1Q18 EARNINGS PRESENTATION Based on BRSA Consolidated Financials April 26 th 2018
ROBUST EARNINGS PERFORMANCE NET INCOME (TL million) 2.2% ROAA vs. 1.9% in 2017 31% 2,011 1,537 1,702 18% 18.3% ROAE vs. 16.6% in 2017 7.4x Leverage vs. 7.6x in 2017 1Q17 4Q17 1Q18 Note: In the calculation of average assets & average equity, 01.01.2018 restated balance sheet has been used instead of YE 2017 2
CET-1** FURTHER REINFORCING SOLVENCY SOLVENCY RATIOS 1 RWA / Assets CAR CET-I 14.7% 13.6% 16.8% 2016 2017 16.2% 14.7% 14.1% 1Q18 83% 78% 82% Impacts on CAR -- 1Q18 vs. 2017 20% Highest CET-1 ratio and highest dividend payment among peers Garanti 16% Peer 1 Peer 2 12% Peer 3 8% -3% 7% 17% 27% 0% DIVIDEND PAYOUT RATIO 16.8% -0.63% +0.07% -0.08% -0.27% -0.26% -0.23% +0.07% +0.72% 16.2% Dividend Payment IFRS9 Transition Impact MtM Difference Currency Impact Operational Risk* Market &Credit Risk Other Net Income 2017 CAR 1Q18 CAR 1 Required CAR = 8.0% + SIFI Buffer for Group 3 (1.5%) + Capital Conservation Buffer (1.875%) + Counter Cyclical Buffer (0.089%) * Due to annual re-calculation of operational risk, which is calculated under Basic Indicator Approach **Per 2017 YE BRSA bank-only financials for fair comparison. Note: Peers defined as top 3 private banks 3
WHAT LIES BENEATH THE PERFORMANCE 1 OUTSTANDING NIM MANAGEMENT 2 STRONG FEE GENERATION 3 CONTAINED OPEX GROWTH 4 PRUDENT PROVISIONING 4
CORE NIM EXPANSION DRIVEN BY QUARTERLY NIM INCLUDING SWAP COSTS +7bps Core NIM improvement 5.3% 1.55% 3.78% +7bps 4.6% 0.70% 3.85% 378 +48-8 -19 +11-6 -9-10 385 Loans Deposits Swaps Repo Funding Other Securities Other Funding Other Int. Income Items 4Q17 Core NIM 1Q18 CPI Impact 4Q17 Core NIM 1Q18 Core NIM QUARTERLY CPI LINKERS INCOME (TL million) 20%* 8% 1,193 548 CPI estimate used in the valuation Impact of 1% higher CPI: +TL175mn/yr to Net Income ~7bps impact on NIM 4Q17 1Q18 Note: In the calculation of average IEAs, 01.01.2018 restated balance sheet has been used instead of 2017YE. *Adjustment in annual CPI reading in the last quarter from 9% to 11.9% implies 20% rate for 4Q-only. 5
ACROSS THE BOARD GROWTH IN TL LOANS AND PERFORMING LOANS BREAKDOWN 1 Credit Cards TL Business 9.3% 32.5% vs. 2017: 9.6% vs. 2017: 32.2% TL LOAN GROWTH 4% QoQ Consumer (excluding credit cards) 22.5% vs. 2017: 22.7% TL 238bn FC Business 35.7% vs. 2017: 35.4% FC LOAN GROWTH (in US$) 1% QoQ HEALTHY MARKET SHARE GAINS Consumer Loans excluding Credit Cards (TL billion) TL Business Banking Loans (TL billion) 4% 3% 4% 46.6 48.1 50.1 51.8 3% 53.6 65.1 8% 1% 4% 5% 70.5 70.8 73.5 77.4 1Q17 2Q17 3Q17 4Q17 1Q18 Consumer GPLs were the front-runners (+5% QoQ) Rational pricing stance preserved 1Q17 2Q17 3Q17 4Q17 1Q18 Supported with Business banking & CGF loans Remaining TL50bn CGF limit allocation * Garanti s limit: TL2.7 as of 1Q18 (TL2.4bn has been originated vs. TL1.5bn redemption) 1 Excluding leasing and factoring receivables Note: Business banking loans represent total loans excluding credit cards and consumer loans *In 2017, Sector utilized TL200bn out of TL250bn CGF guarantee limit. In February, remaining TL50bn guarantee limit has been introduced. 1/3 of the sector s limit will be used for the export-based sectors, 1/3 for investment loans and 1/3 for other purposes including women entrepreneurs, agriculture and working capital needs 6
