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Burhan Karacam - CEO

KOC FINANCIAL SERVICES. Burhan Karacam - CEO. 2 nd UCI INVESTOR DAY. Focus on New Europe. London, December 5 th , 2002. Agenda. Country overview KFS Key Highlights Key projects and strategies.

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Burhan Karacam - CEO

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  1. KOC FINANCIAL SERVICES Burhan Karacam - CEO 2nd UCI INVESTOR DAY Focus on New Europe London, December 5th, 2002

  2. Agenda Country overview KFS Key Highlights Key projects and strategies

  3. TURKEY IS A BIG AND ATTRACTIVE COUNTRY, RAPIDLY AND STRUCTURALLY RECOVERING FROM RECENT FINANCIAL TURMOILS • Turkey is one of the biggest markets in the European and Mediterranean area Turkey Year 2001 • The share of urban population increased considerably in the last two decades, rising to 64% (36% in 1980). KFS is strategicly positioned at large cities where there is a great potential for growth in CDs due to increase in urban population 69.0 Population, mln 2.414 Per Capita GDP, Euro • Per capita GDP is on an increasing trend in the last two decades. Three financial crises in ‘94, ‘00, and ‘01 indicate the fragility of growth dynamics observed in this period 68.5 Inflation rate(1), % 61.0 Ref. Int. Rate (1), % • Inflation in Turkey is extremely inertial; it is very much divorced from the monetary process, and its roots are totally fiscal. Inflation is today still high but rapidly declining. B- S&P country rating Source: NE Research Network • The average growth rate is expected to be around 5.0% in the forthcoming years 2002E 2003E 2004E • The economic program successfully completed some structural reforms, which will help remove the inertial component of inflation 5.0 6.0 5.0 Real GDP growth, % 32.7 25.5 17.2 Inflation rate(1), % • High real interest rates were already foreseen by the economic program and debt dynamics will improve through tight fiscal balance in the very early stage 42.7 32.7 23.6 Ref. Int. Rate (1), % Source: NE Research Network (2) End-of-period data; CPI for inflation; nominal interest rates on local currency

  4. The new government consists of 24 ministers beside the PM Abdullah Gul.The number of ministers was reduced significantly from the former 38, in line with a broader saving attempt within the public sector • AKP officials define their party as an economy-focused political entity aiming at a conservative-liberal synthesis • New State Minister responsible for EconomicAffairs, Ali Babacan, who is the youngest member of the new cabinet (35),was welcomed by the markets due to his experience in the financial markets and his strong educational background • AKP officials declared that the new government intends to meet all criteria set in the previous Letter of Intent signed with the IMF LAST NOVEMBER ELECTION RESULTS, DESPITE THE INITIAL CONCERNS,MIGHT REDUCE POLITICAL UNCERTAINTIES AND ACCELERATE REFORMS • Turkish markets welcomed the single party government that came after a period of 11 years with coalitions. AKP captured 363 of the total 550 seats in the parliament • Interest rates on the most traded T-bill declined to 49% in the secondary market and the stock market index increased by 30% during the three weeks after the elections • Prime Minister Abdullah Gul, with a background in economics and substantial foreign affairs experience, is known for his moderate views

  5. THE TURKISH BANKING SECTOR IS AMONG THE MOST ATTRACTIVE IN NE IN TERMS OF SIZE, DEVELOPMENT POTENTIAL AND GROWTH PROSPECTS Branches per mln inhabitants (2002E) (Loans+Deposits)/GDP (2002E) • Today financial intermediation role of Turkish banking sector is significantly low 580 • Banks are rapidly recovering from the recent financial crisesthat led to significant losses 203% 56% • The crises served as filter: total number of banks in the sector declined to 55 from 81 at the end of 1999, while that of privately owned commercial banks declined to 20 from 35 85 EU EU Turkey Turkey Source: NE research network 2001 2002E 2003E 2004E • Strong performing loan growth expectedwith the restructuring of the loan portfolio starting from 2003 Loans growth(1), % 20.1 -2.6 83.7 47.5 Deposits growth(1),% 87.2 31.9 34.9 23.0 • Deposit growth to be parallel to GDP growth Rate on Loans(2), % 71.3 52.7 41.7 31.6 Rate on Dep.(2), % 59.8 41.7 31.7 22.6 • Local currency spread to stay around 9% in the next 2 years. Spread (1), % 11.5 11.0 10.0 9.0 Source: NE research network (1) Nominal Growth (2) End-of-period Banking System data; rates calculated on local currency denominated Loans and Deposits

