2017 Review
Dear Stakeholders,
We are pleased to present our first integrated report. This report integrates information from the annual Sustainability Report we used to publish in addition to our Annual Report. The Report was prepared in accordance with the GRI G4 Sustainability Reporting Guidelines of the GRI to core option, covering the 12-month period ended 31 December 2017. It also constitutes a summary of Garanti BBVA's progress in 2017 on its commitment to implement the ten principles of the United Nations Global Compact (UNGC) in our business activities.
With this integrated report, we provide a concise overview of both our financial and non-financial performance, showing the value that Garanti BBVA creates for all its stakeholders, the economy and the society. We believe that integrated reporting serves to even better reflect Garanti BBVA's efforts in value creation. This first integrated report is only the start of integrating our financial and nonfinancial information and we will continue to take further steps to become more integrated.
POSITIVE GROWTH MOMENTUM IN GLOBAL ECONOMIES
The year 2017 ended very positively as global economies gained strength above and beyond the initial expectations in the beginning of the year. While the pick-up in economic activity seems to be relatively stronger in advanced countries, emerging markets also grew faster in 2017 relative to the previous year.
The Turkish economy, backed by timely incentives, showed solid progress in growth. Supportive economic policies including the Credit Guarantee Fund (CGF) scheme increased confidence in the economy and hence, lifted the growth notably. We expect GDP growth to reach 7% at year-end 2017, compared to 3.2% in 2016. However, this robust domestic demand repressed inflation. Together with the currency depreciation, headline inflation rose to 11.9% in 2017. As a response to inflationary pressure and volatility in currency, the Central Bank of Turkey (CBRT) maintained its tight stance and average funding cost increased by around 450 bps in 2017.
Despite the rise in interest rates, revitalization in economic activity and active balance sheet management supported fundamentals of the banking sector and the sector delivered better results than expected.
HIGH QUALITY EARNINGS PERFORMANCE, ONCE AGAIN, UNDERPINNED BY DYNAMIC ASSETLIABILITY MANAGEMENT
As Garanti BBVA, we successfully completed the year with our sustained focus in excellent customer experience, sound solvency ratios and efficiency. The year was highlighted with the CGF scheme, which boosted business banking loan growth and helped asset quality. In supporting SMEs and businesses, the engine of our economy, we were the first mover in providing CGF loans with our agile sales team and quick system integration. Accordingly, we grew by 28% in TL business banking loans. In consumer loans, albeit fierce competition in the sector, we further strengthened our leadership position among private peers. Amid the growing economy, as I mentioned previously, CBRT kept its tight stance to cope with inflationary pressures which, in turn, pressured deposit costs in the market. In this environment, in order to manage cost and duration mismatch, we focused on growing SME & retail deposits and, as a result, enhanced our deposit base further with 16% growth in TL deposits. Moreover, in order to take advantage of the opportunities in the global market environment, we continued to tap international markets to raise alternative funding sources for cost and duration mismatch management. Accordingly, we successfully renewed our syndications, and for the first time we issued Basel III Compliant Subordinated Notes in the amount of USD 750 million and with 10 year tenure. Receiving a record demand of USD 4 billion, our Basel III Compliant Tier II issuance became the lowest costing transaction of a bank in Turkey, while also generating the largest order book ever. With the International Finance Corporation (IFC), we signed an unprecedented agreement based on mortgages that would support 'Green Mortgage' projects, for the first time in Turkey. These transactions are solid sign of the credibility established by Garanti BBVA before the international capital markets. Garanti BBVA will continue to be among the leading institutions of the Turkish financial sector with its sustainable growth strategy, innovative services, and ongoing investments in human capital.
We strive to create value for our customers, employees and all our stakeholders. We qualified for the FTSE4Good Emerging Markets Index with our performance in environmental, social and governance areas. We became the first and the only company from Turkey to be listed in the Bloomberg Financial Services Gender Equality Index with our HR practices and the support we provide to women for their increased role in business life and higher contribution to the economy. We became the only financial institution worldwide to be included in the 2017 CDP Water A List.
Disclosing climate change strategies using the CDP platform, we also retained our score in the climate change program and we were listed among CDP Turkey Leaders. We became the only company from Turkey qualified to be included in the Dow Jones Sustainability Emerging Markets Index for three consecutive years.
ANOTHER YEAR OF CLEAR BEAT
We are delighted to share that we delivered outstanding results in every aspect. While maintaining our leadership position among private banks in consumer lending, we significantly grew our TL business banking loans. As of today, the loans we have provided under the Credit Guarantee Fund surpassed TL 18 billion. Driven by the growth in TL business banking loans, we recorded 20% growth in TL loans, surpassing the projected 15% growth at the beginning of the year. While growing, we continued to make effective use of our capital. Our capital adequacy ratio increased to 16.8% in 2017 from 14.7% in 2016. Strong capital ratios are the result of high quality earnings. We have been constantly increasing our ROAE since 2015, which reached 16.6% as of yearend 2017, beating our initial expectations of 15.5-16%. In line with our strategic focus on efficiency, we improved our cost-to-income ratio by 4 pp vs. our 1.5 pp estimate. This high core banking profitability enabled us to strengthen our capital.
