VKF_FRAE_2017

PART II: MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES 92 VakıfBank Annual Report 2017 SUMMARY REPORT OF THE BOARD OF DIRECTORS Dear Shareholders, Although the global economy entered the year 2017 with geopolitical turmoil and political risks, the reinvigoration of especially the Euro Zone, and developments in the global commerce and financial markets brought about a moderate recovery. The major agenda items in this period were monetary normalization measures by the central banks of US, Europe and other developed countries, the uncertainty concerning the fiscal and commercial policies to be implemented in the USA, the political uncertainty in Europe and China’s debt burden reduction process. The Fed raised its policy rate three times at its March, June and December 2017 meeting to the range of 1.25%-1.50%. Bank’s lower profitability, overdue receivables, and other concerns related to the financial system persisted in the Euro Zone, where expansionary monetary policies continued in order to support economic activity. The US economy grew 2.3% in 2017 but uncertainties associated with the Trump administration continued to put pressure on the national economy. In this period, developing countries’ growth made a significant contribution to the overall growth of the global economy. The portfolio flows towards the developing countries which began in early 2017 continued as well. In this mild global economic growth environment, the Turkish economy expanded by 5.3, 5.4 and 11.1% in the first three quarters of 2017 respectively. The year-end growth is expected to come in above 7%. The accurate measures introduced by the government from end- 2016 until early 2017 played a key role in this growth performance. Especially, the success of the Credit Guarantee Fund scheme was a crucial factor. A prominent feature of the Turkish economy is its strong fiscal discipline, which reduces its vulnerability towards negative external shocks. Central Bank of the Republic of Turkey (CBRT) maintained its tight monetary policy stance to preserve and sustain price stability in 2017. In this period, the CBRT provided liquidity to the market mainly by the late liquidity window and increased its LLW lending rate to 12.75% at its meeting in December. The CBRT also took some measures against the rise in the foreign currency exchange rate during this period. To this end, the upper limit for the foreign currency maintenance facility within the Reserve Option Mechanism (ROM) was reduced from 60% to 55%, and all tranches were reduced by 5 points. In addition, CBRT began Turkish Lira-settled foreign exchange sale auctions at negotiated maturity terms. The banking sector has maintained its strong capital structure as usual. The recent domestic macro prudential policies, government measures and incentives, and CGF loans resulted in an increase in loan volume, and loan risk was lowered with the increasing share of CGF collaterals. In this period, banking sector loans reach to TL 2,098 billion increasing by 21%. In addition, in 2017, the banking sector diversified its funding structure through domestic and international issuances and continued its efforts towards extending the average maturity of funding. Total deposits of the sector increased by 17.70% compared to the end of 2016 and reached TL 1,711