PARTICIPATION BANKS 2018 www.tkbb.org.tr WEBSITE [email protected] E‑MAIL +90 2166369549 FAX +90 2166369500(PBX) PHONE 34768 Ümraniye/İstanbul Akofis Park CBlokNo: 8 Kat: 8 Saray Mahallesi,Dr. Adnan BüyükdenizCaddesi HEAD OFFICE Süleyman SAYGI‑İsmail GERÇEK AUDITORS Osman AKYÜZ SECRETARY GENERAL Ziraat Katılım Bankası A.Ş. Vakıf Katılım Bankası A.Ş. Türkiye FinansKatılım Bankası A.Ş. Kuveyt Türk Katılım Bankası A.Ş. Türkiye EmlakKatılım Bankası A.Ş. Albaraka Türk Katılım Bankası A.Ş. BOARD MEMBERS Ziraat Katılım Bankası A.Ş. Metin ÖZDEMİR CHAIRMAN Participation banks operating inTurkey MEMBERS 2002 ESTABLISHED IN

CONTENTS

1 PARTICIPATION BANKS 2018 2 Special FinanceInstitutions. were laidin2001 bytheAssociationof participation banks operating inTurkey, umbrella organization ofthe The foundations of theTKBB, institution oflegalpersonality. Banking Act,isaprofessional public and establishedinaccordance withthe Turkey (TKBB),headquartered inIstanbul The Participation Banks Associationof PARTICIPATION BANKSASSOCIATION OFTURKEYINBRIEF ensure thatnecessary decisionsare profession, increase competitiveness, system anddevelopmentofthebanking for thehealthygrowth ofthebanking regulations, principles andrules,towork competition inaccordance with banking market economyandtheprincipleoffull banks withintheframework ofafree rights andinterests ofparticipation The aimoftheTKBBistodefend the Association ofTurkey in2005. amended asParticipation Banks The titleoftheAssociationwas the TKBB. Turkey asofApril2019are membersof Six participationbanks operating in of beinggranted anoperating license. Association ofTurkey withinonemonth member oftheParticipation Banks participation bankisrequired tobea In accordance withthe legislation,a competitive environment. implemented for thecreation ofa taken, implementedanddemandtobe PARTICIPATION BANKINGKEYINDICATORS Source: TheBanking Regulationand SupervisionAgency (BRSA) * 15,654 NUMBER OFPERSONNEL FUNDS COLLECTED TL Key indicators of5memberstheParticipation Banks AssociationofTurkey (TKBB) (Asof31December2018) 137,220 TL TOTAL ASSETS 206,806 million million NUMBER OFBRANCHES 1,122 TL FUNDS ALLOCATED 124,531 TL SHAREHOLDERS’ EQUITY 16,796 million million

3 PARTICIPATION BANKS 2018 4 2017. Ziraat Participation Bankon12June, appointed astheGeneral Managerof since February 18,2015andwas Audit andRemuneration Committees Participation BankBoard ofDirectors, has beenamemberoftheZiraat of theCredit Committee.Mr. Özdemir Committee andasanalternatemember member oftheBank’s Remuneration Board ofDirectors andalsoservedasa Bank inApril2012asaMemberofthe years 2004and2014.HejoinedZiraat Metropolitan Municipality betweenthe was aCouncilMemberatIstanbul wholesale sectorasof1996.Mr. Özdemir in 1992,andworked asamanagerinthe career atKuveyt- Istanbul Universityin1990.Hestartedhis Faculty ofBusinessAdministration, Metin Özdemirgraduated from the CHAIRMAN METİN ÖZDEMİR BOARD OFDIRECTORS Türk FinansKurumu A.Ş. 2015. Heismarriedwith3children. Vakıf Participation BanksinceOctober Committee andGeneral Managerat member oftheCorporate Governance member oftheCredit Committee, has beenamemberoftheBoard, Bankasi between 2009-2015.Mr. Göktaş President atTurkiye FinansKatilim 1999-2000 andwastheExecutiveVice Branch ManageratÇorum between Istanbul Branch between1997- 1999, 1992-1997, AssistantManagerat as anauditoratGaranti Bankbetween Administration Department.Heworked Faculty ofPolitical Sciences,Business graduated from Ankara University Mr. Göktaş, bornin1969Bitlis,Mutki, MEMBER OFTHEBOARD OFDIRECTORS İKRAM GÖKTAŞ Türk. and ExecutiveCommitteeofAlbaraka Committee, Remuneration Committee, also servesasmemberoftheCredit A.Ş., Katılım EmeklilikveHayatA.Ş.He Albaraka Gayrimenkul Portföy Yönetimi (TKBB), Bereket Varlık Kiralama A.Ş. Participation Banks AssociationofTurkey Chairman oftheBoard ofDirectors of Utku continuedhisduty, as wellas of Albaraka Türk asofOctober2016 2013 to2016.AstheGeneral Manager board memberofBorsaIstanbulfrom Communication Departments.Hewasa Reporting andCorporate for FinancialAffairs, BudgetandFinancial appointed asCFO-primarilyresponsible Manager inDecember2009andwas continued asCIO-AssistantGeneral Relations Managerfrom 2007-2009.He (1995-2009). Helaterworked asInvestor Şafak newspaperfor over10years he wasaneconomicscolumnistfor Yeni economist inAlbaraka Turk. Inaddition, same bank.In2006-2007,hewashead 2007, hewasheadeconomistinthe Manager ofAlbaraka Turk andin2006- 2004, heservedasconsultanttoGeneral Marmara University(Istanbul, 1998).In Degree oneconomicdevelopmentin Economics (1990-1992)andMaster’s graduate studiesinLondon Schoolof (Istanbul, 1990).Hecompletedhis Department ofBoğaziçiUniversity graduated from MechanicalEngineering Mr. Utku wasborninAnkara in1968.He DIRECTORS MEMBER OFTHEBOARD OF MELİKŞAH UTKU Liabilities Committee. Credit CommitteeandAssets Committee, Remuneration Committee, the Board ofDirectors, Executive since 1999andalsoservesasMemberof CEO. UfukUyanhasbeentheBank’s CEO 1993 andlaterExecutiveAssistanttothe appointed asExecutiveVicePresident in Projects andInvestments in 1989.Hewas joined Kuveyt Türk astheDirector of Manager atAlbaraka Türk in1985and Mr. UyanbecameaDeputyProject Directorate ofSpecialResearch in1982. Turkish IndustrialDevelopmentBank’s served asaResearch Economistatthe Department ofEconomicsin1979,he Research AssistantatBoğaziçiUniversity, beginning hisprofessional career asa at thesameuniversityin1983.After Department ofBusinessAdministration received aMaster’s degree from the Department ofEconomicsin1981and graduated from BoğaziçiUniversity, Born inEskişehir1958,UfukUyan DIRECTORS MEMBER OFTHEBOARD OF UFUK UYAN of Türkiye FinansParticipation Bank. was appointedastheGeneral Manager School. OnNovember1,2016,MrRaies INSEAD, Darden andHarvard Business courses withreputable schoolssuchas Engineering, BankingandLeadership years Wael hasattendedspecialized June 2013for abriefperiod.Overthe headed theFinanceRestructuringin appointment asCountryHead,Wael Kingdom widein2013.Priortohis Head OfficetoleadCommercial Business Region in2010.Hethenmovedonto in 2008,followed byleadingEastern Business inNCBleadingCentral Region Manager. Heprogressed toCommercial business in2002asaSeniorRelationship National Commercial BankCorporate Bank, aCitiBanksubsidiary. JoinedThe Banking businessinSaudiAmerican banking career in1999Commercial Qatar landlocations.Hestartedhis reaching theEngineer-InChargeof locations bothoff-shore andon-shore operating indifferent geographical Services) in1996asaFieldEngineer Schulmberger Wire line&Testing (Oil 2004 atKingSaudUniversity. Joined degree inBusiness Administration in Petroleum &Minerals andMaster’s in 1996from KingFahd Universityof Earned adegree inElectrical Engineering Born in1972Makkah, SaudiArabia. DIRECTORS MEMBER OFTHEBOARD OF WAEL ABDULAZIZA.RAIES

5 PARTICIPATION BANKS 2018 6 since 2002. Participation Banks AssociationofTurkey Akyüz hasbeenSecretary General ofthe of IstanbulChamberCommerce. Mr. Management IncandAssemblyMember Member ofEYGRealEstatePortfolio in thesamebank.Mr. Akyüz isalsoBoard still servesasViceChairmanoftheBoard retired from Albaraka Türk in2002and as General Managerin1996. Mr. Akyüz Manager oftheBankandwasappointed served asManagerandDeputyGeneral in Albaraka Türk Participation Bank.He of FinancialandAdministrative Affairs 1985, hestartedworkingastheManager and FinancialConsultantin1983.In Fevzi Akkaya Group (STFA) asanAuditor was thentransferred toSezaiTürkeş - Inspector attheMinistryofFinance.He professional career in1978asaTax Ankara University. Hecommencedhis from theFaculty ofPolitical Sciences, in 1954.Heobtainedhisdegree Osman Akyüz was borninTrabzon SECRETARY GENERAL OSMAN AKYÜZ GENERAL SECRETARIAT Turkey since1February 2018. of Participation Banks Associationof has beentheDeputySecretary General position until17March 2017.Mr. Vural 2016 andcontinuedtoserveinthis in chargeofRetailBankingon21July was appointedasDeputyVicePresident Recruitment andPlanningManager. He Manager, Marmara RegionalManager, Specialist, Marketing Manager, Branch Finans Participation Bank asMarketing he servedatvariouspostsinTürkiye 1997 andafterhisresignation in1999, Department asAssistantSpecialistin Türk Participation BankMarketing He startedhiscareer in Kuveyt Administrative Sciencesin1993. University Faculty ofEconomicsand in 1972.Hegraduated from 9Eylül Mr. Vural wasborninOrdu/ Ünye DEPUTY SECRRETARY GENERAL İSMAİL VURAL ORGANIZATION CHART BANKING SERVICES BANKING SERVICES Data Management- DEPARTMENT Research and Statistics and Committees Publications Secretariat Reporting Working ETHICS COMMISSION SUPPORT SERVICES SUPPORT SERVICES Human Resources Correspondence Financial Affairs Administrative DEPARTMENT Training Affairs BOARD OFDIRECTORS SECRETARY GENERAL GENERAL ASSEMBLY DEPUTY SECRETARY Individual Customer CONSULTANCY Committee Arbitration GENERAL Legislation Advisory LEGAL SYSTEM (KBFKS) BANKS INVOICE BANKS INVOICE PARTICIPATION REGISTRATION IT Services CENTRAL ADVISORY BOARD CENTRAL ADVISORY BOARD SPECIALISTS AUDITOR COMMUNICATIONS CORPORATE

7 PARTICIPATION BANKS 2018 8 2018. Chairman ofthe AdvisoryBoard since May Theology. Mr. Yaran hasbeenservingasthe retired from Marmara UniversityFaculty of this poston12January2017.He also on 15December2011andresigned from dated 27November2011,started serving published attheOfficialGazette no28125 as muftiofIstanbulpertheDecree board. Prof. Dr. RahmiYaran wasappointed editor andamemberofthescientific Islamic Encyclopediaasawriter, scientific contributed toTurkiye DiyanetFoundation and aProfessor inSeptember2013.He an AssociateProfessor inJanuary2008 Azerbaijan PrivateUniversity. Hebecame at Faculty ofLawandInternational same time,hetaughtIslamicLawclasses State UniversityFaculty ofTheology. Atthe Islamic Scienceslecturer atAzerbaijan Baku 2004 academicyear, Mr. Yaran worked as degree onIslamic Lawin1994.In2003- of Theology. Hereceived hisdoctorate lecturer atMarmara UniversityFaculty studies. In1993,hewasappointedasa Social Sciences(1987)andstarteddoctoral Law atMarmara UniversityInstituteof completed hisgraduate thesisonIslamic scientific research. Inthemeantime,he an independentresearcher andperformed for twoyearsbetween 1985and1987as 1993. Duringthatperiod,hestayedinCairo at HasekiTraining Centercontinued until Teacher atthesamecenter. Hisassignment the course,hebecameanAssistantanda Haseki Training Center. Uponfinishing at Presidency ofReligious Affairs Istanbul attended thethird periodSpecialtyCourses from March 1977.InDecember1980,he Divinity Schoolastheschoolprincipal teaching career at Ordu/Kumru Islamic for militaryservice, hecontinuedhis Divinity SchoolinJuly1974.Afterabreak vocational classesatKastamonu Islamic graduated in1974.Hestartedteaching Konya HigherIslamicInstitutein1970and Mosque for tenmonths,thenstarted He servedasanimaminFatsa Kurtuluş from Tokat IslamicDivinitySchoolin1969. school inhishometown,hegraduated August 1951.Aftercompletingprimary Mr. Yaran wasborninFatsa/Ordu on2 CHAIRMAN OFTHEBOARD PROF. DR.RAHMİYARAN ADVISORY BOARD with BurhanKöroğlu andEkrem Demirli). (Translated from Câbirî,ajointpublication Systems inArabic IslamicCultures” Culture: ACriticalAnalysisofInformation Islamic Law” and “Mindset ofArabic Islamic Analysis ofRelationshipbetweenWord and Universe Approach onIslamicLaw: An His publicationsare “Impact ofAtomistic in 2008andaProfessor in2013. in 2000.HebecameanAssociateProfessor Rights inClassicalResources ofIslamicLaw” dissertation on “Analysis ofConcept of RelatedConcepts” in1993anddoctoral “Servitude inIslamicLawandDevelopment He completedhisgraduate studieson Marmara UniversityFaculty ofTheology. was appointedasaresearch associateat Institute ofSocialSciences.In1991,he graduate schoolatMarmara University in 1990.Atthesameyearhestarted Marmara UniversityFaculty ofTheology Islamic DivinitySchoolin1986andfrom in 1968.Hegraduated from Espiye Mr. HacakwasborninGiresun/ Espiye DEPUTY CHAIRMANOFTHEBOARD PROF. DR.HASANHACAK knows Arabic andEnglish. between 2004and2007.Mr. Kahraman for three yearsatBaku StateUniversity He wasavisitingprofessor andmanager of theHigherBoard ofReligiousAffairs. University Faculty ofTheologyandMember time, heservesastheDeanofKocaeli University Faculty ofTheology. Atthesame Mr. Kahraman isstillaProfessor atMarmara Professor in2003andProfessor in2008. as AssistantProfessor in1998,Associate Applications” in1997.Hewasappointed Islamic LawofObligationsandRecent dissertation on “Guarantee Contracts in finished hisdoctoral studieswithhis in 1994whilehewasstillteachingand of TheologyDepartmentIslamicLaw Associate atCumhuriyetUniversityFaculty institute. HewasappointedasaResearch and startedhisdoctoral studies atthesame titled “Barter Transaction inIslamicLaw” 1994 hefinishedhisstudieswiththesis University InstituteofSocialSciences.In he startedgraduate studiesatMarmara upon hisgraduation. Whileteaching, in Kağıthane Islamic DivinityHighSchool a hafiz.Hewasappointedasteacher his undergraduate studiesandbecame on Islamicsciencesbefore andduring faculty in1991.Hetookprivatelessons of Theology. Hegraduated from this studies atMarmara UniversityFaculty High Schoolandstartedhisundergraduate graduated from Uskudar IslamicDivinity he movedtoIstanbulwithhisfamily, After completingprimaryschoolinBayburt, Mr. Kahraman wasborninBayburt in1964. BOARD MEMBER PROF. DR.ABDULLAHKAHRAMAN Law. Faculty ofTheologyDepartmentIslamic Professor atNecmeddinErbakan University of thePresidency ofReligiousAffairs and of theHigherBoard ofReligiousAffairs Mr. Yaman currently servesastheMember 2015, hewasreelected tothesamepost. Presidency ofReligious Affairs in2011.In Higher Board ofReligious Affairs ofthe he wasappointedasMemberofthe of thisfaculty. Duringtheseassignments, Erbakan University, aftertheestablishment which changeditsnameasNecmeddin returned backto hisprevious university, of Theologybetween2010and2013.He Founder DeanofAkdenizUniversityFaculty Faculty ofTheology. Heservedasthe lecturer andmanager atSelçukUniversity Between 1992and2010,heworked asa Professor in1999andaProfessor in2005. University. HebecameanAssociate (1996) studiesonIslamicLawatMarmara completed hisgraduate(1991) anddoctoral speaker andpreacher for sometime.He Center (1992).Heworked asanimam, of ReligiousAffairs IstanbulHaseki Training Faculty ofTheology(1989)andPresidency High School(1985),Marmara University graduated from AntalyaIslamicDivinity Mr. Yaman wasborninKonya. He BOARD MEMBER PROF. DR.AHMETYAMAN New Mind,Economy”. of Thoughts” and “Participation Economy: Democracy Idea”, “Man andReality: Drops titled “New QuestandBirthofAdvanced newspapers. Hehasthree publishedbooks published invariousmagazinesand in Sociology. Hisarticlesandessayswere East andworkingonhisdoctoral studies at Marmara UniversityInstituteofMiddle the TKBBAdvisoryBoard. Heisalecturer in 2018andwasappointedasMemberof resigned from hisdutiesatAlbaraka Türk Management andOrganizationunits.He Reporting, Strategic PlanningandProcess in chargeofFinancialAffairs, Financial Departments. In2017,heservedasCFO Affairs andConstructionRealEstate and Career Management, Administrative Training andOrganization,Performance President responsible for HumanResources, Between 2003and2017,heservedasVice Vice President of Albaraka Türk in2003. Deputy Manager. Hewasappointedas and Personnel andAdministrative Affairs served asInformation SystemsManager returned backto Albaraka Türk in1996and consultant between1992and1995.He worked asanindependentmerchant and Türk between 1986and1991.He Information Systems ManageratAlbaraka at Türkiye EmlakBank.Heservedas Information Systems AssistantManager as aProgrammer, SystemAnalystand of BusinessAdministration. Heworked Sabahattin ZaimUniversityDepartment and graduate degree from İstanbul Department ofMathematicalEngineering degree from IstanbulTechnical University for Boys.Hereceived hisundergraduate graduated from Kabataş HighSchool middle schooleducationinIstanbul.He his family andcompletedprimary in1955. HethenmovedtoIstanbulwith Mr. Hazıroğlu wasborninTrabzon BOARD MEMBER TEMEL HAZIROĞLU

9 PARTICIPATION BANKS 2018 10 INCREASED BY 10%. RESPECTIVELY, THETOTAL PROFIT INCREASED BY 15%AND19%, YEAR. WHILELOANS ANDDEPOSITS 19% COMPARED TO THE PREVIOUS BANKING SECTOR INCREASED BY THE VOLUME OFASSETSINTHE PRESENTATION CHAIRMAN’S global economy, proving unsettling for globalmarkets. two countries,whichconstituteapproximately 40%ofthe trade isexpectedtocontinueharmtheeconomiesofthese developing countriesin2018.Thisprotectionism inforeign of commoditypricesputdownward pressure ongrowth in continued slowdownoftheChineseeconomyandcourse taken mutuallybytheUSAandChinainforeign trade, the over thecourseofglobalgrowth. Protectionist measures One ofthemainissues2018wasincreasing uncertainty the Fed initsstepstowards normalizationinmonetary policy. Central Bankadoptedamuch more cautiousapproach than other hand,withmountingrisks intheEurozone, theEuropean supported bythepositivebackdrop in theeconomy. Onthe pressed aheadwithitsgradual process ofinterest rate hikes, the USmaintaineditsexpansionaryfiscalpolicy, the Fed world, andgrowth forecasts were revised downward. While momentum duetotheeffects oferuptingtrade warsinthe 2018 wasaperiodinwhichglobaleconomicactivitylost The impactoffinancialmobility onthe asset qualityandstrong equitystructure. continued togrow steadilywithitshigh In 2018,theTurkish bankingsector 97%. the yeartoreach anall-timehighofover increased rapidly inthefinalperiodof of 2018.Theexportscoverage ratio in oureconomythethird quarter A rebalancing process gotunderway conditions. of netexportswiththesupportglobal composition ofgrowth shiftedinfavour rate ofgrowth compared to2017,the financial stability. Despitethelower the efforts to reduce inflationandensure coordinated mannerwillcontributeto fiscal policiesinacorrect, timelyand the implementationofmonetaryand in theeconomyachievedthrough economic foundations. Thebalancing demonstrating therobustness ofits and inothermarkets, onceagain despite thevolatilityinexchange rates successfully from itslateststress test In 2018,Turkey’s economyemerged PARTICIPATION BANKS. STOOD AT 32%FOR 2018, THISRATIO OF THEYEAR-END ALLOCATED TO SMEsAS SECTOR WERE TURKISH BANKING DISBURSED BY THE CASH LOANS WHILE 26%OFTHE stimulating economicgrowth and establishment ofnewSMEs,in turn attractive andwillgiverisetothe entrepreneurship willbecomemore solving theproblems faced by SMEs, are themotorofeconomy. By the resistance ofourSMEs,which in accessingfinancewillincrease difficulties thattheSMEsencounter platform andtheeliminationof implementation ofthecredit insurance In thecomingperiod, with thereal sector. relationship participationbanks have banks. Thisratio confirmstheclose this ratio stoodat32%for participation allocated toSMEsasoftheend2018, by theTurkish BankingSectorwere While 26%ofthecashloansextended trade, standsat55%. of importsand59%inexportsforeign value addedofSMEs,whichprovide 40% 75% oftotalemployment.The they havethepotentialtoaccountfor SMEs make up56%oftotal production, participation bankingsector. Whileour country’s economy, are crucialfor the (SMEs), whichare thelifeblood ofour Small andmedium-sized enterprises banking sector. net profit by34%,outperforming the in participationfunds.We increased our with growth of17%inloans and30% by 30%compared totheprevious year, participation bankingsegmentgrew of growth. Thetotalasset size ofthe also outperforming thesectorinterms enjoyed asuccessfulyearin2018,while reach TL54billion. Participation banks the sectorincreased by 10%YoY to deposits by19%.Thetotalprofit of with loansexpandingby15%and sector increased by19% YoY in2018, The volumeofassetsinthebanking be brought intotheeconomy. enabled domesticandforeign savingsto share alsoininternational markets and country’s participationbankingmarket banking sector, wehaveincreased our the share ofparticipation bankinginthe our customers.Inadditiontoincreasing the MinistryofTreasury andFinanceto gold-based leasecertificatesissuedby acted asanintermediaryinthesaleof resources asastrategic priority. We also have determinedtheeffective supplyof In theparticipationbankingsector, we deploy theseinstrumentseffectively. syndication andsukuk, andwasableto in internationalmarkets, particularly capital andsubordinate loanfacilities sector wasabletoeasilyaccessanduse increase infinancing costs,thebanking the yearwaslimited.Despiteaslight banking sector’s assetqualityduring BANKS ASSOCIATION OFTURKEY DIRECTORS OFTHEPARTICIPATION CHAIRMAN OFTHEBOARD OF Metin ÖZDEMİR contributing toparticipationbanking. thanks toallthosewhohavebeen and Iwouldlike toexpress mysincere with ourcommonbeliefsandefforts, customers andshareholders together by attainingbetterresults withour leader ofthesectorincomingperiod we willmake ourcountrytheregional I wouldlike toexpress ourbeliefthat strong infrastructure, intoopportunities. region, oursolidbankingsectorand our strong tiestothegeographical our reputation intheinternationalarena, traits, suchasourgeopolitical position, need toworkharder toturnourpositive finance. Iamoftheopinionthatwe goal ofIstanbulbeingacentre for Islamic of ourprimarygoals.Thisincludesthe regional andglobalfinancialhubisone The idealoftransforming Istanbulintoa this issueare continuing. public andthesector’s jointefforts on banking inlinewithourmission.The with theprinciplesofparticipation standards andregulations inaccordance importance todeveloplegislation, sector. Inaddition,itisoftheutmost to thegrowth anddevelopment ofour participation bankingwillcontribute in accordance withtheprinciplesof of newareas inthecapitalmarkets great importance.Theestablishment participation inthisecosystemisof accordance withtheprinciplesof financial institutionsoperating in banking. Thepresence of non-bank sustainable growth inparticipation We aimtoachievehealthyand practices inthesector. for harmonization betweendifferent Central AdvisoryBoard willpavetheway the standards tobeestablished bythe work onnewstandards. We believe Board continues its developmental specific to Turkey, theCentral Advisory banking principlesandstandards determine andestablishparticipation banking. Operating inorder to and standards regarding participation determining theprofessional principles dated 22/02/2018withthetaskof Board’s Decisionnumber7736and Banking RegulationandSupervision established inaccordance withthe Board. TheCentral AdvisoryBoard was establishment oftheCentral Advisory banking sectorin2018wasthe developments intheparticipation One ofthemostimportant wealth andemployment. development byincreasing production,

11 PARTICIPATION BANKS 2018 12 GROWTH INPRODUCTIVESECTORS. NECESSARY FORSUSTAINABLE TRANSFER THERESOURCES OUR COUNTRY’S ECONOMY AND THE DUTYITHASUNDERTAKEN IN SECTOR CONTINUED TO EXECUTE 2018, THETURKISHBANKING PRESENTED BY THEMARKETSIN DESPITE ALLTHEDIFFICULTIES INTERVIEW WITH THE SECRETARY GENERAL the stepstaken in2018were inatighteningdirection. determinants ofeconomicperformance, weseethatmostof When welookatthepolicyrates, whichare themain strong growth seenintheeconomiesofdevelopedcountries. able tomaintainitsmomentumthanks totherecovery and relative weakening indevelopingcountries,globalgrowth was Chinese economyinresponse togovernmentpoliciesanda which hasbeenmarked byaslowingrate ofgrowth inthe to growth whencompared toprevious years.Inthisprocess, taken placeinthecontributionofeconomy’s majorblocks growth. Datafor 2018clearlydemonstrates thatachangehas monitored isthechangeincompositionofeconomic The majorissuehere andonewhichneedstobecarefully in January2019estimateda3.7%ofglobalgrowth in2018. report publishedbytheInternationalMonetaryFund (IMF) economy displayedagrowth performance similarto2017.A A: In2018,withaconstantlychangingagenda,theglobal developments experiencedintheworld2018? what wesawin2017.Howwouldyoucommentonthe Q: In2018,theglobaleconomyperformed inparallel with 1.75% andIndiaby0.25%. South Korea by 0.25%,Indonesia Mexico increased interest rates by0.50%, run ofinterest rate cutsduringtheyear, economies. Brazil halteditsten-month increases inpolicyrates inemerging declining portfolio inflowstriggered banks ofdevelopedcountriesand The tighteningstepstaken bythecentral country’s exitfrom theEuropean Union. despite theuncertaintiessurrounding the its policyrate by0.25percentage point, and theEU, theBankofEnglandraised process turnedintoadilemma for theUK at theendofyear. WhiletheBrexit formally endeditsbondpurchase scheme EUR 15billioninSeptember, and bond purchases from EUR30billionto rate unchanged,itreduced itsmonthly European Central Bankleftitsinterest board meetingsheldin2018.Whilethe raise interest rates inoneofitstwo The USFederal Reservedecidedto in value of the TL, which was especially in valueofthe TL, whichwasespecially the year, rose furtheronthe backofafall maintained anupward trend throughout adverse developments.Inflation, which an emergenceofglobalvolatility and the economicoutlookchanged dueto the secondhalfofyear, however, from otherdevelopingcountries.In quarter, continuing to decouple positively the firstquarterand5.3%insecond performance withgrowth of7.4%in Turkey’s economyexhibited astrong A: you commentonthisprocess? global economicdevelopments.Could rebalancing process in2018lightof Q: Turkey’s economyentered a economy. and rapid changewillaffect theglobal competition willcontinuetoincrease carefully byalleconomicplayers,inwhich as aprocess thatmustbe managed for 2019andbeyondwillbeexperienced Against suchabackdrop, theprospects potential tosuppress growth. precipitate ariseofrisks that havethe prove difficult.Thedevelopments will growth achievedinthelast twoyearswill that sustainingthestrong runofglobal developments, inparticular, suggest in theMiddleEastandBrexit. Geopolitical global scale,theenvironment ofconflict problem ofincreasing migration ona relations betweentheblocks, the with eruptingtrade wars,political different partsoftheworld,especially rise ofprotectionist trade policiesin will beinfluencedbyissuessuchasthe term prospects for theworldeconomy Looking forward, theshortandmedium on Iran. by itsre -implementation oftheembargo Nations (UN)andIran in2016,followed five permanentmembersoftheUnited nuclear agreement reached betweenthe the worldwasitswithdrawal from the which provoked reaction from around Another steptaken bytheUnitedStates of newtariffs,albeitatemporary one. 30 November2018andasuspension leaders’ summitheldinArgentinaon a 90-daynegotiationperiodattheG20 on into2019withthedeterminationof the UnitedStatesandChinadragged trade warthathaseruptedbetween throughout theyear. Inparticular, the continued totoptheglobalagenda steel products, andthisdevelopment implement additionaltariffsonimported In March, theUS announced thatitwould developments. leading playerofmajorglobaleconomic 2018, theUnitedStatesremained the catching stepsandpoliciescontinuedin While theUSPresident Trump’s eye In the first two quarters of 2018, In thefirsttwoquartersof2018, implemented if necessary. additional monetarytightening couldbe Bank alsoinformed thepublicthat main objectiveofpricestability. The with determinationinline its all oftheinstrumentsatitsdisposal tackle inflation,continuedto deploy policy stanceaspartofitsefforts to which hasadoptedatightmonetary of theRepublicTurkey (CBRT), seen ininflation.TheCentral Bank Another welcomedevelopmentwas rates. leading toalimiteddeclineininterest even keel inthelastquarterof2018, helped bringthecurrency backonan the proactive policiesimplemented relations. Allofthemeasures taken and developments inTurkey’s international prices ofTLassets,aswellthepositive international developmentstosupport decline inoilpriceswasalsoamongthe deficit. Inthesameperiod, rapid improvement inthecurrent account receipts, furtherstrengthening the with afavourable courseinnettourism of consumergoodswascombined use ofimportedinputsandinimports trade deficitduetothedecline inthe exports, thenarrowing intheforeign the fall intheTurkish Lira supported the third quarteroftheyear. While was observedinexports,especially the otherhand,asuccessfulincrease to undergoare-balancing process. On programs, theTurkish economybegan Soon aftertheannouncementofthese basis. efforts totackleinflationonavoluntary companies were expected tosupport program wasannounced.Inthiscontext, the “Total FightagainstInflation ” 2019-2021 period.Inthesameprocess, objectives andpoliciessetoutfor the also confirmedthemacroeconomic the face ofglobalvolatility, theprogram stance beingtaken bythegovernmentin demonstrating theproactive anddecisive Government inSeptember. Inadditionto Change”, whichwasannouncedbythe entitled “Balancing, Disciplineand 2018 wastheneweconomicprogram, developments ontheeconomicfront of One ofthemostimportant realised at2.6%for thefullyear. Turkish economysloweddown,tobe of thesedevelopments,growth inthe economic activity. Undertheshadow neighbouring countriessuppressed costs andgeopoliticaladversitiesin policies, coupledwithariseinborrowing developed countriesintheirmonetary the normalizationstepstaken bythe contraction ingloballiquiditydueto attacks ontheTurkish currency. The severe inAugust due tothespeculative

13 PARTICIPATION BANKS 2018 14 the markets in2018. despite allthedifficulties by presented sustainable growth toproductive sectors, and transfer the resources necessaryfor undertaken inourcountry’s economy continued toexecutetheduties ithas the mainbranches basedonfunction, our participationbanks standasoneof The Turkish bankingsector, in which economy. force, indeedthelocomotiveofTurkey’s A: Thebankingsectoristhedriving 2018? performance ofthebankingsectorin sector. Howwouldyouevaluate the of Turkey’s economyisits banking Q: Oneofthe maindrivingforces broadly inlinewiththeforecasts. on interest rate hikes in2019,andwillact central banks willadoptacautiousstance continue. Thegeneral expectation isthat in globalliquidityconditionsislikely to such asTurkey. Thegradual tightening resources tosupportrapid growth, need mediumandlongtermexternal bearing onthoseeconomiesthat conditions willhaveanimportant developed countriesandgloballiquidity to beadoptedbythecentral banks of Looking forward to2019,thepolicies half oftheyear. return toapathofgrowth inthesecond first halfof2019andoureconomywill balancing process willcontinue inthe has gotunderway. Inouropinion,the recovery expectedindomesticdemand indicators reflect thatthemoderate to suggestthatthemacroeconomic To sumup, itwouldbereasonable at 20%,decreased to19%. inflation, whichhadclosedtheyear2018 the rate ofConsumerPriceIndex(CPI) were preparing ourreport for publication In thefirstquarterof2019,whenwe AND 6.7%INCOLLECTED FUNDS. TERMS OFASSETS,5.1%INDISBURSEDFUNDS THE BANKINGMARKETINCREASEDTO 5.3%IN PARTICIPATION BANKS,OURSECTOR’S SHAREIN ON THEBASISOF2018DATA OFTHEFIVE INTERVIEW WITHTHESECRETARY GENERAL classifications were introduced, leading of theTFRS9standard, changes inloan evaluation model.Withtheadoption sector beganusingthesubjective internal (TFRS 9)accountingsystemin 2018,the the Turkish FinancialReportingStandard into force. Withtheimplementationof sector wasthenewregulations thatcame Another importantissuein2018for our throughout 2018. supply activitieswithhighrenewal rates loans, alsocarriedoutsuccessfulresource difficulty in repayingtheirsyndicated this period,ourbanks, whichhadno to reasonable levelsagain.During as profitability inoursector returned to moderate againandgrowth aswell domestic financialconditionsstarted and thecorrect policiesimplemented, to themeasures taken bytheauthorities In thefinalmonthsofyear, thanks any extraordinary losses. continue itsactivitiessuccessfullywithout and auditinfrastructure, hasbeenableto a well-establishedregulatory framework sector, whichhasstrong foundations and One pleasingdevelopmentwasthatour profitability. the asset-liabilitystructure, limiting currency exchange rate mismatchin to maturitymismatchesandforeign sector’s revenues withsomedelaydue costs. Highercostswere reflected tothe domestic andinternationalfinancing our banks were burdened byhigher of credit volumes.Inthesameperiod, was observed,especiallyinthegrowth temporarily, andarelative slowdown banking sectormore difficult,albeit of doingbusinesstheTurkish This situationmadetheconditions interest rates inthedomesticmarket. the currency and upward pressure on increase ininflation, placedpressure on the summermonths,whichledto The developmentsexperiencedin celebrated its35 Q: Theparticipationbankingsector to ourmarkets. global economyandthereflection ofthis parallel witheasinguncertainty inthe driving force ofeconomicgrowth in to take strong stepsforward andbethe anchor, ourbankingsectorwillcontinue stability remains themostimportant risk maintain itshealthyprogress inlinewith will maintainitscautiousapproach and In 2019,wethinkthebankingsector the financialsector. regulates therestructuring ofdebtsto (BRSA) on15August2018,which Regulation andSupervisionAgency was theregulation issuedbytheBanking concerning thebankingsectorin2018 performing loans. Anotherdevelopment to arelative increase inthesector’s non- marks avaluablemilestone. growth andprogress achievedin2018 in totalassetsthemediumterm, the banking toreach amarket share of15% funds. Giventhetargetfor participation disbursed fundsand6.7%incollected to 5.3%intermsofassets,5.1% in theoverall bankingmarket increased participation banks, oursector’s share sector. Inlight of2018datafor the5 increased theirshare inthebanking volumes, ourparticipationbanks also In ayearmarked by29%growth inasset participation banks haveachieved. to thesuccessfulperformance thatthe only berighttostartbypayingtribute presented bythemarkets? strengthening, despitethedifficulties continues toadvance bygrowing and the participationbankingsector, which you discussyourobservations about A: Asweround offour35 sensitive policies. While political -sensitive policies.Whilepolitical th year in 2018. Could yearin2018.Could th year, itwould PARTICIPATION BANKS. IN ADDITIONTO OF ISLAMICFINANCE, OPERATE IN THEFIELD ORGANIZATIONS THAT BOARD WILLSERVEALL THE CENTRALADVISORY participation banking. contribute tothe increase inthe share of construction sector, andthatthis will growth and employment,especiallythe provide ahighcontributiontoeconomic activities aimedatthesectors which will generate addedvaluethrough its a recent additiontoourlistofmembers, in March 2019.We believe EmlakBank, participation bankwithpubliccapital, Emlak Katılım Bankası A.Ş.),anew establishment ofEmlakBank(Türkiye the developmentofoursectoris I wouldlike tomentionintermsof Another importantdevelopmentthat the Gulfregion. from internationalmarkets, particularly attracted asignificantamountofcapital Ministry ofTreasury andFinance in2018 Lease Certificates(Sukuk) issuedbythe increasingly important.For example,the broad potential,toTurkey isbecoming in attracting Gulfcapital, which offers played byparticipationbankingproducts syndication from theGulf region. Therole by day, andwhichisprovided through financing, whichhasbeenspreading day play animportantrole inMurabaha Our participationbanks continuedto at anaffordable costandmaturity. finance from international markets the range ofopportunities toobtain Participation banks continuedtoexpand compared totheprevious year. of 15,654people,anincrease of4.2% participation banks employedatotal employment. Attheendofyear, remained animportantsource of network. Meanwhile,oursectorhas 8% ofthebankingsector’s totalbranch branches, constitutingapproximately participation banks hadatotalof1,122 According to2018 year-endfigures, the 16,780 million. equity increased by23% toreach TL reach TL2,123million. Total shareholders’ increased by34.1% for theperiodto The netprofit oftheparticipationbanks

sector’s members conveywithinthe or forms opinionsonissuesthatour Central AdvisoryBoard makes decisions establishment anddecisionmaking. The intervene inprocesses suchasstandard structure, andtheAssociationdoesnot The Board hasacompletelyindependent these standards. eliminated withtheestablishmentof Islamic jurisprudence(fiqh),canonlybe among customerswhenitcomesto banks, whichmaycausehesitation the practices adoptedbyparticipation in participationbanks. Differences in services usedwithdifferent practices establish standards for theproducts and and standards. TheBoard aimsto are inlinewithparticipationprinciples participation banks, ensuringthatthey which willbeoffered inthefuture by the products andservices offered or and evaluatingthecomplianceof Board wasdeterminedassupervising The mainmissionoftheCentral Advisory begun itsoperations. in ourcapacityastheAssociation,has which weonlyprovide logisticalsupport May 2018,theCentral Advisory Board, to in additiontoparticipationbanks. In in thefieldofIslamicfinance Turkey, will serveallorganizationsthatoperate Association. TheCentral Advisory Board the Central AdvisoryBoard withinthe is theestablishmentandoperation of gained awiderworkingarea in2018, our members,expandeditsstaffand which haspositioneduscloserto about intermsofourAssociation, The firstissueIwouldlike totalk out inmanyandvariousareas. wide array ofactivitieswhichwecarry stakeholders andfor Turkey through a regulations. We generate valuefor our the implementationofstandards and with theregulatory authoritiestosupport participation banking,weworkclosely As wellasdevelopingtheprinciplesof perception andreputation management. reach thewideraudience through careful international collaborations, westriveto we generate through domesticand While deepeningthecontribution participation bankingsectorinTurkey. the developmentandgrowth ofthe strong andversatilecontributionto As theTKBB,ourgoalistoprovide a start bytalkingaboutourmission. A: cornerstone ofthesector, in2018? of yourAssociation,whichisthe would youevaluate theactivities diversified andactivein2018.How Q: TKBB’s activitiesbecamemore As always,firstofall,Iwouldlike to demonstrating itscontribution. institutions andorganizations and close cooperation withrelevant public service cycleofoursector, workingin to meettheneedsarisingfrom the regulations thathavebeendrawn up put inpractice different legislationand Our Associationsupportsefforts to the principlesofIslamicfinance. roll outoftheproducts thatcomplywith a valuablestepinthediversificationand attorney agreement tobeconcluded,as opened onthebasisofinvestment which allowsparticipationaccountstobe of this.We considerthisamendment, 2018, canbeheldupasanexample in theOfficialGazette dated18October Receivables thathaveExpired”, published Deposit, Participation Fund, Custodyand Deposits andParticipation Funds, andthe regarding theAcceptance,Withdrawal of The “Regulation onthePrinciples standards ofparticipationbanking. in accordance withtheprinciplesand measures andregulatory amendments intensive efforts regarding legislative spotlight in2018for theTKBBwas Another itemthatcameunderthe support andclosecooperation. I wouldlike tothanktheBRSA for their extremely importantfor oursectorand the Central AdvisoryBoard in2018tobe Finally, weconsidertheestablishmentof Islamic financerules. will provide servicesinaccordance with funds andsimilarinstitutionswhich insurance, privatepensions,investment for theexpansion anddevelopmentof crucial notonlyfor ourbanks, butalso We findthestandardization effortsbe to systems. communiqué withinthescopeofinternal through internalregulations orthe aiming toimplementrelevant structuring work incooperation withtheBRSA, banks. Inthisregard, wecontinueto contribute tothetransparency ofthe setting standards, willalsosignificantly This structure, which willcontributeto free financialrules specifictothebank. for theimplementation ofinterest- These committeeswillberesponsible committees inthememberbanks. standards willbe toestablishadvisory Our nextstepinsettingIslamicfinance standards inTurkey. participation bankingandIslamicfinance to preparing the establishment ofthe manner thatguidesthem,inaddition scope oftheirdailyservicecycle,ina

