CORPORATE PRESENTATION September 2018
ENVIRONMENT WE OPERATE IN ABOUT GARANTI OUR VALUE CREATION MARKET POSITION & 2018 PROJECTIONS 2
ENVIRONMENT WE OPERATE IN ABOUT GARANTI OUR VALUE CREATION MARKET POSITION & 2018 PROJECTIONS 3
GLOBAL ECONOMIES The pace of global growth is being maintained.. but is less synchronized. Growth is robust in 2Q18 in US and stable in China, but it has declined in Europe. Monetary policy normalization In June, FOMC increased the target range for the federal funds to 2.0% and the median projections of the FOMC for year-end 2018 increased to two rate increases from one previously. ECB announced that QE will end in December 2018 while rate hikes will be delayed until September 2019, later than expected. Increased caution in financial markets Stronger USD with rising US rates triggered a sudden reassessment of EM. EM FX sell-off was driven by global factor, idiosyncratic factors also weigh 4
TURKISH ECONOMY (I / II) GROWTH 17 th largest economy in the world 1 8.5% 5.2% 6.1% 3.2% 7.4% 3.0% 5-yrs avg. GDP growth: 6% vs. EM Europe: 4.5% 1 Attractive demographics & underpenetrated market 2013 2014 2015 2016 2017 2018E 55% of the 81mn population < age of 35 2 Loans/GDP: 69% vs. 98% in EU in 2Q18 3 INFLATION 21.5 % 7.4% 8.2% 8.8% 8.5% 11.9% 2013 2014 2015 2016 2017 2018E CBRT FUNDING COST (Year-end) 23.75 % 7.1% 8.5% 8.8% 8.3% 12.75 % 2013 2014 2015 2016 2017 2018E Multiple policy tools aimed at financial stability (i.e interest rate corridor, reserve requirements, non-deliverable forward (NDF) FX auctions, etc.) Since 2017, monetary policy remained tight due to worsening inflation expectations. E: Garanti Estimates as of September 2018 1 IMF s World Economic Outlook Report dated April 2018. Ranking as of YE 2016 2 Source: TurkStat 31 December 2017 Address Based Population Registration System 3 Source: ECB, TurkStat, BRSA for commercial banks, as of June 2018 5
TURKISH ECONOMY (II / II) Core CAD /GDP CAD/GDP BUDGET DEFICIT / GDP -1.0% -1.1% -1.0% -1.1% -1.5% -2.2% 2013 2014 2015 2016 2017 2018E CAD / GDP -1.2% -1.1% 0.2% 1.1% 0.3% -0.1% -6.8% -4.7% -3.7% -3.8% -5.5% -6.8% 2013 2014 2015 2016 2017 2018E Fiscal Discipline EU Defined Government Debt Stock: 28% as of 1Q18 vs. Maastricht criteria: 60% Resilient central government debt composition TL: 57%, FC: 43% (as of July 2018 vs. TL: 42%, FC: 58% in 2002) 75% fixed, 25% floating rate (as of July 2018 vs. 45% fixed, 55% floating in 2002) The expected adjustment in economic activity will contribute to a rapid decline in current account deficit, starting to be more apparent at the beginning of next year Core current account balance (excluding energy and gold): -US$5.6bn; -0.6% of GDP as of June 2018 E: Garanti Estimates as of September 2018 6
TURKISH BANKING SECTOR (I / II) Other 30% Total Assets US$804bn # of Banks StateBanks 31% Top 4 Private Banks 39% Share in Assets Share in Loans Top 4 Private Commercial Banks 4 39% 39% 40% State Banks 3 31% 33% 35% Other Private Commercial Banks 25 19% 17% 19% Development & Inv. Banks 13 6% 7% - Share in Deposits Participation Banks 5 5% 5% 6% Total: 50 TOP 10 BANKS Dominated by top 4 Private Banks & 3 State Banks Share in Assets 13.6% Foreign Shareholder - Actual Free Float - 10.1% - 30.9% 9.5% BBVA (49.85%) 50.1% 9.5% - 48.7% 9.3% - 49.2% 9.2% UniCredit Group (49.5%) 17.7% 8.3% - 25.2% 4.1% QNB S.A.Q. (99.88%) 0.1% 3.7% Sberbank (99.85%)* 0.2% 2.7% BNP Paribas (72.5%) - Note: Sector figures are based on bank-only BRSA monthly data as of June 2018. Top 10 banks make up ~80% of sector s total asset *As per Denizbank s disclosure, Emirates NBD and Sberbank announce that they have entered into a definitive agreement whereby Sberbank will sell its entire 99.85% stake in Denizbank to Emirates NBD. The closing of the transaction is subject to regulatory approval in Turkey, Russia, the United Arab 7 Emirates (UAE) and other relevant jurisdictions where Denizbank and its subsidiaries operate. The transaction is expected to close in 2018.
