Turkey - Eleventh Industrial Development Bank (TSKB) Project

Document of The World Bank FOR OFmFCIAL USE ONLY Reprt No. 4988 PROJECT COMPLETION REPORT TURKEY -TURKIYE SINAI KALKIaMA BANKASI A. S. (TSRB) (LouNS 1078 AND 1430-TU) March 14, 1984 IDF Division Europe, Middle East and North Africa Regional Office [ This documnt has a resticted dlstibuto. nd _oy be usd by recipiets only in the perfomnruncef their official dutes Is contents my not othrwise be dislosed without Wodd BDak athorinio.  LIST OF ABBREVIATIONS DYB Devlet Yatirim Bankasi EIB European Investment Bank IDB Islamic Development Bank IFC International Finance Corporation KfW Kreditanstalt fur Wiederaufbau LDR Less Developed Regions SNILI Small- and Medium-Scale Labor Intensive Industries SPO State Planning Organization SYKB Sinai Yatirim ve Kredi Bankasi TSKB Turkiye Sinai Kalkinma Bankasi Currency Unit: Turkish Lira (TL) Exchange Rate between the Turkish Lira (TL) and US$ (Weighted Average to 1976) December 31, 1974 TL 13.90 December 31, 1975 TL 14.45 December 31, 1976 TL 16.05 September 1977 - March 1978 TL 19.45 December 1979 TL 47.10 December 1980 TL 91.75 December 31, 1981 TL 133.63 December 31, 1982 TL 184.90  FO0 OMCIAL USE ONLY .PROJECT COMPLETION REPORT TURKEY - TURKRIYE SINAI KALKINKA BANKASI A.S. (TSKB) (LOANS 1078 AND 1430-TU) TABLE OF CONTENTS Page No. Preface . ......................................................... Basic Data Sheets ................................................. ii Righlights ............ ........................................... iv-v I. INTRODUCTION ................................... 1 The Economy ................................... 1 Private Sector Industry ............... . .................. 2 Financial Setting ................................... 3 II. THE OBJECTIVES OF THE LQANS ................................. 4 Evaluation of Performance ........... ........ ......... .. .. 6 Mobilization of Foreign Exchange .......................... 7 Mobilizatien of Domestic Resources .................... ..... 7 Project Promotion .. .... .......... .. ................ 9 Investment in LDRs ....................................... 9 Iuvestment in SINLI ........................................... 9 III. SUB-PROJECTS FINANCED . ....................................... 10 IV. OPERATIONS .................................................. 12 Management and Organization ..................... .. ....... 12 operations .............................................. 13 V. FINANCIAL PERFORMINCE ........E.. 14 Portfolio Arrears ........................................ 14 VI. CONCLUSIONS. ................... ............................ 15 ANNEXES 1. Research Activities undertaken by TSKB 1975-78 2. Projects Promotion by TSKB 1975-78 3. Geographical Distribution of TSKB's Loans and Equity Approvals 1975-78 4. Small and Medium Scale Labor Intensive Projects (SMLI) Financed by TSKB 1977-78 5. Sub-Projects Financed under Loans 1078-TU and 1430-TU 6. Analysis of Investment under Loan 1078-TU and Loan 1430-TU 7. TSKB's Summry of Operations 1974-78. Projected and Actual - 1975-80 8. TSKB's Income Statements - Projects - 1975-81 9. TSKB's Balance Sheets - Projected - 1975-81 10. TSKB's Income Statements and Balance Sheets - 1975-81 11. Comments Received from the Borrower 12. Comnents Received from the Borrower Thn docum ha a recaod diuttin and may be wed by recpets ol in the pefone of Itben officil d*. Its coBS may mt olhfrw be duudosd Withon Word Dak autozto.  PROJECT COMPLETION REPORT TURKEY - TURKIYE SINAI KALINMA BANKASI A.S. (TSKB) (LOANS 1078 AND 1430-TU) PREFACE This report reviews the performance under the Eleventh and Twelfth industrial credit loans extended by the Bank to Turkiye Sinai Kalkinma Bankasi A.S. (TSKB). Loan 1078-TU for $65.0 million was signed on January 22, 1975 and was fully disbursed by June 30, 1980 after an eighteen months' extension of the original closing date. Loan 1430-TU for $74.0 million was signed on June 6, 1977 and was fully disbursed by December 31, 1981 after a six months' extension of the original closing date. The attached Project Completion Report was prepared by Bank staff with the full cooperation of TSKB which provided most of the data and other factual inputs during a supervision mission to Istanbul in May 1982. Comments received from the Borrower are reproduced as Annexes 11 and 12. The project has not been audited by the Operations Evaluation Department.  - ii - PROJECT COMPLETION REPORT TURKEY - TURKIYE SINAI KAlKINMA BANKASI A.S. (TSKB) (LOANS 1078 AND 1430-TU) BASIC DATA SHEET (Amounts in US$m) LOAN POSITION As of 12/31/y3 Original Disbursed Cancelled Repaid Outstanding Loan No. 1078-TU 65.0 65.0 - 36.7 28.3 CUMULATIVE LOAN/CREDIT DISBURSEMENT FY75 FY76 FY77 FY78 FY79 FY80 (i) Planned 12.1 40.9 61.2 65.0 65.0 65.0 (ii) Actual 9.5 23.8 47.7 62.0 64.1 65.0 (iii) (ii) as 2 of (i) 79Z 58% 78X 95% 99X 100X OTHER PROJECT DATA Original Loan/ Actual or Credit Date Re-estimated Board Approval 1/7/75 Loan/Credit Agreement - 1/22/75 Effectiveness 4/24/75 4/22/75 Loan/Credit Closing 12/31/78 6/30/80 Borrower TSKB Executing Agency TSKB Fiscal Year of Borrower Jan. I-Dec. 31 MISSION DATA No. of No. of Date of Month/Year Weeks Persons Man/Weeks Report Identification - Preparation Preappraisal - Appraisal 05/74 3 3 9 06/12/74 Post-appraisal - Supervision I 10/75 2 2 4 11/07/75 Supervision II 09/76 3.5 2 7 09/30/76 Supervision III 11/76 4 2 8 04/25/77 1/ Completion 5/82 4/19/83 1/ Appraisal of Loan 1430-TU  - iii - PROJECT COMPLETION REPORT TURKEY - TURKIYE SINAI KALKINMA BANKASI A.S. (TSKB) (LOANS 1078 AND 1430-TU) BASIC DATA SHEET (Amounts in US$m) LOAN POSITION As of 12/31/83 Original Disbursed Cancelled Repaid Outstanding Loan No. 1430-TU 74.0 74.0 - 11.9 62.1 CUMULATIVE LOAN/CREDIT DISBURSEMENT FY77 FY78 - FY79 FY80 FY81 FY82 (i) Planned 16.4 44.8 67.1 74.0 74.0 74.0 (ii) Actual .1 22.7 45.5 62.4 72.0 74.0 (iii) (ii) as X of (i) 1% 51Z 68X 84% 97% 100l OTHER PROJECT DATA Original Loan/ Actual or Credit Date Re-estimated Board Approval 5/24/77 Loan/Credit Agreement - 6/3/77 Effectiveness 8/31/77 8/29/77 Loan/Credit Closing 6/30/81 12/31/81 Borrower TSKB Executing Agency TSKB Fiscal Year of Borrower Jan. 1-Dec. 31 MISSION DATA No. of No. of Date of Month/Year Weeks Persons Man/Weeks Report Identification Preparation Preappraisal 08/76 4 2 8 09/27/76 Appraisal 11/76 3 2 6 04/25/77 Post-appraisal - Supervision 1 11/78 2 4 8 11/21/78 1/ Supervision II 05/80 1.5 1 1.5 05/03/80 Supervision III 06/80 1 2 2 08/05/80 Completion 5/82 04/19/83 1/ Issues Paper on Loan 1748-TU FOLLOW-ON PROJECT TSKB Export-Oriented Industries Project, Loan No. 2093-TU, approved on February 23, 1982, in the amount of 9100.0 maillion.  - iv - PROJECT COMPLETION REPORT TURKEY - TURKIYE SINAI KALKINMA BANKASI A.S. (TSKB) (LoANS 1078 AND 1430-TU) HIGHLIGHTS The major objectives of Loans 1078-TU (Eleventh) and 1430-TU (Twelfth) were to direct TSKB's investment towards the Less Developed Regions (LDRs) and Small and Medium Labor Intensive (SMLI) industries and to diversify TSKB's local and foreign resource mobilization. Specific requirements were incorporated in the Loan Agreement setting targets with a view to achieving these objectives (para 2.04). The objectives set for LDR and SMLI investment were achieved. Mainly through its promotional efforts, TSKB increased substantially its overall financing of projects in the LDRs during the five years 1975-78 and met or exceeded the targets set for this sector under the two loans (para 2.05 and 2.11). TSKB exceeded the targets set for S1MLI investment by 20% for foreign exchange investment but was about 20% short of the target set for local funds (para 2.05 and 2.12). Bank requirements for investment in LDR and SNLI projects brought about a major change in TSKB investment policy. In retrospect, however, the agreed targets provided for too high a proportion of TSKB's investment to be diverted in a short period of time into areas where, at the time, TSKB and the Bank had limited experience of the problems involved. This policy has exacerbated TSKB's arrears problems and weakened its financial structure (paras 5.03 and 5.04). TSKB implemented a series of actions to improve its mobilization of funds from the international capital markets. The results of these efforts fell short of the target set due to factors outside the control of TSKB (paras 2.05 and 2.06). Most major banks involved in Eurocurrency lending had either committed their quotas for Turkey or felt uneasy about Turkey's extensive short-term borrowing. The requirements in the Loan Agreements were appropriate and the exercise was well worth the effort in exposing TSKB to international capital markets; in addition to the funds secured during 1975-78, TSKB secured additional foreign exchange resources in later years from the contacts made during this period. Full realization of the benefits of TSKB's efforts to broaden its foreign exchange resources should be achieved when Turkey's credit rating has been re-established. The progress made in domestic resource mobilization was varied. About 75% of the targets for bonds issue and capital funds were achieved under loan 1078-TU and 80% of the bond issue and 345% of the targeted capital increase were achieved under Loan 1430-TU but with a delay of six months. The performance on co-financing with commercial banks was very satisfactory with TSKB achieving about 230% of target (paras 2.05 and 2.07).  