Investor Relations January 2015 TURKISH BANKING SECTOR AND GARANTI BANK Investor Relations / Turkish Banking Sector and Garanti Bank
Agenda
1 Turkish Economy
2 Turkish Banking Sector: An attractive investment opportunity
3 Garanti Overview and Key Investment Highlights
4 Garanti’s Position In the Sector and Key Financial Indicators
2 Investor Relations / Turkish Banking Sector and Garanti Bank
Turkish Economy (I/II)
Slowdown Expected After the Slight Recovery in 2013 • 17th largest economy across the globe* GDP Growth • Rapid recovery in 2010-2011, slowdown in 2012 & slight recovery in 2013 on the back of accelerated domestic demand 9.4% 8.4% 9.2% 8.8% 6.9% 5.3% 4.7% 4.1% 2.1% 3.1% 3.4% • Positive contribution from external demand 0.7% Avg. * vs. much lower contribution from domestic GDP growth demand expected in 2014 5.0% over * -4.8% LATAM : 3.9% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F 2003-2013 vs. EU*: 1.2% EM Europe*: 4.0%
Inflationary Pressures Continue • 2013 was the third consecutive year missing Benchmark 27.2% 22.3% CPI target Bond Rate Real Interest 21.2% 16.6% • Upward risks to inflation stem from food in 16.5% 2014 while decelerating FX pass-through Inflation (CPI) 18.4% 14.0% effect may limit the upward pressure 11.0% 8.9% 10.0% 10.0% 7.1% • 10.4% 6.2% 8.0% CBT lowered one-week repo rate by 175bps 9.3% 9.7% 10.1% in May-July period on back of the decline in 8.4% 7.4% 8.2% 7.7% 6.5% 6.4% 6.2% 7.3% > Multiple policy tools risk premiums. CBT also lowered the aimed at financial stability overnight lending rate by 75bps in August to 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F (i.e interest rate corridor, maintain the current stance within a more reserve requirements, symmetric interest rate corridor, by still macro-prudential measures, etc) stressing the tight monetary policy stance Source: Turkish Statistical Institute, Undersecretariat of Treasury F:Garanti Forecast 3 * Source: IMF’s World Economic Outlook Report dated October 2014. Ranking as of YE 2013 Investor Relations / Turkish Banking Sector and Garanti Bank
Turkish Economy (II/II)
Government Indebtedness EU Defined Government Debt Stock • Government indebtedness far below 77.9% 74.0% Maastricht Criteria 67.7% 59.6% Maastricht criteria 60% Government • Government debt to GDP ratio started to 52.7% 46.5% 46.1% decline just after the crisis, but slightly rose in 42.3% indebtedness 39.9% 40.0% 39.1% 2013; it is expected to fall according to 36.2% 36.2% 33.1% 31.8% far below Government’s Medium Term Plan (MTP) in Maastricht 2014 Criteria
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 MTP MTP
Current Account Deficit • Strong domestic demand and relatively weak Current Account Balance/GDP external demand led CAD/GDP ratio to reach its record level in 2011 Improving 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F Current • In line with the weakening domestic demand & strong export performance CAD improved in Account 2012 while relatively higher growth in 2013 Deficit led an expansion in CAD -2.5% -2.0% -3.6% -4.5% • Domestic demand slowdown & TL depreciation -5.4% -5.1% -6.0% -5.8% -6.2% -6.2% -5.8% are likely to result in improvement in -7.9% CAD/GDP in 2014 -9.7% Source: Turkish Statistical Institute, Undersecretariat of Treasury F:Garanti Forecast 4 Investor Relations / Turkish Banking Sector and Garanti Bank
Agenda
1 Turkish Economy
2 Turkish Banking Sector: An attractive investment opportunity
3 Garanti Overview and Key Investment Highlights
4 Garanti’s Position In the Sector and Key Financial Indicators
5 Investor Relations / Turkish Banking Sector and Garanti Bank
1 Underpenetrated market with strong growth potential
High and sustainable Real GDP growth1 nd 2 490 2 largest banking system in CEE EU EM Europe LATAM TURKEY with an asset size of US$769bn3 440 2004-9M14 CAGR: 14% 390
340 290 Well-regulated and strictly monitored 240
190 Real Real Growth GDP (Rebased) 140 Significant long-term growth potential 90 2002 2005 2008 2011 2014 2017 2019 backed by attractive demographics &
Penetration Ratios4 underpenetrated market 311% • 58% of the 77mn population < age of 355 • Loans/GDP: 63% vs. 105% in EU • ROAE: ~13%3 102% 110% 105% 56% 63% 58% 39% 13%
Assets / GDP Customer Deposits / GDP Loans / GDP
Turkey - 2002 Turkey - 3Q14 Euro Area - 3Q14