We work together and alongside our Retail, SME, Commercial and Corporate customers to find the best solutions for all their needs. There is nothing coincidental about the fact that we have ranked #1 in the net promoter score among peers for two consecutive years. As a pioneer in digital transformation for over 20 years, today we reached a point where we bring the banking service to our customers’ locations and serve Turkey’s largest digital customer base with close to 6 million active customers.
In our actions, we are guided by the principles of trust, integrit y, accountability and transparency toward all our stakeholders. Our efforts in supporting financial literacy, health and inclusion resulted in touching the lives of 809,397 customers that started using savings products. Renewable energy makes up more than 60% of our electricity generation loan portfolio; in fact, we command 30.2% market share in Turkey’s installed wind power capacity as of year-end 2017. We transform savings into sustainable investments by offering sustainability products & credit lines and TL 9.3 billion lending based on impact investment principles. Our efforts to support the financing of renewable energy led to avoid GHG emissions of 5.4 million tCO2 e from hydro, solar and wind power plants that we participated in financing. The scope three footprint of our energy production portfolio has been zero in new project finance commitments.
Our engagement activities with our stakeholders led to 8 policies and position papers that contribute to Sustainable Development Goals (SDGs), while our community investment programs addressed three different social challenges with a Social Return on Investment value of more than two.
As our most valuable asset is human, we continued to invest in our employees fo cusing on their development, s atis fac tion a nd well-b eing. We provided 36 hours of training per employee in 2017. We embrace a fair and transparent management policy based on performance, focused on equal opportunities, diversity and internal promotion. As a result, we outperformed the sector with our employee engagement score of 65%.
LOOKING AHEAD
This year, we expect global macro drop to be supportive given recoveries in investment, manufacturing and trade. Going forward, global GDP growth figures and the steps advanced economies will take with respect to their monetary normalization processes will be of great importance for the external financing conditions of other economies.
In Turkey, we expect CBRT to maintain its tight stance in the absence of significant improvement in inflation. This suggests a positive real rate, which might favor the country throughout the year given upbeat sentiment globally. Nevertheless, this flow may support our current account deficit and inflation.
At Garanti BBVA, as always, we will sustain our uninterrupted support to the economy while optimizing capital allocation and prioritizing risk-return balance. Following the robust lending growth linked to CGF-loans, we envisage a normalized TL loan growth. Deposits will be the main source of funding, yet we will continue to tap international funding when market conditions are favorable. We are not expecting any difficulty in reaching international funding sources.
Our new branch service model represents a new era in the Turkish banking sector. Going forward, we will continue to focus on this transformation to increase digital penetration in customers as well as in processes, thus to further enhance customer experience and loyalty.
Given our capital generative growth strategy, advanced risk management systems and organizational agility in capturing new opportunities, we are looking at the future with confidence. We act with the awareness of the impact of each and every action we take, and with the responsibility of being an institution that shapes the future and leads the sector. With our competent human resources and extensive branch network in every city of Turkey, we keep working to offer excellence in customer experience, ensure responsible and sustainable development, operational efficiency and employee happiness.
I am grateful to all our stakeholders who trust and support us.
Sincerely,
ALİ FUAT ERBİL
President & CEO
3Q17 Review
Türkiye Garanti Bankası A.Ş., announced its financial statements dated September 30, 2017. Based on the unconsolidated financials, in the 9 months period of 2017, the Bank posted an unconsolidated net income of TL 4 billion 644 million 851 thousand. While Garanti BBVA’s asset size reached TL 311 billion 42 million 321 thousand, its contribution to the economy through cash and non-cash lending increased to TL 254 billion 616 million 658 thousand. The Bank delivered an ROAE (Return on Average Equity) of 17.4% and ROAA (Return on Average Assets) of 2.2%.
Commenting on the financial results, Garanti BBVA CEO Fuat Erbil stated that: “Garanti BBVA acts with the awareness of the impact by each and every action it takes, and with the responsibility of being an institution that shapes the future and leads the sector. Combining its approach to unconditional customer satisfaction with its solid capital structure and efficiency-focus, Garanti BBVA, completed the first nine months of the year successfully. While preserving its solid financial structure through effective balance sheet management, Garanti BBVA uninterruptedly sustained its contribution to the economy.”
