VKF_FRAE_2017

PART I: INTRODUCTION 26 VakıfBank Annual Report 2017 Timely economic measures and incentives introduced by policymakers in 2017 helped revitalize the domestic economic activity. Global economic activity, which had started to recover in the second half of 2016, gained further momentum from the first quarter of 2017 onwards. MESSAGE FROM THE CHAIRMAN Esteemed Shareholders, Global economic activity, which had started to recover in the second half of 2016, gained further momentum from the first quarter of 2017 onwards. Expectations on the Fed’s interest rate hikes and balance sheet reduction measures played a key role in financial market developments in 2017. In addition, developed country central banks’ monetary policies, geopolitical turmoil in Asia and the Middle East, as well as political risks in the Euro Zone were the other sources of fragility in the global financial system. The US economy, which leads the developed economies, grew 2.3% in 2017. USA attained the lowest unemployment rate in the post-crisis period and leading economic indicators pointed to a significant recovery. As a result the Fed raised interest rates three times, in its March, June and December 2017 meetings, thus bringing up the policy rate to the 1.25-1.50% interval. The balance sheet reduction plan disclosed in the June 2017 meeting was initiated in October. Another important development concerning the US economy was the senate’s approval of the Trump administration’s tax reform introducing significant changes to the national tax system in December. The European Central Bank (ECB) continued its expansionary monetary policy designed to bolster economic activity. The ECB reduced its asset purchase program from EUR 80 billion to about EUR 60 billion at the end of March, and announced at its October meeting that it will reduce asset purchases to EUR 30 billion starting from January 2018. In the Euro Zone, growth rates have yet to reach the desired level, although the bond purchase programs and expansionary monetary policy support growth. Risks associated with Brexit and other political uncertainties put pressure on growth prospects. The Euro Zone grew by 2.7% year-over-year in the fourth quarter of 2017. The BoE announced that, following the completion of the first stage of Brexit negotiations, the risk of an irregular British exit from the EU is much lower. At its meeting on November 2 the BoE raised the policy rate to 0.50%, which is the first rate hike after ten years. In 2017, the general growth in the emerging economies bolstered the recovery of global economic activity. The Chinese economy grew by 6.9% in 2017. However, the increasing debt burden of the Chinese private sector since 2009 is expected to remain as a significant risk factor for the economy. As for Turkey, Timely economic measures and incentives introduced by policymakers in 2017 helped revitalize the domestic economic activity. In 2017, active fiscal policies and Credit Guarantee Fund (CGF) guaranteed loans designed to reinvigorate the real economy made important contributions to the growth of the Turkish economy. In the third quarter, growing 11.1%, the Turkish economy exhibited its strongest growth performance in the last six years. In this period, the Central Bank of the Republic of Turkey (CBRT) maintained its tight monetary policy stance due to rising inflation and exchange rate volatility. CBRT increased the late liquidity window lending interest rate by 50 basis points, at its Monetary Policy Meeting in December 2017. In addition, the CBRT initiated Turkish lira-denominated long-term foreign exchange sales in November 2017. In addition, it became possible to repay in TL the foreign currency- yielding export rediscount loans, which will come to maturity by February 1, 2018.