TURKEY

Publication Date: April 22, 2016 “Global Knowledge supported by Local Experience” Copyright © 2007 by JCR Eurasia Rating. 19 Mayıs Mah., 19 Mayıs Cad., Nova Baran Plaza No:4 Kat: 12 Şişli-İSTANBUL Telephone: +90.212.352.56.73 Fax: +90 (212) 352.56.75

Reproduction is prohibited except by permission. All rights reserved. All information has been obtained from sources JCR Eurasia Rating believes to be reliable. However, JCR Eurasia

Rating does not guarantee the truth, accuracy and adequacy of this information. JCR Eurasia Rating ratings are objective and independent opinions as to the creditworthiness of a

security and issuer and not to be considered a recommendation to buy, hold or sell any security or to issue a loan. This rating report has been composed within the methodologies

registered with and certified by the SPK (CMB-Capital Markets Board of Turkey), BDDK (BRSA-Banking Regulation and Supervision Agency) and internationally accepted rating

principles and guidelines but is not covered by NRSRO regulations. http://www.jcrer.com.tr

Corporate Credit Rating (Update)

Banking

*Assigned by Japan Credit Rating Agency, JCR on August 28, 2015

Head of Group: Şevket GÜLEÇ +90 212 352 56 73 sevket.gulec@jcrer.com.tr

Long Term

Short Term

Inte

rna

tion

al Foreign currency BBB- A-3

Local currency BBB- A-3

Outlook FC Stable Stable

LC Stable Stable

Na

tion

al

Local Rating AA (Trk) A–1+(Trk)

Outlook Stable Stable

Sponsor Support 3 -

Stand Alone AB -

So

vere

ign

*

Foreign currency BBB- -

Local currency BBB- -

Outlook FC Stable -

LC Stable -

Albaraka Türk Katılım Bankası A.Ş.

F i n a n c i a l D a t a 2015* 2014* 2013* 2012* 2011*

Total Assets (000,000 USD ) 10,152 9,925 8,081 6,935 5,538

Total Assets (000,000 TRY) 29,517 23,014 17,216 12,328 10,461

Total Deposit (000,000 TRY) 20,341 16,643 12,529 9,225 8,045

Total Net Loans (000,000 TRY) 19,505 16,184 12,060 9,100 7,287

Equity (000,000 TRY) 2,096 1,786 1,497 1,218 1,004

Net Profit (000,000 TRY) 301 248 241 192 160

Market Share (%) ** 24.55 22.08 17.92 17.54 18.63

ROAA (%) 1.42 1.60 2.02 2.12 2.14

ROAE (%) 19.28 19.56 22.03 21.71 21.77

Equity/Assets (%) 7.10 7.76 8.69 9.88 9.60

CAR - Capital Adequacy Ratio (%)

15.16 13.89 14.82 13.03 12.53

Asset Growth Rate (Annual) (%) 28.26 33.68 39.65 17.85 24.44

* End of year ** Among the Participation Banking Sector

Overview Albaraka Türk Katılım Bankası A.Ş. (hereinafter referred to as “Albaraka” or “the Bank”) operates in the fields of SME, corporate, commercial, investment and retail banking services strictly conformable to the principles of Islamic Shari'a. The first finance institution in the interest-free banking field in Turkey, the Bank was incorporated in 1984 and launched operations in the beginning of 1985. The qualified shareholder, the Bahrain-based Al Baraka Banking Group B.S.C., one of the leading groups in the Middle East with an asset size of USD 24,618mn, held 54.06% of shares at the end of FY2015. The group operates in fifteen countries through its subsidiaries and affiliates with a wide geographical presence through nearly 600 branches. Albaraka Türk went public in 2007 and is currently trading on the Borsa Istanbul A.Ş. (BIST) with the ticker “ALBRK” and a current free float of 24.81%.

Albaraka Türk, the largest subsidiary of the Al Baraka Banking Group, had an assets size of USD 10,152mn and a widespread branch network (212 domestic and 1abroad) with over 3,700 employees.

As in the previous year, the Bank outperformed both the Turkish Banking and Participation Banking sectors in growth of assets, deposits and loans in 2015. The Bank maintained its asset quality evidenced by lower-than-sector average NPLs. Thanks to supplementary capital derived from subordinated loans, the Bank’s solo basis capital adequacy ratio increased to 15.27% and converged to the Turkish Banking sector average. Furthermore, the Bank attained its efforts to diversify and extend the maturity of its funding mix through overseas financial markets.

Strengths

Sound growth performance in assets, deposits and loans book, outperforming the sector averages

Notable increase in capital adequacy ratio supported by particularly supplementary capital and retention of a large portion of profit

Continuous and progressive profit throughout the reviewed period despite deteriorated return on asset and equity ratios

Maintenance of asset quality through below sector NPL ratios

Reasonable earning power with recurring income streams

Competence in accessing fund resources in overseas markets coupled with diversified funding mix

High level of compliance with corporate governance best practices and continuity of well-established risk management practices

Existence of experienced and visionary management team along with sound operational track record

Growth in market share in both the Turkish Banking and Participation Banking Sectors

Constraints

Continuity of tapering of net profit share income margin (NIM) and rising opex exerting pressure on profitability indicators

Sector-wide structural maturity mismatches and short maturity deposits profile

Upside risks via weakened TRY and downside risks to growth coercing profit margins and impacts on debt-servicing capabilities of the real sector further aggravated by the recent upward trend in bankruptcy postponements

Notable increase in the overdue (up to 90 days) but not impaired loans portfolio, indicating deterioration to a certain extent

High credit risk concentration among the top 100 customers, despite a slight progress

Expected increase in competition through new state-owned entrants

3.53.64.44.54.3

0

5

NIM (%)

1.41.62.02.12.1

0

5

ROAA (%)

19.319.622.021.721.8

15

20

25

ROAE (%)

28.333.739.7

17.824.4

0

50

20152014201320122011

Growth Rate (%)15.213.914.813.012.5

0

20

20152014201320122011

CAR (%)

1.251.150.990.900.86

0

2

Market Share (%)

(Turkish Banking

Sector)

Banking

Albaraka Türk Katılım Bankası A.Ş. 1

1. Rating Rationale JCR Eurasia Rating has affirmed Albaraka Türk’s National Local Rating Notes of ‘AA (Trk)’ in the long term, which denotes a high investment grade, and ‘A-1+ (Trk)’ in the short term with a ‘Stable’ outlook on both ratings. The Bank’s Long Term Local and Foreign Currency notes have been also affirmed as “BBB-” with “Stable” outlooks. In the assignment of Albarak Türk’s ratings, quantitative and qualitative assessments have been taken into consideration such as; (i) maintenance of asset quality level evidenced by lower-than-sector average NPLs coupled with the Bank’s relatively low level of write-offs exercises despite notable growth in the NPL book in 2015, (ii) beyond sector average growth performance in assets, deposit and loan portfolio and increase in market perception, (iii) adequate earning power with core profitability indicators exhibiting a decrease however outperforming its peer group banks, (iv) enhanced capitalization level maintained above the required and recommended levels despite the fact that the CET1 capital share among the total shareholders’ equity was remarkably lower than the sector averages, indicating a relatively low buffer against potential incidental losses, (v) satisfactory liquidity position buttressed by generation of alternative funding sources, particularly long term funds from overseas Islamic financial markets, (vi) moderate risk appetite associated with good risk management practices, (vii) shareholder structure and international network franchise of the utmost foreign shareholder and the strength of the Turkish Banking System in general. For this assignment, JCR Eurasia Rating has utilized the independent audit reports prepared in accordance with the principles and standards set by the Banking Regulation and Supervision Agency (BRSA).

Principal Rating drivers are:

Sustained Sound Growth Performance Beating Sector Averages

In FY2015 Albaraka Türk achieved sound growth performance through almost all principal banking segments. The growth in assets, deposits, loans and net profit were 28.26%, 22.22%, 20.52% and 19.88%, respectively, and outperformed the averages of the Turkish Banking (18.21%, 18.36%, 19.75% and 5.66%) and Participation Banking (15.36%, 13.72%, 13.70 and 355.32%) sectors. The higher increase in the Participation Banking Sector’s net profit derived from the base effect of Bank Asya’s loss.

Sustained Enhancement in Market Shares Albaraka Türk’s assets size market shares within the Turkish Banking Sector and the Turkish Participation Banks have exhibited a continuous increase in last three consecutive years. As of FYE 2015, the Bank’s market shares were 1.25% and 24.55% respectively (FY2012: 0.90% and 17.54%). Moreover, the Bank’s loans and deposit market shares in Turkish Banking and Participation Banking Sectors expanded. As of FYE2015, those ratios were 1.30%, 1.60% and 25.12% and 27.42%, respectively (FYE2014: 1.29%, 1.55% and 23.70% and 25.51%). Adequate Earning Power Though Signifying Weakening

While the Bank’s net profit exhibited continuous growth throughout the reviewed period, the return on equity and assets ratio, which are the core profitability indicators of the financial sector, contracted in the last two consecutive years due to primarily to the tapering net profit share income margin (NIM). Decreasing ROAA and ROAE ratios are a sector wide issue. However, the Bank outperformed the sector averages and its peer group banks in terms of equity in FY2015. On the other hand, the return on assets ratio fell below the Turkish Banking Sector and remained above that of the Participation Banking Sector in FY2015 as in the previous year.

FY2015 Albaraka Türk Kuveyt Türk Türkiye Finans

ROAA 1.42% 1.42% 0.93%

ROAE 19.28% 16.59% 10.26%

The Bank’s gross profit margin was 31.09% at the end of FY2015 and demonstrated a declining pattern in line with the Turkish Banking Sector in the last four consecutive years. The Bank’s OPEX increased by 30.32% in FY2015 on a year on year basis, up from the previous year’s figure of 24.24%, while exerting pressure on profitability level. The relatively lower provisioning compared to the previous year supported the Bank’s pre-tax profit. Above all, the Bank’s gross profit margin stood above the Turkish Banking and Participation Banking Sectors in 2015.

At the end of FY2015, 86.15% of total income was made up of net profit share income and net fee & commission income, stemming mainly from core banking activities and were almost in line with the sector. However, the decreased below sector average support of net fee & commission income indicates a need for improvement.

