Message From Chairman

We build life-long and successful partnerships with all our stakeholders through understanding and best fulfilling their needs.

Dear Shareholders,

We welcome 2018 with significant global and regional developments.

Global economy performed better than initially envisaged throughout 2017. Although the escalated tension between the US and North Korea unnerved the investors occasionally, the rather-market -friendly outcomes of French and German elections lent support to global growth. Despite the acceleration in global economic activity, inflation dynamics remained subdued. Against such a backdrop, the FED continued to normalize monetary policy while ECB and Bank of Japan maintained their expansionary stances. The central banks of several emerging markets, including Brazil and Russia, have lowered their respective interest rates as disinflation trend became more visible.

Global growth is seen to maintain its strength through 2018, which hints favorable outlook regarding the capital flows into emerging markets. Investors' sentiment, however, could alter especially if the central banks of developed countries tend to adopt tighter/less accommodative stance should inflation rise faster than expected. Moreover, political risks regarding Brexit negotiations and the US Congress election will also be among the major drivers.

Turkey recorded impressive growth figures through last year thanks to both favorable global financial conditions and expansionary fiscal measures. Being partly fueled by the Credit Guarantee Fund (CGF) scheme, rapid loan growth played a key role in the acceleration of economic activity. Such acceleration, however, led to significant deterioration in both inflation and external balance. 2017 inflation came in at 11.9%, which corresponds to the highest year-end figure since 2003. Current account deficit-to-GDP ratio, meanwhile, increased above 5%, up from 3.8% at the end of 2016. Furthermore, strained ties with the US and Europe led to the increase of volatility in domestic markets.

GDP growth might lose some momentum through 2018 as favorable base effects will no longer be in play. Yet, we expect such deceleration to be limited and full year GDP growth to stand around 5% as fiscal policy will remain expansionary and external demand will continue to support economic activity. On the inflation front, we expect the downward trend that started as of December 2017 to continue in the upcoming period. Yet, annual inflation rate will likely remain in double-digits through the year, which might motivate the continuation of tight monetary policy stance, along with the elevated levels of market interest rates. Current account deficit, meanwhile, will likely widen further, albeit at a slower pace.

Turkish financial sector helped fuel growth in 2017. As QNB Finansbank we participated actively in the loan expansion process thanks to financial incentives and support of the Credit Guarantee Fund. We believe that support by financial policies and stability in the Turkish economy will continue in 2018. With its sturdy infrastructure Turkish banking sector will continue to be a leading sector for growth.

Loans extended by the banking sector posted a faster growth compared to recent years as CGF mechanism stimulated the acceleration in non-retail loans. Constituting 75% of the total loans in the sector, non-retail loans recorded 22% YoY growth in 2017. Retail loans, meanwhile, increased by 16%. Consequently, total loan growth reached 21%. Deposits, expanded by 17%. Reflecting the favorable impact of stronger economic activity, non-performing loan ratio eased to 3.2% in 2017, down from 3.6% at the end of 2016. Although the funding costs increased significantly on the back of rapid loan growth and tighter monetary policy, high profitability was observed in the sector in 2017.

We celebrated the 30th anniversary of our Bank. Proud of being a part of it since its inception in 1987, our bank supported thousands of individuals and companies and brought in hundreds of Finans-ers (Finansçı) to the sector.

At QNB Finansbank, with a people-focused approach to management, we believe that generations of analytical and differentiated thinkers and with positive attitudes, will be the fertile breeding grounds for tomorrow's creative leaders. Therefore our main focus in social responsibility work is support for and development of, in particular, children and young talents. We undertake and support projects aimed at development of children through education, science and art. Two years ago we established the Little Hands Big Dreams Platform, which allowed us to carry out significant work, with various institutions, oriented towards children.

We have come a long way to where we are today, thanks to the perseverance in our approach to management since the very inception of the Bank and dedicated efforts of "Finansçı"s serving QNB Finansbank. Despite significant changes in Turkey and globe, even in its very own ownership structure, QNB Finansbank has continued its steady pace, during the 30 years of its existence always staying loyal to its cultural values.

In the 30 years we have left behind, our Bank has realized many "first"s. Differentiating itself in terms of basic principles and point of view in banking, it has evolved into a story of success through the execution of smart banking by the professional bankers. QNB Finansbank's successes were presented to the students of Harvard University, one of the most prestigious universities in the world, as case studies four times in thirty years.

Qatar National Bank S.A.Q (QNB Group), the largest bank in Qatar and the leading financial institution in the Middle East and North Africa, purchased our Bank in June 2016. As a result of this investment by QNB Group, our Bank ranked first among foreign-owned banks operating in Turkey in terms of credit ratings. QNB Group, with its subsidiaries and affiliates, offers a wide spectrum of products and services through 1.230 branches in 31 countries across 3 continents, with 28.200 employees. Bloomberg Markets, one of the leading institutions in commercial, financial and economy news, has been seating QNB among "The Strongest Banks Globally" since 2013. Global Finance declared QNB to be one of " The 50 Safest Banks Globally" in 2013. Euromoney selected QNB as "the Best Bank of the Middle East" two times in a row, in 2014 and 2015.

With our main shareholder QNB, the largest bank in the Middle East and Africa by almost all metrics and aspiring to be a bank of global scale, we are stronger and have bigger targets.

Esteemed Stakeholders,

Thanks to your invaluable contribution and support our Bank continues its evolution to get placed among the leading banks not only in Turkey but also in the region.

On behalf of the Board and myself, I would like to thank all "Finansçı"s and stakeholders for their support.


Ömer A. Aras