Annual Report 2021 BIG RESPONSIBILITY IN FOREIGN TRADE
Part One: General Information 10 Performance of A&T Bank in 2021 11 Developments at A&T Bank in 2021 12 About A&T Bank 14 Annual Report Compliance Opinion 15 Shareholding Structure and Paid-In Capital 15 Amendments to the Articles of Association 16 Financial Indicators 18 Assessment of Financial Strength, Prof itability and Debt Repayment Capacity 20 Summary Financial Highlights for the Past Five Years 20 Ratings of the Bank 21 Research and Development Implementations for New Services and Activities 22 Vision, Mission and Values 24 Milestones 26 Message from the Chairman 30 Message from the General Manager 34 2021 Performance of the Global Economy and Türkiye’s Economy 37 Turkish Banking Industry in 2021 38 A&T Bank in the Turkish Banking Industry 40 Operations in 2021 42 Treasury 44 Financial Institutions 46 Sales and Marketing 50 Credits 52 Information Technologies and Operations 54 Business Support Division 58 Support Departments and Units 60 Subsidiary: A&T Finansal Kiralama A.Ş. Contents Part Two: Management and Corporate Governance Practices 62 Board of Directors Report Submitted to the General Assembly 64 Board of Directors 69 Senior Management 72 Managers in Charge of Internal Systems Departments 74 Report of the Audit Committee on the Internal Systems of the Bank 76 Risk Management Policies 77 Relations with the Bank’s Risk Group 78 Committees 81 Individuals and Institutions Offering Support Services 82 Other Regulatory Explanations Part Three: Unconsolidated Financial Information 85 Independent Audit Report 94 Unconsolidated Financial Report Part Four: Consolidated Financial Information 203 Independent Audit Report 212 Consolidated Financial Report Addresses
WE PAVE THE WAY FOR SUCCESS IN FOREIGN TRADE A&T Bank has been performing major responsibilities and playing a key role in trade between Türkiye and North Africa as well as between African and Middle Eastern countries in general for more than 40 years. In 2021, a year characterized by macroeconomic fluctuations, we attained our goals while also helping our customers attain their own goals thanks to our effective liquidity and risk management. In the category of relatively small-scale banks, we continue to spearhead major accomplishments with our high power that goes beyond our volume. Tugboats are very important marine vessels used in pushing, towing and guiding large commercial vessels to assist them with their maneuvering. Despite their compact size, they play a key role in world trade thanks to their superior power.
HIGH POWER FOR SUCCESSFUL TRANSACTIONS As we have done in the past, we continue to enhance the commercial maneuverability of our customers with our expertise, human capital, correspondent network and robust f inancial structure. We serve as the pushing and pulling force for customer goals thanks to our increasing annual prof it, robust return on equity, and rising asset quality.
WE STAND BY OUR CUSTOMERS UNDER ALL CIRCUMSTANCES The rapidly growing and promising African and Middle Eastern countries offer attractive opportunities for our customers with expanding trade objectives. We stand beside our customers that are heading toward challenging regions at any time with our entire know-how and power.
WE ARE PIONEERING THE TODAY AND TOMORROW OF TRADE While borders within the world are being eliminated, extraordinary circumstances such as the pandemic can cause the borders to be sealed. Prepared for any possible circumstance, we steer our customers with proper strategies and projections and guide them toward the right routes.
ROBUST TECHNOLOGY INFRASTRUCTURE FOR AMBITIOUS GOALS We continue our digital transformation to be much close to our customers, shorten the distances, and reduce and streamline transaction times. We are increasing our product and service quality by investing in technology. As a result of our strengthened digital infrastructure, our Mobile Banking application is now available for corporate and retail customers.
10 PART ONE: GENERAL INFORMATION 222% increase in total assets over the past 10 years Capital adequacy that exceeds the banking industry average Prof itability-based growth A bank specialized in non-cash loans with tailored solutions for clients’ f inancing needs First choice of Turkish entrepreneurs in target markets with strong potential, especially in North Africa 9.7 160.3 6.4 3.6 Total Assets Capital Adequacy Net Profit Non-Cash Loans Türkiye-Libya Total Trade Volume (2021) TL billion TL million TL billion USD billion Performance of A&T Bank in 2021 A MAJOR PLAYER IN TRADE BETWEEN TÜRKIYE AND NORTH AFRICA WITH 44-YEAR EXPERIENCE Strong equity structure and a business model focused on sustainable prof itability 1.3 Equity Size TL billion 25.6%
11 A&T BANK ANNUAL REPORT 2021 Developments at A&T Bank in 2021 As part of the project, the internet banking ID verification system was renovated and it was implemented in the mobile banking system. The Cyber Operations Center service that was rolled out during the year enabled prospective identification and prevention of occurrences that may impact financial systems. The Mobile Banking Project enabled customers to perform their transactions on their mobile devices without the need for a browser. Mobile Verification Renovation Project was completed Cyber Operations Center service was rolled out Mobile Banking app was launched A&T Bank rolled out the debit card project in 2021 in response to customer needs. The E-Letter of Guarantee project that commenced service in 2021 increased customer satisfaction. Debit card initiatives are ongoing Processes are completed faster with the E-Letter of Guarantee