15 PARTICIPATION BANKS 2018 16 participation banking in academic participation banking inacademic collaborations andthespread of participation bankingtointernational of scientific publishinginthefield of facets, from thedevelopment of multi-layered andoffers awide range widespread inTurkey. Ourstrategy is broader conceptualexpression, more a banking, orIslamicfinancein a key stakeholder tomake participation A: TKBBhasidentifiedtheacademiaas like totellusaboutthis? contribution tothis.Whatwouldyou term approach providing avaluable by yourAssociationunderalong- increased, withtheworkcarriedout banking inacademiahasrecently Q: Theinterest inparticipation areas continueswithoutinterruption. continuous nature andworkinthese the IFC.Someofouractivitiesare ofa publication andsectoral incentives for of legislation,perception, reputation, institutions intheactionsconsisting with stakeholder institutions andpublic implemented through jointprojects These actionswere mainly Centre (IFC)Program. of theIstanbulInternationalFinance System DevelopmentComponent Banking andInterest-Free Finance steps definedinthe Participation The TKBBhascompletedmostofthe published byTKBBin2015. strategy documentprepared and set outinthescopeofsector Centre wasoneofthemainpriorities A: TheIstanbulInternationalFinance within thescopeofthisproject? TKBB’s visionwhichithasdetermined projects. Couldyoutellusabout one oftheGovernment’s long-term an internationalfinancialcentre is Q: Istanbul’s transformation into STANDARDS. FREE FINANCESTANDARDS CONSISTING OF58 (AAOIFI), WEHAVE TRANSLATED THEAAOIFI INTEREST- ORGANIZATION FORISLAMICFINANCIALINSTITUTIONS TOGETHER WITHTHEACCOUNTING ANDAUDITING INTERVIEW WITHTHESECRETARY GENERAL out to the widest possible audience out tothewidest possibleaudience universities, we haveaimedtoreach and financetobeheldatvarious conferences onIslamiceconomy As wemaintainoursupportfor in 2019. Turkish. We aimtocontinuetheproject Umer Chapra, wastranslated into in IslamicEconomics,byMuhammad publication entitledMorality and Justice published. Through thisprogram, the into Turkish hasbeencompletedand be considered asareference book, participation bankinggloballyandcan pieces ofwork,whichcontributeto our project totranslate more than20 Istanbul University, thefirstpartof Islamic EconomicsandFinanceat protocol signedwiththe Center For Within theframework of the translation study. translated toTurkish through acareful that consistsof58standards hasbeen AAOIFI Interest-Free FinanceStandards Financial Institutions(AAOIFI), the and AuditingOrganizationfor Islamic we entered intowiththeAccounting Within thescopeofagreement an extremely valuablepieceofwork. scope ofTKBBPublications,whichis published inMarch 2018withinthe Financial Standards, thatwe to mindistheAAOIFI Interest-Free The firstsuchpublicationthatcomes numerous publications. in participationbankingthrough the developmentofknowledge has increased everyyear, wesupport in thefieldofparticipationbanking postgraduate anddoctorate students While ourscholarshipsupportfor efforts madeinthis area. that weare reaping thefruitsofour back on2018,weare pleasedtonote education asadepartment.Aswelook products and services.Providing an participation banks, capitalmarket this, whilethepanelalsopromoted that companiesshouldbenefit from in detail,withtheviewexpressed participation financesystem was shared moderator, Turkey’s needfor the In thepanel,inwhichIwas related tothesector. models, institutionsandmanyissues finance, tools,employees,business sector, innovation inparticipation growth oftheparticipationbanking on thestepstobetaken for thehealthy interest-free finance.Thepanel focused together leadingprofessionals of organized undertheSummitbrought Humane Future” panelwhichwe The “Participation Finance: AMore platform. created avaluablecommunication especially thecapitalmarkets, and from financeandmany other sectors, brought togetherrepresentatives on 14-15November2018.TheSummit Markets Association(TSPB) inIstanbul Summit hostedbytheTurkish Capital supporter oftheTurkish CapitalMarkets A: OurAssociationwasthemain about thissubject? anything youwouldlike toshare Markets Summitin2018. Isthere Q: You sponsored theTurkish Capital of oursector. in raising theperception andreputation these activitiesare ofgreat importance operational structure. We believeallof how participationbanks workandits visuals anddocumentsdescribing conducted throughout theyear, with and promotion activitieswere also better understood,advertising our sectorandtohelpitbecome banking. Inorder topromote and raise awareness ofparticipation banks withinthesystem. as anassetintherequired reserves of CBRT asaproduct and,atthesametime, economy. Goldhasbeenacceptedbythe effort tochannelallgoldsavingsintothe banks, aswelltheCBRThaveputgreat Both participationbanks anddeposit mattress, aspossibleintotheeconomy. the gold,traditionally heldunderthe Our goalshouldbetobringasmuchof basic savingtool. traditionally viewedgoldasthemost For example,inourcountry, peoplehave Gold isalsoanimportantfinancialasset. jewellery toindustrialandinvestment. consumed invariousfields ranging from since ancienttimes.Today, goldis important investmenttoolsfor humanity A: the potential? work carriedoutonthissubjectand important? Couldyoutellusaboutthe International GoldCouncil.Whyisgold has acloserelationship withthe Q: We knowthatyourAssociation which are amongourstakeholders. and publicinstitutionsorganizations, Banks Association ofTurkey, universities Regulation andSupervisionAgency, the our cooperation withthe Banking we willcontinuetodevelopanddiversify awareness inthissense.Incontext, markets, buildtheinvestor baseandraise every effort todeepenthecapital TKBB willcontinueresolutely tomake and theparticipationbankingsystem. financial modelofthecapitalmarkets demonstrate thesimilaritybetween Summit alsooffered theopportunityto participation financeecosystem,the important platform toaddress the Gold has been one of the most Gold hasbeenoneofthemost THE ECONOMY. EFFORT TO CHANNELALLGOLDSAVINGS INTO BANKS, ASWELLTHECBRTHAVE PUTGREAT BOTH PARTICIPATION BANKSANDDEPOSIT MATTRESS, ASPOSSIBLEINTO THEECONOMY. THE GOLD, TRADITIONALLY HELDUNDERTHE OUR GOAL SHOULDBETO BRINGASMUCHOF and technology isofgreat importance. synchronization ofpolitics,theeconomy of globalization,inotherwords, the At thispoint,thecorrect management inclusive approach. policies shouldbedesignedwith an a newperspective,andglobal economy instruments shouldbeapproached with financial products andfiscalpolicy economic actors.Market parameters, cooperation andsynchronization ofall towards sustainablegrowth requires the The progress oftheworldeconomy themselves inthemediumandlongterm. for globaleconomicgrowth by offering thesolid foundations necessary the difficultycentral banksin face since the2008crisishavedemonstrated The developmentswehaveexperienced growth iscomingunderquestion. a newstage,inwhichthestrength of A: Theworldeconomyhasapproached going forward? How doyouseetheWorld andTurkey Q: Whatare yourpredictions for 2019? Council. have actedinconjunctionwiththeGold the goldstandard inTurkey. Thuswe finance standards, haspubliclylaunched determines theinternationalinterest-free On theotherhand,AAOIFI, which with theInternationalGoldCouncil. Association, wehaveacloserelationship diversity basedongold.Atthe their efforts towidentheproduct Our participationbanks haveredoubled key tasks ahead. financial system,emergesasoneofthe in otherwords, including goldinthe gold intothenationaleconomy, or the materialsize ofthisasset,bringing than 2,000tonnesofgold.Considering savings, itisestimatedthatthere ismore In Turkey, asanassetofintermediaryand OF TURKEY PARTICIPATION BANKS ASSOCIATION GENERAL SECRETARY OFTHE Osman AKYÜZ valuable contributionsandsupport. thank allofourstakeholders for their I wouldlike totake thisopportunityto for ourstakeholders. stronger performance, andcreate value sustainable future andachieveamuch with determinationinorder tocreate a we willuseallkindsofresources wehave Also in2019,togetherwithourmembers, ever. of our35-yearhistory, isstronger than economy, bybenefitingfrom thepower one ofthecornerstonesTurkish participation bankingtothefuture as motivates usasateam.Ourwishtotake banking sectorgivesusgreat prideand performance ofourparticipation of developmentandthehealthy On theotherhand,course people isstrong. positive. Ourfaith in ourcountryand term, ourforecasts for thefuture remain environment willundergo intheshort international andnationaleconomic Despite thefluctuationsthat performance. reflected totheglobaleconomic regional growth potentialisincreasingly cooperation toensure thatglobaland systems willworksidebyandin conventional andinterest-free financial global financialsystem.Insuchaprocess, effective andproductive operation ofthe economic policieswillsupportthemore A harmonioussystemandasetof will comeclosertoitsreal potential. strengthened and globaldevelopment the gainsofglobalizationwillbe If thisequationcanbeimplemented,

17 PARTICIPATION BANKS 2018 PARTICIPATION BANKS 2018 PARTICIPATION

IN 2018

FIGURES RELEASED IN IN 2018, THE INCREASE THE LAST QUARTER OF IN GLOBAL TRADE 2018 INDICATE THAT VOLUMES FELL SHORT GLOBAL GROWTH OF EXPECTATIONS. SLOWED IN PARALLEL WITH MOUNTING GEOPOLITICAL UNCERTAINITIES ON A GLOBAL SCALE.

18 19 THE DATA IN THE DEVELOPED THE SLOWDOWN IN DEVELOPED THE WORLD ECONOMY ECONOMIES OTHER THAN THE US ECONOMIES, WHICH ARE THE CONFIRMS THE SIGNS OF MAIN ENGINE OF THE WORLD SLOWDOWN IN GROWTH. ECONOMY, THREATENS THE RECOVERY IN SOME DEVELOPING PARTICIPATION BANKS 2018 PARTICIPATION ECONOMIES.

THE WORLD ECONOMY COMPLETED 2018 IN THE SHADOW OF DEVELOPMENTS SUCH AS

TRADE WARS BETWEEN THE 2018 GLOBAL GROWTH PROJECTION THE US AND CHINA, THE BREXIT TENSION AND EMBARGO ON IRAN. 3.7%

GLOBAL GROWTH 0.1 percentage point to 3.6%. The Political developments, with inflationary Emerging economies other than China, In India, despite some deceleration in In China, which continued to post IMF reduced its growth forecast for risks in the US economy remaining where growth accelerated in 2017 growth in the third quarter, the economy growth throughout 2018, the People’s The world economy rounded off 2018 developed economies for 2019 by 0.1 of limited, raised expectations that further following a weak performance in 2016, continued to post growth rates of over Bank of China (PBoC) sought to limit the under the shadow of developments such a percentage point to 2%, maintaining interest rate hikes by the Federal Reserve struggled in the face of the slowdown 7%. While in Russia, it is oil prices that loss of momentum by reducing required as trade disputes between the US and its growth forecast steady at 1.7% for (Fed) would be realized at a slower pace. in developed economies, which are its have an important bearing on growth, reserves. It is thought that China’s China, Brexit tensions and the embargo 2020. The report also included a 0.2 As expected, in the last meeting of 2018, trading partners, a situation exacerbated in Brazil and South Africa it will be performance in the coming period will on Iran. Figures released in the last percentage point downward forecast the Fed increased the US interest rate by domestic political developments in domestic political developments which depend to a great extent on how foreign quarter of the year indicate a slowdown for growth in developing economies for by 25 basis points to a 2.25‐2.5% band. 2018. steer economic performance. trade negotiations are carried out with in global growth, parallel with mounting 2019 to 4.5%, while its growth forecast The Fed revised its outlook for interest the US. geopolitical uncertainties on a global for 2020 was maintained at 4.9%. rate hikes for 2019 from three to two, GROWTH IN THE WORLD ECONOMY (2017‑2020) (%) scale. indicating that medium and long-term According to the Global Economic Realization Forecast Projection The world is dominated by an outlook interest rate hikes will remain limited. Expectations Report published by the 2017 2018 2019 2020 marked by a further contraction in World Bank in January 2019, the global Data in developed economies other than WORLD OUTPUT 3.8 3.7 3.5 3.6 financial conditions, softening industrial economy, which was expected to have the US confirmed the signs of slowdown production, escalating trade wars and Advanced Economies 2.4 2.3 2.0 1.7 grown by 3% in 2018, is forecasted in growth. In the Eurozone, which grew intensified financial stress for some US 2.2 2.9 2.5 1.8 to grow by 2.9% in 2019 and by 2.8% by an average of 2.3% in the first half of leading developing countries. Despite Europe (Euro Zone) 2.4 1.8 1.6 1.7 in 2020. Thus, according to the June 2018 - in excess of its long term potential ongoing negotiations, concerns remain Germany 2.5 1.5 1.3 1.6 forecasts, a 0.1 point downward revision rate - growth fell to 1.6% in the third over trade wars between strong was made for each year. quarter. The most significant slowdown France 2.3 1.5 1.5 1.6 economies. was experienced in Germany due to the Italy 1.6 1.0 0.6 0.9 In the report, it was predicted that In the January 2019 dated Global contraction in the automotive sector. Spain 3.0 2.5 2.2 1.9 developed countries would post growth Economic Outlook report prepared by Japan 1.9 0.9 1.1 0.5 of 2.2% in 2018 and 2% in 2019. Against this backdrop, although the IMF, growth expectations for 2019 United Kingdom 1.9 1.4 1.5 1.6 Relatively speaking, deeper downward the European Central Bank (ECB), and 2020 were revised downward revisions have been made for developing which revised its economic forecasts Canada 3.0 2.1 1.9 1.9 and growth expectations were further countries. The growth forecast for 2018 downwards, terminated its asset Other Advanced Economies 2.8 2.8 2.5 2.5 lowered with the January update, due to was reduced by 0.3 percentage points to purchasing program in December 2018, Developing Economies 4.7 4.6 4.5 4.9 the loss of momentum in the second half 4.2%, while the growth forecast for 2019 it was also observed that the probability Russia 1.5 1.7 1.6 1.7 of 2018. was revised down by 0.5 percentage of the ECB embarking on any interest Developing Europe 6.0 3.8 0.7 2.4 According to its projection in October, points to 4.2%. The downward revision rate hikes in 2019 receded considerably. Developing Asia 6.5 6.5 6.3 6.4 the IMF reduced its global growth in the growth projections for commodity The slowdown in developed economies, China 6.9 6.6 6.2 6.2 forecast for 2019 by 0.2 percentage exporters among developing countries, which are the main driver of the global India 6.7 7.3 7.5 7.7 points to 3.5%, which is the lowest by 0.8 points for 2018 and by 0.7 points economy, threatens to undermine the Middle East and North Africa 2.2 2.4 2.4 3.0 of the last 3 years, and reduced its for 2019, pulled down the growth recovery in some developing economies. Latin America 1.3 1.1 2.0 2.5 global growth forecast for 2020 by expectations for these countries. 20 21 Source: IMF World Economic Outlook, January 2019 THE WORLD ECONOMY

GLOBAL TRADE This generally put pressure on COMMODITY AND OIL PRICES international trade. Global trade The hikes in tariffs applied from the THE TREND IN COMMODITY AND CRUDE OIL PRICES The rapid rise in the commodity prices general index at the volume, having grown by 4.7% in beginning of 2018 have precipitated (Deflated on the basis of USA Consumer Prices Index; 2014=100) beginning of 2018 was reversed in the second half of the 2017, maintained this pace in the a decrease in global trade in goods 120 year, with a decline of 6% in the last quarter when compared first quarter of 2018, before slowing and services. to the previous quarter. The decline in commodity prices, somewhat in the second quarter STARTING THE YEAR AT 66.6 BANKS 2018 PARTICIPATION 100 particularly metals, presented a challenging situation for and further to an average growth The increase in global trade volume USD/BARREL, CRUDE OIL developing countries which are commodities exporters. in 2018 fell short of expectations. rate of 3.6% in the third quarter on 80 Ongoing trade wars, protectionist an annual basis. PRICES CLOSED 2018 The main factors behind the slowdown were the policy 60 policies and geopolitical uncertainty steps taken by the US, a slowing rise in energy prices and Financial conditions are expected to AT THE LEVEL OF throughout the year had a negative geopolitical risks, particularly in the Middle East. Industrial tighten further in 2019, negatively 40 impact on global industrial 50.21 USD/BARREL. metal prices continued to decline as assumptions that affecting trade. The production of production and investments. The 20 international trade restrictions imposed by the US would traded capital goods is forecasted 2014 2015 2016 2017 2018 Feb. appreciation of the US dollar and reduce demand became priced in. to decrease especially in Europe and 2019 risk aversion among investors set the emerging Asian regions. stage for an increase in borrowing Average petroleum spot price Food Metals costs in developing countries. Sources: IMF, Primary Commodity Price System; and IMF staff estimates.

IN 2018, GROWTH FORECAST IN GLOBAL TRADE 4.2%

PERSONEL SAYISI THE DECLINE IN COMMODITY PRICES, PARTICULARLY FINANCIAL CONDITIONS ARE METALS, HAS CREATED A EXPECTED TO TIGHTEN FURTHER 208 CHALLENGING SITUATION FOR IN 2019 AND THIS SITUATION IS COMMODITY EXPORTING EXPECTED TO NEGATIVELY DEVELOPING COUNTRIES. AFFECT TRADE.

WORLD TRADE VOLUME GROWTH (2016‑2019) (%) Interest in safe haven investments in level of compliance of Organization of USA in December due to higher crude (Annual average change in world import and export volumes) line with the deterioration in global risk Petroleum Exporting Countries (OPEC) oil production and perceptions that perceptions supported gold prices and countries with the cut-off agreement, there may be a slowdown in the global Realization Forecast prices increased to a six-month high. the implementation of the US sanctions economy set the stage for a decline in 2016 2017 2018 2019 Having ended December with up by 5% on Iran and Venezuela, and its strict crude oil prices to USD 49.93/barrel. World Trade Volume 2.2 5.2 4.2 4.0 on a monthly basis at USD 1,283/ounce, enforcement in this area, prices rose to Import-Advanced Economies 2.4 4.2 3.7 4.0 gold prices declined by 1.5% in 2018 as as high as USD 86.20/barrel. Having climbed back to USD 60/barrel in Import-Developing Economies 1.8 7.0 6.0 4.8 a whole. the last month of the year with the fall- However, in the last quarter of the off in supply as OPEC and Russia agreed Export-Advanced Economies 1.8 4.4 3.4 3.1 The dated Brent crude oil price started year, amid supply increases in OPEC to cut output by 1.2 million barrels per Export-Developing Economies 3.0 6.9 4.7 4.8 2018 at USD 66.60/barrel. Demand for countries, the refusal by China and India day, crude oil prices, closed 2018 at USD

Source: IMF World Economic Outlook, October 2018 crude oil remained brisk until the last to accept the sanctions on Iran, the 50.21/barrel, with an average of USD quarter of the year. Due to the high breaking of production records in the 71.04/barrel for the full year.

22 23 THE WORLD ECONOMY

The 2019 Oil Report, which includes an analysis of the global industry in the USA to be the key drivers behind the increase in GLOBAL INFLATION ECB reduced its 2019 inflation forecast will be increasing volatility in global energy market by the International Energy Agency (IEA), demand for oil on a global scale. On the other hand, the OPEC from 1.7% to 1.6%, while leaving its financial markets adversely affecting the Due to falling crude oil prices, the global suggests that the mismatch between strong oil demand and predicts that crude oil production will decrease by 380,000 2020 forecast unchanged at 1.7%. exchange rates of developing countries headline rate of inflation declined in the decline in new projects in the near term will set the stage barrels per day by 2024. through portfolio movements and the developed and developing country for a sharp tightening of oil markets in the 2020s. The report The inflation rate in Japan, which was upward movement of crude oil prices groups in the last quarter of 2018. In the forecasts that the USA, Brazil, Iraq, Norway and the United 1.2% in October 2018 when compared in line with US economic policies and BANKS 2018 PARTICIPATION same period, the rate of core inflation Arab Emirates will provide the highest contribution to global to the same month of the previous year, geopolitical developments. edged higher in developed countries, oil supply in the 2019-2024 period, with the USA to account for declined to 0.8% - a five month low - but decreased in developing countries. 70% of the growth in supply. in November, and further to 0.3% in In addition, the tightened labour market GLOBAL ACTIVITY INDICATORS HAVE December. The fact that Japan stayed may be reflected to pay increases in The US inflation rate declined in the last It is thought that global oil demand will increase by 7.1 million behind its inflation target of 2%, with developed countries, also standing as an SLACKENED AS OF THE SECOND HALF quarter of 2018, as the employment barrels per day to 106.4 million barrels in the 2019-2024 the decline in oil prices was effective upward risk factor for core inflation in market remains brisk. The rate of period, with economic growth in Asia and the petrochemical OF 2018. on the rates of inflation, strengthened developed countries. inflation, which stood at 2.5% in expectations that Japan would maintain October and 2.2% in November, an expansionary monetary policy. Amid declining commodity prices, declined to 1.9% in December. consumer price inflation followed a In China, which recorded its lowest rate broadly horizontal course in developed Inflation, which had exhibited an of growth for 28 years, inflation stood economies. In some emerging upward trend until October 2018 in GLOBAL ACTIVITY INDICATORS at 2.2% in November, while producer economies, the loss of value in their the Eurozone, where unemployment (Three-month moving average; year-over-year percent change, unless noted otherwise) prices increased by 2.7%. currencies had an upward impact on rates declined to historically low levels, domestic prices, and partially offset the declined again in November and With a normalization process in the downward pressure of lower commodity WORLD TRADE, INDUSTRIAL PRODUCTION AND December. The rate of inflation declined monetary policy of developed countries prices. MANUFACTURING PMI REAL EXPORTS from 2.2% in October to 1.9% in in the coming period, the main risks to November and 1.6% in December. The global headline inflation going forward 7 15

6 -

5 10

4 -

3 5 IN THE LAST QUARTER OF

2 - 2018, DUE TO FALLING 1 0 CRUDE OIL PRICES, THE 0 - GLOBAL HEADLINE -1 -5 2015 2016 2017 2018 Feb. 2015 2016 2017 2018 2019 INFLATION RATE DECLINED IN DEVELOPED Industrial Production US UK World Trade Volume Japan China AND DEVELOPING Manufacturing PMI: New Orders Euro Area COUNTRY GROUPS.

INDUSTRIAL PRODUCTION CONSUMER CONFIDENCE (Index, 2015=100)

10 7.5 112

110 - 7.0 108 5 106

- 6.5 104

102 0 6.0 100 - 98

-5 5.5 96 2015 2016 2017 2018 Feb. 2015 2016 2017 2018 Feb. 2019 2019

US Japan Advanced Economies 1 UK China (Right Scale) Emerging Market Economies 2 Germany Euro Area 4 * World

* Euro Area 4: Includes France, Italy, Netherlands, and Spain. 1 Australia, Canada (PMI only), Czech Republic, Denmark, Euro Area, Hong Kong, SAR (CC only), Israel, Japan, Korea, New Zealand (PMI only), Norway (CC only), Singapore (PMI only), Sweden (CC only), Switzerland, Taiwan Province of China, United Kingdom, United States.

24 2 Argentina (CC only), Brazil, China, Colombia (CC only), Hungary, India (PMI 25 only), Indonesia, Latvia (CC only), Malaysia (PMI only), Mexico (PMI only), Philippines (CC only), Poland, Russia, South Africa, Thailand (CC only), Turkey, Source: IMF Ukraine (CC only). THE WORLD ECONOMY PARTICIPATION BANKS 2018 PARTICIPATION WITH THE FALL IN THE FEDERAL OPEN COMMODITY PRICES, MARKET COMMITTEE CONSUMER PRICE INFLATION (FOMC) RAISED INTEREST HAS FOLLOWED A RATES FOR THE FOURTH RELATIVELY HORIZONTAL TIME IN 2018, MAKING IT TREND IN DEVELOPED THE HIGHEST SINCE THE ECONOMIES. LAST 10 YEARS.

GLOBAL INFLATION GLOBAL MONETARY POLICIES On the other hand, the ECB terminated a greater degree of macroeconomic its bond purchase program by the end vulnerabilities, also raised sensitivity in Global liquidity was observed to have (Three-month moving average; annualized percent change, unless noted otherwise) of December and declared that its zero other developing countries. shrunk as the US Federal Reserve (Fed) interest rate policy would continue until raised interest rates in December and at least mid-2019. Mounting concerns In 2018, the effects of the tendency to ADVANCED ECONOMIES EMERGING MARKETS AND DEVELOPING ECONOMIES the European Central Bank ended its over the budget deficit and public continue the normalization process in asset purchase program. the monetary policies of the central 3 6 debt stock in Italy, the temporary loss banks in leading developed counries, Following the unanimous decision taken of activity in the automotive sector especially Fed, were significantly felt 2 5 in its final meeting of 2018, Fed raised its in Germany and the developments on long-term interest rates. With the interest rate by 25 basis points to a 2.25- regarding the UK’s exit from the EU were tightening financial environment, US 1 4 2.5% band. The Federal Open Market the factors reducing global risk appetite 10-year bond yields rose from 2.45% in Committee (FOMC) raised interest rates in the region. early 2018 to 3.23% in mid-November. 0 3 to its highest level in the last 10 years With more limited portfolio movements With heightened worries over global with the fourth rate of the year 2018. In -1 2 to developing countries when compared growth towards the end of the year, its statement, Fed stated that the risks to 2017, the combination of a stronger yields on US 10-year bonds decreased to to the economic outlook were almost -2 1 US dollar, volatility in financial markets less than 3% by the end of the year. The 2015 2016 2017 2018 Feb. 2015 2016 2017 2018 Feb. balanced and that global developments and rising risk premiums exacerbated partial retreat in the US 10-year bond 2019 2019 would be closely monitored. Moreover, capital outflows and the pressure on yield, which is referred to as the risk-free Headline Inflation Headline Inflation the fact that Fed will continue to reduce local currencies in some developing interest rate, also brought a modicum of Core Inflation Core Inflation the balance sheet in the same way countries, while paving the way for relief to the central banks of developing indicates that it is insisting on monetary central banks in some developing countries in the last period of the year. normalization, despite the interest rate countries to pursue a tightening policy. hike. The fluctuations in some countries, such as Argentina, which suffer from CORE CONSUMER PRICE INFLATION CONSUMER PRICE INFLATION EXPECTATIONS

4 2,2 4,2 2,1 4,0 THE FEDERAL RESERVE BALANCE SHEET THE EUROPEAN CENTRAL BANK BALANCE SHEET 3 2,0 1,9 3,8 1,8 USD 4.0 trillion (31 December 2018) EUR 4.7 trillion (31 December 2018) 2 3,6 1,7 5 1,6 3,4 5.0 4.5 1 1,5 4 3,2 4.0 1,5 3.5 0 1,4 3,0 3 2015 2016 2017 2018 Feb. 2015 2016 2017 2018 Feb. 3.0 2019 2019 2.5 2 USA Euro Area Advanced Economies USD trillion

EUR trillion 2.0 UK Japan Emerging Markets and Developing Countries (right scale) 1.5 1 1.0 0.5 0 Source: Consensus Economics, Haver Analytics, IMF staff calculation 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 26 27 Source: Fed Source: ECB THE WORLD ECONOMY

EXPECTATIONS FOR THE UPCOMING It is thought that in this environment, In the recent period, the expectation PERIOD in what meetings and at what rate the that the normalization path of the Fed will raise interest rates will depend developed countries’ monetary policy The risks that could affect global on the developments in the global will be less tight compared to the growth in the coming period include economy and financial markets. The previous period has strengthened, escalating trade wars, tightening US Federal Reserve, which lowered pointing out that portfolio flows, which BANKS 2018 PARTICIPATION financial conditions, the possibility that the interest rate hike expectation for have directed towards developing the UK could leave the EU without an 2019 from 3 to 2 at its December 2018 countries in 2019, may follow a more agreement and a sharper than expected meeting, is expected to continue to positive course. However, there is slowdown in the Chinese economy. reduce its balance sheet every month. concern that the volatility in the The downside risks on global growth The Fed President Jerome Powell’s financial markets of the economies with outlook of the upcoming period message that it will be more flexible and high external debts may remain high became apparent with the increasing patient in the monetary policy steps has during the year, as it was in 2018. protectionist tendencies, which raised strengthened expectations that the Fed On the other hand, due to the the uncertainty of global economic may take a break from interest rate hikes uncertainty observed in global economic policies. The IMF lowered its global in 2019. policies, high volatility in the financial growth forecast for 2019 by 0.2 Current leading indicators across the markets of developed countries, percentage points for the USA, Euro Eurozone suggest that downside the current trade wars and ongoing Zone and Japan on the developed risks may persist in 2019 and that the political/geopolitical problems, it is countries side, and it updated the global moderate slowdown in the region may anticipated that global risk appetite will growth forecast for 2019 downward last longer than anticipated. The fact decrease, the fragility of capital flows for the Asia, Latin America and Eastern that inflation is off the target with both will continue and the world economy Europe regions on the developing the slowdown observed in growth and will slow down. countries side. In this context, the the decline in oil prices suggest that the slowdown in global economic growth Sources: European Central Bank will continue to observed in the second half of 2018 is IMF Global Economic Outlook Reports; OECD support the economy. To sum up, the Economic Outlook Reports: CBRT; Presidency of expected to continue in 2019 as well. expectation that the ECB, which has not Turkey, Presidency of Strategy and Budget In 2019, the US economy is expected increased interest rates since 2011, will to maintain its relatively strong maintain interest rates at the same level performance, albeit at a slower pace. at least until 2020 is gaining weight.

THE DOWNSIDE RISKS ON GLOBAL GROWTH OUTLOOK OF THE UPCOMING PERIOD BECAME APPARENT WITH THE INCREASING PROTECTIONIST TENDENCIES, WHICH RAISED THE UNCERTAINTY OF GLOBAL 28 29 ECONOMIC POLICIES. AS A RESULT OF THE REBALANCING IN 2018, THE ADDED VALUE OF THE THE TURKISH ECONOMY IN THE SECOND HALF OF THE YEAR, SERVICES SECTOR INCREASED BY NET EXPORTS OF GOODS AND 5.6%. SERVICES WERE THE DRIVING FORCE OF ECONOMIC GROWTH. PARTICIPATION BANKS 2018 PARTICIPATION

GROSS DOMESTIC PRODUCT, AS A CHAINED VOLUME INDEX, INCREASED BY 2.6% IN 2018 COMPARED TO THE PREVIOUS YEAR.

