Esteemed stakeholders,

Overshadowed as it was by the US Federal Reserve Bank’s impending interest rate decisions, fears that China’s economy was stumbling, plummeting commodity prices, and geopolitical risks, 2015 was a year in which investors’ appetite for risk was volatile and developed countries’ monetary policies significantly diverged from one another. It is expected that this situation will likely prevail in 2016, though that will depend on the course of both inflation and growth.

2015 was shaped by expectations as to what the Fed might or might not do about its monetary policy. With markets’ attentions focused on macroeconomic data, they were wracked by volatilities from time to time. Healthy employment figures and a strong economic outlook in the US set the stage for the Fed’s decision to begin raising interest rates late in the year. In December the Fed reiterated its belief that the US economy would remain on track and therefore announced its first interest rate hike after nearly a decade.

Now that uncertainties as to the specifics of the Fed’s monetary policy have waned, it is thought that financial market volatility in 2016 will be rather less than what prevailed in 2015. Persistently low commodity prices and a strong US dollar combine with the Fed’s assurances that future interest rate hikes would be gradual are contributing to markets’ optimism.

Like the Bank of Japan, the European Central Bank also had to devote much of its attention to policies aimed at managing deflationary risks in 2015. Suffering from the expansionist monetary policies of the latter, the euro continued to slide all year long. Although it reduced its principal interest rate components (including those on bank deposits) in order to encourage lending and to manage deflationary risk, the ECB has yet to achieve what it hoped it would insofar as inflation is concerned. Although there is some evidence that lending is on the mend, commodity prices continue to slide and this is what is preventing inflation from reaching the bank’s target. Despite glimmerings in leading growth indicators due to the ECB’s measures, any improvement in economic data is being constrained by the euro area’s chronically high unemployment and by a huge accumulation of debt. What with oil prices still low and inflation below expectations as we entered 2016, it is likely that the ECB will remain on its expansionary course for yet some time to come.

For the developing countries, the most important issues on their 2015 agenda were worries about the Chinese economy, the crash in commodity prices, and the fallout from US monetary policy. The long-evident downturn in China’s economy manifested itself as emerging-economy stock market losses and falling exchange rates. Meanwhile the effects of the country’s slowdown spread beyond its own borders and adversely affected global growth as well. With China no longer demanding so much in the way of raw and other materials, the ensuing glut of them on world markets further depressed commodity prices. While that was bad news for countries that export commodities, it helped reduce the costs of countries that import them. However the protracted nature of this cycle upset exporting countries’ debt and growth balances and that is what is making global markets so uneasy. If the slowdown in China persists for long in 2016, it is likely that its trading partners will also remain fragile and that can be expected to further dampen commodity prices.

The effects of global market volatilities manifested themselves in Turkey principally as a higher risk premium and a weaker Turkish lira. Turkish market risk perceptions were also exacerbated by heightened geopolitical risks in the country’s immediate neighborhood.

As of this writing, we can expect that overall growth in 2015 will be modest at best. That could be construed as not at all shabby in the context of so much global volatility. Overshadowed by uncertainty and volatility in 2015, the Turkish economy’s growth was nourished largely by domestic demand: indeed, as the end of the year approached, the net contribution of exports to grow shifted from positive to negative. Expectations are that growth performance in 2016 will be better than it was in 2015 and that it will be supported by an anticipated package of reforms on the one hand and a boost in the minimum wage on the other.

Twelve-month inflation at year-end was around 8.81%. High food prices and a weak Turkish lira were the main contributors to such a high rate of inflation. According to the Medium-Term Program, the CPI target for 2016 is 7.50%. As it is appears that inflation has peaked and is now on its way down, it is thought that this is still an achievable target.

Improvements in Turkey’s current account deficit that were registered in 2015 were supported by a lower energy import bill resulting from the crash in oil prices and by an increase in exports–primarily automotives and gold. Overall however Turkey’s exports, especially those destined for Iraq and Russia, suffered owing to geopolitical tensions while developments in the EUR/USD parity were another reason why export targets could not be met. Fiscal discipline on the public-sector side combined with prudent borrowing and modest growth in consumer credit on the private are expected to continue supporting the country’s current account balance.

The Central Bank (TCMB) adhered to a tight-money policy all year long in 2015 in order restrain exchange rate movements and to mitigate the inflationary impact of higher food prices. Declaring its intention to “simplify” its own monetary policy once global monetary policy had returned to a semblance of normalcy, the bank announced that it was going to narrow its interest rate corridor and make it more symmetrical around an axis defined by the one-week repo auction interest rate. TCMB also made it clear that this simplification would be contingent on the durability of any reduction in volatility observed once the Fed had raised its own interest rate. All of these pronouncements were made with the intention of informing market expectations.

Having emerged from a period of significantly high volatility Turkish banking sector remains steadily on course. Its balance sheet growth remains satisfactory. While the increase in consumer credit is losing momentum, improvements in its corporate-customer lending are a sign that it is continuing to support real-sector endeavors.

As it embarks upon another year with a robust balance sheet and a productivity-focused new business model, Ziraat Bank serves customers all over the country. Our Bank will maintain its leading position in the sector and continue benefiting the national economy through a service approach that puts the customer at its focal point.

Speaking personally and on behalf of the Ziraat Bank Board of Directors, I take this opportunity to thank all of our customers, correspondents, business partners, employees, and other stakeholders who helped us to maintain our growth momentum in 2015.

So long as we can count on your confidence and support, I know that Ziraat Bank will continue to advance its leading position.

Yours sincerely,

Muharrem KARSLI
Chairman of the Board