Banking

Albaraka Türk Katılım Bankası A.Ş. 2

Leaner Core Capitalization Compared to the Sector, Despite Improved and Satisfactory Regulatory Capitalization Level At the end of FY2015, Albaraka Türk’s non-consolidated Capital Adequacy Ratio improved to 15.27% from 14.15% FY2014 and remained well above the minimum CAR requirements set by the Basel Accord (8%) and BRSA’s recommended level (12%). Although the Bank’s CAR ratios stayed below the average of the Turkish Banking Sector over the reviewed period thanks to a remarkable increase in CAR with 112 base points, the ratio converged to the Turkish Banking Sector Average in FY2015. The subordinated debt of TRY 1,062.5mn equivalent and general provision in the amount of TRY 74.8mn, classified as second-tier capital under the regulatory capital, donated approximately 551bps to the Bank’s CAR ratio as of FY2015. The supplementary capital accounted for approximately 36% (FYE2014:24%) of the Bank’s own fund structure and presented a significant growth compared to the previous year. The second tier capital to own fund structure of the Turkish and Participation Banking Sectors were 15.93% and 24.60% respectively. Those ratios indicate the Bank’s higher reliance on Tier second capital and reduces its capital strength to a certain extent. The Bank has also remained compliant with minimum requirements of Common Equity Tier 1 Capital Ratio (4.5%) and Total Tier 1 Capital Ratio (6%) set by the BRSA effective from January 1, 2014 with figures of 9.92% and 9.80%, respectively. The Common Equity Tier 1 Ratio of the Turkish Banking and the Participation Banking Sectors were 13.26% and 11.62%, respectively, and were well above Albaraka Türk’s ratio. Accordingly, we, as JCR Eurasia Rating, conclude that the current level of capitalization provides a bumper against incidental loan loss. Good Asset Quality

In FY2015 the Bank’s gross non-performing loans book displayed significant growth with a rate of 43.26% in absolute terms on a year on year basis and reached TRY 468mn from TRY 327mn. Similar to the Turkish Banking and Participation Banking Sectors, the NPLs ratio deteriorated to 2.37% from 1.99% FYE2014. On the other hand, strong growth in the loans book (20.52%) curtail the NPLs increase due to denominator effects. Nevertheless, the Bank’s NPL ratios continued to remain below the sector averages throughout the reviewed period.

It is also noted that the Bank’s specific reserves coverage of impaired loans demonstrated a remarkable decrease to 59.96% in FY2015 from 87.85% and fell below that of the Turkish Banking Sector average of 74.59%, but in line with the Participation Banking Sector average of 59.06%. Additionally, the notable increase in past due but not impaired loans (overdue up to 90 days) to 151.35% Year on Year basis (FY2015: TRY 2,103mn and FY2014: TRY 836mn) point to a deterioration.

Modest Risk Appetite and Risk Position

The Bank dispersed its loans book principally among the SME, Corporate and Retail lending segments, with rates of 46.7%, 38.9% and 14.3%, respectively (based on the BRSA’s definition). Approximately 57% of loans were extended in TRY and the remainder in foreign currencies, creating an almost balanced funding FC profile.

The Bank’s largest 100 cash loan customers composed 38.00% of the total cash loan portfolio as of FYE2015 (FYE2014: 38.00%) while the largest 100 non-cash loan customers composed 45% of the total non-cash loan portfolio as of FYE2015 (FYE2014: 47.00%). The largest 100 cash and non-cash loan customers represented 33.00% of the total “on and off balance sheet” assets as of FYE2015 (FYE2014: 35%). Despite a slight improvement in FY2015, those rates specify a loans concentration in terms of customers or customer groups. However, the below sector average NPLs figures indicate a selective lending strategy and management success.

Favourable Loan to Deposit Ratio

At the end of FY2015, the loan to deposit ratio was 95.89%, decreased from 96.82% at FYE2014 and remains fairly below the sector averages, which provides advantage for further expansion and grow the stress-free borrowing capacity.

Short Term Funding Base Prevalent in the Sector

Categories of the funding sources of the Bank did not considerably alter over the years and its funding base was principally composed of deposits (profit sharing and demand deposits), accounting for 68.92% of total resources at the end of 2015, down from the previous year’s 72.22%.

The average maturity of collected funds was below the three-month period and in line with the sector averages. The management considers that approximately 80% of total deposits are core and sticky, offsetting to a certain extent the disadvantages of the short maturity profile of the deposits. In order to diversify funding streams and extending its funds maturity, the Bank management has steered for overseas markets and provided funds in the

Banking

Albaraka Türk Katılım Bankası A.Ş. 3

form Murabaha Syndication, Subordinated loans, Wakala borrowing and Sukuk certificates. Those funds reached to 17.49% of the total resources.

Satısfactory Liquidity Level

Pursuant to the framework of the BRSA Communiqué dated March 21, 2014 and an amendment Communiqué dated August 20, 2015 stipulating maintenance of an adequate level of high quality liquid assets (HQLA) on consolidated and unconsolidated bases to meet the net cash outflows, the average Liquidity Coverage Ratios of Albaraka Türk on consolidated and unconsolidated bases for FY2015 were compliant with the regulatory requirements. At the end of FY2015, liquid assets including marketable securities accounted for 31.15% of total assets (FY2014: 26.94%). On the other, a significant portion of liquid asset were made up by restricted portion of reserves held within the Central Bank that rolling back usable level of liquid assets. Operational Environment Still Exposed to Worries

The tension in international and domestic politics and the unrest in some bordering countries continue. These stiff political headwinds continue following the elections held during 2015. Upside risks through weakened TRY and downside risks to growth also exert pressure on profit margins while continuing to deteriorate asset quality through weakened debt-servicing capabilities of the real sector, which have been further aggravated by the recent upward trend in bankruptcy postponements.

Conversely, the expected cutback on the general provision rate by the BRSA following the prudential measures implemented in the previous periods to limit credit growth and individual consumption and new regulation regarding granted loans to tourism sector is anticipated to donate to profitability meters of the sector.

High Level of Compliance Considering Corporate Governance Implementations

Albaraka Türk, a publicly traded company with a free float of 24.81%, has attained high compliance level with the corporate governance principles. Particularly efficient and comprehensive public disclosure and transparency exercises make it highly competent. Albaraka Türk’ was rated on July 10, 2015 by JCR Eurasia Rating with a score of 85.90 out of 100, meaning “Merit Compliance” in all categories regarding compliance with the CMB Corporate Governance Principles, calculated based on weightings determined for the 4 distinct categories of Shareholders, Public Disclosure and Transparency, Stakeholders and Board of Directors. In the recent rating report, the Bank’s Corporate

Governance rating note increased by 146 base points compared to the previous year’s figure of 84.44. Completion of Corporate Transformation Program (SIMURG) Providing Competitive Advantage for the Upcoming Period In line with the long-term strategy to become the World’s Best Participation Bank, Albaraka almost completed its corporate transformation program, SIMURG, initiated in 2012. The vast majority of the projects within the scope of the program have been completed. The program is expected to strengthen the Bank’s competitive position in the sector by enabling the expansion of the customer base, result in better user experience, diversify distribution channels and adoption of better pricing policies.

2. Outlook

JCR Eurasia Rating has affirmed a “Stable” outlook on the short and long term national and international ratings perspective of Albaraka Türk, regarding the Bank’s established earnings power, adequate capitalization level above the legal and targeted boundaries which indicates the capacity to absorb incidental losses, selective lending strategy coupled with below sector average NPLs and maintained asset quality, adequate liquidity and diversified funding mix through Murabaha Syndication, Subordinated loans, Wakala borrowing and Sukuk certificates, increasing market shares and in the event that no further worsening arise in the operation environment of its utmost shareholders. Downside risks to growth exerting pressure on profit margins though deteriorating asset quality through weakened debt-servicing capabilities of the real sector and the recent upward trend in bankruptcy postponements, the sovereign rating level of Turkey, difficulties in accessing funding resources along with contingency of international politics pertaining to Turkey’s neighboring countries and the endurance of geopolitical risks in Turkey, continuity of narrowing net interest margin and deterioration in NPLs are the general key considerations which would impede the ratings and its outlooks. On the other hand, an increase in capital strength through cash equity injection, improvements in profitability ratios, diversifying funding mix and extending maturity profile and management of additional risks combined with the growth of the Bank are substantial factors that may be taken into consideration for any future positive changes in ratings and outlook status.

Banking

Albaraka Türk Katılım Bankası A.Ş. 4

3. Sponsor Support and Stand-Alone Assessment

Albaraka Türk’s Sponsor Support Note has been determined by taking into account the financial strength and support willingness of the qualified shareholder Albaraka Banking Group. The Group has a wide geographical presence through banking subsidiaries and representative offices in fifteen countries (Bahrain, Turkey, Pakistan, Syria, Egypt, Algeria, Jordan, Lebanon, Sudan Tunisia, South Africa, Saudi Arabia, Iraq, Libya and Indonesia). As of December 31, 2015, the Group’s consolidated financial figures in asset size, equity and net profit were USD 24,618mn, 2,095mn and 286mn, respectively. While Albaraka Türk is the largest and flagship firm of the Group, some of the other countries in which the Group operates have high political risks and harbor ongoing social unrest. Although financial support is expected from ABG in case of an urgent need for short or long-term liquidity, the prospective financial support on offer will be limited. Regarding the above factors, the Sponsor Support Note of the Bank has been affirmed as “3”, denoting a moderate external support possibility though bearing some uncertainties. Up to date, Albaraka Türk has not been exposed to any weaknesses to assist from the potential of firm shareholders.

On the other hand, even if the shareholders or public authorities do not provide any assistance, the Bank is expected to be able to manage its balance sheet risks successfully through its own equity base. The Bank’s balance sheet profile and moderate risk appetite associated with risk management exercises will remain as derogatory issues in facing risks. In this sense, The Stand Alone Note of the Bank has been affirmed as “AB”

4. Company Profile

a. History & Activities

Albaraka Türk Katılım Bankası A.Ş., the largest subsidiary of the Bahrain based Al Baraka Banking Group, was incorporated in 1984 and inaugurated operations in the beginning of 1985. The Bank, the first finance institution of interest-free banking in Turkey, offers services in the corporate, commercial, SME and retail banking fields as well as services in financial leasing and profit/loss sharing based projects. Albaraka Türk’s shares (24.80% as of FYE2015) have been traded on the Borsa Istanbul (BIST) since 2007.

b. Organization & Employees

As of December 31, 2015, the Bank employed 3,736 people (2014: 3,510) and operated with a total network of 213 branches (212 domestic and 1 overseas). In addition to the conventional services stream offered through the branch network, Albaraka Türk facilitates the use of alternative delivery channels (ADC), including a

call center, ATMs and mobile and internet banking facilities.

