DENİZBANK FINANCIAL SERVICES GROUP ANNUAL REPORT 2016 DENİZBANK ANNUAL REPORT 2016 DENİZBANK ANNUAL DenizBank is a member of Sberbank Group. SECTION I INTRODUCTION 40 IT Security and Digital-Card Payment Operations Group CONTACT INFORMATION FOR DENİZBANK A.Ş. 1 DenizBank Financial Services Group (DFSG) 41 Branch and Central Operations Group 2 DenizBank’s Mission, Vision 41 Branch Operations and Foreign Trade Center Operations 2 Dividend Distribution Policy 42 Central Operations 3 Dividend Distribution Proposal 43 Treasury, Payment Systems and Private HEAD OFFICE DOMESTIC BRANCHES 3 Amendments to the Articles of Association Banking Operations 3 Shareholding Structure, Paid-in Capital and Changes, 43 Investment Banking, Custody and Fund Services Büyükdere Cad. No: 141 34394 Esentepe-İstanbul DenizBank has 694 branches in Turkey. Information on Shares Held by the Management Operations Tel: (+90 212) 348 20 00 domestic branches is available on the DenizBank web site. 3 Changes in the Management, Shareholding Structure and 45 Foreign Subsidiaries Fax: (+90 212) 354 83 48 Activities of DFSG Companies 46 Information Technology (IT) Services FOREIGN BRANCHES 4 DenizBank in Brief 48 Private Banking and Investment Operations WEB SITE 6 Sberbank in Brief 50 Leasing, Factoring and Asset Management Services Bahrain Branch 8 Financial Highlights 52 Cultural Services www.denizbank.com Al Jasrah Tover 6th Floor, Office 62/63 PO Box 10357, 10 2016 Highlights Trade Register Number Diplomatic Area, Manama-Bahrain 11 Awards 368587 12 Message from the Chairman of the Board of Directors Tel: (+973) 17541137 SECTION II MANAGEMENT AND CORPORATE 13 Message from the CEO Fax: (+973) 17541139 GOVERNANCE 15 Banking Services 16 Retail Banking Group 53 Board of Directors 16 Affluent Banking 61 Resident Board Members 17 Mass Banking 62 Executive Board 18 Retail Banking Products 63 Executive Board Members 19 Branch and ATM Planning 66 Executive Management 20 Bancassurance 67 Committees 20 SME Banking Group 68 Summary Report of Board of Directors to the General Assembly 20 SME Banking 69 Donations Made in 2016 22 Merchant Relations and Commercial Cards Management 69 Related Party Transactions 22 Gold Banking 69 Human Resources 22 Cash Management 71 Training 23 Agricultural Banking Group 72 Support Services 25 Wholesale Banking Group 74 DenizBank Corporate Governance Principles Compliance Report 25 Corporate Banking Group 25 Corporate Banking 25 Commercial Banking and Public Finance Group SECTION III FINANCIAL INFORMATION AND RISK 25 Commercial Banking MANAGEMENT 26 Public Finance 26 Project Finance 82 Internal Audit, Internal Control, Compliance and Risk 27 Payment Systems and Non-Branch Channels Group Management Systems 27 Credit Cards 85 Assessments of the Audit Committee 28 Debit Cards/PTT Cards 87 Independent Auditor Report on the Annual Report 28 Call Center 88 Five-Year Summary Financial Highlights 29 Telemarketing and Customer Retention 90 Assessment of Financial Position 30 Mobile Sales 91 Capital Market Instruments Issued by DenizBank 31 Treasury and Financial Institutions Group 91 DenizBank Ratings by International Rating Agencies 31 Treasury 31 Treasury Sales 32 Financial Institutions 32 Private Banking Group SECTION IV INDEPENDENT AUDIT REPORTS, FINANCIAL 33 Digital Generation Banking Group STATEMENTS AND NOTES 33 Main Distribution Channels 34 Digital Sales, Marketing and New Generation Banking 93 Independent Auditor’s Reports, Unconsolidated Financial 35 Innovation, Digital Payment Systems, Cloud Banking Statements and Notes as of December 31, 2016 Platforms, Home Banking, Digital Field Sales and 199 Independent Auditor’s Report, Consolidated Financial Brand Partnership Statements and Notes Ended 31 December 2016 37 Operations Group 37 Information Technology and Support Operations Group Contact Information 37 Organization 38 Service Quality 39 CRM-Customer Relationship Management 1 DENİZBANK FINANCIAL SERVICES GROUP (DFSG) BANKING SERVICES PRIVATE BANKING AND DENİZBANK INVESTMENT ACTIVITIES DENİZBANK AG (AUSTRIA) DENİZBANK PRIVATE BANKING DENİZBANK MOSCOW (RUSSIAN FEDERATION) DENİZINVEST SECURITIES EURODENİZ INTERNATIONAL BANKING UNIT LTD. (TRNC) DENİZ REAL ESTATE INVESTMENT TRUST DENİZPORTFOLIO MANAGEMENT LEASING, FACTORING AND ASSET INFORMATION TECHNOLOGY MANAGEMENT SERVICES* SERVICES DENİZLEASING INTERTECH DENİZFACTORING EKSPRES IT AND TRADE DESTEKASSET MANAGEMENT* CULTURAL SERVICES DENİZKÜLTÜR OTHER SERVICES BANTAŞ AÇIK DENİZ RADIO-TV DENİZ CARD PAYMENT SYSTEMS *As of December 29, 2016, all of the shares were sold to natural and legal persons outside DFSG. 2 SECTION I INTRODUCTION DENİZBANK’S MISSION, VISION DIVIDEND DISTRIBUTION POLICY DenizBank’s mission is After deducting any sums that would be compulsory for the Bank to pay or set aside, such as general expenditures and to become a bank that miscellaneous depreciation costs as well as any amount of taxes that would be compulsory for the Bank to pay, from maximizes employee, the calculated income at the end of the accounting year, the remaining