 13 (which notice shall be irrevocable), redeem all the Notes, but not some only, at
any time at their principal amount together with interest accrued to but excluding the date of redemption. Prior
to the publication of any notice of redemption pursuant to this paragraph, the Issuer shall deliver to the Fiscal
Agent a certificate signed by two Directors of the Issuer stating that the requirement referred to in paragraph (a)
above will apply on the next Interest Payment Date and setting forth a statement of facts showing that the
conditions precedent to the right of the Issuer so to redeem have occurred and an opinion of independent legal
advisers of recognised standing to the effect that the Issuer has or will become obliged to pay such additional
amounts as a result of the change or amendment.
8.3
Redemption upon a Change of Control
(a)
Following the occurrence of a Change of Control (as defined below), each Noteholder will
have a right (a "Change of Control Put Right"), at such Noteholder's option, to require the
Issuer to redeem all, but not some only, of such Noteholder's Notes on the Change of Control
Put Date (as defined below) at 100% of their principal amount together with interest accrued
to but excluding the date of redemption. To exercise such Change of Control Put Right, a
Noteholder must complete, sign and deposit at the specified office of any Paying Agent a duly
completed and signed put notice, substantially in the form set out in the Agency Agreement,
obtainable during normal business hours from the specified office of any Paying Agent (a
"Change of Control Put Exercise Notice"), together with the Certificate(s) evidencing the
Notes to be redeemed, by not later than 30 days following the date upon which notice thereof
is given to the Noteholder (in accordance with Condition 13) by the Issuer (the "Change of
Control Put Exercise Notice Date"). The "Change of Control Put Date" shall be the tenth
Business Day (as defined in Condition 7) after the Change of Control Put Exercise Notice
Date.
(b)
A Change of Control Put Exercise Notice, once delivered, shall be irrevocable and the Issuer
shall redeem the Notes which form the subject of the Change of Control Put Exercise Notice
delivered as aforesaid on the Change of Control Put Date except where, prior to the Change of
Control Put Date, an Event of Default has occurred and is continuing, in which event such
Noteholder, at its option, may elect by notice to the Issuer to withdraw the Change of Control
Put Exercise Notice given hereunder and instead to give notice to the Issuer that all, but not
some only, of such Noteholder's Notes shall accordingly become forthwith due and repayable
pursuant to Condition 11.
(c)
No Paying Agent shall be required to take any steps to ascertain whether a Change of Control
or any event which could lead to the occurrence of a Change of Control has occurred.
(d)
Not later than two Business Days (as defined in Condition 7) after becoming aware of a
Change of Control, the Issuer shall procure that notice shall be given to the Noteholders in
accordance with Condition 13 stating:
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(e)
8.4
(i)
the date of such Change of Control and, briefly, the events causing such Change of
Control;
(ii)
the Change of Control Put Exercise Notice Date;
(iii)
the Change of Control Put Date;
(iv)
the names and addresses of all Paying Agents;
(v)
the procedures that Noteholders must follow and the requirements that Noteholders
must satisfy in order to exercise the Change of Control Put Right;
(vi)
that a Change of Control Put Exercise Notice, once validly given, may not be
withdrawn; and
(vii)
the aggregate principal amount of the Notes outstanding as of the latest practicable
date prior to the publication of such notice regarding the Change of Control.
For the purpose of these Conditions, a "Change of Control" shall be deemed to have occurred
if the Republic of Turkey Prime Ministry Privatization Administration (in Turkish: T.C.
Başbakanlık Özelleştirme İdaresi Başkanlığı) or any other entity owned or controlled, directly
or indirectly, by the Republic of Turkey, as the case may be, ceases to (i) control or hold,
directly or indirectly, more than 50.0% of the ordinary shares of the Issuer giving the right to
vote at a general meeting, or (ii) whether directly or indirectly and whether by ownership of
share capital, possession of voting powers or otherwise, be able to appoint, or direct the
appointment of, a majority of the board of directors of the Issuer. For the avoidance of doubt,
the occurrence of a Change of Control shall not constitute an Event of Default.
No Other Redemption
The Issuer shall not be entitled to redeem the Notes otherwise than as provided in Condition 8.1 to 8.3 above.
8.5
Notices Final
Upon the expiry of any notice as is referred to in Condition 8.2 above the Issuer shall be bound to redeem the
Notes to which the notice refers in accordance with the terms of such paragraph.
8.6
Purchases
The Issuer or any of its Subsidiaries (as defined below) may at any time purchase Notes in any manner and at
any price. Such Notes may be held, re-issued, resold or, at the option of the Issuer, surrendered to any Paying
Agent or a Registrar for cancellation.
9.
TAXATION
9.1
Payment without Withholding
All payments in respect of the Notes by or on behalf of the Issuer shall be made without withholding or
deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of
whatever nature ("Taxes") imposed or levied by or on behalf of a Relevant Jurisdiction, unless the withholding
or deduction of the Taxes is required by law. In that event, the Issuer will pay such additional amounts as may
be necessary in order that the net amounts received by the Noteholders after the withholding or deduction shall
equal the respective amounts which would have been receivable in respect of the Notes in the absence of the
withholding or deduction; except that no additional amounts shall be payable in relation to any payment in
respect of any Note:
9.2
(a)
presented for payment by or on behalf of a holder who is liable to the Taxes in respect of the
Note by reason of his having some connection with any Relevant Jurisdiction other than the
mere holding of the Note; or
(b)
presented for payment in the Republic of Turkey; or
(c)
presented for payment more than 30 days after the Relevant Date (as defined below) except to
the extent that a holder would have been entitled to additional amounts on presenting the same
for payment on the last day of the period of 30 days assuming that day to have been a
Business Day (as defined in Condition 7).
Interpretation
In these Conditions:
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9.3
(a)
"Relevant Date" means with respect to any payment the date on which such payment first
becomes due but, if the full amount of the money payable has not been received by the Fiscal
Agent on or before the due date, it means the date on which, the full amount of the money
having been so received, notice to that effect has been duly given to the Noteholders by the
Issuer in accordance with Condition 13; and
(b)
"Relevant Jurisdiction" means the Republic of Turkey or any political subdivision or any
authority thereof or therein having power to tax or any other jurisdiction or any political
subdivision or any authority thereof or therein having power to tax to which the Issuer
becomes subject in respect of payments made by it of principal and interest on the Notes.
Additional Amounts
Any reference in these Conditions to any amounts in respect of the Notes shall be deemed also to refer to any
additional amounts which may be payable under this Condition 9.
10.
PRESCRIPTION
Claims in respect of principal and interest will become prescribed unless made within 10 years (in the case of
principal) and five years (in the case of interest) from the Relevant Date, as defined in Condition 9.
11.
EVENTS OF DEFAULT
11.1
Events of Default
The holder of any Note may give notice to the Issuer that the Note is, and it shall accordingly forthwith become,
immediately due and repayable at its principal amount, together with interest accrued to the date of repayment,
if any of the following events ("Events of Default") shall have occurred and be continuing:
(a)
if default is made in the payment of any principal or interest due in respect of the Notes or any
of them and the default continues for a period of 7 days in the case of principal or 14 days in
the case of interest; or
(b)
if the Issuer fails to perform or observe any of its other obligations under these Conditions and
(except in any case where the failure is incapable of remedy, when no continuation or notice
as is hereinafter mentioned will be required) the failure continues for the period of 14 days
following the service by any Noteholder on the Issuer of notice requiring the same to be
remedied; or
(c)
if (i) any Indebtedness for Borrowed Money (as defined below) of the Issuer or any of its
Material Subsidiaries becomes due and repayable prematurely by reason of an event of default
(however described); (ii) the Issuer or any of its Material Subsidiaries fails to make any
payment in respect of any Indebtedness for Borrowed Money on the due date for payment,
subject to any applicable grace period; (iii) any security given by the Issuer or any of its
Material Subsidiaries for any Indebtedness for Borrowed Money becomes enforceable; or (iv)
default is made by the Issuer or any of its Material Subsidiaries in making any payment due
under any guarantee and/or indemnity given by it in relation to any Indebtedness for
Borrowed Money of any other person, subject to any applicable grace period provided that no
event described in this subparagraph (c) shall constitute an Event of Default unless the
relevant amount of Indebtedness for Borrowed Money or other relative liability due and
unpaid, either alone or when aggregated (without duplication) with other amounts of
Indebtedness for Borrowed Money and/or other liabilities due and unpaid relative to all (if
any) other events specified in (i) to (iv) above, amounts to at least U.S.$ 50,000,000 (or its
equivalent in any other currency); or
(d)
if any order is made by any competent court or the Government of Turkey, as the case may be,
or resolution is passed for the winding up or dissolution of the Issuer or any of its Material
Subsidiaries; or
(e)
if the Issuer ceases or threatens to cease to carry on the whole or a substantial part of its
business or any Material Subsidiary ceases or threatens to cease to carry on the whole or
substantially all of its business, save in either case for the purposes of (i) a solvent voluntary
winding up, dissolution or reorganisation of the Issuer or any Material Subsidiary in
connection with any combination with, or transfer of at least a substantial part of its business
and/or assets to, the Issuer or one or more Material Subsidiaries of the Issuer or any
Subsidiary or Subsidiaries of the Issuer which becomes (or become) a Material Subsidiary (or
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Material Subsidiaries) as a result of such combination or transfer, or (ii) reorganisation on
terms approved by an Extraordinary Resolution of Noteholders, or the Issuer or any of its
Material Subsidiaries suspends or threatens to suspend payment of, or is unable to, or admits
inability to, pay, its debts (or any class of its debts) as they fall due or is deemed unable to pay
its debts pursuant to or for the purposes of any applicable law, or is adjudicated, declared or
found by a competent authority to be (or becomes) bankrupt or insolvent; or
11.2
(f)
if the Issuer or any of its Material Subsidiaries initiates or consents to judicial proceedings
relating to itself under any applicable liquidation, insolvency, composition, reorganisation or
other similar laws (including the obtaining of a moratorium) or makes a conveyance or
assignment for the benefit of, or enters into any composition or other arrangement with, its
creditors generally (or any class of its creditors) or any meeting is convened to consider a
proposal for an arrangement or composition with its creditors generally (or any class of its
creditors); or
(g)
the Issuer is or becomes entitled or subject to, or is declared by law or otherwise to be
protected by, immunity (sovereign or otherwise) and Condition 16.4 (Waiver of Immunity) is
held to be invalid or unenforceable; or
(h)
if the banking licence of the Issuer is temporarily or permanently revoked or the Issuer is
transferred to the Savings Deposit Insurance Fund under the provisions of the Banking Law
(Law No. 5411) of Turkey.
Interpretation
For the purposes of these Conditions:
"Indebtedness for Borrowed Money" means any indebtedness (whether being principal, premium, interest or
other amounts) for or in respect of:
(i)
any notes, bonds, debentures, debenture stock, loan stock or other securities; or
(ii)
any borrowed money; or
(iii)
any liability under or in respect of any acceptance or acceptance credit.