12 PART ONE: GENERAL INFORMATION A&T Bank was founded in 1977 in accordance with the agreement between Libya and Türkiye regarding the establishment of a joint bank, which was signed in Tripoli, Libya on August 11, 1975, to foster trade between the two countries. The Bank is 62.37% Libyan-owned, 36.01% Turkish-owned and 1.62% Kuwaiti-owned. Libyan Foreign Bank, a fully-owned subsidiary of the Central Bank of Libya, represents the entirety of Libyan capital in A&T Bank. Türkiye İş Bankası A.Ş. and T.C. Ziraat Bankası A.Ş. hold 20.58% and 15.43% of the Bank’s paid-in capital, respectively. Kuwait Investment Company holds a share of 1.62%. A&T Bank, which is headquartered in Istanbul, operates with a total of seven branches in Istanbul (Main, Kozyatağı, and Güneşli), Ankara, Gaziantep, Kayseri, and Konya. As of the end of 2021, A&T Bank has 283 employees. A&T Bank enjoys a special position in the Turkish banking industry thanks to its robust financial structure and the Bank’s expertise in intermediating the trade between Türkiye and North African countries. The Bank plays an important role in helping boost Türkiye’s industry and trade. A&T Bank makes significant contributions to the country’s industrial sector and commerce, by financing trade to the target regions, securing funds from overseas, performing treasury transactions, extending corporate loans. In addition, the Bank’s subsidiary A&T Finansal Kiralama A.Ş.’s helps support Türkiye’s real economy. As a result of the steady growth built thanks to the banking relations, experience, and knowledge of its founders and personnel with the region for 44 years, A&T Bank has become an important player in this special region with its characteristics. With its mission of becoming a bridge of value between Türkiye and North Africa, the Bank will continue to add value to our country by supporting the real economy with quality information, expertise and effective financing, as it was in the past. In 2021 A&T Bank continued to render high-quality service to its customers with 283 employees. 283 people Number of employees About A&T Bank PIONEERING ROLE IN THE DEVELOPMENT OF TÜRKIYE’S INDUSTRY AND TRADE
13 A&T BANK ANNUAL REPORT 2021
14 PART ONE: GENERAL INFORMATION Annual Report Compliance Opinion CONVENIENCE TRANSLATION INTO ENGLISH OF INDEPENDENT AUDITOR’S REPORT ON THE BOARD OF DIRECTORS’ ANNUAL REPORT ORIGINALLY ISSUED IN TURKISH To the Shareholders of Arap Türk Bankası Anonim Şirketi Opinion We have audited the annual report of Arap Türk Bankası Anonim Şirketi (the “Bank”) for the period between 1 January 2021 and 31 December 2021, since we have audited the complete set consolidated and unconsolidated f inancial statements for this period. In our opinion, the consolidated and unconsolidated f inancial information included in the annual report and the analysis of the Board of Directors by using the information included in the audited consolidated and unconsolidated f inancial statements regarding the position of the Bank are consistent, in all material respects, with the audited complete set of consolidated and unconsolidated f inancial statements and information obtained during the audit and provides a fair presentation. Basis for Opinion We conducted our audit in accordance with “Regulation on Independent Audit of the Banks” published in the Off icial Gazette No.29314 dated 2 April 2015 by Banking Regulation and Supervision Agency (“BRSA Auditing Regulation”) and Standards on Auditing which is a component of the Turkish Auditing Standards published by the Public Oversight Accounting and Auditing Standards Authority (“POA”) (“Standards on Auditing issued by POA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Annual Report section of our report. We declare that we are independent of the Bank in accordance with the Code of Ethics for Auditors issued by POA (including Independence Standards) (POA’s Code of Ethics) and the ethical requirements in the regulations issued by POA that are relevant to audit of f inancial statements, and we have fulf illed our other ethical responsibilities in accordance with the POA’s Code of Ethics and regulations. We believe that the audit evidence we have obtained is suff icient and appropriate to provide a basis for our opinion. Auditor’s Opinion on Complete Set of Consolidated and Unconsolidated Financial Statements We have expressed an unqualif ied opinion on the complete set of consolidated and unconsolidated f inancial statements of the Bank for the period between 1 January 2021 and 31 December 2021 on 17 February 2022. Board of Directors’ Responsibility for the Annual Report In accordance with the Articles 514 and 516 of the Turkish Commercial Code numbered 6102 (“TCC”) and Regulation on the Principles and Procedures Concerning the Preparation of and Publishing Annual Reports by the Bank (“Regulation”) published in the Off icial Gazette dated 1 November 2006 and Numbered 26333, the Bank’s management is responsible for the following regarding the annual report: a) The Bank’s management prepares its annual report within the f irst three months following the date of statement of f inancial position and submits it to the general assembly. b) The Bank’s management prepares its annual report in such a way that it reflects the operations of the year and the consolidated and unconsolidated f inancial position of the Bank accurately, completely, directly, true and fairly in all respects. In this report, the f inancial position is assessed in accordance with the Bank’s consolidated and unconsolidated f inancial statements. The annual report shall also clearly indicates the details about the Bank’s development and risks that might be encountered. The assessment of the Board of Directors on these matters is included in the report. c) The annual report also includes the matters below: - Signif icant events occurred in the Bank after the reporting period, - The Bank’s research and development activities. - Financial benef its such as wages, premiums and bonuses paid to board members and key management personnel, appropriations, travel, accommodation and representation expenses, benef its in cash and kind, insurance and similar guarantees. When preparing the annual report, the Board of Directors also considers the secondary legislation arrangements issued by the Ministry of Trade and related institutions. Auditor’s Responsibility for the Audit of the Annual Report Our objective is to express an opinion on whether the consolidated and unconsolidated f inancial information included in the annual report in accordance with the TCC and the Regulation, and analysis of the Board of Directors by using the information included in the audited consolidated and unconsolidated f inancial statements regarding the position of the Bank are consistent with the audited consolidated and unconsolidated f inancial statements of the Bank and the information obtained during the audit and give a true and fair view and form a report that includes this opinion. We conducted our audit in accordance with BRSA Auditing Regulation and Standards on Auditing issued by POA. Those standards require compliance with ethical requirements and planning of audit to obtain reasonable assurance on whether the consolidated and unconsolidated f inancial information included in the annual report and analysis of the Board of Directors by using the information included in the audited consolidated and unconsolidated f inancial statements regarding the position of the Bank are consistent with the consolidated and unconsolidated f inancial statements and the information obtained during the audit and provides a fair presentation.
