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CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

PART I – SHAREHOLDERS

1. Statement of Compliance with Corporate Governance Principles

TEB aims to fully comply with the “Corporate Governance Principles” issued by the Capital Markets Board (CMB) in July 2003 concerning the principles to be observed by listed companies to achieve professional management, transparency and ethical conduct in the course of their activities.

As TEB believes that compliance with these principles will become as important as credit valuation (ratings) in the near future, the Board of Directors has set up a Corporate Governance Committee at the Board level through Resolution No: 3609/4 dated 24 January 2004, to regulate and monitor compliance with these principles. The Corporate Governance Committee performs the functions explained below.

Although compliance with these principles issued in 2003 requires a process development, it has been noted that complete compliance has been realized without any conflicts of interest.

2. Shareholder Relations Department

A Shareholder Relations Department (referred to as the Shareholders Unit in the organizational chart) has been established in an effort to inform registered shareholders about dividends, capital increases and the agenda and resolutions of General Meetings, to maintain the share register in accordance with Article 326/1 of the Turkish Commercial Code and to manage legal and operational relations with shareholders. The contact details of this unit are as follows:

Cüneyt Temiztürk (Unit Manager)
Phone: +90 212 251 21 21 (extension 1923)
Fax: +90 212 249 65 68

This unit reports to the General Secretary of the Board of Directors

In 2009, the Shareholders Unit conducted the announcement of one Ordinary General Meeting of Shareholders and carried out the following transactions:

Shareholders and carried out the following transactions:

  • 18 transactions concerning the distribution of new share certificates in return for new share coupons (excluding transactions through the Central Registry Agency),
  • 4 transactions concerning dividend payments (excluding transactions through the Central Registry Agency).
  • 2 share registration transactions


Additionally, the Bank has an “Investor Relations and Corporate Governance Department” to establish relations with domestic and foreign investors and inform them about the Bank’s activities and financial results.

Çiğdem Başaran and Özgün Zaimoğlu are responsible for the overall management of the department.

Their contact information is as follows:

Çiğdem Başaran (Manager)
Phone: 0212 251 21 21 (extension 1532)
Fax:    0212 249 65 68
E-mail: cigdem.basaran@teb.com.tr

Özgün Zaimoğlu (Analyst)
Phone: 0212 251 21 21 (extension 3320)
Fax:    0212 249 65 68
E-mail: ozgun.zaimoglu@teb.com.tr

3. Exercise of Shareholders’ Right to Information

Investors and the general public are provided with detailed information both in Turkish and in English through the “Investor Relations” and “Corporate Governance” sections on TEB’s website:

http://www.teb.com.tr/eng/main/HaritaInvestor_relations_menu.aspx
http://www.teb.com.tr/eng/main/HaritaCorporate_governance_menu.aspx

Information is available under the following headings:

•           TEB-BNP Paribas
•           Share Price Info
•           Financial Calendar
•           Ratings
•           Financial Highlights
•           Financials
•           Investor Presentations
•           Dividends
•           Annual Reports
•           Announcements
•           Research Reports
•           Broker Forecasts
•           Press Releases
•           Frequently Asked Questions
•           Contact Info
•           Corporate Governance Principles    
•           Management
•           General Meetings
•           Committees
•           Policies
•           Annual Reports

In addition to meetings, nearly 100 queries about TEB have been answered by telephone and e-mail in 2009. The questions were about various subjects and all requests for information by shareholders were answered as quickly as possible, provided that they are not related to trade secrets or information that is not publicly available.

Although Article 36 of the Articles of Association of TEB provides for the appointment of a special auditor, no special auditor was elected in 2009. This article does not define the request for the appointment of a special auditor as an individual right. However, the Articles of Association does not contain any provisions that contradict with the relevant provision of the Turkish Commercial Code. This right was not exercised in 2009.

 4. Information on General Meetings of Shareholders

The General Meeting of Shareholders convened to an Ordinary General Meeting which was held on 24 March 2009 and Attendance was 84.58%, no media members were present at these events.

Invitation letters were sent by registered mail at least 15 days prior to the respective meeting dates to the Shareholders in the share register. The meetings were also announced in the Turkish Trade Registry Gazette and a national daily newspaper. In addition, e-mail messages were sent to the shareholders whose e-mail addresses were known.