WELL DIVERSIFIED FUNDING BASE HEAVY WITH LOW COST & STICKY DEPOSITS YTD 106bps improvement in LDR DEPOSITS TL DEPOSITS GROWTH 4% QoQ 112% FC DEPOSITS GROWTH (in US$) DEMAND DEPOSITS 27% Bank-only 24% vs. sector s 20% 2 Total Deposits 2% QoQ SME & RETAIL DEPOSITS 1 share in TL Deposits SWAPS & REPO SUCCESSFUL DUAL CURRENCY BALANCE SHEET MANAGEMENT NET SWAP FUNDING 1 TL REPO FUNDING 1 BORROWINGS TL 23bn 1Q18 avg. @11.1% TL 8bn 1Q18 avg. @12.6% In 1Q18, $125mn fresh MTN issuance with 1-yr maturity Total issuance in 2017 $5.9bn of which ~$2 bn fresh TL 17bn 4Q17 avg. @10.7% TL 11bn 4Q17 avg. @11.9% LDR (1Q18 ) Loans funded via long-term on B/S alternative funding sources ease LtD 81% Adj. LDR * (1Q18) 1 Based on bank-only MIS data 2 Based on BRSA weekly data as of 30 March 2018, commercial banks only. *Please see Appendix page 19 for details 7
STELLAR FEE GROWTH BACKED BY DIVERSIFIED FEE SOURCES NET FEES & COMMISSIONS (TL million) 921 34% 1,238 Payment systems Leading position in issuing & acquiring businesses Strong merchant network & actively managed relations Money transfer Leader in interbank money transfer: 14% market share Leader in swift transactions: 17% market share 1Q17 1Q18 NET FEES & COMMISSIONS BREAKDOWN Money Transfer Asset Man. & Brokerage 9% 12% Insurance 1 6% Insurance Leader in number of pension participants Focus on digital-only products Strong economic activity & growth in the quarter supported brokerage, cash & non-cash loan fees Cash & Non-Cash Loans 21% 46% Payment Systems 7% Other 1 Insurance fee includes Private Pension & Life insurance fee income whereas it is accounted for under «other income» in consolidated financials 8
AND FURTHER DIGITALIZED PROCESSES LEADING POSITION IN DIGITAL BANKING Active digital customers Active mobile customers 6.3 mn digital customers 5.5 mn mobile customers 3.8 mn mobile-only customers 27% YoY 36% YoY 95% OF GARANTI S NON-CASH FINANCIAL TRANSACTIONS GO THROUGH DIGITAL CHANNELS ~1/4 GARANTI S MARKET SHARE IN INTERNET & MOBILE BANKING TRANSACTIONS EFFECTIVE DIGITAL CHANNEL UTILIZATION 1/3 SHARE OF DIGITAL SALES IN TOTAL SALES 43% DIGITAL CHANNELS SHARE IN NON-CREDIT LINKED FEES Active customer is defined as minimum one log-in in the last 3 months. Definition of digital sales: Sales to customers that get in touch with digital at least once at any point throughout the process 9
2017 2017 2017 2017 1Q18 ROAE COMMITTED TO IMPROVE EFFICIENCY & OPERATIONAL EXCELLENCE INCREASING EFFICIENCY OPERATING EXPENSES (TL Million) 1,913 7% 2,043 19% 16% 13% 1Q18 +6pp 2017-14pp 2016 2015 10% 43% 45% 47% 49% 51% 53% 55% 57% COST/INCOME 1Q17 1Q18 C/I Ratio vs. Private Peers* 55.1% 52.7% 38.2% 43.6% 40.9% Peer I Peer II Peer III Garanti 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 *Bank-only figures used for fair comparison with peers 10
