KUVEYT REPORT 2018 TÜRK ANNUAL Growing through values that bind us together Head Office Büyükdere Cad. No: 129/1 Esentepe 34394 Şişli/Istanbul Tel: +90 212 354 11 11 (pbx) www.kuveytturk.com.tr Call Center: 444 0 123 ANNUAL REPORT 2018 Contents SECTION 1: INTRODUCTION 18 Summary of Financial Indicators 19 Shareholding and Capital Structure 20 Agenda of the Ordinary General Assembly 21 Amendments to the Articles of Association 22 Kuveyt Türk in Brief 28 The Story of 29 Successful Years 32 About Kuveyt Türk 34 Message from the Chairman 36 Message from the CEO SECTION 2: ACTIVITIES IN 2018 42 Retail Banking 48 SME Banking 52 Corporate and Commercial Banking 54 Treasury and International Banking 60 Loans 62 Law and Risk Follow-up Group 66 Strategy 78 Banking Services Group 93 Financial Affairs 98 Risk, Control and Compliance Group 101 Internal Audit and Inspection Department 102 Awards SECTION 3: MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES 108 Board of Directors 111 Senior Management 115 Organizational Chart 116 Summary Report of the Board of Directors Submitted to the General Assembly 117 Executives within Internal Systems 118 Senior Management Committees 120 Related Party Transactions 120 Outsourced Services SECTION 4: FINANCIAL INFORMATION AND RISK MANAGEMENT PRACTICES 124 Annual Report Compliance Opinion 125 Review of the Audit Committee on Internal Systems 128 Assessment on Financial Status, Profitability and Solvency 128 Ratings of Kuveyt Türk by International Rating Agencies 129 Information on Risk Management Policies 131 Five-Year Summary Financial Information 133 Independent Auditor’s Report, Consolidated Financial Statements and Notes to Financial Charts 206 Contact Information and Branch Directory Proudly produced by FİNAR. www.finarkurumsal.com Staying true to our core values, our journey of success extends from the past to the present and into the future. As summarized by our “Growing through Values” motto, we support a range of social responsibility projects to help preserve, develop and sustain Turkey’s local and national values for today and tomorrow. “Kuveyt Türk hails from Turkey – a country that cares and shares. “ Safeguarding our heritage Supporting the future A key landmark for Istanbul’s identity and an architectural jewel of the Bosporus Strait, Grand Mecidiye Mosque was re-opened for worship in 2014 after completion of a three-year restoration project backed by Kuveyt Türk. Other restoration efforts conducted to preserve the landmarks of the city and safeguard our collective historical legacy include: • Tomb of the Ottoman-era Poet and Composer Buhûrîzâde Mustafa Itrî in Istanbul, • Saliha Sultan Fountain and Sebil (Charity Fountain) in Azapkapı, Istanbul, • Historic masjid and shadirvan (fountain) at the heart of Bursa’s Kozahan. Supporting Arts and Culture Kuveyt Türk strives to preserve social values through the arts by prioritizing conservation of enduring artworks for future generations. For this purpose, the Bank incorporates works by notable masters of Turkish-Islamic arts in its corporate collection and safeguards them. Almost 250 works of art – including Islamic calligraphy, illumination, paper marbling, miniature, mother of pearl marquetry, wood carving, decoupage and tombak (copper gilding) – are on display at the Bank’s headquarters and branches. Furthermore, Kuveyt Türk launched an exceptional initiative with the Women, Family and Youth Center (KAGEM) under Religious Foundation of Turkey (Diyanet Vakfı). Enthusiasts can now attend courses on Turkish and Islamic Arts at the KAGEM- Kuveyt Türk Art Workshops in the courtyard of Beşiktaş Sinanpaşa Mosque. Reference Books for the Future Kuveyt Türk supports project-based initiatives toward preserving cultural heritage with the reference books it publishes. “Disappearing Vocations,” “Lost Fountains,” “Evliya Çelebi’s Hajj Pilgrimage,” “ The Great Mecidiye Mosque and Ortaköy” and “Mantiq al-Tair (The Speech of Birds)” feature among the works published by the Bank. Support for Our Heroes Kuveyt Türk continues support for civil society organizations and humanitarian aid campaigns. Kuveyt Türk donated TL 1 million to the Turkish Armed Forces Mehmetçik Foundation for relatives of martyrs and veterans. This foundation provides social and economic support to veterans and disabled soldiers as well as dependents of non-commissioned officers who were martyred or lost their lives while on duty. Support for Humanitarian Aid Campaigns Kuveyt Türk extended a helping hand to Muslims who have faced systematic persecution in Myanmar for years and were displaced from their homes in the Rakhine state. The Bank made an initial donation of TL 1 million to this cause. With the support of its employees and clients, the total donations soon exceeded TL 7 million. Guided by the precept that “People are our utmost social responsibility,” Kuveyt Türk also provided financial relief through donations for other notable causes. These donations went to; • assist Somalia and the rest of Africa under the “Africa Is Not