CEO's Message

İşbank’s distinguished shareholders, customers, employees and business partners,

2011 was a successful year for İşbank.
In 2011, the year in which we bolstered our leadership among privately-owned banks, the financial and operational results which we registered, once again demonstrated that our Bank’s enduring success is the outcome of 87 years of deep-rooted tradition, stakeholder support and the trust in the İşbank name.

Performance highlights
İşbank continued to further strengthen its financial structure throughout the year. As measured by total assets, İşbank was the biggest privately-owned bank in Turkey in 2011. In the twelve months to year-end, İşbank’s total assets increased by 22.7% and reached TL 161.7 billion. During the same period, its shareholders’ equity increased by 5.3% to TL 17.9 billion. Net profit amounted to TL 2.7 billion, which was in line with our target, while our return on average assets and return on average equity ratios were 1.8% and 15.2% respectively.

İşbank increased the volume of its own foreign and Turkish currency lending at rates that were above sector averages last year. As of end-2011, the Bank’s total loans were up by 42.6% compared with 2010 and amounted to TL 91.6 billion in value. İşbank controls the biggest share in financing the real economy in Turkey. Its 14.1% market share of total lending makes it the sector’s leader.

In 2011 our Bank continued to set aside 100% provisions against its non-performing loans. Healthy growth in performing loans combined with a contraction in the NPL category further narrowed the NPL ratio from 3.6% at end-2010 to 2.1% at end-2011.

İşbank’s total deposits reached TL 98.3 billion at end-2011. Acting with a cost-controlled approach in fund generation, İşbank remained the leading privately-owned bank in terms of total deposits, with its 14.2% market share thanks to customer trust, its extensive branch network and alternative delivery channels.

In 2011 İşbank focused its attentions on funding instruments other than deposits as a way both to diversify its funding structure and to gain access to more suitably priced funding. The total value of these resources, which consist of bond issues, syndications, securitizations, loans through bilateral agreement and repo contracts, reached TL 34.4 billion as of the end of the year.

Our 2011 performance, whose principal financial results I have just outlined here, is not only indicative of our growth potential but is also evidence of the strength of our value-creation competencies for our shareholders.

At a time when we are devoting even more attention than ever to effective risk management, our widespread loan portfolio has a structure, which prioritizes asset quality and risk management.

A broad-based loan portfolio
As one of the biggest supporters of the national economy and real economy in our country for 87 years and a financial institution which acts consistently even during times of crisis, in 2011 İşbank continued to supply credit in parallel with the strong macroeconomic growth that was registered.

The growth that we achieved in our lending was not only above the sector’s average but also clear evidence of İşbank’s zeal for and commitment to its mission of supporting the industrial sector and contributing to the national economy.

At a time when we are devoting even more attention than ever to effective risk management, our widespread loan portfolio has a structure, which prioritizes asset quality and risk management.

Our strategic objectives in 2011
The strategic objectives on which we based the conduct of our activities in 2011 may be summarized as follows:

• increasing loan volumes with an approach that is mindful of risk,
• effectively managing funding costs and keeping them constantly under control,
• managing non-interest income, giving particular attention to commission income,
• effectively managing operational costs and keeping them under control,
• making greater use of technology to boost revenues and reduce costs,
• increasing productivity through effective business process management.

In addition to acquiring new customers and taking advantage of growth opportunities, another goal for İşbank in 2011 was to improve profitability and in this our Bank was successful. In order to achieve profitable and sustainable growth within the framework of its strategy of being “The Bank Closest To Customers”, our Bank continued to adhere to a flexible business model which is based on the principles of productivity and effectiveness subject to the dictates of risk management and which has the ability to come up with customer-focused solutions.

In keeping with our goal of increasing number of customers, in 2011 we continued our efforts to open new branches. Branch openings are a matter that we approach with prudence and an attitude that is mindful of productivity and we therefore give priority especially to locations where there is potential to gain market share. At end-2011, the number of our Bank’s domestic branches stood at 1,184, which represents a net increase of 57 during the year. Paralleling this expansion in its service infrastructure, İşbank added 2,031 people to its payroll in 2011.

Taking into account both the impact of the ongoing global financial crisis in our national market and the developments taking place in our own sector, İşbank gave importance to domestic and international bond issues along with the deposits that serve as the primary source of its funding. These issues provided a number of important advantages such as prolonging the average term of our funding, reducing our exposure to structural interest rate risk and generating resources that can be used for medium-term credit.

2011 was a year during which we also continued to concentrate our efforts in such areas as customer relationship management, loan underwriting, risk monitoring and alternative distribution channels management in order to achieve levels of effectiveness and quality capable of equipping our corporate competencies and practices with competitive advantages in line with our Bank’s goals.

Sustainable, profitable growth in national and international markets
As İşbank, our fundamental goal is to achieve growth which demonstrates a market share and balance sheet progress in line with equity growth, while maintaining the asset quality.

Our goal is growth which is sustainable, because it is achieved through increases in customer and employee satisfaction; which is profitable, because it is the result of securing such returns as investors demand and which are consistent with the cost of capital.

Given the current economic climate, we foresee that the importance of operational productivity and cost control will become even greater in the period ahead. Productivity and managing the cost base constantly to keep it as low as possible will continue to determine our competitive edge and strength. To this end, we are proceeding at full speed with work on infrastructure in order to further develop our Bank’s process management, performance management and management reporting technologies so as to make certain that our products and services are supplied to our customers in the most effective way possible.

The market conditions that prevail at this time are such that a profitable and sustainable growth performance is only possible if we adhere to a business model which focuses on cost control and achieving consistency in creating revenue streams.

