MESSAGE FROM THE CHAIRMAN

In 2019, TEB continued to be the solution partner of its customers with its wide array of financial products, services and solutions.

Esteemed stakeholders,

One of the most important developments of 2019 in the global economy was the expansionary monetary policy practices implemented by the central banks.

In the first half of the year, with the prevailing tendency in US-China trade policies, increasing tariffs caused a delay in investment decisions on a global scale and a significant loss of momentum in the manufacturing industry. In addition, the negative developments in Britain's process of leaving the EU raised expectations that the existing foreign trade agreements would have to be drawn up from scratch, leading to significant volatility in the currencies of developed countries, especially in Sterling. This situation adversely affected the economies of developed countries.

The US and European central banks, which influence economic activity on a global scale, were unable to remain on the sidelines in this situation and in the second half of the year, when the global monetary expansion process resumed again, these central banks rolled out interest rate cuts and asset purchase programs. The US Federal Reserve (FED) reduced interest rates by a total of 75 basis points with 25 basis point cuts in July, September and October. The Fed, which cut its policy rate to a range of 1.5-1.75%, ended its process of balance sheet reduction and started buying monthly assets. The US Treasury's borrowing program and more stringent banking regulations led to a liquidity squeeze in the US banking system, paving the way for the relaxation in the FED’s tight policy stance.

Following a similar path, the European Central Bank (ECB) cut its policy interest rate by 10 basis points, while embarking on a monthly bond-buying programme of EUR 20 billion. 

The positive impact of ECB and FED policies on economic activity was evident towards the end of the year, with leading indicators offering positive signs for 2020. In its October 2019 World Economic Outlook report, the International Monetary Fund (IMF) projected that the global economy would grow by 2.9% in 2019 and by 33% in 2020.

Due to the expectation that economic growth would enter a revival process, members of the FED stated that they would not change interest rates in 2020. Looking at fund flows, some exit from global bond markets was evident in the last quarter of 2019, with a flow of funds into equities with a growth-oriented expectation being observed.

Developing country markets positively affected by global liquidity conditions.

In 2019, the expansionary policies of central banks in developed countries, especially the USA, China and the EU, triggered central banks of developing countries into cutting interest rates. The currencies of developed countries gained value against the US dollar, there were significant falls in inflation, with the economic recession brought to a swift end on the back of increasing fund flows. 

According to figures released by the Institute of International Finance (IIF), as a result of the expansionary monetary policy implemented by developed countries, portfolio investments into developing countries increased significantly in 2019.

These developments have supported the growth prospects for developing countries, including Turkey, in 2020. In addition, the recovery in the US economy is expected to put pressure on developed country currencies.

The Turkish economy returned to growth path in the first quarter of the year.

The developments which took place in August 2018 and the depreciation of the Turkish Lira led to a slowdown in economic activity. However, in the following period, public-backed loan programs, incentives and declining interest rates stimulated a recovery and in the first quarter of 2019, the Turkish economy grew by 1.69% compared to the previous quarter, and in the following quarters it posted growth of 0.99% and 0.43%. When compared to 2018, the annual rate of growth edged into positive territory in the third quarter of 2019, with a growth rate of 0.9%. 

Overall, a strong export performance coming on the back of a competitive exchange rate, and the contraction in import volumes contributed positively to growth. As a result of the momentum in credit growth, household consumption expenditures increased and the slowdown in investment levelled out during the year.

Stable exchange rates, declining inflation and interest rate cuts by the CBRT have all supported the stabilization process in the economy in accordance with the government's “New Economic Programme”. The annual inflation rate, having stood at 20% in January, fell to 11.8% at the end of the year. Observing this positive course, the CBRT slashed its policy interest rate from 24% to 12%, and had reduced the benchmark interest rate by 1,200 basis points as of July. Depending on the course of inflation, the CBRT is expected to continue cutting interest rates in 2020.

In 2020, the monetary and interest rate policies of the central banks of the developed countries and the global liquidity conditions will determine the direction of the financial markets of Turkey and its macroeconomic outlook. Provided the favourable conditions continue, the growth momentum and, simultaneously, the low inflation in the Turkish economy is expected to continue.

The Turkish banking sector has weighed on loan growth in 2019. 

Although the negative impact of the deterioration in company balance sheets, due to the exchange rate shock in 2018, was reflected to banks’ balance sheets in 2019, the rapid pace of credit growth and strong capital adequacy helped protect the health of the banking sector.

Although there was an increase in the ratio of non-performing loans from 3.87% at the beginning of the year to 5.36% as of December 2019 as a result of the difficulties some companies burdened by high foreign currency debt in the real sector experienced in redeeming their debt, the restructuring process helped to limit this rise. In addition, the measures taken by the BRSA facilitated the provision of funds to the increased loan volume in the bank balance sheets. 

While the banking sector recorded 14% credit growth in TL terms in 2019, the CBRT's move to link required reserve ratios with loan growth had a significant effect on loan growth. The significant cuts in interest rates by the CBRT helped reduce credit costs. Credit trend indicators point to continued growth.