Alone” campaign; • construct a Brotherhood Village for the Pakistan flood disaster victims; • help bereaved families affected by the Soma mine accident; • and assist survivors of the Van earthquake in 2011 which killed 604 people, injured another 4,152 and caused severe damage in the region and its vicinity. Support for Hope Kuveyt Türk has been providing ongoing assistance to the “Support for Hope project” conducted by The Hope Foundation for Children with Cancer (KAÇUV) for the last six years. The Bank has donated more than TL 2 million since 2013. These efforts aim to raise awareness about cancer as one of the most significant and growing diseases of our time, and offer hope to children undergoing cancer treatment. Support for the National Awareness Camps of the Scouting and Guiding Federation of Turkey Kuveyt Türk provided both sponsorship support and participation for the 15th National Awareness Camp commemorating the Çanakkale 57th Regiment and the 13th National Awareness Camp commemorating the Sarıkamış Allahuekber Mountain Martyrs. INTRODUCTION Since its founding, Kuveyt Türk has been committed to offering exceptional interest- free banking services, conducting extensive research in investment areas, delivering cutting-edge, consistent, top-quality and fast services to savers and businesses, and providing continuous employee training to achieve higher productivity. 18 Summary of Financial Indicators 19 Shareholding and Capital Structure 20 Agenda of the Ordinary General Assembly 21 Amendments to the Articles of Association 22 Kuveyt Türk in Brief 28 The Story of 29 Successful Years 32 About Kuveyt Türk 34 Message from the Chairman 36 Message from the CEO SECTION 1 INTRODUCTION Summary of Financial Indicators Kuveyt Türk Summary of Financial Indicators (TL Thousand)* 2017 2018 continued to Profit Sharing Income 3,713,950 5,851,555 achieve successful financial results Profit Sharing Expense 1,759,335 2,773,868 in 2018: The Bank Net Fee and Commission Income 385,018 513,135 boosted its net Other Revenues 537,883 960,279 profit for the period by 15% to TL 822 Other Expenses 1,973,872 3,497,065 million during the Tax Charge 187,996 232,030 year. Net Profit for the Period 715,828 822,006 Total Assets 57,320,126 74,792,036 Total Shareholders’ Equity 4,923,347 5,410,893 Capital Adequacy Ratio (%) 17.32 17.22 * IFRS figures. Profit Sharing Income (TL million) 2017 3,714 2018 5,852 58% Increase Net Fee and Commission Income (TL million) 2017 385 2018 513 33% Increase Net Profit for the Period (TL million) 2017 716 2018 822 15% Increase Total Assets (TL million) 2017 57,320 2018 74,792 30% Increase 18 KUVEYT TÜRK ANNUAL REPORT 2018 In 2018, Kuveyt Total Shareholders’ Equity (TL million) Türk further strengthened its robust capital 2017 4,923 structure by boosting total shareholders’ 2018 5,411 10% Increase equity to TL 5.4 billion, up 10%. Capital Adequacy Ratio (%) 2017 17.32 2018 17.22 Shareholding and Capital Structure Other Real and Legal Shareholders* 1.04% Islamic Development Bank 9.00% Kuwait Public Institution for Social Security 9.00% Kuwait Finance House Republic of Turkey 62.24% Directorate General of Foundations 18.72% * The Chairman and Members of the Board of Directors, Audit Committee Members, Chief Executive Officer and Vice Presidents hold a 0.11% share in the Bank’s capital. 19 SECTION 1 INTRODUCTION Agenda of the Ordinary General Assembly Kuveyt Türk’s Board of Directors decided to hold The Shareholders Ordinary General Assembly of Kuwait Turkish Participation Bank Inc. on 28 March 2019 at 15:00, at the Kuveyt Türk Head Office, Büyükdere Cad. No: 129/1 Esentepe, Istanbul to discuss the following agenda in the meeting of the Kuveyt Türk’s Board of Directors held on 29 January 2019. AGENDA OF THE SHAREHOLDERS ORDINARY GENERAL ASSEMBLY 1. Opening and constitution of the Presidential Board. 2. To grant authority to the Presidency to sign the minutes of the General Assembly and the list of participants. 3. Discussion and approval of the Annual Report for the fiscal year 2018. 4. Discussion and approval of Financial Statements for the fiscal year 2018. 5. Decision on the Board of Directors offer about the profit distribution of the fiscal year 2018. 6. Discussion of independent audit report written by independent auditor for the fiscal year 2018. 7. Discussion and approval of the amendment of the Articles of Association related to the Article 7 as attached. 8. Acquitting of the Board of Directors related with their efforts in 2018. 9. Discussion and approval of paying salary, attendance fee, bonus, and dividend to the Chairman and other Board Members for their Board Membership and/or other committee memberships. 10. Appointment of the Independent Auditors and determination of the contract period, 11. Providing information by the Board of Directors on external audit in accordance with Banking Law no: 5411 and the related regulations. 12. Providing information on bonus payments to personnel in accordance with the Banking Regulation and Supervision Agency’s decision on profit distribution.