2010 Annual Report
Message from the Board of Directors
Dear shareholders, customers and employees,
After shrinking by 0.6% in 2009, the world economy is estimated to have grown 4.2% in 2010.
The 2010 agenda was mainly set by the actions taken by governments and central banks aimed at mitigating the adverse effects global crisis had on financial markets and country economies, and crisis-exit strategies.
In the wake of the extraordinary fiscal measures introduced during the crisis, the global economy entered into a recovery process in 2010. While rates of growth displayed distinct differences among countries, emerging economies clearly showed that they serve as the driving force of the world economy with their solid performances. While the growth momentum was strong in the economies of emerging countries that also include Turkey, the world economy is estimated to have grown 4.2% in 2010, after shrinking by 0.6% in 2009.
Masterfully managing the global crisis, Turkey was one of the countries to quickly start recovering, and embarked upon a rapid growth process from the last quarter of 2009.
Weak growth and deflationist pressures that were unable to support increase in employment represented the shared issues of the USA and European Union member economies in 2010.
In this process, FED chose to implement loose and soothing policies, whereas the ECB that continued to fund the markets and particularly the banking system pursued contractionary policies that aimed to narrow down public deficits. It has been observed that the ratio of public debts to GDP hiked very quickly in certain European Union member countries led by Greece, the sovereign risks increased, followed by downgraded ratings. Right at the start of 2011, predictions grew stronger that Portugal and Spain might be confronted with issues similar to those of Greece. While Spain’s rating was put under review at the end of 2010, the financial health of banks and local administrations was started to be questioned. Another adverse development was the excessive appreciation of Euro in 2010, which operates to the detriment of Europe’s exports performance, as well.
It is estimated that the European Union grew 1% and the USA 3.1% in 2010. In the same period, the estimated average rate of growth in emerging economies is 6.3%.
These points that we have briefly covered indicate that the economic recuperation will be ongoing in 2011, while the debates on the sustainability of public debt stocks will continue to dog the agenda.
The global economy had a limited and short-lived impact upon the Turkish economy.
When we review the situation in Turkey, it can be observed that the global crisis affected the real sector rather than the financial services industry, and mostly the SMEs. On the other hand, the macro dynamics of the Turkish economy, coupled with its solid financial services market, played a major role in restraining the impact of the crisis to a short-lived one. The Turkish economy registered negative figures in growth in the last quarter of 2008 and in the first three quarters of 2009, while the rate of unemployment increased.
Masterfully managing the global crisis, Turkey was one of the countries to quickly start recovering, and embarked upon a rapid growth process from the last quarter of 2009. After having grown 6% in the last quarter of 2009, the Turkish economy captured 11.8%, 10.2% and 5.5% rates of growth in chronological order in the first three quarters of 2010. The national economy’s performance reflected on the ratings assigned by international rating agencies, and various agencies upgraded Turkey’s rating four times after the crisis.
Paralleling the economic growth in 2010, rates of unemployment declined and after going as high as 14.9% in April 2009, unemployment went down to 11.9% in 2010.
After falling down to 5% at the end of 2009, inflation went up in 2010 as a result of supply side pressures (food and commodity prices) and base effect, and then dropped to the lowest level of the past 32 years towards the end of the year. Overall, the 2010 CPI figure, at 6.40%, remained below the CBRT target of 6.50%. Projections for 2011 suggest that inflation will maintain its downward trend.
Another important development in 2010 was the increased investment inflow into Turkey. According to IIF data, Turkey was able to attract 17.2% of net portfolio investments channeled into emerging countries, and 2.5% of direct investments. In other words, investment inflow into Turkey totaled USD 25.2 billion in 2010, in parallel with enhanced confidence in the markets and reduced country risk; of this amount, USD 16.3 million consisted of net portfolio investments and USD 8.9 million comprised of foreign direct investments. This resulted in strengthened Turkish lira, which appreciated by 8.06% in 2010 year-to-year on the basis of CPI index.
