MESSAGE FROM THE CEO

Varol Civil
CEO

TEB's esteemed shareholders, clients and business partners, colleagues,

In 2012, we reinforced our strong position as Turkey's 6th largest private sector bank. Our results in 2012 illustrate that we have carried our achievements to new horizons, thanks to traditions rooted in 85 years of history, the support of our stakeholders and the trusted TEB brand.

Having completed one of the most successful mergers of the Turkish banking industry in 2011, TEB implemented its growth plans in a strong, steady and decisive manner in 2012, a year that marked the soft-landing of the Turkish economy in line with its controlled growth strategy. Having implemented various projects focused on efficiency, TEB pressed ahead with its organic growth after the merger and supported such efforts with profitability, increasing its total assets to TL 43.5 billion and net profit to TL 486 million in 2012.

Despite the challenges it faced, TEB extended significant support to the national economy throughout the year and its total loan volume rose by 16% to TL 29.7 billion. The controlled and cautious growth strategies pursued by TEB also played an important role in maintaining the health of the Bank's credit portfolio in 2012.

TEB's total deposits expanded by 26% to TL 28.7 billion in 2012, a rate of growth twice the sector average and setting the stage for market share gains. Meanwhile, TEB achieved an even stronger 41% rate of growth in personal deposits, supported by TEB's strategy to expand its deposit base.

With a 66% share in total liabilities, deposits were TEB's primary funding resource in 2012. TEB also sought non-deposit resources in order to diversify its financial resources in line with changing market conditions and to obtain resources at low interest rates. To this end, in 2012 TEB offered TL 744 million in nominally valued bank bonds to the public, most of which had a maturity of 1 year.

In 2012, all of our business lines demonstrated a strong performance in terms of target realization. The bank realized a net profit of TL 486 million in 2012, corresponding to a 135% YoY increase. We realized an average return on assets of 1.26% and an average return of 12.77% on shareholders' equity. These results stand as testament to our strong performance in basic banking activities in 2012, as well as our increasing operational efficiency. Growing transaction volumes and the Bank's successful balance sheet performance were behind the growth in TEB's revenues from banking activities. Thanks to the projects launched in 2011, TEB was able to keep its operating costs under control. This double benefit also paved the way for a significant improvement in the Bank's income to expenditure ratio.

Consequently, 2012 was a year which once again highlighted TEB's strong performance and growth potential, as well as its strong capability to produce added value for its stakeholders.

Continuing to support the national economy
Having contributed to the development of the national economy and manufacturing industry for 85 years, TEB unstintingly continued its loan supply activities despite the soft landing of Turkey's economic growth in 2012. The rate of growth which we achieved in our credit volume stands as a clear indicator of TEB's mission to support manufacturing industry, especially SMEs, and to contribute to the national economy. Of our total loan volume, which accounts for 68% of our total assets, the share of loans that we provided to SMEs – the backbone of the national economy – reached 45% in 2012.

In the post-crisis conjuncture, a time that we have placed more importance than ever on risk management, our wide credit portfolio has been structured in manner that prioritizes asset quality and effective risk management. TEB lowered the ratio of non-performing loans from 2.8% at the
end of 2011 to 2.1% by the end of 2012, a figure well below the sector average. Our aim is to keep this ratio below the sector average in the coming periods within the scope of our cautious growth strategy, which places the utmost importance to asset quality.

A strong and sustainable financial structure to support growth
By the end of 2012, TEB and its subsidiaries had reached a level of shareholders' equity sufficient to allow us to generate high value for our shareholders in the coming period and provide us with the leverage we need to achieve growth. With its shareholders' equity having increased by 14% to TL 4.8 billion in 2012, TEB's capital adequacy ratio, which is calculated according to Basel II standards, reached 15.2% in the same period.

Focusing on providing the best financial consultancy and customer services through our wide service network
Working with a wide service network of 520 branches, more than 9,000 employees and more than 1,000 ATMs in 69 cities throughout Turkey, TEB opened its first TEB branches in 10 new cities during 2012. TEB has adopted the principle of providing the best financial consultancy and customer services to its clients. Having built its customer-oriented strategy on the pillars of customer satisfaction and the building long-term relations, TEB strives to develop the most comfortable and practical solutions in all of its products and services, and offers these solutions to its customers within the scope of transparent communication.

