Esteemed shareholders, customers, and employees:

Divergence increased in the global economy in 2014, with growth rates slowing especially among the emerging economies. Meanwhile a sharp drop in oil prices reset many of the world’s economic balances while also revealing new dynamics for our own country.

The US economy’s relatively improved performance and growth rates set it apart from both the EU and Japan. Economic activity in the euro area in particular was in or close to recession throughout the year while in Japan, which formally entered recession in the third quarter, policies intended to combat deflation fell far short of achieving the results expected of them. Slackening growth rates in China are sending out signals about the global economy’s future course that we cannot afford to ignore. We are also witnessing contractions in developing country growth rates to levels below those not just before the global crisis but after it as well.

Responding to clear and sustainable improvements in the US economy, the Federal Reserve Bank announced in October its decision to terminate the asset-buying program which it had been following for more than two years and which had played a huge role in restoring many economic parameters to good health, not least of them employment. In addition to this decision, the Fed also said that it would be keeping a close watch on economic developments and that its decisions to modify interest rates would be made accordingly.

As of this writing, the prevailing view is that the Fed will be increasing nominal interest rates in 2015 when and if developments in economic parameters warrant. However it is also thought that such hikes will remain within a narrow corridor and that real (that is above-inflation) interest rates will remain at or very close to zero for some time yet to come.

In Europe, inflation in the euro area slipped to such low levels in 2014 that the possibility of actual deflation was again being discussed seriously. To deal with this risk, the European Central Bank (ECB) cut its policy rate twice, reducing it close to zero. To support the financial sector, ECB also began supplying markets with liquidity through its long-term refinancing operations. Though taken as signals of impending monetary expansion, such measures proved incapable of making any visible improvement in the euro area’s economy; thus at the beginning of 2015, ECB officially announced that it would be embarking upon an asset-buying program of its own.

Turning now to the world economy and global balances, other significant developments in 2014 included problems in the Middle East and tensions between Russia and Ukraine. Events in both regions worsened risk perceptions about the outlook for the global economy, especially in the case of the developing countries, whose economic growth prospects had already been dampened by weak economic activity in both the EU and Japan.

Arguably the most important development on the global economic front in 2014 was a sharp drop in oil prices, which fell by approximately 50% in a fairly short period of time. Several factors contributed to this decline but the two most fundamental ones were a contraction in demand observed in some developed economies and a surge in shale gas production in the United States and the introduction of new extraction technologies. Although oil prices appear to be on the rise again as of this writing, their movements are expected to be moderate in 2015.

Exports made a significantly greater contribution to Turkey’s economic growth in 2014.
Responding in part to measures that were taken by authorities in 2014, domestic demand contracted significantly in Turkey. As private consumption expenditures declined however, the country’s growth acquired a rather more export-oriented cast.

Driven by the growth in exports, the foreign trade deficit was down year-to-year in 2014. So too was the current account deficit, though this was the outcome not just of improvements in the foreign trade balance but also of weak domestic demand. Turkey’s exports to Europe also helped narrow the current account deficit. In our opinion it seems possible that the ongoing contraction in the current account deficit will continue into 2015 as well so long as there are no extraordinary changes in global conditions.

Despite weak domestic demand, year-end inflation ended up somewhat higher than had been targeted. This was due partly to the delayed effects of a depreciating Turkish Lira and partly to higher food prices. Although the one-month CPI change was a negative 0.44% in December 2014, consumer prices were 8.17% higher than they had been the previous December and, based on their twelve-month averages, they were 8.85% higher.

In 2014 the Turkish Central Bank (CBRT) sought to deal with potential market risks that might have an impact on price stability through proactive policies and approaches. During the first five months of the year, CBRT maintained a prudent stance in its monetary policy but, paralleling improvements in risk perceptions as summer began, (CBRT) lowered its policy rate to 8.25%. While holding that rate at the same level for the rest of the year, in October (CBRT) announced that it would begin paying interest on the Turkish lira components of financial institutions’ reserve requirements, saying that it was doing so in order to encourage domestic saving. We are of the opinion that this decision is an important step in the direction of bolstering the average propensity to save in Turkey, which is rather low compared with what prevails in developed economies.

The Turkish banking sector’s healthy development remained on course in 2014.
Having undergone a radical transformation in the early 2000s and successfully emerged from the global financial crisis of 2008, the Turkish banking sector continues to grow soundly and sustainably.

While weak domestic demand was instrumental in depressing most banks’ lending in 2014, measures taken by the Banking Regulation and Supervision Agency (BRSA) also had the effect of retarding credit growth, particularly in the retail segment.

