TEB 2015 Annual Report

The US economy also continued to grow in 2015. The recovery in the employment market continued and unemployment edged down towards its pre-crisis levels. At the same time, the US dollar maintained its strength and inflation remained below the 2% target. The US economy grew by 2% in the third quarter of 2015 compared to the same period of the previous year.

In light of these developments, the US Central Bank (Fed) raised interest rates by 0.25 base points on 16 December 2015, in the first interest rate hike for 10 years. Although this may appear to be a small step, it is a giant leap in terms of its significance which will determine the course of the global economy in the short and medium term.

In addition to its decision taken on 16 December 2015, the Fed stated that it would closely follow developments in the economy and decide on any new interest rate hikes accordingly. As Governor Janet Yellen also stated, the developments that will emerge in economic parameters and the progress of inflation towards 2% target will be primary factors to take into account of in the future decisions on interest rates. We would expect the Fed to act cautiously before raising rates again, with any further rate hikes being limited.

Although the Fed’s interest hike had long been expected, the market welcomed the move with the US dollar gaining value and the US Treasury bonds clawing back losses.

The impetus behind the Fed’s decision to raise interest rates was the recent performance of the US economy, the improvement in employment and the sustainable developments in growth rates. During this process, the US economy decoupled from the EU and Japan; and while policies aimed at tackling deflation continued to be implemented in the Euro zone and Japan, the US began reaping the fruits of the asset purchasing programs that it has been implementing unwaveringly.

Successful policy implementations by the European Central Bank (ECB) also reflected to economic performance in Euro zone.

The recovery in the Euro zone began in 2015 as production of capital goods and durable consumer goods increased. The Manufacturing PMI (Purchasing Managers' Indices) index, one of the most important indicators of these positive developments, also exceeded expectations in December 2015.

The ECB extended the duration of its asset purchasing program which it had started implementing in 2015, initially announcing that would continue to implement the program until September 2016 before later stating that the program would continue until March 2017. Due to the soft trend in inflation indicators, the ECB is expected to extend the asset purchasing program further and to further decrease deposit interest rates, which are already negative. Such a step to be taken by ECB would provide stronger leverage for positive developments in the Euro zone, helping ensure that economic growth is sustainable and paving the way for improvements in employment conditions.

Slowdown in growth in developing countries

Increasing volatility in developing countries in the second half of 2015 caused economic growth to lose momentum. The growth composition of developing countries over the last two years illustrates that internal factors are not sufficient to enable strong growth.

In addition to external factors such as geopolitical factors and the monetary policies pursued by the central banks of developed countries, the economic success of developing countries was also influenced by trade flows and global competition. Besides the volatility experienced in financial markets during 2015, there were falls in the currencies of developing countries as a result of the improvement observed in the advanced economies, particularly the United States and the Euro zone.

According to the IMF, the three main themes will shape the world economy.

In its Global Prospects and Policy Challenges report, the IMF refers to three themes that will determine the course of the global economy in the near and mid-term: approaching end of the ongoing downward trend in commodity prices - particularly in oil for 10 years; the Fed’s normalization of its monetary policy; and the balancing process of China’s growth model. The IMF also highlighted the issue of international migration, as this puts pressure on the economies of countries that have been receiving waves of migration and those countries migrants have been fleeing from.

The weakness in emerging markets and ongoing fragility in developed countries remain obstacles for the global economy. Reaching balanced and sustainable growth will require some time, especially for the Euro zone. Structural economic differences in the countries of the Euro zone require new and fast policy harmonization.

Has China’s run of rapid growth come to an end?

China's economy grew by 6.8% in the fourth quarter of 2015 and by 6.9% in the whole year. This growth performance, which was dominated by domestic consumption and the service sector, marked the lowest level of growth recorded by China in the last 25 years.

Independent analysts come up with different arguments about the future of China's economy. Some argue that the slowdown has been due to the transformation in China’s economic structure, and that it is a normal process, while others argue that China is wrought by very deep problems with the country facing a large credit balloon. There is also a view that China's economy will experience a sharp contraction, not a soft landing.

All these views may have merit, but what is clear is that the Chinese economy is in a process of transition into a consumption-driven growth phase from one driven by investment growth. With this process is bound to come a certain degree of slowdown and structural changes.

What’s in store for the global economy in 2016?

The deflationary environment which the global economy has been in for some time will continue, and in this context, commodity prices are likely to remain low in the global market. On the other hand, only a moderate rate of growth can be expected. By economic bloc, it would be reasonable to assume that the recovery in advanced economies will continue in 2016 and beyond, while emerging economies will come under increasing pressure by the tightening in capital flows and structural problems.

