TURKEY: RECENT DEVELOPMENTSJanuary – April 2019

2

Economy is recovering after the currency shock in August 2018

* Source: CBRT ** as of May 2019

CBRT Survey of Expectations (end of 2019)

Forecast (as of May 2019)

CPI 16,7%

GDP 0,3%

Current Account (bn USD) -14,7

USDTRY 6,43

63,5

105,5

85

90

95

100

105

110

115

50

55

60

65

70

75

80

A-16 J-16 O-16 J-17 A-17 J-17 O-17 J-18 A-18 J-18 O-18 J-19 A-19

Consumer Confidence Index Real Sector Confidence Index

46,8

-4,7

-20

-10

0

10

20

30

40

45

50

55

60

A-16 J-16 O-16 J-17 A-17 J-17 O-17 J-18 A-18 J-18 O-18 J-19 A-19

PMI Industrial Production (%, yoy)

3,1

4,3

6,1

1999 - 2004 2005 - 2010 2011 - 2018

Avg. Real GDP Growth (%)

75

175

275

375

475

575

675

2002 2005 2008 2011 2014 2017 2020 2023

Real GDP Growth (Index: 2002=100)

Turkey 5,6%

India 7,7%

Russia 3,3%

S.Africa 2,6%

Brazil 2,3%

Avg. GDP Growth

(2003-’18)

China 9,2%

3

Nominal GDP quadrupled in last 15 years

Source: Turkstat, CBRT, IMF*as of May 2019

238312

405

501551

675

765

644

772832

874950 934

859 863 852

766

2002 2006 2010 2014 2018

Nominal GDP (bn USD)

4Source: Turkstat, Eurostat, UN*as of May 2019

Favourable Demographics: Half of population under age 30

45

50

55

60

65

70

75

2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

Total Dependency Ratio(%, Age: 0-14 & >64 / Age: 15-64)

Turkey

Europe

85

90

95

100

105

110

115

120

2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

Working Age Population(15-64) (Index: 2014=100)

Turkey

Europe

-0,05 -0,03 -0,01 0,01 0,03 0,05

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

TURKEY

Females Males

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

-0,05 -0,03 -0,01 0,01 0,03 0,05

EUROPE

Males Females

0,05 0,03 0,01 0,05 0,03 0,01

20 20 21 21

22

2324

25

2627

2728

29

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Yearly Average Employment (mio)

5Source: Turkstat

High potential with young population and improving workforce

2014-18 avg.827k

2006-13 avg.621k

700k new job is created between 2006-18 in each

year averagely.

9,0 9,210,0

13,1

11,1

9,18,4 9,0

9,9 10,310,9 10,9 11,0

44,5 44,3 44,9 45,7 46,5 47,4 47,6 48,350,5 51,3 52,0 52,8 53,2

20

30

40

50

60

5

10

15

20

25

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Unemployment rate (%)

Labor Participation Rate (%)

2019 Feb.: 14,7%

2,4 2,4 2,5 2,9

5,2

9,5 9,08,5

7,0

5,34,2

5,2 4,9 4,73,8 4,1 4,4 3,9

7,3

4,83,7 4,1 3,7

2,7 2,21,5 0,4

0

3

6

9

12

2010 2011 2012 2013 2014 2015 2016 2017 2018

Peers' Budget Deficit (%GDP)

Brazil S. Africa Poland

3,5

1,3

1,9

1,0 1,1 1,0 1,1

1,5

2,0

2010 2011 2012 2013 2014 2015 2016 2017 2018

Budget Deficit (%GDP)

Maastricht criterion

6Source: Bloomberg, IMF*as of May 2019

Maastricht criterion: 3%

Strong fiscal discipline has been the main pillar of economic policy

* Latest figure: December 2018

Turkey

Eurozone

40,136,5

32,7 31,4 28,8 27,6 28,3 28,3 29,1

84,6 86,6 89,7 91,6 91,8 89,9 89,1 86,8 85,0

2010 2011 2012 2013 2014 2015 2016 2017 2018

General Government Debt Stock (%GDP)

Turkey Eurozone

7Source: Bloomberg, Turkstat, WTO*as of May 2019

Decreasing trade gap with diversified export markets

* Latest figure: February 2019

Composition of Imports (%)