  6. Agenda Country overview KFS Key Highlights Key projects and strategies

  7. KFS Istanbul KFS: A LEADING PROVIDER OF FINANCIAL SERVICES IN TURKEY KOC Financial Services EUR mln, consolidated figures as at Oct 02* • KFS: one of the leading and financially strongest (Capital Adequacy Ratio of approx. 12% as of Dec. 2001) groups in Turkey Total Assets 5,062 Deposits 3,406 Loans 2,068 Loans/Deposits, % 61 Mutual Funds 729 Total Revenues 301 • Strong shareholders’ base: 50% UCI, 50% the KOC family, the most well trusted and widely known name in Turkey • Excellent distribution capabilities: multi-channel strategy (traditional, mini and in-store branches, Phone Banking, ATM, POS, Internet Kiosk – branches) and a large network (124 branches, 14 Invest centres and trading rooms, 11,000 KOC Group dealers to leverage on) Branches 124 Employees 3,480 Customers (‘000)1,390 o/w retail 1,315 o/w corporate 75 Cost/income, % 54 Deposits Mkt Share, % 3.8 Loans Mkt Share, % 4.4 • New strategy: increased service quality, focus on real banking activities and sales, decreased risk on security portfolio * Preliminary results, un-audited; IAS inflation adjusted and Euro converted at Oct 2002 fixed exchange rate TL/EUR 1.600.800

  8. THE KOÇ GROUP’S VISION: “TO BE AMONG THE 200 LARGEST COMPANIES IN THE WORLD” • Largest Private Sector entity in Turkey: • Companies 100 • Employees 45,000 • Large Cust. Portfolio 15,000,000 • Leading player in a number of industrial sectors: • Household Appliances • Energy • IT& Telecommunications • Automotive • Consumer Goods & Retailing • Financial Services • Best distribution network in Turkey, largest International network by a Turkish Group • Outstanding track record of establishing and managing successful joint ventures with leading international groups: • Ford Motor • Fiat Auto S.p.A • Iveco Fiat • Allianz • Yamaha • Michelin Kronprinz • LG Electronics • New Holland • Magneti Marelli • TNT • Balfour Beatty • Mannesmann

  9. Net Commission & Fee Income +27% 46 36 Oct011 Oct02 KFS FINANCIAL HIGHLIGHTS (PRELIMINARY AND UN-AUDITED) Total Revenues (EUR mln)* Net Interest Income 1% • Net Operating Income boosted by high revenues growth and cost containment +172% 301 291 287 • Total Revenues tripled yoythanks to absence of extraordinary effect of 2001 financial crisis… 111 Oct011 Oct02 Operating Income Other Revenues (FX, Trading, Other) 139 Oct011 Oct02 -212 -36 n.s. • … and improvement of core results:change in composition of balance sheet, normalisation of spreads and increase in Net commissions & fees (+27%) Operating Costs -66 Oct011 Oct02 Oct02 177 162 -8% Oct011 • Cost reduction (-8%) thanks to strict cost control Oct011 Oct02 * IAS inflation adjusted and Euro converted at Oct 2002 fixed exchange rate TL/EUR 1.600.800 (1) Proportional estimate based on Dec 2001 results

  10. IN 9M 2002 KOCBANK OUTPERFORMED THE MARKET FOCUSING ON INCREASING DEMAND DEPOSITS, FEE AND COMMISSION INCOME AND COST CONTROL (As at September 2002) Deposits, y/y % ch. Loans, y/y % ch. Net Fee Income, y/y % ch. 55 40 22 35 14 -2 Banking System* Banking System* KOCBANK KOCBANK KOCBANK Banking System* Net Operating Income, y/y % ch. Operating costs, y/y % ch. Cost/Income, % 88 88 16 64 53 6 Banking System* Banking System* Banking System* KOCBANK KOCBANK KOCBANK * Privately-owned commercial banks only - Local accountsnon inflation adjustedin Euro terms TL/EUR1.571.600