15 A&T BANK ANNUAL REPORT 2021 There were no changes in the shareholding structure and paid-in capital of A&T Bank in 2021. No amendments were made to the Bank’s Articles of Association during the 2021 operating year. * Emek İnşaat ve İşletme A.Ş. has a 0.0000014% share of the paid-in capital with a value of TL 6.20. Shareholders* Paid-in Capital (TL Thousand) Libyan Foreign Bank 274,426 Türkiye İş Bankası A.Ş. 90,534 T.C. Ziraat Bankası A.Ş. 67,900 Kuwait Investment Company 7,140 440,000 Shareholding Structure and Paid-In Capital Amendments to the Articles of Association ON THE STRENGTH OF ITS SHAREHOLDERS, A&T BANK IS ACCELERATING ITS GROWTH. Insider Holdings Neither the Chairman nor Members of the Board of Directors, the General Manager, or Assistant General Managers hold any shares in A&T Bank. 62.37% 20.58% 15.43% 1.62% Libyan Foreign Bank Türkiye İş Bankası A.Ş. T.C. Ziraat Bankası A.Ş. Kuwait Investment Company
16 PART ONE: GENERAL INFORMATION Total Assets (TL Thousand) Total Guarantees and Suretyships (TL Thousand) Shareholders’ Equity (TL Thousand) Capital Adequacy (%) 5,995,076 866,788 4,957,994 1,052,917 5,576,326 1.152,814 9,706,492 1,334,796 A&T Bank’s total assets increased by 74.1% and exceeded TL 9.7 billion in 2021. A&T Bank’s shareholders’ equity amounted to TL 1,335 million in 2021, up 15.8% from the previous year. A&T Bank’s total guarantees and suretyships rose 47.2% compared to the previous year and reached TL 6.4 billion in 2021. As of the end of 2021, A&T Bank’s capital adequacy standard ratio is 25.63%. 47.2% Growth 74.1% 15.8% Growth Growth Financial Indicators IN 2021 A&T BANK MAINTAINED ITS STRONG FINANCIAL PERFORMANCE. ‘18 ‘18 ‘19 ‘19 ‘20 ‘20 ‘21 ‘21 17.97 21.53 27.64 25.63 ‘18 ‘19 ‘20 ‘21 3,945,427 4,068,221 4,341,516 6,392,159 ‘18 ‘19 ‘20 ‘21
17 A&T BANK ANNUAL REPORT 2021
18 PART ONE: GENERAL INFORMATION Assets At the end of 2021, the Bank’s total assets increased by 74.1% compared to the previous year and amounted to TL 9,706 million. In the period examined, the major items of the Bank’s placements consist of net financial assets amounting to TL 4,401 million with 45.3% share, and net financial assets as measured by the amortized cost of TL 4,925 million with 50.7% share. In 2021, these items registered an increase of TL 2,022 million and TL 2,019 million, respectively, compared to the previous year. Liabilities At the end of 2021, 13.8% and 86.2% of the Bank’s total liabilities comprise from shareholders’ equity and external resources, respectively. Deposits (TL 3,945 million) and funds borrowed (TL 4,254 million) comprise the majority of external resources. As of the end of 2021, deposits and funds borrowed increased by TL 1,090 million and TL 2,797 million, respectively, compared to the previous period. Similarly, shareholders’ equity increased by TL 182 million and exceeded TL 1,335 million. Change Assets (TL Thousand) 2020 Share (%) 2021 Share (%) Amount % Financial Assets (Net) 2,379,002 42.7 4,400,878 45.3 2,021,876 85.0 Financial Assets Measured at Amortized Cost (Net) 2,906,456 52.1 4,925,417 50.7 2,018,961 69.5 Assets Held for Sale Purpose and Related to Discontinued Operations (Net) 1,210 0.0 1,000 0.0 -210 -17.4 Equity Investments 116,204 2.1 126,202 1.3 9,998 8.6 Tangible Assets (Net) 143,086 2.6 207,657 2.1 64,571 45.1 Intangible Assets (Net) 3,978 0.1 3,744 0.0 -234 -5.9 Deferred Tax Assets 0 0.0 8,673 0.1 8,673 - Other Assets 26,390 0.5 32,921 0.3 6,531 24.7 Total Assets 5,576,326 100.0 9,706,492 100.0 4,130,166 74.1 Change Liabilities (TL Thousand) 2020 Share (%) 2021 Share (%) Amount % Deposits 2,854,698 51.2 3,944,658 40.6 1,089,960 38.2 Funds Borrowed 1,457,806 26.1 4,254,364 43.8 2,796,558 191.8 Lease Liabilities (Net) 7,369 0.1 6,220 0.1 -1,149 -15.6 Provisions 59,855 1.1 81,044 0.8 21,189 35.4 Current Tax Liability 9,877 0.2 22,418 0.2 12,541 127.0 Deferred Tax Liability 1,214 0.0 0 0.0 -1,214 -100.0 Shareholders’ Equity 1,152,814 20.7 1,334,796 13.8 181,982 15.8 Other Liabilities 32,693 0.6 62,992 0.6 30,299 92.7 Total Liabilities 5,576,326 100.0 9,706,492 100.0 4,130,166 74.1 Assessment of Financial Strength, Profitability and Debt Repayment Capacity
19 A&T BANK ANNUAL REPORT 2021 Off-Balance Sheet Items The Bank’s total off-balance sheet liabilities increased by 46.8% compared to the end of the previous year and reached TL 6,393 million at the end of 2021. Off-balance sheet liabilities consist almost entirely of guarantees and warranties. The balance of letters of guarantee, which is the most important off-balance sheet item, increased by 38.8% to TL 5,236 million in the period examined. Change Off-Balance Sheet Liabilities (TL Thousand) 2020 Share (%) 2021 Share (%) Amount % Guarantees and Warranties 4,341,516 99.7 6,392,159 100.0 2,050,643 47.2 Commitments 12,591 0.3 386 0.0 -12,205 -96.9 Derivative Financial Instruments 0 0.0 0 0.0 0 - Off-Balance Sheet Liabilities 4,354,107 100.0 6,392,545 100.0 2,038,438 46.8 