1 Source: IMF, World Economic Outlook Database, October 2014. Country groups are per IMF database. 2 Source: EBF Facts&Figures 2014, ranking per total assets . CEE countries include Russia 3 BRSA Monthly data for commercial banks as of September 2014. 6 4 Source: ECB, TurkStat, BRSA for commercial banks 5 Source: TurkStat – 31 December 2013 Address Based Population Registration System (ABPRS) Investor Relations / Turkish Banking Sector and Garanti Bank
2 Highly liquid…
• Deposits fund 55% of assets1 Deposit-heavy funding structure • Comfortable level of Loans/Deposits at 112%1 Oğuz Bey’den Liquidity Adequacy Ratios2 well-above required levels istenecek Comfortable • Total Liquidity Ratio -- Monthly: 129% (Legal limit 100%) liquidity levels • FC Liquidity Ratio -- Monthly: 137% (Legal limit 80%)
Banking Sector External Debt Roll-over Ratio(%)2 Oğuz Bey’den Continuous access istenecek to international funding sources
1 BRSA monthly data for commercial banks, as of September 2014 7 2 CBRT Financial Stability Report May 2014. Liquidity Ratios are as of April 2014.
Investor Relations / Turkish Banking Sector and Garanti Bank
3 …well-capitalized and underleveraged
CAR1 (2Q14) 2 16.7% 16.3% 15.7% 15.5% Basel III CAR : 15.3% (9M 2014) High solvency 12.8% Tier-I capital: 84% of total capital
Eurozone Turkey Poland Brazil Russia
RWA/Assets 47% 84% 63% 81% 100%
Leverage1 (2Q14)
12.0x 12.4x 2 10.0x High ROAEs : ~13% 8.2x 9.7x Low leverage 7.5x (9M 2014) despite the low leverage
Turkey Russia Brazil Poland South Eurozone Africa
1 Source: Latest data from the IMF-FSI database. Most of figures are based on 2Q14 figures 8 2 BRSA monthly data as of September 2014, commercial banks only Investor Relations / Turkish Banking Sector and Garanti Bank
4 Standing out for its asset quality
Non-performing loans/Total gross loans1
Sustained sound asset quality
• No exposure to any toxic assets or problematic sovereign assets
• NPL Ratio3: 2.9% in Turkey
2 NPL ratio • High cash coverage @ 75%3
EU 27 12.0% 11.0% CEEMEA 10.0% 9.8% • Established & prudent
8.0% underwriting procedures
6.0%
4.0% LATAM 2.8% 2.0% TURKEY 2.7% 0.0% 2006 2007 2008 2009 2010 2011 2012 2013 2Q14
1 Source: Latest data from the IMF-FSI database, most of which are based on 2Q14 figures 2 Source: Latest data from the IMF-FSI database. Represents country averages most of which are based on 2Q14 figures 9 3 BRSA monthly data as of September 2014, commercial banks only Investor Relations / Turkish Banking Sector and Garanti Bank
Agenda
1 Turkish Economy
2 Turkish Banking Sector: An attractive investment opportunity
3 Garanti Overview and Key Investment Highlights
4 Garanti’s Position In the Sector and Key Financial Indicators
10 Investor Relations / Turkish Banking Sector and Garanti Bank
Garanti: Pre-eminent banking franchise
Total Assets 2nd largest private bank; by asset size US$ 107.0 bn Robust balance sheet; highly liquid, well-capitalized & low risk
9M14 Net Income #1 in ordinary banking income US$ 1.3 bn proven track record on capacity to generate sustainable banking income
ROAE CAR & Strong capitalization, low leverage (8x) 16.1% 13.7% NPL ratio Sound asset quality – consistenly well better than sector average 2.8%
Branch network Focused on relationship banking with broad * geographical coverage and wide multi-channel distribution network 1,002 # of customers Customer centric approach, sophisticated * ~13mn segmentation & advanced IT
Market capitalization Most valuable company in the BIST US$ 17 bn*
*As of Dec 22, 2014 Note: All figures are per BRSA Consolidated data 11 Investor Relations / Turkish Banking Sector and Garanti Bank
Single point of contact for all financial needs
Commercial Asset Contribution: 5.2%
Asset Contribution: 2.3% Consumer Payment Systems Asset Contribution: 0.4%
Asset Contribution: 2.8%
Asset Contribution: 1.0%
Digital Corporate Asset Contribution: 1.6% Banking
Asset Contribution: 0.0%
SME Asset Contribution: 0.0%
Note: Asset contributions are calculated based on BRSA Consolidated Financials as of September 30, 2014 12 Investor Relations / Turkish Banking Sector and Garanti Bank
Visionary investments shaped today’s innovative business model
Technology
Delivery Channels
Technology Human Resources Process
Risk Management People
Sustainable Banking