One of the world's three model banks in SME banking
Embarking on its strategy to become one of Turkey's best banks in SME banking in 2005, TEB already stood as one of the three model banks in the world in this area in 2012.

TEB achieved a notable success when it was selected by the International Finance Corporation (IFC) – a member of the World Bank Group – as one of the three banks with the best SME banking practices in the world. This was the first time that the IFC deemed a Turkish bank to be a model for the whole world in the field of non-financial services.

TEB SME Academy reaches 15,000 people in 7 years
TEB owes its success in SME services to the analytical approach and proactive strategies that it has pursued since 2005. Having already established that the enterprises in this segment were hindered by limited access to information, a lack of technological know-how and a limited research and development capacity before it entered the SME segment, our Bank has thus defined its mission as "to be the Consultant Bank" for SMEs, and quickly set down to work. TEB SME Academy was established in 2005 as a result of these efforts, and quickly became a success story, visiting every city in Anatolia, reaching SMEs in person and offering them the information they need in the presence of professionals.

In 2012, TEB continued to provide information and consultancy support to SMEs by organizing conferences. By providing SMEs with information on enterprise management, TEB aims to support SMEs in their efforts to move ahead of both national and global competitors. Within the scope of SME Academy training, TEB met 2,500 people in 8 cities during 2012, bringing the total number of people who had benefited from TEB's training in the last 7 years to over 15,000.

Moreover, since 2008, TEB has been holding Future Strategy Conferences, which allow sectors to establish their mid- and long-term development plans and shape their future strategies. In 2012, the Future Strategy Conferences focused on the tourism sector and the agricultural sector, which is of great importance for the national economy and an area where TEB has assisted in the creation of future strategies. Reports of the Future Strategy Conferences held in 2012 were made available to the general public.

TEB's products and services in SME Banking have won wide acclaim with a total of 23 national and international awards. In 2012, TEB was handed the BNP Paribas IRB Innovation Award in recognition of its project entitled "TEB SME Consultants", marking a clear indication of its ambition in this field.

Turkey's largest enterprise banking initiative
In 2012, TEB launched an initiative which would allow the Bank to perform its consultancy experience in SME Banking to entrepreneurs. Aiming to be Turkey's largest Enterprise Banking initiative, the "TEB Enterprise House" was launched to offer free training about management, operation, finance, accounting, and brand-patent consultancy for its customers.

A first in Turkey, the TEB Enterprise House primarily aims to reach the entrepreneurs with projects of high added value, and to offer them consultancy services in respective areas.

A rising share in agricultural banking
With one of the largest product portfolios in agricultural banking, TEB extended more than TL 1 billion of agricultural loans during the course of 2012. Achieving one of the fastest rates of growth in its support for the agricultural sector, TEB also began to carry its "consultant bank" approach to the agricultural banking segment.

A new training program was launched under the roof of TEB SME Academy in order to provide financial support for enterprises seeking to grow in the agricultural sector, as well as to provide information regarding the enterprise management which is required by such enterprises. The TEB SME Academy-Agriculture Sector Meetings aim to introduce a visionary point of view to agricultural enterprises through interactive workshops and by providing them with practical information on such topics as enterprise management, long-term strategy development, agricultural marketing and foreign trade.

An innovative approach in our Retail Banking products and services
In 2012, TEB demonstrated stronger growth than the sector in many areas of private banking, thanks to a raft of new products, packages and campaigns offered to its customers. In private banking, the Bank has primarily focused on savings and tailor-made services. On one hand, while the bank guided its individual customers on how to make use of their savings, on the other hand the Bank continued to design tailor-made services by carrying out various studies aimed at determining customer needs.