"Material Subsidiary" means at any time a Subsidiary of the Issuer:
(a)
whose total assets (consolidated in the case of a Subsidiary which itself has Subsidiaries)
represent (or, in the case of a Subsidiary acquired after the end of the financial period to which
the then latest audited consolidated IFRS financial statements of the Issuer and its Subsidiaries
relate, are equal to) not less than 10% of the consolidated total assets of the Issuer and its
Subsidiaries taken as a whole, all as calculated respectively by reference to the then latest
audited IFRS financial statements (consolidated or, as the case may be, unconsolidated) of
such Subsidiary and the then latest audited consolidated accounts of the Issuer and its
Subsidiaries, PROVIDED THAT in the case of a Subsidiary of the Issuer acquired after the
end of the financial period to which the then latest audited consolidated IFRS financial
statements of the Issuer and its Subsidiaries relate, the reference to the then latest audited
consolidated IFRS financial statements of the Issuer and its Subsidiaries for the purposes of
the calculation above shall, until consolidated accounts for the financial period in which the
acquisition is made have been prepared and audited as aforesaid, be deemed to be a reference
to such first-mentioned accounts as if such Subsidiary had been shown in such accounts by
reference to its then latest relevant audited accounts, adjusted as deemed appropriate by the
Issuer;
(b)
to which is transferred the whole or substantially the whole of the undertaking and assets of a
Subsidiary of the Issuer which immediately prior to such transfer is a Material Subsidiary,
provided that the transferor Subsidiary shall upon such transfer forthwith cease to be a
Material Subsidiary and the transferee Subsidiary shall immediately become a Material
Subsidiary pursuant to this paragraph (b) but shall cease to be a Material Subsidiary on the
date of publication of its next consolidated audited IFRS financial statements unless it would
then be a Material Subsidiary under (a) above; or
(c)
to which is transferred an undertaking or assets which, taken together with the undertaking or
assets of the transferee Subsidiary, represented (or, in the case of the transferee Subsidiary
being acquired after the end of the financial period to which the then latest audited
174
consolidated IFRS financial statements of the Issuer and its Subsidiaries relate, represent) not
less than 10% of the consolidated total assets of the Issuer and its Subsidiaries taken as a
whole (calculated as set out in paragraph (a) above), provided that the transferor Subsidiary (if
a Material Subsidiary) shall upon such transfer forthwith cease to be a Material Subsidiary
unless immediately following such transfer, its assets represent not less than 10% of the
consolidated total assets of the Issuer and its Subsidiaries taken as a whole (calculated as set
out in paragraph (a) above), and the transferee Subsidiary shall cease to be a Material
Subsidiary pursuant to this paragraph (c) on the date on the publication of its next audited
IFRS financial statements, save that such transferor Subsidiary or such transferee Subsidiary
may be a Material Subsidiary on or at any time after the date on which such consolidated
accounts have been prepared and audited as aforesaid by virtue of the provisions of paragraph
(a) above or, prior to or after such date, by virtue of any other applicable provision of this
definition.
A report by the auditors of the Issuer that in their opinion a Subsidiary is or is not or was or was not at any
particular time a Material Subsidiary shall, in the absence of manifest error, be conclusive and binding on all
parties.
"Subsidiary" means, in relation to the Issuer, any company (i) in which the Issuer holds a majority of the voting
rights or (ii) of which the Issuer is a member and has the right to appoint or remove a majority of the board of
directors or (iii) of which the Issuer is a member and controls a majority of the voting rights, and includes any
company which is a Subsidiary of a Subsidiary of the Issuer.
12.
REPLACEMENT OF CERTIFICATES
If any Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the specified office of the
relevant Registrar upon payment by the claimant of the expenses incurred in connection with the replacement
and on such terms as to (i) evidence of such loss, theft, mutilation, defacement or destruction, and (ii) indemnity
or security or both as the Issuer may reasonably require. Mutilated or defaced Certificates must be surrendered
before replacements will be issued.
13.
NOTICES
All notices to the Noteholders will be valid if mailed to them at their respective addresses in the relevant register
of Noteholders maintained by the relevant Registrar. The Issuer shall also ensure that notices are duly given or
published in a manner which complies with the rules and regulations of any stock exchange or other relevant
authority on which the Notes are for the time being listed and so long as the Notes are listed on the Irish Stock
Exchange plc, notices will also be filed with the Companies Announcement Office of the Irish Stock Exchange
plc. Any notice shall be deemed to have been given on the day after being so mailed or on the date of
publication or, if so published more than once or on different dates, on the date of the first publication.
14.
MEETINGS OF NOTEHOLDERS AND MODIFICATION
14.1
Meetings of Noteholders
The Agency Agreement contains provisions for convening meetings of the Noteholders to consider any matter
affecting their interests, including the modification by Extraordinary Resolution of any of these Conditions or
any of the provisions of the Agency Agreement. The quorum at any meeting for passing an Extraordinary
Resolution will be one or more persons present holding or representing more than 50% in principal amount of
the Notes for the time being outstanding, or at any adjourned meeting one or more persons present whatever the
principal amount of the Notes held or represented by him or them, except that at any meeting the business of
which includes the modification of certain of these Conditions the necessary quorum for passing an
Extraordinary Resolution will be one or more persons present holding or representing not less than two-thirds,
or at any adjourned meeting not less than one-third, of the principal amount of the Notes for the time being
outstanding. An Extraordinary Resolution passed at any meeting of the Noteholders will be binding on all
Noteholders, whether or not they are present at the meeting.
14.2
Modification
The Fiscal Agent and the Issuer may agree, without the consent of the Noteholders, to any modification of any
of these Conditions or any of the provisions of the Agency Agreement (i) if the modification is of a formal,
minor or technical nature or is to correct a manifest error, as determined reasonably by the Issuer; or (ii) in any
other manner which is not, in the reasonable opinion of the Issuer, materially prejudicial to the interests of the
Noteholders. Any such modification shall be binding on the Noteholders and any such modification shall be
notified by the Issuer to the Noteholders as soon as practicable thereafter in accordance with Condition 13.
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15.
FURTHER ISSUES
The Issuer may from time to time without the consent of the Noteholders create and issue further notes, having
terms and conditions the same as those of the Notes, or the same except for the amount of the first payment of
interest, which may be consolidated and form a single series with the outstanding Notes, provided, however, that
such further notes will be fungible for U.S. federal income tax purposes.
16.
GOVERNING LAW AND SUBMISSION TO JURISDICTION
16.1
Governing Law
The Agency Agreement, the Deed of Covenant and the Notes are, and any non-contractual obligations arising
therefrom shall be, governed by and shall be construed in accordance with English law.
16.2
Submission to Jurisdiction
The Issuer has irrevocably agreed for the benefit of the Noteholders that the High Courts of Justice of England
and Wales in London (and any competent United Kingdom appellate court in respect of any appeal relating to
any judgment or order originally of the High Court of Justice of England and Wales) are to have exclusive
jurisdiction to settle any disputes which may arise out of or in connection with the Notes and any noncontractual obligations arising therefrom and accordingly has submitted to the exclusive jurisdiction of the High
Courts of Justice of England and Wales in London (and any competent United Kingdom appellate court in
respect of any appeal relating to any judgment or order originally of the High Court of Justice of England and
Wales). The Issuer has waived any objection to the High Courts of Justice of England and Wales in London
(and any competent United Kingdom appellate court in respect of any appeal relating to any judgment or order
originally of the High Court of Justice of England and Wales) on the grounds that they are an inconvenient or
inappropriate forum.
To the extent permitted by law, the Noteholders may take any suit, action or proceeding arising out of or in
connection with the Notes (together referred to as "Proceedings") against the Issuer in any other court of
competent jurisdiction and concurrent Proceedings in any number of jurisdictions.
16.3
Consent to Enforcement
The Issuer agrees, without prejudice to the enforcement of a judgment obtained in the High Courts of Justice of
England and Wales in London (and any competent United Kingdom appellate court in respect of any appeal
relating to any judgment or order originally of the High Court of Justice of England and Wales) according to the
provisions of Article 54 of the International Private and Procedural Law of Turkey (Law No. 5718), that in the
event that any action is brought in relation to the Issuer in a court in Turkey in connection with the Notes, any
final judgment obtained in the High Courts of Justice of England and Wales in London (and any competent
United Kingdom appellate court in respect of any appeal relating to any judgment or order originally of the High
Court of Justice of England and Wales) in connection with such action shall constitute conclusive evidence of
the existence and amount of the claim against the Issuer, pursuant to the provisions of the first sentence of
Article 193 of the Civil Procedure Code of Turkey (Law No. 6100) and Articles 58 and 59 of the International
Private and Procedural Law of Turkey (Law No. 5718).
16.4
Waiver of Immunity
To the extent that the Issuer may in any jurisdiction claim for itself or its assets or revenues immunity from suit,
execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process and to
the extent that such immunity (whether or not claimed) may be attributed in any such jurisdiction to the Issuer or
its assets or revenues, the Issuer agrees not to claim and irrevocably waives such immunity to the full extent
permitted by the laws of such jurisdiction.
16.5
Other Documents
The Issuer has in the Agency Agreement and the Deed of Covenant submitted to the jurisdiction of the High
Courts of Justice of England and Wales in London (and any competent United Kingdom appellate court in
respect of any appeal relating to any judgment or order originally of the High Court of Justice of England and
Wales) and appointed an agent in England for service of process, in terms substantially similar to those set out
above.
16.6
Appointment of Process Agent
The Issuer hereby irrevocably and unconditionally appoints Law Debenture Corporate Services Limited at its
registered office for the time being as its agent for service of process in England in respect of any Proceedings
176
and undertakes that in the event of such agent ceasing so to act it will appoint another person as its agent for that
purpose.
17.
RIGHTS OF THIRD PARTIES
No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any
term of this Note, but this does not affect any right or remedy of any person which exists or is available apart
from that Act.
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THE GLOBAL CERTIFICATES
The Global Certificates contain the following provisions which apply to the Notes in respect of which they are
issued while they are represented by the Global Certificates, some of which modify the effect of the Conditions.
Terms defined in the Conditions of the Notes have the same meaning in paragraphs 1 to 8 below.
1.
ACCOUNTHOLDERS
For so long as any of the Notes are represented by the Global Certificates, each person (other than another
clearing system) who is for the time being shown in the records of DTC or Euroclear or Clearstream,
Luxembourg (as the case may be) as the holder of a particular aggregate principal amount of such Notes (each
an "Accountholder") (in which regard any certificate or other document issued by DTC or Euroclear or
Clearstream, Luxembourg (as the case may be) as to the aggregate principal amount of such Notes standing to
the account of any person shall be conclusive and binding for all purposes) shall be treated as the holder of such
aggregate principal amount of such Notes (and the expression "Noteholders" and references to "holding of
Notes" and to "holder of Notes" shall be construed accordingly) for all purposes other than with respect to
payments on such Notes, the right to which shall be vested, as against the Issuer, solely in the nominee for the
relevant clearing system (the "Relevant Nominee") in accordance with and subject to the terms of the Global
Certificates. Each Accountholder must look solely to DTC or Euroclear or Clearstream, Luxembourg, as the
case may be, for its share of each payment made to the Relevant Nominee.