A strong economic performance from Turkey despite volatility in the markets

In addition to fluctuations in global markets, two general elections and political uncertainty in Turkey, and the unrest experienced in the Middle East - particularly in neighboring countries - has put pressure on Turkey’s economic growth. Despite the challenges both at home and abroad, Turkey's economy notched up 4% growth in the third quarter of 2015, exceeding market expectations of 2.8%. The result stood as testament to the strength of Turkey’s structural dynamics in its economy, its financial system’s and its sustainable growth potential, despite all the difficulties the country faces in a global and national conjuncture.

The country realized a rate of growth of 3.4% in the first 9 months of 2015 when compared to the previous year and the government announced that it had met the growth target of 4% for 2015 when it revised its Medium Term Program in January.

Inflation was realized at 8.81% in 2015, above the target of 5%. Steep rises in food prices and a fall in the currency played a role in the continued high levels of inflation.

Fiscal discipline was carefully maintained in 2015, with the budget deficit to GDP ratio realized at 1.2% - an extremely low rate. The current account deficit narrowed as a result of the impact caused by the decline in imports due to the weaker currency as well as the fall in oil prices.

Central Bank still implementing a tight monetary policy

The Central Bank continued to implement a tight monetary policy in order to limit the impact of exchange rate movements during 2015 and the volatility in energy and food prices on inflation. In this context, market interest rates have been kept at the upper boundary of interest rate corridor. By revising the operational framework of its liquidity policy in 2015, the low interest rate that the Central Bank provided for overnight borrowing by the market maker banks was removed and guarantee conditions were simplified. However, due to continued volatility in global markets, the Central Bank maintained the wide interest rate corridor.

Continued growth in the Turkish banking sector

In a year marked by high volatility, the Turkish banking sector maintained its sustainable growth. The sector's balance sheet continued to grow while profitability exceeded the levels seen in the previous year.

There was a slowdown in the growth rate of personal loans, while the growth in commercial loans indicates that the banking sector continues to increasingly support economic development. The Turkish banking sector is expected to maintain its healthy growth in 2016.

Esteemed Shareholders,

In this second part of my message I would like to touch on TEB's gains in 2015, our strong cooperation and synergy with BNP Paribas and my views for the future.

TEB, one of the most established and respected members of the Turkish banking sector, ended 2015 with nearly TL 72 billion of assets and TL 53 billion of loan volume. In addition to SMEs that produce, provide employment, pay taxes, carry out exports - in other words build the future of the country's economy - we adopt a mission of supporting women entrepreneurs, whom we attach great importance to and support their participation in economic life, and other economic actors during their production-trade cycles. We continued our work in this direction in 2015.

Providing products, services and solutions with high levels of value added to its customers in all areas of banking, TEB implemented a number of new initiatives in 2015 focused on differentiating and simplifying the customer experience. Technology based innovative products that we put to the market as a financial service provider which we have developed through integration and innovation, strengthens our rightful and prestigious position that we have reached in the Turkish market.

Working together with our strategic partner, BNP Paribas, in a synergic cooperation based on mutual trust and respect, TEB always stands with its customers even in the most difficult economic circumstances. Within the scope of our strategic partnership with BNP Paribas, we are focused on playing a pioneering role in the sector and demonstrate our difference in every field. TEB’s vast experience and knowledge in Turkish market combined with our partner’s global services strength and vision enables us to continue to create value not only for our customers, but for our all stakeholders, benefitting from our strategies and our business model based on specialization and knowledge.

TEB’s other key strength is its service delivery platform created with its subsidiaries. When our Bank’s service delivery capacity is evaluated together with our subsidiaries’, it is clearly seen that we play a role in planning and building the economic future of a large audience’s.

Despite the hectic and ever-changing economic and geopolitical agenda we have been experienced in 2015, we have high expectations for 2016.

Our business model that is built on innovation will continue to create value for all of our stakeholders in 2016.

Thanks to its professional management team, its strong shareholders structure and equity, TEB will continue to take firm steps forward.

In concluding my message, I would like to submit TEB’s operating results and financial statements pertaining to 2015 for the review of our esteemed stakeholders.

I would like to thank all of my colleagues who contributed to the 2015 results for their devoted work, while I would also like to extend my gratitude to our shareholders for their continued support, both personally and on behalf of our Board of Directors.

Yours respectfully,

Yavuz Canevi
Chairman of the Board