The Board of Albaraka Türk consists of 13 members, four of which are independent (including three audit committee members). Credit, Audit, Remuneration, Social Responsibility and Corporate Governance committees have been established under the BoD. The Bank has also formed nine committees with the participation of senior executives to establish a thorough and comprehensive risk management system under its risk management framework.

c. Shareholders, Subsidiaries & Affiliates

The table following shows the shareholder structure of Albaraka Türk as of FYE2015.

Shareholders Paid Capital -

TRY Share %

Foreign Partners 593,906,071 65.99%

Albaraka Banking Group 486,523,266 54.06%

İslamic Development bank 70,573,779 7.84%

Alharthy Family 31,106,364 3.46%

Other 5,702,662 0.63%

Local Partners 82,759,529 9.20%

Publicly Traded 223,334,400 24.81%

Total 900,000,000 100.00%

The utmost shareholder, Al Baraka Banking Group B.S.C., was incorporated in 2002 in Bahrain and is listed on the Bahrain stock exchange and NASDAQ Dubai. The bank is one of the most prominent groups in the Middle East, providing retail, corporate and investment banking and treasury services strictly conformable to the principles of Islamic Shari'a through its subsidiaries in 15 countries and 587 branches/offices. The group’s total staff force was 11,458 as of FYE2015

As of December 31, 2015, Al Baraka Banking Group B.S.C.’s consolidated financial figures in asset size, equity and net profit were nearly USD 24,618mn, 2,095mn and 286mn, respectively.

Country Sector

2015

Effective Interest Rates %

Voting Rights (%)

Consolidated - Joint Venture, Structured Entity and Subsidiaries

Katılım Emeklilik ve Hayat A.Ş. Turkey Finance 50.00 50.00

Bereket Varlık Kiralama A.Ş. Turkey Finance 100.00 100.00

Albaraka Gayrimenkul Portföy Yönetimi A.Ş.

Turkey Finance 100.00 100.000

Albaraka Sukuk Limited Cayman Islands

Finance

ABT Sukuk Limited Cayman Islands

Finance

Unconsolidated Affiliates

Kredi Garanti Fonu A.Ş. Turkey Finance 1.69 1.69

Banking

Albaraka Türk Katılım Bankası A.Ş. 5

Albaraka Türk did not consolidate the financial statements of its associate Kredi Garanti Fonu A.Ş. due to its insignificant influence on the financials of the Bank. As JCR Eurasia Rating has not presently analyzed the independent risk level of these companies, no opinion regarding their creditworthiness has been formed.

d. Corporate Governance

We, as JCR Eurasia Rating, have assessed Albaraka Türk in accordance with CMB corporate governance principles and assigned an overall rating of 8.59 with a stable outlook in July 2015. The Bank’s scores in the four principal segments are as follows; Shareholders: 8.31, Public Disclosure & Transparence: 8.89, Board of Directors: 8.58, and Stakeholders: 8.56 These rating scores reflect the Bank’s high level of compliance with corporate governance principles.

e. The Company & its Group Strategies

To materialize its vision of “Being the World’s Best Participation Bank”, the Bank initiated its corporate transformation program (SIMURG) in 2012 and the transformation process is nearly completed. Within the scope of the program, up to now, 38 of 49 projects have been completed. SIMURG is a dynamic and adaptive long term transformation project which targets to (i) expand the customer base and volume supported with diversification of products, (ii) improve user experience, (iii) utilize advanced customer relations management tools, (iv) calibrate the distribution and service delivery channels and (v) create appropriate pricing policies. The Bank’s IT transformation program of its principal banking system known as “ALBATROS” was completed in FY2015. It received two separate awards.

5. Sector Overview & Operational Environment

The Turkish Banking Sector, regulated by the Banking Regulatory and Supervisory Agency (BRSA), consists of deposit banks, development and investment banks, and participation banks which operate in line with Islamic principles on a profit-sharing model. The Banking Sector enjoys the largest share across the wider Turkish financial services industry with an asset size of USD 800bn (TRY 2,357bn) as of FYE2015.

SUMMARY OF KEY INDICATORS OF THE TURKISH BANKING SECTOR

(000,000) 2015 2014 2013

2012

Asset size -TRY 2,357,472 1,994,263 1,732,382 1,370,750

Asset size-USD 807,879 857,047 813,172 771,124

Equity-TL 262,229 231,941 193,704 181,870

Profit-TL 26,062 24,610 24,664 23,589

ROAE% 1.52 1.69 2.01 2.33

ROAE% 13.39 14.79 16.59 18.49

NPL Ratio% 3.09 2.85 2.75 2.86

Capital Adequacy Ratio% 15.56 16.30 15.30 17.90

Equity / Total assets 11.12 11.63 11.18 13.27

Loans / Deposits% 1.18 1.17 1.10 1.03

Although the Turkish Banking Sector achieved a 5.9% increase in profitability in absolute terms during 2015, devaluation of the Turkish Lira has led to a 15.9% decrease in profitability and 9.85% decrease in equity, in terms of US Dollars. Macro-level regulations and limitations on credit cards and vehicle loans that aim for the reduction of the current deficit have resulted in changes in banking business models as well as rising competition within the sector. The financial power of the Turkish Banking Sector to support economic activity has begun to degrade due to the devaluation of the Turkish Lira in 2015. On the other hand, the sector preserves its capacity to reach external resources and to sustain this potential. Borrowing costs of the US Dollar have a tendency to increase because of the expected contractionary monetary policy of the Federal Reserve (FED). On the contrary, expansion of the money supply in Europe has continued, limiting the cost of borrowing for Turkish Banks. It is quite possible that the expansionary monetary policy of the European Central Bank will continue in 2016, helping the Turkish Banking Sector in terms of financing costs. International risk parameters are taken into consideration for the management of pricing policies and balance sheet mechanisms in the Turkish Banking Sector. The Sector maintains its high return on assets (ROA) and net interest margin in the local currency. In addition, banks try to increase revenues via fees and commissions generated from transactions. Although the sector has a relatively low level of total assets compared to developed countries, banks have preserved their positive standing in 2015 in the following: profitability, non-interest expenses, capital ratio, inflation, and real growth. The continuation of growth in 2016 is dependent on the stability of the local currency. The number of banks operating in the sector increased to 52 as of FYE2015, up from 51 in FYE2014. In order to provide broader access to banking services with further effectiveness, high levels of investment are maintained in several areas such as internet banking, ATM and POS systems. The concentration level of assets, loans and deposit across the sector is quite remarkable. As such, in all three of these mentioned fields, the total market share of the five largest banks was 60%. The highest levels of concentration are observed in the fields of deposits, loans, and profitability, respectively.

Banking

Albaraka Türk Katılım Bankası A.Ş. 6

The share of foreign banks is relatively high within the equity structure of the sector.

NUMBER OF BANKS

2015 DECEMBER TURKISH

BANKING SECTOR

State

Banks

Private

Banks

SDIF

Bank

Foreign

Banks

Branches of

Foreign Banks

TOTAL

DEPOSIT BANKS 3 9 1 15 6 34

DEVELOPMENT &

INVESTMENT BANKS 3 6 4 13

PARTICIPATION

BANKS 1 1 3 5

TOTAL 7 15 2 22 6 52

NUMBER OF BRANCHES

2015 DECEMBER

TURKISH BANKING SECTOR

State

Banks

Private

Banks

SDIF

Bank

Foreign

Banks

Branches of

Foreign Banks

TOTAL

DEPOSIT BANKS 3,686 4,303 1 3,160 8 11,158

DEVELOPMENT &

INVESTMENT BANKS 23 15 4 42

PARTICIPATION

BANKS 24 200 857 1,081

TOTAL 3,733 4,318 201 4,021 8 12,281

Apart from international branches and deposit guarantees, the legal framework of the Turkish Banking Sector, which remains largely compliant with EU regulations, is currently in line with criteria for integration into the global economy, the Basel criteria, and the Capital Requirements Directives (CRD). Small banks in the Turkish Banking Sector exhibit an oligopolistic competitive behavior based on resource management strategies whilst displaying monopolistic competitive conditions based on asset management strategies. On the other hand, large banks depict fully monopolistic competitive behavior when taking into account balance sheet management strategies. As such, competition is observed largely across the smaller players in the sector whilst competitive behavior among large banks remains limited due to the levels of concentration inherent in the sector. National and international regulations, evolving customer demands, technology and politics exert a high level of effect over the Banking Sector. As the level of interaction with the external environment remains high, issues such as capital, liquidity, profitability, and cost management are expected to occupy an increasingly significant role on banks’ agendas. The Turkish Banking Sector, with an infrastructure shaped according to the needs of innovative and sustainable loans, deposit customers, and investors, possesses a dynamic structure in product and service provision. The robust capital structure and deepening of capital markets will continue to confer competitive advantages across the sector in the field of deposit

collection and domestic and international fund raising throughout FY2016. Currently lacking the desired levels of scale and cost productivity, it is anticipated that the Turkish Banking Sector will change its organizational structure and growth strategies throughout FY2016 accordingly. Despite the fact that innovative channels are gaining importance in the sector, branches maintain their significance among the different distribution channels. The credit placement capacity of the Turkish Banking Industry is above the globally accepted optimum levels with the elasticity coefficients despite interest rate volatility and regulatory pressures. Local regulations have helped banks to be resistant against crises, while exerting negative pressure on productivity and profitability. However, financial innovations have helped counteract the negative effects of the regulatory constraints. Although banks meet their financing needs mainly depending on deposits, the use of alternative resources has gained importance. Following the increase in funding opportunities resulting from the expansionary monetary policies of developed countries, banks’ international liabilities have displayed an upward trend in recent years. The external debt rollover ratio of the sector maintained a level over 100% and the long term nature of the international funds helps to extend the maturity structure of the liability composition. The issuance of securities by banks has accelerated and maintained its growth trend. The ratio of non-performing loans to equity realized a value of 12.87% in FYE2012 and increased to 15.29% and 15.69% in FYE2013 and FYE2014, respectively. In 2015, this figure climbed to 18.13%. While there was a nominal increase of 30.51% in the non-performing loans throughout 2015, the lower nominal increase of 19.76% in total loans resulted in a mathematical increase in the share of non-performing loans to total loans. The ratio of non-performing loans to assets was 3.09% as of FYE2015. On the other hand, concealed transactions, such as refinancing or tailor-fit protocols applied to customers with repayment difficulties, are not included in the above figures. Still, it is obvious that these transactions lead to a lower ratio of non-performing loans to assets.