In accordance with the provisions of the 2499 Capital Markets Act temporary article and 294 of Central Register Agency communication, completion of dematerialization of shares is mandatory in order to vote in General Assembly. Unless the dematerialization is completed, attendance of our shareholders to General Assembly is not possible.

The shareholders who will attend the Ordinary General Assembly meeting individually or via proxy shall submit the below listed documents, before the meeting date, to the Shareholders Unit of the Bank’s Head Office or to Branches, and obtain the Entrance Cards or shall apply before the establishment of Presidential Board of the General Assembly, at the latest.

  • Identity documents and/or proxies,
  • General assembly blocking letters related to the shares that they own,
  • In addition to the above listed documents, the authorization document of the person who is authorized by the legal entity shareholders

 

The date, venue, time and agenda of the meeting, as well as sample statements for those who wish to appoint a proxy to attend the meeting on their behalf, are included in the invitation letters, the newspaper announcements and on TEB’s website.

Shareholders exercised their right to ask questions at general meetings and their questions were answered informatively.

Shareholders tabled motions, which were put to the vote of attending shareholders and accepted.

According to the Articles of Association, approval of the General Meeting of Shareholders is not required for decisions concerning spin-offs or the sale, purchase and leasing of material assets. The powers and responsibilities of the Board of Directors in relation to these decisions have been specified in Article 26 of the Articles of Association.

To facilitate attendance at General Meetings of Shareholders, notices are sent out on time, the meetings are held in central locations in Istanbul and the minutes of the meetings are made available at the Shareholders Unit and on the website.

5. Voting Rights and Minority Rights

There are no privileges regarding voting rights. Further there are not any cross-shareholding companies. Minority shares are not represented in management; however the views, suggestions and requests of minority shareholders are communicated to the management through the Investor Relations and Corporate Governance Department and the Shareholders Unit.

The Articles of Association do not provide for cumulative voting.

6. Dividend Policy and Time of Distributions

There are no privileges regarding dividend distribution. TEB’s dividend policy, which was amended on 29 September 2006 and announced to the public, is as follows:

Dividend Policy:

“Türk Ekonomi Bankası A.Ş. will pay up to 40% of the net distributable profit to its shareholders as a cash dividend or as bonus shares within the context of its Articles of Association. The amount distributable depends on market conditions, maintenance of a comfortable capital adequacy ratio and growth plans of the bank and will be proposed by the Board of Directors to the Ordinary General Meeting of Shareholders every year.”

No dividend was distributed for the profit generated in the year 2009.

7. Transfer of Shares         

Article 9 of the Articles of Association stipulates that:

  • The relevant provisions of the Turkish Commercial Code and other applicable legislation shall govern share transfers.
  • Transfer of shares at the percentages specified in the Banking Law and transfer of share certificates that grant usufruct rights shall be subject to the prior permission of the Banking Regulation and Supervision Agency and the Capital Markets Board.
  • In order for such transfer and assignment to be binding for the company and for third parties, the share transfer must be approved and certified by the Board of Directors and entered into the share register.

 

Furthermore, the same article stipulates that the company’s Board of Directors may reject approval and registration without specifying any reason.

PART II - PUBLIC DISCLOSURE AND TRANSPARENCY

8. Disclosure Policy

As indicated on its website, TEB has publicly announced the following Disclosure Policy within the context of the Corporate Governance Principles:

“Subject to applicable legislation, TEB promptly, accurately and fully discloses any matters concerning its operations for which a disclosure has been requested.”

All information that fits the above definition is publicly disclosed by the Investor Relations and Corporate Governance Department or the Official Reporting Department and is subject to the approval of the Board of Directors and the General Management. Announcements made are also reported to the Corporate Governance Committee.

9. Special Circumstances Disclosures

TEB made 20 special circumstances disclosures in 2009. None of these was an additional disclosure made in response to the instructions of the Istanbul Stock Exchange (ISE). Since the Bank is listed on the London Stock Exchange (LSE) as well, the material disclosures made to the ISE and the Capital Markets Board (CMB) are also sent simultaneously to the LSE. No disclosures were made to the LSE other than those made to the ISE and the CMB.

