VKF_FRAE_2017

PART I: INTRODUCTION 64 VakıfBank Annual Report 2017 VakıfBank continued to increase its deposits and funding source cost management effectively in 2017, in spite of the ongoing fluctuations in the markets. REVIEW OF OPERATIONS IN 2017 Following the US Presidential election in 2016, uncertainties regarding the global economy had increased; it was expected that growth would accelerate in the USA due to supportive fiscal policy, and that the Fed would tighten its monetary policy faster than previously anticipated. However, in 2017, there was no visible progress in the expansionary fiscal policies and protectionist trade policies that the administration aimed to implement and the normalization process in monetary policy became more evident, both of which played an important role in reducing the uncertainties. In 2017, the Fed realized three 25-basis point hikes in March, June and December, raising the policy rate to the 1.25%-1.50% interval. At the September meeting, the Bank gave a message to the markets that it will stick to its normalization process. Although the Fed initiated its balance sheet downsizing operations in October 2017, the mentioned development did not have a negative impact on financial markets, as it was already expected. The effect of the mentioned operations on the global markets is not fully visible as of end-2017. At the December 2017 meeting, the members of the Fed predicted three interest rate hikes for 2018, and the markets prices point to a similar direction. Jerome Powell, who will replace Janet Yellen as Fed Chairperson in February 2018, is expected to maintain the current policies. The European Central Bank, which has been dealing with low growth, concerns over the banking system, public debt burdens and the Brexit process in the UK in the last few years, has adopted additional measures for its expansionary monetary policy, reduced policy interest rates and started buying corporate bonds. Elections in the countries of the region led to a reduction of political uncertainties and a recovery in economic activity became visible. At the ECB’s March meeting, President Draghi stated that there negotiations are underway for raising the interest rates, after which Euro started to appreciate against the US Dollar. At its October meeting the ECB decided to reduce its bond purchases starting from January 2018; however, in the announcement, it was stated that the policy rate will not be increased for a while once the bond purchases are over. The increased momentum of global growth, OPEC’s decision to cut production, the interruption of US oil production by a hurricane, and developments in the Middle East have caused a slightly increase in oil prices. The other commodities fared calmly during the year. In 2017, developing countries pursued distinct monetary policies. The central banks of Brazil, Russia, Colombia and Indonesia reduced interest rates; while the central banks of Mexico, South Korea, Venezuela and the Czech Republic increased rates. Due to the expectation that the normalization in developed countries will be moderate until the end of the third quarter of 2017, there were portfolio inflows to developing countries. Particularly after March, the share of foreign investors in the government debt security stock increased as a result of strong capital inflows into the government debt security markets, and the Treasury increased its external debt in response to strong foreign demand. A similar situation was observed in the foreign exchange rate, as Turkish Lira started to appreciate against other currencies from March onwards. However, due to geopolitical risks in our country, Turkey has sharply decoupled from other developing countries during the rest of the year; the Turkish Lira depreciated, and interest rates rose slightly. TREASURY MANAGEMENT Global growth begins to gain momentum, OPEC’s decision to cut production, the interruption of US oil production by a hurricane, and developments in the Middle East have caused a slight upsurge in oil prices.