Profitability In 2021 the Bank’s net interest income increased 51.8% to TL 331.7 million, and net fees and commissions income rose 27.8% to TL 68.2 million. Net operating profit increased 69.2% to TL 208.7 million while the Bank finished the 2021 operating year with a net term profit of TL 160.3 million. At end-2021, the Bank reported return on assets of 2.24% and return on equity of 13.94%. A&T Bank’s capital adequacy standard ratio, 25.63%, is above the minimum rate set out in the relevant legislation by virtue of the Bank’s strong capital structure, ability to tap external sources of funding and effective risk management implementation. Thus, the Bank is able to meet its liabilities by its liquidity. Change Income Statement (TL Thousand) 2020 2021 Amount % Interest Income 256,817 389,468 132,651 51.7 Interest Expense (-) 38,327 57,747 19,420 50.7 Net Interest Income 218,490 331,721 113,231 51.8 Net Fees and Commission Income 53,404 68,234 14,830 27.8 Dividend Income 8,031 10,039 2,008 25.0 Trading Income/Loss (Net) (+/-) 4,837 8,983 4,146 85.7 Other Operating Income 6,939 5,236 -1,703 -24.5 Gross Operating Income 291,701 424,213 132,512 45.4 Expected Credit Loss (-) 814 9,669 8,855 1,087.8 Other Provision Expenses (-) 16,319 21,959 5,640 34.6 Personnel Expense (-) 105,690 124,007 18,317 17.3 Other Operating Expenses (-) 45,551 59,900 14,349 31.5 Net Operating Income/Loss 123,327 208,678 85,351 69.2 Tax Provision (-) 26,752 48,342 21,590 80.7 Net Term Profit 96,575 160,336 63,761 66.0
20 PART ONE: GENERAL INFORMATION TL Thousand 2017 2018 2019 2020 2021 Total Assets 5,063,759 5,995,076 4,957,994 5,576,326 9,706,492 Marketable Securities Portfolio 747,879 873,415 822,059 1,945,144 3,465,268 Credits 2,015,436 2,000,092 1,730,243 1,724,581 2,661,837 Deposits 3,695,332 4,400,534 2,456,166 2,854,698 3,944,658 Funds Borrowed and Interbank Money Market 499,953 634,524 1,353,190 1,457,806 4,254,364 Shareholders’ Equity 785,384 866,788 1,052,917 1,152,814 1,334,796 Net Term Profit 80,268 100,978 166,427 96,575 160,336 Summary Financial Highlights for the Past Five Years Fitch Ratings, the international credit rating agency, reported in its rating report dated November 9, 2021 that, the Bank’s credit ratings are confirmed as follows: Rating Note FC Long Term FC B+ Short Term FC B TL Long Term TL B+ Short Term TL B Viability Rating B+ Support Note 5 National Long-Term National Note A (tur) Outlook Long Term FC Negative Long Term TL Negative Long National Term Note Negative Ratings of the Bank
21 A&T BANK ANNUAL REPORT 2021 Research and Development Implementations for New Services and Activities With a focus on generating quick and value-added solutions for its customers during the pandemic-dominated year of 2021, A&T Bank continued to deploy the opportunities created by digitalization to enhance operational efficiency and service efficacy. To this end, launching its Mobile Banking app during the operating year as a reflection of its innovativeness, the Bank added to its wide array of contact channels that allow its customers to access the banking services they need without having to visit a branch. As part of the Mobile Verification Renovation project that was also completed during the year, A&T Bank integrated the ID verification system, which was overhauled to enhance the customer experience, into the Mobile Banking app after the system was integrated with the Internet Banking. A&T Bank continued to support its service quality enhancement investments with other initiatives centered on the digitalization and automation of banking transactions and processes. The E-Letter of Guarantee project that was completed in 2021 moved the letter of guarantee processes to the digital environment, thereby saving time for the customers and enabling them to perform their commercial transactions securely. The Bank also accelerated the efforts to finalize the Debit Card project during the operating year. In the period ahead, A&T Bank will continue to increase its efficiency and make continuous information technology investments that will support its sustainable growth without deviating from its focus on customer and quality.
22 PART ONE: GENERAL INFORMATION Our Vision Our Mission To be the bank that is preferred most and does provide the best service in banking transactions between Türkiye and Africa & Middle East countries by ensuring sustainable and prof itable growth in the domestic market. To be a bank that • always keeps internal and external customer satisfaction at the highest level thanks to the reliable and high-quality service, • close to customers and easy to work with, • operates by taking ethical values and social responsibility awareness into consideration, • open to innovation and improvements, • takes sustainable growth into basis without compromising effective risk management and, • distinctly and continuously increase the value it adds to its customers, employees, shareholders and the economy.