2.
CANCELLATION
Cancellation of any Note following its redemption or purchase by the Issuer or any of its Subsidiaries will be
effected by reduction in the aggregate principal amount of the Notes in the relevant register of Noteholders and
by the annotation of the appropriate schedule to the relevant Global Certificate.
3.
PAYMENTS
Payments of principal and interest in respect of Notes represented by a Global Certificate will be made upon
presentation or, if no further payment falls to be made in respect of the Notes, against presentation and surrender
of such Global Certificate to or to the order of the relevant Registrar or such other Agent as shall have been
notified to the holders of the Global Certificates for such purpose.
Distributions of amounts with respect to book-entry interests in the Regulation S Notes held through Euroclear
or Clearstream, Luxembourg will be credited, to the extent received by the Fiscal Agent, to the cash accounts of
Euroclear or Clearstream, Luxembourg participants in accordance with the relevant system's rules and
procedures.
Holders of book-entry interests in the Rule 144A Notes holding through DTC will receive, to the extent received
by the Fiscal Agent, all distributions of amounts with respect to book-entry interests in such Notes from the
Fiscal Agent through DTC.
A record of each payment made will be endorsed on the appropriate schedule to the relevant Global Certificate
by or on behalf of the relevant Registrar and shall be prima facie evidence that payment has been made.
4.
RECORD DATE
Notwithstanding Condition 7.1, so long as the Notes are represented by a Global Certificate and such Global
Certificate is held on behalf of a clearing system, "record date" shall mean the Business Day before the relevant
due date for payment, where "Business Day" means a day when DTC, Euroclear and Clearstream, Luxembourg
are open for business.
5.
NOTICES
So long as the Notes are represented by a Global Certificate and such Global Certificate is held on behalf of a
clearing system, notices to Noteholders may be given by delivery of the relevant notice to that clearing system
for communication by it to entitled Accountholders in substitution for notification as required by Condition 13.
Any such notice shall be deemed to have been given to the Noteholders on the day after the day on which such
notice is delivered to such clearing system.
Without prejudice to "—8. Change of Control Put Exercise Notice" below, while any of the Notes held by a
Noteholder are represented by a Global Certificate, notices to be given by such Noteholder must be given by
such Noteholder (where applicable) through the applicable clearing system's operational procedures and
otherwise in such manner as the Fiscal Agent and the applicable clearing system may approve for this purpose.
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6.
REGISTRATION OF TITLE
Registration of title to Notes in a name other than that of the Relevant Nominee will not be permitted unless
Euroclear or Clearstream, Luxembourg or DTC, as appropriate, notifies the Issuer that it is unwilling or unable
to continue as a clearing system in connection with a Global Certificate or, in the case of DTC only, DTC ceases
to be a clearing agency registered under the U.S. Securities Exchange Act of 1934, and in each case a successor
clearing system is not appointed by the Issuer within 90 days after receiving such notice from Euroclear,
Clearstream, Luxembourg or DTC or becoming aware that DTC is no longer so registered. In these
circumstances title to a Note may be transferred into the names of holders notified by the Relevant Nominee,
except that Certificates in respect of Notes so transferred may not be available until 21 days after the request for
transfer is duly made.
The relevant Registrar will not register title to the Notes in a name other than that of the Relevant Nominee for a
period of 15 calendar days preceding the due date for any payment of principal or interest in respect of the
Notes.
If only one of the Global Certificates (the "Exchanged Global Certificate") becomes exchangeable for
Certificates in accordance with the above paragraphs, transfers of Notes may not take place between, on the one
hand, persons holding Certificates issued in exchange for beneficial interests in the Exchanged Global
Certificate and, on the other hand, persons wishing to purchase beneficial interests in the other Global
Certificate.
7.
TRANSFERS
Transfers of book-entry interests in the Notes will be effected through the records of Euroclear, Clearstream,
Luxembourg and DTC and their respective participants in accordance with the rules and procedures of
Euroclear, Clearstream, Luxembourg and DTC and their respective direct and indirect participants, as more fully
described under "Book-Entry Clearance Systems".
8.
CHANGE OF CONTROL PUT EXERCISE NOTICE
For so long as any Note is represented by a Global Certificate, to exercise the right to require redemption of all,
but not some only, of its Notes under Condition 8.3 the Noteholder must, within the notice period set out in
Condition 8.3, give notice to any Paying Agent of such exercise in accordance with the standard procedures of
Euroclear, Clearstream, Luxembourg or DTC, as applicable (which may include notice being given on such
Noteholder's instruction by Euroclear, Clearstream, Luxembourg, DTC or any depositary for them to any Paying
Agent by electronic means) in a form acceptable to Euroclear, Clearstream, Luxembourg or DTC, as applicable,
from time to time.
Any notice given in accordance with the standard procedures of Euroclear, Clearstream, Luxembourg or DTC,
as applicable, given by a Noteholder under Condition 8.3 shall be irrevocable except where, prior to the Change
of Control Put Date (as defined in Condition 8.3), an Event of Default has occurred and is continuing, in which
event such Noteholder, at its option, may elect by notice to the Issuer to withdraw the notice given hereunder
and instead to give notice to the Issuer that all, but not some only, of such Noteholder's Notes shall accordingly
become forthwith due and repayable pursuant to Condition 11.
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BOOK-ENTRY CLEARANCE SYSTEMS
The information set out below is subject to any change in or reinterpretation of the rules, regulations and
procedures of each of DTC, Euroclear or Clearstream, Luxembourg (together, the "Clearing Systems")
currently in effect. The information in this section concerning the Clearing Systems has been obtained from
sources that Halkbank's management believes to be reliable, but neither Halkbank nor any Initial Purchaser
takes any responsibility for the accuracy thereof. Investors wishing to use the facilities of the Clearing Systems
are advised to confirm the continued applicability of the rules, regulations and procedures of such facilities.
Neither Halkbank nor any other party to the Agency Agreement will have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Notes
held through the facilities of the Clearing Systems or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Book-Entry Systems
Euroclear and Clearstream, Luxembourg
Euroclear and Clearstream, Luxembourg each hold securities for their customers and facilitate the clearance and
settlement of securities transactions by electronic book-entry transfer between their respective account holders.
Euroclear and Clearstream, Luxembourg provide various services including safekeeping, administration,
clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and
Clearstream, Luxembourg also deal with domestic securities markets in several countries through established
depositary and custodial relationships. Euroclear and Clearstream, Luxembourg have established an electronic
bridge between their two systems across which their respective participants may settle trades with each other.
Euroclear and Clearstream, Luxembourg customers are worldwide financial institutions, including underwriters,
securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to Euroclear and
Clearstream, Luxembourg is available to other institutions that clear through or maintain a custodial relationship
with an account holder of either system.
DTC
DTC has advised the Issuer that it is a limited purpose trust company organised under the New York Banking
Law, a "banking organisation" within the meaning of the New York Banking Law, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to
Section 17A of the U.S. Exchange Act. DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among its participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerised book-entry changes in participants' accounts. Direct
participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain
other organisations. Access to the DTC system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either
directly or indirectly.
Registration and Form
Book-entry interests in the Notes held through Euroclear and Clearstream, Luxembourg will be represented by
the Unrestricted Global Certificate registered in the name of a nominee of, and held by, a common depositary
for Euroclear and Clearstream, Luxembourg. Book-entry interests in the Notes held through DTC will be
represented by the Restricted Global Certificate registered in the name of Cede & Co., as nominee for DTC, and
held by a custodian for DTC. As necessary, the relevant Registrar will adjust the amounts of Notes on the
relevant Register for the accounts of Euroclear, Clearstream, Luxembourg and DTC to reflect the amounts of
Notes held through Euroclear, Clearstream, Luxembourg and DTC, respectively. Beneficial ownership of bookentry interests in Notes will be held through financial institutions as direct and indirect participants in Euroclear,
Clearstream, Luxembourg and DTC.
The aggregate holdings of book-entry interests in the Notes in Euroclear, Clearstream, Luxembourg and DTC
will be reflected in the book-entry accounts of each such institution. Euroclear, Clearstream, Luxembourg or
DTC, as the case may be, and every other intermediate holder in the chain to the beneficial owner of book-entry
interests in the Notes will be responsible for establishing and maintaining accounts for their participants and
customers having interests in the book-entry interests in the Notes. The relevant Registrar will be responsible for
maintaining a record of the aggregate holdings of Notes registered in the name of a common nominee for
Euroclear and Clearstream, Luxembourg, a nominee for DTC and/or, if individual Certificates are issued in the
limited circumstances described under "The Global Certificates―Registration of Title", holders of Notes
represented by those individual Certificates. The Principal Paying Agent will be responsible for ensuring that
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payments received by it from the Issuer for holders of book-entry interests in the Notes holding through
Euroclear and Clearstream, Luxembourg are credited to Euroclear or Clearstream, Luxembourg, as the case may
be, and the Fiscal Agent will also be responsible for ensuring that payments received by the Fiscal Agent from
the Issuer for holders of book-entry interests in the Notes holding through DTC are credited to DTC.
The Issuer will not impose any fees in respect of holding the Notes; however, holders of book-entry interests in
the Notes may incur fees normally payable in respect of the maintenance and operation of accounts in Euroclear,
Clearstream, Luxembourg or DTC.
Clearing and Settlement Procedures
Initial Settlement
Upon their original issue, the Notes will be in global form represented by the two Global Certificates. Interests
in the Notes will be in uncertified book-entry form. Purchasers electing to hold book-entry interests in the Notes
through Euroclear and Clearstream, Luxembourg accounts will follow the settlement procedures applicable to
conventional Eurobonds. Book-entry interests in the Notes will be credited to Euroclear and Clearstream,
Luxembourg participants' securities clearance accounts on the business day following the Closing Date against
payment (value the Closing Date). DTC participants acting on behalf of purchasers electing to hold book-entry
interests in the Notes through DTC will follow the delivery practices applicable to securities eligible for DTC's
Same Day Funds Settlement system. DTC participants' securities accounts will be credited with book-entry
interests in the Notes following confirmation of receipt of payment to the Issuer on the Closing Date.
