CORPORATE PRESENTATION November 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 remains strong in the US and steady in China, but it is slowing in the Eurozone and there are risks of contraction in several emerging countries. Monetary policy normalization at different paces: Fed vs. ECB The Fed remains comfortable with the exit strategy whereas the ECB delayed the first hike. Global risks intensify A full blow trade war on the rise as main source of concern, along with greater risks in EM (financial tensions) and the Eurozone (political instabilities due to Brexit and Italy) Portfolio outflows are expected to continue in the coming quarters, on the combination of global headwinds (global funding conditions to further tightening) and idiosyncratic factors. 4
TURKISH ECONOMY (I / II) GROWTH 7.4% 6.2% 3.0% 2017 1H18 2018E 19 th largest economy in the world 1 5-yrs avg. GDP growth: 6% vs. EM Europe: 4% 1 2H18 -- Decelerating economic activity Worsening high frequency indicators, High statistical base impact of last year Expected negative effects of recent financial shocks INFLATION 24.5 % 23.5 % 11.9% 2017 9M18 2018E CBRT FUNDING COST (Year-end) 12.8 % 24.0 % 24.0 % 2017 Oct'18 2018E Tight policies to curb worsening inflation Comprehensive and consistent policy mix to curb currency volatility: Strengthened policy mix by New Economic Plan (NEP) -- Prudent stance of the fiscal policy should complement the already tight monetary policy conditions to re-balance the economy E: Garanti Estimates as of October 2018 1 IMF s World Economic Outlook Report dated October 2018. Ranking as of YE 2017 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% -2.1% 2013 2014 2015 2016 2017 2018E CAD / GDP -1.2% -1.1% 0.2% 1.1% 0.3% -1.4% -6.8% -4.7% -3.7% -3.8% -5.5% -5.1% 2013 2014 2015 2016 2017 2018E Fiscal Discipline EU Defined Government Debt Stock: 29.2% as of 2Q18 vs. Maastricht criteria: 60% Resilient central government debt composition TL: 52%, FC: 48% (as of September 2018 vs. TL: 42%, FC: 58% in 2002) 76% fixed, 24% floating rate (as of September 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$0.2bn (12-month sum, as of August 2018) E: Garanti Estimates as of October 2018 6
TURKISH BANKING SECTOR (I / II) Other 30% Total Assets US$705bn # of Banks StateBanks 31% Top 4 Private Banks 39% Share in Assets Share in Loans Top 4 Private Commercial Banks 4 39% 40% 41% State Banks 3 31% 33% 34% Other Private Commercial Banks 25 19% 15% 19% Development & Inv. Banks 13 6% 8% - 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 13.1% Foreign Shareholder - Actual Free Float - 10.6% - 30.9% 10.0% BBVA (49.85%) 50.1% 9.3% - 48.7% 9.3% - 49.2% 9.2% UniCredit Group (49.5%) 17.7% 8.4% - 25.2% 4.3% QNB S.A.Q. (99.88%) 0.1% 3.5% Sberbank (99.85%)* 0.2% 2.7% BNP Paribas (72.5%) - Note: Sector figures are based on bank-only BRSA monthly data as of September 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 dues 2 : US$82bn (44% of total external debt) US$87bn Quick FC Liquidity 3 sufficient to cover any liquidity shock Basel III CAR 17.7% CET-I capital: 79% of total capital RWA/Assets 70% vs. 82% 2016YE NPL Ratio 3.4% Stage-3 Coverage Ratio: ~71% ROAE: 15% LEVERAGE: 9.4x ROAA: 1.5% Note: Sector figures are based on BRSA monthly data as of September 2018, for commercial banks only 1 Top 7 banks average per BRSA June 2018 Consolidated financials 2 Source: CBRT, as of August 2018. excluding non-residents FC deposits 8 3 Quick 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: 25% 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 $76 BN 49.85% TOTAL ASSETS OWNED BY BBVA 2 nd LARGEST PRIVATE BANK WITH ~10% MARKET SHARE 50.04% ACTUAL FREE FLOAT ~7 MN # DIGITAL CUSTOMERS 66% 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 September 2018 * Among active customers, as of September 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) $5.4bn MCap 1 Largest floating Mcap among banks in BIST Actual free float: 50.04% $168mn ~7% Weight in BIST Most invested stock by foreigners Foreign Ownership in free float: ~84% 1 Avg. Daily Turnover 2 1 Figures are as of September 28, 2018. USD/TL CBRT ask rate is used in the calculations 2 Average of daily turnover during 9M18 12