v The lessons for future operations derived for the review of these projects are: (i) the Bank should intensify its efforts to develop with the Government a comprehensive strategy to integrate economic and project work (para 2.08); and (ii) major changes in DFCs' investment policies should be gradually introduced (para 5.04).  PROJECT COMIPLETION REPORT TURKEY - TURKIYE SINAI KALKINMA BANKASI A.S. (TSKB) (LOANS 1078 AND 1430-TU) I. INTRODUCTION 1.01 TSKB was established in 1950 as a development finance company by a group of Turkish commercial banks and insurance companies with the objective of providing long-term financing for private sector manufacturing projects. The Bank took a very active role in the formation of TSKB and has been closely associated with its development since then, except for a break from 1954 to 1961. The Bank Group has been a major source of funds for TSKB (15 credits and loans, totalling $532 million), the latest loan approved by the Bank to TSKB being in February 1982. IFC has also been associated with TSKB's development both as an investor and co-financier and at present holds 3Z of TSKB's equity. 1.02 In addition to financing Turkish industrial projects through TSKB, the Bank has made loans to Sinai Yatirim Kalkinma Bankasi (SYKE), another private sector investment bank, and Devlet Yatirim Bankasi (DYB), a public sector investment bank providing long-term finance for public sector companies. The Bank has also made direct loans for large, publicly-controlled manufacturing projects for steel, pulp and paper, fertilizer and textiles. 1.03 This project completion report (PCR) reviews the performance under two Bank loans, Loan 1078-TI] approved in January 1975 and Loan 1430-TU approved in May 1977, and is the third report covering the Bank's operations with TSKB 1/. The Bank's operations in the industrial sector, including loans to TSKB, have been reviewed by the Operations Evaluation Department in its report entitled "Sector Operations Review: Industries and DFC's Programs in Turkey" 2/. This PCR is based on detailed sub-project data provided by TSKB together with their written comments on the loans' objectives. The EconomY 1.04 During the period 1975 to 1981 when these two loans were being utilized for investment, there was a gradual deterioration in Turkey's economic conditions and in the investment climate. This was reflected in the overall rate of investment which declined from 25Z of GDP in the mid-1970s to 20Z in 1981. Private sector manufacturing investment by 1981 was estimated by the State Planning Organization (SPO) at 40Z of the levels reached several years earlier. Growth momentum, which had been maintained at more than 7Z for 1/ Project Performance Audit Report: Turkey - Eighth DFC Loan (589-TU) dated August 6, 1975. Project Performance Audit Report: Turkey - Turkiye Sinai Kalkinma Bankasi A.S. (TSKB) (Loans 713-TU and 873-TU) dated February 11, 1977. 2/ Report No. 3077 dated July 18, 1980.  -2- the first four years of the Third Plan (1973-1979) through rapid reserve decumulation and heavy short-term borrowing, came to a halt in mid-1977. This resulted in a sharp deterioration in creditworthiness, and the beginning of an economic crisis that included a severe foreign exchange shortage which was exacerbated by the rise in oil prices in 1979/80. Capacity utilization estimated by the Istanbul Chamber of Commerce at about 80% in 1976 had dropped to about 51X by 1980 because of shortages of imported raw materials and spares, growing social unrest and strikes which in 1980 forced factory shutdowns of 5-6 months in some industries. 1.05 The major policy reform package of January 1980 announced a shift to greater reliance on market forces, on enhanced role for the private sector and the need for export expansion. Together with subsequent implementing actions, it provided for stabilization measures needed to place Turkey on a sounder long-term growth path. These measures had severe consequences for investments under construction or recently completed, however. By the end of 1979, the Turkish Lira had depreciated more than 30Z vis-a-vis the US dollar and by more than 20% vis-a-vis Turkey's major trading partners since the last major devaluation in 1971. The January 1980 reform package corrected for this with a major devaluation together with a policy to maintain a realistic exchange rate. The exchange rate has been regularly adjusted since 1980 to take account of domestic inflation which reached 107% during 1980, 37% in 1981 and 25% in 1982 as measured by the Wholesale Price Index. Firms which had borrowed in foreign exchange faced substantial increase in debt service as a result. Stabilization measures also included IMF-agreed ceilings on domestic credit creation and the freeing of interest rates which by early 1981 had become substantially positive in real terms. These measures were beginning to succeed in curbing inflation by the end of 1980 but at the price of contraction of local demand. As a result, average capacity utilization in manufacturing remained low despite the ending of social unrest after September 1980, and the increasing availability of foreign exchange. Firms with investment projects under construction found it increasingly difficult to generate the necessary cash flow to service existing debt, provide working capital and meet cost overruns, and TL credit was not available to meet their requirements. Many projects were delayed as a result, further worsening the firms' financial difficulties. 1.06 In summary, the economic crisis together with the measures taken to correct that crisis and the concurrent social and labor unrest created serious problems for investors. Project completions were widely delayed as a result of strikes and lack of access to foreign exchange in the period 1977-80 with resulting cost overruns during this period of high inflation. The difficulties in securing local loan funds or equity exacerbated the problems. Once underway, projects found themselves burdened with excessive, long-term debt, high costs of short-term financing (except for preferential industries), and limited earning power due to the collapse of the domestic market. Private Sector Industry 1.07 In Turkey, the public sector predominates in large capital-intensive ventures such as steel, petrochemicals, fertilizers, pulp and paper and cement. The private sector, on the other hand, is dominant mostly in light  -3- and non-process industries, i.e. fabricated metals, electrical and mechanical machinery, glassware, rubber and plastic, wood products, food processing, textiles and clothing, and is for the most part represented by small and mediunrscale enterprises. The private sector accounts for about 40Z of total manufacturing investment, 68Z of value added, 64% of employment in the organized sector and 85X of manufactured exports. 1.08 Industrialization in Turkey traditionally has been viewed as an instrument for achieving high rates of economic growth and greater self-sufficiency. Until 1980, objectives such as export promotion and employment generation were given less weight as these were viewed as the natural outcome of a rapid industrialization effort. Private investment was encouraged with generous incentives combined with high levels of protection from imports. The protection system, composed of quotas (abolished in 1981) import licensing and tariffs and reinforced up to 1980 by persistently overvalued exchange rates, has led to inefficiencies in the private sector. It has also been heavily biased against exports by (a) making domestic markets more profitable than exports; (b) preventing the exploitation of economies of scale; and (c) raising import prices through the protection of inefficient supplying iudustries. This resulted in an extremely low growth of manufactured exports of about 3% per annum during 1970-77. Total exports constituted only 6% of GDP in 1978 compared to a 20% average for 55 middle income developing countries. The comprehensive program instituted in January 1980 placed greater emphasis on the private sector to stimulate growth and exports and stressed the role of market forces. The pattern of development in the past made it extremely difficult for the private manufacturing sector to adjust to the new policy initiatives. Financial Setting 1.09 Strict control over the entire structure of interest rates was an important facet of Turkey's monetary policy for many years. In general, ceilings on interest rates were set below market equilibrium rates. There was a significant fall in the demand for money in the second half of the 1970s associated with a decline in real terms of bank credits from 1977 to 1980. The decline was particularly noticeable in credit to the private sector which fell from 58X of total credits in 1975 to 50X in 1980. The public sector was financed mainly by the Central Bank, while the private sector was mainly dependent on private commerc ial and development banks. Commercial banks were required to allocate 20% of their credit in the form of term-credit but a substantial part of these funds was allocated to firms associated with the banks. Private development banks are not allowed to accept deposits from the public and so are dependent on equity contribution, commercial banks loans and bond sales for local resources. The transaction tax on inter-bank transactions and until 1980 the ceiling on interest rates made it unprofitable for development banks to utilize loans and bond sales during the latter half of the 1970s. This severely limited local funds available to development banks, made it difficult for them to provide a complete financial package for their clients and concentrated their lending on foreign exchange resources. The security market is extremely limited in size and most private firms' investments, therefore, are financed out of the entrepreneurs' own resources or by short-term borrowing from the commercial banks which is rolled over on maturity. TSKB's evolution in this environment is analysea in paragraph 2.07.  -4- II. THE OBJECTIVES OF THE LOANS 2.01 In the early 1970s, given the growing importance of private sector manufacturing in Turkey and the major issues that were to be addressed, an intensive review of TSKB's past performance and future role was underway between the Bank and TSKB which culminated in a special Bank Study in 1974. This Study found that TSKB had unquestionably met most of the objectives which were prominent in the minds of the those who established and supported the institution in the past. It had succeeded in establishing itself as a strong professional inscitution, consistently profitable and well regarded by the industrial and financial community. Its profitability, however, owed a good deal to its privileged position as a purveyor of foreign exchange provided by specialized agencies. TSKB's budiness was fairly representative of private investment as a whole, with relatively heavy concentration in textile and non-metallic minerals and roughly following the prevailing geographical distribution. TSKB had succeeded in establishing a reputation for financial soundness and technical compe:tence that met or exceeded the hoped for standards of its sponsors. It: had introduced the diacipline of project appraisal into the decision-making process for longer term investment and built up a strong staff of engineers, financial analysts and economists. 2.02 The Study further evaluated TSKB's performance against key criteria for development banks which placed emphasis on (i} acceptable economic standards; (ii) promotion of "difficult" projects; and (iii) resource mobilization through the development of domestic financial markets. Based on this criteria, the Study found that TSIB's performance was mixed. About 502 of TSKB's projects met reasonable economic standarda, 25Z were probably worthwhile uses of Turkey's economic resources and the balance appeared distinctly doubtful in retrospect. TSKB's performance in promoting "difficult" projects, such as projects in backward regions of Turkey, export-oriented projects and projects put forward by less well established firms was not easy to assess as the actual achievement was limited, but it was difficult to evaluate whether this was due to unfavorable conditions beyond TSKB's control or to a lack of full commitment on TSKB's part. In addition, despite repeated encouragement from the Government and the Bank Group, TSKB accomplished little in the way of geographical diversification until a system of incentives was established. TSKB's contribution to capital market development, while substantial, was nevertheless found to be short of what might have been hoped for in establishing the initial groundwork for an effective capital market. The fundamental changes required to develop a capital market, however, were outside TSKB's control as they required major changes in Government policy on interest rates and taxes (para. 1.09). 2.03 Resulting from discussion between the Bank and TSKB in the early 1970s and the recomnendation of the above Study, a new strategy for TSKB evolved which broadened TSKB's role as a development bank. This new role put emphasis on (i) the economic evaluation of projects; (ii) strengthening the promotioral role for "difficult" projects; (iii) decentralization of investments into the less developed regions (LDR); (iv) expanding investment in small-to-medium-sized labor-intensive industries (SHLI); and 'v) diversification of its mobilization of foreign exchange and domestic funds.  -5- 2.04 Implementation of the revised strategy was initiated under two previous Bank loans made in the early seventies with emphasis on economic evaluation of projects and strengthening of TSKB's promotional role. Loan 1078-TU (Eleventh) and 1430-TU (Twelfth) put emphasis on directing investment towards projects in the LDR and SMLI projects and the diversification of TSKB's resource mobilization. With this general objective in view, specific requirements were agreed with TSKB and incorporated in the Loan Agreements. These requirements limited TSKB's investments in the developed regions and set targets for investment in LDR and SMLI and for resource mobilization. The specific agreement reached with TSKB during negotiations of the loans were as follows: Loan 1078-TU (i) To limit the amount of the loan used to finance each sub-project and investment in areas other than underdeveloped areas to $1 million equivalent plus 30% of the estimated foreign currency cost of the Investment Project in excess of such amount (Loan Agreement, Section 3.02). Cii) To take steps to (a) raise foreign currency resources in the international capital markets; and (b) raise Lira resources in the domestic capital market (Loan Agreement, Section 4.08). This objective was further elaborated in a Supplemental Letter whereby TSKB agreed (a) to raise in the international capital markets foreign currency resources equivalent to $25 million already authorized by the Government and all such other foreign currency resoures as required to cover the foreign exchange costs of projects financed by TSKB and estimated at $100 million; (b) to mobilize at least TL 1,100 million in the domestic market through issuance of bonds and increasing TSKB's equity (60%), and commitments from commercial banks (40Z). (iii) To allocate about 50% of all of TSKB's resources to projects in the underdeveloped regions cf Turkey in 1975 and 1976 (change made in TSKB's Policy Statement). Loan 1430-TU (i) SMLI Investment sub-projects to be financed out of the proceeds of the Bank loan should exceed in total $15 million (Loan Agreement, Section 2.02 (c)). (ii) To allocate for lending to investment in SMLI projects in 1977 and 1978 not less than the following amounts: (a) $30 million equivalent in foreign exchange (including sub-loans totalling at least $15 million); and (b) TL 500 million in domestic currency (Side Letter). (iii) To allocate in 1977 and 1978; (a) at least 40% of its total resources to less developed regions (LMDR); and (b) not more than 25% of its total resources to the eight most developed provinces (the financing of SMLI sub-projects to be included in this ceiling) (Side Letter).  -6- Evaluation of Performance 2.05 TSKB's performance in meeting the specific targets set under the two loans can be sumuarized as follow3: Loan 1078-TU Ci) Mobilization of Foreign Exchange Target: Mobilize $125 million on the international capital markets. Actual: Raised $50 million with the assistance of IFC. (ii) Mobilization of Domestic Resources Target: Mobilize (a) TL 660 million by issuance of bonds and increase in TSKB's paid-in capital; and (b) TL 440 million from commercial banks. Actual: Raised (a) TL 483 million, comprising TL 290 million through bond issue and TL 193 million by way of increased capital; and (b) TL 1 billion in co-financing with commercial banks. (iii) Allocation of Investment Target; Allocate 50% of TSKB's investment resources to the less developed regions. Actual: Allocated about 52% of total investment funds and about 59% of the Bank loan to the less developed regions. Loan 1430-TU Ci) Mobilization of Foreign Exchange Resources Target: Mobilize $50 million on the international capital markets. Actual: Raised $63 million equivalent, consisting of FF 150 million ($34 million) from Paribas, Nkr 100 million ($19 million) from Eksportifinans and $10 million from Finland's Export Credit Ltd. (ii) Mobilization of Domestic Funds Target: Mobilize TL 32- million through issue of bonds and TL 310 million by way c. capital increase by June 30, 1979. Actual: Raised TL 260 million from bond issue and TL 93 million through a capital increase by December 31, 1977, and an additional capital increase of TL 1,075 million by December 31, 1979.  -7- (iii) Allocation of Investments to LDR Target: Allocate (a) 40Z of its total resources to LDR; and (b) not more than 25% to the eight most developed provinces. Actual: Allocated (a) 39% of its total resources to LDR; and (b) 22% to most developed provinces. (iv) Allocation of Investments to SMLI Target: Invest in SMLI sub-projects in 1977 and 1978 (a) $30 million equivalent in foreign exchange including $15 million of Bank loan; and (b) TL 500 million in domestic currency. Actual: Approvals for SMLI sub-projects were $36 million in foreign currency, including $12.8 million of Bank loan, and TL 404 million in domestic currency. 