Banking

Albaraka Türk Katılım Bankası A.Ş. 7

The capital adequacy ratio of the sector was 17.90% at FYE2012 and decreased in 2013 to 15.30%. However, the ratio recovered throughout FY2014 and increased to 16.30% at FYE2014. As of FYE2015, the capital adequacy ratio was 15.56%. 84.17% of legal equity was composed of principal equity, an indicator of a strong equity structure, despite decreasing from the 90% ratio observed in the past. The Banking Sector maintained its asset growth throughout FY2015 principally resulting from the expansion in loans and statutory reserves similar to that of FY2014. This was largely funded via the increase in deposits, equity, issued securities and payables to banks.

MARKET SHARE %

2007 2008 2009 2010 2011 2012 2013 2014 2015

PARTICIPATION

BANKS 3.34 3.52 4.03 4.30 4.61 5.13 5.55 5.23 5.10

DEVELOPMENT AND

INVESTMENT BANKS

3.25 3.13 3.24 3.07 3.42 3.85 4.05 4.24 4.52

DEPOSIT BANKS

93.41 93.35 92.73 92.63 91.97 91.02 90.41 90.53 90.37

SECTOR 100 100 100 100 100 100 100 100 100

Deposit banks held the leading share among banking sector assets with a 90.37% share as of FYE2015. This was followed by participation banks and development banks with shares of 5.10% and 4.52%, respectively. The Turkish Banking Sector featured successive growth on a cumulative basis with a cumulative growth rate of 182.67% for the 2009-2015 period.

In USD terms, the Turkish Banking Sector exhibited a cumulative growth rate of 46% for the 2009-2015 period. When details of the FY2015 are examined, it can be observed that participation and investment banks recorded the greatest increase with a rate of 26.13%. Participation banks had an annual growth rate of 15.36% whilst deposit banks attained a growth rate of 18.01%. In contrast to the past, the low growth of participation banking throughout FY2015 stemmed from the transfer of Bank Asya to the Saving Deposit Insurance Fund and ongoing problems publicized in the press. In FY2015, the annual growth rate of TRY liabilities was 11.60%, non-TRY liabilities 6.60% and the overall figure 18.20%. The annual growth rate of TRY assets stood at 10.57% while the same ratio for non-TRY assets was 7.64%. Thus, 13.51% of net TRY assets were financed by non-TRY liabilities The main contribution to growth was centered on foreign exchange deposits among all liabilities. Borrowings from banks stood in second place while deposits were the third largest contributor to growth. Deposits continue to enjoy the highest share with respect to funding of the Banking Sector. However, their share among total resources dropped to 52.83% at FYE2015 from 61.90% FYE2005. The share of securities among total assets maintained an increasingly downward trend and fell to 13.98%. Loans, on the other hand, reached 62.98% at FYE2015 from 38.93% in FY2005. The highest level of growth among total resources was observed across provisions for statutory reserves and bank liquidity requirements. Provisions, which constituted 3.68% of total assets in FY2005, formed 8.75% of total assets as of FYE2015. The desire to slow down credit growth is the major factor behind the increase in provision rates across the sector.

The indicators of profitability in the Turkish Banking Sector began to depict a downward trend, despite the maintenance of relatively high levels throughout FY2015. The domination of deposits within the sector’s funding structure is a factor that increases the need for a branch network and operating budget and as such leads to downward pressures on sector profitability. On the other hand, banks reflect the anticipated losses in their credit placement process fully onto their interest margins in accordance with the principles of prudence, weakening the return on assets. The high level of non-

3.092.852.752.86

2.70

3.65

5.27

3.633.48

3.74

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

2015201420132012201120102009200820072006

Impaired Loans / Total Loans (%)

18.217.03

35.93

12.5720.86

182.67

139.12123.42

64.36

46.00

20.81

0.00

020406080100120140160180200

2015201420132012201120102009

Annual Asset Growth Rate (TRY Basis) (%)

Cumulative Asset Growth Rate (TRY Basis) (%)

Banking

Albaraka Türk Katılım Bankası A.Ş. 8

interest expenses indicates that banks do not possess operational productivity.

The return on assets across the sector was 1.52% in FY2015. Return on equity ratio declined to 13.39% in the same period.

Profitability of the Turkish

Banking Sector Indicators%

2015 2014 2013 2012 2011 2010 2009 2008

Interest Margin % 3.85 3.80 4.02 4.42 3.86 4.61 5.87 5.23

ROAA (%) 1.52 1.69 2.01 2.33 2.27 2.95 3.21 2.54

ROAE (%) 13.39 14.79 16.59 18.49 18.10 22.14 25.50 20.56

Net Profit Margin % 22.60 25.75 25.91 30.42 30.65 36.14 33.20 27.83

Provision expenses / T. revenues%

21.35 21.74 19.81 20.45 15.14 14.08 22.60 18.41

In spite of the increase in funding costs countrywide, the net interest margin generated by the Banking Sector has not currently been negatively impacted by such developments. However, provision expenses continue to cause negative pressure on banks’ balance sheets. Net interest income stands out as the main source of revenue while the sector experiences difficulties in diversifying revenue streams. The effects of provision expenses in the margins is greater compared to EU countries among the different components. Net interest income constitute 67.84% of total banking revenues in the sector. On the other hand, the ratio of non-interest expenses total revenues is lower than the levels observed in EU countries.

Two of the most important indicators of FX position in the sector, the ratios of “Total Foreign Currency Position to Assets” and “Total Foreign Currency Position to Equity”, had values of 0.16% and 1.48% as of FYE2015. Those ratios were below FYE2014 figures. As such, the effect of foreign currency position risk on the sector’s revenue generating capacity is almost negligible. The short covering of foreign currency position via off balance sheet hedging methods has increased the roll-over and counterparty risks across the Turkish Banking Sector.

The Turkish Banking Sector hedges its balance sheet foreign currency short position with an off balance sheet foreign currency long position. The sector’s foreign currency net general position has remained low for a relatively long period of time.

There is no liquidity deficit for balance sheet transactions across all maturities. The highest level of liquidity surplus was observed for the period of up to 7 days’ maturity and on a yearly basis due to the effects of the increase in statutory reserves. On the contrary, all off-balance sheet transactions across different maturities are subject to liquidity deficit. However, the Turkish Banking System

is in a liquidity surplus overall. Likewise, the sector operates with an asset liability composition that is highly liquid.

The Banking Sector financed 52.79% of its assets with deposits and participation funds as of FYE2015. Despite the creation of various tax incentives to raise the maturity of the funding structure since 2013, the average maturity of deposits reached 84.80 days in FYE2015, compared to 72.77 days in FYE2014.

63.67% of the total assets of the sector is formed by Leasing and loan receivables. 14.33% of total assets is constituted by debt securities, the largest share of which belongs to government bonds. While the share of debt securities across balance sheet items is in decline, the share of loans is rising.

In terms of risk management practices, the credit, market, and operational risks of the Turkish Banking System are measured in accordance with Basel internal methodologies and BRSA regulations. Independent rating agencies have not yet taken part in the measurement of these risks, especially credit risk. According to data compiled by the BRSA, 90.04% of total risks in the system are constituted by credit risk, followed by operational risks and market risks with shares of 7.23% and 2.73%, respectively. The aggregate monetary measure of risk across the system is TRY 1.97bn. The share of equity to the overall asset size in the Sector was 13.17% in FYE2012 whilst the same ratio was 11.19% in FYE2013, having declined to 11.64% in FYE2014 and 11.12% in FYE2015. Participation banks had the lowest equity to total assets ratio. Since the share of equity was relatively high for participation banks, its contribution to capital adequacy ratio was limited. While the reputation of the development and investment banks was damaged in developed markets due to their deteriorating equity and asset composition, the sector in Turkey maintains its appeal as it remains well-capitalized with a high equity ratio. The Sector’s Capital Adequacy Ratio (CAR) is calculated in accordance with Basel II regulations. The Sector’s CAR has maintained a relatively high level over the years. The sector had a CAR of 15.56% as of FYE2015.

6. Financial Foundation

a. Financial Indicators & Performance

i. Indices Relating to Size Albaraka completed FY2015 with a sound asset growth rate of 28.26%, down from the previous year’s 33.68%,

Banking

Albaraka Türk Katılım Bankası A.Ş. 9

and outstripped the sector average as in the previous year. The graph below presents the growth of the Bank’s asset base in comparison to the sector.

The Bank’s growth performance in cumulative terms within the period between FY2011 and FY2015 was 251.13% and almost doubled the Turkish Banking Sector’s aggregated growth.

The Bank’s asset size market shares amongst participation banks and the entire Turkish Banking Sector depicted constant increase in last three-year period. New entries into the interest free banking sector from the publicly owned banks Ziraat and Vakıf have the potential to weaken the increasing market share of Albaraka for the upcoming periods.

ii. Indices Relating to Profitability Regarding the unconsolidated financial statements prepared in line with BRSA standards, Albarka Türk achieved a net profit of TRY 302.9mn in FY2015, an increase of 19.88% on a year on year basis compared to the previous year’s figure of TRY 252.6mn. In the same term, while the Turkish Banking Sector’s net profit figure increased by 5.66%, the Participation Banking Sector’ net profit figures exhibited an exceptional increase with a rate of 355.32% due to the base effect of Bank Asya’s loses in the previous year. In FY2015 Albaraka Türk continued its outperformance of both the Participation Banking and the Turkish Banking Sectors as a whole in terms of return on equity. However, the Bank’s ROAA related performance slightly underperformed the Turkish Banking Sector, while it outperformed the Participation Banking Sector. The indicators of both ROAA and ROAE have continued to follow a downward path in line with the Turkish Banking Sector in FY2015 and did not move in line with its assets growth of 28.56%.

