VKF_FRAE_2018_uyg11

94 Section II: Management and Corporate Governance Principles SUMMARY REPORT OF THE BOARD OF DIRECTORS Esteemed Shareholders, 2018 marked reciprocal increases in customs tariffs and downside risks regarding global economic growth. The US economy maintained its growth driven by financial incentives, recording a 3.4% growth rate in the third quarter of 2018. The US Central Bank, i.e. the Fed, hiked interest rates four times in 2018, in parallel with the macroeconomic indicators announced. In their last meeting of 2018, the Fed raised the benchmark rate up to the levels of 2.25% and 2.50%. In the Eurozone, major events of 2018 were the developments around Brexit. The Eurozone economy is up by 2.4% in the first quarter, 2.2% in the second quarter and 1.6% in the third quarter, revealing a slow-down in the growth trend for the period. The European Central Bank (ECB) finalized the quantitative easing as of the end of December, and carried on with the normalization of monetary policies. Standing at a growth rate of 6.6% in 2018, the Chinese economy saw record lows in the last 28 years due to escalating trade wars with the US. The emerging trend of protectionism in global trade resulted in downside risks for developing countries, and the emerging markets faced capital outflows and declining currency values in this period. As the financial conditions tightened and concerns around global trade mounted, the Turkish economy is up by 7.2% in the first quarter, 5.3% in the second quarter and 1.6% in the third quarter of 2018. This equaled a moderate annual growth of 4.7% for the first nine months of the year. However, the country’s economy endured various speculative attacks that remain unexplained by macroeconomic indicators. Foreign exchange fluctuations observed in August were overcome by the proactive, timely and adequate measures taken by the new economy administration, the Banking Regulation and Supervision Agency (BRSA), and the Central Bank of the Republic of Turkey (CBRT). The New Economic Program announced on September 20 targeted a change focusing on added value in production and exports based on rebalancing in economy and monetary discipline. Macroeconomic indicators of the last quarter of 2018 and leading indicators for 2019 manifest a successful progress in the rebalancing process. CBRT reserved its tight stance on monetary policy in the period. In May 2018, the CBRT completed the simplification process and set the one-week repo rate at the benchmark interest. The CBRT opted for strong monetary tightening in its meeting in September, due to fluctuations in financial markets. Therefore, the benchmark rate was raised to 24%. The CBRT also performed a series of arrangements utilizing all available instruments to maintain financial stability and provide banks with higher flexibility in liquidity. In the meanwhile, the Turkish banking sector maintained its robust capital structure. Total assets of the banking sector procured TL 3,867 billion as of December 2018, attaining a 19% increase year-over-year. Cash loans extended by the banking sector rose to TL 2,395 billion marking a 14% growth, whereas the contribution of the sector to the Turkish economy amounted for TL 3,175 billion together with non-cash loans. Shareholders’ equity of the industry increased by 17% in this period, while the capital adequacy ratio was realized at 17.27% as of December 2018, up from 16.85% in 2017. In 2018, VakıfBank continued to contribute to the country’s economy with a YoY growth of 22.46% in assets that stands for TL 331.4 billion. The Bank’s performing loans procured TL 221.6 billion with a considerable above- the-market growth of 21.1%, and loans have once again been the main driver of the Bank’s growth. A glance at the breakdown of loans reveals that the real sector was supported strongly by a 26.1% increase in commercial loans, procuring TL 170.2 billion. Retail loans is up by 7.2% and reached TL 51.4 billion. VakıfBank’s total deposits is up by 15.5% to TL 179.4 billion, while demand deposits were up by 19.8% and term deposits by 14.5%. In addition to deposits, VakıfBank diversified its funding sources in 2018, and obtain USD 5.8 billion cost effective and long-term foreign funds. VakıfBank’s shareholders’ equity rose to TL 28.4 billion in 2018, and the net profit for the period is up by 11.6% to TL 4,154 million. The average return on equity was actualized as 16.10%, return on assets as 1.38% and capital adequacy ratio as 16.99%. We would like to thank our customers, employees, and shareholders for their contributions to our results in 2018. Respectfully, TÜRKİYE VAKIFLAR BANKASI T.A.O. BOARD OF DIRECTORS