Coverage NPL Ratio PRUDENTLY DEFINED IFRS 9 CRITERIA LOAN PORTFOLIO BREAKDOWN (Billion TL) Pre - IFRS-9 Post - IFRS-9 31.12.2017 01.01.2018 31.03.2018 Gross Loans Group 3,4,5: Non-performing Group 2: Watchlist 234.2 243.7 254.5 *increase solely due to inclusion of leasing & 6.2 6.9 7.2 factoring 19.1 transition 41.0 17.1 receivables 18.2 * * IFRS9 Impact Gross Loans (including leasing & factoring receivables) Stage 3 Stage 2 Group 1 210.9 199.5 206.3 Stage 1 31.12.2017 01.01.2018 31.03.2018 01.01.2018 31.03.2018 Group 3,4,5: 77.97% Stage 3: 65.51% 67.88% Garanti: (cons) 1 2.8% 2.8% Group 2: Group 1: 8.04% 0.80% Stage 2: Stage 1: 9.45% 0.46% 9.51% 0.47% Garanti: (bank-only) 2.5% 2.5% 1 For 2018, Consolidated Loans Portfolio, Coverage ratio and NPL ratio include Leasing and Factoring Receivables 11
BUSINESS AS USUAL PROVISIONING FARES LOW. NET CoR PRESSURED WITH MACRO PARAMETER REVISION & CURRENCY DEPRECIATION Net Expected Credit Loss NET CoR (Million TL, 1Q18) (-) Expected Credit Losses 1,783 Stage 1 438 Stage 2 794 Stage 3 551 109bps + 31 bps = 140 bps Currency depreciation** (+) Provision Reversals under other income 972 Stage 1 & 2 743 Stage 3 229 80 bps + 29 bps Update of macro parameters used in IFRS-9 model Neutral impact at bottom line (100% hedged) (=) Net Expected Credit Losses 811 (a) Annualized Net Expected Credit Losses 3,289 (b) Average Total Loans 235,519 Total Net CoR (a/b) 140 bps Business as Usual provisioning* * Including provisioning for a big-ticket file, classified under Stage-2. Impact on Net CoR was 32bps in 1Q18 **Neutral impact at bottom line, as provisions due to currency depreciation are 100% hedged (FX gain included in Net trading income line). Note: In the calculation of average total loans, 01.01.2018 restated balance sheet has been used instead of YE 2017. 12
IN SUMMARY Contribution to ROAA + + - - 4.0% NII INCLUDING SWAP COST Contribution to ROAE 33.8% 1.4% NET FEES & COMMISSIONS 11.8% -2.3% OPEX -19.5% -0.9% NET EXPECTED CREDIT LOSS -7.7% + 0.0% OTHERS* 0.0% + + + + + - - ROAA 2.2% ROAE 18.3% *Net trading & FX gains, other income (excluding provision reversals), other provisions and taxation are included in «Others» line Note: In the calculation of average assets & average equity, 01.01.2018 restated balance sheet has been used instead of YE 2017 13
APPENDIX Pg. 15 Pg. 16 Pg. 17 Pg. 18 Pg. 19 Pg. 20 Pg. 21 Pg. 22 Disclaimer on new IFRS 9 standard Composition of Assets & Liabilities Securities Portfolio Retail Loans Long-term Wholesale Funding Adjusted L/D and Liquidity Coverage Ratios Summary P&L Key Financial Ratios 14
DISCLAIMER ON NEW IFRS 9 STANDARD The Bank has not restated comparative information for 2017 for financial instruments in the scope of IFRS 9. Total difference arising from the adoption of IFRS 9 has been recognized directly in in prior periods profit/loss as of 1 January 2018 in the current period «statement of changes in shareholders equity». In this context, the accompanying financial statements are not on a comparable basis. The transition impact on the financial statements regarding first time adoption of IFRS 9 as of 1 January 2018 is presented in 31.03.2018 dated financial statements in Note 3.29. Impact of IFRS-9 Transition on Shareholders Equity (SHE) (Million TL) Pre - IFRS-9 Post - IFRS-9 31.12.2017 01.01.2018 41,606 +454-471 +839 42,428 SHE Pre-IFRS 9 transition Impact of classification of financial assets Re-measurement of loan loss allowance Tax impact SHE under IFRS 9 15
