Esteemed Shareholders,

We would like to warmly welcome you all to our Bank’s 25th Annual General Assembly. On behalf of the Board of Directors, we respectfully thank you for honoring the Bank’s 2015 General Assembly with your presence.

Before passing on to the Board of Directors’ and the Auditors’ reports, the financial statements and our assessment of the Bank’s 2015 results, we should first share with you a review of the year’s developments in the global economy and banking sector.

An Economic Overview of 2015 and Outlook for 2016

The global economy began 2015 with uncertainties relating to the US Central Bank (FED)’s interest rate increases, strengthening of USD, low commodity prices and fears about the global economic growth. On the other hand, socio-political phenomenon taking place on a global scale, particularly developments in the Middle East were the most important elements that affected the risk appetite of international investors, asset prices and capital flows.

Later in the period of 2015, weakening outlook in growth trend in developing countries primarily in China and the impact of increasing global deflationist pressures brought about by low levels of commodity prices strengthened the expansionist monetary policy of developed countries’ central banks. During the year, in order to take measures against economic activities that have been losing momentum, Chinese Central Bank reduced benchmark interest rate and required reserve ratio. Chinese Central Bank also devalued Chinese currency in a row in the second half of the year to resolve the weakening growth problem.

The European Central Bank (ECB) was required to maintain the expansionary monetary policy in the Euro Zone, which has a fragility regarding economic activity, due to the inflation running at low levels under the influence of weak demand. Therefore, the European Central Bank that extended the asset purchase program until March 2017 expanded the scope of the program being implemented in a manner to include euro denominated local and regional government bonds.

In the last periods of 2015, the US Central Bank (FED) that expressed, which important progress was achieved in terms of economic recovery and there has been a marked improvement in manpower market, implemented its first interest rate increase after a nine-years break. Following the decision of interest rate increase that had been expected with concerns in global markets, expectations regarding the reduction of uncertainties pertaining to monetary policy and the interest rate increases would be precautious and gradual gained strength.

Under the influence of structural reforms, the world economy is expected to approach to normalization much closer in 2016. The year of 2016 will be a period of global growth and recovery in financial stability supported by supportive policies in the developed economies but also a period in which geopolitical risks will be closely monitored. Slackening strong trend of the dollar across globe and the impact of lower commodity prices draw attention as positive factors for energy importing countries, whereas, as risk factors for energy exporting countries.

The Turkish Economy in 2015

In 2014, the Central Bank of Turkey (CBT) which tightened the monetary policy to limit the rise in inflation and the depreciation of TL, undertook limited reductions in policy interest rates at the beginning of 2015. CBT stated that simplification steps can be begun at wide interest rate corridor that it has been using since 2010, which limits the effects of capital movements that threaten macroeconomic stability in global volatility periods, by not going to change in the policy interest rates in the coming period. CBT is expected to carry out relevant simplification steps in 2016 if the falls in volatilities observed together with the start of normalization in global monetary policies are permanent.

In 2015, the growth gained speed with the support of domestic consumption and the removal of net export’s lowering impact besides agriculture sector’s positive performance and displayed a more positive outlook than expected. Under the influence of recovery in economic activity, Turkish economy grew by 3.4% as of first 9 months of the year compared to the same period in the previous year.

Inflation rate observed to have declined in June and July finished the year-end at 8.81% level due to the impact of rising food, tourism and transportation prices in the following months. The current account deficit that was at 47 billion dollar level as of 2014 year-end was reduced to 32 billion dollar level as of 2015 year-end. Throughout 2015, despite the decline in tourism revenues, reduction in imports especially due to the fall in energy prices has been decisive for current account deficit improvement. In case that industrial production that increased following a recovery in the second and third quarters of the year displays the same performance in the last quarter of the year, economic activity can be expected to accelerate.