Secondary Market Trading
Secondary market trades in the Notes will be settled by transfer of title to book-entry interests in the Clearing
Systems. Title to such book-entry interests will pass by registration of the transfer within the records of
Euroclear, Clearstream, Luxembourg or DTC, as the case may be, in accordance with their respective
procedures. Book-entry interests in the Notes may be transferred within Euroclear and within Clearstream,
Luxembourg and between Euroclear and Clearstream, Luxembourg in accordance with procedures established
for these purposes by Euroclear and Clearstream, Luxembourg. Book-entry interests in the Notes may be
transferred within DTC in accordance with procedures established for this purpose by DTC. Transfer of bookentry interests in the Notes between Euroclear or Clearstream, Luxembourg and DTC may be effected in
accordance with procedures established for this purpose by Euroclear, Clearstream, Luxembourg and DTC.
General
None of Euroclear, Clearstream, Luxembourg or DTC is under any obligation to perform or continue to perform
the procedures referred to above, and such procedures may be discontinued or changed at any time.
None of the Issuer, the Principal Paying Agent or any of their agents will have any responsibility for the
performance by Euroclear, Clearstream, Luxembourg or DTC or their respective participants or account holders
of their respective obligations under the rules and procedures governing their operations or the arrangements
referred to above.
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TAXATION
This is a general summary of certain United States federal, Turkish, and European Union tax considerations in
connection with an investment in the Notes. This summary does not address all aspects of United States federal,
Turkish and European Union tax laws and does not discuss any state or local tax considerations. While this
summary is considered to be a correct interpretation of existing laws in force on the date of this Offering
Memorandum, there can be no assurance that those laws or the interpretation of those laws will not change. This
summary does not discuss all of the tax consequences that may be relevant to an investor in light of such
investor's particular circumstances or to investors subject to special rules, such as regulated investment
companies, certain financial institutions or insurance companies. Prospective investors are advised to consult
their tax advisers with respect to the tax consequences of the purchase, ownership or disposition of the
Notes (or the purchase, ownership or disposition of beneficial interests therein) as well as any tax
consequences that may arise under the laws of any state, municipality or other taxing jurisdiction.
Certain U.S. Federal Income Tax Consequences
The following summary describes certain U.S. federal income tax consequences of the acquisition, ownership
and disposition of a Note by a U.S. Holder (as defined below) whose functional currency is the U.S. Dollar that
acquires the Note in this Offering from the Initial Purchasers at a price equal to the issue price of the Notes (the
first price at which a substantial amount of the Notes is sold for money to investors) and holds it as a capital
asset. This summary does not address all aspects of U.S. federal income taxation that may be applicable to
particular U.S. Holders subject to special U.S. federal income tax rules, including, among others, tax-exempt
organisations, financial institutions, dealers and traders in securities or currencies, U.S. Holders that will hold a
Note as part of a "straddle", hedging transaction, "conversion transaction" or other integrated transaction for
U.S. federal income tax purposes, U.S. Holders that enter into "constructive sale" transactions with respect to
the Notes, U.S. Holders liable for alternative minimum tax and certain U.S. expatriates. In addition this
summary does not address consequences to U.S. Holders of the acquisition, ownership and disposition of a Note
under any other U.S. federal tax laws (e.g., estate or gift tax laws) or under the tax laws of any state, locality or
other political subdivision of the United States or other countries or jurisdictions.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note that is for U.S. federal income tax
purposes: (a) an individual who is a citizen or resident of the U.S., (b) a corporation created or organised in or
under the laws of the U.S., any state thereof or the District of Columbia, (c) an estate, the income of which is
subject to U.S. federal income taxation regardless of its source, or (d) a trust that is subject to U.S. tax on its
worldwide income regardless of its source.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds a Note, the U.S.
federal income tax treatment of a partner will generally depend upon the status of the partner and the activities
of the partnership. Therefore, a partnership holding a Note and its partners should consult their own tax advisers
regarding the U.S. federal income tax consequences of the acquisition, ownership and disposition of a Note.
The discussion below is based upon the U.S. Internal Revenue Code of 1986, as amended (the "U.S. Tax
Code"), U.S. Treasury regulations thereunder, and judicial and administrative interpretations thereof, all as in
effect as of the date of this Offering Memorandum and any of which may at any time be repealed, revoked or
modified or subject to differing interpretations, potentially retroactively, so as to result in U.S. federal income
tax consequences different from those discussed below.
The summary of the U.S. federal income tax consequences set out below is for general information only.
Prospective purchasers should consult their tax advisers as to the particular tax consequences to them of owning
the Notes, including the applicability and effect of state, local, foreign and other tax laws and possible changes
in tax law.
Payments of interest
Payments of interest on the Notes, including additional amounts, if any, generally will be taxable to a U.S.
Holder as ordinary income at the time that such payments are received or accrued, in accordance with such U.S.
Holder's usual method of accounting for U.S. federal income tax purposes. Interest paid on a Note generally will
constitute foreign source income for U.S. federal income tax purposes and generally will be considered
"passive" income, which is treated separately from other types of income in computing the foreign tax credit
that may be allowable to U.S. Holders under U.S. federal income tax laws. Subject to applicable restrictions and
limitations, a U.S. Holder may be entitled to claim a U.S. foreign tax credit in respect of any Turkish
withholding taxes imposed on interest received on the Notes. A U.S. Holder who does not elect to claim a credit
for foreign tax may instead claim a deduction in respect of the tax provided the U.S. Holder elects to deduct
rather than claim a credit for all foreign taxes for such taxable year. U.S. Holders that are eligible for benefits
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under the double tax treaty between the United States and Turkey (the "Double Tax Treaty") or are otherwise
entitled to a refund for the taxes withheld, under Turkish tax law generally will not be entitled to a foreign tax
credit or deduction for the amount of any Turkish taxes withheld in excess of the maximum rate under the
Double Tax Treaty or for those taxes that are otherwise refundable to them under Turkish tax law. The rules
relating to foreign tax credits or deducting foreign taxes are extremely complex, and U.S. Holders are urged to
consult their own tax advisers regarding the availability and advisability of claiming a foreign tax credit or a
deduction with respect to any Turkish taxes withheld from payment.
It is expected that the Notes will not be issued with original issue discount ("OID") for United States federal
income tax purposes. The Notes will be treated as issued with OID if their principal amount exceeds their "issue
price" by more than a de minimis amount of 0.25% of the principal amount multiplied by the number of
complete years from the issue date of the Notes until their maturity. If the Notes are issued with more than a de
minimis amount of OID, a U.S. Holder would be required to include OID in income as it accrues based on a
constant yield to maturity method before the receipt of corresponding cash payments.
The remainder of this discussion assumes that the Notes are not issued with more than a de minimis amount of
OID.
Sale, exchange and redemption of Notes
Upon the sale, exchange, redemption, retirement at maturity or other taxable disposition of a Note, a U.S.
Holder generally will recognise taxable gain or loss equal to the difference between the amount realised (i.e., the
amount of cash and the fair market value of any property received on the disposition (except to the extent the
cash or property received is attributable to accrued and unpaid interest not previously included in income, which
is treated like a payment of interest)) and the U.S. Holder's tax basis in the Note. A U.S. Holder's tax basis in a
Note generally will equal the amount paid for the Note. Gain or loss recognised by a U.S. Holder on the sale,
exchange or other disposition of a Note will be capital gain or loss and will be long-term capital gain or loss if
the Note was held by the U.S. Holder for more than one year. Gain or loss realised by a U.S. Holder on the sale
or retirement of a Note generally will be U.S. source. The deductibility of capital losses is subject to significant
limitations. U.S. Holders should consult their own advisers about the availability of U.S. foreign tax credits or
deductions with respect to any Turkish taxes imposed upon a disposition of Notes.
Information reporting and backup withholding
Information returns may be filed with the U.S. Internal Revenue Service ("IRS") (unless the U.S. Holder
establishes, if requested to do so, that it is an exempt recipient) in connection with payments on the Notes, and
the proceeds from the sale, exchange or other disposition of Notes. If information reports are required to be
made, a U.S. Holder may be subject to U.S. backup withholding if it fails to provide its taxpayer identification
number, or to establish that it is exempt from backup withholding. The amount of any backup withholding
imposed on a payment will be allowed as a credit against any U.S. federal income tax liability of a U.S. Holder
and may entitle the U.S. Holder to a refund, provided the required information is timely furnished to the IRS.
U.S. holders should consult their own tax advisers regarding any filing and reporting obligations they may have
as a result of their acquisition, ownership or disposition of notes.
Foreign Financial Asset Reporting
U.S. Holders that own designated types of financial assets, which would include a Note, have an information
reporting obligation when the aggregate value of all of those assets exceeds certain U.S. dollar value thresholds.
The reporting requirement applies to individuals and certain domestic entities formed or availed of for the
purpose of holding, directly or indirectly, specified types of foreign financial assets. The information required to
be reported will include the name and address of the issuer and information regarding the financial asset.
Persons required to report will file an information return, to be prescribed by the IRS, with their U.S. Federal
income tax returns. Significant penalties and an extended statute of limitations apply with respect to the new
reporting requirement. U.S. Holders should consult their tax advisers regarding this information reporting
obligation.
Net Investment Income Tax
Recently enacted legislation requires certain U.S. Holders who are individuals, estates or trusts to pay an
additional 3.8% tax on, among other things, interest on and capital gains from the sale, retirement or other
taxable disposition of Notes for taxable years beginning after 31 December 2012. U.S. Holders should consult
their tax advisers regarding the effect, if any, of this new legislation on their investment in the Notes.
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Certain Turkish Tax Considerations
The following discussion is a summary of certain Turkish tax considerations relating to an investment by a
person who is a non-resident of Turkey in Notes of a Turkish company issued abroad. The discussion is based
upon current law and is for general information only. The discussion below is not intended to constitute a
complete analysis of all tax consequences relating to the acquisition, ownership or disposition of the Notes that
may be relevant to a decision to make an investment in the Notes. Furthermore, the discussion only relates to the
investment by a person where the Notes will not be held in connection with the conduct of a trade or business
through a fixed place of business or a permanent representative which constitutes a permanent establishment
("PE") in Turkey. Each investor should consult its own tax advisers concerning the tax considerations
applicable to its particular situation. This discussion is based upon laws and relevant interpretations thereof in
effect as of the date of this Offering Memorandum, all of which are subject to change, possibly with a
retroactive effect. In addition, it does not describe any tax consequences: (a) arising under the laws of any taxing
jurisdiction other than Turkey or (b) applicable to a resident of Turkey or a non-resident operating through a PE
in Turkey.
For Turkish tax purposes, a legal entity is a resident of Turkey if its corporate domicile is in Turkey or its
effective place of management is in Turkey. A resident legal entity is subject to Turkish taxes on its worldwide
income, whereas a non-resident legal entity is only liable to the Turkish taxes for the trading income derived
through a PE, or for the income sourced in Turkey otherwise.
An individual is a resident of Turkey if such individual has established domicile in Turkey or stays in Turkey
more than six months in a calendar year. On the other hand, foreign individuals who stay in Turkey for six
months or more for a specific job or business or particular purposes that are specified in the Income Tax Law
may not be treated as a resident of Turkey depending upon the characteristics of the state. A resident individual
is liable for Turkish taxes on his/her worldwide income, whereas a non-resident individual is liable for Turkish
tax for the income sourced in Turkey.
