Using the latest technologies in the sector is important for us, in order to enhance our service ALBARAKA TÜRK ANNUAL REPORT 2018 quality and extend our customer portfolio. Accordingly, we are the bank that is making the largest intellectual investment in digitalization. We continue to carry out groundbreaking achievements with technological breakthroughs as we take strong steps towards the banking of future. ALBARAKA TÜRK ANNUAL REPORT 2018 our principle competitive advantages SUCCESS FORMULA: Achievements in 2018 EXPERIENCE + PERFORMANCE + TRUST Albaraka Strong Shareholding Structure Extensive Service Network Albaraka Türk takes firm steps Boasting a widespread service network towards the future, powered by the composed of 230 branches and alternative experience and expertise of its parent distribution channels, Albaraka Türk is company, Albaraka Banking Group, in focused on adding continuous value to its international banking. shareholders and to Turkey’s economy. market share Superior Quality Standards Most Experienced Player in the Holding the ISO 9001: 2008 Quality Participation Banking Sector in assets among all Certificate and the 22301 Business With more than 30 years of experience Continuity Certificate, Albaraka Türk behind its vision, expert human resources, participation executes all its services in accordance and advanced technological capabilities, banks with international banking standards. Turkey’s first participation bank, Albaraka Türk, is the strongest representative of participation banking in the country. other participation banks re | ctu Ext tru en S perienced s g Ex Pla iv st ye e we n o r i M in some S d | t our total l h s e e increased d o r P r indicators that shareholders’ equity a a the number of our v h d r t n i i e c c a equity reached i t r p e active mobile S strengthen a a t y N i t customers o i h our future l n a S e by million B TL u a t Q n g r w k o i i n n r g e o o S p e u r r c S t o t k r our capital we have in 2018, S become adequacy the symbol of the number of ratio stands at trust with an NPL ratio of branches rose to Proudly produced by FİNAR. www.finarkurumsal.com Albaraka Türk makes a difference in the sector with its digital breakthroughs 2globALBARAKA TÜRK ANNUAL REPORT 2018 insha of a brand-new future Albaraka Türk extends its 30-year expertise and experience beyond the borders with the latest, fastest methods. To this end, we work to expand interest-free banking across Europe. As a result of our collaboration with SolarisBank, which provides banking infrastructure services, we launched our interest-free digital banking model, “insha.” ration4 ALBARAKA TÜRK ANNUAL REPORT 2018 a signature to make things easier Launched following intense studies, the “Digital Signature” feature enables our customers to place their signature via tablet PCs or smart monitors, thanks to a tablet pen, swiftly and securely. This technological application helps us save paper and protect nature. energetic6 ALBARAKA TÜRK ANNUAL REPORT 2018 the parking space for special tech ideas We believe that everyone has a bright idea. At Albaraka Garage, the Startup Acceleration Center designed to bolster technology-based business ideas, we provide support for the rapid development and launch of enterprises. We open new horizons to the sector with the world’s first startup acceleration center in participation banking. 8virtuALBARAKA TÜRK ANNUAL REPORT 2018 innovative mobile banking application As a bank that implements new and innovative practices, we also designed an ambitious mobile branch. Albaraka Mobile Branch brings many banking transactions to customers’ fingertips. Furthermore, we are proud to be the first participation bank to use “Touch ID” technology in its mobile branch. 10originALBARAKA TÜRK ANNUAL REPORT 2018 a high-tech colleague joined our ranks We launched new computer software via the Robotic Process Automation project. This robotic software, which operates just like a human, performs significantly faster and error-free operations, works three times more quickly than the average employee, and carries out operations 24/7 without errors and at 100% efficiency. INTRODUCTION 13 Annual General Meeting Agenda 14 Our Vision – Our Mission – Our Quality Policy – Our Fundamental Corporate Values 201801 16 Corporate Profile 18 Financial Indicators 20 Financial Ratios 21 Capital and Shareholding Structure 22 Albaraka Türk’s Position in the Sector 23 Amendments to the Articles of Association 24 Board of Directors Resolution 26 Albaraka Türk’s Milestones 28 Letter from the Chairman 32 Message from the CEO 36 Macroeconomic and Sector Outlook 38 Assessment of Our Activities in 2018 65 Annual Report Compliance Opinion MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES 66 Board of Directors 02 