23 A&T BANK ANNUAL REPORT 2021 Our Values Our priority in all of our operations and efforts is the satisfaction of our customers. For this purpose, we always offer honest, respectful, solution-oriented and cheerful service. Customer Oriented We value our employees and support their personal and professional development. We place emphasis on delegation and encourage our staff to take initiative. We believe that a fair performance management system is essential to increase efficiency. As being A&T Bank employees, we clearly and in a timely manner share the required information with the related third parties on the basis of transparency principles and we ensure the availability of information. Meanwhile, we encourage all of our staff to share their thoughts in a constructive and open manner in accordance with accepted banking practices. We establish confidence and loyalty among our customers, colleagues and business partners thanks to our experience, expertise and knowledge in banking services as well as our commitment to corporate values; whereas we keep our promises timely and completely without compromising prudence. We always question the way we do business with our customers and business partners and carry on efforts to make our business more efficient and more dynamic. Considering our clients’ expectations and necessities, we invest in technology and strive for increasing our service quality. We place emphasis on team spirit and believe that success can be achieved through cooperation, mutual trust and respect. Satisfaction of Employees Transparency Reliability Openness to Change Team Spirit
24 PART ONE: GENERAL INFORMATION Milestones SUPPORTING CUSTOMERS AT EVERY POINT WITH THE MOBILE BANKING 1975 2000-2005 2009 2008 1977 1980s 1997 The agreement to establish a joint bank between Libya and Türkiye was signed in Tripoli, Libya. The Turkish economy faced the most destructive twin financial crises of its history at the beginning of the 2000s. The number of banks in Türkiye decreased from 79 to 48 in this period. Thanks to its strong capital structure, effective management and the full support of its main shareholder, A&T Bank was not affected by this severe financial turmoil. In addition, by using its ability to access external sources and injecting them into the financial system, the Bank continued to fulfill its duty of supporting the economy, thereby successfully emerging from this very difficult period, while extending its sustainable growth trajectory. The Bank was restructured and reinvigorated, with new branches opening in Kayseri, Konya and Gaziantep in accordance with its strategy of leveraging and promoting closer ties between Turkish companies and their counterparts in the MENA Region. The new corporate name and rebranded identity were communicated to the public via a nationwide launch campaign. The Bank unveiled a new strategic plan to reposition itself in the Turkish banking industry. The Bank’s paid-in capital increased 485.4%, from TL 41 million to TL 240 million. Arab-Turkish Bank was founded within the framework of the 1975 agreement. A&T Bank became one of the first banks in Türkiye to perform international money-market transactions and foreign-exchange operations. It was also one of the few banks in the country to finance export transactions to North Africa and Middle East countries. The Bank’s subsidiary A&T Finansal Kiralama A.Ş. was established to carry out leasing operations.
25 A&T BANK ANNUAL REPORT 2021 2012 2019 2020 2018 2014 The Bank opened its seventh branch in Güneşli, Istanbul. Substantial progress was achieved in line with the target of sustainable and healthy growth. The Bank capped the year with a return on equity ratio of 16.58%, exceeding the industry average rate of 15.64%. A&T Bank maintained asset quality while implementing effective liquidity management in 2019. A&T Bank’s shareholders’ equity topped TL 1 billion while net profit reached a record TL 166.4 million during the year. The Bank also achieved a historic success story with a 19.16% return on equity, which is significantly higher than the industry average of 11.65%. In 2020, the fight against the Covid-19 pandemic was the top agenda item globally. A&T Bank took immediate measures to ensure the health and wellbeing of its customers and personnel as well as the continuity of its business processes and services. Thanks to its quick action, A&T Bank maintained all its operations without any interruption. Work on the Mobile Banking application was completed during the year. Despite the unprecedented market conditions and increased risks, A&T Bank closed the fiscal year 2020 with total assets of TL 5.6 billion and a net profit of TL 96.6 million. Having closed the year with sustainable and profitable growth, which is its primary strategic objective, A&T Bank boosted its total assets to TL 5.1 billion. The Bank posted a net profit for the period of TL 80.3 million and a return on equity of 12.87%. Despite severe fluctuations in macroeconomic indicators throughout the year, A&T Bank reached its financial performance targets in 2018. These solid results were achieved thanks to the effective liquidity and risk management policies that the Bank has adhered to since its founding. The Bank’s total assets rose 18% over the prior year to TL 6 billion, while net profit for the period was TL 101.0 million. A&T Bank’s Internet Branch became operational. At a time when the industry’s return on equity dropped to 12.23%, A&T Bank’s return on equity stood at 15.28%. 2021 The global economy in 2021 was dominated by pandemic-driven economic conditions globally, while fluctuations in financial markets were in the headlines in Türkiye. In this environment, A&T Bank continued to use the opportunities brought about by digitalization in enhancing operational efficiency and service efficacy. Launching the Mobile Banking app in early 2021, the Bank rolled out the Electronic Letter of Guarantee project in the second quarter of the year. In addition, the Banking Regulation and Supervision Agency expanded the Bank’s operating license to allow the provision of “debit card” services in the last quarter of the year. From a financial performance perspective, maintaining its asset quality and successfully continuing its effective risk and liquidity management in 2021, the Bank finished the year with TL 160.3 million in net term profit and 13.94% return on equity. 2017
26 PART ONE: GENERAL INFORMATION Esteemed Stakeholders, As uncertainties persist on the global economic activity, increasing inflation concerns fueled by rising energy and food prices continue to constitute a risk factor. While the COVID-19 pandemic continues to cast its shadow on the entire world, the spread of vaccination initiatives and the continuation of supportive policies led to economic recovery until the last quarter of 2021. As recovery morphed into strong growth in the global economy and trade, it strengthened the belief that the worst was behind us. However, the emergence of the Omicron variant in the last quarter put pressure on the global economy and trade volume while developments began negatively impacting the outlook of economic activity for the upcoming period. Further, rising demand, pandemic-driven supply chain disruptions and supply problems, and steep increases in energy and commodity prices pushed global inflation higher. As concerns beganmounting regarding the permanence of inflationary, which was once thought to be transitory, the central banks of developed countries began signaling their intent to end their loose monetary stance. As a matter of fact, the International Monetary Fund cited these risks when it lowered its 2021 global growth forecast to 5.9% in October, from its previous forecast of 6.0%. Türkiye managed to leave the impacts of the pandemic behind to a large extent. As one of the few economies to finish 2020, a year that will always be remembered with the challenges brought about by the pandemic, with positive growth, Türkiye is also projected to have successfully navigated the stress tests in 2021. The economy recorded a strong performance in the first three quarters of the year with respective growth rates of 7.4%, 22.0%, and 7.4%. While exports were the main driving force behind the positive growth performance, the recovery in domestic demand and tourism income were also major contributors. We announced solid f inancial results and increased our shareholders’ equity to TL 1.3 billion in 2021. TL 1.3 billion Shareholders’ Equity Message from the Chairman WE CONTINUED TO CONTRIBUTE TO TÜRKIYE’S ECONOMY WITH OUR OPERATIONS IN 2021.