2.06 Mobilization of Foreign Exchange. In 1975-76, TSKB implemented a series of actions to improve its mobilization of funds from the international capital markets by approaching 22 commercial banks, 6 of which eventually participated in the IFC syndication for $50 million. The limited success of these efforts, $50 million compared to the $125 million target, underlines the difficulties encountered. The mobilization program was hampered by the overall shortage of long-term finauce during that period and the fact that most major banks involved in Eurocurrency lending had either committed their quotas for Turkey or felt uneasy about Turkey's extensive short-term borrowings. During the fol-lowing two years 1977-78, TSKB mobilized $63 million compared to the target of $50 million. The overall foreign exchange mobilization efforts, however, were disappointing as an IFC syndication and an expected European Investment Bank (EIB) loan did not materialize for reasons outside TSKB's control. Other resource mobilization efforts in the Middle East were also unsuccessful despite repeated visits to Kuwait and Saudi Arabia by TSKB's management. While the immediate results of these mobilization efforts were disappointing due to the continuing deterioration of the Turkish economy, the exercise did result in establishing contacts between TSKB's senior staff and the international capital market which have been maintained since. These contacts have resulted in TSKB's securing additional foreign exchange resources in later years in the form of export credit lines and the administration by TSKB of the Islamic Development Bank (IDB) line of equity for Turkey. Full realization of TSKB's efforts during this period to broaden its foreign exchange resources should be achieved when Turkey's credit rating has been reestablished. 2.07 Mobilization of Domestic Resources. The progress made on domestic resource mobilization was also varied. About 75% of the targets for bonds and capital funds were achieved in 1975-76. The performance on co-financing with commercial banks was very satisfactory with TSKB achieving about 230X of target. In the following two-year period, TSKB achieved 80% of the bond issue target and 345% of the targeted capital increase but with a delay of six months. The problems for TSKB in mobilization of domestic resources had been  -8- a matter of concern during previous years and was particularly discussed during the two negotiations. TSKB's main problem resulted from Government control of interest rates. Domestic lending rates were set at 14Z in 1974 rising to 2O0 in 1979. These rates were 4-5% below the floating Lira rate which TSKB had to pay on bonds during the period. The Government, however, agreed to undertake a study of the financial sector in 1976 which was completed in 1978. The targets set under the two loans and the previous Bank loan for mobilization of local resources were stopgap measures which required TSKB to subsidize local currency loans from its spread on foreign exchange loans of 2-1/2%. During the period the net yield on TSKB's bonds became increasingly uncompetitive compared to time deposits and Government bonds and so TSKB had problems in meeting the targets agreed with the Bank under these two loans. In addition, there was a limit to the amount of subsidy TSKB could afford on local funds from its spread on foreign exchange, particularly as TSKB was endeavoring to tap the international market where satisfactory financial results were essential for successful entry. TSKB's limited access to domestic resources was throughout the seventies the major issue affecting its role and financial stability. It increased its vulnerability to the foreign exchange risk borne by its clients, it prevented TSKB from "packaging" properly financial plans for its projects and meeting its clients' needs for working capital and equity funds. Lack of local currency has been one of the serious problems facing TSKB in its efforts to rehabilitate its clients during the last three years. This issue is currently under review with TSKB and the authorities in the context of the Bank's Financial Sector Survey of November 1982. 2.08 During the 1970s the Turkish financial sector had fundamental structural problems involving a financial system dominated by a commercial banking sector which was small in size relative to GNP and Turkey's stage of development and an extensive complex system of Government intervention in the allocation of credit to sectors combined with Government controlled interest rates. A review of the sector was undertaken by the Bank in conjunction with the 1974 economic report and by a Government study completed in 1978 (para. 2.07). These reports, however, appear to have had very limited impact on the country's strategy and policies or on the Bank's operations and the same sector problems, except for exchange rate policy and negative interest rates 1/, were identified during the Bank's Financial Sector Study in 1982. The Bank did review the level of interest rates with the Government representatives during negotiations with TSKB but no progress was made as the Government did not consider it appropriate to discuss basic financial sector policy in the context of loans to a private sector institution. Given the importance that the financial sector organization played in the Government's policy of directing low cost finance to the State Economic Enterprises and other priority sectors, any change would have involved a major policy decision from the Government. A dialogue with the Government at the macro level might have been more appropriate instead of at the project level. The lack of progress during the period 1974-80 in addressing the problems identified in 1/ A major change in the exchange rate and interest rate policies were implemented in early 1981.  -9- the financial sector illustrates the necessity for the Bank to develop with the Government a comprehensive strategy to integrate economic and project work. 2.09 Project Promotion. In 1972, an understanding was reached whereby TSKB would set aside 25% of its spread on Bank sub-loans to finance project promotion to identify and develop "new style" projects such as SMLI projects and projects in LDRs. This arrangement was continued under the Eleventh and Twelfth loans with 1% of the spread allocated for this purpose. TSKB restructured its organization in 1974, established branch offices and set quantitative targets for industrial investment to be promoted in the regions to support its operations in LDRs. Promotional activities involved project identification through priority sub-sector review (Annex 1), with branch offices endeavoring to interest investors in project proposals; or alternatively, feeding back tentative project ideas of investors to TSKB's new Research Department for further development. Projects identified and promoted in 1975 and 1976 accounted for over 25% and 33%, respectively, of TSKB's loan and equity approval during the two years. A large majority of these projects were located in the LDRs. A list of the projects promoted by TSKB during 1975-78 is in Annex 2. TSKB also assisted these inexperienced investors in the selection of equipment and provided technical know-how and management assistance to overcome implementation problems. In cases where TSKB participated in the equity financing of these projects, their staff were represented on the Board and provided management and technical assistance in addition to their responsibilities as directors. 2.10 TSKB also gave high priority to financing projects of new enterprises sponsored by widely-owned shareholders' groups. A substantial number of the projects financed were located in LDRs and were funded by migrant workers returning from abroad. About 30% of TSKB's financing during the four years 1975-78 was provided to companies with a wide shareholder base. 2.11 Investment in LDRs. Through its promotional efforts, TSKB raised its overall financing of projects in the LDRs 1/ from about 10 of approvals in 1973 to 52% for the two years 1975-76, thus exceeding the 502 understanding reached with the Bank. About 59% of the Bank loan (1078-TU) was also invested in projects based in the LDRs. In 1977-78, TSKB allocated 39% of its total resource to LDRs 2/ and 22% to the most developed provinces. The balance of 39% was invested in the semi-developed regions (Annex 3). Thus, due in large part to its promotional efforts, TSKB met or exceeded the targets for investment in LDRs set under the two loans. 2.12 Investment in SMLI. During the four years 1973-76, TSKB's investments in SMLI projects (defined as those with fixed assets of less than TL 35 million and maximum investment per job of $17,000) averaged $12 million covering about 30 projects per year. TSKB exceeded the target set under 11 Based on SPO definition of LDRs. 2/ The definition of LDR was refined and limited under loan 1430-TU and a second group of semi-developed regions introduced.  - 10 - Loan 1430-TU for SMLI by 20% for foreign exchange irnvestment (including $15 million of Bank funds) but fell about 20% short of the target for local funds. Geographical location, investment costs and job created by SMLI projects are in Annex 4. Thirty-two of the projects financed were in the least developed areas and a further 20 in the semi-developed regions. New projects accounted for 70 of the 85 projects assisted, while 15 were for extension of existing facilities. The average investment per job in these projects amounted to TL 281,400 (US$14,468). 2.13 During the second half of the seventies, in response to the Bank's requirements, TSKB continued to make substantial progress in expanding its role as a development bank through project promotion, and increased investment in LDRs and SNLls. Towards the end of the decade, the Turkish economic crisis developed and portfolio arrears became a serious problem for TSKB. The problem was exacerbated by TSKB's expanded operation in the LDRs and SMLIs. A strategy of gradually uaoving TSKB's investment into these sectors would in retrospect have been more prudent (para 5.04). III. SUB-PROJECTS FINANCED 3.01 A wide distribution of-projects by sector, borrowers and regions was achieved under the two loans (Annexes 5 and 6). Loan 1078-TU 3.02 Financing for 45 projects was provided under this $65 million line of credit. The major sector investment was made in the forestry processing industry with an aggregate investment of about $17 million or 26% of the loan. This was followed by the electrical machinery sector with $10 million or 16% of the loan. The balance of $21.5 million or 33% of the loan was invested in 12 industrial sectors. About 15% of the Bank loan was invested in export oriented projects, 35% in projects promoted by companies with a wide shareholder base and 0.5% in SMLI projects. The regional 1/ distribution of investments was as follows: North West 42% Central 24X South West 17% East 17% 100% 1/ The North West region comprises the four most developed provinces of Istanbul, Sakarya, Kocaeli and Bursa; the remaining provinces are classified as semi-developed regions. The Central region comprises three most developed provinces of Ankara, Adana and Icel; the remaining provinces are classified as less developed regions. The South West region comprises one most developed province of Izmir and the remaining provinces are classified as semi-developed regions. The entire East region is classified as less developed.  - 11 - Loan 1430-TU 3.03 Financing was provided for 63 projects from this US$74 million line of credit. About 242 of the loan ($17.5 million) was invested in the textile sector followed by 11% for electrical machinery and 10% each for machinery and transport vehicles. About 10% of the loan ($7.3 million) was invested in export oriented projects, 18% ($13.4 million) in SZILI projects and 30% ($22.0 million) in projects promoted by firms with a wide shareholder base. The regional distribution of investments was as follows: North West 52% Central 21% South West 16% East 11I 100%l 3.04 TSKB provided about 40% and 37% of the total funds required to finance the projects under loans 1078-Tf and 1430-TU respectively. The number of jobs created for the projects as of the end of 1981 was about 17,000, compared to the appraisal estimate of about 20,000. During the period when the projects financed under these loans were being constructed the economic position in Turkey deteriorated and inflation increased rapidly (para 1.04 - 1.06). This difficult economic environment affected the projects. Project implementation was delayed on average by about 12 months compared to appraisal estimates. These delays were due to labor strikes, shortage of funds (caused by inflation and delays) and inexperienced management in charge of projects in LDRs and SMLI projects. Capacity utilization by the end of 1981 was on average 52% compared to a projected utilization of about 82%. This percentage utilization for new projects, however, compares favorably with an overall industrial capacity utilization of about 57% in 1981 and the fact that on average project construction was delayed 12 months. In addition, actual project cost exceeded projected cost by about 115%. Part of this cost overrun is due to using average rates for conversion of foreign exchange to Lira. However, the major part is due to the unprecedented inflation exacerbated by delays in project completion. 3.05 Thirteen of the 108 projects financed under the Bank loan were not completed in 1982 and one completed project was closed down. Five of the 108 projects were promoted by TSKB, eight are owaed by companies with a wide based shareholding and nine are located in the less developed East and Central regions. The major problems associated with these projects are difficulties in securing additional equity and working capital to meet cost overruns caused by the high level of inflation. In addition these companies did not have access to commercial banks funds, as banks give priority in allocation of funds to companies with whom they have had long-term relations. The shareholders, many of whom are returned migrant workers, are unable to provide the necessary funds. These companies also suffered from a lack of experienced managers and found it difficult to attract and retain qualified managers to assist in resolving their problems. Due to the widespread arrears problem (paras 5.03 - 5.04), TSKB is also experiencing difficulties in providing these projects with the intensive assistance necessary to complete and get projects operating profitably.  - 12 - 3.06 Most of the sub-projects showed satisfactory projected economic rates of return (ERR). An analysis of the ERR, calculated at appraisal, on the 54 sub-projects for which economic rates of return are shown (Annex 5) is as follows: Number of Projects Economic Rate of Return 6 less than 15% 35 less than 15% but more than 30% 13 more than 30% All sub-projects had a projected ERR greater than 10%. Given the difficult economic conditions prevailing in Turkey since 1979, it is doubtful if many of the sub-projects have yet reached their full economic potential. IV. OPERATIONS Management and Organization 4.01 During the five year period 1975-79, the major change in TSKB's management was the retirement in 1976 of the General Manager Mr. Resid Egeli, who had been associated with TSKB for 24 years. Under his able leadership the institution developed as one of the leading development finance institutions. He was succeeded by Mr. Ozhan Eroguz, the present General Manager. No other changes in top management took place during the period. During 1980, about 45 of TSKB's experienced staff (or 30% of professional staff) retired prior to enactment of a national law which reduced substantially the gratuity payable on retirement. This resulted in a decline of TSKB's former high level of technical efficiency and made it difficult for TSKB to adjust to the new economic environment. TSKB's inability to maintain the real salaries of its staff also resulted in a drop in morale and some loss of staff because of increasing competition from other private sector companies. Adjustments in the Tax Law enacted at the end of 1980 has substantially resolved the salary problem. 4.02 In order to achieve a better distribution of TSKB's operations and to give greater emphasis to the regional character of its operations, TSKB implemented a management reorganization in January 1978 . The four operating Departments were consolidated into three area Departments (Western, Central and Eastern Anatolia), each under the supervision of one Assistant General Manager. Under this reorganization, the Planning and Budget Department, which was established in 1975, prepared annual lending and investment programs and a monitoring system based on the area organization. This reorganization proved generally satisfactory in the initial year but with the rapid deterioration in the economic situation in 1979 and the parallel deterioration in TSKB's portfolio and the resulting changing investment pattern, TSKB's regional organization structure proved inadequate. To resolve these problems, TSKB decentralized its organization in November 1979. Further organizational changes were implemented in January 1982 to strengthen TSKB's monitoring of its portfolio and to provide assistance in financial restructuring to borrowers with serious problems.  - 13 - Operations 4.03 TSKB's approvals, commitments and disbursements from 1974 to 1978 are shown in Annex 7. Total approvals and commitments increased from TL 1.0 billion and TLO.6 billion respectively in 1974- to TL 2.7 billion and TL2.0 billion by 1978. Foreign currency loans continue to be the principal part of TSKB's operations, accounting, on an average, for about 75% of its total approvals followed by local currency loans accounting for a further 14% and equity investments for 11%. Both approvals and commitments in 1978 did not exceed significantly the 1977 levels, which signifies a reduction in real terms over the previous year. Foreign loan approvals for 1978 amounted to US$83.7 million compared to US$95.5 million in 1977, i.e. a reduction of about 12% over the previous year. 4.04 The growth rate in 1976-77 and the reduction in 1978 reflects in general the state of the economy but was strongly influenced by two other factors: TSKB's availability of resources; and TSKB's targets for regional investment and investment in SMLIs. The lack of foreign exchange funds in 1974 resulted in a 50% decrease in foreign exchange commitments in that year compared to 1973. Only after receiving funds under Loan 1078-TU in 1975, was TSKB able to-increase its foreign exchange loan commitments over the 1973. level. A similar situation occurred in 1976 before the funds from Loan 1430-TU became available in 1977. The shortfall was caused as TSKB was unable to raise the projected foreign exchange (para 2.05). The regional and SNLI targets also affected TSKB's commitment level as there was a strong demand in 1977-78 for projects in the developed regions but TSKB was constrained by the targets in meeting this demand. Of the 30 applications for new loans, estimated at $65 million, rejected by TSKB in Western Anatolia during the first 9 months of 1978, about $21 million were rejected because of their location, and $26 million rejected because the companies were closely owned or well established enterprises. 4.05 TSKB's increased assistance to projects in the less developed regions and those promoted by widely-owned new enterprises is reflected in the incre. se in the number of equity investments. Commitments for equity investments increased from 14 in 1974 to an average of 28 per year during 1976-78. The average size of equity investments, which had reached TL 12.2 million in 1976, declined thereafter to about TL 6-8 million. The absence of any marked increase in total volume of equity investments is attributed to the fact that an increasing proportion of the investments were made in projects in the less developed regions, which are smaller than those in the developed regions. TSKB has played an important role in providing and mobilizing equity funds for projects in these areas in recent years. 4.06 Textiles, food processing, machinery manufacture and forestry products were the principal industrial sectors for TSKB's operations, accounting respectively for 15.5%, 12.4%, 10.7% and 9.8% of TSKB's commitments during 1975-1978 . The rest of TSKB's approvals were well distributed over other sub-sectors with none of them accounting for more than 10% of the approvals for the period. The largest subsectors in TSKB's total outstanding  - 14 - loans and equity investments as of December 31, 1977, were as follows: 19.9% in textiles, 14.2% in food and beverages, 8.3% in chemicals, 7.1% each in metal products and forestry products. V. FINANCIAL PERFORMANCE 5.01 The forecast accounts and audited accounts for TSKB for 1975-81 are in Annexes 8 to 10. TSKB's net profit as a percentage of average net worth increased from about 20% during 1975-77 to about 25% during 1978-80 and to 45% in 1981. The increase in earning during 1978-80 resulted from the increased level of operations and a Government decision increasing the interest rates and TSKB's spread. Further improvements in TSKB's spread were effected in 1981. Under the historical accounting system, TSKB's results were very successful during the period. Net profit after tax increased from about TL 83 million in 1975 to TL 612 million in 1980 and TL 1,490 million in 1981. During the 1975-80 period, TSKB's investment portfolio increased fourteen-fold to TL 57,528 million. 5.02 Most of these increase were, however, the result of higher inflation during the period (para 1.05). In US$ equivalent terms, TSKB net profits increased from about $6.0 million in 1975 to $8.0 million in 1980 and $11.0 million in 1981. The portfolio increased in US dollars equivalent by about one and a half times to $430 million during 1975-80. The increase in portfolio in lira terms resulted from the terms of TSKB's onlending which require that sub-borrowers carry the full foreign exchauge risk, with loans being automatically revalued after each devaluation. In spite of TSKB's profitability during the 1975-81 (para 5.01), a substantial erosion of TSKB net equity in real terms occurred during this period due to inflation. The insidious effects of inflation on TSKB net value are best illustrated by the fact that TSKB was unable to maintain the Bank's 10.1 debt equity requirement on its long term borrowing to finance a portfolio that increased one and a half fold in US dollar equivalent, even though shareholders contributions to new equity during the period was abut TL 2,800 million or fifteen times the 1975 paid-in share capital. Portfolio Arrears 5.03 TSKB has a serious problem with arrears. This problem first caused concern in 1977. The situation continued to deteriorate through the 1980's. The percentage portfolio affected by arrears increased from about 20% in 1977 to 28% in 1981 but fell marginally to 25% at the end of 1982. Arrears of more than 3 months increased from 3% of total portfolio in 1977 to about 16% in 1981 and 20% at the end of 1982. The major cause of arrears has been the deteriorating national economic situation, with the resulting inflation and devaluation raising the foreign exchange exposure to unmanageable proportions, substantial additional requirements for working capital, inability of project promoters to mobilize additional finance, low capacity utilization and labor unrest. TSKB's mangement resources have been over-extended in dealing with companies in arrears. The Bank intensified its supervision efforts to assist TSKB in dealing with this p- blem. As mentioned earlier, a reorganization of  - 15 - TSKB was implemented in January 1982 with emphasis on dealing with the arrears problems and a substantial financing package to enable TSKB to assist clients, particularly those affected by the foreign exchange risk, has been established by the Government and TSKB's shareholders in conjunction with the Bank- financed Export-Oriented Industries Project (Report No. 3655-TU dated January 29, 1982). 5.04 TSKB's position during this difficult period was exacerbated as a result of the major change in investment strategy introduced in the early seventies. The projects in the less-developed regions, broadly owned or "workers" companies and SMLI projects were affected more by the adverse economic conditions than projects financed by well-established groups in the developed area, due to the former's limited ability to raise additional finance and inexperienced management. A review of TSKB's portfolio shows that 66% of the loans in Eastern Anatolia (least-developed region) and 70% of SHLI sub-projects were in arrears. Analysis of Bank financed sub-projects also confirms this point. While the major problem affecting TSKB's portfolio was caused by the unprecedented economic and political crisis in Turkey of the late-1970's which could not be anticipated at the time of appraisal of Loans 1078-TU and 1430-TU " this problem was exacerbated by the rapid diversification of TSKB's investments into regional development and SMLI sub-projects. In retrospect, the target of 50% investment in LDRs under Loan 1078-TU and 40% in LDRs and not more than 25% and $30 million in SMLI projects under Loan 1430-TU (para 2.04) involved investing too high a proportion of TSKB's investment in areas where, at the time, TSKB and the Bank had little experience of the problems involved. A strategy of gradually moving into this new field while maintaining the major part of TSKB's portfolio in traditional investment would have been more prudent, particularly as TSKB is a private sector company and must maintain a strong portfolio to maintain the confidence of its shareholders. VI. CONCLUSIONS 6.01 The Bank's major objectives under Loans Nos. 1078-TU and 1430-TU were (i) diversification of TSKB's sources of local and foreign funds with a view to expanding the financial resources available to the private sector; and (ii) directing investment towards LDR and SNLI projects to reduce the regional disparities which were increasing at that time. These two objectives were identified as priority areas in the Bank's economic work, particularly in the 1974 Economic Study. 6.02 The Economic Study reviewed in depth the problem of the Turkish financial system including the lack of development of financial assets outside the banking system, Government control of interest rates, the effects of the transaction tax on inter-bank lending, Government allocation of credit and the nonr-existence of a securities market. With the exception of Government control of interest rates, which were freed in 1980, the financial sector in Turkey continues to suffer from the problems identified in the 1973 economic review. The Bank did review the interest rates policy issues with the Government in conjunction with the TSKB loans but no progress was made in resolving this matter. The review of the financial sector undertaken by the  - 16 - Bank during the 1974 Economic Study and the Government in 1978 had little impact in terms of institutional and policy changes and the conditions created under the loans were stopgap measures dealing only with TSKB's immediate problems. The lack of progress made during the period 1974-80 in addressing the problems identified in the 1974 Economic Study as major obstacles to the development of the financial sector in Turkey, illustrates the necessity for the Bank to develop with the Government a strategy to integrate Bank sector and project work and perhaps to identify more clearly than it had done during this period the policy actions resulting from such a strategy. 