2010 Annual Report
Summary Report of the Board of Directors
To our Esteemed Shareholders,
During 2010, key agenda items for the whole world focused on the devastation inflicted by the global crisis upon international financial markets and country economies, prevention of the crisis or mitigation of its adverse effects, actions taken by governments and central banks to this end, crisis-exit strategies, and dodging further possible crises.
The global crisis unsettled country economies after the financial services sector and the real sector, thus setting off concerns for a new crisis. It was observed that many European Union member countries suffered from rapidly increasing ratios of public debts to gross domestic product, combined with increased sovereign risk in international markets and downgraded ratings.
While interest rate cuts and monetary expansion initiatives, implemented by central banks in an effort to preclude crisis, hindered congestion in the payments system, the liquidity injected into the market arose as a risk that might trigger potential future crises.
In the global economy that adopted a recovery trend from the second half of 2009, paces of growth increased in varying extents on the basis of groups of countries in 2010. While growth was strong in emerging economies to which group Turkey belongs, rates of growth were weak in developed countries. After shrinking by 0.06% in 2009, the world economy is estimated to have grown 4.2% in 2010.
Looking at the situation in Turkey, it can be observed that the global crisis affected the real sector rather than the financial services industry, a fact that led to negative growth figures in the last quarter of 2008 and in the first three quarters of 2009. Thanks to the relative recuperation that resulted from the actions taken in international markets and to successful crisis management in our country, Turkey was one of the countries to quickly start recovering and enter into a rapid growth process from the last quarter of 2009. The rates of growth Turkey captured were, in chronological order, 6% in the last quarter of 2009, 11.8% in the first quarter of 2010, and 10.2% and 5.5% in the second and third quarters. The national economy’s performance has been endorsed by the ratings assigned, as the sovereign rating for Turkey was upgraded by various rating agencies four times after the crisis.
In 2010, the inflation declined to the lowest level of the past 32 years and the CPI, at an annual rate of 6.40%, stood below the 6.50% target of the Central Bank of the Republic of Turkey (CBRT).
After contracting with the impact of the financial crisis in the previous year, the foreign trade deficit started surging up due to the limited recovery in foreign demand against the increased domestic demand and higher commodity and energy prices in 2010. The current deficit also enlarged in parallel with the expanding foreign trade deficit, and the financing balance was deteriorated as a result of increased short-term investment inflow and portfolio investments despite reduced direct investment inflow. In 2011, the course of oil prices and the Turkish lira will be influential on the development of the current account balance.
In keeping with the loose monetary policies implemented by developed economies, the CBRT continued with interest rate cuts during the reporting period, and announced certain countermeasures aimed at financial stability in view of the rapidly rising hot money inflow later in the year. While overnight borrowing rates were decreased by 5 points within the frame of interest rate cuts, required reserve ratios were raised so as to encourage longer terms.
The banking sector supported the high performance the national economy exhibited in 2010 with its solid structure. Continuing to expand during 2010, the overall banking sector’s total assets went up 21% to TL 1,007 billion. The lending volume grew 34% so as to back growth, while the expanded lending volume, coupled with collections made with respect to non-performing loans, resulted in a lower NPL ratio. With the declined interest rates, the rate of increase lost pace in the securities portfolio of the banking sector.
Deposits remained the most important funding for the banking sector in 2010, and total deposits increased by 20%. Making up 84% of total deposits, term deposit accounts grew 19%, while demand deposits went up 23%. During the reporting period, loans taken out constituted the second largest source of funding following deposits, and the overall sector’s lending, mostly concentrated in syndication loans, went up by 39%. Increased profitability of banks and higher valuation differences of marketable securities resulted in 21% hike in the shareholders’ equity of the sector, while capital adequacy ratio, at 18.96%, stood well above the legal limit.
Although net interest income available to the overall sector diminished with the negative impact of decreased interest margins, reduced provisions for NPL resulting from improved asset quality and enhanced non-interest income/expense balance proved to be influential on the sector’s increased profitability, and net profit for the period went up 9.7% in the sector.
During 2010, VakıfBank also performed successfully and expanded its assets by 14% to TL 74 billion. In the reporting period, the greatest contributor to growth was once again the loans item. Up by 30%, lending reached TL 45 billion last year; retail loans, driven mainly by mortgage and consumer loans, grew 46%, whereas commercial loans went up 23%.
Worth TL 18 billion as of year-end, the securities portfolio slimmed by 2% as a result of the decreased interest rates, and its share in total assets went down to 24%.
Increasing its total deposits 7% to TL 48 billion, VakıfBank’s shareholders’ equity grew 16% and rose to TL 8.6 billion. Posting TL 1,157 million in net profit in 2010, the Bank’s average return on equity was 14.5% and return on assets was 1.7%.
Respectfully yours,
BOARD OF DIRECTORS
TÜRKİYE VAKIFLAR BANKASI T.A.O.