Since TEB takes the utmost care in its disclosures, the CMB has not imposed any sanctions on the Bank in 2009.

All material disclosures are available on TEB’s website.

10. The Website and its Contents

TEB’s website is at www.teb.com.tr. TEB monitors similar websites in other countries and constantly updates the information available on its website in accordance with Section II Article 1.11.5 of the Corporate Governance Principles issued by the CMB.

The website contains sufficient information to satisfy shareholders and third parties who need information about TEB.

11. Ultimate Controlling Individual Shareholders

The shareholding structure of TEB as of 31 December 2009 was as follows:

• 84.25%         TEB Mali Yatırımlar A.Ş. (TEB Financial Investments)
• 15.63%         Publicly-traded
• 0.12%           other shareholders

12. Individuals with Access to Insider Information

According to the Banking Law, the law that governs the banking profession and defines its legal and ethical rules, it is forbidden for bank employees to convey to third parties confidential information on the bank or its customers that they acquire during the performance of their duties. Since this obligation continues after the termination of employment, it was not deemed necessary to disclose and publicly announce the list of persons who have access to insider information, in view of the industry practice and employment ethics and work discipline.

PART III - STAKEHOLDERS

13. Announcements to Stakeholders

Stakeholders are provided information concerning TEB’s activities through special circumstances disclosures, as published on the website and in annual reports. Views, opinions and questions submitted to TEB using the ‘Contact us’ section of the website are referred to the relevant departments and answered within the framework of applicable legislation.

14. Participation of Stakeholders in Management

As banking practice and legal rules impose strict restrictions on the appointment of executives, no model has been devised for stakeholders to personally take part in management. TEB believes that this applies equally to other banks in the industry. However, stakeholders can communicate their views, opinions, critiques and demands to the management through the “Investor Relations and Corporate Governance Department”, the “Shareholders Unit” and the “Customer Communications Unit”.

15. Human Resources Policy

The main objective of TEB’s Human Resources Group is to adopt the best HR practices in the finance industry.

Given this objective, the Bank’s human resource policy assures the following:

Ensuring dynamism and readiness for change in the organizational structure, in line with the strategic plans and goals of the TEB Group.

Within the scope of the TEB Talent Pool, recruiting people for the TEB Group who are well educated, open to innovation and change, have entrepreneurial skills, are energetic, dynamic, who possess potential for self-development, are team players and who can adopt corporate values and commit to them.

Utilizing human resources in the most effective and productive manner in conformity with the Bank’s targets and strategies, supporting employees with development programs that are in line with both professional and personal career goals indicated in employees’ career plans and creating career opportunities by ensuring employees’ participation in advanced BNP Paribas training courses.

Considering training and development as an investment in human resources and contributing to the development of employees in line with the TEB Group’s targets and strategies within the framework of the “continuous learning and development” philosophy of the TEB Formation Academy,

Training future managers amongst employees within the organization and prioritizing applicants amongst employees within TEB for future open positions,

Improving individual and team performance continuously through quality improving methods and systems, focusing on rewarding schemes in the Performance Assessment System that enables the recognition of superior performance and giving each employee equal opportunity within the context of their career plans,  

Contributing to the productivity and performance of the Bank’s branches by providing all employees with quick and effective HR support.

16. Relationships with Customers and Suppliers
 
A “Customer Communication Unit” directly reporting to the General Manager was established to maintain customer service quality, measure customer satisfaction and assess the complaints, views and suggestions of customers.

TEB also monitors customer expectations and remarks in cooperation with consulting companies and reports findings to the Board of Directors.

17. Social Responsibility

As a good corporate citizen that is fully aware of its social responsibilities, TEB strives to be a Bank that upholds the core values and heritage of the society that it conducts business in. To achieve this goal, TEB implements corporate social responsibility projects that contribute to the protection of the environment, the development of SMEs that are the dynamo of the Turkish economy and provide for a large proportion of the country’s employment, and the education of our youth population that will build the future of our country.

Planning its corporate social responsibility program in parallel with its business activities, TEB continues to encourage active, voluntary participation of its employees in its projects.