Interest income from capital investment is deemed to be sourced in Turkey when the principal is invested in
Turkey. Capital gain derived from trading income is considered sourced in Turkey when the activity or
transaction generating such income is performed or accounted for in Turkey. The term "accounted for" means
that a payment is made in Turkey, or if the payment is made abroad, it is recorded in the books or apportioned
from the profits of the payer or the person on whose behalf the payment is made in Turkey.
Any withholding tax levied on income derived by a non-resident person is the final tax for the non-resident
person and no further declaration is needed. Any other income of a non-resident person sourced in Turkey that
has not been subject to withholding tax will be subject to taxation through declaration where exemptions are
reserved.
Interest paid on notes (such as the Notes) issued abroad by Turkish corporates is subject to withholding tax.
Through decree dated 29 December 2010 numbered 2010/1182 and decree dated 29 June 2011 numbered
2011/1854, the withholding tax rates are set according to the maturity of notes issued abroad as follows:
•
10% withholding tax for notes with a maturity of less than 1 year,
•
7% withholding tax for notes with a maturity of at least 1 year and less than 3 years,
•
3% withholding tax for notes with a maturity of at least 3 years and less than 5 years, and
•
0% withholding tax for notes with a maturity of 5 years and more.
Such withholding tax is the final tax for a non-resident person and no further declaration is required.
In general, capital gains are not taxed through withholding tax and therefore any capital gain sourced in Turkey
with respect to the Notes may be subject to declaration. However, pursuant to Provisional Article 67 of Turkish
Income Tax Law as amended by Law numbered 6111, special or separate tax returns will not be submitted for
capital gains from the notes of a Turkish corporate issued abroad when the income is derived by a non-resident.
Therefore, no tax is levied on the non-resident persons on capital gains from such Notes and no declaration is
required.
A non-resident holder will not be liable for Turkish estate, inheritance or similar tax with respect to its
investment in the Notes, nor will it be liable for any Turkish stamp issue, registration or similar tax or duty
relating thereto.
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Reduced Withholding Tax Rates
Under current Turkish laws and regulations, interest payments on notes by an issuer to a non-resident holder
will be subject to a withholding tax at a rate between 10% and 0% in Turkey, as detailed above.
If a double taxation treaty is in effect between Turkey and the country of the holder of the notes (in some cases,
for example, pursuant to the treaties with the United Kingdom and the United States, the term "beneficial
owner" is used), which provides for the application of a lower withholding tax rate than the local rate to be
applied by the corporation, then the lower rate may be applicable. For the application of withholding at a
reduced rate that benefits from the provisions of a double tax treaty concluded between Turkey and the relevant
jurisdiction where the investor is a resident, an original copy of the certificate of residence signed by the
competent authority referred to in article 3 of the treaties is required, together with a translated copy translated
by a translation office, to verify that the investor is subject to taxation over its worldwide gains in the relevant
jurisdiction on the basis of resident taxpayer status, as a resident of the relevant jurisdiction to the related tax
office directly or through the banks and intermediary institutions prior to the application of withholding. In the
event the certificate of residence is not delivered prior to the application of withholding tax, then upon the
subsequent delivery of the certificate of residence, refunding of the excess tax shall be granted pursuant to the
provisions of the relevant double taxation treaty and the Turkish tax legislation.
THE ABOVE SUMMARIES ARE NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF
ALL TAX CONSEQUENCES RELATING TO THE INVESTMENT IN THE NOTES. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE TAX
CONSEQUENCES OF THEIR PARTICULAR SITUATIONS. THIS DISCUSSION IS BASED UPON
LAWS AND RELEVANT INTERPRETATIONS THEREOF IN EFFECT AS OF THE DATE OF THIS
OFFERING MEMORANDUM.
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CERTAIN ERISA CONSIDERATIONS
The following description is general in nature, is not intended to be all-inclusive, and is based on the law and
practice in force at the date of this document and is subject to any subsequent changes therein. In view of the
individual nature of ERISA (as defined below), U.S. Tax Code and Similar Law (as defined below)
consequences, each potential investor that is a Benefit Plan (as defined below) or any plan subject to any Similar
Law is advised to consult its own legal adviser with respect to the specific ERISA, U.S. Tax Code and Similar
Law consequences of investing in the Notes and to make its own independent decision with respect to any such
investment. The following is merely a summary and should not be construed as legal advice.
Subject to the following discussion, the Notes may be acquired by pension, profit-sharing or other employee
benefit plans subject to the provisions of Part 4 of Subtitle B of Title I of the U.S. Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), as well as individual retirement accounts, Keogh plans and other
plans covered by Section 4975 of the U.S. Tax Code, as well as entities deemed to hold "plan assets" of any of
the foregoing plans or accounts (each such entity, a "Benefit Plan") under the regulations promulgated by the
U.S. Department of Labor at 29 CFR 2510.3-101, as modified by Section 3(42) of ERISA (the "Plan Asset
Regulation"). Section 406 of ERISA and Section 4975 of the U.S. Tax Code prohibit a Benefit Plan from
engaging in certain transactions with persons that are "parties in interest" under ERISA or "disqualified persons"
under the U.S. Tax Code with respect to such Benefit Plan. A violation of these "prohibited transaction" rules
may result in an excise tax or other penalties and liabilities under ERISA and the U.S. Tax Code for such
persons or the fiduciaries of the Benefit Plan. In addition, Title I of ERISA also requires fiduciaries of a Benefit
Plan subject to ERISA to make investments that are prudent, diversified and in accordance with the governing
plan documents.
If the assets of the Issuer were deemed to be plan assets of Benefit Plans that purchased Notes: (a) if any such
Benefit Plans are subject to ERISA, ERISA's fiduciary standards would apply to the Issuer and might materially
affect the operations of the Issuer, and (b) any transactions involving the Issuer could be deemed a transaction
with each Benefit Plan and may cause certain transactions into which the Issuer might enter in the ordinary
course of business to constitute prohibited transactions under ERISA and/or Section 4975 of the U.S. Tax Code.
Under the Plan Asset Regulation, the assets of the Issuer would be treated as plan assets of a Benefit Plan for the
purposes of ERISA and the U.S. Tax Code only if the Benefit Plan acquired an "equity interest" in the Issuer
and none of the exceptions to holding plan assets contained in the Plan Asset Regulation were applicable. An
equity interest is defined under the Plan Asset Regulation as an interest other than an instrument that is treated
as indebtedness under applicable local law and that has no substantial equity features. Although there is little
guidance on the subject, at the time of their initial issuance, the Notes should be treated as indebtedness under
applicable local law without substantial equity features for this purpose. This determination is based in part upon
the traditional debt features of the Notes, including the reasonable expectation of purchasers of the Notes that
the Notes will be repaid when due, as well as the absence of conversion rights, warrants and other typical equity
features. However, since the Plan Asset Regulation does not specify what constitutes a substantial equity
feature, there can be no assurance that the Notes will be treated as indebtedness under applicable local law
without substantial equity features for purposes of the Plan Asset Regulation.
However, without regard to whether the Notes are treated as an equity interest for purposes of the Plan Asset
Regulation, the acquisition, holding or disposition of Notes by or on behalf of a Benefit Plan could be
considered to give rise to a prohibited transaction if the Issuer, the Initial Purchasers, the Fiscal Agent or any of
their respective affiliates is or becomes a party in interest or a disqualified person with respect to such Benefit
Plan. Certain exemptions from the prohibited transaction rules could be applicable to the acquisition, holding
and disposition of Notes by a Benefit Plan depending on the type and circumstances of the plan fiduciary
making the decision to acquire such Notes. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 96-23, regarding transactions effected by "in-house asset managers"; PTCE 95-60, as
modified, regarding investments by insurance company general accounts; PTCE 91-38, as modified, regarding
investments by bank collective investment funds; PTCE 90-1, regarding investments by insurance company
pooled separate accounts; and PTCE 84-14, as modified, regarding transactions effected by "qualified
professional asset managers". In addition to the class exemptions listed above, there are statutory exemptions
under Section 408(b)(17) of ERISA and Section 4975(d)(20) of the U.S. Tax Code for prohibited transactions
between a Benefit Plan and a person or entity that is a party in interest to such Benefit Plan solely by reason of
providing services to the Benefit Plan (other than a party in interest that is a fiduciary, or its affiliate, that has or
exercises discretionary authority or control or renders investment advice with respect to the assets of the Benefit
Plan involved in the transaction), provided that there is adequate consideration for the transaction. Even if the
conditions specified in one or more of these exemptions are met, the scope of the relief provided by these
exemptions might or might not cover all acts that might be construed as prohibited transactions. There can be no
assurance that any of these, or any other exemption, will be available with respect to any particular transaction
186
involving the Notes and prospective purchasers that are Benefit Plans should consult with their advisers
regarding the applicability of any such exemption.
Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA), certain church
plans (as defined in Section 3(33) of ERISA) and employee benefit plans subject to non-U.S. law are not subject
to the fiduciary responsibility or prohibited transaction provisions of ERISA or the provisions of Section 4975
of the U.S. Tax Code, although they may be subject to federal, state, local, non-U.S. or other laws or regulations
that are substantially similar to the foregoing provisions of ERISA or the U.S. Tax Code ("Similar Law").
Accordingly, assets of such plans may be invested in the Notes without regard to the ERISA considerations
discussed above, subject to the provisions of any Similar Law.
By acquiring a Note (or a beneficial interest therein), each purchaser and transferee will be deemed to represent
and warrant that: (a) either: (i) the funds used for such acquisition do not constitute the assets of any "employee
benefit plan" as defined in Section 3(3) of ERISA, that is subject to the provisions of Part 4 of Subtitle B of Title
I of ERISA, any plan to which Section 4975 of the U.S. Tax Code applies, any entity whose underlying assets
include "plan assets" of any of the foregoing under the Plan Asset Regulation, or a governmental, church or nonU.S. plan subject to any Similar Law, or (ii) the acquisition, holding and disposition of such Note (or a
beneficial interest therein) does not and will not result in a non-exempt prohibited transaction under ERISA or
Section 4975 of the U.S. Tax Code (or, in the case of a governmental, church, or non-U.S. plan, a violation of
any Similar Law), and (b) it agrees not to sell or otherwise transfer any interest in the Notes otherwise than to an
acquirer or transferee that is deemed to make these same representations, warranties and agreements with
respect to its acquisition, holding and disposition of such Notes.