27 A&T BANK ANNUAL REPORT 2021 The economy recorded a strong performance in the f irst three quarters of the year with respective growth rates of 7.4%, 22.0%, and 7.4%. “
28 PART ONE: GENERAL INFORMATION The IMF raised its 2021 growth forecast for Türkiye from 5.8% to 9% in the October issue of its World Economic Outlook Report. Türkiye’s economy is expected to record double-digit growth in 2021. Under these circumstances, the Turkish banking industry proved its resilience against risks thanks to its adequate capital structure while strongly supporting the economy in its quest against pandemic-driven challenging and volatile conditions. The banking system’s assets reached TL 9,213 billion at year-end 2021 with 50.9% growth on the previous year while net profit reached TL 92.1 billion and capital adequacy ratio stood at 18.34%. In addition to the strong financial results, the Turkish banking industry managed to extend its service diversity in the physical channels to the digital channels thanks to its continuous investments in recent years as part of the effort to increase access to its products and services. Türkiye’s banking sector will continue to be a major source of stability for the economy in the period ahead with its healthy and reliable outlook. A&T Bank is confidently marching toward its long-term strategic objectives with its resolute and prudent approach. During this period dominated by uncertainties at the global level, A&T Bank continued to operate with the mission of fulfilling its responsibilities for all stakeholders, contributing to Türkiye’s economy and supporting sustainable growth on the strength of its shareholders, employees and customers. The Bank ensured uninterrupted execution of value-oriented banking services and operations while remaining steadfast to its priority of protecting the health of employees, customers and the public at large since the onset of the pandemic. Our seven branches in five provinces did not confine their operations to their respective locations; they also offered their products and services to our customers to include the firms in neighboring provinces. As a result, continuous support was provided to both the country and the Bank. A&T Bank attained all of its financial targets despite the extraordinary circumstances during the operating year. The Bank’s assets and shareholders’ equity reached TL 9.7 billion and TL 1.3 billion, respectively. Our net term profit of TL 160.3 million served as another indicator verifying that we have not deviated from our sustainable growth path. Message from the Chairman A&T Bank continued to operate with the mission of fulf illing its responsibilities for all stakeholders, contributing to Türkiye’s economy and supporting sustainable growth on the strength of its shareholders, employees and customers.
29 A&T BANK ANNUAL REPORT 2021 A&T Bank continues to make technology-oriented investments geared toward rendering a flawless experience to its customers through the digital and innovative solutions it generates. The Mobile Banking project, which was initiated in 2020, was completed in short order with intensive efforts and the app was made available to our customers in early 2021. The Bank also completed the transitioning process to the Electronic Letter of Guarantee during the year, thereby enabling more secure and faster execution of letter of guarantee transactions. The preparations for the Debit Card project for our retail customers, including the legal and regulatory approvals, were completed during the year. With the “technology- and digitalization-oriented” services it develops and its effective customer relations approach, A&T Bank will continue to increase its value-added to its customers, which is the Bank’s primary driving force, and to support their growth. In the period ahead, we will also continue to be the “most reliable business partner” of Turkish companies conducting business in its traditional market of North Africa and to expand our sphere of influence in foreign trade transactions into new geographic regions. I wholeheartedly believe that A&T Bank will add to its value-added initiatives in 2022 and reach its goals for the future. I would like to take this opportunity to thank our customers and employees as well as our entire stakeholder community for their support and confidence. Respectfully yours, DR. ERTAN ALTIKULAÇ Chairman of the Board of Directors TL 9.7 billion Total assets We raised our total assets to TL 9.7 billion in 2021.
30 PART ONE: GENERAL INFORMATION Esteemed Stakeholders, The world economies ended 2021 with new uncertainties. We have left behind a year when the repercussions of the pandemic, which caused long periods of lockdowns and brought the economies to the brink of halt, continued albeit at a lessened pace. While economies nearly caught up to their performance potentials, growth and demand-driven challenges in raw material and product supply processes created difficulties in production and increased costs, particularly in the second half of the year. Coupled with rising energy and commodity prices, this led to higher inflation on a global scale. The new coronavirus variants caused increasing uncertainty alongside rising inflation. The heightened global risk perception in the last quarter of the year prompted the central banks to adopt a more cautious policy stance. Despite the slowdown caused by the pandemic, Türkiye successfully continued on its economic development path in 2021 aided by the ongoing widespread vaccination efforts. Reaching the performance that reflects its strength particularly in the second quarter, the Turkish economy opened the door for attaining a double-digit growth figure at the end of the year. Supporting policies, recovery in domestic demand, base-year effect, and rising export revenues played a major role in this strong rebound while the improvement in the current account balance became apparent by the end of the year. On the other hand, the inflation rate remained elevated throughout the year due to the rising cost of imports driven by global risks. Volatility in financial markets increased due to the shift away from tight monetary policy starting in September in favor of economic activity, production and employment. Türkiye’s economy possesses a significant potential for the post-pandemic period as a strategic market with its proximity to export markets, and its location as a production and global trade hub. We believe that the Turkish economy will overcome these fluctuations in short order. TL 160.3 million Net Term Profit Message from the General Manager WE ARE GROWING WITH OUR BUSINESS MODEL CENTERED ON SUSTAINABILITY AND EFFICIENCY. We raised our net term prof it to TL 160.3 million.