Contributions to the Environment

As a pioneer that is aware of its responsibility to contribute to a sustainable environment, TEB developed and deployed an effective and systematic management approach to minimize the environmental impact of its business operations.

The Bank aims and undertakes to:

  • Preserve and effectively use natural resources,
  • Reduce and recycle waste at source,
  • Offer environmental-friendly products,
  • Increase resource savings and energy efficiency,
  • Follow up scientific and technological developments to prevent environmental pollution and continuously improve its environmental performance,
  • Increase the environment awareness of its employees, suppliers and customers.


TEB became the first deposit bank entitled to receive ISO 14001 Environmental Management Standard Certification.

TEB aims to minimize the negative environmental impact (i.e. the carbon footprint) of its banking operations in part through obtaining ISO 14001 Certification. As a result, the Bank plans to reduce energy consumption by 10%, paper consumption by 25%, water consumption by 10% and its overall carbon footprint by 5%.

TEB also demonstrates its contribution to the environment through a variety of initiatives in many environmentally oriented products including TEB Bonus TEMA Card, Energy Saving Consumer Credit, Organic Agriculture Credit and Hybrid Car Credit.

TEB prioritizes raising the level of environmental knowledge and societal awareness of environmental issues, and positions itself as an environmentally friendly bank. The Bank demonstrated its efforts toward increasing public awareness of the environment through sponsorship of the Turkish premiere of the film, “HOME,” which depicts our planet’s environmental problems.

Contributions to SMEs
With a watchful eye on the development of SMEs, which are among the fundamental pillars of the Turkish economy, TEB supports many activities in this area.

Since 2005, after forging a strategic partnership with BNP Paribas, the largest bank in the Euro zone, TEB has further contributed to the development of SMEs. The Bank has provided SMEs with knowledge that will help them gain a competitive edge through its own TEB SME Academy-Corporate Development Program and Future Strategy for Provinces Conferences.

TEB SME Academy – Corporate Development Program
The Corporate Development Program is a hands-on initiative designed to help guide SMEs on the path toward increasing their local and international profitability and gaining a competitive edge in the marketplace. The program also shows SMEs important tips as to how they can strategically manage their companies in the most appropriate manner.

The Corporate Development Program started in 2005 and has reached thousands of SMEs in 27 cities.

TEB SME Academy – Future Strategy for Provinces Conferences
Future Strategy Conferences are held in different cities on a monthly basis. With the participation of local businessmen, academics, bureaucrats and local administrative officials, the conferences aim to help SMEs determine their future objectives and strategies. In addition, the Future Strategy Conferences reveal potential investment areas in provinces based on the economic, commercial and social histories of the locations.

TEB SME TV
TEB has also established TEB SME TV, a first in the industry. TEB SME TV enables SMEs to gain access to valuable information and benefit from educational programming on a TV channel with ever changing content on a 24x7 basis.

TEB SME CONSULTANTS
The Bank has implemented another first in the industry: TEB SME CONSULTANTS. These consultants work at TEB branches and help SME clients identify problematic issues in their businesses, offer them solutions and guide them toward opportunities ahead.

Contributions to Youth

Turkey’s Youth are “Inventing” with TEB
Recognizing that a large proportion of the Turkish population is composed of youth, TEB organizes an annual innovation competition, “Make an Invention,” in order to encourage the youth population to generate creative and innovative ideas.

Serving as a good example of private sector-university cooperation, this TEB-sponsored competition contributes to various topics such as raising awareness among the university students and young professionals on “innovation-creativity,” developing competencies and introducing the finance sector to university students.

TEB provides special education programs for and awards youth participants who demonstrate high potential for generating innovative and creative ideas. TEB also organizes an innovation contest among its customers in order to encourage them in this area and grants awards to winning customers.

In addition, TEB provides university students with special education programs in the fields of innovation, communication and creativity. Its “Smart Ideas Campus” designed for undergraduate and masters students and the “No Barriers Campus” designed for disabled students. TEB helps students discover their innovation-creativity abilities and contributes to their education through these initiatives. Students from different universities that participated the “TEB Smart Ideas Campus” and “TEB No Barriers Campus” also have the opportunity to work at TEB based on their education, knowledge and experience.

