MESSAGE FROM THE CHAIRMAN

In 2018, while the developed economies demonstrate healthy growth performances, a relative slowdown was observed in developing countries. On the other hand, risks which have potential to negatively impact the global economy are on the rise.

Dear stakeholders,

In terms of world economy, one of the major developments of 2018 has been the significant protective trade measures.

In its World Economic Outlook report dated January 2019, IMF confirmed its growth projection for 2018 as 3,7%.

In 2018, while the developed economies demonstrate healthy growth performances, a relative slowdown was observed in developing countries. On the other hand, risks which have potential to negatively impact the global economy are on the rise. Geopolitical developments in various parts of the world, particularly conflicts at the Middle East, global restrictive acts in global trade, slowdown in the outlook of some developed markets, particularly Brexit uncertainties, tightening monetary and fiscal policies were among primary factors affecting the global financial markets in a negative way.

USA government tended towards protective measures in foreign trade and took concrete steps in 2018. Tariffs levied on many products imported from China to USA had been reciprocated by retaliatory tariffs by China. After the escalation of the conflicts for a while, USA and Chinese leaders came to an agreement in November at the G-20 summit to hold off on new tariffs for 90 days. Tensions in international trade and potential unfavorable impacts on global economy are likely to be on the 2019 agenda which need closer scrutiny.

In 2018, decisions taken by the leading central banks which steer the global economy were realized parallel to expectations. Fed continued to reduce its balance sheet in 2018. After hiking the interest rates 4 times during the year, Fed released to the public its intention to follow a more moderate interest policy in 2019.

ECB gradually decreased the size of the asset purchase program and announced that it finally ended the program at 2018 year-end. Maintaining the interest rates stable throughout the year, ECB signals it may revise the interests up in the second half of 2019, depending on the performance of the Euro Zone. On the other hand, high unemployment rates and debt stock in many European countries, primarily in Italy, maintain their spots on the European Union’s agenda which will take a long time to solve.

Another major development that stands out in 2018 was the fluctuation of oil prices. Growth in developed countries triggered the increase in demand and oil prices tested the levels above USD 80. On the other hand, expectations on increasing concerns around recession in global economy due to Fed’s tight monetary policy and trade wars caused sharp decreases in oil prices.

Emerging markets have been affected by global liquidity conditions.

Strong recovery of the economies of developed countries in 2018 leads its way to a process where global liquidity conditions became tighter. This situation became more concrete in the third quarter and risk perception about developing economies deteriorated. Although the fluctuations did not last long, sharp falls have occurred in some markets including our country. Major value decreases were realized in national currencies while borrowing costs moved upwards and inflationary pressures increased.

According to International Finance Institute’s (IIF) data, as a result of tight monetary policies imposed by developed countries, portfolio investments in developing countries have declined in 2018.

Despite all these developments, common opinion is that no additional decline will occur in risk perception towards developing countries in 2019 and current growth composition of global economy will carry on.

Decreasing pace of Turkish economy became more evident in the last months of 2018.

After recording a strong growth performance of 7,2% and 5,3 % in the first two quarters of 2018, respectively, Turkish economy started to ease down and slowdown in economic activities became more evident.

Developments in August and increasing exchange rates caused significant losses in markets. The resulting scene put extreme pressure on companies’ balance sheets; tightened financial conditions and increase in resource costs suppressed the economic activities downward.

As a result of these developments, Turkish economy had a relatively low growth rate of 1,6% in the third quarter of the year. At the same quarter, increasing export performance with the support of strong foreign demand showed that a balancing trend in our economy is becoming more evident.

During the period, favorable developments in Turkey’s international relations and declining oil prices supported the upward trend of the values of Turkish assets. In the last quarter, it is expected that net exports had a significant role in growth.

In response to these sudden and rapid developments, the Government announced its new economic program named Balance, Discipline and Transformation in September 2019. Immediately after that, Total Fight against Inflation program has been enacted. Measures taken and rapid adoption of policies supported the balance in exchange rates and limited decline in interests in the last quarter of 2018.

In 2019, monetary and fiscal policies of the central banks of developed countries will be the determinant of global liquidity conditions. These circumstances will draw the outline of potentials to access global capital by Turkey and other developing countries.

Turkish banking sector experienced a loss of pace in 2018.

Developments in 2018 and recession in domestic market had its reflections in the banking sector as decrease in demand for borrowing and increase in interest rates.