SHAREHOLDING STRUCTURE Shareholders from 38 countries Foreign investors in free float 85% vs. peer avg. of 61% 1 Note: Institutional shareholder and foreign individual shareholder composition data based on IPREO Shareholder ID Analysis dated September 2018; the actual free float ratio and the share of local individual shareholders are all based on Central Agency Registry Agency data. 1 As of October 25, 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: 6.49% CORPORATE PAYMENT SYSTEMS Asset Contribution: 3.892% Asset Contribution: 0.57% COMMERCIAL DIGITAL BANKING Asset Contribution: 1.58% Asset Contribution: 0.54% SME Asset Contribution: 0.09% Note: Asset contributions are calculated based on BRSA Consolidated Financials as of September 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) 12% MORTGAGE MARKET SHARE (Mortgages / GDP: ~6% -- Huge growth potential) (NPL ratio: 0.8%) 1.4 MN Customers saved with Garanti 12% CUSTOMER DEPOSIT MARKET SHARE (Demand deposits share in customer deposits: 25% vs. sector s 21%) Note: Market shares are calculated based on BRSA Unconsolidated Financials as of September-end, 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 September 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 66% of non-cash financial transactions >500 types of transactions 20% of non-cash financial transactions Cash deposits/withdrawals: 105% 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, 2018 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 Net Promoter Score highest among peer group 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 7.0 mn digital customers 6.2 mn mobile customers 4.7 mn mobile-only customers 24% YoY 33% YoY EFFECTIVE DIGITAL CHANNEL UTILIZATION 45% 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
STRONG SOLVENCY VIA CAPITAL GENERATION 21.00% 20.50% 20.00% 19.50% 19.00% 18.50% 18.00% 17.50% 17.00% Bank-only CAR 16.50% 16.00% 15.50% 15.00% 14.50% 14.00% Consolidated CAR 13.50% 13.00% 12.50% 2018 Minimum 12.00% 11.50% Required Level 11.00% 10.50% 10.00% 9.50% CET-1/Total Capital 16.2% 14.7% 18.7% 18.6% 16.8% Sector:15.9% 16.9% 14.7% Dec 16 Dec 17 Sep 18 93% 88% 85% 16.3% 11.5% Temporary measures FX Rate Fixing on RWA calculation Suspension of MtM losses on CAR calculation Total Impact: 237bps (Bank-only) 225bps (Consolidated) TL1.9bn Free Provision FINANCIAL PERFORMANCE (I / III) Key Value Drivers Use capital effectively Cost and revenue synergies Disciplined and sustainable growth USDTRY 3.51 3.77 5.98 Bank-only: TL14bn Consolidated: TL>10bn Excess Capital taking into account 11.5% req. level & excluding positive impact of temporary measures Linked Sustainable Development Goals 1 Required CAR for 2018 = [8.0% + SIFI Buffer for Group 3 (1.5%) + Capital Conservation Buffer (1.875%) + Counter Cyclical Buffer (0.09%)] Note: Per BRSA measures, as of August 14th 2018, FX credit risk exposures will be converted with maximum of following two; (i)june 30, 2018 FX rate and (ii) 252 day average of CBRT FX bid rates. Also, as from August 14th 2018, MtM losses will not be included in CET1 capital 30
ROAE INCREASING EFFICIENCY 9M18 19% 2017 16% 2016 +5pp 13% -14pp 10% 40% 45% 50% 55% COST/INCOME 2015 FINANCIAL PERFORMANCE (II / III) Key Value Drivers Use capital effectively Cost and revenue synergies Disciplined and sustainable growth COST/INCOME 43.1% OPEX/ AVG. ASSETS 2.1% FEE / OPEX 60% 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
TL LOANS BREAKDOWN 56% of Total Loans FC LOANS BREAKDOWN 44% of Total Loans FINANCIAL PERFORMANCE (III / III) Key Value Drivers Use capital effectively Cost and revenue synergies Disciplined and sustainable growth Linked Sustainable Development Goals 32
ENVIRONMENT WE OPERATE IN ABOUT GARANTI OUR VALUE CREATION MARKET POSITION & 2018 PROJECTIONS 33
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 34
2018 PROJECTIONS Deteriorating Macro Environment Posing Downside on Growth & Provisioning 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% 35
Garanti works to create sustainable value for all its stakeholders
APPENDIX SUSTAINABLE DEVELOPMENT GOALS 37
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 38