31 A&T BANK ANNUAL REPORT 2021 While continuing to support the economy, we managed to strengthen our robust capital structure and liquidity level in response to market fluctuations thanks to our effective risk and liquidity management. “
32 PART ONE: GENERAL INFORMATION Having proven its ability for strategic positioning and displaying the right reactions under any circumstance, the Turkish banking industry continued to serve as leverage for the Turkish economy to climb out of this cycle that we have experienced before. Acting in complete coordination with all regulatory authorities, the industry met the increasing needs for financing thanks to its robust capital position while maintaining its healthy asset quality. The Turkish banking industry passed the test of adapting to the new era with flying colors with its agile and proactive approach during the pandemic, which led to a rapid change in customer preferences and behavior. Türkiye’s banking sector is successfully progressing toward becoming a global model owing to its digital capabilities and customer-oriented service approach. As A&T Bank, we continue to grow while exceeding our targets. We started 2021 with the awareness of the challenges awaiting us as well as the confidence in our power to overcome them. The results reflected in our financial tables demonstrate that we finished this challenging year successfully owing to the increasing support from our main shareholder, dedicated efforts of our competent colleagues, and our dynamic and customer-oriented banking approach. Growing also in real terms during 2021, our assets grew 74.1% to TL 9.7 billion. Shareholders’ equity reached TL 1.3 billion with a 15.8% increase as our return on equity reached 13.94%. While continuing to support the economy, we managed to strengthen our robust capital structure and liquidity level in response to market fluctuations thanks to our effective risk and liquidity management. We finished 2021 with strong capital adequacy standard ratio of 25.63%. We maintained access to overseas resources while improving our asset quality during the year. As of end-2021, our net interest income stands at TL 331.7 million and our net fees and commissions income at TL 68.2 million. As a result, our net term profit rose 66.0% to TL 160.3 million from TL 96.6 million in 2020. We find these strong financial results important in terms of verifying that we continued to implement our principle of “profitable growth” effectively during the pandemic. In 2021 our branches continued to meet customer needs with our rich portfolio of products and services in their respective regions while remaining steadfast to risk management-oriented perspectives. While further strengthening the relationships with our existing clients in accordance with our “effective customer relations” approach, we also added new firms to our customer portfolio to the extent allowed by market conditions. Message from the General Manager We maintained access to overseas resources while improving our asset quality during the year. As of end-2021, our net interest income stands at TL 331.7 million and our net fees and commissions income at TL 68.2 million.
33 A&T BANK ANNUAL REPORT 2021 We increased the value we generate for our Libya-based customers, in accordance with the nature of the Bank’s shareholding structure, as well as our corporate and commercial clients. Corporate segment firms continued to account for a large share of total transactions in these segments. Armed with the awareness and responsibility of being a reliable bank at all times, in addition to our cash and noncash lending support, we always stood by our customers in the foreign trade transactions, on which we have been concentrating with a greater focus. We solidified our quality of being our customers’ solution partner, particularly with our growing activity in the North Africa region. Protecting the health and safety of our employees is more important than anything for A&T Bank. In accordance with this approach, we are continuing with the remote work model that we launched for mitigating the potential impacts of the pandemic on our stakeholders. Our Head Office units and branches, which achieved utmost adoption to this model, are managing the process in complete synergy. We raised our performance while remaining steadfast to our team spirit in the face of evolving processes and business conduct alongside the new normal. We maintained the level of meticulous service we render through our branches, particularly to the customers with whom we are in close and continuous communication. We continue to enhance the value we offer to our customers in light of technology and digitalization. As A&T Bank, we continued to improve our fast and solution-oriented banking capability uninterruptedly during the pandemic as a result of our steady investments in technology and digitalization. In line with the Bank’s policy and the expectations of our customers, we added our Mobile Banking application to our Internet Banking service in early 2021 in order to assert our digital presence with a louder voice. We carried out user-friendly screen improvements and infrastructure initiatives in both services continuously throughout the year in response to contemporary developments as well as customer feedback. We successfully completed the transition to the Electronic Letter of Guarantee, which is an industry-wide integration initiative. Expanding the scope of our services to retail customers during the year, we completed the groundwork for the Debit Card project in an attempt to capture a greater share in their cash flows and accelerated our efforts for moving to the subsequent steps in the project. As part of other projects that we have been undertaking in light of technology and digitalization, we carried out operational efficiency-driven efforts to revise our business processes during the year. We continue to make progress toward our longterm strategic goals. Ensuring the continuity of customer satisfaction in every segment we serve will continue to constitute the core of A&T Bank’s development in 2022 and beyond. In an effort to render the best banking experience to our customers, we will increase our digitalization-oriented investments in service channels in line with customer demands, preferences and feedback. We believe that we will continue to be the preferred bank of the customers in our portfolio thanks to our effective customer communication approach. Thanks to the synergy we created with our main shareholder Libyan Foreign Bank and its subsidiaries, we will also prioritize expanding our presence to new regions with new projects and growing our share in foreign trade transactions in the period ahead. I sincerely thank our employees for shouldering our success during this challenging period and our shareholders, customers and all stakeholders for supporting us under all circumstances. Respectfully yours, WAIL J. A. BELGASEM General Manager
34 PART ONE: GENERAL INFORMATION GLOBAL ECONOMY The crisis set off by the COVID-19 pandemic was followed by recovery as vaccination efforts gained ground while global inflation began rising. The economic agenda of the developed countries were dominated by the Brexit process, protectionist actions in global foreign trade, and a relatively low propensity to invest before the COVID-19 pandemic. We have witnessed an optimistic and modest recovery in the global economy in 2021. As the economies reopened in 2021, the global economy registered rapid growth. In the second half of 2021, growth began losing momentum across the world led by the United States and China while the European economy positively decoupled with its relatively strong growth. The most important impetus behind this recovery was rising mass immunity and widespread vaccination. Recovery was slower in regions with lower vaccine access or vaccination rates. As the COVID-19 pandemic continues to cast a shadow on production, supply challenges in certain critical industrial products continue to have a negative impact on the global economy. Supply shortages in semiconductors, major inputs particularly in electronics and automotive industries, depress the production volume of the global economy. Furthermore, intermittent restrictions in global transportation activities due to the COVID-19 pandemic cause disruptions in the supply chains. In addition, inflation remained elevated due to the expansionary monetary policies of developed country central banks as well as expanding global trade. Disruptions faced by suppliers and the logistics industry, and rising commodity and energy prices are also pushing global inflation higher. The developed country central banks maintained their expansionary monetary policies and liquidity supports as a result of the resumption of the rising trend in global coronavirus cases in the third quarter, despite a dip in cases in the second quarter of the year. On the other hand, emerging market central banks began to tighten their monetary policies in an attempt to stop the inflationary impacts of globally rising commodity prices. Inflation, which has become a relatively more relevant problem globally, had a more imminent effect on the developing countries through the global capital flows channel. The International Monetary Fund (IMF) is forecasting a 4.8% inflation rate for the global economy in 2021 but projects inflation to fall to 3.4% in 2022. The financial support packages, provided in addition to the expansionary monetary policies of the Federal Reserve and the European Central Bank (ECB), partially mitigated the adverse effects of the pandemic. To this end, the World Trade Organization (WTO) raised its global trade growth forecast from 8% to 10.8% for 2021 while projecting a 4.7% growth in global trade for 2022. 2021 Performance of the Global Economy and Türkiye’s Economy GLOBAL ECONOMIC GROWTH ACCELERATED AS VACCINATION BECAME WIDESPREAD.