A FIDUCIARY OF A BENEFIT PLAN CONSIDERING THE ACQUISITION OF NOTES (OR A
BENEFICIAL INTEREST THEREIN) SHOULD CONSULT ITS LEGAL ADVISERS REGARDING
WHETHER THE ASSETS OF THE ISSUER WOULD BE CONSIDERED PLAN ASSETS, THE
POSSIBILITY OF EXEMPTIVE RELIEF FROM THE PROHIBITED TRANSACTION RULES, WHETHER
THE NOTES WOULD BE AN APPROPRIATE INVESTMENT FOR THE BENEFIT PLAN UNDER ERISA
AND THE U.S. TAX CODE AND OTHER ISSUES AND THEIR POTENTIAL CONSEQUENCES. A
FIDUCIARY OF A PLAN SUBJECT TO ANY SIMILAR LAW CONSIDERING THE ACQUISITION OF
NOTES (OR A BENEFICIAL INTEREST THEREIN) SHOULD CONSULT ITS LEGAL ADVISERS
REGARDING THE APPLICABILITY OF THE PROVISIONS OF ANY SIMILAR LAW AND WHETHER
THE NOTES WOULD BE AN APPROPRIATE INVESTMENT FOR THE PLAN UNDER ANY SIMILAR
LAW. THE SALE OF NOTES TO A BENEFIT PLAN OR TO A PLAN SUBJECT TO ANY SIMILAR LAW
IS IN NO RESPECT A REPRESENTATION BY THE ISSUER THAT THIS INVESTMENT MEETS ALL
THE RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENT BY BENEFIT PLANS
OR PLANS SUBJECT TO ANY SIMILAR LAW GENERALLY OR BY ANY PARTICULAR BENEFIT
PLAN OR PLAN SUBJECT TO ANY SIMILAR LAW, OR THAT THIS INVESTMENT IS APPROPRIATE
FOR BENEFIT PLANS OR PLANS SUBJECT TO ANY SIMILAR LAW GENERALLY OR FOR ANY
PARTICULAR BENEFIT PLAN OR PLAN SUBJECT TO ANY SIMILAR LAW.
187
PLAN OF DISTRIBUTION
The Issuer intends to offer the Notes through the Initial Purchasers and their broker-dealer affiliates, as
applicable, named below. Subject to the terms and conditions stated in a subscription agreement dated 30 June
2016 (the "Subscription Agreement"), among the Initial Purchasers and the Issuer, each of the Initial
Purchasers has severally agreed to purchase, and the Issuer has agreed to sell to each of the Initial Purchasers,
the principal amount of the Notes set forth opposite each Initial Purchaser's name below.
Principal Amount of
Notes (U.S. Dollars)
Initial Purchasers:
Arab Banking Corporation (B.S.C.).........................................................................................................
Citigroup Global Markets Limited ...........................................................................................................
Emirates NBD P.J.S.C. ............................................................................................................................
Goldman Sachs International ...................................................................................................................
HSBC Bank plc .......................................................................................................................................
UniCredit Bank AG .................................................................................................................................
83,333,000
83,334,000
83,333,000
83,333,000
83,333,000
83,334,000
Total ........................................................................................................................................................
500,000,000
The Subscription Agreement provides that the obligations of the Initial Purchasers to purchase the Notes are
subject to approval of legal matters by counsel and to other conditions. The Initial Purchasers must purchase all
the Notes if they purchase any of the Notes. The offering of the Notes by the Initial Purchasers is subject to
receipt and acceptance and subject to the Initial Purchasers' right to reject any order in whole or in part.
The Issuer has been informed that the Initial Purchasers propose to resell the Notes at the offering prices set
forth on the cover page of this Offering Memorandum within the United States to persons reasonably believed to
be QIBs in reliance upon Rule 144A, and to non-U.S. Persons outside the United States in reliance upon
Regulation S. See "Transfer Restrictions". The prices at which the Notes are offered may be changed at any
time without notice.
Offers and sales of the Notes in the United States will be made by those Initial Purchasers or their affiliates that
are registered broker-dealers under the U.S. Exchange Act, or in accordance with Rule 15a-6 thereunder.
or for the account or benefit of, U.S. Persons except pursuant to an exemption from, or in a transaction not
any state or other jurisdiction of the United States. See "Transfer Restrictions".
Until 40 days after the commencement of this offering, an offer or sale of Notes within the United States by a
dealer that is not participating in this offering may violate the registration requirements of the U.S. Securities
Act if that offer or sale is made otherwise than in accordance with Rule 144A.
The Notes will constitute a new class of securities of the Bank with no established trading market. The Bank
cannot assure you that the prices at which the Notes will sell in the market after this offering will not be lower
than the initial offering price or that an active trading market for the Notes will develop and continue after this
offering. The Initial Purchasers have advised the Bank that they currently intend to make a market in the Notes.
However, they are not obligated to do so, and they may discontinue any market-making activities with respect to
the Notes at any time without notice. Accordingly, the Bank cannot assure you as to the liquidity of or the
trading market for the Notes.
In connection with the offering, the Initial Purchasers may purchase and sell Notes in the open market. These
transactions may include overallotment, syndicate covering transactions and stabilising transactions.
Overallotment involves the sale of Notes in excess of the principal amount of Notes to be purchased by the
Initial Purchasers in this offering, which creates a short position for the Initial Purchasers. Covering transactions
involve the purchase of the Notes in the open market after the distribution has been completed in order to cover
short positions. Stabilising transactions consist of certain bids or purchases of Notes made for the purpose of
preventing or retarding a decline in the market price of the Notes while the offering is in progress. Any of these
activities may have the effect of preventing or retarding a decline in the market price of the Notes. They may
also cause the price of the Notes to be higher than the price that otherwise would exist in the open market in the
absence of these transactions. The Initial Purchasers may conduct these transactions in the over-the-counter
market or otherwise. If the Initial Purchasers commence any of these transactions, they may discontinue them at
any time.
188
The Issuer expects that delivery of the Notes will be made against payment therefor on the closing date specified
on the cover page of this Offering Memorandum, which will be the eighth New York business day following the
date of this Offering Memorandum (this settlement cycle being referred to as "T+8"). Under Rule 15c6-l of the
U.S. Exchange Act, trades in the secondary market generally are required to settle in three New York business
days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade
Notes on the date of this Offering Memorandum or the next succeeding New York business days will be
required, by virtue of the fact that the Notes initially will settle in T+8, to specify an alternate settlement cycle at
the time of any such trade to prevent a failed settlement. Purchasers of Notes who wish to trade Notes on the
date of this Offering Memorandum or the next succeeding New York business days should consult their own
adviser.
The Initial Purchasers and their respective affiliates are full service financial institutions engaged in various
activities, which may include securities trading, commercial and investment banking, financial advisory,
investment management, principal investment, hedging, financing and brokerage activities. The Initial
Purchasers or their respective affiliates may have performed investment banking and advisory services for the
Issuer and its affiliates from time to time for which they may have received customary fees and expenses. The
Initial Purchasers or their respective affiliates may, from time to time, engage in transactions with and perform
advisory and other services for the Issuer and its affiliates in the ordinary course of their business.
Arab Banking Corporation (B.S.C) and Emirates NBD P.J.S.C. are not U.S.-registered broker-dealers and will
not effect any offer or sales of the Notes in the United States unless through one or more broker-dealers as
permitted by the Financial Industry Regulatory Authority.
In the ordinary course of their various business activities, the Initial Purchasers and their respective affiliates
may make or hold a broad array of investments and actively trade debt and equity securities (or related
derivative securities) and financial instruments (including bank loans) for their own account and for the accounts
of their customers and may at any time hold long and short positions in such securities and instruments. Such
investment and securities activities may involve securities and instruments of the Issuer or the Issuer's affiliates.
Certain of the Initial Purchasers or their affiliates that have a lending relationship with the Issuer routinely hedge
their credit exposure to the Issuer consistent with their customary risk management policies. Typically, the
Initial Purchasers and their affiliates would hedge such exposure by entering into transactions which consist of
either the purchase of credit default swaps or the creation of short positions in the Issuer's securities, including
potentially the Notes. Any such short positions could adversely affect future trading prices of the Notes. The
Initial Purchasers and their affiliates may also make investment recommendations and/or publish or express
independent research views in respect of such securities or financial instruments and may hold, or recommend to
clients that they acquire, long and/or short positions in such securities and instruments.
The Issuer has agreed to indemnify the several Initial Purchasers against certain liabilities, including liabilities
under the U.S. Securities Act, or to contribute to payments that the Initial Purchasers may be required to make
because of those liabilities.
189
ADDITIONAL SELLING RESTRICTIONS
NOTICE TO RESIDENTS OF TURKEY
THE OFFERING OF THE NOTES WILL BE REGISTERED WITH THE CMB ONLY FOR THE PURPOSE
OF THE SALE OF THE NOTES OUTSIDE OF TURKEY IN ACCORDANCE WITH ARTICLE 15(B) OF
DECREE 32, BANKING REGULATIONS, THE CAPITAL MARKETS LAW AND THE COMMUNIQUÉ
ON DEBT INSTRUMENTS SERIAL II, NO: 31.1. THE NOTES (OR BENEFICIAL INTERESTS THEREIN)
HAVE TO BE OFFERED OR SOLD TO REAL PERSONS AND LEGAL ENTITIES DOMICILED
OUTSIDE OF TURKEY IN ACCORDANCE WITH THE BRSA DECISION DATED 6 MAY 2010 NO. 3665
(AS NOTIFIED BY THE BRSA IN ITS LETTER TO THE TURKISH BANKING ASSOCIATION, DATED
10 MAY 2010 AND NUMBERED B.02.1.BDK.0.11.00.00.31.2 9392) AND THE CMB HAS AUTHORISED
THE OFFERING OF THE NOTES; PROVIDED THAT, FOLLOWING THE PRIMARY SALE OF THE
NOTES, NO TRANSACTION THAT MAY BE DEEMED AS A SALE OF THE NOTES (OR BENEFICIAL
INTERESTS THEREIN) IN TURKEY BY WAY OF PRIVATE PLACEMENT OR PUBLIC OFFERING
MAY BE ENGAGED IN. HOWEVER, PURSUANT TO ARTICLE 15(D)(II) OF DECREE 32, THERE IS NO
RESTRICTION ON THE PURCHASE OR SALE OF THE NOTES (OR BENEFICIAL INTERESTS
THEREIN) IN SECONDARY MARKETS BY RESIDENTS OF TURKEY; PROVIDED THAT THEY
PURCHASE OR SELL SUCH NOTES (OR BENEFICIAL INTERESTS) IN THE FINANCIAL MARKETS
OUTSIDE OF TURKEY AND SUCH SALE AND PURCHASE IS MADE THROUGH BANKS AND/OR
LICENSED BROKERAGE INSTITUTIONS AUTHORISED PURSUANT TO CMB REGULATIONS. THE
ISSUANCE CERTIFICATE RELATING TO THE NOTES IS EXPECTED TO BE APPROVED BY THE
CMB ON OR PRIOR TO THE ISSUE DATE.
