Although it has been a long time since the global financial crisis broke out, the global economy was still seeking a new balance in 2012. Economic growth slowed in 2012, but the Turkish economy was able to successfully manage the soft-landing process.
Developments in the Eurozone have had a significant impact on the global economy in 2012. In general, growth rates in developed and developing economies declined during this period, while a considerable degree of volatility was observed in the global risk appetite. The key developments during the year were the high unemployment rates and the fiscal cliff in USA, the public debt, the banking sector and issues of trust in the Eurozone, and a new government in Japan coming to power promising to attach priority to growth and monetary expansion, and monetary expansion policies applied throughout the world.
Despite the relatively positive rate of growth of the US economy, the FED announced a 3rd quantitative expansion package amid stagnation in the housing market and employment. After having focused on presidential elections in 2012, attention in the USA turned to the fiscal cliff danger in the last quarter of the year. The problem, known as the "fiscal cliff" by markets, where tax cuts offered in previous years would be reversed at the same time as federal spending would be cut, raised the prospect of risk to the forefront, negatively affecting global markets. Thanks to an agreement reached in the first days of 2013, the fiscal cliff was put off for another day, alleviating fears for the time being.
Central banks of developed countries continued to loosen their monetary policies in 2012. Besides the monetary expansion programs applied in Europe, the European Central Bank (ECB) announced a short-term bond purchase program for highly indebted countries. Through bond purchases, the ECB sought to bring the high interest rates on borrowing in Spain and Italy under control. The ECB's efforts to protect the Euro at all costs and the EU's measures to ensure the survival of the banking sector have significantly eased the concerns for the European economy.
The new Japanese government adopted a policy of monetary expansion in the last quarter of 2012, and raised its inflation target to 2%. Japan also announced that it would buy a certain amount of assets every month, with no time restriction, beginning from 2014.
Emerging economies also encountered weaker growth rates in 2012, while inflation and exchange risks became a more pressing danger. Providing the largest contribution to the average growth rate of developing economies, China – the world's second largest economy – continued to suffer from a weaker growth trend in 2012. Having closed the year with 7.8% growth, China's economy recovered towards the end of the year. Leading indicators show that China will continue to grow strongly, but at a lower rate than its average trend.
The IMF estimates that global GDP grew by 3.2% in 2012 and projects a small increase in the rate of growth to 3.5% in 2013. According to the same projection, emerging economies will maintain their strong growth and grow at an average rate of 5.5% in 2013, leading global economic growth. According to IMF's projections, developed economies will achieve an average 1.4% rate of growth in 2013.
At the beginning of 2013, it was observed that many countries still continued to face problems in their real economies; trust has not yet been fully restored in the markets, and the problems regarding employment and investment have not yet been resolved. Against this backdrop, the first half of 2013 is expected to follow a broadly similar trend to that seen in 2012, with economic recovery beginning in the second half of the year before gaining momentum in 2014 and beyond.
Having demonstrated a relatively strong performance during the global crisis, the Turkish economy underwent a period of economic stabilization in 2012 in line with its sound and sustainable growth target. The stabilization of the Turkish economy became apparent in 2012. The tight monetary policies applied by the CBT set the stage for a relative slowdown in economic activity, while inflation began to fall and Turkey's current account balance improved. As a result, it is estimated that Turkey's GDP grew by 2.5% in 2012.
The problems in the Eurozone and the stagnant outlook for the European economy limited foreign demand. Europe's share in Turkey's exports declined, while Turkey maintained its intensive efforts to seek alternative markets. Sales made to countries in Africa and the Middle East, which have started to account for an increasing share of Turkey's exports, supported the expansion in Turkey's exports. The current account deficit continued to narrow as a result of the slowdown in domestic demand, while the current account deficit/GDP ratio fell from 10% at the end of 2011 to under 7% by the end of 2012.
Due to the fall in the TL against other currencies, tax measures and rising food prices, the rate of inflation was realized as 10.45% in 2011. However, the rate of inflation fell to 6.16% in 2012, marking its lowest yearend level since 2005. The declining trend in prices of unprocessed foods, as well as policies applied and the removal of the base effect of the previous year were all instrumental in the fall in inflation rate.