PART IV - THE BOARD OF DIRECTORS

18. Structure and Composition of the Board of Directors and Independent Members

Members of the Board of Directors and their responsibilities as of 31 December 2009 are listed below:

Name

Position

Yavuz Canevi

Chairman

Dr. Akın Akbaygil

Vice Chairman

Jean Jacques Marie Santini

Vice Chairman

Varol Civil

Executive Member and General Manager

Musa Erden

Executive Member

Yves Paul Henri Martrenchar

Member

Refael Taranto

Member

Metin Toğay

Member

 

An up-to-date list of the members of the Board of Directors and their resumes are available on TEB’s website.

The concept of an independent board member has been introduced in Turkey together with the adoption of the corporate governance principles. Corporate governance structures and processes and related principles is to be determined by the Banking Regulation and Supervision Agency after consultation with the Capital Markets Board and associated unions, as specified in Article 22 of Banking Law No: 5411.

Since applicable legislation has introduced additional responsibilities for board members, in addition to the requirements foreseen for membership in banks’ Boards of Directors, the number of suitable candidates became limited. Thus, TEB believes that it is going to take some time for the number of independent members on its Board of Directors to reach the requested level.

Article 28 of TEB’s Articles of Association on Prohibited Transactions states the following:

“Activities and transactions that the Chairman and members of the Board of Directors as well as the Chairman and Members of the Credit Committee may not engage in are specified in the relevant provisions of the Turkish Commercial Code, the Banking Law and the Capital Markets Law.”

19. Qualifications of Board Members

The qualifications required for membership in the Board of Directors are specified in Article 22 of the Articles of Association and the relevant provisions of the Banking Law. The qualifications of TEB board members comply with applicable legislation and the Corporate Governance Principles.


20. Mission, Vision and Strategic Targets

As stated in the ‘Corporate Governance’ section of its website, TEB’s mission is defined as follows:

  • TEB is committed to adding value to its stakeholders with its selected customer portfolio and world-class financial services.
  • TEB aspires to maximize customer satisfaction.
  • TEB fully complies with international practices in corporate governance.
  • TEB employs employees who are committed to business ethics, protect the values of the organization and are open to innovation.

 

TEB has been able to achieve its mission due to its shareholders who are strictly committed to their business principles, responsibilities and to employees’ rights.

The Bank’s strategic targets and primarily its budget are assessed and approved by the Board of Directors. The extent to which the targets are achieved, as well as the reasons of any failure to achieve targets are evaluated at meetings attended by senior executives, branch managers and other related executives.

Targets, strategies and operational results are liaised to the management team at biannual General Management Meetings.

21. Risk Management and Internal Control

In accordance with the provisions of the Banking Law No: 5411, the Bank has established an “Audit Committee” reporting to the Board of Directors through two non-executive board members exclusively appointed for this task.

The Board of Directors has set up the Audit Committee for the following purposes:

Centralizing audit systems, validating procedures, monitoring and auditing of risks in the eight risk groups below:

  • Loans and counter party risk: Default by third parties
  • Market and liquidity risk: Market price fluctuations
  • Administrative risk: Appropriate administration of operations (including operational risk)
  • Legal risk: Compliance with tax laws and other legislation
  • Accounting risk: Compliance with regulations and legally acceptable presentation of     accounts
  • IT risk: Adequacy and security of systems
  • Human resources risk: Adequacy of staff with regard to quality and functioning
  • Reputation and commercial risk: Damage to the Group’s image
  • Determining risk policies and principles for appropriate risk management, internal audit and compliance,
  • Monitoring the Group’s adequacy and effectiveness in terms of internal control and risk management and auditing accounting and reporting systems,
  • Taking the necessary measures to ensure that the Board of Directors is informed of any incident or condition that may prevent the Bank from functioning in an uninterrupted manner or of any event that violates the legislation; making recommendations periodically through reporting to the Board of Directors any measures required to be taken.

 

22. Authority and Responsibilities of Board Members and Executives

The authorities and responsibilities of board members and executives are governed by Articles 26 and 30 of the Articles of Association, while issues related to the General Manager and his/her deputies are covered by Articles 32 and 33.