The share of Net Profit Share Income within the total income structure of the Bank improved for the three consecutive years to 74.69% from 71.83% FY2014. Although the net fee and commission income presented an increase by 5.97% in absolute term, its share in total

18.21 15.11 26.38

12.57

20.86

15.36

8.49

36.6925.1929.5628.26

33.68

39.65

17.85 24.44

0

5

10

15

20

25

30

35

40

45

20152014201320122011

Annual Asset Growth Rates %

Turkish Banking Sector

Turkish Participation Banking Sector

Albaraka Türk Katılım Bankası A.Ş.

133.98

97.93

71.94 36.05 20.86

177.47

140.53

121.71

62.2029.56

251.13

173.78

104.80

46.65 24.44

0

50

100

150

200

250

300

20152014201320122011

Cumulative Asset Growth Rates %

Turkish Banking Sector

Turkish Participation Banking Sector

Albaraka Türk Katılım Bankası A.Ş.

1.251.150.990.900.86

24.5522.08

17.9217.5418.63

0

5

10

15

20

25

30

20152014201320122011

Market Share in Turksh Banking Sector (%)

Market Share in Investment Banking Sector (%)

19.2819.56

22.0321.7121.77

6.84

3.82

16.2517.3117.35 13.39

14.8116.6218.4917.90

0

5

10

15

20

25

20152014201320122011

ROAE Comparison

ROAE Albaraka Türk Katılım Bankası A.Ş.ROAE Turkish Participation Banking SectorROAE Turkish Banking Sector

1.421.60

2.02

2.122.14

0.62

0.35

1.59

1.862.03

1.521.69

2.01

2.332.27

0.0

0.5

1.0

1.5

2.0

2.5

20152014201320122011

ROAA Comparison

ROAA Albaraka Türk Katılım Bankası A.Ş.ROAA Turkish Participation Banking SectorROAA Turkish Banking Sector

Banking

Albaraka Türk Katılım Bankası A.Ş. 10

income decreased to 11.46% from 13.19% FY2014. Together, net profit share income with net fee & commission income accounted for 86.15% (FY2014: 84.63%) of total income derived from sustainable streams and was engendered mostly through core banking activities. Total operating income was TRY 164.3mn and contributed 13.85% of total income as of FYE2015, mainly stemming from a reversal in the previous year’s allocated provision (TRY 89.2mn) and gains from derivatives (TRY 68.1mn).

For the fourth consecutive years, the Bank’s gross profit margin tended to decrease due to the relatively higher increase in OPEX coupled with higher increase in profit share expenses than the profit share income.

The Bank’s net profit share income margin (NIM) ratio was 3.54% at the end of FY2015 and presented a slight decrease compared to the previous year’s figure of 3.61%. In contrast, both the Turkish and Participation Banking Sectors’ NIM ratio experienced a turnaround in the same period.

b. Asset Quality

The Bank’s assets dispersal is presented in the graph below. As in the previous year, largest portion of the assets were extended as loans, exhibiting a decline compared to the FYE2014 figure. The Bank’s loans to assets ratio was 66.08% at the end of FY2015 and was almost in line with the Turkish and Participation Banking Sectors’ ratios of 66.08% and 64.57%, respectively.

The Bank’s gross non-performing loans portfolio hiked to TRY 468.4mn from TRY 327mn FY2014 and the NPLs ratio deteriorated to 2.37% from 1.99%, following a similar trend as the Turkish Banking and Participations Banking Sectors. Nonetheless, the NPL ratios of the Bank continued to remain below the sector averages throughout the reviewed period. Additionally, although the Bank’s non-performing loans book increased by 43.26% Year on Year basis, the NPLs ratio exhibited a limited increase due to denominator effects of the growing loans portfolio by 20.52%. In FY2015 the Bank wrote off TRY 94.6mn (FY2014: 19.3mn, FY2013: 13.9mn, FY2012: TRY 20.4mn) in non-performing loans which were thought to be un-collectible. When aggregating the loans written-off in FY2015, the NPL ratio level would have been 2.85%, still lower than the sector averages. Selling/writing-off of non-performing loans in the Sector is a common practice.

13.85%14.98%17.48%15.07%13.88%15.50%

11.46%13.19%12.65%16.07%16.34%

17.56%

74.69%71.83%69.87%68.87%69.78%66.95%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

201520142013201220112010

Net Profit Share Income / Total Income

Net Fee and Commision Income / Total Income

Total Operating Income / Total Income

31.0932.9933.3234.1936.58

179.01193.67

220.44206.35

226.35

0

50

100

150

200

250

20152014201320122011

Gross Profit Margin (%)

Total Income / Total Expense (%)

3.54

3.61

4.414.48

4.29

3.843.804.02

4.42

3.86 3.68

3.49

3.85

4.41

4.12

2.5

3.0

3.5

4.0

4.5

5.0

20152014201320122011

NIM

Albaraka Türk Katılım Bankası A.Ş.

Turkish Banking Sector

Turkish Participation Banking Sector

66.08%70.32%70.05%73.82%69.66%

22.20%19.91%20.49%17.55%20.28%

6.12%6.18%5.73%4.21%4.94%5.56%3.55%3.65%4.34%5.05%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20152014201320122011

Asset Distribution %

Other Assets Associates and Equity Share

Securities Banks and Other Earnings Assets

Loans and Receivables

Banking

Albaraka Türk Katılım Bankası A.Ş. 11

Considering that the selling/writing off of non-performing loans amounted to nearly 19bn between the 2008 and 2014, the Sector’s NPLs ratio would be higher than 4.00%.

At the end of FY2015, the non-performing loans portfolio of Albaraka as a proportion of its equity enlarged to 22.35% from FYE2014 at 18.31% and stayed higher than that of the Turkish Banking Sector throughout the reviewed period, while remaining below the Participation Banking Sector. The current levels of non-performing loans are quite far from an upsetting level and specifies a higher assets quality and the strength of the equity level of the Turkish Banking Sector in general.

In FY2015, the Bank’s loan loss reserves coverage exhibited a significant decline to 59.96 from 87.85% FYE2014. The figure fell below the Turkish Banking Sector average for the first time in the reviewed period but aligned with the participation Banking Sector.

Consequently, the Bank’s low NPLs figures designate the management’s selective lending policy, healthy loan book and continuity of its high assets quality, despite the slight deterioration. In FY2016, we, as JCR Eurasia Rating, estimate a steady upward trend in NPLs in the banking sector, due to upside risks via weakened TRY and downside risks to growth exerting pressure on profit margins and impacts on debt-servicing capabilities of the real sector further aggravated by the recent upward trend in bankruptcy postponements.

c. Funding & Adequacy of Capital As in the previous year, despite exhibiting a decrease compared to the previous year, deposits accounted for the largest share of Albaraka Türk’s funding mix with a rate of 68.91% in FY2015. In its efforts to develop alternative funding channels, Albaraka Türk issued Sukuk amounting to USD 350mn with a five-year maturity and 6.25% yearly profit rate in June 2014. In addition to the provided subordinated debt amounting to USD 200mn in FY2013 and USD 250mn in FY2015 with ten years maturity, the Bank provided funds in the form of Murabaha Syndication and Wakala borrowing from overseas market for the equivalent TRY of 2.95bn as of FYE2015. Those dealings state the Bank’s competence to access international fund resources as well as diversifying fund resources.

At the end of FY2015, the Bank’s total deposits (funds collected) reached TRY 20,341mn with an increase of 22.22% year on year basis, while the Turkish Banking and Participation Banking Sectors’ total deposits were TRY 1,268,771mn and 74,176mn and demonstrated smaller increases of 18.36% and 13.72%, respectively.

2.3

7

1.9

9

2.2

7

2.3

9

2.3

1

5.4

0

4.5

2

3.3

7

3.0

1

3.0

9

3.0

9

2.8

4

2.7

4

2.8

6

2.7

0

0

1

2

3

4

5

6

20152014201320122011

NPL %

Albaraka Türk Katılım Bankası A.Ş.

Turkish Participation Banking Sector

Turkish Banking Sector

22.3

5

18.3

1

18.6

8

18.2

7

17.1

2

40.7

4

32.8

9

25.2

3

20.4

8

20.0

7

18.1

3

15.6

9

15.2

7

12.8

7

13.1

2

0

5

10

15

20

25

30

35

40

45

20152014201320122011

Impaired Loans / Equity %

Albaraka Türk Katılım Bankası A.Ş.Turkish Participation Banking SectorTurkish Banking Sector

59.9

6

87.8

5

90.6

2

88.8

2

92.4

1

59.0

6

61.7

8

64.2

2

75.1

2

65.4

1

74.5

9

73.8

4

76.3

9

75.1

8

79.3

8

0

20

40

60

80

100

20152014201320122011

Loans Loss Reserves / Impaired Loans %

Albaraka Türk Katılım Bankası A.Ş.Turkish Participation Banking SectorTurkish Banking Sector

68.9172.3272.7774.8376.9081.86

20.6116.4215.1811.3110.074.463.383.513.353.983.433.547.107.768.699.889.6010.14

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

201520142013201220112010

Resource Distribution %

Equity Non-Costly Liabilities

Other Borrowing Collected Fund

Banking

Albaraka Türk Katılım Bankası A.Ş. 12

The Bank’s deposit market share in the Turkish Banking and Participation Banking Sectors were 1.60% and 27.42%, respectively, at the end of FY2015 and displayed a growth compared to the previous year’s figures of 1.55% and 25.51%. The Bank’s collected funds were disseminated as 20.95% demand deposits, 77.61% profit sharing (time deposit) and 1.44% precious metal deposit accounts (gold deposits) as of FYE2015. 63.33% of total deposits belonged to individuals. Current account and participation accounts denominated in TRY or foreign currency up to a limit of maximum TRY 100k for each real person are under the guarantee of the Savings Deposit Insurance Fund. 43.38% of the individuals’ deposits are covered by the SDIF. Notwithstanding the formation of various tax incentives to increase the maturity of the funding structure, the average maturity of banking deposits was nearly 85 days in 2015 whilst the bank average maturity of collected funds was 75 days in the same term. The short maturity based deposits structure was a sector wide issue and exerted pressure on liquidity management. Albaraka Türk’s non-consolidated Capital Adequacy Ratio (CAR) increased to 15.27% from the FYE2014 figure of 14.15% and remained above the minimum CAR requirements set by the Basel Accord (8%) and the BRSA’s recommended level (12%). Nonetheless, throughout the reviewed, the Bank’s CAR ratios stayed below the averages of the Turkish Banking Sector and outpaced the Participation Banking Sector in FYE2015. Thanks to the notable increase in CAR of 112 pbs, the ratio converged to the Turkish Banking Sector average. The Bank has also remained compliant with the minimum requirements of Common Equity Tier 1 Capital Ratio (4.5%) and Total Tier 1 Capital Ratio (6%) set by the BRSA effective from January 1, 2014 with figures of 9.92% and 9.80%, respectively. The Common Equity Tier

1 Ratio of the Turkish Banking and the Participation Banking Sectors were 13.26% and 11.62%, respectively, and were well above Bank’s ratio.