TURKISH BANKING SECTOR (II / II) COMFORTABLE LIQUIDITY STRONG SOLVENCY SOLID ASSET QUALITY Deposits fund 57% of assets Liquidity Coverage Ratio (Total):118% 1 vs. required level of 90% for 2018 Sufficient buffers against potential external liquidity shock Banks ST external debt 2 : US$85bn (45% of total external debt) US$78bn Quick FC Liquidity 3 sufficient to cover any liquidity shock Basel III CAR 15.9% CET-I capital: 82% of total capital RWA/Assets 78% vs. 82% 2016YE NPL Ratio 3.2% Stage-3 Coverage Ratio: ~73% ROAE: 16% LEVERAGE: 8x ROAA: 1.7% Note: Sector figures are based on BRSA monthly data as of June 2018, for commercial banks only 1 Top 7 banks average per BRSA June 2018 Consolidated financials 2 Source: CBRT, as of June 2018. excluding non-residents FC deposits 3 Quick Liquidity: Readily available liquidity buffer without CB reserves, any unsecured issuances, asset reductions, deposit accummulations, 8 asset sales. Liquidity Buffers FC reserves Under ROM, swaps, money market placements, CBRT eligible unencumbered securities
CHALLENGES & OPPORTUNITIES OF TURKISH BANKING SECTOR SHORT-TERM NATURE OF DEPOSITS (~1 month) UNBANKED POPULATION (>40% of adult population) HIGH LIQUIDITY AND STRONG SOLVENCY YOUNG POPULATION 55% population is under age of 35 STRICTLY REGULATED & HIGHLY MONITORED EXTERNAL FUNDING SHARE IN TOTAL: 23% SOUND ASSET QUALITY DUAL CURRENCY BALANCE SHEETS NO FX OPEN POSITION SCARCITY OF LONG-TERM TL FUNDING BASEL III & IFRS9 COMPLIANCE PRIVILEGED STATUS OF STATE BANKS in collecting deposits 9
ENVIRONMENT WE OPERATE IN ABOUT GARANTI OUR VALUE CREATION MARKET POSITION & 2018 PROJECTIONS 10
GARANTI AT A GLANCE $84 BN 49.85% TOTAL ASSETS OWNED BY BBVA 2 nd LARGEST PRIVATE BANK WITH ~10% MARKET SHARE 50.1% ACTUAL FREE FLOAT 6.6 MN # DIGITAL CUSTOMERS 63% DIGITAL PENETRATION * 100% GEOGRAPHICAL COVERAGE ~1.5MN NEW CUSTOMERS/YR via 933 BRANCHES 27.6% DIVIDEND PAY-OUT RATIO HIGHEST DIVIDEND PAYMENT ** Note: Financial figures are per BRSA Consolidated data as of June 2018 * Among active customers, as of June 2018. Active digital customers are defined as at least 1 login within 3 months Active customers are defined as utilizing at least 1 product actively within 3 months. ** Among top 4 private banks & 3 state banks 11
GARANTI SHARE Listed on Borsa Istanbul (BIST) Turkey since 1990 Depositary Receipts (DR) listed on London Stock Exchange and on OTC since 1993 Trades on OTCQX International Premier since 2012 (OTCQX Ticker: TKGBY) Listed on OTCQX ADR 30 Index ~$4bn MCap 1 Largest floating Mcap among banks in BIST Actual free float: 50.06% $151mn ~7% Weight in BIST Most invested stock by foreigners Foreign Ownership in free float: ~84% 1 Avg. Daily Turnover 2 1 As of September 11, 2018 2 Average of daily turnover during 1H18 12
SHAREHOLDING STRUCTURE Shareholders from 35 countries Foreign investors in free float 83% vs. peer avg. of 67% 1 Note: Institutional shareholder and foreign individual shareholder composition data based on IPREO Shareholder ID Analysis dated December 2017; the actual free float ratio and the share of local individual shareholders are all based on Central Agency Registry Agency data. 1 As of September 06, 2018. 13
