Esteemed Shareholders,

We would like to warmly welcome you to our Bank’s 26th Annual General Meeting. On behalf of the Board of Directors, we respectfully extend our sincerest greetings to you, our esteemed shareholders, who have honored us with your presence at our Bank’s 2016 Ordinary General Assembly Meeting.

We would like to touch on the macroeconomic developments during the year and also the activities of our Bank in 2016 before submitting the list of the Board of Directors and the Independent Audit Reports and Financial Statements for your review and approval for the 2016 fiscal year.

The Macro-Economy in 2016

2016 was a time of hectic developments, both in Turkey and in the world. Encouraged by the moderate and widespread recovery in the US economy, the Federal Reserve Bank in the US had increased its funding rate in the final month of the previous year. Following the result of the presidential election in the United States, expectations mounted that global expansive monetary policies would be suspended, while economic risks would be limited to expansive fiscal policies.

The decision by the UK to leave the EU (Brexit) in the course of the year and the election of a new president in the United States made history as critical events paving the way for a revision of global macroeconomic forecasts.

As for developing countries, a combination of mounting inflationary risks and an upward shift in funding limits for the first time since the global crisis has precipitated an increase in economic difficulties.

While these developments have been taking place on the global economic front, the Turkish economy has been exposed to the influences of the treacherous coup attempt on July 15th and the increasing risks in the Middle East region.

The Turkish economy, which grew by 6.1% in 2015, could grow only 2.2% in the first three quarters of the year due to global challenges and geopolitical risks.

The depreciation of the TL towards the end of the year and the upward trend in oil prices caused consumer inflation to close the year at 8.53%.

The Turkish Banking Sector in 2016

The Turkish banking sector was a steadfast supporter of the economy in 2016, taking proactive steps throughout the year to prevent the volatility arising from global conditions from affecting the economy. As far as participation banking is concerned, the development and growth were sustained by responding to the needs of the real economy. As in previous periods, the sector stimulated the development and growth of the economy.

The volume of assets in the banking sector increased by 16% YoY to TL 2.7 trillion in 2016, while the volume of deposits increased by 17% YoY to TL 1.5 trillion, loans increased by 17% YoY to TL 1.8 trillion and shareholders’ equity ended the year at TL 300 billion, up 14% YoY. In the same period, the total volume of assets of participation banks stood to TL 133 billion, marking 11% YoY growth. Collected funds amounted to TL 85 billion, up 12% YoY, with the sum of disbursed funds amounting to TL 86 billion, an increase of 6% YoY and equity of TL 11.5 billion, an increase of 8%.

Profitability in the banking sector increased to TL 37.5 billion. In the same period, the profits of participation banks increased to TL 1.1 billion.

The capital adequacy ratio of the banking sector declined from 15.6% at the end of 2015 and this level remained unchanged in 2016. In the case of participation banks, this ratio increased from 15% to 16.2% and maintained a pace of growth in excess of that of the banking sector.

Türkiye Finans in 2016

When it comes to our Bank’s operating results in 2016, Türkiye Finans continued to provide services with no concession to quality during 2016 through its 286 branches, its approximately 4,000 personnel, its 572 ATMs, the Call Center and mobile and internet branches, all offering state-of-the-art technological infrastructure.

Our Bank rose to first place among participating banks during 2016 in terms of the number of POS machines and the turnover from POS machines, achieving an 8.5% increase in the number of POS machines and a 41% increase in the turnover obtained from POS machines.

In 2016, the volume of cash and non-cash provided by Türkiye Finans within the scope of project finance increased by 30% YoY to reach TL 2.6 billion. Our Bank continued to support projects that contribute to our country’s development and growth.

In 2016, our Bank established its growth strategy on a long-term and sustainable plan and continued its activities with solid equity and increasing funding quality.

Our Bank, Türkiye Finans, commanded TL 38.8 billion of total assets in 2016. In this period, the total volume of allocated funds, including financial leasing receivables, which account for 70% of total assets, stood at TL 27 billion. The Bank’s market share in the overall sector stood at 1.5%, while it commanded a 31% share in the participation banking sector.

The amount of collected funds stood at TL 21 billion as of December 2016, with collected funds comprising a 54% share of the balance sheet, with 56% of the collected funds consisting of TL accounts and 44% being foreign currency accounts. In addition, the current deposits stood at approximately TL 6 billion, marking an increase of 6.3%. Türkiye Finans had a 1.4% share of the collected funds in the overall banking sector and a 25% share in the participation banking sector.

Türkiye Finans, which its net profit amounted TL 296 million were kept within the Bank, increased its capital adequacy ratio from 13.5% at the end of 2015 to 15.6% at the end of 2016, by strengthening its capital structure during the year.

Esteemed Shareholders,

We have submitted our Annual Report, which covers our activities for the year 2016, our Balance Sheet and Profit and Loss Calculations for your review and approval.

On behalf of the Board of Directors, we would like to thank all of our shareholders, employees and customers, for their contribution to this success and their confidence in our Bank. We respectfully pay tribute to you, our valuable partners, who have honored our General Assembly with your presence.

Respectfully,

TÜRKİYE FİNANS KATILIM BANKASI A.Ş.
THE BOARD OF DIRECTORS