35 A&T BANK ANNUAL REPORT 2021 As a result of this rapid expansion in global trade, the global economy continued to recover strongly after contracting in 2020. In the October edition of its World Economic Outlook Report, the IMF lowered its 2021 growth forecast by 0.1 percentage points to 5.9% while leaving its 2022 growth forecast unchanged at 4.9%. The revision for 2021 reflects in part a drop for industrialized economies due to the supply chain problems, but mostly a reduction for lower-income developing nations due to the deteriorating pandemic dynamics. The Organization for Economic Co-operation and Development (OECD), in the November edition of its Economic Outlook Report, revised its global growth forecast by 0.1 percentage points to 5.6% in 2021 and 4.5% in 2022. The OECD stated that the main risk for the global economic outlook is an elevated inflation rate for an extended period and a higher inflation rate than current expectations. The Fed maintained its policy rate in the 0%-0.25% interval during 2021. On the other hand, the Fed started tapering in its asset purchase program and announced its intention to raise rates three times in 2022. The other developed country central banks are also expected to follow the Fed in 2022. As the global pandemic continues, the risks to financial stability have been contained so far. However, developments regarding the pandemic, climate change and digital currencies will be closely monitored in the period ahead.
36 PART ONE: GENERAL INFORMATION 2021 Performance of the Global Economy and Türkiye’s Economy The CBT’s interest rate cuts during the year helped the strong performance of exports. TÜRKİYE’S ECONOMY Türkiye’s economy registered a strong growth performance due to the lessening of the impacts of the pandemic and rising domestic consumption. The Turkish economy grew 22.0% in the second quarter of 2021 due to the basis effect stemming from the restrictions in the previous year. After growing 7.4% in the first quarter of 2021, the economy was boosted by accelerating domestic consumption and investments in the second quarter. Türkiye’s economy grew 7.4% in the third quarter of 2021 compared to the same period of the previous year. As a result, the Turkish economy recorded an 11.7% growth performance in the first nine months of 2021. Türkiye reinstituted restrictions in the second quarter of 2021 in response to the resumption of the speed of the pandemic’s spread. These restrictions were loosened soon after the end of the quarter as the restrictions bore fruit quickly. Growth continued in the third quarter of 2021 aided by exports and consumer spending. Tourism came to a near-complete halt both in Türkiye and globally due to the pandemic. The positive outlook on economic activity was boosted greatly by the resumption of recovery in this sector with the start of the summer season. The global low-interest environment increased the demand for housing worldwide as home prices reached historically high levels. However, these rapid increases raised apartment rental prices in Türkiye and led to declining home sales. In the first quarter of 2021, the Central Bank of Türkiye (CBT) raised its policy rate by 200 basis points to 19% due to inflation expectations and the impacts of the falling value of the Turkish lira. However, the CBT lowered its policy rate by 500 basis points between September and December to 14%. The consumer price inflation ended in 2021 at 36.08% as a result of the developments in the value of the lira, cumulative costs, and global commodity prices. While the CBT’s aggressive rate cuts resulted in a lower real value of the Turkish lira, exports have a strong performance in 2021 thanks to the recovery in the developed economies. Türkiye’s Medium-Term Program (MTP) covering the period between 2022 and 2024 is projecting the continuation of strong growth. The Program is forecasting 5% growth in 2022 and 5.5% growth in 2023 after 9% growth in 2021. The Program is projecting the inflation rate to decline to 9.8% in 2022, 8% in 2023 and 7.6% in 2024. It is worth mentioning that the 5% inflation target is excluded from the Program for the first time for the years covered by the Program. The ratio of the current account deficit to the GDP is projected to fall to 2.6% in 2021, 2.2% in 2022 and 1.5% in 2023. The ratio of the budget deficit to the GDP is forecasted to decline to 1.8% in 2021, 1.2% in 2022 and 0.6% in 2023. The expected moves by the developed country central banks to reduce their asset purchases in the period ahead bring about the possibility of tightening global financial conditions. This constitutes a channel for growing concerns in the financial markets to impact the real economy. Further, the course of new COVID-19 variants and possible deterioration in the value of the Turkish lira can also increase inflationary pressures.
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