13 Investor Relations / Turkish Banking Sector and Garanti Bank
1 Visionary investments in technology since 1990’s… Integral part in decision making supporting process efficiencies and continuously driving the Bank forward
IT Vision Investing Full In-House Custom-Fit Driver in Technology Development Solutions (Integral Part of Management)
Innovative products and services Advanced CRM applications and segmentation
A single source of data &
common understanding Top down fast decision making Paperless banking environment and strong communication
14 Investor Relations / Turkish Banking Sector and Garanti Bank
2a Investments in delivery channels: Extensive branch network
#1 in branch openings Since 2002 >645 new branch additions 1.2x of its closest peer 100 % Geographical Coverage in 3Q14 vs. 49% in 2002
60% was outside of Istanbul, Ankara and Izmir
Number of Branches %58 3.0x of branch openings since 2005 918 936 1,002 outside of Istanbul, Ankara and Izmir 331 487
2002 2006 2011 2012 Dec.14
* Represents net branch opening figures as of 30 September 2014 15 Investor Relations / Turkish Banking Sector and Garanti Bank
2b Investments in delivery channels: Omni- channel convenience Seamless experience across all channels
A new banking #1 in branch openings experience Leading Bank Internet: 23% market share Since 2002
Introduced in financial transactions >645 new branch additions ATMs Customer iGaranti received volume answering & the highest score Mobile: 31% market share 1.2x of its closest peer Established Cep Şubesi: Call Center product offer in global in mobile financial Turkey’s First Full through social benchmark* transactions volume Fledged Mobile media Banking First Bank to provide applications in all major operating platforms 60% was outside of 1990 1997 1998 2005 2007 2012 2013 (ios, android, windows, Istanbul, Ankara and Izmir blackberry); to start answering customers on Twitter and Facebook; CepBank World’s First Native mobile to launch a “mobile-first” SMS based Launched Internet mobile Money banking service targeting Gen-Y Banking transfer service applications customers in the country. Share of Digital 85% of all financial transactions through digital channels (vs. 77% in 2007)
* per Forrester’s «2014 Global Mobile Banking Functionality Benchmark Scores» 16 Note: Internet and Mobile Banking market shares are as of 3Q14 Investor Relations / Turkish Banking Sector and Garanti Bank
3 Investments in human capital High quality employee base & proven management team
#1 in branch openings Since 2002 > Training hours per employee: 43 hours per annum vs. Fortune 500 corporations average of 31,5 hrs >645 new branch additions >The first Gold IIP certificate in Turkey in 2012 1.2x of its closest peer
Garanti Leadership Academy > 85% of our Bank’s directors graduated from 60% was outside of these programs Istanbul, Ankara and Izmir > Ambassadors of our common culture of management > Best Talent Management in Turkey
Suggestion and Idea Platforms > Önersen (Yousuggest) > Atölye (Workshop)
17 Investor Relations / Turkish Banking Sector and Garanti Bank
4 Investments in Risk Management Systems Solid asset quality
Consumer Banking: Centralised Process #1 in branch openings Since 2002 Credit Bureau Central Bank >645 new branch additions o Loan to Value: . Mortgages Max:75%; 1.2x of its closest peer Loan Application Scoring System Credit Decision . Auto Loans Max: 70% up to TL50K; and 50% for the portion above; o Central Processing System started 10 years ago, based on Experian Loan Offices software o Scorecards and decision engine upgraded in January 2013 60% was outside of Istanbul, Ankara and Izmir Business Banking: Decentralized Process
Regional Loan Offices o 25 regional loan offices* Company Evaluation Credit o Weekly Credit Committee meetings Report Proposal o All credit lines automatically expire one HQ Loan year after approval Department Credit Decision
Regional Loan Offices
* including one regional office in Cyprus 18 Investor Relations / Turkish Banking Sector and Garanti Bank
5a Investments in Sustainability Our strategic priorities
> Advise our corporate clientsPerformance to help them make their businesses more sustainable > Extend E&S risk framework Managementand management systems across the bank, local and international subsidiaries