BOARD OF DIRECTORS Süleyman Sözen (Chairman) Ali Fuat Erbil (President & CEO) M. Cüneyt Sezgin Ergun Özen Javier Bernal Dionis Jaime Saenz De Tejada Pulido Rafael Salinas Martines De Lecea Independent Members Jorge Saenz-Azcunaga Carranza (Vice Chairman)* Ricardo Gomez Barredo* Sema Yurdum *Since their appointment as an Audit Committee member of Garanti Bank, they are deemed as an Independent Board Member in accordance with the relevant regulations of the Capital Markets Board of Turkey. 14
OUR TEAM Ali Fuat Erbil Strategic Planning & Responsible Business Aydın Güler CFO Aydın Düren Legal Services and Collection Ali Temel Chief Credit Risk Officer İlker Kuruöz Engineering and Data Osman Tüzün Human Resources and Support Services Mahmut Akten Retail Banking Didem Dinçer Başer Digital Banking, Customer Solutions and Experience Cemal Onaran SME Banking Selahattin Güldü Commercial Banking Ebru Dildar Edin Corporate and Investment Banking 15
A UNIVERSAL BANK WITH STRONG PRESENCE IN ALL BUSINESS AREAS RETAIL Asset Contribution: 6.11% CORPORATE PAYMENT SYSTEMS Asset Contribution: 3.36% Asset Contribution: 0.63% COMMERCIAL DIGITAL BANKING Asset Contribution: 1.56% Asset Contribution: 0.72% SME Asset Contribution: 0.08% Note: Asset contributions are calculated based on BRSA Consolidated Financials as of June 30, 2018 Asset Contribution: 0.02% 16
A UNIVERSAL BANK WITH STRONG PRESENCE IN ALL BUSINESS AREAS RETAIL BANKING We welcomed 73 million customers at our branches in 2017 Building long-lived relationships with our customers 14 MN 590K Retail customers People became homeowners with Garanti 14% CONSUMER LOAN MARKET SHARE (#1 in consumer loans among private peers) 13% MORTGAGE MARKET SHARE (Mortgages / GDP:6% -- Huge growth potential) (NPL ratio: 0.7%) 1.4 MN Customers saved with Garanti 11% CUSTOMER DEPOSIT MARKET SHARE (Demand deposits share in customer deposits: 27%) Note: Market shares are calculated based on BRSA Unconsolidated Financials as of June 30, 2018 17
A UNIVERSAL BANK WITH STRONG PRESENCE IN ALL BUSINESS AREAS SME BANKING We offer information and advisory services to support their development COMMERCIAL & CORPORATE BANKING We position ourselves as the primary business partner of our customers PAYMENT SYSTEMS Strong presence in the credit card business. License Turkey s lovemark Bonus card to 10 other banks 9% TL BUSINESS BANKING LOANS MARKET SHARE 11% FC LOANS MARKET SHARE 19% ACQUIRING & ISSUING MARKET SHARE Note: Market shares are calculated based on BRSA Unconsolidated Financials as of June 30, 2018 18
A UNIVERSAL BANK WITH STRONG PRESENCE IN ALL BUSINESS AREAS DIGITAL BANKING We encourage our customers digital migration. We have been investing in digital for >20 years to offer our customers seamless omni-channel experience. Mobile Internet ATM Social Media Call Center Best in class in Europe 1 64% of non-cash financial transactions >500 types of transactions 23% of non-cash financial transactions Cash deposits/withdrawals: 97% Serving non-bank customers through cardless transactions 5 mn followers: Europe s Most Followed Bank 17 Social Platforms with 55 accounts 77.4mn customer contacts in 2017 Avg. response time 33sec (sector 81 sec) 1 In customer user experience per Forrester s Global Mobile Banking Functionality Benchmark Study, 2017 19
ENVIRONMENT WE OPERATE IN ABOUT GARANTI OUR VALUE CREATION MARKET POSITION & 2018 PROJECTIONS 20
