Investor Presentation Istanbul, Turkey – March 2020
Agenda 1. Turkey at a Glance 2. Our Markets • Private Pension System • Life Insurance 3. Corporate Profile 4. Financial Results 2
Turkey at a Glance
Turkey at a Glance Growing Economy GDP Average Annual Growth* CPI*** and Interest Rates**** 7% 25% 6% 20% 5% 15% 4% 3% 10% 2% 5% 1% 0% 0% 1990-1999 2000-2009 2010-2018 Turkey OECD Euro-15 CPI Interest Rates Budget Balance (% of GDP)** 0% -1% -2% -3% -4% -5% -6% Euro Area EM Turkey 4 * OECD National Accounts Data, **IMF, ***Turkish Statistics Institute, ****World Bank National Accounts Data
Turkey at a Glance Urgent Need to Increase Domestic Savings Current Account Balance (% of GDP)* Weight of Pension Funds in Household Savings (TRY billion)** 4% 7% 1750 2% 6% 1500 5% 0% 1250 4% -2% 1000 3% -4% 750 2% 500 -6% 1% 250 -8% 0 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 Euro Area EM Turkey Pension Funds Total Household Savings Weight of Pension Funds Domestic Saving Rate (% of GDP)* 35% 30% Republic of Turkey – 11th Development Programme 25% Article 222: The main aim of the development programme is to increase the amount of domestic savings and to direct these savings 20% to the prioritized sectors and to financing of productive investments. 11th Development Programme (2019-2023), prepared by the 15% Presidency of Strategy and Budgeting was approved by the Grand National Assembly of Turkey on 18.07.2019, and published in Official 10% Gazette No. 30840 (repeated) on 23.07.2019. Euro Area EM Turkey * IMF 5 ** CBT Financial Stability Report: All data represents 3rd quarter figures, except for 2012 which shows the year-end figures.
Turkey at a Glance Demographic Opportunity Window Population by Age 9,0% 2018 2080 8,0% 7,0% Population (millions) : 82.4 107.1 6,0% 5,0% Median Age : 32.0 45.0 4,0% Fertility : 2.10 1.65* 3,0% 2,0% Proportion of Elderly Population : 8.8% 25.6% 1,0% 0,0% 2018 2080 2020 January Decreasing fertility and increasing longevity means a demographic transition. Population 15 Years And Over (thousands) : 62,015 • 47 percent of the population is under 30 years old. • Only 9 percent of the population is over 64 years old. Labor Force (thousands) : 31,629 • The youth dependency ratio is relatively high. Employed (thousands) : 27,266 • More people are living off retirement savings, thus a decrease in the saving rate Labor Force Participation Rate : 51.0% is a common issue. • In the interim period when the youth dependency ratio is falling fast and the old- Unemployment Rate : 13.8% age dependency ratio is only increasing modestly; larger potential labor force and Non-Agricultural Unemployment Rate : 15.7% higher private saving to fund investment is a major demoghraphic advantage. Source: Turkish Statistics Institute - The World Bank – IMF 6 * As of 2050
Our Markets Private Pension System Life Insurance
Our Markets Private Pension System: Positioned in Pillar III Three-Pillar System Pillar I Pillar III Pillar II State Pension Private Pension Occupational Pension Mandatory Voluntary Workplace Pensions Securing a minimum Opportunity to with Auto Enrolment standard of living increase retirement started by 2017 income Retirement, health, Maintenance of disability and Available since 2003 current living unemployment standards in terms of replacement rate 8
Our Markets Pillar III Private Pension System: Important Features Funds are managed by Started in 2003. asset management 17 companies in 2020. companies. Defined contribution and Minimum retirement age: 56 voluntary participation. Completion of 10 years. Participants can switch funds, Incentives for both pension plans and transfer participant and employer. between companies. 9
Our Markets Pillar III Private Pension System: Well Designed Structure Regulation Administration Monitoring ✓ Capital Markets ✓ Pension ✓ Pension Board (SPK) Accounts Monitoring Center Administered by (EGM) ✓ Ministry of Treasury Pension ✓ ISE Settlement and Finance Companies and Custody ✓ Ministry of Labor ✓ Pension Funds Bank and Social Security Managed by (Takasbank) Asset Management Companies 10