Placement operations of the industry which improved its transaction volume in 2017, thanks to the support of debts extended with Credit Guarantee Fund (KGF) warranties started a slowing trend after the first quarter of 2018. While the exchange rate fluctuations became the determinant of the course and composition of deposits which is the main funding resource of the banking sector, the need for non-deposit resources have decreased.

As a result of declining economic activities, asset quality of the banking sector demonstrated a slight deterioration.

In our opinion, stabilization of the Turkish economy will continue in the first half of 2019. In the second quarter, recovery will start and Turkey will strengthen its position in global arena with new success stories. In this process, it is expected that the recovery will be gradual and Central Bank of Turkey will remain strong in its tight monetary policy until a permanent recovery is achieved.

Dear stakeholders,

In this second part of my message I would like to share TEB’s achievements in 2018, our synergic and strong collaboration with BNP Paribas, developments in our affiliate portfolio and my opinions for the future.

TEB ended 2018 with an asset size that approximates TL 97 billion and a credit volume of TL 64 billion.

As one of the building stones of Turkish banking sector and along with the global and regional vision of its shareholder BNP Paribas Group, TEB reinforced its strong position in Turkish market in 2018.

Our Bank demonstrates its concrete support to Turkish economy with a loan to asset ratio of 66%. In this context, TEB provided its high valued product and service proposition to its extensive customer base including millions of SMEs, start-ups and individuals with its one of a kind service and quality approach and achieved operational success at business lines, in line with its budgeted targets.

TEB is focused on offering products, services and solutions which provide high added value to its customers in all areas. Our Bank adopted many progresses towards differentiating and simplifying the customer experience.

TEB embedded innovation in its DNA.

Embedding innovation in its corporate DNA, TEB accelerated its efficiency and effectiveness in digital banking through progress in all business lines and continued to keep its operational costs at an optimal and competitive level.

Technology based innovative products we offer reinforce the legitimate and prestigious position of TEB brand in the Turkish market. These projects which are recognized as best practices within the BNP Paribas Group support our know-how exports.

TEB is also assertive in start-up universe.

Our Bank strives to bring innovative business ideas into the economy with an inclusive and supportive approach through its Start-up Banking structure for the last six years.

As being the first recognized name in Turkish banking sector as far as start-ups are concerned, TEB supports start-ups at every platform for their sustainable success and to help them find their way in the international arena. Adopting a lean strategy, TEB will continue to strengthen its existence in the start-up universe and create value for its stakeholders.

In 2018 we had the pleasure of initiating the financial literacy program.

TEB initiated the Digital Financial Literacy Program in 2018 for university students of today which are the financial consumers of tomorrow.

In this context, TEB visited each city to meet with university students and share information on new generation technologies and digital transformation topics.

Significance of improving the savings trend to increase the welfare of our country is non-negligible but pervasiveness of savings at every base is also of key value. Starting from the point of view of these simple facts TEB continues its efforts to raise a financially literate generation. Having provided financial literacy education to around 19 million people from different segments of the society TEB will continue its efforts in this area without losing pace.

We continue our operations in cooperation with BNP Paribas which is based on trust and respect and we create value for all.

Being a member and strategic partner of BNP Paribas, TEB continues its operations in cooperation with global elements of the Group based on mutual trust and respect.

Within the scope of its strategic partnership with BNP Paribas, TEB is focused on assuming pioneering roles and demonstrating its service difference in all areas. TEB combines its extensive experience and knowledge in Turkish market with its partner’s global service power and vision at appropriate scales.

TEB makes use of this synergy built on a global scale to constantly develop its service offering capacity in Turkey and to have an effective role in building an economic future for a large population of people along with its affiliates. In this platform, another topic which I deem important and would like to share is the fact that our affiliates demonstrated performances in 2018 which are worthy of their leading and pioneering positions in their industries.

With its professional management team, strong ownership structure and equity, TEB continues its progress towards future by firm steps.

In today’s busy and ever changing economic and political agenda of the global market, our expectations for 2019 are positive. We will keep on creating value with our business model designed on innovation.

Before finishing my message, I would like to present TEB’s 2018 financial results and statements for our esteemed stakeholders’ view.

On behalf of our Board of Directors and myself, I would like to thank TEB Management Team and all our employees who contributed to our 2018 performance and express my gratitude to all our shareholders for their valuable and continuous support.

                                                                                             
Yavuz Canevi
Chairman of the Board of Directors