THE TURKISH ECONOMY HAS 2.6% in 2018 compared to the previous 1.3%, the industrial sector increased GDP GROWTH BY SECTOR MAINTAINED A CONTINOUS GROWTH year. GDP, based on the production by 1.1%, while the construction sector Chain linked volume index percentage change [2009=100] FOR 9 CONSECUTIVE YEARS. approach, increased by 19.1% at current decreased by 1.9%. In the same period, prices in 2018 compared to the previous the added value of the services sector, 2017 2018 In the first half of 2018, while domestic year reaching TL 3,701 billion (USD 784 which consists of the total of trade, I II III IV I II III IV demand-driven growth was observed, as billion). GDP per capita was calculated as transportation, accommodation and a result of the balancing in the second Agriculture, Forestry and Fishing 5.0 7.0 3.6 6.1 7.3 -1.1 1.8 -0.5 USD 9,632. food service activities, increased by 5.6%. half, net exports of goods and services Industry 6.1 5.9 15.4 9.3 7.9 4.0 0.1 -6.4 constituted the driving force of economic An analysis of the activities that make up In terms of spending, public spending Manufacturing 5.6 5.9 16.8 8.8 8.4 4.4 0.5 -7.4 growth. the GDP finds that as a chained volume and net external demand limited Construction 5.1 5.1 18.8 6.5 8.0 1.5 -5.6 -8.7 index in 2018, the total added value the slowdown in growth, mitigating Gross Domestic Product (GDP), as a Services 6.4 6.3 21.8 9.3 10.5 8.9 4.8 -0.3 of the agricultural sector increased by the effect of the decline in stocks chained volume index, increased by Information and Communications 10.9 11.8 15.2 13.9 5.7 6.9 3.4 2.9 GDP GROWTH Financial and Insurance Activities 9.8 9.3 -5.8 1.9 2.7 11.7 8.4 -16.2 GDP GDP GDP Growth Rate Per Capita Income Real Estate Activities 2.6 2.1 2.7 2.9 3.5 0.3 2.3 4.7 (TL billion) (USD billion) (%) (USD) Professional, Administrative and 2011 1,394 832 11.1 11,205 Support Service Activities 7.1 5.7 16.4 12.2 12.0 -1.1 -7.3 -10.2 2012 1,570 871 4.8 11,588 Public Administration, Training, 2013 1,810 950 8.5 12,480 Healthcare and Social Service Activities 2.5 2.8 3.2 5.3 4.5 12.4 11.4 5.7 2014 2,044 935 5.2 12,112 Other Service Activities 2.4 5.8 10.0 11.2 9.2 3.3 1.3 -2.6 2015 2,339 862 6.1 11,019 Total Sectors 5.8 5.5 11.8 8.0 7.5 5.5 2.1 -2.3 2016 2,609 863 3.2 10,883 Taxes-Subsidies 0.9 3.7 9.2 3.0 6.0 4.2 -0.1 -8.1 2017 3,105 851 7.4 10,597 GDP 5.3 5.3 11.5 7.3 7.4 5.3 1.8 -3.0 2018 3,701 784 2.6 9,632 Source: TR Ministry of Treasury and Finance Source: TurkStat

GDP PER CAPITA GDP AN ANALYSIS OF THE ACTIVITIES COMPRISING GROSS DOMESTIC PRODUCT AS A CHAINED VOLUME INDEX IN 2018 FINDS THAT THE TOTAL ADDED VALUE OF THE AGRICULTURAL SECTOR INCREASED BY 1.3%, THE INDUSTRIAL SECTOR INCREASED 3,701 9,632 BY 1.1%, WHILE THE TOTAL ADDED VALUE OF THE CONSTRUCTION SECTOR (TL billion) USD 30 DECREASED BY 1.9%. 31 THE TURKISH ECONOMY

and the weakening of private sector household expenditures. In the third manufacturing industry purchasing UNEMPLOYMENT RATE REACHES 9.5% for men, up by 0.1 percentage consumption and investment. Net quarter, when the Lira weakened and managers index (PMI) indicates that 11%, WITH EMPLOYMENT RATIO points, and at 13.9% for women, foreign demand contributed 6.7 points interest rates rose rapidly, the decline this contraction in the industry may OF 47.4% down by 0.2 percentage points. In to overall economic growth, while public in investments and stocks reduced 1.1 have slowed down in November and 2018, the number of people aged Following the rapid growth and consumption expenditures and private points and 5.6 points, respectively, from December, it confirms that the overall 15 or over who were unemployed

increase in employment in 2017, BANKS 2018 PARTICIPATION consumption expenditures contributed the rate of growth. fragility persists. increased by 83,000 when compared the labour market got off to a weak 0.9 points and 0.7 points to growth, to the previous year to be recorded start in the first quarter of 2018, and respectively. According to figures adjusted for The manufacturing industrial PMI, as 3,537,000 people. The youth employment recovered slightly at seasonal and calendar effects, industrial which stood at 42.7 in September 2018, unemployment rate, which includes the end of the second quarter and at Despite the contraction in the production contracted by 1.9% in edged up to 44.3 in October and 44.7 in the 15-24 age group, decreased by the beginning of the third quarter. consumption of durables and semi- October 2018 compared to the previous November before inching down to 44.2 0.5 points to 20.3%, while the rate durable goods, expenditures on non- month, with the contraction on an in December. The seasonally adjusted According to seasonally adjusted of unemployment for the 15-64 age durables and services were among the annual basis reaching 5.7% when manufacturing industry capacity data, employment decreased by group increased by 0.1 percentage calendar adjusted. Although the utilization rate, which was 76.2% at the 37,000 in April and by 99,000 points to 11.2%. end of the third quarter, decreased to persons in May, and increased by 74.1% at the end of 2018. In 2018, the number of people in 75,000 in the June period, which MONTHLY PRODUCTION INDICATORS employment increased by 549,000 included July. Employment losses (2015= 100, % change over the same month of the previous year) when compared to the previous in the agricultural and construction year to reach 28,738,000 and the 2018 sectors continued since the employment ratio increased by 0.3 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec beginning of the year, while a points to 47.4%. The employment moderate increase was recorded in Total Industry 12.5 9.4 6.6 4.3 6.5 2.0 7.5 -11.3 3.8 -4.8 -7.0 -9.9 AS OF 2018 YEAR-END, ratio for men stood at 65.7%, industry and services. Intermediary Goods 16.9 11.4 6.3 5.9 5.4 2.2 6.5 -14.3 3.0 -9.1 -12.5 -15.2 THE UNEMPLOYMENT RATE marking a 0.1 percentage point increase, and at 29.4% for women, Durable Consumer Goods 10.7 -1.1 -1.6 -4.2 6.1 -2.0 7.5 -21.6 -1.0 0.5 7.3 -9.5 THROUGHOUT TURKEY Despite the weakening in economic activity, the deterioration in the an increase of 0.5 percentage points. Non-Durable Consumer Goods 11.9 9.9 10.6 8.9 9.6 4.5 13.1 -10.9 7.7 -1.3 -2.6 -6.1 STOOD AT 11% WITH labour market remained relatively By the end of the year, the number Energy 3.5 0.6 2.2 2.6 2.9 4.0 4.1 -0.6 2.9 -0.8 -0.7 -1.2 limited in September. The increase A 0.1 PERCENTAGE POINT of people employed in the in employment in the services sector Investment Goods 9.3 11.9 5.9 -1.4 6.0 -2.0 2.8 -9.1 2.1 -4.7 -8.8 -9.0 agricultural sector had decreased INCREASE. in July and August, on the back Mining 21.7 8.4 3.4 5.4 8.8 2.2 6.3 -7.3 4.5 0.3 -5.4 -5.4 by 167,000 persons, while the of a brisk season for tourism, was number of people employed in the Manufacturing Industry 12.9 10.2 7.0 4.4 6.8 1.7 7.9 -12.6 3.9 -5.2 -7.3 -10.8 effective in this. non-agricultural sectors increased Electricity, Gas, Steam and Air 3.2 1.5 3.4 3.7 1.6 4.4 3.1 -1.9 2.5 -1.9 -3.2 -1.8 by 717,000. Of total employment, Conditioning Production and As of the year-end of 2018, the 18.4% were in agriculture, 19.7% in Distribution rate of unemployment throughout Turkey stood at 11%, marking an industry, 6.9% in construction and increase of 0.1 percentage points. 54.9% in services. MONTHLY CAPACITY UTILIZATION RATE IN MANUFACTURING INDUSTRY (%) The unemployment rate stood at Manufacturing Industry 78.2 77.8 77.8 77.3 77.9 78.3 77.1 77.8 76.2 75.4 74.1 74.1 Source: TR Ministry of Treasury and Finance LABOUR MARKET DEVELOPMENTS Annual 2012 2013 2014 2015 2016 2017 2018 THE MANUFACTURING Labour Force Participation Rate (%) 47.6 48.3 50.5 51.3 52.0 52.8 53.2 INDUSTRIAL PMI, Labour Force (thousand) 26,141 27,047 28,786 29,678 30,535 31,643 32,274 Employed (thousand) 23,937 24,601 25,933 26,621 27,205 28,189 28,738 WHICH STOOD AT Agriculture (thousand) 5,301 5,204 5,470 5,483 5,305 5,464 5,297 42.7 IN SEPTEMBER Non-Agriculture (thousand) 18,636 19,397 20,463 21,138 21,900 22,724 23,441 2018, EDGED UP TO 44.3 Industry (thousand) 4,903 5,101 5,315 5,332 5,296 5,383 5,675 Services (thousand) 12,016 12,528 13,236 13,892 14,617 15,246 15,777 IN OCTOBER AND 44.7 Construction (thousand) 1,717 1,768 1,912 1,914 1,987 2,095 1,992 IN NOVEMBER BEFORE Unemployed (thousand) 2,204 2,445 2,853 3,057 3,330 3,454 3,537 INCHING DOWN TO 44.2 Unemployment Rate (%) 8.4 9.0 9.9 10.3 10.9 10.9 11.0 Non-Agricultural Unemployment 10.3 10.9 12.0 12.4 13.0 13.0 12.9 IN DECEMBER. Rate (%) Youth Unemployment Rate (%) 15.8 17.1 17.9 18.5 19.6 20.8 20.3 Employment Rate by Sector (% Share) Agriculture 22.1 21.2 21.1 20.6 19.5 19.4 18.4 Non-Agriculture 77.9 78.8 78.9 79.4 80.5 80.6 81.6 Industry 20.5 20.7 20.5 20.0 19.5 19.1 19.7 Services 50.2 50.9 51.0 52.2 53.7 54.1 54.9 Construction 7.2 7.2 7.4 7.2 7.3 7.4 6.9 32 33 Source: TurkStat THE TURKISH ECONOMY

The domestic producer price index increased by 7% to reach USD decreased by 2.22% in December 168 billion in 2018, and imports 2018 compared to the previous decreased by 4.6% to USD 223 INFLATION STARTED TO EDGE DOWN THANKS month, and increased by 33.64% billion. The rate of exports coverage TO THE MEASURES TAKEN BY THE compared to December of the increased from 60% in December previous year, while the 12-month 2017 to 83.8% in December 2018. BANKS 2018 PARTICIPATION GOVERNMENT, A RECOVERY IN THE VALUE OF average was 27.01% higher than the THE TURKISH LIRA, THE FALL IN OIL PRICES AND average of the previous 12-months. Germany was the leading destination for Turkish exports, WEAK DOMESTIC DEMAND, ENDING 2018 AT Food prices were another factor followed by the United Kingdom, 20.3%. behind the rise in general inflation, Italy and Iraq. On the other hand, with annual food inflation exceeding the highest level of imports came 30% in October, amid cost increases from Russia, followed by Germany, and supply chain problems. The China and the USA. impact of the measures taken and The workforce expanded by 631,000 in INFLATION UNDER PRESSURE Inflation then started to decline the recovery in the value of the Lira In addition to the slowdown in 2018 when compared to the previous FROM DETERIORATION IN PRICING thanks to the measures taken by the went some way towards easing the domestic demand, and as a result year to reach a total of 32,274,000 BEHAVIOUR government, a recovery in the value of pressure on food prices in November of the decline in oil prices, imports people, and the participation rate in the the Turkish Lira against other currencies, and December. The deterioration continued to contract. However, The annual rate of Consumer Price workforce increased by 0.4 percentage the fall in oil prices and weak domestic in pricing behaviour beyond cost despite the slowdown in the Inflation, which exceeded 24.5% at the points to 53.2%. The workforce demand. The consumer price index (CPI), increases had a more pronounced economies of Turkey’s trading end of the third quarter of 2018, rose participation rate for men stood at which fell by 1.44% on a monthly basis in effect on core inflation, which partners, the weakness of the TL to 25.2% in October due to the impact 72.7%, up by 0.2 percentage points, November, declined by a further 0.40% excludes items such as food and enabled Turkey to maintain its of higher food prices, the pass-through while the workforce participation rate in December with the same dynamics. energy which are subject to high competitive position in exports, effect of exchange rate movements and for women stood at 34.2%, an increase As a result, the annual rate of inflation volatility. The rate of core inflation, paving the way for the continued the deterioration in pricing behaviour. growth in exports. of 0.6 percentage points. ended 2018 at 20.3%. which rose to 24.3% in October as a GERMANY WAS THE result of the fall in the value of the The unit value of the products Turkish Lira, receded to 19.5% in LEADING DESTINATION exported from Turkey declined due CHANGES IN PRICES December. This decline was mainly to the Lira weakness in the period FOR TURKISH EXPORTS, 2011 2012 2013 2014 2015 2016 2017 2018 a reflection of the measures taken after August, although the values by the government within the scope FOLLOWED BY THE Rate of change in 12 month moving averages of the goods imported maintained of the “Total Fight Against Inflation” PPI their relative level. In December 11.1 6.1 4.5 10.3 5.3 4.3 15.8 27.01 program, and the recovery in the UNITED KINGDOM, ITALY 2018, the export unit value index CPI 6.5 8.9 7.5 8.9 7.7 7.8 11.1 16.33 currency on goods prices. AND IRAQ. decreased by 4.2% compared to the Annual rate of change EXPORT COVERAGE RATIO same month of the previous year PPI 13.3 2.5 7.0 6.4 5.7 9.9 15.5 33.64 REACHES 83.8% and the import unit value index CPI 10.5 6.2 7.4 8.2 8.8 8.5 11.9 20.30 remained unchanged in the same According to the foreign trade period. Source: TurkStat figures announced by the Turkish Statistical Institute (TSI), exports

INFLATION IN TURKEY - CPI INFLATION IN TURKEY - PPI ANNUAL EXPORTS ANNUAL IMPORTS

20.3% 33.6% USD 167.9 billion USD 223.0 billion 2.2 6.2 7.4 8.2 8.8 8.5 11.9 20.3 7.0 6.4 5.7 9.9 15.5 33.6 152.5 151.8 157.6 143.9 142.6 157.0 167.9 236.5 251.7 242.2 207.2 198.6 233.8 223.0 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018

Source: TurkStat Source: TurkStat

34 35 THE TURKISH ECONOMY

BALANCE OF PAYMENTS CURRENT ACCOUNT However, it is acknowledged by financial result of the tight monetary policy Despite a degree of recovery in recent circles that improvements in the current stance adopted by the CBRT and the months, the CBRT decided to maintain (USD million) 2013 2014 2015 2016 2017 2018 account deficit can be realized through improvement in the inflation outlook, its tight monetary policy stance until a CURRENT ACCOUNT -63,642 -43,610 -32,145 -33,139 -47,347 -27,228 structural measures in the medium to the Turkish lira positively decoupled significant improvement in the inflation long term, and that measures should be from the currencies of other emerging outlook had been achieved due to the BALANCE OF FOREIGN TRADE -79,917 -63,593 -48,128 -40,892 -58,955 -41,761 taken at the forefront of the structural markets at the end of 2018. ongoing risks to price stability. The BANKS 2018 PARTICIPATION Exports F.O.B. 158,234 165,521 144,505 141,819 159,494 171,996 aspect of the current account deficit. main factor which will steer monetary Imports C.I.F. 251,661 242,178 207,234 198,619 233,801 223,045 The CBRT increased the policy rate as policy decisions in the short term will be LIRA RECOVERY AND DECLINE IN part of its monetary tightening stance Non-monetary Gold (net) -11,779 -3,896 3,955 1,790 -9,971 -8,713 the emergence of a downward trend MARKET INTEREST RATES BY THE in the September meeting and raised in the inflation outlook which can be Gold Exports 3,349 3,212 7,381 8,248 6,606 2,587 YEAR-END the policy rate by 625 basis points to considered as permanent. 24%, citing the deterioration in pricing Gold Imports 15,128 7,108 3,426 6,458 16,577 11,300 Despite the volatility observed in global behaviour as a risk of upside in the Under the guidance of the New BALANCE OF SERVICES 23,618 26,675 24,228 15,263 19,938 25,379 financial conditions, expectations inflation outlook. Economic Program and in line with the that the normalization process in Travel 23,180 24,480 21,248 13,960 17,655 20,625 soft landing scenario, a strong consensus the monetary policies of developed With the New Economic Program has emerged among market players that Revenues 27,997 29,552 26,616 18,743 22,478 25,220 economies would lose steam and with announced in September 2018, restoring higher quality growth will be achieved Other Services 438 2,195 2,980 1,303 2,283 4,754 the effect of a limited decline in the price and financial stability in the short in 2019. While the economy is expected US dollar, the currencies of developing (%) 2013 2014 2015 2016 2017 2018 term, achieving a rebalancing and to continue to rebalance in the first half countries posted some recovery. Balance of Current Account/GDP (%) -6.7 -4.7 -3.7 -3.8 -5.6 -3.5 budget discipline in the economy and of the year, it is thought that the clearer the realization of economic reform in The Turkish lira lost more than 40% of signs of a recovery will emerge later in source: the CBRT the medium term in order to achieve its value against the US dollar in August the year due to the base effect and with Note: Since the annual GDP data has not been disclosed yet, the annual GDP has been calculated by the summation of 4 quarters. sustainable growth and fair distribution when compared to the end of the the contribution of the tourism sector. were the goals adopted. BALANCE OF PAYMENTS CAPITAL AND FINANCIAL ACCOUNTS previous year. However, the TL started The fiscal policy set out in the CBRT’s to recover due to the fall in foreign CBRT DECIDES TO MAINTAIN A TIGHT medium-term forecasts includes a (USD million) 2013 2014 2015 2016 2017 2018 financing requirements as a result of MONETARY POLICY STANCE IN 2019 policy stance that is in coordination the CBRT’s interest rate hike and the CAPITAL ACCOUNT -96 -70 -21 23 17 58 with the monetary policy, focused on slowdown in economic activity. This The most recently announced figures CAPITAL INFLOW EXCLUDING combating inflation and macroeconomic 68,016 42,931 25,964 28,228 42,109 4,998 trend broadly continued in the last indicate that the real adjustment in RESERVES rebalancing within the framework of the quarter of the year. In the last quarter the economy continues rapidly with New Economic Program. FINANCIAL ACCOUNTS * -62,697 -43,161 -22,673 -22,012 -46,716 -6,893 of 2018, the TL nominally appreciated the balancing process becoming more evident. Weakening demand conditions Direct Investments -9,927 -6,287 -14,178 -10,812 -8,845 -9,336 by 13.4% against the US dollar and In the case of excessive volatility in the are observed to have had a weakening strengthened by 15.3% against the Euro. markets due to fluctuations in global Portfolio Investments -24,020 -20,216 15,458 -6,339 -24,476 2,863 effect on inflation, and this will support liquidity conditions and risk perceptions, Other Investments -38,661 -16,190 -12,122 -5,674 -5,188 9,957 The CBRT, BRSA and the Ministry of the fall in inflation throughout 2019. liquidity measures may be used to Treasury and Finance took various However, the high levels of inflation and Reserve Assets 9,911 -468 -11,831 813 -8,207 -10,377 provide the foreign exchange liquidity decisions and measures to support inflation expectations continue to pose needed by the market in a timely, NET ERRORS AND OMISSIONS 1,041 519 9,493 11,104 614 20,277 the Turkish lira, ensure the effective risks to the inflation outlook through controlled and effective manner. source: the CBRT functioning of financial markets and pricing behaviour. (*) In the 6th Handbook of Balance of Payments, Finance Accounts were aligned with the International Investment Position (IIP) outlook and marked with a negative stimulate the domestic market. As a sign.

ONLY A LIMITED RECOVERY IN THE The foreign trade deficit, which stood THE FOREIGN TRADE CURRENT ACCOUNT DEFICIT at USD 76.8 billion in 2017, decreased to USD 55 billion in 2018. The current The recovery in the current account DEFICIT, WHICH STOOD account deficit narrowed from USD DESPITE A DEGREE OF RECOVERY IN RECENT balance, which started in the third 47.3 billion to USD 27.8 billion. The ratio AT USD 76.8 BILLION IN quarter, gained pace in the last quarter MONTHS, THE CBRT DECIDED TO MAINTAIN ITS of the current account deficit to gross of the year due to the sharp contraction 2017, DECREASED TO domestic product reached 6.5% in the TIGHT MONETARY POLICY STANCE UNTIL A in the foreign trade deficit, the strong first half of 2018 but declined to 5.5% in USD 55 BILLION IN course of exports and the recovery SIGNIFICANT IMPROVEMENT IN THE INFLATION the third quarter due to the recovery in in tourism receipts. Turkey produced 2018, WHILE THE exports. OUTLOOK HAD BEEN ACHIEVED, DUE TO THE a current account surplus for four CURRENT ACCOUNT consecutive months between August ONGOING RISKS TO PRICE STABILITY. DEFICIT DECREASED and November. However, the outflows experienced in the investment revenues FROM USD 47.3 item limited the recovery in the current BILLION TO USD 27.8 account deficit. BILLION.

36 37

Sources: TurkStat, CBRT, TR Ministry of Treasury and Finance THE BANKING SECTOR THERE WHERE 52 BANKS OPERATING IN THE BANKING SECTOR AT THE END OF 2018, 34 OF WHICH WERE DEPOSIT BANKS, 13 WERE DEVELOPMENT AND INVESTMENT PARTICIPATION BANKS 2018 PARTICIPATION BANKS AND 5 OF WHICH WERE PARTICIPATION BANKS.

THROUGHOUT 2018, A TIME WHEN GLOBAL AND LOCAL UNCERTAINITIES REMAINED HIGH, THE TURKISH BANKING SECTOR CONTINUED TO GROW.

After the high growth observed in 2017, the Turkish economy THE TURKISH BANKING SECTOR IN NUMBERS NUMBER OF BRANCHES indicated signs of overheating in an environment where At the end of 2018, there were 52 banks operating in global financial conditions tightened in 2018. As well as the banking sector, 34 of which were deposit banks, 13 global developments, concerns over the widening current development and investment banks and 5 participation banks. 11,565 Branches account deficit and rise in inflation placed pressure on the Lira and interest rates in Turkey, rendering the conditions of As of December 2018, deposit banks and development and doing business more difficult for the Turkish banking sector. A investment banks had a total of 11,565 branches (down 0.17% number of important regulations were also introduced in the from 11,585 in 2017), and the sector employed a total of sector in 2018. 207,716 domestic and international personnel (down 0.27% from 208,280 in 2017). As banks were saddled with higher domestic and foreign financing costs, profitability was also constrained the reflection Number of Banks December 2018 of cost increases to the sector’s revenues due to the maturity Deposit Banks 32

mismatch, as well as the exchange rate mismatch between Public Banks 3 3,922 3,977 3,666 assets and liabilities. On the other hand, as domestic financial Private Banks 8 Public Banks Private Banks Foreign Banks

conditions started to moderate again, growth and profitability Foreign Banks 21 Source: The BRSA levels, which had been above global averages, returned Development and Investment Banks 13 towards their sustainable levels again. Participation Banks 5 Total 50 BREAKDOWN OF NUMBER OF BANKS BREAKDOWN OF NUMBER OF BRANCHES

Source: The BRSA 10%

32% 34%

25%

65%

Deposit Banks 34% Public Banks Development and Investment Banks Private Banks Participation Banks Foreign Banks 38 39 THE BANKING SECTOR

THE BALANCE SHEET OF THE BANKING SECTOR SELECTED INDICATORS ASSETS 2018 The total assets of the Turkish banking sector expanded by Amount 2017‑2018 At the end of 2018, 61.9% of the total assets in the banking 18.7% in 2018 compared to the previous year, to TL 3,867.43 (TL billion) (%) sector were comprised of loans, with the securities portfolio billion. Assets accounting for a 12.4% share, cash reserves 10.6% and 15.1% PARTICIPATION BANKS 2018 PARTICIPATION Cash and Cash Equivalents* 412 57.6 of the total being comprised of other assets. The annual rate of growth in loans, which accounted for 61% Reserves 159 (30.0) of assets, reached 38.3% in August, but had declined to 14.1% Loans 2,395 14.1 While the share of loans in total assets decreased when by the end of the year. As of 2018 year-end the sector’s loan Non-performing Loans (gross) 97 51.0 compared to the previous year, the share of cash reserves volume stood at TL 2,394.4 billion. Securities 477 19.0 increased on the back of the sharp fall in loan growth as a result of the tightening in financial conditions following the Other Assets 327 21.5 The slowdown in credit growth and the weakness of the fall in the value of the Turkish Lira in August and a general Total Assets 3,867 18.7 Turkish Lira in the second half of the year sparked a rapid preference among banks to expand their liquid assets. increase in the volume of non-performing loans, to TL 96.6 Liabilities million. The annual growth rate of non-performing loans The ratio of foreign currency assets to total assets in the Deposits 2,036 19.0 reached 51% when compared to the previous year, the most balance sheet stood at 44% with the ratio of total foreign Debt to Banks 563 18.4 rapid increase seen since 2009. currency liabilities to total liabilities being 50%. Repo Transactions 97 (2.4) Total deposits increased by 19% to TL 2,036 billion in 2018, Securities Issued 174 19.6 The volume of assets in the Turkish banking sector, which was compared to the previous year. The annual rate of growth in Shareholders’ Equity 422 17.4 influenced by exchange rate movements and the slowdown deposit volumes, which had reached as much as 39% due to Other Liabilities 575 23.0 in the economy in 2018, increased by 18.7% compared to the exchange rate movements during the year, later declined as Total Liabilities 3,867 18.7 previous year to stand at TL 3,867.13 billion. The annual rate of exchange rates reached a degree of balance and the economy growth in assets, which was 19.3% at the end of 2017, rose to slowed down. *Includes the total amount of cash, CBRT, and receivables from money markets 50.2% due to the rise in foreign currency assets as a result of and banks. the sharp movement in exchange rates experienced in August In 2018, the securities portfolio increased by 19% compared to Source: The BRSA 2018. With the slowdown experienced in the economy in the THE VOLUME OF ASSETS IN THE the previous year to reach TL 477.9 billion. second half of the year, this rate of growth later declined to TURKISH BANKING SECTOR, WHICH 18.7% by the end of the year. The sector’s net profit for the period increased by 29.6% YoY in WAS INFLUENCED BY EXCHANGE 2017, rose by 10% YoY in 2018 to reach TL 53.8 billion. The movement in loans, which has a share of more than 60% RATE MOVEMENTS AND THE in assets, had an impact on assets. The annual rate of loan SLOWDOWN IN THE ECONOMY IN growth decreased to 14.1% by the end of the year after having reached 38.3% in August, and total loans stood at TL 2,394.7 2018, INCREASED BY 18.7% YoY TO billion in 2018, of which TL 1,439 billion was denominated in REACH TL 3,867.13 BILLION. Turkish currency and TL 956 billion was in foreign currency. TOTAL DEPOSITS INCREASED BY 19% IN 2018 COMPARED On the other hand, the annual rate of growth in foreign exchange adjusted loans declined to its lowest level since TO THE PREVIOUS YEAR, November 2009 - at just 4.3% by the end of 2018, serving as an REACHING TL 2,036 BILLION. indicator of how important the exchange rate is in determining the level of loan growth.

TOTAL ASSETS (TL billion) BREAKDOWN OF ASSETS Turkish Lira Foreign Currency 15.1% 10.6% 3,867

3,258

2,731 12.4% 1,692 1,259 1,096

61.9% 1,635 1,999 2,175 Cash Reserves 2016 2017 2018 Loans Securities Source: The BRSA Other Assets

40 41 THE BANKING SECTOR

LIABILITIES Of the total deposits, TL 1,042 billion were TL deposits or NON-CASH LOANS BREAKDOWN OF SECURITIES PORTFOLIO participation funds, TL 953 billion were foreign currency 4% 6% In 2018, deposits accounted for the largest share of the deposit accounts or participation funds and TL 41 billion were 3% banking sector’s total liabilities, with a 52.6% share, while non- in precious metal accounts. 12% 32% 67% deposit resources and shareholders’ equity comprised 36% and PARTICIPATION BANKS 2018 PARTICIPATION 24% 11% shares, respectively. The share of the TL deposits, which was 55.8% in 2017, decreased to 51.2% in 2018, while the share of the FX deposits, 10% Debts to banks represented the highest non-deposit resource which was 44.2% in the previous year, rose to 48.8% due to item with a share of 14.5% in total liabilities. In the last the shift in the exchange rates. In 2018, the rate of growth in quarter of the year, the share of liabilities from non-deposit TL deposits decreased by 3.8 percentage points to 9.1%, while resources to money markets in total liabilities decreased from rate of growth in FX deposits slowed to 31.4% by the end of 2% in the previous quarter to 1.9%, and the share of debts to the year having reached a historic peak of 69.9%. 20% Letters of Guarantee Against Collaterals Open Letters of Guarantee banks decreased from 16.3% to 14.5%. Despite the decline in 22% Other Letters of Guarantee Government Bonds non-deposit resources, the share of deposits increased by 1.9 On the other hand, the loan to deposit ratio decreased to its Other Non-Cash Loans Treasury Eurobonds percentage points. lowest level since the third quarter of 2015 due to the slower Letters of Credit Sukuk Source: The BRSA Acceptance Credits Others rate of increase in both deposits and loans in 2018, to stand DEPOSITS at 117.6%. This high ratio continues to be instrumental in keeping deposit interest rates high. DEVELOPMENTS ACCORDING TO LOAN TYPE NON-PERFORMING LOANS In 2018, total deposits increased by 19% compared to the previous year to reach TL 2,036 billion. The YoY rate of growth in Commercial loans, which accounted for 78.9% of total loans, The sector’s non-performing loans amounted to TL 96.6 billion deposits, which reached as much as 39% due to the change in increased by 17.4% on an annual basis to reach TL 1,890.5 in 2018, which is an increase of 51% compared to the previous the exchange rate during the year, decreased in the last quarter. billion in 2018. In 2018, the exchange rate effect played a year. Although the share of foreign currency loans in non- decisive role in the level of commercial loans, almost half of performing loans is very low, the share of foreign currency did which were denominated in foreign currency. Thus, the annual increase significantly from 0.16% to 0.70% within the month rate of growth in Turkish Lira (TL) commercial loans slowed of May 2018 to 4% in June 2018, reaching 5.5% by the end of THE LOAN TO DEPOSIT RATIO to its lowest level since October 2009, at just 0.9%, while the the year. In this process, TL denominated non-performing loans DECREASED TO 117.6%, ITS annual rate of growth in foreign currency (FX) commercial also increased rapidly, after the 10% increase in the volume of LOWEST LEVEL SINCE THE loans stood at 39.8%. TL denominated non-performing loans in 2017, with a surge of 42.8% in the volume of TL denominated non-performing loans THIRD QUARTER OF 2015, An upward trend was observed in loan interest rates in general during 2018. As a result of the increase in non-performing ON THE BACK OF SLOWER during 2018. Following the sharp rise in the third quarter, loan loans, the NPL (non-performing loans) ratio reached 3.88% - its interest rates continued to climb in the final quarter of the highest level since November 2010. GROWTH IN BOTH DEPOSITS year. In the fourth quarter, the highest increase was recorded AND LOANS IN 2018. in housing loan interest rates, which rose by 8.2 percentage SECURITIES PORTFOLIO points when compared to the previous quarter, while the steepest increase when compared to the previous year was In 2018, the securities portfolio expanded by 19% compared seen in vehicle loan rates, with a 16.1 point increase. As a to the previous year, reaching TL 477.9 billion. In August, when result of both the rise in interest rates and the slowdown in the the exchange rates shifted sharply, the annual rate of growth in economy, the annual rate of growth in personal loans declined the FX Securities portfolio increased to 56.6%, before declining to a historical low of 3.2% in 2018, with a total personal loan to 19.5% by the end of the year. As the annual rate of increase volume of TL 504.2 billion. in the FX Securities portfolio slowed down, the gap between the annual rate increase of the securities portfolio and the TOTAL LIABILITIES BREAKDOWN OF DEPOSITS With only a negligible proportion of personal loans annual rate of increase in exchange rate-adjusted securities 2% portfolio was closed, and the annual rate of growth in the denominated in foreign currency, there was no increase in 15.6% 52.6% personal loans due to the movement in exchange rates. Due to exchange rate-adjusted securities portfolio stood at 14.3% at 51% the tightening in financial conditions observed in the second the end of the year. 1.9% half of the year, the annual rate of increase in personal loans, 4.5% which started to slow in July due to the decrease in mortgaged 67% of the securities portfolio consisted of government bonds, 24% consisted of Eurobonds issued by the Treasury and 3% housing sales, continued to diminish until the end of the year. 47% consisted of sukuk. 14.5 As of December 2018, commercial and corporate loans stood at TL 1,278 billion, SME loans at TL 612 billion and consumer loans and credit card loans stood at TL 504 billion. In the same Deposits period, the volume of non-cash loans amounted to TL 781 Shareholder’s Equity 10.9% Debt to Banks billion. Letters of guarantee comprised the largest share in Securities Issued TL Deposits/Participation Funds these loans, at 74%, while the share of letters of credit stood at Debt to Money Markets FX Deposits/Participation Funds 12%. Source: The BRSA Others Precious Metals Depot Accounts

42 43 THE BANKING SECTOR

THE SECTOR’S NET PROFIT CAPITAL ADEQUACY RATIO (%) RETURN ON EQUITY (%) THE CAPITAL ADEQUACY RATIO INCREASED BY 10% YOY IN 17.27% CAR (2018) 14.67% Return on equity - THE RATIO OF THE SECTOR’S 2018 TO TL 53.8 BILLION. THE CAPITAL TO RISK WEIGHTED BANKS 2018 PARTICIPATION RECOVERY OF THE TURKISH ASSETS - INCREASED FROM LIRA IN THE FOURTH QUARTER 15.57% IN 2017 TO 17.27% IN ALSO POSITIVELY AFFECTED THE 2018. 17.27% BANKING SECTOR. Sector 16.91 15.76 23.95 16.59 16.81 18.78 17.71 18.20 17.34 19.45 13.59 15.87 By Function By Shareholder 2017 2018 2017 2018 2017 2018 Groups Group Deposit Participation Development and Investment Public Banks Private Banks Foreign Banks Public Private Foreign Source: The BRSA

DEVELOPMENT OF DEPOSITS BY TYPE NON-DEPOSIT RESOURCES SHAREHOLDERS’ EQUITY slowdown in growth and the sharp movement in exchange rates, particularly in the third quarter of 2018, suppressed the While 62% of deposits belong to real persons, the share of Non-deposit resources increased by 18.7% in 2018 when In 2018, the sector’s shareholders’ equity increased by 17.4%, profitability of the banks. In the same period, the rise in banks’ commercial and other corporate deposits is 34% and the share compared to the previous year, reaching TL 1,409.9 billion. Due reaching TL 421.18 billion. A key factor behind the slower non-performing loan ratios, due to the exchange rate volatility of official institutions is 4%. to the rapid increase in loans in the first three quarters of the annual rate of growth in shareholders’ equity, which had stood and the resulting rise in provision expenses negatively affected year and a redoubling of the sector’s efforts to seek resources at 19.5% in 2017, was the decline in the annual profit growth. profitability. An analysis of deposits by maturity finds a concentration in the to fund the increasing need for loans, there was a rapid The percentage of shareholders’ equity in total liabilities 1-3 month-maturity category in 2018. Deposits with a maturity increase in both deposits and non-deposit resources in 2018. decreased by 0.1 points to 10.9% in 2018 compared to the However, despite the high course of deposit costs towards the of 1 to 3 months accounted for 51.2% of total deposits in In addition, non-deposit resources rose to a record high due to previous year. end of the year and the contraction in the loan interest-deposit 2018, followed by demand deposits with a 21.3% share. The the rapid slide in the Lira and the rise in loan rates in the third interest ratio caused by the decline in interest rate revenues on share of time deposits with a maturity of 3-6 months stood quarter of the year, while the rate of increase slowed in the last The capital adequacy ratio, which indicates the ratio of the loans, the return on CPI-indexed bonds resulted in an increase at 6.4% and that of deposits with a maturity of 6-12 months quarter. As a result, the annual increase rate of non-deposit sector’s capital to risk weighted assets, increased from 15.57% in profitability. On the whole, it could be concluded that the stood at 3.6%. resources, which was 21.6% in 2017, declined to 18.7% in in 2017 to 17.27% in 2018. In addition to the direct capital banking sector managed to maintain its strong performance, 2018. increase by some banks in 2018 and the use of subordinated despite the slowdown in economic activity in 2018. On the other hand, while the share of time deposits with a loans by some banks, with the tightening in financial maturity of 1-3 months decreased by 1.8 points compared to On the other hand, the cost of non-deposit resources increased conditions following the exchange rate shock in August, IN 2019… 2017, the share of time deposits with a maturity of 3-6 months in 2018. In 2018, the US Federal Reserve (Fed) increased slower growth in risk weighted assets relative to the increase in increased by 2.4 points. Thus, the share of time deposits with a interest rates four times, raising the rate to a 2.25% - 2.50% shareholders’ equity led to an increase in the capital adequacy Although the negative impact of the turbulence in financial maturity of 1-3 months decreased to its lowest level since July band. Although the European Central Bank left interest rates ratio in 2018. markets on the sector remained manageable in 2018, 2013. unchanged during the year, it decided to end its program uncertainties and the risk of contagion to other sectors are of asset purchases in 2018. These developments caused a In terms of the breakdown by banking type, the capital seen as the main source of uncertainty hanging over the sector. tightening in global liquidity conditions, which led to an adequacy ratios stood at 16.91% in deposit banks, 15.76% in Accordingly, the sector is expected to maintain its cautious increase in the cost of foreign resources in 2018. participation banks and 23.95% in investment banks. approach in the medium term. However, the sector is expected BREAKDOWN OF DEPOSITS BY MATURITY to start taking strong steps forward again with the removal of The slowdown in domestic economic activity as a result of the PROFITABILITY uncertainties and the stabilization in resource costs. 5% contraction following August’s exchange rate shock reduced 4% 21% the banking sector’s debt rollover ratio to its lowest level in Net interest revenues increased by 29% YoY to reach TL 107.6 It is anticipated that profitability will be maintained in the 6% recent times. In line with these developments, FX-denominated billion in 2018. Non-interest revenues, which had increased coming period thanks to operational improvements and resources maintained their weight (48.4%) in non-deposit by 19.7% in 2017, increased by 38.1% YoY in 2018 to reach efficiency-oriented efforts to be carried out by the banking resources, while the share of TL-denominated resources TL 76.9 billion. Net fees and commission revenues, consisting sector. increased by 0.3 points compared to 2017. of fees and commissions taken from loans and the banking services revenues, increased by 33.9% in 2018. After having Global factors such as the US Federal Reserve Bank being able 13% grown by 16.1% in 2017, fees and commissions from loans to halt its interest rate hikes and the balance sheet reduction surged by 41.8% in 2018. Banking services revenues, which steps, especially in the second half of 2019, with the European constitute 48% of non-interest revenues, increased by 21.2% Central Bank still yet to tighten its monetary policy, and with Demand Deposits Up to 1 Month in 2017 and by 31.6% in 2018. positive domestic developments such as the expected fall in 1-3 Months inflation, banks are expected to step up their loan growth 51% 3-6 Months The sector’s net profit increased by 10% YoY, reaching TL and expand loans rapidly in a manner to compensate for the 6-12 Months 53.8 billion in 2018. Net fees and commission revenues slowdown experienced in the last quarter of 2018 and the Source: The BRSA Over 1 Year continued to have a strong impact in the fourth quarter, first half of 2019. As a result, it is anticipated that the expected 44 positively affecting the banking sector as the TL recovered. The recovery in the economy will gain pace. 45 THE PARTICIPATION BANKING SECTOR AT 2018 YEAR-END, FIVE PARTICIPATION BANKS OPERATING IN TURKEY HAD A TOTAL OF 1,122 BRANCHES. PARTICIPATION BANKS 2018 PARTICIPATION

PARTICIPATION BANKS, WHICH PLAY A COMPLEMENTARY ROLE IN THE TURKISH BANKING SYSTEM, CONTINUE TO INCREASE THEIR CONTRIBUTION TO THE NATIONAL ECONOMY.