71 Senior Management 75 Organizational Chart 76 Information on the Bank’s Board of Directors and Senior Management 77 Committees and Committee Meetings Attendance 80 Summary of the Board of Directors’ Annual Report 81 Support Services Received in Accordance with the Regulation on Support Services for Banks and Authorization of Companies to Provide These Services 81 Transactions with the Bank’s Risk Group 82 Corporate Governance Principles Compliance Report EVALUATIONS ON FINANCIAL INFORMATION AND RISK MANAGEMENT 90 Summary Financial Information for the Five-Year Period 03 91 Assessment of Financial Situation, Profitability and Solvency 92 Risk Management 94 Assessment of Internal Control, Internal Audit and Risk Management Systems by the Audit Committee 96 Albaraka Türk’s Ratings by International Credit Rating Agencies 97 Reserve Policy 98 Advisory Board Report 99 Unconsolidated Financial Statements and Independent Audit Report for the Year Ending on December 31, 2018 237 Consolidated Financial Statements and Independent Audit Report for the Year Ending on December 31, 2018 383 Contact BOARD OF DIRECTORS RESOLUTION ANNUAL SESSION NO. : 1929 DATE : 27 February 2019 GENERAL PARTICIPANTS : The members undersigned. MEETING ABSENTEES : None AGENDA The Board of Directors of Albaraka Türk Katılım Bankası A.Ş. adopted the following resolutions: RESOLUTIONS: 1. The Board of Directors (BoD) DECIDED that the ordinary Annual General Assembly of Albaraka Türk Participation Bank (ABAT) shall be held on 28 March 2019 (Thursday), at 10:00 AM, in the Company Head Office, located in Istanbul at Saray Mahallesi, Dr. Adnan Büyükdeniz Cad. No:6, Ümraniye, Istanbul 34768, in order to discuss the agenda items provided below. 2. Also, it was DECIDED that the Information Document on 2018 Ordinary General Assembly and the Procedures on Participation to General Assembly prepared by ABAT Head Office and submitted for approval to the Board of Directors be announced to the shareholders through our web page. AGENDA: 1. Opening; formation of Presiding Council. 2. Authorizing the Presiding Council to sign the general assembly minutes of meeting. 3. Reading and discussing the Annual Report of the BoD about the fiscal year 2018. 4. Reading and discussing Auditor reports. 5. Reading, discussing and approving the Financial Statements. 6. Acquitting the Members of the BoD. 7. Discussing the BoD proposal about the utilization and distribution of the dividends and determining the usage, distribution of the profit and rates of dividend shares. 8. Discussing the fiscal rights and benefits of the Board members like salary & wages, perdiems, bonus & premiums and alike. 9. Submitting, to the approval of General Assembly, the members elected by the Board of Directors, for the Board memberships becoming vacant over the year so that the predecessors can complete their remaining term of office. 10. Electing the Auditor. 11. Granting permission to the members of the BoD with respect to articles 395 and 396 of Turkish Commercial Code. 12. Presenting information to General Assembly as per Article 1.3.6 of Corporate Governance Principles, annex to the Capital Markets Board Corporate Governance Communique. 13. Presenting information to General Assembly about operations effected as part of the Buy-back Program for bank’s own shares in 2018. 14. Presenting information to General Assembly about the donations made by the Bank in 2018. 15. Authorizing the Board of Directors as per Article 6/10 of the Regulation on the Fundamentals and Principles on Acceptance and Withdrawal of Deposits and Participation Funds, on Overdue Deposits, Participation Funds, Trusts and Receivables, 16. Convenience yield as per article 10/2 of the Regulation on the Procedures and Principles for Classification of Loans by Banks and Provisions to be set aside, 17. Remarks and requests. In their own language, above resolutions have been read to the undersigned foreign members. Resolutions have been agreed upon with no objection. SESSION NO. : 1929 DATE : 27 February 2019 Adnan Ahmed Yusuf ABDULMALEK Osman AKYÜZ Hamad Abdulla Ali ALOQAB Kemal VAROL Chairman Vice Chairman Board Member Board Member Ibrahim Fayez Humaid ALSHAMSI Mustafa BÜYÜKABACI Fahad Abdullah A. ALRAJHI Süleyman KALKAN Board Member Board Member Board Member Board Member Muhammad Zarrug M. RAJAB Mehmet ASUTAY Khaled Abdulla Mohamed ATEEQ Melikşah UTKU Board Member Board Member Board Member Board Member and General Manager INTRODUCTION 13 OUR VISION becoming the best participation bank in the world To remain committed to the principles of OUR MISSION interest-free banking, our core values and the ethical principles of banking; to meet the financial needs of society by sharing our common benefits with customers, employees and shareholders