23. Activities of the Board of Directors

Meetings of the Bank’s Board of Directors are organized through the General Secretary of the Board of Directors. Members of the Board of Directors submit to the General Secretary any items that they want to be included in the agenda and the final agenda is communicated to the members at least one week before the meeting.

The Board of Directors has taken 113 decisions in 2009. As mentioned above, the General Secretary is responsible for the implementation of these matters. All decisions during the reporting period were made unanimously and no dissenting opinion was noted.

Members who do not attend a meeting based on a reasonable ground are informed of the resolutions taken in their absence at the first meeting they attend. There are meeting minutes whereby the decisions taken are noted. TEB’s Articles of Association does not contain any provisions on weighted voting rights or negative veto rights.

24. Ban on Dealing and Competing with the Company

Members of the Board of Directors have no relationships with TEB that could result in a conflict of interest.

25. Ethical Rules

As also stated on our website, The Board of Directors complies with the Code of Banking Ethics dated November 1, 2001 and numbered 1012 as prepared and published by the Banks Association of Turkey to which TEB contributes to the activities thereof.

According to Article 75 of Banking Law (No: 5411), banks and their employees shall ensure that activities are performed in compliance with this Law, applicable legislation and the banks’ goals and policies and shall comply with ethical principles that put justice, fairness, honesty and social responsibility at the foundations of management. These principles will be determined by the related agencies in consultation with the Board.

26. Numbers, Structure and Independence of Committees Established by the Board of Directors

In accordance with corporate governance principles, the following committees were active in 2009:

Corporate Governance Committee

Duties:

  • Monitoring and guiding corporate governance practices at the Bank,
  • Convening upon the request of the Chairman.


Members:
Chairman: Board Member and Audit Committee Chairman (Patrick René Pitton)
Members: Chairman (Yavuz Canevi)
Head of Internal Audit (Hakan Tıraşın)
Chief Legal Advisor, Board General Secretary (Melis Coşan Baban)

Audit Committee

In accordance with the provisions of the Banking Law No: 5411, the Bank has established an “Audit Committee” reporting to the Board of Directors through two non-executive board members exclusively appointed for this task.

The Board of Directors has set up the Audit Committee for the following purposes:

Centralizing audit systems, validating procedures, monitoring and auditing of risks in the eight risk groups below:

  • Loans and counter party risk: Default by third parties
  • Market and liquidity risk: Market price fluctuations
  • Administrative risk: Appropriate administration of operations (including operational risk)
  • Legal risk: Compliance with tax laws and other legislation
  • Accounting risk: Compliance with regulations and legally acceptable presentation of     accounts
  • IT risk: Adequacy and security of systems
  • Human resources risk: Adequacy of staff with regard to quality and functioning
  • Reputation and commercial risk: Damage to the Group’s image
  • Determining risk policies and principles for appropriate risk management, internal audit and compliance,
  • Monitoring the Group’s adequacy and effectiveness in terms of internal control and risk management and auditing accounting and reporting systems,
  • Taking the necessary measures to ensure that the Board of Directors is informed of any incident or condition that may prevent the Bank from functioning in an uninterrupted manner or of any event that violates the legislation; making recommendations periodically through reporting to the Board of Directors any measures required to be taken.

The committee meets at least once every two months.

Chairman             : Patrick René PITTON
Vice Chairman    : Dr. Akın AKBAYGİL

27. Remuneration of the Board of Directors

At the Ordinary General Meeting of Shareholders held on 24 March 2009, it was resolved that no fees be paid to the members of the Board of Directors, who shall continue to perform this duty voluntarily and that a gross monthly fee of TRY 750.- be paid to Statutory Auditors. Remuneration to be paid to Executive Board Members is determined by the Board of Directors in accordance with Article 27 of the Articles of Association and in view of the nature of the duties involved and the time to be spent to fulfill these duties. In 2009, TRY 6,968,460.- was paid to the Members of the Board of Directors as salaries and attendance fees.

Board members may be granted loans within the limits defined by law or may be rewarded depending on the performance of the Bank, the duties vested on them and the time spent by them to fulfill these duties.