AN INCREASING CONTRIBUTION TO not as institutions undertaking the one- PARTICIPATION BANKS IN NUMBERS As of the end of 2018, the total number of employees in DEVELOPMENT IN THE NUMBER OF BRANCH AND THE NATIONAL ECONOMY to-one functions of development and participation banks increased by 4.2% compared to the PERSONNEL IN PARTICIPATION BANKS (2009‑2018) As of 2018, five participation banks deposit banks. previous year, reaching 15,654. were operating in Turkey - Albaraka Number of Growth Number of Growth Participation banks, which play a Years complementary role in the Turkish Türk, Kuveyt Türk, Türkiye Finans, Ziraat branches (%) Personnel (%) The main feature of participation banks Building on their success with each passing year in the Turkish banking system, continue to increase Participation and Vakıf Participation. 2009 569 7 11,802 7 is that they offer all banking products banking sector, participation banks have achieved healthy their contribution to the national Emlak Participation Bank also joined and services on an interest-free basis. and sustainable growth. The participation banks in Turkey 2010 607 7 12,677 7 economy. these banks in 2019. achieved successful results in 2018 in terms of their total assets, 2011 685 13 13,851 9 Participation banks operating on the shareholders’ equity, collected funds, disbursed loans, capital 2012 828 21 15,356 11 The first application of participation Türkiye Emlak Bankası A.Ş., which was interest-free principle conduct all kinds adequacy standard ratios and net profitability ratios. 2013 966 17 16,763 9 banking in the Turkish financial system brought into the liquidation process in of banking activities in full compliance was the establishment of Special Finance 2001, was removed from this process 2014 990 2 16,270 (3.1) with this rule. The liability item in the balance sheet, which consists of savings Houses in 1985. in 2017. Following the Annual General 2015 1,080 9 16,554 1.7 collected from the public, the profit and loss sharing method Meeting held on 3 September 2018, 2016 959 (11.2) 14,467 (12.6) Participation banks work with has helped participation banks overcome crises by providing The rapid and systematic development its new articles of association were partnership methods such as the more breathing space to participation banks than can be 2017 1,032 8 15,029 3.9 phase of participation banks got approved and its status was determined labour-capital partnership (mudarabah), offered by fixed rate liability. In addition, as participation banks 2018 1,122 8.7 15,654 4.2 underway with the related institutions as a participation bank. The title of the profit-loss partnership (musharakah), are not affected by interest rate risk, they do not hold an open gaining a bank status following the bank was registered as Türkiye Emlak investment partnership (venture capital), position and thus are not exposed to foreign exchange risk. Source: The BRSA regulation set out in the Banking Law Katılım Bankası A.Ş. on 10 September ownership partnership, agricultural in 2005, and replacing special finance 2018. The Bank’s head office is located in partnerships and investment agency houses’ names as participation banks. Istanbul and serves with 85 employees. (wakalah). With this regulation, it was observed that As of 31 December 2018, there were DEVELOPMENT IN THE NUMBER OF BRANCHES DEVELOPMENT IN THE NUMBER OF PERSONNEL the effectiveness of participation banks, no branches of the bank in Turkey or Participation banks, which collect brought under the scope of the Banking abroad. The bank aims to increase its 1,122 branches (2018) 15,654 personnel (2018) funds with products such as special Law in terms of legal status, increased in number of branches to 15 by the end of current accounts, profit and loss the economic and financial cycle. 2019. sharing accounts, investment agency accounts, gold accounts and sukuk, Together with deposit banks, According to figures for the end of adhere to a banking model that also development and investment banks, 2018, the total number of domestic and provides funds with products such as participation banks, which are one of the foreign branches of the five participation sale by profit declaration (murabaha), three key elements of the banking sector banks operating in Turkey stood at 1,122, unprofitable sale (tevliye), sale by means in Turkey, are also referred to as interest- with the branches of the participation of bargaining (musawamah), forward free banks or Islamic banks. Participation banks accounting for approximately financing transaction (salem), open banks are stated as complementary 9.7% of the branch network of the account sales (istijrar) and commodity elements of the Turkish banking system, banking sector. sales for liquidity (tawarruq). 569 607 685 828 966 990 1,080 959 1,032 1,122 11,802 12,677 13,851 15,356 16,763 16,270 16,554 14,467 15,029 15,654

46 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 47

Source: The BRSA THE PARTICIPATION BANKING SECTOR

KEY INDICATORS OF PARTICIPATION BANKING SECTOR ASSET DEVELOPMENT OF PARTICIPATION BANKS AND (TL MILLION) SECTORAL SHARE (TL MILLION, 2014-2018) 2017 2018 Change % Total Assets Change % Sector Share % PARTICIPATION BANKING IS A TYPE Funds Collected 105,310 137,220 30.3 2014 104,073 8.4 5.2 PARTICIPATION BANKS 2018 PARTICIPATION OF BANKING WHICH REDUCES THE Funds Collected TL 57,494 60,626 5.4 2015 120,252 15.27 5.1 Funds Collected FC 43,180 67,790 57.0 2016 132,874 10.5 4.9 RISK OF LIABILITIES IN THE Precious Metals FC 4,636 8,804 89.9 2017 160,136 20.5 4.9 LIABILITIES OF THE BALANCE SHEET Funds Allocated 106,733 124,531 16.7 2018 206,806 29.1 5.3 Total Assets 160,136 206,806 29.1 AND INCREASES THE SECURITY OF Source: TKBB, BRSA THE LOANS IN ITS ASSETS AND Shareholders’ Equity 13,645 16,796 23.0 HENCE, THE ASSET QUALITY. Net Profit 1,583 2,124 34.1 Source: The BRSA

The number of active customers of the five participation banks On the other hand, as SMEs, which are the companies offering operating in Turkey exceeded 1.5 million in 2018, with the a positive diversity driving the economy, represent the segment INTERNET BANKING DATA OF THE PARTICIPATION BANKING number of ATMs in the service network of participation banks supported most by the participation banks, the economy gains DEVELOPMENT IN TOTAL ASSETS (TL million) SECTOR approaching 2,000 and the total number of POS terminals a more dynamic dimension and creates a strong employment 2016 2017 2018 exceeding 100,000. and income effect through the marginal return of investments growth (2018) 29.1% Number of Active and the impact of the investments feeding other sectors. 515,290 636,436 1,501,135 Clients The contribution of participation banks in attracting the Business Volume Gulf capital, which offers wide ranging potential, to Turkey Participation banking provides income to deposit account 163,262,888 192,020,017 451,951,470 (TL thousand) is becoming increasingly important. The Lease Certificates holders through the transfer of non-banking resources to the (Sukuk) recently issued by the Ministry of Treasury and Finance system (making use of idle resources), thus regulating income ALTERNATIVE DISTRIBUTION CHANNELS DATA OF THE has allowed our country to draw a significant amount of distribution, contributing to the growth of the economy by PARTICIPATION BANKING SECTOR capital from this region at a time when international resources transferring resources to the real sector and recording informal have been in short supply. economic activity. These characteristics reveal the importance Product/Service 2016 2017 2018 of participation banking in the economy. (Unit) Participation banks have been steadily increasing the volume ATM 1,523 1,688 1,922 of various structured financing products obtained from The capital adequacy ratio of participation banks, which stood POS 79,427 88,491 100,893 104,073 120,252 132,874 160,136 206,806 international markets at affordable costs and maturities, and at 16% in 2018, demonstrated a strong capital structure 2014 2015 2016 2017 2018 Bank Card 3,996,590 4,103,410 4,669,097 have transformed these products into fund disbursements while the participation banking segment’s low NPL ratio Source: TKBB, BRSA Credit Card 935,172 929,245 1,071,810 where their customers will gain a competitive advantage. demonstrated the high asset quality. However, simultaneous Source: TKBB Participation banks play an important role especially in measures taken in our country to tackle macroeconomic “Murabaha” financing, which is provided by syndication from volatility cannot completely eliminate the effects of the Participation banks offer a wide array of advantages in the The net profit of the participation banks increased by 34.1% the Gulf region, and is becoming more popular day by day. changes. This would require an unrelenting continuation of loans which are included in the assets of the balance sheet. For from TL 1,583 million in 2017 to TL 2,124 million in 2018. the structural transformation processes. For the financial sector, example, Total shareholders’ equity increased by 23%, amounting to TL TOTAL SUKUK ISSUANCES BETWEEN 2010-2018 this structural transformation means developing different sub-sectors, widening product diversity and increasing financial • In accordance with the working principles of participation 16,796 million. Domestic Abroad accessibility. As an alternative financial sector and product- banks, the fact that the funds are disbursed in return for a (TL million) (USD million) service type, participation banking and the interest-free finance specific project or commodity and equipment supply, and Among participation banks, Kuveyt Türk recorded the highest Participation Banks 36,015 4,276 system has become a sector which has proven to be a bulwark the payment of the financing fee is carried out to the vendor net profit at TL 869.8 million in 2018. In terms of net profit, Ministry of Treasury 29,296 6,000 against economic volatility in many countries. supplying the goods and services in exchange for an invoice, Kuveyt Türk was followed by Türkiye Finans (TL 444.7 million), and Finance rather than the enterprise, prevents the use of funds being Vakıf Participation (TL 325.4 million), Ziraat Participation (TL Total 65,311 10,276 used in high-risk or speculative areas. This method facilitates 322.7 million) and Albaraka Türk (TL 134 million). In recent years in Turkey, concrete steps have been taken such as the establishment of public participation banks, the control of the funds disbursed and the company. Source: TKBB • The disbursement of funds in instalments and the monthly Vakıf Participation posted the sharpest YoY increase in net launch of non-bank interest-free financial institutions, and the collection of instalments in general increase the liquidity profit in 2018, with a 135.6% YoY increase in net profit. It was WORKING TO RAISE THE CONTRIBUTION OF PARTICIPATION increase of public and private sector sukuk issuances. Various and security. followed by Ziraat Participation (103.1% YoY increase in net BANKS TO THE NATIONAL ECONOMY GOING FORWARD legislative regulations and structural reforms are expected to • The disbursement of funds in exchange for invoice prevents profit) and Kuveyt Türk (29.1%). be implemented in the coming periods in order to increase Participation banks contribute to the economic sphere in irrational behaviour in financing by limiting the use of funds the recognition and awareness of the sector among the wider various ways. The balance sheets of the participation banks, by the enterprise beyond what is needed. Kuveyt Türk became the biggest participation bank in terms of population. their number of branches, the number of personnel, the its asset volume in 2018, with TL 74.2 billion of assets. It was progress in the volume of funds collected and disbursed The total unconsolidated volume of assets of Albaraka Türk, followed by Türkiye Finans (TL 47.1 billion), and Albaraka Türk are directly reflected in the growth and development in the Kuveyt Türk, Türkiye Finans, Vakıf Participation and Ziraat (TL 42.2 billion). Ziraat Participation and Vakıf Participation had banking sector. Participation, which are the participation banks operating in total assets of TL 22.2 billion and TL 21 billion, respectively. Turkey, increased by 29.1% in 2018 compared to the previous year, reaching TL 206.8 billion. 48 49

Sources: TurkStat, CBRT, TR Ministry of Treasury and Finance GLOBAL INTEREST-FREE FINANCE AND BANKING THE INTEREST-FREE FINANCE INDUSTRY IS DOMINATED BY BANKS, ACCOUNTING FOR 71% OF TOTAL SECTOR ASSETS. PARTICIPATION BANKS 2018 PARTICIPATION

ACCORDING TO FIGURES FOR THE END OF 2017, THE INTEREST-FREE FINANCE TOTAL ASSETS SYSTEM CONSISTED OF 1389 INTEREST-FREE FINANCIAL INSTITUTIONS 2.2 USD trillion AND WINDOWS.

THE GLOBAL INTEREST-FREE FINANCE According to figures for the end of a number of large-scale mergers and At the end of 2017, there were 505 interest-free banks, help them to increase their presence in different geographical SYSTEM CONTINUES TO GROW WITH 2017, the interest-free finance system acquisitions in major markets such as including 207 interest-free windows. However, the number regions, such as Europe and Africa. NEW DYNAMICS consisted of 1,389 interest-free financial Malaysia and the Gulf Cooperation of players is not a direct indicator of the sector’s asset size. For institutions and windows. Of the 56 Council (GCC). example, in Saudi Arabia, which is the second largest market Africa is seen as a potential growth area in interest-free The volume of assets in the global countries making up total assets, Cyprus, of interest-free finance, there are only 16 interest-free banks, banking. Banks continue to open interest-free windows in interest-free finance system had Nigeria and Australia were the countries The sector includes commercial, including windows - fewer than relatively smaller markets such this region and the number of governments encouraging this increased to USD 2.44 trillion by the to achieve the fastest growth in interest- wholesale and other types of banks, as Malaysia and the UAE. is increasing day by day. The successful opening of various end of 2017, with a compound annual free financial assets in 2017. with commercial banking being the interest-free banking subsidiaries and windows in Morocco growth rate (CAGR) of 6% since main driver of the growth of the sector. The digital revolution has begun to transform the interest-free in 2017 and 2018 contributed to the spread of interest-free 2012. Iran, Saudi Arabia and Malaysia Just as it has been affecting the global With 8 interest-free banks entering the banking sector with the entry of interest-free digital banks into banking in Africa. maintained their positions as the largest financial system, digitalization has market in Morocco in 2017 and 2018, the market. The addition of the digital affiliates of banks can markets, accounting for 65.5% (USD 1.6 emerged as a strong trend also in various and Suriname opening the first interest- trillion) of total assets. sectors of the interest-free finance free bank in South America, the interest- industry. Considering the performance of free finance sector has spread to new In 2017, the total volume of interest- each sector of the interest-free finance countries through retail banking services. free financial assets in Saudi Arabia INTEREST-FREE FINANCE ASSETS GROWTH (USD billion) ASSETS DISTRIBUTION industry and the development of the As a result of the market entry of and Malaysia increased by 8% and surrounding ecosystem, total assets are Morocco and Suriname, the number of 16%, respectively. In Saudi Arabia, the projected to grow at an average rate of countries with banks providing interest- USD 3,809 billion (2023P) growth was realized largely on the 10% per annum to a potential USD 3.8 free financial services has increased to back of domestic and international trillion by 2023. 69. 4% 2% sukuk issuance. On the other hand, Iran 6% 71% underwent a decline in its interest-free BANKS IN 69 COUNTRIES OFFERING A number of developments indicate assets as a result of the depreciation INTEREST-FREE FINANCIAL SERVICES the growing momentum of the sector; of its currency against the US dollar, the Malawi government approving Interest-free banking assets, which 17% and with the ongoing devaluation of the provision of interest-free banking comprise the largest share in the the Riyal, Iran’s interest-free financial services through interest-free windows interest-free finance system, amounted assets are expected to fall further. This is for the time being; Coris Bank to a total of USD 1.7 trillion at the end despite the fact that in 2017 the assets International opening interest-free of 2017, having posted a CAGR of 5% Interest-free Banking of the country’s interest-free financial banking units in Mali, Senegal, Benin Sukuk

in the 2012-2017 period. These assets 1,746 2,050 1,965 2,190 2,290 2,438 3,809 institutions grew by 13% in local and Ivory Coast in June 2018; and the Other Interest-free accounted for 71% of the sector’s assets currency. efforts by Storebrand, a Norwegian bank 2012 2013 2014 2015 2016 2017 2023P Finance Institutions at the end of 2017. There has been Interest-free Funds in Europe, to provide interest-free “halal an ongoing trend of consolidation in Source: Thomson Reuters P: Projected Takaful debt” products are a few examples. the interest-free banking sector with

50 51 GLOBAL INTEREST-FREE FINANCE AND BANKING

INTEREST-FREE BANKING ASSETS GROWTH INTEREST-FREE BANKING ASSETS, TOP-5 COUNTRIES (USD billion) (USD billion)

USD 2,441billion (2023P) PARTICIPATION BANKS 2018 PARTICIPATION

19 COUNTRIES WITNESSED SUKUK ISSUANCES, AMOUNTING 98 486 376 201 180 1,305 1,565 1,445 1,604 1,675 1,721 2,441 TO USD 85 BILLION IN 2012 2013 2014 2015 2016 2017 2023P Iran Saudi Malaysia UAE Qatar Arabia 2017. Source: Thomson Reuters P: Projected

INTEREST-FREE CAPITAL MARKETS SERVING AS A AN INCREASING NUMBER OF SUKUK ISSUANCES PIONEERING FORCE IN THE SECTOR’S GROWTH SUKUK ASSETS GROWTH SUKUK ASSETS, TOP-5 COUNTRIES Sukuk is the second largest contributor to the interest-free (USD billion) (USD billion) The growth of interest-free capital markets consisting of lease financial sector’s assets. In 2017, 19 countries issued a total certificates (sukuk) and interest-free funds outperformed of USD 85 billion worth of sukuk. Private sector issuances USD 783 billion (2023P) interest-free financial institutions. Sukuk assets had amounted accounted for 63% of this amount, with public issuances to USD 426 billion by the end of 2017, amounting to 17% of comprising 31% of the total. total sector assets after notching up an annual compound growth rate of 9% between 2012 and 2017. Malaysia, which In 2017, Malaysia continued to be the leading country in terms remains the largest sukuk market, opened this market to of the total volume of the sukuk market and issuance volume retail investors while also launching a grant scheme for green (USD 35 billion). In terms of issuance size, Malaysia is followed sukuk issuers. Saudi Arabia, on the other hand, is increasingly by Saudi Arabia (USD 26 billion) and Indonesia (USD 9 billion). competing for sukuk issuance. In 2017, Saudi Arabia broke Sukuk issuances are expected to continue in these three a record of USD 26 billion, mostly through domestic and markets. The Malaysian Securities Commission announced international sovereign sukuk issuances, and continued its that it had opened up its bond and sukuk markets to retail 204 81 46 32 21 issuances in 2018. 260 284 299 342 345 426 783 investors. After Indonesia successfully issued its first green sukuk in Asia, Malaysia launched a grant scheme for green 2012 2013 2014 2015 2016 2017 2023P Malaysia Saudi Indonesia UAE Qatar The total volume of interest-free funds, which demonstrated Arabia its fastest growth yet in the 2012-2017 period, reached USD sukuk issuers. The convergence between interest-free finance Source: Thomson Reuters P: Projected 110 billion, constituting 4% of total interest-free financial and the ESG (environmental and social governance) criteria assets with a compound annual growth rate of 16%. While the increased interest in green sukuk. Meanwhile, Saudi Arabia completed its second international sukuk sale in September sector is concentrated in Iran, Saudi Arabia and Malaysia, which SHARE OF TAKAFUL REMAINS RELATIVELY SMALL London has also put in efforts to emerge as a centre for 2018, adding USD 2 billion to its sukuk portfolio in addition to account for 87% of total assets, interest-free funds generally takaful. The Islamic Insurance Association of London (IIAL), its domestic issuances. Takaful grew at a CAGR of 6% in the 2012 2017 period, remain at a low level despite the strong demographic structure the sectoral body of the UK, announced that legal standards reaching USD 46 billion. The takaful sector, which constitutes of these countries in favouring investments. are being prepared for interest-free commercial insurance Global sukuk issuances were observed to lose some pace in 2% of total interest-free financial assets, offers more growth in terms of compliance with the principles of interest-free In 2017, 41 mutual funds were established in Malaysia, 32 in the first half of 2018. Total sukuk issuance declined to USD potential with the entry of Nigeria and the UK into the market. finance and that opinions have been obtained from Islamic Pakistan and 31 in Indonesia. Most of these funds hold mixed 44 billion, a fall of 15% compared to the same period of the law scholars. The IIAL aims to issue these standards by 2019. assets. Despite the strong demographic structures for interest- previous year. This reduction in performance can be attributed Similar to the banking industry, there is a trend of The takaful sector is expected to play an important role in the free investments in these countries, Pakistan and Indonesia to the absence of the large issuances in the GCC countries consolidation in the sector, where a total of 324 institutions UK’s insurance industry, as the government is looking for new remain outside the top five of the market in terms of interest- which was seen in 2017. The sharp decline witnessed in the provide takaful services. The recent developments include business opportunities after Brexit. Also in London, AIG UK free funds. Globally, 70% of interest-free funds have a volume second quarter of the year gave way to an upward trend in Takaful Emarat’s takeover of Bahrain’s Al Hilal Tekaful and the introduced the first interest-free finance-compliant guarantee of less than USD 25 million, with most of them being less than the third quarter. In the second half of 2018, the issuance of merger of the Solidarity Group with its Bahrain-based units, and indemnity policy in London’s merger and acquisition USD 1 million. sukuk stood at USD 35 billion. Considering factors such as the which are Solidarity General Takaful and Al Ahlia Insurance. contraction in global liquidity conditions and the negative insurance market with Cobolt Underwriting’s interest-free The digital revolution is expected to play an important role impact of increasing geopolitical risks in the Middle East Despite still having a small share in the interest-free finance window solution. in the development of these markets. In contrast to asset on investor appetite, the continued upward trend in sukuk system, interest in the takaful market is increasing. Nigeria management companies, which are generally open to wealthy issuances - despite some loss of momentum - also offers hope stands out with its accelerated development in this field, which individuals and corporate investors, newly established digital for the coming period. Malaysia is expected to maintain its has been noticeable since the government issued the takaful interest-free asset management companies enable a higher position as the driving force of the growth of the sukuk market guidelines in 2013 to deepen insurance penetration and with number of customers to access this service by offering low-cost thanks to its strong market fundamentals and the state’s the establishment of Jaiz Takaful in 2017, which is the country’s funds that can serve customers, whom are non-wealthy. support for interest-free finance. first fully-fledged takaful company. In Nigeria, there are 5 takaful service providers when interest-free windows are also 52 included. 53 GLOBAL INTEREST-FREE FINANCE AND BANKING

FINTECH INITIATIVES ARE SEEN AS KEY FOR THE GROWTH FINTECH OFFERS NEW AREAS FOR THE DEVELOPMENT OF OF THE SYSTEM THE SYSTEM SHARE OF INTEREST-FREE BANKING INTEREST-FREE CAPITAL MARKETS (2022 projection) (2022 projection) Non-banking interest-free financial institutions posted a CAGR According to IFN Islamic Fintech Landscape, there were of 4% between 2012 and 2017, accounting for 6% of total approximately 100 interest-free fintech companies at the end

system assets, reaching USD 135 billion. This sector is likely of February 2018. Approximately 70% of these companies BANKS 2018 PARTICIPATION to experience further digital transformations following the were active in providing financial services such as money 64% 403 launch of interest-free crowdfunding and the cryptocurrency transfer, crowdfunding and digital banking, while 30% of USD billion initiatives in recent years. them operate in the technical infrastructure field such as IT, artificial intelligence and robotics. Approximately 46% of Financial technology or fintech companies are part of the these companies are in Asia. Some of the Fintech companies non-banking interest-free financial institutions sector, which (for example, crowdfunding companies) are seen in a role includes financing, real estate and other types of companies. complementary to existing interest-free banking, while others A number of innovations took place in the field of interest- could unsettle the future of mainstream interest-free financial free fintech enterprise in 2017. In addition to the technology institutions. departments and digital services of interest-free banks and insurance companies, fintech companies are also expected to Fintech provides ease of transaction and speed, especially in play a greater role in the development of the sector. terms of payment services, money transfer and infrastructure servers. The interest-free finance industry is expected to One of the key areas for interest-free fintech companies increase the number of people using financial services by is crowdfunding. As in the conventional finance sector, making use of fintech’s ability to provide more services than interest-free crowdfunding may be utilized to support various traditional financing. On the other hand, further use of initiatives such as improving the impact of interest-free social regulatory technology (regtech) in order to ensure compliance finance, supporting state development projects and financing of transactions with the principles of interest-free finance and SMEs. One example in this area is Ethis Ventures, a company achieve transaction traceability, and the use of a block chain based in Singapore and Malaysia, which operates different in order to support identity protection are seen as areas that STANDARDIZATION TO BOOST THE GROWTH OF THE Thomson Reuters 2018 Islamic Finance Development Report crowdfunding platforms that provide financing in areas such as will continue to undergo rapid development in the short and SYSTEM on the activities carried out in 2017 is reviewed, the following real estate, healthcare, education and small businesses. points stand out; medium term. The determination of standards in terms of the compliance of interest-free financial instruments with Islamic finance Another area of development for interest-free fintech is Fintech will also help expand financial participation and reach In the ranking of institutions providing education on interest- principles and ensuring the standardization of legal documents interest-free cryptocurrencies. ADAB Solutions, which is the new customer segments that are currently excluded from the free finance, the UK ranks at the top of the list with 80 used in this context will bolster the sector’s growth through first cryptocurrency operating in accordance with interest-free banking system. For example, the provision of products such institutions, followed by Malaysia with 59, Indonesia with the positive effects it will create in terms of clarifying risks for finance principles, is among the startups in this field in the as mobile banking for customers in remote areas, and mass 57, the United Arab Emirates with 50, and Pakistan with 37. investors, facilitating the sukuk issuance process and creating United Arab Emirates. funding for SMEs point to a new axis of growth. Examples In 2017, there were 688 institutions providing education on more suitable and large space for innovation. of interest-free finance crowdfunding which have recently interest-free finance worldwide. It is anticipated that initiatives shaping the interest-free fintech attracted attention include Beehive in Dubai or Invoice field will have an increasingly significant effect on the interest- Standardization in the sukuk markets will encourage growth In research studies conducted in the area of interest-free Wakalah in Pakistan. free finance industry. in the sector by facilitating the sukuk issuance process, which finance, between 2015 and 2017, Malaysia took the lead with is more complex and time consuming than traditional bonds. 559 scientific articles, ranking ahead of Indonesia, Pakistan, Because of this complexity, some issuers prefer conventional the UK and the United States. During this period, Indonesia bond issuances rather than sukuk issuances. Investors also raise published 235, Pakistan 102, the UK 62 and the United States concerns over the complexity of assessing risk exposure when 55 scientific papers. investing in sukuk. Due to the lack of compliance with Islamic finance principles in the sukuk issuance by the United Arab In 2017, Malaysia, Pakistan, Indonesia, the United Arab Emirates based energy company, Dana Gas, a default took Emirates and Brunei hosted the most events on interest-free ONE OF THE KEY AREAS FOR place, serving as a warning for the sector. finance. INTEREST-FREE FINTECH It is recognized that a certain level of standardization has been The report emphasized that interest-free finance is an area COMPANIES IS CROWDFUNDING. achieved for the most common products of the interest-free of increasing interest in the world, citing Romania and New financial market, and that some new instruments still require Zealand as the countries to have achieved progress in interest- INTEREST-FREE CROWDFUNDING improvement. In particular, investors demand greater clarity free finance certificate training. MAY BE UTILIZED TO SUPPORT about the risks associated with the Murabaha-Mudaraba structure, which is widely used in some countries. In another important trend, globally renowned universities VARIOUS INITIATIVES SUCH AS have started to offer education on interest-free finance. 14 EFFORTS TO RAISE KNOW-HOW AND AWARENESS TO of the 100 universities listed in the top 100 world universities IMPROVING THE IMPACT OF PROMOTE THE DEVELOPMENT OF INTEREST-FREE FINANCE ranking by the Times Higher Education offer interest-free INTEREST-FREE SOCIAL FINANCE, SYSTEM finance education. While educational cooperation between universities in Bahrain, Malaysia and the UK is seen as a The development of the interest-free finance system is directly SUPPORTING STATE remarkable development, it is stated that the main problem linked to the increase of awareness and the level of academic DEVELOPMENT PROJECTS AND of interest-free finance education is the shortage of trained education and knowledge in this field, as well as financial academics. FINANCING SMES. institutions and instruments. When the data compiled in the

Sources: THOMSON REUTERS/Islamic Finance Development Report 2018 54 S&P/Islamic Finance Outlook, 2019 Edition 55 IIFM/ Sukuk Report (7th Edition), April 2018 ISLAMIC FINANCIAL SERVICES BOARD/Islamic Financial Services Industry Stability Report 2018 Islamic Finance Bulletin‑World Bank Group/Issue 42, December 2018 PARTICIPATION BANKS 2018 PARTICIPATION

PARTICIPATION BANKS

THE TOTAL ASSET SIZE THE NET PROFIT OF OF THE PARTICIPATION PARTICIPATION BANKS BANKS OPERATING IN INCREASED BY 34.1% TURKEY INCREASED YoY FROM TL 1,583 BY 29.1% YoY IN 2018, MILLION IN 2017 TO TL REACHING TL 206.8 2,124 MILLION IN 2018. BILLION.

56 57 Islamic sciences are employed in order in consultation with academics and to ensure the effective performance of specialists who have special studies on PARTICIPATION BANKS ASSOCIATION OF activities under the Central Advisory issues to be decided, before the decisions Board, to carry out research activities and to be taken. Creation of the Turkey- TURKEY CENTRAL ADVISORY BOARD to prepare and follow up work reports. specific participation banking principles and standards are of great importance in For more than thirty years before the terms of sustainability of the perception Central Advisory Board was established, and working model of participation every bank or organization in Turkey banking in Turkey. working in the field of participation PARTICIPATION BANKS 2018 PARTICIPATION finance, pioneered by participation The Central Advisory Board, which banks, only worked with the approval started its activities in May 2018, of its own sharia advisors. Therefore, conducts studies on the current the decisions and practices of each accumulated questions and opinions. organization varied, and it was not The Central Advisory Board is working possible to negotiate these practices, on the preparation of a list of priorities which were limited to institutions, in covering the areas for which standards academic circles with wide participation. will be produced. Borsa Istanbul is also The Central Advisory Board was conducting joint studies with the Turkey established as an independent Board, Capital Markets Association in order to when the provisions of the Communiqué determine the principles and standards were examined. The decisions taken by in the field of interest-free capital the Central Advisory Board, which works market. It organizes training programs in an independent decision-making with the participation of experts and environment, are of great importance assistant experts within the Board and for the integrity and regularity of the the experts in the advisory committee of practices in the sector. In addition, participation banks. the Central Advisory Board works

THE CENTRAL ADVISORY BOARD, WHICH STARTED ITS ACTIVITIES IN MAY 2018, CONDUCTS STUDIES ON THE CURRENT ACCUMULATED QUESTIONS AND OPINIONS.

DECISIONS TAKEN BY THE CENTRAL Pursuant to the decision taken by the Banking Regulation and Supervision Agency (BRSA) dated 22/02/2018 and numbered ADVISORY BOARD, WHICH 7736 in order to determine the professional principles and OPERATES ACCORDING TO AN standards regarding participation banking, the Communiqué INDEPENDENT DECISION-MAKING on the Formation, Duties, Working Procedures and Principles of the Advisory Board established by the TKBB entered force. PROCESS, ARE OF GREAT The duties of the Central Advisory Board include following IMPORTANCE FOR THE INTEGRITY the standards published by international organizations in the AND REGULARITY OF THE field of participation banking, reaching general decisions to PRACTICES IN THE SECTOR. eliminate differences in implementation between participation banks when deemed necessary in the area of application, to provide opinions to public institutions and organizations, professional organizations which have the qualification of being a public institution, and other organizations within the scope of interest-free financial activities, to organize educational programs on the professional principles and standards of participation banking and to issue publications.

Prof. Dr. Rahmi Yaran serves as Chairman of the Central Advisory Board, while Prof. Dr. Hasan Hacak serves as the Deputy Chairman of the Central Advisory Board. Prof. Dr. Abdullah Kahraman, Prof. Dr. Ahmet Yaman and Temel Hazıroğlu are the other members of the Advisory Board. In addition, specialists and assistant specialists from various fields such as theology, economics, business administration and

58 59 2018 has been a year when capital 2018 will be controlled by our economy in TL fund returns of participation banks ALBARAKA TÜRK GENERAL MANAGER’S MESSAGE flows to developing countries were management’s firm standing within the due to rapidly increasing interest rates volatile in the shade of uncertainties frame of the New Economic Program. in the market, there has been a growth in global economic policy and cost of of 1.5 times of the industry in total Turkish banking industry has gone finance was increasing. US Government’s fund increase rate. In addition to that, through the most significant stress test protective approach in its foreign trade we compensated the high return gaps of recent times in August-September policy and steps taken in regards to on TL side with alternative investment 2018. Banking industry successfully normalization of Fed monetary policy products like lease certificates and passed the stress test of this period. caused a decrease in risk appetite at promise (vaad) contracts. Unsound price formations in financial IN 2019, ALBARAKA WILL the global scale. All these downward

markets have been controlled. However, At Albaraka, we focused on sustainable BANKS 2018 PARTICIPATION steps in global economic growth CONTINUE TO PRIORITISE impacts of internal and external shocks growth and increasing our asset caused concerns for US economy by of August on real sector recently quality on the credit side in the volatile CUSTOMER SATISFACTION all means, although to a lesser extent started to emerge. We may see a slight environment of 2018. We took a series of than the developing countries. Hence, WITH DIGITALIZATION, deterioration in banks’ asset quality in innovative steps to protect our liquidity we observe that US yield curve turning 2019. Accordingly, the industry might and find funds under the pressure of INNOVATION AND NEW in the opposite direction and slowing test 5-7% band in non-performing loan increasing financial costs and slowing of growth performance as a result of GENERATION BANKING rate. There will be an increase of 15-20%, of economic activity. We strengthened reduced impact of tax reductions caused due to annual inflation, in personnel and our Tier 1 call additional principal APPROACH. an increase in question marks on Fed’s lease expenses which are the major cost capital sukuk issuance capital structure, tightening policy. items of the industry. In the first half of expanded our customer base for joint On the other hand, despite European 2018, we observed some deterioration ATM usage with PTT and paced up our Central Bank ending asset purchases in capital adequacy ratio due to digitalization journey with Europe’s first based on their meeting in December, interest and currency impact. Although digital Islamic bank “Insha”. We continue inflation has not reached to expected BRSA’s supporting revisions on Capital to support the entrepreneurs of our levels and even gone into a relatively Adequacy Ratio calculations resulted in country with our incubation center. We decreasing trend resulting in a loose a slight recovery, asset quality, currency took significant steps towards being monetary policy which will continue in and interests based on economic a fully digital Albaraka with biometric the foreseeable future. In line with this, developments will have impacts on signature, robotic process automation ECB has repeated its position not to ratios. We may observe some decrease in and our new mobile application. In change interest rates at least until 2019 interest-inflation duo depending on the 2019, Albaraka will continue to prioritize summer. On EU policy side, uncertainties level of balancing in economic activities. customer satisfaction with digitalization, in Italy, Brexit and recent protest Accordingly, I believe that competitive innovation and its new generation activities in France can be listed as factors power of participation banks in terms of banking approach. delaying the tightening in growth. In returns will increase in 2019. Although it this context, we anticipate the recovery has been a challenging year particularly Melihşah UTKU and increase of capital inflow to the General Manager-Albaraka Türk group of countries that we are a part of thanks to attractive returns we offer and environment of confidence in 2019. ALBARAKA FOCUSED ON Our economy has gone through a SUSTAINABLE GROWTH AND foreign currency based volatile process starting in mid-summer. This process INCREASING ASSET QUALITY ON was not a reflection of Turkey’s key CREDIT SIDE IN THE VOLATILE dynamics and we got over this process with measures and precautions taken by ENVIRONMENT OF 2018. our country’s economy management. 2018 has caused some damages in our economy due to tightening of global ALBARAKA TÜRK KATILIM BANKASI A.Ş. liquidity and difficulties in reaching Establishment Date 1985 liquidity, particularly in US Dollar market. Foreign Shareholders (65.99%) In addition to increasing LIBOR cost, CDS Albaraka Banking Group (54.06%) premium that increased in comparison Islamic Development Bank (7.84%) with 2017 has also been an additional Main Shareholders* Alharthy Family (3.46%) cost item in our financial markets. Other (0.64%) During the process which started with Domestic Shareholders (8.77%) Publicly Quoted (25.23%) foreign currency and continued with Chairman Adnan Ahmed Yusuf ABDULMALEK rapid increase in inflation, we observed serious impairments in pricing behaviors. General Manager Melikşah UTKU Central Bank has tightened its monetary Headquarters Saray Mah. Dr. Adnan Büyükdeniz Cad. No: 6 34768 Ümraniye‑İstanbul policy with hawk interest increases. Phone +90 216 666 01 01 We can say that capital outflow that Fax +90 216 666 16 00 slightly started in the third quarter of Website www.albaraka.com.tr 2018 due to fluctuations, has gone into Telex 27061 abrt tr - 26459 albt tr a balancing process with tight position SWIFT Code BTFH TR IS in money markets and disciplinary

60 Number of Branches 230 emphasis on monetary policy. I have 61 Number of Employees 3,988 strong confidence that volatility in our economy that increased throughout ALBARAKA TÜRK SENIOR MANAGEMENT

Melikşah UTKU self-employed lawyer between 1985 and to work at Albaraka Türk as the second as Vice President responsible for Product Economics graduates, and received his Governance Committee Member from CEO 1987, he was appointed as a lawyer to manager in the Main Branch in 2003, Management Department, Alternative Master’s Degree from Cornell University in 2012 until 2017; and Foreign Trade the Legal Affairs Department at Albaraka became the Central Branch Manager in Distribution Channels Department, 2000. He started his career as a Corporate Operations Manager from 2017 to 2018. Mr. Utku was born in Ankara in 1968. He Turk in 1987. He later became Assistant 2010 and continued this service until Marketing Department and Corporate RM at HSBC Bank in 2000 and served as In April 2018, Mr. Çetin was appointed graduated from Mechanical Engineering Manager and Manager within the same the end of 2016. He was appointed as Communications Department. He Department Manager between 2002 Assistant General Manager – Finance and Department of Boğaziçi University

department (1995-1996). Between Vice President in January, 2017. He has also serves as a member of board in and 2010 in Corporate and Commercial Strategy. He is responsible for the Business BANKS 2018 PARTICIPATION (Istanbul, 1990). He completed his 2002 and 2009, Mr. Boz was head legal still been serving as Assistant General Albaraka Kültür Sanat ve Yayıncılık A.Ş. Credit Department. He joined ING Bank Excellence and Innovation Department, graduate studies in London School of consultant at Albaraka Turk. He served as Manager responsible for Corporate and Financial Literacy and Inclusion as co-head of Commercial and SME Financial Reporting Department, Financial Economics (1990-1992) and his Master’s Assistant General Manager responsible Sales Department, Commercial Sales Association (FODER). Credit & Risk in 2010. In November 2010, Affairs Department, Strategic Planning Degree on economic development in for Legal Advisory and Legal Follow-Up Department, Retail Sales Department, he returned to HSBC Bank as Director Department, Data Management Service, Marmara University (Istanbul, 1998). Departments of Albaraka Turk from regional directorates and branches. Malek Khodr TEMSAH responsible for Corporate, Commercial and the European Digital Banking Service. Then he worked in software and textiles December 2009 until January 2017. He Assistant General Manager and Financial Institutions Credit Approvals Fluent in English and German, Mustafa sectors. In 2004, he served as a consultant has been the Assistant General Manager Fatih BOZ and Counterparty and Market Risk Çetin holds the Capital Market Activities to the General Manager of Albaraka Mr. Temsah was born in Beirut, Lebanon for Legal Advisory since then. Assistant General Manager Management. Appointed as the Assistant Advanced License and Corporate Türk. In 2006- 2007, he was the Chief in 1981. He received his Bachelor of General Manager in charge of Corporate, Governance Rating Specialist License. Economist at Albaraka Türk. In addition, Mr. Boz was born in Edirne in 1973. He Business Administration from The George Süleyman ÇELİK Commercial and Retail Credits at the Bank he was a columnist for Yeni Şafak graduated from the Faculty of Political Washington University (Washington Assistant General Manager in February 2017, Demiröz also serves Volkan EVCİL newspaper for over 10 years (1995-2009). Sciences of Ankara University in 1995. D.C., 2003). He completed his Master’s as the Acting General Manager since Internal Systems Senior Manager He later worked as Investor Relations Mr. Çelik was born in Samsun in 1963. He completed his Master’s Degree in Degree in Business Administration October 2018. Manager between 2007 and 2009. He He graduated from Faculty of Economics political science from the same university. from Thunderbird, the Garvin School of Volkan Evcil was born in 1966 in Eskişehir. and Administrative Sciences, Public In 1995-1998, he worked as a director International Management (Arizona, In 1987, he graduated from Anadolu continued as CIO-Assistant General Mustafa ÇETİN Administration Department of Marmara for various companies. In 1998, he joined 2006). In 2003, Mr. Temsah began his University, Faculty of Economics and Manager in December 2009 and was later Assistant General Manager appointed as CFO-primarily responsible University. In 1988, he started his working Albaraka Turk family as an inspector career with Bank of America Business Administrative Sciences, Department of for Financial Affairs, Budget and Financial life in the Foreign Operations Department assistant in the Inspection Board. In Banking in Washington DC followed by Mustafa Çetin was born in Afyonkarahisar Economics. In 1990, he began his career Reporting and Corporate Communication at the Albaraka Turk. Respectively, 2003, he served as Deputy Director of his tenure at the London-based European in 1971. In 1991, he ranked 20th in the as Assistant Inspector at Tütünbank’s Departments. He was a board member of he worked in the Foreign Operations Operations Department, Branch Manager Islamic Investment Bank between 2007 national university exam. He went on Internal Audit Department after winning Borsa Istanbul between 2013 to 2016. As Department between 1988 and 1996, between 2006-2009, Manager at Project and 2009. In 2010 he joined leading to graduate from Boğaziçi University, the exam for this position. In 1992, the CEO of Albaraka Türk since October Fatih Branch between 1996 and 1997, Management Department between global Islamic bank Albaraka Banking Department of Business Administration in he joined the Albaraka Türk family as 2016 Mr. Utku continues his duty, as and Ümraniye Branch between 1997 2010- 2011, and Credits Operations Group, Bahrain as Vice President of 1996. In the same year, Mr. Çetin started Assistant Inspector, before serving as well as the Chairman of Bereket Varlık and 2000. But, in 2000, He resigned Manager between 2011-. During his Treasury where he established & oversaw his professional career at Finansbank in Inspector, Chief Inspector, Vice Chairman Kiralama A.Ş., Albaraka Portföy Yönetimi from Albaraka Turk Participation Bank tenure, he worked on many bank the sukuk desk until 2014. Since 2014, Mr. the Corporate Banking Management of the Internal Audit Department, A.Ş., Katılım Emeklilik ve Hayat A.Ş. and and began working at Türkiye Finans projects.. In January 2017, Mr. Boz was Temsah has been working with Albaraka Trainee Program. Between 1999 and and President of Risk Management. Albaraka Kültür Sanat ve Yayıncılık A.Ş. Participation Bank. Between 2000 and appointed Assistant General Manager Türk Katılım Bankası and is also currently a 2004, he served as Manager in the areas He was named President of Risk 2011, respectively, he was a manager at responsible for Central Operations. He is member of the board of directors for one of Corporate and Commercial Banking Management in 2006. Since February Turgut SİMİTCİOĞLU Ümraniye Branch, Sultanhamam Branch, currently Assistant General Manager in of Morocco’s first Islamic banks where at Turkish Foreign Trade Bank. In 2004, 2017, he has been serving as Internal Assistant General Manager Credit Operation Department and Human charge of Banking Services Operations he serves on the audit and remuneration Mr. Çetin joined Albaraka Türk as Branch Systems Senior Manager in charge of Resource Department. In 2011, he Department, the Foreign Trade committee. Manager, holding this position until Internal Audit Department, Internal Mr. Simitcioğlu was born in Erzurum returned to Albaraka Turk Participation Operations Department, the Credits 2008. He went on to serve as Marketing Control Department, Risk Management in 1961. He graduated from Education Bank and became a manager in the Operations Department, the Payment Cenk DEMİRÖZ Manager from 2008 to 2011; Foreign Department, and Legislation and Faculty in King Suud University (Saudi Üsküdar Branch. In 2012, he was Systems Operations Department and the Assistant General Manager Transactions Operations Manager Compliance Department. Arabia, 1989). He started his Professional appointed as a manager of Human Collateral Management Department. between 2011 and 2012; Financial career as an officer in the central branch Mr. Demiroz was born in Istanbul in 1973. Values Department and continued this Institutions and Investor Relations of Albaraka Turk in 1990. Later, he He graduated from Economics in Boğaziçi duty until 2017. He has become an Hasan ALTUNDAĞ Department Manager and Corporate advanced to Assistant Chief and Chief University in 1996, ranking within 119 Assistant General Manager in the month Assistant General Manager (1993-1997), Second Manager and of January 2017 and he is responsible for Assistant Manager (1997-2001) positions Having graduated from Ankara University Human Values Department, Education, within the same branch. Between 2001 Department of Economics, Hasan Performance and Career Development and 2003, he became Vice Manager. Altundağ started his banking career in Department, Administrative Affairs Then, he continued as Manager of 1986 at Yapı ve Kredi Bank as an internal Department, and Construction and Real central branch in the Corporate Banking auditor at the Board of Auditors. Until Estate Department Department in 2003 until 2009. In 2009, 1999, he served as Auditor, Assistant Manager responsible for Operations and he was appointed as Assistant General Nevzat BAYRAKTAR Assistant Field Manager respectively. Manager primarily responsible for Credits Assistant General Manager Operations, International Banking Altundağ, who served as the Branch Operations, Payment Systems Operations, He was born in 1969 in Bayburt. He Manager at a participation bank Banking Services Operations and Risk graduated from Eskişehir Anadolu between 1999-2004, joined Albaraka Follow-Up Departments. In January University, Department of Management Türk Participation Bank family in March 2017 he was appointed Deputy General in 1993. He received English language 2004. He served as the Manager of the Manager in charge of Business Lines. He education at Leeds Metropolitan Sultanhamam Branch at Albaraka Türk has been serving as the Assistant General University in England between the years between 2004-2005, as Marketing Manager in charge of Credit Risks since 1993-1994. He has the certificate of Regional Manager between 2005-2011, October 2018. independent accountant and financial as the Manager of the Transformation advisor and the certificate of independent Administration Office between 2011- Nihat BOZ auditor. After working at Esbank in 2013 and as the Manager of Strategy Chief Legal Officer Foreign Transactions Department and Corporate Performance Department approximately for 1 year, he started to between 2013-2016. Hasan Altundağ, Mr. Boz was born in Kars in 1963. He work at Albaraka Türk in Project and who was appointed as the Vice graduated from the Faculty of Law in Marketing Department as Assistant President responsible for Marketing as Istanbul University in 1985. After being a Specialist. Mr. Bayraktar, who continued of January, 2017, has still been serving 62 63 PRODUCT, TECHNOLOGY AND INNOVATIONS OF ALBARAKA TÜRK