Touching upon the significance of being responsible bankers aware of the risks and opportunities, Erbil said: “As the only company from Turkey, and as one of the 100 companies around the world, we have announced our support to the recommendations of Task Force on Climate-related Financial Disclosures (TCFD) formed by Financial Stability Board (FSB) under G-20. Furthermore, as a signatory of UN Global Compact, we have pioneered the formation and signed the “Declaration of Sustainable Finance”. Moreover during this period, we have signed an agreement with European Bank for Reconstruction and Development (EBRD) with a 5 year maturity for €75 million financing, equivalent to approximately TL300 million that aims to expand the utilization of “Green Mortgage” loans and protect future generations through “Green Buildings”. We strive to create value for our customers, employees and all our stakeholders. We became the only company from Turkey qualified to be included in the Dow Jones Sustainability Emerging Markets Index for 3 consecutive years. Teachers Academy Foundation (ÖRAV), founded by Garanti BBVA, is granted Special Consultative Status by UN Economic and Social Council (ECOSOC). I am thankful to my valuable colleagues who carry Garanti BBVA to the leadership position in the banking sector and are the pioneers of transformation on international platforms.
2Q17 Review
Türkiye Garanti Bankası A.Ş., announced its financial statements dated June 30, 2017. With an asset size of TL 335 billion 942 million 185 thousand, Garanti BBVA’s contribution to the economy through cash and non-cash lending reached TL 272 billion 980 million 362 thousand, based on the consolidated financials. The Bank posted a net income of TL 3 billion 100 million 273 thousand in the first six months of 2017. The Bank delivered an ROAE (Return on Average Equity) of 18.1% and an ROAA (Return on Average Assets) of 2.1%.
Commenting on the financial results, Garanti BBVA's CEO Fuat Erbil said: “In the first half of 2017, while further strengthening our solid balance sheet with the confidence of all our stakeholders, we helped revitalize the economy. We successfully renewed our € 1.25 billion syndicated loan; and for the first time in international capital markets we issued Basel III Compliant Subordinated Notes in the amount of US$ 750 million and 10 year tenure. Receiving a record breaking demand of US$ 4 billion, our Basel III Compliant Tier II issuance became the lowest costing transaction of a bank in Turkey, while also generating the largest order book ever. With IFC, we signed an unprecedented agreement based on mortgages that would support 'Green Mortgage' projects, for the first time in Turkey. The loans we have extended under the Credit Guarantee Fund surpassed TL15 billion. Supporting social and economic development of women for over 10 years, the financing we provided to women exceeded TL3.2 billion.
Expressing the pride in contributing to the sustainable future of Turkey on behalf of Garanti BBVA, Erbil said; “EMEA Finance named Garanti BBVA the Best Project Finance House in CEE (Central and Eastern Europe) region. We lead in the financing of projects contributing to the sustainability of the Turkish economy and offer innovative solutions. We work together and alongside our Retail, SME, Commercial and Corporate customers to find the best solutions for all their needs, and take part in their lives in an uninterrupted and long lasting manner. At every point of contact; physical locations across Turkey and leading on digital platforms; through all channels we bring our services to our customer’s location and work to create the best experience possible. I am grateful for all our stakeholders who trust and support us.”
1Q17 Review
Türkiye Garanti Bankası A.Ş., announced its financial statements dated 31 March 2017. Based on the consolidated financials, in the first three months of 2017, the Bank posted a consolidated net income of TL 1 billion 536 million 636 thousand. While Garanti BBVA’s asset size reached TL 328 billion 691 million 782 thousand, its contribution to the economy through cash and non-cash lending exceeded TL 269 billion 255 million 793 thousand. The Bank’s ROAE (Return on Average Equity) improved to 18.9% and an ROAA (Return on Average Assets) to 2.1%.
Commenting on the financial results, Garanti BBVA's CEO Fuat Erbil said: “We made a solid start to 2017 with a remarkable core banking performance. While maintaining our leadership in consumer lending, we grew our TL business banking loans by 14% in the first three months of 2017. As of today, the loans we have provided under the Credit Guarantee Fund surpassed 10 billion liras. We continue to support the economy with our strong capital and diversified funding resources. The US$ 500 million 6 year tenure Eurobond we issued in March is an important indicator of confidence in Garanti BBVA and in Turkey during a turbulent period in the global financial markets. With over 19 thousand employees and the expansive branch network in every city of Turkey, we continue to be alongside our customers. As a pioneer in digital transformation for over 20 years, today we reached a point where we bring the banking service to our customer’s location. In addition to the capability of quick transaction processing without branch visits, we cater to our customers the privilege of private expert consultations on subjects requiring specialist knowledge. The digitalization journey we started with BonusFlas in payment systems, continues with Garanti BBVA Isler (Garanti for Merchants) web platform for SMEs. Furthermore, we commenced the period of financing for digitalization in agriculture.”
Expressing the pride for the recognitions of Garanti BBVA’s efforts by international authorities, Erbil said; “We were chosen ‘Best Investment Bank in Turkey’ by Global Finance for the financing we provided to projects. We qualified for the FTSE4GOOD Emerging Index with our performance in environmental, social and governance areas. We became the first and only company from Turkey to be listed in the Bloomberg Financial Services Gender Equality Index, with our HR practices and the support we provide to women for their increased role in business life and higher contribution to the economy. We continue to work relentlessly to add sustainable value to all our stakeholders.”