OUR PURPOSE TO BRING THE AGE OF OPPORTUNITY TO EVERYONE OUR VALUES CUSTOMER COMES FIRST WE THINK BIG WE ARE ONE TEAM 21
KEY TRENDS Digital transformation Ecosystem decline & social trends Economic conditions & regulatory environment OUR BUSINESS MODEL OUR PURPOSE To bring the age of opportunity to everyone 22
Importance to Stakeholders 100 90 80 70 MATERIAL ISSUES 12 14 5 10 6 3 11 9 4 7 8 13 2 1 CLUSTER # of ISSUE MATERIAL ISSUE Customer Experience Financial Performance 1 8 4 Customer centricity and increasing customer satisfaction Financial health and supporting customers in making conscious financial decisions Financial performance (including solvency) & direct and indirect impact on economy 5 Transparent disclosure of information for stakeholders Corporate 12 Good corporate governance Governance and Risk Management 3 Risk and crisis management (including integrated management of financial and non-financial risks 14 Compliance 60 50 40 30 30 40 50 60 70 80 90 100 Importance to Garanti Bank Digital Transformation 6 2 Customer privacy and information security Digital transformation and technological advancement Investing in Human Capital 10 Investing in human capital 7 Management of ESG risks Responsible and 11 Climate change and energy Sustainable Development 9 Pioneering the development of sustainable banking 13 Stakeholder dialogue 23
OUR STRATEGIC PRIORITIES EMPLOYEE HAPPINESS EFFICIENCY DIGITALIZATION CUSTOMER EXPERIENCE OPTIMAL CAPITAL UTILIZATION RESPONSIBLE & SUSTAINABLE DEVELOPMENT Fair and transparent Cost and revenue synergies management policy Focus on their development, satisfaction and wellbeing Unrivaled customer experience Transaction convenience Pioneering solution suggestions Expand digital customer base Increase digital sales Transparent, clear and responsible Innovative solutions Design our processes from our customers perspective Supporting financial literacy, health and inclusion in solutions that we offer Use capital effectively Act with the principles Disciplined & sustainable of trust, integrity, growth accountability and Strict adherence to solid transparency asset quality Lending based on impact investment principles Focus on community investment programs 24
UNDERSTANDING CUSTOMER 864k customer feedbacks received in 2017 24 products or services changed & developed via customer feedbacks EMPATHETIC CULTURE AI program «Empathy Assistant» to help branch employees while resolving customer issues 4,930 Disabled friendly ATM (98% of Garanti ATMs) DESIGN PHILOSOPHY New service model in branches to capture the benefits of emerging digital world Invests and applies the latest Big Data and Analytics MEASUREMENT SYSTEMS Conducts after-service surveys for all customer-facing employees Operational quality indicator: Customer Centricity Index #1 in Net Promoter Score for two consecutive years CUSTOMER EXPERIENCE Key Value Drivers Exceeding their expectations and enhancing their satisfaction Supporting financial literacy, health and inclusion with offered solutions Advise solutions to grow their businesses in sustainable manner Linked Sustainable Development Goals 25
