VKF_FRAE_2017

PART I: INTRODUCTION 28 VakıfBank Annual Report 2017 In the third quarter of 2017, the nation’s economic growth rate reached a double-digit figure, namely 11.1%. The 2017 growth figure of the Turkish economy is expected to come in at over 7%. MESSAGE FROM THE GENERAL MANAGER Distinguished shareholders, In 2017, due to the rise in the level of confidence, the global economy continued to recover at a mild tempo. The Fed increased interest rates three times in 2017 and announced that it will start to reduce its balance sheet of USD 4.5 trillion. In addition, Euro Zone continued its asset purchasing program and quantitative easing policy, and in the fourth quarter, it grew 2.7% year-over-year. As for developing countries, inflation rates are generally on a downward trend but real interest rates are high in countries like Russia, Brazil, South Africa and Indonesia. During this period, Turkey grew strongly in the first two quarters, mainly due to the effect of the incentives proactively provided by the political authorities, especially the Credit Guarantee Fund. In the third quarter, growth was in double digits, reaching 11.1%. With this performance, Turkey became the fastest growing economy in the world in the third quarter, leaping over all other countries. A look in detail at the components of spending shows that the highest contribution to growth in the third quarter of 2017 came from household spending and investment spending, due to the fact that the impact of loans granted under the Credit Guarantee Fund (CGF) continues in the third quarter. Growth in 2017 is expected to come in at over 7% on an annual basis. There was some pressure on inflation and interest rates during the year due to the increase in household consumption and investment expenditures, which are the major components of this strong growth. In 2018, it is expected that interest rates will head down in parallel with the expected fall in inflation. In the year 2017, VakıfBank continued to contribute to the national economy with all its strength, by supporting large scale infrastructure and investment projects, corporate and commercial companies, SMEs, local governments, farmers and households. During this period, we increased our assets by 27.30% to reach TL 270,572 million. The most significant contribution to the growth of assets came from loans. We increased our commercial loans by 27.84% and retail loans by 16.85%. As such, our cash loans increased 24.77% to reach TL 182,932 million. In this period, we increased our non- cash loans by 25.51% to the order of TL 50,768 million. In the field of SME Banking in 2017, we increased the variety of our products and services, enabling SME customers to access financial products in a much more practical manner. We increased our SME loans by 29.4% compared to the end of the previous year to the level of TL 48.3 million. In addition, as of December 29, 2017, we extended loans amounting to TL 20,768 million under the guarantee of the Credit Guarantee Fund (CGF). Thus, in 2017, we became one of the top three banks in the allocation of CGF-backed loans. On the funding side, deposits remained our most important resource. We increased our total deposits by 25.39% to TL 155,277 million. In addition to deposits, we also used alternative funding sources actively to extend the maturity term of TL resources with non-deposit products and to increase diversity of funding sources. In October, VakıfBank issued a Covered Bond amounting TL 1.3 billion, which is also the first TL denominated Covered Bond transaction in Turkey apart from those made with multinational development banks. The Bank realized a second TL 1.3 billion Covered Bond issuance in December, thus raising in total TL 2.6 billion based on treasury transactions from international debt capital markets under its Covered Bond Programme. The Bank also issued TL 525 million subordinated loans to the domestic market; as such, together with the long-term Covered Bond issuances, the Bank raised a total of TL 3.2 billion in long-term, non-deposit funds in 2017. Our total international borrowings reached USD 12.6 billion, together with the USD 5.2 billion funds obtained from abroad in 2017. These funds, which make up 20% of the Bank’s balance sheet, are a clear indication of the confidence in the Turkish economy, Turkish banking sector, and the Bank.