All around the world banking is going to have our employers spend more partners and continue our support and through a rapid transformation from time on value added areas rather than consultancy services along with banking conventional channels to digital operational processes. Our biometric transactions. We serve our SMEs with channels. Those banks which cannot signature application provides solution customized packages and make extra keep up with this transformation will to many areas banks suffer significantly. effort for their penetration into digital

face problems. In order to keep up It reduces the cost of paper, accelerates banking applications in particular. Our BANKS 2018 PARTICIPATION with transformation it is necessary to business processes, prevents document new product ‘Alneo’ which will make read the dynamics and global trends frauds and most importantly provides a significant breakthrough in SME accurately and revise corporate strategy significant contribution to protecting banking will save our enterprises from accordingly. At Albaraka Türk, with the the environment and trees. At this POS expenses, increase their adaptation vision of being the best participation point, I would like to open a parenthesis to digital banking and provide an bank in the world, we strive to make on another feature of our biometric opportunity to make collection without innovation and digitalization our signature application. Albaraka any limitation of time and place. Alneo corporate culture. Garage Startup Acceleration Center provides an opportunity to users to make that we established in our institution collections through channels such as QR One of the significant stops in our supports entrepreneurs, particularly in code and SMS and enables customers to digitalization journey has been the financial technologies. We create new conveniently shop using the credit card launch of first Islamic digital bank generation technological solutions they want with ‘Alneo Wallet’. of Europe “insha”. Insha has been through these entrepreneurs which we developed in cooperation with one of provide support and at the same time With Supplier Financing System, we the most important fintechs of Germany, support our country’s entrepreneurship allow suppliers who have receivables Solarisbank and it has set an example culture. Garage has been a significant from a main company which they of how finance and banking industry building block in bringing the spirit made a sale, to give their receivables should approach fintechs. We provide of entrepreneurship to our corporate as a guarantee to our bank to obtain fintechs with customer network and culture. As a matter of fact, our biometric financing. The main company receives a banking reputation that they do not signature application was a product cash management service which allows it possess and they provide us innovative of our partnership with a Fintech to make payments to numerous suppliers digital banking services via API. Thanks start-up that we supported at Garage. automatically. On that sense, the supplier to this partnership which provide us Recently, we experience how important easily generates collateral and collects optimum resource use on a significant innovation and entrepreneurship is for its receivables on time by means of its scale, we expand our customer network companies. We ensure our Bank will receivable from the main company. The without using our own resources and continue to walk with firm steps and main company had the opportunity to offer banking services to European Turks continuous innovation motto into the make payments to suppliers rapidly and which we did not have access before. We future with these kinds of cooperations. all together automatically, to control, expect to generate a synergy between report and monitor its payments. I would Turkey and Europe in terms of banking Moreover, we developed our mobile like to emphasize that our product, services. Following Germany, we will platform significantly in 2018. We which is a first among Participation launch insha in other European countries added new improvements to our new Banks, will contribute to growth of as well, such as France, Austria, Belgium mobile platform that we established SMEs, expansion of risk to the base and and Netherlands. with our own resources, such as face attracting our customers’ cash flows to recognition, cash withdrawal with our bank and it will set an example for From now on, we would like to alleviate QR code and mobile assistant. In this the whole industry. our operational activities and direct context, number of customers using our energy and attention to increase our mobile platform increased by more Sustainable digital banking will continue customer satisfaction and service quality. than 100%. Additionally, as a result of to be an essential part of our strategy In the following period, projects on our cooperation with PTT, Albaraka Türk in the following period. We would like artificial intelligence on the operation customers can inquire their balance and to strengthen our product and service side will have significant influence withdraw cash from all PTT ATMs. With network in digital areas and advance in the sector. Our first robot that we this collaboration, our customers are further with maximum automation in designed to work on operational able to obtain ATM services from more our operations. Our focus on venture processes started to be in service this than 3,500 points in total. We anticipate capital and crowd funding at our year. Robot software which operates expanding our customer base by using entrepreneurship center, Garage, will just like a human, but faster and error- alternative distribution channels at the continue. free, works three times faster than an most effective and optimum manner. average employer and operates 7 days In 2019, Albaraka will continue to 24 hours with 100% efficiency without With our innovative business solutions, prioritize customer satisfaction with any errors in transactions. With the we contribute to cost optimization of digitalization, innovation and new robotic process automation, we aim SMEs which we deem as our strategic generation banking approach.

64 65 We left a year behind us which had an aim to include more buyers into the We continue to work on exporting KUVEYT TÜRK GENERAL MANAGER’S MESSAGE agenda affected by a trinity of foreign system and support suppliers. In technology that we develop to more currency, interest and inflation resulting addition, as a result of our discussions than 60 banks in nearly 20 countries as from developments in global markets. As with Fintechs and supplier platforms, we the only bank which has 2 R&D centers in we entered into a normalization process aim to establish a structure which Turkey. As a result of the success of thanks to a series of measures taken by provides easy access to finance which Turkish engineers, we will achieve a the economy management, public will include more users. software export of approximately TL 120 authorities and contributions of the real million at the end of three years. sector, the banking sector has passed a Furthermore, we announced our Support Package in January 2019 in order to When we evaluate 2018 in terms of our

serious test. While the industry overall BANKS 2018 PARTICIPATION exhibited a good performance, contribute to finance of growth and Bank’s economic indicators, we sustained participation banks, which aim to increase foreign currency inflow. We our consistent growth by increasing our support the real economy and contribute stand by our exporters with our 36 net profit by 29.1% YoY to reach TL 870 to financing of growth, showed once month maturity financing package with million. As of 2018 year end, funds again how important their roles are for flexible payment option. collected increased by 35.5% YoY to TL the economy and the society. 53 billion and TL 986 million and funds Another pleasing development for our allocated was up by 23.7% to reach TL In the past year, we identified one of our bank in 2018 has been the support we 47 billion and 865 million. Our equity has priorities as increasing the support we provided for mega projects which have reached to TL 5 billion and 439 million provide for SMEs. As of 2018 year end, been carried on in our country and for while our total assets were TL 74 billion we increased the total of funds allocated renewable energy area. We provided a and 23 million. Thus we maintained our to SMEs to TL 14 billion which constitute funding of Euro 200 million to 1915 leader position among participation 93% of our corporate customers. This Çanakkale Bridge, along with our parent banks based on asset size. We also amount corresponds to 29.2% of total company KFH, which corresponds to evaluate our growth plans and priorities funds allocated. 8.8% of total financing of the project. within the scope of our Bank’s 2018- We also made a participation of Euro 2023 strategy. As far as 2019 is We pay specific attention to SMEs, our 100 million to Niğde- Ankara Highway concerned, we target an asset size of at fellow travelers, drawing their financial Project. As of 2018 year end, total least TL 85 billion and a net profit of TL 1 road maps which will increase the value contribution to renewable energy area billion. As always, adding value to of their investments and we provide has approached to USD 700 million. We participation banking industry, our innovative products and services in this plan to continue our support for projects economy and our society remains as one context. 2018 has been a year that we that add value to our country. of our priorities. STRONG SUPPORT TO launched many firsts within the scope of EXPORTERS AND SMES our contributions to SMEs. We continued As the pioneer of lease certificate Ufuk UYAN to stand by our companies with many issuance, we realized 27 lease certificate FROM KUVEYT TÜRK. General Manager-Kuveyt Türk innovations such as CebimPOS which issuances at an amount of TL 5.1 billion allows for smart phones to transform which corresponds to 120% increase YoY into POS devices, Online Finance System and achieved the highest sukuk issuance which allows using funds through volume of Turkey. On the other hand, as KUVEYT TÜRK CONTINUED ITS internet and mobile branch without a result of our activities to bring the gold CONTRIBUTION TO REAL going to the branch and Supplier which are “under the mattress” into our economy, we collected gold amounting ECONOMY IN 2018. Finance which allows for meeting the finance needs of suppliers while to 2.2 tons. allocating funds to buyers. In 2019, we

KUVEYT TÜRK KATILIM BANKASI A.Ş. Establishment Date 1989 Kuwait Finance House 62.24% Kuwait Public Institute for Social Security 9% Main Shareholders* Islamic Development Bank 9% General Directorate Foundation, Turkey 18.72% Others 1.04% Chairman Hamad Abdulmohsen ALMARZOUQ General Manager Ufuk UYAN Headquarters Büyükdere Cad. No: 129/1 34394 Esentepe-İstanbul Phone +90 212 354 11 11 Fax +90 212 354 11 11 ‑ +90 212 354 12 12 Website www.kuveytturk.com.tr SWIFT Code KTEFTRIS EFT Code 205 Number of Domestic Branches 414 Number of Branches Abroad 1 66 67 Financial Subsidiaries Abroad 1 Number of Employees 5,871 KUVEYT TÜRK SENIOR MANAGEMENT

Ufuk UYAN and Information Department till 2000. in Kuveyt Türk Treasury Department in Executive Vice President of Individual Banking and Enterprise structure. After serving as the Regional Manager for four years, Member of the Board of Directors and Mr. Delipoyraz worked as the Branch 1995, served at the Treasury Department Banking in 2005. He has been serving as the Executive Vice he continued his career as the HR, Training and Quality Group Chief Executive Officer Manager at Beşyüzevler and Bakırköy for six years and continued his career President of Banking Services since October 2012. Manager in 2009. He has been serving as the Executive Vice Branches between 2000 and 2004. He at Project Management and Quality President of Retail Banking since October 2012. Mr. Uyan graduated from the Economics was assigned as the Regional Manager Department between 2001 and Mehmet ORAL Department of Boğaziçi University in December 2004 and he worked at 2004. He was assigned as the Project Executive Vice President – Retail Banking Nurettin KOLAÇ BANKS 2018 PARTICIPATION in 1981. He received Postgraduate Istanbul Europe 1 and Istanbul Anatolia Management and Quality Manager in Executive Vice President – Law and Risk Follow-up degree from the Business Management Mr. Oral graduated from the Business Administration Regional Directorates. He has been 2005 and he continued his career as Department of the same university in Department of Uludağ University. He began his career in Mr. Kolaç graduated from Faculty of Law at Marmara serving as the Executive Vice President of the Information Technologies Group 1983. He began his professional career as the Kuveyt Türk family at the Head Office Branch in 1992. University. He served as an attorney and legal counselor SME Banking since January 2015. Manager upon the new set-up in 2007. the Research Assistant at the Economics He worked as the manager in the İMES, Bursa and Merter in banking, leasing and insurance industries for 16 years. He has been serving as the Executive Department of Boğaziçi University in branches between 2000 and 2005. He was assigned as the He worked as the Vice Head of Department and Head of Ahmet KARACA Vice President of Strategy since 1979 and worked as the Researcher Regional Manager at the Istanbul European Side Regional Department (Legal) in Banking Regulation and Supervision Executive Vice President-Chief October 2012 as well as the Executive Economist at the Specific Researches Directorate in 2005 after the transition to Regional Directorate Agency for six years starting from 2004. He joined Kuveyt Türk Financial Officer Vice President of Strategy, Human Department at Türkiye Sınai Kalkınma in April 2010 as the Executive Vice President of Law and Risk Resources, Digital Transformation, Bank in 1982. Mr. Uyan became the Mr. Karaca graduated from Ankara Follow-up. Mr. Kolaç is also a Member of the Board of Directors Corporate Communication and Vice Project Manager at Albaraka Türk University, Faculty of Political Sciences, at KT Portföy Yönetim A.Ş. as well as the chairman and member Corporate Performance Management in 1985 and continued his career as Public Administration Department of severa wl orking committees in professional associations while continuing to perform his duties the Project and Investments Manager in 1990. He started his duty as the for the banking industry. With 30 years of experience in law at Katılım Emeklilik ve Hayat A.Ş. and at Kuveyt Türk in 1989. Mr. Uyan was Sworn Deputy Auditor of Banks at and banking, Mr. Kolaç has been serving as the Executive Architecht Bilişim Sistemleri ve Pazarlama promoted as the Executive Vice President Undersecretariat of Treasury in 1992 Vice President of Corporate, Commercial, SME and Retail Risk Ticaret A.Ş. as a Board Member. in 1993 and then assigned as Head and he was assigned as the Sworn Follow-up, Credit Risk Monitoring, Collateral Monitoring, Auditor of Banks in 1995. He continued Customer Rights and Legislation, and Law and Risk Follow-up. Assistant to the Chief Executive Officer. Bilal SAYIN his duty with the same title at the Mr. Uyan has been the Chief Executive Executive Vice President – Chief Credit Banking Regulation and Supervision Officer since 1999 and continues his Officer duty as a Member of Board of Directors Agency (BRSA) from 2000, and he and CEO at Kuveyt Türk. Mr. Uyan is also was assigned as the Vice President of Mr. Sayın graduated from the Public Member of the Executive Committee, Sworn Auditors Committee of Banks Administration Department of Middle Loan Committee, Remuneration between 2002 and 2003 at the BRSA. East Technical University in 1990. He and Nomination Committee and After approximately one year of service, joined the Kuveyt Türk family in 1995 the Corporate Social Responsibility he was assigned as the Sworn Head and he has been serving as the Chief Committee. Auditor of Banks in 2004. Between 2004 Credit Officer at Kuveyt Türk since 2003. and 2006, he received a Post graduate Dr. R. Ahmet ALBAYRAK degree in Economics from the State Hüseyin Cevdet YILMAZ Executive Vice President‑Treasury and University of New York at Albany, USA Executive Vice President – Chief Risk International Banking and has penned a postgraduate thesis Officer on International Banking and Capital Mr. Albayrak graduated from the Mr. Yılmaz graduated from the Business Markets. Mr. Karaca joined Kuveyt Türk Industrial Engineering Department of Administration Department of Boğaziçi as the Chief Financial Officer in July 2006 Istanbul Technical University. He received University in 1989. He began his banking and continues to serve under this title. postgraduate degree in Organizational career as the Assistant Internal Auditor in Esbank Internal Audit and Inspection Leadership and Management at A. Süleyman KARAKAYA Department. After having served as the University of North Carolina at Executive Vice President‑Corporate Internal Auditor and Branch Manager Pembroke, USA in 1993 and was and Commercial Banking awarded a PhD degree on Technology in the same institution, he began his Management at Istanbul Technical Graduated from the Business duty as the Head of Internal Audit and University, Department of the Business Administration and Finance Department Inspection Department in Kuveyt Türk in Administration in the Social Sciences at the Istanbul University, Faculty of September 2000. He was assigned as the Institute in 2007. Having joined the Economics, Mr. Karakaya began his Audit and Risk Group President in 2003. participation banking sector 30 years banking career as an Inspector at Garanti Mr. Yılmaz has been serving as the Chief ago, Mr. Albayrak has been serving as the Bank , where he went on to work at the Risk Officer since 2012. Executive Vice President at Kuveyt Türk Audit Committee, Risk Management since 2005. He managed the Banking department Loans Department, and İrfan YILMAZ Service Group till October 2012 and Regional Directorates between 1981 and Executive Vice President – Banking he was assigned as the Executive Vice 2003. Mr. Karakaya has been working as Services the Executive Vice President of Corporate President of Treasury and International Mr. Yılmaz graduated from the and Commercial Banking at Kuveyt Türk Banking as of the same date. Management Engineering Department since 2003. of Istanbul Technical University in 1989. Abdurrahman DELİPOYRAZ Aslan DEMİR He began his banking career at the Executive Vice President‑SME Banking Genel Müdür Yardımcısı‑Strateji Financial Affairs Department in Kuveyt Mr. Delipoyraz graduated from the Türk in 1990, was assigned to Internal Mr. Demir graduated from Marmara Industrial Engineering Department Audit and Inspection Department in University, International Affairs of Istanbul Technical University. He 1996 and served as the Head of Internal Department. He completed his Master’s began his career in the Kuveyt Türk Audit and Inspection Department degree at Sheffield University with family at the Project and Investment between 1998 and 2000. Mr. Yılmaz thesis on topic of Critical Elements of 68 Department and he worked at the worked as the Individual Banking 69 Strategy Implementation in Banking Corporate and Commercial Banking Manager in 2000 and after five years at Sector. He began his banking career Sales Department and Financial Analysis the Department, he was assigned as the 100 YAZILIM IHRACATI 225X300 CM ENG.pdf 1 11.03.2019 12:29

INNOVATIONS ON THE PRODUCTS, TECHNOLOGY AND SUBSIDIARIES OF KUVEYT TÜRK

SOLUTION TO EASE SMES LIVES: YOUR BANK PLATFORM REACHED 100 are listing of credit cards, bank cards and CEBİMPOS THOUSAND CUSTOMERS virtual cards, viewing and payment of credit cards, invoice transactions, loading Kuveyt Türk’s tech Providing many products and services Turkey’s first digital participation bank airtime on mobile phones and virtual POS to SMEs from cash financing to Credit platform Your Bank, established by Kuveyt management transactions. Number of Guarantee Fund, from leasing to Strong Türk reached 100 thousand customers.

APIs to be opened until the end of 2019 is BANKS 2018 PARTICIPATION SME Card, Kuveyt Türk introduced Your Bank, which brings together anticipated to be 100. CebimPOS service which is a first in the participation banking approach with banking industry. Facilitating all smart innovations and possibilities of internet, KUVEYT TÜRK’S DOORS ARE OPEN TO phones and accepting payment through does not have account maintenance fee INNOVATIVE IDEAS all over the globe all credit cards and bank cards regardless and allows for free of charge transfer and Hackathon competition realized to of the bank, CebimPOS stands out with EFTs. Your Bank also allows for free of develop Kuveyt Türk’s software projects its practical use and secure infrastructure. charge cash withdrawal from any ATM for was organized for the second time in Enabling smart phones to transform into three times a month. 2018. Approximately 400 applications POS devices, CebimPOS does not require NUMBER OF DIGITAL BANKING were received for Hackathon which is Kuveyt Türk’s banking software is opening up to the world! installation, usage, maintenance or device CUSTOMERS INCREASED BY 32% open to everyone who wants to offer fees, thus reduces collection costs of SMEs innovative ideas in financial technologies, As Turkey’s only bank with two R&D centers, Kuveyt Türk became a and tradesmen significantly. Increasing the pace of its investments particularly in alternative payment in digital area, Kuveyt Türk increased NEW RECORD IN SUKUK! solutions and mobile applications with tech exporter in a short time. The software developed by Kuveyt Türk will be the number of its branches to 414 and social media experiences. As the first bank to issue a sukuk identified one of its greatest targets used by more than 60 banks in 20 countries. transaction (lease certificate) in Turkey as providing services in an end- to-end Trainings for the third period of Lonca and Europe, Kuveyt Türk broke a new digital environment in these branches. Entrepreneurship Center has started record in this area. In 2018, the bank Consequently, the Bank provided which was launched to support and issued 27 lease certificates at an amount opportunity to its customers to transfer develop new ideas and bring them to of TL 5.1 billion which represents a 120% their transactions to mobile as much as our country’s economy. Teams which

increase compared to prior year and possible, enabling them to realize many are accepted to Lonca Entrepreneurship C reached the highest amount in sukuk transactions without paying a fee from Center are provided with privileges such issuance volume. invoice payments to precious metals and as project based mentoring, multi- M from foreign currency transactions to location incubation services, grants, R&D Y PROJECT THAT TOUCHED THE LIVES OF purchase and sale of stocks. As of 2018 support and API. THREE MILLION HEARING IMPAIRED CM year end, Kuveyt Türk customers perform GOLDEN VEHICLE WENT ON A TURKEY In 2018, a very important feature was 85% of their banking transactions MY TOUR added to XTMs, a new generation through digital channels. As a result CY banking service which provides an of all these investments and services, Realizing many pioneering activities to opportunity to perform self-service Kuveyt Türk’s digital banking customers bring gold under the mattresses into CMY banking transactions through video increased by 32% to reach 1 million. the economy, Kuveyt Türk toured all K conferencing. Kuveyt Türk developed around Turkey with the Golden Vehicle NUMBER OF API’S INCREASES “sign language banking” to turn XTM’s Project. Moving on with the objective visual communication feature into a Kuveyt Türk launched the most of increasing the awareness on gold positive value for hearing impaired and comprehensive API market platform of banking and financial literacy, Kuveyt started to provide this service to more the Turkish banking industry in December Türk informed citizens of various cities than 3 million hearing impaired citizens, 2017 and made significant investments in in city squares about gold banking and whether they are Kuveyt Türk customers this area in 2018. In this platform which answered their questions for a period of or not. When individuals with hearing was developed by Fintech R&D team four months. Kuveyt Türk collected 15 disability get connected to call center via within Kuveyt Türk’s IT organization, tons of the total 60 tons of under the XTM branches with one click, a specialist number of APIs opened for use increased mattress gold which were brought into who knows sign language helps them to from 25 to 75 in one year. Services which the economy so far and with 2.1 tons perform their transactions easily. are planned to be added to Kuveyt Türk of gold collected in 2018, the Bank kept API market platform in the following its position of being the first among the period, which is open to all, from participation banks and third among all international companies and SMEs to banks. entrepreneurs and FinTech developers,

70 71 “PARTICIPATION IN LIFE” PARTICIPATION IN LIFE WITH Our net profit increased by 18.5% ADVANCED DIGITAL CHANNELS compared to the previous year to reach TÜRKİYE FİNANS GENERAL MANAGER’S MESSAGE The philosophy of Participation in Life, TL 445 million, with a rate of growth which we adopted in 2018, marks an In line with our philosophy of 10% above the sector rate. emphasis that Türkiye Finans will exhibit Participation in Life, Türkiye Finans TÜRKİYE FİNANS a strong presence by participating focuses on providing fast, useful services Türkiye Finans distributed TL 2.6 billion in every area of our lives, not only in to its customers and invests in digital in 2018 and total credit guarantee FOCUSES ON PROVIDING banking. channels in this direction. To this end, funds had reached TL 8.2 billion for the FAST, USEFUL SERVICES the Bank restructured its website, period since 2010. Thus, Türkiye Finans “Participation in Life” means the internet (retail and commercial) and raised its position from 13th place in the mobile banking tools, its call centre, user overall banking sector ranking to the 12th TO ITS CUSTOMERS AND following; BANKS 2018 PARTICIPATION INVESTS IN DIGITAL · Providing more innovative products interfaces and the infrastructure of its place, and it became the leader among and services that meet customer ATMs. participation banks. CHANNELS IN THIS VEIN. needs, Türkiye Finans is striving to integrate WE HAVE THE BEST-DESIGNED · Increasing digitalization and customer new ideas based on innovations such access in order to facilitate the lives of OFFICE IN TURKEY AS TURKEY’S BEST as the interaction between people individuals, companies and employees, PARTICIPATION BANK. and computers, artificial intelligence, · Contributing to the growth of communication with chatbots and IoT, · In 2018, we received the Turkey’s Best the economy and taking social which were brought into the banking Participation Bank award given by responsibility for the society in which sector by Industry 4.0. As the Bank Islamic Finance News (IFN). we operate develops new mobile and web features · The International Real Estate Awards Let us examine the reflections of our in order to increase the use of digital 2018: Our new Head Office building “Participation in Life” philosophy: channels, the number of customers using in Ümraniye-Istanbul opened in 2018, these channels continues to increase day and won the awards for Turkey’s Best IN 2018, WE OFFERED INNOVATIVE by day. Office Interior Design and Europe’s PRODUCTS AND SERVICES TO THE Best Office Interior Design. SECTOR WE HAVE OPENED 20 NEW BRANCHES · We received the Investment Finance IN 2018, REACHING 306 BRANCHES IN Award within the scope of the Retail Banking Products: 66 CITIES Crystal Helmet Awards, which is Turkey’s most prestigious award in Trouble-Solver Finance: A personal Türkiye Finans continues to expand its the field of Occupational Health and finance product based on Tawarruq, branch network in Turkey and establish Safety organized by the Istanbul which aims to meet the basic needs of direct contact with its customers. In order Metropolitan Municipality. customers from education to health to offer faster, streamlined and higher · With the Device Recognition in daily life in accordance with the quality banking services, a new business Technology Project, we ranked 2nd Wael Abdulaziz A. RAIES participation banking principles. model was implemented at Türkiye in the Customer Excellence category General Manager-Türkiye Finans Finans branches in 2017, and retail and in the organization of IoT, Big Data Abundant Scoop: A hybrid funding commercial branches were separated. and Analytical Technologies 2018 product that offers higher dividends Türkiye Finans had reached a network organized by IDC Turkey. by using two investment instruments - of 306 branches in 66 cities throughout sukuk and the participation account. Turkey by the end of December 2018, Türkiye Finans focuses on its customers adding 20 new branches to its branch with the vision of “Participation in Life” TÜRKİYE FİNANS IS FOCUSED ON ITS TFX Mobile: A unique, online mobile network. and continues to provide services that FX platform, available 24 hours a day, CUSTOMERS WITH THE VISION OF exceed their needs and expectations. 5 days a week, originally designed for WE HAVE SET OUR HEART ON “PARTICIPATION IN LIFE” AND individuals. It enables customers to trade As participation banking grows and CHILDREN gains even more value with each CONTINUES TO PROVIDE SERVICES foreign exchange and precious metals 5 days a week including after working In accordance with our vision of passing day, new players join the sector. THAT EXCEED THEIR NEEDS AND hours, without being affected by the Participation in Life, in order to create Türkiye Finans’s goal is to increase its wide margins of banks. EXPECTATIONS. libraries in village schools in various market share by investing unwaveringly provinces of Turkey, we have launched in interest-free banking principles. Commercial Banking Products: our corporate social responsibility Thanks to its solid banking experience project titled Give Your Heart to Kids. TÜRKİYE FİNANS KATILIM BANKASI A.Ş. Flexible Support Financing: With and foundations, and its strategy of In the first phase of the campaign, the Establishment Date 1991 (as Anadolu Finans); 2005 Türkiye Finans Flexible Support Financing, Türkiye Participation in Life, Türkiye Finans will Bank delivered more than 8,000 books Finans meets the short-term working continue to lead in 2019 by undertaking The National Commercial Bank (NCB) (67.03%) to around 1,000 children at 6 village capital needs of enterprises and pioneering steps in the sector. Main Shareholders Gözde Girişim Sermayesi Yatırım Ortaklığı A.Ş. (10.57%) schools in 6 provinces. Libraries were contributes significantly to their cash Others (22.40%) created with books donated by our management. Chairman Saeed Mohammed A. ALGHAMDI customers and our employees. General Manager Wael Abdulaziz RAIES Leasing from the Specialist: Leasing WE CONTINUED TO GROW from the Specialist meets different Headquarters Saray Mah., Sokullu Cad. No: 6 Ümraniye‑İstanbul SUSTAINABLY AND PROFITABLY leasing needs of enterprises in the Phone +90 216 676 20 00 same package and provides a 1% VAT In 2018, our financing portfolio and the Fax +90 216 676 29 05 advantage. funds we collected (including sukuk), Website www.turkiyefinans.com.tr grew by 1% and 9.2% compared to SWIFT Code AFKBTRIS the previous year - in parallel to the EFT Code 206 sector average – when adjusted for the exchange rate, to reach TL 29.8 billion Number of Domestic Branches 308 and TL 29.3 billion, respectively. Number of Employees 3,543 72 73 TÜRKİYE FİNANS SENIOR MANAGEMENT

Wael Abdulaziz A. RAIES Fahri ÖBEK appointed as the Vice President of Risk Özer BARAN Board Member and CEO Executive Vice President/IT Systems Management Group, while continuing Executive Vice President/Credits and Operations with his former duty. On 30 September Born in 1972 in Makkah, Saudi Arabia, Born in 1977 in İzmir, Özer Baran was graduated 2016, Mete Kanat was appointed as the Wael Abdulaziz A. Raies graduated with Born in 1969, Fahri Öbek graduated from from Bilkent University, Engineering Faculty, Executive Vice President of Finance and a degree in Electrical Engineering in the Department of Computer Science Department of Industrial Engineering in Strategy. BANKS 2018 PARTICIPATION 1996 from the King Fahd University of and Engineering at Ege University, 1999. He graduated with a Master’s degree in Petroleum & Minerals, and went on to and went on to complete a Master’s Financial Economics from the Department of Mehmet Necati ÖZDENİZ complete a Master’s degree in Business degree in Business Management from Economics at İzmir University and continues Executive Vice President/Retail Administration at King Saud University Koç University. He started his business his PhD studies in the Banking and Finance Banking in 2004. He joined Schulmberger Wire career in Bilpa and went on to work department at Kadir Has University. Mr. Baran line & Testing (Oil Services) in 1996 as at Egebank. He held various positions Mehmet Necati Özdeniz graduated from started his professional career as an auditor a Field Engineer operating in different in Koçbank between 1991 and 2006. the Sociology Department in Middle in Internal Audit Department of Türkiye İş geographical locations, both off-shore After the merger between Koçbank and East Technical University. He started Bankası A.Ş. in 1999. He worked as the Assistant and on-shore, being promoted to the Yapı Kredi in 2006, he was appointed his professional career as an Assistant Manager in Corporate and Commercial Loans position of Engineer-In-Charge of Qatar as a Senior System Analyst in the Specialist in Network and System department of HSBC Bank A.Ş. between land locations. He started his banking Software Development. He served as Management at Fortis Bank in 1999 2007 and 2009 and as the Manager in Risk career in 1999 in the Commercial Deputy General Manager in Charge of before going on to work as a Research Management department at Eurobank Tekfen Banking business in the Saudi American IT Management at the Yapı Kredi Bank Specialist in Veri Araştırma A.Ş. and Oyak A.Ş. between 2009 and 2010. He took on roles Bank, a subsidiary of Citibank. He between 2008 and 2010, and then Bilgi Teknolojileri between 2000 and as Manager in Risk Policies and Reporting joined The National Commercial Bank worked as the Department Head in 2003 and as a Data Research Manager in Department and Project Loans and Commercial Corporate business in 2002 as a Senior Charge of Information Technologies, Oyak Bank between 2003 and 2005. He Allocation Departments in Türkiye Finans Relationship Manager and progressed to Vodafone Turkey (CIO) in 2010 and 2011. started to work as the Manager of CRM family where he joined in 2010. Özer Baran the Commercial Business in NCB, leading He has been working as the Executive and Segmentation in TEB in 2005 before was appointed as an Executive Vice President the Central Region in 2008, before going Vice President responsible for IT Systems transferring to Tekstil Bank as the CRM responsible for Risk Management on September on to lead the Eastern Region in 2010. at Türkiye Finans Katılım Bankası since Manager in 2007. He worked as the CRM 30th, 2016 and has served as the Executive Vice He then moved to the Head Office to June 2011. and Segmentation Manager in Aktif President responsible for Loans since 2 August lead the Commercial Business, Kingdom- Bank between 2008 and 2012 and as the 2017. wide, in 2013. Prior to his appointment Hakan UZUN CRM Senior Manager at TEB between as a Country Head, Wael headed the Executive Vice President/Treasury 2012 and 2013. Mr. Özdeniz joined the Züleyha BÜYÜKYILDIRIM Restructuring of the Finance unit in Born in 1968, Hakan Uzun graduated Türkiye Finans family in 2013 and took Executive Vice President/Human Resources June 2013 for a brief period. Over the on the role of Customer Analytics and from the Middle East Technical University Born in İstanbul in 1981, Züleyha Büyükyıldırım years, Wael has attended specialized CRM Manager until 2015. In August (METU), department of Mechanical graduated from İstanbul Bilgi University as a Engineering, Banking and Leadership 2015 he started to work as the E CRM Engineering in 1991. He went on to double major with degrees in Economics and courses with reputable institutions and Marketing Director at CarrefourSA. graduate with a Master’s Degree at the International Relations in 2004. She started such as ISEAD, Darden and the Harvard Mehmet Necati Özdeniz was appointed University of Illinois in the United States her career at Kuveyt Türk Katılım Bankası Business School. He has been serving as as Executive Vice President responsible between 1992 and 1995. He started his A.Ş. After joining the Türkiye Finans family in the CEO at Türkiye Finans Katılım Bankası for Retail Banking in Türkiye Finans on career in banking in 1996 at Körfezbank. 2006, Büyükyıldırım worked at the Treasury as of 1 November 2016. April 3rd, 2017 and has held that role He worked for various private banks as a Department and then served as Deputy senior executive in the area of Treasury since then. Ahmet MERT Manager and Manager at the Strategy and and Financial Markets. Between 2008 Executive Vice President /Credit Program Management Department. On 30 and 2011, he worked at ING Bank Turkey Murat AKŞAM Quality and Collections September 2016, Züleyha Büyükyıldırım Executive Vice President/Commercial as the Group Manager Responsible was appointed as principal to the role of the Banking Born in Kırşehir in 1978, Ahmet for Treasury operation, and joined the Executive Vice President of Human Resources, a Mert graduated from the Faculty of Türkiye Finans family in October 2011 Murat Akşam graduated from position she had held by proxy since June 2016. Engineering, Department of Electrical as the Manager of Treasury operations. the Department of Management and Electronics Engineering at İstanbul He has been serving as the Vice General Engineering at Istanbul Technical University. Starting his career in the Manager responsible for Treasury University in 1990. He was appointed as telecommunications industry, Mr. Mert operations since 10 November 2015. the Sales Representative and Regional embarked on his career in the banking Representative at Beko between 1991 sector and started working in Garanti Mete Mehmet KANAT and 1993 and Regional Representative Payment Systems in 2001. He was Executive Vice President/Finance and at Ram Dış Ticaret A.Ş. between 1993 responsible for the Credit Assignment, Strategy and 1997. He started to work as a Credit Monitoring and Tracking Strategies and Representative and Credit Allocation Policies at Risk Management and R&D/ Mete Kanat was born in Ankara in 1977. Manager at TEB in 1997 where he Business Development Units. He joined He studied Business Administration at assumed the roles of Corporate Loans the Turkey office of Experian, a global Hacettepe University and holds an MBA Manger between 2000 and 2005, consultancy firm in 2006, where he degree from İstanbul Bilgi University. Corporate and Commercial Loan worked as manager of the Consultancy Kanat worked as a Bank Examiner at Allocation Director between 2005 and and Support Unit for the Turkey and the the Banking Regulation and Supervision 2014 and the Corporate Banking Group Middle East region. In 2010, he joined Agency between 2001 and 2007, and Director between 2014 and 2017. Murat Türkiye Finans group as a Risk Analysis as the Deputy General Manager at Akşam continues his role as Executive Manager. Ahmet Mert was appointed Creditwest Bank (Ukraine) from 2007 to Vice President responsible from as a principal to the role of Executive 2011. Mete Kanat joined Türkiye Finans Commercial Banking as of 2 May 2017. Vice President of Credit Quality and as the Director of Legal Reporting and Collections on 30 September 2016, a Financial Control in 2011. He became the 74 75 position he had held by proxy since July Head of the Risk Management Group 2016. in 2014. On 31 March 2016, he was TÜRKİYE FİNANS’S PRODUCTS, TECHNOLOGY AND INNOVATIONS

THE FIRST AND ONLY IN THE BANKING PROBLEM-SOLVING FINANCE THAT “BIG LADLE” ACCOUNT SECTOR: “TFXTARGET” MAKES A DIFFERENCE One of the innovative products Türkiye Finans, the Participation in Life In 2018, Türkiye Finans offered its developed by Türkiye Finans in 2017 and Bank, transferred its market tracking customers an array of pioneering which achieved great success in 2018

and foreign exchange precious metals innovative products with the strategy was the Big Ladle account. As a first in BANKS 2018 PARTICIPATION trading platform, which is specific to its of Participation in Life. Problem-solving the sector, the Big Ladle account makes customers, to a mobile environment with Finance, which stands out among these use of 50% of its customers’ savings in the TFXTARGET mobile app, which was products, is a first in the sector as a lease certificates and the remaining 50% implemented at the end of 2017, and Tawarruq based interest free banking in participation accounts. The Big Ladle represents a first in the banking sector. solution that meets the needs of account, which can be considered as a customers in daily life. With Problem- game changer product in participation With the TFXTARGET mobile app, the solving Finance, a personal financing banking, was developed thanks to Bank increased the number of customers product, the Bank easily and quickly Türkiye Finans’s innovative approach. For using the product by 266% and the total meets the essential needs that arise in those seeking to build their savings with number of transactions carried out by daily life in areas ranging from education a combination of participation accounts 262% as of the end of 2018. to health within the framework of and lease certificates, it is preferred as a Islamic banking rules. product offering a hybrid feature. The application allows customers to follow up instant foreign exchange rate LEASING FROM THE SPECIALIST movements quickly and easily. At the same time, it reduces the amount of With the strength derived from the time customers have to spend on the strategy of Participation in Life, Türkiye app with the command structure that it Finans has made access to the financing developed. its customers need both more practical and advantageous. For this purpose, THE MOST FLEXIBLE FINANCE IN Türkiye Finans offers customers the PARTICIPATION BANKING Leasing from the Specialist campaign with advantageous conditions in Flexible Support Financing, which financial leasing transactions to contributes to the cash management companies from different sectors. In of enterprises, was put into practice by addition, it provides enterprises with Türkiye Finans in 2018 within the scope funding in a single package in all of innovative products. With the Flexible investment areas, not only in certain Support Finance, companies may easily areas subject to financial leasing such as meet their short-term working capital machinery, equipment or real estate. needs. The flexible payment opportunity available under Flexible Support Finance The advantageous leasing package allows companies to carry out a quarterly offers a 1% VAT advantage to customers profit payment and the principal of the who seek flexibility in the conditions of financing amount to be closed within repayment terms under participation a year at the desired time. In addition, banking principles. It supports all Türkiye Finans offers those companies enterprises seeking to finance their able to manage cash more efficiently the investments, increasing their competitive opportunity to re-utilize the financing clout or starting a new business with again thanks to this product. the specialised staff within the bank (rather than through a different Leasing company), in a fast and effective manner.