APPENDIX: COMPOSITION OF ASSETS & LIABILITIES ASSET LIABILITIES &SHE TL/FC MIX IN ASSETS Other 1 Fixed Assets & Subs. Cash & Banks Balances with the CBT Securities 4.5% 1.4% 5.8% 8.6% 13.4% 9.1% 11.9% 2.1% 18.0% Other SHE Interbank Money Market Borrowings 2 FC 43% TL 360bn TL 57% USD/TRY 3.945 Performing Loans 66.2% 58.9% Deposits TL/FC MIX IN LIABILITIES & SHE FC 53% TL 360bn TL 47% 1Q18 1Q18 USD/TRY 3.945 1 Includes Leasing and Factoring receivables 2 Includes funds borrowed, sub-debt & securities issued 16
APPENDIX: SECURITIES PORTFOLIO Total Securities (TL billion) 13% of Total Assets 47.9 (1%) 47.4 1% 47.9 7% 51.5 (6%) 48.2 TL Securities (TL billion) FC Securities (US$ billion) 33% 32% 30% 30% 29% 32.0 Fixed: 20% 1% 32.4 Fixed: 20% 3% 33.6 Fixed: 21% 7% 36.0 Fixed: 26% (5)% 34.3 (3%) Fixed: 24% 4.4 4.2 (4%) 4.1 1% 4.1 (14%) 3.5 67% 68% 70% 70% 71% CPI: 58% CPI: 58% CPI: 57% CPI: 55% CPI: 57% Fixed: 95% Fixed: 95% Fixed: 95% Fixed: 95% Fixed: 94% Mar.17 Jun.17 Sep.17 Dec.17 Mar.18 TL FC Maintained FRN heavy portfolio FRN weight in total: 59% TL FRN: 76% Other FRNs: 23% Other FRNs: 23% Other FRNs: 22% Mar.17 Jun.17 Sep.17 Dec.17 Mar.18 Financial Assets Measured at Amortised Cost 43.3% Other FRNs: 19% Other FRNs: 19% Securities Composition Financial Assets Measured at FVTPL 1.5% Financial FRNs: 5% Assets Measured at FVOCI 55.2% FRNs: 5% FRNs: 5% FRNs: 5% FRNs: 6% Mar.17 Jun.17 Sep.17 Dec.17 Mar.18 Unrealized MtM loss (pre-tax) ~TL 258mn loss as of Mar 18 vs. ~TL 443mn loss as of Dec 17 vs. ~TL 266mn loss as of Sept 17 ~TL 83mn loss as of Jun 17 ~TL 154mn loss as of Mar 17 Note: Fixed - Floating breakdown of securities are based on bank-only MIS data 17
APPENDIX: RETAIL LOANS RETAIL LOANS (TL billion) 3% 3% 87.9 90.9 25.0 94.1 3% 97.1 4% +15% YoY 100.9 26.0 26.2 27.2 29.1 MORTGAGE LOANS (TL billion) +9% YoY 2% 2% 3% 2% 24.5 24.9 25.4 26.1 26.6 0.9 0.9 0.9 0.9 0.9 Market Shares* Mar 17 QoQ Rank Consumer Loans 22.2% +25bps #1 Cons. Mortgage 24.9% +34bps #1 Cons. Auto 46.5% +169bps #1 Consumer GPLs 18.8% +58bps #2 62.9 64.9 67.8 69.9 71.8 23.5 24.0 24.6 25.2 25.7 * Among private banks, rankings as of December17 # of CC customers Pioneer in cards business Issuing Volume Acquiring Volume Mar.17 Jun.17 Sep.17 Dec.17 Mar.18 Mar.17 Jun.17 Sep.17 Dec.17 Mar.18 14.9% 2 19.3% 2 19.1% 2 AUTO LOANS (TL billion) +14% YoY GENERAL PURPOSE LOANS 1 (TL billion) +18% YoY CREDIT CARD BALANCES (TL billion) +15% YoY 2% 1% 7% 3% 5.2 5.3 5.3 5.7 5.9 3.0 3.1 3.2 3.3 3.5 2.2 2.2 2.2 2.4 2.4 Mar.17 Jun.17 Sep.17 Dec.17 Mar.18 39.0 5% 3% 40.8 42.1 3% 43.4 6% 46.2 18.1 18.9 18.8 19.1 20.7 20.9 21.9 23.3 24.2 25.5 Mar.17 Jun.17 Sep.17 Dec.17 Mar.18 4% 1% 3% 6% 19.3 19.9 21.2 21.9 22.2 3.0 3.1 3.4 3.8 4.0 16.3 16.8 17.8 18.1 18.2 Mar.17 Jun.17 Sep.17 Dec.17 Mar.18 Consumer Loans 1 Including other loans and overdrafts 2 Cumulative figures as of March 2018, as per Interbank Card Center data. Note: (i) Sector figures used in market share calculations are based on bank-only BRSA weekly data as of 30.03.2018 *Bank-only figures used in market share for fair comparison Commercial Instalment Loans 18