Our Markets Pillar III Private Pension System: Incentives For Participants For Employers Contribution Stage Investment Stage Benefit Payments Employer contributions are deductible from tax base up to 15% of gross salary with a • • • Contributions with a cap of Investment income of Withholding tax applies only cap of annual legal minimum annual legal minimum wage is pension funds are tax on the investment income: wage. subject to 25% state exempt. contribution . 5% (completion of 10 years in • the system & 56 years of age) Transaction of pension • State contribution is %10 for funds are exempt of fees 10% (completion of 10 years in the Turkish citizens who live and taxes. the system) abroad and paying contributions based on foreign 15% (before completion of 10 currency years in the system) • Vesting Period % 15 at the end of 3 years % 35 at the end of 6 years % 60 at the end of 10 years % 100 at retirement date or death/disability cases 11
Our Markets Pillar III Private Pension System: Charging Structure Management Fee / Entrance Fee Fund Management Fee First 5 years of the contracts No change in fund management fee levels. A new rebate structure will be implemented by 2021. Maximum limit: 8.5% of the Fund Management Fees monthly legal minimum wage • Money market funds: 1.09% • Applicable for the first 5 years of • Fixed income & index funds: 1.91% the contract. • Equity and managed funds: 2.28% • One common cap for entrance fee • State contribution funds: 0.36% and management fee. Rebate Structure • Beginning with 2.5% by the 6th year of the contract. • 2.5% gradual increase each year. • Maximum 25% after the 15th year. • Rebate is not applicable below 1.1% of pension assets. 12
Our Markets Pillar III Private Pension System: Growth Accelerated with Increased Government Support • Integration of Employee Under Discussion • 25% State Contribution since 2013 Implemented Termination Benefits (Severence • Withholding tax limited to capital gains Payments) with Auto Enrolment • Pension fund transfers from provident • Private Pension for Minors funds* by the end of 2017 • Withdrawing Some of the Funds • Fee Structure Efficiency from Pension Account • Auto-Enrolment started in 2017 Number of Participants (Thousands) Pension AUM Growth (TRY billion) 8.000 140 7.000 120 6.000 100 5.000 80 4.000 60 3.000 40 2.000 20 1.000 0 0 AUM State Contribution * Funds from associations, foundations, provident funds and other organizations with retirement provisions. 13 Source: Pension Monitoring Center as of 31.03.2020
Our Markets Pillar III Private Pension System: Big Growth Potential Pension Funds as a Percentage of GDP %0 %25 %50 %75 %100 %125 %150 %175 %200 %225 Pension Participants Denmark Social Security Participants Netherlands 6.9 Million 22.2 Million Iceland Canada Switzerland Australia United States United Kingdom Sweden OECD Total %50 Work Force Jamaica 32.7 Million Korea Japan Working-Age Population New Zealand 61.8 Million Uruguay Total Population Spain 82 Million Bulgaria Slovak Republic Belgium Maldives Big Growth Potential France North Macedonia The Turkish pension market has a very low level of GDP Norway Italy penetration compared to other countries with similar GDP Czech Republic per capita. Romania Turkey %3 This illustrates a huge growth potential when combined Serbia Greece with the demographic opportunity window. Ukraine Source: OECD Pension Markets in Focus 2019; Turkish Statistics Institute as of 31.10.2019; Social Security Institution as of 31.10.2019; 14 Pension Monitoring Center as of 31.12.2019
Our Markets Pillar III Private Pension System: Key Highlights Total Amount of Contributions Distribution of Contributions Key Figures by Contract Type * by Marketing Channel * Participants : 6.9 Million Individual 75,1% Participant Funds : TRY 105.2 Billion State Contribution Funds : TRY 16.9 Billion Bank Assets Under Management : TRY 122.1 Billion Other 69% 6% Pension Companies : 17 Direct Sales 9% Non- Agent Sponsored Corporate 12% Groups Sales 17,2% 4% Employer Sponsored Groups 7,7% Participant Age Distribution* Average of Total Amount of Regular Contributions per Year (TRY) * 3.500 3.000 33,2% 26,3% 2.500 23,8% 2.000 12,1% 1.500 4,6% 1.000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0-25 25-34 35-44 45-55 56+ Source: Pension Monitoring Center 15 * As of 31.12.2019
Our Markets Private Pension System: Pension Funds* Repo and International Securities Money 1,6% Market Instruments 5,4% Nominal & Real Investment Return of Pension Funds 27% 24% 23% 20% 18% 16% 18% 11% 15% Government 15% 14% Equity 9% 13% 13% 11% 11% 11% 10% 10% Bonds 3% 6% 11,0% 3% 3% 2% 1% 1% 61,5% 0% 0% -1% -1% Other -5% -7% -7% -9% 12,0% Corporate Bonds Nominal Return Real Return 8,5% Asset Allocation of Pension Funds Return on Pension Funds (2004-2020) Number of Funds : 407 Nominal : 643,2% Total AUM : TRY 130,9 Billion Real : 71,7% * Includes Auto Enrolment Funds , as of 31.03.2020 16
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