76 77 In addition to the global economic pleasure and pride in 2018 from having by carrying out many more partnership and geopolitical turmoil, the year 2018 realized all of our goals. I would like projects. VAKIF KATILIM GENERAL MANAGER’S MESSAGE will surely be remembered as a very to take this opportunity to express my challenging year in our country. We gratitude to all of my colleagues who As the first public market maker bank in were faced with pressure that lacked any have contributed to this performance, the Borsa İstanbul Precious Metals and moral or economic basis, sought to be and to thank them sincerely. Diamond Market, we integrated our applied through speculative movements own banking system into the Takasbank especially in the foreign exchange and In line with the successful performance Gold Transfer System on the first day the interest fields. Abnormal fluctuations we have demonstrated, we continue to system was implemented, and started to in exchange rates and a deterioration expand our branch network rapidly and send and receive gold on a gram basis PARTICIPATION BANKS 2018 PARTICIPATION IN LINE WITH THE in market pricing behavior led to an to trust and invest in our country, despite from person to person among banks, SUCCESSFUL increase in inflation and market interest all the difficulties experienced in the automatically and wholly in electronic rates, a slowdown in the country’s economy. In this vein, in a period when media. To be the first bank to switch to PERFORMANCE WE growth and a decrease in companies’ banks, regrettably, had to close branches, the Gold Transfer System from person HAVE DEMONSTRATED, capacity to access to internal and we reached a large part of the country, to person, a practice applied for the first WE CONTINUE TO external financing. However, thanks attaining a network of 91 branches time in the world by our country, brings to its steadily growing economy and us tremendous pride. Participation banking is a financial EXPAND OUR BRANCH strong banking system, our country has system that adopts a “partnership” Under the slogan of “Turkey’s National successfully weathered this process, and NETWORK RAPIDLY AND approach at its core. However, due to Gold Bank”, we started physical gold continues to do so. All of the institutions various factors and market conditions, bullion transactions in the Borsa TO TRUST AND INVEST IN of our state are engaged in decisively participation banking unfortunately İstanbul Precious Metals and Diamond working to eliminate this economic OUR COUNTRY DESPITE has not given enough weight to this Market in 2017. In 2018, we exported attack. ALL OF THE DIFFICULTIES core element until recently. In June, we approximately 13 tonnes of standard EXPERIENCED IN THE Vakıf Participation is one the leading implemented a new project partnership gold bullion. institutions to have rolled up its sleeves with Tarım Kredi Birlik A.Ş., which was According to the data provided by the ECONOMY. and hit the ground running to help established by the Agricultural Credit Istanbul Mineral and Metals Exporters’ our country survive this process by Cooperatives of Turkey in order to Association (İMMİB), Vakıf Participation supporting projects that will contribute protect our farmers’ products against exported approximately USD 425 million to our country’s economy. Although adverse market conditions. Based on of standard unprocessed gold in 2018, we are the youngest member of the the profit-loss partnership investment thus contributing significantly to the Participation Banking sector, we have model, with a working capital of TL country’s economy. With this exports, we a long history. In the recent period, we 50 million, the project will provide a ranked 3rd among 854 institutions and have blended the dynamism brought by significant contribution of TL 100 million achieved a significant success. our youth and the ancient foundation per year towards the development of the economy of Turkey’s South East. İkram GÖKTAŞ culture, of which we are followers, and We carry out all of our activities with General Manager-Vakıf Katılım we have undergone a rapid growth We have taken an important step in the the vision of having a stronger economy process in line with the public support “partnership” approach, which lies at the in our country. We continue to move for Participation Banking. As will be heart of participation banking, through forward with the effort to apply AS TURKEY’S NATIONAL GOLD aware, when we started our journey the project we have implemented with measures that will expand our sector, we determined that our basic mission BANK, WE EXPORTED ABOUT 13 the Agricultural Credit Cooperatives not only ourselves. With our experienced in the sector should not be to grow by of Turkey. With the success we will management, continuously developing TONNES OF GOLD IN 2018. taking a share from the current cake, but achieve from here, we aim to support distribution channels, dynamic operation instead to realize investments that would the development and dissemination of systems and innovative approach, we will expand the sector and the economy of participation banking in accordance with continue our work with great devotion our country. As a result of such efforts the essence of participation banking for our country to reach its 2023 goals. as part of this mission, we feel justifiable

VAKIF KATILIM BANKASI A.Ş Establishment Date 2016 Turkish Prime Ministry’s General Directorate of Foundations (99%) Bayezid Han-ı Sani (Bayezid the 2nd) Foundation (0.25%) Main Shareholders Mahmud Han-ı Evvel Bin Mustafa Han (Mahmut the 1st) Foundation (0.25%) Mahmud Han-ı Sani Bin Abdülhamid Han-ı Evvel (Mahmut the 2nd) Foundation (0.25%) Murad Paşa bin Abdusselam (Murat Pasha) Foundation (0.25%) Chairman Öztürk ORAN General Manager İkram GÖKTAŞ Headquarters Saray Mah., Dr. Adnan Büyükdeniz Cad., No: 10 Ümraniye‑İstanbul Phone +90 216 800 00 00 Fax +90 216 800 55 56 Website www.vakifkatilim.com.tr SWIFT Code VAKFTRIS EFT Code 210 Number of Domestic Branches 91 78 79 Number of Employees 1,100 VAKIF KATILIM SENIOR MANAGEMENT

İkram GÖKTAŞ Ahmet OCAK Erhan ÇETİNKAYA Betül VURAL YILMAZ Member of the Board and CEO Executive Vice President, Finance Executive Vice President, Operation Executive Vice President, Human Resources/Training and Corporate Communications İkram Göktaş was born in Mutki, Ahmet Ocak was born in the Kuşdoğan Erhan Çentinkaya was born in 1981 Bitlis in 1969. He graduated from the Village of the Ünye district, Ordu in 1965. in Malatya where he completed his Born in Ankara in 1972, Betül Vural Yılmaz graduated from Department of Business Administration, He graduated from the Department of primary, secondary and high school the Department of Business Administration, Faculty of Political PARTICIPATION BANKS 2018 PARTICIPATION Faculty of Political Sciences, at Ankara Business Administration at the Faculty education. He graduated from the Sciences at Ankara University. She completed her post- University. Between 1992 and 1997, of Open Education at the Anadolu Department of Industrial Engineering graduate degree in the Department of Labor Economics and he served as an Inspector on the Board University in 1991. Between 1983 and at Bilkent University in 2004. He worked Industrial Relations at the same university. Between 1997 and of Inspectors of the Garanti Bank. Mr. 1990, He worked in the private sector as an analyst and project engineer at 2008, she worked at various positions in the Human Resources Göktaş worked as the Assistant Manager as the Accounting Officer and Manager. the Cybersoft Information Technologies Department at BUGSAŞ A.Ş. which operates the Ankara Metro, at the İstanbul Corporate Branch Between 1990 and 1996, he worked at between 2004 and 2005, before taking the Ankaray and AŞTİ (the intercity bus station) in Ankara. of Garanti Bank between 1997 and the Kayseri Branch, the Ankara Branch, up a position at the Banking Regulation She was the manager of this department for seven years. She 1999 and served as the Çorum Branch and the Konya Branch of Albaraka Türk and Supervision Agency. Until 2012, then served as the Human Resources Department Manager Manager between 1999 and 2000. He Katılım Bankası A.Ş., he worked as the he worked in the Audit and Risk at Çalık Holding between 2009-2015. In August 2015, she worked as the Banking Services Manager Assistant Department Manager and Management Departments on bank was appointed as the Executive Vice President responsible at Anadolu Finans between 2001 and Department Manager at the Financial audit and banking legislation. He then for Human Resources at Bank Asya when it was under the 2005. Then he joined Türkiye Finans Affairs Directorate between 1996 and went on to complete an MBA degree Savings Deposit Insurance Fund (SDIF). Upon the closure of Katılım Bankası where he as the Banking 2001, as the Chairman of the Internal from the Fuqua School of Business the bank, she transferred to Türkiye Varlık Fonu Yönetimi A.Ş. Services Manager at the between 2006- Control Center Directorate between at Duke University in the USA before as the Advisor to the Chairman of the Board. She is married 2009, as the Executive Vice President 2001 and 2002, as the Financial Affairs returning to his duties at the BRSA in with two children. Since April 2018, she has been serving as responsible for IT between 2009-2012, Manager between 2003 and 2009,, as 2014. In 2015, he was appointed as the the Executive Vice President responsible for Human Resources/ and as the Executive Vice President the Financial Affairs Senior Manager Head of Risk Management Department. Training and Corporate Communications at Vakıf Katılım responsible for Distribution and Service between 2009 and 2012. He completed He represented Turkey in the working Bankası A.Ş. between 2012- 2015. He has been his post-graduate degree in Business groups within the body of the Basel serving as a member of the Board of Administration (non-thesis in Turkish) Committee on Banking Supervision Directors and as the CEO at Vakıf Katılım at the Fatih University Social Sciences located in Switzerland. He holds the Bankası A.Ş. since October 2015. Institute in 2012. At Albaraka Türk Certified Financial Analyst and Financial Katılım Bankası A.Ş. he served as the Risk Manager (FRM) certificates. Since Ali GÜNEY Budget and Financial Reporting Senior September 2017, he has been serving as Executive Vice President, Treasury and Manager between 2012 and 2014 and the Executive Vice President responsible Strategy as the Senior Department Manager for Operations at Vakıf Katılım Bankası Born in 1964 in Rize, Ali Güney in the Investment Projects Directorate A.Ş. graduated from the Faculty of Economics between 2012 and 2015. He served Bülent TABAN and Administrative Sciences at Marmara as the General Manager at Albaraka Executive Vice President, Loans University. Between 1990 and 1993, he Gayrimenkul Portföy Yönetimi A. Ş. in was employed in the Fund Management 2015. Since 1 December 2015, he has Bülent Taban was born in 1966. He Department at the Faisal Finance been carrying out the duty of Executive completed his high school education Corporation and went on to serve as Vice President responsible for Finance at at the Kabataş Erkek Lisesi (Boys High the Assistant Manager at the Fund Vakıf Katılım Bankası A.Ş. School) in 1983 and graduated from Management and Treasury Department the Faculty of Business Administration İrfan ŞAVİK of the İhlas Finans Institution between at Istanbul University in 1987 and Executive Vice President, Support 1995 and 1999 and then as the Fund completed a post-graduate degree in Services Management and Treasury Manager at Business Administration at the Social Anadolu Finans between 1999 and 2005. İrfan Şavik was born in 1965 in Antalya. Sciences Institute of Istanbul Technical He served as the Treasury Manager at the After graduating from the Department University in 1990. Mr. Taban began Türkiye Finans Katılım Bankası between of Public Administration, Faculty of his banking career on the Board of 2006-2009 and as the Executive Vice Economic and Administrative Sciences at Inspectors at the Turkish Commercial President responsible for the Treasury Hacettepe University, İrfan Şavik worked Bank, and subsequently served as the and Financial Institutions between 2009 as an Assistant Financial Analyst and Manager of Retail Banking at Kentbank and 2015. Since 1 November 2015, he Assistant Manager at Türkiye Vakıflar between 1995 2002. In 2002, Mr. Taban has been serving as the Executive Vice Bankası T.A.O. between 1990 and 1998 started working at the Albaraka Türk President responsible for the Treasury and then as the Branch Manager and the Bankası, where he served as Executive and Strategy at Vakıf Katılım Bankası A.Ş. Regional Manager in various provinces Vice President responsible for Retail at the same Institution between 1998 Banking, Loans and Commercial and 2015. Since 1 December 2015, Mr. Marketing, respectively. He joined Vakıf Şavik has been serving as the Executive Katılım Bankası A.Ş. at the beginning of Vice President responsible for Loans 2018 where he has been serving as the and Human Resources at Vakıf Katılım Executive Vice President responsible for Bankası A.Ş. and as the Executive Vice Loans. President responsible for Support Services since 15 January 2018.

80 81 PRODUCT, TECHNOLOGY AND INNOVATIONS OF VAKIF KATILIM

VKFX ONLINE across Vakıf Katılım. In 2018, the number November 2018, TROY branded cards of transactions on the ADC platform were offered to customers with the cards In 2018, Vakıf Katılım commissioned the undertaken by real persons amounted being instantly printed at Vakıf Katılım VKFX foreign exchange trading platform, to 725,000, while the number of branches. with preferential pricing and trading 24 transactions carried out by corporate hours a day, 5 days a week. INCREASED EFFECTIVENESS WITH THE

customers amounted to 600,000. BANKS 2018 PARTICIPATION VIRTUAL POS APPLICATION Total transaction volumes realized over Those transactions which cannot be the platform stood at USD 2.1 billion by A strong infrastructure with state-of- performed through the mobile branch, the end of 2018. the-art technological infrastructure has especially those available on the internet been developed in order to meet the STP EXCELLENCE AWARD branch, were put into operation on requirements of the Virtual POS business the mobile branch in 2018. Due to the The STP Excellence Award is given to and perform its rapid management. increase in the number of branches, the those banks performing annualy 95% or In this context, the systems of many ATM network expanded and the total more of their transactions without error in companies were integrated with the number of ATMs had reached 93 by the SWIFT messages sent abroad within the main banking system in order to allow end of 2018. framework of the rules determined by the the management of member company SWIFT headquarters and correspondent Due to the multiplication of transaction applications and the virtual POS. The banks related to the STP (Straight sets and expansion of the service system was made available to customers Through Processing). network, there was a large increase in in December 2018. the number of transactions and volumes Vakıf Katılım achieved a significant level FIDUCIARY GOLD TRANSFER SYSTEM during the year. In 2018, 67% of the cash of success in transfer transactions carried (THE GOLD EFT) withdrawal transactions and 36% of cash out during the year. In this respect, the deposit transactions at Vakıf Katılım were In 2018, Vakıf Katılım became the first KBC Bank awarded Vakıf Katılım the STP carried out through ATMs. Again in this bank to realize the Gold EFT service. The (Straight Through Processing) Excellence period, 39% of the payment transactions, project enabled the mobilization of gold Award. 57% of the foreign currency buying/ electronically. Customers are now able This award, which was also given by a selling transactions, 70% of the precious to carry out their inter-bank transfers global bank to Vakıf Katılım last year, metal purchase or sale transactions and without having to convert their gold could be considered to be a recognition 48% of the money transfer transactions balances into physical gold or cash. of that its compliance with sectoral were realized through the digital banking VKART professionalism is on a par with world channels. standards. The number of Vakıf Katılım debit cards SERVICE AT 15,000 POINTS had reached 58,000 at the end of 2018, This standard, which is achieved in NATIONWIDE WITH THE PUBLIC JOINT more than double the 26,000 at the year- international payments, is reflected ATM PROJECT end of 2017. The TROY debit card, which as a fast and high quality service to Vakıf Katılım commissioned the Joint ATM is a product of a domestic brand, started Vakıf Participation customers. We are project with the participation of all public to be offered to the Bank’s customers. continuing our work in order to improve banks within the scope of meeting the this standard and increase our service In 2018, the Bank progressed significantly cash needs of customers to the maximum quality in all areas. in the goal of ensuring that every level and expanding the ATM service customer opening an account was the INTERNATIONAL TRANSACTIONS network. holder of a debit card. Vakıf Katılım offers special solutions for From April 2018, Vakıf Katılım customers The VKart credit card, which started to be customer needs with its professional were able to perform withdrawal, introduced to customers in 2018, reached team with a high level of knowledge and deposit, balance inquiry, credit card a circulation of 6,000 cards in a short extensive correspondent network in the debt payment, credit card debt inquiry, space of time, getting off to a rapid start. field of foreign transactions. In 2018, the credit card limit inquiry transactions from In the coming period, the card is planned Bank’s foreign trade volume increased by 15,000 ATMs throughout the country to be enriched with the addition of new 2.5 times compared to the previous year. without paying any commission fees. features and content. The volume of trade and money transfer The project increased the efficiency of transactions realized with 128 different ATMs and reduced imports of ATMs, thus GOLD BANKING countries had reached USD 11.3 billion contributing to the national economy and Under the slogan of “Turkey’s National by the end of 2018, exceeding the annual increasing the level of access to financial Gold Bank”, Vakıf Participation started target. services. physical gold bullion transactions in Having increased the volume of letters of POS the Borsa İstanbul Precious Metals and credit that it mediated in by 120% YoY, Diamond Market in 2017. In 2018, Vakıf The number of users of the Vakıf Katılım Vakıf Katılım plans to further develop its Participation exported approximately 13 POS machines, which were put into use in activities in this field in 2019. tonnes of standard gold bullion. the last quarter of 2017, reached 2,000 in DIGITAL BANKING 2018. The POS Block project, which was According to data provided by the presented to the field in the second half Istanbul Mineral and Metals Exporters’ In 2018, a total of 54,269 of Vakıf Katılım’s of 2018, was successfully completed and Association (İMMİB), Vakıf Participation active internet banking customers it had a significant share in the increase in exported approximately USD 425 million carried out 560,000 financial transactions the total number of POS users. In the first worth of standard unprocessed gold in through this channel. The number of quarter of 2019, the Virtual POS - tests of 2018, significantly contributing to the transactions carried out by the Bank’s which had been completed at the end of country’s economy. With this exports, existing 39,262 active mobile banking 2018 - is expected to be brought into use. we ranked 3rd among 854 institutions, customers through this channel stood at achieving significant success. Thanks 785,000. INSTANT PRINTING OF THE TROY BANK to its high transaction volume, Vakıf CARD AT THE BRANCH As of the end of 2018, a total of 50,000 Participation became the first public bank 82 real persons and 14,000 legal persons Work was completed to provide debit to receive the title of “Market Maker” in 83 were using any of the Alternative card issuance with the TROY brand, the Borsa İstanbul Precious Metals and Distribution Channel (ADC) products a domestic payment method. As of Diamond Market in 2017. ZİRAAT PARTICIPATION ROUNDED OFF AN APPROACH FOCUSED ON In 2018, Ziraat Participation introduced 2018 WITH A HEALTHY FINANCIAL MAINTAINING ASSET QUALITY the first joint investment model. In ZİRAAT PARTICIPATION GENERAL MANAGER’S MESSAGE PERFORMANCE. this context, FZK Mühendislik ve Sınai Ziraat Participation adopted a growth Yatırımlar A.Ş. was established in 50%- In line with its vision of being the sector’s strategy that aims to preserve and 50% partnership with Fikssan Fikstür leading participation bank, Ziraat improve asset quality. Accordingly, the Sanayi ve Ticaret A.Ş., which serves Participation maintained its rapid growth Bank’s allocation and fund disbursement both the public and private sectors in and completed 2018 with a healthy processes, as well its as early warning engineering and industrial fields such as performance in line with its goal of and risk monitoring infrastructure, are the defense industry, rail systems and the profitability and productivity. being developed continuously. automotive industry. In 2018, a year in which the effects of In line with the financing oriented Our new subsidiary FZK’s main activity BANKS 2018 PARTICIPATION the volatility in domestic markets were growth and customer based balance will be the production of domestic felt, as well as the negative effects of sheet strategy, the funds provided in technological and industrial products ZİRAAT global economic factors and geopolitical 2018 continued to grow rapidly. In this needed by the defense industry, the PARTICIPATION developments, Ziraat Participation period of uncompromising execution automotive and railway sectors, and the CONTINUED TO achieved its goals with its well-structured of risk management policies, the mould and fixture sectors within our strategy, flexible business model and NPL ratio was well below the sector country’s borders. SUPPORT THE strong financial structure. average and was realized at 1.5%. Ziraat This structure, where a participation Participation’s capital adequacy ratio FINANCING OF THE Ziraat Participation expanded its total bank and a manufacturing company stood at 12.8% in 2018. REAL SECTOR IN assets by 55% YoY in 2018 and reached come together on the basis of capital 2018, ESPECIALLY a balance sheet size of TL 22.2 billion. As STRONG SUPPORT FOR SMES WITH partnership in Turkey, is also a first in a result of the successful implementation THE BREATHING SPACE LOAN terms of our banking sector. SMES, WHICH ARE of the business cycle structured with A STEP TOWARDS PROTECTING OUR a service approach which prioritizes Ziraat Participation took an active part THE LIFEBLOOD OF NATIONAL RESOURCES customer satisfaction and productivity, in the Breathing Space Loan program, THE ECONOMY. Ziraat Participation closed 2018 with a which was implemented to ensure SMEs In 2018, Ziraat Participation collaborated profit of TL 322.6 million. have access to financing with the most with SSTEK Savunma Teknolojileri A.Ş. appropriate conditions. to support small and medium-sized Another development supporting the domestic companies operating in Turkey The Breathing Space Loan, which was healthy growth in our balance sheet in and which are capable of developing put into practice with the signing 2018 was the TL 500 million contribution technology. from the Ministry of Treasury and ceremony on 31 March 2018, was Finance to the capital. offered under the leadership of TOBB, Within the framework of the cooperation with the contributions of the chambers that envisages the establishment WE MAINTAIN OUR STRONG SUPPORT and exchanges, with the guarantee of of a profit-loss partnership, joint FOR THE REAL SECTOR. the Treasury-backed Guarantee Fund and investments or subsidiary model and the cooperation of six banks, including Metin ÖZDEMİR Ziraat Participation continues to work affiliated partnerships, the Company Ziraat Participation. General Manager-Ziraat Katılım in line with its vision of becoming aims to support the defense industry’s activities abroad where there are limited an effective participation bank in The scope of Breathing Space 2018 manufacturing facilities in Turkey, with international markets as well as in its Project was aimed at providing TL 7.5 national funds. ZİRAAT PARTICIPATION EXPANDED region by responding to the needs billion of financing to SMEs, and it and expectations of its customers was foreseen that 50,000 enterprises Ziraat Participation considers this step ITS TOTAL ASSETS BY 55% YOY IN by providing them with the most would benefit from this opportunity. as an important initiative to reduce appropriate solutions and value 2018 AND REACHED A BALANCE The payment schedule of the Breathing the Turkish economy’s dependence on propositions through the most accurate Space Loan, which is prepared in a low foreign resources and to provide a net SHEET SIZE OF TL 22.2 BILLION. channels. cost and supportive manner for the real contribution to the country’s economy. sector, was determined as an 18 month Ziraat Participation continued to support maturity with a grace period for the first COMMON ATM COOPERATION WITH the financing of the real sector in 2018, 6 months (monthly profit rate paid). PUBLIC BANKS especially SMEs, which are the lifeblood of the economy. Within the scope of the Breathing Space In 2018, Ziraat Participation joined the Ziraat Katılım Bankası A.Ş. Credit program, which was completed Free Common ATM System to provide Ziraat Participation’s cash financing on 4 July 2018, Ziraat Participation a better service experience for its Establishment Date 2015 increased to TL 17.8 billion in 2018, provided financial support to SME customers. Main Shareholders T.C. Ziraat Bankası A.Ş. (99%) marking a 52% increase when compared customers through a network of services to the end of 2017, while non-cash Within the scope of the project, which Chairman Hüseyin AYDIN spread throughout Turkey. financing grew by 68% to TL 10.3 billion. brings together Ziraat Bank, Halkbank, General Manager Metin ÖZDEMİR Vakıfbank, Ziraat Participation and Vakıf A BREAKTHROUGH IN THE SECTOR: Headquarters Hobyar Eminönü Mah. Hayri Efendi Cad. No: 12 PK: 34112 Fatih/İstanbul While the total support extended Participation, transactions to withdraw THE JOINT INVESTMENTS MODEL Phone +90 212 404 10 00 by Ziraat Participation to the Turkish and deposit funds at around 15,000 economy reached TL 28.1 billion, the In line with its establishment mission, ATMs across Turkey, as well as balance Fax +90 212 404 10 99 share of cash financing in the balance Ziraat Participation also focuses on inquiries, started to be offered to our Web Site www.ziraatkatilim.com.tr sheet was stable at 80%. expanding the share of the participation customers free of charge. SWIFT Code ZKBATRIS banking sector in the overall banking As of the end of 2018, total current and EFT Code 0209 market and reaching a wider audience participation accounts increased by 51% of participation banking products and Number of Domestic Branches 80 when compared to the previous year to services. The development of alternative Number of Employees 1,042 reach TL 15.1 billion. solutions and models in line with the principles of participation banking is an 84 important objective in this respect. 85 ZİRAAT PARTICIPATION GENERAL MANAGER’S MESSAGE ZİRAAT PARTICIPATION SENIOR MANAGEMENT

ISSUANCE OF LEASING CERTIFICATES In this process, in which we developed WORK ON TFRS-9 TRANSITION Metin ÖZDEMİR Director of Financial Analysis and Loans banking career at CBRT Headquarters REACHES TL 3.5 BILLION our product and service diversity in our COMPLETED SUCCESSFULLY. CEO and Member of the Board of and Commercial Branch Director and as a clerk in 1998. In 1999, he started alternative distribution channels, the Directors Head of Commercial Loans Department working at Ziraat Bank as an Assistant Ziraat Participation successfully Within the scope of the Turkish Financial number of customers actively using at Halkbank; and Member of the Board Inspector and then promoted to completed the issuance of 19 lease Reporting System (TFRS), the BRSA Metin Özdemir graduated from internet banking increased by 100% of Directors at Halk Leasing; Demirkıran Inspector, Chief Inspector, Vice President certificates in 2018. introduced new regulations on the İstanbul University (Faculty of Business thanks to the corporate vision based on became the Retail Loans Allocation and of the Inspection Board, Branch BANKS 2018 PARTICIPATION calculation of provisions for banks. Administration) in 1990. He started customer satisfaction. New customers Management Group Manager at Ziraat Manager, İzmir 1st Region Manager, Ziraat Participation, which has been his career at Kuveyt-Türk Finans Bank in 2015. Since 12 February 2016, Head of Branch Operations and Head active in the capital markets as part of its gained through the web channel were Ziraat Participation has completed Kurumu A.Ş. in 1992, and from 1996, he serves as the Loans Allocation and of Channel Management, respectively. strategy to enrich its resource structure, able to activate their accounts through its work in this vein and prepared he carried on with his business life as Management Deputy General Manager Mr. Karakütük was appointed as Ziraat and its subsidiaries Ziraat Participation the same media channel. accounting and system infrastructure for an executive in the retail sector. Mr. at Ziraat Participation. Katılım Bankası A.Ş. Vice President in Varlık Kiralama A.Ş. and ZKB Varlık provision calculations in accordance with Özdemir functioned as a member Ziraat Participation is committed charge of Financial Coordination and Kiralama A.Ş., obtained the approval of the regulation on new provisions to be of İstanbul Metropolitan Municipal to developing its Internet Branch, Temel Tayyar YEŞİL Human Resources on 15 August 2017 three separate lease certificate issuance applied from 1 January 2018. Council between 2004 and 2014. Mr. Participation Mobile and corporate Executive Vice President-Marketing and he has been serving as the Vice licenses from the CMB in order to issue Özdemir was a member of the Board of website with innovative and user- President in charge of Treasury and TL denominated lease certificates in the WARMEST THANKS TO EVERYONE Directors of Ziraat Participation since 18 Temel Tayyar Yeşil was born in Samsun friendly features in line with customer Internal Operations since 23 August domestic market, amounting to TL 500 WHO CONTRIBUTED TO OUR SUCCESS February 2015 and was appointed as in 1971 and graduated from Erciyes needs and using digital channels much 2017. million, TL 2 billion and TL 4 billion. In 2018. the CEO on 12 June 2017. Mr. Özdemir University Economy department of more actively. Faculty of Economics and Administrative this context, approximately TL 3.5 billion We continue to work with dedication is a member of the Ziraat Bank’s Board Mehmet Said GÜL Sciences. Mr. Yeşil started his banking worth of issuances were realized in ENRICHING OUR HUMAN RESOURCES of Directors and acts as a member of Executive Vice President-Information to increase our contribution to the real career at Pamukbank T.A.Ş. as Assistant various amounts of allocations in 2018. WITH NEW ADDITIONS Corporate Governance Committee and Technologies and Operations economy in line with our values and Specialist in 1998. He worked as an ethical principles that are reflected in our Remuneration Committee. Since 25 THE FIRST PARTICIPATION BANK TO Ziraat Participation developed its most July 2017, he also acts as the Chairman officer and manager in the Loans and Born in 1973 in Kahramanmaraş, well established corporate culture. ISSUE THE GOLD LEASE CERTIFICATE valuable asset - its human resources - of the Credit Committee. Mr. Özdemir Project Evaluation departments of Mehmet Said Gül graduated from Türkiye Halkbank A.Ş. He acted as Kayseri Hacettepe University Department of with new additions in 2018. While we continue our projects with is also the Chairman of Participation While Ziraat Participation was one of the Commercial Branch Manager between Computer Engineering in 1995. He determination, firmly adhering to our Banks Association of Turkey (TKBB) and first two banks to issue the gold lease In our rapidly growing organizational 2010 and 2012. Mr. Yeşil started to started his banking career at Anadolu mission to expand participation banking, Chairman of the Board of Directors of certificate, it was the first and only bank structure, in line with the needs of our work at Ziraat Bank as Loan Allocation Finans Kurumu in 1997. He headed for our ultimate goal is to increase the value the Association of National Development among the participation banks to offer branches and head office units, 218 and Management Department Head many years the Information Systems of the Turkish economy and to support Finance Institutions in Member Countries services in this field. new colleagues joined us, bringing our in 2012 and continued as the Regional Coordination Unit at Türkiye Finans, sustainable development in a multi- of the Islamıc Development Bank number of employees up to 1,042 by the Coordinator in 2016. He has been following the merger of Family Finans The first stage of the issuance of Gold faceted manner. (ADFIMI). end of 2018. appointed as Ziraat Katılım Bankası A.Ş. and Anadolu Finans. Mr. Gül, who was Bond/Gold Lease Certificate, which was I would like to thank all of our Tahir DEMİRKIRAN Vice President in charge of Marketing on appointed as a consultant at Ziraat Bank realized by the Ministry of Treasury and Another development which gave stakeholders, especially our employees, Executive Vice President - Loan 18 July 2017 and is still carrying out the in 2014, has been serving since the Finance and aimed at bringing gold us great satisfaction in 2018 was the who are walking with us on our way Allocation and Management duty. establishment of Ziraat Participation. under the mattress into the economy, growth we achieved in our branch In October 2015, he was appointed forward with determination to achieve Born in 1967 in İstanbul, Tahir was completed in September 2018. network with 17 new branches added to Osman KARAKÜTÜK as the Group Director of Information higher targets and who have contributed Demirkıran graduated from İstanbul Ziraat Participation and Ziraat Bank, the Ziraat Participation branch network Executive Vice President-Treasury and Technologies and Operational so much to our successful performance. University Faculty of Economics, which are assigned as intermediary in 2018, taking the total number of Internal Operations Transactions at Ziraat Participation. Since Department of Economics. He started his banks, offered lease certificates and gold branches to 80. During the year, the 23 August 2017 Mr. Gül is the Executive banking career as the Assistant Financial Born in Ankara in 1975, Osman bonds to investors throughout Turkey Company also moved to the Maltepe Vice President in charge of Information Analysis and Intelligence Specialist at Karakütük graduated from Ankara through their branches. Additional Service Building in order to Technologies and Operations. Pamukbank in 1995. He worked as the University Faculty of Political Science. He bring together the Head Office Units In the upcoming period, Ziraat Specialist and Loans Service Director. And completed his undergraduate studies serving in different locations and to Participation will continue to mediate in then, having worked as the Department in Sakarya University and started his increase working efficiency. the issuance of Gold Lease Certificates and provide services to investors.

INVESTMENTS IN DIGITAL BANKING CONTINUE AT FULL PACE.

In 2018, Ziraat Participation continued to invest in digital technologies in order to enable simpler and faster banking transactions for customers.

To enable our customers to carry out real-time payments on E-Commerce sites, the Payment From Account (Direct Payment) function is now available over Participation Mobile. A live response application for seamless communication, available on a 24/7 basis has been added to Participation Mobile.

