T. Is Bankasi A.S. Loan

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26094
Company name	Turkiye Is Bankasi A.S.
Country	Turkey
Sector	Finance & Insurance
Environmental category	C
Department	Global Financial Markets Group
Status	Pending Signing

Date SPI disclosed	April 17, 2008
Projected board date	June 19, 2008
Previous Events	Approved: July 24, 2008

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed project presents IFC with an opportunity to help develop Turkey’s nascent mortgage market and it needs a large bank like Türkiye İş Bankasi A.Ş. (Isbank) to achieve reach and scale especially to less developed regions of Turkey and to middle and low income households. With the proposed transaction, IFC would provide the Bank a long-term funding and encourage it to expand in economic groups and geographical areas that are relatively underserved. Due to its wide geographical branch coverage in rural, low income and frontiers regions of Turkey, and its experience in mortgage lending, Isbank is the best placed private sector bank for IFC to partner with to further support the primary mortgage market in Turkey and particularly increase the availability of mortgage funding to underserved segments.

Project sponsor and major shareholders of project company

Isbank was established as Turkey’s first private bank in 1924 at the initiative of Mustafa Kemal Atatürk, the founder of modern Turkey, to support the economic development of the country. Isbank began operating with just two branches and 37 staff. Isbank has been a publicly traded firm since its establishment. Unlike many of its competitors, Isbank is neither a family-run enterprise nor a state. The majority of Isbank’s shares have been publicly owned since its establishment, resulting in a distinctive shareholder structure. As of December 31, 2007, 41,5% of Isbank shares were held by Isbank’s own private pension fund, 28.1% were originally Atatürk’s shares that are now represented by the Republican People’s Party (or CHP) and 30,4% were on free float.

CHP has no beneficial financial interest in these shares because dividends are assigned to be distributed to two non-profit organizations, namely Turkish Language Association and Turkish History Association. And as of December 31, 2007, 65.7% of the free floated shares are held by foreign investors.

Isbank’s shares are listed on the Istanbul Stock Exchange (ISE) and the London Stock Exchange in the form of GDRs. As of December 31, 2007, Isbank had a market capitalization of $17,439 million, which was 7.04% of the total market capitalization of the ISE.

Isbank is the largest private commercial bank in Turkey with the largest branch network with 928 domestic branches across the country as of December 31, 2007. It has a sizeable mortgage portfolio of over $3 billion as of December 31, 2007 equivalent of which 41% has been lent to low and middle income segments, approximately 10% is in energy efficient housing loans and about 40% is in areas outside the top four largest populations centers (according to Isbank, Istanbul, Izmir, Ankara and Mersin namely) which attract the highest mortgage demand.

Total project cost and amount and nature of IFC's investment

IFC’s proposed funding is a senior unsecured A loan in the amount of $100 million equivalent (also available in local currency) for a tenor of up to 15 years. IFC’s investment is intended to provide long term funding especially to underserved segments of the society to improve their living conditions through affordable housing.

Location of project and description of site

Isbank is headquartered in Istanbul. It has 928 domestic branches throughout Turkey (as of December 31, 2007) with the widest geographical presence in the frontier regions of Turkey outside of major urban centers among private commercial banks. IFC’s investment is intended to support the Bank’s mortgage lending activities in these underserved regions of Turkey.

Anticipated development impact of the project

This project is expected to have a high development impact in the following areas:

- Increased availability and affordability of mortgage products:

By providing long term funding, the proposed transaction will enable the Bank to grow its origination volume and to penetrate into markets outside the major cities. This in turn is expected to increase market competition and potentially lower the cost of mortgage loans, making the purchase of homes more affordable to a larger number of consumers. Moreover, the project will enable Isbank to continue to extend mortgage financing to a large section of previously underserved groups and to provide support for increasing energy efficiency in houses to free up family income tied in high utility bills. By increasing sources of financing to the low segments of the domestic population, the Project will help to address the country’s housing deficit. The project’s development impact is noteworthy as housing finance contributes to social stability by enabling households in these income segments to purchase an asset that will represent their largest single investment.

Development of the Housing Finance Sector:

Consistent with the IFC’s strategy, this project presents an excellent opportunity to promote the development of mortgage sector in Turkey not only through the provision of long term funding but also by creating mortgage eligibility criteria for the underlying mortgage loans financed by the credit line, consistent with the standards for MBS, to create a pool of assets suitable for potential future securitization.

Overall Economic Development:

The successful implementation of this project will:

- develop financial intermediation by increasing the availability of financial products and services; and
- underpin the overall growth in the economy, as higher loan volumes will benefit customers, suppliers and new entrants.

IFC's expected development contribution

- Help reduce asset/liability maturity mismatch:

Turkish banks are usually tapping the international markets for raising funds through syndicated loan facilities. Turkish syndicated facilities bear longest tenors of two to three years, any further maturity is usually attained via future flow securitization transactions. The longest maturity obtained through future flow securitizations in Turkey was 10 years. In local currency, long term funding is mostly available through derivative transactions up to 10 years. Therefore long term aspect of this funding (15 year maturity) is a breakthrough in the local market.

- Help develop EE housing finance products:

Through IFC’s investment, Isbank expects to leverage on IFC’s global experience and expand new products including the EE housing finance for improving housing standards.

Environmental and social issues - Category C

IFC's early review of this investment has determined that it is anticipated that this project will have minimal or no adverse social or environmental impacts. Therefore, this project has been classified as a Category C project according to IFC’s Environmental and Social Review Procedure.

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