NOTICE TO RESIDENTS OF THE UNITED KINGDOM
In the United Kingdom, this Offering Memorandum is being distributed only to and is directed only at: (i)
persons who are outside the United Kingdom, (ii) investment professionals within the meaning of Article 19(5)
of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Financial Promotion
Order"), (iii) high net worth entities as defined in the Financial Promotion Order, or (iv) those persons to whom
it may otherwise lawfully be communicated falling within Article 49(2)(a) to (e) of the Financial Promotion
Order or Article 43 of the Financial Promotion Order (all such persons together being referred to as "relevant
persons").
Each Initial Purchaser has represented and agreed that: (a) it has only communicated or caused to be
communicated and will only communicate or cause to be communicated an invitation or inducement to engage
in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the
"FSMA")) received by it in connection with the issue or sale of any Notes in circumstances in which Section
21(1) of the FSMA does not apply to the Issuer; and (b) it has complied and will comply with all applicable
provisions of the FSMA in respect of anything done by it in relation to any Notes in, from or otherwise
involving the United Kingdom.
190
TRANSFER RESTRICTIONS
Because the following restrictions will apply with respect to the Notes, purchasers of the Notes are advised to
consult legal counsel prior to making an offer, resale, pledge or transfer of any of the Notes.
According to Article 15 d(ii) of Decree 32 regarding the Protection of the Value of the Turkish Currency,
residents in Turkey shall be free to purchase and sell securities and other capital market instruments traded on
financial markets outside of Turkey, and to transfer their purchasing proceeds abroad through banks and the
intermediary institutions authorised in accordance with capital market legislation.
or for the account or benefit of, U.S. Persons, except pursuant to an exemption from, or in a transaction not
any state or other jurisdiction of the United States. The Notes are being offered and sold only (1) to persons
reasonably believed to be QIBs in compliance with Rule 144A and (2) to non-U.S. Persons outside the United
States in compliance with Regulation S.
If you purchase the Notes, you will be deemed to have acknowledged, represented and agreed with the Initial
Purchasers and the Bank as follows:
(1)
You understand and acknowledge that the Notes have not been registered under the U.S. Securities Act
or any other applicable securities law and that the Notes are being offered for resale in transactions not
requiring registration under the U.S. Securities Act or any other securities law, including sales pursuant
to Rule 144A under the U.S. Securities Act, and, unless so registered, may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of the U.S. Securities Act
or any other applicable securities law, or pursuant to an exemption therefrom or in a transaction not
subject thereto, and in each case in compliance with the conditions for transfer set forth in paragraph (4)
below.
(2)
You are not an "affiliate" (as defined in Rule 144 under the U.S. Securities Act) of the Bank and you are
not acting on the Bank's or their behalf and you are either (i) a QIB and are aware that any sale of Notes
to you will be made in reliance on Rule 144A and such acquisition will be for your own account or for
the account of another QIB or (ii) not a U.S. Person or purchasing for the account or benefit of a U.S.
Person (other than a distributor) and you are purchasing Notes in an offshore transaction in accordance
with Regulation S under the U.S. Securities Act.
(3)
You acknowledge that none of the Bank or the Initial Purchasers, or any person representing the Bank or
the Initial Purchasers, has made any representation to you with respect to the Bank or the offer or sale of
any of the Notes, other than the information contained in this Offering Memorandum, which has been
delivered to you and upon which you are relying in making your investment decision with respect to the
Notes. You acknowledge that the Initial Purchasers make no representation or warranty as to the
accuracy or completeness of this Offering Memorandum. You have had access to such financial and
other information concerning the Bank and the Notes as you have deemed necessary in connection with
your decision to purchase the Notes, including an opportunity to ask questions of and request information
from the Bank and the Initial Purchasers.
(4)
You are purchasing the Notes for your own account, or for one or more investor accounts for which you
are acting as a fiduciary or agent, in each case for investment, and not with a view to, or for offer or sale
in connection with, any distribution thereof in violation of the U.S. Securities Act. You agree on your
own behalf and on behalf of any investor account for which you are purchasing Notes, and each
subsequent holder of the Notes by its acceptance thereof will be deemed to agree, not to offer, sell or
otherwise transfer such Notes prior to (i) the date which is one year (or such shorter period of time as
permitted by Rule 144 under the U.S. Securities Act or any successor provision thereunder) after the later
of the date of the original issue of the Notes and the last date on which the Bank or any affiliate of the
Bank was the owner of such Notes (or any predecessor thereto), or (ii) such later date, if any, as may be
required by applicable law (the "Resale Restriction Termination Date"), except (a) to the Bank, (b)
pursuant to a registration statement which has been declared effective under the U.S. Securities Act, (c)
for so long as the Notes are eligible for resale pursuant to Rule 144A, to a person you reasonably believe
is a QIB that purchases for its own account or for the account of another QIB to whom you give notice
that the transfer is being made in reliance on Rule 144A, (d) in an offshore transaction complying with
Rule 903 or 904 of Regulation S under the U.S. Securities Act or (e) pursuant to any other available
exemption from the registration requirements of the U.S. Securities Act and, in each of the foregoing
cases, in compliance with any other applicable securities laws. The foregoing restrictions on resale will
191
not apply subsequent to the Resale Restriction Termination Date. You acknowledge that the Bank
reserves the right prior to any offer, sale or other transfer of the Notes pursuant to clause (d) or (e) above,
to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to the
Bank.
(5)
You agree, and each subsequent holder of the Notes by its acceptance thereof will be deemed to agree,
that each Rule 144A Note will contain a legend substantially in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "U.S. SECURITIES ACT"), OR OTHER SECURITIES LAWS OF ANY
STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE U.S. SECURITIES ACT.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT IT
IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A UNDER THE U.S.
SECURITIES ACT (A "QIB"), (2) AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY
INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES THAT IT WILL NOT
PRIOR TO (I) THE DATE WHICH IS ONE YEAR (OR SUCH SHORTER PERIOD OF TIME AS
PERMITTED BY RULE 144 UNDER THE U.S. SECURITIES ACT OR ANY SUCCESSOR
PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE THEREOF
(OR OF ANY PREDECESSOR OF THIS NOTE) AND THE LAST DAY ON WHICH THE ISSUER
OR ANY AFFILIATE (AS DEFINED IN RULE 144) OF THE ISSUER WAS THE OWNER OF THIS
NOTE (OR ANY PREDECESSOR OF THIS NOTE), OR (II) SUCH LATER DATE, IF ANY, AS
MAY BE REQUIRED BY APPLICABLE LAW (THE "RESALE RESTRICTION TERMINATION
DATE"), OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE EXCEPT (A) TO THE ISSUER,
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE U.S. SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE U.S. SECURITIES ACT, TO A
PERSON IT REASONABLY BELIEVES IS A QIB THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF ANOTHER QIB TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE U.S. SECURITIES
ACT, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
U.S. SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT AND, IN EACH OF THE
FOREGOING CASES, IN COMPLIANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS,
AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED
THAT THE ISSUER AND THE ISSUING AND PAYING AGENT SHALL HAVE THE RIGHT
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) OR (E)
ABOVE, TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS
AND/OR OTHER INFORMATION REASONABLY SATISFACTORY TO THE ISSUER AND THE
ISSUING AND PAYING AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF
THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE U.S. SECURITIES ACT.
(6)
If you are a purchaser in a sale that occurs outside the United States within the meaning of Regulation S,
you acknowledge that until the expiration of the "40-day distribution compliance period" within the
meaning of Rule 903 of Regulation S, any offer or sale of the Notes shall not be made by you to a U.S.
Person or for the account or benefit of a U.S. Person within the meaning of Rule 902 under the U.S.
Securities Act, except in accordance with Rule 144A.
(7)
If you purchase the Notes, you will also be deemed to acknowledge that the foregoing restrictions apply
to holders of beneficial interests in the Notes as well as to holders of the Notes.
(8)
You acknowledge that no registrar will be required to accept for registration of transfer any Notes
acquired by you, except upon presentation of evidence satisfactory to the Bank and the relevant registrar
that the restrictions set forth herein have been complied with.
192
(9)
You understand that no action has been taken in any jurisdiction (including the United States) by the
Bank or the Initial Purchasers that would permit a public offering of the Notes or the possession,
circulation or distribution of this Offering Memorandum or any other material relating to the Bank or the
Notes in any jurisdiction where action for that purpose is required. Consequently, any transfer of the
Notes will be subject to the selling restrictions set forth under "Transfer Restrictions" and "Additional
Selling Restrictions".
(10)
You agree that you will give to each person to whom you transfer the Notes notice of any restrictions on
the transfer of the Notes.
(11)
If you are acquiring any Notes as fiduciary or agent for one or more investor accounts, you represent with
respect to each such account that: (i) you have sole investment discretion, and (ii) you have full power to
make the acknowledgements, representations and agreements set forth herein on behalf of each such
account and that each such investment account is eligible to purchase the Notes.
(12)
You acknowledge that the Bank, the Initial Purchasers and others will rely upon the truth and accuracy
of, and your compliance with, the acknowledgements, representations and agreements set forth herein
and you agree that if any of the acknowledgements, representations or agreements herein cease to be
accurate and complete, or have not been complied with, you will notify the Bank and the Initial
Purchasers promptly in writing.
By acquiring a Note (or a beneficial interest therein), each purchaser and transferee will be deemed to represent
and warrant that: (a) either: (i) the funds used for such acquisition do not constitute the assets of any "employee
benefit plan" as defined in Section 3(3) of ERISA, that is subject to the provisions of part 4 of Subtitle B of Title
I of ERISA, any plan to which Section 4975 of the U.S. Tax Code applies, any entity whose underlying assets
include "plan assets" of any of the foregoing under the Plan Asset Regulation, or a governmental, church or nonU.S. plan subject to any Similar Law, or (ii) the acquisition, holding and disposition of such Note (or a
beneficial interest therein) does not and will not result in a non-exempt prohibited transaction under ERISA or
Section 4975 of the U.S. Tax Code (or, in the case of a governmental, church, or non-U.S. plan, a violation of
any Similar Law), and (b) it agrees not to sell or otherwise transfer any interest in the Notes otherwise than to an
acquirer or transferee that is deemed to make these same representations, warranties and agreements with
respect to its acquisition, holding and disposition of such Notes.
193
LEGAL MATTERS
Certain matters as to U.S. law will be passed upon for the Bank by Herbert Smith Freehills LLP and certain
matters as to Turkish law will be passed upon for the Bank by Güner Law Office. Certain matters as to English
and U.S. law will be passed upon for the Initial Purchasers by Allen & Overy LLP and certain matters as to
Turkish law will be passed upon for the Initial Purchasers by Gedik & Eraksoy.
194
OTHER GENERAL INFORMATION
Authorisation
The issuance and sale of the Notes by the Issuer and the execution and delivery by the Issuer of the transaction
documents have been authorised pursuant to the authority of the officers of the Issuer under resolution of its
Board of Directors dated 24 November 2015.