Corporate Clients
> Strengthen the financial capacity of Turkish women by providing them financial education and access to our Impact > Develop and implement a products and services Business financial education program > Support financial planning Financial Systems > Engage with stakeholders and health of our retail clients Communities and build partnership > Develop innovative Individuals > Support philanthropic sustainable financial products programmes with a focus on linked to material issues for Retail Clients Stakeholders material issues for society society and Garanti
HR: Enhance employees’ knowledge and life style Environmental Footprint: Enhance operational efficiency Governance: Enhance integration of sustainability within the Bank
19 Investor Relations / Turkish Banking Sector and Garanti Bank
5b Investments in Sustainability
Key Achievements
Sustainable Finance • ~35% share in Turkey’s installed wind power capacity Performance • Total amount of loans disbursed to women entrepreneurs to date: 2.1 billion TL Management • Management Training for Women Entrepreneurs: 497 certificates in 2013 • Received “EBRD Sustainability Award” in Environmental and Social Performance in 2014 • 23 projects evaluated in depth in line with the ESIAP* in 2013 • Supported 4 subsidiaries to develop their ESG and Human Rights Policies • Launched a nCorporateew product forClients financing of solar power projects under 1 MW for SMEs • 36 disabled-friendly branches, 98 orthopedically and 26 visually disabled friendly ATMs
Environmental Impact of Operations • 600+ service points certified to ISO 14001 • Recognized as the “Turkey - Carbon Disclosure Leader” by CDP in 2014 • First Turkish bank to receive GRI G4 approval with its Sustainability Report in 2014 • Received limited assurance for its 2013 Scope 1 and Scope 2 GHG emissions • 3.8% reduction in energy consumption per employee (MWh/FTE) in 2013 • 67% increase in amount of waste recycled in 2013 Stakeholders
Communities and Stakeholders • No Limits in Teaching: reached 85,095 teachers across 79 cities by the end of 2013 • 4,679 students received basketball trainings in 2013 • Number of SALT visitors: 729,747 (Entrance free of charge) 20 • Board member of Business Council in Turkey, founder of Sustainable Finance WG • Qualified for the Borsa Istanbul Sustainability Index in 2014 • Organized an ESRA** training to 15 banks jointly with UNEP-FI in 2013 20 • Organized the Sustainable Finance Forum in 2013 and 2014 20
*Environmental and Social Impact Assessment Process **Environmental and Social Risk Assessment 20
Investor Relations / Turkish Banking Sector and Garanti Bank
Agenda
1 Turkish Economy
2 Turkish Banking Sector: An attractive investment opportunity
3 Garanti Overview and Key Investment Highlights
4 Garanti’s Position In the Sector and Key Financial Indicators
21 Investor Relations / Turkish Banking Sector and Garanti Bank
Increasingly customer-driven asset composition
Asset Composition
Shift from securities & non-IEAs Fixed and %8 Other Assets %11 %0 Affiliates and %4 to high margin loan products Investments while strategically managing the %31 Performing Cash Loans %58 securities portfolio as a hedge for volatility
%39 Securities %19
Customer driven assets / Cash and Banks %15 %15 Assets 2002 9M14 58% TL (% in total) 33% 56% FC (% in total) 67% 44% up from 31% at YE 2002
22
Investor Relations / Turkish Banking Sector and Garanti Bank
Lending strategy: Selective & profitability focused
Performing Cash Loan Breakdown (TL billion) Increasing weight of CAGR 26% «retail lending» to 8.9 140.7 Consumer 5% (exc. credit cards) 35% at Sept’14 Credit Cards 12% 24% from 17% at YE 2002 10%
Business 83% Preserved focus on Banking 65% business banking loans with «SME loans1» constitute ~35% of 2002 9M14 business banking loans TL (% in total) 21% 59% FC (% in total) 79% 41%
1 Based on BRSA definition 23
Investor Relations / Turkish Banking Sector and Garanti Bank
Risk-return balance as top priority
NPL Ratio1
Sector 15.9% Risk-return balance as top priority 10.8%
> Long established & Garanti 6.0% 4.6% 5.2% proven risk management 3.4% 2.8% 2.8% 4.2% 4.1% 4.3% 2.2% 2.3% 2.2% > Selective growth focus 2002 2003 2005 2007 2009 2012 9M14
Coverage Ratio > Prudent provisioning & strong collections performance Garanti 32% 48% 67% 64% 81% 81% 81%
