1Q17 Investor Presentation Albaraka Türk Non-Deal Roadshow 11-12 July 2017
Agenda 1 Introduction 2 Turkish Economy & Banking Sector Financial Highlights 3 Market Comparison 4 Strategy Overview 5 Turkish Debt Markets 6 Appendix 7
Albaraka Türk Representatives
3 Melikşah UTKU – Board Member & General Manager Mr. Utku was born in Ankara in 1968. He graduated from Mechanical Engineering Department of Boğaziçi University (Istanbul, 1990). He completed his graduate studies in London School of Economics (1990-1992) and Master’s Degree on economic development in Marmara University (Istanbul, 1998). In 2004, he served as consultant to General Manager of Albaraka Turk. In 2006- 2007, he was head economist in Albaraka Turk. In addition, he was an economics columnist for Yeni Şafak newspaper for over 10 years (1995-2009). He later worked as Investor Relations Manager from 2007-2009. He continued as CIO-Assistant General Manager in December 2009 and was appointed as CFO-primarily responsible for Financial Affairs, Budget and Financial Reporting and Corporate Communication Departments. He was a board member of Borsa Istanbul from 2013 to 2016. As the General Manager of Albaraka Türk as of October 2016 Utku continued his duty, as well as Chairman of the Board of directors of Turkey Union of Participation Banks (TKBB), Bereket Varlık Kiralama A. Ş . Albaraka Gayrimenkul Portföy Yönetimi A. Ş ., Katılım Emeklilik ve Hayat A. Ş . He is member of Credit Committee, Remuneration Committee, and Executive Committee of Albaraka Türk . Malek Khodr TEMSAH – Assistant General Manager (Treasury, FI & IR) Mr. Temsah was born in Beirut, Lebanon in 1981. He received his Bachelor of Business Administration from The George Washington University (Washington D.C., 2003). He completed his Master’s Degree in Business Administration from Thunderbird, the Garvin School of International Management (Arizona, 2006). In 2003, Mr. Temsah began his career with Bank of America Business Banking in Washington DC followed by his tenure at the London-based European Islamic Investment Bank between 2007 and 2009. In 2010 he joined leading global Islamic bank Albaraka Banking Group, Bahrain as Vice President of Treasury where he established & oversaw the sukuk desk until 2014. Since 2014, Mr. Temsah has been working with Albaraka Türk Katılım Bankası and is also currently a member of the board of directors for one of Morocco’s first Islamic banks where he serves on both the audit and remuneration committees. He is also a member of the ALCO and FTP Committees of Albaraka Türk .
Agenda 1 Introduction 2 Turkish Economy & Banking Sector Financial Highlights 3 Market Comparison 4 Strategy Overview 5 Turkish Debt Markets 6 Appendix 7
Turkey Macroeconomic Developments
6 Turkey still serves many advantages for investors Turkey's share within the world GDP 1.7 Following failed coup attempt on July 2016, Turkish economy has (PPP, %) 1.66 been gaining momentum thanks to strong expansionary fiscal 1.5 measures and macroprudential easing incentives as well as strong 1.3 fundamentals. GDP growth rate estimates has been continuously 1.18 revising upwards. 1.1 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Despite heavy global and geopolitical issues, Turkey’s strong Median Age Japan macrofundemantals still serves great advantages for its investors Germany Switzerland compared to its peer countries thanks to young population, well- Greece Netherlands capitalized banking sector and existing cheap valuations. Europe UK Poland Russia USA The Government has focused to ease downside pressures on domestic China Brazil demand while trying to pick contribution of net external demand to Turkey 27 32 37 42 47 GDP growth rate up via implementing crucial structural reforms. As a result, Turkey’s total debt to GDP ratio is likely to increase General Government Debt Stock/GDP 120% moderately due to widening in budget deficit, although it still remains significantly below than the peers. Moreover, as a ratio of 70% both short-term private sector’s external debt stock and public debt 20% stock has continuously fallen during 2015, contrary to advanced and 2001 2003 2005 2007 2009 2011 2013 2015 2017F 2019F 2021F emerging countries’ averages. Advanced economies Emerging and developing economies Turkey Source: IMF, UN, TURKSTAT, Albaraka Turk Research&Strategy