Listing
Application has been made to the Irish Stock Exchange plc for the Notes to be admitted to the Official List and
trading on the Main Securities Market. The Main Securities Market is a regulated market for the purposes of the
Markets in Financial Instruments Directive. It is expected that admission to the Official List and trading on the
Main Securities Market will be granted on or about 13 July 2016, subject only to the issue of the Notes.
Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in connection
with the Notes and is not itself seeking admission of the Notes to the Official List of the Irish Stock Exchange
plc or to trading on its regulated market for the purposes of the Prospectus Directive.
Expenses
The estimated total expenses relating to the admission of the Notes to the Official List and to trading are
approximately €5,000.
Clearing Systems
The Unrestricted Global Certificate has been accepted for clearance through Euroclear and Clearstream,
Luxembourg (ISIN XS1439838548 and Common Code 143983854). Application has been made for acceptance
of the Restricted Global Certificate into DTC's book-entry settlement system (ISIN US900150AE37, Common
Code 144174500 and CUSIP 900150AE3).
Significant or Material Adverse Change
There has been no material adverse change in the prospects of the Issuer since 31 December 2015, being the
date of the Group's most recent audited BRSA financial statements, and there has been no significant change in
the financial or trading position of the Group since 31 March 2016, being the date of the Group's most recent
unaudited interim BRSA financial statements.
Interests of Natural and Legal Persons Involved in the Issue
So far as the Issuer is aware, no person involved in the offer of the Notes has an interest material to the offer.
Accounts and Auditors
The Annual BRSA Financial Statements and the IFRS Financial Statements have been audited, and the Interim
BRSA Financial Statements have been reviewed, by Akis Bağımsız Denetim ve Serbest Muhasebeci Mali
Müşavirlik A.Ş. (the Turkish member firm of KPMG International Cooperative, a Swiss entity), independent
certified public accountants in Turkey, located at Büyükdere Cad, Yapı Kredi Plaza C Blok K:17 LeventIstanbul, as stated in the reports appearing herein. KPMG is an institution authorised by the BRSA to conduct
independent audits of banks in Turkey but is not a member of any professional body in Turkey.
The Bank's accounts are prepared on a quarterly, semi-annual and annual basis in accordance with BRSA
Reporting Standards and on a semi-annual and annual basis in accordance with IFRS.
Litigation
There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending
or threatened of which the Bank is aware), which may have, or have had, during the 12 months prior to the date
of this Offering Memorandum, a significant effect on the Group's consolidated financial position or profitability.
Documents
The Bank produces audited consolidated and unconsolidated annual, and unaudited consolidated and
unconsolidated quarterly and semi-annual, financial statements in accordance with BRSA Reporting Standards
and audited consolidated annual, and unaudited consolidated semi-annual, financial statements in accordance
with IFRS. Copies of the latest BRSA audited consolidated annual, and unaudited consolidated semi-annual,
financial statements of the Bank (in English) delivered by the Bank pursuant to Condition 5 may be obtained,
and copies (with certified English translations where the documents at issue are not in English) of the Bank's
articles of association, its unaudited consolidated BRSA financial statements as of and for the three months
ended 31 March 2016 and 2015, its unaudited unconsolidated BRSA financial statements as of and for the three
195
months ended 31 March 2016 and 2015, its audited consolidated BRSA financial statements as of and for the
years ended 31 December 2015, 2014 and 2013, its audited unconsolidated BRSA financial statements as of and
for the years ended 31 December 2015, 2014 and 2013, its audited consolidated IFRS financial statements as of
and for the years ended 31 December 2015, 2014 and 2013 and the transaction documents referred to herein
(including the forms of the Notes) will be, for so long as the Notes are listed, available for inspection, at the
offices of the Issuer and the Fiscal Agent in physical format.
Material Contracts
Save as disclosed in this Offering Memorandum under "The Group and its Business", the Bank has not entered
into any material contract outside the ordinary course of its business, which could result in the Bank being under
an obligation or entitlement that is material to its ability to meet its obligations in respect of the Notes.
Foreign Language
The language of the Offering Memorandum is English. Certain legislative references and technical terms have
been cited in their original language in order that the correct technical meaning may be ascribed to them under
applicable law.
196
APPENDIX A:
SUMMARY OF DIFFERENCES BETWEEN IFRS AND BRSA REPORTING
STANDARDS
BRSA Reporting Standards differ from IFRS. Such differences primarily relate to format of presentation of
financial statements, disclosure requirements and accounting policies. BRSA format and disclosure
requirements are prescribed by relevant regulations and do not always meet IFRS standards. Among the
differences in accounting policies some of the most important are:
•
Consolidation. Only financial sector subsidiaries and associates are consolidated under BRSA
Reporting Standards, others are carried at cost or at fair value.
•
Specific provisioning for loan losses. The BRSA provisioning for loan losses is different from IAS 39
and is based on minimum percentages relating to the number of days overdue prescribed by relevant
regulations, whereas the IFRS provisioning for loan losses is based on the present value of future cash
flows discounted at original effective interest rates.
•
General loan loss provisioning. This is required under BRSA Reporting Standards but prohibited under
IFRS. Instead, IFRS require portfolio/collective provisioning for groups of loans and receivables
sharing similar characteristics and not individually identified as impaired. Moreover, the BRSA general
provision is based on minimum percentages defined in regulations for many asset classes (both on
balance and off balance sheet), not only for loans, which is not the case with IFRS.
•
Deferred taxation. According to the IAS 12, "Income Taxes", deferred taxation is calculated in full on
all temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts in the financial statements when it is probable that the future economic benefit resulting from
the reversal of temporary differences will flow to or from the Group, whereas under BRSA Reporting
Standards there are some specific exemptions. For example, under BRSA Reporting Standards no
deferred tax is computed in relation to general loan loss provisions.
Similar differences with IFRS also exist in the accounting policies and disclosure requirements applied to
consolidated subsidiaries, especially those providing life and non-life insurance services which are subject to
Undersecretariat of Treasury policies/requirements and factoring and leasing services which are subject to
specific BRSA policies/requirements.
197
APPENDIX B:
SUMMARY OF DIFFERENCES BETWEEN BRSA CONSOLIDATED AND
UNCONSOLIDATED FIGURES
The main difference between the BRSA consolidated figures and the BRSA unconsolidated ("Bank-only")
figures is the financial subsidiaries and associates consolidated according to the Communiqué on Preparation of
Consolidated Financial Statements of Banks, published by BRSA.
As of 31 March 2016, the Bank consolidates its eight financial subsidiaries using the line-by-line method and
presents financial information for two associates based on the equity method of accounting in its BRSA
consolidated figures.
In the BRSA unconsolidated accounts, the dividend income from these subsidiaries and associates is reported
under "Dividend Income" in the income statement and the value of these subsidiaries and associates is carried
on the balance sheet under "Investments in Subsidiaries" and "Investments in Associates (Net)". Turkish Lira
denominated associates and subsidiaries were valued at cost until 1 January 2012. From 1 January 2012, the
Bank changed its policy regarding the accounting treatment of Turkish Lira denominated subsidiaries and began
to value such subsidiaries at fair value. The fair value of a subsidiary is determined based on the valuation report
with respect to such subsidiary prepared by an independent valuation company, with any valuation differences
added to the subsidiary's value and correspondingly recorded in the "Marketable securities revaluation fund"
under shareholders' equity. Foreign currency-denominated associates and subsidiaries are valued at cost
translated into Turkish Lira using the exchange rate applicable as at the date of the respective transactions.
Under the line-by-line method of consolidation, the assets, liabilities, income and expenses and off-balance
sheet items of subsidiaries are combined with the equivalent items of the Bank on a line-by-line basis. The book
value of the Bank's investment in each subsidiary and the Group's portion of equity of each subsidiary are
eliminated. All significant transactions and balances between the Bank and its consolidated subsidiaries are
eliminated reciprocally. Minority interests in net income and in the equity of consolidated subsidiaries are
calculated separately from the Group's net income and the Group's shareholders' equity. Minority interests are
identified separately in the balance sheet and in the income statement.
Equity method is an accounting method of associates by which the book value of the associate is increased or
decreased due to changes in the parent's share in the associate's equity and dividends received from the associate
is deducted from the share of parent.
198
ISSUER:
TÜRKİYE HALK BANKASI A.Ş.
Barbaros Mahallesi, Şebboy Sokak No:4
34746 Ataşehir – Istanbul, Turkey
INITIAL PURCHASERS:
Arab Banking Corporation
(B.S.C.)
PO Box 5698
Diplomatic Area
Manama
Bahrain
Citigroup Global Markets Limited
Citigroup Centre
33 Canada Square, Canary Wharf
London E14 4LB
United Kingdom
Emirates NBD P.J.S.C.
PO Box 777
Dubai
United Arab Emirates
Peterborough Court
133 Fleet Street
London EC4A 2BB
United Kingdom
HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
UniCredit Bank AG
Arabellastrasse 12
81925 Munich
Germany
FISCAL AGENT AND PRINCIPAL PAYING AGENT:
The Bank of New York Mellon, London Branch
One Canada Square
London E14 5AL, United Kingdom
REGISTRAR:
The Bank of New York Mellon (Luxembourg) S.A.
Vertigo Building
Polaris – 2-4 rue Eugène Ruppert
L-2453 Luxembourg
TRANSFER AGENT AND U.S.
PAYING AGENT:
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
United States
LISTING AGENT:
Arthur Cox Listing Services Limited
Earlsfort Centre
Earlsfort Terrace, Dublin 2, Ireland
LEGAL COUNSEL TO THE INITIAL PURCHASERS AS TO ENGLISH, TURKISH AND
UNITED STATES LAW:
Allen & Overy LLP
Gedik & Eraksoy
One Bishops Square
River Plaza, Floor 17,
Büyükdere Caddesi, Bahar Sokak, No. 13, TR-34394
London E1 6AD
United Kingdom
Levent, İstanbul, Turkey
LEGAL COUNSEL TO THE ISSUER AS TO
ENGLISH AND UNITED STATES LAW:
Herbert Smith Freehills LLP
Exchange House, Primrose Street
London EC2A 2EG
United Kingdom
LEGAL COUNSEL TO THE ISSUER AS TO
TURKISH LAW:
Güner Law Office
Levent Caddesi Alt Zeren Sokak No.7
Levent, Istanbul, 34330
Turkey
AUDITORS TO THE ISSUER:
KPMG
Akis Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş.
(the Turkish member firm of KPMG International Cooperative, a Swiss entity)
Kavacık Rüzgarlı Bahçe Mah. Kavak Sok.
No: 29 Beykoz 34805
Istanbul, Turkey
199
TÜRKİYE HALK BANKASI A.Ş.
U.S.$ 500,000,000 5.000% Notes due 2021
OFFERING MEMORANDUM
5 July 2016
Bank ABC
Citigroup
Emirates NBD Capital
HSBC
UniCredit Bank
Initial Purchasers

Türkiye Halk Bankası A.Ş. U.S.$500,000,000 5.000% Notes due 2021

Transcription

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