Investor Presentation Istanbul, Turkey – March 2017
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 A Fast Growing Economy GDP Average Annual Growth* 6% Over the last decade and half, Turkey 5% successfully stabilized its macro economy. 4% After the 1999 – 2001 economic crises, Turkey 3% maintained a highly successful policy of 2% macroeconomic stabilization. 1% 0% 1990-1999 2000-2009 2010-2016 Turkey OECD Euro-15 Budget Balance (% of GDP)** CPI*** and Interest Rates**** 0% 80% 70% -1% 60% 50% -2% 40% -3% 30% 20% -4% 10% -5% 0% 2011 2012 2013 2014 2015 2016 Euro Area EM Turkey CPI Interest Rates 4 Source: *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)** 6% 1,250 7% 4% 6% 2% 1,000 5% 0% -2% 750 4% -4% 3% -6% 500 -8% 2% -10% 250 1% -12% 2011 2012 2013 2014 2015 2016 0 0% 2011 2012 2013 2014 2015 2016 Euro Area EM Turkey Pension Funds Total Household Savings Weight of Pension Funds Domestic Saving Rate (% of GDP)* 35% Republic of Turkey – Medium Term Programme 30% Article 81: “ Charging ratio will be converged to international levels in the private pension 25% system and “ auto enrolment system ” will be implemented. Life insurance and long-term 20% (over one year) private health insurance will 15% be developed.” 10% Medium Term Programme (2016-2018), prepared by Ministry of Development was adopted by Cabinet Decree No. 2011 2012 2013 2014 2015 2016 2015/8355, 29.12.2015 and published in Official Gazette No. 29590, 11.01.2016. Euro Area EM Turkey * 2016 figures are IMF estimates 5 ** All data represents 3rd quarter figures, except for 2012 which shows the year-end figures Source: *IMF and **CBT Financial Stability Report
Turkey at a Glance Demographic Opportunity Window Population By Age 9% 8% 2016 2050 7% 6% Population (millions) : 79.8 93.5 5% Median Age : 31,4 43 4% 3% Fertility : 2.14 1.65 2% Proportion of Elderly Population : 8.3% 20.8% 1% 0% 2016 2050 2017 Decreasing fertility and increasing longevity means a demographic transition. January • 48 percent of the population is under 30 years old. Population 15 Years And Over (thousands) : 59,493 • Only 8 percent of the population is over 64 years old. Labor Force (thousands) : 30,658 • The youth dependency ratio is relatively high. • Employed (thousands) : 26,672 More people are living off retirement savings, thus a decrease in the saving rate is a common issue. Labor Force Participation Rate : 51.5% • In the interim period when the youth dependency ratio is falling fast and the old- age dependency ratio is only increasing modestly; larger potential labor force and Unemployment Rate : 13.0% higher private saving to fund investment is a major demoghraphic advantage. Non-Agricultural Unemployment Rate : 15.2% Source: Turkish Statistics Institute – The World Bank - IMF 6
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 in 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 Started in 2003. Funds are managed by 18 companies in 2017. asset 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) Undersecretariat Pension ISE Settlement of Treasury Companies and Custody Ministry of Labor Pension Funds Bank and Social Managed by (Takasbank) Security Asset Management Ministry of Companies Finance 10
Our Markets Pillar III Private Pension System: Incentives For Participants For Employers Contribution Stage Investment Stage Benefit Payments Employer contributions are tax deductible up to 15% of gross salary with a cap of • • • Contributions with a cap of Investment income of Withholding tax applies only annual legal minimum wage. annual legal minimum wage is pension funds are tax on the investment income: subject to 25% state exempt. contribution . 5% (completion of 10 years in • the system & 56 years of age) Transaction of pension • Vesting Period: funds are exempt of fees 10% (completion of 10 years in % 15 at the end of 3 years and taxes. the system) % 35 at the end of 6 years % 60 at the end of 10 years 15% (early leave, before % 100 at retirement date or completion of 10 years in the death/disability cases system) 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 • 25% State Contribution since 2013 Under Discussion • Withholding tax limited to capital Implemented gains • Pension fund transfers from • Severance Payments provident funds* by the end of 2017 • Fee Structure Efficiency • Auto-Enrolment starting in 2017 Pension AUM Growth Number of Participants (TRY billion) (Thousands) 70 8,000 60 7,000 6,000 50 5,000 40 4,000 30 3,000 20 2,000 10 1,000 0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017Q1 2009 2010 2011 2012 2013 2014 2015 2016 2017Q1 AUM State Contribution * Funds from associations, foundations, provident funds and other organizations with retirement provisions. 13 Source: Pension Monitoring Center as of 31.03.2017
Our Markets Pillar III Private Pension System: Big Growth Potential Pension Funds as a Percentage of GDP Pension Participants Social Security Participants 0% 25% 50% 75% 100% 125% 150% 175% 200% 6.7 Million 21.1 Million Netherlands United States Weighted average 123.6% OECD Weighted Average United Kingdom Finland Work Force Ireland 30.7 Million Simple Average OECD Simple Average 49.5% Working-Age Population Japan 59.5 Million Total Population Spain 79.8 Million Portugal Slovak Republic Poland Big Growth Potential Slovenia The Turkish pension market has a very low level of GDP Germany penetration compared to other countries with similar GDP Austria per capita. Belgium This illustrates a huge growth potential when combined Turkey Turkey 5.5% with the demographic opportunity window. Hungary Source: OECD; Turkish Statistics Institute as of 31.01.2017, Social Security Institution as of 31.12.2016; 14 Pension Monitoring Center as of 31.03.2017
Our Markets Attractive Market The Number of Companies* Foreign Investment Share 19 19 74% 73% 18 69% 17 65% 65% 61% 14 55% 13 13 54% 52% 10 10 51% 9 45% 39% 37% 36% 6 6 5 4 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015 Life Private Pension Paid-In Capital GWP The pension system started with 11 companies in 2003. Due to strong growth expectations and government support, the system attracted more local and international groups. Source: Treasury, Insurance and Private Pensions Annual Reports, 2015 15 * Active companies
Our Markets Pillar III Private Pension System: Pension Funds Nominal & Real Investment Return of Pension Funds International Securities Repo and Money 23.9% 23.3% 2.9% Market Instruments 19.6% 7.7% 18.4% 17.9% 15.8% 14.5% 13.3% 11.1% 11.0% 11.0% 10.9% 9.5% 9.6% 9.2% 5.9% 4.6% 3.0% 3.0% 2.2% 1.3% 0.3% 0.1% Equity 10.9% -0.2% -0.5% Government Bonds 51.2% -5.4% -7.1% -9.4% Time Deposits 17.2% Nominal Return Real Return Corporate Bonds 10.1% Asset Allocation of Pension Funds Return on Pension Funds (2004-2017Q1) Number of Funds : Nominal : 287 364.7% Total AUM : 65.3 Billion TRY Real : 58.5% 16 As of 31.03.2017
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