In our domestic market, our growth strategy is to be “The Bank Closest to Customers” in all aspects of banking. That growth strategy is as much rooted in the principles of productivity, profitability and sustainability in international markets as it is at home. On the basis of our cross-border strategy, there is boosting our target of growth in Turkish financial markets, our main area of activity, by maximizing our effectiveness in the international markets that are important for the Turkish economy and taking advantage of the growth opportunities presented by those markets.

Within the framework of the strategy outlined above, İşbank seeks first of all to be a “regional bank” and then to be an “international bank”. Another objective in line with this is to expand our international organization by acquiring a presence in other markets where we do not have one yet but where we see both a promising future and high potential and where there are significant commercial, political and cultural relationships with Turkey.

Under the heading of expanding our international presence, we are on the lookout in countries nearest to Turkey including the Balkans and the Middle East. Whenever conditions are deemed to be appropriate, İşbank will assess opportunities in such markets and initiate such undertakings as are necessary.

Despite the worldwide economic crisis in 2011, our Bank made important progress in line with its vision of being first a regional and then a global bank.

• İşbank’s Arbil branch opened in Iraq in February and its İskele branch opened in Turkish Republic of Northern Cyprus in July.
• In August, our Frankfurt-based subsidiary İşbank GmbH opened a branch in Sofia in Bulgaria.
• For the first time in its corporate history, İşbank acquired another bank with its purchase of a Moscow-based bank. Our new banking subsidiary is now operating under the name of “İşbank Russia”.

In addition to these investments, consideration is being given to opportunities to engage in banking in the cities of Baghdad (Iraq), Batumi (Georgia), Prishtina (Kosovo), Karachi (Pakistan) and Baku (Azerbaijan). We are also working on a project to expand our banking activities in Egypt, which are currently being carried out at the representative office level.

In 2012 and the years that follow, we will be concentrating on expanding İşbank’s regional footprint and to tap the growth potential that exists in Turkey’s near abroad. To that end we also plan to become actively involved in efforts to take the initiative particularly in countries where there is already a substantial volume of trade with Turkey and/or where Turkish businessmen have a significant presence.

Under the heading of expanding our international presence, we are on the lookout in countries nearest to Turkey both in the Balkans and in the Middle East.

We continue to offer our customers international resources on the most favorable terms.
In a business environment dominated by the conditions of the global financial crisis, İşbank continued to seek out suitably-priced international resources and to make them available for its customers’ use.

İşbank successfully carried out two syndicated loans in 2011: the first in May and the second in September. The two loans generated combined resources amounting to EUR 1.229 billion and USD 649 million for our Bank. In addition to these syndications, İşbank continued to supply customers with funding in a variety of amounts and on a range of terms both through the strong bilateral relationships which it has developed with correspondents and through its cooperation with international development and investment agencies.

As it advances confidently towards becoming a truly international service provider, İşbank regards the confidence that it inspires and the reputation that its name enjoys at the global level as a way of significantly leveraging its growth. The Bank is therefore committed to pursuing its efforts in this direction.

2011 was a year in which global economic risks began to proliferate once again.
The rise in macroeconomic risks was driven especially by worries over the sustainability of the high levels of public indebtedness in a number of EU-member countries. As opinions grew stronger that the problems faced by the global economy were not going to be resolved anytime soon, it also became increasingly more difficult to manage expectations as the year progressed. In such an environment, both market and liquidity risks tended to rise everywhere in the world.

Rises in the cost of banks’ funding and lower-than-expected growth rates in many developed countries also exacerbated credit risk for the global economy.

The macroeconomic data concerning the Turkish economy is, compared with that of many other countries, much more favorable in appearance. At a time when developed countries are having trouble restarting growth in their economies, Turkey successfully ranked among the world’s fastest-growing economies in 2011. In Turkey the ratio of public indebtedness to GDP continues to decline, while high levels of debt and budget deficits create problems with public finances especially in Euro Zone countries. An alarming deterioration in the country’s current account deficit resulting from disparities in domestic and foreign demand dynamics drew attention both to the indicators of such demand and to exchange rates. This prompted the CBRT to reshape its monetary policy in such a way as to be mindful of financial stability as well as price stability.

We are as determined as ever to continue our efforts to take the global value of our brand to even higher levels.

Our expectation is that 2012 is not going to be an easy year for the world.
In the current global economic climate, with its extensive organization, close customer contact and a lineup of products and services capable of meeting every need, İşbank will continue to be one of the basic supporters of the Turkish economy. Our Bank is committed to maintaining the growth of its loan portfolio in line with developments taking place in the world and Turkish economies in 2012 while never straying from its sound lending practices. As was the case in 2011, our goal is to make growth in our loan volume, the main engine of the growth in our balance sheet in 2012 as well.

Just as it has always done since its inception, İşbank in 2012 will continue to act with a risk-focused approach and to abide strictly by lending and monitoring processes that are faster as well as better from the standpoints of such matters as loan portfolio development, risk dispersion and loan category diversification.

Leadership and pioneering
One of the original founders of a national banking industry in the earliest years of the Turkish Republic, İşbank is still one of the sector’s leaders and pioneers. Thanks to its superior human resources, a sound financial structure, extensive service network and steadily growing shareholder support, İşbank remains firmly on course. We are as determined as ever to continue our efforts to take the global value of our brand to even higher levels.

We are determined to continue supporting household and business customers to an ever increasing degree in the difficult market conditions that may be caused by the global financial crisis in 2012 and the years that follow. We have the strength and the resources needed to do this.

In closing, I extend my appreciation on behalf of İşbank to our shareholders for their enduring support, to our customers and business partners for their confidence in us and to our employees for their efforts.

Adnan Bali
Member of the Board and Chief Executive Officer