2014 Annual Report
Esteemed stakeholders,
There was a considerable amount of divergence in economic growth performance between regions and countries in 2014. While the US economy grew strongly, the economic recovery in Europe remained fragile. Other leading economies such as China and Japan also faced an economic slowdown. There was a slowdown on the demand side with the global economy not yet attaining its desired performance and amidst increased geopolitical risks. These factors also precipitated declines in commodity prices, especially from the second half of the year.
The expansionary policies, which have been implemented to tackle the problems that have emerged since the global crisis broke out, continued. Key central banks, primarily the European Central Bank and Japan’s central bank, maintained their expansionary policies amid the slack levels of global growth in 2014. In contrast with other countries, however, the USA announced exit strategy from its Quantitative Easing program in response to an improvement in macro-economic indicators such as growth, employment and inflation. After the end of the Quantitative Easing, a lift-off is expected in the coming months with moderate hikes in interest rates. Developing countries, on the other hand, have been both positively and negatively affected by the movements in commodity prices, depending on the compositions of their economies.
While global markets were mainly watching the steps that will be taken by the USA, with risk perceptions focused on USA data, the growth performance of the global economy, market risk perceptions also turned to geopolitical developments and commodity prices in 2014. A number of different factors started to affect volatility in the market.
A variety of measures needs to be taken and problems need to be tackled to put economies on the right track. While the European Central Bank maintains its efforts to revive the economy with methods such as negative interest rates on deposits and bond purchases, it also struggles with low inflation and high unemployment. Japanese and Chinese central banks have also taken expansionary steps. The forthcoming period will not be as easy as planned. The countries which create permanent solutions at right time will be the ones that emerge successfully.
The Turkish economy, as a part of the global economy, was sensitive to the developments in the world. While growth was brisk at the beginning of the year, it started to diminish in the second half of the year. In contrast with the previous year, growth was mainly driven by foreign demand. The current account deficit narrowed, but inflation exceeded the expected levels. One development which supported Turkey, as an energy importer, was the plunge in oil prices during the year. Lower oil prices will help further lower the current account, bring down inflation and support growth by decreasing energy costs. It is thought that domestic and foreign demand conditions will become more balanced, setting the stage for healthier growth rates going forward.
On the other hand, inflation remained under pressure from the weakness of the Turkish Lira at the beginning of the year and its pass-through effect on inflation, and also lower agricultural yields due to the drought in the winter season, and the resulting increase in food prices. The year 2014 was rounded off with an 8.17% rate of CPI inflation. The rate of inflation is expected to enter a declining trend again on the back of the base effect from the spike observed in 2014, which was temporary, the normalization in food prices and the decline in oil prices.
The current account deficit, which is one of the key structural problems facing Turkey, exhibited a downward trend in 2014. The decrease in domestic demand after the macro-prudential measures that were initiated at the beginning of the year and the resulting decrease in demand for imports had an impact on this situation. Another factor behind the improvement in the current account deficit was the increase in exports to Europe, which is Turkey’s most important export market, as a result of the economic recovery seen at the beginning of the year. However, factors such as the deceleration in global economic growth and geopolitical risks threaten this improvement. To this end, the decline in the energy import bill, which has come on the back of the slump in oil prices, will no doubt prove supportive. Maintaining the improvement in the current account balance is likely, assuming that oil prices remain near their current levels throughout 2015.
Fiscal discipline was maintained in 2014 in what was one of the crowning successes of the Turkish economy. There were no deviations from the targets despite two elections held during the year. The year was concluded in line with the targets set out in the Medium Term Program. There was no compromise in maintaining the fiscal policies that have been conducted for year.
The Central Bank continues to implement a tight monetary policy. Price stability is now more crucial against a backdrop of inflation volatility. Following the hike in interest rates implemented in response to the volatility in the TL at the beginning of 2014, there was a limited reduction in interest rates in the second half of the year in response to some improvement in conditions. A further decline in interest rates is expected in 2015 on the back of a sharper decline in inflation, especially in the first half of the year.
The Turkish Banking sector enjoyed a positive performance in 2014, even though both global and domestic conditions deteriorated. The sector’s balance sheet can be considered satisfactory, despite having grown at a slower rate than in the previous year. Profitability in the sector approached its 2013 level. As far as loans are concerned, while retail loan growth slowed, corporate loan growth remained brisk, in an indication of continued support for the real sector.
Ziraat Bank, which supports the Turkish economy in every area, enhanced its leading position in the sector with the Bank’s change and transformation. In 2014, the Bank took strong steps for the coming years with the help of a more effective and efficient balance sheet structure. The Bank’s activities are always focused on its vision of always moving towards a better position.
Another important development in 2014 was the approval and announcement of Ziraat Bank’s Sustainability Policy. Our first Sustainability Report, published during the year, represented an important step as it considers social and economic issues - which form the latest trends of global banking, as a whole and as it enables our stakeholders to evaluate our gains and aims.
On behalf of myself and our Board of Directors I would like to take this opportunity to thank everyone who has placed their trust in our customers, employees, business partners and our brand, and who has provided pecuniary and non-pecuniary contributions to the value that we generate.
Yours sincerely,
Muharrem Karslı
Chairman of the Board of Directors