6.03 The Bank's requirement for investment in LDR and SMLI projects did ensure a major change in TSKB's investment policy. Export promotion, however, was not identified as a priority area in the early 1970s as during the three years 1971-73, a very substantial improvement in Turkey's current account deficit was achieved due to a rapid increase in workers' remittances, tourist receipts and exports resulting from the devaluation of the Lira in 1971. Turkey"s' dcbt service in 1972 had fallen to 10% of exports compared to 24% in 1965. In retrospect, however, one could challenge perhaps this lack of concern for exports, which might have been an item of higher priority in the seventies than regional development. 6.04 TSKB implemented a series of actions to improve its mobilization of funds from the international capital markets as required under the Loan Agreements. Substantial progress was made in this area but the results achieved were nevertheless disappointing as TSKB's efforts were negated by the continuing deterioration of the Turkish economy. The loan requirements were appropriate and the exercise was well worth the efforts expended in exposing TSKB to international capital markets; in addition to the funds secured during 1975-78, TSKB secured additional foreign exchange rsources in later years in the form of credit lines and export credits from the contacts made during this exercise. Full realization of the benefits of TSKB's efforts under these loans to broaden its foreign exchange resources should be achieved when Turkey's credit rating has been reestablished. 6.05 The progress made in domestic resource mobilization was not satisfactory. TSKB was unable to meet the bond issue targets due to the negative spread. This was in part due to Government control of local interest rates which remained in effect until the economic reforms introduced in 1980. Performance on co-financing with commercial banks and in increasing TSKB's capital was well in excess of the targets. Nevertheless, a broader approach to resolving the Turkish financial sector problems might have been more appropriate instead of stopgap measures to deal with TSKB's immediate problems. The economic and political climate, however, do not appear to have been appropriate for basic changes in the financial sector, and loans to TSKB, a private sector institution, were not perhaps the ideal vehicle to negotiate changes in financial policies with implications for public sector institutions. 6.06 TSKB's performance in meeting the investment targets under the two loans for regional development and SMLI projects was very satisfactory. In retrospect, however, the agreed targets provided for too high a proportion of  - 17 - TSKB's investment to be diverted in a short period of time into areas where, at the time, TSKB and the Bank had limited experience of the problems involved. This major change in strategy has exacerbated TSKB's arrears problem and weakened its financial structure. The exercise, however, has resulted in substantial diversification of industries, which will provide a base for further regional development when the current economic difficulties have been resolved.  - 18 - Annex 1 TURKIYE SINAI KALKINMA BANKASI A.S. 2 Prolect Completion Report Research Activities Undertaken by TSXB 1975-78 Research Completed I. FOOD - AGRICULTURAL PRODUCTS 1. Food Processing a. Tomato paste b. Flour industry c. Edible oils, fats 2. Leather and leather goods a. Leather ready wear b. Leather export market study 3. Shoe manufacturing __. FORESTRY PRODUCTS 1. Sawn wood and wood based panels III. CONSTRUCTION SECTOR 1. Bricks and tiles 2. Die casting IV. FERROUS AND NON-FERROUS METAL 1. Casting Industry V. TEXTILES 1. Readywear industry 2. Dying and finishing 3. Wool yarn and woolen textiles 4. Cotton yarn and cotton textiles VI. CONSUMER DURABLES 1. Refrigerators 2. Washing Machines 3. Television sets VII. AUTO!DTIVE 1. Sector study VIII. ELECTRIC AND ELECTRONIC 1. Electronic Industry export study  -19 - An 1 TURKIYE SINAI KALKINhA BANASI A.S. Page 2 of 2 Project Completion Report Research Underway I. FOOD MID AGRICULTURAL PRODUCTS 1. Food processing a. Animal products b. Shoe export market study II. FORESTRY PRODUCTS 1. Furniture III. CONSTRUCTION SECTOR 1. Prefabricated materials IV. FERROUS AND NON-FERROUS METALS 1. Hot and cold forgery V. TEXTILES 1. In-depth market study 2. Data collection studies 3. Ready made garments market study 4. Productivity research 5. Man made fibers VI. CONSUMER DURABLES 1. Vacuum cleaners 2. Iron 3. Radio, record player, tape recorder 4. Sewing machines 5. Stoves, water heaters, ovens VII. ELECTRIC AND ELECTRONICS 1. Electrical installations and equipment VIII. CHEMICAL INDUSTRY 1. Model study 2. Inventory study 3. Raw material study 4. Computer services 5. Demand study IX. MACHINEY 1. Side industry pilot study I. EXPORT STUDY 1. Model study 2. Export criterium  - 20 - Annex 2 Durkiye Sinai Kalkinma Bankasi A.S. (TSKB) Project Completion Report Projects Promoted by T5KB 1975-78 TSKB LOAN Foreign TL Dogusan Asbest, Erzincan hb. 1,028,821.00 20,000,000.00 $ 724,929.36 Sistas, Siirt $ 1,677,288.00 69,000,000.00 Mus Meyan, Mus $ 1,620,000.00 69,000,000.0n Haksan, Malatya $ 1,950,000.00 Mardin Asbest, Mardin $ 1,672,870.00 15,000,000.00 Gentas, Bolu $ 2,331,361.55 DM 2,900,000.00 Yetsun, Rize $ 4,237,411.83 Mormas, Malatya $ 702,424.00 8,000,000.00 Inpaksan, Trabzon $ 196,500.00 Terme Bakir, Samsun $ 1,740,000.00 8,000,000.00 Yontas, Samsun $ 5,720,000.00 Kagsan, Trabzon DM 350,000.00 7,500,000.00 Kastas, Trabzon DM 710,000.00 32,000,000.00 Pamuksan, Mard in DM 1,008,400.00 5,000,000.00 Isbir Elektrik, Balikesir DM 2,388,875.00 Arhas, Artvin DM 158,276.00 6,500,000.00 Aykim, Burdur DM 2,802,528.00 10,000,000.00 Agema, Konya DM 1,660,370.00 91,000,000.00 Kaykur, Hlalatya DM 1,850,000.00 560,000.00 Temas, Tokat $ 2,276,000.00 - Baliksan, Sinop Nkr 3,534,300.00 DM 230,005.00 $ 450,000.00 Elsan, Migde DM 1,168,219.50 3,000,000.00 Caysan, Rize hb 1,270,550 $ 253,223.00 Bisal, Elazig - 13,000,000.00 Caliskur, Samsun DM 900,000.00 Tarmas, Maras DM 616,814.00 10,000,000.00 Karsusan, Trabzon hb 734,450.00 94,000,000.00 DX 1,551,848.79 Kuzey Kimya, Trabzon DM 348,750.00 5,500,000.00 Kuzey Mobilya, Trabzon DM 1,527,000.00 8,000,000.00 Kidas, Mardin hb 1,200,250.00 140,000,000.00 $ 212,762,22.00 Kackar Degirmen, Hopa DM 206,726.00 3,000,000.00 Serhat Un, Kars - 8,500,000.00 Eltas, Elazig DM 1,910,000.00 $ 400,000.00 Van Civi, Van - 13,000,000.00 Unsan, Erzincan DM 138,528.00 4,500,000.00 Istuk, Gaziantep - 13,700,000.00 Karbes, Burdur DM 2,023,725.25 10,000,000.00 $ 360,792.00  TURKIYE SINAI KALKINHA BANKASI AS. (TSKB) Project Completion Report GEOGRAPHICAL DISTRIBUTION OF TSKB'S LOAN AND EQUITY APPROVALS 1975-1978 (TL million) 1975 1976 1977 1978 No. hAount z No. Anount X No. Amount z No. Amount Z Eight Moat Developed Provinces 1 Loans 33 393.1 20 337.6 37 533.8 23 544.3 Equity Investments - - 10 112.8 4 18.3 10 128.7 33 393.1 22.1 30 450.4 19.2 41 552.1 21.1 39 673.0 22.9 Semi-Developed Regions 1/ Loans 25 600.3 23 769.6 32 983.9 31 972.5 Equity Investments - - 5 55.5 10 76.5 10 96.0 25 600.3 33.7 28 825.1 35.2 42 1,060.4 40.6 41 1,068.5 36.3 Least-Developed Regions 1/ Loans 46 604.1 50 885.9 47 914.4 42 1,085.9 Equity Investments - - 13 L35.3 12 64.7 17 112.7 46 604.1 33.9 63 1,021.2 43.5 59 979.1 37.4 59 1,198.6 40.8 Unclassified (Equity) 21 183.5 2/ 10.3 1 50.0 2.1 1 24.0 0.9 - - TOTAL Loans 104 1,597.5 93 1,993.1 116 2,432.1 96 2,602.7 Equity 21 183.5 29 351.6 27 183.5 37 337.4 125 1,781.0 100.0 122 2,346. 7 100.0 143 2,615.6 100.0 133 2,940.1 100.0 1/ The regional classification is the one adopted by TSKB in 1977: Eight most developed provinces: the four provinces of Istanbul, Sakarya, Kacaeli, and Bursa in North-West Anatolia, Izmir in south-West Anatolia and Ankara, Adana, and Icel in Central Anatolia Semi-developed regions: Residual provinces of North-West and South-West Anatolia. Lass-developed regionsa Residual provinces of Central Anatolia and all of Eastern Anatolia. 2/ Break-down of TSKB's approvals of equity-investments in 1975 by above regional classification is not available. 4 . . 