According to the mid-term plan determined by the Council of Ministers, it is predicted that growth rate is to increase; inflation and current deficit are to fall in 2016. Due to the impact of accelerated structural reforms together with the reduction in political uncertainties following the early election in November, in 2016 growth performance of 4.5% that is the estimation of the mid-term plan is expected to be achieved.

The Turkish Banking Sector and Türkiye Finans in 2015

The sector’s total assets amounted to TL 2,357 billion by growing 18% in 2015 compared to previous year; deposits* amounted to TL 1,325 billion with an 18% increase. The volume of loans** amounted to TL 1,526 billion by increasing 20%, while shareholders’ equity stood at TL 262 billion growing by 13% on a yearly basis. In the same period, the disbursed funds ** in the participation banking sector amounted to TL 81 billion increasing by 15% on a yearly basis, collected funds* amounted to TL 76 billion growing by 13% on a yearly basis, shareholders’ equity stood at TL 11 billion growing by 10% and total assets amounted to TL 120 billion growing by 15%. Although the participation banking sector began recovering in 2015, which displayed a slower growth in 2014, the growth rates in main balance sheet items lagged behind the sector. Active market share of participation banking stood at 5.1%; the share of disbursed funds between 2014 and 2015 decreased from 5.6% to 5.3%, the share of collected funds decreased from 5.9% to 5.7% and the share of shareholders’ equity decreased from 4.2% to 4.1%.

While the banking sector’s average loans to deposits ratio stood at 108-110% level in the first half 2014; it stood at 113-115% level since the last quarter of 2014. In 2015, issued securities both from domestic and foreign markets stood at TL 97.8 billion by growing 10% compared to the previous year.

Total profitability of the sector amounted to TL 26.1 billion growing by 6% annually, whereas the profitability of participation banking stood at TL 409 million growing by 184%.

With the developments in the Turkish economy and the positive contributions of our employees, at the end of 2015:

The total assets of Türkiye Finans amounted to TL 38.6 billion increasing by 15% compared to the previous year. In this period, the amount of disbursed funds including leasing receivables that is 74% of total assets increased to TL 28.6 billion growing by 18%, the Bank’s sector market share stood at 1.9%, its share in participation banking sector stood at 35%. Türkiye Finans’s collected funds amounted to TL 22.2 billion increasing by 16% compared to the previous year at 2015 year-end. Türkiye Finans’s sector share in collected funds stood at 1.7% and its share in participation banking sector stood at 29%.

The profit before tax of Türkiye Finans is TL 333 million in 2015. Our net profit stood at TL 261 million after tax provisions were deducted. After setting aside legal reserves, the remainder will not be distributed and will be set aside as an extraordinary reserve fund. The net profit share income amounted to TL 1.4 billion increasing by 28% in 2015.

In 2015, Türkiye Finans that opened its first foreign branch in Bahrain increased its number of branches to 286 in Turkey by opening 5 new branches. Türkiye Finans closed the year of 2015 with TL 261 million net profits by increasing customer access through different channels such as 4,132 personnel, internet branch, mobile branch and 573 ATMs.

Our Bank’s capital adequacy ratio stood at 13.51% at the end of 2015.

Esteemed Shareholders,

This completes our presentation of the annual report, balance sheet, and profit & loss statement showing the results of Türkiye Finans’ activities in 2015. We now submit these for your consideration and approval.

In closing and on behalf of the Board of Directors, we would like to take this opportunity to thank our shareholders, our employees, and our customers for their confidence in our bank. We respectfully thank you, our valued shareholders, for honoring our 2015 Annual General Assembly with your presence.

Yours sincerely,

TÜRKİYE FİNANS KATILIM BANKASI A.Ş.
BOARD OF DIRECTORS

* Unless otherwise indicated in the full text, bank deposits and deposits (participation fund) interest (dividends) discounts are included.
** Unless otherwise indicated in the full text, net non-performing loan, loan interest (dividends) and revenue realization discounts and leasing receivables are included.