Core capital, principally consisting of paid-up capital and retained earnings, comprised 64.07% of the Bank’s total own fund structure in 2015, demonstrating a remarkable decrease compared to the previous year’s ratio of 76.31%.

In May 07, 2013 and November 30, 2015, Albaraka Türk was provided ten-year maturity subordinated debts in the amount of USD 200mn and USD 250mn from the overseas Sukuk financial market. The subordinated debt of TRY 1,062.5mn equivalent and general provision in the amount of TRY 74.8mn, classified as second-tier capital under the regulatory capital, donated approximately 551bps to the Bank’s CAR ratio as of FY2015. The supplementary capital accounted for approximately 36% (FYE2014:24%) of the Bank’s own fund structure and presented a significant growth compared to the previous year. The second tier capital to own fund structure of the Turkish and Participation Banking Sectors were 15.93% and 24.60%, respectively. Those ratios indicate the Bank’s higher reliance on Tier second capital, which is not considered to be loss absorb.

18.36 13.35 21.44

11.15 13.40

19.88

13.726.39

27.95

21.3219.3723.88

22.22

32.84 35.82

14.67 16.90

25.93

0

5

10

15

20

25

30

35

40

201520142013201220112010

Deposit Growth Rates %

Turkish Banking Sector

Turkish Participation Banking Sector

Albaraka Türk Katılım Bankası A.Ş.

15.27

14.15

14.82

13.03 12.53 14.09

14.91

14.49

14.00

13.9114.0515.06

15.56 16.28

15.30

17.90 16.46

18.94

0

2

4

6

8

10

12

14

16

18

20

201520142013201220112010

CAR (%) Albaraka Türk Katılım Bankası A.Ş.CAR (%) Turkish Participation Banking SectorCAR (%) Turkish Banking Sector

0.6

4

0.7

6

0.7

30.9

4

0.9

5

0.9

6

0.3

6

0.2

4

0.2

8

0.0

6

0.0

5

0.0

4

0

0

0

0

1

1

1

1

201520142013201220112010

Own Fund Structure

Core CapitalSupplementary CapitalAssets Deducted From Capital

Banking

Albaraka Türk Katılım Bankası A.Ş. 13

The equity to assets ratio maintained its declining pattern, with the exception of FY2012, and stayed below the average ratios of the sectors. The ratio was 8.85% for the Participation Banking and 11.12% for the Turkish Banking Sectors in FYE2015 and exhibited a decline.

According to the BRSA regulations, leverage (core capital to total risk) is calculated through the arithmetic average of each three months and should be maintained at a minimum of 3%. This ratio, as FY2015, was 5.01% and above the required level.

7. Risk Profile & Management

a. Risk Management Organization & its

Function – General Information Albaraka Türk is essentially exposed to Credit, Liquidity Market and Operational risks stemming from the nature of its operations and utilization of financial instruments. Risks are executed under the risk management frame and implementation communiques. The Bank’s risk management policies and strategies are reviewed according to arising needs. The Board has the overall responsibility of establishing and supervising the Bank’s risk policies and strategies. In this scope, the Board is assisted by the Audit Committee, which is comprised of three non-executive Board Members. The Audit Committee is also responsible for monitoring the operations of the Bank’s internal systems, accounting and reporting systems. In line with BRSA regulations, the Bank has established “Internal Systems” to identify, measure, monitor and control risks which arise as a result of the Bank’s strategies and activities. The ‘Internal Systems’ operates under the Audit Committee and is comprised of the Internal Control, Inspection, Risk Management and Compliance Units. The Bank has set up the following committees organized under its Board: Credit Committee, Audit Committee, Corporate Governance Committee, Remuneration Committee and Social Responsibility Committee. The

Bank has also formed several committees with the participation of senior executives to establish a thorough and comprehensive risk management system under its risk management framework. The General Manager is responsible for ensuring that all departments operate in accordance with the identified risk management policies and strategies determined by the Board.

b. Credit Risk The Bank manages its credit risk through the allocation of loan limits for customers and customer groups as well as the definition of limits for sectors and geographical regions. Customer credit limits are assigned by the Board of Directors, the Credit Committee, General Manager Headquarter Units and branches under rules set by the Board. In accordance with the Bank’s prudent lending policies, satisfactory collaterals such as cash collateral, bank guarantees, mortgages, pledges, bills and personal or corporate guarantees are required in line with the financial position of the debtor and its creditworthiness. Moreover, the creditworthiness of debtors is reviewed periodically in compliance with the legislation and the Bank’s risk management framework. The Bank utilizes an in-house developed internal risk rating model for its loans portfolio and has a loan approval stage. The internal risk rating model calculates the default probability for each customer classified from “A” to “D”. At the end of FY2015, 13.56% of the graded loans (FY2014: 16.01%) denoted a ‘Good Risk’, while 77.62% (FY2014: 75.26%) were ‘Moderate Risk’ and 8.82% (FY20143: 8.73%) fell in the ‘Below Average’ range. The Bank’s (i) largest 100 cash loan customers composed 38.00% of the total cash loan portfolio as of FYE2015 and remained almost flat compared to the previous year’s figure (FYE2014: 38.00%), (ii) largest 100 non-cash loan customers composed 45% of the total non-cash loan portfolio as of FYE2015, down from 47.00% FYE2014 and (iii) largest 100 cash and non-cash loan customers represented 33.00% of the total “on and off balance sheet” assets as of FYE2015 (FYE2014: 35%). Despite slight improvement in FY2015, those rates indicate concentrations risk. Additionally, the remarkable decrease in the loan portfolio, which is rated by its internal grading system in the ‘Good Risk’ category, specify somewhat the deterioration in the loan book, while the Bank’s NPL ratio lower than the sector averages. The Bank disseminated 66.08% of assets as customer loans in FY2015, down from the previous year’s allocation of 70.32%. The loans are distributed as SMEs,

7.10 7.76

8.69

9.88 9.60 10.14

0.00

2.00

4.00

6.00

8.00

10.00

12.00

201520142013201220112010

Equity / Total Assets %

Banking

Albaraka Türk Katılım Bankası A.Ş. 14

Corporates and retail lending with rates of 46.7%, 38.9% and 14.3%, respectively. Approximately 57% of loans are extended in TRY and the remainder in foreign currencies, with an almost balanced funding FC profile. Over the reviewed period, both the sector’s and Bank’s loan growths performance demonstrated a fluctuating pattern. However, the Bank’s growth performance outperformed the sector’s growths in last four years.

c. Market Risk Market risk, which arise from volatility in the markets due to the Bank’s positions of its on and off balance sheet items, are executed and monitored in accordance with the Communiqué on Measurement and Evaluation of Capital Adequacy of Banks’. The Bank calculates and reports general market risk using the ‘Standard Method’, in line with the methodology outlined in the regulation. In addition to the ‘Standard Method’, the Bank measures and monitors its market risk daily using the value at risk (VaR) methods in the context of the ‘Internal Model’ with testing purposes. The Bank does not have any interest sensitive assets or liabilities and consequently does not face any interest based risk owing to interest free banking operations. Therefore, the Bank is basically exposed to foreign currency fluctuations risk. As of FYE2015, the Bank’s total foreign currency position to assets and equity ratios were 0.26% and 3.66%, respectively, and were compatible with the regulations.

d. Liquidity Risk Short-term liquidity needs are provided through either internal sources or foreign/domestic banks, while long term liquidity needs are provided generally by collected funds and borrowing from overseas financial markets in particular. The Bank’s liquidity risk is managed by ALCO in line with risk management policies and risk appetite approved by

the BoD in order to take appropriate and timely measures against possible liquidity shortages that may outcome from market conditions and balance sheet profile of the Bank. Within the framework of its “Contingency Funding Plan" the Bank employs mechanisms to avoid increases in liquidity risk during normal and liquidity crisis scenarios for different conditions and risk levels. Within the framework of the Basel III harmonization process, the BRSA published an initial Communiqué (the Regulation on Liquidity Coverage Ratios) dated March 21, 2014 and published in the Official Gazette no. 28948 and an amendment Communiqué dated August 20, 2015 no. 29451 stipulating therein that the Banks must maintain an adequate level of high quality liquid assets (HQLA) on consolidated and unconsolidated bases to meet the net cash outflows. The ratios of the HQLA stock to net cash outflows have been kept to a minimum of 100% in respect of total consolidated and unconsolidated liquidity and 80% in respect of total consolidated and unconsolidated foreign currency liquidity. The average Liquidity Coverage Ratios of Albaraka Türk on a consolidated basis for FY2015 are presented below:

Average LCRs FY2015 of

Albaraka Türk

Turkish Lira +

Foreign

Currency

Foreign

Currency

Consolidated LCR* 284.12% 559.54%

*Liquidity coverage ratios have been calculated for the average of the last three months. Consequently, the Bank’s liquidity ratios were above the requirement levels and remained compliant with BRSA parameters in 2015.

e. Operational, Legal Regulatory & Other Risks

Albaraka Türk calculates its operational risk by utilizing the basic indicator approach according to the ‘Communiqué on Measurement and Evaluation of Capital Adequacy of Banks’. The Bank categorizes operational risks under five groups according to occurring sources; employee, technologic, organization, legal & compliance and external risks. The Bank is also exposed to strategic risk, reputational risk, counterparty credit risk, compliance risk, residual risk, country risk and concentration risk. In order to minimize operational and other risks, the Bank implements human resources, network security and back-up recovery policies. The risk management, internal audit,

19.75

18.65

31.81

16.60

29.85 33.44

13.705.51

31.70

24.5025.7728.94

20.52

34.19 32.53

24.88

15.72

34.38

0

5

10

15

20

25

30

35

40

201520142013201220112010

Loan & Leasing Growth Rates %

Turkish Banking SectorTurkish Participation Banking SectorAlbaraka Türk Katılım Bankası A.Ş.