5  -22-, - 22 - ~~~~~~Annex 4 TI-P-Fof 2 lArkiye Sinai alkinm Bankaui A.S. Project Completion Report Small and lMedium-Scale labor Intensive Projects (SELI) Financed by TS13 (Loan 1430 - 1977) Fixed TSIB Financing No. of Now or Average Inv. Project _me/Activity Investment Foreian local Jobs Expansion per Job (TL million) 000 (TL. mill.) (TL '000) 1977 EiRht Most Developed Regions Arbas [Veneer Sheets) 7,686 214 - 20 E Qivenc (leather) 9,235 418 - 32 E Sahin Mak (Machine manufacturing) 11,501 - 6,000 66 N Taysan (Coil spring) 17,741 589 1,000 45 N Tarim Alet (Agri. impl.) 40,020 1,000 2,000 123 N Sener Mak. (Machine manufacturing) 50,953 1,406 4,000 136 E Beltan (Oil Seals) 13,568 196 6,000 163 e Elms Mlak. (Machine manufacturing) 18,095 91 6,000 144 E Nari ta (Fruit processing) 7,072 140 - 27 E Istas (Marble processing) 24,785 677 6,000 63 N Topeya (bricks) 12.730 - 8,000 32 N Pinar Doku (Ilion Cashing) 33,726 749 - 122 N Fayban Tugla (bricks) 19,255 73 9.000 66 N Bek-Fek (Marble processing) 8,660 237 1,500 57 N Kardes Celik (Steel casting) 38,002 760 12,000 165 N Treysan (Trailers) 16,521 171 9,000 50 N Tarmaksan (Agr. Imp.) 16,521 171 9,000 50 E -aye Snayi (Emamel processing) 29,770 516 10,000 2l1 N Bulvar Giyim (Clothing) 11.714 147 4.000 177 N ECS - Elek. (Elect. App.) 50,646 130 5.000 180 N Sub-Total 441.014 7.514 97.500 1,940 227.3 Sei-Developed Regions Tekin Malk. (Machine manufacturing) 8,560 168 2,500 40 N A_amak (Machine manufacturing) 26,085 695 - 88 N Hatosan (Minerals) 38,502 595 - 91 N Alfa Nods (Clothing) 16,172 311 4.000 149 N Tekirdag Agac (Chair processiag) 30,220 610 - 88 N Pulcuoglu (Undervear) 8,140 179 4,000 28 1 larapinar (Bricks) 12,105 - 7,000 60 N Isbir Elek. (Elec. Generator) 41,670 1,250 8,000 129 N Sayakrci (Marble processing) 31,340 598 - 258 N Bati Giyim (Clothing) 45,043 835 - 228 N Ay-Has (Shoe manufacturing) 38.504 750 - 132 N Sub-T'tal 296.341 5.991 25,500 1.291 229.5 Less-Developed Regions Agan (Machine manufacturing) 36,975 742 12,250 139 N Seyrani Un. (flour mill) 18,857 93 10,000 82 N Reklan In (Packing mAt.) 29,079 804 5,500 87 N Tarms (Agr. Iop.) 28. 123 276 10,000 88 N Supar (Engine valves) 28,400 615 10,000 198 N togsan (Bkicks) 19,689 71 9,500 86 D Kavak Tascloglu (Bricks) 19,689 68 9,500 86 N Gael Fermuar (Zipper) 26,838 750 - 83 N Barit Haden (Mineral processing) 15,398 284 - 63 N Cagil Mak. (Machine manufacturing) 10,650 250 6,500 25 E FD: Cuney Oto (Rubber Auto Cop.) 56,369 725 - 155 N Karinca (Bricks and T;leS) 4,761 - 3,000 24 R Irsa (Mast. Products) 18,213 - 12,500 100 E GQesizler (Bricks) 11,044 - 7,000 32 E Karceliktas (Steel casting) 30,310 541 8,000 152 N Ve"n (Bread) 17,368 340 3,500 66 N Rize Enuye (Ehamel processing) 38,660 558 10,000 159 N Tinn (Agregate preparation) 18,546 - 10,000 47 N Rize Un (Flour nill) 29,580 105 14,500 74 N Batmn (Agric. imp.) 35.485 265 10.000 88 N Sub-Total 494.034 6,487 151.750 1,834 269.4 Tbtal for 1977 1.231,389 19.992 274,750 5,065 243.1  - 23 - Annex 4 1ag e zof 2 TULKlIYE SINAI KALIIMA BANKASI A.S. Project Completion Report Small and Medium Scale Labor Intensive Projects (SI) financed by ThEM (Loan 1430 - 1978) Fixed TSKB Financing No. of New or Average Inv. Project Name/Activity Investment Foreign Local Jobs Expansion per Job (TL million) (S 'OUO) (TL miLl.) (m '000) 1978 fjrhc Most Developed Regions Saraylirme ( iittedwear) 52,505 874 5,000 377 N Proteksan (Shipbuilding) 17,396 360 - 46 N Ozdemir Celik (Steel Casting) 51,8W 600 - 124 N Maysan (Sock absorber) 51,279 864 - 131 E ICalipsan (Dye Casting) 27,044 350 - 57 N Asmas (Machine Manufacturing) b 5,343 695 - 255 N Gainey Gelik (Automobile parts) 39,480 460 7,000 134 N Makine ve Yedek Par. (Machine Manuf.) 61,526 920 - 240 N REek Elektrik (Electrical appliances) 44,066 658 - 88 E Me-Sa (pre-Fab. Housing) 51,692 1,022 - 93 N Cukurova Dktim (Ion and Steel) 63,550 680 7,500 221 N Cetin Mobilya (Forestry Products) 49,091 455 - 151 N linde bir Tekstil (Machinery) 15,875 374 _ 54 E 590,707 8,312 19.500 1.971 299.7 Semi-Developed Regions Es-En Makine (Machine Manufacturing) 50,690 914 7.000 151 N Iytas (Agric. Imp.) 37,645 387 10,000 112 N Standart Profil (Automotive Weater Scale) 42,756 625 - 81 N Entil End. (Iron Casting) 23,373 540 - 53 l Doganay Mar. (Machine Manufacturing) 28 230 273 - 70 N Bintas (Cement tiles (roof)) 35 907 165 8,000 88 N Kadem Kirtasiye (Stationery) 21,355 491 - 56 N Mostas (Furniture Manufacturing) 32,950 485 - 163 N MetaLurji EndUstrisi (Metal Products) 25.171 310 - 65 N 30 7,077 4,190 25.000 839 366.0 Less Developed Regions Oniks Istl. (Marble Processing) 39,754 370 - 70 N Gensa (Compressors) 52,842 825 - 93 N Fatoglu (Flour Mill) 34,38U 119 10.000 61 N Van Civi (Nails) 13,240 - 8,000 47 N Ceruik Un (Flour Mill) 25,240 116 13,500 74 N Agas (Forestry Products) 36,120 305 15,000 271 N Petrol Un (Flour Mill) 17,080 74 4,500 60 N Sekir Cizueci (Nail) 14,109 - 8,000 39 N Seyfettin Rarakoc (Door Knobs, Hinges) 20,850 - 12,000 80 N Zintas (Metal Products) 28,159 574 4,000 53 N Mercan Mermer (Mining) 43,859 700 5,000 77 N Celik Hasir (Metal Products) 44,206 610 5.000 79 N 369,839 3,693 85,00U 1,004 368.4 Ibtal for 1978 1,267,623 16,195 129 Q500 3.814 332.4 GRAND TOTAL 2.499Y012 36,187 404.250 8,879 281.4  -24- Annexs PAge 1 of 2 TURRMYK $INA KALElUN MilASI ALB. (SAlM Project Cooptlatlon Deport sub-prolects Fleeced under loan 1078-TU WorLd IBIS Capecty On. of Jobs Bank Project Coet Financing CAePleCion utilization created Loana M TL MiLLions Amount Datao as of 1951 as 01 1981 2 of Eaporte Apprsieal No. Nmem Sector Region Thousands Appraisal Actual TL Nil. Z Proj1. Actual flgj. Ac5us Proj. Actual Prot. Actual MEM S &lUrk Tale- kaminikasyon Electrical M. Weet 816 55 154 16 10 12/76 7/77 100 40 316 210 6.7 - 21.2 5a14 Tjrktae leather Cancral 900 46 150 79 52 12/77 12Z50 60 20 143 66 - - u A 19 Bakirman Me1tals CM) MI. Vest See 1430-fl A-S AL 17oasa Sore Metal (ir.ast.) East 1,002 71 118 38 32 12/78 12/78 100 10 so 60 - - A 3Ideal lora PL Electrical S. Meat 2,379 61 329 193 55 U1/76 8180 90 - 142 - - - aI1VeIf Macapi Metal S. meet 721 is 14 13 92 2/76 21275 LOU 80 25(m) IlI-ax) - - - AJ 32 FC Agac Sen Forestry centraL 6.051 155 215 124 57 6/79 12/78 70 A1 72 W0I - 34 al 15 Egitean Peper eamt See 1430-TIO A-5 A 28 Caents Forestry V. Meal 1,771 97 470 310 6)p 6/80 12/80 30 - 153 L0OY 20 A 30 CAhankur tiaicals Central 1,232 57 190 136 71 12/78 L1/79 40 La 9b 75 -- - A/C AK13 Cukureva Kieya Chemicale S. vest 2,800 132 198 89 44 12/77 6178 100 85 59 195 35 20 1'. AL18 PLastaek Chemicals Central 2,417 156 332 224 67 6/78 12/79 65 75 4012 250 35 30 27.As B5STa.ssn Tarim machinery central 684 27 57 26 A5 12115 6/78 100 clnest 118 - - - - B7iDogu CAlik tronL Steel Ewast 210 24 23 11 47 nZ/lb 6177 30o 31 156 lOU - - 5LI Tek?a-ria Machinery S.Weet 8ut 66 72 23 34L2/177 12/77 100 la 407 475 - - * SEver Metal,l Waste 559- 54 di 37 4512Z/77 5/78 90 25 ZO u29 - 10 25 2 Demises metal N. West 810 30 32 17 53 1.2/16 12/76 100 40 210 202 35 -- 30 3 20 Istanbul Sewun Transportation N. West Sea 1430-TO A-b 3 22 Curks MeHamer Minerals Cantral 629 66 100 57 57 12/80 6/79 50 - 63 10 35 - 17.5 A 21 Martin Asbest Hinarals (Ml) Easit L,cO5 765 443 335 75 12/81 - - - - -- - -- 3I-15 DOgusan Amhest Minerals (M) Emast 508 805 ASS 282 61 12/81 - - - - - -- 5*16 Fte Mesas Transportation S. Vest 755 123 887 157 17 12175 9518 60 34 224 225 15 W-Uc A*12 Astas Axis civata Metal S. Vest 1.650 62 62 29 49 6/76 L1/76 100D 58 9 61 - Li 1 A S Karatas Yag Food CentraL 1,074 66 150 21 14 6/77 6/77 95 80 156 320 - -- UC A*25 SUesa Forestry S. West 1,988 147 712 462 64 1/15 1/52 75 - 69 69 - -- M/C A*SLUks Ksdifa TextiLe Central 3.969 1l5 183 78 42 12/75 - 100 75-50 190 22Z - 17 A*16 Makasa Elect. Mach. East 1,693 74 390 235 61 12/75 U/Con. 80 - 119 - - siUc 5 12 Bagfas Cbemicals S. Weet 928 502 1951 160 05 L1/78 12180 90 87 205 395 - - 1 21 Beta Ciyia Textiles S. Meet See 1430-233 B-4 3 9 Trafusan Elec. Meab. U. West 799 53 63 34 53 21/77 12/77 mu0 7o 216 200 - - A31lYetaun Forestry East 4,237 130 961 T 11L2/78 3/82 - - 69 - - - A 24 Devraktrs Fomreaty N. Vest 2.853 105 628 325 52 6/158 12/0 60 50 13. 69 - - - a 10 Mesan Nuhilys Forsatry Central 317 40 66 26 Sb 7177 3177 Mo0 100 97 250 -- - - A 29 Yonsans Forestry H. West 1,742 1LS 170 91 53 1/75 J175 53 50 72 22u 24 A 2Isrartnsan, Paper B. West 1,051. 116 327 26 07 12/75 6/78 100 70 251 330 - UC A 6Sistas Chemicals East 1,677 50 420 332 79 21/77 12/51 50 - 63 70 100 - 24 A 19 CensakkLe Cisinto Cement M. Vest 4,813 1953 2257 804 35 6/75 32/79 90 50 387 520 - 72 77 23.7 A 7Mons Mayan SItU Chemicals East 1,510 43 45 21 46 /79 - 100 I 70 - - - Is A 10 Ditas Transportation Central 2,400 d0 691 362 73 - - 100 60 184 108 - - LI A 11 Peg Profilo Electrical. M. Vest 3,700 211 692 257 37 1/77 12/77 100 51 762 1600 10 7 La A 20 Cietas Zahlo Electrical R. vest 1,070 107 161 55 36 L2/77 /75 70 30 196 125 - 60 26 A 27 Silsar ceramics M. Vest 1,322 105 775 208 26 12/75 /au 70 60 1.29 129 - - is Sl13lisSgt Food S.VWest 1,483 51 201 45 22 1/75 1/78 100 55 75 60 - - UC AL 6 Dopusan Textile S. West Salk 1430-lU b-9 3 3 Kalebodur Ceramics M. West 725 32 34 10 29 4/76 7/76 100 63 132 304 - - 33 Total 7,044 15,102 5,756 402 6,515 7,379 Key Metal (WI n-uf arrus, maetLs Minecrals (M) - tn-metallic Mtinersls IrRet. - true &Steel N/C - het calculated U/Cam.. - lNot completed  -25- Annex 3 Page 2 @1 3 TUEWB SXNAI AM EtESA amEa A.S. (TUSh Project cemetletion tasrt ltb-Projmcta Financed userw Lane 143D-TV world TIC Capacity No. of Jobe Dens Project Gout Financing Completion Utilization created Iman S8 T. Nitliona lAmont Pate as of 1981 easlo liSt I of Uports Appraisal N K. MmSector Resion Thouaanda Ainsreesal Actual TI. NiL. Z Fret Actual ka.i Actual Proj * Actual ___.Ac"l AIOtnfrnaTarim COrmicaLs V.MWest 6.450 3270 13b6 650 47 1/82 12/8l 100 100 125 723 40 - 40 3 48 Dikaan lilecik Paper M. vest. 1.044 1263 943 299 1L 12/SI 3/82 - 70 255 211 - --