0,8%

0,9%0,9%

0,9%1,0% 1,0% 1,0%

1,0%

2011 2012 2013 2014 2015 2016 2017 2018E

Turkey's Share in World Total Export

46

3942

43 4448 47

50

21

28

23 22 22 22 23

18

2011 2012 2013 2014 2015 2016 2017 2018

Exports (% of total)

EU Near and Middle Eastern

69,2%

18,0%

12,8%

2008

74,3%

15,3%

10,5%

2018

135152 152 158 144 143 157 168 169

241 237 252 242207 199

234 223 210

10583

9984

63 5677

5541

-150

-100

-50

0

50

100

0

50

100

150

200

250

300

350

400

450

2011 2012 2013 2014 2015 2016 2017 2018 2019

Trade Balance (bn USD, 12-month cumulative)

Total Exports Total Imports Foreign Trade Gap

4,2

5,7 5,4 5,1

1,8

5,8

9,0

5,5

6,7

4,7

3,7 3,8

5,6

3,6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Current Account Deficit (% GDP)

8Source: Bloomberg, CBRT, UNCTAD

Current account deficit is decreasing

* 2019 IMF forecast: -0,7%* * Latest figure: Q4, 2018

-15

-10

-5

0

5

10

15

20

25

30

35

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Portfolio Inflows(12-month cumulative, bn USD)

Equity Security

0

5

10

15

20

25

30

35

2004 2007 2010 2013 2016 2019

Foreign Direct Investment Inflows(12-month cumulative, bn USD)

9Source: Bloomberg, CBRT

Central bank is implementing tight monetary policy

24,00

6

9

12

15

18

21

24

27

30

Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Apr-19

Interest Rate Corridor Overnight Lending RateOvernight Borrowing Rate 1-week REPO RateLate Liquidity Window Lending Rate CBRT Average Funding Rate - 5 day MA

75

0

20

40

60

80

100

120

140

160

180

200

Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Apr-19

One Week Repo Overnight Lending

Late Liquidity Window Net Open Market Operations

19,5

4

6

8

10

12

14

16

18

20

22

24

26

Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Annual CPI (%)73

27

0

20

40

60

80

100

120

Apr-03 Apr-05 Apr-07 Apr-09 Apr-11 Apr-13 Apr-15 Apr-17 Apr-19

CBRT Gross Reserves (bn USD) CBRT Net Reserves (bn USD)

10

Source: IMF FSI Latest Available Data for Each Country by May 2019.

Well capitalized, strong banking sector attracts foreign interest

23 23 22

2019 19 19 18 18 18 18 18 17

16 16 16 16 16 16 15 15 15 1413 12

0

5

10

15

20

25

Irel

and

Ind

on

esia

Ne

the

rlan

ds

UK

Ge

rman

y

Fran

ce

Bel

giu

m

Po

lan

d

Au

stri

a

Turk

ey

Bra

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Cze

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ep.

Jap

an

Hu

nga

ry

Ital

y

Gre

ece

Mex

ico

Arg

enti

na

Spai

n

Can

ada

Po

rtu

gal

USA

Ch

ina

Ind

ia

Ru

ssia

Capital Adequacy Ratio (CAR) (%)

0 1 1 1 2 2 2 2 2 2 2 2 3 3 3 3 3 4 46

9 9 10 11

42

0

5

10

15

20

25

30

35

40

45

Can

ada

USA

Jap

an UK

Ge

rman

y

Ch

ina

Au

stri

a

Ne

the

rlan

ds

Mex

ico

Bel

giu

m

Ind

on

esia

Hu

nga

ry

Fran

ce

Turk

ey

Bra

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Arg

enti

na

Cze

ch R

ep.

Spai

n

Po

lan

d

Irel

and

Po

rtu

gal

Ind

ia

Ital

y

Ru

ssia

Gre

ece

Non-performing Loans to Total Gross Loans (NPL)

(%)

46

2622

19 18 18 1715

12 12 11 10 9 9 8 8 7 7 7 6 64 4

0 0

-10

0

10

20

30

40

50

Arg

enti

na

Mex

ico

Can

ada

Hu

nga

ry

Turk

ey

Cze

ch R

ep.

