Investor Presentation
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Table of Contents Turkish Economy – Recent Headlines 1 Turkish Economy – Indicators 3 Banking Sector – Dynamics 5 Recent FX Volatility – Recent Government Actions Taken 6 Recent FX Volatility – Key Cost Implications for Banking Sector 7 Recent FX Volatility – Key Cost Implications for Corporate Sector 8 Recent FX Volatility – Implications for Albaraka Turk & Mitigating Points 9 Management Priorities 10 Albaraka Turk At a Glance 11 Albaraka Turk – Historical Financial Performance 12 Albaraka Turk – 1H2018 Financials 13 Debt Capital Markets Issuances 19 Outlook 20 Investor Relations 21
Turkish Economy - Recent Headlines Material Exchange Rate Depreciation Current Monetary Policy Stance of the on Gepolitical & Global Issues Central Bank Recent TL Movement to Support Trade Re-Balancing of Economic Growth Balance & Current Account Dynamics Balance of Payments Deficit to Improve Inflationary Pressures on Exchange Rate from Slowdown in Capital Inflows Pass-thru 1
Turkish Economy – Recent Developments o T ightening by the Central Bank since Jan.2018 has been taking place with o A s of 29/08/2018, the Lira has declined YTD by circa 40% vs. the USD the policy rate increasing by 975 bps to 17.75%, the O/N lending rate by o C oncerns regarding high inflation and debates over policy effectiveness have 1000 bps to 19.25%, and the Late Liquidity window by 800 bps to 20.75% contributed to recent TL pressures o U nconventional tightening is also taking place with the policy window o G eopolitics has also emerged as a key driving force behind recent TL movement with shut and with banks now borrowing at the O/N lending rate, effectively US sanctions impacting investor attitudes another 150 bps tightening o D owngrades by the major rating agencies citing downside risks to Turkish Financial o E ffective use of other monetary policy tools such as ROM to inject USD Institutions are also weighing in on the Lira liquidity and tightening TL liquidity o C entral Bank has indicated further tightening is on the table following the most recent release of inflation data on 3 September 2018 o A fter growing 7.4% in 2018 and 7.3% in the 1Q2018, a material re-balancing in o F oreign Trade deficit in July declined 33% with exports increasing 12% y- economic growth is widely expected in 2018 o H igh inflation, tighter fiscal policy, lower domestic demand, and global investors’ o-y and imports declining 7% y-o-y indicating recent TL depreciation is leading to an adjustment in the trade balance concerns regarding ongoing financing of the current account deficit in the wake of o T ourism sector continues to achieve records and provides a source of hawkish US monetary policy are all weighing in on the growth outlook incoming hard currency o C urrent account deficit to reverse on the back of economic re-balancing o C PI Y-o-Y in July was 15.85% and 17.90% in August reflecting ongoing pressures on inflation o T he slowdown in foreign capital inflows will likely change the dynamics o R ecent acute TL depreciation is contributing to pass-thru inflation via imports on of the Balance of Payments Deficit by eventually making Turkey less food prices and is expected to pressure inflation readings moving forward dependent on foreign capital o T ighter fiscal policy and a re-balancing in domestic demand are expected to provide some eventual relief to inflationary pressures and the current account deficit 2
Turkish Economy - Indicators Buildup in Inflationary Pressures (Y-o-Y) Monthly Portfolio Flows, USD mln 1.500 Stock Government Bonds Private Sector Bonds 33,00% 32,13% 1.000 28,00% 500 23,00% 0 17,90% 18,00% -500 17,22% 13,00% -1.000 8,00% -1.500 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Aug 2017 Sep 2017 Oct 2017 Nov 2017 Dec 2017 Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018 Jun 2018 Jul 2018 Aug 2018 CPI Core Inflation PPI Source: TurkStat Source: CBRT Central Bank Monetary Policy (%) Confidence Indicators 26,00 140,0 120,0 21,00 100,0 96,3 80,0 16,00 68,3 60,0 40,0 11,00 20,0 0,0 6,00 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Aug-17 Sep-17 Sep-17 Oct-17 Oct-17 Feb-18 Feb-18 Apr-18 Apr-18 May-18 May-18 Jun-18 Jun-18 Jul-18 Jul-18 Aug-18 Aug-18 Aug-18 Nov-17 Nov-17 Dec-17 Dec-17 Jan-18 Jan-18 Mar-18 Mar-18 Mar-18 Consumer confidence Real sector Confidence s.a. O/N Lending 1 Week Repo Late Liquidity Window Benchmark 2y Bond Source: CBRT, BIST 3 Source: CBRT, TurkStat
Turkish Economy - Indicators Tourism Revenues have been Recovering, annual Export Coverage of Imports have been Improving, 70% in July 2018 versus 66% in the last 1 year revenue growth is 31% in 1H18 24.000 75% 40.000 80% 22.000 35.000 60% 70% 20.000 30.000 18.000 40% 65% 25.000 16.000 20.000 20% 14.000 60% 12.000 15.000 0% 10.000 55% 10.000 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 -20% 5.000 0 -40% Exports (lhs) USD mln Imports (lhs) USD mln 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1H17 1H18 Export/Import Coverage Ratio, monthly Export/Import Coverage Ratio, 12 month cumulative Revenues (lhs) $ mln Annual Growth (rhs) Source: Turkish Treasury Source: Turkish Treasury Loan Re-Pricing Taking Place and Margins Banks’ Capital is Still Strong, even at USD/TRY of 7.00, Management Underway (%) CAR stands well above regulatory limit 35,00 30,00 Sensitivity of Capital Ratios to Lira Depreciation from 25,00 USD/TRY: 4.56 to USD/TRY:7.00 20,00 16,26% 15,00 14,36% 10,00 13,47% 5,00 11,05% 0,00 Aug-17 Sep-17 Sep-17 Oct-17 Oct-17 Nov-17 Nov-17 Dec-17 Dec-17 Dec-17 Jan-18 Jan-18 Feb-18 Feb-18 Mar-18 Mar-18 Apr-18 Apr-18 May-18 May-18 Jun-18 Jun-18 Jun-18 Jul-18 Jul-18 Aug-18 June 2018 Sensitivity CET1 Ratio CAR $ Lending Rate ₺ Lending Rates $ Deposit Rate ₺ Deposit Rates Source: BRSA Source: CBRT 4
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