  11. KOCBANK’S ASSET QUALITY ALMOST STABLE AT THE LOWEST MARKET LEVELS Net NPLs as % of Total Net Loans NPL Coverage ratio(1) Gross NPLs as % of Total Gross Loans 88% 14.9% 79% 11.7% 2.8% 2.1% 2001 2001 2001 10M02 10M02 10M02 % ch. on Dec.’01 Dec. 2001 Oct. 2002 • Despite a significant growth in the loan portfolio (+19% yoy)… (Euro mln)* Total Gross Loans 1,417 1,680 19% • …the asset quality remains good with Net NPL ratio at 2.8% thanks to the selective lending approach Gross NPLs 211 196 -7% Total Provisions 186 154 -17% • Coverage ratio close to 80%;residual 20% fully collateralized Net NPLs 25 42 +68% * IAS inflation adjusted and Euro converted at Oct 2002 fixed exchange rate TL/EUR 1.600.800 (1) Specific and general provisions / Gross NPL

  12. SOPHISTICATED LOAN PORTFOLIO RISK MANAGEMENT LEVERAGING ON OLIVER WYMAN& COMPANY (OWC) RATING MODEL • Koçbank loan portfolio • 75% with low & average risk • 90% with short-term maturity • Oliver Wyman & Company Rating Model • isan integral part of risk management process at Koçbank • provides a systematic methodology for uniformly analysing risk across the Bank • is based on qualitative and quantitive information about the customer • has a good discriminatory power between defaults and non-defaults around 60% Sector Concentration (Mln Euro) and Expected Default Rating* (%) Mln Euro 2000 2.0% 500 1.5% October 2002 400 1.5% 300 0.5% 2.0% 1.5% 2.0% 1.2% 200 0.7% 100 0 Tex. Trd. Cons. Def. Food Metal Mac. Trans. Chem. * Industry weighted average - OWC Model

  13. Agenda Country overview KOC Key Highlights Key projects and strategies

  14. KFS WILL SOON LEVERAGE ON UCI’S PARTNERSHIP PROGRAMME IN ORDER TO IMPROVE PROFITABILITY, EFFICIENCY AND RISK MANAGEMENT KEY NEW PROJECTS IN THE PIPELINE: • Retail Banking • CRM development and multi-channel distribution strategy • Product diagnostics development • Centralisation of card processing and operations REVENUES • Corporate Banking • Trade-finance growth (creation of an Italian Desk) • Improvement of sale capabilities (i.e. Top Talent recruitment project) • Focus on leasing: partnership with Locat • Asset Management & Private Banking • Launch of a partnership with Pioneer • Development of Private Banking • Human Resources • Management assessment and organisational review • Top-talent recruitment project COSTS • Technology • Technology audit, new strategy, maximum use of technology • Credit Risk Management • Diagnostic tools; alignment of credit assessment procedures to UCI’s • Electronic credit approval process RISK • Market/Treasury risks • Treasury reorganisation: definition of new Treasury mission and functioning

  15. Annexes

  16. KOC FINANCIAL SERVICES 10M02 CONSOLIDATED INCOME STATEMENT (PRELIMINARY RESULTS, UN-AUDITED) Ch. % Oct.. 02/ Oct. 01 (EUR mln, IAS*) Ch. % 2001/2000 Dec. 00(1) Dec. 01(1) Oct. 01(2) Oct. 02(3) Interest margin (incl. div.) 301 344 +14 287 291 +1 Net non interest income 6 -211 n.s. -176 10 n.s. 307 133 -57 111 301 +172 Total revenues -215 -213 -1 -177 -162 -8 Operating costs (incl. dep.) -87 -70 -19 -59 -53 -9 - of which: Staff costs 92 -80 n.s. -66 139 n.s. Net operating income -8 -232 n.s. -194 Net loan loss provisions 4 150(4) n.s. 125(4) Extraordinary income/loss 88 -162 n.s. -135 Pre-tax profit/loss -27 -25 -7 -21 Taxes(5) 61 -187 n.s. -156 Net income -73 -81 +11 -67 Monetary gain / loss -12 -268 n.s. -223 Net attributable income * IAS inflation adjusted and Euro converted at Oct 2002 fixed exchange rate TL/EUR 1.600.800 (1) Aggregate (2) Proportional estimate based on Dec 2001 results (3) Preliminary result, un-audited (4) Deferred taxes (5) Statutory Tax rate for legal entities: 33%