APPENDIX: LONG-TERM WHOLESALE FUNDING Total issuance in 2017 $5.9 bn; of which, $2.2 bn fresh (new liquidity raised). In 1Q18, $125mn fresh MTN issuance Basel III compliant Tier II Senior Unsecured Covered Bond 100% syndication roll-over DPR Securitization Bilateral GMTN Program $ 750mn, 10NC5 Record subscription >$4bn 6.125%, largest deal size and lowest coupon for Turkish Tier 2 Basel III compliant bond (2Q17) $ 500mn, 6-yrs maturity @5.875% (1Q17) TL 1,681 mn in 2017, 5-yrs avg. maturity $ 468mn @Libor+1.45% (2Q17) 805.5mn @ Euribor+1.35% (2Q17) $ 1.3bn equivalent: 100% rollover (4Q17) $ 725mn in 2017, 5-yrs maturity $ 475mn in 2017, 3-yrs avg. maturity $ 48mn in 2017, 1-yr maturity $ 125mn in 1Q18, 1-yr maturity $ 405mn @ Libor+1.35% 648.5mn @ Euribor+1.25% $ 180mn @ Libor+2.20% Note: Bank-only 19
APPENDIX: ADJUSTED L/D AND LIQUIDITY COVERAGE RATIOS Loans funded via long-term on B/S alternative funding sources ease LtD Total Loans / Deposits: TL Loans / TL Deposits: FC Loans / FC Deposits: 114% 163% 74% Adjusted L/D 79% 81% (TL billion) Loans 238 212-2.6-0.3-9.2-13.6 TL Bonds Deposits TL MM funding &bilateral Merchant Payables -42.0 FC bonds &MtNs FC MM funding, secur., syndications and bilaterals 171 Adj. Loans 212 Deposits Liquidity Coverage Ratios (LCR) are well above minimum required levels Total LCR 158.5% Minimum Req. for 2018 90% FC LCR 178.1% Minimum Req. for 2018 70% 20
APPENDIX: SUMMARY P&L TL Million 3M 18 (+) Net Interest Income including Swap costs 3,543 (+) NII excluding CPI linkers' income 3,563 (+) Income on CPI linkers 548 (-) Swap Cost -568 (+) Net Fees & Comm. 1,238 (-) Net Expected Credit Loss -811 (-) Expected Credit Loss -1,783 (+) Provision Reversal under other Income 972 (-) OPEX -2,043 (-) HR -814 (-) Non-HR -1,228 = CORE OPERATING INCOME 1,928 (+) Net Trading & FX gains/losses 285 (+) Dividend Income 1 (+) Other income 380 (+) Gains from asset sale 126 (+) Garanti Pension - Insurance Premiums 197 (+) Other 57 (-) Taxation and other provisions -583 (-) Other Provision -20 (-) Taxation -563 = NET INCOME 2,011 21
APPENDIX: KEY FINANCIAL RATIOS Mar-18 Profitability ratios ROAE (Cumulative) 1 18.3% ROAA (Cumulative) 1 2.2% Cost/Income 44.0% Quarterly NIM incl. Swap costs 4.6% Liquidity ratios Loans / Deposits 112% TL Loans / TL Deposits 163% Adj. Loans/Deposits (Loans adj. with on-balance sheet alternative funding sources) 81% TL Loans / (TL Deposits + TL Bonds + Merchant Payables) 136% FC Loans / FC Deposits 74% Asset quality ratios NPL Ratio 2.8% Coverage Ratio +Stage 1 0.5% +Stage 2 9.5% +Stage 3 67.9% Net Cost of Risk (bps) 140 Solvency ratios CAR 16.2% Common Equity Tier I Ratio 14.1% Leverage 7.4x 1 Excludes non-recurring items when annualizing Net Income for the remaining quarters of the year in calculating Return On Average Equity (ROAE) and Return On Average Assets (ROAA). Note: In the calculation of average assets, average IEAs & average equity, 01.01.2018 restated balance sheet has been used 22
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. Investor Relations 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 Internet: www.garantiinvestorrelations.com 23