Performance Highlights in 2017​

• TRY 321 million in net profits in 2017, growing by 60% relative to 2016 and translating in an ROAE of 8.9%
• TRY 90 million of net profits in Q4-17, as compared to TRY 80 million in Q3-17 and TRY 77 million on average over the last three quarters
• TRY 22.6 billion of loans funded by TRY 23.9 billion of deposits with a low reliance on wholesale funding
• 20.3% capital adequacy ratio as per Basel III of which 14.7% in CET1
• 4.7% NPLs ratio covered by 41% of specific provisions and 69% of collaterals

2017 has been a challenging year for the Turkish banking sector. It started with a severe depreciation in Turkish Lira which led to consecutive rate hikes from the Central Bank of Republic of Turkey (CBRT). However, the most important development for the banking sector in 2017 was the significant increase in the Government’s guarantee limits for the Credit Guarantee Fund (CGF). This led to a quick acceleration in CGF backed Turkish Lira loan growth in Q2 2017. High level of loan growth coupled with tighter monetary policy from the CBRT led to a sharp increase in Turkish Lira deposit costs in 2017, which put pressure on the sector’s net interest margin due to the maturity mismatch between assets and liabilities. Notwithstanding, the above did not dampen the profitability of Turkish banks displaying an improvement in 2017.

Within this context, and after the robust growth realized since inception, Odea Bank’s Management adopted in 2017 a tight asset and liability management policy consisting of re-balancing the loan and deposit portfolios towards TRY to improve productivity gains, to enhance asset quality and to further support capital optimization. Subsequently, assets of Odea Bank contracted by TRY 5.2 billion in 2017, moving from TRY 38.3 million as at end-December 2016 to TRY 33.1 billion as at end December 2017.

Assets evolution was driven by a reduction in loans to customers by TRY 3.8 billion to reach TRY 22.6 billion as at end-December 2017. This was driven by loans denominated in foreign currency decreasing by TRY 3.5 billion over the same period, to TRY 9.6 billion, and accounting for 42% of total loans as compared to 50% as at end-December 2016. In parallel, loans in local currency declined slightly by TRY 324 million to TRY 13 billion.

In parallel, customers’ deposits decreased by TRY 5.3 billion reaching TRY 24 billion as at end-December 2017, still representing the main source of funding at 72.2% of total liabilities and shareholders’ equity. Mirroring loans, deposits composition in 2017 shifted towards TRY deposits representing 43% of total deposits as at end-December 2017 as compared to 37% as at end-December 2016. The loans to deposits ratio stood at 94,7% as at end-December 2017 within a further reinforcement of primary liquidity (cash and balances with central bank + reverse repo + banks) to account for 28% of deposits.

Asset quality dynamics continued to stabilize in the fourth quarter of the year. The volume of NPLs decreased from TRY 1,150 million as at end-June, to TRY 1,097 million as at end-September and TRY 1,076 million as at end-December 2017, supported by improved collection along with the realization of NPL sales in Q4. NPL ratio deteriorated to 4.7% as at end-December 2017. In parallel, the Bank allocated TRY 353 million in loan loss provisions in 2017, representing 1.3% cost of risk. NPLs are covered 41% by specific provisions and 69% by collaterals and real guarantees. Accounting for the free provisions, the NPL coverage ratio increases to 65%.

Odeabank has received inaugural rating from Moody’s (Ba3) and Fitch (BB-) in 2017 in line with its well-established peers. Following the rating action, Odeabank successfully issued an inaugural US$ 300 million 10NC5, 144A/RegS Subordinated Basel III Compliant Tier II bond. This transaction helped Odeabank to reinforce its already solid capital position with the capital adequacy ratio improving from 15.0% as at end-December 2016 to 20.3% as at end-December 2017, which was also supported by an increasing internal capital generation amid lower risk weighted assets. CET1 ratio increased from 13.4% as at end-December 2016 to 14.7%.

The Bank reported TRY 90 million of net profits after provisions and taxes in the last quarter of 2017 as compared to TRY 77 million on average over the last three quarters of the year. This sum up to net profits of TRY 321 million in the full year 2017, growing by 60% relative to the 2016 profits of TRY 200 million. Net profits growth was mostly driven by a growth in net interest income and net commissions by respectively 18,3% and 43,7% over the year offsetting a 12,3% increase in general operating expenses. In the third quarter of the year, management implemented right-sizing actions on the cost base, bringing it down from TRY 199 million in the third quarter of 2017 to TRY 175 million in the fourth quarter. The year 2018 is expected to witness the full impact of this optimization policy.

Based on the above, profitability ratios further reinforced with the ROAA moving from 0.6% as at end-December 2016 to 0.9% as at end-December 2017 while the ROAE rose from 8.4%% to 8.9% over the same period.

KEY FINANCIAL DATA