86 87 ZK Kâr Payı final_22,5x30cm_ING.pdf 1 11.03.2019 11:06

PRODUCT, TECHNOLOGY AND INNOVATIONS OF ZİRAAT PARTICIPATION

BREATHING SPACE LOAN automotive and railway sectors, and the Participation Mobile and corporate mould and fixture sectors within our website with innovative and user-friendly Ziraat Participation adopted a growth country’s borders. features in line with customer needs and strategy that aims to preserve and using digital channels much more actively. improve asset quality. Accordingly, the This structure, where a participation Bank’s allocation and fund disbursement bank and a manufacturing company ALFA AWARDS - THE BEST

processes, as well its as early warning and come together on the basis of capital PARTICIPATION BANK OF THE YEAR BANKS 2018 PARTICIPATION risk monitoring infrastructure, are being partnership in Turkey, is also a first in terms AWARD developed continuously. of our banking sector. Our Bank’s efforts to offer excellent In line with the financing oriented growth COMMON ATM COOPERATION WITH experience to its customers in the and customer based balance sheet PUBLIC BANKS Participation Banking Sector were strategy, the funds provided in 2018 appreciated by our consumers and Ziraat In 2018, Ziraat Participation joined the Free continued to grow rapidly. In this period Participation was selected as the Customer Common ATM System to provide a better of uncompromising execution of risk Brand of the Participation Banking Sector service experience for its customers. management policies, the NPL ratio was according to the results of the survey well below the sector average and was Within the scope of the project, which conducted face to face with 1,200 people realized at 1.5%. Ziraat Participation’s brings together Ziraat Bank, Halkbank, representing Turkey in 12 provinces by capital adequacy ratio stood at 12.8% in Vakıfbank, Ziraat Participation and Vakıf Akademetre Research Company on behalf 2018. Participation, transactions to withdraw of Marketing Turkey in 2017. STRONG SUPPORT FOR SMES WITH THE and deposit funds at around 15,000 ATMs BONDS & LOANS AWARDS BREATHING SPACE LOAN across Turkey, as well as balance inquiries, started to be offered to our customers free Participating in the project finance Ziraat Participation took an active part of charge. syndication of the Manisa Health Campus, in the Breathing Space Loan program, Ziraat Participation received second ISSUANCE OF LEASING CERTIFICATES which was implemented to ensure SMEs prize in the “Structured Bond Deal of the REACHES TL 3.5 BILLION have access to financing with the most Year” and “Infrastructure Finance Deal of appropriate conditions. Ziraat Participation successfully completed the Year” categories at the 2017 Bonds the issuance of 19 lease certificates in & Loans Awards organized by the GFC The Breathing Space Loan, which was put 2018. Media Group. The awards were presented C into practice with the signing ceremony to Ziraat Participation in the awards M on 31 March 2018, was offered under the Ziraat Participation, which has been active ceremony held on 5 February 2018. leadership of TOBB, with the contributions in the capital markets as part of its strategy Y of the chambers and exchanges, with to enrich its resource structure, and its the guarantee of the Treasury-backed subsidiaries Ziraat Participation Varlık CM

Guarantee Fund and the cooperation of six Kiralama A.Ş. and ZKB Varlık Kiralama A.Ş., MY banks, including Ziraat Participation. obtained the approval of three separate lease certificate issuance licenses from the CY The scope of Breathing Space 2018 Project CMB in order to issue TL denominated CMY was aimed at providing TL 7.5 billion of lease certificates in the domestic market, financing to SMEs, and it was foreseen that K amounting to TL 500 million, TL 2 50,000 enterprises would benefit from this billion and TL 4 billion. In this context, opportunity. The payment schedule of the approximately TL 3.5 billion worth of Breathing Space Loan, which is prepared issuances were realized in various amounts in a low cost and supportive manner for of allocations in 2018. the real sector, was determined as an 18 month maturity with a grace period for the DIGITAL BANKING first 6 months (monthly profit rate paid). Ziraat Katılım, 2018 yılında, müşterilerinin THE JOINT INVESTMENTS MODEL In 2018, Ziraat Participation continued to invest in digital technologies in order In line with its establishment mission, to enable simpler and faster banking Ziraat Participation also focuses on transactions for customers. expanding the share of the participation banking sector in the overall banking To enable our customers to carry out real- market and reaching a wider audience time payments on E-Commerce sites, the of participation banking products and Payment From Account (Direct Payment) services. The development of alternative function is now available over Participation solutions and models in line with the Mobile. A live response application for principles of participation banking is an seamless communication, available on a important objective in this respect. 24/7 basis has been added to Participation Mobile. In 2018, Ziraat Participation introduced the first joint investment model. In this context, In this process, in which we developed FZK Mühendislik ve Sınai Yatırımlar A.Ş. our product and service diversity in our was established in 50%-50% partnership alternative distribution channels, the with Fikssan Fikstür Sanayi ve Ticaret A.Ş., number of customers actively using which serves both the public and private internet banking increased by 100% sectors in engineering and industrial fields thanks to the corporate vision based on such as the defense industry, rail systems customer satisfaction. New customers and the automotive industry. gained through the web channel were able to activate their accounts through the Our new subsidiary FZK’s main activity same media channel. will be the production of domestic 88 technological and industrial products Ziraat Participation is committed 89 needed by the defense industry, the to developing its Internet Branch, SECTORAL FINANCIAL DATA

FINANCIAL TURKISH BANKING SECTOR’S INDICATORS BY SEGMENTS Assets Deposits Loans Number of Bank Group Institutions 2018 2018 2017 2018 2018 2017 2018 2018 2017 TL million share (%) share (%) TL million share (%) share (%) Milyon TL share (%) share (%) Participation Banks 5 206,806 5.3 4.9 137,220 6.7 6.1 124,531 5.1 5.0 Deposit Banks 32 3,403,339 88.0 89.7 1,913,946 93.3 93.9 2,144,771 87.0 88.8 PARTICIPATION BANKS 2018 PARTICIPATION DATA, GRAPHS, Development and 13 257,290 6.7 5.4 0 0.0 0.0 195,953 7.9 6.2 Investment Banks AND FINANCIAL Total 50 3,867,435 100 100,0 2,051,166 100 100 2,465,255 100 100 PARTICIPATION BANKS AND BANKING SECTOR: KEY FINANCIAL INDICATORS (TL MILLION‑DECEMBER 2018)* PARTICIPATION BANKS BANKING SECTOR FİNANSAL BAŞLIKLAR 2018/ 2018/ Aralık-18 December-18 December-17 December-2017 December-18 December-17 December-2017 (change %) (change %) STATEMENTS TL 60,626 57,494 5.4 1,054,572 961,112 9.7 FC 67,790 43,180 57.0 954,893 733,817 30.1 Deposits ** FC-Metal 8,804 4,636 89.9 41,701 24,220 72.2 Total 137,220 105,310 30.3 2,051,166 1,719,149 19.3 Loans *** 124,562 106,733 16.7 2,465,582 2,145,479 14.9 Non-Performing Loans (Net) 5,050 3,392 48.9 96,611 63,990 51.0 Total Assets 206,806 160,136 29.1 3,867,135 3,257,819 18.7 Shareholders’ Equity 16,780 13,645 23.0 421,185 359,091 17.3 Net Profit**** 2,123 1,583 34.1 53,522 48,648 10.0 Number of Employees 15,654 15,029 4.2 207,716 208,280 (0.3) Branches Domestic 1,120 1,029 8.8 11,493 11,508 (0.1) Number of Branches Branches Abroad 2 3 (33.3) 72 77 (6.5) Total 1,122 1,032 8.7 11,565 11,585 (0.2)

* Source: BRSA reports ** Bank deposits are excluded. Rediscounts are included. *** Loans under follow-up are excluded. Rediscounts are included. **** Net profit figures compared to the same period of last year.

Sector Shares of Participation Banks (%) as of year end 2018:

2018/December 2017 Non-Performing Loans (Gross)/Loans Funds Collected 6.7% 6.1% Participation Banks Banking Sector Funds Allocated 5.1% 5.0% 4.1% 3.9% Total Assets 5.3% 4.9% Shareholders’ Equity 4.0% 3.8% Net Profit 4.0% 3.3%

PARTICIPATION BANKS: KEY FINANCIAL INDICATORS (THOUSAND TL, DECEMBER 2018) ALBARAKA TÜRK KUVEYT TÜRK TÜRKİYE FİNANS VAKIF KATILIM ZİRAAT KATILIM TOTAL 2018 2018 2018 2018 2018 2018 Q4-2017 2018/Q4 2018/Q4 2018/Q4 2018/Q4 2018/Q4 2018/Q4 2017 Q4-2017 Q4-2017 Q4-2017 Q4-2017 Q4-2017 Change Funds TL 11,779,608 (11)% 22,520,320 13% 10,902,974 (2)% 7,293,824 7% 8,248,548 30% 60,745,274 57,540,287 6% Collected FC 16,843,865 40% 31,465,958 58% 15,959,505 47% 7,888,582 142% 6,902,550 88% 79,060,460 49,770,458 59% TOTAL 28,623,473 13% 53,986,278 35% 26,862,479 22% 15,182,406 50% 15,151,098 51% 139,805,734 107,310,745 30% Funds Allocated * 25,553,233 4% 46,619,267 23% 29,653,165 14% 13,443,573 39% 17,707,664 51% 132,976,902 110,077,254 21% Non-Performing 1,888,547 56% 1,179,767 65% 1,732,682 22% 245,988 1493% 240,160 589% 5,287,144 3,392,011 56% Loans (Net) Non-Performing Loans (Gross)/ 7.4% - 2.5% - 5.8% - 1.8% - 1.4% - 4.0% 3.1% - Loans Total Assets 42,223,652 17% 74,232,325 30% 47,052,484 20% 20,955,512 59% 22,188,803 55% 206,652,776 159,993,357 29% Shareholders’ 3,261,451 31% 5,438,553 18% 4,323,181 6% 1,527,226 38% 2,218,584 58% 16,768,995 13,644,821 23% Equity Net Profit** 133,968 (43)% 869,812 29% 444,750 18% 325,397 136% 322,665 103% 2,096,592 1,583,478 32% Number of 3,988 2% 5,871 2% 3,661 (3)% 1,092 51% 1,042 17% 15,654 15,031 4% Personnel Number of 230 5% 415 4% 306 6% 91 44% 80 27% 1,122 1,034 9% Branches

* Leasing receivables and rediscounts are included, non-performing loans are excluded. ** Net Profit figure is compared with the same period of the prior period.

90 91 SECTORAL FINANCIAL DATA

PARTICIPATION BANKS: ASSET STRUCTURE AND CHANGES IN SELECTED ITEMS (TL MILLION, %) PARTICIPATION BANKS: INCOME/LOSS STRUCTURE AND CHANGES IN SELECTED ITEMS (TL MILLION, %) Rate Over Net Income/Loss Before Amount (TL million) Change (%) Share in Total (%) Amount (TL million) Change (%) ASSETS INCOME/LOSS Tax (%) 2018 2017 2016 2018-2017 2017-2016 2018 2017 2016 2018 2017 2016 2018‑2017 2017‑2016 2018 2017 2016 Liquid Assets 38,347 17,464 18,507 119.6 (5.6) 18.5 10.9 13.9 Profit Share Income 16,186 10,628 8,371 52 27 593 540 614 PARTICIPATION BANKS 2018 PARTICIPATION Securities Portfolio 15,128 12,883 10,456 17.4 23.2 7.3 8.0 7.9 Profit Share Expense 9,455 5,522 4,318 71 28 347 281 317 12,878 10,519 8,987 22.4 17.0 6.2 6.6 6.8 Available-for-Sale Assets (Net) Net Profit Share Income 6,731 5,106 4,053 32 26 247 260 297 750 1,154 1,412 (35.0) (18.3) 0.4 0.7 1.1 Held-To-Maturity Assets (Net) Income Other Than Profit Share 3,645 2,052 2,046 78 0 134 104 150 Financial Assets at Fair Value Through Profit for Loss (Net) 1,500 1,210 57 24.0 2022.8 0.7 0.8 0.0 Net Fees and Commissions Income 1,023 847 796 21 6 38 43 58 Reserves 16,564 16,630 13,034 (0.4) 27.6 8.0 10.4 9.8 Banking Services Income 895 653 562 37 16 33 33 41 Loans 112,495 97,615 75,896 15.2 28.6 54.4 61.0 57.1 Other Income Other Than Profit Share 1,727 552 688 213 (20) 63 28 50 Non-performing Loans (Net) -180 992 1,236 (118.1) (19.7) (0.1) 0.6 0.9 Expenses Other Than Profit Share 6,814 4,281 3,647 59 17 250 218 267 Non-Performing Loans (Gross) 5,050 3,392 3,262 48.9 4.0 2.4 2.1 2.5 Personnel 1,961 1,589 1,439 23 10 72 81 105 (-) Special Reserves 5,230 2,400 2,026 117.9 18.5 2.5 1.5 1.5 Fees and Commissions Expenses 523 394 369 33 7 19 20 27 Leasing Receivables (Net) 4,498 4,274 4,122 5.2 3.7 2.2 2.7 3.1 Other Expenses Other Than Profit Share 4,330 2,298 1,839 88 25 159 117 135 Non-Current Assets 4,736 2,982 2,417 58.8 23.4 2.3 1.9 1.8 Income/Expenses Other Than Profit Share 1,229 490 463 151 6 45 25 34 Affiliates and Subsidiaries 596 436 403 36.7 8.2 0.3 0.3 0.3 P/L From Capital Market Transactions 877 (409) 382 (314) (207) 32 (21) 28 Fixed Assets 3,504 2,216 1,833 58.1 20.9 1.7 1.4 1.4 Profit/Loss From FX Transactions 351 898 80 (61) 1023 13 46 6 Available-for-Sale Assets (Net) 636 330 181 92.7 82.3 0.3 0.2 0.1 Others 0 1 1 (100) - 0 0 0 Rediscounts 8,719 5,365 5,433 62.5 -1.3 4.2 3.4 4.1 Profit/Loss Before Tax 2,728 1,967 1,364 39 44 100 100 100 Other Assets 6,499 1,932 1,773 236.4 9.0 3.1 1.2 1.3 Tax Provisions 604 384 258 57 49 22 20 19 Total Assets 206,806 160,137 132,874 29 21 100 100 100 Net Profit/Loss 2,124 1,583 1,106 34 43 78 80 81

Source: The BRSA Source: The BRSA “Provision for Non-Performing Loans” line has been revised as “Special Reserves”.

PARTICIPATION BANKS: LIABILITIES STRUCTURE AND CHANGES IN SELECTED ITEMS (TL MILLION, %) PARTICIPATION BANKS VS BANKING SECTOR: COMPARISON BETWEEN SELECTED RATIOS Participation Banks Banking Sector Amount (TL million) Change (%) Share in Total (%) Description LIABILITIES 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018-2017 2017‑2016 2018 2017 2016 Non-Performing Loans (Gross)/Total Cash Loans (%) 4.14 3.22 3.90 3.9 3.0 3.2 Deposits 136,612 104,993 81,273 30.1 29.2 66.1 65.6 61.2 Provisions for Non-Performing Loans/Non-Performing Loans (Gross) (%) 63.30 70.75 62.10 68.3 79.4 77.4 TL 44,747 32,047 23,049 39.6 39.0 21.6 20.0 17.4 Large Deposits (TL 1 million and Above)/Total Deposits (%) 45.49 41.38 37.70 54.5 53.2 53.3 FC 91,865 72,946 58,224 25.9 25.3 44.4 45.6 43.9 Profit/Loss Before Tax/Average Total Assets (ROAA) (%) 1.48 1.36 1.10 1.8 2.0 1.9 Loans to Banks 15,211 15,648 16,346 (2.8) (4.3) 7.4 9.8 12.3 Net Profit/Loss/Average Shareholders’ Equity (ROAE) (%) 15.14 13.50 0.90 14.7 16.0 14.3 Funds 1,809 1,662 2,433 8.8 (31.7) 0.9 1.0 1.8 Net Profit Share Income/Loss/Average Total Assets (%) 3.57 3.52 3.30 3.9 3.8 3.6 Rediscounts 1,761 1,070 1,079 64.6 (0.8) 0.9 0.7 0.8 Fees, Commissions and Banking Services Income/Average Total Assets (%) 1.02 1.03 1.10 1.3 1.2 1.2 Shareholders’ Equity 16,796 13,645 11,496 23.1 18.7 8.1 8.5 8.7 Fees, Commission and Banking Services Income/Total Income (%) 8.96 10.73 12.42 10.1 11.8 12.1 Paid-in Capital 9,767 8,752 7,839 11.6 11.6 4.7 5.5 5.9 Operational Expenses/Average Total Assets (%) 2.05 2.17 2.20 1.7 1.8 1.9 Capital Reserves 5,012 3,009 2,177 66.6 38.2 2.4 1.9 1.6 Income Other Than Profit Share/Expenses Other Than Profit Share (%) 99.33 97.13 96.00 98.3 97.2 98.9 Prior Years’ Profits -128 101 90 (226.7) 12.2 (0.1) 0.1 0.1 Fees and Commissions Income/Operational Expenses (%) 49.62 47.61 49.90 78.2 67.3 63.6 Period Profit 2,124 1,583 1,106 34.2 43.1 1.0 1.0 0.8 Average Total Assets/Average Number of Employees (TL thousand) 12.280 9.845 8.531 17.937 14.306 11.760 Others 6 200 283 (97.0) (29.3) 0.0 0.1 0.2 Deposits/Average Number of Employees (TL thousand) 8.890 7.131 5.767 9.769 8.148 6.833 Debt Instruments 4,356 4,070 4,470 7.0 (8.9) 2.1 2.5 3.4 Profit/Loss Before Tax/Average Number of Employees (TL thousand) 181.21 113.59 96.77 315 292 222 Reserves 1,887 2,029 1,501 (7.0) 35.2 0.9 1.3 1.1 Deposits/Number of Branches (TL thousand) 127,417 105,928 88,116 175,849 146,392 121,452 Other Liabilities 28,373 17,020 14,173 66.7 20.1 13.7 10.6 10.7 Loans/Number of Branches (TL thousand) 113,829 106,219 90,292 215,471 185,307 150,088 Total 206,806 160,137 132,771 29 21 100 100 100 Number of Employees/Number of Branches (Person) 14 15 15 18 18 18

Source: The BRSA Total Cash Loans/Deposits (%) 89.3 100.3 102.4 122.6 126.6 123.6

Total Securities Portfolio/Deposits (%) 11.1 12.3 12.8 23.5 23.5 24.2

Demand Deposits/Total Deposits (%) 32.8 30.5 28.4 21.3 21.2 20.3 Shareholders’ Equity/Total Risk-Weighted Items (Capital Adequacy Standard Ratio) 15.8 17.0 16.2 17.3 16.9 15.6 (%) Liabilities/Shareholders’ Equity (%) 1,121.11 1,058.7 1,043.1 809.07 791.0 793.8 92 93 Source: The BRSA SECTORAL FINANCIAL DATA

PARTICIPATION BANKS: SUMMARY BALANCE SHEET - ASSETS (TL Thousand) PARTICIPATION BANKS: SUMMARY BALANCE SHEET - LIABILITIES (TL Thousand)

Current Period Current Period ASSETS December 31, 2018 LIABILITIES December 31, 2018 TL FC Total TL FC Total I. Financial Assets (Net) 13,869,495 48,504,936 62,374,431 I. Funds Collected 71,648,248 79,060,460 139,805,734 BANKS 2018 PARTICIPATION II. Loans (Net) 90,211,432 42,892,054 133,103,486 II. Funds Borrowed 16,014,594 24,574,892 36,062,813 Property and Equipment Held for Sale Purpose and Related to III. 1,330,227 718 1,330,945 III. Money Markets Debts 1,824,374 - 1,824,374 Discontinued Operations (Net) IV. Securities Issued (Net) - - - IV. Equity Investments 39,581 5,907 45,488 V. Financial Liabilities at Fair Value Through Profit or Loss - - - V. Property and Equipment (Net) 2,583,142 422 2,583,564 VI. Derivative Financial Liabilities 137,076 537,582 622,709 VI. Intangible Assets (Net) 359,919 48 359,967 VII. Finance Lease Payables - 415 415 VII. Investment Property (Net) 25,305 - 25,305 VIII. Provisions #VALUE! 237,640 1,413,459 VIII. Current Tax Asset 3,492 - 3,492 IX. Current Tax Liability 489,315 3,181 422,782 IX. Deferred Tax Asset 395,349 - 395,349 X. Deferred Tax Liability - - - X. Other Assets 2,319,564 3,217,490 5,537,054 Liabilities For Property and Equipment Held for Sale and Related XI. - - - Total Assets 112,031,201 94,621,575 206,652,776 to Discontinued Operations (Net) XII. Subordinated Debt Instruments - 4,432,022 4,432,022 Prior Period XIII. Other Liabilities 6,304,516 528,633 5,299,473 ASSETS December 31, 2017 TL FC Total XIV. Shareholders’ Equity 21,277,527 (122,209) 16,768,995 I. Cash Balances with the Central Bank of Turkey 2,603,200 22,004,378 24,607,578 Total Liabilities 119,091,016 109,252,616 206,652,776 II. Financial Assets at Fair Value Through Profit and Loss (Net) 1,187,022 80,498 1,267,520 Prior Period III. Banks 718,652 5,469,126 6,187,778 LIABILITIES December 31, 2017 IV. Money Market Placements - - - TL FC Total V. Financial Assets Available for Sale (Net) 5,963,565 4,762,854 10,726,419 I. Fund Collected 57,540,287 49,770,458 107,310,745 VI. Loans and Receivables 87,706,260 19,089,490 106,795,750 II. Derivative Financial Liabilities Held for Trading 34,668 88,100 122,768 VII. Investments Held to Maturity (Net) 1,203,331 - 1,203,331 III. Funds Borrowed 5,305,080 22,699,845 28,004,925 VIII. Investments in Associates (Net) 9,616 - 9,616 IV. Money Market Balances 2,003,778 - 2,003,778 IX. Investments in Subsidiaries (Net) 383,347 - 383,347 V. Marketable Securities Issued (Net) - - - X. Entities Under Common Control (Joint Vent.) (Net) 20,020 - 20,020 VI. Miscellaneous Payables 1,595,350 342,764 1,964,697 XI. Receivables from Leasing Transactions 3,584,256 689,536 4,273,792 VII. Other Liabilities 618,443 38,924 657,367 XII. Derivative Financial Assets for Hedging Purpose 147,489 - 147,489 VIII. Finance Lease Payables - - - XIII. Tangible Assets (Net) 1,924,717 420 1,925,137 IX. Derivative Financial Liabilities for Hedging - 327,591 327,591 XIV. Intangible Assets (Net) 300,283 131 300,414 X. Provisions 1,476,166 265,669 951,186 XV. Real Estates for Investment Purpose (Net) 25,419 - 25,419 XI. Tax Liability 264,081 2,910 266,991 XVI. Tax Asset 127,158 - 127,158 Liabilities for Assets Held for Sale and Held from Discontinued XII. - - - Assets Held for Sale and Assets Held from Discountinued Operations (Net) XVII. 470,927 493 471,420 Operations (Net) XIII. Subordinated Loans - 3,947,839 3,947,839 XVIII. Other Assets 667,350 695,268 1,362,618 XIV. Shareholders’ Equity 13,641,645 3,176 13,644,821 Total Assets 107,201,163 52,792,194 159,993,357 Total Liabilities 82,479,498 77,513,859 159,993,357

94 95 SECTORAL FINANCIAL DATA

PARTICIPATION BANKS: SUMMARY STATEMENT OF OFF-BALANCE SHEET ACCOUNTS - (TL Thousand) PARTICIPATION BANKS: SUMMARY STATEMENT OF INCOME (TL Thousand)

Current Period Current Period STATEMENT OF OFF-BALANCE SHEET ACCOUNTS December 31, 2018 INCOME AND EXPENSE ITEMS January 1 - TL FC Total December 31, 2018 A. Off-Balance Sheet Commitments (I+II+III) 81,275,736 68,858,929 150,134,665 I. Profit Share Income 16,764,613 BANKS 2018 PARTICIPATION I. Guarantees and Warranties 22,827,855 22,552,448 45,380,303 II. Profit Share Expense 9,467,114 II. Commitments 54,326,796 4,310,339 58,637,135 III. Net Profit Share Income (I - II) 7,297,499 III. Derivative Financial Instruments 4,121,085 41,996,142 46,117,227 IV. Net Fees and Commissions Income/Expense 783,016 B. Custody and Pledges Received (IV+V+VI) 941,061,759 235,285,330 1,176,347,089 V. Personnel Expense (-) 1,170,852 IV. Items Held in Custody 22,501,358 11,100,921 33,602,279 VI Dividend Income 1,804 V. Pledges Received 909,208,838 220,051,094 1,129,259,932 VII. Trading Income /(Loss) (Net) 1,226,956 VI. Accepted Independent Guarantees and Warranties 11,639 202,928 214,567 VIII. Other Operating Income 1,741,268 Total Off-Balance Sheet Commitments (A+B) 1,022,337,495 304,144,259 1,326,481,754 IX. Gross Operating Income (III+IV+V+VI+VII+VIII) 8,978,517 X. Expected Credit Loss (-) 1,984,403 Prior Period XI. Other Operating Expenses (-) 1,184,628 STATEMENT OF OFF-BALANCE SHEET ACCOUNTS December 31, 2017 XII. TL FC Total Net Operating Income/(Loss) (VIII-IX-X) 2,692,538 XIII. Excess Amount Recorded as Income After Merger - A. Off-Balance Sheet Commitments (I+II+III) 77,085,191 48,221,111 125,306,302 XIV. Income/(Loss) From Investments in Subsidiaries Consolidated Based on Equity Method - I. Guarantees and Warranties 21,851,508 16,704,001 38,555,509 XV. Income/(Loss) on Net Monetary Position - II. Commitments 50,332,388 3,259,349 53,591,737 XVI. Profit/Loss Before Tax from Continued Operations (XII+…+XV) 2,692,538 III. Derivative Financial Instruments 4,901,295 28,257,761 33,159,056 XVII. Tax Provision for Continued Operations (±) -100,312 B. Custody and Pledges Received (IV+V+VI) 824,814,228 172,876,295 997,690,523 XVIII. Current Period Profit/Loss from Continued Operations (XVI±XVII) 2,096,592 IV. Items Held in Custody 17,531,855 7,237,234 24,769,089 XIX. Income from Discontinued Operations - V. Pledges Received 807,270,734 165,536,970 972,807,704 XX. Expenses for Discontinued Operations (-) - VI. Accepted Independent Guarantees and Warranties 11,639 102,091 113,730 XXI. Profit/Loss Before Tax from Discontinued Operations (XIX-XX) - Total Off-Balance Sheet Commitments (A+B) 901,899,419 221,097,406 1,122,996,825 XXII. Tax Provision for Discontinued Operations (±) - XXIII. Current Period Profit/Loss from Discontinued Operations (XXI±XXII) - XXIV. Net Income/(Loss) (XVIII+XXIII) 2,096,592

Prior Period INCOME AND EXPENSE STATEMENT January 1 - December 31, 2017 I. Profit Share Income 13,751,552 II. Profit Share Expense 6,925,970 III. Net Profit Share Income (I - II) 6,825,582 IV. Net Fees and Commissions Income/Expense 725,217 V. Dividend Income - VI. Net Trading Income 534,337 VII. Other Operating Income 793,333 VIII. Net Operating Income (III+IV+V+VI+VII) 8,878,469 IX. Provision for Loan Losses and Other Receivables (-) 1,304,192 X. Other Operating Expenses (-) 2,407,420 XI. Net Operating Income/(Loss) (VIII-IX-X) 2,254,031 XII. Amount in Excess Recorded as Gain After Merger - XIII. Gain/(Loss) on Equity Method - XIV. Gain/(Loss) on Net Monetary Position - XV. Profit/(Loss) Before Taxes from Continued Operations (XI+...+XIV) 2,254,031 XVI. Tax Provision for Continued Operations (±) -226,632 XVII. Net Profit/(Loss) from Continued Operations (XV±XVI) 1,820,571 XVIII. Income from Discontinued Operations - XIX. Loss from Discontinued Operations (-) - XX. Profit/Losses Before Taxes from Discontinued Operations (XVIII-XIX) - XXI. Provision For Income Taxes from Discontinued Operations (±) - XXII. Net Profit/Loss from Discontinued Operations (XX±XXI) - 96 97 XXIII. Net Profit/Loss (XVII+XXII) 1,820,571 SECTORAL GRAPHS

The participation banking sector successfully TURKISH BANKING SECTOR VOLUME DEVELOPMENT OF FUNDS ALLOCATED OF CONCENTRATION OF FUNDS continued its journey in the path of sustainable AND RATIO TO GDP PARTICIPATION BANKS ALLOCATED BY TYPES growth in 2018. 4,000 2009‑2018 120.0 130,000 7.00 100 CAGR 120,000 6.24 6.02 90 3,500 5.95 The asset size of the sector, in which 5 banks 18.6% 110,000 6.00 105,4 105,0 104,5 5.45 80 BANKS 2018 PARTICIPATION 101,0 100,000 5.79 5.80 5.23 were active, reached TL 206,806 million with a 3,000 98,0 100.0 5.10 96,0 5.00 growth of 29.1%. 90,000 4.97 70 2,500 87,0 87,0 80,000 2009‑2018 4.78 85,0 87,0 % 60 4.00

% CAGR 70,000 % 2,000 80.0 19.6% 50 The average annual growth rate of the sector 60,000 3.00 TL billion TL million 40 in 2009-2018 period was 22.4%. 1,500 50,000 40,000 2.00 30 1,000 60.0 30,000 20 20,000 500 1.00 10 10,000 24,911 32,084 41,103 50,031 67,219 69,622 79,451 84,880 106,733 124,531 834 1,007 1,218 1,371 1,732 1,994 2,357 2,731 0 3,258 3,867 40.0 0 0.00 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Assets of Banking Sector Allocated Funds Volume Share in the Banking Sector (right axis) Other Profit-Loss Partnership Credit Cards Export Loans Ratio of Assets of Banking Sector/GDP (right axis) Import Loans Consumer Loans Enterprise Loans

SHARES IN ASSET IN DEVELOPMENT OF ASSETS OF PARTICIPATION BANKS AND RATIO OF FUNDS ALLOCATED TO DEVELOPMENT OF SHAREHOLDERS’ EQUITY OF TURKISH BANKING SECTOR SHARES IN THE SECTOR FUNDS COLLECTED (%) PARTICIPATION BANKS

6.00 210,000 2009‑2018 5.55 140 17.000 18.0 88.0% 200,000 CAGR 5.21 5.30 16.000 16.9 5.13 5.10 16.2 16.0 190,000 22.4% 5.00 15.000 16.0 120 15.3 15.1 14.9 180,000 4.90 4.92 121 14.000 14.5 14.0 13.9 14.0 4.61 13.000 14.0 170,000 4.03 4.00 4.31 100 91 12.000 160,000 12.0 11.000 2009‑2018

6.7% % 140,000 10.000 CAGR 3.00 80 10.0

16% %

120,000 % 9.000

5.3% TL million 100,000 8.000 8.0

60 TL million 2.00 7.000 80,000 6.000 6.0 60,000 40 5.000 1.00 40,000 4.000 4.0 3.000 20,000 20 2.0 43,339 56,077 70,245 96,022 104,073 120,252 132,874 160,136 206,806 33,628 2.000 0 0.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1.000 4.420 5.457 6.193 7.377 8.833 9.265 10.642 11.494 16.796 13.645 0.0 0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Participation Banks Deposit Banks Development and Investment Banks Assets Volume Share in the Banking Sector (right axis) (Share based received from total assets) Participation Banks Banking Sector Shareholders’ Equity Capital Adequacy Ratio (right axis)

DEVELOPMENT OF FUNDS COLLECTED OF TL/FC CONCENTRATION OF FUNDS COLLECTED OF DEVELOPMENT OF NET PROFIT OF DEVELOPMENT OF BRANCHES AND STAFF OF PARTICIPATION BANKS PARTICIPATION BANKS PARTICIPATION BANKS PARTICIPATION BANKS

110,000 7.00 100 2,200 30,0 1,200 18,000 6.70 6.48 6.19 37 34 40 41 41 41 55 59 59 56 16,763 16,554 15,654 100,000 6.14 6.10 2,000 2009‑2018 5.94 15,857 16,000 16,270 15,029 5.64 6.00 CAGR 25,0 1,000 90,000 5.58 1.800 5.36 80 13.0% 13,857 14,465 5.22 14,000 80,000 5.00 1,600 12,677 20,0 800 11,802 12,000 70,000 1,400 19.0 60 16.9 2009‑2018 4.00 60,000 1,200 10,000

15.14 % CAGR % 14.8 14.7 600 % 15,0 19.9% 13.8 13.5 50,000 1,000 8,000

TL million 3.00 TL million 40 10.7 40,000 800 10,0 400 6,000 2.00 30,000 600 4,000 20 20,000 400 200 1.00 5,0 0.9 1.6 2,000 10,000 200 80 26,841 33,828 39,869 49,151 63,210 65,405 74,362 82,148 105,310 137,220 63 66 57 60 59 59 59 45 41 41 44 705 760 803 916 1,052 405 1,106 1,583 2,123 0.00 560 607 685 829 966 990 1.080 959 1.032 1.122 0 0 0 0,0 0 0 98 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 99 Collected Funds Volume Share in the Banking Sector (right axis) FX Share TL Share Period Net Profit ROAE (right axis) Number of Branches Number of Personnel (right axis) ALBARAKA TÜRK-FINANCIAL STATEMENTS

ALBARAKA TÜRK KATILIM BANKASI A.Ş. SUMMARY BALANCE SHEET (TL Thousand)

Current Period Current Period ASSETS December 31, 2018 LIABILITIES December 31, 2018 TL FC Total TL FC Total

I. Financial Assets (Net) 3,824,347 10,260,210 14,084,557 I. Funds Collected 11,779,608 16,843,865 28,623,473 BANKS 2018 PARTICIPATION II. Loans (Net) 15,976,372 10,208,617 26,184,989 II. Funds Borrowed 1,834,328 5,017,765 6,852,093 III. Assets Held for Sale and Assets of Discontinued Operations (Net) 648,970 718 649,688 III. Borrowings From Money Markets 771,957 - 771,957 IV. Ownership Investments (Net) 33,837 5,907 39,744 IV. Securities Issued (Net) - - - V. Tangible Assets (Net) 655,230 219 655,449 V. Financial Liabilities At Fair Value Through Profit And Loss - - - VI. Intangible Assets (Net) 31,419 - 31,419 VI. Derivative Financial Liabilities 1,545 - 1,545 VII. Investment Property (Net) - - - VII. Lease Payables - - - VIII. Current Tax Asset 3,492 - 3,492 VIII. Provisions 89,535 736 90,271 IX. Deferred Tax Asset 170,099 - 170,099 IX. Current Tax Liability 53,041 3,181 56,222 X. Other Assets 362,551 41,664 404,215 X. Deferred Tax Liability - - - Total Assets 21,706,317 20,517,335 42,223,652 Liabilities For Assets Held For Sale And Assets Of Discontinued XI. - - - Operations (Net)

Prior Period XII. Subordinated Loans - 1,204,297 1,204,297 ASSETS December 31, 2017 XIII. Other Liabilities 1,288,023 74,320 1,362,343 TL FC Total XIV. Shareholders’ Equity 3,269,225 (7,774) 3,261,451 I. Cash and Balances with the Central Bank 422,105 5,334,890 5,756,995 Total Liabilities 19,087,262 23,136,390 42,223,652 II. Financial Assets at Fair Value Through Profit and Loss (Net) 990,788 3,363 994,151 III. Banks 706,186 805,221 1,511,407 Prior Period IV. Money Market Placements - - - LIABILITIES December 31, 2017 V. Financial Assets-Available for Sale (Net) 937,211 412,022 1,349,233 TL FC Total I. Funds Collected 13,247,715 12,062,125 25,309,840 VI. Loans and Receivables 18,334,954 6,121,428 24,456,382 II. Derivative Financial Liabilities Held For Trading 76 6,342 6,418 VII. Investments Held to Maturity (Net) 532,803 - 532,803 III. Funds Borrowed 798,755 4,613,214 5,411,969 VIII. Investments in Associates (Net) 4,719 - 4,719 IV. Borrowings From Money Markets 340,000 - 340,000 IX. Subsidiaries (Net) 5,400 - 5,400 V. Securities Issued (Net) - - - X. Joint Ventures (Net) 20,000 - 20,000 VI. Miscellaneous Payables 604,017 90,087 694,104 XI. Lease Receivables (Net) 737,081 - 737,081 VII. Other Liabilities - - - XII. Derivative Financial Assets for Hedging Purposes - - - VIII. Lease Payables - - - XIII. Tangible Assets (Net) 589,430 236 589,666 IX. Derivative Financial Liabilities For Hedging Purposes - - - XIV. Intangible Assets (Net) 28,397 78 28,475 X. Provisions 233,722 31,098 264,820 XV. Investment Property (Net) - - - XI. Tax Liability 90,347 2,910 93,257 XVI. Tax Asset 55,029 - 55,029 Liabilities For Assets Held For Sale And Assets Of Discontinued XVII. Assets Held for Sale and Assets of Discontinued Operations (Net) 83,737 493 84,230 XII. - - - Operations (Net) XVIII. Other Assets 81,075 22,431 103,506 XIII. Subordinated Loans - 1,627,163 1,627,163 Total Assets 23,528,915 12,700,162 36,229,077 XIV. Shareholders’ Equity 2,481,652 (146) 2,481,506 Total Liabilities 17,796,284 18,432,793 36,229,077

100 101 ALBARAKA TÜRK-FINANCIAL STATEMENTS

ALBARAKA TÜRK KATILIM BANKASI A.Ş. SUMMARY STATEMENT OF OFF-BALANCE SHEET (TL Thousand) ALBARAKA TÜRK KATILIM BANKASI A.Ş. SUMMARY STATEMENT OF PROFIT OR LOSS (TL Thousand)

Current Period Current Period STATEMENT OF PROFIT OR LOSS STATEMENT OF OFF-BALANCE SHEET December 31, 2018 January 1 - December 31, 2018 TL FC Total I. Profit Share Income 3,019,738 A. Off Balance Sheet Commitments (I+II+III) 6,476,432 5,967,594 12,444,026 II. Profit Share Expense 2,000,179 BANKS 2018 PARTICIPATION I. Guarantees and Sureties 4,655,835 5,389,862 10,045,697 III. Net Profit Share Income (I – II) 1,019,559 II. Commitments 1,553,305 315,080 1,868,385 IV. Net Fees and Commissions Income/Expenses 198,153 III. Derivative Financial Instruments 267,292 262,652 529,944 V. Personnel Expenses (-) 535,985 B. Custody and Pledged Items (IV+V+VI) 68,732,410 13,762,534 82,494,944 VI Dividend Income 177 IV. Items Held In Custody 2,380,394 2,083,413 4,463,807 VII. Trading Income/Loss (Net) 358,815 V. Pledged Items 57,012,092 7,748,734 64,760,826 VIII. Other Operating Income 360,618 VI. Accepted Independent Guarantees and Warranties - - - IX. Total Operating Income (III+IV+V+VI+VII+VIII) 1,401,337 Total Off Balance Sheet Accounts (A+B) 75,208,842 19,730,128 94,938,970 X. Expected Credit Loss (-) 607,836 Prior Period XI. Other Operating Expenses (-) 625,006 STATEMENT OF OFF-BALANCE SHEET December 31, 2017 XII. Net Operating Income/(Loss) (VIII-IX-X) 168,495 TL FC Total XIII. Excess Amount Recorded As Gain After Merger - A. Off Balance Sheet Commitments (I+II+III) 6,252,472 5,192,237 11,444,709 XIV. Profit/(Loss) on Equity Method - I. Guarantees and Sureties 4,136,465 3,996,159 8,132,624 XV. Profit/(Loss) on Net Monetary Position - II. Commitments 1,999,439 232,913 2,232,352 XVI. Profit/(Loss) from Continued Operations Before Taxes (XI+…+XIV) 168,495 III. Derivative Financial Instruments 116,568 963,165 1,079,733 XVII. Tax Provision for Continued Operations (±) 34,527 XVIII. B. Custody and Pledged Items (IV+V+VI) 59,076,439 9,015,013 68,091,452 Net Income/(Loss) From Continued Operations (XV±XVI) 133,968 XIX. Income from Discontinued Operations - IV. Items Held in Custody 2,064,347 1,266,279 3,330,626 XX. Loss from Discontinued Operations (-) - V. Pledged Items 57,012,092 7,748,734 64,760,826 XXI. Profit/(Loss) on Discontinued Operations Before Taxes (XVIII-XIX) - VI. Accepted Independent Guarantees and Warranties - - - XXII. Tax Provision for Discontinued Operations (±) - Total Off Balance Sheet Accounts (A+B) 65,328,911 14,207,250 79,536,161 XXIII. Net Profit/Loss from Discontinued Operations (XX±XXI) - XXIV. Net Profit/Loss (XVII+XXII) 133,968

Prior Period INCOME AND EXPENSE ITEMS January 1 - December 31, 2017 I. Profit Share Income 2,658,587 II. Profit Share Expense 1,390,788 III. Net Profit Share Income (I – II) 1,267,799 IV. Net Fees and Commissions Income/Expenses 148,457 V. Dividend Income - VI. Trading Income/Loss (Net) 45,363 VII. Other Operating Income 122,146 VIII. Total Operating Income (III+IV+V+VI+VII) 1,583,765 IX. Provision for Loan Losses and Other Receivables (-) 460,758 X. Other Operating Expenses (-) 834,207 XI. Net Operating Income/(Loss) (VIII-IX-X) 288,800 XII. Excess Amount Recorded as Gain After Merger - XIII. Profit/(Loss) on Equity Method - XIV. Profit/(Loss) on Net Monetary Position - XV. Profit/(Loss) from Continued Operations Before Taxes (XI+…+XIV) 288,800 XVI. Tax Provision for Continued Operations (±) 51,707 XVII. Net Income/(Loss) from Continued Operations (XV±XVI) 237,093 XVIII. Income from Discontinued Operations - XIX. Loss from Discontinued Operations (-) - XX. Profit/(Loss) on Discontinued Operations Before Taxes (XVIII-XIX) - XXI. Tax Provision for Discontinued Operations (±) - XXII. Net Profit/Loss from Discontinued Operations (XX±XXI) - XXIII. Net Profit/Loss (XVII+XXII) 237,093