Ind

on

esia

Bra

zil

Ne

the

rlan

ds

Ch

ina

Ru

ssia

Au

stri

a

Bel

giu

m

Po

lan

d

Spai

n

UK

Jap

an

Po

rtu

gal

Fran

ce

Irel

and

Ge

rman

y

Ital

y

USA

Ind

ia

Gre

ece

Return on Equity (ROE) (%)5,1

2,82,5

1,9 1,91,6

1,4 1,2 1,1 0,9 0,9 0,8 0,8 0,7 0,7 0,6 0,6 0,5 0,4 0,4 0,4 0,3 0,3

0,0 0,0-1

0

1

2

3

4

5

6

Arg

enti

na

Mex

ico

Ind

on

esia

Hu

nga

ry

Turk

ey

Bra

zil

Ru

ssia

Can

ada

Cze

ch R

ep.

Irel

and

Ch

ina

Po

lan

d

Au

stri

a

Ne

the

rlan

ds

Po

rtu

gal

Bel

giu

m

Spai

n

UK

Fran

ce

USA

Ge

rman

y

Jap

an

Ital

y

Ind

ia

Gre

ece

Return on Assets (ROA) (%)

11Source: BRSA

Legal limit of %8

Target Rate of %12

The banking sector grew as a result of its strong asset quality and was able

to maintain high profits

1,16 1,50 1,62 1,44

11,28

14,28

15,8814,75

0,00

4,00

8,00

12,00

16,00

20,00

Dec-2015 Dec-2016 Dec-2017 Dec-2018

Profitability Ratio (%)

Net Income / Average Total Assets (%)

Net Income / Average Shareholder's Equity (%)

6,4

4,9

9

3,9

0

3,6

2

3,8

2

5,5

7

3,8

0

2,7

8

2,9

5

2,8

3

2,9

4

3,2

0

3,3

5

3,0

5

4,0

4

4,2

3

Non-Performing Loan Ratio (%)

* Latest figure: Mar 2019

19,0

16,617,9

15,316,3

15,6 15,616,9 17,3

16,4

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Capital Adequacy Ratio (%)

* Latest figure: Mar 2019

1.007 1.218

1.371

1.7321.994

2.357

2.731

3.258

3.8674.139

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Banking Sector Total Asset (billion TL)

12Source: Turkstat, WTTC

Tourism revenues and number of visitors doubled between 2004-2014.

Strong recovery in 2018!

* Based on WTTC data

1720

1921

25 25 2528 29

3234

31

22

2630

1721 19

2326 27 29

31 3134

36 36

25

32

39

2004 2006 2008 2010 2012 2014 2016 2018

# of Foreign Visitors vs. Revenues

Revenue (bn. USD) # of tourists (mio)

* Latest figure: Q4 - 2018

4,3

-60

-40

-20

0

20

40

60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Turkey Foreign Arriving Visitors Change (YoY,%)

3,5

4,0

4,5

5,0

2004 2007 2010 2013 2016 2019 2022 2025

Direct Contribution to GDP* (%)

0

50

100

2004 2007 2010 2013 2016 2019 2022 2025

Tourism Revenue*

13Source: Turkstat, Turkish Airlines Investor Presentation

Air traffic more than tripled in last 10 years

• As of 31.12.2018• Note: Diameters of the bubbles are proportional to the number of passengers carried.

4556 62

7079 86

103118

130

149166

181174

193210

0

50

100

150

200

250

mioPassengers Carried (Turkey)

Domestic

International

Total

Wide Body

Range

ISTANBUL

BOS

HKG

NRT

PEK

BKK

JNB

LAX

GRU

EZE

SGN

CPT

CAN

IAD

IAH

JFK

ICN

KIX

KUL

SIN

ORD

CGK

YYZ

YUL

PVG

Narrow Body

Range

SFO

MEX

BOGCCS

MIA

MNLTPE

MPM

DUR

ATL

MRU

HKT

TNR

HAV

PTY

201 out of 257 international destinations

More than 40% of world-wide international traffic

Over 60 national capitals

All of Europe, Middle East, Central Asia and North and East Africa

Narrow Body Range Capability to and from Istanbul(with full passenger payload)

14

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