  17. KOC FINANCIAL SERVICES 10M02 CONSOLIDATED BALANCE SHEET (PRELIMINARY RESULTS, UN-AUDITED) Ch. % 2001/ 2000 Ch. % Oct. 02/ Dec. 01 (EUR mln, IAS*) Dec. 00(1) Dec. 01(1) Oct. 02(2) 333 582 176 +75 -70 Cash and deposits with Central Banks Loans due from: 2,142 1,905 2,068 -11 +8 - Customers 608 1,024 1,432 +68 +40 - Banks ASSETS Securities 1,395 863 1,158 -38 +34 92 82 85 -11 +4 Fixed assets 213 376 143 +77 -62 Other assets 4,783 4,832 5,062 +1 +5 TOTAL ASSETS AND LIABILITIES Deposits: 2,102 3,308 3,333 +57 +1 - Due to Customers 792 160 67 -80 -58 LIABILITIES - Due to Customers (Repo) 26 17 6 -33 -67 - Securities in issue 1,264 816 878 -36 +8 - Due to Banks * IAS inflation adjusted and Euro converted at Oct 2002 fixed exchange rate TL/EUR 1.600.800 (1) Aggregate (2) Preliminary results, un-audited

  18. KOCBANK CORPORATE LOANS PORTFOLIO Koçbank Net Corporate Loan Portfolio - Structure by Industry (1) 31/12/2001: EUR1,469 mln 30/09/2002: EUR1,985 mln Loan portfolio is evenly distributed among various sectors in order to reduce risk through diversification (1) IAS inflation adjusted and Euro converted at Sept 2002 fixed exchange rate TL/EUR 1.571.600

  19. KOCBANK RANKING BY TOTAL ASSETS * Assets Market Share in total assets (%) Bank Strategic owner (Euro, bln) 09/2002 09/2002 2001 2000 Akbank Sabancı 13.8 22.1 21.5 19.5 İşbank Pension Fund İş Bankası 13.0 20.9 21.6 21.2 Garanti Doğuş 11.5 18.4 15.4 17.5 YKB Çukurova 10.9 17.6 20.9 20.5 UCI & Koç Group Koçbank 4.1 6.6 5.7 5.2 Finansbank FİBA 2.9 4.7 5.4 6.0 Dışbank Doğan 2.3 3.7 2.7 3.5 TEB Çolakoğlu 2.2 2.4 3.3 1.3 Denizbank Zorlu 1.1 1.8 2.2 1.7 Şekerbank 1.8 2.2 1.6 1.1 Şekerbank Pension Fund Total 66.1 100% 100% 100% * September 2002 - Local accounts non inflation adjusted – TL/EUR: 1.571.600

  20. KFS STRUCTURE HAS BEEN DEVELOPED ACCORDING TO KOC GROUP’S DECISION TO GROW AND BE A LEADING PLAYER IN THE FINANCIAL SECTOR • STRUCTURE designed to bring all financial companies of Koç under one umbrella to form a full-scale financial services platform with different organisations focusing on designated markets/segments KFS RETAIL MARKETS CORPORATE MARKETS CAPITAL MARKETS WEALTH MANAGEMENT -Brokerage /Investment Banking - Venture Capital -Private Equity - Corporate Bank - Leasing - Factoring - Asset Management - Private Pension Funds - Private Banking • - Retail Bank • - Consumer Finance • - Credit Cards • - Internet • Alternative Dist. C. • EXCELLENT DISTRIBUTION CAPABILITIES: Multi-channel strategy and a large network are fundamental to reach our targets • 124 Branches, of which 104 traditional(11 Corporate, 57 Commercial, 34 Retail and 2 Private) and 16 Mini and in-store, 3 mobile and 1 off-shore • Alternative delivery channels: Phone Banking (105 operators), ATMs (4,000), POS (18,000), Internet Kiosks – Branches (110) • 14 KOC Invest centres and dealing rooms • 11,000 KOC Group dealers

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