Sector2 64% 89% 90% 88% 84% 75% 75%
1 Garanti figures are based on bank-only financials for fair comparison with sector . Consolidated NPL ratio as of 1H14 was 2.7% vs. 5.4% in 2002 24 Sector figures are per BRSA weekly data, commercial banks only 2 Sector coverage ratio is based on TBA data Investor Relations / Turkish Banking Sector and Garanti Bank
Strong Liquidity: Well diversified and actively managed funding mix
Composition of Liabilities and Equity
28.5 240.7 Bonds Issued 6% Funds Borrowed 13% Deposit heavy - Focused on sustainable Repos 5% 15% 6% and lower cost mass deposits
51% Time Deposits 39% Sustained high weight of demand deposits
13% 1 Demand Deposits 18% Per bank-only 23% vs. Sector’s 18% 11% 8% SHE 10% Other 5% 2002 9M14 Utilization of alternative funding sources
Customer Deposits (TL billion,%) + Issuances under GMTN program -- Sector leader in GMTN issuances CAGR: 17% + Bond Issuances
117.8 + Syndications & Securitizations
88.8
19.0 Time 13.8 29.0 Demand 5.2 2002 9M14 1 Sector figures are per BRSA weekly data, commercial banks only 25 Investor Relations / Turkish Banking Sector and Garanti Bank
Reinforce sound solvency
Capital Adequacy Ratio
2002 2007 9M14 101.9% Per Basel III – standard approach
15.3% 15.0% 15.0% 14.7% 13.9% 13.6%
Isbank Garanti YKB Akbank Vakıf Halk
Capital Generative Growth Strategy
Tier-I ratio: 14.0%; Highest among peers
Leverage: 8x
26 Investor Relations / Turkish Banking Sector and Garanti Bank
Highest sustainable income generation capacity
1 Ordinary Banking Income #1 in Ordinary Banking Income % Market share Significant market share gains since 2006
9M14 14.2% Garanti 2006 11.4%
Continuously growing and 9M14 13.6% highly diversified fee sources Peer I 2006 13.2% support sustainable revenues
Cash Loans 22.5% Payment 9M14 11.6% Systems Peer II 39.6% Net F&C 2006 13.2% Non-cash TL2.3bn loans as of Sept ’14 8.3% Money 9M14 8.8% Transfer 9.3% Peer III Other Insurance 2006 10.3% 10.9% 5.0% Asset Mgt Brokerage 1.6% 2.8%
1 Ordinary Banking Income defined as; net interest income adjusted with provisions for loans and securities, net FX and trading gains + net fees and commissions 27 Source: BRSA bank-only financials for fair comparison. Sector figure is based on BRSA monthly data. Investor Relations / Turkish Banking Sector and Garanti Bank
Achieved pioneer position Impressive track record & attractive platform for future growth
Market Share and Rankings1 (2000- 9M14)
9M14 Assets Loans Consumer Consumer # POS Customer Customer Net F&C Ordinary 2006 Loans Mortgage Deposits Demand Banking 2000 (exc. CCs) Deposits Income 14.2% #1 12.6% 13.6% 18.0% 15.6%
13.5% #2 12.3% 12.3% 11.1% 12.1% 14.9% #3 6.4% 10.4% 13.2% 12.2% 12.2% 15.5% 11.4% #4 6.6% 12.7% 9.8% #5 8.5% 4.4%
Healthy market share gains Robust Burgeoning & broad customer base in key profitable products Profitability
1 Rankings among private banks as of September 2014 28
Investor Relations / Turkish Banking Sector and Garanti Bank
Disclaimer Statement
Türkiye Garanti Bankasi A.Ş. (the “TGB”) has prepared this presentation document (the “Document”) thereto for the sole purposes of providing information which include forward looking projections and statements relating to the TGB (the “Information”). No representation or warranty is made by TGB for the accuracy or completeness of the Information contained herein. The Information is subject to change without any notice. Neither the Document nor the Information can construe any investment advise, or an offer to buy or sell TGB shares. This Document and/or the Information cannot be copied, disclosed or distributed to any person other than the person to whom the Document and/or Information delivered or sent by TGB or who required a copy of the same from the TGB. TGB expressly disclaims any and all liability for any statements including any forward looking projections and statements, expressed, implied, contained herein, or for any omissions from Information or any other written or oral communication transmitted or made available.
Investor Relations Levent Nispetiye Mah. Aytar Cad. No:2 Beşiktaş 34340 Istanbul – Turkey Email: [email protected] Tel: +90 (212) 318 2352 Fax: +90 (212) 216 5902 Internet: www.garantiinvestorrelations.com /garantibankasi