Banking

Albaraka Türk Katılım Bankası A.Ş. 15

internal control and compliance departments measure, monitor and take timely precautions in line with its risk management applications frame. The Bank also insures its premises and equipment, as well liability insurance. In the scope of operational risk, the Bank reported no losses due to personnel dishonesty and faults or system errors as well as no penalties from regulatory and supervisory authorities in 2015.

8. Budget & Realization

The Bank management projected growths of 21.45%, 21.26%, 20.78% and 13.62% in asset size, loans, deposits and net profit, respectively, within the framework of projections and budgeting activities in FY2016 compared to the results of FY2015. The Bank surpassed all targets in FY2015. It is believed that the Bank’s 2016 projections are consistent with its past performance and are achievable.

Projected-Balance Sheet TRY FYE 2015-Actual FYE 2016P Growth

Total Assets (mn) 29,562 35,906 21.45%

Total loans (mn) 19,505 23,653 21.26%

Total Funds (mn) 20,346 24,574 20.78%

Total Equity (mn) 2,104 2,360 12.18%

Net Profit (mn) 302.9 344.1 13.62%

Banking

Albaraka Türk Katılım Bankası A.Ş. 16

FYE FYE FYE FYE FYE FYE FYE FYE As % of As % of As % of FYE FYE FYE

Albaraka Türk Katılım Bankası A.Ş. 2015 2015 2015 2014 2014 2013 2013 2012 2015 2014 2013 2015 2014 2013

BALANCE SHEET - ASSET USD TRY TRY TRY TRY TRY TRY TRY Assets Assets Assets Growth Growth Growth

(000) (Converted) (Original) (Average) (Original) (Average) (Original) (Average) (Original) (Original) (Original) (Original) Rate % Rate % Rate %

A- TOTAL EARNING ASSETS ( I+II+III ) 9,583,067 27,863,727 25,025,626 22,187,525 19,380,464 16,573,403 14,177,663 11,781,922 94.40 96.41 96.27 25.58 33.87 40.67

I- LOANS AND LEASING RECEIVABLES (net) 6,708,417 19,505,392 17,844,542 16,183,692 14,121,797 12,059,901 10,579,982 9,100,063 66.08 70.32 70.05 20.52 34.19 32.53

a) Short Term Loans 6,318,063 18,370,399 16,902,366 15,434,332 13,697,836 11,961,340 10,497,432 9,033,524 62.24 67.06 69.48 19.02 29.04 32.41

b) Lease Assets 325,845 947,427 828,537 709,646 390,984 72,321 56,990 41,659 3.21 3.08 0.42 33.51 881.24 73.60

c) Medium & Long Term Loans 0 0 0 0 0 0 0 0 n.a n.a n.a n.a n.a n.a

d) Over Due Loans 161,100 468,413 397,694 326,975 303,322 279,668 251,109 222,549 1.59 1.42 1.62 43.26 16.92 25.67

e) Others 0 0 0 0 0 0 0 0 n.a n.a n.a n.a n.a n.a

f) Receivable from Customer due to Brokerage Activities 0 0 0 0 0 0 0 0 n.a n.a n.a n.a n.a n.a

g) Allowance for Loan and Receivables Losses (-) -96,591 -280,847 -284,054 -287,261 -270,345 -253,428 -225,549 -197,669 -0.95 -1.25 -1.47 -2.23 13.35 28.21

II- OTHER EARNING ASSETS 2,253,589 6,552,535 5,567,248 4,581,961 4,054,592 3,527,222 2,845,349 2,163,475 22.20 19.91 20.49 43.01 29.90 63.04

a) Balance With Banks -Time Deposits 853,836 2,482,614 2,065,425 1,648,235 1,513,472 1,378,708 1,207,910 1,037,112 8.41 7.16 8.01 50.62 19.55 32.94

b) Money Market Placements 0 0 0 0 0 0 0 0 n.a n.a n.a n.a n.a n.a

c) Reserve Deposits at CB (*) 1,030,873 2,997,366 2,694,502 2,391,637 2,082,608 1,773,579 1,342,017 910,454 10.15 10.39 10.30 25.33 34.85 94.80

d) Balance With CB- Demand Deposits 368,880 1,072,555 807,322 542,089 458,512 374,935 295,422 215,909 3.63 2.36 2.18 97.86 44.58 73.65

III- SECURITIES AT FAIR VALUE THROUGH P/L 621,062 1,805,800 1,613,836 1,421,872 1,204,076 986,280 752,332 518,384 6.12 6.18 5.73 27.00 44.17 90.26

a) Treasury Bills and Government Bonds 262,378 762,890 773,100 783,309 764,350 745,390 555,603 365,815 2.58 3.40 4.33 -2.61 5.09 103.76

b) Other Investment 358,684 1,042,910 840,737 638,563 439,727 240,890 196,730 152,569 3.53 2.77 1.40 63.32 165.08 57.89

c) Repurchase Agreement 0 0 0 0 0 0 0 0 n.a n.a n.a n.a n.a n.a

B- INVESTMENTS IN ASSOCIATES (NET) + EQUITY SHARE 4,086 11,880 10,851 9,821 12,069 14,316 12,385 10,453 0.04 0.04 0.08 20.97 -31.40 36.96

a) Investments in Associates (Net) 1,623 4,719 4,465 4,211 4,336 4,461 4,361 4,261 0.02 0.02 0.03 12.06 -5.60 4.69

b) Equity Share 2,463 7,161 6,386 5,610 7,733 9,855 8,024 6,192 0.02 0.02 0.06 27.65 -43.07 59.16

C- NON-EARNING ASSETS 564,672 1,641,840 1,229,490 817,139 722,769 628,398 581,839 535,279 5.56 3.55 3.65 100.93 30.04 17.40

a) Cash and Cash Equivalents 287,136 834,877 515,169 195,460 164,814 134,167 154,224 174,280 2.83 0.85 0.78 327.13 45.68 -23.02

b) Balance With Banks - Current Accounts 0 0 0 0 0 0 0 0 n.a n.a n.a n.a n.a n.a

c) Financial Assets at Fair Value through P/L 0 0 0 0 0 0 0 0 n.a n.a n.a n.a n.a n.a

d) Accrued Interest from Loans and Lease 0 0 0 0 0 0 0 0 n.a n.a n.a n.a n.a n.a

e) Other 277,536 806,963 714,321 621,679 557,955 494,231 427,615 360,999 2.73 2.70 2.87 29.80 25.79 36.91

- Intangible Assets 15,230 44,283 35,589 26,895 21,412 15,929 11,491 7,052 0.15 0.12 0.09 64.65 68.84 125.88

- Property and Equipment 172,355 501,139 494,139 487,139 433,877 380,614 337,476 294,337 1.70 2.12 2.21 2.87 27.99 29.31

- Deferred Tax 7,024 20,424 11,990 3,556 7,235 10,914 10,657 10,400 0.07 0.02 0.06 474.35 -67.42 4.94

- Other 82,926 241,117 172,603 104,089 95,432 86,774 67,992 49,210 0.82 0.45 0.50 131.65 19.95 76.33

TOTAL ASSETS 10,151,825 29,517,447 26,265,966 23,014,485 20,115,301 17,216,117 14,771,886 12,327,654 100.00 100.00 100.00 28.26 33.68 39.65

Banking

Albaraka Türk Katılım Bankası A.Ş. 17

FYE FYE FYE FYE FYE FYE FYE FYE As % of As % of As % of FYE FYE FYE

Albaraka Türk Katılım Bankası A.Ş. 2015 2015 2015 2014 2014 2013 2013 2012 2015 2014 2013 2015 2014 2013

BALANCE SHEET LIABILITIES & SHAREHOLDERS' EQUITY USD TRY TRY TRY TRY TRY TRY TRY Assets Assets Assets Growth Growth Growth

(000) (Converted) (Original) (Average) (Original) (Average) (Original) (Average) (Original) (Original) (Original) (Original) Rate % Rate % Rate %

A- COST BEARING RESOURCES ( I+II ) 9,088,305 26,425,155 23,423,255 20,421,354 17,781,967 15,142,580 12,880,714 10,618,848 89.52 88.73 87.96 29.40 34.86 42.60

I- DEPOSIT 6,995,906 20,341,295 18,492,175 16,643,054 14,586,035 12,529,016 10,877,017 9,225,018 68.91 72.32 72.77 22.22 32.84 35.82

a) TRY Deposit 3,897,129 11,331,293 10,556,646 9,781,999 8,650,425 7,518,851 6,527,212 5,535,572 38.39 42.50 43.67 15.84 30.10 35.83

b) FC Deposit 3,098,776 9,010,002 7,935,529 6,861,055 5,934,208 5,007,361 4,348,404 3,689,446 30.52 29.81 29.09 31.32 37.02 35.72

c) FC & LC Banks Deposits 0 0 0 0 1,402 2,804 1,402 0 n.a n.a 0.02 n.a -

100.00 n.a

II- BORROWING FUNDING LOANS & OTHER 2,092,399 6,083,860 4,931,080 3,778,300 3,195,932 2,613,564 2,003,697 1,393,830 20.61 16.42 15.18 61.02 44.57 87.51

a) Borrowing From Domestic Market 51,556 149,903 108,534 67,165 33,583 0 0 0 0.51 0.29 n.a 123.19 n.a n.a

b) Borrowing From Overseas Markets 1,349,374 3,923,441 3,522,705 3,121,969 2,578,893 2,035,816 1,714,823 1,393,830 13.29 13.57 11.83 25.67 53.35 46.06

c) Borrowing from Interbank 265,153 770,959 443,850 116,740 130,758 144,775 72,388 0 2.61 0.51 0.84 560.41 -19.36 n.a

d) Securities Sold Under Repurchase Agreements 0 0 0 0 0 0 0 0 n.a n.a n.a n.a n.a n.a

e) Subordinated Loans & Others 426,316 1,239,557 855,992 472,426 452,700 432,973 216,487 0 4.20 2.05 2.51 162.38 9.11 n.a