LEADING POSITION IN DIGITAL BANKING Active digital customers Active mobile customers 6.8 mn digital customers 6.0 mn mobile customers 4.5 mn mobile-only customers 24% YoY 33% YoY EFFECTIVE DIGITAL CHANNEL UTILIZATION 43% SHARE OF DIGITAL SALES IN TOTAL SALES 1/5 GARANTI S MARKET SHARE IN DIGITAL TRANSACTIONS DIGITAL TRANSFORMATION Key Value Drivers Unrivaled customer experience Expand digital customer base Increase digital sales Ensure information security and uninterrupted service Linked Sustainable Development Goals 1 st in Europe in customer user experience in Mobile Banking Most loved mobile bank in Turkey #1 with 93 score 26
EMPLOYEE ENGAGEMENT SCORE OUTPERFORMS SECTOR Sector 0 53 65 100 INVESTING IN HUMAN CAPITAL TRAINING PER EMPLOYEE EMPLOYEE WELL-BEING PROGRAMS 36hours Share of digital training: 27% vs. 17% in 2016 10 Programs Key Value Drivers Focus on employee development, satisfaction and wellbeing Acting with shared wisdom Fair and transparent management policy FIRST AND ONLY COMPANY FROM TURKEY Linked Sustainable Development Goals Note: Employee Engagement Score is per latest AON Hewitt Employee Engagement Study 27
TL9.3bn Impact Investment 32 Sustainable products/credit lines 30% Market Share in wind power projects 36 Engagement Platforms Included in 6 Sustainability indices 100% of new PF commitments in Greenfield Energy Production Portfolio are Renewables TL 20.3mn investment in community programs RESPONSIBLE & SUSTAINABLE DEVELOPMENT Key Value Drivers Drive positive change through strategic partnerships Impact investment principles Focus on community investment programs Linked Sustainable Development Goals 28
CORPORATE GOVERNANCE RATING 9.14 9.20 9.27 9.51 2014 2015 2016 2017 RISK MANAGEMENT PROCESS Outlook: Positive High level of effectiveness in internal audit activities Compliance assured through Integrity committee Presence in worldwide leading indices Having a comprehensive and effective risk management system CORPORATE GOVERNANCE AND RISK MANAGEMENT Key Value Drivers Transparent disclosure of information Integrated Risk & Crisis Management Compliance Linking material themes & strategic objectives Determination of manageable risks Monitoring risk appetite framework regularly Risk Measurement To identify risks & opportunities Based on the predicted capability of safe handling of risks to achieve goals & strategic objectives On metrics related to capital, liquidity and profitability and risk based limits By using methods compliant with international standards, and in accordance with the applicable legislation. Advanced risk management tools are utilized Linked Sustainable Development Goals 29
SOLVENCY RATIOS 14.0 CET-1 % 14.0% 8.0% CAR 16.2% 11.5% Required level 1 for 2018 LIQUIDITY RATIOS well above minimum required levels Total LCR 152.3% Minimum Req. for 2018 90% FC LCR 163.3% Minimum Req. for 2018 70% FINANCIAL PERFORMANCE (I / II) Key Value Drivers Use capital effectively Cost and revenue synergies Disciplined and sustainable growth 1H18 ROAA ROAE LEVERAGE 2.1% 18.1% 7.7x Linked Sustainable Development Goals 1 Required CAR = 8.0% + SIFI Buffer for Group 3 (1.5%) + Capital Conservation Buffer (1.875%) + Counter Cyclical Buffer (0.09%) 30
ROAE 19% INCREASING EFFICIENCY 1H18 2017 FINANCIAL PERFORMANCE (II / II) 16% 2016 +5pp 13% -13pp 10% 40% 45% 50% 55% COST/INCOME 2015 Key Value Drivers Use capital effectively Cost and revenue synergies Disciplined and sustainable growth COST/INCOME 44.9% OPEX/ AVG. ASSETS 2.3% FEE / OPEX 59% Linked Sustainable Development Goals Note: In the Cost/Income calculation, Income defined as NII + Net F&C +Trading gains/losses Provision for loans Free Provisions set aside during the year +Other income+ Dividend Income 31