Family Academy: TEB's national platform that aims to improve financial literacy

As part of our financial consultancy programs, we have launched a nationwide "TEB Family Academy" platform which aims to ensure that families can manage their own economies. Through this platform, free financial literacy courses on a range topics such as balancing income and spending, the appropriate use of banking products and customer rights in the banking sector, were given to more than 20,000 people within the space of just three months. While offering financial literacy courses to adults, TEB also launched the "TEB Junior" website (www.tebjr.com) designed to teach children about saving money in an enjoyable way.

In 2013, the TEB Family Academy aims to reach 100,000 people through classroom training sessions. Both public and private education institutions have demonstrated great interest in the program, proving TEB's leadership in the most comprehensive financial literacy platform. Within the same context, TEB also signed a collaboration protocol with the Ministry of Family and Social Policies in 2012 aimed at raising awareness of financial issues among families.

Continued Investment in Digital Banking Channels
In 2012, TEB continued to invest in its digital banking channel, an area where the Bank has implemented many firsts. By investing in ATMs, TEB increased the number of its ATMs in Turkey to 1,052 in 2012, while renewing its existing ATMs. The Bank also simplified the use of its mobile banking services through CEPTETEB, which was restored in line with the simplicity of the Bank's Practical Internet Branch, and the module used for cardless withdrawals from ATMs. As a result, the number of customers benefiting from TEB's internet and mobile banking services tripled in 2012.

Massive interest in TEB BNP Paribas WTA Championships 2012
The world's best eight women tennis players competed against each other at the 2nd TEB BNP Paribas WTA Championships in 2012. The tournament, held with a record 70,000 viewers who attended from many cities around the world and in Turkey, was also viewed on television by 800 million viewers all over the world. The tournament, which turned into a major sports event, also contributed greatly to the promotion of our Bank and the city of Istanbul. TEB moreover signed a collaboration agreement with the Turkish Tennis Federation to create alternative areas of sport for young people. As the primary sponsor of the Turkish Tennis Federation, TEB offered infrastructure support to Turkish tennis players under the age of 18, in a bid to produce star tennis players from our country and raise the popularity of tennis in Turkey. With the "Street Tennis" organization held in 2012, TEB aimed to bring tennis to the street, to foster a love of tennis among Turkish people, and to encourage the raising of licensed tennis players. TEB will continue steadfastly to support sport.

Happy Employees - Satisfied Customers
After carrying out a number of critical activities in 2012, in 2013 we will focus on the contentment of TEB employees and customer satisfaction.
In the current global economic environment, TEB will remain a staunch supporter of manufacturing industry, backed by a widespread field organization and intensive communication with its customers, as well as a product and service portfolio that is able to meet all types of needs.

In line with the developments in the world and in Turkey, our Bank is determined to maintain the growth trend in its credit portfolio in 2013, without compromising its healthy credit policies. We aim to ensure that the growth of our balance sheet in 2013 comes predominantly on the back of increasing credit volume, as in 2012. On the other hand, within the scope of our target to increase the number of our customers, we will continue in 2013 to manage our branch network based on the principles of productivity and efficiency. In this context, we will keep close view of the developments in markets and competition conditions, while giving priority to those areas that bear the potential for increased market share.
Driven by its vision, our Bank aims to establish an ideal working environment for its employees, to offer high quality services to its customers and to generate profit for its shareholders in a sustainable manner. In line with this vision, TEB will continue to produce customer-oriented innovative solutions based on the principles of efficiency and productivity, in accordance with the rules of risk management in order to grow sustainably and profitably.

TEB continues to press ahead with determination, with the support of its strong human resources, a healthy financial structure, a wide service network and the valuable support of its shareholders, which grows day by day. The presence of a global partner as big as and as strong as BNP Paribas furnishes our Bank with a significant opportunity to enhance its local know-how and capabilities on a universal scale, and to offer them to our customers. Through all of the initiatives aimed at further strengthening the TEB brand in Turkey, we continue to progress with determination, as we always have in our 85 year history.

On behalf of everyone at TEB, I would like to take this opportunity to extend my gratitude to our shareholders for their continuous support, our customers and business partners for their trust and all of our employees for their valuable efforts.

Yours sincerely,

Varol Civil
CEO