The foreign trade deficit, which narrowed down during the global crisis, expanded in 2010 due to the restricted recovery in foreign demand in view of the increased domestic demand, combined with higher commodity and energy prices. Reaching USD 71,563 million in 2010, foreign trade deficit had a negative impact on current account balance. After sliding down to as low as 2.3% of national income at year-end 2009, the current deficit accounted for 6% of national income in September 2010. Decreased direct investment inflow and increased short-term investment inflow and portfolio investments were the key factors that deteriorated the quality of financing. In 2011, the course of oil prices and the Turkish lira will be telling on the course of current account balance.
Continuing to cut interest rates during the reporting period, the CBRT announced certain countermeasures aimed at financial stability in view of the rapidly rising hot money inflow later in the year. Cutting overnight borrowing rates by 5 points in this frame, the CBRT reviewed and raised required reserve ratios so as to encourage longer terms.
The banking sector performed strongly in 2010.
The banking sector came through the global crisis very successfully and its total assets in 2010 grew 20.7% year-on year to exceed TL 1 billion. Lending by the sector also increased 33.9% during the same period, while public banks were responsible for the fastest growth in lending with 42.3% on the basis of bank segments. While they displayed a parallel performance in terms of the expansion in total assets and deposits, public banks were set apart from private banks with respect to their placement policies. The NPL ratio declined as a result of collections made in non-performing loans as well as of increased lending volume. The capital adequacy ratio of the banking sector was 18.96% as of year-end 2010, and total shareholders’ equity reached TL 134.6 billion.
Exhibiting a successful performance throughout 2010, the sector’s profitability continued to increase also in 2010. Net profit for the period for the entire banking sector went up and reached TL 22 billion thanks to the improved asset quality.
Extending all possible support to the real sector during the global crisis and the subsequent economic recovery period based on a risk-sensitive policy, the banking sector will continue to function as a significant leverage for the future growth of the Turkish economy.
Authoring a successful performance in 2010, VakıfBank also devised its future moves and brought necessary structural preparations to their completion.
VakıfBank sustained its solid balance sheet expansion in 2010 and continued to achieve healthy development in credit and deposit volumes. Closing the year with TL 1 billion 157 million in net profit, VakıfBank registered an average ROE of 14.5%, and RoA of 1.7%.
VakıfBank declared 2010 as the year of “new customer acquisition” and successfully increased the number of its customers and transaction volumes significantly in all customer segments in line with its strategy.
Considering the value it places on the people and knowledge as its strongest capital, and committed to promoting modern banking forward with new initiatives and to continually increasing the value it contributes to stakeholders by working efficiently and productively, VakıfBank’s medium-term objective is to rank among the top three banks in Turkey. Acting accordingly, the Bank declared 2010 as the year of “new customer acquisition” and successfully increased the number of its customers and transaction volumes significantly in all customer segments in line with this strategy.
In the 2011-2015 period
In the 2011-2015 period that will be characterized by a market dominated by low interest rate conditions, VakıfBank targets to be able to respond to all banking requirements of its customers as their primary banking partner and to stand out with innovative products and services. In this frame, VakıfBank will grow primarily in retail banking and SME banking segments.
Retail banking takes the lead among VakıfBank’s traditionally strongest fields. Based on steps to be taken in this segment, the young population will be acquired as the Bank’s customers, thereby bringing about the desired expansion in retail banking.
SME banking is another line of business in which VakıfBank intends to improve. When the facts of our country and the world are taken into consideration, it is witnessed that nearly 99% of commercial establishments take place in the SME segment. The high added value of the SMEs poses a key value with respect to the national economy and the SMEs provide employment to a substantial portion of the workforce. In the light of all these findings, SME banking is designated as another major segment intended to be developed, and one that VakıfBank regards as vital.
For the year ahead, the most important task of VakıfBank is to achieve a healthy development and expansion in its existing portfolio, keeping a close eye on profitability, productivity and risks.
We would like to briefly touch upon the relocation of our Bank’s Head Office to İstanbul. Through moving to İstanbul which is started to be named among the world’s financial centers, our Bank intends to increasingly reflect its potential in various lines of business on its performance and to strengthen its growth momentum.
We would like to express our gratitude to all of our shareholders for their invaluable support, all of our colleagues for their committed hard work, and all of our customers for choosing us. We are determined to move ahead with our unchanging values and to create value for our stakeholders, as we always have.
T. Vakıflar Bankası T.A.O.
Board of Directors