ENVIRONMENT WE OPERATE IN ABOUT GARANTI OUR VALUE CREATION MARKET POSITION & 2018 PROJECTIONS 32
ACHIEVED PIONEER POSITION Peer 1 Peer 2 Peer 3 Highest Net Income TL Million, 1H18 3,904 Highest ROAA Cumulative, 1H18 2.3% Highest ROAE Cumulative, 1H18 18.1% Highest NIM incl. Swap Cost Highest Net Fees & Commissions / Cumulative, 1H18 IEA & Non-cash Loans 2 nd Lowest Cost/Income Cumulative, 1H18 4.8% 1.4% 41.8% Highest CAR Highest CET-I 18.0% 15.7% Highest Dividend Distribution 27.6% Note: For fair comparison with the peers, latest available bank-only financials (30 June 2018) were used Rankings are among private peers, namely Akbank, Isbank & YKB 33
2018 PROJECTIONS TL Loans (yoy) <14% FC Loans (in US$, yoy) NPL Ratio Net Cost of Risk NIM incl. Swap Cost (yoy) Shrinkage 4.0-4.5% (No NPL sale assumed) ~150 bps (excl. currency impact) 1 Flat (including CPI impact) Fee Growth (yoy) > 20% Opex Growth (yoy) ~10% ROAE > 17% ROAA > 2.2% BRANCH TRANSFORMATION DIGITAL MIGRATION CUSTOMER EXPERIENCE RISK-RETURN FOCUS IN LOAN GROWTH RETURN ON CAPITAL ACTIVE MANAGEMENT OF FUNDING BASE 34
Garanti works to create sustainable value for all its stakeholders
APPENDIX SUSTAINABLE DEVELOPMENT GOALS 36
DISCLAIMER STATEMENT Türkiye Garanti Bankasi A.Ş. (the TGB ) has prepared this presentation document (the Document ) thereto for the sole purposes of providing information which include forward looking projections and statements relating to the TGB (the Information ). No representation or warranty is made by TGB for the accuracy or completeness of the Information contained herein. The Information is subject to change without any notice. Neither the Document nor the Information can construe any investment advise, or an offer to buy or sell TGB shares. This Document and/or the Information cannot be copied, disclosed or distributed to any person other than the person to whom the Document and/or Information delivered or sent by TGB or who required a copy of the same from the TGB. TGB expressly disclaims any and all liability for any statements including any forward looking projections and statements, expressed, implied, contained herein, or for any omissions from Information or any other written or oral communication transmitted or made available. Note: Net Promoter Score research is conducted by independent research agency Ipsos for Garanti Bank. According to the research results, Garanti has the highest Net Promoter Score, among retail customers representing its own profile, compared to peer group. Peer group consists of Garanti Bank, İş Bank, Akbank, Yapı Kredi Bank, QNB Finansbank and Denizbank. Research was conducted between October 17 and January 18. Main bank customers, who have communicated with the banks over the last 3 months, surveyed face to face in the representative cities of Turkey by quota sampling. Score is calculated as a weighted average of retail segments scores. Garanti Investor Relations www.garantiinvestorrelations.com Levent Nispetiye Mah. Aytar Cad. No:2 Beşiktaş 34340 Istanbul Turkey Email: investorrelations@garanti.com.tr Tel: +90 (212) 318 2352 Fax: +90 (212) 216 5902 37