102 103 KUVEYT TÜRK-FINANCIAL STATEMENTS

KUVEYT TÜRK KATILIM BANKASI A.Ş. SUMMARY BALANCE SHEET (TL Thousand)

Current Period Current Period ASSETS December 31, 2018 LIABILITIES December 31, 2018 TL FC Total TL FC Total I. Financial Assets (Net) 3,639,236 19,911,720 23,550,956 I. Funds Collected 22,520,320 31,465,958 53,986,278 BANKS 2018 PARTICIPATION II. Funds Borrowed 2,038,900 8,103,989 10,142,889 II. Loans (Net) 31,038,014 14,827,277 45,865,291 III. Money Markets 188,003 - 188,003 III. Property and Equipment Held for Sale Purpose and Related to 270,382 - 270,382 Discontinued Operations (Net) IV. Securities Issued (Net) - - - IV. Equity Investments 547,950 - 547,950 V. Financial Liabilities at Fair Value Through Profit or Loss - - - VI. Derivative Financial Liabilities 21,045 148,288 169,333 V. Tangible Assets (Net) 688,685 203 688,888 VII. Lease Payables - - - VI. Intangible Assets (Net) 136,931 48 136,979 VIII. Provisions 615,510 180,385 795,895 VII. Investment Properties (Net) 25,305 - 25,305 IX. Current Tax Liabilities 175,685 - 175,685 VIII. Current Tax Assets - - - X. Deferred Tax Liabilities - - - IX. Deferred Tax Assets 346,640 - 346,640 XI. Liabilities for Property and Equipment Held for Sale and Related - - - X. Other Assets 817,583 1,982,351 2,799,934 to Discontinued Operations (Net) Total Assets 37,510,726 36,721,599 74,232,325 XII. Subordinated Debt Instruments - 1,901,210 1,901,210 XIII. Other Liabilities 1,282,540 151,939 1,434,479 Prior Period XIV. Shareholders` Equity 5,489,985 (51,432) 5,438,553 ASSETS December 31, 2017 Total Liabilities and Equity 32,331,988 41,900,337 74,232,325 TL FC Total Prior Period I. Cash and Balances with the Central Bank 625,022 8,307,834 8,932,856 LIABILITIES December 31, 2017 II. Financial Assets at Fair Value Through Profit and Loss 176,941 66,466 243,407 TL FC Total III. Banks 7,404 3,568,616 3,576,020 I. Funds Collected 19,955,412 19,901,988 39,857,400 IV. Receivables from Money Market - - - II. Derivative Financial Liabilities Held for Trading 21,446 59,251 80,697 V. Financial Assets Available for Sale (Net) 2,088,123 2,339,942 4,428,065 III. Funds Borrowed 1,258,301 7,773,208 9,031,509 VI. Loans and Receivables 29,860,983 6,180,316 36,041,299 IV. Money Market Balances 750,524 - 750,524 V. Marketable Securities Issued (Net) - - - VII. Held to Maturity Investments (Net) - - - VI. Sundry Creditors 171,509 26,610 198,119 VIII. Investments in Associates (Net) - - - VII. Other Liabilities 318,674 16,177 334,851 IX. Investments in Subsidiaries (Net) 377,647 - 377,647 VIII. Finance Lease Payables (Net) - - - X. Entities Under Common Control (Joint Vent.) (Net) 20,000 - 20,000 IX. Derivative Financial Liabilities for Hedging Purposes - 70,795 70,795 XI. Finance Lease Receivables (Net) 1,285,866 643,376 1,929,242 X. Provisions 642,554 148,886 791,440 XII. Derivative Financial Assets for Hedging Purposes - - - XI. Tax Liability 56,271 - 56,271 XIII. Tangible Assets (Net) 409,559 184 409,743 XII. Payables Related to Assets Held for Sale and Discontinued Operations (Net) - - - XIV. Intangible Assets (Net) 118,959 53 119,012 XIII. Subordinated Loans - 1,360,338 1,360,338 XV. Investment Properties (Net) 25,419 - 25,419 XIV. Shareholders' Equity 4,578,542 12,609 4,591,151 XVI. Tax Asset 138,710 - 138,710 Total Liabilities and Equity 27,753,233 29,369,862 57,123,095 XVII. Assets Held for Sale and Discontinued Operations (Net) 117,006 - 117,006 XVIII Other Assets 183,231 581,438 764,669 Total Assets 35,434,870 21,688,225 57,123,095

104 105 KUVEYT TÜRK-FINANCIAL STATEMENTS

KUVEYT TÜRK KATILIM BANKASI A.Ş. SUMMARY STATEMENT OF OFF-BALANCE SHEET (TL Thousand) KUVEYT TÜRK KATILIM BANKASI A.Ş. SUMMARY STATEMENT OF PROFIT OR LOSS (TL Thousand)

Current Period Current Period STATEMENT OF PROFIT OR LOSS STATEMENT OF OFF-BALANCE SHEET December 31, 2018 January 1 - December 31, 2018 TL FC Total I. Profit Share Income 5,997,843 A. Commitments and Contingencies (I+II+III) 57,546,517 29,226,698 86,773,215 II. Profit Share Expense (-) 2,850,053 BANKS 2018 PARTICIPATION I. Guarantees and Warranties 6,416,633 5,451,457 11,868,090 III. Net Profit Share Income (I - II) 3,147,790 IV. Net Fees and Commissions Income/Expense 349,546 II. Commitments 50,194,084 1,327,223 51,521,307 V. Personnel Expenses (-) 803,290 III. Derivative Financial Instruments 935,800 22,448,018 23,383,818 VI Dividend Income 1,273 B. Custody and Pledged Securities (IV+V+VI) 316,497,679 142,487,425 458,985,104 VII. Net Trading Income/Loss (Net) 453,415 IV. Items Held in Custody 10,816,866 5,644,771 16,461,637 VIII. Other Operating Income 656,516 V. Pledged Items 305,669,174 136,780,695 442,449,869 IX. Net Operating Income/Loss (III+IV+V+VI+VII+ VIII) 3,805,250 VI. Accepted Guarantees and Warrantees 11,639 61,959 73,598 X. Expected Loss Provisions (-) 1,977,360 Total Off Balance Sheet Accounts (A+B) 374,044,196 171,714,123 545,758,319 XI. Other Operating Expenses (-) 701,833 XII. Net Operating Income/(Loss) (IX-X-XI) 1,126,057 Prior Period XIII. Excess Amount Recorded as Income After Merger - STATEMENT OF OFF-BALANCE SHEET December 31, 2017 Income/Loss From Investments in Subsidiaries Consolidated Based on Equity - TL FC Total XIV. Method A. Off Balance Sheet Contingencies and Commitments (I+II+III) 54,025,598 19,041,939 73,067,537 XV. Income/Loss on Net Monetary Position - I. Guarantees 6,501,080 4,567,075 11,068,155 XVI. Profit/Loss Before Tax From Continued Operations (XII+...+XV) 1,126,057 XVII. Tax Provision for Continued Operations (±) (256,245) II. Commitments 45,832,293 948,078 46,780,371 XVIII. Current Period Profit/(Loss) from Continued Operations (XVI±XVII) 869,812 III. Derivative Financial Instruments 1,692,225 13,526,786 15,219,011 XIX. Income from Discontinued Operations - B. Custody and Pledged Items (IV+V+VI) 264,937,891 106,948,648 371,886,539 XX. Expenses from Discontinued Operations (-) - IV. Items Held in Custody 9,232,412 3,224,354 12,456,766 XXI. Profit/(Loss) Before Tax From Discontinued Operations (XIX-XX) - V. Pledged Items 255,693,840 103,679,813 359,373,653 XXII. Tax Provision for Discontinued Operations (±) - VI. Accepted Independet Guarantees and Warranties 11,639 44,481 56,120 XXIII. Current Period Profit/Loss from Discontinued Operations (XXI±XXII) - Total Off Balance Sheet Accounts (A+B) 318,963,489 125,990,587 444,954,076 XXIV. Net Profit/Loss (XVIII+XXIII) 869,812

Prior Period INCOME AND EXPENSE ITEMS January 1 - December 31, 2017 I. Profit Share Income 3,850,986 II. Profit Share Expense 1,716,773 III. Net Profit Share Income (I - II) 2,134,213 IV. Net Fees and Commissions Income 241,002 V. Dividend Income - VI. Net Trading Income/Expense (Loss) 246,884 VII. Other Operating Income 230,217 VIII. Net Operating Income (III+IV+V+VI+VII) 2,852,316 IX. Provision for Loan Losses and Other Receivables (-) 783,703 X. Other Operating Expenses (-) 1,219,680 XI. Net Operating Income/Loss (VIII-IX-X) 848,933 XII. Amount in Excess Recorded as Gain After Merger - XIII. Gain/Loss on Equity Method - XIV. Gain/Loss on Net Monetary Position - XV. Profit/Loss from Continued Operations Before Taxes (XI+…+XIV) 848,933 XVI. Tax Charge for Continued Operations (±) (174,942) XVII. Net Profit/Loss from Continued Operations (XV±XVI) 673,991 XVIII. Income on Discontinued Operations - XIX. Loss from Discontinued Operations (-) - XX. Profit/Loss on Discontinued Operations Before Taxes (XVIII-XIX) - XXI. Tax Charge for Discontinued Operations (±) - XXII. Net Profit/Loss From Discontinued Operations (XX±XXI) - XXIII. Net Profit/Loss (XVII+XXII) 673,991

106 107 TÜRKİYE FİNANS-FINANCIAL STATEMENTS

TÜRKİYE FİNANS KATILIM BANKASI AŞ SUMMARY BALANCE SHEET (TL Thousand)

Current Period Current Period ASSETS December 31, 2018 LIABILITIES December 31, 2018 TL FC Total TL FC Total I. Financial Assets (Net) 2,892,925 10,748,398 13,641,323 I. Funds Collected 10,902,974 15,959,505 26,862,479 BANKS 2018 PARTICIPATION II. Funds Borrowed 4,526,673 7,487,945 12,014,618 II. Loans (Net) 21,852,257 7,973,534 29,825,791 III. Money Market Balances - - - III. Assets Held for Sale and Discontinued Operations (Net) 406,616 - 406,616 IV. Marketable Securities Issued (Net) - - - Subsidiary Investments 100 - 100 IV. V. Financial Liabilities Valued at Fair Value Through Profit and Loss - - - V. Tangible Assets (Net) 900,166 - 900,166 VI. Derivative Financial Liabilities 51,949 374,096 426,045 VI. Intangible Assets (Net) 88,372 - 88,372 VII. Lease Liabilities - - - VII. Investment Property (Net) - - - VIII. Provisions 219,547 34,581 254,128 VIII. Current Tax Asset - - - IX. Current Tax Liability 69,714 - 69,714 IX. Deferred Tax Asset 143,047 - 143,047 X. Deferred Tax Liability - - - XI. Liabilities for Assets Held for Sale and Discontinued Operations X. Other Assets 859,728 1,187,341 2,047,069 - - - (Net) Total Assets 27,143,211 19,909,273 47,052,484 XII. Subordinated Debts - 1,326,515 1,326,515 XIII. Other Liabilites 1,533,676 242,128 1,775,804 Prior Period XIV. Shareholders' Equity 4,386,323 (63,142) 4,323,181 ASSETS December 31, 2017 Total Liabilities 21,690,856 25,361,628 47,052,484 TL FC Total I. Cash And Balances with Central Bank 561,303 5,522,898 6,084,201 Prior Period II. Financial Assets at Fair Value Through Profit and Loss (Net) 8,371 8,177 16,548 LIABILITIES December 31, 2017 III. Banks and other Financial Institutions 1,174 306,262 307,436 TL FC Total I. Funds Collected 11,164,157 10,866,339 22,030,496 IV. Money Market Placements - - - II. Derivative Financial Liabilities Held for Trading 12,961 14,557 27,518 V. Financial Assets Available for Sale (Net) 1,753,505 1,975,843 3,729,348 III. Funds Borrowed 1,388,134 8,295,545 9,683,679 VI. Loans 21,264,640 4,073,179 25,337,819 IV. Money Market Balances 510,534 - 510,534 VII. Investments Held to Maturity (Net) 670,528 - 670,528 V. Marketable Securities Issued (Net) - - - VIII. Investments in Associates (Net) - - - VI. Miscellaneous Payables 565,463 242,039 807,502 IX. Investments in Subsidiaries (Net) 100 - 100 VII. Other Liabilities 230,401 21,545 251,946 X. Jointly Controlled Entities (Joint Ventures) (Net) - - - VIII. Lease Payables (Net) - - - XI. Lease Receivables (Net) 1,145,634 - 1,145,634 IX. Derivative Financial Liabilities Held for Risk Management - 256,796 256,796 X. Provisions 372,003 56,977 428,980 XII. Derivative Financial Assets Held for Risk Management 147,489 - 147,489 XI. Tax Liability 62,510 - 62,510 XIII. Tangible Assets (Net) 819,362 - 819,362 XII. Liabilities for Assets Held for Sale and Discontinued Operations (Net) - - - XIV. Intangible Assets (Net) 66,058 - 66,058 XIII. Subordinated Debts - 960,338 960,338 XV. Investment Property (Net) - - - XIV. Shareholders' Equity 4,069,860 (9,262) 4,060,598 XVI. Tax Asset 47,756 - 47,756 Total Liabilities And Shareholders' Equity 18,376,023 20,704,874 39,080,897 XVII. Assets Held for Sale and Discontinued Operations (Net) 263,623 - 263,623 XVIII Other Assets 361,891 83,104 444,995 Total Assets 27,111,434 11,969,463 39,080,897

108 109 TÜRKİYE FİNANS-FINANCIAL STATEMENTS

TÜRKİYE FİNANS KATILIM BANKASI A.Ş. SUMMARY STATEMENT OF OFF-BALANCE SHEET (TL Thousand) TÜRKİYE FİNANS KATILIM BANKASI A.Ş. SUMMARY STATEMENT OF PROFIT OR LOSS (TL Thousand)

Current Period Current Period STATEMENT OF PROFIT OR LOSS STATEMENT OF OFF-BALANCE SHEET December 31, 2018 January 1 - December 31, 2018 TL FC Total I. Profit Share Income 3,937,713 A. Off-Balance Sheet Commitments and Contingencies (I+II+III) 7,593,066 16,682,536 24,275,602 II. Profit Share Expense 2,191,887 BANKS 2018 PARTICIPATION I. Guarantees and Sureties 4,216,393 3,342,615 7,559,008 III. Net Profit Share Income (I - II) 1,745,826 IV. Net Fees And Commissions Income 126,793 II. Commitments 1,871,543 1,875,149 3,746,692 V. Staff Expenses (-) (450,587) III. Derivative Financial Instruments 1,505,130 11,464,772 12,969,902 VI Dividend Income 177 B. Custody and Pledged Items (IV+V+VI) 449,350,654 74,159,547 523,510,201 VII. Trading Income/Expenses (Net) 83,909 IV. Items Held In Custody 4,694,504 2,119,017 6,813,521 VIII. Other Operating Income 621,806 V. Pledged Items 444,656,150 71,899,561 516,555,711 IX. Total Operating Income/Expense (III+IV+V+VI+VII+VIII) 2,127,924 VI. Confirmed Bills of Exchange and Sureties - 140,969 140,969 X. Provision For Expected Loss (-) (1,055,476) Total Off-Balance Sheet Items (A+B) 456,943,720 90,842,083 547,785,803 XI. Other Operating Expenses (-) (502,998) XII. Net Operating Income/Expense (Ix-X-Xi) 569,450 Prior Period XIII. Amount In Excess Recorded As Gain After Merger - STATEMENT OF OFF-BALANCE SHEET December 31, 2017 XIV. Profit/Loss From Associates Accounted For Using The Equity Method - TL FC Total XV. Gain/Loss On Net Monetary Position - A. Off-Balance Sheet Commitments and Contingencies (I+II+III) 10,302,708 14,983,551 25,286,259 XVI. Profit/Loss On Continuing Operations Before Tax (XII+...+XV) 569,450 I. Guarantees and Sureties 5,894,968 3,870,806 9,765,774 XVII. Tax Provision For Continuing Operations (±) 124,700 II. Commitments 2,253,164 1,225,110 3,478,274 XVIII. Net Period Profit/Loss From Contunuing Operations (XVI±XVII) 444,750 III. Derivative Financial Instruments 2,154,576 9,887,635 12,042,211 XIX. Income On Discontinued Operations - XX. Expense On Discontinued Operations (-) - B. Custody and Pledged Items (IV+V+VI) 439,943,500 55,168,769 495,112,269 XXI. Profit/(Loss) On Discontinued Operations Before Taxes (XVIII-XIX) - IV. Items Held in Custody 4,188,713 2,426,609 6,615,322 XXII. Tax Provision For Discontinued Operations (±) - V. Pledged Items 435,754,787 52,684,550 488,439,337 XXIII. Net Profit/Loss From Discontinued Operations (XXI±XXII) - VI. Confirmed Bills of Exchange and Sureties - 57,610 57,610 XXIV. Net Profit/Loss (XVIII+XXIII) 444,750 Total Off-Balance Sheet Items (A+B) 450,246,208 70,152,320 520,398,528 Prior Period INCOME AND EXPENSE ITEMS January 1 - December 31, 2017 I. Profit Share Income 2,902,629 II. Profit Share Expense 1,451,193 III. Net Profit Share Income (I - II) 1,451,436 IV. Net Fees and Commissions Income 135,781 V. Dividend Income - VI. Trading Income/Expenses (Net) 22,124 VII. Other Operating Income 304,714 VIII. Total Operating Income/Expense (III+IV+V+VI+VII) 1,914,055 IX. Provision for Loan Losses and Other Receivables (-) (580,815) X. Other Operating Expenses (-) (875,598) XI. Net Operating Income/Expense (VIII-IX-X) 457,642 XII. Amount In Excess Recorded as Gain After Merger - XIII. Profit/Loss from Associates Accounted for Using the Equity Method - XIV. Gain/Loss on Net Monetary Position - XV. Profit/Loss on Continuing Operations Before Tax (XI+...+XIV) 457,642 XVI. Tax Provision for Continuing Operations (±) (82,282) XVII. Net Period Profit/Loss from Contunuing Operations (XV±XVI) 375,360 XVIII. Income on Discontinued Operations - XIX. Expense on Discontinued Operations (-) - XX. Profit/(Loss) on Discontinued Operations Before Taxes (XVIII-XIX) - XXI. Tax Provision for Discontinued Operations (±) - XXII. Net Profit/Loss From Discontinued Operations (XX±XXI) - XXIII. Net Profit/Loss (XVII+XXII) 375,360

110 111 VAKIF PARTICIPATION-FINANCIAL STATEMENTS

VAKIF KATILIM BANKASI A.Ş. SUMMARY BALANCE SHEET (TL Thousand)

Current Period Current Period ASSETS December 31, 2018 LIABILITIES December 31, 2018 TL FC Total TL FC Total I. Financial Assets (Net) 1,992,059 5,007,309 6,999,368 I. Funds Collected 7,293,824 7,888,582 15,182,406 BANKS 2018 PARTICIPATION II. Funds Borrowed 1,696,275 1,995,064 3,691,339 II. Loans (Net) 8,779,246 4,708,744 13,487,990 III. Money Market Balances - - - III. Assets Held for Sale and Dıscontınued Operatıons (Net) - - - IV. Marketable Securities Issued (Net) - - - IV. Subsidiary Investments 4,996 - 4,996 V. Financial Liabilities Valued at Fair Value Through Profit and Loss - - - V. Tangible Assets (Net) 286,945 - 286,945 VI. Derivative Financial Liabilities 10,588 9,053 19,641 VI. Intangible Assets (Net) 22,801 - 22,801 VII. Lease Liabilities - - - VII. Investment Property (Net) - - - VIII. Provisions 133,279 7,922 141,201 VIII. Current Tax Asset - - - IX. Current Tax Liability 67,187 - 67,187 X. Deferred Tax Liability - - - IX. Deferred Tax Asset 31,986 - 31,986 XI. Liabilities for Assets Held for Sale and Discontinued Operations Other Assets 117,983 3,443 121,426 - - - X. (Net) Total Assets 11,236,016 9,719,496 20,955,512 XII. Subordinated Debts - - - XIII. Other Liabilites 298,399 28,113 326,512 Prior Period XIV. Shareholders' Equity 1,527,392 (166) 1,527,226 ASSETS December 31, 2017 Total Liabilities 11,026,944 9,928,568 20,955,512 TL FC Total I. Cash And Balances With The Central Bank 688,967 1,500,870 2,189,837 Prior Period II. Financial Assets at Fair Value Through Profit and Loss (Net) 10,889 2,488 13,377 LIABILITIES December 31, 2017 III. Banks 568 513,766 514,334 TL FC Total I. Funds Collected 6,827,057 3,261,357 10,088,414 IV. Money Market Placements - - - II. Derivative Financial Liabilities Held for Trading 185 1,670 1,855 V. Financial Assets-Available for Sale (Net) 668,265 27,335 695,600 III. Funds Borrowed 882,712 387,942 1,270,654 VI. Loans And Receivables 8,589,671 995,835 9,585,506 IV. Borrowings From Money Markets 370,258 - 370,258 VII. Investments Held To Maturity (Net) - - - V. Securities Issued (Net) - - - VIII. Investments In Associates (Net) 4,897 - 4,897 VI. Miscellaneous Payables 227,107 2,149 229,256 IX. Subsidiaries (Net) 100 - 100 VII. Other Liabilities - - - X. Joint Ventures (Net) - - - VIII. Lease Payables - - - IX. Derivative Financial Liabilities for Hedging Purposes - - - XI. Lease Receivables (Net) 42,731 46,160 88,891 X. Provisions 89,202 25,103 114,305 XII. Derivative Financial Assets for Hedging Purposes - - - XI. Tax Liability 27,518 - 27,518 XIII. Tangible Assets (Net) 59,131 - 59,131 XII. Liabilities for Assets Held for Sale and Assets of Discontinued XIV. Intangible Assets (Net) 23,589 - 23,589 Operations (Net) - - - XV. Investment Property (Net) - - - XIII. Subordinated Loans - - - XVI. Tax Asset 10,141 - 10,141 XIV. Shareholders' Equity 1,107,899 (14) 1,107,885 XVII. Assets Held for Sale and Assets of Discontinued Operations (Net) 3,000 - 3,000 Total Liabilities 9,531,938 3,678,207 13,210,145 XVIII Other Assets 13,569 8,173 21,742 Total Assets 10,115,518 3,094,627 13,210,145

112 113 VAKIF PARTICIPATION-FINANCIAL STATEMENTS

VAKIF KATILIM BANKASI A.Ş. SUMMARY STATEMENT OF OFF-BALANCE SHEET (TL Thousand) VAKIF KATILIM BANKASI A.Ş. SUMMARY STATEMENT OF PROFIT OR LOSS (TL Thousand)

Current Period Current Period STATEMENT OF PROFIT OR LOSS STATEMENT OF OFF-BALANCE SHEET December 31, 2018 January 1 - December 31, 2018 TL FC Total I. Profit Share Income 1,718,762

A. Off Balance Sheet Commitments (I+II+III) 5,290,596 8,297,999 13,588,595 II. Profit Share Expense 1,105,272 BANKS 2018 PARTICIPATION I. Guarantees and Sureties 3,468,753 2,155,313 5,624,066 III. Net Profit Share Income (I - II) 613,490 II. Commitments 408,980 732,956 1,141,936 IV. Net Fees and Commissions Income 47,797 III. Derivative Financial Instruments 1,412,863 5,409,730 6,822,593 V. Staff Expenses (-) 158,191 VI Dividend Income - B. Custody and Pledged Items (IV+V+VI) 87,100,120 2,485,811 89,585,931 VII. Trading Income/Expenses (Net) 273,036 IV. Items Held in Custody 3,287,567 501,498 3,789,065 VIII. Other Operating Income 22,116 V. Pledged Items 83,812,553 1,984,313 85,796,866 IX. Total Operating Income/Expense (III+IV+V+VI+VII+VIII) 798,248 VI. Accepted Independent Guarantees and Warranties - - - X. Provision for Expected Loss (-) 198,662 Total Off Balance Sheet Accounts (A+B) 92,390,716 10,783,810 103,174,526 XI. Other Operating Expenses (-) 185,599 XII. Net Operating Income/Expense (IX-X-XI) 413,987 Prior Period XIII. Amount in Excess Recorded as Gain After Merger - December 31, 2017 STATEMENT OF OFF-BALANCE SHEET XIV. Profit/Loss from Associates Accounted for Using the Equity Method - TL FC Total XV. Gain/Loss on Net Monetary Position - A. Off Balance Sheet Commitments (I+II+III) 3,230,137 4,769,288 7,999,425 XVI. Profit/Loss on Continuing Operations Before Tax (XII+...+XV) 413,987 I. Guarantees And Sureties 2,145,620 1,331,798 3,477,418 XVII. Tax Provision for Continuing Operations (±) 88,590 II. Commitments 146,591 821,393 967,984 XVIII. Net Period Profit/Loss From Contunuing Operations (XVI±XVII) 325,397 III. Derivative Financial Instruments 937,926 2,616,097 3,554,023 XIX. Income on Discontinued Operations - B. Custody And Pledged Items (IV+V+VI) 48,171,619 797,252 48,968,871 XX. Expense on Discontinued Operations (-) - IV. Items Held In Custody 1,598,974 67,613 1,666,587 XXI. Profit/(Loss) on Discontinued Operations Before Taxes (XVIII-XIX) - V. Pledged Items 46,572,645 729,639 47,302,284 XXII. Tax Provision for Discontinued Operations (±) - XXIII. Net Profit/Loss from Discontinued Operations (XXI±XXII) - VI. Accepted Independent Guarantees and Warranties - - - XXIV. Net Profit/Loss (XVIII+XXIII) 325,397 Total Off Balance Sheet Accounts (A+B) 51,401,756 5,566,540 56,968,296 Prior Period INCOME AND EXPENSE ITEMS January 1 - December 31, 2017 I. Profit Share Income 699,371 II. Profit Share Expense 438,122 III. Net Profit Share Income (I - II) 261,249 IV. Net Fees and Commissions Income/Expenses 21,177 V. Dividend Income - VI. Trading Income/Loss (Net) 163,047 VII. Other Operating Income 11,447 VIII. Total Operating Income (III+IV+V+VI+VII) 456,920 IX. Provision For Loan Losses And Other Receivables (-) 89,645 X. Other Operating Expenses (-) 197,393 XI. Net Operating Income/(Loss) (VIII-IX-X) 169,882 XII. Excess Amount Recorded as Gain After Merger - XIII. Profit/(Loss) on Equity Method - XIV. Profit/(Loss) on Net Monetary Position - XV. Profit/(Loss) from Continued Operations Before Taxes (XI+…+XIV) 169,882 XVI. Tax Provision for Continued Operations (±) 138,132 XVII. Net Income/(Loss) From Continued Operations (XV±XVI) - XVIII. Income from Discontinued Operations - XIX. Loss from Discontinued Operations (-) - XX. Profit/(Loss) on Discontinued Operations Before Taxes (XVIII-XIX) - XXI. Tax Provision For Discontinued Operations (±) - XXII. Net Profit/Loss from Discontinued Operations (XX±XXI) - XXIII. Net Profit/Loss (XVII+XXII) 138,132

114 115 ZİRAAT KATILIM-FINANCIAL STATEMENTS

ZİRAAT KATILIM BANKASI A.Ş. SUMMARY BALANCE SHEET (TL Thousand)

Current Period Current Period ASSETS December 31, 2018 LIABILITIES December 31, 2018 TL FC Total TL FC Total I. Financial Assets (Net) 1,520,928 2,577,299 4,098,227 I. Funds Collected 8,248,548 6,902,550 15,151,098 BANKS 2018 PARTICIPATION II. Loans (Net) 12,565,543 5,173,882 17,739,425 II. Funds Borrowed 1,391,745 1,970,129 3,361,874 III. Money Markets Debts 864,414 - 864,414 Property and Equipment Held for Sale Purpose and Related to III. 4,259 - 4,259 Discontinued Operations (Net) IV. Securities Issued (Net) - - - IV. Equity Investments 100 - 100 V. Financial Liabilities at Fair Value Through Profit or Loss - - - V. Property and Equipment (Net) 52,116 - 52,116 VI. Derivative Financial Liabilities VI. Intangible Assets (Net) 80,396 - 80,396 VII. Finance Lease Payables - 6,145 6,145 VIII. Provisions - 415 415 VII. Investment Property (Net) - - - IX. Current Tax Liability 117,948 14,016 131,964 VIII. Current Tax Asset - - - X. Deferred Tax Liability 53,974 - 53,974 IX. Deferred Tax Asset 49,870 - 49,870 Liabilities For Property and Equipment Held for Sale and Related XI. - - - X. Other Assets 161,719 2,691 164,410 to Discontinued Operations (Net) Total Assets 14,434,931 7,753,872 22,188,803 XII. Subordinated Debt Instruments - - - XIII. Other Liabilities 368,202 32,133 400,335 Prior Period XIV. Shareholders’ Equity 2,218,279 305 2,218,584 ASSETS December 31, 2017 Total Liabilities and Equity 13,263,110 8,925,693 22,188,803 TL FC Total I. Cash Balances with the Central Bank of Turkey 305,803 1,337,886 1,643,689 Prior Period LIABILITIES December 31, 2017 II. Financial Assets at Fair Value Through Profit and Loss (Net) 33 4 37 TL FC Total III. Banks 3,320 275,261 278,581 I. Fund Collected 6,345,946 3,678,649 10,024,595 IV. Money Market Placements - - - II. Derivative Financial Liabilities Held for Trading - 6,280 6,280 V. Financial Assets Available for Sale (Net) 516,461 7,712 524,173 III. Funds Borrowed 977,178 1,629,936 2,607,114 VI. Loans and Receivables 9,656,012 1,718,732 11,374,744 IV. Money Market Balances 32,462 - 32,462 VII. Investments Held to Maturity (Net) - - - V. Marketable Securities Issued (Net) - - - VIII. Investments in Associates (Net) - - - VI. Miscellaneous Payables 27,254 8,462 35,716 VII. Other Liabilities 69,368 1,202 70,570 IX. Investments in Subsidiaries (Net) 100 - 100 VIII. Finance Lease Payables - - - X. Entities Under Common Control (Joint Vent.) (Net) - - - IX. Derivative Financial Liabilities for Hedging - - - XI. Receivables from Leasing Transactions 372,944 - 372,944 X. Provisions 138,685 3,605 142,290 XII. Derivative Financial Assets for Hedging Purpose - - - XI. Tax Liability 27,435 - 27,435 XIII. Tangible Assets (Net) 47,235 - 47,235 Liabilities for Assets Held for Sale and Held from Discontinued XII. - - - XIV. Intangible Assets (Net) 63,280 - 63,280 Operations (Net) XIII. Subordinated Loans - - - XV. Real Estates for Investment Purpose (Net) - - - XIV. Shareholders’ Equity 1,403,692 (11) 1,403,681 XVI. Tax Asset 14,093 - 14,093 Total Liabilities and Equity 9,022,020 5,328,123 14,350,143 Assets Held for Sale and Assets Held from Discountinued XVII. 3,561 - 3,561 Operations (Net) XVIII Other Assets 27,584 122 27,706 Total Assets 11,010,426 3,339,717 14,350,143

116 117 ZİRAAT KATILIM-FINANCIAL STATEMENTS

ZİRAAT KATILIM BANKASI A.Ş. SUMMARY STATEMENT OF OFF-BALANCE SHEET (TL Thousand) ZİRAAT KATILIM BANKASI A.Ş. SUMMARY STATEMENT OF PROFIT OR LOSS (TL Thousand)

Current Period Current Period STATEMENT OF OFF-BALANCE SHEET December 31, 2018 STATEMENT OF PROFIT OR LOSS January 1 - TL FC Total December 31, 2018 A. Off-Balance Sheet Commitments (I+II+III) 4,369,125 8,684,102 13,053,227 I. Profit Share Income 2,090,557 BANKS 2018 PARTICIPATION II. Profit Share Expense 1,319,723 I. Guarantees and Warranties 4,070,241 6,213,201 10,283,442 III. Net Profit Share Income (I - II) 770,834 II. Commitments 298,884 59,931 358,815 IV. Net Fees and Commissions Income/Expense 60,727 III. Derivative Financial Instruments - 2,410,970 2,410,970 V. Personnel Expense (-) 123,973 B. Custody and Pledges Received (IV+V+Vi) 19,380,896 2,390,013 21,770,909 VI Dividend Income 177 IV. Items Held in Custody 1,322,027 752,222 2,074,249 VII. Trading Income /(Loss) (Net) 57,781 V. Pledges Received 18,058,869 1,637,791 19,696,660 VIII. Other Operating Income 80,212 VI. Accepted Independent Guarantees and Warranties - - - IX. Gross Operating Income (III+IV+V+VI+VII+VIII) 845,758 Total Off-Balance Sheet Commitments (A+B) 23,750,021 11,074,115 34,824,136 X. Expected Credit Loss (-) 256,021 XI. Other Operating Expenses (-) 175,188 Prior Period XII. Net Operating Income/(Loss) (VIII-IX-X) 414,549 STATEMENT OF OFF-BALANCE SHEET December 31, 2017 XIII. Excess Amount Recorded as Income After Merger - TL FC Total Income/(Loss) From Investments in Subsidiaries Consolidated Based on Equity - A. Off-Balance Sheet Commitments (I+II+III) 3,274,276 4,234,096 7,508,372 XIV. Method XV. Income/(Loss) on Net Monetary Position - I. Guarantees and Warranties 3,173,375 2,938,163 6,111,538 XVI. Profit/Loss Before Tax from Continued Operations (XII+…+XV) 414,549 II. Commitments 100,901 31,855 132,756 XVII. Tax Provision for Continued Operations (±) (91,884) III. Derivative Financial Instruments 1,264,078 1,264,078 XVIII. Current Period Profit/Loss from Continued Operations (XVI±XVII) 322,665 B. Custody and Pledges Received (IV+V+VI) 12,684,779 946,613 13,631,392 XIX. Income from Discontinued Operations - IV. Items Held in Custody 447,409 252,379 699,788 XX. Expenses for Discontinued Operations (-) - V. Pledges Received 12,237,370 694,234 12,931,604 XXI. Profit/Loss Before Tax from Discontinued Operations (XIX-XX) - VI. Accepted Independent Guarantees and Warranties - - - XXII. Tax Provision for Discontinued Operations (±) - Total Off-Balance Sheet Commitments (A+B) 15,959,055 5,180,709 21,139,764 XXIII. Current Period Profit/Loss from Discontinued Operations (XXI±XXII) - XXIV. Net Income/(Loss) (XVIII+XXIII) 322,665

Prior Period INCOME AND EXPENSE ITEMS January 1 - December 31, 2017 I. Profit Share Income 981,392 II. Profit Share Expense 538,306 III. Net Profit Share Income (I - II) 443,086 IV. Net Fees and Commissions Income/Expense 30,343 V. Dividend Income - VI. Net Trading Income 11,556 VII. Other Operating Income 2,663 VIII. Net Operating Income (III+IV+V+VI+VII) 487,648 IX. Provision for Loan Losses and Other Receivables (-) 90,143 X. Other Operating Expenses (-) 197,531 XI. Net Operating Income/(Loss) (VIII-IX-X) 199,974 XII. Amount in Excess Recorded as Gain After Merger - XIII. Gain/(Loss) on Equity Method - XIV. Gain/(Loss) on Net Monetary Position - XV. Profit/(Loss) Before Taxes from Continued Operations (XI+...+XIV) 199,974 XVI. Tax Provision for Continued Operations (±) (41,072) XVII. Net Profit/(Loss) from Continued Operations (XV±XVI) 158,902 XVIII. Income from Discontinued Operations - XIX. Loss from Discontinued Operations (-) - XX. Profit/Losses Before Taxes from Discontinued Operations (XVIII-XIX) - XXI. Provision For Income Taxes from Discontinued Operations (±) - XXII. Net Profit/Loss from Discontinued Operations (XX±XXI) - XXIII. Net Profit/Loss (XVII+XXII) 158,902 118 119 CONTACT INFORMATION

The contact information of the head offices of participation banks operating in Turkey is presented below.

You can access the contact information of the participation banks for physical and virtual service points in Turkey and abroad by reading the QR code on the browser of your mobile device.

Albaraka Türk Katılım Bankası A.Ş.

Head Office Dr. Adnan Büyükdeniz Cad. No: 6 34768 Ümraniye/İstanbul/TURKEY Phone: +90 216 666 01 01 Fax: +90 216 666 16 00 www.albaraka.com.tr

Türkiye Emlak Katılım Bankası A.Ş.

Head Office Barbaros Mahallesi, Begonya Sok. No: 9A, 34746 Ataşehir/İstanbul/TURKEY Phone: +90 216 266 26 26 Fax: +90 216 275 25 25 www.emlakbank.com.tr

Kuveyt Türk Katılım Bankası A.Ş.

Head Office Büyükdere Cad. No: 129/1 34394 Esentepe‑Şişli/İstanbul/TURKEY Phone: +90 212 354 11 11 Fax: +90 212 354 12 12 www.kuveytturk.com.tr

Türkiye Finans Katılım Bankası A.Ş.

Head Office Saray Mahallesi Sokullu Caddesi No: 6 Ümraniye/İstanbul/TURKEY Phone: +90 216 676 20 00 Fax: +90 216 676 29 05 www.turkiyefinans.com.tr

Vakıf Katılım Bankası A.Ş.

Head Office Saray Mahallesi Dr. Adnan Büyükdeniz Caddesi No: 10 Ümraniye/İstanbul/TURKEY Phone: +90 216 800 55 55 Fax: +90 216 800 55 56 www.vakifkatilim.com.tr

Ziraat Katılım Bankası A.Ş.

Head Office Hobyar Mahallesi Şeyhulislam Hayri Efendi Caddesi No: 12 Posta Kodu: 34112 Bahçekapı - Fatih/İstanbul/TURKEY Phone: +90 212 404 10 00 Fax: +90 212 404 10 99 www.ziraatkatilim.com.tr

120 HEADQUARTERS Saray Mahallesi Dr. Adnan Büyükdeniz Caddesi Akofis Park C Blok No: 8 Kat: 8 34768 Ümraniye/İstanbul/TURKEY

PHONE: +90 216 636 95 00 (PBX) FAX: +90 216 636 95 49 E-MAIL: [email protected] www.tkbb.org.tr