7 Robust Growth and Attractive Valuations YoY GDP Growth Rates Turkish economy continues to record one of the strongest growth among G20 countries, with 5.0% (YoY) growth in 1Q2017 thanks to 5.7% 5.0% strong domestic demand, acceleration in public spending and double- 5.3% 3.5% 4.5% 4.0% digit increase in exports. Moreover, early indicators for the rest of 3.8% 2.5% the year are pointing further acceleration in the economy and to Q1 Q2 Q3 Q4 converge 5% throughout 2017. On the other hand, as a result of the -1.3% 2015 2016 2017 Transition Program to Sustainable Growth, which implemented starting from the end of 2010, Turkey’s exports share within the Turkey's Exports Share Within The world reached its record level in 2017. World 1.00% 0.96% Under current circumstances, main challenge for Turkish economy is 0.88% pulling inflation to low-single digit levels again. However year-on- 0.82% 0.78% year inflation fell from 11.9% in April to 10.9% in June and is likely to 0.75% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ease to 10.0% in July, market expects a volatile path around 10% during the rest of the year, due to high food prices and still REER (Deviation from 15 Year Av. as of May ‘17) undervalued TL. China 21.3% Overvalued UAE 19.6% US 10.8% Brazil 9.4% Looking ahead, considering sustainable current account deficit path, Switzerland 8.6% Thailand 7.7% Indonesia 7.5% significantly undervalued TL and recently emerging market friendly India 5.8% Russia 2.2% environment, TL denominated assets are expected to diverge South Africa -8.2% Euro area -10.6% UK -14.3% positively from its peers. Japan -17.5% Turkey -17.6% Mexico -29.7% Argentina Undervalued -30.4% -32% -21% -10% 1% 12% 23% Source: TURKSTAT, WTO, BIS, Albaraka Turk Research&Strategy
8 Turkey Macroeconomic Developments GDP Growth 5.7% GDP Growth 5.0% 5.3% 3.5% GDP growth was 5.0% y-o-y in 1Q2017 and this is mainly due to a pick up in 4.5% 4.0% 3.8% domestic demand. Increases in export growth and construction investment also 2.5% impacted economic growth positively. Moving forward, MTP target for 2017 year-end GDP growth is 4.4% y-o-y due to the strong expectation for the Q1 Q2 Q3 Q4 receding of uncertainty, resiliency in public consumption and further -1.3% strengthening in economic activity driven by a recovery in tourism. 2015 2016 2017 Inflation Inflation 11.87% 11.29% 11.72% 10.53% 9.58% Annual inflation decreased from 11.87% to 11.72% in May and this is the first 8.79% 8.53% 8.05% decrease of headline inflation since Nov’ 16. The lagged effects of the 7.64% 7.46% 7.28% 7.16% 7.00% 9.22% 8.78% 6.57% 6.58% cumulative Turkish lira depreciation continued to weigh upon core goods whereas annual core goods inflation declined. Inflation is expected to stay in the high single digits with the Central Bank expecting a year-end inflation of 8.5%. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 2016 2017 Turkish Lira FX Rates 4.4 The Turkish lira rebounded 1.2% versus the USD in the first quarter and 1.4% USD/TRY EUR/TRY versus the EURO; Lira appreciation also continues after first quarter mainly due 3.9 to further tightining monetary stance of the central bank, domestic political 3.4 developments after referandum in April and also USD depreciation. The euro, on the other hand, found support for the declining uncertainties about the 2.9 future of the EU. USD/TRY has been lingering near 3.50 level and EURO/TRY is also at 4.00 level on June. In the June Expectation Survey of the Central Bank, 2.4 Jan-16 May-16 Sep-16 Jan-17 May-17 USD/TRY expectation of 2017 year-end is 3.76. Source: CBRT, Turkstat
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