B- NON-COST BEARING RESOURCES 342,641 996,264 901,695 807,126 691,916 576,705 533,589 490,473 3.38 3.51 3.35 23.43 39.95 17.58

a) Provisions 86,623 251,865 242,345 232,824 217,144 201,463 168,641 135,818 0.85 1.01 1.17 8.18 15.57 48.33

b) Current & Deferred Tax Liabilities 19,951 58,010 61,070 64,130 55,099 46,068 42,163 38,257 0.20 0.28 0.27 -9.54 39.21 20.42

c) Trading Liabilities (Derivatives) 0 0 0 0 0 0 0 0 n.a n.a n.a n.a n.a n.a

d) Other Liabilities 236,067 686,389 598,281 510,172 419,673 329,174 322,786 316,398 2.33 2.22 1.91 34.54 54.99 4.04

C- TOTAL LIABILITIES 9,430,946 27,421,419 24,324,950 21,228,480 18,473,883 15,719,285 13,414,303 11,109,321 92.90 92.24 91.31 29.17 35.05 41.50

E- EQUITY 720,879 2,096,028 1,941,017 1,786,005 1,641,419 1,496,832 1,357,583 1,218,333 7.10 7.76 8.69 17.36 19.32 22.86

a) Prior Year's Equity 614,254 1,786,005 1,641,419 1,496,832 1,357,583 1,218,333 1,111,292 1,004,251 6.05 6.50 7.08 19.32 22.86 21.32

b) Equity (Added From Internall & External Resourses At This Year) 3,157 9,180 25,103 41,026 39,276 37,526 29,887 22,247 0.03 0.18 0.22 -77.62 9.33 68.68

c) Profit & Loss 103,468 300,843 274,495 248,147 244,560 240,973 216,404 191,835 1.02 1.08 1.40 21.24 2.98 25.61

d) Minority Interest 0 0 0 0 0 0 0 0 n.a n.a n.a n.a n.a n.a

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 10,151,825 29,517,447 26,265,966 23,014,485 20,115,301 17,216,117 14,771,886 12,327,654 100.00 100.00 100.00 28.26 33.68 39.65

USD Rates 1=TRY 2.9076 2.3189 2.1304 1.7776

Banking

Albaraka Türk Katılım Bankası A.Ş.

18

Albaraka Türk Katılım Bankası A.Ş. FY FY FY

INCOME STATEMENT 2015 2014 2013

(000) TRY

Net Interest Income 885,936.00 698,974.00 625,176.00

a) Profit Share Income 1,932,833.00 1,501,386.00 1,153,336.00

b) Profit Share Expense 1,046,897.00 802,412.00 528,160.00

Net Fee and Commission Income 135,997.00 128,336.00 113,197.00

a) Fee and Commission Income 187,627.00 161,173.00 141,295.00

b) Fee and Commission Expense 51,630.00 32,837.00 28,098.00

Total Operating Income 164,270.00 145,802.00 156,454.00

Net trading income (+/-) 68,093.00 21,141.00 -2,804.00

Foreign Exchange Gain or Loss (net) (+/-) -17,746.00 30,642.00 39,967.00

Gross Profit from Retail Business 0.00 0.00 0.00

Premium income from insurance business 0.00 0.00 0.00

Income on Sale of Equity Participations and Consolidated Affiliates 2,223.00 1,474.00 18.00

Gains from Investment Securities (Net) 0.00 0.00 0.00

Other Operating Income 111,181.00 92,365.00 118,814.00

Taxes other than Income 0.00 0.00 0.00

Dividend 519.00 180.00 459.00

Provisions 157,143.00 149,576.00 191,319.00

Provision for Impairment of Loan and Trade Receivables 157,143.00 149,576.00 190,883.00

Other Provision 0.00 0.00 436.00

Total Operating Expense 654,807.00 502,468.00 404,401.00

Salaries and Employee Benefits 354,537.00 281,884.00 227,302.00

Depreciation and Amortization 57,849.00 41,445.00 28,190.00

Other Expenses 242,421.00 179,139.00 148,909.00

Profit from Operating Activities before Income Tax 374,253.00 321,068.00 299,107.00

Income Tax – Current 77,661.00 73,282.00 67,827.00

Income Tax – Deferred -4,251.00 -361.00 -9,693.00

Net Profit for the Period 300,843.00 248,147.00 240,973.00

Total Income 1,203,949.00 973,112.00 897,631.00

Total Expense 672,553.00 502,468.00 407,205.00

Provision 157,143.00 149,576.00 191,319.00

Pre-tax Profit 374,253.00 321,068.00 299,107.00

Banking

Albaraka Türk Katılım Bankası A.Ş.

19

Albaraka Türk Katılım Bankası A.Ş. FY FY FY

FINANCIAL RATIOS % 2015 2014 2013

I. PROFITABILITY & PERFORMANCE

1. ROAA - Pretax Profit / Total Assets (avg.) 1.42 1.60 2.02

2. ROAE - Pretax Profit / Equity (avg.) 19.28 19.56 22.03

3. Total Income / Equity (avg.) 62.03 59.28 66.12

4. Total income / Total Assets (avg.) 4.58 4.84 6.08

5. Provisions / Total Income 13.05 15.37 21.31

6. Total Expense / Total Liabilities (avg.) 2.76 2.72 3.04

7. Net Profit for the Period / Total Assets (avg.) 1.15 1.23 1.63

8. Total Income / Total Expenses 179.01 193.67 220.44

9. Non Cost Bearing Liabilities + Equity- Non Earning Assets / Total Assets 4.91 7.72 8.39

10. Non Cost Bearing Liabilities - Non Earning Assets / Total Assets -2.19 -0.04 -0.30

11. Total Operating Expenses / Total Income 54.39 51.64 45.05

12. Net Interest Margin 3.54 3.61 4.41

13. Operating ROAA (avg.) 5.41 5.59 5.60

14. Operating ROAE (avg.) 73.22 68.45 60.94

15. Interest Coverage – EBIT / Interest Expenses 135.75 140.01 156.63

16. Net Profit Margin 24.99 25.50 26.85

17. Gross Profit Margin 31.09 32.99 33.32

18. Market Share in Turkish Participation Banking Sector 24.55 22.08 17.92

19. Market Share in Entire Banking System 1.25 1.15 0.99

20. Growth Rate 28.26 33.68 39.65

II. CAPITAL ADEQUACY (year end)

1. Equity Generation / Prior Year’s Equity 0.51 2.74 3.08

2. Internal Equity Generation / Previous Year’s Equity 16.84 16.58 19.78

3. Equity / Total Assets 7.10 7.76 8.69

4. Core Capital / Total Assets 6.84 7.46 7.84

5. Supplementary Capital / Total Assets 3.85 2.34 2.96

6. Tier 1 Capital Ratio 9.71 10.59 10.80

7. Capital / Total Assets 10.69 9.80 10.81

8. Own Fund / Total Assets 10.67 9.78 10.76

9. Standard Capital Adequacy Ratio (consolidated) 15.16 13.89 14.82

10. Surplus Own Fund 47.22 42.41 46.03

11. Free Equity / Total Assets 5.21 5.48 6.31

12. Equity / Total Guarantees and Commitments + Equity 16.76 16.55 16.40

III. LIQUIDITY (year end)

1. Liquidity Management Success (On Demand) 99.28 96.92 96.95

2. Liquidity Management Success (Up to 1 Month) 87.42 85.84 84.24

3. Liquidity Management Success (1 to 3 Months) 97.89 99.49 98.41

4. Liquidity Management Success (3 to 6 Months ) 95.85 96.85 95.04

5. Liquidity Management Success (6 to 12 Months) 95.85 96.85 95.04 6. Liquidity Management Success (Over 1 Year & Unallocated) 92.88 89.57 92.70

IV. ASSET QUALITY

1. Loan and Receivable’s Loss Provisions / Total Loans and Receivables 1.42 1.74 2.06

2. Total Provisions / Profit Before Provision and Tax 29.57 31.78 39.01

3. Impaired Loans / Gross Loans 2.37 1.99 2.27

4. Impaired Loans / Equity 22.35 18.31 18.68

5. Loss Reserves for Loans / Impaired Loans 59.96 87.85 90.62

6. Total FX Position / Total Assets 0.26 0.45 0.47

7. Total FX Position / Equity 3.66 5.83 5.39

8. Assets / Total Guarantees and Commitments + Assets 73.93 71.87 69.29

Banking

Albaraka Türk Katılım Bankası A.Ş. 20

Previous Rating Results Issued by JCR Eurasia Rating

April 17, 2012 April 15, 2013 May 29, 2013 March 20, 2014 June 30, 2015

Long Term

Short Term

Long Term

Short Term

Long Term

Short Term

Long Term

Short Term

Long Term

Short Term

Inte

rna

tion

al Foreign currency BB B BB+ B BBB- A-3 BBB- A-3 BBB- A-3

Local currency BB B BB+ B BBB- A-3 BBB- A-3 BBB- A-3

Outlook FC Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable

LC Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable

Na

tion

al

Local Rating AA (Trk) A–1+(Trk) AA (Trk) A–1+(Trk) AA (Trk) A–1+(Trk) AA(Trk) A–1+ (Trk) AA (Trk) A-1+(Trk)

Outlook Stable Stable Stable Stable Stable Stable Stable Stable

Sponsor Support 2 - 2 - 2 - 3 - 3 -

Stand Alone B - AB - AB - AB - AB -

So

vere

ign

*

Foreign currency BB B BB B BBB- - BBB- - BBB- -

Local currency BB B BB B BBB- - BBB- - BBB- -

Outlook FC Stable Stable Stable Stable Stable - Stable - Stable -

LC Stable Stable Positive Stable Stable - Stable - Stable -