sum shall constitute the net income; after customer and shareholder deducting the previous year’s losses, if any, the net income satisfaction with its position, shall be distributed as follows: image and corporate First Scheme Legal Reserves: characteristics in the market a) 5% of this sum shall be allocated to the legal reserves. First Dividends: by adopting a “supermarket b) Out of the remaining amount, the rate and amount set by the Capital Markets Board of Turkey is allocated to the first approach” to financial dividend. services. Second Dividends: c) After deducting any sums specified in item (a) and (b) from the net income, the General Assembly shall be DenizBank envisions authorized to distribute such remaining amount, in part or in full, or to allocate as the extraordinary reserves. becoming one of the five largest banks in Turkey General Legal Reserves: d) Out of the sum calculated after deducting a dividend and the foremost financial of 5% of the paid-in capital from the set amount to be distributed to the shareholders and other parties institution in the region participating in the profit, 10% shall be added to the general legal reserves in accordance with Article 519, defined as the Middle Paragraph 2, Item c of the Turkish Commercial Code. East, Balkans, Caucasus Unless the discretionary legal reserves are duly set aside, and unless the dividends determined for the shareholders and Commonwealth of are distributed in cash and/or in the form of share certificates as per the Articles of Association, no decision Independent States countries may be adopted to allocate further legal reserves, to pass any profits to the following year, or to distribute any through sustained and dividends to the members of the Board of Directors as well as any officials, workers and employees, to foundations profitable growth. established for various purposes, and to similar person and/ or persons. The date and manner of distribution to shareholders of the annual profit shall be determined by the General Assembly upon a proposal by the Board of Directors prepared under the relevant legislation issued by the Capital Markets Board. As of the accounting period of the dividend, irrespective of its issuing and acquiring dates, annual profit shall be distributed equally to all existing shares. The profits distributed pursuant to the provisions of these Articles of Association shall not be recalled. DENİZBANK FINANCIAL SERVICES GROUP ANNUAL REPORT 2016 3 DIVIDEND DISTRIBUTION SHAREHOLDING STRUCTURE, PAID- PROPOSAL IN CAPITAL AND CHANGES, SHARES HELD BY THE MANAGEMENT At its meeting on 01 March 2017; DenizBank increased its share capital from TL 1,816.1 million to TL 3,316.1 million, by TL 1,500 million, via TL 750 million from retained earnings from share premium Taking into consideration the net profit of Denizbank A.Ş. for the financial and TL 750 million in cash. year 2016 amounting to 1,409,280,690.32 TL, the Board of Directors Required approvals were obtained from the BRSA and CMB in January and from the hereby resolved to propose to the General Assembly: Ministry of Customs and Trade on February 1, 2016. Following the decision of the Extraordinary General Assembly, necessary applications - to allocate 5% of the net profit, amounting to 70,464,034.52 TL, to were made to the CMB on April 1, 2016 regarding the public offering of shares with the general legal reserve according to Article 519/1 of the Turkish a nominal value of TL 1,500,000,000 subject to an increase and the offering circular Commercial Code; related to the capital increase was approved by the CMB on May 23, 2016. The preference right period was exercised between May 27, 2016 and June 10, 2016. The - to keep the exempt amount of 66,853,611.39 TL in the Mandatory unused shares amounting to TL 16,223.115 remaining after use of preference rights Funds Account in order to benefit from the exception stated in Article was offered to the public on June 15-16, 2016 and the sale of the unused shares on the Borsa Istanbul Primary Market was completed on June 15, 2016. 5/1-e of the Corporate Tax Law with respect to the profit gained by Denizbank A.Ş. in the financial year 2016 from the subsidiary sale; With the registration of the resolution of the Ordinary General Assembly held on March 31, 2016, related to the decision on the amendment of Article 6 regarding - (i) to allocate the remaining net profit, amounting to 1,271,963,044.41 “Capital of the Bank” of the Articles of Association of the Bank on June 28, 2016, the capital increase was completed. TL, to the Free Reserves (Extraordinary Reserves), and (ii) to postpone the issue on distribution and payment of dividends for 2016 to the DenizBank’s shareholding structure, and the shares held by ultimate controlling real shareholders of Denizbank A.Ş. for decision of another meeting of the person(s) as of December 31, 2016 are presented in the table below. DenizBank’s General Assembly to be convened at the Board of Directors’ option shareholding structure does not contain any cross-shareholdings.