Dear Stakeholders,
With respect to the sector’s liquidity, we are going through
a critical period in loan to deposit ratio. Deposits that
outperformed the loan growth in 2018, positively affected
the sector’s loan to deposit ratio. Since the beginning of the
year, loan to deposit ratio improved by 7bps in the sector,
whereas improvement in the ratio was 14bps at Garanti BBVA.
While maintaining our leadership position in consumer loans
and credit cards, our deposit-driven and balanced approach
continued on the funding side.
This year some concerns have also surfaced regarding the
sector’s international borrowings, a non-deposit funding
source. Nonetheless, the sector has proven its resilience
once again, and many players in the sector, including us,
were able to renew their external debts with high rollover
ratios. Within the framework of the borrowing program, we
provided more than USD 1.3 billion in funding from overseas
markets in the last quarter. This was the longest and the
highest amount of borrowing of the last quarter of 2018. I
would also like to underline our decreased dependency on
external borrowing compared to the previous years. Turkey
has completed a substantial portion of the large-scale public
investments. In this context, Turkish banks have less need
for long-term foreign currency funding as project finance
investments cut pace versus earlier years. In this sense, I am
not anticipating a negative scenario for the year ahead in
raising external funds.
The effect of decelerated economic activity on asset quality
became visible to a certain extent. The sector’s NPL ratio
went up to 4% from 3%. Increase in new NPLs largely
stemmed from big-ticket corporate loans. In 2019, consumer
loans will also put some pressure on asset quality due to
anticipated rise in unemployment that will be driven by the
cooling economy. However, household indebtedness in
Turkey is quite low; actually, it is much lower than that in
Eurozone and in developing countries. Therefore, we are in
a position to manage these risks.
Capital was another topic that was on the agenda during the
reporting period. Capital adequacy ratio of the sector sustains
its controlled level as the exchange rate stabilized at a certain
level. Our 2018 year-end consolidated capital adequacy ratio
of 16.5%, is comfortably above the minimum required level of
12%.
Another key driver that differentiates the Turkish banking
sector besides its robust financial structure is digitalization. Our
digitally savvy young population enables us to offer a much
more efficient and productive banking service through the
digital platforms. We realize that mobile banking penetration
rate in our country has reached 40%, which puts us ahead
of many major European countries including France and
Germany. With this awareness, as Garanti BBVA, we have been
investing in digital transformation for many years. Today, our
digital penetration ratio among active customers is 67%.
We have pioneered a new era with our innovative service model
designed in the light of digitalization, which enables a one-stop
delivery of all services to our customers in the most convenient
and fastest manner. During 2018, we have completed the
transformation of our entire branch network within the frame of
our new service model. With this new model, we have increased
the efficiency of our sales force, decreased the waiting times in
branches, and improved customer experience.
Supporting responsible and sustainable development is among
our strategic priorities at Garanti BBVA. We develop our products
and services in this manner, and manage our customers’
environmental and social risks as well. We support the
participation of women in the workforce, and we are striving for
the formation of an inclusive economy where all individuals have
equal access to opportunities. We have taken on a pioneering role once again in our sector in the area of sustainable finance
with a green loan we have extended in July, which is the first of
its kind in Turkey and fifth in the world. Taking place among the
28 banks from five continents representing consolidated total
assets of USD 17 trillion, we have been invited by the United
Nations Environment Programme Finance Initiative (UNEP FI)
to define the new shape of banking to better align with the
society’s goals. The new Principles on Responsible Banking will
allow every bank to credibly showcase their desire and concrete
actions to contribute to our society and our planet. As Garanti BBVA,
we are proud to be part of this historic movement. Being the
only bank from Turkey included in a total of eight different
sustainability indices including the Dow Jones SustainabilityTM
Emerging Markets Index, we are aspiring to act as a role model
for all our stakeholders in this area.
2019 AND BEYOND…
In the year, which was characterized by highly volatile exchange
rates, we were in closer and stronger coordination with the
economy administration than we have ever been before.
We have seen the benefits of this both for our sector and
our economy. Yet, the impact of the fluctuations on the real
economy will be gradual. Although the rebalancing witnessed
from the second half of 2018 will continue for a while in the
beginning of 2019, we are expecting recovery to start as of
the second quarter. As inflation adopts a normalization trend
particularly after the second half of 2019, interest rates will
come down and loan growth will gain pace.
Downward trend in inflation has started. While there might
be limited upside effects in the first quarter of 2019, we are
expecting the decline in inflation to become visible in the
second half of the year and to end the year at 16% levels with
the lagging effects of the decelerated growth coupled with the
appreciation of the Turkish lira.
In this period where rebalancing become evident, being
in close relationship with our customers, identifying their
problems in advance, and developing solutions jointly are
critical both for the financial well-being of our customers, and
for the management of our Bank’s asset quality. Recognizing
this fact, we keep standing by our retail and commercial
customers by providing resources when necessary and even
through restructuring if it is needed. We will continue to do so.
As Garanti BBVA, we are shaping our strategy within the frame
of our medium-long term investment plans, and not on shortterm targets. Regardless of macroeconomic developments, we
will keep pioneering the transformation in the sector with our
investments targeted at our business model and customers that
make up the base of our strategy,. We will continue to simplify
and enhance our processes and operations by evaluating them
from the viewpoint of our customers.
While 2018 and 2019 are relatively tough years, we are
looking at the future with confidence by taking strength from
fundamentally strong banking sector, our capital generative
growth strategy, advanced risk management systems and our
organizational agility in capturing opportunities. Being one of
Turkey’s leading institutions, we act with the awareness of our
responsibilities on the development of our national economy
and contribution to the society. We continue to act with this
awareness in our operations.
We will keep working with all our strength in order to create
value for all our stakeholders who trust and support us.
Sincerely,