According to BRSA-published figures, the Turkish banking sector had total assets worth TRY 1,994 million at year-end 2014–15.1% higher than they were at year-end 2013. During the same twelve months, total bank lendings increased by 18.5% and reached TRY 1,240.7 billion. Deposits, which were up by about 11% or so, weighed in at TRY 1,052.7 billion at year-end. The sector reported an aggregate standard capital adequacy ratio of 16.3%.

The Turkish economy’s growth outlook is likely to change in 2015, even if only by a little.
We believe that the Turkish economy’s prospects mean that growth in 2015 is going to be different than what it was in 2014. A growth composition in which domestic consumption and investment outlays play a greater role and exports make a relatively smaller contribution is what will shape the 2015 panorama. That said, it can also be expected that, in any case, exports’ net contribution to growth will remain positive.

In 2015 the biggest issues on the global economy’s agenda will be US Federal Reserve and European Central Bank monetary policies. The process of economic normalization in the United States will inform Fed decisions to begin raising interest rates whereas in Europe the ECB can be expected to pursue its efforts to restore economic activity. Such factors could bring about volatile surges in capital flows in the direction of emerging economies such as our own.

Owing to the income effects of lower energy prices and to developments in inflation, (CBRT)   may have recourse to interest rate cuts that would most likely support economic growth in 2015.

Owing both to its own, unique growth dynamics and to moderate movements in oil and other commodity prices, Turkey will continue to enjoy a relatively more attractive position than is the case among other emerging economies.

The most serious risk to growth among the developing countries in 2015 will be persistently weak global growth everywhere but in the United States. In this scenario, a slowdown in growth in China will hit Far Eastern emerging economies the hardest while Middle European countries will be most affected by economic conditions in the European Union.

In light of everything said so far, we expect that Turkey will perform rather better than other developing countries in 2015 and that it will achieve a year-on growth rate on the order of 3%.

TEB will continue to stand by those who contribute to Turkey’s economy.
One of the cornerstones of our country’s banking industry, TEB completed 2014 with nearly TRY 63 billion worth of assets and TRY 45.4 billion worth of credit placements. Distinguishing itself with a solid lineup of products, services, and solutions in every aspect of modern banking, TEB has been contributing to Turkey’s economic development and to its customers’ wellbeing throughout the many decades since it was founded.

Today our bank engages with its strategic partner BNP Paribas in a collaborative effort that is rooted in mutual trust and respect. TEB stands constantly by its customers as it successfully manages even the most difficult economic conditions. By combining its tremendous understanding of Turkey’s markets with the international service clout and vision of its global partner, TEB creates value through business models and strategies that are based on specialized knowledge and experience. Similarly the synergies that we create through our subsidiaries play a role in our ability to reach an even broader audience and to enhance the value that we can offer.

It therefore gives me pleasure to say that 2014 was a very successful year not just for our bank but also for our subsidiaries as well. We have achieved significant progress in every parameter from customer numbers to transaction volumes.

Esteemed shareholders, customers, and employees:

Before concluding this message I want to briefly share with you a few remarks about the social dimensions of our bank’s efforts to create value.

TEB provides multidimensional support to the small- and medium-sized businesses and to the entrepreneurs–women as well as men–that underpin every nation’s economy. Our bank engages in exemplary efforts and invests in activities aimed at improving financial literacy and awareness throughout society. This is a matter which we see as being an essential element of our sense of social responsibility: we are and we will remain committed to involving ourselves in projects that are regarded as “best practices” not just in our own country but at the global level through our membership in the BNP Paribas Group.

In this context there was a development last year that I believe to be of especially great importance. As a result of a project undertaken jointly by TEB and the Small and Medium Enterprises Development Organization, with which our bank has been collaborating for many a year, the results of the world’s most comprehensive Entrepreneurship Index survey were announced in 2014. This survey, in which the Global Entrepreneurship Monitor polled more than 33,000 people, is certain to be a major reference point for the future development of Turkey’s entrepreneurial ecosystem.

As a corporate citizen with a strong sense of social responsibility, TEB is encumbered by responsibilities towards many different stakeholders and it is mindful of balancing all their interests in the conduct of its activities. We believe that handing a healthier ecosystem to future generations as well as turning over a social structure capable of supporting growth and development are responsibilities in which everyone shares. We therefore make a special effort to create value in such areas in the conduct of every aspect of our business.

Competition tomorrow is going to be even more intense and the race is not just going to be faster but more global. As a deep-rooted and dynamic financial institution, TEB will continue to run in the very forefront of that race. And as it does so, our human resources will continue to be our most precious asset and source of energy.

In closing and speaking on behalf of the Board of Directors as well as personally, I take this

opportunity to thank you, our valued shareholders, team, customers, and business partners for accompanying and having confidence in us throughout our journey.

Yavuz Canevi