Short-term capital flows into developing countries recorded a recovery in 2012, while risk premiums in emerging economies fell in line with increasing global risk appetite. As macroeconomic indicators, notably the current deficit, were more positive than expected, and with Fitch Ratings – an international credit rating agency – raising Turkey's long-term credit rating to investment grade in November, there was an increase in short-term capital flows into our country.
Within this framework, the CBT has applied a mix of policies since the end of 2010, and begun to use additional tools that support financial stability. Between the last quarter of 2011 and the middle of 2012, the CBT applied a monetary tightening policy in different periods because of the volatility in risk appetite and risks associated with the inflation outlook. In line with the improvements in the global risk appetite beginning from June 2012, the CBT began to step up the liquidity provided to the market, gradually lowering funding costs.
The CBT guarded financial stability as well as price stability through its multi-purpose and multi-tool policies applied throughout the year. The CBT played a major role in the markets with the proactive use of tools such as the interest rate corridor, required reserves and the reserve option mechanism.
For Turkey, 2013 is expected to be a more positive year than 2012 from the perspective of growth, inflation and current account deficit trends. With interest rates projected to remain low, Turkey is expected to continue drawing financial resources with low interest rates from foreign countries. Turkey will undoubtedly maintain its cautious multi-purpose and multi-tool monetary policy with an uncompromising stance towards its budget performance.
Despite the uncertainties and intensive competition in the global economy, the Turkish banking sector has notched up steady growth. Thanks to its robust capital structure, asset quality and profitability, the Turkish banking sector has played a key role in protecting the healthy structure of the Turkish economy since 2008, which marked the onset of the global economic crisis. By allocating resources to the national economy, the Turkish banking sector provided a strong foundation for economic activity to gain momentum, thus significantly supporting Turkey's rapid growth in the aftermath of the global economic crisis.
In 2012, the banking sector achieved a controlled rate of growth in its credit volume. Measures taken in the first half of the year aimed at establishing financial stability had an upward effect on funding costs, which curbed the growth in the banking sector. Beginning from the second half of 2012, in parallel with the positive developments in the current account deficit and the general economy, the CBT adopted a policy of increasing liquidity in the markets and lowering funding costs, thus allowing credit growth to gain momentum again.
In 2012, the ratio of non-performing loans in total loan volume increased slightly, ushering in a significant change in the asset structure of the banking sector. The ratio of loans in total assets rose from 44.9% in 2006 to 58.5% by the end of 2012.
Thanks to its sound capital structure and asset quality, the Turkish banking sector is expected to grow at a rate close to Turkey's economic growth in 2013, with the increase in SME and consumer loans on course to continue.
In 2012, we celebrated TEB's 85th anniversary with our stakeholders. As one of the building blocks of the Turkish banking sector, TEB maintains its progress in its 86th year as a stronger, more dynamic and more agile service provider. In our first full operating year after the merger, we demonstrated an extremely successful performance.
The realizations in 2012 stand as an important indicator of TEB's strong growth potential. Our Bank has always allocated an increasing volume of resources and support for such sectors, especially SMEs, which operate in the manufacturing industry and create new jobs, and will continue to do so in 2013 and beyond. Such support will play a vital role in boosting economic output and contributing to Turkey's target of sustainable growth and development. As long as we allocate resources and support to private sector through our banking products and services; employment and domestic and foreign trade will remain on track to improve.
Looking to the future, we predict that
As in the past, TEB will unstintingly continue to pay regard to transparency, accountability, ethics, risk management and corporate management.
With the increasing support of the BNP Paribas family that we are a part of, our Bank will continue to attach importance to speed, quality, generality and creativity, thus raising customer satisfaction.
TEB is well aware that the road to success is one that is only travelled on with the timely offering of new products and services, which will cover our clients' various needs. In today's market conditions, generality, depth, quality and speed have become crucial; even under these circumstances, TEB will continue to make a difference in many areas like distribution, technology and product development.
While presenting TEB's operating results and financial statements for the 2012 year for your valuable consideration, I would like to take this opportunity to extend my gratitude, on behalf of myself and our Board of Directors, to all of my colleagues for their successful efforts and to you, our shareholders, for your continuous support.
Chairman of Board of Directors