Esteemed Stakeholders,
We were deeply sorry to see the news of earthquakes in Turkiye on Feb 6, which is one of the worst disasters of the century. Unfortunately, more than 50,000 lives were lost, buildings and infrastructure experienced significant damages. We hope that Turkiye will recover soon and the reconstruction of the affected regions will be realized rapidly. According to the estimates, the region’s share in the economy (GDP) and financial sector (deposits and credits) is less than 10%. Thus, the impact on the economy is expected to result in a mild slowdown firstly, then contributing to growth driven by the reconstruction activities.
Global economic conditions remain challenging on the back of the on-going Russia-Ukraine war, worsening geopolitical confontation, and interest rate hikes by central banks in major economies to tame inflation. Moreover, deposit runs in some banks in US raised questions regarding financial stability on a global scale. Despite these challenges, recent macroeconomic data show that Turkiye is able to manage economic implications of the shocks from the external situation. The diplomatic efforts of the government and the adjustments in banking regulation helped to maintain the macro-financial stability. Driven by private consumption on the expenditures side and services sector on the production side the Turkish economy grew by 5,6% in 2022. The domestic demand remained strong throughout the year, while foreign demand showed signs of deceleration coming to the year-end. In this regard, it is worth to mention that last policy measures by the Government, like adjustment in the level of minimum wage is quite adequate which ultimately contributes to expanding aggregate demand in the economy, but of course, with the reservation that its potential impact to inflation spiral should be considered carefully.
On the back of above mentioned economic landscape, the overall banking system succeded to maintain risks within the acceptable levels, and profitability at two-digit territory. According to latest data, the total assets of the system in the last 12 month has increased by 59% as opposed to prior year, exceeding TL 15 trillion. A similar trend applies to the credit portfolio. Total credits of the industry reached TL 8.055 billion with 56% increase.
It is a tradition, therefore, we are proud to say that PASHA Bank as a dynamic market player keeps going on its healthy expansion. In general, continuous investment onto strengthening of internal capabilities, starting from building core competencies for managing business to increasing human capital potential of the Bank, has already demonstrated its strategic return in the form of capable navigation through the stressful times. As a result, total assets of the Bank increased by 73% to reach TL 6.156 million by the end of first quarter of 2023. Our gross cash loan and leasing receivables portfolio, comprising 59% of total assets, reached TL 3.638 million with a 50% increase.
Due to effective risk management framework, and prudent credit policy pursued by the Bank we have been successful in preserving low level of NPL in our balance sheet. It is worth to underline that flexible revisiting of credit policy, adjusting tactics of credit and underwriting policy to the current realities of macroeconomic environment etc. are forming subtance of the overall risk approach of the Bank. Moreover, it is worth to underline that quick revisit of the loan portfolio due to the on-going war, and run of the relevant stress-testing process have also expanded the ability of the bank managing credit risks in a proper way. Regarding the latter, It has become more curicial how the Bank formulates its baseline scenario, and also how risk triggers are embedded into stress scenario framework, which ultimately end up with proper scenario formulation, advanced measurement and preparation of mitigation plan.
We entered to the last business year of the 2021-2023 strategic period. In general, the 2023 strategy rises on the foundation of values like integrity, quality, collaboration, entrepreneurship and profitability, builds up with the vision to create new and enduring values in the business world and society, focuses as the mission to become a cross-border bank empowering its customers. It is worth to mention that strategically it has become very important to leverage on synergy opportunities in the Group, since it is quite big and operations are going beyond countries and sectors, which in the end provides potential business opportunites.
New strategic period in its essence is characterized with continuation of some business segments, also with full dedication to the new initiatives. Coming to the latter, it actually concentrates on to realization of potential niche markets. Financing investment into the real estate market in the countries of operations via the mortgage lending, investment into the venture capital in order to materialize technological return in the greater scale of the entire Group business etc. are examples in this regard. About the real estate initative, the Bank already introduced mortgage product in the 1st quarter of 2022 within the entire Group. Considering positive interest the team is working with relevant stakeholders to scale it up in the coming period. In addition to diversifying its funding side, the strategic document also covers main business enablers which are actually the main assets of bank in the way of execution of the strategy. It is our privilege to state that, the proper strategy formulation is expected to yield higher financial performance that has basically been the case in the previous strategic periods. Both profit side indicators, and also expense ratios are forecasted to perform positive trend promising higher profitability for its shareholders, and stability for other stakeholders.
While executing the strategy, we would continue to make substantial investments to the information technologies, risk management, credit management, fund raising, talent acquisition etc. and development of our employees that are of foremost importance. In overall, agility and know-how regarding focus sectors are expected to be differentiating capabilities of the Bank. It is worth to mention that the operational agility of the Bank yields its return even in the core operations. Of course, we totally understand that agility may require us to invest in operational systems which in the end provide system availability, from other hand accelarete transformation towards digitalization. It is the reason that the Bank has some strategic projects in this regard. Infrastructure enhancement for digitalization and new platforms, and advanced information security for digitalization are among them.
We will continue to make efforts to diversify the Bank’s funding structure and expand our correspondent network and investor base. In this regard, it is important to emphasize competitive advantage of the Bank which goes beyond the country borders, and comes with the strength of the Group’s presence across the region. It is really a privilege to us to witness expanding business opportunities on the back of increasing regional economic relationships after the great victory of Azerbaijan. Signing free trade agreement between Azerbaijan and Turkiye, announcing foregin trade target by 2025, increasing FDI flows, active participation of Turkish firms in reconstruction process of liberated areas etc. are the examples for the above mentioned economic ties. In its turn, this expanding economic base is providing a feasible opportunity for the Bank to materialize promising business perspectives in this regard.
In addition to that, the Bank has opportunity to attract funding from both Azerbaijan and Georgia, in case it sees favorable interest rate developments there, and this potential is being materialized during the current strategic period. We will maintain our prudent approach to managing credit risks so that the asset quality of the Bank is not affected by the current environment characterized with increasing volatility in the market. We shall continue our efforts of offering products and services that are tailored to our customers’ needs to make banking experience a gainful experience with PASHA Bank.
We have started to work on the formulation of the 2024-26 period strategy in order to ensure the Bank adopts to the constantly evolving economic landscape and rapid transormation in the financial sector driven by innovations in technology and business processes. In this regard, shareholder aspirations have been determined constituting the backbone of the strategy, the macroeconomic projections have been formulated for baseline, downside and upside scenarios, while the determination of risk boundaries is on-going. The strategy formulation process is mainly conducted by the Bank’s own resources, while experienced consultants’ advices are also involved into the process. The process is planned to be finalized during the third quarter of the year and approved by the relevant decision-making bodies of the Bank until the end of the current year.
I am truly looking forward to share prosperous operating environment with all stakeholders which provides enourmous benefit to all parts, and serves to build business relationships based on mutual interest.
I would like to take this opportunity to thank our valued employees and our management team for their dedicated professional work, our customers for their confidence in PASHA Bank and our shareholders and all business partners for their valuable support.
It is definitely their goodwill that renews our belief in ourselves and our potential to be more.
Sincerely yours,
Jalal Gasimov
Chairman