In our opinion, the balancing process undertaken in the Turkish economy in 2019 will give way to a growth process in 2020. The Turkish economy will continue to cement its place in the global arena with new success stories. In this process, it will be crucial that risk appetite continues in the global markets and inflation in Turkey remains in single digits. In this second part of my message, I would like to share my predictions about 2020 as well as my opinions about the performance TEB recorded in 2019, our synergistic and strong business partnership with BNP Paribas, and developments in our subsidiary portfolio.

TEB rounded off 2019 with a healthy and sustainable performance.

In 2019, TEB continued to be the solution partner of its customers with its wide array of financial products, services and solutions.  Throughout the year, our Bank continued to transfer resources, mediate exports, support the venture world and, in short, produce added value for its stakeholders, for the participants of the real sector, for those who contribute to the Turkish economy and for the sustainable future.

TEB completed the year 2019 with an asset volume of approximately TL 107,4 billion and a loan volume of TL 69,2 billion.

TEB has a widespread customer base, which encompasses SMEs, entrepreneurs and individuals. It brings me great pleasure to note that our Bank continued to be one of the primary preferences of households and companies which make up this large customer base in 2019, and continued to work on many strategic projects aimed at differentiating and simplifying the customer experience.

2019 was also a successful year for our affiliates. While healthy results were obtained in terms of the number of customers served and transaction volumes, tangible contributions were made to shareholder value.

TEB, one of the most respected and well-established brands in Turkish banking sector, continues its activities decisively in line with the vision and strategy of the BNP Paribas Group, which it is a member of, increasing its contribution to the Turkish economy and further strengthening its position in the market. With the acceleration it has built in its focus on innovation and digitisation, our Bank has set out the roadmap for the growth it will achieve in 2020 and beyond, and has proven the soundness of its business model with the performance results it has achieved.

Innovation is an indispensable field for TEB.

Our efforts in innovation continued in 2019 in many areas. These efforts continued to be reflected to our business lines, especially in digital banking, and continued to contribute to our efficiency and performance.

While CEPTETEB is running to new heights in terms of the number of users, functions and transaction volumes, a key innovation of 2019 was the launching of CEPTETEB İŞTE, the only platform in the sector to have been developed exclusively for commercial customers. This new product has achieved success in a short space of time, ranking 1st in the IFS Rising Up Days event held by BNP where over 40 projects competed. While our new success has made us proud, it has once again revealed TEB's strength and focus in innovation.

TEB continues to offer its Digital Financial Literacy Program, which it launched in 2018. TEB teams, which have reached more than 250.000 people through on-line training and which have taken its lead in financial literacy one step further, have met 6.500 young people in more than 20 universities. Our belief is that these and similar studies will contribute to the development of economically strong individuals who are dominant in financial technologies, have a tendency to save, and manage their resources effectively.

In our industry, where competition is increasing with each passing day and the rules of the game are constantly being rewritten, innovation and digitalization are integrated as part of wider mega trends and market determinants are transient in many places. Digitalization, which is closely related to banking and is an indispensable part of our modern service delivery formats, will not only change the rules of the game but will continue to be one of the main determinants of our customers' preferences.

TEB will continue to take part in this race as a bank that is strong, dynamic and equipped with the necessary capital elements. While our culture of innovation guides us, our employees will, as always, remain our most valuable asset on this journey.

Another area where has TEB is ambitious is in the entrepreneurial universe.

Contributing to the economy by supporting entrepreneurs stands at the heart of TEB's mission. In this regard, we deem the structuring efforts we carry out in the entrepreneurship universe and our close cooperation with startups which offer the potential to develop to be of strategic importance and value. We maintained our support for Fintechs and startups in 2019.

TEB strives to bring innovative business ideas to the economy with an inclusive and supportive approach through the Venture Banking structure. Our TEB Enterprise House project, which we launched in 2013, remains the most wide-reaching and comprehensive entrepreneurial initiative operating in this field in our country, offering 14 different programs.

TEB bases its support for entrepreneurs on a holistic approach. The TEB Private Angel Investment Platform, which brings angel investors together with entrepreneurs, the unique and strong support offered to women entrepreneurs and the cooperation with Ashoka, the world's first and largest social entrepreneur network, are examples of some of our work in this field.

TEB is focused on maintaining its contribution to the Turkish economy and generating value for all.

TEB continues to deploy the experience and knowledge it has built in the Turkish market in cooperation with the global network of its partner, BNP Paribas Group.

We are committed to using this global synergy to respond to the modern banking product and service demands of our large customer base which we provide services to in Turkey, and to play an active role in building the economic future.

We are moving forward into the new age while preserving our belief that the fundamental reason for financial institutions' being is to build the future.  In this progress, our professional management team, competent human resources, cooperation network with our stakeholders and strong financial structure will continue to offer us the energy we need.

Before I wrap up my message, I would like to present TEB's 2019 activity results and financial statements for our esteemed stakeholders' review.

I would like to thank the TEB Management Team who contributed to the Bank’s performance in 2019, and to all of our employees for their devoted work, and on behalf of myself and our Board of Directors, I would like to express my gratitude to our shareholders for their valuable and unwavering support.

I express my wish that 2020 will be a successful and productive year for our country, our Bank and all of our stakeholders.

                                                                                             
Yavuz Canevi
Chairman of the Board of Directors